VEECO INSTRUMENTS INC, 10-Q filed on 5/7/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
Apr. 30, 2018
Document and Entity Information    
Entity Registrant Name VEECO INSTRUMENTS INC  
Entity Central Index Key 0000103145  
Document Type 10-Q  
Document Period End Date Mar. 31, 2018  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   48,691,999
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
v3.8.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 245,525 $ 279,736
Restricted cash 841 847
Short-term investments 65,130 47,780
Accounts receivable, net 108,219 98,866
Contract assets 1,984 160
Inventories 130,964 120,266
Deferred cost of sales 1,080 15,994
Prepaid expenses and other current assets 29,615 33,437
Total current assets 583,358 597,086
Property, plant and equipment, net 83,100 85,058
Intangible assets, net 356,311 369,843
Goodwill 307,131 307,131
Deferred income taxes 3,281 3,047
Other assets 28,847 25,310
Total assets 1,362,028 1,387,475
Current liabilities:    
Accounts payable 58,273 50,318
Accrued expenses and other current liabilities 54,297 58,068
Customer deposits and deferred revenue 94,473 112,032
Income taxes payable 1,581 3,846
Total current liabilities 208,624 224,264
Deferred income taxes 36,794 36,845
Long-term debt 278,489 275,630
Other liabilities 10,164 10,643
Total liabilities 534,071 547,382
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; 48,691,371 and 48,229,251 shares issued at March 31, 2018 and December 31, 2017, respectively; 48,691,371 and 48,144,416 shares outstanding at March 31, 2018 and December 31, 2017, respectively. 487 482
Additional paid-in capital 1,054,331 1,051,953
Accumulated deficit (228,697) (212,870)
Accumulated other comprehensive income 1,836 1,812
Treasury stock, at cost, 84,835 shares at December 31, 2017.   (1,284)
Total stockholders' equity 827,957 840,093
Total liabilities and stockholders' equity $ 1,362,028 $ 1,387,475
v3.8.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 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 48,691,371 48,229,251
Common stock, shares outstanding 48,691,371 48,144,416
Treasury stock, shares   84,835
v3.8.0.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Consolidated Statements of Operations    
Net sales $ 158,574 $ 94,499
Cost of sales 101,894 59,999
Gross profit 56,680 34,500
Operating expenses, net:    
Research and development 24,320 14,989
Selling, general, and administrative 26,383 19,105
Amortization of intangible assets 13,532 2,867
Restructuring 2,695 1,338
Acquisition costs 1,342 1,361
Asset impairment   463
Other, net (157) (78)
Total operating expenses, net 68,115 40,045
Operating income (loss) (11,435) (5,545)
Interest income 624 793
Interest expense (5,246) (4,135)
Income (loss) before income taxes (16,057) (8,887)
Income tax expense (benefit) (230) (10,527)
Net income (loss) $ (15,827) $ 1,640
Income (loss) per common share:    
Basic (in dollars per share) $ (0.34) $ 0.04
Diluted (in dollars per share) $ (0.34) $ 0.04
Weighted average number of shares:    
Basic (in shares) 46,963 39,619
Diluted (in shares) 46,963 40,140
v3.8.0.1
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Consolidated Statements of Comprehensive Income (Loss)    
Net income (loss) $ (15,827) $ 1,640
Other comprehensive income (loss), net of tax:    
Unrealized gain (loss) on available-for-sale securities (8) (114)
Foreign currency translation 32 15
Total other comprehensive income (loss), net of tax 24 (99)
Total comprehensive income (loss) $ (15,803) $ 1,541
v3.8.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Cash Flows from Operating Activities    
Net income (loss) $ (15,827) $ 1,640
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Depreciation and amortization 17,726 5,799
Non-cash interest expense 2,859 2,185
Deferred income taxes (269) (6,246)
Share-based compensation expense 4,537 4,186
Asset impairment   463
Provision for bad debts   92
Changes in operating assets and liabilities:    
Accounts receivable and contract assets (11,177) 5,871
Inventories and deferred cost of sales 4,555 13,603
Prepaid expenses and other current assets 3,824 (3,743)
Accounts payable and accrued expenses 2,009 613
Customer deposits and deferred revenue (17,559) (13,727)
Income taxes receivable and payable, net (2,283) 130
Long-term income tax liability   (4,877)
Other, net (202) 343
Net cash provided by (used in) operating activities (11,807) 6,332
Cash Flows from Investing Activities    
Capital expenditures (2,259) (4,187)
Proceeds from the sale of investments 34,000 27,411
Payments for purchases of investments (54,300) (219,141)
Net cash provided by (used in) investing activities (22,559) (195,917)
Cash Flows from Financing Activities    
Cash withholdings for employee stock purchase plans 1,136 585
Restricted stock tax withholdings (427) (461)
Purchases of common stock (592)  
Proceeds from long-term debt borrowings   335,752
Principal payments on long-term debt   (89)
Net cash provided by (used in) financing activities 117 335,787
Effect of exchange rate changes on cash and cash equivalents 32 15
Net increase (decrease) in cash, cash equivalents, and restricted cash (34,217) 146,217
Cash, cash equivalents, and restricted cash - beginning of period 280,583 277,444
Cash, cash equivalents, and restricted cash - end of period 246,366 423,661
Supplemental Disclosure of Cash Flow Information    
Interest paid 4,674 31
Income taxes paid 2,373 672
Non-cash operating and financing activities    
Net transfer of property, plant, and equipment to (from) inventory $ 339 $ (81)
v3.8.0.1
Basis of Presentation
3 Months Ended
Mar. 31, 2018
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, 2017 (“2017 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.

 

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 2018 interim quarters end on April 1, July 1, and September 30, and the 2017 interim quarters ended on April 2, July 2, and October 1. These interim quarters are reported as March 31, June 30, and September 30 in Veeco’s interim consolidated financial statements.

 

Change in Accounting Policy

 

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-Q 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 new 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:

 

 

 

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 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

)

 

 

 

Three months ended March 31, 2017

 

 

 

As reported

 

Adjustments

 

As adjusted

 

 

 

(in thousands, except per share amounts)

 

Statement of Operations

 

 

 

 

 

 

 

Net sales

 

$

94,386

 

$

113

 

$

94,499

 

Cost of sales

 

60,186

 

(187

)

59,999

 

Income tax expense (benefit)

 

(10,282

)

(245

)

(10,527

)

Net income (loss)

 

1,095

 

545

 

1,640

 

Diluted earnings (loss) per share

 

0.03

 

0.01

 

0.04

 

 

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.

 

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. The maximum revenue recognized at a given point on a contract is limited to the amount for which it is probable that a significant reversal will not occur in the future.

 

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 or test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When the Company objectively demonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery, 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, and the Company does not have a history of meeting the criteria, revenue and the associated costs are deferred and fully recognized upon obtaining objective evidence that the acceptance provisions have been achieved and thus transferring control of the product to the customer, 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 therefore such costs are included in cost of services upon shipment of products. Taxes assessed by governmental authorities that are collected by the Company from a customer are excluded from revenue.

 

Income Taxes

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“2017 Tax Act”), which makes broad and complex changes to the U.S. tax code. Certain income tax effects of the 2017 Tax Act are reflected in the Company’s financial results in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), which provides SEC staff guidance regarding the application of ASC Topic 740, Income Taxes (“ASC 740”). Refer to Note 10, “Income Taxes,” for further information on the financial statement impact of the 2017 Tax Act.

 

Because of the complexity of the new global intangible low-taxed income (“GILTI”) rule, the Company is continuing to evaluate this provision of the 2017 Tax Act and the application of ASC 740. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (“period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (“deferred method”). The Company’s selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI, and if so, what the impact will be. This assessment depends not only on the Company’s current structure and estimated future results of global operations, but also on its intent and ability to modify its structure and/or business. The Company is not yet able to reasonably estimate the effect of this provision of the 2017 Tax Act; therefore, the Company has not made any deferred tax adjustments related to potential GILTI tax in its consolidated financial statements and has not made a policy election decision regarding whether to record deferred taxes on GILTI.

 

Recent Accounting Pronouncements

 

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 impact of adopting the ASU 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 the Company’s consolidated financial statements.

 

Recently Adopted Accounting Pronouncements

 

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. For equity investments without readily observable market prices, the Company measures these investments 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 cost method investments each reporting period for changes in observable market prices, if any, which may be material in future periods.

 

The Company adopted ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, as of January 1, 2018. This ASU requires the Company to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This ASU has not had a material impact on the consolidated financial statements.

 

The Company adopted ASU 2016-18, Statement of Cash Flows: Restricted Cash, as of January 1, 2018. This ASU requires the Company to include Restricted cash with Cash and cash equivalents when reconciling the beginning and end of period total amounts shown on the Statement of Cash Flows. This ASU has not had a material impact on the consolidated financial statements.

v3.8.0.1
Income (Loss) Per Common Share
3 Months Ended
Mar. 31, 2018
Income (Loss) Per Common Share 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 months ended March 31, 2018 and 2017 are as follows:

 

 

 

Three months ended March 31,

 

 

 

2018

 

2017

 

 

 

(in thousands, except per share amounts)

 

Net income (loss)

 

$

(15,827

)

$

1,640

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

Basic

 

$

(0.34

)

$

0.04

 

Diluted

 

$

(0.34

)

$

0.04

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

46,963

 

39,619

 

Effect of potentially dilutive share-based awards

 

 

521

 

Diluted weighted average shares outstanding

 

46,963

 

40,140

 

 

 

 

 

 

 

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

 

59

 

N/A

 

 

 

 

 

 

 

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

 

169

 

N/A

 

 

 

 

 

 

 

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

 

2,092

 

1,499

 

 

 

 

 

 

 

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

 

 

v3.8.0.1
Business Combinations
3 Months Ended
Mar. 31, 2018
Business Combinations  
Business Combinations

 

Note 3 — 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. 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 March 31, 2018 and December 31, 2017, related to shareholder appraisal proceedings.

 

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

 

 

 

Three months ended March 31,

 

 

 

2017

 

 

 

(in thousands, except per share
amounts)

 

Net sales

 

$

151,908

 

Loss before income taxes

 

(13,461

)

Diluted earnings per share

 

$

(0.07

)

 

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 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 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.

 

(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.

v3.8.0.1
Assets
3 Months Ended
Mar. 31, 2018
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 purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are included in “Other, net” in the Consolidated Statements of Operations.

 

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

 

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

 

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

 

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

 

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 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 March 31, 2018 and December 31, 2017:

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(in thousands)

 

March 31, 2018

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

6,496

 

$

 

$

 

$

6,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

6,496

 

$

 

$

 

$

6,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

42,228

 

$

 

$

 

$

42,228

 

Corporate debt

 

 

10,522

 

 

10,522

 

Commercial paper

 

 

12,380

 

 

12,380

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

42,228

 

$

22,902

 

$

 

$

65,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

12,490

 

$

 

$

 

$

12,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

12,490

 

$

 

$

 

$

12,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There were no transfers between fair value measurement levels during the three months ended March 31, 2018.

 

At March 31, 2018 and December 31, 2017, the amortized cost and fair value of available-for-sale securities consist of:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

 

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

 

 

(in thousands)

 

March 31, 2018

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

$

42,245

 

$

 

$

(17

)

$

42,228

 

Corporate debt

 

10,540

 

 

(18

)

10,522

 

Commercial paper

 

12,379

 

1

 

 

12,380

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

65,164

 

$

1

 

$

(35

)

$

65,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 March 31, 2018 and December 31, 2017 consist of:

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

 

 

Gross

 

 

 

Gross

 

 

 

Estimated

 

Unrealized

 

Estimated

 

Unrealized

 

 

 

Fair Value

 

Losses

 

Fair Value

 

Losses

 

 

 

(in thousands)

 

U.S. treasuries

 

$

37,275

 

$

(17

)

$

33,895

 

$

(19

)

Corporate debt

 

10,522

 

(18

)

10,886

 

(8

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

47,797

 

$

(35

)

$

44,781

 

$

(27

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2018 and December 31, 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 March 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. There were no realized gains for the three months ended March 31, 2018 and 2017.

 

Accounts Receivable

 

Accounts receivable is presented net of an allowance for doubtful accounts of $0.3 million at both March 31, 2018 and December 31, 2017.

 

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 March 31, 2018 and December 31, 2017 consist of the following:

 

 

 

March 31,

 

December 31,

 

 

 

2018 

 

2017

 

 

 

(in thousands)

 

Materials

 

$

70,621

 

$

59,919

 

Work-in-process

 

35,211

 

37,222

 

Finished goods

 

25,132

 

23,125

 

 

 

 

 

 

 

Total

 

$

130,964

 

$

120,266

 

 

 

 

 

 

 

 

 

 

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 $11.5 million and $7.6 million at March 31, 2018 and December 31, 2017, respectively.

 

Property, Plant, and Equipment

 

Property, plant, and equipment at March 31, 2018 and December 31, 2017 consist of the following:

 

 

 

March 31,
2018

 

December 31,
2017

 

 

 

(in thousands)

 

Land

 

$

5,669

 

$

5,669

 

Building and improvements

 

59,972

 

54,449

 

Machinery and equipment(1)

 

118,360

 

126,829

 

Leasehold improvements

 

9,523

 

10,073

 

 

 

 

 

 

 

Gross property, plant, and equipment

 

193,524

 

197,020

 

Less: accumulated depreciation and amortization

 

110,424

 

111,962

 

 

 

 

 

 

 

Net property, plant, and equipment

 

$

83,100

 

$

85,058

 

 

 

 

 

 

 

 

 

 

(1)

Machinery and equipment also includes software, furniture and fixtures

 

For the three months ended March 31, 2018 and 2017, depreciation expense was $4.2 million and $2.9 million, respectively.

 

Goodwill

 

Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. There were no changes to goodwill during the three months ended March 31, 2018.

 

Intangible Assets

 

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 amortized on a straight-line basis if such pattern cannot be reliably determined.

 

The components of purchased intangible assets were as follows:

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

 

 

Accumulated

 

 

 

 

 

Accumulated

 

 

 

 

 

Gross

 

Amortization

 

 

 

Gross

 

Amortization

 

 

 

 

 

Carrying

 

and

 

Net

 

Carrying

 

and

 

Net

 

 

 

Amount

 

Impairment

 

Amount

 

Amount

 

Impairment

 

Amount

 

 

 

(in thousands)

 

Technology

 

$

307,588

 

$

142,209

 

$

165,379

 

$

307,588

 

$

133,121

 

$

174,467

 

Customer relationships

 

164,595

 

42,703

 

121,892

 

164,595

 

39,336

 

125,259

 

In-process R&D

 

43,340

 

 

43,340

 

43,340

 

 

43,340

 

Trademarks and tradenames

 

30,910

 

5,370

 

25,540

 

30,910

 

4,321

 

26,589

 

Other

 

3,686

 

3,526

 

160

 

3,686

 

3,498

 

188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

550,119

 

$

193,808

 

$

356,311

 

$

550,119

 

$

180,276

 

$

369,843

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Other Assets

 

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 March 31, 2018 and December 31, 2017. Additionally, during the three months ended March 31, 2018, the Company made a separate non-marketable investment of $3.5 million. 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 three months ended March 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.

v3.8.0.1
Liabilities
3 Months Ended
Mar. 31, 2018
Liabilities  
Liabilities

 

Note 5 - Liabilities

 

Accrued Expenses and Other Current Liabilities

 

The components of accrued expenses and other current liabilities at March 31, 2018 and December 31, 2017 consist of:

 

 

 

March 31,

 

December 31,

 

 

 

2018

 

2017

 

 

 

(in thousands)

 

Payroll and related benefits

 

$

30,890

 

$

32,996

 

Warranty

 

6,455

 

6,532

 

Interest

 

2,148

 

4,430

 

Professional fees

 

3,654

 

3,942

 

Merger consideration payable

 

2,662

 

2,662

 

Sales, use, and other taxes

 

1,493

 

2,144

 

Restructuring liability

 

1,390

 

1,520

 

Other

 

5,605

 

3,842

 

 

 

 

 

 

 

Total

 

$

54,297

 

$

58,068

 

 

 

 

 

 

 

 

 

 

Other liabilities include accruals for costs related to customer training, royalties, and travel.

 

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 three months ended March 31, 2018 include:

 

 

 

(in thousands)

 

Balance - December 31, 2017

 

$

6,532

 

Warranties issued

 

1,647

 

Consumption of reserves

 

(1,908

)

Changes in estimate

 

184

 

 

 

 

 

Balance - March 31, 2018

 

$

6,455

 

 

 

 

 

 

 

Restructuring Accruals

 

During the three months ended March 31, 2018, additional accruals were recognized and payments made related to previous years’ restructuring initiatives. During 2017, the Company substantially completed 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. In addition, during 2017, the Company began the Ultratech acquisition integration process to enhance efficiencies, resulting in employee terminations and other facility costs.

 

 

 

Personnel

 

 

 

 

 

 

 

Severance and

 

Facility

 

 

 

 

 

Related Costs

 

Related Costs

 

Total

 

 

 

(in thousands)

 

Balance - December 31, 2017

 

$

1,520

 

$

 

$

1,520

 

Provision

 

655

 

1,868

 

2,523

 

Payments

 

(785

)

(1,868

)

(2,653

)

 

 

 

 

 

 

 

 

Balance - March 31, 2018

 

$

1,390

 

$

 

$

1,390

 

 

 

 

 

 

 

 

 

 

 

 

 

Included within restructuring expense in the Consolidated Statements of Operations for the three months ended March 31, 2018 is approximately $0.2 million of non-cash charges related to accelerated share-based compensation for employee terminations.

 

Customer Deposits and Deferred Revenue

 

Customer deposits totaled $45.7 million and $41.5 million at March 31, 2018 and December 31, 2017, respectively. Deferred revenue represents amounts billed, other than deposits, in excess of the revenue that can be recognized on a particular contract at the balance sheet date. Changes in deferred revenue were as follows:

 

 

 

(in thousands)

 

Balance - December 31, 2017

 

$

70,536

 

Deferral of revenue

 

5,360

 

Recognition of unearned revenue

 

(27,100

)

 

 

 

 

Balance - March 31, 2018

 

$

48,796

 

 

 

 

 

 

 

As of March 31, 2018, the Company has approximately $133.2 million of remaining performance obligations on contracts with an original estimated duration of one year or more, of which approximately 76% is expected to be recognized within one year, with the remaining amounts expected to be recognized between one to three years. The Company has elected to exclude disclosures regarding remaining performance obligations that have an original expected duration of one year or less.

 

Convertible Senior Notes

 

On January 10, 2017, the Company issued $345.0 million of 2.70% convertible senior unsecured notes (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 (the “Maturity Date”), unless earlier purchased by the Company, redeemed, or converted.

 

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

 

 

 

March 31,

 

December 31,

 

 

 

2018

 

2017

 

 

 

(in thousands)

 

Principal amount

 

$

345,000

 

$

345,000

 

Unamortized debt discount

 

(60,424

)

(63,022

)

Unamortized transaction costs

 

(6,087

)

(6,348

)

 

 

 

 

 

 

Net carrying value

 

$

278,489

 

$

275,630

 

 

 

 

 

 

 

 

 

 

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

 

 

 

Three months

 

Three months

 

 

 

ended March 31,

 

ended March 31,

 

 

 

2018

 

2017

 

 

 

(in thousands)

 

Cash Interest Expense

 

 

 

 

 

Coupon interest expense

 

$

2,329

 

$

1,915

 

Non-Cash Interest Expense

 

 

 

 

 

Amortization of debt discount

 

2,598

 

1,985

 

Amortization of transaction costs

 

261

 

200

 

 

 

 

 

 

 

Total Interest Expense

 

$

5,188

 

$

4,100

 

 

 

 

 

 

 

 

 

 

The Company determined the Convertible Senior Notes is a Level 2 liability in the fair value hierarchy and estimated its fair value as $314.1 million at March 31, 2018.

 

Other Liabilities

 

The Company maintains an executive non-qualified deferred compensation plan that was assumed from Ultratech that allows qualifying executives to defer cash compensation. At both March 31, 2018 and December 31, 2017, plan assets approximated $3.4 million representing the cash surrender value of life insurance policies and is included within “Other assets” in the Consolidated Balance Sheets, while plan liabilities approximated $4.5 million and $4.7 million, respectively, and is included within “Other liabilities” in the Consolidated Balance Sheets. Other liabilities also included asset retirement obligations at March 31, 2018 and December 31, 2017 of $3.3 million, medical and dental benefits of $2.1 million and $2.2 million, respectively, and acquisition related accruals of $0.2 million, and $0.4 million, respectively.

v3.8.0.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2018
Commitments and Contingencies  
Commitments and Contingencies

 

Note 6 - Commitments and Contingencies

 

Minimum Lease Commitments

 

At March 31, 2018, the Company’s total future minimum lease payments under non-cancelable operating leases have not changed significantly from the disclosure in the 2017 Form 10-K.

 

Purchase Commitments

 

Veeco has purchase commitments of $160.4 million at March 31, 2018, 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 March 31, 2018, outstanding bank guarantees and letters of credit totaled $7.2 million, and unused bank guarantees and letters of credit of $66.3 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 and a trial on the action is scheduled to begin in December 2018.

 

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 Company’s express authorization.

 

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. On December 7, 2017, without providing notice to Veeco and without hearing Veeco’s position on alleged infringement, the Fujian High Court issued a preliminary injunction, applicable in China, that requires Veeco Shanghai to stop importing, making, selling, and offering to sell Veeco EPIK 700 model MOCVD systems and to stop importing, selling, and offering to sell wafer carriers used as supplies for the EPIK 700 MOCVD system.

 

On February 8, 2018, Veeco, AMEC, and SGL announced that they had mutually agreed to settle the pending litigation among the parties and to amicably resolve all pending disputes, including AMEC’s lawsuit against Veeco before the Fujian High Court in China and Veeco’s lawsuit against SGL before the U.S. District Court for the Eastern District of New York. As part of the settlement, all legal actions worldwide (in court, patent offices, and otherwise), between Veeco, AMEC, and SGL, and their affiliates, were dismissed and/or otherwise withdrawn. As a result, all business processes, including sales, service, and importation, were resumed promptly following the settlement.

 

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.

 

Receivable Purchase Agreement

 

In December 2017, the Company entered into a Receivable Purchase Agreement with a financial institution to sell certain of its trade receivables from customers without recourse, up to $23.0 million at any point in time for a term of one year. There were no sales of accounts receivable under the agreement for the three months ended March 31, 2018, and as of March 31, 2018, the Company maintained $23.0 million available under the agreement for additional sales of trade receivables.

v3.8.0.1
Derivative Financial Instruments
3 Months Ended
Mar. 31, 2018
Derivative Financial Instruments  
Derivative Financial Instruments

 

Note 7 — Derivative Financial Instruments

 

The Company is exposed to financial market risks arising from changes in currency exchange rates. Changes in currency exchange rates could affect the Company’s foreign currency denominated monetary assets and liabilities and forecasted cash flows. The Company entered into monthly forward derivative contracts with the intent of mitigating a portion of this risk. The Company only used derivative financial instruments in the context of hedging and not for speculative purposes and had not designated its foreign exchange derivatives as hedges. Accordingly, changes in fair value from these contracts were recorded as “Other, net” in the Company’s Consolidated Statements of Operations. The Company executed derivative transactions with highly rated financial institutions to mitigate counterparty risk.

 

A summary of the foreign exchange derivatives outstanding on March 31, 2018 and December 31, 2017 is as follows:

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

Fair

 

Maturity

 

Notional

 

Fair

 

Maturity

 

Notional

 

 

 

Value

 

Dates

 

Amounts

 

Value

 

Dates

 

Amounts

 

 

 

(in thousands)

 

Foreign currency exchange forwards

 

$

 

April 2018

 

$

5,062

 

$

 

January 2018

 

$

622

 

 

The following table shows the gains and (losses) from currency exchange derivatives during the three months ended March 31, 2018 and 2017, which are included in “Other, net” in the Consolidated Statements of Operations, as well as the weighted average notional amount of derivatives outstanding for each period:

 

 

 

Three months ended March 31, 2018

 

Three months ended March 31, 2017

 

 

 

 

 

Weighted average

 

 

 

Weighted average

 

 

 

Gains (losses)

 

notional amount

 

Gains (losses)

 

notional amount

 

 

 

(in thousands)

 

Foreign currency exchange forwards

 

$

17

 

$

930

 

$

 

$

 

 

v3.8.0.1
Equity
3 Months Ended
Mar. 31, 2018
Equity  
Equity

 

Note 8 - Equity

 

Accumulated Other Comprehensive Income (“AOCI”)

 

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

 

 

 

 

 

Unrealized

 

 

 

 

 

 

 

Gains (Losses) on

 

 

 

 

 

Foreign Currency

 

Available for Sale

 

 

 

 

 

Translation

 

Securities

 

Total

 

 

 

(in thousands)

 

Balance - December 31, 2017

 

$

1,839

 

$

(27

)

$

1,812

 

Other comprehensive income (loss)

 

32

 

(8

)

24

 

 

 

 

 

 

 

 

 

Balance - March 31, 2018

 

$

1,871

 

$

(35

)

$

1,836

 

 

 

 

 

 

 

 

 

 

 

 

 

There were minimal reclassifications from AOCI into net income for the three months ended March 31, 2018.

 

 

v3.8.0.1
Share-based compensation
3 Months Ended
Mar. 31, 2018
Share-based compensation  
Share-based compensation

 

Note 9 - 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 months ended March 31, 2018 and 2017:

 

 

 

Three months ended March 31,

 

 

 

2018

 

2017

 

 

 

(in thousands)

 

Cost of sales

 

$

554

 

$

657

 

Research and development

 

954

 

429

 

Selling, general, and administrative

 

2,857

 

3,100

 

Restructuring

 

172

 

 

 

 

 

 

 

 

Total

 

$

4,537

 

$

4,186

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2018, equity activity related to stock options was as follows:

 

 

 

 

 

Weighted

 

 

 

Number of

 

Average

 

 

 

Shares

 

Exercise Price

 

 

 

(in thousands)

 

 

 

Balance - December 31, 2017

 

1,394

 

$

34.97

 

Expired or forfeited

 

(53

)

35.45

 

 

 

 

 

 

 

Balance - March 31, 2018

 

1,341

 

$

34.95

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2018, 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, 2017

 

1,880

 

$

25.41

 

Granted

 

759

 

19.69

 

Performance award adjustments

 

(5

)

32.67

 

Vested

 

(44

)

28.46

 

Forfeited

 

(55

)

25.87

 

 

 

 

 

 

 

Balance - March 31, 2018

 

2,535

 

$

23.62

 

 

 

 

 

 

 

 

 

v3.8.0.1
Income Taxes
3 Months Ended
Mar. 31, 2018
Income Taxes  
Income Taxes

 

Note 10 - 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 March 31, 2018, 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.

 

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 makes broad and complex changes to the U.S. tax code that affects the Company’s 2018 financial results, including, but not limited to, a reduction in the U.S. federal corporate income tax rate from 35 percent to 21 percent; current U.S. taxation of global intangible low-taxed income (“GILTI”) of non-U.S. operations; additional limitations on the deductibility of executive compensation; and limitations on the deductibility of interest.

 

The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with SAB 118, which provides SEC staff guidance for the application of ASC 740 in the reporting period in which the 2017 Tax Act was signed into law. As such, the Company’s 2017 financial results reflect the income tax effects of the 2017 Tax Act, including provisional amounts for specific income tax effects of the 2017 Tax Act for which the accounting under ASC 740 is incomplete but for which a reasonable estimate could be determined. The Company is still in the process of evaluating the impacts of the 2017 Tax Act and considers the amounts previously recorded to be provisional, except for the impact of the change in tax rate on the Company’s deferred tax assets and liabilities as of December 31, 2017, for which the accounting is complete. The Company has not adjusted these estimates during the three months ended March 31, 2018 and will complete its analysis and finalize the amounts within the measurement period as provided by SAB 118.

 

Loss before income taxes and income tax benefit for the three months ended March 31, 2018 and 2017 were as follows:

 

 

 

Three months ended March 31,

 

 

 

2018

 

2017

 

Loss before income taxes

 

$

(16,057

)

$

(8,887

)

Income tax benefit

 

$

(230

)

$

(10,527

)

 

The Company’s tax benefit for the three months ended March 31, 2018 was $0.2 million compared to $10.5 million for the comparable prior period. The 2018 tax benefit included a $0.1 million tax expense relating to the Company’s domestic operations and a $0.3 million tax benefit relating to the Company’s non-U.S. operations, compared to 2017 when its benefit included $4.3 million related to domestic operations and $6.2 million related to non-U.S. operations. The current period domestic tax expense is primarily attributable to the tax amortization of indefinite-lived intangible assets that is not available to offset U.S. deferred tax assets. The current period non-U.S. tax benefit is primarily attributable to the amortization of intangible assets, offset by tax expense on non-U.S operation profits incurred during the period, as well as foreign withholding taxes on unremitted earnings as of March 31, 2018. The domestic tax benefit for the comparable period is primarily attributable to an income tax benefit for losses incurred during such period, as the deferred tax liability created by the issuance of the Convertible Senior Notes is treated as a source of income in fiscal 2017, offset by a deferred provision related to tax amortization on indefinite-lived intangible assets. The comparable period non-U.S. tax benefit is primarily attributable to the reversal of an uncertain tax position that was determined to be realizable in 2017.

v3.8.0.1
Segment Reporting and Geographic Information
3 Months Ended
Mar. 31, 2018
Segment Reporting and Geographic Information  
Segment Reporting and Geographic Information

 

Note 11 - Segment Reporting and Geographic Information

 

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

 

Veeco categorizes its sales into the following four end-markets:

 

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.

 

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, automobile, and the Internet of Things.

 

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.

 

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.

 

Sales by end-market and geographic region for the three months ended March 31, 2018 and 2017 were as follows:

 

 

 

Three months ended March 31,

 

 

 

2018

 

2017

 

 

 

(in thousands)

 

Sales by end-market

 

 

 

 

 

Advanced Packaging, MEMS & RF Filters

 

$

27,153

 

$

10,912

 

LED Lighting, Display & Compound Semiconductor

 

89,916

 

55,148

 

Front-End Semiconductor

 

9,457

 

1,158

 

Scientific & Industrial

 

32,048

 

27,281

 

 

 

 

 

 

 

Total

 

$

158,574

 

$

94,499

 

 

 

 

 

 

 

 

 

Sales by geographic region

 

 

 

 

 

United States

 

$

23,754

 

$

17,046

 

China

 

75,395

 

40,521

 

EMEA(1)

 

15,745

 

22,440

 

Rest of World

 

43,680

 

14,492

 

 

 

 

 

 

 

Total

 

$

158,574

 

$

94,499

 

 

 

 

 

 

 

 

 

 

(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.

v3.8.0.1
Basis of Presentation (Policies)
3 Months Ended
Mar. 31, 2018
Basis of Presentation  
Change in Accounting Policy

 

Change in Accounting Policy

 

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-Q 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 new 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:

 

 

 

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 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

)

 

 

 

Three months ended March 31, 2017

 

 

 

As reported

 

Adjustments

 

As adjusted

 

 

 

(in thousands, except per share amounts)