Note 4 - 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 acquired. 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 September 30, 2017 and December 31, 2016:

	Level 1		Level 2		Level 3		Total
	(in thousands)
September 30, 2017
Cash equivalents
Corporate debt	$	—	$	1,500	$	—	$	1,500

Total	$	—	$	1,500	$	—	$	1,500
Short-term investments
U.S. treasuries	$	58,806	$	—	$	—	$	58,806
Corporate debt	—		10,911		—		10,911
Commercial paper	—		16,136		—		16,136

Total	$	58,806	$	27,047	$	—	$	85,853

December 31, 2016
Cash equivalents
Corporate debt	$	—	$	1,501	$	—	$	1,501

Total	$	—	$	1,501	$	—	$	1,501
Short-term investments
U.S. treasuries	$	40,008	$	—	$	—	$	40,008
Government agency securities	—		10,012		—		10,012
Corporate debt	—		13,773		—		13,773
Commercial paper	—		2,994		—		2,994

Total	$	40,008	$	26,779	$	—	$	66,787

There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2017.

At September 30, 2017 and December 31, 2016, 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, 2017
U.S. treasuries	$	58,816	$	3	$	(13	)	$	58,806
Corporate debt	10,912		1		(2		)	10,911
Commercial paper	16,135		1		—			16,136

Total	$	85,863	$	5	$	(15	)	$	85,853


December 31, 2016
U.S. treasuries	$	40,013	$	—	$	(5	)	$	40,008
Government agency securities	10,020		—		(8		)	10,012
Corporate debt	13,780		—		(7		)	13,773
Commercial paper	2,994		—		—			2,994

Total	$	66,807	$	—	$	(20	)	$	66,787

Available-for-sale securities in a loss position at September 30, 2017 and December 31, 2016 consist of:

	September 30, 2017					December 31, 2016
			Gross					Gross
	Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses
	(in thousands)
U.S. treasuries	$	41,864	$	(13	)	$	20,002	$	(5	)
Government agency securities	—		—			10,012		(8		)
Corporate debt	7,909		(2		)	13,774		(7		)

Total	$	49,773	$	(15	)	$	43,788	$	(20	)

At September 30, 2017 and December 31, 2016, 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, 2017 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, 2017 and no realized gains for the three and nine months ended September 30, 2016. The cost of securities liquidated is based on specific identification.

Accounts receivable

Accounts receivable is presented net of an allowance for doubtful accounts of $0.3 million at September 30, 2017 and December 31, 2016.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Inventories at September 30, 2017 and December 31, 2016 consist of the following:

	September 30,		December 31,
	2017		2016
	(in thousands)
Materials	$	59,767	$	46,457
Work-in-process	37,884		25,250
Finished goods	16,030		5,356

Total	$	113,681	$	77,063

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 $6.7 million and $7.8 million at September 30, 2017 and December 31, 2016, respectively. Additionally, included within prepaid expenses and other current assets at September 30, 2017 was a non-trade receivable of approximately $12.8 million.

Property, plant, and equipment

Property, plant, and equipment at September 30, 2017 and December 31, 2016 consist of the following:

	September 30,		December 31,
	2017		2016
	(in thousands)
Land	$	5,669	$	5,669
Building and improvements	50,367		50,814
Machinery and equipment(1)	126,631		99,370
Leasehold improvements	10,471		3,652

Gross property, plant and equipment	193,138		159,505
Less: accumulated depreciation and amortization	108,735		98,859

Net property, plant, and equipment	$	84,403	$	60,646

(1)

Machinery and equipment also includes software, furniture and fixtures

For the three and nine months ended September 30, 2017, depreciation expense was $4.2 million and $10.6 million, respectively, and $3.5 million and $10.2 million for the comparable 2016 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 following table presents the changes in goodwill balances for the nine months ended September 30, 2017:

	Gross carrying		Accumulated
	amount		impairment		Net amount
	(in thousands)
Balance at December 31, 2016	$	238,108	$	123,200	$	114,908
Acquisition	193,621		—		193,621

Balance at September 30, 2017	$	431,729	$	123,200	$	308,529

Intangible assets

Intangible assets consist of purchased technology, customer-related intangible assets, in-process research and development, trademarks (both long-lived and indefinite-lived), patents, backlog, and licenses 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 amortized on a straight-line basis if such pattern cannot be reliably determined.

The components of purchased intangible assets were as follows:

		September 30, 2017						December 31, 2016
	Weighted			Accumulated						Accumulated
	Average Remaining	Gross		Amortization				Gross		Amortization
	Amortization	Carrying		and		Net		Carrying		and		Net
	Period	Amount		Impairment		Amount		Amount		Impairment		Amount
	(in years)	(in thousands)
Technology	7.5	$	307,588	$	125,154	$	182,434	$	149,198	$	113,904	$	35,294
Customer relationships	11.6	164,595		35,653		128,942		47,885		28,659		19,226
In-process R&D	—	43,340		—		43,340		—		—		—
Trademarks and tradenames	6.6	28,010		3,272		24,738		2,590		1,948		642
Indefinite-lived trademark	—	2,900		—		2,900		2,900		—		2,900
Other	0.5	3,686		2,444		1,242		2,026		1,710		316

Total	9.0	$	550,119	$	166,523	$	383,596	$	204,599	$	146,221	$	58,378

Other intangible assets primarily consist of patents, backlog, and licenses.

Other assets

Veeco has an ownership interest of less than 20% in a non-marketable investment, Kateeva, Inc. (“Kateeva”). Veeco does not exert significant influence over Kateeva and therefore the investment is carried at cost. There was no change to the $21.0 million carrying value of the investment during the nine months ended September 30, 2017. 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.

Also included within Other assets at September 30, 2017 are deferred compensation plan assets of approximately $3.3 million representing the cash surrender value of life insurance policies held by the Company related to an executive non-qualified deferred compensation plan that was assumed from Ultratech that allows qualifying executives to defer cash compensation. The related plan liability of approximately $4.5 million is included in “Other liabilities” on the Consolidated Balance Sheet.