VEECO INSTRUMENTS INC, 10-K/A filed on 5/1/2019
Amended Annual Report
v3.19.1
Document and Entity Information - USD ($)
12 Months Ended
Jan. 01, 2018
Dec. 31, 2018
Feb. 15, 2019
Jun. 29, 2018
Document and Entity Information        
Entity Registrant Name   VEECO INSTRUMENTS INC    
Entity Central Index Key   0000103145    
Document Type   10-K/A    
Document Period End Date   Dec. 31, 2018    
Amendment Flag   true    
Amendment Description This Amendment No. 1 to Form 10-K (this “Amendment”) amends the Annual Report on Form 10-K for the fiscal year ended December 31, 2018, originally filed on February 25, 2019 (the “Original 10-K”), of Veeco Instruments Inc., a Delaware corporation (the “Company” or “we”). We are filing this Amendment solely to correct an inadvertent clerical error on the cover page of the Original 10-K in which the box identifying the Company as an accelerated filer was incorrectly checked. The clerical error has been corrected in this Amendment by checking the “Large accelerated filer” box on the cover page. This Amendment does not reflect events occurring after February 25, 2019 or otherwise modify or update the disclosures set forth in the Original 10-K, including the financial statements and notes thereto included in the Original 10-K.      
Current Fiscal Year End Date   --12-31    
Entity Well-known Seasoned Issuer   Yes    
Entity Voluntary Filers   No    
Entity Current Reporting Status   Yes    
Entity Filer Category   Large Accelerated Filer    
Entity Public Float       $ 682,511,019
Entity Common Stock, Shares Outstanding     48,038,565  
Entity Small Business   false    
Entity Emerging Growth Company   false    
Entity Shell Company   false    
Document Fiscal Year Focus   2018    
Document Fiscal Period Focus   FY    
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 212,273 $ 279,736
Restricted cash 809 847
Short-term investments 48,189 47,780
Accounts receivable, net 66,808 98,866
Contract assets 10,397 160
Inventories 156,311 120,266
Deferred cost of sales 3,072 15,994
Prepaid expenses and other current assets 22,221 33,437
Total current assets 520,080 597,086
Property, plant, and equipment, net 80,284 85,058
Intangible assets, net 85,149 369,843
Goodwill 184,302 307,131
Deferred income taxes 1,869 3,047
Other assets 29,132 25,310
Total assets 900,816 1,387,475
Current liabilities:    
Accounts payable 39,611 50,318
Accrued expenses and other current liabilities 46,450 58,068
Customer deposits and deferred revenue 72,736 112,032
Income taxes payable 1,256 3,846
Total current liabilities 160,053 224,264
Deferred income taxes 5,690 36,845
Long-term debt 287,392 275,630
Other liabilities 9,906 10,643
Total liabilities 463,041 547,382
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; 48,547,417 and 48,229,251 shares issued at December 31, 2018 and December 31, 2017, respectively; 48,024,685 and 48,144,416 shares outstanding at December 31, 2018 and December 31, 2017, respectively. 485 482
Additional paid-in capital 1,061,325 1,051,953
Accumulated deficit (619,983) (212,870)
Accumulated other comprehensive income 1,820 1,812
Treasury stock, at cost, 522,732 and 84,835 shares at December 31, 2018 and December 31, 2017, respectively. (5,872) (1,284)
Total stockholders' equity 437,775 840,093
Total liabilities and stockholders' equity $ 900,816 $ 1,387,475
v3.19.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
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 0 0
Preferred stock, shares outstanding 0 0
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 48,547,417 48,229,251
Common stock, shares outstanding 48,024,685 48,144,416
Treasury stock, shares 522,732 84,835
v3.19.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Consolidated Statements of Operations      
Net sales $ 542,082 $ 475,686 $ 331,702
Cost of sales 348,363 299,458 198,604
Gross profit 193,719 176,228 133,098
Operating expenses, net:      
Research and development 97,755 81,987 81,016
Selling, general, and administrative 92,060 100,250 77,642
Amortization of intangible assets 32,351 35,475 19,219
Restructuring 8,556 11,851 5,640
Acquisition costs 2,959 17,786  
Asset impairment 375,172 1,139 69,520
Other, net 368 (392) 223
Total operating expenses, net 609,221 248,096 253,260
Operating income (loss) (415,502) (71,868) (120,162)
Interest income 3,186 2,335 1,180
Interest expense (21,518) (19,457) (222)
Income (loss) before income taxes (433,834) (88,990) (119,204)
Income tax expense (benefit) (26,746) (37,594) 2,823
Net income (loss) $ (407,088) $ (51,396) $ (122,027)
Income (loss) per common share:      
Basic (in dollars per share) $ (8.63) $ (1.16) $ (3.10)
Diluted (in dollars per share) $ (8.63) $ (1.16) $ (3.10)
Weighted average number of shares:      
Basic (in shares) 47,151 44,174 39,340
Diluted (in shares) 47,151 44,174 39,340
v3.19.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Consolidated Statements of Comprehensive Income (Loss)      
Net income (loss) $ (407,088) $ (51,396) $ (122,027)
Available-for-sale securities:      
Change in net unrealized gains or losses 11 (7) (6)
Reclassification adjustments for net (gains) losses included in net income     18
Unrealized gain (loss) on available-for-sale securities 11 (7) 12
Minimum pension liability:      
Reclassification adjustments for net (gains) losses included in net income     866
Net changes related to minimum pension liability     866
Currency translation adjustments:      
Change in currency translation adjustments 5 42 (19)
Reclassification adjustments for net (gains) losses included in net income (8)   (430)
Net changes related to currency translation adjustments (3) 42 (449)
Total other comprehensive income (loss), net of tax 8 35 429
Total comprehensive income (loss) $ (407,080) $ (51,361) $ (121,598)
v3.19.1
Consolidated Statements of Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Common Stock
Treasury Stock
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive Income
Total
Balance at the beginning of the period at Dec. 31, 2015 $ 410 $ (9,222) $ 767,137 $ (45,058) $ 1,348 $ 714,615
Balance (in shares) at Dec. 31, 2015 40,996 469        
Increase (Decrease) in Stockholders' Equity            
Net loss       (122,027)   (122,027)
Other comprehensive income (loss), net of tax         429 429
Share-based compensation expense     15,741     15,741
Net issuance under employee stock plans $ (3) $ 19,948 (20,890)     (945)
Net issuance under employee stock plans (in shares) (281) (1,072)        
Purchases of common stock   $ (13,035)       (13,035)
Purchase of common stock (in shares)   730        
Balance at the end of the period at Dec. 31, 2016 $ 407 $ (2,309) 763,303 (161,474) 1,777 601,704
Balance (in shares) at Dec. 31, 2016 40,715 127        
Increase (Decrease) in Stockholders' Equity            
Cumulative effect of change in accounting principle | ASU 2016-09     1,315 (1,315)    
Cumulative effect of change in accounting principle | ASU 2014-09, Revenue from Contracts with Customers       6,926   6,926
Net loss       (51,396)   (51,396)
Other comprehensive income (loss), net of tax         35 35
Share-based compensation expense     24,396     24,396
Net issuance under employee stock plans $ 3 $ 4,043 (9,795)     (5,749)
Net issuance under employee stock plans (in shares) 313 (245)        
Stock issuance for business acquisition $ 72   228,800     228,872
Stock issuance for business acquisition (in shares) 7,201          
Convertible Senior Notes, equity component     45,249     45,249
Purchases of common stock   $ (3,018)       (3,018)
Purchase of common stock (in shares)   203        
Balance at the end of the period at Dec. 31, 2017 $ 482 $ (1,284) 1,051,953 (212,870) 1,812 840,093
Balance (in shares) at Dec. 31, 2017 48,229 85        
Increase (Decrease) in Stockholders' Equity            
Net loss       (407,088)   (407,088)
Other comprehensive income (loss), net of tax         8 8
Share-based compensation expense     16,074     16,074
Net issuance under employee stock plans $ 3 $ 6,721 (6,702) (25)   (3)
Net issuance under employee stock plans (in shares) 318 (512)        
Purchases of common stock   $ (11,309)       (11,309)
Purchase of common stock (in shares)   950        
Balance at the end of the period at Dec. 31, 2018 $ 485 $ (5,872) $ 1,061,325 $ (619,983) $ 1,820 $ 437,775
Balance (in shares) at Dec. 31, 2018 48,547 523        
v3.19.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash Flows from Operating Activities      
Net income (loss) $ (407,088) $ (51,396) $ (122,027)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:      
Depreciation and amortization 49,998 50,095 32,650
Non-cash interest expense 11,762 10,446  
Deferred income taxes (27,620) (35,363) 997
Share-based compensation expense 16,074 24,396 15,741
Asset impairment 375,172 1,139 69,520
Provision for bad debts   99 171
Gain on cumulative translation adjustment     (430)
Changes in operating assets and liabilities:      
Accounts receivable and contract assets 21,821 10,240 (8,880)
Inventories and deferred cost of sales (24,678) 6,244 (6,106)
Prepaid expenses and other current assets 11,216 (10,204) 6,726
Accounts payable and accrued expenses (19,672) 11,308 (24,474)
Customer deposits and deferred revenue (39,296) 22,446 9,770
Income taxes receivable and payable, net (4,800) 775 547
Long-term income tax liability   (4,877)  
Other, net (627) (355) 1,951
Net cash provided by (used in) operating activities (37,738) 34,993 (23,844)
Cash Flows from Investing Activities      
Acquisitions of businesses, net of cash acquired (2,662) (401,828)  
Capital expenditures (12,654) (24,272) (11,479)
Proceeds from the sale of investments 90,065 348,927 152,301
Payments for purchases of investments (93,046) (282,947) (103,394)
Proceeds from held for sale assets   2,284 9,512
Other     (230)
Net cash provided by (used in) investing activities (18,297) (357,836) 46,710
Cash Flows from Financing Activities      
Proceeds (net of tax withholdings) from option exercises and employee stock purchase plan 3,064 2,992 1,656
Restricted stock tax withholdings (3,069) (8,741) (2,601)
Purchases of common stock (11,457) (2,869) (13,349)
Proceeds from long-term debt borrowings   335,752  
Principal payments on long-term debt   (1,194) (340)
Net cash provided by (used in) financing activities (11,462) 325,940 (14,634)
Effect of exchange rate changes on cash and cash equivalents (4) 42 (20)
Net increase (decrease) in cash, cash equivalents, and restricted cash (67,501) 3,139 8,212
Cash, cash equivalents, and restricted cash - beginning of period 280,583 277,444 269,232
Cash, cash equivalents, and restricted cash - end of period 213,082 280,583 277,444
Supplemental Disclosure of Cash Flow Information      
Interest paid 9,708 4,675 225
Income taxes paid 4,799 1,939 1,669
Non-cash operating and financing activities      
Net transfer of inventory to property, plant and equipment $ 1,479 $ (97) $ 1,827
v3.19.1
Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Significant Accounting Policies  
Significant Accounting Policies

Note 1 — Significant Accounting Policies

 

(a) Description of Business

 

Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco,” or the “Company”) operates in a single segment: the development, manufacture, sales, and support of semiconductor and thin film process equipment primarily sold to make electronic devices.

 

(b) Basis of Presentation

 

The accompanying audited Consolidated Financial Statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The Company reports interim quarters on a 13-week basis ending on the last Sunday of each period, which is determined at the start of each year. The Company’s fourth quarter always ends on the last day of the calendar year, December 31. During 2018 the interim quarters ended on April 1, July 1, and September 30, and during 2017 the interim quarters ended on April 2, July 2, and October 1. The Company reports these interim quarters as March 31, June 30, and September 30 in its interim consolidated financial statements.

 

(c) Use of Estimates

 

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

 

(d) Principles of Consolidation

 

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

 

(e) Foreign Currencies

 

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

 

(f) Revenue Recognition

 

Revenue is recognized upon the transfer of control of the promised product or service to the customer in an amount that reflects the consideration the Company expects to receive in exchange for such product or service. The Company’s contracts with customers generally do not contain variable consideration. In the rare instances where variable consideration is included, the Company estimates the amount of variable consideration and determines what portion of that, if any, has a high probability of significant subsequent revenue reversal, and if so, that amount is excluded from the transaction price. The Company’s contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, installation, maintenance, and service plans. Judgment is required to properly identify the performance obligations within a contract and to determine how the revenue should be allocated among the performance obligations. The Company also evaluates whether multiple transactions with the same customer or related parties should be considered part of a single contract 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.

   

When there are separate units of accounting, the Company allocates revenue to each performance obligation on a relative stand-alone selling price basis. The stand-alone selling prices are determined based on the prices at which the Company separately sells the systems, upgrades, components, spare parts, installation, maintenance, and service plans. For items that are not sold separately, the Company estimates stand-alone selling prices generally using an expected cost plus margin approach.

   

Most of the Company’s revenue is recognized at a point in time when the performance obligation is satisfied. The Company considers many facts when evaluating each of its sales arrangements to determine the timing of revenue recognition, including its contractual obligations and the nature of the customer’s post-delivery acceptance provisions. The Company’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For many of these arrangements, a customer source inspection of the system is performed in the Company’s facility, test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery, or other quality assurance testing is performed internally to ensure system functionality prior to shipment. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When the Company objectively demonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery either through customer testing or the Company’s historical experience of its tools meeting specifications, transfer of control of the product to the customer is considered to have occurred and revenue is recognized upon system delivery since there is no substantive contingency remaining related to the acceptance provisions at that date. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where the Company cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred. The Company recognizes such revenue and costs upon obtaining objective evidence that the acceptance provisions can be achieved, assuming all other revenue recognition criteria have been met.

   

In certain cases the Company’s contracts with customers contain a billing retention, typically 10% of the sales price, which is billed by the Company and payable by the customer when field acceptance provisions are completed. Revenue recognized in advance of the amount that has been billed is recorded as a contract asset on the Consolidated Balance Sheets.

   

The Company recognizes revenue related to maintenance and service contracts over time based upon the respective contract term. Installation revenue is recognized over time as the installation services are performed. The Company recognizes revenue from the sales of components, spare parts, and specified service engagements at a point in time, which is typically consistent with the time of delivery in accordance with the terms of the applicable sales arrangement.

   

The Company may receive customer deposits on system transactions. The timing of the transfer of goods or services related to the deposits is either at the discretion of the customer or expected to be within one year from the deposit receipt. As such, the Company does not adjust transaction prices for the time value of money. Incremental direct costs incurred related to the acquisition of a customer contract, such as sales commissions, are expensed as incurred since the expected amortization period is one year or less.

   

The Company has elected to treat shipping and handling costs as a fulfillment activity, and the Company includes such costs in cost of services when the Company recognizes revenue for the related goods. Taxes assessed by governmental authorities that are collected by the Company from a customer are excluded from revenue.

 

(g) Warranty Costs

 

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

 

(h) Shipping and Handling Costs

 

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

 

(i) Research and Development Costs

 

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

 

(j) Advertising Expense

 

The cost of advertising is expensed as incurred and totaled $0.9 million, $0.9 million, and $0.8 million for the years ended December 31, 2018, 2017, and 2016, respectively.

 

(k) Accounting for Share-Based Compensation

 

Share-based awards exchanged for employee services are accounted for under the fair value method. Accordingly, share-based compensation cost is measured at the grant date based on the fair value of the award. The expense for awards is recognized over the employee’s requisite service period (generally the vesting period of the award). The Company has elected to treat awards with only service conditions and with graded vesting as one award. Consequently, the total compensation expense is recognized straight-line over the entire vesting period, so long as the compensation cost recognized at any date at least equals the portion of the grant date fair value of the award that is vested at that date.

 

In addition to stock options, restricted share awards (“RSAs”) and restricted stock units (“RSUs”) with time-based vesting, the Company grants performance share units and awards (“PSUs” and “PSAs”) that have either performance or market conditions. Compensation cost for PSUs and PSAs with performance conditions is recognized over the requisite service period based on the timing and expected level of achievement of the performance targets. A change in the assessment of performance attainment prior to the conclusion of the performance period is recognized in the period of the change in estimate. Compensation cost for PSUs and PSAs with market conditions is recognized over the requisite service period regardless of the expected level of achievement. For all PSUs and PSAs, the number of shares issued to the employee at the conclusion of the service period may vary from the original target based upon the level of attainment of the performance or market conditions.

 

The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of option awards and purchase rights under the Employee Stock Purchase Plan. The Company uses a Monte Carlo simulation to compute the estimated fair value of awards with market conditions. The Black-Scholes model and Monte Carlo simulation include assumptions regarding dividend yields, expected volatility, expected option term, and risk-free interest rates. See Note 15, “Stock Plans,” for additional information.

 

See Note 1(t), “Recently Adopted Accounting Standards,” for additional information concerning the Company’s adoption of Accounting Standards Update (“ASU”) 2016-09: Stock Compensation: Improvements to Employee Share-Based Payment Accounting.

 

(l) Income Taxes

 

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

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”), which made broad and complex changes to the U.S. tax code. In response to the 2017 Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provided guidance on accounting for the tax effects of 2017 Tax Act, including addressing any uncertainty or diversity of view in applying ASC 740, Income Taxes (“ASC 740”), in the reporting period in which the 2017 Tax Act was enacted. In addition, SAB 118 provided a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date for companies to complete the accounting under ASC 740. During the year ended December 31, 2018, the Company finalized the accounting for the tax effects of 2017 Tax Act.

 

In January 2018, the FASB released guidance on the accounting for taxes under the global intangible low-taxed income (“GILTI”) provisions of the 2017 Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign operations. The Company has made a policy election to account for income taxes incurred under GILTI as a period cost.

 

(m) Concentration of Credit Risk

 

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

 

The Company maintains an allowance reserve for potentially uncollectible accounts for estimated losses resulting from the inability of its customers to make required payments. The Company evaluates its allowance for doubtful accounts based on a combination of factors. In circumstances where specific invoices are deemed to be uncollectible, the Company provides a specific allowance for bad debt against the amount due to reduce the net recognized receivable to the amount reasonably expected to be collected. The Company also provides allowances based on its write-off history. The allowance for doubtful accounts totaled $0.3 million at December 31, 2018 and 2017.

 

To further mitigate the Company’s exposure to uncollectable accounts, the Company may request certain customers provide a negotiable irrevocable letter of credit drawn on a reputable financial institution. These irrevocable letters of credit are typically issued to mature between zero and 90 days from the date the documentation requirements are met, typically when a system ships or upon receipt of final acceptance from the customer. The Company, at its discretion, may monetize these letters of credit on a non-recourse basis after they become negotiable but before maturity. The fees associated with the monetization are included in “Selling, general, and administrative” in the Consolidated Statements of Operations and were immaterial for the years ended December 31, 2018, 2017, and 2016.

 

(n) Fair Value of Financial Instruments

 

The carrying amounts of financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued expenses reflected in the consolidated financial statements approximate fair value due to their short-term maturities. The fair value of debt for footnote disclosure purposes, including current maturities, if any, is estimated using recently quoted market prices of the instrument, or if not available, a discounted cash flow analysis based on the estimated current incremental borrowing rates for similar types of instruments.

 

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

 

All financial instruments purchased with an original maturity of three months or less at the time of purchase are considered cash equivalents. Such items may include liquid money market funds, certificate of deposit and time deposit accounts, U.S. treasuries, government agency securities, and corporate debt. Investments that are classified as cash equivalents are carried at cost, which approximates fair value. The Company’s cash and cash equivalents includes $69.6 million and $76.7 million of cash equivalents at December 31, 2018 and 2017, respectively.

 

A portion of the Company’s cash and cash equivalents is held by its subsidiaries throughout the world, frequently in each subsidiary’s respective functional currency, which is typically the U.S. dollar. Approximately 32% and 77% of cash and cash equivalents were maintained outside the United States at December 31, 2018 and 2017, respectively.

 

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

 

Non-marketable equity securities are equity securities without readily observable market prices and are included in “Other assets” in the Consolidated Balance Sheets. Non-marketable securities are measured at cost, adjusted for changes in observable prices minus impairment. Changes in fair value are included in “Other, net” in the Consolidated Statements of Operations.

 

(p) Inventories

 

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

 

(q) Business Combinations

 

The Company allocates the fair value of the purchase consideration of the Company’s acquisitions to the tangible assets, intangible assets, including in-process research and development (“IPR&D”), if any, and liabilities assumed, based on estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred. See Note 5, “Business Combinations,” for additional information.

 

(r) Goodwill and Indefinite-Lived Intangible Assets

 

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

 

In testing goodwill for impairment, the Company may first perform a qualitative assessment of whether it is more likely than not that the reporting unit’s fair value is less than its carrying amount, and, if so, the Company then quantitatively compares the fair value of the reporting unit to its carrying amount. If the fair value exceeds the carrying amount, goodwill is not impaired. If the carrying amount exceeds fair value, the Company then records an impairment loss equal to the difference, up to the carrying value of goodwill.

 

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

 

In testing indefinite-lived intangible assets for impairment, the Company may first perform a qualitative assessment of whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, and, if so, the Company then quantitatively compares the fair value of the indefinite-lived intangible asset to its carrying amount. The Company determines the fair value of its indefinite-lived intangible assets using a discounted cash flow method.

 

(s) Long-Lived Assets

 

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

 

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

 

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

 

(t) Recently Adopted Accounting Standards

 

The Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), as of January 1, 2018, using the full retrospective method. All amounts and disclosures set forth in this Form 10-K reflect these changes. The most significant financial statement impacts of adopting ASC 606 are the elimination of the constraint on revenue associated with the billing retention related to the receipt of customer final acceptance and 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, is now generally recognized at the time the Company transfers control of the system to the customer, which is earlier than under the Company’s previous revenue recognition model for certain contracts that were subject to the billing constraint. The performance obligation related to installation services is now recognized as the installation services are performed, which is later than the Company’s previous revenue recognition model.

 

The Company applied ASC 606 retrospectively and elected to use the disclosure exemption in the transition guidance under which the Company does not disclose prior period information regarding the amount of the transaction price allocated to remaining performance obligations. The cumulative effect of the adoption was recognized as a decrease to Accumulated deficit of $6.9 million on January 1, 2016. The following tables summarize the impact of adoption on the Company’s previously reported financial position and results of operations:

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

As reported

    

Adjustments

    

As adjusted

 

 

 (in thousands)

Balance Sheet

 

 

 

 

 

 

 

Contract assets

 

$

$

160

$

160

Deferred cost of sales

 

 

16,060

 

(66)

 

15,994

Deferred income taxes

 

 

2,953

 

94

 

3,047

Accrued expenses and other current liabilities

 

 

60,339

 

(2,271)

 

58,068

Customer deposits and deferred revenue

 

 

108,953

 

3,079

 

112,032

Additional paid-in capital

 

 

1,053,079

 

(1,126)

 

1,051,953

Accumulated deficit

 

 

(213,376)

 

506

 

(212,870)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

2017

 

2016

 

    

As reported

    

Adjustments

    

As adjusted

    

As reported

    

Adjustments

    

As adjusted

 

(in thousands, except per share amounts)

Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

484,756

 

$

(9,070)

 

$

475,686

 

$

332,451

 

$

(749)

 

$

331,702

Cost of sales

 

 

300,438

 

 

(980)

 

 

299,458

 

 

199,593

 

 

(989)

 

 

198,604

Income tax expense (benefit)

 

 

(36,107)

 

 

(1,487)

 

 

(37,594)

 

 

2,766

 

 

57

 

 

2,823

Net income (loss)

 

 

(44,793)

 

 

(6,603)

 

 

(51,396)

 

 

(122,210)

 

 

183

 

 

(122,027)

Diluted earnings (loss) per share

 

 

(1.01)

 

 

(0.15)

 

 

(1.16)

 

 

(3.11)

 

 

0.01

 

 

(3.10)

 

The Company’s adoption of the standard had no impact to cash provided by or used in operating, investing, or financing activities on the Consolidated Statements of Cash Flows.

 

The Company adopted ASU 2016-01, Financial Instruments – Overall, as of January 1, 2018. This ASU requires certain equity investments to be measured at fair value, with changes in fair value recognized in net income. The Company measures equity investments without readily observable market prices at cost, adjusted for changes in observable prices minus impairment. Changes in measurement are included in “Other, net” in the Consolidated Statements of Operations. This ASU has not had a material impact on the consolidated financial statements upon adoption, and the Company will monitor its equity investments each reporting period for changes in observable market prices, if any, which may be material in future periods.

 

The Company adopted ASU 2016-09: Stock Compensation: Improvements to Employee Share-Based Payment Accounting, as of January 1, 2016. This ASU simplifies several aspects of the accounting for share-based payments. Beginning in 2016, excess tax benefits and deficiencies are recognized as income tax expense or benefit in the income statement in the reporting period incurred. The Company also made an accounting policy election to account for forfeitures when they occur. The ASU transition guidance requires that this election be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the ASU is adopted. Accordingly, the Company recorded a $1.3 million charge to the opening accumulated deficit balance as of January 1, 2016, with a corresponding adjustment to additional paid-in capital, resulting in no impact to the opening balance of total stockholders’ equity. In addition, the Company recorded additional deferred tax assets with an equally offsetting valuation allowance of $2.4 million.

 

(u) Recent Accounting Pronouncements Not Yet Adopted

 

In February 2016, the FASB issued ASU 2016-02: Leases, which, along with subsequent ASUs related to this topic, has been codified as Accounting Standards Codification 842 (“ASC 842”). ASC 842 generally requires operating lessee rights and obligations to be recognized as assets and liabilities on the balance sheet. The new standard, which is effective for the Company on January 1, 2019, offers a transition option whereby companies can recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The Company plans to adopt using this transition method. In addition, ASC 842 provides for a number of optional exemptions in transition. The Company expects to elect certain exemptions whereby prior conclusions regarding lease identification, lease classification, and initial direct costs are not required to be reassessed under the new standard. The Company also plans to elect allowable policies whereby the Company will not separate lease and non-lease components, and the Company will not recognize an asset or liability for leases with original terms or renewals of one year or less. Upon adoption, the Company expects to recognize an operating lease liability ranging from $12 million to $16 million based on the present value of remaining minimum rental payments on existing leases, with corresponding assets of approximately the same amount.

 

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.

 

v3.19.1
Income (Loss) Per Share
12 Months Ended
Dec. 31, 2018
Income (Loss) Per Share  
Income (Loss) Per Share

Note 2 — Income (Loss) Per 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.

 

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 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 years ended December 31, 2018, 2017, and 2016 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

    

2018

    

2017

    

2016

 

 

(in thousands, except per share amounts)

Net income (loss)

 

$

(407,088)

 

$

(51,396)

 

$

(122,027)

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(8.63)

 

$

(1.16)

 

$

(3.10)

Diluted

 

$

(8.63)

 

$

(1.16)

 

$

(3.10)

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

47,151

 

 

44,174

 

 

39,340

Effect of potentially dilutive share-based awards

 

 

 —

 

 

 —

 

 

 —

Diluted weighted average shares outstanding

 

 

47,151

 

 

44,174

 

 

39,340

 

 

 

 

 

 

 

 

 

 

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

 

 

20

 

 

72

 

 

312

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

 

 

28

 

 

239

 

 

107

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

 

 

2,474

 

 

1,744

 

 

1,896

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

 

 

8,618

 

 

8,618

 

 

 —

 

v3.19.1
Fair Value Measurements
12 Months Ended
Dec. 31, 2018
Fair Value Measurements  
Fair Value Measurements

Note 3 — Fair Value Measurements

 

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

 

·

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

 

·

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

 

·

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

 

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

 

The following table presents the Company’s assets that were measured at fair value on a recurring basis at December 31, 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

(in thousands)

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposits and time deposits

 

$

65,571

 

$

 —

 

$

 —

 

$

65,571

U.S. treasuries

 

 

3,990

 

 

 —

 

 

 —

 

 

3,990

Total

 

$

69,561

 

$

 —

 

$

 —

 

$

69,561

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

37,184

 

$

 —

 

$

 —

 

$

37,184

Corporate debt

 

 

 —

 

 

8,516

 

 

 —

 

 

8,516

Commercial paper

 

 

 —

 

 

2,489

 

 

 —

 

 

2,489

Total

 

$

37,184

 

$

11,005

 

$

 —

 

$

48,189

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposits and time deposits

 

$

64,249

 

$

 —

 

$

 —

 

$

64,249

U.S. treasuries

 

 

12,490

 

 

 —

 

 

 —

 

 

12,490

Total

 

$

76,739

 

$

 —

 

$

 —

 

$

76,739

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

33,895

 

$

 —

 

$

 —

 

$

33,895

Corporate debt

 

 

 —

 

 

10,886

 

 

 —

 

 

10,886

Commercial paper

 

 

 —

 

 

2,999

 

 

 —

 

 

2,999

Total

 

$

33,895

 

$

13,885

 

$

 —

 

$

47,780

 

The Company’s investments classified as Level 1 are based on quoted prices that are available in active markets. The Company’s investments classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency.

v3.19.1
Investments
12 Months Ended
Dec. 31, 2018
Investments  
Investments

Note 4 — Investments

 

At December 31, 2018 and 2017 the amortized cost and fair value of marketable securities were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

 

(in thousands)

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

37,191

 

$

 —

 

$

(7)

 

$

37,184

Corporate debt

 

 

8,525

 

 

 —

 

 

(9)

 

 

8,516

Commercial paper

 

 

2,489

 

 

 —

 

 

 —

 

 

2,489

Total

 

$

48,205

 

$

 —

 

$

(16)

 

$

48,189

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

33,914

 

$

 —

 

$

(19)

 

$

33,895

Corporate debt

 

 

10,894

 

 

 —

 

 

(8)

 

 

10,886

Commercial paper

 

 

2,999

 

 

 —

 

 

 —

 

 

2,999

Total

 

$

47,807

 

$

 —

 

$

(27)

 

$

47,780

 

Available-for-sale securities in a loss position at December 31, 2018 and 2017 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

December 31, 2017

 

    

 

 

    

Gross

    

 

    

Gross

 

 

Estimated

 

Unrealized

 

Estimated

 

Unrealized

 

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

 

(in thousands)

U.S. treasuries

 

$

37,184

 

$

(7)

 

$

33,895

 

$

(19)

Corporate debt

 

 

8,516

 

 

(9)

 

 

10,886

 

 

(8)

Total

 

$

45,700

 

$

(16)

 

$

44,781

 

$

(27)

 

At December 31, 2018 and 2017, there were no short-term investments that had been in a continuous loss position for more than 12 months.

 

The maturities of securities classified as available-for-sale at December 31, 2018 were all due in one year or less. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The realized gains or losses for the years ended December 31, 2018, 2017, and 2016 were immaterial.

 

Other Investments

 

Veeco has an ownership interest of less than 20% in a non-marketable investment, Kateeva, Inc. (“Kateeva”), over which Veeco does not exert significant influence. The carrying value of the investment was $21.0 million at December 31, 2018 and 2017. Additionally, during the year ended December 31, 2018, the Company made a separate non-marketable investment of $3.5 million in another entity. The Company does not exert significant influence over this investment and its ownership interest is less than 20%. Neither equity investment has a readily observable market price, and therefore the Company has elected to measure these investments at cost, adjusted for changes in observable market prices minus impairment. The investments are included in “Other assets” on the Consolidated Balance Sheets. There were no changes in observable market prices for either investment for the year ended December 31, 2018. These investments are subject to periodic impairment reviews; as there are no open-market valuations, the impairment analyses require judgment. The analyses include assessments of the companies’ financial condition, the business outlooks for their products and technologies, their 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. There were no impairment charges recorded for either investment for the years ended December 31, 2018, 2017, or 2016.

v3.19.1
Business Combinations
12 Months Ended
Dec. 31, 2018
Business Combinations  
Business Combinations

Note 5 — Business Combinations

 

Ultratech

 

On May 26, 2017, the Company completed its acquisition of Ultratech, Inc. (“Ultratech”). Ultratech develops, manufactures, sells, and supports lithography, laser annealing, and inspection equipment for manufacturers of semiconductor devices, including front-end semiconductor manufacturing and advanced packaging. Ultratech also develops, manufactures, sells, and supports ALD equipment for scientific and industrial applications. Ultratech’s customers are primarily located throughout the United States, Europe, China, Japan, Taiwan, Singapore, and Korea. 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. The 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 of $229.4 million

 

$

404,490

Equity consideration (7.2 million shares issued)

 

 

228,643

Replacement equity awards attributable to pre-acquisition service

 

 

228

Acquisition date fair value

 

$

633,361

 

Approximately $2.7 million of the cash merger consideration is included in “Accrued expenses and other current liabilities” on the Consolidated Balance Sheets as of December 31, 2017 related to shareholder appraisal proceedings that were subsequently settled and paid during 2018.

The following table summarizes the 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

Inventories

 

 

59,100

Deferred cost of sales

 

 

242

Prepaid expense and other current assets

 

 

7,217

Property, plant, and equipment

 

 

18,152

Intangible assets

 

 

346,940

Other assets

 

 

6,442

Total identifiable assets acquired

 

 

530,719

 

 

 

 

Accounts payable

 

 

24,291

Accrued expenses and other current liabilities

 

 

16,356

Customer deposits and deferred revenue

 

 

4,834

Deferred income taxes

 

 

32,478

Other liabilities

 

 

11,622

Total liabilities assumed

 

 

89,581

 

 

 

 

Net identifiable assets acquired

 

 

441,138

Goodwill

 

 

192,223

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 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

 

 9

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 met the criteria for recognition as IPR&D as of the date of the acquisition. 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 reflected the present value of the projected cash flows that were 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 was related to Ultratech’s lithography technologies and one-third of which was related to Ultratech’s laser annealing technologies.

 

During the second quarter of 2018, the Company lowered its projected results for the Ultratech asset group and determined that the revised projections were significantly lower than projected results at the time of the acquisition and that these revised projections required the Company to assess the Ultratech asset group for impairment. See Note 6, “Goodwill and Intangible Assets,” for additional information.

 

 

For the year ended December 31, 2018 and 2017, acquisition related costs were approximately $3.0 million and $17.8 million, respectively, including non-cash charges of $4.2 million related to accelerated share-based compensation for employee terminations for the year ended December 31, 2017.

 

The amounts of net sales and income (loss) from operations before income taxes of Ultratech included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2017 are as follows:

 

 

 

 

 

 

    

Year ended

 

 

December 31, 2017

 

 

(in thousands)

Net sales

 

$

65,280

Loss before income taxes

 

$

(62,284)

 

Loss before income taxes of Ultratech for the year ended December 31, 2017 of $62.3 million includes acquisition costs of $17.8 million, release of inventory fair value step-up related to purchase accounting of $9.6 million, amortization expense on intangible assets of $23.9 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:

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

    

2017

    

2016

 

(in thousands, except per share amounts)

Net sales

 

$

546,428

 

$

525,752

Loss before income taxes

 

 

(90,000)

 

 

(217,783)

Diluted earnings per share

 

$

(1.38)

 

$

(4.67)

 

The pro-forma results were calculated by combining the audited 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 intangible assets 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 the year ended December 31, 2017 and included in the year ended December 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 the year ended December 31, 2017 and recorded in the year ended December 31, 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 12, “Debt”) 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.

 

(vii)

All shares issued in connection with the acquisition were considered outstanding as of January 1, 2016 for purposes of calculating diluted earnings per share.

v3.19.1
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets  
Goodwill and Intangible Assets

Note 6 — Goodwill and Intangible Assets

 

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 during the years indicated:

 

 

 

 

 

 

 

 

 

 

 

 

    

Gross carrying

    

Accumulated

    

 

 

 

amount

 

impairment

 

Net amount

 

    

(in thousands)

Balance at December 31, 2016

 

$

238,108

 

$

123,200

 

$

114,908

Acquisition

 

 

192,223

 

 

 —

 

 

192,223

Balance at December 31, 2017

 

 

430,331

 

 

123,200

 

 

307,131

Impairment

 

 

 —

 

 

122,829

 

 

(122,829)

Balance at December 31, 2018

 

$

430,331

 

$

246,029

 

$

184,302

 

The Company performs its annual goodwill impairment test at the beginning of the fourth quarter each year. As the Company maintains a single goodwill reporting unit, it determines the fair value of its reporting unit based upon the Company’s adjusted market capitalization. The adjusted market capitalization is calculated by multiplying the average share price of the Company’s common stock for the last ten trading days prior to the measurement date by the number of outstanding common shares and adding a control premium. The control premium is estimated using historical transactions in similar industries. The annual test performed at the beginning of the fourth quarter of fiscal 2017 and 2018 did not result in any potential impairment as the fair value of the reporting unit was determined to exceed the carrying amount of the reporting unit.

 

As a result of a significant decline in the Company’s stock price during the fourth quarter, the Company concluded it was appropriate to perform an interim goodwill impairment test as of the end of the fourth quarter. The fair value of its reporting unit, as calculated using the adjusted market capitalization approach noted above, was determined to be below the carrying value of the reporting unit, and the Company recorded an impairment charge equal to the excess of carrying value over fair value, or $122.8 million, for the year ended December 31, 2018. The impairment charge is included in “Asset impairment” in the Consolidated Statements of Operations. The valuation of goodwill will continue to be subject to changes in the Company’s market capitalization and observable market control premiums. This analysis is sensitive to changes in the Company’s stock price and absent other qualitative factors, the Company may be required to record additional goodwill impairment charges in future periods if the stock price declines and remains depressed for an extended period of time. 

 

The components of purchased intangible assets were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

December 31, 2017

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Accumulated

 

 

 

 

    

Remaining

    

Gross

    

Amortization

    

 

    

Gross

    

Amortization