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Note 1 — Significant Accounting Policies
(a) Description of Business
Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco,” or the “Company”) operates in a single segment: the design, development, manufacture, and support of thin film process equipment primarily sold to make electronic devices including light emitting diodes (“LEDs”), power electronics, wireless devices, hard disk drives, and semiconductors.
(b) Basis of Presentation
The accompanying audited Consolidated Financial Statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The Company reports interim quarters on a 13-week basis ending on the last Sunday of each period, which is determined at the start of each year. The Company’s fourth quarter always ends on the last day of the calendar year, December 31. During 2016 the interim quarters ended on April 3, July 3, and October 2, and during 2015 the interim quarters ended on March 29, June 28 and September 27. The Company reports these interim quarters as March 31, June 30, and September 30 in its interim consolidated financial statements.
(c) Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, these estimates may ultimately differ from actual results. Significant items subject to such estimates and assumptions include: (i) the best estimate of selling price for the Company’s products and services; (ii) allowances for doubtful accounts; (iii) inventory obsolescence; (iv) the useful lives and expected future cash flows of property, plant, and equipment and identifiable intangible assets; (v) the fair value of the Company’s reporting unit and related goodwill; (vi) the fair value, less cost to sell, of assets held for sale; (vii) investment valuations and the valuation of derivatives, deferred tax assets, and assets acquired in business combinations; (viii) the recoverability of long-lived assets; (ix) liabilities for product warranty and legal contingencies; (x) share-based compensation; and (xi) income tax uncertainties. Actual results could differ from those estimates.
(d) Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Companies acquired during each reporting period are reflected in the results of the Company effective from their respective dates of acquisition through the end of the reporting period.
(e) Foreign Currencies
Assets and liabilities of the Company’s foreign subsidiaries that operate using local functional currencies are translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using monthly average exchange rates. Adjustments arising from the translation of the foreign currency financial statements of the Company’s subsidiaries into U.S. dollars, including intercompany transactions of a long-term nature, are reported as currency translation adjustments in “Accumulated other comprehensive income” in the Consolidated Balance Sheets. Foreign currency transaction gains or losses are included in “Other, net” in the Consolidated Statements of Operations.
(f) Revenue Recognition
The Company recognizes revenue when all of the following criteria have been met: persuasive evidence of an arrangement exists with a customer; delivery of the specified products has occurred or services have been rendered; prices are contractually fixed or determinable; and collectability is reasonably assured. Revenue is recorded including shipping and handling costs and excluding applicable taxes related to sales.
Contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, maintenance, and service plans. Judgment is required to properly identify the accounting units of the multiple-element arrangements and to determine how the revenue should be allocated among the accounting units. The Company also evaluates whether multiple transactions with the same customer or related parties should be considered part of a single, multiple-element arrangement based on an assessment of whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one another. Moreover, judgment is used in interpreting the commercial terms and determining when all criteria have been met in order to recognize revenue in the appropriate accounting period.
When there are separate units of accounting, the Company allocates revenue to each element based on the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available; third party evidence (“TPE”) if VSOE is not available; or the best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. The Company uses BESP for the elements in its arrangements. The maximum revenue recognized on a delivered element is limited to the amount that is not contingent upon the delivery of additional items.
The Company considers many facts when evaluating each of its sales arrangements to determine the timing of revenue recognition including its contractual obligations, the customer’s creditworthiness, and the nature of the customer’s post-delivery acceptance provisions. The Company’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For the majority of the arrangements, a customer source inspection of the system is performed in the Company’s facility or test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When the Company objectively demonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery, revenue is recognized upon system delivery since there is no substantive contingency remaining related to the acceptance provisions at that date, subject to the retention amount constraint described below. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where the Company cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred and fully recognized upon the receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.
The Company’s system sales arrangements, including certain upgrades, generally do not contain provisions for right of return, forfeiture, refund, or other purchase price concession. In the rare instances where such provisions are included, all revenue is deferred until such rights expire. The sales arrangements generally include installation. The installation process is not deemed essential to the functionality of the equipment since it is not complex; it does not require significant changes to the features or capabilities of the equipment or involve constructing elaborate interfaces or connections subsequent to factory acceptance. The Company has a demonstrated history of consistently completing installations in a timely manner and can reliably estimate the costs of such activities. Most customers engage the Company to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, installation is deemed to be inconsequential or perfunctory relative to the system sale as a whole, and as a result, installation service is not considered a separate element of the arrangement. As such, the Company accrues the cost of the installation at the time of revenue recognition for the system.
In many cases the Company’s products are sold with a billing retention, typically 10% of the sales price, which is payable by the customer when field acceptance provisions are completed. The amount of revenue recognized upon delivery of a system or upgrade, if any, is limited to the lower of i) the amount billed that is not contingent upon acceptance provisions or ii) the value of the arrangement consideration allocated to the delivered elements, if such sale is part of a multiple-element arrangement.
The Company’s contractual terms with customers in Japan generally specify that title and risk and rewards of ownership transfer upon customer acceptance. As a result, for customers in Japan, revenue is recognized upon the receipt of written customer acceptance. A distributor is used for almost all sales to customers in Japan. Title passes to the distributor upon shipment; however, due to customary local business practices, the risks and rewards of ownership of the system transfer to the end-customers upon their acceptance. As such, the Company recognizes revenue upon receipt of written acceptance from the end customer.
The Company recognizes revenue related to maintenance and service contracts ratably over the applicable contract term. The Company recognizes revenue from the sales of components, spare parts, and specified service engagements at the time of delivery in accordance with the terms of the applicable sales arrangement.
Incremental direct costs incurred related to the acquisition of a customer contract, such as sales commissions, are expensed as incurred, even if the related revenue is deferred in accordance with the above policy.
(g) Warranty Costs
The Company typically provides standard warranty coverage on its systems for one year from the date of final acceptance by providing labor and parts necessary to repair the systems during the warranty period. The Company accounts for the estimated warranty cost when revenue is recognized on the related system. Warranty cost is included in “Cost of sales” in the Consolidated Statements of Operations. The estimated warranty cost is based on the Company’s historical experience with its systems and regional labor costs. The Company calculates the average service hours by region and parts expense per system utilizing actual service records to determine the estimated warranty charge. The Company updates its warranty estimates on a semiannual basis when the actual product performance 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 $0.8 million, $0.9 million, and $0.6 million for the years ended December 31, 2016, 2015, and 2014, 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.
The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of option awards, as well as purchase rights under the Employee Stock Purchase Plan. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, expected option term, and risk-free interest rates. See Note 15, “Stock Plans,” for additional information.
In addition to stock options, restricted share awards (“RSAs”) and restricted stock units (“RSUs”) with time-based vesting, the Company issues performance share units and awards (“PSUs” and “PSAs”). Compensation cost for PSUs and PSAs is recognized over the requisite service period based on the timing and expected level of achievement of the performance targets. A change in the assessment of the probability of a performance condition being met is recognized in the period of the change in estimate. At the conclusion of the performance period, the number of shares granted may vary based on the level of achievement of the performance targets.
See Note 1(u), “Recently Adopted Accounting Standards,” for additional information concerning the Company’s early 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.
See Note 1(u), “Recently Adopted Accounting Standards,” for additional information concerning the Company’s early adoption of ASU 2015-17: Balance Sheet Classification of Deferred Taxes.
(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 and $0.2 million at December 31, 2016 and 2015, respectively.
To further mitigate the Company’s exposure to uncollectable accounts, the Company may request certain customers provide a negotiable irrevocable letter of credit drawn on a reputable financial institution. These irrevocable letters of credit are typically issued to mature between zero and 90 days from the date the documentation requirements are met, typically when a system ships or upon receipt of final acceptance from the customer. The Company, at its discretion, may monetize these letters of credit on a non-recourse basis after they become negotiable, but before maturity. The fees associated with the monetization are included in “Selling, general, and administrative” in the Consolidated Statements of Operations and were insignificant for the years ended December 31, 2016, 2015, and 2014.
(n) Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses reflected in the consolidated financial statements approximate fair value due to their short-term maturities. The fair value of debt for footnote disclosure purposes, including current maturities, is estimated using a discounted cash flow analysis based on the estimated current incremental borrowing rates for similar types of 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 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 $1.5 million and $18.0 million of cash equivalents at December 31, 2016 and 2015 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 54% and 50% of cash and cash equivalents were maintained outside the United States at December 31, 2016 and 2015, respectively.
Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income.” These securities can include U.S. treasuries, government agency securities, corporate debt, and commercial paper, all with maturities of greater than three months when purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are included in “Other, net” in the Consolidated Statements of Operations. The specific identification method is used to determine the realized gains and losses on investments.
(p) Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company reviews and sets standard costs on a periodic basis at current manufacturing costs in order to approximate actual costs. The Company assesses the valuation of all inventories, including manufacturing raw materials, work-in-process, finished goods, and spare parts, each quarter. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less than cost. Estimates of net realizable value include, but are not limited to, management’s forecasts related to the Company’s future manufacturing schedules, customer demand, technological and/or market obsolescence, general market conditions, possible alternative uses, and ultimate realization of excess inventory. If future customer demand or market conditions are less favorable than the Company’s projections, additional inventory write-downs may be required and would be reflected in cost of sales in the period the revision is made. Inventory acquired as part of a business combination is recorded at fair value on the date of acquisition. See Note 5, “Business Combinations,” for additional information.
(q) Business Combinations
The Company allocates the fair value of the purchase consideration of the Company’s acquisitions to the tangible assets, intangible assets, including in-process research and development (“IPR&D”), if any, and liabilities assumed, based on estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When a project underlying reported IPR&D is completed, the corresponding amount of IPR&D is amortized over the asset’s estimated useful life. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred in “Selling, General, and Administrative” in the Consolidated Statements of Operations. See Note 5, “Business Combinations,” for additional information.
(r) Goodwill and Indefinite-Lived Intangibles
Goodwill is an asset representing the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is measured as the excess of the consideration transferred over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed. Intangible assets with indefinite useful lives are measured at their respective fair values on the acquisition date. Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. If and when development is complete, the associated assets would be deemed long-lived and would then be amortized based on their respective estimated useful lives at that point in time. Goodwill and indefinite-lived intangibles are not amortized into results of operations but instead are evaluated for impairment. The Company performs the evaluation in the fourth quarter of each year or more frequently if impairment indicators arise.
The Company may first perform a qualitative assessment of whether it is more likely than not that the reporting unit’s fair value is less than its carrying amount, and, if so, the Company then applies the two-step impairment test. The two-step impairment test first compares the fair value of the Company’s reporting unit to its carrying amount. If the fair value exceeds the carrying amount, goodwill is not impaired, and the Company is not required to perform further testing. If the carrying amount exceeds fair value, the Company determines the implied fair value of the goodwill and, if the carrying amount of the goodwill exceeds its implied fair value, then the Company records an impairment loss equal to the difference.
The Company determines the fair value of its reporting unit based on a reconciliation of the fair value of the reporting unit to the Company’s adjusted market capitalization. The adjusted market capitalization is calculated by multiplying the average share price of the Company’s common stock for the last ten trading days prior to the measurement date by the number of outstanding common shares and adding a control premium.
(s) Long-Lived Assets and Cost Method Investment
Long-lived intangible assets consist of purchased technology, customer-related intangible assets, patents, trademarks, covenants not-to-compete, and software licenses and are initially recorded at fair value. Long-lived intangibles are amortized over their estimated useful lives in a method reflecting the pattern in which the economic benefits are consumed or straight-lined if such pattern cannot be reliably determined.
Property, plant, and equipment are recorded at cost. Depreciation expense is calculated based on the estimated useful lives of the assets by using the straight-line method. Amortization of leasehold improvements is recognized using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Long-lived assets and cost method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, a recoverability test is performed utilizing undiscounted cash flows expected to be generated by that asset or asset group compared to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models or, when available, quoted market values, and third-party appraisals.
(t) Recent Accounting Pronouncements
The FASB issued ASU 2014-09, as amended: Revenue from Contracts with Customers, which has been codified as Accounting Standards Codification 606 (“ASC 606”). ASC 606 requires the Company’s revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASC 606 outlines a five-step model to make the revenue recognition determination and requires new financial statement disclosures. Publicly-traded companies are required to adopt ASC 606 for reporting periods beginning after December 15, 2017, but can adopt early for annual periods beginning after December 15, 2016. The Company is still finalizing its assessment of the impact of adopting the ASU on its consolidated financial statements and is still evaluating which method of adoption it will select.
In January 2016, the FASB issued ASU 2016-01: Financial Instruments — Overall, which requires certain equity investments to be measured at fair value, with changes in fair value recognized in net income. Publicly-traded companies are required to adopt the ASU for reporting periods beginning after December 15, 2017; early adoption is permitted. The Company does not expect this ASU will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02: Leases, which generally requires the Company’s 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. The transition to the ASU will require leases at the beginning of the earliest period presented to be recognized and measured using a modified retrospective approach. The ASU is effective for fiscal years beginning after December 15, 2018, with early application permitted. The Company is evaluating the anticipated impact of adopting the ASU on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight specific cash flow issues, including debt prepayments or debt extinguishment costs. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017. The Company does not expect this ASU will have a material impact on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017. The Company is evaluating the anticipated effect the ASU will have on its consolidated financial statements.
(u) Recently Adopted Accounting Standards
In March 2016, the FASB issued ASU 2016-09: Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payments. The Company early adopted the ASU effective January 1, 2016. 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 effective. Accordingly, the Company recorded a $1.3 million charge to the opening accumulated deficit balance 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.
In November 2015, the FASB issued ASU 2015-17: Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that deferred income tax liabilities and assets be classified as noncurrent in our consolidated balance sheet. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2016, with early application permitted. The Company early adopted the ASU effective January 1, 2015. In accordance with the ASU’s transition requirements, the Company chose to apply the amendments in the update prospectively. As such, periods prior to 2015 have not been retrospectively adjusted. The adoption of this ASU did not have a material impact on the consolidated financial statements.
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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, 2016 and 2015:
|
|
|
|
Level 1 |
|
|
|
Level 2 |
|
|
|
Level 3 |
|
|
|
Total |
|
||||
|
|
(in thousands) |
|
||||||||||||||||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
||||||||||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate debt |
|
$ |
— |
|
$ |
1,501 |
|
$ |
— |
|
$ |
1,501 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
— |
|
1,501 |
|
— |
|
1,501 |
|
||||||||||||
Short-term investments |
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. treasuries |
|
40,008 |
|
— |
|
— |
|
40,008 |
|
||||||||||||
Government agency securities |
|
— |
|
10,012 |
|
— |
|
10,012 |
|
||||||||||||
Corporate debt |
|
— |
|
13,773 |
|
— |
|
13,773 |
|
||||||||||||
Commercial paper |
|
— |
|
2,994 |
|
— |
|
2,994 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
40,008 |
|
$ |
26,779 |
|
$ |
— |
|
$ |
66,787 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
December 31, 2015 |
|
|
|
|
|
|
|
|
|
||||||||||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. treasuries |
|
$ |
9,999 |
|
$ |
— |
|
$ |
— |
|
$ |
9,999 |
|
||||||||
Government agency securities |
|
— |
|
4,998 |
|
— |
|
4,998 |
|
||||||||||||
Commercial paper |
|
— |
|
2,999 |
|
— |
|
2,999 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
9,999 |
|
7,997 |
|
— |
|
17,996 |
|
||||||||||||
Short-term investments |
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. treasuries |
|
94,918 |
|
— |
|
— |
|
94,918 |
|
||||||||||||
Government agency securities |
|
— |
|
12,988 |
|
— |
|
12,988 |
|
||||||||||||
Corporate debt |
|
— |
|
8,144 |
|
— |
|
8,144 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
94,918 |
|
$ |
21,132 |
|
$ |
— |
|
$ |
116,050 |
|
Cash equivalents are highly liquid investments with maturities of three months or less when purchased. These investments are carried at cost, which approximates fair value. All investments classified as available-for-sale are recorded at fair value within short-term investments in the Consolidated Balance Sheets. The Company’s investments classified as Level 1 are based on quoted prices that are available in active markets. The Company’s investments classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency.
|
Note 4 — Investments
At December 31, 2016 and 2015 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, 2016 |
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. treasuries |
|
$ |
40,013 |
|
$ |
— |
|
$ |
(5 |
) |
$ |
40,008 |
|
||||||||
Government agency securities |
|
10,020 |
|
— |
|
(8 |
) |
10,012 |
|
||||||||||||
Corporate debt |
|
13,780 |
|
— |
|
(7 |
) |
13,773 |
|
||||||||||||
Commercial paper |
|
2,994 |
|
— |
|
— |
|
2,994 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
66,807 |
|
$ |
— |
|
$ |
(20 |
) |
$ |
66,787 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
December 31, 2015 |
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. treasuries |
|
$ |
94,935 |
|
$ |
6 |
|
$ |
(23 |
) |
$ |
94,918 |
|
||||||||
Government agency securities |
|
12,985 |
|
3 |
|
— |
|
12,988 |
|
||||||||||||
Corporate debt |
|
8,144 |
|
1 |
|
(1 |
) |
8,144 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
116,064 |
|
$ |
10 |
|
$ |
(24 |
) |
$ |
116,050 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities in a loss position at December 31, 2016 and 2015 were as follows:
|
|
|
|
December 31, 2016 |
|
|
|
December 31, 2015 |
|
||||||||||||
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
Gross |
|
||||
|
|
|
|
Estimated |
|
|
|
Unrealized |
|
|
|
Estimated |
|
|
|
Unrealized |
|
||||
|
|
|
|
Fair Value |
|
|
|
Losses |
|
|
|
Fair Value |
|
|
|
Losses |
|
||||
|
|
(in thousands) |
|
||||||||||||||||||
U.S. treasuries |
|
$ |
20,002 |
|
$ |
(5 |
) |
$ |
64,922 |
|
$ |
(23 |
) |
||||||||
Government agency securities |
|
10,012 |
|
(8 |
) |
— |
|
— |
|
||||||||||||
Corporate debt |
|
13,774 |
|
(7 |
) |
3,353 |
|
(1 |
) |
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
43,788 |
|
$ |
(20 |
) |
$ |
68,275 |
|
$ |
(24 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016 and 2015, 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, 2016 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 or losses for the year ended December 31, 2016. There were no realized losses and minimal realized gains for 2015 and 2014, which were included in “Other, net” in the Consolidated Statements of Operations.
Cost Method Investment
The Company has an ownership interest of less than 20% in a non-marketable investment, Kateeva, Inc. (“Kateeva”). The Company does not exert significant influence over Kateeva and therefore the investment is carried at cost. The carrying value of the investment was $21.0 million at December 31, 2016 and 2015. The investment is included in “Other assets” on the Consolidated Balance Sheet. The investment is subject to a periodic impairment review; as there are no open-market valuations, the impairment analysis requires judgment. The analysis includes assessments of Kateeva’s financial condition, the business outlook for its products and technology, its projected results and cash flow, business valuation indications from recent rounds of financing, the likelihood of obtaining subsequent rounds of financing, and the impact of equity preferences held by Veeco relative to other investors. Fair value of the investment is not estimated unless there are identified events or changes in circumstances that could have a significant adverse effect on the fair value of the investment. No such events or circumstances are present.
|
Note 5 — Business Combinations
PSP
On December 4, 2014 the Company acquired 100% of Solid State Equipment, LLC (“SSEC”) and rebranded the business Veeco Precision Surface Processing (“PSP”). The results of PSP operations have been included in the consolidated financial statements since the date of acquisition. PSP designs and develops wafer wet processing capabilities. Target market applications include semiconductor advanced packaging (including 2.5D and 3D ICs), micro-electromechanical systems (“MEMS”), compound semiconductor (RF, power electronics, LED and others), data storage, photomask, and flat panel displays. PSP further extends the Company’s penetration in the compound semiconductor and MEMS markets and represents the Company’s entry into the advanced packaging market.
The acquisition date fair value of the consideration totaled $145.5 million, net of cash acquired, which consisted of the following:
|
|
Acquisition Date
(December 4, 2014) |
|
|
|
|
(in thousands) |
|
|
Amount paid, net of cash acquired |
|
$ |
145,382 |
|
Working capital adjustment |
|
88 |
|
|
|
|
|
|
|
Acquisition date fair value |
|
$ |
145,470 |
|
|
|
|
|
|
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The Company utilized third-party valuations to estimate the fair value of certain of the acquired tangible and intangible assets:
|
|
Acquisition Date
(December 4, 2014) |
|
|
|
|
(in thousands) |
|
|
Accounts receivable |
|
$ |
9,383 |
|
Inventory |
|
13,812 |
|
|
Other current assets |
|
463 |
|
|
Property, plant, and equipment |
|
6,912 |
|
|
Intangible assets |
|
79,810 |
|
|
|
|
|
|
|
Total identifiable assets acquired |
|
110,380 |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
6,473 |
|
|
Customer deposits |
|
6,039 |
|
|
Deferred tax liability, net |
|
2,705 |
|
|
Other |
|
1,089 |
|
|
|
|
|
|
|
Total liabilities assumed |
|
16,306 |
|
|
|
|
|
|
|
Net identifiable assets acquired |
|
94,074 |
|
|
Goodwill |
|
51,396 |
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
145,470 |
|
|
|
|
|
|
The gross contractual value of the acquired accounts receivable was approximately $10.5 million. The fair value of the accounts receivables is the amount expected to be collected by the Company. Goodwill generated from the acquisition is primarily attributable to expected synergies from future growth and strategic advantages provided through the expansion of product offerings as well as assembled workforce. Approximately 80% of the value of the goodwill is deductible for income tax purposes.
During 2015, the Company finalized the purchase accounting, including taxes and the working capital adjustment under the purchase agreement. Based on the final adjustments, net working capital increased $0.7 million, goodwill decreased $0.1 million, deferred tax liabilities decreased $0.2 million, and a lease-related asset retirement obligation of $0.8 million was recognized.
The classes of intangible assets acquired and the estimated useful life of each class is presented in the table below:
|
|
Acquisition Date |
|
|||
|
|
(December 4, 2014) |
|
|||
|
|
Amount |
|
Useful life |
|
|
|
|
(in thousands) |
|
|
|
|
Technology |
|
$ |
39,950 |
|
10 years |
|
Customer relationships |
|
34,310 |
|
14 years |
|
|
Backlog |
|
3,340 |
|
6 months |
|
|
Non-compete agreements |
|
1,130 |
|
2 years |
|
|
Trademark and tradenames |
|
1,080 |
|
1 year |
|
|
|
|
|
|
|
|
|
Intangible assets acquired |
|
$ |
79,810 |
|
|
|
|
|
|
|
|
|
|
The Company determined the estimated fair value of the identifiable intangible assets based on various factors including: cost, discounted cash flow, income method, loss-of-revenue/income method, and relief-from-royalty method in determining the purchase price allocation.
During 2014, the Company recognized $3.2 million of acquisition related costs that are included in “Selling, general, and administrative” in the Consolidated Statements of Operations.
The amounts of revenue and income (loss) from continuing operations before income taxes of PSP included in the Company’s consolidated statement of operations from the acquisition date (December 4, 2014) to the period ending December 31, 2014 are as follows:
|
|
Total |
|
|
|
|
(in thousands) |
|
|
Revenue |
|
$ |
7,906 |
|
Loss from operations before income taxes |
|
$ |
(3,011 |
) |
The following represents the unaudited pro forma Consolidated Statements of Operations as if PSP had been included in the Company’s consolidated results for the periods indicated. These amounts have been calculated after applying the Company’s accounting policies to material amounts and also adjusting the results of PSP to reflect the additional amortization and depreciation that would have been expensed assuming the fair value adjustments to the acquired assets had been applied on January 1, 2013:
|
|
December 31, |
|
|
|
|
2014 |
|
|
|
|
(in thousands) |
|
|
Revenue |
|
$ |
447,089 |
|
Loss from operations before income taxes |
|
$ |
(68,715 |
) |
|
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, 2014 |
|
$ |
238,158 |
|
$ |
123,199 |
|
$ |
114,959 |
|
||||||
Purchase price adjustments |
|
(51 |
) |
— |
|
(51 |
) |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2015 and 2016 |
|
$ |
238,107 |
|
$ |
123,199 |
|
$ |
114,908 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
The Company performed its annual goodwill impairment test during the year ended December 31, 2016. The fair value of the Company’s reporting unit exceeded the carrying amount and therefore goodwill was not impaired. In the future, a significant decline in the market price of the Company’s common stock could indicate a decline in the fair value of the Company’s reporting unit such that goodwill becomes impaired.
During 2014, the Company successfully demonstrated its FAST-ALD technology for flexible OLED encapsulation. But, subsequent to the Company’s annual goodwill impairment test in 2014, the incumbent deposition technology had progressed to satisfy current market requirements, which required an additional impairment test to be performed in the fourth quarter of 2014. After estimating the fair value of significant tangible and intangible long-lived assets related to the Atomic Layer Deposition (“ALD”) business, the Company recorded non-cash impairment charges of $28.0 million related to goodwill and $25.9 million related to other long-lived assets, including $17.4 million related to customer relationships, $4.8 million related to in-process research and development, and $3.6 million related to certain tangible assets.
During 2016, the Company decided to further significantly reduce future investments in its ALD technology development and, as a result, recorded non-cash impairment charges of its remaining ALD assets, including $54.3 million for the full impairment of the intangible purchased ALD technology. The impairment charges were based on projected cash flows that required the use of unobservable inputs.
The components of purchased intangible assets were as follows:
|
|
|
|
|
|
December 31, 2016 |
|
|
|
December 31, 2015 |
|
||||||||||||||||||||||
|
|
Weighted |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
||||||
|
|
Average Remaining |
|
|
|
Gross |
|
|
|
Amortization |
|
|
|
|
|
|
|
Gross |
|
|
|
Amortization |
|
|
|
|
|
||||||
|
|
Amortization |
|
|
|
Carrying |
|
|
|
and |
|
|
|
Net |
|
|
|
Carrying |
|
|
|
and |
|
|
|
Net |
|
||||||
|
|
Period |
|
|
|
Amount |
|
|
|
Impairment |
|
|
|
Amount |
|
|
|
Amount |
|
|
|
Impairment |
|
|
|
Amount |
|
||||||
|
|
(in years) |
|
(in thousands) |
|
||||||||||||||||||||||||||||
Technology |
|
7.3 |
|
$ |
149,198 |
|
$ |
113,904 |
|
$ |
35,294 |
|
$ |
222,358 |
|
$ |
120,496 |
|
$ |
101,862 |
|
||||||||||||
Customer relationships |
|
11.9 |
|
47,885 |
|
28,659 |
|
19,226 |
|
47,885 |
|
22,470 |
|
25,415 |
|
||||||||||||||||||
Trademarks and tradenames |
|
4.3 |
|
2,590 |
|
1,948 |
|
642 |
|
2,730 |
|
1,937 |
|
793 |
|
||||||||||||||||||
Indefinite-lived trademark |
|
— |
|
2,900 |
|
— |
|
2,900 |
|
2,900 |
|
— |
|
2,900 |
|
||||||||||||||||||
Other |
|
2.9 |
|
2,026 |
|
1,710 |
|
316 |
|
6,241 |
|
5,537 |
|
704 |
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Total |
|
8.9 |
|
$ |
204,599 |
|
$ |
146,221 |
|
$ |
58,378 |
|
$ |
282,114 |
|
$ |
150,440 |
|
$ |
131,674 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets primarily consist of patents, licenses, customer backlog, and non-compete agreements.
Based on the intangible assets recorded at December 31, 2016, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:
|
|
|
|
Amortization |
|
|
|
|
(in thousands) |
|
|||
2017 |
|
$ |
11,470 |
|
||
2018 |
|
9,893 |
|
|||
2019 |
|
8,608 |
|
|||
2020 |
|
7,530 |
|
|||
2021 |
|
5,491 |
|
|||
Thereafter |
|
12,486 |
|
|||
|
|
|
|
|||
Total |
|
$ |
55,478 |
|
||
|
|
|
|
|
|
Note 7 — Inventories
Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual costs on a first-in, first-out basis. Inventories consist of the following:
|
|
|
December 31, |
|
||||||
|
|
|
2016 |
|
|
|
2015 |
|
||
|
|
(in thousands) |
|
|||||||
Materials |
|
$ |
46,457 |
|
$ |
42,373 |
|
|||
Work-in-process |
|
25,250 |
|
30,327 |
|
|||||
Finished goods |
|
5,356 |
|
4,769 |
|
|||||
|
|
|
|
|
|
|||||
Total |
|
$ |
77,063 |
|
$ |
77,469 |
|
|||
|
|
|
|
|
|
|
|
|
Note 8 — Property, Plant, and Equipment and Assets Held for Sale
Property and equipment, net, consist of the following:
|
|
December 31, |
|
Average |
|
||||
|
|
2016 |
|
2015 |
|
Useful Life |
|
||
|
|
(in thousands) |
|
|
|
||||
Land |
|
$ |
5,669 |
|
$ |
9,592 |
|
N/A |
|
Building and improvements |
|
50,814 |
|
54,622 |
|
10-40 years |
|
||
Machinery and equipment(1) |
|
99,370 |
|
110,075 |
|
3-10 years |
|
||
Leasehold improvements |
|
3,652 |
|
5,554 |
|
3-7 years |
|
||
|
|
|
|
|
|
|
|
||
Gross property, plant and equipment |
|
159,505 |
|
179,843 |
|
|
|
||
Less: accumulated depreciation and amortization |
|
98,859 |
|
100,253 |
|
|
|
||
|
|
|
|
|
|
|
|
||
Net property, plant and equipment |
|
$ |
60,646 |
|
$ |
79,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Machinery and equipment also includes software, furniture and fixtures
Depreciation expense was $13.4 million, $12.2 million, and $11.4 million for the years ended December 31, 2016, 2015, and 2014, respectively. During 2016, the Company decided to significantly reduce future investments in its ALD technology development and, as a result, recorded a charge for impairment of its ALD assets, including a $3.3 million impairment of property, plant, and equipment.
As part of the Company’s efforts to reduce costs, enhance efficiency and streamline operations, the Company removed certain lab equipment that is no longer required and recorded a non-cash impairment charge of $6.2 million for the year ended December 31, 2016. Additionally, as part of that initiative, the Company listed its two facilities in South Korea for sale. When each facility was reclassified as held for sale, the Company determined that the carrying values of the buildings exceeded their fair market values, less cost to sell, and recorded net impairment charges of $4.5 million for the year ended December 31, 2016. Both facilities were sold before the end of 2016 at prices that approximated the revised carrying values.
The Company also has a property in St. Paul, Minnesota that was classified as held for sale in 2014. At that time, the Company determined that the carrying value of this property exceeded the fair value, less cost to sell, and recorded an impairment charge of approximately $1.9 million for the year ended December 31, 2014. The Company continued to classify the property as held for sale throughout 2015. In early 2016, the Company recorded an additional impairment charge of approximately $1.2 million to reflect changes in market conditions that impacted the fair value of the assets. The Company continues to actively market the property for sale. However, the Company can no longer make the assessment that the assets will be sold within the next twelve months. As such, the land and building no longer meet the criteria to be classified as assets held for sale on the balance sheet and were reclassified to “Property, plant and equipment, net” in the Consolidated Balance Sheets at its carrying value of $3.6 million, which approximates its fair market value.
During the year ended December 31, 2014, the Company classified certain property, plant, and equipment related to the Company’s research and demonstration labs in Asia as held for sale, and recorded an impairment charge of approximately $1.6 million. During the year ended December 31, 2015, the Company sold these assets for $1.0 million, which approximated carrying value.
Finally, during the year ended December 31, 2014, the Company recognized additional asset impairment charges of $0.7 million relating to assets that were abandoned during the year.
|
Note 9 — Accrued Expenses and Other Liabilities
The components of accrued expenses and other current liabilities were as follows:
|
|
|
|
December 31, |
|
|
|
|
|
||||||
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
||
|
|
(in thousands) |
|
|
|
|
|
||||||||
Payroll and related benefits |
|
$ |
18,780 |
|
$ |
30,917 |
|
|
|
|
|
||||
Warranty |
|
4,217 |
|
8,159 |
|
|
|
|
|
||||||
Professional fees |
|
1,827 |
|
2,224 |
|
|
|
|
|
||||||
Installation |
|
1,382 |
|
1,110 |
|
|
|
|
|
||||||
Sales, use, and other taxes |
|
1,282 |
|
1,132 |
|
|
|
|
|
||||||
Restructuring liability |
|
1,796 |
|
824 |
|
|
|
|
|
||||||
Other |
|
3,917 |
|
5,027 |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
33,201 |
|
$ |
49,393 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits and deferred revenue
Customer deposits totaled $22.2 million and $28.2 million at December 31, 2016 and 2015, respectively, which are included in “Customer deposits and deferred revenue” in the Consolidated Balance Sheets.
|
Note 10 — Restructuring Charges
During 2016, additional accruals were recognized and payments made related to previous years’ restructuring initiatives. In addition, in 2016, the Company undertook additional restructuring activities as part of its initiative to streamline operations, enhance efficiency, and reduce costs. As a result of these actions, the Company notified approximately 50 employees of their termination from the Company and recorded restructuring charges related to these actions of $4.4 million, consisting of $3.3 million of personnel severance and related costs and $1.1 million of facility closing costs. In addition, the Company decided to significantly reduce future investments in its ALD technology development, which impacted approximately 25 additional employees. As a result, the Company recorded personnel severance and related restructuring charges of $1.2 million. Over the next year, the Company expects to incur additional restructuring costs of $2 million to $5 million as it finalizes all of these activities.
During 2015, charges of $2.7 million were recognized and payments made related to the 2014 closing of the Ft. Collins, Colorado and Camarillo, California facilities. In 2015, the Company announced the closing of its Hyeongok-ri, South Korea facility and reduced the workforce, including 23 employees whose positions were eliminated, resulting in restructuring costs of $1.1 million. And in an effort to better align the Company’s cost structure with the then recently observed weakness in the LED market, the Company incurred $0.9 million to reduce spending primarily through the reduction of 16 employees and 12 temporary staff.
During 2014, the Company announced the closing of its Ft. Collins, Colorado and Camarillo, California facilities. Business activities formerly conducted at these sites were transferred to the Company’s Plainview, New York facility, and the Company recorded $0.4 million of facility closing costs. The Company also took additional measures to improve profitability and notified 93 employees of their termination from the Company and recorded $4.0 million of personnel severance and related costs. These actions were substantially complete at the end of 2014.
The following table shows the amounts incurred and paid for restructuring activities during the years ended December 31, 2016, 2015, and 2014 and the remaining accrued balance of restructuring costs at December 31, 2016, which is included in “Accrued expenses and other current liabilities” in the Consolidated Balance Sheets:
|
|
|
|
Personnel |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
Severance and |
|
|
|
Facility |
|
|
|
|
|
|||
|
|
|
|
Related Costs |
|
|
|
Related Costs |
|
|
|
Total |
|
|||
|
|
|
|
(in thousands) |
|
|
|
|||||||||
Balance at December 31, 2013 |
|
$ |
533 |
|
$ |
— |
|
$ |
533 |
|
||||||
Provision |
|
4,012 |
|
382 |
|
4,394 |
|
|||||||||
Payments |
|
(3,117 |
) |
(382 |
) |
(3,499 |
) |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2014 |
|
1,428 |
|
— |
|
1,428 |
|
|||||||||
Provision |
|
3,513 |
|
1,166 |
|
4,679 |
|
|||||||||
Payments |
|
(4,117 |
) |
(1,166 |
) |
(5,283 |
) |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2015 |
|
824 |
|
— |
|
824 |
|
|||||||||
Provision |
|
4,544 |
|
1,098 |
|
5,642 |
|
|||||||||
Changes in estimate |
|
(2 |
) |
— |
|
(2 |
) |
|||||||||
Payments |
|
(3,570 |
) |
(1,098 |
) |
(4,668 |
) |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2016 |
|
$ |
1,796 |
|
$ |
— |
|
$ |
1,796 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 — Commitments and Contingencies
Warranty
Warranties are typically valid for one year from the date of system final acceptance, and the Company estimates the costs that may be incurred under the warranty. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs and is affected by product failure rates, material usage, and labor costs incurred in correcting product failures during the warranty period. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs.
Changes in the Company’s product warranty reserves were as follows:
|
|
|
|
December 31, |
|
|||||||||||
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|||
|
|
(in thousands) |
|
|||||||||||||
Balance, beginning of the year |
|
$ |
8,159 |
|
$ |
5,411 |
|
$ |
5,662 |
|
||||||
Addition for new warranties issued |
|
3,916 |
|
7,873 |
|
3,484 |
|
|||||||||
Addition from PSP acquisition |
|
— |
|
— |
|
809 |
|
|||||||||
Settlements |
|
(6,433 |
) |
(3,551 |
) |
(3,802 |
) |
|||||||||
Changes in estimate |
|
(1,425 |
) |
(1,574 |
) |
(742 |
) |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of the year |
|
$ |
4,217 |
|
$ |
8,159 |
|
$ |
5,411 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Minimum Lease Commitments
Minimum lease commitments at December 31, 2016 for property and equipment under operating lease agreements (exclusive of renewal options) are payable as follows:
|
|
Operating |
|
|
|
|
Leases |
|
|
Payments due by period: |
|
(in thousands) |
|
|
2017 |
|
$ |
3,281 |
|
2018 |
|
2,292 |
|
|
2019 |
|
1,900 |
|
|
2020 |
|
1,592 |
|
|
2021 |
|
1,203 |
|
|
Thereafter |
|
3,605 |
|
|
|
|
|
|
|
Total |
|
$ |
13,873 |
|
|
|
|
|
|
Lease expense was $2.5 million, $2.3 million, and $2.3 million for the years ended December 31, 2016, 2015, and 2014, respectively. In addition, the Company is obligated under such leases for certain other expenses, including real estate taxes and insurance.
Legal Proceedings
Veeco and certain other parties were named as defendants in a lawsuit filed on April 25, 2013 in the Superior Court of California, County of Sonoma. The plaintiff in the lawsuit, Patrick Colbus, sought unspecified damages and asserted claims that he suffered burns and other injuries while cleaning a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleged, among other things, that the molecular beam epitaxy system was defective and that Veeco failed to adequately warn of the potential risks of the system. In April 2016, the parties settled the lawsuit, without any admission of wrongdoing. The settlement amount was fully covered by Veeco’s insurance.
The Company is involved in various other legal proceedings arising in the normal course of business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.
Concentrations of Credit Risk
The Company depends on purchases from its ten largest customers, which accounted for 73% and 75% of net accounts receivable at December 31, 2016 and 2015, respectively.
Customers who accounted for more than 10% of net accounts receivable or net sales are as follows:
|
|
Accounts Receivable |
|
Net Sales |
||||||
|
|
|
|
|
||||||
|
|
Year ended December 31, |
|
For the Year Ended December 31, |
||||||
Customer |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
2014 |
Customer A |
|
23% |
|
* |
|
13% |
|
* |
|
* |
Customer B |
|
17% |
|
* |
|
* |
|
* |
|
* |
Customer C |
|
* |
|
23% |
|
* |
|
* |
|
* |
Customer D |
|
* |
|
* |
|
* |
|
20% |
|
* |
Customer E |
|
* |
|
* |
|
* |
|
12% |
|
* |
Customer F |
|
* |
|
* |
|
* |
|
* |
|
15% |
Customer G |
|
* |
|
* |
|
* |
|
* |
|
11% |
* Less than 10% of aggregate accounts receivable or net sales
The Company manufactures and sells its products to companies in different geographic locations. Refer to Note 18, “Segment Reporting and Geographic Information,” for additional information. In certain instances, the Company requires deposits from its customers for a portion of the sales price in advance of shipment and performs periodic credit evaluations on its customers. Where appropriate, the Company requires letters of credit on certain non-U.S. sales arrangements. Receivables generally are due within 30 to 90 days from the date of invoice.
Suppliers
The Company outsources certain functions to third parties, including the manufacture of its MOCVD systems. While the Company primarily relies on one supplier for the manufacturing of these systems, the Company maintains a minimum level of internal manufacturing capability for these systems. The failure of the Company’s present suppliers to meet their contractual obligations under its supply arrangements and the Company’s inability to make alternative arrangements or resume the manufacture of these systems could have a material adverse effect on the Company’s revenues, profitability, cash flows, and relationships with its customers.
In addition, certain of the components and sub-assemblies included in the Company’s products are obtained from a single source or a limited group of suppliers. The Company’s inability to develop alternative sources, if necessary, could result in a prolonged interruption in supply or a significant increase in the price of one or more components, which could adversely affect the Company’s operating results.
The Company had deposits with its suppliers of $7.8 million and $14.6 million at December 31, 2016 and 2015, respectively, that were included in “Prepaid expenses and other current assets” on the Consolidated Balance Sheets.
Purchase Commitments
The Company had purchase commitments of $72.6 million at December 31, 2016, all of which will come due within one year. Purchase commitments are primarily for inventory used in manufacturing products. The Company have $7.8 million of offsetting supplier deposits against these purchase commitments as of December 31, 2016.
Bank Guarantees
The Company has bank guarantees and letters of credit issued by a financial institution on its behalf as needed. At December 31, 2016, outstanding bank guarantees and letters of credit totaled $5.0 million, and unused bank guarantees and letters of credit of $59.4 million were available to be drawn upon.
|
Note 12 — Debt
As of December 31, 2016 and 2015, debt consists of a mortgage note payable with a carrying value of $1.2 million and $1.5 million, respectively. See Note 20, “Subsequent Events,” for information concerning the Company’s issuance of $345.0 million in aggregate principal amount of 2.7% convertible senior unsecured notes due 2023 in January 2017. The mortgage note payable is secured by certain land and buildings with a carrying value of $3.3 million at December 31, 2016 and 2015. The annual interest rate on the mortgage is 7.91%, and the final payment is due on January 1, 2020. The Company determined the mortgage is a Level 3 liability in the fair-value hierarchy and estimated its fair value as $1.2 million and $1.6 million at December 31, 2016 and 2015, respectively, using a discounted cash flow model. Payments due under the note are as follows:
|
|
|
Total |
|
|
|
|
|
(in thousands) |
|
|
2017 |
|
|
368 |
|
|
2018 |
|
|
398 |
|
|
2019 |
|
|
428 |
|
|
|
|
|
|
|
|
Total |
|
|
1,194 |
|
|
Less current portion |
|
|
368 |
|
|
|
|
|
|
|
|
Total (less current maturities) |
|
|
$ |
826 |
|
|
|
|
|
|
|
See Note 20, “Subsequent Events,” for additional information regarding the Company’s Convertible Notes.
|
Note 13 — Derivative Financial Instruments
The Company is exposed to financial market risks arising from changes in currency exchange rates. Changes in currency exchange rate changes 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.
The Company did not have any outstanding derivative contracts at December 31, 2016 and 2015. The following table shows the gains and (losses) from currency exchange derivatives during the years ended December 31, 2016, 2015, and 2014, which are included in “Other, net” in the Consolidated Statements of Operations:
|
|
|
Year ended December 31, |
|
|||||||||||
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|||
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|||
Foreign currency exchange forwards |
|
|
$ |
219 |
|
|
|
$ |
— |
|
|
|
$ |
(89 |
) |
Foreign currency collar |
|
|
— |
|
|
|
— |
|
|
|
(457 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
$ |
219 |
|
|
|
$ |
— |
|
|
|
$ |
(546 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14 — Stockholders’ Equity
Accumulated Other Comprehensive Income
The following table presents the changes in the balances of each component of AOCI, net of tax:
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
||||
|
|
|
Foreign Currency |
|
|
|
Minimum Pension |
|
|
|
Gains (Losses) on |
|
|
|
|
|
||||
|
|
|
Translation |
|
|
|
Liability |
|
|
|
Securities |
|
|
|
Total |
|
||||
|
|
|
(in thousands) |
|
||||||||||||||||
Balance at December 31, 2013 |
|
|
$ |
5,326 |
|
|
|
$ |
(736 |
) |
|
|
$ |
31 |
|
|
|
$ |
4,621 |
|
Other comprehensive income (loss) before reclassifications |
|
|
149 |
|
|
|
(145 |
) |
|
|
51 |
|
|
|
55 |
|
||||
Amounts reclassified from AOCI |
|
|
(3,142 |
) |
|
|
— |
|
|
|
(65 |
) |
|
|
(3,207 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income (loss) |
|
|
(2,993 |
) |
|
|
(145 |
) |
|
|
(14 |
) |
|
|
(3,152 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at December 31, 2014 |
|
|
2,333 |
|
|
|
(881 |
) |
|
|
17 |
|
|
|
1,469 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income (loss) |
|
|
(87 |
) |
|
|
15 |
|
|
|
(49 |
) |
|
|
(121 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at December 31, 2015 |
|
|
2,246 |
|
|
|
(866 |
) |
|
|
(32 |
) |
|
|
1,348 |
|
||||
Other comprehensive income (loss), before reclassifications |
|
|
(19 |
) |
|
|
— |
|
|
|
(6 |
) |
|
|
(25 |
) |
||||
Amounts reclassified from AOCI |
|
|
(430 |
) |
|
|
866 |
|
|
|
18 |
|
|
|
454 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income (loss) |
|
|
(449 |
) |
|
|
866 |
|
|
|
12 |
|
|
|
429 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at December 31, 2016 |
|
|
$ |
1,797 |
|
|
|
$ |
— |
|
|
|
$ |
(20 |
) |
|
|
$ |
1,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not allocate additional tax expense (benefit) to other comprehensive income (loss) for all years presented as the Company is in a full valuation allowance position such that a deferred tax asset related to amounts recognized in other comprehensive income is not regarded as realizable on a more-likely-than-not basis.
During 2016, the Company finalized the process to terminate a defined benefit plan. As a result, the Company reclassified the minimum pension liability of $0.9 million, net of a tax benefit of $0.4 million, from “Accumulated other comprehensive income” in the Consolidated Balance Sheets to “Other, net” in the Consolidated Statements of Operations. Additionally the Company completed its plan to liquidate its ALD subsidiary in Korea. As a result of this liquidation, a cumulative translation gain of $0.4 million was reclassified from “Accumulated other comprehensive income” to “Other, net” in the Consolidated Statements of Operations.
During 2015, there were minimal realized gains reclassified from “Accumulated other comprehensive income” in the Consolidated Balance Sheets to “Other, net” in the Consolidated Statements of Operations.
Preferred Stock
The Board of Directors has authority under the Company’s Certificate of Incorporation to issue shares of preferred stock, par value $0.01, with voting and economic rights to be determined by the Board of Directors. As of December 31, 2016 no preferred shares have been issued.
Treasury Stock
On October 28, 2015, the Board of Directors authorized the repurchase of up to $100 million of the Company’s outstanding common stock through October 28, 2017. Repurchases are expected to be made from time to time on the open market or in privately negotiated transactions in accordance with applicable federal securities laws. During 2016, the Company purchased 0.7 million shares for $13.0 million. At December 31, 2016, $22.3 million of the $100 million had been utilized.
The Company records treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid-in capital. If the Company reissues treasury stock at an amount below its acquisition cost and if additional paid-in capital associated with prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price, this difference is charged to accumulated deficit.
|
Note 15 — Stock Plans
Share-based incentive awards are provided to employees under the terms of the Company’s equity incentive compensation plans (the “Plans”), which are administered by the Compensation Committee of the Board of Directors. The 2010 Plan was approved by the Company’s shareholders. The Company’s employees, non-employee directors, and consultants are eligible to receive awards under the 2010 Stock Incentive Plan (as amended to date, the “2010 Plan”), which can include non-qualified stock options, incentive stock options, restricted share awards (“RSAs”), restricted share units (“RSUs”), performance share awards (“PSAs”), performance share units (“PSUs”), share appreciation rights, dividend equivalent rights, or any combination thereof. The Company settles awards under the Plans with newly issued shares or with shares held in treasury.
In 2013, the Board of Directors granted equity awards to certain employees under the Company’s 2013 Inducement Stock Incentive Plan (the “Inducement Plan”). The Company issued 124,500 stock option shares and 87,000 RSUs under this plan. Stock options under this plan vest over a three year period and have a 10-year term, and RSUs under this plan vest over a two or four year period. At December 31, 2013, the Inducement Plan was merged into the 2010 Plan and is considered an inactive plan with no further shares available for grant. At December 31, 2016, there are 77,500 option shares and 5,200 RSUs outstanding under the Inducement Plan.
The Company is authorized to issue up to 10.6 million shares under the 2010 Plan, including additional shares authorized under plan amendments approved by shareholders in 2016 and 2013. Option awards are granted with an exercise price equal to the closing price of the Company’s common stock on the trading day prior to the date of grant; option awards generally vest over a three year period and have a seven or ten year term. RSAs and RSUs generally vest over one to five years. Certain option and share awards provide for accelerated vesting if there is a change in control, as defined in the 2010 Plan. At December 31, 2016, there are 1.5 million option shares and 0.6 million RSUs and PSUs outstanding under the 2010 Plan.
During 2016 the Company’s Board of Directors approved the 2016 Employee Stock Purchase Plan (the “ESPP Plan”). The Company is authorized to issue up to 750,000 shares under the 2016 ESPP Plan. Under the ESPP Plan, substantially all employees in the U.S. may purchase the Company’s common stock through payroll deductions at a price equal to 85 percent of the lower of the fair market value of the Company’s common stock at the beginning or end of each six-month Offer Period, as defined in the ESPP Plan, and subject to certain limits. The ESPP Plan was approved by the Company’s shareholders.
Shares Reserved for Future Issuance
At December 31, 2016, the Company has 6.3 million shares reserved to cover exercises of outstanding stock options, vesting of RSUs, and additional grants under the 2010 Plan. At December 31, 2016, the Company has 0.7 million shares reserved to cover future issuances under the ESPP Plan.
Share-Based Compensation
The Company recognized share-based compensation in the following line items in the Consolidated Statements of Operations for the periods indicated:
|
|
|
|
For the year ended December 31, |
|
|||||||||||
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|||
|
|
|
|
(in thousands) |
|
|
|
|
|
|||||||
Cost of sales |
|
|
|
$ |
1,956 |
|
|
|
$ |
2,495 |
|
|
|
$ |
2,456 |
|
Research and development |
|
|
|
3,324 |
|
|
|
4,031 |
|
|
|
4,498 |
|
|||
Selling, general, and administrative |
|
|
|
10,433 |
|
|
|
11,474 |
|
|
|
11,859 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
|
$ |
15,713 |
|
|
|
$ |
18,000 |
|
|
|
$ |
18,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not realize any tax benefits associated with share-based compensation for the years ended December 31, 2016, 2015, and 2014, due to the full valuation allowance on its U.S. deferred tax assets. See Note 17, “Income Taxes” for additional information. The Company capitalized an insignificant amount of share-based compensation into inventory for the years ended December 31, 2016, 2015, and 2014.
Unrecognized share-based compensation costs at December 31, 2016 are summarized below:
|
|
|
|
Unrecognized |
|
|
|
Weighted |
|
|
|
|
|
|
Share-Based |
|
|
|
Average Period |
|
|
|
|
|
|
Compensation |
|
|
|
Expected to be |
|
|
|
|
|
|
Costs |
|
|
|
Recognized |
|
|
|
|
|
|
(in thousands) |
|
|
|
(in years) |
|
|
Stock option awards |
|
|
|
$ |
660 |
|
|
|
0.6 |
|
Restricted stock units |
|
|
|
3,034 |
|
|
|
2.0 |
|
|
Restricted stock awards |
|
|
|
20,669 |
|
|
|
2.7 |
|
|
Performance share units |
|
|
|
4,556 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized share-based compensation cost |
|
|
|
$ |
28,919 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Awards
Stock options are awards issued to employees that entitle the holder to purchase shares of the Company’s stock at a fixed price. At December 31, 2016, options outstanding that have vested and are expected to vest are as follows:
|
|
|
|
|
Weighted |
|
|
|
||||||
|
Number |
|
Weighted |
|
Average |
|
Aggregate |
|
||||||
|
of |
|
Average |
|
Remaining |
|
Intrinsic |
|
||||||
|
Shares |
|
Exercise Price |
|
Contractual Life |
|
Value |
|
||||||
|
|
(in thousands) |
|
|
|
|
|
(in years) |
|
|
(in thousands) |
|
||
Vested |
|
1,449 |
|
|
$ |
35.39 |
|
|
4.9 |
|
|
$ |
39 |
|
Expected to vest |
|
127 |
|
|
32.79 |
|
|
5.1 |
|
|
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total |
|
1,576 |
|
|
$ |
35.18 |
|
|
4.9 |
|
|
$ |
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value represents the difference between the option exercise price and $29.15, the closing price of the Company’s common stock on December 30, 2016, the last trading day of the Company’s fiscal year as reported on The NASDAQ Stock Market.
Additional information with respect to stock option activity:
|
|
|
|
Weighted |
|
|||
|
|
Number of |
|
Average |
|
|||
|
|
Shares |
|
Exercise Price |
|
|||
|
|
|
(in thousands) |
|
|
|
|
|
Outstanding at December 31, 2013 |
|
|
2,598 |
|
|
$ |
29.98 |
|
Granted |
|
|
509 |
|
|
33.05 |
|
|
Exercised |
|
|
(561 |
) |
|
23.88 |
|
|
Expired or forfeited |
|
|
(155 |
) |
|
36.22 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014 |
|
|
2,391 |
|
|
31.65 |
|
|
Granted |
|
|
17 |
|
|
30.22 |
|
|
Exercised |
|
|
(192 |
) |
|
12.95 |
|
|
Expired or forfeited |
|
|
(152 |
) |
|
38.15 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015 |
|
|
2,064 |
|
|
32.91 |
|
|
Granted |
|
|
— |
|
|
— |
|
|
Exercised |
|
|
(194 |
) |
|
12.18 |
|
|
Expired or forfeited |
|
|
(294 |
) |
|
34.44 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016 |
|
|
1,576 |
|
|
$ |
35.18 |
|
|
|
|
|
|
|
|
|
|
The following table summarizes stock option information at December 31, 2016:
|
|
Options Outstanding |
|
Options Exercisable |
|
||||||||||||||||||||
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|||||
|
|
|
|
|
Average |
|
Weighted |
|
|
|
|
Aggregate |
|
Average |
|
Weighted |
|
||||||||
Range of |
|
|
|
|
Remaining |
|
Average |
|
|
|
|
Intrinsic |
|
Remaining |
|
Average |
|
||||||||
Exercise Prices |
|
Shares |
|
Contractual Life |
|
Exercise Price |
|
Shares |
|
Value |
|
Contractual Life |
|
Exercise Price |
|
||||||||||
|
|
(in thousands) |
|
(in years) |
|
|
|
(in thousands) |
|
(in thousands) |
|
(in years) |
|
|
|
|
|||||||||
$20.00 – $30.00 |
|
|
32 |
|
|
5.8 |
|
|
$ |
28.18 |
|
|
29 |
|
|
$ |
39 |
|
|
5.9 |
|
|
$ |
28.04 |
|
$30.01 – $40.00 |
|
|
1,336 |
|
|
5.1 |
|
|
33.09 |
|
|
1,212 |
|
|
— |
|
|
5.1 |
|
|
33.12 |
|
|||
$40.01 – $50.00 |
|
|
73 |
|
|
2.7 |
|
|
45.93 |
|
|
73 |
|
|
— |
|
|
2.7 |
|
|
45.96 |
|
|||
$50.01 – $60.00 |
|
|
135 |
|
|
4.4 |
|
|
51.70 |
|
|
135 |
|
|
— |
|
|
4.4 |
|
|
51.70 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
1,576 |
|
|
4.9 |
|
|
$ |
35.18 |
|
|
1,449 |
|
|
$ |
39 |
|
|
4.9 |
|
|
$ |
35.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model.
Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards. No options were granted in 2016. The weighted average estimated values of employee stock option grants as well as the weighted average assumptions that were used in calculating such values during fiscal years 2015 and 2014 were based on estimates at the date of grant as follows:
|
|
Year ended December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Weighted average fair value |
|
$ |
10.58 |
|
$ |
11.58 |
|
Dividend yield |
|
0% |
|
0% |
|
||
Expected volatility factor(1) |
|
44% |
|
44% |
|
||
Risk-free interest rate(2) |
|
1.18% |
|
1.19% |
|
||
Expected life (in years)(3) |
|
3.9 |
|
3.9 |
|
(1) |
Expected volatility is measured using historical daily price changes of the Company’s stock over the respective expected term of the options and the implied volatility derived from the market prices of the Company’s traded options. |
(2) |
The risk-free rate for periods within the contractual term of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant. |
(3) |
The expected life is the number of years the Company estimates that options will be outstanding prior to exercise. The Company’s computation of expected life was determined using a lattice-based model incorporating historical post vest exercise and employee termination behavior. |
The following table summarizes information on options exercised for the periods indicated:
|
|
Year ended December 31, |
|
|||||||
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
|
(in thousands) |
|
|||||||
Cash received from options exercised |
|
$ |
494 |
|
$ |
2,233 |
|
$ |
12,056 |
|
Intrinsic value of options exercised |
|
$ |
1,165 |
|
$ |
2,089 |
|
$ |
8,390 |
|
RSAs, RSUs, PSAs, PSUs
RSAs are stock awards issued to employees that are subject to specified restrictions and a risk of forfeiture. RSUs are stock awards issued to employees that entitle the holder to receive shares of common stock as the awards vest. PSAs and PSUs are awards that result in a payment to a grantee in shares of common stock if certain performance goals and vesting criteria are achieved. These awards typically vest over one to five years and vesting is subject to the grantee’s continued service with the Company and, in the case of performance awards, meeting the performance condition. The fair value of the awards is determined and fixed based on the closing price of the Company’s common stock on the trading day prior to the date of grant.
The following table summarizes the activity of these awards:
|
|
|
|
Weighted |
|
|||
|
|
|
|
Average |
|
|||
|
|
Number of |
|
Grant Date |
|
|||
|
|
Shares |
|
Fair Value |
|
|||
|
|
(in thousands) |
|
|
|
|||
Outstanding - December 31, 2013 |
|
|
1,158 |
|
|
$ |
34.93 |
|
Granted |
|
|
395 |
|
|
34.18 |
|
|
Released |
|
|
(183 |
) |
|
38.65 |
|
|
Forfeited |
|
|
(133 |
) |
|
33.66 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31, 2014 |
|
|
1,237 |
|
|
34.27 |
|
|
Granted |
|
|
672 |
|
|
30.33 |
|
|
Released |
|
|
(389 |
) |
|
35.65 |
|
|
Forfeited |
|
|
(122 |
) |
|
34.46 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31, 2015 |
|
|
1,398 |
|
|
|
31.97 |
|
Granted |
|
|
1,166 |
|
|
17.59 |
|
|
Released |
|
|
(349 |
) |
|
32.73 |
|
|
Forfeited |
|
|
(266 |
) |
|
27.31 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31, 2016 |
|
|
1,949 |
|
|
$ |
23.85 |
|
|
|
|
|
|
|
|
|
|
For performance awards, the final number of shares earned will vary depending on the achievement of the actual results relative to the performance targets. Each performance award is included in the table above at the grant date target share amount until the end of the performance period (if not previously forfeited). The total fair value of shares that vested during the years ended December 31, 2016, 2015, and 2014 was $7.5 million, $9.6 million, and $6.2 million, respectively.
Employee Stock Purchase Plan
The Company received cash proceeds of $1.2 million and issued 83,000 shares under the ESPP Plan for the year ended December 31, 2016. The weighted average estimated values of employee purchase rights as well as the weighted average assumptions that were used in calculating such values during fiscal year 2016 were based on estimates at the date of grant as follows:
|
|
Year ended December 31, |
|
|
|
|
2016 |
|
|
Weighted average fair value |
|
$ |
4.45 |
|
Dividend yield |
|
0% |
|
|
Expected volatility factor(1) |
|
43% |
|
|
Risk-free interest rate(2) |
|
0.35% |
|
|
Expected life (in years)(3) |
|
0.5 |
|
(1) |
Expected volatility is measured using historical daily price changes of the Company’s stock over the respective expected term of the options and the implied volatility derived from the market prices of the Company’s traded options. |
(2) |
The risk-free rate for periods within the contractual term of the purchase rights is based on the U.S. Treasury yield curve in effect at the time of grant. |
(3) |
The expected life is the length of time, in years, that the purchase rights will be outstanding. |
|
Note 16 — Retirement Plans
The Company maintains a defined contribution plan for the benefit of its U.S. employees. The plan is intended to be tax qualified and contains a qualified cash or deferred arrangement as described under Section 401(k) of the Internal Revenue Code. Eligible participants may elect to contribute a percentage of their base compensation, and the Company may make matching contributions, generally equal to fifty cents for every dollar employees contribute, up to the lesser of three percent of the employee’s eligible compensation or three percent of the maximum the employee is permitted to contribute under then current Internal Revenue Code limitations. Generally, the plan calls for vesting in the Company contributions over the initial five years of a participant’s employment. The Company recognized costs associated with these plans of approximately $2.6 million, $2.5 million, and $1.9 million for the years ended December 31, 2016, 2015, and 2014, respectively.
During 2016, the Company finalized the process to terminate a defined benefit plan it had acquired in the year 2000. The plan had been frozen as of September 30, 1991, and no further benefits had been accrued by participants since that date. In connection with the termination, responsibility for the payment of benefits under the plan was transferred to an insurance company. As a result, the Company reclassified the minimum pension liability of $0.9 million, net of a tax benefit of $0.4 million, from “Accumulated other comprehensive income” in the Consolidated Balance Sheets to “Other, net” in the Consolidated Statements of Operations.
|
Note 17 — Income Taxes
The amounts of income (loss) before income taxes attributable to domestic and foreign operations were as follows:
|
|
|
Year ended December 31, |
|
|||||||||
|
|
2016 |
|
2015 |
|
2014 |
|||||||
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|||
Domestic |
|
|
$ |
(123,021 |
) |
|
$ |
(53,553 |
) |
|
$ |
(95,195 |
) |
Foreign |
|
|
3,577 |
|
|
30,907 |
|
|
16,841 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
$ |
(119,444 |
) |
|
$ |
(22,646 |
) |
|
$ |
(78,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the expense (benefit) for income taxes consisted of the following:
|
|
|
Year ended December 31, |
|
|||||||||
|
|
2016 |
|
2015 |
|
2014 |
|||||||
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
$ |
— |
|
|
$ |
139 |
|
|
$ |
(2,464 |
) |
Foreign |
|
|
1,937 |
|
|
6,952 |
|
|
2,325 |
|
|||
State and local |
|
|
(111 |
) |
|
(407 |
) |
|
55 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Total current expense (benefit) for income taxes |
|
|
1,826 |
|
|
6,684 |
|
|
(84 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Deferred: |
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
1,459 |
|
|
2,104 |
|
|
(11,230 |
) |
|||
Foreign |
|
|
(646 |
) |
|
516 |
|
|
(291 |
) |
|||
State and local |
|
|
127 |
|
|
28 |
|
|
191 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Total deferred expense (benefit) for income taxes |
|
|
940 |
|
|
2,648 |
|
|
(11,330 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Total expense (benefit) for income taxes |
|
|
$ |
2,766 |
|
|
$ |
9,332 |
|
|
$ |
(11,414 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax expense was reconciled to the tax expense computed at the U.S. federal statutory tax rate as follows:
|
|
|
Year ended December 31, |
|
|||||||||
|
|
2016 |
|
2015 |
|
2014 |
|||||||
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|||
Income tax expense (benefit) at U.S. statutory rates |
|
|
$ |
(41,806 |
) |
|
$ |
(7,926 |
) |
|
$ |
(27,424 |
) |
State taxes, net of U.S. federal impact |
|
|
(1,963 |
) |
|
(1,607 |
) |
|
(662 |
) |
|||
Effect of international operations |
|
|
8,849 |
|
|
(7,659 |
) |
|
(6,160 |
) |
|||
Research and development tax credit |
|
|
(801 |
) |
|
(1,628 |
) |
|
(1,935 |
) |
|||
Net change in valuation allowance |
|
|
50,520 |
|
|
23,655 |
|
|
27,156 |
|
|||
Change in accrual for unrecognized tax benefits |
|
|
(1,700 |
) |
|
4,876 |
|
|
(1,940 |
) |
|||
ALD liquidation |
|
|
(12,435 |
) |
|
— |
|
|
— |
|
|||
U.S. share-based compensation |
|
|
2,133 |
|
|
— |
|
|
— |
|
|||
Goodwill impairment |
|
|
— |
|
|
— |
|
|
9,786 |
|
|||
Change in contingent consideration |
|
|
— |
|
|
— |
|
|
(10,279 |
) |
|||
Worthless stock deduction |
|
|
— |
|
|
(2,069 |
) |
|
— |
|
|||
Change in entity tax status |
|
|
— |
|
|
904 |
|
|
— |
|
|||
Other |
|
|
(31 |
) |
|
786 |
|
|
44 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Total expense (benefit) for income taxes |
|
|
$ |
2,766 |
|
|
$ |
9,332 |
|
|
$ |
(11,414 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the effect of temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The tax effects of the temporary differences were as follows:
|
|
|
December 31, |
|
|||||
|
|
2016 |
|
2015 |
|||||
|
|
|
(in thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
|
||
Inventory valuation |
|
|
$ |
6,681 |
|
|
$ |
6,334 |
|
Net operating losses and credit carry forwards |
|
|
54,527 |
|
|
33,181 |
|
||
Credit carry forwards |
|
|
24,598 |
|
|
20,738 |
|
||
Warranty and installation accruals |
|
|
1,757 |
|
|
3,022 |
|
||
Share-based compensation |
|
|
12,624 |
|
|
12,461 |
|
||
Other |
|
|
6,778 |
|
|
5,787 |
|
||
|
|
|
|
|
|
|
|
||
Total deferred tax assets |
|
|
106,965 |
|
|
81,523 |
|
||
Valuation allowance |
|
|
(106,793 |
) |
|
(56,273 |
) |
||
|
|
|
|
|
|
|
|
||
Net deferred tax assets |
|
|
172 |
|
|
25,250 |
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
|
||
Purchased intangible assets |
|
|
11,071 |
|
|
32,550 |
|
||
Undistributed earnings |
|
|
186 |
|
|
618 |
|
||
Depreciation |
|
|
69 |
|
|
1,908 |
|
||
|
|
|
|
|
|
|
|
||
Total deferred tax liabilities |
|
|
11,326 |
|
|
35,076 |
|
||
|
|
|
|
|
|
|
|
||
Net deferred taxes |
|
|
$ |
(11,154 |
) |
|
$ |
(9,826 |
) |
|
|
|
|
|
|
|
|
|
|
The Company did not record a provision for U.S. federal income taxes or any additional withholding taxes on unremitted earnings in foreign subsidiaries in the amount of $48.2 million at December 31, 2016, as such amount is permanently reinvested. It is not practicable to determine the hypothetical amount of tax associated with such unremitted earnings if the Company were to assume they were remitted to the U.S. For financial reporting purposes, these balances are determined as amounts that exceed the tax basis of such investments. The Company has provided U.S. federal income taxes and additional withholding taxes on foreign earnings that are anticipated to be remitted.
At December 31, 2016 the Company had U.S. federal net operating loss carryforwards of approximately $137.2 million that will expire between 2034 and 2036, if not utilized. Additionally, $3.5 million of capital losses will expire in 2021. At December 31, 2016 the Company had U.S. foreign tax credit carryforwards of $7.7 million that will expire between 2023 and 2026 and U.S. federal research and development credits of $12.1 million that will expire between 2031 and 2036. The Company also has state and local net operating loss carryforwards of approximately $68.0 million (a net deferred tax asset of $3.5 million net of federal tax benefits and before the valuation allowance) that will expire between 2016 and 2036. In addition, the Company has state credits of $9.9 million some of which are indefinite and others that will expire between 2016 and 2030.
The Company makes assessments to estimate if sufficient taxable income will be generated in the future to use existing deferred tax assets. The Company’s cumulative three year loss in its domestic operations led to a full valuation allowance against the Company’s U.S. deferred tax assets in fiscal year 2014, because the Company could not conclude that such amounts are realizable on a more-likely-than-not basis. As the cumulative three year loss continued in 2016, the Company increased the valuation allowance by approximately $50.5 million during the period ended December 31, 2016.
The Company amortizes certain indefinite-lived intangible assets for tax purposes, which are not amortizable for financial reporting purposes. The deferred tax liability at December 31, 2016 includes $13.2 million relating to the tax effect of differences between financial reporting and tax bases of intangible assets that are not expected to reverse within the Company’s net operating loss carryforward period.
A roll-forward of the Company’s uncertain tax positions for all U.S. federal, state, and foreign tax jurisdictions was as follows:
|
|
|
December 31, |
|
|||||||||||
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|||
|
|
|
(in thousands) |
|
|||||||||||
Balance at beginning of year |
|
|
$ |
9,152 |
|
|
|
$ |
4,276 |
|
|
|
$ |
6,228 |
|
Additions for tax positions related to current year |
|
|
1,038 |
|
|
|
5,596 |
|
|
|
244 |
|
|||
Additions for tax positions related to prior years |
|
|
233 |
|
|
|
143 |
|
|
|
199 |
|
|||
Reductions for tax positions related to prior years |
|
|
(2,826 |
) |
|
|
— |
|
|
|
(2,345 |
) |
|||
Reductions due to the lapse of the statute of limitations |
|
|
(39 |
) |
|
|
(642 |
) |
|
|
(38 |
) |
|||
Settlements |
|
|
(106 |
) |
|
|
(221 |
) |
|
|
(12 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Balance at end of year |
|
|
$ |
7,452 |
|
|
|
$ |
9,152 |
|
|
|
$ |
4,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If the amount of unrecognized tax benefits at December 31, 2016 were recognized, the Company’s income tax provision would decrease by $5.4 million. The gross amount of interest and penalties accrued in income tax payable in the Consolidated Balance Sheets was approximately $0.3 million and $0.2 million at December 31, 2016 and 2015, respectively.
The Company or one of its subsidiaries files income tax returns in the United States federal jurisdiction and various state, local, and foreign jurisdictions. All material federal income tax matters have been concluded for years through 2013 subject to subsequent utilization of net operating losses generated in such years. All material state and local income tax matters have been reviewed through 2012. The majority of the Company’s foreign jurisdictions have been reviewed through 2013. Substantially all of the Company’s foreign jurisdictions’ statutes of limitation remain open with respect to the tax years from 2013 through 2016. The Company does not anticipate that its uncertain tax position will change significantly within the next twelve months subject to the completion of the ongoing tax audits and any resultant settlement.
|
Note 18 — Segment Reporting and Geographic Information
The Company 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. The Company’s Chief Operating Decision Maker, the Chief Executive Officer, evaluates performance of the Company and makes decisions regarding allocation of resources based on total Company results.
Sales by market is as follows:
|
|
|
For the year ended December 31, |
|
|||||||||||
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|||
|
|
|
(in thousands) |
|
|||||||||||
Sales by end-market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lighting, Display & Power Electronics |
|
|
$ |
136,247 |
|
|
|
$ |
291,133 |
|
|
|
$ |
278,551 |
|
Advanced Packaging, MEMS & RF |
|
|
68,304 |
|
|
|
61,935 |
|
|
|
11,449 |
|
|||
Scientific & Industrial |
|
|
74,913 |
|
|
|
64,297 |
|
|
|
44,429 |
|
|||
Data Storage |
|
|
52,987 |
|
|
|
59,673 |
|
|
|
58,444 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
$ |
332,451 |
|
|
|
$ |
477,038 |
|
|
|
$ |
392,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s significant operations outside the United States include sales and service offices in China, Europe and Rest of World. For geographic reporting, sales are attributed to the location in which the customer facility is located.
Sales and long-lived tangible assets by geographic region are as follows:
|
|
Net Sales to Unaffiliated Customers |
|
Long-lived Tangible Assets |
||||||||||||||||||||||||||
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
||||||
|
|
|
(in thousands) |
|
||||||||||||||||||||||||||
United States |
|
|
$ |
85,637 |
|
|
|
$ |
86,627 |
|
|
|
$ |
44,060 |
|
|
|
$ |
60,012 |
|
|
|
$ |
64,951 |
|
|
|
$ |
63,349 |
|
China |
|
|
85,834 |
|
|
|
242,442 |
|
|
|
159,063 |
|
|
|
219 |
|
|
|
422 |
|
|
|
621 |
|
||||||
EMEA(1) |
|
|
83,410 |
|
|
|
64,019 |
|
|
|
35,644 |
|
|
|
93 |
|
|
|
96 |
|
|
|
78 |
|
||||||
Rest of World |
|
|
77,570 |
|
|
|
83,950 |
|
|
|
154,106 |
|
|
|
322 |
|
|
|
14,121 |
|
|
|
14,704 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
|
$ |
332,451 |
|
|
|
$ |
477,038 |
|
|
|
$ |
392,873 |
|
|
|
$ |
60,646 |
|
|
|
$ |
79,590 |
|
|
|
$ |
78,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) EMEA consists of Europe, the Middle East, and Africa
|
Note 19 — Selected Quarterly Financial Information (unaudited)
The following table presents selected unaudited financial data for each fiscal quarter of 2016 and 2015. Although unaudited, this information has been prepared on a basis consistent with the Company’s audited Consolidated Financial Statements and, in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments) that are considered necessary for a fair presentation of this information in accordance with GAAP. Such quarterly results are not necessarily indicative of future results of operations.
|
|
Fiscal 2016 |
|
Fiscal 2015 |
|||||||||||||||||||||
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
||||||||
|
|
(in thousands, except per share amounts) |
|
||||||||||||||||||||||
Net sales |
|
$ |
78,011 |
|
$ |
75,348 |
|
$ |
85,482 |
|
$ |
93,609 |
|
$ |
98,341 |
|
$ |
131,410 |
|
$ |
140,744 |
|
$ |
106,543 |
|
Gross profit |
|
31,956 |
|
31,439 |
|
33,455 |
|
36,008 |
|
35,136 |
|
49,069 |
|
54,250 |
|
38,786 |
|
||||||||
Net income (loss) |
|
(15,533) |
|
(32,082) |
|
(69,598) |
|
(4,998) |
|
(19,110) |
|
(8,386) |
|
5,306 |
|
(9,788) |
|
||||||||
Basic income (loss) per common share |
|
(0.40) |
|
(0.82) |
|
(1.78) |
|
(0.13) |
|
(0.48) |
|
(0.21) |
|
0.13 |
|
(0.25) |
|
||||||||
Diluted income (loss) per common share |
|
(0.40) |
|
(0.82) |
|
(1.78) |
|
(0.13) |
|
(0.48) |
|
(0.21) |
|
0.13 |
|
(0.25) |
|
Impairment Charge
During the third quarter of 2016, the Company decided to significantly reduce future investments in its ALD technology development and, as a result, recorded a charge for impairment of its ALD assets, including $54.3 million for the full impairment of the intangible purchased ALD technology. The impairment charges were based on projected cash flows that required the use of unobservable inputs. Refer to Note 6, “Goodwill and Intangible Assets,” for additional information.
|
Note 20 — Subsequent Events
New Convertible Notes
In January 2017, the Company issued $345.0 million in aggregate principal amount of 2.70% convertible senior unsecured notes due 2023 (the “Convertible Notes”) pursuant to an indenture, dated as of January 18, 2017, between the Company and U.S. Bank National Association, as the trustee (the “Offering”). The Company received net proceeds from the Offering, after deducting fees and expenses payable by the Company, of approximately $336.0 million.
The Convertible Notes bear interest payable semiannually in arrears on January 15 and July 15 of each year, beginning on July 15, 2017. The Company will separately account for the liability and equity components of the Convertible Notes. The fair value of the liability component used in the allocation between the liability and equity components as of the date of issuance was based on the present value of cash flows using a discount rate of 7%, the Company’s borrowing rate for a similar debt instrument without the conversion feature.
The Convertible Notes mature on January 15, 2023, unless earlier repurchased, redeemed or converted. The Convertible Notes are convertible into common shares of the Company under certain circumstances described in the indenture. The initial conversion rate is 24.9800 shares of the Company’s common stock per $1,000 principal amount of the Convertible Notes, with an initial conversion price of approximately $40.03 per share of common stock. The conversion rate is subject to adjustment in certain circumstances. The dilutive effect of the Convertible Notes on income (loss) per share will be calculated using the treasury stock method since the Company has both the current intent and ability to settle the principal amount of the Convertible Notes in cash.
Agreement to Acquire Ultratech
On February 2, 2017, Veeco and Ultratech, Inc. (“Ultratech”), a leading supplier of lithography, laser-processing, and inspection systems used to manufacture semiconductor devices and LEDs, signed a definitive agreement for Veeco to acquire Ultratech. The Boards of Directors of both Veeco and Ultratech have unanimously approved the transaction.
Ultratech shareholders will receive (i) $21.75 per share in cash and (ii) 0.2675 of a share of Veeco common stock for each Ultratech common share outstanding. Based on Veeco’s closing stock price on February 1, 2017, the transaction consideration is valued at approximately $28.64 per Ultratech share. The implied total transaction value is approximately $815 million and the implied enterprise value is approximately $550 million, net of Ultratech’s net cash balance as of December 31, 2016. The transaction is expected to close in the second quarter of 2017, subject to approval by Ultratech shareholders, regulatory approvals in the United States, and other customary closing conditions.
|
Schedule II — Valuation and Qualifying Accounts
|
|
|
|
Additions |
|
|
|
|
|
|||||||
|
|
|
|
Charged |
|
|
|
|
|
|
|
|||||
|
|
Balance at |
|
(Credited) |
|
Charged to |
|
|
|
Balance at |
|
|||||
|
|
Beginning |
|
to Costs and |
|
Other |
|
|
|
End of |
|
|||||
Deducted from asset accounts: |
|
of Period |
|
Expenses |
|
Accounts |
|
Deductions |
|
Period |
|
|||||
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|||||
Year ended December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Allowance for doubtful accounts |
|
$ |
206 |
|
$ |
171 |
|
$ |
— |
|
$ |
(91 |
) |
$ |
286 |
|
Valuation allowance in net deferred tax assets |
|
56,273 |
|
50,520 |
|
— |
|
— |
|
106,793 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
56,479 |
|
$ |
50,691 |
|
$ |
— |
|
$ |
(91 |
) |
$ |
107,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Year ended December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Allowance for doubtful accounts |
|
$ |
731 |
|
$ |
43 |
|
$ |
— |
|
$ |
(568 |
) |
$ |
206 |
|
Valuation allowance in net deferred tax assets |
|
34,909 |
|
23,655 |
|
(2,291 |
) |
— |
|
56,273 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
35,640 |
|
$ |
23,698 |
|
$ |
(2,291 |
) |
$ |
(568 |
) |
$ |
56,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Year ended December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Allowance for doubtful accounts |
|
$ |
2,438 |
|
$ |
(1,814 |
) |
$ |
325 |
|
$ |
(218 |
) |
$ |
731 |
|
Valuation allowance in net deferred tax assets |
|
7,753 |
|
27,156 |
|
— |
|
— |
|
34,909 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
10,191 |
|
$ |
25,342 |
|
$ |
325 |
|
$ |
(218 |
) |
$ |
35,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2016 the interim quarters ended on April 3, July 3, and October 2, and during 2015 the interim quarters ended on March 29, June 28 and September 27. The Company reports these interim quarters as March 31, June 30, and September 30 in its interim consolidated financial statements.
(c) Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, these estimates may ultimately differ from actual results. Significant items subject to such estimates and assumptions include: (i) the best estimate of selling price for the Company’s products and services; (ii) allowances for doubtful accounts; (iii) inventory obsolescence; (iv) the useful lives and expected future cash flows of property, plant, and equipment and identifiable intangible assets; (v) the fair value of the Company’s reporting unit and related goodwill; (vi) the fair value, less cost to sell, of assets held for sale; (vii) investment valuations and the valuation of derivatives, deferred tax assets, and assets acquired in business combinations; (viii) the recoverability of long-lived assets; (ix) liabilities for product warranty and legal contingencies; (x) share-based compensation; and (xi) income tax uncertainties. Actual results could differ from those estimates.
(d) Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Companies acquired during each reporting period are reflected in the results of the Company effective from their respective dates of acquisition through the end of the reporting period.
(e) Foreign Currencies
Assets and liabilities of the Company’s foreign subsidiaries that operate using local functional currencies are translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using monthly average exchange rates. Adjustments arising from the translation of the foreign currency financial statements of the Company’s subsidiaries into U.S. dollars, including intercompany transactions of a long-term nature, are reported as currency translation adjustments in “Accumulated other comprehensive income” in the Consolidated Balance Sheets. Foreign currency transaction gains or losses are included in “Other, net” in the Consolidated Statements of Operations.
(f) Revenue Recognition
The Company recognizes revenue when all of the following criteria have been met: persuasive evidence of an arrangement exists with a customer; delivery of the specified products has occurred or services have been rendered; prices are contractually fixed or determinable; and collectability is reasonably assured. Revenue is recorded including shipping and handling costs and excluding applicable taxes related to sales.
Contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, maintenance, and service plans. Judgment is required to properly identify the accounting units of the multiple-element arrangements and to determine how the revenue should be allocated among the accounting units. The Company also evaluates whether multiple transactions with the same customer or related parties should be considered part of a single, multiple-element arrangement based on an assessment of whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one another. Moreover, judgment is used in interpreting the commercial terms and determining when all criteria have been met in order to recognize revenue in the appropriate accounting period.
When there are separate units of accounting, the Company allocates revenue to each element based on the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available; third party evidence (“TPE”) if VSOE is not available; or the best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. The Company uses BESP for the elements in its arrangements. The maximum revenue recognized on a delivered element is limited to the amount that is not contingent upon the delivery of additional items.
The Company considers many facts when evaluating each of its sales arrangements to determine the timing of revenue recognition including its contractual obligations, the customer’s creditworthiness, and the nature of the customer’s post-delivery acceptance provisions. The Company’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For the majority of the arrangements, a customer source inspection of the system is performed in the Company’s facility or test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When the Company objectively demonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery, revenue is recognized upon system delivery since there is no substantive contingency remaining related to the acceptance provisions at that date, subject to the retention amount constraint described below. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where the Company cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred and fully recognized upon the receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.
The Company’s system sales arrangements, including certain upgrades, generally do not contain provisions for right of return, forfeiture, refund, or other purchase price concession. In the rare instances where such provisions are included, all revenue is deferred until such rights expire. The sales arrangements generally include installation. The installation process is not deemed essential to the functionality of the equipment since it is not complex; it does not require significant changes to the features or capabilities of the equipment or involve constructing elaborate interfaces or connections subsequent to factory acceptance. The Company has a demonstrated history of consistently completing installations in a timely manner and can reliably estimate the costs of such activities. Most customers engage the Company to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, installation is deemed to be inconsequential or perfunctory relative to the system sale as a whole, and as a result, installation service is not considered a separate element of the arrangement. As such, the Company accrues the cost of the installation at the time of revenue recognition for the system.
In many cases the Company’s products are sold with a billing retention, typically 10% of the sales price, which is payable by the customer when field acceptance provisions are completed. The amount of revenue recognized upon delivery of a system or upgrade, if any, is limited to the lower of i) the amount billed that is not contingent upon acceptance provisions or ii) the value of the arrangement consideration allocated to the delivered elements, if such sale is part of a multiple-element arrangement.
The Company’s contractual terms with customers in Japan generally specify that title and risk and rewards of ownership transfer upon customer acceptance. As a result, for customers in Japan, revenue is recognized upon the receipt of written customer acceptance. A distributor is used for almost all sales to customers in Japan. Title passes to the distributor upon shipment; however, due to customary local business practices, the risks and rewards of ownership of the system transfer to the end-customers upon their acceptance. As such, the Company recognizes revenue upon receipt of written acceptance from the end customer.
The Company recognizes revenue related to maintenance and service contracts ratably over the applicable contract term. The Company recognizes revenue from the sales of components, spare parts, and specified service engagements at the time of delivery in accordance with the terms of the applicable sales arrangement.
Incremental direct costs incurred related to the acquisition of a customer contract, such as sales commissions, are expensed as incurred, even if the related revenue is deferred in accordance with the above policy.
(g) Warranty Costs
The Company typically provides standard warranty coverage on its systems for one year from the date of final acceptance by providing labor and parts necessary to repair the systems during the warranty period. The Company accounts for the estimated warranty cost when revenue is recognized on the related system. Warranty cost is included in “Cost of sales” in the Consolidated Statements of Operations. The estimated warranty cost is based on the Company’s historical experience with its systems and regional labor costs. The Company calculates the average service hours by region and parts expense per system utilizing actual service records to determine the estimated warranty charge. The Company updates its warranty estimates on a semiannual basis when the actual product performance 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 $0.8 million, $0.9 million, and $0.6 million for the years ended December 31, 2016, 2015, and 2014, 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.
The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of option awards, as well as purchase rights under the Employee Stock Purchase Plan. The Black-Scholes model includes assumptions regarding dividend yields, expected volatility, expected option term, and risk-free interest rates. See Note 15, “Stock Plans,” for additional information.
In addition to stock options, restricted share awards (“RSAs”) and restricted stock units (“RSUs”) with time-based vesting, the Company issues performance share units and awards (“PSUs” and “PSAs”). Compensation cost for PSUs and PSAs is recognized over the requisite service period based on the timing and expected level of achievement of the performance targets. A change in the assessment of the probability of a performance condition being met is recognized in the period of the change in estimate. At the conclusion of the performance period, the number of shares granted may vary based on the level of achievement of the performance targets.
See Note 1(u), “Recently Adopted Accounting Standards,” for additional information concerning the Company’s early 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.
See Note 1(u), “Recently Adopted Accounting Standards,” for additional information concerning the Company’s early adoption of ASU 2015-17: Balance Sheet Classification of Deferred Taxes.
(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 and $0.2 million at December 31, 2016 and 2015, respectively.
To further mitigate the Company’s exposure to uncollectable accounts, the Company may request certain customers provide a negotiable irrevocable letter of credit drawn on a reputable financial institution. These irrevocable letters of credit are typically issued to mature between zero and 90 days from the date the documentation requirements are met, typically when a system ships or upon receipt of final acceptance from the customer. The Company, at its discretion, may monetize these letters of credit on a non-recourse basis after they become negotiable, but before maturity. The fees associated with the monetization are included in “Selling, general, and administrative” in the Consolidated Statements of Operations and were insignificant for the years ended December 31, 2016, 2015, and 2014.
(n) Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses reflected in the consolidated financial statements approximate fair value due to their short-term maturities. The fair value of debt for footnote disclosure purposes, including current maturities, is estimated using a discounted cash flow analysis based on the estimated current incremental borrowing rates for similar types of 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 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 $1.5 million and $18.0 million of cash equivalents at December 31, 2016 and 2015 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 54% and 50% of cash and cash equivalents were maintained outside the United States at December 31, 2016 and 2015, respectively.
Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income.” These securities can include U.S. treasuries, government agency securities, corporate debt, and commercial paper, all with maturities of greater than three months when purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are included in “Other, net” in the Consolidated Statements of Operations. The specific identification method is used to determine the realized gains and losses on investments.
(p) Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company reviews and sets standard costs on a periodic basis at current manufacturing costs in order to approximate actual costs. The Company assesses the valuation of all inventories, including manufacturing raw materials, work-in-process, finished goods, and spare parts, each quarter. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less than cost. Estimates of net realizable value include, but are not limited to, management’s forecasts related to the Company’s future manufacturing schedules, customer demand, technological and/or market obsolescence, general market conditions, possible alternative uses, and ultimate realization of excess inventory. If future customer demand or market conditions are less favorable than the Company’s projections, additional inventory write-downs may be required and would be reflected in cost of sales in the period the revision is made. Inventory acquired as part of a business combination is recorded at fair value on the date of acquisition. See Note 5, “Business Combinations,” for additional information.
(q) Business Combinations
The Company allocates the fair value of the purchase consideration of the Company’s acquisitions to the tangible assets, intangible assets, including in-process research and development (“IPR&D”), if any, and liabilities assumed, based on estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When a project underlying reported IPR&D is completed, the corresponding amount of IPR&D is amortized over the asset’s estimated useful life. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred in “Selling, General, and Administrative” in the Consolidated Statements of Operations. See Note 5, “Business Combinations,” for additional information.
(r) Goodwill and Indefinite-Lived Intangibles
Goodwill is an asset representing the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is measured as the excess of the consideration transferred over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed. Intangible assets with indefinite useful lives are measured at their respective fair values on the acquisition date. Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. If and when development is complete, the associated assets would be deemed long-lived and would then be amortized based on their respective estimated useful lives at that point in time. Goodwill and indefinite-lived intangibles are not amortized into results of operations but instead are evaluated for impairment. The Company performs the evaluation in the fourth quarter of each year or more frequently if impairment indicators arise.
The Company may first perform a qualitative assessment of whether it is more likely than not that the reporting unit’s fair value is less than its carrying amount, and, if so, the Company then applies the two-step impairment test. The two-step impairment test first compares the fair value of the Company’s reporting unit to its carrying amount. If the fair value exceeds the carrying amount, goodwill is not impaired, and the Company is not required to perform further testing. If the carrying amount exceeds fair value, the Company determines the implied fair value of the goodwill and, if the carrying amount of the goodwill exceeds its implied fair value, then the Company records an impairment loss equal to the difference.
The Company determines the fair value of its reporting unit based on a reconciliation of the fair value of the reporting unit to the Company’s adjusted market capitalization. The adjusted market capitalization is calculated by multiplying the average share price of the Company’s common stock for the last ten trading days prior to the measurement date by the number of outstanding common shares and adding a control premium.
(s) Long-Lived Assets and Cost Method Investment
Long-lived intangible assets consist of purchased technology, customer-related intangible assets, patents, trademarks, covenants not-to-compete, and software licenses and are initially recorded at fair value. Long-lived intangibles are amortized over their estimated useful lives in a method reflecting the pattern in which the economic benefits are consumed or straight-lined if such pattern cannot be reliably determined.
Property, plant, and equipment are recorded at cost. Depreciation expense is calculated based on the estimated useful lives of the assets by using the straight-line method. Amortization of leasehold improvements is recognized using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Long-lived assets and cost method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, a recoverability test is performed utilizing undiscounted cash flows expected to be generated by that asset or asset group compared to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models or, when available, quoted market values, and third-party appraisals.
(t) Recent Accounting Pronouncements
The FASB issued ASU 2014-09, as amended: Revenue from Contracts with Customers, which has been codified as Accounting Standards Codification 606 (“ASC 606”). ASC 606 requires the Company’s revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASC 606 outlines a five-step model to make the revenue recognition determination and requires new financial statement disclosures. Publicly-traded companies are required to adopt ASC 606 for reporting periods beginning after December 15, 2017, but can adopt early for annual periods beginning after December 15, 2016. The Company is still finalizing its assessment of the impact of adopting the ASU on its consolidated financial statements and is still evaluating which method of adoption it will select.
In January 2016, the FASB issued ASU 2016-01: Financial Instruments — Overall, which requires certain equity investments to be measured at fair value, with changes in fair value recognized in net income. Publicly-traded companies are required to adopt the ASU for reporting periods beginning after December 15, 2017; early adoption is permitted. The Company does not expect this ASU will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02: Leases, which generally requires the Company’s 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. The transition to the ASU will require leases at the beginning of the earliest period presented to be recognized and measured using a modified retrospective approach. The ASU is effective for fiscal years beginning after December 15, 2018, with early application permitted. The Company is evaluating the anticipated impact of adopting the ASU on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which provides guidance on eight specific cash flow issues, including debt prepayments or debt extinguishment costs. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017. The Company does not expect this ASU will have a material impact on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2017. The Company is evaluating the anticipated effect the ASU will have on its consolidated financial statements.
(u) Recently Adopted Accounting Standards
In March 2016, the FASB issued ASU 2016-09: Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payments. The Company early adopted the ASU effective January 1, 2016. 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 effective. Accordingly, the Company recorded a $1.3 million charge to the opening accumulated deficit balance 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.
In November 2015, the FASB issued ASU 2015-17: Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that deferred income tax liabilities and assets be classified as noncurrent in our consolidated balance sheet. Publicly-traded companies are required to adopt the update for reporting periods beginning after December 15, 2016, with early application permitted. The Company early adopted the ASU effective January 1, 2015. In accordance with the ASU’s transition requirements, the Company chose to apply the amendments in the update prospectively. As such, periods prior to 2015 have not been retrospectively adjusted. The adoption of this ASU did not have a material impact on the consolidated financial statements.
|
|
|
|
|
Level 1 |
|
|
|
Level 2 |
|
|
|
Level 3 |
|
|
|
Total |
|
||||
|
|
(in thousands) |
|
||||||||||||||||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
||||||||||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate debt |
|
$ |
— |
|
$ |
1,501 |
|
$ |
— |
|
$ |
1,501 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
— |
|
1,501 |
|
— |
|
1,501 |
|
||||||||||||
Short-term investments |
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. treasuries |
|
40,008 |
|
— |
|
— |
|
40,008 |
|
||||||||||||
Government agency securities |
|
— |
|
10,012 |
|
— |
|
10,012 |
|
||||||||||||
Corporate debt |
|
— |
|
13,773 |
|
— |
|
13,773 |
|
||||||||||||
Commercial paper |
|
— |
|
2,994 |
|
— |
|
2,994 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
40,008 |
|
$ |
26,779 |
|
$ |
— |
|
$ |
66,787 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
December 31, 2015 |
|
|
|
|
|
|
|
|
|
||||||||||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. treasuries |
|
$ |
9,999 |
|
$ |
— |
|
$ |
— |
|
$ |
9,999 |
|
||||||||
Government agency securities |
|
— |
|
4,998 |
|
— |
|
4,998 |
|
||||||||||||
Commercial paper |
|
— |
|
2,999 |
|
— |
|
2,999 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
9,999 |
|
7,997 |
|
— |
|
17,996 |
|
||||||||||||
Short-term investments |
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. treasuries |
|
94,918 |
|
— |
|
— |
|
94,918 |
|
||||||||||||
Government agency securities |
|
— |
|
12,988 |
|
— |
|
12,988 |
|
||||||||||||
Corporate debt |
|
— |
|
8,144 |
|
— |
|
8,144 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
94,918 |
|
$ |
21,132 |
|
$ |
— |
|
$ |
116,050 |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
Gross |
|
|
|
|
|
||||
|
|
|
|
Amortized |
|
|
|
Unrealized |
|
|
|
Unrealized |
|
|
|
Estimated |
|
||||
|
|
|
|
Cost |
|
|
|
Gains |
|
|
|
Losses |
|
|
|
Fair Value |
|
||||
|
|
|
|
(in thousands) |
|
||||||||||||||||
December 31, 2016 |
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. treasuries |
|
$ |
40,013 |
|
$ |
— |
|
$ |
(5 |
) |
$ |
40,008 |
|
||||||||
Government agency securities |
|
10,020 |
|
— |
|
(8 |
) |
10,012 |
|
||||||||||||
Corporate debt |
|
13,780 |
|
— |
|
(7 |
) |
13,773 |
|
||||||||||||
Commercial paper |
|
2,994 |
|
— |
|
— |
|
2,994 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
66,807 |
|
$ |
— |
|
$ |
(20 |
) |
$ |
66,787 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
December 31, 2015 |
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. treasuries |
|
$ |
94,935 |
|
$ |
6 |
|
$ |
(23 |
) |
$ |
94,918 |
|
||||||||
Government agency securities |
|
12,985 |
|
3 |
|
— |
|
12,988 |
|
||||||||||||
Corporate debt |
|
8,144 |
|
1 |
|
(1 |
) |
8,144 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
116,064 |
|
$ |
10 |
|
$ |
(24 |
) |
$ |
116,050 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
December 31, 2015 |
|
||||||||||||
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
Gross |
|
||||
|
|
|
|
Estimated |
|
|
|
Unrealized |
|
|
|
Estimated |
|
|
|
Unrealized |
|
||||
|
|
|
|
Fair Value |
|
|
|
Losses |
|
|
|
Fair Value |
|
|
|
Losses |
|
||||
|
|
(in thousands) |
|
||||||||||||||||||
U.S. treasuries |
|
$ |
20,002 |
|
$ |
(5 |
) |
$ |
64,922 |
|
$ |
(23 |
) |
||||||||
Government agency securities |
|
10,012 |
|
(8 |
) |
— |
|
— |
|
||||||||||||
Corporate debt |
|
13,774 |
|
(7 |
) |
3,353 |
|
(1 |
) |
||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
$ |
43,788 |
|
$ |
(20 |
) |
$ |
68,275 |
|
$ |
(24 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition Date
(December 4, 2014) |
|
|
|
|
(in thousands) |
|
|
Amount paid, net of cash acquired |
|
$ |
145,382 |
|
Working capital adjustment |
|
88 |
|
|
|
|
|
|
|
Acquisition date fair value |
|
$ |
145,470 |
|
|
|
|
|
|
|
|
Acquisition Date
(December 4, 2014) |
|
|
|
|
(in thousands) |
|
|
Accounts receivable |
|
$ |
9,383 |
|
Inventory |
|
13,812 |
|
|
Other current assets |
|
463 |
|
|
Property, plant, and equipment |
|
6,912 |
|
|
Intangible assets |
|
79,810 |
|
|
|
|
|
|
|
Total identifiable assets acquired |
|
110,380 |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
6,473 |
|
|
Customer deposits |
|
6,039 |
|
|
Deferred tax liability, net |
|
2,705 |
|
|
Other |
|
1,089 |
|
|
|
|
|
|
|
Total liabilities assumed |
|
16,306 |
|
|
|
|
|
|
|
Net identifiable assets acquired |
|
94,074 |
|
|
Goodwill |
|
51,396 |
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
145,470 |
|
|
|
|
|
|
|
|
Acquisition Date |
|
|||
|
|
(December 4, 2014) |
|
|||
|
|
Amount |
|
Useful life |
|
|
|
|
(in thousands) |
|
|
|
|
Technology |
|
$ |
39,950 |
|
10 years |
|
Customer relationships |
|
34,310 |
|
14 years |
|
|
Backlog |
|
3,340 |
|
6 months |
|
|
Non-compete agreements |
|
1,130 |
|
2 years |
|
|
Trademark and tradenames |
|
1,080 |
|
1 year |
|
|
|
|
|
|
|
|
|
Intangible assets acquired |
|
$ |
79,810 |
|
|
|
|
|
|
|
|
|
|
The amounts of revenue and income (loss) from continuing operations before income taxes of PSP included in the Company’s consolidated statement of operations from the acquisition date (December 4, 2014) to the period ending December 31, 2014 are as follows:
|
|
Total |
|
|
|
|
(in thousands) |
|
|
Revenue |
|
$ |
7,906 |
|
Loss from operations before income taxes |
|
$ |
(3,011 |
) |
|
|
December 31, |
|
|
|
|
2014 |
|
|
|
|
(in thousands) |
|
|
Revenue |
|
$ |
447,089 |
|
Loss from operations before income taxes |
|
$ |
(68,715 |
) |
|
|
|
Gross carrying |
|
Accumulated |
|
|
|
|||||||||
|
|
|
|
amount |
|
|
|
impairment |
|
|
|
Net amount |
|
|||
|
|
|
|
(in thousands) |
|
|
|
|||||||||
Balance at December 31, 2014 |
|
$ |
238,158 |
|
$ |
123,199 |
|
$ |
114,959 |
|
||||||
Purchase price adjustments |
|
(51 |
) |
— |
|
(51 |
) |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2015 and 2016 |
|
$ |
238,107 |
|
$ |
123,199 |
|
$ |
114,908 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
December 31, 2015 |
|
||||||||||||||||||||||
|
|
Weighted |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
||||||
|
|
Average Remaining |
|
|
|
Gross |
|
|
|
Amortization |
|
|
|
|
|
|
|
Gross |
|
|
|
Amortization |
|
|
|
|
|
||||||
|
|
Amortization |
|
|
|
Carrying |
|
|
|
and |
|
|
|
Net |
|
|
|
Carrying |
|
|
|
and |
|
|
|
Net |
|
||||||
|
|
Period |
|
|
|
Amount |
|
|
|
Impairment |
|
|
|
Amount |
|
|
|
Amount |
|
|
|
Impairment |
|
|
|
Amount |
|
||||||
|
|
(in years) |
|
(in thousands) |
|
||||||||||||||||||||||||||||
Technology |
|
7.3 |
|
$ |
149,198 |
|
$ |
113,904 |
|
$ |
35,294 |
|
$ |
222,358 |
|
$ |
120,496 |
|
$ |
101,862 |
|
||||||||||||
Customer relationships |
|
11.9 |
|
47,885 |
|
28,659 |
|
19,226 |
|
47,885 |
|
22,470 |
|
25,415 |
|
||||||||||||||||||
Trademarks and tradenames |
|
4.3 |
|
2,590 |
|
1,948 |
|
642 |
|
2,730 |
|
1,937 |
|
793 |
|
||||||||||||||||||
Indefinite-lived trademark |
|
— |
|
2,900 |
|
— |
|
2,900 |
|
2,900 |
|
— |
|
2,900 |
|
||||||||||||||||||
Other |
|
2.9 |
|
2,026 |
|
1,710 |
|
316 |
|
6,241 |
|
5,537 |
|
704 |
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Total |
|
8.9 |
|
$ |
204,599 |
|
$ |
146,221 |
|
$ |
58,378 |
|
$ |
282,114 |
|
$ |
150,440 |
|
$ |
131,674 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
(in thousands) |
|
|||
2017 |
|
$ |
11,470 |
|
||
2018 |
|
9,893 |
|
|||
2019 |
|
8,608 |
|
|||
2020 |
|
7,530 |
|
|||
2021 |
|
5,491 |
|
|||
Thereafter |
|
12,486 |
|
|||
|
|
|
|
|||
Total |
|
$ |
55,478 |
|
||
|
|
|
|
|
|
|
|
|
December 31, |
|
||||||
|
|
|
2016 |
|
|
|
2015 |
|
||
|
|
(in thousands) |
|
|||||||
Materials |
|
$ |
46,457 |
|
$ |
42,373 |
|
|||
Work-in-process |
|
25,250 |
|
30,327 |
|
|||||
Finished goods |
|
5,356 |
|
4,769 |
|
|||||
|
|
|
|
|
|
|||||
Total |
|
$ |
77,063 |
|
$ |
77,469 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
Average |
|
||||
|
|
2016 |
|
2015 |
|
Useful Life |
|
||
|
|
(in thousands) |
|
|
|
||||
Land |
|
$ |
5,669 |
|
$ |
9,592 |
|
N/A |
|
Building and improvements |
|
50,814 |
|
54,622 |
|
10-40 years |
|
||
Machinery and equipment(1) |
|
99,370 |
|
110,075 |
|
3-10 years |
|
||
Leasehold improvements |
|
3,652 |
|
5,554 |
|
3-7 years |
|
||
|
|
|
|
|
|
|
|
||
Gross property, plant and equipment |
|
159,505 |
|
179,843 |
|
|
|
||
Less: accumulated depreciation and amortization |
|
98,859 |
|
100,253 |
|
|
|
||
|
|
|
|
|
|
|
|
||
Net property, plant and equipment |
|
$ |
60,646 |
|
$ |
79,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Machinery and equipment also includes software, furniture and fixtures
|
|
|
|
|
December 31, |
|
|
|
|
|
||||||
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
||
|
|
(in thousands) |
|
|
|
|
|
||||||||
Payroll and related benefits |
|
$ |
18,780 |
|
$ |
30,917 |
|
|
|
|
|
||||
Warranty |
|
4,217 |
|
8,159 |
|
|
|
|
|
||||||
Professional fees |
|
1,827 |
|
2,224 |
|
|
|
|
|
||||||
Installation |
|
1,382 |
|
1,110 |
|
|
|
|
|
||||||
Sales, use, and other taxes |
|
1,282 |
|
1,132 |
|
|
|
|
|
||||||
Restructuring liability |
|
1,796 |
|
824 |
|
|
|
|
|
||||||
Other |
|
3,917 |
|
5,027 |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
33,201 |
|
$ |
49,393 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
Severance and |
|
|
|
Facility |
|
|
|
|
|
|||
|
|
|
|
Related Costs |
|
|
|
Related Costs |
|
|
|
Total |
|
|||
|
|
|
|
(in thousands) |
|
|
|
|||||||||
Balance at December 31, 2013 |
|
$ |
533 |
|
$ |
— |
|
$ |
533 |
|
||||||
Provision |
|
4,012 |
|
382 |
|
4,394 |
|
|||||||||
Payments |
|
(3,117 |
) |
(382 |
) |
(3,499 |
) |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2014 |
|
1,428 |
|
— |
|
1,428 |
|
|||||||||
Provision |
|
3,513 |
|
1,166 |
|
4,679 |
|
|||||||||
Payments |
|
(4,117 |
) |
(1,166 |
) |
(5,283 |
) |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2015 |
|
824 |
|
— |
|
824 |
|
|||||||||
Provision |
|
4,544 |
|
1,098 |
|
5,642 |
|
|||||||||
Changes in estimate |
|
(2 |
) |
— |
|
(2 |
) |
|||||||||
Payments |
|
(3,570 |
) |
(1,098 |
) |
(4,668 |
) |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2016 |
|
$ |
1,796 |
|
$ |
— |
|
$ |
1,796 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|||||||||||
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|||
|
|
(in thousands) |
|
|||||||||||||
Balance, beginning of the year |
|
$ |
8,159 |
|
$ |
5,411 |
|
$ |
5,662 |
|
||||||
Addition for new warranties issued |
|
3,916 |
|
7,873 |
|
3,484 |
|
|||||||||
Addition from PSP acquisition |
|
— |
|
— |
|
809 |
|
|||||||||
Settlements |
|
(6,433 |
) |
(3,551 |
) |
(3,802 |
) |
|||||||||
Changes in estimate |
|
(1,425 |
) |
(1,574 |
) |
(742 |
) |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of the year |
|
$ |
4,217 |
|
$ |
8,159 |
|
$ |
5,411 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Minimum lease commitments at December 31, 2016 for property and equipment under operating lease agreements (exclusive of renewal options) are payable as follows:
|
|
Operating |
|
|
|
|
Leases |
|
|
Payments due by period: |
|
(in thousands) |
|
|
2017 |
|
$ |
3,281 |
|
2018 |
|
2,292 |
|
|
2019 |
|
1,900 |
|
|
2020 |
|
1,592 |
|
|
2021 |
|
1,203 |
|
|
Thereafter |
|
3,605 |
|
|
|
|
|
|
|
Total |
|
$ |
13,873 |
|
|
|
|
|
|
|
|
Accounts Receivable |
|
Net Sales |
||||||
|
|
|
|
|
||||||
|
|
Year ended December 31, |
|
For the Year Ended December 31, |
||||||
Customer |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
2014 |
Customer A |
|
23% |
|
* |
|
13% |
|
* |
|
* |
Customer B |
|
17% |
|
* |
|
* |
|
* |
|
* |
Customer C |
|
* |
|
23% |
|
* |
|
* |
|
* |
Customer D |
|
* |
|
* |
|
* |
|
20% |
|
* |
Customer E |
|
* |
|
* |
|
* |
|
12% |
|
* |
Customer F |
|
* |
|
* |
|
* |
|
* |
|
15% |
Customer G |
|
* |
|
* |
|
* |
|
* |
|
11% |
* Less than 10% of aggregate accounts receivable or net sales
|
|
|
|
Total |
|
|
|
|
|
(in thousands) |
|
|
2017 |
|
|
368 |
|
|
2018 |
|
|
398 |
|
|
2019 |
|
|
428 |
|
|
|
|
|
|
|
|
Total |
|
|
1,194 |
|
|
Less current portion |
|
|
368 |
|
|
|
|
|
|
|
|
Total (less current maturities) |
|
|
$ |
826 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|||||||||||
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|||
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|||
Foreign currency exchange forwards |
|
|
$ |
219 |
|
|
|
$ |
— |
|
|
|
$ |
(89 |
) |
Foreign currency collar |
|
|
— |
|
|
|
— |
|
|
|
(457 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
$ |
219 |
|
|
|
$ |
— |
|
|
|
$ |
(546 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
||||
|
|
|
Foreign Currency |
|
|
|
Minimum Pension |
|
|
|
Gains (Losses) on |
|
|
|
|
|
||||
|
|
|
Translation |
|
|
|
Liability |
|
|
|
Securities |
|
|
|
Total |
|
||||
|
|
|
(in thousands) |
|
||||||||||||||||
Balance at December 31, 2013 |
|
|
$ |
5,326 |
|
|
|
$ |
(736 |
) |
|
|
$ |
31 |
|
|
|
$ |
4,621 |
|
Other comprehensive income (loss) before reclassifications |
|
|
149 |
|
|
|
(145 |
) |
|
|
51 |
|
|
|
55 |
|
||||
Amounts reclassified from AOCI |
|
|
(3,142 |
) |
|
|
— |
|
|
|
(65 |
) |
|
|
(3,207 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income (loss) |
|
|
(2,993 |
) |
|
|
(145 |
) |
|
|
(14 |
) |
|
|
(3,152 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at December 31, 2014 |
|
|
2,333 |
|
|
|
(881 |
) |
|
|
17 |
|
|
|
1,469 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income (loss) |
|
|
(87 |
) |
|
|
15 |
|
|
|
(49 |
) |
|
|
(121 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at December 31, 2015 |
|
|
2,246 |
|
|
|
(866 |
) |
|
|
(32 |
) |
|
|
1,348 |
|
||||
Other comprehensive income (loss), before reclassifications |
|
|
(19 |
) |
|
|
— |
|
|
|
(6 |
) |
|
|
(25 |
) |
||||
Amounts reclassified from AOCI |
|
|
(430 |
) |
|
|
866 |
|
|
|
18 |
|
|
|
454 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income (loss) |
|
|
(449 |
) |
|
|
866 |
|
|
|
12 |
|
|
|
429 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at December 31, 2016 |
|
|
$ |
1,797 |
|
|
|
$ |
— |
|
|
|
$ |
(20 |
) |
|
|
$ |
1,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|||||||||||
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|||
|
|
|
|
(in thousands) |
|
|
|
|
|
|||||||
Cost of sales |
|
|
|
$ |
1,956 |
|
|
|
$ |
2,495 |
|
|
|
$ |
2,456 |
|
Research and development |
|
|
|
3,324 |
|
|
|
4,031 |
|
|
|
4,498 |
|
|||
Selling, general, and administrative |
|
|
|
10,433 |
|
|
|
11,474 |
|
|
|
11,859 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
|
$ |
15,713 |
|
|
|
$ |
18,000 |
|
|
|
$ |
18,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized share-based compensation costs at December 31, 2016 are summarized below:
|
|
|
|
Unrecognized |
|
|
|
Weighted |
|
|
|
|
|
|
Share-Based |
|
|
|
Average Period |
|
|
|
|
|
|
Compensation |
|
|
|
Expected to be |
|
|
|
|
|
|
Costs |
|
|
|
Recognized |
|
|
|
|
|
|
(in thousands) |
|
|
|
(in years) |
|
|
Stock option awards |
|
|
|
$ |
660 |
|
|
|
0.6 |
|
Restricted stock units |
|
|
|
3,034 |
|
|
|
2.0 |
|
|
Restricted stock awards |
|
|
|
20,669 |
|
|
|
2.7 |
|
|
Performance share units |
|
|
|
4,556 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized share-based compensation cost |
|
|
|
$ |
28,919 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, options outstanding that have vested and are expected to vest are as follows:
|
|
|
|
|
Weighted |
|
|
|
||||||
|
Number |
|
Weighted |
|
Average |
|
Aggregate |
|
||||||
|
of |
|
Average |
|
Remaining |
|
Intrinsic |
|
||||||
|
Shares |
|
Exercise Price |
|
Contractual Life |
|
Value |
|
||||||
|
|
(in thousands) |
|
|
|
|
|
(in years) |
|
|
(in thousands) |
|
||
Vested |
|
1,449 |
|
|
$ |
35.39 |
|
|
4.9 |
|
|
$ |
39 |
|
Expected to vest |
|
127 |
|
|
32.79 |
|
|
5.1 |
|
|
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total |
|
1,576 |
|
|
$ |
35.18 |
|
|
4.9 |
|
|
$ |
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|||
|
|
Number of |
|
Average |
|
|||
|
|
Shares |
|
Exercise Price |
|
|||
|
|
|
(in thousands) |
|
|
|
|
|
Outstanding at December 31, 2013 |
|
|
2,598 |
|
|
$ |
29.98 |
|
Granted |
|
|
509 |
|
|
33.05 |
|
|
Exercised |
|
|
(561 |
) |
|
23.88 |
|
|
Expired or forfeited |
|
|
(155 |
) |
|
36.22 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014 |
|
|
2,391 |
|
|
31.65 |
|
|
Granted |
|
|
17 |
|
|
30.22 |
|
|
Exercised |
|
|
(192 |
) |
|
12.95 |
|
|
Expired or forfeited |
|
|
(152 |
) |
|
38.15 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015 |
|
|
2,064 |
|
|
32.91 |
|
|
Granted |
|
|
— |
|
|
— |
|
|
Exercised |
|
|
(194 |
) |
|
12.18 |
|
|
Expired or forfeited |
|
|
(294 |
) |
|
34.44 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016 |
|
|
1,576 |
|
|
$ |
35.18 |
|
|
|
|
|
|
|
|
|
|
The following table summarizes stock option information at December 31, 2016:
|
|
Options Outstanding |
|
Options Exercisable |
|
||||||||||||||||||||
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|||||
|
|
|
|
|
Average |
|
Weighted |
|
|
|
|
Aggregate |
|
Average |
|
Weighted |
|
||||||||
Range of |
|
|
|
|
Remaining |
|
Average |
|
|
|
|
Intrinsic |
|
Remaining |
|
Average |
|
||||||||
Exercise Prices |
|
Shares |
|
Contractual Life |
|
Exercise Price |
|
Shares |
|
Value |
|
Contractual Life |
|
Exercise Price |
|
||||||||||
|
|
(in thousands) |
|
(in years) |
|
|
|
(in thousands) |
|
(in thousands) |
|
(in years) |
|
|
|
|
|||||||||
$20.00 – $30.00 |
|
|
32 |
|
|
5.8 |
|
|
$ |
28.18 |
|
|
29 |
|
|
$ |
39 |
|
|
5.9 |
|
|
$ |
28.04 |
|
$30.01 – $40.00 |
|
|
1,336 |
|
|
5.1 |
|
|
33.09 |
|
|
1,212 |
|
|
— |
|
|
5.1 |
|
|
33.12 |
|
|||
$40.01 – $50.00 |
|
|
73 |
|
|
2.7 |
|
|
45.93 |
|
|
73 |
|
|
— |
|
|
2.7 |
|
|
45.96 |
|
|||
$50.01 – $60.00 |
|
|
135 |
|
|
4.4 |
|
|
51.70 |
|
|
135 |
|
|
— |
|
|
4.4 |
|
|
51.70 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
1,576 |
|
|
4.9 |
|
|
$ |
35.18 |
|
|
1,449 |
|
|
$ |
39 |
|
|
4.9 |
|
|
$ |
35.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Weighted average fair value |
|
$ |
10.58 |
|
$ |
11.58 |
|
Dividend yield |
|
0% |
|
0% |
|
||
Expected volatility factor(1) |
|
44% |
|
44% |
|
||
Risk-free interest rate(2) |
|
1.18% |
|
1.19% |
|
||
Expected life (in years)(3) |
|
3.9 |
|
3.9 |
|
(1) |
Expected volatility is measured using historical daily price changes of the Company’s stock over the respective expected term of the options and the implied volatility derived from the market prices of the Company’s traded options. |
(2) |
The risk-free rate for periods within the contractual term of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant. |
(3) |
The expected life is the number of years the Company estimates that options will be outstanding prior to exercise. The Company’s computation of expected life was determined using a lattice-based model incorporating historical post vest exercise and employee termination behavior. |
|
|
Year ended December 31, |
|
|||||||
|
|
2016 |
|
2015 |
|
2014 |
|
|||
|
|
(in thousands) |
|
|||||||
Cash received from options exercised |
|
$ |
494 |
|
$ |
2,233 |
|
$ |
12,056 |
|
Intrinsic value of options exercised |
|
$ |
1,165 |
|
$ |
2,089 |
|
$ |
8,390 |
|
|
|
|
|
Weighted |
|
|||
|
|
|
|
Average |
|
|||
|
|
Number of |
|
Grant Date |
|
|||
|
|
Shares |
|
Fair Value |
|
|||
|
|
(in thousands) |
|
|
|
|||
Outstanding - December 31, 2013 |
|
|
1,158 |
|
|
$ |
34.93 |
|
Granted |
|
|
395 |
|
|
34.18 |
|
|
Released |
|
|
(183 |
) |
|
38.65 |
|
|
Forfeited |
|
|
(133 |
) |
|
33.66 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31, 2014 |
|
|
1,237 |
|
|
34.27 |
|
|
Granted |
|
|
672 |
|
|
30.33 |
|
|
Released |
|
|
(389 |
) |
|
35.65 |
|
|
Forfeited |
|
|
(122 |
) |
|
34.46 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31, 2015 |
|
|
1,398 |
|
|
|
31.97 |
|
Granted |
|
|
1,166 |
|
|
17.59 |
|
|
Released |
|
|
(349 |
) |
|
32.73 |
|
|
Forfeited |
|
|
(266 |
) |
|
27.31 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31, 2016 |
|
|
1,949 |
|
|
$ |
23.85 |
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
2016 |
|
|
Weighted average fair value |
|
$ |
4.45 |
|
Dividend yield |
|
0% |
|
|
Expected volatility factor(1) |
|
43% |
|
|
Risk-free interest rate(2) |
|
0.35% |
|
|
Expected life (in years)(3) |
|
0.5 |
|
(1) |
Expected volatility is measured using historical daily price changes of the Company’s stock over the respective expected term of the options and the implied volatility derived from the market prices of the Company’s traded options. |
(2) |
The risk-free rate for periods within the contractual term of the purchase rights is based on the U.S. Treasury yield curve in effect at the time of grant. |
(3) |
The expected life is the length of time, in years, that the purchase rights will be outstanding. |
|
|
|
|
Year ended December 31, |
|
|||||||||
|
|
2016 |
|
2015 |
|
2014 |
|||||||
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|||
Domestic |
|
|
$ |
(123,021 |
) |
|
$ |
(53,553 |
) |
|
$ |
(95,195 |
) |
Foreign |
|
|
3,577 |
|
|
30,907 |
|
|
16,841 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
$ |
(119,444 |
) |
|
$ |
(22,646 |
) |
|
$ |
(78,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|||||||||
|
|
2016 |
|
2015 |
|
2014 |
|||||||
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
$ |
— |
|
|
$ |
139 |
|
|
$ |
(2,464 |
) |
Foreign |
|
|
1,937 |
|
|
6,952 |
|
|
2,325 |
|
|||
State and local |
|
|
(111 |
) |
|
(407 |
) |
|
55 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Total current expense (benefit) for income taxes |
|
|
1,826 |
|
|
6,684 |
|
|
(84 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Deferred: |
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
1,459 |
|
|
2,104 |
|
|
(11,230 |
) |
|||
Foreign |
|
|
(646 |
) |
|
516 |
|
|
(291 |
) |
|||
State and local |
|
|
127 |
|
|
28 |
|
|
191 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Total deferred expense (benefit) for income taxes |
|
|
940 |
|
|
2,648 |
|
|
(11,330 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Total expense (benefit) for income taxes |
|
|
$ |
2,766 |
|
|
$ |
9,332 |
|
|
$ |
(11,414 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|||||||||
|
|
2016 |
|
2015 |
|
2014 |
|||||||
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|||
Income tax expense (benefit) at U.S. statutory rates |
|
|
$ |
(41,806 |
) |
|
$ |
(7,926 |
) |
|
$ |
(27,424 |
) |
State taxes, net of U.S. federal impact |
|
|
(1,963 |
) |
|
(1,607 |
) |
|
(662 |
) |
|||
Effect of international operations |
|
|
8,849 |
|
|
(7,659 |
) |
|
(6,160 |
) |
|||
Research and development tax credit |
|
|
(801 |
) |
|
(1,628 |
) |
|
(1,935 |
) |
|||
Net change in valuation allowance |
|
|
50,520 |
|
|
23,655 |
|
|
27,156 |
|
|||
Change in accrual for unrecognized tax benefits |
|
|
(1,700 |
) |
|
4,876 |
|
|
(1,940 |
) |
|||
ALD liquidation |
|
|
(12,435 |
) |
|
— |
|
|
— |
|
|||
U.S. share-based compensation |
|
|
2,133 |
|
|
— |
|
|
— |
|
|||
Goodwill impairment |
|
|
— |
|
|
— |
|
|
9,786 |
|
|||
Change in contingent consideration |
|
|
— |
|
|
— |
|
|
(10,279 |
) |
|||
Worthless stock deduction |
|
|
— |
|
|
(2,069 |
) |
|
— |
|
|||
Change in entity tax status |
|
|
— |
|
|
904 |
|
|
— |
|
|||
Other |
|
|
(31 |
) |
|
786 |
|
|
44 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
Total expense (benefit) for income taxes |
|
|
$ |
2,766 |
|
|
$ |
9,332 |
|
|
$ |
(11,414 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|||||
|
|
2016 |
|
2015 |
|||||
|
|
|
(in thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
|
||
Inventory valuation |
|
|
$ |
6,681 |
|
|
$ |
6,334 |
|
Net operating losses and credit carry forwards |
|
|
54,527 |
|
|
33,181 |
|
||
Credit carry forwards |
|
|
24,598 |
|
|
20,738 |
|
||
Warranty and installation accruals |
|
|
1,757 |
|
|
3,022 |
|
||
Share-based compensation |
|
|
12,624 |
|
|
12,461 |
|
||
Other |
|
|
6,778 |
|
|
5,787 |
|
||
|
|
|
|
|
|
|
|
||
Total deferred tax assets |
|
|
106,965 |
|
|
81,523 |
|
||
Valuation allowance |
|
|
(106,793 |
) |
|
(56,273 |
) |
||
|
|
|
|
|
|
|
|
||
Net deferred tax assets |
|
|
172 |
|
|
25,250 |
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
|
||
Purchased intangible assets |
|
|
11,071 |
|
|
32,550 |
|
||
Undistributed earnings |
|
|
186 |
|
|
618 |
|
||
Depreciation |
|
|
69 |
|
|
1,908 |
|
||
|
|
|
|
|
|
|
|
||
Total deferred tax liabilities |
|
|
11,326 |
|
|
35,076 |
|
||
|
|
|
|
|
|
|
|
||
Net deferred taxes |
|
|
$ |
(11,154 |
) |
|
$ |
(9,826 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|||||||||||
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|||
|
|
|
(in thousands) |
|
|||||||||||
Balance at beginning of year |
|
|
$ |
9,152 |
|
|
|
$ |
4,276 |
|
|
|
$ |
6,228 |
|
Additions for tax positions related to current year |
|
|
1,038 |
|
|
|
5,596 |
|
|
|
244 |
|
|||
Additions for tax positions related to prior years |
|
|
233 |
|
|
|
143 |
|
|
|
199 |
|
|||
Reductions for tax positions related to prior years |
|
|
(2,826 |
) |
|
|
— |
|
|
|
(2,345 |
) |
|||
Reductions due to the lapse of the statute of limitations |
|
|
(39 |
) |
|
|
(642 |
) |
|
|
(38 |
) |
|||
Settlements |
|
|
(106 |
) |
|
|
(221 |
) |
|
|
(12 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Balance at end of year |
|
|
$ |
7,452 |
|
|
|
$ |
9,152 |
|
|
|
$ |
4,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|||||||||||
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|||
|
|
|
(in thousands) |
|
|||||||||||
Sales by end-market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lighting, Display & Power Electronics |
|
|
$ |
136,247 |
|
|
|
$ |
291,133 |
|
|
|
$ |
278,551 |
|
Advanced Packaging, MEMS & RF |
|
|
68,304 |
|
|
|
61,935 |
|
|
|
11,449 |
|
|||
Scientific & Industrial |
|
|
74,913 |
|
|
|
64,297 |
|
|
|
44,429 |
|
|||
Data Storage |
|
|
52,987 |
|
|
|
59,673 |
|
|
|
58,444 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
$ |
332,451 |
|
|
|
$ |
477,038 |
|
|
|
$ |
392,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales to Unaffiliated Customers |
|
Long-lived Tangible Assets |
||||||||||||||||||||||||||
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2014 |
|
||||||
|
|
|
(in thousands) |
|
||||||||||||||||||||||||||
United States |
|
|
$ |
85,637 |
|
|
|
$ |
86,627 |
|
|
|
$ |
44,060 |
|
|
|
$ |
60,012 |
|
|
|
$ |
64,951 |
|
|
|
$ |
63,349 |
|
China |
|
|
85,834 |
|
|
|
242,442 |
|
|
|
159,063 |
|
|
|
219 |
|
|
|
422 |
|
|
|
621 |
|
||||||
EMEA(1) |
|
|
83,410 |
|
|
|
64,019 |
|
|
|
35,644 |
|
|
|
93 |
|
|
|
96 |
|
|
|
78 |
|
||||||
Rest of World |
|
|
77,570 |
|
|
|
83,950 |
|
|
|
154,106 |
|
|
|
322 |
|
|
|
14,121 |
|
|
|
14,704 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
|
$ |
332,451 |
|
|
|
$ |
477,038 |
|
|
|
$ |
392,873 |
|
|
|
$ |
60,646 |
|
|
|
$ |
79,590 |
|
|
|
$ |
78,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) EMEA consists of Europe, the Middle East, and Africa
|
|
|
Fiscal 2016 |
|
Fiscal 2015 |
|||||||||||||||||||||
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
||||||||
|
|
(in thousands, except per share amounts) |
|
||||||||||||||||||||||
Net sales |
|
$ |
78,011 |
|
$ |
75,348 |
|
$ |
85,482 |
|
$ |
93,609 |
|
$ |
98,341 |
|
$ |
131,410 |
|
$ |
140,744 |
|
$ |
106,543 |
|
Gross profit |
|
31,956 |
|
31,439 |
|
33,455 |
|
36,008 |
|
35,136 |
|
49,069 |
|
54,250 |
|
38,786 |
|
||||||||
Net income (loss) |
|
(15,533) |
|
(32,082) |
|
(69,598) |
|
(4,998) |
|
(19,110) |
|
(8,386) |
|
5,306 |
|
(9,788) |
|
||||||||
Basic income (loss) per common share |
|
(0.40) |
|
(0.82) |
|
(1.78) |
|
(0.13) |
|
(0.48) |
|
(0.21) |
|
0.13 |
|
(0.25) |
|
||||||||
Diluted income (loss) per common share |
|
(0.40) |
|
(0.82) |
|
(1.78) |
|
(0.13) |
|
(0.48) |
|
(0.21) |
|
0.13 |
|
(0.25) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|