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.

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 and/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 March 31, 2016 and December 31, 2015:

	Level 1		Level 2		Level 3		Total
	(in thousands)
March 31, 2016
Cash equivalents
Commercial paper	$	—	$	1,199	$	—	$	1,199

Total	—		1,199		—		1,199
Short-term investments
U.S. treasuries	92,765		—		—		92,765
Government agency securities	—		9,999		—		9,999
Corporate debt	—		2,215		—		2,215

Total	92,765		12,214		—		104,979
Other
Assets held for sale	—		4,983		—		4,983

Total	$	—	$	4,983	$	—	$	4,983

December 31, 2015
Cash equivalents
U.S. treasuries	$	9,999	$	—	$	—	$	9,999
Government agency securities	—		4,998		—		4,998
Commercial paper	—		2,999		—		2,999

Total	9,999		7,997		—		17,996
Short-term investments
U.S. treasuries	94,918		—		—		94,918
Government agency securities	—		12,988		—		12,988
Corporate debt	—		8,144		—		8,144

Total	94,918		21,132		—		116,050
Other
Assets held for sale	—		5,000		—		5,000

Total	$	—	$	5,000	$	—	$	5,000

There were no transfers between fair value measurement levels during the three months ended March 31, 2016.

At March 31, 2016 and December 31, 2015, the amortized cost and fair value of available-for-sale securities consist of:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
	(in thousands)
March 31, 2016
U.S. treasuries	$	92,749	$	16	$	—		$	92,765
Government agency securities	9,997		2		—			9,999
Corporate debt	2,215		—		—			2,215

Total	$	104,961	$	18	$	—		$	104,979


December 31, 2015
U.S. treasuries	$	94,935	$	6	$	(23	)	$	94,918
Government agency securities	12,985		3		—			12,988
Corporate debt	8,144		1		(1		)	8,144

Total	$	116,064	$	10	$	(24	)	$	116,050

There were no available-for-sale securities in a loss position at March 31, 2016. Available-for-sale securities in a loss position at December 31, 2015 consist of:

	December 31, 2015
			Gross
	Estimated		Unrealized
	Fair Value		Losses
	(in thousands)
U.S. treasuries	$	64,922	$	(23	)
Corporate debt	3,353		(1		)

Total	$	68,275	$	(24	)

At March 31, 2016 and December 31, 2015, 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 March 31, 2016 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 months ended March 31, 2016 and 2015. The cost of securities liquidated is based on specific identification.

Accounts receivable

Accounts receivable is presented net of an allowance for doubtful accounts of $0.4 million and $0.2 million at March 31, 2016 and December 31, 2015, respectively.

Inventories

Inventories are stated at the lower of cost or net realizable value on a first-in, first-out basis. Inventories at March 31, 2016 and December 31, 2015 consist of the following:

	March 31,		December 31,
	2016		2015
	(in thousands)
Materials	$	47,362	$	42,373
Work-in-process	23,332		30,327
Finished goods	6,511		4,769

Total	$	77,205	$	77,469

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, and prepaid licenses. Veeco had deposits with its suppliers of $21.3 million and $14.6 million at March 31, 2016 and December 31, 2015, respectively.

Assets held for sale

Assets held for sale primarily consist of a vacant building and land which were designated as held for sale during 2014. The sale of these assets is expected to be completed within the next twelve months. 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 at March 31, 2016 and December 31, 2015 consist of the following:

	March 31,		December 31,
	2016		2015
	(in thousands )
Land	$	9,592	$	9,592
Building and improvements	57,264		54,622
Machinery and equipment(1)	111,392		110,075
Leasehold improvements	5,565		5,554

Gross property, plant and equipment	183,813		179,843
Less: accumulated depreciation and amortization	103,588		100,253

Net property, plant, and equipment	$	80,225	$	79,590

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

For the three months ended March 31, 2016 and 2015, depreciation expense was $3.3 million and $2.8 million, respectively.

Goodwill

There were no new acquisitions or impairments, and therefore no changes to goodwill during the three months ended March 31, 2016.

Intangible assets

There were no significant new acquisitions and no impairments during the three months ended March 31, 2016. The components of purchased intangible assets at March 31, 2016 and December 31, 2015 consist of the following:

	March 31, 2016						December 31, 2015
			Accumulated						Accumulated
	Gross		Amortization				Gross		Amortization
	Carrying		and		Net		Carrying		and		Net
	Amount		Impairment		Amount		Amount		Impairment		Amount
	(in thousands)
Technology	$	222,358	$	124,021	$	98,337	$	222,358	$	120,496	$	101,862
Customer relationships	47,885		24,017		23,868		47,885		22,470		25,415
Trademarks and tradenames	2,730		1,975		755		2,730		1,937		793
Indefinite-lived trademark	2,900		—		2,900		2,900		—		2,900
Other	2,296		1,503		793		6,241		5,537		704

Total	$	278,169	$	151,516	$	126,653	$	282,114	$	150,440	$	131,674

Other intangible assets primarily consist of patents, licenses, 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. There was no change to the $21.0 million carrying value of the investment during the three months ended March 31, 2016. The investment is included in “Other assets” on the Consolidated Balance Sheet. 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 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.