Results of Operations
Effective January 1, 2018, we adopted ASC Topic 606,
Revenue from Contracts with Customers
(“ASC 606”). The results of operations for 2017 and 2016 have been recast for the new standard. Refer to Note 1, “Significant Accounting Policies” for additional information.
Years Ended December 31, 2018 and 2017
The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for 2018 and 2017 and the period-over-period dollar and percentage changes for those line items. Our results of operations are reported as one business segment, represented by our single operating segment.
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|
|
|
|
|
|
|
|
|
|
|
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For the year ended December 31,
|
|
Change
|
|
|
|
2018
|
|
2017
|
|
Period to Period
|
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
542,082
|
100
|
%
|
$
|
475,686
|
100
|
%
|
$
|
66,396
|
14
|
%
|
Cost of sales
|
|
|
348,363
|
64
|
%
|
|
299,458
|
63
|
%
|
|
48,905
|
16
|
%
|
Gross profit
|
|
|
193,719
|
36
|
%
|
|
176,228
|
37
|
%
|
|
17,491
|
10
|
%
|
Operating expenses, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
97,755
|
18
|
%
|
|
81,987
|
17
|
%
|
|
15,768
|
19
|
%
|
Selling, general, and administrative
|
|
|
92,060
|
17
|
%
|
|
100,250
|
21
|
%
|
|
(8,190)
|
(8)
|
%
|
Amortization of intangible assets
|
|
|
32,351
|
6
|
%
|
|
35,475
|
7
|
%
|
|
(3,124)
|
(9)
|
%
|
Restructuring
|
|
|
8,556
|
2
|
%
|
|
11,851
|
2
|
%
|
|
(3,295)
|
(28)
|
%
|
Acquisition costs
|
|
|
2,959
|
1
|
%
|
|
17,786
|
4
|
%
|
|
(14,827)
|
(83)
|
%
|
Asset impairment
|
|
|
375,172
|
69
|
%
|
|
1,139
|
0
|
%
|
|
374,033
|
*
|
|
Other, net
|
|
|
368
|
0
|
%
|
|
(392)
|
(0)
|
%
|
|
760
|
*
|
|
Total operating expenses, net
|
|
|
609,221
|
112
|
%
|
|
248,096
|
52
|
%
|
|
361,125
|
146
|
%
|
Operating income (loss)
|
|
|
(415,502)
|
(77)
|
%
|
|
(71,868)
|
(15)
|
%
|
|
(343,634)
|
*
|
|
Interest income (expense), net
|
|
|
(18,332)
|
(3)
|
%
|
|
(17,122)
|
(4)
|
%
|
|
(1,210)
|
7
|
%
|
Income (loss) before income taxes
|
|
|
(433,834)
|
(80)
|
%
|
|
(88,990)
|
(19)
|
%
|
|
(344,844)
|
*
|
|
Income tax expense (benefit)
|
|
|
(26,746)
|
(5)
|
%
|
|
(37,594)
|
(8)
|
%
|
|
10,848
|
(29)
|
%
|
Net income (loss)
|
|
$
|
(407,088)
|
(75)
|
%
|
$
|
(51,396)
|
(11)
|
%
|
$
|
(355,692)
|
*
|
|
Net Sales
The following is an analysis of sales by market and by region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
Change
|
|
|
|
2018
|
|
2017
|
|
Period to Period
|
|
|
|
(dollars in thousands)
|
|
Sales by market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Packaging, MEMS & RF Filters
|
|
$
|
90,775
|
17
|
%
|
$
|
67,406
|
15
|
%
|
$
|
23,369
|
35
|
%
|
LED Lighting, Display & Compound Semiconductor
|
|
|
249,974
|
46
|
%
|
|
248,615
|
52
|
%
|
|
1,359
|
1
|
%
|
Front-End Semiconductor
|
|
|
62,582
|
12
|
%
|
|
40,319
|
8
|
%
|
|
22,263
|
55
|
%
|
Scientific & Industrial
|
|
|
138,751
|
25
|
%
|
|
119,346
|
25
|
%
|
|
19,405
|
16
|
%
|
Total
|
|
$
|
542,082
|
100
|
%
|
$
|
475,686
|
100
|
%
|
$
|
66,396
|
14
|
%
|
Sales by geographic region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
125,659
|
23
|
%
|
$
|
93,433
|
20
|
%
|
$
|
32,226
|
34
|
%
|
China
|
|
|
194,032
|
36
|
%
|
|
106,674
|
22
|
%
|
|
87,358
|
82
|
%
|
EMEA
|
|
|
89,102
|
16
|
%
|
|
72,979
|
15
|
%
|
|
16,123
|
22
|
%
|
Rest of World
|
|
|
133,289
|
25
|
%
|
|
202,600
|
43
|
%
|
|
(69,311)
|
(34)
|
%
|
Total
|
|
$
|
542,082
|
100
|
%
|
$
|
475,686
|
100
|
%
|
$
|
66,396
|
14
|
%
|
Total sales increased across all market categories for the year ended December 31, 2018 against the comparable prior year period, driven by additional sales from the Ultratech business acquired in May 2017, primarily in the Advanced Packaging, MEMS & RF Filters market. Additionally, sales in the Scientific & Industrial market were driven primarily by shipments of Ion Beam deposition systems for data storage applications as well as optical coatings. Pricing did not have a significant impact on the change in total sales. By geography, sales increased in the United States, China, and EMEA regions, offset by a decrease in the Rest of World region. The most significant increase occurred in the China region, which was largely attributable to the increased sales in the LED Lighting, Display & Compound Semiconductor and Front-End Semiconductor markets.
W
e do not expect significant new orders in China for the LED Lighting, Display & Compound Semiconductor market in the near future. Sales decreased in Rest of World due to a reduction of sales in the LED lighting, Display & Compound Semiconductor market in Malaysia. We expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies.
Gross Profit
In 2018, gross margins decreased compared to 2017 due to a shift in our product mix in the LED market that we saw in the first half of 2018, while gross profit increased due to an increase in sales volume, including the acquisition of Ultratech.
Research and Development
The markets we serve are characterized by continuous technological development and product innovation, and we invest in various research and development initiatives to maintain our competitive advantage and achieve our growth objectives. Research and development expenses increased in 2018 compared to 2017 primarily as a result of the addition of a full year of the acquired Ultratech research and development related projects.
Selling, General, and Administrative
Selling, general, and administrative expenses decreased in 2018 compared to 2017,
as increases due to the addition of the acquired Ultratech related selling, general, and administrative costs for a full year were offset by reductions to personnel-related expenses, including a reduction in incentive compensation, and professional fees as a result of our initiative to enhance efficiency and reduce costs.
On November 1, 2018, we announced an attack on our computer systems. Upon learning of the attack, forensic experts were promptly engaged to assist with the investigation. We also notified law enforcement of the incident.
The investigation, which has largely been completed, determined that our computer systems were accessed by what appears to be a highly-sophisticated actor at various times over a period of years. It appears that proprietary and confidential information of the Company and certain personal information of our employees was accessed and may have been compromised as a result of the incident. Based on the evidence available at this time, the extent and impact of the compromise cannot be determined. We notified employees of this incident. We are continuing to analyze the incident, along with appropriate remediation of our computer systems. That analysis and the related remediation efforts could ultimately reveal that additional information was revealed or compromised.
Based on the evidence available at this time, we do not know if or when we will be able to determine the potential impact to us, whether we will be able to identify who is responsible for this attack, or whether we will be able to pursue legal action or other remedies to protect any compromised information or recover damages related to the attack. This attack, including the expenses incurred to address it, may have an adverse effect on our results of operations and/or financial condition. In addition, this attack may have caused the loss or misuse of proprietary and confidential information of us or others, result in litigation and potential liability, damage our reputation, and/or otherwise harm our business.
We take the security of our information, and that relating to our employees, customers, and trading partners, very seriously and have taken steps to prevent a similar incident from occurring in the future. We are continuing to cooperate fully with the investigation by law enforcement.
Amortization Expense
Amortization expense decreased slightly in 2018 compared to 2017, as increases in amortization expense as a result of the additional intangibles acquired as part of the acquisition of Ultratech were offset by the lower amortization resulting from the impairment of intangible assets of $252.3 million during the second quarter of 2018. We expect to see a decrease in amortization expense in future years as a result of this impairment.
Restructuring Expense
During 2017, we initiated certain restructuring activities related to our efforts to streamline operations, enhance efficiencies, and reduce costs, and we reduced our investments in certain technology development. In addition, during 2017, we began the Ultratech acquisition integration process to enhance efficiencies, resulting in reductions in headcount and other facility costs. During the year ended December 31, 2018, additional accruals were recognized and payments were made related to these restructuring initiatives.
During the second quarter of 2018, we initiated plans to further reduce excess capacity associated with the manufacture and support of our advanced packaging lithography and 3D wafer inspection systems by consolidating these operations into our San Jose, California facility. As a result of this and other cost saving initiatives, we announced headcount reductions of approximately 40 employees and recorded restructuring charges related to these actions of $2.8 million for the year ended December 31, 2018, consisting principally of personnel severance and related costs. We expect the consolidation to be completed in the first quarter of 2019, and expect to incur immaterial additional restructuring costs as this initiative is completed.
During the third quarter of 2018, we initiated additional restructuring activities to further reduce costs, including headcount reductions impacting approximately 35 employees, and recorded restructuring charges related to these actions of $1.2 million, consisting principally of personnel severance and related costs. This initiative was completed by the end of 2018, and we expect it to provide approximately $5 million in annualized savings. Restructuring expense for the year ended December 31, 2018 included non-cash charges of $1.2 million related to accelerated share-based compensation for employee terminations, compared to $1.9 million for the comparable prior year period.
Acquisition Costs
Acquisition costs are non-recurring charges incurred in connection with the acquisition of the Ultratech business,
as well as legal and professional fees incurred in connection with certain integration activities. Acquisition costs included $4.2 million of non-cash charges related to accelerated share-based compensation for employee terminations for the year ended December 31, 2017.
Asset Impairment
During the second quarter of 2018, we lowered our projected results for the Ultratech asset group, which were significantly below the projected results at the time of the acquisition. The reduced projections were based on lower than expected unit volume of certain smartphones, which incorporate advanced packaging methods such as
FOWLP, and a delay in the adoption of FOWLP advanced packaging by other electronics manufacturers, both of which slowed orders and reduced revenue projections for our advanced packaging lithography systems. In addition, there has been a delay in the build out of 28nm facilities by companies in China who were expected to purchase our LSA systems. Taken together, the reduced projections identified during the second quarter of 2018 required us to assess the Ultratech asset group for impairment. As a result of the analysis, during the second quarter of 2018 we recorded a $252.3 million non-cash intangible asset impairment charge.
Additionally, as a result of a significant decline in our stock price during the fourth quarter of 2018, we concluded it was appropriate to perform an interim goodwill impairment test as of the end of the fourth quarter. The fair value of our reporting unit was determined using an adjusted market capitalization approach, which is calculated by multiplying our stock price by the number of outstanding shares and adding a control premium. The fair value of our reporting unit was determined to be below the carrying value, and we recorded an impairment charge equal to the excess of carrying value over fair value, or $122.8 million, for the year ended December 31, 2018. The valuation of goodwill will continue to be subject to changes in our market capitalization and observable market control premiums. This analysis is sensitive to changes in our stock price and absent other qualitative factors, we may be required to record additional goodwill impairment charges in future periods if the stock price declines and remains depressed for an extended period of time.
Interest Income (Expense)
For the year ended December 31, 2018, we recorded net interest expense of $18.3 million, compared to $17.1 million for the comparable prior period. The increase in net interest expense is primarily attributable to the Convertible Senior Notes issued in January 2017 that were outstanding for the full period in 2018, compared to a partial period in 2017. Included in interest expense for the year ended December 31, 2018 and 2017 were non-cash charges of $11.8 million and $10.4 million, respectively, related to the amortization of debt discount and transaction costs of the Convertible Senior Notes.
Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”), which made broad and complex changes to the U.S. tax code. In response to the 2017 Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provided guidance on accounting for the tax effects of the 2017 Tax Act, including addressing any uncertainty or diversity of view in applying ASC 740,
Income Taxes
(“ASC 740”), in the reporting period in which the 2017 Tax Act was enacted. In addition, SAB 118 provided a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date for companies to complete the accounting under ASC 740.
During the year ended December 31, 2017, we recorded an $11.3 million income tax benefit related to the re-measurement of our deferred tax assets and liabilities at the reduced rate of 21 percent and a reduction in our U.S. valuation allowance attributable to indefinite lived intangible assets becoming a source of future taxable income for certain deferred tax assets that are expected to have an indefinite life due to the 2017 Tax Act. During the year ended December 31, 2018, we finalized the accounting for the tax effects of the 2017 Tax Act based on legislative updates currently available and recorded an additional income tax benefit of $1.7 million for alternative minimum tax credits that became refundable in accordance with the 2017 Tax Act. We also reported an increase in deferred tax assets of $6.8 million as a result of adjustments to tax attributes utilized for one-time transition tax, which was offset by a full valuation allowance.
The 2018 income tax benefit of $26.7 million is comprised of: (i) a $25.2 million income tax benefit related to the impairment of certain intangible assets during the year, (ii) a $1.7 million income tax benefit recorded in connection with the 2017 Tax Act, (iii) a $0.4 million income tax expense related primarily to U.S. tax amortization of our indefinite-lived intangible assets that is not available to offset existing deferred tax assets, as well as state and local income taxes, and (iv) a $0.2 million income tax benefit from non-U.S. operations and non-U.S. withholding taxes recorded as we now expect to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 Tax Act.
The 2017 income tax benefit of $37.6 million is comprised of: (i) a $25.3 million income tax benefit related to domestic losses incurred during the year ended December 31, 2017, as the deferred tax liability created by the issuance of the Convertible Senior Notes and recorded as a component of APIC is treated as a source of income in fiscal 2017, (ii) a $11.3 million income tax benefit recorded in connection with the 2017 Tax Act, and (iii) a $1.0 million income tax benefit from non-U.S. operations primarily attributable to a reduction in uncertain tax positions and the recognition of a deferred tax asset for certain non-U.S. net operating losses generated in prior years that have become realizable on a more-likely-than-not basis, offset by tax expense attributed to the profitable non-U.S. operations, as well as withholding
taxes recorded as we now expect to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 Tax Act.
Years Ended December 31, 2017 and 2016
The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for 2017 and 2016 and the period-over-period dollar and percentage changes for those line items. Our results of operations are reported as one business segment, represented by our single operating segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
Change
|
|
|
|
2017
|
|
2016
|
|
Period to Period
|
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
475,686
|
100
|
%
|
$
|
331,702
|
100
|
%
|
$
|
143,984
|
43
|
%
|
Cost of sales
|
|
|
299,458
|
63
|
%
|
|
198,604
|
60
|
%
|
|
100,854
|
51
|
%
|
Gross profit
|
|
|
176,228
|
37
|
%
|
|
133,098
|
40
|
%
|
|
43,130
|
32
|
%
|
Operating expenses, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
81,987
|
17
|
%
|
|
81,016
|
24
|
%
|
|
971
|
1
|
%
|
Selling, general, and administrative
|
|
|
100,250
|
21
|
%
|
|
77,642
|
23
|
%
|
|
22,608
|
29
|
%
|
Amortization of intangible assets
|
|
|
35,475
|
7
|
%
|
|
19,219
|
6
|
%
|
|
16,256
|
85
|
%
|
Restructuring
|
|
|
11,851
|
2
|
%
|
|
5,640
|
2
|
%
|
|
6,211
|
110
|
%
|
Acquisition costs
|
|
|
17,786
|
4
|
%
|
|
—
|
0
|
%
|
|
17,786
|
*
|
|
Asset impairment
|
|
|
1,139
|
0
|
%
|
|
69,520
|
21
|
%
|
|
(68,381)
|
(98)
|
%
|
Other, net
|
|
|
(392)
|
0
|
%
|
|
223
|
0
|
%
|
|
(615)
|
*
|
|
Total operating expenses, net
|
|
|
248,096
|
52
|
%
|
|
253,260
|
76
|
%
|
|
(5,164)
|
(2)
|
%
|
Operating income (loss)
|
|
|
(71,868)
|
(15)
|
%
|
|
(120,162)
|
(36)
|
%
|
|
48,294
|
(40)
|
%
|
Interest income (expense), net
|
|
|
(17,122)
|
(4)
|
%
|
|
958
|
0
|
%
|
|
(18,080)
|
*
|
|
Income (loss) before income taxes
|
|
|
(88,990)
|
(19)
|
%
|
|
(119,204)
|
(36)
|
%
|
|
30,214
|
(25)
|
%
|
Income tax expense (benefit)
|
|
|
(37,594)
|
(8)
|
%
|
|
2,823
|
1
|
%
|
|
(40,417)
|
*
|
|
Net income (loss)
|
|
$
|
(51,396)
|
(11)
|
%
|
$
|
(122,027)
|
(37)
|
%
|
$
|
70,631
|
(58)
|
%
|
Net Sales
The following is an analysis of sales by market and by region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
Change
|
|
|
|
2017
|
|
2016
|
|
Period to Period
|
|
|
|
(dollars in thousands)
|
|
Sales by market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Packaging, MEMS & RF Filters
|
|
$
|
67,406
|
15
|
%
|
$
|
67,484
|
20
|
%
|
$
|
(78)
|
(0)
|
%
|
LED Lighting, Display & Compound Semiconductor
|
|
|
248,615
|
52
|
%
|
|
145,701
|
44
|
%
|
|
102,914
|
71
|
%
|
Front-End Semiconductor
|
|
|
40,319
|
8
|
%
|
|
8,427
|
3
|
%
|
|
31,892
|
378
|
%
|
Scientific & Industrial
|
|
|
119,346
|
25
|
%
|
|
110,090
|
33
|
%
|
|
9,256
|
8
|
%
|
Total
|
|
$
|
475,686
|
100
|
%
|
$
|
331,702
|
100
|
%
|
$
|
143,984
|
43
|
%
|
Sales by geographic region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
93,433
|
20
|
%
|
$
|
85,582
|
26
|
%
|
$
|
7,851
|
9
|
%
|
China
|
|
|
106,674
|
22
|
%
|
|
84,604
|
26
|
%
|
|
22,070
|
26
|
%
|
EMEA
|
|
|
72,979
|
15
|
%
|
|
84,181
|
25
|
%
|
|
(11,202)
|
(13)
|
%
|
Rest of World
|
|
|
202,600
|
43
|
%
|
|
77,335
|
23
|
%
|
|
125,265
|
162
|
%
|
Total
|
|
$
|
475,686
|
100
|
%
|
$
|
331,702
|
100
|
%
|
$
|
143,984
|
43
|
%
|
Total sales increased in 2017 from 2016 due to increased sales in the LED Lighting, Display & Compound Semiconductor, Front-End Semiconductor, and Scientific & Industrial markets, driven by LED industry conditions, as well as additional sales of approximately $65.3 million from the Ultratech business acquired in May 2017, primarily in the Front-End Semiconductor and Advanced Packaging, MEMS & RF Filters markets. Pricing was not a significant driver of the change in total sales. By geography, sales increased in the United States, China, and Rest of World regions, offset by a slight decrease in the EMEA region. The most significant increase occurred in the Rest of World region, which was attributable to the increased sales in the LED Lighting, Display & Compound Semiconductor market in Malaysia, as well as additional sales from the Ultratech business acquired in May 2017.
Sales into Malaysia for the year ended December 31, 2017 was approximately $77.2 million, compared to $6.2 million for the year ended December 31, 2016. Sales in China increased principally due to increased sales in the LED Lighting, Display & Compound Semiconductor market. We expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies.
Gross Profit
In 2017, gross profit increased compared to 2016 due to an increase in sales volume, including the acquisition of Ultratech, partially offset by decreased gross margins. Gross margins decreased principally due to the sale of inventory that included a fair value step-up that was recorded in 2017 in connection with the purchase accounting relating to the Ultratech acquisition.
Research and Development
The markets we serve are characterized by continuous technological development and product innovation, and we invest in various research and development initiatives to maintain our competitive advantage and achieve our growth objectives. Research and development expenses remained relatively flat in 2017 compared to 2016, as the addition of the acquired Ultratech related research and development projects was offset by our decision to reduce investments in certain technology, as well as decreases in other personnel-related expenses and professional fees, as a result of our initiative to streamline operations, enhance efficiency, and reduce costs.
Selling, General, and Administrative
Selling, general, and administrative expenses increased primarily due to the addition of the acquired Ultratech related selling, general, and administrative costs, as well as increased professional and legal fees.
Amortization Expense
The increase in amortization expense is a result of the additional intangibles acquired as part of the acquisition of Ultratech, offset by the lower amortization resulting from the impairment of the certain technology assets in the prior year
as well as certain other intangible assets becoming fully amortized during 2016.
Restructuring Expense
During 2016, we undertook restructuring activities as part of our initiative to streamline operations, enhance efficiencies, and reduce costs, as well as reducing future investments in certain technology development, which together impacted approximately 75 employees. These activities were substantially completed in 2017. In addition, during 2017, we began the acquisition integration process to enhance efficiencies, resulting in additional employee terminations and other facility closing costs. Restructuring expense for the year ended December 31, 2017 included non-cash charges of $1.9 million related to accelerated share-based compensation for employee terminations.
Acquisition Costs
Acquisition costs are non-recurring charges incurred in connection with the acquisition of the Ultratech business, which included $4.2 million of non-cash charges related to accelerated share-based compensation for employee terminations for the year ended December 31, 2017.
Asset Impairment
During 2016, we recorded non-cash impairment charges of $57.6 million relating to our decision to reduce investments in certain technologies, $5.7 million relating to our assessments of the fair market value of assets held for sale, and $6.2 million relating to the disposal of certain lab equipment.
Interest Income (Expense)
For the year ended December 31, 2017, we recorded net interest expense of $17.1 million, including non-cash interest expense of $10.4 million, compared with net interest income of $1.0 million in the prior year period. The change primarily relates to the Convertible Senior Notes issued in January 2017.
Income Taxes
The 2017 income tax benefit of $37.6 million is comprised of: (i) a $25.3 million income tax benefit related to domestic losses incurred during the year ended December 31, 2017, as the deferred tax liability created by the issuance of the Convertible Senior Notes and recorded as a component of APIC is treated as a source of income in fiscal 2017, (ii) a $11.3 million income tax benefit recorded in connection with the 2017 Tax Act, and (iii) a $1.0 million income tax benefit from non-U.S. operations primarily attributable to a reduction in uncertain tax positions and the recognition of a deferred tax asset for certain non-U.S. net operating losses generated in prior years that have become realizable on a more-likely-than-not basis, offset by tax expense attributed to the profitable non-U.S. operations, as well as withholding taxes recorded as we now expect to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 Tax Act.
The 2016 income tax expense of $2.8 million is comprised of: (i) a $1.9 million tax expense related primarily to U.S. tax amortization of our indefinite-lived intangible assets that is not available to offset existing deferred tax assets and related valuation allowance, as well as state and local income taxes, (ii) a $0.4 million tax benefit associated with the termination of a pension plan, and (iii) a $1.3 million net tax expense related primarily to our profitable foreign operations. The current period non-U.S. tax expense is attributable to the profitable non-U.S. operations.
Liquidity and Capital Resources
Our cash and cash equivalents, restricted cash, and short-term investments are as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
(in thousands)
|
Cash and cash equivalents
|
|
$
|
212,273
|
|
$
|
279,736
|
Restricted cash
|
|
|
809
|
|
|
847
|
Short-term investments
|
|
|
48,189
|
|
|
47,780
|
Total
|
|
$
|
261,271
|
|
$
|
328,363
|
A portion of our cash and cash equivalents is held by our subsidiaries throughout the world, frequently in each subsidiary’s respective functional currency, which is typically the U.S. dollar. At December 31, 2018 and 2017, cash and cash equivalents of $66.9 million and $214.3 million, respectively, were held outside the United States. As of December 31, 2018, we had $43.3 million of accumulated undistributed earnings generated by our non-U.S. subsidiaries for which the U.S. repatriation tax has been provided and did not require the use of cash due to the use of net operating loss carryforwards. Approximately $8.1 million of undistributed earnings would be subject to foreign withholding taxes if distributed back to the United States. As of December 31, 2018, we have accrued $0.6 million of withholding tax related to the undistributed earnings as we are no longer asserting permanent reinvestment. During the year ended December 31, 2018, we distributed approximately $123.3 million of earnings generated by our non-U.S. subsidiaries back to the United States. As of December 31, 2018, we have accrued, and subsequently paid in January 2019, approximately $1.9 million of withholding tax related to distributions made in 2018. We believe that our projected cash flow from operations, combined with our cash and short term investments, will be sufficient to meet our projected
working capital requirements, contractual obligations, and other cash flow needs for the next twelve months, including scheduled interest payments on our Convertible Senior Notes due 2023.
A summary of the cash flow activity for the year ended December 31, 2018 and 2017 is as follows:
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
2018
|
|
2017
|
|
|
(in thousands)
|
Net income (loss)
|
|
$
|
(407,088)
|
|
$
|
(51,396)
|
Non-cash items:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
49,998
|
|
|
50,095
|
Non-cash interest expense
|
|
|
11,762
|
|
|
10,446
|
Deferred income taxes
|
|
|
(27,620)
|
|
|
(35,363)
|
Share-based compensation expense
|
|
|
16,074
|
|
|
24,396
|
Asset impairment
|
|
|
375,172
|
|
|
1,139
|
Provision for bad debts
|
|
|
—
|
|
|
99
|
Changes in operating assets and liabilities
|
|
|
(56,036)
|
|
|
35,577
|
Net cash provided by (used in) operating activities
|
|
$
|
(37,738)
|
|
$
|
34,993
|
Net cash used in operating activities was $37.7 million for the year ended December 31, 2018 and was due to the net loss of $407.1 million plus a decline in cash flow from operating activities due to changes in operating assets and liabilities of $56.0 million, partially offset by adjustments for non-cash items of $425.4 million. The changes in operating assets and liabilities was largely attributable to decreases in accounts payable and accrued expenses, customer deposits and deferred revenue, and an increase in inventories, partially offset by decreases in accounts receivable, net of contract assets, deferred cost of sales, and prepaid expenses and other current assets. Our changing market and geography focus may impact the future timing of cash flows from operations, as we expect more of our revenues to be derived from markets where customer deposits are not commonly required, as well as geographies where extended payment terms are commonly used.
Net cash provided by operating activities was $35.0 million for the year ended December 31, 2017 and was due to the net loss of $51.4 million offset by adjustments for non-cash items of $50.8 million and an increase in cash flow from operating activities due to changes in operating assets and liabilities of $35.6 million. The changes in operating assets and liabilities, excluding the assets and liabilities assumed from Ultratech, were largely attributable to increases in accounts payable and accrued expenses and customer deposits and deferred revenue, decreases in accounts receivable and contract assets and inventory and deferred cost of sales, partially offset by increases in prepaid expenses and other current assets.
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
2018
|
|
2017
|
|
|
(in thousands)
|
Acquisitions of businesses, net of cash acquired
|
|
$
|
(2,662)
|
|
$
|
(401,828)
|
Capital expenditures
|
|
|
(12,654)
|
|
|
(24,272)
|
Changes in investments, net
|
|
|
(2,981)
|
|
|
65,980
|
Proceeds from held for sale assets
|
|
|
—
|
|
|
2,284
|
Net cash provided by (used in) investing activities
|
|
$
|
(18,297)
|
|
$
|
(357,836)
|
The net cash used in investing activities during the year ended December 31, 2018 was attributable to capital expenditures, net change in investments, and net cash used in the final payout related to the acquisition of Ultratech. The net cash used in investing activities in 2017 was primarily attributable to the net cash used in the acquisition of Ultratech as well as capital expenditures, as we made certain investments in our facilities in 2017 in an effort to streamline
operations, enhance efficiencies, and reduce costs. This net cash used in investing activities was partially offset by the net changes in investments.
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
2018
|
|
2017
|
|
|
(in thousands)
|
Settlement of equity awards, net of withholding taxes
|
|
$
|
(5)
|
|
$
|
(5,749)
|
Purchases of common stock
|
|
|
(11,457)
|
|
|
(2,869)
|
Proceeds from long-term debt borrowings
|
|
|
—
|
|
|
335,752
|
Repayments of long-term debt
|
|
|
—
|
|
|
(1,194)
|
Net cash provided by (used in) financing activities
|
|
$
|
(11,462)
|
|
$
|
325,940
|
The net cash used in financing activities for the year ended December 31, 2018 was primarily related to the share repurchase program. The cash provided by financing activities for 2017 was primarily related to the net cash proceeds received from the issuance of the Convertible Senior Notes in January 2017.
Convertible Senior Notes
On January 10, 2017, we issued $345.0 million of 2.70% Convertible Senior Notes. We received net proceeds, after deducting underwriting discounts and fees and expenses payable by the Company, of approximately $335.8 million. The Convertible Senior Notes bear interest at a rate of 2.70% per year, payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 2017. The Convertible Senior Notes mature on January 15, 2023, unless earlier purchased by the Company, redeemed, or converted. We believe that we have sufficient capital resources and cash flows from operations to support scheduled interest payments on this debt.
Business Combination
On May 26, 2017, the Company acquired 100% of Ultratech, Inc., a leading supplier of lithography, laser-processing, and inspection systems used to manufacture semiconductor devices and LEDs. The results of Ultratech’s operations have been included in the consolidated financial statements since the date of acquisition.
Contractual Obligations and Commitments
We have commitments under certain contractual arrangements to make future payments for goods and services. These contractual arrangements secure the rights to various assets and services to be used in the future in the normal course of business. We expect to fund these contractual arrangements with cash generated from operations in the normal course of business. In addition, we have bank guarantees and letters of credit issued by a financial institution on our behalf as needed. At December 31, 2018, outstanding bank guarantees and letters of credit totaled $6.8 million and unused bank guarantees and letters of credit of $58.9 million were available to be drawn upon.
The following table summarizes our contractual arrangements at December 31, 2018 and the timing and effect that those commitments are expected to have on our liquidity and cash flow in future periods. The effect of unrecognized tax
benefits, which total $1.5 million at December 31, 2018, have been excluded from the table since we are unable to reasonably estimate the period of potential cash settlement, if any, with the respective tax authorities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
Less than
|
|
1 – 3
|
|
3 – 5
|
|
More
than
|
|
|
Total
|
|
1 year
|
|
years
|
|
years
|
|
5 years
|
|
|
(in thousands)
|
Principal payments on long-term debt
|
|
$
|
345,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
345,000
|
|
$
|
—
|
Cash interest on debt
|
|
|
37,648
|
|
|
9,315
|
|
|
18,630
|
|
|
9,703
|
|
|
—
|
Operating leases
|
|
|
16,057
|
|
|
5,143
|
|
|
7,488
|
|
|
2,878
|
|
|
548
|
Purchase commitments
(1)
|
|
|
91,466
|
|
|
91,466
|
|
|
—
|
|
|
—
|
|
|
—
|
Total
|
|
$
|
490,171
|
|
$
|
105,924
|
|
$
|
26,118
|
|
$
|
357,581
|
|
$
|
548
|
|
(1)
|
|
Purchase commitments are generally for inventory used in the manufacturing of our products. We generally do not enter into purchase commitments extending beyond one year. At December 31, 2018, we have $12.8 million of offsetting supplier deposits that will be applied against these purchase commitments.
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, expenses, results of operations, liquidity, capital expenditures, or capital resources other than operating leases, bank guarantees, and purchase commitments reflected in the preceding “Contractual Obligations and Commitments” table.
Application of Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires a high degree of judgment, either in the application and interpretation of existing accounting literature or in the development of estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate our estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. The results of our evaluation form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. These estimates may change in the future if underlying assumptions or factors change, and actual results may differ from these estimates.
We consider the following significant accounting policies to be critical because of their complexity and the high degree of judgment involved in implementing them.
Revenue Recognition
We adopted ASC 606 as of January 1, 2018, using the full retrospective method. Refer to Note 1, “Significant Accounting Policies,” for additional information.
Revenue is recognized upon the transfer of control of the promised product or service to the customer in an amount that reflects the consideration we expect to receive in exchange for such product or service. Our contracts with customers generally do not contain variable consideration. In the rare instances where variable consideration is included, we estimate the amount of variable consideration and determine what portion of that, if any, has a high probability of significant subsequent revenue reversal, and if so, that amount is excluded from the transaction price. Our contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, installation, maintenance, and service plans. Judgment is required to properly identify the performance obligations within a contract and to determine how the revenue should be allocated among the performance obligations. We also evaluate whether multiple transactions with the same customer or related parties should be considered part of a single contract based on an assessment of whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one another.
When there are separate units of accounting, we allocate revenue to each performance obligation on a relative stand-alone selling price basis. The stand-alone selling prices are determined based on the prices at which we separately sell the systems, upgrades, components, spare parts, installation, maintenance, and service plans. For items that are not sold separately, we estimate stand-alone selling prices generally using an expected cost plus margin approach.
Most of our revenue is recognized at a point in time when the performance obligation is satisfied. We consider many facts when evaluating each of our sales arrangements to determine the timing of revenue recognition, including our contractual obligations and the nature of the customer’s post-delivery acceptance provisions. Our system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For many of these arrangements, a customer source inspection of the system is performed in our facility, test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery, or other quality assurance testing is performed internally to ensure system functionality prior to shipment. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When we objectively demonstrate that the criteria specified in the contractual acceptance provisions are achieved prior to delivery either through customer testing or our historical experience of our tools meeting specifications, transfer of control of the product to the customer is considered to have occurred and revenue is recognized upon system delivery since there is no substantive contingency remaining related to the acceptance provisions at that date. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where we 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. We recognize such revenue and costs upon obtaining objective evidence that the acceptance provisions can be achieved, assuming all other revenue recognition criteria have been met.
In certain cases our contracts with customers contain a billing retention, typically 10% of the sales price, which is billed by us and payable by the customer when field acceptance provisions are completed. Revenue recognized in advance of the amount that has been billed is recorded as a contract asset on the Consolidated Balance Sheets.
We recognize revenue related to maintenance and service contracts over time based upon the respective contract term. Installation revenue is recognized over time as the installation services are performed. We recognize revenue from the sales of components, spare parts, and specified service engagements at a point in time, which is typically consistent with the time of delivery in accordance with the terms of the applicable sales arrangement.
We may receive customer deposits on system transactions. The timing of the transfer of goods or services related to the deposits is either at the discretion of the customer or expected to be within one year from the deposit receipt. As such, we do not adjust transaction prices for the time value of money. Incremental direct costs incurred related to the acquisition of a customer contract, such as sales commissions, are expensed as incurred since the expected amortization period is one year or less.
We have elected to treat shipping and handling costs as a fulfillment activity, and we include such costs in cost of services when we recognize revenue for the related goods. Taxes assessed by governmental authorities that are collected by us from a customer are excluded from revenue.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Each quarter we assess the valuation and recoverability of all inventories: materials (raw materials, spare parts, and service inventory); work-in-process; and finished goods. Obsolete inventory or inventory in excess of our estimated usage requirements is written down to its estimated net realizable value if less than cost. We evaluate usage requirements by analyzing historical and anticipated demand, and anticipated demand is estimated based upon current economic conditions, utilization requirements related to current backlog, current sales trends, and other qualitative factors. Unanticipated changes in demand for our products may require a write down of inventory that could materially affect our operating results.
Goodwill and Intangible Assets
Goodwill is tested for impairment at least annually in the beginning of the fourth quarter of our fiscal year. We 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, we then quantitatively compare the fair value of our reporting unit to its carrying amount. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not impaired. If the carrying amount of the reporting unit exceeds its fair value, we then record an impairment loss equal to the difference, up to the carrying value of goodwill.
We determine the fair value of our reporting unit based on a reconciliation of the aggregate fair value of our reporting unit to our adjusted market capitalization. The adjusted market capitalization is calculated by multiplying the average share price of our common stock for the last ten trading days prior to the measurement date by the number of outstanding common shares and adding a control premium. The control premium is estimated using historical transactions in similar industries.
The carrying values of long-lived assets, including identifiable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, a recoverability test is performed utilizing undiscounted cash flows expected to be generated by that asset or asset group compared to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models or, when available, quoted market values and third-party appraisals. It is not possible for us to predict the likelihood of any possible future impairments or, if such an impairment were to occur, the magnitude of any impairment.
Intangible assets with finite useful lives, including purchased technology, customer-related intangible assets, patents, trademarks, backlog, and software licenses, are subject to amortization over the expected period of economic benefit to us. We evaluate whether events or circumstances have occurred that warrant a revision to the remaining useful lives of intangible assets. In cases where a revision is deemed appropriate, the remaining carrying amounts of the intangible assets are amortized over the revised remaining useful life.
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. Indefinite-lived intangible assets are tested for impairment at least annually in the beginning of the fourth quarter of our fiscal year. In testing indefinite-lived intangible assets for impairment, we may first perform a qualitative assessment of whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, and, if so, we then quantitatively compare the fair value of the indefinite-lived intangible asset to its carrying amount. We determine the fair value of our indefinite-lived intangible assets using a discounted cash flow method.
Income Taxes
We estimate our income taxes in each of the jurisdictions in which we operate. Deferred income taxes reflect the net tax effect of temporary differences between the asset and liability balances recognized for financial reporting purposes and the balances used for income tax purposes, as well as the tax effect of carry forwards. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Realization of our net deferred tax assets is dependent on future taxable income.
We recognize the effect of income tax positions for only those positions which are estimated to more likely than not be sustained if challenged. We reflect changes in recognition or measurement in the period in which our change in judgment occurs. We record interest and penalties related to uncertain tax positions in income tax expense. Income taxes related to the global intangible low-taxed income (“GILTI”) rules are expensed as incurred.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02:
Leases
, which, along with subsequent ASUs related to this topic, has been codified as Accounting Standards Codification 842 (“ASC 842”). ASC 842 generally requires operating lessee rights and obligations to be recognized as assets and liabilities on the balance sheet. The new standard, which is effective for us on January 1, 2019, offers a transition option whereby companies can recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. We plan to adopt using this transition method. In addition, ASC 842 provides for a number of optional exemptions in transition. We expect to elect certain exemptions whereby prior conclusions regarding lease identification, lease classification, and initial direct costs are not required to be reassessed under the new standard. We also plan to elect allowable policies whereby we will not separate lease and non-lease components, and we will not recognize an asset or liability for leases with original terms or renewals of one year or less. Upon adoption, we expect to recognize an operating lease liability ranging from $12 million to $16 million based on the present value of remaining minimum rental payments on existing leases, with corresponding assets of approximately the same amount.
We are also evaluating other pronouncements recently issued but not yet adopted. The adoption of these pronouncements is not expected to have a material impact on our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates primarily relates to our investment portfolio. We centrally manage our investment portfolios considering investment opportunities and risks, tax consequences, and overall financing strategies. Our investment portfolio includes fixed-income securities with a fair value of approximately $48.2 million at December 31, 2018. These securities are subject to interest rate risk and, based on our investment portfolio at December 31, 2018, a 100 basis point increase in interest rates would result in a decrease in the fair value of the portfolio of $0.2 million. While an increase in interest rates may reduce the fair value of the investment portfolio, we will not realize the losses in the Consolidated Statements of Operations unless the individual fixed-income securities are sold prior to recovery or the loss is determined to be other-than-temporary.
Currency Exchange Risk
We conduct business on a worldwide basis and, as such, a portion of our revenues, earnings, and net investments in foreign affiliates is exposed to changes in currency exchange rates. The economic impact of currency exchange rate movements is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions, and other factors. These changes, if material, could cause us to adjust our financing and operating strategies. Consequently, isolating the effect of changes in currency does not incorporate these other important economic factors.
From time to time, we manage our risks and exposures to currency exchange rates through the use of derivative financial instruments (e.g., forward contracts). We mainly use derivative financial instruments in the context of hedging and generally do not use them for speculative purposes. During fiscal 2018, 2017, and 2016 we did not designate foreign exchange derivatives as hedges. Accordingly, foreign exchange derivatives are recorded in our Consolidated Balance Sheets at fair value and changes in fair value from these contracts are recorded in “Other, net” in our Consolidated Statements of Operations.
Our net sales to customers located outside of the United States represented approximately 77%, 80%, and 74% of our total net sales in 2018, 2017, and 2016, respectively. We expect that net sales to customers outside the United States will continue to represent a large percentage of our total net sales. Our net sales denominated in currencies other than the U.S. dollar represented approximately 1%, 1%, and 4% of total net sales in 2018, 2017, and 2016, respectively.
A 10% change in foreign exchange rates would have an immaterial impact on the consolidated results of operations since most of our sales outside the United States are denominated in U.S. dollars.
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements and Financial Statement Schedule filed as part of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Management’s Report on Internal Control over Financial Reporting
Our principal executive and financial officers have evaluated and concluded that our disclosure controls and procedures are effective as of December 31, 2018. The disclosure controls and procedures are designed to ensure that the information required to be disclosed in this report filed under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our principal executive and financial officers as appropriate to allow timely decisions regarding required disclosure.
Our principal executive and financial officers are responsible for establishing and maintaining adequate internal control over financial reporting, which is a process designed and put into effect to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Using the criteria established in the Internal Control — Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), Management has evaluated, assessed, and concluded that internal control over financial reporting is effective as of December 31, 2018.
KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness of our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2018, there were no changes in internal control that have materially affected or are reasonably likely to materially affect internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Veeco Instruments Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Veeco Instruments Inc.’s and subsidiaries (the Company) internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes and financial statement Schedule II — Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 25, 2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Melville, New York
February 25, 2019
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this Item that will appear under the headings “Governance,” “Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive proxy statement to be filed with the SEC relating to our 2019 Annual Meeting of Stockholders is incorporated herein by reference.
We have adopted a Code of Ethics for Senior Officers (the “Code”) which applies to our chief executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. A copy of the Code can be found on our website (www.veeco.com). We intend to disclose on our website the nature of any future amendments to and waivers of the Code that apply to the chief executive officer, principal financial officer, principal accounting officer, or persons performing similar functions. We have also adopted a Code of Business Conduct which applies to all of our employees, including those listed above, as well as to our directors. A copy of the Code of Business Conduct can be found on our website (www.veeco.com). The website address above is intended to be an inactive, textual reference only. None of the material on this website is part of this report.
Item 11. Executive Compensation
Information required by this Item that will appear under the heading “Compensation” in the definitive proxy statement to be filed with the SEC relating to our 2019 Annual Meeting of Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this Item that will appear under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the definitive proxy statement to be filed with the SEC relating to our 2019 Annual Meeting of Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this Item that will appear under the headings “Certain Relationships and Related Transactions” and “Independence of Board” in the definitive proxy statement to be filed with the SEC relating to our 2019 Annual Meeting of Stockholders is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information required by this Item that will appear under the heading “Proposal 5 — Ratification of Appointment of KPMG” in the definitive proxy statement to be filed with the SEC relating to our 2019 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) (1) The Registrant’s financial statements together with a separate table of contents are annexed hereto
(2) Financial Statement Schedules are listed in the separate table of contents annexed hereto.
(3) Exhibits
Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities and Exchange Commission by the Company under File No. 0-16244.
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Filed or
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Exhibit
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Incorporated by Reference
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Furnished
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Number
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Exhibit Description
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Form
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Exhibit
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Filing Date
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Herewith
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3.1
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Amended and Restated Certificate of Incorporation of Veeco dated December 1, 1994, as amended June 2, 1997 and July 25, 1997.
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10-Q
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3.1
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8/14/1997
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3.2
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Amendment to Certificate of Incorporation of Veeco dated May 29, 1998.
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10-K
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3.2
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3/14/2001
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3.3
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Amendment to Certificate of Incorporation of Veeco dated May 5, 2000.
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10-Q
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3.1
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8/14/2000
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3.4
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Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of Veeco dated March 14, 2001.
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10-Q
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3.1
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5/9/2001
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3.5
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Amendment to Certificate of Incorporation of Veeco dated May 16, 2002
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10-Q
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3.1
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10/26/2009
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3.6
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Amendment to Certificate of Incorporation of Veeco dated May 18, 2010.
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10-K
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3.8
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2/24/2011
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3.7
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Fifth Amended and Restated Bylaws of Veeco effective February 5, 2016.
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8-K
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3.1
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2/10/2016
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4.1
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Indenture, dated as of January 18, 2017, by and between Veeco Instruments Inc. and U.S. Bank National Association, as Trustee (relating to the 2.70% Convertible Notes due 2023).
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8-K
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4.1
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1/18/2017
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4.2
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First Supplemental Indenture, dated as of January 18, 2017, by and between Veeco Instruments Inc. and U.S. Bank National Association, as Trustee (relating to the 2.70% Convertible Notes due 2023).
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8-K
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4.2
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1/18/2017
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10.1*
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Veeco Amended and Restated 2010 Stock Incentive Plan, effective May 14, 2010.
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Def 14A
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Appendix A
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11/4/2013
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10.2*
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Veeco Amended and Restated 2010 Stock Incentive Plan, effective May 5, 2016.
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S-8
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10.1
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6/2/2016
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10.3
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Veeco Amended and Restated 2010 Stock Incentive Plan, effective March 3, 2017.
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10-Q
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10.1
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11/3/2017
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10.4
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Ultratech, Inc. 1993 Stock Option/Stock Issuance Plan (as Amended and Restated as of May 31, 2011).
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S-8
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10.1
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5/26/2017
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10.5*
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Form of Notice of Performance Share Award and related terms and conditions pursuant to the Veeco 2010 Stock Incentive Plan, effective June 2015.
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10-Q
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10.1
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8/3/2015
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10.6*
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Form of Notice of Performance Share Award and related terms and conditions pursuant to the Veeco 2010 Stock Incentive Plan, effective June 2016.
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10-Q
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10.1
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11/1/2016
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Filed or
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Exhibit
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Incorporated by Reference
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Furnished
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Number
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Exhibit Description
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Form
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Exhibit
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Filing Date
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Herewith
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10.7*
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Form of Notice of Critical Priorities Performance Share Award and related terms and conditions pursuant to the Veeco 2010 Stock Incentive Plan, effective June 2016.
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10-Q
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10.2
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11/1/2016
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10.8*
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Form of Notice of Performance Share Award and related terms and conditions pursuant to the Veeco 2010 Stock Incentive Plan, effective March 2018.
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10-Q
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10.1
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5/7/2018
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10.9*
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Form of Notice of Restricted Stock Award and related terms and conditions pursuant to the Veeco 2010 Stock Incentive Plan, effective March 2018.
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10-Q
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10.2
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5/7/2018
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10.10*
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Veeco 2013 Inducement Stock Incentive Plan, effective September 26, 2013
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10-Q
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10.1
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11/4/2013
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10.11*
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Veeco Instruments Inc. 2016 Employee Stock Purchase Plan.
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S-8
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10.9
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6/2/2016
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10.12
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Form of Amended and Restated Indemnification Agreement entered into between Veeco and each of its directors and executive officers (August 2017).
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10-Q
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10.2
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8/3/2017
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10.13*
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Veeco Amended and Restated Senior Executive Change in Control Policy, effective as of January 1, 2014.
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10-K
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10.22
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2/28/2014
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10.14*
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Letter Agreement dated January 30, 2012 between Veeco and Dr. William J. Miller.
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10-K
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10.30
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2/22/2012
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10.15*
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Letter Agreement dated August 29, 2018 between Veeco and Dr. William J. Miller.
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8-K
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10.2
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9/4/2018
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10.16*
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Employment Agreement effective as of July 1, 2007 between Veeco and John R. Peeler.
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10-Q
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10.3
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8/7/2007
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10.17*
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Amendment effective December 31, 2008 to Employment Agreement between Veeco and John R. Peeler.
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10-K
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10.38
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3/2/2009
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10.18*
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Second Amendment effective June 11, 2010 to Employment Agreement between Veeco and John R. Peeler.
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10-Q
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10.1
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7/29/2010
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10.19*
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Third Amendment effective April 25, 2012 to Employment Agreement between Veeco and John R. Peeler.
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10-Q
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10.2
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5/9/2012
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10.20*
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Amendment dated June 12, 2014 to Employment Agreement between Veeco and John R. Peeler.
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10-Q
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10.3
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7/31/2014
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10.21*
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Amendment dated June 12, 2017 to Employment Agreement between Veeco and John R. Peeler.
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10-Q
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10.1
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8/3/2017
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10.22*
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Amendment dated August 29, 2018 to Employment Agreement between Veeco and John R. Peeler.
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8-K
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10.1
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9/4/2018
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10.23*
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Letter Agreement dated April 8, 2014 between Veeco and Shubham Maheshwari
.
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10-Q
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10.1
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7/31/2014
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10.24*
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Letter Agreement dated August 29, 2018 between Veeco and Shubham Maheshwari.
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8-K
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10.3
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9/4/2018
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10.25*
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Letter Agreement dated January 21, 2004 between Veeco and John P. Kiernan.
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10-K
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10.38
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3/12/2004
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10.26*
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Amendment effective June 9, 2006 to Letter Agreement between Veeco and John P. Kiernan.
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10-Q
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10.3
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8/4/2006
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10.27*
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Amendment effective December 31, 2008 to Letter Agreement between Veeco and John P. Kiernan.
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10-K
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10.40
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3/2/2009
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21.1
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Subsidiaries of the Registrant.
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*
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* Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a) (3) of Form 10-K.
** Filed herewith electronically
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 25, 2019.
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Veeco Instruments Inc.
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By:
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/S/ WILLIAM J. MILLER, Ph.D.
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William J. Miller, Ph.D.
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Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on February 25, 2019.
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Signature
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Title
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/s/ WILLIAM J. MILLER, Ph.D.
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Chief Executive Officer and Director
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William J. Miller, Ph.D.
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(principal executive officer)
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/s/ SHUBHAM MAHESHWARI
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Executive Vice President, Chief Financial Officer, and Chief Operating Officer
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Shubham Maheshwari
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(principal financial officer)
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/s/ JOHN P. KIERNAN
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Senior Vice President, Finance, Chief Accounting Officer, and Treasurer
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John P. Kiernan
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(principal accounting officer)
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/s/ JOHN R. PEELER
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Executive Chairman
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John R. Peeler
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/s/ KATHLEEN A. BAYLESS
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Director
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Kathleen A. Bayless
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/s/ RICHARD A. D’AMORE
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Director
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Richard A. D’Amore
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/s/ GORDON HUNTER
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Director
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Gordon Hunter
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/s/ KEITH D. JACKSON
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Director
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Keith D. Jackson
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/s/ PETER J. SIMONE
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Director
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Peter J. Simone
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/s/ THOMAS ST. DENNIS
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Director
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Thomas St. Dennis
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Veeco Instruments Inc. and Subsidiaries
Index to Consolidated Financial Statements and Financial Statement Schedule
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Page
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Reports of Independent Registered Public Accounting Firm on Financial Statements
|
F-2
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Consolidated Balance Sheets at December 31, 2018 and 2017
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F-3
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Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016
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F-4
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Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017, and 2016
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F-5
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Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017, and 2016
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F-6
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Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 2016
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F-7
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Notes to Consolidated Financial Statements
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F-8
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Schedule II—Valuation and Qualifying Accounts
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S-1
|
Report of Independent Registered Public Accounting F
irm
To the Stockholders and Board of Directors
Veeco Instruments Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Veeco Instruments Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes and financial statement Schedule II — Valuation and Qualifying Accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has retrospectively adopted the new revenue recognition standard, ASC Topic 606,
Revenue from Contracts with Customers,
as of January 1, 2018
.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2015.
Melville, New York
February 25, 2019
Veeco Instruments Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
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|
|
|
|
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December 31,
|
|
December 31,
|
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2018
|
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2017
|
Assets
|
|
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|
|
|
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Current assets:
|
|
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|
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|
|
Cash and cash equivalents
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$
|
212,273
|
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$
|
279,736
|
Restricted cash
|
|
|
809
|
|
|
847
|
Short-term investments
|
|
|
48,189
|
|
|
47,780
|
Accounts receivable, net
|
|
|
66,808
|
|
|
98,866
|
Contract assets
|
|
|
10,397
|
|
|
160
|
Inventories
|
|
|
156,311
|
|
|
120,266
|
Deferred cost of sales
|
|
|
3,072
|
|
|
15,994
|
Prepaid expenses and other current assets
|
|
|
22,221
|
|
|
33,437
|
Total current assets
|
|
|
520,080
|
|
|
597,086
|
Property, plant, and equipment, net
|
|
|
80,284
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|
|
85,058
|
Intangible assets, net
|
|
|
85,149
|
|
|
369,843
|
Goodwill
|
|
|
184,302
|
|
|
307,131
|
Deferred income taxes
|
|
|
1,869
|
|
|
3,047
|
Other assets
|
|
|
29,132
|
|
|
25,310
|
Total assets
|
|
$
|
900,816
|
|
$
|
1,387,475
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
39,611
|
|
$
|
50,318
|
Accrued expenses and other current liabilities
|
|
|
46,450
|
|
|
58,068
|
Customer deposits and deferred revenue
|
|
|
72,736
|
|
|
112,032
|
Income taxes payable
|
|
|
1,256
|
|
|
3,846
|
Total current liabilities
|
|
|
160,053
|
|
|
224,264
|
Deferred income taxes
|
|
|
5,690
|
|
|
36,845
|
Long-term debt
|
|
|
287,392
|
|
|
275,630
|
Other liabilities
|
|
|
9,906
|
|
|
10,643
|
Total liabilities
|
|
|
463,041
|
|
|
547,382
|
Stockholders' equity:
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 500,000 shares authorized; no shares issued and outstanding.
|
|
|
—
|
|
|
—
|
Common stock, $0.01 par value; 120,000,000 shares authorized; 48,547,417 and 48,229,251 shares issued at December 31, 2018 and December 31, 2017, respectively; 48,024,685 and 48,144,416 shares outstanding at December 31, 2018 and December 31, 2017, respectively.
|
|
|
485
|
|
|
482
|
Additional paid-in capital
|
|
|
1,061,325
|
|
|
1,051,953
|
Accumulated deficit
|
|
|
(619,983)
|
|
|
(212,870)
|
Accumulated other comprehensive income
|
|
|
1,820
|
|
|
1,812
|
Treasury stock, at cost, 522,732 and 84,835 shares at December 31, 2018 and December 31, 2017, respectively.
|
|
|
(5,872)
|
|
|
(1,284)
|
Total stockholders' equity
|
|
|
437,775
|
|
|
840,093
|
Total liabilities and stockholders' equity
|
|
$
|
900,816
|
|
$
|
1,387,475
|
See accompanying Notes to the Consolidated Financial Statements.
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Net sales
|
|
$
|
542,082
|
|
$
|
475,686
|
|
$
|
331,702
|
Cost of sales
|
|
|
348,363
|
|
|
299,458
|
|
|
198,604
|
Gross profit
|
|
|
193,719
|
|
|
176,228
|
|
|
133,098
|
Operating expenses, net:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
97,755
|
|
|
81,987
|
|
|
81,016
|
Selling, general, and administrative
|
|
|
92,060
|
|
|
100,250
|
|
|
77,642
|
Amortization of intangible assets
|
|
|
32,351
|
|
|
35,475
|
|
|
19,219
|
Restructuring
|
|
|
8,556
|
|
|
11,851
|
|
|
5,640
|
Acquisition costs
|
|
|
2,959
|
|
|
17,786
|
|
|
—
|
Asset impairment
|
|
|
375,172
|
|
|
1,139
|
|
|
69,520
|
Other, net
|
|
|
368
|
|
|
(392)
|
|
|
223
|
Total operating expenses, net
|
|
|
609,221
|
|
|
248,096
|
|
|
253,260
|
Operating income (loss)
|
|
|
(415,502)
|
|
|
(71,868)
|
|
|
(120,162)
|
Interest income
|
|
|
3,186
|
|
|
2,335
|
|
|
1,180
|
Interest expense
|
|
|
(21,518)
|
|
|
(19,457)
|
|
|
(222)
|
Income (loss) before income taxes
|
|
|
(433,834)
|
|
|
(88,990)
|
|
|
(119,204)
|
Income tax expense (benefit)
|
|
|
(26,746)
|
|
|
(37,594)
|
|
|
2,823
|
Net income (loss)
|
|
$
|
(407,088)
|
|
$
|
(51,396)
|
|
$
|
(122,027)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(8.63)
|
|
$
|
(1.16)
|
|
$
|
(3.10)
|
Diluted
|
|
$
|
(8.63)
|
|
$
|
(1.16)
|
|
$
|
(3.10)
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
47,151
|
|
|
44,174
|
|
|
39,340
|
Diluted
|
|
|
47,151
|
|
|
44,174
|
|
|
39,340
|
See accompanying Notes to the Consolidated Financial Statements.
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Net income (loss)
|
|
$
|
(407,088)
|
|
$
|
(51,396)
|
|
$
|
(122,027)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains or losses
|
|
|
11
|
|
|
(7)
|
|
|
(6)
|
Reclassification adjustments for net (gains) losses included in net income
|
|
|
—
|
|
|
—
|
|
|
18
|
Unrealized gain (loss) on available-for-sale securities
|
|
|
11
|
|
|
(7)
|
|
|
12
|
Minimum pension liability:
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments for net (gains) losses included in net income
|
|
|
—
|
|
|
—
|
|
|
866
|
Net changes related to minimum pension liability
|
|
|
—
|
|
|
—
|
|
|
866
|
Currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
Change in currency translation adjustments
|
|
|
5
|
|
|
42
|
|
|
(19)
|
Reclassification adjustments for net (gains) losses included in net income
|
|
|
(8)
|
|
|
—
|
|
|
(430)
|
Net changes related to currency translation adjustments
|
|
|
(3)
|
|
|
42
|
|
|
(449)
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss), net of tax
|
|
|
8
|
|
|
35
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(407,080)
|
|
$
|
(51,361)
|
|
$
|
(121,598)
|
See accompanying Notes to the Consolidated Financial Statements.
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
Paid-in
|
|
Accumulated
|
|
Comprehensive
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Income
|
|
Total
|
Balance at December 31, 2015
|
|
40,996
|
|
|
410
|
|
|
469
|
|
|
(9,222)
|
|
|
767,137
|
|
|
(45,058)
|
|
|
1,348
|
|
$
|
714,615
|
Cumulative effect of change in accounting principle - adoption of ASU 2016-09
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,315
|
|
|
(1,315)
|
|
|
—
|
|
|
—
|
Cumulative effect of change in accounting principle - adoption of ASC 606
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,926
|
|
|
—
|
|
|
6,926
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(122,027)
|
|
|
—
|
|
|
(122,027)
|
Other comprehensive loss, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
429
|
|
|
429
|
Share-based compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,741
|
|
|
—
|
|
|
—
|
|
|
15,741
|
Net issuance under employee stock plans
|
|
(281)
|
|
|
(3)
|
|
|
(1,072)
|
|
|
19,948
|
|
|
(20,890)
|
|
|
—
|
|
|
—
|
|
|
(945)
|
Purchases of common stock
|
|
—
|
|
|
—
|
|
|
730
|
|
|
(13,035)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,035)
|
Balance at December 31, 2016
|
|
40,715
|
|
|
407
|
|
|
127
|
|
|
(2,309)
|
|
|
763,303
|
|
|
(161,474)
|
|
|
1,777
|
|
|
601,704
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(51,396)
|
|
|
—
|
|
|
(51,396)
|
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
35
|
Share-based compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,396
|
|
|
—
|
|
|
—
|
|
|
24,396
|
Net issuance under employee stock plans
|
|
313
|
|
|
3
|
|
|
(245)
|
|
|
4,043
|
|
|
(9,795)
|
|
|
—
|
|
|
—
|
|
|
(5,749)
|
Stock issuance for business acquisition
|
|
7,201
|
|
|
72
|
|
|
—
|
|
|
—
|
|
|
228,800
|
|
|
—
|
|
|
—
|
|
|
228,872
|
Convertible Senior Notes, equity component
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45,249
|
|
|
—
|
|
|
—
|
|
|
45,249
|
Purchases of common stock
|
|
—
|
|
|
—
|
|
|
203
|
|
|
(3,018)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,018)
|
Balance at December 31, 2017
|
|
48,229
|
|
|
482
|
|
|
85
|
|
|
(1,284)
|
|
|
1,051,953
|
|
|
(212,870)
|
|
|
1,812
|
|
|
840,093
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(407,088)
|
|
|
—
|
|
|
(407,088)
|
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
8
|
Share-based compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,074
|
|
|
—
|
|
|
—
|
|
|
16,074
|
Net issuance under employee stock plans
|
|
318
|
|
|
3
|
|
|
(512)
|
|
|
6,721
|
|
|
(6,702)
|
|
|
(25)
|
|
|
—
|
|
|
(3)
|
Purchases of common stock
|
|
—
|
|
|
—
|
|
|
950
|
|
|
(11,309)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,309)
|
Balance at December 31, 2018
|
|
48,547
|
|
$
|
485
|
|
|
523
|
|
$
|
(5,872)
|
|
$
|
1,061,325
|
|
$
|
(619,983)
|
|
$
|
1,820
|
|
$
|
437,775
|
See accompanying Notes to the Consolidated Financial Statements.
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(407,088)
|
|
$
|
(51,396)
|
|
$
|
(122,027)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
49,998
|
|
|
50,095
|
|
|
32,650
|
Non-cash interest expense
|
|
|
11,762
|
|
|
10,446
|
|
|
—
|
Deferred income taxes
|
|
|
(27,620)
|
|
|
(35,363)
|
|
|
997
|
Share-based compensation expense
|
|
|
16,074
|
|
|
24,396
|
|
|
15,741
|
Asset impairment
|
|
|
375,172
|
|
|
1,139
|
|
|
69,520
|
Provision for bad debts
|
|
|
—
|
|
|
99
|
|
|
171
|
Gain on cumulative translation adjustment
|
|
|
—
|
|
|
—
|
|
|
(430)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable and contract assets
|
|
|
21,821
|
|
|
10,240
|
|
|
(8,880)
|
Inventories and deferred cost of sales
|
|
|
(24,678)
|
|
|
6,244
|
|
|
(6,106)
|
Prepaid expenses and other current assets
|
|
|
11,216
|
|
|
(10,204)
|
|
|
6,726
|
Accounts payable and accrued expenses
|
|
|
(19,672)
|
|
|
11,308
|
|
|
(24,474)
|
Customer deposits and deferred revenue
|
|
|
(39,296)
|
|
|
22,446
|
|
|
9,770
|
Income taxes receivable and payable, net
|
|
|
(4,800)
|
|
|
775
|
|
|
547
|
Long-term income tax liability
|
|
|
—
|
|
|
(4,877)
|
|
|
—
|
Other, net
|
|
|
(627)
|
|
|
(355)
|
|
|
1,951
|
Net cash provided by (used in) operating activities
|
|
|
(37,738)
|
|
|
34,993
|
|
|
(23,844)
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
(2,662)
|
|
|
(401,828)
|
|
|
—
|
Capital expenditures
|
|
|
(12,654)
|
|
|
(24,272)
|
|
|
(11,479)
|
Proceeds from the sale of investments
|
|
|
90,065
|
|
|
348,927
|
|
|
152,301
|
Payments for purchases of investments
|
|
|
(93,046)
|
|
|
(282,947)
|
|
|
(103,394)
|
Proceeds from held for sale assets
|
|
|
—
|
|
|
2,284
|
|
|
9,512
|
Other
|
|
|
—
|
|
|
—
|
|
|
(230)
|
Net cash provided by (used in) investing activities
|
|
|
(18,297)
|
|
|
(357,836)
|
|
|
46,710
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
Proceeds (net of tax withholdings) from option exercises and employee stock purchase plan
|
|
|
3,064
|
|
|
2,992
|
|
|
1,656
|
Restricted stock tax withholdings
|
|
|
(3,069)
|
|
|
(8,741)
|
|
|
(2,601)
|
Purchases of common stock
|
|
|
(11,457)
|
|
|
(2,869)
|
|
|
(13,349)
|
Proceeds from long-term debt borrowings
|
|
|
—
|
|
|
335,752
|
|
|
—
|
Principal payments on long-term debt
|
|
|
—
|
|
|
(1,194)
|
|
|
(340)
|
Net cash provided by (used in) financing activities
|
|
|
(11,462)
|
|
|
325,940
|
|
|
(14,634)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(4)
|
|
|
42
|
|
|
(20)
|
Net increase (decrease) in cash, cash equivalents, and restricted cash
|
|
|
(67,501)
|
|
|
3,139
|
|
|
8,212
|
Cash, cash equivalents, and restricted cash - beginning of period
|
|
|
280,583
|
|
|
277,444
|
|
|
269,232
|
Cash, cash equivalents, and restricted cash - end of period
|
|
$
|
213,082
|
|
$
|
280,583
|
|
$
|
277,444
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
9,708
|
|
$
|
4,675
|
|
$
|
225
|
Income taxes paid
|
|
|
4,799
|
|
|
1,939
|
|
|
1,669
|
Non-cash operating and financing activities
|
|
|
|
|
|
|
|
|
|
Net transfer of inventory to property, plant and equipment
|
|
|
1,479
|
|
|
(97)
|
|
|
1,827
|
See accompanying Notes to the Consolidated Financial Statements.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 — Significant Accounting Policies
(a) Description of Business
Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco,” or the “Company”) operates in a single segment: the development, manufacture, sales, and support of semiconductor and thin film process equipment primarily sold to make electronic devices.
(b) Basis of Presentation
The accompanying audited Consolidated Financial Statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The Company reports interim quarters on a 13-week basis ending on the last Sunday of each period, which is determined at the start of each year. The Company’s fourth quarter always ends on the last day of the calendar year, December 31. During 2018 the interim quarters ended on April 1, July 1, and September 30, and during 2017 the interim quarters ended on April 2, July 2, and October 1. The Company reports these interim quarters as March 31, June 30, and September 30 in its interim consolidated financial statements.
(c) Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, these estimates may ultimately differ from actual results. Significant items subject to such estimates and assumptions include: (i) stand-alone selling prices for the Company’s products and services; (ii) allowances for doubtful accounts; (iii) inventory obsolescence; (iv) the useful lives and expected future cash flows of property, plant, and equipment and identifiable intangible assets; (v) the fair value of the Company’s reporting unit and related goodwill; (vi) investment valuations and the valuation of derivatives, deferred tax assets, and assets acquired in business combinations; (vii) the recoverability of long-lived assets; (viii) liabilities for product warranty and legal contingencies; (ix) share-based compensation; and (x) income tax uncertainties. Actual results could differ from those estimates.
(d) Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Companies acquired during each reporting period are reflected in the results of the Company effective from their respective dates of acquisition through the end of the reporting period.
(e) Foreign Currencies
Assets and liabilities of the Company’s foreign subsidiaries that operate using functional currencies other than the U.S. dollar are translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using monthly average exchange rates. Adjustments arising from the translation of the foreign currency financial statements of the Company’s subsidiaries into U.S. dollars, including intercompany transactions of a long-term nature, are reported as currency translation adjustments in “Accumulated other comprehensive income” in the Consolidated Balance Sheets. Foreign currency transaction gains or losses are included in “Other, net” in the Consolidated Statements of Operations.
(f) Revenue Recognition
Revenue is recognized upon the transfer of control of the promised product or service to the customer in an amount that reflects the consideration the Company expects to receive in exchange for such product or service. The Company’s contracts with customers generally do not contain variable consideration. In the rare instances where variable consideration is included, the Company estimates the amount of variable consideration and determines what portion of that, if any, has a high probability of significant subsequent revenue reversal, and if so, that amount is excluded from the
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
transaction price. The Company’s contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, installation, maintenance, and service plans. Judgment is required to properly identify the performance obligations within a contract and to determine how the revenue should be allocated among the performance obligations. The Company also evaluates whether multiple transactions with the same customer or related parties should be considered part of a single contract based on an assessment of whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one another.
When there are separate units of accounting, the Company allocates revenue to each performance obligation on a relative stand-alone selling price basis. The stand-alone selling prices are determined based on the prices at which the Company separately sells the systems, upgrades, components, spare parts, installation, maintenance, and service plans. For items that are not sold separately, the Company estimates stand-alone selling prices generally using an expected cost plus margin approach.
Most of the Company’s revenue is recognized at a point in time when the performance obligation is satisfied. The Company considers many facts when evaluating each of its sales arrangements to determine the timing of revenue recognition, including its contractual obligations and the nature of the customer’s post-delivery acceptance provisions. The Company’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For many of these arrangements, a customer source inspection of the system is performed in the Company’s facility, test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery, or other quality assurance testing is performed internally to ensure system functionality prior to shipment. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When the Company objectively demonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery either through customer testing or the Company’s historical experience of its tools meeting specifications, transfer of control of the product to the customer is considered to have occurred and revenue is recognized upon system delivery since there is no substantive contingency remaining related to the acceptance provisions at that date. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where the Company cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred. The Company recognizes such revenue and costs upon obtaining objective evidence that the acceptance provisions can be achieved, assuming all other revenue recognition criteria have been met.
In certain cases the Company’s contracts with customers contain a billing retention, typically 10% of the sales price, which is billed by the Company and payable by the customer when field acceptance provisions are completed. Revenue recognized in advance of the amount that has been billed is recorded as a contract asset on the Consolidated Balance Sheets.
The Company recognizes revenue related to maintenance and service contracts over time based upon the respective contract term. Installation revenue is recognized over time as the installation services are performed. The Company recognizes revenue from the sales of components, spare parts, and specified service engagements at a point in time, which is typically consistent with the time of delivery in accordance with the terms of the applicable sales arrangement.
The Company may receive customer deposits on system transactions. The timing of the transfer of goods or services related to the deposits is either at the discretion of the customer or expected to be within one year from the deposit receipt. As such, the Company does not adjust transaction prices for the time value of money. Incremental direct costs incurred related to the acquisition of a customer contract, such as sales commissions, are expensed as incurred since the expected amortization period is one year or less.
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Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company has elected to treat shipping and handling costs as a fulfillment activity, and the Company includes such costs in cost of services when the Company recognizes revenue for the related goods. Taxes assessed by governmental authorities that are collected by the Company from a customer are excluded from revenue.
(g) Warranty Costs
The Company typically provides standard warranty coverage on its systems for one year from the date of final acceptance by providing labor and parts necessary to repair the systems during the warranty period. The Company accounts for the estimated warranty cost when revenue is recognized on the related system. Warranty cost is included in “Cost of sales” in the Consolidated Statements of Operations. The estimated warranty cost is based on the Company’s historical experience with its systems and regional labor costs. The Company calculates the average service hours by region and parts expense per system utilizing actual service records to determine the estimated warranty charge. The Company updates its warranty estimates on a quarterly basis when the actual product performance or field expense differs from original estimates.
(h) Shipping and Handling Costs
Shipping and handling costs are expenses incurred to move, package, and prepare the Company’s products for shipment and to move the products to a customer’s designated location. These costs are generally comprised of payments to third-party shippers. Shipping and handling costs are included in “Cost of sales” in the Consolidated Statements of Operations.
(i) Research and Development Costs
Research and development costs are expensed as incurred and include charges for the development of new technology and the transition of existing technology into new products or services.
(j) Advertising Expense
The cost of advertising is expensed as incurred and totaled $0.9 million, $0.9 million, and $0.8 million for the years ended December 31, 2018, 2017, and 2016, respectively.
(k) Accounting for Share-Based Compensation
Share-based awards exchanged for employee services are accounted for under the fair value method. Accordingly, share-based compensation cost is measured at the grant date based on the fair value of the award. The expense for awards is recognized over the employee’s requisite service period (generally the vesting period of the award). The Company has elected to treat awards with only service conditions and with graded vesting as one award. Consequently, the total compensation expense is recognized straight-line over the entire vesting period, so long as the compensation cost recognized at any date at least equals the portion of the grant date fair value of the award that is vested at that date.
In addition to stock options, restricted share awards (“RSAs”) and restricted stock units (“RSUs”) with time-based vesting, the Company grants performance share units and awards (“PSUs” and “PSAs”) that have either performance or market conditions. Compensation cost for PSUs and PSAs with performance conditions is recognized over the requisite service period based on the timing and expected level of achievement of the performance targets. A change in the assessment of performance attainment prior to the conclusion of the performance period is recognized in the period of the change in estimate. Compensation cost for PSUs and PSAs with market conditions is recognized over the requisite service period regardless of the expected level of achievement. For all PSUs and PSAs, the number of shares issued to the employee at the conclusion of the service period may vary from the original target based upon the level of attainment of the performance or market conditions.
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Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of option awards and purchase rights under the Employee Stock Purchase Plan. The Company uses a Monte Carlo simulation to compute the estimated fair value of awards with market conditions. The Black-Scholes model and Monte Carlo simulation include assumptions regarding dividend yields, expected volatility, expected option term, and risk-free interest rates. See Note 15, “Stock Plans,” for additional information.
See Note 1(t), “Recently Adopted Accounting Standards,” for additional information concerning the Company’s adoption of Accounting Standards Update (“ASU”) 2016-09:
Stock Compensation: Improvements to Employee Share-Based Payment Accounting
.
(l) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in income in the period that includes the enactment date.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”), which made broad and complex changes to the U.S. tax code. In response to the 2017 Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provided guidance on accounting for the tax effects of 2017 Tax Act, including addressing any uncertainty or diversity of view in applying ASC 740,
Income Taxes
(“ASC 740”), in the reporting period in which the 2017 Tax Act was enacted. In addition, SAB 118 provided a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date for companies to complete the accounting under ASC 740. During the year ended December 31, 2018, the Company finalized the accounting for the tax effects of 2017 Tax Act.
In January 2018, the FASB released guidance on the accounting for taxes under the global intangible low-taxed income (“GILTI”) provisions of the 2017 Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign operations. The Company has made a policy election to account for income taxes incurred under GILTI as a period cost.
(m) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments, derivative financial instruments used in hedging activities, and accounts receivable. The Company invests in a variety of financial instruments and, by policy, limits the amount of credit exposure with any one financial institution or commercial issuer. The Company has not experienced any material credit losses on its investments.
The Company maintains an allowance reserve for potentially uncollectible accounts for estimated losses resulting from the inability of its customers to make required payments. The Company evaluates its allowance for doubtful accounts based on a combination of factors. In circumstances where specific invoices are deemed to be uncollectible, the Company provides a specific allowance for bad debt against the amount due to reduce the net recognized receivable to the amount reasonably expected to be collected. The Company also provides allowances based on its write-off history. The allowance for doubtful accounts totaled $0.3 million at December 31, 2018 and 2017.
To further mitigate the Company’s exposure to uncollectable accounts, the Company may request certain customers provide a negotiable irrevocable letter of credit drawn on a reputable financial institution. These irrevocable letters of credit are typically issued to mature between zero and 90 days from the date the documentation requirements are met,
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Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
typically when a system ships or upon receipt of final acceptance from the customer. The Company, at its discretion, may monetize these letters of credit on a non-recourse basis after they become negotiable but before maturity. The fees associated with the monetization are included in “Selling, general, and administrative” in the Consolidated Statements of Operations and were immaterial for the years ended December 31, 2018, 2017, and 2016.
(n) Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued expenses reflected in the consolidated financial statements approximate fair value due to their short-term maturities. The fair value of debt for footnote disclosure purposes, including current maturities, if any, is estimated using recently quoted market prices of the instrument, or if not available, a discounted cash flow analysis based on the estimated current incremental borrowing rates for similar types of instruments.
(o) Cash, Cash Equivalents, and Short-Term Investments
All financial instruments purchased with an original maturity of three months or less at the time of purchase are considered cash equivalents. Such items may include liquid money market funds, certificate of deposit and time deposit accounts, U.S. treasuries, government agency securities, and corporate debt. Investments that are classified as cash equivalents are carried at cost, which approximates fair value. The Company’s cash and cash equivalents includes $69.6 million and $76.7 million of cash equivalents at December 31, 2018 and 2017, respectively.
A portion of the Company’s cash and cash equivalents is held by its subsidiaries throughout the world, frequently in each subsidiary’s respective functional currency, which is typically the U.S. dollar. Approximately 32% and 77% of cash and cash equivalents were maintained outside the United States at December 31, 2018 and 2017, respectively.
Marketable debt securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income.” These securities can include U.S. treasuries, government agency securities, corporate debt, and commercial paper, all with maturities of greater than three months when purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are included in “Other, net” in the Consolidated Statements of Operations. The specific identification method is used to determine the realized gains and losses on investments.
Non-marketable equity securities are equity securities without readily observable market prices and are included in “Other assets” in the Consolidated Balance Sheets. Non-marketable securities are measured at cost, adjusted for changes in observable prices minus impairment. Changes in fair value are included in “Other, net” in the Consolidated Statements of Operations.
(p) Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Each quarter the Company assesses the valuation of all inventories: materials (raw materials, spare parts, and service inventory); work-in-process; and finished goods. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less than cost. Estimates of net realizable value include, but are not limited to, management’s forecasts related to the Company’s future manufacturing schedules, customer demand, technological and/or market obsolescence, general market conditions, possible alternative uses, and the ultimate realization of excess inventory. If future customer demand or market conditions are less favorable than the Company’s projections, additional inventory write-downs may be required and would be reflected in cost of sales in the period the revision is made. Inventory acquired as part of a business combination is recorded at fair value on the date of acquisition. See Note 5, “Business Combinations,” for additional information.
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Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(q) Business Combinations
The Company allocates the fair value of the purchase consideration of the Company’s acquisitions to the tangible assets, intangible assets, including in-process research and development (“IPR&D”), if any, and liabilities assumed, based on estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred. See Note 5, “Business Combinations,” for additional information.
(r) Goodwill and Indefinite-Lived Intangible Assets
Goodwill is an asset representing the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is measured as the excess of the consideration transferred over the net fair value of identifiable assets acquired and liabilities assumed. Intangible assets with indefinite useful lives are measured at their respective fair values on the acquisition date. Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. If and when development is complete, the associated assets would be deemed long-lived and would then be amortized based on their respective estimated useful lives at that point in time. Goodwill and indefinite-lived intangibles are not amortized into results of operations but instead are evaluated for impairment. The Company performs the evaluation in the beginning of the fourth quarter of each year or more frequently if impairment indicators arise.
In testing goodwill for impairment, the Company may first perform a qualitative assessment of whether it is more likely than not that the reporting unit’s fair value is less than its carrying amount, and, if so, the Company then quantitatively compares the fair value of the reporting unit to its carrying amount. If the fair value exceeds the carrying amount, goodwill is not impaired. If the carrying amount exceeds fair value, the Company then records an impairment loss equal to the difference, up to the carrying value of goodwill.
The Company determines the fair value of its reporting unit based on a reconciliation of the fair value of the reporting unit to the Company’s adjusted market capitalization. The adjusted market capitalization is calculated by multiplying the average share price of the Company’s common stock for the last ten trading days prior to the measurement date by the number of outstanding common shares and adding a control premium. The control premium is estimated using historical transactions in similar industries.
In testing indefinite-lived intangible assets for impairment, the Company may first perform a qualitative assessment of whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, and, if so, the Company then quantitatively compares the fair value of the indefinite-lived intangible asset to its carrying amount. The Company determines the fair value of its indefinite-lived intangible assets using a discounted cash flow method.
(s) Long-Lived Assets
Long-lived intangible assets consist of purchased technology, customer relationships, patents, trademarks and tradenames, and backlog and are initially recorded at fair value. Long-lived intangible assets are amortized over their estimated useful lives in a method reflecting the pattern in which the economic benefits are consumed or straight-lined if such pattern cannot be reliably determined.
Property, plant, and equipment are recorded at cost. Depreciation expense is calculated based on the estimated useful lives of the assets by using the straight-line method. Amortization of leasehold improvements is recognized using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
possible impairment, a recoverability test is performed utilizing undiscounted cash flows expected to be generated by that asset or asset group compared to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models or, when available, quoted market values and third-party appraisals.
(t) Recently Adopted Accounting Standards
The Company adopted ASC Topic 606,
Revenue from Contracts with Customers
(“ASC 606”), as of January 1, 2018, using the full retrospective method. All amounts and disclosures set forth in this Form 10-K reflect these changes. The most significant financial statement impacts of adopting ASC 606 are the elimination of the constraint on revenue associated with the billing retention related to the receipt of customer final acceptance and the identification of installation services as a performance obligation. The elimination of the constraint on revenue related to customer final acceptance, which is usually about 10 percent of a system sale, is now generally recognized at the time the Company transfers control of the system to the customer, which is earlier than under the Company’s previous revenue recognition model for certain contracts that were subject to the billing constraint. The performance obligation related to installation services is now recognized as the installation services are performed, which is later than the Company’s previous revenue recognition model.
The Company applied ASC 606 retrospectively and elected to use the disclosure exemption in the transition guidance under which the Company does not disclose prior period information regarding the amount of the transaction price allocated to remaining performance obligations. The cumulative effect of the adoption was recognized as a decrease to Accumulated deficit of $6.9 million on January 1, 2016. The following tables summarize the impact of adoption on the Company’s previously reported financial position and results of operations:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
As reported
|
|
Adjustments
|
|
As adjusted
|
|
|
(in thousands)
|
Balance Sheet
|
|
|
|
|
|
|
|
Contract assets
|
|
$
|
—
|
$
|
160
|
$
|
160
|
Deferred cost of sales
|
|
|
16,060
|
|
(66)
|
|
15,994
|
Deferred income taxes
|
|
|
2,953
|
|
94
|
|
3,047
|
Accrued expenses and other current liabilities
|
|
|
60,339
|
|
(2,271)
|
|
58,068
|
Customer deposits and deferred revenue
|
|
|
108,953
|
|
3,079
|
|
112,032
|
Additional paid-in capital
|
|
|
1,053,079
|
|
(1,126)
|
|
1,051,953
|
Accumulated deficit
|
|
|
(213,376)
|
|
506
|
|
(212,870)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2017
|
|
2016
|
|
|
As reported
|
|
Adjustments
|
|
As adjusted
|
|
As reported
|
|
Adjustments
|
|
As adjusted
|
|
(in thousands, except per share amounts)
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
484,756
|
|
$
|
(9,070)
|
|
$
|
475,686
|
|
$
|
332,451
|
|
$
|
(749)
|
|
$
|
331,702
|
Cost of sales
|
|
|
300,438
|
|
|
(980)
|
|
|
299,458
|
|
|
199,593
|
|
|
(989)
|
|
|
198,604
|
Income tax expense (benefit)
|
|
|
(36,107)
|
|
|
(1,487)
|
|
|
(37,594)
|
|
|
2,766
|
|
|
57
|
|
|
2,823
|
Net income (loss)
|
|
|
(44,793)
|
|
|
(6,603)
|
|
|
(51,396)
|
|
|
(122,210)
|
|
|
183
|
|
|
(122,027)
|
Diluted earnings (loss) per share
|
|
|
(1.01)
|
|
|
(0.15)
|
|
|
(1.16)
|
|
|
(3.11)
|
|
|
0.01
|
|
|
(3.10)
|
The Company’s adoption of the standard had no impact to cash provided by or used in operating, investing, or financing activities on the Consolidated Statements of Cash Flows.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company adopted ASU 2016-01,
Financial Instruments – Overall
, as of January 1, 2018. This ASU requires certain equity investments to be measured at fair value, with changes in fair value recognized in net income. The Company measures equity investments without readily observable market prices at cost, adjusted for changes in observable prices minus impairment. Changes in measurement are included in “Other, net” in the Consolidated Statements of Operations. This ASU has not had a material impact on the consolidated financial statements upon adoption, and the Company will monitor its equity investments each reporting period for changes in observable market prices, if any, which may be material in future periods.
The Company adopted ASU 2016-09:
Stock Compensation: Improvements to Employee Share-Based Payment Accounting
, as of January 1, 2016. This ASU simplifies several aspects of the accounting for share-based payments. Beginning in 2016, excess tax benefits and deficiencies are recognized as income tax expense or benefit in the income statement in the reporting period incurred. The Company also made an accounting policy election to account for forfeitures when they occur. The ASU transition guidance requires that this election be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the ASU is adopted. Accordingly, the Company recorded a $1.3 million charge to the opening accumulated deficit balance as of January 1, 2016, with a corresponding adjustment to additional paid-in capital, resulting in no impact to the opening balance of total stockholders’ equity. In addition, the Company recorded additional deferred tax assets with an equally offsetting valuation allowance of $2.4 million.
(u) Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02:
Leases
, which, along with subsequent ASUs related to this topic, has been codified as Accounting Standards Codification 842 (“ASC 842”). ASC 842 generally requires operating lessee rights and obligations to be recognized as assets and liabilities on the balance sheet. The new standard, which is effective for the Company on January 1, 2019, offers a transition option whereby companies can recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The Company plans to adopt using this transition method. In addition, ASC 842 provides for a number of optional exemptions in transition. The Company expects to elect certain exemptions whereby prior conclusions regarding lease identification, lease classification, and initial direct costs are not required to be reassessed under the new standard. The Company also plans to elect allowable policies whereby the Company will not separate lease and non-lease components, and the Company will not recognize an asset or liability for leases with original terms or renewals of one year or less. Upon adoption, the Company expects to recognize an operating lease liability ranging from $12 million to $16 million based on the present value of remaining minimum rental payments on existing leases, with corresponding assets of approximately the same amount.
The Company is also evaluating other pronouncements recently issued but not yet adopted. The adoption of these pronouncements is not expected to have a material impact on our consolidated financial statements.
Note 2 — Income (Loss) Per Share
The Company considers unvested share-based awards that have non-forfeitable rights to dividends prior to vesting to be participating shares, which are treated as a separate class of security from the Company’s common shares for calculating per share data. Therefore, the Company applies the two-class method when calculating income (loss) per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. However, since the holders of the participating shares are not obligated to fund losses, participating shares are excluded from the calculation of loss per share.
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period under the two-class method. Diluted income per share is calculated by dividing net income
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
by the weighted average number of shares used to calculate basic income per share plus the weighted average number of common share equivalents outstanding during the period. The dilutive effect of outstanding options to purchase common stock and non-participating share-based awards is considered in diluted income per share by application of the treasury stock method. The dilutive effect of performance share units is included in diluted income per common share in the periods the performance targets have been achieved. The computations of basic and diluted income (loss) per share for the years ended December 31, 2018, 2017, and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands, except per share amounts)
|
Net income (loss)
|
|
$
|
(407,088)
|
|
$
|
(51,396)
|
|
$
|
(122,027)
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(8.63)
|
|
$
|
(1.16)
|
|
$
|
(3.10)
|
Diluted
|
|
$
|
(8.63)
|
|
$
|
(1.16)
|
|
$
|
(3.10)
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
47,151
|
|
|
44,174
|
|
|
39,340
|
Effect of potentially dilutive share-based awards
|
|
|
—
|
|
|
—
|
|
|
—
|
Diluted weighted average shares outstanding
|
|
|
47,151
|
|
|
44,174
|
|
|
39,340
|
|
|
|
|
|
|
|
|
|
|
Unvested participating shares excluded from basic weighted average shares outstanding since the securityholders are not obligated to fund losses
|
|
|
20
|
|
|
72
|
|
|
312
|
Common share equivalents excluded from the diluted weighted average shares outstanding since Veeco incurred a net loss and their effect would be antidilutive
|
|
|
28
|
|
|
239
|
|
|
107
|
Potentially dilutive non-participating shares excluded from the diluted calculation as their effect would be antidilutive
|
|
|
2,474
|
|
|
1,744
|
|
|
1,896
|
Maximum potential shares to be issued for settlement of the Convertible Senior Notes excluded from the diluted calculation as their effect would be antidilutive
|
|
|
8,618
|
|
|
8,618
|
|
|
—
|
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.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table presents the Company’s assets that were measured at fair value on a recurring basis at December 31, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(in thousands)
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposits and time deposits
|
|
$
|
65,571
|
|
$
|
—
|
|
$
|
—
|
|
$
|
65,571
|
U.S. treasuries
|
|
|
3,990
|
|
|
—
|
|
|
—
|
|
|
3,990
|
Total
|
|
$
|
69,561
|
|
$
|
—
|
|
$
|
—
|
|
$
|
69,561
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasuries
|
|
$
|
37,184
|
|
$
|
—
|
|
$
|
—
|
|
$
|
37,184
|
Corporate debt
|
|
|
—
|
|
|
8,516
|
|
|
—
|
|
|
8,516
|
Commercial paper
|
|
|
—
|
|
|
2,489
|
|
|
—
|
|
|
2,489
|
Total
|
|
$
|
37,184
|
|
$
|
11,005
|
|
$
|
—
|
|
$
|
48,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposits and time deposits
|
|
$
|
64,249
|
|
$
|
—
|
|
$
|
—
|
|
$
|
64,249
|
U.S. treasuries
|
|
|
12,490
|
|
|
—
|
|
|
—
|
|
|
12,490
|
Total
|
|
$
|
76,739
|
|
$
|
—
|
|
$
|
—
|
|
$
|
76,739
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasuries
|
|
$
|
33,895
|
|
$
|
—
|
|
$
|
—
|
|
$
|
33,895
|
Corporate debt
|
|
|
—
|
|
|
10,886
|
|
|
—
|
|
|
10,886
|
Commercial paper
|
|
|
—
|
|
|
2,999
|
|
|
—
|
|
|
2,999
|
Total
|
|
$
|
33,895
|
|
$
|
13,885
|
|
$
|
—
|
|
$
|
47,780
|
The Company’s investments classified as Level 1 are based on quoted prices that are available in active markets. The Company’s investments classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency.
Note 4 — Investments
At December 31, 2018 and 2017 the amortized cost and fair value of marketable securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Estimated
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
(in thousands)
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasuries
|
|
$
|
37,191
|
|
$
|
—
|
|
$
|
(7)
|
|
$
|
37,184
|
Corporate debt
|
|
|
8,525
|
|
|
—
|
|
|
(9)
|
|
|
8,516
|
Commercial paper
|
|
|
2,489
|
|
|
—
|
|
|
—
|
|
|
2,489
|
Total
|
|
$
|
48,205
|
|
$
|
—
|
|
$
|
(16)
|
|
$
|
48,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasuries
|
|
$
|
33,914
|
|
$
|
—
|
|
$
|
(19)
|
|
$
|
33,895
|
Corporate debt
|
|
|
10,894
|
|
|
—
|
|
|
(8)
|
|
|
10,886
|
Commercial paper
|
|
|
2,999
|
|
|
—
|
|
|
—
|
|
|
2,999
|
Total
|
|
$
|
47,807
|
|
$
|
—
|
|
$
|
(27)
|
|
$
|
47,780
|
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Available-for-sale securities in a loss position at December 31, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
Estimated
|
|
Unrealized
|
|
Estimated
|
|
Unrealized
|
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
|
(in thousands)
|
U.S. treasuries
|
|
$
|
37,184
|
|
$
|
(7)
|
|
$
|
33,895
|
|
$
|
(19)
|
Corporate debt
|
|
|
8,516
|
|
|
(9)
|
|
|
10,886
|
|
|
(8)
|
Total
|
|
$
|
45,700
|
|
$
|
(16)
|
|
$
|
44,781
|
|
$
|
(27)
|
At December 31, 2018 and 2017, there were no short-term investments that had been in a continuous loss position for more than 12 months.
The maturities of securities classified as available-for-sale at December 31, 2018 were all due in one year or less. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The realized gains or losses for the years ended December 31, 2018, 2017, and 2016 were immaterial.
Other Investments
Veeco has an ownership interest of less than 20% in a non-marketable investment, Kateeva, Inc. (“Kateeva”), over which Veeco does not exert significant influence. The carrying value of the investment was $21.0 million at December 31, 2018 and 2017. Additionally, during the year ended December 31, 2018, the Company made a separate non-marketable investment of $3.5 million in another entity. The Company does not exert significant influence over this investment and its ownership interest is less than 20%. Neither equity investment has a readily observable market price, and therefore the Company has elected to measure these investments at cost, adjusted for changes in observable market prices minus impairment. The investments are included in “Other assets” on the Consolidated Balance Sheets. There were no changes in observable market prices for either investment for the year ended December 31, 2018. These investments are subject to periodic impairment reviews; as there are no open-market valuations, the impairment analyses require judgment. The analyses include assessments of the companies’ financial condition, the business outlooks for their products and technologies, their projected results and cash flow, business valuation indications from recent rounds of financing, the likelihood of obtaining subsequent rounds of financing, and the impact of equity preferences held by Veeco relative to other investors. There were no impairment charges recorded for either investment for the years ended December 31, 2018, 2017, or 2016.
Note 5 — Business Combinations
Ultratech
On May 26, 2017, the Company completed its acquisition of Ultratech, Inc. (“Ultratech”). Ultratech develops, manufactures, sells, and supports lithography, laser annealing, and inspection equipment for manufacturers of semiconductor devices, including front-end semiconductor manufacturing and advanced packaging. Ultratech also develops, manufactures, sells, and supports ALD equipment for scientific and industrial applications. Ultratech’s customers are primarily located throughout the United States, Europe, China, Japan, Taiwan, Singapore, and Korea. The results of Ultratech’s operations have been included in the consolidated financial statements since the date of acquisition.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Ultratech shareholders received (i) $21.75 per share in cash and (ii) 0.2675 of a share of Veeco common stock for each Ultratech common share outstanding on the acquisition date. The acquisition date fair value of the consideration totaled $633.4 million, net of cash acquired, which consisted of the following:
|
|
|
|
|
|
Acquisition Date
|
|
|
(May 26, 2017)
|
|
|
(in thousands)
|
Cash consideration, net of cash acquired of $229.4 million
|
|
$
|
404,490
|
Equity consideration (7.2 million shares issued)
|
|
|
228,643
|
Replacement equity awards attributable to pre-acquisition service
|
|
|
228
|
Acquisition date fair value
|
|
$
|
633,361
|
Approximately $2.7 million of the cash merger consideration is included in “Accrued expenses and other current liabilities” on the Consolidated Balance Sheets as of December 31, 2017 related to shareholder appraisal proceedings that were subsequently settled and paid during 2018.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
|
Acquisition Date
|
|
|
(May 26, 2017)
|
|
|
(in thousands)
|
Short-term investments
|
|
$
|
47,161
|
Accounts receivable
|
|
|
45,465
|
Inventories
|
|
|
59,100
|
Deferred cost of sales
|
|
|
242
|
Prepaid expense and other current assets
|
|
|
7,217
|
Property, plant, and equipment
|
|
|
18,152
|
Intangible assets
|
|
|
346,940
|
Other assets
|
|
|
6,442
|
Total identifiable assets acquired
|
|
|
530,719
|
|
|
|
|
Accounts payable
|
|
|
24,291
|
Accrued expenses and other current liabilities
|
|
|
16,356
|
Customer deposits and deferred revenue
|
|
|
4,834
|
Deferred income taxes
|
|
|
32,478
|
Other liabilities
|
|
|
11,622
|
Total liabilities assumed
|
|
|
89,581
|
|
|
|
|
Net identifiable assets acquired
|
|
|
441,138
|
Goodwill
|
|
|
192,223
|
Net assets acquired
|
|
$
|
633,361
|
The gross contractual value of the acquired accounts receivable was approximately $46.0 million. The fair value of the accounts receivables is the amount expected to be collected by the Company. Goodwill generated from the acquisition is primarily attributable to expected synergies from future growth and strategic advantages provided through the expansion of product offerings as well as assembled workforce and is not expected to be deductible for income tax purposes.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The classes of intangible assets acquired and the estimated useful life of each class is presented in the table below:
|
|
|
|
|
|
|
|
|
Acquisition Date
|
|
|
(May 26, 2017)
|
|
|
Amount
|
|
Useful life
|
|
|
(in thousands)
|
|
|
|
Technology
|
|
$
|
158,390
|
|
9
|
years
|
Customer relationships
|
|
|
116,710
|
|
12
|
years
|
Backlog
|
|
|
3,080
|
|
6
|
months
|
In-process research and development
|
|
|
43,340
|
|
*
|
|
Trademark and tradenames
|
|
|
25,420
|
|
7
|
years
|
Intangible assets acquired
|
|
$
|
346,940
|
|
|
|
*
In-process research and development will be amortized (or impaired) upon completion (or abandonment) of the development project.
The Company determined the estimated fair value of the identifiable intangible assets based on various factors including: cost, discounted cash flow, income method, loss-of-revenue/income method, and relief-from-royalty method in determining the purchase price allocation.
In-process research and development (“IPR&D”) represents the estimated fair values of incomplete Ultratech research and development projects that had not reached the commercialization stage and met the criteria for recognition as IPR&D as of the date of the acquisition. The fair value of IPR&D was determined using an income approach and costs to complete the project and expected commercialization timelines are considered key assumptions. This valuation approach reflected the present value of the projected cash flows that were expected to be generated by the IPR&D less charges representing the contribution of other assets to those cash flows. The value of the IPR&D was determined to be $43.3 million, approximately half of which was related to Ultratech’s lithography technologies and one-third of which was related to Ultratech’s laser annealing technologies.
During the second quarter of 2018, the Company lowered its projected results for the Ultratech asset group and determined that the revised projections were significantly lower than projected results at the time of the acquisition and that these revised projections required the Company to assess the Ultratech asset group for impairment. See Note 6, “Goodwill and Intangible Assets,” for additional information.
For the year ended December 31, 2018 and 2017, acquisition related costs were approximately $3.0 million and $17.8 million, respectively, including non-cash charges of $4.2 million related to accelerated share-based compensation for employee terminations for the year ended December 31, 2017.
The amounts of net sales and income (loss) from operations before income taxes of Ultratech included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2017 are as follows:
|
|
|
|
|
|
Year ended
|
|
|
December 31, 2017
|
|
|
(in thousands)
|
Net sales
|
|
$
|
65,280
|
Loss before income taxes
|
|
$
|
(62,284)
|
Loss before income taxes of Ultratech for the year ended December 31, 2017 of $62.3 million includes acquisition costs of $17.8 million, release of inventory fair value step-up related to purchase accounting of $9.6 million, amortization expense on intangible assets of $23.9 million, and restructuring charges of $3.3 million.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table presents unaudited pro forma financial information as if the acquisition of Ultratech had occurred on January 1, 2016:
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
2017
|
|
2016
|
|
(in thousands, except per share amounts)
|
Net sales
|
|
$
|
546,428
|
|
$
|
525,752
|
Loss before income taxes
|
|
|
(90,000)
|
|
|
(217,783)
|
Diluted earnings per share
|
|
$
|
(1.38)
|
|
$
|
(4.67)
|
The pro-forma results were calculated by combining the audited results of the Company with the stand-alone unaudited results of Ultratech for the pre-acquisition period, and adjusting for the following:
|
(i)
|
|
Additional amortization expense related to identified intangible assets valued as part of the purchase price allocation that would have been incurred starting on January 1, 2016.
|
|
(ii)
|
|
Additional depreciation expense for the property, plant, and equipment fair value adjustments that would have been incurred starting on January 1, 2016.
|
|
(iii)
|
|
All acquisition related costs incurred by the Company as well as by Ultratech pre-acquisition have been removed from the year ended December 31, 2017 and included in the year ended December 31, 2016, as such expenses would have been incurred in the first quarter following the acquisition.
|
|
(iv)
|
|
All amortization of inventory step-up has been removed from the year ended December 31, 2017 and recorded in the year ended December 31, 2016, as such costs would have been incurred as the corresponding inventory was sold.
|
|
(v)
|
|
Additional interest expense related to the Convertible Senior Notes (see Note 12, “Debt”) as if they had been issued on January 1, 2016.
|
|
(vi)
|
|
Income tax expense (benefit) was adjusted for the impact of the above adjustments for each period.
|
|
(vii)
|
|
All shares issued in connection with the acquisition were considered outstanding as of January 1, 2016 for purposes of calculating diluted earnings per share.
|
Note 6 — Goodwill and Intangible Assets
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. The following table presents the changes in goodwill balances during the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying
|
|
Accumulated
|
|
|
|
|
amount
|
|
impairment
|
|
Net amount
|
|
|
(in thousands)
|
Balance at December 31, 2016
|
|
$
|
238,108
|
|
$
|
123,200
|
|
$
|
114,908
|
Acquisition
|
|
|
192,223
|
|
|
—
|
|
|
192,223
|
Balance at December 31, 2017
|
|
|
430,331
|
|
|
123,200
|
|
|
307,131
|
Impairment
|
|
|
—
|
|
|
122,829
|
|
|
(122,829)
|
Balance at December 31, 2018
|
|
$
|
430,331
|
|
$
|
246,029
|
|
$
|
184,302
|
The Company performs its annual goodwill impairment test at the beginning of the fourth quarter each year. As the Company maintains a single goodwill reporting unit, it determines the fair value of its reporting unit based upon the
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Company’s adjusted market capitalization. The adjusted market capitalization is calculated by multiplying the average share price of the Company’s common stock for the last ten trading days prior to the measurement date by the number of outstanding common shares and adding a control premium. The control premium is estimated using historical transactions in similar industries. The annual test performed at the beginning of the fourth quarter of fiscal 2017 and 2018 did not result in any potential impairment as the fair value of the reporting unit was determined to exceed the carrying amount of the reporting unit.
As a result of a significant decline in the Company’s stock price during the fourth quarter, the Company concluded it was appropriate to perform an interim goodwill impairment test as of the end of the fourth quarter. The fair value of its reporting unit, as calculated using the adjusted market capitalization approach noted above, was determined to be below the carrying value of the reporting unit, and the Company recorded an impairment charge equal to the excess of carrying value over fair value, or $122.8 million, for the year ended December 31, 2018. The impairment charge is included in “Asset impairment” in the Consolidated Statements of Operations. The valuation of goodwill will continue to be subject to changes in the Company’s market capitalization and observable market control premiums. This analysis is sensitive to changes in the Company’s stock price and absent other qualitative factors, the Company may be required to record additional goodwill impairment charges in future periods if the stock price declines and remains depressed for an extended period of time.
The components of purchased intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Remaining
|
|
Gross
|
|
Amortization
|
|
|
|
Gross
|
|
Amortization
|
|
|
|
|
Amortization
|
|
Carrying
|
|
and
|
|
Net
|
|
Carrying
|
|
and
|
|
Net
|
|
|
Period
|
|
Amount
|
|
Impairment
|
|
Amount
|
|
Amount
|
|
Impairment
|
|
Amount
|
|
|
(in years)
|
|
(in thousands)
|
Technology
|
|
6.4
|
|
$
|
337,218
|
|
$
|
290,808
|
|
$
|
46,410
|
|
$
|
307,588
|
|
$
|
133,121
|
|
$
|
174,467
|
Customer relationships
|
|
10.2
|
|
|
164,595
|
|
|
136,126
|
|
|
28,469
|
|
|
164,595
|
|
|
39,336
|
|
|
125,259
|
In-process R&D
|
|
—
|
|
|
13,710
|
|
|
10,530
|
|
|
3,180
|
|
|
43,340
|
|
|
—
|
|
|
43,340
|
Trademarks and tradenames
|
|
5.4
|
|
|
30,910
|
|
|
23,899
|
|
|
7,011
|
|
|
30,910
|
|
|
4,321
|
|
|
26,589
|
Other
|
|
1.3
|
|
|
3,686
|
|
|
3,607
|
|
|
79
|
|
|
3,686
|
|
|
3,498
|
|
|
188
|
Total
|
|
7.3
|
|
$
|
550,119
|
|
$
|
464,970
|
|
$
|
85,149
|
|
$
|
550,119
|
|
$
|
180,276
|
|
$
|
369,843
|
Other intangible assets primarily consist of patents, licenses, and backlog.
During the second quarter of 2018, the Company lowered its projected results for the Ultratech asset group, which were significantly below the projected results at the time of the acquisition. The reduced projections were based on lower than expected unit volume of certain smartphones, which incorporate advanced packaging methods such as fan-out wafer level packaging (“FOWLP”), and a delay in the adoption of FOWLP advanced packaging by other electronics manufacturers, both of which slowed orders and reduced revenue projections for the Company’s advanced packaging lithography systems. In addition, there has been a delay in the build out of 28nm facilities by companies in China who were expected to purchase the Company’s Laser Spike Anneal systems. Taken together, the reduced projections identified during the second quarter of 2018 required the Company to assess the Ultratech asset group for impairment. As a result of the analysis, which included projected cash flows that required the use of unobservable inputs, the Company recorded non-cash impairment charges of $216.4 million and $35.9 million related to definite-lived intangible assets and in-process research and development assets, respectively, during the second quarter of 2018. The impairment charge is included in “Asset impairment” in the Consolidated Statement of Operations. Subsequently, certain in-process research and development projects were completed and moved to the “Technology” line in the above table.
During 2016, the Company decided to reduce future investments in certain technologies and, as a result, recorded a non-cash impairment charge of $54.3 million for the related intangible purchased technology. The impairment charge was
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
based on projected cash flows that required the use of unobservable inputs and was recorded in “Asset impairment” in the Consolidated Statements of Operations.
Based on the intangible assets recorded at December 31, 2018, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense, excluding in-process R&D, is expected to be as follows:
|
|
|
|
|
|
Amortization
|
|
|
(in thousands)
|
2019
|
|
$
|
16,820
|
2020
|
|
|
15,894
|
2021
|
|
|
12,772
|
2022
|
|
|
10,438
|
2023
|
|
|
8,675
|
Thereafter
|
|
|
17,370
|
Total
|
|
$
|
81,969
|
Note 7 — Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Inventories consist of the following:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
(in thousands)
|
Materials
|
|
$
|
90,816
|
|
$
|
59,919
|
Work-in-process
|
|
|
42,354
|
|
|
37,222
|
Finished goods
|
|
|
23,141
|
|
|
23,125
|
Total
|
|
$
|
156,311
|
|
$
|
120,266
|
Note 8 — Property, Plant, and Equipment and Assets Held for Sale
Property and equipment, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2018
|
|
2017
|
|
Average Useful Life
|
|
|
(in thousands)
|
|
|
Land
|
|
$
|
5,669
|
|
$
|
5,669
|
|
N/A
|
Building and improvements
|
|
|
61,124
|
|
|
54,449
|
|
10 – 40 years
|
Machinery and equipment
(1)
|
|
|
128,385
|
|
|
126,829
|
|
3 – 10 years
|
Leasehold improvements
|
|
|
9,033
|
|
|
10,073
|
|
3 – 7 years
|
Gross property, plant, and equipment
|
|
|
204,211
|
|
|
197,020
|
|
|
Less: accumulated depreciation and amortization
|
|
|
123,927
|
|
|
111,962
|
|
|
Net property, plant, and equipment
|
|
$
|
80,284
|
|
$
|
85,058
|
|
|
|
(1)
|
|
Machinery and equipment also includes software, furniture, and fixtures
|
Depreciation expense was $17.6 million, $14.6 million, and $13.4 million for the years ended December 31, 2018, 2017, and 2016, respectively. During 2016, the Company decided to reduce future investments in certain technologies and, as a result, recorded an impairment charge of $3.3 million of property, plant, and equipment.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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.
Finally, during the year ended December 31, 2016, the Company recorded an impairment charge of approximately $1.2 million related to an owned property in St. Paul, Minnesota. The property was sold during 2017, resulting in an additional impairment charge of $0.7 million for the year ended December 31, 2017.
There were no assets held for sale as of December 31, 2018 and 2017. All impairment charges were recorded in “Asset impairment” in the Consolidated Statements of Operations.
Note 9 — Accrued Expenses and Other Liabilities
The components of accrued expenses and other current liabilities were as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
(in thousands)
|
Payroll and related benefits
|
|
$
|
20,486
|
|
$
|
32,996
|
Warranty
|
|
|
7,852
|
|
|
6,532
|
Interest
|
|
|
4,321
|
|
|
4,430
|
Professional fees
|
|
|
2,897
|
|
|
3,942
|
Merger consideration payable
|
|
|
—
|
|
|
2,662
|
Sales, use, and other taxes
|
|
|
2,670
|
|
|
2,144
|
Restructuring liability
|
|
|
2,213
|
|
|
1,520
|
Other
|
|
|
6,011
|
|
|
3,842
|
Total
|
|
$
|
46,450
|
|
$
|
58,068
|
Customer deposits and deferred revenue
Customer deposits totaled $28.3 million and $41.5 million at December 31, 2018 and 2017, respectively, which are included in “Customer deposits and deferred revenue” in the Consolidated Balance Sheets. Deferred revenue represents amounts billed, other than deposits, in excess of the revenue that can be recognized on a particular contract at the balance sheet date. Changes in deferred revenue were as follows:
|
|
|
|
|
|
(in thousands)
|
Balance - December 31, 2017
|
|
$
|
70,536
|
Deferral of revenue
|
|
|
10,251
|
Recognition of previously deferred revenue
|
|
|
(36,372)
|
Balance - December 31, 2018
|
|
$
|
44,415
|
As of December 31, 2018, the Company has approximately $74.0 million of remaining performance obligations on contracts with an original estimated duration of one year or more, of which approximately 67% is expected to be recognized within one year, with the remaining amounts expected to be recognized between one to three years. The Company has elected to exclude disclosures regarding remaining performance obligations that have an original expected duration of one year or less.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Other liabilities
As part of the acquisition of Ultratech, the Company assumed an executive non-qualified deferred compensation plan that allowed qualifying executives to defer cash compensation. The plan was frozen at the time of acquisition and no further contributions have been made. At December 31, 2018 and 2017, plan assets approximated $3.2 million and $3.4 million, respectively, representing the cash surrender value of life insurance policies and is included within “Other assets” in the Consolidated Balance Sheets, while plan liabilities approximated $3.5 million and $4.7 million, respectively and is included within “Other liabilities” in the Consolidated Balance Sheets. Other liabilities also included asset retirement obligations of $3.2 million and $3.3 million at December 31, 2018 and 2017, respectively, medical and dental benefits for former executives of $2.2 million at both December 31, 2018 and 2017, and income tax payables of $1.0 million at December 31, 2018.
Note 10 — Restructuring Charges
During 2017, the Company initiated certain restructuring activities related to the Company’s efforts to streamline operations, enhance efficiencies, and reduce costs, as well as reduce the Company’s investments in certain technology development. In addition, during 2017, the Company began the Ultratech acquisition integration process to enhance efficiencies, resulting in reductions in headcount and other facility costs. During the year ended December 31, 2018, additional accruals were recognized and payments were made related to these restructuring initiatives.
During the second quarter of 2018, the Company initiated plans to further reduce excess capacity associated with the manufacture and support of the Company’s advanced packaging lithography and 3D wafer inspection systems by consolidating these operations into its San Jose, California facility. As a result of this and other cost saving initiatives, the Company announced headcount reductions of approximately 40 employees and recorded restructuring charges related to these actions of $2.8 million for the year ended December 31, 2018, consisting principally of personnel severance and related costs. The Company expects the consolidation to be completed in the first quarter of 2019, and expects to incur immaterial additional restructuring costs as this initiative is completed.
During the third quarter of 2018, the Company initiated additional restructuring activities to further reduce costs, including headcount reductions impacting approximately 35 employees and recorded restructuring charges related to these actions of $1.2 million, consisting principally of personnel severance and related costs. This initiative was completed by the end of 2018. Restructuring expense for the year ended December 31, 2018 included non-cash charges of $1.2 million related to accelerated share-based compensation for employee terminations, compared to $1.9 million for the comparable prior year period.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table shows the amounts incurred and paid for restructuring activities during the years ended December 31, 2018, 2017, and 2016 and the remaining accrued balance of restructuring costs at December 31, 2018, which is included in “Accrued expenses and other current liabilities” in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
Facility
|
|
|
|
|
|
Severance and
|
|
Related Costs
|
|
|
|
|
|
Related Costs
|
|
and Other
|
|
Total
|
|
|
(in thousands)
|
Balance - 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 - December 31, 2016
|
|
|
1,796
|
|
|
—
|
|
|
1,796
|
Provision
|
|
|
4,714
|
|
|
5,257
|
|
|
9,971
|
Payments
|
|
|
(4,990)
|
|
|
(5,257)
|
|
|
(10,247)
|
Balance - December 31, 2017
|
|
|
1,520
|
|
|
—
|
|
|
1,520
|
Provision
|
|
|
4,681
|
|
|
2,714
|
|
|
7,395
|
Payments
|
|
|
(4,058)
|
|
|
(2,644)
|
|
|
(6,702)
|
Balance - December 31, 2018
|
|
$
|
2,143
|
|
$
|
70
|
|
$
|
2,213
|
Note 11 — Commitments and Contingencies
Warranty
The Company typically provides standard warranty coverage on its systems for one year from the date of final acceptance by providing labor and parts necessary to repair the systems during the warranty period. The Company accounts for the estimated warranty cost when revenue is recognized on the related system. Warranty cost is included in “Cost of sales” in the Consolidated Statements of Operations. The estimated warranty cost is based on the Company’s historical experience with its systems and regional labor costs. The Company calculates the average service hours by region and parts expense per system utilizing actual service records to determine the estimated warranty charge. The Company updates its warranty estimates on a quarterly basis when the actual product performance or field expense differs from original estimates.
Changes in the Company’s product warranty reserves were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
Balance, beginning of the year
|
|
$
|
6,532
|
|
$
|
4,217
|
|
$
|
8,159
|
Warranties issued
|
|
|
6,737
|
|
|
5,817
|
|
|
3,916
|
Addition from Ultratech acquisition
|
|
|
—
|
|
|
1,889
|
|
|
—
|
Consumption of reserves
|
|
|
(6,573)
|
|
|
(6,330)
|
|
|
(6,433)
|
Changes in estimate
|
|
|
1,156
|
|
|
939
|
|
|
(1,425)
|
Balance, end of the year
|
|
$
|
7,852
|
|
$
|
6,532
|
|
$
|
4,217
|
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Minimum Lease Commitments
Minimum lease commitments at December 31, 2018 for property and equipment under operating lease agreements (exclusive of renewal options) are payable as follows:
|
|
|
|
|
|
Operating
|
|
|
Leases
|
|
|
(in thousands)
|
Payments due by period:
|
|
|
2019
|
|
$
|
5,143
|
2020
|
|
|
5,056
|
2021
|
|
|
2,432
|
2022
|
|
|
1,812
|
2023
|
|
|
1,066
|
Thereafter
|
|
|
548
|
Total
|
|
$
|
16,057
|
Lease expense was $6.3 million, $5.3 million, and $2.5 million for the years ended December 31, 2018, 2017, and 2016, respectively. In addition, the Company is obligated under such leases for certain other expenses, including real estate taxes and insurance.
Legal Proceedings
On June 8, 2018, an Ultratech shareholder who received Veeco stock as part of the consideration for the Ultratech acquisition filed a purported class action complaint in the Superior Court of the State of California, County of Santa Clara, captioned Wolther v. Maheshwari et al., Case No. 18CV329690, on behalf of himself and others who purchased or acquired shares of Veeco pursuant to the registration statement and prospectus which Veeco filed with the SEC in connection with the Ultratech acquisition (the “Wolther Action”). On August 2 and August 8, 2018, two purported class action complaints substantially similar to the Wolther Action were filed on behalf of different plaintiffs in the same court as the Wolther Action. These cases have been consolidated with the Wolther Action, and a consolidated complaint was filed on December 11, 2018. The consolidated complaint seeks to recover damages and fees under Sections 11, 12, and 15 of the Securities Act of 1933 for, among other things, alleged false/misleading statements in the registration statement and prospectus relating to the Ultratech acquisition, relating primarily to the alleged failure to disclose delays in the advanced packaging business, increased MOCVD competition in China, and an intellectual property dispute. The defendants filed a demurrer on January 10, 2019, asking the court to dismiss the consolidated complaint for failure to state a claim. The demurrer is scheduled to be heard by the court on March 15, 2019. Veeco believes this lawsuit is without merit and intends to vigorously contest this matter.
On December 21, 2018, a purported Veeco stockholder filed a derivative action in the Superior Court of the State of California, County of Santa Clara, captioned Vladimir Gusinsky Revocable Trust v. Peeler, et al., Case No. 18CV339925, on behalf of nominal defendant Veeco. The complaint seeks to assert claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment against current and former Veeco directors premised on purported misstatements and omissions in the registration statement relating to the Ultratech acquisition. On January 2, 2019, the court ordered this action stayed until the case management conference, which is scheduled for March 15, 2019. Veeco believes this lawsuit is without merit and intends to vigorously contest this matter.
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.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Concentrations of Credit Risk
The Company depends on purchases from its ten largest customers, which accounted for 61% and 67% of net accounts receivable at December 31, 2018 and 2017, respectively.
Customers who accounted for more than 10% of net accounts receivable or net sales are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
Net Sales
|
|
|
|
December 31,
|
|
For the Year Ended December 31,
|
|
Customer
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2016
|
|
Customer A
|
|
*
|
|
24
|
%
|
*
|
|
21
|
%
|
14
|
%
|
Customer B
|
|
22
|
%
|
*
|
|
*
|
|
*
|
|
*
|
|
Customer C
|
|
*
|
|
*
|
|
12
|
%
|
*
|
|
*
|
|
*
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.
Receivable Purchase Agreement
In December 2017, the Company entered into a Receivable Purchase Agreement with a financial institution to sell certain of its trade receivables from customers without recourse, up to $23.0 million at any point in time for a term of one year. Pursuant to this agreement, the Company sold $15.0 million of Receivables during the year ended December 31, 2017 and maintained $8.0 million available under the agreement for additional sales of Receivables as of December 31, 2017. No sales were made under this agreement in 2018, and the agreement was terminated in 2018. The net sale of accounts receivable, under the agreement is reflected as a reduction of accounts receivable in the Company’s Consolidated Balance Sheet at the time of sale and any fees for the sale of trade receivables were not material for the periods presented.
Suppliers
The Company outsources certain functions to third parties, including the manufacture of several of its systems. While the Company relies on its outsourcing partners to perform their contracted functions, the Company maintains some level of internal manufacturing capability for these systems. 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 failure of the Company’s present outsourcing partners and suppliers to meet their contractual obligations 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.
The Company had deposits with its suppliers of $12.8 million and $7.6 million at December 31, 2018 and 2017, respectively, that were included in “Prepaid expenses and other current assets” on the Consolidated Balance Sheets.
Purchase Commitments
The Company had purchase commitments of $91.5 million at December 31, 2018, substantially all of which will come due within one year. Purchase commitments are primarily for inventory used in manufacturing products and are partially offset by existing deposits with suppliers.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Bank Guarantees
The Company has bank guarantees and letters of credit issued by a financial institution on its behalf as needed. At December 31, 2018, outstanding bank guarantees and letters of credit totaled $6.8 million and unused bank guarantees and letters of credit of $58.9
million were available to be drawn upon.
Other
On November 1, 2018, the Company announced an attack on its computer systems. Upon learning of the attack, forensic experts were promptly engaged to assist with the investigation. The Company also notified law enforcement of the incident.
The investigation, which has largely been completed, determined that the Company’s computer systems were accessed by what appears to be a highly-sophisticated actor at various times over a period of years. It appears that proprietary and confidential information of the Company and certain personal information of the Company’s employees was accessed and may have been compromised as a result of the incident. Based on the evidence available at this time, the extent and impact of the compromise cannot be determined. The Company notified employees of this incident. The Company is continuing to analyze the incident, along with appropriate remediation of the Company’s computer systems. That analysis and the related remediation efforts could ultimately reveal that additional information was revealed or compromised.
Based on the evidence available at this time, the Company does not know if or when it will be able to determine the potential impact to the Company, whether it will be able to identify who is responsible for this attack or whether it will be able to pursue legal action or other remedies to protect any compromised information or recover damages related to the attack. This attack, including the expenses incurred to address it, may have an adverse effect on the Company’s results of operations and/or financial condition. In addition, this attack may have caused the loss or misuse of proprietary and confidential information of the Company or others, result in litigation and potential liability, damage the Company’s reputation and/or otherwise harm its business.
Note 12 — Debt
Convertible Senior Notes
On January 10, 2017, the Company issued $345.0 million of 2.70% convertible senior unsecured notes (the “Convertible Senior Notes”). The Company received net proceeds, after deducting underwriting discounts and fees and expenses payable by the Company, of approximately $335.8 million. The Convertible Senior Notes bear interest at a rate of 2.70% per year, payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 2017. The Convertible Senior Notes mature on January 15, 2023 (the “Maturity Date”), unless earlier purchased by the Company, redeemed, or converted.
The Convertible Senior Notes are unsecured obligations of Veeco and rank senior in right of payment to any of Veeco’s subordinated indebtedness; equal in right of payment to all of Veeco’s unsecured indebtedness that is not subordinated; effectively subordinated in right of payment to any of Veeco’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally subordinated to all indebtedness and other liabilities (including trade payables) of Veeco’s subsidiaries.
The Convertible Senior Notes are convertible into cash, shares of the Company’s common stock, or a combination thereof, at the Company’s election, upon the satisfaction of specified conditions and during certain periods as described below. The initial conversion rate is 24.9800 shares of the Company’s common stock per $1,000 principal amount of Convertible Senior Notes, representing an initial effective conversion price of $40.03 per share of common stock. The conversion rate may be subject to adjustment upon the occurrence of certain specified events as provided in the
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
indenture governing the Convertible Senior Notes, dated January 18, 2017 between the Company and U.S. Bank National Association, as trustee, but will not be adjusted for accrued but unpaid interest.
Holders may convert all or any portion of their notes, in multiples of one thousand dollar principal amount, at their option at any time prior to the close of business on the business day immediately preceding October 15, 2022 only under the following circumstances:
|
(i)
|
|
During any calendar quarter (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
|
|
(ii)
|
|
During the five consecutive business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per one thousand dollar principal amount of Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Veeco’s common stock and the conversion rate on each such trading day;
|
|
(iii)
|
|
If the Company calls any or all of the Convertible Senior Notes for redemption at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
|
|
(iv)
|
|
Upon the occurrence of specified corporate events.
|
On or after October 15, 2022, until the close of business on the business day immediately preceding the Maturity Date, holders may convert their notes at any time, regardless of the foregoing circumstances.
Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. As a result of its cash conversion option, the Company segregated the liability component of the instrument from the equity component. The liability component was measured by estimating the fair value of a non-convertible debt instrument that is similar in its terms to the Convertible Senior Notes. The calculation of the fair value of the debt component required the use of Level 3 inputs, including utilization of convertible investors’ credit assumptions and high yield bond indices. Fair value was estimated through discounting future interest and principal payments, an income approach, due under the Convertible Senior Notes at a discount rate of 7.00%, an interest rate equal to the estimated borrowing rate for similar non-convertible debt. The excess of the aggregate face value of the Convertible Senior Notes over the estimated fair value of the liability component of $72.5 million was recognized as a debt discount and recorded as an increase to additional paid-in capital and will be amortized over the expected life of the Convertible Senior Notes using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense.
The transaction costs of $9.2 million incurred in connection with the issuance of the Convertible Senior Notes were allocated to the liability and equity components based on their relative values. Transaction costs allocated to the liability component are being amortized using the effective interest rate method and recognized as non-cash interest expense over the expected term of the Convertible Senior Notes. Transaction costs allocated to the equity component of $1.9 million reduced the value of the equity component recognized in stockholders' equity.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The carrying value of the Convertible Senior Notes is as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
(in thousands)
|
Principal amount
|
|
$
|
345,000
|
|
$
|
345,000
|
Unamortized debt discount
|
|
|
(52,336)
|
|
|
(63,022)
|
Unamortized transaction costs
|
|
|
(5,272)
|
|
|
(6,348)
|
Net carrying value
|
|
$
|
287,392
|
|
$
|
275,630
|
Total interest expense related to the Convertible Senior Notes is as follows:
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
2018
|
|
2017
|
|
|
(in thousands)
|
Cash Interest Expense
|
|
|
|
|
|
|
Coupon interest expense
|
|
$
|
9,315
|
|
$
|
8,901
|
Non-Cash Interest Expense
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
10,686
|
|
|
9,490
|
Amortization of transaction costs
|
|
|
1,076
|
|
|
956
|
Total Interest Expense
|
|
$
|
21,077
|
|
$
|
19,347
|
The Company determined the Convertible Senior Notes is a Level 2 liability in the fair value hierarchy and estimated its fair value as $255.3 million at December 31, 2018.
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, 2018.
A summary of the foreign exchange derivatives outstanding on December 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Fair Value
|
|
Maturity Dates
|
|
Notional Amount
|
|
|
(in thousands)
|
Foreign currency exchange forwards
|
|
$
|
—
|
|
January 2018
|
|
$
|
622
|
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table shows the gains and (losses) from currency exchange derivatives during the years ended December 31, 2018, 2017, and 2016, which are included in “Other, net” in the Consolidated Statements of Operations as well as the weighted average notional amount of derivatives outstanding for each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
Gains (losses)
|
|
Weighted average notional amount
|
|
|
Gains (losses)
|
|
Weighted average notional amount
|
|
|
Gains (losses)
|
|
Weighted average notional amount
|
|
|
(in thousands)
|
Foreign currency exchange forwards
|
|
$
|
327
|
|
2,869
|
|
$
|
(6)
|
|
314
|
|
$
|
219
|
|
7,175
|
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
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
|
|
|
Foreign
|
|
Minimum
|
|
on Available
|
|
|
|
|
|
Currency
|
|
Pension
|
|
for Sale
|
|
|
|
|
|
Translation
|
|
Liability
|
|
Securities
|
|
Total
|
|
|
(in thousands)
|
Balance - 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 - December 31, 2016
|
|
|
1,797
|
|
|
—
|
|
|
(20)
|
|
|
1,777
|
Other comprehensive income (loss)
|
|
|
42
|
|
|
—
|
|
|
(7)
|
|
|
35
|
Balance - December 31, 2017
|
|
|
1,839
|
|
|
—
|
|
|
(27)
|
|
|
1,812
|
Other comprehensive income (loss)
|
|
|
(3)
|
|
|
—
|
|
|
11
|
|
|
8
|
Balance - December 31, 2018
|
|
$
|
1,836
|
|
$
|
—
|
|
$
|
(16)
|
|
$
|
1,820
|
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 one of its subsidiaries 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.
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, 2018, no preferred shares have been issued.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Treasury Stock
The share repurchase program authorized by the Company’s Board of Directors in October 2015 expired on October 28, 2017. On December 11, 2017, the Company’s Board of Directors authorized a new program to repurchase up to $100 million of the Company’s common stock to be completed through December 11, 2019.
At December 31, 2018, $14.3 million of the $100 million had been utilized. Repurchases are expected to be made from time to time in the open market or in privately negotiated transactions in accordance with applicable federal securities laws.
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, 2018, there are 2,000 option shares and no 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, 2018, there are 1.2 million option shares and 0.9 million RSUs and PSUs outstanding under the 2010 Plan.
During 2016, the Company’s Board of Directors approved the 2016 Employee Stock Purchase Plan (“ESPP”). The Company is authorized to issue up to 750,000 shares under the ESPP. Under the ESPP, 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, and subject to certain limits. The ESPP was approved by the Company’s shareholders.
During 2017, in connection with the acquisition of Ultratech, the Company assumed certain restricted stock units (the “Assumed RSUs”) available and outstanding under the Ultratech, Inc. 1993 Stock Option/Stock Issuance Plan, as amended (the “Ultratech Plan”). The Assumed RSUs remain subject to the terms set forth in the award agreement governing the award and the Ultratech Plan, except that the Assumed RSUs relate to shares of Company common stock and the number of restricted stock units was adjusted pursuant to the terms of the acquisition to reflect the difference in
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
the value of a share of Company common stock and a share of Ultratech common stock prior to closing the acquisition. The Assumed RSUs were converted into 338,144 restricted stock units of the Company and generally vest over 50 months. After the acquisition and notwithstanding any other provisions of the Ultratech Plan, no further grants will be made under the Ultratech Plan, and the Company is solely maintaining the Ultratech Plan with respect to the Assumed RSUs. At December 31, 2018, there are 30,200 RSUs outstanding under the Ultratech Plan.
Shares Reserved for Future Issuance
At December 31, 2018, the Company has 4.5 million shares reserved to cover exercises of outstanding stock options, vesting of RSUs, and additional grants under the 2010 Plan.
At December 31, 2018, the Company has 0.2 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,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Cost of sales
|
|
$
|
1,885
|
|
$
|
2,505
|
|
$
|
1,956
|
Research and development
|
|
|
3,611
|
|
|
2,957
|
|
|
3,324
|
Selling, general, and administrative
|
|
|
9,417
|
|
|
12,851
|
|
|
10,433
|
Restructuring
|
|
|
1,161
|
|
|
1,880
|
|
|
—
|
Acquisition costs
|
|
|
—
|
|
|
4,203
|
|
|
—
|
Total
|
|
$
|
16,074
|
|
$
|
24,396
|
|
$
|
15,713
|
The Company did not realize any tax benefits associated with share-based compensation for the years ended December 31, 2018, 2017, and 2016 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 immaterial amount of share-based compensation into inventory for the years ended December 31, 2018, 2017, and 2016.
Unrecognized share-based compensation costs at December 31, 2018 are summarized below:
|
|
|
|
|
|
|
|
Unrecognized
|
|
Weighted
|
|
|
Share-Based
|
|
Average Period
|
|
|
Compensation
|
|
Expected to be
|
|
|
Costs
|
|
Recognized
|
|
|
(in thousands)
|
(in years)
|
Stock option awards
|
|
$
|
—
|
|
—
|
Restricted stock units
|
|
|
2,466
|
|
2.4
|
Restricted stock awards
|
|
|
19,663
|
|
2.6
|
Performance share units
|
|
|
7,356
|
|
2.4
|
Total unrecognized share-based compensation cost
|
|
$
|
29,485
|
|
2.5
|
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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, 2018, 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
|
|
1,222
|
|
$
|
34.80
|
|
3.0
|
|
—
|
Expected to vest
|
|
—
|
|
|
—
|
|
—
|
|
—
|
Total
|
|
1,222
|
|
|
34.80
|
|
3.0
|
|
—
|
The aggregate intrinsic value represents the difference between the option exercise price and $7.41, the closing price of the Company’s common stock on December 31, 2018, 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)
|
|
|
|
Balance - December 31, 2015
|
|
2,064
|
|
$
|
32.91
|
Granted
|
|
—
|
|
|
—
|
Exercised
|
|
(194)
|
|
|
12.18
|
Expired or forfeited
|
|
(294)
|
|
|
34.44
|
Balance - December 31, 2016
|
|
1,576
|
|
|
35.18
|
Granted
|
|
—
|
|
|
—
|
Exercised
|
|
(18)
|
|
|
30.03
|
Expired or forfeited
|
|
(164)
|
|
|
37.47
|
Balance - December 31, 2017
|
|
1,394
|
|
|
34.97
|
Granted
|
|
—
|
|
|
—
|
Exercised
|
|
—
|
|
|
—
|
Expired or forfeited
|
|
(172)
|
|
|
36.21
|
Balance - December 31, 2018
|
|
1,222
|
|
|
34.80
|
The following table summarizes stock option information at December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Aggregate
|
|
Average
|
|
Weighted
|
|
|
|
Aggregate
|
|
Average
|
|
Weighted
|
|
|
|
|
Intrinsic
|
|
Remaining
|
|
Average
|
|
|
|
Intrinsic
|
|
Remaining
|
|
Average
|
Range of Exercise Prices
|
|
Shares
|
|
Value
|
|
Contractual Life
|
|
Exercise Price
|
|
Shares
|
|
Value
|
|
Contractual Life
|
|
Exercise Price
|
|
|
(in thousands)
|
|
(in thousands)
|
|
(in years)
|
|
|
|
(in thousands)
|
|
(in thousands)
|
|
(in years)
|
|
|
|
$20.00 - $30.00
|
|
25
|
|
$
|
—
|
|
3.6
|
|
$
|
28.13
|
|
25
|
|
$
|
—
|
|
3.6
|
|
$
|
28.13
|
$30.01 - $40.00
|
|
1,058
|
|
|
—
|
|
3.1
|
|
|
32.81
|
|
1,058
|
|
|
—
|
|
3.1
|
|
|
32.81
|
$40.01 - $50.00
|
|
12
|
|
|
—
|
|
1.7
|
|
|
45.57
|
|
12
|
|
|
—
|
|
1.7
|
|
|
45.57
|
$50.01 - $60.00
|
|
127
|
|
|
—
|
|
2.4
|
|
|
51.70
|
|
127
|
|
|
—
|
|
2.4
|
|
|
51.70
|
|
|
1,222
|
|
$
|
—
|
|
3.0
|
|
|
34.80
|
|
1,222
|
|
$
|
—
|
|
3.0
|
|
|
34.80
|
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table summarizes information on options exercised for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Cash received from options exercised
|
|
$
|
—
|
|
$
|
431
|
|
$
|
494
|
Intrinsic value of options exercised
|
|
$
|
—
|
|
$
|
51
|
|
$
|
1,165
|
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 an issuance of shares of common stock to employees if certain performance or market conditions are achieved. All of these awards typically vest over one to five years and vesting is subject to the employee's continued service with the Company and, in the case of performance awards, meeting certain performance or market conditions. 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, or, in the case of performance awards with market conditions, fair value is determined using a Monte Carlo simulation.
The following table summarizes the equity activity of non-vested restricted shares and performance shares:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
Number of
|
|
Grant Date
|
|
|
Shares
|
|
Fair Value
|
|
|
(in thousands)
|
|
|
|
Balance - December 31, 2015
|
|
1,398
|
|
$
|
31.97
|
Granted
|
|
1,166
|
|
|
17.59
|
Vested
|
|
(349)
|
|
|
32.73
|
Forfeited
|
|
(266)
|
|
|
27.31
|
Balance - December 31, 2016
|
|
1,949
|
|
|
23.85
|
Granted
|
|
674
|
|
|
29.22
|
Performance award adjustments
|
|
(25)
|
|
|
20.95
|
Assumed from Ultratech
|
|
338
|
|
|
31.75
|
Vested
|
|
(831)
|
|
|
27.67
|
Forfeited
|
|
(225)
|
|
|
26.29
|
Balance - December 31, 2017
|
|
1,880
|
|
|
25.41
|
Granted
|
|
1,257
|
|
|
17.37
|
Performance award adjustments
|
|
(5)
|
|
|
32.67
|
Vested
|
|
(523)
|
|
|
26.39
|
Forfeited
|
|
(391)
|
|
|
24.66
|
Balance - December 31, 2018
|
|
2,218
|
|
|
20.74
|
The total fair value of shares that vested during the years ended December 31, 2018, 2017, and 2016 was $9.1 million, $22.3 million, and $7.5 million, respectively. For performance awards, the final number of shares earned will vary depending on the achievement of the actual results relative to the performance or market conditions. 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 fair value of performance awards with market conditions is estimated on the date of grant using a Monte Carlo simulation. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive these awards. The weighted average fair value and the assumptions used in calculating such
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
values during fiscal year 2018 for performance awards with market conditions were based on estimates at the date of grant as follows:
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2018
|
|
Weighted average fair value
|
|
$
|
15.58
|
|
Dividend yield
|
|
|
0
|
%
|
Expected volatility factor
(1)
|
|
|
49
|
%
|
Risk-free interest rate
(2)
|
|
|
2.88
|
%
|
Expected life (in years)
(3)
|
|
|
3.0
|
|
|
(1)
|
|
Expected volatility is measured using historical daily price changes of the Company’s stock over the respective expected term.
|
|
(2)
|
|
The risk-free rate for periods within the contractual term 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 the awards will be outstanding prior to exercise.
|
Employee Stock Purchase Plan
For the years ended December 31, 2018, 2017, and 2016 the Company received cash proceeds of $3.1 million, $2.6 million, and $1.2 million, and issued shares of 332,096, 163,000, and 83,000, respectively, under the ESPP Plan. 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 years 2018, 2017, and 2016 were based on estimates at the date of grant as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Weighted average fair value
|
|
$
|
4.94
|
|
$
|
7.09
|
|
$
|
4.45
|
|
Dividend yield
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Expected volatility factor
(1)
|
|
|
62
|
%
|
|
36
|
%
|
|
43
|
%
|
Risk-free interest rate
(2)
|
|
|
1.81
|
%
|
|
0.99
|
%
|
|
0.35
|
%
|
Expected life (in years)
(3)
|
|
|
0.5
|
|
|
0.5
|
|
|
0.5
|
|
|
(1)
|
|
Expected volatility is measured using historical daily price changes of the Company’s stock over the respective expected term.
|
|
(2)
|
|
The risk-free rate for periods within the contractual term 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 the purchase rights will be outstanding prior to exercise.
|
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. In addition, the Company assumed Ultratech’s 401(k) plan as a result of the merger, and Ultratech’s plan was merged into the Company’s existing plan effective January 1, 2018. The Company provided employer contributions associated with these plans of approximately $3.0 million, $2.7 million, and $2.6 million for the years ended December 31, 2018, 2017, and 2016, 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
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Domestic
|
|
$
|
(286,561)
|
|
$
|
(101,573)
|
|
$
|
(123,089)
|
Foreign
|
|
|
(147,273)
|
|
|
12,583
|
|
|
3,885
|
Total
|
|
$
|
(433,834)
|
|
$
|
(88,990)
|
|
$
|
(119,204)
|
Significant components of the expense (benefit) for income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,682)
|
|
$
|
—
|
|
$
|
—
|
Foreign
|
|
|
2,518
|
|
|
(2,246)
|
|
|
1,937
|
State and local
|
|
|
38
|
|
|
15
|
|
|
(111)
|
Total current expense (benefit) for income taxes
|
|
|
874
|
|
|
(2,231)
|
|
|
1,826
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
205
|
|
|
(35,912)
|
|
|
1,459
|
Foreign
|
|
|
(27,932)
|
|
|
1,291
|
|
|
(589)
|
State and local
|
|
|
107
|
|
|
(742)
|
|
|
127
|
Total deferred expense (benefit) for income taxes
|
|
|
(27,620)
|
|
|
(35,363)
|
|
|
997
|
Total expense (benefit) for income taxes
|
|
$
|
(26,746)
|
|
$
|
(37,594)
|
|
$
|
2,823
|
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,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Income tax expense (benefit) at U.S. statutory rates
|
|
$
|
(91,105)
|
|
$
|
(31,147)
|
|
$
|
(41,722)
|
State taxes, net of U.S. federal impact
|
|
|
(2,848)
|
|
|
(2,523)
|
|
|
(1,963)
|
Effect of international operations
|
|
|
11,847
|
|
|
10,158
|
|
|
8,798
|
Research and development tax credit
|
|
|
(2,230)
|
|
|
620
|
|
|
(801)
|
Net change in valuation allowance
|
|
|
7,747
|
|
|
1,883
|
|
|
50,544
|
Change in accrual for unrecognized tax benefits
|
|
|
2,868
|
|
|
(4,772)
|
|
|
(1,700)
|
Subsidiary liquidation
|
|
|
—
|
|
|
—
|
|
|
(12,435)
|
Share-based compensation
|
|
|
1,848
|
|
|
99
|
|
|
2,133
|
Effect of 2017 Tax Act
|
|
|
(1,690)
|
|
|
(11,344)
|
|
|
—
|
Asset impairment
|
|
|
46,872
|
|
|
—
|
|
|
—
|
Other
|
|
|
(55)
|
|
|
(568)
|
|
|
(31)
|
Total expense (benefit) for income taxes
|
|
$
|
(26,746)
|
|
$
|
(37,594)
|
|
$
|
2,823
|
The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with SAB 118, which provided SEC staff guidance for the application of ASC 740 in the reporting period in which the 2017 Tax Act was signed into law. As such, the Company’s 2017 financial results included provisional amounts for specific
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
income tax effects of the 2017 Tax Act for which the accounting under ASC 740 was incomplete but for which a reasonable estimate could be determined. During the year ended December 31, 2018, the Company finalized the accounting for the tax effects of 2017 Tax Act based on legislative updates currently available and recorded an additional income tax benefit of $1.7 million for alternative minimum tax credits that became refundable in accordance with the 2017 Tax Act. The Company also reported an increase in deferred tax assets of $6.8 million as a result of adjustments to tax attributes utilized for one-time transition tax, which was offset by a full valuation allowance.
The most significant impacts of the 2017 Tax Act on the Company’s federal income taxes for the year ended December 31, 2017 were as follows:
Reduction of the U.S. Corporate Income Tax Rate
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were re-measured as of December 22, 2017 to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent. The Company recorded an income tax benefit of $4.8 million for the year ended December 31, 2017, as the net deferred tax assets were reduced by $25.6 million with a corresponding valuation allowance reduction of $30.4 million.
One-Time Transition Tax on Foreign Earnings
As of December 31, 2017, the Company had $180.1 million of foreign earnings that was subject to the one-time transition tax. The Company used its 2017 and carryforward net operating losses to offset the impact of the transition tax. As the Company maintains a full valuation allowance against its U.S. deferred tax assets, the Company did not record an income tax expense related to the transition tax for the year ended December 31, 2017.
Valuation Allowance
The 2017 Tax Act modified the Net Operating Loss ("NOL") provisions to provide for an indefinite carryforward of NOLs arising in tax years beginning after December 31, 2017. The 2017 Tax Act also limits the amount of NOL deductions that can be used in any one year to 80 percent of the taxpayer’s taxable income, effective with respect to NOLs arising in tax years beginning after December 31, 2017. The Company recognized an income tax benefit of $6.5 million for the year ended December 31, 2017 related to a reduction in the Company’s valuation allowance as a result of the Company scheduling out the reversals of its net deferred tax assets which resulted in tax amortization on indefinite-lived intangible assets becoming available to offset existing deferred tax assets that are now expected to have an indefinite life.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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,
|
|
|
2018
|
|
2017
|
|
|
(in thousands)
|
Deferred tax assets:
|
|
|
|
|
|
|
Inventory valuation
|
|
$
|
8,943
|
|
$
|
8,007
|
Net operating losses
|
|
|
67,787
|
|
|
73,458
|
Credit carry forwards
|
|
|
52,592
|
|
|
34,966
|
Warranty and installation accruals
|
|
|
1,695
|
|
|
1,690
|
Share-based compensation
|
|
|
6,981
|
|
|
7,385
|
Other
|
|
|
2,182
|
|
|
1,832
|
Total deferred tax assets
|
|
|
140,180
|
|
|
127,338
|
Valuation allowance
|
|
|
(114,955)
|
|
|
(100,456)
|
Net deferred tax assets
|
|
|
25,225
|
|
|
26,882
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Purchased intangible assets
|
|
|
15,401
|
|
|
45,807
|
Convertible Senior Notes
|
|
|
11,265
|
|
|
13,534
|
Depreciation
|
|
|
2,380
|
|
|
1,339
|
Total deferred tax liabilities
|
|
|
29,046
|
|
|
60,680
|
Net deferred taxes
|
|
$
|
(3,821)
|
|
$
|
(33,798)
|
The Company is no longer permanently reinvesting future earnings from certain foreign jurisdictions and has accrued for foreign tax withholdings of $0.6 million on its unremitted earnings as of December 31, 2018.
At December 31, 2018, the Company had U.S. federal NOL carryforwards of approximately $281.4 million, of which $16.0 million has an indefinite carryforward period, with the remaining expiring in varying amounts between 2024 and 2037, if not utilized. In connection with the Ultratech acquisition, $119.0 million of historical NOL carryforwards were acquired, which are subject to an annual limitation. The Company has $3.5 million of capital loss carryforwards that expire in 2021. At December 31, 2018, the Company had U.S. federal research and development credits of $28.3 million that will expire between 2019 and 2038. The Ultratech acquisition resulted in the carryover of $11.4 million of research and development credit carryforwards, which are subject to an annual limitation. The Company also has $9.4 million of foreign tax credits that expire in 2027. Additionally, the Company has state and local NOL carryforwards of approximately $147.6 million (a net deferred tax asset of $9.0 million, net of federal tax benefits and before the valuation allowance) that will expire between 2019 and 2038. Finally, the Company has state credits of $27.4 million, some of which are indefinite and others that will expire between 2019 and 2033.
The Company makes assessments to estimate if sufficient taxable income will be generated in the future to use existing deferred tax assets. As of December 31, 2018, the Company continued to have a cumulative three year loss with respect to its U.S. operations. As such, the Company has recorded a valuation allowance against its U.S. deferred tax assets. During 2018, the Company’s valuation allowance increased by approximately $14.5 million, including an increase of $6.8 million as a result of adjustments to tax attributes utilized for one-time transition tax.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Balance at beginning of year
|
|
$
|
8,269
|
|
$
|
7,452
|
|
$
|
9,152
|
Additions for tax positions related to current year
|
|
|
2,154
|
|
|
511
|
|
|
1,038
|
Additions for tax positions related to prior years
|
|
|
1,721
|
|
|
3
|
|
|
233
|
Reductions for tax positions related to prior years
|
|
|
(934)
|
|
|
(4,877)
|
|
|
(2,826)
|
Reductions due to the lapse of the statute of limitations
|
|
|
(26)
|
|
|
(122)
|
|
|
(39)
|
Settlements
|
|
|
(47)
|
|
|
(287)
|
|
|
(106)
|
Additions for business combination
|
|
|
—
|
|
|
5,589
|
|
|
—
|
Balance at end of year
|
|
$
|
11,137
|
|
$
|
8,269
|
|
$
|
7,452
|
If the amount of unrecognized tax benefits at December 31, 2018 were recognized, the Company’s income tax provision would decrease by $1.5 million. The gross amount of interest and penalties accrued in income tax payable in the Consolidated Balance Sheets was approximately $0.3 million at both December 31, 2018 and 2017.
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 consolidated federal income tax matters have been concluded for years through 2015 subject to subsequent utilization of NOLs 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 2015. The Company’s major foreign jurisdictions’ statutes of limitation remain open with respect to the tax years 2017 for China, 2015 through 2017 for Germany and Singapore, and 2017 for Taiwan. 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 development, manufacture, sales, and support of semiconductor and 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 the allocation of resources based on total Company results.
Sales by market is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Sales by end-market
|
|
|
|
|
|
|
|
|
|
Advanced Packaging, MEMS & RF Filters
|
|
$
|
90,775
|
|
$
|
67,406
|
|
$
|
67,484
|
LED Lighting, Display & Compound Semiconductor
|
|
|
249,974
|
|
|
248,615
|
|
|
145,701
|
Front-End Semiconductor
|
|
|
62,582
|
|
|
40,319
|
|
|
8,427
|
Scientific & Industrial
|
|
|
138,751
|
|
|
119,346
|
|
|
110,090
|
Total
|
|
$
|
542,082
|
|
$
|
475,686
|
|
$
|
331,702
|
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.
Table of Contents
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Sales and long-lived tangible assets by geographic region are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales to Unaffiliated Customers
|
|
Long-lived Tangible Assets
|
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
United States
|
|
$
|
125,659
|
|
$
|
93,433
|
|
$
|
85,582
|
|
$
|
78,503
|
|
$
|
81,046
|
|
$
|
60,012
|
China
|
|
|
194,032
|
|
|
106,674
|
|
|
84,604
|
|
|
81
|
|
|
64
|
|
|
219
|
EMEA
(1)
|
|
|
89,102
|
|
|
72,979
|
|
|
84,181
|
|
|
205
|
|
|
231
|
|
|
93
|
Rest of World
|
|
|
133,289
|
|
|
202,600
|
|
|
77,335
|
|
|
1,495
|
|
|
3,717
|
|
|
322
|
Total
|
|
$
|
542,082
|
|
$
|
475,686
|
|
$
|
331,702
|
|
$
|
80,284
|
|
$
|
85,058
|
|
$
|
60,646
|
|
(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 2018 and 2017. 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 2018
|
|
Fiscal 2017
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
|
(in thousands, except per share amounts)
|
Net sales
|
|
$
|
158,574
|
|
$
|
157,779
|
|
$
|
126,757
|
|
$
|
98,972
|
|
$
|
94,499
|
|
$
|
112,218
|
|
$
|
129,308
|
|
$
|
139,661
|
Gross profit
|
|
|
56,680
|
|
|
55,395
|
|
|
46,385
|
|
|
35,259
|
|
|
34,500
|
|
|
35,847
|
|
|
50,529
|
|
|
55,352
|
Net income (loss)
|
|
|
(15,827)
|
|
|
(237,634)
|
|
|
(8,953)
|
|
|
(144,674)
|
|
|
1,640
|
|
|
(20,817)
|
|
|
(23,740)
|
|
|
(8,479)
|
Basic income (loss) per common share
|
|
|
(0.34)
|
|
|
(5.02)
|
|
|
(0.19)
|
|
|
(3.11)
|
|
|
0.04
|
|
|
(0.49)
|
|
|
(0.51)
|
|
|
(0.18)
|
Diluted income (loss) per common share
|
|
|
(0.34)
|
|
|
(5.02)
|
|
|
(0.19)
|
|
|
(3.11)
|
|
|
0.04
|
|
|
(0.49)
|
|
|
(0.51)
|
|
|
(0.18)
|
Acquisition of Ultratech
During the second quarter of 2017, the Company acquired Ultratech. The results of operations of Ultratech have been included in the consolidated financial statements since the date of acquisition. Refer to Note 5, “Business Combinations,” for additional information.
Asset Impairments
During the second quarter of 2018, the Company recorded non-cash impairment charges related to the Ultratech asset group of $216.4 million and $35.9 million for definite-lived intangible assets and in-process research and development assets, respectively. Additionally, during the fourth quarter of 2018, the Company recorded a non-cash goodwill impairment charge of $122.8 million. Refer to Note 6, “Goodwill and Intangible Assets,” for additional information.
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, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
270
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
270
|
Valuation allowance in net deferred tax assets
|
|
|
100,456
|
|
|
14,499
|
|
|
—
|
|
|
—
|
|
|
114,955
|
|
|
$
|
100,726
|
|
$
|
14,499
|
|
$
|
—
|
|
$
|
—
|
|
$
|
115,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
286
|
|
$
|
99
|
|
$
|
—
|
|
$
|
(115)
|
|
$
|
270
|
Valuation allowance in net deferred tax assets
|
|
|
104,744
|
|
|
(49,589)
|
|
|
45,301
|
|
|
—
|
|
|
100,456
|
|
|
$
|
105,030
|
|
$
|
(49,490)
|
|
$
|
45,301
|
|
$
|
(115)
|
|
$
|
100,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
206
|
|
$
|
171
|
|
$
|
—
|
|
$
|
(91)
|
|
$
|
286
|
Valuation allowance in net deferred tax assets
|
|
|
54,200
|
|
|
50,544
|
|
|
—
|
|
|
—
|
|
|
104,744
|
|
|
$
|
54,406
|
|
$
|
50,715
|
|
$
|
—
|
|
$
|
(91)
|
|
$
|
105,030
|
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