VEECO INSTRUMENTS INC, 10-Q filed on 8/3/2015
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2015
Jul. 29, 2015
Document and Entity Information
 
 
Entity Registrant Name
VEECO INSTRUMENTS INC 
 
Entity Central Index Key
0000103145 
 
Document Type
10-Q 
 
Document Period End Date
Jun. 30, 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
 
40,789,271 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q2 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and cash equivalents
$ 313,853 
$ 270,811 
Short-term investments
82,397 
120,572 
Restricted cash
 
539 
Accounts receivable, net
83,098 
60,085 
Inventory
63,564 
61,471 
Deferred cost of sales
24,384 
5,076 
Prepaid expenses and other current assets
25,976 
23,132 
Assets held for sale
6,000 
6,000 
Deferred income taxes
6,479 
7,976 
Total current assets
605,751 
555,662 
Property, plant and equipment, net
80,002 
78,752 
Goodwill
115,256 
114,959 
Deferred income taxes
1,180 
1,180 
Intangible assets, net
143,367 
159,308 
Other assets
20,325 
19,594 
Total assets
965,881 
929,455 
Current liabilities:
 
 
Accounts payable
46,159 
18,111 
Accrued expenses and other current liabilities
39,343 
48,418 
Customer deposits and deferred revenue
128,553 
96,004 
Income taxes payable
7,750 
5,441 
Deferred income taxes
120 
120 
Current portion of long-term debt
327 
314 
Total current liabilities
222,252 
168,408 
Deferred income taxes
15,779 
16,397 
Long-term debt
1,367 
1,533 
Other liabilities
6,183 
4,185 
Total liabilities
245,581 
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; 40,789,138 and 40,360,069 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively
408 
404 
Additional paid-in capital
759,004 
750,139 
Accumulated deficit
(40,576)
(13,080)
Accumulated other comprehensive income
1,464 
1,469 
Total stockholders' equity
720,300 
738,932 
Total liabilities and stockholders' equity
$ 965,881 
$ 929,455 
Consolidated Balance Sheets (Parenthetical) (USD $)
Jun. 30, 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
40,789,138 
40,360,069 
Common stock, shares outstanding
40,789,138 
40,360,069 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Consolidated Statements of Operations
 
 
 
 
Net sales
$ 131,410 
$ 95,122 
$ 229,751 
$ 185,963 
Cost of sales
82,341 
64,449 
145,545 
121,513 
Gross profit
49,069 
30,673 
84,206 
64,450 
Operating expenses, net:
 
 
 
 
Selling, general, and administrative
24,365 
21,891 
47,247 
43,558 
Research and development
20,119 
21,011 
38,704 
40,779 
Amortization of intangible assets
7,979 
2,899 
15,941 
5,802 
Restructuring
683 
801 
3,040 
1,193 
Asset impairment
 
 
126 
 
Changes in contingent consideration
 
 
 
(29,368)
Other, net
(51)
(158)
(1,002)
(370)
Total operating expenses, net
53,095 
46,444 
104,056 
61,594 
Operating income (loss)
(4,026)
(15,771)
(19,850)
2,856 
Interest income
243 
180 
530 
386 
Interest expense
(124)
(108)
(250)
(150)
Income (loss) before income taxes
(3,907)
(15,699)
(19,570)
3,092 
Income tax expense (benefit)
4,479 
(488)
7,926 
(857)
Net income (loss)
$ (8,386)
$ (15,211)
$ (27,496)
$ 3,949 
Income (loss) per common share:
 
 
 
 
Basic (in dollars per share)
$ (0.21)
$ (0.39)
$ (0.69)
$ 0.10 
Diluted (in dollars per share)
$ (0.21)
$ (0.39)
$ (0.69)
$ 0.10 
Weighted average number of shares:
 
 
 
 
Basic (in shares)
39,693 
39,379 
39,666 
39,275 
Diluted (in shares)
39,693 
39,379 
39,666 
40,061 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Consolidated Statements of Comprehensive Income (Loss)
 
 
 
 
Net income (loss)
$ (8,386)
$ (15,211)
$ (27,496)
$ 3,949 
Other comprehensive income ( loss), net of tax
 
 
 
 
Unrealized gain (loss) on available-for-sale securities
(7)
71 
26 
121 
Less: Reclassification adjustments for gains included in net income
(1)
(45)
(1)
(45)
Currency translation gain (loss)
(15)
(24)
(30)
109 
Other comprehensive income (loss), net of tax
(23)
(5)
185 
Comprehensive income (loss)
$ (8,409)
$ (15,209)
$ (27,501)
$ 4,134 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Cash Flows from Operating Activities
 
 
Net income (loss)
$ (27,496)
$ 3,949 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
Depreciation and amortization
21,725 
11,600 
Deferred income taxes
879 
(2,675)
Asset impairment
126 
 
Share-based compensation expense
8,919 
9,813 
Provision of bad debts
 
(1,936)
Gain on sale of lab tools
(179)
(2,435)
Change in contingent consideration
 
(29,368)
Changes in operating assets and liabilities:
 
 
Accounts receivable
(22,709)
(32,721)
Inventory and deferred cost of sales
(21,269)
7,062 
Prepaid expenses and other current assets
(2,844)
(1,631)
Accounts payable and accrued expenses
19,041 
(1,214)
Customer deposits and deferred revenue
31,599 
22,826 
Income taxes receivable and payable, net
2,309 
646 
Other, net
1,860 
(692)
Net cash provided by (used in) operating activities
11,961 
(16,776)
Cash Flows from Investing Activities
 
 
Capital expenditures
(7,530)
(4,509)
Proceeds from the liquidation of short-term investments
50,147 
121,233 
Payments for purchases of short-term investments
(11,998)
(92,029)
Proceeds from sale of lab tools
1,533 
7,034 
Other
(865)
(685)
Net cash provided by investing activities
31,287 
31,044 
Cash Flows from Financing Activities
 
 
Proceeds from stock option exercises
1,157 
9,125 
Payments of tax withholdings - restricted shares
(1,180)
(1,867)
Repayments of long-term debt
(153)
(141)
Net cash provided by (used in) financing activities
(176)
7,117 
Effect of exchange rate changes on cash and cash equivalents
(30)
148 
Net increase in cash and cash equivalents
43,042 
21,533 
Cash and cash equivalents - beginning of period
270,811 
210,799 
Cash and cash equivalents - end of period
313,853 
232,332 
Supplemental information:
 
 
Interest paid
71 
82 
Income taxes paid
$ 2,625 
$ 1,999 
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 quarter. 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 with customers 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 concessions. 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.

 

Veeco’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 product and service 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, Veeco recognizes revenue upon receipt of written acceptance from the end customer.

 

Veeco recognizes revenue related to maintenance and service contracts ratably over the applicable contract term. Revenue from the sales of components, spare parts, and specified service engagements is recognized 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.

 

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 approved a one-year deferral of the Update.  The FASB expects to issue its final ASU formally amending the effective date by the end of the third quarter of 2015. 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.

 

For the three and six months ended June 30, 2015, and for the three months ended June 30, 2014, 1.1 million shares of nonvested, participating, restricted share awards and units were excluded from the computation of basic net loss per share since the securities’ holders are not obligated to fund these losses. 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 effect of outstanding performance share awards and units are included in income per common share when performance targets have been achieved.

 

The computations of basic and diluted income (loss) per common share are:

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands, except per share data)

 

Net income (loss)

 

$

(8,386

)

$

(15,211

)

$

(27,496

)

$

3,949

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.21

)

$

(0.39

)

$

(0.69

)

$

0.10

 

Diluted

 

$

(0.21

)

$

(0.39

)

$

(0.69

)

$

0.10

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

39,693

 

39,379

 

39,666

 

39,275

 

Effect of potentially dilutive share-based awards

 

 

 

 

786

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

39,693

 

39,379

 

39,666

 

40,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares excluded from diluted calculation since Veeco incurred a net loss as their effect would be antidilutive

 

169

 

321

 

174

 

 

 

 

 

 

 

 

 

 

 

 

Potentially dilutive non-participating shares excluded from diluted calculation as their effect would be antidilutive

 

1,976

 

1,045

 

1,964

 

921

 

 

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)

 

June 30, 2015

 

 

 

 

 

 

 

U.S. treasuries

 

$

59,740 

 

$

 

$

59,740 

 

Government agency securities

 

 

5,000 

 

5,000 

 

Corporate debt

 

 

17,657 

 

17,657 

 

 

 

 

 

 

 

 

 

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 six months ended June 30, 2015. There were no financial assets or liabilities measured at fair value using Level 3 fair value measurements at June 30, 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)

 

June 30, 2015

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

59,693

 

$

47

 

$

 

$

59,740

 

Government agency securities

 

5,000

 

 

 

5,000

 

Corporate debt

 

17,644

 

14

 

(1

)

17,657

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

82,337

 

$

61

 

$

(1

)

$

82,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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:

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

 

 

Gross

 

 

 

Gross

 

 

 

Estimated

 

Unrealized

 

Estimated

 

Unrealized

 

 

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

 

 

(in thousands)

 

U.S. treasuries

 

$

 

$

 

$

35,001

 

$

(6

)

Corporate debt

 

2,139

 

(1

)

13,069

 

(6

)

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities in a loss position

 

$

2,139

 

$

(1

)

$

48,070

 

$

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 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 are:

 

 

 

June 30, 2015

 

 

 

Amortized
cost

 

Estimated
fair value

 

 

 

(in thousands)

 

Due in one year or less

 

$

44,647 

 

$

44,668 

 

Due after one year through two years

 

37,690 

 

37,729 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

82,337 

 

$

82,397 

 

 

 

 

 

 

 

 

 

 

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.

 

There were minimal realized gains for the three and six months ended June 30, 2015 and June 30, 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 June 30, 2015 and December 31, 2014, respectively.

 

Inventory

 

Inventory is stated at the lower of cost or market approximating actual costs using a first-in, first-out basis.

 

Inventory consists of:

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Materials

 

$

33,378 

 

$

28,637 

 

Work-in-process

 

25,091 

 

26,778 

 

Finished goods

 

5,095 

 

6,056 

 

 

 

 

 

 

 

Total inventory

 

$

63,564 

 

$

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 prepaid value-added tax, lease deposits, prepaid insurance, and prepaid licenses.

 

Veeco outsources a majority of its manufacturing to third parties. For outsourced products, Veeco maintains a minimum level of internal manufacturing capability. Supplier deposits were $15.2 million and $12.7 million at June 30, 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 carrying value 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:

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Land

 

$

9,392 

 

$

9,392 

 

Building and improvements

 

54,118 

 

51,979 

 

Machinery and equipment

 

107,153 

 

104,815 

 

Leasehold improvements

 

5,398 

 

4,356 

 

 

 

 

 

 

 

Gross property, plant and equipment

 

176,061 

 

170,542 

 

Less: accumulated depreciation and amortization

 

96,059 

 

91,790 

 

 

 

 

 

 

 

Net property, plant, and equipment

 

$

80,002 

 

$

78,752 

 

 

 

 

 

 

 

 

 

 

For the three and six months ended June 30, 2015, depreciation expense was $3.0 million and $5.8 million, respectively, and $2.9 million and $5.8 million for the comparable 2014 periods.

 

At June 30, 2015 and December 31, 2014, the carrying value of systems that had previously been used in Veeco’s laboratories as Veeco Certified Equipment was approximately $1.0 million and $1.3 million, respectively, and was included in “property, plant, and equipment” in the Consolidated Balance Sheets. These held-for-sale systems are the same types of tools that Veeco sells to customers in the ordinary course of business. When these systems are sold, sales proceeds and the associated costs are included in “Net sales” and “Cost of sales” in the Consolidated Statements of Operations.

 

Goodwill

 

There were no new acquisitions or impairments during the six months ended June 30, 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

 

297 

 

 

297 

 

 

 

 

 

 

 

 

 

Goodwill - June 30, 2015

 

$

238,455 

 

$

123,199 

 

$

115,256 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

There were no new acquisitions or impairments during the six months ended June 30, 2015. The components of purchased intangible assets consist of:

 

 

 

June 30, 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 

 

$

113,419 

 

$

108,939 

 

$

222,358 

 

$

106,342 

 

$

116,016 

 

Customer relationships

 

47,885 

 

18,685 

 

29,200 

 

47,885 

 

14,918 

 

32,967 

 

Trademarks and tradenames

 

3,050 

 

1,717 

 

1,333 

 

3,050 

 

1,096 

 

1,954 

 

Indefinite-lived trademark

 

2,900 

 

 

2,900 

 

2,900 

 

 

2,900 

 

Other

 

6,320 

 

5,325 

 

995 

 

6,320 

 

849 

 

5,471 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

282,513 

 

$

139,146 

 

$

143,367 

 

$

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 investment. Veeco does not exert significant influence over the investee, and therefore the investment is carried at cost. An additional investment of $0.8 million was made during the three months ended June 30, 2015, increasing the carrying value of the investment from $19.4 million at December 31, 2014 to $20.2 million at June 30, 2015. Subsequent to June 30, 2015, Veeco participated in a new round of financing by investing an additional $0.8 million. Veeco’s ownership interest and participating rights have not changed. Therefore, Veeco continues to carry the investment at cost. 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, business valuation indications from recent rounds of financing, the likelihood of obtaining subsequent rounds of financing, and the impact of equity preferences held by Veeco or 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.

Liabilities
Liabilities

 

Note 4 - Liabilities

 

Accrued expenses and other current liabilities

 

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

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Payroll and related benefits

 

$

21,634 

 

$

28,938 

 

Warranty

 

5,593 

 

5,411 

 

Installation

 

2,912 

 

2,861 

 

Sales, use, and other taxes

 

2,568 

 

1,776 

 

Professional fees

 

1,989 

 

2,752 

 

Restructuring liability

 

822 

 

1,428 

 

Other

 

3,825 

 

5,252 

 

 

 

 

 

 

 

Total accrued liabilities

 

$

39,343 

 

$

48,418 

 

 

 

 

 

 

 

 

 

 

Other liabilities include accruals for costs related to customer 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 product warranty reserves include:

 

 

 

(in thousands)

 

Warranty reserves - December 31, 2014

 

$

5,411

 

Warranties issued

 

3,085

 

Settlements made

 

(1,932

)

Changes in estimate

 

(971

)

 

 

 

 

Warranty reserves - June 30, 2015

 

$

5,593

 

 

 

 

 

 

 

Restructuring accruals

 

During the six months ended June 30, 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 formerly conducted at these sites have been transferred to the Plainview, New York facility. In addition, Veeco is closing the Hyeongok-ri, South Korea facility. Veeco has accrued and paid for restructuring activities during the six months ended June 30, 2015. Additional restructuring costs to be accrued for these activities are not expected to be significant.

 

 

 

Personnel

 

 

 

 

 

 

 

Severance and

 

Facility

 

 

 

 

 

Related Costs

 

Closing Costs

 

Total

 

 

 

(in thousands)

 

Restructuring accrual - December 31, 2014

 

$

1,428

 

$

 

$

1,428

 

Provision

 

2,085

 

955

 

3,040

 

Payments

 

(2,930

)

(716

)

(3,646

)

 

 

 

 

 

 

 

 

Restructuring accrual - June 30, 2015

 

$

583

 

$

239

 

$

822

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer deposits and deferred revenue

 

Customer deposits totaled $57.0 million and $73.0 million at June 30, 2015 and December 31, 2014, respectively. The remainder of the balance relates to deferred revenue consisting of billings associated with customer contracts 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 $1.7 million at June 30, 2015 and $1.8 million at 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 $1.8 million at June 30, 2015 and $2.0 million at December 31, 2014.

Commitments and Contingencies
Commitments and Contingencies

 

Note 5 - Commitments and Contingencies

 

Minimum lease commitments

 

At June 30, 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 $123.4 million at June 30, 2015, substantially all of which become due within one year.

 

Bank guarantees and letters of credit

 

Veeco has bank guarantees and letters of credit issued by a financial institution on its behalf as needed to cover performance bonds required by customers.  At June 30, 2015, outstanding bank guarantees and letters of credit totaled $36.2 million, and unused letters of credit of $30.9 million were available to be drawn upon.

 

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:

 

 

 

Currency
translation
gain (loss)

 

Minimum Pension
Liability

 

Unrealized Gains on
Available-for-sale
Securities

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2014

 

$

2,333

 

$

(881

)

$

17

 

$

1,469

 

Other comprehensive income (loss) before reclassifications

 

(30

)

 

26

 

(4

)

Amounts reclassified from AOCI

 

 

 

(1

)

(1

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

(30

)

 

25

 

(5

)

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2015

 

$

2,303

 

$

(881

)

$

42

 

$

1,464

 

 

Veeco did not allocate tax expense to other comprehensive income for the six months ended June 30, 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.

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 and 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:

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands)

 

Cost of sales

 

$

713 

 

$

620 

 

$

1,314 

 

$

1,180 

 

Selling, general, and administrative

 

3,112 

 

3,324 

 

5,910 

 

6,425 

 

Research and development

 

1,096 

 

1,147 

 

1,695 

 

2,208 

 

 

 

 

 

 

 

 

 

 

 

Total share-based compensation expense

 

$

4,921 

 

$

5,091 

 

$

8,919 

 

$

9,813 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity activity related to restricted shares:

 

 

 

 

 

Weighted Average
Grant Date

 

 

 

Number of Shares

 

Fair Value

 

 

 

(in thousands)

 

 

 

Restricted shares outstanding - December 31, 2014

 

1,237

 

$

34.27

 

Granted

 

597

 

31.32

 

Vested

 

(125

)

40.70

 

Forfeited

 

(59

)

35.92

 

 

 

 

 

 

 

Restricted shares outstanding - June 30, 2015

 

1,650

 

$

32.66

 

 

 

 

 

 

 

 

 

Equity activity related to stock options:

 

 

 

 

 

Weighted Average

 

 

 

Number of Shares

 

Exercise Price

 

 

 

(in thousands)

 

 

 

Stock options outstanding - December 31, 2014

 

2,391

 

$

31.65

 

Granted

 

17

 

30.22

 

Exercised

 

(74

)

19.07

 

Expired or forfeited

 

(119

)

38.62

 

 

 

 

 

 

 

Stock options outstanding - June 30, 2015

 

2,215

 

$

31.69

 

 

 

 

 

 

 

 

 

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 June 30,

 

Six months ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands)

 

Income (loss) before income taxes

 

$

(3,907

)

$

(15,699

)

$

(19,570

)

$

3,092

 

Income tax expense (benefit)

 

$

4,479

 

$

(488

)

$

7,926

 

$

(857

)

 

For the three months ended June 30, 2015, the net expense for income taxes included a $3.3 million provision relating to Veeco’s domestic operations and a $1.2 million provision relating to foreign operations. For the six months ended June 30, 2015, the net expense for income taxes included a $5.3 million provision relating to domestic operations and a $2.6 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 and six months ended June 30, 2014, the effective tax rate was different than the statutory tax rate primarily due to the recognition of only a portion of Veeco’s U.S. deferred tax assets on a more-likely-than-not basis with respect to 2014 domestic pre-tax losses. In addition, for the six months ended June 30, 2014, the effective tax rate was also impacted because a tax provision was not provided on the gain from the settlement of the contingent consideration related to the Synos acquisition.

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 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 and performance improvement of electronic products, such as smartphones, smartwatches, tablets, and laptops. Micro-Electro Mechanical 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 June 30,

 

Six months ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands)

 

Lighting, Display & Power Electronics

 

$

82,122 

 

$

66,221 

 

$

146,450 

 

$

130,112 

 

Advanced Packaging, MEMS & RF

 

13,840 

 

1,836 

 

27,005 

 

2,635 

 

Scientific & Industrial

 

17,960 

 

14,082 

 

31,595 

 

22,567 

 

Data Storage

 

17,488 

 

12,983 

 

24,701 

 

30,649 

 

 

 

 

 

 

 

 

 

 

 

Total Sales

 

$

131,410 

 

$

95,122 

 

$

229,751 

 

$

185,963 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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:

 

Revenue by geography:

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands)

 

United States

 

$

19,632 

 

$

13,466 

 

$

47,601 

 

$

20,943 

 

China

 

66,437 

 

51,088 

 

110,718 

 

83,926 

 

EMEA(1)

 

21,990 

 

6,908 

 

30,314 

 

17,254 

 

Rest of World

 

23,351 

 

23,660 

 

41,118 

 

63,840 

 

 

 

 

 

 

 

 

 

 

 

Total Sales

 

$

131,410 

 

$

95,122 

 

$

229,751 

 

$

185,963 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 with customers 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 concessions. 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.

 

Veeco’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 product and service 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, Veeco recognizes revenue upon receipt of written acceptance from the end customer.

 

Veeco recognizes revenue related to maintenance and service contracts ratably over the applicable contract term. Revenue from the sales of components, spare parts, and specified service engagements is recognized 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.

 

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 approved a one-year deferral of the Update.  The FASB expects to issue its final ASU formally amending the effective date by the end of the third quarter of 2015. 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 June 30,

 

Six months ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands, except per share data)

 

Net income (loss)

 

$

(8,386

)

$

(15,211

)

$

(27,496

)

$

3,949

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.21

)

$

(0.39

)

$

(0.69

)

$

0.10

 

Diluted

 

$

(0.21

)

$

(0.39

)

$

(0.69

)

$

0.10

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

39,693

 

39,379

 

39,666

 

39,275

 

Effect of potentially dilutive share-based awards

 

 

 

 

786

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

39,693

 

39,379

 

39,666

 

40,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares excluded from diluted calculation since Veeco incurred a net loss as their effect would be antidilutive

 

169

 

321

 

174

 

 

 

 

 

 

 

 

 

 

 

 

Potentially dilutive non-participating shares excluded from diluted calculation as their effect would be antidilutive

 

1,976

 

1,045

 

1,964

 

921

 

 

Assets (Tables)

 

 

 

Level 1

 

Level 2

 

Total

 

 

 

(in thousands)

 

June 30, 2015

 

 

 

 

 

 

 

U.S. treasuries

 

$

59,740 

 

$

 

$

59,740 

 

Government agency securities

 

 

5,000 

 

5,000 

 

Corporate debt

 

 

17,657 

 

17,657 

 

 

 

 

 

 

 

 

 

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)

 

June 30, 2015

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

59,693

 

$

47

 

$

 

$

59,740

 

Government agency securities

 

5,000

 

 

 

5,000

 

Corporate debt

 

17,644

 

14

 

(1

)

17,657

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

82,337

 

$

61

 

$

(1

)

$

82,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

 

 

Gross

 

 

 

Gross

 

 

 

Estimated

 

Unrealized

 

Estimated

 

Unrealized

 

 

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

 

 

(in thousands)

 

U.S. treasuries

 

$

 

$

 

$

35,001

 

$

(6

)

Corporate debt

 

2,139

 

(1

)

13,069

 

(6

)

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities in a loss position

 

$

2,139

 

$

(1

)

$

48,070

 

$

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

 

 

Amortized
cost

 

Estimated
fair value

 

 

 

(in thousands)

 

Due in one year or less

 

$

44,647 

 

$

44,668 

 

Due after one year through two years

 

37,690 

 

37,729 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

82,337 

 

$

82,397 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Materials

 

$

33,378 

 

$

28,637 

 

Work-in-process

 

25,091 

 

26,778 

 

Finished goods

 

5,095 

 

6,056 

 

 

 

 

 

 

 

Total inventory

 

$

63,564 

 

$

61,471 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Land

 

$

9,392 

 

$

9,392 

 

Building and improvements

 

54,118 

 

51,979 

 

Machinery and equipment

 

107,153 

 

104,815 

 

Leasehold improvements

 

5,398 

 

4,356 

 

 

 

 

 

 

 

Gross property, plant and equipment

 

176,061 

 

170,542 

 

Less: accumulated depreciation and amortization

 

96,059 

 

91,790 

 

 

 

 

 

 

 

Net property, plant, and equipment

 

$

80,002 

 

$

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

 

297 

 

 

297 

 

 

 

 

 

 

 

 

 

Goodwill - June 30, 2015

 

$

238,455 

 

$

123,199 

 

$

115,256 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 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 

 

$

113,419 

 

$

108,939 

 

$

222,358 

 

$

106,342 

 

$

116,016 

 

Customer relationships

 

47,885 

 

18,685 

 

29,200 

 

47,885 

 

14,918 

 

32,967 

 

Trademarks and tradenames

 

3,050 

 

1,717 

 

1,333 

 

3,050 

 

1,096 

 

1,954 

 

Indefinite-lived trademark

 

2,900 

 

 

2,900 

 

2,900 

 

 

2,900 

 

Other

 

6,320 

 

5,325 

 

995 

 

6,320 

 

849 

 

5,471 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

282,513 

 

$

139,146 

 

$

143,367 

 

$

282,513 

 

$

123,205 

 

$

159,308 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities (Tables)

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

(in thousands)

 

Payroll and related benefits

 

$

21,634 

 

$

28,938 

 

Warranty

 

5,593 

 

5,411 

 

Installation

 

2,912 

 

2,861 

 

Sales, use, and other taxes

 

2,568 

 

1,776 

 

Professional fees

 

1,989 

 

2,752 

 

Restructuring liability

 

822 

 

1,428 

 

Other

 

3,825 

 

5,252 

 

 

 

 

 

 

 

Total accrued liabilities

 

$

39,343 

 

$

48,418 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Warranty reserves - December 31, 2014

 

$

5,411

 

Warranties issued

 

3,085

 

Settlements made

 

(1,932

)

Changes in estimate

 

(971

)

 

 

 

 

Warranty reserves - June 30, 2015

 

$

5,593

 

 

 

 

 

 

 

 

 

Personnel

 

 

 

 

 

 

 

Severance and

 

Facility

 

 

 

 

 

Related Costs

 

Closing Costs

 

Total

 

 

 

(in thousands)

 

Restructuring accrual - December 31, 2014

 

$

1,428

 

$

 

$

1,428

 

Provision

 

2,085

 

955

 

3,040

 

Payments

 

(2,930

)

(716

)

(3,646

)

 

 

 

 

 

 

 

 

Restructuring accrual - June 30, 2015

 

$

583

 

$

239

 

$

822

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

Currency
translation
gain (loss)

 

Minimum Pension
Liability

 

Unrealized Gains on
Available-for-sale
Securities

 

Total

 

 

 

(in thousands)

 

Balance at December 31, 2014

 

$

2,333

 

$

(881

)

$

17

 

$

1,469

 

Other comprehensive income (loss) before reclassifications

 

(30

)

 

26

 

(4

)

Amounts reclassified from AOCI

 

 

 

(1

)

(1

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

(30

)

 

25

 

(5

)

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2015

 

$

2,303

 

$

(881

)

$

42

 

$

1,464

 

 

Share-based compensation (Tables)

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(in thousands)

 

Cost of sales

 

$

713 

 

$

620 

 

$

1,314 

 

$

1,180 

 

Selling, general, and administrative

 

3,112 

 

3,324 

 

5,910 

 

6,425 

 

Research and development

 

1,096 

 

1,147 

 

1,695 

 

2,208 

 

 

 

 

 

 

 

 

 

 

 

Total share-based compensation expense

 

$

4,921 

 

$

5,091 

 

$

8,919 

 

$

9,813 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average
Grant Date

 

 

 

Number of Shares

 

Fair Value

 

 

 

(in thousands)

 

 

 

Restricted shares outstanding - December 31, 2014

 

1,237

 

$

34.27

 

Granted

 

597

 

31.32

 

Vested

 

(125

)

40.70

 

Forfeited

 

(59

)

35.92

 

 

 

 

 

 

 

Restricted shares outstanding - June 30, 2015

 

1,650

 

$

32.66

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number of Shares

 

Exercise Price

 

 

 

(in thousands)

 

 

 

Stock options outstanding - December 31, 2014

 

2,391

 

$

31.65

 

Granted

 

17

 

30.22

 

Exercised

 

(74

)

19.07

 

Expired or forfeited

 

(119

)

38.62

 

 

 

 

 

 

 

Stock options outstanding - June 30, 2015

 

2,215

 

$

31.69

 

 

 

 

 

 

&nbs