10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016

OR

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

For the transition period from ____________ to ___________

Commission File Number 1-12031

UNIVERSAL DISPLAY CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania	23-2372688
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
375 Phillips Boulevard, Ewing, New Jersey	08618
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (609) 671-0980

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

Indicate by check mark whether the registrant has submitted electronically 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  ☒    No  ☐

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. (Check one):

Large accelerated filer	☒		Accelerated filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☐

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

As of November 2, 2016, the registrant had outstanding 46,969,098 shares of common stock.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets – September 30, 2016 and December 31, 2015	1
Consolidated Statements of Operations - Three and nine months ended September 30, 2016 and 2015	2
Consolidated Statements of Comprehensive Income (Loss) – Three and nine months ended September 30, 2016 and 2015	3
Consolidated Statement of Shareholders' Equity – Nine months ended September 30, 2016	4
Consolidated Statements of Cash Flows – Nine months ended September 30, 2016 and 2015	5
Notes to Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk	33
Item 4. Controls and Procedures	33
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	34
Item 1A. Risk Factors	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3. Defaults Upon Senior Securities	36
Item 4. Mine Safety Disclosures	36
Item 5. Other Information	36
Item 6. Exhibits	37

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)

	September 30, 2016			December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	54,416		$	97,513
Short-term investments		231,452			297,981
Accounts receivable		22,476			24,729
Inventory		16,103			12,748
Deferred income taxes		10,084			12,326
Other current assets		7,499			2,387
Total current assets		342,030			447,684
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $30,899    and $27,897		25,768			22,407
ACQUIRED TECHNOLOGY, net of accumulated amortization of $65,565 and $54,837		157,276			72,015
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $311 and none		16,139			—
GOODWILL		15,548			—
INVESTMENTS		15,217			2,187
DEFERRED INCOME TAXES		12,352			14,945
OTHER ASSETS		423			174
TOTAL ASSETS	$	584,753		$	559,412
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	5,544		$	6,849
Accrued expenses		13,190			17,387
Deferred revenue		10,211			10,107
Other current liabilities		1,672			167
Total current liabilities		30,617			34,510
DEFERRED REVENUE		33,454			35,543
RETIREMENT PLAN BENEFIT LIABILITY		24,865			22,594
Total liabilities		88,936			92,647
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS’ EQUITY:
Preferred Stock, par value $0.01 per share, 5,000,000 shares authorized, 200,000    shares of Series A Nonconvertible Preferred Stock issued and outstanding    (liquidation value of $7.50 per share or $1,500)		2			2
Common Stock, par value $0.01 per share, 100,000,000 shares authorized, 48,314,591    and 48,132,223 shares issued, and 46,956,728 and 46,774,360  shares outstanding at    September 30, 2016 and December 31, 2015, respectively		483			482
Additional paid-in capital		596,453			589,885
Accumulated deficit		(51,376	)		(73,627	)
Accumulated other comprehensive loss		(9,587	)		(9,819	)
Treasury stock, at cost (1,357,863 shares at September 30, 2016 and December 31,    2015)		(40,158	)		(40,158	)
Total shareholders’ equity		495,817			466,765
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	584,753		$	559,412

The accompanying notes are an integral part of these consolidated financial statements.

1

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
REVENUE:
Material sales	$	23,465		$	34,128		$	70,084		$	85,270
Royalty and license fees		5,209			5,224			52,569			43,332
Technology development and support revenue		1,540			67			1,656			132
Total revenue		30,214			39,419			124,309			128,734
OPERATING EXPENSES:
Cost of material sales		6,458			7,246			17,194			54,913
Research and development		10,118			11,434			31,562			32,000
Selling, general and administrative		8,465			7,224			22,728			20,487
Patent costs and amortization of acquired technology    and other intangible assets		7,361			4,032			15,515			12,461
Royalty and license expense		815			1,105			3,656			3,563
Total operating expenses		33,217			31,041			90,655			123,424
Operating (loss) income		(3,003	)		8,378			33,654			5,310
INTEREST INCOME		573			232			1,565			593
INTEREST EXPENSE		(5	)		(7	)		(21	)		(31	)
OTHER (EXPENSE) INCOME		(68	)		(16	)		(1,982	)		342
INCOME (LOSS) BEFORE INCOME TAXES		(2,503	)		8,587			33,216			6,214
INCOME TAX BENEFIT (EXPENSE)		1,003			(1,540	)		(10,965	)		(9,624	)
NET INCOME (LOSS)	$	(1,500	)	$	7,047		$	22,251		$	(3,410	)
NET INCOME (LOSS) PER COMMON SHARE:
BASIC	$	(0.03	)	$	0.15		$	0.47		$	(0.07	)
DILUTED	$	(0.03	)	$	0.15		$	0.47		$	(0.07	)
WEIGHTED AVERAGE SHARES USED IN COMPUTING NET    INCOME (LOSS) PER COMMON SHARE:
BASIC		46,947,621			46,542,556			46,889,913			46,241,578
DILUTED		46,947,621			46,723,373			47,015,262			46,241,578

The accompanying notes are an integral part of these consolidated financial statements.

2

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
NET INCOME (LOSS)	$	(1,500	)	$	7,047		$	22,251		$	(3,410	)
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gain (loss) on available-for-sale securities, net    of tax of $92, $2, $139 and $(6), respectively		(171	)		(5	)		(256	)		(9	)
Employee benefit plan:
Actuarial gain (loss), net of tax of $(5), none, $195, and    none, respectively		(5	)		—			(358	)		—
Amortization of prior service cost and actuarial loss for    retirement plan included in net periodic pension costs,    net of tax of $141, $157, $443 and $401, respectively		278			279			814			713
Net change for employee benefit plan		273			279			456			713
Change in cumulative foreign currency translation    adjustment		12			—			32			—
TOTAL OTHER COMPREHENSIVE INCOME		114			274			232			704
COMPREHENSIVE INCOME (LOSS)	$	(1,386	)	$	7,321		$	22,483		$	(2,706	)

The accompanying notes are an integral part of these consolidated financial statements.

3

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except for share data)

	Series A Nonconvertible										Additional						Accumulated Other								Total
	Preferred Stock				Common Stock						Paid-in			Accumulated			Comprehensive			Treasury Stock					Shareholders’
	Shares		Amount		Shares			Amount			Capital			Deficit			Loss			Shares		Amount			Equity
BALANCE, DECEMBER 31, 2015		200,000	$	2		48,132,223		$	482		$	589,885		$	(73,627	)	$	(9,819	)		1,357,863	$	(40,158	)	$	466,765
Net income		—		—		—			—			—			22,251			—			—		—			22,251
Other comprehensive income		—		—		—			—			—						232			—		—			232
Exercise of common stock options		—		—		12,500			—			182			—			—			—		—			182
Issuance of common stock to    employees		—		—		219,173			2			9,243			—			—			—		—			9,245
Shares withheld for employee taxes						(91,659	)		(1	)		(4,839	)													(4,840	)
Issuance of common stock to Board    of Directors and Scientific    Advisory Board		—		—		35,546			—			1,570			—			—			—		—			1,570
Issuance of common stock to    employees under an ESPP		—		—		6,808			—			412			—			—			—		—			412
BALANCE, SEPTEMBER 30, 2016		200,000	$	2		48,314,591		$	483		$	596,453		$	(51,376	)	$	(9,587	)		1,357,863	$	(40,158	)	$	495,817

The accompanying notes are an integral part of these consolidated financial statements.

4

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Nine Months Ended September 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	22,251		$	(3,410	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of deferred revenue		(5,281	)		(7,031	)
Depreciation		3,002			2,223
Amortization of intangibles		11,039			8,249
Inventory write-down		—			33,000
Amortization of premium and discount on investments, net		(1,316	)		(479	)
Stock-based compensation to employees		8,231			6,759
Stock-based compensation to Board of Directors and Scientific Advisory Board		1,273			818
Deferred income tax benefit		4,726			4,291
Retirement plan benefit expense		3,004			2,433
Decrease (increase) in assets, net of effect of acquisition:
Accounts receivable		3,723			(6,275	)
Inventory		(3,249	)		(9,579	)
Other current assets		(4,977	)		(167	)
Other assets		(249	)		193
Increase (decrease) in liabilities, net of effect of acquisition:
Accounts payable and accrued expenses		(5,134	)		1,192
Other current liabilities		(5	)		(7	)
Deferred revenue		3,296			48,411
Net cash provided by operating activities		40,334			80,621
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(4,361	)		(4,650	)
Purchase of intangibles		(95,989	)		—
Purchase of business, net of cash acquired		(33,163	)		—
Purchases of investments		(380,260	)		(453,672	)
Proceeds from sale of investments		434,683			425,660
Net cash used in investing activities		(79,090	)		(32,662	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		317			263
Proceeds from the exercise of common stock options		182			1,629
Payment of withholding taxes related to stock-based compensation to employees		(4,840	)		(5,313	)
Net cash used in financing activities		(4,341	)		(3,421	)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(43,097	)		44,538
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		97,513			45,418
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	54,416		$	89,956
The following non-cash activities occurred:
Unrealized loss on available-for-sale securities	$	256		$	9
Common stock issued to Board of Directors and Scientific Advisory Board that was    earned and accrued for in a previous period		300			300
Common stock issued to employees that was earned and accrued for in a previous period		1,105			967
Net change in accounts payable and accrued expenses related to purchases of property    and equipment		133			(858	)
Earnout liability recorded for Adesis acquisition		1,510			—

The accompanying notes are an integral part of these consolidated financial statements.

5

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BUSINESS:

Universal Display Corporation (the Company) is a leader in the research, development and commercialization of organic light emitting diode (OLED) technologies and materials. OLEDs are thin, lightweight and power-efficient solid-state devices that emit light, making them highly suitable for use in full-color displays and as lighting products. OLED displays are capturing a growing share of the display market. The Company believes this is because OLEDs offer potential advantages over competing display technologies with respect to power efficiency, contrast ratio, viewing angle, video response time, form factor and manufacturing cost. The Company also believes that OLED lighting products have the potential to replace many existing light sources in the future because of their high power efficiency, excellent color rendering index, low operating temperature and novel form factor. The Company's technology leadership and intellectual property position should enable it to share in the revenues from OLED displays and lighting products as they enter mainstream consumer and other markets.

The Company's primary business strategy is to (1) further develop and license its proprietary OLED technologies to manufacturers of products for display applications, such as mobile phones, televisions, tablets, wearables, portable media devices, notebook computers, personal computers, and automotive interiors, and specialty and general lighting products; and (2) develop new OLED materials and sell existing and any new materials to those product manufacturers. The Company has established a significant portfolio of proprietary OLED technologies and materials, primarily through internal research and development efforts and acquisitions of patents and patent applications, as well as maintaining its relationships with world-class partners such as Princeton University (Princeton), the University of Southern California (USC), the University of Michigan (Michigan) and PPG Industries, Inc. (PPG Industries). The Company currently owns, exclusively licenses or has the sole right to sublicense more than 4,200 patents issued and pending worldwide.

The Company sells its proprietary OLED materials to customers for evaluation and use in commercial OLED products. The Company also enters into agreements with manufacturers of OLED display and lighting products under which it grants them licenses to practice under its patents and to use the Company's proprietary know-how. At the same time, the Company works with these and other companies who are evaluating the Company's OLED technologies and materials for possible use in commercial OLED display and lighting products.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position as of September 30, 2016 and results of operations for the three and nine months ended September 30, 2016 and 2015, and cash flows for the nine months ended September 30, 2016 and 2015. While management believes that the disclosures presented are adequate to make the information not misleading, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s latest year-end financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for the full year.

Principles of Consolidation

The consolidated financial statements include the accounts of Universal Display Corporation and its wholly owned subsidiaries, UDC, Inc., UDC Ireland Limited, Universal Display Corporation Hong Kong, Limited, Universal Display Corporation Korea, Y.H., Universal Display Corporation Japan GK, Universal Display Corporation China, Ltd. and Adesis, Inc. (Adesis). All intercompany transactions and accounts have been eliminated.

Business Combinations

Accounting for acquisitions requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent

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consideration, where applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, adjustments may be recorded to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statement of operations.

Management’s Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates made are principally in the areas of revenue recognition for license agreements, the useful life of acquired intangibles, the use and recoverability of inventories, intangibles and income taxes including realization of deferred tax assets, stock-based compensation and retirement benefit plan liabilities. Actual results could differ from those estimates.

Inventories

Inventories consist of raw materials, work-in-process and finished goods, including inventory consigned to customers, and are stated at the lower of cost, determined on a first-in, first-out basis, or market. Inventory valuation and firm committed purchase order assessments are performed on a quarterly basis and those items that are identified to be obsolete or in excess of forecasted usage are written down to their estimated realizable value. Estimates of realizable value are based upon management’s analyses and assumptions, including, but not limited to, forecasted sales levels by product, expected product lifecycle, product development plans and future demand requirements. A 12-month rolling forecast based on factors, including, but not limited to, production cycles, anticipated product orders, marketing forecasts, backlog, and shipment activities is used in the inventory analysis. If market conditions are less favorable than forecasts or actual demand from customers is lower than estimates, additional inventory write-downs may be required. If demand is higher than expected, inventories that had previously been written down may be sold.

Certain of the Company’s customers have assumed the responsibility for maintaining the Company's inventory at their location based on the customers' demand forecast. Notwithstanding the fact that the Company builds and ships the inventory, the customer does not purchase the consigned inventory until the inventory is drawn or pulled by the customer to be used in the manufacture of the customer’s product. Though the consigned inventory may be at the customer’s physical location, it remains inventory owned by the Company until the inventory is drawn or pulled, which is the time at which the sale takes place.

Fair Value of Financial Instruments

The carrying values of accounts receivable, other current assets, and accounts payable approximate fair value in the accompanying financial statements due to the short-term nature of those instruments. The Company’s other financial instruments, which include cash equivalents and investments, are carried at fair value.

Revenue Recognition and Deferred Revenue

Material sales relate to the Company’s sale of its OLED materials for incorporation into its customers’ commercial OLED products or for their OLED development and evaluation activities. Material sales are recognized at the time title passes, which is typically at the time of shipment or at the time of delivery, depending upon the contractual agreement between the parties.

The Company receives license and royalty payments under certain commercial, development and technology evaluation agreements, some of which are non-refundable. These payments may include royalty and license fees made pursuant to license agreements and certain commercial supply agreements. Amounts received are deferred and classified as either current or non-current deferred revenue based upon current contractual remaining terms; however, based upon on-going relationships with customers, as well as future agreement extensions and other factors, amounts classified as current as of September 30, 2016 may not be recognized as revenue over the next twelve months. For arrangements with extended payment terms where the fee is not fixed and determinable, the Company recognizes revenue when the payment is due and payable. Royalty revenue and license fees included as part of commercial supply agreements are recognized when earned and the amount is fixed and determinable. If the Company used different estimates for the useful life of the licensed technology, or if fees are fixed and determinable, reported revenue during the relevant period would differ.

Technology development and support revenue is revenue earned from government contracts, development and technology evaluation agreements and commercialization assistance fees, which includes reimbursements by government entities for all or a

7

portion of the research and development costs the Company incurs in relation to its government contracts. Revenues are recognized proportionally as research and development costs are incurred, or as defined milestones are achieved.

Currently, the Company's most significant commercial license agreement, which runs through the end of 2017, is with Samsung Display Co., Ltd. (SDC) and covers the manufacture and sale of specified OLED display products. Under this agreement, the Company is being paid a license fee, payable in semi-annual installments over the agreement term of 6.4 years. The installments, which are due in the second and fourth quarter of each year, increase on an annual basis over the term of the agreement. The agreement conveys to SDC the non-exclusive right to use certain of the Company's intellectual property assets for a limited period of time that is less than the estimated life of the assets. Ratable recognition of revenue is impacted by the agreement's extended increasing payment terms in light of the Company's limited history with similar agreements. As a result, revenue is recognized at the lesser of the proportional performance approach (ratable) and the amount of due and payable fees from SDC. Given the increasing contractual payment schedule, license fees under the agreement are recognized as revenue when they become due and payable, which is currently scheduled to be in the second and fourth quarter of each year.

In 2015, the Company entered into an OLED patent license agreement and an OLED commercial supply agreement with LG Display Co., Ltd. (LG Display) which were effective as of January 1, 2015 and superseded the 2007 commercial supply agreement between the parties. The new agreements have a term that is set to expire by the end of 2022. The patent license agreement provides LG Display a non-exclusive, royalty bearing portfolio license to make and sell OLED displays under the Company's patent portfolio. The patent license calls for license fees, prepaid royalties and running royalties on licensed products. The prepaid royalty amount is included in deferred revenue and a portion of this amount can be credited against total royalties due over the life of the contract. The agreements include customary provisions relating to warranties, indemnities, confidentiality, assignability and business terms. The agreements provide for certain other minimum obligations relating to the volume of material sales anticipated over the term of the agreements, as well as minimum royalty revenue to be generated under the patent license agreement. The Company expects to generate revenue under these agreements that are predominantly tied to LG Display’s sales of OLED licensed products. The OLED commercial supply agreement provides for the sale of materials for use by LG Display, which may include phosphorescent dopants and host materials.

The Company records taxes billed to customers and remitted to various governmental entities on a gross basis in both revenues and cost of material sales in the consolidated statements of operations. The amounts of these pass through taxes reflected in revenues and cost of material sales were $74,000 and $143,000 for the three and nine months ended September 30, 2016, respectively, and $230,000 and $1.1 million for the three and nine months ended September 30, 2015, respectively.

Cost of Material Sales

Cost of material sales consists of labor and material costs associated with the production of materials processed at the Company's manufacturing partners and at the Company's internal manufacturing processing facility. The Company’s portion of cost of material sales also includes depreciation of manufacturing equipment, as well as manufacturing overhead costs and inventory adjustments for excess and obsolete inventory.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued a new revenue recognition standard entitled Revenue from Contracts with Customers. The objective of the standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows from a contract with a customer. The standard is effective for annual reporting periods beginning after December 15, 2017. Earlier adoption as of the original date is optional; however, the Company will adopt the standard beginning January 1, 2018. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. The Company is currently assessing which method it will choose for adoption, and is evaluating the impact of the adoption of this new accounting standard on its consolidated results of operations and financial position.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which requires an entity that uses the first-in first-out method for inventory to report inventory cost at the lower of cost or net realizable value versus the current measurement principle of lower of cost or market. The ASU requires prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the effect that ASU 2015-11 may have on its consolidated financial statements and related disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, which requires the classification of all deferred tax assets and liabilities as noncurrent. The standard is effective for annual reporting periods beginning

8

after December 15, 2016. The standard allows for either “prospective” adoption, meaning the standard is applied to the most current period presented in the financial statements or “full retrospective” adoption, meaning the standard is applied to all periods presented. Earlier adoption is permitted. The Company is evaluating the effect that ASU 2015-17 may have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Accounting. The objective of the standard is to simplify the accounting and related disclosures associated with employee share-based accounting. The standard is effective for annual reporting periods beginning after December 15, 2016. The ASU requires prospective adoption, meaning the standard is applied to the most current period presented in the financial statements. Earlier adoption is permitted. The Company is evaluating the effect that ASU 2016-09 may have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The objective of the standard is to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The ASU provides additional clarification guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017 with early adoption permitted. The Company is evaluating the effect that ASU 2016-15 may have on its consolidated financial statements and related disclosures.

3. BUSINESS COMBINATIONS:

On June 23, 2016, the Company entered into an agreement to acquire Adesis, a privately held contract research organization (CRO) with 43 employees specializing in organic and organometallic synthetic research, development, and commercialization. Adesis is a technology vendor to companies in the pharmaceutical, fine chemical, biomaterials, and catalyst industries, and has worked with the Company over the last few years to help advance and accelerate a number of the Company’s product offerings. The transaction closed on July 11, 2016. Under the terms of the agreement, the Company’s subsidiary, UDC, Inc., acquired all outstanding shares of Adesis in a merger for $33.7 million in cash, and up to an additional $2.4 million in cash contingent upon Adesis’ achievement of certain milestones within two years of the acquisition. The acquisition was funded through use of existing cash and investments.

Preliminary Purchase Price Allocation

The Company accounted for Adesis using the acquisition method of accounting in accordance with applicable U.S. GAAP whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on respective fair values. The contingent consideration arrangement requires the Company to pay up to $1.2 million of additional consideration to the former shareholders of Adesis if revenues exceed certain threshold levels at the end of each twelve-month period ending December 31, 2016 and December 31, 2017. The fair value of the contingent consideration was derived using a Monte Carlo simulation model based on management’s projections of future revenue levels. The following table summarizes the values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Cash consideration	$	33,655
Contingent consideration		1,510
	$	35,165
Allocation of purchase price:
Current assets, including cash of $492	$	2,204
Property and equipment		1,869
Accounts payable and accrued liabilities		(906	)
Net tangible assets		3,167
Identifiable intangible assets		16,450
Goodwill		15,548
Total purchase price	$	35,165

The purchase price exceeded the fair value of the net tangible assets and identifiable intangible assets acquired and, as a result, the Company recorded goodwill in connection with this transaction. This difference includes a going concern element that represents the Company’s ability to earn a higher rate of return on this group of assets than would be expected on the separate assets as determined during the valuation process.

Transaction costs of $360,000 for the three month and nine month periods ended September 30, 2016 were recorded and charged to selling, general and administrative expense on the accompanying consolidated statements of operations.

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Intangible Assets Identified

The following table presents the intangible assets identified in the transaction:

Category	Estimated fair value (in thousands)		Estimated useful life (in years)
Customer relationships		10,130		9.5
Internally-developed IP, processes and recipes		4,820		15.0
Trade name/Trademarks		1,500		10.0
Total identifiable intangible assets	$	16,450

The preliminary fair value of the customer relationships asset was determined using the income approach through an excess earnings analysis which estimates value based on the present value of future economic benefits. The customer relationships intangible asset represents relationships between Adesis and its customers. The fair value of the internally-developed IP, processes and recipes was determined by utilizing the relief-from-royalty methodology. The preliminary fair value of the Adesis trade name asset was determined using the income approach through a relief-from-royalty analysis. The determination of useful lives was based upon consideration of market participant assumptions and transaction specific factors.

Impact on Operating Results

The results of Adesis’ operations have been included in the Company’s consolidated financial statements since the July 11, 2016 date of acquisition. The following unaudited pro forma information assumes the acquisition of Adesis occurred at the beginning of the respective periods presented (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
Unaudited Pro Forma Information	2016			2015		2016		2015
Revenue	$	30,347		$	40,698	$	127,970	$	133,319
Net income		(2,241	)		5,903		19,821		(1,752	)

The unaudited pro forma information presented is for illustrative purposes only and does not reflect future events that may occur after September 30, 2016 or any operating efficiencies or inefficiencies that may result from the Adesis acquisition. Additionally, this unaudited pro forma information includes certain one-time costs associated with the Company’s integration of the acquired Adesis operations. Therefore, the information is not necessarily indicative of the results that would have been achieved had the business been combined during the periods presented or the results that the Company will experience going forward.

4. CASH, CASH EQUIVALENTS AND INVESTMENTS:

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company classifies its remaining investments as available-for-sale. These securities are carried at fair market value, with unrealized gains and losses reported in shareholders’ equity. Gains or losses on securities sold are based on the specific identification method. Investments as of September 30, 2016 and December 31, 2015 consisted of the following (in thousands):

	Amortized		Unrealized					AggregateFair
Investment Classification	Cost		Gains		(Losses)			Market Value
September 30, 2016
Certificates of deposit	$	6,855	$	7	$	(2	)	$	6,860
Corporate bonds		224,376		—		(247	)		224,129
U.S. Government bonds		15,999		—		(319	)		15,680
	$	247,230	$	7	$	(568	)	$	246,669
December 31, 2015
Certificates of deposit	$	11,532	$	3	$	(14	)	$	11,521
Corporate bonds		233,848		—		(139	)		233,709
U.S. Government bonds		54,953		1		(16	)		54,938
	$	300,333	$	4	$	(169	)	$	300,168

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5. INVENTORY:

Inventory consisted of the following (in thousands):

	September 30, 2016		December 31, 2015
Raw materials	$	6,538	$	6,539
Work-in-process		1,281		1,064
Finished goods		8,284		5,145
Inventory	$	16,103	$	12,748

6. FAIR VALUE MEASUREMENTS:

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2016 (in thousands):

			Fair Value Measurements, Using
	Total carrying value as of September 30, 2016		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Cash equivalents	$	28,072	$	28,072	$	—	$	—
Short-term investments		231,452		231,452		—		—
Long-term investments		15,217		15,217		—		—

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2015 (in thousands):

			Fair Value Measurements, Using
	Total carrying value as of December 31, 2015		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Cash equivalents	$	34,980	$	34,980	$	—	$	—
Short-term investments		297,981		297,981		—		—
Long-term investments		2,187		2,187		—		—

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on management’s own assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s classification is determined based on the lowest level input that is significant to the fair value measurement.

Changes in fair value of the investments are recorded as unrealized gains and losses in other comprehensive income. If a decline in fair value of an investment is deemed to be other than temporary, the cost of the Company’s investment will be written down by the amount of the other-than-temporary impairment with a resulting charge to net income. There were no other-than-temporary impairments of investments as of September 30, 2016 or December 31, 2015.

7. RESEARCH AND LICENSE AGREEMENTS WITH PRINCETON UNIVERSITY, UNIVERSITY OF SOUTHERN CALIFORNIA AND THE UNIVERSITY OF MICHIGAN:

The Company funded OLED technology research at Princeton University and, on a subcontractor basis, at the University of Southern California for 10 years under a Research Agreement executed with Princeton University in August 1997 (the 1997 Research Agreement). The principal investigator conducting work under the 1997 Research Agreement transferred to the University of Michigan in January 2006. Following this transfer, the 1997 Research Agreement was allowed to expire on July 31, 2007.

As a result of the transfer, the Company entered into a new Sponsored Research Agreement with the University of Southern California to sponsor OLED technology research and, on a subcontractor basis, with the University of Michigan. This new Sponsored Research Agreement (as amended, the 2006 Research Agreement) was effective as of May 1, 2006 and had an original term of three years. On May 1, 2009, the Company amended the 2006 Research Agreement to extend the term of the agreement for an additional four years. The 2006 Research Agreement superseded the 1997 Research Agreement with respect to all work being performed at the

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University of Southern California and the University of Michigan. Payments under the 2006 Research Agreement were made to the University of Southern California on a quarterly basis as actual expenses were incurred. The Company incurred a total of $5.0 million in research and development expense for work performed under the 2006 Research Agreement during the extended term, which ended on April 30, 2013.

Effective June 1, 2013, the Company amended the 2006 Research Agreement again to extend the term of the agreement for an additional four years. As of September 30, 2016, the Company was obligated to pay the University of Southern California up to $1.8 million for work to be actually performed during the remaining extended term, which expires April 30, 2017. From June 1, 2013 through September 30, 2016, the Company incurred $3.7 million in research and development expense for work performed under the 2006 Research Agreement.

On October 9, 1997, the Company, Princeton University and the University of Southern California entered into an Amended License Agreement (as amended, the 1997 Amended License Agreement) under which Princeton University and the University of Southern California granted the Company worldwide, exclusive license rights, with rights to sublicense, to make, have made, use, lease and/or sell products and to practice processes based on patent applications and issued patents arising out of work performed by Princeton University and the University of Southern California under the 1997 Research Agreement. Under this 1997 Amended License Agreement, the Company is required to pay Princeton University royalties for licensed products sold by the Company or its sublicensees. For licensed products sold by the Company, the Company is required to pay Princeton University 3% of the net sales price of these products. For licensed products sold by the Company’s sublicensees, the Company is required to pay Princeton 3% of the revenues received by the Company from these sublicensees. These royalty rates are subject to renegotiation for products not reasonably conceivable as arising out of the 1997 Research Agreement if Princeton University reasonably determines that the royalty rates payable with respect to these products are not fair and competitive.

The Company is obligated, under the 1997 Amended License Agreement, to pay to Princeton University minimum annual royalties. The minimum royalty payment is $100,000 per year. The Company recorded royalty expense in connection with this agreement of $853,000 and $1.1 million for the three months ended September 30, 2016 and 2015, respectively, and $3.7 million and $3.6 million for the nine months ended September 30, 2016 and 2015, respectively.

The Company also is required, under the 1997 Amended License Agreement, to use commercially reasonable efforts to bring the licensed OLED technology to market. However, this requirement is deemed satisfied if the Company invests a minimum of $800,000 per year in research, development, commercialization or patenting efforts respecting the patent rights licensed to the Company.

In connection with entering into the 2006 Research Agreement, the Company amended the 1997 Amended License Agreement to include the University of Michigan as a party to that agreement effective as of January 1, 2006. Under this amendment, Princeton University, the University of Southern California and the University of Michigan have granted the Company a worldwide exclusive license, with rights to sublicense, to make, have made, use, lease and/or sell products and to practice processes based on patent applications and issued patents arising out of work performed under the 2006 Research Agreement. The financial terms of the 1997 Amended License Agreement were not impacted by this amendment.

8. GOODWILL AND INTANGIBLE ASSETS:

The Company monitors the recoverability of goodwill annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Purchased intangible assets subject to amortization consist primarily of acquired technology and other intangible assets that include trade names, customer relationships and internally developed IP processes.

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Acquired Technology

Acquired technology consists of acquired license rights for patents and know-how obtained from PD-LD, Inc., Motorola, BASF SE (BASF) and Fujifilm. These intangible assets consist of the following (in thousands):

	September 30, 2016
PD-LD, Inc.	$	1,481
Motorola		15,909
BASF		95,989
Fujifilm		109,462
		222,841
Less: Accumulated amortization		(65,565	)
Acquired technology, net	$	157,276

Amortization expense related to acquired technology was $5.1 million and $2.7 million for the three months ended September 30, 2016 and 2015, respectively, and $10.7 million and $8.2 million for the nine months ended September 30, 2016 and 2015, respectively. Amortization expense is included in the patent costs and amortization of acquired technology expense line item on the Consolidated Statements of Operations and is expected to be $15.9 million in 2016 and $20.6 million for each of the five subsequent fiscal years.

Motorola Patent Acquisition

In 2000, the Company entered into a royalty-bearing license agreement with Motorola whereby Motorola granted the Company perpetual license rights to what are now 74 issued U.S. patents relating to Motorola’s OLED technologies, together with foreign counterparts in various countries. These patents will all expire in the U.S. by 2018.

On March 9, 2011, the Company purchased these patents from Motorola, including all existing and future claims and causes of action for any infringement of the patents, pursuant to a Patent Purchase Agreement. The Patent Purchase Agreement effectively terminated the Company’s license agreement with Motorola, including any obligation to make royalty payments to Motorola. The technology acquired from Motorola is being amortized over a period of 7.5 years.

Fujifilm Patent Acquisition

On July 23, 2012, the Company entered into a Patent Sale Agreement with Fujifilm. Under the agreement, Fujifilm sold more than 1,200 OLED-related patents and patent applications in exchange for a cash payment of $105.0 million, plus costs incurred in connection with the purchase. The agreement contains customary representations and warranties and covenants, including respective covenants not to sue by both parties thereto. The agreement permitted the Company to assign all of its rights and obligations under the agreement to its affiliates, and the Company assigned, prior to the consummation of the transactions contemplated by the agreement, its rights and obligations to UDC Ireland Limited (UDC Ireland), a wholly-owned subsidiary of the Company formed under the laws of the Republic of Ireland. The transactions contemplated by the agreement were consummated on July 26, 2012. The Company recorded the $105.0 million plus $4.5 million of purchase costs as acquired technology, which is being amortized over a period of 10 years.

BASF Patent Acquisition

On June 28, 2016, UDC Ireland entered into and consummated an IP Transfer Agreement with BASF. Under the IP Transfer Agreement, BASF sold to UDC Ireland all of its rights, title and interest to certain of its owned and co-owned intellectual property rights relating to the composition of, development, manufacture and use of OLED materials, including OLED lighting and display stack technology, as well as certain tangible assets. The intellectual property includes knowhow and more than 500 issued and pending patents in the area of phosphorescent materials and technologies. These assets were acquired in exchange for a cash payment of €86.8 million ($95.8 million). In addition, UDC Ireland also took on certain rights and obligations under three joint research and development agreements to which BASF was a party. The IP Transfer Agreement also contains customary representations, warranties and covenants of the parties. UDC Ireland recorded the payment of €86.8 million ($95.8 million) and acquisition costs incurred of $217,000 as acquired technology which is being amortized over a period of 10 years.

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Other Intangible Assets

As a result of the Adesis acquisition, the Company recorded $16.5 million of other intangible assets, including $10.1 million assigned to customer relationships with a weighted average life of 9.5 years, $4.8 million of internally developed IP, processes and recipes with a weighted average life of 15 years, and $1.5 million assigned to trade name and trademarks with a weighted average life of 10 years.

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	10,130	$	(216	)	$	9,914
Internally-developed IP, processes and recipes		4,820		(65	)		4,755
Trade name/Trademarks		1,500		(30	)		1,470
Total identifiable intangible assets	$	16,450	$	(311	)	$	16,139

Amortization expense related to other intangible assets was $311,000 for the three months and nine months ended September 30, 2016. Amortization expense is included in the patent costs and amortization of acquired technology expense line item on the Consolidated Statements of Operations and is expected to be $699,000 in 2016 and $1.5 million for each of the five subsequent fiscal years.

9. EQUITY AND CASH COMPENSATION UNDER THE PPG AGREEMENTS:

On September 22, 2011, the Company entered into an Amended and Restated OLED Materials Supply and Service Agreement with PPG Industries (the New OLED Materials Agreement), which replaced the original OLED Materials Agreement with PPG Industries effective as of October 1, 2011. The term of the New OLED Materials Agreement ran through December 31, 2015 and shall be automatically renewed for additional one year terms, unless terminated by the Company by providing prior notice of one year or terminated by PPG by providing prior notice of two years. The agreement was automatically renewed through December 31, 2017. The New OLED Materials Agreement contains provisions that are substantially similar to those of the original OLED Materials Agreement. Under the New OLED Materials Agreement, PPG Industries continues to assist the Company in developing its proprietary OLED materials and supplying the Company with those materials for evaluation purposes and for resale to its customers.

Under the New OLED Materials Agreement, the Company compensates PPG Industries on a cost-plus basis for the services provided during each calendar quarter. The Company is required to pay for some of these services in all cash. Up to 50% of the remaining services are payable, at the Company’s sole discretion, in cash or shares of the Company’s common stock, with the balance payable in cash. The actual number of shares of common stock issuable to PPG Industries is determined based on the average closing price for the Company’s common stock during a specified number of days prior to the end of each calendar half-year period ending on March 31 and September 30. If, however, this average closing price is less than $20.00, the Company is required to compensate PPG Industries in cash. No shares were issued for services to PPG for the three or nine months ended September 30, 2016 or 2015.

The Company is also to reimburse PPG Industries for raw materials used for research and development. The Company records the purchases of these raw materials as a current asset until such materials are used for research and development efforts.

The Company recorded research and development expense of $395,000 and $2.7 million for the three months ended September 30, 2016 and 2015, respectively, and $2.3 million and $5.7 million for the nine months ended September 30, 2016 and 2015, respectively, in relation to the cash portion of the reimbursement of expenses and work performed by PPG Industries, excluding amounts paid for commercial chemicals.

10. SHAREHOLDERS’ EQUITY:

Common and Preferred Stock

The Company is authorized to issue 100 million shares of $0.01 par value common stock and 5 million shares of $0.01 par value preferred stock. Each share of the Company’s common stock entitles the holder to one vote on all matters to be voted upon by the shareholders. As of September 30, 2016, the Company had issued 48,314,591 shares of common stock of which 46,956,728 were outstanding and had issued 200,000 shares of preferred stock, all of which were outstanding.

Scientific Advisory Board and Employee Awards

During the first quarters of 2016 and 2015, the Company granted a total of 27,967 and 35,205 shares, respectively, of fully vested common stock to employees and non-employee members of the Scientific Advisory Board for services performed in 2015 and

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2014, respectively. The fair value of the shares issued was $1.1 million and $967,000, respectively, for shares issued to employees and $300,000 for both quarters for shares issued to members of the Scientific Advisory Board, which amounts were accrued at December 31, 2015 and 2014, respectively. In connection with the issuance of these grants, 8,106 and 9,565 shares, with fair values of $410,000 and $346,000, were withheld in satisfaction of employee tax withholding obligations in 2016 and 2015, respectively.

11. ACCUMULATED OTHER COMPREHENSIVE LOSS:

Amounts related to the changes in accumulated other comprehensive loss were as follows (in thousands):

	Unrealized gain (loss) on available-for-sale- securities			Net unrealized gain (loss) on retirement plan (2)			Change in cumulative foreign currency translation adjustment		Total			Affected line items in the consolidated statements of operations
Balance December 31, 2015, net of tax	$	(111	)	$	(9,708	)	$	—	$	(9,819	)
Other comprehensive gain (loss)    before reclassification		(256	)		—			32		(224	)
Actuarial gain (loss)		—			(358	)		—		(358	)
Reclassification to net income (1)		—			814			—		814		Selling, general and administrative, research and development, and cost of material sales
Change during period		(256	)		456			32		232
Balance September 30, 2016, net of tax	$	(367	)	$	(9,252	)	$	32	$	(9,587	)

	Unrealized gain (loss) on available-for-sale- securities			Net unrealized gain (loss) on retirement plan (2)			Change in cumulative foreign currency translation adjustment		Total			Affected line items in the consolidated statements of operations
Balance December 31 2014, net of tax	$	(28	)	$	(4,354	)	$	—	$	(4,382	)
Other comprehensive gain (loss)    before reclassification		(9	)		—			—		(9	)
Actuarial gain (loss)		—			—			—		—
Reclassification to net income (1)		—			713			—		713		Selling, general and administrative, research and development
Change during period		(9	)		713			—		704
Balance September 30 2015, net of tax	$	(37	)	$	(3,641	)	$	—	$	(3,678	)

(1) The Company reclassified amortization of prior service cost and actuarial loss for its retirement plan from accumulated other comprehensive loss to net income (loss) of $814,000 and $713,000 for the nine months ended September 30, 2016 and 2015, respectively.

(2) Refer to Note 13: Supplemental Executive Retirement Plan.

12. STOCK-BASED COMPENSATION:

The Company recognizes in the statements of operations the grant-date fair value of equity based awards, such as shares issued under employee stock purchase plans, restricted stock awards, restricted stock units and performance unit awards issued to employees and directors.

The grant-date fair value of stock awards is based on the closing price of the stock on the date of grant. The fair value of share-based awards is recognized as compensation expense on a straight-line basis over the requisite service period, net of forfeitures. The Company issues new shares upon the respective grant, exercise or vesting of share-based payment awards, as applicable.

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Performance unit awards are subject to either a performance-based or market-based vesting requirement. For performance-based vesting, the grant-date fair value of the award, based on fair value of the Company's common stock, is recognized over the service period based on an assessment of the likelihood that the applicable performance goals will be achieved, and compensation expense is periodically adjusted based on actual and expected performance. Compensation expense for performance unit awards with market-based vesting is calculated based on the estimated fair value as of the grant date utilizing a Monte Carlo simulation model and is recognized over the service period on a straight-line basis.

Equity Compensation Plan

The Equity Compensation Plan provides for the granting of incentive and nonqualified stock options, shares of common stock, stock appreciation rights and performance units to employees, directors and consultants of the Company. Stock options are exercisable over periods determined by the Compensation Committee, but for no longer than 10 years from the grant date. Through September 30, 2016, the Company’s shareholders have approved increases in the number of shares reserved for issuance under the Equity Compensation Plan to 10,500,000, and have extended the term of the plan through 2024. As of September 30, 2016, there were 2,620,187 shares that remained available to be granted under the Equity Compensation Plan.

Stock Awards

Restricted Stock Awards and Units

The Company has issued restricted stock awards and units to employees and non-employees with vesting terms of one to six years. The fair value is equal to the market price of the Company’s common stock on the date of grant for awards granted to employees and equal to the market price at the end of the reporting period for unvested non-employee awards or upon the date of vesting for vested non-employee awards. Expense for restricted stock awards and units is amortized ratably over the vesting period for the awards issued to employees and using a graded vesting method for the awards issued to non-employees.

During the nine months ended September 30, 2016, the Company granted 137,720 shares of restricted stock awards and restricted stock units to employees and non-employees, which had a total fair value of $8.5 million on the respective dates of grant, and will vest over three to five years from the date of grant, provided that the grantee is still an employee of the Company or is still providing services to the Company on the applicable vesting date.

For the three months ended September 30, 2016 and 2015, the Company recorded, as compensation charges related to all restricted stock awards and units to employees and non-employees, selling, general and administrative expense of $1.9 million for both periods, research and development expense of $376,000 and $492,000, respectively, and cost of material sales of $94,000 and $4,600, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded, as compensation charges related to all restricted stock awards and units, selling, general and administrative expense of $5.3 million and $4.4 million, respectively, research and development expense of $1.4 for both periods, and cost of material sales of $352,000 and $11,000, respectively.

In connection with the vesting of restricted stock awards and units during the nine months ended September 30, 2016 and 2015, 83,553 and 98,635 shares, with aggregate fair values of $4.4 million and $4.2  million, respectively, were withheld in satisfaction of tax withholding obligations.

For the three months ended September 30, 2016 and 2015, the Company recorded as compensation charges related to all restricted stock units to non-employee members of the Scientific Advisory Board, research and development expense of $10,000 and a credit of $51,000, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded as compensation charges related to all restricted stock units to non-employee members of the Scientific Advisory Board, research and development expense of $174,000  and $223,000, respectively.

Board of Directors Compensation

The Company has granted restricted stock units to non-employee members of the Board of Directors with quarterly vesting over a period of approximately one year. The fair value is equal to the market price of the Company's common stock on the date of grant. The restricted stock units are issued and expense is recognized ratably over the vesting period. For the three months ended September 30, 2016 and 2015, the Company recorded compensation charges for services performed, related to all restricted stock units granted to non-employee members of the Board of Directors, selling, general and administrative expense of $369,000 and $210,000, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded compensation charges for services performed, related to all restricted stock units granted to non-employee members of the Board of Directors, selling, general and administrative expense of $1.1

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million and $595,000, respectively. In connection with the vesting of the restricted stock, the Company issued 22,500 and 21,667 shares, during the nine months ended September 30, 2016 and 2015, respectively, to non-employee members of the Board of Directors.

Performance Unit Awards

During the nine months ended September 30, 2016, the Company granted 25,045 performance units, of which 12,520 are subject to a performance-based vesting requirement and 12,525 are subject to a market-based vesting requirement and will vest over the terms described below. Total fair value of the performance unit awards granted was $1.5 million on the date of grant.

Each performance unit award is subject to both a performance-vesting requirement (either performance-based or market-based) and a service-vesting requirement.

The performance-based vesting requirement is tied to the Company's cumulative revenue growth compared to the cumulative revenue growth of companies comprising the Nasdaq Electronics Components Index, as measured over a specific performance period. The market-based vesting requirement is tied to the Company's total shareholder return relative to the total shareholder return of companies comprising the Nasdaq Electronics Components Index, as measured over a specific performance period.

The maximum number of performance units that may vest based on performance is two times the shares granted. Further, if the Company's total shareholder return is negative, the performance units may not vest at all.

For the three months ended September 30, 2016 and 2015, the Company recorded general and administrative expense of $281,000 and $219,000, respectively, research and development expense of $78,000 and $58,000, respectively, and cost of material sales of $29,000 and none, respectively, related to performance units. For the nine months ended September 30, 2016 and 2015, the Company recorded general and administrative expense of $836,000 and $723,000, respectively, research and development expense of $232,000 and $200,000, and cost of material sales of $85,000 and none, respectively, related to performance units.

In connection with the vesting of performance units during the nine months ended September 30, 2016 and 2015, none and 16,071 shares with an aggregate fair value of none and $752,000, respectively, were withheld in satisfaction of tax withholding obligations.

Employee Stock Purchase Plan

On April 7, 2009, the Board of Directors of the Company adopted an Employee Stock Purchase Plan (ESPP). The ESPP was approved by the Company’s shareholders and became effective on June 25, 2009. The Company has reserved 1,000,000 shares of common stock for issuance under the ESPP. Unless sooner terminated by the Board of Directors, the ESPP will expire when all reserved shares have been issued.

Eligible employees may elect to contribute to the ESPP through payroll deductions during consecutive three-month purchase periods. Each employee who elects to participate will be deemed to have been granted an option to purchase shares of the Company’s common stock on the first day of the purchase period. Unless the employee opts out during the purchase period, the option will automatically be exercised on the last day of the period, which is the purchase date, based on the employee’s accumulated contributions to the ESPP. The purchase price will equal 85% of the lesser of the closing price per share of common stock on the first day of the period or the last business day of the period.

Employees may allocate up to 10% of their base compensation to purchase shares of common stock under the ESPP; however, each employee may purchase no more than 12,500 shares on a given purchase date, and no employee may purchase more than $25,000 of common stock under the ESPP during a given calendar year.

During the nine months ended September 30, 2016 and 2015, the Company issued 6,808 and 9,044 shares, respectively, of its common stock under the ESPP, resulting in proceeds of $318,000 and $263,000, respectively.

For the three months ended September 30, 2016 and 2015, the Company recorded charges of $10,000 and $9,000, respectively, to selling, general and administrative expense, $17,000 and $12,000, respectively, to research and development expense, and $4,000 and $2,000, to cost of material sales, respectively, related to the ESPP equal to the amount of the discount and the value of the look-back feature.

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For the nine months ended September 30, 2016 and 2015, the Company recorded charges of $31,000 and $26,000, respectively, to selling, general and administrative expense, $51,000 and $39,000, respectively, to research and development expense, and $12,000 and $6,000, to cost of material sales, related to the ESPP equal to the amount of the discount and the value of the look-back feature.

13. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN:

On March 18, 2010, the Compensation Committee and the Board of Directors of the Company approved and adopted the Universal Display Corporation Supplemental Executive Retirement Plan (SERP), effective as of April 1, 2010. On March 3, 2015, the Compensation Committee and the Board of Directors amended the SERP to include salary and bonus as part of the plan. Prior to this amendment, the SERP benefit did not take into account any bonuses. This change increased the liability related to the SERP. The purpose of the SERP, which is unfunded, is to provide certain of the Company’s key employees with supplemental retirement benefits following a cessation of their employment and to encourage their continued employment with the Company. As of September 30, 2016 there were six participants in the SERP.

The Company records amounts relating to the SERP based on calculations that incorporate various actuarial and other assumptions, including discount rates, rate of compensation increases, retirement dates and life expectancies. The net periodic costs are recognized as employees render the services necessary to earn the SERP benefits.

The components of net periodic pension cost were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Service cost	$	354	$	319	$	1,062	$	867
Interest cost		219		166		656		452
Amortization of prior service cost		415		436		1,245		1,114
Amortization of loss		3		—		11		—
Total net periodic benefit cost	$	991	$	921	$	2,974	$	2,433

14. COMMITMENTS AND CONTINGENCIES:

Commitments

Under the 2006 Research Agreement with USC, the Company is obligated to make certain payments to USC based on work performed by USC under that agreement, and by Michigan under its subcontractor agreement with USC. See Note 7 for further explanation.

Under the terms of the 1997 Amended License Agreement, the Company is required to make minimum royalty payments to Princeton. See Note 7 for further explanation.

The Company has agreements with seven executive officers which provide for certain cash and other benefits upon termination of employment of the officer in connection with a change in control of the Company. If the executive’s employment is terminated in connection with the change in control, the executive is entitled to a lump-sum cash payment equal to two times the sum of the average annual base salary and bonus of the officer and immediate vesting of all stock options and other equity awards that may be outstanding at the date of the change in control, among other items.

In order to manage manufacturing lead times and help ensure adequate material supply, the Company entered into a New OLED Materials Agreement (see Note 9) that will allow PPG Industries to procure and produce inventory based upon criteria as defined by the Company. These purchase commitments consist of firm, noncancelable and unconditional commitments. In certain instances, this agreement allows the Company the option to reschedule and adjust the Company’s requirements based on its business needs prior to firm orders being placed. As of September 30, 2016 and December 31, 2015, the Company had purchase commitments for inventory of $5.7 million and $9.0 million, respectively.

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Patent Related Challenges and Oppositions

Each major jurisdiction in the world that issues patents provides both third parties and applicants an opportunity to seek a further review of an issued patent. The process for requesting and considering such reviews is specific to the jurisdiction that issued the patent in question, and generally does not provide for claims of monetary damages or a review of specific claims of infringement. The conclusions made by the reviewing administrative bodies tend to be appealable and generally are limited in scope and applicability to the specific claims and jurisdiction in question.

The Company believes that opposition proceedings are frequently commenced in the ordinary course of business by third parties who may believe that one or more claims in a patent do not comply with the technical or legal requirements of the specific jurisdiction in which the patent was issued. The Company views these proceedings as reflective of its goal of obtaining the broadest legally permissible patent coverage permitted in each jurisdiction. Once a proceeding is initiated, as a general matter, the issued patent continues to be presumed valid until the jurisdiction’s applicable administrative body issues a final non-appealable decision. Depending on the jurisdiction, the outcome of these proceedings could include affirmation, denial or modification of some or all of the originally issued claims. The Company believes that as OLED technology becomes more established and its patent portfolio increases in size, so will the number of these proceedings.

Below are summaries of certain active proceedings that have been commenced against issued patents that are either exclusively licensed to the Company or which are now assigned to the Company. The Company does not believe that the confirmation, loss or modification of the Company’s rights in any individual claim or set of claims that are the subject of the following legal proceedings would have a material impact on the Company’s materials sales or licensing business or on the Company’s consolidated financial statements, including its consolidated statements of income, as a whole. However, as noted within the descriptions, some of the following proceedings involve issued patents that relate to the Company’s fundamental phosphorescent OLED technologies and the Company intends to vigorously defend against claims that, in the Company’s opinion, seek to restrict or reduce the scope of the originally issued claim, which may require the expenditure of significant amounts of the Company’s resources. In certain circumstances, when permitted, the Company may also utilize the proceedings to request modification of the claims to better distinguish the patented invention from any newly identified prior art and/or improve the claim scope of the patent relative to commercially important categories of the invention. The entries marked with an "*" relate to the Company’s UniversalPHOLED phosphorescent OLED technology, some of which may be commercialized by the Company.

Opposition to European Patent No. 1394870*

On April 20, 2010, Merck Patent GmbH; BASF Schweitz AG of Basel, Switzerland; Osram GmbH of Munich, Germany; Siemens Aktiengesellschaft of Munich, Germany; and Koninklijke Philips Electronics N.V., of Eindhoven, The Netherlands filed Notices of Opposition to European Patent No.1394870 (the EP '870 patent). The EP '870 patent, which was issued on July 22, 2009, is a European counterpart patent, in part, to U.S. patents 6,303,238; 6,579,632; 6,872,477; 7,279,235; 7,279,237; 7,488,542; 7,563,519; and 7,901,795; and to pending U.S. patent application 13/035,051, filed on February 25, 2011 (hereinafter the “U.S. '238 Patent Family”). They are exclusively licensed to the Company by Princeton, and the Company is required to pay all legal costs and fees associated with this proceeding.

An Oral Hearing was held before an EPO panel of first instance in Munich, Germany, on April 8-9, 2014. The panel rejected the original claims and amended the claims to comply with EPO requirements by more narrowly defining the scope of the claims. The '870 patent, in its amended form, was held by the panel to comply with the EPO requirements.

The Company believes the EPO's decision relating to the broad original claims is erroneous and has appealed the ruling to reinstate a broader set of claims. This patent, as originally granted by the EPO, is deemed valid during the pendency of the appeals process.

At this time, based on the Company’s current knowledge, the Company believes that the patent being challenged should be declared valid and that all or a significant portion of the Company’s claims should be upheld. However, the Company cannot make any assurances of this result.

Invalidation Trial in Japan for Japan Patent No. 4511024*

On June 16, 2011, the Company learned that a Request for an Invalidation Trial was filed in Japan by Semiconductor Energy Laboratory, Co., Ltd. for its Japanese Patent No. JP-4511024 (the JP '024 patent), which issued on May 14, 2010. The JP '024 patent is a counterpart patent, in part, to the U.S. '238 Patent Family, which relate to the EP '870 patent, which is subject to one of the above-noted European oppositions and which relates to the Company’s UniversalPHOLED phosphorescent OLED technology. They are exclusively licensed to the Company by Princeton, and the Company is required to pay all legal costs and fees associated with this proceeding.

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On May 10, 2012, the Company learned that the JPO issued a decision upholding the validity of certain claimed inventions in the JP '024 Patent but invalidating the broadest claims in the patent. The Company appealed the JPO’s decision to the Japanese IP High Court. On October 31, 2013, the Japanese IP High Court ruled that the prior art references relied on by the JPO did not support the JPO’s findings, reversed the JPO’s decision with respect to the previously invalidated broad claims in the JP ‘024 patent and remanded the matter back to the JPO for further consideration consistent with its decision. The JPO subsequently issued a decision upholding the validity of certain claimed inventions in the JP '024 Patent but invalidating the broadest claims in the patent. The Company appealed the decision to reinstate a broader set of claims but the IP High Court declined to reinstate the broader set of claims. The Company appealed the IP High Court's decision to the Japanese Supreme Court for reconsideration of the legal basis of the IP High Court's decision. This patent, as originally granted by the JPO, is deemed valid during the pendency of the appeals process.

Although the Company cannot provide any assurances as to the possible outcome of future appellate proceedings which the Company may elect to pursue, if any, the patent is expected to be maintained at least with respect to the narrower set of claims which were not the subject of the IP High Court's invalidation ruling.

Opposition to European Patent No. 1390962

On November 16, 2011, Osram AG and BASF SE each filed a Notice of Opposition to European Patent No. 1390962 (EP '962 patent), which relates to the Company’s white phosphorescent OLED technology. The EP '962 patent, which was issued on February 16, 2011, is a European counterpart patent to U.S. patents 7,009,338 and 7,285,907. They are exclusively licensed to the Company by Princeton, and the Company is required to pay all legal costs and fees associated with this proceeding.

The EPO combined the oppositions into a single opposition proceeding, and a hearing on this matter was held in December 2015, wherein the EPO Opposition Division revoked the patent claims for alleged insufficiencies under EPC Article 83. The Company believes the EPO's decision relating to the original claims is erroneous, and has appealed the decision. The patent, as originally granted, is deemed valid during the pendency of the appeals process.

At this time, based on its current knowledge, the Company believes that the patent being challenged should be declared valid, and that all or a significant portion of the Company's claims should be upheld. However, the Company cannot make any assurances of this result.

Opposition to European Patent No. 1933395*

On February 24 and 27, 2012, Sumitomo, Merck Patent GmbH and BASF SE filed oppositions to the Company's European Patent No. 1933395 (the EP '395 patent). The EP ‘395 patent is a counterpart to the EP ‘637 patent, and, in part, to U.S. Patents 7,001,536, 6,902,830, and 6,830,828, and to JP patents 4358168 and 4357781. This patent is exclusively licensed to the Company by Princeton, and the Company is required to pay all legal costs and fees associated with this proceeding.

At an Oral Hearing on October 14, 2013, the EPO panel issued a decision that affirmed the basic invention and broad patent coverage in the EP '395 patent, but narrowed the scope of the original claims.

On February 26, 2014, the Company appealed the ruling to reinstate a broader set of claims. The patent, as originally granted by the EPO, is deemed to be valid during the pendency of an appeals process. Two of the three opponents also filed their own appeals of the ruling. In January 2015, Sumitomo withdrew its opposition of the '395 patent, and the EPO accepted the withdrawal notice. The appeal proceedings were held in the second quarter of 2016. As a result of the proceedings, the board concluded the oral proceedings and proposed to reinstate a broader set of claims pending the resolution of a remaining question of the applicable law, a question that the board has deferred to the Enlarged Board of Appeals for review. The originally-granted claims remain in force during the pendency of this process.

In addition to the above proceedings and now-concluded proceedings which have been referenced in prior filings, from time to time, the Company may have other proceedings that are pending which relate to patents the Company acquired as part of the Fujifilm patent or BASF OLED patent acquisitions or which relate to technologies that are not currently widely utilized in the marketplace.

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15. CONCENTRATION OF RISK:

Included in technology development and support revenue in the accompanying statement of operations is $32,000 and $67,000 for the three months ended September 30, 2016 and 2015, respectively, and $148,000 and $110,000 for the nine months ended September 30, 2016 and 2015, respectively, of revenue which was derived from contracts with United States government agencies. Revenues derived from contracts with United States government agencies represented less than 1% of the consolidated revenue for all periods presented.

Revenues and accounts receivable from the Company's largest customers were as follows (in thousands):

	% of Revenues for the three months ended September 30,				% of Revenues for the nine months ended September 30,				Accounts Receivable as of
Customer	2016		2015		2016		2015		September 30, 2016
A		45%		48%		33%		29%	$	10,262
B		36%		39%		57%		56%	$	6,117
C		7%		2%		5%		1%	$	3,235

Revenues from outside of North America represented approximately 95% and 99% of the consolidated revenue for the three months ended September 30, 2016 and 2015, respectively, and 98% and 99% of the consolidated revenue for the nine months ended September 30, 2016 and 2015, respectively. Revenues by geographic area are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Country	2016		2015		2016		2015
South Korea	$	24,852	$	34,514	$	111,994	$	110,547
China		2,095		843		5,663		1,523
Japan		1,230		3,274		3,334		13,931
Other non-U.S. locations		396		523		1,416		1,726
Total non-U.S. locations	$	28,573	$	39,154	$	122,407	$	127,727
United States		1,641		265		1,902		1,007
Total revenue	$	30,214	$	39,419	$	124,309	$	128,734

The Company attributes revenue to different geographic areas on the basis of the location of the customer.

Long-lived assets (net), by geographic area are as follows (in thousands):

	September 30, 2016		December 31, 2015
United States	$	25,621	$	22,187
Other		147		220
Total long-lived assets	$	25,768	$	22,407

Substantially all chemical materials were purchased from one supplier. See Note 9.

16. INCOME TAXES:

The Company is subject to income taxes in both United States and foreign jurisdictions. The effective income tax rate for the three and nine months ended September 30, 2016 was a benefit of 40.1% and an expense of 33.0%, respectively. For the three and nine months ended September 30, 2016, an income tax benefit of $1.0 million and an expense of $11.0 million, respectively, was recorded primarily related to foreign tax withheld on royalty and license fees paid to the Company and federal income taxes.

The effective income tax rate was 17.9 % and 154.9%, respectively, for the three and nine months ended September 30, 2015. The Company’s effective tax rate rose significantly due to an inventory write-down primarily related to UDC Ireland, which resulted in a loss for the full year 2015. Due to continued losses at UDC Ireland no tax benefit was recorded. For the three and nine months ended September 30, 2015, an income tax expense of $1.5 million and $9.6 million, respectively, was recorded primarily related to foreign tax withheld on royalty and license fees paid to the Company and federal income taxes.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the Company's ability

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to generate future taxable income to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credits. As part of its assessment management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. At this time there is no evidence to release the valuation allowances that relate to UDC Ireland, foreign tax credits and New Jersey research and development credits.

17. NET INCOME (LOSS) PER COMMON SHARE:

The Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share ("ASC 260"), which requires earnings per share for each class of stock to be calculated using the two-class method. The two-class method is an allocation of income between the holders of common stock and the Company's participating security holders. Under the two-class method, income for the reporting period is allocated between common shareholders and other security holders based on their respective participation rights in undistributed income. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method.

Basic net income per common share is computed by dividing net income allocated to common shareholders by the weighted-average number of shares of common stock outstanding for the period excluding unvested restricted stock units and performance units. Net income allocated to the holders of the Company's unvested restricted stock awards is calculated based on the shareholders proportionate share of weighted average shares of common stock outstanding on an if-converted basis. The effect of using the two-class method is immaterial to the consolidated financial statements and does not change the reported earnings per share figures and as such is not presented.

For purposes of determining diluted net income per common share, basic net income per share is further adjusted to include the effect of potential dilutive common shares outstanding, including stock options, restricted stock units and performance units, and the impact of shares to be issued under the ESPP.

The following table is a reconciliation of net income (loss) and the shares used in calculating basic and diluted net income (loss) per common share for the three and nine months ended September 30, 2016 and 2015 (in thousands, except share and per share data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016		2015
Numerator:
Net income (loss)	$	(1,500	)	$	7,047	$	22,251	$	(3,410	)
Denominator:
Weighted average common shares outstanding – Basic		46,947,621			46,542,556		46,889,913		46,241,578
Effect of dilutive shares:
Common stock equivalents arising from stock    options and ESPP		—			90,398		5,948		—
Restricted stock awards and units and performance    units		—			90,419		119,401		—
Weighted average common shares    outstanding – Diluted		46,947,621			46,723,373		47,015,262		46,241,578
Net income (loss) per common share:
Basic	$	(0.03	)	$	0.15	$	0.47	$	(0.07	)
Diluted	$	(0.03	)	$	0.15	$	0.47	$	(0.07	)

For the three months ended September 30, 2016 and 2015, the combined effects of unvested restricted stock awards, restricted stock units, performance unit awards and stock options of 125,869 and 1,000, respectively, were excluded from the calculation of diluted EPS as their impact would have been antidilutive. For the nine months ended September 30, 2016 and 2015, the combined effects of unvested restricted stock awards, restricted stock units, performance units and stock options of none and 356,045, respectively, and the impact of shares to be issued under the ESPP, which was minor, were excluded from the calculation of diluted EPS as their impact would have been antidilutive.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINNCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes above.

CAUTIONARY STATEMENT

CONCERNING FORWARD-LOOKING STATEMENTS

This discussion and analysis contains some “forward-looking statements.” Forward-looking statements concern possible or assumed future results of operations, including descriptions of our business strategies and customer relationships. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “seek,” “will,” “may” or similar expressions. These statements are based on assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate in these circumstances.

As you read and consider this discussion and analysis, you should not place undue reliance on any forward-looking statements. You should understand that these statements involve substantial risk and uncertainty and are not guarantees of future performance or results. They depend on many factors that are discussed further in the section entitled (Risk Factors) in our Annual Report on Form 10-K for the year ended December 31, 2015, as supplemented by disclosures, if any, in Item 1A of Part II below. Changes or developments in any of these areas could affect our financial results or results of operations and could cause actual results to differ materially from those contemplated in the forward-looking statements.

All forward-looking statements speak only as of the date of this report or the documents incorporated by reference, as the case may be. We do not undertake any duty to update any of these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

OVERVIEW

We are a leader in the research, development and commercialization of organic light emitting diode, or OLED, technologies and materials for use in displays for mobile phones, televisions, tablets, wearables, portable media devices, notebook computers, personal computers and automotive interiors, as well as specialty and general lighting products. Since 1994, we have been exclusively engaged, and expect to continue to be primarily engaged, in funding and performing research and development activities relating to OLED technologies and materials, and commercializing these technologies and materials. We derive our revenue from the following:

• sales of OLED materials for evaluation, development and commercial manufacturing;

• intellectual property and technology licensing; and

• technology development and support, including government contract work and support provided to third parties for commercialization of their OLED products.

Material sales relate to our sale of OLED materials for incorporation into our customers’ commercial OLED products or for their OLED development and evaluation activities. Material sales are recognized at the time title passes, which is typically at time of shipment or at time of delivery depending upon the contractual agreement between the parties.

We receive license and royalty payments under certain commercial, development and technology evaluation agreements, some of which are non-refundable advances. These payments may include royalty and license fees made pursuant to license agreements and also license fees included as part of certain commercial supply agreements. For arrangements with extended payment terms where the fee is not fixed or determinable, we recognize revenue when the payment is due and payable. Royalty revenue and license fees included as part of commercial supply agreements are recognized when earned and the amount is fixed and determinable.

Currently, our most significant commercial license agreement, which runs through the end of 2017, is with Samsung Display Co., Ltd. (SDC) and covers the manufacture and sale of specified OLED display products. Under this agreement, we are being paid a license fee, payable in semi-annual installments over the agreement term of 6.4 years. The installments, which are due in the second and fourth quarter of each year, increase on an annual basis over the term of the agreement. The agreement conveys to SDC the non-exclusive right to use certain of our intellectual property assets for a limited period of time that is less than the estimated life of the assets. Ratable recognition of revenue is impacted by the agreement's extended increasing payment terms in light of our limited history with similar agreements. As a result, revenue is recognized at the lesser of the proportional performance approach (ratable) and the amount of due and

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payable fees from SDC. Given the increasing contractual payment schedule, license fees under the agreement are recognized as revenue when they become due and payable, which is currently scheduled to be in the second and fourth quarter of each year.

At the same time we entered into the current patent license agreement with SDC, we also entered into a new supplemental material purchase agreement with SDC. Under the current supplemental material purchase agreement, SDC agrees to purchase from us a minimum dollar amount of phosphorescent emitter materials for use in the manufacture of licensed products. This minimum purchase commitment is subject to SDC’s requirements for phosphorescent emitter materials and our ability to meet these requirements over the term of the supplemental agreement. The minimum purchase amounts increase on an annual basis over the term of the supplemental agreement. These amounts were determined through negotiation based on a number of factors, including, without limitation, estimates of SDC’s OLED business growth as a percentage of published OLED market forecasts and SDC’s projected minimum usage of red and green phosphorescent emitter materials over the term of the agreement.

In 2015, we entered into an OLED patent license agreement and an OLED commercial supply agreement with LG Display Co., Ltd. (LG Display), which were effective as of January 1, 2015 and superseded the existing 2007 commercial supply agreement between the parties. The new agreements have a term that is set to expire by the end of 2022. The patent license agreement provides LG Display a non-exclusive, royalty bearing portfolio license to make and sell OLED displays under the Company's patent portfolio. The patent license calls for license fees, prepaid royalties and running royalties on licensed products. The agreements include customary provisions relating to warranties, indemnities, confidentiality, assignability and business terms. The agreements provide for certain other minimum obligations relating to the volume of material sales anticipated over the life of the agreements as well as minimum royalty revenue to be generated under the patent license agreement. The Company expects to generate revenue under these agreements that are predominantly tied to LG Display's sales of OLED licensed products. The OLED commercial supply agreement provides for the sales of materials for use by LG Display, which may include phosphorescent dopants and host materials.

In the second quarter of 2016, we entered into and consummated the transactions contemplated by an IP Transfer Agreement with BASF SE (BASF). Under the IP Transfer Agreement, BASF sold to us certain of its rights, title and interest to its owned and co-owned intellectual property rights relating to the composition, development, manufacture and use of OLED materials, including OLED lighting and display stack technology, as well as certain tangible assets. The intellectual property includes knowhow and more than 500 issued and pending patents in the area of phosphorescent materials and technologies.

In the second quarter of 2016, we entered into an agreement to acquire Adesis, Inc. (Adesis), a privately held contract research organization with 43 employees specializing in organic and organometallic synthetic research, development, and commercialization. Adesis is a technology vendor to companies in the pharmaceutical, fine chemical, biomaterials, and catalyst industries, and has worked with us over the last few years to help advance and accelerate a number of our product offerings. The transaction closed on July 11, 2016. Under the terms of the agreement, our subsidiary, UDC, Inc., acquired all outstanding shares of Adesis in a merger for $33.7 million in cash, and up to an additional $2.4 million in cash contingent upon Adesis’ achievement of certain milestones within two years of acquisition. The acquisition was funded through use of existing cash and investments.

Technology development and support revenue is revenue earned from our contract research activities at Adesis, as well as from  government contracts, development and technology evaluation agreements and commercialization assistance activities. Revenues are recognized proportionally as research and development costs are incurred, or as defined milestones are achieved.

While we have made significant progress over the past few years developing and commercializing our family of OLED technologies (including our PHOLED, TOLED, FOLED technologies) and materials, and have generated net income over the past four years, we incurred significant losses prior to this period resulting in an accumulated deficit of $51.4 million as of September 30, 2016.

We anticipate fluctuations in our annual and quarterly results of operations due to uncertainty regarding, among other factors:

• the timing, cost and volume of sales of our OLED materials;

• the timing of our receipt of license fees and royalties, as well as fees for future technology development and evaluation;

• the timing and magnitude of expenditures we may incur in connection with our ongoing research and development and patent-related activities; and

• the timing and financial consequences of our formation of new business relationships and alliances.

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2015 inventory write-down

As previously discussed, during 2015 the Company experienced a faster-than-anticipated decline in host material sales, which we believe was a result of our customer's selling new products that did not include our host materials. Based on our sales forecast, we anticipated significantly lower sales of our existing host material. As such, a write-down in net realizable value of our inventory was required as of June 30, 2015.

The following table sets forth non-GAAP measures that reflect the amount of the inventory write-down, with reconciliations to the most directly comparable GAAP measures:

(unaudited, in thousands, except share and per share data)	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Cost of commercial material sales reconciliation
Cost of commercial material sales	$	4,097		$	6,989		$	12,276		$	54,502
Cost of commercial material sales adjustments:
Inventory write-down		—			—			—			33,000
Adjusted cost of commercial material sales	$	4,097		$	6,989		$	12,276		$	21,502
Cost of commercial material sales as a % of commercial    material sales		21	%		23	%		20	%		70	%
Adjusted cost of commercial material sales as a % of    commercial material sales		21	%		23	%		20	%		28	%
Operating income (loss) reconciliation
Operating income (loss)	$	(3,003	)	$	8,378		$	33,654		$	5,310
Operating income (loss) adjustments:
Inventory write-down		—			—			—			33,000
Adjusted operating income	$	(3,003	)	$	8,378		$	33,654		$	38,310
Operating income (loss) as a % of total revenue		(10	)%		21	%		27	%		4	%
Adjusted operating income as a % of total revenue		(10	)%		21	%		27	%		30	%
Net income (loss) reconciliation
Net income (loss)	$	(1,500	)	$	7,047		$	22,251		$	(3,410	)
Net income (loss) per share:
Basic	$	(0.03	)	$	0.15		$	0.47		$	(0.07	)
Diluted	$	(0.03	)	$	0.15		$	0.47		$	(0.07	)
Net income (loss) adjustments:
Inventory write-down		—			—			—			33,000
Income tax effect of inventory write-down*		—			(1,104	)		—			(2,964	)
Adjusted net income	$	(1,500	)	$	5,943		$	22,251		$	26,626
Net income (loss) as a % of total revenue		(5	)%		18	%		18	%		(3	)%
Adjusted net income as a % of total revenue		(5	)%		15	%		18	%		21	%
Adjusted net income per share:
Basic **	$	(0.03	)	$	0.13		$	0.47		$	0.58
Diluted ***	$	(0.03	)	$	0.13		$	0.47		$	0.57
Weighted average shares used in computing net income    (loss) per share and adjusted net income per share:
Basic		46,947,621			46,542,556			46,889,913			46,241,578
Diluted		46,947,621			46,723,373			47,015,262			46,241,578

* Adjusted net income assumes an effective tax rate of 30.8% and 32.1% for the three months and nine months ended September 30, 2015 based on excluding the impact of the inventory write down.

** Adjusted net income per common share, basic, is derived from dividing adjusted net income by the number of weighted average shares used in computing basic net income per common share.

*** Adjusted net income per common share, diluted, for the nine months ended September 30, 2015 is derived from dividing non-GAAP adjusted net income by the weighted average shares of 46,870,998.

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Non-GAAP Measures

To supplement our selected financial data presented in accordance with U.S. generally accepted accounting principles (GAAP), we use certain non-GAAP measures. These non-GAAP measures include adjusted operating income, adjusted cost of commercial material sales, adjusted net income, adjusted net income per common share, basic and adjusted net income per common share, diluted.

Each of these non-GAAP measures excludes the effect of the 2015 write-down of primarily existing host materials that were not included in our customer’s new products. We have provided these non-GAAP measures, which we believe more accurately reflect the operating performance of our ongoing business, to enhance investors' overall understanding of our current financial performance and period-to-period comparisons. The presentation of non-GAAP measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 30, 2016 and 2015

We had an operating loss of $3.0 million for the three months ended September 30, 2016, compared to operating income of $8.4 million for the three months ended September 30, 2015. The decrease in operating income was primarily due to the following:

• a decrease in material sales of  $10.7 million partially offset by a decrease in the cost of material sales of $788,000; and

• an increase in operating expenses of $2.2 million.

We had a net loss of $1.5 million or $0.03 per basic and diluted share for the three months ended September 30, 2016, compared to net income of $7.0 million or $0.15 per basic and diluted share for the three months ended September 30, 2015. The decrease in net income was primarily due to a decrease in operating income of $11.4 million and an increase of $2.7 million of amortization charges associated with the acquisition of the BASF patents and the Adesis business acquisition.

Revenue

The following table details our revenues for the three months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,				(Decrease) Increase
	2016		2015		$			%
REVENUE:
Material sales	$	23,465	$	34,128	$	(10,663	)		(31	)%
Royalty and license fees		5,209		5,224		(15	)		(0	)%
Technology development and support revenue		1,540		67		1,473			2,199	%
Total revenue	$	30,214	$	39,419	$	(9,205	)		(23	)%

Total revenue for the three months ended September 30, 2016 decreased by $9.2 million compared to the three months ended September 30, 2015. The decrease in revenue was the result of a decrease in commercial material sales partially offset by an increase in technology development and support revenue.

Material sales

The following table details our revenues derived from material sales for the three months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,				(Decrease)
	2016		2015		$			%
Material Sales:
Commercial material sales	$	19,925	$	30,220	$	(10,295	)		(34	)%
Developmental material sales		3,540		3,908		(368	)		(9	)%
Total material sales	$	23,465	$	34,128	$	(10,663	)		(31	)%

Commercial material sales for the three months ended September 30, 2016 decreased by $10.3 million compared to the three months ended September 30, 2015, due to a decline in emitter and host material grams sold and average selling price.

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Developmental material sales for the three months ended September 30, 2016 decreased by $0.4 million compared to the three months ended September 30, 2015. The decrease in our development material sales was primarily due to a decrease in the number of grams sold.

Material sales included sales of both phosphorescent emitter and host materials which were comprised of the following for the three months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,				Decrease
	2016		2015		$			%
Material Sales:
Phosphorescent emitter sales	$	23,087	$	31,453	$	(8,366	)		(27	)%
Host material sales		378		2,675		(2,297	)		(86	)%
Total material sales	$	23,465	$	34,128	$	(10,663	)		(31	)%

Phosphorescent emitter sales for the three months ended September 30, 2016 decreased $8.4 million compared to the three months ended September 30, 2015 primarily due to a decline in the number of phosphorescent emitter grams sold.

Host material sales for the three months ended September 30, 2016 decreased by $2.3 million compared to the three months ended September 30, 2015. Based on our current sales forecast, we anticipate that sales of existing host material will continue to be minimal. Our customers are not required to purchase our host materials in order to utilize our phosphorescent emitter materials and the host material sales business continues to be more competitive than the phosphorescent emitter material sales business. 

Royalty and license fees

Royalty and license fees were as follows for the three months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,				Decrease
	2016		2015		$			%
Royalty and license fees	$	5,209	$	5,224	$	(15	)		(0	)%

Royalty and license fees for the three months ended September 30, 2016 was unchanged compared to the three months ended September 30, 2015.

Technology development and support revenue

Technology development and support revenue were as follows for the three months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,				Increase
	2016		2015		$		%
Technology development and support revenue	$	1,540	$	67	$	1,473		2,199	%

Technology development and support revenue is revenue earned from contract research activities, as well as development and technology evaluation agreements and commercialization assistance fees.

Technology development and support revenue for the three months ended September 30, 2016 increased by $1.5 million compared to the three months ended September 30, 2015. The increase in technology and support revenue was related to contract research sales activities associated with Adesis.  

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Cost of material sales

Cost of commercial material sales for the three months ended September 30, 2016 and 2015 were as follows (in thousands):

	Three Months Ended September 30,
	2016			2015
Commercial material sales	$	19,925		$	30,220
Cost of commercial material sales		4,097			6,989
% of commercial material sales		21	%		23	%

Cost of commercial material sales for the three months ended September 30, 2016 decreased by $2.9 million compared to the three months ended September 30, 2015. The decrease in the cost of our commercial material sales in 2016 was due to a decline in commercial material sales.

Commercial materials are materials that have been validated by us for use in commercial OLED products. Cost of commercial material sales includes the cost of producing materials that have been classified as commercial, shipping costs for such materials, and inventory write-downs, but excludes the cost of producing certain early development materials which are included in research and development expense. Depending on the amounts, timing and stage of materials being classified as commercial, we expect the cost of materials sales to fluctuate from quarter to quarter.

Research and development

Research and development expenses decreased to $10.1 million for the three months ended September 30, 2016, as compared to $11.4 million for the three months ended September 30, 2015. The decrease in research and development expenses was primarily due to lower third-party contractor costs.

Selling, general and administrative

Selling, general and administrative expenses increased to $8.5 million for the three months ended September 30, 2016, as compared to $7.2 million for the three months ended September 30, 2015. The increase in selling, general and administrative expenses was primarily due to incremental costs associated with the addition of Adesis activity.

Patent costs and amortization of acquired technology and other intangible assets

Patent costs and amortization of acquired technology and other intangible assets increased to $7.4 million for the three months ended September 30, 2016, as compared to $4.0 million for the three months ended September 30, 2015. The increase was primarily due to higher amortization expense of $2.7 million associated with the acquisitions of the BASF patent portfolio and intangible assets associated with the Adesis acquisition.

Royalty and license expense

Royalty and license expense decreased to $815,000 for the three months ended September 30, 2016, as compared to $1.1 million for the three months ended September 30, 2015. The decrease was due to decreased royalties incurred under our amended license agreement with Princeton, USC, and Michigan, resulting from lower qualifying material sales. See Note 7 in Notes to Consolidated Financial Statements for further discussion.

Other (Expense) Income

Other expense was $68,000 for the three months ended September 30, 2016, compared to other expense of $16,000 for the three months ended September 30, 2015 and consisted primarily of net exchange losses and gains on foreign currency transactions.

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Income taxes

An income tax benefit of $1.0 million and an income tax expense of $1.5 million for the three months ended September 30, 2016 and 2015, respectively, were recorded primarily related to foreign taxes on royalty and license fees paid to the Company and federal income taxes. The effective income tax rate was a benefit of 40.1% and an expense of 17.9% for the three months ended September 30, 2016, and 2015, respectively. In addition, our effective tax rate was adversely affected in 2015 due to an inventory write-down primarily related to UDC Ireland on which no tax benefit was recorded due to previous losses. For the three months ended September 30, 2015, absent the inventory write-down, income tax expense would have been $2.6 million and the effective income tax rate would have been 30.8%.

Comparison of the Nine Months Ended September 30, 2016 to 2015

We had operating income of $33.7 million for the nine months ended September 30, 2016, as compared to operating income of $5.3 million for the nine months ended September 30, 2015. The increase in operating income was primarily due to the following:

• a decrease in operating expenses of $32.8 million, which includes a $33.0 million write-down of inventory in the nine months ended September 30, 2015; partially offset by

• a decrease in revenue of $4.4 million, which reflects a decrease in material sales of $15.2 million, partially offset by an increase in royalty and license fees of $9.2 million and an increase in technology development and support revenue of $1.5 million.

We had net income of $22.3 million (or $0.47 per basic and diluted share) for the nine months ended September 30, 2016, compared to a net loss of $3.4 million (or $0.07 per basic and diluted share) for the nine months ended September 30, 2015. The increase in net income was primarily due to:

• an increase in operating income of $28.3 million primarily due to a $33.0 million write-down of inventory in the nine months ended September 30, 2015; partially offset by

• an increase in income tax expense of $1.3 million.

Absent the inventory write-down and the associated $3.0 million reduction of income tax expense, we had adjusted net income of $26.6 million (or $0.58 per share, basic and $0.57 per share diluted) for the nine months ended September 30, 2015.

Revenue

The following table details our revenues for the nine months ended September 30, 2016 and 2015 (in thousands):

	Nine Months Ended September 30,				(Decrease) Increase
	2016		2015		$			%
REVENUE:
Material sales	$	70,084	$	85,270	$	(15,186	)		(18	)%
Royalty and license fees		52,569		43,332		9,237			21	%
Technology development and support revenue		1,656		132		1,524			1,155	%
Total revenue	$	124,309	$	128,734	$	(4,425	)		(3	)%

Total revenue for the nine months ended September 30, 2016 decreased by $4.4 million compared to the nine months ended September 30, 2015. The decrease in revenue was the result of a decrease in material sales, partially offset by an increase in royalty and license fee revenue and technology development and support revenue.

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Material sales

The following table details our revenues derived from material sales for the nine months ended September 30, 2016 and 2015 (in thousands):

	Nine Months Ended September 30,				Decrease
	2016		2015		$			%
Material Sales:
Commercial material sales	$	62,766	$	77,638	$	(14,872	)		(19	)%
Developmental material sales		7,318		7,632		(314	)		(4	)%
Total material sales	$	70,084	$	85,270	$	(15,186	)		(18	)%

Commercial material sales for the nine months ended September 30, 2016 decreased by $14.9 million compared to the nine months ended September 30, 2015, primarily due to lower host sales of $9.3 million and reduced average selling prices.

Developmental material sales for the nine months ended September 30, 2016 decreased by $0.3 million compared to the nine months ended September 30, 2015.

Material sales included sales of both phosphorescent emitter and host materials which were comprised of the following for the nine months ended September 30, 2016 and 2015 (in thousands):

	Nine Months Ended September 30,				Decrease
	2016		2015		$			%
Material Sales:
Phosphorescent emitter sales	$	69,092	$	75,000	$	(5,908	)		(8	)%
Host material sales		992		10,270		(9,278	)		(90	)%
Total material sales	$	70,084	$	85,270	$	(15,186	)		(18	)%

Phosphorescent emitter sales for the nine months ended September 30, 2016 decreased by $5.9 million compared to the nine months ended September 30, 2015.

Host material sales for the nine months ended September 30, 2016 decreased by $9.3 million compared to the nine months ended September 30, 2015. Based on our current sales forecast, we anticipate that sales of existing host material will remain minimal. Our customers are not required to purchase our host materials in order to utilize our phosphorescent emitter materials, and the host material sales business continues to be more competitive than the phosphorescent emitter material sales business. 

Royalty and license fees

Royalty and license fees were as follows for the nine months ended September 30, 2016 and 2015 (in thousands):

	Nine Months Ended September 30,				Increase
	2016		2015		$		%
Royalty and license fees	$	52,569	$	43,332	$	9,237		21	%

Royalty and license fees for the nine months ended September 30, 2016 increased by $9.2 million compared to the nine months ended September 30, 2015. The increase was primarily related to the receipt and recognition of $37.5 million of royalty and license fee payments under our patent and license agreement with SDC, compared to $30.0 million in nine months ended September 30, 2015.

Technology development and support revenue

Technology development and support revenue for the nine months ended September 30, 2016 and 2015 were as follows (in thousands):

	Nine Months Ended September 30,				Increase
	2016		2015		$		%
Technology development and support revenue	$	1,656	$	132	$	1,524		1,155	%

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Technology development and support revenue is revenue earned from contract research activities, as well as, development and technology evaluation agreements and commercialization assistance fees.

Technology development and support revenue for the nine months ended September 30, 2016 increased by $1.5 million compared to the nine months ended September 30, 2015. The increase in technology development and support revenue was related to contract research sales activities associated with Adesis.  

Cost of material sales

Cost of commercial material sales were as follows for the nine months ended September 30, 2016 and 2015 (in thousands):

	Nine Months Ended September 30,
	2016			2015
Commercial material sales	$	62,766		$	77,638
Cost of commercial material sales		12,276			54,502
% of commercial material sales		20	%		70	%

Cost of commercial material sales for the nine months ended September 30, 2016 decreased by $42.2 million compared to the nine months ended September 30, 2015. The decrease in the cost of our commercial material sales was primarily due to an inventory write-down of $33.0 million recorded in the nine months ended September 30, 2015, and a decrease in commercial material sales.

During 2015 the Company experienced a faster-than-anticipated decline in host material sales and based on our sales forecast at that time, we anticipated significantly lower sales of our existing host material. As such, a write-down in net realizable value of our inventory was required and recorded as of June 30, 2015. Without the write-down and commensurate with the decline in material sales revenue, the adjusted cost of commercial material sales would have been $21.5 million for the nine months ended September 30, 2015, and the adjusted cost of commercial material sales as a percentage of commercial material sales would have been 28% for the nine months ended September 30, 2015. The decrease in the adjusted cost of commercial material sales as a percentage of commercial material sales was due to the decrease in host sales, which have less favorable margins than our emitter materials.

Commercial materials are materials that have been validated by us for use in commercial OLED products. Cost of commercial material sales includes the cost of producing materials that have been classified as commercial, shipping costs for such materials, and inventory write-downs, but excludes the cost of producing certain early development materials which are included in research and development expense. Depending on the amounts, timing and stage of materials being classified as commercial, we expect the cost of materials sales to fluctuate from quarter to quarter.

Research and development

Research and development expenses decreased to $31.6 million for the nine months ended September 30, 2016, as compared to $32.0 million for the nine months ended September 30, 2015.

Selling, general and administrative

Selling, general and administrative expenses increased to $22.7 million for the nine months ended September 30, 2016, as compared to $20.5 million for the nine months ended September 30, 2015. The increase in selling, general and administrative expenses were primarily due to incremental costs associated with Adesis activity.

Patent costs and amortization of acquired technology and other intangible assets

Patent costs and amortization of acquired technology and other intangible assets increased to $15.5 million for the nine months ended September 30, 2016, as compared to $12.5 million for the nine months ended September 30, 2015. The increase was primarily due to higher amortization expense of $2.7 million associated with the acquisitions of the BASF patent portfolio and intangible assets associated with the Adesis acquisition.

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Royalty and license expense

Royalty and license expense increased to $3.7 million for the nine months ended September 30, 2016, as compared to $3.6 million for the nine months ended September 30, 2015. The increase was mainly due to increased royalties incurred under our amended license agreement with Princeton, USC, and Michigan, resulting from increased royalty and license fees offset by lower qualifying material sales. See Note 7 in Notes to Consolidated Financial Statements for further discussion.

Other (Expense) Income

Other expense was $2.0 million for the nine months ended September 30, 2016, as compared to other income of $342,000 for the nine months ended September 30, 2015 and consisted primarily of net exchange losses and gains on foreign currency transactions. Other expense for 2016 primarily consisted of exchange losses on foreign currency associated with the BASF OLED patent acquisition.

Income taxes

An income tax expense of $11.0 million and $9.6 million was recorded for the nine months ended September 30, 2016 and 2015, respectively, primarily related to foreign taxes withheld on royalty and license fees paid to the Company and federal income taxes. The effective income tax rate was 33.0% and 154.9% for the nine months ended September 30, 2016 and 2015, respectively. In addition the Company's effective tax rate was adversely affected in 2015 due to an inventory write-down primarily related to UDC Ireland on which no tax benefit was recorded due to previous losses. For the nine months ended September 30, 2015, absent the inventory write-down, income tax expense would have been $12.6 million and the effective income tax rate would have been 32.1%.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents and our short-term investments. As of September 30, 2016, we had cash and cash equivalents of $54.4 million and short-term investments of $231.5 million, for a total of $285.9 million. This compares to cash and cash equivalents of $97.5 million and short-term investments of $298.0 million, for a total of $395.5 million, as of December 31, 2015. The decrease in total cash and cash equivalents and short-term investments of $109.6 million was primarily due to the $96.0 million BASF OLED patent acquisition and the net cash consideration of $33.2 million for the Adesis acquisition, partially offset by cash provided by operating activities related to proceeds received from deferred revenue arrangements and material sales.

Cash provided by operating activities was $40.3 million for the nine months ended September 30, 2016, compared to cash provided by operating activities of $80.6 million for the nine months ended September 30, 2015. The decrease in cash provided by operating activities was primarily due to the receipt of $3.3 million of prepaid royalty and license fees in the nine months ended September 30, 2016, as compared to $48.4 million in the nine months ended September 30, 2015.

Cash used in investing activities was $79.1 million for the nine months ended September 30, 2016, as compared to $32.7 million for the nine months ended September 30, 2015. The increase in cash used in investing activities was due to the addition of intangible assets associated with the BASF OLED patent acquisition of $96.0 million and the Adesis business acquisition of $33.2 million, partially offset by the timing of maturities and purchases of investments resulting in net sales of $54.4 million for the nine months ended September 30, 2016, as compared to net purchases of $28.0 million for the nine months ended September 30, 2015.

Cash used in financing activities was $4.3 million for the nine months ended September 30, 2016, as compared to $3.4 million for the nine months ended September 30, 2015. The increase in cash used in financing activities for the nine months ended September 30, 2016, as compared to the nine months ended September 30, 2015 was primarily due to a decrease in the proceeds from the exercise of common stock options of $1.4 million, partially offset by a decrease in the payment of withholding taxes related to employee stock-based compensation of $0.5 million.

Working capital was $311.4 million as of September 30, 2016, compared to $413.2 million as of December 31, 2015. The decrease in working capital was primarily due to the cash used for the BASF OLED patent and the Adesis business acquisitions, an increase in inventory, a reduction in accounts payable and accrued expenses, partially offset by a decrease in accounts receivable.

We anticipate, based on our internal forecasts and assumptions relating to our operations (including, among others, assumptions regarding our working capital requirements, the progress of our research and development efforts, the availability of sources of funding for our research and development work, and the timing and costs associated with the preparation, filing, prosecution, maintenance, defense and enforcement of our patents and patent applications), that we have sufficient cash, cash equivalents and short-term investments to meet our obligations for at least the next twelve months.

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We believe that potential additional financing sources for us include long-term and short-term borrowings, public and private sales of our equity and debt securities and the receipt of cash upon the exercise of outstanding stock options. It should be noted, however, that additional funding may be required in the future for research, development and commercialization of our OLED technologies and materials, to obtain, maintain and enforce patents respecting these technologies and materials, and for working capital and other purposes, the timing and amount of which are difficult to ascertain. There can be no assurance that additional funds will be available to us when needed, on commercially reasonable terms or at all, particularly in the current economic environment.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses, and other financial information. Actual results may differ significantly from our estimates under other assumptions and conditions.

We believe that our accounting policies related to revenue recognition and deferred revenue, the valuation of certain investments, the valuation and recoverability of acquired technology and inventories, stock-based compensation, income taxes and our Supplemental Executive Retirement Plan, are our “critical accounting policies” as contemplated by the SEC.

Refer to our Annual Report on Form 10-K for the year ended December 31, 2015, for additional discussion of our critical accounting policies.

Contractual Obligations

Refer to our Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of our contractual obligations.

Off-Balance Sheet Arrangements

As of September 30, 2016, we had no off-balance sheet arrangements in the nature of guarantee contracts, retained or contingent interests in assets transferred to unconsolidated entities (or similar arrangements serving as credit, liquidity or market risk support to unconsolidated entities for any such assets), or obligations (including contingent obligations) arising out of variable interests in unconsolidated entities providing financing, liquidity, market risk or credit risk support to us, or that engage in leasing, hedging or research and development services with us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not utilize financial instruments for trading purposes and hold no derivative financial instruments, other financial instruments or derivative commodity instruments that could expose us to significant market risk other than our investments disclosed in “Fair Value Measurements” in Note 6 to the Consolidated Financial Statements included herein. We generally invest in investment grade financial instruments to reduce our exposure related to investments. Our primary market risk exposure with regard to such financial instruments is to changes in interest rates, which would impact interest income earned on investments. However, based upon the conservative nature of our investment portfolio and current experience, we do not believe a decrease in investment yields would have a material negative effect on our interest income.

Substantially all our revenue is derived from outside of North America. All revenue is primarily denominated in U.S. dollars and therefore we bear no significant foreign exchange risk.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2016. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this report, are effective to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. However, a controls system, no matter how well

33

designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Patent Related Challenges and Oppositions

Each major jurisdiction in the world that issues patents provides both third parties and applicants an opportunity to seek a further review of an issued patent. The process for requesting and considering such reviews is specific to the jurisdiction that issued the patent in question, and generally does not provide for claims of monetary damages or a review of specific claims of infringement. The conclusions made by the reviewing administrative bodies tend to be appealable and generally are limited in scope and applicability to the specific claims and jurisdiction in question.

We believe that opposition proceedings are frequently commenced in the ordinary course of business by third parties who may believe that one or more claims in a patent do not comply with the technical or legal requirements of the specific jurisdiction in which the patent was issued. We view these proceedings as reflective of our goal of obtaining the broadest legally permissible patent coverage permitted in each jurisdiction. Once a proceeding is initiated, as a general matter, the issued patent continues to be presumed valid until the jurisdiction’s applicable administrative body issues a final non-appealable decision. Depending on the jurisdiction, the outcome of these proceedings could include affirmation, denial or modification of some or all of the originally issued claims. We believe that as OLED technology becomes more established and as our patent portfolio increases in size, so will the number of these proceedings.

Below are summaries of certain active proceedings that have been commenced against issued patents that are either exclusively licensed to us or which are now assigned to us. We do not believe that the confirmation, loss or modification of our rights in any individual claim or set of claims that are the subject of the following legal proceedings would have a material impact on our materials sales or licensing business or on our consolidated financial statements, including our consolidated statements of income, as a whole. However, as noted within the descriptions, some of the following proceedings involve issued patents that relate to our fundamental phosphorescent OLED technologies and we intend to vigorously defend against claims that, in our opinion, seek to restrict or reduce the scope of the originally issued claim, which may require the expenditure of significant amounts of our resources. In certain circumstances, when permitted, we may also utilize the proceedings to request modification of the claims to better distinguish the patented invention from any newly identified prior art and/or improve the claim scope of the patent relative to commercially important categories of the invention. The entries marked with an "*" relate to our UniversalPHOLED phosphorescent OLED technology, some of which may be commercialized by us.

Opposition to European Patent No. 1394870*

On April 20, 2010, Merck Patent GmbH; BASF Schweitz AG of Basel, Switzerland; Osram GmbH of Munich, Germany; Siemens Aktiengesellschaft of Munich, Germany; and Koninklijke Philips Electronics N.V., of Eindhoven, The Netherlands filed Notices of Opposition to European Patent No.1394870 (the EP '870 patent). The EP '870 patent, which was issued on July 22, 2009, is a European counterpart patent, in part, to U.S. patents 6,303,238; 6,579,632; 6,872,477; 7,279,235; 7,279,237; 7,488,542; 7,563,519; and 7,901,795; and to pending U.S. patent application 13/035,051, filed on February 25, 2011 (hereinafter the “U.S. '238 Patent Family”). They are exclusively licensed to us by Princeton, and we are required to pay all legal costs and fees associated with this proceeding.

An Oral Hearing was held before an EPO panel of first instance in Munich, Germany, on April 8-9, 2014. After the completion of the hearing, the panel decided that the broad claims originally issued did not satisfy EPO requirements and amended the claims to more narrowly define the scope of the claims. The '870 patent, in its amended form, was held by the panel to comply with the EPO requirements.

We believe the EPO's decision relating to the broad original claims is erroneous and have appealed the ruling to reinstate a broader set of claims. This patent, as originally granted by the EPO, is deemed valid during the pendency of the appeals process.

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At this time, based on our current knowledge, we believe that the patent being challenged should be declared valid and that all or a significant portion of our claims should be upheld. However, we cannot make any assurances of this result.

Invalidation Trial in Japan for Japan Patent No. 4511024*

On June 16, 2011, we learned that a Request for an Invalidation Trial was filed in Japan by Semiconductor Energy Laboratory, Co., Ltd. for our Japanese Patent No. JP-4511024 (the JP '024 patent), which issued on May 14, 2010. The JP '024 patent is a counterpart patent, in part, to the U.S. '238 Patent Family, which relate to the EP '870 patent, which is subject to one of the above-noted European oppositions and which relates to our UniversalPHOLED phosphorescent OLED technology. They are exclusively licensed to us by Princeton, and we are required to pay all legal costs and fees associated with this proceeding.

On May 10, 2012, we learned that the JPO issued a decision upholding the validity of certain claimed inventions in the JP '024 Patent but invalidating the broadest claims in the patent. We appealed the JPO’s decision to the Japanese IP High Court. On October 31, 2013, the Japanese IP High Court ruled that the prior art references relied on by the JPO did not support the JPO’s findings, reversed the JPO’s decision with respect to the previously invalidated broad claims in the JP ‘024 patent and remanded the matter back to the JPO for further consideration consistent with its decision. The JPO subsequently issued a decision upholding the validity of certain claimed inventions in the JP '024 Patent but invalidating the broadest claims in the patent. We appealed the decision to reinstate a broader set of claims but the IP High Court declined to reinstate the broader claims. We have appealed the IP High Court ruling to the Japanese Supreme Court for reconsideration of the legal basis of the IP High Court's decision. This patent, as originally granted by the JPO, is deemed valid during the pendency of the appeals process.

Although we cannot provide any assurances as to the possible outcome of future appellate proceedings which we may elect to pursue, if any, the patent is expected to be maintained at least with respect to the narrower set of claims which were not the subject of the IP High Court's invalidation ruling.

Opposition to European Patent No. 1390962

On November 16, 2011, Osram AG and BASF SE each filed a Notice of Opposition to European Patent No. 1390962 (EP '962 patent), which relates to our white phosphorescent OLED technology. The EP '962 patent, which was issued on February 16, 2011, is a European counterpart patent to U.S. patents 7,009,338 and 7,285,907. They are exclusively licensed to us by Princeton, and we are required to pay all legal costs and fees associated with this proceeding.

The EPO combined the oppositions into a single opposition proceeding, and a hearing was held in December 2015, wherein the EPO Opposition Division revoked the patent claims for alleged insufficiencies under EPC Article 83.  We believe the EPO's decision relating to the original claims is erroneous, and we have appealed the decision. This patent, as originally granted, is deemed valid during the pendency of the appeals process.

At this time, based on our current knowledge, we believe that the patent being challenged should be declared valid, and that all or a significant portion of our claims should be upheld. However, we cannot make any assurances of this result.

Opposition to European Patent No. 1933395*

On February 24 and 27, 2012, Sumitomo, Merck Patent GmbH and BASF SE filed oppositions to our European Patent No. 1933395 (the EP '395 patent). The EP ‘395 patent is a counterpart patent to the EP ‘637 patent, and, in part, to the U.S. Patents 7,001,536, 6,902,830 and 6,830,828 and to JP patents 4358168 and 4357781. This patent is exclusively licensed to us by Princeton, and we are required to pay all legal costs and fees associated with this proceeding.

At an Oral Hearing on October 14, 2013, the EPO panel issued a decision that affirmed the basic invention and broad patent coverage in the EP '395 patent, but narrowed the scope of the original claims.

On February 26, 2014, we appealed the ruling to reinstate a broader set of claims. The patent, as originally granted by the EPO, is deemed to be valid during the pendency of the appeals process. Two of the three opponents also filed their own appeals of the ruling. In January 2015, Sumitomo withdrew its opposition of the '395 patent, and the EPO accepted the withdrawal notice. The appeal proceedings were held in the second quarter of 2016. As a result of the proceedings, the board concluded the oral proceedings and proposed to reinstate a broader set of claims pending the resolution of a remaining question of the applicable law, a question that the board has deferred to the Enlarged Board of Appeals for review. The originally-granted claims remain in force during the pendency of this process.

35

In addition to the above proceedings, from time to time, we may have other proceedings that are pending which relate to patents we acquired as part of the Fujifilm patent and BASF OLED patent acquisitions or which relate to technologies that are not currently widely utilized in the marketplace.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors previously discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Repurchases

During the quarter ended September 30, 2016, we acquired 773 shares of common stock through transactions related to the vesting of restricted share awards previously granted to our employees. Upon vesting, the employees turned in shares of common stock in amounts sufficient to pay the minimum statutory tax withholding at rates required by the relevant tax authorities.

The following table provides information relating to the shares we received and repurchased during the third quarter of 2016 (dollar amounts in thousands, other than per share amounts):

Period	Total Number of Shares Purchased		Weighted Average Price Paid per Share
July 1 - July 31		258	$	69.64
August 1 - August 31		292		59.36
September 1 - September 30		223		59.06
Total		773

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

36

ITEM 6. EXHIBITS

The following is a list of the exhibits filed as part of this report. Where so indicated by footnote, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated parenthetically, together with a reference to the filing indicated by footnote.

Exhibit Number	Description
31.1*	Certifications of Steven V. Abramson, Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a)
31.2*	Certifications of Sidney D. Rosenblatt, Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a)
32.1**	Certifications of Steven V. Abramson, Chief Executive Officer, as required by Rule 13a-14(b) or Rule 15d-14(b), and by 18 U.S.C. Section 1350. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
32.2**	Certifications of Sidney D. Rosenblatt, Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b), and by 18 U.S.C. Section 1350. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
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

Explanation of footnotes to listing of exhibits:

*	Filed herewith.
**	Furnished herewith.

37

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:

	UNIVERSAL DISPLAY CORPORATION
Date: November 3, 2016	By:  /s/ Sidney D. Rosenblatt
	Sidney D. Rosenblatt
	Executive Vice President, Chief Financial Officer,
	Treasurer and Secretary

38

EX-31.1

Exhibit 31.1

CERTIFICATIONS REQUIRED BY

RULE 13a-14(a)/15d-14(a)

I, Steven V. Abramson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Universal Display Corporation (the “registrant”) for the quarter ended September 30, 2016;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 3, 2016	By:	/s/ Steven V. Abramson
			Steven V. Abramson
			President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS REQUIRED BY

RULE 13a-14(a)/15d-14(a)

I, Sidney D. Rosenblatt, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Universal Display Corporation (the “registrant”) for the quarter ended September 30, 2016;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 3, 2016	By:	/s/ Sidney D. Rosenblatt
			Sidney D. Rosenblatt
			Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS REQUIRED BY

RULE 13a-14(b)/15d-14(b) AND 18 U.S.C. SECTION 1350

In connection with the quarterly report of Universal Display Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven V. Abramson, President and Chief Executive Officer of the Company, hereby certify, based on my knowledge, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 3, 2016	By:	/s/ Steven V. Abramson
			Steven V. Abramson
			President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATIONS REQUIRED BY

RULE 13a-14(b)/15d-14(b) AND 18 U.S.C. SECTION 1350

In connection with the quarterly report of Universal Display Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sidney D. Rosenblatt, Executive Vice President and Chief Financial Officer of the Company, hereby certify, based on my knowledge, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 3, 2016	By:	/s/ Sidney D. Rosenblatt
			Sidney D. Rosenblatt
			Executive Vice President and Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 02, 2016
Document And Entity Information [Abstract]
Entity Registrant Name	UNIVERSAL DISPLAY CORP \PA\
Entity Central Index Key	0001005284
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		46,969,098

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
CURRENT ASSETS:
Cash and cash equivalents	$ 54,416	$ 97,513
Short-term investments	231,452	297,981
Accounts receivable	22,476	24,729
Inventory	16,103	12,748
Deferred income taxes	10,084	12,326
Other current assets	7,499	2,387
Total current assets	342,030	447,684
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $30,899 and $27,897	25,768	22,407
ACQUIRED TECHNOLOGY, net of accumulated amortization of $65,565 and $54,837	157,276	72,015
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $311 and none	16,139
GOODWILL	15,548
INVESTMENTS	15,217	2,187
DEFERRED INCOME TAXES	12,352	14,945
OTHER ASSETS	423	174
TOTAL ASSETS	584,753	559,412
CURRENT LIABILITIES:
Accounts payable	5,544	6,849
Accrued expenses	13,190	17,387
Deferred revenue	10,211	10,107
Other current liabilities	1,672	167
Total current liabilities	30,617	34,510
DEFERRED REVENUE	33,454	35,543
RETIREMENT PLAN BENEFIT LIABILITY	24,865	22,594
Total liabilities	88,936	92,647
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $0.01 per share, 5,000,000 shares authorized, 200,000 shares of Series A Nonconvertible Preferred Stock issued and outstanding (liquidation value of $7.50 per share or $1,500)	2	2
Common Stock, par value $0.01 per share, 100,000,000 shares authorized, 48,314,591 and 48,132,223 shares issued, and 46,956,728 and 46,774,360 shares outstanding at September 30, 2016 and December 31, 2015, respectively	483	482
Additional paid-in capital	596,453	589,885
Accumulated deficit	(51,376)	(73,627)
Accumulated other comprehensive loss	(9,587)	(9,819)
Treasury stock, at cost (1,357,863 shares at September 30, 2016 and December 31, 2015)	(40,158)	(40,158)
Total shareholders’ equity	495,817	466,765
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$ 584,753	$ 559,412

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	$ 30,899,000	$ 27,897,000
Finite-Lived Intangible Assets, Accumulated Amortization	65,565,000	54,837,000
Other Finite-Lived Intangible Assets, Accumulated Amortization	$ 311,000	$ 0
Shareholders' Equity
Preferred Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred Stock, shares authorized ( in shares)	5,000,000	5,000,000
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, shares authorized (in shares)	100,000,000	100,000,000
Common Stock, shares issued (in shares)	48,314,591	48,132,223
Common Stock, shares outstanding (in shares)	46,956,728	46,774,360
Treasury Stock
Treasury stock, shares	1,357,863	1,357,863
Series A Nonconvertible Preferred Stock [Member]
Shareholders' Equity A Nonconvertible Preferred Stock
Preferred Stock, shares issued (in shares)	200,000	200,000
Preferred Stock, shares outstanding (in shares)	200,000	200,000
Preferred Stock, liquidation value per share (in dollars per share)	$ 7.50	$ 7.50
Preferred Stock, liquidation value	$ 1,500,000	$ 1,500,000

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
REVENUE:
Material sales	$ 23,465	$ 34,128	$ 70,084	$ 85,270
Royalty and license fees	5,209	5,224	52,569	43,332
Technology development and support revenue	1,540	67	1,656	132
Total revenue	30,214	39,419	124,309	128,734
OPERATING EXPENSES:
Cost of material sales	6,458	7,246	17,194	54,913
Research and development	10,118	11,434	31,562	32,000
Selling, general and administrative	8,465	7,224	22,728	20,487
Patent costs and amortization of acquired technology and other intangible assets	7,361	4,032	15,515	12,461
Royalty and license expense	815	1,105	3,656	3,563
Total operating expenses	33,217	31,041	90,655	123,424
Operating (loss) income	(3,003)	8,378	33,654	5,310
INTEREST INCOME	573	232	1,565	593
INTEREST EXPENSE	(5)	(7)	(21)	(31)
OTHER (EXPENSE) INCOME	(68)	(16)	(1,982)	342
INCOME (LOSS) BEFORE INCOME TAXES	(2,503)	8,587	33,216	6,214
INCOME TAX BENEFIT (EXPENSE)	1,003	(1,540)	(10,965)	(9,624)
NET INCOME (LOSS)	$ (1,500)	$ 7,047	$ 22,251	$ (3,410)
NET INCOME (LOSS) PER COMMON SHARE:
Basic (in dollars per share)	$ (0.03)	$ 0.15	$ 0.47	$ (0.07)
Diluted (in dollars per share)	$ (0.03)	$ 0.15	$ 0.47	$ (0.07)
WEIGHTED AVERAGE SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON SHARE:
Weighted average common shares outstanding - Basic (in shares)	46,947,621	46,542,556	46,889,913	46,241,578
Weighted average common shares outstanding - Diluted (in shares)	46,947,621	46,723,373	47,015,262	46,241,578

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement Of Income And Comprehensive Income [Abstract]
NET INCOME (LOSS)	$ (1,500)	$ 7,047	$ 22,251	$ (3,410)
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gain (loss) on available-for-sale securities, net of tax of $92, $2, $139 and $(6), respectively	(171)	(5)	(256)	(9)
Employee benefit plan:
Actuarial gain (loss), net of tax of $(5), none, $195, and none, respectively	(5)		(358)
Amortization of prior service cost and actuarial loss for retirement plan included in net periodic pension costs, net of tax of $141, $157, $443 and $401, respectively	278	279	814	713
Net change for employee benefit plan	273	279	456	713
Change in cumulative foreign currency translation adjustment	12		32
TOTAL OTHER COMPREHENSIVE INCOME	114	274	232	704
COMPREHENSIVE INCOME (LOSS)	$ (1,386)	$ 7,321	$ 22,483	$ (2,706)

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement Of Income And Comprehensive Income [Abstract]
Unrealized gain (loss) on available-for-sale securities, tax	$ 92	$ 2	$ 139	$ (6)
Actuarial gain (loss), tax	(5)	0	195	0
Amortization of prior service cost and actuarial loss for retirement plan included in net periodic pension costs, tax	$ 141	$ 157	$ 443	$ 401

XML

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Loss [Member]	Treasury Stock [Member]	Series A Nonconvertible Preferred Stock [Member] Preferred Stock [Member]
BALANCE at Dec. 31, 2014					$ (4,382)
Net income (loss)	$ (3,410)
Other comprehensive income	704
BALANCE at Sep. 30, 2015					(3,678)
BALANCE (in shares) at Dec. 31, 2015		48,132,223				1,357,863	200,000
BALANCE at Dec. 31, 2015	466,765	$ 482	$ 589,885	$ (73,627)	(9,819)	$ (40,158)	$ 2
Net income (loss)	22,251			22,251
Other comprehensive income	232				232
Exercise of common stock options (in shares)		12,500
Exercise of common stock options	182		182
Issuance of common stock to employees (in shares)		219,173
Issuance of common stock to employees	9,245	$ 2	9,243
Shares withheld for employee taxes (in shares)		(91,659)
Shares withheld for employee taxes	(4,840)	$ (1)	(4,839)
Issuance of common stock to Board of Directors and Scientific Advisory Board (in shares)		35,546
Issuance of common stock to Board of Directors and Scientific Advisory Board	1,570		1,570
Issuance of common stock to employees under an ESPP (in shares)		6,808
Issuance of common stock to employees under an ESPP	412		412
BALANCE (in shares) at Sep. 30, 2016		48,314,591				1,357,863	200,000
BALANCE at Sep. 30, 2016	$ 495,817	$ 483	$ 596,453	$ (51,376)	$ (9,587)	$ (40,158)	$ 2

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 22,251	$ (3,410)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of deferred revenue	(5,281)	(7,031)
Depreciation	3,002	2,223
Amortization of intangibles	11,039	8,249
Inventory write-down		33,000
Amortization of premium and discount on investments, net	(1,316)	(479)
Stock-based compensation to employees	8,231	6,759
Stock-based compensation to Board of Directors and Scientific Advisory Board	1,273	818
Deferred income tax benefit	4,726	4,291
Retirement plan benefit expense	3,004	2,433
Decrease (increase) in assets, net of effect of acquisition:
Accounts receivable	3,723	(6,275)
Inventory	(3,249)	(9,579)
Other current assets	(4,977)	(167)
Other assets	(249)	193
Increase (decrease) in liabilities, net of effect of acquisition:
Accounts payable and accrued expenses	(5,134)	1,192
Other current liabilities	(5)	(7)
Deferred revenue	3,296	48,411
Net cash provided by operating activities	40,334	80,621
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(4,361)	(4,650)
Purchase of intangibles	(95,989)
Purchase of business, net of cash acquired	(33,163)
Purchases of investments	(380,260)	(453,672)
Proceeds from sale of investments	434,683	425,660
Net cash used in investing activities	(79,090)	(32,662)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	317	263
Proceeds from the exercise of common stock options	182	1,629
Payment of withholding taxes related to stock-based compensation to employees	(4,840)	(5,313)
Net cash used in financing activities	(4,341)	(3,421)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(43,097)	44,538
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	97,513	45,418
CASH AND CASH EQUIVALENTS, END OF PERIOD	54,416	$ 89,956
Earnout liability recorded for Adesis acquisition	$ 1,510

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS Non-Cash Activities - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Other Significant Noncash Transactions [Line Items]
Unrealized loss on available-for-sale securities	$ 256	$ 9
Net change in accounts payable and accrued expenses related to purchases of property and equipment	133	(858)
Earnout liability recorded for Adesis acquisition	1,510
Common Stock Issued to Board of Directors and Scientific Advisory Board that was Earned and Accrued for in Previous Period [Member]
Other Significant Noncash Transactions [Line Items]
Other significant noncash transaction, value of consideration received	300	300
Common Stock Issued to Employees that was Earned and Accrued for in Previous Period Net of Shares Withheld for Taxes [Member]
Other Significant Noncash Transactions [Line Items]
Other significant noncash transaction, value of consideration received	$ 1,105	$ 967

XML

BUSINESS

9 Months Ended

Sep. 30, 2016

Organization Consolidation And Presentation Of Financial Statements [Abstract]

BUSINESS

1. BUSINESS:

Universal Display Corporation (the Company) is a leader in the research, development and commercialization of organic light emitting diode (OLED) technologies and materials. OLEDs are thin, lightweight and power-efficient solid-state devices that emit light, making them highly suitable for use in full-color displays and as lighting products. OLED displays are capturing a growing share of the display market. The Company believes this is because OLEDs offer potential advantages over competing display technologies with respect to power efficiency, contrast ratio, viewing angle, video response time, form factor and manufacturing cost. The Company also believes that OLED lighting products have the potential to replace many existing light sources in the future because of their high power efficiency, excellent color rendering index, low operating temperature and novel form factor. The Company's technology leadership and intellectual property position should enable it to share in the revenues from OLED displays and lighting products as they enter mainstream consumer and other markets.

The Company's primary business strategy is to (1) further develop and license its proprietary OLED technologies to manufacturers of products for display applications, such as mobile phones, televisions, tablets, wearables, portable media devices, notebook computers, personal computers, and automotive interiors, and specialty and general lighting products; and (2) develop new OLED materials and sell existing and any new materials to those product manufacturers. The Company has established a significant portfolio of proprietary OLED technologies and materials, primarily through internal research and development efforts and acquisitions of patents and patent applications, as well as maintaining its relationships with world-class partners such as Princeton University (Princeton), the University of Southern California (USC), the University of Michigan (Michigan) and PPG Industries, Inc. (PPG Industries). The Company currently owns, exclusively licenses or has the sole right to sublicense more than 4,200 patents issued and pending worldwide.

The Company sells its proprietary OLED materials to customers for evaluation and use in commercial OLED products. The Company also enters into agreements with manufacturers of OLED display and lighting products under which it grants them licenses to practice under its patents and to use the Company's proprietary know-how. At the same time, the Company works with these and other companies who are evaluating the Company's OLED technologies and materials for possible use in commercial OLED display and lighting products.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position as of September 30, 2016 and results of operations for the three and nine months ended September 30, 2016 and 2015, and cash flows for the nine months ended September 30, 2016 and 2015. While management believes that the disclosures presented are adequate to make the information not misleading, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s latest year-end financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for the full year.

Principles of Consolidation

The consolidated financial statements include the accounts of Universal Display Corporation and its wholly owned subsidiaries, UDC, Inc., UDC Ireland Limited, Universal Display Corporation Hong Kong, Limited, Universal Display Corporation Korea, Y.H., Universal Display Corporation Japan GK, Universal Display Corporation China, Ltd. and Adesis, Inc. (Adesis). All intercompany transactions and accounts have been eliminated.

Business Combinations

Accounting for acquisitions requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, adjustments may be recorded to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statement of operations.

Management’s Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates made are principally in the areas of revenue recognition for license agreements, the useful life of acquired intangibles, the use and recoverability of inventories, intangibles and income taxes including realization of deferred tax assets, stock-based compensation and retirement benefit plan liabilities. Actual results could differ from those estimates.

Inventories

Inventories consist of raw materials, work-in-process and finished goods, including inventory consigned to customers, and are stated at the lower of cost, determined on a first-in, first-out basis, or market. Inventory valuation and firm committed purchase order assessments are performed on a quarterly basis and those items that are identified to be obsolete or in excess of forecasted usage are written down to their estimated realizable value. Estimates of realizable value are based upon management’s analyses and assumptions, including, but not limited to, forecasted sales levels by product, expected product lifecycle, product development plans and future demand requirements. A 12-month rolling forecast based on factors, including, but not limited to, production cycles, anticipated product orders, marketing forecasts, backlog, and shipment activities is used in the inventory analysis. If market conditions are less favorable than forecasts or actual demand from customers is lower than estimates, additional inventory write-downs may be required. If demand is higher than expected, inventories that had previously been written down may be sold.

Certain of the Company’s customers have assumed the responsibility for maintaining the Company's inventory at their location based on the customers' demand forecast. Notwithstanding the fact that the Company builds and ships the inventory, the customer does not purchase the consigned inventory until the inventory is drawn or pulled by the customer to be used in the manufacture of the customer’s product. Though the consigned inventory may be at the customer’s physical location, it remains inventory owned by the Company until the inventory is drawn or pulled, which is the time at which the sale takes place.

Fair Value of Financial Instruments

The carrying values of accounts receivable, other current assets, and accounts payable approximate fair value in the accompanying financial statements due to the short-term nature of those instruments. The Company’s other financial instruments, which include cash equivalents and investments, are carried at fair value.

Revenue Recognition and Deferred Revenue

Material sales relate to the Company’s sale of its OLED materials for incorporation into its customers’ commercial OLED products or for their OLED development and evaluation activities. Material sales are recognized at the time title passes, which is typically at the time of shipment or at the time of delivery, depending upon the contractual agreement between the parties.

The Company receives license and royalty payments under certain commercial, development and technology evaluation agreements, some of which are non-refundable. These payments may include royalty and license fees made pursuant to license agreements and certain commercial supply agreements. Amounts received are deferred and classified as either current or non-current deferred revenue based upon current contractual remaining terms; however, based upon on-going relationships with customers, as well as future agreement extensions and other factors, amounts classified as current as of September 30, 2016 may not be recognized as revenue over the next twelve months. For arrangements with extended payment terms where the fee is not fixed and determinable, the Company recognizes revenue when the payment is due and payable. Royalty revenue and license fees included as part of commercial supply agreements are recognized when earned and the amount is fixed and determinable. If the Company used different estimates for the useful life of the licensed technology, or if fees are fixed and determinable, reported revenue during the relevant period would differ.

Technology development and support revenue is revenue earned from government contracts, development and technology evaluation agreements and commercialization assistance fees, which includes reimbursements by government entities for all or a portion of the research and development costs the Company incurs in relation to its government contracts. Revenues are recognized proportionally as research and development costs are incurred, or as defined milestones are achieved.

Currently, the Company's most significant commercial license agreement, which runs through the end of 2017, is with Samsung Display Co., Ltd. (SDC) and covers the manufacture and sale of specified OLED display products. Under this agreement, the Company is being paid a license fee, payable in semi-annual installments over the agreement term of 6.4 years. The installments, which are due in the second and fourth quarter of each year, increase on an annual basis over the term of the agreement. The agreement conveys to SDC the non-exclusive right to use certain of the Company's intellectual property assets for a limited period of time that is less than the estimated life of the assets. Ratable recognition of revenue is impacted by the agreement's extended increasing payment terms in light of the Company's limited history with similar agreements. As a result, revenue is recognized at the lesser of the proportional performance approach (ratable) and the amount of due and payable fees from SDC. Given the increasing contractual payment schedule, license fees under the agreement are recognized as revenue when they become due and payable, which is currently scheduled to be in the second and fourth quarter of each year.

In 2015, the Company entered into an OLED patent license agreement and an OLED commercial supply agreement with LG Display Co., Ltd. (LG Display) which were effective as of January 1, 2015 and superseded the 2007 commercial supply agreement between the parties. The new agreements have a term that is set to expire by the end of 2022. The patent license agreement provides LG Display a non-exclusive, royalty bearing portfolio license to make and sell OLED displays under the Company's patent portfolio. The patent license calls for license fees, prepaid royalties and running royalties on licensed products. The prepaid royalty amount is included in deferred revenue and a portion of this amount can be credited against total royalties due over the life of the contract. The agreements include customary provisions relating to warranties, indemnities, confidentiality, assignability and business terms. The agreements provide for certain other minimum obligations relating to the volume of material sales anticipated over the term of the agreements, as well as minimum royalty revenue to be generated under the patent license agreement. The Company expects to generate revenue under these agreements that are predominantly tied to LG Display’s sales of OLED licensed products. The OLED commercial supply agreement provides for the sale of materials for use by LG Display, which may include phosphorescent dopants and host materials.

The Company records taxes billed to customers and remitted to various governmental entities on a gross basis in both revenues and cost of material sales in the consolidated statements of operations. The amounts of these pass through taxes reflected in revenues and cost of material sales were $74,000 and $143,000 for the three and nine months ended September 30, 2016, respectively, and $230,000 and $1.1 million for the three and nine months ended September 30, 2015, respectively.

Cost of Material Sales

Cost of material sales consists of labor and material costs associated with the production of materials processed at the Company's manufacturing partners and at the Company's internal manufacturing processing facility. The Company’s portion of cost of material sales also includes depreciation of manufacturing equipment, as well as manufacturing overhead costs and inventory adjustments for excess and obsolete inventory.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued a new revenue recognition standard entitled Revenue from Contracts with Customers. The objective of the standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows from a contract with a customer. The standard is effective for annual reporting periods beginning after December 15, 2017. Earlier adoption as of the original date is optional; however, the Company will adopt the standard beginning January 1, 2018. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. The Company is currently assessing which method it will choose for adoption, and is evaluating the impact of the adoption of this new accounting standard on its consolidated results of operations and financial position.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which requires an entity that uses the first-in first-out method for inventory to report inventory cost at the lower of cost or net realizable value versus the current measurement principle of lower of cost or market. The ASU requires prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the effect that ASU 2015-11 may have on its consolidated financial statements and related disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, which requires the classification of all deferred tax assets and liabilities as noncurrent. The standard is effective for annual reporting periods beginning after December 15, 2016. The standard allows for either “prospective” adoption, meaning the standard is applied to the most current period presented in the financial statements or “full retrospective” adoption, meaning the standard is applied to all periods presented. Earlier adoption is permitted. The Company is evaluating the effect that ASU 2015-17 may have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Accounting. The objective of the standard is to simplify the accounting and related disclosures associated with employee share-based accounting. The standard is effective for annual reporting periods beginning after December 15, 2016. The ASU requires prospective adoption, meaning the standard is applied to the most current period presented in the financial statements. Earlier adoption is permitted. The Company is evaluating the effect that ASU 2016-09 may have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The objective of the standard is to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The ASU provides additional clarification guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017 with early adoption permitted. The Company is evaluating the effect that ASU 2016-15 may have on its consolidated financial statements and related disclosures.

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BUSINESS COMBINATIONS

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

BUSINESS COMBINATIONS

3. BUSINESS COMBINATIONS:

On June 23, 2016, the Company entered into an agreement to acquire Adesis, a privately held contract research organization (CRO) with 43 employees specializing in organic and organometallic synthetic research, development, and commercialization. Adesis is a technology vendor to companies in the pharmaceutical, fine chemical, biomaterials, and catalyst industries, and has worked with the Company over the last few years to help advance and accelerate a number of the Company’s product offerings. The transaction closed on July 11, 2016. Under the terms of the agreement, the Company’s subsidiary, UDC, Inc., acquired all outstanding shares of Adesis in a merger for $33.7 million in cash, and up to an additional $2.4 million in cash contingent upon Adesis’ achievement of certain milestones within two years of the acquisition. The acquisition was funded through use of existing cash and investments.

Preliminary Purchase Price Allocation

The Company accounted for Adesis using the acquisition method of accounting in accordance with applicable U.S. GAAP whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on respective fair values. The contingent consideration arrangement requires the Company to pay up to $1.2 million of additional consideration to the former shareholders of Adesis if revenues exceed certain threshold levels at the end of each twelve-month period ending December 31, 2016 and December 31, 2017. The fair value of the contingent consideration was derived using a Monte Carlo simulation model based on management’s projections of future revenue levels. The following table summarizes the values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Cash consideration	$	33,655
Contingent consideration		1,510
	$	35,165
Allocation of purchase price:
Current assets, including cash of $492	$	2,204
Property and equipment		1,869
Accounts payable and accrued liabilities		(906	)
Net tangible assets		3,167
Identifiable intangible assets		16,450
Goodwill		15,548
Total purchase price	$	35,165

The purchase price exceeded the fair value of the net tangible assets and identifiable intangible assets acquired and, as a result, the Company recorded goodwill in connection with this transaction. This difference includes a going concern element that represents the Company’s ability to earn a higher rate of return on this group of assets than would be expected on the separate assets as determined during the valuation process.

Transaction costs of $360,000 for the three month and nine month periods ended September 30, 2016 were recorded and charged to selling, general and administrative expense on the accompanying consolidated statements of operations.

Intangible Assets Identified

The following table presents the intangible assets identified in the transaction:

Category	Estimated fair value (in thousands)		Estimated useful life (in years)
Customer relationships		10,130		9.5
Internally-developed IP, processes and recipes		4,820		15.0
Trade name/Trademarks		1,500		10.0
Total identifiable intangible assets	$	16,450

The preliminary fair value of the customer relationships asset was determined using the income approach through an excess earnings analysis which estimates value based on the present value of future economic benefits. The customer relationships intangible asset represents relationships between Adesis and its customers. The fair value of the internally-developed IP, processes and recipes was determined by utilizing the relief-from-royalty methodology. The preliminary fair value of the Adesis trade name asset was determined using the income approach through a relief-from-royalty analysis. The determination of useful lives was based upon consideration of market participant assumptions and transaction specific factors.

Impact on Operating Results

The results of Adesis’ operations have been included in the Company’s consolidated financial statements since the July 11, 2016 date of acquisition. The following unaudited pro forma information assumes the acquisition of Adesis occurred at the beginning of the respective periods presented (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
Unaudited Pro Forma Information	2016			2015		2016		2015
Revenue	$	30,347		$	40,698	$	127,970	$	133,319
Net income		(2,241	)		5,903		19,821		(1,752	)

The unaudited pro forma information presented is for illustrative purposes only and does not reflect future events that may occur after September 30, 2016 or any operating efficiencies or inefficiencies that may result from the Adesis acquisition. Additionally, this unaudited pro forma information includes certain one-time costs associated with the Company’s integration of the acquired Adesis operations. Therefore, the information is not necessarily indicative of the results that would have been achieved had the business been combined during the periods presented or the results that the Company will experience going forward.

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CASH, CASH EQUIVALENTS AND INVESTMENTS

9 Months Ended

Sep. 30, 2016

Cash And Cash Equivalents [Abstract]

CASH, CASH EQUIVALENTS AND INVESTMENTS

4. CASH, CASH EQUIVALENTS AND INVESTMENTS:

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company classifies its remaining investments as available-for-sale. These securities are carried at fair market value, with unrealized gains and losses reported in shareholders’ equity. Gains or losses on securities sold are based on the specific identification method. Investments as of September 30, 2016 and December 31, 2015 consisted of the following (in thousands):

	Amortized		Unrealized					AggregateFair
Investment Classification	Cost		Gains		(Losses)			Market Value
September 30, 2016
Certificates of deposit	$	6,855	$	7	$	(2	)	$	6,860
Corporate bonds		224,376		—		(247	)		224,129
U.S. Government bonds		15,999		—		(319	)		15,680
	$	247,230	$	7	$	(568	)	$	246,669
December 31, 2015
Certificates of deposit	$	11,532	$	3	$	(14	)	$	11,521
Corporate bonds		233,848		—		(139	)		233,709
U.S. Government bonds		54,953		1		(16	)		54,938
	$	300,333	$	4	$	(169	)	$	300,168

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INVENTORY

9 Months Ended

Sep. 30, 2016

Inventory Disclosure [Abstract]

INVENTORY

5. INVENTORY:

Inventory consisted of the following (in thousands):

	September 30, 2016		December 31, 2015
Raw materials	$	6,538	$	6,539
Work-in-process		1,281		1,064
Finished goods		8,284		5,145
Inventory	$	16,103	$	12,748

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

6. FAIR VALUE MEASUREMENTS:

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2016 (in thousands):

			Fair Value Measurements, Using
	Total carrying value as of September 30, 2016		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Cash equivalents	$	28,072	$	28,072	$	—	$	—
Short-term investments		231,452		231,452		—		—
Long-term investments		15,217		15,217		—		—

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2015 (in thousands):

			Fair Value Measurements, Using
	Total carrying value as of December 31, 2015		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Cash equivalents	$	34,980	$	34,980	$	—	$	—
Short-term investments		297,981		297,981		—		—
Long-term investments		2,187		2,187		—		—

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on management’s own assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s classification is determined based on the lowest level input that is significant to the fair value measurement.

Changes in fair value of the investments are recorded as unrealized gains and losses in other comprehensive income. If a decline in fair value of an investment is deemed to be other than temporary, the cost of the Company’s investment will be written down by the amount of the other-than-temporary impairment with a resulting charge to net income. There were no other-than-temporary impairments of investments as of September 30, 2016 or December 31, 2015.

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RESEARCH AND LICENSE AGREEMENTS WITH PRINCETON UNIVERSITY, UNIVERSITY OF SOUTHERN CALIFORNIA AND THE UNIVERSITY OF MICHIGAN

9 Months Ended

Sep. 30, 2016

Research And Development [Abstract]

RESEARCH AND LICENSE AGREEMENTS WITH PRINCETON UNIVERSITY, UNIVERSITY OF SOUTHERN CALIFORNIA AND THE UNIVERSITY OF MICHIGAN

7. RESEARCH AND LICENSE AGREEMENTS WITH PRINCETON UNIVERSITY, UNIVERSITY OF SOUTHERN CALIFORNIA AND THE UNIVERSITY OF MICHIGAN:

The Company funded OLED technology research at Princeton University and, on a subcontractor basis, at the University of Southern California for 10 years under a Research Agreement executed with Princeton University in August 1997 (the 1997 Research Agreement). The principal investigator conducting work under the 1997 Research Agreement transferred to the University of Michigan in January 2006. Following this transfer, the 1997 Research Agreement was allowed to expire on July 31, 2007.

As a result of the transfer, the Company entered into a new Sponsored Research Agreement with the University of Southern California to sponsor OLED technology research and, on a subcontractor basis, with the University of Michigan. This new Sponsored Research Agreement (as amended, the 2006 Research Agreement) was effective as of May 1, 2006 and had an original term of three years. On May 1, 2009, the Company amended the 2006 Research Agreement to extend the term of the agreement for an additional four years. The 2006 Research Agreement superseded the 1997 Research Agreement with respect to all work being performed at the University of Southern California and the University of Michigan. Payments under the 2006 Research Agreement were made to the University of Southern California on a quarterly basis as actual expenses were incurred. The Company incurred a total of $5.0 million in research and development expense for work performed under the 2006 Research Agreement during the extended term, which ended on April 30, 2013.

Effective June 1, 2013, the Company amended the 2006 Research Agreement again to extend the term of the agreement for an additional four years. As of September 30, 2016, the Company was obligated to pay the University of Southern California up to $1.8 million for work to be actually performed during the remaining extended term, which expires April 30, 2017. From June 1, 2013 through September 30, 2016, the Company incurred $3.7 million in research and development expense for work performed under the 2006 Research Agreement.

On October 9, 1997, the Company, Princeton University and the University of Southern California entered into an Amended License Agreement (as amended, the 1997 Amended License Agreement) under which Princeton University and the University of Southern California granted the Company worldwide, exclusive license rights, with rights to sublicense, to make, have made, use, lease and/or sell products and to practice processes based on patent applications and issued patents arising out of work performed by Princeton University and the University of Southern California under the 1997 Research Agreement. Under this 1997 Amended License Agreement, the Company is required to pay Princeton University royalties for licensed products sold by the Company or its sublicensees. For licensed products sold by the Company, the Company is required to pay Princeton University 3% of the net sales price of these products. For licensed products sold by the Company’s sublicensees, the Company is required to pay Princeton 3% of the revenues received by the Company from these sublicensees. These royalty rates are subject to renegotiation for products not reasonably conceivable as arising out of the 1997 Research Agreement if Princeton University reasonably determines that the royalty rates payable with respect to these products are not fair and competitive.

The Company is obligated, under the 1997 Amended License Agreement, to pay to Princeton University minimum annual royalties. The minimum royalty payment is $100,000 per year. The Company recorded royalty expense in connection with this agreement of $853,000 and $1.1 million for the three months ended September 30, 2016 and 2015, respectively, and $3.7 million and $3.6 million for the nine months ended September 30, 2016 and 2015, respectively.

The Company also is required, under the 1997 Amended License Agreement, to use commercially reasonable efforts to bring the licensed OLED technology to market. However, this requirement is deemed satisfied if the Company invests a minimum of $800,000 per year in research, development, commercialization or patenting efforts respecting the patent rights licensed to the Company.

In connection with entering into the 2006 Research Agreement, the Company amended the 1997 Amended License Agreement to include the University of Michigan as a party to that agreement effective as of January 1, 2006. Under this amendment, Princeton University, the University of Southern California and the University of Michigan have granted the Company a worldwide exclusive license, with rights to sublicense, to make, have made, use, lease and/or sell products and to practice processes based on patent applications and issued patents arising out of work performed under the 2006 Research Agreement. The financial terms of the 1997 Amended License Agreement were not impacted by this amendment.

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GOODWILL AND INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2016

Finite Lived Intangible Assets Net [Abstract]

GOODWILL AND INTANGIBLE ASSETS

8. GOODWILL AND INTANGIBLE ASSETS:

The Company monitors the recoverability of goodwill annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Purchased intangible assets subject to amortization consist primarily of acquired technology and other intangible assets that include trade names, customer relationships and internally developed IP processes.

Acquired Technology

Acquired technology consists of acquired license rights for patents and know-how obtained from PD-LD, Inc., Motorola, BASF SE (BASF) and Fujifilm. These intangible assets consist of the following (in thousands):

	September 30, 2016
PD-LD, Inc.	$	1,481
Motorola		15,909
BASF		95,989
Fujifilm		109,462
		222,841
Less: Accumulated amortization		(65,565	)
Acquired technology, net	$	157,276

Amortization expense related to acquired technology was $5.1 million and $2.7 million for the three months ended September 30, 2016 and 2015, respectively, and $10.7 million and $8.2 million for the nine months ended September 30, 2016 and 2015, respectively. Amortization expense is included in the patent costs and amortization of acquired technology expense line item on the Consolidated Statements of Operations and is expected to be $15.9 million in 2016 and $20.6 million for each of the five subsequent fiscal years.

Motorola Patent Acquisition

In 2000, the Company entered into a royalty-bearing license agreement with Motorola whereby Motorola granted the Company perpetual license rights to what are now 74 issued U.S. patents relating to Motorola’s OLED technologies, together with foreign counterparts in various countries. These patents will all expire in the U.S. by 2018.

On March 9, 2011, the Company purchased these patents from Motorola, including all existing and future claims and causes of action for any infringement of the patents, pursuant to a Patent Purchase Agreement. The Patent Purchase Agreement effectively terminated the Company’s license agreement with Motorola, including any obligation to make royalty payments to Motorola. The technology acquired from Motorola is being amortized over a period of 7.5 years.

Fujifilm Patent Acquisition

On July 23, 2012, the Company entered into a Patent Sale Agreement with Fujifilm. Under the agreement, Fujifilm sold more than 1,200 OLED-related patents and patent applications in exchange for a cash payment of $105.0 million, plus costs incurred in connection with the purchase. The agreement contains customary representations and warranties and covenants, including respective covenants not to sue by both parties thereto. The agreement permitted the Company to assign all of its rights and obligations under the agreement to its affiliates, and the Company assigned, prior to the consummation of the transactions contemplated by the agreement, its rights and obligations to UDC Ireland Limited (UDC Ireland), a wholly-owned subsidiary of the Company formed under the laws of the Republic of Ireland. The transactions contemplated by the agreement were consummated on July 26, 2012. The Company recorded the $105.0 million plus $4.5 million of purchase costs as acquired technology, which is being amortized over a period of 10 years.

BASF Patent Acquisition

On June 28, 2016, UDC Ireland entered into and consummated an IP Transfer Agreement with BASF. Under the IP Transfer Agreement, BASF sold to UDC Ireland all of its rights, title and interest to certain of its owned and co-owned intellectual property rights relating to the composition of, development, manufacture and use of OLED materials, including OLED lighting and display stack technology, as well as certain tangible assets. The intellectual property includes knowhow and more than 500 issued and pending patents in the area of phosphorescent materials and technologies. These assets were acquired in exchange for a cash payment of €86.8 million ($95.8 million). In addition, UDC Ireland also took on certain rights and obligations under three joint research and development agreements to which BASF was a party. The IP Transfer Agreement also contains customary representations, warranties and covenants of the parties. UDC Ireland recorded the payment of €86.8 million ($95.8 million) and acquisition costs incurred of $217,000 as acquired technology which is being amortized over a period of 10 years.

Other Intangible Assets

As a result of the Adesis acquisition, the Company recorded $16.5 million of other intangible assets, including $10.1 million assigned to customer relationships with a weighted average life of 9.5 years, $4.8 million of internally developed IP, processes and recipes with a weighted average life of 15 years, and $1.5 million assigned to trade name and trademarks with a weighted average life of 10 years.

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	10,130	$	(216	)	$	9,914
Internally-developed IP, processes and recipes		4,820		(65	)		4,755
Trade name/Trademarks		1,500		(30	)		1,470
Total identifiable intangible assets	$	16,450	$	(311	)	$	16,139

Amortization expense related to other intangible assets was $311,000 for the three months and nine months ended September 30, 2016. Amortization expense is included in the patent costs and amortization of acquired technology expense line item on the Consolidated Statements of Operations and is expected to be $699,000 in 2016 and $1.5 million for each of the five subsequent fiscal years.

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EQUITY AND CASH COMPENSATION UNDER THE PPG AGREEMENTS

9 Months Ended

Sep. 30, 2016

Long Term Commitment Excluding Unconditional Purchase Obligation [Abstract]

EQUITY AND CASH COMPENSATION UNDER THE PPG AGREEMENTS

9. EQUITY AND CASH COMPENSATION UNDER THE PPG AGREEMENTS:

On September 22, 2011, the Company entered into an Amended and Restated OLED Materials Supply and Service Agreement with PPG Industries (the New OLED Materials Agreement), which replaced the original OLED Materials Agreement with PPG Industries effective as of October 1, 2011. The term of the New OLED Materials Agreement ran through December 31, 2015 and shall be automatically renewed for additional one year terms, unless terminated by the Company by providing prior notice of one year or terminated by PPG by providing prior notice of two years. The agreement was automatically renewed through December 31, 2017. The New OLED Materials Agreement contains provisions that are substantially similar to those of the original OLED Materials Agreement. Under the New OLED Materials Agreement, PPG Industries continues to assist the Company in developing its proprietary OLED materials and supplying the Company with those materials for evaluation purposes and for resale to its customers.

Under the New OLED Materials Agreement, the Company compensates PPG Industries on a cost-plus basis for the services provided during each calendar quarter. The Company is required to pay for some of these services in all cash. Up to 50% of the remaining services are payable, at the Company’s sole discretion, in cash or shares of the Company’s common stock, with the balance payable in cash. The actual number of shares of common stock issuable to PPG Industries is determined based on the average closing price for the Company’s common stock during a specified number of days prior to the end of each calendar half-year period ending on March 31 and September 30. If, however, this average closing price is less than $20.00, the Company is required to compensate PPG Industries in cash. No shares were issued for services to PPG for the three or nine months ended September 30, 2016 or 2015.

The Company is also to reimburse PPG Industries for raw materials used for research and development. The Company records the purchases of these raw materials as a current asset until such materials are used for research and development efforts.

The Company recorded research and development expense of $395,000 and $2.7 million for the three months ended September 30, 2016 and 2015, respectively, and $2.3 million and $5.7 million for the nine months ended September 30, 2016 and 2015, respectively, in relation to the cash portion of the reimbursement of expenses and work performed by PPG Industries, excluding amounts paid for commercial chemicals.

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SHAREHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

SHAREHOLDERS' EQUITY

10. SHAREHOLDERS’ EQUITY:

Common and Preferred Stock

The Company is authorized to issue 100 million shares of $0.01 par value common stock and 5 million shares of $0.01 par value preferred stock. Each share of the Company’s common stock entitles the holder to one vote on all matters to be voted upon by the shareholders. As of September 30, 2016, the Company had issued 48,314,591 shares of common stock of which 46,956,728 were outstanding and had issued 200,000 shares of preferred stock, all of which were outstanding.

Scientific Advisory Board and Employee Awards

During the first quarters of 2016 and 2015, the Company granted a total of 27,967 and 35,205 shares, respectively, of fully vested common stock to employees and non-employee members of the Scientific Advisory Board for services performed in 2015 and 2014, respectively. The fair value of the shares issued was $1.1 million and $967,000, respectively, for shares issued to employees and $300,000 for both quarters for shares issued to members of the Scientific Advisory Board, which amounts were accrued at December 31, 2015 and 2014, respectively. In connection with the issuance of these grants, 8,106 and 9,565 shares, with fair values of $410,000 and $346,000, were withheld in satisfaction of employee tax withholding obligations in 2016 and 2015, respectively.

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ACCUMULATED OTHER COMPREHENSIVE LOSS

9 Months Ended

Sep. 30, 2016

Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]

ACCUMULATED OTHER COMPREHENSIVE LOSS

11. ACCUMULATED OTHER COMPREHENSIVE LOSS:

Amounts related to the changes in accumulated other comprehensive loss were as follows (in thousands):

	Unrealized gain (loss) on available-for-sale- securities			Net unrealized gain (loss) on retirement plan (2)			Change in cumulative foreign currency translation adjustment		Total			Affected line items in the consolidated statements of operations
Balance December 31, 2015, net of tax	$	(111	)	$	(9,708	)	$	—	$	(9,819	)
Other comprehensive gain (loss)    before reclassification		(256	)		—			32		(224	)
Actuarial gain (loss)		—			(358	)		—		(358	)
Reclassification to net income (1)		—			814			—		814		Selling, general and administrative, research and development, and cost of material sales
Change during period		(256	)		456			32		232
Balance September 30, 2016, net of tax	$	(367	)	$	(9,252	)	$	32	$	(9,587	)

	Unrealized gain (loss) on available-for-sale- securities			Net unrealized gain (loss) on retirement plan (2)			Change in cumulative foreign currency translation adjustment		Total			Affected line items in the consolidated statements of operations
Balance December 31 2014, net of tax	$	(28	)	$	(4,354	)	$	—	$	(4,382	)
Other comprehensive gain (loss)    before reclassification		(9	)		—			—		(9	)
Actuarial gain (loss)		—			—			—		—
Reclassification to net income (1)		—			713			—		713		Selling, general and administrative, research and development
Change during period		(9	)		713			—		704
Balance September 30 2015, net of tax	$	(37	)	$	(3,641	)	$	—	$	(3,678	)

(1) The Company reclassified amortization of prior service cost and actuarial loss for its retirement plan from accumulated other comprehensive loss to net income (loss) of $814,000 and $713,000 for the nine months ended September 30, 2016 and 2015, respectively.

(2) Refer to Note 13: Supplemental Executive Retirement Plan.

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STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

STOCK-BASED COMPENSATION

12. STOCK-BASED COMPENSATION:

The Company recognizes in the statements of operations the grant-date fair value of equity based awards, such as shares issued under employee stock purchase plans, restricted stock awards, restricted stock units and performance unit awards issued to employees and directors.

The grant-date fair value of stock awards is based on the closing price of the stock on the date of grant. The fair value of share-based awards is recognized as compensation expense on a straight-line basis over the requisite service period, net of forfeitures. The Company issues new shares upon the respective grant, exercise or vesting of share-based payment awards, as applicable.

Performance unit awards are subject to either a performance-based or market-based vesting requirement. For performance-based vesting, the grant-date fair value of the award, based on fair value of the Company's common stock, is recognized over the service period based on an assessment of the likelihood that the applicable performance goals will be achieved, and compensation expense is periodically adjusted based on actual and expected performance. Compensation expense for performance unit awards with market-based vesting is calculated based on the estimated fair value as of the grant date utilizing a Monte Carlo simulation model and is recognized over the service period on a straight-line basis.

Equity Compensation Plan

The Equity Compensation Plan provides for the granting of incentive and nonqualified stock options, shares of common stock, stock appreciation rights and performance units to employees, directors and consultants of the Company. Stock options are exercisable over periods determined by the Compensation Committee, but for no longer than 10 years from the grant date. Through September 30, 2016, the Company’s shareholders have approved increases in the number of shares reserved for issuance under the Equity Compensation Plan to 10,500,000, and have extended the term of the plan through 2024. As of September 30, 2016, there were 2,620,187 shares that remained available to be granted under the Equity Compensation Plan.

Stock Awards

Restricted Stock Awards and Units

The Company has issued restricted stock awards and units to employees and non-employees with vesting terms of one to six years. The fair value is equal to the market price of the Company’s common stock on the date of grant for awards granted to employees and equal to the market price at the end of the reporting period for unvested non-employee awards or upon the date of vesting for vested non-employee awards. Expense for restricted stock awards and units is amortized ratably over the vesting period for the awards issued to employees and using a graded vesting method for the awards issued to non-employees.

During the nine months ended September 30, 2016, the Company granted 137,720 shares of restricted stock awards and restricted stock units to employees and non-employees, which had a total fair value of $8.5 million on the respective dates of grant, and will vest over three to five years from the date of grant, provided that the grantee is still an employee of the Company or is still providing services to the Company on the applicable vesting date.

For the three months ended September 30, 2016 and 2015, the Company recorded, as compensation charges related to all restricted stock awards and units to employees and non-employees, selling, general and administrative expense of $1.9 million for both periods, research and development expense of $376,000 and $492,000, respectively, and cost of material sales of $94,000 and $4,600, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded, as compensation charges related to all restricted stock awards and units, selling, general and administrative expense of $5.3 million and $4.4 million, respectively, research and development expense of $1.4 for both periods, and cost of material sales of $352,000 and $11,000, respectively.

In connection with the vesting of restricted stock awards and units during the nine months ended September 30, 2016 and 2015, 83,553 and 98,635 shares, with aggregate fair values of $4.4 million and $4.2  million, respectively, were withheld in satisfaction of tax withholding obligations.

For the three months ended September 30, 2016 and 2015, the Company recorded as compensation charges related to all restricted stock units to non-employee members of the Scientific Advisory Board, research and development expense of $10,000 and a credit of $51,000, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded as compensation charges related to all restricted stock units to non-employee members of the Scientific Advisory Board, research and development expense of $174,000  and $223,000, respectively.

Board of Directors Compensation

The Company has granted restricted stock units to non-employee members of the Board of Directors with quarterly vesting over a period of approximately one year. The fair value is equal to the market price of the Company's common stock on the date of grant. The restricted stock units are issued and expense is recognized ratably over the vesting period. For the three months ended September 30, 2016 and 2015, the Company recorded compensation charges for services performed, related to all restricted stock units granted to non-employee members of the Board of Directors, selling, general and administrative expense of $369,000 and $210,000, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded compensation charges for services performed, related to all restricted stock units granted to non-employee members of the Board of Directors, selling, general and administrative expense of $1.1 million and $595,000, respectively. In connection with the vesting of the restricted stock, the Company issued 22,500 and 21,667 shares, during the nine months ended September 30, 2016 and 2015, respectively, to non-employee members of the Board of Directors.

Performance Unit Awards

During the nine months ended September 30, 2016, the Company granted 25,045 performance units, of which 12,520 are subject to a performance-based vesting requirement and 12,525 are subject to a market-based vesting requirement and will vest over the terms described below. Total fair value of the performance unit awards granted was $1.5 million on the date of grant.

Each performance unit award is subject to both a performance-vesting requirement (either performance-based or market-based) and a service-vesting requirement.

The performance-based vesting requirement is tied to the Company's cumulative revenue growth compared to the cumulative revenue growth of companies comprising the Nasdaq Electronics Components Index, as measured over a specific performance period. The market-based vesting requirement is tied to the Company's total shareholder return relative to the total shareholder return of companies comprising the Nasdaq Electronics Components Index, as measured over a specific performance period.

The maximum number of performance units that may vest based on performance is two times the shares granted. Further, if the Company's total shareholder return is negative, the performance units may not vest at all.

For the three months ended September 30, 2016 and 2015, the Company recorded general and administrative expense of $281,000 and $219,000, respectively, research and development expense of $78,000 and $58,000, respectively, and cost of material sales of $29,000 and none, respectively, related to performance units. For the nine months ended September 30, 2016 and 2015, the Company recorded general and administrative expense of $836,000 and $723,000, respectively, research and development expense of $232,000 and $200,000, and cost of material sales of $85,000 and none, respectively, related to performance units.

In connection with the vesting of performance units during the nine months ended September 30, 2016 and 2015, none and 16,071 shares with an aggregate fair value of none and $752,000, respectively, were withheld in satisfaction of tax withholding obligations.

Employee Stock Purchase Plan

On April 7, 2009, the Board of Directors of the Company adopted an Employee Stock Purchase Plan (ESPP). The ESPP was approved by the Company’s shareholders and became effective on June 25, 2009. The Company has reserved 1,000,000 shares of common stock for issuance under the ESPP. Unless sooner terminated by the Board of Directors, the ESPP will expire when all reserved shares have been issued.

Eligible employees may elect to contribute to the ESPP through payroll deductions during consecutive three-month purchase periods. Each employee who elects to participate will be deemed to have been granted an option to purchase shares of the Company’s common stock on the first day of the purchase period. Unless the employee opts out during the purchase period, the option will automatically be exercised on the last day of the period, which is the purchase date, based on the employee’s accumulated contributions to the ESPP. The purchase price will equal 85% of the lesser of the closing price per share of common stock on the first day of the period or the last business day of the period.

Employees may allocate up to 10% of their base compensation to purchase shares of common stock under the ESPP; however, each employee may purchase no more than 12,500 shares on a given purchase date, and no employee may purchase more than $25,000 of common stock under the ESPP during a given calendar year.

During the nine months ended September 30, 2016 and 2015, the Company issued 6,808 and 9,044 shares, respectively, of its common stock under the ESPP, resulting in proceeds of $318,000 and $263,000, respectively.

For the three months ended September 30, 2016 and 2015, the Company recorded charges of $10,000 and $9,000, respectively, to selling, general and administrative expense, $17,000 and $12,000, respectively, to research and development expense, and $4,000 and $2,000, to cost of material sales, respectively, related to the ESPP equal to the amount of the discount and the value of the look-back feature.

For the nine months ended September 30, 2016 and 2015, the Company recorded charges of $31,000 and $26,000, respectively, to selling, general and administrative expense, $51,000 and $39,000, respectively, to research and development expense, and $12,000 and $6,000, to cost of material sales, related to the ESPP equal to the amount of the discount and the value of the look-back feature.

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SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

9 Months Ended

Sep. 30, 2016

Defined Benefit Pension Plans And Defined Benefit Postretirement Plans Disclosure [Abstract]

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

13. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN:

On March 18, 2010, the Compensation Committee and the Board of Directors of the Company approved and adopted the Universal Display Corporation Supplemental Executive Retirement Plan (SERP), effective as of April 1, 2010. On March 3, 2015, the Compensation Committee and the Board of Directors amended the SERP to include salary and bonus as part of the plan. Prior to this amendment, the SERP benefit did not take into account any bonuses. This change increased the liability related to the SERP. The purpose of the SERP, which is unfunded, is to provide certain of the Company’s key employees with supplemental retirement benefits following a cessation of their employment and to encourage their continued employment with the Company. As of September 30, 2016 there were six participants in the SERP.

The Company records amounts relating to the SERP based on calculations that incorporate various actuarial and other assumptions, including discount rates, rate of compensation increases, retirement dates and life expectancies. The net periodic costs are recognized as employees render the services necessary to earn the SERP benefits.

The components of net periodic pension cost were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Service cost	$	354	$	319	$	1,062	$	867
Interest cost		219		166		656		452
Amortization of prior service cost		415		436		1,245		1,114
Amortization of loss		3		—		11		—
Total net periodic benefit cost	$	991	$	921	$	2,974	$	2,433

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2016

Commitments And Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

14. COMMITMENTS AND CONTINGENCIES:

Commitments

Under the 2006 Research Agreement with USC, the Company is obligated to make certain payments to USC based on work performed by USC under that agreement, and by Michigan under its subcontractor agreement with USC. See Note 7 for further explanation.

Under the terms of the 1997 Amended License Agreement, the Company is required to make minimum royalty payments to Princeton. See Note 7 for further explanation.

The Company has agreements with seven executive officers which provide for certain cash and other benefits upon termination of employment of the officer in connection with a change in control of the Company. If the executive’s employment is terminated in connection with the change in control, the executive is entitled to a lump-sum cash payment equal to two times the sum of the average annual base salary and bonus of the officer and immediate vesting of all stock options and other equity awards that may be outstanding at the date of the change in control, among other items.

In order to manage manufacturing lead times and help ensure adequate material supply, the Company entered into a New OLED Materials Agreement (see Note 9) that will allow PPG Industries to procure and produce inventory based upon criteria as defined by the Company. These purchase commitments consist of firm, noncancelable and unconditional commitments. In certain instances, this agreement allows the Company the option to reschedule and adjust the Company’s requirements based on its business needs prior to firm orders being placed. As of September 30, 2016 and December 31, 2015, the Company had purchase commitments for inventory of $5.7 million and $9.0 million, respectively.

Patent Related Challenges and Oppositions

Each major jurisdiction in the world that issues patents provides both third parties and applicants an opportunity to seek a further review of an issued patent. The process for requesting and considering such reviews is specific to the jurisdiction that issued the patent in question, and generally does not provide for claims of monetary damages or a review of specific claims of infringement. The conclusions made by the reviewing administrative bodies tend to be appealable and generally are limited in scope and applicability to the specific claims and jurisdiction in question.

The Company believes that opposition proceedings are frequently commenced in the ordinary course of business by third parties who may believe that one or more claims in a patent do not comply with the technical or legal requirements of the specific jurisdiction in which the patent was issued. The Company views these proceedings as reflective of its goal of obtaining the broadest legally permissible patent coverage permitted in each jurisdiction. Once a proceeding is initiated, as a general matter, the issued patent continues to be presumed valid until the jurisdiction’s applicable administrative body issues a final non-appealable decision. Depending on the jurisdiction, the outcome of these proceedings could include affirmation, denial or modification of some or all of the originally issued claims. The Company believes that as OLED technology becomes more established and its patent portfolio increases in size, so will the number of these proceedings.

Below are summaries of certain active proceedings that have been commenced against issued patents that are either exclusively licensed to the Company or which are now assigned to the Company. The Company does not believe that the confirmation, loss or modification of the Company’s rights in any individual claim or set of claims that are the subject of the following legal proceedings would have a material impact on the Company’s materials sales or licensing business or on the Company’s consolidated financial statements, including its consolidated statements of income, as a whole. However, as noted within the descriptions, some of the following proceedings involve issued patents that relate to the Company’s fundamental phosphorescent OLED technologies and the Company intends to vigorously defend against claims that, in the Company’s opinion, seek to restrict or reduce the scope of the originally issued claim, which may require the expenditure of significant amounts of the Company’s resources. In certain circumstances, when permitted, the Company may also utilize the proceedings to request modification of the claims to better distinguish the patented invention from any newly identified prior art and/or improve the claim scope of the patent relative to commercially important categories of the invention. The entries marked with an "*" relate to the Company’s UniversalPHOLED phosphorescent OLED technology, some of which may be commercialized by the Company.

Opposition to European Patent No. 1394870*

On April 20, 2010, Merck Patent GmbH; BASF Schweitz AG of Basel, Switzerland; Osram GmbH of Munich, Germany; Siemens Aktiengesellschaft of Munich, Germany; and Koninklijke Philips Electronics N.V., of Eindhoven, The Netherlands filed Notices of Opposition to European Patent No.1394870 (the EP '870 patent). The EP '870 patent, which was issued on July 22, 2009, is a European counterpart patent, in part, to U.S. patents 6,303,238; 6,579,632; 6,872,477; 7,279,235; 7,279,237; 7,488,542; 7,563,519; and 7,901,795; and to pending U.S. patent application 13/035,051, filed on February 25, 2011 (hereinafter the “U.S. '238 Patent Family”). They are exclusively licensed to the Company by Princeton, and the Company is required to pay all legal costs and fees associated with this proceeding.

An Oral Hearing was held before an EPO panel of first instance in Munich, Germany, on April 8-9, 2014. The panel rejected the original claims and amended the claims to comply with EPO requirements by more narrowly defining the scope of the claims. The '870 patent, in its amended form, was held by the panel to comply with the EPO requirements.

The Company believes the EPO's decision relating to the broad original claims is erroneous and has appealed the ruling to reinstate a broader set of claims. This patent, as originally granted by the EPO, is deemed valid during the pendency of the appeals process.

At this time, based on the Company’s current knowledge, the Company believes that the patent being challenged should be declared valid and that all or a significant portion of the Company’s claims should be upheld. However, the Company cannot make any assurances of this result.

Invalidation Trial in Japan for Japan Patent No. 4511024*

On June 16, 2011, the Company learned that a Request for an Invalidation Trial was filed in Japan by Semiconductor Energy Laboratory, Co., Ltd. for its Japanese Patent No. JP-4511024 (the JP '024 patent), which issued on May 14, 2010. The JP '024 patent is a counterpart patent, in part, to the U.S. '238 Patent Family, which relate to the EP '870 patent, which is subject to one of the above-noted European oppositions and which relates to the Company’s UniversalPHOLED phosphorescent OLED technology. They are exclusively licensed to the Company by Princeton, and the Company is required to pay all legal costs and fees associated with this proceeding.

On May 10, 2012, the Company learned that the JPO issued a decision upholding the validity of certain claimed inventions in the JP '024 Patent but invalidating the broadest claims in the patent. The Company appealed the JPO’s decision to the Japanese IP High Court. On October 31, 2013, the Japanese IP High Court ruled that the prior art references relied on by the JPO did not support the JPO’s findings, reversed the JPO’s decision with respect to the previously invalidated broad claims in the JP ‘024 patent and remanded the matter back to the JPO for further consideration consistent with its decision. The JPO subsequently issued a decision upholding the validity of certain claimed inventions in the JP '024 Patent but invalidating the broadest claims in the patent. The Company appealed the decision to reinstate a broader set of claims but the IP High Court declined to reinstate the broader set of claims. The Company appealed the IP High Court's decision to the Japanese Supreme Court for reconsideration of the legal basis of the IP High Court's decision. This patent, as originally granted by the JPO, is deemed valid during the pendency of the appeals process.

Although the Company cannot provide any assurances as to the possible outcome of future appellate proceedings which the Company may elect to pursue, if any, the patent is expected to be maintained at least with respect to the narrower set of claims which were not the subject of the IP High Court's invalidation ruling.

Opposition to European Patent No. 1390962

On November 16, 2011, Osram AG and BASF SE each filed a Notice of Opposition to European Patent No. 1390962 (EP '962 patent), which relates to the Company’s white phosphorescent OLED technology. The EP '962 patent, which was issued on February 16, 2011, is a European counterpart patent to U.S. patents 7,009,338 and 7,285,907. They are exclusively licensed to the Company by Princeton, and the Company is required to pay all legal costs and fees associated with this proceeding.

The EPO combined the oppositions into a single opposition proceeding, and a hearing on this matter was held in December 2015, wherein the EPO Opposition Division revoked the patent claims for alleged insufficiencies under EPC Article 83. The Company believes the EPO's decision relating to the original claims is erroneous, and has appealed the decision. The patent, as originally granted, is deemed valid during the pendency of the appeals process.

At this time, based on its current knowledge, the Company believes that the patent being challenged should be declared valid, and that all or a significant portion of the Company's claims should be upheld. However, the Company cannot make any assurances of this result.

Opposition to European Patent No. 1933395*

On February 24 and 27, 2012, Sumitomo, Merck Patent GmbH and BASF SE filed oppositions to the Company's European Patent No. 1933395 (the EP '395 patent). The EP ‘395 patent is a counterpart to the EP ‘637 patent, and, in part, to U.S. Patents 7,001,536, 6,902,830, and 6,830,828, and to JP patents 4358168 and 4357781. This patent is exclusively licensed to the Company by Princeton, and the Company is required to pay all legal costs and fees associated with this proceeding.

At an Oral Hearing on October 14, 2013, the EPO panel issued a decision that affirmed the basic invention and broad patent coverage in the EP '395 patent, but narrowed the scope of the original claims.

On February 26, 2014, the Company appealed the ruling to reinstate a broader set of claims. The patent, as originally granted by the EPO, is deemed to be valid during the pendency of an appeals process. Two of the three opponents also filed their own appeals of the ruling. In January 2015, Sumitomo withdrew its opposition of the '395 patent, and the EPO accepted the withdrawal notice. The appeal proceedings were held in the second quarter of 2016. As a result of the proceedings, the board concluded the oral proceedings and proposed to reinstate a broader set of claims pending the resolution of a remaining question of the applicable law, a question that the board has deferred to the Enlarged Board of Appeals for review. The originally-granted claims remain in force during the pendency of this process.

In addition to the above proceedings and now-concluded proceedings which have been referenced in prior filings, from time to time, the Company may have other proceedings that are pending which relate to patents the Company acquired as part of the Fujifilm patent or BASF OLED patent acquisitions or which relate to technologies that are not currently widely utilized in the marketplace.

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CONCENTRATION OF RISK

9 Months Ended

Sep. 30, 2016

Risks And Uncertainties [Abstract]

CONCENTRATION OF RISK

15. CONCENTRATION OF RISK:

Included in technology development and support revenue in the accompanying statement of operations is $32,000 and $67,000 for the three months ended September 30, 2016 and 2015, respectively, and $148,000 and $110,000 for the nine months ended September 30, 2016 and 2015, respectively, of revenue which was derived from contracts with United States government agencies. Revenues derived from contracts with United States government agencies represented less than 1% of the consolidated revenue for all periods presented.

Revenues and accounts receivable from the Company's largest customers were as follows (in thousands):

	% of Revenues for the three months ended September 30,				% of Revenues for the nine months ended September 30,				Accounts Receivable as of
Customer	2016		2015		2016		2015		September 30, 2016
A		45%		48%		33%		29%	$	10,262
B		36%		39%		57%		56%	$	6,117
C		7%		2%		5%		1%	$	3,235

Revenues from outside of North America represented approximately 95% and 99% of the consolidated revenue for the three months ended September 30, 2016 and 2015, respectively, and 98% and 99% of the consolidated revenue for the nine months ended September 30, 2016 and 2015, respectively. Revenues by geographic area are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Country	2016		2015		2016		2015
South Korea	$	24,852	$	34,514	$	111,994	$	110,547
China		2,095		843		5,663		1,523
Japan		1,230		3,274		3,334		13,931
Other non-U.S. locations		396		523		1,416		1,726
Total non-U.S. locations	$	28,573	$	39,154	$	122,407	$	127,727
United States		1,641		265		1,902		1,007
Total revenue	$	30,214	$	39,419	$	124,309	$	128,734

The Company attributes revenue to different geographic areas on the basis of the location of the customer.

Long-lived assets (net), by geographic area are as follows (in thousands):

	September 30, 2016		December 31, 2015
United States	$	25,621	$	22,187
Other		147		220
Total long-lived assets	$	25,768	$	22,407

Substantially all chemical materials were purchased from one supplier. See Note 9.

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INCOME TAXES

9 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

16. INCOME TAXES:

The Company is subject to income taxes in both United States and foreign jurisdictions. The effective income tax rate for the three and nine months ended September 30, 2016 was a benefit of 40.1% and an expense of 33.0%, respectively. For the three and nine months ended September 30, 2016, an income tax benefit of $1.0 million and an expense of $11.0 million, respectively, was recorded primarily related to foreign tax withheld on royalty and license fees paid to the Company and federal income taxes.

The effective income tax rate was 17.9 % and 154.9%, respectively, for the three and nine months ended September 30, 2015. The Company’s effective tax rate rose significantly due to an inventory write-down primarily related to UDC Ireland, which resulted in a loss for the full year 2015. Due to continued losses at UDC Ireland no tax benefit was recorded. For the three and nine months ended September 30, 2015, an income tax expense of $1.5 million and $9.6 million, respectively, was recorded primarily related to foreign tax withheld on royalty and license fees paid to the Company and federal income taxes.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the Company's ability to generate future taxable income to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credits. As part of its assessment management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. At this time there is no evidence to release the valuation allowances that relate to UDC Ireland, foreign tax credits and New Jersey research and development credits.

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NET INCOME (LOSS) PER COMMON SHARE

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

NET INCOME (LOSS) PER COMMON SHARE

17. NET INCOME (LOSS) PER COMMON SHARE:

The Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share ("ASC 260"), which requires earnings per share for each class of stock to be calculated using the two-class method. The two-class method is an allocation of income between the holders of common stock and the Company's participating security holders. Under the two-class method, income for the reporting period is allocated between common shareholders and other security holders based on their respective participation rights in undistributed income. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method.

Basic net income per common share is computed by dividing net income allocated to common shareholders by the weighted-average number of shares of common stock outstanding for the period excluding unvested restricted stock units and performance units. Net income allocated to the holders of the Company's unvested restricted stock awards is calculated based on the shareholders proportionate share of weighted average shares of common stock outstanding on an if-converted basis. The effect of using the two-class method is immaterial to the consolidated financial statements and does not change the reported earnings per share figures and as such is not presented.

For purposes of determining diluted net income per common share, basic net income per share is further adjusted to include the effect of potential dilutive common shares outstanding, including stock options, restricted stock units and performance units, and the impact of shares to be issued under the ESPP.

The following table is a reconciliation of net income (loss) and the shares used in calculating basic and diluted net income (loss) per common share for the three and nine months ended September 30, 2016 and 2015 (in thousands, except share and per share data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016		2015
Numerator:
Net income (loss)	$	(1,500	)	$	7,047	$	22,251	$	(3,410	)
Denominator:
Weighted average common shares outstanding – Basic		46,947,621			46,542,556		46,889,913		46,241,578
Effect of dilutive shares:
Common stock equivalents arising from stock    options and ESPP		—			90,398		5,948		—
Restricted stock awards and units and performance    units		—			90,419		119,401		—
Weighted average common shares    outstanding – Diluted		46,947,621			46,723,373		47,015,262		46,241,578
Net income (loss) per common share:
Basic	$	(0.03	)	$	0.15	$	0.47	$	(0.07	)
Diluted	$	(0.03	)	$	0.15	$	0.47	$	(0.07	)

For the three months ended September 30, 2016 and 2015, the combined effects of unvested restricted stock awards, restricted stock units, performance unit awards and stock options of 125,869 and 1,000, respectively, were excluded from the calculation of diluted EPS as their impact would have been antidilutive. For the nine months ended September 30, 2016 and 2015, the combined effects of unvested restricted stock awards, restricted stock units, performance units and stock options of none and 356,045, respectively, and the impact of shares to be issued under the ESPP, which was minor, were excluded from the calculation of diluted EPS as their impact would have been antidilutive.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Basis of Accounting

Interim Financial Information

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position as of September 30, 2016 and results of operations for the three and nine months ended September 30, 2016 and 2015, and cash flows for the nine months ended September 30, 2016 and 2015. While management believes that the disclosures presented are adequate to make the information not misleading, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s latest year-end financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for the full year.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of Universal Display Corporation and its wholly owned subsidiaries, UDC, Inc., UDC Ireland Limited, Universal Display Corporation Hong Kong, Limited, Universal Display Corporation Korea, Y.H., Universal Display Corporation Japan GK, Universal Display Corporation China, Ltd. and Adesis, Inc. (Adesis). All intercompany transactions and accounts have been eliminated.

Business Combinations

Business Combinations

Accounting for acquisitions requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, adjustments may be recorded to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statement of operations.

Management's Use of Estimates

Management’s Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates made are principally in the areas of revenue recognition for license agreements, the useful life of acquired intangibles, the use and recoverability of inventories, intangibles and income taxes including realization of deferred tax assets, stock-based compensation and retirement benefit plan liabilities. Actual results could differ from those estimates.

Inventories

Inventories

Inventories consist of raw materials, work-in-process and finished goods, including inventory consigned to customers, and are stated at the lower of cost, determined on a first-in, first-out basis, or market. Inventory valuation and firm committed purchase order assessments are performed on a quarterly basis and those items that are identified to be obsolete or in excess of forecasted usage are written down to their estimated realizable value. Estimates of realizable value are based upon management’s analyses and assumptions, including, but not limited to, forecasted sales levels by product, expected product lifecycle, product development plans and future demand requirements. A 12-month rolling forecast based on factors, including, but not limited to, production cycles, anticipated product orders, marketing forecasts, backlog, and shipment activities is used in the inventory analysis. If market conditions are less favorable than forecasts or actual demand from customers is lower than estimates, additional inventory write-downs may be required. If demand is higher than expected, inventories that had previously been written down may be sold.

Certain of the Company’s customers have assumed the responsibility for maintaining the Company's inventory at their location based on the customers' demand forecast. Notwithstanding the fact that the Company builds and ships the inventory, the customer does not purchase the consigned inventory until the inventory is drawn or pulled by the customer to be used in the manufacture of the customer’s product. Though the consigned inventory may be at the customer’s physical location, it remains inventory owned by the Company until the inventory is drawn or pulled, which is the time at which the sale takes place.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying values of accounts receivable, other current assets, and accounts payable approximate fair value in the accompanying financial statements due to the short-term nature of those instruments. The Company’s other financial instruments, which include cash equivalents and investments, are carried at fair value.

Revenue Recognition and Deferred Revenue

Revenue Recognition and Deferred Revenue

Material sales relate to the Company’s sale of its OLED materials for incorporation into its customers’ commercial OLED products or for their OLED development and evaluation activities. Material sales are recognized at the time title passes, which is typically at the time of shipment or at the time of delivery, depending upon the contractual agreement between the parties.

The Company receives license and royalty payments under certain commercial, development and technology evaluation agreements, some of which are non-refundable. These payments may include royalty and license fees made pursuant to license agreements and certain commercial supply agreements. Amounts received are deferred and classified as either current or non-current deferred revenue based upon current contractual remaining terms; however, based upon on-going relationships with customers, as well as future agreement extensions and other factors, amounts classified as current as of September 30, 2016 may not be recognized as revenue over the next twelve months. For arrangements with extended payment terms where the fee is not fixed and determinable, the Company recognizes revenue when the payment is due and payable. Royalty revenue and license fees included as part of commercial supply agreements are recognized when earned and the amount is fixed and determinable. If the Company used different estimates for the useful life of the licensed technology, or if fees are fixed and determinable, reported revenue during the relevant period would differ.

Technology development and support revenue is revenue earned from government contracts, development and technology evaluation agreements and commercialization assistance fees, which includes reimbursements by government entities for all or a portion of the research and development costs the Company incurs in relation to its government contracts. Revenues are recognized proportionally as research and development costs are incurred, or as defined milestones are achieved.

Currently, the Company's most significant commercial license agreement, which runs through the end of 2017, is with Samsung Display Co., Ltd. (SDC) and covers the manufacture and sale of specified OLED display products. Under this agreement, the Company is being paid a license fee, payable in semi-annual installments over the agreement term of 6.4 years. The installments, which are due in the second and fourth quarter of each year, increase on an annual basis over the term of the agreement. The agreement conveys to SDC the non-exclusive right to use certain of the Company's intellectual property assets for a limited period of time that is less than the estimated life of the assets. Ratable recognition of revenue is impacted by the agreement's extended increasing payment terms in light of the Company's limited history with similar agreements. As a result, revenue is recognized at the lesser of the proportional performance approach (ratable) and the amount of due and payable fees from SDC. Given the increasing contractual payment schedule, license fees under the agreement are recognized as revenue when they become due and payable, which is currently scheduled to be in the second and fourth quarter of each year.

In 2015, the Company entered into an OLED patent license agreement and an OLED commercial supply agreement with LG Display Co., Ltd. (LG Display) which were effective as of January 1, 2015 and superseded the 2007 commercial supply agreement between the parties. The new agreements have a term that is set to expire by the end of 2022. The patent license agreement provides LG Display a non-exclusive, royalty bearing portfolio license to make and sell OLED displays under the Company's patent portfolio. The patent license calls for license fees, prepaid royalties and running royalties on licensed products. The prepaid royalty amount is included in deferred revenue and a portion of this amount can be credited against total royalties due over the life of the contract. The agreements include customary provisions relating to warranties, indemnities, confidentiality, assignability and business terms. The agreements provide for certain other minimum obligations relating to the volume of material sales anticipated over the term of the agreements, as well as minimum royalty revenue to be generated under the patent license agreement. The Company expects to generate revenue under these agreements that are predominantly tied to LG Display’s sales of OLED licensed products. The OLED commercial supply agreement provides for the sale of materials for use by LG Display, which may include phosphorescent dopants and host materials.

The Company records taxes billed to customers and remitted to various governmental entities on a gross basis in both revenues and cost of material sales in the consolidated statements of operations. The amounts of these pass through taxes reflected in revenues and cost of material sales were $74,000 and $143,000 for the three and nine months ended September 30, 2016, respectively, and $230,000 and $1.1 million for the three and nine months ended September 30, 2015, respectively.

Cost of Material Sales

Cost of Material Sales

Cost of material sales consists of labor and material costs associated with the production of materials processed at the Company's manufacturing partners and at the Company's internal manufacturing processing facility. The Company’s portion of cost of material sales also includes depreciation of manufacturing equipment, as well as manufacturing overhead costs and inventory adjustments for excess and obsolete inventory.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued a new revenue recognition standard entitled Revenue from Contracts with Customers. The objective of the standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows from a contract with a customer. The standard is effective for annual reporting periods beginning after December 15, 2017. Earlier adoption as of the original date is optional; however, the Company will adopt the standard beginning January 1, 2018. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. The Company is currently assessing which method it will choose for adoption, and is evaluating the impact of the adoption of this new accounting standard on its consolidated results of operations and financial position.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which requires an entity that uses the first-in first-out method for inventory to report inventory cost at the lower of cost or net realizable value versus the current measurement principle of lower of cost or market. The ASU requires prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating the effect that ASU 2015-11 may have on its consolidated financial statements and related disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, which requires the classification of all deferred tax assets and liabilities as noncurrent. The standard is effective for annual reporting periods beginning after December 15, 2016. The standard allows for either “prospective” adoption, meaning the standard is applied to the most current period presented in the financial statements or “full retrospective” adoption, meaning the standard is applied to all periods presented. Earlier adoption is permitted. The Company is evaluating the effect that ASU 2015-17 may have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Accounting. The objective of the standard is to simplify the accounting and related disclosures associated with employee share-based accounting. The standard is effective for annual reporting periods beginning after December 15, 2016. The ASU requires prospective adoption, meaning the standard is applied to the most current period presented in the financial statements. Earlier adoption is permitted. The Company is evaluating the effect that ASU 2016-09 may have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The objective of the standard is to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The ASU provides additional clarification guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017 with early adoption permitted. The Company is evaluating the effect that ASU 2016-15 may have on its consolidated financial statements and related disclosures.

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BUSINESS COMBINATIONS (Tables)

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Summary of Assets Acquired and Liabilities Assumed

The following table summarizes the values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Cash consideration	$	33,655
Contingent consideration		1,510
	$	35,165
Allocation of purchase price:
Current assets, including cash of $492	$	2,204
Property and equipment		1,869
Accounts payable and accrued liabilities		(906	)
Net tangible assets		3,167
Identifiable intangible assets		16,450
Goodwill		15,548
Total purchase price	$	35,165

Schedule of Intangible Assets Identified

The following table presents the intangible assets identified in the transaction:

Category	Estimated fair value (in thousands)		Estimated useful life (in years)
Customer relationships		10,130		9.5
Internally-developed IP, processes and recipes		4,820		15.0
Trade name/Trademarks		1,500		10.0
Total identifiable intangible assets	$	16,450

Schedule of Unaudited Pro Forma Information

The following unaudited pro forma information assumes the acquisition of Adesis occurred at the beginning of the respective periods presented (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
Unaudited Pro Forma Information	2016			2015		2016		2015
Revenue	$	30,347		$	40,698	$	127,970	$	133,319
Net income		(2,241	)		5,903		19,821		(1,752	)

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CASH, CASH EQUIVALENTS AND INVESTMENTS (Tables)

9 Months Ended

Sep. 30, 2016

Cash And Cash Equivalents [Abstract]

Schedule of Cash, Cash Equivalents and Investments

Investments as of September 30, 2016 and December 31, 2015 consisted of the following (in thousands):

	Amortized		Unrealized					AggregateFair
Investment Classification	Cost		Gains		(Losses)			Market Value
September 30, 2016
Certificates of deposit	$	6,855	$	7	$	(2	)	$	6,860
Corporate bonds		224,376		—		(247	)		224,129
U.S. Government bonds		15,999		—		(319	)		15,680
	$	247,230	$	7	$	(568	)	$	246,669
December 31, 2015
Certificates of deposit	$	11,532	$	3	$	(14	)	$	11,521
Corporate bonds		233,848		—		(139	)		233,709
U.S. Government bonds		54,953		1		(16	)		54,938
	$	300,333	$	4	$	(169	)	$	300,168

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INVENTORY (Tables)

9 Months Ended

Sep. 30, 2016

Inventory Disclosure [Abstract]

Schedule of Inventory

Inventory consisted of the following (in thousands):

	September 30, 2016		December 31, 2015
Raw materials	$	6,538	$	6,539
Work-in-process		1,281		1,064
Finished goods		8,284		5,145
Inventory	$	16,103	$	12,748

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2016 (in thousands):

			Fair Value Measurements, Using
	Total carrying value as of September 30, 2016		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Cash equivalents	$	28,072	$	28,072	$	—	$	—
Short-term investments		231,452		231,452		—		—
Long-term investments		15,217		15,217		—		—

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2015 (in thousands):

			Fair Value Measurements, Using
	Total carrying value as of December 31, 2015		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Cash equivalents	$	34,980	$	34,980	$	—	$	—
Short-term investments		297,981		297,981		—		—
Long-term investments		2,187		2,187		—		—

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GOODWILL AND INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2016

Finite Lived Intangible Assets Net [Abstract]

Schedule of Acquired Technology

These intangible assets consist of the following (in thousands):

	September 30, 2016
PD-LD, Inc.	$	1,481
Motorola		15,909
BASF		95,989
Fujifilm		109,462
		222,841
Less: Accumulated amortization		(65,565	)
Acquired technology, net	$	157,276

Schedule of Other Intangible Assets

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	10,130	$	(216	)	$	9,914
Internally-developed IP, processes and recipes		4,820		(65	)		4,755
Trade name/Trademarks		1,500		(30	)		1,470
Total identifiable intangible assets	$	16,450	$	(311	)	$	16,139

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ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)

9 Months Ended

Sep. 30, 2016

Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]

Schedule of Accumulated Other Comprehensive Loss

Amounts related to the changes in accumulated other comprehensive loss were as follows (in thousands):

	Unrealized gain (loss) on available-for-sale- securities			Net unrealized gain (loss) on retirement plan (2)			Change in cumulative foreign currency translation adjustment		Total			Affected line items in the consolidated statements of operations
Balance December 31, 2015, net of tax	$	(111	)	$	(9,708	)	$	—	$	(9,819	)
Other comprehensive gain (loss)    before reclassification		(256	)		—			32		(224	)
Actuarial gain (loss)		—			(358	)		—		(358	)
Reclassification to net income (1)		—			814			—		814		Selling, general and administrative, research and development, and cost of material sales
Change during period		(256	)		456			32		232
Balance September 30, 2016, net of tax	$	(367	)	$	(9,252	)	$	32	$	(9,587	)

	Unrealized gain (loss) on available-for-sale- securities			Net unrealized gain (loss) on retirement plan (2)			Change in cumulative foreign currency translation adjustment		Total			Affected line items in the consolidated statements of operations
Balance December 31 2014, net of tax	$	(28	)	$	(4,354	)	$	—	$	(4,382	)
Other comprehensive gain (loss)    before reclassification		(9	)		—			—		(9	)
Actuarial gain (loss)		—			—			—		—
Reclassification to net income (1)		—			713			—		713		Selling, general and administrative, research and development
Change during period		(9	)		713			—		704
Balance September 30 2015, net of tax	$	(37	)	$	(3,641	)	$	—	$	(3,678	)

(1) The Company reclassified amortization of prior service cost and actuarial loss for its retirement plan from accumulated other comprehensive loss to net income (loss) of $814,000 and $713,000 for the nine months ended September 30, 2016 and 2015, respectively.

(2) Refer to Note 13: Supplemental Executive Retirement Plan.

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SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (Tables)

9 Months Ended

Sep. 30, 2016

Defined Benefit Pension Plans And Defined Benefit Postretirement Plans Disclosure [Abstract]

Components of net periodic pension cost

The components of net periodic pension cost were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Service cost	$	354	$	319	$	1,062	$	867
Interest cost		219		166		656		452
Amortization of prior service cost		415		436		1,245		1,114
Amortization of loss		3		—		11		—
Total net periodic benefit cost	$	991	$	921	$	2,974	$	2,433

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CONCENTRATION OF RISK (Tables)

9 Months Ended

Sep. 30, 2016

Risks And Uncertainties [Abstract]

Revenues and accounts receivable from our largest customers

Revenues and accounts receivable from the Company's largest customers were as follows (in thousands):

	% of Revenues for the three months ended September 30,				% of Revenues for the nine months ended September 30,				Accounts Receivable as of
Customer	2016		2015		2016		2015		September 30, 2016
A		45%		48%		33%		29%	$	10,262
B		36%		39%		57%		56%	$	6,117
C		7%		2%		5%		1%	$	3,235

Revenues by geographic area

Revenues by geographic area are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Country	2016		2015		2016		2015
South Korea	$	24,852	$	34,514	$	111,994	$	110,547
China		2,095		843		5,663		1,523
Japan		1,230		3,274		3,334		13,931
Other non-U.S. locations		396		523		1,416		1,726
Total non-U.S. locations	$	28,573	$	39,154	$	122,407	$	127,727
United States		1,641		265		1,902		1,007
Total revenue	$	30,214	$	39,419	$	124,309	$	128,734

Long-lived assets (net) by geographic area

Long-lived assets (net), by geographic area are as follows (in thousands):

	September 30, 2016		December 31, 2015
United States	$	25,621	$	22,187
Other		147		220
Total long-lived assets	$	25,768	$	22,407

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NET INCOME (LOSS) PER COMMON SHARE (Tables)

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Schedule of Earnings Per Share

The following table is a reconciliation of net income (loss) and the shares used in calculating basic and diluted net income (loss) per common share for the three and nine months ended September 30, 2016 and 2015 (in thousands, except share and per share data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016		2015
Numerator:
Net income (loss)	$	(1,500	)	$	7,047	$	22,251	$	(3,410	)
Denominator:
Weighted average common shares outstanding – Basic		46,947,621			46,542,556		46,889,913		46,241,578
Effect of dilutive shares:
Common stock equivalents arising from stock    options and ESPP		—			90,398		5,948		—
Restricted stock awards and units and performance    units		—			90,419		119,401		—
Weighted average common shares    outstanding – Diluted		46,947,621			46,723,373		47,015,262		46,241,578
Net income (loss) per common share:
Basic	$	(0.03	)	$	0.15	$	0.47	$	(0.07	)
Diluted	$	(0.03	)	$	0.15	$	0.47	$	(0.07	)

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BUSINESS - Additional Information (Details)	Sep. 30, 2016 patent
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Number of patents issued and pending application	4,200

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Accounting Policies [Abstract]
License fee agreement, term of agreement			6 years 4 months 24 days
Taxes, other	$ 74,000	$ 230,000	$ 143,000	$ 1,100,000

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BUSINESS COMBINATIONS - Additional Information (Details) - Adesis Inc [Member]		3 Months Ended	9 Months Ended
	Jul. 11, 2016 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2016 USD ($)	Jun. 23, 2016 Employee
Business Acquisition [Line Items]
Business acquisition agreement date			Jun. 23, 2016
Number of employees in contract research organization | Employee				43
Shares acquired for cash	$ 33,700,000		$ 33,655,000
Transaction closed date			Jul. 11, 2016
Basis for additional consideration payable			if revenues exceed certain threshold levels at the end of each twelve-month period ending December 31, 2016 and December 31, 2017.
Selling, General and Administrative Expense [Member]
Business Acquisition [Line Items]
Business acquisition, transaction costs		$ 360,000	$ 360,000
Maximum [Member]
Business Acquisition [Line Items]
Additional cash contingent payable upon achievement of milestone	$ 2,400,000
Additional consideration payable upon achievement of each milestone			$ 1,200,000

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BUSINESS COMBINATIONS - Summary of Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands		9 Months Ended
	Jul. 11, 2016	Sep. 30, 2016
Allocation of purchase price:
Goodwill		$ 15,548
Adesis Inc [Member]
Business Acquisition [Line Items]
Cash consideration	$ 33,700	33,655
Contingent consideration		1,510
Total consideration		35,165
Allocation of purchase price:
Current assets, including cash of $492		2,204
Property and equipment		1,869
Accounts payable and accrued liabilities		(906)
Net tangible assets		3,167
Identifiable intangible assets		16,450
Goodwill		15,548
Total purchase price		$ 35,165

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BUSINESS COMBINATIONS - Summary of Assets Acquired and Liabilities Assumed (Parenthetical) (Details) $ in Thousands	Sep. 30, 2016 USD ($)
Adesis Inc [Member]
Business Acquisition [Line Items]
Current assets, cash	$ 492

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BUSINESS COMBINATIONS - Schedule of Intangible Assets Identified (Details) - Adesis Inc [Member] $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Business Acquisition [Line Items]
Estimated fair value	$ 16,450
Customer Relationships [Member]
Business Acquisition [Line Items]
Estimated fair value	$ 10,130
Estimated useful life	9 years 6 months
Internally-developed IP, Processes and Recipes [Member]
Business Acquisition [Line Items]
Estimated fair value	$ 4,820
Estimated useful life	15 years
Trade Name/Trademarks [Member]
Business Acquisition [Line Items]
Estimated fair value	$ 1,500
Estimated useful life	10 years

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BUSINESS COMBINATIONS - Schedule of Unaudited Pro Forma Information (Details) - Adesis Inc [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Unaudited Pro Forma Information
Revenue	$ 30,347	$ 40,698	$ 127,970	$ 133,319
Net income	$ (2,241)	$ 5,903	$ 19,821	$ (1,752)

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CASH, CASH EQUIVALENTS AND INVESTMENTS - Schedule of Cash, Cash Equivalents and Investments (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Cash and Cash Equivalents [Line Items]
Investments, Amortized Cost Basis	$ 247,230	$ 300,333
Investments, Gross Unrealized Gains	7	4
Investments, Gross Unrealized Losses	(568)	(169)
Investments	246,669	300,168
Certificates of Deposit [Member]
Cash and Cash Equivalents [Line Items]
Cash Equivalents, at Carrying Value	6,855	11,532
Cash Equivalents, Gross Unrealized Gain	7	3
Cash Equivalents, Gross Unrealized Losses	(2)	(14)
Cash and Cash Equivalents, Fair Value Disclosure	6,860	11,521
Corporate Debt Securities [Member]
Cash and Cash Equivalents [Line Items]
Available-for-sale Debt Securities, Amortized Cost Basis	224,376	233,848
Available-for-sale Securities, Gross Unrealized Losses	(247)	(139)
Available-for-sale Securities, Fair Value Disclosure	224,129	233,709
US Treasury and Government [Member]
Cash and Cash Equivalents [Line Items]
Available-for-sale Debt Securities, Amortized Cost Basis	15,999	54,953
Available-for-sale Securities, Gross Unrealized Gains		1
Available-for-sale Securities, Gross Unrealized Losses	(319)	(16)
Available-for-sale Securities, Fair Value Disclosure	$ 15,680	$ 54,938

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INVENTORY - Schedule of Inventory (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Inventory Disclosure [Abstract]
Raw materials	$ 6,538	$ 6,539
Work-in-process	1,281	1,064
Finished goods	8,284	5,145
Inventory	$ 16,103	$ 12,748

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FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	$ 231,452	$ 297,981
Long-term investments	15,217	2,187
Fair Value, Measurements, Recurring [Member] | Reported Value Measurement [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	28,072	34,980
Short-term investments	231,452	297,981
Long-term investments	15,217	2,187
Fair Value, Measurements, Recurring [Member] | Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	28,072	34,980
Short-term investments	231,452	297,981
Long-term investments	$ 15,217	$ 2,187

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FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS - Additional Information (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Fair Value Disclosures [Abstract]
Other than temporary impairments of investments	$ 0	$ 0

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RESEARCH AND LICENSE AGREEMENTS WITH PRINCETON UNIVERSITY, UNIVERSITY OF SOUTHERN CALIFORNIA AND THE UNIVERSITY OF MICHIGAN - Additional Information (Details) - USD ($)		3 Months Ended		9 Months Ended		36 Months Ended	40 Months Ended	48 Months Ended	84 Months Ended	120 Months Ended
	Jun. 01, 2013	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Apr. 30, 2009	Sep. 30, 2016	Apr. 30, 2013	Apr. 30, 2013	Jul. 31, 2007
Research and Development Arrangement, Contract to Perform for Others [Line Items]
Royalty expense		$ 815,000	$ 1,105,000	$ 3,656,000	$ 3,563,000
1997 Research Agreement [Member]
Research and Development Arrangement, Contract to Perform for Others [Line Items]
Term of agreement (in years)										10 years
2006 Research Agreement - Original Term [Member]
Research and Development Arrangement, Contract to Perform for Others [Line Items]
Term of agreement (in years)						3 years		4 years
Research and development expense incurred									$ 5,000,000
2006 Research Agreement - Extended Term [Member]
Research and Development Arrangement, Contract to Perform for Others [Line Items]
Term of agreement (in years)	4 years
Research and development expense incurred							$ 3,700,000
Maximum obligation		1,800,000		$ 1,800,000			$ 1,800,000
1997 Amended License Agreement [Member]
Research and Development Arrangement, Contract to Perform for Others [Line Items]
Royalty rate for licensed products sold by the Company (in hundredths)				3.00%
Royalty rate for licensed products sold by the Company's sublicenses (in hundredths)				3.00%
Minimum royalty payment per year				$ 100,000
Royalty expense		$ 853,000	$ 1,100,000	3,700,000	$ 3,600,000
Minimum investment per year				$ 800,000

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GOODWILL AND INTANGIBLE ASSETS - Schedule of Acquired Technology (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Acquired technology, gross	$ 222,841
Less: Accumulated amortization	(65,565)	$ (54,837)
Acquired technology, net	157,276	$ 72,015
PD LD, Inc [Member]
Finite-Lived Intangible Assets [Line Items]
Acquired technology, gross	1,481
Motorola [Member]
Finite-Lived Intangible Assets [Line Items]
Acquired technology, gross	15,909
BASF [Member]
Finite-Lived Intangible Assets [Line Items]
Acquired technology, gross	95,989
FUJIFILM [Member]
Finite-Lived Intangible Assets [Line Items]
Acquired technology, gross	$ 109,462

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GOODWILL AND INTANGIBLE ASSETS - Acquired Technology - Additional Information (Details) € in Millions					3 Months Ended		9 Months Ended
	Jun. 28, 2016 USD ($) patent	Jun. 28, 2016 EUR (€) patent	Jul. 23, 2012 USD ($) patent	Mar. 09, 2011	Sep. 30, 2016 USD ($) patent	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) patent	Sep. 30, 2015 USD ($)
Finite-Lived Intangible Assets [Line Items]
Amortization related to acquired technology					$ 5,100,000	$ 2,700,000	$ 11,039,000	$ 8,249,000
Future amortization expense, remainder of fiscal year					15,900,000		15,900,000
Future amortization expense, fiscal year 2					20,600,000		20,600,000
Future amortization expense, fiscal year 3					20,600,000		20,600,000
Future amortization expense, fiscal year 4					20,600,000		20,600,000
Future amortization expense, fiscal year 5					20,600,000		20,600,000
Future amortization expense, fiscal year 6					$ 20,600,000		$ 20,600,000
Licensing Agreements [Member] | Motorola [Member]
Finite-Lived Intangible Assets [Line Items]
Number of patents under license agreement | patent					74		74
Amortization period of acquired intangible assets (in years)				7 years 6 months
Patents | FUJIFILM [Member]
Finite-Lived Intangible Assets [Line Items]
Number of patents acquired (more than) | patent			1,200
Assigned value of acquired intangible assets			$ 105,000,000
Cash paid for OLED patents			$ 4,500,000
OLED patents useful life			10 years
Patents | BASF [Member]
Finite-Lived Intangible Assets [Line Items]
Number of patents acquired (more than) | patent	500	500
Assigned value of acquired intangible assets	$ 95,800,000	€ 86.8
Cash paid for OLED patents	$ 217,000
OLED patents useful life	10 years	10 years

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GOODWILL AND INTANGIBLE ASSETS - Other Intangible Assets - Additional Information (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Amortization expense related to other intangible assets	$ 311,000	$ 0
Adesis Inc [Member]
Finite-Lived Intangible Assets [Line Items]
Other intangible assets	16,450,000
Amortization expense related to other intangible assets	311,000
Future amortization expense of other intangible assets, remainder of fiscal year	699,000
Future amortization expense of other intangible assets, fiscal year 2	1,500,000
Future amortization expense of other intangible assets, fiscal year 3	1,500,000
Future amortization expense of other intangible assets, fiscal year 4	1,500,000
Future amortization expense of other intangible assets, fiscal year 5	1,500,000
Future amortization expense of other intangible assets, fiscal year 6	1,500,000
Adesis Inc [Member] | Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Other intangible assets	$ 10,130,000
Estimated useful life	9 years 6 months
Amortization expense related to other intangible assets	$ 216,000
Adesis Inc [Member] | Internally-developed IP, Processes and Recipes [Member]
Finite-Lived Intangible Assets [Line Items]
Other intangible assets	$ 4,820,000
Estimated useful life	15 years
Amortization expense related to other intangible assets	$ 65,000
Adesis Inc [Member] | Trade Name/Trademarks [Member]
Finite-Lived Intangible Assets [Line Items]
Other intangible assets	$ 1,500,000
Estimated useful life	10 years
Amortization expense related to other intangible assets	$ 30,000

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GOODWILL AND INTANGIBLE ASSETS - Schedule of Other Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Accumulated Amortization	$ (311)	$ 0
Net Carrying Amount	16,139
Adesis Inc [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	16,450
Accumulated Amortization	(311)
Net Carrying Amount	16,139
Adesis Inc [Member] | Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	10,130
Accumulated Amortization	(216)
Net Carrying Amount	9,914
Adesis Inc [Member] | Internally-developed IP, Processes and Recipes [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	4,820
Accumulated Amortization	(65)
Net Carrying Amount	4,755
Adesis Inc [Member] | Trade Name/Trademarks [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	1,500
Accumulated Amortization	(30)
Net Carrying Amount	$ 1,470

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EQUITY AND CASH COMPENSATION UNDER THE PPG AGREEMENTS - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Mar. 31, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Long-term Purchase Commitment [Line Items]
Percent Of Services Payable In Cash Or Shares	50.00%				50.00%
Issuance of common stock in connection with materials and license agreements (in shares)	0	0			0	0
New OLED Materials Agreement and OLED Materials Agreement [Member] | Cash Distribution
Long-term Purchase Commitment [Line Items]
Charges to expense for cash portion of reimbursement of expenses	$ 395	$ 2,700			$ 2,300	$ 5,700
New OLED Materials Agreement and OLED Materials Agreement [Member] | Weighted Average
Long-term Purchase Commitment [Line Items]
Minimum average closing price of common stock (in dollars per share)			$ 20.00	$ 20.00

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SHAREHOLDERS' EQUITY - Additional Information (Details) - $ / shares	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Class Of Stock [Line Items]
Preferred Stock, shares authorized ( in shares)	5,000,000	5,000,000
Preferred Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock voting rights	Each share of the Company’s common stock entitles the holder to one vote on all matters to be voted upon by the shareholders.
Common Stock, shares authorized (in shares)	100,000,000	100,000,000
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, shares issued (in shares)	48,314,591	48,132,223
Common Stock, shares outstanding (in shares)	46,956,728	46,774,360
Series A Nonconvertible Preferred Stock [Member]
Class Of Stock [Line Items]
Preferred Stock, shares issued (in shares)	200,000	200,000
Preferred Stock, shares outstanding (in shares)	200,000	200,000

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SHAREHOLDERS' EQUITY - Deferred Compensation Arrangement - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Sep. 30, 2016
Deferred Compensation Arrangement with Employees and Non-Employees, Share-Based Payments [Line Items]
Fair value of shares withheld for tax withholding obligations			$ 4,840,000
Employees and Non Employee Members of Scientific Advisory Board [Member]
Deferred Compensation Arrangement with Employees and Non-Employees, Share-Based Payments [Line Items]
Shares issued (in shares)	27,967	35,205
Employees [Member]
Deferred Compensation Arrangement with Employees and Non-Employees, Share-Based Payments [Line Items]
Fair value of shares issued	$ 1,100,000	$ 967,000
Shares withheld for tax withholding obligations (in shares)	8,106	9,565
Fair value of shares withheld for tax withholding obligations	$ 410,000	$ 346,000
Members of Scientific Advisory Board [Member]
Deferred Compensation Arrangement with Employees and Non-Employees, Share-Based Payments [Line Items]
Fair value of shares issued	$ 300,000	$ 300,000

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ACCUMULATED OTHER COMPREHENSIVE LOSS - Schedule of Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
BALANCE				$ 466,765
Other comprehensive gain (loss) before reclassification				(224)	$ (9)
Actuarial gain (loss)				(358)
Reclassification to net income (loss)	[1]			814	713
TOTAL OTHER COMPREHENSIVE INCOME		$ 114	$ 274	232	704
BALANCE		495,817		495,817
Unrealized gain (loss) on available-for-sale securities [Member]
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
BALANCE				(111)	(28)
Other comprehensive gain (loss) before reclassification				(256)	(9)
TOTAL OTHER COMPREHENSIVE INCOME				(256)	(9)
BALANCE		(367)	(37)	(367)	(37)
Actuarial gain (loss) on retirement plan [Member]
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
BALANCE	[2]			(9,708)	(4,354)
Actuarial gain (loss)	[2]			(358)
Reclassification to net income (loss)	[1],[2]			814	713
TOTAL OTHER COMPREHENSIVE INCOME	[2]			456	713
BALANCE	[2]	(9,252)	(3,641)	(9,252)	(3,641)
Change in cumulative foreign currency translation adjustment [Member]
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Other comprehensive gain (loss) before reclassification				32
TOTAL OTHER COMPREHENSIVE INCOME				32
BALANCE		32		32
Accumulated other comprehensive loss [Member]
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
BALANCE				(9,819)	(4,382)
TOTAL OTHER COMPREHENSIVE INCOME				232
BALANCE		$ (9,587)	$ (3,678)	$ (9,587)	$ (3,678)

[1] The Company reclassified amortization of prior service cost and actuarial loss for its retirement plan from accumulated other comprehensive loss to net income (loss) of $814,000 and $713,000 for the nine months ended September 30, 2016 and 2015, respectively.

[2] Refer to Note 13: Supplemental Executive Retirement Plan.

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ACCUMULATED OTHER COMPREHENSIVE LOSS - Schedule of Accumulated Other Comprehensive Loss (Parenthetical) (Details) - USD ($) $ in Thousands		9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015
Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]
Reclassification to net income (loss)	[1]	$ 814	$ 713

[1] The Company reclassified amortization of prior service cost and actuarial loss for its retirement plan from accumulated other comprehensive loss to net income (loss) of $814,000 and $713,000 for the nine months ended September 30, 2016 and 2015, respectively.

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STOCK-BASED COMPENSATION - Equity Compensation Plan - Additional Information (Details) - Equity Compensation Plan [Member]	9 Months Ended
	Sep. 30, 2016 shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)	10,500,000
Number of shares available for grant (in shares)	2,620,187
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiration term (in years)	10 years

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STOCK-BASED COMPENSATION, Equity Instruments Other Than Options - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Stock-based compensation, aggregate disclosures [Abstract]
Fair value of shares withheld for tax withholding obligations			$ 4,840,000
Restricted Stock [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Grants in period (shares)			137,720
Total fair value of performance unit awards granted			$ 8,500,000
Shares withheld for tax withholding obligations (in shares)			83,553	98,635
Fair value of shares withheld for tax withholding obligations			$ 4,400,000	$ 4,200,000
Restricted Stock [Member] | Selling, General and Administrative Expenses [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Compensation expense	$ 1,900,000	$ 1,900,000	5,300,000	4,400,000
Restricted Stock [Member] | Research and Development Expense [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Compensation expense	376,000	492,000	1,400,000	1,400,000
Restricted Stock [Member] | Cost of Material Sales [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Compensation expense	94,000	4,600	$ 352,000	11,000
Restricted Stock [Member] | Minimum [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Restricted stock awards and units vesting terms			3 years
Restricted Stock [Member] | Maximum [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Restricted stock awards and units vesting terms			5 years
Restricted Stock Units (RSUs) [Member] | Research and Development Expense [Member] | Non Employee Members of Scientific Advisory Board [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Compensation expense (credit)	10,000	(51,000)	$ 174,000	$ 223,000
Performance Shares [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Grants in period (shares)			25,045
Total fair value of performance unit awards granted			$ 1,500,000
Shares withheld for tax withholding obligations (in shares)			0	16,071
Fair value of shares withheld for tax withholding obligations			$ 0	$ 752,000
Performance Shares [Member] | Performance-Based Vesting Requirement [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Grants in period (shares)			12,520
Performance Shares [Member] | Market-Based Vesting Requirement [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Grants in period (shares)			12,525
Performance Shares [Member] | Selling, General and Administrative Expenses [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Compensation expense	281,000	219,000	$ 836,000	723,000
Performance Shares [Member] | Research and Development Expense [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Compensation expense	78,000	58,000	232,000	200,000
Performance Shares [Member] | Cost of Material Sales [Member]
Stock-based compensation, aggregate disclosures [Abstract]
Compensation expense	$ 29,000	$ 0	$ 85,000	$ 0

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STOCK-BASED COMPENSATION - Board of Directors Compensation - Additional Information (Details) - Director [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Restricted stock awards and units vesting terms			1 year
Fair value of shares issued	$ 369	$ 210	$ 1,100	$ 595
Shares issued (in shares)			22,500	21,667

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STOCK-BASED COMPENSATION, Employee Stock Purchase Plan - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Jun. 25, 2009
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Proceeds from common stock issued			$ 412,000
Employee Stock Purchase Plan (ESPP) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Reserved for issuance (in shares)					1,000,000
Purchase period (in months)			3 months
Percentage of market value (in hundredths)			85.00%
Maximum allocation of base compensation (in hundredths)			10.00%
Maximum shares per purchase date (in shares)			12,500
Maximum value per calendar year, per employee			$ 25,000
Common stock issued (in shares)			6,808	9,044
Proceeds from common stock issued			$ 318,000	$ 263,000
Employee Stock Purchase Plan (ESPP) [Member] | Selling, General and Administrative Expenses [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Charges to expense	$ 10,000	$ 9,000	31,000	26,000
Employee Stock Purchase Plan (ESPP) [Member] | Research and Development Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Charges to expense	17,000	12,000	51,000	39,000
Employee Stock Purchase Plan (ESPP) [Member] | Cost of Material Sales [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Charges to expense	$ 4,000	$ 2,000	$ 12,000	$ 6,000

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SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - Additional Information (Details)	Sep. 30, 2016 participant
Supplemental Executive Retirement Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Number of participants	6

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SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - Components of Net Periodic Pension Cost (Details) - Supplemental Executive Retirement Plan [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Components of net periodic pension cost [Abstract]
Service cost	$ 354	$ 319	$ 1,062	$ 867
Interest cost	219	166	656	452
Amortization of prior service cost	415	436	1,245	1,114
Amortization of loss	3		11
Total net periodic benefit cost	$ 991	$ 921	$ 2,974	$ 2,433

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COMMITMENTS AND CONTINGENCIES - Additional Information (Details) $ in Millions	Sep. 30, 2016 USD ($) executive_officer multiple	Dec. 31, 2015 USD ($)
Loss Contingencies [Line Items]
Purchase commitments for inventory | $	$ 5.7	$ 9.0
Commitment With Executive Officers [Member]
Loss Contingencies [Line Items]
Number of executive officers under agreement | executive_officer	7
Multiple of sum of average annual base salary and bonus agreement terms | multiple	2

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CONCENTRATION OF RISK - Additional Information (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) supplier	Sep. 30, 2015 USD ($)
Concentration Risk [Line Items]
Revenue	$ 30,214,000	$ 39,419,000	$ 124,309,000	$ 128,734,000
Supplier Concentration Risk [Member]
Concentration Risk [Line Items]
Number of suppliers from which chemical materials were purchased | supplier			1
Total Revenue [Member] | Government Contracts Concentration Risk [Member]
Concentration Risk [Line Items]
Revenue	$ 32,000	$ 67,000	$ 148,000	$ 110,000
Concentration risk, percentage (less than 1% for contracts with U.S. government agencies)	1.00%	1.00%	1.00%	1.00%
Total Revenue [Member] | Customer Concentration Risk [Member] | Excluding North America [Member]
Concentration Risk [Line Items]
Concentration risk, percentage (less than 1% for contracts with U.S. government agencies)	95.00%	99.00%	98.00%	99.00%

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CONCENTRATION OF RISK - Revenues and Accounts Receivable From Our Largest Customers (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Concentration Risk [Line Items]
Accounts receivable	$ 22,476		$ 22,476		$ 24,729
Total Revenue [Member] | Customer Concentration Risk [Member] | Major Customer A [Member]
Concentration Risk [Line Items]
Concentration risk, percentage (less than 1% for contracts with U.S. government agencies)	45.00%	48.00%	33.00%	29.00%
Total Revenue [Member] | Customer Concentration Risk [Member] | Major Customer B [Member]
Concentration Risk [Line Items]
Concentration risk, percentage (less than 1% for contracts with U.S. government agencies)	36.00%	39.00%	57.00%	56.00%
Total Revenue [Member] | Customer Concentration Risk [Member] | Major Customer C [Member]
Concentration Risk [Line Items]
Concentration risk, percentage (less than 1% for contracts with U.S. government agencies)	7.00%	2.00%	5.00%	1.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Major Customer A [Member]
Concentration Risk [Line Items]
Accounts receivable	$ 10,262		$ 10,262
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Major Customer B [Member]
Concentration Risk [Line Items]
Accounts receivable	6,117		6,117
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Major Customer C [Member]
Concentration Risk [Line Items]
Accounts receivable	$ 3,235		$ 3,235

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CONCENTRATION OF RISK - Revenues by Geographic Area (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Concentration Risk [Line Items]
Revenues	$ 30,214	$ 39,419	$ 124,309	$ 128,734
South Korea [Member]
Concentration Risk [Line Items]
Revenues	24,852	34,514	111,994	110,547
China [Member]
Concentration Risk [Line Items]
Revenues	2,095	843	5,663	1,523
Japan [Member]
Concentration Risk [Line Items]
Revenues	1,230	3,274	3,334	13,931
Other Non-U.S. Locations [Member]
Concentration Risk [Line Items]
Revenues	396	523	1,416	1,726
Total Non-U.S. Locations [Member]
Concentration Risk [Line Items]
Revenues	28,573	39,154	122,407	127,727
UNITED STATES
Concentration Risk [Line Items]
Revenues	$ 1,641	$ 265	$ 1,902	$ 1,007

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CONCENTRATION OF RISK - Long-Lived Assets (Net) by Geographic Area (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Segment Reporting Information [Line Items]
Total long-lived assets	$ 25,768	$ 22,407
UNITED STATES
Segment Reporting Information [Line Items]
Total long-lived assets	25,621	22,187
Other [Member]
Segment Reporting Information [Line Items]
Total long-lived assets	$ 147	$ 220

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INCOME TAXES - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Tax Disclosure [Abstract]
Effective Income Tax Rate Reconciliation, Percent	(40.10%)	17.90%	33.00%	154.90%
Income tax expense (benefit)	$ (1,003)	$ 1,540	$ 10,965	$ 9,624

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NET INCOME (LOSS) PER COMMON SHARE - Schedule of Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Numerator:
NET INCOME (LOSS)	$ (1,500)	$ 7,047	$ 22,251	$ (3,410)
Denominator [Abstract]
Weighted average common shares outstanding – Basic	46,947,621	46,542,556	46,889,913	46,241,578
Effect of dilutive shares:
Common stock equivalents arising from stock options and ESPP		90,398	5,948
Restricted stock awards and units and performance units		90,419	119,401
Weighted average common shares outstanding – Diluted	46,947,621	46,723,373	47,015,262	46,241,578
Basic (in dollars per share)	$ (0.03)	$ 0.15	$ 0.47	$ (0.07)
Diluted (in dollars per share)	$ (0.03)	$ 0.15	$ 0.47	$ (0.07)

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NET INCOME (LOSS) PER COMMON SHARE - Additional Information (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share [Abstract]
Antidilutive securities excluded from calculation of diluted EPS	125,869	1,000	0	356,045