Ultratech Case Notes

Problem

Ultratech failed to accurately account for the impairment of goodwill on its financial statements. Many investors were misled about the financial well being of the company due to the improper treatment of goodwill.

Decision

Ultratech should have accurately presented the financial position of their company using GAAP guidelines.

Analysis

Ultratech used pro forma presentation in their financial statements in order to show positive earnings. Since pro forma statements are not regulated by GAAP, companies can exclude items which they feel do not give an accurate portrayal of their financial performance. Ultratech used this form of financial statement presentation from 1999 to 2001 in order to show their "underlying operating performance."

By not recognizing acquisition related expenses Ultratech was able to report positive earnings for the period ending June 30, 1999. Ultratech would have actually recognized a loss for that period if the financial statements were presented in accordance with GAAP. The two main items, if recognized, which would have resulted in Ultratech reporting a loss where amortization on goodwill and R&D in process expenses.

During 2000 the telecommunications market started to experience a down turn. Though this down turn was taking place, Ultratech was still acquiring large amounts of goodwill when the likelihood that they would actually reap the benefits of this seemed unlikely. From evaluating the amount of goodwill recorded for each acquisition we feel that Ultratech overpaid for many of their acquisitions'. We also discovered that one of the biggest factors of the dot-com bust was the over evaluation of goodwill. E-Tek and SDL are perfect examples of this because