- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-K10-K/A
[ Xx ] AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SectionSECTION 13
OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBERFor the fiscal year ended December 31, 19961997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(D)15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBERFor the transition period from to
Commission file number 0-16244
VEECO INSTRUMENTS INC.
(REGISTRANT)
DELAWARE(Registrant)
Delaware 11-2989601
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
TERMINAL DRIVETerminal Drive 11803
PLAINVIEW, NEW YORKPlainview, New York (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:Registrant's telephone number, including area code: (516) 349-8300
Securities registered pursuant to Section 12(b) of the Act:
NONENone
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUECommon Stock, par value $.01 PER SHAREper share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of RegulationRegistration S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by references in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of the Common Stock on February 24, 1997March 2, 1998
as reported on the Nasdaq National Market, was approximately $130,306,039.$171,781,000.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded from this
computation in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
At February 24, 1997,March 2, 1998, the Registrant had outstanding 5,870,6278,963,160 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 15, 1997 are incorporated by reference into Part
III of this Form 10-K Report.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------None
================================================================================
PART I
ITEM 1. BUSINESS.
THE COMPANYThe Registrant, Veeco Instruments Inc. ("Veeco" or the Company) is a leader in the design,
manufacture, marketing and servicing of a broad line of precision ion beam
systems and surface metrology systems used to test and manufacture
microelectronic products. Demand"Company"), hereby amends
its Annual Report on Form 10-K (the "10-K") for the year ended December 31,
1997, filed with the Securities and Exchange Commission (the "Commission") on
March 31, 1998, to include certain information which had been incorporated by
reference to the Company's products has been driven bydefinitive proxy statement, which will not be filed
with the increasing miniaturization of microelectronic components andCommission within 120 days after the need for
manufacturers to meet reduced time-to-market schedules while ensuring the
quality of those components. The abilityend of the Company's products to precisely
etch sub-micron patterns, deposit precise thin filmsfiscal year.
1
VEECO INSTRUMENTS INC.
1997 FORM 10-K/A ANNUAL REPORT
TABLE OF CONTENTS
PART III
Page
----
Item 10. Directors and Executive Officers of the
Registrant...................................................... 3
Item 11. Executive Compensation............................................ 6
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................... 11
Item 13. Certain Relationships and Related
Transactions.................................................... 12
2
Part III
Items 10, 11, 12 and measure critical
surface conditions13 are hereby amended in these components enables manufacturers to achieve high
yieldstheir entirety as follows:
Item 10. Directors and assure quality in the fabrication of advanced microelectronic
devices.
The Company sells its products worldwide to manyExecutive Officers of the leading data
storageRegistrant
The Directors and semiconductor manufacturers, including Seagate Technology, Inc.
("Seagate"), Read-Rite Corp. ("Read-Rite"), IBM Corporation ("IBM"), Motorola,
Inc. ("Motorola"), Applied Magnetics Corp. ("AMC"), Mitsubishi Semiconductor
("Mitsubishi") and Quantum Corp. ("Quantum"). In addition,executive officers of the Company, sells its
products to companies inas of March 31, 1998, are
as follows:
Name Age Position
---- --- --------
Edward H. Braun........................ 58 Director, Chairman, Chief Executive Officer and
President(3)
Richard A. D'Amore..................... 44 Director(1)(2)(3)
Joel A. Elftmann....................... 58 Director(1)(2)
Dr. Paul R. Low........................ 65 Director(1)(2)(3)
Walter J. Scherr....................... 73 Director
James C. Wyant......................... 54 Director
Thomas A. Cully........................ 52 Assistant Treasurer
Don R. Kania Ph.D...................... 43 Chief Technology Officer
John P. Kiernan........................ 36 Corporate Controller
Emmanuel N. Lakios..................... 36 Executive Vice President-Worldwide
Field Operations
Robert P. Oates........................ 44 Vice President and General Manager- Industrial
Measurement Products
David S. Perloff Ph.D.................. 56 President - Process Metrology Group
John F. Rein, Jr....................... 51 Vice President-Finance, Chief Financial Officer,
Treasurer and Secretary
Francis Steenbeke...................... 52 Vice President-International Sales and Marketing
- ------------
(1) Member of the flat panel display and high frequency device
industries, as well as to other industries, research and development centers and
universities.
The Company acquired its business operations from a company that was
founded in 1945 underAudit Committee
(2) Member of the same name (the "Predecessor"). In August 1989,Compensation Committee
(3) Member of the Nominating Committee
Edward H. Braun the Company'shas been a Director, Chairman, Chief Executive Officer and
President whoof the Company since January 1990. Prior to 1990, Mr. Braun was
thenemployed as the Executive Vice President and Chief Operating Officer of Veeco
Instruments Inc. (now Lambda Electronics, Inc.), the company from which the
Company acquired its business operations (the "Predecessor"). Mr. Braun joined
the Predecessor incorporated Veeco Instruments Acquisition Corp.in 1966 as a Regional Sales Manager/Sales Engineer and held
numerous positions with certain other
membersthe Predecessor, including Director of Marketing,
Director of Operations, and General Manager. Mr. Braun is a member of the Company's senior management for the purposeboard
of acquiring a
substantial portionSemiconductor Equipment and Materials International, of which he was Chairman
of the assets usedBoard in the Predecessor's industrial equipment
product group business (the "Equipment Group"). In January 1990, Veeco
Instruments Acquisition Corp. completed its acquisition of these assets for
approximately $29,200,000 and the assumption of substantially all1993.
Richard A. D'Amore has been a Director of the liabilitiesCompany since January 1990.
Mr. D'Amore has been a General Partner of the Equipment Group relating to such assets.Hambro International Venture Fund II,
L.P. since 1982 and a General Partner of North Bridge Venture Partners since
1992. In connection with
the Acquisition, the Predecessor changed its name to "Lambda Electronics Inc."
and Veeco Instruments Acquisition Corp. changed its name to "Veeco Instruments
Inc."
On December 6, 1994, the Company completed an initial public offering (the
"IPO") whereby 2,500,000 shares of Common Stock, par value $.01 per share (the
"Common Stock") were issued and sold at $11.00 per share. The net proceeds were
used to repay the Company's debt and for working capital and other general
corporate purposes.
On July 31, 1995, the Company completed a public offering (the "Public
Offering") in which 2,300,000 shares of common stock were sold, 800,000 of which
were sold by the Company and 1,500,000 of which were sold by certain selling
stockholders, at the public offering price of $20.00 per share. The net
proceedsaddition to the Company, will be used for working capitalMr. D'Amore is a director of Solectron
Corporation and general corporate
purposes, including potential acquisitions.
INDUSTRY BACKGROUND
MICROELECTRONICS MANUFACTURING PROCESS. Semiconductor devices (e.g.,
integrated circuits) and mass memory data storage devices are fabricated by
performingXionics Document Technologies.
Joel A. Elftmann has been a complex series of process steps on a silicon substrate or wafer.
The three primary categories of wafer processing steps are deposition,
photolithography and etching. During deposition, layers of conductive or
insulating films are deposited on an unpatterned wafer. During photolithography
(also known as "patterning"), the wafer is covered with light-sensitive material
called photoresist, which is then exposed to light projected in patterns which
form integrated circuit components. During etching (which may be accomplished by
several processes, including ion beam etching), certain areasDirector of the patterned
(metal or insulating) film are removed to leaveCompany since May 1994.
Mr. Elftmann has been the desired circuit pattern.
EachChairman of these steps is
1the Board and President of FSI
International ("FSI"), a manufacturer of semiconductor processing
3
typically repeated several times duringproducts, since 1983. From August 1983 through August 1989, and from May 1991
through the fabrication process, with
alternating layerspresent, he also served as Chief Executive Officer of conductingFSI.
Dr. Paul R. Low has been a Director of the Company since May 1994. Dr. Low
has been the President and insulating films being deposited each time
to createChief Executive Officer of PRL Associates, a
multi-layered structure.
The resulting finished wafer consists of many integrated circuits.
Depending ontechnology consulting firm, since founding the specific design of a given integrated circuit, a variety of
film thicknessfirm in 1992. Previously, Dr. Low
was Vice President-General Manager, Technology Products for International
Business Machines, Inc. ("IBM") from 1989 through 1992 and a numbermember of layersIBM's
Management Board from 1990 to 1992. Dr. Low is a director of Applied Materials
Corporation, Integrated Packaging Assembly Corp., Solectron Corporation, VLSI
Technology and film types will be used to achieve
desired performance characteristics. Surface metrology systems are used
repeatedly throughout the fabrication process to monitor process accuracy by
measuring critical dimensions and other physical properties such as film
thickness, line width, step height, sidewall angle and surface roughness.
PRECISION ETCHING, DEPOSITION AND SURFACE METROLOGY MARKET REQUIREMENTS.
The Company sells its ion beam systems and surface metrology products to
manufacturers of microelectronic devices (primarily in the data storage and
semiconductor industries), which in turn supply the broader worldwide
electronics markets, as well as to industrial and other customers. As the range
of end productsXionics Document Technologies.
Walter J. Scherr has expanded to include items such as hand-held and lap-top
computers and consumer cellular telecommunications products, the performance and
complexity of semiconductor and data storage devices have expanded as well.
Fabrication of these miniaturized components requires increasing numbers of
manufacturing process steps. (For example,been a typical one megabyte DRAM with a
smallest feature size of one micron is manufactured using approximately 200
manufacturing steps. In comparison, a 64 megabyte DRAM is currently being
manufactured in volume with a smallest feature size of .35 micron using
approximately 500 manufacturing steps.) The increased number of manufacturing
steps includes greater use of precise etching and deposition equipment and
surface metrology systems to ensure critical process control and semiconductor
product quality. Growth in the etching, deposition and surface metrology markets
is driven by end-users' requirements for greater performance capabilities, and
by the increasing miniaturization of components, which has resulted in a demand
for equipment capable of etching and measuring sub-micron features (i.e., below
one micron).
Manufacturers base their purchases of metrology systems on a variety of
criteria, including resolution, accuracy, repeatability and ease of use, total
cost of ownership (which depends upon factors including system cost, throughput,
reliability, operating costs, up-time and service response time), and the valueDirector of the data produced, which depends on the accuracy and speed with which the
measurement parameter (for example, step height or film thickness) can be
determined. In addition, as metrology systems are incorporated into the
production process, automated features such as cassette-to-cassette wafer
handling and pattern recognition have become increasingly important, as has the
ability of a system to communicate with other systems within the manufacturing
process.
ION BEAM SYSTEMS. The fabrication of integrated circuits and thin film
magnetic heads (for the hard drive industry) requires some form of etching to
create the pattern of either an electrical circuit or a mechanical feature.
Historically, the industry has utilized several older etching techniques,
including chemical wet etching and plasma etching, which offer limited control
of critical dimensions, require the use of reactive chemistries, and produce
undesired isotropic etching results.
As device geometries have decreased and the need for sub-micron features
etched with accurate side wall angles has increased, the use of collimated ion
beam etching has expanded. Compared with other etching technologies, ion beam
etching permits precise sub-micron, low temperature, low pressure anisotropic
(highly directional) etching of any material, including many multi-layered films
which cannot be etched by known reactive chemical processes.
With ion beam etching, a precisely controlled, highly collimated broad ion
beam removes material from a substrate by physically sputtering any material not
protected by a finely patterned photo resist mask. Examples of ion beam etched
products include high density thin film magnetic heads, high frequency
telecommunication devices, infrared detectors, ferroelectric memory devices, and
microsensors. The Company's ion beam etch equipment is used in multiple
fabrication process steps in the production of thin film magnetic heads, for
both
2
circuit patterning and micromachining. As the demand for multi-layer, integrated
circuits and microsensors with sub-micron features grows, the Company believes
the demand for its ion beam etching systems will increase.
Ion beam systems are also increasingly important for the deposition of thin
films. Historically these films have been deposited either by electro-chemical
processes or cathodic sputtering. Ion beam deposition offers greater control of
deposition rate, film morphology and minimized contaminants than do the
historical processes. In addition to thin film magnetic heads, applications
include tribological coatings for magnetic media, protective coatings for
plastic and glass lenses, passivation layers for optoelectronics, and
interference coatings and mirrors for precision optics.
SURFACE METROLOGY SYSTEMS. Microelectronic device manufacturers use surface
metrology systems to measure critical dimensions and physical properties such as
film thickness, line width, step height, sidewall angle and surface roughness to
ensure that products are being manufactured to increasingly demanding
specifications. Surface metrology systems are used throughout the manufacturing
process to monitor the accuracy of the manufacturing process.
Metrology systems capable of measuring dimensions above one micron include
stylus surface profilers, scanning electron microscopes ("SEMs") and optical
measurement systems. In response to decreasing geometries and increasingly
complex processes and specifications, a demand has grown for new surface
measurement systems which permit measurement of sub-micron features on a three-
dimensional basis. To meet this demand, the Company offers the SXM Workstation
which incorporates atomic force microscopy ("AFM") technology including
non-contact, non-destructive scanning features with the ability to measure
critical dimensions as small as 0.25 microns. The Company believes that demand
for products incorporating non-contact AFM technology will grow, as product
complexities continue to increase and as component geometries continue to
decrease.
INDUSTRIAL MEASUREMENT PRODUCTS. Thickness measurement systems measure the
thickness and composition of metals used in printed circuit boards and
electronic components, as well as in the general metal finishing industries.
Products in this category rely on a variety of measurement technologies,
including Beta Backscatters, resistivity probes, Hall-Effect, eddy-current and
electromagnetic-induction, as well as XRF-based products. XRF systems operate by
generating a collimated X-Ray beam which is directed at a sample, causing the
sample to emit characteristic X-Ray fluorescence. A proportional counter detects
the X-Ray fluorescence and generates corresponding electrical impulses, which
are used to calculate and display the plating thickness or alloy composition of
the sample. The Company believes that the XRF market will continue to grow, as
increased accuracy and advances in measurement technology, together with on-line
production and lower cost systems, bring XRF technology into new applications.
Leak detectors, which provide a non-destructive precise identification of
the size and location of leaks in sealed components, are used in a broad range
of electronic, aerospace and transportation products with applications in the
production of automotive airbags, semiconductor devices, air conditioning and
refrigeration, chemical valves, medical devices and fiber optic cable
production.
3
PRODUCTS
The Company's products encompass equipment and systems used in the
manufacture of microelectronics products. The following table summarizes the
Company's major products in each of its product lines and the principal
industries to which it offers such products:
VEECO PRODUCT OFFERINGS
-----------------------
University and
Research and
Semi- Data Flat Panel Industrial
Product conductor Storage Display Development
- --------------------------------------------------------------------------------------------------------
ION BEAM SYSTEMS
ETCHING SYSTEMS:
Microetch Air to Air Batch
Systems x x x
Microetch Cluster Systems x x x
DEPOSITION SYSTEMS:
Secondary Ion Beam Sputtering
Systems x x x
Direct Ion Beam (Diamond Like
Coating) x
Deposition Systems
SURFACE METROLOGY PRODUCTS
Dektak Stylus Profilers x x x x
Dektak FPD Surface Profilers x x
Dektak Atomic Force Microscope x x x
TMS Microroughness Scatterometers x x x
INDUSTRIAL MEASUREMENT PRODUCTS
XRF-Series X-Ray Fluorescence x x
Measurement Systems
SEA-Series Micro X-Ray Fluorescence x x x
Measurement Systems
Portable Mass Spectrometer Leak
Detectors x x x
Console Mass Spectrometer Leak
Detectors x x x
Industrial Mass Spectrometer Leak
Detectors x
ION BEAM SYSTEMS
The Company develops and produces ion beam systems, sold under the
Microetch brand name. These systems can etch precise, complex features and
deposit thin films for use primarily by data storage and semiconductor
manufacturers in the fabrication of discrete and integrated microelectronic
devices. Veeco believes that it holds the leadership position in the overall
market for ion beam etching systems, and believes that it is the leading seller
of ion beam systems utilized for production of thin film magnetic heads.since January 1990.
Since the Acquisition, the Company has sold over 200 ion beam systems.
Ion beam deposition provides greater control of precise deposition rate,
film morphology and incorporated contaminants than traditional processes used in
the manufacture of semiconductors or mass memory storage devices. Ion beams can
be used two ways to deposit films. Beams can directly deposit material by
braking down a feed gas and accelerating non-volatile components at the
substrate in a controlled manner (e.g., diamond like carbon coatings for thin
film magnetic head slider coatings); or, a beam can be directed at a material
4
target of the required element or alloy, and have an ion beam sputtered film
precisely deposited on the substrate (e.g., giant magneto-resistive read
elements in thin film magnetic heads).
Ion beam etching permits precise submicron low temperature etching of any
material, including many which cannot be etched by other processes, and has
emerged as a leading fabrication process in the thin film magnetic head (hard
drive) industry for both circuit patterning and micromachining. This technology
is utilized in multiple steps of the advanced thin film magnetic head
fabrication process. In addition, as the demand for integrated circuits and
microsensors with sub-micron features grows, the Company believes the demand for
ion beam etching systems will increase.
The Company's ion beam etching product line has progressed from use
principally in research and development applications to automated systems used
in production. This evolution was driven by the incorporation of features such
as automated wafer handling, advanced substrate cooling technique and
load-locked process control which increases throughput and wafer yield.
Sales of ion beam systems were approximately $53,213,000, $33,184,000 and
$20,984,000 and accounted for approximately 54.9%, 45.9%, and 42.4% of the
Company's net sales for the years ended December 31, 1996, 1995 and 1994,
respectively.
The ion beam systems product line consists of the following:
MICROETCH AIR TO AIR BATCH ION BEAM ETCHING SYSTEMS. The RF-1201 is an
air-to-air systems for high throughput batch processing for deep trench (long
etch) feature applications. These systems feature an RF ion source that provides
higher etch rates and increased time between maintenance. Sales prices for the
Company's Air to Air Batch Systems range from $450,000 to $550,000.
MICROETCH CLUSTER ION BEAM ETCHING AND DEPOSITION SYSTEMS. The Cluster
SystemMr. Scherr has been developed for next-generation requirements of sub-micron etching
and deposition. The system can be configured for up to three etch or deposition
process modules on a common platform and provides maximum throughput with the
advantage of single wafer etching and deposition for process control and
uniformity. The system is targeted at advanced next-generation thin film
magnetic head memory and high frequency device customers. The Cluster System
utilizes the Company's enhanced control system and patented "Flowcool" substrate
cooling technology. Sales prices for the Company's Cluster Systems range from
$1,000,000 to $2,500,000.
SECONDARY ION BEAM SPUTTERING SYSTEMS. Secondary ion beam sputtering
systems utilize the process module concept of the etching systems, allowing the
deposition module to be mated to Veeco's Cluster System platform to allow either
parallel or sequential etch/deposition processes. These systems are available as
automatic load locked cassette to cassette system or as automatic single
substrate systems. Sales prices for the Company's Secondary Ion Beam Sputtering
Systems range from $750,000 to $2,000,000.
DIRECT ION BEAM DEPOSITION SYSTEMS. Veeco's ion beam direct deposit diamond
like carbon deposition system has been developed to deposit tribological
coatings on advanced thin film head sliders. The system consists of a single
substrate carrier vacuum load lock and a high vacuum processing chamber with two
ion beam sources. Sales prices of these systems range from approximately
$600,000 to $1,000,000.
SURFACE METROLOGY EQUIPMENT
Veeco's surface metrology product line, which includes stylus surface
profilers, the non-contact atomic force microscope workstation and laser based
scatterometers, offers a wide range of innovative products to customers in the
semiconductor, data storage and flat panel display industries, as well as in
other industries.
Sales of the Company's surface metrology equipment were approximately
$23,902,000, $20,830,000, and $13,184,000 and accounted for approximately 24.7%,
28.8%, and 26.7% of the Company's net sales for the years ended December 31,
1996, 1995 and 1994, respectively.
5
STYLUS SURFACE PROFILERS
The Company's stylus surface profiler systems are manufactured by its
subsidiary Sloan Technology Corp. ("Sloan") at its facility in Santa Barbara,
California. Sloan's line of stylus surface profiler systems all utilize the same
principle of operation. A stage moves the wafer, or sample, beneath a diamond
tipped stylus. As the sample moves under the stylus, surface variations cause
vertical translation of the stylus, which is tracked and measured. This data is
then used to produce cross-sectional representations and/or a magnified contour
map, which is displayed on a video monitor. Stylus surface profilers'
applications include height, width, pitch and roughness measurements of features
on semiconductor devices, magnetic and optical storage media (e.g., hard
drives), flat panel displays, and hybrid circuits. The Company believes that its
stylus surface profiler products are recognized for their accuracy,
repeatability, ease of use and technology features, as well as features designed
for industry specifications and customer needs. Each of the Company's stylus
surface profilers incorporates a proprietary software package. Since the
Acquisition, the Company has sold over 1,100 stylus surface profiler systems.
The Company's stylus surface profiler products include:
DEKTAK STYLUS PROFILERS. The Dektak line of stylus profilers permits
testing of wafers, disks, hybrids, optics and other precision surfaces. In July
1996, Veeco surface metrology introduced the V300SI, the first model of its new
Series V stylus profiler product line which includes the V300SL, V200SI and
V200SL as well. The Series V product line is the next generation of stylus
profilers which incorporates leading edge performance and features such as
photo-like 3D rendering software, the LIH2 low inertia / low force stylus head,
high precision stage control and positioning, host communication software and
mini-environment compatible design for operation in fully automated lab
environments. The V300SI is a 300mm profiler designed specifically for next
generation 300mm wafer labs, and is the industry's first 300mm stylus profiler.
The Dektak stylus profilers can sample up to 65,000 points per scan, which is
particularly important for applications such as hard disk substrates and optics
analysis. The Dektak D3 and D3ST models are designed for measuring fine
geometries on 150mm and smaller samples. These systems are used for both
thick-film hybrid and thin film microelectronic applications. Sales prices of
the Dektak stylus profilers range from approximately $30,000 to $205,000.
DEKTAK FLAT PANEL DISPLAY PROFILERS. The Dektak FPD Surface Profilers are
designed to measure deposition thickness and surface roughness during
manufacture of flat panel display. These advanced surface profilers are capable
of precise measurements of step heights, line widths and surface texture of flat
panel substrate up to 720mm x 720mm. In addition, this product line offers a
cassette-to-cassette wafer handling option and pattern recognition for fully
automated operation. Sales prices of the Dektak FPD Surface Profilers range from
approximately $100,000 to $300,000.
NON-CONTACT ATOMIC FORCE MICROSCOPE WORKSTATION
The Company is IBM's exclusive worldwide sales and marketing representative
to market, sell and service the IBM-manufactured SXM Workstation to the
semiconductor industry and data storage industries. The AFM technology used in
the SXM Workstation is a variation of a technique invented by two IBM scientists
who shared the Nobel Prize in Physics in 1986 for their invention.
The SXM Workstation is an automated, in-line manufacturing inspection tool
which is capable of non-contact, non-destructive nanometer scale three
dimensional measurement and imaging of sub-micron structures in ambient
conditions. (A nanometer is equal to one-billionth of a meter.) By scanning a
probe tip across a surface at a distance of approximately 30 angstroms,
extremely precise measurements of sub-microscopic features can be produced, with
resolution down to three angstroms. These measurements include height, width,
roughness and sidewall angle characteristics. A "critical dimension" (CD) option
permits the user to profile vertical sidewalls, measure sidewall angles and
obtain true width measurements of sub-micron lines and trenches. Unlike
alternative technologies, the SXM Workstation has the unique ability to make
precise three dimensional
6
measurements without damaging or breaking the wafer, which at the time of
measurement may have a manufacturing cost of between $10,000 and $100,000.
The Company believes that the SXM Workstation represents a significant
extension of the stylus surface profiler instrument line produced by Sloan. By
permitting measurements on features with dimensions as small as 0.25 microns,
the Company believes that the SXM Workstation provides the precise measurements
that semiconductor and data storage manufacturers require in their current and
next generation products. See "--Strategic Alliances."
Sales prices of the SXM Workstation range from approximately $600,000 to
$1,000,000. Since its introduction in the third quarter of 1993, the Company has
sold 33 SXM Workstations.
LASER BASED SCATTEROMETER
Veeco is Schmitt Measurement Systems' ("SMS") exclusive distributor for the
Texture Measurement System ("TMS") product line for all regions of the world
excluding Japan. The TMS products are laser based scatterometers which directly
measure microroughness using a technique referred to as Total Integrated Scatter
or T.I.S. The TMS product quickly and repeatably measure microroughness as
small as a few angstroms for applications such as disk texture for the hard
drive industry as well as backside/frontside roughness of bare silicon wafers.
The TMS product line includes the TMS 2000 for hard drive disks, the TMS 2000W
for wafers up to 200mm in diameter and the TMS 3000W for 300mm wafers. Pricing
of these systems ranges from $65,000 to $110,000.
INDUSTRIAL MEASUREMENT EQUIPMENT
Veeco's industrial measurement products include X-Ray fluorescence
thickness measurement systems as well as leak detection/vacuum equipment. These
products have applications in a wide range of industries including electronic,
aerospace, transportation and semiconductor. Sales of industrial measurement
equipment were approximately $19,717,000, $18,345,000 and $15,266,000 and
accounted for approximately 20.4%, 25.3%, and 30.9% of the Company's net sales,
respectively, for the years ended December 31, 1996, 1995 and 1994.
UPA TECHNOLOGY X-RAY FLUORESCENCE THICKNESS MEASUREMENT SYSTEMS
The Company believes that its XRF systems incorporate an advanced
technology for non-destructive thickness and composition measurement of plated
parts, providing high accuracy and precision on a cost-effective basis. As
industries increase their emphasis on tighter process control manufacturing
specifications (e.g., ISO 9000), XRF technology has become important due to its
speed, repeatability, accuracy and non-destructive measurement capability. Due
to increased miniaturization of components in the microelectronics industry and
the increased need for on-line production testing, the Company believes that the
XRF market will continue to grow and that XRF technology will be brought into
new applications, such as fine-pitch printed circuit board production and the
measurement of multi-layered microelectronic and metal finishing corrosion
resistant coatings. Veeco's XRF products incorporate the Company's XPert
software package, which operates in an MS-DOS or Microsoft Windows environment
and offers features including advanced user-friendly interface and sophisticated
statistical data analysis.
Veeco's XRF product line includes the following products:
XRF SERIES. The XRF Series is an advanced XRF product line designed to
measure plating thickness and composition for the high-end circuit board and
microelectronics applications. The XRF Series has a small diameter beam,
automated servo driven staging and laser focus capability. The software, which
operates in the Microsoft Windows environment, features a real-time video
window, a user configurable interface, and point and shoot sample positioning.
Sales prices for the XRF Series range from approximately $15,000 to $60,000.
7
SEA SERIES. The SEA Series, produced by Seiko Instruments and marketed in
North America and Europe by Veeco, features micro XRF measurement capabilities
for deposition thickness, composition and uniformity of thin film magnetic pole
structures, hard disks and microelectronic devices. It also provides the ability
to analyze the constituent elements of a bulk sample-elemental analysis. Sales
prices of these products range from approximately $50,000 to $170,000. See
"--Strategic Alliances."
LEAK DETECTION/VACUUM EQUIPMENT
For over 50 years, the Company (and its predecessors) have produced mass
spectrometry leak detection equipment used for the non-destructive precise
identification of the size and location of leaks in sealed components. Leak
detectors are used in a broad range of electronic, aerospace and transportation
products, with applications in the production of automotive airbags,
semiconductor devices, air conditioning and refrigeration components, chemical
valves, medical devices such as pacemakers, and fiber optic cable production.
Since the Acquisition, the Company has sold more than 1,000 leak detectors
throughout the world and services an installed base of approximately 5,000
units, including portable and console units. The Company also produces vacuum
components, including vacuum pumping stations and gauges, which are sold
primarily to research and university customers.
Veeco's leak detection product line includes the following products:
AUTOMATIC PORTABLE LEAK DETECTORS. Fully automatic low-cost portable leak
detectors provide gross and fine leak detection for a wide range of
applications, including use in semiconductor cleanrooms. They feature automatic
tuning and calibrating and require minimal operator training. Sales prices of
the portable leak detectors range from approximately $20,000 to $30,000.
CONSOLE LEAK DETECTORS. Designed for production use, Veeco's line of
console leak detectors feature an automatic monitor display and a unique dual
mass spectrometer for high resolution and accuracy. Sales prices of the console
leak detectors range from approximately $30,000 to $40,000.
ILD-4000 INDUSTRIAL LEAK DETECTION SYSTEMS. The ILD-4000's are industrial
leak detection systems for high production, in-line process testing
applications. Sales prices of the industrial leak detectors range from
approximately $60,000 to $200,000.
STRATEGIC ALLIANCES
The Company's overall business strategy includes the formation of alliances
with strategic partners with complementary products or businesses, to assist the
Company in gaining access to new markets, technologies and products.
IBM AGREEMENT. As part of its strategic alliance strategy, the Company is
party to an agreement with IBM (as amended, the "IBM Agreement") with respect to
the IBM-manufactured SXM Workstation. Pursuant to the IBM Agreement, the Company
has been appointed exclusive worldwide sales and marketing representative to
market, service and sell the SXM Workstation to customers in the semiconductor
and data storage industries. The IBM Agreement expires in October 1998 and the
Company, at its option, may extend the agreement to October 2000. Pursuant to
the IBM Agreement, the Company has agreed to purchase a minimum number of SXM
Workstations. At December 31, 1996, the Company's purchase commitment under
this agreement was approximately $2,250,000.
Pursuant to the IBM Agreement, in the event that IBM (a) discontinues
production of the SXM Workstation, (b) is unable to provide sufficient
production of the SXM Workstation, or (c) fails to provide required support for
the SXM Workstation, IBM has agreed to grant to the Company an exclusive
worldwide license to manufacture the SXM Workstation for sale to the
semiconductor and data storage industries. In such event, the parties have
agreed to negotiate a mutually agreeable royalty and license agreement.
8
In the event of such a discontinuance, the Company's ability to manufacture
and distribute the SXM Workstation on a timely basis could be disrupted until
such time as the Company's production operations for the SXM Workstation are
established and the parties conclude the royalty and license agreement. IBM is
obligated to ship products for which orders have been accepted by IBM prior to
the effective date of such discontinuance, and to provide the Company with an
opportunity to purchase reasonable quantities of the SXM Workstation to meet the
Company's requirements. Under the IBM Agreement, IBM would not be liable for
any lost profits or other consequential damages (including damages based upon
third-party claims) incurredemployed by the Company as a resultconsultant.
From December 1993 through December 1995 he was Executive Vice President of IBM's actions (or
inactions)the
Company. From January 1990 through December 1993, he was the Chief Financial
Officer of the Company. Mr. Scherr joined the Predecessor in 1986 as the General
Manager of the Predecessor's UPA Technology division of the Predecessor's
Instrument Group. Prior to joining the Predecessor, Mr. Scherr was the principal
and founder of Visual Sciences, Inc./Panafax (the first publicly traded
facsimile company); prior to that, he held a variety of other financial and
operating management positions with respectLitton Industries and Sperry Gyroscope Co.
James C. Wyant has been a director of the Company since July 1997. From
1984 to July 1997, Dr. Wyant was Chairman of the Board and President of Wyko
Corporation. Dr. Wyant has been a Professor of Optical Sciences at the
University of Arizona since 1974. Prior to joining the faculty at the University
of Arizona, Dr. Wyant spent six years at the Itek Corporation, first as an
optical engineer and later, as manager of advanced optical techniques.
Thomas A. Cully has been Assistant Treasurer of the Company since November,
1997 and was appointed an executive officer in January 1998. Prior to November,
1997, Mr. Cully was employed in various other financial management positions
within the Company. Mr. Cully was employed by the Predecessor from 1979 to 1991,
where he held the position of Manager of Internal Audit; prior to that, he held
various audit positions with Ernst & Young LLP from 1972 to 1979.
Dr. Don R. Kania Ph.D. has been Chief Technology Officer of the Company
since January 1998. Starting in 1993, Dr. Kania was a senior manager at Lawrence
Livermore Laboratory. There he directed the Advanced Microtechnology Program in
the development of advanced sensors for data storage, extreme ultraviolet
lithography for semiconductor manufacturing and several other leading-edge
technologies. From 1991 to 1993, Dr. Kania was Research Director at Crystallume,
a thin film diamond company. Dr. Kania's other experience includes nine years of
research experience at the Department of Energy's Los Alamos and Livermore
Laboratories.
John P. Kiernan has been Corporate Controller of the Company since
February 1995. Prior to joining the Company, Mr. Kiernan was an Audit Senior
Manager at Ernst & Young LLP from October 1991 through January 1995 and held
various audit staff positions with Ernst & Young LLP from June 1984 through
September 1991.
Emmanuel N. Lakios has been Executive Vice President of Worldwide Field
Operations since October, 1997. From June 1991 to October 1997 Mr. Lakios had
been Vice President and General Manager of Process Equipment. Prior to 1991,
Mr. Lakios was employed in various other positions within the Company.
Mr. Lakios joined the Predecessor in June 1984 as an engineer and held positions
of Program Manager, Product Marketing Manager and Director of Engineering.
Robert P. Oates has been Vice President and General Manager-Industrial
Measurement Products since March 1995. From September 1994 until March 1995,
Mr. Oates had been Vice President and General Manager-XRF Thickness Measurement
Systems of the Company, and he was Vice President and Treasurer of the Company
from January 1993 through September 1994. From January 1990 through
December 1992, he was
4
Assistant Treasurer of the Company. Mr. Oates was employed by the Predecessor
from 1976 to 1990, where he held a variety of financial positions.
David S. Perloff Ph.D. has been President of Veeco Process Metrology since
October 1997. Dr. Perloff was the founder of Prometrix Corporation in 1983, and
served as its President until its acquisition by Tencor Instruments in 1993. At
Tencor, he held the position of Vice President and General Manager of the Film
Measurement Division until April 1996. Earlier, Dr. Perloff held various
management positions at Corning Glass Works Signetics and N.V. Philips in the
period 1969-1983.
John F. Rein, Jr. has been Vice President-Finance and Chief Financial
Officer of the Company since December 1993, and became Treasurer and Secretary
of the Company in October 1994. Prior to joining the Company, Mr. Rein served
for eight years as Vice President-Controller for Axsys Technologies, Inc.
(formerly known as Vernitron Corporation). From 1979 to 1986, Mr. Rein was
Treasurer of Industrial General Corporation; prior to that, he was on the audit
staff of Ernst & Young LLP.
Francis Steenbeke has been Vice President-International Sales and Marketing
of the Company since January 1990. Mr. Steenbeke joined the Predecessor in 1968
as a sales engineer and held a variety of general management and sales positions
with the Predecessor until January 1990.
5
Item 11. Executive Compensation
Executive Compensation
The following table sets forth a summary of annual and long-term
compensation awarded to, earned by, or paid to the IBM Agreement.
Pursuant to the IBM Agreement, IBM may,Chief Executive Officer of
Veeco and has in the past, licensed
intellectual property rights relating to AFM technology to third parties.
VEECO/SEIKO INSTRUMENTS AGREEMENTS. In July 1993, Veeco entered into
agreements with Seiko Instruments (the "Veeco/Seiko Instruments Agreements"),
pursuant to which, among other things, Veeco became the exclusive sales agent
and servicer of Seiko Instruments' XRF products in North America, South America
and Europe, and Seiko Instruments became Veeco's distribution, marketing and
servicing representative in Japan and other parts of Asia. The Veeco/Seiko
Instruments Agreements, in addition to providing Veeco with enhanced access to
the Japanese and other Asian markets for its XRF products, also give Veeco
access to Seiko Instruments' large installed customer base in the United States
and broadens Veeco's product line.
Under the Veeco/Seiko Instruments Agreements, Veeco is required to purchase
for sale in North America, South America and Europe a minimum of Seiko
Instruments' XRF products (measured by sales volume), and Seiko Instruments is
required to purchase for sale in Japan and other parts of Asia a minimumeach of the UPA Technology XRF products (measured by sales volume). These minimum
requirements are to be re-negotiated byfour most highly compensated executive officers (as
defined in Rule 3b-7 promulgated under the Securities Exchange Act) of Veeco
(other than the Chief Executive Officer) whose total annual salary and Seiko Instrumentsbonus for each
twelve-month period during the term of the agreements; if the parties fail to
timely agree on minimum sales requirements for a twelve-month period, the
applicable agreement will terminate. Failure by either party to achieve minimum
sales levels will give the other party the right to terminate the applicable
agreement upon 60 days' notice. Each of the Veeco/Seiko Instruments Agreements
is for a three-year term, which is automatically extended unless either party
provides the other with notice of its desire to terminate an agreement. In
April 1993, Seiko Instruments was appointed by Veeco as the exclusive
distributor in Japan of the Company's ion beam systems product line.
OTHER STRATEGIC ALLIANCES. Since 1968, Ulvac has been the exclusive
distributor of the Company's (and its predecessors) stylus surface profiler
products in Japan and in 1993, Ulvac was appointed as the exclusive distributor
of the SXM Workstation in Japan. In 1994, Sloan introduced the Dektak FPD-650, a
flat panel display profiler developed by the Company to meet product
specifications defined by Ulvac in response to the specific needs of flat panel
display manufacturers in Japan.
In November 1996, the Company entered into a strategic alliance with
Schmitt Measurement Systems. Under this alliance the Company will market, sell
and service Schmitt's current product line as well as to engineer and automate
their products for volume production applications.
The Company believes that these strategic alliances enable the Company to
continue to access new technologies and introduce innovative products in a
cost-efficient manner and will expand the Company's worldwide customer base.
Future strategic arrangements may take the form of joint ventures or joint
research and development projects, as well as acquisitions or other business
combinations.
SALES AND SERVICE
SALES. The Company sells its products worldwide through a combination of
direct (I.E., Veeco-employed) sales representatives and independent
distributors, whose territories do not overlap within a product line. The
Company believes that the size, location and expertise of its sales organization
represents a competitive advantage in the markets it serves. The Company employs
approximately 57 sales professionals in its worldwide
9
sales organization, with sales offices located in Milpitas, California; Santa
Barbara, California; Tustin, California; Plainview, New York; Minneapolis,
Minnesota; Dourdan, France; Munich, Germany; Watford, England; Hong Kong; and
Tokyo, Japan. In addition to Ulvac and Seiko, Veeco has entered into exclusive
distribution agreements with several independent distributors throughout the
world. Other than Ulvac, none of these independent distributors accounted for
more than 10% of Veeco's sales during
the year ended December 31, 1996. See
"--Customers."
Independent distributors typically carry a full line1997 was in excess of Veeco's products
within a product line, some distributors, such as Seiko Instruments, distribute
products from more than one of$100,000 (collectively, the
Company's product lines. Most distributors
also provide product support and servicing for the Veeco products sold by them.
As previously described, in 1993 Veeco entered into exclusive distributorship
arrangements in Japan with Seiko Instruments with respect to the ion beam
systems product line.
See Note 8 to the Consolidated Financial Statements for data pertaining to
the Company's net sales to unaffiliated customers by geographic area and for the
Company's United States operations export sales.
SERVICE. The Company believes that its field service organization is a
significant factor in the Company's success. Veeco provides worldwide customer
service from five service centers in the United States, three in Europe
(Dourdan, France; Watford, England; and Munich, Germany) and four in Asia
(Tokyo, Japan; Hong Kong; Bangkok, Thailand and Penang, Malaysia). In addition,
most distributors provide service and technical support for the Veeco products
they sell. Because of the large installed base of its ion beam systems, surface
metrology, X-ray fluorescence measurement systems and mass spectrometry leak
detection products, its multiple service centers and its responsiveness to
customer needs, Veeco believes that its service organization provides the
Company with opportunities for future sales to existing customers.
The Company provides service pursuant to warranty, service contract or on a
service-call basis. The Company's products typically carry a one-year warranty,
which includes labor costs and replacement of defective parts. The Company also
offers enhanced warranty coverage.
The Company offers several types of service contracts, including
preventative maintenance plans, on-call, on-site service-call plans and other
comprehensive service arrangements. The Company provides training for its
customers and employees and consultation services, including a 24-hour hotline
service, for certain products.
Approximately 23% of the Company's 1996 net sales were generated from
service and support and the sale of spare parts and components.
CUSTOMERS
The Company sells its products to many of the world's major data storage,
semiconductor, and flat panel display manufacturers, and to customers in other
industries, research centers and universities. For the year ended December 31,
1996, approximately 55.5% of the Company's total net sales were to customers in
the data storage industry; approximately 27.4% were sales to customers in the
semiconductor industry; approximately 3.8% were sales to customers in the flat
panel display industry; and the remaining approximately 13.3% of net sales were
to other industry customers and to universities and research centers.
Sales to Read-Rite, which utilizes products primarily from the Company's
ion beam system product line totaled $16,682,000, $6,631,000 and $893,000,
representing 17.2%, 9.2% and 1.8% of the Company's net sales for the years ended
December 31, 1996, 1995 and 1994, respectively.
Sales to Seagate, which also utilizes products primarily from the Company's
ion beam system product line, totaled $15,469,000, $16,768,000 and $13,499,000,
representing 16.0%, 23.2% and 27.3% of the Company's net sales for the years
ended December 31, 1996, 1995 and 1994, respectively. According to industry
reports, Seagate is one of the world's largest disk drive manufacturers.
10
Excluding sales to Read-Rite and Seagate, sales to the next five top
customers accounted for 22.9%, 22.71%, and 23.7%, in the aggregate, of total
net sales of the Company for the years ended December 31, 1996, 1995 and 1994,
respectively.
End-users of the Company's products in each of the following categories
include:
Semiconductor Data Storage Flat Panel Display
------------- ----------------- -----------------
AMD Applied Magnetics
AT & T Headways Technology Applied Komatsu
CNET/SGS Thomson IBM Casio Computer
DEC Komag Dai Nippon Print
Harris Semiconductor Mitsumi Dai Nippon Screen
Hewlett Packard Company Quantum IBM Japan
Hyundai Read-Rite Samsung
Micron SAE Magnetics Sumitomo Corp.
Mitsubishi Seagate Toshiba Corp.
Motorola Sony
National Semiconductor
NEC
Philips
Samsung
Seiko Instruments Inc.
Siemens
Texas Instruments
Toshiba
VLSI Technology, Inc
ENGINEERING, RESEARCH AND DEVELOPMENT
The Company believes that continued and timely development of new products
and enhancements to existing products are necessary to maintain its competitive
position and relies on a combination of its own internal expertise and strategic
alliances with other companies to enhance its research and development efforts.
The Company utilizes information supplied by its distributors and customers to
design and develop new products and product enhancements and to reduce
time-to-market for these products. Through its strategic alliances, the Company
has obtained the rights to sell additional products on a timely and cost
efficient basis. See "-Strategic Alliances."
The Company's engineering, research and development programs are
organized by product line; new products have been introduced into each of the
Company's product lines in each of 1996, 1995 and 1994. During 1996, the
Company added 13 new products to its product lines: the RF-350S, the Reactive
Secondary Ion Beam Sputtering Deposition System, and the Multitarget Secondary
Ion Beam Deposition System to its ion beam systems line; the Detak 300 SI,
300 SL, 200 SI and 200 SL Series V Stylus profilers, the Dektak TMS-2000,
TMS-2000W, and TMS-3000W Optical Scatterometers (developed by Schmitt
Measurement Systems) and the High Definition SXM Atomic Force Microscope to
is surface metrology line; and the MS-50 Console Leak Detector and MS-50 Dual
Port Console Leak Detector to its industrial measurement line.
Engineering research and development expenses of the Company were
approximately $9,804,000, $7,101,000 and $5,096,000 or 10.1%, 9.8% and 10.3% of
net sales, for the years ended December 31, 1996, 1995 and 1994, respectively.
These expenses consisted primarily of salaries, project material and other
product development and enhancement costs.
11
MANUFACTURING
The Company's principal manufacturing activities, which consist of design,
assembly and test operations, take place at its Plainview, New York
headquarters, where ion beam systems, XRF and leak detection/vacuum equipment
product lines are produced, and in Santa Barbara, California, at the
headquarters of the Company's Sloan subsidiary, where the stylus surface
metrology system product line is produced. The SXM workstation sold by Veeco is
manufactured by IBM at its Boca Raton, Florida facility.
The Company's manufacturing and research and development functions have
been organized by product line. The Company believes that this organizational
structure allows each product line manager to more closely monitor the products
for which he is responsible, resulting in more efficient sales, marketing,
manufacturing and research and development. The Company has also implemented a
Total Quality Management program, which seeks to emphasize customer
responsiveness, customer service, high quality products and a more interactive
management style. By implementing these management philosophies, the Company
believes that it has increased its competitiveness and positioned itself for
future growth.
Certain of the products sold by the Company are obtained from single
sources pursuant to written agreements. The Company relies upon IBM for
manufacture of the SXM Workstation, and termination of the Company's agreement
with IBM or other disruptions in the supply of product could have an adverse
effect on the Company's results of operations. In addition, certain of the
components and sub-assemblies included in the Company's other products are
obtained from a single source or a limited group of suppliers. Although the
Company does not believe it is dependent upon any supplier of the components and
sub-assemblies referred to in the previous sentence as a sole source or limited
source for any critical components (other then as set forth above), the
inability of the Company to develop alternative sources, if required, or an
inability to meet a demand or a prolonged interruption in supply or a
significant increase in the price of one or more components could adversely
affect the Company's operating results.
BACKLOG
The Company's backlog consists generally of product orders for which a
purchase order has been received and which are scheduled for shipment within
twelve months. Because a large percentage of the Company's orders require
products to be shipped in the same quarter in which the order was received, and
due to possible changes in delivery schedules, cancellations of orders and
delays in shipment, the Company does not believe that the level of backlog at
any point in time is an accurate indicator of the Company's performance.
COMPETITION
The Company faces substantial competition from established competitors in
each of the markets that it serves, some of which have greater financial,
engineering, manufacturing and marketing resources than the Company. In
addition, to a lesser extent many of the Company's product lines face
competition from alternative technologies, some of which are better established
than those used by the Company in its products. Significant marketing factors
for surface metrology and ion beam systems include system performance, accuracy,
repeatability, ease of use, reliability, cost of ownership, and technical
service and support. The Company believes it competes favorably on the basis of
these factors in each of the Company's served markets for such products. None of
the Company's competitors competes with the Company across the Company's product
lines.
The Company's ion beam systems compete with other ion beam system
manufacturers such as Commonwealth Scientific Corporation, Hitachi and Nordiko.
12
In the market for surface metrology systems, the Company competes with
several companies. The SXM Workstation competes with AFM products produced by
other manufacturers such as Digital Instruments as well as with high-end SEM
equipment produced by manufacturers such as Hitachi, Ltd. In the surface
profiler market, the Company competes primarily with Tencor Instruments.
In the XRF market, the Company competes with other manufacturers of XRF
products, including Twin City International, Inc., CMI International, and
Fischer, Inc. In the leak detector/vacuum equipment market, the Company competes
primarily with Varian Associates, Inc., Leybold A.G. and Alcatel, NV.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The Company's success depends in part on its proprietary technology.
Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, there can be no
assurance that the Company will be able to protect its technology adequately or
that competitors will not be able to develop similar technology independently.
The Company has more than 50 patents covering its various products which
the Company believes provides it with a competitive advantage. The Company has a
policy of seeking patents when appropriate on inventions concerning new products
and improvements as part of its on-going research, development and manufacturing
activities. The Company believes that there are no patents which are critical to
the Company's operations, and that the success of its business depends primarily
on the technical expertise, innovation, creativity and marketing and
distribution ability of its employees.
The Company also relies upon trade secret protection for its confidential
and propriety information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology or that the Company can meaningfully protect its trade secrets.
The Company is the licensee of certain intellectual property owned by IBM
which is associated with the SXM Workstation, including "SXM," which is a
registered trademark owned by IBM. See --"Strategic Alliances."
ENVIRONMENTAL MATTERS
In October 1993, the California Regional Water Quality Control Board,
Central Coast Region (the "RWQCB""Named Officers") issued a Cleanup and Abatement Order ("CAO")
for the site (the "Site") of a facility which was leased by a predecessor of
Sloan ("Old Sloan") in Santa Barbara, California. The CAO declared that Lambda
Electronics Inc. ("Lambda"), the Company and certain other parties had caused or
permitted certain hazardous waste to be discharged into waters of the State at
the Site where they create, or threaten to create, a condition of nuisance. (The
Company is named as a "discharger" in the CAO because it acquired the assets and
liabilities of Old Sloan pursuant to the Acquisition; in addition, the Company
may be required to indemnify Lambda for obligations incurred by Lambda as a
result of Old Sloan's operations.)
In compliance with the CAO, the Company submitted a corrective action plan
for remediating contaminated soils at the Site, by excavating them, spreading
them, tilling them, and then refilling the excavated areas with these soils.
The RWQCB approved this corrective action plan on June 6, 1994 and on November
29, 1994, the Santa Barbara County Air Pollution Control District exempted the
corrective action activities from the District's air permit requirements. The
soil remediation was completed in September 1995. The Company is currently
performing post soil remediation groundwater monitoring.
Reports prepared by consultants hired by the Company and by owners of the
Site indicate elevated levels of certain contaminants in samples of groundwater
underneath the Site. The Company's consultants have
13
recommended that additional groundwater assessment activities and the
preparation of a groundwater corrective action workplan, as required by the CAO,
should await the results of groundwater testing conducted by other parties near
the Site. Until that time, the Company (with the acquiescence of the RWQCB) is
monitoring groundwater contamination levels at the Site on a quarterly basis,
and is reviewing the results of third party groundwater assessment and
monitoring activities being conducted in the vicinity of the Site. The Company
cannot predict the extent of groundwater contamination and cannot determine at
this time whether any or all of the groundwater contamination may be
attributable to the activities of neighboring parties. The Company may be held
responsible for the costs of remediating any groundwater contamination under or
in the vicinity of the Site but the Company cannot predict the potential scope
of such costs at this time.
Pursuant to the Acquisition, the Company is required to pay, and has paid
for each of the past seven years, up to $15,000 per year of the expenses
incurred in connection with the operation of certain equipment used in
connection with the monitoring and remediation of certain environmental
contamination at the Company's Plainview, New York facility. The Company may
under certain circumstances also be obligated to pay up to an additional
$250,000 in connection with the implementation of a comprehensive plan of
environmental remediation at the Plainview facility; pursuant to the terms of
the Acquisition, Lambda (as well as its corporate parent, Unitech plc,
and certain of Lambda's subsidiaries) are required to pay all other
costs and expenses relating to any such plan of environmental remediation.
Because no such comprehensive plan of remediation has been required to date, the
Company is not in a position to estimate more precisely what any actual
liability might be.
The Company is aware that petroleum hydrocarbon contamination has been
detected in the soil at the site of the facility leased by Sloan in Santa
Barbara, California (the "Sloan Building"). For 18 months after the Acquisition,
the Company owned all of the outstanding capital stock of a company which held
title to the Sloan Building, and a leasehold in the property on which the Sloan
Building is located. In July 1991, the capital stock of such company was
transferred to Lambda, pursuant to provisions in the agreement relating to the
Acquisition. Although there appears to be no evidence that the petroleum
constituents found in the soil are associated with any activities of Sloan at
the Sloan Building, under Federal and California environmental statutes, current
"owners and operators" and "owners and operators" at the time of disposal of
hazardous substances may be deemed liable for removal and remediation of
contamination at a facility. In connection with the Acquisition, Lambda and
Unitech plc agreed to indemnify the Company for liabilities incurred by the
Company which arise from the environmental contamination at the site, and any
costs and expenses relating to the remediation thereof.
EMPLOYEES
At December 31, 1996, the Company had approximately 329 full time
employees, including 99 in manufacturing and testing, 57 in sales and marketing,
59 in service and support, 73 in engineering, research and development, and 41
in general administration and finance. The success of the Company's future
operations depends in large part on the Company's ability to recruit and retain
engineers, technicians and other highly-skilled professionals who are in
considerable demand. There can be no assurance that the Company will be
successful in retaining or recruiting key personnel. None of the Company's
employees is represented by a labor union and the Company has never experienced
a work stoppage, slowdown or strike. The Company considers its employee
relations to be good.
None of the Company's senior management or key employees is subject to
long-term employment agreements; in addition, none of such individuals is
subject to an agreement not to compete with the Company. Several of the
Company's senior management and key employees hold Common Stock, and/or stock
options to purchase Common Stock, of the Company.
14
ITEM 2. FACILITIES.
The Company's headquarters, principal manufacturing and research and
development facilities are located in an 80,000 square foot building in
Plainview, New York, which is owned by the Company. In addition, the Company
leases the Sloan Building from Lambda. The Sloan Building, located in Santa
Barbara, California, is a 30,000 square foot building which serves as the
administrative, sales, manufacturing and research and development facility of
Sloan. The lease expires in June 1998.
The Company also leases two facilities located in Milpitas, California and
Tustin, California, for use as sales and service centers for certain of its
products. Subsidiaries of the Company lease space for use as sales and service
centers in Dourdan, France; Munich, Germany; Watford, England; Hong Kong and
Tokyo, Japan.
The Company believes that it will be able to either renew the lease for the
Sloan Building on satisfactory terms or find a suitable substitute for such
facility. Based on the foregoing, the Company believes its facilities are
adequate to meet its current needs.
Certain levels of environmental contamination have been detected at the
Plainview, New York and Santa Barbara, California facilities of the Company.
See "Business - Environmental Matters".
ITEM 3. LEGAL PROCEEDINGS.
See "Business - Environmental Matters". Except as described therein, there
are no material legal proceedings involving the Company or any of its
subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is quoted on the Nasdaq National Market under the symbol
"VECO". The 1996 and 1995 high and low closing prices are as follows:
1996 1995
-------------------- ---------------------
High Low High Low
First Quarter $15.63 $11.13 $15.00 $ 7.75
Second Quarter 19.25 12.50 20.25 12.75
Third Quarter 15.00 9.88 30.00 15.25
Fourth Quarter 22.00 11.38 27.00 13.50
On February 24, 1997, the closing price for the Company's Common Stock on
the Nasdaq National Market was $27.25. As of February 24, 1997, the Company
had approximately 129 shareholders of record.
The Company has not paid dividends on the Common Stock. The Company
intends to retain future earnings, if any, for the development of its business
and, therefore, does not anticipate that the Board of Directors will declare or
pay any dividends on the Common Stock in the foreseeable future. In addition,
the provisions of the Company's current credit facility limits the Company's
ability to pay dividends. The Board of
15
Directors will determine future dividend policy based on the Company's results
of operations, financial condition, capital requirements and other
circumstances.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's Consolidated Financial Statements and notes
thereto included elsewhere in this Form 10-K.:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31
1996 1995 1994 1993 1992
--------------------------------------------------Annual Compensation
-------------------
Long Term
Compensation
Awards
Other Annual Securities
Compensa- Underlying All Other
Year Salary(1) Bonus(2) tion(3) Options(#) Compensation
---- --------- -------- ------- ---------- ------------
STATEMENT OF OPERATIONS DATA:
Net sales $96,832 $72,359 $49,434 $43,149 $36,346
Cost
Edward H. Braun................... 1997 $315,131 $185,000 $10,200 60,000 $2,352(4)(5)
Chairman, Chief Executive 1996 288,950 55,000 10,200 12,000 1,800(4)
Officer and President 1995 274,918 108,000 10,200 25,000 1,800(4)
Emmanuel N. Lakios................ 1997 185,539 120,000 8,400 32,000 1,605(4)(5)(6)
Executive Vice President of sales 54,931 39,274 28,940 25,736 21,847
--------------------------------------------------
Gross profit 41,901 33,085 20,494 17,413 14,499
Cost1996 143,720 242,033 8,400 12,000 2,094(4)(5)(6)
Field Operations 1995 125,650 165,500 8,400 35,000 6,981(4)(5)(6)
John F. Rein, Jr.................. 1997 175,480 80,000 8,400 42,000 2,847(4)(5)(6)
Vice President- Finance, Chief 1996 151,186 30,000 8,400 10,000 2,259(4)(5)(6)
Financial Officer, Treasurer 1995 140,150 60,000 8,400 20,000 1,926(4)(5)(6)
and expenses 29,719 24,289 16,511 15,482 13,081
--------------------------------------------------
Operating income 12,182 8,796 3,983 1,931 1,418
Interest (income) expense (678) (391) 2,620 2,341 3,006
--------------------------------------------------
Income (loss) before income
taxesSecretary
Francis Steenbeke (7).............. 1997 147,570 40,000 44,400(8) 10,000 -
Vice President- International 1996 142,910 40,000 44,400(8) 8,000 -
Sales and extraordinary item 12,860 9,187 1,363 (410) (1,588)
Income tax provision (benefit) 4,822 2,395 (795)Marketing 1995 148,828 60,000 36,663(8) 15,000 -
Robert P. Oates.................... 1997 133,240 5,000 8,400 10,000 1,867(4)(5)(6)
Vice President and General 1996 123,700 7,575 8,400 5,000 1,853(4)(5)(6)
Manager - --------------------------------------------------
Income (loss) before
extraordinary item 8,038 6,792 2,158 (410) (1,588)
Extraordinary (loss), net
of $355 tax benefitIndustrial 1995 119,769 10,000 8,400 15,000 1,838(4)(5)(6)
Measurement Products
Dr. Timothy J. Stultz............. 1997 178,729 - - (679) - -
--------------------------------------------------
Net income (loss) $8,038 $6,792 $1,479 $(410) $(1,588)
--------------------------------------------------
--------------------------------------------------
Earnings per share:
Income (loss) before
extraordinary item $1.36 $1.24 .87 $(.22) $(.84)
Extraordinary (loss) - - (.27) - -
--------------------------------------------------
Net income (loss) $1.36 $1.24 $.60 $(.22) $(.84)
--------------------------------------------------
--------------------------------------------------
Shares used in computing
earnings per share 5,906 5,484 2,472 1,874 1,897
--------------------------------------------------
--------------------------------------------------
AS OF DECEMBER 3138,400 20,000 2,490(4)(5)(6)
Vice President and General 1996 165,769 25,000 70,090(9) 10,000 2,365(4)(5)(6)
Manager- Process Metrology- 1995 1994 1993 1992
--------------------------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents $21,209 $17,568 $ 2,279 $386 $1,063
Working capital 43,454 37,461 16,122 6,666 7,264
Excess of cost over net
assets acquired 4,448 4,579 4,710 4,840 4,835
Total assets 80,327 67,380 40,931 32,596 31,464
Long-term debt and capital
leases (including current
installments)- - - 39 24,934 25,150
Shareholders' equity (deficit) 57,970 49,751 28,289 (1,681) (1,226)147,663 60,000 24,214(9) 15,000 1,679(4)(5)(6)
Santa Barbara
16
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth,- --------------
(1) Amounts shown include the dollar value of base salary (cash and
non-cash) earned and received by the Named Officers.
(2) Bonuses listed for 1997 include bonuses for the periods indicated, the relationship
(in percentages)year ended
December 31, 1997, all or part of selected items of the Company's consolidated statements of
operations to its total net sales:
YEARS ENDED DECEMBER 31which were paid in March 1998.
Bonuses listed for 1996 1995 1994
---------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 56.7 54.3 58.
---------------------------------
Gross profit 43.3 45.7 41.5
Operating expenses:
Research and development 10.1 9.8 10.3
Selling, general and administrative 20.2 23.3 22.6
Amortization .2 .2 .7
Other - net .2 .2 (.2)
---------------------------------
Total operating expenses 30.7 33.5 33.4
Operating income 12.6 12.2 8.1
Interest (income) expense (.7) (.5) 5.3
---------------------------------
Income before income taxes
and extraordinary item 13.3 12.7 2.8
Income tax provision (benefit) 5.0 3.3 (1.6)
---------------------------------
Income before extraordinary item 8.3 9.4 4.4
Extraordinary (loss), net of tax -- -- (1.4)
---------------------------------
Net income 8.3% 9.4% 3.0 %
---------------------------------
---------------------------------
YEARS ENDED DECEMBER 31, 1996 AND 1995
Net sales were $96,832,000include bonuses for the year ended
December 31, 1996, representing an increaseall or part of approximately $24,473,000, or 33.8%, for the fiscal
year ended December 31, 1996 as compared to 1995. The increase reflects growthwhich were paid in all three of the Company's product lines - ion beam systems, surface
metrology and industrial measurement. Sales in the U.S. increased approximately
38.6%, while international sales included a 37.8% increase in Asia Pacific and a
56.2% increase in Japan and a 3% decrease in Europe.
Sales of ion beam systems increased by 60.3% to approximately $53,213,000
in 1996 compared to 1995. This growth was principally driven by increased
demand for mass memory storage due to the capacity ramp up in both
magnetoresitive and inductive thin film magnetic heads required in high density
hard drives.
Sales of surface metrology products increased by 14.6% to approximately
$23,902,000 in 1996 compared to 1995 principally as a result of increased sales
of SXM Workstations for semiconductor applications.
Sales of industrial measurement products increased by 7.7% to approximately
$19,717,000 in 1996 compared to 1995 as a result of the introduction of new
products in the leak product line.
Gross profit increased to approximately $41,901,000, or 43.3% of net sales
for 1996, compared to $33,085,000, or 45.7% of net sales for 1995. The decline
in gross margin percentage was principally due to product and geographic mix
changes in surface metrology and industrial measurement products lines.
Research and development expense increased by approximately $2,703,000 to
approximately $9,804,000, or 10.1% of net sales in 1996 compared to
approximately $7,101,000 or 9.8% of sales in 1995, as the Company increased its
R&D investment in each of its product lines with particular emphasis on ion beam
products.
17
Selling, general and administrative expenses increased by approximately
$2,714,000 to 20.2% of net sales in 1996 from 23.3% for 1995. Selling expense
increased $2,353,000 principally comprised of sales commissions related to
higher sales volume, as well as increased compensation and travel expense as a
result of additional sales and service personnel required to support the
Company's growth. The Company received approximately $107 million of orders in
1996 compared to approximately $84 million of orders in 1995 for a 27.9%
increase. This resulted in a book to bill ratio of 1.11 to 1 for 1996.
Operating income increased to approximately $12,182,000 or 12.6% of net
sales for 1996 compared to $8,796,000 or 12.2% of net salesFebruary 1997.
Bonuses listed for 1995 due to the
above noted factors.
Income taxes amounted to $4,822,000 or 37.5% of income before income taxes
and extraordinary item for 1996 as compared to $2,395,000 or 26.1% of income
before income taxes and extraordinary item for 1995. The Company's effective
tax rate in 1995 was lower as a result of the Company recognizing previously
unrecognized deferred tax assets.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Net sales increased by approximately $22,925,000, or 46.4%,include bonuses for the fiscal year ended
December 31, 1995, all or part of which were paid in February 1996.
6
(3) Unless otherwise described in other notes to approximately $72,359,000 as compared to 1994.
The increasethis table,
reflects growth in all threereimbursement for automobile-related expenses.
Does not include any discount a Named Officer received on
the purchase of the Company's product lines - ion
beam systems, surface metrologycommon stock, $.01 par value per
share, of Veeco (the "Veeco Common Stock") under the Veeco
Instruments Inc. Employee Stock Purchase Plan since
full-time employees generally are eligible to participate
in such plan.
(4) Reflects payments by Veeco of premiums for group term life
insurance.
(5) Reflects contributions by Veeco to Veeco's 401(k) Plan.
(6) Reflects payments by Veeco of premiums for supplemental
long-term disability insurance.
(7) Certain components of Mr. Steenbeke's compensation have
been paid in French Francs. In 1997, Mr. Steenbeke was
paid 859,740 French Francs in salary. In 1996,
Mr. Steenbeke was paid 813,156 French Francs in salary and
industrial measurement. Sales227,600 French Francs in bonus. In 1995, Mr. Steenbeke
was paid 742,560 French Francs in salary, 302,200 French
Francs in bonus and 90,525 French Francs as a portion of
his other annual compensation.
(8) For 1997 and 1996, includes an $8,400 car allowance and a
$36,000 housing allowance paid to Mr. Steenbeke. For 1995,
includes a $15,000 housing allowance and a $21,663
automobile allowance (the equivalent of $18,163 of which
was paid in French Francs) paid to Mr. Steenbeke. The
1996 allowances and 1995 allowances (other than the
$18,163 (or 90,525 French Francs) automobile allowance)
were provided because Mr. Steenbeke was required to
perform services for Veeco in the U.S.
increased approximately 48%, while international sales included an
approximately 44% increaseUnited States for the
entire year in European sales1997 and an approximately 47% increase
in Asia Pacific sales including Japan.
Sales1996 and for five months during
1995.
(9) In addition to a reimbursement of ion beam systems increased by 58.1% to approximately $33,184,000
in 1995 compared to 1994. This increase was driven by increased demand from
mass memory storage and telecommunications markets.
Sales of surface metrology products increased by 58.0% to approximately
$20,830,000 in 1995 compared to 1994 as a result of increased sales of SXM
Workstations for semiconductor applications and increased sales of surface
profilers in Asia Pacific and Europe.
Sales of industrial measurement products increased by 20.2% to
approximately $18,345,000 in 1995 compared to 1994 as a result of the
introduction of new products in both the leak detection and XRF thickness
measurement systems product lines.
Gross profit increased to approximately $33,085,000, or 45.7% of net sales,
for 1995 compared to $20,494,000, or 41.5% of net sales for 1994. This
improvement was due to the sales volume increases described above, product mix
changes and improved operating efficiencies.
Research and development expense increased by approximately $2,005,000 to
approximately $7,101,000, or 9.8% of net sales in 1995 compared to approximately
$5,096,000 or 10.3% of sales in 1994, as the Company increased its R&D
investment$8,400 in each of its product lines.
Selling, general1995,
1996 and administrative1997 for automobile-related expenses, increased by approximately
$5,651,000Dr. Stultz
was paid, in connection with his relocation to 23.3%Santa
Barbara, California, a housing allowance of net sales$15,814 in
1995, from 22.6% for 1994. Selling expense
increased $4,150,000 principally comprised$61,690 in 1996 and $30,000 in 1997. See also "Item
13. Certain Relationships and Related Transactions".
7
The following table sets forth certain information concerning individual
grants of sales commissions related to
higher sales volume, as well as increased compensation and travel expense as a
result of additional sales and service personnel required to support the
Company's growth. The Company received approximately $84 million of orders in
1995 compared to approximately $55 million of orders in 1994.
Operating income increased to approximately $8,796,000 or 12.2% of net
sales for 1995 compared to $3,983,000 or 8.1% of net sales for 1994, duestock options made during 1997 to the above noted factors.
As a resultNamed Officers. Also reported
are potential realizable values of each such stock option at assumed annual
rates of stock price appreciation for the term of the repaymentoption representing the
product of all outstanding debt in December 1994 from(a) the proceedsdifference between: (i) the product of the IPOclosing price per
share of Veeco Common Stock as reported by NASDAQ on the date of the grant
($25.625 on January 17, 1997 and $29.25 on April 25, 1997, respectively) and the
investmentsum of one plus the adjusted stock price appreciation rate (5% and 10%)
compounded annually over the term of the net proceeds fromoption (10 years) and (ii) the Public
Offering completed in July 1995, the Company had $391,000 of interest income in
1995 compared to $2,620,000 of interest expense in 1994.
18
Income taxes amounted to $2,395,000 or 26.1% of income before income taxes
and extraordinary item for 1995. The Company's effective tax rate is lower than
the statutory tax rate as a resultexercise
price of the Company recognizing previously
unrecognized deferred tax assets. It is anticipated thatoption ($24.875 for grants on January 17, 1997 and $31.00 for
grants on April 25, 1997); and (b) the Company's
effective tax rate in 1996 will approachnumber of shares of Veeco Common Stock
underlying the statutory tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totaled $7,173,000 for the fiscal year
ended December 31, 1996 compared to $1,980,000 for 1995, due primarily to net
income of $8,038,000 in 1996 compared to net income of $6,792,000 in 1995. Cash
flow in 1995 was also impacted by an increase of approximately $6,072,000 in
accounts receivable. Net cash provided by operations of $1,980,000 for the
fiscal year ended December 31, 1995 compared to $808,000 for 1994 primarily due
to net income of $6,792,000 in 1995 compared to net income of $1,479,000 in 1994
partially offset by changes in operating assets and liabilities.
Accounts receivable increased by approximately $843,000option grant at December 31, 1996 to $19,826,000 from $18,983,000 at December 31, 1995, due primarily to
increased sales. Accounts receivable increased by approximately $6,291,000 to
$18,983,000 at December 31, 1995 from $12,692,000 at December 31, 1994,
primarily due to the increased sales.
Inventories increased by approximately $5,468,000 at December 31, 1996 to
$21,263,000 from $15,795,000 at December 31, 1995. The increase was principally
due to purchases required for the increased level of sales orders. Inventories
increased by approximately $5,101,000 at December 31, 1995 to $15,795,000 at
December 31, 1995 from $10,694,000 at December 31, 1994 principally due to
purchases required for the introduction of new products and increased level of
sales orders.
Accounts payable increased by $2,467,000 at December 31, 1996 to
$11,196,000 from $8,729,000 at December 31, 1995 due to a higher level of
purchases associated with the increased sales volume. Accounts payable increased
by $1,316,000 at December 31, 1995 to $8,729,000 from $7,413,000 as a result of
purchases required for the introduction of new products.
Accrued expenses increased by $2,441,000 at December 31, 1996 to $9,964,000
from $7,523,000 at December 31, 1995 as a result of increased customer deposits
and payroll-related liabilities.
Working capital totaled approximately $43,454,000 at December 31, 1996
compared to approximately $37,461,000 at December 31, 1995. Cash increased to
approximately $21,209,000 at December 31, 1996 as a result of cash from
operations partially offset by approximately $3,766,000 of capital
expenditures. Working capital was approximately $37,461,000 at December 31,
1995 compared to approximately $16,122,000 at December 31, 1994. Cash
increased to approximately $17,568,000 at December 31, 1995 from $2,279,000
at December 31, 1994 as a result of cash from operations and the Company's
Public Offering.
The Company made capital expenditures of $3,766,000 for fiscal year 1996,
principally for manufacturing facilities, laboratory and test equipment and
computer system upgrades, as compared to $965,000 of capital expenditures for
1995. The Company's capital expenditures for 1995 related primarily to the
purchase of laboratory and test equipment and manufacturing facility
improvements. The Company expects that capital expenditures will increase1997.
Option/SAR Grants in the
next year as it improves its manufacturing facilities and acquires additional
equipment for its ion beam deposition systems business.
In July 1996, the Company entered into a new credit facility (the "Credit
Facility") with Fleet Bank, N.A. and The Chase Manhattan Bank. The Credit
Facility, may be used for working capital, acquisitions and general corporate
purposes, provides the Company with up to $30 million of availability. The
Credit Facility bears interest at the prime rate of the lending banks, but is
adjustable to a maximum rate of 3/4% above the prime rate in the event the
Company's ratio of debt to cash flow exceeds a defined ratio. A LIBOR based
interest rate option is also provided. As of December 31, 1996 there were no
amounts outstanding under the Credit Facility.
19
As of December 31, 1996, the Company's availability under the Credit Facility
was reduced by approximately $931,000 as a result of outstanding letters of
credit. The Credit Facility is secured by substantially all of the Company's
personal property, as well as the stock of its Sloan subsidiary.
Pursuant to a sales and marketing agreement with IBM, the Company has
agreed to purchase a minimum number of IBM-manufactured SXM Workstations for
sale by the Company to customers in the semiconductor and data storage
industries for an aggregate purchase price of approximately $2,250,000. These
products are required to be purchased prior to July 1997. In addition, the
Company has minimum purchase obligations pursuant to agreements with certain
other suppliers. See "Business--Strategic Alliances."
The Company believes that the cash generated from operations, funds
available from the Credit Facility described above and existing cash balances
will be sufficient to meet the Company's projected working capital and other
cash flow requirements for at least the next 24 months.
RISK FACTORS THAT MAY IMPACT FUTURE RESULTS
Certain information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission may contain statements which are "forward-looking
statements" which involve risks and uncertainties. The following risk factors
should be considered by shareholders of and by potential investors in the
Company.
CYCLICALITY OF SEMICONDUCTOR INDUSTRY. The semiconductor industry has been
characterized by cyclicality. The industry has experienced significant economic
downturns at various times in the last decade, characterized by diminished
product demand, accelerated erosion of average selling prices and production
over-capacity. The Company may experience substantial period-to-period
fluctuations in future operating results due to general industry conditions or
events occurring in the general economy.
RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION. The
semiconductor manufacturing industry is subject to rapid technological change
and new product introductions and enhancements. The Company's ability to remain
competitive will depend in part upon its ability to develop in a timely and cost
effective manner new and enhanced systems at competitive prices. In addition,
new product introductions or enhancements by the Company's competitors could
cause a decline in sales or loss of market acceptance of the Company's existing
products. Increased competitive pressure could also lead to intensified price
competition resulting in lower margins, which could materially adversely affect
the Company's business, financial condition and results of operations. The
success of the Company in developing, introducing and selling new and enhanced
systems depends upon a variety of factors, including product selections, timely
and efficient completion of product design and development, timely and efficient
implementation of manufacturing processes, effective sales, service and
marketing and product performance in the field. Because new product development
commitments must be made well in advance of sales, new product decisions must
anticipate both the future demand for the products under development and the
equipment required to produce such products. There can be no assurance that the
Company will be successful in selecting, developing, manufacturing and marketing
new products or in enhancing existing products.
LIMITED SALES BACKLOG. The Company derives a substantial portion of its
sales from the sale of a relatively small number of systems which typically
range in purchase price from approximately $400,000 to $1,500,000. As a result,
the timing of recognition of revenue for a single transaction could have a
material adverse affect on the Company's sales and operating results. The
Company's backlog at the beginning of a quarter typically does not include all
sales required to achieve the Company's sales objective for that quarter.
Moreover, all customer purchase orders are subject to cancellation or
rescheduling by the customer with limited or no penalties. Therefore, backlog
at any particular date is not necessarily representative of actual sales for any
succeeding period. The Company's net sales and operating results for a quarter
may depend upon the Company obtaining orders for systems to be shipped in the
same quarter that the order is received. The Company's
20
business and financial results for a particular period could be materially
adversely affected if an anticipated order for even one system is not received
in time to permit shipping during the period.
HIGHLY COMPETITIVE INDUSTRY. The semiconductor capital equipment industry
is intensely competitive. A substantial investment is required by customers to
install and integrate capital equipment into a production line. As a result,
once a manufacturer has selected a particular vendor's capital equipment, the
Company believes that the manufacturer generally relies upon that equipment for
the specific production line application and frequently will attempt to
consolidate its other capital equipment requirements with the same vendor.
Accordingly, the Company expects to experience difficulty in selling to a
particular customer for a significant period of time if that customer selects a
competitor's capital equipment. The Company expects its competitors to continue
to develop enhancements to and future generations of competitive products that
may offer improved price or performance features. New product introductions and
enhancements by the Company's competitors could cause a significant decline in
sales or loss of market acceptance of the Company's systems in addition to
intense price competition or otherwise make the Company's systems or technology
obsolete or noncompetitive. Increased competitive pressure could lead to
reduced demand and lower prices for the Company's products, thereby materially
adversely affecting the Company's operating results. There can be no assurance
that the Company will be able to compete successfully in the future.
FOREIGN OPERATIONS
Approximately 12.5%, 17.3%, and 14.9% of the Company's net sales for years
ended December 31, 1996, 1995 and 1994, respectively, were derived from sales
denominated in foreign currencies. The effect of foreign currency exchange rate
fluctuations on such revenues is largely offset to the extent expenses of the
Company's international operations are incurred and paid for in the same
currencies as those of its revenues.
The Company has mitigated its exposure to foreign currency transaction
adjustments by substantially offsetting assets denominated in foreign currencies
with foreign currency liabilities. The Company does not engage in foreign
currency hedging transactions. Foreign currency translation adjustments of
$104,000, ($128,000) and ($233,000) were (credited) charged to Shareholder's
Equity for the years ended December 31, 1996, 1995 and 1994, respectively. The
aggregate exchange gains and (losses) included in determining consolidated
results of operations were ($153,000), $100,000, and $185,000 for the years
ended December 31, 1996, 1995 and 1994 respectively.
DEPENDENCE ON MICROELECTRONICS INDUSTRY
The Company's business depends in large part upon the capital expenditures
of data storage, semiconductor and flat panel display manufacturers which
accounted for the following percentages of the Company's net sales:
DECEMBER 31
1996 1995 1994
-------------------------------------------
Data storage 55.5% 40.2% 38.1%
Semiconductor 27.4 36.4 33.2
Flat panel display 3.8 6.1 7.3
21
The Company cannot predict whether the growth experienced in the
microelectronics industry in the recent past will continue.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company are listed in the Index to
Consolidated Financial Statements and Financial Statement Schedule filed as part
of this Form 10-K.
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected financial data for each quarter of
fiscal 1996 and 1995. This information is unaudited, has been prepared on a
basis consistent with the Company's audited financial statements and, in the
opinion of the Company's management, reflects all adjustments (consisting only
of normal recurring adjustments) that the Company considers necessary for a fair
presentation of this information in accordance with generally accepted
accounting principles. Such quarterly results are not necessarily indicative of
future results of operations and should be read in conjunction with the audited
financial statements of the Company and the notes thereto.Last Fiscal Year
QUARTERLY STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
FISCAL 1996 FISCAL 1995
------------------------------------------------- -----------------------------------------------
Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
------------------------------------------------- -----------------------------------------------Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term($)
----------------- --------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Per Expiration
Name Granted(1) Fiscal Year Share($)(2) Date(3) 5% 10%
- ---- ---------- ----------- ----------- ------- --- ---
Edward H. Braun................ 20,000 3.03% $24.875 01/17/07 $337,300 $ 831,700
Edward H. Braun................ 40,000 6.06% $31.00 04/25/07 $665,600 $ 1,794,400
Emmanuel N. Lakios............. 12,000 1.82% $24.875 01/17/07 $202,380 $ 499,020
Emmanuel N. Lakios............. 20,000 3.03% $31.00 04/25/07 $332,800 $ 897,200
John F. Rein, Jr............... 12,000 1.82% $24.875 01/17/07 $202,380 $ 499,020
John F. Rein, Jr............... 30,000 4.55% $31.00 04/25/07 $499,200 $ 1,345,800
Francis Steenbeke.............. 10,000 1.52% $24.875 01/17/07 $168,650 $ 415,850
Robert P. Oates................ 10,000 1.52% $24.875 01/17/07 $168,650 $ 415,850
Dr. Timothy J. Stultz.......... 10,000 1.52% $24.875 01/17/07 $168,650 $ 415,850
Dr. Timothy J. Stultz.......... 10,000 1.52% $31.000 04/25/07 $166,400 $ 448,600
- -----------
(1) On January 17, 1997 and April 25, 1997, respectively, pursuant to
the Veeco Instruments Inc. Amended and Restated 1992 Employees'
Stock Option Plan (the "Employees' Plan") options to acquire an
aggregate of 146,300 shares and 120,000 shares, respectively, of
Veeco Common Stock were granted to certain employees of Veeco,
including the Named Officers. The options granted to the Named
Officers become exercisable as follows: (i) for one-third of the
shares covered thereby, on the first anniversary of the grant date;
(ii) for an additional one-third of the shares covered thereby, on
the second anniversary of the grant date; and (iii) for the
remaining shares covered thereby, on the third anniversary of the
grant date.
(2) Represents the closing price per share of the Veeco Common Stock as
reported by NASDAQ on the last date preceding the date of grant on
which a sale was reported.
(3) Options may terminate at an earlier date upon the occurrence of
certain events.
8
The following table sets forth certain information concerning the number of
shares of Veeco Common Stock acquired upon the exercise of options by the Named
Officers during 1997 and the value realized upon such exercises determined by
calculating the positive spread between the exercise price of the options
exercised and the closing price of the Veeco Common Stock on the date of
exercise. Also reported are the number of options to purchase Veeco Common Stock
held by the Named Officers as of December 31, 1997 and values for "in-the-money"
options that represent the positive spread between the exercise price of the
outstanding options ($4.50 to $14.50) and the closing price ($22.00) of the
Veeco Common Stock on December 31, 1997 as reported by NASDAQ.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Value of Unexercised
Number of Number of Unexercised In-the-Money Options at
Securities Options at Fiscal Year-End Fiscal Year-End
Acquired on Value -------------------------- ---------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- --------- -------- ----------- ------------ ------------ -------------
Net sales $20,644 $25,095 $24,071 $27,022
Edward H. Braun........... - - 20,666 76,334 $173,744 $131,881
Emmanuel N. Lakios........ 31,222 $765,926 - 51,667 - $180,003
John F. Rein, Jr.......... - - 46,666 55,334 $709,995 $107,505
Francis Steenbeke......... 12,667 $311,300 - 20,333 - $83,123
Robert P. Oates........... 22,120 $792,460 11,666 18,334 $ 96,832 $ 14,133 $ 17,498 $ 18,430 $ 22,298 $ 72,359
Cost of sales 11,437 13,972 13,602 15,920 54,931 7,754 9,615 10,061 11,844 39,274
------------------------------------------------- -----------------------------------------------
Gross profit 9,207 11,123 10,469 11,102 41,901 6,379 7,883 8,369 10,454 33,085
Costs and expenses 6,522 7,872 7,455 7,870 29,719 5,002 5,863 5,948 7,476 24,289
------------------------------------------------- -----------------------------------------------
Operating income 2,685 3,251 3,014 3,232 12,182 1,377 2,020 2,421 2,978 8,796
Interest income 200 162 148 168 678 9 6 152 224 391
------------------------------------------------- -----------------------------------------------
Income before income taxes 2,885 3,413 3,162 3,400 12,860 1,386 2,026 2,573 3,202 9,187
Income tax provision 1,075 1,307 1,168 1,272 4,822 291 544 694 866 2,395
------------------------------------------------- -----------------------------------------------
Net income $ 1,810 $ 2,106 $ 1,994 $ 2,128 $ 8,038 $ 1,095 $ 1,482 $ 1,879 $ 2,336 $ 6,792
------------------------------------------------- -----------------------------------------------
------------------------------------------------- -----------------------------------------------
Earnings per share:
------------------------------------------------- -----------------------------------------------
Net income $ .31 $ .35 $ .34 $ .36 $ 1.36 $ .22 $ .29 $ .33 $ .39 $ 1.24
------------------------------------------------- -----------------------------------------------
------------------------------------------------- -----------------------------------------------
Shares used in computing
earnings per share 5,893 5,958 5,860 5,972 5,906 5,077 5,123 5,750 5,984 5,484
------------------------------------------------- -----------------------------------------------
------------------------------------------------- -----------------------------------------------98,703 $68,114
Dr. Timothy J. Stultz..... 15,000 $505,000 13,333 31,667 $111,248 $93,128
A varietyDirector Compensation
Directors, other than those who are employees of factors influence the levelVeeco, receive a per
meeting fee of $2,000 for attendance at Board of Directors and committee
meetings. In addition, each of the Company's net sales in a
particular quarter, including specific economic conditionscurrent non-employee directors received
16,999 options, in the semiconductor,
data storage and flat panel display industries, the timing of significant
orders, shipment delays, specific feature requests by customers, the
introduction of new products by the Company and its competitors, production and
quality problems, changes in material costs, disruption in sources of supply,
seasonal patterns of capital spending by customers, and other factors, many of
which are beyond the Company's control. In addition, the Company derives a
substantial portion of its revenues from the sale of products which have an
average selling price in excess of $500,000. As a result, the timing of
recognition of revenue from a single transaction could have a significant impact
on the Company's net sales and operating results in any given quarter.
22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Reference is madeaggregate, to purchase Veeco Common Stock pursuant to
the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the Registrant's fiscal year for information concerning directors and
executive officers of the Registrant.
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the Registrant's fiscal year for information concerning executive
compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the Registrant's fiscal year for information concerning security ownership of
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, of each director of the Company and all
executive officers and directors as a group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the Registrant's fiscal year for information concerning certain relationships
and related transactions.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The Registrant's financial statements together with a separate table
of contents are annexed hereto.
(2) The financial statement schedule is listed in the separate table of
contents annexed hereto.
(3) Exhibits.
Exhibit
Number Exhibit
3.1 Form of Amended and Restated Certificate of Incorporation of the Company.
(1)
3.2 Form of Amended and Restated By-Laws of the Company. (1)
4.1 Form of Certificate for Common Stock. (1)
10.1 Lease, dated July 29, 1991 between Sloan Technology Corporation, a
California corporation and Sloan Technology Corporation, a Delaware
corporation. (1)
10.2 OEM Agreement for Acquisition of IBM Products, dated July 20, 1993 by and
between IBM and the Company. (2)
10.3 Modification to OEM Agreement for Acquisition of IBM Products, dated July
20, 1993, by and between IBM and the Company. (2)
10.4 UPA Technology Division, Veeco Instruments Inc. and Roentgenanalytik
Messtechnik GmbH XRF Development Program Agreement, dated December 8,
1992, between Veeco-UPA Technology Division and Roentgenanalytik
Messtechnik GmbH. (2)
10.5 Distributor Agreement, dated as of December 15, 1974 between Sloan
Technology Corporation and ULVAC Corporation. (2)
10.6 Amendment to Distributor Agreement, dated March 11, 1993, by and between
Sloan Technology Corporation and ULVAC Japan, Ltd.(2)
10.7 Exclusive Sales Agreement, dated as of July 1, 1993, between Seiko
Instruments and the Company. (2)
10.8 Exclusive Sales Agreement, dated as of July 1, 1993, between the Company
and Seiko Instruments. (2)
10.9 Distributor Agreement, dated March 5, 1993, between the Company and Seiko
Instruments.(2)
10.11 Letter Agreement, dated November 22, 1993 between the Company and John F.
Rein, Jr. (1)
10.12 First Amendment and Restatement of Stock Option Agreement dated as of
October 13, 1994 between the Company and John F. Rein, Jr. (1)
10.13 Agreement dated as of February 7, 1994, effective as of December 31,
1993, between the Company and Robert Oates, together with Amendment No. 1
thereto dated as of October 13, 1994. (1)
10.15 Veeco Instruments Inc. 1994 Stock Option Plan for Outside Directors. (1)
24Directors (the
"Directors Plan") and under such plan each non-employee director who meets the
eligibility criteria for such plan will receive an annual grant of 7,000
options. Mr. Braun, the Chairman, Chief Executive Officer and President of
Veeco, receives no compensation for his service as a director.
Veeco is party to an agreement with Walter J. Scherr, a director of Veeco,
pursuant to which he is employed as a consultant to Veeco with respect to
acquisition and new business opportunities, as well as other matters. During
1997, Mr. Scherr received $78,967 pursuant to such consulting arrangement. On
April 25, 1997, Mr. Scherr also received options to purchase 20,000 shares of
Veeco Common Stock at an exercise price of $31.00 per share pursuant to the
Employees' Plan. Mr. Scherr also received a discretionary additional payment of
$35,000 in consideration for services with respect to mergers and acquisitions
activities in 1997, which payment was made in March 1998.
Compensation Committee Interlocks and Insider Participation
Veeco's Compensation Committee is comprised of Messrs. D'Amore, Elftmann
and Low.
9
Exhibit
Number Exhibit
10.19 Letter Agreement dated, January 16, 1995 between the Company and John
Kiernan. (3)
10.20 Amended and Restated Veeco Instruments Inc. Employees' Stock Option Plan.
(4)
10.21 Veeco Instruments Inc. Employees Stock Purchase Plan. (4)
10.22 OEM Agreement for acquisition of IBM products, dated October 12, 1995,
between International Business Machines Corporation and Veeco
Instruments Inc. (5)
10.24 Lease dated July 1, 1993 and Lease renewal dated February 26, 1996
between Lambda (Santa Barbara) Inc., a California Corporation and Veeco
Instruments Inc., a Delaware Corporation. (6)
10.25 Credit Agreement dated July 31, 1996 among the Registrant, Fleet Bank
N.A. andCOMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy
The Chase Manhattan Bank. (7)
10.26 Security Agreement dated July 31, 1996 among the Registrant, Fleet Bank
N.A. and The Chase Manhattan Bank. (7)
10.27 Guarantee Agreement dated July 31, 1996 among the Registrant, Fleet Bank
N.A. and The Chase Manhattan Bank. (7)
10.28 Guarantor's Security Agreement dated July 31, 1996 among Sloan Technology
Corporation, Fleet Bank N.A. and The Chase Manhattan Bank. (7)
10.29 The Pledge Agreement dated July 31, 1996 among the Registrant, Fleet Bank
N.A. and The Chase Manhattan Bank. (7)
10.30 The Patent and Trademark Security Agreement dated July 31, 1996 among the
Registrant, Fleet Bank N.A. and The Chase Manhattan Bank. (7)
21.1 SubsidiariesCompensation Committee of the Registrant. (1)
23.1 ConsentBoard of Directors is comprised of
three outside, non-employee directors. The Committee reviews and approves
all of Veeco's executive compensation programs. The Compensation program is
based on the following principles:
1) Executive officers' compensation should be tied to annual
performance goals that maximize Veeco Stockholder value.
2) Veeco emphasizes variable incentive compensation in order to ensure
continuously improving corporate performance and to align the interests of
executive officers with those of stockholders of Veeco ("Veeco
Stockholders").
3) Compensation must be competitive in order to attract, motivate and
retain the management talent needed to achieve Veeco's business objectives.
In determining competitive levels, the committee reviews information of
comparative companies from both independent survey data and public company
filings.
Components of Compensation
Veeco's executive compensation program consists of three principal
elements:
1) Base Salary-Base salaries have been set within salary ranges based
on compensation reports published by Radford Associates and Alexander and
Alexander Consulting Group and a study performed by Ernst & Young LLP. *
27 Financial Data ScheduleLLP on
comparable size and type manufacturing companies. Individual salary
increases are based on the officer's contribution to Veeco and the
relationship of current pay to the current value of the job.
2) Annual Incentive Awards-Annual incentive awards are based on
performance against objectives in the calendar year and are ordinarily
payable in the first quarter of the succeeding year. Incentive awards for
executive officers are a percentage of base salary. The percentage can
range to up to 80% of base salary for the chief executive officer and up to
60% of base salary for the other executive officers for achievement of 110%
of business plan objectives. In exceptional circumstances, when Veeco or a
business unit exceeds 110% of planned objectives, the Compensation
Committee may selectively make incentive awards at a higher level. Annual
incentive awards are based on selected financial criteria tied to the
annual business plan. In 1997, this plan was objectively based on operating
income criteria and subjectively on the ability of executive management to
strategically position Veeco for growth.
3) Stock Option Grants-Stock option grants are awarded as a
recognition of exceptional current performance and an expectation of
continued high quality contribution to enhancing Veeco Stockholder value.
The committee believes that stock options encourage officers to relate
their long-term economic interests to those of other Veeco Stockholders.
Stock options are granted at fair market value on the date of grant and
vest over three years. The options have an exercise period of ten years
from the date of grant.
Chief Executive Officer's Compensation
The compensation of Veeco's Chief Executive Officer, Edward H. Braun, is
determined by the Compensation Committee in accordance with the policies
described above relating to all executive officers' compensation. In particular,
the Compensation Committee established Mr. Braun's base salary after an
evaluation of his personal performance and the committee's objective to have his
base salary comparable with salaries being paid to similarly situated chief
executive officers. Mr. Braun's bonus was based upon Veeco's operating income
achieved compared with the 1997 business plan, as well as development of and
progress in Veeco's long-term goals and strategies.
10
Policy on Deductibility of Compensation
Section 162(m) of the Code limits to $1,000,000 per year Veeco's tax
deduction for compensation paid to each of the Named Officers, unless certain
requirements are met. The Compensation Committee believes it unlikely in the
short term that such limitation will affect Veeco. The Compensation Committee's
present intention is to structure executive compensation so that it will be
fully deductible, while maintaining flexibility to take actions which it deems
to be in the best interest of Veeco Instrumentsand the Veeco Stockholders but which may
result in Veeco paying certain items of compensation that may not be fully
deductible.
Submitted by the Compensation Committee:
Richard A. D'Amore
Paul R. Low
Joel A. Elftmann
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of Veeco Common Stock as of April 15, 1998 (unless otherwise specified
below) by (i) each person known by Veeco to own beneficially more than five
percent of the outstanding shares of Veeco Common Stock, (ii) each director of
Veeco, and (iii) all executive officers and directors of Veeco as a group.
Unless otherwise indicated, Veeco believes that each of the persons or entities
named in the table exercises sole voting and investment power over the shares
that each of them beneficially owns, subject to community property laws where
applicable.
Shares of Common Stock
Beneficially Owned(1)
----------------------
Percent of
Total Shares
Name of Beneficial Owner Shares Options(2) Total Outstanding
- ------------------------ ------ ---------- ----- -----------
James Wyant(3)................................................ 2,100,127 - 2,100,127 23.4%
John B. Hayes(4).............................................. 763,683 - 763,683 8.5
EQSF Advisers, Inc.(5)........................................ 464,200 - 464,200 5.2
Edward H. Braun............................................... 223,019 52,999 276,018 3.1
Walter J. Scherr.............................................. - 16,665 16,665 *
Richard A. D'Amore............................................ 16,701 16,999 33,700 *
Paul R. Low................................................... - 16,999 16,999 *
Joel A. Elftmann(6)........................................... 2,000 16,999 18,999 *
John F. Rein, Jr.............................................. 1,328 70,666 71,994 *
Francis Steenbeke............................................. 74,339 10,999 85,338 *
Emmanuel N. Lakios............................................ 937 26,332 27,269 *
Robert P. Oates............................................... 10,617 21,666 32,283 *
Dr. Timothy J. Stultz....................................... 589 28,332 28,921 *
All Executive Officers and Directors
as a Group (12 persons)....................................... 2,430,610 284,698 2,715,308 29.4%
- --------------
* Denotes less than a 1% interest.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days of April 15, 1998 upon the exercise
of warrants and/or stock options. Each person's percentage ownership is
determined
11
by assuming that warrants and stock options held by such person (but not
those held by any other person) which are exercisable within 60 days of
April 15, 1998 have been exercised.
(2) Represents stock options exercisable within 60 days of April 15, 1998.
(3) Mr. Wyant shares voting and dispositive power over 2,100,127 shares of
Veeco Common Stock with his wife, Louise Wyant.
(4) This information is based on a Schedule 13D filed with the Commission
in August 1997. Mr. Hayes' business address is c/o Wyko Corporation, 2650
East Elvira Road, Tucson, Arizona 85706.
(5) This information is based solely on a Schedule 13G filed with the
Commission in February 1998. EQSF Advisers, Inc. beneficially owns and
holds sole dispositive and voting power over 464,200 shares of Veeco Common
Stock. The address of EQSF Advisers, Inc. is 767 Third Avenue, New York, NY
10017.
(6) Includes 2,000 shares of the Veeco Common Stock held by the Elftmann
Family Limited Partnership, a family limited partnership of which
Mr. Elftmann is the general partner.
Item 13. Certain Relationships and Related Transactions
On January 17, 1997, options to purchase shares of the Veeco Common
Stock were issued to each of the following executive officers and significant
employees in the following amounts pursuant to the Employee's Plan, all at an
exercise price of $24.875 per share (the fair market value at the date of
grant): Edward H. Braun, options to purchase 20,000 shares; John F. Rein,
Jr., options to purchase 12,000 shares; Francis Steenbeke, options to
purchase 10,000 shares; Emmanuel N. Lakios, options to purchase 12,000
shares; Robert P. Oates, options to purchase 10,000 shares; Dr. Timothy J.
Stultz, options to purchase 10,000 shares; John P. Kiernan, options to
purchase 2,000 shares; and Thomas A. Cully, options to purchase 500 shares.
On April 25, 1997, options to purchase shares of the Veeco Common Stock were
issued to each of the following executive officers in the following amounts
pursuant to the Employees' Plan, all at an exercise price of $31.00 per share
(the fair market value at the date of grant): Edward H. Braun, options to
purchase 40,000 shares; John F. Rein, Jr., options to purchase 30,000 shares;
Emmanuel N. Lakios, options to purchase 20,000 shares; and Dr. Timothy J.
Stultz, options to purchase 10,000 shares. Also on April 25, 1997, options to
purchase 20,000 shares at an exercise price of $31.00 per share were issued
to Walter J. Scherr under the Employees' Plan. On December 12, 1997, pursuant
to the Employees' Plan, options to purchase 90,000 shares were issued to
David S. Perloff at an exercise price of $26.875 per share (fair market value
on the date of grant). On January 5, 1998, pursuant to the Employees' Plan,
options to purchase 25,000 shares were issued to Don R. Kania at an exercise
price of $24.4375 per share (fair market value on date of grant).
In May 1997, 21,000 options, in the aggregate, were granted to the
non-employee directors pursuant to the Directors Plan.
An involuntary petition for relief under Chapter 7 of Title 11 of the
United States Code was filed against Peak Systems, Inc. (case no. 93-48654)
in the United States Bankruptcy Court for the year endedNorthern District of California
on December 31, 1996. *
*Filed herewith.
(1) Previously filed as10, 1993, and an ExhibitOrder for Relief was granted by the Court to the
Registrant's Registration
Statementpetitioning creditors on Form S-1 (Registration No. 33-85184)January 13, 1994. As of April 15, 1998, such case
remained open. Dr. Timothy J. Stultz, Veeco's Vice President and incorporated herein by
reference.
(2) Previously filed as an ExhibitGeneral
Manager-Process Metrology-Santa Barbara, was President and Chief Executive
Officer of Peak Systems, Inc. from September 1983 to November 1993.
In May 1996, Veeco made a loan to Dr. Timothy J. Stultz to finance the
Registrant's Registration
Statement on Form S-1 (Registration No. 33-85184) and incorporated herein by
reference; confidential treatment granted.
(3) Previously filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by
reference.
(4) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-93958) and incorporated herein
by reference.
(5) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by
reference; confidential treatment granted.
(6) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996 and incorporated herein by
reference.
(7) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by
reference.
25
(b) Reports on Form 8-K.
None.
(c) Exhibits: See Index to Exhibits.
(d) Consolidated Financial Statement Schedule.
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shownpurchase of his home in the Consolidated Financial Statements
or notes thereto.
26principal sum of $100,000, with simple interest on
unpaid principal at the rate of 5% per annum. Interest is payable annually, on
each January 5 during the term of the loan. The principal and all accrued but
unpaid interest will be due in full in one lump sum on January 5, 2001. The loan
is secured by a second mortgage on the property. Dr. Stultz prepaid $20,000 of
principal in 1997.
12
SIGNATURESSignatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VEECO INSTRUMENTS INC.
ByBy: /s/ Edward H. Braun
---------------------------------------------------------
Edward H. Braun
Chairman, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Edward H. Braun Chairman, Chief Executive, February 28, 1997
- ----------------------- Officer, President and Director
Edward H. Braun (principal executive officer)
/s/ John F. Rein, Jr. Vice President-Finance, Chief February 28 , 1997
- ----------------------- Financial Officer, Secretary
John F. Rein, Jr. and Treasurer
(principal financial officer)
/s/ John P. Kiernan Corporate Controller February 28, 1997
- ----------------------- (principal accounting officer)
John P. Kiernan
/s/ Walter J. Scherr Director February 28, 1997
- -----------------------
Walter J. Scherr
/s/ Richard A. D'Amore Director February 28, 1997
- ------------------------
Richard A. D'Amore
/s/ Paul R. Low Director February 28, 1997
- -----------------------
Paul R. Low
/s/ Joel A. Elftmann Director February 28, 1997
- -----------------------
Joel A. Elftmann
27
Form 10-K-Item 14(a)(1) and (2)
Veeco Instruments Inc. and Subsidiaries
Index to Consolidated Financial Statements
and Financial Statement Schedule
The following consolidated financial statements of Veeco Instruments Inc. and
subsidiaries are included in Item 8:
Consolidated Balance Sheets at December 31, 1996 and 1995.............F-3
Consolidated Statements of Income for the Years Ended December 31,
1996, 1995 and 1994..............................................F-4
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1996, 1995 and 1994.................F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994..............................................F-6
Notes to Consolidated Financial Statements............................F-7
The following consolidated financial statement schedule of Veeco Instruments
Inc. and subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts......................F-20
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
instructions or are inapplicable and therefore have been omitted.
F-1
Report of Independent Auditors
Shareholders and The Board of Directors
Veeco Instruments Inc.
We have audited the accompanying consolidated balance sheets of Veeco
Instruments Inc. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Veeco Instruments
Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young
Melville, New York
February 7, 1997
F-2
Veeco Instruments Inc. and Subsidiaries
Consolidated Balance Sheets
(DOLLARS IN THOUSANDS)
DECEMBER 31
1996 1995
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $21,209 $17,568
Accounts and trade notes receivable, less
allowance for doubtful accounts of $482 in 1996
and $517 in 1995 19,826 18,983
Inventories 21,263 15,795
Prepaid expenses and other current assets 858 923
Deferred income taxes 1,937 1,221
------------- ---------------
Total current assets 65,093 54,490
Property, plant and equipment at cost, net 9,761 7,381
Excess of cost over net assets acquired, less
accumulated amortization of $910 in 1996
and $779 in 1995 4,448 4,579
Other assets--net 1,025 930
------------- ---------------
Total assets $80,327 $67,380
------------- ---------------
------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,196 $ 8,729
Accrued expenses 9,964 7,523
Income taxes payable 479 777
------------- ---------------
Total current liabilities 21,639 17,029
Deferred income taxes 257 118
Other liabilities 461 482
Shareholders' equity:
Common stock (9,500,000 shares authorized, 5,836,021
and 5,787,214 shares issued and outstanding at
December 31, 1996 and 1995, respectively) 58 58
Additional paid-in capital 47,638 47,353
Retained earnings 9,609 1,571
Cumulative translation adjustment 665 769
------------- ---------------
Total shareholders' equity 57,970 49,751
------------- ---------------
Total liabilities and shareholders' equity $80,327 $67,380
------------- ---------------
------------- ---------------
SEE ACCOMPANYING NOTES.
F-3
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Income
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31
1996 1995 1994
----------- ----------- -----------
Net sales $ 96,832 $72,359 $49,434
Cost of sales 54,931 39,274 28,940
----------- ------------ ------------
Gross profit 41,901 33,085 20,494
Costs and expenses:
Research and development expense 9,804 7,101 5,096
Selling, general and administrative expense 19,536 16,822 11,171
Amortization expense 236 202 344
Other--net 143 164 (100)
----------- ------------ ------------
29,719 24,289 16,511
----------- ------------ ------------
Operating income 12,182 8,796 3,983
Interest (income) expense--net (678) (391) 2,620
----------- ------------ ------------
Income before income taxes and
extraordinary item 12,860 9,187 1,363
Income tax provision (benefit) 4,822 2,395 (795)
----------- ------------ ------------
Income before extraordinary item 8,038 6,792 2,158
----------- ------------ ------------
Extraordinary (loss) on prepayment of debt,
net of $355 tax benefit - - (679)
----------- ------------ ------------
Net income $ 8,038 $ 6,792 $ 1,479
----------- ------------ ------------
----------- ------------ ------------
Earnings per share:
Income before extraordinary item $ 1.36 $ 1.24 $ .87
Extraordinary (loss) - - (.27)
----------- ------------ ------------
Net income $ 1.36 $ 1.24 $ .60
----------- ------------ ------------
----------- ------------ ------------
Shares used in computing earnings per share 5,906 5,484 2,472
----------- ------------ ------------
----------- ------------ ------------
SEE ACCOMPANYING NOTES.
F-4
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(DOLLARS IN THOUSANDS)
Preferred Treasury
Common Stock Preferred Stocks Additional Retained Stock Cumulative
------------------ -------------------- Paid-in Earnings --------------- Translation
Shares Amount Shares Amount Capital (Deficit) Shares Amount Adjustment Total
--------- -------- --------- --------- ---------- --------- ------- ------- ----------- ------
Balance at December 31, 1993 1,846,154 $ 4,354 $ 316 $ (6,700) (85,128) $ (59) $ 408 $(1,681)
Conversion of
Preferred Stocks 1,761,026 $18 (1,846,154) (4,354) 4,277 85,128 59 -
Exercise of outstanding
warrants 337,449 3 112 115
Conversion of
Series B Subordinated
debt and accrued
interest 313,878 3 3,450 3,453
Stock issued for
prepayment penalty 36,364 1 399 400
Net proceeds from
initial public
offering 2,500,000 25 24,265 24,290
Translation adjustment 233 233
Net income 1,479 1,479
--------- -------- --------- --------- ---------- --------- ------- ------- ----------- ------
Balance at
December 31, 1994 4,948,717 50 - - 32,819 (5,221) - - 641 28,289
Exercise of stock options 38,497 - 82 82
Net proceeds from
public offering 800,000 8 14,452 14,460
Translation adjustment 128 128
Net income 6,792 6,792
--------- -------- --------- --------- ---------- --------- ------- ------- ----------- ------
Balance at
December 31, 1995 5,787,214 58 - - 47,353 1,571 - - 769 49,751
Exercise of stock
options and stock
issuances under stock
purchase plan 48,807 - 285 285
Translation adjustment (104) (104)
Net income 8,038 8,038
--------- -------- --------- --------- ---------- --------- ------- ------- ----------- ------
Balance at
December 31, 1996 5,836,021 $ 58 - $ - $ 47,638 $ 9,609 - $ - $ 665 $ 57,970
--------- -------- --------- --------- ---------- --------- ------- ------- ------- ------
--------- -------- --------- --------- ---------- --------- ------- ------- ------- ------
SEE ACCOMPANYING NOTES.
F-5
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1996 1995 1994
---------- --------- ---------
OPERATING ACTIVITIES
Net income $ 8,038 $ 6,792 $ 1,479
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,599 1,200 1,425
Deferred income taxes (577) 147 (1,250)
Loss on debt prepayment - - 1,034
Other 11 - (28)
Changes in operating assets and liabilities:
Accounts receivable (1,062) (6,072) (3,355)
Inventories (5,560) (4,948) (2,071)
Accounts payable 2,485 1,291 3,492
Accrued expenses and other current liabilities 2,460 2,984 (2)
Income taxes payable (298) 686 92
Other--net 77 (100) (8)
--------- -------- --------
Net cash provided by operating activities 7,173 1,980 808
INVESTING ACTIVITIES
Capital expenditures (3,766) (965) (364)
Patents (17) - (165)
--------- -------- --------
Net cash used in investing activities (3,783) (965) (529)
FINANCING ACTIVITIES
Net proceeds from public stock offering - 14,460 24,290
Net repayments under revolving credit agreement - - (8,786)
Long-term debt repayments - - (13,459)
Deferred financing costs (195) (85) (201)
Exercise of stock options and issuance of stock
under stock purchase plan 285 82 -
Other - (39) 9
--------- -------- --------
Net cash provided by financing activities 90 14,418 1,853
Effect of exchange rate changes on cash and cash
equivalents 161 (144) (239)
--------- -------- --------
Net increase in cash and cash equivalents 3,641 15,289 1,893
Cash and cash equivalents at beginning of year 17,568 2,279 386
--------- -------- --------
Cash and cash equivalents at end of year $ 21,209 $ 17,568 $ 2,279
--------- -------- --------
--------- -------- --------
SEE ACCOMPANYING NOTES.
F-6
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Veeco Instruments Inc. ("Veeco" or the "Company") designs, manufactures, markets
and services a broad line of precision ion beam systems, surface metrology
systems, and industrial measurement equipment used in the manufacture of
microelectronic products. The company sells its products worldwide to many of
the leading semiconductor and data storage manufacturers. In addition, the
Company sells its products to companies in the flat panel display and high
frequency device industries, as well as to other industries, research and
development centers and universities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Veeco and its
subsidiaries. Intercompany items and transactions have been eliminated in
consolidation.
REVENUE
Revenue is recognized when title passes to the customer, generally upon
shipment. Service and maintenance contract revenues are recorded as deferred
income, which is included in other accrued expenses, and recognized as income on
a straight-line basis over the service period of the related contract. The
Company provides for (1) the estimated costs of fulfilling its installation
obligations and (2) warranty costs at the time the related revenue is recorded.
CASH FLOWS
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents. Interest paid during
1996, 1995 and 1994 was approximately $70,000, $113,000 and, $2,661,000,
respectively. Taxes paid in 1996 and 1995 were approximately $5,226,000 and
$916,000, respectively. No significant tax payments were made in 1994.
F-7
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost (principally first-in, first-out
method) or market.
DEPRECIABLE ASSETS
Depreciation and amortization are generally computed by the straight-line method
and are charged against income over the estimated useful lives of depreciable
assets. Amortization of equipment recorded under capital lease obligations is
included in depreciation of property, plant and equipment.
INTANGIBLE ASSETS
Excess of cost of investment over net assets of business acquired is being
amortized on a straight-line basis over 40 years. Other intangible assets,
principally patents, software licenses and deferred finance costs, of $892,000
and $880,000 at December 31, 1996 and 1995, respectively, are net of accumulated
amortization of $577,000 and $312,000. Other intangible assets are amortized
over periods ranging from 3 to 17 years.
FOREIGN OPERATIONS
Foreign currency denominated assets and liabilities are translated into U.S.
dollars at the exchange rates existing at the balance sheet date. Resulting
translation adjustments due to fluctuations in the exchange rates are recorded
as a separate component of shareholders' equity. Income and expense items are
translated at the average exchange rates during the respective periods.
ADVERTISING EXPENSE
The cost of advertising is expensed as of the first showing. The Company
incurred $1,819,000, $1,155,000 and $638,000 in advertising costs during 1996,
1995 and 1994, respectively.
F-8
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
At December 31, 1996, the Company has three stock-based compensation plans,
which are described in Note 5 to the consolidated financial statements. The
Company has elected to continue to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its stock-based compensation plans. Under APB
25, because the exercise price of the Company's employee stock options granted
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1995 financial statements have been reclassified
to conform with the 1996 presentation.
EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of common and
common equivalent shares outstanding during the year. The Company completed an
initial public offering (the "IPO") on December 6, 1994, pursuant to which
2,500,000 shares of Common Stock, par value $.01 per share (the "Common Stock")
were issued and sold at $11 per share. As a consequence of the IPO and pursuant
to the requirements of the Securities and Exchange Commission, stock issued by
the Company during the twelve months immediately preceding the IPO, plus the
number of equivalent shares issuable pursuant to the grant of options during the
same period, have been included in the number of shares used in the calculation
of earnings per share for 1994 as if they were outstanding (using the treasury
stock method and the IPO price). In addition, the calculation of the shares used
in computing earnings per share for 1994 also includes the outstanding
convertible preferred stock which automatically converted into 1,761,026 shares
of Common Stock upon the closing of the IPO as if they were converted to Common
Stock on the respective original dates of issuance.
F-9
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. BALANCE SHEET INFORMATION
DECEMBER 31
1996 1995
-------------------------------
Inventories:
Raw materials $ 9,546,000 $ 4,349,000
Work in process 4,909,000 4,222,000
Finished goods 6,808,000 7,224,000
-------------------------------
$ 21,263,000 $ 15,795,000
-------------------------------
-------------------------------
DECEMBER 31 ESTIMATED
1996 1995 USEFUL LIVES
-------------------------------------------
Property, plant and equipment:
Land $ 1,400,000 $ 1,400,000
Buildings and improvements 4,965,000 4,776,000 30 years
Machinery and equipment 9,749,000 6,376,000 3-10 years
Leasehold improvements 150,000 147,000 3-10 years
-------------------------------
16,264,000 12,699,000
Less accumulated depreciation
and amortization 6,503,000 5,318,000
-------------------------------
$ 9,761,000 $ 7,381,000
-------------------------------
-------------------------------
DECEMBER 31
1996 1995
-------------------------------
Accrued expenses:
Deferred service contract revenue $ 401,000 $ 670,000
Customer deposits and advance billings 3,540,000 1,842,000
Payroll and related benefits 1,836,000 2,046,000
Other 4,187,000 2,965,000
-------------------------------
$ 9,964,000 $7,523,000
-------------------------------
-------------------------------
F-10
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. FINANCING ARRANGEMENTS
In July 1996, the Company entered into a new credit facility ("the Credit
Facility") with Fleet Bank, N.A. and The Chase Manhattan Bank. The Credit
Facility, which is to be used for working capital, acquisitions and general
corporate purposes provides the Company with up to $30 million of availability.
The Credit Facility bears interest at the prime rate of the lending banks, but
is adjustable to a maximum rate of 3/4% above the prime rate in the event the
Company's ratio of debt to cash flow exceeds a defined ratio. A LIBOR based
interest rate option is also provided. The Credit Facility expires July 31,
1999, but under certain conditions is convertible into a term loan, which would
amortize quarterly through July 31, 2002.
The Credit Facility is secured by substantially all of the Company's personal
property as well as the stock of its subsidiary Sloan Technology Corporation.
The Credit Facility also contains certain restrictive covenants, which among
other things, impose limitations with respect to incurrence of certain
additional indebtedness, incurrence of liens, payments of dividends, long-term
leases, investments, mergers, consolidations and specified sales of assets. The
Company is also required to satisfy certain financial tests including
maintaining specified consolidated tangible net worth and maintaining certain
interest coverage and capitalization ratios.
As of December 31, 1996 and 1995, no borrowings were outstanding under the
Company's credit facilities. Letters of credit of approximately $931,000 and
$1,900,000 were outstanding at December 31, 1996 and 1995, respectively,
reducing the Company's availability under its credit facilities.
4. SHAREHOLDERS' EQUITY
The Company completed the IPO on December 6, 1994, whereby 2,500,000 shares of
Common Stock, par value $.01 per share (the "Common Stock") were issued and sold
at $11 per share. The net proceeds were used to prepay debt in the amount of
$23,700,000 and for working capital and other general corporate purposes .
The prepayment of the Company's debt and the conversion of the Senior
Subordinated Series B Notes into Common Stock in December 1994, resulted in an
extraordinary charge of $679,000, net of $355,000 of income tax benefit. The
extraordinary charge is principally
F-11
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. SHAREHOLDERS' EQUITY (CONTINUED)
comprised of a prepayment penalty and the writeoff of unamortized deferred
finance costs.
On July 31, 1995, the Company completed a public offering (the "Public
Offering") in which 2,300,000 shares of Common Stock were sold, 800,000 of which
were sold by the Company and 1,500,000 of which were sold by certain selling
stockholders, at the public offering price of $20 per share.
As of December 31, 1996, the Company has reserved 805,959 and 233,524 shares of
common stock for issuance upon exercise of stock options and issuance of shares
pursuant to the Stock Purchase Plan, respectively.
5. STOCK COMPENSATION PLANS
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-Based Compensation" which requires
that the information be determined as if the Company has accounted for its stock
options granted subsequent to December 31, 1994 under the fair value method of
that Statement. The fair value for these options, was estimated at the date of
grant using a Black-Scholes option pricing model. The Company's pro forma
information follows:
DECEMBER 31
1996 1995
----------------------------
Pro forma net income $ 7,540,000 $ 6,444,000
Pro forma earnings per share $ 1.30 $ 1.20
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994 and employee stock options granted vest over a three year
period, its effect will not be fully reflected in pro forma net income until
1997.
F-12
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCK COMPENSATION PLANS (CONTINUED)
FIXED OPTION PLANS
The Company has two fixed option plans. The Veeco Instruments Inc. Amended and
Restated 1992 Employees' Stock Option Plan (the "Stock Option Plan") provides
for the grant to officers and key employees of up to 826,787 options (264,245
options available for future grants as of December 31, 1996) to purchase share
of Common Stock of the Company. Stock options granted pursuant to the Stock
Option Plan become exercisable over a three-year period following the grant date
and expire after ten years. The Veeco Instruments Inc. 1994 Stock Option Plan
for Outside Directors (as amended, the "Directors' Option Plan") provides for
the automatic grants of stock options to each member of the Board of Directors
of the Company who is not an employee of the Company. The Directors' Option Plan
provides for the grant of up to 50,000 options (20,003 options available for
future grants as of December 31, 1996) to purchase shares of Common Stock of the
Company. Such options granted are exercisable immediately and expire after ten
years.
The fair values of these options at the date of grant was estimated with the
following weighted-average assumptions for 1996 and 1995: risk-free interest
rate of 6.3%, no dividend yield, volatility factor of the expected market price
of the Company's common stock of 50% and a weighted-average expected life of the
option of four years.
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1994, 1995 and 1996, and changes during the years ending on those
dates is presented below:
1994 1995 1996
------------------------- ------------------------- ------------------------
OPTION OPTION WEIGHTED-
SHARES PRICE SHARES PRICE SHARES AVERAGE
(000) PER SHARE (000) PER SHARE (000) EXERCISE PRICE
------ ------------------ ------ ----------------- ---------- --------------
Outstanding at beginning of year 124 $ .69 to $ 3.00 175 $ .69 to $11.00 441 $ 11.10
Granted 56 4.50 to 11.00 314 9.50 to 22.75 175 13.68
Exercised - - (38) .69 to 4.50 (32) 2.68
Forfeited (5) .69 to 4.50 (10) .69 to 13.38 (62) 19.14
-------------------------------------------------------------------------------------
Outstanding at end of year 175 $ .69 to 11.00 441 $ .69 to 22.75 522 $ 11.50
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Options exercisable at year-end 91 $ .69 to $ 4.50 104 $ .69 to $13.38 188 $ 8.74
Weighted-average fair value of
options granted during the year $ 6.62 $ 6.24
F-13
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCK COMPENSATION PLANS (CONTINUED)
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ---------------------------
NUMBER NUMBER
RANGE OF OUTSTANDING WEIGHTED-AVERAGE WEIGHTED- OUTSTANDING WEIGHTED-
EXERCISE AT DECEMBER REMAINING AVERAGE AT DECEMBER AVERAGE
PRICE 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE 31, 1996 EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------
(000) (000)
$ .69 to $ 5.00 101 7.2 years $ 3.46 88 $ 3.32
5.01 to 10.00 24 8.0 9.50 8 9.50
10.00 to 15.00 387 8.9 13.45 82 12.99
15.00 to 21.50 10 8.5 21.32 10 21.50
----------------------------------------------------------------------------------
$ .69 to $21.50 522 8.5 $ 11.50 188 $ 8.74
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN
Under the Veeco Instruments Inc. Employees Stock Purchase Plan (the "Plan"), the
Company is authorized to issue up to 250,000 shares of Common Stock to its
full-time domestic employees, nearly all of whom are eligible to participate.
Under the terms of the Plan, employees can choose each year to have up to 6% of
their annual base earnings withheld to purchase the Company's Common Stock. The
purchase price of the stock is 85% of the lower of its beginning-of-year or
end-of-year market price. Under the Plan, the Company granted 14,278 shares and
16,476 shares to employees in 1996 and 1995, respectively. The fair value of the
employees' purchase rights were estimated using the following assumptions for
1996 and 1995, respectively: no dividend yield for both years; an expected life
of one year and six months; expected volatility of 70% and 64%; and risk-free
interest rates of 5.2% and 5.7% The weighted-average fair value of those
purchase rights granted in 1996 and 1995 was $5.20 and $4.40 respectively.
F-14
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1996 and
1995 are as follows:
DECEMBER 31
1996 1995
--------------------------
Deferred tax liabilities:
Tax over book depreciation $ 257,000 $ 118,000
--------------------------
Total deferred tax liabilities 257,000 118,000
---------------------------
Deferred tax assets:
Inventory valuation 1,620,000 1,122,000
Foreign net operating loss carryforwards 795,000 1,276,000
Research tax credit carryforward - 277,000
Other 317,000 459,000
---------------------------
Total deferred tax assets 2,732,000 3,134,000
Valuation allowance (795,000) (1,913,000)
---------------------------
Net deferred tax assets 1,937,000 1,221,000
---------------------------
Net deferred taxes $1,680,000 $ 1,103,000
---------------------------
---------------------------
For financial reporting purposes, income before income taxes and extraordinary
item includes the following components:
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------------
Domestic $13,157,000 $8,926,000 $2,064,000
Foreign (297,000) 261,000 (701,000)
----------------------------------------------
$12,860,000 $9,187,000 $1,363,000
----------------------------------------------
----------------------------------------------
F-15
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Significant components of the provision (benefit) for income taxes for income
before extraordinary item are presented below.
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
Current:
Federal $4,712,000 $3,226,000 $ 1,067,000
Foreign 129,000 379,000 217,000
State 835,000 260,000 180,000
Utilization of research tax
credits (277,000) (909,000) -
Utilization of net operating
losses - (708,000) (1,294,000)
--------------------------------------------
5,399,000 2,248,000 170,000
Deferred:
Federal (525,000) 335,000 (965,000)
Foreign - (90,000) -
State (52,000) (98,000) -
--------------------------------------------
(577,000) 147,000 (965,000)
--------------------------------------------
$4,822,000 $2,395,000 $ (795,000)
--------------------------------------------
--------------------------------------------
The reconciliation of income taxes attributable to income before extraordinary
item computed at U.S. federal statutory rates to income tax expense is:
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
Tax at U.S. statutory rates $ 4,501,000 $ 3,123,000 $ 463,000
State income taxes (net of
federal benefit) 334,000 74,000 119,000
Goodwill amortization 46,000 44,000 44,000
Nondeductible expenses 39,000 42,000 31,000
Recognition of previously
unrecognized deferred tax
assets, net - (314,000) (639,000)
Operating losses not currently
realizable 225,000 212,000 456,000
Operating losses currently
realizable - (708,000) (1,294,000)
Other (323,000) (78,000) 25,000
--------------------------------------------
$ 4,822,000 $ 2,395,000 $ (795,000)
--------------------------------------------
--------------------------------------------
F-16
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Several of the Company's foreign subsidiaries have net operating loss
carryforwards for foreign tax purposes of approximately $2.0 million at December
31, 1996, a portion of which expires in years 1997 through 2001 and a portion
for which the carryforward period is unlimited.
7. COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS
The Company has an agreement with IBM pursuant to which the Company is IBM's
exclusive worldwide sales and marketing representative for the SXM Workstation
to the semiconductor and data storage industries. Under this agreement, the
Company has agreed to purchase a minimum number of SXM Workstations by July
1997. At December 31, 1996 such purchase commitment amounted to approximately
$2.25 million. IBM has the right to discontinue production at any time upon
written notice to the Company, in which event IBM has agreed to grant to the
Company an exclusive worldwide license to manufacture the SXM Workstation for
sale to the semiconductor and data storage industries pursuant to a royalty and
license agreement to be negotiated at such time.
Minimum lease commitments as of December 31, 1996 for property and equipment
under operating lease agreements (exclusive of renewal options) are payable as
follows:
1997 $ 737,000
1998 489,000
1999 223,000
2000 98,000
2001 36,000
Thereafter 98,000
-------------
$1,681,000
-------------
-------------
Rent charged to operations amounted to $870,000, $772,000 and $825,000 in 1996,
1995 and 1994, respectively. In addition, the Company is obligated under the
leases for certain other expenses, including real estate taxes and insurance.
F-17
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS (CONTINUED)
The Company's business depends in large part upon the capital expenditures of
data storage, semiconductor and flat panel display manufacturers which accounted
for the following percentages of the Company's net sales:
DECEMBER 31
1996 1995 1994
-------------------------------
Data storage 55.5% 40.2% 38.1%
Semiconductor 27.4 36.4 33.2
Flat panel display 3.8 6.1 7.3
The Company cannot predict whether the growth experienced in the
microelectronics industry in the recent past will continue.
Sales to one customer accounted for approximately 17%, 9% and 2% and sales to
another customer accounted for approximately 16%, 23% and 27% of the Company's
net sales during the years ended December 31, 1996, 1995 and 1994, respectively.
The Company manufactures and sells its products to companies in different
geographic locations. The Company performs periodic credit evaluations of its
customers' financial condition, generally does not require collateral, and where
appropriate, requires that letters of credit be provided on foreign sales.
Receivables generally are due within 30 days. The Company's accounts receivable
are concentrated in the following geographic locations:
DECEMBER 31
1996 1995
-------------------------------
United States $10,699,000 $ 10,892,000
Europe 3,161,000 5,008,000
Far East 5,729,000 3,069,000
Other 237,000 14,000
-------------------------------
$19,826,000 $18,983,000
-------------------------------
-------------------------------
F-18
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. FOREIGN OPERATIONS AND GEOGRAPHIC AREA INFORMATION
Information as to the Company's foreign operations and geographic area
information (assets not specifically identified to Europe and the Far East are
included in the United States) is summarized below:
NET SALES
UNAFFILIATED CUSTOMERS OPERATING INCOME Total Assets
-------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
United States $92,063 $66,826 $45,713 $12,613 $8,670 $4,702 $72,589 $58,051 $32,518
Europe 11,214 11,863 7,297 (69) 651 (541) 6,953 8,790 7,563
Far East 915 913 681 (231) (394) (15) 785 539 850
Eliminations (7,360) (7,243) (4,257) (131) (131) (163) - - -
-------------------------------------------------------------------------------------------------------------
$96,832 $72,359 $49,434 $12,182 $8,796 $3,983 $80,327 $67,380 $40,931
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Export sales from the Company's United States operations are as follows:
1996 1995 1994
-----------------------------------
(IN THOUSANDS)
Far East $33,666 $22,847 $15,455
Europe 566 544 1,802
Other 749 564 556
-----------------------------------
$34,981 $23,955 $17,813
-----------------------------------
-----------------------------------
The aggregate foreign exchange gains and (losses) included in determining
consolidated results of operations were $(153,000), $100,000 and $185,000 in
1996, 1995 and 1994, respectively.
F-19
Veeco Instruments Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ------------ ---------- ---------- ---------- ----------
Deducted from asset accounts:
Year ended December 31, 1996
Allowance for doubtful accounts $ 517,000 $ 14,000 $ - $ 49,000 $ 482,000
Valuation allowance on net deferred tax assets 1,913,000 - - 1,118,000 795,000
-------------------------------------------------------------------------
$ 2,430,000 $ 14,000 $ - $ 1,167,000 $ 1,277,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deducted from asset accounts:
Year ended December 31, 1995:
Allowance for doubtful accounts $ 383,000 $ 147,000 $ - $ 13,000 $ 517,000
Valuation allowance on net deferred tax assets 2,858,000 - - 945,000 1,913,000
-------------------------------------------------------------------------
$ 3,241,000 $ 147,000 $ - $ 958,000 $ 2,430,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deducted from asset accounts:
Year ended December 31, 1994:
Allowance for doubtful accounts $ 385,000 $ 54,000 $ - $ 56,000 $ 383,000
Valuation allowance on net deferred tax assets 4,294,000 - - 1,436,000 2,858,000
-------------------------------------------------------------------------
$ 4,679,000 $ 54,000 $ - $ 1,492,000 $ 3,241,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
F-20
INDEX TO EXHIBITS
Exhibit
Number Exhibit
3.1 Form of Amended and Restated Certificate of Incorporation of the
Company. (1)
3.2 Form of Amended and Restated By-Laws of the Company. (1)
4.1 Form of Certificate for Common Stock. (1)
10.1 Lease, dated July 29, 1991 between Sloan Technology Corporation, a
California corporation and Sloan Technology Corporation, a Delaware
corporation. (1)
10.2 OEM Agreement for Acquisition of IBM Products, dated July 20, 1993 by
and between IBM and the Company. (2)
10.3 Modification to OEM Agreement for Acquisition of IBM Products, dated
July 20, 1993, by and between IBM and the Company. (2)
10.4 UPA Technology Division, Veeco Instruments Inc. and Roentgenanalytik
Messtechnik GmbH XRF Development Program Agreement, dated December 8,
1992, between Veeco-UPA Technology Division and Roentgenanalytik
Messtechnik GmbH. (2)
10.5 Distributor Agreement, dated as of December 15, 1974 between Sloan
Technology Corporation and ULVAC Corporation. (2)
10.6 Amendment to Distributor Agreement, dated March 11, 1993, by and between
Sloan Technology Corporation and ULVAC Japan, Ltd.(2)
10.7 Exclusive Sales Agreement, dated as of July 1, 1993, between Seiko
Instruments and the Company. (2)
10.8 Exclusive Sales Agreement, dated as of July 1, 1993, between the Company
and Seiko Instruments. (2)
10.9 Distributor Agreement, dated March 5, 1993, between the Company and
Seiko Instruments.(2)
10.11 Letter Agreement, dated November 22, 1993 between the Company and John
F. Rein, Jr. (1)
10.12 First Amendment and Restatement of Stock Option Agreement dated as of
October 13
1994 between the Company and John F. Rein, Jr. (1)
10.13 Agreement dated as of February 7, 1994, effective as of December 31,
1993, between the Company and Robert Oates, together with Amendment
No. 1 hereto dated as of October 13, 1994. (1)
10.15 Veeco Instruments Inc. 1994 Stock Option Plan for Outside Directors. (1)
10.19 Letter Agreement dated, January 16, 1995 between the Company and John
Kiernan. (3)
10.20 Amended and Restated Veeco Instruments Inc. Employees' Stock Option
Plan. (4)
10.21 Veeco Instruments Inc. Employees Stock Purchase Plan. (4)
10.22 OEM Agreement for acquisition of IBM products, dated October 12, 1995,
between International Business Machines Corporation and Veeco
Instruments Inc. (5)
10.24 Lease dated July 1, 1993 and Lease renewal dated February 26, 1996
between Lambda (Santa Barbara) Inc., a California Corporation and Veeco
Instruments Inc., a Delaware Corporation. (6)
Exhibit
Number Exhibit
10.25 Credit Agreement dated July 31, 1996 among the Registrant, Fleet Bank
N.A. and The Chase Manhattan Bank. (7)
10.26 Security Agreement dated July 31, 1996 among the Registrant, Fleet Bank
N.A. and The Chase Manhattan Bank. (7)
10.27 Guarantee Agreement dated July 31, 1996 among the Registrant, Fleet Bank
N.A. and The Chase Manhattan Bank. (7)
10.28 Guarantor's Security Agreement dated July 31, 1996 among Sloan
Technology Corporation, Fleet Bank N.A. and The Chase Manhattan Bank. (7)
10.29 The Pledge Agreement dated July 31, 1996 among the Registrant, Fleet
Bank N.A. and The Chase Manhattan Bank. (7)
10.30 The Patent and Trademark Security Agreement dated July 31, 1996 among
the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank. (7)
21.1 Subsidiaries of the Registrant. (1)
23.1 Consent of Ernst & Young LLP. *
27 Financial Data Schedule of Veeco Instruments Inc. for the year ended
December 31, 1996. *
*Filed herewith.
(1) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-85184) and incorporated herein by
reference.
(2) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-85184) and incorporated herein by
reference; confidential treatment granted.
(3) Previously filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by
reference.
(4) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1(Registration No. 33-93958) and incorporated herein by
reference.
(5) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by
reference; confidential treatment granted.
(6) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996 and incorporated herein by
reference.
(7) Previously filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by
reference.