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Washington, D.C. 20549
For the quarterly period ended June 30, 2012
For the transition period from to .
Commission file number 0-16244
VEECO INSTRUMENTS INC.
(Exact Name of Registrant as Specified in Its Charter)
Registrants telephone number, including area code: (516) 677-0200
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
39,156,634 shares of common stock, $0.01 par value per share, were outstanding as of the close of business on July 23, 2012.
SAFE HARBOR STATEMENT
This Quarterly Report on Form 10-Q (the Report) contains 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. Discussions containing such forward-looking statements may be found in Part I. Items 2 and 3 hereof, as well as within this Report generally. In addition, when used in this Report, the words believes, anticipates, expects, estimates, plans, intends and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. These risks and uncertainties include, without limitation, the following:
· Our operating results have been, and may continue to be, adversely affected by unfavorable market conditions;
· Market adoption of LED technology for general lighting could be slower than anticipated;
· Our failure to successfully manage our outsourcing activities or failure of our outsourcing partners to perform as anticipated could adversely affect our results of operations and our ability to adapt to fluctuating order volumes;
· The further reduction or elimination of foreign government subsidies and economic incentives may adversely affect the future order rate for our MOCVD equipment;
· Our operating results have been, and may continue to be, adversely affected by tightening credit markets;
· Our backlog is subject to customer cancellation or modification and such cancellation could result in decreased sales and increased provisions for excess and obsolete inventory and/or liabilities to our suppliers for products no longer needed;
· The failure to estimate customer demand accurately could result in excess or obsolete inventory and\or liabilities to our suppliers for products no longer needed, while manufacturing interruptions or delays could affect our ability to meet customer demand;
· The cyclicality of the industries we serve directly affects our business;
· We rely on a limited number of suppliers, some of whom are our sole source for particular components;
· Our sales to HB LED and data storage manufacturers are highly dependent on these manufacturers sales for consumer electronics applications, which can experience significant volatility due to seasonal and other factors, which could materially adversely impact our future results of operations;
· We are exposed to the risks of operating a global business, including the need to obtain export licenses for certain of our shipments and political risks in the countries we operate;
· The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly;
· We operate in industries characterized by rapid technological change;
· We face significant competition;
· We depend on a limited number of customers, located primarily in a limited number of regions, that operate in highly concentrated industries;
· Our sales cycle is long and unpredictable;
· Our inability to attract, retain, and motivate key employees could have a material adverse effect on our business;
· The price of our common shares may be volatile and could decline significantly;
· We are subject to foreign currency exchange risks;
· The enforcement and protection of our intellectual property rights may be expensive and could divert our limited resources;
· We may be subject to claims of intellectual property infringement by others;
· Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and
integrating these businesses;
· We may be required to take additional impairment charges for goodwill and indefinite-lived intangible assets or definite-lived intangible and long-lived assets;
· Changes in accounting pronouncements or taxation rules or practices may adversely affect our financial results.
· We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act;
· We are subject to risks of non-compliance with environmental, health and safety regulations.
· We have significant operations in locations which could be materially and adversely impacted in the event of a natural disaster or other significant disruption;
· We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company by another company more difficult; and
· The matters set forth in this Report generally, including the risk factors set forth in Part 2. Item 1A. Risk Factors.
Consequently, such forward-looking statements should be regarded solely as the Companys current plans, estimates, and beliefs. The Company does not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.
We file annual, quarterly and current reports, information statements and other information with the Securities and Exchange Commission (the SEC). The public may obtain information by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.
We maintain a website where additional information concerning our business and various upcoming events can be found. The address of our website is www.veeco.com. We provide a link on our website, under Investors Financial Information SEC Filings, through which investors can access our filings with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to such reports. These filings are posted to our website, as soon as reasonably practicable after we electronically file such material with the SEC.
VEECO INSTRUMENTS INC.
(In thousands, except per share data)
Veeco Instruments Inc. and Subsidiaries
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Note 1Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Veeco Instruments Inc. (together with its consolidated subsidiaries, Veeco, the Company or we) have been prepared in accordance with accounting principles generally accepted in the United States (U.S.) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. Operating results for the three and six months ended June 30, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011.
Consistent with prior years, we report interim quarters, other than fourth quarters which always end on December 31, on a 13-week basis ending on the last Sunday of each period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 2012 interim quarter ends are April 1, July 1 and September 30. The 2011 interim quarter ends were April 3, July 3 and October 2. For ease of reference, we report these interim quarter ends as March 31, June 30 and September 30 in our interim condensed consolidated financial statements.
Income Per Common Share
The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding (in thousands):
Basic income per common share is computed using the weighted average number of common shares outstanding during the period. Diluted income per common share is computed using the weighted average number of common shares and common equivalent shares outstanding during the period.
During the second quarter of 2011, the entire outstanding principal balance of our convertible debt was converted, with the principal amount paid in cash and the conversion premium paid in shares. The convertible notes met the criteria for determining the effect of the assumed conversion using the treasury stock method of accounting, since we had settled the principal amount of the notes in cash. Using the treasury stock method, it was determined that the impact of the assumed conversion for the three and six months ended June 30, 2011, had a dilutive effect of 0.9 million and 1.2 million common equivalent shares, respectively.
Derivative Financial Instruments
We use derivative financial instruments to minimize the impact of foreign exchange rate changes on earnings and cash flows. In the normal course of business, our operations are exposed to fluctuations in foreign exchange rates. In order to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known foreign currency exposures, we enter into monthly forward contracts. We do not use derivative financial instruments for trading or speculative purposes. Our forward contracts are not expected to subject us to material risks due to exchange rate movements because gains and losses on these contracts are intended to offset exchange gains and losses on the underlying assets and liabilities. The forward contracts are marked-to-market through earnings. We conduct our derivative transactions with highly rated financial institutions in an effort to mitigate any material credit risk.
The aggregate foreign currency exchange loss included in determining the condensed consolidated results of
operations was approximately $0.3 million during the three and six months ended June 30, 2012 and $0.1 million and $0.4 million during the three and six months ended June 30, 2011, respectively. Included in the aggregate foreign currency exchange losses were losses (gains) related to forward contracts of $0.2 million and $0.1 million during the three and six months ended June 30, 2012, respectively and ($0.3) million and ($0.8) million during the three and six months ended June 30, 2011. These amounts were recognized and are included in Other, net in the accompanying Condensed Consolidated Statements of Income.
As of June 30, 2012 and December 31, 2011, there were no gains or losses related to forward contracts included in prepaid expenses and other current assets or accrued expenses and other current liabilities. Monthly forward contracts with a notional amount of $0.6 million, entered into in June 2012 for October 2012, will be settled in October 2012.
The weighted average notional amount of derivative contracts outstanding during the three and six months ended June 30, 2012 was approximately $1.3 million and $2.5 million, respectively.
Note 2 Discontinued Operations
CIGS Solar Systems Business
On July 28, 2011, we announced a plan to discontinue our CIGS solar systems business. The action, which was completed on September 27, 2011, was in response to the dramatically reduced cost of mainstream solar technologies driven by significant reductions in prices, large industry investment, a lower than expected end market acceptance for CIGS technology and technical barriers in scaling CIGS. This business was previously included as part of our LED & Solar segment.
Accordingly, the results of operations for the CIGS solar systems business have been recorded as discontinued operations in the accompanying condensed consolidated statements of income for all periods presented. During the three and six months ended June 30, 2011, total discontinued operations include charges totaling $59.3 million and $66.8 million, respectively. These charges include an inventory write-off totaling $33.4 million, charges to settle contracts totaling $11.1 million and an asset impairment charge totaling $6.2 million.
On August 15, 2010, we signed a definitive agreement to sell our Metrology business to Bruker Corporation (Bruker) comprising our entire Metrology reporting segment for $229.4 million. Accordingly, Metrologys operating results were accounted for as discontinued operations and the related assets and liabilities were classified as held for sale. The sale transaction closed on October 7, 2010, except for assets located in China due to local restrictions. Total proceeds, which included a working capital adjustment of $1 million, totaled $230.4 million of which $7.2 million relates to the net assets in China. The Company recorded a liability to defer the gain of $5.4 million on disposal related to the assets in China. During the three months ended June 30, 2012, the Company recorded a $1.4 million gain on the sale of assets of this discontinued segment that were held for sale.
Summary information related to discontinued operations is as follows (in thousands):
Liabilities of discontinued segment held for sale, totaling $5.4 million, as of June 30, 2012 and December 31, 2011, consist of the deferred gain related to the net assets of the former Metrology business in China.
Note 3 Equity
Equity-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over each employees requisite service period. The following compensation expense was included in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2012 and 2011 (in thousands):
As a result of the discontinuance of our CIGS solar systems business, equity-based compensation expense related to the business totaling $0.3 million and $0.6 million has been classified as discontinued operations in determining the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2011, respectively.
As of June 30, 2012, the total unrecognized compensation costs related to nonvested stock and stock option awards was $21.8 million and $18.5 million, respectively. The related weighted average period over which we expect that such unrecognized compensation costs will be recognized is approximately 3.1 years for nonvested stock awards and 2.3 years for option awards.
Stock Option and Restricted Stock Activity
A summary of our restricted stock awards including restricted stock units for the six months ended June 30, 2012, is presented below:
A summary of our stock option awards for the six months ended June 30, 2012, is presented below:
On August 24, 2010, our Board of Directors authorized the repurchase of up to $200 million of our common stock. During the three months ended June 30, 2011, we purchased 165,288 shares for $7.8 million (including transaction costs) under the program at an average cost of $46.91 per share. This stock repurchase is included as a reduction to Equity in the Condensed Consolidated Balance Sheet. All funds for this repurchase program were exhausted as of August 19, 2011. Repurchases were made from time to time on the open market in accordance with applicable federal securities laws. During the three months ended June 30, 2012, we cancelled and retired the 5,278,828 shares of treasury stock we purchased under the repurchase program. As a result of this transaction, we recorded a reduction in treasury stock of $200.2 million and a corresponding reduction of $200.1 million and $0.1 million in retained earnings and common stock, respectively.
Note 4Balance Sheet Information
Available-for-sale securities consist of the following (in thousands):
During the three and six months ended June 30, 2012, available-for-sale securities were sold for total proceeds of $55.9 million and $99.5 million, respectively. The gross realized gains and losses on these sales were minimal for the three and six months ended June 30, 2012. For purpose of determining gross realized gains and losses, the cost of securities sold is based on specific identification. Net unrealized holding losses on available-for-
sale securities of $0.1 million and $0.2 million for the three and six months ended June 30, 2012, respectively, have been included in accumulated other comprehensive income. During the three and six months ended June 30, 2011, available-for-sale securities were sold for total proceeds of $252.0 million and $374.2 million, respectively. The gross realized gains on these sales were $0.2 million for the three and six months ended June 30, 2011. Net unrealized holding gains on available-for-sale securities amounting to $0.2 million for the three and six months ended June 30, 2011, have been included in accumulated other comprehensive income.
Contractual maturities of available-for-sale debt securities at June 30, 2012, are as follows (in thousands):
Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
As of June 30, 2012 and December 31, 2011, restricted cash consisted of $0.9 million and $0.6 million, respectively, which serves as collateral for bank guarantees that provide financial assurance that the Company will fulfill certain customer obligations. This cash is held in custody by the issuing bank, and is restricted as to withdrawal or use while the related bank guarantees are outstanding.
Accounts Receivable, net
Accounts receivable are shown net of the allowance for doubtful accounts of $0.5 million as of June 30, 2012 and December 31, 2011.
Inventories are stated at the lower of cost (principally first-in, first-out) or market. Inventories consist of (in thousands):
We estimate the costs that may be incurred under the warranty we provide and record a liability in the amount of such costs at the time the related revenue is recognized. Factors that affect our warranty liability include product failure rates, material usage and labor costs incurred in correcting product failures during the warranty period. We periodically assess the adequacy of our recognized warranty liability and adjust the amount as necessary. Changes in our warranty liability during the period are as follows (in thousands):
Note 5Segment Information
We manage the business, review operating results and assess performance, as well as allocate resources, based upon two separate reporting segments that reflect the market focus of each business. The Light Emitting Diode (LED) & Solar segment consists of metal organic chemical vapor deposition (MOCVD) systems, molecular beam epitaxy (MBE) systems and thermal deposition sources. These systems are primarily sold to customers in the high-brightness LED (HB LED), wireless devices and solar industries, as well as to scientific research customers. This segment has manufacturing, product development and marketing sites in Somerset, New Jersey, Poughkeepsie, New York and St. Paul, Minnesota. The Data Storage segment consists of the ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition and dicing and slicing products sold primarily to customers in the data storage industry. This segment has manufacturing, product development and marketing sites in Plainview, New York, Camarillo, California and Ft. Collins, Colorado.
We evaluate the performance of our reportable segments based on income (loss) from continuing operations before interest, income taxes, amortization and certain items (Segment profit (loss)), which is the primary indicator used to plan and forecast future periods. The presentation of this financial measure facilitates meaningful comparison with prior periods, as management believes Segment profit (loss) reports baseline performance and thus provides useful information. Certain items include restructuring charges, equity-based compensation expense and loss on extinguishment of debt. The accounting policies of the reportable segments are the same as those described in the summary of critical accounting policies.
The following tables present certain data pertaining to our reportable product segments and a reconciliation of segment profit (loss) to income (loss) from continuing operations before income taxes for the three and six months ended June 30, 2012 and 2011, respectively, and goodwill and total assets as of June 30, 2012 and December 31, 2011 (in thousands):
As of June 30, 2012 and December 31, 2011 corporate total assets were comprised principally of cash and cash equivalents and short-term investments.
We have a mortgage payable, with approximately $2.5 million outstanding as of June 30, 2012. The mortgage accrues interest at an annual rate of 7.91%, and the final payment is due on January 1, 2020. The fair value of the mortgage as of June 30, 2012 was approximately $2.7 million.
During the first quarter of 2011, at the option of the holders, $7.5 million of our convertible notes were tendered for conversion at a price of $45.95 per share in a net share settlement. We paid the principal amount of $7.5
million in cash and issued 111,318 shares of our common stock. We recorded a loss on extinguishment totaling $0.3 million related to these transactions.
During the second quarter of 2011, we issued a notice of redemption on the remaining outstanding principal balance of notes outstanding. As a result, at the option of the holders, the notes were tendered for conversion at a price of $50.59 per share, calculated as defined in the indenture relating to the notes, in a net share settlement. As a result, we paid the principal amount of $98.1 million in cash and issued 1,660,095 shares of our common stock. We recorded a loss on extinguishment totaling $3.0 million related to these transactions.
Note 7 Fair Value Measurements
We have categorized our assets and liabilities recorded at fair value based upon the fair value hierarchy. The levels of fair value hierarchy are as follows:
· Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.
· Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
· Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, we categorize such assets or liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset.
Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category presented below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs.
The major categories of assets and liabilities measured on a recurring basis, at fair value, as of June 30, 2012 and December 31, 2011, are as follows (in millions):
Government agency securities and treasury bills that are classified as cash equivalents are carried at cost, which approximates market value. Accordingly, no gains or losses (realized/unrealized) have been incurred for cash equivalents. All investments classified as available-for-sale contain quoted prices in active markets.
The major categories of assets and liabilities measured on a nonrecurring basis, at fair value, as of June 30, 2012 and December 31, 2011, are as follows (in millions):
Note 8 Business Combination
On April 4, 2011, we purchased a privately-held company which supplies certain components to our business for $28.3 million in cash. As a result of this purchase, we acquired $16.4 million of definite-lived intangibles, of which $13.6 million related to core technology, and $15.1 million of goodwill. The financial results of this acquisition are included in our LED & Solar segment as of the acquisition date.
Veeco Instruments Inc. (together with its consolidated subsidiaries, Veeco, the Company or we) creates Process Equipment solutions that enable technologies for a cleaner and more productive world. We design, manufacture and market equipment primarily sold to make light emitting diodes (LEDs) and hard-disk drives, as well as for emerging applications such as concentrator photovoltaics, power semiconductors, wireless components, microelectromechanical systems (MEMS), and other next-generation devices.
Veeco focuses on developing highly differentiated, best-in-class Process Equipment products for critical performance steps. Our products feature leading technology, low cost-of-ownership and high throughput, offering a time-to-market advantage for our customers around the globe. Core competencies in advanced thin film technologies, over 200 patents and decades of specialized process know-how helps us to stay at the forefront of these demanding industries.
Veecos LED & Solar segment designs and manufactures metal organic chemical vapor deposition (MOCVD) and molecular beam epitaxy (MBE) systems and components sold to manufacturers of LEDs, wireless devices, power semiconductors, and concentrator photovoltaics, as well as for R&D applications. In 2011, we discontinued the sale of our products related to Copper, Indium, Gallium, Selenide (CIGS) solar systems technology.
Veecos Data Storage segment designs and manufactures the critical technologies used to create thin film magnetic heads (TFMHs) that read and write data on hard disk drives. These technologies include ion beam etch (IBE), ion beam deposition (IBD), diamond-like carbon (DLC), physical vapor deposition (PVD), chemical vapor deposition (CVD), and slicing, dicing and lapping systems. These technologies are sold to customers in hard drive, MEMS, optical coatings and other markets.
Veecos approximately 900 employees support our customers through product and process development, training, manufacturing, and sales and service sites in the U.S., Korea, Taiwan, China, Singapore, Japan, Europe and other locations.
Highlights of the Second Quarter of 2012
· Revenue was $136.5 million, a 48% decrease from the second quarter of 2011.
· Bookings were $102.5 million, a 67% decrease from the second quarter of 2011.
· Net income from continuing operations was $11.0 million, or $0.28 per share, compared to $56.3 million, or $1.31 per share, in the second quarter of 2011.
· Gross margins were 44.9%, compared to 51.1% in the second quarter of 2011.
Third Quarter and Second Half 2012 Outlook
Veecos third quarter 2012 revenue is currently forecasted to be between $120 million and $140 million. Earnings per share are currently forecasted to be between $0.12 to $0.29 on a GAAP basis. At the midpoint of the year, we are tightening our 2012 revenue guidance to between $520 and $560 million.
While MOCVD bookings have stabilized, we have not yet seen a clear inflection in customer buying patterns. LED customers remain cautious about capacity investment plans and it remains unclear when the MOCVD market will recover. Some positive signs are emerging, including increasing tool utilization rates in Korea, Taiwan and China, and continuing customer quoting activity. Veecos Data Storage and MBE businesses also do not appear to be immune to the macro-economic sluggishness, with orders falling sequentially from the first quarter of 2012 to the second quarter.
Assuming macro-economic conditions do not worsen, we currently anticipate a gradual order recovery in the second half of 2012. Veeco is focused on keeping our infrastructure lean and discretionary costs low, while at the same time developing next-generation technology solutions to drive future growth.
Overall, we are seeing positive trends in LED lighting lower prices, more LED lamp products, and heightened consumer awareness. LED manufacturers are focused on how to position their businesses for growth as
LEDs become the dominant lighting technology.
Our outlook discussion above constitutes 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. Our expectations regarding future results are subject to risks and uncertainties. Our actual results may differ materially from those anticipated. Risks associated with our ability to achieve these results are set forth in Items 1, 1A, 3, 7 and 7A in our annual report on Form 10-K for the year ended December 31, 2011, as well as any modifications or revisions to risk factors contained in our subsequent filings with the SEC.
You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made.
Results of Operations:
Three Months Ended June 30, 2012 and 2011
Consistent with prior years, we report interim quarters, other than fourth quarters which always end on December 31, on a 13-week basis ending on the last Sunday within such period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 2012 interim quarter ends are April 1, July 1 and September 30. The 2011 interim quarter ends were April 3, July 3 and October 2. For ease of reference, we report these interim quarter ends as March 31, June 30 and September 30 in our interim condensed consolidated financial statements.
The following table shows our Condensed Consolidated Statements of Income, percentages of sales, and comparisons between the three months ended June 30, 2012 and 2011 (dollars in thousands):
* Not Meaningful
Net Sales and Bookings
Net sales of $136.5 million for the three months ended June 30, 2012 were down 48.4% compared to the prior year period. The following is an analysis of net sales by segment and by region (dollars in thousands):
By segment, LED & Solar sales decreased 60.4% in 2012 primarily due to a 64.3% decrease in MOCVD reactor shipments from the prior year period as a result of industry overcapacity following over two years of strong customer investments. Data Storage sales increased 9.0%, primarily as a result of an increase in shipments to data
storage customers to replace equipment destroyed by flooding in customer facilities in Thailand. LED & Solar sales represented 63.6% of total sales for the three months ended June 30, 2012, down from 82.8% in the prior year. Data Storage sales accounted for 36.4% of net sales, up from 17.2% in the prior year period. By region, net sales decreased by 52.6% in Asia Pacific, primarily due to a significant decrease in MOCVD sales in China. Net sales in the Americas and EMEA also decreased 26.5% and 40.0%, respectively. We believe that there will continue to be period-to-period variations in the geographic distribution of sales.
Bookings decreased 67.0% compared to the prior year period, primarily attributable to a 71.7% decrease in LED & Solar bookings that was principally driven by a decline in MOCVD bookings from the prior year period due to industry overcapacity. After hitting a peak in second quarter of 2011, Veecos bookings slowed dramatically in the second half of 2011 which continued throughout the first half of 2012. Data Storage bookings decreased 32.8% as customer consolidation activity continued to temporarily stall capacity investments.
Our book-to-bill ratio for the three months ended June 30, 2012, which is calculated by dividing bookings recorded in a given time period by revenue recognized in the same time period, was 0.75 to 1. Our backlog as of June 30, 2012 was $240.8 million, compared to $332.9 million as of December 31, 2011. During the three months ended June 30, 2012, we recorded backlog adjustments of approximately $30.4 million related to orders that no longer met our booking criteria. Our backlog consists of orders for which we received a firm purchase order, a customer-confirmed shipment date within twelve months and a deposit, where required. As of June 30, 2012, we had customer deposits and advanced billings of $52.0 million.
Gross profit, as a percentage of net sales, for the three months ended June 30, 2012, was 44.9%, compared to 51.1% in the prior year period. LED & Solar gross margins decreased to 42.7% from 51.2% primarily resulting from decreased sales volume, lower average selling price and unfavorable product mix, partially offset by product cost reductions. In this weak business environment, we anticipate continued average selling price pressure in our MOCVD business. Data Storage gross margins decreased to 48.6% from 50.5%, driven primarily by an unfavorable product mix.
Selling, general and administrative expenses decreased by $6.6 million or 23.9%, from the prior year period primarily as a result of cost controls put in place in response to declining sales. Selling, general and administrative expenses were 15.3% of net sales, compared with 10.4% of net sales in the prior year period.
Research and development expense increased $0.3 million or 1.1% from the prior year period, as the company continues its focus on product development in areas of high-growth for future end market opportunities in our LED & Solar segment. As a percentage of net sales, research and development expense increased to 17.5% from 8.9% in the prior year period.
Our provision for income taxes consists of U.S. federal, state and local and foreign taxes in amounts necessary to align our quarter-to-date tax provision with the effective tax rate we expect to achieve for the full year.
For the three months ended June 30, 2012, the Company had an effective tax rate of 28.7% and recorded a provision for income taxes of $4.4 million from continuing operations. The effective tax rate was lower than the statutory tax rate primarily due to tax rate differences in the foreign jurisdictions in which the Company operates and an income tax benefit related to the manufacturers deduction under IRC Section 199. The reduction in the effective tax rate in 2012 compared to 2011 was due to a higher portion of earnings being generated in foreign jurisdictions. A further reduction in the effective tax rate in 2012 compared to 2011 may result from the potential extension of the federal research and development tax credit which expired December 31, 2011.
For the three months ended June 30, 2011, the Company had an effective tax rate of 29.5% and recorded a provision for income taxes of $23.5 million from continuing operations. The effective tax rate was lower than the statutory tax rate primarily due to tax rate differences in the foreign jurisdictions in which the Company operates, the generation of research and development tax credits and an income tax benefit related to the manufacturers deduction under IRC Section 199.
Discontinued operations represent the results of the operations of our disposed CIGS solar systems business which was discontinued on September 27, 2011 as well as our Metrology business, which was disposed of in 2010. The three months ended June 30, 2012, included a $1.4 million gain on the sale of the assets of discontinued segment held for sale. The three months ended June 30, 2011, included the results of operations of our discontinued CIGS solar systems business.
Six Months Ended June 30, 2012 and 2011
The following table shows our Condensed Consolidated Statements of Income, percentages of sales, and comparisons between the six months ended June 30, 2012 and 2011 (dollars in thousands):