VEECO INSTRUMENTS INC, 10-K filed on 2/25/2016
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2015
Feb. 10, 2016
Jun. 26, 2015
Document and Entity Information
 
 
 
Entity Registrant Name
VEECO INSTRUMENTS INC 
 
 
Entity Central Index Key
0000103145 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2015 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
$ 1,202,150,344 
Entity Common Stock, Shares Outstanding
 
39,972,031 
 
Document Fiscal Year Focus
2015 
 
 
Document Fiscal Period Focus
FY 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and cash equivalents
$ 269,232 
$ 270,811 
Short-term investments
116,050 
120,572 
Restricted cash
 
539 
Accounts receivable, net
49,524 
60,085 
Inventories
77,469 
61,471 
Deferred cost of sales
2,100 
5,076 
Prepaid expenses and other current assets
22,760 
23,132 
Assets held for sale
5,000 
6,000 
Deferred income taxes
 
7,976 
Total current assets
542,135 
555,662 
Property, plant and equipment, net
79,590 
78,752 
Intangible assets, net
131,674 
159,308 
Goodwill
114,908 
114,959 
Deferred income taxes
1,384 
1,180 
Other assets
21,098 
19,594 
Total assets
890,789 
929,455 
Current liabilities:
 
 
Accounts payable
30,074 
18,111 
Accrued expenses and other current liabilities
49,393 
48,418 
Customer deposits and deferred revenue
76,216 
96,004 
Income taxes payable
6,208 
5,441 
Deferred income taxes
 
120 
Current portion of long-term debt
340 
314 
Total current liabilities
162,231 
168,408 
Deferred income taxes
11,211 
16,397 
Long-term debt
1,193 
1,533 
Other liabilities
1,539 
4,185 
Total liabilities
176,174 
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; 40,995,694 shares issued and 40,526,902 shares outstanding at December 31, 2015; and 40,360,069 shares issued and outstanding at December 31, 2014
410 
404 
Additional paid-in capital
767,137 
750,139 
Accumulated deficit
(45,058)
(13,080)
Accumulated other comprehensive income
1,348 
1,469 
Treasury stock, at cost, 468,792 shares at December 31, 2015
(9,222)
 
Total stockholders' equity
714,615 
738,932 
Total liabilities and stockholders' equity
$ 890,789 
$ 929,455 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 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
40,995,694 
40,360,069 
Common stock, shares outstanding
40,526,902 
40,360,069 
Treasury stock, shares
468,792 
 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Consolidated Statements of Operations
 
 
 
Net sales
$ 477,038 
$ 392,873 
$ 331,749 
Cost of sales
299,797 
257,991 
228,607 
Gross profit
177,241 
134,882 
103,142 
Operating expenses, net:
 
 
 
Selling, general and administrative
90,188 
89,760 
85,486 
Research and development
78,543 
81,171 
81,424 
Amortization of intangible assets
27,634 
13,146 
5,527 
Restructuring
4,679 
4,394 
1,485 
Asset impairment
126 
58,170 
1,220 
Change in contingent consideration
 
(29,368)
829 
Other, net
(697)
(3,182)
(1,017)
Total operating expenses, net
200,473 
214,091 
174,954 
Operating income (loss)
(23,232)
(79,209)
(71,812)
Interest income
1,050 
1,570 
1,200 
Interest expense
(464)
(715)
(598)
Income (loss) before income taxes
(22,646)
(78,354)
(71,210)
Income tax expense (benefit)
9,332 
(11,414)
(28,947)
Net income (loss)
$ (31,978)
$ (66,940)
$ (42,263)
Income (loss) per common share:
 
 
 
Basic (in dollars per share)
$ (0.80)
$ (1.70)
$ (1.09)
Diluted (in dollars per share)
$ (0.80)
$ (1.70)
$ (1.09)
Weighted average number of shares:
 
 
 
Basic (in shares)
39,742 
39,350 
38,807 
Diluted (in shares)
39,742 
39,350 
38,807 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Consolidated Statements of Comprehensive Income (Loss)
 
 
 
Net income (loss)
$ (31,978)
$ (66,940)
$ (42,263)
Other comprehensive income (loss), net of tax
 
 
 
Unrealized gain (loss) on available-for-sale securities
(49)
51 
34 
Benefit (expense) for income taxes
 
 
11 
Reclassifications from AOCI into net income
 
(65)
(61)
Net unrealized loss on available-for-sale securities
(49)
(14)
(16)
Minimum pension liability
15 
(145)
125 
Benefit (expense) for income taxes
 
 
(86)
Net minimum pension liability
15 
(145)
39 
Foreign currency translation
(87)
149 
(1,322)
Benefit (expense) for income taxes
 
 
(53)
Reclassifications from AOCI into net income
 
(3,142)
 
Net foreign currency translation
(87)
(2,993)
(1,375)
Other comprehensive income (loss), net of tax
(121)
(3,152)
(1,352)
Comprehensive income (loss)
$ (32,099)
$ (70,092)
$ (43,615)
Consolidated Statements of Stockholders' Equity (USD $)
In Thousands, unless otherwise specified
Common Stock
Treasury Stock
Additional Paid-in Capital
Retained Earnings (Accumulated Deficit)
Accumulated Other Comprehensive Income
Total
Balance at Dec. 31, 2012
$ 393 
 
$ 708,723 
$ 96,123 
$ 5,973 
$ 811,212 
Balance (in shares) at Dec. 31, 2012
39,328 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Net loss
 
 
 
(42,263)
 
(42,263)
Other comprehensive loss, net of tax
 
 
 
 
(1,352)
(1,352)
Share-based compensation expense
 
 
13,130 
 
 
13,130 
Net issuance under employee stock plans
 
(501)
 
 
(497)
Net issuance under employee stock plans (in shares)
338 
 
 
 
 
 
Balance at Dec. 31, 2013
397 
 
721,352 
53,860 
4,621 
780,230 
Balance (in shares) at Dec. 31, 2013
39,666 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Net loss
 
 
 
(66,940)
 
(66,940)
Other comprehensive loss, net of tax
 
 
 
 
(3,152)
(3,152)
Share-based compensation expense
 
 
18,813 
 
 
18,813 
Net issuance under employee stock plans
 
9,974 
 
 
9,981 
Net issuance under employee stock plans (in shares)
694 
 
 
 
 
 
Balance at Dec. 31, 2014
404 
 
750,139 
(13,080)
1,469 
738,932 
Balance (in shares) at Dec. 31, 2014
40,360 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Net loss
 
 
 
(31,978)
 
(31,978)
Other comprehensive loss, net of tax
 
 
 
 
(121)
(121)
Share-based compensation expense
 
 
17,986 
 
 
17,986 
Net issuance under employee stock plans
 
(988)
 
 
(982)
Net issuance under employee stock plans (in shares)
636 
 
 
 
 
 
Purchases of common stock
 
(9,222)
 
 
 
(9,222)
Purchase of common stock (in shares)
 
469 
 
 
 
500 
Balance at Dec. 31, 2015
$ 410 
$ (9,222)
$ 767,137 
$ (45,058)
$ 1,348 
$ 714,615 
Balance (in shares) at Dec. 31, 2015
40,996 
469 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Cash Flows from Operating Activities
 
 
 
Net income (loss)
$ (31,978)
$ (66,940)
$ (42,263)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
39,850 
24,573 
18,425 
Deferred income taxes
2,648 
(11,330)
(12,264)
Share-based compensation expense
17,986 
18,813 
13,130 
Provision (recovery) for bad debts
43 
(1,814)
1,946 
Asset impairment
126 
58,170 
1,220 
Gain on sale of lab tools
(1,261)
(1,549)
(767)
Gain on cumulative translation adjustment
 
(3,142)
 
Change in contingent consideration
 
(29,368)
829 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
10,715 
(25,390)
36,898 
Inventory and deferred cost of sales
(12,312)
6,513 
2,753 
Prepaid expenses and other current assets
(39)
(2,245)
842 
Accounts payable and accrued expenses
9,470 
(5,534)
7,542 
Customer deposits and deferred revenue
(20,738)
55,536 
(17,329)
Income taxes receivable and payable, net
759 
20,279 
(12,734)
Other, net
520 
5,497 
2,499 
Net cash provided by operating activities
15,789 
42,069 
727 
Cash Flows from Investing Activities
 
 
 
Acquisitions of businesses, net of cash acquired
(68)
(144,069)
(71,488)
Capital expenditures
(13,887)
(15,588)
(9,174)
Proceeds from the liquidation of investments
88,647 
318,276 
499,645 
Payments for purchases of investments
(84,244)
(157,737)
(589,099)
Payment for purchase of cost method investment
(1,594)
(2,388)
(2,391)
Proceeds from sale of lab tools
3,068 
9,259 
4,440 
Other
1,000 
350 
11 
Net cash provided by (used in) investing activities
(7,078)
8,103 
(168,056)
Cash Flows from Financing Activities
 
 
 
Proceeds from stock option exercises
2,233 
12,056 
2,199 
Restricted stock tax withholdings
(3,215)
(2,075)
(2,696)
Contingent consideration payments
 
 
5,000 
Purchases of common stock
(8,907)
 
 
Repayments of long-term debt
(314)
(290)
(269)
Net cash provided by (used in) financing activities
(10,203)
9,691 
(5,766)
Effect of exchange rate changes on cash and cash equivalents
(87)
149 
(663)
Net increase (decrease) in cash and cash equivalents
(1,579)
60,012 
(173,758)
Cash and cash equivalents - beginning of period
270,811 
210,799 
384,557 
Cash and cash equivalents - end of period
269,232 
270,811 
210,799 
Supplemental Disclosure of Cash Flow Information
 
 
 
Interest paid
485 
159 
357 
Income taxes paid
$ 7,091 
$ 3,320 
$ 8,001 
Significant Accounting Policies
Significant Accounting Policies

 

Note 1 — Significant Accounting Policies

 

(a) Description of Business

 

Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco,” or the “Company”) operates in a single segment: the design, development, manufacture, and support of thin film process equipment primarily sold to make electronic devices including light emitting diodes (“LEDs”), power electronics, wireless devices, hard disk drives, and semiconductors.

 

(b) Basis of Presentation

 

The accompanying audited Consolidated Financial Statements of the Company have been prepared in accordance with United States generally accepted accounting principles (GAAP). The Company reports interim quarters on a 13-week basis ending on the last Sunday of each period, which is determined at the start of each year. The Company’s fourth quarter always ends on the last day of the calendar year, December 31. During 2015 the interim quarters ended on March 29, June 28 and September 27, and during 2014 the interim quarters ended on March 30, June 29 and September 28. The Company reports these interim quarters as March 31, June 30, and September 30 in its interim consolidated financial statements.

 

(c) Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, these estimates may ultimately differ from actual results. Significant items subject to such estimates and assumptions include: (i) the best estimate of selling price for the Company’s products and services; (ii) allowances for doubtful accounts; (iii) inventory obsolescence; (iv) the useful lives and expected future cash flows of property, plant, and equipment and identifiable intangible assets; (v) the fair value of the Company’s reporting unit and related goodwill; (vi) the fair value, less cost to sell, of assets held for sale; (vii) investment valuations and the valuation of derivatives, deferred tax assets, and assets acquired in business combinations; (viii) the recoverability of long-lived assets; (ix) liabilities for product warranty and legal contingencies; (x) share-based compensation; and (xi) income tax uncertainties. Actual results could differ from those estimates.

 

(d) Principles of Consolidation

 

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Companies acquired during each reporting period are reflected in the results of the Company effective from their respective dates of acquisition through the end of the reporting period.

 

(e) Foreign Currencies

 

Assets and liabilities of the Company’s foreign subsidiaries that operate using local functional currencies are translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using monthly average exchange rates. Adjustments arising from the translation of the foreign currency financial statements of the Company’s subsidiaries into U.S. dollars, including intercompany transactions of a long-term nature, are reported as currency translation adjustments in “Accumulated other comprehensive income” in the Consolidated Balance Sheets. Foreign currency transaction gains or losses are included in “Other, net” in the Consolidated Statements of Operations.

 

(f) Revenue Recognition

 

The Company 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 with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, maintenance, and service plans. 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. The Company 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, the Company 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. The Company uses BESP for the majority of the elements in its arrangements. The maximum revenue recognized on a delivered element is limited to the amount that is not contingent upon the delivery of additional items.

 

The Company 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. The Company’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 the Company’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 the Company 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 the Company cannot 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.

 

The Company’s system sales arrangements, including certain upgrades, generally do not contain provisions for 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. The Company has a demonstrated history of consistently completing installations in a timely manner and can reliably estimate the costs of such activities. Most customers engage the Company 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, the Company accrues the cost of the installation at the time of revenue recognition for the system.

 

In many cases the Company’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.

 

The Company’s contractual terms with customers in Japan generally specify that title and risk and rewards of ownership transfer upon customer acceptance. As a result, for customers in Japan, revenue is recognized upon the receipt of written customer acceptance. A distributor is used for almost all sales to customers in Japan. Title passes to the distributor upon shipment; however, due to customary local business practices, the risk and rewards of ownership of the system transfers to the end-customers upon their acceptance. As such, the Company recognizes revenue upon receipt of written acceptance from the end customer.

 

The Company recognizes revenue related to maintenance and service contracts ratably over the applicable contract term. The Company recognizes revenue from the sales of components, spare parts, and specified service engagements at the time of delivery in accordance with the terms of the applicable sales arrangement.

 

Incremental direct costs incurred related to the acquisition of a customer contract, such as sales commissions, are expensed as incurred, even if the related revenue is deferred in accordance with the above policy.

 

(g) Warranty Costs

 

The Company typically provides standard warranty coverage on its systems for one year from the date of final acceptance by providing labor and parts necessary to repair the systems during the warranty period. The Company accounts for the estimated warranty cost when revenue is recognized on the related system. Warranty cost is included in “Cost of sales” in the Consolidated Statements of Operations. The estimated warranty cost is based on the Company’s historical experience with its systems and regional labor costs. The Company calculates the average service hours by region and parts expense per system utilizing actual service records to determine the estimated warranty charge. The Company updates its warranty estimates on a semiannual basis when the actual product performance and/or field expense differs from original estimates.

 

(h) Shipping and Handling Costs

 

Shipping and handling costs are expenses incurred to move, package, and prepare the Company’s products for shipment and to move the products to a customer’s designated location. These costs are generally comprised of payments to third-party shippers. Shipping and handling costs are included in “Cost of sales” in the Consolidated Statements of Operations.

 

(i) Research and Development Costs

 

Research and development costs are expensed as incurred and include charges for the development of new technology and the transition of existing technology into new products or services.

 

(j) Advertising Expense

 

The cost of advertising is expensed as incurred and totaled $0.9 million, $0.6 million, and $0.5 million for the years ended December 31, 2015, 2014, and 2013, respectively.

 

(k) Accounting for Share-Based Compensation

 

Share-based awards exchanged for employee services are accounted for under the fair value method. Accordingly, share-based compensation cost is measured at the grant date based on the fair value of the award. The expense for awards expected to vest is recognized over the employee’s requisite service period (generally the vesting period of the award).

 

Awards expected to vest are estimated based on a combination of historical experience and future expectations.

 

The Company has elected to treat awards with only service conditions and with graded vesting as one award. Consequently, the total compensation expense is recognized straight-line over the entire vesting period, so long as the compensation cost recognized at any date at least equals the portion of the grant date fair value of the award that is vested at that date.

 

The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of option awards. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, expected option term, and risk-free interest rates. See Note 15, “Stock Plans,” for additional information.

 

In addition to stock options, restricted share awards (“RSAs”) and restricted stock units (“RSUs”) with time-based vesting, the Company issues performance share units and awards (“PSUs” and “PSAs”). Compensation cost for PSUs and PSAs is recognized over the requisite service period based on the timing and expected level of achievement of the performance targets. A change in the assessment of the probability of a performance condition being met is recognized in the period of the change in estimate. At the conclusion of the performance period, the number of shares granted may vary based on the level of achievement of the performance targets.

 

(l) Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in income in the period that includes the enactment date.

 

The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to uncertain tax positions in income tax expense. See Note 17, “Income Taxes,” for additional information.

 

(m) Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments, derivative financial instruments used in hedging activities, and accounts receivable. The Company invests in a variety of financial instruments and, by policy, limits the amount of credit exposure with any one financial institution or commercial issuer. The Company has not experienced any material credit losses on its investments.

 

The Company maintains an allowance reserve for potentially uncollectible accounts for estimated losses resulting from the inability of its customers to make required payments. The Company evaluates its allowance for doubtful accounts based on a combination of factors. In circumstances where specific invoices are deemed to be uncollectible, the Company provides a specific allowance for bad debt against the amount due to reduce the net recognized receivable to the amount reasonably expected to be collected. The Company also provides allowances based on its write-off history. The allowance for doubtful accounts totaled $0.2 million and $0.7 million at December 31, 2015 and 2014, respectively.

 

To further mitigate the Company’s exposure to uncollectable accounts, the Company may request certain customers provide a negotiable irrevocable letter of credit drawn on a reputable financial institution. These irrevocable letters of credit are typically issued to mature between zero and 90 days from the date the documentation requirements are met, typically when a system ships or upon receipt of final acceptance from the customer. The Company, at its discretion, may monetize these letters of credit on a non-recourse basis after they become negotiable, but before maturity. The fees associated with the monetization are included in “Selling, general, and administrative” in the Consolidated Statements of Operations and were insignificant for the years ended December 31, 2015, 2014, and 2013.

 

(n) Fair Value of Financial Instruments

 

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses reflected in the consolidated financial statements approximate fair value due to their short-term maturities. The fair value of debt for footnote disclosure purposes, including current maturities, is estimated using a discounted cash flow analysis based on the estimated current incremental borrowing rates for similar types of securities.

 

(o) Cash, Cash Equivalents, and Short-Term Investments

 

All financial instruments purchased with an original maturity of three months or less at the time of purchase are considered cash equivalents. Such items may include liquid money market accounts, U.S. treasuries, government agency securities, and corporate debt. Investments that are classified as cash equivalents are carried at cost, which approximates fair value. At December 31, 2015 the Company’s cash and cash equivalents include $18.0 million of cash equivalents. There were no cash equivalents at December 31, 2014.

 

A portion of the Company’s cash and cash equivalents is held by its subsidiaries throughout the world, frequently in each subsidiary’s respective functional currency, which is typically the U.S. dollar. Approximately 50% and 81% of cash and cash equivalents were maintained outside the United States at December 31, 2015 and 2014, respectively.

 

Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are 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 can 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. The specific identification method is used to determine the realized gains and losses on investments.

 

(p) Inventories

 

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company reviews and sets standard costs on a periodic basis at current manufacturing costs in order to approximate actual costs. The Company assesses the valuation of all inventories, including manufacturing raw materials, work-in-process, finished goods, and spare parts, each quarter. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less than cost. Estimates of net realizable value include, but are not limited to, management’s forecasts related to the Company’s future manufacturing schedules, customer demand, technological and/or market obsolescence, general market conditions, possible alternative uses, and ultimate realization of excess inventory. If future customer demand or market conditions are less favorable than the Company’s projections, additional inventory write-downs may be required and would be reflected in cost of sales in the period the revision is made. Inventory acquired as part of a business combination is recorded at fair value on the date of acquisition. See Note 5, “Business Combinations,” for additional information.

 

(q) Business Combinations

 

The Company allocates the fair value of the purchase consideration of the Company’s acquisitions to the tangible assets, intangible assets, including in-process research and development (“IPR&D”), if any, and liabilities assumed, based on estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When a project underlying reported IPR&D is completed, the corresponding amount of IPR&D is amortized over the asset’s estimated useful life. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred in “Selling, General, and Administrative” in the Consolidated Statements of Operations. See Note 5, “Business Combinations,” for additional information.

 

(r) Goodwill and Indefinite-Lived Intangibles

 

Goodwill is an asset representing the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is measured as the excess of the consideration transferred over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed. Intangible assets with indefinite useful lives are measured at their respective fair values on the acquisition date. Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. If and when development is complete, the associated assets would be deemed long-lived and would then be amortized based on their respective estimated useful lives at that point in time. Goodwill and indefinite-lived intangibles are not amortized into results of operations but instead are evaluated for impairment. The Company performs the evaluation in the fourth quarter of each year or more frequently if impairment indicators arise.

 

The Company may first perform a qualitative assessment of whether it is more likely than not that the reporting unit’s fair value is less than its carrying amount, and, if so, the Company then applies the two-step impairment test. The two-step impairment test first compares the fair value of the Company’s reporting unit to its carrying amount. If the fair value exceeds the carrying amount, goodwill is not impaired, and the Company is not required to perform further testing. If the carrying amount exceeds fair value, the Company determines the implied fair value of the goodwill and, if the carrying amount of the goodwill exceeds its implied fair value, then the Company records an impairment loss equal to the difference.

 

The Company determines the fair value of its reporting unit based on a reconciliation of the aggregate fair value of the reporting unit to the Company’s adjusted market capitalization. The adjusted market capitalization is calculated by multiplying the average share price of the Company’s common stock for the last ten trading days prior to the measurement date by the number of outstanding common shares and adding a control premium.

 

(s) Long-Lived Assets and Cost Method Investment

 

Long-lived intangible assets consist of purchased technology, customer-related intangible assets, patents, trademarks, covenants not-to-compete, and software licenses and are initially recorded at fair value. Long-lived intangibles are amortized over their estimated useful lives in a method reflecting the pattern in which the economic benefits are consumed or straight-lined if such pattern cannot be reliably determined.

 

Property, plant, and equipment are recorded at cost. Depreciation expense is calculated based on the estimated useful lives of the assets by using the straight-line method. Amortization of leasehold improvements is recognized using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.

 

Long-lived assets and cost method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, a recoverability test is performed utilizing undiscounted cash flows expected to be generated by that asset or asset group compared to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models or, when available, quoted market values and third-party appraisals.

 

(t) Recent Accounting Pronouncements

 

The FASB issued Accounting Standards Update (“ASU”)  No. 2014-09, as amended by ASU 2015-14: Revenue from Contracts with Customers (the “Update”). The Update requires the Company’s revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company 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, 2017. The Update provides for different transition alternatives. The Company 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.

 

The Company has evaluated other pronouncements issued but not yet adopted and does not believe the adoption of these pronouncements will have a material impact on the consolidated financial statements.

 

The Company early adopted ASU No. 2015-17: Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that deferred income tax liabilities and assets be classified as noncurrent in the balance sheet. In accordance with the ASU’s transition requirements, the Company chose to apply the amendments in the update prospectively beginning with the 2015 fiscal year. As such, prior periods have not been retrospectively adjusted. The adoption of this ASU did not have a material impact on the 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 (loss) per common share is calculated by dividing net income available to common stockholders by using 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 as follows:

 

 

 

 

For the year ended December 31,

 

 

 

 

2015

 

 

2014

 

 

2013

 

 

 

(in thousands, except per share amounts)

 

Net income (loss)

 

$

(31,978

)

 

$

(66,940

)

 

$

(42,263

)

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.80

)

 

$

(1.70

)

 

$

(1.09

)

Diluted

 

$

(0.80

)

 

$

(1.70

)

 

$

(1.09

)

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

39,742

 

 

39,350

 

 

38,807

 

Effect of potentially dilutive share-based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

39,742

 

 

39,350

 

 

38,807

 

 

 

 

 

 

 

 

 

 

 

 

For the years ended December 31, 2015, 2014, and 2013, 1.2 million, 0.7 million and 0.6 million common equivalent shares, respectively, were excluded from the computation of net loss per share since the Company incurred a net loss.  In addition, for the years ended December 31, 2015, 2014, and 2013, respectively, 2.1 million, 1.6 million and 1.3 million potentially dilutive securities underlying restricted stock awards, restricted stock units, and options to purchase common stock were excluded from the calculation since they would have had an antidilutive effect on diluted income (loss) per common share.

 

Fair Value Measurements
Fair Value Measurements

 

Note 3 — Fair Value Measurements

 

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. The Company is required to classify certain assets and liabilities 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.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.

 

The following table presents the Company’s assets that were measured at fair value on a recurring basis at December 31, 2015 and 2014:

 

 

 

 

 

Level 1

 

 

 

Level 2

 

 

 

Level 3

 

 

 

Total

 

 

 

(in thousands)

 

December 31, 2015

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

9,999 

 

$

 

$

 

$

9,999 

 

Government agency securities

 

 

4,998 

 

 

4,998 

 

Commercial paper

 

 

2,999 

 

 

2,999 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

9,999 

 

$

7,997 

 

$

 

$

17,996 

 

Short-term investments

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

94,918 

 

$

 

$

 

$

94,918 

 

Government agency securities

 

 

12,988 

 

 

12,988 

 

Corporate debt

 

 

8,144 

 

 

8,144 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

94,918 

 

$

21,132 

 

$

 

$

116,050 

 

Other

 

 

 

 

 

 

 

 

 

Assets held for sale

 

$

 

$

5,000 

 

$

 

$

5,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 

$

5,000 

 

$

 

$

5,000 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

81,527 

 

$

 

$

 

$

81,527 

 

Corporate debt

 

 

39,045 

 

 

39,045 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

81,527 

 

$

39,045 

 

$

 

$

120,572 

 

Other

 

 

 

 

 

 

 

 

 

Assets held for sale

 

$

 

$

6,000 

 

$

 

$

6,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 

$

6,000 

 

$

 

$

6,000 

 

 

The above table includes highly liquid investments with maturities of three months or less which are classified as cash equivalents and are carried at cost, which approximates fair value. All investments classified as available-for-sale are recorded at fair value within short-term investments in the Consolidated Balance Sheets. The Company’s investments classified as Level 1 are based on quoted prices that are available in active markets. The Company’s investments classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency.

 

Investments
Investments

 

Note 4 — Investments

 

At December 31, 2015 and 2014 the amortized cost and fair value of marketable securities were as follows:

 

 

 

 

 

 

 

 

 

Gross

 

 

 

Gross

 

 

 

 

 

 

 

 

 

Amortized

 

 

 

Unrealized

 

 

 

Unrealized

 

 

 

Estimated

 

 

 

 

 

Cost

 

 

 

Gains

 

 

 

Losses

 

 

 

Fair Value

 

 

 

 

 

(in thousands)

 

December 31, 2015

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

94,935

 

$

6

 

$

(23

)

$

94,918

 

Government agency securities

 

12,985

 

3

 

 

12,988

 

Corporate debt

 

8,144

 

1

 

(1

)

8,144

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

116,064

 

$

10

 

$

(24

)

$

116,050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 at December 31, 2015 and 2014 were as follows:

 

 

 

 

 

December 31, 2015

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Gross

 

 

 

 

 

Estimated

 

 

 

Unrealized

 

 

 

Estimated

 

 

 

Unrealized

 

 

 

 

 

Fair Value

 

 

 

Losses

 

 

 

Fair Value

 

 

 

Losses

 

 

 

(in thousands)

 

U.S. treasuries

 

$

64,922

 

$

(23

)

$

35,001

 

$

(6

)

Corporate debt

 

3,353

 

(1

)

13,069

 

(6

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

68,275

 

$

(24

)

$

48,070

 

$

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

The maturities of securities classified as available-for-sale at December 31, 2015 were all due in one year or less. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. There were minimal realized gains for the years ended December 31, 2015, 2014, and 2013, which were included in “Other, net” in the Consolidated Statements of Operations. There were no realized losses in any of the three years.

 

Restricted Cash

 

The Company did not have any restricted cash at December 31, 2015. At December 31, 2014 the restricted cash balance was $0.5 million, which served 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.

 

Cost Method Investment

 

The Company has an ownership interest of less than 20% in a non-marketable investment. The Company does not exert significant influence over the investee and therefore the investment is carried at cost. Additional investments of $1.6 million were made during the year ended December 31, 2015, increasing the carrying value of the investment from $19.4 million at December 31, 2014 to $21.0 million at December 31, 2015. The Company’s ownership interest and participating rights have not substantively changed. Therefore, the Company continues to carry the investment at cost. The investment is included in “Other assets” on the Consolidated Balance Sheet. The investment is subject to a periodic impairment review; as there are no open-market valuations, the impairment analysis requires 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, business valuation indications from recent rounds of financing, the likelihood of obtaining subsequent rounds of financing, and the impact of equity preferences held by the Company relative to other investors. 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.

 

Business Combinations
Business Combinations

 

Note 5 — Business Combinations

 

PSP

 

On December 4, 2014 the Company acquired 100% of Solid State Equipment, LLC (“SSEC”) and rebranded the business Veeco Precision Surface Processing (“PSP”). The results of PSP operations have been included in the consolidated financial statements since the date of acquisition. PSP designs and develops wafer wet processing capabilities. Target market applications include semiconductor advanced packaging (including 2.5D and 3D ICs), micro-electromechanical systems (“MEMS”), compound semiconductor (RF, power electronics, LED and others), data storage, photomask, and flat panel displays. PSP further extends the Company’s penetration in the compound semiconductor and MEMS markets and represents the Company’s entry into the advanced packaging market.

 

The acquisition date fair value of the consideration totaled $145.5 million, net of cash acquired, which consisted of the following:

 

 

 

Acquisition Date

 

 

 

(December 4, 2014)

 

 

 

(in thousands)

 

Amount paid, net of cash acquired

 

$

145,382 

 

Working capital adjustment

 

88 

 

 

 

 

 

Acquisition date fair value

 

$

145,470 

 

 

 

 

 

 

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The Company utilized third-party valuations to estimate the fair value of certain of the acquired tangible and intangible assets:

 

 

 

Acquisition Date

 

(December 4, 2014)

 

 

 

(in thousands)

 

Accounts receivable

 

$

9,383 

 

Inventory

 

13,812 

 

Other current assets

 

463 

 

Property, plant, and equipment

 

6,912 

 

Intangible assets

 

79,810 

 

 

 

 

 

Total identifiable assets acquired

 

110,380 

 

 

 

 

 

Accounts payable and accrued expenses

 

6,473 

 

Customer deposits

 

6,039 

 

Deferred tax liability, net

 

2,705 

 

Other

 

1,089 

 

 

 

 

 

Total liabilities assumed

 

16,306 

 

 

 

 

 

Net identifiable assets acquired

 

94,074 

 

Goodwill

 

51,396 

 

 

 

 

 

Net assets acquired

 

$

145,470 

 

 

 

 

 

 

 

The gross contractual value of the acquired accounts receivable was approximately $10.5 million. The fair value of the accounts receivables is the amount expected to be collected by the Company. Goodwill generated from the acquisition is primarily attributable to expected synergies from future growth and strategic advantages provided through the expansion of product offerings as well as assembled workforce. Approximately 80% of the value of the goodwill is expected to be deductible for income tax purposes.

 

During 2015, the Company finalized the purchase accounting, including taxes and the working capital adjustment under the purchase agreement. Based on the final adjustments, net working capital increased $0.7 million, goodwill decreased $0.1 million, deferred tax liabilities decreased $0.2 million, and a lease-related asset retirement obligation of $0.8 million was recognized.

 

The classes of intangible assets acquired and the estimated useful life of each class is presented in the table below:

 

 

 

Acquisition Date 

 

 

 

(December 4, 2014)

 

 

 

Amount

 

Useful life

 

 

 

(in thousands)

 

 

 

Technology

 

$

39,950 

 

10 years

 

Customer relationships

 

34,310 

 

14 years

 

Backlog

 

3,340 

 

6 months

 

Non-compete agreements

 

1,130 

 

2 years

 

Trademark and tradenames

 

1,080 

 

1 year

 

 

 

 

 

 

 

Intangible assets acquired

 

$

79,810 

 

 

 

 

 

 

 

 

 

 

 

The Company determined the estimated fair value of the identifiable intangible assets based on various factors including: cost, discounted cash flow, income method, loss-of-revenue/income method, and relief-from-royalty method in determining the purchase price allocation.

 

During 2014, the Company recognized $3.2 million of acquisition related costs that are included in “Selling, general, and administrative” in the Consolidated Statements of Operations.

 

The amounts of revenue and income (loss) from continuing operations before income taxes of PSP included in the Company’s consolidated statement of operations from the acquisition date (December 4, 2014) to the period ending December 31, 2014 are as follows:

 

 

 

Total

 

 

 

(in thousands)

 

Revenue

 

$

7,906

 

Loss from operations before income taxes

 

$

(3,011

)

 

The following represents the unaudited pro forma Consolidated Statements of Operations as if PSP had been included in the Company’s consolidated results for the periods indicated. These amounts have been calculated after applying the Company’s accounting policies to material amounts and also adjusting the results of PSP to reflect the additional amortization and depreciation that would have been expensed assuming the fair value adjustments to the acquired assets had been applied on January 1, 2013:

 

 

 

December 31,

 

 

 

2014

 

2013

 

 

 

(in thousands)

 

Revenue

 

  $

447,089

 

$

379,272

 

Loss from operations before income taxes

 

  $

(68,715

)

$

(77,252

)

 

ALD

 

On October 1, 2013 the Company acquired 100% of the outstanding common shares and voting interest of Synos Technology, Inc. and rebranded the business Veeco ALD (“ALD”). The results of ALD operations have been included in the consolidated financial statements since the date of acquisition, and ALD has been integrated into the Company’s single operating segment. The ALD business includes early stage manufacturing of fast array scanning atomic layer deposition (“FAST-ALD”) tools for the flexible organic light-emitting diode (“OLED”) and semiconductor markets.

 

The acquisition date fair value of the consideration totaled $102.3 million, net of cash acquired, which consisted of the following:

 

 

 

Acquisition Date

 

 

 

(October 1, 2013)

 

 

 

(in thousands)

 

Cash (net of cash acquired)

 

$

71,488

 

Contingent consideration

 

33,539

 

Working capital adjustment

 

(2,695

)

 

 

 

 

Acquisition date fair value

 

$

102,332

 

 

 

 

 

 

 

The acquisition agreement included performance milestones that could trigger contingent payments to the original selling shareholders. During the year ended December 31, 2013, the first milestone was achieved, and the Company paid the former shareholders $5.0 million and increased the estimated fair value of the remaining contingent payments by $0.8 million. During 2014, the Company determined that all of the remaining performance milestones were not met, reversed the fair value of the liability, and recorded a non-cash gain of $29.4 million, which is included in “Changes in contingent consideration” in the Consolidated Statements of Operations.

 

During 2014, the Company finalized the working capital adjustment under the purchase agreement. Based on the final adjustment, the working capital adjustment was reduced to $1.3 million. As a result, a $1.4 million adjustment was made that increased goodwill by $0.2 million and reduced accrued expenses by $1.2 million for the relief of a potential liability that the former shareholders have retained. During 2014, the Company received payment of the $1.3 million working capital adjustment from the former shareholders, which is included in “Acquisitions of business, net of cash acquired” within the Cash Provided by Investing Activities in the Consolidated Statements of Cash Flows.

 

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the acquisition date. The Company utilized third-party valuations to estimate the fair value of the acquired tangible and intangible assets as well as the contingent consideration:

 

 

 

Acquisition Date

 

 

 

(October 1, 2013)

 

 

 

(in thousands)

 

Accounts receivable

 

$

1,523 

 

Inventory

 

386 

 

Other current assets

 

512 

 

Property, plant, and equipment

 

1,917 

 

Intangible assets

 

99,270 

 

 

 

 

 

Total identifiable assets acquired

 

103,608 

 

 

 

 

 

Current liabilities

 

4,370 

 

Estimated deferred tax liability, net

 

32,426 

 

 

 

 

 

Total liabilities assumed

 

36,796 

 

 

 

 

 

Net identifiable assets acquired

 

66,812 

 

Goodwill

 

35,520 

 

 

 

 

 

Net assets acquired

 

$

102,332 

 

 

 

 

 

 

 

The goodwill is not deductible for income tax purposes.

 

The classes of intangible assets acquired and the original estimated useful life of each class is presented in the table below:

 

 

 

Acquisition Date

 

 

 

(October 1, 2013)

 

 

 

Amount

 

Uuseful life

 

 

 

(in thousands)

 

 

 

Technology

 

$

73,160 

 

14 years

 

Customer relationships

 

20,630 

 

8 years

 

In-process research and development

 

5,070 

 

To be determined

 

Trademarks and trade names

 

140 

 

1 year

 

Non-compete agreement

 

270 

 

3 years

 

 

 

 

 

 

 

Intangible assets acquired

 

$

99,270 

 

 

 

 

 

 

 

 

 

 

 

The Company determined the estimated fair value of the identifiable intangible assets based on various factors including: cost, discounted cash flow, income method, loss-of-revenue/income method, and relief-from-royalty method in determining the purchase price allocation.

 

During the fourth quarter of 2014, the Company determined that, while its ALD technology was successfully demonstrated at its key OLED display customer, it was unlikely to be adopted in the near-term for flexible OLED applications. The significant reduction in near-term forecasted bookings and cash flows required the Company in December 2014 to assess its ALD business for impairment, which in 2014 was its own reporting unit. As a result, the Company recorded a non-cash impairment charge of $53.9 million related to goodwill and other long-lived assets for ALD. See Note 6, “Goodwill and Intangible Assets,” for additional information.

 

During 2013, the Company recognized $1.0 million of acquisition related costs that are included in “Selling, general, and administrative” in the Consolidated Statements of Operations.

 

The following represents the unaudited pro forma Consolidated Statements of Operations as if ALD had been included in the Company’s consolidated results for the periods indicated. These amounts have been calculated after applying the Company’s accounting policies to material amounts and also adjusting the result of ALD to reflect the additional amortization that would have been expensed assuming the fair value adjustments to the acquired assets had been applied on January 1, 2012.

 

 

 

December 31,

 

 

 

2013

 

 

 

(in thousands)

 

Revenue

 

$

346,319

 

Loss from operations before income taxes

 

$

(60,983

)

 

Goodwill and Intangible Assets
Goodwill and Intangible Assets

 

Note 6 — Goodwill and Intangible Assets

 

Goodwill represents the excess of the purchase price over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed in each business combination. The following table presents the changes in goodwill balances during the years indicated:

 

 

 

Gross carrying

 

Accumulated

 

 

 

 

 

 

 

amount

 

 

 

impairment

 

 

 

Net amount

 

 

 

(in thousands)

 

Balance at December 31, 2013

 

$

186,589

 

$

95,241

 

$

91,348

 

Acquisition

 

51,396

 

 

51,396

 

Purchase price adjustments

 

173

 

 

173

 

Impairments

 

 

27,958

 

(27,958

)

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

238,158

 

123,199

 

114,959

 

Purchase price adjustments

 

(51

)

 

(51

)

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

$

238,107

 

$

123,199

 

$

114,908

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to the gross goodwill balance during the year ended December 31, 2014 resulted from the acquisition of privately-held businesses as described further in Note 5, “Business Combinations.”

 

The Company performed its annual goodwill impairment test during the year ended December 31, 2015. The fair value of the Company’s reporting unit exceeded the carrying amount and therefore goodwill was not impaired. In the future, a significant decline in the market price of the Company’s common stock could indicate a decline in the fair value of the Company’s reporting unit such that goodwill becomes impaired.

 

During 2014, the Company successfully demonstrated its FAST-ALD technology for flexible OLED encapsulation. But, subsequent to the Company’s annual goodwill impairment test in 2014, the incumbent deposition technology had progressed to satisfy current market requirements, which required an additional impairment test to be performed in the fourth quarter of 2014. After estimating the fair value of significant tangible and intangible long-lived assets related to the ALD business, the Company recorded non-cash impairment charges of $28.0 million related to goodwill and $25.9 million related to other long-lived assets, including $17.4 million related to customer relationships, $4.8 million related to in-process research and development, and $3.6 million related to certain tangible assets.

 

The components of purchased intangible assets on the dates indicated below were as follows:

 

 

 

 

 

 

 

December 31, 2015

 

 

 

December 31, 2014

 

 

 

Weighted

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Average Remaining

 

 

 

Gross

 

 

 

Amortization

 

 

 

 

 

 

 

Gross

 

 

 

Amortization

 

 

 

 

 

 

 

Amortization

 

 

 

Carrying

 

 

 

and

 

 

 

Net

 

 

 

Carrying

 

 

 

and

 

 

 

Net

 

 

 

Period

 

 

 

Amount

 

 

 

Impairment

 

 

 

Amount

 

 

 

Amount

 

 

 

Impairment

 

 

 

Amount

 

 

 

(in years)

 

(in thousands)

 

Technology

 

8.7

 

$

222,358 

 

$

120,496 

 

$

101,862 

 

$

222,358 

 

$

106,342 

 

$

116,016 

 

Customer relationships

 

12.9

 

47,885 

 

22,470 

 

25,415 

 

69,350 

 

35,549 

 

33,801 

 

Trademarks and tradenames

 

5.3

 

2,730 

 

1,937 

 

793 

 

3,050 

 

1,096 

 

1,954 

 

Indefinite-lived trademark

 

 

2,900 

 

 

2,900 

 

2,900 

 

 

2,900 

 

IPR&D

 

 

 

 

 

5,070 

 

5,070 

 

 

Other

 

1.8

 

6,241 

 

5,537 

 

704 

 

5,485 

 

848 

 

4,637 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

9.4

 

$

282,114 

 

$

150,440 

 

$

131,674 

 

$

308,213 

 

$

148,905 

 

$

159,308 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

For the years ended December 31, 2015, 2014, and 2013, amortization expense for intangible assets was $27.6 million, $13.1 million, and $5.5 million, respectively. Based on the intangible assets recorded at December 31, 2015, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:

 

 

 

 

 

Amortization

 

 

 

(in thousands)

 

2016

 

$

20,816 

 

2017

 

17,976 

 

2018

 

16,399 

 

2019

 

15,165 

 

2020

 

14,112 

 

Thereafter

 

44,306 

 

 

 

 

 

Total

 

$

128,774 

 

 

 

 

 

 

 

Inventories
Inventories

 

Note 7 — Inventories

 

Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual costs on a first-in, first-out basis. Inventories consist of the following:

 

 

 

 

December 31,

 

 

 

 

2015

 

 

 

2014

 

 

 

(in thousands)

 

Materials

 

$

42,373 

 

$

30,319 

 

Work-in-process

 

30,327 

 

25,096 

 

Finished goods

 

4,769 

 

6,056 

 

 

 

 

 

 

 

Total

 

$

77,469 

 

$

61,471 

 

 

 

 

 

 

 

 

 

 

Property, Plant, and Equipment and Assets Held for Sale
Property, Plant, and Equipment and Assets Held for Sale

 

Note 8 — Property, Plant, and Equipment and Assets Held for Sale

 

Property and equipment, net, consist of the following:

 

 

 

 

 

December 31,

 

 

 

Average

 

 

 

 

 

2015

 

 

 

2014

 

 

 

Useful Life

 

 

 

(in thousands)

 

 

 

Land

 

$

9,592 

 

$

9,392 

 

N/A

 

Building and improvements

 

54,622 

 

51,979 

 

10 – 40 years

 

Machinery and equipment

 

110,075 

 

104,815 

 

3 – 10 years

 

Leasehold improvements

 

5,554 

 

4,356 

 

3 – 7 years

 

 

 

 

 

 

 

 

 

Gross property, plant and equipment

 

179,843 

 

170,542 

 

 

 

Less: accumulated depreciation and amortization

 

100,253 

 

91,790 

 

 

 

 

 

 

 

 

 

 

 

Net property, plant, and equipment

 

$

79,590 

 

$

78,752 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense was $12.2 million, $11.4 million, and $12.9 million for the years ended December 31, 2015, 2014, and 2013, respectively.

 

Assets Held for Sale

 

At December 31, 2015, assets held for sale consist of a vacant building and land which were designated as held for sale during 2014. The carrying value reflects the Company’s estimate of fair value less costs to sell using the sales comparison market approach.

 

During the year ended December 31, 2014, the Company classified property, plant, and equipment with a carrying value of $9.5 million as assets held for sale. Using Level 2 measurement principles, the Company determined that the carrying cost of these assets exceeded the fair market value, less cost to sell, and recorded an impairment charge of approximately $3.5 million, which consisted of $1.6 million related to the Company’s research and demonstration labs in Asia and $1.9 million related to a vacant building and land. These amounts were included in “Asset impairment” in the Consolidated Statements of Operations. The net $6.0 million carrying value of these assets are included in “Assets held for sale” in the Consolidated Balance Sheet. During the year ended December 31, 2014, the Company recognized additional asset impairment charges of $0.7 million relating to assets that were abandoned during the year, which was included in “Asset impairment” in the Consolidated Statements of Operations.

 

During the year ended December 31, 2015, the Company sold its assets previously held for sale related to its research and demonstration labs in Asia for $1.0 million, which was the carrying value for the assets. The Company continues to actively market the remaining assets held for sale.

 

Accrued Expenses and Other Liabilities
Accrued Expenses and Other Liabilities

 

Note 9 — Accrued Expenses and Other Liabilities

 

The components of accrued expenses and other current liabilities were as follows:

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

2015

 

 

 

2014

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Payroll and related benefits

 

$

30,917 

 

$

26,605 

 

 

 

 

 

Warranty

 

8,159 

 

5,411 

 

 

 

 

 

Sales, use, and other taxes

 

1,132 

 

1,776 

 

 

 

 

 

Restructuring liability

 

824 

 

1,428 

 

 

 

 

 

Other

 

8,361 

 

13,198 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

49,393 

 

$

48,418 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer deposits and deferred revenue

 

Customer deposits totaled $28.2 million and $73.0 million at December 31, 2015 and 2014, respectively, which are included in “Customer deposits and deferred revenue” in the Consolidated Balance Sheets.

 

Restructuring Charges
Restructuring Charges

 

Note 10 — Restructuring Charges

 

During 2013, the Company recorded $1.5 million in personnel severance and related costs resulting from the restructuring of one of its international sales offices and the consolidation of certain sales and administrative functions. This consolidation was substantially complete at the end of 2013.

 

During 2014, the Company announced the closing of its Ft. Collins, Colorado and Camarillo, California facilities. Business activities formally conducted at these sites have been transferred to the Company’s Plainview, New York facility, and the Company recorded $0.4 million of facility closing costs. The Company also took additional measures to improve profitability in the challenging business environment and notified 93 employees of their termination from the Company and recorded $4.0 million of personnel severance and related costs. These actions were substantially complete at the end of 2014.

 

During 2015, additional charges of $2.7 million were recognized and payments made related to the 2014 closing of the Ft. Collins, Colorado and Camarillo, California facilities. In 2015, the Company announced the closing of its Hyeongok-ri, South Korea facility and reduced the workforce, including 23 employees whose positions were eliminated, resulting in additional restructuring costs of $1.1 million. And in an effort to better align the Company’s cost structure with the recently observed weakness in the LED market, the Company incurred $0.9 million to reduce spending primarily through the reduction of 16 employees and 12 temporary staff.

 

Additional restructuring costs to be accrued for these activities are not expected to be significant.

 

The following table shows the amounts incurred and paid for restructuring activities during the years ended December 31, 2015, 2014, and 2013 and the remaining accrued balance of restructuring costs at December 31, 2015, which is included in Accrued expenses and other current liabilities” in the Consolidated Balance Sheets:

 

 

 

 

 

Personnel

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and

 

 

 

Facility

 

 

 

 

 

 

 

 

 

Related Costs

 

 

 

Closing Costs

 

 

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2012

 

$

1,875

 

$

 

$

1,875

 

Provision

 

1,485

 

 

1,485

 

Payments

 

(2,827

)

 

(2,827

)

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

533

 

 

533

 

Provision

 

4,012

 

382

 

4,394

 

Payments

 

(3,117

)

(382

)

(3,499

)

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

1,428

 

 

1,428

 

Provision

 

3,513

 

1,166

 

4,679

 

Payments

 

(4,117

)

(1,166

)

(5,283

)

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

$

824

 

$

 

$

824

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies
Commitments and Contingencies

 

Note 11 — Commitments and Contingencies

 

Warranty

 

Warranties are typically valid for one year from the date of system final acceptance, and the Company estimates the costs that may be incurred under the warranty. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs and 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 also result in changes to warranty costs.

 

Changes in the Company’s product warranty reserves were as follows:

 

 

 

 

 

December 31,

 

 

 

 

 

2015

 

 

 

2014

 

 

 

2013

 

 

 

(in thousands)

 

Balance, beginning of the year

 

$

5,411

 

$

5,662

 

$

4,942

 

Addition for new warranties issued

 

7,873

 

3,484

 

5,291

 

Addition from PSP acquisition

 

 

809

 

 

Settlements

 

(3,551

)

(3,802

)

(5,580

)

Changes in estimate

 

(1,574

)

(742

)

1,009

 

 

 

 

 

 

 

 

 

Balance, end of the year

 

$

8,159

 

$

5,411

 

$

5,662

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum Lease Commitments

 

Minimum lease commitments at December 31, 2015 for property and equipment under operating lease agreements (exclusive of renewal options) are payable as follows:

 

 

 

Operating

 

 

 

Leases

 

Payments due by period:

 

(in thousands)

 

2016

 

$

2,154 

 

2017

 

1,677 

 

2018

 

1,011 

 

2019

 

529 

 

2020

 

534 

 

Thereafter

 

2,169 

 

 

 

 

 

Total

 

$

8,074 

 

 

 

 

 

 

 

Lease expense was $2.3 million, $2.3 million, and $2.9 million for the years ended December 31, 2015, 2014, and 2013, respectively. In addition, the Company is obligated under such leases for certain other expenses, including real estate taxes and insurance.

 

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, sought unspecified damages and asserted claims that he suffered burns and other injuries while cleaning a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleged, 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. During the first quarter of 2016, the parties agreed to settle the lawsuit, without any admission of wrongdoing. The settlement amount is expected to be fully covered by Veeco’s insurance and, as a result, is not expected to have a material impact on the Company’s financial condition or results of operations.

 

The Company is involved in various other legal proceedings arising in the normal course of business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

 

Concentrations of Credit Risk

 

The Company depends on purchases from its ten largest customers, which accounted for 75% and 65% of net accounts receivable at December 31, 2015 and 2014, respectively.

 

Customers who accounted for more than 10% of net accounts receivable or net sales are as follows:

 

 

 

Accounts Receivable

 

Net Sales

 

 

 

 

 

 

 

Year ended December 31,

 

For the Year Ended December 31,

Customer

 

2015

 

2014

 

2015

 

2014

 

2013

Customer A

 

*

 

*

 

*

 

15%

 

*

Customer B

 

*

 

20%

 

*

 

11%

 

14%

Customer C

 

23%

 

13%

 

*

 

*

 

*

Customer D

 

*

 

*

 

20%

 

*

 

*

Customer E

 

*

 

*

 

12%

 

*

 

*

 

 

 

 

* Less than 10% of aggregate accounts receivable or net sales

 

The Company manufactures and sells its products to companies in different geographic locations. Refer to Note 18, “Segment Reporting and Geographic Information,” for additional information. In certain instances, the Company requires deposits from its customers for a portion of the sales price in advance of shipment and performs periodic credit evaluations on its customers. Where appropriate, the Company requires letters of credit on certain non-U.S. sales arrangements. Receivables generally are due within 30 – 90 days from the date of invoice.

 

The net accounts receivable balance is concentrated in the following geographic locations:

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

 

2014

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

United States

 

 

$

14,471 

 

 

 

$

13,139 

 

China

 

 

10,629 

 

 

 

17,911 

 

EMEA(1)

 

 

7,766 

 

 

 

4,760 

 

Rest of World

 

 

16,658 

 

 

 

24,275 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

49,524 

 

 

 

$

60,085 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Europe, Middle East, and Africa

 

 

Suppliers

 

The Company outsources certain functions to third parties, including the manufacture of all or substantially all of its MOCVD systems, ion beam and other data storage systems, and ion sources. The Company primarily relies on several suppliers for the manufacturing of these systems, but the Company does maintain a minimum level of internal manufacturing capability for these systems. The failure of the Company’s present suppliers to meet their contractual obligations under its supply arrangements and the Company’s inability to make alternative arrangements or resume the manufacture of these systems could have a material adverse effect on the Company’s revenues, profitability, cash flows, and relationships with its customers.

 

In addition, certain of the components and sub-assemblies included in the Company’s products are obtained from a single source or a limited group of suppliers. The Company’s inability to develop alternative sources, if necessary, could result in a prolonged interruption in supply or a significant increase in the price of one or more components, which could adversely affect the Company’s operating results.

 

The Company had deposits with its suppliers of $14.6 million and $12.7 million at December 31, 2015 and 2014, respectively, that were included in “Prepaid expenses and other current assets” on the Consolidated Balance Sheets.

 

Purchase Commitments

 

The Company had purchase commitments of $92.7 million at December 31, 2015, all of which will come due within one year.

 

Bank Guarantees

 

The Company has bank guarantees and letters of credit issued by a financial institution on its behalf as needed. At December 31, 2015, outstanding bank guarantees and letters of credit totaled $2.9 million, and unused bank guarantees and letters of credit of $62.6 million were available to be drawn upon.

 

Debt
Debt

 

Note 12 — Debt

 

Debt consists of a mortgage note payable with a carrying value of $1.5 million and $1.8 million at December 31, 2015 and 2014, respectively. The mortgage note payable is secured by certain land and buildings with a carrying value of $3.3 million at December 31, 2015 and 2014. One of the buildings is currently held for sale. The annual interest rate on the mortgage is 7.91%, and the final payment is due on January 1, 2020. The Company determined the mortgage is a Level 3 liability in the fair-value hierarchy and estimated its fair value as $1.6 million and $2.0 million at December 31, 2015 and 2014, respectively, using a discounted cash flow model. Payments due under the note are as follows:

 

 

 

 

Total

 

 

 

 

(in thousands)

 

2016

 

 

$

340 

 

2017

 

 

368 

 

2018

 

 

398 

 

2019

 

 

427