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, 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, 2017 and December 31, 2016:

	Level 1		Level 2		Level 3		Total
	(in thousands)
March 31, 2017
Cash equivalents
U.S. treasuries	$	79,962	$	—	$	—	$	79,962
Government agency securities	—		9,997		—		9,997
Corporate debt	—		2,401		—		2,401
Commercial paper	—		8,994		—		8,994

Total	$	79,962	$	21,392	$	—	$	101,354
Short-term investments
U.S. treasuries	$	180,013	$	—	$	—	$	180,013
Government agency securities	—		29,998		—		29,998
Corporate debt	—		30,242		—		30,242
Commercial paper	—		17,943		—		17,943

Total	$	180,013	$	78,183	$	—	$	258,196

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 months ended March 31, 2017.

At March 31, 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)
March 31, 2017
U.S. treasuries	$	180,101	$	—	$	(88	)	$	180,013
Government agency securities	30,021		—		(23		)	29,998
Corporate debt	30,265		—		(23		)	30,242
Commercial paper	17,943		—		—			17,943

Total	$	258,330	$	—	$	(134	)	$	258,196


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
Commerical Paper	2,994		—		—			2,994

Total	$	66,807	$	—	$	(20	)	$	66,787

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

	March 31, 2017					December 31, 2016
			Gross					Gross
	Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses
	(in thousands)
U.S. treasuries	$	180,013	$	(88	)	$	20,002	$	(5	)
Government agency securities	29,998		(23		)	10,012		(8		)
Corporate debt	29,041		(23		)	13,774		(7		)

Total	$	239,052	$	(134	)	$	43,788	$	(20	)

At March 31, 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 March 31, 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 no realized gains for the three months ended March 31, 2017 and 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 both March 31, 2017 and December 31, 2016.

Inventories

Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual costs on a first-in, first-out basis. Inventories at March 31, 2017 and December 31, 2016 consist of the following:

	March 31,		December 31,
	2017		2016
	(in thousands)
Materials	$	42,165	$	46,457
Work-in-process	20,992		25,250
Finished goods	1,540		5,356

Total	$	64,697	$	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 $7.9 million and $7.8 million at March 31, 2017 and December 31, 2016, respectively.

Property, plant, and equipment

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

	March 31,		December 31,
	2017		2016
	(in thousands)
Land	$	5,669	$	5,669
Building and improvements	51,102		50,814
Machinery and equipment(1)	104,222		99,370
Leasehold improvements	3,884		3,652

Gross property, plant and equipment	164,877		159,505
Less: accumulated depreciation and amortization	101,193		98,859

Net property, plant and equipment	$	63,684	$	60,646

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

For the three months ended March 31, 2017 and 2016, depreciation expense was $2.9 million and $3.3 million, respectively.

Goodwill

Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. There were no changes to goodwill during the three months ended March 31, 2017.

Intangible assets

Intangible assets consist of purchased technology, customer-related intangible assets, patents, trademarks (both long-lived and indefinite-lived), covenants not-to-compete, and software 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:

	March 31, 2017						December 31, 2016
			Accumulated						Accumulated
	Gross		Amortization				Gross		Amortization
	Carrying		and		Net		Carrying		and		Net
	Amount		Impairment		Amount		Amount		Impairment		Amount
	(in thousands)
Technology	$	149,198	$	115,454	$	33,744	$	149,198	$	113,904	$	35,294
Customer relationships	47,885		29,909		17,976		47,885		28,659		19,226
Trademarks and tradenames	2,590		1,986		604		2,590		1,948		642
Indefinite-lived trademark	2,900		—		2,900		2,900		—		2,900
Other	748		461		287		2,026		1,710		316

Total	$	203,321	$	147,810	$	55,511	$	204,599	$	146,221	$	58,378

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, 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 three months ended March 31, 2017. 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 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.