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Business Combinations | 12 Months Ended
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Dec. 31, 2017
Business Combinations |
Business Combinations | Note 5 — Business Combinations Ultratech On May 26, 2017, the Company completed its acquisition of Ultratech, Inc. (“Ultratech”). Ultratech develops, manufactures, sells, and supports lithography, laser annealing, and inspection equipment for manufacturers of semiconductor devices, including front-end semiconductor manufacturing and advanced packaging. Ultratech also develops, manufactures, sells and supports ALD equipment for scientific and industrial applications. Ultratech’s customers are primarily located throughout the United States, Europe, China, Japan, Taiwan, Singapore, and Korea. 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 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) |
Cash consideration, net of cash acquired of $229.4 million |  | $ | 404,489 |
Equity consideration (7.2 million shares issued) |  | 228,644 |
Replacement equity awards attributable to pre-acquisition service |  | 228 |
Acquisition date fair value |  | $ | 633,361 |
Approximately $2.7 million of the cash merger consideration is included in “Accrued expenses and other current liabilities” on the Consolidated Balance Sheets as of December 31, 2017 related to shareholder appraisal proceedings. The following table summarizes the 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 |
Inventories |  | 59,100 |
Deferred cost of sales |  | 242 |
Prepaid expense and other current assets |  | 7,217 |
Property, plant, and equipment |  | 18,152 |
Intangible assets |  | 346,940 |
Other assets |  | 6,442 |
Total identifiable assets acquired |  | 530,719 |
Accounts payable |  | 24,291 |
Accrued expenses and other current liabilities |  | 16,356 |
Customer deposits and deferred revenue |  | 4,834 |
Deferred income taxes |  | 32,478 |
Other liabilities |  | 11,622 |
Total liabilities assumed |  | 89,581 |
Net identifiable assets acquired |  | 441,138 |
Goodwill |  | 192,223 |
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 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 Ultratech’s lithography technologies and one-third of which is related to Ultratech’s laser annealing technologies. For the year ended December 31, 2017, acquisition related costs were approximately $17.8 million, including non-cash charges of $4.2 million related to accelerated share-based compensation for employee terminations. The amounts of net sales and income (loss) from operations before income taxes of Ultratech included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2017 are as follows:
|  | Year ended December 31, 2017 |
|  | (in thousands) |
Net sales |  | $ | 65,530 |
Loss before income taxes |  | $ | (62,762 | )
Loss before income taxes of Ultratech for the year ended December 31, 2017 of $62.8 million includes acquisition costs of $17.8 million, release of inventory fair value step-up related to purchase accounting of $9.6 million, amortization expense on intangible assets of $23.9 million, and restructuring charges of $3.3 million. The following table presents unaudited pro forma financial information as if the acquisition of Ultratech had occurred on January 1, 2016:
|  | For the year ended December 31, |
|  | 2017 |  | 2016 |
|  | (in thousands, except per share amounts) |
Net sales |  | $ | 555,498 |  | $ | 526,501 |
Loss before income taxes |  | (81,910 | ) | (218,023 | )
Diluted earnings per share |  | $ | (1.24 | ) | $ | (4.67 | )
The pro-forma results were calculated by combining the audited results of the Company with the stand-alone unaudited results of Ultratech for the pre-acquisition period, and adjusting for the following: (i)Additional amortization expense related to identified intangible assets 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 the year ended December 31, 2017 and included in the year ended December 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 the year ended December 31, 2017 and recorded in the year ended December 31, 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 12, “Debt”) 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. (vii)All shares issued in connection with the acquisition were considered outstanding as of January 1, 2016 for purposes of calculating diluted earnings per share.

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