0001558370-20-011809.txt : 20201027 0001558370-20-011809.hdr.sgml : 20201027 20201027171050 ACCESSION NUMBER: 0001558370-20-011809 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 76 CONFORMED PERIOD OF REPORT: 20200930 FILED AS OF DATE: 20201027 DATE AS OF CHANGE: 20201027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VEECO INSTRUMENTS INC CENTRAL INDEX KEY: 0000103145 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 112989601 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16244 FILM NUMBER: 201264946 BUSINESS ADDRESS: STREET 1: TERMINAL DRIVE CITY: PLAINVIEW STATE: NY ZIP: 11803 BUSINESS PHONE: 516 677-0200 MAIL ADDRESS: STREET 1: TERMINAL DRIVE CITY: PLAINVIEW STATE: NY ZIP: 11803 FORMER COMPANY: FORMER CONFORMED NAME: VACUUM ELECTRONIC MANUFACTURING CORP DATE OF NAME CHANGE: 19700408 10-Q 1 veco-20200930x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

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

    

11-2989601

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

Terminal Drive
Plainview, New York

11803

(Address of Principal Executive Offices)

(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

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

VECO

The NASDAQ Global Select Market

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 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes   No 

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 

    

    

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

As of October 20, 2020, there were 49,612,167 shares of the registrant’s common stock outstanding.

Safe Harbor Statement

This quarterly report on Form 10-Q (the “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Discussions containing such forward-looking statements may be found in Part I - Items 1, 2, and 3 hereof, as well as within this Report generally. In addition, when used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “targets,” “plans,” “intends,” “will,” and similar expressions related to the future are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results.

In addition, the preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates and assumptions are based on knowledge of current events, including the potential impact of the COVID-19 pandemic on our business, and planned actions to be undertaken in the future, they may ultimately differ from actual results. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. All estimates and assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from these estimates and assumptions.

The risks and uncertainties of Veeco Instruments Inc. (together with its consolidated subsidiaries, “Veeco,” the “Company,” “we,” “us,” and “our,” unless the context indicates otherwise) include, without limitation, those set forth under the heading “Risk Factors” Part 1, Item 1A in our 2019 Form 10-K, and Part 2, Item 1A of our quarterly reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, and the following:

The unknown duration and economic, operational, and financial impacts of the COVID-19 pandemic and the actions taken or contemplated by governmental authorities or others in response to the pandemic on our business, employees, customers and suppliers, including, among others, (a) changes in customer demand for our products, (b) disruptions in our supply chain, particularly to the extent we rely on a single supplier for certain components, (c) financial challenges confronting major customers in light of reduced end-user demand for their products, (d) operational changes implemented by us, including remote working arrangements, which may put increased strain on our IT systems and create increased vulnerability to cybersecurity incidents, (e) increases in shipping, raw material or other costs, (f) competitive pricing pressures, and (g) prolonged measures to contain the spread of COVID-19 or the premature easing of government-imposed restrictions implemented to contain the spread of COVID-19;

Unfavorable market conditions have adversely affected, and may continue to adversely affect, our operating results;

We are exposed to the risks of operating a global business;

Changes in U.S. trade policy and export controls and ongoing trade disputes between the U.S. and China have adversely affected, and may continue to adversely affect, our business, results of operations, and financial condition;

Disruptions in our information technology systems or data security incidents could result in significant financial, legal, regulatory, business, and reputational harm to us;

We may be unable to effectively enforce and protect our intellectual property rights;

We may be subject to claims of intellectual property infringement by others;

We face significant competition;

We operate in industries characterized by rapid technological change;

1

Certain of our sales are dependent on the demand for consumer electronics, which can experience significant volatility due to seasonal and other factors;

We have a concentrated customer base, located primarily in a limited number of regions, which operates in highly concentrated industries;

The cyclicality of the industries we serve directly affects our business;

The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly;

Our sales cycle is long and unpredictable;

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;

We may be unable to obtain required export licenses for the sale of our products;

Our operating results may be adversely affected by tightening credit markets;

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;

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;

We rely on a limited number of suppliers, some of whom are our sole source for particular components;

The price of our common shares is volatile and could decrease;

We may be required to take impairment charges on assets;

Our inability to attract, retain, and motivate employees could have a material adverse effect on our business;

We are exposed to risks associated with business combinations, acquisitions, strategic investments and divestitures;

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;

Changes in accounting pronouncements or taxation rules or practices may adversely affect our financial results;

Our income taxes may change;

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;

The accounting method for convertible debt securities that may be settled in cash, such as the 2023 and 2027 Notes, could have a material effect on our reported financial results;

2

The effects of the capped call transactions that we entered in connection with the issuance of the convertible senior notes due 2027, which may include changes in the value of the notes and our common stock;

We are subject to foreign currency exchange risks;

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 are exposed to various risks associated with global regulatory requirements;

We may be exposed to liabilities under the Foreign Corrupt Practices Act and other similar laws;

We are subject to risks of non-compliance with environmental, health, and safety regulations; and

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.

Consequently, such forward looking statements and estimates should be regarded solely as the current plans and beliefs of Veeco. We do not undertake any obligation to update any forward looking statements to reflect future events or circumstances after the date of such statements.

3

PART IFINANCIAL INFORMATION

Item 1. Financial Statements

Veeco Instruments Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share amounts)

September 30,

December 31,

    

2020

    

2019

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

147,588

$

129,294

Restricted cash

664

657

Short-term investments

 

161,585

 

115,252

Accounts receivable, net

 

80,212

 

45,666

Contract assets

21,342

25,351

Inventories

 

143,469

 

133,067

Deferred cost of sales

 

1,677

 

445

Prepaid expenses and other current assets

15,948

14,966

Assets held for sale

11,180

Total current assets

 

572,485

 

475,878

Property, plant, and equipment, net

 

65,811

 

75,711

Operating lease right-of-use assets

10,522

14,453

Intangible assets, net

50,016

61,518

Goodwill

 

181,943

 

181,943

Deferred income taxes

1,555

1,549

Other assets

 

7,293

 

7,036

Total assets

$

889,625

$

818,088

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

33,837

$

21,281

Accrued expenses and other current liabilities

 

40,667

 

41,243

Customer deposits and deferred revenue

 

71,539

 

54,870

Income taxes payable

 

891

 

830

Total current liabilities

 

146,934

 

118,224

Deferred income taxes

 

5,984

 

5,648

Long-term debt

 

320,818

 

300,068

Operating lease long-term liabilities

6,793

10,300

Other liabilities

 

11,003

 

9,336

Total liabilities

 

491,532

 

443,576

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; 49,612,167 shares issued and outstanding at September 30, 2020 and 48,994,346 shares issued and outstanding at December 31, 2019

 

496

 

490

Additional paid-in capital

 

1,102,959

 

1,071,058

Accumulated deficit

 

(707,219)

 

(698,930)

Accumulated other comprehensive income

 

1,857

 

1,894

Total stockholders' equity

 

398,093

 

374,512

Total liabilities and stockholders' equity

$

889,625

$

818,088

See accompanying Notes to the Consolidated Financial Statements.

4

Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

Three months ended September 30,

Nine months ended September 30,

    

2020

    

2019

    

2020

    

2019

    

Net sales

$

112,078

$

108,954

$

315,216

$

306,147

Cost of sales

 

62,936

 

66,731

 

177,761

 

192,924

Gross profit

 

49,142

42,223

137,455

113,223

Operating expenses, net:

Research and development

 

19,129

 

22,639

 

57,577

 

68,901

Selling, general, and administrative

 

19,415

 

20,962

 

55,541

 

60,620

Amortization of intangible assets

 

3,831

 

4,312

 

11,502

 

12,773

Restructuring

 

 

1,828

 

1,097

 

3,874

Asset impairment

 

 

 

281

 

Other operating expense (income), net

(218)

(153)

(502)

(232)

Total operating expenses, net

42,157

49,588

125,496

145,936

Operating income (loss)

 

6,985

 

(7,365)

 

11,959

 

(32,713)

Interest income

 

231

 

1,219

 

1,458

 

3,749

Interest expense

 

(6,425)

 

(5,549)

 

(18,131)

 

(16,491)

Loss on extinguishment of debt

(3,046)

Income (loss) before income taxes

 

791

(11,695)

(7,760)

(45,455)

Income tax expense (benefit)

 

211

 

72

 

530

 

407

Net income (loss)

$

580

$

(11,767)

$

(8,290)

$

(45,862)

Income (loss) per common share:

Basic

$

0.01

$

(0.25)

$

(0.17)

$

(0.97)

Diluted

$

0.01

$

(0.25)

$

(0.17)

$

(0.97)

Weighted average number of shares:

Basic

 

48,341

 

47,489

 

48,327

 

47,361

Diluted

 

49,174

 

47,489

 

48,327

 

47,361

See accompanying Notes to the Consolidated Financial Statements.

5

Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

Three months ended September 30,

Nine months ended September 30,

    

2020

    

2019

    

2020

    

2019

    

Net income (loss)

$

580

$

(11,767)

$

(8,290)

$

(45,862)

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on available-for-sale securities

 

(69)

 

(38)

 

(16)

 

8

Foreign currency translation gain (loss)

9

(4)

(21)

8

Total other comprehensive income (loss), net of tax

 

(60)

 

(42)

 

(37)

 

16

Total comprehensive income (loss)

$

520

$

(11,809)

$

(8,327)

$

(45,846)

See accompanying Notes to the Consolidated Financial Statements.

6

Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Nine months ended September 30,

    

2020

    

2019

    

Cash Flows from Operating Activities

Net income (loss)

$

(8,290)

$

(45,862)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

 

23,021

 

25,838

Non-cash interest expense

10,282

9,418

Deferred income taxes

 

330

 

20

Share-based compensation expense

 

9,562

 

11,528

Loss on extinguishment of debt

3,046

Asset impairment

281

Provision for bad debts

140

Changes in operating assets and liabilities:

Accounts receivable and contract assets

 

(30,677)

 

(16,308)

Inventories and deferred cost of sales

 

(10,336)

 

17,921

Prepaid expenses and other current assets

 

(982)

 

(1,276)

Accounts payable and accrued expenses

 

11,130

 

(16,000)

Customer deposits and deferred revenue

 

16,728

 

(6,705)

Income taxes receivable and payable, net

 

61

 

(593)

Other, net

 

3,295

 

(986)

Net cash provided by (used in) operating activities

 

27,591

 

(23,005)

Cash Flows from Investing Activities

Capital expenditures

 

(3,331)

 

(8,189)

Proceeds from the sale of investments

 

139,531

 

102,230

Payments for purchases of investments

 

(185,576)

 

(148,664)

Proceeds from held for sale assets, net of costs to sell

 

9,503

 

645

Net cash provided by (used in) investing activities

(39,873)

(53,978)

Cash Flows from Financing Activities

Proceeds from issuance of 2027 Notes, net of issuance costs

121,946

Purchase of capped calls

(10,313)

Repurchase of 2023 Notes

(81,240)

Proceeds (net of tax withholdings) from option exercises and employee stock purchase plan

 

2,428

 

2,609

Restricted stock tax withholdings

 

(2,217)

 

(2,771)

Net cash provided by (used in) financing activities

 

30,604

 

(162)

Effect of exchange rate changes on cash and cash equivalents

 

(21)

 

9

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

18,301

 

(77,136)

Cash, cash equivalents, and restricted cash - beginning of period

 

129,951

 

213,082

Cash, cash equivalents, and restricted cash - end of period

$

148,252

$

135,946

Supplemental Disclosure of Cash Flow Information

Interest paid

$

8,989

$

9,401

Income taxes paid

248

2,835

Non-cash operating and financing activities

Net transfer of property, plant and equipment to inventory

1,624

4,074

Right-of-use assets obtained in exchange for lease obligations

951

516

See accompanying Notes to the Consolidated Financial Statements.

7

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

(unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of Veeco have been prepared in accordance with U.S. GAAP as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 270 for interim financial information and with the instructions to Rule 10-01 of Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements as the interim information is an update of the information that was presented in Veeco’s most recent annual financial statements. For further information, refer to Veeco’s Consolidated Financial Statements and Notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”). In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal, recurring nature.

Veeco reports interim quarters on a 13-week basis ending on the last Sunday of each quarter. The fourth quarter always ends on the last day of the calendar year, December 31. The 2020 interim quarters ended on March 29, June 28, and September 27, and the 2019 interim quarters ended on March 31, June 30, and September 29. These interim quarters are reported as March 31, June 30, and September 30 in Veeco’s interim consolidated financial statements.

The preparation of financial statements in conformity with U.S GAAP requires the Company’s 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, actual results may differ from these estimates. In particular, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Company’s business and markets, including the Company’s workforce and operations and the operations of the Company’s customers, suppliers, and business partners. The full extent to which the pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including sales, expenses, manufacturing, research and development costs, reserves and allowances, fair value measurements, and asset impairment charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or address its impact, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

Revenue Recognition

Revenue is recognized upon the transfer of control of the promised product or service to the customer in an amount that reflects the consideration the Company expects to receive in exchange for such product or service. The Company’s contracts with customers generally do not contain variable consideration. In the rare instances where variable consideration is included, the Company estimates the amount of variable consideration and determines what portion of that, if any, has a high probability of significant subsequent revenue reversal, and if so, that amount is excluded from the transaction price. The Company’s contracts with customers frequently contain multiple deliverables, such as systems, upgrades, components, spare parts, installation, maintenance, and service plans. Judgment is required to properly identify the performance obligations within a contract and to determine how the revenue should be allocated among the performance obligations. The Company also evaluates whether multiple transactions with the same customer or related parties should be considered part of a single contract based on an assessment of whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one another.

   

When there are separate units of accounting, the Company allocates revenue to each performance obligation on a relative stand-alone selling price basis. The stand-alone selling prices are determined based on the prices at which the Company separately sells the systems, upgrades, components, spare parts, installation, maintenance, and service plans. For items

8

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

that are not sold separately, the Company estimates stand-alone selling prices generally using an expected cost plus margin approach.

   

Most of the Company’s revenue is recognized at a point in time when the performance obligation is satisfied. The Company considers many facts when evaluating each of its sales arrangements to determine the timing of revenue recognition, including its contractual obligations and the nature of the customer’s post-delivery acceptance provisions. The Company’s system sales arrangements, including certain upgrades, generally include field acceptance provisions that may include functional or mechanical test procedures. For many of these arrangements, a customer source inspection of the system is performed in the Company’s facility, test data is sent to the customer documenting that the system is functioning to the agreed upon specifications prior to delivery, or other quality assurance testing is performed internally to ensure system functionality prior to shipment. Historically, such source inspection or test data replicates the field acceptance provisions that are performed at the customer’s site prior to final acceptance of the system. When the Company objectively demonstrates that the criteria specified in the contractual acceptance provisions are achieved prior to delivery either through customer testing or the Company’s historical experience of its tools meeting specifications, transfer of control of the product to the customer is considered to have occurred and revenue is recognized upon system delivery since there is no substantive contingency remaining related to the acceptance provisions at that date. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where the Company cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred. The Company recognizes such revenue and costs upon obtaining objective evidence that the acceptance provisions can be achieved, assuming all other revenue recognition criteria have been met.

   

In certain cases the Company’s contracts with customers contain a billing retention, typically 10% of the sales price, which is billed by the Company and payable by the customer when field acceptance provisions are completed. Revenue recognized in advance of the amount that has been billed is recorded as a contract asset on the Consolidated Balance Sheets.

   

The Company recognizes revenue related to maintenance and service contracts over time based upon the respective contract term. Installation revenue is recognized over time as the installation services are performed. The Company recognizes revenue from the sales of components, spare parts, and specified service engagements at a point in time, which is typically consistent with the time of delivery in accordance with the terms of the applicable sales arrangement.

   

The Company may receive customer deposits on system transactions. The timing of the transfer of goods or services related to the deposits is either at the discretion of the customer or expected to be within one year from the deposit receipt. As such, the Company does not adjust transaction prices for the time value of money. Incremental direct costs incurred related to the acquisition of a customer contract, such as sales commissions, are expensed as incurred since the expected amortization period is one year or less.

The Company has elected to treat shipping and handling costs as a fulfillment activity, and the Company includes such costs in cost of services when the Company recognizes revenue for the related goods. Taxes assessed by governmental authorities that are collected by the Company from a customer are excluded from revenue.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Each quarter the Company assesses the valuation 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 management’s estimated usage requirement is written down to its estimated net realizable value if less than cost. The Company evaluates usage requirements by analyzing historical usage, anticipated demand, alternative uses of materials, and other qualitative factors. Unanticipated changes in demand for the Company’s products may require a write down of

9

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

inventory, which would be reflected in cost of sales in the period the revision is made. Inventory acquired as part of a business combination is recorded at fair value on the date of acquisition.

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by eliminating certain exceptions to the general principles and simplifying several aspects of ASC 740, Income taxes, including, but not limited to, requirements related to the following: a) exception to the incremental approach for intraperiod tax allocation; b) the tax basis step-up in goodwill obtained in a transaction that is not a business combination; c) ownership changes in investments - changes from a subsidiary to an equity method investment; d) separate financial statements of entities not subject to tax; e) interim-period accounting for enacted changes in tax law; and f) the year-to-date loss limitation in interim-period tax accounting. As permitted by ASU 2019-12, the Company early-adopted this standard in the second quarter of 2020, effective as of the beginning of fiscal year 2020. The adoption did not have a material impact on the Company’s consolidated financial statements as of the date of adoption.

Recent Accounting Standards Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06: Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This standard simplifies the accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature, as well as convertible instruments with a beneficial conversion feature. As a result, entity’s will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce non-cash interest expense for entities that have issued a convertible instrument that was within the scope of those models before the adoption of ASU 2020-06. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share, and precludes the use of the treasury stock method. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. An entity should adopt the provisions at the beginning of its annual fiscal year. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.

10

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

Note 2 — Income (Loss) Per Common Share

Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted income per share is calculated by dividing net income by the weighted average number of shares used to calculate basic income (loss) 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 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 if the performance targets have been achieved, or would have been achieved if the reporting date was the end of the contingency period. The computations of basic and diluted income (loss) per share for the three and nine months ended September 30, 2020 and 2019 are as follows:

Three months ended September 30,

Nine months ended September 30,

    

2020

    

2019

    

2020

    

2019

    

(in thousands, except per share amounts)

Net income (loss)

$

580

$

(11,767)

$

(8,290)

$

(45,862)

Net income (loss) per common share:

Basic

$

0.01

$

(0.25)

$

(0.17)

$

(0.97)

Diluted

$

0.01

$

(0.25)

$

(0.17)

$

(0.97)

Basic weighted average shares outstanding

 

48,341

 

47,489

 

48,327

 

47,361

Effect of potentially dilutive share-based awards

 

833

 

 

 

Diluted weighted average shares outstanding

 

49,174

 

47,489

 

48,327

 

47,361

Common share equivalents excluded from the diluted weighted average shares outstanding since the Company incurred a net loss and their effect would be antidilutive

N/A

403

650

302

Potentially dilutive shares excluded from the diluted calculation as their effect would be antidilutive

984

1,874

1,029

1,893

Maximum potential shares to be issued for settlement of the 2023 and 2027 Notes excluded from the diluted calculation as their effect would be antidilutive

15,354

8,618

15,354

8,618

Note 3 — Assets

Investments

Short-term investments 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 operating expense (income), 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;

11

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

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. Veeco has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions or estimation methodologies could have a significant effect on the estimated fair value amounts.

The following table presents the portion of Veeco’s assets that were measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019:

    

Level 1

    

Level 2

    

Level 3

    

Total

(in thousands)

September 30, 2020

Cash equivalents

Certificate of deposits and time deposits

$

64,646

$

$

$

64,646

U.S. treasuries

9,999

9,999

Government money market fund

1,180

1,180

Government agency securities

1,050

1,050

Total

$

75,825

$

1,050

$

$

76,875

Short-term investments

U.S. treasuries

$

125,346

$

$

$

125,346

Government agency securities

6,000

6,000

Corporate debt

14,248

14,248

Commercial paper

15,991

15,991

Total

$

125,346

$

36,239

$

$

161,585

December 31, 2019

Cash equivalents

Certificate of deposits and time deposits

$

67,009

$

$

$

67,009

Commercial paper

10,484

10,484

Corporate debt

1,000

1,000

Total

$

67,009

$

11,484

$

$

78,493

Short-term investments

U.S. treasuries

$

105,130

$

$

$

105,130

Government agency securities

1,139

1,139

Corporate debt

6,002

6,002

Commercial paper

2,981

2,981

Total

$

105,130

$

10,122

$

$

115,252

There were no transfers between fair value measurement levels during the nine months ended September 30, 2020.

12

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

At September 30, 2020 and December 31, 2019, 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, 2020

U.S. treasuries

$

125,333

$

17

$

(4)

$

125,346

Government agency securities

5,995

5

6,000

Corporate debt

14,254

1

(7)

14,248

Commercial paper

15,986

7

(2)

15,991

Total

$

161,568

$

30

$

(13)

$

161,585

December 31, 2019

U.S. treasuries

$

105,096

$

38

$

(4)

$

105,130

Government agency securities

1,139

1,139

Corporate debt

 

6,003

 

 

(1)

 

6,002

Commercial paper

2,981

2,981

Total

$

115,219

$

38

$

(5)

$

115,252

Available-for-sale securities in a loss position at September 30, 2020 and December 31, 2019 consist of:

September 30, 2020

December 31, 2019

    

    

Gross

    

    

Gross

Estimated

Unrealized

Estimated

Unrealized

Fair Value

Losses

Fair Value

Losses

(in thousands)

U.S. treasuries

$

40,111

$

(4)

$

22,943

$

(4)

Corporate debt

 

10,195

 

(7)

 

6,002

 

(1)

Commercial paper

5,995

(2)

Total

$

56,301

$

(13)

$

28,945

$

(5)

At September 30, 2020 and December 31, 2019, 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 September 30, 2020 were all due in one year or less, and an allowance for credit loss is considered unnecessary. 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 nine months ended September 30, 2020 and no realized gains or losses for the nine months ended September 30, 2019.

Accounts Receivable

Accounts receivable is presented net of an allowance for doubtful accounts of $0.7 million and $0.6 million at September 30, 2020 and December 31, 2019, respectively. The Company considered its current expectations of future economic conditions, including the impact of COVID-19, when estimating its allowance for doubtful accounts.

13

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

Inventories

Inventories at September 30, 2020 and December 31, 2019 consist of the following:

September 30,

December 31,

    

2020

    

2019

(in thousands)

Materials

$

81,842

$

82,155

Work-in-process

 

56,137

 

42,575

Finished goods

 

5,490

 

8,337

Total

$

143,469

$

133,067

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets primarily consist of supplier deposits, prepaid value-added tax, lease deposits, prepaid insurance, prepaid licenses, and other receivables. Veeco had deposits with its suppliers of $5.0 million and $5.9 million at September 30, 2020 and December 31, 2019, respectively.

Assets Held for Sale

In the fourth quarter of 2019, the Company determined that one of its non-core product lines (the “disposal group”) met the held for sale criteria, and as such, the related assets were presented as “Assets held for sale” on the Consolidated Balance Sheets as of December 31, 2019. During the second quarter of 2020, the Company completed the sale of this product line for approximately $11.4 million, with approximately 85% of the transaction price received upon closing, and 15% held in escrow for a period of 18 months and included within “Other Assets” in the Consolidated Balance Sheets. Long-lived assets and definite-lived intangible assets were not depreciated or amortized while classified as held for sale. The sale of this disposal group does not represent a strategic shift that will have a material effect on the Company’s operations and financial results, nor is it considered a component of the Company, and as such it did not meet the criteria to be reported as discontinued operations.

For the year ended December 31, 2019, the Company recorded a non-cash impairment charge on these assets held for sale of $4.0 million in order to measure the disposal group at the lower of its carrying value or fair value less costs to sell, which resulted in a corresponding held for sale valuation allowance on its assets held for sale in the Consolidated Balance Sheet. During the second quarter of 2020, the Company recorded additional impairment charges of $0.3 million related to the finalization of the sale of this disposal group. The major classes of assets and liabilities that were sold are as follows:

Net assets sold:

 

(in thousands)

Inventories

$

6,311

Property, plant, and equipment, net

372

Intangible assets, net

6,546

Goodwill

2,359

Deferred revenue

(59)

Total net assets sold

$

15,529

Net proceeds after costs to sell

(11,228)

Total loss on sale of disposal group

$

4,301

14

Table of Contents

Veeco Instruments Inc. and Subsidiaries

Notes to the Consolidated Financial Statements - continued

(unaudited)

Property, Plant, and Equipment

Property, plant, and equipment at September 30, 2020 and December 31, 2019 consist of the following:

September 30,

December 31,

    

2020

    

2019

(in thousands)

Land

$

5,061

$

5,061

Building and improvements

 

62,796

 

61,884

Machinery and equipment (1)

 

137,587

 

137,692

Leasehold improvements

 

6,795

 

6,703

Gross property, plant, and equipment

 

212,239

 

211,340

Less: accumulated depreciation and amortization

 

146,428

 

135,629

Net property, plant, and equipment

$

65,811

$

75,711

(1)Machinery and equipment also includes software, furniture and fixtures

For the three and nine months ended September 30, 2020, depreciation expense was $3.8 million and $11.5 million, respectively, and $4.2 million and $13.1 million for the comparable 2019 periods.

Goodwill

Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. The Company continues to assess potential triggering events related to the value of its goodwill, including the COVID-19 pandemic, and concluded that there were no indicators of impairment during the nine months ended September 30, 2020.

Intangible Assets

Intangible assets consist of purchased technology, customer relationships, patents, trademarks and tradenames, and backlog, and are initially recorded at fair value. Long-lived intangible assets are amortized over their estimated useful lives in a method reflecting the pattern in which the economic benefits are consumed or amortized on a straight-line basis if such pattern cannot be reliably determined. The Company continues to assess potential triggering events related to the value of its intangible assets, including the COVID-19 pandemic, and concluded that there were no indicators of impairment during the nine months ended September 30, 2020.

The components of purchased intangible assets were as follows:

September 30, 2020

December 31, 2019

Accumulated

Accumulated

    

Gross

    

Amortization

    

    

Gross

    

Amortization

    

Carrying

and

Net

Carrying

and

Net

Amount

Impairment

Amount

Amount

Impairment

Amount

(in thousands)

Technology

$

327,908

$

299,710

$

28,198

$

327,908

$

291,766

$

36,142

Customer relationships

146,465

129,290

17,175

146,465

126,764

19,701

Trademarks and tradenames

30,910

26,274

4,636

30,910

25,256