Veeco Instruments Inc.
2017 Annual Report on Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
⌧
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
(cid:2)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-16244
VEECO INSTRUMENTS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
11-2989601
(I.R.S. Employer Identification No.)
Terminal Drive
Plainview, New York
(Address of Principal Executive Offices)
11803
(Zip Code)
Registrant’s telephone number, including area code:
(516) 677-0200
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
Common Stock, par value $0.01 per share
(Name of each exchange on which registered)
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No (cid:2)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:2) No ⌧
Indicate by check mark whether the 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 registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ⌧ No (cid:2)
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 during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ⌧ No (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by references in Part III of this
Form 10-K or any amendment to this Form 10-K. ⌧
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ⌧
Non-accelerated filer (cid:2) (Do not check if a smaller reporting company)
Accelerated filer (cid:2)
Smaller reporting company (cid:2)
Emerging growth company (cid:2)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:2)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). (cid:2) Yes ⌧ No
The aggregate market value of the common stock held by non-affiliates of the registrant at June 30, 2017 (the last business day of the registrant’s most
recently completed second quarter) was $1,328,017,475 based on the closing price of $27.85 on the NASDAQ Stock Market on that date.
The number of shares of each of the registrant’s classes of common stock outstanding on February 14, 2018 was 48,156,865 shares of common stock, par
value $0.01 per share.
Certain portions of the definitive Proxy Statement to be used in connection with the Registrant’s 2018 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
VEECO INSTRUMENTS INC.
INDEX
PART I ......................................................................................................................................................................................... 3
Item 1. Business ......................................................................................................................................................................... 3
Item 1A. Risk Factors .............................................................................................................................................................. 10
Item 1B. Unresolved Staff Comments ..................................................................................................................................... 24
Item 2. Properties ..................................................................................................................................................................... 24
Item 3. Legal Proceedings ........................................................................................................................................................ 24
Item 4. Mine Safety Disclosures .............................................................................................................................................. 25
PART II ..................................................................................................................................................................................... 26
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ... 26
Stock Performance Graph ........................................................................................................................................................ 27
Item 6. Selected Financial Data................................................................................................................................................ 28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations....................................... 29
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ................................................................................... 42
Item 8. Financial Statements and Supplementary Data ............................................................................................................ 42
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................................... 42
Item 9A. Controls and Procedures ........................................................................................................................................... 42
Item 9B. Other Information ...................................................................................................................................................... 46
PART III .................................................................................................................................................................................... 46
Item 10. Directors, Executive Officers and Corporate Governance ......................................................................................... 46
Item 11. Executive Compensation ........................................................................................................................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .................. 46
Item 13. Certain Relationships and Related Transactions, and Director Independence ........................................................... 46
Item 14. Principal Accounting Fees and Services .................................................................................................................... 46
PART IV .................................................................................................................................................................................... 47
Item 15. Exhibits, Financial Statement Schedules ................................................................................................................... 47
SIGNATURES........................................................................................................................................................................... 50
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This Annual Report on Form 10-K (“Form 10-K”) contains certain forward-looking information relating to Veeco
Instruments Inc. (together with its consolidated subsidiaries, “Veeco,” the “Company,” “Registrant,” “we,” “our,” or “us,”
unless the context indicates otherwise) that is based on the beliefs of, and assumptions made by, our management as well as
information currently available to management. When used in this Form 10-K, the words “believes,” “anticipates,”
“expects,” “estimates,” “targets,” “plans,” “intends,” “will,” and similar expressions relating to the future are intended to
identify forward-looking information. Discussions containing such forward-looking statements may be found in Part I, Items
1 and 3, Part II, Items 7 and 7A hereof, as well as within this Form 10-K generally. This forward-looking information
reflects our current views with respect to future events and is subject to certain risks, uncertainties, and assumptions, some of
which are described under the caption “Risk Factors” in Part I, Item 1A, and elsewhere in this Form 10-K. Should one or
more of these risks or uncertainties occur, or should our assumptions prove incorrect, actual results may vary materially from
the forward-looking information described in this Form 10-K as believed, anticipated, expected, estimated, targeted, planned,
or similarly identified. We do not undertake any obligation to update any forward-looking statements to reflect future events
or circumstances after the date of such statements.
PART I
Item 1. Business
Recent Developments
On May 26, 2017, we completed the acquisition of Ultratech, Inc. (“Ultratech”). Ultratech develops, manufactures, sells,
and supports lithography, laser annealing, and inspection equipment for manufacturers of semiconductor devices,
including front-end semiconductor manufacturing and advanced packaging. Ultratech also develops, manufactures, sells,
and supports atomic layer deposition (“ALD”) equipment for scientific and industrial applications. Ultratech’s customers
are primarily located throughout the United States, Europe, China, Japan, Taiwan, Singapore, and Korea. With the
addition of Ultratech, we establish ourselves as a leading equipment supplier in the advanced packaging market, forming a
strong technology portfolio to address critical advanced packaging applications, as well as greatly increasing our critical
mass in the front-end semiconductor market. The results of Ultratech’s operations have been included in the consolidated
financial statements since the date of acquisition.
Business Description and Overview
Headquartered in Plainview, New York, we were organized as a Delaware corporation in 1989. We develop, manufacture,
sell, and support semiconductor process equipment to meet the demands of key global trends such as enhancing mobility,
increasing connectivity, and improving energy efficiency. Our primary technologies include metal organic chemical vapor
deposition, advanced packaging lithography, wet etch and clean, laser annealing, ion beam, molecular beam epitaxy, wafer
inspection, and atomic layer deposition systems. These technologies play an integral role in producing Light Emitting Diodes
(“LEDs”) for solid-state lighting and displays, and in the fabrication and packaging of advanced semiconductor devices. We
have sales and service operations across the Asia-Pacific region, Europe, and North America to address our customers’
needs.
We are focused on:
•
Providing differentiated semiconductor process equipment to address customers’ current production requirements
and next generation product development roadmaps;
•
•
•
Investing to win through focused research and development in markets that we believe provide significant growth
opportunities or are at an inflection point in semiconductor process equipment requirements, including LED, power
electronics, photonics, front-end semiconductor, and advanced packaging technologies;
Leveraging our sales channel and local process applications support teams to build strong strategic relationships
with technology leaders;
Expanding our services portfolio to improve the performance of our systems, including spare parts, upgrades, and
consumables to drive growth, reduce our customers’ cost of ownership, and improve customer satisfaction;
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•
•
•
Cross-selling our product portfolio across our broad customer base and end markets to both maximize sales
opportunities and diversify our business;
Utilizing a combination of outsourced and internal manufacturing strategies to flex manufacturing capacity through
industry investment cycles without compromising quality or performance; and
Pursuing partnerships and acquisitions to expand our product portfolio into new and adjacent markets to drive sales
growth.
Our products are sold to semiconductor and advanced packaging device manufacturers in the following four markets:
Advanced Packaging, MEMS & RF Filters; LED Lighting, Display & Compound Semiconductor; Front-End
Semiconductor; and Scientific & Industrial.
Markets
Our systems are used in the creation of a broad range of microelectronic components, including LEDs, micro-electro
mechanical systems (“MEMS”), radio frequency (“RF”) filters, power electronics, thin film magnetic heads (“TFMHs”),
laser diodes, 3D NAND logic, and other semiconductor devices. In addition to the creation of microelectronic
components, our systems are used in the advanced packaging of such components in applications such as flip chip, Fan
out Wafer Level Packaging (“FOWLP”), and other wafer level packaging approaches. Our customers who manufacture
these devices invest in our systems to develop next generation products and deliver more efficient, cost effective, and
advanced technological solutions. We operate in a cyclical business environment, and our customers’ buying patterns are
dependent upon industry trends. Our products are sold into multiple markets, and the following discussion focuses on the
trends that most influence our business within each of those markets.
Advanced Packaging, MEMS & RF Filters
Advanced Packaging includes a portfolio of wafer-level assembly technologies that enable the miniaturization and
performance improvement of electronic products, such as smartphones, smartwatches, and other mobile applications.
Demand for higher performance, increased functionality, smaller form factors, and lower power consumption in mobile
devices, consumer electronics, and high performance computing is driving the adoption of advanced packaging
technologies. Semiconductor Foundries (“Foundries”), Independent Device Manufacturers (“IDMs”), and Outsourced
Semiconductor Assembly and Test (“OSAT”) companies are implementing multiple advanced packaging approaches
including FOWLP, recently deployed in high-volume manufacturing and Through Silicon Via (“TSV”) to enable stacked
memory, 2.5D, and 3D packaging devices. This increasing demand trend in Advanced Packaging is encouraging as our
Lithography and Precision Surface Processing (“PSP”) products enable the process steps for Advanced Packaging.
MEMS devices are used for an increasing number of applications, including accelerometers for automobile airbags,
pressure sensors for medical uses, and gyroscopes for a variety of consumer products, such as gaming consoles and
mobile devices.
One of the fastest growing MEMS applications has been RF filters for mobile devices, driven by increasingly complex
wireless standards, the exponential growth of mobile data, and carrier aggregation. In order to address these growing
demands, the number of discrete RF filters in an average smartphone is expected to double from 50 to 100 by 2020. These
trends are positive for us, particularly for our PSP products, where our technology is enabling some of the most
challenging process steps, as well as our Ion Beam Etch (“IBE”) and Molecular Beam Epitaxy (“MBE”) products, which
are used to create Bulk Acoustic Wave (“BAW”) and Surface Acoustic Wave (“SAW”) RF filters.
LED Lighting, Display & Compound Semiconductor
LED Lighting technology has existed for more than 50 years; however, commercial adoption of LEDs was limited to
niche applications until the most recent decade. In the early 1990’s, researchers developed a process utilizing Gallium
Nitride (“GaN”) that created a low cost blue LED to produce white light. With that breakthrough, the LED industry
started, and the number of applications for LEDs began to expand.
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Since that time, the LED industry has experienced multiple growth cycles brought on by the adoption of LED technology
for consumer and commercial applications. The first wave of LED growth was driven by mobile phones, which
implemented the use of LED technology for display backlighting. The LED industry experienced its second period of
rapid growth as LEDs were adopted for TV display backlighting. The adoption of LEDs for solid state, general lighting
gave rise to a third wave of demand. There is a broader fourth wave of compound semiconductor growth including LEDs,
driven by ROY LED applications, optical communication and industrial applications requiring laser diodes, 3D sensing
vertical-cavity surface emitting lasers (“VCSELs”), micro-LED displays, 5G RF infrastructure adoption, and power
electronics.
Our metal organic chemical vapor deposition (“MOCVD”) technology is at the core of the manufacturing process for
GaN-based LEDs. We have benefited with each growth cycle, as LED producers invest in MOCVD process equipment to
capture share in these markets. Demand for our equipment has historically been cyclical in nature, influenced by multiple
factors, including: macroeconomic conditions; prices for LED chips; supply and demand dynamics; and our customers’
manufacturing plans. However, we expect the ongoing adoption of LED lighting to be a major driver in the need for
additional MOCVD capacity over the next several years.
MOCVD technology is equally important in the manufacturing of red, orange, and yellow (“ROY”) LEDs, which are used
increasingly for fine-pitch digital signage and automotive lighting applications. For these applications, our MOCVD
technology is used to deposit highly uniform Arsenic Phosphide (“AsP”) films which create amber and red hues. AsP
MOCVD technology is also used to produce multiple other devices in the photonics market such as infrared LEDs and
VCSELs used for optical data communication and 3D sensing. In addition to film deposition, photonics manufacturers
also employ cleaning and etching process steps. Our PSP wet etch and clean technologies provide such cleaning and
processing capabilities to photonics customers.
The Display market refers to LEDs or micro LEDs used directly for displays. Additionally, organic light emitting diode
(“OLED”) displays are part of the Display market and are used in applications such as digital signage, smartphones,
wearable and tablet displays, and TVs. Our MOCVD systems and MBE source technology is ideally suited for the display
market.
The Compound Semiconductor market refers to GaN-on-Silicon based power electronic devices and radio frequency
devices. Our MOCVD and PSP technologies are crucial in the manufacturing of GaN-on-Silicon based power electronic
devices. Global demand is increasing for advanced power electronics with greater energy efficiency, smaller footprints,
higher operating temperatures, faster switching capabilities, and greater reliability. These devices support many needs,
including more efficient IT servers, electrical motors, electric vehicles, wind turbines, and photovoltaic power inverters.
While silicon-based transistors are widely used in power electronic devices today, GaN-on-Silicon based power
electronics developed on MOCVD tools can potentially deliver higher performance (e.g., smaller power supply form
factors, higher efficiency, and faster switching speeds). In addition to depositing the critical GaN layer with our MOCVD
products, our PSP products address multiple etch and clean steps required to manufacture these advanced power
electronics devices. In recent years, global industry leaders in power electronics have focused on research and
development programs to commercialize this new technology. Device manufacturers will likely begin to transition from
development to production of these devices over the next couple of years; we can benefit from this transition as our
customers invest in process equipment to support this production ramp-up.
The Radio Frequency device portion of the Compound Semiconductor market is driven by demand for RF power
amplifiers in mobile devices. Our PSP products are used for process steps such as metal lift off and photo resist strip for
RF devices such as heterojunction bipolar transistors (“HBTs”) used in smartphones.
Front-End Semiconductor
Front-End Semiconductor refers to early process steps where transistors are formed directly on silicon. There are many
different process steps in forming integrated circuits, such as Deposition, Etching, Masking, and Doping, where the
microchips are created but still remain on the silicon wafer. Our Laser Spike Anneal products are well suited to assist our
customers in the doping process. Our IBE for front-end semiconductor applications has been demonstrated in Spin Torque
Transfer Magnetic Random Access Memory (“STT-MRAM”) applications. MRAM has many benefits over traditional
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random access memory such as its non-volatility, speed, endurance, and power consumption. Our Ion Beam Deposition
(“IBD”) products are well suited for the manufacture of Extreme Ultraviolet (“EUV”) mask blanks. Our ability to
precisely deposit high quality films with extremely low particulate levels make our IBD technology ideal for
manufacturing defect-free EUV photomask blanks. The front-end semiconductor industry is expected to adopt EUV
lithography to meet future device requirements. Future growth will depend on overall adoption of EUV technology. And
lastly, our 3D inspection products are used for shape inspection of 3D topographies in memory and logic applications,
which helps our customers improve their lithography and deposition processes.
Scientific & Industrial
The Scientific and Industrial markets include advanced materials research and a broad range of manufacturing
applications including high-power fiber lasers, infrared detectors, thin film magnetic heads on HDDs, and optical
coatings.
Our MBE systems are used by scientific research organizations and universities to drive new discoveries in the areas of
materials science. MBE enables precise epitaxial crystal growth for a wide variety of materials, which supports the
development of new performance materials used for emerging technologies. MBE technology is also used in the
manufacturing of products such as high-power lasers and infrared sensors. Our tools create highly uniform Gallium-
Arsenide (“GaAs”) or Indium-Phosphide (“InP”) film layers, which are critical to the performance of these devices. Our
PSP products are also used in the manufacture of infrared sensors.
Our Ion Beam Deposition, Ion Beam Etch, Physical Vapor Deposition (“PVD”), and lapping and dicing tools are used in
data storage applications, including HDDs that will continue to provide significant value for mass storage and will remain
an important part of large capacity storage applications. This is especially true for data center applications where large
volumes of data storage are required to serve an increasingly mobile population. In addition, our IBD tools are used to
produce high quality optical films for multiple applications including laser mirrors, optical filters, and anti-reflective
coatings. Our tools deposit thin layers of advanced materials on various substrates to alter how light is reflected and
transmitted.
Our ALD tools are sold into a variety of Scientific & Industrial market applications such as optical, semi/nano-electronics,
MEMS, nanostructures, and biomedical.
System products
Metal Organic Chemical Vapor Deposition Systems
We are the world’s leading supplier of MOCVD systems. MOCVD production systems are used to make GaN-based
devices (such as blue and green LEDs) and AsP-based devices (such as ROY LEDs), which are used in television and
computer display backlighting, general illumination, large area signage, specialty illumination, power electronics, and
many other applications. Our TurboDisc® EPIK® line of MOCVD systems enables cost per wafer savings for our
customers with a combined advantage of best operating uptime, low maintenance costs, and best-in-class wafer uniformity
and yield. In 2016, we introduced the TurboDisc K475i™ AsP MOCVD system, which offers best-in-class productivity
and yields for ROY LEDs, infra-red LEDs, and high-efficiency triple junction photovoltaic solar cell applications. Our
Propel™ PowerGaN™ MOCVD System (“Propel”) enables the development of highly-efficient GaN-based power
electronic devices that have the potential to accelerate the industry’s transition from research and development to high
volume production. The Propel system offers 200mm technology and incorporates single-wafer reactor technology for
outstanding film uniformity, yield, and device performance.
Advanced Packaging Lithography
We have a leading position in the Advanced Packaging lithography equipment market. The Advanced Packaging market
is driven by the need for improved performance, reduced power consumption, and smaller geometries for mobile and
automotive applications. In turn, these applications continue to demand increasingly complex packaging techniques from
IDMs, Foundries, and OSATs. Our Advanced Packaging tools are designed to optimize productivity for leading-edge
200mm and 300mm Advanced Packaging applications by enabling extremely reliable, cost-effective, high-volume
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manufacturing solutions. Our best-in-class yield coupled with outstanding resolution and depth of focus addresses all
leading edge requirements for Advanced Packaging applications such as redistribution layers (“RDLs”), Copper Pillar,
Micro-Bump, FOWLP, interposers, and TSVs to provide the lowest cost of ownership in the industry.
Precision Surface Processing Systems (Wet Etch and Clean)
Our PSP systems offer single wafer wet etch, clean, and surface preparation solutions which target high growth segments
in advanced packaging, MEMS, LEDs, and compound semiconductor markets. The WaferStorm platform is based on
PSP’s unique ImmJET™ technology, which provides improved performance at a lower cost of ownership than
conventional wet bench-only or spray-only approaches. This highly flexible platform targets solvent based cleaning
applications that require a significant level of process control and flexibility. The WaferEtch® platform provides highly
uniform, selective etching with onboard end point detection for improved process control and yield in bumping
applications. In addition, PSP has developed a state-of-the-art solution with the WaferEtch platform to address the
requirements of TSV reveal, in which the backside of a wafer is thinned to reveal the copper interconnects. PSP’s TSV
technology offers a significant cost of ownership reduction compared with dry etch processing by replacing up to four
separate process steps.
Laser Annealing Systems
The progression of Moore’s law has led semiconductor manufacturers to implement a variety of material and process
changes to overcome the technical hurdles related to shrinking of feature sizes in integrated circuits. Along with new
materials and smaller dimensions have come new process challenges. One such challenge has been new constraints on
thermal annealing processes. One example is the thermal annealing of dopants for activation, in order to form the
transistor junction, critical to the function and performance of a complementary metal-oxide semiconductor (“CMOS”)
logic integrated circuit. In this and other thermal process steps, traditional lamp-based annealing techniques have
challenges meeting the thermal budget (time/temperature regime) required by new materials and designs. Our Laser Spike
Anneal (“LSA”) systems meet the industry demand for millisecond time-scale annealing, heating the wafer up to
temperatures just below the Silicon melting point over a range of ultra-short timeframes (microseconds to milliseconds),
enabling thermal annealing solutions at the 65nm technology node and below. This advanced annealing technology
provides solutions to the difficult challenge of fabricating ultra-shallow junctions and highly activated source/drain
contacts at these advanced logic nodes. In addition, our proprietary hardware design enables outstanding temperature
uniformity across the wafer and die, by minimizing the pattern-density effect, thus reducing absorption variations.
We have also developed a next generation melt anneal technology targeted for annealing advanced logic devices at 7nm
and below. As FinFET devices scale below the 10nm node, achieving the performance targets has become a challenge. To
continue the roadmap, the industry is looking at new materials and the use of thermal processes that require nanosecond
time-scale thermal annealing with temperatures exceeding the melting point. To help address this concern we have
developed a unique (and patented) approach to nanosecond-scale thermal annealing. Our design utilizes two lasers; a
millisecond laser as a low thermal budget localized preheat and a nanosecond laser “on top” of the millisecond laser to
raise the peak temperature to the melt temperature of the material being processed beyond silicon melt. Similar to LSA,
the melt system architecture is targeted to reduce pattern effects and increase the process window. It is believed that
nanosecond annealing will be required to meet the device targets at 7nm and below; the initial application being explored
by customers is contact annealing aimed to improve reduce source/drain contact resistance, which has become a
performance bottleneck at the most advanced FinFET nodes, and as devices continue to scale, we see the application
space for our melt product expanding.
Ion Beam Etch and Deposition Systems
Our NEXUS® IBD systems utilize ion beam technology to deposit precise layers of thin films. IBD systems deposit high
purity thin film layers and provide excellent uniformity and repeatability. Our NEXUS IBE systems utilize a charged
particle beam consisting of ions to etch precise, complex features. The NEXUS systems may be included on our cluster
system platform to allow either parallel or sequential deposition/etch processes. These systems are used primarily by data
storage, semiconductor, and telecommunications device manufacturers in the fabrication of discrete and integrated
microelectronic devices.
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Our SPECTOR® Ion Beam Sputtering system was developed for high precision coatings and offers manufacturers state of
the art optical thickness monitoring, improved productivity, and target material utilization, for cutting-edge optical
interference coating applications. We also provide a broad array of ion beam sources. These technologies are applicable in
the HDD industry as well as for optical coatings and other end markets.
Molecular Beam Epitaxy Systems
Molecular beam epitaxy is the process of precisely depositing epitaxially-aligned atomically-thin crystalline layers, or
epilayers, of elemental materials onto a substrate in an ultra-high vacuum environment. We are the leading supplier of
MBE systems worldwide. Our MBE systems, sources, and components are used to develop and manufacture compound
semiconductor devices in a wide variety of applications such as high-power fiber lasers, infrared detectors, mobile phones,
radar systems, high efficiency solar cells, and basic materials science research. For many compound semiconductors,
MBE is the critical step of the fabrication process, ultimately determining device functionality and overall performance.
We offer a full complement of MBE systems customized for the specific end application depositing on single 3”
substrates up to fully automated production systems that can deposit on seven 6” substrates simultaneously. The
GENxplor® MBE system creates high quality epitaxial layers and is ideal for cutting-edge research on a wide variety of
materials including gallium arsenide, antimonides, nitrides, and oxides. The GENxcel® MBE system extends the same
performance of the GENxplor to 4” diameter substrates.
3D Wafer Inspection Systems
As the semiconductor industry continues its pursuit of increased productivity and performance by shrinking device
dimensions along Moore’s law, manufacturers are running into bottlenecks limited by fundamental materials properties
and lithographic resolution. The industry has opted for 3D integration schemes to circumvent these limitations (e.g.
Vertical NAND, HAR DRAM, Logic FinFET). The high volume manufacturing ramp of these 3D schemes requires low
cost, high performance 3D wafer inspection systems. The Superfast 3D Wafer Inspection System is a Coherent Gradient
Sensing (“CGS”) based 3D wafer inspection system that enables the wafer fab to inspect the patterned wafer at key
processing steps, enabling statistical process control as well as advanced process control (“APC”) for topography,
displacement, and stress.
Atomic Layer Deposition and Other Deposition Systems
ALD is a thin-film deposition method in which a film is deposited on a substrate uniformly with precise control down to
the atomic scale. Veeco offers a full suite of ALD systems for non-semiconductor front-end production applications
across a wide range of markets and applications such as energy, optical, electronics, MEMS, nanostructures, and
biomedical.
Other deposition systems including Physical Vapor Deposition, Diamond-Like Carbon Deposition, and Chemical Vapor
Deposition Systems. In addition, our Optium® products generally are used in “back-end” applications in data storage
fabrication facilities where TFMHs or “sliders” are fabricated. This equipment includes lapping tools, which enable
precise material removal within three nanometers, which is necessary for advanced TFMHs. We also manufacture dicing
tools that cut wafers into row bars and TFMHs.
Sales and Service
We sell our products and services worldwide primarily through various strategically located facilities in the United States,
Europe, and the Asia-Pacific region. We believe that our customer service organization is a significant factor in our success.
We provide service and support on a warranty, service contract, and an individual service-call basis. We believe that offering
timely support creates stronger relationships with customers and provides us with a significant competitive advantage.
Revenue from the sales of parts, upgrades, service, and support represented approximately 27%, 28%, and 22% of our net
sales for the years ended December 31, 2017, 2016, and 2015, respectively. Parts and upgrade sales represented
approximately 22%, 22%, and 18% of our net sales for those years, respectively, and service and support sales were 5%, 6%,
and 4% respectively.
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Customers
We sell our products to many of the world’s LED, MEMS, OSAT, HDD, and semiconductor manufacturers, as well as
research centers and universities. We rely on certain principal customers for a significant portion of our sales. Sales to
OSRAM Opto Semiconductors accounted for more than 10% of our total net sales for both 2017 and 2016; sales to San’an
Optoelectronics Co. and KAISTAR Lighting (Xiamen) Co. each accounted for more than 10% of our total net sales in 2015.
If any principal customer discontinues its relationship with us or suffers economic difficulties, our business prospects,
financial condition, and operating results could be materially and adversely affected.
Research and Development
Our research and development functions are focused on the timely creation of new products and enhancements to existing
products, both of which are necessary to maintain our competitive position. We collaborate with our customers to align our
technology and product roadmaps to customer requirements. Our research and development activities take place at our
facilities in San Jose, California; Waltham, Massachusetts; St. Paul, Minnesota; Somerset, New Jersey; Plainview, New
York; Horsham, Pennsylvania; and Singapore.
Our research and development expenses were approximately $82.0 million, $81.0 million, and $78.5 million, or
approximately 17%, 24%, and 16% of net sales for the years ended December 31, 2017, 2016, and 2015, respectively. These
expenses consisted primarily of salaries, project materials, and other product development and enhancement costs.
Suppliers
We outsource certain functions to third parties, including the manufacturing of some of our MOCVD and Ultratech systems.
While we primarily rely on one supplier for the manufacturing of these systems, we maintain a minimum level of internal
manufacturing capability for these systems. Refer to Item 1A, “Risk Factors,” for a description of risks associated with our
reliance on suppliers and outsourcing partners.
Backlog
Our backlog consists of orders for which we received a firm purchase order, a customer-confirmed shipment date within
twelve months, and a deposit when required. Our backlog increased to $334.3 million at December 31, 2017 from $209.2
million at December 31, 2016. During the year ended December 31, 2017, we increased backlog by approximately $41.6
million relating to backlog acquired from Ultratech, while adjusting for a decrease in backlog of approximately $2.0
million relating to orders that no longer met our booking criteria.
Competition
In each of the markets that we serve, we face substantial competition from established competitors, some of which have
greater financial, engineering, and marketing resources than we do, as well as from smaller competitors. In addition, many of
our products face competition from alternative technologies, some of which are more established than those used in our
products. Significant factors for customer selection of our tools include system performance, accuracy, repeatability, ease of
use, reliability, cost of ownership, and technical service and support. None of our competitors compete with us across all of
our product lines.
Our principal competitors include: Advanced Micro-Fabrication Equipment (AMEC); Aixtron; Canon Anelva; Grand
Plastics Technology Corporation; Leybold Optics; Mattson Technology; Riber; Rudolph Technologies; Scientech; Screen
Semiconductor Solutions; and Shanghai Micro Electronics Equipment.
Intellectual Property
Our success depends in part on our proprietary technology, and we have over 800 patents in the United States and other
countries and have additional applications pending for new inventions.
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We have patents and exclusive and non-exclusive licenses to patents owned by others covering certain of our products,
which we believe provide us with a competitive advantage. We have a policy of seeking patents on inventions concerning
new products and improvements as part of our ongoing research, development, and manufacturing activities. We believe that
there is no single patent or exclusive or non-exclusive license to patents owned by others that is critical to our operations, as
the success of our business depends primarily on the technical expertise, innovation, customer satisfaction, and experience of
our employees.
Refer to Item 1A, “Risk Factors,” for a description of risks associated with intellectual property.
Employees
At December 31, 2017 we had 1,014 employees, of which there were 280 in manufacturing and testing, 99 in sales and
marketing, 214 in service and product support, 260 in engineering and research and development, and 161 in information
technology, general administration, and finance. The success of our future operations depends on our ability to recruit and
retain engineers, technicians, and other highly skilled professionals who are in considerable demand. We feel that we have
adequate programs in place to attract, motivate, and retain our employees. We monitor industry practices to make sure that
our compensation and employee benefits remain competitive. We believe that our employee relations are good. Refer to Item
1A, “Risk Factors,” for a description of risks associated with employee retention and recruitment.
Financial Information about Segments and Geographic Areas
We operate as a single reportable segment and report our financial results in four geographic regions: the United States;
China; Europe, Middle East, and Africa (“EMEA”); and Rest of World (“ROW”). Refer to Note 18, “Segment Reporting
and Geographic Information,” in the Notes to the Consolidated Financial Statements for financial data pertaining to our
geographic operations. Refer to Item 1A, “Risk Factors,” for a description of risks relating to our geographic operations.
Available Information
Our corporate website address is www.veeco.com. All filings we make with the Securities and Exchange Commission
(“SEC”), including our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-
K, our proxy statements and any amendments thereto filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, are available for free in the Investor Relations section of our website as soon as
reasonably practicable after they are filed with or furnished to the SEC. Our SEC filings are available to be read or copied at
the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information about the operation of the
Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Our filings can also be obtained for free on
the SEC’s website at www.sec.gov. The reference to our website address does not constitute inclusion or incorporation by
reference of the information contained on our website in this Form 10-K or other filings with the SEC, and the information
contained on our website is not part of this document.
Item 1A. Risk Factors
Key Risk Factors That May Impact Future Results
Stockholders should carefully consider the risk factors described below. Any of these factors, many of which are beyond
our control, could materially and adversely affect our business, financial condition, operating results, cash flow, and stock
price.
Unfavorable market conditions may adversely affect our operating results.
Conditions of the markets in which we operate are volatile and have in the past, and may in the future, deteriorate
significantly. We have experienced and may continue to experience customer rescheduling and, to a lesser extent,
cancellations of orders for our products. Adverse market conditions relative to our products could result in:
•
reduced demand for our products;
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•
•
•
•
•
rescheduling and cancellations of orders for our products, resulting in negative backlog adjustments;
increased price competition leading to lower margin for our products;
increased competition from sellers of used equipment or lower-priced alternatives to our products;
increased inventory obsolescence;
an increase in uncollectable amounts due from our customers resulting in increased reserves for doubtful accounts
and write-offs of accounts receivable;
• disruptions in our supply chain as we reduce our purchasing volumes and limit our contract manufacturing
operations; and
• higher operating costs as a percentage of revenues.
If the markets in which we participate experience deteriorations or downturns, this could negatively impact our sales and
revenue generation, margins, operating expenses, and profitability.
We are exposed to the risks of operating a global business.
Most of our sales are to customers located outside of the United States, and we expect sales from non-U.S. markets to
continue to represent a significant portion of our sales in the future. Our non-U.S. sales and operations are subject to risks
inherent in conducting business outside the United States, many of which are outside our control including:
• political and social attitudes, laws, rules, regulations, and policies within countries that favor local companies over
U.S. companies, including government-supported efforts to promote the development and growth of local
competitors;
• differing legal systems and standards of trade which may not honor our intellectual property rights and which may
place us at a competitive disadvantage;
• pressures from foreign customers and foreign governments for us to increase our operations and sourcing in the
foreign country;
• multiple conflicting and changing governmental laws and regulations, including varying labor laws, tax regulations,
import/export controls, changes to trade treaties, possible trade wars, and other trade barriers and uncertainties;
•
reliance on various information systems and information technology to conduct our business, which may be
vulnerable to cyberattacks by third parties or breached due to employee error, misuse, or other causes that could
result in business disruptions, loss of or damage to intellectual property, transaction errors, processing inefficiencies,
or other adverse consequences should our security practices and procedures prove ineffective;
•
regional economic downturns, varying foreign government support, and unstable political environments;
• difficulties in managing a global enterprise, including staffing, managing distributors and representatives, and
repatriating cash;
longer sales cycles and difficulties in collecting accounts receivable; and
•
• different customs and ways of doing business.
These challenges, many of which are associated with sales into the Asia-Pacific region, have had and may continue to have a
material adverse effect on our business.
We may be unable to effectively enforce and protect our intellectual property rights.
Our success depends in part upon the protection of our intellectual property rights. We rely primarily on patent, copyright,
trademark, and trade secret laws, as well as nondisclosure and confidentiality agreements and other methods, to protect our
proprietary information, technologies, processes, and brand identity. We own various U.S. and international patents and have
additional pending patent applications relating to certain of our products and technologies. The process of seeking patent
protection is lengthy and expensive, and we cannot be certain that pending or future applications will actually result in issued
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patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial
advantage. In addition, our intellectual property rights may be circumvented, invalidated, or rendered obsolete by the rapid
pace of technological change, or through efforts by others to reverse engineer our products or design around patents that we
own. Policing unauthorized use of our products and technologies is difficult and time consuming and the laws of other
countries may not protect our proprietary rights as fully or as readily as U.S. laws. Given these limitations, our success will
depend in part upon our ability to innovate ahead of our competitors.
In addition, our outsourcing strategy requires that we share certain portions of our technology with our outsourcing partners,
which poses additional risks of infringement and trade secret misappropriation. Infringement of our rights by a third party,
possibly for purposes of developing and selling competing products, could result in uncompensated lost market and revenue
opportunities. Similar exposure could result in the event that former employees seek to compete with us through their
unauthorized use of our intellectual property and proprietary information. We cannot be certain that the protective steps and
measures we have taken will prevent the misappropriation or unauthorized use of our proprietary information and
technologies, nor can we be certain that applicable intellectual property laws, regulations, and policies will not be changed in
a manner detrimental to the sale or use of our products.
Litigation may be required to enforce our intellectual property rights, protect our trade secrets, and to determine the validity
and scope of proprietary rights of others. As a result of any such litigation, we could lose our ability to enforce one or more
patents, incur substantial costs, and jeopardize relationships with current or prospective customers or suppliers. Any action
we take to enforce or defend our intellectual property rights could absorb significant management time and attention, and
could otherwise negatively impact our operating results.
We may be subject to claims of intellectual property infringement by others.
We receive communications from time to time from other parties asserting the existence of patent or other rights which they
believe cover certain of our products. We also periodically receive notice from customers who believe that we are required to
indemnify them for damages they may incur related to infringement claims made against these customers by third parties.
Our customary practice is to evaluate such assertions and to consider the available alternatives, including whether to seek a
license, if appropriate. However, we cannot ensure that licenses can be obtained or, if obtained, will be on acceptable terms
or that costly litigation or other administrative proceedings will not occur. If we are not able to resolve a claim, negotiate a
settlement of the matter, obtain necessary licenses on commercially reasonable terms, or successfully prosecute and defend
our position, our business, financial condition and results of operations could be materially and adversely affected.
We may be unable to successfully integrate the Ultratech business and may not realize the anticipated benefits of the
acquisition.
On May 26, 2017, we completed the acquisition of Ultratech, Inc., merging two companies that formerly operated as
independent public companies. Significant management attention and resources have been devoted, and will need to be
devoted, to integrating our respective business operations and practices. The success of our acquisition of Ultratech will
depend in part on our ability to realize the anticipated benefits and revenue and cost synergies associated with this business
combination, which is subject to the following risks, among others:
• whether the combined businesses will perform as expected;
•
•
the possibility that we paid more for the acquisition of Ultratech than the value we will derive from the acquisition;
complexities associated with managing the combined businesses, including difficulties addressing possible
differences in corporate cultures and management philosophies and the challenge of integrating complex systems,
technology, networks, and other assets of each of the companies in a seamless manner that minimizes any adverse
impact on customers, suppliers, employees, and other business partners;
•
the potential loss of customers and strategic partners who may not wish to continue their relationships with the
combined company; and
• potential unknown liabilities and unforeseen or unanticipated costs.
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In connection with the accounting for the Ultratech acquisition, we recorded goodwill and other intangible assets of
approximately $539 million. Under U.S. generally accepted accounting principles, we must assess, at least annually and
potentially more frequently, whether the value of the goodwill and other indefinite-lived intangible assets have been
impaired. Finite-lived intangible assets will be assessed for impairment in the event of an impairment indicator. Any
reduction or impairment in the value of goodwill and other intangible assets will result in a charge against earnings, which
could materially and adversely affect our results of operations and financial performance.
The price of our common shares is volatile and could further decline.
The stock market in general and the market for technology stocks in particular has experienced significant volatility. The
trading price of our common shares has declined, and could continue to decline, independent of the overall market, and
shareholders could lose all or a substantial part of their investment. The market price of our common shares could fluctuate
significantly in response to several factors, including among others:
• difficult macroeconomic conditions, unfavorable geopolitical events, and general stock market uncertainties, such as
those occasioned by a global liquidity crisis and a failure of large financial institutions;
the emergence of competitors and competing technologies;
actual or anticipated variations in our results of operations;
receipt of large orders or cancellations of orders for our products;
issues associated with the performance and reliability of our products;
•
•
•
•
•
announcements of financial developments or technological innovations;
• our failure to meet the performance estimates of investment research analysts;
•
•
•
•
•
the commencement of, and rulings on, litigation and legal proceedings;
strategic transactions, such as acquisitions, divestitures, and spin-offs;
the dilutive impact of our Convertible Senior Notes; and
the occurrence of major catastrophic events.
changes in recommendations and financial estimates by investment research analysts;
As with many technology companies, the price of our common shares has fluctuated significantly in the past and is likely to
be volatile in the future. Securities class action litigation is often brought against a company following periods of volatility in
the market price of its securities. If similar litigation were to be pursued against us, it could result in substantial costs and a
diversion of management’s attention and resources, which could materially and adversely affect our financial condition,
results of operations, and liquidity.
We face significant competition.
We face significant competition throughout the world, which may increase as certain markets in which we operate continue
to evolve. Some of our competitors have greater financial, engineering, manufacturing, and marketing resources than us.
Other competitors are located in regions with lower labor costs and other reduced costs of operation. In addition, our ability
to compete in foreign countries against local manufacturers may be hampered by nationalism, social attitudes, laws,
regulations, and policies within such countries that favor local companies over U.S. companies or that are otherwise designed
to promote the development and growth of local competitors. Furthermore, we face competition from smaller emerging
equipment companies whose strategy is to provide a portion of the products and services we offer, with a focused approach
on innovative technology for specialized markets. New product introductions or enhancements by us or our competitors
could cause a decline in sales or loss of market acceptance of our existing or prior generation products. Increased competitive
pressure could also lead to intensified price competition resulting in lower margins.
To remain competitive, we may enter into strategic alliances with customers, suppliers, and other third parties to explore new
market opportunities and possible technological advancements. These alliances may require significant investments of
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capital and other resources and often involve the exchange of sensitive confidential information. The success of these
alliances may depend on factors over which we have limited control and will likely require ongoing cooperation and good
faith efforts from our strategic partners. Strategic alliances are inherently subject to significant risks, and the inability to
effectively manage these risks could materially and adversely affect our business and operating results.
We operate in industries characterized by rapid technological change.
Each of the industries in which we operate is subject to rapid technological change. Our ability to remain competitive
depends on our ability to enhance existing products and develop and manufacture new products in a timely and cost effective
manner and to accurately predict technology transitions. New product development commitments must be made well in
advance of sales, and we must anticipate the future demand for products when selecting which development programs to
fund and pursue. Our financial results depend on the successful introduction of new products, many of which require the
achievement of increasingly stringent technical specifications. We may not be successful in selecting, developing,
manufacturing, and marketing new products and new technologies or in enhancing our existing products. Our performance
may be adversely affected if we are unable to accurately predict evolving market trends and related customer needs and to
effectively allocate our resources among new and existing products and technologies.
We are also exposed to potential risks associated with unexpected product performance issues. Our product designs and
manufacturing processes are complex and could contain unexpected product defects, especially when products are first
introduced. Unexpected product performance issues could result in significant costs and damages, including increased
service and warranty expenses, the need to provide product replacements or modifications, reimbursement for damages
caused by our products, product recalls, related litigation, product write-offs, and disposal costs. These costs could be
substantial and our reputation could be harmed, resulting in a reduced demand for our products and a negative effect on our
business, financial condition, and results of operations.
Our sales to manufacturers are highly dependent on sales of consumer electronics applications, which can experience
significant volatility due to seasonal and other factors.
The demand for LEDs, HDDs, semiconductors, and other devices is highly dependent on sales of consumer electronics, such
as televisions, computers, tablets, digital video recorders, smartphones, cell phones, and other mobile devices. Manufacturers
of LEDs are among our largest customers and account for a substantial portion of our revenue. Factors that could influence
the levels of spending on consumer electronic products include consumer confidence, access to credit, volatility in fuel and
other energy costs, conditions in the residential real estate and mortgage markets, labor and healthcare costs, and other
macroeconomic factors affecting consumer spending behavior. These and other economic factors have had and could
continue to have a material adverse effect on the demand for our customers’ products and, in turn, on our customers’ demand
for our products and services. Furthermore, manufacturers of LEDs have in the past overestimated their potential for market
share growth. If this growth is overestimated, we may experience cancellations of orders in backlog, rescheduling of
customer deliveries, obsolete inventory, and liabilities to our suppliers for products no longer needed.
In addition, the demand for our customers’ products can be even more volatile and unpredictable due to the possibility of
competing technologies, such as flash memory as an alternative to HDDs. Unpredictable fluctuations in demand for our
customers’ products or rapid shifts in demand from our customers’ products to alternative technologies could materially and
adversely impact our future results of operations.
We have a concentrated customer base, located primarily in a limited number of regions, which operate in highly
concentrated industries.
Our customer base continues to be highly concentrated. Orders from a relatively limited number of customers have
accounted for, and likely will continue to account for, a substantial portion of our net sales, which may lead customers to
demand pricing and other terms less favorable to us. Customer consolidation activity involving some of our largest
customers could result in an even greater concentration of our sales in the future. Management changes at key customer
accounts could result in a loss of future sales due to vendor preferences or other reasons and may introduce new challenges in
managing customer relationships.
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If a principal customer discontinues its relationship with us or suffers economic setbacks, our business, financial condition,
and operating results could be materially and adversely affected. Our ability to increase sales in the future will depend in part
upon our ability to obtain orders from new customers and we cannot be certain that we will be successful in these efforts. In
addition, because a relatively small number of large manufacturers, many of whom are our customers, dominate the
industries in which they operate, it may be especially difficult for us to replace these customers if we lose their business. A
significant portion of orders in our backlog are orders from our principal customers.
In addition, a substantial investment is required by customers to install and integrate capital equipment into a production line.
As a result, once a manufacturer has selected a particular vendor to supply capital equipment, the manufacturer will often
attempt to consolidate its other capital equipment requirements with the same vendor. Accordingly, if a customer selects a
competitor’s product over ours, we could experience difficulty selling to that customer for a significant period of time.
Furthermore, we do not have long-term contracts with our customers. As a result, our agreements with our customers do not
provide assurance of future sales, and we are exposed to competitive price pressures on new orders we attempt to obtain.
Our customer base is also highly concentrated in terms of geography, and the majority of our sales are to customers located
in a limited number of countries. Dependence upon sales emanating from a limited number of regions increases our risk of
exposure to local difficulties and challenges, such as those associated with regional economic downturns, political instability,
fluctuating currency exchange rates, natural disasters, social unrest, pandemics, terrorism, and acts of war. Our reliance upon
customer demand arising primarily from a limited number of countries could materially and adversely impact our future
results of operations.
A further reduction or elimination of foreign government subsidies and economic incentives may adversely affect the
future order rate for our MOCVD equipment.
We generate a significant portion of our revenue in China. In recent years, the Chinese government has provided various
incentives to encourage the development of the LED industry, including subsidizing a portion of the purchase cost of
MOCVD equipment. These subsidies have enabled and encouraged certain customers in this region to purchase more of our
MOCVD equipment than these customers might have purchased without these subsidies. The availability and amount of
these subsidies has been reduced over time and may end at some point in the future. A further reduction or elimination of
these incentives may result in a reduction in future orders for our MOCVD equipment in this region, which could materially
and adversely affect our business, financial condition, and results of operations. In addition, in an effort to promote Chinese
competition, the Chinese government could impose restrictions on the receipt of these subsidies, including requirements that
the purchased equipment be sourced locally.
A related risk pertains to the fact that many customers use or had planned to use Chinese government subsidies, in addition
to other incentives from the Chinese government, to build new manufacturing facilities or to expand existing manufacturing
facilities. Delays in the start-up of these facilities or the cancellation of construction plans altogether, together with other
related issues pertaining to customer readiness, could adversely impact the timing of our revenue recognition, could result in
order cancellations, a reduction in our order backlog, and could have other negative effects on our business, financial
condition, and results of operations.
The cyclicality of the industries we serve directly affects our business.
Our business depends in large part upon the capital expenditures of manufacturers in the LED, mobile communication, data
storage, and other device markets. We are subject to the business cycles of these industries, the timing, length, and volatility
of which are difficult to predict. These industries have historically been highly cyclical and have experienced significant
economic downturns in the last decade. As a capital equipment provider, our revenue depends in large part on the spending
patterns of these customers, who often delay expenditures or cancel or reschedule orders in reaction to variations in their
businesses or general economic conditions. In downturns, we must be able to quickly and effectively align our costs with
prevailing market conditions, as well as motivate and retain key employees. However, because a portion of our costs are
fixed, our ability to reduce expenses quickly in response to revenue shortfalls may be limited. Downturns in one or more of
these industries have had and will likely have a material adverse effect on our business, financial condition, and operating
results. Alternatively, during periods of rapid growth, we must be able to acquire and develop sufficient manufacturing
capacity to meet customer demand and attract, hire, assimilate, and retain a sufficient number of qualified people. Our net
15
sales and operating results may be negatively affected if our customers experience economic downturns or slowdowns in
their businesses.
The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate
significantly.
We derive a substantial portion of our net sales in any fiscal period from the sale of a relatively small number of high-priced
systems. As a result, the timing of recognition of revenue for a single transaction could have a material effect on our sales
and operating results for a particular fiscal period. As is typical in our industry, orders, shipments, and customer acceptances
often occur during the last few weeks of a quarter. As a result, a delay of only a week or two can impact which period
revenue is reported and can cause volatility in our revenue for a given reporting period. Our quarterly results have fluctuated
significantly in the past and we expect this trend to continue. If our orders, shipments, net sales, or operating results in a
particular quarter do not meet expectations, our stock price may be adversely affected as well.
Our sales cycle is long and unpredictable.
Historically, we have experienced long and unpredictable sales cycles (the period between our initial contact with a potential
customer and the time that we recognize revenue for resulting sales to that customer). Our sales cycle can exceed twelve
months. The timing of an order often depends on our customer’s capital expenditure budget, over which we have no control.
In addition, the time it takes us to build a product to customer specifications typically ranges from three to six months. When
coupled with the fluctuating amount of time required for shipment, installation, and final acceptance, our sales cycles often
vary widely, and these variations can cause fluctuations in our operating results. As a result of our lengthy sales cycles, we
may incur significant research, development, selling, general, and administrative expenses before we generate revenue for
these products. We may never generate the anticipated revenue if a customer cancels or otherwise changes its purchase plans,
which could have an adverse effect on our business.
Our backlog is subject to customer cancellation or modification which could result in decreased sales, increased
inventory obsolescence, and liabilities to our suppliers for products no longer needed.
Customer purchase orders may be cancelled or rescheduled by the customer, sometimes with limited or no penalties, which
may result in increased or unrecoverable costs for the Company. We adjust our backlog for such cancellations, contract
modifications, and delivery delays that result in a delivery period in excess of one year, among other items. A downturn in
one or more of our businesses could result in an increase in order cancellations and postponements.
We write-off excess and obsolete inventory based on historical trends, future usage forecasts, and other factors including the
amount of backlog we have on hand. If our backlog is canceled or modified, our estimates of future product demand may
prove to be inaccurate, in which case we may have understated the write-off required for excess and obsolete inventory. In
the future, if we determine that our inventory is overvalued, we will be required to recognize associated costs in our financial
statements at the time of such determination. In addition, we place orders with our suppliers based on our customers’ orders.
If our customers cancel their orders with us, we may not be able to cancel our orders with our suppliers. Any such charges
could be materially adverse to our results of operations and financial condition.
Our failure to estimate customer demand accurately could result in inventory obsolescence, liabilities to our suppliers for
products no longer needed, and manufacturing interruptions or delays which could affect our ability to meet customer
demand.
The success of our business depends in part on our ability to accurately forecast and supply equipment and services that meet
the rapidly changing technical and volume requirements of our customers. To meet these demands, we depend on the timely
delivery of parts, components, and subassemblies from our suppliers. Uncertain worldwide economic conditions and market
instabilities make it difficult for us (and our customers) to accurately forecast future product demand. If actual demand for
our products is different than expected, we may purchase more or fewer parts than necessary or incur costs for canceling,
postponing, or expediting delivery of parts. If we overestimate the demand for our products, excess inventory could result
which could be subject to heavy price discounting, which could become obsolete, and which could subject us to liabilities to
our suppliers for products no longer needed. Similarly, we may be harmed in the event that our competitors overestimate the
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demand for their products and engage in heavy price discounting practices as a result. In addition, the volatility of demand
for capital equipment increases capital and other risks for companies in our supply chain.
Furthermore, certain key parts may be subject to long lead-times or may be obtainable only from a single supplier or limited
group of suppliers, and some sourcing and assembly is provided by suppliers located in countries other than the United
States. We may experience significant interruptions in our manufacturing operations, delays in our ability to timely deliver
products or services, increased costs, or customer order cancellations as a result of:
the failure or inability of our suppliers to timely deliver quality parts;
•
• volatility in the availability and cost of materials;
• difficulties or delays in obtaining required import or export approvals;
•
• natural disasters such as earthquakes, tsunamis, floods, or storms; or
• other causes such as regional economic downturns, pandemics, political instability, terrorism, or acts of war, that
information technology or infrastructure failures;
could result in delayed deliveries, manufacturing inefficiencies, increased costs, or order cancellations.
In addition, in the event of an unanticipated increase in demand for our products, our need to rapidly increase our business
and manufacturing capacity may be limited by working capital constraints of our suppliers, which may cause or exacerbate
interruptions in our manufacturing and supply chain operations. Any or all of these factors could materially and adversely
affect our business, financial condition, and results of operations.
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.
To better align our costs with market conditions, increase the percentage of variable costs relative to total costs, and to
increase productivity and operational efficiency, we have outsourced certain functions to third parties, including the
manufacture of several of our systems. While we maintain some level of internal manufacturing capability for these systems,
we rely heavily on our outsourcing partners to perform their contracted functions to allow us flexibility to adapt to changing
market conditions, including periods of significantly diminished order volumes. If our outsourcing partners do not perform as
required, or if our outsourcing model does not allow us to realize the intended cost savings and flexibility, our results of
operations (and those of our third party providers) may be adversely affected. Disputes and possibly litigation involving third
party providers could result and we could suffer damage to our reputation. Dependence on contract manufacturing and
outsourcing may also adversely affect our ability to bring new products to market. Although we attempt to select reputable
providers, it is possible that one or more of these providers could fail to perform as we expect. If we do not effectively
manage our outsourcing strategy or if third party providers do not perform as anticipated, we may not realize the benefits of
productivity improvements and we may experience operational difficulties, increased costs, manufacturing and installation
interruptions or delays, inefficiencies in the structure and operation of our supply chain, loss of intellectual property rights,
quality issues, increased product time-to-market, and an inefficient allocation of our human resources, any or all of which
could materially and adversely affect our business, financial condition, and results of operations.
We rely on a limited number of suppliers, some of whom are our sole source for particular components.
Certain of the parts, components, and sub-assemblies included in our products are obtained from a single source or a limited
group of suppliers. Our inability to develop alternative sources, as necessary, could result in a prolonged interruption in our
ability to supply related products, a failure on our part to meet the demands our customers, and a significant increase in the
price of related products, which could adversely affect our business, financial condition, and results of operations.
Our inability to attract, retain, and motivate employees could have a material adverse effect on our business.
Our success depends in part upon our ability to attract, retain, and motivate employees, including those in executive,
managerial, finance, engineering, and marketing positions, as well as highly skilled and qualified technical personnel.
Attracting, retaining, and motivating such qualified personnel may be difficult due to challenging industry conditions,
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competition for such personnel by other technology companies, consolidations and relocations of operations, and workforce
reductions, and there can be no assurance that we will be successful in recruiting or retaining key personnel. We have entered
into employment agreements with certain key personnel but our inability to attract, retain, and motivate key personnel could
have a material adverse effect on our business, financial condition, and results of operations.
We are exposed to risks associated with business combinations, acquisitions, and strategic investments.
We have completed several significant acquisitions and investments in the past and we will consider new opportunities in the
future. Acquisitions and investments involve numerous risks, many of which are unpredictable and beyond our control,
including the following:
• difficulties and increased costs in integrating the personnel, operations, technologies, and products of acquired
companies;
• diversion of management’s attention and disruption of ongoing businesses;
•
the inability to complete proposed transactions as anticipated, resulting in obligations to pay professional and other
expenses, including any applicable termination fees;
• potential loss of key employees of acquired companies, especially if a relocation or change in responsibilities is
involved;
the failure to realize expected synergies;
• difficulties in managing geographically dispersed operations in a cost effective manner;
•
• unknown, underestimated, and undisclosed commitments or liabilities;
•
• other adverse effects on our business, including the potential impairment and write-down of amounts capitalized as
increased amortization expenses relating to intangible assets; and
intangible assets and goodwill as part of the acquisition, as a result of such matters as technological advancements or
worse-than-expected performance by the acquired company.
As discussed above with respect to our recent acquisition of Ultratech, our inability to effectively manage these risks could
materially and adversely affect our business, financial condition, and results of operations. In addition, if we issue equity
securities to pay for an acquisition or investment, the ownership percentage of our then-current shareholders would be
reduced and the value of the shares held by these shareholders could be diluted, which could adversely affect the price of our
stock. If we use cash to pay for an acquisition or investment, the payment could significantly reduce the cash that would be
available to fund our operations or other purposes, which could have a negative effect on our business.
We may be unable to obtain required export licenses for the sale of our products.
Products which are either manufactured in the United States or based on U.S. technology are subject to the U.S. Export
Administration Regulations (“EAR”) when exported to and re-exported from international jurisdictions, in addition to the
local jurisdiction’s export regulations applicable to individual shipments. Currently, our MOCVD, MBE, and certain other
systems and products are controlled for export under the EAR. Licenses or proper license exceptions may be required for the
shipment of our products to certain customers or countries. Obtaining an export license or determining whether an export
license exception exists often requires considerable effort by us and cooperation from the customer, which can add time to
the order fulfillment process. We may be unable to obtain required export licenses or unable to qualify for export license
exceptions and, as a result, we may be unable to export products to our customers. The administrative processing, potential
delay and risk of ultimately not obtaining required export approvals pose a particular disadvantage to us relative to our non-
U.S. competitors who are not required to comply with U.S. export controls. Non-compliance with the EAR or other
applicable export regulations could result in a wide range of penalties including the denial of export privileges, fines,
criminal penalties, and the seizure of commodities. In the event that an export regulatory body determines that any of our
shipments violate applicable export regulations, we could be fined significant sums and our export capabilities could be
restricted, which could have a material adverse impact on our business.
18
Our operating results may be adversely affected by tightening credit markets.
As a global company with worldwide operations, we are subject to volatility and adverse consequences associated with
economic downturns in different parts of the world. In the event of a downturn, many of our customers may delay or further
reduce their purchases of our products and services. If negative conditions in the credit markets prevent our customers from
obtaining credit or necessary financing, product orders in these channels may decrease, which could result in lower revenue.
In addition, we may experience cancellations of orders in backlog, rescheduling of customer deliveries, and attendant pricing
pressures. If our suppliers face challenges in obtaining credit, in selling their products, or otherwise in operating their
businesses, their ability to continue to supply materials to us may be negatively affected.
In addition, we finance some of our sales through trade credit. In addition to ongoing credit evaluations of our customers’
financial condition, we seek to mitigate our credit risk by obtaining deposits and letters of credit on certain of our sales
arrangements. We could suffer significant losses if a customer whose accounts receivable we have not secured fails or is
otherwise unable to pay us, or if financial institutions providing letters of credit become insolvent. A loss in collections on
our accounts receivable would have a negative impact on our financial condition and results of operations.
We may be exposed to liabilities under the Foreign Corrupt Practices Act and other similar laws.
We are subject to the Foreign Corrupt Practices Act of 1977 (“FCPA”) and other laws that prohibit improper payments or
offers of payments to foreign government officials, as defined by the statute, for the purpose of obtaining or retaining
business. In addition, many of our customers have policies limiting or prohibiting us from providing certain types or amounts
of entertainment, meals, or gifts to their employees. It is our policy to implement safeguards to discourage these practices by
our employees and representatives. However, our safeguards may prove to be ineffective and our employees, consultants,
sales agents, or distributors may engage in conduct for which we may be held responsible. In addition, we may acquire a
company that has engaged in unlawful conduct in the past, and be held responsible for this conduct through successor
liability principles. Violations of the FCPA or similar laws or similar customer policies may result in severe criminal or civil
sanctions or the loss of supplier privileges to a customer and we may be subject to other liabilities, which could negatively
affect our business, financial condition, and results of operations.
We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act and
any delays or difficulties in satisfying these requirements or negative reports concerning our internal controls could
adversely affect our future results of operations and our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must include in our Annual Report on Form 10-K a report by
management on the effectiveness of our internal control over financial reporting. Ongoing compliance with this requirement
is complex, costly, time-consuming, and is subject to significant judgment. If our internal controls are ineffective or if our
management does not timely assess the adequacy of such internal controls, our ability to file timely and accurate periodic
reports may be impeded. Any delays in filing may cause us to face the following risks and concerns, among others:
•
•
•
•
•
concern on the part of our customers, partners, investors, and employees about our financial condition and filing
delay status, including the potential loss of business opportunities;
significant time and expense required to complete delayed filings and the distraction of our senior management team
and board of directors as we work to complete delayed filings;
investigations by the SEC and other regulatory authorities of the Company and our management;
limitations on our ability to raise capital;
suspension or termination of our stock listing on The NASDAQ Stock Market and the removal of our stock as a
component of certain stock market indices; and
• general reputational harm.
Any or all of the foregoing could result in the commencement of stockholder lawsuits against the Company. Any such
litigation, as well as any proceedings that could arise as a result of a filing delay and the circumstances which gave rise to it,
may be time consuming and expensive, may divert management attention from the conduct of our business, could have a
19
material adverse effect on our business, financial condition, and results of operations, and may expose us to costly
indemnification obligations to current or former officers, directors, or other personnel, regardless of the outcome of such
matters, which may not be adequately covered by insurance.
Changes in accounting pronouncements or taxation rules or practices may adversely affect our financial results.
Changes in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results.
New accounting pronouncements and taxation rules can have a material impact on effective tax rates, results of operations,
and our financial condition. On December 22, 2017, President Trump signed into law the statute commonly referred to as the
Tax Cuts and Jobs Act (“2017 Tax Act”), which makes broad and complex changes to the U.S. tax code. As we collect and
prepare necessary data, and interpret the 2017 Tax Act and any additional guidance issued by the IRS or other standard-
setting bodies, we may make adjustments to the provisional amounts in accordance with Staff Accounting Bulletin No. 118
(“SAB 118”), which provides SEC staff guidance for the application of ASC 740 in the reporting period in which the 2017
Tax Act was signed into law. This change could materially affect our financial position and tax attributes carryforward. In
addition, varying interpretations of accounting pronouncements or taxation practices, and the questioning of our current or
past practices (such as those associated with our transfer pricing), may adversely affect our reported financial results.
Our income taxes may change.
We are subject to income tax on a jurisdictional or legal entity basis and significant judgment is required in certain instances
to allocate our taxable income to a jurisdiction and to determine the related income tax expense and benefits. Losses in one
jurisdiction generally may not be used to offset profits in other jurisdictions. As a result, changes in the mix of our earnings
(or losses) between jurisdictions, among other factors, could alter our overall effective income tax rate, possibly resulting in
significant tax rate increases.
We are regularly audited by various tax authorities. Income tax audit assessments or changes in tax laws, regulations, or
other interpretations may result in increased tax provisions which could materially affect our operating results in the period
or periods in which such determinations are made or changes occur.
In addition, our effective tax rate could increase if we determine that it is no longer more likely than not that we are able to
realize our remaining net deferred tax assets, if we are unable to generate sufficient future taxable income in certain
jurisdictions, or if we are otherwise required to increase our valuation allowances against our deferred tax assets.
We may be required to take additional impairment charges on assets.
We are required to assess goodwill and indefinite-lived intangible assets annually for impairment, or on an interim basis
whenever certain events occur or circumstances change, such as an adverse change in business climate or a decline in the
overall industry, that would more likely than not reduce the fair value below its carrying amount. We are also required to test
our long-lived assets, including acquired intangible assets and property, plant, and equipment, for recoverability and
impairment whenever there are indicators of impairment such as an adverse change in business climate.
As part of our long term strategy, we may pursue future acquisitions of other companies or assets which could potentially
increase our assets. Adverse changes in business conditions could materially impact our estimates of future operations and
result in impairment charges to these assets. A significant decline in the market price of our common stock could indicate a
decline in the fair value of our reporting unit such that goodwill becomes impaired. If our assets are impaired, our financial
condition and results of operations could be materially and adversely affected.
We have indebtedness in the form of convertible senior notes which could adversely affect our financial position, prevent
us from implementing our strategy, and dilute the ownership interest of our existing shareholders.
In January of 2017, we issued $345 million of 2.70% Convertible Senior Notes due 2023 (“Convertible Senior Notes”). The
Convertible Senior Notes are convertible into Company common stock at an initial conversion rate of 24.98 shares of
Company common stock per $1,000 principal amount of the Convertible Senior Notes. The Company is obligated to
repurchase the Convertible Senior Notes upon the occurrence of certain events described in the indenture relating to the
Convertible Senior Notes. The degree to which we are leveraged could have negative consequences, including but not
20
limited to the following:
• we may be more vulnerable to economic downturns, less able to withstand competitive pressures, and less flexible in
responding to changing business and economic conditions;
• our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general
corporate, and other purposes may be limited;
•
a substantial portion of our cash flows from operations in the future may be required for the payment of the principal
amount of our existing indebtedness when it becomes due; and
• we may elect to make cash payments upon any conversion of the Convertible Senior Notes, which would reduce our
cash on hand.
Our ability to meet our payment obligations under the Convertible Senior Notes depends on our ability to generate
significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative,
regulatory, and other factors that are beyond our control. There can be no assurance that our business will generate cash flow
from operations, or that additional capital will be available to us, in an amount sufficient for us to meet our debt payment
obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations,
we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional
capital. If we were unable to implement one or more of these alternatives, we may be unable to meet our debt payment
obligations, which could have a material adverse effect on our business, results of operations, and financial condition.
Furthermore, if the Convertible Senior Notes are converted into shares of Company common stock, the issuance of
additional shares of Company common stock would dilute the ownership interest of our existing shareholders and could have
a dilutive effect on our net income per share to the extent that the price of our common stock exceeds the conversion price of
the Convertible Senior Notes. In addition, any sales in the public market of our common stock issuable upon conversion of
the Convertible Senior Notes could adversely affect prevailing market prices of our common stock.
The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Senior Notes,
could have a material effect on our reported financial results.
Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must
separately account for the liability and equity components of certain convertible debt instruments (such as the Convertible
Senior Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic
interest cost. The effect of ASC 470-20 on the accounting for the Convertible Senior Notes is that the equity component is
required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and
the value of the equity component would be treated as original issue discount for purposes of accounting for the debt
component of the Convertible Senior Notes. As a result, we will be required to record a greater amount of non-cash interest
expense in current periods presented as a result of the amortization of the discounted carrying value of the Convertible Senior
Notes to their face amount over the term of the Convertible Senior Notes. We will report lower net income in our financial
results because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and
the instrument’s coupon interest, which could adversely affect our financial results, the trading price of our common stock,
and the trading price of the Convertible Senior Notes.
In addition, under certain circumstances convertible debt instruments (such as the Convertible Senior Notes) that may be
settled entirely or partly in cash can be accounted for utilizing the treasury stock method, the effect of which is that the shares
issuable upon conversion of the Convertible Senior Notes are not included in the calculation of diluted earnings per share
except to the extent that the conversion value of the Convertible Senior Notes exceeds their principal amount. Under the
treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of
common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We
cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method or that
we will continue to expect to settle the principal balance in cash. If we are unable to use the treasury stock method in
accounting for the shares issuable upon conversion of the Convertible Senior Notes, our diluted earnings per share could be
adversely affected.
21
We are subject to foreign currency exchange risks.
We are exposed to foreign currency exchange rate risks that are inherent in our anticipated sales, sales and purchase
commitments, and assets and liabilities that are denominated in currencies other than the U.S. dollar. Although we attempt to
mitigate our exposure to fluctuations in currency exchange rates, hedging activities may not always be available or adequate
to mitigate the impact of our exchange rate exposure. Failure to sufficiently hedge or otherwise manage foreign currency
risks properly could materially and adversely affect our financial condition, results of operations, and liquidity.
Our previously announced share repurchase program could affect the price of our common stock and increase volatility
and may be suspended or terminated at any time, which may result in a decrease in the trading price of our common
stock.
Repurchases pursuant to our share repurchase program could affect our stock price and increase its volatility. The existence
of a share repurchase program could also cause our stock price to be higher than it would be in the absence of such a
program and could potentially reduce the market liquidity for our stock. There can be no assurance that any share
repurchases will enhance stockholder value because the market price of our common stock may decline below the levels at
which we repurchased shares of common stock. Although our share repurchase program is intended to enhance long term
stockholder value, short term stock price fluctuations could reduce the program’s effectiveness. Furthermore, the program
does not obligate the Company to repurchase any dollar amount or number of shares of common stock, and may be
suspended or discontinued at any time and any suspension or discontinuation could cause the market price of our stock to
decline.
If we are subject to cyber-attacks we could incur substantial costs and, if such attacks are successful, we could incur
significant liabilities, reputational harm, and disruption to our operations.
We manage, store, and transmit proprietary information and sensitive data relating to our operations. We may be subject to
breaches of the information technology systems we use for these purposes. Experienced computer programmers and hackers
may be able to penetrate our network security and misappropriate and compromise our confidential information (and third
party confidential information), create system disruptions, or cause shutdowns. Computer programmers and hackers also
may be able to develop and deploy viruses, worms, and other malicious software programs that attack our systems or our
products, or that otherwise exploit security vulnerabilities.
The costs to address the foregoing security problems and security vulnerabilities before or after a cyber-incident could be
significant. Our remediation efforts may not be successful and could result in interruptions, delays, a cessation of service, and
a loss of existing or potential customers, impeding our sales, manufacturing, distribution, and other critical functions. In
addition, breaches of our security measures and the unapproved dissemination of proprietary information or sensitive data
about us, our customers or other third parties, could expose us, our customers and others to a risk of loss or misuse of this
information, result in litigation and potential liability for us, damage our reputation, and otherwise harm our business.
We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company
by another company more difficult.
We have adopted, and may in the future adopt, certain measures that may have the effect of delaying, deferring, or
preventing a takeover or other change in control of our Company, which a holder of our common stock might not consider to
be in the holder’s best interest. These measures include:
•
•
•
“blank check” preferred stock;
a classified board of directors; and
certain other certificate of incorporation and bylaws provisions.
Our board of directors has the authority to issue up to 500,000 shares of preferred stock and to fix the rights (including voting
rights), preferences and privileges of these shares (“blank check” preferred). Such preferred stock may have rights, including
economic rights, senior to our common stock. As a result, the issuance of the preferred stock could have a material adverse
22
effect on the price of our common stock and could make it more difficult for a third party to acquire a majority of our
outstanding common stock.
Our board of directors is divided into three classes with each class serving a staggered three-year term. The existence of a
classified board makes it more difficult for our shareholders to change the composition of our board of directors, and
therefore the Company’s policies, in a relatively short period of time.
We have adopted certain certificate of incorporation and bylaws provisions which have anti-takeover effects. These include:
(a) requiring certain actions to be taken at a meeting of shareholders rather than by written consent, (b) requiring a super-
majority of shareholders to approve certain amendments to our bylaws, (c) limiting the maximum number of directors, and
(d) providing that directors may be removed only for “cause.” These measures and those described above may have the
effect of delaying, deferring, or preventing a takeover or other change in control of our Company that a holder of our
common stock might consider to be in the holder’s best interest.
In addition, we are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which
prohibits a Delaware corporation from engaging in any business combination, including mergers and asset sales, with an
interested stockholder (generally, a 15% or greater stockholder) for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The
operation of Section 203 may have anti-takeover effects, which could delay, defer, or prevent a takeover attempt that a
holder of our common stock might consider to be in the holder’s best interest.
Despite the above measures, an activist shareholder could undertake action to implement governance, strategic, or other
changes to the Company which a holder of our common stock might not consider to be in the holder’s best interest. Such
activities could interfere with our ability to execute our strategic plans, be costly and time consuming, disrupt our operations,
and divert the attention of management and our employees.
We are subject to risks of non-compliance with environmental, health, and safety regulations.
We are subject to environmental, health, and safety regulations in connection with our business operations, including but not
limited to regulations related to the development, manufacture and use of our products, recycling and disposal of related
materials, and the operation and use of our facilities and real property. Failure or inability to comply with existing or future
environmental and safety regulations, which vary from jurisdiction to jurisdiction, could result in significant remediation
liabilities, the imposition of fines, and the suspension or termination of research, development, or use of certain of our
products, each of which could have a material adverse effect on our business, financial condition, and results of operations.
In addition, some of our operations involve the storage, handling, and use of hazardous materials that may pose a risk of fire,
explosion, or environmental release. Such events could result from acts of terrorism, natural disasters, or operational failures
and may result in injury or loss of life to our employees and others, local environmental contamination, and property
damage. These events might cause a temporary shutdown of an affected facility, or portion thereof, and we could be subject
to penalties or claims as a result. Each of these events could have a material adverse effect on our business, financial
condition, and results of operations.
Regulations related to conflict minerals will force us to incur additional expenses, may make our supply chain more
complex, and may harm our relationships with customers.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the SEC adopted
requirements for companies that manufacture products that contain certain minerals and metals, known as conflict minerals.
These rules require public companies to perform diligence and to report annually to the SEC whether such minerals originate
from the Democratic Republic of Congo and adjoining countries. The implementation of these requirements could adversely
affect the sourcing, availability, and pricing of minerals we use in the manufacture of our products. In addition, we have
incurred and will continue to incur additional costs to comply with the disclosure requirements, including costs related to
determining the source of any of the relevant minerals used in our products. Given the complexity of our supply chain, we
may not be able to ascertain the origins of these minerals used in our products through the due diligence procedures that we
implement, which may harm our reputation. We may also face difficulties in satisfying customers who require that our
products be certified as conflict mineral free, which could harm our relationships with these customers and lead to a loss of
revenue. These requirements could limit the pool of suppliers that can provide conflict-free minerals, and we may be unable
23
to obtain conflict-free minerals at competitive prices, which could increase our costs and adversely affect our manufacturing
operations and our profitability.
We have significant operations in locations which could be materially and adversely impacted in the event of a natural
disaster, an act of terrorism, or other significant disruption.
Our operations in the United States, in the Asia-Pacific region, and in other areas could be subject to natural disasters or
other significant disruptions, including earthquakes, tsunamis, fires, hurricanes, floods, water shortages, other extreme
weather conditions, medical epidemics, power shortages and blackouts, telecommunications failures, and other natural and
manmade disasters or disruptions. In the event of such a natural disaster or other disruption, we could experience disruptions
or interruptions to our operations and to the operations of our suppliers, distributors, resellers and customers, destruction of
facilities and loss of life, all of which could materially increase our costs and expenses and materially and adversely affect
our business, financial condition, and results of operations. In addition, various regions of the world in which we do business
are subject to the threat of terrorism and acts of war. Any act of terrorism or war that affects the economy or the industries in
which we operate could result in significant harm to us, including the loss of life and property, manufacturing and
transportation delays, disruptions in our supply chain, the need to comply with enhanced security measures, and other
increased costs.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters and principal research and development, manufacturing, and sales and service facilities are:
Owned Facilities Location
Approximate
Size (sq. ft.)
Use
Plainview, NY
Somerset, NJ
St. Paul, MN
Somerset, NJ
80,000
80,000
43,000
38,000
Corporate Headquarters; R&D; Sales & Service; Administration
R&D; Manufacturing; Sales & Service; Administration
R&D; Manufacturing; Sales & Service; Administration
R&D; Sales & Service; Administration
Leased Facilities Location
Approximate
Size (sq. ft.)
Use
San Jose, CA
Somerset, NJ
Kingston, NY (1)
Horsham, PA
Singapore
Waltham, MA
Hsinchu City, Taiwan
Shanghai, China
100,000
57,000
52,000
49,000
23,000
19,000
13,000
10,000
R&D; Manufacturing; Sales & Service; Administration
Warehouse
Manufacturing
R&D; Manufacturing; Sales & Service; Administration
R&D; Manufacturing; Sales & Service; Administration
R&D; Sales & Service; Administration
Sales & Service; Administration
Sales & Service; Administration
(1) Manufacturing site has been consolidated into Somerset, we expect to vacate this location during 2018.
Lease
Expires
2021
2020
2018
2024
2023
2023
2020
2020
In addition to the above, we lease a small office in Edina, Minnesota and Malta, New York for sales and service and our
foreign sales and service subsidiaries lease office space in Germany, Japan, Malaysia, Philippines, South Korea, Thailand,
and United Kingdom. We believe our facilities are adequate to meet our current needs.
Item 3. Legal Proceedings
On September 21, 2017, Blueblade Capital Opportunities LLC et al., on behalf of purported beneficial owners of 440,100
shares of Ultratech common stock, filed an action against Ultratech in Delaware Court of Chancery requesting an appraisal
24
of the value of their Ultratech stock pursuant to 8 Del. C. §262. We believe that the merger price, which was the product of
arms-length negotiations, was fair and reasonable, and intend to contest the appraisal claim. Discovery in the matter has
commenced and a trial on the action is scheduled to begin in December 2018.
On April 12, 2017, we filed a patent infringement complaint in the U.S. District Court for the Eastern District of New York
against SGL Carbon, LLC and SGL Carbon SE (collectively, “SGL”), alleging infringement of patents relating to wafer
carrier technology used in MOCVD equipment. The complaint alleges that SGL infringes Veeco’s patents by making and
selling certain wafer carriers to Veeco’s competitor, Advanced Micro-Fabrication Equipment, Inc. (“AMEC”). On
November 2, 2017, the U.S. District Court granted our motion for a preliminary injunction prohibiting SGL from shipping
wafer carriers using our patented technology without our express authorization.
On July 13, 2017, AMEC filed a patent infringement complaint against Veeco Instruments Shanghai Co., Ltd. (“Veeco
Shanghai”) with the Fujian High Court in China, alleging that our MOCVD products infringed a Chinese utility model patent
relating to the synchronous movement engagement mechanism in a chemical vapor deposition reactor and seeking injunctive
relief and monetary damages against Veeco Shanghai. On December 7, 2017, without providing notice to us and without
hearing our position on alleged infringement, the Fujian High Court issued a preliminary injunction, applicable in China, that
requires Veeco Shanghai to stop importing, making, selling, and offering to sell Veeco EPIK 700 model MOCVD systems
and to stop importing, selling, and offering to sell wafer carriers used as supplies for the EPIK 700 MOCVD system.
On February 8, 2018, Veeco, AMEC, and SGL announced that they had mutually agreed to settle the pending litigation
among the parties and to amicably resolve all pending disputes, including AMEC’s lawsuit against Veeco before the Fujian
High Court in China and Veeco’s lawsuit against SGL before the U.S. District Court for the Eastern District of New York.
As part of the settlement, all legal actions worldwide (in court, patent offices, and otherwise), between Veeco, AMEC, and
SGL, and their affiliates, will be dismissed and/or otherwise withdrawn. As a result, all business processes, including sales,
service, and importation, will be continued.
We are involved in various other legal proceedings arising in the normal course of business. We do not believe that the
ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of
operations, or cash flows.
Item 4. Mine Safety Disclosures
Not Applicable.
25
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock is quoted on The NASDAQ Stock Market under the symbol “VECO.” The 2017 and 2016 high and low
closing bid prices by quarter are as follows:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
2016
High
Low
High
Low
$
30.05
34.20
32.95
22.25
$
24.85
27.40
18.60
11.90
$
20.64
19.72
20.98
29.95
$
16.89
15.79
15.91
19.75
On February 14, 2018, the closing price for our common stock on The NASDAQ Stock Market was $18.70, and we had 124
shareholders of record.
We have not paid dividends on our common stock. The Board of Directors will determine future dividend policy based on
our consolidated results of operations, financial condition, capital requirements, and other circumstances.
Issuer Purchases of Equity Securities
Share repurchase activity during the three months ended December 31, 2017 is as follows:
Period
S hares Purchased
Paid Per S hare
Plans or Programs
Plans or Programs
Total Number of
Average Price
Publicly Announced
Purchased Under the
Total Number of
Approximate Dollar
S hares Purchased
Value of S hares
as Part of
That May Yet Be
October 2, 2017 —October 29, 2017
October 30, 2017 —December 3, 2017
December 4, 2017 —December 31, 2017
—
—
203
—
—
14.83
—
—
203
—
—
96,982
(in thousands, except average price paid per share)
$
$
During fiscal year 2017, 2016, and 2015, we repurchased 0.2 million shares, 0.7 million shares, and 0.5 million shares of
our common stock for $3.0 million, $13.1 million, and $9.2 million, respectively, through our share repurchase programs.
On December 11, 2017, our Board of Directors authorized a program to repurchase up to $100 million of the Company’s
outstanding common stock to be completed through December 11, 2019, after completion of the previous program on
October 28, 2017. Repurchases may be made from time to time on the open market or in privately negotiated transactions
in accordance with applicable federal securities laws. The timing and amount of future repurchases, if any, will depend
upon market conditions, SEC regulations, and other factors. The repurchases would be funded using available cash
balances and cash generated from operations. The program does not obligate us to acquire any particular amount of
common stock and may be modified or suspended at any time at our discretion.
26
Stock Performance Graph
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Veeco Instruments Inc., the S&P Smallcap 600 Index
and the RDG MidCap Technology Index
$250
$200
$150
$100
$50
$0
12/12
12/13
12/14
12/15
12/16
12/17
Veeco Instruments Inc.
S&P Smallcap 600
RDG MidCap Technology
*$100 invested on 12/31/12 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2018 Standard & Poor's, a division of S&P Global. All rights reserved.
ASSUMES $100 INVESTED ON DEC. 31, 2012
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31
2012
2013
2014
2015
2016
2017
Veeco Instruments Inc.
S&P Smallcap 600
RDG MidCap Technology
100.00
100.00
100.00
111.60
141.31
161.83
118.28
149.45
159.04
69.72
146.50
138.67
98.85
185.40
123.87
50.36
209.94
132.83
27
Item 6. Selected Financial Data
The information set forth below should be read in conjunction with the “Results of Operations” section included in Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Year ended December 31,
2017 (1)
2016
2014 (2)
(in thousands, except per share data)
2015
2013
Statement of Operations Data:
Net sales
Operating income (loss)
Income (loss) from continuing operations, net of tax
Basic income (loss) per common share from continuing operations
Diluted income (loss) per common share from continuing operations
$
484,756
(63,778)
(44,793)
(1.01)
(1.01)
$
332,451
(120,402)
(122,210)
(3.11)
(3.11)
$
477,038
(23,232)
(31,978)
(0.80)
(0.80)
$
392,873
(79,209)
(66,940)
(1.70)
(1.70)
$
331,749
(71,812)
(42,263)
(1.09)
(1.09)
(1) During the second quarter of 2017, the Company acquired Ultratech. T he results of operations of Ultratech have been included in the consolidated
financial statements since that date.
(2) During the fourth quarter of 2014, the Company acquired PSP. T he results of operations of PSP have been included in the consolidated financial
statements since that date.
Balance Sheet Data:
Cash and cash equivalents
Short-term investments
Working capital
Total assets
Long-term debt (less current installments)
Total equity
2017
2016
December 31,
2015
(in thousands)
2014
2013
$
279,736
47,780
373,536
1,387,287
275,630
840,713
$
277,444
66,787
357,999
758,532
826
594,595
$
269,232
116,050
379,904
890,789
1,193
714,615
$
270,811
120,572
387,254
929,455
1,533
738,932
$
210,799
281,538
485,452
947,969
1,847
780,230
28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
On May 26, 2017, we completed the acquisition of Ultratech. Ultratech develops, manufactures, sells, and supports
lithography, laser annealing, and inspection equipment for manufacturers of semiconductor devices, including front-end
semiconductor manufacturing and advanced packaging. Ultratech also develops, manufactures, sells, and supports ALD
equipment for scientific and industrial applications. Ultratech’s customers are primarily located throughout the United
States, Europe, China, Japan, Taiwan, Singapore, and Korea. With the addition of Ultratech, we establish ourselves as a
leading equipment supplier in the advanced packaging market, forming a strong technology portfolio to address critical
advanced packaging applications, as well as greatly increasing our critical mass in the front-end semiconductor market.
The results of Ultratech’s operations have been included in the consolidated financial statements since the date of
acquisition.
We categorize our revenue by the key market segments into which we sell. Our four key markets are: Advanced Packaging,
MEMS & RF Filters; LED Lighting, Display & Compound Semiconductor; Front-End Semiconductor; and Scientific &
Industrial.
We are a technology company that develops, manufactures, sells, and supports semiconductor process equipment aligned to
meet the demands of key global trends such as enhanced mobility, increased connectivity, and energy efficiency. Our
primary technologies include metal organic chemical vapor deposition, advanced packaging lithography, wet etch and clean,
laser annealing, ion beam, molecular beam epitaxy, wafer inspection, and atomic layer deposition systems. These
technologies play an integral role in producing LEDs for solid-state lighting and displays, and in the fabrication and
packaging of advanced semiconductor devices. With equipment designed to optimize performance, yield, and cost of
ownership, we hold technology leadership positions in all of these served markets.
Sales in the Advanced Packaging, MEMS & RF Filter markets were driven by Lithography and PSP systems, as the market
continues to be influenced by the mobility trend and increasing functionality in mobile devices. Advanced Packaging
opportunities slowed in 2017 as customers temporarily delayed adoption of fan-out wafer level packaging (“FOWLP”) in
favor of cheaper flip chip solutions. Our versatile PSP product architecture has allowed us to continue to generate solid
business in the MEMS and RF Filter portion of this category. We remain well positioned for future growth in these markets,
supported by trends such as mobile connectivity, automotive electronics, big data processing and 5G infrastructure
deployment, as well as the longer term growth of FOWLP and other Advanced Packaging applications.
Sales in the LED Lighting, Display & Compound Semiconductor market were driven by the continued shipment of MOCVD
and PSP systems to customers in China, Malaysia, and Europe. The largest applications for LEDs are solid state lighting,
followed by TV displays. Over the past several quarters, demand has increased for larger LCD TV displays, which require
relatively more LEDs to backlight than smaller display sizes. More recently, we have seen an increase in demand in non
general-lighting applications such as 3D sensors, VCSELs, laser diodes, and RF devices. Our broad portfolio of MOCVD
and PSP technologies have been developed to support these significant industry trends, driving an increase in demand for our
MOCVD and PSP equipment. Our product mix in the LED market is expected to shift, and we expect to see a decline in
gross margins in the first half of 2018. We expect margins in the second half of 2018 to be higher than the first half.
Sales in the Front-End Semiconductor market were primarily driven by Laser Annealing systems, an IBD Photomask system
for EUV applications, and IBE systems sold into STT-MRAM applications. We see strong interest from customers for our
laser melt anneal systems which are being qualified in 7nm and 5nm applications, as well as our 3D inspection systems
which are being evaluated at several high volume manufacturing fabs.
Sales in the Scientific & Industrial markets were supported by shipments of Ion Beam systems for optical coatings and data
storage applications, as well as shipments of MBE systems to universities and laboratories. While equipment demand from
each individual market may fluctuate quarter to quarter, the diverse customer base has historically provided a relatively
stable revenue stream for the Company.
29
Results of Operations
Years Ended December 31, 2017 and 2016
The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for 2017
and 2016 and the period-over-period dollar and percentage changes for those line items. Our results of operations are
reported as one business segment, represented by our single operating segment, including the Ultratech business acquired.
For the year ended December 31,
Change
Net sales
Cost of sales
Gross profit
Operating expenses, net:
Research and development
Selling, general, and administrative
Amortization of intangible assets
Restructuring
Acquisition costs
Asset impairment
Other, net
Total operating expenses, net
Operating income (loss)
Interest income (expense), net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
* Not meaningful
Net Sales
2017
$
484,756
300,438
184,318
100%
62%
38%
2016
(dollars in thousands)
$
100%
60%
40%
332,451
199,593
132,858
81,987
100,250
35,475
11,851
17,786
1,139
(392)
248,096
(63,778)
(17,122)
(80,900)
(36,107)
$
(44,793)
17%
21%
7%
2%
4%
0%
(0)%
51%
(13)%
(4)%
(17)%
(7)%
(9)%
81,016
77,642
19,219
5,640
-
69,520
223
253,260
(120,402)
958
(119,444)
2,766
$
(122,210)
24%
23%
6%
2%
0%
21%
0%
76%
(36)%
0%
(36)%
1%
(37)%
Period to Period
$
152,305
100,845
51,460
46%
51%
39%
971
22,608
16,256
6,211
17,786
(68,381)
(615)
(5,164)
56,624
(18,080)
38,544
(38,873)
$
77,417
1%
29%
85%
110%
*
(98)%
*
(2)%
*
*
*
*
*
The following is an analysis of sales by market and by region:
Sales by market
LED Lighting, Display & Compound Semiconductor
Advanced Packaging, MEMS & RF Filters
Scientific & Industrial
Front-End Semiconductor
Total
Sales by geographic region
United States
China
EMEA
Rest of World
Total
Year ended December 31,
2017
2016
(dollars in thousands)
Change
Period to Period
$
253,785
69,353
120,788
40,830
52%
14%
25%
9%
$
144,675
68,304
111,198
8,274
44%
21%
33%
2%
$
109,110
1,049
9,590
32,556
$
484,756
100%
$
332,451
100%
$
152,305
$
94,936
107,844
76,636
205,340
20%
22%
16%
42%
$
85,637
85,834
83,410
77,570
26%
26%
25%
23%
$
9,299
22,010
(6,774)
127,770
$
484,756
100%
$
332,451
100%
$
152,305
75%
2%
9%
393%
46%
11%
26%
(8)%
165%
46%
30
Total sales increased across all market categories for the year ended December 31, 2017 against the comparable prior year
period, driven by ongoing improvements in LED industry conditions, as well as additional sales of approximately $65.5
million from the Ultratech business acquired in May 2017, primarily in the Front-End Semiconductor and Advanced
Packaging, MEMS, and RF Filters markets. Pricing was not a significant driver of the change in total sales. By geography,
sales increased in the United States, China, and Rest of World regions, offset by a slight decrease in the EMEA region. The
most significant increase occurred in the Rest of World region, which was attributable to the increased sales in the LED
Lighting, Display & Compound Semiconductor market in Malaysia, as well as additional sales from the Ultratech business
acquired. Sales into Malaysia for the year ended December 31, 2017 was approximately $78.2 million, compared to $6.6
million for the year ended December 31, 2016. Sales in China increased principally due to increased sales in the LED
Lighting, Display, and Compound Semiconductor market. We expect there will continue to be year-to-year variations in our
future sales distribution across markets and geographies.
Orders increased to $570.7 million in 2017, an increase of $196.5 million, or 53% compared with 2016. The LED Lighting,
Display, and Compound Semiconductor and Scientific & Industrial markets increased 51% and 56%, respectively, driven by
overall improvements in industry conditions. The Advanced Packaging, MEMS, and RF Filters and Front-End
Semiconductor markets increased 52% and 49%, respectively, driven by the additional bookings from the Ultratech
acquisition.
One of the performance measures we use as a leading indicator of the business is the book-to-bill ratio. The ratio is
defined as orders recorded in a given period divided by revenue recognized in the same period. A ratio greater than one
indicates we are adding orders faster than we are recognizing revenue. In 2017, the ratio was 1.2, a rise compared to the
2016 ratio of 1.1. Our backlog at December 31, 2017 was $334.3 million, which was higher than the ending backlog at
December 31, 2016 of $209.2 million. During the year ended December 31, 2017, we increased backlog by approximately
$41.6 million relating to backlog acquired from Ultratech, while adjusting for a decrease in backlog of approximately $2.0
million relating to orders that no longer met our bookings criteria. For certain sales arrangements, we require a deposit for
a portion of the sales price prior to manufacturing a system for a customer. At December 31, 2017 and 2016, we had
customer deposits of $41.5 million and $22.2 million, respectively.
Gross Profit
In 2017, gross profit increased compared to 2016 due to an increase in sales volume, including the acquisition of Ultratech,
partially offset by decreased gross margins. Gross margins decreased principally due to an inventory fair value step-up that
was recorded in connection with the purchase accounting relating to the Ultratech acquisition. Our product mix in the LED
market is expected to shift, and we expect to see a decline in gross margins in the first half of 2018. We expect margins in the
second half of 2018 to be higher than the first half.
Research and development
The markets we serve are characterized by continuous technological development and product innovation, and we invest in
various research and development initiatives to maintain our competitive advantage and achieve our growth objectives.
Research and development expenses remained relatively flat in 2017 compared to 2016, as the addition of the acquired
Ultratech related research and development projects was offset by our decision to reduce investments in certain technology,
as well as decreases in other personnel-related expenses and professional fees, as a result of our initiative to streamline
operations, enhance efficiency, and reduce costs.
Selling, general, and administrative
Selling, general, and administrative expenses increased primarily due to the addition of the acquired Ultratech related selling,
general, and administrative costs, as well as increased professional and legal fees.
Amortization expense
The increase in amortization expense is a result of the additional intangibles acquired as part of the acquisition of
Ultratech, offset by the lower amortization resulting from the impairment of the certain technology assets in the prior year
31
as well as certain other intangible assets becoming fully amortized during 2016.
Restructuring expense
During 2016, we undertook restructuring activities as part of our initiative to streamline operations, enhance efficiencies, and
reduce costs, as well as reducing future investments in certain technology development, which together impacted
approximately 75 employees. These activities were substantially completed in 2017. In addition, during 2017, we began the
acquisition integration process to enhance efficiencies, resulting in additional employee terminations and other facility
closing costs. Restructuring expense for the year ended December 31, 2017 included non-cash charges of $1.9 million related
to accelerated share-based compensation for employee terminations.
Acquisition costs
Acquisition costs are non-recurring charges incurred in connection with the acquisition of the Ultratech business, which
included $4.2 million of non-cash charges related to accelerated share-based compensation for employee terminations for the
year ended December 31, 2017.
Asset impairment
During 2016, we recorded non-cash impairment charges of $57.6 million relating to our decision to reduce investments in
certain technologies, $5.7 million relating to our assessments of the fair market value of assets held for sale, and $6.2 million
relating to the disposal of certain lab equipment. Impairment charges for the year ended December 31, 2017, primarily relate
to further reductions to the fair market value of assets held for sale upon disposal.
Interest Income (Expense)
For the year ended December 31, 2017, we recorded net interest expense of $17.1 million, including non-cash interest
expense of $10.4 million, compared with net interest income of $1.0 million in the prior year period. The change primarily
relates to the Convertible Senior Notes issued in January 2017.
Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act (“2017 Tax Act’), which makes broad and complex changes to the U.S. tax code. Certain income tax effects
of the 2017 Tax Act are reflected in our financial results in accordance with SAB 118. SAB 118 provides SEC staff
guidance regarding the application of Accounting Standards Codification Topic 740 (“ASC 740”) Income Taxes, and the
required disclosures due to the enactment of the 2017 Tax Act. The income tax effects of the 2017 Tax Act include a
provisional $11.3 million income tax benefit related to the re-measurement of our deferred tax assets and liabilities at the
reduced rate of 21 percent and a reduction in our U.S. valuation allowance attributable to indefinite lived intangibles
becoming a source of future taxable income for certain deferred tax assets that are expected to have an indefinite life due
to the 2017 Tax Act. Refer to Note 17, “Income Taxes,” in the Notes to the Consolidated Financial Statements for further
information on the financial statement impact of the 2017 Tax Act.
The 2017 income tax benefit of $36.1 million is comprised of: (i) a $24.2 million income tax benefit related to domestic
losses incurred during the year ended December 31, 2017, as the deferred tax liability created by the issuance of the
Convertible Senior Notes and recorded as a component of APIC is treated as a source of income in fiscal 2017, (ii) a
$11.3 million income tax benefit recorded in connection with the 2017 Tax Act, primarily due to the re-measurement of
our deferred tax assets and liabilities at the new federal statutory rate of 21 percent, as well as a reduction in our valuation
allowance attributable to deferred tax liabilities associated with indefinite-lived intangible assets that became available as
a source of income to offset existing deferred tax assets, and (iii) $0.6 million income tax benefit from non-U.S.
operations primarily attributable to a reduction in uncertain tax positions and the recognition of a deferred tax asset for
certain non-U.S. net operating losses generated in prior years that have become realizable on a more-likely-than-not basis,
offset by tax expense attributed to the profitable non-U.S. operations, as well as withholding taxes recorded as we now
expect to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 Tax Act.
32
The 2016 income tax expense of $2.8 million is comprised of three components: (i) a $1.9 million tax expense related
primarily to U.S. tax amortization of our indefinite-lived intangible assets that is not available to offset existing deferred
tax assets and related valuation allowance, as well as state and local income taxes, (ii) a $0.4 million tax benefit associated
with the termination of a pension plan, and (iii) $1.3 million in net tax expense related primarily to our profitable foreign
operations. The current period non-U.S. tax expense is attributable to the profitable non-U.S. operations.
Years Ended December 31, 2016 and 2015
The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for 2016
and 2015 and the period-over-period dollar and percentage changes for those line items. Our results of operations are
reported as one business segment, represented by our single operating segment.
For the year ended December 31,
Change
Net sales
Cost of sales
Gross profit
Operating expenses, net:
Research and development
Selling, general, and administrative
Amortization of intangible assets
Restructuring
Asset impairment
Other, net
Total operating expenses, net
Operating income (loss)
Interest income (expense), net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
* Not Meaningful
Net Sales
2016
$
332,451
199,593
132,858
100%
60%
40%
2015
(dollars in thousands)
$
100%
63%
37%
477,038
299,797
177,241
81,016
77,642
19,219
5,640
69,520
223
253,260
(120,402)
958
(119,444)
2,766
$
(122,210)
24%
23%
6%
2%
21%
0%
76%
(36)%
0%
(36)%
1%
(37)%
78,543
90,188
27,634
4,679
126
(697)
200,473
(23,232)
586
(22,646)
9,332
$
(31,978)
16%
19%
6%
1%
0%
(0)%
42%
(5)%
0%
(5)%
2%
(7)%
Period to Period
$
(144,587)
(100,204)
(44,383)
2,473
(12,546)
(8,415)
961
69,394
920
52,787
(97,170)
372
(96,798)
(6,566)
(30)%
(33)%
(25)%
3%
(14)%
(30)%
21%
*
*
26%
*
63%
*
(70)%
$
(90,232)
*
The following is an analysis of sales by market and by region:
Sales by market
LED Lighting, Display & Compound Semiconductor
Advanced Packaging, MEMS & RF Filters
Scientific & Industrial
Front-End Semiconductor
Total
Sales by geographic region
United States
China
EMEA
Rest of World
Total
Year ended December 31,
2016
2015
(dollars in thousands)
Change
Period to Period
$
144,675
68,304
111,198
8,274
44%
21%
33%
2%
$
291,133
61,935
118,132
5,838
61%
13%
25%
1%
$
(146,458)
6,369
(6,934)
2,436
$
332,451
100%
$
477,038
100%
$
(144,587)
$
85,637
85,834
83,410
77,570
26%
26%
25%
23%
$
86,627
242,442
64,019
83,950
18%
51%
13%
18%
$
(990)
(156,608)
19,391
(6,380)
$
332,451
100%
$
477,038
100%
$
(144,587)
(50)%
10%
(6)%
42%
(30)%
(1)%
(65)%
30%
(8)%
(30)%
33
Total sales decreased in 2016 from 2015 primarily due to reduced sales in LED Lighting, Display & Compound
Semiconductor driven by an oversupply of LED units in the market. Pricing was not a significant driver of the change in
total sales. By geography, sales decreased in all regions, except EMEA. The largest sales decline was in China, which was
attributable to the decline in LED Lighting, Display & Compound Semiconductor.
Between 2016 and 2015, orders decreased $10.2 million, or 3%, to $374.2 million. The decrease in orders was primarily
attributable to a 43% decrease in orders in Advanced Packaging, MEMS & RF Filters as well as a 16% decrease in Scientific
& Industrial. These decreases were offset by increases in LED Lighting, Display & Compound Semiconductor and Front-
End Semiconductor. In the second half of 2016, we saw some improvements in LED industry conditions.
One of the performance measures we use as a leading indicator of the business is the book-to-bill ratio. The ratio is
defined as orders recorded in a given period divided by revenue recognized in the same period. A ratio greater than one
indicates we are adding orders faster than we are recognizing revenue. In 2016, the ratio was 1.1, a rise compared to 2015,
when it was 0.8. Our backlog at December 31, 2016 was $209.2 million, which was higher than the ending backlog at
December 31, 2015 of $186.0 million. During the year ended December 31, 2016, we recorded backlog adjustments of
approximately $17.9 million primarily relating to a partial cancellation of a prior period customer order. For certain sales
arrangements, we require a deposit for a portion of the sales price prior to manufacturing a system for a customer. At
December 31, 2016 and 2015, we had customer deposits of $22.2 million and $28.2 million, respectively.
Gross Profit
Gross profit decreased compared to 2015 due to sharp decline in sales volume, partially offset by improved gross margins.
Gross margins increased despite the decline in overall sales volume principally due to favorable product and region mix of
sales in the period and from the benefits associated with ongoing cost reduction activities.
Research and development
R&D expenses increased in 2016 compared to 2015 as a result of a reduction in external funding used to offset the cost of
R&D activities, as well as the additional use of third party contractors to accelerate the development of products for the
LED Lighting, Display & Compound Semiconductor market. We also incurred increased depreciation of research and
development-related property, plant, and equipment. These increases were partially offset by decreased personnel-related
incentive compensation.
Selling, general, and administrative
Selling, general, and administrative expenses decreased primarily due to reductions in sales commissions and incentive
compensation as a result of the decline in our financial performance, as well as a decrease in personnel-related expenses as a
result of our initiative to streamline operations, enhance efficiency, and reduce costs in response to market conditions.
Amortization expense
The decrease in amortization expense is a result of the impairment of certain technology assets as well as certain other
intangible assets becoming fully amortized during 2016.
Restructuring expense
During 2016, additional accruals were recognized and payments made related to previous years’ restructuring initiatives. In
addition, during 2016, we undertook additional restructuring activities as part of our initiative to streamline operations,
enhance efficiencies, and reduce costs, as well as reducing future investments in certain technology development, which
together impacted approximately 75 employees.
34
Asset impairment
During 2016, we recorded non-cash impairment charges of $57.6 million relating to our decision to reduce investments in
certain technologies, $5.7 million relating to our assessments of the fair market value of assets held for sale, and $6.2 million
relating to the disposal of certain lab equipment.
Income Taxes
The 2016 income tax expense is comprised of three components: (i) $1.9 million related primarily to U.S. tax amortization
of our indefinite-lived intangible assets that is not available to offset existing deferred tax assets and related valuation
allowance as well as state and local income taxes, (ii) a $0.4 million tax benefit associated with the termination of the
pension plan, and (iii) $1.3 million in net tax expense related primarily to our profitable foreign operations. The 2015
income tax expense is comprised of two components: (i) $1.8 million related primarily to U.S. tax amortization of our
indefinite-lived intangible assets that is not available to offset existing deferred tax assets and related valuation allowance
and state and local income taxes and (ii) $7.5 million in tax expense relating to our profitable foreign operations. Our
2016 and 2015 effective tax rate is different than the statutory rate primarily due to our inability to recognize our U.S.
deferred tax assets on a more-likely-than-not basis with respect to the pre-tax U.S. operating losses in those years.
Liquidity and Capital Resources
Our cash and cash equivalents, restricted cash, and short-term investments are as follows:
Cash and cash equivalents
Restricted cash
Short-term investments
Total
December 31,
2017
2016
(in thousands)
$
279,736
847
47,780
$
277,444
—
66,787
$
328,363
$
344,231
A portion of our cash and cash equivalents is held by our subsidiaries throughout the world, frequently in each
subsidiary’s respective functional currency, which is typically the U.S. dollar. At December 31, 2017 and 2016, cash and
cash equivalents of $214.3 million and $149.2 million, respectively, were held outside the United States. As of December
31, 2017, we had $155.8 million of accumulated undistributed earnings generated by our non-U.S. subsidiaries, of which
approximately $140.2 million was subject to the one-time transition tax on foreign earnings required by the 2017 Tax Act.
We do not expect to incur a current U.S. tax liability for the one-time transition tax due to the utilization of foreign tax
credits and research and development credits. We expect to repatriate accumulated undistributed earnings from certain
non-U.S. subsidiaries and have recognized applicable withholding taxes of $6.2 million. We believe that our projected
cash flow from operations, combined with our cash and short term investments, will be sufficient to meet our projected
working capital requirements, contractual obligations, and other cash flow needs for the next twelve months, including
scheduled interest payments on our Convertible Senior Notes issued in January 2017.
A summary of the cash flow activity for the year ended December 31, 2017 and 2016 is as follows:
35
Cash Flows from Operating Activities
Net income (loss)
Non-cash items:
Depreciation and amortization
Non-cash interest expense
Deferred income taxes
Share-based compensation expense
Asset impairment
Other
Changes in operating assets and liabilities
Net cash provided by (used in) operating activities
For the year ended December 31,
2017
2016
(in thousands)
$
(44,793)
$
(122,210)
50,095
10,446
(33,875)
24,396
1,139
99
26,639
32,650
—
940
15,741
69,520
(259)
(20,226)
$
34,146
$
(23,844)
Net cash provided by operating activities was $34.1 million for the year ended December 31, 2017 and was due to the net
loss of $44.8 million offset by adjustments for non-cash items of $52.3 million and an increase in cash flow from operating
activities due to changes in operating assets and liabilities of $26.6 million. The changes in operating assets and liabilities
were largely attributable to increases in accounts payable and accrued expenses and customer deposits and deferred revenue,
decreases in accounts receivable and inventory and deferred cost of sales, partially offset by increases in prepaid expenses
and other current and non-current assets, and decreases in income tax payables.
Net cash used in operating activities was $23.8 million in 2016 and was due to the net loss of $122.2 million plus a decline in
cash flow from operating activities due to changes in operating assets and liabilities of $20.2 million, partially offset by
adjustments for non-cash items of $118.6 million. The changes in operating assets and liabilities was largely attributable to a
decrease in accounts payable and accrued expenses, an increase in accounts receivable, and an increase in inventories and
deferred cost of sales, partially offset by a decrease in prepaid expenses and other current assets and an increase in customer
deposits and deferred revenue.
Cash Flows from Investing Activities
Acquisitions of businesses, net of cash acquired
Capital expenditures
Changes in investments, net
Other
Net cash provided by (used in) investing activities
For the year ended December 31,
2017
2016
(in thousands)
$
(401,828)
(24,272)
65,980
2,284
$
—
(11,479)
48,907
9,282
$
(357,836)
$
46,710
The net cash used in investing activities during the year ended December 31, 2017 was primarily attributable to the net
cash used in the acquisition of Ultratech as well as capital expenditures, offset by the net changes in investments. In 2017,
as part of our efforts to streamline operations, enhance efficiency, and reduce costs, we made certain investments in our
facilities to support the consolidation activities. These activities were substantially completed in 2017. The cash provided
by investing activities in 2016 was primarily attributable to net changes in investments and sales of property, plant, and
equipment, partially offset by capital expenditures.
36
Cash Flows from Financing Activities
Settlement of equity awards, net of withholding taxes
Purchases of common stock
Proceeds from long-term debt borrowings
Repayments of long-term debt
Net cash provided by (used in) financing activities
For the year ended December 31,
2017
2016
$
$
(in thousands)
(5,749)
(2,869)
335,752
(1,194)
(945)
(13,349)
—
(340)
$
325,940
$
(14,634)
The cash provided by financing activities for the year ended December 31, 2017 was primarily related to the net cash
proceeds received from the issuance of the Convertible Senior Notes in January 2017. The cash used in financing activities
for 2016 was primarily related to the share repurchase program, which commenced in November 2015.
Convertible Senior Notes
On January 10, 2017, we issued $345.0 million of 2.70% Convertible Senior Notes. We received net proceeds, after
deducting underwriting discounts and fees and expenses payable by the Company, of approximately $335.8 million. The
Convertible Senior Notes bear interest at a rate of 2.70% per year, payable semiannually in arrears on January 15 and July
15 of each year, commencing on July 15, 2017. The Convertible Senior Notes mature on January 15, 2023, unless earlier
purchased by the Company, redeemed, or converted. We believe that we have sufficient capital resources and cash flows
from operations to support scheduled interest payments on this debt.
Business Combination
As discussed above, on May 26, 2017, the Company acquired 100% of Ultratech, Inc., a leading supplier of lithography,
laser-processing, and inspection systems used to manufacture semiconductor devices and LEDs. The results of Ultratech’s
operations have been included in the consolidated financial statements since the date of acquisition.
Contractual Obligations and Commitments
We have commitments under certain contractual arrangements to make future payments for goods and services. These
contractual arrangements secure the rights to various assets and services to be used in the future in the normal course of
business. We expect to fund these contractual arrangements with cash generated from operations in the normal course of
business.
The following table summarizes our contractual arrangements at December 31, 2017, and the timing and effect that those
commitments are expected to have on our liquidity and cash flow in future periods. The effect of unrecognized tax benefits,
which total $0.6 million at December 31, 2017, have been excluded from the table since we are unable to reasonably
estimate the period of potential cash settlement, if any, with the respective tax authorities.
Principal payments on long-term debt
Cash interest on debt
Operating leases
Bank guarantees
Purchase commitments (1)
Total
Payments due by period
Total
Less than
1 year
$
345,000
46,963
24,251
6,498
181,032
$
-
9,315
5,655
6,498
181,032
1 – 3
years
(in thousands)
$
-
18,630
11,061
-
-
3 – 5
years
More than
5 years
-
$
18,630
4,616
-
-
$
345,000
388
2,919
-
-
$
603,744
$
202,500
$
29,691
$
23,246
$
348,307
(1)
Purchase commitments are primarily for inventory used in manufacturing our products. We generally do not enter into purchase commitments
extending beyond one year. We have $7.6 million of offsetting supplier deposits against these purchase commitments as of December 31, 2017.
37
In December 2017, we entered into a Receivable Purchase Agreement with a financial institution to sell certain of our
trade receivables from customers without recourse, up to $23.0 million at any point in time for a term of one year. Under
the terms of the agreement, we may offer to sell certain eligible accounts receivable (the “Receivables”) to the financial
institution (“the Purchaser”), which may accept such offer, and purchase the offered Receivables. The Purchaser will
assume credit risk of the Receivables purchased; provided, however, that we will service the Receivables, and as such
servicer, collect and otherwise enforce the Receivables on behalf of the Purchaser. Pursuant to this agreement, we sold
$15.0 million of Receivables during the year ended December 31, 2017 and maintained $8.0 million available under the
agreement for additional sales of Receivables as of December 31, 2017. The net sale of accounts receivable, under the
agreement, is reflected as a reduction of accounts receivable in our Consolidated Balance Sheet at the time of sale and any
fees for the sale of trade receivables were not material for the periods presented.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material
effect on our financial condition, changes in financial condition, expenses, results of operations, liquidity, capital
expenditures, or capital resources other than operating leases, bank guarantees, and purchase commitments disclosed in the
preceding “Contractual Obligations and Commitments” table.
Application of Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial
Statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements require a high degree of judgment, either in the application and
interpretation of existing accounting literature or in the development of estimates that affect the reported amounts of
assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate our estimates and judgments based on
historical experience as well as other factors that we believe to be reasonable under the circumstances. The results of our
evaluation form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. These estimates may change in the future if underlying assumptions or factors change, and
actual results may differ from these estimates.
We consider the following significant accounting policies to be critical because of their complexity and the high degree of
judgment involved in implementing them.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been
rendered, the selling price is fixed or determinable, collectability is reasonably assured, and, for system sales, we have
received customer acceptance or we have otherwise objectively demonstrated that the delivered system meets all of the
agreed-to customer specifications. Each sales arrangement may contain commercial terms that differ from other
arrangements. In addition, we frequently enter into contracts that contain multiple deliverables. Judgment is required to
properly identify the accounting units of the multiple deliverable transactions and to determine the manner in which
revenue should be allocated among the accounting units. 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. The
maximum revenue we recognize on a delivered element is limited to the amount that is not contingent upon the delivery
of additional items. While changes in the allocation of the estimated sales price between the units of accounting will not
affect the amount of total revenue recognized for a particular sales arrangement, any material changes in these allocations
could impact the timing of revenue recognition, which could have a material effect on our financial condition and results
of operations. We generally recognize revenue related to sales of components and spare parts upon shipment. We
generally recognize revenue related to maintenance and service contracts ratably over the applicable contract term. See
Note 1, “Significant Accounting Policies,” in the Notes to the Consolidated Financial Statements for a description of our
revenue recognition policy.
38
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Each
quarter we assess the valuation and recoverability of all inventories: materials (raw materials, spare parts, and service
inventory); work-in-process; and finished goods. Obsolete inventory or inventory in excess of our estimated usage
requirements is written down to its estimated net realizable value if less than cost. We evaluate usage requirements by
analyzing historical and anticipated demand, and anticipated demand is estimated based upon current economic
conditions, utilization requirements related to current backlog, current sales trends, and other qualitative factors.
Unanticipated changes in demand for our products may require a write down of inventory that could materially affect our
operating results.
Goodwill and Intangible Assets
Goodwill is tested for impairment at least annually in the fourth quarter of our fiscal year. We may first perform a
qualitative assessment of whether it is more likely than not that the reporting unit’s fair value is less than its carrying
amount, and, if so, we then quantitatively compare the fair value of our reporting unit to its carrying amount. If the fair
value of the reporting unit exceeds its carrying amount, goodwill is not impaired. If the carrying amount of the reporting
unit exceeds its fair value, we then record an impairment loss equal to the difference, up to the carrying value of goodwill.
We determine the fair value of our reporting unit based on a reconciliation of the aggregate fair value of our reporting unit
to our adjusted market capitalization. The adjusted market capitalization is calculated by multiplying the average share
price of our common stock for the last ten trading days prior to the measurement date by the number of outstanding
common shares and adding a control premium.
The carrying values of identifiable intangible assets are reviewed for recoverability on a quarterly basis. The facts and
circumstances considered include the recoverability of the cost of other intangible assets from future undiscounted cash
flows to be derived from the use of the asset or asset group. It is not possible for us to predict the likelihood of any possible
future impairments or, if such an impairment were to occur, the magnitude of any impairment.
Intangible assets with finite useful lives, including purchased technology, customer-related intangible assets, patents,
trademarks, covenants not-to-compete, backlog, and software licenses, are subject to amortization over the expected period
of economic benefit to us. We evaluate whether events or circumstances have occurred that warrant a revision to the
remaining useful lives of intangible assets. In cases where a revision is deemed appropriate, the remaining carrying amounts
of the intangible assets are amortized over the revised remaining useful life. Intangible assets related to IPR&D projects are
considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. If and when
development is complete, the associated assets would be deemed long-lived and would then be amortized based on their
respective estimated useful lives at that point in time.
Accounting for Business Combinations
The allocation of the purchase price for acquisitions requires extensive use of accounting estimates and judgments to
allocate the purchase price to the identifiable tangible and intangible assets acquired, including in-process research and
development and liabilities assumed based on their respective fair values. The estimates we make include expected cash
flows, expected cost savings, and the appropriate weighted average cost of capital. We complete these assessments as
soon as practical after the acquisition closing dates. Any excess of the purchase price over the estimated fair values of the
identifiable net assets acquired is recorded as goodwill.
Income Taxes
We estimate our income taxes in each of the jurisdictions in which we operate. Deferred income taxes reflect the net tax
effect of temporary differences between the asset and liability balances recognized for financial reporting purposes and the
balances used for income tax purposes, as well as the tax effect of carry forwards. We record a valuation allowance to
reduce our deferred tax assets to the amount that is more likely than not to be realized. Realization of our net deferred tax
assets is dependent on future taxable income.
39
We recognize the effect of income tax positions for only those positions which are estimated to more likely than not be
sustained if challenged. We reflect changes in recognition or measurement in the period in which our change in judgment
occurs. We record interest and penalties related to uncertain tax positions in income tax expense.
Because of the complexity of the new global intangible low-taxed income (“GILTI”) rules, we are continuing to evaluate
this provision of the 2017 Tax Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an
accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a
current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into our measurement of
our deferred taxes (the “deferred method”). Our selection of an accounting policy with respect to the new GILTI tax rules
will depend, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in
taxable income related to GILTI, and if so, what the impact will be. This assessment depends not only on our current
structure and estimated future results of global operations, but also on our intent and ability to modify our structure and/or
our business. We are not yet able to reasonably estimate the effect of this provision of the 2017 Tax Act, and therefore we
have not made any adjustments related to potential GILTI tax in our consolidated financial statements and have not made
a policy decision regarding whether to record deferred taxes on GILTI.
Recent Accounting Pronouncements
The FASB issued ASU 2014-09, as amended: Revenue from Contracts with Customers, which has been codified as
Accounting Standards Codification 606 (“ASC 606”). ASC 606 requires our revenue recognition to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in
exchange for those goods or services. ASC 606 outlines a five-step model to make the revenue recognition determination
and requires new financial statement disclosures. Publicly-traded companies are required to adopt ASC 606 for reporting
periods beginning after December 15, 2017. The most significant financial statement impacts of adopting ASC 606 will be
the elimination of the constraint on revenue associated with the billing retention related to the receipt of customer final
acceptance as well as the identification of installation services as a performance obligation. The elimination of the
constraint on revenue related to customer final acceptance, which is usually about 10 percent of a system sale, will
generally be recognized at the time we transfer control of the system to the customer, which is earlier than under our
current revenue recognition model. The new performance obligation related to installation services under the new
standard will generally be recognized as the installation services are performed, which is later than under our current
revenue recognition model. Taken together, we do not believe these changes will have a material impact on the
consolidated financial statements. We plan to adopt using the full retrospective method.
In January 2016, the FASB issued ASU 2016-01: Financial Instruments – Overall, which requires certain equity
investments to be measured at fair value, with changes in fair value recognized in net income. For equity investments
without readily observable market prices, entities have the option to either measure these investments at fair value every
quarter, or measure at cost adjusted for changes in observable prices minus impairment. Changes in measurement under
either alternative must be recognized in net income. Publicly-traded companies are required to adopt the update for
reporting periods beginning after December 15, 2017; early adoption is permitted. We do not expect this ASU will have a
material impact on the consolidated financial statements upon adoption, and will monitor our cost method investments
each reporting period for changes in observable market prices, if any, which may be material in future periods.
In February 2016, the FASB issued ASU 2016-02: Leases, which generally requires our operating lessee rights and
obligations to be recognized as assets and liabilities on the balance sheet. In addition, interest on lease liabilities is to be
recognized separately from the amortization of right-of-use assets in the Statement of Operations. Further, payments of
the principal portion of lease liabilities are to be classified as financing activities while payments of interest on lease
liabilities and variable lease payments are to be classified as operating activities in the Statement of Cash Flows. When the
standard is adopted, we will be required to recognize and measure leases at the beginning of the earliest period presented
using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018,
with early application permitted. We are evaluating the anticipated impact of adopting the ASU on the consolidated
financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and
Cash Payments, which provides guidance on eight specific cash flow issues, including debt prepayments or debt
40
extinguishment costs. Publicly-traded companies are required to adopt the update for reporting periods beginning after
December 15, 2017. We do not expect this ASU will have a material impact on the consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory,
which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than
inventory, when the transfer occurs. Publicly-traded companies are required to adopt the update for reporting periods
beginning after December 15, 2017. We do not expect this ASU will have a material impact on the consolidated financial
statements.
We are also evaluating other pronouncements recently issued but not yet adopted. The adoption of these pronouncements
is not expected to have a material impact on our consolidated financial statements.
41
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates primarily relates to our investment portfolio. We centrally
manage our investment portfolios considering investment opportunities and risks, tax consequences, and overall financing
strategies. Our investment portfolio includes fixed-income securities with a fair value of approximately $47.8 million at
December 31, 2017. These securities are subject to interest rate risk and, based on our investment portfolio at December
31, 2017, a 100 basis point increase in interest rates would result in a decrease in the fair value of the portfolio of $0.1
million. While an increase in interest rates may reduce the fair value of the investment portfolio, we will not realize the
losses in the Consolidated Statements of Operations unless the individual fixed-income securities are sold prior to
recovery or the loss is determined to be other-than-temporary.
Currency Exchange Risk
We conduct business on a worldwide basis and, as such, a portion of our revenues, earnings, and net investments in
foreign affiliates is exposed to changes in currency exchange rates. The economic impact of currency exchange rate
movements is complex because such changes are often linked to variability in real growth, inflation, interest rates,
governmental actions, and other factors. These changes, if material, could cause us to adjust our financing and operating
strategies. Consequently, isolating the effect of changes in currency does not incorporate these other important economic
factors.
From time to time, we manage our risks and exposures to currency exchange rates through the use of derivative financial
instruments (e.g., forward contracts). We mainly use derivative financial instruments in the context of hedging and
generally do not use them for speculative purposes. During fiscal 2017, we had an immaterial amount of foreign exchange
derivatives designated as hedges. During fiscal 2016, we did not designate foreign exchange derivatives as hedges.
Accordingly, most foreign exchange derivatives are recorded in our Consolidated Balance Sheets at fair value and
changes in fair value from these contracts are recorded in “Other, net” in our Consolidated Statements of Operations.
Our net sales to customers located outside of the United States represented approximately 80%, 74%, and 82% of our total
net sales in 2017, 2016, and 2015, respectively. We expect that net sales to customers outside the United States will
continue to represent a large percentage of our total net sales. Our net sales denominated in currencies other than the U.S.
dollar represented approximately 1%, 4%, and 2% of total net sales in 2017, 2016, and 2015, respectively.
A 10% change in foreign exchange rates would have an immaterial impact on the consolidated results of operations since
most of our sales outside the United States are denominated in U.S. dollars.
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements and Financial
Statement Schedule filed as part of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Management’s Report on Internal Control over Financial Reporting
Our principal executive and financial officers have evaluated and concluded that our disclosure controls and procedures are
effective as of December 31, 2017. The disclosure controls and procedures are designed to ensure that the information
required to be disclosed in this report filed under the Securities Exchange Act of 1934 is recorded, processed, summarized,
and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is
42
accumulated and communicated to our principal executive and financial officers as appropriate to allow timely decisions
regarding required disclosure.
Our principal executive and financial officers are responsible for establishing and maintaining adequate internal control over
financial reporting, which is a process designed and put into effect to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Using the criteria established in the Internal Control – Integrated Framework (2013) published by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), Management has evaluated, assessed, and
concluded that internal control over financial reporting is effective as of December 31, 2017.
We acquired Ultratech, Inc. (“Ultratech”) on May 26, 2017, and the results of Ultratech from the acquisition date through
December 31, 2017 are included in our 2017 consolidated financial statements. The results of Ultratech constituted 50
percent of total assets and 14 percent of net sales as of and for the year ended December 31, 2017. We have excluded
Ultratech from our annual assessment of the effectiveness of our internal control over financial reporting.
KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in
this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness of
our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2017, there were no changes in internal control that have materially affected or are
reasonably likely to materially affect internal control over financial reporting.
43
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Veeco Instruments Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Veeco Instrument Inc.’s and subsidiaries (the “Company”) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related
consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the
years in the three-year period ended December 31, 2017, and the related notes and financial statement Schedule II –
Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 21,
2018 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Ultratech, Inc. (“Ultratech”) on May 26, 2017, and the results of Ultratech from the acquisition
date through December 31, 2017 are included in the 2017 consolidated financial statements. The results of Ultratech
constituted 50% of total assets and 14% of net sales as of and for the year ended December 31, 2017. Management has
excluded Ultratech from its annual assessment of the effectiveness of the Company’s internal control over financial
reporting. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal
control over financial reporting of Ultratech.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
44
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Melville, New York
February 21, 2018
45
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information required by this Item that will appear under the headings “Governance,” “Executive Officers,” and “Section
16(a) Beneficial Ownership Reporting Compliance” in the definitive proxy statement to be filed with the SEC relating to
our 2018 Annual Meeting of Stockholders is incorporated herein by reference.
We have adopted a Code of Ethics for Senior Officers (the “Code”) which applies to our chief executive officer, principal
financial officer, principal accounting officer, and persons performing similar functions. A copy of the Code can be found
on our website (www.veeco.com). We intend to disclose on our website the nature of any future amendments to and
waivers of the Code that apply to the chief executive officer, principal financial officer, principal accounting officer, or
persons performing similar functions. We have also adopted a Code of Business Conduct which applies to all of our
employees, including those listed above, as well as to our directors. A copy of the Code of Business Conduct can be found
on our website (www.veeco.com). The website address above is intended to be an inactive, textual reference only. None
of the material on this website is part of this report.
Item 11. Executive Compensation
Information required by this Item that will appear under the heading “Compensation” in the definitive proxy statement to
be filed with the SEC relating to our 2018 Annual Meeting of Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this Item that will appear under the headings “Security Ownership of Certain Beneficial Owners
and Management” and “Equity Compensation Plan Information” in the definitive proxy statement to be filed with the SEC
relating to our 2018 Annual Meeting of Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this Item that will appear under the headings “Certain Relationships and Related Transactions”
and “Independence of Board” in the definitive proxy statement to be filed with the SEC relating to our 2018 Annual
Meeting of Stockholders is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information required by this Item that will appear under the heading “Proposal 4 — Ratification of Appointment of
KPMG” in the definitive proxy statement to be filed with the SEC relating to our 2018 Annual Meeting of Stockholders is
incorporated herein by reference.
46
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a) (1) The Registrant’s financial statements together with a separate table of contents are annexed hereto
(2) Financial Statement Schedules are listed in the separate table of contents annexed hereto.
(3) Exhibits
Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities and Exchange
Commission by the Company under File No. 0-16244.
Incorporated by Reference
Exhibit
Form
Filed or
Furnished
Filing Date Herewith
8-K
2.1
2/3/2017
10-K
2.1
2/24/2015
10-K
2.1
2/28/2014
10-Q
10-K
10-Q
10-Q
10-K
8-K
10-Q
8-K
3.1
3.2
3.1
3.1
3.8
3.1
3.1
4.1
8/14/1997
3/14/2001
8/14/2000
10/26/2009
2/24/2011
2/10/2016
5/9/2001
1/18/2017
8-K
4.2
1/18/2017
10-Q
10-Q
10.2
11/14/2001
10.3
11/14/2001
Exhibit
Number Exhibit Description
2.1
2.2
2.3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4.1
4.2
10.1
10.2
Agreement and Plan of Merger, dated as of February 2, 2017 among
Ultratech, Inc., Veeco Instruments Inc. and Ulysses Acquisition
Subsidiary Corp.
Securities Purchase Agreement, dated December 4, 2014, by and
among Solid State Equipment Holdings LLC, certain securityholders
thereof, Veeco Instruments Inc. and certain other parties thereto.
Agreement and Plan of Merger, dated September 18, 2013, by and
among Veeco, Veeco Wyoming Inc., Synos Technology, Inc.,
certain stockholders of Synos Technology, Inc., and Shareholder
Representative Services LLC.
Amended and Restated Certificate of Incorporation of Veeco dated
December 1, 1994, as amended June 2, 1997 and July 25, 1997.
Amendment to Certificate of Incorporation of Veeco dated May 29,
1998.
Amendment to Certificate of Incorporation of Veeco dated May 5,
2000.
Amendment to Certificate of Incorporation of Veeco dated May 16,
2002.
Amendment to Certificate of Incorporation of Veeco dated May 18,
2010.
Fifth Amended and Restated Bylaws of Veeco, effective February 5,
2016.
Certificate of Designation, Preferences, and Rights of Series A
Junior Participating Preferred Stock of Veeco.
Indenture, dated as of January 18, 2017, by and between Veeco
Instruments Inc. and U.S. Bank National Association, as Trustee
(relating to the 2.70% Convertible Notes due 2023).
First Supplemental Indenture, dated as of January 18, 2017, by and
between Veeco Instruments Inc. and U.S. Bank National
Association, as Trustee (relating to the 2.70% Convertible Notes
due 2023).
Loan Agreement dated as of December 15, 1999 between Applied
Epi, Inc. and Jackson National Life Insurance Company.
Promissory Note dated as of December 15, 1999 issued by Applied
Epi, Inc. to Jackson National Life Insurance Company.
47
Incorporated by Reference
Exhibit
Form
Filed or
Furnished
Filing Date Herewith
10-Q
10.2
8/14/2002
10-Q
10.4
8/4/2006
10-Q
10.1
8/7/2007
10-K
10.41
3/2/2009
Def 14A Appendix A 11/4/2013
S-8
10-Q
S-8
10.1
10.1
10.1
6/26/2016
11/3/2017
5/26/2017
10-Q
10.1
8/3/2015
10-Q
10.1
11/1/2016
10-Q
10.2
11/1/2016
10-Q
S-8
8-K
10.1
10.9
10.1
11/4/2013
6/26/2016
2/3/2017
10-Q
10.2
8/3/2017
10-K
10-Q
10-K
10-Q
10-Q
10.22
2/28/2014
10.3
8/7/2007
10.38
3/2/2009
10.1
10.2
7/29/2010
5/9/2012
Exhibit
Number Exhibit Description
10.3
Amendment to Loan Documents effective as of September 17, 2001
between Applied Epi, Inc. and Jackson National Life Insurance
Company (executed in June 2002).
10.4* Veeco Amended and Restated 2000 Stock Incentive Plan, effective
July 20, 2006.
10.5* Amendment No. 1 effective April 18, 2007 (ratified by the Board
August 7, 2007) to Veeco Amended and Restated 2000 Stock
Incentive Plan.
10.6* Amendment No. 2 dated January 22, 2009 to Veeco Amended and
Restated 2000 Stock Incentive Plan.
10.7* Veeco Amended and Restated 2010 Stock Incentive Plan, effective
May 14, 2010.
10.8* Veeco Amended and Restated 2010 Stock Incentive Plan, effective
May 5, 2016.
10.9* Veeco Amended and Restated 2010 Stock Incentive Plan, effective
March 3, 2017.
10.10* Ultratech, Inc. 1993 Stock Option/Stock Issuance Plan (as Amended
10.11*
10.12*
10.13*
and Restated as of May 31, 2011).
Form of Notice of Performance Share Award and related terms and
conditions pursuant to the Veeco 2010 Stock Incentive Plan,
effective June 2015.
Form of Notice of Performance Share Award and related terms and
conditions pursuant to the Veeco 2010 Stock Incentive Plan,
effective June 2016.
Form of Notice of Critical Priorities Performance Share Award and
related terms and conditions pursuant to the Veeco 2010 Stock
Incentive Plan, effective June 2016.
10.14* Veeco 2013 Inducement Stock Incentive Plan, effective
September 26, 2013.
10.15* Veeco Instruments Inc. 2016 Employee Stock Purchase Plan.
Form of Support Agreement (issued in connection with the
10.16*
Agreement and Plan of Merger with Ultratech, Inc. dated February 2,
2017).
Form of Amended and Restated Indemnification Agreement entered
into between Veeco and each of its directors and executive officers
(August 2017).
10.17*
10.18* Veeco Amended and Restated Senior Executive Change in Control
Policy, effective as of January 1, 2014.
10.19* Employment Agreement effective as of July 1, 2007 between Veeco
and John R. Peeler.
10.20* Amendment effective December 31, 2008 to Employment Agreement
10.21*
between Veeco and John R. Peeler.
Second Amendment effective June 11, 2010 to Employment
Agreement between Veeco and John R. Peeler.
10.22* Third Amendment effective April 25, 2012 to Employment
Agreement between Veeco and John R. Peeler.
48
Exhibit
Number Exhibit Description
10.23* Amendment dated June 12, 2014 to Employment Agreement between
Veeco and John R. Peeler.
10.24* Amendment dated June 12, 2017 to Employment Agreement between
Veeco and John R. Peeler.
10.25* Letter Agreement dated April 8, 2014 between Veeco and Shubham
Maheshwari.
10.26* Letter Agreement dated January 30, 2012 between Veeco and Dr.
William J. Miller.
10.27* Letter dated December 22, 2015 from Veeco to Dr. William J. Miller.
10.28* Letter Agreement dated January 21, 2004 between Veeco and John P.
Kiernan.
10.29* Amendment effective June 9, 2006 to Letter Agreement between
Veeco and John P. Kiernan.
10.30* Amendment effective December 31, 2008 to Letter Agreement
between Veeco and John P. Kiernan.
10.31* Letter Agreement effective as of June 19, 2009 between Veeco and
21.1
23.1
31.1
31.2
32.1
32.2
John P. Kiernan.
Subsidiaries of the Registrant.
Consent of KPMG LLP.
Certification of Chief Executive Officer pursuant to
Rule 13a—14(a) or Rule 15d—14(a) of the Securities and Exchange
Act of 1934.
Certification of Chief Financial Officer pursuant to
Rule 13a—14(a) or Rule 15d—14(a) of the Securities and Exchange
Act of 1934.
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.
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.XSD XBRL Schema.
101.PRE XBRL Presentation.
101.CAL XBRL Calculation.
101.DEF XBRL Definition.
101.LAB XBRL Label.
Incorporated by Reference
Exhibit
Form
Filed or
Furnished
Filing Date Herewith
10-Q
10-Q
10-Q
10-K
10-K
10-K
10-Q
10-K
10-Q
10.3
10.1
10.1
10.30
10.21
7/31/2014
8/3/2017
7/31/2014
2/22/2012
2/25/2016
10.38
3/12/2004
10.3
8/4/2006
10.40
3/2/2009
10.2
7/30/2009
X
X
X
X
X
X
**
**
**
**
**
**
* Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a) (3) of Form 10-K.
** Filed herewith electronically
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February
21, 2018.
Veeco Instruments Inc.
By:
/S/ JOHN R. PEELER
John R. Peeler
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities indicated, on February 21, 2018.
Signature
Title
/s/ JOHN R. PEELER
John R. Peeler
Chairman and Chief Executive Officer
(principal executive officer)
/s/ SHUBHAM MAHESHWARI
Shubham Maheshwari
Executive Vice President and Chief Financial Officer
(principal financial officer)
/s/ JOHN P. KIERNAN
John P. Kiernan
/s/ KATHLEEN A. BAYLESS
Kathleen A. Bayless
/s/ RICHARD A. D’AMORE
Richard A. D’Amore
/s/ GORDON HUNTER
Gordon Hunter
/s/ KEITH D. JACKSON
Keith D. Jackson
/s/ PETER J. SIMONE
Peter J. Simone
/s/ THOMAS ST. DENNIS
Thomas St. Dennis
Senior Vice President, Finance, Chief Accounting Officer,
and Treasurer
(principal accounting officer)
Director
Director
Director
Director
Director
Director
50
Veeco Instruments Inc. and Subsidiaries
Index to Consolidated Financial Statements and Financial Statement Schedule
Reports of Independent Registered Public Accounting Firm on Financial Statements ................................................................
Consolidated Balance Sheets at December 31, 2017 and 2016 .....................................................................................................
Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015 .............................................
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016, and 2015 .............
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016, and 2015.............................
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015 ............................................
Notes to Consolidated Financial Statements ..................................................................................................................................
Schedule II—Valuation and Qualifying Accounts ........................................................................................................................
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
S-1
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Veeco Instruments Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Veeco Instruments Inc. and subsidiaries (the
“Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income
(loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and
the related notes and financial statement Schedule II – Valuation and Qualifying Accounts (collectively, the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted
accounting principles
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission”, and our report dated February 21, 2018 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2015.
Melville, New York
February 21, 2018
F-2
Veeco Instruments Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, net
Inventories
Deferred cost of sales
Prepaid expenses and other current assets
Total current assets
Property, plant, and equipment, net
Intangible assets, net
Goodwill
Deferred income taxes
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Customer deposits and deferred revenue
Income taxes payable
Current portion of long-term debt
Total current liabilities
Deferred income taxes
Long-term debt
Other liabilities
Total liabilities
Stockholders' equity:
Preferred stock, $0.01 par value; 500,000 shares authorized; no shares issued and outstanding.
Common stock, $0.01 par value; 120,000,000 shares authorized; 48,229,251 and 40,714,790
shares issued at December 31, 2017 and December 31, 2016, respectively; 48,144,416 and
40,588,194 shares outstanding at December 31, 2017 and December 31, 2016, respectively.
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Treasury stock, at cost, 84,835 and 126,596 shares at December 31, 2017 and 2016, respectively.
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2017
December 31,
2016
$
279,736
847
47,780
98,866
120,266
16,060
33,437
$
277,444
—
66,787
58,020
77,063
6,160
16,034
596,992
85,058
369,843
307,131
2,953
25,310
501,508
60,646
58,378
114,908
2,045
21,047
$
1,387,287
$
758,532
$
50,318
60,339
108,953
3,846
—
$
22,607
33,201
85,022
2,311
368
223,456
36,845
275,630
10,643
546,574
143,509
13,199
826
6,403
163,937
—
—
482
1,053,079
(213,376)
1,812
(1,284)
840,713
407
763,303
(168,583)
1,777
(2,309)
594,595
$
1,387,287
$
758,532
See accompanying Notes to the Consolidated Financial Statements.
F-3
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
For the year ended December 31,
2016
2015
2017
Net sales
Cost of sales
Gross profit
Operating expenses, net:
Research and development
Selling, general, and administrative
Amortization of intangible assets
Restructuring
Acquisition costs
Asset impairment
Other, net
Total operating expenses, net
Operating income (loss)
Interest income
Interest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Income (loss) per common share:
Basic
Diluted
Weighted average number of shares:
Basic
Diluted
$
484,756
300,438
184,318
$
332,451
199,593
132,858
$
477,038
299,797
177,241
81,987
100,250
35,475
11,851
17,786
1,139
(392)
248,096
(63,778)
2,335
(19,457)
(80,900)
(36,107)
(44,793)
$
81,016
77,642
19,219
5,640
—
69,520
223
253,260
(120,402)
1,180
(222)
(119,444)
2,766
(122,210)
$
78,543
90,188
27,634
4,679
—
126
(697)
200,473
(23,232)
1,050
(464)
(22,646)
9,332
(31,978)
$
$
$
(1.01)
(1.01)
$
$
(3.11)
(3.11)
$
$
(0.80)
(0.80)
44,174
44,174
39,340
39,340
39,742
39,742
See accompanying Notes to the Consolidated Financial Statements.
F-4
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Net income (loss)
Other comprehensive income (loss), net of tax:
Available-for-sale securities:
Change in net unrealized gains or losses
Reclassification adjustments for net (gains) losses included in net loss
Net unrealized gain (loss) on available-for-sale securities
Minimum pension liability:
Change in minimum pension liability
Reclassification adjustments for net (gains) losses included in net loss
Net changes related to minimum pension liability
Currency translation adjustments:
Change in currency translation adjustments
Reclassification adjustments for net (gains) losses included in net loss
Net changes related to currency translation adjustments
Other comprehensive income (loss), net of tax
For the year ended December 31,
2016
(44,793)
$
(122,210)
2015
$
(31,978)
2017
$
(7)
—
(7)
—
—
—
42
—
42
35
(6)
18
12
—
866
866
(19)
(430)
(449)
429
(49)
—
(49)
15
—
15
(87)
—
(87)
(121)
Total comprehensive income (loss)
$
(44,758)
$
(121,781)
$
(32,099)
See accompanying Notes to the Consolidated Financial Statements.
F-5
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(in thousands)
Balance at December 31, 2014
Net loss
Other comprehensive loss, net of tax
Share-based compensation expense
Net issuance under employee stock plans
Purchases of common stock
Balance at December 31, 2015
Cumulative effect of change in accounting
principle - adoption of ASU 2016-09
Net loss
Other comprehensive income, net of tax
Share-based compensation expense
Net issuance under employee stock plans
Purchases of common stock
Balance at December 31, 2016
Net loss
Other comprehensive income, net of tax
Share-based compensation expense
Net issuance under employee stock plans
Stock issuance for business acquisition
Convertible Senior Notes, equity component
Purchases of common stock
Balance at December 31, 2017
Common Stock
Treasury Stock
Shares
40,360
—
—
—
636
—
40,996
Amount
$
404
—
—
—
6
—
410
Shares
—
—
—
—
—
469
469
Amount
$
—
—
—
—
—
(9,222)
(9,222)
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
(Accumulated Comprehensive
Deficit)
Income
$
750,139
—
—
17,986
(988)
—
767,137
$
(13,080)
(31,978)
—
—
—
—
(45,058)
$
1,469
—
(121)
—
—
—
1,348
—
—
—
—
1,315
—
—
—
(281)
—
40,715
—
—
—
313
7,201
—
—
48,229
—
—
—
(3)
—
407
—
—
—
3
72
—
—
482
$
—
—
—
(1,072)
730
127
—
—
—
(245)
—
—
—
19,948
(13,035)
(2,309)
—
—
—
4,043
—
203
85
—
(3,018)
(1,284)
$
—
—
15,741
(20,890)
—
763,303
—
—
24,396
(9,795)
228,800
46,375
—
1,053,079
$
(1,315)
(122,210)
—
—
—
—
(168,583)
(44,793)
—
—
—
—
—
429
—
—
—
1,777
—
35
—
—
—
—
(213,376)
$
—
—
1,812
$
$
Total
738,932
(31,978)
(121)
17,986
(982)
(9,222)
714,615
—
(122,210)
429
15,741
(945)
(13,035)
594,595
(44,793)
35
24,396
(5,749)
228,872
46,375
(3,018)
840,713
$
See accompanying Notes to the Consolidated Financial Statements.
F-6
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Cash Flows from Operating Activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
For the year ended December 31,
2017
2016
2015
$
(44,793)
$
(122,210)
$
(31,978)
Depreciation and amortization
Non-cash interest expense
Deferred income taxes
Share-based compensation expense
Asset impairment
Provision for bad debts
Gain on sale of lab tools
Gain on cumulative translation adjustment
Changes in operating assets and liabilities:
Accounts receivable
Inventories and deferred cost of sales
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Customer deposits and deferred revenue
Income taxes receivable and payable, net
Long-term income tax liability
Other, net
Net cash provided by (used in) operating activities
Cash Flows from Investing Activities
Acquisitions of businesses, net of cash
Capital expenditures
Proceeds from the sale of investments
Payments for purchases of investments
Proceeds from held for sale assets
Other
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities
Proceeds (net of tax withholdings) from option exercises and employee stock purchase plan
Restricted stock tax withholdings
Purchases of common stock
Proceeds from long-term debt borrowings
Principal payments on long-term debt
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents - beginning of period
Cash and cash equivalents - end of period
Supplemental Disclosure of Cash Flow Information
Interest paid
Income taxes paid
Non-cash operating and financing activities
Net transfer of inventory to property, plant and equipment
50,095
10,446
(33,875)
24,396
1,139
99
—
—
4,520
6,336
(10,204)
12,197
19,096
775
(4,877)
(1,204)
34,146
(401,828)
(24,272)
348,927
(282,947)
2,284
—
(357,836)
2,992
(8,741)
(2,869)
335,752
(1,194)
325,940
32,650
—
940
15,741
69,520
171
—
(430)
(8,667)
(5,389)
6,726
(24,202)
8,807
547
—
1,952
(23,844)
—
(11,479)
152,301
(103,394)
9,512
(230)
46,710
1,656
(2,601)
(13,349)
—
(340)
(14,634)
39,850
—
2,648
17,986
126
43
(1,261)
—
10,715
(12,312)
(39)
9,470
(20,738)
759
—
520
15,789
(68)
(13,887)
88,647
(85,838)
3,068
1,000
(7,078)
2,233
(3,215)
(8,907)
—
(314)
(10,203)
42
(20)
(87)
2,292
277,444
279,736
$
8,212
269,232
277,444
$
(1,579)
270,811
269,232
$
$
4,675
1,939
$
225
1,669
$
485
7,091
(97)
1,827
—
See accompanying Notes to the Consolidated Financial Statements.
F-7
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 — Significant Accounting Policies
(a) Description of Business
Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco,” or the “Company”) operates in a single
segment: the development, manufacture, sales, and support of semiconductor process equipment primarily sold to make
electronic devices.
(b) Basis of Presentation
The accompanying audited Consolidated Financial Statements of the Company have been prepared in accordance with
United States generally accepted accounting principles (“GAAP”). The Company reports interim quarters on a 13-week
basis ending on the last Sunday of each period, which is determined at the start of each year. The Company’s fourth
quarter always ends on the last day of the calendar year, December 31. During 2017 the interim quarters ended on April 2,
July 2, and October 1, and during 2016 the interim quarters ended on April 3, July 3, and October 2. The Company reports
these interim quarters as March 31, June 30, and September 30 in its interim consolidated financial statements.
(c) Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these
estimates are based on management’s knowledge of current events and actions it may undertake in the future, these
estimates may ultimately differ from actual results. Significant items subject to such estimates and assumptions include:
(i) the best estimate of selling price for the Company’s products and services; (ii) allowances for doubtful accounts; (iii)
inventory obsolescence; (iv) the useful lives and expected future cash flows of property, plant, and equipment and
identifiable intangible assets; (v) the fair value of the Company’s reporting unit and related goodwill; (vi) the fair value,
less cost to sell, of assets held for sale; (vii) investment valuations and the valuation of derivatives, deferred tax assets, and
assets acquired in business combinations; (viii) the recoverability of long-lived assets; (ix) liabilities for product warranty
and legal contingencies; (x) share-based compensation; and (xi) income tax uncertainties. Actual results could differ from
those estimates.
(d) Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. Intercompany balances
and transactions have been eliminated in consolidation. Companies acquired during each reporting period are reflected in
the results of the Company effective from their respective dates of acquisition through the end of the reporting period.
(e) Foreign Currencies
Assets and liabilities of the Company’s foreign subsidiaries that operate using local functional currencies are translated
using the exchange rates in effect at the balance sheet date. Results of operations are translated using monthly average
exchange rates. Adjustments arising from the translation of the foreign currency financial statements of the Company’s
subsidiaries into U.S. dollars, including intercompany transactions of a long-term nature, are reported as currency
translation adjustments in “Accumulated other comprehensive income” in the Consolidated Balance Sheets. Foreign
currency transaction gains or losses are included in “Other, net” in the Consolidated Statements of Operations.
F-8
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(f) Revenue Recognition
The Company recognizes revenue when all of the following criteria have been met: persuasive evidence of an
arrangement exists with a customer; delivery of the specified products has occurred or services have been rendered; prices
are contractually fixed or determinable; and collectability is reasonably assured. Revenue is recorded including shipping
and handling costs and excluding applicable taxes related to sales.
Contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts,
maintenance, and service plans. Judgment is required to properly identify the accounting units of the multiple-element
arrangements and to determine how the revenue should be allocated among the accounting units. The Company also
evaluates whether multiple transactions with the same customer or related parties should be considered part of a single,
multiple-element arrangement based on an assessment of whether the contracts or agreements are negotiated or executed
within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one
another. Moreover, judgment is used in interpreting the commercial terms and determining when all criteria have been
met in order to recognize revenue in the appropriate accounting period.
When there are separate units of accounting, the Company allocates revenue to each element based on the following
selling price hierarchy: vendor-specific objective evidence (“VSOE”) if available; third party evidence (“TPE”) if VSOE
is not available; or the best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. The Company uses
BESP for the elements in its arrangements. The maximum revenue recognized on a delivered element is limited to the
amount that is not contingent upon the delivery of additional items.
The Company considers many facts when evaluating each of its sales arrangements to determine the timing of revenue
recognition including its contractual obligations, the customer’s creditworthiness, and the nature of the customer’s post-
delivery acceptance provisions. The Company’s system sales arrangements, including certain upgrades, generally include
field acceptance provisions that may include functional or mechanical test procedures. For the majority of the
arrangements, a customer source inspection of the system is performed in the Company’s facility or test data is sent to the
customer documenting that the system is functioning to the agreed upon specifications prior to delivery. Historically, such
source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to
final acceptance of the system. When the Company objectively demonstrates that the criteria specified in the contractual
acceptance provisions are achieved prior to delivery, revenue is recognized upon system delivery since there is no
substantive contingency remaining related to the acceptance provisions at that date, subject to the retention amount
constraint described below for certain contracts. For new products, new applications of existing products, or for products
with substantive customer acceptance provisions where the Company cannot objectively demonstrate that the criteria
specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs
are deferred and fully recognized upon the receipt of final customer acceptance, assuming all other revenue recognition
criteria have been met.
The Company’s system sales arrangements, including certain upgrades, generally do not contain provisions for the right
of return, forfeiture, refund, or other purchase price concession. In the rare instances where such provisions are included,
all revenue is deferred until such rights expire. The sales arrangements generally include installation. The installation
process is not deemed essential to the functionality of the equipment since it is not complex; it does not require significant
changes to the features or capabilities of the equipment or involve constructing elaborate interfaces or connections
subsequent to factory acceptance. The Company has a demonstrated history of consistently completing installations in a
timely manner and can reliably estimate the costs of such activities. Most customers engage the Company to perform the
installation services, although there are other third-party providers with sufficient knowledge who could complete these
services. Based on these factors, installation is deemed to be inconsequential or perfunctory relative to the system sale as a
whole, and as a result, installation service is not considered a separate element of the arrangement. As such, the Company
records the cost of the installation at the earlier of the time of revenue recognition for the system or when installation
services are performed.
F-9
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
In certain cases the Company’s products are sold with a billing retention, typically 10% of the sales price, which is billed
by the Company and payable by the customer when field acceptance provisions are completed. The amount of revenue
recognized upon delivery of a system or upgrade, if any, is limited to the lower of i) the amount billed that is not
contingent upon acceptance provisions or ii) the value of the arrangement consideration allocated to the delivered
elements, if such sale is part of a multiple-element arrangement.
The Company recognizes revenue related to maintenance and service contracts ratably over the applicable contract term.
The Company recognizes revenue from the sales of components, spare parts, and specified service engagements at the
time of delivery in accordance with the terms of the applicable sales arrangement.
Incremental direct costs incurred related to the acquisition of a customer contract, such as sales commissions, are
expensed as incurred, even if the related revenue is deferred in accordance with the above policy.
(g) Warranty Costs
The Company typically provides standard warranty coverage on its systems for one year from the date of final acceptance
by providing labor and parts necessary to repair the systems during the warranty period. The Company accounts for the
estimated warranty cost when revenue is recognized on the related system. Warranty cost is included in “Cost of sales” in
the Consolidated Statements of Operations. The estimated warranty cost is based on the Company’s historical experience
with its systems and regional labor costs. The Company calculates the average service hours by region and parts expense
per system utilizing actual service records to determine the estimated warranty charge. The Company updates its warranty
estimates on a semiannual basis when the actual product performance or field expense differs from original estimates.
(h) Shipping and Handling Costs
Shipping and handling costs are expenses incurred to move, package, and prepare the Company’s products for shipment and
to move the products to a customer’s designated location. These costs are generally comprised of payments to third-party
shippers. Shipping and handling costs are included in “Cost of sales” in the Consolidated Statements of Operations.
(i) Research and Development Costs
Research and development costs are expensed as incurred and include charges for the development of new technology and
the transition of existing technology into new products or services.
(j) Advertising Expense
The cost of advertising is expensed as incurred and totaled $0.9 million, $0.8 million, and $0.9 million for the years ended
December 31, 2017, 2016, and 2015, respectively.
(k) Accounting for Share-Based Compensation
Share-based awards exchanged for employee services are accounted for under the fair value method. Accordingly, share-
based compensation cost is measured at the grant date based on the fair value of the award. The expense for awards is
recognized over the employee’s requisite service period (generally the vesting period of the award). The Company has
elected to treat awards with only service conditions and with graded vesting as one award. Consequently, the total
compensation expense is recognized straight-line over the entire vesting period, so long as the compensation cost
recognized at any date at least equals the portion of the grant date fair value of the award that is vested at that date.
The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of option awards, as well
as purchase rights under the Employee Stock Purchase Plan. The Black-Scholes model includes assumptions regarding
dividend yields, expected volatility, expected option term, and risk-free interest rates. See Note 15, “Stock Plans,” for
F-10
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
additional information.
In addition to stock options, restricted share awards (“RSAs”) and restricted stock units (“RSUs”) with time-based
vesting, the Company issues performance share units and awards (“PSUs” and “PSAs”). Compensation cost for PSUs and
PSAs is recognized over the requisite service period based on the timing and expected level of achievement of the
performance targets. A change in the assessment of the probability of a performance condition being met is recognized in
the period of the change in estimate. At the conclusion of the performance period, the number of shares granted may vary
based on the level of achievement of the performance targets.
See Note 1(u), “Recently Adopted Accounting Standards,” for additional information concerning the Company’s early
adoption of Accounting Standards Update (“ASU”) 2016-09: Stock Compensation: Improvements to Employee Share-
Based Payment Accounting.
(l) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax
rate is recognized in income in the period that includes the enactment date.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act (the “2017 Tax Act”), which makes broad and complex changes to the U.S. tax code. Certain income tax
effects of the 2017 Tax Act are reflected in the Company’s financial results in accordance with Staff Accounting Bulletin
No. 118 (“SAB 118”), which provides SEC staff guidance regarding the application of Accounting Standards Codification
Topic 740 Income Taxes (“ASC 740”). See Note 17, “Income Taxes,” for further information on the financial statement
impact of the 2017 Tax Act.
Because of the complexity of the new global intangible low-taxed income (“GILTI”) rule, the Company is continuing to
evaluate this provision of the 2017 Tax Act and the application of ASC 740. Under U.S. GAAP, the Company is allowed
to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to
GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into the
Company’s measurement of its deferred taxes (the “deferred method”). The Company’s selection of an accounting policy
with respect to the new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it
expects to have future U.S. inclusions in taxable income related to GILTI, and if so, what the impact will be. This
assessment depends not only on the Company’s current structure and estimated future results of global operations, but
also on its intent and ability to modify its structure and/or business. The Company is not yet able to reasonably estimate
the effect of this provision of the 2017 Tax Act; therefore, the Company has not made any adjustments related to potential
GILTI tax in its consolidated financial statements and has not made a policy election decision regarding whether to record
deferred taxes on GILTI.
(m) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and
cash equivalents, investments, derivative financial instruments used in hedging activities, and accounts receivable. The
Company invests in a variety of financial instruments and, by policy, limits the amount of credit exposure with any one
financial institution or commercial issuer. The Company has not experienced any material credit losses on its investments.
The Company maintains an allowance reserve for potentially uncollectible accounts for estimated losses resulting from
the inability of its customers to make required payments. The Company evaluates its allowance for doubtful accounts
F-11
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
based on a combination of factors. In circumstances where specific invoices are deemed to be uncollectible, the Company
provides a specific allowance for bad debt against the amount due to reduce the net recognized receivable to the amount
reasonably expected to be collected. The Company also provides allowances based on its write-off history. The allowance
for doubtful accounts totaled $0.3 million at December 31, 2017 and 2016.
To further mitigate the Company’s exposure to uncollectable accounts, the Company may request certain customers
provide a negotiable irrevocable letter of credit drawn on a reputable financial institution. These irrevocable letters of
credit are typically issued to mature between zero and 90 days from the date the documentation requirements are met,
typically when a system ships or upon receipt of final acceptance from the customer. The Company, at its discretion, may
monetize these letters of credit on a non-recourse basis after they become negotiable, but before maturity. The fees
associated with the monetization are included in “Selling, general, and administrative” in the Consolidated Statements of
Operations and were insignificant for the years ended December 31, 2017, 2016, and 2015.
(n) Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts
payable, and accrued expenses reflected in the consolidated financial statements approximate fair value due to their short-
term maturities. The fair value of debt for footnote disclosure purposes, including current maturities, if any, is estimated
using recently quoted market prices of the instrument, or if not available, a discounted cash flow analysis based on the
estimated current incremental borrowing rates for similar types of instruments.
(o) Cash, Cash Equivalents, and Short-Term Investments
All financial instruments purchased with an original maturity of three months or less at the time of purchase are
considered cash equivalents. Such items may include liquid money market accounts, U.S. treasuries, government agency
securities, and corporate debt. Investments that are classified as cash equivalents are carried at cost, which approximates
fair value. The Company’s cash and cash equivalents includes $12.5 million and $1.5 million of cash equivalents at
December 31, 2017 and 2016, respectively.
A portion of the Company’s cash and cash equivalents is held by its subsidiaries throughout the world, frequently in each
subsidiary’s respective functional currency, which is typically the U.S. dollar. Approximately 77% and 54% of cash and
cash equivalents were maintained outside the United States at December 31, 2017 and 2016, respectively.
Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are
reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’
equity under the caption “Accumulated other comprehensive income.” These securities can include U.S. treasuries,
government agency securities, corporate debt, and commercial paper, all with maturities of greater than three months
when purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other
than temporary are included in “Other, net” in the Consolidated Statements of Operations. The specific identification
method is used to determine the realized gains and losses on investments.
(p) Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The
Company assesses the valuation of all inventories, including manufacturing raw materials, work-in-process, and finished
goods, each quarter. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written
down to its estimated net realizable value if less than cost. Estimates of net realizable value include, but are not limited to,
management’s forecasts related to the Company’s future manufacturing schedules, customer demand, technological
and/or market obsolescence, general market conditions, possible alternative uses, and ultimate realization of excess
inventory. If future customer demand or market conditions are less favorable than the Company’s projections, additional
inventory write-downs may be required and would be reflected in cost of sales in the period the revision is made.
F-12
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Inventory acquired as part of a business combination is recorded at fair value on the date of acquisition. See Note 5,
“Business Combinations,” for additional information.
(q) Business Combinations
The Company allocates the fair value of the purchase consideration of the Company’s acquisitions to the tangible assets,
intangible assets, including in-process research and development (“IPR&D”), if any, and liabilities assumed, based on
estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets
and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business
combination and are expensed as incurred. See Note 5, “Business Combinations,” for additional information.
(r) Goodwill and Indefinite-Lived Intangibles
Goodwill is an asset representing the future economic benefits arising from assets acquired in a business combination that
are not individually identified and separately recognized. Goodwill is measured as the excess of the consideration
transferred over the net fair value of identifiable assets acquired and liabilities assumed. Intangible assets with indefinite
useful lives are measured at their respective fair values on the acquisition date. Intangible assets related to IPR&D projects
are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. If and when
development is complete, the associated assets would be deemed long-lived and would then be amortized based on their
respective estimated useful lives at that point in time. Goodwill and indefinite-lived intangibles are not amortized into
results of operations but instead are evaluated for impairment. The Company performs the evaluation in the fourth quarter
of each year or more frequently if impairment indicators arise.
The Company may first perform a qualitative assessment of whether it is more likely than not that the reporting unit’s fair
value is less than its carrying amount, and, if so, the Company then quantitatively compares the fair value of the reporting
unit to its carrying amount. If the fair value exceeds the carrying amount, goodwill is not impaired. If the carrying amount
exceeds fair value, the Company then records an impairment loss equal to the difference, up to the carrying value of
goodwill.
The Company determines the fair value of its reporting unit based on a reconciliation of the fair value of the reporting unit
to the Company’s adjusted market capitalization. The adjusted market capitalization is calculated by multiplying the
average share price of the Company’s common stock for the last ten trading days prior to the measurement date by the
number of outstanding common shares and adding a control premium.
(s) Long-Lived Assets and Cost Method Investment
Long-lived intangible assets consist of purchased technology, customer relationships, patents, trademarks and tradenames,
covenants not-to-compete, and backlog and are initially recorded at fair value. Long-lived intangibles are amortized over
their estimated useful lives in a method reflecting the pattern in which the economic benefits are consumed or straight-
lined if such pattern cannot be reliably determined.
Property, plant, and equipment are recorded at cost. Depreciation expense is calculated based on the estimated useful lives
of the assets by using the straight-line method. Amortization of leasehold improvements is recognized using the straight-
line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Long-lived assets and cost method investments are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset
group be tested for possible impairment, a recoverability test is performed utilizing undiscounted cash flows expected to
be generated by that asset or asset group compared to its carrying amount. If the carrying amount of the long-lived asset or
asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent the carrying
F-13
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash
flow models or, when available, quoted market values, and third-party appraisals.
(t) Recent Accounting Pronouncements
The FASB issued ASU 2014-09, as amended: Revenue from Contracts with Customers, which has been codified as
Accounting Standards Codification 606 (“ASC 606”). ASC 606 requires the Company’s revenue recognition to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be
entitled in exchange for those goods or services. ASC 606 outlines a five-step model to make the revenue recognition
determination and requires new financial statement disclosures. Publicly-traded companies are required to adopt ASC 606
for reporting periods beginning after December 15, 2017. The most significant financial statement impacts of adopting
ASC 606 will be the elimination of the constraint on revenue associated with the billing retention related to the receipt of
customer final acceptance as well as the identification of installation services as a performance obligation. The elimination
of the constraint on revenue related to customer final acceptance, which is usually about 10 percent of a system sale, will
generally be recognized at the time the Company transfers control of the system to the customer, which is earlier than
under the Company’s current revenue recognition model for certain contracts that are subject to the billing retention
constraint described above. The new performance obligation related to installation services under the new standard will
generally be recognized as the installation services are performed, which is later than under the Company’s current
revenue recognition model. Taken together, the Company does not believe these changes will have a material impact on
the consolidated financial statements. The Company plans to adopt using the full retrospective method.
In January 2016, the FASB issued ASU 2016-01: Financial Instruments – Overall, which requires certain equity
investments to be measured at fair value, with changes in fair value recognized in net income. For equity investments
without readily observable market prices, entities have the option to either measure these investments at fair value every
quarter, or measure at cost adjusted for changes in observable prices minus impairment. Changes in measurement under
either alternative must be recognized in net income. Publicly-traded companies are required to adopt the update for
reporting periods beginning after December 15, 2017; early adoption is permitted. The Company does not expect this
ASU will have a material impact on the consolidated financial statements upon adoption, and will monitor its cost method
investments each reporting period for changes in observable market prices, if any, which may be material in future
periods.
In February 2016, the FASB issued ASU 2016-02: Leases, which generally requires operating lessee rights and
obligations to be recognized as assets and liabilities on the balance sheet. In addition, interest on lease liabilities is to be
recognized separately from the amortization of right-of-use assets in the Statement of Operations. Further, payments of
the principal portion of lease liabilities are to be classified as financing activities while payments of interest on lease
liabilities and variable lease payments are to be classified as operating activities in the Statement of Cash Flows. When the
standard is adopted, the Company will be required to recognize and measure leases at the beginning of the earliest period
presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December
15, 2018, with early application permitted. The Company is evaluating the anticipated impact of adopting the ASU on the
consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and
Cash Payments, which provides guidance on eight specific cash flow issues, including debt prepayments or debt
extinguishment costs. Publicly-traded companies are required to adopt the update for reporting periods beginning after
December 15, 2017. This ASU will not have a material impact on the consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory,
which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than
inventory, when the transfer occurs. Publicly-traded companies are required to adopt the update for reporting periods
beginning after December 15, 2017. This ASU will not have a material impact on the consolidated financial statements.
F-14
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company is also evaluating other pronouncements recently issued but not yet adopted. The adoption of these
pronouncements is not expected to have a material impact on our consolidated financial statements.
(u) Recently Adopted Accounting Standards
In January 2017, the FASB issued ASU 2017-04: Simplifying the Test for Goodwill Impairment, which eliminates the
requirement to calculate the implied fair value of goodwill when testing goodwill for impairment. Instead, if the carrying
value of an entity’s reporting unit(s) exceeds fair value, then an impairment charge should be recorded equal to the
difference. The Company has early adopted the ASU effective January 1, 2017, and it did not have a material impact on
the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09: Stock Compensation: Improvements to Employee Share-Based Payment
Accounting, which simplifies several aspects of the accounting for share-based payments. The Company early adopted the
ASU effective January 1, 2016. Beginning in 2016, excess tax benefits and deficiencies are recognized as income tax
expense or benefit in the income statement in the reporting period incurred. The Company also made an accounting policy
election to account for forfeitures when they occur. The ASU transition guidance requires that this election be applied on
a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the
period in which the ASU is adopted. Accordingly, the Company recorded a $1.3 million charge to the opening
accumulated deficit balance as of January 1, 2016, with a corresponding adjustment to additional paid-in capital, resulting
in no impact to the opening balance of total stockholders’ equity. In addition, the Company recorded additional deferred
tax assets with an equally offsetting valuation allowance of $2.4 million.
Note 2 — Income (Loss) Per Share
The Company considers unvested share-based awards that have non-forfeitable rights to dividends prior to vesting to be
participating shares, which are treated as a separate class of security from the Company’s common shares for calculating
per share data. Therefore, the Company applies the two-class method when calculating income (loss) per share. The two-
class method is an earnings allocation formula that determines earnings per share for each class of common stock and
participating security according to dividends declared and participation rights in undistributed earnings. However, since
the holders of the participating shares are not obligated to fund losses, participating shares are excluded from the
calculation of loss per share.
The dilutive effect of the Convertible Senior Notes on income per share is calculated using the treasury stock method
since the Company has both the current intent and ability to settle the principal amount of the Convertible Senior Notes in
cash. See Note 12, “Debt,” for additional information on the Convertible Senior Notes.
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares
outstanding during the period under the two-class method. Diluted income per share is calculated by dividing net income
by the weighted average number of shares used to calculate basic income per share plus the weighted average number of
common share equivalents outstanding during the period. The dilutive effect of outstanding options to purchase common
stock and non-participating share-based awards is considered in diluted income per share by application of the treasury
stock method. The dilutive effect of performance share units is included in diluted income per common share in the
periods the performance targets have been achieved. The computations of basic and diluted income (loss) per share for the
years ended December 31, 2017, 2016, and 2015 are as follows:
F-15
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
Basic weighted average shares outstanding
Effect of potentially dilutive share-based awards
Diluted weighted average shares outstanding
Unvested participating shares excluded from basic weighted average shares
outstanding since the securityholders are not obligated to fund losses
Common share equivalents excluded from the diluted weighted average
shares outstanding since Veeco incurred a net loss and their effect would be
antidilutive
2017
For the year ended December 31,
2016
(in thousands, except per share am ounts)
(44,793)
(122,210)
$
2015
$
(31,978)
$
$
$
(1.01)
(1.01)
$
$
(3.11)
(3.11)
$
$
(0.80)
(0.80)
44,174
—
44,174
72
239
39,340
—
39,340
312
107
39,742
—
39,742
1,017
146
Potentially dilutive non-participating shares excluded from the diluted
calculation as their effect would be antidilutive
1,744
1,896
2,111
Maximum potential shares to be issued for settlement of Convertible Senior
Notes excluded from the diluted calculation as their effect would be
antidilutive
8,618
—
—
Note 3 — Fair Value Measurements
Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction
between market participants. The Company is required to classify certain assets and liabilities based on the following fair
value hierarchy:
• Level 1: Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical,
unrestricted assets or liabilities;
• Level 2: Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar
assets and liabilities in active markets or financial instruments for which significant inputs are observable, either
directly or indirectly; and
• Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and
unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to
the fair value measurement. The Company has evaluated the estimated fair value of financial instruments using available
market information and valuations as provided by third-party sources. The use of different market assumptions or
estimation methodologies could have a significant effect on the estimated fair value amounts.
F-16
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table presents the Company’s assets that were measured at fair value on a recurring basis at December 31,
2017 and 2016:
December 31, 2017
Cash equivalents
Corporate debt
Total
Short-term investments
U.S. treasuries
Corporate debt
Commercial paper
Total
December 31, 2016
Cash equivalents
Corporate debt
Total
Short-term investments
U.S. treasuries
Government agency securities
Corporate debt
Commercial paper
Total
Level 1
Level 2
Level 3
Total
(in thousands)
$
12,490
$
—
$
—
$
12,490
$
12,490
$
—
$
—
$
12,490
$
33,895
$
—
$
—
$
33,895
—
—
10,886
2,999
—
—
10,886
2,999
$
33,895
$
13,885
$
—
$
47,780
$
—
$
1,501
$
—
$
1,501
$
—
$
1,501
$
—
$
1,501
$
40,008
$
—
$
—
$
40,008
—
—
—
10,012
13,773
2,994
—
—
—
10,012
13,773
2,994
$
40,008
$
26,779
$
—
$
66,787
The Company’s investments classified as Level 1 are based on quoted prices that are available in active markets. The
Company’s investments classified as Level 2 are valued using observable inputs to quoted market prices, benchmark
yields, reported trades, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency.
Note 4 — Investments
At December 31, 2017 and 2016 the amortized cost and fair value of marketable securities were as follows:
December 31, 2017
U.S. treasuries
Corporate debt
Commercial paper
Total
December 31, 2016
U.S. treasuries
Government agency securities
Corporate debt
Commercial paper
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Estimated
Fair Value
$
33,914
10,894
2,999
$
—
—
—
$
(19)
(8)
—
$
33,895
10,886
2,999
$
47,807
$
—
$
(27)
$
47,780
$
40,013
10,020
13,780
2,994
$
—
—
—
—
$
(5)
(8)
(7)
—
$
40,008
10,012
13,773
2,994
$
66,807
$
—
$
(20)
$
66,787
F-17
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Available-for-sale securities in a loss position at December 31, 2017 and 2016 were as follows:
U.S. treasuries
Government agency securities
Corporate debt
Total
December 31, 2017
December 31, 2016
Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
(in thousands)
$
33,895
—
10,886
$
(19)
—
(8)
$
20,002
10,012
13,773
$
(5)
(8)
(7)
$
44,781
$
(27)
$
43,787
$
(20)
At December 31, 2017 and 2016, there were no short-term investments that had been in a continuous loss position for
more than 12 months.
The maturities of securities classified as available-for-sale at December 31, 2017 were all due in one year or less. Actual
maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties. There were minimal realized gains or losses for the years ended December 31,
2017, 2016, and 2015.
Cost Method Investment
The Company has an ownership interest of less than 20% in a non-marketable investment, Kateeva, Inc. (“Kateeva”). The
Company does not exert significant influence over Kateeva and therefore the investment is carried at cost. The carrying
value of the investment was $21.0 million at December 31, 2017 and 2016. The investment is included in “Other assets”
on the Consolidated Balance Sheets. The investment is subject to a periodic impairment review; as there are no open-
market valuations, the impairment analysis requires judgment. The analysis includes assessments of Kateeva’s financial
condition, the business outlook for its products and technology, its projected results and cash flow, business valuation
indications from recent rounds of financing, the likelihood of obtaining subsequent rounds of financing, and the impact of
equity preferences held by Veeco relative to other investors. Fair value of the investment is not estimated unless there are
identified events or changes in circumstances that could have a significant adverse effect on the fair value of the
investment. No such events or circumstances are present.
Note 5 — Business Combinations
Ultratech
On May 26, 2017, the Company completed its acquisition of Ultratech, Inc. (“Ultratech”). Ultratech develops, manufactures,
sells, and supports lithography, laser annealing, and inspection equipment for manufacturers of semiconductor devices,
including front-end semiconductor manufacturing and advanced packaging. Ultratech also develops, manufactures, sells, and
supports ALD equipment for scientific and industrial applications. Ultratech’s customers are primarily located throughout
the United States, Europe, China, Japan, Taiwan, Singapore, and Korea. The results of Ultratech’s operations have been
included in the consolidated financial statements since the date of acquisition.
F-18
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Ultratech shareholders received (i) $21.75 per share in cash and (ii) 0.2675 of a share of Veeco common stock for each
Ultratech common share outstanding on the acquisition date. The acquisition date fair value of the consideration totaled
$633.4 million, net of cash acquired, which consisted of the following:
Acquisition Date
(May 26, 2017)
(in thousands)
Cash consideration, net of cash acquired of $229.4 million
Equity consideration (7.2 million shares issued)
Replacement equity awards attributable to pre-acquisition service
Acquisition date fair value
$
$
404,489
228,644
228
633,361
Approximately $2.7 million of the cash merger consideration is included in “Accrued expenses and other current
liabilities” on the Consolidated Balance Sheets as of December 31, 2017 related to shareholder appraisal proceedings.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition
date:
Short-term investments
Accounts receivable
Inventories
Deferred cost of sales
Prepaid expense and other current assets
Property, plant, and equipment
Intangible assets
Other assets
Total identifiable assets acquired
Accounts payable
Accrued expenses and other current liabilities
Customer deposits and deferred revenue
Deferred income taxes
Other liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Net assets acquired
Acquisition Date
(May 26, 2017)
(in thousands)
$
47,161
45,465
59,100
242
7,217
18,152
346,940
6,442
530,719
24,291
16,356
4,834
32,478
11,622
89,581
441,138
192,223
$
633,361
The gross contractual value of the acquired accounts receivable was approximately $46.0 million. The fair value of the
accounts receivables is the amount expected to be collected by the Company. Goodwill generated from the acquisition is
primarily attributable to expected synergies from future growth and strategic advantages provided through the expansion
of product offerings as well as assembled workforce and is not expected to be deductible for income tax purposes.
F-19
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The classes of intangible assets acquired and the estimated useful life of each class is presented in the table below:
Acquisition Date
(May 26, 2017)
Amount
(in thousands)
158,390
$
116,710
3,080
43,340
25,420
$
346,940
Useful life
9 years
12 years
6 months
*
7 years
Technology
Customer relationships
Backlog
In-process research and development
Trademark and tradenames
Intangible assets acquired
*In-process research and development will be amortized (or impaired) upon completion (or abandonment) of the development project.
The Company determined the estimated fair value of the identifiable intangible assets based on various factors including:
cost, discounted cash flow, income method, loss-of-revenue/income method, and relief-from-royalty method in
determining the purchase price allocation.
In-process research and development (“IPR&D”) represents the estimated fair values of incomplete Ultratech research and
development projects that had not reached the commercialization stage and meet the criteria for recognition as IPR&D as
of the date of the acquisition. In the future, the fair value of each project at the acquisition date will be either amortized or
impaired depending on whether the projects are completed or abandoned. The fair value of IPR&D was determined using
an income approach and costs to complete the project and expected commercialization timelines are considered key
assumptions. This valuation approach reflects the present value of the projected cash flows that are expected to be
generated by the IPR&D less charges representing the contribution of other assets to those cash flows. The value of the
IPR&D was determined to be $43.3 million, approximately half of which is related to Ultratech’s lithography
technologies and one-third of which is related to Ultratech’s laser annealing technologies.
For the year ended December 31, 2017, acquisition related costs were approximately $17.8 million, including non-cash
charges of $4.2 million related to accelerated share-based compensation for employee terminations.
The amounts of net sales and income (loss) from operations before income taxes of Ultratech included in the Company’s
Consolidated Statement of Operations for the year ended December 31, 2017 are as follows:
Net sales
Loss before income taxes
Year ended
December 31, 2017
(in thousands)
$
$
65,530
(62,762)
Loss before income taxes of Ultratech for the year ended December 31, 2017 of $62.8 million includes acquisition costs
of $17.8 million, release of inventory fair value step-up related to purchase accounting of $9.6 million, amortization
expense on intangible assets of $23.9 million, and restructuring charges of $3.3 million.
F-20
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table presents unaudited pro forma financial information as if the acquisition of Ultratech had occurred on
January 1, 2016:
For the year ended December 31,
2017
2016
(in thousands, except per share amounts)
Net sales
Loss before income taxes
Diluted earnings per share
$
$
555,498
(81,910)
(1.24)
526,501
(218,023)
(4.67)
$
$
The pro-forma results were calculated by combining the audited results of the Company with the stand-alone unaudited
results of Ultratech for the pre-acquisition period, and adjusting for the following:
(i)
(ii)
(iii)
(iv)
Additional amortization expense related to identified intangible assets valued as part of the purchase price
allocation that would have been incurred starting on January 1, 2016.
Additional depreciation expense for the property, plant, and equipment fair value adjustments that would have
been incurred starting on January 1, 2016.
All acquisition related costs incurred by the Company as well as by Ultratech pre-acquisition have been
removed from the year ended December 31, 2017 and included in the year ended December 31, 2016, as such
expenses would have been incurred in the first quarter following the acquisition.
All amortization of inventory step-up has been removed from the year ended December 31, 2017 and
recorded in the year ended December 31, 2016, as such costs would have been incurred as the corresponding
inventory was sold.
(v)
Additional interest expense related to the Convertible Senior Notes (see Note 12, “Debt”) as if they had been
issued on January 1, 2016.
(vi)
Income tax expense (benefit) was adjusted for the impact of the above adjustments for each period.
(vii) All shares issued in connection with the acquisition were considered outstanding as of January 1, 2016 for
purposes of calculating diluted earnings per share.
Note 6 — Goodwill and Intangible Assets
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not
individually identified and separately recognized. The following table presents the changes in goodwill balances during
the years indicated:
Balance at December 31, 2015 and 2016
Acquisition
Gross carrying
amount
Accumulated
impairment
Net amount
$
238,108
192,223
(in thousands)
$
123,200
—
$
114,908
192,223
Balance at December 31, 2017
$
430,331
$
123,200
$
307,131
The Company performs its annual goodwill impairment test at the beginning of the fourth quarter each year. As the
Company maintains a single goodwill reporting unit, it determines the fair value of its reporting unit based upon the
Company’s adjusted market capitalization. The adjusted market capitalization is calculated by multiplying the average
share price of the Company’s common stock for the last ten trading days prior to the measurement date by the number of
outstanding common shares and adding a control premium. The annual test performed at the beginning of the fourth
quarter of fiscal 2016 and 2017 did not result in any potential impairment as the fair value of the reporting unit was
F-21
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
determined to exceed the carrying amount of the reporting unit.
As a result of a significant decline in the Company’s stock price during the fourth quarter, the Company determined it was
appropriate to perform an interim goodwill impairment test as of the end of the fourth quarter. The Company determined
the fair value of its reporting unit using both the adjusted market capitalization approach noted above, and a market
approach, which was based on a review of comparable companies’ market-derived trailing twelve month revenue
multiples. Both approaches indicated the fair value exceeded the carrying amount of the reporting unit and no impairment
of goodwill existed at December 31, 2017. The valuation of goodwill will continue to be subject to changes in the
Company’s market capitalization and observable market control premiums.
The components of purchased intangible assets were as follows:
Weighted
Average Remaining
Amortization
Period
(in years)
8.0
11.4
—
6.4
—
2.0
9.2
Technology
Customer relationships
In-process R&D
Trademarks and tradenames
Indefinite-lived trademark
Other
Total
December 31, 2017
December 31, 2016
Gross
Carrying
Amount
Accumulated
Amortization
and
Impairment
Net
Amount
Gross
Carrying
Amount
Accumulated
Amortization
and
Impairment
Net
Amount
(in thousands)
$
$
$
$
$
$
307,588
164,595
43,340
30,910
—
3,686
550,119
133,121
39,336
—
4,321
—
3,498
180,276
174,467
125,259
43,340
26,589
—
188
369,843
149,198
47,885
—
2,590
2,900
2,026
204,599
113,904
28,659
—
1,948
—
1,710
146,221
$
$
$
$
$
$
35,294
19,226
—
642
2,900
316
58,378
Other intangible assets primarily consist of patents, licenses, and backlog.
During 2016, the Company decided to reduce future investments in certain technologies and, as a result, recorded a non-
cash impairment charge of $54.3 million for the related intangible purchased technology. The impairment charge was
based on projected cash flows that required the use of unobservable inputs, and was recorded in “Asset impairment” in the
Consolidated Statements of Operations.
Based on the intangible assets recorded at December 31, 2017, and assuming no subsequent additions to or impairment of
the underlying assets, the remaining estimated annual amortization expense, excluding in-process R&D, is expected to be
as follows:
Amortization
(in thousands)
2018
2019
2020
2021
2022
Thereafter
Total
$
54,128
57,071
54,382
40,959
26,009
93,954
326,503
$
F-22
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 7 — Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.
Inventories consist of the following:
December 31,
2017
2016
Materials
Work-in-process
Finished goods
Total
$
$
(in thousands)
59,919
37,222
23,125
46,457
25,250
5,356
$
120,266
$
77,063
Note 8 — Property, Plant, and Equipment and Assets Held for Sale
Property and equipment, net, consist of the following:
December 31,
2017
2016
$
$
(in thousands)
5,669
54,449
126,829
10,073
Average
Useful Life
N/A
10 – 40 years
3 – 10 years
3 – 7 years
5,669
50,814
99,370
3,652
Land
Building and improvements
Machinery and equipment(1)
Leasehold improvements
Gross property, plant, and equipment
Less: accumulated depreciation and amortization
Net property, plant, and equipment
197,020
111,962
159,505
98,859
$
85,058
$
60,646
(1) Machinery and equipment also includes software, furniture and fixtures
Depreciation expense was $14.6 million, $13.4 million, and $12.2 million for the years ended December 31, 2017, 2016,
and 2015, respectively. During 2016, the Company decided to reduce future investments in certain technologies and, as a
result, recorded an impairment charge of $3.3 million of property, plant, and equipment.
As part of the Company’s efforts to reduce costs, enhance efficiency, and streamline operations, the Company removed
certain lab equipment that is no longer required and recorded a non-cash impairment charge of $6.2 million for the year
ended December 31, 2016. Additionally, as part of that initiative, the Company listed its two facilities in South Korea for
sale. When each facility was reclassified as held for sale, the Company determined that the carrying values of the
buildings exceeded their fair market values, less cost to sell, and recorded net impairment charges of $4.5 million for the
year ended December 31, 2016. Both facilities were sold before the end of 2016 at prices that approximated the revised
carrying values.
Finally, during the year ended December 31, 2016, the Company recorded an impairment charge of approximately $1.2
million related to an owned property in St. Paul, Minnesota. The property was sold during 2017, resulting in an additional
impairment charge of $0.7 million for the year ended December 31, 2017. There were no assets held for sale as of
December 31, 2017 and 2016. All impairment charges were recorded in “Asset impairment” in the Consolidated
Statements of Operations.
F-23
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 9 — Accrued Expenses and Other Liabilities
The components of accrued expenses and other current liabilities were as follows:
December 31,
2017
2016
Payroll and related benefits
Warranty
Interest
Professional fees
Merger consideration payable
Installation
Sales, use, and other taxes
Restructuring liability
Other
Total
Customer deposits and deferred revenue
$
$
(in thousands)
32,996
6,532
4,430
3,942
2,662
2,271
2,144
1,520
3,842
18,780
4,217
—
1,827
—
1,382
1,282
1,796
3,917
$
60,339
$
33,201
Customer deposits totaled $41.5 million and $22.2 million at December 31, 2017 and 2016, respectively, which are
included in “Customer deposits and deferred revenue” in the Consolidated Balance Sheets.
Other liabilities
The Company maintains an executive non-qualified deferred compensation plan that was assumed from Ultratech that
allows qualifying executives to defer cash compensation. At December 31, 2017, plan assets approximated $3.4 million
representing the cash surrender value of life insurance policies and is included within “Other assets” in the Consolidated
Balance Sheets, while plan liabilities approximated $4.7 million and is included within “Other liabilities” in the
Consolidated Balance Sheets. Other liabilities also included asset retirement obligations of $3.3 million, medical and
dental benefits of $2.2 million, and acquisition related accruals of $0.4 million at December 31, 2017. At December 31,
2016, other liabilities primarily consisted of a non-current income tax payable of $4.9 million.
Note 10 — Restructuring Charges
During 2016, the Company undertook restructuring activities as part of its initiative to streamline operations, enhance
efficiencies, and reduce costs, as well as reducing future investments in certain technology development, which together
impacted approximately 75 employees. These activities were substantially completed in 2017. In addition, during 2017,
the Company began the acquisition integration process to enhance efficiencies, resulting in additional employee
terminations and other facility closing costs.
During 2015, charges of $4.7 million were recognized related to the closing of facilities in Ft. Collins, Colorado,
Camarillo, California, and Hyeongok-ri, South Korea, as well as other cost reduction initiatives, which together impacted
approximately 50 employees.
F-24
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table shows the amounts incurred and paid for restructuring activities during the years ended December 31,
2017, 2016, and 2015 and the remaining accrued balance of restructuring costs at December 31, 2017, which is included
in “Accrued expenses and other current liabilities” in the Consolidated Balance Sheets:
Balance at December 31, 2014
Provision
Payments
Balance at December 31, 2015
Provision
Changes in estimate
Payments
Balance at December 31, 2016
Provision
Payments
Personnel
Severance and
Related Costs
$
1,428
3,513
(4,117)
Facility
Closing Costs
(in thousands)
$
—
1,166
(1,166)
Total
$
1,428
4,679
(5,283)
824
4,544
(2)
(3,570)
1,796
4,714
(4,990)
—
1,098
—
(1,098)
—
5,257
(5,257)
824
5,642
(2)
(4,668)
1,796
9,971
(10,247)
Balance - December 31, 2017
$
1,520
$
—
$
1,520
Included within restructuring expense in the Consolidated Statements of Operations for the year ended December 31,
2017 is approximately $1.9 million of non-cash charges related to accelerated share-based compensation for employee
terminations.
Note 11 — Commitments and Contingencies
Warranty
Warranties are typically valid for one year from the date of system final acceptance, and the Company estimates the costs
that may be incurred under the warranty. Estimated warranty costs are determined by analyzing specific product and
historical configuration statistics and regional warranty support costs and is affected by product failure rates, material
usage, and labor costs incurred in correcting product failures during the warranty period. Unforeseen component failures
or exceptional component performance can also result in changes to warranty costs.
Changes in the Company’s product warranty reserves were as follows:
Balance, beginning of the year
Warranties issued
Addition from Ultratech acquisition
Consumption of reserves
Changes in estimate
Balance, end of the year
2017
December 31,
2016
(in thousands)
2015
$
4,217
5,817
1,889
(6,330)
939
$
8,159
3,916
—
(6,433)
(1,425)
$
5,411
7,873
—
(3,551)
(1,574)
$
6,532
$
4,217
$
8,159
F-25
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Minimum Lease Commitments
Minimum lease commitments at December 31, 2017 for property and equipment under operating lease agreements
(exclusive of renewal options) are payable as follows:
Payments due by period:
2018
2019
2020
2021
2022
Thereafter
Total
Operating
Leases
(in thousands)
5,655
$
5,533
5,529
2,307
2,308
2,919
$
24,251
Lease expense was $5.3 million, $2.5 million, and $2.3 million for the years ended December 31, 2017, 2016, and 2015,
respectively. In addition, the Company is obligated under such leases for certain other expenses, including real estate
taxes and insurance.
Legal Proceedings
On September 21, 2017, Blueblade Capital Opportunities LLC et al., on behalf of purported beneficial owners of 440,100
shares of Ultratech common stock, filed an action against Ultratech in Delaware Court of Chancery requesting an
appraisal of the value of their Ultratech stock pursuant to 8 Del. C. §262. The Company believes that the merger price,
which was the product of arms-length negotiations, was fair and reasonable, and intends to contest the appraisal
claim. Discovery in the matter has commenced and a trial on the action is scheduled to begin in December 2018.
On April 12, 2017, the Company filed a patent infringement complaint in the U.S. District Court for the Eastern District
of New York against SGL Carbon, LLC and SGL Carbon SE (collectively, “SGL”), alleging infringement of patents
relating to wafer carrier technology used in MOCVD equipment. The complaint alleges that SGL infringes Veeco’s
patents by making and selling certain wafer carriers to Veeco’s competitor, Advanced Micro-Fabrication Equipment, Inc.
(“AMEC”). On November 2, 2017, the U.S. District Court granted the Company’s motion for a preliminary injunction
prohibiting SGL from shipping wafer carriers using the Company’s patented technology without the Company’s express
authorization.
On July 13, 2017, AMEC filed a patent infringement complaint against Veeco Instruments Shanghai Co., Ltd. (“Veeco
Shanghai”) with the Fujian High Court in China, alleging that the Company’s MOCVD products infringed a Chinese
utility model patent relating to the synchronous movement engagement mechanism in a chemical vapor deposition reactor
and seeking injunctive relief and monetary damages against Veeco Shanghai. On December 7, 2017, without providing
notice to Veeco and without hearing Veeco’s position on alleged infringement, the Fujian High Court issued a preliminary
injunction, applicable in China, that requires Veeco Shanghai to stop importing, making, selling, and offering to sell
Veeco EPIK 700 model MOCVD systems and to stop importing, selling, and offering to sell wafer carriers used as
supplies for the EPIK 700 MOCVD system.
On February 8, 2018, Veeco, AMEC, and SGL announced that they had mutually agreed to settle the pending litigation
among the parties and to amicably resolve all pending disputes, including AMEC’s lawsuit against Veeco before the Fujian
F-26
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
High Court in China and Veeco’s lawsuit against SGL before the U.S. District Court for the Eastern District of New York.
As part of the settlement, all legal actions worldwide (in court, patent offices, and otherwise), between Veeco, AMEC, and
SGL, and their affiliates, will be dismissed and/or otherwise withdrawn. As a result, all business processes, including sales,
service, and importation, will be continued.
The Company is involved in various other legal proceedings arising in the normal course of business. The Company does
not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial
position, results of operations, or cash flows.
Concentrations of Credit Risk
The Company depends on purchases from its ten largest customers, which accounted for 67% and 73% of net accounts
receivable at December 31, 2017 and 2016, respectively.
Customers who accounted for more than 10% of net accounts receivable or net sales are as follows:
Customer
Customer A
Customer B
Customer C
Customer D
Accounts Receivable
Year ended December 31,
Net Sales
For the Year Ended December 31,
2017
2016
2017
2016
2015
24%
*
*
*
23%
17%
*
*
21%
*
*
*
13%
*
*
*
*
*
20%
12%
* Less than 10% of aggregate accounts receivable or net sales
The Company manufactures and sells its products to companies in different geographic locations. Refer to Note 18,
“Segment Reporting and Geographic Information,” for additional information. In certain instances, the Company requires
deposits from its customers for a portion of the sales price in advance of shipment and performs periodic credit
evaluations on its customers. Where appropriate, the Company requires letters of credit on certain non-U.S. sales
arrangements. Receivables generally are due within 30 to 90 days from the date of invoice.
Receivable Purchase Agreement
In December 2017, the Company entered into a Receivable Purchase Agreement with a financial institution to sell certain
of its trade receivables from customers without recourse, up to $23.0 million at any point in time for a term of one year.
Under the terms of the agreement, the Company may offer to sell certain eligible accounts receivable (the “Receivables”)
to the financial institution (the “Purchaser”), which may accept such offer, and purchase the offered Receivables. The
Purchaser will assume credit risk of the Receivables purchased; provided, however, the Company will service the
Receivables, and as such servicer, collect and otherwise enforce the Receivables on behalf of the Purchaser. Pursuant to
this agreement, the Company sold $15.0 million of Receivables during the year ended December 31, 2017 and maintained
$8.0 million available under the agreement for additional sales of Receivables as of December 31, 2017. The sale of
accounts receivable under the agreement is reflected as a reduction of accounts receivable in the Company’s Consolidated
Balance Sheet at the time of sale and any fees for the sale of trade receivables were not material for the periods presented.
Suppliers
The Company outsources certain functions to third parties, including the manufacture of some of its MOCVD and Ultratech
systems. While the Company primarily relies on one supplier for the manufacturing of these systems, the Company
maintains a minimum level of internal manufacturing capability for these systems. The failure of the Company’s present
suppliers to meet their contractual obligations under their supply arrangements and the Company’s inability to make
F-27
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
alternative arrangements or resume the manufacture of these systems could have a material adverse effect on the Company’s
revenues, profitability, cash flows, and relationships with its customers.
In addition, certain of the components and sub-assemblies included in the Company’s products are obtained from a single
source or a limited group of suppliers. The Company’s inability to develop alternative sources, if necessary, could result in a
prolonged interruption in supply or a significant increase in the price of one or more components, which could adversely
affect the Company’s operating results.
The Company had deposits with its suppliers of $7.6 million and $7.8 million at December 31, 2017 and 2016, respectively,
that were included in “Prepaid expenses and other current assets” on the Consolidated Balance Sheets.
Purchase Commitments
The Company had purchase commitments of $181.0 million at December 31, 2017, substantially all of which will come due
within one year. Purchase commitments are primarily for inventory used in manufacturing products, and are partially offset
by existing deposits with suppliers.
Bank Guarantees
The Company has bank guarantees and letters of credit issued by a financial institution on its behalf as needed. At
December 31, 2017, outstanding bank guarantees and letters of credit totaled $6.5 million, and unused bank guarantees
and letters of credit of $66.5 million were available to be drawn upon.
Note 12 — Debt
Mortgage Payable
At December 31, 2016, the Company had a mortgage note payable associated with its property in St. Paul, Minnesota,
which, during the third quarter of 2017 was fully extinguished in connection with the sale of the building. The carrying
value of the property exceeded the carrying value of the mortgage note of $1.2 million at December 31, 2016. The annual
interest rate on the note was 7.91%.
Convertible Senior Notes
On January 10, 2017, the Company issued $345.0 million of 2.70% convertible senior unsecured notes (the “Convertible
Senior Notes”). The Company received net proceeds, after deducting underwriting discounts and fees and expenses
payable by the Company, of approximately $335.8 million. The Convertible Senior Notes bear interest at a rate of 2.70%
per year, payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 2017. The
Convertible Senior Notes mature on January 15, 2023 (the “Maturity Date”), unless earlier purchased by the Company,
redeemed, or converted.
The Convertible Senior Notes are unsecured obligations of Veeco and rank senior in right of payment to any of Veeco’s
subordinated indebtedness; equal in right of payment to all of Veeco’s unsecured indebtedness that is not subordinated;
effectively subordinated in right of payment to any of Veeco’s secured indebtedness to the extent of the value of the assets
securing such indebtedness; and structurally subordinated to all indebtedness and other liabilities (including trade
payables) of Veeco’s subsidiaries.
The Convertible Senior Notes are convertible into cash, shares of the Company’s common stock, or a combination
thereof, at the Company’s election, upon the satisfaction of specified conditions and during certain periods as described
below. The initial conversion rate is 24.9800 shares of the Company’s common stock per $1,000 principal amount of
Convertible Senior Notes, representing an initial effective conversion price of $40.03 per share of common stock. The
F-28
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
conversion rate may be subject to adjustment upon the occurrence of certain specified events as provided in the indenture
governing the Convertible Senior Notes, dated January 18, 2017 between the Company and U.S. Bank National
Association, as trustee, but will not be adjusted for accrued but unpaid interest.
Holders may convert all or any portion of their notes, in multiples of one thousand dollar principal amount, at their option
at any time prior to the close of business on the business day immediately preceding October 15, 2022 only under the
following circumstances:
(i) During any calendar quarter (and only during such calendar quarter), if the last reported sale price of the common
stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days
ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of
the conversion price on each applicable trading day;
(ii) During the five consecutive business day period after any five consecutive trading day period (the “measurement
period”) in which the trading price per one thousand dollar principal amount of Convertible Senior Notes for each
trading day of the measurement period was less than 98% of the product of the last reported sale price of Veeco’s
common stock and the conversion rate on each such trading day;
(iii)
If the Company calls any or all of the Convertible Senior Notes for redemption at any time prior to the close of
business on the scheduled trading day immediately preceding the redemption date; or
(iv) Upon the occurrence of specified corporate events.
On or after October 15, 2022, until the close of business on the business day immediately preceding the Maturity Date,
holders may convert their notes at any time, regardless of the foregoing circumstances.
Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or
a combination thereof. As a result of its cash conversion option, the Company segregated the liability component of the
instrument from the equity component. The liability component was measured by estimating the fair value of a non-
convertible debt instrument that is similar in its terms to the Convertible Senior Notes. The calculation of the fair value of
the debt component required the use of Level 3 inputs, including utilization of convertible investors’ credit assumptions
and high yield bond indices. Fair value was estimated through discounting future interest and principal payments, an
income approach, due under the Convertible Senior Notes at a discount rate of 7.00%, an interest rate equal to the
estimated borrowing rate for similar non-convertible debt. The excess of the aggregate face value of the Convertible
Senior Notes over the estimated fair value of the liability component of $72.5 million was recognized as a debt discount
and recorded as an increase to additional paid-in capital, and will be amortized over the expected life of the Convertible
Senior Notes using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest
expense.
The transaction costs of $9.2 million incurred in connection with the issuance of the Convertible Senior Notes were
allocated to the liability and equity components based on their relative values. Transaction costs allocated to the liability
component are being amortized using the effective interest rate method and recognized as non-cash interest expense over
the expected term of the Convertible Senior Notes. Transaction costs allocated to the equity component of $1.9 million
reduced the value of the equity component recognized in stockholders' equity.
The carrying value of the Convertible Senior Notes is as follows:
December 31,
2017
Principal amount
Unamortized debt discount
Unamortized transaction costs
Net carrying value
(in thousands)
$
345,000
(63,022)
(6,348)
$
275,630
F-29
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Total interest expense related to the Convertible Senior Notes is as follows:
Cash Interest Expense
Coupon interest expense
Non-Cash Interest Expense
Amortization of debt discount
Amortization of transaction costs
Total Interest Expense
For the year ended
December 31,
2017
(in thousands)
$
8,901
9,490
956
$
19,347
The Company determined the Convertible Senior Notes is a Level 2 liability in the fair value hierarchy and estimated its
fair value as $300.7 million at December 31, 2017.
Note 13 — Derivative Financial Instruments
The Company is exposed to financial market risks arising from changes in currency exchange rates. Changes in currency
exchange rate changes could affect the Company’s foreign currency denominated monetary assets and liabilities and
forecasted cash flows. The Company entered into monthly forward derivative contracts with the intent of mitigating a
portion of this risk. The Company only used derivative financial instruments in the context of hedging and not for
speculative purposes and had not designated its foreign exchange derivatives as hedges. Accordingly, changes in fair
value from these contracts were recorded as “Other, net” in the Company’s Consolidated Statements of Operations. The
Company executed derivative transactions with highly rated financial institutions to mitigate counterparty risk.
A summary of the foreign exchange derivatives outstanding on December 31, 2017 is as follows:
Foreign currency exchange forwards
$
—
January 2018
$
622
Fair Value
Maturity Dates
(in thousands)
Notional Amount
The Company did not have any outstanding derivative contracts at December 31, 2016.
The following table shows the gains and (losses) from currency exchange derivatives during the years ended December
31, 2017, 2016, and 2015, which are included in “Other, net” in the Consolidated Statements of Operations:
Foreign currency exchange forwards
$
(6)
2017
2016
(in thousands)
$
219
2015
$
—
Year ended December 31,
F-30
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 14 — Stockholders’ Equity
Accumulated Other Comprehensive Income
The following table presents the changes in the balances of each component of AOCI, net of tax:
Balance - December 31, 2014
Other comprehensive income (loss)
Balance - December 31, 2015
Other comprehensive income (loss), before
reclassifications
Amounts reclassified from AOCI
Other comprehensive income (loss)
Balance - December 31, 2016
Other comprehensive income (loss)
Balance - December 31, 2017
Foreign Currency Minimum Pension
Translation
Liability
Unrealized
Gains (Losses) on
Available for Sale
Securities
Total
$
2,333
(87)
$
(881)
15
$
17
(49)
$
1,469
(121)
(in thousands)
2,246
(19)
(430)
(449)
1,797
42
(866)
—
866
866
—
—
(32)
(6)
18
12
(20)
(7)
1,348
(25)
454
429
1,777
35
$
1,839
$
—
$
(27)
$
1,812
The Company did not allocate additional tax expense (benefit) to other comprehensive income (loss) for all years presented
as the Company is in a full valuation allowance position such that a deferred tax asset related to amounts recognized in other
comprehensive income is not regarded as realizable on a more-likely-than-not basis.
During 2016, the Company finalized the process to terminate a defined benefit plan. As a result, the Company reclassified
the minimum pension liability of $0.9 million, net of a tax benefit of $0.4 million, from “Accumulated other comprehensive
income” in the Consolidated Balance Sheets to “Other, net” in the Consolidated Statements of Operations. Additionally the
Company completed its plan to liquidate one of its subsidiaries in Korea. As a result of this liquidation, a cumulative
translation gain of $0.4 million was reclassified from “Accumulated other comprehensive income” to “Other, net” in the
Consolidated Statements of Operations.
Preferred Stock
The Board of Directors has authority under the Company’s Certificate of Incorporation to issue shares of preferred stock,
par value $0.01, with voting and economic rights to be determined by the Board of Directors. As of December 31, 2017,
no preferred shares have been issued.
Treasury Stock
The share repurchase program authorized by our Board of Directors in October 2015 expired on October 28, 2017. On
December 11, 2017, our Board of Directors authorized a new program to repurchase up to $100 million of our common
stock to be completed through December 11, 2019. At December 31, 2017, $3.0 million of the $100 million had been
utilized, of which approximately $0.1 million is included in “Accrued expenses and other current liabilities” on the
Consolidated Balance Sheets as of December 31, 2017. Repurchases are expected to be made from time to time in the
open market or in privately negotiated transactions in accordance with applicable federal securities laws.
F-31
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company records treasury stock purchases under the cost method using the first-in, first-out (“FIFO”) method. Upon
reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid-in capital. If the
Company reissues treasury stock at an amount below its acquisition cost and if additional paid-in capital associated with
prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price,
this difference is charged to accumulated deficit.
Note 15 — Stock Plans
Share-based incentive awards are provided to employees under the terms of the Company’s equity incentive compensation
plans (the “Plans”), which are administered by the Compensation Committee of the Board of Directors. The 2010 Plan
was approved by the Company’s shareholders. The Company’s employees, non-employee directors, and consultants are
eligible to receive awards under the 2010 Stock Incentive Plan (as amended to date, the “2010 Plan”), which can include
non-qualified stock options, incentive stock options, restricted share awards (“RSAs”), restricted share units (“RSUs”),
performance share awards (“PSAs”), performance share units (“PSUs”), share appreciation rights, dividend equivalent
rights, or any combination thereof. The Company settles awards under the Plans with newly issued shares or with shares
held in treasury.
In 2013, the Board of Directors granted equity awards to certain employees under the Company’s 2013 Inducement Stock
Incentive Plan (the “Inducement Plan”). The Company issued 124,500 stock option shares and 87,000 RSUs under this
plan. Stock options under this plan vest over a three year period and have a 10-year term, and RSUs under this plan vest
over a two or four year period. At December 31, 2013, the Inducement Plan was merged into the 2010 Plan and is
considered an inactive plan with no further shares available for grant. At December 31, 2017 there are 2,000 option shares
and no RSUs outstanding under the Inducement Plan.
The Company is authorized to issue up to 10.6 million shares under the 2010 Plan, including additional shares authorized
under plan amendments approved by shareholders in 2016 and 2013. Option awards are granted with an exercise price
equal to the closing price of the Company’s common stock on the trading day prior to the date of grant; option awards
generally vest over a three year period and have a seven or ten year term. RSAs and RSUs generally vest over one to five
years. Certain option and share awards provide for accelerated vesting if there is a change in control, as defined in the
2010 Plan. At December 31, 2017, there are 1.4 million option shares and 0.6 million RSUs and PSUs outstanding under
the 2010 Plan.
During 2016 the Company’s Board of Directors approved the 2016 Employee Stock Purchase Plan (“ESPP”). The Company
is authorized to issue up to 750,000 shares under the ESPP. Under the ESPP, substantially all employees in the U.S. may
purchase the Company’s common stock through payroll deductions at a price equal to 85 percent of the lower of the fair
market value of the Company’s common stock at the beginning or end of each six-month Offer Period, as defined in the
ESPP, and subject to certain limits. The ESPP was approved by the Company’s shareholders.
During 2017, in connection with the acquisition of Ultratech, the Company assumed certain restricted stock units (the
“Assumed RSUs”) available and outstanding under the Ultratech, Inc. 1993 Stock Option/Stock Issuance Plan, as amended
(the “Ultratech Plan”). The Assumed RSUs remain subject to the terms set forth in the award agreement governing the award
and the Ultratech Plan, except that the Assumed RSUs relate to shares of Company common stock and the number of
restricted stock units was adjusted pursuant to the terms of the acquisition to reflect the difference in the value of a share of
Company common stock and a share of Ultratech common stock prior to closing the acquisition. The Assumed RSUs were
converted into 338,144 restricted stock units of the Company, and generally vest over 50 months. After the acquisition and
notwithstanding any other provisions of the Ultratech Plan, no further grants will be made under the Ultratech Plan, and the
Company is solely maintaining the Ultratech Plan with respect to the Assumed RSUs. At December 31, 2017, there are 0.1
million RSUs outstanding under the assumed Ultratech Plan.
F-32
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Shares Reserved for Future Issuance
At December 31, 2017, the Company has 5.7 million shares reserved to cover exercises of outstanding stock options, vesting
of RSUs, and additional grants under the 2010 Plan. At December 31, 2017, the Company has 0.5 million shares reserved to
cover future issuances under the ESPP Plan.
Share-Based Compensation
The Company recognized share-based compensation in the following line items in the Consolidated Statements of
Operations for the periods indicated:
2017
For the year ended December 31,
2016
(in thousands)
2015
Cost of sales
Research and development
Selling, general, and administrative
Restructuring
Acquisition costs
Total
$
$
$
2,505
2,957
12,851
1,880
4,203
24,396
1,956
3,324
10,433
—
—
15,713
2,495
4,031
11,474
—
—
18,000
$
$
$
The Company did not realize any tax benefits associated with share-based compensation for the years ended December
31, 2017, 2016, and 2015, due to the full valuation allowance on its U.S. deferred tax assets. See Note 17, “Income Taxes”
for additional information. The Company capitalized an insignificant amount of share-based compensation into inventory
for the years ended December 31, 2017, 2016, and 2015.
Unrecognized share-based compensation costs at December 31, 2017 are summarized below:
Stock option awards
Restricted stock units
Restricted stock awards
Performance share units
Unrecognized
Share-Based
Compensation
Costs
(in thousands)
$
12
6,157
21,656
4,685
Total unrecognized share-based compensation cost
$
32,510
Stock Option Awards
Weighted
Average Period
Expected to be
Recognized
(in years)
0.3
2.8
2.6
2.1
2.7
Stock options are awards issued to employees that entitle the holder to purchase shares of the Company’s stock at a fixed
price. At December 31, 2017, options outstanding that have vested and are expected to vest are as follows:
Number
of
Shares
(in thousands)
Weighted
Average
Exercise Price
1,389
$
34.99
5
30.18
1,394
$
34.97
Weighted
Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic
Value
(in thousands)
3.9
4.2
3.9
—
—
—
Vested
Expected to vest
Total
F-33
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The aggregate intrinsic value represents the difference between the option exercise price and $14.85, the closing price of
the Company’s common stock on December 29, 2017, the last trading day of the Company’s fiscal year as reported on the
NASDAQ Stock Market.
Additional information with respect to stock option activity:
Balance - December 31, 2014
Granted
Exercised
Expired or forfeited
Balance - December 31, 2015
Granted
Exercised
Expired or forfeited
Balance - December 31, 2016
Granted
Exercised
Expired or forfeited
Balance - December 31, 2017
Number of
Shares
(in thousands)
2,391
17
(192)
(152)
2,064
—
(194)
(294)
1,576
—
(18)
(164)
1,394
Weighted
Average
Exercise Price
$
31.65
30.22
12.95
38.15
32.91
—
12.18
34.44
35.18
—
30.03
37.47
$
34.97
The following table summarizes stock option information at December 31, 2017:
Range of
Exercise Prices
$20.00 –
$30.01 –
$40.01 –
$50.01 –
$30.00
$40.00
$50.00
$60.00
Options Outstanding
Options Exercisable
Aggregate
Intrinsic
Value
(in thousands)
$
—
—
—
—
—
Shares
(in thousands)
25
1,197
39
133
1,394
Weighted
Average
Remaining
Contractual Life
(in years)
5.0
4.0
1.3
3.3
3.9
Weighted
Average
Exercise Price
$
28.13
32.84
48.05
51.70
Aggregate
Intrinsic
Value
(in thousands)
$
—
—
—
—
Shares
(in thousands)
23
1,194
39
133
$
34.97
1,389
$
—
Weighted
Average
Remaining
Contractual Life
(in years)
Weighted
Average
Exercise Price
5.0
4.0
1.3
3.3
3.9
$
28.03
32.84
48.05
51.70
$
34.99
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model.
Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who
receive equity awards. No options were granted in 2017 or 2016. The weighted average estimated values of employee
stock option grants as well as the weighted average assumptions that were used in calculating such values during fiscal
year 2015 was based on estimates at the date of grant as follows:
F-34
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Weighted average fair value
Dividend yield
Expected volatility factor(1)
Risk-free interest rate(2)
Expected life (in years)(3)
Year ended December 31,
2015
$
10.58
0%
44%
1.18%
3.9
(1)
(2)
(3)
Expected volatility is measured using historical daily price changes of the Company’s stock over
the respective expected term of the options and the implied volatility derived from the market
prices of the Company's traded options.
T he risk-free rate for periods within the contractual term of the stock options is based on the
U.S. T reasury yield curve in effect at the time of grant.
T he expected life is the number of years the Company estimates that options will be outstanding
prior to exercise. T he Company’s computation of expected life was determined using a lattice-
based model incorporating historical post vest exercise and employee termination behavior.
The following table summarizes information on options exercised for the periods indicated:
Cash received from options exercised
Intrinsic value of options exercised
$
$
431
51
$
$
494
1,165
$
$
2,233
2,089
Year ended December 31,
2017
2016
2015
(in thousands)
RSAs, RSUs, PSAs, PSUs
RSAs are stock awards issued to employees that are subject to specified restrictions and a risk of forfeiture. RSUs are
stock awards issued to employees that entitle the holder to receive shares of common stock as the awards vest. PSAs and
PSUs are awards that result in a payment to a grantee in shares of common stock if certain performance goals and vesting
criteria are achieved. These awards typically vest over one to five years and vesting is subject to the grantee’s continued
service with the Company and, in the case of performance awards, meeting the performance condition. The fair value of
the awards is determined and fixed based on the closing price of the Company’s common stock on the trading day prior to
the date of grant.
The following table summarizes the equity activity of non-vested restricted shares and performance shares:
Balance - December 31, 2014
Granted
Vested
Forfeited
Balance - December 31, 2015
Granted
Vested
Forfeited
Balance - December 31, 2016
Granted
Performance award adjustments
Assumed from Ultratech
Vested
Forfeited
Balance - December 31, 2017
Number of
Shares
(in thousands)
1,237
672
(389)
(122)
1,398
1,166
(349)
(266)
1,949
674
(25)
338
(831)
(225)
1,880
Weighted
Average
Grant Date
Fair Value
$
34.27
30.33
35.65
34.46
31.97
17.59
32.73
27.31
23.85
29.22
20.95
31.75
27.67
26.29
$
25.41
F-35
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
For performance awards, the final number of shares earned will vary depending on the achievement of the actual results
relative to the performance targets. Each performance award is included in the table above at the grant date target share
amount until the end of the performance period (if not previously forfeited). The total fair value of shares that vested
during the years ended December 31, 2017, 2016, and 2015 was $22.3 million, $7.5 million, and $9.6 million,
respectively.
Employee Stock Purchase Plan
For the years ended December 31, 2017 and 2016, the Company received cash proceeds of $2.6 million and $1.2 million,
and issued shares of 163,000 and 83,000, respectively, under the ESPP Plan. The weighted average estimated values of
employee purchase rights as well as the weighted average assumptions that were used in calculating such values during
fiscal years 2017 and 2016 were based on estimates at the date of grant as follows:
Weighted average fair value
Dividend yield
Expected volatility factor(1)
Risk-free interest rate(2)
Expected life (in years)(3)
Year ended December 31,
2017
2016
$
7.09
0%
36%
0.99%
0.5
$
4.45
0%
43%
0.35%
0.5
(1)
(2)
(3)
Expected volatility is measured using historical daily price changes of the Company’s stock over the respective
expected term of the options and the implied volatility derived from the market prices of the Company's traded
options.
T he risk-free rate for periods within the contractual term of the stock options is based on the U.S. T reasury yield
curve in effect at the time of grant.
T he expected life is the number of years the Company estimates that options will be outstanding prior to exercise.
T he Company’s computation of expected life was determined using a lattice-based model incorporating historical
post vest exercise and employee termination behavior.
Note 16 — Retirement Plans
The Company maintains a defined contribution plan for the benefit of its U.S. employees. The plan is intended to be tax
qualified and contains a qualified cash or deferred arrangement as described under Section 401(k) of the Internal Revenue
Code. Eligible participants may elect to contribute a percentage of their base compensation, and the Company may make
matching contributions, generally equal to fifty cents for every dollar employees contribute, up to the lesser of three
percent of the employee’s eligible compensation or three percent of the maximum the employee is permitted to contribute
under then current Internal Revenue Code limitations. Generally, the plan calls for vesting in the Company contributions
over the initial five years of a participant’s employment. In addition, the Company assumed Ultratech’s 401(k) plan as a
result of the merger, and Ultratech’s plan was merged into the Company’s existing plan effective January 1, 2018. The
Company recognized costs associated with these plans of approximately $2.7 million, $2.6 million, and $2.5 million for
the years ended December 31, 2017, 2016, and 2015, respectively.
During 2016, the Company finalized the process to terminate a defined benefit plan it had acquired in the year 2000. The
plan had been frozen as of September 30, 1991, and no further benefits had been accrued by participants since that date. In
connection with the termination, responsibility for the payment of benefits under the plan was transferred to an insurance
company. As a result, the Company reclassified the minimum pension liability of $0.9 million, net of a tax benefit of $0.4
million, from “Accumulated other comprehensive income” in the Consolidated Balance Sheets to “Other, net” in the
Consolidated Statements of Operations.
F-36
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 17 — Income Taxes
The amounts of income (loss) before income taxes attributable to domestic and foreign operations were as follows:
Year ended December 31,
2017
2016
(in thousands)
2015
Domestic
Foreign
Total
$
$
$
(96,809)
15,909
(80,900)
(123,021)
3,577
(119,444)
$
$
$
(53,553)
30,907
(22,646)
Significant components of the expense (benefit) for income taxes consisted of the following:
Current:
Federal
Foreign
State and local
Total current expense (benefit) for income taxes
Deferred:
Federal
Foreign
State and local
Total deferred expense (benefit) for income taxes
Total expense (benefit) for income taxes
Year ended December 31,
2017
2016
(in thousands)
2015
$
—
(2,246)
15
(2,231)
$
—
1,937
(111)
1,826
$
139
6,952
(407)
6,684
(34,786)
1,652
(742)
(33,876)
(36,107)
$
1,459
(646)
127
940
2,766
$
2,104
516
28
2,648
9,332
$
The income tax expense was reconciled to the tax expense computed at the U.S. federal statutory tax rate as follows:
Year ended December 31,
2017
2016
(in thousands)
2015
$
$
$
Income tax expense (benefit) at U.S. statutory rates
State taxes, net of U.S. federal impact
Effect of international operations
Research and development tax credit
Net change in valuation allowance
Change in accrual for unrecognized tax benefits
Subsidiary liquidation
Share-based compensation
Effect of 2017 Tax Act
Worthless stock deduction
Change in entity tax status
Other
Total expense (benefit) for income taxes
(41,806)
(1,963)
8,849
(801)
50,520
(1,700)
(12,435)
2,133
—
—
—
(31)
2,766
(7,926)
(1,607)
(7,659)
(1,628)
23,655
4,876
—
—
—
(2,069)
904
786
9,332
(28,315)
(2,523)
9,355
620
1,342
(4,772)
—
99
(11,344)
—
—
(569)
(36,107)
F-37
$
$
$
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The 2017 income tax benefit of $36.1 million includes a $24.2 million income tax benefit related to domestic losses
incurred during the year ended December 31, 2017, as the deferred tax liability created by the issuance of the Convertible
Senior Notes and recorded as a component of APIC is treated as a source of income in fiscal 2017. Additionally, on
December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts
and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act makes broad and complex changes to the U.S. tax code that affects
the Company’s 2017 financial results, including, but not limited to, a one-time transition tax on certain foreign earnings.
The 2017 Tax Act also establishes new tax laws that will affect the Company’s financial results after 2017, including a
reduction in the U.S. federal corporate income tax rate from 35 percent to 21 percent; current U.S. taxation of global
intangible low tax income (“GILTI”) of non-U.S. operations; additional limitations on the deductibility of executive
compensation; and limitations on the deductibility of interest.
The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with
SAB 118, which provides SEC staff guidance for the application of ASC 740 in the reporting period in which the 2017
Tax Act was signed into law. As such, the Company’s financial results reflect the income tax effects of the 2017 Tax Act,
including provisional amounts for specific income tax effects of the 2017 Tax Act for which the accounting under ASC
740 is incomplete but for which a reasonable estimate could be determined. The Company will complete its analysis and
finalize the amounts within the measurement period as provided by SAB 118.
The Company is still in the process of evaluating the impacts of the 2017 Tax Act and considers the amounts recorded to
be provisional, except for the impact of the change in tax rate on its deferred tax assets and liabilities as of December 31,
2017, for which the accounting is complete.
The most significant impacts of the 2017 Tax Act on the Company’s federal income taxes are as follows:
Reduction of the U.S. Corporate Income Tax Rate
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the
temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities
were re-measured as of December 22, 2017 to reflect the reduction in the U.S. corporate income tax rate from 35 percent
to 21 percent. The Company recorded an income tax benefit of $4.8 million, as the net deferred tax assets were reduced by
$25.6 million, with a corresponding valuation allowance reduction of $30.4 million.
One-Time Transition Tax on Foreign Earnings
As of December 31, 2017, the Company had $155.8 million of accumulated undistributed earnings generated by its non-
U.S. subsidiaries, of which approximately $140.2 million was subject to the one-time transition tax on foreign earnings.
The determination of the transition tax requires further analysis regarding the amount and composition of the Company’s
historical foreign earnings, which is expected to be completed in the second half of 2018. The Company is expecting to
fully offset the U.S. tax liability with certain current year and carryforward tax attributes. As the Company maintains a
full valuation allowance against its U.S. deferred tax assets, the Company did not record an income tax expense related to
the transition tax.
Valuation Allowance
The 2017 Tax Act modified the net operating loss (“NOL”) provisions to provide for an indefinite carryforward of NOLs
arising in tax years beginning after December 31, 2017. The 2017 Tax Act also limits the amount of NOL deductions that
can be used in any one year to 80 percent of the taxpayer’s taxable income, effective with respect to NOLs arising in tax
years beginning after December 31, 2017. The Company recognized an income tax benefit of $6.5 million for the year
ended December 31, 2017 related to a reduction in the Company’s valuation allowance as a result of the Company
scheduling out the reversals of its net deferred tax assets which resulted in tax amortization on indefinite-lived intangible
assets becoming available to offset existing deferred tax assets that are now expected to have an indefinite life.
F-38
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Deferred income taxes reflect the effect of temporary differences between the carrying amounts of assets and liabilities
recognized for financial reporting purposes and the amounts recognized for tax purposes. The tax effects of the temporary
differences were as follows:
Deferred tax assets:
Inventory valuation
Net operating losses
Credit carry forwards
Warranty and installation accruals
Share-based compensation
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Purchased intangible assets
Undistributed earnings
Convertible Senior Notes
Depreciation
Total deferred tax liabilities
Net deferred taxes
December 31,
2017
2016
(in thousands)
$
8,007
73,458
34,966
1,690
7,385
1,966
$
6,681
54,527
24,598
1,757
12,624
6,778
127,472
(100,684)
26,788
106,965
(106,793)
172
45,807
—
13,534
1,339
60,680
(33,892)
$
11,071
186
—
69
11,326
(11,154)
$
The Company is no longer permanently reinvesting future earnings from certain foreign jurisdictions, and has recorded an
expense for foreign tax withholdings of $6.2 million on its unremitted earnings as of December 31, 2017.
At December 31, 2017, the Company had U.S. federal NOL carryforwards of approximately $301.6 million that will
expire between 2024 and 2037, if not utilized. In connection with the Ultratech acquisition, $119.0 million of historical
NOL carryforwards were acquired, which are subject to an annual limitation. The Company has $3.5 million of capital
loss carryforwards that expire in 2021. At December 31, 2017, the Company had U.S. federal research and development
credits of $16.7 million that will expire between 2018 and 2037. The Ultratech acquisition resulted in the carryover of
$10.9 million of research and development credit carryforwards, which are subject to an annual limitation. The Company
also has state and local NOL carryforwards of approximately $127.4 million (a net deferred tax asset of $7.6 million, net
of federal tax benefits and before the valuation allowance) that will expire between 2018 and 2036. Finally, the Company
has state credits of $27.1 million, some of which are indefinite and others that will expire between 2018 and 2030.
The Company makes assessments to estimate if sufficient taxable income will be generated in the future to use existing
deferred tax assets. As of December 31, 2017, the Company continued to have a cumulative three year loss with respect to
its U.S. operations. As such, the Company has recorded a valuation allowance against its U.S. deferred tax assets. During
2017, the Company’s valuation allowance decreased by approximately $6.1 million, primarily related to re-measurement
due to the reduction in the U.S. federal corporate income tax rate from 35 percent to 21 percent, utilization of certain
carryforward tax attributes used for the mandatory repatriation tax partially offset by an increase in the valuation
allowance related to the Ultratech business combination.
F-39
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
A roll-forward of the Company’s uncertain tax positions for all U.S. federal, state, and foreign tax jurisdictions was as
follows:
Balance at beginning of year
Additions for tax positions related to current year
Additions for tax positions related to prior years
Reductions for tax positions related to prior years
Reductions due to the lapse of the statute of limitations
Settlements
Additions for business combination
Balance at end of year
2017
$
2015
$
December 31,
2016
(in thousands)
$
9,152
1,038
233
(2,826)
(39)
(106)
—
7,452
$
7,452
511
3
(4,877)
(122)
(287)
5,589
8,269
$
$
4,276
5,596
143
—
(642)
(221)
—
9,152
If the amount of unrecognized tax benefits at December 31, 2017 were recognized, the Company’s income tax provision
would decrease by $0.6 million. The gross amount of interest and penalties accrued in income tax payable in the
Consolidated Balance Sheets was approximately $0.3 million at both December 31, 2017 and 2016.
The Company, or one of its subsidiaries, files income tax returns in the United States federal jurisdiction, and various
state, local, and foreign jurisdictions. All material consolidated federal income tax matters have been concluded for years
through 2014 subject to subsequent utilization of NOLs generated in such years. All material state and local income tax
matters have been reviewed through 2012. The majority of the Company’s foreign jurisdictions have been reviewed
through 2015. The Company’s major foreign jurisdictions’ statutes of limitation remain open with respect to the tax years
2017 for China, 2015 through 2017 for Germany and Singapore, and 2016 through 2017 for Taiwan. Income tax matters
for Ultratech pre-acquisition periods have been reviewed through 2000 for federal, 1997 for major states and 2003 for
foreign jurisdictions. The Company does not anticipate that its uncertain tax position will change significantly within the
next twelve months subject to the completion of the ongoing tax audits and any resultant settlement.
Note 18 — Segment Reporting and Geographic Information
The Company operates and measures its results in one operating segment and therefore has one reportable segment: the
development, manufacture, sales, and support of semiconductor process equipment primarily sold to make electronic
devices. The Company’s Chief Operating Decision Maker, the Chief Executive Officer, evaluates performance of the
Company and makes decisions regarding allocation of resources based on total Company results.
Sales by market is as follows:
2017
For the year ended December 31,
2016
(in thousands)
2015
Sales by end-market
LED Lighting, Display & Compound Semiconductor
Advanced Packaging, MEMS & RF Filters
Scientific & Industrial
Front-End Semiconductor
Total
$
253,785
69,353
120,788
40,830
$
144,675
68,304
111,198
8,274
$
291,133
61,935
118,132
5,838
$
484,756
$
332,451
$
477,038
The Company’s significant operations outside the United States include sales and service offices in China, Europe, and
Rest of World. For geographic reporting, sales are attributed to the location in which the customer facility is located.
F-40
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Sales and long-lived tangible assets by geographic region are as follows:
Net Sales to Unaffiliated Customers
2016
2017
2015
Long-lived Tangible Assets
2016
2017
2015
United States
China
EMEA (1)
Rest of World
Total
$
94,936
107,844
76,636
205,340
$
85,637
85,834
83,410
77,570
$
$
(in thousands)
86,627
242,442
64,019
83,950
81,046
64
231
3,717
$
60,012
219
93
322
$
64,951
422
96
14,121
$
484,756
$
332,451
$
477,038
$
85,058
$
60,646
$
79,590
(1) EMEA consists of Europe, the Middle East, and Africa
Note 19 — Selected Quarterly Financial Information (unaudited)
The following table presents selected unaudited financial data for each fiscal quarter of 2017 and 2016. Although
unaudited, this information has been prepared on a basis consistent with the Company’s audited Consolidated Financial
Statements and, in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments)
that are considered necessary for a fair presentation of this information in accordance with GAAP. Such quarterly results
are not necessarily indicative of future results of operations.
Fiscal 2017
Fiscal 2016
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
$
94,386
34,200
1,095
$
115,066
38,720
(18,388)
$
131,872
53,061
(21,884)
143,432
58,337
(5,616)
78,011
31,956
(15,533)
75,348
31,439
(32,082)
$
85,482
33,455
(69,598)
$
93,609
36,008
(4,998)
(in thousands, except per share amounts)
$
$
$
0.03
0.03
(0.43)
(0.47)
(0.12)
(0.40)
(0.82)
(1.78)
(0.13)
(0.43)
(0.47)
(0.12)
(0.40)
(0.82)
(1.78)
(0.13)
Net sales
Gross profit
Net income (loss)
Basic income (loss) per
common share
Diluted income (loss) per
common share
Acquisition of Ultratech
During the second quarter of 2017, the Company acquired Ultratech. The results of operations of Ultratech have been
included in the consolidated financial statements since the date of acquisition. Refer to Note 5, “Business Combinations,”
for additional information.
Impairment Charge
During the third quarter of 2016, the Company decided to reduce future investments in certain technologies and, as a
result, recorded a charge for impairment of $54.3 million for the related intangible purchased technology. The impairment
charge was based on projected cash flows that required the use of unobservable inputs. Refer to Note 6, “Goodwill and
Intangible Assets,” for additional information.
F-41
Schedule II — Valuation and Qualifying Accounts
Deducted from asset accounts:
Year ended December 31, 2017
Additions
Balance at
Beginning
of Period
Charged
(Credited)
to Costs and
Expenses
Charged to
Other
Accounts
(in thousands)
Balance at
End of
Period
Deductions
Allowance for doubtful accounts
Valuation allowance in net deferred tax assets
$
286
106,793
$
99
(51,410)
$
—
45,301
$
(115)
—
$
270
100,684
$
107,079
$
(51,311)
$
45,301
$
(115)
$
100,954
Year ended December 31, 2016
Allowance for doubtful accounts
Valuation allowance in net deferred tax assets
$
206
56,273
$
171
50,520
$
—
—
$
(91)
—
$
286
106,793
$
56,479
$
50,691
$
—
$
(91)
$
107,079
Year ended December 31, 2015
Allowance for doubtful accounts
Valuation allowance in net deferred tax assets
$
731
34,909
$
43
23,655
$
—
(2,291)
$
(568)
—
$
206
56,273
$
35,640
$
23,698
$
(2,291)
$
(568)
$
56,479
Veeco Instruments Inc.
www.veeco.com