Inventories, net

12 Months Ended

Dec. 31, 2012

Note 6. Inventories, net

The components of inventories are as follows:

	December 31,

	2012		2011
	(in thousands)
Raw materials	$	72,013	$	85,829
Work in process		12,253		25,639
Finished goods (completed systems)		15,968		8,555

	$	100,234	$	120,023

When recorded, inventory reserves are intended to reduce the carrying value of inventories to their net realizable value. The Company establishes inventory reserves when conditions exist that indicate inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand for the Company's products or market conditions. The Company regularly evaluates the ability to realize the value of inventories based on a combination of factors including the following: forecasted sales or usage, estimated product end of life dates, estimated current and future market value and new product introductions. Purchasing and usage alternatives are also explored to mitigate inventory exposure. As of December 31, 2012 and 2011, inventories are stated net of inventory reserves of $33.6 million and $22.8 million respectively.

In 2012, the Company recorded a $14.5 million increase to its excess inventory reserves. During the fourth quarter, as a result of industry consensus indicating that the semiconductor industry downturn will continue into 2013, along with the Company's internal projections, the Company performed a comprehensive review and analysis of its worldwide inventory levels based on historic and projected inventory requirements for all of its products, components and parts. As a result, the Company recorded a $13.4 million increase to inventory reserves in the fourth quarter of 2012.

During 2012, the Company recorded a charge to cost of sales of $2.6 million due to production levels below normal capacity. There were no similar charges recorded for the year ended December 31, 2011. During 2010, the Company recorded a charge to cost of sales of $1.0 million due to below normal production capacity.

- Definition

The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income.

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