Goodwill and Indefinite Lived Intangible Asset Impairment The Company has

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Goodwill and Indefinite Lived Intangible Asset Impairment The Company has Powered By Docstoc
					      Goodwill and Indefinite-Lived Intangible Asset Impairment: The Company has significant intangible
assets related to goodwill and other acquired intangibles. In assessing the recoverability of the
Company’s goodwill and other indefinite-lived intangible assets, the Company must make assumptions
regarding estimated future cash flows and other factors to determine the fair value of the respective
assets. If it is determined that impairment indicators are present and that the assets will not be fully
recoverable, their carrying values are reduced to estimated fair value. Impairment indicators include,
among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating
profit, adverse legal or regulatory developments and a material decrease in the fair value of some or all
of the assets. Assets are grouped at the lowest levels for which there are identifiable cash flows that are
largely independent of the cash flows generated by other asset groups. Changes in strategy and/or
market conditions could significantly impact these assumptions, and thus Veeco may be required to
record impairment charges for these assets not previously recorded. The Company completed the first
of the required impairment tests on goodwill and indefinite lived intangible assets in the first quarter of
2002. Based upon the judgment of management, it was determined that there was no impairment to
goodwill or intangibles with indefinite lives as of January 1, 2002. During the fourth quarter of 2002,
management determined that due to the continued weakness in the telecommunications industry and
the uncertainty of the timing and speed of recovery, impairment indicators were present. Under SFAS
No. 142, if impairment indicators are present, the fair value of the reporting unit must be determined.
Based upon the judgment of management, goodwill arising from the September 2001 Applied Epi
acquisition which is included in the compound semiconductor equipment reporting unit, included in the
process equipment operating segment, was deemed significantly impaired. As a result, the Company
recorded an impairment charge of $94.4 million and has written down goodwill related to the
compound semiconductor equipment reporting unit to approximately $7.5 million as of December 31,
2002. During the fourth quarter of 2003, as required, the Company performed an annual impairment
test, and based upon the judgment of management, it was determined that no impairment exists.

     Long Lived Asset Impairment: The carrying values of long-lived assets are periodically reviewed to
determine if any impairment indicators are present. If it is determined that such indicators are present
and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated
cash flows over the remaining depreciation period, their carrying values are reduced to estimated fair
value. Impairment indicators include, among other conditions, cash flow deficits, an historic or
anticipated decline in revenue or operating profit, adverse legal or regulatory developments and a
material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest level
for which there is identifiable cash flows that are largely independent of the cash flows generated by
other asset groups. During 2003 there were no indicators of impairment present. The Company
recorded $5.3 million and $0.9 million of fixed asset impairment charges in 2002 and 2001, respectively.
Assumptions utilized by management in reviewing for impairment of long-lived assets could be effected
by changes in strategy and/or market conditions which may require Veeco to record additional
impairment charges for these assets, as well as impairment charges on other long-lived assets not
previously recorded. During December 2001, approximately $2.5 million of intangible assets were
written off in connection with a phased out product line.

     Deferred Taxes: As part of the process of preparing Veeco’s consolidated financial statements, we
are required to estimate our income taxes in each of the jurisdictions in which we operate. This process
involves estimating our actual current tax exposure, together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within our consolidated balance sheet. The
measurement of deferred tax assets is adjusted by a valuation allowance to recognize the extent to
which, more likely than not, the future tax benefits will be recognized.




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