UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended September 30, 2014March 31, 2015
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from to .
Commission file numberFile Number: 0-16244
VEECO INSTRUMENTS INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)its charter)
Delaware |
| 11-2989601 |
|
|
Terminal Drive |
| 11803 |
| (Zip Code) |
(516) 677-0200
(Registrant’s telephone number, including area code: (516) 677-0200code)
Website: www.veeco.com
Indicate by check mark whether the Registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No o¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx No o¨
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,”filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | ||||
Non-accelerated filer | ¨ |
|
|
| Smaller reporting company | ||
|
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o¨ No x
40,217,447Indicate the number of shares outstanding of each of the issuer’s classes of common stock, were outstanding as of the close of business on October 24, 2014.latest practicable date:
Title of Class | Shares Outstanding | ||
Common Stock | as of April 30, 2015 | ||
par value $0.01 per share | 40,384,427 |
VEECO INSTRUMENTS INC.
This quarterly report on Form 10-Q (the “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Discussions containing such forward-looking statements may be found in Part I.I - Items 1, 2, and 3 hereof, as well as within this Report generally. In addition, when used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “targets,” “plans,” “intends” “will”“intends,” “will,” and similar expressions related to the future are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. These
In addition, the preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates and assumptions are based on knowledge of current events and planned actions to be undertaken in the future, they may ultimately differ from actual results. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. All estimates and assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from these estimates and assumptions.
The risks and uncertainties of Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco,” the “Company,” “we,” “us,” and “our,” unless the context indicates otherwise) include, without limitation, the following:
· OurUnfavorable market conditions may adversely affect our operating results have been, and may continue to be, adversely affected by unfavorable market conditions;results;
· Timing of market adoption of light emitting diode (“LED”) technology for general lighting is uncertain;
·Our failure to successfully manage our outsourcing activities or failure of our outsourcing partners to perform as anticipated could adversely affect our results of operations and our ability to adapt to fluctuating order volumes;
·The furtherA reduction or elimination of foreign government subsidies and economic incentives may adversely affect the future order rate for our metal organic chemical vapor deposition (“MOCVD”)MOCVD equipment;
·The cyclicality of the industries we serve directly affects our business;
·We operate in industries characterized by rapid technological change;
·We depend on a limited number of customers, located primarily in a limited number of regions, which operate in highly concentrated industries;
·We face significant competition;
·The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly;
· Our operating results have been,sales cycle is long and may continue to be, adversely affected by tightening credit markets;unpredictable;
· Our backlog is subject to customer cancellation or modification and such cancellation could result in decreased sales and increased provisions for excess and obsolete inventory and/or liabilities to our suppliers for products no longer needed;
· Our failure to estimate customer demand accurately could result in excess or obsolete inventory and/or liabilities to our suppliers for products no longer needed, while manufacturing interruptions or delays could affect our ability to meet customer demand;
· The cyclicalityOur failure to successfully manage our outsourcing activities or failure of the industries we serve directly affects our business;outsourcing partners to perform as anticipated could adversely affect our results of operations and our ability to adapt to fluctuating order volumes;
· We rely on a limited number of suppliers, some of whom are our sole source for particular components;
·Our inability to attract, retain, and motivate key employees could have a material adverse effect on our business;
·Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses;
·Timing of market adoption of LED technology for general lighting is uncertain;
· Our sales to LED, and data storage and other manufacturers are highly dependent on these manufacturers’ sales for consumer electronics applications, which can experience significant volatility due to seasonal and other factors, which could materially adversely impact our future results of operations;
·Our operating results have been, and may continue to be, adversely affected by tightening credit markets;
· We are exposed to the risks of operating a global business, including the need to obtain export licenses for certain of our shipments and political risks in the countries we operate;
· We may be exposed to liabilities under the Foreign Corrupt Practices Act and any determination that we violated these or similar laws could have a material adverse effect on our business;
·The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly;
·We operate in industries characterized by rapid technological change;
·We face significant competition;
·We depend on a limited number of customers, located primarily in a limited number of regions, which operate in highly concentrated industries;
·Our sales cycle is long and unpredictable;
· We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act and any delays or difficulty in satisfying these requirements or negative reports concerning our internal controls could adversely affect our future results of operations and our stock price;
·The price of our common shares may be volatile and could decline significantly;
· Our inability to attract, retain, and motivate key employees could have a material adverse effect onChanges in accounting pronouncements or taxation rules or practices may adversely affect our business;financial results;
·We are subject to foreign currency exchange risks;
·The enforcement and protection of our intellectual property rights may be expensive and could divert our limited resources;
·We may be subject to claims of intellectual property infringement by others;
·If we are subject to cyber-attacks we could incur substantial costs and, if such attacks are successful, could result in significant liabilities, reputational harm and disruption of our operations;
·Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses;
· We may be required to take additional impairment charges for goodwill and indefinite-lived intangible assets or definite-lived intangible and long-lived assets;
Table·The price of Contentsour common shares may be volatile and could decline significantly;
· Changes in accounting pronouncements or taxation rules or practicesThe enforcement and protection of our intellectual property rights may adversely affectbe expensive and could divert our financial results;limited resources;
·We may be subject to claims of intellectual property infringement by others;
· We are subject to risks of non-compliance with environmental, health and safety regulations;foreign currency exchange risks;
· We haveIf we are subject to cyber-attacks we could incur substantial costs and, if such attacks are successful, significant operations in locations which could be materiallyliabilities, reputational harm, and adversely impacted in the event of a natural disaster or other significant disruption;disruption to our operations;
· We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company by another company more difficult;
· New regulationsWe are subject to risks of non-compliance with environmental, health, and safety regulations;
·Regulations related to conflict minerals will force us to incur additional expenses, may make our supply chain more complex, and may result in damage to our relationships with customers; and
· The matters set forthWe have significant operations in this Report generally, includinglocations which could be materially and adversely impacted in the risk factors set forth in “Part II. Item 1A. Risk Factors.”event of a natural disaster or other significant disruption.
Consequently, such forward looking statements and estimates should be regarded solely as the current plans estimates and beliefs of Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco”, the “Company”, “we”, “us” and “our”, unless the context indicates otherwise). The Company doesVeeco. We do not undertake any obligation to update any forward looking statements to reflect future events or circumstances after the date of such statements.
Available Information
We file annual, quarterly and current reports, information statements and other information with the SEC. The public may obtain information by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.
Internet Address
We maintain a website where additional information concerning our business and various upcoming events can be found. The address of our website is www.veeco.com. We provide a link on our website, under Investors — Financial Information — SEC Filings, through which investors can access our filings with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to such reports. These filings are posted to our website as soon as reasonably practicable after we electronically file such material with the SEC.
VEECO INSTRUMENTS INC.
PART I. I—FINANCIAL INFORMATION
Veeco Instruments Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
|
| March 31, |
| December 31, |
| ||
|
| 2015 |
| 2014 |
| ||
|
| (unaudited) |
|
|
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 303,123 |
| $ | 270,811 |
|
Short-term investments |
| 88,997 |
| 120,572 |
| ||
Restricted cash |
| 493 |
| 539 |
| ||
Accounts receivable, net |
| 64,285 |
| 60,085 |
| ||
Inventory |
| 57,197 |
| 61,471 |
| ||
Deferred cost of sales |
| 15,506 |
| 5,076 |
| ||
Prepaid expenses and other current assets |
| 32,102 |
| 23,132 |
| ||
Assets held for sale |
| 6,000 |
| 6,000 |
| ||
Deferred income taxes |
| 7,014 |
| 7,976 |
| ||
Total current assets |
| 574,717 |
| 555,662 |
| ||
Property, plant and equipment, net |
| 80,301 |
| 78,752 |
| ||
Goodwill |
| 114,972 |
| 114,959 |
| ||
Deferred income taxes |
| 1,180 |
| 1,180 |
| ||
Intangible assets, net |
| 151,346 |
| 159,308 |
| ||
Other assets |
| 19,574 |
| 19,594 |
| ||
Total assets |
| $ | 942,090 |
| $ | 929,455 |
|
|
|
|
|
|
| ||
Liabilities and stockholders’ equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
| $ | 41,128 |
| $ | 18,111 |
|
Accrued expenses and other current liabilities |
| 36,491 |
| 48,418 |
| ||
Customer deposits and deferred revenue |
| 109,993 |
| 96,004 |
| ||
Income taxes payable |
| 8,041 |
| 5,441 |
| ||
Deferred income taxes |
| 120 |
| 120 |
| ||
Current portion of long-term debt |
| 320 |
| 314 |
| ||
Total current liabilities |
| 196,093 |
| 168,408 |
| ||
Deferred income taxes |
| 16,041 |
| 16,397 |
| ||
Long-term debt |
| 1,451 |
| 1,533 |
| ||
Other liabilities |
| 4,680 |
| 4,185 |
| ||
Total liabilities |
| 218,265 |
| 190,523 |
| ||
Stockholders’ Equity: |
|
|
|
|
| ||
Preferred stock, 500,000 shares authorized; no shares issued and outstanding |
| — |
| — |
| ||
Common stock, $0.01 par value, 120,000,000 shares authorized; 40,375,054 and 40,360,069 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively |
| 404 |
| 404 |
| ||
Additional paid-in capital |
| 754,125 |
| 750,139 |
| ||
Accumulated deficit |
| (32,190 | ) | (13,080 | ) | ||
Accumulated other comprehensive income |
| 1,486 |
| 1,469 |
| ||
Total stockholders’ equity |
| 723,825 |
| 738,932 |
| ||
Total liabilities and stockholders’ equity |
| $ | 942,090 |
| $ | 929,455 |
|
See accompanying Notes to the Consolidated Financial Statements.
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Operations
(Inin thousands, except per share data)(Unaudited)amounts)
(unaudited)
|
| For the three months ended |
| For the nine months ended |
| |||||||||||||||
|
| September 30, |
| September 30, |
|
| Three months ended March 31, |
| ||||||||||||
|
| 2014 |
| 2013 |
| 2014 |
| 2013 |
|
| 2015 |
| 2014 |
| ||||||
Net sales |
| $ | 93,341 |
| $ | 99,324 |
| $ | 279,304 |
| $ | 258,540 |
|
| $ | 98,341 |
| $ | 90,841 |
|
Cost of sales |
| 60,783 |
| 69,016 |
| 182,296 |
| 171,040 |
|
| 63,205 |
| 57,064 |
| ||||||
Gross profit |
| 32,558 |
| 30,308 |
| 97,008 |
| 87,500 |
|
| 35,136 |
| 33,777 |
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
| |||||||||||
Selling, general and administrative |
| 21,712 |
| 19,650 |
| 65,270 |
| 59,077 |
| |||||||||||
Operating expenses, net: |
|
|
|
|
| |||||||||||||||
Selling, general, and administrative |
| 22,882 |
| 21,667 |
| |||||||||||||||
Research and development |
| 19,968 |
| 18,993 |
| 60,747 |
| 60,600 |
|
| 18,585 |
| 19,768 |
| ||||||
Amortization |
| 3,149 |
| 855 |
| 8,951 |
| 2,566 |
| |||||||||||
Amortization of intangible assets |
| 7,962 |
| 2,903 |
| |||||||||||||||
Restructuring |
| 2,317 |
| 1,240 |
| 3,510 |
| 1,771 |
|
| 2,357 |
| 392 |
| ||||||
Asset impairment |
| 2,864 |
| — |
| 2,864 |
| — |
|
| 126 |
| — |
| ||||||
Total operating expenses |
| 50,010 |
| 40,738 |
| 141,342 |
| 124,014 |
| |||||||||||
Other operating, net |
| 36 |
| (493 | ) | (334 | ) | (141 | ) | |||||||||||
Changes in contingent consideration |
| — |
| — |
| (29,368 | ) | — |
|
| — |
| (29,368 | ) | ||||||
Other, net |
| (951 | ) | (212 | ) | |||||||||||||||
Total operating expenses, net |
| 50,961 |
| 15,150 |
| |||||||||||||||
Operating income (loss) |
| (17,488 | ) | (9,937 | ) | (14,632 | ) | (36,373 | ) |
| (15,825 | ) | 18,627 |
| ||||||
Interest income (expense), net |
| 305 |
| 192 |
| 541 |
| 620 |
| |||||||||||
Interest income |
| 287 |
| 206 |
| |||||||||||||||
Interest expense |
| (126 | ) | (42 | ) | |||||||||||||||
Income (loss) before income taxes |
| (17,183 | ) | (9,745 | ) | (14,091 | ) | (35,753 | ) |
| (15,664 | ) | 18,791 |
| ||||||
Income tax provision (benefit) |
| (3,206 | ) | (3,719 | ) | (4,063 | ) | (15,575 | ) | |||||||||||
Income tax expense (benefit) |
| 3,446 |
| (369 | ) | |||||||||||||||
Net income (loss) |
| $ | (13,977 | ) | $ | (6,026 | ) | $ | (10,028 | ) | $ | (20,178 | ) |
| $ | (19,110 | ) | $ | 19,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic: |
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) |
| $ | (0.35 | ) | $ | (0.16 | ) | $ | (0.26 | ) | $ | (0.52 | ) | |||||||
Diluted : |
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) |
| $ | (0.35 | ) | $ | (0.16 | ) | $ | (0.26 | ) | $ | (0.52 | ) | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
| |||||||||||
Basic |
| 39,401 |
| 38,841 |
| 39,317 |
| 38,774 |
|
| $ | (0.48 | ) | $ | 0.49 |
| ||||
Diluted |
| 39,401 |
| 38,841 |
| 39,317 |
| 38,774 |
|
| $ | (0.48 | ) | $ | 0.48 |
| ||||
|
|
|
|
|
| |||||||||||||||
Weighted average number of shares: |
|
|
|
|
| |||||||||||||||
Basic |
| 39,639 |
| 39,177 |
| |||||||||||||||
Diluted |
| 39,639 |
| 39,937 |
|
TheSee accompanying notes are an integral part of these consolidated financial statements.Notes to the Consolidated Financial Statements.
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Inin thousands)
(Unaudited)(unaudited)
|
| For the three months ended |
| For the nine months ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2014 |
| 2013 |
| 2014 |
| 2013 |
| ||||
Net income (loss) |
| $ | (13,977 | ) | $ | (6,026 | ) | $ | (10,028 | ) | $ | (20,178 | ) |
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
| ||||
Available-for-sale securities |
|
|
|
|
|
|
|
|
| ||||
Unrealized gain (loss) on available-for-sale securities |
| 6 |
| 225 |
| 127 |
| (15 | ) | ||||
Benefit (provision) for income taxes |
| — |
| (54 | ) | — |
| 25 |
| ||||
Less: Reclassification adjustments for gains included in net income (loss) |
| — |
| (1 | ) | (45 | ) | (52 | ) | ||||
Net unrealized gain (loss) on available-for-sale securities |
| 6 |
| 170 |
| 82 |
| (42 | ) | ||||
Foreign currency translation |
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation |
| (138 | ) | (273 | ) | (29 | ) | (1,346 | ) | ||||
Benefit (provision) for income taxes |
| — |
| 176 |
| — |
| (13 | ) | ||||
Net foreign currency translation |
| (138 | ) | (97 | ) | (29 | ) | (1,359 | ) | ||||
Other comprehensive income (loss), net of tax |
| (132 | ) | 73 |
| 53 |
| (1,401 | ) | ||||
Comprehensive income (loss) |
| $ | (14,109 | ) | $ | (5,953 | ) | $ | (9,975 | ) | $ | (21,579 | ) |
|
| Three months ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
Net income (loss) |
| $ | (19,110 | ) | $ | 19,160 |
|
|
|
|
|
|
| ||
Other comprehensive income, net of tax |
|
|
|
|
| ||
Unrealized gain on available-for-sale securities |
| 32 |
| 50 |
| ||
Foreign currency translation gain (loss) |
| (15 | ) | 133 |
| ||
Other comprehensive income, net of tax |
| 17 |
| 183 |
| ||
|
|
|
|
|
| ||
Comprehensive income (loss) |
| $ | (19,093 | ) | $ | 19,343 |
|
TheSee accompanying notes are an integral part of these consolidated financial statements.Notes to the Consolidated Financial Statements.
Veeco Instruments Inc. and SubsidiariesConsolidated Balance Sheets(In thousands, except share data)
Consolidated Statements of Cash Flows
|
| September 30, |
| December 31, |
| ||
|
| 2014 |
| 2013 |
| ||
|
| (Unaudited) |
|
|
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 264,008 |
| $ | 210,799 |
|
Short-term investments |
| 222,954 |
| 281,538 |
| ||
Restricted cash |
| 487 |
| 2,738 |
| ||
Accounts receivable, net |
| 61,588 |
| 23,823 |
| ||
Inventories |
| 46,594 |
| 59,726 |
| ||
Deferred cost of sales |
| 7,434 |
| 724 |
| ||
Prepaid expenses and other current assets |
| 43,898 |
| 22,579 |
| ||
Assets held for sale |
| 2,653 |
| — |
| ||
Deferred income taxes |
| 8,384 |
| 11,716 |
| ||
Total current assets |
| 658,000 |
| 613,643 |
| ||
Property, plant and equipment at cost, net |
| 80,720 |
| 89,139 |
| ||
Goodwill |
| 91,521 |
| 91,348 |
| ||
Deferred income taxes |
| 397 |
| 397 |
| ||
Intangible assets, net |
| 106,015 |
| 114,716 |
| ||
Other assets |
| 19,745 |
| 38,726 |
| ||
Total assets |
| $ | 956,398 |
| $ | 947,969 |
|
Liabilities and equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
| $ | 26,113 |
| $ | 35,755 |
|
Accrued expenses and other current liabilities |
| 40,468 |
| 51,084 |
| ||
Customer deposits and deferred revenue |
| 65,553 |
| 34,754 |
| ||
Income taxes payable |
| 6,840 |
| 6,149 |
| ||
Deferred income taxes |
| 159 |
| 159 |
| ||
Current portion of long-term debt |
| 308 |
| 290 |
| ||
Total current liabilities |
| 139,441 |
| 128,191 |
| ||
|
|
|
|
|
| ||
Deferred income taxes |
| 19,741 |
| 28,052 |
| ||
Long-term debt |
| 1,614 |
| 1,847 |
| ||
Other liabilities |
| 3,484 |
| 9,649 |
| ||
Total liabilities |
| 164,280 |
| 167,739 |
| ||
Equity: |
|
|
|
|
| ||
Preferred stock, 500,000 shares authorized; no shares issued and outstanding |
| — |
| — |
| ||
Common stock; $.01 par value; authorized 120,000,000 shares; 40,232,642 and 39,666,195 shares issued and outstanding in 2014 and 2013, respectively |
| 402 |
| 397 |
| ||
Additional paid-in capital |
| 743,210 |
| 721,352 |
| ||
Retained earnings |
| 43,832 |
| 53,860 |
| ||
Accumulated other comprehensive income |
| 4,674 |
| 4,621 |
| ||
Total equity |
| 792,118 |
| 780,230 |
| ||
Total liabilities and equity |
| $ | 956,398 |
| $ | 947,969 |
|
(in thousands)
(unaudited)
|
| Three months ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
| ||
Net income (loss) |
| $ | (19,110 | ) | $ | 19,160 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 10,724 |
| 5,771 |
| ||
Deferred income taxes |
| 607 |
| (798 | ) | ||
Asset impairment |
| 126 |
| — |
| ||
Share-based compensation expense |
| 3,998 |
| 4,722 |
| ||
Gain on sale of lab tools |
| (12 | ) | (920 | ) | ||
Change in contingent consideration |
| — |
| (29,368 | ) | ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
| (4,200 | ) | (26,939 | ) | ||
Inventory and deferred cost of sales |
| (7,249 | ) | 8,150 |
| ||
Prepaid expenses and other current assets |
| (8,970 | ) | (3,410 | ) | ||
Accounts payable and accrued expenses |
| 11,157 |
| (2,240 | ) | ||
Customer deposits and deferred revenue |
| 13,989 |
| 6,416 |
| ||
Income taxes receivable and payable, net |
| 2,600 |
| (612 | ) | ||
Other, net |
| 628 |
| 1,667 |
| ||
Net cash provided by (used in) operating activities |
| 4,288 |
| (18,401 | ) | ||
|
|
|
|
|
| ||
Cash Flows from Investing Activities |
|
|
|
|
| ||
Capital expenditures |
| (4,781 | ) | (2,138 | ) | ||
Proceeds from the liquidation of short-term investments |
| 43,556 |
| 32,030 |
| ||
Payments for purchases of short-term investments |
| (11,998 | ) | (17,989 | ) | ||
Proceeds from sale of lab tools |
| 1,413 |
| 2,340 |
| ||
Other |
| (68 | ) | (124 | ) | ||
Net cash provided by investing activities |
| 28,122 |
| 14,119 |
| ||
|
|
|
|
|
| ||
Cash Flows from Financing Activities |
|
|
|
|
| ||
Proceeds from stock option exercises |
| 45 |
| 8,316 |
| ||
Payments of tax withholdings - restricted shares |
| (52 | ) | (170 | ) | ||
Repayments of long-term debt |
| (76 | ) | (70 | ) | ||
Net cash provided by (used in) financing activities |
| (83 | ) | 8,076 |
| ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
| (15 | ) | 89 |
| ||
Net increase in cash and cash equivalents |
| 32,312 |
| 3,883 |
| ||
Cash and cash equivalents - beginning of period |
| 270,811 |
| 210,799 |
| ||
Cash and cash equivalents - end of period |
| $ | 303,123 |
| $ | 214,682 |
|
Supplemental information: |
|
|
|
|
| ||
Interest paid |
| $ | 36 |
| $ | 42 |
|
Income taxes paid |
| $ | 544 |
| $ | 1,851 |
|
TheSee accompanying notes are an integral part of these consolidated financial statements.Notes to the Consolidated Financial Statements.
Veeco Instruments Inc. and SubsidiariesConsolidated Statements of Cash Flows(In thousands)(Unaudited)
|
| Nine months ended |
| ||||
|
| 2014 |
| 2013 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
| ||
Net income (loss) |
| $ | (10,028 | ) | $ | (20,178 | ) |
Adjustments to reconcile net income (loss) to net cash from operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 17,649 |
| 12,080 |
| ||
Deferred income taxes |
| (4,973 | ) | (5,196 | ) | ||
Non-cash asset impairment |
| 2,864 |
| — |
| ||
Non-cash equity-based compensation |
| 14,303 |
| 9,054 |
| ||
Provision (recovery) for bad debt |
| (1,833 | ) | 5 |
| ||
Gross profit from sales of lab tools |
| (2,435 | ) | — |
| ||
Change in contingent consideration |
| (29,368 | ) | — |
| ||
Excess tax benefits from equity-based compensation |
| — |
| (485 | ) | ||
Other, net |
| — |
| 15 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
| (36,149 | ) | 25,095 |
| ||
Inventories |
| 13,650 |
| 2,165 |
| ||
Prepaid expenses and other current assets |
| (3,046 | ) | (4,801 | ) | ||
Accounts payable |
| (9,679 | ) | 2,307 |
| ||
Accrued expenses, customer deposits, deferred revenue and other current liabilities |
| 41,630 |
| (15,235 | ) | ||
Income taxes payable |
| 691 |
| (821 | ) | ||
Other, net |
| 124 |
| 605 |
| ||
Net cash provided by (used in) operating activities |
| (6,600 | ) | 4,610 |
| ||
|
|
|
|
|
| ||
Cash Flows from Investing Activities |
|
|
|
|
| ||
Capital expenditures |
| (10,476 | ) | (7,976 | ) | ||
Proceeds from the liquidation of short-term investments |
| 216,050 |
| 422,903 |
| ||
Payments for purchases of short-term investments |
| (157,733 | ) | (553,217 | ) | ||
Payments for purchase of cost method investment |
| (2,388 | ) | (1,594 | ) | ||
Proceeds from sale of lab tools |
| 7,034 |
| — |
| ||
Other |
| 126 |
| 25 |
| ||
Net cash provided by (used in) investing activities |
| 52,613 |
| (139,859 | ) | ||
|
|
|
|
|
| ||
Cash Flows from Financing Activities |
|
|
|
|
| ||
Proceeds from stock option exercises |
| 9,485 |
| 313 |
| ||
Restricted stock tax withholdings |
| (1,925 | ) | (2,358 | ) | ||
Excess tax benefits from equity-based compensation |
| — |
| 485 |
| ||
Repayments of long-term debt |
| (215 | ) | (199 | ) | ||
Net cash provided by (used in) financing activities |
| 7,345 |
| (1,759 | ) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
| (149 | ) | 117 |
| ||
Net increase (decrease) in cash and cash equivalents |
| 53,209 |
| (136,891 | ) | ||
Cash and cash equivalents as of beginning of period |
| 210,799 |
| 384,557 |
| ||
Cash and cash equivalents as of end of period |
| $ | 264,008 |
| $ | 247,666 |
|
|
|
|
|
|
| ||
Non-cash investing and financing activities |
|
|
|
|
| ||
Settlement of stock option exercise (shares withheld) |
| $ | 1,334 |
| $ | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
Veeco Instruments Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Unaudited)
(unaudited)
Note 1—1 — Basis of Presentation
The accompanying unaudited consolidated financial statementsConsolidated Financial Statements of Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco”, the “Company”, “we”, “us” and “our”, unless the context indicates otherwise) have been prepared in accordance with accounting principles generally acceptedU.S. GAAP as defined in the United StatesFinancial Accounting Standards Board (“U.S.”FASB”) Accounting Standards Codification 270, for interim financial information and with the instructions to Form 10-QRule 10-01 of Securities and Article 10 ofExchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S generally accepted accounting principles (“U.S. GAAP”)GAAP for complete financial statements as the interim information is an update of the information that was presented in the most recent annual financial statements. For further information, refer to Veeco’s Consolidated Financial Statements and Notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Form 10-K”). In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. Operating results forAll such adjustments are of a normal, recurring nature. Certain amounts previously reported have been reclassified in the three and nine months ended September 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, referfinancial statements to conform to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2013.current presentation.
Consistent with prior years, we reportVeeco reports interim quarters other than fourth quarters which always end on December 31, on a 13-week basis ending on the last Sunday of each period. The interimfourth quarter always ends are determined at the beginning of each year based on the 13-week quarters.last day of the calendar year, December 31. The 2015 interim quarters end on March 29, June 28, and September 27, and the 2014 interim quarter ends arequarters ended on March 30, June 29, and September 28. The 2013These interim quarter ends were March 31, June 30 and September 29. For ease of reference, we report these interim quarter endsquarters are reported as March 31, June 30 and September 30 in ourVeeco’s interim consolidated financial statements. We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include: the best estimate of selling price for our products and services; allowance for doubtful accounts; inventory obsolescence; recoverability and useful lives of property, plant and equipment and identifiable intangible assets; investment valuations; fair value of derivatives; recoverability of goodwill and long lived assets; recoverability of deferred tax assets; liabilities for product warranty; accounting for acquisitions; accruals for contingencies; equity-based payments, including forfeitures and performance based vesting; and liabilities for tax uncertainties. Actual results could differ from those estimates.
Income (Loss) Per Common Share
The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding (in thousands):
|
| Three months ended |
| Nine months ended |
| ||||
|
| 2014 |
| 2013 |
| 2014 |
| 2013 |
|
Basic weighted average shares outstanding |
| 39,401 |
| 38,841 |
| 39,317 |
| 38,774 |
|
Dilutive effect of stock options and restricted stock |
| — |
| — |
| — |
| — |
|
Diluted weighted average shares outstanding |
| 39,401 |
| 38,841 |
| 39,317 |
| 38,774 |
|
Basic income (loss) per common share is computed using the basic weighted average number of common shares outstanding during the period. Diluted income (loss) per common share is computed using the diluted weighted average number of common shares which include any common equivalent shares calculated to be outstanding during the period. For the three months and nine months ended September 30, 2014 and 2013, we reported a net loss, and accordingly, the basic and diluted weighted average shares outstanding are equal because any increase to basic weighted average shares outstanding would be antidilutive. As a result, for the three and nine months ended September 30, 2014, we excluded 0.6 million and 0.7 million common equivalent shares and for both the three and nine months ended September 30, 2013, we excluded 0.6 million common equivalent shares.
Additionally, not included above were additional stock options and restricted stock outstanding that had exercise or grant prices in excess of the average market value of our common stock during the period and are therefore antidilutive. There were 1.8 million and 1.5 million of such underlying shares for the three and nine months ended September 30, 2014, respectively. There were 1.0 million and 1.1 million of such underlying shares for the three and nine months ended September 30, 2013, respectively.
Revenue Recognitionrecognition
We recognizeVeeco sells systems, maintenance, service, components, and spare parts. Veeco recognizes revenue when all of the following criteria have been met: persuasive evidence of an arrangement exists with a customer; delivery of the specified products has occurred or services have been rendered; prices are contractually fixed or determinable; and collectability is reasonably assured. Revenue is recorded including shipping and handling costs and excluding applicable taxes related to sales. A significant portion of our revenue is derived from contractual arrangements with customers that have multiple elements, such as systems, upgrades, components, spare parts, maintenance and service plans. For sales arrangements that
Contracts frequently contain multiple elements, we splitdeliverables. Judgment is required to properly identify the arrangement into separateaccounting units of the multiple-element arrangements and to determine how the revenue should be allocated among the accounting if the individually delivered elements have value to the customer on a standalone basis. Weunits. Veeco also evaluateevaluates whether multiple transactions with the same customer or related partyparties should be considered part of a multiple elementsingle, multiple-element arrangement whereby we assess, among other factors,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 each other. one another. Moreover, judgment is used in interpreting the commercial terms and determining when all criteria have been met in order to recognize revenue in the appropriate accounting period.
When we havethere are separate units of accounting, we allocateVeeco allocates revenue to each element based on the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available; third party evidence (“TPE”) if VSOE is not available; or ourthe best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. We utilize BESP is used for the majority of the elements in ourVeeco’s arrangements. The accounting guidance for selling price hierarchy didmaximum revenue recognized on a delivered element is limited to the amount that is not include BESP for arrangements entered into prior to January 1, 2011; as such we recognized revenue for those arrangements as described below.contingent upon the delivery of additional items.
We considerVeeco considers many facts when evaluating each of ourits sales arrangements to determine the timing of revenue recognition including theits contractual obligations, the customer’s creditworthiness, and the nature of the customer’s post-delivery acceptance provisions. OurVeeco’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For the majority of ourthe arrangements, a customer source inspection of the system is performed in ourVeeco’s facility or test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery. Historically, such source inspection or test data replicates the field acceptance provisions that will beare performed at the customer’s site prior to final acceptance of the system. As such, weWhen Veeco objectively demonstratedemonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery, and, therefore, we recognize revenue is recognized upon system delivery since there is no substantive contingency remaining related to the acceptance provisions at that date, subject to the retention amount constraint described below. For new products, new applications of existing products, or for products with substantive customer acceptance provisions
Veeco Instruments Inc. and Subsidiaries
Notes to the Consolidated Financial Statements - continued
(unaudited)
where we cannotVeeco can not objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are fully deferred and fully recognized upon the receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.
Our systemSystem sales arrangements, including certain upgrades, generally do not contain provisions for the right of return, or forfeiture, refund, or other purchase price concessions.concession. In the rare instances where such provisions are included, we defer all revenue is deferred until such rights expire. The sales arrangements generally include installation. The installation process is not deemed essential to the functionality of the equipment since it is not complex; it does not require significant changes to the features or capabilities of the equipment or involve constructing elaborate interfaces or connections subsequent to factory acceptance. Veeco has a demonstrated history of consistently completing installations in a timely manner and can reliably estimate the costs of such activities. Most customers engage Veeco to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, installation is deemed to be inconsequential or perfunctory relative to the system sale as a whole, and as a result, installation service is not considered a separate element of the arrangement. As such, Veeco accrues the cost of the installation at the time of revenue recognition for the system.
In many cases ourVeeco’s products are sold with a billing retention, typically 10% of the sales price (the “retention amount”), which is typically payable by the customer when field acceptance provisions are completed. The amount of revenue recognized upon delivery of a system or upgrade, if any, is limited to the lower of i) the amount billed that is not contingent upon acceptance provisions or ii) the value of the arrangement consideration allocated to the delivered elements, if such sale is part of a multiple-element arrangement.
For transactions entered into prior to January 1, 2011, under the accounting rules for multiple-element arrangements in place at that time, we deferred the greater of the retention amount or the relative fair value of the undelivered elements based on VSOE. When we could not establish VSOE or TPE for all undelivered elements of an arrangement, revenue on the entire arrangement was deferred until the earlier of the point when we did have VSOE for all undelivered elements or the delivery of all elements of the arrangement.
Our sales arrangements, including certain upgrades, generally include installation. The installation process is not deemed essential to the functionality of the equipment since it is not complex; that is, it does not require significant changes to the features or capabilities of the equipment or involve building elaborate interfaces or connections subsequent to factory
acceptance. We have a demonstrated history of consistently completing installations in a timely manner and can reliably estimate the costs of such activities. Most customers engage us to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, we deem the installation of our systems to be inconsequential or perfunctory relative to the system as a whole, and as a result, do not consider such services to be a separate element of the arrangement. As such, we accrue the cost of the installation at the time of revenue recognition for the system.
In Japan, where our contractual terms with customers generally specify title and risk and rewards of ownership transfer upon customer acceptance, revenue is recognized upon the receipt of written customer acceptance. During the fourth quarter of fiscal 2013, we began using a distributor for almost all of our product and service sales to customers in Japan. Title passes to the distributor upon shipment, however, due to customary local business practices, the risk and rewards of ownership of our system sales transfer to the end-customers upon their acceptance. As such, we recognize revenue upon receipt of written acceptance from the end customer.
Revenue related to maintenance and service contracts is recognized ratably over the applicable contract term. Component and spare part revenues are recognized at the time of delivery in accordance with the terms of the applicable sales arrangement.
Recent Accounting Pronouncementsaccounting pronouncements
Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern:In AugustMay 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15,2014-09: “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The amendments in this ASU apply to all entities and provide guidance on management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016; early application is permitted. We do not expect the application of this guidance to have a material impact on our consolidated financial statements.
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period: In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (Topic 718). The amendments in this ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015; earlier adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
Revenue from Contracts with Customers:Customers In May 2014, the FASB issued Accounting Standards (the “Update”). The Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606). ASU No. 2014-09 requires that an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standardUpdate outlines a five-step model to be used to make the revenue recognition determination and requires new financial statement disclosures. The standard is effectivePublicly-traded companies are required to adopt the Update for interim and annualreporting periods beginning after December 15, 2016 and allows entities to2016; however the FASB recently proposed a one-year deferral of the Update. Currently, companies may choose among different transition alternatives. We areVeeco is evaluating the impact of adopting the standardUpdate on ourits consolidated financial statements and related financial statement disclosures and we havehas not yet determined which method of adoption will be selected.
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity: In April 2014, the FASBVeeco is also evaluating other pronouncements recently issued ASU No. 2014-08 that changes the threshold for reporting discontinued operations and adds new disclosures.but not yet adopted. The new guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” For disposals of individually significant components that do not qualify as discontinued operations, an entity must disclose pre-tax earnings of the disposed component. For public business entities, this guidance is effective prospectively for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. We do not expect the adoption of this guidancethese pronouncements is not expected to have a material impact on ourVeeco’s consolidated financial statements.
Veeco Instruments Inc. and Subsidiaries
Notes to the Consolidated Financial Statements - continued
(unaudited)
Note 2 — Income (Loss) Per Common Share
Basic income (loss) per common share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares and common share equivalents outstanding during the period. The computations of basic and diluted income (loss) per common share are:
|
| Three months ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands, except per share data) |
| ||||
Net income (loss) |
| $ | (19,110 | ) | $ | 19,160 |
|
|
|
|
|
|
| ||
Net income (loss) per common share: |
|
|
|
|
| ||
Basic |
| $ | (0.48 | ) | $ | 0.49 |
|
Diluted |
| $ | (0.48 | ) | $ | 0.48 |
|
|
|
|
|
|
| ||
Basic weighted average shares outstanding |
| 39,639 |
| 39,177 |
| ||
Effect of potentially dilutive share-based awards |
| — |
| 760 |
| ||
Diluted weighted average shares outstanding |
| 39,639 |
| 39,937 |
|
The dilutive effect of outstanding options to purchase common stock, restricted share awards, and restricted share units is considered in diluted income per common share by application of the treasury stock method. The dilutive impact of our performance share awards and performance share units are included in dilutive EPS in the periods those performance targets have been achieved. For the three months ended March 31, 2015, 0.5 million common equivalent shares were excluded from the computation of diluted net loss per share as their effect would be antidilutive since Veeco incurred a net loss. In addition for the three months ended March 31, 2015 and 2014, respectively, approximately 2.0 million and 1.4 million in potentially dilutive shares were excluded from the diluted income (loss) per common share calculation as their effect would be antidilutive.
Note 3 — Assets
Investments and Assets held for sale
Marketable securities are generally classified as available-for-sale and reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income.” These securities may include U.S. treasuries, government agency securities, corporate debt, and commercial paper, all with maturities of greater than three months when purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are included in “Other, net” in the Consolidated Statements of Operations.
Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants. Veeco classifies certain assets based on the following fair value hierarchy:
Level 1:Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2:Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and
Veeco Instruments Inc. and Subsidiaries
Notes to the Consolidated Financial Statements - continued
(unaudited)
Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The level used within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Veeco has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. In determining fair value, information from pricing services is utilized to value securities based on quoted market prices in active markets and matrix pricing. Matrix pricing is a mathematical valuation technique that does not rely exclusively on quoted prices of specific investments, but on the investment’s relationship to other benchmarked quoted securities. The use of different market assumptions and/or estimation methodologies could have a significant effect on the fair value estimates. The following table presents assets (excluding cash and cash equivalent balances) that are measured at fair value on a recurring basis:
|
| Level 1 |
| Level 2 |
| Total |
| |||
|
| (in thousands) |
| |||||||
March 31, 2015 |
|
|
|
|
|
|
| |||
U.S. treasuries |
| $ | 59,732 |
| $ | — |
| $ | 59,732 |
|
Government agency securities |
| — |
| 4,999 |
| 4,999 |
| |||
Corporate debt |
| — |
| 24,266 |
| 24,266 |
| |||
|
|
|
|
|
|
|
| |||
December 31, 2014 |
|
|
|
|
|
|
| |||
U.S. treasuries |
| $ | 81,527 |
| $ | — |
| $ | 81,527 |
|
Corporate debt |
| — |
| 39,045 |
| 39,045 |
|
There were no transfers between fair value measurement levels during the three months ended March 31, 2015. There were no financial assets or liabilities measured at fair value using Level 3 fair value measurements at March 31, 2015 or December 31, 2014.
The amortized cost and fair value of available-for-sale securities consist of:
|
|
|
| Gross |
| Gross |
|
|
| ||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Estimated |
| ||||
|
| Cost |
| Gains |
| Losses |
| Fair Value |
| ||||
|
| (in thousands) |
| ||||||||||
March 31, 2015 |
|
|
|
|
|
|
|
|
| ||||
U.S. treasuries |
| $ | 59,692 |
| $ | 42 |
| $ | (2 | ) | $ | 59,732 |
|
Government agency securities |
| 4,998 |
| 1 |
| — |
| 4,999 |
| ||||
Corporate debt |
| 24,240 |
| 27 |
| (1 | ) | 24,266 |
| ||||
Total available-for-sale securities |
| $ | 88,930 |
| $ | 70 |
| $ | (3 | ) | $ | 88,997 |
|
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2014 |
|
|
|
|
|
|
|
|
| ||||
U.S. treasuries |
| $ | 81,506 |
| $ | 27 |
| $ | (6 | ) | $ | 81,527 |
|
Corporate debt |
| 39,031 |
| 20 |
| (6 | ) | 39,045 |
| ||||
Total available-for-sale securities |
| $ | 120,537 |
| $ | 47 |
| $ | (12 | ) | $ | 120,572 |
|
PresentationVeeco Instruments Inc. and Subsidiaries
Notes to the Consolidated Financial Statements - continued
(unaudited)
Available-for-sale securities in a loss position consist of:
|
| March 31, 2015 |
| December 31, 2014 |
| ||||||||
|
|
|
| Gross |
|
|
| Gross |
| ||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| ||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| ||||
|
| (in thousands) |
| ||||||||||
U.S. treasuries |
| $ | 22,001 |
| $ | (2 | ) | $ | 35,001 |
| $ | (6 | ) |
Corporate debt |
| 6,082 |
| (1 | ) | 13,069 |
| (6 | ) | ||||
Total available-for-sale securities in a loss position |
| $ | 28,083 |
| $ | (3 | ) | $ | 48,070 |
| $ | (12 | ) |
At March 31, 2015 and December 31, 2014, there were no short-term investments that had been in a continuous loss position for more than 12 months.
The contractual maturities of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss,securities classified as available-for-sale at March 31, 2015 are:
|
| March 31, 2015 |
| ||||
|
| Amortized |
| Estimated |
| ||
|
| cost |
| fair value |
| ||
|
| (in thousands) |
| ||||
Due in one year or less |
| $ | 49,028 |
| $ | 49,055 |
|
Due after one year through two years |
| 39,902 |
| 39,942 |
| ||
Total available-for-sale securities |
| $ | 88,930 |
| $ | 88,997 |
|
Actual maturities may differ from contractual maturities. Veeco may sell these securities prior to maturity based on the needs of the business. In addition, borrowers may have the right to call or Tax Credit Carryforward Exists: In July 2013,prepay obligations prior to scheduled maturities.
Realized gains or losses are included in “Other, net” in the FASB issued ASU No. 2013-11, “PresentationConsolidated Statements of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss,Operations. There were minimal realized gains for the three months ended March 31, 2015 and no realized gains or Tax Credit Carryforward Exists.” ASU 2013-11 requires entities to present an unrecognized tax benefit, or a portionlosses for the three months ended March 31, 2014. The cost of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement in this mannersecurities liquidated is available under the tax law. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this as of January 1, 2014 and it did not have a material impactbased on our consolidated financial statements.specific identification.
PresentationAccounts receivable
Accounts receivable is presented net of Financial Statements: In April 2013, the FASB issued ASU No. 2013-07, “Presentationallowance for doubtful accounts of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The objective of ASU 2013-07 is to clarify when an entity should apply the liquidation basis of accounting. The update provides principles for the recognition$0.5 million and measurement of assets$0.7 million at March 31, 2015 and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this as of January 1,31, 2014, and will evaluate the materiality of its impact on our consolidated financial statements when there are any indications that liquidation is imminent.respectively.
Parent’s Accounting for the Cumulative Translation Adjustment: InventoryIn March 2013, the FASB issued ASU No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This new standard is intended to resolve diversity in practice regarding the release into net income of a cumulative translation adjustment (“CTA”) upon derecognition of a subsidiary or group of assets within a foreign entity. ASU No. 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. We have adopted this as of January 1, 2014 and currently anticipate that it could have an impact on our consolidated financial statements, in the event of derecognition of a foreign subsidiary in 2014 or thereafter. During the second quarter of 2014, the Company began executing a plan to liquidate our foreign subsidiary in Japan. Please see note Commitments, Contingencies and Other Matters for additional information.
Note 2 — Business CombinationsInventory is stated at the lower of cost or market using standard costs that approximate actual costs on a first-in, first-out basis. Inventory consists of:
On October 1, 2013 (“the Acquisition Date”), Veeco acquired 100% of the outstanding common shares and voting interest of Synos Technology, Inc. (“Synos”). The results of Synos’ operations have been included in the consolidated financial statements since that date. Synos is an early stage manufacturer of fast array scanning atomic layer deposition (“FAST-ALD”) systems for Organic LED (“OLED”) and other applications.
As part of Veeco’s acquisition agreement with Synos, there were certain contingent payments due to the selling shareholders of Synos dependent on the achievement of certain milestones. The aggregate fair value of the contingent consideration arrangement as of December 31, 2013 was $29.4 million.
We estimate the fair value of acquisition-related contingent consideration based on management’s probability-weighted present value of the consideration expected to be transferred during the remainder of the earn-out period, based on the forecast related to the milestones. The fair value of the contingent consideration is reassessed by us on a quarterly basis using additional information as it becomes available. Any change in the fair value of an acquisition’s contingent consideration liability results in a gain or loss that is recorded in the earnings of that period. As of March 31, 2014, we determined that the agreed upon post-closing milestones were not met or are not expected to be achieved and therefore reversed the remaining $29.4 million fair value of the liability of the contingent consideration and recorded it as a change in contingent consideration in the Consolidated Statement of Operations.
The post-closing milestones are divided into two contingencies. The first, tied to receipt of certain purchase orders, had an evaluation date of March 31, 2014, which was not met and accounted for $20.2 million of the fair value of the reversed liability. The second is based on achieving certain full year 2014 revenue and gross margin thresholds, which are unlikely to be met and accounted for $9.2 million of the fair value of the reversed liability. As of September 30, 2014 the second contingency, with a maximum potential value of $75.0 million, remains contractually outstanding. We currently do not expect this contingency to be met.
|
| March 31, 2015 |
| December 31, 2014 |
| ||
|
| (in thousands) |
| ||||
Materials |
| $ | 33,627 |
| $ | 30,319 |
|
Work-in-process |
| 19,381 |
| 25,096 |
| ||
Finished goods |
| 4,189 |
| 6,056 |
| ||
Total inventory |
| $ | 57,197 |
| $ | 61,471 |
|
During the second quarter of 2014, we finalized the working capital adjustment under the purchase agreement. Upon acquisition, the working capital adjustment was estimated to be $2.7 million. Based on the final adjustment, the working capital adjustment was reduced to $1.3 million. As a result, a $1.4 million adjustment was made that increased goodwill by $0.2 millionVeeco Instruments Inc. and reduced accrued expenses by $1.2 million for the relief of a potential liability that the former shareholders have retained. During the third quarter of 2014, we received payment of the $1.3 million working capital adjustment from the former shareholders.
Subsidiaries
Note 3—Income TaxesNotes to the Consolidated Financial Statements - continued
(unaudited)
AtDeferred cost of sales
For new products, new applications of existing products or for products with substantive customer acceptance provisions where Veeco can not objectively demonstrate that the endcriteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred and fully recognized upon the receipt of each interim reporting period, we estimatefinal customer acceptance, assuming all other revenue recognition criteria have been met.
Prepaid expenses and other current assets
Prepaid expenses and other current assets primarily consist of supplier deposits, as well as lease deposits and prepaid licenses.
Veeco outsources certain functions to third parties, including the effective tax rate expected to be applicablemanufacture of substantially all of its MOCVD systems, ion beam and other data storage systems, and ion sources. While primarily relying upon several suppliers for the full year. This estimate is used to determine the income tax provision or benefit onmanufacturing of these systems, Veeco maintains a year-to-date basisminimum level of internal manufacturing capability for these systems. Supplier deposits consist of $21.4 million and may change in subsequent interim periods.$12.7 million at March 31, 2015 and December 31, 2014, respectively.
Our effective tax rateAssets held for sale
Research and demonstration laboratories in Asia, as well as a vacant building and land, were designated as held for sale during 2014. The balance sheet reflects Veeco’s estimate of fair value less costs to sell using the sales comparison market approach.
Property, plant, and equipment
Property, plant, and equipment consist of:
|
| March 31, 2015 |
| December 31, 2014 |
| ||
|
| (in thousands) |
| ||||
Land |
| $ | 9,392 |
| $ | 9,392 |
|
Building and improvements |
| 51,984 |
| 51,979 |
| ||
Machinery and equipment |
| 108,808 |
| 104,815 |
| ||
Leasehold improvements |
| 4,440 |
| 4,356 |
| ||
Gross property, plant and equipment |
| 174,624 |
| 170,542 |
| ||
Less: accumulated depreciation and amortization |
| 94,323 |
| 91,790 |
| ||
Net property, plant, and equipment |
| $ | 80,301 |
| $ | 78,752 |
|
There were $0.1 million in impairments during the three months ended March 31, 2015 related to restructuring activities. Depreciation expense was $2.8 million and $2.9 million for the three months ended September 30,March 31, 2015 and 2014, was a benefitrespectively.
Included in property, plant, and equipment are held-for-sale systems that are the same types of 18.7% comparedtools that Veeco sells to a benefitits customers in the ordinary course of 38.2% duringbusiness. During the three months ended September 30, 2013. Our effective tax rate for the nine months ended September 30,March 31, 2015 and 2014, Veeco had aggregate sales of $1.3 million and $2.3 million with associated costs of $1.3 million and $1.4 million, respectively, which was a benefitincluded in “Net sales” and “Cost of 28.8% compared to a benefit of 43.6% during the nine months ended September 30, 2013. A tax benefit for each period was provided to the extent of future reversals of taxable temporary differences which relate primarily to non-tax deductible intangibles.
Our effective tax rate for 2014 differed from the U.S. federal statutory rate of 35% primarily related to our ability to recognize only a portion of the deferred tax assets on a more likely than not basis with respect to current year pre-tax operating losses. The effective tax rate for the nine months ended September 30, 2014 was also impacted by a discrete tax benefit in connection with the settlement of our 2010 IRS examination and because we did not provide a tax provision on the gain from the settlement of the contingent consideration related to the Synos acquisition.
Our effective tax rate for 2013 differed from the U.S. federal statutory rate as a result of the jurisdictional mix of earnings in our foreign locations, an income tax benefit related to the generation of current year research and development tax credits, and legislation enactedsales” in the first quarterConsolidated Statements of 2013 which extended the Federal Research & Development Credit for both the 2012 and 2013 tax years.Operations.
We recently settled our 2010 IRS examination, resulting in the release of $2.3 million of liabilities relating to uncertain tax positions. We were also notified that the IRS will commence an examination of our 2011 tax year beginning in the quarter ending December 31, 2014.
Note 4—Balance Sheet Information
Cash and Cash Equivalents
Cash and cash equivalents include cash and certain highly liquid investments. Highly liquid investments with maturities of three months or less when purchased may be classified as cash equivalents. Such items may include liquid money market accounts, U.S. treasuries, government agency securities and corporate debt. The investments that are classified as cash equivalents are carried at cost, which approximates fair value.
Short-Term Investments
Total available-for-sale securities and gains and losses in Accumulated Other Comprehensive Income (Loss) consist of the following (in thousands):
|
| September 30, 2014 |
| ||||||||||
|
| Amortized |
| Gains in |
| Losses in |
| Estimated Fair |
| ||||
U.S. treasuries |
| $ | 90,523 |
| $ | 35 |
| $ | (1 | ) | $ | 90,557 |
|
Corporate debt |
| 69,109 |
| 93 |
| (4 | ) | 69,198 |
| ||||
Government agency securities |
| 63,191 |
| 8 |
| — |
| 63,199 |
| ||||
Total available-for-sale securities |
| $ | 222,823 |
| $ | 136 |
| $ | (5 | ) | $ | 222,954 |
|
During the threeVeeco Instruments Inc. and nine months ended September 30, 2014, available-for-sale securities were liquidated for total proceeds of $94.8 million and $216.1 million, respectively. For the three and nine months ended September 30, 2014 there were minimal realized gains on these liquidations. During the three and nine months ended September 30, 2013, available-for-sale securities were liquidated for total proceeds of $150.5 million and $422.9 million, respectively. There were minimal gross realized gains on these sales for the three months ended September 30, 2013 and $0.1 million of gross realized gains on these sales for the nine months ended September 30, 2013. The cost of securities liquidated is based on specific identification.Subsidiaries
|
| December 31, 2013 |
| ||||||||||
|
| Amortized |
| Gains in |
| Losses in |
| Estimated Fair |
| ||||
U.S. treasuries |
| $ | 130,956 |
| $ | 22 |
| $ | (1 | ) | $ | 130,977 |
|
Corporate debt |
| 77,582 |
| 55 |
| (36 | ) | 77,601 |
| ||||
Government agency securities |
| 61,004 |
| 9 |
| — |
| 61,013 |
| ||||
Commercial paper |
| 11,947 |
| — |
| — |
| 11,947 |
| ||||
Total available-for-sale securities |
| $ | 281,489 |
| $ | 86 |
| $ | (37 | ) | $ | 281,538 |
|
The table below shows the fair value of short-term investments that have been in an unrealized loss position for less than 12 months (in thousands):
|
| September 30, 2014 |
| ||||
|
| Less than 12 months |
| ||||
|
| Estimated Fair |
| Gross Unrealized |
| ||
U.S. treasuries |
| $ | 15,006 |
| $ | (1 | ) |
Corporate debt |
| 7,221 |
| (4 | ) | ||
Total |
| $ | 22,227 |
| $ | (5 | ) |
|
| December 31, 2013 |
| ||||
|
| Less than 12 months |
| ||||
|
| Estimated Fair |
| Gross Unrealized |
| ||
Corporate debt |
| $ | 37,654 |
| $ | (36 | ) |
U. S. treasuries |
| 29,068 |
| (1 | ) | ||
Total |
| $ | 66,722 |
| $ | (37 | ) |
We did not hold any short-term investments that have been in an unrealized loss position for 12 months or longer for the periods noted in the tables above.
The Company regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether an unrealized loss was considered to be temporary or other-than-temporary and therefore impaired include: the length of time and extent to which fair value has been lower than the cost basis; the financial condition and near-term prospects of the investee; and whether it is more likely than not that the Company will be required to sell the security prior to recovery. The Company believes the gross unrealized losses on the Company’s short-term investments as of September 30, 2014 and December 31, 2013 were temporary in nature and therefore did not recognize any impairment.
Contractual maturities of available-for-sale debt securities are as follows (in thousands):
|
| September 30, 2014 |
| |
|
| Estimated Fair Value |
| |
Due in one year or less |
| $ | 135,948 |
|
Due in 1–2 years |
| 87,006 |
| |
Total available-for-sale securities |
| $ | 222,954 |
|
Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Restricted Cash
As of September 30, 2014 and December 31, 2013, restricted cash was $0.5 million and $2.7 million, respectively, which serves as collateral for bank guarantees that provide financial assurance that the Company will fulfill certain customer obligations. This cash is held in custody by the issuing bank and is restricted as to withdrawal or use while the related bank guarantees are outstanding.
Accounts Receivable, Net
Accounts receivable are presented net of allowance for doubtful accounts of $0.9 million and $2.4 million as of September 30, 2014 and December 31, 2013, respectively. We evaluate the collectability of accounts receivable based on a combination of factors. In cases where we become aware of circumstances that may impair a customer’s ability to meet its financial obligations subsequentNotes to the original sale, we will record an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the we reasonably believe will be collected. For all other customers, we recognize an allowance for doubtful accounts based on the length of time the receivables are past due and consideration of other factors such as industry conditions, the current business environment and its historical experience.Consolidated Financial Statements - continued
During the nine months ended September 30, 2014, we collected $1.9 million of previously reserved accounts. As a result, we reversed the related allowance and bad debt expense associated with this receivable.
(unaudited)
Inventories
Inventories are stated at the lower of cost (principally first-in, first-out) or market. Inventories consist of (in thousands):
|
| September 30, |
| December 31, |
| ||
|
| 2014 |
| 2013 |
| ||
Materials |
| $ | 26,305 |
| $ | 34,301 |
|
Work in process |
| 15,169 |
| 12,900 |
| ||
Finished goods |
| 5,120 |
| 12,525 |
| ||
|
| $ | 46,594 |
| $ | 59,726 |
|
Assets Held for Sale and Property, Plant and Equipment, Net
During the three and nine months ended September 30, 2014, we transferred $2.7 million of assets from property, plant and equipment, net to assets held for sale. In conjunction with the transfer, these assets were evaluated for impairment in accordance with the accounting guidance. As a result, during the three and nine months ended September 30, 2014, we recognized an asset impairment charge of $2.4 million and a corresponding reduction to property, plant and equipment of $5.1 million. The $2.4 million impairment charge consisted of $1.6 million relating to our research and demonstration labs in Asia and $0.8 million relating to vacant land in our LED and Solar segment. During the three and nine months ended September 30, 2014, we recognized an additional asset impairment charge of $0.4 million relating to assets in our LED and Solar segment that we abandoned during the quarter.
As of September 30, 2014, we are holding $2.9 million of tools that were previously used in our laboratories, for sale. These tools are carried in machinery and equipment, as a component of property, plant and equipment, net in our Consolidated Balance Sheets. These tools are the same type of tools we sell to our customers in the ordinary course of our business. During
the nine months ended September 30, 2014, we converted and sold $4.6 million of tools that we had previously used in our laboratories as Veeco Certified Equipment at an aggregate selling price of $7.0 million which is included in revenue in our Consolidated Statements of Operations. We did not sell any of these tools during the three months ended September 30, 2014.
Intangible Assets, Net
During the three months ended September 30, 2014, we completed the $5.1 million of in-process research and development acquired with our ALD business (see Note Business Combinations). No impairment was required, and as such, we will amortize this asset over a useful life of 13 years. During the three months ended September 30, 2014 we recognized amortization expense of approximately $0.1 million relating to this asset.
Goodwill
There were no new acquisitions or impairments during the three months ended March 31, 2015. The purchase accounting related to the $145.5 million December 4, 2014 acquisition of Solid State Equipment LLC (“SSEC”), which has been renamed Veeco Precision Surface Processing LLC (“PSP”), remains preliminary. The estimated fair value of the assets acquired and liabilities assumed may be adjusted as further information becomes available during the measurement period of up to 12 months from the acquisition date. Changes in our goodwill are as follows (in thousands):consist of:
Beginning balance as of December 31, 2013 |
| $ | 91,348 |
|
Purchase price adjustment (see Business Combinations) |
| 173 |
| |
Ending balance as of September 30, 2014 |
| $ | 91,521 |
|
|
| Gross carrying |
| Accumulated |
|
|
| |||
|
| amount |
| impairment |
| Net amount |
| |||
|
| (in thousands) |
| |||||||
Goodwill - December 31, 2014 |
| $ | 238,158 |
| $ | 123,199 |
| $ | 114,959 |
|
Purchase price allocation adjustment |
| 13 |
| — |
| 13 |
| |||
Goodwill - March 31, 2015 |
| $ | 238,171 |
| $ | 123,199 |
| $ | 114,972 |
|
Cost Method InvestmentIntangible assets
We maintain certain investmentsThere were no new acquisitions or impairments during the three months ended March 31, 2015. As the PSP purchase accounting remains preliminary, intangible assets acquired may be adjusted as further information becomes available. The components of purchased intangible assets consist of:
|
| March 31, 2015 |
| December 31, 2014 |
| ||||||||||||||
|
|
|
| Accumulated |
|
|
|
|
| Accumulated |
|
|
| ||||||
|
| Gross |
| Amortization |
|
|
| Gross |
| Amortization |
|
|
| ||||||
|
| Carrying |
| and |
| Net |
| Carrying |
| and |
| Net |
| ||||||
|
| Amount |
| Impairment |
| Amount |
| Amount |
| Impairment |
| Amount |
| ||||||
|
| (in thousands) |
| ||||||||||||||||
Technology |
| $ | 222,358 |
| $ | 109,881 |
| $ | 112,477 |
| $ | 222,358 |
| $ | 106,342 |
| $ | 116,016 |
|
Customer relationships |
| 47,885 |
| 16,793 |
| 31,092 |
| 47,885 |
| 14,918 |
| 32,967 |
| ||||||
Trademarks and tradenames |
| 3,050 |
| 1,406 |
| 1,644 |
| 3,050 |
| 1,096 |
| 1,954 |
| ||||||
Indefinite-lived trademark |
| 2,900 |
| — |
| 2,900 |
| 2,900 |
| — |
| 2,900 |
| ||||||
Other |
| 6,320 |
| 3,087 |
| 3,233 |
| 6,320 |
| 849 |
| 5,471 |
| ||||||
Total |
| $ | 282,513 |
| $ | 131,167 |
| $ | 151,346 |
| $ | 282,513 |
| $ | 123,205 |
| $ | 159,308 |
|
Other intangible assets consist of patents, licenses, customer backlog, and non-compete agreements.
Other assets
Veeco has an ownership interest of less than 20% in support of our strategic business objectives, including a non-marketable cost method investment. Our ownership interest is less than 20% of the investee’s voting stock and we doVeeco does not exert significant influence over the investee, and therefore the investment is recordedcarried at cost. The carrying value of the investment wasis $19.4 million and $16.9 million at September 30, 2014both March 31, 2015 and December 31, 2013, respectively and is included in “Other assets” on the Consolidated Balance Sheet.2014. The investment is subject to a periodic impairment review; however,as there are no open-market valuations, and the impairment analysis requires significant judgment. ThisThe analysis includes assessmentassessments of the investee’s financial condition, the business outlook for its products and technology, its projected results and cash flow, the likelihood of obtaining subsequent rounds of financing, and the impact of any relevant contractual equity preferences held by usVeeco or others. Fair value of the investment is not estimated unless there are identified events or changes in circumstances that could have a significant adverse effect on the fair value of the investment. No such events or circumstances are present.
Customer Deposits and Deferred Revenue13
As of September 30, 2014Veeco Instruments Inc. and December 31, 2013, we had customer deposits of $35.8 million and $27.5 million, respectively recorded as a component of customer deposits and deferred revenue.Subsidiaries
Notes to the Consolidated Financial Statements - continued
(unaudited)
Note 4 — Liabilities
Accrued Warrantyexpenses and other current liabilities
The components of accrued expenses and other current liabilities consist of:
|
| March 31, 2015 |
| December 31, 2014 |
| ||
|
| (in thousands) |
| ||||
Payroll and related benefits |
| $ | 16,706 |
| $ | 26,605 |
|
Sales, use, and other taxes |
| 2,159 |
| 1,776 |
| ||
Warranty |
| 5,505 |
| 5,411 |
| ||
Restructuring liability |
| 1,493 |
| 1,428 |
| ||
Professional fees |
| 2,881 |
| 2,752 |
| ||
Other |
| 7,747 |
| 10,446 |
| ||
Total accrued liabilities |
| $ | 36,491 |
| $ | 48,418 |
|
Other liabilities consist of accruals for costs associated with installations, sales training, royalties, and travel.
WeWarranty reserves
Warranties are typically valid for one year from the date of system final acceptance. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs. The estimate the costs that may be incurred under the warranties we provide and record a liability in the amount of such costs at the time the related revenue is recognized. Factors that affect our warranty liability includeaffected by product failure rates, material usage, and labor costs incurred in correcting product failures during the warranty period. This accrual is recorded in accrued expenses and other current liabilities in our Consolidated Balance Sheets. We periodically assess the adequacy of our recognizedUnforeseen component failures or exceptional component performance can impact warranty liability and adjust the amount as necessary.costs. Changes in ourVeeco’s product warranty liability during the period are as follows (in thousands):reserves include:
|
| (in thousands) |
| |
Warranty reserves - December 31, 2014 |
| $ | 5,411 |
|
Warranties issued |
| 1,470 |
| |
Settlements made |
| (919 | ) | |
Changes in estimate |
| (457 | ) | |
Warranty reserves - March 31, 2015 |
| $ | 5,505 |
|
|
| September 30, |
| ||||
|
| 2014 |
| 2013 |
| ||
Balance as of the beginning of period |
| $ | 5,662 |
| $ | 4,942 |
|
Warranties issued during the period |
| 2,536 |
| 2,778 |
| ||
Settlements made during the period |
| (3,160 | ) | (3,315 | ) | ||
Changes in estimate during the period |
| 259 |
| — |
| ||
Balance as of the end of period |
| $ | 5,297 |
| $ | 4,405 |
|
Veeco Instruments Inc. and Subsidiaries
Notes to the Consolidated Financial Statements - continued
(unaudited)
Mortgage PayableRestructuring accruals
WeDuring the three months ended March 31, 2015, additional accruals were recognized and payments made related to the 2014 closing of Veeco’s Ft. Collins, Colorado and Camarillo, California facilities. Business activities formally conducted at these sites have a mortgage payable with approximately $1.9been transferred to the Plainview, New York facility. In addition, as part of the strategic plan to lower spending on its ALD technology and to refocus research and development efforts on other opportunities, Veeco announced the closing of its Hyeongok-ri, South Korea facility and notified 23 employees of their termination from Veeco. As such, Veeco accrued and paid for restructuring activities during the three months ended March 31, 2015. Minimal restructuring costs are expected to be accrued for these activities during the remainder of 2015.
|
| Personnel |
|
|
|
|
| |||
|
| Severance and |
| Facility |
|
|
| |||
|
| Related Costs |
| Closing Costs |
| Total |
| |||
|
| (in thousands) |
| |||||||
Restructuring accrual - December 31, 2014 |
| $ | 1,428 |
| $ | — |
| $ | 1,428 |
|
Provision |
| 1,532 |
| 825 |
| 2,357 |
| |||
Payments |
| (1,839 | ) | (453 | ) | (2,292 | ) | |||
Restructuring accrual - March 31, 2015 |
| $ | 1,121 |
| $ | 372 |
| $ | 1,493 |
|
Customer deposits and deferred revenue
Customer deposits totaled $66.7 million and $2.1$73.0 million outstanding as of September 30, 2014at March 31, 2015 and December 31, 2013,2014, respectively. The remainder of the balance relates to deferred revenue consisting of customer billings for which all revenue recognition criteria have not yet been met.
Long-term debt
Debt consists of a mortgage accruesnote payable with a carrying value of $1.8 million at March 31, 2015 and December 31, 2014. The annual interest at an annual rate ofon the mortgage is 7.91%, and the final payment is due on January 1, 2020. The mortgage note payable is secured by certain land and buildings. The property associated with the mortgage is currently held for sale. A discounted cash flow model was used to calculate a level 3 fair value estimate of $1.9 million and $2.0 million at March 31, 2015 and December 31, 2014, respectively.
Note 5 — Commitments and Contingencies
Minimum lease commitments
At March 31, 2015, Veeco’s total future minimum lease payments under non-cancelable operating leases have not changed significantly from the footnote disclosure in the 2014 Form 10-K.
Purchase commitments
Veeco has purchase 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. Veeco has purchase commitments of $127.0 million at March 31, 2015, substantially all of which become due within one year.
January 1, 2020. Our estimateVeeco Instruments Inc. and Subsidiaries
Notes to the Consolidated Financial Statements - continued
(unaudited)
Bank guarantees and lines of credit
Veeco has bank guarantees issued by a financial institution on its behalf as needed, a portion of which is collateralized against cash that is restricted from use. At March 31, 2015, outstanding bank guarantees totaled $46.0 million, and unused lines of credit of $23.8 million were available to be drawn upon to cover performance bonds required by customers.
Legal proceedings
Veeco and certain other parties were named as defendants in a lawsuit filed on April 25, 2013 in the Superior Court of California, County of Sonoma. The plaintiff in the lawsuit, Patrick Colbus, seeks unspecified damages and asserts claims that he suffered burns and other injuries while he was cleaning a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleges, among other things, that the molecular beam epitaxy system was defective and that Veeco failed to adequately warn of the fair valuepotential risks of the mortgage assystem. Veeco believes this lawsuit is without merit and intends to defend vigorously against the claims. Veeco is unable to predict the outcome of September 30, 2014 and December 31, 2013 was approximately $2.0 million and $2.3 million, respectively. We believethis action or to reasonably estimate the mortgage is a Level 3 liabilitypossible loss or range of loss, if any, arising from the claims asserted therein. Veeco believes that, in the fair-value hierarchy.event of any recovery by the plaintiff from Veeco, such recovery would be fully covered by insurance.
Veeco is involved in other legal proceedings arising in the normal course of business. The resolution of these matters is not expected to have a material adverse effect on Veeco’s consolidated financial position, results of operations, or cash flows.
Note 6 — Equity
Accumulated Other Comprehensive Income (“AOCI”)
The componentsfollowing table presents the changes in the balances of accumulatedeach component of AOCI, net of tax:
|
| Cumulative |
|
|
| Unrealized Gains on |
|
|
| ||||
|
| Translation |
| Minimum Pension |
| Available-for-sale |
|
|
| ||||
|
| Adjustment |
| Liability |
| Securities |
| Total |
| ||||
|
| (in thousands) |
| ||||||||||
Balance at December 31, 2014 |
| $ | 2,333 |
| $ | (881 | ) | $ | 17 |
| $ | 1,469 |
|
Other comprehensive income, net of tax |
| (15 | ) | — |
| 32 |
| 17 |
| ||||
Balance at March 31, 2015 |
| $ | 2,318 |
| $ | (881 | ) | $ | 49 |
| $ | 1,486 |
|
Veeco did not allocate tax expense to other comprehensive income are (for the three months ended March 31, 2015 as Veeco is in thousands):
|
| Gross |
| Taxes |
| Net |
| |||
As of September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
| $ | 5,689 |
| $ | (392 | ) | $ | 5,297 |
|
Minimum pension liability |
| (1,160 | ) | 424 |
| (736 | ) | |||
Unrealized gain on available-for-sale securities |
| 131 |
| (18 | ) | 113 |
| |||
Accumulated other comprehensive income |
| $ | 4,660 |
| $ | 14 |
| $ | 4,674 |
|
|
| Gross |
| Taxes |
| Net |
| |||
As of December 31, 2013 |
|
|
|
|
|
|
| |||
Translation adjustments |
| $ | 5,718 |
| $ | (392 | ) | $ | 5,326 |
|
Minimum pension liability |
| (1,160 | ) | 424 |
| (736 | ) | |||
Unrealized gain on available-for-sale securities |
| 49 |
| (18 | ) | 31 |
| |||
Accumulated other comprehensive income |
| $ | 4,607 |
| $ | 14 |
| $ | 4,621 |
|
Equitya 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.
Summary share activities impacting our common stock and additional paid-in capital balances are as follows (in thousands):
| |||
| |||
| |||
|
| ||
|
| ||
|
|
| |
|
| ||
| |||
|
|
Note 5—Segment Information
We have five identified operating segments that we aggregateThere were minimal reclassifications from AOCI into two reportable segments:net income for the VIBE and Mechanical operating segments which are reported in our Data Storage segment; and the metal organic chemical vapor deposition (“MOCVD”), molecular beam epitaxy (“MBE”) and atomic layer deposition (“ALD”) operating segments are reported in our LED & Solar segment. We manage the business, review operating results and assess performance, as well as allocate resources, based upon our operating segments that reflect the market focus of each business. The LED & Solar segment consists of MOCVD systems, MBE systems, thermal deposition sources, ALD technology and other types of deposition systems. These systems are primarily sold to customers in the LED, OLED and solar industries, as well as to scientific research customers. This segment has product development and marketing sites in Somerset, New Jersey, Poughkeepsie, New York, St. Paul, Minnesota, Fremont, California, and Korea. The Data Storage segment consists of the ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, and dicing and slicing products sold primarily to customers in the data storage industry. This segment has product development and marketing sites in Plainview, New York, Ft. Collins, Colorado and Camarillo, California. As of September 30, 2014, we are continuing the consolidation of our Ft. Collins, Colorado facility into our Plainview, New York facility and have begun consolidation of our Camarillo, California facility into the Plainview, New York facility.three months ended March 31, 2015.
We evaluateVeeco Instruments Inc. and Subsidiaries
Notes to the Consolidated Financial Statements - continued
(unaudited)
Note 7 — Share-based compensation
Restricted share awards are issued to employees that are subject to specified restrictions and a risk of forfeiture. The restrictions typically lapse over one to five years. Restricted share awards are participating securities which entitle holders to both dividends and voting rights. Other types of share-based compensation include performance share awards, performance share units, and restricted share units (collectively with restricted share awards, “restricted shares”), as well as options to purchase common stock. Share-based compensation expense was recognized in the following line items in the Consolidated Statements of our reportable segments based on income (loss) from operations before interest,Operations for the periods indicated:
|
| Three months ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Cost of sales |
| $ | 601 |
| $ | 560 |
|
Selling, general, and administrative |
| 2,798 |
| 3,101 |
| ||
Research and development |
| 599 |
| 1,061 |
| ||
Total share-based compensation expense |
| $ | 3,998 |
| $ | 4,722 |
|
Equity activity related to restricted shares consists of:
|
|
|
| Weighted Average |
| |
|
|
|
| Grant Date |
| |
|
| Number of Shares |
| Fair Value |
| |
|
| (in thousands) |
|
|
| |
Restricted shares outstanding - December 31, 2014 |
| 1,237 |
| $ | 34.27 |
|
Granted |
| 39 |
| 31.56 |
| |
Vested |
| (4 | ) | 32.88 |
| |
Forfeited |
| (53 | ) | 35.99 |
| |
Restricted shares outstanding - March 31, 2015 |
| 1,219 |
| $ | 34.11 |
|
Equity activity related to stock options consists of:
|
|
|
| Weighted Average |
| |
|
| Number of Shares |
| Exercise Price |
| |
|
| (in thousands) |
|
|
| |
Stock options outstanding - December 31, 2014 |
| 2,391 |
| $ | 31.65 |
|
Granted |
| 10 |
| 30.49 |
| |
Exercised |
| (10 | ) | 28.77 |
| |
Expired or forfeited |
| (62 | ) | 36.03 |
| |
Stock options outstanding - March 31, 2015 |
| 2,329 |
| $ | 31.54 |
|
Note 8 — Income Taxes
Income taxes are estimated for each of the jurisdictions in which Veeco operates. Deferred income taxes amortizationreflect the net tax effect of temporary differences between the carrying amount of assets and other items (“segment profit (loss)”), whichliabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the tax effect of carry forwards. A valuation allowance is recorded to reduce deferred tax assets to the primary indicatoramount that is more likely than not to be realized. Realization of net deferred tax assets is dependent on future taxable income.
At the end of each interim reporting period, the effective tax rate is aligned to expectations for the full year. This estimate is used to plandetermine the income tax provision or benefit on a year-to-date basis and forecast futuremay change in subsequent interim periods. The presentation of this financial measure facilitates meaningful comparison with prior periods, as management believes segment profit (loss) reports baseline performance and thus provides useful information. Other items include restructuring expenses, asset impairment charges, equity-based compensation expense and other non-recurring items. The accounting policies of the reportable segments are the same as those described in the summary of critical accounting policies. Beginning in the third quarter of 2014, we began evaluating our reportable segments using segment profit (loss) before depreciation. Prior period segment profit (loss) reported below reflect this change for comparability.
The following table presents certain data pertaining to our reportable segments and a reconciliation of segment profit (loss) to income (loss) before income taxes for the three months ended September 30, 2014 and 2013, respectively (in thousands):
|
| LED & Solar |
| Data Storage |
| Unallocated |
| Total |
| ||||
Three months ended September 30, 2014 |
|
|
|
|
|
|
|
|
| ||||
Net sales |
| $ | 76,850 |
| $ | 16,491 |
| $ | — |
| $ | 93,341 |
|
Segment profit (loss) |
| $ | 3,767 |
| $ | (1,417 | ) | $ | (4,118 | ) | $ | (1,768 | ) |
Interest income (expense), net |
| — |
| — |
| 305 |
| 305 |
| ||||
Depreciation |
| (2,267 | ) | (417 | ) | (216 | ) | (2,900 | ) | ||||
Amortization |
| (2,825 | ) | (324 | ) | — |
| (3,149 | ) | ||||
Equity-based compensation |
| (2,083 | ) | (647 | ) | (1,760 | ) | (4,490 | ) | ||||
Restructuring |
| (557 | ) | (1,403 | ) | (357 | ) | (2,317 | ) | ||||
Asset impairment |
| (2,799 | ) | (65 | ) | — |
| (2,864 | ) | ||||
Income (loss) before income taxes |
| $ | (6,764 | ) | $ | (4,273 | ) | $ | (6,146 | ) | $ | (17,183 | ) |
Three months ended September 30, 2013 |
|
|
|
|
|
|
|
|
| ||||
Net sales |
| $ | 75,001 |
| $ | 24,323 |
| $ | — |
| $ | 99,324 |
|
Segment profit (loss) |
| $ | 801 |
| $ | 2,570 |
| $ | (5,210 | ) | $ | (1,839 | ) |
Interest income (expense), net |
| — |
| — |
| 192 |
| 192 |
| ||||
Depreciation |
| (2,524 | ) | (435 | ) | (281 | ) | (3,240 | ) | ||||
Amortization |
| (531 | ) | (324 | ) | — |
| (855 | ) | ||||
Equity-based compensation |
| (1,016 | ) | (439 | ) | (1,308 | ) | (2,763 | ) | ||||
Restructuring |
| (793 | ) | (447 | ) | — |
| (1,240 | ) | ||||
Income (loss) before income taxes |
| $ | (4,063 | ) | $ | 925 |
| $ | (6,607 | ) | $ | (9,745 | ) |
The following table presents certain data pertainingVeeco Instruments Inc. and Subsidiaries
Notes to our reportable segmentsthe Consolidated Financial Statements - continued
(unaudited)
|
| Three months ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Income (loss) before income taxes |
| $ | (15,664 | ) | $ | 18,791 |
|
Income tax expense (benefit) |
| $ | 3,446 |
| $ | (369 | ) |
For the three months ended March 31, 2015, the net expense for income taxes included a $2.0 million provision relating to Veeco’s domestic operations and a reconciliation of segment profit (loss)$1.4 million provision relating to income (loss) before income taxesforeign operations. Although there was a domestic pre-tax loss for the nineperiod, Veeco did not provide a current tax benefit on such losses as the amounts are not realizable on a more-likely-than-not basis. In addition, Veeco provided withholding taxes and a domestic provision relating to certain deferred tax liabilities that could not be offset against its deferred tax assets. Veeco’s foreign operations are profitable. As such, taxes were provided at rates which approximate the statutory rates of those foreign jurisdictions.
For the three months ended September 30,March 31, 2014, and 2013, respectively (in thousands):the effective tax rate differed from statutory tax rates primarily due to the recognition of a tax benefit on only the portion of the U.S. domestic losses which were determined to be realizable as net deferred tax assets on a more-likely-than-not basis. The effective tax rate was also impacted because a tax provision was not provided on the contingent consideration gain of $29.4 million. Veeco’s foreign operations were profitable. As such, taxes were provided at rates which approximate the statutory rates of those foreign jurisdictions.
|
| LED & Solar |
| Data Storage |
| Unallocated |
| Total |
| ||||
Nine months ended September 30, 2014 |
|
|
|
|
|
|
|
|
| ||||
Net sales |
| $ | 224,759 |
| $ | 54,545 |
| $ | — |
| $ | 279,304 |
|
Segment profit (loss) |
| $ | 8,768 |
| $ | (1,634 | ) | $ | (12,808 | ) | $ | (5,674 | ) |
Interest income (expense), net |
| — |
| — |
| 541 |
| 541 |
| ||||
Depreciation |
| (6,760 | ) | (1,191 | ) | (747 | ) | (8,698 | ) | ||||
Amortization |
| (7,980 | ) | (971 | ) | — |
| (8,951 | ) | ||||
Equity-based compensation |
| (6,595 | ) | (2,029 | ) | (5,679 | ) | (14,303 | ) | ||||
Restructuring |
| (794 | ) | (2,359 | ) | (357 | ) | (3,510 | ) | ||||
Changes in contingent consideration |
| 29,368 |
| — |
| — |
| 29,368 |
| ||||
Asset impairment |
| (2,799 | ) | (65 | ) | — |
| (2,864 | ) | ||||
Income (loss) before income taxes |
| $ | 13,208 |
| $ | (8,249 | ) | $ | (19,050 | ) | $ | (14,091 | ) |
Nine months ended September 30, 2013 |
|
|
|
|
|
|
|
|
| ||||
Net sales |
| $ | 193,241 |
| $ | 65,299 |
| $ | — |
| $ | 258,540 |
|
Segment profit (loss) |
| $ | (2,327 | ) | $ | 3,531 |
| $ | (14,671 | ) | $ | (13,467 | ) |
Interest income (expense), net |
| — |
| — |
| 620 |
| 620 |
| ||||
Depreciation |
| (7,494 | ) | (1,142 | ) | (878 | ) | (9,514 | ) | ||||
Amortization |
| (1,595 | ) | (971 | ) | — |
| (2,566 | ) | ||||
Equity-based compensation |
| (3,042 | ) | (1,057 | ) | (4,956 | ) | (9,055 | ) | ||||
Restructuring |
| (1,216 | ) | (497 | ) | (58 | ) | (1,771 | ) | ||||
Income (loss) before income taxes |
| $ | (15,674 | ) | $ | (136 | ) | $ | (19,943 | ) | $ | (35,753 | ) |
|
|
|
|
|
|
|
|
|
|
Note 9 — Segment Reporting and Geographic Information
The following table presents goodwillVeeco operates and total assets asmeasures its results in one operating segment and therefore has one reportable segment: the design, development, manufacture, and support of September 30, 2014 and December 31, 2013 (in thousands):thin film process equipment primarily sold to make electronic devices.
|
| LED & Solar |
| Data Storage |
| Unallocated |
| Total |
| ||||
As of September 30, 2014 |
|
|
|
|
|
|
|
|
| ||||
Goodwill |
| $ | 91,521 |
| $ | — |
| $ | — |
| $ | 91,521 |
|
Total assets |
| $ | 388,745 |
| $ | 33,936 |
| $ | 533,717 |
| $ | 956,398 |
|
|
|
|
|
|
|
|
|
|
| ||||
As of December 31, 2013 |
|
|
|
|
|
|
|
|
| ||||
Goodwill |
| $ | 91,348 |
| $ | — |
| $ | — |
| $ | 91,348 |
|
Total assets |
| $ | 359,464 |
| $ | 37,910 |
| $ | 550,595 |
| $ | 947,969 |
|
Veeco categorizes its sales into the following four markets:
AsLighting, Display & Power Electronics (Energy Conservation)
Lighting refers to Light Emitting Diode (“LED”); semiconductor illumination sources used in various applications including display as backlights, general lighting, automotive running lights, and head lamps. Display refers to LED displays and Organic Light Emitting Diode (“OLED”) displays. Power Electronics refers to semiconductor devices such as rectifiers, inverters, and converters for the control and conversion of September 30, 2014electric power.
Advanced Packaging, MEMS & RF (Mobility)
Advanced Packaging includes a portfolio of wafer-level assembly technologies that enable the miniaturization of electronic products, such as smartphones, smartwatches, tablets and December 31, 2013 unallocated assets were comprised principallylaptops. Micro-Electromechanical Systems (“MEMS”) includes tiny mechanical devices such as sensors, switches, mirrors, and actuators embedded in semiconductor chips used in vehicles, smartphones, tablets, and games. Radio Frequency (“RF”) includes semiconductor devices that make use of cashradio waves (RF fields) for wireless broadcasting and/or communications.
Scientific & Industrial
Scientific refers to university research institutions, industry research institutions, industry consortiums, and cash equivalents, restricted cashgovernment research agencies. Industrial refers to large-scale product manufacturing including optical coatings: thin layers of material deposited on a lens or mirror that alters how light reflects and short-term investments.transmits; photomask: an opaque plate that allows light to shine through in a defined pattern for use in photolithography; and front end semiconductor: early steps in the process of integrated circuit fabrication where the microchips are created but still remain on the silicon wafer.
Note 6— Fair Value MeasurementsVeeco Instruments Inc. and Subsidiaries
We have categorized our assets and liabilities recorded at fair value based upon the fair value hierarchy. The levels of fair value hierarchy are as follows:
·Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.
·Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
·Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, we categorize such assets or liabilities based on the lowest level input that is significantNotes to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset.
Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs.
The major categories of assets and liabilities measured on a recurring basis, at fair value, as of September 30, 2014 and December 31, 2013, are as follows (in thousands):
|
| September 30, 2014 |
| ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
| ||||
U.S. treasuries |
| $ | 25,000 |
| $ | — |
| $ | — |
| $ | 25,000 |
|
Commercial paper |
| — |
| 3,999 |
| — |
| 3,999 |
| ||||
Short-term investments |
|
|
|
|
|
|
|
|
| ||||
U.S. treasuries |
| 90,558 |
| — |
| — |
| 90,558 |
| ||||
Corporate debt |
| — |
| 69,198 |
| — |
| 69,198 |
| ||||
Government agency securities |
| — |
| 63,198 |
| — |
| 63,198 |
| ||||
|
| December 31, 2013 |
| ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
Short-term investments |
|
|
|
|
|
|
|
|
| ||||
U.S. treasuries |
| $ | 130,977 |
| $ | — |
| $ | — |
| $ | 130,977 |
|
Corporate debt |
| — |
| 77,601 |
| — |
| 77,601 |
| ||||
Government agency securities |
| — |
| 61,013 |
| — |
| 61,013 |
| ||||
Commercial paper |
| — |
| 11,947 |
| — |
| 11,947 |
| ||||
Derivative instrument |
| — |
| 907 |
| — |
| 907 |
| ||||
Contingent consideration |
| — |
| — |
| (29,368 | ) | (29,368 | ) | ||||
Highly liquid investments with maturities of three months or less when purchased may be classified as cash equivalents. Such items may include liquid money market accounts, U.S. treasuries, government agency securities and corporate debt. The investments that are classified as cash equivalents are carried at cost, which approximates fair value. Accordingly, no gains or losses (realized/unrealized) have been incurred for cash equivalents. All investments classified as available-for-sale are recorded at fair value within short-term investments in the Consolidated Balance Sheets.
In determining the fair value of our investments and levels, through a third-party service provider, we use pricing information from pricing services that value securities based on quoted market prices in active markets and matrix pricing. Matrix pricing is a mathematical valuation technique that does not rely exclusively on quoted prices of specific investments, but on the investment’s relationship to other benchmarked quoted securities. We have a process in place for investment valuations to
19Financial Statements - continued
facilitate identification and resolution of potentially erroneous prices. We review the information provided by the third-party service provider to record the fair value of our portfolio.
Consistent with Level 1 measurement principles, U.S. treasuries are priced using active market prices of identical securities. Consistent with Level 2 measurement principles, corporate debt, government agency securities, commercial paper, and derivative instruments are priced with matrix pricing.
We estimate the fair value of acquisition-related contingent consideration based on management’s probability-weighted present value of the consideration expected to be transferred during the remainder of the earn-out period, based on the forecast related to the milestones. The fair value of the contingent consideration is reassessed by us on a quarterly basis using additional information as it becomes available. Any change in the fair value of an acquisition’s contingent consideration liability results in a gain or loss that is recorded in the earnings of that period. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Fair value measurements characterized within Level 3 of the fair value hierarchy are measured based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value.
The significant unobservable inputs used in the fair value measurements of our acquisition-related contingent consideration include our measures of the probability of the achievement of certain agreed upon milestones and may include future profitability and related cash flows of the acquired business or assets, impacted by appropriate discount rates. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumptions used for the discount rates is accompanied by a directionally opposite change in the fair value measurement and a change in the assumptions used for the future cash flows is accompanied by a directionally similar change in the fair value measurement.
A reconciliation of the amount in Level 3 is as follows (in thousands):
|
| Level 3 |
| |
Balance as of December 31, 2013 |
| $ | (29,368 | ) |
Addition of contingent consideration |
| — |
| |
Payment on contingent consideration, net of adjustment |
| — |
| |
Fair value adjustment of contingent consideration |
| 29,368 |
| |
Balance as of September 30, 2014 |
| $ | — |
|
Note 7 — Derivative Financial Instruments
We use derivative financial instruments to minimize the impact of foreign exchange rate changes on earnings and cash flows. In the normal course of business, our operations are exposed to fluctuations in foreign exchange rates. In order to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known foreign currency exposures, we enter into monthly forward contracts. We do not use derivative financial instruments for trading or speculative purposes. Our forward contracts are not expected to subject us to material risks due to exchange rate movements because gains and losses on these contracts are intended to offset exchange gains and losses on the underlying assets and liabilities. The forward contracts are marked-to-market through earnings. We conduct our derivative transactions with highly rated financial institutions in an effort to mitigate any material counterparty risk.
During the three months ended December 31, 2013, we entered into an economic hedge in the form of Japanese Yen collars to minimize our exposure to changes in foreign currency exchange rates related to a particular receivable. The net fair value of these collars as of December 31, 2013 was approximately $0.9 million. During the second quarter of 2014, the collars were closed and resulted in a realized gain of $0.5 million. As of September 30, 2014, there were no outstanding derivative instruments.
|
| As of December 31, 2013 |
| ||||||||
(in thousands) |
| Component of |
| Fair |
| Maturity |
| Notional |
| ||
Not Designated as Hedges under ASC 815 |
|
|
|
|
|
|
|
|
| ||
Foreign currency exchange forwards |
| Prepaid and other current assets |
| $ | 1 |
| January 2014 |
| $ | 4,700 |
|
Foreign currency collar |
| Prepaid and other current assets |
| 906 |
| October 2014 |
| 34,069 |
| ||
Total Derivative Instruments |
|
|
| $ | 907 |
|
|
| $ | 38,769 |
|
|
|
|
| Amount of realized net gain (loss) and changes in the fair |
| ||||||||||
|
| Location of realized net gain (loss) and |
| For the three months ended |
| For the nine months ended |
| ||||||||
(in thousands) |
| changes in the fair value of derivatives |
| 2014 |
| 2013 |
| 2014 |
| 2013 |
| ||||
Foreign currency exchange forwards |
| Other operating, net |
| $ | — |
| $ | (11 | ) | $ | (89 | ) | $ | 146 |
|
Foreign currency collar |
| Other operating, net |
| — |
| — |
| (457 | ) | — |
| ||||
These contracts were valued using market quotes in the secondary market for similar instruments (fair value Level 2, please see our footnote Fair Value Measurements).
Note 8— Commitments, Contingencies and Other Matters(unaudited)
Restructuring and Other ChargesData Storage
During the first quarter of 2014, we announced the consolidation of our Ft. Collins, Colorado facility into our Plainview, New York facility and took additional measures to improve profitability in a challenging business environment. We expect to substantially complete the consolidation by the end of 2014. As a result of these actions we notified 49 employees of their termination from the Company. During the three and nine months ended September 30, 2014, we recorded restructuring charges relating to these actions of $0.7 million and $1.9 million, consisting of personnel severance and related costs. We expect to incur approximately $0.2 million and $0.1 million of additional personnel severance and related costs in ourThe Data Storage segmentmarket refers to the archiving of data in electromagnetic or other forms for use by a computer or device, including hard disk drives used in large capacity storage applications.
Revenue by market:
|
| Three months ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Lighting, Display & Power Electronics |
| $ | 64,327 |
| $ | 63,891 |
|
Advanced Packaging, MEMS & RF |
| 13,165 |
| 798 |
| ||
Scientific & Industrial |
| 13,635 |
| 8,486 |
| ||
Data Storage |
| 7,214 |
| 17,666 |
| ||
Total Sales |
| $ | 98,341 |
| $ | 90,841 |
|
Significant operations outside the United States include sales and service offices in the fourth quarterAsia-Pacific and Europe regions. For geographic reporting, revenues are attributed to the location in which the customer facility is located as follows:
|
| Three months ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
United States |
| $ | 27,969 |
| $ | 7,477 |
|
China |
| 44,282 |
| 32,838 |
| ||
EMEA(1) |
| 8,325 |
| 10,346 |
| ||
Rest of World |
| 17,765 |
| 40,180 |
| ||
Total Sales |
| $ | 98,341 |
| $ | 90,841 |
|
(1) EMEA consists of 2014Europe, the Middle East, and 2015, respectively, and a lease charge of approximately $0.9 million in the fourth quarter of 2014, related to these actions. The reductions in headcount principally related to our Data Storage and MBE businesses.Africa
During the three months ended September 30, 2014 the Company undertook additional restructuring activities, including the consolidation of our Camarillo, CA facility into our Plainview, New York facility and additional headcount reductions to help contain costs and further improve profitability. We expect to substantially complete the consolidation by the end of 2014. As a result of these actions we notified 44 additional employees of their termination from the Company. During the three and nine months ended September 30, 2014, we recorded restructuring charges relating to these actions of $1.6 million, consisting of personnel severance and related costs. We expect to incur approximately $2.1 million of additional personnel severance and related costs and a lease charge of approximately $0.2 million, all of which are expected to be incurred in the fourth quarter of 2014. The reductions in head count principally related to our Data Storage businesses.
During the three and nine months ended September 30, 2013, we took measures to improve profitability, including the restructuring of one of our international sales offices and consolidation of certain sales, business and administrative functions. As a result of these actions, we recorded restructuring charges of $1.2 million and $1.8 million, respectively.
Restructuring Liability
The following is a reconciliation of the restructuring liability through September 30, 2014 (in thousands):
|
| Rollforward of Restructuring Liability |
| ||||||||||||||||
|
| Balance as of |
| For the nine months ended September 30, 2014 |
| Balance as of |
| Short-term |
| ||||||||||
|
| January 1, 2014 |
| Expense Incurred |
| Cash Payments |
| Adjustments |
| September 30, 2014 |
| portion |
| ||||||
2012 Restructuring |
| $ | 195 |
| $ | — |
| $ | (195 | ) | $ | — |
| $ | — |
| $ | — |
|
2013 Restructuring |
| 338 |
| — |
| (338 | ) | — |
| — |
| — |
| ||||||
2014 Restructuring |
| — |
| 3,510 |
| (1,538 | ) | — |
| 1,972 |
| 1,972 |
| ||||||
Total |
| $ | 533 |
| $ | 3,510 |
| $ | (2,071 | ) | $ | — |
| $ | 1,972 |
| $ | 1,972 |
|
The balance of the short-term liability will be paid over the next 12 months.
The following is a reconciliation of the restructuring liability through December 31, 2013 (in thousands):
|
| Rollforward of Restructuring Liability |
| ||||||||||||||||
|
| Balance as of |
| For the year ended December 31, 2013 |
| Balance as of |
| Short-term |
| ||||||||||
|
| January 1, 2013 |
| Expense Incurred |
| Cash Payments |
| Adjustments |
| December 31, 2013 |
| portion |
| ||||||
2012 Restructuring |
| $ | 1,875 |
| $ | — |
| $ | (1,680 | ) | $ | — |
| $ | 195 |
| $ | 195 |
|
2013 Restructuring |
| — |
| 1,485 |
| (1,147 | ) | — |
| 338 |
| 338 |
| ||||||
Total |
| $ | 1,875 |
| $ | 1,485 |
| $ | (2,827 | ) | $ | — |
| $ | 533 |
| $ | 533 |
|
Cumulative Translation Adjustment
During the second quarter of 2014, the Company began executing a plan to liquidate our foreign subsidiary in Japan. Subsequent to third quarter end, in October 2014, the liquidation was completed. As a result of this liquidation we expect to realize into income the balance of the CTA at the time of liquidation. The balance in the CTA account as of September 30, 2014 was approximately $3.3 million. Upon liquidation during the three months ended December 31, 2014, we expect to record a gain of approximately $3.1 million, inclusive of the gain from the CTA.
Legal Proceedings
We are involved in various legal proceedings arising in the normal course of our business. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward Looking Statements
Our discussion below constitutes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our expectations regardingWhen used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “targets,” “plans,” “intends,” “will,” and similar expressions related to the future resultsare intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties. Ouruncertainties that could cause actual results mayto differ materially from those anticipated.
projected results. You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made. When used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “plans,” “intends” “will” and similar expressions are intended to identify forward-looking statements.
Executive Summary
Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco”, the “Company”, “we”, “us”, and “our”, unless the context indicates otherwise) creates process equipment that enables technologies for a cleaner and more productive world. We design, manufacture, and market thin film process equipment aligned to meet the demands of global “megatrends” such as energy conservation and mobility. Our equipment is primarily sold to make components for electronic devices including LEDs, displays, power electronics, wireless devices, smartphones, and hard-disk drives, as well as for solar cells, power semiconductors, wireless components, and micro-electro-mechanical systems (“MEMS”).
Veeco developshard disk drives. We develop highly differentiated “best-in-class” process equipment for critical performance steps.steps in thin film processing. Our products feature leading technology, low cost-of-ownership, and high throughput. Core competencies in advanced thin film technologies, over 300 patents,patent protection, and decades of specialized process know-how help us to stay at the forefront of these demanding industries.rapidly advancing markets.
Veeco’s LED & Solar segment designs and manufactures metal organic chemical vapor deposition (“MOCVD”) and molecular beam epitaxy (“MBE”) systems and components sold to manufacturers of LEDs, wireless components, power semiconductors, and solar cells, as well as for R&D applications. Our atomic layer deposition (“ALD”) technology is used by manufacturers of flexible OLED displays and has further applicationsoverall performance in the semiconductorfirst quarter of 2015 met expectations as we continue to execute our financial turnaround and solar markets.drive growth. In particular:
·First quarter revenue was $98 million;
·Bookings were $102 million; and
·Cash was stable at $393 million.
After a longmultiyear downturn in our MOCVD business, LED fab utilization rates have improvedthe market for equipment that is used to high levels at most key accounts and LEDmanufacture LEDs, lighting adoption is accelerating.accelerating and LED fabrication utilization rates at most of our key customers are at levels that will require additional capacity purchases. Our customers are also reporting better market demand for products with LED backlighting products. MOCVD business conditionsbacklighting. While quarterly booking patterns fluctuate, and bookings have improved from last year. Trendsin fact declined in the LED markets remain favorable,first quarter of 2015 as indicated by our MOCVD nine month order and revenue patterns compared to last year. While quarterly MOCVD order patterns fluctuate,the fourth quarter of 2014, we see solidare seeing a general upward trend in bookings. Our new EPIK 700 system is performing well against our expectations, and we received production orders from all customers who tested the beta version of the system as well as additional orders from other customers in multiple countries. Our metal organic chemical vapor deposition (“MOCVD”) architecture has been developed to support the most significant industry trends, including developing mid-power LEDs, utilizing larger wafer sizes, and optimizing cost-of-ownership. We anticipate an improvement in overall bookings for the second quarter of 2015 as compared to the first quarter of 2015, driven primarily by growth ahead. The timingin Lighting, Display & Power Electronics.
Veeco Precision Surface Processing, or PSP, is performing well since we acquired the business in December 2014. PSP provides single wafer wet etch, clean, and magnitude of key customer expansions could cause MOCVD orders to varysurface preparation equipment targeting high growth segments in advanced packaging, RF devices, MEMS, and be unpredictable on a quarterly basis. compound semiconductors. Our sales team is opening up new opportunities for PSP products in Asia, mobility applications are driving sales in Europe and the U.S., and the business is seeing positive momentum in 3D TSV (thru silicon via) applications.
We continue to investexperience challenging business conditions in MOCVD products and technology development to further improve our customers’ cost of ownership and manufacturing capability. Competitive pricing pressure, which had a dramatic effect on our gross margins in 2013 and 2014, is also difficult to predict.
Our ALD business was acquired “pre-revenue” and thus has negatively impacted our earnings in 2013 and 2014. The timing of production ALD orders from our key customer could have a significant impact on our expected revenue growth. We do not expect to receive any ALD production orders in 2014.
Veeco’sthe Data Storage segment designs and manufactures systems used to create thin film magnetic heads (“TFMH”s) that read and write data inmarket, where hard disk drives. These include ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, chemical vapor deposition, and slicing, dicing and lapping systems. While our systemsdrive industry customers are primarily sold to hard drive customers, they also have applicationsnot making significant investments in optical coatings, MEMS and magnetic sensors, and extreme ultraviolet (“EUV”) lithography.
Low growth is expected to continue in the hard drive industry; our customers have excess manufacturing capacity and they have only been making select technology purchases.new capacity. Future demand for our Data Storage products isremains unclear and orders are expected to fluctuate from quarter to quarter.
We have been working to streamline our business operations and reduce our expense structure, enabling investments in high growth opportunities such as LED and OLED display. These activities are expected to reduce Veeco’s operating expenses in the near future.
We remain focused on managing the Company back to profitable growth by: 1) developing and launching game-changing new products that enable cost effective LED lighting, flexible OLED display encapsulation and other emerging technologies; 2) improving customer cost of ownership as well as our gross margins; 3) driving process improvement initiatives to make us more efficient; and 4) lowering expenses. The combination of improved business conditions, execution on our growth initiatives and lower operating expenses are expected to help improve the Company’s profitability in 2015.
As of September 30, 2014, Veeco had approximately 750 employees (including temporary employees) to support our customers through product and process development, training, manufacturing, and sales and service sites in the U.S., South Korea, Taiwan, China, Singapore, Europe and other locations.
Veeco Instruments Inc. was organized as a Delaware corporation in 1989.
The following table summarizes certain key financial information for the periods indicated below (in thousands, except percentage and per share data):
|
| For the three months ended |
|
|
| ||||
|
| September 30, |
| Percentage change |
| ||||
|
| 2014 |
| 2013 |
| period to period |
| ||
Orders |
| $ | 107,292 |
| $ | 91,482 |
| 17.3 | % |
Net sales |
| $ | 93,341 |
| $ | 99,324 |
| -6.0 | % |
Gross profit |
| $ | 32,558 |
| $ | 30,308 |
| 7.4 | % |
Gross margin |
| 34.9 | % | 30.5 | % |
|
| ||
Selling, general and administrative expenses |
| $ | 21,712 |
| $ | 19,650 |
| 10.5 | % |
Research and development expenses |
| $ | 19,968 |
| $ | 18,993 |
| 5.1 | % |
Net income (loss) |
| $ | (13,977 | ) | $ | (6,026 | ) | 131.9 | % |
Diluted net income (loss) per share |
| $ | (0.35 | ) | $ | (0.16 | ) | 118.8 | % |
Results of Operations:Operations
Three Months Ended September 30, 2014 and 2013
Consistent with prior years, we report interim quarters, other than fourth quarters which always end on December 31, on a 13-week basis ending on the last Sunday within such period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 2014 interim quarter ends are March 30, June 29 and September 28. The 2013 interim quarter ends were March 31, June 30 and September 29. For ease of reference, we report these interim quarter ends as March 31, June 30, and September 30 in our interim consolidated financial statements.
The following table shows our Consolidated Statements of Operations, percentages of sales, and comparisons between the three months ended September 30,March 31, 2015 and 2014 and 2013 (dollars in thousands):
|
| For the three months ended |
| Dollar and |
| |||||||||||
|
| September 30, |
| Percentage Change |
| |||||||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||||||
Net sales |
| $ | 93,341 |
| 100.0 | % | $ | 99,324 |
| 100.0 | % | $ | (5,983 | ) | (6.0 | )% |
Cost of sales |
| 60,783 |
| 65.1 | % | 69,016 |
| 69.5 | % | (8,233 | ) | (11.9 | )% | |||
Gross profit |
| 32,558 |
| 34.9 | % | 30,308 |
| 30.5 | % | 2,250 |
| 7.4 | % | |||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Selling, general and administrative |
| 21,712 |
| 23.3 | % | 19,650 |
| 19.8 | % | 2,062 |
| 10.5 | % | |||
Research and development |
| 19,968 |
| 21.4 | % | 18,993 |
| 19.1 | % | 975 |
| 5.1 | % | |||
Amortization |
| 3,149 |
| 3.4 | % | 855 |
| 0.9 | % | 2,294 |
| 268.3 | % | |||
Restructuring |
| 2,317 |
| 2.5 | % | 1,240 |
| 1.2 | % | 1,077 |
| 86.9 | % | |||
Asset impairment |
| 2,864 |
| 3.1 | % | — |
| 0.0 | % | 2,864 |
| * |
| |||
Total operating expenses |
| 50,010 |
| 53.6 | % | 40,738 |
| 41.0 | % | 9,272 |
| 22.8 | % | |||
Other operating, net |
| 36 |
| 0.0 | % | (493 | ) | (0.5 | )% | 529 |
| * |
| |||
Operating income (loss) |
| (17,488 | ) | (18.7 | )% | (9,937 | ) | (10.0 | )% | (7,551 | ) | 76.0 | % | |||
Interest income (expense), net |
| 305 |
| 0.3 | % | 192 |
| 0.2 | % | 113 |
| 58.9 | % | |||
Income (loss) before income taxes |
| (17,183 | ) | (18.4 | )% | (9,745 | ) | (9.8 | )% | (7,438 | ) | 76.3 | % | |||
Income tax provision (benefit) |
| (3,206 | ) | (3.4 | )% | (3,719 | ) | (3.7 | )% | 513 |
| (13.8 | )% | |||
Net income (loss) |
| $ | (13,977 | ) | (15.0 | )% | $ | (6,026 | ) | (6.1 | )% | $ | (7,951 | ) | 131.9 | % |
The following table presents operating results as a percentage of net sales, as well as period-over-period dollar and percentage changes for those line items. Our results of operations are reported as one business segment.
|
| Three months ended March 31, |
| Change |
| |||||||||||
|
| 2015 |
| 2014 |
| Period to Period |
| |||||||||
|
| (dollars in thousands) |
| |||||||||||||
Net sales |
| $ | 98,341 |
| 100 | % | $ | 90,841 |
| 100 | % | $ | 7,500 |
| 8 | % |
Cost of sales |
| 63,205 |
| 64 | % | 57,064 |
| 63 | % | 6,141 |
| 11 | % | |||
Gross profit |
| 35,136 |
| 36 | % | 33,777 |
| 37 | % | 1,359 |
| 4 | % | |||
Operating expenses, net: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Selling, general, and administrative |
| 22,882 |
| 23 | % | 21,667 |
| 24 | % | 1,215 |
| 6 | % | |||
Research and development |
| 18,585 |
| 19 | % | 19,768 |
| 22 | % | (1,183 | ) | -6 | % | |||
Amortization |
| 7,962 |
| 8 | % | 2,903 |
| 3 | % | 5,059 |
| >100 | % | |||
Restructuring |
| 2,357 |
| 2 | % | 392 |
| 0 | % | 1,965 |
| NM |
| |||
Asset impairment |
| 126 |
| 0 | % | — |
| 0 | % | 126 |
| 100 | % | |||
Changes in contingent consideration |
| — |
| 0 | % | (29,368 | ) | -32 | % | 29,368 |
| NM |
| |||
Other, net |
| (951 | ) | -1 | % | (212 | ) | 0 | % | (739 | ) | NM |
| |||
Total operating expenses, net |
| 50,961 |
| 52 | % | 15,150 |
| 17 | % | 35,811 |
| NM |
| |||
Operating income (loss) |
| (15,825 | ) | -16 | % | 18,627 |
| 21 | % | (34,452 | ) | NM |
| |||
Interest income, net |
| 161 |
| 0 | % | 164 |
| 0 | % | (3 | ) | -2 | % | |||
Income (loss) before income taxes |
| (15,664 | ) | -16 | % | 18,791 |
| 21 | % | (34,455 | ) | NM |
| |||
Income tax expense (benefit) |
| 3,446 |
| 4 | % | (369 | ) | 0 | % | 3,815 |
| NM |
| |||
Net income (loss) |
| $ | (19,110 | ) | -19 | % | $ | 19,160 |
| 21 | % | $ | (38,270 | ) | NM |
|
*
NM - Not Meaningfulmeaningful
Net Sales
The following is an analysis of net sales by segment and by region (dollars in thousands):market:
|
| Net Sales |
| Dollar and |
| |||||||||||
|
| For the three months ended September 30, |
| Percentage Change |
| |||||||||||
|
| 2014 |
| Percent of Total |
| 2013 |
| Percent of Total |
| Period to Period |
| |||||
Segment Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
LED & Solar |
| $ | 76,850 |
| 82.3 | % | $ | 75,001 |
| 75.5 | % | $ | 1,849 |
| 2.5 | % |
Data Storage |
| 16,491 |
| 17.7 | % | 24,323 |
| 24.5 | % | (7,832 | ) | (32.2 | )% | |||
Total |
| $ | 93,341 |
| 100.0 | % | $ | 99,324 |
| 100.0 | % | $ | (5,983 | ) | (6.0 | )% |
Regional Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Americas (1) |
| $ | 11,182 |
| 12.0 | % | $ | 18,536 |
| 18.7 | % | $ | (7,354 | ) | (39.7 | )% |
Europe, Middle East and Africa |
| 9,079 |
| 9.7 | % | 3,822 |
| 3.8 | % | 5,257 |
| 137.5 | % | |||
Asia Pacific |
| 73,080 |
| 78.3 | % | 76,966 |
| 77.5 | % | (3,886 | ) | (5.0 | )% | |||
Total |
| $ | 93,341 |
| 100.0 | % | $ | 99,324 |
| 100.0 | % | $ | (5,983 | ) | (6.0 | )% |
|
| Three months ended March 31, |
| Change |
| |||||||||||
|
| 2015 |
| 2014 |
| Period to Period |
| |||||||||
|
| (dollars in thousands) |
| |||||||||||||
Lighting, Display & Power Electronics |
| $ | 64,327 |
| 66 | % | $ | 63,891 |
| 70 | % | $ | 436 |
| 1 | % |
Advanced Packaging, MEMS & RF |
| 13,165 |
| 13 | % | 798 |
| 1 | % | 12,367 |
| >100 | % | |||
Scientific & Industrial |
| 13,635 |
| 14 | % | 8,486 |
| 9 | % | 5,149 |
| 61 | % | |||
Data Storage |
| 7,214 |
| 7 | % | 17,666 |
| 20 | % | (10,452 | ) | -59 | % | |||
Total Sales |
| $ | 98,341 |
| 100 | % | $ | 90,841 |
| 100 | % | $ | 7,500 |
| 8 | % |
(1) Less than 1%The following is an analysis of net sales included within the Americas caption above have been derived from other regions outside the United States.by region:
|
| Three months ended March 31, |
| Change |
| |||||||||||
|
| 2015 |
| 2014 |
| Period to Period |
| |||||||||
|
| (dollars in thousands) |
| |||||||||||||
United States |
| $ | 27,969 |
| 28 | % | $ | 7,477 |
| 8 | % | $ | 20,492 |
| >100 | % |
China |
| 44,282 |
| 45 | % | 32,838 |
| 36 | % | 11,444 |
| 35 | % | |||
EMEA |
| 8,325 |
| 9 | % | 10,346 |
| 12 | % | (2,021 | ) | -20 | % | |||
Rest of World |
| 17,765 |
| 18 | % | 40,180 |
| 44 | % | (22,415 | ) | -56 | % | |||
Total Sales |
| $ | 98,341 |
| 100 | % | $ | 90,841 |
| 100 | % | $ | 7,500 |
| 8 | % |
Our LED & Solar segment netTotal sales increased slightly in 2014$7.5 million from the prior year comparable period primarily due to higheran increase in sales in the Advanced Packaging, MEMS & RF market of MOCVD systems.$12.4 million, with additional sales increases in the Lighting, Display & Power Electronics market of $0.4 million and the Scientific & Industrial market of $5.2 million. The sales increases are primarily attributed to the PSP business recently acquired in December 2014 as well as increased sales into the RF market. Pricing was not a significant driver of the change in total sales. Partially offsetting sales growth was a $10.5 million reduction in sales into the Data Storage netmarket. This decline was a result of relatively weak Data Storage bookings in the third quarter of 2014; the time between booking and revenue recognition for sales decreased in the Data Storage market is typically at least six months. Increased Data Storage bookings since the third quarter of 2014 are expected to increase sales in the upcoming quarters of 2015. Shipments of our EPIK 700 systems into the Lighting, Display & Power Electronics market resulted in an increase of $25.3 million in deferred revenue at March 31, 2015, which is largely expected to be recognized as our customers continue to have excess manufacturing capacity and have only been making select technology purchases. By region, netrevenue during 2015.
United States sales decreased in Asia Pacific,increased $20.5 million across all markets primarily due to our acquisition of PSP in December 2014. China sales increased $11.4 million specifically driven by our MOCVD product portfolio, offset by $24.4 million in declines primarily driven by a decreasereduction in MOCVD sales in China partially offset by an increase in South Korea. Net sales in the Americas also decreased primarily due to lower salesRest of our Data Storage products, while net sales in Europe, Middle East and Africa (“EMEA”) increased primarily due to higher sales of our MOCVD and MBE products.World. We believeexpect that there will continue to be period-to-period variations in the geographic distribution of net sales.sales in the future.
Orders increased 17.3% to $107.3Bookings remained relatively flat at $101.8 million from $91.5and $102.6 million in the comparable prior period. LED & Solar orders increased 26.4% to $92.9 million, principally due to MOCVD system and service orders, as certain of our LED customers are making capacity additions. Data Storage orders decreased 19.9% to $14.4 million from the comparable prior period as our customers continue to have excess manufacturing capacity and have only been making select technology purchases.
Our book-to-bill ratio for the three months ended September 30,March 31, 2015 and 2014, whichrespectively. One of the performance measures we use as a leading indicator of the business is calculated by dividing bookingsthe book-to-bill ratio. The ratio is defined as orders recorded in a given time period divided by revenue recognized in the same time period,period. A ratio greater than one indicates we are adding orders faster than we are recognizing revenue. In Q1 of 2015, the ratio was 1.15 to 1.slightly higher than 1.0. Our backlog asat March 31, 2015 of September 30, 2014 was $176.8$288.9 million reflects a slight increase as compared to $143.3 million as oflast quarter’s December 31, 2013. During the three months ended September 30, 2014 there were minimal backlog adjustments. Our backlog consistsbalance of orders for which we received a firm purchase order, a customer-confirmed shipment date within twelve months and a deposit, where required. As of September 30, 2014, we had customer deposits of $35.8$286.7 million.
Gross Profit
Gross profit in dollarsmargin decreased from the prior year due to the inventory fair value step-up associated with the sales of systems acquired as part of the PSP acquisition. As part of purchase accounting, the book value of acquired inventory is adjusted to fair value and is recognized as cost of sales when the inventory is sold, temporarily suppressing gross margin for the periods indicated were as follows (dollars in thousands):
|
| For the three months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Gross profit - LED & Solar |
| $ | 26,522 |
| $ | 20,171 |
| $ | 6,351 |
| 31.5 | % |
Gross margin |
| 34.5 | % | 26.9 | % |
|
|
|
| |||
Gross profit - Data Storage |
| $ | 6,036 |
| $ | 10,137 |
| $ | (4,101 | ) | (40.5 | )% |
Gross margin |
| 36.6 | % | 41.7 | % |
|
|
|
| |||
Gross profit - Total Veeco |
| $ | 32,558 |
| $ | 30,308 |
| $ | 2,250 |
| 7.4 | % |
Gross margin |
| 34.9 | % | 30.5 | % |
|
|
|
|
LED & Solar gross margins increased principally due to a favorable mix of products and favorable warranty spending,until all acquired inventory is sold. The decrease was partially offset by decreases associated with higher inventory reserves and unfavorable overhead rates. Data Storage gross margins decreased primarily due to reduced sales volume, partially offset by favorable service spending.the recognition in the first three months of 2015 of certain forfeited customer deposits of $3.0 million.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses for the periods indicated were as follows (dollars in thousandscosts):
|
| For the three months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Selling, general and administrative |
| $ | 21,712 |
| $ | 19,650 |
| $ | 2,062 |
| 10.5 | % |
Percentage of net sales |
| 23.3 | % | 19.8 | % |
|
|
|
| |||
Selling, general, and administrative expenses increased primarily due to equity compensation, personnel and personnel-related, and bonus expensesthe December 2014 acquisition of PSP, which contributed about $3.5 million of the increase, as well as the addition of costs from our ALD business, which was acquiredan increase in the fourth quarter of 2013.bonus expenses. Partially offsetting this increase was a reduction in professional fees associated with our accounting review, which was completed in the fourth quarterand personnel related expenses of 2013.
Table of Contents$3.2 million.
Research and Development Expensesdevelopment costs
Research and development expenses for the periods indicated were as follows (dollars in thousands):
|
| For the three months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Research and development |
| $ | 19,968 |
| $ | 18,993 |
| $ | 975 |
| 5.1 | % |
Percentage of net sales |
| 21.4 | % | 19.1 | % |
|
|
|
| |||
Research and development expenses increaseddecreased due to reductions in our personnel related expenses particularly related to the ALD business, which was acquired in the fourth quarter of 2013,restructuring efforts, which was partially offset by a reductionan increase in spending in our other product lines.due to the December 2014 acquisition of PSP. We continue to focus our research and development expenses on projects in areas we anticipate to be high-growth. We selectively funded these product development activities which resulted in lower professional consulting expense, as well as reduced spending for project materials and personnel and personnel-related costs.
Amortization costs
Amortization for the periods indicated were as follows (dollarsThe increase in thousands):
|
| For the three months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Amortization |
| $ | 3,149 |
| $ | 855 |
| $ | 2,294 |
| 268.3 | % |
Percentage of net sales |
| 3.4 | % | 0.9 | % |
|
|
|
| |||
Amortizationamortization expense increased primarily dueis related to the additional amortization associated with$79.8 million in amortizable intangible assets acquired as part of our acquisition of our ALD business during the fourth quarter of 2013.
RestructuringPSP in December 2014.
Restructuring for the periods indicated were as follows (dollars in thousands):
|
| For the three months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Restructuring |
| $ | 2,317 |
| $ | 1,240 |
| $ | 1,077 |
| 86.9 | % |
Percentage of net sales |
| 2.5 | % | 1.2 | % |
|
|
|
| |||
During the first quarter of 2014, we announced the consolidation of our Ft. Collins, Colorado facility into our Plainview, New York facility and took additional measures to improve profitability in a challenging business environment. As a result of these actions we notified 49 employees of their termination from the Company. During the three months ended September 30, 2014, we recorded restructuring charges relating to these actions of $0.7 million, consisting of personnel severance and related costs.
During the three months ended September 30, 2014 the Company undertook additional restructuring activities, including the consolidation of our Camarillo, CA facility into our Plainview, New York facility and additional headcount reductions to help contain costs and further improve profitability. As a result of these actions we notified 44 additional employees of their termination from the Company. During the three months ended September 30, 2014, we recorded restructuring charges relating to these actions of $1.6 million, consisting of personnel severance and related costs. (See Note Commitments, Contingencies and Other Matters for further information)
During the three months ended September 30, 2013, we took measures to improve profitability, including the restructuring of one of our international sales offices and consolidation of certain sales, business and administrative functions. As a result of these actions, we recorded restructuring charges of $1.2 million.
Asset Impairment
|
| For the three months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Asset Impairment |
| $ | 2,864 |
| $ | — |
| $ | 2,864 |
| * |
|
Percentage of net sales |
| 3.1 | % | 0.0 | % |
|
|
|
| |||
* Not Meaningful
During the three months ended September 30, 2014, we transferred $2.7 million of assets from property, plant and equipment to assets held for sale. In conjunction with the transfer, these assets were evaluated for impairment in accordance with the accounting guidance. As a result, during the three months ended September 30, 2014, we recognized asset impairment charges of $2.4 million and a corresponding reduction to property, plant and equipment of $5.1 million. The $2.4 million impairment charge consisted of $1.6 million relating to our research and demonstration labs in Asia and $0.8 million relating to vacant land in our LED and Solar segment. We recognized an additional asset impairment charge of $0.4 million relating to assets in our LED and Solar segment that we abandoned during the quarter.
Income TaxesRestructuring costs
Income tax provision (benefit) for the periods indicated were as follows (dollarsThe increase in thousands):
|
| For the three months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Income tax provision (benefit) |
| $ | (3,206 | ) | $ | (3,719 | ) | $ | 513 |
| (13.8 | )% |
Effective tax rate |
| 18.7 | % | 38.2 | % |
|
|
|
| |||
Our provision for income taxes consists of U.S. federal, state and local, and foreign taxes in amounts necessary to align our year-to-date tax provision with the effective tax rate we expect to achieve for the full year.
For the three months ended September 30, 2014, our effective tax rate differed from the U.S. federal statutory rate of 35% primarily related to our ability to recognize only a portion of the deferred tax assets on a more likely than not basis with respect to current year pre-tax operating losses. The effective tax rate for the three months ended September 30, 2014, was also impacted by a discrete tax benefit in connection with settlement of our 2010 IRS examination.
For the three months ended September 30, 2013, the effective tax rate was higher than the statutory tax raterestructuring expense is primarily due to tax rate differences in the foreign jurisdictions in which the Company operates and an income tax benefit related to the generation of current year research and development tax credits.
Our unrecognized tax benefits include amounts related to various U.S federal, state and local, and foreign tax issues. We believe that it is reasonably possible that a decrease of between $5.0 million and $6.0 million in unrecognized tax benefits may be necessary as we currently expect the Singapore Economic Development Board’s approval of amendments to our Development and Expansion Incentive under the International Headquarters Award. The decrease will have a favorable impact on our effective tax rate.
We recently settled our 2010 IRS examination, resulting in the release of $2.3 million of liabilities relating to uncertain tax positions. We were also notified that the IRS will commence an examination of our 2011 tax year during the quarter ending December 31, 2014.
Nine Months Ended September 30, 2014 and 2013
The following table shows our Consolidated Statements of Operations, percentages of sales, and comparisons between the nine months ended September 30, 2014 and 2013 (dollars in thousands):
|
| For the nine months ended |
| Dollar and |
| |||||||||||
|
| September 30, |
| Percentage Change |
| |||||||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||||||
Net sales |
| $ | 279,304 |
| 100.0 | % | $ | 258,540 |
| 100.0 | % | $ | 20,764 |
| 8.0 | % |
Cost of sales |
| 182,296 |
| 65.3 | % | 171,040 |
| 66.2 | % | 11,256 |
| 6.6 | % | |||
Gross profit |
| 97,008 |
| 34.7 | % | 87,500 |
| 33.8 | % | 9,508 |
| 10.9 | % | |||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Selling, general and administrative |
| 65,270 |
| 23.4 | % | 59,077 |
| 22.9 | % | 6,193 |
| 10.5 | % | |||
Research and development |
| 60,747 |
| 21.7 | % | 60,600 |
| 23.4 | % | 147 |
| 0.2 | % | |||
Amortization |
| 8,951 |
| 3.2 | % | 2,566 |
| 1.0 | % | 6,385 |
| 248.8 | % | |||
Restructuring |
| 3,510 |
| 1.3 | % | 1,771 |
| 0.7 | % | 1,739 |
| 98.2 | % | |||
Asset impairment |
| 2,864 |
| 1.0 | % | — |
| 0.0 | % | 2,864 |
| * |
| |||
Total operating expenses |
| 141,342 |
| 50.6 | % | 124,014 |
| 48.0 | % | 17,328 |
| 14.0 | % | |||
Other operating, net |
| (334 | ) | (0.1 | )% | (141 | ) | (0.1 | )% | (193 | ) | 136.9 | % | |||
Changes in contingent consideration |
| (29,368 | ) | (10.5 | )% | — |
| 0.0 | % | (29,368 | ) | * |
| |||
Operating income (loss) |
| (14,632 | ) | (5.2 | )% | (36,373 | ) | (14.1 | )% | 21,741 |
| (59.8 | )% | |||
Interest income (expense), net |
| 541 |
| 0.2 | % | 620 |
| 0.2 | % | (79 | ) | (12.7 | )% | |||
Income (loss) before income taxes |
| (14,091 | ) | (5.0 | )% | (35,753 | ) | (13.8 | )% | 21,662 |
| (60.6 | )% | |||
Income tax provision (benefit) |
| (4,063 | ) | (1.5 | )% | (15,575 | ) | (6.0 | )% | 11,512 |
| (73.9 | )% | |||
Net income (loss) |
| $ | (10,028 | ) | (3.6 | )% | $ | (20,178 | ) | (7.8 | )% | $ | 10,150 |
| (50.3 | )% |
* Not Meaningful
Net Sales
The following is an analysis of net sales by segment and by region (dollars in thousands):
|
| Net Sales |
| Dollar and |
| |||||||||||
|
| For the nine months ended September 30, |
| Percentage Change |
| |||||||||||
|
| 2014 |
| Percent of Total |
| 2013 |
| Percent of Total |
| Period to Period |
| |||||
Segment Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
LED & Solar |
| $ | 224,759 |
| 80.5 | % | $ | 193,241 |
| 74.7 | % | $ | 31,518 |
| 16.3 | % |
Data Storage |
| 54,545 |
| 19.5 | % | 65,299 |
| 25.3 | % | (10,754 | ) | (16.5 | )% | |||
Total |
| $ | 279,304 |
| 100.0 | % | $ | 258,540 |
| 100.0 | % | $ | 20,764 |
| 8.0 | % |
Regional Analysis |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Americas (1) |
| $ | 33,472 |
| 12.0 | % | $ | 43,613 |
| 16.9 | % | $ | (10,141 | ) | (23.3 | )% |
Europe, Middle East and Africa |
| 25,398 |
| 9.1 | % | 15,304 |
| 5.9 | % | 10,094 |
| 66.0 | % | |||
Asia Pacific |
| 220,434 |
| 78.9 | % | 199,623 |
| 77.2 | % | 20,811 |
| 10.4 | % | |||
Total |
| $ | 279,304 |
| 100.0 | % | $ | 258,540 |
| 100.0 | % | $ | 20,764 |
| 8.0 | % |
(1) Less than 1% of net sales included within the Americas caption above have been derived from other regions outside the United States.
Our LED & Solar segment net sales increased in 2014 primarily due to increased sales of MOCVD systems to certain of our LED customers due to higher capacity requirements. Data Storage net sales decreased as our customers continue to have excess manufacturing capacity and have only been making select technology purchases. By region, net sales increased in Asia Pacific, primarily due to an increase in MOCVD sales in South Korea. Net sales in Europe, Middle East and Africa (“EMEA”) also increased primarily due to higher sales of MOCVD and Data Storage products while net sales in the Americas decreased. We believe that there will continue to be period-to-period variations in the geographic distribution of net sales.
Orders increased 27.2% to $313.9 million from $246.7 million in the comparable prior period. LED & Solar orders increased 49.6% to $260.7 million, principally due to MOCVD system orders, as certain of our LED customers are making capacity additions. Data Storage orders decreased 26.4% to $53.2 million from the comparable prior period as our customers have excess manufacturing capacity and they have only been making select technology purchases.
Our book-to-bill ratio for the nine months ended September 30, 2014, which is calculated by dividing bookings recorded in a given time period by revenue recognized in the same time period, was 1.12 to 1. Our backlog as of September 30, 2014 was $176.8 million, compared to $143.3 million as of December 31, 2013. During the nine months ended September 30, 2014, we recorded backlog adjustments of approximately $1.2 million related to orders that no longer met our booking criteria. Our backlog consists of orders for which we received a firm purchase order, a customer-confirmed shipment date within twelve months and a deposit, where required. As of September 30, 2014, we had customer deposits of $35.8 million.
Gross Profit
Gross profit in dollars and gross margin for the periods indicated were as follows (dollars in thousands):
|
| For the nine months ended |
|
|
| |||||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Gross profit - LED & Solar |
| $ | 76,865 |
| $ | 60,505 |
| $ | 16,360 |
| 27.0 | % |
Gross margin |
| 34.2 | % | 31.3 | % |
|
|
|
| |||
Gross profit - Data Storage |
| $ | 20,143 |
| $ | 26,995 |
| $ | (6,852 | ) | (25.4 | )% |
Gross margin |
| 36.9 | % | 41.3 | % |
|
|
|
| |||
Gross profit - Total Veeco |
| $ | 97,008 |
| $ | 87,500 |
| $ | 9,508 |
| 10.9 | % |
Gross margin |
| 34.7 | % | 33.8 | % |
|
|
|
|
LED & Solar gross margins increased from the comparable prior period primarily due to higher MOCVD sales volume, a favorable mix of products and favorable warranty spending, partially offset by unfavorable overhead rates, primarily driven by our ALD business, and higher inventory reserves. Data Storage gross margins decreased principally due to reduced sales volume, higher inventory reserves and unfavorable overhead rates, partially offset by favorable warranty and service spending.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the periods indicated were as follows (dollars in thousands):
|
| For the nine months ended |
|
|
| |||||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Selling, general and administrative |
| $ | 65,270 |
| $ | 59,077 |
| $ | 6,193 |
| 10.5 | % |
Percentage of net sales |
| 23.4 | % | 22.9 | % |
|
|
|
| |||
Selling, general and administrative expenses increased primarily due to bonus, equity compensation and personnel and personnel-related expenses as well as the addition of costs from our ALD business, which was acquiredplan announced in the fourth quarter of 2013. Partially offsetting this increase was a reduction2014 to lower our spending on our ALD flexible OLED technology and to refocus research and development efforts on other opportunities. We announced the closing of our Hyeongok-ri, South Korea facility and notified 23 employees of their termination from Veeco resulting in professional fees associated withadditional restructuring costs.
Changes in contingent consideration
Included in our accounting review, which was completedagreement to acquire ALD in the fourth quarter of 2013 and the collection of a customer receivable during the second quarter, which was previously reserved for in the fourth quarter of 2013.
Research and Development Expenses
Research and development expenses for the periods indicated were as follows (dollars in thousands):
|
| For the nine months ended |
|
|
| |||||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Research and development |
| $ | 60,747 |
| $ | 60,600 |
| $ | 147 |
| 0.2 | % |
Percentage of net sales |
| 21.7 | % | 23.4 | % |
|
|
|
| |||
Research and development expenses remained flat. The additional research and development costs from our ALD business, were offset by a reduction in spending in our other product lines. We continue to focus our research and development expenses on projects in areas we anticipate to be high-growth. We selectively funded these product development activities which resulted in lower professional consulting expense, as well as reduced spending for project materials and personnel and personnel-related costs.
Amortization
Amortization for the periods indicated were as follows (dollars in thousands):
|
| For the nine months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Amortization |
| $ | 8,951 |
| $ | 2,566 |
| $ | 6,385 |
| 248.8 | % |
Percentage of net sales |
| 3.2 | % | 1.0 | % |
|
|
|
| |||
Amortization expense increased primarily dueperformance milestones that could trigger contingent payments to the additional amortization associated with intangible assets acquired as part of our acquisition of our ALD business during the fourth quarter of 2013.
Restructuring
Restructuring for the periods indicated were as follows (dollars in thousands):
|
| For the nine months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Restructuring |
| $ | 3,510 |
| $ | 1,771 |
| $ | 1,739 |
| 98.2 | % |
Percentage of net sales |
| 1.3 | % | 0.7 | % |
|
|
|
| |||
original selling shareholders. During the first quarter of 2014, we announced the consolidation of our Ft. Collins, Colorado facility into our Plainview, New York facility and took additional measures to improve profitability in a challenging business environment. As a result of these actions we notified 49 employees of their termination from the Company. During the ninethree months ended September 30, 2014, we recorded restructuring charges relating to these actions of $1.9 million, consisting of personnel severance and related costs.
During the third quarter of 2014 the Company undertook additional restructuring activities, including the consolidation of our Camarillo, CA facility into our Plainview, New York facility and additional headcount reductions to help contain costs and further improve profitability. As a result of these actions we notified 44 additional employees of their termination from the Company. During the nine months ended September 30, 2014, we recorded restructuring charges relating to these actions of $1.6 million, consisting of personnel severance and related costs. (See Note Commitments, Contingencies and Other Matters for further information)
During the nine months ended September 30, 2013, we took measures to improve profitability, including the restructuring of one of our international sales offices and consolidation of certain sales, business and administrative functions. As a result of these actions, we recorded restructuring charges of $1.8 million.
Asset Impairment
|
| For the nine months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Asset Impairment |
| $ | 2,864 |
| $ | — |
| $ | 2,864 |
| * |
|
Percentage of net sales |
| 1.0 | % | 0.0 | % |
|
|
|
| |||
* Not Meaningful
During the nine months ended September 30, 2014, we transferred $2.7 million of assets from property, plant and equipment to assets held for sale. In conjunction with the transfer, these assets were evaluated for impairment in accordance with the accounting guidance. As a result, during the nine months ended September 30, 2014, we recognized asset impairment charges of $2.4 million and a corresponding reduction to property, plant and equipment of $5.1 million. The $2.4 million impairment charge consisted of $1.6 million relating to our foreign research and demonstration labs in Korea and Taiwan, respectively, and $0.8 million relating to vacant land in our MBE business. We recognized an additional asset impairment charge of $0.4 million relating to assets in our LED and Solar segment that we abandoned during the quarter.
Changes in Contingent Consideration
Changes in contingent consideration for the periods indicated were as follows (dollars in thousands):
|
| For the nine months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Changes in contingent consideration |
| $ | (29,368 | ) | $ | — |
| $ | (29,368 | ) | * |
|
Percentage of net sales |
| (10.5 | )% | 0.0 | % |
|
|
|
| |||
* Not Meaningful
As part of Veeco’s acquisition agreement with Synos, there were certain contingent payments due to the selling shareholders of Synos dependent on the achievement of certain milestones. The aggregate fair value of the contingent consideration arrangement as of December 31, 2013 was $29.4 million.
We estimate the fair value of acquisition-related contingent consideration based on management’s probability-weighted present value of the consideration expected to be transferred during the remainder of the earn-out period, based on the forecast related to the milestones. The fair value of the contingent consideration is reassessed by us on a quarterly basis using additional information as it becomes available. Any change in the fair value of an acquisition’s contingent consideration liability results in a gain or loss that is recorded in the earnings of that period. As of March 31, 2014, we determined that the agreed upon post-closingremaining performance milestones werewould not met or are not expected to be achieved and thereforemet, reversed the remaining $29.4 million fair value of the liability, of the contingent consideration and recorded it as a change in contingent consideration in the Consolidated Statementnon-cash gain of Operations.
The post-closing milestones are divided into two contingencies. The first, tied to receipt of certain purchase orders, had an evaluation date of March 31, 2014, which was not met and accounted for $20.2 million of the fair value of the reversed liability. The second is based on achieving certain full year 2014 revenue and gross margin thresholds, which are unlikely to be met and accounted for $9.2 million of the fair value of the reversed liability. As of September 30, 2014 the second contingency, with a maximum potential value of $75.0 million, remains contractually outstanding. We currently do not expect this contingency to be met.$29.4 million.
Income Taxestax expense
IncomeAt the end of each interim reporting period, we estimate the effective income tax rate expected to be applicable for the full year. This estimate is used to determine the income tax provision (benefit) for the periods indicated were as follows (dollarsor benefit on a year-to-date basis and may change in thousands):
|
| For the nine months ended |
|
|
|
|
| |||||
|
| September 30, |
| Dollar and Percentage Change |
| |||||||
|
| 2014 |
| 2013 |
| Period to Period |
| |||||
Income tax provision (benefit) |
| $ | (4,063 | ) | $ | (15,575 | ) | $ | 11,512 |
| (73.9 | )% |
Effective tax rate |
| 28.8 | % | 43.6 | % |
|
|
|
| |||
Table of Contentssubsequent interim periods.
Our tax provision for the three months ended March 31, 2015 was $3.4 million compared to a benefit of $0.4 million during the three months ended March 31, 2014. The 2015 income taxes consists of U.S. federal, statetax expense included a $2.0 million provision relating to our domestic operations and local, anda $1.4 million provision relating to foreign taxes in amounts necessary to align our year-to-date tax provision with the effective tax rate we expect to achieveoperations. Although there was a domestic pre-tax loss for the full year.
For the nine months ended September 30, 2014, our effective tax rate differed from the U.S. federal statutory rate of 35% primarily related to our ability to recognize only a portion of the deferred tax assets on a more likely than not basis with respect to current year pre-tax operating losses. The effective tax rate for the nine months ended September 30, 2014, was also impacted by a discrete tax benefit in connection with settlement of our 2010 IRS examination and becauseperiod, we did not provide a current tax benefit on such losses as the amounts are not realizable on a more-likely-than-not basis. In addition, we provided withholding taxes and a domestic provision relating to certain deferred tax liabilities that could not be offset against our deferred tax assets. This differs from 2014 when we were able to recognize part of our domestic pre-tax losses on a more-likely-than-not basis. Our foreign operations are profitable. As such, taxes were provided at rates which approximate the gain from the settlementstatutory rates of the contingent consideration related to the Synos acquisition.those foreign jurisdictions.
For the nine months ended September 30, 2013, the effective tax rate was higher than the statutory tax rate primarily due to tax rate differences in the foreign jurisdictions in which the Company operates, an income tax benefit related to the generation of current year research and development tax credits, and a discrete benefit related to legislation enacted in the first quarter of 2013 which extended the Federal Research and Development Credit for both the 2012 and 2013 tax years.
Our unrecognized tax benefits include amounts related to various U.S federal, state and local, and foreign tax issues. We believe that it is reasonably possible that a decrease of between $5.0 million and $6.0 million in unrecognized tax benefits may be necessary as we currently expect the Singapore Economic Development Board’s approval amendments to our Development and Expansion Incentive under the International Headquarters Award. The decrease will have a favorable impact on our effective tax rate.
We recently settled our 2010 IRS examination resulting in the release of $2.3 million of liabilities relating to uncertain tax positions. We were also notified that the IRS will commence an examination of our 2011 tax year during the quarter ending December 31, 2014.
Liquidity and Capital Resources
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, contractual obligation, and other cash flow needs for the next twelve months.
Our cash and cash equivalents, short-term investments, and restricted cash and short-term investments consist of the following (in thousands):were:
|
| September 30, |
| December 31, |
|
| March 31, 2015 |
| December 31, 2014 |
| ||||
|
| 2014 |
| 2013 |
|
| (in thousands) |
| ||||||
Cash and cash equivalents |
| $ | 264,008 |
| $ | 210,799 |
|
| $ | 303,123 |
| $ | 270,811 |
|
Short-term investments |
| 222,954 |
| 281,538 |
|
| 88,997 |
| 120,572 |
| ||||
Restricted cash |
| 487 |
| 2,738 |
|
| 493 |
| 539 |
| ||||
Cash, cash equivalents, short-term investments and restricted cash |
| $ | 487,449 |
| $ | 495,075 |
| |||||||
Total |
| $ | 392,613 |
| $ | 391,922 |
|
As of September 30, 2014At March 31, 2015 and December 31, 2013,2014, cash and cash equivalents of $161.4$216.5 million and $150.6$220.5 million, respectively, were held outside the United States. Liquidity is affected by many factors, some of which are based on normal ongoing operations of our business and some of which arise from fluctuations related to global economics and markets. Cash balances are generated and held in many locations throughout the world. It is our current intentintention to permanently reinvest our funds fromthe cash and cash equivalent balances held in Singapore, China, Taiwan, South Korea, and Malaysia, outside of the United States and our current plansforecasts do not demonstrate a needrequire repatriation of the funds back to repatriate them to fund ourthe United States operations. As of September 30, 2014,States. At March 31, 2015, we had $135.7$130.2 million in cash held offshoreoutside the United States on which we would have to pay significant United StatesU.S. income taxes to repatriate in the event that we need the funds for our operations in the United States.repatriate. Additionally, local government regulations may restrict our ability to move cash balances to meet cash needs under certain circumstances. We currently do not expect such regulations and restrictions to impact our ability to make acquisitions, pay vendors, or conduct operations throughout theour global organization. As of September 30, 2014 and December 31, 2013, our restricted cash was in Germany and our short-term investments were in the United States. 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 and other cash flow requirements for the next twelve months, as well as our contractual obligations.
A summary of the cash flow activity for the nine months ended September 30, 2014 is as follows (in thousands):
Cash Flows from Operating Activities
Net income (loss) |
| $ | (10,028 | ) |
Non-cash items: |
|
|
| |
Change in contingent consideration |
| (29,368 | ) | |
Depreciation and amortization |
| 17,649 |
| |
Non-cash equity-based compensation |
| 14,303 |
| |
Other |
| (6,377 | ) | |
Changes in operating assets and liabilities: |
|
|
| |
Accounts receivable |
| (36,149 | ) | |
Inventories |
| 13,650 |
| |
Accounts payable |
| (9,679 | ) | |
Accrued expenses, customer deposits, deferred revenue and other current liabilities |
| 41,630 |
| |
Other |
| (2,231 | ) | |
Net cash provided by (used in) operating activities |
| $ | (6,600 | ) |
The primary cash drivers of the $6.6 million use of cash from operations were:
·A $36.1 million use of cash due to the increase in accounts receivable, primarily due to longer than average payment terms and the timing of invoicing to customers resulting in more receivables remaining outstanding at the end of the quarter;
·A $9.7 million use of cash due to the decrease in accounts payable primarily driven by reduced purchasing activity and timing of vendor payments;
·A $13.7 million generation of cash due to the decrease in inventory due to our reduced purchasing activity; and
·A $41.6 million generation of cash due to the increase in accrued expenses primarily driven by increases in payroll related accruals, customer deposits and deferred revenue.
Cash Flows from Operating Activities
|
| Three months ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Cash Flows from Operating Activities |
|
|
|
|
| ||
Net income (loss) |
| $ | (19,110 | ) | $ | 19,160 |
|
Reconciling adjustments: |
|
|
|
|
| ||
Depreciation and amortization |
| 10,724 |
| 5,771 |
| ||
Deferred income taxes |
| 607 |
| (798 | ) | ||
Share-based compensation expense |
| 3,998 |
| 4,722 |
| ||
Change in contingent consideration |
| — |
| (29,368 | ) | ||
Other items |
| 114 |
| (920 | ) | ||
Changes in operating assets and liabilities |
| 7,955 |
| (16,968 | ) | ||
Net cash provided by (used in) operating activities |
| $ | 4,288 |
| $ | (18,401 | ) |
Cash provided by changes in operating assets and liabilities for the three months ended March 31, 2015 is primarily driven by a $14.0 million increase in customer deposits and deferred revenue, $11.2 million increase in accounts payable and accrued liabilities, partially offset by a $9.0 million increase in prepaid expenses and other current assets, $7.2 million increase in inventory and deferred cost of sales, and a $4.2 million increase in accounts receivable.
Cash used in operations for the three months ended March 31, 2014 is primarily driven by a $26.9 million increase in accounts receivable attributed to the timing of invoicing to customers and a $7.4 million decrease in accounts payable attributed to reduced purchasing activity, offset by an $8.2 million decrease in inventory also attributed to reduced purchasing activity and an $11.6 million increase in accrued expenses associated with payroll-related accruals and customer deposits.
Cash Flows from Investing Activities
Proceeds from the liquidation of short-term investments |
| $ | 216,050 |
|
Payments for purchases of short-term investments |
| (157,733 | ) | |
Other |
| (5,704 | ) | |
Net cash provided by (used in) investing activities |
| $ | 52,613 |
|
|
| Three months ended March 31, |
| ||||
|
| 2015 |
| 2014 |
| ||
|
| (in thousands) |
| ||||
Cash Flows from Investing Activities |
|
|
|
|
| ||
Capital expenditures |
| $ | (4,781 | ) | $ | (2,138 | ) |
Proceeds from the liquidation of short-term investments, net of purchases |
| 31,558 |
| 14,041 |
| ||
Proceeds from sales of lab tools |
| 1,413 |
| 2,340 |
| ||
Other |
| (68 | ) | (124 | ) | ||
Net cash provided by investing activities |
| $ | 28,122 |
| $ | 14,119 |
|
The primary cash driver of the $52.6 million generation of cash fromCash provided by investing was dueactivities in 2015 is attributed primarily to the net liquidationliquidations of short-term investments, duringrepositioning the period.net proceeds to cash and cash equivalents. Cash provided was partially offset by increased capital expenditures.
Cash Flows from Financing Activities
|
| Three months ended March 31, |
| ||||||||
|
| 2015 |
| 2014 |
| ||||||
|
| (in thousands) |
| ||||||||
Cash Flows from Financing Activities |
|
|
|
|
| ||||||
Proceeds from stock option exercises |
| $ | 9,485 |
|
| $ | 45 |
| $ | 8,316 |
|
Other |
| (2,140 | ) | ||||||||
Payments of tax withholdings - restricted shares |
| (52 | ) | (170 | ) | ||||||
Repayments of long-term debt |
| (76 | ) | (70 | ) | ||||||
Net cash provided by (used in) financing activities |
| $ | 7,345 |
|
| $ | (83 | ) | $ | 8,076 |
|
The primary cash driver ofCash flows used in financing activities during the $7.3 million generation of cash from financing was a $9.5 million generation of cash due to stock option exercises.three months ended March 31, 2015 were negligible.
As of September 30, 2014, restricted cash consists of $0.5 million which serves as collateral for bank guarantees that provide financial assurance that the Company will fulfill certain customer or lease obligations. This cash is held in custody by the issuing bank, and is restricted as to withdrawal or use while the related bank guarantees are outstanding.
In October 2014 the Company filed a net operating loss carryback claim of approximately $20 million. This receivable is reflected in Prepaid and other current assets in our Consolidated Balance Sheet as of September 30, 2014. We expect to receive payment of the refund claim within the next twelve months.
Off-Balance Sheet Arrangements and Contractual Obligations
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, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources other than the lease commitments, letters of credit andoperating leases, bank guarantees, and purchase commitments and other obligations discussed below.disclosed in the preceding footnotes.
Long-Term Debt
Long-term debt obligations consist of principleContractual Obligations and interest payments for our St. Paul, MN facility. As of September 30, 2014, the Company’s total future principle and interest payments have not changed significantly from our “Contractual Obligations” table in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2013 annual report on Form 10-K.
Lease Commitments
The Company’s major facility leases are typicallyWe have commitments under certain contractual arrangements to make future payments for terms not exceeding 5 yearsgoods and generally provide renewal options for terms not exceeding five additional years. As of September 30, 2014,services. These contractual arrangements secure the Company’s total future minimum lease payments under noncancelable operating leases have not changed significantly from our “Contractual Obligations” table in Part II, Item 7, “Management’s Discussionrights to various assets and Analysis of Financial Condition and Results of Operations” of our 2013 annual report on Form 10-K.
In accordance with relevant accounting guidance, we account for our office leases as operating leases with expiration dates ranging from 2014 through 2018, excluding renewal options. There are future minimum annual rental payments required under the leases. Leasehold improvements made at the beginning of or during a lease are amortized over the shorter of the remaining lease term or the estimated useful lives of the assets. There are no material sublease payments receivable associated with the leases.
Letters of Credit and Bank Guarantees
Letters of credit and bank guarantees are issued by a bank on our behalf as needed. As of September 30, 2014, we had letters of credit outstanding of $0.6 million and bank guarantees outstanding of $1.0 million, of which, $0.5 million is collateralized against cash that is restricted from use. As of September 30, 2014, we had $44.4 million of unused lines of credit available. The line of credit is availableservices to draw upon to cover performance bonds as required by our customers.
Purchase Commitments
Purchase commitments are primarily for inventorybe used in manufacturing our products. It has been our practice not to enter into purchase commitments extending beyond one year. As of September 30, 2014, we have $111.5 million in open purchase commitments and $11.9 million of offsetting supplier deposits.
Other Obligations
Pursuant to our agreement to acquire Synos, we may be obligated to pay up to an additional $75 million if certain conditions are met. We currently do not expect this contingency to be met.
Application of Critical Accounting Policies
General
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 acceptedthe future in the United States. The preparationnormal course of these financial statements requires usbusiness. We expect to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management continually monitors and evaluates its estimates and judgments, including those related to bad debts, inventories, intangible and other long-lived assets, income taxes, warranty obligations, restructuring costs, and contingent liabilities, including potential litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ fromfund these estimates under different assumptions or conditions. We consider certain accounting policies related to revenue recognition, short-term investments, the valuation of inventories, the impairment of goodwill and indefinite-lived intangible assets, the impairment of long-lived assets, fair value measurements, warranty costs, income taxes and equity-based compensation to be critical policies due to the estimation processes involved in each. We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation.
Revenue Recognition
We recognize revenue when all of the following criteria have been met: persuasive evidence of an arrangement exists with a customer; delivery of the specified products has occurred or services have been rendered; prices are contractually fixed or determinable; and collectability is reasonably assured. Revenue is recorded including shipping and handling costs and excluding applicable taxes related to sales. A significant portion of our revenue is derived from contractual arrangements with customers that have multiple elements, such as systems, upgrades, components, spare parts, maintenance and service plans. For sales arrangements that contain multiple elements, we split the arrangement into separate units of accounting if the individually delivered elements have value to the customer on a standalone basis. We also evaluate whether multiple transactions with the same customer or related party should be considered part of a multiple element arrangement, whereby we assess, among other factors, 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 each other. When we have separate units of accounting, we allocate revenue to each element based on the following selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available; third party evidence (“TPE”) if VSOE is not available; or our best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. We utilize BESP for the majority of the elements in our arrangements. The accounting guidance for selling price hierarchy did not include BESP for arrangements entered into prior to January 1, 2011; as such we recognized revenue for those arrangements as described below.
We consider many facts when evaluating each of our sales arrangements to determine the timing of revenue recognition including the contractual obligations, the customer’s creditworthiness 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 the majority of our arrangements, a customer source inspection of the system is performed in our facility or test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery. Historically, such source inspection or test data replicates the field acceptance provisions that will be performed at the customer’s site prior to final acceptance of the system. As such, we objectively demonstrate that the criteria specifiedcash generated from operations in the contractual acceptance provisions are achieved prior to delivery and, therefore, we recognize revenue upon delivery since there is no substantive contingency remaining related to the acceptance provisions at that date, subject to the retention amount constraint described below. For new products, new applicationsnormal course 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 and fully recognized upon the receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.
Our system sales arrangements, including certain upgrades, generally do not contain provisions for right of return or forfeiture, refund, or other purchase price concessions. In the rare instances where such provisions are included, we defer all revenue until such rights expire. In many cases our products are sold with a billing retention, typically 10% of the sales price (the “retention amount”), which is typically payable by the customer when field acceptance provisions are completed. The amount of revenue recognized upon delivery of a system or upgrade, if any, is limited to the lower of i) the amount billed that is not contingent
upon acceptance provisions or ii) the value of the arrangement consideration allocated to the delivered elements, if such sale is part of a multiple-element arrangement.
For transactions entered into prior to January 1, 2011, under the accounting rules for multiple-element arrangements in place at that time, we deferred the greater of the retention amount or the relative fair value of the undelivered elements based on VSOE. When we could not establish VSOE or TPE for all undelivered elements of an arrangement, revenue on the entire arrangement was deferred until the earlier of the point when we did have VSOE for all undelivered elements or the delivery of all elements of the arrangement.
Our sales arrangements, including certain upgrades, generally include installation. The installation process is not deemed essential to the functionality of the equipment since it is not complex; that is, it does not require significant changes to the features or capabilities of the equipment or involve building elaborate interfaces or connections subsequent to factory acceptance. We have a demonstrated history of consistently completing installations in a timely manner and can reliably estimate the costs of such activities. Most customers engage us to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, we deem the installation of our systems to be inconsequential or perfunctory relative to the system as a whole, and as a result, do not consider such services to be a separate element of the arrangement. As such, we accrue the cost of the installation at the time of revenue recognition for the system.
In Japan, where our contractual terms with customers generally specify title and risk and rewards of ownership transfer upon customer acceptance, revenue is recognized upon the receipt of written customer acceptance. During the fourth quarter of fiscal 2013, we began using a distributor for almost all of our product and service sales to customers in Japan. Title passes to the distributor upon shipment, however, due to customary local business practices, the risk and rewards of ownership of our system sales transfer to the end-customers upon their acceptance. As such, we recognize revenue upon receipt of written acceptance from the end customer.
Revenue related to maintenance and service contracts is recognized ratably over the applicable contract term. Component and spare part revenues are recognized at the time of delivery in accordance with the terms of the applicable sales arrangement.
Short-Term Investments
We determine the appropriate balance sheet classification of our investments at the time of purchase and evaluate the classification at each balance sheet date. As part of our cash management program, we maintain a portfolio of marketable securities which are classified as available-for-sale. These securities include United States treasuries and government agency securities with maturities of greater than three months. Securities classified as available-for-sale are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income (loss) and reported in equity. Net realized gains and losses are included in net income (loss).
Inventory Valuation
Inventories are stated at the lower of cost (principally first-in, first-out method) or market. On a quarterly basis, management assesses the valuation and recoverability of all inventories, classified as materials (which include raw materials, spare parts and service inventory), work-in-process and finished goods.
Materials inventory is used primarily to support the installed tool base and spare parts sales and is reviewed for excess quantities or obsolescence by comparing on-hand balances to historical usage, and adjusted for current economic conditions and other qualitative factors. Historically, the variability of such estimates has been impacted by customer demand and tool utilization rates.
The work-in-process and finished goods inventory is principally used to support system sales and is reviewed for recoverability by considering whether on hand inventory would be utilized to fulfill the related backlog. As we typically receive deposits for our orders, the variability of this estimate is reduced as customers have a vested interest in the orders they place with us. Recoverability of such inventory is evaluated by monitoring customer demand, current sales trends and product gross margins. Management also considers qualitative factors such as future product demand based on market outlook, which is based principally upon production requirements resulting from customer purchase orders received with a customer-confirmed
shipment date within the next twelve months. Historically, the variability of these estimates of future product demand has been impacted by backlog cancellations or modifications resulting from unanticipated changes in technology or customer demand.
Following identification of potential excess or obsolete inventory, management evaluates the need to write down inventory balances to estimated market value, if less than cost. Inherent in the estimates of market value are management’s estimates related to our future manufacturing schedules, customer demand, technological and/or market obsolescence, possible alternative uses, and ultimate realization of potential excess inventory. Unanticipated changes in demand for our products may require a write down of inventory that could materially affect our operating results.
Goodwill and Indefinite-Lived Intangible Asset Impairment
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. We account for goodwill and intangible assets with indefinite useful lives in accordance with relevant accounting guidance related to goodwill and other intangible assets, which states that goodwill and intangible assets with indefinite useful lives should not be amortized, but instead tested for impairment at least annually at the reporting unit level. Our policy is to perform this annual impairment test in the fourth quarter, using a measurement date of October 1st, of each fiscal year or more frequently if impairment indicators arise. Impairment indicators include, among other conditions, cash flow deficits, a historical or anticipated decline in revenue or operating profit, adverse legal or regulatory developments and a material decrease in the fair value of some or all of the assets.
The guidance provides an option for an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.
If we determine the two-step impairment test is necessary, we are required to determine if it is appropriate to use the operating segment, as defined under guidance for segment reporting, as the reporting unit, or one level below the operating segment, depending on whether certain criteria are met. We have identified five reporting units that are required to be reviewed for impairment. The five reporting units are aggregated into two segments: the VIBE and Mechanical reporting units which are reported in our Data Storage segment; and the MOCVD, MBE and ALD reporting units which are reported in our LED & Solar segment. In identifying the reporting units management considered the economic characteristics of operating segments including the products and services provided, production processes, types or classes of customer and product distribution.
We perform this impairment test by first comparing the fair value of our reporting units to their respective carrying amount. When determining the estimated fair value of a reporting unit, we utilize a discounted future cash flow approach since reported quoted market prices are not available for our reporting units. Developing the estimate of the discounted future cash flow requires significant judgment and projections of future financial performance. The key assumptions used in developing the discounted future cash flows are the projection of future revenues and expenses, working capital requirements, residual growth rates and the weighted average cost of capital. In developing our financial projections, we consider historical data, current internal estimates and market growth trends. Changes to any of these assumptions could materially change the fair value of the reporting unit. We reconcile the aggregate fair value of our reporting units to our adjusted market capitalization as a supporting calculation. 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.
If the carrying value of the reporting units exceed the fair value we would then compare the implied fair value of our goodwill to the carrying amount in order to determine the amount of the impairment, if any.
Definite-Lived Intangible and Long-Lived Assets
Definite-lived intangible assets consist of purchased technology, customer-related intangible assets, patents, trademarks, covenants not-to-compete, software licenses and deferred financing costs. Purchased technology consists of the core proprietary manufacturing technologies associated with the products and offerings obtained through acquisition and are initially recorded at fair value. Customer-related intangible assets, patents, trademarks, covenants not-to-compete and software licenses that are obtained in an acquisition are initially recorded at fair value. Other software licenses and deferred financing costs are initially
recorded at cost. Intangible assets with definitive useful lives are amortized using the straight-line method over their estimated useful lives for periods ranging from 2 years to 17 years.
Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Long-lived assets, such as property, plant, and equipment and intangible assets with definite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, a historical or anticipated decline in revenue or operating profit, adverse legal or regulatory developments and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flow expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Accounting for Acquisitions
Our growth strategy has included the acquisition of businesses. The purchase price of these acquisitions has been determined after due diligence of the acquired business, market research, strategic planning, and the forecasting of expected future results and synergies. Estimated future results and expected synergies are subject to judgment as we integrate each acquisition and attempt to leverage resources.
The accounting for the acquisitions we have made requires that the assets and liabilities acquired, as well as any contingent consideration that may be part of the agreement, be recorded at their respective fair values at the date of acquisition. This requires management to make significant estimates in determining the fair values, especially with respect to intangible assets, including estimates of expected cash flows, expected cost savings and the appropriate weighted average cost of capital. As a result of these significant judgments to be made we often obtain the assistance of independent valuation firms. We complete these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
Fair Value Measurements
Accounting guidance requires that we disclose the type of inputs we use to value our assets and liabilities that are required to be measured at fair value, based on three categories of inputs as defined in such. Level 1 inputs are quoted, unadjusted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date. Level 2 inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. These requirements apply to our long-lived assets, goodwill, cost method investment and intangible assets. We use Level 3 inputs to value all of such assets. We primarily apply the market approach for recurring fair value measurements.
Warranty Cost
Our warranties are typically valid for one year from the date of final acceptance. We estimate the costs that may be incurred under the warranty we provide and record a liability in the amount of such costs at the time the related revenue is recognized. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs. Our warranty obligation is affected by product failure rates, material usage, and labor costs incurred in correcting product failures during the warranty period. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs. If actual warranty costs differ substantially from our estimates, revisions to the estimated warranty liability would be required.
Income Taxes
We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax expense, together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. The carrying value of our deferred tax assets is adjusted by a partial valuation allowance to recognize the extent to which the future tax benefits will be recognized on a more likely than not basis. Our deferred tax assets consist primarily of net operating loss and tax credit carry forwards and timing differences between the book and tax treatment of inventory, acquired intangible assets, and other asset valuations. Realization of these net deferred tax assets is dependent upon our ability to generate future taxable income.
We record valuation allowances in order to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of recorded valuation allowances, we consider a variety of factors, including the scheduled reversal of deferred tax liabilities, future taxable income and prudent and feasible tax planning strategies. Under the relevant accounting guidance, factors such as current and previous operating losses are given significantly greater weight than the outlook for future profitability in determining the deferred tax asset carrying value.
Relevant accounting guidance addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under such guidance, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.
Equity-Based Compensation
We grant equity-based awards, such as stock options, restricted stock, restricted stock units or performance-based restricted stock units, to certain key employees to create clear and meaningful alignment between compensation, shareholder return and, in the case of performance-based awards, the achievement of specific objectives. Our equity-based awards also enable our employees to develop and maintain a stock ownership position further aligning their interests with shareholders. Equity-based awards vest over time and, in the case of performance-based restricted stock units, only after first being earned. Vesting is subject to the recipient’s continued employment, thus acting as a significant incentive for the employee to remain with the Company.
Equity-based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as expense over the employee requisite service period. In order to determine the fair value of stock options on the date of grant, we apply the Black-Scholes option-pricing model. Inherent in the model are assumptions related to the risk-free interest rate, dividend yield, expected stock-price volatility and expected term.
The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The dividend yield assumption is based on our historical and future expectation of dividend payouts. While the risk-free interest rate and dividend yield are less subjective assumptions, typically based on objective data derived from public sources, the expected stock-price volatility and option life assumptions require a level of judgment which make them critical accounting estimates.
We use an expected stock-price volatility assumption that is a combination of both historical volatility calculated based on the daily closing prices of our common stock over a period equal to the expected term of the option and implied volatility, and utilize market data of actively traded options on our common stock, which is obtained from public data sources. We believe that the historical volatility of the price of our common stock over the expected term of the option is a strong indicator of the expected future volatility and that implied volatility takes into consideration market expectations of how future volatility will differ from historical volatility. Accordingly, we believe a combination of both historical and implied volatility provides the best estimate of the future volatility of the market price of our common stock.
The expected option term, representing the period of time that options granted are expected to be outstanding, is estimated using a lattice-based model incorporating historical post vest exercise and employee termination behavior.
We estimate forfeitures using our historical experience, which is adjusted over the requisite service period based on the extent
to which actual forfeitures differ or are expected to differ, from such estimates. Because of the significant amount of judgment used in these calculations, it is reasonably likely that circumstances may cause the estimate to change.
With regard to the weighted-average option life assumption, we consider the exercise behavior of past grants and model the pattern of aggregate exercises.
We settle the exercise of stock options with newly issued shares.
With respect to grants of performance based awards, we assess the probability that such performance criteria will be met in order to determine the compensation expense. Compensation expense is recognized on the accelerated attribution model, where each tranche of the award is treated as a separate award for purposes of expense recognition. If that assessment of the probability of the performance condition being met changes, we would recognize the impact of the change in estimate in the period of the change.
We have 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.
Recent Accounting Pronouncements
Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern: In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The amendments in this ASU apply to all entities and provide guidance on management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016; early application is permitted. We do not expect the application of this guidance to have a material impact on our consolidated financial statements.
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period: In June 2014, the FASB issued Accounting Standards Update No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (Topic 718). The amendments in this ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
Revenue from Contracts with Customers: In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606). ASU No. 2014-09 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard outlines a five-step model to be used to make the revenue recognition determination and requires new financial statement disclosures. The standard is effective for interim and annual periods beginning after December 15, 2016 and allows entities to choose among different transition alternatives. We are evaluating the impact of adopting the standard on our consolidated financial statements and related financial statement disclosures, and we have not yet determined which method of adoption will be selected.
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. In April 2014, the FASB issued ASU No. 2014-08 that changes the threshold for reporting discontinued operations and adds new disclosures. The new guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” For disposals of individually significant components that do not qualify as discontinued operations, an entity must disclose pre-tax earnings of the disposed component. For public business entities, this guidance is effective prospectively for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance.
We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists: In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists.” ASU 2013-11 requires entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement in this manner is available under the tax law. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this as of January 1, 2014 and it did not have a material impact on our consolidated financial statements.
Presentation of Financial Statements: In April 2013, the FASB issued ASU No. 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The objective of ASU 2013-07 is to clarify when an entity should apply the liquidation basis of accounting. The update provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this as of January 1, 2014 and will evaluate the materiality of its impact on our consolidated financial statements when there are any indications that liquidation is imminent.
Parent’s Accounting for the Cumulative Translation Adjustment: In March 2013, the FASB issued ASU No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This new standard is intended to resolve diversity in practice regarding the release into net income of a cumulative translation adjustment (“CTA”) upon derecognition of a subsidiary or group of assets within a foreign entity. ASU No. 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. We have adopted this as of January 1, 2014 and currently anticipate that it could have an impact on our consolidated financial statements, in the event of derecognition of a foreign subsidiary in 2014 or thereafter. During the three months ended June 30, 2014, the Company began executing a plan to liquidate our foreign subsidiary in Japan. Please see note Commitments, Contingencies and Other Matters for additional information.business.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Net sales to foreign customers represented approximately Interest Rate Risk88.0% of our total net revenues for both the three and nine months ended September 30, 2014, and 81.3% and 83.1% for the comparable 2013 periods. We expect that net sales to foreign customers will continue to represent a large percentage of our total net sales.
Our net sales denominated in foreign currencies represented approximately 3.1% and 9.4% of our total sales for the three and nine months ended September 30, 2014 respectively, and 2.9% and 3.2% for the comparable 2013 periods. The significant increase in percentage of net sales in foreign currency during the nine months ended September 30, 2014 was driven by a few large sales, aggregating approximately $16.4 million, that were denominated in Japanese Yen. The related receivable was fully collected during the second quarter of 2014. We had an economic hedge in the form of Japanese Yen collars to minimize our exposure to market rate changes in foreign currency exchangeinterest rates relatedprimarily relates to these receivables while they remained outstanding.
During the three months ended December 31, 2013, we entered into an economic hedge in the form of Japanese Yen collars to minimize our exposure to changes in foreign currency exchange rates. The net fair value of these collars as of December 31, 2013 was approximately $0.9 million. During the second quarter of 2014, the collars were closed and resulted in a realized gain of $0.5 million.
We are exposed to financial market risks, including changes in foreign currency exchange rates. The change in currency exchange rates that have the largest impact on translating our international operating profit (loss) is the Japanese Yen and Chinese Yuan. We use derivative financial instruments to mitigate these risks. We do not use derivative financial instruments for speculative or trading purposes. We generally enter into monthly forward contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known currency exposures. As of September 30, 2014, there were no outstanding derivative instruments.
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| As of December 31, 2013 |
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(in thousands) |
| Component of |
| Fair |
| Maturity |
| Notional |
| ||
Not Designated as Hedges under ASC 815 |
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Foreign currency exchange forwards |
| Prepaid and other current assets |
| $ | 1 |
| January 2014 |
| $ | 4,700 |
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Foreign currency collar |
| Prepaid and other current assets |
| 906 |
| October 2014 |
| 34,069 |
| ||
Total Derivative Instruments |
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| $ | 907 |
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| $ | 38,769 |
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| Amount of realized net gain (loss) and changes in the fair |
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| Location of realized net gain (loss) and |
| For the three months ended |
| For the nine months ended |
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(in thousands) |
| changes in the fair value of derivatives |
| 2014 |
| 2013 |
| 2014 |
| 2013 |
| ||||
Foreign currency exchange forwards |
| Other operating, net |
| $ | — |
| $ | (11 | ) | $ | (89 | ) | $ | 146 |
|
Foreign currency collar |
| Other operating, net |
| — |
| — |
| (457 | ) | — |
| ||||
We believe that based upon our hedging strategy, a 10% change in foreign exchange rates would have an immaterial impact on the Consolidated Statements of Operations. We believe that this quantitative measure has inherent limitations because it does not take into account any governmental actions or changes in either customer purchasing patterns or our financing and operating strategies.
investment portfolio. We centrally manage our investment portfoliosportfolio considering investment opportunities and risk,risks, tax consequences, and overall financing strategies. Our investment portfolio includes fixed-income securities with a fair value of approximately $223.0almost $90 million as of September 30, 2014. An immediateat March 31, 2015. These securities are subject to interest rate risk; a 100 basis point increase in interest rates maywould result in a decrease in the fair value of the September 30, 2014March 31, 2015 investment portfolio of approximately $1.2$0.5 million. While an increase in interest rates may reduce the fair value of the investment portfolio, it is unlikely that we will not realize the losses in ourthe Consolidated Statements of Operations unless the individual fixed-income securities are sold prior to recoverymaturity or the loss is determined to be other-than-temporary.
Currency Exchange Risk
We conduct business on a worldwide basis. 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.
We may manage our risks and exposures to currency exchange rates through the use of derivative financial instruments (e.g., forward contracts). We only use derivative financial instruments in the context of hedging and do not use them for speculative purposes. During the three months ended March 31, 2015, we did not own any derivatives. During the three months ended March 31, 2014, we did not designate our foreign exchange derivatives as hedges. Accordingly, the currency 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 72% and 91% of our total net sales for the three months ended March 31, 2015 and 2014, respectively. We expect that net sales to customers outside the United States will continue to represent a large percentage of our total sales. Our sales denominated in currencies other than the U.S. dollar represented approximately 6% and 23% of total net sales in the three months ended March 31, 2015 and 2014, respectively.
A 10% change in foreign exchange rates would have an immaterial impact on the consolidated results of operations.
Item 4. Controls and Procedures
Management’s Report on Internal Control Over Financial Reporting
Our senior management is responsible for establishingprincipal executive and maintaining a system offinancial officers have evaluated and concluded that our disclosure controls and procedures (as definedare effective at March 31, 2015. The disclosure controls and procedures are designed to ensure that the information required to be disclosed in Rule 13a-15 and 15d-15this report filed under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controlsforms and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including itsour principal executive officer orand financial officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision of and with the participation of management, including the chief executive officer and chief financial officer, as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by usChanges in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.Internal Control Over Financial Reporting
There have beenDuring the three months ended March 31, 2015, there were no changes in our internal controls or other factors during the fiscal quarter ended September 30, 2014control that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Part II. PART II—OTHER INFORMATION
Veeco and certain other parties were named as defendants in a lawsuit filed on April 25, 2013Information regarding legal proceedings appears in the Superior CourtCommitments and Contingencies Note to the Consolidated Financial Statements in this quarterly report on Form 10-Q and in Part I — Item 3 of California, County of Sonoma. The plaintiff in the lawsuit, Patrick Colbus, seeks unspecified damages and asserts claims that he suffered burns and other injuries while he was cleaning a molecular beam epitaxy system alleged toour 2014 Form 10-K. There have been manufactured by Veeco. The lawsuit alleges, among other things, that the molecular beam epitaxy system was defective and that Veeco failed to adequately warn of the potential risks of the system. Veeco believes this lawsuit is without merit and intends to defend vigorously against the claims. Veeco is unable to predict the outcome of this action or to reasonably estimate the possible loss or range of loss, if any, arisingno material changes from the claims asserted therein. The Company believes that, in the event of any recovery by the plaintiff from Veeco, such recovery would be fully covered by Veeco’s insurance.
We are involved in various other legal proceedings arisingpreviously disclosed in the normal course of our business. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.2014 Form 10-K.
Information regarding risk factors appears in the Safe Harbor Statement at the beginning of this quarterly report on Form 10-Q and in Part I — Item 1A of our annual report on2014 Form 10-K for the year ended December 31, 2013.10-K. There have been no material changes from the risk factors previously disclosed in our annual report on2014 Form 10-K for the year ended December 31, 2013.10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
NoneNone.
Item 3. Defaults Upon Senior Securities
NoneNone.
Item 4. Mine Safety Disclosures
Not ApplicableApplicable.
NoneNone.
Unless otherwise indicated, each of the following exhibits has been previously filed with the SECSecurities and Exchange Commission by the CompanyVeeco under File No. 0-16244.
Number |
| Description |
| Incorporated by Reference to the | |
31.1 |
| Certification of Chief Executive Officer pursuant to Rule 13a—14(a) or Rule 15d—14(a) of the Securities and Exchange Act of 1934. |
| * | |
31.2 |
| Certification of Chief Financial Officer pursuant to Rule 13a—14(a) or Rule 15d—14(a) of the Securities and Exchange Act of 1934. |
| * | |
32.1 |
| Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. |
| * | |
32.2 |
| Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. |
| * | |
101.INS |
| XBRL Instance |
| ** | |
101.SCH |
| XBRL Schema |
| ** | |
101.PRE |
| XBRL Presentation |
| ** | |
101.CAL |
| XBRL Calculation |
| ** | |
101.DEF |
| XBRL Definition |
| ** | |
101.LAB |
| XBRL Label |
| ** |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.authorized, on May 6, 2015.
Date: October 29, 2014
| Veeco Instruments Inc. | ||
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| |
| By: | / | |
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| John R. Peeler | |
Chairman and Chief Executive Officer | |||
| By: | /s/ SHUBHAM MAHESHWARI | |
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| Shubham Maheshwari | |
Executive Vice President and Chief Financial Officer | |||
INDEX TO 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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