Note 3 - Assets

Investments and Assets held for sale

Marketable securities are generally classified as available-for-sale and reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income” in the Consolidated Balance Sheets. These securities may include U.S. treasuries, government agency securities, corporate debt, and commercial paper, all with maturities of greater than three months when purchased. All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are included in “Other, net” in the Consolidated Statements of Operations.

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

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

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

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

The level used within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Veeco has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. In determining fair value, information from pricing services is utilized to value securities based on quoted market prices in active markets and matrix pricing. Matrix pricing is a mathematical valuation technique that does not rely exclusively on quoted prices of specific investments, but on the investment’s relationship to other benchmarked quoted securities. The use of different market assumptions and/or estimation methodologies could have a significant effect on the fair value estimates. The following table presents assets that are measured at fair value on a recurring basis (excluding cash and cash equivalents):

	Level 1		Level 2		Total
	(in thousands)
September 30, 2015
U.S. treasuries	$	54,731	$	—	$	54,731
Government agency securities	—		2,999		2,999
Corporate debt	—		11,147		11,147

December 31, 2014
U.S. treasuries	$	81,527	$	—	$	81,527
Corporate debt	—		39,045		39,045

There were no transfers between fair value measurement levels during the nine months ended September 30, 2015. There were no financial assets or liabilities measured at fair value using Level 3 fair value measurements at September 30, 2015 or December 31, 2014.

The amortized cost and fair value of available-for-sale securities consist of:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
	(in thousands)
September 30, 2015
U.S. treasuries	$	54,693	$	38	$	(0	)	$	54,731
Government agency securities	2,999		—		—			2,999
Corporate debt	11,142		6		(1		)	11,147

Total available-for-sale securities	$	68,834	$	44	$	(1	)	$	68,877


December 31, 2014
U.S. treasuries	$	81,506	$	27	$	(6	)	$	81,527
Corporate debt	39,031		20		(6		)	39,045

Total available-for-sale securities	$	120,537	$	47	$	(12	)	$	120,572

Available-for-sale securities in a loss position consist of:

	September 30, 2015					December 31, 2014
			Gross					Gross
	Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses
	(in thousands)
U.S. treasuries	$	2,000	$	(0	)	$	35,001	$	(6	)
Corporate debt	1,139		(1		)	13,069		(6		)

Total available-for-sale securities in a loss position	$	3,139	$	(1	)	$	48,070	$	(12	)

At September 30, 2015 and December 31, 2014, there were no short-term investments that had been in a continuous loss position for more than 12 months.

The available-for-sale securities at September 30, 2015 all contractually mature in one year or less. Actual maturities may differ from contractual maturities. Veeco may sell these securities prior to maturity based on the needs of the business. In addition, borrowers may have the right to call or prepay obligations prior to scheduled maturities.

There were minimal realized gains for the three and nine months ended September 30, 2015 and September 30, 2014. The cost of securities liquidated is based on specific identification.

Accounts receivable

Accounts receivable is presented net of an allowance for doubtful accounts of $0.2 million and $0.7 million at September 30, 2015 and December 31, 2014, respectively.

Inventory

Inventory is stated at the lower of cost or market approximating actual costs using a first-in, first-out basis.

Inventory consists of:

	September 30, 2015		December 31, 2014
	(in thousands)
Materials	$	38,043	$	28,637
Work-in-process	26,612		26,778
Finished goods	5,318		6,056

Total inventory	$	69,973	$	61,471

Deferred cost of sales

For new products, new applications of existing products, or for products with substantive customer acceptance provisions where Veeco can not objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, the recognition of revenue and the recognition of associated costs are deferred until receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.

Prepaid expenses and other current assets

Prepaid expenses and other current assets primarily consist of supplier deposits, as well as prepaid value-added tax, lease deposits, prepaid insurance, and prepaid licenses.

Veeco outsources a portion of its manufacturing to third parties. For outsourced products, Veeco maintains a certain level of internal manufacturing capability. Supplier deposits were $11.1 million and $12.7 million at September 30, 2015 and December 31, 2014, respectively.

Assets held for sale

Assets held for sale consist of a vacant building and land which were designated as held for sale during 2014. The carrying value reflects Veeco’s estimate of fair value less costs to sell using the sales comparison market approach.

Property, plant, and equipment

Property, plant, and equipment consist of:

	September 30, 2015		December 31, 2014
	(in thousands)
Land	$	9,592	$	9,392
Building and improvements	54,562		51,979
Machinery and equipment	108,613		104,815
Leasehold improvements	5,417		4,356

Gross property, plant and equipment	178,184		170,542
Less: accumulated depreciation and amortization	97,663		91,790

Net property, plant, and equipment	$	80,521	$	78,752

For the three and nine months ended September 30, 2015, depreciation expense was $3.2 million and $8.9 million, respectively, and $2.9 million and $8.7 million for the comparable 2014 periods.

Goodwill

There were no new acquisitions or impairments during the nine months ended September 30, 2015. The purchase accounting related to the $145.5 million December 4, 2014 acquisition of Solid State Equipment LLC (“SSEC”), which has been renamed Veeco Precision Surface Processing LLC (“PSP”), has been finalized. Changes in goodwill consist of:

	Gross carrying			Accumulated
	amount			impairment		Net amount
	(in thousands)
Goodwill - December 31, 2014	$	238,158		$	123,199	$	114,959
Purchase price allocation adjustment	(51		)	—		(51		)

Goodwill - September 30, 2015	$	238,107		$	123,199	$	114,908

Intangible assets

There were no new acquisitions or impairments during the nine months ended September 30, 2015. The components of purchased intangible assets consist of:

	September 30, 2015						December 31, 2014
			Accumulated						Accumulated
	Gross		Amortization				Gross		Amortization
	Carrying		and		Net		Carrying		and		Net
	Amount		Impairment		Amount		Amount		Impairment		Amount
	(in thousands)
Technology	$	222,358	$	116,958	$	105,400	$	222,358	$	106,342	$	116,016
Customer relationships	47,885		20,578		27,307		47,885		14,918		32,967
Trademarks and tradenames	2,730		1,719		1,011		3,050		1,096		1,954
Indefinite-lived trademark	2,900		—		2,900		2,900		—		2,900
Other	6,241		5,383		858		6,320		849		5,471

Total	$	282,114	$	144,638	$	137,476	$	282,513	$	123,205	$	159,308

Other intangible assets consist of patents, licenses, customer backlog, and non-compete agreements.

Other assets

Veeco has an ownership interest of less than 20% in a non-marketable investment. Veeco does not exert significant influence over the investee, and therefore the investment is carried at cost. Additional investments of $1.6 million were made during the nine months ended September 30, 2015, increasing the carrying value of this investment from $19.4 million at December 31, 2014 to $21.0 million at September 30, 2015. Veeco’s ownership interest and participating rights have not substantively changed. Therefore, Veeco continues to carry the investment at cost. The investment is subject to a periodic impairment review; as there are no open-market valuations, the impairment analysis requires significant judgment. The analysis includes assessments of the investee’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.