VEECO INSTRUMENTS INC, 10-Q filed on 5/6/2015
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2015
Apr. 30, 2015
Document and Entity Information
 
 
Entity Registrant Name
VEECO INSTRUMENTS INC 
 
Entity Central Index Key
0000103145 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2015 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
40,384,427 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q1 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and cash equivalents
$ 303,123 
$ 270,811 
Short-term investments
88,997 
120,572 
Restricted cash
493 
539 
Accounts receivable, net
64,285 
60,085 
Inventory
57,197 
61,471 
Deferred cost of sales
15,506 
5,076 
Prepaid expenses and other current assets
32,102 
23,132 
Assets held for sale
6,000 
6,000 
Deferred income taxes
7,014 
7,976 
Total current assets
574,717 
555,662 
Property, plant and equipment, net
80,301 
78,752 
Goodwill
114,972 
114,959 
Deferred income taxes
1,180 
1,180 
Intangible assets, net
151,346 
159,308 
Other assets
19,574 
19,594 
Total assets
942,090 
929,455 
Current liabilities:
 
 
Accounts payable
41,128 
18,111 
Accrued expenses and other current liabilities
36,491 
48,418 
Customer deposits and deferred revenue
109,993 
96,004 
Income taxes payable
8,041 
5,441 
Deferred income taxes
120 
120 
Current portion of long-term debt
320 
314 
Total current liabilities
196,093 
168,408 
Deferred income taxes
16,041 
16,397 
Long-term debt
1,451 
1,533 
Other liabilities
4,680 
4,185 
Total liabilities
218,265 
190,523 
Stockholders' Equity:
 
 
Preferred stock, 500,000 shares authorized; no shares issued and outstanding
   
   
Common stock; $0.01 par value; 120,000,000 shares authorized; 40,375,054 and 40,360,069 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively
404 
404 
Additional paid-in capital
754,125 
750,139 
Accumulated deficit
(32,190)
(13,080)
Accumulated other comprehensive income
1,486 
1,469 
Total stockholders' equity
723,825 
738,932 
Total liabilities and stockholders' equity
$ 942,090 
$ 929,455 
Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 31, 2015
Dec. 31, 2014
Consolidated Balance Sheets
 
 
Preferred stock, shares authorized
500,000 
500,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, authorized shares
120,000,000 
120,000,000 
Common stock, shares issued
40,375,054 
40,360,069 
Common stock, shares outstanding
40,375,054 
40,360,069 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Consolidated Statements of Operations
 
 
Net sales
$ 98,341 
$ 90,841 
Cost of sales
63,205 
57,064 
Gross profit
35,136 
33,777 
Operating expenses, net:
 
 
Selling, general, and administrative
22,882 
21,667 
Research and development
18,585 
19,768 
Amortization of intangible assets
7,962 
2,903 
Restructuring
2,357 
392 
Asset impairment
126 
 
Changes in contingent consideration
 
(29,368)
Other, net
(951)
(212)
Total operating expenses, net
50,961 
15,150 
Operating income (loss)
(15,825)
18,627 
Interest income
287 
206 
Interest expense
(126)
(42)
Income (loss) before income taxes
(15,664)
18,791 
Income tax expense (benefit)
3,446 
(369)
Net income (loss)
$ (19,110)
$ 19,160 
Income (loss) per common share:
 
 
Basic (in dollars per share)
$ (0.48)
$ 0.49 
Diluted (in dollars per share)
$ (0.48)
$ 0.48 
Weighted average shares outstanding:
 
 
Basic (in shares)
39,639 
39,177 
Diluted (in shares)
39,639 
39,937 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Consolidated Statements of Comprehensive Income (Loss)
 
 
Net income (loss)
$ (19,110)
$ 19,160 
Other comprehensive income, net of tax
 
 
Unrealized gain on available-for-sale securities
32 
50 
Foreign currency translation gain (loss)
(15)
133 
Other comprehensive income, net of tax
17 
183 
Comprehensive income (loss)
$ (19,093)
$ 19,343 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Cash Flows from Operating Activities
 
 
Net income (loss)
$ (19,110)
$ 19,160 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
Depreciation and amortization
10,724 
5,771 
Deferred income taxes
607 
(798)
Asset impairment
126 
 
Share-based compensation expense
3,998 
4,722 
Gain on sale of lab tools
(12)
(920)
Change in contingent consideration
 
(29,368)
Changes in operating assets and liabilities:
 
 
Accounts receivable
(4,200)
(26,939)
Inventory and deferred cost of sales
(7,249)
8,150 
Prepaid expenses and other current assets
(8,970)
(3,410)
Accounts payable and accrued expenses
11,157 
(2,240)
Customer deposits and deferred revenue
13,989 
6,416 
Income taxes receivable and payable, net
2,600 
(612)
Other, net
628 
1,667 
Net cash provided by (used in) operating activities
4,288 
(18,401)
Cash Flows from Investing Activities
 
 
Capital expenditures
(4,781)
(2,138)
Proceeds from the liquidation of short-term investments
43,556 
32,030 
Payments for purchases of short-term investments
(11,998)
(17,989)
Proceeds from sale of lab tools
1,413 
2,340 
Other
(68)
(124)
Net cash provided by investing activities
28,122 
14,119 
Cash Flows from Financing Activities
 
 
Proceeds from stock option exercises
45 
8,316 
Payments of tax withholdings - restricted shares
(52)
(170)
Repayments of long-term debt
(76)
(70)
Net cash provided by (used in) financing activities
(83)
8,076 
Effect of exchange rate changes on cash and cash equivalents
(15)
89 
Net increase in cash and cash equivalents
32,312 
3,883 
Cash and cash equivalents - beginning of period
270,811 
210,799 
Cash and cash equivalents - end of period
303,123 
214,682 
Supplemental disclosure of cash flow information
 
 
Interest paid
36 
42 
Income taxes paid
$ 544 
$ 1,851 
Basis of Presentation
Basis of Presentation

 

Note 1 — Basis of Presentation

 

The accompanying unaudited Consolidated Financial Statements of Veeco have been prepared in accordance with U.S. GAAP as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 270, for interim financial information and with the instructions to Rule 10-01 of Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements as the interim information is an update of the information that was presented in the most recent annual financial statements. For further information, refer to Veeco’s Consolidated Financial Statements and Notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Form 10-K”). In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal, recurring nature. Certain amounts previously reported have been reclassified in the financial statements to conform to the current presentation.

 

Veeco reports interim quarters on a 13-week basis ending on the last Sunday of each period. The fourth quarter always ends on the last day of the calendar year, December 31. The 2015 interim quarters end on March 29, June 28, and September 27, and the 2014 interim quarters ended on March 30, June 29, and September 28. These interim quarters are reported as March 31, June 30 and September 30 in Veeco’s interim consolidated financial statements.

 

Revenue recognition

 

Veeco sells systems, maintenance, service, components, and spare parts. Veeco recognizes revenue when all of the following criteria have been met: persuasive evidence of an arrangement exists with a customer; delivery of the specified products has occurred or services have been rendered; prices are contractually fixed or determinable; and collectability is reasonably assured. Revenue is recorded including shipping and handling costs and excluding applicable taxes related to sales.

 

Contracts frequently contain multiple deliverables. Judgment is required to properly identify the accounting units of the multiple-element arrangements and to determine how the revenue should be allocated among the accounting units. Veeco also evaluates whether multiple transactions with the same customer or related parties should be considered part of a single, multiple-element arrangement based on an assessment of whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one another. Moreover, judgment is used in interpreting the commercial terms and determining when all criteria have been met in order to recognize revenue in the appropriate accounting period.

 

When there are separate units of accounting, Veeco allocates revenue to each element based on the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available; third party evidence (“TPE”) if VSOE is not available; or the best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. BESP is used for the majority of the elements in Veeco’s arrangements. The maximum revenue recognized on a delivered element is limited to the amount that is not contingent upon the delivery of additional items.

 

Veeco considers many facts when evaluating each of its sales arrangements to determine the timing of revenue recognition including its contractual obligations, the customer’s creditworthiness, and the nature of the customer’s post-delivery acceptance provisions. Veeco’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For the majority of the arrangements, a customer source inspection of the system is performed in Veeco’s facility or test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When Veeco objectively demonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery, revenue is recognized upon system delivery since there is no substantive contingency remaining related to the acceptance provisions at that date, subject to the retention amount constraint described below. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where Veeco can not objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are fully deferred and recognized upon the receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.

 

System sales arrangements, including certain upgrades, generally do not contain provisions for the right of return, forfeiture, refund, or other purchase price concession. In the rare instances where such provisions are included, all revenue is deferred until such rights expire. The sales arrangements generally include installation. The installation process is not deemed essential to the functionality of the equipment since it is not complex; it does not require significant changes to the features or capabilities of the equipment or involve constructing elaborate interfaces or connections subsequent to factory acceptance. Veeco has a demonstrated history of consistently completing installations in a timely manner and can reliably estimate the costs of such activities. Most customers engage Veeco to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, installation is deemed to be inconsequential or perfunctory relative to the system sale as a whole, and as a result, installation service is not considered a separate element of the arrangement. As such, Veeco accrues the cost of the installation at the time of revenue recognition for the system.

 

In many cases Veeco’s products are sold with a billing retention, typically 10% of the sales price which is payable by the customer when field acceptance provisions are completed. The amount of revenue recognized upon delivery of a system or upgrade, if any, is limited to the lower of i) the amount billed that is not contingent upon acceptance provisions or ii) the value of the arrangement consideration allocated to the delivered elements, if such sale is part of a multiple-element arrangement.

 

Recent accounting pronouncements

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09: Revenue from Contracts with Customers (the “Update”). The Update requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Update outlines a five-step model to make the revenue recognition determination and requires new financial statement disclosures. Publicly-traded companies are required to adopt the Update for reporting periods beginning after December 15, 2016; however the FASB recently proposed a one-year deferral of the Update. Currently, companies may choose among different transition alternatives. Veeco is evaluating the impact of adopting the Update on its consolidated financial statements and related financial statement disclosures and has not yet determined which method of adoption will be selected.

 

Veeco is also evaluating other pronouncements recently issued but not yet adopted. The adoption of these pronouncements is not expected to have a material impact on Veeco’s consolidated financial statements.

Income (Loss) Per Common Share
Income (Loss) Per Common Share

 

Note 2 — Income (Loss) Per Common Share

 

Basic income (loss) per common share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares and common share equivalents outstanding during the period. The computations of basic and diluted income (loss) per common share are:

 

 

 

Three months ended March 31,

 

 

 

2015

 

2014

 

 

 

(in thousands, except per share data)

 

Net income (loss)

 

$

(19,110

)

$

19,160

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

Basic

 

$

(0.48

)

$

0.49

 

Diluted

 

$

(0.48

)

$

0.48

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

39,639

 

39,177

 

Effect of potentially dilutive share-based awards

 

 

760

 

Diluted weighted average shares outstanding

 

39,639

 

39,937

 

 

The dilutive effect of outstanding options to purchase common stock, restricted share awards, and restricted share units is considered in diluted income per common share by application of the treasury stock method. The dilutive impact of our performance share awards and performance share units are included in dilutive EPS in the periods those performance targets have been achieved. For the three months ended March 31, 2015, 0.5 million common equivalent shares were excluded from the computation of diluted net loss per share as their effect would be antidilutive since Veeco incurred a net loss. In addition for the three months ended March 31, 2015 and 2014, respectively, approximately 2.0 million and 1.4 million in potentially dilutive shares were excluded from the diluted income (loss) per common share calculation as their effect would be antidilutive.

Assets
Assets

 

Note 3 — Assets

 

Investments and Assets held for sale

 

Marketable securities are generally classified as available-for-sale and reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income.” These securities may include U.S. treasuries, government agency securities, corporate debt, and commercial paper, all with maturities of greater than three months when purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are included in “Other, net” in the Consolidated Statements of Operations.

 

Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants. Veeco classifies certain assets based on the following fair value hierarchy:

 

Level 1:Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2:Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and

 

Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

The level used within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Veeco has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. In determining fair value, information from pricing services is utilized to value securities based on quoted market prices in active markets and matrix pricing. Matrix pricing is a mathematical valuation technique that does not rely exclusively on quoted prices of specific investments, but on the investment’s relationship to other benchmarked quoted securities. The use of different market assumptions and/or estimation methodologies could have a significant effect on the fair value estimates. The following table presents assets (excluding cash and cash equivalent balances) that are measured at fair value on a recurring basis:

 

 

 

Level 1

 

Level 2

 

Total

 

 

 

(in thousands)

 

March 31, 2015

 

 

 

 

 

 

 

U.S. treasuries

 

$

59,732 

 

$

 

$

59,732 

 

Government agency securities

 

 

4,999 

 

4,999 

 

Corporate debt

 

 

24,266 

 

24,266 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

U.S. treasuries

 

$

81,527 

 

$

 

$

81,527 

 

Corporate debt

 

 

39,045 

 

39,045 

 

 

There were no transfers between fair value measurement levels during the three months ended March 31, 2015. There were no financial assets or liabilities measured at fair value using Level 3 fair value measurements at March 31, 2015 or December 31, 2014.

 

The amortized cost and fair value of available-for-sale securities consist of:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

 

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

 

 

(in thousands)

 

March 31, 2015

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

59,692

 

$

42

 

$

(2

)

$

59,732

 

Government agency securities

 

4,998

 

1

 

 

4,999

 

Corporate debt

 

24,240

 

27

 

(1

)

24,266

 

Total available-for-sale securities

 

$

88,930

 

$

70

 

$

(3

)

$

88,997

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

81,506

 

$

27

 

$

(6

)

$

81,527

 

Corporate debt

 

39,031

 

20

 

(6

)

39,045

 

Total available-for-sale securities

 

$

120,537

 

$

47

 

$

(12

)

$

120,572

 

 

Available-for-sale securities in a loss position consist of:

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

 

 

Gross

 

 

 

Gross

 

 

 

Estimated

 

Unrealized

 

Estimated

 

Unrealized

 

 

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

 

 

(in thousands)

 

U.S. treasuries

 

$

22,001

 

$

(2

)

$

35,001

 

$

(6

)

Corporate debt

 

6,082

 

(1

)

13,069

 

(6

)

Total available-for-sale securities in a loss position

 

$

28,083

 

$

(3

)

$

48,070

 

$

(12

)

 

At March 31, 2015 and December 31, 2014, there were no short-term investments that had been in a continuous loss position for more than 12 months.

 

The contractual maturities of securities classified as available-for-sale at March 31, 2015 are:

 

 

 

March 31, 2015

 

 

 

Amortized

 

Estimated

 

 

 

cost

 

fair value

 

 

 

(in thousands)

 

Due in one year or less

 

$

49,028 

 

$

49,055 

 

Due after one year through two years

 

39,902 

 

39,942 

 

Total available-for-sale securities

 

$

88,930 

 

$

88,997 

 

 

Actual maturities may differ from contractual maturities. Veeco may sell these securities prior to maturity based on the needs of the business. In addition, borrowers may have the right to call or prepay obligations prior to scheduled maturities.

 

Realized gains or losses are included in “Other, net” in the Consolidated Statements of Operations. There were minimal realized gains for the three months ended March 31, 2015 and no realized gains or losses for the three months ended March 31, 2014. The cost of securities liquidated is based on specific identification.

 

Accounts receivable

 

Accounts receivable is presented net of allowance for doubtful accounts of $0.5 million and $0.7 million at March 31, 2015 and December 31, 2014, respectively.

 

Inventory

 

Inventory is stated at the lower of cost or market using standard costs that approximate actual costs on a first-in, first-out basis. Inventory consists of:

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Materials

 

$

33,627 

 

$

30,319 

 

Work-in-process

 

19,381 

 

25,096 

 

Finished goods

 

4,189 

 

6,056 

 

Total inventory

 

$

57,197 

 

$

61,471 

 

 

Deferred cost of sales

 

For new products, new applications of existing products or for products with substantive customer acceptance provisions where Veeco can not objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred and fully recognized upon the receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.

 

Prepaid expenses and other current assets

 

Prepaid expenses and other current assets primarily consist of supplier deposits, as well as lease deposits and prepaid licenses.

 

Veeco outsources certain functions to third parties, including the manufacture of substantially all of its MOCVD systems, ion beam and other data storage systems, and ion sources. While primarily relying upon several suppliers for the manufacturing of these systems, Veeco maintains a minimum level of internal manufacturing capability for these systems. Supplier deposits consist of $21.4 million and $12.7 million at March 31, 2015 and December 31, 2014, respectively.

 

Assets held for sale

 

Research and demonstration laboratories in Asia, as well as a vacant building and land, were designated as held for sale during 2014. The balance sheet reflects Veeco’s estimate of fair value less costs to sell using the sales comparison market approach.

 

Property, plant, and equipment

 

Property, plant, and equipment consist of:

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Land

 

$

9,392 

 

$

9,392 

 

Building and improvements

 

51,984 

 

51,979 

 

Machinery and equipment

 

108,808 

 

104,815 

 

Leasehold improvements

 

4,440 

 

4,356 

 

Gross property, plant and equipment

 

174,624 

 

170,542 

 

Less: accumulated depreciation and amortization

 

94,323 

 

91,790 

 

Net property, plant, and equipment

 

$

80,301 

 

$

78,752 

 

 

There were $0.1 million in impairments during the three months ended March 31, 2015 related to restructuring activities. Depreciation expense was $2.8 million and $2.9 million for the three months ended March 31, 2015 and 2014, respectively.

 

Included in property, plant, and equipment are held-for-sale systems that are the same types of tools that Veeco sells to its customers in the ordinary course of business. During the three months ended March 31, 2015 and 2014, Veeco had aggregate sales of $1.3 million and $2.3 million with associated costs of $1.3 million and $1.4 million, respectively, which was included in “Net sales” and “Cost of sales” in the Consolidated Statements of Operations.

 

Goodwill

 

There were no new acquisitions or impairments during the three months ended March 31, 2015. The purchase accounting related to the $145.5 million December 4, 2014 acquisition of Solid State Equipment LLC (“SSEC”), which has been renamed Veeco Precision Surface Processing LLC (“PSP”), remains preliminary. The estimated fair value of the assets acquired and liabilities assumed may be adjusted as further information becomes available during the measurement period of up to 12 months from the acquisition date. Changes in goodwill consist of:

 

 

 

Gross carrying

 

Accumulated

 

 

 

 

 

amount

 

impairment

 

Net amount

 

 

 

(in thousands)

 

Goodwill - December 31, 2014

 

$

238,158 

 

$

123,199 

 

$

114,959 

 

Purchase price allocation adjustment

 

13 

 

 

13 

 

Goodwill - March 31, 2015

 

$

238,171 

 

$

123,199 

 

$

114,972 

 

 

Intangible assets

 

There were no new acquisitions or impairments during the three months ended March 31, 2015. As the PSP purchase accounting remains preliminary, intangible assets acquired may be adjusted as further information becomes available.  The components of purchased intangible assets consist of:

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

 

 

Accumulated

 

 

 

 

 

Accumulated

 

 

 

 

 

Gross

 

Amortization

 

 

 

Gross

 

Amortization

 

 

 

 

 

Carrying

 

and

 

Net

 

Carrying

 

and

 

Net

 

 

 

Amount

 

Impairment

 

Amount

 

Amount

 

Impairment

 

Amount

 

 

 

(in thousands)

 

Technology

 

$

222,358 

 

$

109,881 

 

$

112,477 

 

$

222,358 

 

$

106,342 

 

$

116,016 

 

Customer relationships

 

47,885 

 

16,793 

 

31,092 

 

47,885 

 

14,918 

 

32,967 

 

Trademarks and tradenames

 

3,050 

 

1,406 

 

1,644 

 

3,050 

 

1,096 

 

1,954 

 

Indefinite-lived trademark

 

2,900 

 

 

2,900 

 

2,900 

 

 

2,900 

 

Other

 

6,320 

 

3,087 

 

3,233 

 

6,320 

 

849 

 

5,471 

 

Total

 

$

282,513 

 

$

131,167 

 

$

151,346 

 

$

282,513 

 

$

123,205 

 

$

159,308 

 

 

Other intangible assets consist of patents, licenses, customer backlog, and non-compete agreements.

 

Other assets

 

Veeco has an ownership interest of less than 20% in a non-marketable cost method investment. Veeco does not exert significant influence over the investee, and therefore the investment is carried at cost. The carrying value of the investment is $19.4 million at both March 31, 2015 and December 31, 2014. The investment is subject to a periodic impairment review; as there are no open-market valuations, the impairment analysis requires significant judgment. The analysis includes assessments of the investee’s financial condition, the business outlook for its products and technology, its projected results and cash flow, the likelihood of obtaining subsequent rounds of financing, and the impact of any relevant contractual equity preferences held by Veeco or others. Fair value of the investment is not estimated unless there are identified events or changes in circumstances that could have a significant adverse effect on the fair value of the investment. No such events or circumstances are present.

Liabilities
Liabilities

 

Note 4 — Liabilities

 

Accrued expenses and other current liabilities

 

The components of accrued expenses and other current liabilities consist of:

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Payroll and related benefits

 

$

16,706 

 

$

26,605 

 

Sales, use, and other taxes

 

2,159 

 

1,776 

 

Warranty

 

5,505 

 

5,411 

 

Restructuring liability

 

1,493 

 

1,428 

 

Professional fees

 

2,881 

 

2,752 

 

Other

 

7,747 

 

10,446 

 

Total accrued liabilities

 

$

36,491 

 

$

48,418 

 

 

Other liabilities consist of accruals for costs associated with installations, sales training, royalties, and travel.

 

Warranty reserves

 

Warranties are typically valid for one year from the date of system final acceptance. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs. The estimate is affected by product failure rates, material usage, and labor costs incurred in correcting product failures during the warranty period. Unforeseen component failures or exceptional component performance can impact warranty costs. Changes in Veeco’s product warranty reserves include:

 

 

 

(in thousands)

 

Warranty reserves - December 31, 2014

 

$

5,411

 

Warranties issued

 

1,470

 

Settlements made

 

(919

)

Changes in estimate

 

(457

)

Warranty reserves - March 31, 2015

 

$

5,505

 

 

Restructuring accruals

 

During the three months ended March 31, 2015, additional accruals were recognized and payments made related to the 2014 closing of Veeco’s Ft. Collins, Colorado and Camarillo, California facilities. Business activities formally conducted at these sites have been transferred to the Plainview, New York facility. In addition, as part of the strategic plan to lower spending on its ALD technology and to refocus research and development efforts on other opportunities, Veeco announced the closing of its Hyeongok-ri, South Korea facility and notified 23 employees of their termination from Veeco. As such, Veeco accrued and paid for restructuring activities during the three months ended March 31, 2015. Minimal restructuring costs are expected to be accrued for these activities during the remainder of 2015.

 

 

 

Personnel

 

 

 

 

 

 

 

Severance and

 

Facility

 

 

 

 

 

Related Costs

 

Closing Costs

 

Total

 

 

 

(in thousands)

 

Restructuring accrual - December 31, 2014

 

$

1,428

 

$

 

$

1,428

 

Provision

 

1,532

 

825

 

2,357

 

Payments

 

(1,839

)

(453

)

(2,292

)

Restructuring accrual - March 31, 2015

 

$

1,121

 

$

372

 

$

1,493

 

 

Customer deposits and deferred revenue

 

Customer deposits totaled $66.7 million and $73.0 million at March 31, 2015 and December 31, 2014, respectively. The remainder of the balance relates to deferred revenue consisting of customer billings for which all revenue recognition criteria have not yet been met.

 

Long-term debt

 

Debt consists of a mortgage note payable with a carrying value of $1.8 million at March 31, 2015 and December 31, 2014. The annual interest rate on the mortgage is 7.91%, and the final payment is due on January 1, 2020. The mortgage note payable is secured by certain land and buildings. The property associated with the mortgage is currently held for sale. A discounted cash flow model was used to calculate a level 3 fair value estimate of $1.9 million and $2.0 million at March 31, 2015 and December 31, 2014, respectively.

Commitments and Contingencies
Commitments and Contingencies

 

Note 5 — Commitments and Contingencies

 

Minimum lease commitments

 

At March 31, 2015, Veeco’s total future minimum lease payments under non-cancelable operating leases have not changed significantly from the footnote disclosure in the 2014 Form 10-K.

 

Purchase commitments

 

Veeco has purchase commitments under certain contractual arrangements to make future payments for goods and services. These contractual arrangements secure the rights to various assets and services to be used in the future in the normal course of business. Veeco has purchase commitments of $127.0 million at March 31, 2015, substantially all of which become due within one year.

 

Bank guarantees and lines of credit

 

Veeco has bank guarantees issued by a financial institution on its behalf as needed, a portion of which is collateralized against cash that is restricted from use. At March 31, 2015, outstanding bank guarantees totaled $46.0 million, and unused lines of credit of $23.8 million were available to be drawn upon to cover performance bonds required by customers.

 

Legal proceedings

 

Veeco and certain other parties were named as defendants in a lawsuit filed on April 25, 2013 in the Superior Court of California, County of Sonoma. The plaintiff in the lawsuit, Patrick Colbus, seeks unspecified damages and asserts claims that he suffered burns and other injuries while he was cleaning a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleges, among other things, that the molecular beam epitaxy system was defective and that Veeco failed to adequately warn of the potential risks of the system. Veeco believes this lawsuit is without merit and intends to defend vigorously against the claims. Veeco is unable to predict the outcome of this action or to reasonably estimate the possible loss or range of loss, if any, arising from the claims asserted therein. Veeco believes that, in the event of any recovery by the plaintiff from Veeco, such recovery would be fully covered by insurance.

 

Veeco is involved in other legal proceedings arising in the normal course of business. The resolution of these matters is not expected to have a material adverse effect on Veeco’s consolidated financial position, results of operations, or cash flows.

Equity
Equity

 

Note 6 — Equity

 

Accumulated Other Comprehensive Income (“AOCI”)

 

The following table presents the changes in the balances of each component of AOCI, net of tax:

 

 

 

Cumulative

 

 

 

Unrealized Gains on

 

 

 

 

 

Translation

 

Minimum Pension

 

Available-for-sale

 

 

 

 

 

Adjustment

 

Liability

 

Securities

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2014

 

$

2,333

 

$

(881

)

$

17

 

$

1,469

 

Other comprehensive income, net of tax

 

(15

)

 

32

 

17

 

Balance at March 31, 2015

 

$

2,318

 

$

(881

)

$

49

 

$

1,486

 

 

Veeco did not allocate tax expense to other comprehensive income for the three months ended March 31, 2015 as Veeco is in a full valuation allowance position such that a deferred tax asset related to amounts recognized in other comprehensive income is not regarded as realizable on a more-likely-than-not basis.

 

There were minimal reclassifications from AOCI into net income for the three months ended March 31, 2015.

Share-based compensation
Share-based compensation

 

Note 7 — Share-based compensation

 

Restricted share awards are issued to employees that are subject to specified restrictions and a risk of forfeiture. The restrictions typically lapse over one to five years. Restricted share awards are participating securities which entitle holders to both dividends and voting rights. Other types of share-based compensation include performance share awards, performance share units, and restricted share units (collectively with restricted share awards, “restricted shares”), as well as options to purchase common stock. Share-based compensation expense was recognized in the following line items in the Consolidated Statements of Operations for the periods indicated:

 

 

 

Three months ended March 31,

 

 

 

2015

 

2014

 

 

 

(in thousands)

 

Cost of sales

 

$

601 

 

$

560 

 

Selling, general, and administrative

 

2,798 

 

3,101 

 

Research and development

 

599 

 

1,061 

 

Total share-based compensation expense

 

$

3,998 

 

$

4,722 

 

 

Equity activity related to restricted shares consists of:

 

 

 

 

 

Weighted Average

 

 

 

 

 

Grant Date

 

 

 

Number of Shares

 

Fair Value

 

 

 

(in thousands)

 

 

 

Restricted shares outstanding - December 31, 2014

 

1,237

 

$

34.27

 

Granted

 

39

 

31.56

 

Vested

 

(4

)

32.88

 

Forfeited

 

(53

)

35.99

 

Restricted shares outstanding - March 31, 2015

 

1,219

 

$

34.11

 

 

Equity activity related to stock options consists of:

 

 

 

 

 

Weighted Average

 

 

 

Number of Shares

 

Exercise Price

 

 

 

(in thousands)

 

 

 

Stock options outstanding - December 31, 2014

 

2,391

 

$

31.65

 

Granted

 

10

 

30.49

 

Exercised

 

(10

)

28.77

 

Expired or forfeited

 

(62

)

36.03

 

Stock options outstanding - March 31, 2015

 

2,329

 

$

31.54

 

 

Income Taxes
Income Taxes

 

Note 8 — Income Taxes

 

Income taxes are estimated for each of the jurisdictions in which Veeco operates. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carry forwards. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. Realization of net deferred tax assets is dependent on future taxable income.

 

At the end of each interim reporting period, the effective tax rate is aligned to expectations for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods.

 

 

 

Three months ended March 31,

 

 

 

2015

 

2014

 

 

 

(in thousands)

 

Income (loss) before income taxes

 

$

(15,664

)

$

18,791

 

Income tax expense (benefit)

 

$

3,446

 

$

(369

)

 

For the three months ended March 31, 2015, the net expense for income taxes included a $2.0 million provision relating to Veeco’s domestic operations and a $1.4 million provision relating to foreign operations. Although there was a domestic pre-tax loss for the period, Veeco did not provide a current tax benefit on such losses as the amounts are not realizable on a more-likely-than-not basis. In addition, Veeco provided withholding taxes and a domestic provision relating to certain deferred tax liabilities that could not be offset against its deferred tax assets. Veeco’s foreign operations are profitable. As such, taxes were provided at rates which approximate the statutory rates of those foreign jurisdictions.

 

For the three months ended March 31, 2014, the effective tax rate differed from statutory tax rates primarily due to the recognition of a tax benefit on only the portion of the U.S. domestic losses which were determined to be realizable as net deferred tax assets on a more-likely-than-not basis. The effective tax rate was also impacted because a tax provision was not provided on the contingent consideration gain of $29.4 million. Veeco’s foreign operations were profitable. As such, taxes were provided at rates which approximate the statutory rates of those foreign jurisdictions.

Segment Reporting and Geographic Information
Segment Reporting and Geographic Information

 

Note 9 — Segment Reporting and Geographic Information

 

Veeco operates and measures its results in one operating segment and therefore has one reportable segment: the design, development, manufacture, and support of thin film process equipment primarily sold to make electronic devices.

 

Veeco categorizes its sales into the following four markets:

 

Lighting, Display & Power Electronics (Energy Conservation)

 

Lighting refers to Light Emitting Diode (“LED”); semiconductor illumination sources used in various applications including display as backlights, general lighting, automotive running lights, and head lamps. Display refers to LED displays and Organic Light Emitting Diode (“OLED”) displays. Power Electronics refers to semiconductor devices such as rectifiers, inverters, and converters for the control and conversion of electric power.

 

Advanced Packaging, MEMS & RF (Mobility)

 

Advanced Packaging includes a portfolio of wafer-level assembly technologies that enable the miniaturization of electronic products, such as smartphones, smartwatches, tablets and laptops. Micro-Electromechanical Systems (“MEMS”) includes tiny mechanical devices such as sensors, switches, mirrors, and actuators embedded in semiconductor chips used in vehicles, smartphones, tablets, and games. Radio Frequency (“RF”) includes semiconductor devices that make use of radio waves (RF fields) for wireless broadcasting and/or communications.

 

Scientific & Industrial

 

Scientific refers to university research institutions, industry research institutions, industry consortiums, and government research agencies. Industrial refers to large-scale product manufacturing including optical coatings: thin layers of material deposited on a lens or mirror that alters how light reflects and transmits; photomask: an opaque plate that allows light to shine through in a defined pattern for use in photolithography; and front end semiconductor: early steps in the process of integrated circuit fabrication where the microchips are created but still remain on the silicon wafer.

 

Data Storage

 

The Data Storage market refers to the archiving of data in electromagnetic or other forms for use by a computer or device, including hard disk drives used in large capacity storage applications.

 

Revenue by market:

 

 

 

Three months ended March 31,

 

 

 

2015

 

2014

 

 

 

(in thousands)

 

Lighting, Display & Power Electronics

 

$

64,327 

 

$

63,891 

 

Advanced Packaging, MEMS & RF

 

13,165 

 

798 

 

Scientific & Industrial

 

13,635 

 

8,486 

 

Data Storage

 

7,214 

 

17,666 

 

Total Sales

 

$

98,341 

 

$

90,841 

 

 

Significant operations outside the United States include sales and service offices in the Asia-Pacific and Europe regions. For geographic reporting, revenues are attributed to the location in which the customer facility is located as follows:

 

 

 

Three months ended March 31,

 

 

 

2015

 

2014

 

 

 

(in thousands)

 

United States

 

$

27,969 

 

$

7,477 

 

China

 

44,282 

 

32,838 

 

EMEA(1)

 

8,325 

 

10,346 

 

Rest of World

 

17,765 

 

40,180 

 

Total Sales

 

$

98,341 

 

$

90,841 

 

 

 

(1)

EMEA consists of Europe, the Middle East, and Africa

Basis of Presentation (Policies)

 

Revenue recognition

 

Veeco sells systems, maintenance, service, components, and spare parts. Veeco recognizes revenue when all of the following criteria have been met: persuasive evidence of an arrangement exists with a customer; delivery of the specified products has occurred or services have been rendered; prices are contractually fixed or determinable; and collectability is reasonably assured. Revenue is recorded including shipping and handling costs and excluding applicable taxes related to sales.

 

Contracts frequently contain multiple deliverables. Judgment is required to properly identify the accounting units of the multiple-element arrangements and to determine how the revenue should be allocated among the accounting units. Veeco also evaluates whether multiple transactions with the same customer or related parties should be considered part of a single, multiple-element arrangement based on an assessment of whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one another. Moreover, judgment is used in interpreting the commercial terms and determining when all criteria have been met in order to recognize revenue in the appropriate accounting period.

 

When there are separate units of accounting, Veeco allocates revenue to each element based on the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available; third party evidence (“TPE”) if VSOE is not available; or the best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. BESP is used for the majority of the elements in Veeco’s arrangements. The maximum revenue recognized on a delivered element is limited to the amount that is not contingent upon the delivery of additional items.

 

Veeco considers many facts when evaluating each of its sales arrangements to determine the timing of revenue recognition including its contractual obligations, the customer’s creditworthiness, and the nature of the customer’s post-delivery acceptance provisions. Veeco’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For the majority of the arrangements, a customer source inspection of the system is performed in Veeco’s facility or test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When Veeco objectively demonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery, revenue is recognized upon system delivery since there is no substantive contingency remaining related to the acceptance provisions at that date, subject to the retention amount constraint described below. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where Veeco can not objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are fully deferred and recognized upon the receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.

 

System sales arrangements, including certain upgrades, generally do not contain provisions for the right of return, forfeiture, refund, or other purchase price concession. In the rare instances where such provisions are included, all revenue is deferred until such rights expire. The sales arrangements generally include installation. The installation process is not deemed essential to the functionality of the equipment since it is not complex; it does not require significant changes to the features or capabilities of the equipment or involve constructing elaborate interfaces or connections subsequent to factory acceptance. Veeco has a demonstrated history of consistently completing installations in a timely manner and can reliably estimate the costs of such activities. Most customers engage Veeco to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, installation is deemed to be inconsequential or perfunctory relative to the system sale as a whole, and as a result, installation service is not considered a separate element of the arrangement. As such, Veeco accrues the cost of the installation at the time of revenue recognition for the system.

 

In many cases Veeco’s products are sold with a billing retention, typically 10% of the sales price which is payable by the customer when field acceptance provisions are completed. The amount of revenue recognized upon delivery of a system or upgrade, if any, is limited to the lower of i) the amount billed that is not contingent upon acceptance provisions or ii) the value of the arrangement consideration allocated to the delivered elements, if such sale is part of a multiple-element arrangement.

 

Recent accounting pronouncements

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09: Revenue from Contracts with Customers (the “Update”). The Update requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Update outlines a five-step model to make the revenue recognition determination and requires new financial statement disclosures. Publicly-traded companies are required to adopt the Update for reporting periods beginning after December 15, 2016; however the FASB recently proposed a one-year deferral of the Update. Currently, companies may choose among different transition alternatives. Veeco is evaluating the impact of adopting the Update on its consolidated financial statements and related financial statement disclosures and has not yet determined which method of adoption will be selected.

 

Veeco is also evaluating other pronouncements recently issued but not yet adopted. The adoption of these pronouncements is not expected to have a material impact on Veeco’s consolidated financial statements.

Income (Loss) Per Common Share (Tables)
Schedule of basic and diluted net income (loss) per common share and weighted average shares

 

 

Three months ended March 31,

 

 

 

2015

 

2014

 

 

 

(in thousands, except per share data)

 

Net income (loss)

 

$

(19,110

)

$

19,160

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

Basic

 

$

(0.48

)

$

0.49

 

Diluted

 

$

(0.48

)

$

0.48

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

39,639

 

39,177

 

Effect of potentially dilutive share-based awards

 

 

760

 

Diluted weighted average shares outstanding

 

39,639

 

39,937

 

 

Assets (Tables)

 

 

 

Level 1

 

Level 2

 

Total

 

 

 

(in thousands)

 

March 31, 2015

 

 

 

 

 

 

 

U.S. treasuries

 

$

59,732 

 

$

 

$

59,732 

 

Government agency securities

 

 

4,999 

 

4,999 

 

Corporate debt

 

 

24,266 

 

24,266 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

U.S. treasuries

 

$

81,527 

 

$

 

$

81,527 

 

Corporate debt

 

 

39,045 

 

39,045 

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

 

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

 

 

(in thousands)

 

March 31, 2015

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

59,692

 

$

42

 

$

(2

)

$

59,732

 

Government agency securities

 

4,998

 

1

 

 

4,999

 

Corporate debt

 

24,240

 

27

 

(1

)

24,266

 

Total available-for-sale securities

 

$

88,930

 

$

70

 

$

(3

)

$

88,997

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

81,506

 

$

27

 

$

(6

)

$

81,527

 

Corporate debt

 

39,031

 

20

 

(6

)

39,045

 

Total available-for-sale securities

 

$

120,537

 

$

47

 

$

(12

)

$

120,572

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

 

 

Gross

 

 

 

Gross

 

 

 

Estimated

 

Unrealized

 

Estimated

 

Unrealized

 

 

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

 

 

(in thousands)

 

U.S. treasuries

 

$

22,001

 

$

(2

)

$

35,001

 

$

(6

)

Corporate debt

 

6,082

 

(1

)

13,069

 

(6

)

Total available-for-sale securities in a loss position

 

$

28,083

 

$

(3

)

$

48,070

 

$

(12

)

 

 

 

 

March 31, 2015

 

 

 

Amortized

 

Estimated

 

 

 

cost

 

fair value

 

 

 

(in thousands)

 

Due in one year or less

 

$

49,028 

 

$

49,055 

 

Due after one year through two years

 

39,902 

 

39,942 

 

Total available-for-sale securities

 

$

88,930 

 

$

88,997 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Materials

 

$

33,627 

 

$

30,319 

 

Work-in-process

 

19,381 

 

25,096 

 

Finished goods

 

4,189 

 

6,056 

 

Total inventory

 

$

57,197 

 

$

61,471 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Land

 

$

9,392 

 

$

9,392 

 

Building and improvements

 

51,984 

 

51,979 

 

Machinery and equipment

 

108,808 

 

104,815 

 

Leasehold improvements

 

4,440 

 

4,356 

 

Gross property, plant and equipment

 

174,624 

 

170,542 

 

Less: accumulated depreciation and amortization

 

94,323 

 

91,790 

 

Net property, plant, and equipment

 

$

80,301 

 

$

78,752 

 

 

 

 

 

Gross carrying

 

Accumulated

 

 

 

 

 

amount

 

impairment

 

Net amount

 

 

 

(in thousands)

 

Goodwill - December 31, 2014

 

$

238,158 

 

$

123,199 

 

$

114,959 

 

Purchase price allocation adjustment

 

13 

 

 

13 

 

Goodwill - March 31, 2015

 

$

238,171 

 

$

123,199 

 

$

114,972 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

 

 

Accumulated

 

 

 

 

 

Accumulated

 

 

 

 

 

Gross

 

Amortization

 

 

 

Gross

 

Amortization

 

 

 

 

 

Carrying

 

and

 

Net

 

Carrying

 

and

 

Net

 

 

 

Amount

 

Impairment

 

Amount

 

Amount

 

Impairment

 

Amount

 

 

 

(in thousands)

 

Technology

 

$

222,358 

 

$

109,881 

 

$

112,477 

 

$

222,358 

 

$

106,342 

 

$

116,016 

 

Customer relationships

 

47,885 

 

16,793 

 

31,092 

 

47,885 

 

14,918 

 

32,967 

 

Trademarks and tradenames

 

3,050 

 

1,406 

 

1,644 

 

3,050 

 

1,096 

 

1,954 

 

Indefinite-lived trademark

 

2,900 

 

 

2,900 

 

2,900 

 

 

2,900 

 

Other

 

6,320 

 

3,087 

 

3,233 

 

6,320 

 

849 

 

5,471 

 

Total

 

$

282,513 

 

$

131,167 

 

$

151,346 

 

$

282,513 

 

$

123,205 

 

$

159,308 

 

 

Liabilities (Tables)

 

 

March 31, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Payroll and related benefits

 

$

16,706 

 

$

26,605 

 

Sales, use, and other taxes

 

2,159 

 

1,776 

 

Warranty

 

5,505 

 

5,411 

 

Restructuring liability

 

1,493 

 

1,428 

 

Professional fees

 

2,881 

 

2,752 

 

Other

 

7,747 

 

10,446 

 

Total accrued liabilities

 

$

36,491 

 

$

48,418 

 

 

 

 

(in thousands)

 

Warranty reserves - December 31, 2014

 

$

5,411

 

Warranties issued

 

1,470

 

Settlements made

 

(919

)

Changes in estimate

 

(457

)

Warranty reserves - March 31, 2015

 

$

5,505

 

 

 

 

 

Personnel

 

 

 

 

 

 

 

Severance and

 

Facility

 

 

 

 

 

Related Costs

 

Closing Costs

 

Total

 

 

 

(in thousands)

 

Restructuring accrual - December 31, 2014

 

$

1,428

 

$

 

$

1,428

 

Provision

 

1,532

 

825

 

2,357

 

Payments

 

(1,839

)

(453

)

(2,292

)

Restructuring accrual - March 31, 2015

 

$

1,121

 

$

372

 

$

1,493

 

 

Equity (Tables)
Schedule of the components of accumulated other comprehensive income

 

 

 

Cumulative

 

 

 

Unrealized Gains on

 

 

 

 

 

Translation

 

Minimum Pension

 

Available-for-sale

 

 

 

 

 

Adjustment

 

Liability

 

Securities

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2014

 

$

2,333

 

$

(881

)

$

17

 

$

1,469

 

Other comprehensive income, net of tax

 

(15

)

 

32

 

17

 

Balance at March 31, 2015

 

$

2,318

 

$

(881

)

$

49

 

$

1,486

 

 

Share-based compensation (Tables)

 

 

 

Three months ended March 31,

 

 

 

2015

 

2014

 

 

 

(in thousands)

 

Cost of sales

 

$

601 

 

$

560 

 

Selling, general, and administrative

 

2,798 

 

3,101 

 

Research and development

 

599 

 

1,061 

 

Total share-based compensation expense

 

$

3,998 

 

$

4,722 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Grant Date

 

 

 

Number of Shares

 

Fair Value

 

 

 

(in thousands)

 

 

 

Restricted shares outstanding - December 31, 2014

 

1,237

 

$

34.27

 

Granted

 

39

 

31.56

 

Vested

 

(4

)

32.88

 

Forfeited

 

(53

)

35.99

 

Restricted shares outstanding - March 31, 2015

 

1,219

 

$

34.11

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number of Shares

 

Exercise Price

 

 

 

(in thousands)

 

 

 

Stock options outstanding - December 31, 2014

 

2,391

 

$

31.65

 

Granted

 

10

 

30.49

 

Exercised

 

(10

)

28.77

 

Expired or forfeited

 

(62

)

36.03

 

Stock options outstanding - March 31, 2015

 

2,329

 

$

31.54

 

 

Income Taxes (Tables)
Schedule of income (loss) before income taxes and provision for income taxes

 

 

Three months ended March 31,

 

 

 

2015

 

2014

 

 

 

(in thousands)

 

Income (loss) before income taxes

 

$

(15,664

)

$

18,791

 

Income tax expense (benefit)

 

$

3,446

 

$

(369

)

 

Segment Reporting and Geographic Information (Tables)

 

 

Three months ended March 31,

 

 

 

2015

 

2014

 

 

 

(in thousands)

 

Lighting, Display & Power Electronics

 

$

64,327 

 

$

63,891 

 

Advanced Packaging, MEMS & RF

 

13,165 

 

798 

 

Scientific & Industrial

 

13,635 

 

8,486 

 

Data Storage

 

7,214 

 

17,666 

 

Total Sales

 

$

98,341 

 

$

90,841 

 

 

 

 

 

Three months ended March 31,

 

 

 

2015

 

2014

 

 

 

(in thousands)

 

United States

 

$

27,969 

 

$

7,477 

 

China

 

44,282 

 

32,838 

 

EMEA(1)

 

8,325 

 

10,346 

 

Rest of World

 

17,765 

 

40,180 

 

Total Sales

 

$

98,341 

 

$

90,841 

 

 

 

(1)

EMEA consists of Europe, the Middle East, and Africa

Basis of Presentation (Details)
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Basis of Presentation
 
 
Number of weeks in each fiscal quarter for 52-week fiscal year
91 days 
91 days 
Basis of Presentation (Details 2)
3 Months Ended
Mar. 31, 2015
Revenue Recognition
 
Revenue retention percentage
10.00% 
Income (Loss) Per Common Share (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Income (Loss) Per Common Share
 
 
Net income (loss)
$ (19,110)
$ 19,160 
Net income (loss) per common share:
 
 
Basic (in dollars per share)
$ (0.48)
$ 0.49 
Diluted (in dollars per share)
$ (0.48)
$ 0.48 
Basic weighted average shares outstanding
39,639 
39,177 
Effect of potentially dilutive share-based awards
 
760 
Diluted weighted average shares outstanding
39,639 
39,937 
Income (Loss) Per Common Share (Details 2)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Income (Loss) Per Common Share
 
 
Securities excluded from the calculation of diluted net income (loss) per share (in shares)
0.5 
 
Stock options and Restricted stock
 
 
Income (Loss) Per Common Share
 
 
Securities excluded from the calculation of diluted net income (loss) per share (in shares)
2.0 
1.4 
Assets (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
Major categories of assets and liabilities measured on a recurring basis, at fair value
 
 
Short-term investments
$ 88,997 
$ 120,572 
Assets held for sale
6,000 
6,000 
Transfer of assets between levels
 
Transfer of liabilities between levels
 
Level 3
 
 
Major categories of assets and liabilities measured on a recurring basis, at fair value
 
 
Assets measured at fair value
Liabilities measured at fair value
Assets and liabilities measured on a recurring basis |
Level 1 |
U.S. treasuries
 
 
Major categories of assets and liabilities measured on a recurring basis, at fair value
 
 
Short-term investments
59,732 
81,527 
Assets and liabilities measured on a recurring basis |
Level 2 |
Government agency securities
 
 
Major categories of assets and liabilities measured on a recurring basis, at fair value
 
 
Short-term investments
4,999 
 
Assets and liabilities measured on a recurring basis |
Level 2 |
Corporate debt
 
 
Major categories of assets and liabilities measured on a recurring basis, at fair value
 
 
Short-term investments
24,266 
39,045 
Assets and liabilities measured on a recurring basis |
Total |
U.S. treasuries
 
 
Major categories of assets and liabilities measured on a recurring basis, at fair value
 
 
Short-term investments
59,732 
81,527 
Assets and liabilities measured on a recurring basis |
Total |
Government agency securities
 
 
Major categories of assets and liabilities measured on a recurring basis, at fair value
 
 
Short-term investments
4,999 
 
Assets and liabilities measured on a recurring basis |
Total |
Corporate debt
 
 
Major categories of assets and liabilities measured on a recurring basis, at fair value
 
 
Short-term investments
$ 24,266 
$ 39,045 
Assets (Details 2) (USD $)
3 Months Ended
Mar. 31, 2014
Mar. 31, 2015
Dec. 31, 2014
Total available-for-sale securities
 
 
 
Amortized Cost
 
$ 88,930,000 
$ 120,537,000 
Gross Unrealized Gains
 
70,000 
47,000 
Gross Unrealized Losses
 
(3,000)
(12,000)
Estimated Fair Value
 
88,997,000 
120,572,000 
Available-for-sale securities in a loss position
 
 
 
Estimated Fair value
 
28,083,000 
48,070,000 
Gross Unrealized Losses
 
(3,000)
(12,000)
Investments that had been in a continuous loss position for more than 12 months
 
Amortized costs of contractual maturities of available-for-sale securities
 
 
 
Due in one year or less
 
49,028,000 
 
Due after one year through two years
 
39,902,000 
 
Gross realized gains on available-for-sale securities
 
 
Estimated fair value of contractual maturities of available-for-sale securities
 
 
 
Due in one year or less
 
49,055,000 
 
Due in 1-2 years
 
39,942,000 
 
Total available-for-sale securities
 
88,997,000 
120,572,000 
U.S. treasuries
 
 
 
Total available-for-sale securities
 
 
 
Amortized Cost
 
59,692,000 
81,506,000 
Gross Unrealized Gains
 
42,000 
27,000 
Gross Unrealized Losses
 
(2,000)
(6,000)
Estimated Fair Value
 
59,732,000 
81,527,000 
Available-for-sale securities in a loss position
 
 
 
Estimated Fair value
 
22,001,000 
35,001,000 
Gross Unrealized Losses
 
(2,000)
(6,000)
Government agency securities
 
 
 
Total available-for-sale securities
 
 
 
Amortized Cost
 
4,998,000 
 
Gross Unrealized Gains
 
1,000 
 
Estimated Fair Value
 
4,999,000 
 
Corporate debt
 
 
 
Total available-for-sale securities
 
 
 
Amortized Cost
 
24,240,000 
39,031,000 
Gross Unrealized Gains
 
27,000 
20,000 
Gross Unrealized Losses
 
(1,000)
(6,000)
Estimated Fair Value
 
24,266,000 
39,045,000 
Available-for-sale securities in a loss position
 
 
 
Estimated Fair value
 
6,082,000 
13,069,000 
Gross Unrealized Losses
 
$ (1,000)
$ (6,000)
Assets (Details 3) (USD $)
Mar. 31, 2015
Dec. 31, 2014
Accounts Receivable, Net
 
 
Allowance for doubtful accounts receivable (in dollars)
$ 500,000 
$ 700,000 
Prepaid expenses and other current assets
 
 
Supplier deposits
21,400,000 
12,700,000 
Inventories
 
 
Materials
33,627,000 
30,319,000 
Work in process
19,381,000 
25,096,000 
Finished goods
4,189,000 
6,056,000 
Inventories
$ 57,197,000 
$ 61,471,000 
Assets (Details 4) (USD $)
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Dec. 31, 2014
Property, plant and equipment, net
 
 
 
Gross property, plant, and equipment
$ 174,624,000 
 
$ 170,542,000 
Less accumulated depreciation and amortization
94,323,000 
 
91,790,000 
Net property, plant and equipment
80,301,000 
 
78,752,000 
Impairment of tools held in property, plant and equipment
100,000 
 
 
Depreciation
2,800,000 
2,900,000 
 
Goodwill
 
 
 
Impairment of goodwill
 
 
Goodwill acquired
 
 
Gross carrying Amount, beginning balance
238,158,000 
 
 
Accumulated Impairment, beginning balance
123,199,000 
 
 
Net Amount, beginning balance
114,959,000 
 
 
Purchase price adjustment
13,000 
 
 
Gross carrying Amount, ending balance
238,171,000 
 
 
Accumulated Impairment, ending balance
123,199,000 
 
 
Net Amount, ending balance
114,972,000 
 
 
Intangible assets
 
 
 
Impairment of intangible assets
 
 
Intangible assets acquired
 
 
Accumulated Amortization and Impairment
131,167,000 
 
123,205,000 
Total Gross Intangible Assets
282,513,000 
 
282,513,000 
Total Net Intangible Assets
151,346,000 
 
159,308,000 
Indefinite-lived trademark
 
 
 
Intangible assets
 
 
 
Indefinite-lived intangible assets
2,900,000 
 
2,900,000 
Technology
 
 
 
Intangible assets
 
 
 
Gross Carrying Amount
222,358,000 
 
222,358,000 
Accumulated Amortization and Impairment
109,881,000 
 
106,342,000 
Net Amount
112,477,000 
 
116,016,000 
Customer relationships
 
 
 
Intangible assets
 
 
 
Gross Carrying Amount
47,885,000 
 
47,885,000 
Accumulated Amortization and Impairment
16,793,000 
 
14,918,000 
Net Amount
31,092,000 
 
32,967,000 
Trademarks and tradenames
 
 
 
Intangible assets
 
 
 
Gross Carrying Amount
3,050,000 
 
3,050,000 
Accumulated Amortization and Impairment
1,406,000 
 
1,096,000 
Net Amount
1,644,000 
 
1,954,000 
Other
 
 
 
Intangible assets
 
 
 
Gross Carrying Amount
6,320,000 
 
6,320,000 
Accumulated Amortization and Impairment
3,087,000 
 
849,000 
Net Amount
3,233,000 
 
5,471,000 
Tools
 
 
 
Property, plant and equipment, net
 
 
 
Aggregate selling price
1,300,000 
2,300,000 
 
Assets converted and sold
1,300,000 
1,400,000 
 
Land
 
 
 
Property, plant and equipment, net
 
 
 
Gross property, plant, and equipment
9,392,000 
 
9,392,000 
Building and improvements
 
 
 
Property, plant and equipment, net
 
 
 
Gross property, plant, and equipment
51,984,000 
 
51,979,000 
Machinery and equipment
 
 
 
Property, plant and equipment, net
 
 
 
Gross property, plant, and equipment
108,808,000 
 
104,815,000 
Leaseholds improvements
 
 
 
Property, plant and equipment, net
 
 
 
Gross property, plant, and equipment
4,440,000 
 
4,356,000 
PSP
 
 
 
Goodwill
 
 
 
Net assets acquired
$ 145,500,000 
 
 
Assets (Details 5) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2015
Cost Method Investment
 
Carrying value of the investment
$ 19.4 
Maximum
 
Cost Method Investment
 
Percentage ownership of cost method investee
20.00% 
Liabilities (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Dec. 31, 2014
Accrued Expenses and Other Current Liabilities
 
 
Payroll and related benefits
$ 16,706 
$ 26,605 
Sales, use and other taxes
2,159 
1,776 
Warranty
5,505 
5,411 
Restructuring liability
1,493 
1,428 
Professional fees
2,881 
2,752 
Other
7,747 
10,446 
Total
36,491 
48,418 
Accrued Warranty
 
 
Balance as of the beginning of period
5,411 
 
Warranties issued
1,470 
 
Settlements made
(919)