VEECO INSTRUMENTS INC, 10-Q filed on 11/3/2017
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2017
Oct. 25, 2017
Document and Entity Information
 
 
Entity Registrant Name
VEECO INSTRUMENTS INC 
 
Entity Central Index Key
0000103145 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2017 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
48,301,909 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q3 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 235,268 
$ 277,444 
Short-term investments
85,853 
66,787 
Accounts receivable, net
113,795 
58,020 
Inventories
113,681 
77,063 
Deferred cost of sales
17,594 
6,160 
Prepaid expenses and other current assets
36,396 
16,034 
Total current assets
602,587 
501,508 
Property, plant and equipment, net
84,403 
60,646 
Intangible assets, net
383,596 
58,378 
Goodwill
308,529 
114,908 
Deferred income taxes
2,528 
2,045 
Other assets
25,263 
21,047 
Total assets
1,406,906 
758,532 
Current liabilities:
 
 
Accounts payable
53,716 
22,607 
Accrued expenses and other current liabilities
65,728 
33,201 
Customer deposits and deferred revenue
107,636 
85,022 
Income taxes payable
4,171 
2,311 
Current portion of long-term debt
 
368 
Total current liabilities
231,251 
143,509 
Deferred income taxes
46,268 
13,199 
Long-term debt
272,825 
826 
Other liabilities
11,033 
6,403 
Total liabilities
561,377 
163,937 
Stockholders' equity:
 
 
Preferred stock, $0.01 par value; 500,000 shares authorized; no shares issued and outstanding
   
   
Common stock, $0.01 par value; 120,000,000 shares authorized; 48,294,284 and 40,714,790 shares issued at September 30, 2017 and December 31, 2016, respectively; 48,294,284 and 40,588,194 shares outstanding at September 30, 2017 and December 31, 2016, respectively
483 
407 
Additional paid-in capital
1,050,994 
763,303 
Accumulated deficit
(207,760)
(168,583)
Accumulated other comprehensive income
1,812 
1,777 
Treasury stock, at cost, 126,596 shares at December 31, 2016.
 
(2,309)
Total stockholders' equity
845,529 
594,595 
Total liabilities and stockholders' equity
$ 1,406,906 
$ 758,532 
Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2017
Dec. 31, 2016
Consolidated Balance Sheets
 
 
Preferred stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
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
48,294,284 
40,714,790 
Common stock, shares outstanding
48,294,284 
40,588,194 
Treasury stock, shares
 
126,596 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Consolidated Statements of Operations
 
 
 
 
Net sales
$ 131,872 
$ 85,482 
$ 341,324 
$ 238,842 
Cost of sales
78,811 
52,027 
215,344 
141,991 
Gross profit
53,061 
33,455 
125,980 
96,851 
Operating expenses, net:
 
 
 
 
Research and development
24,061 
19,892 
57,669 
63,545 
Selling, general, and administrative
29,771 
18,396 
71,574 
58,230 
Amortization of intangible assets
12,500 
5,261 
21,722 
15,785 
Restructuring
5,010 
1,798 
9,605 
3,993 
Acquisition costs
783 
 
16,277 
 
Asset impairment
56,035 
1,139 
69,662 
Other, net
(140)
795 
(228)
884 
Total operating expenses, net
71,987 
102,177 
177,758 
212,099 
Operating income (loss)
(18,926)
(68,722)
(51,778)
(115,248)
Interest income
357 
283 
1,933 
879 
Interest expense
(5,105)
(23)
(14,301)
(166)
Income (loss) before income taxes
(23,674)
(68,462)
(64,146)
(114,535)
Income tax expense (benefit)
(1,790)
1,136 
(24,969)
2,677 
Net income (loss)
$ (21,884)
$ (69,598)
$ (39,177)
$ (117,212)
Income (loss) per common share:
 
 
 
 
Basic (in dollars per share)
$ (0.47)
$ (1.78)
$ (0.91)
$ (2.99)
Diluted (in dollars per share)
$ (0.47)
$ (1.78)
$ (0.91)
$ (2.99)
Weighted average number of shares:
 
 
 
 
Basic (in shares)
46,941 
39,131 
43,100 
39,193 
Diluted (in shares)
46,941 
39,131 
43,100 
39,193 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Consolidated Statements of Comprehensive Income (Loss)
 
 
 
 
Net income (loss)
$ (21,884)
$ (69,598)
$ (39,177)
$ (117,212)
Other comprehensive income, net of tax
 
 
 
 
Unrealized gain (loss) on available-for-sale securities
70 
(7)
10 
32 
Minimum pension liability
 
866 
 
866 
Foreign currency translation
(7)
25 
20 
Total other comprehensive income, net of tax
71 
852 
35 
918 
Comprehensive income (loss)
$ (21,813)
$ (68,746)
$ (39,142)
$ (116,294)
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Cash Flows from Operating Activities
 
 
Net income (loss)
$ (39,177)
$ (117,212)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
Depreciation and amortization
32,295 
26,010 
Non-cash interest expense
7,641 
 
Deferred income taxes
(21,235)
1,529 
Share-based compensation expense
19,976 
12,133 
Asset impairment
1,139 
69,662 
Provision for bad debts
99 
160 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(10,409)
(1,184)
Inventories and deferred cost of sales
9,486 
(10,909)
Prepaid expenses and other current assets
(331)
3,661 
Accounts payable and accrued expenses
3,165 
(13,995)
Customer deposits and deferred revenue
17,779 
3,568 
Income taxes receivable and payable, net
(16)
 
Long-term income tax liability
(4,877)
80 
Other, net
(259)
2,189 
Net cash provided by (used in) operating activities
15,276 
(24,308)
Cash Flows from Investing Activities
 
 
Acquisitions of businesses, net of cash acquired
(399,478)
 
Capital expenditures
(17,403)
(10,717)
Proceeds from the sale of investments
307,757 
131,297 
Payments for purchases of investments
(279,945)
(78,376)
Proceeds from held for sale assets
2,284 
693 
Other
 
(230)
Net cash provided by (used in) investing activities
(386,785)
42,667 
Cash Flows from Financing Activities
 
 
Proceeds (net of tax withholdings) from option exercises and employee stock purchase plan
2,546 
1,192 
Restricted stock tax withholdings
(7,797)
(1,184)
Purchases of common stock
 
(13,349)
Proceeds from long-term debt borrowings
335,752 
 
Principal payments on long-term debt
(1,193)
(252)
Net cash provided by (used in) financing activities
329,308 
(13,593)
Effect of exchange rate changes on cash and cash equivalents
25 
20 
Net increase (decrease) in cash and cash equivalents
(42,176)
4,786 
Cash and cash equivalents - beginning of period
277,444 
269,232 
Cash and cash equivalents - end of period
235,268 
274,018 
Supplemental Disclosure of Cash Flow Information
 
 
Interest paid
4,667 
179 
Income taxes paid
1,767 
1,456 
Non-cash operating and financing activities
 
 
Net transfer of inventory to property, plant and equipment
$ 33 
 
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 Veeco’s 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, 2016 (“2016 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 2017 interim quarters end on April 2, July 2, and October 1, and the 2016 interim quarters ended on April 3, July 3, and October 2. These interim quarters are reported as March 31, June 30, and September 30 in Veeco’s interim consolidated financial statements.

 

Revenue recognition

 

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, 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. 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. Veeco uses BESP for 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.

 

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

 

In certain cases Veeco’s products are sold with a billing retention, typically 10% of the sales price, which is billed by Veeco and 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 recognizes revenue related to maintenance and service contracts ratably over the applicable contract term. Veeco 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.

 

Recent accounting pronouncements

 

The FASB issued ASU 2014-09, as amended: Revenue from Contracts with Customers, which has been codified as Accounting Standards Codification 606 (“ASC 606”). ASC 606 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 it expects to be entitled in exchange for those goods or services. ASC 606 outlines a five-step model to make the revenue recognition determination and requires new financial statement disclosures. Publicly-traded companies are required to adopt ASC 606 for reporting periods beginning after December 15, 2017. The Company is still completing its evaluation of the impact of adopting this standard; however, the Company currently expects the most significant financial statement impacts of adopting ASC 606 will be the elimination of the constraint on revenue associated with the billing retention related to the receipt of customer final acceptance as well as the identification of installation services as a performance obligation. The elimination of the constraint on revenue related to customer final acceptance, which is usually about 10 percent of a system sale, will generally be recognized at the time the Company transfers control of the system to the customer, which is earlier than under the Company’s current revenue recognition model for certain contracts that are subject to the billing retention constraint described above. The new performance obligation related to installation services under the new standard will generally be recognized as the installation services are performed, which is later than under the Company’s current revenue recognition model. Taken together, the Company currently believes there will be a net acceleration of a small percentage of its revenue under ASC 606 as compared to its current revenue recognition model. ASC 606 provides for different transition alternatives, and the Company is evaluating which method of adoption to select.

 

In January 2016, the FASB issued ASU 2016-01: Financial Instruments — Overall, which requires certain equity investments to be measured at fair value, with changes in fair value recognized in net income. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017; early adoption is permitted. The Company does not expect this ASU will have a material impact on the consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02: Leases, which generally requires operating lessee rights and obligations to be recognized as assets and liabilities on the balance sheet. In addition, interest on lease liabilities is to be recognized separately from the amortization of right-of-use assets in the Statement of Operations. Further, payments of the principal portion of lease liabilities are to be classified as financing activities while payments of interest on lease liabilities and variable lease payments are to be classified as operating activities in the Statement of Cash Flows. When the standard is adopted, the Company will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early application permitted. The Company is evaluating the anticipated impact of adopting the ASU on the consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight specific cash flow issues, including debt prepayments or debt extinguishment costs. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017. This ASU will not have a material impact on the consolidated financial statements.

 

In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017. This ASU will not have a material impact on the consolidated financial statements.

 

The Company 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 our consolidated financial statements.

 

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

 

Note 2 - Income (Loss) Per Common Share

 

The Company considers unvested share-based awards that have non-forfeitable rights to dividends prior to vesting to be participating shares, which are treated as a separate class of security from the Company’s common shares for calculating per share data. Therefore, the Company applies the two-class method when calculating income (loss) per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. However, since the holders of the participating shares are not obligated to fund losses, participating shares are excluded from the calculation of loss per share.

 

The dilutive effect of the Convertible Senior Notes on income (loss) per share is calculated using the treasury stock method since the Company has both the current intent and ability to settle the principal amount of the Convertible Senior Notes in cash. See Note 5, “Liabilities,” for additional information on the Convertible Senior Notes.

 

Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period under the two-class method. Diluted income per share is calculated by dividing net income by the weighted average number of shares used to calculate basic income (loss) per share plus the weighted average number of common share equivalents outstanding during the period. The dilutive effect of outstanding options to purchase common stock and non-participating share-based awards is considered in diluted income per share by application of the treasury stock method. The dilutive effect of performance share units is included in diluted income per common share in the periods the performance targets have been achieved. The computations of basic and diluted income (loss) per share for the three and nine months ended September 30, 2017 and 2016 are as follows:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands, except per share amounts)

 

Net income (loss)

 

$

(21,884

)

$

(69,598

)

$

(39,177

)

$

(117,212

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.47

)

$

(1.78

)

$

(0.91

)

$

(2.99

)

Diluted

 

$

(0.47

)

$

(1.78

)

$

(0.91

)

$

(2.99

)

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

46,941

 

39,131

 

43,100

 

39,193

 

Effect of potentially dilutive share-based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

46,941

 

39,131

 

43,100

 

39,193

 

 

 

 

 

 

 

 

 

 

 

Unvested participating shares excluded from basic weighted average shares outstanding since the securityholders are not obligated to fund losses

 

166

 

469

 

166

 

469

 

 

 

 

 

 

 

 

 

 

 

Common share equivalents excluded from the diluted weighted average shares outstanding since Veeco incurred a net loss and their effect would be antidilutive

 

220

 

140

 

275

 

45

 

 

 

 

 

 

 

 

 

 

 

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

 

1,956

 

2,030

 

1,628

 

2,042

 

 

 

 

 

 

 

 

 

 

 

Maximum potential shares to be issued for settlement of Convertible Senior Notes excluded from the diluted calculation as their effect would be antidilutive

 

8,618

 

 

8,618

 

 

 

Business Combinations
Business Combinations

 

Note 3 — Business Combinations

 

Ultratech

 

On May 26, 2017, the Company completed its acquisition of Ultratech, Inc. (“Ultratech”).  Ultratech designs, manufactures, and markets lithography, laser annealing, and inspection equipment for manufacturers of semiconductor devices, including front-end semiconductor manufacturing and advanced packaging. Ultratech also designs, manufactures, and markets atomic layer deposition (“ALD”) equipment for scientific and industrial applications. Ultratech’s customers are primarily located throughout the United States, EMEA, China, Japan, Taiwan, Singapore, and Korea. With the addition of Ultratech, the Company establishes itself as a leading equipment supplier in the advanced packaging market, forming a strong technology portfolio to address critical advanced packaging applications. The results of Ultratech’s operations have been included in the consolidated financial statements since the date of acquisition.

 

Ultratech shareholders received (i) $21.75 per share in cash and (ii) 0.2675 of a share of Veeco common stock for each Ultratech common share outstanding on the acquisition date. In connection with the Company’s continued finalization of purchase accounting, during the three months ended September 30, 2017, the Company decreased the fair value of acquired inventory and property, plant and equipment by $4.1 million and $1.2 million, respectively, resulting in a corresponding increase in goodwill. The Company plans to finalize the purchase accounting within the measurement period, which may include additional adjustments to the fair values of assets acquired and liabilities assumed. The preliminary acquisition date fair value of the consideration totaled $633.4 million, net of cash acquired, which consisted of the following:

 

 

 

Acquisition Date

 

 

 

(May 26, 2017)

 

 

 

(in thousands)

 

Cash consideration, net of cash acquired

 

$

404,489

 

Equity consideration (7.2 million shares issued)

 

228,644

 

Replacement equity awards attributable to pre-acquisition service

 

228

 

 

 

 

 

Acquisition date fair value

 

$

633,361

 

 

 

 

 

 

 

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

 

 

 

Acquisition Date

 

 

 

(May 26, 2017)

 

 

 

(in thousands)

 

Short-term investments

 

$

47,161

 

Accounts receivable

 

45,465

 

Inventory and deferred cost of sales

 

57,570

 

Prepaid expense and other current assets

 

7,217

 

Property, plant, and equipment

 

18,332

 

Intangible assets

 

346,940

 

Other assets

 

6,442

 

 

 

 

 

Total identifiable assets acquired

 

529,127

 

 

 

 

 

Accounts payable and accrued expenses

 

40,123

 

Customer deposits and deferred revenue

 

4,834

 

Deferred income taxes

 

32,478

 

Other liabilities

 

11,952

 

 

 

 

 

Total liabilities assumed

 

89,387

 

 

 

 

 

Net identifiable assets acquired

 

439,740

 

Goodwill

 

193,621

 

 

 

 

 

Net assets acquired

 

$

633,361

 

 

 

 

 

 

 

The gross contractual value of the acquired accounts receivable was approximately $46.0 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 and is not expected to be deductible for income tax purposes.

 

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

 

 

 

Acquisition Date

 

 

 

(May 26, 2017)

 

 

 

Amount

 

Useful life

 

 

 

(in thousands)

 

 

 

Technology

 

$

158,390

 

8 years

 

Customer relationships

 

116,710

 

12 years

 

Backlog

 

3,080

 

6 months

 

In-process research and development

 

43,340

 

*

 

Trademark and tradenames

 

25,420

 

7 years

 

 

 

 

 

 

 

Intangible assets acquired

 

$

346,940

 

 

 

 

 

 

 

 

 

 

 

 

*In-process research and development will be amortized (or impaired) upon completion (or abandonment) of the development project.

 

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.

 

In-process research and development (“IPR&D”) represents the estimated fair values of incomplete Ultratech research and development projects that had not reached the commercialization stage and meet the criteria for recognition as IPR&D as of the date of the acquisition. In the future, the fair value of each project at the acquisition date will be either amortized or impaired depending on whether the projects are completed or abandoned. The fair value of IPR&D was determined using an income approach and costs to complete the project and expected commercialization timelines are considered key assumptions. This valuation approach reflects the present value of the projected cash flows that are expected to be generated by the IPR&D less charges representing the contribution of other assets to those cash flows. The value of the IPR&D was determined to be $43.3 million, approximately half of which is related to Ultratech’s lithography technologies and one-third of which is related to Ultratech’s laser annealing technologies.

 

For the three and nine months ended September 30, 2017, acquisition related costs were approximately $0.8 million and $16.3 million, respectively, including non-cash charges of $4.2 million for the nine months ended September 30, 2017 related to accelerated share-based compensation for employee terminations.

 

The amounts of revenue and income (loss) from operations before income taxes of Ultratech included in the Company’s consolidated statement of operations for the three and nine months ended September 30, 2017 are as follows:

 

 

 

Three months ended
September 30, 2017

 

Nine months ended
September 30, 2017

 

 

 

(in thousands)

 

Revenue

 

$

21,236

 

$

45,286

 

Loss from operations before income taxes

 

$

(21,556

)

$

(44,374

)

 

Loss from operations before income taxes of Ultratech for the three month period ended September 30, 2017 of $21.6 million includes acquisition costs of $0.8 million, release of inventory fair value step-up related to purchase accounting of $1.9 million, amortization expense on intangible assets of $9.6 million, and restructuring charges of $2.1 million. Loss from operations before income taxes of Ultratech for the nine month period ended September 30, 2017 of $44.4 million includes acquisition costs of $16.3 million, release of inventory fair value step-up related to purchase accounting of $9.2 million, amortization expense on intangible assets of $13.1 million, and restructuring charges of $3.3 million.

 

The following table presents unaudited pro forma financial information as if the acquisition of Ultratech had occurred on January 1, 2016:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands, except per share amounts)

 

Revenue

 

$

131,872

 

$

134,093

 

$

412,066

 

$

381,586

 

Loss from operations

 

(14,957

)

(74,197

)

(45,309

)

(187,499

)

Diluted earnings per share

 

$

(0.40

)

$

(1.67

)

$

(1.01

)

$

(4.34

)

 

The pro-forma results were calculated by combining the unaudited results of the Company with the stand-alone unaudited results of Ultratech for the pre-acquisition period, and adjusting for the following:

 

(i)

Additional amortization expense related to identified intangibles valued as part of the purchase price allocation that would have been incurred starting on January 1, 2016.

 

(ii)

Additional depreciation expense for the property, plant, and equipment fair value adjustments that would have been incurred starting on January 1, 2016.

 

(iii)

All acquisition related costs incurred by the Company as well as by Ultratech pre-acquisition have been removed from their respective periods and included in the three months ended March 31, 2016, as such expenses would have been incurred in the first quarter following the acquisition.

 

(iv)

All amortization of inventory step-up has been removed from their respective periods and recorded in the first two quarters of 2016, as such costs would have been incurred as the corresponding inventory was sold.

 

(v)

Additional interest expense related to the Convertible Senior Notes (see Note 5, “Liabilities”) as if they had been issued on January 1, 2016.

 

(vi)

Income tax expense (benefit) was adjusted for the impact of the above adjustments for each period.

 

Assets
Assets

 

Note 4 - Assets

 

Investments

 

Short-term investments 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” in the Consolidated Balance Sheets. These securities may include U.S. treasuries, government agency securities, corporate debt, and commercial paper, all with maturities of greater than three months when acquired. 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.

 

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. Veeco 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 portion of Veeco’s assets that were measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016:

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(in thousands)

 

September 30, 2017

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

Corporate debt

 

$

 

$

1,500

 

$

 

$

1,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 

$

1,500

 

$

 

$

1,500

 

Short-term investments

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

58,806

 

$

 

$

 

$

58,806

 

Corporate debt

 

 

10,911

 

 

10,911

 

Commercial paper

 

 

16,136

 

 

16,136

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

58,806

 

$

27,047

 

$

 

$

85,853

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

Corporate debt

 

$

 

$

1,501

 

$

 

$

1,501

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 

$

1,501

 

$

 

$

1,501

 

Short-term investments

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

40,008

 

$

 

$

 

$

40,008

 

Government agency securities

 

 

10,012

 

 

10,012

 

Corporate debt

 

 

13,773

 

 

13,773

 

Commercial paper

 

 

2,994

 

 

2,994

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

40,008

 

$

26,779

 

$

 

$

66,787

 

 

There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2017.

 

At September 30, 2017 and December 31, 2016, 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)

 

September 30, 2017

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

58,816

 

$

3

 

$

(13

)

$

58,806

 

Corporate debt

 

10,912

 

1

 

(2

)

10,911

 

Commercial paper

 

16,135

 

1

 

 

16,136

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

85,863

 

$

5

 

$

(15

)

$

85,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

40,013

 

$

 

$

(5

)

$

40,008

 

Government agency securities

 

10,020

 

 

(8

)

10,012

 

Corporate debt

 

13,780

 

 

(7

)

13,773

 

Commercial paper

 

2,994

 

 

 

2,994

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

66,807

 

$

 

$

(20

)

$

66,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities in a loss position at September 30, 2017 and December 31, 2016 consist of:

 

 

 

September 30, 2017

 

December 31, 2016

 

 

 

 

 

Gross

 

 

 

Gross

 

 

 

Estimated

 

Unrealized

 

Estimated

 

Unrealized

 

 

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

 

 

(in thousands)

 

U.S. treasuries

 

$

41,864

 

$

(13

)

$

20,002

 

$

(5

)

Government agency securities

 

 

 

10,012

 

(8

)

Corporate debt

 

7,909

 

(2

)

13,774

 

(7

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

49,773

 

$

(15

)

$

43,788

 

$

(20

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2017 and December 31, 2016, there were no short-term investments that had been in a continuous loss position for more than 12 months.

 

The available-for-sale securities at September 30, 2017 all contractually mature in one year or less. 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 nine months ended September 30, 2017 and no realized gains for the three and nine months ended September 30, 2016. The cost of securities liquidated is based on specific identification.

 

Accounts receivable

 

Accounts receivable is presented net of an allowance for doubtful accounts of $0.3 million at September 30, 2017 and December 31, 2016.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Inventories at September 30, 2017 and December 31, 2016 consist of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2017

 

2016

 

 

 

(in thousands)

 

Materials

 

$

59,767

 

$

46,457

 

Work-in-process

 

37,884

 

25,250

 

Finished goods

 

16,030

 

5,356

 

 

 

 

 

 

 

Total

 

$

113,681

 

$

77,063

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

Prepaid expenses and other current assets primarily consist of supplier deposits, prepaid value-added tax, lease deposits, prepaid insurance, and prepaid licenses. Veeco had deposits with its suppliers of $6.7 million and $7.8 million at September 30, 2017 and December 31, 2016, respectively. Additionally, included within prepaid expenses and other current assets at September 30, 2017 was a non-trade receivable of approximately $12.8 million.

 

Property, plant, and equipment

 

Property, plant, and equipment at September 30, 2017 and December 31, 2016 consist of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2017

 

2016

 

 

 

(in thousands)

 

Land

 

$

5,669

 

$

5,669

 

Building and improvements

 

50,367

 

50,814

 

Machinery and equipment(1)

 

126,631

 

99,370

 

Leasehold improvements

 

10,471

 

3,652

 

 

 

 

 

 

 

Gross property, plant and equipment

 

193,138

 

159,505

 

Less: accumulated depreciation and amortization

 

108,735

 

98,859

 

 

 

 

 

 

 

Net property, plant, and equipment

 

$

84,403

 

$

60,646

 

 

 

 

 

 

 

 

 

 

 

(1)

Machinery and equipment also includes software, furniture and fixtures

 

For the three and nine months ended September 30, 2017, depreciation expense was $4.2 million and $10.6 million, respectively, and $3.5 million and $10.2 million for the comparable 2016 periods.

 

Goodwill

 

Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. The following table presents the changes in goodwill balances for the nine months ended September 30, 2017:

 

 

 

Gross carrying

 

Accumulated

 

 

 

 

 

amount

 

impairment

 

Net amount

 

 

 

(in thousands)

 

Balance at December 31, 2016

 

$

238,108

 

$

123,200

 

$

114,908

 

Acquisition

 

193,621

 

 

193,621

 

 

 

 

 

 

 

 

 

Balance at September 30, 2017

 

$

431,729

 

$

123,200

 

$

308,529

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

Intangible assets consist of purchased technology, customer-related intangible assets, in-process research and development, trademarks (both long-lived and indefinite-lived), patents, backlog, and 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 amortized on a straight-line basis if such pattern cannot be reliably determined.

 

The components of purchased intangible assets were as follows:

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

 

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

 

7.5

 

$

307,588

 

$

125,154

 

$

182,434

 

$

149,198

 

$

113,904

 

$

35,294

 

Customer relationships

 

11.6

 

164,595

 

35,653

 

128,942

 

47,885

 

28,659

 

19,226

 

In-process R&D

 

 

43,340

 

 

43,340

 

 

 

 

Trademarks and tradenames

 

6.6

 

28,010

 

3,272

 

24,738

 

2,590

 

1,948

 

642

 

Indefinite-lived trademark

 

 

2,900

 

 

2,900

 

2,900

 

 

2,900

 

Other

 

0.5

 

3,686

 

2,444

 

1,242

 

2,026

 

1,710

 

316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

9.0

 

$

550,119

 

$

166,523

 

$

383,596

 

$

204,599

 

$

146,221

 

$

58,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other intangible assets primarily consist of patents, backlog, and licenses.

 

Other assets

 

Veeco has an ownership interest of less than 20% in a non-marketable investment, Kateeva, Inc. (“Kateeva”). Veeco does not exert significant influence over Kateeva and therefore the investment is carried at cost. There was no change to the $21.0 million carrying value of the investment during the nine months ended September 30, 2017. The investment is included in “Other assets” on the Consolidated Balance Sheets. 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 Kateeva’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 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.

 

Also included within Other assets at September 30, 2017 are deferred compensation plan assets of approximately $3.3 million representing the cash surrender value of life insurance policies held by the Company related to an executive non-qualified deferred compensation plan that was assumed from Ultratech that allows qualifying executives to defer cash compensation. The related plan liability of approximately $4.5 million is included in “Other liabilities” on the Consolidated Balance Sheet.

 

Liabilities
Liabilities

 

Note 5 - Liabilities

 

Accrued expenses and other current liabilities

 

The components of accrued expenses and other current liabilities at September 30, 2017 and December 31, 2016 consist of:

 

 

 

September 30,

 

December 31,

 

 

 

2017

 

2016

 

 

 

(in thousands)

 

Payroll and related benefits

 

$

27,816

 

$

18,780

 

Merger consideration payable

 

17,844

 

 

Warranty

 

6,555

 

4,217

 

Professional fees

 

3,349

 

1,827

 

Installation

 

1,418

 

1,382

 

Sales, use, and other taxes

 

1,961

 

1,282

 

Restructuring liability

 

1,893

 

1,796

 

Interest

 

2,307

 

 

Other

 

2,585

 

3,917

 

 

 

 

 

 

 

Total

 

$

65,728

 

$

33,201

 

 

 

 

 

 

 

 

 

 

Warranty

 

Warranties are typically valid for one year from the date of system final acceptance, and Veeco 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 are 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 product warranty reserves for the nine months ended September 30, 2017 include:

 

 

 

(in thousands)

 

Balance - December 31, 2016

 

$

4,217

 

Warranties issued

 

4,314

 

Addition from Ultratech acquisition

 

1,889

 

Consumption of reserves

 

(4,741

)

Changes in estimate

 

876

 

 

 

 

 

Balance - September 30, 2017

 

$

6,555

 

 

 

 

 

 

 

Restructuring accruals

 

During 2016, the Company undertook restructuring activities as part of its initiative to streamline operations, enhance efficiencies, and reduce costs, as well as reducing future investments in certain technology development, which together impacted approximately 75 employees. In addition, during 2017, the Company began the acquisition integration process to enhance efficiencies, resulting in additional employee terminations and other facility closing costs. Over the next few quarters, the Company expects to incur additional restructuring costs of $1 million to $5 million as it finalizes all of these activities.

 

 

 

Personnel

 

 

 

 

 

 

 

Severance and

 

Facility

 

 

 

 

 

Related Costs

 

Closing Costs

 

Total

 

 

 

(in thousands)

 

Balance - December 31, 2016

 

$

1,796

 

$

 

$

1,796

 

Provision

 

3,628

 

4,269

 

7,897

 

Payments

 

(3,531

)

(4,269

)

(7,800

)

 

 

 

 

 

 

 

 

Balance - September 30, 2017

 

$

1,893

 

$

 

$

1,893

 

 

 

 

 

 

 

 

 

 

 

 

 

Included within restructuring expense in the Consolidated Statements of Operations for the nine months ended September 30, 2017 is approximately $1.7 million of non-cash charges related to accelerated share-based compensation for employee terminations.

 

Customer deposits

 

Customer deposits totaled $27.6 million and $22.2 million at September 30, 2017 and December 31, 2016, respectively.

 

Mortgage Payable

 

At December 31, 2016, the Company had a mortgage note payable associated with its property in St. Paul, Minnesota, which, during the third quarter of 2017 was fully extinguished in connection with the sale of the building.  The carrying value of the property exceeded the carrying value of the mortgage note of $1.2 million at December 31, 2016. The annual interest rate on the note was 7.91%. The Company determined the mortgage was a Level 3 liability in the fair-value hierarchy and, using a discounted cash flow model, estimated its fair value as $1.2 million at December 31, 2016.

 

Convertible Senior Notes

 

On January 10, 2017, the Company issued $345.0 million of 2.70% convertible senior unsecured notes due (the “Convertible Senior Notes”). The Company received net proceeds, after deducting underwriting discounts and fees and expenses payable by the Company, of approximately $335.8 million. The Convertible Senior Notes bear interest at a rate of 2.70% per year, payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 2017. The Convertible Senior Notes mature on January 15, 2023, unless earlier purchased by the Company, redeemed, or converted.

 

The Convertible Senior Notes are unsecured obligations of Veeco and rank senior in right of payment to any of Veeco’s subordinated indebtedness; equal in right of payment to all of Veeco’s unsecured indebtedness that is not subordinated; effectively subordinated in right of payment to any of Veeco’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally subordinated to all indebtedness and other liabilities (including trade payables) of Veeco’s subsidiaries.

 

The Convertible Senior Notes are convertible into cash, shares of the Company’s common stock, or a combination thereof, at the Company’s election, upon the satisfaction of specified conditions and during certain periods as described below. The initial conversion rate is 24.9800 shares of the Company’s common stock per $1,000 principal amount of Convertible Senior Notes, representing an initial effective conversion price of $40.03 per share of common stock. The conversion rate may be subject to adjustment upon the occurrence of certain specified events as provided in the indenture governing the Convertible Senior Notes, dated January 18, 2017 between the Company and U.S. Bank National Association, as trustee (the “Indenture”), but will not be adjusted for accrued but unpaid interest.

 

Holders may convert all or any portion of their notes, in multiples of one thousand dollar principal amount, at their option at any time prior to the close of business on the business day immediately preceding October 15, 2022 only under the following circumstances:

 

(i)

During any calendar quarter (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

 

(ii)

During the five consecutive business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per one thousand dollar principal amount of Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Veeco’s common stock and the conversion rate on each such trading day;

 

(iii)

If the Company calls any or all of the Convertible Senior Notes for redemption at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

 

(iv)

Upon the occurrence of specified corporate events.

 

On or after October 15, 2022, until the close of business on the business day immediately preceding the Maturity Date, holders may convert their notes at any time, regardless of the foregoing circumstances.

 

Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. As a result of its cash conversion option, the Company segregated the liability component of the instrument from the equity component. The liability component was measured by estimating the fair value of a non-convertible debt instrument that is similar in its terms to the Convertible Senior Notes. The calculation of the fair value of the debt component required the use of Level 3 inputs, including utilization of convertible investors’ credit assumptions and high yield bond indices. Fair value was estimated through discounting future interest and principal payments, an income approach, due under the Convertible Senior Notes at a discount rate of 7.00%, an interest rate equal to the estimated borrowing rate for similar non-convertible debt. The excess of the aggregate face value of the Convertible Senior Notes over the estimated fair value of the liability component of $72.5 million was recognized as a debt discount and recorded as an increase to additional paid-in capital, and will be amortized over the expected life of the Convertible Senior Notes using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense.

 

The transaction costs of $9.2 million incurred in connection with the issuance of the Convertible Senior Notes were allocated to the liability and equity components based on their relative values. Transaction costs allocated to the liability component are being amortized using the effective interest rate method and recognized as non-cash interest expense over the expected term of the Convertible Senior Notes. Transaction costs allocated to the equity component of $1.9 million reduced the value of the equity component recognized in stockholders’ equity.

 

The carrying value of the Convertible Senior Notes is as follows:

 

 

 

September 30,

 

 

 

2017

 

 

 

(in thousands)

 

Principal amount

 

$

345,000

 

Unamortized debt discount

 

(65,570

)

Unamortized transaction costs

 

(6,605

)

 

 

 

 

Net carrying value

 

$

272,825

 

 

 

 

 

 

 

Total interest expense related to the Convertible Senior Notes is as follows:

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2017

 

2017

 

 

 

(in thousands)

 

Cash Interest Expense

 

 

 

 

 

Coupon interest expense

 

$

2,329

 

$

6,573

 

Non-Cash Interest Expense

 

 

 

 

 

Amortization of debt discount

 

2,502

 

6,942

 

Amortization of transaction costs

 

252

 

699

 

 

 

 

 

 

 

Total Interest Expense

 

$

5,083

 

$

14,214

 

 

 

 

 

 

 

 

 

 

The Company determined the Convertible Senior Notes is a Level 2 liability in the fair value hierarchy and estimated its fair value as $330.9 million at September 30, 2017.

 

Other Liabilities

 

Other liabilities at September 30, 2017 included deferred compensation of $4.5 million, asset retirement obligations of $3.3 million, medical and dental benefits of $2.5 million, and acquisition related accruals of $0.7 million. At December 31, 2016, other liabilities primarily consisted of a non-current income tax payable of $4.9 million.

 

Commitments and Contingencies
Commitments and Contingencies

 

Note 6 - Commitments and Contingencies

 

Minimum lease commitments

 

At September 30, 2017, Veeco’s total future minimum lease payments under non-cancelable operating leases (exclusive of renewal options) are payable as follows:

 

 

 

Operating
Leases

 

 

 

(in thousands)

 

Payments due by period:

 

 

 

2017

 

$

1,678

 

2018

 

5,474

 

2019

 

5,002

 

2020

 

4,763

 

2021

 

1,807

 

Thereafter

 

4,505

 

 

 

 

 

Total

 

$

23,229

 

 

 

 

 

 

 

Purchase commitments

 

Veeco has purchase commitments of $151.7 million at September 30, 2017, substantially all of which become due within one year.

 

Bank guarantees

 

Veeco has bank guarantees and letters of credit issued by a financial institution on its behalf as needed. At September 30, 2017, outstanding bank guarantees and letters of credit totaled $3.7 million, and unused bank guarantees and letters of credit of $67.9 million were available to be drawn upon.

 

Legal proceedings

 

On September 21, 2017, Blueblade Capital Opportunities LLC et al., on behalf of purported beneficial owners of 440,100 shares of Ultratech common stock, filed an action against Ultratech in Delaware Court of Chancery requesting an appraisal of the value of their Ultratech stock pursuant to 8 Del. C. §262.  The Company believes that the merger price, which was the product of arms-length negotiations, was fair and reasonable, and intends to contest the appraisal claim.  Discovery in the matter has commenced.

 

On April 12, 2017, the Company filed a patent infringement complaint in the U.S. District Court for the Eastern District of New York against SGL Carbon, LLC and SGL Carbon SE (collectively, “SGL”), alleging infringement of patents relating to wafer carrier technology used in MOCVD equipment.  The complaint alleges that SGL infringes Veeco’s patents by making and selling certain wafer carriers to Veeco’s competitor, Advanced Micro-Fabrication Equipment, Inc. (“AMEC”). On November 2, 2017, the U.S. District Court granted the Company’s motion for a preliminary injunction prohibiting SGL from shipping wafer carriers using the Company’s patented technology without the Copmany’s express authorization. The Company continues to seek a post-trial permanent injunction and monetary damages against SGL.

 

On July 13, 2017, AMEC filed a patent infringement complaint against Veeco Instruments Shanghai Co., Ltd. (“Veeco Shanghai”) with the Fujian High Court in China, alleging that the Company’s MOCVD products infringed a Chinese utility model patent relating to the synchronous movement engagement mechanism in a chemical vapor deposition reactor and seeking injunctive relief and monetary damages against Veeco Shanghai. The Company believes this complaint is without merit and intends to vigorously defend against these allegations. The Company has filed a petition for invalidation of this patent with the Chinese Patent Reexamination Board (“PRB”).  The Fujian High Court has suspended the infringement case against Veeco pending the outcome of the invalidation proceeding at the PRB.

 

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.

 

Equity
Equity

 

Note 7 - Equity

 

Accumulated Other Comprehensive Income (“AOCI”)

 

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

 

 

 

 

 

Unrealized

 

 

 

 

 

Foreign Currency

 

Gains (Losses) on
Available for Sale

 

 

 

 

 

Translation

 

Securities

 

Total

 

 

 

(in thousands)

 

Balance - December 31, 2016

 

$

1,797

 

$

(20

)

$

1,777

 

Other comprehensive income (loss)

 

25

 

10

 

35

 

 

 

 

 

 

 

 

 

Balance - September 30, 2017

 

$

1,822

 

$

(10

)

$

1,812

 

 

 

 

 

 

 

 

 

 

 

 

 

There were minimal reclassifications from AOCI into net income for the nine months ended September 30, 2017.

 

For the nine months ended September 30, 2017, Additional Paid-in Capital increased approximately $228.8 million related to 7.2 million shares issued for the Ultratech merger consideration, $47.5 million related to the issuance of the Convertible Senior Notes including deferred tax impact, and $11.4 million related to on-going share-based compensation activities.

 

Share-based compensation
Share-based compensation

 

Note 8 - 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 may entitle holders to dividends and voting rights. Other types of share-based compensation include performance share awards, performance share units, and restricted share units (collectively with restricted share awards, “restricted shares”), as well as options to purchase common stock.

 

Share-based compensation expense was recognized in the following line items in the Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands)

 

Cost of sales

 

$

740

 

$

607

 

$

1,898

 

$

1,639

 

Research and development

 

849

 

993

 

1,986

 

3,032

 

Selling, general, and administrative

 

3,714

 

2,143

 

10,182

 

7,462

 

Restructuring

 

867

 

 

1,707

 

 

Acquisition costs

 

 

 

4,203

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

6,170

 

$

3,743

 

$

19,976

 

$

12,133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2017, equity activity related to stock options was as follows:

 

 

 

Number of

 

Weighted
Average

 

 

 

Shares

 

Exercise Price

 

 

 

(in thousands)

 

 

 

 

Balance - December 31, 2016

 

1,576

 

$

35.18

 

Granted

 

 

 

Exercised

 

(18

)

30.03

 

Expired or forfeited

 

(129

)

37.03

 

 

 

 

 

 

 

Balance - September 30, 2017

 

1,429

 

35.07

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2017, equity activity related to non-vested restricted shares and performance shares was as follows:

 

 

 

 

 

Weighted
Average

 

 

 

Number of

 

Grant Date

 

 

 

Shares

 

Fair Value

 

 

 

(in thousands)

 

 

 

Balance - December 31, 2016

 

1,949

 

$

23.85

 

Granted

 

642

 

29.35

 

Assumed from Ultratech

 

338

 

31.75

 

Vested

 

(695

)

27.12

 

Forfeited

 

(173

)

26.39

 

 

 

 

 

 

 

Balance - September 30, 2017

 

2,061

 

25.85

 

 

 

 

 

 

 

 

Income Taxes
Income Taxes

 

Note 9 - Income Taxes

 

Income taxes are estimated for each of the jurisdictions in which the Company 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 carryforwards. Realization of net deferred tax assets is dependent on future taxable income. At September 30, 2017, the Company’s U.S. deferred tax assets are fully offset by a valuation allowance since the Company cannot conclude that it is more likely than not that these future benefits will be realized.

 

At the end of each interim reporting period, the effective tax rate is aligned with expectations for the full year. This estimate is used to determine the income tax provision on a year-to-date basis and may change in subsequent interim periods. If necessary, the year-to-date tax benefit for interim period losses is limited to the amount that could be recognizable at the end of the fiscal year. Income (loss) before income taxes and income tax expense (benefit) for the three and nine months ended September 30, 2017 and 2016 were as follows:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands)

 

 

 

 

 

Income (loss) before income taxes

 

$

(23,674

)

$

(68,462

)

$

(64,146

)

$

(114,535

)

Income tax expense (benefit)

 

$

(1,790

)

$

1,136

 

$

(24,969

)

$

2,677

 

 

The net income tax benefit for the three months ended September 30, 2017 was comprised of a net benefit of $2.2 million related to the Company’s U.S. operations, and a net tax expense of $0.4 million related to the Company’s non-U.S. operations. The net income tax benefit for the nine months ended September 30, 2017 was comprised of a net benefit of $21.6 million and $3.4 million related to the Company’s U.S. and non-U.S. operations, respectively.

 

The net income tax benefit from the Company’s U.S. operations was primarily attributable to a tax benefit of $2.2 million and $23.5 million for losses incurred during the three and nine months ended September 30, 2017, respectively. Under the intraperiod tax allocation rules, the deferred tax liability created upon the issuance of the Convertible Senior Notes and recorded through Additional Paid-in Capital is treated as a source of income, which enables the Company to recognize a benefit for the U.S. loss before income taxes through operations during fiscal 2017. The tax benefit related to the issuance of the Convertible Senior Notes will not recur in future years. This benefit was partially offset by a deferred provision of approximately $1.9 million related to tax amortization on indefinite-lived intangible assets for the nine months ended September 30, 2017.

 

The net income tax benefit of $3.4 million for the nine months ended September 30, 2017, from the Company’s non-U.S. operations was primarily attributable to the Company’s determination in the first quarter of 2017 that it was more likely than not that it will meet the requirements of an existing foreign tax incentive agreement.  As a result, the Company remeasured this uncertain tax position and recognized a $6.3 million benefit during the first quarter, which is comprised of a reversal of a $4.9 million tax liability established in previous periods and the recognition of a deferred tax benefit of $1.4 million related to certain foreign net operating losses generated in prior years that are now determined to be realizable. This benefit was partially offset by a current year tax expense of approximately $3.1 million attributed to the profitable non-U.S. operations, of which approximately $0.4 million was recorded during the three months ended September 30, 2017.

 

For the three and nine months ended September 30, 2016, the Company did not provide a current tax benefit on U.S. pre-tax losses since the Company could not conclude that it is more likely than not that the benefits would be realized. The tax expense is primarily related to indefinite-lived intangible assets that are amortized for tax purposes but not for financial reporting purposes, as well as taxes attributed to the profitable non-U.S. operations. The deferred tax liability created by the tax deductible expense cannot be used to offset existing deferred tax assets.

 

Segment Reporting and Geographic Information
Segment Reporting and Geographic Information

 

Note 10 - Segment Reporting and Geographic Information

 

Veeco operates and measures its results in one operating segment and continues to do so with the integration of

 

Ultratech’s business activities. As a result, the Company has one reportable segment: the design, development, manufacture, and support of semiconductor process equipment primarily sold to make electronic devices.

 

Veeco categorizes its revenue by the key markets into which it sells.  As a result of the acquisition of Ultratech, the Company’s four key markets are now: LED Lighting, Display & Compound Semiconductor (formerly Lighting, Display & Power Electronics); Advanced Packaging, MEMS & RF; Scientific & Industrial, which now includes Data Storage, which was formerly a separate category; and Front-End Semiconductor, which was formerly included in the Scientific & Industrial market category.

 

LED Lighting, Display & Compound Semiconductor

 

LED Lighting refers to Light Emitting Diode (“LED”) and semiconductor illumination sources used in various applications including, but not limited to, displays such as backlights, general lighting, automotive running lights, and headlamps. Display refers to LEDs used for displays and Organic Light Emitting Diode (“OLED”) displays found in outdoor display/signage applications, TVs, smartphones, wearable devices, and tablets. Compound Semiconductor includes Photonics, Power Electronics, and Radio Frequency (“RF”) Devices. Photonics refers to laser diodes, Vertical Cavity Surface Emitting Lasers (“VCSEL”) in 3D sensing and communications, and various other optical devices. Power Electronics refers to semiconductor devices such as rectifiers, inverters, and converters for the control and conversion of electric power. RF devices refers to radio frequency emitting and receiving devices that enable wireless communications. Such devices include power amplifiers, switches, and transceivers for applications such as mobile (including handsets and base stations), defense, automotive, and the internet of things.

 

Advanced Packaging, MEMS & RF Filters

 

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. RF Filters refers to RF filters used in smartphones, tablets, and mobile devices.

 

Scientific & Industrial

 

Scientific refers to advanced materials research at university research institutions, industry research institutions, industry consortiums, and government research agencies. Industrial refers to large-scale product manufacturing applications including data storage and optical coatings: thin layers of material deposited on a lens or mirror that alters how light reflects and transmits.

 

Front-End Semiconductor

 

Front-End Semiconductor refers to the early steps in the process of integrated circuit fabrication where the microchips are created but still remain on the silicon wafer. This category includes Laser Spike Anneal, Ion Beam etch for front-end semiconductor applications, and Ion Beam deposition for EUV mask blanks.

 

Sales by end-market and geographic region for the three and nine months ended September 30, 2017 and 2016 were as follows:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands)

 

Sales by end-market

 

 

 

 

 

 

 

 

 

LED Lighting, Display & Compound Semiconductor

 

$

59,721

 

$

49,427

 

$

170,546

 

$

97,985

 

Advanced Packaging, MEMS & RF

 

22,775

 

12,092

 

55,756

 

52,400

 

Scientific & Industrial

 

33,145

 

20,997

 

86,917

 

82,726

 

Front-End Semiconductor

 

16,231

 

2,966

 

28,105

 

5,731

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

131,872

 

$

85,482

 

$

341,324

 

$

238,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales by geographic region

 

 

 

 

 

 

 

 

 

United States

 

$

34,723

 

$

19,104

 

$

73,256

 

$

66,550

 

China

 

15,197

 

21,238

 

81,811

 

54,621

 

EMEA(1)

 

17,243

 

19,703

 

57,312

 

61,999

 

Rest of World

 

64,709

 

25,437

 

128,945

 

55,672

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

131,872

 

$

85,482

 

$

341,324

 

$

238,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

EMEA consists of Europe, the Middle East, and Africa

 

For geographic reporting, sales are attributed to the location in which the customer facility is located.

 

Basis of Presentation (Policies)

 

Revenue recognition

 

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, 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. 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. Veeco uses BESP for 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.

 

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

 

In certain cases Veeco’s products are sold with a billing retention, typically 10% of the sales price, which is billed by Veeco and 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 recognizes revenue related to maintenance and service contracts ratably over the applicable contract term. Veeco 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.

 

 

Recent accounting pronouncements

 

The FASB issued ASU 2014-09, as amended: Revenue from Contracts with Customers, which has been codified as Accounting Standards Codification 606 (“ASC 606”). ASC 606 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 it expects to be entitled in exchange for those goods or services. ASC 606 outlines a five-step model to make the revenue recognition determination and requires new financial statement disclosures. Publicly-traded companies are required to adopt ASC 606 for reporting periods beginning after December 15, 2017. The Company is still completing its evaluation of the impact of adopting this standard; however, the Company currently expects the most significant financial statement impacts of adopting ASC 606 will be the elimination of the constraint on revenue associated with the billing retention related to the receipt of customer final acceptance as well as the identification of installation services as a performance obligation. The elimination of the constraint on revenue related to customer final acceptance, which is usually about 10 percent of a system sale, will generally be recognized at the time the Company transfers control of the system to the customer, which is earlier than under the Company’s current revenue recognition model for certain contracts that are subject to the billing retention constraint described above. The new performance obligation related to installation services under the new standard will generally be recognized as the installation services are performed, which is later than under the Company’s current revenue recognition model. Taken together, the Company currently believes there will be a net acceleration of a small percentage of its revenue under ASC 606 as compared to its current revenue recognition model. ASC 606 provides for different transition alternatives, and the Company is evaluating which method of adoption to select.

 

In January 2016, the FASB issued ASU 2016-01: Financial Instruments — Overall, which requires certain equity investments to be measured at fair value, with changes in fair value recognized in net income. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017; early adoption is permitted. The Company does not expect this ASU will have a material impact on the consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02: Leases, which generally requires operating lessee rights and obligations to be recognized as assets and liabilities on the balance sheet. In addition, interest on lease liabilities is to be recognized separately from the amortization of right-of-use assets in the Statement of Operations. Further, payments of the principal portion of lease liabilities are to be classified as financing activities while payments of interest on lease liabilities and variable lease payments are to be classified as operating activities in the Statement of Cash Flows. When the standard is adopted, the Company will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early application permitted. The Company is evaluating the anticipated impact of adopting the ASU on the consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight specific cash flow issues, including debt prepayments or debt extinguishment costs. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017. This ASU will not have a material impact on the consolidated financial statements.

 

In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017. This ASU will not have a material impact on the consolidated financial statements.

 

The Company 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 our consolidated financial statements.

 

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

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands, except per share amounts)

 

Net income (loss)

 

$

(21,884

)

$

(69,598

)

$

(39,177

)

$

(117,212

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.47

)

$

(1.78

)

$

(0.91

)

$

(2.99

)

Diluted

 

$

(0.47

)

$

(1.78

)

$

(0.91

)

$

(2.99

)

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

46,941

 

39,131

 

43,100

 

39,193

 

Effect of potentially dilutive share-based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

46,941

 

39,131

 

43,100

 

39,193

 

 

 

 

 

 

 

 

 

 

 

Unvested participating shares excluded from basic weighted average shares outstanding since the securityholders are not obligated to fund losses

 

166

 

469

 

166

 

469

 

 

 

 

 

 

 

 

 

 

 

Common share equivalents excluded from the diluted weighted average shares outstanding since Veeco incurred a net loss and their effect would be antidilutive

 

220

 

140

 

275

 

45

 

 

 

 

 

 

 

 

 

 

 

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

 

1,956

 

2,030

 

1,628

 

2,042

 

 

 

 

 

 

 

 

 

 

 

Maximum potential shares to be issued for settlement of Convertible Senior Notes excluded from the diluted calculation as their effect would be antidilutive

 

8,618

 

 

8,618

 

 

 

Business Combinations (Tables) (Ultratech)

 

 

 

 

Acquisition Date

 

 

 

(May 26, 2017)

 

 

 

(in thousands)

 

Cash consideration, net of cash acquired

 

$

404,489

 

Equity consideration (7.2 million shares issued)

 

228,644

 

Replacement equity awards attributable to pre-acquisition service

 

228

 

 

 

 

 

Acquisition date fair value

 

$

633,361

 

 

 

 

 

 

 

 

 

 

 

Acquisition Date

 

 

 

(May 26, 2017)

 

 

 

(in thousands)

 

Short-term investments

 

$

47,161

 

Accounts receivable

 

45,465

 

Inventory and deferred cost of sales

 

57,570

 

Prepaid expense and other current assets

 

7,217

 

Property, plant, and equipment

 

18,332

 

Intangible assets

 

346,940

 

Other assets

 

6,442

 

 

 

 

 

Total identifiable assets acquired

 

529,127

 

 

 

 

 

Accounts payable and accrued expenses

 

40,123

 

Customer deposits and deferred revenue

 

4,834

 

Deferred income taxes

 

32,478

 

Other liabilities

 

11,952

 

 

 

 

 

Total liabilities assumed

 

89,387

 

 

 

 

 

Net identifiable assets acquired

 

439,740

 

Goodwill

 

193,621

 

 

 

 

 

Net assets acquired

 

$

633,361

 

 

 

 

 

 

 

 

 

 

 

Acquisition Date

 

 

 

(May 26, 2017)

 

 

 

Amount

 

Useful life

 

 

 

(in thousands)

 

 

 

Technology

 

$

158,390

 

8 years

 

Customer relationships

 

116,710

 

12 years

 

Backlog

 

3,080

 

6 months

 

In-process research and development

 

43,340

 

*

 

Trademark and tradenames

 

25,420

 

7 years

 

 

 

 

 

 

 

Intangible assets acquired

 

$

346,940

 

 

 

 

 

 

 

 

 

 

 

 

*In-process research and development will be amortized (or impaired) upon completion (or abandonment) of the development project.

 

 

The amounts of revenue and income (loss) from operations before income taxes of Ultratech included in the Company’s consolidated statement of operations for the three and nine months ended September 30, 2017 are as follows:

 

 

 

Three months ended
September 30, 2017