Long-Lived Asset Impairment Charges

12 Months Ended

Dec. 31, 2017

Long-lived Asset Impairment Charges

LONG-LIVED ASSET IMPAIRMENT CHARGES

5. LONG-LIVED ASSET IMPAIRMENT CHARGES

When circumstances, such as adverse market conditions, indicate that the carrying value of a long-lived asset may be impaired, the Company performs an analysis to review the recoverability of the asset’s carrying value. The Company makes estimates of the undiscounted cash flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected future operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis indicates that the carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the carrying value exceeds the estimated fair value. The estimated fair value of assets is determined using appraisal techniques which assume the highest and best use of the asset by market participants, considering the use of the asset that is physically possible, legally permissible, and financially feasible at the measurement date. Any impairment losses are recorded as operating expenses, which reduce net income.

In September 2016, as the Company believed the prospects of becoming profitable in the LED substrate market to be unlikely for the foreseeable future, the Company announced its decision to limit its focus to the optical and industrial sapphire markets and to exit the LED market. This resulted in closing of the Malaysia facility. In the fourth quarter of 2016, the Company developed a plan to scale down the remaining operations and sell additional assets that would not be needed for the Company’s business plan. In this regard, the Company identified excess U.S. machinery, equipment and facilities. The Company engaged an independent valuation company to assist in the determination of the fair value of assets to provide an updated valuation of the U.S. and Malaysia machinery and equipment. The Company evaluated its U.S. asset portfolio for the assets continuing to be used in operations using a cost and market approach to determine the current fair value. The Company evaluated its Malaysia asset portfolio and excess U.S. assets based on assuming an orderly liquidation plan which considers economic obsolescence and sales of comparable equipment, as it is the Company’s intention to sell these assets. Based on this review, the Company recorded for the year ended December 31, 2016 an asset impairment charge on U.S. and Malaysia machinery and equipment of $12.3 million.

At September 30, 2017, the Company reviewed the current fair value of its assets. With the scaling down of the Company’s U.S. operations, the Company identified at September 30, 2017, additional assets that will not be needed. The Company reduced the net book value of certain machinery and equipment and recorded an asset impairment charge of $675,000. At December 31, 2017, the Company reviewed the current fair value of the U.S. and Malaysia machinery and equipment. An impairment charge of $354,000 was recorded on lower expected sales prices for assets held for sale and identification of additional assets that will not be needed to support current operations.

The Company is actively pursuing the sale or lease of a 134,400 square foot manufacturing and office facility in Batavia, Illinois, a parcel of extra land the Company owns in Batavia, Illinois, and a 65,000 square foot facility in Penang, Malaysia. Since the expected sale price is below the book value of these properties, for the year ended December 31, 2016, an impairment charge of $14.3 million was recorded. For the year ended December 31, 2017, the expected sale price for the Batavia, Illinois facility and parcel of extra land was further reduced resulting in recording an additional impairment charge of $4.0 million.

The Company will continue to assess its long-lived assets to ensure the carrying amount of these assets is still appropriate given any changes in the asset usage, marketplace and other factors used in determining the current fair value.

The Company cannot guarantee that it will be able to successfully complete the sale or lease of any assets.

The table below summarizes the non-financial assets that were measured and recorded at fair value on a non-recurring basis as of December 31, 2017 and loss recorded during the twelve months ended December 31, 2017 on those assets:

	Carrying value at December 31, 2017		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2 )		Significant unobservable inputs (Level 3 )		Loss for twelve months ended December 31, 2017
	(in thousands)
Long-lived assets held and used	$	815	$	—	$	—	$	815	$	1,028
Long-lived assets held for sale		11,202		—		—		11,202		4,023
Total nonrecurring for value measurements	$	12,017	$	—	$	—	$	12,017	$	5,051

At December 31, 2017 long-lived assets have been reclassified from Level 2 assets to Level 3 assets as the determination of fair value for the year ended December 31, 2017 included inputs that are not readily observable or easily corroborated by observable market data.

The table below summarizes the non-financial assets that were measured and recorded at fair value on a non-recurring basis as of December 31, 2016 and loss recorded during the twelve months ended December 31, 2016 on those assets:

	Carrying value at December 31, 2016		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2 )		Significant unobservable inputs (Level 3 )		Loss for twelve months ended December 31, 2016
	(in thousands)
Long lived assets held and used	$	7,110	$	—	$	7,110	$	—	$	12,264
Long lived assets held for sale		14,761		—		14,761		—		14,290
Total nonrecurring for value measurements	$	21,871	$	—	$	21,871	$	—	$	26,554