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Business Combinations | 6 Months Ended
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Jun. 30, 2017
Business Combinations |
Business Combinations | Note 3 — Business Combinations Ultratech On May 26, 2017, the Company completed its acquisition of Ultratech, Inc. (“Ultratech”). Ultratech designs, manufactures, and markets lithography, laser annealing, and inspection equipment for manufacturers of semiconductor devices, including advanced packaging, MEMS, and atomic layer deposition (“ALD”) applications. Ultratech’s customers are primarily located throughout the United States, EMEA, China, Japan, Taiwan, and Korea. With the addition of Ultratech, the Company establishes itself as a leading equipment supplier in the advanced packaging market, forming a strong technology portfolio to address critical advanced packaging applications. The results of Ultratech’s operations have been included in the consolidated financial statements since the date of acquisition. 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 Company plans to finalize the purchase accounting within the measurement period, which may include adjustments to the fair values of assets acquired and liabilities assumed. The preliminary 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) |
Amount paid, net of cash acquired |  | $ | 399,478 |
Fair value of equity issuances (7.4 million shares issued) |  | 233,655 |
Replacement equity awards attributable to pre-acquisition service |  | 228 |
Acquisition date fair value |  | $ | 633,361 |
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
|  | Acquisition Date |
|  | (May 26, 2017) |
|  | (in thousands) |
Short-term investments |  | $ | 47,161 |
Accounts receivable |  | 45,465 |
Inventory and deferred cost of sales |  | 61,680 |
Prepaid expense and other current assets |  | 7,217 |
Property, plant, and equipment |  | 19,555 |
Intangible assets |  | 346,940 |
Other assets |  | 6,442 |
Total identifiable assets acquired |  | 534,460 |
Accounts payable and accrued expenses |  | 40,087 |
Customer deposits and deferred revenue |  | 4,834 |
Deferred income taxes |  | 32,478 |
Other liabilities |  | 11,952 |
Total liabilities assumed |  | 89,351 |
Net identifiable assets acquired |  | 445,109 |
Goodwill |  | 188,252 |
Net assets acquired |  | $ | 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. The Company has not yet completed its analysis of the allocation of the above acquired goodwill to the reporting units. The preliminary 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 |  | Useful life |
|  | (in thousands) |  |  |
Technology |  | $ | 158,390 |  | 9 years |
Customer relationships |  | 116,710 |  | 12 years |
Backlog |  | 3,080 |  | 6 months |
In-process research and development |  | 43,340 |  | * |
Trademark and tradenames |  | 25,420 |  | 7 years |
Intangible assets acquired |  | $ | 346,940 |  |  |
*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 the Company’s lithography technologies and one-third of which is related to the Company’s laser annealing technologies. For the three and six months ended June 30, 2017, acquisition related costs were approximately $14.1 million and $15.5 million, respectively, including non-cash charges of $4.2 million for the three months ended June 30, 2017 related to accelerated share-based compensation for employee terminations. The amounts of revenue and income (loss) from continuing operations before income taxes of Ultratech included in the Company’s consolidated statement of operations from the acquisition date to the period ending June 30, 2017 are as follows:
|  | Total |
|  | (in thousands) |
Revenue |  | $ | 24,050 |
Loss from operations before income taxes |  | $ | (21,445 | )
Loss from operations before income taxes of Ultratech for the period ending June 30, 2017 of $21.4 million includes acquisition costs of $14.1 million, release of inventory fair value step-up related to purchase accounting of $7.4 million, amortization expense on intangible assets of $3.5 million, and restructuring charges of $1.2 million. The following table presents unaudited pro forma financial information as if the acquisition of Ultratech had occurred on January 1, 2016:
|  | Three months ended June 30, |  | Six months ended June 30, |
|  | 2017 |  | 2016 |  | 2017 |  | 2016 |
|  | (in thousands, except per share amounts) |
Revenue |  | $ | 128,399 |  | $ | 124,272 |  | $ | 280,194 |  | $ | 247,493 |
Loss from operations |  | (28,898 | ) | (54,380 | ) | (32,852 | ) | (128,860 | )
Diluted earnings per share |  | $ | (0.61 | ) | $ | (1.17 | ) | $ | (0.70 | ) | $ | (2.78 | )
The pro-forma results were calculated by combining the results of the Company with the stand-alone results of Ultratech for the pre-acquisition period, and adjusting for the following:
| (i) |  | Additional amortization expense related to identified intangibles valued as part of the purchase price allocation that would have been incurred starting on January 1, 2016.
| (ii) |  | Additional depreciation expense for the property, plant, and equipment fair value adjustments that would have been incurred starting on January 1, 2016.
| (iii) |  | All acquisition related costs incurred by the Company as well as by Ultratech pre-acquisition have been removed from their respective periods and included in the three months ended March 31, 2016, as such expenses would have been incurred in the first quarter following the acquisition.
| (iv) |  | All amortization of inventory step-up has been removed from their respective periods and recorded in the first two quarters of 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 5, “Liabilities”) 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.

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