10-K 1 a2218558z10-k.htm 10-K

Use these links to rapidly review the document
TABLE OF CONTENTS
TABLE OF CONTENTS

Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K


ý

 

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

For the fiscal year ended December 31, 2013

or

o

 

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

For the transition period from

Commission file number: 001-34133

GT Advanced Technologies Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  03-0606749
(I.R.S. Employer
Identification No.)

243 Daniel Webster Highway
Merrimack, New Hampshire 03054

(Address of principal executive offices, including zip code)

(603) 883-5200
(Registrant's telephone number, including area code)

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

Title of each class   Name of each exchange on which registered
Common Stock, $0.01 par value   The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o    No ý

         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 ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

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

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

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

         The aggregate market value of the registrant's common stock, $0.01 par value per share, held by non-affiliates of the registrant on June 29, 2013, the last business day of the registrant's most recently completed second fiscal quarter, was approximately $507.2 million (based on the closing sales price of the registrant's common stock on June 29, 2013). As of February 24, 2013, 135,339,360 shares of the registrant's common stock, $0.01 par value per share, were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

         The information required by Part III of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated by reference from the registrant's definitive proxy statement relating to the Annual Meeting of Shareholders to be held in 2014, which will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates.

   


Table of Contents


GT ADVANCED TECHNOLOGIES INC.

Form 10-K

Year Ended December 31, 2013

TABLE OF CONTENTS

 
   
  Page

 

PART I

   

Item 1.

 

Business

 
1

Item 1A.

 

Risk Factors

  14

Item 1B.

 

Unresolved Staff Comments

  49

Item 2.

 

Properties

  49

Item 3.

 

Legal Proceedings

  50

Item 4.

 

Mine Safety Disclosure

  50

 

PART II

   

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 
51

Item 6.

 

Selected Consolidated Financial Data

  53

Item 7.

 

Management Discussion and Analysis of Financial Condition and Results of Operations

  56

Item 7A.

 

Quantitative and Qualitative Disclosure about Market Risk

  92

Item 8.

 

Financial Statements and Supplementary Data

  95

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  157

Item 9A.

 

Controls and Procedures

  157

Item 9B.

 

Other Information

  161

 

PART III

   

Item 10.

 

Directors, Executive Officers and Corporate Governance

 
161

Item 11.

 

Executive Compensation

  161

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  162

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

  163

Item 14.

 

Principal Accountant Fees and Services

  163

 

PART IV

   

Item 15.

 

Exhibits and Financial Statement Schedules

 
163

Signatures

  164

Exhibit Index

  166

Table of Contents


Cautionary Statements Concerning Forward-Looking Statements

        This Annual Report on Form 10-K contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Annual Report on Form 10-K that are not purely historical are "forward- looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are identified by the use of words such as, but not limited to, "anticipate," "believe," 'continue," "could," "estimate," "prospects," "forecasts," "expect," "intend," "may," "will," "plan," "target," and similar expressions or variations intended to identify forward-looking statements and include statements about our expectations of future periods with respect to, among other things:

    the HiCz equipment offering and annealing equipment offering will be commercially available during 2014;

    the arrangements with Apple will be important to the Company's business as it positions the Company to expand its sapphire materials operations;

    the ability of the Company to recognize the benefits of the arrangements with Apple, including receipt of additional amounts payable under the Prepayment Agreement;

    Company will expand its sapphire material operations (and hire more employees) and such operations will be a significant part of the overall business;

    the facility in Arizona will be larger than the Salem operations when operating at full capacity;

    our facility in Arizona will supply material to Apple;

    the changes that will occur in the Company's sapphire materials and sapphire equipment business due to the arrangements with Apple;

    the benefits of the Company's business model;

    the expected recovery of the solar industry and the benefits as a result thereof for existing and new solar technologies;

    the goals of lowering the cost of producing high quality polysilicon for our customers by providing more efficient plant designs and increasing the throughput and efficiency of each new generation of our SDR reactors;

    the expected impact of tariffs and trade related government actions;

    sales to our equipment customers outside the United States will continue to be a significant portion of total equipment sales over the next several years as we will continue to focus our polysilicon, PV and sapphire equipment sales efforts in Asia and certain other foreign regions;

    intent to support product installations in the future;

    the method of acquisition of materials and parts for operations in Mesa, Arizona;

    delivery dates for products after an order has been placed;

    limited sales of ASF units in the first half of 2014;

    our success in the sapphire material business will depend on Apple;

    a reduction in the availability of funding for new manufacturing facilities and facility expansions in the solar and sapphire industries, or reduction in demand for solar panels or sapphire material has caused, and may continue to cause, a decrease in orders for our products;

    Company expects to terminate purchase commitments for certain inventory (and the impact thereof);

Table of Contents

    Company will pursue business acquisitions and investment opportunities in the future (in order to expand and diversify its business and technologies);

    Intended future use of cash by US and foreign subsidiaries;

    Company's focus on PV sales and the expected recovery of the PV market;

    future contingent payment obligations;

    sapphire material operations will require significant capital expenditures;

    the Company's existing cash, customer deposits and prepayment installment proceeds will be sufficient to satisfy working capital requirements, commitments for capital expenditures and other cash requirements for at least the next twelve months;

    impact of accounting pronouncements on results of operations;

    Company's ability to hold investments until maturity;

    Market risk from changes in exchange rates;

    broad applications of the Hyperion product tool;

    intention of the Company to re-invest earnings;

    legal proceedings will not have a material effect on the Company;

    the Company does not expect to pay material amounts under its indemnification obligations;

    Company's intent to settle convertible notes in cash;

    Trade friction will continue to have a negative impact on the PV industry and exacerbates the declining demand that the industry has experienced for PV products;

    there will be limited sales of new DSS systems to PV manufacturers and, to the extent Company make sales, the prices for which we sell DSS equipment will be significantly below those historically have charged to customers;

    the Company will invest in the DSS product line;

    the Company's ability to commercialize products under development;

    products under development will allow the Company to compete more effectively;

    Company will attempt to sell any DSS furnaces in inventory, but expect that demand for may be limited;

    the recovery of the solar industry, may be driven by next-generation technology adoption that is aimed at producing lower cost, higher efficiency monocrystalline wafers and cells;

    Hyperion ion implanter tool could reduce cost of PV manufacturing;

    all information regarding future product releases (including HiCz, Hyperion ion implanted, HUPE and PVD equipment and the performance metrics and benefits of those tools);

    the strategies for all three of the Company's business segments;

    Company intends to continue to develop its ASF system in order to provide enhancements in productivity;

    Company expects that most customers will substantially perform on their contractual obligations (but expects that some customers will not);

    Company expects demand for its products among its Asian customers will be limited for the short-term;

Table of Contents

    Company will not take certain inventory for which it had previously made down payments to vendors;

    Company's success in the PV market will depend upon success in commercializing the HiCz™ equipment offering;

    Company expects that dependence on a limited number of customers will continue;

    increasing governmental budgetary pressures will likely result in reduced, or the elimination of, government subsidies and economic incentives for on-grid solar electricity applications;

    Company expects decreased average selling prices for our DSS multicrystalline furnace;

    HiCz offering will target improved ingot efficiencies compared to that of multicrystalline silicon materials;

    Company expects to recognize revenue from customers in Europe, Middle East and Asia in the future;

    anticipated decrease, and subsequent elimination of, governmental incentives for renewable energy usage (and the reasons therefore), including solar energy and PV installations, and that the loss of these incentives may hamper the growth of the solar industry (and reduce demand for PV equipment);

    Company expects a large percentage of future equipment revenue will continue to be derived from sales to customers outside the U.S.;

    Company expects quarterly results will continue to fluctuate;

    Company does not anticipate paying dividends in the foreseeable future;

    The information identified under the heading "Factors Affecting the Results of Our Operations;"

    Company expects to continue to invest in new research and development projects and attempt to expand certain existing product bases and introduce new products;

    Expected use of cash in the future (including with respect to cash held by foreign subsidiaries);

    Anticipated future capital expenditures in 2014;

    the HiCz equipment offering is expected to lower the cost of monocrystalline ingot technology and produce high efficiency monocrystalline solar ingots, both of which are expected to make it more competitive with wafers produced using the traditional batch Cz technology;

    timing of delivery of our equipment products;

    expected conversion of backlog into revenue;

    oversupply or decreased demand in the end-markets served by our equipment customers will have an adverse impact on our business (and may require we sell equipment at prices below our historical price);

    likelihood of customers going to other equipment suppliers is increasing;

    we will maintain cash held by foreign subsidiaries outside of the U.S. (and the intended use of these funds);

    total capital expenditures in the twelve month period ending December 31, 2014 (and the uses thereof); and

        These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, factors discussed in Part I, Item 1A "Risk Factors" and included elsewhere in this Annual Report on Form 10-K.

        Forward-looking statements speak only as of the date of this Annual Report on Form 10-K (or other date as specified in this Annual Report on Form 10-K) or, as of the date given if provided in another filing with the SEC. We undertake no obligation, and disclaim any obligation, to publicly update or review any forward-looking statements to reflect events or circumstances after the date of such statements.


Table of Contents

PART I

Item 1.    Business

Our Company

        GT Advanced Technologies Inc. is a diversified technology company producing advanced materials and equipment for the global consumer electronics, power electronics, solar and LED industries. Our products are designed to accelerate the adoption of advanced materials that improve performance and lower the cost of manufacturing. References herein to "we," "us," "our" and "Company" are to GT Advanced Technologies Inc., operating through its subsidiaries.

        GT Advanced Technologies Inc. was originally incorporated as GT Solar International, Inc. in Delaware in September 2006, and in July 2008, we completed our initial public offering. In August 2011, we changed the name of the Company to GT Advanced Technologies Inc., and such change was effected pursuant to Section 253 of the Delaware General Corporation Law of the State of Delaware by the merger of a wholly-owned subsidiary of the Company into the Company. At the same time, we changed our NASDAQ stock ticker symbol to "GTAT".

        References herein to "fiscal 2013" refer to the fiscal year ended December 31, 2013.

Recent Developments and Acquisitions

    Agreements with Apple Inc.

        On October 31, 2013, our wholly-owned subsidiary, GTAT Corporation (or GTAT), and Apple Inc. entered into a Master Development and Supply Agreement and related Statement of Work (or the MDSA), pursuant to which GTAT has agreed to supply sapphire material to Apple. We have granted Apple exclusive rights with respect to the sapphire materials manufactured with the ASF® units operated by GTAT, subject to certain exceptions, and have granted certain intellectual property rights in connection with sapphire growth and related technologies, including rights with respect to new sapphire technologies created by us. While the MDSA specifies our minimum and maximum supply commitments, Apple has no purchase requirements under the terms of the MDSA.

        On the same date, GTAT also entered into a Prepayment Agreement with Apple pursuant to which we are eligible to receive $578 million, which we refer to as the Prepayment Amount, in four separate installments, as payment in advance for the purchase by Apple of sapphire material. The Prepayment Amount must be used by GTAT to purchase components necessary for the manufacture of ASF systems and related equipment principally for use at our Arizona manufacturing facility. We have received the first two installments of the Prepayment Amount. We are required to repay the Prepayment Amount ratably over a five-year period beginning in January 2015, either as an offset to amounts due from Apple for the purchase of sapphire material under the MDSA or as a direct cash payment to Apple.

        For more information regarding the arrangements with Apple, see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Agreements with Apple Inc.", Note 3 "Significant Agreements" to our consolidated financial statements included in Part II, Item 8 and Part I, Item 1.A. "Risk Factors", in each case as included elsewhere in this Annual Report on Form 10-K.

    Acquisition of Business of Thermal Technology

        During fiscal 2013, we acquired substantially all of the business of Thermal Technology, LLC, a developer of a wide range of high temperature thermal and vacuum products used in the fabrication of advanced materials that are deployed across multiple industries including, LED, medical devices, oil and gas and automotive. The acquisition of Thermal Technology provides us with certain technologies,

1


Table of Contents

including an annealing technology. This acquisition was achieved by the Company acquiring an entity to which certain assets and trade payables of Thermal Technology, LLC had been transferred immediately prior to the acquisition.

Business Segments

        We operate the Company as one business unit comprised of our three business segments: our sapphire business, our polysilicon business and our photovoltaic, or PV, business.

        Our principal products by business segment are:

    Sapphire

    Advanced sapphire crystallization furnaces (ASF ®) which are used to produce sapphire boules. These sapphire boules are used, following certain cutting and polishing processes, to make sapphire wafers, a substrate for manufacturing light emitting diodes (LEDs), as well as sapphire material for a wide range of other industrial and consumer applications including, medical devices, dental, oil and gas, watch crystals, and specialty optical applications such as low absorption optical sapphire for advanced optics and titanium-doped sapphire material for high power lasers.

    Sapphire material manufactured using our ASF systems installed at an Apple-owned facility in Mesa, Arizona which we lease, and at our Salem, Massachusetts facility.

    Polysilicon

    Silicon Deposition Reactors (SDR™) and related equipment used to produce polysilicon, the key raw material used in silicon-based solar wafers and cells.

    Hydrochlorination technology and equipment which is utilized to convert silicon tetrachloride into trichlorosilane (TCS), which is used as seed material in the manufacture of high purity silicon.

    Photovoltaic

    Directional solidification system (DSS™) furnaces and related equipment used to cast multicrystalline and MonoCast™ crystalline silicon ingots. These ingots are used to make photovoltaic (PV) solar wafers and cells.

        We have also recently announced new product releases and are in the process of developing others. These include:

    SiClone™ silicon carbide sublimation furnaces which are used to produce silicon carbide boules. These silicon carbide boules, after certain cutting and processing steps, are used to make silicon carbide wafers, which serve as a substrate for manufacturing power electronics semiconductors for applications such as electric and hybrid vehicles, and power conditioning equipment such as inverters for wind farms, solar arrays and other industrial applications. We commercially introduced the SiClone™ silicon carbide sublimation furnace in July 2013.

    HiCz™ monocrystalline silicon ingot growth systems designed to produce high quality silicon monocrystalline wafers for higher efficiency N-type solar cells. HiCz growth systems produce larger, lower cost monocrystalline ingots with greater yields than traditional CZ systems. We expect to commercially introduce the HiCz™ equipment offering in 2014.

    GT annealing furnace is a high temperature refractory metal furnace used for a variety of industrial purposes, including annealing of advanced materials. Annealing is a process whereby

2


Table of Contents

      an advanced material is heated to a certain uniform temperature below its melting point and then cooled in a precise manner. Annealing is designed to relieve stresses in the crystal structure making the applicable material harder and more durable for use in end-use applications. We expect to commercially introduce the GT annealing furnace in 2014.

    Hyperion™ ion implant system exfoliates or "lifts" off an ultra-thin, flexible substrate from certain material such as silicon, silicon carbide and sapphire. We believe our Hyperion implant system provides a product platform that addresses our current served markets because the ion implant exfoliation process works across a wide range of materials. While this system is still in development and undergoing testing, we expect the thin substrates exfoliated with this ion implant system will be able to be used for manufacturing solar PV wafers (silicon), power semiconductors (silicon carbide), and for substrates used in other potential applications (including sapphire).

    Hydride Vapor Phase Epitaxy (HVPE) system is expected to produce high-quality Gallium Nitride (GaN) epi layers on substrates used in the manufacture of LEDs. Our HVPE system is expected to lower the cost of producing LEDs by improving the throughput of the Metalorganic Vapor Phase Epitaxy (MOCVD) tool and lowering precursor costs. In 2014, we acquired exclusive rights for a plasma vapor deposition (PVD) process technology which will complement the HVPE system. A product offering that includes both the HVPE and PVD tools is expected to provide LED manufacturers with increased throughput at lower cost to produce GaN templates on patterned or planar wafers.

        Each of the Hyperion™ ion implant system, HiCz™ monocrystalline silicon ingot growth system, GT annealing furnace, HVPE system and PVD system are still in development and are not yet available for commercial sale. The SiClone™ silicon carbide sublimation furnace was commercially introduced in fiscal 2013 but did not account for any revenue during fiscal 2013.

    Business Segments and Geographic Information

        For the twelve month periods ended December 31, 2013, 2012 and 2011: approximately 11%, 7% and 61% of our total revenues were attributable to our PV segment (which was principally related to sales of DSS furnaces); 73%, 63% and 33% of our total revenues were attributable to our polysilicon segment (which was principally related to sales of SDR reactors and TCS technology); and 16%, 30% and 6% of our total revenues were attributable to our sapphire segment (which was principally related to sales of ASF systems). Revenues from Asia (including China and Korea) represented 95%, 98% and 95% of our total revenues for the twelve month periods ended December 31, 2013, 2012 and 2011, respectively. No single country outside of Asia accounted for 10% or more of our revenues in any such year.

        As of December 31, 2013, we had approximately $295.8 million and $64.2 million of long-lived assets (which includes certain intangibles such as goodwill) located in the United States and foreign locations, respectively.

        For more segment and geographic information, including total long-lived assets for each of the last two fiscal years, see our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, including Note 19 thereto.

Our Business Focus

        We have made strategic investments in our product portfolio beginning with our acquisition of Crystal Systems in 2010 and with our product development programs we support through our research and development. These strategic investments and development efforts have established a foundation

3


Table of Contents

that has allowed us to diversify our business and expand the industries we serve. We believe this has made us more competitive in our existing markets and allowed us to access new markets.

        We have traditionally been an equipment company serving the solar industry with a leadership position in two areas: (i) equipment and services that enable the production of low-cost, high quality polysilicon and (ii) silicon casting furnaces (principally the DSS furnace) that produce multicrystalline ingots used in the production of solar cells. With the acquisition of Crystal Systems in 2010, we entered the sapphire material and equipment business, with a focus on providing sapphire furnaces for the global LED and certain other industrial markets. Through our acquisition of Confluence Solar in 2011, we were able to expand our technology pipeline to include our HiCz growth technology for making more efficient monocrystalline solar cells. The introduction of our SiClone sublimation furnace in 2013 gives us a product platform for the power electronics market. The acquisition of the Thermal Technology business in 2013 and the purchase of certain assets and intellectual property from Twin Creeks in 2012 gave us access to technology for use in the solar PV, sapphire and power electronics markets. These acquisitions, along with the technology development programs we have underway have broadened our technology base and we believe will allow us to compete more effectively within our core markets as well as new markets.

        As noted above, in 2013, we signed a multi-year supply agreement with Apple to provide sapphire material. We will own and operate ASF furnaces and related equipment to produce the material at an Apple-owned facility in Arizona which we lease. We believe these arrangements are important to our business as it positions us to expand our sapphire material operations.

Our Sapphire Business

        Fiscal 2013 was a transition year for our sapphire business. At the start of the year our sapphire business was based primarily on our ASF sapphire growth furnace which we have successfully marketed and sold to customers serving, we believe, the LED industry and certain other industrial markets. On a limited basis, we produced sapphire material in our Salem, Massachusetts facility and provided this material to customers for final fabrication and assembly into a number of optical and other industrial applications.

Expanding from Equipment Supplier to Sapphire Materials Supplier

        The multi-year supply agreement with Apple to produce and supply sapphire material reflects a shift in focus for our sapphire business segment. The facility that we lease in Arizona is significantly larger than our Salem, Massachusetts production facility in terms of its productivity and throughput, when the Arizona facility is operating at full capacity.

        The agreement with Apple is significant for us because it changes our sapphire business model from being primarily an equipment supplier to also being a sapphire materials supplier, although Apple is under no obligation to purchase any sapphire material under our arrangements. Our sapphire material operations have in the past, however, generated margins that are lower than our sapphire equipment business. As a result of this strategic shift in our sapphire business, we have made several changes to support and streamline our sapphire operations including:

    We have refocused the operations of our Salem, Massachusetts sapphire manufacturing plant to an advanced R&D center for the ongoing development of next generation ASF furnaces to support the new sapphire material plant in Mesa, Arizona.

4


Table of Contents

    A portion of the sapphire manufacturing capacity in our Salem facility is now allocated to producing sapphire material for specific industrial applications. The key markets we are targeting include:

    Low Absorption Optical Sapphire (LAOS)—Low Absorption Optical Sapphire is used in applications where minimal photon absorption is critical. The material is high-purity and is processed in specialized conditions in order to avoid absorption bands. We can optimize our LAOS material to the precise wavelength for the application. LAOS is used for high power laser windows where photon absorption cannot be tolerated.

    Titanium-doped Sapphire (Ti:Sapphire)—Utilizing a proprietary production technique, we produce sapphire boules that are doped with titanium. Titanium-doped sapphire has optical qualities and other performance characteristics that make it useful in applications such as tunable lasers and photonics products. Similar to our LAOS sapphire material, we provide precise finishing and polishing for our Ti:Sapphire material to meet customers' exact application requirements.

        The change in our sapphire business model has changed the way we will develop, pursue and support our ASF equipment business going forward. Since acquiring Crystal Systems in 2010, we have established a strong market position and backlog with our ASF sapphire growth furnaces. We will continue to market and sell this equipment to our current and new customers to support their expansion plans and to customers that will use the ASF equipment for applications not prohibited under the MDSA with Apple. Our ASF customers use our furnaces, we believe, principally to produce high quality sapphire for use in the LED industry and other optical applications. Sales of ASF systems and sapphire material are permitted in the LED and for a range of other applications.

        All of the components and assemblies for our ASF furnaces sold to our customers are manufactured by third parties using our designs. These components are shipped to our Hong Kong consolidation warehouse where they are crated for ultimate shipment to our ASF equipment customers. Our service personnel focus on final assembly, integration and testing of the ASF furnace at the customer site. We also provide engineering and product design, quality control, process engineering and engineering services related to the operation of our ASF furnaces. This model results in a highly flexible cost structure, modest working capital and physical plant requirements and a relatively small number of manufacturing employees.

        In addition to selling ASF units and sapphire material, our sapphire business segment also sells, on a limited basis, services designed to optimize customer production processes as well as train their employees in the use of our equipment. We sell replacement parts and certain consumables used in our ASF equipment units. We typically charge for these services and parts separately from the price of our equipment.

Sapphire Business Competition

        We compete on the basis of technology, reputation, delivery, service (in the equipment sector) and price. We face competition for the sale of our ASF systems from companies offering alternative growth technologies including several suppliers of Kyropoulos-based sapphire growth equipment. We face competition for the sale of our sapphire material from a number of well established companies. These material competitors include Rubicon Technology, Inc., Sapphire Technology Co. Ltd. (Korea), Kyocera International Inc., Saint-Gobain, Gavish Inc., and Monocrystal as well as a number of other sapphire material suppliers. We believe we compete favorably based on the reliability of our technology and the quality of the sapphire our ASF systems produce, our strong service and support capabilities and the cost of ownership of our equipment. Pursuant to the MDSA, we have agreed to provide sapphire material exclusively to Apple, subject to certain exceptions. Apple, however, has no obligation to purchase any sapphire material from us.

5


Table of Contents

Our PV Business

        The focus of our PV business is the development, manufacture and sales of crystallization growth furnaces to produce silicon ingots used in the production of solar wafers and cells. Our principal product line has been the DSS family of casting furnaces that are used to produce multicrystalline ingots and MonoCast ingots, the latter having a higher percentage of monocrystalline material and being, therefore, more efficient. We introduced the first DSS furnace, the DSS™240, in 2003. Since that time we believe we have established a leading market position with our DSS systems for the production of multicrystalline solar wafers. From April 1, 2003 through December 31, 2013, we shipped approximately 3,450 DSS crystallization furnaces. Additionally, we are developing our HiCz(tm) monocrystalline furnace that produces full monocrystalline silicon boules.

        In the fourth quarter of 2013, the photovoltaic market began to exhibit signs of an increase in demand and NPD Solarbuzz, an independent industry analyst firm, has forecasted that increased demand for photovoltaic capital equipment will continue through 2015 (and possibly beyond 2015). As a result we have resumed development efforts of our DSS product line, which was temporarily suspended in 2012 due to limited demand. In addition, we have continued to support our existing DSS customers with their PV equipment.

        Before late-2013, solar wafer production had experienced manufacturing overcapacity resulting in very limited sales of new DSS furnaces in 2012 and 2013. While global PV installations grew year-over-year from 30 gigawatts of installed PV capacity in 2012 to 36 gigawatts in 2013 according to NPD Solarbuzz, demand for DSS furnaces remained very limited.

        As noted above, in late-2012, we suspended significant additional investment in our DSS product line and focused on selling DSS furnaces that we had in inventory at that time. In 2013, we were successful in selling many of the DSS units already in our inventory to several of our customers, but these were sold at prices below the historical prices we had charged for the DSS units, resulting in decreased or negative margins. We also introduced our DSS™850 multicrystalline upgrade, which allows DSS customers to increase the capacity of their current DSS™450 and 650 furnaces to levels of production of greater than 800 kilograms per ingot, thereby helping to lower overall wafer costs.

        The expected recovery of the solar industry may also create an opportunity for next-generation technology adoption that is aimed at producing lower cost, higher efficiency monocrystalline wafers and cells. In an effort to respond to this expected change in the industry, we are developing our HiCz silicon crystal growth equipment. HiCz, or continuous Czochralski (Cz) growth process, produces monocrystalline ingots that are designed to produce more efficient wafers at a lower cost and with higher uniform resistivity than those made from traditional batch Cz ingots.

        We have continued to make progress with the development of our Hyperion ion implant system. The implant process exfoliates or "lifts" a very thin wafer off of a base of certain materials, including silicon, silicon carbide and sapphire. The Hyperion ion implant tool is expected to benefit solar cell production because it virtually eliminates silicon kerf loss thereby eliminating the need to saw wafers from crystalline bricks as is traditionally done in a casting process. We are currently developing this Hyperion equipment offering.

        Our primary PV products include:

    DSS Multicrystalline casting furnaces—Our DSS furnace is a specialized furnace used to melt polysilicon and cast multicrystalline ingots. We currently market our DSS crystallization furnaces under the names DSS450HP and DSS650. Our largest capacity DSS furnace, the DSS850, is capable of producing ingots that weigh greater than 800 kilograms using standard silicon feedstock.

    DSS MonoCast casting furnaces—In January 2012, we commercially introduced our MonoCast™ silicon casting technology that uses the DSS furnace architecture to produce ingots comprised of

6


Table of Contents

      a high percentage of monocrystalline material. Solar cells produced from MonoCast wafers have been shown to deliver higher efficiencies than cells made from traditional multicrystalline wafers.

        As noted above, we are developing a HiCz, or continuous Czochralski (Cz) growth process, which produces monocrystalline ingots that are designed to produce more efficient wafers at a lower cost and with higher uniform resistivity than those made from traditional batch Cz ingots.

        We continue to sell the DSS furnaces that we hold in inventory and support any new sales of our DSS 850 systems. In addition, we have resumed our investment in our DSS product line to improve and enhance our multicrystalline furnace offerings.

        All of the components and assemblies for our DSS furnaces are manufactured by third parties using our designs. These components are shipped to our Hong Kong consolidation warehouse where they are crated for ultimate shipment to customers. Our service personnel focus on final assembly, integration and testing of the DSS furnace at the customer site. We also provide engineering and product design, quality control, process engineering and engineering services related to the operation of our DSS furnaces. This model results in a highly flexible cost structure, modest working capital and physical plant requirements and a relatively small number of manufacturing employees.

        Ancillary equipment—Our ancillary equipment provides operators with material handling assistance during the preparation of the crucible before it is loaded with silicon and during the loading and unloading of the crucible into the DSS furnace chamber at the start of the growth process and out of the DSS furnace chamber at the conclusion of the ingot growth process. Our ancillary equipment includes crucible coating stations, crucible manipulators, loaders/unloaders, extraction tools and other material handling systems required to safely transport material during the ingot growth process.

        Photovoltaic parts and services—The use of our PV products requires substantial technical know-how and many of our customers rely on us to design and optimize their production processes as well as train their employees in the use of our equipment. We sell replacement parts and consumables used in our DSS furnaces and other PV equipment. We typically charge for these services and parts separately from the price of our equipment.

PV Business Competition

        We compete in the PV industry on the basis of technology, delivery, service (both installation and aftermarket) and price. We principally compete with both well established and new, low-cost equipment manufacturers, primarily located in China, that sell equipment that produce multicrystalline ingots. These competitors include ALD Vacuum Technologies AG, JYT Corporation, Ferrotec Corporation, PVA TePla AG, Centrotherm Elektrische Anlagen GmbH & Co., Jing Gong Technology, Zhejiang Jingsheng Mechanical & Electrical Co., Ltd., as well as a number of other furnace manufacturers. Several of these competitors, such as Centrotherm and Ferrotec, are large integrated manufacturers with significant resources capable of competing for business globally. We believe we compete favorably based on the reliability of our technology, our strong service and support capabilities and the cost of ownership of our equipment.

        In addition, we experience competition from new entrants, many of whom have significant resources and advanced technology, as well as competition from certain companies who formerly purchased materials from our DSS equipment customers and have decided to manufacture their own silicon ingots by means of creating and building their own equipment.

Our Polysilicon Business

        Since 2006 we have supplied polysilicon production equipment and services to many of the world's leading polysilicon manufacturers, including OCI Company, Ltd., Samsung MEMC Polysilicon (SMP), and GCL-Poly Energy Holdings Limited.

7


Table of Contents

        Polysilicon is a purified form of silicon that is a key raw material used to produce photovoltaic and semiconductor wafers. Our polysilicon business offers silicon deposition reactors (SDR™), which utilizes the chemical vapor deposition (CVD) process. In addition, our polysilicon business sells hydrochlorination technology and equipment which is utilized to convert silicon tetrachloride into trichlorosilane (TCS), which is used as seed material in the manufacture of high purity silicon. Hydrochlorination technology is designed to improve the efficiency and lower the costs of polysilicon production. Finally, our polysilicon segment provides engineering services to customers. We sell our polysilicon products and services to existing polysilicon producers and new market entrants.

        As with our PV equipment business, demand for new polysilicon production capacity was very limited in 2013.

        Our polysilicon business focuses on product design, quality control, engineering services, project management and process development related to the production of polysilicon. One of our goals is to lower the cost of producing high quality polysilicon for our customers by providing more efficient plant designs and increasing the throughput and efficiency of each new generation of our SDR reactors.

        Our polysilicon production technology is recognized for its ability to produce quality polysilicon at low cost. Our first commissioned new polysilicon production facility was for OCI Company, Ltd., a South Korean chemical company. We are one of only a small number of companies providing chemical vapor deposition reactors commercially.

        Our primary Polysilicon products are:

    SDR Reactors—We began offering SDR reactors commercially in April 2006 and we are now actively marketing our seventh generation product. Our SDR reactors have consistently demonstrated production at levels equal or greater than their nameplate capacity. We market our SDR reactors under the names SDR300, SDR400, SDR500 and SDR600 and SDR1K.

    Hydrochlorination for the production of TCS and Silane—We provide equipment, technology and engineering services for the production and purification of trichlorosilane (TCS) and silane. This hydrochlorination technology eliminates the need for silicon tetrachloride converters which are required when using certain other polysilicon production technology. In 2008, we began offering hydrochlorination technology which is designed to ultimately lower the capital costs and power consumption of polysilicon production.

    Polysilicon services, parts and other—We also provide engineering services for the commissioning, start-up and optimization of our equipment and technology. We typically charge for these services and parts separately from the price of our polysilicon equipment. We also provide ancillary equipment and technologies for producing seed rods used in our SDR reactors and for handling and processing the polysilicon rods into a finished product.

        All of the components of our polysilicon products are shipped directly from our qualified vendors to the customer installation site. This model results in a highly flexible cost structure, modest working capital and physical plant requirements and a relatively small number of manufacturing employees. This model also improves our competitive position by keeping our cost of operations low.

        In 2013 China imposed preliminary tariffs on imported polysilicon from the U.S. and Korea, and in January 2014 announced that these tariffs would be permanent for a period of five years. Since we have no U.S.-based polysilicon customers coupled with the fact that the tariffs imposed on polysilicon imported from Korea are minimal, we currently expect these tariffs will have some impact, but limited in extent.

8


Table of Contents

Polysilicon Business Competition

        We compete on the basis of technology, delivery, service (both installation and aftermarket), cost of ownership, price and reputation. We principally compete with equipment manufacturers in the PV market for chemical vapor deposition reactors for the production of polysilicon.

        Our SDR reactor products and other related services face direct competition from a small number of entities in the polysilicon production market. These competitors include MSA Apparatus Construction for Chemical Equipment Ltd, Centrotherm Elektrische Anlagen GmbH & Co., Morimatsu Industry Co. Ltd. and Poly Plant Project, Inc. We also face indirect competition from large, well-established companies that produce polysilicon primarily for the semiconductor and solar industries. These companies have developed polysilicon production technology for their own use which they do not market to third parties. These indirect competitors include Hemlock Semiconductor Corporation, Wacker Chemie AG, MEMC Electronic Materials, Inc. and Renewable Energy Corporation ASA. We believe we compete favorably based on the reliability of our technology, our strong service and support capabilities and the cost of ownership of our equipment.

Photovoltaic, Polysilicon and Sapphire Customers

        We sell our equipment products and services globally to polysilicon producers, solar wafer manufacturers, and sapphire producers. Historically, our customers have included, or are suppliers to, some of the world's leading solar wafer and cell manufacturers, polysilicon manufacturers and LED manufacturers. In any one year, we typically have a small number of customers within our business segments, some of whom represent a significant percentage of our total revenue. However, the number of our customers and their contribution to our revenue typically change from year to year, as different customers replace equipment and undertake projects to add manufacturing capacity or as we add new customers.

        For the twelve-month period ended December 31, 2013, we had three customers, Tokuyama Corporation, Polysilicon Technology Company, and SMP Ltd., that represented greater than 10 percent of our total revenue, which together represented 64% of our total revenue. The following customers comprised 10% or more of our total net revenues for the fiscal year ended December 31, 2013, the nine-month period ended December 31, 2012 and the fiscal year ended March 31, 2012:

 
  Fiscal Year Ended   Nine-Month Period
Ended
  Fiscal Year Ended  
 
  December 31, 2013   December 31, 2012   March 31, 2012  
 
  Revenue   % of
Total
  Revenue   % of
Total
  Revenue   % of
Total
 
 
  (dollars in thousands)
 

Tokuyama Corporation

  $ 109,216     37 % $ *     *   $ *     *  

Polysilicon Technology Company

    45,268     15 %   *     *     *     *  

SMP Ltd. 

    34,915     12 %   *     *     *     *  

OCI Company Ltd (formerly DC Chemical Co. Ltd)

    *     *     130,912     34 %   223,723     23 %

Powertec Energy Corporation

    *     *     78,226     21 %   *     *  

Hanwha Chemical Corporation

    *     *     49,055     13 %   *     *  

        We believe that our sales to our equipment customers outside the United States will continue to be a significant portion of total equipment sales over the next several years as we will continue to focus our polysilicon, PV and sapphire equipment sales efforts in Asia and certain other foreign regions. For more information about our revenue and long-lived assets by geographic region and our revenue, gross profit and assets by segment, please refer to Part II, Item 8, Note 19, Segment and Geographical Information in our Consolidated Financial Statements included elsewhere in this Annual Report on

9


Table of Contents

Form 10-K. For information regarding our backlog please refer to "Order Backlog" later in this Part I, Item 1.

        In 2013, we signed a multi-year supplier agreement with Apple to produce sapphire material. We own and operate ASF® furnaces and related equipment to produce the material at an Apple-owned facility in Arizona. We believe these arrangements will allow us to expand our sapphire material operations when the plant is operating at full production. We have agreed to provide this sapphire material exclusively to Apple, subject to certain exceptions. Apple, however, has no obligation to purchase any sapphire material from us.

Sales, Marketing and Customer Support

        We market our equipment products principally through a direct sales force, and with respect to our equipment products we also utilize regional indirect sales representatives who solicit orders and identify potential sales opportunities in markets where our business is less established. All sales are made directly by us to the customer and our indirect sales representatives are not authorized to enter into sales contracts on our behalf. We market our sapphire materials through a small direct sales force.

Customer support

        Our polysilicon production equipment, DSS crystallization furnaces and ASF equipment units are critical to the operation of our customers' manufacturing operations. Prior to an order being placed, a customer service representative advises the customer with respect to its facilities requirements and undertakes modeling of expected operating costs. Following delivery, our engineers assist with installation and integration of equipment at the customer's facility. After the sale is complete we often provide support services for a fee. If the number of our product installations increases, we will continue to offer our service and support.

Manufacturing and Suppliers

        Our equipment manufacturing model is based upon outsourcing the components used in our DSS furnaces, SDR reactors, TCS equipment and ASF systems. The limited manufacturing we perform focuses on assembly operations and the production of limited proprietary components. Nearly all of the components of our polysilicon products are shipped directly from our qualified vendors to the customer installation site. The majority of components for our DSS furnaces and ASF systems are shipped to our consolidation warehouse in Hong Kong for ultimate shipment to the customer. This equipment production model results, we believe, in a flexible cost structure, modest working capital and physical plant requirements and a relatively small number of manufacturing employees supporting these businesses.

        Our DSS and ASF equipment operation uses a "forecast manufacturing" methodology which attempts to project our raw material needs sufficiently in advance of manufacturing lead times, in an attempt to diminish the threat of spot price volatility and generally minimizing the effect of supply shortages and disruptions. We believe this approach is designed in an effort to reduce product delivery times and increase scalability, however, if customers were to delay delivery of, or cancel orders for, DSS and ASF equipment, which has been the case from time-to-time, then the benefits of our "forecast manufacturing" would be limited. Delays and cancellations with respect to our DSS equipment has negatively impacted our PV business segment and in 2013 we were required to write down certain of our DSS assets that we purchased but did not expect to sell.

        Our polysilicon operations procure materials when customer orders are received.

        We purchase a range of materials and components for use in our equipment products from other manufacturers. Many component parts purchased by us are made to our specifications and under confidentiality arrangements. Purchased components represented approximately 85%, 83%, and 87% of

10


Table of Contents

cost of goods sold in the fiscal year ended December 31, 2013, the nine-month period ended December 31, 2012, and fiscal year ended March 31, 2012, respectively. We attempt to secure multiple suppliers of our components to reduce our concentration risk and ensure adequate supply, but, in some cases, components and parts are obtained from a single vendor. In addition, we do not use any single supplier to produce all of the components for any single product in order to reduce the risk that a supplier could replicate our products. In many cases, but not all, we believe that these materials and components are available from multiple sources and that we are not dependent on any single supplier. We have well established relationships with various domestic and foreign suppliers of the components used in our equipment products. We generally are required to make a series of pre-payments to these vendors, which we fund from our working capital.

        We manufacture sapphire material at our production plant in Salem, Massachusetts for select market applications including LAOS and Ti:Sapphire (as described above under "—Our Sapphire Business"). This facility is also utilized by us as an R&D center for development of our ASF furnace and other advanced sapphire manufacturing processes. We are in the process of ramping up our operations in Arizona which will be used to supply sapphire material to Apple under the MDSA. We expect that this operation will be larger in scope than our operations in Salem and, since we are required to have minimum supply obligations to Apple (and they will not have minimum purchase obligations of sapphire material from us), we expect that the method of acquisition of production materials will be different than our equipment businesses and may require significant expenditures for consumable materials and certain equipment prior to receiving orders for purchase of the sapphire material.

Research, Development and Engineering

        Our research and development activities are focused on advancing, developing and improving technologies for the markets we serve. Our research and development efforts are currently focusing on developing our HiCz equipment offering, our Hyperion ion implantation equipment, our GT annealing equipment and related applications, improving our DSS, ASF and polysilicon equipment offerings, as well as developing new equipment offerings, such as silicon carbide growth equipment. In addition, our research and development efforts are directed towards developing HVPE and PVD systems.

        We also have cooperative research and development agreements with certain universities, customers, suppliers and other third parties. We also license certain technology from other parties, including our PVD technology, and we are jointly developing our HVPE tool. Our research and development expense was $83.0 million for the fiscal year ended December 31, 2013, $55.4 million in the nine-month period ended December 31, 2012 and $49.9 million in the fiscal year ended March 31, 2012.

Intellectual Property

        We believe that our competitive position depends, in part, on our ability to protect our intellectual property resulting from our research, development, engineering, manufacturing, marketing, technical and customer service activities and the intellectual property obtained in connection with acquisitions. Under our intellectual property strategy we protect our proprietary technology through a combination of patents, trademarks, copyrights, know-how and trade secrets, as well as employee and third party confidentiality and assignment of rights agreements. We focus on developing, identifying and protecting our technology and resulting intellectual property in a manner that supports our overall business and technology objectives. Although we rely on intellectual property that is primarily developed in-house, we also enter into patent and/or technology licenses with other parties when we believe such licenses would advance or complement our products and technology or would otherwise be in our best interest.

        One of the principal means of protecting our proprietary technology, including technical processes and equipment designs, is through trade secret protection and confidentiality agreements. Our

11


Table of Contents

personnel, including our research and development personnel, enter into confidentiality agreements and non-competition agreements with us. These agreements further address intellectual property protection issues and require our employees to assign to us, among other things, all of the inventions, designs and technologies they develop during the course of their employment with us. We also generally require our customers and business partners to enter into confidentiality agreements before we disclose any confidential or commercially sensitive aspects of our technology or business plans. These agreements, however, may be difficult to enforce in certain jurisdictions and, therefore, may be of limited value in protecting our intellectual property or sensitive information.

        We seek patent protection in various countries when it is consistent with our strategy and the protection afforded justifies the required disclosure costs associated with the filing. We own, or have applied for, various patents and patent applications in the United States and other countries relating to our products, product uses and manufacturing processes. The patents and patent applications vary in scope and duration. As of January 24, 2014, we owned more than 70 issued patents in the PV, semiconductor, polysilicon, sapphire, and ion implantation fields in the United States and foreign countries, which will expire at various times between 2014 and 2033. Although the products made, sold or used under our patents or technology licenses are important to us, we believe at this time that our business as a whole is not materially dependent on any particular patent or technology license, or on the licensing of our patents or technology to third parties, other than our customers.

        We have not been subject to any material claims for infringement, misappropriation or other violation of intellectual property rights, claims for compensation by employee inventors or claims disputing ownership of our proprietary technologies. We have instituted claims and actions against others for what we believe are infringement or misappropriation of our intellectual property rights.

Order Backlog

        Our order backlog primarily consists of amounts due under written contractual commitments and signed purchase orders for PV, polysilicon and sapphire equipment not yet shipped to customers and deferred revenue (which represents amounts for equipment that has been shipped to customers but not yet recognized as revenue). Contracts in our order backlog for PV, polysilicon and sapphire equipment generally require the customer to either post a standby letter of credit in our favor and/or make advance payment prior to shipment of equipment.

        From the date of a written commitment, we generally would expect to deliver PV and sapphire equipment products over a period ranging from three to nine months and polysilicon products over a period ranging from twelve to eighteen months, however, in certain cases revenue may be recognized over longer periods. Although most of our orders require substantial non-refundable deposits, our order backlog as of any particular date should not be relied upon as indicative of our revenues for any future period.

        If a customer fails to perform its outstanding contractual obligations on a timely basis, and such failure continues after notice of breach and a cure period, we may terminate the contract. Our equipment contracts generally do not contain cancellation provisions and in the event of a customer breach, the equipment customer may be liable for contractual damages. Beginning with the three-month period ended December 31, 2012, we undertook a process of identifying contracts in our order backlog that have not been terminated or modified but for which we expect that customers will not fulfill their obligations under the respective contacts. Consistent with this recently adopted approach such contracts were removed from our order backlog. During the fiscal year ended December 31, 2013, we terminated, modified or removed contracts from our order backlog resulting in a $415.6 million reduction (96% of the reduction was attributable to four contracts, of which $33.1 million related to contracts that have not been legally terminated or modified). During the nine-month period ended December 31, 2012, we terminated, modified or removed contracts resulting in a $220.5 million reduction in our order backlog (81% of the reduction was from six contracts). During the fiscal year

12


Table of Contents

ended December 31, 2013, we recorded revenues of $19.3 million from terminated contracts and during the nine-month period ended December 31, 2012 we recorded revenues of $8.5 million from terminated contracts.

        Although we have a reasonable expectation that most of our customers will substantially perform on their contractual obligations, we attempt to monitor those contracts that we believe to be at risk. Due to recent industry market conditions, as noted above, we have removed certain amounts from our order backlog that are attributable to contracts that we do not believe our customers will fulfill (but which have not been formally terminated or modified).

        We conduct negotiations with certain customers who have requested that we extend their delivery schedules or make other contract modifications, or who have not provided letters of credit or made payments in accordance with the terms of their contracts. We engage in a certain level of these negotiations in the ordinary course. We monitor the effect, if any, that these negotiations may have on our future revenue recognition. If we cannot come to an agreement with these customers, or if we believe our equipment customers cannot or will not perform their obligations, our order backlog could be reduced. Other customers with contracts in our order backlog that are not currently under negotiation, or that we do not consider to be at risk, may approach us with similar requests in the future, or may fail to provide letters of credit or to make payments when due. If we cannot come to an agreement with these customers, our order backlog could be further reduced. If we do come to an agreement with customers on extending delivery schedules, the timing of expected revenue recognition could be pushed into periods later than we had anticipated.

        The table below sets forth our order backlog as of December 31, 2013 and December 31, 2012 by business segment:

 
  December 31, 2013   December 31, 2012  
Product Category
  Amount   % of
Backlog
  Amount   % of
Backlog
 
 
  (dollars in millions)
 

Photovoltaic business

  $ 11     2 % $ 4     1 %

Polysilicon business

    299     50 %   529     42 %

Sapphire business

    292     48 %   716     57 %
                   

Total

  $ 602     100 % $ 1,249     100 %
                   
                   

        Our order backlog attributable to our PV, polysilicon and sapphire businesses as of December 31, 2013, included deferred revenue of $62.7 million, of which $0.8 million related to our PV business, $54.9 million related to our polysilicon business and $7.0 million related to our sapphire business. Cash received in deposits related to our order backlog where deliveries have not yet occurred was $92.6 million as of December 31, 2013.

        As of December 31, 2013, our order backlog consisted of contracts with 10 PV customers, contracts with 13 polysilicon customers, and contracts with 19 sapphire equipment customers. Our order backlog as of December 31, 2013, included $261.3 million and $143.7 million attributed to two different customers, each of which individually represents 43% and 24%, respectively, of our order backlog.

        Backlog is not a term recognized under United States generally accepted accounting principles; however, it is a common measurement that the management team uses in assessing the business and operations. Our methodology for determining backlog may not be comparable to the methodologies used by other companies. Additionally, we adjusted our methodology for determining backlog and expect that future presentation of backlog will exclude sapphire material backlog. Furthermore, backlog is difficult to determine with certainty and requires estimates and judgments to be made by management and it should not be relied upon as an indication of future performance.

13


Table of Contents

Employees

        As of December 31, 2013, we employed 541 full-time employee equivalents and contract personnel, consisting of 192 engineering and research and development employees; 45 customer service representatives; 7 executives; 38 sales and marketing employees; 128 finance, general and administrative employees; 116 manufacturing staff; and 15 information technology employees.

        As of December 31, 2013, 185 employees were located at our Merrimack and Nashua, New Hampshire facilities, 76 employees were located at our Salem, Massachusetts facility, 19 employees were located at our Danvers, Massachusetts facility, 43 employees were located at our Missoula, Montana facility, 11 employees were located at our San Jose, California facility, 35 employees were located in our Mesa, Arizona facility, 60 employees were located in our Santa Rosa, California facility, 33 employees were located at our Hong Kong facility, 9 employees were located at our Taiwan facility, and 70 employees were located at our Shanghai facility. None of our employees are currently represented by labor unions or covered by a collective bargaining agreement. We believe that relations with our employees are satisfactory. Since December 31, 2013, we have continued to hire employees at our Mesa, Arizona facility and expect to continue hiring as operations at this facility increase.

Environmental Matters

        Our Merrimack, New Hampshire and Salem, Massachusetts facilities are subject to an industrial user discharge permit governing the discharge of wastewater to the Merrimack and South Essex Sewerage District sewer systems. Our Salem, Massachusetts facility is subject to a permit related to the installation and storage of diesel sub-based fuel tanks and generators. There are no further environmental related permits required by us that are material to our business. We are not aware of any environmental issues that would have a material adverse effect on our operations.

Available Information

        Our internet website address is http://www.gtat.com. Through our website, we make available, free of charge, our annual or transition reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after such materials are electronically filed, or furnished to, the Securities and Exchange Commission, or the SEC. These SEC reports can be accessed through the investor relations section of our website. The information found on our website, or information that may be accessed through links on our website, is not part of this or any other report we file with or furnish to the SEC.

        The charters of our Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, as well as our Code of Conduct and Code of Ethics for Senior Financial Officers, and Corporate Governance Guidelines are available on our website at http://www.gtat.com under "Corporate Governance". These items are also available in print to any stockholder who requests them by calling (603) 883-5200. This information is also available by writing to us, attention: Corporate Secretary, at the address on the cover of this Annual Report on Form 10-K.

Item 1A.    Risk Factors

        Our business, operating results and cash flows can be impacted by a number of factors, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results. You should carefully consider the risks described below and the other information in this Annual Report on Form 10-K. These are the risks and uncertainties we believe are most important for our business as of the date of this Annual Report on Form 10-K. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating

14


Table of Contents

results would likely suffer. In that event, the market price of our common stock could decline and an investor in our common stock could lose all or part of their investment.

Risks Related to Our Business

Producing sapphire material is expected to constitute an increasing portion of our operations, and if we are unable to successfully transition our business and establish our sapphire material operations our business will be harmed.

        Pursuant to a contract we entered into on October 31, 2013 with Apple, we have agreed to supply sapphire materials. Historically, we have been a provider of crystal growth equipment, with very limited operations supplying sapphire material produced at our Salem, Massachusetts facility. Pursuant to the supply arrangement with Apple, we have agreed to commit significant resources to the growth of our sapphire material operations and have undertaken material obligations related thereto. We expect that the sapphire material-producing operations at our Arizona facility, which is still under development, will, if successful, constitute a significant part of our overall business. We have very limited experience operating a material manufacturing operation of this scale, and if we are unable to timely establish and maintain operations of the scale contemplated, our business and results of operations would be significantly impacted and we may be unable to perform some or all of the obligations we have undertaken as part of our agreement with Apple. Among the risks we face are: (i) hiring and maintaining a workforce necessary to operate the facility, (ii) the facility consistently complying with the specifications necessary to operate the ASF systems and that these specifications will be consistently adhered to, including adequate supply of power and water (some of which are beyond our control) and (iii) ensuring that the consumable components and parts necessary to generate sapphire materials and operate and maintain the ASF systems are available in time and quantity from our suppliers necessary to meet our expected delivery schedules.

        In addition, we must supply sapphire material that meets agreed upon specifications by agreed upon deadlines and we must have available an adequate supply for expected, although not committed, demand. If we are unable to comply with each of these requirements, we will be subject to significant warranty claims and/or liquidated damages. We may also be subject to substantial liquidated damages for other violations, including breaching certain confidentiality obligations or the inability to replace certain key employees. We may be unable to make these liquidated damage payments or satisfy our warranty obligations and any such failure will have material adverse consequences for our business and results of operations.

        Through the first half of 2014, we expect that we will sell a very limited number of ASF units to our customers. For this reason, we expect to convert very limited amounts in our sapphire equipment backlog into revenue during this period.

Apple has no minimum purchase obligation and if Apple does not purchase sufficient quantities of sapphire material, our revenues will suffer and we may be unable to meet our obligations to repay advances that were provided to us.

        We have granted certain exclusivity rights to Apple with respect to the sapphire material manufactured with our ASF systems. Therefore, our sapphire material business will depend, to a large extent, on purchases of sapphire material by Apple. Although we have significant minimum supply obligations, Apple has no purchase obligations nor is Apple subject to any requirement to purchase sapphire materials only from us under our arrangements and if Apple purchases no sapphire material, or limited sapphire material, our anticipated sapphire business revenues would be materially and adversely affected.

        Apple has committed to make a $578 million prepayment, or the Prepayment Amount, to us in four installments, if conditions are met. We have received the first two installments. We must repay the

15


Table of Contents

Prepayment Amount ratably over a five year period beginning in January 2015, either as a credit against Apple purchases of sapphire material or as a direct cash payment to Apple. Without significant sapphire revenue from Apple, we would still be required to repay in cash (on a quarterly basis) significant amounts of the Prepayment Amount beginning in 2015, which would limit our ability to invest in or operate other portions of our business, including our equipment operations, or to repay indebtedness at the time of maturity of such indebtedness. In addition, these repayments may exhaust all of our cash and, if we are unable to make a payment when due (or fail to meet our supply obligations), we will be in default and Apple will have the right to acquire control and possession of the ASF systems and/or our subsidiary (GT Advanced Equipment Holding LLC) that owns these systems (and to be paid in cash for any deficiency). The prepayment installments from Apple may also be cancelled prior to payment, or repayment accelerated, under certain circumstances, including if the ASF systems do not generate sapphire material to specification prior to an agreed upon date or we are unable to comply with certain financial requirements. Finally, if the repayment of the Prepayment Amount were to be accelerated, it would likely produce a cross-default under our 3.00% Convertible Senior Notes due in 2017, or the 2017 notes, and our 3.00% Convertible Notes due in 2020, or the 2020 notes (correspondingly, an acceleration of the 2017 notes and 2020 notes would likely produce a cross-default under the Prepayment Agreement), and we may not have sufficient resources at such time to satisfy these obligations.

        Even if Apple does purchase adequate amounts of sapphire material, the margins related to this business (even when operating at expected capacity) will be lower than those of our equipment business. If we do not operate our facility at or near capacity or we are unable to manage certain expenses with respect to these sapphire material operations, we may have negative margins and our ability to meet our delivery and/or payment obligations under the arrangements with Apple would be significantly impacted, which would have a negative impact on our business and may impair our ability to operate our business and satisfy our obligations to Apple and others (including holders of our 2017 and 2020 convertible notes).

We have granted Apple certain exclusivity rights with respect to our sapphire growth technologies; such rights include an agreement that we will not sell our ASF systems to customers that generate sapphire material for use in certain products, and if our ASF customers were to generate sapphire for use in those restricted applications we could be subject to significant penalties which would harm our business.

        In connection with our agreements to supply sapphire material to Apple, we also agreed that we would not directly or indirectly provide sapphire material, sell ASF systems to customers that would generate sapphire material, or provide licenses or services pertaining to our sapphire technology or related intellectual property to any company other than Apple in each case for use in certain applications, including consumer electronics (subject to certain exceptions). If we were to breach this provision, or our ASF customers were to produce sapphire for these restricted applications, we would be subject to penalties under our agreement with Apple, including significant monetary penalties. While we intend that all of our future ASF equipment contracts will place restrictions on the use of the ASF-generated material, there is no guarantee that our customers will honor this restriction or that, if they were to breach such contractual provision, that we would be able to collect (and we expect that we would be very unlikely to collect) sufficient amounts to off-set the monetary damages that we would owe Apple. Any violation of this exclusivity provision by us or by our customers, over which we will exercise no control, would have a material impact on our business and if we were required to pay damages to Apple, the amounts would likely be material and require significant amounts of our cash. Our future sales of ASF systems may also be limited due to these exclusivity requirements.

16


Table of Contents

We have granted certain intellectual property rights with respect to our sapphire growth technology to Apple, and Apple may be able to acquire additional rights in the future under certain circumstances, and Apple may be able to transfer this intellectual property to others, including our competitors.

        We have granted Apple certain intellectual property rights pertaining to our sapphire growth technology, including rights with respect to certain existing and future developments. Under certain circumstances, Apple would have the ability to use our technology to generate sapphire material for its use, or to engage one or more third parties to manufacture sapphire for Apple using our technology. If Apple were to exercise its right to use our sapphire growth technology (or grant that right to a third party), our business would be harmed, and we may be unable to meet our obligations under the Prepayment Agreement through the delivery of sapphire material to Apple. In addition, if a third party were to receive a license to our technology it may replace us as a supplier of sapphire material to Apple. Any of the foregoing would significantly harm our business and results of operations.

We expect to build inventory of sapphire material and if it is not purchased by Apple, our business could be harmed and we may be required to take a charge for this inventory.

        We are required to maintain significant inventory of sapphire material under our agreements with Apple, although Apple has no commitment or obligation to purchase any sapphire material from us. If Apple does not purchase sapphire materials in the amounts we expect, it would have a material adverse effect on our cash flows, results of operations and financial condition. In addition, due to certain restrictions in our supply agreement on the sale of sapphire material, we may not be able to sell that material to other parties, which would result in increases in our inventory that we cannot otherwise sell and would have a negative impact on our margins and our operations and may require that we take a charge for that inventory if it becomes excess or obsolete.

If our sapphire equipment and material do not achieve market acceptance, prospects for our sapphire business will be limited.

        The customers to whom we sell ASF equipment systems are, we believe, largely manufacturing for the LED industry and, in more limited cases, other industrial markets. Potential customers for sapphire equipment and sapphire-based LED materials manufactured with the ASF system may be reluctant to adopt these offerings as an alternative to existing sapphire materials and lighting technology or sapphire manufacturing processes. In addition, many of the customers who purchase our equipment, we believe, will utilize the material for LED lighting. However, LED lighting is currently more expensive than traditional lighting and if the price of sapphire-based LED does not decrease in the near future, our customers may not have a market in the near term for the material they produce with our ASF systems, which would reduce the demand for our ASF systems.

        In addition, potential customers may have substantial investments and know-how related to their existing sapphire, LED and lighting technologies, and may perceive risks relating to the complexity, reliability, quality, usefulness and cost-effectiveness of our sapphire equipment and sapphire material products compared to alternative products and technologies available in the market or that are currently under development. For example, companies are developing general lighting technologies that utilize silicon-based material (in lieu of sapphire) and assert that the production costs are significantly lower than the costs to produce sapphire-based lighting materials. If acceptance of sapphire material and sapphire-based LEDs, particularly in general illumination, do not increase significantly, opportunities to increase the sapphire equipment portion of our business and revenues would be limited.

        In addition, the price of sapphire-based LED material has recently experienced a marked drop due, in part, to the readily available supply of such material. If the price of LED material, which is

17


Table of Contents

driven, in large part due to the supply that is generally available, drops, we would expect that our equipment business would be negatively impacted.

        Any of the foregoing factors could have an adverse impact on the growth of the sapphire portion of our business. Historically, the sapphire industry has experienced volatility in product demand and pricing. Changes in average selling prices of sapphire material as a result of competitive pricing pressures, availability of material, increased sales discounts and new product introductions by competitors could have an adverse impact on our results of operations.

Crystal growth using the ASF system requires a consistent supply of power and any interruption in the supply of power may result in sapphire material that has reduced or no sales value.

        The process for growing sapphire boules using the ASF system technology requires that the system be supplied with a consistent supply of power during the cycle required to grow a boule. If there are power interruptions, which we have experienced at our Salem and Merrimack facilities, even for a brief period of time, the sapphire boule being generated by that system will be of inferior quality and we would likely be unable to sell that sapphire material to a customer. Our Arizona sapphire material facility will have a number of ASF systems operating and the power demand will be significant, in particular, at that location and if the power is not consistent, we may breach our material delivery commitments and the consequences could include accelerated repayment of prepayment advances made to us and payment of damages to Apple. Such power interruptions at our facilities could also delay and impair our research and development efforts with respect to sapphire material and ASF systems. In addition, if customers of our ASF system do not have consistent power supplies, our system would not gain market acceptance because it will not create boules of the quality that may be expected by our customers and we would likely not meet the required contractual criteria necessary to receive the final installment payment for ASF systems from an equipment customer.

Production and sale of sapphire growth systems for producing materials is a new industry and we have limited operating history, which makes it difficult to evaluate the business prospects for this business segment.

        Because of our limited operating history in the sapphire industry it is difficult to evaluate our business and prospects. While we have gained contractual acceptances on our ASF systems, our sapphire equipment business presents the difficulties frequently encountered by those businesses that are in the early stage of development, coupled with the risks and uncertainties encountered in new and evolving markets such as the market for sapphire growth technology. We may not be able to successfully address these challenges. If we fail to do so, we may incur losses and our business would be negatively impacted.

        While we have commissioned ASF systems at customer sites, our customers generally lack experience in operating the ASF systems. Our sapphire furnaces require a skilled and trained employee base to properly operate and efficiently maintain the systems. While we offer training in connection with the sale of ASF systems, at certain customer sites, we have discovered that those customers have not yet hired the personnel or instituted the operations procedures necessary to properly run the ASF system they purchased. As a result of these factors, we believe that certain ASF systems have generated sapphire material that is not salable. Additionally, even in those cases where the sapphire boule met specification criteria, the boule has not always been properly oriented by the customer and some or all of the value of the sapphire boule was lost as it was sliced and cored. If our customers do not have the manufacturing expertise to operate the ASF systems and orient and cut the sapphire boules, they may be delayed in ramping up their operations and sapphire manufacturing operations, and the ASF systems may not gain wider market acceptance, all of which would harm our reputation and the results of our sapphire business segment.

18


Table of Contents

We have identified a material weakness in accounting for income taxes in our internal control over financial reporting, which, if not remedied effectively, could have a further adverse effect on our share price.

        Management, through documentation, testing and assessment of our internal control over financial reporting has concluded that our internal control over financial reporting had a material weakness in accounting for income taxes as of December 31, 2013. See Item 9A—Controls and Procedures elsewhere in this Annual Report on Form 10-K. If we are unable to effectively remediate this material weakness in a timely manner, we could lose investor confidence in the accuracy and completeness of our financial reports, which could have a further adverse effect on our share price.

        In future periods, if the testing and assessment of our internal controls reveals further material weaknesses or significant deficiencies, the correction of any such material weakness or significant deficiency could require additional remedial measures including additional personnel which could be costly and time-consuming. If a material weakness exists as of a future period year-end (including a material weakness identified prior to year-end for which there is an insufficient period of time to evaluate and confirm the effectiveness of the corrections or related new procedures), our management will be unable to report favorably as of such future period year-end to the effectiveness of our control over financial reporting. If we are unable to assert that our internal control over financial reporting is effective in any future period, or if we continue to experience material weaknesses in our internal control over financial reporting for accounting for income taxes, we could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our share price and potentially subject us to potentially costly litigation and governmental inquiries and investigations.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, our stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock.

        We have assessed and tested our system of internal controls. We concluded our system of internal controls over financial reporting was not effective as of December 31, 2013. We will need to undertake remediation efforts and will need to strengthen our processes and systems and adapt them to changes as our business evolves (including with respect to our materials operations in Mesa, Arizona) and we acquire new business and technologies. This continuous process of maintaining and adapting our internal controls is expensive and time-consuming, and requires significant management attention. We cannot be certain that our internal control measures will, in the future, provide adequate control over our financial processes and reporting. Furthermore, as our business changes (including due to our sapphire material operations) and if we expand through acquisitions of other companies or make significant investments in other companies or enter into joint development (and similar arrangements), our internal controls may become more complex and we will require significantly more resources to ensure our internal controls remain effective. In addition, if we reduce a portion of our workforce, as we have done in the past, our ability to adequately maintain our internal controls may be adversely impacted. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm identify material weaknesses, the disclosure of that fact, even if quickly remediated, could reduce the market's confidence in our financial statements and harm our stock price.

19


Table of Contents

We expect that oversupply of, or limited demand for, polysilicon, solar panels and sapphire material, including LED quality material, may have an adverse impact on our equipment business and, unless such oversupplies are reduced or demand increases in the near future due to development of new technologies or otherwise, the negative impact on our equipment business could last for an extended period.

        Our equipment sales are principally to customers that manufacture polysilicon (which is a key component for making solar wafers and cells), silicon ingots (which are, through various cutting and finishing processes, used for making solar cells, modules and wafers) and sapphire boules (which are, through various cutting and finishing processes, used for making, among other things, LED wafers). Each of the polysilicon, solar wafer, modules and cell and LED wafer markets have experienced significant oversupply and/or significant decreased demand. For example, our PV business experienced a 36% decrease in revenue for the fiscal year ended December 31, 2013 as compared to the same period in the prior year (although there are some market indicators suggesting that the PV market may be experiencing early signs of recovery). The consequence of this oversupply and decreased demand has been that those who sell into these markets (many of whom are customers for our equipment) are either required to sell at very low prices (including sometimes selling at a loss) or are unable to sell at all. Many customers have experienced large inventories of the polysilicon sapphire and multicrystalline silicon ingots generated with our equipment. As a consequence of these conditions, demand for all of our equipment, particularly our polysilicon reactors, DSS furnaces and ASF units, has dropped significantly. We have in the past recorded significant de-bookings for our PV, polysilicon and sapphire equipment. In the future, we may continue to have material amounts of contract de-bookings. This has had an adverse impact on our business and will continue to have such an effect, including requiring that we sell products at prices below what we usually charge or resulting in the absence of any meaningful new sales.

        In addition, certain customers have requested that we delay delivery of equipment or reduce the number of equipment units they are required to purchase under existing contracts (and we expect that we may receive similar requests in the future). If the existing inventories of polysilicon, solar modules cells/wafers and LED/sapphire materials are not reduced in the near future or if demand does not increase, as a result of new solar or sapphire technologies that increase demand for end-products incorporating polysilicon, solar cells or sapphire material or due to other reasons, we expect that our business and results of operations will be significantly and materially impacted.

We depend on a small number of customers in any given fiscal period for a substantial part of our sales and revenue.

        In each fiscal period, we depend on a small number of customers for a substantial part of our sales and revenue. We expect that our success in the sapphire material business, which will be very important to our overall business, will be tied to Apple. The failure of Apple to place orders for sapphire material, the failure of our other major customers to place orders or to make payments for equipment, the loss of existing orders or lack of new orders in the future, or a change in product acceptance schedules could significantly reduce our revenues and have a material adverse effect on our financial condition, results of operations, business and/or prospects. While we have sought to diversify our business and customer base, including a larger sapphire materials operation, we anticipate that our dependence on a limited number of customers will continue for the foreseeable future.

        There is a risk that existing customers will elect not to do business with us in the future, particularly as we face increased competition in each of our business segments, and/or that our equipment customers will experience financial difficulties. Furthermore, due to the cost of our equipment products, our equipment customers are often dependent on the equity capital markets and debt markets to finance their purchases. As a result of on-going turmoil in the capital and debt markets, these equipment customers could experience financial difficulties and become unable to fulfill their contracts with us. There is also a risk that these customers will attempt to impose new or

20


Table of Contents

additional requirements on us that reduce the gross margins that we are able to generate through sales to such customers. If we do not develop relationships with new customers, we may not be able to increase, or even maintain, our revenue, and our financial condition, results of operations, business and/or prospects may be materially adversely affected.

Our Photovoltaic business segment has historically depended upon the Directional Solidification System (DSS) furnace for its revenue and there may be limited demand for DSS equipment in 2014. Additionally, our newest photovoltaic equipment platform is in development and expect will take additional time before it gains market acceptance.

        The global solar industry has experienced a significant downturn that negatively impacted the growth of the industry and the profitability of PV producers and the companies who supply the equipment and materials used in the production of PV products such as wafers, cells and modules. The PV industry began to show some indication that demand was increasing in the final quarter of 2013.

        The principal product line of our PV business has been the DSS family of casting furnaces that are used to produce multicrystalline ingots and MonoCast™ ingots.

        Because of the high level of PV manufacturing overcapacity, in 2012, we suspended any significant additional investments in our DSS product line and focused on selling DSS furnaces that we had in inventory at that time. In 2013, we sold many of the DSS units in our inventory to several of our customers. Over the past few months, the photovoltaic market began to exhibit signs of a recovery. As a result we have resumed development efforts of our DSS product line. We are unable to determine if and when there will be demand for any existing DSS products or new DSS product releases.

        We are developing our next generation PV equipment offering, the HICz tool. HiCz, or continuous Czochralski (Cz) growth process, produces monocrystalline ingots that are designed to produce more efficient wafers at a lower cost and with higher uniform resistivity than those made from traditional batch Cz ingots. Our HiCz tool may not gain market-wide acceptance.

        Therefore, while the PV market does show indications of improvement and while we have resumed investment in our DSS platform and continue to develop our HICz tool, there may be limited demand for our PV products in the short term. If our HiCz tool does not gain market acceptance, our PV business segment could experience more prolonged periods without contributing any meaningful revenue to the business.

        In addition, with the idling of our facility in Hazelwood, Missouri in 2013, we will no longer sell HiCz material generated by our HiCz™ tools and, while the revenue from the sale of this material was minimal, we no longer expect to have this as a source of revenue in the future.

Impairment charges negatively impacted our financial results in recent fiscal periods and additional charges, of comparable or greater magnitude, may be required in the future as a result of the prolonged downturn in the markets we serve.

        We assess our goodwill and other intangible assets and our long-lived assets for impairment when required by U.S. generally accepted accounting principles. These accounting principles require that we record an impairment charge if circumstances indicate that the asset carrying values exceed their estimated fair values. The estimated fair value of these assets is impacted by general economic conditions in the markets we serve. Deterioration in general economic conditions may result in, among other things: declining revenue which can lead to excess capacity and declining operating cash flow; reductions in management's estimates for future revenue and operating cash flow growth. All of these factors negatively impacted our PV business during the quarter ended December 31, 2012 and, as a result, we recorded a goodwill impairment charge of $57.0 million, an intangible asset charge of $0.5 million, asset impairments of $29.3 million, inventory write downs of $60.2 million and vendor

21


Table of Contents

advance impairments of $8.4 million. More recently, during the twelve months ended December 31, 2013, we recorded $1.9 million of additional charges related to the Hazelwood facility's lease exit costs, $0.6 million of other contract termination costs related to this facility and $4.0 million of impairment charges related to the fair value of the HiCz fixed assets. If the PV market were to continue to deteriorate or our PV products, including our HiCz™ tool, were to not generate significant sales in the future, we could be required to take further charges and they may be material.

        If our other business segments, polysilicon and sapphire, were to face the same conditions as our PV segment, we may be required to take significant impairment charges for these segments as well. Any future impairment charges may have a material adverse impact on our business and results of operations. In addition, we may be unable to adequately and timely realign our cost structure with softening demand, which would also negatively impact our results.

China has recently experienced decreased growth rates and certain of the solar and sapphire manufacturers in China, and in Asia generally, have been unwilling or unable to continue to invest in capital equipment purchases.

        The Chinese economy has experienced decreased growth. Since Chinese companies, including solar and LED producers, ship their products to Europe, the decreased growth experienced in China is due, in part we believe, to the adverse economic situation in Europe. The negative impact of this reduced rate of growth is compounded by the fact that the solar industry, including solar wafer, module and cell manufacturers and polysilicon manufacturers, have confronted markets that are either experiencing decreased demand or are generating more capacity than the industry requires, particularly in 2013. These market conditions are making it difficult for these companies to generate adequate returns and many such companies are not making any capital investments in their operations, which results in much lower demand for our equipment products. For several years, Chinese solar manufacturers relied on, we believe, easily available credit and companies were increasing rates of investment in capital equipment. These companies utilized these financial resources to build up their manufacturing capacity. We believe that Chinese companies have incurred some of the highest levels of debt in the solar industry. Now, however, in many cases, lenders to Chinese solar companies, in particular, are no longer extending credit on favorable terms, or at all. Some of this debt is maturing and certain of these companies are unlikely to be able to make payments when due. As a result, we expect that the demand for our equipment products will continue to remain limited for the short-term amongst our Chinese customer base (which are among our largest equipment customers). Also, it may be the case that customers with orders in our backlog are unable to accept delivery of our equipment or may re-negotiate terms, including requests for reduced prices, delayed delivery and decreases in the number of units shipped. Any of the foregoing would have a negative impact on our business and results of operations. These circumstances are making competition among equipment suppliers to sell to a limited number of purchasers very challenging. As competition increases, it may be the case that our competitors engage in business practices that we will not engage in (or are legally prohibited from engaging in) in order to gain business, including providing incentives or benefits that are prohibited under the U.S. Foreign Corrupt Practices Act.

Current or future credit and financial market conditions could materially and adversely affect our business and results of operations in several ways.

        Over the past few years, financial markets in the United States, Europe and Asia experienced disruption, including, among other things, volatility in security prices, tightened liquidity and credit availability, rating downgrades of certain investments and declining valuations of others and increased bankruptcy filings by companies in a number of industries (including several companies in the solar industry). These economic developments adversely affect businesses such as ours in a number of ways. The tightening of credit in financial markets for solar companies and sapphire companies has resulted

22


Table of Contents

in reduced funding worldwide, including China (where many of our equipment customers are located), and a higher level of uncertainty for solar cell, wafer and module manufacturers and manufacturers incorporating sapphire material into their products. As a result, some of our equipment customers have been delayed in securing, or prevented from securing, funding adequate to honor their existing contracts with us or to enter into new contracts to purchase our equipment products. We believe a reduction in the availability of funding for new manufacturing facilities and facility expansions in the solar and sapphire industries, or reduction in demand for solar panels or sapphire material has caused, and may continue to cause, a decrease in orders for our products.

        We currently require most of our equipment customers to prepay a portion of the purchase price of their orders and/or to provide letters of credit prior to shipping equipment. We use these customer deposits to prepay our suppliers in order to reduce the need to borrow to cover our cash needs for working capital. This practice may not be sustainable if the recent market disruptions continue or grow worse. Some of our equipment customers who have become financially distressed have failed to provide letters of credit or make payments in accordance with the terms of their existing contracts. If customers fail to post letters of credit or make payments, and we do not agree to revised contract terms, it could have a significant impact on our business, results of operations and financial condition. The impact of these disruptions are increasingly being felt in China, and by certain of our customers which are located in China and other countries in Asia, and accounts in part for the decline in our total revenue and order backlog for the twelve-month period ended December 31, 2013 as compared to the same period in the prior year.

        We may experience further revenue and backlog reductions in the future. Credit and financial market conditions may similarly affect our suppliers. We may lose advances we make to our suppliers in the event they become insolvent because our advances are not secured or backed by letters of credit. The inability of our suppliers to obtain credit to finance development or manufacture of our products could result in delivery delays or prevent us from delivering our products to our customers.

Ongoing trade disputes with China may adversely impact the businesses of our Chinese customers, which could harm our business and our stock price.

        The current limited demand for our equipment products and the excess capacity in the end markets our equipment customers serve is exacerbated by trade tensions between China and the U.S. In October 2012, the U.S. Commerce Department issued a final ruling and levied anti-dumping duties on billions of dollars of solar panels and cells from China (and set countervailing duties as well). This final ruling has, we believe, negatively impacted our equipment customers in China and we expect that this effect will continue in the future. In July 2013, the Chinese Ministry of Commerce imposed preliminary anti-dumping duties on U.S. and Korean polysilicon makers, and for certain manufacturers these duties were above 50%. And in September 2013, the Chinese Ministry of Commerce imposed an additional 6.5% "anti-subsidy" trade duty, over and above the duty imposed in July 2013 on U.S. polysilicon companies who received government subsidies. In October 2013, an unfair trade suit was filed in the U.S. alleging price fixing of silicon (some of the named parties include our polysilicon customers). We believe that certain of our equipment customers are delaying any purchasing or expansion plans until these various trade matters are resolved and we do not expect such resolution to take place in the near term and, in fact, expect that they will grow more adversarial. While the E.U. approved a final settlement of an anti-dumping and anti-subsidy investigation, retaliatory tariffs and trade tensions with China, on the one hand, and the U.S. and Europe (as well as South Korea, where some of our equipment customers are located) on the other hand, is causing uncertainty in the industry and is having a material adverse impact on our business since we sell into China and our equipment customers sell end products into Europe and the U.S. Our business and results of operations would be negatively affected if further anti-dumping or other duties were imposed or a trade war was to occur with China (or if the duties already imposed are not removed). In addition, we expect that any further

23


Table of Contents

announcements about or imposition of duties by the U.S. government or E.U. on solar cells imported from China or relating to duties imposed on polysilicon manufacturers by the Chinese government or other governments (or similar actions) could negatively impact our stock price and may have a material adverse effect on our business and results of operations.

Servicing our debt, including our repayment obligations to Apple, and other payment obligations requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

        Our ability to make scheduled payments or to refinance our obligations under the Prepayment Agreement with Apple (if not recouped through delivery of sapphire material) or our 2017 notes and 2020 notes and any other indebtedness depends on our future performance and available cash, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt, our other repayment obligations and/or make necessary capital expenditures (particularly if there were to be a default under either or all of the MDSA or the Prepayment Agreement, 2017 notes or 2020 notes that would accelerate the payments due thereunder). If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt or repayment obligations.

        Our Prepayment Agreement with Apple contains certain "trigger events" which would require that we repay the full amount advanced to us through such time, including "trigger events" related to maintaining adequate financial metrics such as cash holdings. Payment of these amounts may require the use of substantial amounts of our cash and if we do not have such cash (or cannot timely raise sufficient amounts) to make this payment, we would be in default, which would likely cause a cross default under our other debt obligations (including our convertible notes). Our obligation to repay the Prepayment Amount is secured by (i) the assets held by GT Equipment Holdings LLC (a wholly-owned subsidiary of the Company and the legal owner of the ASF systems and related equipment used in the Arizona facility) and (ii) a pledge of all of the equity interests of GT Equipment Holdings LLC. If Apple were to foreclose on such equity interests and/or equipment, our business and results of operations would be substantially harmed.

If our customers delay or cancel equipment purchases, we may be required to modify or cancel contractual arrangements with our suppliers which may result in the loss of deposits or pre-paid advances, which losses have been significant in the past.

        As a result of our customer delays or contract terminations, we reschedule or cancel, from time to time, purchase orders with our vendors to procure materials and, in certain cases, we are required to forfeit deposits and/or reimburse the vendor for costs incurred to the date of termination plus predetermined profits. We have recorded significant losses resulting from rescheduled and/or canceled commitments to our vendors as a result of customer delays, contract modifications and terminations. For example, we expect to terminate purchase commitments for DSS inventory components in fiscal 2014 and beyond. The gross amount outstanding under the purchase orders was $10.2 million at December 31, 2013 and we will negotiate with our vendors to determine the amount payable upon termination. Certain of the vendors from whom we purchased materials have been unable to deliver the ordered components because economic conditions had an adverse impact on their ability to operate their businesses and we were unable to recover advances paid to those vendors for components that were not delivered and, in some cases, these lost advances were significant amounts. In cases where we are not able to cancel or modify vendor purchase orders due to customer delays or terminations, our purchase commitments may exceed our order backlog requirements and we may be unable to redeploy the undelivered equipment. In addition, we expect that we may be required to pay advances to vendors in the future without being able to recover that advance if the vendor is placed in bankruptcy, becomes insolvent or otherwise experiences financial distress.

24


Table of Contents

        Delays in deliveries, or cancellations of orders, for equipment products of all of our segments could cause us to have inventories in excess of our short-term needs and may delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog. Alternatively, we may be required to sell products below our historical selling prices, which was the case for certain recent DSS equipment sales.

Amounts included in our order backlog may not result in actual revenue or translate into profits.

        Our order backlog is primarily based on signed purchase orders or other written contractual commitments. We cannot guarantee that our order backlog will result in actual revenue in the originally anticipated period, or at all. Beginning with the three-month period ended December 31, 2012, we undertook a process of identifying contracts in our order backlog that have not been terminated or modified but for which we expect that customers will not fulfill their obligations under the respective contacts (and we expect we will continue to undertake this process on a quarterly basis). During the twelve-month period ended December 31, 2013, we terminated, modified or removed contracts from our backlog resulting in a $415.6 million reduction (96% of the reduction was attributable to four contracts, of which $33.1 million related to contracts that have not been legally terminated or modified). In addition, the contracts included in our order backlog may not generate margins equal to our historical operating margins. Our customers may experience project delays or default on the terms of their contracts with us as a result of external market factors and economic or other factors beyond our or their control. If a customer fails to perform its contractual obligations and we do not reasonably expect such customer to perform its obligations, we may terminate the contract, which would result in a decrease in our reported order backlog. In addition, our backlog is at risk to varying degrees to the extent customers request that we extend the delivery schedules and make other modifications under their contracts in our order backlog. Any contract modifications that we negotiate could likely include an extension of delivery dates, and could result in lower pricing or in a reduction in the number of units deliverable under the contract, thereby reducing our order backlog and resulting in lesser (or no) revenue recognized from such contracts or a delay in recognizing revenue. Our order backlog includes contracts with customers to whom we have sent notices of breach for failure to provide letters of credit or to make payments when due. If we cannot come to an agreement with these customers, it could result in a further reduction of our order backlog. Other customers may approach us with requests for delays in the future, or may fail to make payments when due, which could further reduce our order backlog. If our order backlog fails to result in revenue in a timely manner, or at all, we could experience a reduction in revenue, profitability and liquidity.

        Additionally, backlog is not a term recognized under United States generally accepted accounting principles; however, it is a common measurement that the management team uses in assessing our business and operations. Our methodology for determining backlog may not be comparable to the methodologies used by other companies. Additionally, we adjusted our methodology for determining backlog and expect that future presentation of backlog will exclude sapphire material backlog. Furthermore, as noted above, backlog is difficult to determine with certainty and it should not be relied upon as an indication of future performance.

We face competition in each of our business segments, and if our competitors are able to manufacture products that employ newer technologies or are otherwise more widely used than our products, and if we are unable to modify our products to adapt to such future changes, we may be unable to attract or retain customers.

        The PV energy and sapphire industries are highly competitive and continually evolving as participants strive to increase their market share and new entrants strive to capture market share. In addition, the PV energy industry (which includes polysilicon and solar wafer, module and cell manufacturers) also has to compete with the larger conventional electric power industry. The PV

25


Table of Contents

energy and sapphire industries are also rapidly evolving and are highly competitive. Particularly with respect to the solar cell industry, new technologies are leading to improvements in cell efficiencies and performance. Technological advances are, we believe, also resulting in lower manufacturing costs for these products. These developments may render existing products and/or product manufacturing equipment sold by our polysilicon, PV and sapphire businesses obsolete. We will therefore need to keep pace with technological advances in these industries in order to compete effectively in the future, which may require significant expenditures on research and development or investments in acquisition of other businesses and technologies. For example, our success in the sapphire equipment market depends on our ability to expand into new applications that are based on continued advancement in the design, manufacture and use of sapphire and LEDs (including sapphire and non-sapphire-based LEDs) and lighting technology by others, as well as the continued demand for sapphire in the LED market (while we believe sapphire is currently one of the preferred substrate materials for certain LED applications in certain markets, silicon substrates and substrates incorporating other materials in LED applications are being developed). In addition, we have agreed that we will no longer sell ASF systems for use in generating sapphire in certain select markets pursuant to our MDSA with Apple (so we will no longer be able to sell sapphire equipment into those certain markets). Our success in the PV market will depend, in part, on our success in commercializing our monocrystallization, or HiCz™, technology offering and improving our DSS platform. Our failure to further refine our technologies and/or develop and introduce new solar power and sapphire products could cause our products to become uncompetitive or obsolete, which could adversely affect demand for our products, and our financial condition, results of operations, business and/or prospects. Many of our competitors, in each of our business segments, have, and future competitors may also have, substantially greater financial, technical, manufacturing and other resources than we do. These resources may provide our competitors with an advantage because they can realize economies of scale, synergies and purchase certain raw materials, commodities and key components at lower prices. Current and potential competitors of ours may also have greater brand name recognition, more established distribution networks and larger customer bases, and may be able to devote more resources to the research, development, promotion and sale of their products or to respond more quickly to evolving industry standards and changes in market conditions. In addition, given the ability of other parties to access our equipment, we also face low-cost competitors who may be able to offer similar products at very competitive prices.

        We may not be able to maintain our current share of the market in our respective business segments as competitive intensity increases and particularly as our customers are targeted by local low-cost competitors in China and other countries. In addition, these overall markets are shrinking as demand has dropped and/or capacity increased. We believe that certain PV customers have already begun purchasing our competitors' equipment and installing it in their facilities. Our efforts to capitalize on technological developments in the markets in which we operate, such as the HiCz, silicon carbide, HVPE and PVD tools, may not result in increased market share and require that we make substantial capital investments without any corresponding increase in revenues. In addition, customers may place orders to supply equipment for new facilities or future expansions with our competitors, and we believe the likelihood that our customers and others will go to competitors has increased over time. Our failure to adapt to changing market conditions and to compete successfully with existing or new competitors and/or new technological developments may have a material adverse effect on our financial condition, results of operations, business and/or prospects.

        In relation to our polysilicon business, we are not the only provider of polysilicon production equipment to the market based on a Siemens-type CVD reactor design. Although we believe our SDR reactor to be re-designed and distinct from the competing products offered by our competitors, there can be no assurance that our SDR reactor will compete successfully with their products which would have a material adverse effect on our financial condition, results of operations, business and/or prospects. In addition, alternative technologies for producing polysilicon exist and, to the extent that they become more widely available, the demand for our SDR reactor may also be adversely affected.

26


Table of Contents

Furthermore, we believe that companies that currently produce polysilicon for their internal use and consumption compete indirectly with our polysilicon business, as any increase in the supply of polysilicon may have an adverse effect of the demand for our SDR reactor.

We intend to pursue business and technology acquisition and investment opportunities in the future as part of our business plan to grow and diversify our business and we expect that one or more of these acquisitions or investments will expand our product offerings into markets we have not previously served.

        Our business plan is focused on growing and diversifying our product and technology offerings. Acquiring Crystal Systems, a sapphire manufacturer, and licensing PVD technology, were part of this business plan to extend our offerings beyond polysilicon and PV markets. We expect that achieving these goals of growth and diversification will include the acquisition of businesses and technologies from third parties or investments in third parties (that may lead to future acquisitions or rights to technology) and expect that in the future we will continue to engage in negotiations for such acquisitions, investments, licenses or joint venture arrangements. In order to achieve our objective of diversifying our business to technologies outside of polysilicon, photovoltaic and sapphire, we expect that some of these acquisitions will be in markets or industries that may be unrelated to those markets we currently serve. This business diversification plan involves risks. Our stock may be valued differently depending on what markets we serve in the future. Diversification may also require significant resource commitments and time from our management, which will limit the amount of time these individuals will have available to devote to our existing operations. This diversification may also involve the complexities in managing an employee base that is already located in several different locations and in effectively deploying, operating and utilizing our internal systems, including those related to financial reporting, and other systems we depend on.

        We may also have very little experience in dealing with these new markets and products. Any failure or any inability to effectively manage and integrate new businesses and technologies could have a material adverse effect on our business, financial condition and results of operations. In addition, any amounts that we invest may not generate any returns for us and we could lose the entire amount of the investment.

        Finally, we may not be successful in acquiring any new businesses or technologies, despite our efforts to do so, and there can be no certainty that we will acquire any other companies or technologies that allow us to diversify. If we do not close acquisitions in accordance with our business plan or make successful investments, we may not be able to diversify revenue and our performance will be tied to the polysilicon, PV and sapphire equipment markets (as well as demand for sapphire material from Apple), and if any of these experience difficulties, our business, financial condition and results of operations would be negatively impacted.

General economic conditions may have an adverse impact on demand for our equipment products and result in charges for excess or obsolete inventory.

        Purchasing our equipment products requires significant capital expenditures, and demand for such products is affected by general economic conditions. A downturn in the global construction market has reduced demand for solar panels in new residential and commercial buildings, which in turn reduces demand for our products that are used in the manufacture of PV wafers, cells and modules and polysilicon for the solar power industry (including our DSS units and SDR reactors). In addition, a downturn or lack of growth in the sapphire material market, and the sapphire-based LED and general illumination markets in particular, have resulted in reduced demand for our ASF systems. Uncertainties about economic conditions, negative financial news, potential defaults by or rating downgrades of debt issued by governmental entities and corporate entities, tighter credit markets and declines in asset values have, in the recent past, caused our customers to postpone or cancel making purchases of capital equipment and materials. We believe that increasing governmental budgetary pressures will likely result

27


Table of Contents

in the reduction, or the elimination of, government subsidies and economic incentives for on-grid solar electricity applications. A prolonged downturn in the global economy, combined with decreased governmental incentives for solar power usage, would have a material adverse effect on our business in a number of ways, including decreased demand for our PV and polysilicon equipment products, which would result in lower sales, reduced backlog and contract terminations.

        Uncertainty about future economic conditions makes it challenging for us to: forecast demand for our equipment products and our operating results, make business decisions and identify the risks that may affect our business. For example, our equipment inventory balances had increased substantially recently and, during the three month period ended December 31, 2012, we determined that we were unable to deploy certain of our PV inventory and had to take a significant impairment charge. If our remaining PV inventory, or the inventory we have built up for polysilicon or sapphire equipment, cannot be sold or utilized in our operations and becomes excess or obsolete, we could be required to take another write down or multiple write downs and the amount or amounts may be material. If we are not able to timely and appropriately adapt to changes resulting from the difficult macroeconomic environment, including by maintaining appropriate inventory levels, our business, results of operations and financial condition may be materially and adversely affected.

Our success depends on the sale of a limited number of products.

        A significant portion of our operating profits has historically been derived from sales of DSS units, SDR reactors, hydrochlorination equipment and ASF units, which sales accounted for 80% of our revenue for the twelve months ended December 31, 2013. There can be no assurance that sales of this equipment will increase beyond, or be maintained at, past levels or that any sales of sapphire materials (or any other future product offering) will offset any decrease in sales of DSS furnaces, ASF systems, SDR reactors or hydrochlorination equipment (or result in any revenue). Additionally, we have already experienced decreased demand for all of our equipment products. In some cases, our products, such as the STC converters, are no longer sold due to changes in technology and drastically decreased demand. Further changes in technology may also, we expect, result in a further reduction in demand and likely decreased average selling prices. Many factors affecting the level of future sales of our products are beyond our control, including, but not limited to, demand for solar products and sapphire material (including sapphire-based LED material and sapphire use in general illumination and other applications), development and/or use of alternatives to sapphire in LED applications (including in general illumination) and competing product offerings by other equipment manufacturers. We may be unable to diversify our product offerings and thereby increase or maintain our revenue and/or maintain our profits (or limit our loss) in the event of a decline in ASF systems, DSS furnaces and SDR reactors sales.

        If sales of our PV, polysilicon or sapphire products continue to decline, our financial condition, results of operations, business and/or prospects could be materially adversely affected.

We depend on a limited number of third party suppliers.

        We use certain component parts supplied by either a single or a small number of third party suppliers in our polysilicon, PV and sapphire equipment products and ancillary equipment and in our manufacture of sapphire material, and certain of these components are critical to the manufacture and operation of certain of our products. For example, we use specialist manufacturers to provide vessels and power supplies which are essential to the manufacture and operation of our polysilicon products. In addition, certain of our products consist entirely (or mostly) of parts and components supplied by third party suppliers, and in these instances filling orders depends entirely upon parties over which we exercise little or no control, and if these contractors were unable to supply, or refused to supply, the parts and components, we would be unable to complete orders which would have a negative impact on our reputation and our business.

28


Table of Contents

        Our sapphire materials business, as well as the customers for our ASF units, also depend on suppliers of raw materials and components that are utilized during the manufacturing process. For example, the supply of qualified meltstock and crucibles used to grow sapphire materials, as well as helium, is limited and we expect demand will increase as we sell more ASF units and as we expand our operations in Arizona, and as a result, there may be an insufficient availability of these items for our sapphire materials business and sapphire research and development as currently operated or available for the purchasers of our ASF systems, which would prevent us from growing our sapphire equipment and materials business. This risk is exacerbated as we intend to expand our sapphire materials business and will be requiring significantly more raw materials and components than in the past (and we could face monetary and other penalties under our sapphire material supply agreement if we are unable to deliver sapphire material pursuant to our supply arrangements with Apple). In addition, we will require our suppliers to our sapphire material business to deliver materials in a timely manner in order to meet our supply obligations and any delay in delivery may result in our failure to deliver that could result in a breach of our obligations under our agreement with Apple, which could result in significant penalties.

        Further, our agreements with raw material and equipment component suppliers are typically short term in nature, which leaves us vulnerable to the risk that our suppliers may change the terms on which they have previously supplied products to us or cease supplying products to us at any time and for any reason.

        There is no guarantee that we will maintain relationships with our existing suppliers or develop new relationships with other suppliers. We are also dependent on our suppliers to maintain the quality of the raw materials, components and equipment we use and if the quality were to be below our standards, our equipment offerings may not function as designed or our sapphire material may not meet the specifications required by Apple (which could result in significant monetary penalties). We may be unable to identify replacement or additional suppliers or qualify their products in a timely manner and on commercially reasonable terms, or at all. Raw materials and component parts supplied by new suppliers may also be less suited to our products than the raw materials and component parts supplied by our existing suppliers. Certain of the component parts used in our products have been developed, made or adapted specifically for us. Such parts are not generally available from other vendors and could be difficult or impossible to obtain elsewhere. As a result, there may be a significant time lag in securing an alternative source of supply. In addition, the inability of our suppliers to support our demand could be indicative of a market-wide scarcity of the materials, which could result in even longer interruptions in our ability to supply our products.

We utilize raw materials in manufacturing our sapphire materials and all of our equipment and the prices for these materials fluctuate significantly and any increases in price or decrease in availability will harm our business.

        In the ordinary course of business, we are exposed to market risk from fluctuations in the price of raw materials and commodities necessary in the manufacture of our products, such as graphite, steel, copper, helium and molybdenum. We experience similar commodity risks in connection with the consumable materials utilized in our equipment products, and in certain cases, there is very limited access to these commodities. We may not be able to pass along fluctuations in our costs of materials to our equipment customers or material customers. The increase in the price of these commodities, due to further limitations of availability or to greater demand, will make our products less attractive and will harm our sapphire material and all of our equipment businesses (and the margins we achieve in connection with the sale of sapphire materials may drop even further or may be negative). If we bring more entrants into the photovoltaic, polysilicon and sapphire markets through the sale of our equipment products, these commodity risks increase. Any significant increase in these prices would increase our expenses, decrease demand for our products and hurt our profitability (or prevent us from

29


Table of Contents

being profitable). In addition, demand for our products will be negatively impacted if the prices of raw materials that are used to create polysilicon, PV materials and sapphire materials were to increase.

        Our failure to obtain sufficient raw materials, commodities, component parts for our equipment (or necessary to generate sapphire material) and/or third party equipment that meet our requirements in a timely manner and on commercially reasonable terms could interrupt or impair our ability to assemble our products, and may adversely impact our goal of expanding our business, as well as result in a loss of market share. Further, such failure may prevent us from delivering our products as required by the terms of our contracts with our customers (including our obligations to deliver sapphire material), and may harm our reputation and result in breach of contract and other claims being brought against us by our customers (including damages we could be required to pay if we fail to timely deliver sapphire material in accordance with specifications). Any changes to our current supply arrangements, whether to the terms of supply from existing suppliers or a change in our suppliers, may also increase our costs in a material amount.

Conflict minerals disclosure regulations may force us to incur additional expenses, may result in damage to our business reputation and may adversely impact our ability to conduct our business.

        The SEC has adopted requirements for companies that use conflict minerals in their products. Some of these metals are commonly used in capital equipment, including our products. These new requirements will require companies to investigate, disclose and report whether or not such metals originated from the Democratic Republic of Congo or adjoining countries. We have a complex supply chain for the components and parts used in each of our equipment products and in our sapphire material operations. We have numerous foreign suppliers, many of whom are not obligated by the new law to investigate their own supply chains. As a result, we may incur significant costs to comply with the diligence and disclosure requirements, including costs related to determining the source of any of the relevant metals used in our products. In addition, because our supply chain is complex and has expanded due to our sapphire material operations, we may not be able to sufficiently verify the origin of all the relevant metals used in our products through the due diligence procedures we implement, which may harm our business reputation. We may also face difficulties in satisfying our equipment and sapphire material customers if they require that we prove or certify that our products are "conflict free." Key components and parts that can be shown to be "conflict free" may not be available to us in sufficient quantity, or at all, or may only be available at significantly higher cost to us. If we are not able to meet customer requirements, customers may discontinue purchasing from us. Any of these outcomes could adversely impact our business, financial condition or operating results.

The prices for polysilicon and sapphire material, as well as silicon ingots, have, in the past, dropped as a result of either increased supply or decreased demand, and, at the same time, the prices for the inputs to create this output has either remained consistent or increased, which has resulted in decreased margins for polysilicon and sapphire and PV manufacturers, and if these circumstances were to continue or grow worse the demand for our PV, polysilicon and sapphire equipment business would be negatively impacted.

        The prices for polysilicon, sapphire and PV materials have decreased due, in part, to either excess supply or decreasing demand for these materials. At certain times, these price drops were accompanied by an increase in the costs (or the costs have remained stable) for the consumable materials that are used in our equipment to make polysilicon, sapphire boules and PV ingots and wafers. These two factors, operating in tandem, result in decreased margins for the manufacturers selling polysilicon, sapphire boules and PV ingots and wafers, and, depending on circumstances, could result in negative margins. If this situation were to persist, we would expect that the demand for our polysilicon reactors, ASF units and our PV equipment and sapphire material would drop and may hamper the adoption of any new technologies we introduce (including our HiCz™ equipment offering which is in development).

30


Table of Contents

The on-going global economic uncertainty and tightened credit markets may exacerbate these circumstances.

We may face product liability claims and/or claims in relation to third party equipment.

        It is possible that our equipment and materials products could result in property damage and/or personal injury (or death), whether due to product malfunctions, defects, improper use or installation or other causes. We cannot predict whether or not product liability claims will be brought against us or the effect of any resulting negative publicity on our business, which may include the loss of existing customers, failure to attract new customers and a decline in sales. The successful assertion of product liability claims against us could result in potentially significant monetary damages being payable by us, and we may not have adequate resources to satisfy any judgment against us. Furthermore, it may be difficult or impossible to determine whether any damage or injury was due to product malfunction, operator error, failure of the product to be operated and maintained in accordance with our specifications or the failure of the facility in which our equipment products are used to comply with the facility specifications provided to our customers or other factors beyond our control. For example, one of our significant equipment customers experienced chamber leakage involving a number of DSS units in its facilities which we believe was the result of their facility failing to conform to specifications. We nonetheless agreed to replace certain chambers at our cost. Other customers may experience similar issues in the future as a result of product defects, facilities not complying with specifications or other reasons. To date, we have not received any product liability or other claims with respect to these or any other accidents.

        In addition, we have provided third party equipment in connection with our equipment product sales (or incorporated third party components into our equipment offerings). There can be no guarantee that such third party equipment will function in accordance with our intended or specified purpose or that the customer's personnel, in particular those who are inexperienced in the use of the specialized equipment sold by us, will be able to correctly install and operate it, which may result in the return of products and/or product liability or similar claims by the customer against us. In the event of a claim against us due to third party equipment, we may be unable to recover all or any of our loss from the third party equipment or component provider. The bringing of any product liability claims against us, whether ultimately successful or not, could have a material adverse effect on our financial condition, results of operations, business and/or prospects.

Our future success depends on our management team and on our ability to attract and retain key technical employees and to integrate new employees into our management team successfully.

        We are dependent on the services of our management team and our technical personnel. Although certain members of our management team are subject to agreements with us, any and all of them may choose to terminate their employment with us on thirty or fewer days' notice. The loss of any member of the management team could have a material adverse effect on our financial condition, results of operations, business and/or prospects. There is a risk that we will not be able to retain or replace these or other key employees. Integrating new employees into our management team could prove disruptive to our daily operations, require a disproportionate amount of resources and management attention and ultimately prove unsuccessful. In addition, we are implementing succession planning measures for our management, key staff and skilled employees. However, if we fail to successfully implement these succession plans for management and key staff when necessary, our operating results would likely be harmed.

        We also depend on our technical personnel to grow our business. Recruiting and retaining capable personnel, particularly those with expertise in the polysilicon, PV and the sapphire industry, is vital to our success. There is substantial competition for qualified technical personnel, and qualified personnel are currently, and for the foreseeable future are likely to remain, a limited resource. Locating

31


Table of Contents

candidates with the appropriate qualifications can be costly, time-consuming and difficult. There can be no assurance that we will be able to attract new, or retain existing, technical personnel. We may need to provide higher compensation or increased training to our personnel. If we are unable to attract and retain qualified personnel, or are required to change the terms on which our personnel are employed, our financial condition, results of operations, business and/or prospects may be materially adversely affected. In addition, we expect that we will need to hire a significant number of employees to operate our expanded sapphire material operations in Arizona, and, if we are unable to hire sufficient qualified personnel, our sapphire materials business could be harmed and we may be unable to deliver sapphire material as required by our customer which may result in monetary penalties and a breach under our contractual commitments.

We have spent significant amounts of money to acquire and develop new technologies and these technologies may not gain market acceptance.

        We have expended significant financial resources and technical expertise in developing new products and services to improve our product portfolio. These investments, however, may not result in increased revenues and may require that we incur expenses that result in decreasing our cash balances. For example, we have already spent in excess of $60 million as of December 31, 2013 (and may have additional significant capital spending) in connection with our acquisition of Confluence Solar, which provided technology for our HiCz™ tool which has been designed to produce high efficiency monocrystalline solar ingots and lower PV production costs. In addition, we have purchased certain select assets and intellectual property from a third party related to the Hyperion ion implant technology and have invested significant amounts in our internal research and development efforts for other technologies, including silicon carbide growth technologies.

        The Hyperion ion implantation and HVPE technology development efforts, which are among the proposed new product offerings we are in the process of developing, require that we expend significant cash and time resources. If we are not successful in commercializing one or more of these new product lines, we would lose the significant investments we made in our internal development efforts and in the acquisitions we have made. In addition, certain of these proposed products, such as the Hyperion ion implantation tool, may take years to bring to market and we may be unable to timely generate revenue from these projects, if we are able to generate any revenue at all.

        We also have no experience in manufacturing and selling HiCz equipment, the Hyperion ion implantation equipment, silicon carbide manufacturing equipment, HVPE and PVD equipment, and we may be unable to commercialize these products or ensure they gain wide-spread market acceptance. We may also have issues with installing these products in customer facilities or in training customers to properly operate this equipment, which would likely prevent us from recognizing revenue on sales of this equipment. If we are unable to bring any of these products to market and generate substantial sales, we may be unable to recover any or all of the investments we have made in them. Given the pace of technological advancements in the PV equipment industry, it is possible that monocrystalline production may not gain meaningful market share as other companies develop products that generate solar cells offering even higher efficiency. Alternatively, there are competing monocrystalline production techniques that may result in a more efficient solar wafer and/or equipment that can make comparable quality silicon at equipment prices below what we charge or at which our equipment makes ingots. We face similar challenges and competition with respect to any ion implantation, silicon carbide or other equipment product we may bring to market. Any of the foregoing would have a significant and negative impact on our business and results of operation.

32


Table of Contents

We may be unable to protect our intellectual property adequately and may be required to initiate litigation to enforce our intellectual property rights.

        Our ability to compete effectively against our competitors in the PV, polysilicon and sapphire markets will depend, in part, on our ability to protect our current and future proprietary technologies, product designs, product uses and manufacturing processes under relevant intellectual property laws including, but not limited to, laws relating to patents and trade secrets. We own various patents and patent applications in the United States and other countries relating to our products, product uses and manufacturing processes. To the extent that we rely on patent protection, our patents may provide only limited protection for our technology and may not be sufficient to provide competitive advantages to us. For example, competitors could develop similar or more advantageous technologies or design around our patents or otherwise employ alternative products, equipment or processes that may successfully compete with our products and technology. In addition, patents are of limited duration. Any issued patents may also be challenged, invalidated or declared unenforceable. If our patents are challenged, invalidated or declared unenforceable, other companies will be better able to develop products that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition. Further, we may not have, or be able to obtain, effective patent protection in all of our key sales territories. Our patent applications may not result in issued patents and, even if they do result in issued patents, the patents may not include rights of the scope that we seek. The patent position of technology-oriented companies, including ours, is uncertain and involves complex legal and factual considerations. Accordingly, we do not know what degree of protection we will obtain from our proprietary rights or the breadth of the claims allowed in patents issued to us or to others. Further, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important to our business.

        Third parties may infringe, misappropriate or otherwise violate our proprietary technologies, product designs, manufacturing processes and our intellectual property rights therein, which could have a material adverse effect on our financial condition, results of operations, business and/or prospects. For example, we have filed a lawsuit in the Hillsborough County Superior Court (Southern District) in New Hampshire against Advanced Renewable Energy Company, LLC ("ARC"), Kedar Gupta, its Chief Executive Officer and Chandra Khattak, an ARC employee, for the misappropriation of trade secrets relating to sapphire crystallization processes and equipment. Because the laws and enforcement mechanisms of various countries that we seek protection in may not allow us to adequately protect our intellectual property rights, the strength of our intellectual property rights will vary from country to country. Litigation to prevent, or seek compensation for such infringement, misappropriation or other violation, such as the ARC lawsuit described above, may be costly and may divert management attention and other resources away from our business without any guarantee of success.

        Further, we conduct significant amounts of business in China, yet enforcement of Chinese intellectual property related laws (including trade secrets) has historically been weak, primarily because of ambiguities in Chinese laws and difficulties in enforcement. Accordingly, the intellectual property rights and confidentiality protections available to us in China may not be as effective as in the United States or other countries.

        We also rely upon proprietary manufacturing expertise, continuing technological innovation and other know-how or trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality and non-disclosure agreements with our employees and third parties to protect our intellectual property, such confidentiality and non-disclosure agreements could be breached and are limited, in some instances, in duration and may not provide meaningful protection for the trade secrets or proprietary manufacturing expertise that we hold. We have had in the past and may continue to have certain of our employees terminate their employment with us to work for one of our customers or competitors. Adequate or timely remedies may not be available in the event of misappropriation, unauthorized use or disclosure of our manufacturing expertise, technological

33


Table of Contents

innovations and trade secrets. In addition, others may obtain knowledge of our manufacturing expertise, technological innovations and trade secrets through independent development or other legal means and, in such cases, we may not be able to assert any trade secret rights against such a party.

We may face claims in relation to the infringement or misappropriation of third-party intellectual property rights.

        We may be subject to claims that our products, technologies, processes or product uses infringe the intellectual property rights of others. These claims, even if meritless, could be expensive and time consuming to defend. In addition, if we are not successful in our defense of such claims, we could be subject to injunctions and/or damages, or be required to enter into licensing arrangements requiring royalty payments and/or use restrictions. In some instances, licensing arrangements may not be available to us or, if available, may not be available on acceptable terms.

        Due to the competitive nature of the industries in which we participate, we may face potential claims by third parties of infringement, misappropriation or other violation of such third parties' intellectual property rights. From time to time we have received and may in the future receive notices or inquiries from other companies suggesting that we may be infringing their patents or misappropriating their intellectual property rights. Such notices or inquiries may, among other things, threaten litigation against us. Furthermore, the issuance of a patent to us does not guarantee that we have the right to practice the patented invention. Third parties may have blocking patents that could be used to prevent us from marketing our own patented product and practicing our own patented technology. In addition, third parties could allege that our products and processes make use of their unpatented proprietary manufacturing expertise and/or trade secrets, whether in breach of confidentiality and non-disclosure agreements or otherwise. If an action for infringement, misappropriation, or other violation of third party rights were successfully brought against us, we may be required to cease our activities on an interim or permanent basis and could be ordered to pay compensation, which could have a material adverse effect on our financial condition, results of operations, business and/or prospects. Additionally, if we are found to have willfully infringed certain intellectual property rights of another party, we may be subject to treble damages and/or be required to pay the other party's attorney's fees. Alternatively, we may need to seek to obtain a license of the third party's intellectual property rights or trade secrets, which may not be available, whether on reasonable terms or at all, and such technology may be licensed to other parties thereby limiting any competitive advantage to us. In addition, any litigation required to defend such claims brought by third parties may be costly and may divert management attention and other resources away from our business, without any guarantee of success. Moreover, we may also not have adequate resources to devote to our business in the event of a successful claim against us.

        From time to time, we hire personnel who have obligations to preserve the secrecy of confidential information and/or trade secrets of their former employers. Some former employers monitor compliance with these obligations. While we have policies and procedures in place that are intended to guard against the risk of breach by our employees of confidentiality obligations to their former employers, there can be no assurance that a former employer of one or more of our employees will not allege a breach and seek compensation for alleged damages. If such a former employer were to successfully bring such a claim, our know-how and/or skills base could be restricted and our ability to produce certain products and/or to continue certain business activities could be affected, to the detriment of our financial condition, results of operations, business and/or prospects.

The international nature of our business subjects us to a number of risks, including unfavorable political, regulatory, labor and tax conditions in foreign countries.

        We have substantial marketing and distribution operations that take place outside the United States, primarily in China, and much of our historical sales are to customers outside the United States.

34


Table of Contents

We also have contracts with customers in Europe and expect that we may recognize revenue from sales to customers in Asia and Europe and the Middle East in the future. In addition, we have transitioned our global operations center to Hong Kong, further increasing our exposure to the risks of operating in Asia. As a result, we are subject to the legal, political, social and regulatory requirements and economic conditions of many jurisdictions other than the United States. Risks inherent to maintaining international operations, include, but are not limited to, the following:

    trade disputes between the United States and countries where we deliver our products to our customers, as well as trade disputes between countries in which our equipment customers manufacture and those countries in which our customers sell end-products, including their sales of polysilicon, solar wafers, cells and modules, and sapphire materials produced with our furnaces or reactors, which could result in government or trade organization actions that have the effect of increasing the price for our and our customers' products which would have a corresponding decrease in the demand for our products;

    withholding taxes or other taxes on our foreign income, and tariffs or other restrictions on foreign trade and investment, including currency exchange controls imposed by or in other countries;

    the inability to obtain, maintain or enforce intellectual property rights in other jurisdictions, at a reasonable cost or at all;

    difficulty with staffing and managing widespread and growing international operations;

    complying with regulatory and legal requirements in the jurisdictions in which we operate and sell products;

    effectively operating and maintaining our internal controls and financial reporting processes across multiple countries;

    trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make our product offering less competitive in some countries; and

    establishing ourselves and becoming tax resident in foreign jurisdictions.

        Our business in foreign markets requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global business depends, in part, on our ability to succeed under differing legal, regulatory, economic, social and political conditions. There can be no assurance that we will be able to develop, implement and maintain policies and strategies that will be effective in each location where we do business. As a result of any of the foregoing factors, our financial condition, results of operations, business and/or prospects could be materially adversely affected.

We are a global corporation with significant operations in Asia, and challenges by various tax authorities to our global operations could, if successful, increase our effective tax rate and adversely affect our earnings.

        We are a Delaware corporation that operates through various subsidiaries in a number of countries throughout the world, including in Asia. We established our global operations center in Hong Kong and have significant operations in Asia. Our income taxes are based upon the applicable tax laws, treaties, and regulations in the many countries in which we operate and earn income as well as upon our operating structures in these countries. While we believe that we carefully analyze and account for the tax risks and uncertainties under the applicable rules, multiple tax authorities could contend that a greater portion of our and our subsidiaries' income should be subject to income or other tax in their respective jurisdictions. If successful, these challenges could result in an increase to our effective tax rate. In addition, if we continue to generate revenue in higher tax jurisdictions, as was the case during the twelve-month period ended December 31, 2012, our effective tax rate may continue to increase.

35


Table of Contents

        We continue to monitor the impact of various international tax proposals and interpretations of the tax laws and treaties in the countries where we operate, including those in the United States, China, Hong Kong, and other countries. If enacted, certain changes in tax laws, treaties, regulations, or their interpretation could result in a higher tax rate on our earnings, which could result in a significant negative impact on our earnings and cash flow from operations.

Our ability to use net operating loss carryforwards may be limited.

        As of December 31, 2013, the Company had net operating losses of approximately $191 million of which approximately $86 million are in the US and approximately $105 million are in foreign jurisdictions. The losses in the US may be carried back two years or carried forward 20 years and if not utilized, will begin to expire in 2033. The losses in foreign jurisdictions may be carried forward indefinitely. To the extent available, we intend to use these net operating loss carryforwards to reduce the U.S. and international corporate income tax liability associated with our operations. The U.S. Internal Revenue Code, however, generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income in certain cases. To the extent our use of net operating loss carryforwards is significantly limited, our income subject to U.S. or international corporate income tax could be higher than it would if we were able to use net operating loss carryforwards, which could result in lower profits.

If we repatriate any cash and cash equivalents from our foreign subsidiaries back to the U.S., we could be subject to significant tax liabilities.

        Our foreign subsidiaries held, as of December 31, 2013, $76.3 million of cash and cash equivalents. We currently intend that cash and cash equivalents held by these foreign subsidiaries will be indefinitely reinvested in foreign jurisdictions in order to fund working capital requirements and repay debt (primarily inter-company) and, in the event we were to undertake certain strategic initiatives, we may use this cash for such strategic initiatives (such as investment, expansion and acquisitions) of our foreign subsidiaries. Moreover, we do not currently intend to repatriate cash and cash equivalents held by foreign subsidiaries to the United States because our cash and cash equivalents held in the United States are currently sufficient to fund the cash needs of our operations in the United States and our plans to deploy cash by our subsidiaries. However, if, in the future, cash and cash equivalents held by foreign subsidiaries are needed to fund our operations in the United States or for the purpose of making certain strategic investments in the United States or otherwise, the repatriation of such amounts to the United States would result in a significant incremental tax liability in the period in which the decision to repatriate occurs. Payment of any incremental tax liability would reduce the cash available to us to fund our operations by the amount of taxes paid and would have an adverse impact on our business and results of operations.

Compliance with the legal systems of the countries in which we offer and sell our products could increase our cost of doing business.

        We offer and sell our products internationally, including in some emerging markets. As a result, we are and/or may become subject to the laws, regulations and legal systems of the various jurisdictions in which we carry on business and/or in which our customers or suppliers are located. Among the laws and regulations applicable to our business are health and safety and environmental regulations, which vary from country to country and from time to time. We must therefore design our products and ensure their manufacture so as to comply with all applicable standards. Compliance with legal and regulatory requirements, including compliance with any change in existing legal and regulatory requirements, may cause us to incur material costs and may be difficult, impractical or impossible. In addition, China's legal system, where we do a significant amount of business, is rapidly evolving and, as a result, the interpretation and enforcement of many laws (including intellectual property laws), regulations and

36


Table of Contents

rules are not always uniform and legal proceedings in China often involve uncertainties and legal protections afforded are uncertain and may be limited. In addition, any litigation brought by or against us in China may be protracted and may result in substantial costs and diversion of resources and management attention and the anticipated outcome would be highly uncertain.

        Accordingly, foreign laws and regulations which are applicable to us may have a material adverse effect on our financial condition, results of operations, business and/or prospects. As a result of the procedural requirements or laws of the foreign jurisdictions in which we carry on business and/or in which our customers or suppliers are located, we may experience difficulty in enforcing supplier or customer agreements or certain provisions thereof, including, for example, the limitations on the product warranty we typically include in our equipment sales contracts. In some jurisdictions, enforcement of our rights may not be commercially practical in light of the duration, cost and unpredictability of such jurisdiction's legal system. Any inability by us to enforce, or any difficulties experienced by us in enforcing, our contractual rights in foreign jurisdictions may have a material adverse effect on our financial condition, results of operations, business and/or prospects.

We are subject to export restrictions and laws affecting trade and investments, and the future sale of our products may be further limited or prohibited in the future by a government agency or authority.

        As a global company headquartered in the United States, our products and services are subject to U.S. laws and regulations that may limit and/or restrict or require a license to export (and re-export from other countries) some of our products, services and related product and technical information. We are also subject to the export and import laws of those foreign jurisdictions to which we sell or from which we re-export our products. Compliance with these laws and regulations could significantly limit our operations and our sales in the future and failure to comply, even indirectly, could result in a range of penalties, including restrictions on exports of all of our products for a specified time period, or forever, and severe monetary penalties.

        In certain circumstances, these restrictions may affect our ability to interact with our foreign subsidiaries and otherwise limit our trade with third parties (including vendors and customers) operating inside and outside the U.S. In addition, as we introduce new products, we may need to obtain licenses or approvals from the US and other governments to ship them into foreign countries. Failure to receive the appropriate approvals may mean that our development efforts (and expenses related to such development) may not result in any revenue, particularly as most of our customers are located in foreign jurisdictions. This would have a material and adverse impact on our business and our development efforts.

        In addition, certain customers of our sapphire materials business operate in the defense sector or are subcontractors of companies in the defense industry, and our products may be incorporated in, among other things, missiles, military aircraft and aerospace systems. In addition, Crystal Systems has received funding from the U.S. government in connection with certain research work for certain U.S. government agencies. Certain work performed pursuant to certain of these contracts is not commercially available, but we may make it available commercially in the future. The State Department, the Commerce Department or other government agencies may, however, determine that our sapphire material or other products, including our ASF systems, PV furnaces and/or polysilicon reactors, are important to the military potential of the U.S. If so, we may be subject to more stringent export licensing requirements or prohibited from selling certain of our sapphire materials (for certain applications or end uses), ASF systems, PV furnaces and/or polysilicon reactors to any customer outside the U.S. or to customers in certain jurisdictions. The U.S. government has, and will likely continue to, vigorously enforce these laws in light of continuing security concerns. If the export or sale of any of our current or future products outside the U.S. are limited or restricted by the U.S. government or any foreign government, our operations and results of operations would be negatively impacted.

37


Table of Contents

We face particular political, market, commercial, jurisdictional and legal risks associated with our business in China.

        We have had significant equipment sales in China. Further, we have significant facilities and operations in China. Accordingly, our financial condition, results of operations, business and/or prospects could be materially adversely affected by economic, political and legal conditions or developments in China.

        In November 2012, China selected a new leadership group to run the government of the country. In China, the government has significant impact on what industries will receive financial and government assistance. At this point, the new government's economic priorities are unclear, but it may be the case that they will not be supportive of alternative energy industries, such as solar manufacturing, or of sapphire manufacturing. The Chinese government is able to exercise such control through its direct control over capital investments or changes in tax regulations that may be applicable to us. In addition, a substantial portion of the productive assets in China remain government owned. The Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. If the solar and/or sapphire industries are not a priority, our customers may have a difficult time expanding their operations and may have difficulty continuing their operations (particularly if direct and indirect financial support for our customers is reduced). This would have a negative impact on all of our business segments and, we expect, our results of operations.

        Any factors that result in slower (or decreased) growth in China could result in decreased capital expenditures by solar and sapphire product manufacturers, which in turn could reduce demand for our equipment products. Additionally, China has historically adopted laws, regulations and policies which impose additional restrictions on the ability of foreign companies to conduct business in China or otherwise place them at a competitive disadvantage in relation to domestic companies. Any adverse change in economic conditions or government policies in China could have a material adverse effect on our overall growth and therefore have an adverse effect on our financial condition, results of operations, business or prospects.

        We have a presence in China, including in the areas of customer service, certain manufacturing services, administrative functions, sales and research and development. As we adopt a greater presence in China, we will be increasingly exposed to the economic, political and legal conditions and developments in China, which could further exacerbate these risks, including the risk that we may not be able to obtain adequate legal protection in connection with any technological developments resulting from our research and development conducted in China.

We have entered into business combinations and acquisitions that may be difficult to integrate, disrupt our business, expose us to litigation or unknown liabilities, dilute stockholder value and divert management attention.

        In the past we have entered into, and may in the future enter into business combinations or purchases. Acquisitions and combinations are accompanied by a number of risks, including the difficulty of integrating the operations and personnel of the acquired company, disruption of our ongoing business, distraction of management, expenses related to the acquisition and potential unknown liabilities and claims associated with acquired businesses. We may be subject to (i) liability for activities of the acquired company prior to the acquisition, including environmental and tax and other known and unknown liabilities and (ii) litigation or other claims in connection with the acquired company, including claims brought by terminated employees, customers, former stockholders or other third parties.

38


Table of Contents

        In addition, there may, in particular, be risks and uncertainties in connection with the intellectual property rights and ownership of technology of an acquired company or any assets we may acquire, including (i) the nature, extent and value of the intellectual property and technology assets of an acquired company (or of the acquired assets), (ii) the rights that an acquired company (or company selling assets) has to utilize intellectual property and technology that it claims to have developed, acquired or to have licensed, and (iii) actions by third parties against the acquired company (or company selling assets) for intellectual property and technology infringement and the extent of the potential loss relating thereto. Third parties may also be more likely to assert claims against the acquired company (or acquired assets), including claims for breach of intellectual property rights, once the company or assets have been acquired by us.

        Any inability to integrate completed acquisitions or combinations in an efficient and timely manner or the inability to properly assess and utilize the intellectual property and technology portfolio without infringing the rights of a third party could have an adverse impact on our results of operations. In addition, we may not be able to recognize any expected synergies or benefits in connection with an acquisition, combination or asset purchase or we may be unable to effectively implement the business plan for the acquired company or assets, which would prevent us from achieving our financial and business goals for the business.

        If we are not successful in completing acquisitions or combinations that we may pursue in the future, we may incur substantial expenses and devote significant management time and resources without a successful result. In addition, future acquisitions could require use of substantial portions of our available cash or result in the incurrence of debt or dilutive issuances of securities. If we were to incur additional debt in the future in connection with an acquisition, or otherwise, it may contain covenants restricting our future activities, may incur significant interest rates or penalties for breach and we may be unable to generate sufficient cash to pay the principal or interest. Also, any issuance of equity securities may be dilutive.

        Acquisitions and combinations also frequently require the acquiring company to recognize significant amounts of intangible assets, such as goodwill, patents and trademarks and customer lists, in an acquisition, which amounts may be subject to a future impairment if we are unable to successfully implement the operating strategy for the acquired company or acquired assets.

We may, in the future, make investments in third party businesses or enter into joint development or similar agreements with third parties and these may require significant expenses and may not result in any technological or financial benefits.

        We may in the future enter into arrangements in which we invest in another business without owning all of the voting control of the entity or without the ability to control the decision-making of the entity or we may enter into joint development or similar arrangements for the development of technology or sale of products. We have entered into a joint development agreement with respect to HVPE equipment. Investments of this nature can require a significant commitment of our time, attention, cash and financial resources and technology sharing. If we do not have a controlling stake in these companies, it is likely that such entities may make their own business decisions that may not always align with our interests. In addition, some of the entities that we invest in, or enter into development projects with, will very likely have the right to manufacture or distribute their own products or certain products of our competitors. If we are unable to provide an appropriate mix of incentives to the companies that we invest in or in which we enter joint venture or similar arrangements, these other parties, through a combination of pricing and marketing and advertising support or otherwise, may take actions that, while maximizing their own short-term profits, may be detrimental to us or our brands, or they may devote more of their energy and resources to business opportunities or products other than those that generate a return for us. Such actions could, in the long run, have an adverse effect on our financial results. In addition, these types of investments may

39


Table of Contents

not ultimately generate the returns that we expect when we entered into the arrangements, which could result in a decrease in our anticipated liquidity and loss of our entire investment.

Our ability to supply a sufficient number of products to meet demand could be severely hampered by natural disasters or other catastrophes.

        Currently, a portion of our operations are located in Asia and we increased our presence in Asia with our global operations center in Hong Kong. Additionally, a significant portion of our revenue is generated from customers that install our equipment in Asia and many of our suppliers are also located in Asia. In addition, we will have a sapphire material manufacturing operation at one location in Arizona. These areas are subject to natural disasters such as earthquakes, floods, drought and hazardous weather conditions. A significant catastrophic event such as earthquakes, floods, war, acts of terrorism or global threats, including, but not limited to, the outbreak of epidemic disease, could disrupt our operations and impair distribution of our products, damage inventory or facilities, interrupt critical functions, cause our suppliers to be unable to meet our demand for parts and equipment, reduce demand for our products, prevent our customers from honoring their contractual obligations to us or otherwise affect our business negatively. Any event that is significantly disruptive to the critical operations, such as our power supply, could impact our ability to meet our supply obligations under our sapphire materials contracts. To the extent that such disruptions or uncertainties result in delays or our inability to fill orders (particularly to meet our obligations to provide sapphire material to our customer that purchases sapphire from our Arizona facility), causes cancellations of customer orders, or results in our inability to manufacture or ship our products, we may not be excused from performance under our supply or equipment agreements and our business, operating results and financial condition could be materially and adversely affected.

Our level of indebtedness may limit our financial flexibility.

        As of December 31, 2013, our total consolidated indebtedness was approximately $456 million (which amount excludes the portion of our 2017 notes and 2020 notes allocated to the respective conversion features, and the debt discount on the Apple prepayment amount, both of which must also be repaid), or approximately $659 million after giving effect to the conversion features and debt discount described above. Our unrestricted cash was approximately $498 million at December 31, 2013. Our level of indebtedness affects our operations in several ways, including the following:

    a portion of our cash flows from operating activities must be used to service our indebtedness or our repayment obligations and is not available for other purposes;

    we may be at a competitive disadvantage as compared to similar companies that have less debt;

    the covenants contained in the agreements governing our outstanding indebtedness and future indebtedness may limit our ability to borrow additional funds, pay dividends and make certain investments and may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry; and

    additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes may have higher costs and more restrictive covenants, or may not be available to us.

        Many of these factors are beyond our control. Factors that will affect our ability to raise cash through an offering of our capital stock, convertible debt or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital. In addition, our failure to comply with the financial and other covenants relating to our indebtedness (or Prepayment Agreement) could result in a default under that indebtedness (or Prepayment Agreement) and acceleration of amounts due, which could adversely affect our business, financial condition and results of operations.

40


Table of Contents

We may face significant warranty claims.

        All of our equipment and materials are sold with warranties. The warranty for our equipment is typically provided on a repair or replace basis, and is not limited to products or parts manufactured by us. As a result, we bear the risk of warranty claims on all products we supply, including equipment and component parts manufactured by third parties. There can be no assurance that we will be successful in claiming under any warranty or indemnity provided to us by our suppliers or vendors in the event of a successful warranty claim against us by a customer or that any recovery from such vendor or supplier would be adequate. There is a risk that warranty claims made against us will exceed our warranty reserve and could have a material adverse effect on our financial condition, results of operations, business and/or prospects.

We have been subject to securities class action lawsuits. Potential similar or related litigation could result in substantial damages and may divert management's time and attention from our business.

        In 2008, the Company, its directors and certain affiliates were defendants in class action suits that alleged certain violations under various sections of the Securities Act of 1933, in connection with our initial public offering. In March 2011, these class actions were settled and we were required to pay $10.5 million into a settlement fund. Of this amount, we contributed $1.0 million and our liability insurers contributed the remaining $9.5 million. Our contribution represented the contractual indemnification obligation to the underwriters.

        As a publicly traded company, we may be subject to additional lawsuits relating to violations of the securities laws. Any such litigation would be expensive, time consuming to defend and, if we were unsuccessful in defending such claims, could result in the payments of significant sums. We do maintain insurance, but the coverage may not be sufficient and may not be available in all instances.

Interpretations of existing accounting standards or the application of new standards could affect our revenue recognition and other accounting policies, which could have an adverse effect on the way we report our operating results.

        Generally accepted accounting principles in the United States are subject to interpretations by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC and various other organizations formed to promulgate and interpret accounting principles. A change in these accounting principles or their interpretations could affect the reporting of transactions that were completed before the announcement of a change in principles or interpretations. As noted in Note 2 to our financial statements included in this annual report on Form 10-K, under the current revenue guidance, for arrangements containing products considered to be "established," the majority of our revenue is recognized upon delivery of the product. For arrangements containing products considered to be "new," or containing customer acceptance provisions that are deemed more than perfunctory, revenue is recorded upon customer acceptance.

        If we make incorrect estimates or judgments in applying our revenue recognition policies, for example, if we incorrectly classify a product as "established" when it should have been "new," it may impact the timing of recognizing that revenue and may result in failing to meet guidance provided by us or require that we restate our prior financial statements. Additional errors in applying estimates or judgments in accounting policies may also adversely impact our operating results and may, in certain cases, require us to restate prior financial statements.

If we are unable to adopt and implement adequate data security procedures, we could lose valuable proprietary information, third parties may be able to access information about our operations and employee data, any of the foregoing may harm our reputation and our results of operations.

        While we have implemented data security measures, a third party may gain unauthorized access to our servers, laptops or employee mobile devices. We store our important proprietary information on

41


Table of Contents

our servers, including equipment specifications, and our employees may access this data remotely. This information is also shared via e-mail and we rely on industry standard encryption tools for transmitting data (which has been attacked in the past). If a competitor were able to access this information, we would lose the competitive advantages we believe we have and we could also lose the benefits that are or could be realized from our research and development efforts. Access to this information may be the result of a third-party by-passing our security measures, third-party encryption tools not providing adequate protection or inadvertent error by an employee that results in this information being accessed by unauthorized users. In addition, if a third party were to access our databases they may access sensitive business information about our operations in Mesa, including manufacturing output.

        In addition, the risks of unintended disclosure of information, proprietary or otherwise, following an acquisition is increased until such time as we can implement proper protection measures at the acquired sites. During the time, prior to implementing safeguards, third parties may be able to obtain information about the acquired entity or about our business technology and operations.

        Some of our servers containing our proprietary and confidential product and customer information are located in foreign jurisdictions, such as China and Hong Kong, and the governments in these jurisdictions may be able to access, review, retain and use the information contained on these servers without any legal recourse on our part or the right to compensation.

        Finally, we also store financial reporting information and employee data on our computer systems. If our financial information were tampered with, the results we report may not be accurate and/or we may be required to re-state previous released financial results and investors could lose confidence in our reported financial results. If our employee information were accessed, our employees may lose confidence in our operations, we may confront challenges attracting new employees and may face government penalties if we were found to have taken inadequate measures to protect employee information.

We could be adversely affected by violations of applicable anti-corruption laws or violations of our internal policies designed to ensure ethical business practices.

        We operate in a number of countries throughout the world, including in countries that do not have as strong a commitment to anti-corruption and ethical behavior that is required by U.S. laws or by corporate policies. We are subject to the risk that we, our U.S. employees or our employees located in other jurisdictions or any third parties that we engage to do work on our behalf in foreign countries may take action determined to be in violation of anti-corruption laws in any jurisdiction in which we conduct business, including the U.S. Foreign Corrupt Practices Act of 1977 (or the "FCPA"). In addition, we operate in certain countries in which the government may take an ownership stake in an enterprise and such government ownership may not be readily apparent (thereby increasing potential FCPA violations). Any violation of the FCPA or any similar anti-corruption law or regulation could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might adversely affect our business, results of operations or financial condition. In addition, we have internal ethics policies that we require our employees to comply with in order to ensure that our business is conducted in a manner that our management deems appropriate. If these anti-corruption laws or internal policies were to be violated, our reputation and operations could also be substantially harmed. Further, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

The market for polysilicon has been cyclical, resulting in periods of insufficient or excess production capacity and could result in variation in demand for our products.

        The market for polysilicon has been cyclical. In the recent past, polysilicon supply had increased due principally to expansion by existing manufacturers. This factor, among others, resulted in increased supply and declining prices in polysilicon. An excess in production capacity for polysilicon has, and in

42


Table of Contents

the future may, adversely affect demand for our SDR reactors. There can be no certainty that the increased demand during the periods of expansion in polysilicon manufacturing capacity will persist for an extended period of time, or at all. A lack of demand for our SDR reactors could have a material adverse effect on our financial condition, results of operations, business and/or prospects. Conversely, if there are shortages of polysilicon in the future, the PV industry may be unable to continue to grow and/or may decline, and, as a result, demand for our PV products may decrease or may be eliminated.

We license and do not own certain components of the technology underlying our SDR reactor and STC converter products.

        Certain components of the technology underlying our SDR reactor and STC converter products are not owned by us, but are licensed under a ninety-nine year license agreement that could be terminated in the event of a material breach by us of such agreement that remains uncured for more than thirty days, or upon our bankruptcy or insolvency. To the extent such components are deemed to be incorporated into our current or future products, any termination of our rights to use such technology could have a material adverse effect on our ability to offer our polysilicon products and therefore on our financial condition, results of operations, business and/or prospects if we were unable to secure these rights in a different manner or from an alternative arrangement.

Government subsidies and economic incentives for on-grid solar electricity applications could be reduced or eliminated.

        Demand for PV equipment, including on-grid applications, has historically been dependent in part on the availability and size of government subsidies and economic incentives. Currently, the cost of solar electricity exceeds the retail price of electricity in most major markets in the world. As a result, federal, state and local governmental bodies in many countries, most notably Germany, Italy, Spain, South Korea, Japan, China and the United States, have provided subsidies in the form of feed-in tariffs, rebates, tax write-offs and other incentives to end-users, distributors, systems integrators and/or manufacturers of PV products to promote the use of solar energy in on-grid applications and to reduce dependency on other forms of energy. Many of these government incentives have expired or are due to expire in time, phase out over time, cease upon exhaustion of the allocated funding and/or are subject to cancellation or non-renewal by the applicable authority. The reduction, expiration or elimination of relevant government subsidies or other economic incentives may result in the diminished competitiveness of solar energy relative to conventional and other renewable sources of energy, and adversely affect demand for PV equipment (and polysilicon equipment) or result in increased price competition, all of which could cause our sales and revenue to decline and have a material adverse effect on our financial condition, results of operations, business and/or prospects. Further, any government subsidies and economic incentives could be reduced or eliminated altogether at any time and for any reason. We believe that government subsidies and incentives will be eliminated in the near future. Also, relevant statutes or regulations may be found to be anti-competitive, unconstitutional or may be amended or discontinued for other reasons. Some government subsidies and incentives have been subject to challenge in courts in certain foreign jurisdictions. New proceedings challenging minimum price regulations or other government incentives in countries in which we conduct our business or in which our customers conduct business, may be initiated, and if successful, could cause a decrease in demand for our polysilicon and PV equipment products.

Existing regulations and policies and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of photovoltaic products.

        The market for electricity generation products is heavily influenced by government regulations and policies concerning the electric utility industry, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of user-owned electricity generation. In the United States and in a number of other countries, these

43


Table of Contents

regulations and policies are currently being modified and may be modified again in the future. These regulations and policies could deter end-user purchases of PV products (and polysilicon products) and investment in the research and development of PV technology. For example, without a mandated regulatory exception for PV systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the electric utility grid. These fees could increase the cost to end-users of PV systems and make such systems less attractive to potential customers, which may have a material adverse effect on demand for our polysilicon and PV products and our financial condition, results of operations, business and/or prospects.

The photovoltaic industry may not be able to compete successfully with conventional power generation or other sources of renewable energy.

        The PV industry comprises a relatively small component of the total power generation market and competes with other sources of renewable energy, as well as conventional power generation. Many factors may affect the viability of widespread adoption of PV (and polysilicon) technology and thus demand for solar wafer manufacturing equipment, including the following:

    cost-effectiveness of solar energy compared to conventional power generation and other renewable energy sources;

    performance and reliability of solar modules compared to conventional power generation and other renewable energy sources and products;

    availability and size of government subsidies and incentives to support the development of the solar energy industry;

    success of other renewable energy generation technologies such as hydroelectric, wind, geothermal and biomass; and

    fluctuations in economic and market conditions that affect the viability of conventional power generation and other renewable energy sources, such as increases or decreases in the prices of oil, natural gas and other fossil fuels.

        As a result of any of the foregoing factors, our financial condition, results of operations, business and/or prospects could be materially adversely affected.

Risks Relating to Our Common Stock

Future sales of our common stock, or the perception in the public markets that these sales may occur, could depress our stock price.

        Future sales of substantial amounts of our common stock in the public market or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. In addition, future equity financings could also result in dilution to our stockholders and new securities could have rights, preferences and privileges that are senior to those of our common shares.

        Our certificate of incorporation currently authorizes us to issue up to 500 million shares of common stock, and as of December 31, 2013, we had approximately 134.5 million shares of common stock outstanding. All of these shares are freely tradable in the public market under a registration statement or an exemption under the securities laws. Moreover, at December 31, 2013, 10.1 million shares of our common stock were issuable upon the exercise of outstanding vested and unvested options and upon vesting of outstanding restricted stock units.

44


Table of Contents

Our certificate of incorporation and by-laws and Delaware law contain provisions that could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.

        It is possible that companies in our industries or certain other investors may consider making a friendly or hostile attempt to gain control of a majority (or all) of our common stock. Some provisions of our certificate of incorporation and by-laws may have the effect of delaying, discouraging or preventing a merger or acquisition that our stockholders may consider favorable, including transactions in which stockholders may receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace or remove our board of directors. These provisions include:

    the removal of directors only by the affirmative vote of the holders of two-thirds of the shares of our capital stock entitled to vote;

    any vacancy on our board of directors, however occurring, including a vacancy resulting from an enlargement of the board, may only be filled by vote of the directors then in office;

    inability of stockholders to call special meetings of stockholders or take action by written consent;

    advance notice requirements for board nominations and proposing matters to be acted on by stockholders at stockholder meetings; and

    authorization of the issuance of "blank check" preferred stock without the need for action by stockholders.

        In addition, we are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us.

We are a technology-oriented company and, as such, we expect that the price of our common stock may fluctuate substantially.

        We operate in industries where there are rapid changes in technologies and product offerings. Broad market, industry and economic factors may adversely affect the market price of our common stock, regardless of our actual operating performance. Factors that could cause fluctuations in our stock price may include, among other things:

    actual or anticipated variations in quarterly operating results;

    changes in market prices for our products or for raw materials;

    changes in our financial guidance or estimates made by us or by any securities analysts who may cover our stock or our failure to meet the estimates made by securities analysts;

    changes in the market valuations of other companies operating in our industry;

    announcements by us or our competitors of, or developments relating to, significant acquisitions, strategic partnerships, customer contracts or arrangements, divestitures or other significant contracts;

    changes in governmental policies with respect to energy;

    additions or departures of key personnel; and

    sales of our common stock, including sales of our common stock by our directors and officers or by our larger stockholders.

45


Table of Contents

Announcements of contract awards or bankruptcies of solar-related companies could have a significant impact on our stock price.

        It is common for equipment manufacturers in the business segments in which we operate to enter into contracts for the sale and delivery of substantial amounts of equipment, involving highly competitive bidding situations. Public announcements of contract awards often cause a reaction in the stock market and affect, sometimes significantly, the trading price of the stock of the manufacturer that received a contract award. It could also have a negative effect on the trading price of stock of competitors that did not receive such contract. This reaction may be unrelated to the historical results of operations or financial condition of the affected companies or, in the case of unsuccessful competitors, any guidance they may have provided with respect to their future financial results. An announcement that a competitor of ours was awarded a significant customer contract could have a material adverse effect on the trading price of our stock.

        In addition, there have been announcements that companies offering solar power related services and materials have filed or will file for bankruptcy. For example, Solyndra filed for bankruptcy in August 2011. Such announcements, and future similar announcements, will likely have a negative effect on the trading price of our stock. This will likely be the case even if such companies do not utilize the output for the equipment we sell.

The derivative transactions related to our common stock in connection with our 2017 notes and 2020 notes and the convertible note hedge and warrant transactions entered into in connection with our 2017 notes could depress our stock price.

        In September 2012, we issued $220 million aggregate principal amount of our 2017 notes. In December 2013, we issued $214 million aggregate principal amount of our 2020 notes. Upon conversion of the 2017 notes and 2020 notes, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The 2017 notes may be converted, under certain conditions specified in the indenture entered into in connection with the issuance of the 2017 notes, based on an initial conversion rate of 129.7185 shares of common stock per $1,000 principal amount of the 2017 notes (which represents an initial effective conversion price of the 2017 notes of $7.71 per share), subject to adjustment as described in the indenture. The 2020 Notes may be converted, under certain conditions specified in the Indenture entered into in connection with the issuance of the 2020 Notes, based on an initial conversion rate of 82.5764 shares of common stock per $1,000 principal amount of Notes (which represents an initial effective conversion price of the Notes of $12.11 per share), subject to adjustment as described in the Indenture for the 2020 Notes. It is likely that some or all of the holders of the 2017 notes and 2020 notes have entered into and may unwind various derivative transactions that involve trading in our common stock or in other instruments, such as options or swaps, based upon our common stock. Such derivative transactions could adversely affect the value of our common stock and, consequently, the value of the notes.

        In connection with issuing the 2017 notes, we entered into convertible note hedge transactions with certain option counterparties. The convertible note hedge transactions are expected to reduce the potential dilution and/or offset any cash payments we are required to make in excess of the principal amount upon conversion of the 2017 notes. We also entered into warrant transactions with the option counterparties. We believe that the option counterparties or their affiliates entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the 2017 notes. The option counterparties or their affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2017 notes (and are likely to do so during any observation period related to a conversion of the 2017 notes).

46


Table of Contents

        This derivative transaction activity could also cause or avoid an increase or a decrease in the market price of our common stock, the 2017 notes or the 2020 notes, and to the extent the activity occurs during any observation period related to the conversion of the applicable notes, it could affect the number of shares and value of the consideration to be issued upon the conversion of the applicable notes. In addition, if any such convertible note hedge and warrant transaction is unwound early, such action could adversely affect the value of our common stock and the value of the 2017 notes and 2020 notes.

We currently do not intend to pay dividends on our common stock and as a result, the only opportunity to achieve a return on an investment in our common stock is if the price appreciates.

        We currently do not expect to declare or pay dividends on our common stock in the foreseeable future. As a result, the only opportunity to achieve a return on an investment in our common stock will be if the market price of our common stock appreciates and the shares are sold at a profit. We cannot assure our investors that the market price for our common stock will ever exceed the price that was paid.

Our quarterly operating results have fluctuated significantly in the past and we expect that our quarterly results will continue to fluctuate significantly in the future.

        Our quarterly operating results have fluctuated significantly in the past and we expect that our quarterly results will continue to fluctuate significantly in the future. Future quarterly fluctuations may result from a number of factors, including:

    the size of new contracts and when we are able to recognize the related revenue, especially with respect to our polysilicon products;

    requests for delays in deliveries by our customers;

    delays in customer acceptances of our products;

    delays in deliveries from our vendors;

    our rate of progress in the fulfillment of our obligations under our contracts;

    the degree of market acceptance of our products and service offerings;

    the mix of products and services sold;

    budgeting cycles of our customers;

    product lifecycles;

    changes in demand for our products and services;

    the level and timing of expenses for product development and sales, general and administrative expenses;

    competition by existing and emerging competitors, including in the PV, polysilicon and sapphire industry;

    announcements by our competitors or customers of the awarding of a significant contract;

    termination of or removal of contracts in our reported order backlog;

    our success in developing and selling new products and services, controlling costs, attracting and retaining qualified personnel;

    changes in government subsidies and economic incentives for on-grid solar electricity applications;

47


Table of Contents

    announcements regarding litigation or claims against us or others in the PV, polysilicon or sapphire industries;

    changes in export licensing or export restrictions with respect to our products;

    changes in our strategy;

    the extent our sapphire materials are used in products by Apple and sales of Apple products;

    negative announcements regarding solar and sapphire industry participants, such as the bankruptcies of Evergreen Solar and Solyndra, as well as government investigations of Solyndra operations;

    foreign exchange fluctuations; and

    general economic conditions.

        Based on these factors, we believe our future operating results will vary significantly from quarter-to-quarter and year-to-year. As a result, quarter-to-quarter and year-to-year comparisons of operating results are not necessarily meaningful nor do they indicate what our future performance will be.

Our actual operating results may differ significantly from our guidance.

        From time to time, we release guidance in our quarterly or annual earnings releases, quarterly or annual earnings conference calls or otherwise, regarding our future performance that represent our management's estimates as of the date of release. This guidance, which includes forward-looking statements, is based on projections prepared by our management. These projections are not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our registered public accountants nor any other independent expert or outside party compiles or examines the projections and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto.

        Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions and conditions, some of which will change. We generally state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed but are not intended to represent that actual results could not fall outside of the suggested ranges. The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by any such persons. Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date of release. Actual results will vary from our guidance and the variations may be material. In light of the foregoing, investors are urged not to rely upon, or otherwise consider, our guidance in making an investment decision in respect of our common stock.

48


Table of Contents

Item 1B.    Unresolved Staff Comments

        None.

Item 2.    Properties

        We own our corporate headquarters located in Merrimack, New Hampshire. The Merrimack headquarters is approximately 106,000 square feet and includes an advanced manufacturing center, as well as administrative, product development, sales, marketing and customer service facilities. We lease our facility located in Nashua, New Hampshire. This facility has approximately 10,431 square feet, and is utilized for certain general corporate, finance and administrative functions that support all of our business segments. Our manufacturing facility in Merrimack, New Hampshire is equipped with advanced CAD software, computers and plotters for mechanical and electrical designs. We also own several additional acres of undeveloped land adjacent to our Merrimack facility, which could be used to accommodate future growth, if necessary.

        In order to better serve our customers in Asia, we have a global operations center located in Hong Kong.

        In total, we conduct our operations through (i) one facility we own in Merrimack, New Hampshire and (ii) various leased facilities described in the table below. Certain information regarding our leased facilities is set forth below:

Location
  Approximate
Size
  Expiration Date   Principal Function   Business
Segment
Utilizing
Facility
Missoula, Montana   14,744 sq. ft.   January 2015   Office facility   Polysilicon
Missoula, Montana   11,937 sq. ft.   December 2014   Warehousing, testing, research and development   Polysilicon
Nashua, New Hampshire   10,431 sq. ft.   December 2014   Office facility   General Corporate
Salem, Massachusetts   109,324 sq. ft.   July 2023   Pilot production operations, office facilities and research and development   Sapphire
Danvers, Massachusetts   18,599 sq. ft.   January 2015   Pilot production operations, warehousing   PV
Hazelwood, Missouri   68,420 sq. ft.   July 2020   Office facility, pilot production operations, warehouse (currently idled)   PV (HiCz)
San Jose, California   5,582 sq. ft.   January 2015   Office facilities, research and development   PV
Santa Clara, California   700 sq. ft.   Month-to-month, 30 days notice for either party   Research and development, light manufacturing   PV
Santa Rosa, California   25,000 sq. ft.   September 2016   Manufacturing, office facility   Sapphire
Shanghai, China   11,613 sq. ft.   March 2016   Office facility   General Corporate
Chupei City, Taiwan   2,776 sq. ft.   July 2015   Office facility   Polysilicon/PV/Sapphire/General Corporate
Chupei City, Taiwan   3,188 sq. ft.   October 2014   Office facility, warehouse   Polysilicon/PV/Sapphire
Hong Kong   17,751 sq. ft.   January 2015   Office facility   Polysilicon/PV/Sapphire/General Corporate
Bayreuth, Germany   150 sq. meters   cancelable on 3 months notice   Office facility   Sapphire
Mesa, Arizona   76,485 sq. ft. * November 2020   Manufacturing, office facility   Sapphire

*
Pursuant to the terms of the lease for the facility in Mesa, Arizona, the facility will be delivered in stages. As of December 31, 2013, we occupied 76,485 square feet. When the entire facility is prepared and delivered to us for occupancy, the size of the leased space will be approximately 1,328,075 square feet.

49


Table of Contents

Item 3.    Legal Proceedings

        We are not subject to any material pending legal proceedings. We are, however, subject to various routine legal proceedings and claims incidental to our business which we believe will not have a material adverse impact on our financial position, results of operations and cash flows.

Item 4.    Mine Safety Disclosure

        Not applicable.

50


Table of Contents


PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

        Our common stock was listed on The NASDAQ Global Select Market under the symbol "SOLR" beginning July 24, 2008. Prior to July 24, 2008, there was no public market for our common stock. In August 2011, we changed our name to GT Advanced Technologies Inc. In connection with this name change, we also changed our ticker symbol on The NASDAQ Global Select Market to "GTAT." The following table sets forth the range of high and low sales prices per share as reported on The NASDAQ Global Select Market for the periods indicated.

 
  High   Low  

Fiscal 2013

             

Fourth Quarter

  $ 10.75   $ 7.42  

Third Quarter

  $ 8.82   $ 4.01  

Second Quarter

  $ 4.89   $ 3.03  

First Quarter

  $ 3.94   $ 2.61  

Nine-Month Period Ended December 31, 2012

             

Third Quarter

  $ 5.35   $ 2.86  

Second Quarter

  $ 6.94   $ 4.76  

First Quarter

  $ 8.38   $ 4.05  

        The closing sales price of our common stock on The NASDAQ Global Select Market was $14.14 per share on February 24, 2014. As of February 24, 2014 there were approximately 27 record holders of our common stock. Because many of our shares are held of record by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Dividend Policy

        We previously declared a dividend on June 30, 2008 that was paid on August 1, 2008. There have been no dividends declared since and we do not intend to pay any other dividends on our common stock for the foreseeable future.

Stock Price Performance Graph

        The following graph compares the cumulative return attained by shareholders on our common stock since March 27, 2009 relative to the cumulative total returns of the NASDAQ Composite Index and the Wilderhill Clean Energy Index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each index on March 27, 2009 and its relative performance is tracked through December 31, 2013. No cash dividends have been declared on shares of our common stock since July 24, 2008, the date our shares commenced trading. This performance graph is not "soliciting material," is not deemed filed with the SEC and is not to be incorporated by reference in any filing by us under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. The stock price performance shown on the graph represents past performance and should not be considered an indication of future price performance.

51


Table of Contents

GRAPHIC

 
  3/27/2009   4/1/2010   4/1/2011   3/30/2012   12/31/2012   12/31/2013  

GT Advanced Technologies Inc. 

    100.00     78.46     156.78     124.55     45.63     131.25  

Wilderhill Clean Energy Index(1)

    100.00     123.23     132.33     69.57     51.78     81.76  

NASDAQ Composite

    100.00     155.49     180.53     200.08     195.41     270.29  

*
Assumes an investment of $100 on March 27, 2009 in GT Advanced Technologies Inc. common stock and in the foregoing indices including, for purposes of each index, reinvestment of dividends.

Note:

(1)
The Wilderhill Clean Energy Index consists of companies that focus on the technologies for utilizing greener, renewable sources of energy. These technologies include renewable energy harvesting or production, energy conversion, energy storage, pollution prevention, improving efficiency, power delivery, energy conservation, and monitoring information. In addition, the companies included in the Wilderhill Clean Energy Index generally have market capitalizations of $200 million or higher.

52


Table of Contents

Purchases of Equity Securities by the Issuer and Affiliate Purchases

        The following table sets forth information in connection with purchases made by, or on behalf of, us or any affiliated purchaser, of shares of our common stock during the three months ended December 31, 2013:

 
  (a)
Total Number of
Shares
Purchased
  (b)
Average Price
Paid per Share
  (c)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
  (d)
Maximum Number
(or Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans
or Programs
 

Month ended November 2, 2013

    36,039   $ 8.01       $  

Month ended November 30, 2013

    80,823   $ 9.55       $  

Month ended December 31, 2013

    25,927   $ 8.60       $ 25,000,000  

        We did not repurchase any of our common stock on the open market as part of a stock repurchase program during the fiscal year ended December 31, 2013; however, our employees surrendered, and we subsequently retired, 482,316 shares of our common stock to satisfy the tax withholding obligations on the vesting of restricted stock unit awards issued under our equity incentive plans.

        On November 16, 2011, our board of directors authorized a $100 million share repurchase plan. Of this amount, we repurchased $75 million during the fiscal year ended March 31, 2012. Under this repurchase plan, we may purchase up to an additional $25 million of our common stock.

Item 6.    Selected Consolidated Financial Data

        The following selected consolidated financial data should be read together with "Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations" and our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations and balance sheet data for all periods presented is derived from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K or in Annual Reports or Transition Reports on Form 10-K for prior years on file with the Securities and Exchange Commission.

        Our reporting period is based on a 52-week year that ends on December 31. On April 16, 2012, the board of directors of the Company voted to amend the Company's amended and restated by-laws to provide that the Company's fiscal year will end on December 31 of each year. Prior to this amendment, the Company's by-laws had provided that fiscal years ended on the Saturday closest to March 31st of each year. As a result of this change to the fiscal year end, we reported a nine-month transition period consisting of the period from April 1, 2012 to December 31, 2012 in the prior year's

53


Table of Contents

Transition report on Form 10-K, and the current fiscal period includes the 12-month period ended December 31, 2013.

 
  GT Advanced Technologies, Inc.  
 
  Fiscal Year
Ended
December 31,
2013
  Nine-Month
Period
Ended
December 31,
2012
  Fiscal Year
Ended
March 31,
2012
  Fiscal Year
Ended
April 2,
2011
  Fiscal Year
Ended
April 3,
2010
 

Statement of Operations Data:

                               

Revenue

  $ 298,967   $ 379,646   $ 955,705   $ 898,984   $ 544,245  

Cost of Revenue(1)

    205,920     325,570     528,905     520,989     325,263  
                       

Gross Profit

    93,047     54,076     426,800     377,995     218,982  

Research and Development

    83,006     55,401     49,872     23,753     21,410  

Selling and Marketing

    15,379     12,408     19,763     19,792     11,823  

General and Administrative

    68,967     44,362     64,117     54,386     38,623  

Contingent consideration expense(2)

    (1,119 )   (9,492 )   4,458     2,262      

Impairment of goodwill(3)

        57,037              

Restructuring charges and asset impairments(4)

    6,868     33,441              

Amortization of Intangible Assets

    11,073     7,619     8,198     4,500     3,164  
                       

(Loss) Income from Operations

    (91,127 )   (146,700 )   280,392     273,302     143,962  

Interest Income

    364     164     468     603     420  

Interest Expense(5)

    (31,832 )   (8,556 )   (12,980 )   (2,923 )   (1,383 )

Other Income (Expense), net

    117     (950 )   2,058     (384 )   (3,125 )
                       

(Loss) Income before Income Taxes

    (122,478 )   (156,042 )   269,938     270,598     139,874  

Provision for Income Taxes

   
(39,676

)
 
(13,734

)
 
86,541
   
95,843
   
52,618
 
                       

Net (Loss) Income

  $ (82,802 ) $ (142,308 ) $ 183,397   $ 174,755   $ 87,256  
                       
                       

(Loss) Income per Common Share:

                               

Basic

  $ (0.68 ) $ (1.20 ) $ 1.48   $ 1.26   $ 0.61  

Diluted

    (0.68 )   (1.20 )   1.45     1.24     0.60  

Shares used to compute (Loss) Income per Common Share:

                               

Basic

    122,481     118,776     123,924     138,673     143,409  

Diluted

    122,481     118,776     126,051     140,902     145,390  

Balance Sheet Data (at end of period):

                               

Cash and Cash Equivalents

  $ 498,213   $ 418,095   $ 350,903   $ 362,749   $ 230,748  

Short-term Investments

                    19,967  

Deferred Revenue

    119,396     121,946     196,159     445,517     334,347  

Working Capital(6)

    407,296     369,373     186,415     282,824     177,150  

Total Assets

    1,187,281     1,004,668     1,132,590     1,126,292     732,081  

Total Debt(7)

    456,389     297,003     75,000     120,313      

Stockholders' Equity

    332,405     242,251     331,554     201,940     178,986  

Cash Flow Data:

                               

Cash provided by (used in):

                               

Operating Activities

  $ 159,104   $ (151,478 ) $ 217,673   $ 251,774   $ 147,276  

Investing Activities

    91,774     (35,176 )   (107,983 )   (34,033 )   (24,540 )

Financing Activities

    146,996     253,778     (121,643 )   (85,948 )   863  

Other

    452     68     107     208     1  

Increase (Decrease) in Cash and Cash Equivalents

    80,118     67,192     (11,846 )   132,001     123,600  

Other Financial Data:

                               

Depreciation and Amortization

  $ 30,310   $ 22,719   $ 17,848   $ 9,667   $ 6,870  

Capital Expenditures Paid in Cash

    39,878     25,167     48,152     31,263     4,573  

(1)
During the nine-month period ended December 31, 2012, the solar industry continued to face increasing challenges in photovoltaic market overcapacity and weaker operating performance and outlook, leading to the deterioration of the solar equipment market and the Company's customers' financial condition, coupled with lower market valuations. The Company concluded that these factors had significantly decreased the demand for our DSS products. The Company considered the impact of these industry circumstances on its balance of DSS inventory and determined that there was inventory in excess of forecasted demand for the next 12 months. As a result of these market conditions, during the three months ended December 31, 2012, the Company incurred charges of $60.2 million to record PV inventory at its net realizable value, which considers the Company's estimate of forecasted sales of units and selling prices. Additionally, during the same period the Company recorded charges of $8.4 million in cost of sales, in connection with amounts that had been advanced to our vendors for production of certain PV inventory. During the fiscal year ended December 31, 2013 the Company recorded charges of approximately $0.4 million for excess and obsolete inventory related to our PV business.

(2)
During the nine-month period ended December 31, 2012, based on the failure to satisfy certain operational and technical targets by the contractual target dates in connection with the Confluence Solar acquisition, the Company determined that that the earn-out opportunities related to these targets were not achieved and the Company recognized a total decrease in the fair value of contingent consideration of $(8.2) million in the condensed consolidated statements of operations. In

54


Table of Contents

    addition, the Company recorded contingent consideration expense of $(1.6) million in connection with a change in probabilities of the remaining earn-out targets in connection with the acquisition of Confluence Solar. Contingent consideration income for the twelve-month period ended December 31, 2013 was the result of the final operational and technical target related to the Confluence Solar acquisition not being satisfied. This income was partially offset by expense associated with our acquisition of Twin Creeks due to our assessment of the increased likelihood that a contingent payment in connection with such transaction of $13.0 million may be made in the future.

(3)
During the nine-month period ended December 31, 2012, the Company recorded a charge for the impairment of goodwill in our PV business of $57.0 million. This impairment was the result of our annual goodwill impairment analysis performed as of December 31, 2012 and reflects the fact that the solar industry faced increasing challenges of solar panel manufacturing overcapacity and weaker operating performance and outlook, leading to the deterioration of the solar equipment market and the Company's customers' financial condition, coupled with lower market valuations. Refer to the footnotes of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

(4)
As part of a program to reduce costs and increase operational efficiencies, the Company announced, on October 31, 2012, a plan to streamline worldwide operations to better align its cost structure with current market conditions and enhance its ability to pursue strategic growth initiatives. The Company began recording these restructuring charges during the three-month period ended December 31, 2012 and recorded the remainder during fiscal 2013. In addition, on January 10, 2013, the Company announced its plan to cease operations at its Hazelwood, Missouri facility ("Hazelwood Facility"). The idling of the Hazelwood Facility was part of the Company's effort to reduce costs and optimize its R&D activities and was completed by March 31, 2013. The Company determined that as of December 31, 2012 it was probable that employees would be entitled to receive benefits associated with the plant idling and that these amounts were estimable. As such, the expenses associated with the plant idling of $29.8 million have been included as expense for the nine-month period ended December 31, 2012. Restructuring charges and asset impairments in the twelve-month period December 31, 2013 recorded by the Company consisted of $1.9 million of additional charges related to the Hazelwood facility's lease exit costs, $0.6 million of other contract termination costs related to this facility and $4.0 million of impairment charges related to the HiCz fixed assets.

(5)
For the fiscal year ended March 31, 2012, we incurred interest expense in connection with the credit facility we entered into with Bank of America N.A. (and certain other lenders) on January 31, 2012. On October 30, 2013, the Company terminated the 2012 Credit Agreement (the "Credit Agreement") and paid off all outstanding borrowing under the Credit Agreement. In connection with the termination of the 2012 Credit Agreement, the Company recognized a charge in the fourth quarter of fiscal 2013 of approximately $3.6 million relating to deferred issuance costs that were written off upon the termination of the 2012 credit agreement. On September 28, 2012, the Company issued $220 million aggregate principal amount of 3.00% Convertible Senior Notes due 2017 (the "2017 Notes"). The net proceeds from the issuance of the 2017 Notes were approximately $212.6 million, after deducting fees paid to the initial purchasers and other offering costs. The 2017 Notes are senior unsecured obligations of the Company, which pay interest in cash semi-annually (on April 1 and October 1 of each year) at a rate of 3.00% per annum beginning on April 1, 2013. The 2017 Notes are governed by an Indenture dated September 28, 2012 with U.S. Bank National Association, as trustee (the "Indenture"). The 2017 Notes are not redeemable by the Company. The effective interest rate on the 2017 Notes as of December 31, 2013 was 10.7%. On December 10, 2013, the Company issued $214 million aggregate principal amount of 3.00% Convertible Senior Notes due 2020 (the "2020 Notes"). The net proceeds from the issuance of the 2020 Notes were approximately $206.5 million, after deducting fees paid to the initial purchasers and other offering costs. The 2020 Notes are our senior unsecured obligations, which pay interest in cash semi-annually (on June 15 and December 15 of each year) at a rate of 3.00% per annum beginning on June 15, 2014. The 2020 Notes are governed by an Indenture dated December 10, 2013 with U.S. Bank National Association, as trustee. The 2020 Notes are not redeemable by the Company. The effective interest rate on the 2020 Notes as of December 31, 2013 was 12.9%.

(6)
Working capital represents current assets minus current liabilities.

(7)
On September 28, 2012, the Company issued $220.0 million aggregate principal amount of 3.00% Convertible Senior Notes due 2017 (the "2017 Notes"). The net proceeds from the issuance of the Notes were approximately $212.6 million after deducting fees paid to the initial purchasers and other offering costs. The 2017 Notes are senior unsecured obligations of the Company, which pay interest in cash semi-annually (on April 1 and October 1 of each year) at a rate of 3.00% per annum beginning on April 1, 2013. The 2017 Notes are governed by an Indenture dated September 28, 2012 with U.S. Bank National Association, as trustee (the "Indenture"). The 2017 Notes are not redeemable by the Company. The effective interest rate on the 2017 Notes as of December 31, 2013 was 10.7%. On December 10, 2013, we issued $214 million aggregate principal amount of 3.00% Convertible Senior Notes due 2020 (the "2020 Notes"). The net proceeds from the issuance of the 2020 Notes were approximately $206.5 million, after deducting fees paid to the initial purchasers and other offering costs. The 2020 Notes are our senior unsecured obligations, which pay interest in cash semi-annually (on June 15 and December 15 of each year) at a rate of 3.00% per annum beginning on June 15, 2014. The 2020 Notes are governed by an Indenture dated December 10, 2013 with U.S. Bank National Association, as trustee. The 2020 Notes are not redeemable by the Company. The effective interest rate on the 2020 Notes as of December 31, 2013 was 12.99%. Additionally, on October 31, 2013, the Company also entered into a Prepayment Agreement with Apple pursuant to which the Company's wholly-owned subsidiary, GTAT Corp., is eligible to receive $578.0 million (the "Prepayment Amount"), in four separate installments, subject to conditions. The Company determined the installments of the Prepayment Amount that it receives should be recorded as debt at fair value. The difference between the fair value of the debt and the Prepayment Amount proceeds received ("debt discount") is being recognized as deferred revenue. The debt discount is being amortized to interest expense over a 6-year period ending December 2019. The initial installment of $225.0 million was received on November 15, 2013, and as of December 31, 2013, $172.5 million is reflected within Prepayment Obligation and $54.1 million is recorded as deferred revenue.

55


Table of Contents

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions as described under the "Cautionary Statement Concerning Forward-Looking Statements," that appears above in this Annual Report on Form 10-K. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under "Item 1A. Risk Factors" and elsewhere in this Annual Report on Form 10-K.

Company Overview

        GT Advanced Technologies Inc. is a diversified technology company producing advanced materials and equipment for the global consumer electronics, power electronics, solar and LED industries. Our products are designed to accelerate the adoption of advanced materials that improve performance and lower the cost of manufacturing. References herein to "we," "us," "our" and "Company" are to GT Advanced Technologies Inc., operating through its subsidiaries.

        We operate through three business segments: our polysilicon business, our photovoltaic, or PV, business and our sapphire business.

    Sapphire Business

        Our sapphire business manufactures and sells sapphire material and sapphire growth equipment. Our sapphire material is manufactured using our advanced sapphire crystal growth furnace, or ASF system, at our facility in Salem, Massachusetts. We also expect to manufacture sapphire material for sale at our Arizona facility, this facility however is still in development. Our proposed sapphire material production operations in Arizona are intended to be used to provide sapphire materials for Apple Inc. We will continue to offer our ASF systems for sale to sapphire manufacturers in certain select markets as permitted under our arrangements with Apple, including the LED industry and for a range of other applications. On May 16, 2013, we acquired substantially all of the business of Thermal Technology, LLC, or Thermal Technology, a developer and seller of a wide range of high temperature thermal and vacuum products used in the fabrication of advanced materials. Information regarding Apple arrangements and the acquisition of substantially all of the business of Thermal Technology is described elsewhere in this Annual Report on Form 10-K.

    Polysilicon Business

        Our polysilicon business manufactures and sells silicon deposition reactors, or SDR, used to react gases at high temperatures to produce polysilicon, the key raw material used in silicon-based solar wafers and cells, while also offering engineering services and related equipment. In addition, the polysilicon business sells hydrochlorination technology and equipment which is utilized to convert silicon tetrachloride into trichlorosilane (TCS), which is used as seed material in the manufacture of high purity silicon. Hydrochlorination technology is designed to improve the efficiency and lower the costs of polysilicon production.

    Photovoltaic Business

        Our PV business manufactures and sells directional solidification, or DSS, crystallization furnaces and ancillary equipment used to cast crystalline silicon ingots by melting and cooling polysilicon in a precisely controlled process. These ingots are used to make photovoltaic wafers which are, in turn, used to make solar cells.

56


Table of Contents

        In addition, we are currently developing an equipment offering based on the continuously-fed Czochralski (HiCz™) growth technology which is targeted at improving the ingot performance compared to that of multicrystalline silicon materials.

        Information on each of these business segments and new developments regarding our business during the fiscal year ended December 31, 2013 is set forth below and in "Item 1. Business" above.

Recent Developments

Agreements with Apple Inc.

        On October 31, 2013, GTAT Corporation, our wholly-owned subsidiary, and Apple Inc. entered into a Master Development and Supply Agreement and related Statement of Work, or the MDSA, pursuant to which we have agreed to supply sapphire material to Apple. We have granted Apple exclusive rights with respect to the sapphire materials manufactured with the ASF units operated by GTAT Corporation, subject to certain exceptions, and certain intellectual property rights in connection with our sapphire growth and related technologies, including rights with respect to new sapphire technologies created by us. While the MDSA specifies our minimum and maximum supply commitments, Apple has no minimum purchase commitment under the terms of the MDSA.

        On the same date, GTAT Corporation also entered into a Prepayment Agreement with Apple pursuant to which we will receive, subject to certain conditions, $578 million, which we refer to as the Prepayment Amount, in four separate installments, as payment in advance for the purchase by Apple of sapphire material. The Prepayment Amount must be used to purchase ASF systems and related equipment principally for use at our Arizona facility. We have received the first and second installments of the Prepayment Amount. The Prepayment Amount is non-interest bearing. We are required to repay the Prepayment Amount ratably over a five-year period beginning in January 2015, either as an offset to amounts due from Apple for the purchase of sapphire material under the MDSA or as a direct cash payment to Apple. Our obligation to repay the Prepayment Amount may be accelerated under certain circumstances including in the event the Company does not satisfy certain financial metrics. Our obligations under the Prepayment Agreement are secured by (i) the assets held by GT Equipment Holdings LLC (a wholly-owned subsidiary of the Company and the legal owner of the ASF systems and related equipment used in the Arizona facility) and (ii) a pledge of all of the equity interests of GT Equipment Holdings LLC.

        In connection with the MDSA, GTAT Corporation entered into a lease agreement with an affiliate of Apple in order to lease a facility in Mesa, Arizona that we will use for the purpose of manufacturing the sapphire material under the MDSA.

Termination of Credit Agreement

        On October 30, 2013, we terminated our Credit Agreement with Bank of America N.A. and certain other lenders (the "Credit Agreement") and paid off all outstanding borrowing under the Credit Agreement. As of October 30, 2013, there were no amounts outstanding or stand-by letters of credit under the revolving credit facility component of the Credit Agreement. In connection with the termination of the Credit Agreement, we recognized a charge in the fourth quarter of 2013 of approximately $3.6 million relating to deferred issuance costs that were written off upon the termination of the agreement.

Change in Fiscal Year

        On April 16, 2012, our board of directors voted to amend the Company's amended and restated by-laws to provide that our fiscal year will end on December 31 of each year. Prior to this amendment, the by-laws had provided that fiscal years ended on the Saturday closest to March 31st of each year. As a result of this change to the fiscal year end, we reported a nine-month transition period consisting of

57


Table of Contents

the period from April 1, 2012 to December 31, 2012, and the 2013 fiscal year began on January 1, 2013 and ended on December 31, 2013.

Factors Affecting the Results of Our Operations

        The following are some of the factors, trends and events that we expect will affect our future results of operations:

    As a result of the agreements that we have entered into with Apple Inc. in October 2013, our sapphire business is undergoing a transition from being principally a provider of crystal growth equipment to being a provider of both crystal growth equipment and sapphire materials. The success of our sapphire materials business will be driven, in large part, by the continued funding of Apple pursuant to the prepayment agreement (which may be halted under certain circumstances), our ability to timely commence operations at our Arizona facility and Apple purchasing sapphire materials from us in adequate quantities, among others. Apple is under no obligation to purchase any sapphire materials from us. If Apple does not purchase a sufficient amount of sapphire materials, we may be required to repay all or a portion of the $578 million prepayment using our own cash resources, which repayment must be satisfied over the five year period ending January 2020. Apple is not subject to any minimum purchase commitments under the terms of the MDSA.

    Demand for our polysilicon and PV equipment products and services are driven by end-user demand for solar power and demand for our sapphire equipment and materials are driven by end-user demand for sapphire material, including LED-quality material. In each of our three business segments, the end-user demand for the output of our equipment has either declined substantially or supply has surpassed demand. In order to decrease inventories, we believe that companies selling polysilicon, solar cells and wafers and sapphire material, including some of our equipment customers, during 2012 and 2013, had to sell at prices that provided little or no margin. In certain cases, customers' were unable to decrease inventories. At the end of 2013, there were indications that the PV market was beginning to exhibit signs of increased demand by end users, including in Japan. In spite of these positive indicators, we expect that demand for our PV capital equipment may remain limited during 2014.

    The current limited demand for our equipment products and the excess capacity or limited demand in the end markets our equipment customers serve is exacerbated by trade tensions between China and the U.S. and certain other jurisdictions. We believe that certain of our customers are delaying any purchasing or expansion plans until these various trade disputes are resolved and we do not expect such resolution to take place in the immediate future and, in fact, expect that they will grow more adversarial.

    We have continued to make investments in developing new technology, such as our HiCz puller, silicon carbide furnace, GT annealing furnace, HVPE and PVD tools and Hyperion™ ion implanter. During the fiscal year ending December 31, 2014, we will continue to invest in these technologies and expect to commercialize one or more of these during the year, although we do not expect to recognize any significant revenue from these investments.

In addition, our results of operations are affected by a number of other factors including the availability and market price of polysilicon, alumina material, helium and certain process consumables, availability of raw materials, foreign exchange rates, interest rates, commodity prices (including molybdenum, steel and graphite prices) and macroeconomic factors, including the availability of capital that may be needed by our customers, as well as political, regulatory and legal conditions in the international markets in which we conduct business, including China.

58


Table of Contents

Order Backlog

        Our total backlog at December 31, 2013, was approximately $602.2 million. For more information on our backlog, including how the amount of backlog is determined and amounts attributable to each segment, see Item 1. "Business—Order Backlog" included elsewhere in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

        In preparing our financial statements in conformity with generally accepted accounting principles in the United States (GAAP), we make estimates, judgments and assumptions about future events that affect the amounts of reported assets, liabilities, revenues and expenses, as well as the disclosure of contingent liabilities in our financial statements and the related notes thereto. On a periodic basis, we evaluate our estimates, including those related to revenue, inventory, income taxes and business combinations. We operate in competitive industries that are influenced by a variety of diverse factors including, but not limited to, technological advances, product life cycles, long customer and supplier lead times, and geographic and macroeconomic trends. Estimating product demand beyond a relatively short forecasting horizon is difficult and prone to forecasting error due to the inherent lack of visibility in the industry. Some of our accounting policies require the application of significant judgment by management in the selection of appropriate assumptions for determining these estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. As a result, we cannot assure you that actual results will not differ significantly from estimated results. We base our judgments and estimates on our historical experience, on our forecasts and on other available information, as we deem appropriate. Our significant accounting policies are described in Note 2 to our consolidated financial statements for the fiscal year ended December 31, 2013 included elsewhere in this Annual Report on Form 10-K.

        We believe that the following are the critical accounting policies which are the most important to the portrayal of our financial condition and that require the most subjective judgment used by us in the preparation of our consolidated financial statements.

Revenue Recognition

        The majority of our contracts involve the sale of equipment and services under multiple element arrangements. We recognize revenue when persuasive evidence of an arrangement exists, the sale price is fixed or determinable, collectability is reasonably assured through historical collection results and regular credit evaluations, and delivery has occurred and there are no uncertainties regarding customer acceptance. On October 31, 2013, we entered into an agreement with Apple to provide sapphire material. This new agreement is also subject to the multiple element arrangement guidance similar to our equipment contracts.

        We allocate revenue in an arrangement on the basis of the relative selling price of deliverables at the inception of the arrangement. When applying the relative selling price method, the selling price for each deliverable is determined using vendor-specific objective evidence of selling price ("VSOE"), if it exists, or third-party evidence of selling price ("TPE"). If neither VSOE nor TPE exists, then we use our best estimate of the selling price ("ESP") for that deliverable.

        The multiple-deliverable revenue guidance requires that we evaluate each deliverable in an arrangement to determine whether such deliverable would represent a separate unit of accounting. The product or service constitutes a separate unit of accounting when it fulfills the following criteria: (a) the delivered item(s) has value to the customer on a standalone basis and (b) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially within our control. Our equipment sales arrangements do not include a general right of return and the majority of our products and services qualify as separate units of accounting. Our new sapphire material supply agreement with Apple Inc. does include

59


Table of Contents

a right to return under various circumstances, including if the sapphire material provided under the supply agreement fails to comply with specifications.

        Prior to the adoption of ASU 2009-13 effective April 3, 2011, our products or services constitute separate units of accounting when they fulfilled the following criteria: (a) the delivered item(s) has value to the customer on a standalone basis, (b) there is objective and reliable evidence of the fair value of the undelivered item(s), and (c) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially within our control. Given the differences created in the pre ASU 2009-13 accounting model in comparison to the ASU 2009-13 accounting model, for transactions entered into prior to the adoption of ASU 2009-13, where objective evidence of fair value exists for all undelivered elements, but not delivered elements, we apply the residual method for recognizing revenue. If objective evidence of fair value does not exist for the undelivered elements of the arrangement, all revenue is deferred until such evidence does exist, or until all elements for which we do not have objective evidence of fair value are delivered, whichever is earlier assuming all other revenue recognition criteria are met. In certain arrangements, we provided customers with contractual rights that extend for a specific period of time. We considered these rights a separate element, for which objective evidence of fair value did not exist. Revenue for these arrangements is recognized ratably over the period commencing when all other elements had been delivered through the period when such rights expire.

        We establish VSOE based upon the price charged when the same element is sold separately or established by management having the relevant pricing authority. When VSOE exists, it is used to determine the selling price of a deliverable. Objective evidence of fair value for installation and training services is based upon the estimated time to complete the installation and training at the established fair value hourly rates that we charge for similar professional services on a stand-alone basis. We have not been able to establish VSOE for certain of our products and for certain of our services because we have not sold such products or services on a stand-alone basis.

        When VSOE is not established, we attempt to establish the selling price of each element based on TPE. Our products and services differ from that of our competitors and therefore, comparable pricing of competitors' products and services with similar functionality cannot be obtained. Accordingly, we generally are not able to determine TPE for our products or services.

        When we are unable to establish selling price using VSOE or TPE, we use ESP in our allocation of arrangement consideration for the relevant deliverables. The objective of ESP is to determine the price at which we would transact a sale if a product or service was sold on a stand-alone basis. We determine ESP for our products and certain services by considering multiple factors including, but not limited to, overall market conditions, profit objectives and historical pricing practices for such deliverables. Changes in the ESP of the deliverables in our typical contracts is not expected to have a material impact on the timing of revenue recognition as the majority of the allocated consideration is weighted toward the equipment or other material deliverables. In allocating arrangement consideration to the Company's typical deliverables, equipment or material deliverables receive a higher proportion of the consideration than other deliverables due to their ESP's being significantly higher than the Company's other deliverables.

        Our ASF and DSS equipment contracts contain customer-specified acceptance provisions. Polysilicon reactors contracts do not contain customer-specified acceptance provisions, and are generally deemed to be contractually accepted at the time the reactor is initially delivered to the customer's facility. For arrangements containing products that we consider to be "established," we recognize revenue upon delivery, assuming all other revenue recognition criteria are met. For arrangements containing products considered to be "new," or containing customer acceptance provisions that are deemed to be more than perfunctory, revenue is recorded upon customer acceptance or at the time the product is determined to be "established".

60


Table of Contents

        Products are classified as "established" products if post-delivery acceptance provisions and the installation process have been determined to be routine and there is a demonstrated history of achieving the predetermined contractual objective specifications.

        In determining when a "new" product is considered "established", we consider the following factors: (i) the stability of the product's technology, (ii) the test results of products prior to shipment, (iii) successful installations at customer's sites and (iv) the performance results once installed. We generally believe that the satisfaction of the first two criteria, coupled with the satisfaction of final two criteria for multiple product units in the facilities of at least three to five separate customers that, in each case, results in acceptance in accordance with the standard contract terms are necessary to support the conclusion that there are no uncertainties regarding customer acceptances of the standard objective specifications and therefore the installation process can be considered perfunctory.

SDR-400™

        During the three months ended June 29, 2013, the Company determined that it had obtained sufficient evidence that the SDR-400™, a product within the Polysilicon business unit, is an established product in accordance with the Company's revenue recognition policy, and accordingly, there is no longer uncertainty around meeting the requirements of customer acceptance conditions in agreements that contain the standard or demonstrated specifications of the SDR-400™. In concluding that the SDR-400™ is now an established product, the Company considered the stability of the product's technology, the ability to test the product prior to shipment, and the historical performance results of over 30 product installations at one of our customers' facilities. As a result of classifying the SDR-400™ an established product, the Company recognized revenue and gross profit of $148.9 million and $58.9 million, in the twelve months ended December 31, 2013, from two customer arrangements that included SDR-400™'s, prior to formal customer acceptance of the products. Non-refundable payments received under these customer arrangements exceed the recognized revenue and were previously recorded as deferred revenue. The Company continues to report deferred revenue related to these arrangements for advance payments on other deliverables included in the arrangements.

Inventories

        We value our inventory at the lower of cost or market. The determination of the lower of cost or market requires that we quantify the difference between the cost of inventory and its estimated market value and to make significant assumptions about our customers' future demand for products, the future demand by end-users of the material generated with our equipment and any future transitions we make to new product offerings from our legacy products. These assumptions include, but are not limited to, future manufacturing schedules, customer demand, supplier lead time and technological and market obsolescence.

        We estimate the excess and obsolescence of inventory based on factors such as inventory on hand, historical usage and forecasted demand based on backlog and other factors. During 2012 there was uncertainty about future economic conditions in the PV industry that resulted in our conclusion that demand for existing multicrystalline products would be very limited. As a result, during the three-month period ended December 31, 2012, we incurred charges of $60.2 million to record PV inventory at its net realizable value, which considers our estimate of forecasted sales of units and selling prices. Additionally, the Company recorded charges of $8.4 million in cost of sales, in connection with amounts that had been advanced to our vendors for production of certain PV inventory. Such economic conditions continued to have an impact on the PV industry during 2013, but there were no new circumstances or events that impacted the need for additional charges during the year. In the event that our forecasted selling prices or units are inaccurate, additional charges may be incurred.

61


Table of Contents

Business Combinations

        Business combinations are accounted for at fair value. Acquisition costs are expensed as incurred and recorded in general and administrative expenses; in-process research and development is recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination are expensed subsequent to the acquisition date; contingent consideration obligations are recorded at fair value on the date of acquisition, with increases or decreases in the fair value arising from changes in assumptions or discount periods recorded as contingent consideration expenses in the consolidated statement of operations in subsequent periods; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. All changes that do not qualify as measurement period adjustments are included in current period earnings. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management's estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.

        Significant judgment is required in estimating the fair value of intangible assets acquired in a business combination and in assigning their respective useful lives. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management at the time. Examples of critical estimates in valuing certain intangibles assets we have acquired include, but are not limited to, (i) future expected cash flows from acquired technologies, (ii) expected costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects when completed, and (iii) discount rates. If the actual results differ from the estimates and judgments we utilized, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.

Valuation of Goodwill

        Goodwill is evaluated at the reporting unit level and is attributable to our PV and sapphire business segments. We assess our goodwill balance within our reporting units annually, as of the first day of the fourth fiscal quarter, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable to determine whether any impairment in this asset may exist and, if so, the extent of such impairment. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis.

        The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit's fair value to its carrying value. If the reporting unit's fair value exceeds its carrying value, no further procedures are required. However, if a reporting unit's fair value is less than its carrying value, an impairment of goodwill may exist, requiring a second step to measure the amount of impairment loss. In this step, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in an analysis to calculate the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business acquisition. If the implied fair value of goodwill is less than the recorded goodwill, an impairment charge is recorded for the difference. Our reporting units are consistent with the reportable segments identified in Note 19, Segment and Geographical Information (See Item 8. Financial Statements and Supplementary Data included elsewhere in this Annual Report on Form 10-K), which are based on the manner in which we operate our business and the nature of those operations.

        We estimate the fair value of each reporting unit using a combination of the income approach and the market approach. The income approach incorporates the use of a discounted cash flow method in which the estimated future cash flows and terminal values for each reporting unit are discounted to a present value using an appropriate discount rate. Cash flow projections are based on management's estimates of economic and market conditions which drive key assumptions of revenue growth rates,

62


Table of Contents

operating margins, capital expenditures and working capital requirements. The discount rate is based on the specific risk characteristics of each reporting unit, the weighted average cost of capital and its underlying forecast. The guideline public company method of the market approach estimates fair value by applying performance metric multiples to the reporting unit's prior and expected operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit. If the fair value of the reporting unit derived using the income approach is significantly different from the fair value estimate using the market approach, we reevaluate the assumptions used in the two models. The fair values determined by the market approach and income approach, as described above, are weighted to determine the fair value for each reporting unit. The weighted values assigned to each reporting unit are primarily driven by two factors: 1) the number of comparable publicly traded companies used in the market approach, and 2) the similarity of the operating and investment characteristics of the reporting units to the comparable publicly traded companies used in the market approach.

        In order to assess the reasonableness of the calculated reporting unit fair values, we also compare the sum of the reporting units' fair values to our market capitalization (per share stock price times number of shares outstanding) and calculate an implied control premium (the excess of the sum of the reporting units' fair values over the market capitalization). We evaluate the reasonableness of the control premium by comparing it to control premiums of recent comparable transactions. If the implied control premium is not reasonable in light of these recent transactions, we will reevaluate the fair value estimates of the reporting units by adjusting the discount rates and/or other assumptions.

        We completed our annual goodwill impairment testing effective September 29, 2013 in accordance with our policy and concluded there was no impairment of the carrying value of goodwill.

        The evaluation of goodwill for impairment requires the exercise of significant judgment. While we believe the assumptions used in the annual and interim impairment tests are reasonable, the analysis is sensitive to adverse changes in the assumptions used in the valuations. In particular, changes in the projected cash flows, the discount rate, the terminal year growth rate and market multiple assumptions could produce significantly different results for the impairment analyses. In the event of future changes in business conditions, the Company will be required to reassess and update its forecasts and estimates used in future impairment analyses. If the results of these analyses are lower than current estimates, a material impairment charge may result at that time.

In-Process Research and Development

        In-process research and development ("IPR&D") assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research and development efforts. IPR&D represents the fair value assigned to incomplete technologies that we acquire, which at the time of acquisition have not reached technological feasibility and have no alternative future use. A technology is considered to have an alternative future use if it is probable that the acquirer will use the asset in its incomplete state as it exists at the acquisition date, in another research and development project that has not yet commenced, and economic benefit is anticipated from that use. Substantial additional research and development may be required before any of our IPR&D programs reach technological feasibility. Upon completion of the projects, the IPR&D assets will be amortized over their estimated useful lives.

        Management assumes responsibility for determining the valuation of the acquired IPR&D programs. The fair value assigned to IPR&D for each acquisition is estimated by discounting, to present value, the future cash flows expected from the programs since the date of our acquisition. Accordingly, such cash flows reflect our estimates of revenues, costs of sales, operating expenses and income taxes from the acquired IPR&D programs based on a number of factors.

63


Table of Contents

        The discount rates used are commensurate with the uncertainties associated with the economic estimates described above. The resulting discounted future cash flows are then probability-adjusted to reflect the different stages of development, the time and resources needed to complete the development of the product and the risks of advancement through the product approval process.

        Use of different estimates and judgments could yield materially different results in our analysis and could result in materially different asset values or expense. There can be no assurance that we will be able to successfully develop and complete the acquired IPR&D programs and profitably commercialize the underlying product candidates before our competitors develop and commercialize similar products, or at all. Moreover, if certain of the acquired IPR&D programs fail, are abandoned during development, then we may not realize the value we have estimated and recorded in our financial statements on the acquisition date, and we may also not recover the research and development investment made since the acquisition date to further develop that program. If such circumstances were to occur, our future operating results could be materially adversely impacted.

        We test our indefinite-lived IPR&D assets for impairment by comparing the fair value of each IPR&D asset to the carrying value for the asset. If the carrying value is greater than the fair value of the asset, the Company is required to write down the value of the IPR&D asset to its implied fair value. We will test its indefinite-lived IPR&D assets for potential impairment until the projects are completed or abandoned.

Finite-Lived Intangible Assets and Other Long-lived Assets

        We periodically test our finite-lived intangible and other long-lived assets ("long-lived assets") for recoverability whenever events or changes in circumstances suggest that the carrying value of such asset may not be recoverable.

        Indicators we consider include adverse changes in the business climate that could affect the value of our long-lived assets, downward revisions in our revenue outlook, decreases or slower than expected growth in revenue or other factors that could significantly impact the recoverability of the asset.

        A long-lived asset or asset group that is held for use is required to be grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

        We recognize an impairment loss for long-lived assets if the carrying amount of a long-lived asset is not recoverable based on its undiscounted future cash flows. Any such impairment loss is measured as the difference between the carrying amount and the fair value of the asset. Assumptions and estimates about future values and remaining useful lives of our long-lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends and internal factors such as changes in our business strategy and our internal forecasts.

        In connection with the impairment analysis performed in September 2013, we evaluated the long-lived assets associated with the PV business at the lowest level of identifiable cash flows. Based on this analysis we determined that the undiscounted cash flows forecasted for our HiCz equipment asset group (which included finite-lived intangibles of $56 million) exceeded the asset groups carrying value and therefore no impairment was recognized. The forecasted undiscounted cash flows consider the Company's expectation that future PV products sales will be more focused on HiCz technology and that the market for PV products will recover. In the event that actual results or future revisions to our estimates significantly vary, material impairment charges may be incurred.

        Although we believe the historical assumptions and estimates we have made are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results.

64


Table of Contents

Share-Based Compensation

        The Company grants stock options, restricted stock and restricted stock units at the discretion of the Board of Directors or a committee thereof, to certain employees, consultants and members of the Board of Directors. The Company's stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period, and includes an estimate of the awards that will be forfeited. The Company uses the Black-Scholes valuation model for estimating the fair value on the date of grant of stock options, unless the awards are subject to market conditions, in which case the Company uses a binomial-lattice model (e.g. Monte Carlo simulation model). The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that market conditions will be achieved. The fair value of stock option awards is affected by the Company's stock price as well as valuation assumptions, including the volatility of the Company's stock price, expected term of the option, risk-free interest rate and expected dividends.

Income Taxes

        Our business is global and as such we are subject to taxes in both the US and foreign jurisdictions. Tax laws and tax rates vary substantially in these jurisdictions and are, along with the interpretation of the tax laws, subject to change based on the political and economic climate in those countries.

        Significant judgment is required in determining our worldwide income tax provision and recording the related tax assets and liabilities. In the ordinary course of our business, there are operational decisions, transactions, facts and circumstances, and calculations which make the ultimate tax determination uncertain. Furthermore, our tax positions are periodically subject to challenge by taxing authorities. We have recorded reserves for taxes and the associated interest that may become payable in future years as a result of audits by tax authorities. Certain of these reserves are for uncertain income tax positions taken on income tax returns.

        We recognize tax benefits for uncertain tax positions based on an assessment of whether the position is more likely than not to be sustained by the taxing authorities. If this threshold is not met, the full amount of the uncertain tax position is recorded as a liability. If the threshold is met, the tax benefit that is recognized is the largest amount that is greater than 50% likely of being realized upon ultimate settlement. This analysis presumes the taxing authorities' full knowledge of the positions taken and all relevant facts, but does not consider the time value of money. We also accrue for interest and penalties on these uncertain tax positions and include such charges in the income tax expense in the consolidated statements of operations.

        We regularly assess our ability to realize our deferred tax assets for each tax jurisdiction. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether our deferred tax assets are more likely than not realizable, we evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity. Evidence we considered included, cumulative income generated over the three-year period ended December 31, 2013 (for our entities in the United States and Hong Kong), and sources of taxable income including our ability to carryback losses, non-expiration of loss carryforwards in the Hong Kong jurisdiction, future reversals of existing taxable temporary differences, and forecasted earnings for fiscal 2014 and 2015. Based on our review of all available evidence, we determined that no valuation allowance is required to reduce our deferred tax assets to the amount that is more likely than not to be realizable as of December 31, 2013.

Results of Operations

        The following tables set forth the results of operations as a percentage of revenue for the twelve-month period ended December 31, 2013 and the twelve-month period ended December 31, 2012 (unaudited) and the nine-month period ended December 31, 2012 and the nine-month period ended

65


Table of Contents

December 31, 2011 (unaudited) and the twelve month period ended March 31, 2012 and the twelve-month period ended April 2, 2011:

 
  Twelve-Month Period Ended   Nine-Month Period Ended   Fiscal Year Ended  
 
  December 31,
2013
  December 31,
2012
  December 31,
2012
  December 31,
2011
  March 31,
2012
  April 2,
2011
 

Statements of Operations Data:*

                                     

Revenue

    100 %   100 %   100 %   100 %   100 %   100 %

Cost of revenue

    69     72     86     54     55     58  
                           

Gross profit

    31     28     14     46     45     42  

Research and development

    28     10     15     6     5     3  

Selling and marketing

    5     2     3     3     2     2  

General and administrative

    23     8     12     8     6     5  

Contingent consideration expense

        (1 )   (3 )   1     1     1  

Impairment of goodwill

        8     15              

Restructuring charges and asset impairments

    2     5     9              

Amortization of intangible assets

    4     1     2     1     1     1  
                           

Income from operations

    (31 )   (5 )   (39 )   27     30     30  

Interest income

                         

Interest expense

    (10 )   (1 )   (2 )   (2 )   (1 )    

Other income (expense), net

                         
                           

Income before income taxes

    (41 )   (6 )   (41 )   25     29     30  

Provision for income taxes

    (13 )   3     (4 )   8     9     11  
                           

Net income

    (28 )%   (9 )%   (37 )%   17 %   20 %   19 %
                           
                           

*
Percentages subject to rounding.


Twelve-Month Period Ended December 31, 2013 Compared to Twelve-Month Period Ended December 31, 2012 (Unaudited)

        Revenue.    The following table sets forth revenue for the twelve-month periods ended December 31, 2013 and December 31, 2012.

 
  Twelve-Month Period Ended  
Business Category
  December 31, 2013   December 31, 2012   Change   % Change  
 
  (dollars in thousands)
 

Photovoltaic business

  $ 31,429   $ 48,925   $ (17,496 )   (36 )%

Polysilicon business

    219,731     460,606     (240,875 )   (52 )%

Sapphire business

    47,807     224,005     (176,198 )   (79 )%
                     

Total revenue

  $ 298,967   $ 733,536   $ (434,569 )   (59 )%
                     
                     

        Our total revenue decreased 59% to $299.0 million for the twelve-month period ended December 31, 2013, as compared to $733.5 million for the twelve-month period ended December 31, 2012, primarily due to limited demand for our products in each of our business segments.

        Revenue from our PV business decreased 36% to $31.4 million for the twelve-month period ended December 31, 2013 as compared to $48.9 million for the twelve-month period ended December 31, 2012. The decrease is primarily due to lower selling prices for DSS furnaces. The trend of decreased demand for DSS products began in fiscal year 2012 and, we believe, is the result of the excess capacity

66


Table of Contents

of solar wafers, modules and cells in the twelve month period ended December 31, 2013. Although there were more DSS units recognized in the twelve-month period ended December 31, 2013 when compared to the twelve-month period ended December 31, 2012 (with approximately 56% more units recognized in the twelve month period ended December 31, 2013), this increase was more then offset by a decrease in the weighted average selling price of approximately 50% in 2013 as compared to 2012.

        Revenue from our polysilicon business decreased by 52% to $219.7 million for the twelve-month period ended December 31, 2013 as compared to $460.6 million for the twelve-month period ended December 31, 2012. Included in 2012 polysilicon revenue is revenue from contracts that granted contractual rights which require revenue to be recognized ratably over the contract period. Revenue recognition on these contracts commenced when all other elements had been delivered and other contract criteria had been met. During the twelve-month period ended December 31, 2012, we recognized revenue on a ratable basis from these contracts of $181.7 million. There was no revenue recognized during the twelve-months ended December 31, 2013 associated with these contracts which is the primary driver of the decrease in revenue in this period. The decrease in revenue was also related to fewer hydrochlorination technology and equipment contracts whose revenue recognition process was completed during the twelve-month period ended December 31, 2013 than during the twelve-month period ended December 31, 2012. Revenue recognized on these contracts was approximately $34.9 million and $77.1 million for the twelve-month periods ended December 31 2013 and 2012, respectively. Polysilicon revenue may fluctuate significantly from period to period due to the changes in supply and demand in the marketplace and the length of time it takes to complete our obligations under the contracts. As a result of classifying the SDR-400™ an established product, we recognized revenue and gross profit of $148.9 million and $58.9 million, respectively, in the twelve months ended December 31, 2013, from two customer arrangements that included SDR-400™'s, prior to formal customer acceptance of the products.

        Our sapphire business revenue during the twelve-month period ended December 31, 2013 is attributable to the sale of sapphire equipment and material used mostly, we believe, in sapphire-based LED applications and other specialty markets. Revenue from our sapphire business was $47.8 million for the twelve-month ended December 31, 2013, as compared to $224.0 million for the twelve-month period ended December 31, 2012. The decrease in revenue for our sapphire business is primarily related to an 84% decrease in the number of ASF systems on which revenue was recognized during the twelve-month period ended December 31, 2013 as compared to the same period in the prior year.

        A substantial percentage of our revenue results from sales to a small number of customers. Three of our customers accounted for 63% of our revenue for the twelve-month period ended December 31, 2013 and three customers accounted for 52% of our revenue for the twelve-month period ended December 31, 2012. No other customer accounted for more than 10% of our revenue during the respective periods.

        Gross Profit and Gross Margins.    The following tables set forth gross profit and gross margin for the twelve-month periods ended December 31, 2013 and December 31, 2012:

 
  Twelve-Month Period Ended  
 
  December 31,
2013
  December 31,
2012
  Change   % Change  
 
  (dollars in thousands)
 

Gross profit

                         

Photovoltaic business(1)

  $ 8,676   $ (53,926 ) $ 62,602        

Polysilicon business

    95,225     187,440     (92,215 )      

Sapphire business(2)

    (10,854 )   72,890     (83,744 )      
                     

Total

  $ 93,047   $ 206,404   $ (113,357 )   (55 )%
                     
                     

67


Table of Contents


 
  Twelve-Month Period Ended  
 
  December 31,
2013
  December 31,
2012
 

Gross margins

             

Photovoltaic business(1)

    28 %   (110 )%

Polysilicon business

    43 %   41 %

Sapphire business(2)

    (23 )%   33 %

Overall

    31 %   28 %

(1)
Gross profit and gross margin for our PV business reflects charges of $0.4 million in connection with the write-down of excess and obsolete PV inventory for the twelve-month period ended December 31, 2013 and $72.5 million in connection with the write-down of excess and obsolete PV inventory and the write-off of certain PV vendor advances for the twelve-month period ended December 31, 2012.

(2)
Gross profit and gross margin for our sapphire business for the twelve-month periods ended December 31, 2013 and 2012 reflect charges of $4.5 million and $5.2 million for excess and obsolete inventory, respectively.

        Overall gross profit as a percentage of revenue, or gross margin, increased for the twelve-month period ended December 31, 2013 to 31% from 28% for the twelve-month period ended December 31, 2012. The overall increase in our gross margin was driven primarily by the increase in the gross margin of our PV business. This increase was offset, in part, by a decrease in margins from our sapphire business due to a relative increase in the portion of revenue attributed to sales of sapphire materials, which realized a lower margin than our sapphire equipment business. Additionally, the sapphire materials business recognized charges of $4.5 million related to excess and obsolete inventory during 2013. The lower gross margin in 2012 can be attributed to the significant charges for excess and obsolete inventory and the write-off of certain vendor advances in our PV business that were recorded in 2012.

        Our gross margins in our PV, polysilicon and sapphire businesses tend to vary depending on the volume, pricing and timing of revenue recognition.

        Our PV gross margin for the twelve-month period ended December 31, 2013 was 28% as compared to (110)% for the twelve-month period ended December 31, 2012. As in the prior year, during the twelve-month period ended December 31, 2013, the solar industry continued to face challenges related to, among other things, solar panel manufacturing overcapacity (and limited demand for solar wafers, panels and modules), weaker operating performance by manufacturers and weaker outlook, leading to the deterioration of the solar equipment market and, we believe, certain of our customers' financial condition. As reported in the twelve-month period ended December 31, 2012, we recorded a charge related to excess inventory of $60.2 million and during the same period we had to write off certain vendor advances in an amount equal to $8.4 million. Such writedowns established a new cost basis for our PV inventory for which we recognized a modest margin in 2013 subsequent to selling certain DSS units in excess of previous estimates that we forecasted we would be able to sell.

        Our polysilicon gross margins for the twelve-months ended December 31, 2013 and December 31, 2012 were 43% and 41%, respectively. The increase in polysilicon gross margins was primarily due to the recognition of revenue of approximately $17.0 million due to a contract termination with minimal corresponding cost of goods sold. This increase was partially offset by the mix of projects on which revenue was recognized with a greater amount of lower margin projects for which revenue was recognized in the twelve-month period ended December 31, 2013. There was no significant change to cost of sales for our polysilicon product offerings during these periods which drives the consistent margin when comparing the two periods.

68


Table of Contents

        Our sapphire business gross margins were (23)% for the twelve-month period ended December 31, 2013, as compared to 33% for the twelve-month period ended December 31, 2012. Margins on the sale of our sapphire equipment are higher than our sapphire margins for material sales. The decrease in sapphire gross margins for the twelve-month period ended December 31, 2013 was primarily due to charges recorded during the twelve-month period ended December 31, 2013 for excess and obsolete inventory of $4.5 million, $3.5 million associated with warranty expense, the acceleration of depreciation of certain fixed assets totaling $2.5 million, as well as a decrease in the number of units (84% decrease) of our ASF systems as compared to the same period in the prior year. There was no change in the cost basis of our ASF system during the twelve months ended December 31, 2013. In addition, the decrease was driven, in part, by reduced production at our facility in Salem, Massachusetts. During the twelve-month period ended December 31, 2013 the majority of this facility was used for research and development activities and not for the production of material for customers. This decrease was also partially driven by a decrease in the market price of sapphire, resulting in a decrease of the average selling price of our sapphire materials as compared to the same period in the prior year.

        Operating Expenses.    The following table sets forth total operating expenses for the twelve-month periods ended December 31, 2013 and December 31, 2012:

 
  Twelve-Month Period Ended  
 
  December 31, 2013   December 31, 2012   Change   % Change  
 
  (dollars in thousands)
 

Operating Expenses

                         

Research and development

  $ 83,006   $ 70,649   $ 12,357     17 %

Sales and marketing

    15,379     15,115     264     2 %

General and administrative

    68,967     59,532     9,435     16 %

Contingent consideration (income) expense

    (1,119 )   (8,965 )   7,846     (88 )%

Impairment of goodwill

        57,037     (57,037 )   (100 )%

Restructuring charges and asset impairments

    6,868     33,441     (26,573 )   (79 )%

Amortization of intangible assets

    11,073     10,165     908     9 %
                   

Total

  $ 184,174   $ 236,974   $ (52,800 )   (22 )%
                   
                   

        Operating expenses decreased by approximately 22% year-over-year. Operating expenses were $184.2 million for the twelve-month period ended December 31, 2013 compared to $237.0 million for the twelve-month period ended December 31, 2012.

        Research and development expenses consist primarily of payroll and related costs, including stock-based compensation expense, for research and development personnel who design, develop, test and deploy our PV, polysilicon and sapphire equipment (and products under development), materials and services and the purchase of parts, components and consumables for our development efforts. We expect to continue to invest in new product development and attempt to expand certain of our existing product bases, as well as our efforts to introduce certain new products. Research and development expenses increased 17% to $83.0 million for the twelve-month period ended December 31, 2013, as compared to $70.7 million for the twelve-month period ended December 31, 2012. During the twelve-month period ended December 31, 2013, there was an increase in outside service related costs of $1.5 million, an increase in payroll-related costs of $9.6 million and an increase in costs associated with the disposal of certain fixed assets of $1.9 million, offset by decreases in various other research and development-related expenses. The foregoing increases in research and development costs were primarily in connection with projects related to our sapphire business.

        Selling and marketing expenses consist primarily of payroll and related costs, stock-based compensation expense and commissions for personnel engaged in marketing, sales and support functions, as well as advertising and promotional expenses. Selling and marketing expenses remained relatively flat year-over-year, at $15.4 million for the twelve-month period ended December 31, 2013, as

69


Table of Contents

compared to $15.1 million for the twelve-month period ended December 31, 2012. The small increase was primarily due to increases of $1.0 million in each of payroll-related and non-production materials costs and decreases in outside service expenses and sales commissions of $0.9 million and $1.1 million, respectively. The rest of the difference was due to a net increase of $0.3 million in various other selling and marketing expenses. Sales commissions decreased as a result of the decrease in revenue and such commissions are accrued based on operational factors such as deposits, shipments and final acceptances received from customers rather than when revenue is recognized and thus may vary from quarter to quarter.

        General and administrative expenses consist primarily of the following components: payroll, stock-based compensation expense and other related costs, including expenses for executive, finance, business applications, human resources and other administrative personnel; depreciation and amortization of property and equipment we use internally; fees for professional services; rent and other facility-related expenditures for leased properties; the provision for doubtful accounts; insurance costs; and non-income related taxes. The increase in general and administrative expenses of 16% to $69.0 million in the twelve-month period ended December 31, 2013, as compared to $59.5 million for the twelve-month period ended December 31, 2012, was primarily due to increases in payroll-related expenses, outside services expenses, and facilities expenses of $5.0 million, $5.0 million, and $0.9 million, respectively, offset by a net decrease of $1.4 million in other general and administrative expenses, which include a $0.8 million decrease in bank charges and fees. The increase in payroll-related expenses was attributable to both bonus and share-based payment related expenses and the increase in outside services expenses was primarily due to an increase in legal expenses related to ongoing litigation and payment of $3.2 million for the settlement of certain litigation.

        Contingent Consideration Expense (Income).    Contingent consideration expense consists of the accretion of our contingent consideration liabilities to their respective fair values and contingent consideration income is associated with a decrease in the estimated fair value of contingent consideration based on an estimated probability of meeting any underlying targets and/or failure to meet the applicable underlying targets. Contingent consideration income decreased to $(1.1) million for the twelve-month period ended December 31, 2013, as compared to $(9.0) million for the twelve-month period ended December 31, 2012. Contingent consideration income for the twelve-month period ended December 31, 2013 was the result of the final operational and technical target related to the Confluence Solar acquisition, which acquisition took place in 2011, not being satisfied. This income was partially offset by expense associated with our acquisition of Twin Creeks due to our assessment of the increased likelihood that a contingent payment in connection with such transaction of $13.0 million may be made in the future. During the twelve-month period ended December 31, 2012, based on the failure to satisfy certain operational and technical targets by the contractual target dates in connection with the Confluence Solar acquisition, we determined that the earn-out opportunities related to these targets were not achieved during such twelve month period which drove the contingent consideration income in that period.

        Impairment of Goodwill.    We conducted our annual goodwill test for each of our reporting units as of September 29, 2013. The results of the first step of the impairment test indicated that goodwill for each reporting unit was not impaired as of September 29, 2013. As a result, no goodwill impairment charge was recorded for the year-ended December 31, 2013. For the twelve-month period ended December 31, 2012, we recorded goodwill impairment charges of $57.0 million related to our PV business. In light of challenges in the polysilicon, PV and sapphire (including LED) industries during the three months ended December 31, 2012, including, (i) oversupply of, or limited demand for, end products that are manufactured with equipment sold by us, (ii) ongoing trade disputes between the U.S., European Union and South Korea, on the one hand, and China on the other, which adversely impacted the businesses of our customers, (iii) liquidity challenges being faced by companies in the polysilicon, PV and sapphire industries, (iv) the deterioration of our customers financial condition, and

70


Table of Contents

(v) the sustained decline in our stock price and a significant decline in our financial outlook for the next few years, we concluded that the implied fair value of goodwill was substantially lower than the carrying value of goodwill for the PV reporting unit.

        The evaluation of goodwill for impairment requires the exercise of significant judgment. In the event of future changes in business conditions, we will be required to reassess and update our forecasts and estimates used in future impairment analyses. If the results of these analyses are lower than current estimates, a material impairment charge may result at that future time.

        Restructuring Charges and Asset Impairments.    As part of a program to reduce costs and increase operational efficiencies, we announced, on October 31, 2012, a plan to streamline worldwide operations to better align our cost structure with market conditions and enhance our ability to pursue strategic growth initiatives. This program included a 25% reduction in our global workforce. In connection with this plan, we incurred aggregate pre-tax restructuring charges comprised of severance, other termination benefits, substantially all of which will be paid in cash, and asset impairments of $3.7 million during the twelve-month period December 31, 2012. In connection with the idling of the Hazelwood facility, we recorded $29.8 million of restructuring and asset impairment expense during the quarter ended December 31, 2012 to the PV segment, comprised of $0.5 million of severance and related benefits and $29.3 million for the write-down to fair value of certain long-lived, intangible assets and other assets associated with the Hazelwood facility. Restructuring charges and asset impairments decreased by $26.6 million in the twelve-month period December 31, 2013 when compared to the comparable prior year period, during which the Hazelwood facility was permanently idled and the Company recorded $1.9 of additional charges related to the Hazelwood facility's lease exit costs, $0.6 of other contract termination costs related to this facility and $4.0 of impairment charges related to the HiCz fixed assets, respectively.

        Amortization Expense.    Amortization of intangible assets consists of the amortization of intangible assets obtained in business or technology acquisitions. Amortization expense attributed to intangible assets increased 9% to $11.1 million for the twelve-month period ended December 31, 2013, as compared to $10.2 million for the twelve-month period ended December 31, 2012. The increase was primarily driven by the amortization related to the Thermal Technology acquisition which took place in 2013.

        Interest Income.    Interest income includes interest earned on invested cash and marketable securities. Interest income increased to $0.4 million for the twelve-month period ended December 31, 2013, as compared to $0.2 million for the twelve-month period ended December 31, 2012. The increase in interest income for the twelve-month period ended December 31, 2013 was driven primarily by the returns earned on our invested cash. We typically invest our excess cash primarily in money market mutual funds and time deposits.

        Interest Expense.    Interest expense includes interest paid on our debt obligations as well as amortization of deferred financing costs. Interest expense increased to $31.8 million for the twelve-month period ended December 31, 2013, as compared to $9.4 million for the twelve-month period ended December 31, 2012. Interest expense in twelve months ended December 31, 2013 includes interest expense of $18.3 million and $1.0 million associated with our 3.00% Senior Convertible Notes due 2017 and our 3.00% Senior Convertible Notes due 2020, respectively, as well as non-cash interest expense of $1.6 million related to the Prepayment Agreement entered into with Apple. Also included in interest expense for the twelve-month period ended December 31, 2013 was $5.9 million of non-cash charges for the amortization of deferred financing costs in connection with the 2012 Credit Facility with Bank of America N.A (and certain other lenders), which Credit Facility was repaid in full and terminated by October 30, 2013.

71


Table of Contents

        Other income (expense), net.    Other income, net, was $0.1 million for the twelve-month period ended December 31, 2013 as compared to other expense, net of $1.0 million for the twelve-month period ended December 31, 2012. During the twelve-month period ended December 31, 2012, we recorded foreign currency losses on the ineffective portion of our foreign currency exchange forward contracts of $0.9 million. There were no such losses in the twelve months ended December 31, 2013.

        (Benefit) Provision for Income Taxes.    Our effective tax rate is based on our expectation of annual earnings from operations in the U.S. and other tax jurisdictions world-wide.

        Our world-wide effective tax rate was 32.39% (benefit) for the twelve-month period ended December 31, 2013 and a 55.20% provision for the twelve-month period ended December 31, 2012. During the twelve-month period ended December 31, 2012, we recorded an income tax provision on book losses due to items that are non-deductible for income tax purposes such as an impairment of goodwill. During the twelve-month period ended December 31, 2013, we recorded an income tax benefit due to the generation of book losses.

        We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. We are subject to examination by federal, state, and foreign tax authorities. Our U.S. tax returns for fiscal years ending March 31, 2009 and later are open. We are under examination by the Internal Revenue Service, or IRS' for its fiscal years ended March 28, 2009 and April 3, 2010. We plan to vigorously defend all tax positions taken. In addition, the statute of limitations is open for all state and foreign jurisdictions.


Nine-Month Period Ended December 31, 2012 Compared to Nine-Month Period Ended
December 31, 2011 (Unaudited)

        Revenue.    The following table sets forth revenue for the nine-month periods ended December 31, 2012 and December 31, 2011.

 
  Nine-Month Period Ended  
Business Category
  December 31, 2012   December 31, 2011   Change   % Change  
 
  (dollars in thousands)
 

Photovoltaic business

  $ 17,550   $ 344,171   $ (326,621 )   (95 )%

Polysilicon business

    306,662     209,334     97,328     46 %

Sapphire business

    55,434     48,310     7,124     15 %
                     

Total revenue

  $ 379,646   $ 601,815   $ (222,169 )   (37 )%
                     
                     

        Our total revenue decreased 37% to $379.6 million for the nine-month period ended December 31, 2012, as compared to $601.8 million for the nine-month period ended December 31, 2011, primarily due to limited demand for our DSS products. This decrease was offset, in part, by the commercialization of our ASF systems and increased demand in our polysilicon business.

        Revenue from our PV business decreased 95% to $17.6 million for the nine-month period ended December 31, 2012 as compared to $344.2 million for the nine-month period ended December 31, 2011. The decrease is primarily due to limited demand for our DSS products, which led to both fewer orders and shipments of our DSS products to solar manufacturers as compared to the corresponding period in the preceding period. This trend of decreased demand for DSS products began in fiscal year 2012 and, we believe, was the result of the excess capacity of solar wafers, modules and cells.

        Revenue from our polysilicon business increased by 46% to $306.7 million for the nine-month period ended December 31, 2012 as compared to $209.3 million for the nine-month period ended December 31, 2011. Polysilicon revenue for the nine-month period ended December 31, 2012 relates primarily to contracts that were in our order backlog as of March 31, 2012, for which the revenue recognition process has been completed. The increase was driven primarily by revenue recognized on

72


Table of Contents

customer contracts for the sale of hydrochlorination equipment and technology. Polysilicon revenue may fluctuate significantly from period to period due to the changes in supply and demand in the marketplace and the length of time it takes to complete our obligations under the contracts. As a result of this variability, our polysilicon business tends to have a higher level of deferred revenue than our other business segments. Approximately 93% and 73% of our deferred revenue balances at December 31, 2012 and December 31, 2011, respectively, related to our polysilicon business.

        Included in polysilicon revenue for these periods was revenue from contracts that grant contractual rights which require revenue to be recognized ratably over the contract period. Revenue recognition on these contracts commenced when all other elements had been delivered and other contract criteria had been met. During the nine-month periods ended December 31, 2012 and December 31, 2011, we recognized revenue on a ratable basis from the contracts of $128.8 million and $132.1 million, respectively.

        Our sapphire business revenue during the nine-month period ended December 31, 2012 is attributable to the sale of sapphire equipment and material used mostly, we believe, in sapphire-based LED applications and other specialty markets. Revenue from our sapphire business was $55.4 million for the nine-month period ended December 31, 2012, as compared to $48.3 million for the nine-month period ended December 31, 2011. The increase in revenue for our sapphire business is primarily related to an increase in the number of ASF systems which satisfied contractual acceptance criteria during the nine-month period ended December 31, 2012 as compared to the same period in the prior year.

        A substantial percentage of our revenue results from sales to a small number of customers. Three of our customers accounted for 68% of our revenue for the nine-month period ended December 31, 2012 and two customers accounted for 33% of our revenue for the nine-month period ended December 31, 2011. No other customer accounted for more than 10% of our revenue during the respective periods.

        Gross Profit and Gross Margins.    The following tables set forth gross profit and gross margin for the nine-month periods ended December 31, 2012 and December 31, 2011.

 
  Nine-Month Period Ended  
 
  December 31, 2012   December 31, 2011   Change   % Change  
 
  (dollars in thousands)
 

Gross profit

                         

Photovoltaic business(1)

  $ (70,563 ) $ 166,875   $ (237,438 )      

Polysilicon business

    121,958     91,938     30,020        

Sapphire business(2)

    2,681     15,659     (12,978 )      
                     

Total

  $ 54,076   $ 274,472   $ (220,396 )   (80 )%
                     
                     

 

 
  Nine-Month Period Ended  
 
  December 31, 2012   December 31, 2011  

Gross margins

             

Photovoltaic business(1)

    (402 )%   48 %

Polysilicon business

    40 %   44 %

Sapphire business(2)

    5 %   32 %

Overall

    14 %   46 %

(1)
Gross profit and gross margin for our PV business for the nine-month period ended December 31, 2012 reflects charges totaling $71.5 million in connection with the write-down of excess and obsolete PV inventory and the write-off of all remaining PV vendor advances.

73


Table of Contents

(2)
Gross profit and gross margin for our sapphire business for the nine-month period ended December 31, 2012 reflects a charge of $5.2 million for excess and obsolete inventory.

        Overall gross profit as a percentage of revenue, or gross margin, decreased for the nine-month period ended December 31, 2012 to 14% from 46% for the nine-month period ended December 31, 2011. The decrease in our gross margins were driven primarily by charges for excess and obsolete inventory and the the write-off of all remaining PV vendor advances in our PV business.

        Our gross margins in our PV, polysilicon and sapphire businesses tend to vary depending on the volume, pricing and timing of revenue recognition.

        Our PV gross margins for the nine-month period ended December 31, 2012 were not meaningful as a result of the significant write-down of PV inventories and the write-off of certain PV vendor advances, as noted above. PV gross margin for the nine-month period ended December 31, 2011 were 48%. During the nine-month period ended December 31, 2012, the solar industry continued to face increasing challenges related to, among other things, solar panel manufacturing overcapacity (and limited demand for solar wafers, panels and modules), trade disputes centered on solar products, weaker operating performance by manufacturers and outlook, leading to the deterioration of the solar equipment market and our customers' financial condition. We concluded that these factors had significantly decreased the demand for our DSS products and we temporarily discontinued any significant future investments in our DSS product line. We considered the impact of these industry circumstances on our balance of DSS inventory and determined that there was inventory in excess of forecasted demand. As a result, we recorded a charge related to excess inventory of $60.2 million during the three-months ended December 31, 2012 and during the same period we had to write off of all remaining PV vendor advances in an amount equal to $8.4 million. In addition, there was a decrease in the average selling price and number of DSS units shipped as compared to the nine-month period ended December 31, 2011. For the nine-month period ended December 31, 2012, the cost of equipment sold and fixed periodic costs exceeded revenue.

        Our polysilicon gross margins for nine-month periods ended December 31, 2012 and December 31, 2011 were 40% and 44%, respectively. The decrease in polysilicon gross margins was primarily due to the mix of projects on which revenue was recognized with a greater amount of lower margin projects for which revenue was recognized in the nine-month period ended December 31, 2012. Revenue recognized in connection with contract terminations for our polysilicon business did not have a material impact on our margins for the nine-month period ended December 31, 2012.

        Our sapphire business gross margins decreased to 5% for the nine-month period ended December 31, 2012, as compared to 32% for the nine-month period ended December 31, 2011. The decrease in sapphire gross margins for the nine-month period ended December 31, 2012 was primarily due to a decrease in the average selling price of our ASF systems as compared to the same period in the prior year, charges recorded during the nine month period ended December 31, 2012 for excess and obsolete inventory of $5.2 million, the acceleration of depreciation of certain fixed assets totaling $2.5 million and additional warranty costs associated with our ASF systems. In addition, the decrease was driven, in part, by lower factory utilization at our facility in Salem, Massachusetts. This decrease was also partially driven by a decrease in the market price of sapphire, resulting in a decrease of the average selling price of our sapphire materials as compared to the same period in the prior year. These decreases were offset in part by revenue recognized in connection with contract terminations for our sapphire business of $5.6 million during the nine-month period ended December 31, 2012. There were no such amounts for the same period in the prior year. This revenue was recognized without any significant direct costs and increased margins for our sapphire business by approximately 10% for the nine-month period ended December 31, 2012.

74


Table of Contents

        Operating Expenses.    The following table sets forth total operating expenses for the nine-month periods ended December 31, 2012 and December 31, 2011:

 
  Nine-Month Period Ended  
 
  December 31, 2012   December 31, 2011   Change   % Change  
 
  (dollars in thousands)
 

Operating Expenses

                         

Research and development

  $ 55,401   $ 34,624   $ 20,777     60 %

Sales and marketing

    12,408     17,056     (4,648 )   (27 )%

General and administrative

    44,362     48,947     (4,585 )   (9 )%

Contingent consideration expense

    (9,492 )   3,931     (13,423 )   (341 )%

Impairment of goodwill

    57,037         57,037     100 %

Restructuring charges and asset impairments

    33,441         33,441     100 %

Amortization of intangible assets

    7,619     5,652     1,967     35 %
                   

Total

  $ 200,776   $ 110,210   $ 90,566     82 %
                   
                   

        Operating expenses were $200.8 million for the nine-month period ended December 31, 2012 compared to $110.2 million for the nine-month period ended December 31, 2011.

        Research and development expenses consist primarily of materials, equipment and prototypes used in research and development as well as payroll and related costs, including stock-based compensation expense, for research and development personnel who design, develop, test and deploy our PV, polysilicon and sapphire equipment, materials and services. Research and development expenses increased 60% to $55.4 million for the nine-month period ended December 31, 2012, as compared to $34.6 million for the nine-month period ended December 31, 2011. The increase in research and development costs compared to the nine-month period ended December 31, 2011 was driven primarily by projects related to our sapphire and PV businesses. The increases for the nine-month period ended December 31, 2012 primarily related to an increase in the amount of expenses allocated to research and development of $12.4 million, primarily driven by activities in connection with our efforts to further develop and commercialize our HiCz™ product and continued development of our ASF product. In addition during the nine-month period ended December 31, 2012 there was an increase in outside service related costs of $1.8 million, an increase in the use of non-production materials of $2.9 million, an increase in costs associated with the disposal of certain fixed assets of $1.3 million and an increase in depreciation expense of $1.9 million, primarily as a result of capital expenditures made in prior periods.

        Selling and marketing expenses consist primarily of payroll and related costs, stock-based compensation expense and commissions for personnel engaged in marketing, sales and support functions, as well as advertising and promotional expenses. Selling and marketing expenses decreased 27% to $12.4 million for the nine-month period ended December 31, 2012, as compared to $17.1 million for the nine-month period ended December 31, 2011. The decrease was primarily due to decreases of $3.5 million in sales commissions as a result of a decrease in revenue, a decrease in payroll and payroll-related costs of $0.9 million and a decrease in other selling and marketing expenses of $0.6 million. Sales commissions are accrued based on operational factors such as deposits, shipments and final acceptances received from customers rather than when revenue is recognized and thus may vary from quarter to quarter. The decreases in sales and marketing expenses were offset, in part, by an increase in outside services expenses of $0.8 million, driven primarily by activities in our sapphire business. Selling and marketing expenses related to Confluence Solar, which we acquired on August 24, 2011, were not material for the nine-month periods ended December 31, 2011 or December 31, 2012.

        General and administrative expenses consist primarily of the following components: payroll, stock-based compensation expense and other related costs, including expenses for executive, finance, business

75


Table of Contents

applications, human resources and other administrative personnel; depreciation and amortization of property and equipment we use internally; fees for professional services; rent and other facility-related expenditures for leased properties; the provision for doubtful accounts; insurance costs; and non-income related taxes. The decrease in general and administrative expenses of 9% to $44.4 million in the nine-month period ended December 31, 2012, as compared to $48.9 million for the nine-month period ended December 31, 2011, was primarily due to a decrease in transaction-related expenses of $3.4 million; a $1.0 million decrease in payroll and payroll-related costs; a $1.1 million decrease in bank charges and fees and a $1.0 million decrease in office related supplies. In addition during the nine-month period ended December 31, 2012 there was an increase of $3.7 million in the amount of expenses allocated to other functions. These decreases for the nine-month period ended December 31, 2012 were offset, in part, by an increase in depreciation expense of $3.3 million driven primarily by expansion projects at our Merrimack, New Hampshire and Hazelwood, Missouri facilities; an increase of $1.7 million in legal costs in connection with ongoing litigation and an increase of $0.7 million in outside services. Included in general and administrative expenses for the nine-month periods ended December 31, 2012 are $1.7 million of expenses related to Confluence Solar which was acquired on August 24, 2011.

        Contingent Consideration (Income) Expense.    Contingent consideration (income) expense consists of the accretion of our contingent consideration liabilities to their respective fair values. Contingent consideration income was recognized of $9.5 million for the nine-month period ended December 31, 2012 as compared to $3.9 million of contingent consideration expense for the nine-month period ended December 31, 2011. During the nine-month period ended December 31, 2012, based on the failure to satisfy certain operational and technical targets by the contractual target dates in connection with the Confluence Solar acquisition, we determined that the contingent consideration opportunities related to these targets were not achieved and we recognized a total decrease in the fair value of contingent consideration of $8.2 million in the condensed consolidated statements of operations. In addition, we recorded contingent consideration income of $1.6 million in connection with a change in probabilities of the remaining contingent consideration targets in connection with the Confluence Solar acquisition. The remainder of the decrease for the nine-month period ended December 31, 2012, as compared to the respective period in the prior year, is due to the absence of contingent consideration expense recorded in the nine months ended December 31, 2012 related to Crystal Systems contingent consideration, which was fully paid in the quarter ended June 30, 2012.

        Restructuring Charges and Asset Impairments.    Total restructuring and asset impairment charges for the nine-month period ended December 31, 2012 were $33.4 million. There were no comparable amounts in the prior year. As part of a program to reduce costs and increase operational efficiencies, we announced, on October 31, 2012, a plan to streamline worldwide operations to better align our cost structure with market conditions and enhance our ability to pursue strategic growth initiatives. This program included a 25% reduction in our global workforce. In connection with this plan, we incurred aggregate pre-tax restructuring charges of $3.7 million comprised of severance, other termination benefits, substantially all of which will be paid in cash, and asset impairments.

        On January 10, 2013, we announced a plan to cease operations at its Hazelwood, Missouri facility ("Hazelwood facility"). The idling of the Hazelwood facility was part of our efforts to reduce costs and optimize our research and development activities and the idling of the facility was expected to be completed on or before March 30, 2013. In connection with this action, we terminated the employment of 37 of the Hazelwood facility employees at various dates in the first quarter of fiscal 2013. We determined that as of December 31, 2012 it was probable that employees would be entitled to receive severance and related benefits and that these amounts were estimable and accordingly recorded the expense during the quarter ended December 31, 2012. In connection with the idling of the Hazelwood facility, we recorded $29.8 million of restructuring and asset impairment expense during the quarter ended December 31, 2012 to the PV segment, comprised of $0.5 million of severance and related benefits and $29.3 million for the write-down to fair value of certain long-lived, intangible assets and other assets associated with the Hazelwood facility.

76


Table of Contents

        There are no comparable amounts for prior periods. For further details, see Note 12, Restructuring and Asset Impairments, of Notes to Consolidated Financial Statements for further information.

        Impairment of Goodwill.    We conducted our annual goodwill test for each of reporting units as of September 30, 2012. The results of the first step of the impairment test indicated that goodwill for each reporting unit was not impaired as of September 30, 2012. In light of challenges in the polysilicon, PV and sapphire (including LED) industries during the three months ended December 31, 2012, including, (i) oversupply of, or limited demand for, end products that are manufactured with equipment sold by us, (ii) ongoing trade disputes between the U.S., European Union and South Korea, on the one hand, and China on the other, which had adversely impacted the businesses of our customers, (iii) liquidity challenges being faced by companies in the polysilicon, PV and sapphire industries, (iv) the deterioration of our customers financial condition, and (v) the sustained decline in our stock price and a significant decline in our financial outlook for the next few years, we determined that sufficient impairment indicators existed to require performance of an additional interim goodwill impairment analysis as of December 31, 2012.

        Based on the results of our impairment test, the implied fair value of goodwill was substantially lower than the carrying value of goodwill for the PV reporting unit. As a result, we recorded a $57.0 million goodwill impairment charge on December 31, 2012. Based on the results of our analysis, there was no indication of an impairment of goodwill for the sapphire reporting unit.

        The evaluation of goodwill for impairment requires the exercise of significant judgment. In the event of future changes in business conditions, we will be required to reassess and update our forecasts and estimates used in future impairment analyses. If the results of these analyses are lower than current estimates, a material impairment charge may result at that future time.

        Amortization Expense.    Amortization of intangible assets consists of the amortization of intangible assets obtained in business or technology acquisitions. Amortization expense attributed to intangible assets increased 35% to $7.6 million for the nine-month period ended December 31, 2012, as compared to $5.7 million for the nine-month period ended December 31, 2011. The increase was primarily due to an increase of $3.0 million in amortization related to the Confluence Solar acquisition. This increase was offset by a decrease of $0.9 million for the nine-month period ended December 31, 2012 in amortization expense attributed to the mix of intangible assets being amortized, as certain intangibles related to our PV business became fully amortized during fiscal 2012.

        Interest Income.    Interest income includes interest earned on invested cash and marketable securities. Interest income decreased to $0.2 million for the nine-month period ended December 31, 2012, as compared to $0.5 million for the nine-month period ended December 31, 2011. The decrease in interest income for the nine-month period ended December 31, 2012 was driven primarily by the returns earned on our invested cash, offset by an increase in our average cash balances during the nine-month period ended December 31, 2012. We typically invest our excess cash primarily in money market mutual funds.

        Interest Expense.    Interest expense includes interest paid on our debt obligations as well as amortization of deferred financing costs. Interest expense decreased to $8.6 million for the nine-month period ended December 31, 2012, as compared to $12.2 million for the nine-month period ended December 31, 2011. The decrease was due primarily to the lower interest rate on our Credit Facility with Bank of America N.A (and certain other lenders) (which was entered into in January 2012 and subsequently terminated in October 2013) as compared to the one it replaced. In addition, during the three months ended July 2, 2011, we made a voluntary prepayment of $20.0 million under our credit facility with Credit Suisse (which was subsequently terminated and repaid). In connection with this prepayment, we recorded a charge of $0.9 million to accelerate a portion of the outstanding deferred

77


Table of Contents

financing fees under this credit facility. This decrease was offset, in part, by interest expense of $4.5 million associated with our 3.00% Senior Convertible Notes due 2017 which were issued on September 28, 2012. Included in interest expense for the nine-month period ended December 31, 2012 was $1.1 million of charges for the amortization of deferred financing costs in connection with the 2012 Credit Facility with Bank of America N.A (and certain other lenders) and our 3.00% Senior Convertible Notes due 2017. The balance of interest expense relates primarily to interest expense for the nine month period ended December 31, 2012 associated with the 2012 Credit Facility we entered into with Bank of America N.A. (and certain other lenders).

        Other net.    Other net, was $1.0 million for the nine-month period ended December 31, 2012 as compared $2.1 million for the nine-month period ended December 31, 2011. During the nine-month period ended December 31, 2012 we recorded a $0.9 million charge to record foreign currency losses on the ineffective portion of our foreign currency exchange forward contracts as a result of changes in the payments of certain of our outstanding purchase obligation. During the nine-month period ended December 31, 2011, we recorded other income of $3.3 million to reflect an appreciation of the fair value of an accelerated share repurchase contract over the settlement period of our accelerated share repurchase. This increase was offset in part by a $1.4 million charge to record foreign currency losses on the ineffective portion of our foreign currency exchange forward contracts during the nine-month period ended December 31, 2011 as a result of changes in the payments of certain of our outstanding purchase obligation.

        (Benefit) Provision for Income Taxes.    Our world-wide effective tax rate was 8.8% (benefit) for the nine-month period ended December 31, 2012 and 32% for the nine-month period ended December 31, 2011. The effective tax rate for the nine months ended December 31, 2012, was impacted by nondeductible losses associated with goodwill in higher tax jurisdictions and deductible losses associated with inventory and fixed asset impairments in lower taxed jurisdictions. As a result, a greater share of the losses are not providing any tax benefit.

        Changes in the mix of income before income taxes between the U.S. and foreign countries also impacted our effective tax rates. The majority of our revenue came from the Polysilicon segment which is taxed primarily in higher tax jurisdictions. Due to this jurisdictional mix of income/loss, we had at such time current taxable income in the US, a higher tax jurisdiction while lower tax jurisdictions, namely Hong Kong, were previously reporting losses.

        We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We were subject to examination by federal, state, and foreign tax authorities. Our U.S. tax returns were in appeals for fiscal years ending March 31, 2007 and 2008. We were also under examination by the Internal Revenue Service, or IRS, for our fiscal years ending March 28, 2009 and April 3, 2010. In addition, the statute of limitations was, at such time, open for all state and foreign jurisdictions. As of December 31, 2012, we classified approximately $1,936 of unrecognized tax benefits as short-term. These unrecognized tax benefits relate to positions under appeals for the fiscal 2007 and fiscal 2008 tax years.

78


Table of Contents


Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Period Ended April 2, 2011

        Revenue.    The following table sets forth revenue for the fiscal years ended March 31, 2012 and April 2, 2011.

 
  Twelve-Month Period Ended  
Business Category
  March 31, 2012   April 2, 2011   Change   % Change  
 
  (dollars in thousands)
 

Photovoltaic business

  $ 375,546   $ 740,088   $ (364,542 )   (49 )%

Polysilicon business

    363,278     143,591     219,687     153 %

Sapphire business

    216,881     15,305     201,576     1,317 %
                     

Total revenue

  $ 955,705   $ 898,984   $ 56,721     6 %
                     
                     

        Our total revenue increased 6% to $955.7 million for the fiscal year ended March 31, 2012, as compared to $899.0 million for the fiscal year ended April 2, 2011, primarily due to the commercialization of our ASF systems, increased demand in our polysilicon business, offset in part by a reduction in revenue from our PV business.

        Revenue from our PV business decreased 49% to $375.5 million for the fiscal year ended March 31, 2012 as compared to $740.1 million for the fiscal year ended April 2, 2011. The decrease is primarily due to decreased demand for our DSS products from solar manufacturers, a trend that began in fiscal year 2012. The principal reason for the decrease was fewer DSS units shipped during the fiscal year ended March 31, 2012, which we believe was due to weaker demand as a result of excess capacity in the PV market. Our PV business is subject to fluctuations in demand for our PV products, particularly our DSS furnace. The impact of the reduction in shipments was offset in part by the recognition of revenue related to units that were shipped in prior periods.

        Revenue from our polysilicon business increased by 153% to $363.3 million for the fiscal year ended March 31, 2012 as compared to $143.6 million for the fiscal year ended April 2, 2011. Polysilicon revenue for the fiscal year ended March 31, 2012 relates primarily to contracts that were in our order backlog as of April 2, 2011, for which the revenue recognition process has been completed. Polysilicon revenue may fluctuate significantly from period to period due to the changes in supply and demand in the marketplace and the length of time it takes to complete our obligations under the contracts. As a result of this variability, our polysilicon business tends to have a higher level of deferred revenue than our other business segments. Approximately 94% and 65% of our deferred revenue balances at March 31, 2012 and April 2, 2011, respectively, relate to our polysilicon business.

        Included in our backlog are certain polysilicon contracts that grant contractual rights which require revenue to be recognized ratably over the contract period. Revenue recognition from these contracts commences when all other elements have been delivered and other contract criteria have been met. During the fiscal years ended March 31, 2012 and April 2, 2011, we recognized revenue on a ratable basis from six of these contracts of $185.0 million and $83.5 million, respectively. As of March 31, 2012, our deferred revenue balance included $128.8 million related to these contracts.

        Our sapphire business revenue during the fiscal year ended March 31, 2012 is attributable to the sale of sapphire equipment and material used mostly, we believe, in sapphire-based LED applications and other specialty markets. We acquired Crystal Systems, which is the basis for our sapphire business, on July 29, 2010. Revenue from our sapphire business was $216.9 million for the fiscal year ended March 31, 2012, as compared to $15.3 million for the fiscal year ended April 2, 2011. The increase in revenue for our sapphire business is primarily related to the commercialization of our ASF systems during the fiscal year ended March 31, 2012. We began shipping and commissioning these units and recorded revenue in connection with meeting the revenue recognition criteria on certain of these ASF systems during fiscal 2012.

79


Table of Contents

        A substantial percentage of our revenue results from sales to a small number of customers. One of our customers accounted for 23% of our revenue for the fiscal year ended March 31, 2012 and one customer accounted for 19% of our revenue for the fiscal year ended April 2, 2011. No other customer accounted for more than 10% of our revenue during the respective periods.

        Gross Profit and Gross Margins.    The following tables set forth gross profit and gross margin for the fiscal years ended March 31, 2012 and April 2, 2011.

 
  Twelve-Month Period Ended  
 
  March 31, 2012   April 2, 2011   Change   % Change  
 
  (dollars in thousands)
 

Gross profit

                         

Photovoltaic business

  $ 183,512   $ 314,609   $ (131,097 )      

Polysilicon business

    157,420     59,873     97,547        

Sapphire business

    85,868     3,513     82,355        
                     

Total

  $ 426,800   $ 377,995   $ 48,805     13 %
                     
                     

 

 
  Twelve-Month Period Ended  
 
  March 31, 2012   April 2, 2011  

Gross margins

             

Photovoltaic business

    49 %   43 %

Polysilicon business

    43 %   42 %

Sapphire business

    40 %   23 %

Overall

    45 %   42 %

        Overall gross profit as a percentage of revenue, or gross margin, increased for the fiscal year ended March 31, 2012 to 45% from 42% for the fiscal year ended April 2, 2011. The changes in gross margins primarily relate to our PV and sapphire businesses and are further discussed below.

        Our gross margins in our PV, polysilicon and sapphire businesses tend to vary depending on the volume, pricing and timing of revenue recognition.

        Our PV gross margins for the fiscal year ended March 31, 2012 were 49% , as compared to 43% for the fiscal year ended April 2, 2011. The increase for the fiscal year ended March 31, 2012 was due primarily to the timing of final acceptance on certain contracts during the fiscal year ended March 31, 2012, lower periodic costs and an increase in the average selling price of our DSS units. In addition, PV gross margins for the fiscal year ended March 31, 2012 included $8.5 million of contract termination revenue with no associated costs. These increases were offset in part by a reduction in factory utilization and a reduction in sales volume of other PV equipment. In addition, gross margins for the fiscal year ended April 2, 2011 included revenue from a terminated turnkey project that generated a gross margin of approximately 17%.

        Our polysilicon gross margins for fiscal years ended March 31, 2012 and April 2, 2011 were 43% and 42%, respectively. Revenue recognized in connection with contract terminations for our polysilicon business did not have a material impact on our margins for the fiscal year ended March 31, 2012. The increase in our polysilicon margins is primarily related to an increase in the number of projects on which revenue was recognized, off-set largely by a decrease in the costs associated with those projects.

        Our sapphire business gross margins were 40% for the fiscal year ended March 31, 2012, as compared to 23% for the fiscal year ended April 2, 2011. The increase in gross margin for the sapphire business during the fiscal year ended March 31, 2012 is primarily related to the commercialization of our ASF systems. During the fiscal year ended March 31, 2012, we recorded, for the first time, revenues in connection with the sale of our sapphire equipment. Margins on the sale of our sapphire

80


Table of Contents

equipment are higher than our historical sapphire margins (which are attributable solely to sapphire material production and sales).

        Operating Expenses.    The following table sets forth total operating expenses for the fiscal years ended March 31, 2012 and April 2, 2011:

 
  Twelve-Month Period Ended  
 
  March 31, 2012   April 2, 2011   Change   % Change  
 
  (dollars in thousands)
 

Operating Expenses

                         

Research and development

  $ 49,872   $ 23,753   $ 26,119     110 %

Sales and marketing

    19,763     19,792     (29 )   %

General and administrative

    64,117     54,386     9,731     18 %

Contingent consideration expense (income)

    4,458     2,262     2,196     97 %

Amortization of intangible assets

    8,198     4,500     3,698     82 %
                   

Total

  $ 146,408   $ 104,693   $ 41,715     40 %
                   
                   

        Operating expenses increased 40% to $146.4 million for the fiscal year ended March 31, 2012, as compared to $104.7 million for the fiscal year ended April 2, 2011.

        Research and development expenses consist primarily of payroll and related costs, including stock-based compensation expense, for research and development personnel who design, develop, test and deploy our PV, polysilicon and sapphire equipment, materials and services. Research and development expenses increased 110% to $49.9 million for the fiscal year ended March 31, 2012, as compared to $23.8 million for the fiscal year ended April 2, 2011. The increase in research and development costs compared to the fiscal year ended April 2, 2011 was driven primarily by projects related to our sapphire and PV businesses. The increases for the fiscal year ended March 31, 2012 primarily related to increases attributable to: non-production materials of $14.2 million in connection with projects across all lines of business, payroll and payroll related costs of $4.3 million primarily as a result of increased headcount at our US locations and the acquisition of Confluence Solar, costs associated with the disposal of fixed assets of $0.9 million, shipping and receiving expenses of $0.9 million, outside service related costs of $0.8 million and increases of $2.8 million in other research and development expenses. In addition, during the fiscal year ended March 31, 2012, there was a reduction in the amount of research and development resources allocated to customer related projects of $2.2 million. Included in research and development expenses for the fiscal year ended March 31, 2012 are $5.3 million of research and development costs related to Confluence Solar which was acquired on August 24, 2011.

        Selling and marketing expenses consist primarily of payroll and related costs, stock-based compensation expense and commissions for personnel engaged in marketing, sales and support functions, as well as advertising and promotional expenses. Selling and marketing expenses remained flat at $19.8 million for the fiscal year ended March 31, 2012 and the fiscal year ended April 2, 2011. Sales and marketing expenses for the fiscal year ended March 31, 2012 were primarily driven by a decrease in sales commissions of $2.5 million, principally a result of fewer third party commissions in our PV business in connection with the decrease in PV revenue. This decrease was offset primarily by increases of $1.2 million in payroll and payroll-related expenses due to increased headcount, an increase of $1.0 million in other sales and marketing expenses and an increase of $0.3 million in outside services. Sales commissions are accrued based on operational factors such as deposits, shipments and final acceptances received from customers rather than when revenue is recognized and thus may vary from quarter to quarter. Selling and marketing expenses related to Confluence Solar were not material for the fiscal year ended March 31, 2012.

81


Table of Contents

        General and administrative expenses consist primarily of the following components: payroll, stock-based compensation expense and other related costs, including expenses for executive, finance, business applications, human resources and other administrative personnel; and fees for professional services. The increase in general and administrative expenses of 18% to $64.1 million in the fiscal year ended March 31, 2012, as compared to $54.4 million for the fiscal year ended April 2, 2011, was primarily due to an increase in payroll and payroll-related costs of $6.8 million primarily due to increased headcount; increases in facilities costs of $5.9 million primarily related to activities at our Salem and Hazelwood pilot production facilities; an increase in transaction related costs of $2.7 million primarily driven by our acquisition of Confluence Solar; and an increase in bad debt expense of $0.7 million. These increases were offset primarily by an increase in the amount of general and administrative expenses allocated to other functional areas of $4.6 million; a decrease in legal expenses of $0.9 million, a decrease in tax consulting services of $0.4 million and a decrease of $1.6 million in other general and administrative expenses. Included in general and administrative expenses for the fiscal year ended March 31, 2012 are $2.6 million of expenses related to Confluence Solar which was acquired on August 24, 2011.

        Contingent Consideration Expense.    Contingent consideration expense consists of the accretion of our contingent consideration liabilities to their respective fair values. Contingent consideration expense increased to $4.5 million for the fiscal year period ended March 31, 2012, as compared to $2.3 million for the fiscal year ended April 2, 2011. The increase was driven primarily by an increase in the fair value of the Crystal Systems earn-out and additional earn-out accretion expense in connection with the acquisition of Confluence Solar.

        Amortization Expense.    Amortization of intangible assets consists of the amortization of intangible assets obtained in business or technology acquisitions. Amortization expense attributed to intangible assets increased 82% to $8.2 million for the fiscal year ended March 31, 2012, as compared to $4.5 million for the fiscal year ended April 2, 2011. The increase was due to $4.5 million in amortization related to the Confluence Solar acquisition and $0.8 million from a full year of amortization related to the acquisition of Crystal Systems in fiscal 2011. These increases are offset in part by a decrease of $1.6 million for the year ended March 31, 2012 in amortization expense attributed to the mix of intangible assets being amortized, as certain intangibles related to our PV business became fully amortized during fiscal 2012.

        Interest Income.    Interest income includes interest earned on invested cash and marketable securities. Interest income decreased to $0.5 million for the fiscal year ended March 31, 2012, as compared to $0.6 million for the fiscal year ended April 2, 2011. The decrease in interest income for the fiscal year ended March 31, 2012 was driven primarily by the decreased returns earned on our invested cash, offset by an increase in our average cash balances during the fiscal year ended March 31, 2012. We typically invest our excess cash primarily in money market mutual funds. All of our available cash was deposited in cash accounts at our financial institutions as of March 31, 2012.

        Interest Expense.    Interest expense includes interest paid on our debt obligations as well as amortization of deferred financing costs. Interest expense increased to $13.0 million for the fiscal year ended March 31, 2012, as compared to $2.9 million for the fiscal year ended April 2, 2011. The increases were due primarily to interest expense and the amortization of deferred financing costs in connection with the termination of our credit facility that we entered into with Credit Suisse during fiscal 2011, which credit facility was subsequently terminated in November 2011. Included in interest expense for the fiscal year ended March 31, 2012 was $9.6 million of non-cash charges for the amortization of deferred financing costs in connection with the Credit Suisse credit facility. The balance of interest expense relates primarily to interest expense associated with this Credit Suisse credit facility and the credit facility we entered into with Bank of America N.A. (and certain other lenders) in January 2012, as well as deferred financing costs under the Bank of America credit facility.

82


Table of Contents

        Other, net.    Other income, net, was $2.1 million for the fiscal year ended March 31, 2012 as compared to other expenses, net of $0.4 million for the fiscal year ended April 2, 2011. During the fiscal year ended March 31, 2012, we recorded other income of $3.3 million to reflect an appreciation of the fair value of the accelerated share repurchase contract over the settlement period of our accelerated share repurchase program. This increase was offset in part by a loss of $1.4 million due to fair value adjustments on certain forward foreign exchange contracts that no longer qualified as a cash flow hedge because the hedging relationship was no longer deemed to be highly effective due to changes in the forecasted deliveries for certain euro denominated inventory purchase commitments.

        Provision for Income Taxes.    Our effective tax rate is based on our expectation of annual earnings from operations in the U.S. and other tax jurisdictions world-wide.

        Our world-wide effective tax rate was 32% for the fiscal year ended March 31, 2012 and 35% for the fiscal year ended April 2, 2011. The effective tax rate is lower in the fiscal year ended March 31, 2012 when compared to the same period in the prior fiscal year, principally due to increased levels of income in lower tax jurisdictions. For the fiscal year ended March 31, 2012, 53% of income before tax was generated in foreign jurisdictions compared to 50% in the prior fiscal year. We commenced the transition of our global operations center to Hong Kong in the prior fiscal year, and as a result, the benefit of operating in the lower tax rate jurisdiction had a greater impact on reducing our effective tax rate for the year ended March 31, 2012 compared to the prior year.

Liquidity and Capital Resources

Overview

        We fund our operations generally through cash generated by operations, prepayments made to us by Apple Inc., proceeds from our debt and stock offerings and proceeds from exercises of stock awards.

        Our combined cash and cash equivalents increased by $80.1 million during the fiscal year ended December 31, 2013, from $418.1 million as of December 31, 2012 to $498.2 million as of December 31, 2013. Our liquidity is affected by many factors, some based on the normal operations of our business and others related to the uncertainties of the industry and global economies.

        On January 31, 2012, we, our principal U.S. operating subsidiary (the "U.S. Borrower") and our Hong Kong subsidiary (the "Hong Kong Borrower") entered into a credit agreement (the "2012 Credit Agreement"), with Bank of America, N.A., as administrative agent, Swing Line Lender and L/C Issuer (or "Bank of America") and the lenders from time to time party thereto. The 2012 Credit Agreement consisted of a term loan facility (the "2012 Term Facility") provided to the U.S. Borrower in an aggregate principal amount of $75 million with a final maturity date of January 31, 2016, a revolving credit facility (the "U.S. Revolving Credit Facility") available to the U.S. Borrower in an aggregate principal amount of $25 million with a final maturity date of January 31, 2016 (this revolving facility was eliminated pursuant to an amendment adopted in 2013) and a revolving credit facility (the "Hong Kong Revolving Credit Facility"; together with the U.S. Revolving Credit Facility, the "2012 Revolving Credit Facility"; and together with the 2012 Term Facility, the "2012 Credit Facilities") available to the Hong Kong Borrower in an aggregate principal amount of $150 million (which was reduced to $125 million pursuant to an amendment adopted in 2013) with a final maturity date of January 31, 2016. The 2012 Term Facility was increased by $70 million to $145 million pursuant to joinder agreements entered into in June 2012 (and we pre-paid $40 million of the 2012 Term Facility in February 2013).

        On October 30, 2013, we terminated the 2012 Credit Agreement and paid off all outstanding borrowing under the 2012 Credit Agreement. As of October 30, 2013, there are no amounts outstanding under the 2012 Revolving Credit Facility and no outstanding stand-by letters of credit under the 2012 Revolving Credit Facility.

83


Table of Contents

        On October 31, 2013, we entered into a Prepayment Agreement with Apple pursuant to which we are eligible to receive $578 million (the "Prepayment Amount"), in four separate installments, if conditions are met, as payment in advance for the purchase of sapphire goods. As of December 31, 2013, we had received $225 million from Apple (and the second installment was received in January 2014). We required to repay this amount ratably over a five year period ending in January 2020, either as a credit against Apple purchases of sapphire goods under the MDSA or as a direct cash payment. The Prepayment Amount is non-interest bearing. Our obligation to repay the Prepayment Amount may be accelerated under certain circumstances. Our obligations under the Prepayment Agreement are secured by (i) the assets held by GT Equipment Holdings LLC (a wholly-owned subsidiary of the Company and the owner of the ASF systems and related equipment used in the Arizona facility), which principally consists of the ASF systems purchased with the Prepayment Amount and the portion of the Prepayment Amount which is held by GT Equipment Holdings LLC and not yet disbursed to purchase ASF systems and related equipment, and (ii) a pledge of all of the equity interests of GT Equipment Holdings LLC. While the MDSA specifies the Company's minimum and maximum supply commitments, Apple has no minimum purchase requirements under the terms of the MDSA. We determined the installments of the Prepayment Amount that we receive should be recorded as debt at fair value on the date of receipt of each installment. The difference between the fair value of the debt and the Prepayment Amount proceeds received ("debt discount") is being recognized as deferred revenue. The debt discount is being amortized to interest expense over a 6-year period ending December 2019. The initial installment of $225 million was received on November 15, 2013, and as of December 31, 2013, $172.5 million is reflected within prepayment obligation and $54.1 million is recorded as deferred revenue.

        On September 28, 2012, we issued $220 million aggregate principal amount of 3.00% Convertible Senior Notes due 2017 (the "2017 Notes"). The net proceeds from the issuance of the 2017 Notes were approximately $212.6 million after deducting fees paid to the initial purchasers and other offering costs. The 2017 Notes are senior unsecured obligations of the Company, which pay interest in cash semi-annually (on April 1 and October 1 of each year) at a rate of 3.00% per annum beginning on April 1, 2013. The 2017 Notes are governed by an Indenture dated September 28, 2012 with U.S. Bank National Association, as trustee. The 2017 Notes are not redeemable by the Company.

        In connection with the offering of the 2017 Notes, we entered into separate convertible note hedging transactions and warrant transactions with multiple counterparties. For additional information on the convertible note hedge and warrant transactions, see Note 11 to the notes to our consolidated financial statements in Item 8 "Financial Statements" included elsewhere in this Annual Report on Form 10-K.

        On December 10, 2013, we issued $214 million aggregate principal amount of 3.00% Convertible Senior Notes due 2020 (the "2020 Notes"). The net proceeds from the issuance of the 2020 Notes were approximately $206.5 million, after deducting fees paid to the initial purchasers and other offering costs. The 2020 Notes are our senior unsecured obligations, which pay interest in cash semi-annually (on June 15 and December 15 of each year) at a rate of 3.00% per annum beginning on June 15, 2014. The 2020 Notes are governed by an Indenture dated December 10, 2013 with U.S. Bank National Association, as trustee. The 2020 Notes are not redeemable by the Company.

        In a concurrent offering on December 10, 2013, we issued a total of 9.9 million shares of common stock at a per share price of $8.65, or an aggregate of approximately $86.0 million. The net proceeds from this common stock issuance was approximately $81.6 million after deducting costs associated with the stock issuance.

        As noted above, our cash and cash equivalents balances increased by $80.1 million during the fiscal year ended December 31, 2013, from $418.1 million as of December 31, 2012 to $498.2 million as of December 31, 2013. The increase was principally attributable to $214.0 million and $81.6 million of

84


Table of Contents

proceeds in connection with the December 10, 2013 issuance of the 2020 Notes and common stock, respectively, in addition to the $225.0 million prepayment received from Apple, of which $93.4 million was restricted as of December 31, 2013 (this represents the portion of the Prepayment Amount that was transferred to the Company but was not yet used, as of December 31, 2013, to purchase components for ASF equipment and related equipment). These inflows were offset, in part, by payments of $39.9 million for the purchase of property, plant and equipment, principal payments of $139.6 million for the credit facility and the remainder of the amount was principally attributable to cash utilized in connection with working capital purchases. The following discussion of the changes in our cash balance refers to the various sections of our Consolidated Statements of Cash Flows, which appears in Item 8 of this Annual Report on Form 10-K.

        Net cash provided by operating and financing activities in each of the twelve-month period ended December 31, 2013, nine-month period ended December 31, 2012 and twelve-month period ended March 31, 2012 has allowed us to fund our working capital requirements. We manage our cash inflows through the use of customer deposits, milestone billings and Prepayment Amounts that are intended to allow us in turn to meet our cash outflow requirements, which consist primarily of vendor payments and prepayments for contract related costs (raw material and components costs) and payroll and overhead costs. Customer deposits for equipment are initially classified as deposits, and then reclassified to deferred revenue when equipment has been shipped or services have been provided, but revenue has not yet been recognized. We generally make advance payments to suppliers after the corresponding deposit is received from our equipment customers. The installments of the Prepayment Amount are classified as debt upon receipt.

        At December 31, 2013, we had $498.2 million in cash and cash equivalents, of which $76.3 million was held by certain of our foreign subsidiaries. In addition, $94.7 million of cash (reflected in restricted cash) was restricted at December 31, 2013, $93.4 million of which relates to a portion of the Prepayment Amount as mentioned above. We currently intend that cash and cash equivalents held by our foreign subsidiaries will be indefinitely reinvested in foreign jurisdictions in order to fund working capital requirements and repay debt (primarily inter-company) and, in the event we were to undertake certain strategic initiatives, we may use this cash for such strategic initiatives (such as investment, expansion and acquisitions) of our foreign subsidiaries in the normal course of business. Moreover, we do not currently intend to repatriate cash and cash equivalents held by foreign subsidiaries to the United States because our cash and cash equivalents held in the United States are currently sufficient (and are expected to continue to be sufficient for at least the next 12 months) to fund the cash needs of our operations in the United States. However, if, in the future, cash and cash equivalents held by foreign subsidiaries are needed to fund the our operations in the United States or for the purpose of making certain strategic investments in the United States, the repatriation of such amounts to the United States would result in a significant incremental tax liability in the period in which the decision to repatriate occurs. Payment of any incremental tax liability would reduce the cash available to us to fund our operations by the amount of taxes paid.

        Our principal uses of cash are for raw materials and components, wages, salaries and investment activities, such as the purchase of property, plant and equipment and servicing our debt obligations. We have historically outsourced a significant portion of our manufacturing and therefore required minimal capital expenditures to meet our production demands, but expect this will not be the case for our expanded sapphire materials business, which requires a significant investment in capital expenditures. Our capital expenditures for our fiscal year ended December 31, 2013, the nine-month period ended December 31, 2012 and the fiscal year end March 31, 2012, were $39.9 million, $25.2 million, and $48.2 million respectively, which were used primarily for improving or expanding product offerings, specifically sapphire materials, expanding certain of our facilities and business information systems. Our total capital expenditures in the fiscal year ending December 31, 2014 are expected to range from approximately $540 million to approximately $560 million, consisting primarily of capital expenditures

85


Table of Contents

for sapphire material operations. The foregoing estimate of our capital expenditures in the twelve month period ending December 31, 2014 excludes any capital expenditures we may make in connection with any business, assets or technologies we may acquire during this period.

        We believe that our existing cash, customer deposits and prepayment installment proceeds will be sufficient to satisfy working capital requirements, commitments for capital expenditures and other cash requirements for at least the next twelve months. We, however, consistently review strategic opportunities in an effort to find opportunities to improve our products, technologies, operations, overall business and increase shareholder value, these opportunities may include business acquisitions, technology licenses, dividends to shareholders, prepayment of our outstanding convertible notes using cash, accelerated prepayments of outstanding indebtedness and joint ventures. If we were to engage in any of the foregoing, it could require that we utilize a significant amount of our available cash and, as a result, we may be required to increase our outstanding indebtedness or raise additional capital through the sale of equity, debt, convertible notes or a combination thereof, which may not be available on favorable terms, or at all.

Cash Flows

        The following discussion of the changes in our cash balance refers to the various sections of our consolidated statements of cash flows, which appears in Item 8 of this Annual Report on Form 10-K. The following table summarizes our primary sources and uses of cash in the periods presented:

 
  Fiscal Year Ended   Nine-Month
Period
Ended
  Fiscal Year
Ended
 
 
  December 31, 2013   December 31, 2012   March 31, 2012  
 
  (dollars in thousands)
 

Cash provided by (used in):

                   

Operating activities

  $ (159,104 ) $ (151,478 ) $ 217,673  

Investing activities

    91,774     (35,176 )   (107,983 )

Financing activities

    146,996     253,778     (121,643 )

Effect of foreign exchange rates on cash

    452     68     107  
               

Net (decrease) increase in cash and cash equivalents

  $ 80,118   $ 67,192   $ (11,846 )
               
               

Cash Flows From Operating Activities

        For the fiscal year ended December 31, 2013, our cash used in operations was $159.1 million. Cash used by operating activities is net income adjusted for certain non-cash items and changes in certain operating assets and liabilities. For the fiscal year ended December 31, 2013 our cash used in operations was related to our net loss combined with a net cash outflow from changes in operating assets and liabilities and the effects of non-cash amortization, depreciation, and share-based compensation. Specifically, the changes in operating assets were a decrease in customer deposits of $91.0 million, a decrease in deferred revenue of $59.2 million, a decrease in income taxes payable of $18.8 million and a net loss of $82.8 million. These amounts were offset by sources of cash related to a decrease in inventories of $9.3 million and increase in accounts payable and accrued expenses of $29.8 million.

        For the nine-month period ended December 31, 2012, our cash used in operations was $151.5 million. Our cash used in operations was driven primarily by a decrease in customer deposits of $151.0 million, a decrease in deferred revenue of $74.2 million and a decrease in income taxes payable of $14.9 million, a net loss of $142.3 million and an increase in inventories of $43.1 million (excluding the effect of inventory write-offs). These amounts were offset by non-cash inventory write-offs of $68.6 million, non-cash impairment of goodwill of $57.0 million, a decrease in deferred costs of $46.4 million, a decrease in accounts receivable $41.5 million, non-cash asset impairments of $30.3 million and a write-off of PV vendor advances of $8.4 million.

86


Table of Contents

        For the fiscal year ended March 31, 2012, our cash provided by operations was $217.7 million. Our cash flow from operations was driven primarily by net income of $183.4 million, an increase in customer deposits of $187.6 million due to new orders received during the fiscal year ended March 31, 2012 in our polysilicon and sapphire equipment businesses and a decrease in accounts receivable of $20.2 million. These items were partially offset by an increase in inventories of $75.8 million, an increase in vendor advances of $68.6 million, a decrease in deferred revenue of $249.4 million and a decrease in accounts payable and accrued expenses of $45.4 million.

Cash Flows From Investing Activities

        For the fiscal year ended December 31, 2013, our cash provided by investing activities was $91.8 million. Capital expenditures for this fiscal year were approximately $39.9 million. These capital expenditures were primarily used for expanding our materials business. We had a net cash inflow of $131.6 million for capital expenditure advances during the twelve-month period ended December 31, 2013 which represents the release of restricted cash received from Apple to be used to purchase ASF components in the Arizona facility in connection with sapphire materials operations.

        For the nine-month period ended December 31, 2012, our cash used in investing activities was $35.2 million. The acquisition of certain select assets of Twin Creeks Technologies, Inc., consumed approximately $10.2 million of cash. Additionally, capital expenditures for this nine month period were approximately $25.2 million. These capital expenditures were primarily used for expanding our product offerings in the PV business (including developing our HiCz™ equipment technology).

        For the fiscal year ended March 31, 2012, our cash used in investing activities was $108.0 million. The acquisition of Confluence Solar, net of cash acquired and purchase price adjustment, consumed approximately $60.4 million of cash. Additionally, capital expenditures for the period were approximately $48.2 million. These capital expenditures were primarily used for expanding our product offerings in the PV business (including developing our HiCz™ equipment technology) and sapphire business and improving our business information systems.

Cash Flows From Financing Activities

        For the fiscal year ended December 31, 2013, cash provided by financing activities was $147.0 million, driven primarily by $214.0 million of proceeds in connection with the issuance of our 3.0% senior convertible notes due 2020 and $81.6 million in proceeds from our common stock offering in December 2013. This cash provided by financing activities was offset, in part by the $139.6 million principal payments made in connection with the termination of the credit facility.

        For the nine-month period ended December 31, 2012, cash provided by financing activities was $253.8 million, driven primarily by $220 million of proceeds in connection with the issuance of our 3.0% senior convertible notes due 2017, $41.6 million in proceeds from the sale of warrants (in connection with the issuance of such convertible notes) and an increase of $70.0 million in connection with increasing our term loan with Bank of America. This cash provided by financing activities was offset, in part by the following; a $58.0 million payment for the purchase of bond hedges in connection with the offering of our 3.0% senior convertible notes due 2017; $8.6 million of transactions costs associated with the offering of our 3.0% senior convertible notes due 2017 and the amendment to our 2012 Credit Facility in June 2012; $5.4 million in principal payments in connection with our 2012 Term Facility; the payment of our contingent consideration obligation in connection with the acquisition of Crystal Systems, of which $4.5 million was recorded as a financing activity. With respect to the contingent consideration payment, this was the final contingent consideration obligation in connection with the Crystal Systems acquisition.

        For the fiscal year ended March 31, 2012, cash used in financing activities was $121.6 million, driven primarily by principal payments made under our Credit Suisse Credit Agreement of

87


Table of Contents

$120.3 million. Of these principal payments, $9.4 million related to scheduled principal payments under this Credit Suisse Credit Agreement. In addition, $20.0 million represents an additional voluntary principal prepayment made by us to Credit Suisse on June 15, 2011. We terminated the Credit Suisse Credit Agreement in November 2011 and made a principal payment of $90.9 million to settle the final amounts owed under that credit facility. On November 18, 2011, we entered into an accelerated share repurchase agreement with UBS AG, under which we repurchased $75.0 million of our common stock. The total number of shares of our common stock received by us was 9.4 million.

        During the fiscal year ended March 31, 2012, we paid $4.9 million in connection with the achievement of certain of our contingent consideration obligations to the former shareholders of Crystal Systems. A portion of this payment has been classified as an operating cash outflow pursuant to the accounting guidance for business combinations. These amounts were offset by the receipt of $75.0 million in connection with entering into the 2012 Credit Agreement with Bank of America and the lenders from time to time party thereto, as well as the receipt of $10.6 million of proceeds and related excess tax benefits in connection with the exercise of outstanding stock options.

Long Term Debt

    Bank of America Credit Agreement

        On January 31, 2012, we, our principal U.S. operating subsidiary (the "U.S. Borrower") and our Hong Kong subsidiary (the "Hong Kong Borrower") entered into a credit agreement (the "2012 Credit Agreement"), with Bank of America, N.A., as administrative agent, Swing Line Lender and L/C Issuer (or "Bank of America") and the lenders from time to time party thereto. The 2012 Credit Agreement consisted of a term loan facility (the "2012 Term Facility") provided to the U.S. Borrower in an initial aggregate principal amount of $75 million with a final maturity date of January 31, 2016, a revolving credit facility (the "U.S. Revolving Credit Facility") available to the U.S. Borrower in an initial aggregate principal amount of $25 million with a final maturity date of January 31, 2016 (this revolving facility was eliminated pursuant to an amendment adopted in 2013) and a revolving credit facility (the "Hong Kong Revolving Credit Facility"; together with the U.S. Revolving Credit Facility, the "2012 Revolving Credit Facility"; and together with the 2012 Term Facility, the "2012 Credit Facilities") available to the Hong Kong Borrower in an initial aggregate principal amount of $150 million (which was reduced to $125 million pursuant to an amendment adopted in 2013) with a final maturity date of January 31, 2016. The 2012 Term Facility was increased to $145 million pursuant to joinder agreements entered into in June 2012 (and we pre-paid $40 million of the 2012 Term Facility in February 2013).

        On October 30, 2013, we terminated the 2012 Credit Agreement and paid off all outstanding borrowing under the 2012 Credit Agreement using available cash. For additional information on the 2012 Credit Agreement, see Note 11 to the notes to our condensed consolidated financial statements Item 8 "Financial Statements" included elsewhere in this Annual Report on Form 10-K.

    3.00% Convertible Senior Notes due 2017

        On September 28, 2012, we issued $220.0 million aggregate principal amount of 3.00% Convertible Senior Notes due 2017 (the "2017 Notes"). The net proceeds from the issuance of the 2017 Notes were approximately $212.6 million, after deducting fees paid to the initial purchasers and other offering costs. The 2017 Notes are our senior unsecured obligations, which pay interest in cash semi-annually (on April 1 and October 1 of each year) at a rate of 3.00% per annum beginning on April 1, 2013. The 2017 Notes are governed by an Indenture dated September 28, 2012 with U.S. Bank National Association, as trustee (the "2017 Indenture"). The 2017 Notes are not redeemable by us.

        The 2017 Notes will mature on October 1, 2017, unless earlier repurchased or converted in accordance with their terms prior to such date. The 2017 Notes may be converted, under those certain conditions identified in the 2017 Indenture, based on an initial conversion rate of 129.7185 shares of

88


Table of Contents

common stock per $1,000 principal amount of 2017 Notes (which represents an initial effective conversion price of the 2017 Notes of $7.71 per share), subject to adjustment as also described in the 2017 Indenture.

        In accordance with accounting guidance for debt with conversion and other options, we accounted for the liability and equity components of the 2017 Notes separately. The estimated fair value of the liability component at the date of issuance was $154.9 million and was computed based on the fair value of similar debt instruments that do not include a conversion feature. The equity component of $65.1 million was recognized as a debt discount and represents the difference between the $220.0 million of gross proceeds from the issuance of the 2017 Notes and the $154.9 million estimated fair value of the liability component at the date of issuance.

        Issuance costs of $7.4 million related to the issuance of the 2017 Notes were allocated to the liability and equity components in proportion to the allocation of the proceeds and accounted for as capitalized debt issuance costs and equity issuance costs, respectively.

        For additional information, refer to Note 11 of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

    Convertible Note Hedge Transactions and Warrant Transactions

        In connection with the offering of the 2017 Notes, we entered into separate convertible note hedging transactions and warrant transactions with multiple counterparties.

        Pursuant to the convertible note hedges, we purchased call options on our common stock, under which we have the right to acquire from the counterparties up to 28.5 million shares of our common stock, or an equivalent amount in cash or a combination of cash and shares, subject to customary anti-dilution adjustments, at a strike price of $7.71, that is equal to the initial conversion price of the 2017 Notes. Our exercise rights under the call options trigger upon conversion of the 2017 Notes and the call options terminate upon the maturity of the 2017 Notes, or the first day the 2017 Notes are no longer outstanding. The convertible note hedges may be settled in cash, shares of our common stock, or a combination thereof, at our option, and are intended to reduce our exposure to potential cash payments or potential dilution upon conversion of the 2017 Notes. We paid $57.9 million for the convertible note hedges.

        We also sold warrants to multiple counterparties that provide the counterparties rights to acquire from us up to approximately 28.5 million shares of our common stock. The strike price of the warrants will initially be $9.9328 per share, which is 67.5% above the last reported sale price of our common stock on September 24, 2012. The warrants expire incrementally on a series of expiration dates following the maturity dates of the 2017 Notes. At expiration, if the market price per share of our common stock exceeds the strike price of the warrants, we will be obligated to issue shares of our common stock having a value equal to such excess. The warrants could have a dilutive effect on earnings per share to the extent that the market value per share of the our common stock exceeds the strike price of the warrants. Proceeds received from the warrant transactions totaled $41.6 million.

3.00% Convertible Senior Notes due 2020

        On December 10, 2013, we issued $214.0 million aggregate principal amount of 3.00% Convertible Senior Notes due 2020 (the "2020 Notes"). The net proceeds from the issuance of the 2020 Notes were approximately $206.5 million, after deducting fees paid to the initial purchasers and other offering costs. The 2020 Notes are our senior unsecured obligations, which pay interest in cash semi-annually (on June 15 and December 15 of each year) at a rate of 3.00% per annum beginning on June 15, 2014. The 2020 Notes are governed by an Indenture dated December 10, 2013 with U.S. Bank National Association, as trustee (the "2020 Indenture"). The 2020 Notes are not redeemable by us.

89


Table of Contents

        The 2020 Notes will mature on December 15, 2020, unless earlier repurchased or converted in accordance with their terms prior to such date. The 2020 Notes may be converted, under those certain conditions identified in the 2020 Indenture, based on an initial conversion rate of 82.5764 shares of common stock per $1,000 principal amount of 2020 Notes (which represents an initial effective conversion price of the 2020 Notes of $12.11 per share), subject to adjustment as described in the 2020 Indenture.

        In accordance with accounting guidance for debt with conversion and other options, we accounted for the liability and equity components of the 2020 Notes separately. The estimated fair value of the liability component at the date of issuance was $115.2 million and was computed based on the fair value of similar debt instruments that do not include a conversion feature. The equity component of $98.8 million was recognized as a debt discount and represents the difference between the $214.0 million of gross proceeds from the issuance of the 2020 Notes and the $115.2 million estimated fair value of the liability component at the date of issuance.

        Issuance costs of $7.5 million related to the issuance of the 2020 Notes were allocated to the liability and equity components in proportion to the allocation of the proceeds and accounted for as capitalized debt issuance costs and equity issuance costs, respectively.

        For additional information, refer to Note 11 of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Agreements with Apple Inc.

        On October 31, 2013, our principal U.S. subsidiary, GTAT Corp., entered into a Prepayment Agreement with Apple pursuant to which we are eligible to receive $578.0 million (the "Prepayment Amount"), in four separate installments, as payment in advance for the purchase of sapphire material. We are required to repay this amount ratably over a five year period ending in January 2020, either as a credit against amounts due from Apple purchases of sapphire material under the MDSA or as a direct cash payment. The Prepayment Amount is non-interest bearing. Our obligation to repay the Prepayment Amount may be accelerated under certain circumstances. Our obligations under the Prepayment Agreement are secured by the assets held by GT Equipment Holdings LLC (a wholly-owned subsidiary of GTAT Corp.), which principally consists of the ASF systems purchased with the Prepayment Amount and the portion of the Prepayment Amount which is held by GT Equipment Holdings LLC and not yet disbursed to purchase ASF systems, and a pledge of all of the equity interests of GT Equipment Holdings LLC. While the MDSA specifies the Company's minimum and maximum supply commitments, there are no minimum purchase requirements under the terms of the MDSA.

        For additional information, refer to Note 3 of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Derivatives and Hedging Activities

        We enter into foreign currency forward exchange contracts to hedge certain cash flow exposures from the impact of changes on foreign currency exchange rates. These forward foreign exchange contracts are entered into in connection with certain foreign currency denominated inventory purchases made in the normal course of business and accordingly are not speculative in nature.

        As of December 31, 2013, we had no outstanding forward foreign exchange contracts.

        During the fiscal year ended December 31, 2013, we did not record any other expense in connection with ineffective portions of certain foreign currency forward exchange contracts.

90


Table of Contents

        Changes in the fair value of our cash flow hedges are recognized in stockholders' equity as a component of accumulated other comprehensive loss as these financial instruments qualify for hedge accounting.

Off-Balance Sheet Arrangements

        We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

    Standby Letters of Credit

        As of December 31, 2013, we had $1.3 million of standby letters of credit outstanding. These letters of credit were cash collateralized and represented performance guarantees issued against certain equipment customer deposits. These standby letters of credit are scheduled to expire within the next twelve months and have not been included in the consolidated financial statements included herein.

Contractual Obligations and Commercial Commitments

        We have contractual obligations and commitments in the form of operating leases, purchase commitments, contingent consideration, prepayment obligations, debt obligations and certain other liabilities.

        The following table reflects our contractual obligations and commercial commitments as of December 31, 2013:

 
  Payments due by period  
 
  Total   Less than
1 year
  1 - 3 years   3 - 5 years   More than
5 years
 
 
  (dollars in thousands)
 

Operating lease obligations(a)

  $ 19,673   $ 5,183   $ 4,634   $ 3,234   $ 6,622  

Purchase commitments under agreements(b)

    473,639     454,325     19,114     200      

Contingent consideration obligations(c)

    75,085     16,391     26,944     17,500     14,250  

Long term debt obligations(d)

    434,000             220,000     214,000  

Prepayment obligation(e)

    225,000         90,000     90,000     45,000  

Interest obligations(d)

    69,282     13,020     26,040     17,772     12,450  

Other long-term liabilities(f)(g)

    3,959     3,772             187  
                       

Total

  $ 1,300,638   $ 492,691   $ 166,732   $ 347,060   $ 294,155  
                       
                       

(a)
These amounts represent our minimum operating lease payments due under non-cancellable operating leases as of December 31, 2013. For additional information about our operating leases, refer to Note 15 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

(b)
Purchase commitments under agreements relate to arrangements entered into with suppliers of polysilicon, PV and sapphire raw materials and ancillary equipment. These agreements specify future quantities and pricing of products to be supplied by the vendors and we may be subject to a financial penalty, including forfeiting any deposits in the event that we terminate the arrangements. Certain portions of the purchase commitments are satisfied in advance of the delivery of goods in the form of prepayments, which are then offset against future orders upon delivery. As of

91


Table of Contents

    December 31, 2013, our outstanding prepayments under certain of these purchase commitments amounted to $39.0 million.

(c)
Consists of contingent payments, which have not been risk adjusted or discounted, that we may be obligated to in connection with the Thermal Technology and Twin Creeks acquisitions based on the full achievement of certain contingent consideration targets.

(d)
Amounts relate to the principal amounts due under our 3.00% Senior Convertible Notes due 2017 and 2020. For additional information about our long-term debt, refer to Note 11 of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

(e)
Amounts relate to repayment of funds received as of December 31, 2013 in relation to the Prepayment Agreement with Apple Inc. Refer to Note 11 of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information.

(f)
Other long-term liabilities are a liability related to asset retirement obligations and long-term employee incentive payments. Amounts related to asset retirement obligations represent the amounts expected to be paid in the future based on our current estimates of the costs to complete our obligations.

(g)
Liabilities for unrecognized income tax benefits, and the associated interest and penalties, of $28.1 million as of December 31, 2013 are not included in the table above as we are uncertain as to if or when such amounts may be settled.

Recent Accounting Pronouncements

        In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-11, Income Taxes (Topic 740): Presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance eliminates diversity in practice surrounding the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance requires entities to net an unrecognized tax benefit with a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if the carryforward would be used to settle additional tax due upon disallowance of a tax position. The amendment is effective for fiscal periods beginning after December 15, 2013 with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our financial statements.

Recently Adopted Accounting Pronouncements

        Effective January 1, 2013, we adopted Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The guidance is intended to provide disclosure on items reclassified out of accumulated other comprehensive income either in the notes or parenthetically on the face of the income statement. The required disclosure is in Note 23 within Item 8 of this Annual Report.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

Investment Risks

        We maintain an investment portfolio which, at December 31, 2013, consisted of $462.9 million of money market mutual funds. At any time a rise in market interest rates could have an adverse impact on the fair value of our investment portfolio. Conversely, declines in market interest rates could have a material impact on the interest earnings of our investment portfolio. We do not currently hedge these interest rate exposures. We place our investments with high quality issuers and have investment policies

92


Table of Contents

limiting, among other things, the amount of credit exposure to any one issuer. We seek to limit default risk by purchasing only investment grade securities. Based on investment positions as of December 31, 2013, a hypothetical movement of plus or minus 50 basis points based on current market interest rates would not have a material impact to the value of our investment portfolio or the income earned in an annual period. We also have the ability to hold our investments until maturity, and therefore do not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio.

        We may elect to invest a significant amount of our cash in fixed income portfolios. As with most fixed income portfolios, the ones that we have invested in from time to time, or may elect to invest in, include overnight money market funds, government securities, certificates of deposit, commercial paper of companies and other highly-liquid securities that are believed to be low-risk. Certain money market funds in which we invest, however, could hold positions in securities issued by both sovereign states and banks located in jurisdictions experiencing macroeconomic instability, some of which may not currently be considered low-risk. Certain sovereign states and banks located in these jurisdictions, have experienced severe disruptions lately, in part, from the belief that they may be unable to repay their debt, and the value of the securities issued by these institutions have experienced volatility. While we do not believe that we have any direct exposure to the riskiest securities, for example, we do not directly hold any securities issued by the governments of Greece, Spain, Portugal, France and Ireland, the funds that we may invest in may hold these securities. In addition, these money market funds could hold Euros or Euro-based securities. To the extent that volatility was to have a significant impact on the Euro, a portion of any cash held in money market accounts could lose its value. Further, if the financial upheavals were to spread to other sovereign states, such as the United Kingdom, our cash could also be at risk due to the fact that the funds in which we have placed our cash do invest directly in the securities issued by the sovereign states, corporations and banks in these jurisdictions.

Foreign Currency Risk

        Although our reporting currency is the U.S. dollar and substantially all of our existing sales contracts are denominated in U.S. dollars, we incur costs denominated in other currencies. In addition, although we maintain our cash balances primarily in the U.S. dollar, from time to time, we maintain cash balances in currencies other than the U.S. dollar. As a result, we are subject to currency risk.

        Our primary foreign currency exposure relates to fluctuations in foreign currency exchange rates, primarily the euro for certain inventory purchases from vendors located in Europe. Fluctuations in exchange rates could affect our gross and net profit margins and could result in foreign exchange and operating losses or gains due to such volatility. Changes in the customer's delivery schedules can affect related payments to our vendors which could cause fluctuations in the cash flows and when we expect to make payments when these cash flows are realized or settled.

        Exchange rates between a number of currencies and U.S. dollars have fluctuated significantly over the last few years and future exchange rate fluctuations may occur.

        We enter into forward foreign currency exchange contracts that qualify as cash flow hedges to hedge portions of certain of our anticipated foreign currency denominated inventory purchases. These contracts typically expire within 12 months. Consistent with the nature of the economic hedges provided by these forward foreign currency exchange contracts, increases or decreases in their fair values would be effectively offset by corresponding decreases or increases in the U.S. dollar value of our future foreign currency denominated inventory purchases (i.e., "hedged items").

        As of December 31, 2013, we had no outstanding forward foreign currency exchange contracts.

93


Table of Contents

Interest Rate Risk

3.00% Convertible Senior Notes due 2017

        On September 28, 2012, we issued $220 million aggregate principal amount of our 3.00% Convertible Senior Notes due 2017 (2017 Notes). The 2017 Notes were issued under the indenture with U.S. Bank National Association, as trustee, dated September 28, 2012. For additional information on the 2017 Notes, see Note 11 to the notes to our consolidated financial statements in Item 8 "Financial Statements" included elsewhere in this Annual Report on Form 10-K.

        The interest rate on the 2017 Notes is fixed at 3.0% per annum. The fair market value of the 2017 Notes is subject to interest rate risk and market risk due to the convertible feature of the 2017 Notes. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The fair market value of the 2017 Notes will also increase as the market price of our stock increases and decrease as the market price falls. The interest and market value changes affect the fair market value of the 2017 Notes but do not impact our financial position, cash flows or results of operations.

3.00% Convertible Senior Notes due 2020

        On December 10, 2013, we issued $214 million aggregate principal amount of 3.00% Convertible Senior Notes due 2020 (the "2020 Notes"). The 2020 Notes are governed by an Indenture dated December 10, 2013 with U.S. Bank National Association, as trustee (the "Indenture"). For additional information on the 2020 Notes, see Note 11 to the notes to our consolidated financial statements in Item 8 "Financial Statements" included elsewhere in this Annual Report on Form 10-K.

        The interest rate on the 2020 Notes is fixed at 3.0% per annum. The fair market value of the 2020 Notes is subject to interest rate risk and market risk due to the convertible feature of the 2020 Notes. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The fair market value of the 2020 Notes will also increase as the market price of our stock increases and decrease as the market price falls. The interest and market value changes affect the fair market value of the 2020 Notes but do not impact our financial position, cash flows or results of operations.

94


Table of Contents

Item 8.    Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

 
  Page  

Consolidated Balance Sheets at December 31, 2013 and December 31, 2012

    96  

Consolidated Statements of Operations for the fiscal year ended December 31, 2013, the nine-month period ended December 31, 2012 and the fiscal year ended March 31, 2012

   
97
 

Consolidated Statements of Comprehensive (Loss) Income for the fiscal year ended December 31, 2013, the nine-month period ended December 31, 2012 and the fiscal year ended March 31, 2012

   
98
 

Consolidated Statements of Changes in Stockholders' Equity for the fiscal year ended December 31, 2013, the nine-month period ended December 31, 2012 and the fiscal year ended March 31, 2012

   
99
 

Consolidated Statements of Cash Flows for the fiscal year ended December 31, 2013, the nine-month period ended December 31, 2012 and the fiscal year ended March 31, 2012

   
100
 

Notes to Consolidated Financial Statements

   
101
 

Reports of Independent Registered Public Accounting Firm

   
156
 

95


Table of Contents


GT Advanced Technologies Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

 
  December 31,
2013
  December 31,
2012
 

Assets

             

Current assets:

             

Cash and cash equivalents

  $ 498,213   $ 418,095  

Restricted cash

    1,330      

Accounts receivable, net

    12,377     23,829  

Inventories

    39,087     133,286  

Deferred costs

    2,977     30,248  

Vendor advances

    1,341     32,440  

Deferred income taxes

    17,881     28,226  

Refundable income taxes

    2,759     1,516  

Prepaid expenses and other current assets

    7,003     9,168  
           

Total current assets

    582,968     676,808  

Restricted cash

    93,419      

Property, plant and equipment, net

    209,760     77,980  

Intangible assets, net

    95,943     90,516  

Goodwill

    54,279     48,021  

Other assets

    150,912     111,343  
           

Total assets

  $ 1,187,281   $ 1,004,668  
           
           

Liabilities and stockholders' equity

             

Current liabilities:

             

Current portion of long-term debt

  $   $ 7,250  

Accounts payable

    77,303     44,848  

Accrued expenses

    39,115     30,928  

Contingent consideration

    234     4,901  

Customer deposits

    38,995     111,777  

Deferred revenue

    19,724     86,098  

Accrued income taxes

    301     21,716  
           

Total current liabilities

    175,672     307,518  

Long-term debt

        132,313  

Prepayment obligation

    172,475      

Convertible notes

    283,914     157,440  

Deferred income taxes

    23,448     24,459  

Customer deposits

    55,598     71,340  

Deferred revenue

    99,672     35,848  

Contingent consideration

    15,173     5,414  

Other non-current liabilities

    808     2,323  

Accrued income taxes

    28,116     25,762  
           

Total liabilities

    854,876     762,417  

Commitments and contingencies (Note 15)

             

Stockholders' equity:

   
 
   
 
 

Preferred stock, 10,000 shares authorized, none issued and outstanding

         

Common stock, $0.01 par value; 500,000 shares authorized, 134,463 and 119,293 shares issued and outstanding as of December 31, 2013 and December 31, 2012, respectively

    1,345     1,193  

Additional paid-in capital

    355,916     183,565  

Accumulated other comprehensive income

    1,259     806  

(Accumulated deficit) retained earnings

    (26,115 )   56,687  
           

Total stockholders' equity

    332,405     242,251  
           

Total liabilities and stockholders' equity

  $ 1,187,281   $ 1,004,668  
           
           

   

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

96


Table of Contents


GT Advanced Technologies Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

 
  Fiscal Year
Ended
December 31,
2013
  Nine-Month
Period Ended
December 31,
2012
  Fiscal Year
Ended
March 31, 2012
 

Revenue

  $ 298,967   $ 379,646   $ 955,705  

Cost of revenue

    205,920     325,570     528,905  
               

Gross profit

    93,047     54,076     426,800  

Operating expenses:

   
 
   
 
   
 
 

Research and development

    83,006     55,401     49,872  

Sales and marketing

    15,379     12,408     19,763  

General and administrative

    68,967     44,362     64,117