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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

(Mark One)  

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20092011

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to                         .

Commission file number 0-16244



VEECO INSTRUMENTS INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation or Organization)
 11-2989601
(I.R.S. Employer Identification No.)

Terminal Drive
Plainview, New York

(Address of Principal Executive Offices)

 

11803
(Zip Code)

Registrant's telephone number, including area code(516) 677-0200

Website:www.veeco.com

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share

Securities registered pursuant to Section 12(g) of the Act:
None

         Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes oý    No o

         Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         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 ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation 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. o

         Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer oý Accelerated filer ýo Non-accelerated filer o
(Do not check if a
smaller
reporting company)
 Smaller reporting company o

         Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes    ý No

         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 June 30, 2009July 1, 2011 as reported on The Nasdaq National Market, was $393,859,434.$2,057,494,571. Shares of common stock held by each officer and director and by each person who owns 10% 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 22, 2010,21, 2012, the Registrant had 39,929,51538,767,203 outstanding 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 14, 20104, 2012 are incorporated by reference into Part III of this Annual Report on Form 10-K.



SAFE HARBOR STATEMENT

        This Annual Report on Form 10-K (the "Report") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such forward-looking statements may be found in Items 1, 3, 7 and 7A hereof, as well as within this Report generally. In addition, when used in this Report, the words "believes," "anticipates," "expects," "estimates," "plans," "intends,""intends" and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. These risks and uncertainties include, without limitation, the following:




        Consequently, such forward-looking statements should be regarded solely as the Company's current plans, estimates, and beliefs. The Company does not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.


Item 1.    Business

The Company

        Veeco Instruments Inc. (together with its consolidated subsidiaries, "Veeco," the "Company" or "we") designs, manufactures, marketscreates Process Equipment solutions that enable technologies for a cleaner and services enabling solutions for customers in the high brightnessmore productive world. We design, manufacture and market equipment primarily sold to make light emitting diodediodes ("HB LED"LEDs") and hard-disk drives, as well as for emerging applications such as concentrator photovoltaics, power semiconductors, wireless components, microelectromechanical systems (MEMS), solar, data storage, scientific research, semiconductor, and industrial markets. We haveother next-generation devices.

        Veeco focuses on developing highly differentiated, "best-in-class" Process Equipment products for critical performance steps. Our products feature leading technology, positionslow cost-of-ownership and high throughput, offering a time-to-market advantage for our customers around the globe. Core competencies in our three business segments: Light Emitting Diode ("LED") & Solar Process Equipment, Data Storage Process Equipment,advanced thin film technologies, over 150 patents and Metrology.decades of specialized process know-how helps us to stay at the forefront of these demanding industries.

        In ourVeeco's LED & Solar segment we designdesigns and manufacturemanufactures metal organic chemical vapor deposition ("MOCVD") systems that are used to make HB LEDs or solar cells made of III-V compound semiconductors. Also within this segment we selland molecular beam epitaxy ("MBE") systems which are used in various applications including alternative energy (LED and Solar),components sold to manufacturers of LEDs, wireless devices, power devicessemiconductors, and in broad scientific research. We also make thermal evaporation sourcesconcentrator photovoltaics, as well as to R&D applications. In 2011 we discontinued the sale of our products related to Copper, Indium, Gallium, Selenide ("CIGS") solar systems technology.

Veeco's Data Storage segmentdesigns and a line of web and glass deposition systemsmanufactures the critical technologies used to create copper, indium, gallium, selenide ("CIGS") thin film solar cells.

        In our Data Storage segment, we design and manufacture equipment used in the production of thin film magnetic heads ("TFMHs") that read and write data on hard disk drives. OurThese technologies include equipment for "front and back-end" process steps such as ion beam etch (IBE), ion beam deposition (IBD), diamond-like carbon (DLC), physical vapor deposition (PVD), chemical vapor deposition (CVD), and slicing, dicing and slicinglapping systems.

        In our Metrology segment, we design and manufacture atomic force microscopes ("AFMs"), scanning probe microscopes ("SPMs"), stylus profilers, and fast 3D While these technologies are primarily sold to hard drive customers, they also have applications in optical microscopes, used to provide critical surface measurements in research and production environments. This broad line of products is used in universities, research facilities and scientific centers worldwide. In production environments (such as microelectronics and solar), precision manufacturing industries,(such as medical device manufacturing, automotive and aerospace)coatings and other related industries, our metrology instruments enable customers to monitor their products throughout the manufacturing process to improve yields, reduce costs, and improve product quality.markets.

        We serveVeeco's approximately 900 employees support our worldwide customers through our globalproduct and process development, training, manufacturing, and sales and service organization located throughout North America,sites in the U.S., Korea, Taiwan, China, Singapore, Japan, Europe Japan, and Asia Pacific. We have product development and marketing, engineering and manufacturing facilities located in New York, Arizona, California, Colorado, Minnesota, Massachusetts and New Jersey.other locations.

        Veeco Instruments was organized as a Delaware corporation in 1989.

Our Growth Strategy

        OurVeeco's growth strategy for growth and improved profitability focuses on the following key activities:consists of:


Business Overview and Industry Trends

        General Introduction:    Our thin film deposition, etch measurement and other technologies are applicable to the creation of a broad range of microelectronic components, including HB LEDs, solar cells, thin film magnetic heads and compound semiconductor devices.devices such as wireless components and power electronics. Our customers who manufacture these devices continue to invest in new technology equipment in order to advance their next generation products and deliver more efficient and cost effective technology solutions.

        Starting at the end of 2008 and continuing through the beginning of 2009,Following the global economic downturn, constrained financing environment and a slowdownrecession in capital spending on equipment impacted most of our end markets and customers. The early part of 2009 was extremely challenging for us in light of these industry conditions and we accelerated our restructuring activities, particularly facility consolidation and additional outsourced manufacturing initiatives. By mid-2009 we2008-2009, Veeco experienced a rapid improvement in business conditions due toin late 2009 and 2010. The combination of an improvement in capital spending by our exposure toglobal customers as well as our focus on high-growth end markets, such asparticularly LED, & Solar, where we believe we are well placed withand successful new product introductions enabled the Company to benefit from growth and market leading technologies that drive our customers' future product development roadmaps.share gains in 2010 and 2011. Veeco's revenues increased over 200% in 2010 and 5% in 2011.

        The following is a review of our three reportabletwo business segments and the multi-year technology trends that impact each.

        LED & Solar Business Overview and Trends:    We are a leading supplier of process equipment solutions used to create HBhigh brightness LEDs and solar cells. We are the only supplier of both MOCVD and MBE systems, the two key epitaxial deposition technologies used for these applications. MOCVD and MBE technologies are used to grow compound semiconductor materials (such as GaN (gallium nitride), GaAs (gallium arsenide), GaN (gallium nitride), As/P (arsenicAlInGaP (aluminum indium gallium phosphide) and InP (indium phosphide)) at the atomic scale. Epitaxy is the critical first step in compound semiconductor wafer fabrication and is considered to be the highest value added process, ultimately determining device functionality and performance.

        Strategies Unlimited, an LED industry research organization, forecasts that the market for HB LEDs will grow from $4.2 billion in 2007 to over $14.0 billion in 2013, for a compound annual growth rate ("CAGR") of 32%. We believe that the HB LED market, while cyclical, represents a high-growthmulti-year secular growth opportunity for us due to the expanding applications for HB LEDs, such as general illumination, backlighting for large screen flat panel TVs, (LCD—liquid crystal displays),mobile phones, tablet and laptop computers and automotive applications. According to Strategies Unlimited, a leading market research firm, 2010 revenues for high brightness LEDs for all applications grew by 108% to $11.2 billion, and general illumination. Indespite a slowdown in overall TV demand in 2011, grew by another 10% in 2011 to $12.3 billion.

        The demand for MOCVD tools to grow GaN based materials (the thin films that convert energy to light) to make LEDs for these applications grew dramatically beginning in mid-2009, with merchant industry shipments of MOCVD reactors growing from approximately 230 reactors in 2009, theto approximately 800 reactors in 2010 and over 700 in 2011 (Source: Veeco and competitor financial results). Established LED industry experienced significant growthleaders in Taiwan, U.S., Europe, Korea and Japan, as well as emerging players in China spurred by government incentives and economic development funding, all invested heavily in MOCVD equipment to ramp LED capacity. However, the industry is currently experiencing an overcapacity situation, evidenced by low tool utilization rates being reported by many key global customers. As a result, new orders for Veeco's MOCVD systems declined sharply in both the third and fourth quarters of 2011. In the short term, it is difficult for us to predict when the supply/demand of LEDs will return to equilibrium and what the demand for our MOCVD products will be. According to the Semiconductor Equipment and Materials Industry's (SEMI) January 2012 Opto/LED Fab Watch report, worldwide MOCVD purchases will decline by 40% in 2012 compared to 2011.

        While consumer electronics have been the dominant end markets for LED technology over the past decade, and for which most of the new MOCVD capacity was installed, these applications are expected to reach saturation in the next few years. Conversely, the general lighting market is in its infancy and we believe that thousands of additional MOCVD tools will be required over the next few years as LEDs penetrated laptop and television backlighting applications. In fact, Strategies Unlimitedbecome widely adopted for this much larger market application. Industry research group


IMS forecasts that LEDs for these applicationssolid state lighting will grow 122%represent $13.3 billion in revenue from 20092013 through 2013.2015, and that lighting will become the largest end market for LEDs during this time frame. As a comparison, LEDs for the TV backlighting market represented $4.3 billion in revenue from 2009-2011.

        As part of the shift toward more efficient energy use across the globe, we believe LED technology will play a key role as both an energy and cost savings lever in the area of lighting. We see this opportunity as both vast and long term in nature given that LED lighting is just now beginning to penetrate the global lighting market which accounts for close to 20% of world-wide electricity consumption. LED adoption is happening initially in outdoor and industrial lighting where high usage and lower efficiency make incumbent lighting costly. Further adoption across all forms of lighting is expected to occur in the coming years with rapidly declining LED costs, shortening payback periods versus conventional lighting technologies, and "ban-the-bulb" legislation now underway in more than 20 countries around the globe. Similar to Moore's Law in semiconductors, technology advancements in the LED industry have followed a consistent cadence known as Haitz's Law, which states that luminous flux for LEDs will increase 20X each decade, while over the same period costs will fall by 10x. This implies a 25-35% increase in efficacy in each generation of new LEDs. In addition to the incandescent bulb phase-outs, many countries have begun to implement policies to accelerate adoption of LEDs. These include China's "10 cities 10,000 lights" program, South Korea's "20-60" plan targeting 60% penetration of lighting on a national level by 2020, and Japan's "Basic Energy Plan" with specific goals for energy efficient lighting.

        Future equipment and capital spending will continue to drive cost reduction in LED technology through larger wafers, automation and dedicated equipment specifically designed to improve manufacturing yield and throughput for lighting class LED product. In order to gain market share in light ofmaximize this growth opportunity we have introducedaccelerated our R&D investments over the past few years to introduce several generations of MOCVD tools, most recently our TurboDisc® K-Series™ and MaxBright® MOCVD systems. By introducing new systems, we are focused on delivering better uniformity and repeatability, which helps our customers to make HB LEDs of consistent quality. We alsoquality, ultimately with the goal to deliver more, high quality LEDs at a lower manufacturing cost. Despite the forecasted decline in the MOCVD market in 2012, we intend to continue to invest heavily in research and development in order to deliver more advanced MOCVD solutions to our customers.customers and accelerate lighting industry adoption of LEDs. In addition to new systems sales, we are increasing our focus on supporting our customers with tool upgrades to improve their performance as well as selling additional after-market services, such as training, process applications support, warranties, spare parts and consumables.

        A related MOCVD application for us is in the solar market, since the same MOCVD tool that is critical to the LED manufacturing process can also be used to manufacture high-efficiency triple junction solar cells.cells, otherwise known as Concentrator Photovoltaic (CPV). Arsenide phosphide (As/P) MOCVD is the technology of choice to build the critical compound semiconductor layers for the CPV device. Veeco has also identifiedcurrently sells a small number of MOCVD systems each year for this new application. CPV Solar is emerging as a new technology niche with proof-of-concept scale installations (1MW or less), and in 2012 and 2013 multiple pilot production utility-scale projects are being developed around the thin filmworld. According to solar cell market as offering significant growthresearch firm GTM's 2011 report, new CPV installations will grow from under 5MW in 2010 to more than 1,000MW globally by 2015.

        Another new market opportunity tofor our MOCVD tools is the Company. The global energy dilemma is resultingpower semiconductor market. Silicon-based transistors are the mainstream forms of power electronic devices today. However, GaN-based power electronics, developed on MOCVD tools, can potentially deliver higher performance (higher efficiency and switching speed) than silicon. Global industry leaders in a significant amount of newpower electronics are currently working on research and spending into solar technologies as an alternative energy solution since it is non-polluting and has the potentialdevelopment programs, many in partnership with Veeco, to supply the world with high energy efficiency at low cost. While many of today's solar panels are based upon older silicon technologies, thin film CIGS solar cells offer the potential for lower manufacturing costs, and have the highest efficiencyexplore this new technology opportunity. Examples of the thin film technologies. According to a May 2008 report presented by the National Renewable Energy Labs ("NREL"), future CIGS Panel Photovoltaic ("PV") panels are projected to be "the most competitive thin film technology" based upon module efficiency and relative cost basis. CIGS solar panels have broad-based end marketwide array potential applications for solar farms, integrated building PVGaN-based power devices rooftop gridsinclude those in information technology and portable devices.consumer devices (power supplies,


        Since PV manufacturers often build their own equipment, thereinverters), automotive (hybrid automobiles) and industrial applications (power distribution, rail transportation and wind turbines). Additionally, Veeco is a market opportunity emerging for equipment suppliersactively engaged with customers around the globe that are developing GaN-on-Silicon (GaN-on-Si) based technologies to potentially lower LED manufacturing costs by depositing thin film materials on silicon rather than sapphire substrates.

        Veeco's MBE systems, sources and components are used to manufacture critical epilayers in varied end applications such as Veeco. In its October 2009 report, Greentech Media forecasted that the total available market for CIGS deposition systems would be greater than $850 million by 2012, a 74% compounded annual growth rate from 2008. To capitalize on this opportunity, in 2008 we purchased Mill Lane Engineering, a manufacturer of web deposition technology, to make flexible CIGS solar cells, fiber-optics, mobile phones, satellites, radar systems and in 2009 we significantly expanded our product linedisplays. Our business continues to create a "bestbe influenced by long-term market trends associated with the increasing demand for gallium arsenide (GaAs) devices to support the rapid adoption of breed" linesmart phones within the larger mobile phone handset market. Each one of deposition systems that can deposit materials on flexible (stainless steel)these complex devices contains an increasing number of power amplifiers or rigid (glass) substrates. Today Veeco supplies thermal evaporation componentsother compound semiconductor radio frequency (RF) components. Advanced RF solutions for leading edge smart phones and tablet computers are required to over 50% of CIGS companies worldwidesupport increasing data transfer volumes and has begun to penetrate CIGS customers with our deposition system solutions. We are increasing our research and development spending in CIGS technology since we believe it offers a significant growth opportunity over the next several years.

        Our LED & Solar segment now represents our largest segment.long term evolution (LTE) based wireless communications.

        Data Storage Business Overview and Trends:    Worldwide storage demand continues to increase, driven by proliferation of laptop and netbook PC's, intelligent internet storage, e-mail, external storage devices, and new consumer applications (e.g. digital video recorders) now reaching higher volume. While much has been written about the competition hard disk drives ("HDDs") face from flash memory, we believe that HDDs will continue to provide the best value for mass storage and will remain at the forefront of large capacity storage applications. In fact, the use of disk drives in many types of consumer applications has resulted in growth in the number of hard drive units shipped, which is expected to continue. According to data storage research firm TrendFocus's February 2010TrendFocus' August 2011 report, consumer electronic applications of HDDs are forecasted to grow at a CAGR of 11.9%8.1% from 20102011 to 2014.2015.

        While technology change continues in data storage, the industry is goinghas gone through a period of maturation, including vertical integration and consolidation, which has led to decreasedconsolidation. A recovery in capital investment. As a result of this consolidation and evolving customer landscape, we have taken actions to right-sizespending by our key data storage businesses and product lines. We refocused our research and development efforts, discontinued several product lines, andcustomers in 2009 completed2010, combined with the consolidationsuccessful introduction of several manufacturing facilities. We continuenew deposition tools to advance areal density, enabled Veeco to report revenue growth in both 2010 and 2011. Natural disasters in Japan (tsunami) and Thailand (floods) caused major disruptions to the HDD supply chain in 2011. Despite these disruptions the floods in Thailand resulted in an unexpected increase in orders in the fourth quarter of 2011.

        Throughout these cycles, Veeco continues to invest in research and development for next generation products fordeveloping systems to support advanced technologies such as heat assisted magnetic recording (HAMR). HAMR is a technology that magnetically records data on high-stability media using laser thermal assistance to first heat the data storage industry, and believematerial. HAMR takes advantage of high-stability magnetic compounds that can store single bits in a much smaller area than in current hard drive technology. Veeco's Data Storage business is centered around core technologies where we are well-aligned to customer's technology requirements and demand for lower cost of ownership tools.

        Metrology Business Overview and Industry Trends:    Our Metrology segment sells its products tohave a broad rangeleadership position. We utilize a flexible manufacturing strategy which helps mitigate the impact of industry and research customers. This businesscycles. In addition, Veeco's product development team has often trackedbegun to the growth of the economy and Gross Domestic Product,identify non-hard drive market applications (such as instruments are used in a wide range of industrial applications. A meaningful trend in the research industry is an increased requirement for instrumentation capable of measuring materials and their associated properties at the nanoscale. The ability to design and control material structures from the atomic to the micron scale is fundamentally important to the creation of new materials and structures which have potential to reduce emissions, increase manufacturing yields and contribute to a longer and improved quality of life. Nanoscience continues to receive significant funding from the U.S. and other governments as well as from industry.

        During the last two years we have refocused our Metrology business with new products that expand functionality and performance, which we believe has lead to market share expansion. Specifically, our Dimension® Icon®, Bioscope® Catalyst® and recently released MulitMode® 8 with ScanAsystTM AFMs are facilitating enhanced research in such areas as security, energy and biotechnology. We also believe that long-term growth opportunities exist in precision manufacturing segments such as medical device manufacturing, automotive, aerospace, clean energy (HB LED and Solar),MEMS) for our key Data Storage technologies including mechanical process tools, etch and microelectronics. Our recently released large sample White-Light Interferometer, the NPFLEXTM and the NT9080TM small sample 3D microscope address the needs of these industries as they transition from traditional 2D metrology to a more comprehensive and enhanced 3D paradigm.


        Metrology is also a key enabling technology in high tech manufacturing industries such as semiconductor and data storage. We have placed more than 450 fully automated AFM systems into these industries. These completely automated systems are used in-line by manufacturers of semiconductor chips and data storage TFMHs in their fabrication facilities. We believe that we are positioned to meet AFM metrology requirements of these industries as they emerge from a contraction cycle and enter a potential growth cycle.deposition technologies.

Our Products

        We have threetwo business segments, LED & Solar Process Equipment,and Data Storage Process Equipment, and Metrology.Storage. Net sales for these business segments is shown below forare illustrated in the years indicated:following table:

 
 Year ended December 31, 
 
 2009 2008 2007 
 
 (Dollars in millions)
 

LED & Solar Process Equipment

 $205.1 $165.8 $115.9 
 

% of net sales

  54.0% 37.4% 28.8%

Data Storage Process Equipment

 $77.3 $149.1 $136.1 
 

% of net sales

  20.3% 33.7% 33.8%

Metrology

 $97.7 $127.9 $150.5 
 

% of net sales

  25.7% 28.9% 37.4%

Total net sales

 $380.1 $442.8 $402.5 
 
 Year ended December 31, 
 
 2011 2010 2009 
 
 (Dollars in millions)
 

LED & Solar

 $827.8 $795.6 $205.0 

% of net sales

  84.5% 85.5% 72.6%

Data Storage

 $151.3 $135.3 $77.3 

% of net sales

  15.5% 14.5% 27.4%

Total net sales

 $979.1 $930.9 $282.3 

        See Note 1011 to our Consolidated Financial Statements for additional information regarding our reportable segments and sales by geographic location.

LED & Solar Process Equipment

        Metal Organic Chemical Vapor Deposition Systems:Systems (MOCVD):    We are one of the world's leading suppliers of MOCVD technology. MOCVD production systems are used to make GaN-based devices (green and blue HB LEDs) and As/P-based devices (red, orange and yellow HB LEDs), which are used today in television and laptop backlighting, general illumination, large area signage, specialty illumination and specialty illumination.many other applications. Our As/P MOCVD Systems also are used to make high-efficiency concentrator solar cells.photovoltaics. In 2011 Veeco introduced the industry's first production-proven multi-chamber MOCVD system, the MaxBright® for high-volume production of LEDs.

        Molecular Beam Epitaxy Systems:Systems (MBE):    MBE is the process of precisely depositing epitaxially aligned atomically thin crystal layers, or epilayers, of elemental materials onto a substrate in an ultra-high vacuum environment. For many compound semiconductors, MBE is the critical first step of the fabrication process, ultimately determining device functionality and performance. We provide MBE systems and components for the production of wireless devices (power amplifiers, high electron mobility transistors or hetero-junction bipolar transistors (pHEMTS and HBTs)) and a broad array of MBE components and systems forcompound semiconductor materials research and production applications and, in 2007, introduced a new line of thermal evaporation sources for the solar industry.

        Web and Glass Coaters for Flexible Solar Cells:    In the second quarter of 2008 we purchased Mill Lane Engineering, a manufacturer of web deposition equipment used to make CIGS solar cells. We have since expanded our product line to include "best of breed" solutions that perform 75% of the CIGS deposition steps on both flexible and rigid (glass) substrates. We believe that our FastFlex™ and FastLine™ systems offer high throughput and excellent performance for flexible thin film solar cell production, contributing to a lower cost of ownership for our customers.applications.

Data Storage Process Equipment

        Ion Beam Deposition ("IBD") Systems:    Our NEXUS® IBD systems utilize ion beam technology to deposit precise layers of thin films and may be included on our cluster system platform to allow either parallel or sequential etch/deposition processes. IBD systems deposit high purity thin film layers and


provide maximum uniformity and repeatability. In addition to IBD systems, we provide a broad array of ion beam sources. These technologies are applicable in the hard drive industry as well as for optical coatings and other end markets.

        Ion Beam Etch ("IBE") Systems:    Our NEXUS IBE systems which etch precise, complex features for use primarily by data storage and telecommunications device manufacturers in the fabrication of discrete and integrated microelectronic devices.

        Physical Vapor Deposition ("PVD") Systems:    Our NEXUS PVD systems offer manufacturers a highly flexible deposition platform for developing next-generation data storage applications.

        Diamond-Like Carbon ("DLC") Deposition Systems:    Our DLC deposition systems deposit protective coatings on advanced TFMHs.

        Chemical Vapor Deposition ("CVD") Systems:    Our NEXUS CVD systems introduced to the market in 2008, deposit conformal films for advanced TFMH applications.

        Precision Lapping, Slicing, and Dicing Systems:    Our Optium® products generally are used in "back-end" applications in a data storage fab where TFMHs or "sliders" are fabricated. This equipment includes lapping tools, which enable precise material removal within three nanometers, which is necessary for next generation TFMHs. We also manufacture instrumentstools that slice and dice wafers into rowbars and TFMHs.

Metrology

        Our metrology product line includes atomic force/scanning probe microscopes, optical metrology tools, and stylus profilers for a wide range of applications in research and industry.

        Atomic Force/Scanning Probe Microscopes:    We have the world's most comprehensive product portfolio of research AFMs and SPMs, used in leading edge nano-scale materials research, in HB LED, solar, biological and nanotechnology applications. Our NanoScope® and Dimension products lead the industry and are synonymous with leading-edge performance and are widely used by leading universities and corporate research centers worldwide. Building upon our long-standing leadership position in AFM technology we continue to develop new products for production and research applications. We also produce a broad range of automated AFM/SPM products designed for data storage, semiconductor and research and other industrial applications.

        The atomic force microscope investigates the sample surface directly using a probe consisting of a very sharp tip, or probe, mounted on a microscopic spring arm (a cantilever). The interaction of the probe with the surface is detected by measuring deflections of the cantilever with an optical beam system. AFMs make these measurements on almost any surface; in air, vacuum or under fluids; and with minimal sample preparation.

        Stylus Profilers:    Stylus profilers are used to produce cross-sectional representations and/or quantitative measurements, which are displayed on a video monitor. Our Dektak® stylus profiler systems utilize a precision translation stage which creates relative motion between the sample and a diamond tipped stylus. Stylus profilers are widely used for height, width, pitch, and roughness measurements of features on semiconductor devices, magnetic and optical storage media (such as hard drives), flat panel displays, and hybrid circuits.

        Optical Metrology Products:    Substantially all of our optical metrology instruments are designed to make non-contact surface measurements using either interferometry or a spinning disc confocal architecture. These processes involve the use of either white light or laser sources to measure surface roughness and shape. Our White-Light Interometers create interference patterns from the optical path difference between the test surface and a reference surface. Using a combination of phase shifting interferometry and vertical scanning interferometry, these instruments are designed to rapidly and


precisely measure and characterize a range of surface sizes and shapes. Our series of confocal microscopes employ a spinning disc design which facilitates faster image acquisition, a limitation of traditional laser-based scanning confocal microscopes. Veeco's microscopes can address a wide gamut of applications from angstrom to micron features.

Service and Sales

        We sell our products and services worldwide through various strategically located sales and service facilities in the U.S., Europe and Asia Pacific, and Japan, and we believe that our customer service organization is a significant factor in our success. We provide service and support on a warranty, service contract or an individual service-call basis. We offer enhanced warranty coverage and services, including preventative maintenance plans, on-call and on-site service plans and other comprehensive service arrangements, product and application training, consultation services, and a 24-hour hotline service for certain products. We believe that offering timely support creates stronger relationships with customers and provides us with a significant competitive advantage. Revenues from the sale of parts, service and support represented approximately 16%10%, 19%,8% and 21%16% of our net sales for the years ended December 31, 2009, 2008,2011, 2010 and 2007,2009, respectively. Parts sales represented approximately 11%6%, 14%,5% and 17%9% of our net sales for those periods,years, respectively, and service and support sales were 5%4%, 5%,3% and 4%7%, respectively.

Customers

        We sell our products to many of the world's major HB LED, solar data storage and semiconductorhard drive manufacturers andas well as to customers in other industries, research centers, and universities. We rely on certain principal customers for a significant portion of our sales. Sales to Elec-Tech International Co. Ltd. and Sanan Optoelectronics each accounted for more than 10% of Veeco's total net sales in 2011, LG Electronics,Innotek Co. Ltd., Seoul OptoDevice Co. Ltd. and Sanan Optoelectronics each accounted for more than 10% of Veeco's total net sales in 2010 and LG Innotek Co. Ltd. and Seagate Technology, Inc. each accounted more than 10% of Veeco's total net sales in 2009 and sales to Seagate Technology, Inc. accounted for 10% or more of Veeco's total net sales in 2008 and 2007.2009. If any principal customer discontinues its relationship with us or suffers economic difficulties, our business, prospects, financial condition and operating results could be materially and adversely affected.

Research and Development and Marketing

        Our marketing and research and development functions are organized by business unit. We believe that this organizational structure allows each business unit manager to more closely monitor the products for which he is responsible, resulting in more efficient marketing and research and development. Our research and development activities are organized by business unit and take place at our facilities in Plainview, New York; Camarillo, California; Ft. Collins, Colorado; Somerset, New Jersey; St. Paul, Minnesota; and Korea.

        We believe that continued and timely development of new products and enhancements to existing products are necessary to maintain our competitive position. We work collaboratively with our customers to help ensure our technology and product roadmaps are aligned with customer requirements. Our research and development programs are organized by product linebusiness unit and new or improved products have been introduced into each of our product lines in each of the past three years.

        Our research and development expenses were approximately $57.4$96.6 million, $60.4$56.9 million and $61.2$37.8 million, or approximately 15.1%10%, 13.6%,6% and 15.2%13% of net sales for the years ended December 31, 2009, 2008,2011, 2010 and 2007,2009, respectively. These expenses consisted primarily of salaries, project material,materials and other product development and enhancement costs.

Suppliers

        We currently outsource and plan to increase the outsourcing of, certain functions to third parties, including the manufacture of all or substantially all of our new MOCVD systems, data storage process equipmentData Storage systems solar deposition systems,and ion sources and certain components in our metrology products.sources. We primarily rely on several suppliers for the manufacturing of these systems. We plan to maintain internal manufacturing capability for these systems at least until such time as we have qualified one or more alternate suppliers to perform this manufacturing. The failure of our present suppliers to meet their contractual obligations under our supply arrangements and our inability to make



alternative arrangements or resume the manufacture of these systems ourselves could have a material adverse effect on our revenues, profitability, cash flows, and relationships with our customers.

In addition, certain of the components and sub-assemblies included in our products are obtained from a single source or a limited group of suppliers. Our inability to develop alternative sources, if necessary, could result in a prolonged interruption in supply or a significant increase in the price of one or more components, which could adversely affect our operating results.

Product Development and Marketing

        Our principal activities, which consist of product development, integration, test operations and assembly, are organized by product and take place at our facilities in Plainview and Clifton Park, New York; Santa Barbara and Camarillo, California; Tucson, Arizona; Ft. Collins, Colorado; Somerset, New Jersey; St. Paul, Minnesota; and Lowell, Massachusetts.

Product Organization

        Our sales, marketing, manufacturing and research and development functions are organized by product families. We believe that this organizational structure allows each product family manager to more closely monitor the products for which he is responsible, resulting in more efficient sales, marketing, manufacturing, and research and development. We emphasize customer responsiveness, customer service, high-quality products, and an interactive management style. By implementing these management philosophies, we believe that we have increased our competitiveness and are well-positioned for future growth.


Backlog

        Our backlog increaseddecreased to $402.0$332.9 million atas of December 31, 20092011 from $147.2$535.4 million atas of December 31, 2008.2010. During the year ended December 31, 2009,2011, we experienced net backlog adjustments of approximately $4.5$41.4 million. The adjustments consisted of $38.1 million consisting of $3.8 million for order cancellations and $0.7$3.3 million of adjustmentsrelated to other order adjustments. During the year ended December 31, 2011, we had a net positive adjustment related to foreign currency translation.translation of $0.1 million.

        Our backlog consists of product orders for which we received a firm purchase order, a customer-confirmed shipment date within twelve months and an appropriatea deposit, where required.

Competition

        In each of the markets that we serve, we face substantial competition from established competitors, some of which have greater financial, engineering manufacturing, and marketing resources than us, as well as from smaller competitors. In addition, many of our products face competition from alternative technologies, some of which are more established than those used in our products. Significant factors for customer selection of metrology and process equipmentour tools include system performance, accuracy, repeatability, ease of use, reliability, cost of ownership and technical service and support. We believe that we are competitive based on the customer selection factors in each market we serve. None of our competitors compete with us across all of our product lines.

        We compete with process equipment manufacturers such as Aixtron, Anelva, Applied Materials, Centrotherm,Canon Anelva Corporation, DCA Instruments, Leybold Optics, Oerlikon Balzers, Oxford Instruments, Toyo Nippon Sanso Oerlikon, and Riber. We compete with metrology product manufacturers such as Agilent, Hitachi, KLA-Tencor, Seiko, Zygo and a variety of small manufacturers.

Intellectual Property

        Our success depends in part on our proprietary technology. Although we attempt to protect our intellectual property rights through patents, copyrights, trade secrets and other measures, there can be



no assurance that we will be able to protect our technology adequately or that competitors will not be able to develop similar technology independently.

        We have patents and exclusive and non-exclusive licenses to patents owned by others covering certain of our products, which we believe provide us with a competitive advantage. We have a policy of seeking patents on inventions concerning new products and improvements as part of our ongoing research, development and manufacturing activities. We believe that there is no single patent or exclusive or non-exclusive license to patents owned by others that is critical to our operations, as the success of our business depends primarily on the technical expertise, innovation, customer satisfaction and experience of our employees.

        We also rely upon trade secret protection for our 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 our trade secrets or that we can meaningfully protect our trade secrets. In addition, we cannot be certain that we will not be sued by third parties alleging that we have infringed their patents or other intellectual property rights. If any third party sues us, our business, results of operations or financial condition could be materially adversely affected.

Employees

        AtAs of December 31, 2009,2011, we had 1,005917 employees, of which there were 221195 in manufacturing and testing, 146118 in sales and marketing, 152187 in service 42 inand product support, 302288 in engineering, research and development and 142129 in information technology, general administration and finance. In addition, we also had 46 temporary employees/outside contractors, which support our variable cost strategy. The success of our future operations depends in large part on our ability to recruit and retain engineers,


technicians and other highly-skilled professionals who are in considerable demand. We feel that we have adequate programs in place to attract, motivate and retain our employees, and weemployees. We plan to monitor industry practices to make sure that our compensation and employee benefits remain competitive. However, there can be no assurance that we will be successful in recruiting or retaining key personnel. We believe that our relations with our employees are good.

Available Information

        We file annual, quarterly and current reports, information statements and other information with the Securities and Exchange Commission (the "SEC"). The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site ishttp://www.sec.gov.

Internet Address

        We maintain a website where additional information concerning our business and various upcoming events can be found. The address of our website iswww.veeco.com. We provide a link on our website, under Investors—Financial Info—Financial—SEC Filings, through which investors can access our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports. These filings are posted to our website, as soon as reasonably practicable after we electronically file such material with the SEC.



Item 1A.    Risk Factors

Risk Factors That May Impact Future Results

        In addition to the other information set forth herein, the following risk factors should be carefully considered by shareholders of and potential investors in the Company.

Our operating results have been, and may continue to be, adversely affected by unfavorable market conditions.

        Market conditions relative to the segments in which we operate have deteriorated significantly in many of the countries and regions in which we do business, and may remain depressed for the foreseeable future. Our MOCVD order volumes decreased significantly in the latter part of 2011 and are expected to remain depressed during 2012 and possibly beyond. Foreign government incentives designed to encourage the development of the LED industry have been curtailed, and the demand for our MOCVD products has softened. We have experienced and may continue to experience customer rescheduling and, to a lesser extent, cancellations of orders for our products. Actual market conditions and ordering volumes in 2012 and beyond may be worse than currently forecasted. Continuing adverse market conditions relative to our products would negatively impact our business, and could result in:


        If the markets in which we participate experience a protracted downturn and/or a slow recovery period, this could negatively impact our sales and revenue generation, margins and operating expenses, and consequently have a material adverse effect on our business, financial condition and results of operations.

Market adoption of LED technology for general lighting could be slower than anticipated.

        Our future business prospects depend largely on the adoption of LED technology for general illumination applications, including residential, commercial and street lighting markets. Potential barriers to adoption include higher initial costs and customer familiarity with, and substantial investment and know-how in, existing lighting technologies. While the use of LED technology for general lighting has grown in recent years, challenges remain and widespread adoption may not occur at currently projected rates. The adoption of, or changes in, government policies that discourage the use of traditional lighting technologies may impact LED adoption rates and, in turn, the demand for our products. Furthermore, if new technologies evolve as a viable alternative to LED devices, our current products and technology could be placed at a competitive disadvantage or become obsolete altogether. Delays in the adoption of LED technology for general lighting purposes could materially and adversely affect our business, financial condition and results of operations.

Our failure to successfully implementmanage our outsourcing activities or failure of our outsourcing partners to perform as anticipated could adversely affect our results of operations and our ability to realize the benefits of the recent increase in MOCVDadapt to fluctuating order volume.volumes.

        To better align our costs with market conditions, increase the percentage of variable costs relative to total costs and to increase productivity and operational efficiency, we have outsourced certain functions to third parties, including the manufacture of all or substantially all of our new MOCVD systems, data storage process equipmentData Storage systems solar deposition systems,and ion sources and certain components of our Metrology products. In addition, to supplement our current staffing and our planned hiring to meet the recent increase in MOCVD orders, we are planning to use technical staffing firms and contractors to assist with certain aspects of MOCVD system installation and testing at customer sites.sources. We are relying heavily on our outsourcing partners to successfully executeperform their contracted functions and to allow us the ramp in MOCVD system production,flexibility to filladapt to changing market conditions, including periods of significantly diminished order volumes. If our outsourcing partners do not perform as required, or if our outsourcing model does not allow us to realize the substantial increase in recent MOCVD orders.intended cost savings and flexibility, our results of operations (and those of our third party providers) may be adversely affected. Disputes and possibly litigation involving third party providers could result and we could suffer damage to our reputation. Dependence on contract manufacturing and outsourcing may also adversely affect our ability to satisfy the recent strong demand for our MOCVD equipment and to bring other new products to market. If our outsourcing partners do not perform successfully, our results of operations may be adversely affected and we could suffer damage to our reputation. Although we attempt to select reputable providers, it is possible that one or more of these providers could fail to perform as we expect. In addition, the expanded role of third party providers has required and will continue to require us to implement changes to our existing operations and adopt new procedures and processes for retaining and managing these providers in order to realize operational efficiencies, assure quality, and protect our intellectual property. If we do not timely and effectively develop and implementmanage our outsourcing strategy or if third party providers do not perform as anticipated, we may not realize the benefits of the recent increase in MOCVD order volume or gross margin or productivity improvements and we may experience operational difficulties, increased costs, manufacturing and/or installation interruptions or delays, inefficiencies in the structure and/or operation of our supply chain, loss of intellectual property rights, quality issues, increased product time-to-market and/or inefficient allocation of human resources, any or all of which could materially and adversely affect our business, financial condition and results of operations.


Manufacturing interruptionsThe further reduction or delays couldelimination of foreign government subsidies and economic incentives may adversely affect the future order rate for our abilityMOCVD equipment.

        Approximately 66% and 29% of our revenues were generated in China for the years ended December 31, 2011 and December 31, 2010, respectively. In recent years, the Chinese government has provided various incentives to meet customer demand, whileencourage development of the failureLED industry, including subsidizing a significant portion of the purchase cost of MOCVD equipment. These subsidies have enabled and encouraged certain customers in this region to estimate customer demand accurately couldpurchase more of our MOCVD equipment than these customers might have purchased without these subsidies. These subsidies have now been curtailed and are expected to further decline over time and may end at some point in the future. The further reduction or elimination of these incentives may result in excess or obsolete inventory and\or liabilities to our suppliers for products no longer needed.

        Our business depends on our ability to supply equipment, services and related products that meet the rapidly changing technical and volume requirements of our customers, which dependsa further reduction in part on the timely delivery of parts, components and subassemblies (collectively, parts) from suppliers. Some key parts may be subject to long lead-times and/or obtainable only from a single supplier or limited group of suppliers, and some sourcing or subassembly is provided by suppliers located in countries other than the United States. We may experience significant interruptions of our manufacturing operations, delays in our ability to deliver products or services, increased costs or customer order cancellations as a result of:


        In addition, our need to rapidly increase our business and manufacturing capacity to meet unanticipated increases in demand may be limited by working capital constraints of our suppliers and may exacerbate any interruptions in our manufacturing operations and supply chain and the associated effect on our working capital. Moreover, if actual demandfuture orders for our products is different than expected, we may purchase more/fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. The volatility of demand for capitalMOCVD equipment increases capital, technical and other risks for companies in the supply chain. Any or all of these factorsthis region which could materially and adversely affect our business, financial condition and results of operations.

We rely on a limited number        A related risk is that many customers use or had planned to use Chinese government subsidies, in addition to other incentives from the Chinese government, to build new manufacturing facilities or to expand existing manufacturing facilities. Delays in the start-up of suppliers.

        We currently outsource, and planthese facilities or the cancellation of construction plans altogether, together with other related issues pertaining to increasecustomer readiness, could adversely impact the outsourcing of, certain functions to third parties, including the manufacture of all or substantially alltiming of our new MOCVD systems, data storage process equipment systems, solar deposition systems, ion sources and certain components in our metrology products. We primarily rely on several suppliers for the manufacturing of these systems. We plan to maintain internal manufacturing capability for these systems at least until such time as we have qualified one or more alternate suppliers to perform this manufacturing. The failure of our present suppliers to meet their contractual obligations under our supply arrangements and our inability to make alternative arrangements or resume the manufacture of these systems ourselves could have a material adverse effect on our revenues, profitability, cash flows, and relationships with our customers.

        In addition, certain of the components and sub-assemblies included in our products are obtained from a single source or a limited group of suppliers. Our inability to develop alternative sources, if necessary,revenue recognition, could result in further order cancellations, and could have other negative effects on our financial condition and operating results.

Our operating results have been, and may continue to be, adversely affected by tightening credit markets.

        As a prolonged interruptionglobal company with worldwide operations, we are subject to volatility and adverse consequences associated with worldwide economic downturns. As seen in supply or a significant increaserecent years, in the priceevent of onea worldwide downturn, many of our customers may delay or more components,further reduce their purchases of our products and services. If negative conditions in the global credit markets prevent our customers' access to credit, product orders in these channels may decrease which could result in lower revenue. Likewise, if our suppliers face challenges in obtaining credit, in selling their products or otherwise in operating their businesses, they may become unable to continue to offer the materials we use to manufacture our products. With the recent downturn in our MOCVD segment, we have experienced, and may continue to experience, lower than anticipated order levels, cancellations of orders in backlog, rescheduling of customer deliveries, and attendant pricing pressures, all of which could adversely affect our operatingresults of operations.

        Furthermore, tightening macroeconomic measures and monetary policies adopted by China's government aimed at preventing overheating of China's economy and controlling China's high level of inflation have limited, and may continue to limit, the availability of financing to our customers in this region. Limited financing, or delays in the timing of such financing, may result in delays and cancellations of shipments of our products (and associated revenues) conditioned on such financing.

        In addition, we finance a portion of our sales through trade credit. In addition to ongoing credit evaluations of our customers' financial condition, we seek to mitigate our credit risk by obtaining deposits and/or letters of credit on certain of our sales arrangements. We could suffer significant losses if a customer whose accounts receivable we have not secured fails or is otherwise unable to pay us. A significant loss in collections on our accounts receivable would have a negative impact on our financial results.


Our backlog is subject to customer cancellation or modification and such cancellation could result in decreased sales and increased provisions for excess and obsolete inventory and/or liabilities to our suppliers for products no longer needed.

        Customer purchase orders are subject to cancellation or rescheduling by the customer, generallysometimes with limited or no penalties. Often, we have incurred expenses prior to such cancellation without adequate monetary compensation. During the year ended December 31, 2009,2011, we experienced net backlog adjustments of approximately $4.5$41.4 million. The adjustment consisted of $38.1 million consisting of $3.8 million for order cancellations and $0.7$3.3 million related to other order adjustments, partially offset by $0.1 million of adjustments related to foreign currency translation. With ourThe current high backlog, aand forecasted downturn in one or more of our served marketsMOCVD segment could result in a significant increasefurther increases in order cancellations and/or reschedulings.postponements.

        We record a provision for excess and obsolete inventory based on historical and future usage trends and other factors including the consideration of the amount of backlog we have on hand at any particular point in time. If our backlog is canceled or modified, our estimates of future product demand may prove to be inaccurate, in which case we may have understated the provision required for excess and obsolete inventory. In the future, if we determine that our inventory is overvalued, we will be required to recognize such costs in our financial statements at the time of such determination. In addition, we place orders with our suppliers based on our customers' orders to us. If our customers cancel their orders with us, we may not be able to cancel our orders with our suppliers and may be



required to take a charge for these cancelled commitments to our suppliers. Any such charges could be material to our results of operations and financial condition.

The failure to estimate customer demand accurately could result in excess or obsolete inventory and\or liabilities to our suppliers for products no longer needed, while manufacturing interruptions or delays could affect our ability to meet customer demand.

        Our business depends on our ability to accurately forecast and supply equipment, services and related products that meet the rapidly changing technical and volume requirements of our customers, which depends in part on the timely delivery of parts, components and subassemblies (collectively, parts) from suppliers. The current uncertain worldwide economic conditions and market instabilities make it increasingly difficult for us (and our customers and our suppliers) to accurately forecast future product demand. If actual demand for our products is different than expected, we may purchase more/fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. If we overestimate the demand for our products, excess inventory could result which could be subject to heavy price discounting, which could become obsolete, and which could subject us to liabilities to our suppliers for products no longer needed. In addition, the volatility of demand for capital equipment increases capital, technical and other risks for companies in the supply chain.

        Furthermore, some key parts may be subject to long lead-times and/or obtainable only from a single supplier or limited group of suppliers, and some sourcing or subassembly is provided by suppliers located in countries other than the United States. We may experience significant interruptions of our manufacturing operations, delays in our ability to deliver products or services, increased costs or customer order cancellations as a result of:


        In addition, in the event of an unanticipated increase in demand for our products, our need to rapidly increase our business and manufacturing capacity may be limited by working capital constraints of our suppliers and may exacerbate any interruptions in our manufacturing operations and supply chain and the associated effect on our working capital. Any or all of these factors could materially and adversely affect our business, financial condition and results of operations.

The cyclicality of the industries we serve directly affects our business.

        Our business depends in large part upon the capital expenditures of manufacturers in the HB LED and data storage markets. We are subject to the business cycles of these industries, the timing, length, and volatility of which are difficult to predict. These industries have historically been highly cyclical and have experienced significant economic downturns in the last decade. As a capital equipment provider, our revenues depend in large part on the spending patterns of these customers, who often delay expenditures or cancel or reschedule orders in reaction to variations in their businesses or general economic conditions. In downturns, we must be able to quickly and effectively align our costs with prevailing market conditions, as well as motivate and retain key employees. However, because a proportion of our costs are fixed, our ability to reduce expenses quickly in response to revenue shortfalls may be limited. Downturns in one or more of these industries, including the current MOCVD downturn, have had and will likely have a material adverse effect on our business, financial condition and operating results. Alternatively, during periods of rapid growth, we must be able to acquire and/or develop sufficient manufacturing capacity to meet customer demand, and attract, hire, assimilate and retain a sufficient number of qualified people. We cannot give assurances that our net sales and operating results will not be adversely affected if our customers experience economic downturns or slowdowns in their businesses.

We rely on a limited number of suppliers, some of whom are our sole source for particular components.

        We currently outsource certain functions to third parties, including the manufacture of all or substantially all of our new MOCVD systems, Data Storage systems and ion sources. We primarily rely on several suppliers for the manufacturing of these systems. We plan to maintain some level of internal manufacturing capability for these systems. The failure of our present suppliers to meet their contractual obligations under our supply arrangements and our inability to make alternative arrangements or resume the manufacture of these systems ourselves could have a material adverse effect on our revenues, profitability, cash flows, and relationships with our customers.

        In addition, certain of the components and sub-assemblies included in our products are obtained from a single source or a limited group of suppliers. Our inability to develop alternative sources, if necessary, could result in a prolonged interruption in supply or a significant increase in the price of one or more components, which could adversely affect our operating results.

Our sales to HB LED and data storage manufacturers are highly dependent on these manufacturers' sales for consumer electronics applications, which can experience significant volatility due to seasonal and other factors, which could materially adversely impact our future results of operations.

        The demand for HB LEDs and hard disk drives is highly dependent on sales of consumer electronics, such as flat-panel televisions and computer monitors, computers, tablets, digital video recorders, camcorders, MP3\4 players, smartphones, cell phones and cell phones. Our sales to HB LED manufacturers are also highly dependent on end market adoption of LED technology into general illumination applications. Manufacturesother mobile devices. Manufacturers of HB LEDs and hard disk drives are among our largest customers and have accounted


for a substantial portion of our revenues for the past several years. Factors that could influence the levels of spending on consumer electronic products include consumer confidence, access to credit, volatility in fuel and other energy costs, conditions in the residential real estate and mortgage markets, labor and healthcare costs and other macroeconomic factors affecting consumer spending behavior. These and other economic factors have had and could continue to have a material adverse effect on the demand for our customers' products and, in turn, on our customers' demand for our products and services and on our financial condition and results of operations. Furthermore, if manufacturers of HB LEDs have in the past overestimated their potential market share growth. If this growth is currently overestimated or is overestimated in the future, we may experience further cancellations of orders in backlog, postponementrescheduling of customer deliveries, obsolete inventory and/or liabilities to our suppliers for products no longer needed.

        In addition, the demand for some of our customers' products can be even more volatile and unpredictable due to the possibility of competing technologies, such as flash memory as an alternative to hard disk drives. Should flash memory become cost competitive it may result in a rapid shift in demand from the hard disk drives made by our customers to alternative storage technologies. Unpredictable fluctuations in demand for our customers' products or rapid shifts in demand from our customers' products to alternative technologies could materially adversely impact our future results of operations.

Negative worldwide economic conditions could result in a decrease in our net sales and an increase in our operating costs, which could adversely affect our business and operating results.

        Revenue in our Data Storage and Metrology segments decreased 48% and 24%, respectively, from 2008 to 2009, and revenue in our LED & Solar Process Equipment segment decreased 30% from the first half of the 2008 compared to the first half of 2009, due in part to the recent worldwide economic downturn. If the downturn continues or worsens, many of our customers may delay or further reduce their purchases of our products and services. If negative conditions in the global credit markets prevent our customers' access to credit, product orders in these channels may decrease which could result in lower revenue. Likewise, if our suppliers face challenges in obtaining credit, in selling their products or otherwise in operating their businesses, they may become unable to continue to offer the materials we use to manufacture our products. Our results of operations would be further adversely affected if we were to experience lower than anticipated order levels, cancellations of orders in backlog, postponement of customer deliveries, or pricing pressure as a result of this prolonged slowdown.

        In addition, current negative worldwide economic conditions and market instability make it increasingly difficult for us, our customers and our suppliers to accurately forecast future product demand, which could result in obsolete inventory and/or liabilities to our suppliers for products no longer needed.

        Furthermore, we finance a portion of our sales through trade credit. In addition to ongoing credit evaluations of our customers' financial condition, we seek to mitigate our credit risk by obtaining



deposits and/or letters of credit on certain of our sales arrangements. We could suffer significant losses if a customer whose accounts receivable we have not secured fails or is otherwise unable to pay us. A significant loss in collections on our accounts receivable would have a negative impact on our financial results.

We are exposed to the risks of operating a global business, including the need to obtain export licenses for certain of our shipments.shipments and political risks in the countries we operate.

        Approximately 77%90% of our 20092011 net sales, 90% of our 2010 net sales and 63%79% of our 20082009 net sales were generated from sales outside of the United States. We expect sales from non-U.S. markets to continue to represent a significant, and possibly increasing, portion of our sales in the future. Our non-U.S. sales and operations are subject to risks inherent in conducting business abroad, many of which are outside our control, including:

        ManyThese challenges, many of these challengeswhich are present inassociated with sales into China, a large potential market for our products and an area that we anticipate will present a significant opportunity for growth. These conditions in China and other foreign economies may continue and recur again in the future, which could have a material adverse effect on our business. In addition, political instability, terrorism, acts of war or epidemics in regions where we operate may adversely affect or disrupt our business and results of operations.


        Furthermore, products which are either manufactured in the United States or based on U.S. technology are subject to the United States Export Administration Regulations ("EAR") when exported to and re-exported from international jurisdictions, in addition to the local jurisdiction's export regulations applicable to individual shipments. Currently, our MOCVD deposition systems and certain of our other products are controlled for export under the EAR. Licenses or proper license exceptions may be required for the shipment of our products to certain countries. For example, shipment of our MOCVD systems to China and certain other countries generally requires a U.S. export license. Obtaining an export license requires cooperation from the customer and customer-facility readiness, and can add time to the order fulfillment process. While we have generally been very successful in obtaining export licenses in a timely manner, there can be no assurance that this will continue or that an export license can be obtained in each instance where it is required. If an export license is required but cannot be obtained, then we will not be permitted to export the product to the customer. The administrative processing, potential delay and risk of ultimately not obtaining an export license pose a particular disadvantage to us relative to our non-U.S. competitors who are not required to comply with U.S. export controls. Non-compliance with the EAR or other applicable export regulations could result in a wide range of penalties including the denial of export privileges, fines, criminal penalties, and the seizure of commodities. In the event that any export regulatory body determines that any of our shipments violate applicable export regulations, we could be fined significant sums and/or our export capabilities could be restricted, which could have a material adverse impact on our business.



We are exposed to risks associated with our entrance into the emerging solar industry.

        An increasing strategic focus for Veeco is to supply equipment to the solar industry. In addition to the other risk factors described herein, the solar industry is characterized by other specific risks, including:

        If we do not successfully manage the risks resulting from these and other changes occurring in the solar industry, its business, financial condition and results of operations could be materially and adversely affected.

        In addition, solar is a relatively new market for us and poses the following additional challenges:

        If we do not successfully manage the risks resulting from its entry into the solar market, our business, financial condition and results of operations could be materially and adversely affected.

The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly.

        We derive a substantial portion of our net sales in any fiscal period from the sale of a relatively small number of high-priced systems. As a result, the timing of recognition of revenue for a single transaction could have a material effect on our sales and operating results for a particular fiscal period. As is typical in our industry, orders, shipments, and customer acceptances often occur during the last few weeks of a quarter. As a result, delay of only a week or two can often shift the related booking or net salessale into the next quarter, which could adversely affect our reported results for the prior quarter. Our quarterly results have fluctuated significantly in the past, and we expect this trend to continue. If our orders, shipments, net sales or operating results in a particular quarter do not meet expectations, our stock price may be adversely affected.

We operate in industries characterized by rapid technological change.

        The HB LED, solar, data storage, semiconductor, and scientific research and industrial industriesAll of our businesses are subject to rapid technological change. Our ability to remain competitive depends on our ability to enhance existing products and develop and manufacture new products in a timely and cost effective



manner and to accurately predict technology transitions. Because new product development commitments must be made well in advance of sales, we must anticipate the future demand for products in selecting which development programs to fund and pursue. Our financial results for 20102012 and in the future will depend to a great extent on the successful introduction of several new products, many of which require achieving increasingly stringent technical specifications. We cannot be certain that we will be successful in selecting, developing, manufacturing and marketing new products or new technologies or in enhancing existing products.

We face significant competition.

        We face significant competition throughout the world in each of our reportable segments, which may increase as certain markets in which we operate continue to expand. ManySome of our competitors have greater financial, engineering, manufacturing, and marketing resources than us. In addition, we face competition from smaller emerging equipment companies whose strategy is to provide a portion of the products and services we offer, usingwith a focused approach on innovative technology to sell products intofor specialized markets. New product introductions or enhancements by our competitors could cause a decline in sales or loss of market acceptance of our existing products. Increased competitive pressure could also lead to intensified price competition resulting in lower margins. Our failure to compete successfully with these other companies would seriously harm our business.


We depend on a limited number of customers, located primarily in a limited number of regions, that operate in highly concentrated industries.

        Our customer base is and has been highly concentrated. Orders from a relatively limited number of customers have accounted for, and likely will continue to account for, a substantial portion of our net sales, which may lead customers to demand pricing and other terms less favorable to us. Based on net sales, our five largest customers accounted for 39%41%, 33%,55% and 34%52% of our total net sales in 2011, 2010 and 2009, 2008, and 2007, respectively. Recent customer consolidation activity involving some of our largest customers, particularly in our Data Storage segment, may result in an even greater concentration of our sales in the future.

        If a principal customer discontinues its relationship with us or suffers economic setbacks, our business, financial condition, and operating results could be materially and adversely affected. Our ability to increase sales in the future will depend in part upon our ability to obtain orders from new customers. We cannot be certain that we will be able to do so. In addition, because a relatively small number of large manufacturers, many of whom are our customers, dominate the industries in which they operate, it may be especially difficult for us to replace these customers if we lose their business. A substantial portion of orders in our backlog are orders from our principal customers.

        In addition, 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, we believe 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, if a customer selects a competitor's product over ours for technical superiority or other reasons, we could experience difficulty selling to that customer for a significant period of time.

        Furthermore, we do not have long-term contracts with our customers. As a result, our agreements with our customers do not provide any assurance of future sales and we are exposed to competitive price pressure on each new order we attempt to obtain. Our failure to obtain new sales orders from new or existing customers would have a negative impact on our results of operations.


The cyclicality of the industries we serve directly affects our business.

        Our business dependscustomer base is also highly concentrated in large partterms of geography, and the majority of our sales are to customers located in a limited number of countries. In 2011, 75% of our total net sales were to customers located in China, Taiwan and Korea alone. Dependence upon the capital expendituressales emanating from a limited number of manufacturers in the HB LED, solar, data storage,regions increases our risk of exposure to local difficulties and semiconductor markets,challenges, such as well as customers in the scientific research and industrial market. We are subject to the business cycles of these industries, the timing, length, and volatility of which are difficult to predict. These industries have historically been highly cyclical, have experienced significantthose associated with regional economic downturns, inpolitical instability, fluctuating currency exchange rates, natural disasters, social unrest, pandemics, terrorism or acts of war. In addition, we may encounter challenges associated with political and social attitudes, laws, rules, regulations and policies within these countries that favor domestic companies over non-domestic companies, including customer- or government-supported efforts to promote the last decadedevelopment and have suffered significant adverse consequences in the current economic downturn. As a capital equipment provider, our revenues depend in large part on the spending patternsgrowth of these customers, who often delay expenditures or cancel or reschedule orders in reaction to variations in their businesses or general economic conditions. In downturns, we must be able to quickly and effectively align our costs with prevailing market conditions, as well as motivate and retain key employees. However, because a proportion of our costs are fixed, our ability to reduce expenses quickly in response to revenue shortfalls may be limited. A downturn in one or more of these industries could have a material adverse effect on our business, financial condition, and operating results. During periods of rapid growth, we must be able to acquire and/or develop sufficient manufacturing capacity to meetlocal competitors. Our reliance upon customer demand and attract, hire, assimilate, and retainarising primarily from a sufficientlimited number of qualified people. We cannot give assurances thatcountries could materially adversely impact our net sales and operatingfuture results will not be adversely affected if our customers experience economic downturns or slowdowns in their businesses.of operations.

Our sales cycle is long and unpredictable.

        Historically, we have experienced long and unpredictable sales cycles (the period between our initial contact with a potential customer and the time when we recognize revenue from that customer). Our sales cycle can range up to twelve months.months or longer. The timing of an order often depends on the capital expenditure budget cycle of our customers, which is completely out of our control. In addition, the time it takes us to build a product to customer specifications (the "build cycle") typically ranges from one to six months, followed in certain cases by a period of customer acceptance during which the customer evaluates the performance of the system and may potentially reject the system. With the uncertainty and limited visibility related to the recent economic downturn, many customers are reluctant to place orders for delivery in the future. Moreover, asAs a result of the build cycle and evaluation periods, the period between a customer's initial purchase decision and


revenue recognition on an order often varies widely, and variations in length of this period can cause further fluctuations in our operating results. As a result of our lengthy sales cycle, we may incur significant research and development expenses and selling and general and administrative expenses before we generate the related revenues for these products. We may never generate the anticipated revenues if a customer cancels or changes plans. Variations in the length of our sales cycle could also cause our net sales and, therefore, our cash flow and net income to fluctuate widely from period to period.

Our inability to attract, retain, and motivate key employees could have a material adverse effect on our business.

        Our success depends upon our ability to attract, retain, and motivate key employees, including those in executive, managerial, engineering and marketing positions, as well as highly skilled and qualified technical personnel and personnel to implement and monitor our financial and managerial controls and reporting systems. Attracting, retaining, and motivating such qualified personnel may be difficult due to challenging industry conditions, competition for such personnel by other technology companies, consolidations and relocations of operations and workforce reductions. OurWhile we have entered into Employment Agreements with certain key personnel, our inability to attract, retain, and motivate key personnel could have a material adverse effect on our business, financial condition or operating results.



The price of our common shares may be volatile and could decline significantly.

        The stock market in general and the market for technology stocks in particular, has experienced volatility that has often been unrelated to the operating performance of companies. If these market or industry-based fluctuations continue, the trading price of our common shares could decline significantly independent of our actual operating performance, and shareholders could lose all or a substantial part of their investment. As an example of our volatility, during 2009 our stock traded from a low of $3.22 to a high of $34.84 per share. The market price of our common shares could fluctuate significantly in response to several factors, including among others:

        Significant price and value fluctuations have occurred with respect to the publicly traded securities of the Company and technology companies generally. The price of our common shares is likely to be volatile in the future. In the past, securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities. If similar litigation were pursued against us, it could result in substantial costs and a diversion of management's attention and resources, which could materially and adversely affect our results of operations, financial condition and liquidity.


We are subject to foreign currency exchange risks.

        We are exposed to foreign currency exchange rate risks that are inherent in our anticipated sales, sales commitments and assets and liabilities that are denominated in currencies other than the United States dollar. Although we attempt to mitigate our exposure to fluctuations in currency exchange rates, these hedging activities may not always be available or adequate to eliminate, or even mitigate, the impact of our exchange rate exposure. Failure to sufficiently hedge or otherwise manage foreign currency risks properly could materially and adversely affect our revenues and gross margins.

The enforcement and protection of our intellectual property rights may be expensive and could divert our valuablelimited resources.

        Our success depends in part upon the protection of our intellectual property rights. We rely primarily on patent, copyright, trademark and trade secret laws, as well as nondisclosure and confidentiality agreements and other methods, to protect our proprietary information, technologies and processes. We own various United States and international patents and have additional pending patent applications relating to certain of our products and technologies. The process of seeking patent protection is lengthy and expensive, and we cannot be certain that pending or future applications will actually result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage. In addition, our intellectual property rights may be circumvented, invalidated or rendered obsolete by the rapid pace of technological change. Policing unauthorized use of our products and technologies is difficult and time consuming. Furthermore, the



laws of other countries may less effectively protect our proprietary rights than U.S. laws. Our outsourcing strategy requires that we share certain portions of our technology with our outsourcing partners, which poses additional risks of infringement and trade secret misappropriation. Infringement of our rights by a third party, possibly for purposes of developing and selling competing products, could result in uncompensated lost market and revenue opportunities. Similar exposure could result in the event that former employees seek to compete with us, through their unauthorized use of our intellectual property and proprietary information. We cannot be certain that the steps we have taken will prevent the misappropriation or unauthorized use of our proprietary information and technologies, particularly in foreign countries where the laws may not protect our proprietary intellectual property rights as fully or as readily as United States laws. Further, we cannot be certain that the laws and policies of any country, including the United States, with respect to intellectual property enforcement or licensing will not be changed in a way detrimental to the sale or use of our products or technology.

        We may need to litigate to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights of others. As a result of any such litigation, we could lose our ability to enforce one or more patents or incur substantial unexpected operating costs. Any action we take to enforce our intellectual property rights could be costly and could absorb significant management time and attention, which, in turn, could negatively impact our operating results. In addition, failure to protect our trademark rights could impair our brand identity.

We may be subject to claims of intellectual property infringement by others.

        From time to time we have received communications from other parties asserting the existence of patent or other rights which they believe cover certain of our products. We also periodically receive notice from customers who believe that we are required to indemnify them for damages they may incur related to infringement claims made against these customers by third parties. Our customary practice is to evaluate such assertions and to consider the available alternatives, including whether to seek a license, if appropriate. However, we cannot ensure that licenses can be obtained or, if obtained, will be on acceptable terms or that costly litigation or other administrative proceedings will not occur. If we are not able to resolve a claim, negotiate a settlement of the matter, obtain necessary licenses on


commercially reasonable terms, and/or successfully prosecute or defend our position, our business, financial condition, and results of operations could be materially and adversely affected.

Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses.

        We have considered numerous acquisition opportunities and completed several significant acquisitions in the past. We may consider acquisitions of, or investments in, other businesses in the future. Acquisitions involve numerous risks, many of which are unpredictable and beyond our control, including:

unknown, underestimated and/or undisclosed commitments or liabilities;

        Our inability to effectively manage these risks could materially and adversely affect our business, financial condition, and operating results.

        In addition, if we issue equity securities to pay for an acquisition, the ownership percentage of our then-existing shareholders would be reduced and the value of the shares held by these shareholders could be diluted, which could adversely affect the price of our stock and convertible subordinated notes.stock. If we use cash to pay for an acquisition, the payment could significantly reduce the cash that would be available to fund our operations or other purposes, including making payments on the convertible subordinated notes. There can be no assurance that financing for future acquisitions will be available on favorable terms or at all.purposes.

We may be required to take additional impairment charges for goodwill and indefinite-lived intangible assets or definite-lived intangible and long-lived assets.

        We are required to assess goodwill and indefinite-lived intangible assets annually for impairment, or on an interim basis whenever certain events occur or circumstances change, such as an adverse change in business climate or a decline in the overall industry, that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We are also required to test our definite-lived intangible and long-lived assets, including acquired intangible assets and property, plant and equipment, for recoverability and impairment whenever there are indicators of impairment, such as an adverse change in business climate.

        In 2008 During 2011 we discontinued our CIGS solar systems business. As a result we recorded ana $2.1 million asset impairment charge, of $73.0 million consisting of $52.3 million relatedrelating to goodwill, $5.0 million of indefinite-lived intangible assets $14.6and a $10.8 million goodwill impairment charge related to definite-lived intangiblethe write-off of these assets and $1.1 million in property, plant and equipment.(see Note 3 of our Consolidated Financial Statements).

        At December 31, 2009,2011, we had $59.4$55.8 million of goodwill and $89.5$114.3 million of intangible and long-lived assets.assets, including $86.1 million of property, plant and equipment and $2.3 million of assets


held for sale. As part of our long-term strategy, we may pursue future acquisitions of other companies or assets which could potentially increase our goodwill and intangible and long-lived assets. Adverse changes in business conditions could materially impact our estimates of future operations and result in additional impairment charges to these assets. If our goodwill or intangible and long-lived assets were to become further impaired, our results of operations could be materially and adversely affected.

Changes in accounting pronouncements or taxation rules or practices may adversely affect our financial results.

        Changes in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results. For example, under new guidance for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), we recorded additional non-cash interest expense in each reporting period during which our subordinated convertible notes were outstanding. The adoption of this new guidance did have a material effect on our consolidated financial position, results of operations, and earnings per share. This additional interest expense will not require the use of cash. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Application of Critical Accounting Policies" below. Other newNew accounting pronouncements or taxation rules and varying interpretations of accounting pronouncements or taxation practices have occurred and may occur in the future. New rules, changes to existing rules, if any, or the questioning of current practices may adversely affect our reported financial results or change the way we conduct our business.



We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act.

        Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must include in our Annual Report on Form 10-K a report of management on the effectiveness of our internal control over financial reporting. Ongoing compliance with this requirement is complex, costly and time-consuming. Although our assessment, testing, and evaluation resulted in our conclusion that, as of December 31, 2009,2011, our internal controls over financial reporting were effective, we cannot predict the outcome of our testing in future periods. If our internal controls are ineffective in future periods, or if our management does not timely assess the adequacy of such internal controls, we could be subject to regulatory sanctions, the public's perception of our Company may decline and our financial results or the market price of our shares could be adversely affected.

We are subject to risks of non-compliance with environmental, health and safety regulations.

        We are subject to environmental, health and safety regulations in connection with our business operations, including but not limited to regulations related to the development, manufacture, and use of our products. Failure or inability to comply with existing or future environmental and safety regulations could result in significant remediation liabilities, the imposition of fines and/or the suspension or termination of development, manufacture, or use of certain of our products, each of which could have a material adverse effect on our business, financial condition, and results of operations.

We have significant operations in California and other locations which could be materially and adversely impacted in the event of a natural disaster or other significant disruption.

        Our Metrology segment designs and manufactures our atomic force microscopes and other products in Camarillo and Santa Barbara, California. Our operations in these and other locations, as well as those of our customers in the U.S., the Asia-Pacific region and in other areas could be subject to natural disasters or other significant disruptions, including earthquakes, tsunamis, fires, hurricanes, floods, water shortages, other extreme weather conditions, medical epidemics, acts of terrorism, power shortages and blackouts, telecommunications failures, and other natural and manmade disasters or disruptions. Two such occurrences in 2011 include the earthquake and tsunami in Japan and the severe flooding in Thailand. In the event of such a natural disaster or other disruption, we could experience disruptions or interruptions to our operations or the operations of our suppliers, distributors, resellers or customers; destruction of facilities; and/or loss of life, all of which could materially increase our costs and expenses and materially and adversely affect our business, revenue and financial condition.


We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company by another company more difficult.

        We have adopted, and may in the future adopt, certain measures that may have the effect of delaying, deferring or preventing a takeover or other change in control of our Company that a holder of our common stock might not consider in its best interest. These measures include:

        Our board of directors has the authority to issue up to 500,000 shares of preferred stock and to fix the rights (including voting rights), preferences and privileges of these shares ("blank check" preferred). Such preferred stock may have rights, including economic rights, senior to our common



stock. As a result, the issuance of the preferred stock could have a material adverse effect on the price of our common stock and could make it more difficult for a third party to acquire a majority of our outstanding common stock.

        Our board of directors is divided into three classes with each class serving a staggered three-year term. The existence of a classified board will make it more difficult for our shareholders to change the composition (and therefore the policies) of our board of directors in a relatively short period of time.

        We have adopted a shareholder rights plan, under which we have granted to our shareholders rights to purchase shares of junior participating preferred stock. This plan or "poison pill" could discourage a takeover that is not approved by our board of directors but which a shareholder might consider in its best interest, thereby adversely affecting our stock price.

        We have adopted certain certificate of incorporation and bylaws provisions which may have anti-takeover effects. These include: (a) requiring certain actions to be taken at a meeting of shareholders rather than by written consent, (b) requiring a super-majority of shareholders to approve certain amendments to our bylaws, (c) limiting the maximum number of directors, and (d) providing that directors may be removed only for "cause." These measures and those described above may have the effect of delaying, deferring or preventing a takeover or other change in control of Veeco that a holder of our common stock might consider in its best interest.

        In addition, we are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in any business combination, including mergers and asset sales, with an interested stockholder (generally, a 15% or greater stockholder) for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The operation of Section 203 may have anti-takeover effects, which could delay, defer or prevent a takeover attempt that a holder of our common stock might consider in its best interest.

Item 1B.    Unresolved Staff Comments

        None.



Item 2.    Properties

        Our corporate headquarters and our principal product development and marketing, manufacturing, research and development and sales and servicetraining facilities, as well as the approximate size and the segments which utilize such facilities, are:

Owned Facilities Location
 Approximate Size
(sq. ft.)
 Mortgaged Use

Plainview, NY

  80,000 No Data Storage, and LED & Solar
Process Equipment and
Corporate Headquarters

Santa Barbara, CA

100,000NoMetrology and Data Storage Process Equipment

Somerset, NJ

  80,000 No LED & Solar Process Equipment

Somerset, NJ

38,000NoLED & Solar

St. Paul, MN(1)

  125,000 Yes LED & Solar Process Equipment

Tucson, AZ(2)

  110,000 No Former Metrology Site held for sale


Leased Facilities Location
 Approximate Size
(sq. ft.)
 Lease Expires Use

Camarillo, CA(3)

  26,000 2012 Held for sublease

Camarillo, CA

  19,000 2010 Metrology

Clifton Park, NY

  18,000 2014 LED & Solar Process Equipment

Clifton Park, NY

  8,000 2011 LED & Solar Process Equipment

Fort Collins, CO

  26,000 2011 Data Storage Process Equipment

Fremont, CA

  14,000 2010 Sales and Service

Lowell, MA

  28,000 2010 LED & Solar Process Equipment

Woodbury, NY(4)

  32,000 2011 Held for sublease
Leased Facilities Location
 Approximate Size
(sq. ft.)
 Lease Expires Use

Camarillo, CA(3)

  26,000  2012 Data Storage and partially held for sublease

Fort Collins, CO

  26,000  2013 Data Storage

Lowell, MA(4)

  28,000  2012 Vacated LED & Solar Facility

Tewksbury, MA(4)

  88,900  2013 Vacated LED & Solar Facility

Somerset, NJ

  14,000  2012 LED & Solar

Kingston, NY

  36,500  2018 LED & Solar

Shanghai, China(5)

  17,400  2012 Customer Training Center

Hsinchu City, Taiwan

  13,500  2015 Sales Office & Customer Training Center

(1)
Our LED & Solar Process Equipment segment utilizes approximately 95,000 square feet of this facility. The balance is available for expansion.

(2)
OurWe vacated this facility during the fourth quarter of 2010 in conjunction with the sale of our Metrology segment utilizes approximately 75,000 square feet ofto Bruker. We are actively marketing this facility. The balance is availableoffice for expansion.sale.

(3)
We vacated this facility during the second quarter of 2009 in conjunction with the outsourcing of manufacturing for certain Data Storage Process Equipment product lines. We have reoccupied a portion of this space and are marketing thisthe remaining space for sublease.

(4)
We vacated our former Woodbury headquartersthese facilities during the firstthird quarter of 20082011 in conjunction with the discontinuance of our CIGS Solar systems business.

(5)
We have the option to renew this lease for three consecutive two year terms and consolidated our operations into our Plainview, New York manufacturingalso have the option to purchase this facility. We are marketing this office space for sublease.

        The St. Paul, Minnesota facility is subject to a mortgage which, at December 31, 2009,2011, had an outstanding balance of $3.1$2.7 million. We also lease small offices in Chadds Ford, PennsylvaniaSanta Clara, California and Edina, Minnesota for sales and service. Our foreign subsidiaries lease space for use as sales and service centerssubsidiaries lease office space in England, France, Germany, Netherlands, Japan, Korea, Malaysia, Singapore, Thailand, ChinaPhilippines and Taiwan.China. We believe our facilities are adequate to meet our current needs.

Item 3.    Legal Proceedings

Environmental

        We may, under certain circumstances, be obligated to pay up to $250,000 in connection with the implementation of a comprehensive plan of environmental remediation at our Plainview, New York facility. We have been indemnified by the former owner for any liabilities we may incur in excess of $250,000


$250,000 with respect to any such remediation. No comprehensive plan has been required to date. Even without consideration of such indemnification, we do not believe that any material loss or expense is probable in connection with any remediation plan that may be proposed.

        We are aware that petroleum hydrocarbon contamination has been detected in the soil at the site of a facility formerly leased by us in Santa Barbara, California. We have been indemnified for any liabilities we may incur which arise from environmental contamination at the site. Even without consideration of such indemnification, we do not believe that any material loss or expense is probable in connection with any such liabilities.

        The former owner of the land and building in which our Santa Barbara, California in which our former Metrology operations arewere located (which business was sold to Bruker on October 7, 2010), has disclosed that there are hazardous substances present in the ground under the building. Management believes that the comprehensive indemnification clause that iswas part of the purchase contract relating to the purchase of such land provides adequate protection against any environmental issues that may arise. We have provided Bruker with similar indemnification as part of the sale.


Non-Environmental

        We are involved in various other legal proceedings arising in the normal course of our business. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 4.    Submission of Matters to a Vote of Security HoldersMine Safety Disclosures—Not Applicable

        None.



PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        Our common stock is quoted on The NASDAQ National Market under the symbol "VECO." The 20092011 and 20082010 high and low closing bid prices by quarter are as follows:


 2009 2008  2011 2010 

 High Low High Low  High Low High Low 

First Quarter

 $7.16 $3.96 $17.96 $12.39  $52.70 $42.82 $43.72 $30.42 

Second Quarter

 12.99 6.19 19.71 16.63  57.59 46.47 51.61 31.79 

Third Quarter

 23.49 11.36 18.11 14.42  47.21 24.40 45.52 31.02 

Fourth Quarter

 34.35 21.90 14.81 3.83  29.20 20.80 49.97 33.71 

        On February 22, 2010,21, 2012, the closing bid price for our common stock on the NASDAQ National Market was $37.28$28.89 and we had 372131 shareholders of record.

        In December 2001 and January 2002, we issued $220.0 million of 4.125% convertible subordinated notes (the "Old Notes") in a private placement. During the first quarter of 2006, we repurchased $20.0 million of these notes, reducing the amount outstanding from $220.0 million to $200.0 million. During the first quarter of 2007, we repurchased an additional $56.0 million of these notes, reducing the amount outstanding from $200.0 million to $144.0 million. During the second quarter of 2007, we issued new convertible subordinated notes (the "New Notes") pursuant to privately negotiated exchange agreements with certain holders of the Old Notes to exchange $118.8 million aggregate principal amount of the Old Notes for approximately $117.8 million aggregate principal amount of New Notes. Following the exchange transactions, approximately $25.2 million of Old Notes remained outstanding. The remaining Old Notes were convertible, at the option of the holder, at any time on or prior to maturity into shares of common stock at a conversion price of $38.51 per share. We repaid the outstanding principal amount of the remaining $25.2 million of Old Notes outstanding. The New Notes bear interest at 4.125% per annum and mature on April 15, 2012. These notes are convertible, at the option of the holder, at any time during the period beginning on January 15, 2012 through the close of business on the second day prior to April 15, 2012 and earlier, upon the occurrence of certain events, including our common stock trading at prices 130% of the conversion price for a specified period. Such notes are convertible at a price of $27.23 per share. We pay interest on these notes on April 15 and October 15 of each year.

        We have not paid dividends on our common stock. We intend to retain future earnings for the development of our business and, therefore, do not anticipate that the Board of Directors will declare or pay any dividends on the common stock in the foreseeable future. The Board of Directors will determine future dividend policy based on our consolidated results of operations, financial condition, capital requirements and other circumstances.


Stock Performance Graph

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Veeco Instruments Inc., The S&P Smallcap 600 Index,
The PHLX Semiconductor Index, And A Peer Groupand the RDG MidCap Technology Index

*
$100 invested on 12/31/0406 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.

Copyright© 20102012 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.


ASSUMES $100 INVESTED ON DEC. 31, 20042006
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31


 Cumulative Total Return as of December 31, 

 2004 2005 2006 2007 2008 2009  2006 2007 2008 2009 2010 2011 

Veeco Instruments Inc.

 100.0 82.25 88.89 79.26 30.09 156.81  100.00 89.16 33.85 176.40 229.36 111.05 

S&P Smallcap 600

 100.0 107.68 123.96 123.59 85.19 106.97  100.00 99.70 68.72 86.29 108.99 110.10 

PHLX Semiconductor

 100.0 115.78 106.63 115.13 64.57 102.97  100.00 107.88 60.06 97.21 109.11 107.58 

Peer Group

 100.0 95.99 126.92 130.61 57.92 113.95 

RDG MidCap Technology

 100.00 101.28 50.15 78.00 97.97 86.45 

        Information is presented assuming $100 invested on December 31, 2004 and the reinvestment of dividends, if any. The Peer Group Index consists of the following companies: ASM International N.V., Axcelis Technologies Inc., FEI Company, FSI International Inc., Mattson Technology Inc., Rudolph Technologies Inc., Semitool Inc., Varian Semiconductor Equipment Associates Inc. and Zygo Corp.



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 our Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-K.



 Years ended December 31,  Year ended December 31, 


 2009(1) 2008(2) 2007(3) 2006(4) 2005(5)  2011(1) 2010(2) 2009(3) 2008(4) 2007(5) 


 (In thousands, except per share data)
  (In thousands, except per share data)
 

Statement of Operations Data:

Statement of Operations Data:

  

Net sales

Net sales

 $380,149 $442,809 $402,475 $441,034 $410,190  $979,135 $930,892 $282,262 $302,067 $252,031 

Operating (loss) income

 (7,435) (70,558) (12,061) 22,456 11,066 

Net (loss) income attributable to Veeco

 (15,567) (75,191) (19,210) 14,917 (897)

Net (loss) income per common share attributable to Veeco:

 

Operating income (loss) from continuing operations

 276,259 303,253 7,631 (44,055) (18,245)

Income (loss) from continuing operations net of income taxes

 190,502 277,176 (1,777) (48,748) (23,655)

(Loss) income from discontinued operations net of income taxes

 (62,515) 84,584 (13,855) (26,673) 3,817 

Net loss attributable to noncontrolling interest

   (65) (230) (628)

Basic

 $(0.48)$(2.40)$(0.62)$0.49 $(0.03)           

Net income (loss) attributable to Veeco

 $127,987 $361,760 $(15,567)$(75,191)$(19,210)
           

Income (loss) per common share attributable to Veeco:

 

Basic:

 

Continuing operations

 $4.80 $7.02 $(0.05)$(1.55)$(0.74)

Discontinued operations

 (1.57) 2.14 (0.43) (0.85) 0.12 
           

Income (loss)

 $3.23 $9.16 $(0.48)$(2.40)$(0.62)
           

Diluted :

 

Continuing operations

 $4.63 $6.52 $(0.05)$(1.55)$(0.74)

Discontinued operations

 (1.52) 1.99 (0.43) (0.85) 0.12 
           

Income (loss)

 $3.11 $8.51 $(0.48)$(2.40)$(0.62)

Diluted

 $(0.48)$(2.40)$(0.62)$0.48 $(0.03)           

Weighted average shares outstanding:

Weighted average shares outstanding:

  

Basic

 32,628 31,347 31,020 30,492 29,921 

Diluted

 32,628 31,347 31,020 31,059 29,921 

Basic

 39,658 39,499 32,628 31,347 31,020 

Diluted

 41,155 42,514 32,628 31,347 31,020 

 


 Years ended December 31,  December 31, 

 2009 2008 2007 2006 2005  2011 2010 2009 2008 2007 

 (In thousands)
  (In thousands)
 

Balance Sheet Data:

  

Cash and cash equivalents

 $148,589 $103,799 $117,083 $147,046 $124,499  $217,922 $245,132 $148,500 $102,521 $116,875 

Short-term investments

 135,000      273,591 394,180 135,000   

Restricted cash

 577 76,115    

Working capital

 317,317 168,528 174,516 248,060 229,650  587,076 640,139 317,317 168,528 112,089 

Goodwill

 59,422 59,160 100,898 100,898 99,622  55,828 52,003 52,003 51,741 71,544 

Total assets

 605,372 429,541 529,334 589,600 567,860  936,063 1,148,034 605,372 429,541 529,334 

Long-term debt (including current installments)

 101,176 98,526 132,118 209,204 229,580  2,654 104,021 101,176 98,526 132,118 

Total equity

 359,059 225,810 289,158 283,393 248,587  760,520 762,512 359,059 225,026 288,144 

(1)
On July 28, 2011, we announced a plan to discontinue our CIGS solar systems business. The action was completed on September 27, 2011. Accordingly, the results of operations for the CIGS solar

(2)
On August 15, 2010, we signed a definitive agreement to sell our Metrology business to Bruker comprising our entire Metrology reporting segment for $229.4 million. Accordingly, Metrology's operating results are accounted for as discontinued operations in determining the consolidated results of operations. The sales transaction closed on October 7, 2010, except for assets located in China due to local restrictions. Total proceeds, which included a working capital adjustment of $1 million, totaled $230.4 million of which $7.2 million relates to the assets in China. As part of our agreement with Bruker, $22.9 million of proceeds was held in escrow and was restricted from use for one year from the closing date of the transaction to secure certain specified losses arising out of breaches of representations, warranties and covenants we made in the stock purchase agreement and related documents. The restriction relating to the escrowed proceeds was released on October 6, 2011. As part of the sale we incurred transaction costs, which consisted of investment bank fees and legal fees, totaling $5.2 million. The Company recognized a pre-tax gain on disposal of $156.3 million and a pre-tax deferred gain of $5.4 million related to the assets in China.

In addition, operating income and income from continuing operations includes a restructuring credit of $0.2 million.

(3)
Operating loss and net loss attributable to Veecofrom continuing operations include restructuring expenses of $7.7$4.5 million, as well as an asset impairment charge of $0.3 million for property, plant and equipment no longer being utilized in our Data Storage Process Equipment segment and a $1.5 million inventory write-off associated with data storageData Storage legacy products.

(2)(4)
Operating loss and net loss attributable to Veecofrom continuing operations include a $73.3$51.4 million asset impairment charge of which $52.3$30.4 million was related to goodwill and $21.0 million was related to other long-lived assets, a restructuring charge of $10.6$9.4 million consisting of lease-related commitments, the mutually agreed-upon termination of the employment agreement with our former CEO and personnel severance costs, an inventory write-off of $2.9 million included in cost of sales and $1.5 million in cost of sales related to the required purchase accounting adjustment to write up inventory to fair value in connection with the purchase of Mill Lane Engineering.costs. Net loss attributable to Veecofrom continuing operations also reflects a net gain from the early extinguishment of debt in the amount of $3.8 million.

(3)(5)
Operating loss and net loss attributable to Veecofrom continuing operations include restructuring expenses of $6.7$4.8 million, as well as charges of $1.1 million and $4.8 million associated with the write-off of property and equipment and inventory, respectively, related to product lines discontinued as part of

(4)
Operating income and net income attributable to Veeco are net of a write-off of $1.2 million of in-process research and development projects related to the Fluens acquisition. Net income attributable to Veeco also reflects a net gain from the early extinguishment of debt in the amount of $0.3 million.

(5)
Operating income and net loss attributable to Veeco include restructuring expenses of $1.2 million.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

        Veeco Instruments Inc. (together with its consolidated subsidiaries, "Veeco," the "Company" or "we") creates Process Equipment solutions that enable technologies for a cleaner and more productive world. We design, manufacture and market equipment primarily sold to make light emitting diodes ("LEDs") and service enabling solutionshard-disk drives, as well as for customers in the HB LED, solar, data storage, scientific research, semiconductor,emerging applications such as concentrator photovoltaics, power semiconductors, wireless components, microelectromechanical systems (MEMS), and industrial markets. We haveother next-generation devices.

        Veeco focuses on developing highly differentiated, "best-in-class" Process Equipment products for critical performance steps. Our products feature leading technology, positionslow cost-of-ownership and high throughput, offering a time-to-market advantage for our customers around the globe. Core competencies in our three segments: LED & Solar Process Equipment, Data Storage Process Equipment,advanced thin film technologies, over 150 patents and Metrology.decades of specialized process know-how helps us to stay at the forefront of these demanding industries.

        In ourVeeco's LED & Solar segment we designdesigns and manufacture MOCVD systems, MBEmanufactures metal organic chemical vapor deposition ("MOCVD") and molecular beam epitaxy ("MBE") systems and sources, and other types of deposition systems such as web and glass coaters, which we sellcomponents sold to manufacturers of HB LEDs, wireless devices, power semiconductors, and solar panels,concentrator photovoltaics, as well as to scientific research customers.R&D applications. In 2011 we discontinued the sale of our products related to Copper, Indium, Gallium, Selenide ("CIGS") solar systems technology.

        In ourVeeco's Data Storage segment we designdesigns and manufacture ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, chemical vapor deposition, and dicing and slicing systems primarilymanufactures the critical technologies used to create TFMHsthin film magnetic heads ("TFMHs") that read and write data on hard disk drives.

        In our Metrology segment, we design These technologies include ion beam etch (IBE), ion beam deposition (IBD), diamond-like carbon (DLC), physical vapor deposition (PVD), chemical vapor deposition (CVD), and manufacture AFMs, SPMs, stylus profilers,slicing, dicing and lapping systems. While these technologies are primarily sold to hard drive customers, they also have applications in optical interferometers used to provide critical surface measurements in research and production environments. This broad line of products is used in universities, research facilities and scientific centers worldwide. In production environments such as semiconductor, data storagecoatings and other industries,markets.

        Veeco's approximately 900 employees support our metrology instruments enable customers to monitor their products throughout thethrough product and process development, training, manufacturing, process to improve yields, reduce costs, and improve product quality.

        We currently maintain facilities in Arizona, California, Colorado, Massachusetts, Minnesota, New Jersey and New York, with sales and service locationssites in Minnesota, Pennsylvania, France, England, Germany, Netherlands,the U.S., Korea, Taiwan, China, Singapore, Japan, Singapore, China, Taiwan, Korea, Malaysia, PhilippinesEurope and Thailand.

        During 2009, we continued our multi-quarter plan to improve profitability and reduce and contain spending. We made progress against the initiatives that management set, continued our restructuring plan and executed activities with a focus on creating a more variable, cost-effective organization. These activities included downsizing and consolidating some locations, reducing our workforce, consultants and discretionary expenses and realigning our sales organization and engineering groups. In conjunction with these activities, we recognized a restructuring charge of approximately $7.7 million, an inventory write-off of $1.5 million related to legacy semiconductor products, included in cost of sales in our Consolidated Statement of Operations and an asset impairment charge of $0.3 million.other locations.

Summary of Results for 20092011

        Despite the extremely challenging market environment during the first half of 2009, for the full year we reported a lower net loss, a positive impact from our cost containment initiatives, and a significantly improved balance sheet as a result of the cash flow from operations and the sale of our common stock in November. We made progress to refocus the business and drive R&D investments to higher-growth end market opportunities.Selected financial highlights include:



Business Highlights of 20092011

        Starting with very difficultIn 2011, Veeco achieved revenue of $979.1 million and net income from continuing operations of $190.5 million. During the first half of 2011 Veeco experienced strong levels of business driven by growth in LED, including new orders in excess of $300 million in second quarter of 2011. Business conditions 2009 ended with recordbegan to deteriorate mid-year due to oversupply in the LED market and Veeco's bookings slowed dramatically in the third and fourth quarter results for Veeco in termsquarters of revenue performance. Some of our successes included improving product development, maximizing manufacturing efficiencies and supply chain management, and strengthening our sales channel. Some other key accomplishments during 2009 included:the year.

Outlook

        With record backlogVeeco's first quarter 2012 revenue is currently forecasted to be between $115 million and $140 million. Earnings per share are currently forecasted to be between $0.04 and $0.25.

        We don't see signs of $402 million at the end of December 2009, Veeco begins 2010 with strong momentum. Business patterns in LED remain strongnear-term improvement in the firstLED environment and the current overcapacity situation could mean that MOCVD orders remain at these depressed levels for multiple quarters. In Data Storage, while overall market conditions are healthy, the continued consolidation of our customer base will likely mean that order patterns will fluctuate from quarter to date, similar to what we experienced in the latter half of 2009, with multi-tool system orders being quoted across a large number of customers. Leading global LED manufacturers are showing strong interest in our newly introduced



K465i™ MOCVD system. We are increasing manufacturing capacity to satisfy customer demand, with a current plan to ramp capacity to 45 or more tools this quarter and approximately 70 by the second quarter and to 120 by the fourth quarter of 2010, if customer demand requires. We believe our Data Storage business, with its lower breakeven structure and backlog of $60 million ending 2009, is in excellent position starting 2010. We remain well aligned with our key customers and plan to introduce new technologies to continue to advance areal densities for thin film magnetic heads. In Metrology, we have a deep new product pipeline and the business returned to segment profitability in both Q3 and Q4 2009. We currently expect all three Veeco businesses to grow revenues and improve operating results in 2010.quarter.

        As we look toward the future, we believe that the HBThe LED industry is atcurrently experiencing an overcapacity situation, evidenced by low tool utilization rates being reported by many key global customers. As a result, new orders for Veeco's MOCVD systems declined sharply in both the beginningthird and fourth quarters of 2011 and we do not see signs of a multi-yearnear-term improvement in MOCVD tool investment cycle as HBbusiness conditions. In the short term, it is difficult for us to predict when the supply/demand of LEDs increase their penetrationwill return to equilibrium and what the demand for our MOCVD products will be. According to the Semiconductor Equipment and Materials Industry's (SEMI) January 2012 Opto/LED Fab Watch report, worldwide MOCVD purchases will decline by 40% in laptop and TV backlighting, and gain momentum for general illumination. We are also seeing strong interest in our thermal deposition solutions for the manufacturing of CIGS solar cells, and believe that2012 compared to 2011. While Veeco is well positioned to increase our businesscurrently expecting revenue growth in this market. In addition, overall business conditions in ourits Data Storage and Metrology segments appearMBE businesses in 2012, the Company has forecasted that total revenue will decline from 38-48% in 2012 to be improving fromin the trough levels we experienced last year andrange of $500-600 million as a result of the cyclical downturn in early 2009.MOCVD equipment purchases.

        Our outlook discussion above constitutes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our expectations regarding future results are subject to risks and uncertainties. Our actual results may differ materially from those anticipated.

        You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made.


Results of Operations

Years Ended December 31, 20092011 and 20082010

        The following table shows our Consolidated Statements of Operations,Income, percentages of sales and comparisons between 20092011 and 20082010 (dollars in 000s):

 
 Year ended December 31, Dollar and
Percentage
Change
Year to Year
 
 
 2011 2010 

Net sales

 $979,135  100.0%$930,892  100.0%$48,243  5.2%

Cost of sales

  504,801  51.6  481,407  51.7  23,394  4.9 
              

Gross profit

  474,334  48.4  449,485  48.3  24,849  5.5 

Operating expenses (income):

                   

Selling, general and administrative

  95,134  9.7  87,250  9.4  7,884  9.0 

Research and development

  96,596  9.9  56,948  6.1  39,648  69.6 

Amortization

  4,734  0.5  3,703  0.4  1,031  27.8 

Restructuring

  1,288  0.1  (179) (0.0) 1,467  (819.6)

Asset impairment

  584  0.1      584  * 

Other, net

  (261) (0.0) (1,490) (0.2) 1,229  (82.5)
              

Total operating expenses

  198,075  20.2  146,232  15.7  51,843  35.5 
              

Operating income

  276,259  28.2  303,253  32.6  (26,994) (8.9)

Interest expense, net

  824  0.1  6,572  0.7  (5,748) (87.5)

Loss on extinguishment of debt

  3,349  0.3      3,349  * 
              

Income from continuing operations before income taxes

  272,086  27.8  296,681  31.9  (24,595) (8.3)

Income tax provision

  81,584  8.3  19,505  2.1  62,079  318.3 
              

Income from continuing operations

  190,502  19.5  277,176  29.8  (86,674) (31.3)
              

Discontinued operations:

                   

(Loss) income from discontinued operations before income taxes

  (91,885) (9.4) 129,776  13.9  (221,661) * 

Income tax (benefit) provision

  (29,370) (3.0) 45,192  4.9  (74,562) * 
              

(Loss) income from discontinued operations

  (62,515) (6.4) 84,584  9.1  (147,099) * 
              

Net income

 $127,987  13.1%$361,760  38.9%$(233,773) (64.6)%
              

 
 Year ended December 31, Dollar and
Percentage
Change
Year to Year
 
 
 2009 2008 

Net sales

 $380,149  100%$442,809  100%$(62,660) (14.2)%

Cost of sales

  228,587  60.1  266,215  60.1  (37,628) (14.1)
              

Gross profit

  151,562  39.9  176,594  39.9  (25,032) (14.2)

Operating expenses:

                   
 

Selling, general, and administrative expense

  85,455  22.5  92,838  21.0  (7,383) (8.0)
 

Research and development expense

  57,430  15.1  60,353  13.6  (2,923) (4.8)
 

Amortization expense

  7,338  1.9  10,745  2.4  (3,407) (31.7)
 

Restructuring expense

  7,680  2.0  10,562  2.4  (2,882) (27.3)
 

Asset impairment charge

  304  0.1  73,322  16.6  (73,018) (99.6)
 

Other expense (income), net

  790  0.2  (668) (0.2) 1,458  (218.3)
              

Total operating expenses

  158,997  41.8  247,152  55.8  (88,155) (35.7)
              

Operating loss

  (7,435) (2.0) (70,558) (15.9) 63,123  (89.5)

Interest expense

  7,732  2.0  9,317  2.1  (1,585) (17.0)

Interest income

  (882) (0.2) (2,588) (0.6) 1,706  (65.9)

Gain on extinguishment of debt

      (3,758) (0.8) 3,758  (100.0)
              

Loss before income taxes

  (14,285) (3.8) (73,529) (16.6) 59,244  (80.6)

Income tax provision

  1,347  0.4  1,892  0.4  (545) (28.8)
              

Net loss

  (15,632) (4.1) (75,421) (17.0) 59,789  (79.3)

Net loss attributable to noncontrolling interest

  (65) (0.0) (230) 0.0  165  (71.7)
              

Net loss attributable to Veeco

 $(15,567) (4.1)%$(75,191) (17.0)%$59,624  (79.3)%
              
*
Not Meaningful

Net Sales and Orders

        Net sales of $380.1$979.1 million for the year ended December 31, 2009,2011, were down 14.2%up 5.2% compared to 2008.2010. The following is an analysis of sales and orders by segment and by region (dollars in 000s):



 Sales Orders  
  
  Sales Orders  
  
 


 Year ended
December 31,
 Dollar and
Percentage
Change
 Year ended
December 31,
 Dollar and
Percentage
Change
 Book to
Bill Ratio
  Year ended
December 31,
 Dollar and
Percentage Change
 Year ended
December 31,
 Dollar and
Percentage Change
 Book to Bill
Ratio
 


 2009 2008 Year to Year 2009 2008 Year to Year 2009 2008  2011 2010 Year to Year 2011 2010 Year to Year 2011 2010 

Segment Analysis

Segment Analysis

  

LED & Solar

 $827,797 $795,565 $32,232 4.1%$650,608 $968,143 $(317,535) (32.8)% 0.79 1.22 

Data Storage

 151,338 135,327 16,011 11.8 167,249 153,406 13,843 9.0 1.11 1.13 

LED & Solar Process Equipment

 $205,153 $165,812 $39,341 23.7%$440,784 $160,162 $280,622 175.2% 2.15 0.97                      

Data Storage Process Equipment

 77,259 149,123 (71,864) (48.2) 97,497 138,653 (41,156) (29.7) 1.26 0.93 

Metrology

 97,737 127,874 (30,137) (23.6) 101,261 125,622 (24,361) (19.4) 1.04 0.98 
                     

Total

 $380,149 $442,809 $(62,660) (14.2)%$639,542 $424,437 $215,105 50.7% 1.68 0.96 

Total

 $979,135 $930,892 $48,243 5.2%$817,857 $1,121,549 $(303,692) (27.1)% 0.84 1.20 
                                          

Regional Analysis

Regional Analysis

  

Americas

 $100,635 $92,646 $7,989 8.6%$87,355 $107,039 $(19,684) (18.4)% 0.87 1.16 

Americas

 $90,494 $165,926 $(75,432) (45.5)%$105,646 $145,082 $(39,436) (27.2)% 1.17 0.87                      

Europe, Middle East and Africa ("EMEA")

 57,617 92,112 (34,495) (37.4) 52,366 83,784 (31,418) (37.5) 0.91 0.91 

Europe, Middle East and Africa ("EMEA")

 78,042 94,142 (16,100) (17.1) 78,374 86,518 (8,144) (9.4) 1.00 0.92                      

Asia Pacific ("APAC")

 

China

 649,846 266,813 383,033 143.6 479,141 537,740 (58,599) (10.9) 0.74 2.02 

Taiwan

 64,228 101,130 (36,902) (36.5) 60,455 112,016 (51,561) (46.0) 0.94 1.11 

Korea

 24,701 301,026 (276,325) (91.8) 14,813 207,337 (192,524) (92.9) 0.60 0.69 

Other APAC

 82,108 77,165 4,943 6.4 123,727 73,633 50,094 68.0 1.51 0.95 

Japan

 19,640 38,453 (18,813) (48.9) 34,262 31,593 2,669 8.4 1.74 0.82                      

APAC

 820,883 746,134 74,749 10.0 678,136 930,726 (252,590) (27.1) 0.83 1.25 

Asia Pacific

 191,973 144,288 47,685 33.0 421,260 161,244 260,016 161.3 2.19 1.12                      

Total

 $979,135 $930,892 $48,243 5.2%$817,857 $1,121,549 $(303,692) (27.1)% 0.84 1.20 
                                          

Total

 $380,149 $442,809 $(62,660) (14.2)%$639,542 $424,437 $215,105 50.7% 1.68 0.96 
                     

        By segment, LED & Solar Process Equipment sales increased 23.7%4.1% in 2011 primarily due to anincreases in shipments of our newest systems as compared to 2010 (3.9% increase in end userMOCVD reactor shipments from 2010) as a result of the high demand which slowed by the beginning of the second half 2011 for HB LED backlighting applications and strong customer acceptance of Veeco's newest generation systems. Offsetting this increase,applications. Data Storage Process Equipment and Metrology sales were down 48.2% and 23.6%also increased 11.8%, respectively, primarily as a result of a slowdownan increase in capital spending by data storage customers for capacity and the continued slowdown in the semiconductor and research and industrial markets.technology buys. LED & Solar Process Equipment sales represented 54.0%84.5% of total sales for the year ended December 31, 2009, up2011, down from 37.4%85.5% in the prior year period.year. Data Storage Process Equipment sales accounted for 20.3%15.5% of net sales, downup from 33.7%14.5% in the prior year period. Metrology sales accounted for 25.7% of net sales for the year ended December 31, 2009, down from 28.9% in the prior year period.year. By region, net sales increased by 33.0%10.0% in the Asia Pacific, primarily due to MOCVD sales to HB LED customers, whilecustomers. In addition, sales in the Americas Europe, Middle Eastincreased 8.6% and Africa ("EMEA")sales in EMEA decreased 37.4%. We believe that there will continue to be year-to-year variations in the geographic distribution of sales.

        Orders in 2011 decreased 27.1% compared to 2010, primarily attributable to a 32.8% decrease in LED & Solar orders that were principally driven by a mid-year deterioration due to oversupply in the LED market, slowing orders dramatically in the third and Japan declined 45.5%fourth quarters after hitting a peak in the second quarter of 2011. Data Storage orders increased 9.0% from the continued increase in our customer's capital spending for capacity and technology buys.

        Our book-to-bill ratio for 2011, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was 0.84 to 1 compared to 1.20 to 1 in 2010. Our backlog as of December 31, 2011 was $332.9 million, compared to $535.4 million as of December 31, 2010. During the year ended December 31, 2011, we experienced a net backlog adjustment of approximately $41.4 million. The adjustment consisted of $38.1 million of order cancellations and $3.3 million related to other order adjustments. During the year ended December 31, 2011, we had a positive adjustment related to foreign currency translation of $0.1 million. For certain sales arrangements we require a deposit for a portion of the sales price before shipment. As of December 31, 2011 and 2010 we had deposits and advanced billings of $57.1 million and $129.2 million, respectively.


Gross Profit

        Gross profit was $474.3 million or 48.4% for 2011 compared to $449.5 million or 48.3% in 2010. LED & Solar gross margins decreased to 48.0% from 48.3% in the prior year, primarily due to higher overhead costs and service support spending, partially offset by increases in volume, favorable product mix and lower average material costs. Data Storage gross margins increased to 50.7% from 48.4% in the prior year due to increased sales volume and a favorable product mix, partially offset by higher overhead costs and service support spending.

Operating Expenses

        Selling, general and administrative expenses increased by $7.9 million or 9.0%, 17.1%from the prior year primarily to support the increased level of business in our LED & Solar segment. Selling, general and 48.9%administrative expenses were 9.7% of net sales in 2011, compared with 9.4% of net sales in the prior year.

        Research and development expense increased $39.6 million or 69.6% from the prior year, primarily due to continued product development in areas of high-growth for end market opportunities in our LED & Solar segment. As a percentage of net sales, research and development expense increased to 9.9% from 6.1% in the prior year.

        Amortization expense increased $1.0 million from the prior year, primarily resulting from the increase in intangible assets as a result of our acquisition of a privately held company that occurred during the second quarter of 2011.

        Restructuring expense of $1.3 million for the year ended December 31, 2011, consisted of personnel severance costs associated with the company-wide reduction of approximately 65 employees in our workforce. Restructuring credit of $0.2 million for the year ended December 31, 2010, was attributable to a change in estimate in our Data Storage segment.

        During 2011, the Company recorded a $0.6 million asset impairment charge related to the disposal of equipment associated with the discontinuance of a certain product line in our LED & Solar segment.

Interest Expense, net

        Interest expense, net for 2011 was $0.8 million, comprised of $1.4 million in cash interest expense, $1.9 million in non-cash interest expense relating to net amortization of our short-term investments and $1.3 million in non-cash interest expense relating to our convertible debt, which was retired during the first half of 2011 creating a loss on extinguishment of approximately $3.3 million. Interest expense was partially offset by $3.8 million in interest income earned on our cash and short-term investment balances. Interest expense, net for 2010 was $6.6 million, comprised of $4.7 million in cash interest expense, $0.4 million in non-cash interest expense relating to our short-term investments and $3.1 million in non-cash interest expense relating to our convertible debt, partially offset by $1.6 million in interest income earned on our cash and short-term investment balances. The non-cash interest expense is related to accounting rules that requires a portion of convertible debt to be allocated to equity in 2011 and 2010 and accretion of debt discounts and amortization of debt premiums related to our short-term investments in 2011 and 2010.

Income Taxes

        The income tax provision attributable to continuing operations for the year ended December 31, 2011 was $81.6 million or 30.0% of income before taxes compared to $19.5 million or 6.6% of income before taxes in the prior year. The 2011 provision for income taxes included $9.6 million relating to our foreign operations and $72.0 million relating to our domestic operations. The 2010 provision for income taxes included $8.0 million relating to our foreign operations and $11.5 million relating to our domestic operations. Our 2010 effective tax rate was lower than our 2011 effective tax rate as a result of the utilization of our domestic net operating loss and tax credit carry forwards due to the reversal of


our valuation allowance during 2010. Our 2011 effective tax rate is lower than the statutory rate as a result of the jurisdictional mix of earnings in our foreign locations, which impacted the effective tax rate by approximately 1.9%, and other favorable tax benefits including the Domestic Production Activities Deduction and the Research and Development Credit, which impacted the effective tax rate by approximately 3.4%.

Discontinued Operations

        Discontinued operations represent the results of the operations of our disposed Metrology segment, which was sold to Bruker on October 7, 2010, and our CIGS solar systems business, which was discontinued on September 27, 2011, reported as discontinued operations. The 2011 results reflect an operational loss before taxes of $1.6 million related to the Metrology segment and an operational loss before taxes of $90.3 million related to the CIGS solar systems business. The 2010 results reflect an operational loss before taxes of $0.8 million and a gain on disposal of $156.3 million before taxes related to the Metrology segment and an operational loss before taxes of $25.7 million related to the CIGS solar systems business.

Years Ended December 31, 2010 and 2009

        The following table shows our Consolidated Statements of Operations, percentages of sales and comparisons between 2010 and 2009 (dollars in 000s):

 
 Year ended December 31, Dollar and
Percentage
Change
Year to Year
 
 
 2010 2009 

Net sales

 $930,892  100.0%$282,262  100.0%$648,630  229.8%

Cost of sales

  481,407  51.7  168,003  59.5  313,404  186.5 
              

Gross profit

  449,485  48.3  114,259  40.5  335,226  293.4 

Operating expenses (income):

                   

Selling, general and administrative

  87,250  9.4  59,419  21.1  27,831  46.8 

Research and development

  56,948  6.1  37,767  13.4  19,181  50.8 

Amortization

  3,703  0.4  3,977  1.4  (274) (6.9)

Restructuring

  (179) (0.0) 4,479  1.6  (4,658) * 

Asset impairment

      304  0.1  (304) (100.0)

Other, net

  (1,490)   682  0.2  (2,172) * 
              

Total operating expenses

  146,232  15.7  106,628  37.8  39,604  37.1 
              

Operating income

  303,253  32.6  7,631  2.7  295,622  3,874.0 

Interest expense, net

  6,572  0.7  6,850  2.4  (278) (4.1)
              

Income from continuing operations before income taxes

  296,681  31.9  781  0.3  295,900  37,887.3 

Income tax provision

  19,505  2.1  2,558  0.9  16,947  662.5 
              

Income (loss) from continuing operations

  277,176  29.8  (1,777) (0.6) 278,953  * 
              

Discontinued operations:

                   

Income (loss) from discontinued operations, before income taxes

  129,776  13.9  (15,066) (5.3) 144,842  * 

Income tax provision (benefit)

  45,192  4.9  (1,211) (0.4) 46,403  * 
              

Income (loss) from discontinued operations

  84,584  9.1  (13,855) (4.9) 98,439  * 
              

Net income (loss)

  361,760  38.9  (15,632) (5.5) 377,392  * 

Net loss attributable to noncontrolling interest

      (65) (0.0) 65  (100.0)
              

Net income (loss) attributable to Veeco

 $361,760  38.9%$(15,567) (5.5)%$377,327  * 
              

*
Not Meaningful

Net Sales and Orders

        Net sales of $930.9 million for the year ended December 31, 2010, were up 229.8% compared to 2009. The following is an analysis of sales and orders by segment and by region (dollars in 000s):

 
 Sales Orders  
  
 
 
 Year ended
December 31,
 Dollar and
Percentage Change
 Year ended
December 31,
 Dollar and
Percentage Change
 Book to Bill
Ratio
 
 
 2010 2009 Year to Year 2010 2009 Year to Year 2010 2009 

Segment Analysis

                               

LED & Solar

 $795,565 $205,003 $590,562  288.1%$968,143 $409,232 $558,911  136.6% 1.22  2.00 

Data Storage

  135,327  77,259  58,068  75.2  153,406  97,497  55,909  57.3  1.13  1.26 
                      

Total

 $930,892 $282,262 $648,630  229.8%$1,121,549 $506,729 $614,820  121.3% 1.20  1.80 
                      

Regional Analysis

                               

Americas

 $92,646 $60,730 $31,916  52.6%$107,039 $75,946 $31,093  40.9% 1.16  1.25 
                      

EMEA

  92,112  49,938  42,174  84.5  83,784  47,049  36,735  78.1  0.91  0.94 
                      

Korea

  301,026  99,132  201,894  203.7  207,337  222,114  (14,777) (6.7) 0.69  2.24 

China

  266,813  31,114  235,699  757.5  537,740  75,559  462,181  611.7  2.02  2.43 

Taiwan

  101,130  13,882  87,248  628.5  112,016  34,642  77,374  223.4  1.11  2.50 

Other Asia Pacific

  77,165  27,466  49,699  180.9  73,633  51,419  22,214  43.2  0.95  1.87 
                      

Asia Pacific

  746,134  171,594  574,540  334.8  930,726  383,734  546,992  142.5  1.25  2.24 
                      

Total

 $930,892 $282,262 $648,630  229.8%$1,121,549 $506,729 $614,820  121.3% 1.20  1.80 
                      

        By segment, LED & Solar sales increased 288.1% in 2010 due to increases in shipments of our newest systems as compared to 2009 (363.9% increase in MOCVD reactor shipments from 2009) as a result of an increase in demand for HB LED backlighting applications and general illumination. Data Storage sales also increased 75.2%, primarily as a result of an increase in capital spending by data storage customers for capacity and technology buys. LED & Solar sales represented 85.5% of total sales for the year ended December 31, 2010, up from 72.6% in the prior year. Data Storage sales accounted for 14.5% of net sales, down from 27.4% in the prior year. By region, net sales increased by 334.8% in Asia Pacific, primarily due to MOCVD sales to HB LED customers. In addition, sales in the Americas and EMEA also increased 52.6% and 84.5%, respectively. We believe that there will continue to be period-to-periodyear-to-year variations in the geographic distribution of sales.

        Orders in 20092010 increased 50.7%121.3% compared to 2008,2009, primarily attributable to a 175.2%136.6% increase in LED & Solar orders that were principally driven by HB LED manufacturers increasing production for television and laptop backlighting applications and demand for CIGS deposition systems and components. The 19.4% decrease in orders for Metrology products was due primarily to the slow down in the semiconductor and research and industrial markets.applications. Data Storage Process Equipment orders declined 29.7%increased 57.3% from the continued slow downincrease in our customerscustomer's capital spending.spending for capacity and technology buys.

        Our book-to-bill ratio for 2009,2010, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was 1.681.20 to 1 compared to 0.961.80 to 1 in 2008.2009. Our backlog as of December 31, 20092010 was $402.0$535.4 million, compared to $147.2$345.9 million as of December 31, 2008.2009. During the year ended December 31, 2009,2010, we experienced a net backlog adjustmentsadjustment of approximately $4.5$2.9 million, consisting of $3.8 million for order cancellations, primarily in the first half ofcancellations. During the year and $0.7 million of adjustmentsended December 31, 2010, we had a positive adjustment related to foreign currency translation.translation of $1.8 million. For certain sales arrangements we require a deposit for a portion of the sales price before shipment. As of December 31, 2010 and 2009 we had deposits and advanced billings of $62.0 million.$129.2 million and $59.8 million, respectively.


Gross Profit

        Gross profit was 39.9%$449.5 million or 48.3% for 2009 and 2008. Despite the overall $62.72010 compared to $114.3 million decreaseor 40.5% in sales, gross margin remained flat, primarily due to the favorable impact of significant cost reductions from a reduced workforce, lower facilities costs associated with closing and consolidating facilities and the outsourcing of certain Data Storage Process Equipment product manufacturing to Asia.2009. LED & Solar Process Equipment gross margins increased to 48.3% from 38.5%42.0% in the prior year, to 40.7%, primarily due to the impact ofincreases in volume (262 additional system shipments and 185 additional final acceptances received compared to prior year in our MOCVD business) and higher average selling prices coupled with lower fixed cost structure and a 23.7% increase in sales volume as well as favorable pricing on new MOCVD products.manufacturing costs. Data Storage Process Equipment gross margins decreasedincreased to 48.4% from 40.5%36.4% in the prior year to 37.0% mainly due to decreasedincreased sales volume partially offset by reduced costs due to our expense reduction plans compared to the prior year.and a favorable product mix. During 2009, Data Storage Process Equipment gross margins were also negatively impacted by a charge to cost of sales of $1.5 million during 2009 for the write off of inventory associated with discontinued legacy product lines. Metrology gross margins remained relatively flat, principally due to lower sales volume, offset by reduced costs due to our expense reduction plans.

Operating Expenses

        Selling, general and administrative expenses decreased by $7.4 million or 8.0%, from the prior year primarily due to lower salary and related expenses resulting from personnel reductions taken as part of management's restructuring plan and reductions in travel and entertainment costs and insurance and facilities costs associated with our cost reduction and restructuring initiatives primarily in the first half of 2009. Selling, general and administrative expenses were 22.5% of net sales in 2009, compared with 21.0% of net sales in the prior year.

        Research and development expense decreased $2.9 million or 4.8% from the prior year, primarily due to a more focused approach to data storage and metrology product development, which was partially offset by the continuation of investments in areas that we believe are higher-growth end market opportunities, particularly in our LED & Solar segment. As a percentage of net sales, research and development expense increased to 15.1% from 13.6% in the prior year.

        Amortization expense decreased $3.4 million or 31.7% from the prior year. This decrease is mainly due to certain intangibles in LED & Solar Process Equipment being fully amortized at the end of 2008 as well as the write-off of purchased technology in Data Storage Process Equipment in connection with the asset impairment charges recorded during the fourth quarter of 2008.

        Restructuring expense of $7.7 million for the year ended December 31, 2009, consisted primarily of personnel severance costs of $6.3 million associated with the reduction of approximately 239 employees in our workforce. Additionally, we took a $1.4 million charge during 2009 for costs associated with vacating a leased facility in Camarillo, California, during the second quarter and the related relocation of 27 employees from the Data Storage Process Equipment segment to our Metrology's Santa Barbara, California facility.

        During 2009, the Company recorded a $0.3 million asset impairment charge, which was recorded during the second quarter. The charge was for property, plant and equipment no longer being utilized in our Data Storage Process Equipment reporting unit.

Interest Expense and Interest Income

        Interest expense for 2009 was $7.7 million, comprised of $4.9 million in cash interest and $2.8 million in non-cash interest. Interest expense for 2008 was $9.3 million, comprised of $6.4 million in cash interest and $2.9 million in non-cash interest. The non-cash interest expense in both periods is related to the implementation of new accounting guidance that requires a portion of convertible debt to be allocated to equity. See Note 1 to our consolidated financial statements for a further discussion



of the implementation of this new guidance. The decrease of $1.6 million in interest expense from the prior year was primarily due to the repayment of $25.3 million of our Old Notes in the fourth quarter of 2008. Interest income decreased by $1.7 million due principally to the lower interest rate yields on cash balances invested during 2009 compared to the prior year.

Gain on Extinguishment of Debt

        During the fourth quarter of 2008, we made two repurchases of $12.2 million in aggregate principal amount of our convertible subordinated notes for $7.2 million in cash, of which $7.1 million related to principal and $0.1 million related to accrued interest, reducing the amount outstanding from $117.8 million to $105.6 million. As a result of these repurchases, we recorded a net gain from the extinguishment of debt of approximately $3.8 million. There were no repurchases during 2009.

Income Taxes

        The income tax provision for the year ended December 31, 2009 was $1.3 million compared to $1.9 million in the prior year. The 2009 provision for income taxes included $0.4 million relating to our foreign operations and $0.9 million relating to our domestic operations. Due to significant domestic net operating loss carry forwards, which are fully reserved by a valuation allowance, our domestic operations are not expected to incur significant federal income taxes until such time as the net operating losses are utilized.

Net Loss Attributable to Noncontrolling Interest

        Net loss attributable to noncontrolling interest was $0.1 million for the year ended December 31, 2009 and $0.2 million in the prior year. As we were the primary beneficiary of Fluens, a variable interest entity, we were required to consolidate Fluens and eliminate the portion of its results attributable to noncontrolling interests. As a result, we eliminated from our net loss 80.1% of Fluens' operating losses. On May 14, 2009, we acquired the remaining 80.1% of Fluens. As a result, we now own 100% of Fluens.


Years Ended December 31, 2008 and 2007

        The following table shows our Consolidated Statements of Operations, percentages of sales, and comparisons between 2008 and 2007 (dollars in 000s):

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
 
 2008 2007 

Net sales

 $442,809  100%$402,475  100%$40,334  10.0%

Cost of sales

  266,215  60.1  244,964  60.9  21,251  8.7 
              

Gross profit

  176,594  39.9  157,511  39.1  19,083  12.1 

Operating expenses:

                   
 

Selling, general, and administrative expense

  92,838  21.0  90,972  22.6  1,866  2.1 
 

Research and development expense

  60,353  13.6  61,174  15.2  (821) (1.3)
 

Amortization expense

  10,745  2.4  10,250  2.5  495  4.8 
 

Restructuring expense

  10,562  2.4  6,726  1.7  3,836  57.0 
 

Asset impairment charge

  73,322  16.6  1,068  0.3  72,254  6,765.4 
 

Other income, net

  (668) (0.2) (618) (0.2) (50) 8.1 
              

Total operating expenses

  247,152  55.8  169,572  42.1  77,580  45.8 
              

Operating loss

  (70,558) (15.9) (12,061) (3.0) (58,497) 485.0 

Interest expense

  9,317  2.1  8,827  2.2  490  5.6 

Interest income

  (2,588) (0.6) (3,963) (1.0) 1,375  (34.7)

Gain on extinguishment of debt

  (3,758) (0.8) (738) (0.2) (3,020) 409.2 
              

Loss before income taxes

  (73,529) (16.6) (16,187) (4.0) (57,342) 354.2 

Income tax provision

  1,892  0.4  3,651  0.9  (1,759) (48.2)
              

Net loss

  (75,421) (17.0) (19,838) (4.9) (55,583) 280.2 

Net loss attributable to noncontrolling interest

  (230) 0.0  (628) (0.1) 398  (63.4)
              

Net loss attributable to Veeco

 $(75,191) (17.0)%$(19,210) (4.8)%$(55,981) 291.4%
              

Net Sales and Orders

        Net sales of $442.8 million for the year ended December 31, 2008 were up 10.0%, compared to 2007. The following is an analysis of sales and orders by segment and by region (dollars in 000s):

 
 Sales Orders  
  
 
 
 Year ended
December 31,
 Dollar and
Percentage
Change
 Year ended
December 31,
 Dollar and
Percentage
Change
 Book to
Bill Ratio
 
 
 2008 2007 Year to Year 2008 2007 Year to Year 2008 2007 

Segment Analysis

                               
 

LED & Solar Process Equipment

 $165,812 $115,863 $49,949  43.1%$160,162 $163,970 $(3,808) (2.3)% 0.97  1.42 
 

Data Storage Process Equipment

  149,123  136,169  12,954  9.5  138,653  141,663  (3,010) (2.1) 0.93  1.04 
 

Metrology

  127,874  150,443  (22,569) (15.0) 125,622  145,939  (20,317) (13.9) 0.98  0.97 
                      
 

Total

 $442,809 $402,475 $40,334  10.0%$424,437 $451,572 $(27,135) (6.0)% 0.96  1.12 
                      

Regional Analysis

                               
 

Americas

 $165,926 $130,500 $35,426  27.1%$145,082 $150,748 $(5,666) (3.8)% 0.87  1.16 
 

EMEA

  94,142  77,985  16,157  20.7  86,518  106,178  (19,660) (18.5) 0.92  1.36 
 

Japan

  38,453  55,815  (17,362) (31.1) 31,593  48,764  (17,171) (35.2) 0.82  0.87 
 

Asia Pacific

  144,288  138,175  6,113  4.4  161,244  145,882  15,362  10.5  1.12  1.06 
                      
 

Total

 $442,809 $402,475 $40,334  10.0%$424,437 $451,572 $(27,135) (6.0)% 0.96  1.12 
                      

        By segment, LED & Solar Process Equipment sales increased 43.1% due to an increase in end user demand from expanding applications for HB LEDs, strong customer acceptance of Veeco's newest generation systems, successful introduction of new thermal deposition sources for CIGS solar cells, and $12.9 million in sales from the solar equipment product line, which was acquired in the second quarter of 2008 as a result of the Mill Lane acquisition. Additionally, Data Storage Process Equipment sales were up 9.5% primarily as a result of customers' technology and capacity requirements. Partially offsetting these increases was a decline in Metrology sales of 15.0%, primarily due to the slowdown in the semiconductor and research and industrial markets. LED & Solar Process Equipment sales represented 37.4% of total sales for the year ended December 31, 2008, up from 28.8% in the prior year period. Data Storage Process Equipment sales accounted for 33.7% of net sales, down slightly from 33.8% in the prior year period. Metrology sales accounted for 28.9% of net sales for the year ended December 31, 2008, down from 37.4% in the prior year period. By region, net sales increased by 27.1%, 20.7% and 4.4% in the Americas, EMEA and Asia Pacific, respectively, while sales in Japan declined 31.1%.

        Orders in 2008 decreased 6.0% compared to 2007, primarily attributable to a 13.9% decline in Metrology orders due to a decrease in orders for AFM products resulting from lower demand in the semiconductor and research and industrial markets. The 2.3% decrease in orders for LED & Solar Process Equipment was due primarily to the decline in MOCVD orders as the HB LED industry absorbs the significant number of new MOCVD systems purchased in the past two years. Data Storage Process Equipment orders declined 2.1% due to the reduction in customers' future capital equipment requirements.

        Our book-to-bill ratio for 2008, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was 0.96 to 1. Our backlog as of December 31, 2008, was $147.2 million, compared to $173.5 million as of December 31, 2007. During the year ended December 31, 2008, we experienced net backlog adjustments of approximately $8.0 million, consisting of $18.7 million for order cancellations, primarily from Asia Pacific MOCVD customers, and $2.0 million of adjustments related to foreign currency translation, partially offset by $12.7 million dollars of backlog acquired in the Mill Lane acquisition in the second quarter of 2008. For certain sales arrangements we require a deposit for a portion of the sales price before shipment. As of December 31, 2008 we have deposits and advanced billings of $18.0 million.


Gross Profit

        Gross profit for 2008 was 39.9%, compared to 39.1% in 2007. Strong performance in both our LED & Solar and Data Storage Process Equipment businesses were due primarily to a 25.0% increase in sales volume and favorable product mix. LED & Solar Process Equipment gross margins increased from 37.8% in the prior year to 38.5%, primarily due to a 43.1% increase in sales volume as well as favorable pricing on new MOCVD products, despite a reduction in gross profit of $1.5 million during 2008 related to the acquisition of Mill Lane. This reduction was the result of purchase accounting, which requires adjustments to capitalize inventory at fair value. This impact is reflected in cost of sales during 2008. Data Storage Process Equipment gross margins increased from 34.7% in the prior year to 40.5% mainly due to increased sales volume, as well as favorable pricing and product mix compared to the prior year. In 2007, Data Storage Process Equipment gross margin was also negatively impacted by a charge of $4.8 million for the write-off of inventory associated with certain discontinued data storage product lines. Metrology gross margins declined from 44.1% in the prior year to 41.0%, principally due to 15.0% lower sales volume, partially offset by a reduction in spending associated with cost savings initiatives. Metrology gross margins were also negatively impacted by a charge to cost of sales of $2.9 million during 2008 for the write off of inventory associated with legacy semiconductor products.

Operating Expenses

        Selling, general and administrative expenses increased by $1.9$27.8 million or 2.1%46.8%, from the prior year primarily due to an increasesupport the business ramp in bonus and profit sharing, an increase in equity compensation, salaries and fringe expense, and an increase in spending associated with the acquisition of Mill Lane in the second quarter of 2008. This was partially offset by reductions in consulting, travel and entertainment and insurance and facilities costs associated with our continuing cost savings initiatives.LED & Solar segment. Selling, general and administrative expenses were 21.0%9.4% of net sales in 2008,2010, compared with 22.6%21.1% of net sales in the prior year.

        Research and development expense decreased $0.8increased $19.2 million or 50.8% from the prior year, primarily due to a more focused approach to data storage and metrologycontinued product development offset by an increase in product improvement efforts and new product developmentareas of high-growth for end market opportunities in our LED & Solar segment. As a percentage of net sales, research and development expense decreased to 13.6%6.1% from 15.2%13.4% in the prior year.

        Amortization expense was $10.7decreased $0.3 million in 2008, compared to $10.2 million in 2007. The increase was primarilyor 6.9% from the prior year. This decrease is mainly due to additional amortization associated with intangible assets acquired as part of the acquisition of Mill Lane in the second quarter of 2008, partially offset by certain technology-based intangible assets becomingintangibles being fully amortized during 2007.at the end of 2009.

        Restructuring expensecredit of $10.6$0.2 million for the year ended December 31, 2008,2010, was attributable to a change in estimate in our Data Storage segment. Restructuring expense of $4.5 million for the year ended December 31, 2009, consisted primarily of personnel severance costs of $6.5 million, including $3.7 million related to the mutually agreed-upon termination of our former CEO's employment agreement and $2.8$3.1 million associated with the reduction of approximately 74161 employees or 6%, of the Company'sin our workforce. Additionally, we incurredtook a $3.7$1.4 million charge during 2008the second quarter of 2009 for lease-related costs associated with the consolidation of our corporate headquarters into our Plainview, New York facility, and $0.4 million associated with the termination ofvacating a leased facility in Santa Barbara,Camarillo, California that we vacated duringand the third quarter. Restructuring expenserelated relocation of $6.7 million for the year ended December 31, 2007, was principally a result of personnel severance costs of $4.9 million associated with a cost reduction plan initiated by management during 2007 and $1.8 million of costs for purchase commitments associated with certain discontinued product lines.27 employees.

        During 2008,2009, the Company recorded a $73.3$0.3 million asset impairment charge. The charge of which $73.0 million was recorded during the fourth quarter and $0.3 million was recorded during the first quarter. The fourth quarter charge consisted of $52.3 million related to goodwill, $19.6 million related



to intangible assets and $1.1 million infor property, plant and equipment as more fully described below. The first quarter charge consisted of $0.3 million associated with property and equipment abandoned as part of the consolidation of our corporate headquarters into our Plainview facility. Asset impairment charges of $1.1 million incurred during 2007 were attributable to the write-off of certain property and equipment associated with the discontinued product lines.

        In accordance with the relevant accounting guidance related to goodwill and other intangible assets, we conducted our annual impairment test of goodwill and indefinite-lived intangible assets during the fourth quarters of 2008 and 2007, using October 1st as our measurement date, and utilizing a discounted future cash flow approach as described in the Application of Critical Accounting Policies section that follows. This was consistent with the approach used in previous years. Based upon the results of such assessments, we determined that no goodwill and indefinite-lived intangible asset impairment existed in any of our reporting units, as of October 1, 2008 and 2007, respectively.

        During the fourth quarter of 2008, the economic downturn became more significant and wide ranging as credit availability tightened and overall business and economic conditions deteriorated. It became apparent that the revenue, profitability, growth and other assumptions we used in its fair value determination at October 1, 2008, required revisions. Additionally, we realized a significant decline in our market capitalization which resulted in the carrying value of our net assets exceeding our market capitalization. Given these factors we were required to perform an interim goodwill impairment assessment as of December 31, 2008.

        In performing the impairment assessment as of December 31, 2008, we updated our financial forecast and growth rate assumptions based upon current market conditions and determined that the carrying amounts of our Data Storage Process Equipment and AFM reporting units were in excess of their respective estimated fair values. As such, we were required to allocate the estimated fair value to all assets and liabilities in these two reporting units and determined there was no implied value related to goodwill or indefinite-lived intangible assets. We recorded an asset impairment charge of $52.3 million in the fourth quarter of 2008 relating to goodwill, which consisted of $30.4 millionlonger being utilized in our Data Storage Process Equipment reporting unit and $21.9 million in our AFM reporting unit, and recorded a charge of $5.0 million in our Data Storage Process Equipment reporting unit relating to indefinite-lived intangible assets, pertaining to trademarks.

        In accordance with the relevant accounting guidance related to the impairment or disposal of long-lived assets, we performed an analysis as of December 31, 2008 of our definite-lived intangible and long-lived assets due to impairment indicators noted during the fourth quarter of 2008, pertaining to its Data Storage Process Equipment and AFM reporting units. Indications of impairment included deteriorating economic conditions, reduced orders, reduced revenue projections, losses in its AFM reporting unit and a significant reduction in our market capitalization. No impairment indicators were present in the other two reporting units. For the purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. For the Data Storage Process Equipment reporting unit the long-lived assets were grouped at one level below the reporting unit and at the reporting unit level for AFM. The recoverability of long-lived asset groups was measured by a comparison of the carrying amount of the assets to the estimated undiscounted future cash flows expected to be generated by such assets. Developing the estimate of the undiscounted future cash flows requires significant judgment and projection of future financial performance, including projection of future revenue and expenses, working capital requirements and the time period in which the assets will be utilized. We used the economic life of the primary asset in the long-lived asset group to determine the forecast period of the future cash flows. For the AFM reporting unit, we analyzed long-lived assets with a carrying value of $27.8 million (consisting of $16.6 million of property, plant and equipment and $11.2 million of intangible assets principally patent defense and capitalized software costs) at December 31, 2008 for impairment and



determined that no impairment existed. For the Data Storage Process Equipment reporting unit, we analyzed long-lived assets with a carrying value of $38.6 million at December 31, 2008 for impairment and determined that no impairment existed for one of the identifiable long-lived asset groups with a carrying value of $12.8 million (consisting principally of property, plant and equipment). Since the carrying amount of long-lived assets within the other identifiable asset group exceeded the estimated future cash flows of such assets, impairment existed. This long-lived asset group consists of intangible assets of $24.0 million (primarily purchased technology) and $1.8 million of property, plant and equipment pertaining to its mechanical processing product line of Saws and Lappers. The amount of the impairment is determined by comparing the fair value of the long-lived asset group to the carrying value. As permitted under the relevant accounting guidance we determined the fair value of our long-lived asset groups utilizing a discounted cash flow approach applying a risk free interest rate. The carrying value of the long-lived assets exceeded the fair value by $15.7 million which was recorded as an impairment charge and was allocated on a pro rata basis to the long-lived assets with $14.6 million allocated to intangible assets and $1.1 million allocated to property, plant and equipment.segment.

Interest Expense, and Interest Incomenet

        Interest expense, net for 20082010 was $9.3$6.6 million, comprised of $6.4$4.7 million in cash interest expense, $0.4 million in non-cash interest expense relating to net amortization of our short-term investments and $3.1 million in non-cash interest expense relating to our convertible debt, partially offset by $1.6 million in interest income earned on our cash and short-term investment balances. Interest expense, net for 2009 was $6.9 million, comprised of $4.9 million in cash interest expense and $2.9$2.8 million in non-cash interest expense. Interest expense, for 2007 was $8.8 million, comprised of $7.0partially offset by $0.8 million in cash interest expense and $1.8 million in non-cash interest expense.income. The non-cash interest expense in both periods is related to the amortization of the debt discount recorded primarily as a result of the implementation of new accounting guidancerules that requires a portion of convertible debt to be allocated to equity. See Note 1equity in 2010 and 2009 and accretion of debt discounts and amortization of debt premiums related to our consolidated financial statements for a further discussion of the implementation of the new accounting guidance that requires a portion of convertible debt to be allocated to equity. The increaseshort-term investments in non-cash interest expense of $1.1million was primarily due to the convertible subordinated notes being outstanding for a full year in 2008 compared to approximately seven months in 2007. The decrease in cash interest expense was primarily due to the repurchase of our convertible subordinated notes. Interest income decreased by $1.4 million due principally to the lower interest rate yields on cash balances invested during 2008 compared to the prior year.

Gain on Extinguishment of Debt

        During the fourth quarter of 2008, we repurchased $12.2 million in aggregate principal amount of our convertible subordinated notes. As a result of these repurchases, we recorded a net gain from the extinguishment of debt of approximately $3.8 million. The gain was calculated based on the fair value of the portion repurchased as of the repurchase date, in accordance with the implementation of new accounting guidance that requires a portion of convertible debt to be allocated to equity.

        During 2007, we repurchased $56.0 million of our convertible subordinated notes, reducing the amount outstanding from $200.0 million to $144.0 million. The repurchase amount was $55.1 million in cash, of which $54.8 million related to principal and $0.3 million related to accrued interest. As a result of this repurchase, we recorded a net gain from the extinguishment of debt of approximately $0.7 million.2010.

Income Taxes

        The income tax provision attributable to continuing operations for the year ended December 31, 20082010 was $1.9$19.5 million or 6.6% of income before taxes compared to $3.7$2.6 million or 327.5% of income before taxes in the prior year. The 20082010 provision for income taxes included $1.5 million relating to our foreign operations, which continue to be profitable, and $0.4 million relating to our domestic operations. Due to significant domestic net operating loss carry forwards, which are fully reserved by a valuation allowance, our domestic operations are not expected to incur significant income taxes for the foreseeable future. The 2007 provision for income taxes included $2.2$8.0 million relating to our foreign operations and $1.5$11.5 million relating to our domestic operations. The 2009 provision for income taxes included $1.6 million relating to our foreign operations and $1.0 million relating to our domestic operations. Our effective tax rate in 2010 is lower than the statutory rate as a result of the reversal of our valuation allowance, which impacted the effective tax rate by approximately 28.0%.


Net Loss Attributable to Noncontrolling InterestDiscontinued Operations

        NetDiscontinued operations represent the results of the operations of our disposed Metrology segment, which was sold to Bruker on October 7, 2010, and our CIGS solar systems business, which was discontinued on September 27, 2011, reported as discontinued operations. The 2010 results reflect an operational loss attributablebefore taxes of $0.8 million and a gain on disposal of $156.3 million before taxes related to noncontrolling interest was $0.2the Metrology segment and an operational loss before taxes of $25.7 million forrelated to the year ended December 31, 2008CIGS solar systems business. The 2009 results reflect an operational loss before taxes of $2.7 million related to the Metrology segment and $0.6an operational loss before taxes of $12.4 million inrelated to the prior year. As we were the primary beneficiary of Fluens, a variable interest entity, we are required to consolidate Fluens and eliminate the portion of its results attributable to noncontrolling interests. As a result, we eliminate from our net loss 80.1% of Fluens' operating losses.CIGS solar systems business.

Liquidity and Capital Resources

        Historically, our principal capital requirements have included the funding of acquisitions, working capital, capital expenditures and the repayment of debt. We traditionally have generated cash from operations and debt and stock issuances. Our ability to generate sufficient cash flows from operations is dependent on the continued demand for our products and services.

        Cash and cash equivalents as of December 31, 20092011 was $148.6$217.9 million. This amount represents an increasea decrease of $44.8$27.2 million from December 31, 2008.2010. We also had short-term investments and restricted cash of $135$273.6 million atand $0.6 million, respectively, as of December 31, 2009.2011. A summary of the current periodyear cash flow activity is as follows (in thousands)(in thousands):

 
 Year ended December 31, 
 
 2009 2008 

Net loss

 $(15,632)$(75,421)
      

Net cash provided by operating activities

 $57,849 $44,264 

Net cash used in investing activities

  (154,765) (23,684)

Net cash provided by (used in) financing activities

  141,869  (32,997)

Effect of exchange rates on cash and cash equivalents

  (163) (867)
      

Net change in cash and cash equivalents

  44,790  (13,284)

Cash and cash equivalents at beginning of period

  103,799  117,083 
      

Cash and cash equivalents at end of period

 $148,589 $103,799 
      
 
 Year ended
December 31,
 
 
 2011 2010 

Net income

 $127,987 $361,760 
      

Net cash provided by operating activities

 $115,442 $194,214 

Net cash provided by (used in) investing activities

  106,294  (121,621)

Net cash (used in) provided by financing activities

  (249,935) 25,505 

Effect of exchange rate changes on cash and cash equivalents

  989  (1,466)
      

Net (decrease) increase in cash and cash equivalents

  (27,210) 96,632 

Cash and cash equivalents at beginning of year

  245,132  148,500 
      

Cash and cash equivalents at end of year

 $217,922 $245,132 
      

        Cash provided by operations during the year ended December 31, 20092011 was $57.8$115.4 million compared to $44.3$194.2 million during the year ended December 31, 2008.2010. The $57.8$115.4 million cash provided by operations in 20092011 included adjustments to the $15.6$128.0 million of net lossincome for non-cash items, which increased the cash provided by net income by $76.9 million. The adjustments consisted of $44.4 million of discontinued operations, $12.9 million of depreciation and amortization, $12.8 million of $21.6 million, non-cash equity-based compensation expense, $11.3 million of $8.5deferred income taxes, $(10.4) million an asset impairment charge of $0.3excess tax benefits from stock option exercises, $3.3 million an inventory write-off of $1.5loss on extinguishment of debt, $1.3 million of amortization of debt discount, $0.8 million of $2.8 million, deferred income taxes of ($0.4) million, provision for bad debts of $0.1 millioninventory write-offs and a net loss on sale of fixed assets of $0.1 million.$0.6 million asset impairment charge. Net cash provided by operations was favorablyunfavorably impacted by a net $38.9$89.4 million increase fromof changes in operating assets and liabilities, which included a $49.1$19.4 million increase in inventories, a $42.2 million decrease in income taxes payable, a $72.7 million decrease in accrued expenses, principally resulting from customer deposits associated primarily with the significant increase in ordersshipments in our LED & Solar segment compared to bookings, a $25.5 million increase in prepaid expenses and other current assets and $6.9 million increase in other, net, partially offset by a $56.8 million decrease in inventories of approximately $17.0accounts receivable, $8.1 million due to reduction efforts and the impact of outsourcing. Partially offsetting these favorable items was an increase in accounts receivable of $24.5payable and a $12.4 million due primarily to an increasedecrease in MOCVD shipments during the fourth quarter of 2009 as compared to the fourth quarter of 2008.supplier deposits. Cash provided by operations during the year ended December 31, 20082010 was $44.3 million. The $44.3$194.2 million provided by operationsand included adjustments to the $75.4$361.8 million of net lossincome for non-cash items, which primarily reduced the cash provided by net income by $168.3 million. The adjustments


consisted of a non-cash asset impairment charge$10.8 million of $73.3 million, depreciation and amortization, $8.8 million of $25.1 million, non-cash stock-basedequity-based compensation expense, $3.1 million of $10.5amortization of debt discount, $(25.1) million and a non-cash inventory write-off of $2.9deferred income taxes, $(23.3) million partially offset by a $3.8of excess tax benefits from stock option exercises, $(156.3) million netof gain on early extinguishmentdisposal of long-term debt.our Metrology segment and $14.0 million of discontinued operations. Net cash provided by operations in 2008 was favorably impacted by a net $7.3$0.7 million increase fromof changes in operating assets and liabilities.


        Cash used inprovided by investing activities of $154.8$106.3 million for the year ended December 31, 2009,2011, resulted primarily from proceeds of $707.7 million from the purchasesale of short-term investments, $75.5 million of $135.0transfers from restricted cash and $0.2 million of other, net, partially offset by $588.5 million of purchases of short-term investments, $60.4 million of capital expenditures and $28.3 million of $8.3 million, earn-out payments for net assets of $9.8 million to the former owners of businesses acquired and the acquisitions of Fluens and Daystar for $2.5 million.a business acquired. Cash used in investing activities of $23.7$121.6 million forduring the year ended December 31, 2008,2010, resulted primarily from $506.1 million of purchases of short-term investments, $10.7 million of capital expenditures, $76.1 million of $12.8transfers to restricted cash and $0.5 million of discontinued operations, partially offset by proceeds of $33.0 million from the sale of short-term investments, $225.2 million net proceeds from the disposal of our Metrology segment and $213.6 million from the acquisitionmaturity of Mill Lane for $11.0 million.CDAR's.

        Cash used in financing activities of $249.9 million during the year ended December 31, 2011, consisted primarily of $162.1 million of purchases of treasury stock, $105.8 million of repayments of long-term debt and $3.2 million of restricted stock tax withholdings, partially offset by $10.7 million from stock option exercises and $10.4 million excess tax benefits from stock option exercises. Cash provided by financing activities of $141.9$25.5 million in 2009during the year ended December 31, 2010, consisted primarily consistedof $45.2 million of cash proceeds from the issuance of common stock, through a secondary public offering, of $130.1 million and from stock option exercises of $12.6 million. These proceeds wereand $23.3 million excess tax benefits from stock options exercises, partially offset by $4.6 million of restricted stock tax withholdings, $38.1 million of $0.6purchases of treasury stock and $0.2 million andof repayments of long-term debtdebt.

        During the first quarter of $0.2 million. Cash used in financing activities of $33.0 million in 2008 primarily consisted of cash used to pay the remaining outstanding convertible subordinated "Old Notes" (as defined below) for $25.2 million in cash and to repurchase $12.2 million in aggregate principal amount of our convertible subordinated "New Notes" (as defined below) for $7.2 million in cash. In addition, restricted stock tax withholdings of $1.0 million required the use of cash, partially offset by $0.7 million of proceeds from stock issuances.

        On December 21, 2001, we issued $200.0 million of unsecured 4.125% convertible subordinated notes due December 2008 ("Old Notes"), and on January 3, 2002, we issued an additional $20.0 million of Old Notes pursuant to the exercise of an over-allotment option. The Old Notes were convertible,2011, at the option of the holder,holders, $7.5 million of notes were tendered for conversion at any time on or priora price of $45.95 per share, calculated as defined in the indenture relating to maturity, intothe notes, in a net share settlement. As a result, we paid the principal amount of $7.5 million in cash and issued 111,318 shares of our common stock atstock. We recorded a conversion price of $38.51 per share. We paid interestloss on the Old Notes on June 21 and December 21 of each year. During 2006, we repurchased $20.0extinguishment totaling $0.3 million of Old Notes, reducing the amount outstanding from $220.0 millionrelated to $200.0 million. During 2007, we repurchased an additional $56.0 million of Old Notes, reducing the amount of Old Notes outstanding from $200.0 million to $144.0 million.these transactions.

        During the second quarter of 2007,2011, we issued new convertible subordinateda notice of redemption on the remaining notes (the "New Notes") pursuant to privately negotiated exchange agreements with certain holdersoutstanding. In lieu of redemption, at the option of the Old Notes. The New Notes bear interestholders, the notes were tendered for conversion at 4.125%a price of $50.59 per annum and mature on April 15, 2012. Under these agreements, such holders agreedshare, calculated as defined in the indenture relating to exchange $118.8 million aggregatethe notes, in a net share settlement. Accordingly, we paid the principal amount of Old Notes for approximately $117.8 million aggregate principal amount of New Notes. Following the exchange transactions, approximately $25.2 million of Old Notes remained outstanding.

        The New Notes are initially convertible into 36.7277 shares of common stock per $1,000 principal amount of New Notes (equivalent to a conversion price of $27.23 per share or a premium of 38% over the closing market price for our common stock on April 16, 2007). Holders may convert the New Notes at any time during the period beginning on January 15, 2012 through the close of business on the second day prior to April 15, 2012 and earlier upon the occurrence of certain events including our common stock trading at prices 130% of the conversion price for a specified period. We pay interest on these notes on April 15 and October 15 of each year. The New Notes are unsecured and are effectively subordinated to all of our senior and secured indebtedness and to all indebtedness and other liabilities of our subsidiaries.

        During the fourth quarter of 2008, we paid off the remaining $25.2 million of Old Notes outstanding. In addition, we repurchased $12.2 million in aggregate principal amount of our New Notes for $7.2$98.1 million in cash and issued 1,660,095 shares of which $7.1our common stock. We recorded a loss on extinguishment totaling $3.0 million related to principal and $0.1these transactions.

        On April 4, 2011, we purchased a privately-held company which supplies certain components to our business for $28.3 million relatedin cash.

        On October 6, 2011, the restriction has lapsed on the $22.9 million of cash held in escrow relating to accrued interest, reducing the amount outstanding from $117.8 million to $105.6 million. As a result of these repurchases, we recorded a net gainproceeds received from the extinguishmentsale of debtour Metrology segment. This cash was held in escrow and was restricted from use for one year from the closing date of approximately $3.8 million.the transaction to secure potential losses, if any, arising out of breaches of representations, warranties and covenants we made in the stock purchase agreement and related documents.

        In February 2009,On July 28, 2011, we entered into an amendmentannounced a plan to discontinue our then-existing credit agreement with HSBC Bank USA, National Association ("HSBC"),CIGS solar systems business. The action, which was completed on September 27, 2011 and impacted approximately 80 employees, was in response to the dramatically reduced cost of mainstream solar technologies driven by significant reductions in prices, large industry investment, a lower than expected end market acceptance for CIGS technology and technical barriers in scaling CIGS. This business was previously included as administrative agent, and the lenders named therein (as amended, the "Credit Agreement"). As part of our LED & Solar segment.

        Accordingly, the amendment, we reducedresults of operations for the amountCIGS solar systems business have been recorded as discontinued operations in the accompanying consolidated statements of the revolving credit facility, modified certain existing covenants and added certain new covenants. Inoperations for all periods



addition,presented. During the commitment feesyear ended December 31, 2011, total discontinued operations include charges totaling $69.8 million. These charges include an asset impairment charge totaling $6.2 million, a goodwill write-off of $10.8 million, an inventory write-off totaling $27.0 million, charges to settle contracts totaling $22.1 million, lease related charges totaling $1.4 million and interest rate were increased. As amended, the Credit Agreement provided for revolving credit borrowings of up to $30.0personnel severance charges totaling $2.3 million. The annual interest rate under the Credit Agreement was a floating rate equal to the prime rate of the agent bank plus 2.0%. A LIBOR-based interest rate option was also provided. Borrowings could have been used for general corporate purposes, including working capital requirements. The Credit Agreement contained certain restrictive covenants which included the maintenance of minimum cash balances and limitations with respect to incurrence of indebtedness, the payment of dividends, long-term leases, investments, mergers, acquisitions, consolidations and sales of assets. In addition, under such Credit Agreement, we were required to satisfy certain financial tests, including minimum profitability levels. Substantially all of our assets and those of our material domestic subsidiaries, other than real estate, were pledged to secure our obligations under the Credit Agreement.

        As of December 31, 2008, there were no borrowings outstanding under the Credit Agreement and letters of credit outstanding were approximately $0.4 million. Interest expense associated with the Credit Agreement recorded during 2009, 2008 and 2007 was approximately $0.2 million, $0.3 million and $0.2 million, respectively.

        The cash proceeds received from our secondary public offering of $130.1 million, coupled with cash generated from operations of $57.8 million during 2009 resulted in $283.6 million of cash and short-term investments at December 31, 2009. As a result, we elected to terminate the Credit Agreement, effective December 31, 2009. The termination of the Credit Agreement eliminates future commitment fees, restrictive covenants and collateral pledges, which were part of this facility. As of December 31, 2009, there were no borrowings outstanding under the Credit Agreement, but there was a letter of credit outstanding of approximately $0.5 million, which was continued under a separate arrangement with HSBC.

        At December 31, 2009,2011, our contractual cash obligations and commitments are as follows (in thousands)(in thousands):

 
 Payments due by period 
Contractual Cash Obligations and Commitments
 Total Less than
1 year
 1-3 years 3-5 years More than
5 years
 

Long-term debt(1)

 $2,654 $248 $558 $654 $1,194 

Interest on debt(1)

  935  201  339  244  151 

Operating leases(2)

  10,804  3,936  4,348  1,804  716 

Letters of credit and bank guarantees(3)

  5,295  5,295       

Purchase commitments(4)

  91,069  91,069       
            

 $110,757 $100,749 $5,245 $2,702 $2,061 
            

 
 Payments due by period 
Contractual Cash Obligations and Commitments
 Total Less than
1 year
 1-3 years 3-5 years More than
5 years
 

Long-term debt(1)

 $108,669 $212 $106,319 $290 $1,848 

Interest on debt(1)

  11,568  4,592  6,228  341  407 

Operating leases(2)

  9,367  3,814  3,647  1,430  476 

Letters of credit and bank guarantees(3)

  12,681  12,681       

Purchase commitments(4)

  138,921  138,921       
            

 $281,206 $160,220 $116,194 $2,061 $2,731 
            

(1)
Long-term debt obligations consist of repayment of our convertible subordinated notes and related interest, as well as mortgage and interest payments for our St. Paul, MN facility.

(2)
WeIn accordance with relevant accounting guidance, we account for our office leases as operating leases in accordance with relevant accounting guidance with expiration dates ranging from 20102012 through 2017. There are future minimum annual rental payments required under the leases. Leasehold improvements made at the beginning of or during a lease are amortized over the shorter of the remaining lease term or the estimated useful lives of the assets.

(3)
Issued by a bank on our behalf as needed. $0.5 million ofWe had letters of credit outstanding of $1.7 million and $12.2bank guarantees outstanding of $3.6 million, of bank guarantees can be drawnwhich, $0.6 million that is collateralized against lines of credit in our foreign subsidiaries.cash that is restricted from use.

(4)
Purchase commitments are primarily for inventory used in manufacturing our products. It has been our practice not to enter into purchase commitments extending beyond one year.

        We believe that existing cash balances and short-term investments together with cash generated from operations will be sufficient to meet our projected working capital and other cash flow requirements for the next twelve months, as well as our contractual obligations, detailed in the above table. We believe we will be able to meet our obligation to repay the $105.6 million subordinated notes that mature on April 15, 2012 with available cash and short-term investments or, if necessary, through a combination of conversion of the notes outstanding, refinancing, cash generated from operations, and other means.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.resources other than operating leases, letters of credit and bank guarantees, and purchase commitments disclosed in the preceding "Contractual Cash Obligations and Commitments" table.

Application of Critical Accounting Policies

        General:    Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management continually monitors and evaluates its estimates and judgments, including those related to bad debts, inventories, intangible and other long-lived assets, income taxes, warranty obligations, restructuring costs, and contingent liabilities, including potential


litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We consider certain accounting policies related to revenue recognition, short-term investments, the valuation of inventories, the impairment of goodwill and indefinite-lived intangible assets, the impairment of long-lived assets, fair value measurements, warranty costs, the accounting for income taxes and share-basedequity-based compensation to be critical policies due to the estimation processes involved in each.

        Revenue Recognition:    We recognize revenue based on current accounting guidance provided by the Securities and Exchange Commission ("SEC") and the Financial Accounting Standards Board ("FASB"). Our revenue transactions include sales of products under multiple-element arrangements. Revenue under these arrangements is allocated to each element based upon its estimated fair market value.selling price.

        We consider a broad array of facts and circumstances when evaluating each of our sales arrangements in determining when to recognize revenue, including specific terms of the purchase order, contractual obligations to the customer, the complexity of the customer's post deliverypost-delivery acceptance provisions, customer creditworthiness and the installation process. Revenue is recognized when persuasive evidence of an arrangement exists,Management also considers the sales price is fixed or determinable, collectability is reasonably assuredparty responsible for installation, whether there are process specification requirements which need to be demonstrated before final sign off and no uncertainties exist regarding customer acceptance. For transactions on which we recognize systems revenue, either atpayment, whether Veeco can replicate the time of shipment or delivery,field testing conditions and procedures in our contractual arrangementsfactory and our past experience with customers do not contain provisions for right of return or forfeiture, refund or other purchase price concessions.demonstrating and installing a particular system. Sales arrangements are reviewed on a case-by-case basis; however, our products generally fall into one of two categories; either instruments or systems, for which we have establishedthe Company's revenue recognition protocolsprotocol for established systems is as described below.

        Instruments—For standard products produced according to our published specifications, principally metrology instruments sold typically to universities, research facilities and scientific centers and in general industrial applications where installation is inconsequential or perfunctory and no substantive customer acceptance provisions exist, revenue is recognized when title and risk of loss pass to the



customer, either at time of shipment or delivery. Acceptance of the product by the customer is based upon meeting standard published specifications. Customer acceptance provisions include initial setup at the customer site, performance of functional test procedures and calibration testing of the basic features and functionality of the product. These provisions are a replication of the testing performed in our facilities prior to shipment. The skills and equipment required to complete installation of such instruments are not specialized and are readily available in the market and are often performed by distributors or representative organizations.

        Systems—Process equipment systems and certain metrology systems, which are sold to manufacturers in the LED, solar, data storage and semiconductor industries and are used in manufacturing facilities and commercial production environments typically include process acceptance criteria based upon Veeco and/or customer specifications. We are generally required to install these products and demonstrate compliance with acceptance tests at the customer's facility. Generally, based upon the terms of the sales arrangement, these products are sold with a retention (typically 10% to 20% of the sales contract value) which is payable by the customer when installation and field acceptance is completed. Such installations are not considered complex and are not deemed essential to the functionality of the equipment because they do not involve significant changes to the features or capabilities of the equipment or involve building complex interfaces or connections. Installation normally represents only 2% - 4% of the fair value of the sales contract. Sales arrangements for these systems are bifurcated into separate units of accounting or elements based on objective evidence of fair value. The two elements are the system and installation of the system. The amount of revenue allocated to each element is based upon its relative fair value. The price charged when the system or installation service is sold separately generally determines fair value. The value of the installation service is based upon the fair value of the service performed, including labor, which is based upon the estimated time to complete the installation at hourly rates, and material components. We recognize revenue for the system or delivered element since the delivered item has value to the customer on a standalone basis, there is objective and reliable evidence of the fair value of the undelivered item (i.e., the installation service) and delivery or performance of the undelivered item is considered probable and substantially in our control, based on our historical experience. The value of the undelivered element is the greater of the fair value of the installation or the portion of the sales price that will not be received until the installation is completed (i.e., the retention amount).        System revenue is generally recognized upon shipment or delivery provided title and risk of loss has passed to the customer.customer, evidence of an arrangement exists, prices are contractually fixed or determinable, collectability is reasonably assured and there are no material uncertainties regarding customer acceptance. Revenue from installation services is recognized at the time acceptance is received from the customer. If the arrangement does not meet all the above criteria, the entire amount of the sales arrangement is deferred until the criteria have been met or all elements have been delivered to the customer or been completed.

        For those transactions on which we recognize systems revenue, either at the time of shipment or delivery, our sales and contractual arrangements with customers do not contain provisions for right of return or forfeiture, refund or other purchase price concessions. In the rare instances where such provisions are included, the Company defers all revenue until customer acceptance is achieved. In cases where products are sold with a retention of 10% to 20%, which is typically payable by the customer when installation and field acceptance provisions are completed, the customer has the right to withhold this payment until such provisions have been achieved. We defer the greater of the retention amount or the estimated selling price of the installation on systems that we recognize revenue at the time of shipment or delivery.

        For new products, new applications of existing products or for products with substantive customer acceptance provisions where performance cannot be fully assessed prior to meeting customeragreed upon specifications at the customer site, revenue is deferred as deferred profit in the accompanying Consolidated Balance Sheets and fully recognized upon completion of installation and receipt of final customer acceptance. Since title

        Our systems are principally sold to goodsmanufacturers in the HB-LED, the data storage, solar and other industries. Sales arrangements for these systems generally passesinclude customer acceptance criteria based upon Veeco and/or customer specifications. Prior to shipment a customer source inspection of the system is performed in our facility or test data is sent to the customer documenting that the system is functioning within agreed upon shipmentspecifications. Such source inspection or delivery and 80%test data replicates the acceptance testing that will be performed at the customer's site prior to 90%final acceptance of the contract amount becomes payable at that time, inventory is relievedsystem. Customer acceptance provisions include reassembly and accounts receivable is recognized forinstallation of the amount billedsystem at the timecustomer site, which includes performing functional or mechanical test procedures (i.e. hardware checks, leak testing,


gas flow monitoring and quality control checks of shipment. The profit on the amount billed forbasic features of the product). Additionally, a material demonstration process may be performed to validate the functionality of the product. Upon meeting the agreed upon specifications the customer approves final acceptance of the product.

        Veeco generally is required to install these transactionsproducts and demonstrate compliance with acceptance tests at the customer's facility. Such installations typically are not considered complex and the installation process is deferrednot deemed essential to the functionality of the equipment because it does not involve significant changes to the features or capabilities of the equipment or involve building complex interfaces or connections. We have a demonstrated history of completing such installations in a timely, consistent manner and recognized as deferred profitcan reliably estimate the costs of such. In such cases, the test environment at our facilities prior to shipment replicates the customer's environment. While there are others in the accompanying Consolidated Balance Sheets.industry with sufficient knowledge about the installation process for our systems as a practical matter, most customers engage the Company to perform the installation services.

        In Japan, where our contractual terms with customers generally specify risk of loss and title transfers upon customer acceptance, revenue is recognized and the customer is billed upon receipt of written customer acceptance.

        Revenue related to maintenance and service contracts is recognized ratably over the applicable contract term. Component and spare part revenue is recognized at the time of shipment or delivery in accordance with the terms of the applicable sales arrangement.


        Short-Term Investments:    We determine the appropriate balance sheet classification of our investments at the time of purchase and evaluate the classification at each balance sheet date. As part of our cash management program, we maintain a portfolio of marketable securities which are classified as available-for-sale. These securities include FDIC insured corporate bonds, treasury bills, commercial paper and CDARS with maturities of greater than three months when purchased in principal amounts that, when aggregated with interest to accrue over the term, will not exceed FDIC limits. Securities classified as available-for-sale are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income (loss) and reported in equity. Net realized gains and losses are included in net income (loss) attributable to Veeco.

        Inventory Valuation:    Inventories are stated at the lower of cost (principally first-in, first-out method) or market. Management evaluates the need to record adjustments for impairment of inventory on a quarterly basis. Our policy is to assess the valuation of all inventories, including raw materials, work-in-process, finished goods, and spare parts and other service inventory. Obsolete or slow-moving inventory, based upon historical usage, or inventory in excess of management's estimated usage for the next 12 month's requirements is written-down to its estimated market value, if less than its cost. Inherent in the estimates of market value are management's estimates related to our future manufacturing schedules, customer demand, technological and/or market obsolescence, possible alternative uses, and ultimate realization of excess inventory.

        Goodwill and Indefinite-Lived Intangible Asset Impairment:    The Company does not amortize goodwill or intangible assets with indefinite useful lives, but instead tests the balances in these asset accounts for impairment at least annually at the reporting unit level. Our policy is to perform this annual impairment test in the fourth quarter, using a measurement date of October 1st, of each fiscal year or more frequently if impairment indicators arise. Impairment indicators include, among other conditions, cash flow deficits, a historical or anticipated decline in revenue or operating profit, adverse legal or regulatory developments, and a material decrease in the fair value of some or all of the assets.

        Pursuant to relevant accounting pronouncements we are required to determine if it is appropriate to use the operating segment as defined under accounting guidance as the reporting unit or one level below the operating segment, depending on whether certain criteria are met. We have identified fourtwo reporting units that are required to be reviewed for impairment. The reporting units are Data Storage Process Equipment, LED & Solar Process Equipment, AFM and Optical Metrology. AFM and Optical Metrology comprise the Metrology operating segment.Data Storage. In identifying the reporting units management considered the economic


characteristics of operating segments including the products and services provided, production processes, types or classes of customer and product distribution.

        We perform this impairment test by first comparing the fair value of our reporting units to their respective carrying amount. When determining the estimated fair value of a reporting unit, we utilize a discounted future cash flow approach since reported quoted market prices are not available for our reporting units. Developing the estimate of the discounted future cash flow requires significant judgment and projections of future financial performance. The key assumptions used in developing the discounted future cash flows are the projection of future revenues and expenses, working capital requirements, residual growth rates and the weighted average cost of capital. In developing our financial projections, we consider historical data, current internal estimates and market growth trends. Changes to any of these assumptions could materially change the fair value of the reporting unit. We reconcile the aggregate fair value of our reporting units to the Company's adjusted market capitalization as a supporting calculation. The adjusted market capitalization is calculated by multiplying the average share price of our common stock for the last ten trading days prior to the measurement date by the number of outstanding common shares and adding a control premium.

        If the carrying value of the reporting units exceed the fair value we would then compare the implied fair value of our goodwill to the carrying amount in order to determine the amount of the impairment, if any.

        Definite-Lived Intangible and Long-Lived Asset Impairment:Assets:    Intangible assets consist of purchased technology, customer-related intangible assets, patents, trademarks, covenants not-to-compete, software licenses and deferred financing costs. Purchased technology consists of the core proprietary manufacturing technologies associated with the products and offerings obtained through acquisition and are initially recorded at fair value. Customer-related intangible assets, patents, trademarks and covenants not-to-compete are initially recorded at fair value and software licenses and deferred financing costs are initially recorded at cost. Intangible assets with definitive useful lives are amortized using the straight-line method over their estimated useful lives for periods ranging from 2 years to 17 years.

        Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.

        Long-lived assets, such as property, plant, and equipment and intangible assets with definite useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, a historical or anticipated decline in revenue or operating profit, adverse legal or regulatory developments and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Recoverability of assets to be held and used is measured by a comparison of the



carrying amount of an asset to the estimated undiscounted future cash flowsflow expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

        Fair Value Measurements:    On January 1, 2009, we implemented new accountingAccounting guidance for our non-financial assets and non-financial liabilities. This new guidanceliabilities requires that we disclose the type of inputs we use to value our assets and liabilities, based on three categories of inputs as defined in such. Level 1 inputs are quoted, unadjusted prices in active markets for identical assets or liabilities that the company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations


in which there is little, if any, market activity for the asset or liability at the measurement date. These requirements apply to our long-lived assets, goodwill and intangible assets. We use Level 3 inputs to value all of such assets, and the methodology we use to value such assets has not changed since December 31, 2008.such. The Company primarily applies the market approach for recurring fair value measurements.

        Warranty Costs:    We estimate the costs that may be incurred under the warranty we provide and record a liability in the amount of such costs at the time the related revenue is recognized. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs. Our warranty obligation is affected by product failure rates, material usage, and labor costs incurred in correcting product failures during the warranty period. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs. If actual warranty costs differ substantially from our estimates, revisions to the estimated warranty liability would be required.

        Income Taxes:    As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax expense, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. The carrying value of our deferred tax assets is adjusted by a partial valuation allowance to recognize the extent to which the future tax benefits will be recognized on a more likely than not basis. Our net deferred tax assets consist primarily of net operating loss and tax credit carry forwards, and timing differences between the book and tax treatment of inventory, acquired intangible assets and other asset valuations. Realization of these net deferred tax assets is dependent upon our ability to generate future taxable income.

        We record valuation allowances in order to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of recorded valuation allowances, we consider a variety of factors, including the scheduled reversal of deferred tax liabilities, future taxable income, and prudent and feasible tax planning strategies. Under the relevant accounting guidance, factors such as current and previous operating losses are given significantly greater weight than the outlook for future profitability in determining the deferred tax asset carrying value.

        At December 31, 2009, we had a valuation allowance of approximately $84.7 million against substantially all of our domestic net deferred tax assets, which consist of net operating loss and tax credit carry forwards, as well as temporary deductible differences. If we are able to realize part or all of the domestic deferred tax assets in future periods, we will reduce our provision for income taxes with a release of the valuation allowance in an amount that corresponds with the income tax liability generated.


Relevant accounting guidance addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under such guidance, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. We had approximately $1.4 million of unrecognized tax benefits at December 31, 2009, which predominantly relate to positions taken on our foreign tax returns and all of which represent the amount of unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate in future periods. At December 31, 2008, the reserve for unrecognized tax benefits was $0.7 million relating to foreign unrecognized tax benefits.

        Share-BasedEquity-based Compensation:    Share-basedEquity-based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as expense over the employee requisite service period. In order to determine the fair value of stock options on the date of grant, we apply the Black-Scholes option-pricing model. Inherent in the model are assumptions related to risk-free interest rate, dividend yield, expected stock-price volatility and option life.

        The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The dividend yield assumption is based on the Company's historical and future expectation of dividend payouts. While the risk-free interest rate and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility and option life assumptions require a level of judgment which make them critical accounting estimates.

        We use an expected stock-price volatility assumption that is a combination of both historical volatility, calculated based on the daily closing prices of our common stock over a period equal to the


expected term of the option and implied volatility, utilizing market data of actively traded options on our common stock, which are obtained from public data sources. We believe that the historical volatility of the price of our common stock over the expected term of the option is a strong indicator of the expected future volatility and that implied volatility takes into consideration market expectations of how future volatility will differ from historical volatility. Accordingly, we believe a combination of both historical and implied volatility provides the best estimate of the future volatility of the market price of our common stock.

        The expected term, representing the period of time that options granted are expected to be outstanding, is estimated using a lattice-based model incorporating historical post vest exercise and employee termination behavior.

        We estimate forfeitures using itsour historical experience, which is adjusted over the requisite service period based on the extent to which actual forfeitures differ or are expected to differ, from such estimates. Because of the significant amount of judgment used in these calculations, it is reasonably likely that circumstances may cause the estimate to change.

        With regard to the weighted-average option life assumption, we consider the exercise behavior of past grants and model the pattern of aggregate exercises.


Recent Accounting Pronouncements

        Balance Sheet:    In December 2011, the FASB issued amended guidance related to the Balance Sheet (Disclosures about Offsetting Assets and Liabilities). This amendment requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The amendment should be applied retrospectively. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        Comprehensive Income:    In December 2011, the FASB issued amended guidance related to Comprehensive Income. In order to defer only those changes in the June amendment (addressed below) that relate to the presentation of reclassification adjustments, the FASB issued this amendment to supersede certain pending paragraphs in the June amendment. The amendments are being made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before the June amendment. All other requirements are not affected, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        In June 2011, the FASB issued amended guidance related to Comprehensive Income. This amendment allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendment eliminates the option to present the components of other comprehensive income as part of the statement of equity. The amendments do


not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendment should be applied retrospectively. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        Business Combinations:    In December 2010, the FASB issued amended guidance related to Business Combinations. The amendments affect any public entity that enters into business combinations that are material on an individual or aggregate basis. The amendments specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company will assess the impact of these amendments on its consolidated financial statements if and when a material acquisition occurs.

        Intangibles—Goodwill and Other:    In September 2011, the FASB issued amended guidance related to Intangibles—Goodwill and Other: Testing Goodwill for Impairment. The amendment is intended to simplify how entities test goodwill for impairment. The amendment permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. This amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        In December 2010, the FASB issued amended guidance related to Intangibles—Goodwill and Other. The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        Fair Value Measurements:    In January 2010, the FASB issued amended guidance tofor Fair Value Measurements and Disclosures. This update requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement. The FASB's objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, this update requires that a reporting entity disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition, this update


clarifies the requirements of existing disclosures. For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This update is effective for interim and annual reporting periods beginning after December 15, 2009,was adopted on January 1, 2010, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        We implemented new accountingIn May 2011, the FASB issued amended guidance for our non-financial assetsrelated to Fair Value Measurements. This amendment represents the converged guidance of the FASB and non-financial liabilities as of January 1, 2009. This new guidance definesthe International Accounting Standards Board (the Boards) on fair value establishes a frameworkmeasurement. The collective efforts of the Boards and their staffs, reflected in this amendment, have resulted in common requirements for measuring fair value and enhances fair value measurement disclosure. The accounts subject to the guidance are our long-lived assets, goodwill, and intangible assets. The implementation expanded our fair value disclosures but did not impact our consolidated financial position or results of operations. However, applying the provisions of this new guidance may impact our periodicfor disclosing information about fair value measurements, for long-lived assets, goodwillincluding a consistent meaning of the term "fair value." The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and intangible assetsdisclosed in the future, as fair values calculated under the newfinancial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. Early application is not permitted. The Company does not believe that this guidance may be different from the fair values that wouldwill have been calculated under previous guidance.a material impact on its consolidated financial statements.

        Revenue Recognition:    In October 2009, the FASB issued amended guidance related to multiple-element arrangements which requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. This update eliminates the use of the residual method of allocation and requires the relative-selling-price method in all circumstances. All entities must adopt the guidance no later than the beginning of their first fiscal year beginning on or after June 15, 2010. Entities may elect to adopt the guidance through either prospective application for revenue arrangements entered into or materially modified, after the effective date or through retrospective application to all revenue arrangements for all periods presented. The Company does not believe thatadoption of this guidance willdid not have a material impact on itsthe Company's consolidated financial statements.

        In October 2009, the FASB issued amended guidance that is expected to significantly affect how entities account for revenue arrangements that contain both hardware and software elements. As a result, many tangible products that rely on software will be accounted for under the revised multiple-element arrangements revenue recognition guidance, rather than the software revenue recognition guidance. The revised guidance must be adopted by all entities no later than fiscal years beginning on or after June 15, 2010. An entity must select the same transition method and same period for the adoption of both this guidance and the revisions to the multiple-element arrangements guidance noted above. The Company does not believe thatadoption of this guidance willdid not have a material impact on itsthe Company's consolidated financial statements.


        Subsequent Events:    In May 2009, the FASB issued a new pronouncement relating to subsequent events. The termsubsequent events refers to events that occur after the last date in the period on which we are reporting through the date the financial statements are issued, and which may require recognition or disclosure in the financial statements. Adoption of this pronouncement should not result in significant changes in the subsequent events that are reported, but rather requires disclosure of the date through which the company evaluates whether subsequent events have occurred. We have evaluated subsequent events from the date of these financial statements through the date on which these financial statements were issued.

        Derivative Instruments and Hedging Activities:    In March 2008, the FASB issued a new pronouncement relating to Disclosures about Derivative Instruments and Hedging Activities. This changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under original guidance, and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. This pronouncement was effective for fiscal years and interim periods beginning after November 15, 2008 and requires comparative disclosures only for periods subsequent to initial adoption. The adoption of this accounting guidance did not impact our consolidated financial position or results of operations.

        Convertible debt:    In May 2008, new accounting guidance was issued that requires a portion of convertible debt to be allocated to equity. We implemented the new guidance as of January 1, 2009 and have applied it retrospectively to all periods presented, as required. This new guidance requires issuers of convertible debt that can be settled in cash to separately account for (i.e., bifurcate) a portion of the debt associated with the conversion feature and reclassify this portion to equity. The liability portion, which represents the fair value of the debt without the conversion feature, is accreted to its face value over the life of the debt using the effective interest method by amortizing the discount between the face amount and the fair value. The amortization is recorded as interest expense. The Notes are subject to such accounting guidance since they may be settled in cash upon conversion. Thus, as a result of the adoption of this accounting guidance, we reclassified approximately $16.3 million from long-term debt to additional paid-in capital effective as of the date of issuance of the Notes. This reclassification created a $16.3 million discount on the debt that will be amortized over the remaining life of the Notes, which will be through April 15, 2012. The reclassification generated a $6.7 million deferred tax liability, which we offset with a corresponding decrease of the valuation allowance by the same amount. Prior periods are presented as if the new guidance was in effect as of the date of issuance. Thus, we have presented all financial data for prior periods in this report as if we had reclassified the $16.3 million and began amortizing the resultant debt discount in April 2007. The retrospective application of the new guidance described above to the results for the year ended December 31, 2008 increased the net loss attributable to Veeco from ($71.1) million to ($75.2) million and increased the loss per share attributable to Veeco from ($2.27) to ($2.40).

        During the fourth quarter of 2008, we repurchased an aggregate principal amount of $12.2 million of the Notes for $7.2 million in cash, of which $7.1 million related to principal and $0.1 million related to accrued interest, reducing the amount outstanding from $117.8 million to $105.6 million. A gross gain of approximately $5.1 million was recorded on these repurchases offset by the write-off of approximately $0.1 million of unamortized deferred financing costs associated with the Notes, for a net gain of approximately $5.0 million. Such net gain was reduced to $3.8 million upon the adoption of the new accounting guidance, which required that the gain be calculated based on the fair value of the portion repurchased as of the purchase date. The fair value approximated the carrying value net of the unamortized discount on the portion repurchased. The difference of approximately $1.2 million between the fair value and the amount paid was recorded as a reduction in the gain originally reported, which increased the accumulated deficit as of December 31, 2008 by that amount.


        For the years ended December 31, 2009 and 2008, we recorded $2.8 and $2.9 million, respectively, of additional interest expense in each period resulting from the amortization of the debt discount. This additional interest expense did not require the use of cash.

        The total effect on equity as of the date of adoption on January 1, 2009 was a net increase of $10.3 million, comprised of an increase in additional paid-in capital of $16.3 million and an increase in the accumulated deficit of $6.0 million. The $6.0 million is comprised of $2.9 million and $1.9 million in amortization of the debt discount for 2008 and 2007, respectively, as well as the $1.2 million reduction in the gain that was recorded on the November 2008 repurchases.

        Noncontrolling Interest:    In December 2007, new accounting requirements were issued by the FASB with the objective to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. The most significant provisions of this statement result in changes to the presentation of noncontrolling interests in the consolidated financial statements. We implemented these new rules as of January 1, 2009. The adoption of this statement impacted the manner in which we present noncontrolling interests for all periods included in this report, but did not impact our consolidated financial position or results of operations.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

Market Risk

        The principal market risks (such as the risk of loss arising from adverse changes in market rates and prices) to which we are exposed are:


Interest Rates

        We centrally manage our debt and investment portfolios considering investment opportunities and risks,risk, tax consequences and overall financing strategies. Our investment portfolios,portfolio includes fixed-income securities with a fair value of approximately $273.6 million at December 31, 2009, consist of cash2011. These securities are subject to interest rate risk and cash equivalents and short-term investments. Atwill decline in value if interest rates increase. Based on our investment portfolio at December 31, 2008 our investment portfolios consisted of cash and cash equivalents. Assuming year-end 2009 variable debt and investment levels, a2011, an immediate 100 basis point changeincrease in interest rates wouldmay result in a decrease in the fair value of the portfolio of approximately $1.6 million. While an increase in interest rates may reduce the fair value of the investment portfolio, we will not have a material impact on net interest expense.realize the losses in the consolidated statement of operations unless the individual fixed-income securities are sold prior to recovery or the loss is determined to be other-than-temporary.

Foreign Operations

        Operating in international markets involves exposure to movements in currency exchange rates, which are volatile at times. The economic impact of currency exchange rate movements on Veeco is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause us to adjust our financing and operating strategies. Consequently, isolating the effect of changes in currency does not incorporate these other important economic factors.

        Our net sales to foreign customers represented approximately 77%90%, 63%,90% and 68%79% of our total net sales in 2009, 2008,2011, 2010 and 2007,2009, respectively. We expect that net sales to foreign customers will continue to represent a large percentage of our total net sales. Our net sales denominated in foreign currencies represented approximately 15%3%, 15%,2% and 20%6% of total net sales in 2009, 2008,2011, 2010 and 2007,2009, respectively. The aggregate foreign currency exchange (loss) gain included in determining consolidated results of operations was approximately ($1.5)$(1.0) million, $0.1$1.3 million and ($0.5)$(0.7) million in 2009, 2008,2011, 2010 and 2007,2009, respectively. Included in the aggregate foreign currency exchange (loss) gain were gains (losses) relating



to forward contracts of $0.4$0.5 million, ($1.0)$0.1 million and ($0.1)$0.1 million in 2009, 2008,2011, 2010 and 2007,2009, respectively. These amounts were recognized and are included in other, expense (income), net.net in the accompanying Consolidated Statements of Operations.

        As of December 31, 2011, there were no gains or losses related to forward contracts included in prepaid expenses and other current assets or accrued expenses and other current liabilities. As of December 31, 2010, approximately $0.3 million of gains related to forward contracts were included in prepaid expenses and other current assets and these amounts were subsequently received in January 2011. As of December 31, 2009, approximately $0.2 million of gains related to forward contracts were included in prepaid expenses and other current assets and these amounts were subsequently received in January 2010. As of December 31, 2008, approximately $0.9 million of losses related to forward contracts were included in accrued expenses and subsequently paid in January 2009. Monthly forward contracts for a notional amount of $3.0$3.6 million for the month of January 20102012 were entered into in December 2009.2011. We are exposed to financial market risks, including changes in foreign currency exchange rates. To mitigate these risks, we use derivative financial instruments. We do not use derivative financial instruments for speculative or trading purposes. We enter into monthly forward contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known currency exposures. The average notional amount of such contracts outstanding was approximately $6.6$10.3 million for the year ended December 31, 2009.2011. The changes in currency exchange rates that have the largest impact on translating our international operating profit (loss) are the Japanese Yen and the Euro. We believe that based upon our hedging program, a 10% change in foreign exchange rates would have an immaterial impact on the consolidated results of operations. We believe that this quantitative measure has inherent limitations because, as discussed in the first paragraph of this section, it does not take into account any governmental actions or changes in either customer purchasing patterns or our financing and operating strategies.


Item 8.    Financial Statements and Supplementary Data

        Our Consolidated Financial Statements 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 unaudited financial data for each quarter of fiscal 20092011 and 2008.2010. Consistent with prior years, we report interim quarters, other than fourth quarters which always end on December 31, on a 13-week basis ending on the last Sunday within such period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 20092011 interim quarter ends were April 3, July 3 and October 2. The 2010 interim quarter ends were March 29,28, June 28,27 and September 27. The 2008 interim quarter ends were March 30, June 29, and September 28.26. For ease of reference, we report these interim quarter ends as March 31, June 30 and September 30 in our interim condensed consolidated financial statements.

        Although unaudited, this information has been prepared on a basis consistent with our audited Consolidated Financial Statements and, in the opinion of our management, reflects all adjustments (consisting only of normal recurring adjustments) that we consider necessary for a fair presentation of this information in accordance with accounting principles generally accepted in the United States. Such



quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with our audited Consolidated Financial Statements and the notes thereto.

 
 Fiscal 2009 Fiscal 2008 
 
 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year 
 
 (in thousands, except per share data)
 (in thousands, except per share data)
 

Net sales

 $62,849 $72,020 $98,913 $146,367 $380,149 $102,307 $114,449 $115,709 $110,344 $442,809 

Gross profit

  20,382  24,384  40,908  65,888  151,562  42,626  47,730  46,083  40,155  176,594 

Net (loss) income attributable to Veeco

  (20,902) (14,680) 1,270  18,745  (15,567) (2,296) 3,471  (2,413) (73,953) (75,191)

Net (loss) income per basic common share attributable to Veeco

 $(0.66)$(0.47)$0.04 $0.53 $(0.48)$(0.07)$0.11 $(0.08)$(2.35)$(2.40)

Net (loss) income per diluted common share attributable to Veeco

 $(0.66)$(0.47)$0.04 $0.50 $(0.48)$(0.07)$0.11 $(0.08)$(2.35)$(2.40)

Weighted average shares outstanding—Basic

  31,515  31,497  31,608  35,623  32,628  31,161  31,255  31,458  31,500  31,347 

Weighted average shares outstanding—Diluted

  31,515  31,497  32,375  37,742  32,628  31,161  31,590  31,458  31,500  31,347 
 
 Fiscal 2011 Fiscal 2010 
 
 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year 
 
 (in thousands, except per share data)
 

Net sales

 $254,676 $264,815 $267,959 $191,685 $979,135 $132,647 $221,389 $277,094 $299,762 $930,892 

Gross profit

  130,963  135,349  124,934  83,088  474,334  56,636  100,283  137,383  155,183  449,485 

Income from continuing operations, net of income taxes

  57,979  56,318  52,617  23,588  190,502  26,156  53,910  93,687  103,423  277,176 

(Loss) income from discontinued operations, net of income taxes

  (5,337) (37,112) (16,754) (3,312) (62,515) (112) (1,517) (7,524) 93,737  84,584 
                      

Net income attributable to Veeco

 $52,642 $19,206 $35,863 $20,276 $127,987 $26,044 $52,393 $86,163 $197,160 $361,760 
                      

Income (loss) per common share attributable to Veeco:

                               

Basic:

                               

Continuing operations

 $1.46 $1.37 $1.34 $0.62 $4.80 $0.67 $1.36 $2.35 $2.62 $7.02 

Discontinued operations

  (0.14) (0.90) (0.43) (0.09) (1.57)   (0.04) (0.19) 2.38  2.14 
                      

Income

 $1.32 $0.47 $0.91 $0.53 $3.23 $0.67 $1.32 $2.16 $5.00 $9.16 
                      

Diluted :

                               

Continuing operations

 $1.36 $1.31 $1.31 $0.61 $4.63 $0.62 $1.24 $2.22 $2.46 $6.52 

Discontinued operations

  (0.12) (0.86) (0.41) (0.09) (1.52)   (0.04) (0.18) 2.24  1.99 
                      

Income

 $1.24 $0.45 $0.90 $0.52 $3.11 $0.62 $1.20 $2.04 $4.70 $8.51 
                      

Weighted average shares outstanding:

                               

Basic

  39,842  40,998  39,335  38,212  39,658  38,784  39,761  39,946  39,453  39,499 

Diluted

  42,531  43,002  40,069  38,771  41,155  42,269  43,506  42,258  41,972  42,514 

CIGS Solar Systems Business Disposal

        On July 28, 2011, we announced a plan to discontinue our CIGS solar systems business. The action, which was completed on September 27, 2011 and impacted approximately 80 employees, was in response to the dramatically reduced cost of mainstream solar technologies driven by significant reductions in prices, large industry investment, a lower than expected end market acceptance for CIGS


technology and technical barriers in scaling CIGS. This business was previously included as part of our LED & Solar segment.

        Accordingly, the results of operations for the CIGS solar systems business have been recorded as discontinued operations in the accompanying consolidated statements of operations for all periods presented. During the year ended December 31, 2011, total discontinued operations include charges totaling $69.8 million ($50.7 million in the second quarter and $19.1 million in the third quarter). These charges include an asset impairment charge totaling $6.2 million, a goodwill write-off of $10.8 million, an inventory write-off totaling $27.0 million, charges to settle contracts totaling $22.1 million, lease related charges totaling $1.4 million and personnel severance charges totaling $2.3 million.

Metrology Divestiture

        On August 15, 2010, we signed a definitive agreement to sell our Metrology business to Bruker comprising our entire Metrology reporting segment for $229.4 million. Accordingly, Metrology's operating results are accounted for as discontinued operations in determining the consolidated results of operations. The sales transaction closed on October 7, 2010, except for assets located in China due to local restrictions. Total proceeds, which included a working capital adjustment of $1 million, totaled $230.4 million of which $7.2 million relates to the assets in China. As part of our agreement with Bruker, $22.9 million of proceeds was held in escrow and was restricted from use for one year from the closing date of the transaction to secure certain specified losses arising out of breaches of representations, warranties and covenants we made in the stock purchase agreement and related documents. The restriction relating to the escrowed proceeds was released on October 6, 2011. As part of the sale we incurred transaction costs, which consisted of investment bank fees and legal fees, totaling $5.2 million. During the fourth quarter of 2010, we recognized a pre-tax gain on disposal of $156.3 million and a pre-tax deferred gain of $5.4 million related to the assets in China.

Other Quarterly Items

        During the firstfourth quarter of 2009,2011, we recognized a restructuring charge of $4.4$1.3 million primarily for personnel severance. During the second quarter of 2009, weseverance related to a company-wide reorganization. We also recognized an additional restructuring charge of approximately $2.0 million primarily for lease-related and personnel severance costs and an asset impairment charge of $0.3$0.6 million for property and equipment no longer being utilizedand $0.8 million inventory write-off charged to cost of sales related to the discontinuance of a certain product line in our Data Storage Process Equipment segment.LED & Solar reporting unit.

        During the third quarter of 2009, we recognized an additional restructuring charge of $1.2 million, primarily for personnel severance costs. During2011 there was overstatement in our discontinued operations tax benefit totaling $3.4 million. We corrected this error in the discontinued operations income tax provision in the fourth quarter of 2009, we recognized an additional restructuring charge2011 for the same amount, representing the amount not previously recorded in the third quarter of $0.1 million related2011. We do not believe that this difference was material to personnel severance costs.our results of operations for the third and fourth quarter of 2011.

        During the first quarter of 2008,2010, we recognized a restructuring chargecredit of $2.9 million, primarily for lease-related costs associated with the consolidation of our Corporate headquarters into our Plainview, New York facility and personnel severance, and an asset impairment charge of $0.3 million. During the third quarter of 2008, we recognized an additional restructuring charge of $4.1 million, consisting of $3.7$0.2 million associated with the acceleration of equity awards and other severance costs resulting from the mutually agreed termination of the employment agreement of the Company's former CEO, as well as $0.4 million for severance and lease-related chargesa change in Metrology. During the fourth quarter of 2008, we recognized an additional restructuring charge of $3.6 million related to personnel severance costs and lease-related commitments, as well as an asset impairment charge of $73.0 million, consisting of $52.3 related to goodwill and $20.7 million related to long-lived assets, and a $2.9 million inventory write-off associated with legacy products in Metrology. These charges were partially offset by a $3.8 million net gain on the early extinguishment of 4.125% convertible subordinated notes.estimate.

        A variety of factors influence the level of our net sales in a particular quarter including economic conditions in the HB LED, solar, data storage and semiconductor industries, the timing of significant orders, shipment delays, specific feature requests by customers, the introduction of new products by us and our 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 our control. In addition, we derive a substantial portion of our revenues from the sale of products which have an average selling price in excess of $1,000,000.$2,000,000. As a result, the timing of recognition of revenue from a single transaction could have a significant impact on our net sales and operating results in any given quarter.



Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.



Item 9A.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

        Our senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934 (the "Exchange Act")) designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls, and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

        We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision of and with the participation of management, including the chief executive officer and chief financial officer, as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

        Subsequent to that evaluation there have been no significant changes in our disclosure controls or procedures or other factors that could significantly affect these controls or procedures after such evaluation.

Design and Evaluation of Internal Control Over Financial Reporting

        Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report of management's assessment of the design and effectiveness of its internal controls as part of this Annual Report on Form 10-K for the year ended December 31, 2009.2011. Our independent registered public accounting firm also attested to, and reported on, the effectiveness of internal control over financial reporting. Management's report and the independent registered public accounting firm's attestation report are included in our Consolidated Financial Statements for the year ended December 31, 20092011 under the caption entitled "Management's Report on Internal Control Over Financial Reporting" and "Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting."

Changes in Internal Control Over Financial Reporting

        There have been no significant changes in our internal controls or other factors during the fiscal yearquarter ended December 31, 20092011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information

        None.



PART III

        Portions of the information required by Part III of Form 10-K are incorporated by reference from Veeco's Proxy Statement to be filed with the SEC in connection with Veeco's 20102012 Annual Meeting of Stockholders (the "Proxy Statement").

Item 10.    Directors, Executive Officers, and Corporate Governance

        The information required by Item 10 of Form 10-K is incorporated by reference to our Proxy Statement under the headings "Corporate Governance," "Executive Officers" and "Section 16(a) Reporting Compliance."

        We have adopted a Code of Ethics for Senior Officers (the "Code") which applies to our chief executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. A copy of the Code can be found on our website (www.veeco.com)(www.veeco.com). We intend to disclose on our website the nature of any future amendments to and waivers of the Code that apply to the chief executive officer, principal financial officer, principal accounting officer or persons performing similar functions. We have also adopted a Code of Business Conduct which applies to all of our employees, including those listed above, as well as to our directors. A copy of the Code of Business Conduct can be found on our website (www.veeco.com)(www.veeco.com). The website address above is intended to be an inactive, textual reference only. None of the material on this website is part of this report.

Item 11.    Executive Compensation

        The information required by Item 11 of Form 10-K is incorporated by reference to our Proxy Statement under the heading "Executive Compensation."

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        The information required by Item 12 of Form 10-K is incorporated by reference to our Proxy Statement under the heading "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information."

        The following table gives information about our common stock that may be issued under our equity compensation plans as of December 31, 2009.2011. See Note 58 to the Consolidated Financial Statements included herein for information regarding the material features of these plans.


 Number of securities to
be issued upon exercise of
outstanding options,
warrants, and rights
(a)
 Weighted average
exercise price of
outstanding options,
warrants, and rights
(b)
 Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
  Number of securities to
be issued upon exercise of
outstanding options,
warrants, and rights
(a)
 Weighted average
exercise price of
outstanding options,
warrants, and rights
(b)
 Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
 

Equity compensation plans approved by security holders

 4,365,406(1)$16.05 554,950  2,105,777 $25.58 1,764,570 

Equity compensation plans not approved by security holders

 140,564(2)$25.54      
              

Total

 4,505,970   554,950  2,105,777   1,764,570 
              

(1)
Includes 860 stock options assumed in connection with the acquisition of CVC, Inc. on May 10, 2000, which merger was approved by stockholders.

(2)
Includes 123,614 stock options assumed in connection with the acquisition of Applied Epi, Inc. on September 17, 2001.

Item 13.    Certain Relationships, Related Transactions and Director Independence

        The information required by Item 13 of Form 10-K is incorporated by reference to our Proxy Statement under the headings "Independence of the Board of Directors" and "Certain Relationships and Related Transactions."

Item 14.    Principal Accounting Fees and Services

        The information required by Item 14 of Form 10-K is incorporated by reference to our Proxy Statement under the heading "Proposal 2—3—Ratification of the Appointment of Ernst & Young LLP.LLP as Independent Registered Public Accounting Firm."



PART IV

Item 15.    Exhibits and Financial Statement Schedules

(a)
The Registrant's financial statements together with a separate table of contents are annexed hereto. The financial statement schedule is listed in the separate table of contents annexed hereto.

(b)
Exhibits

        Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities and Exchange Commission by the Company under File No. 0-16244.

Number
 Exhibit Incorporated by Reference to the Following Documents
3.12.1 Stock Purchase Agreement dated August 15, 2010 among Veeco Instruments Inc. (Veeco), Veeco Metrology Inc. and Bruker CorporationQuarterly Report on Form 10-Q for the quarter ended September 30, 2010, Exhibit 2.1

3.1


Amended and Restated Certificate of Incorporation of the CompanyVeeco dated December 1, 1994, as amended June 2, 1997 and July 25, 1997.

 

Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, Exhibit 3.1

3.2

 

Amendment to Certificate of Incorporation of Veeco dated May 29, 1998.

 

Annual Report on Form 10-K for the year ended December 31, 2000, Exhibit 3.2

3.3

 

Amendment to Certificate of Incorporation of Veeco dated May 5, 2000.

 

Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Exhibit 3.1

3.4

 

Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of Veeco.

 

Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, Exhibit 3.1

3.5

 

Fourth Amended and Restated Bylaws of the Company, effective October 23, 2008


Current Report on Form 8-K filed October 27, 2008, Exhibit 3.1

3.6


Amendment to Certificate of Incorporation of Veeco dated May 16, 2002

 

Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, Exhibit 3.1

4.1


Rights Agreement, dated as of March 13, 2001, between Veeco Instruments Inc. and American Stock Transfer and Trust Company, as Rights Agent, including the form of the Certificate of Designation, Preferences, and Rights setting forth the terms of the Series A Junior Participating Preferred Stock, par value $0.01 per share, as Exhibit A, the form of Rights Certificates as Exhibit B and the Summary of Rights to Purchase Preferred Stock as Exhibit C.


Registration Statement on Form 8-A dated March 15, 2001, Exhibit 1

4.23.6

 

Amendment to Rights Agreement,Certificate of Incorporation of Veeco dated as of September 6, 2001, between Veeco Instruments Inc. and American Stock Transfer and Trust Company, as rights agent.


Current Report on Form 8-K, filed September 21, 2001, Exhibit 4.1

4.3


Amendment No 2 to Rights Agreement, dated as of July 11, 2002, between Veeco Instruments Inc. and American Stock Transfer and Trust Company, as rights agent.


Current Report on Form 8-K, filed July 12, 2002, Exhibit 4.1

Number
ExhibitIncorporated by Reference to the Following Documents
4.4Indenture, dated April 16, 2007, between Veeco Instruments Inc. and U.S. Bank National TrustPost-Effective Amendment No. 1 To Registration Statement on Form S-3 (File No. 333-128004) filed April 16, 2007, Exhibit 4.1

4.5


First Supplemental Indenture, dated April 20, 2007, by and between Veeco Instruments Inc. and U.S. Bank Trust National Association, as Trustee


Current Report on Form 8-K, filed April 20, 2007, Exhibit 4.1

10.1


Credit Agreement, dated as of August 20, 2007, by and among Veeco Instruments Inc., HSBC Bank USA, National Association, as administrative agent, and the lenders named therein.


Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, Exhibit 10.1

10.2


First Amendment dated as of February 25, 2008 to the Credit Agreement dated August 20, 2007 among Veeco Instruments Inc., HSBC Bank USA, National Association, as administrative agent, and the lenders named therein.May 14, 2010

 

Annual Report on Form 10-K for the year ended December 31, 2007,2010, Exhibit 10.23.8

10.33.7


Fourth Amended and Restated Bylaws of Veeco, effective October 23, 2008


Current Report on Form 8-K filed October 27, 2008, Exhibit 3.1

3.8

 

Amendment No. 1 to the Fourth Amended and Reaffirmation dated August 20, 2007 of Security Agreement dated as of March 15, 2005 among Veeco Instruments Inc., the subsidiariesRestated Bylaws of Veeco named therein and HSBC Bank USA, National Association, as administrative agent.effective May 20, 2010

 

QuarterlyCurrent Report on Form 10-Q for the quarter ended September 30, 2007,8-K, filed May 26, 2010, Exhibit 10.23.1

10.43.9


Amendment No. 2 to the Fourth Amended and Restated Bylaws of Veeco effective October 20, 2011


Current Report on Form 8-K, filed October 24, 2011, Exhibit 3.1

10.1

 

Loan Agreement dated as of December 15, 1999 between Applied Epi, Inc. and Jackson National Life Insurance Company.

 

Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, Exhibit 10.2


10.5


NumberExhibitIncorporated by Reference to the Following Documents
10.2Amendment to Loan Documents effective as of September 17, 2001 between Applied Epi, Inc. and Jackson National Life Insurance Company (executed in June 2002).
 

Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Exhibit 10.2

10.610.3

 

Promissory Note dated as of December 15, 1999 issued by Applied Epi, Inc. to Jackson National Life Insurance Company.

 

Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, Exhibit 10.3

10.7*10.4*


Form of Indemnification Agreement entered into between Veeco and each of its directors and executive officers.


Current Report on Form 8-K filed on October 23, 2006, Exhibit 10.1

10.5*

 

Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan.


Registration Statement on Form S-1 (File No. 33-93958), Exhibit 10.20

10.8*


Amendment dated May 15, 1997 to Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan.


Registration Statement on Form S-8 (File No. 333-35009) filed September 5, 1997, Exhibit 10.1

10.9*


Amendment dated July 25, 1997 to Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan.


Registration Statement on Form S-8 (File No. 333-35009) filed September 5, 1997, Exhibit 10.2

Number
ExhibitIncorporated by Reference to the Following Documents
10.10*Amendment dated May 29, 1998 to Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan.Registration Statement on Form S-8 (File No. 333-79469) filed May 27, 1999, Exhibit 10.1

10.11*


Amendment dated May 14, 1999 to Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan.


Registration Statement on Form S-8 (File No. 333-79469) filed May 27, 1999, Exhibit 10.2

10.12*


Veeco Instruments Inc. 1994 Stock Option Plan for Outside Directors.


Registration Statement on Form S-1 (File No. 33-85184), Exhibit 10.17

10.13*


Amendment dated May 15, 1996 to Veeco Instruments Inc. Amended and Restated 1994 Stock Option Plan for Outside Directors.


Registration Statement on Form S-8 (File No. 333-08981) filed July 26, 1996, Exhibit 10.2

10.14*


Amendment dated May 15, 1997 to Veeco Instruments Inc. Amended and Restated 1994 Stock Option Plan for Outside Directors.


Registration Statement on Form S-8 (File No. 333-35009) filed September 5, 1997, Exhibit 10.3

10.15*


Amendment dated May 21, 1999 to Veeco Instruments Inc. Amended and Restated 1994 Stock Option Plan for Outside Directors.


Registration Statement on Form S-8 (File No. 333-79469) filed May 27, 1999, Exhibit 10.3

10.16*


Veeco Instruments Inc. Amended and Restated 2000 Stock Incentive Plan, effective July 20, 2006.

 

Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, Exhibit 10.4

10.17*10.6*

 

Amendment No. 1 effective April 18, 2007 (ratified by the Board August 7, 2007) to Veeco Instruments Inc. Amended and Restated 2000 Stock Incentive Plan.

 

Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, Exhibit 10.1

10.18*10.7*


Amendment No. 2 dated January 22, 2009 to Veeco Amended and Restated 2000 Stock Incentive Plan.


Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.41

10.8*

 

Form of Restricted Stock Agreement pursuant to the Veeco Instruments Inc. 2000 Stock Incentive Plan, effective November 2005

 

Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, Exhibit 10.3

10.19*


Form of Directors Restricted Stock Agreement pursuant to the Veeco Instruments Inc. 2000 Stock Incentive Plan, effective May 2006


Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, Exhibit 10.2

10.20*10.9*

 

Form of Notice of Restricted Stock Award and related terms and conditions pursuant to the Veeco Instruments Inc. 2000 Stock Incentive Plan, effective June 2006

 

Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, Exhibit 10.3

10.21*10.10*

 

Veeco Instruments Inc. 20002010 Stock OptionIncentive Plan, for Non-Officer Employees.effective May 14, 2010

 

Registration Statement on Form S-8 (File Number 333-49476)333-166852) filed November 7, 2000,May 14, 2010, Exhibit 4.410.1

10.22*10.11*

 

Amendment No. 1 to the Veeco Instruments Inc. 2000Form of 2010 Stock Incentive Plan Stock Option Plan for Non-Officer Employees, effective dated July 26, 2001.Agreement

 

Registration Statement on Form S-8 (File Number 333-66574)333-166852) filed August 2, 2001,May 14, 2010, Exhibit 4.210.2

10.12*


Form of 2010 Stock Incentive Plan Restricted Stock Agreement


Registration Statement on Form S-8 (File Number 333-166852) filed May 14, 2010, Exhibit 10.3

10.13*


Veeco Performance-Based Restricted Stock 2010


Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, Exhibit 10.2

10.14*


Veeco 2010 Management Bonus Plan dated January 22, 2010


Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, Exhibit 10.2

10.15*


Veeco 2010 Special Profit Sharing Plan dated February 15, 2010


Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, Exhibit 10.3

Number
 Exhibit Incorporated by Reference to the Following Documents
10.23*10.16* Veeco Instruments Inc. 2006 Long-Term Cash Incentive PlanQuarterly Report on Form 10-Q for the quarter ended June 30, 2006, Exhibit 10.1

10.24*


Employment agreement effective as of July 1, 2007 between John R. Peeler and Veeco Instruments Inc.


Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, Exhibit 10.3

10.25*


Employment Agreement dated as of April 1, 2003 between John F. Rein, Jr. and Veeco Instruments Inc.


Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, Exhibit 10.5

10.26*


Amendment to Employment Agreement of John F. Rein, Jr., effective June 9, 2006


Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, Exhibit 10.2

10.27*


Letter Agreement dated January 21, 2004 between the Company and John P. Kiernan.


Annual Report on Form 10-K for the year ended December 31, 2003, Exhibit 10.38

10.28*


Letter Agreement dated October 31, 2005 between Veeco Instruments Inc. and Robert P. Oates


Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, Exhibit 10.1

10.29*


Form of Amendment to Letter Agreements of John P. Kiernan and Robert P. Oates effective June 9, 2006


Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, Exhibit 10.3

10.30*


Letter Agreement dated January 11, 2008 between Veeco Instruments Inc. and Mark R. Munch


Annual Report on Form 10-K for the year ended December 31, 2007, Exhibit 10.33

10.31*


Form of Indemnification Agreement entered into between Veeco Instruments Inc. and each of its directors and executive officers.


Current Report on Form 8-K filed on October 23, 2006, Exhibit 10.1

10.32*


Amendment to Employment Agreement dated as of September 12, 2008 between John F. Rein, Jr. and Veeco Instruments Inc.


Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, Exhibit 10.1

10.33*


Amendment to Employment Agreement dated as of September 12, 2008 between Robert P. Oates and Veeco Instruments Inc.


Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, Exhibit 10.2

10.34*


Senior Executive Change in Control Policy effective as of September 12, 2008

 

Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, Exhibit 10.3

10.35*


Service Agreement effective July 24, 2008 between Edward H. Braun and Veeco Instruments Inc.


Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, Exhibit 10.1

10.36*10.17*

 

Amendment No. 1 dated December 23, 2008 (effective September 12, 2008) to Veeco Instruments Inc. Senior Executive Change in Control Policy

 

Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.37

10.37*10.18*


Employment Agreement effective as of July 1, 2007 between Veeco and John R. Peeler


Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, Exhibit 10.3

10.19*

 

Amendment effective December 31, 2008 to Employment Agreement between Veeco Instruments Inc. and John R. Peeler

 

Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.38


10.20*


Number
ExhibitIncorporated by Reference to the Following Documents
10.38*Second Amendment effective December 31, 2008June 11, 2010 to Employment Agreement between Veeco Instruments Inc. and John F. Rein, Jr.R. Peeler
 

Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, Exhibit 10.1

10.21*


Employment Agreement dated December 17, 2009 (effective January 18, 2010) between Veeco and David D. Glass


Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, Exhibit 10.1

10.22*


Letter Agreement dated January 21, 2004 between Veeco and John P. Kiernan.


Annual Report on Form 10-K for the year ended December 31, 2008,2003, Exhibit 10.3910.38

10.39*10.23*


Form of Amendment effective June 9, 2006 to Letter Agreements between Veeco and each of John P. Kiernan and Robert P. Oates


Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, Exhibit 10.3

10.24*

 

Form of Amendment effective December 31, 2008 to Letter Agreements between Veeco Instruments Inc. and each of John P. Kiernan Mark R. Munch and Robert P. Oates

 

Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.40

10.40*


Amendment No. 2 dated January 22, 2009 to Veeco Instruments Inc. Amended and Restated 2000 Stock Incentive Plan.


Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.41

10.41*


Second Amendment dated as of February 27, 2009 (effective December 31, 2008) to the Credit Agreement dated August 20, 2007 among Veeco Instruments Inc., HSBC Bank USA, National Association, as administrative agent, and the lenders named herein.


Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.42

10.42


Third Amendment dated as of May 7, 2009 (effective December 31, 2008) to the Credit Agreement dated August 20, 2007 among Veeco Instruments Inc., HSBC Bank USA, National Association, as administrative agent, and the lenders named herein.


Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, Exhibit 10.3

10.4310.25*

 

Letter agreement effective as of June 19, 2009 between Veeco and John P. Kiernan and Veeco Instruments Inc.

 

Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, Exhibit 10.2

10.44*10.26*

 

Letter Agreement dated October 31, 2005 between Veeco Instruments Inc. 2009 Management Bonus Plan dated February 27, 2009and Robert P. Oates

 

Quarterly Report on Form 10-Q for the quarter ended September 30, 2009,2005, Exhibit 10.1

10.45*10.27*

 

Amendment dated September 12, 2008 to Employment Agreement between Veeco Instruments Inc. 2009 Supplemental Management Profit Sharing Plan dated August 20, 2009and Robert P. Oates

 

Quarterly Report on Form 10-Q for the quarter ended September 30, 2009,2008, Exhibit 10.2

21.110.28*

 

Subsidiaries ofVeeco 2011 Management Bonus Plan, dated January 26, 2011


Quarterly Report on Form 10-Q for the Registrant.quarter ended June 30, 2011, Exhibit 10.1

10.29*


Service Agreement effective January 1, 2012 between Veeco and Edward H. Braun

 

Filed herewith

10.30*


Letter Agreement dated January 30, 2012 between Veeco and Dr. William J. Miller


Filed herewith

NumberExhibitIncorporated by Reference to the Following Documents
21.1Subsidiaries of the Registrant.Filed herewith

23.1

 

Consent of Ernst & Young LLP.

 

Filed herewith

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a—14(a)13a-14(a) or Rule 15d—14(a)15d-14(a) of the Securities and Exchange Act of 1934.

 

Filed herewith

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a—14(a)13a-14(a) or Rule 15d—14(a)15d-14(a) of the Securities and Exchange Act of 1934.

 

Filed herewith


32.1


Number
ExhibitIncorporated by Reference to the Following Documents
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- OxleySarbanes-Oxley Act of 2002
 

Filed herewith

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- OxleySarbanes-Oxley Act of 2002

 

Filed herewith

101.INS


XBRL Instance


**

101.XSD


XBRL Schema


**

101.PRE


XBRL Presentation


**

101.CAL


XBRL Calculation


**

101.DEF


XBRL Definition


**

101.LAB


XBRL Label


**


*
Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a)(3) of Form 10-K.

**
Filed herewith electronically.


SIGNATURES

        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, on February 24, 2010.22, 2012.

  VEECO INSTRUMENTS INC.

 

 

By:

 

/s/ JOHN R. PEELER

John R. Peeler
Chief Executive Officer

        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 indicated, on February 24, 2010.22, 2012.

Signature
 
Title

 

 

 
/s/ EDWARD H. BRAUN

Edward H. Braun
 Director and Chairman

/s/ RICHARD A. D'AMORE

Richard A. D'Amore

 

Director

/s/ JOEL A. ELFTMANN

Joel A. Elftmann

 

Director

/s/ HEINZ K. FRIDRICHGORDON HUNTER

Heinz K. FridrichGordon Hunter

 

Director

/s/ ROGER D. MCDANIEL

Roger D. McDaniel

 

Director

/s/ JOHN R. PEELER

John R. Peeler

 

Director and Chief Executive Officer
(principal executive officer)

/s/ IRWIN H. PFISTER

Irwin H. Pfister


Director

/s/ PETER J. SIMONE

Peter J. Simone

 

Director

/s/ DAVID D. GLASS

David D. Glass

 

Executive Vice President and Chief Financial Officer (principal
(principal financial officer)

/s/ JOHN P. KIERNAN

John P. Kiernan

 

Senior Vice President, Finance, and Corporate Controller
and Treasurer (principal accounting officer)

Table of Contents



Veeco Instruments Inc. and Subsidiaries

Index to Consolidated Financial Statements

and Financial Statement Schedule

 
 Page

Management's Report on Internal Control Over Financial Reporting

 F-2

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

 F-3

Report of Independent Registered Public Accounting Firm on Financial Statements

 F-4

Consolidated Balance Sheets at December 31, 20092011 and 20082010

 F-5

Consolidated Statements of Operations for the years ended December 31, 2009, 2008,2011, 2010 and 20072009

 F-6

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2011, 2010 and 2009

F-7

Consolidated Statements of Equity for the years ended December 31, 2009, 2008,2011, 2010 and 20072009

 F-7F-8

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2009, 2008, and 2007

F-8

Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008,2011, 2010 and 20072009

 F-9

Notes to Consolidated Financial Statements

 F-10

Schedule II—Valuation and Qualifying Accounts

 S-1

Table of Contents


MANAGEMENT'S REPORT ON INTERNAL CONTROLManagement's Report on Internal Control
OVER FINANCIAL REPORTINGOver Financial Reporting

        Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Company's internal control over financial reporting includes those policies and procedures that:

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        As required by Section 404 of the Sarbanes-Oxley Act of 2002, management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2009.2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") inInternal Control-Integrated Framework.

        Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2009.2011.

        The effectiveness of the Company's internal control over financial reporting as of December 31, 20092011 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears under the heading "Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting."

Veeco Instruments Inc.
Plainview, NY
February 24, 201022, 2012

/s/ JOHN R. PEELER

John R. Peeler
Chief Executive Officer
Veeco Instruments Inc.
February 24, 201022, 2012
  

/s/ DAVID D. GLASS

David D. Glass
Executive Vice President and
Chief Financial Officer

Veeco Instruments Inc.
February 24, 201022, 2012

 

 

Table of Contents


Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting

The Board of Directors and Shareholders of Veeco Instruments Inc.

        We have audited Veeco Instruments Inc. and Subsidiaries'Subsidiaries (the "Company") internal control over financial reporting as of December 31, 2009,2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2011, based on the COSO criteria.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 20092011 consolidated financial statements of the Company and our report dated February 24, 201022, 2012 expressed an unqualified opinion thereon.

  /s/ ERNST & YOUNG LLP  

New York, New York
February 24, 201022, 2012


Table of Contents


Report of Independent Registered Public Accounting Firm
on Financial Statements

To the Shareholders and Board of Directors of Veeco Instruments Inc.

        We have audited the accompanying consolidated balance sheets of Veeco Instruments Inc. and Subsidiaries (the "Company") as of December 31, 20092011 and 2008,2010, and the related consolidated statements of operations, equity, comprehensive lossincome (loss) and cash flows for each of the three years in the period ended December 31, 2009.2011. Our audits also included the financial statement schedule in the accompanying Index.index. 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 scheduleschedules based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20092011 and 2008,2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2009,2011, in conformity with U.S. 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.

        As discussed in Note 1 of the consolidated financial statements, the consolidated financial statements have been adjusted for the retrospective application of Accounting Standards Codification ("ASC") 470-20Debt with conversion and other options, and ASC 810Consolidation, which both became effective January 1, 2009.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2009,2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2010,22, 2012, expressed an unqualified opinion thereon.

  /s/ ERNST & YOUNG LLP  

New York, New York
February 24, 201022, 2012


Table of Contents


Veeco Instruments Inc. and Subsidiaries



Consolidated Balance Sheets



(Dollars in thousands)



 December 31,  December 31, 


 2009 2008  2011 2010 

Assets

Assets

  

Current assets:

Current assets:

  

Cash and cash equivalents

 $148,589 $103,799 

Short-term investments

 135,000  

Accounts receivable, less allowance for doubtful accounts of $857 in 2009 and $937 in 2008

 84,358 59,659 

Inventories

 77,564 94,930 

Prepaid expenses and other current assets

 7,819 6,425 

Deferred income taxes

 3,105 2,185 

Cash and cash equivalents

 $217,922 $245,132 

Short-term investments

 273,591 394,180 

Restricted cash

 577 76,115 

Accounts receivable, net

 95,038 150,528 

Inventories

 113,434 108,487 

Prepaid expenses and other current assets

 40,756 34,328 

Assets held for sale

 2,341  

Deferred income taxes

 10,885 13,803 
          

Total current assets

Total current assets

 456,435 266,998  754,544 1,022,573 

Property, plant, and equipment at cost, net

 59,389 64,372 

Property, plant and equipment at cost, net

 86,067 42,320 

Goodwill

Goodwill

 59,422 59,160  55,828 52,003 

Deferred income taxes

  9,403 

Intangible assets, net

Intangible assets, net

 29,697 38,818  25,882 16,893 

Other assets

Other assets

 429 193  13,742 4,842 
          

Total assets

Total assets

 $605,372 $429,541  $936,063 $1,148,034 
          

Liabilities and equity

Liabilities and equity

  

Current liabilities:

Current liabilities:

  

Accounts payable

 $29,112 $29,610 

Accrued expenses

 106,445 66,964 

Deferred profit

 2,520 1,346 

Income taxes payable

 829 354 

Current portion of long-term debt

 212 196 

Accounts payable

 $40,398 $32,220 

Accrued expenses and other current liabilities

 107,656 183,010 

Deferred profit

 10,275 4,109 

Income taxes payable

 3,532 56,369 

Liabilities of discontinued segment held for sale

 5,359 5,359 

Current portion of long-term debt

 248 101,367 
          

Total current liabilities

Total current liabilities

 139,118 98,470  167,468 382,434 

Deferred income taxes

Deferred income taxes

 5,039 4,540  5,029  

Long-term debt

Long-term debt

 100,964 98,330  2,406 2,654 

Other non-current liabilities

 1,192 2,391 

Commitments and contingencies (Note 9)

 

Other liabilities

 640 434 

Equity:

Equity:

  

Preferred stock, 500,000 shares authorized; no shares issued and outstanding

Preferred stock, 500,000 shares authorized; no shares issued and outstanding

      

Common stock; $.01 par value; authorized 60,000,000 shares; 39,003,114 and 32,187,599 shares issued and outstanding in 2009 and 2008, respectively

 382 316 

Common stock; $.01 par value; authorized 120,000,000 shares; 38,768,436 and 40,337,950 shares issued and outstanding in 2011 and 2010, respectively

 435 409 

Additional paid-in-capital

Additional paid-in-capital

 575,860 426,300  688,353 656,969 

Accumulated deficit

 (224,324) (208,757)

Retained earnings

 265,317 137,436 

Accumulated other comprehensive income

Accumulated other comprehensive income

 7,141 7,167  6,590 5,796 
     

Equity attributable to Veeco

 359,059 225,026 

Noncontrolling interest

  784 

Less: treasury stock, at cost; 5,278,828 shares and 1,118,600 shares in 2011 and 2010, respectively

 (200,175) (38,098)
          

Total equity

Total equity

 359,059 225,810  760,520 762,512 
          

Total liabilities and equity

Total liabilities and equity

 $605,372 $429,541  $936,063 $1,148,034 
          

The accompanying notes are an integral part of these consolidated financial statements.


Table of Contents


Veeco Instruments Inc. and Subsidiaries



Consolidated Statements of Operations



(In thousands, except per share data)



 Year ended December 31,  Year ended December 31, 


 2009 2008 2007  2011 2010 2009 

Net sales

Net sales

 $380,149 $442,809 $402,475  $979,135 $930,892 $282,262 

Cost of sales

Cost of sales

 228,587 266,215 244,964  504,801 481,407 168,003 
              

Gross profit

Gross profit

 151,562 176,594 157,511  474,334 449,485 114,259 

Operating expenses:

 

Selling, general, and administrative expense

 85,455 92,838 90,972 

Research and development expense

 57,430 60,353 61,174 

Amortization expense

 7,338 10,745 10,250 

Restructuring expense

 7,680 10,562 6,726 

Asset impairment charge

 304 73,322 1,068 

Other expense (income), net

 790 (668) (618)

Operating expenses (income):

 

Selling, general and administrative

 95,134 87,250 59,419 

Research and development

 96,596 56,948 37,767 

Amortization

 4,734 3,703 3,977 

Restructuring

 1,288 (179) 4,479 

Asset impairment

 584  304 

Other, net

 (261) (1,490) 682 
              

Total operating expenses

Total operating expenses

 158,997 247,152 169,572  198,075 146,232 106,628 
              

Operating loss

 (7,435) (70,558) (12,061)

Operating income

 276,259 303,253 7,631 

Interest expense

Interest expense

 7,732 9,317 8,827  4,600 8,201 7,732 

Interest income

Interest income

 (882) (2,588) (3,963) (3,776) (1,629) (882)

Gain on extinguishment of debt

  (3,758) (738)

Loss on extinguishment of debt

 3,349   
              

Loss before income taxes

 (14,285) (73,529) (16,187)

Income from continuing operations before income taxes

 272,086 296,681 781 

Income tax provision

Income tax provision

 1,347 1,892 3,651  81,584 19,505 2,558 
              

Net loss

 (15,632) (75,421) (19,838)

Income (loss) from continuing operations

 190,502 277,176 (1,777)
       

Discontinued operations:

 

(Loss) income from discontinued operations, before income taxes (includes gain on disposal of $156,290 in 2010)

 (91,885) 129,776 (15,066)

Income tax (benefit) provision

 (29,370) 45,192 (1,211)
       

(Loss) income from discontinued operations

 (62,515) 84,584 (13,855)
       

Net income (loss)

 127,987 361,760 (15,632)

Net loss attributable to noncontrolling interest

Net loss attributable to noncontrolling interest

 (65) (230) (628)   (65)
              

Net loss attributable to Veeco

 $(15,567)$(75,191)$(19,210)

Net income (loss) attributable to Veeco

 $127,987 $361,760 $(15,567)
              

Loss per common share attributable to Veeco:

 

Basic and Diluted

 $(0.48)$(2.40)$(0.62)

Income (loss) per common share attributable to Veeco:

 

Basic:

 

Continuing operations

 $4.80 $7.02 $(0.05)

Discontinued operations

 (1.57) 2.14 (0.43)
       

Income (loss)

 $3.23 $9.16 $(0.48)
       

Diluted:

 

Continuing operations

 $4.63 $6.52 $(0.05)

Discontinued operations

 (1.52) 1.99 (0.43)
       

Income (loss)

 $3.11 $8.51 $(0.48)
              

Weighted average shares outstanding:

Weighted average shares outstanding:

  

Basic and Diluted

 32,628 31,347 31,020 

Basic

 39,658 39,499 32,628 

Diluted

 41,155 42,514 32,628 

The accompanying notes are an integral part of these consolidated financial statements.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

 
 Year ended December 31, 
 
 2011 2010 2009 

Net income (loss)

 $127,987 $361,760 $(15,632)

Other comprehensive income (loss), net of tax

          

Foreign currency translation

  794  (1,322) (58)

Unrealized gain on available-for-sale securities

  43  97   

Defined benefit pension plan

  (43) (120) 32 
        

Comprehensive income (loss)

  128,781  360,415  (15,658)

Comprehensive loss attributable to noncontrolling interest

      (65)
        

Comprehensive income (loss) attributable to Veeco

 $128,781 $360,415 $(15,593)
        

The accompanying notes are an integral part of these consolidated financial statements.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)


  
  
  
  
  
 Equity Attributable to   
  
  
  
  
  
 Equity Attributable to 

 Common Stock  
  
 Accumulated
Other
Comprehensive
Income
  Common Stock  
  
 Retained
Earnings
(Accumulated
Deficit)
 Accumulated
Other
Comprehensive
Income
 

 Additional
Paid-in
Capital
 Accumulated
Deficit
  
 Noncontrolling
Interest
  
  Treasury
Stock
 Additional
Paid-in
Capital
  
 Noncontrolling
Interest
  
 

 Shares Amount Total Accumulated
Other
Comprehensive
Income
  Shares Amount Retained
Earnings
(Accumulated
Deficit)
 Accumulated
Other
Comprehensive
Income
 

Balance at January 1, 2007

 31,118,622 $309 $391,376 $(113,528)$3,594 $281,751 $1,642 

Cumulative effect of accounting change due to adoption of FIN 48

    (828)  (828) )

Exercise of stock options and stock issuances under stock purchase plan

 205,995 2 3,169   3,171  3,171 

Share-based compensation expense

   5,621   5,621  5,621 

Issuance, vesting and cancellation of restricted stock

 499,273 1 (371)   (370)  (370)

Issuance of convertible notes

   16,318   16,318  16,318 

Translation adjustments

     1,698 1,698  1,698 

Defined benefit pension plan

     (7) (7)  (7)

Net loss

    (19,210)  (19,210) (628) (19,838)
                 

Balance at December 31, 2007

 31,823,890 312 416,113 (133,566) 5,285 288,144 1,014 289,158 

Balance at January 1, 2009

 32,187,599 316  426,300 (208,757) 7,167 225,026 784 225,810 

Exercise of stock options

 67,080 1 680   681  681  755,229 8  12,578   12,586  12,586 

Share-based compensation expense

   10,526   10,526  10,526 

Issuance, vesting and cancellation of restricted stock

 296,629 3 (1,019)   (1,016)  (1,016)

Translation adjustments

     1,845 1,845  1,845 

Defined benefit pension plan

     37 37  37 

Net loss

    (75,191)  (75,191) (230) (75,421)
                 

Balance at December 31, 2008

 32,187,599 316 426,300 (208,757) 7,167 225,026 784 225,810 

Exercise of stock options

 755,229 8 12,578   12,586  12,586 

Share-based compensation expense

   8,537   8,537  8,537 

Equity-based compensation expense-continuing operations

    7,113   7,113  7,113 

Equity-based compensation expense-discontinued operations

    1,424   1,424  1,424 

Issuance, vesting and cancellation of restricted stock

 310,286  (607)   (607)  (607) 310,286   (607)   (607)  (607)

Issuance of common stock

 5,750,000 58 130,028   130,086  130,086  5,750,000 58  130,028   130,086  130,086 

Translation adjustments

     (58) (58)  (58)      (58) (58)  (58)

Defined benefit pension plan

     32 32  32       32 32  32 

Purchase of remaining 80.1% of noncontrolling interest

   (976)   (976) (719) (1,695)    (976)   (976) (719) (1,695)

Net loss

    (15,567)  (15,567) (65) (15,632)     (15,567)  (15,567) (65) (15,632)
                                    

Balance at December 31, 2009

 39,003,114 $382 $575,860 $(224,324)$7,141 $359,059 $ $359,059  39,003,114 382  575,860 (224,324) 7,141 359,059  359,059 

Exercise of stock options

 2,499,591 25  45,139   45,164  45,164 

Equity-based compensation expense-continuing operations

    8,769   8,769  8,769 

Equity-based compensation expense-discontinued operations

    8,551   8,551  8,551 

Issuance, vesting and cancellation of restricted stock

 (46,155) 2  (4,621)   (4,619)  (4,619)

Treasury stock

 (1,118,600)  (38,098)    (38,098)  (38,098)

Excess tax benefits from stock option exercises

    23,271   23,271  23,271 

Translation adjustments

      (1,322) (1,322)  (1,322)

Defined benefit pension plan

      (120) (120)  (120)

Unrealized gain on short-term investments

      97 97  97 

Net income

     361,760  361,760  361,760 
                                    

Balance at December 31, 2010

 40,337,950 409 (38,098) 656,969 137,436 5,796 762,512  762,512 

Exercise of stock options

 688,105 7  10,707   10,714  10,714 

Equity-based compensation expense-continuing operations

    12,807   12,807  12,807 

Equity-based compensation expense-discontinued operations

    689   689  689 

Issuance, vesting and cancellation of restricted stock

 131,196 1  (3,175)   (3,174)  (3,174)

Treasury stock

 (4,160,228)  (162,077)    (162,077)  (162,077)

Debt Conversion

 1,771,413 18  (50)   (32)  (32)

Excess tax benefits from stock option exercises

    10,406   10,406  10,406 

Translation adjustments

     (106) 794 688  688 

Defined benefit pension plan

      (43) (43)  (43)

Unrealized gain on short-term investments

      43 43  43 

Net income

     127,987  127,987  127,987 
                   

Balance at December 31, 2011

 38,768,436 $435 $(200,175)$688,353 $265,317 $6,590 $760,520 $ $760,520 
                   

Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(In thousands)

 
 Year Ended December 31, 
 
 2009 2008 2007 

Net loss

 $(15,632)$(75,421)$(19,838)

Other comprehensive (loss) income, net of tax

          
 

Foreign currency translation

  (58) 1,845  1,698 
 

Mininum pension liability

  32  37  (7)
        

Comprehensive loss

  (15,658) (73,539) (18,147)

Comprehensive loss attributable to noncontrolling interest

  (65) (230) (628)
        

Comprehensive loss attributable to Veeco

 $(15,593)$(73,309)$(17,519)
        

The accompanying notes are an integral part of these consolidated financial statements.


Table of Contents


Veeco Instruments Inc. and Subsidiaries



Consolidated Statements of Cash Flows



(InDollars in thousands)



 Year ended December 31,  Year ended December 31, 


 2009 2008 2007  2011 2010 2009 

Operating activities

Operating activities

  

Net loss

 $(15,632)$(75,421)$(19,838)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

Depreciation and amortization

 21,616 25,089 24,991 

Non-cash equity-based compensation

 8,537 7,508 5,048 

Non-cash asset impairment charge

 304 73,322 1,068 

Non-cash inventory write-off

 1,526 2,900 4,821 

Non-cash restructuring charge, net

  2,913 573 

Amortization of debt discount

 2,846 2,917 1,851 

Net gain on early extinguishment of long-term debt

  (3,758) (738)

Deferred income taxes

 (414) 1,569 1,332 

Provision for bad debts

 77 (49) (1,070)

Net loss (gain) on sale of fixed assets

 46 (53) (77)

Changes in operating assets and liabilities:

 
 

Accounts receivable

 (24,527) 20,062 15,114 
 

Inventories

 16,969 6,202 (1,331)
 

Accounts payable

 (542) (7,921) (4,049)
 

Accrued expenses, deferred profit, and other current liabilities

 49,134 (10,211) 13,129 
 

Other, net

 (2,091) (805) (1,638)

Net income (loss)

 $127,987 $361,760 $(15,632)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

Depreciation and amortization

 12,892 10,789 12,227 

Amortization of debt discount

 1,260 3,058 2,846 

Non-cash equity-based compensation

 12,807 8,769 7,113 

Non-cash asset impairment

 584  304 

Non-cash inventory write-off

 758  1,526 

Non-cash restructuring

  (179)  

Loss on extinguishment of debt

 3,349   

Deferred income taxes

 11,276 (25,141) (414)

Gain on disposal of segment (see Note 3)

  (156,290)  

Excess tax benefits from stock option exercises

 (10,406) (23,271)  

Other, net

 (31) (27) 44 

Non-cash items from discontinued operations

 44,381 14,030 10,877 

Changes in operating assets and liabilities:

 

Accounts receivable

 56,843 (83,160) (28,379)

Inventories

 (19,385) (49,535) 10,322 

Prepaid expenses and other current assets

 (25,487) (4,749) (1,418)

Supplier deposits

 12,400 (23,296) 117 

Accounts payable

 8,098 7,299 3,067 

Accrued expenses, deferred profit and other current liabilities

 (72,723) 85,500 51,582 

Income taxes payable

 (42,204) 78,894 1,482 

Other, net

 (6,957) (4,742) (1,486)

Discontinued operations

  (5,495) 4,860 
              

Net cash provided by operating activities

Net cash provided by operating activities

 57,849 44,264 39,186  115,442 194,214 59,038 

Investing activities

Investing activities

  

Capital expenditures

Capital expenditures

 (8,347) (12,806) (9,092) (60,364) (10,724) (7,460)

Payments for net assets of businesses acquired

Payments for net assets of businesses acquired

 (12,252) (10,981)   (28,273)  (2,434)

Proceeds from sale of property, plant, and equipment and assets held for sale

 834 103 312 

Net purchases of investments

 (135,000)   

Payments of earn-outs for businesses acquired

   (195)

Transfers from restricted cash, net

 75,540 (76,115)  

Proceeds from the maturity of CDARS

  213,641  

Proceeds from sales of short-term investments

 707,649 32,971  

Payments for purchases of short-term investments

 (588,453) (506,103) (135,000)

Proceeds from the sale of property, plant and equipment

  13 834 

Proceeds from disposal of segment, net of transaction fees (see Note 3)

  225,188  

Other

 195   

Discontinued operations

  (492) (10,510)
              

Net cash used in investing activities

 (154,765) (23,684) (8,780)

Net cash provided by (used in) investing activities

 106,294 (121,621) (154,765)

Financing activities

Financing activities

  

Proceeds from stock option exercises

Proceeds from stock option exercises

 12,586 681 3,171  10,714 45,164 12,586 

Proceeds from issuance of common stock

Proceeds from issuance of common stock

 130,086      130,086 

Payments of debt issuance costs

   (1,579)

Restricted stock tax withholdings

Restricted stock tax withholdings

 (607) (1,019) (371) (3,173) (4,619) (607)

Excess tax benefits from stock option exercises

 10,406 23,271  

Purchases of treasury stock

 (162,077) (38,098)  

Repayments of long-term debt

Repayments of long-term debt

 (196) (32,659) (60,706) (105,803) (213) (196)

Other

 (2)   
              

Net cash provided by (used in) financing activities

 141,869 (32,997) (59,485)

Net cash (used in) provided by financing activities

 (249,935) 25,505 141,869 

Effect of exchange rate changes on cash and cash equivalents

Effect of exchange rate changes on cash and cash equivalents

 (163) (867) (884) 989 (1,466) (163)
              

Net increase (decrease) in cash and cash equivalents

 44,790 (13,284) (29,963)

Net (decrease) increase in cash and cash equivalents

 (27,210) 96,632 45,979 

Cash and cash equivalents at beginning of year

Cash and cash equivalents at beginning of year

 103,799 117,083 147,046  245,132 148,500 102,521 
              

Cash and cash equivalents at end of year

Cash and cash equivalents at end of year

 $148,589 $103,799 $117,083  $217,922 $245,132 $148,500 
              

Supplemental disclosure of cash flow information

Supplemental disclosure of cash flow information

  

Interest paid

Interest paid

 $4,935 $6,530 $6,108  $1,393 $4,727 $4,935 

Income taxes paid

Income taxes paid

 1,808 3,215 1,618  89,745 9,925 1,808 

Non-cash investing and financing activities

Non-cash investing and financing activities

  

Accrual of payments for net assets of businesses acquired

 1,000   

Accrual of contingent earn-out payment to former shareholders of acquired company

  9,644  

Transfers from property, plant, and equipment to inventory

 1,159 404 1,758 

Transfers from inventory to property, plant, and equipment

 23 385 181 

Exchange of convertible subordinated notes

   118,766 

Accrual of payment for net assets of businesses acquired

 $ $ $1,000 

Transfers from property, plant and equipment to inventory

  3,913 1,159 

Transfers from inventory to property, plant and equipment

  850 23 

Sale of property, plant and equipment with note receivable

  140  

The accompanying notes are an integral part of these consolidated financial statements.


Table of Contents


Veeco Instruments Inc. and Subsidiaries



Notes to Consolidated Financial Statements



December 31, 20092011

1.     Description of Business and Significant Accounting Policies

Business

        Veeco Instruments Inc. (together with its consolidated subsidiaries, "Veeco," the "Company" or "we") designs, manufactures, marketscreates Process Equipment solutions that enable technologies for a cleaner and services enabling solutions for customers in the high brightnessmore productive world. We design, manufacture and market equipment primarily sold to make light emitting diodediodes ("HB LED"LEDs"), solar, data storage, scientific research, semiconductor, and industrial markets. We have leading technology positions in our three segments: Light Emitting Diode ("LED") & Solar Process Equipment, Data Storage Process Equipment,hard-disk drives, as well as for emerging applications such as concentrator photovoltaics, power semiconductors, wireless components, microelectromechanical systems (MEMS) and Metrology.other next-generation devices.

        In ourVeeco's LED & Solar segment we designdesigns and manufacturemanufactures metal organic chemical vapor deposition ("MOCVD") systems,and molecular beam epitaxy ("MBE") systems and sources, and other types of deposition systems such as web and glass coaters, which we sellcomponents sold to manufacturers of HB LEDs, wireless devices, power semiconductors, and solar panels,concentrator photovoltaics, as well as to scientific research customers.R&D applications. In 2011 we discontinued the sale of our products related to Copper, Indium, Gallium, Selenide ("CIGS") solar systems technology.

        In ourVeeco's Data Storage segment we designdesigns and manufacture ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, chemical vapor deposition, and dicing and slicing systems primarilymanufactures the critical technologies used to create thin film magnetic heads ("TFMHs") that read and write data on hard disk drives. These technologies include ion beam etch (IBE), ion beam deposition (IBD), diamond-like carbon (DLC), physical vapor deposition (PVD), chemical vapor deposition (CVD), and slicing, dicing and lapping systems.

        InWe support our Metrology segment, we designcustomers through product and manufacture atomic force microscopes ("AFMs")process development, training, manufacturing, and sales and service sites in the U.S., scanning probe microscopes ("SPMs"), stylus profilers, and optical interferometers used to provide critical surface measurements in research and production environments. This broad line of products is used in universities, research facilities and scientific centers worldwide. In production environments such as semiconductor, data storageKorea, Taiwan, China, Singapore, Japan, Europe and other industries, our metrology instruments enable customers to monitor their products throughout the manufacturing process to improve yields, reduce costs, and improve product quality.locations.

Basis of Presentation

        We report interim quarters, other than fourth quarters which always end on December 31, on a 13-week basis ending on the last Sunday within such period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 20092011 interim quarter ends were April 3, July 3 and October 2. The 2010 interim quarter ends were March 29,28, June 28,27 and September 27. The 2008 interim quarter ends were March 30, June 29, and September 28.26. For ease of reference, we report these interim quarter ends as March 31, June 30 and September 30 in our interim condensed consolidated financial statements.

Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include allowance for doubtful accounts, inventory obsolescence, purchase accounting allocations, recoverability and useful lives of property, plant and equipment and identifiable intangible assets, recoverability of goodwill, recoverability of deferred tax assets, liabilities for product warranty, accruals for contingencies and share-basedequity-based payments, including forfeitures and liabilities for tax uncertainties. Actual results could differ from those estimates.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011

Principles of Consolidation

        The accompanying Consolidated Financial Statements include the accounts of Veeco and ourits subsidiaries. Intercompany items and transactions have been eliminated in consolidation.

Revenue Recognition

        We recognize revenue based on current accounting guidance provided by the Securities and Exchange Commission ("SEC") and the Financial Accounting Standards Board ("FASB"). Our revenue transactions include sales of products under multiple-element arrangements. Revenue under these arrangements is allocated to each element based upon its estimated fair market value.selling price.

        We consider a broad array of facts and circumstances when evaluating each of our sales arrangements in determining when to recognize revenue, including specific terms of the purchase order, contractual obligations to the customer, the complexity of the customer's post deliverypost-delivery acceptance provisions, customer creditworthiness and the installation process. Revenue is recognized when persuasive evidence of an arrangement exists,Management also considers the sales price is fixed or determinable, collectability is reasonably assuredparty responsible for installation, whether there are process specification requirements which need to be demonstrated before final sign off and no uncertainties exist regarding customer acceptance. For transactions on which we recognize systems revenue, either atpayment, whether Veeco can replicate the time of shipment or delivery,field testing conditions and procedures in our contractual arrangementsfactory and our past experience with customers do not contain provisions for right of return or forfeiture, refund or other purchase price concessions.demonstrating and installing a particular system. Sales arrangements are reviewed on a case-by-case basis; however, our products generally fall into one of two categories; either instruments or systems, for which we have establishedthe Company's revenue recognition protocolsprotocol for established systems is as described below.

        Instruments—For standard products produced according to our published specifications, principally metrology instruments sold typically to universities, research facilities and scientific centers and in general industrial applications where installation is inconsequential or perfunctory and no substantive customer acceptance provisions exist, revenue is recognized when title and risk of loss pass to the customer, either at time of shipment or delivery. Acceptance of the product by the customer is based upon meeting standard published specifications. Customer acceptance provisions include initial setup at the customer site, performance of functional test procedures and calibration testing of the basic features and functionality of the product. These provisions are a replication of the testing performed in our facilities prior to shipment. The skills and equipment required to complete installation of such instruments are not specialized and are readily available in the market and are often performed by distributors or representative organizations.

        Systems—Process equipment systems and certain metrology systems, which are sold to manufacturers in the HB LED, solar, data storage and semiconductor industries and are used in manufacturing facilities and commercial production environments typically include process acceptance criteria based upon Veeco and/or customer specifications. We are generally required to install these products and demonstrate compliance with acceptance tests at the customer's facility. Generally, based upon the terms of the sales arrangement, these products are sold with a retention (typically 10% to 20% of the sales contract value) which is payable by the customer when installation and field acceptance is completed. Such installations are not considered complex and are not deemed essential to the functionality of the equipment because they do not involve significant changes to the features or capabilities of the equipment or involve building complex interfaces or connections. Installation normally represents only 2% - 4% of the fair value of the sales contract. Sales arrangements for these systems are bifurcated into separate units of accounting or elements based on objective evidence of fair value. The two elements are the system and installation of the system. The amount of revenue



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009


allocated to each element is based upon its relative fair value. The price charged when the system or installation service is sold separately generally determines fair value. The value of the installation service is based upon the fair value of the service performed, including labor, which is based upon the estimated time to complete the installation at hourly rates, and material components. We recognize revenue for the system or delivered element since the delivered item has value to the customer on a standalone basis, there is objective and reliable evidence of the fair value of the undelivered item (i.e., the installation service) and delivery or performance of the undelivered item is considered probable and substantially in our control, based on our historical experience. The value of the undelivered element is the greater of the fair value of the installation or the portion of the sales price that will not be received until the installation is completed (i.e., the retention amount).        System revenue is generally recognized upon shipment or delivery provided title and risk of loss has passed to the customer.customer, evidence of an arrangement exists, prices are contractually fixed or determinable, collectability is reasonably assured and there are no material uncertainties regarding customer acceptance. Revenue from installation services is recognized at the time acceptance is received from the customer. If the arrangement does not meet all the above criteria, the entire amount of the sales arrangement is deferred until the criteria have been met or all elements have been delivered to the customer or been completed.

        For those transactions on which we recognize systems revenue, either at the time of shipment or delivery, our sales and contractual arrangements with customers do not contain provisions for right of return or forfeiture, refund or other purchase price concessions. In the rare instances where such provisions are included, the Company defers all revenue until customer acceptance is achieved. In cases where products are sold with a retention of 10% to 20%, which is typically payable by the customer when installation and field acceptance provisions are completed, the customer has the right to withhold this payment until such provisions have been achieved. We defer the greater of the retention amount or the estimated selling price of the installation on systems that we recognize revenue at the time of shipment or delivery.

        For new products, new applications of existing products or for products with substantive customer acceptance provisions where performance cannot be fully assessed prior to meeting customeragreed upon specifications at the customer site, revenue is deferred as deferred profit in the accompanying Consolidated Balance Sheets and fully recognized upon completion of installation and receipt of final customer acceptance. Since title

        Our systems are principally sold to goodsmanufacturers in the HB-LED, the data storage, solar and other industries. Sales arrangements for these systems generally passesinclude customer acceptance criteria based upon Veeco and/or customer specifications. Prior to shipment a customer source inspection of the system is performed in our facility or test data is sent to the customer documenting that the system


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

is functioning within agreed upon shipmentspecifications. Such source inspection or delivery and 80%test data replicates the acceptance testing that will be performed at the customer's site prior to 90%final acceptance of the contract amount becomes payable at that time, inventory is relievedsystem. Customer acceptance provisions include reassembly and accounts receivable is recognized forinstallation of the amount billedsystem at the timecustomer site, which includes performing functional or mechanical test procedures (i.e. hardware checks, leak testing, gas flow monitoring and quality control checks of shipment. The profit on the amount billed forbasic features of the product). Additionally, a material demonstration process may be performed to validate the functionality of the product. Upon meeting the agreed upon specifications the customer approves final acceptance of the product.

        Veeco generally is required to install these transactionsproducts and demonstrate compliance with acceptance tests at the customer's facility. Such installations typically are not considered complex and the installation process is deferrednot deemed essential to the functionality of the equipment because it does not involve significant changes to the features or capabilities of the equipment or involve building complex interfaces or connections. We have a demonstrated history of completing such installations in a timely, consistent manner and recognized as deferred profitcan reliably estimate the costs of such. In such cases, the test environment at our facilities prior to shipment replicates the customer's environment. While there are others in the accompanying Consolidated Balance Sheets.industry with sufficient knowledge about the installation process for our systems as a practical matter, most customers engage the Company to perform the installation services.

        In Japan, where our contractual terms with customers generally specify risk of loss and title transfers upon customer acceptance, revenue is recognized and the customer is billed upon receipt of written customer acceptance.

        Revenue related to maintenance and service contracts is recognized ratably over the applicable contract term. Component and spare part revenue is recognized at the time of shipment or delivery in accordance with the terms of the applicable sales arrangement.

Cash and Cash Equivalents

        Cash and cash equivalents include cash and highly liquid investments with maturities of three months or less when purchased. Such items may include cash in operating bank accounts, liquid money market accounts, treasury bills, commercial paper, Federal Deposit Insurance Corporation ("FDIC") insured corporate bonds and certificates of deposit placed through an account registry service ("CDARS") with maturities of three months or less when purchased. CDARS, commercial paper and treasury bills classified as cash equivalents are carried at cost, which approximates fair market value.

Short-Term Investments

        We determine the appropriate balance sheet classification of our investments at the time of purchase and evaluate the classification at each balance sheet date. As part of our cash management program, we maintain a portfolio of marketable securities which are classified as available-for-sale. These securities include FDIC insured corporate bonds, treasury bills, commercial paper and CDARS with maturities of greater than three months but less than one year when purchased andin principal amounts that, when aggregated with interest to accrue over the term, will not exceed Federal Deposit Insurance CorporationFDIC limits. These securitiesSecurities classified as available-for-sale are carried at cost, which approximatesfair market value.value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income (loss) and reported in equity. Net realized gains and losses are included in net income (loss) attributable to Veeco.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011

Concentration of Credit Risk

        Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of accounts receivable, short-term investments and cash and cash equivalents. We perform ongoing credit evaluations of our customers and, where appropriate, require that letters of credit be provided on certain foreign sales arrangements. We maintain allowances for potential credit losses and invest cash and cash equivalentsmake investments with strong, higher credit quality issuers and continuously monitor the amount of credit exposure to any one issuer.

Inventories

        Inventories are stated at the lower of cost (principally first-in, first-out method) or market. Management evaluates the need to record adjustments for impairment of inventory on a quarterly basis. Our policy is to assess the valuation of all inventories, including raw materials, work in process, finished goods, and spare parts and other service inventory. Obsolete or slow-moving inventory, based upon historical usage, or inventory in excess of management's estimated usage for the next 12 months' requirements is written down to its estimated market value, if less than its cost. Inherent in the estimates of market value are management's estimates related to our future manufacturing schedules, customer demand, technological and/or market obsolescence, possible alternative uses and ultimate realization of excess inventory.

Goodwill and Indefinite-Lived Intangibles

        We account for goodwill and intangible assets with indefinite useful lives in accordance with relevant accounting guidance related to goodwill and other intangible assets, which states that goodwill and intangible assets with indefinite useful lives should not be amortized, but instead tested for impairment at least annually at the reporting unit level. Our policy is to perform this annual impairment test in the fourth quarter, using a measurement date of October 1st, of each fiscal year or more frequently if impairment indicators arise. Impairment indicators include, among other conditions, cash flow deficits, a historical or anticipated decline in revenue or operating profit, adverse legal or regulatory developments and a material decrease in the fair value of some or all of the assets.

        Pursuant to the aforementioned guidance we are required to determine if it is appropriate to use the operating segment, as defined under guidance for segment reporting, as the reporting unit, or one level below the operating segment, depending on whether certain criteria are met. We have identified fourtwo reporting units that are required to be reviewed for impairment. The reporting units are Data Storage Process Equipment,and LED & Solar Process Equipment, AFM and Optical Metrology. AFM and Optical Metrology comprise the Metrology operating segment.Solar. In identifying the reporting units management considered the economic characteristics of operating segments including the products and services provided, production processes, types or classes of customer and product distribution.

        We perform this impairment test by first comparing the fair value of our reporting units to their respective carrying amount. When determining the estimated fair value of a reporting unit, we utilize a discounted future cash flow approach since reported quoted market prices are not available for our reporting units. Developing the estimate of the discounted future cash flow requires significant judgment and projections of future financial performance. The key assumptions used in developing the discounted future cash flows are the projection of future revenues and expenses, working capital requirements, residual growth rates and the weighted average cost of capital. In developing our financial projections, we consider historical data, current internal estimates and market growth trends. Changes to any of these assumptions could materially change the fair value of the reporting unit. We


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011


reconcile the aggregate fair value of our reporting units to the our adjusted market capitalization as a supporting calculation. The adjusted market capitalization is calculated by multiplying the average share price of our common stock for the last ten trading days prior to the measurement date by the number of outstanding common shares and adding a control premium.

        If the carrying value of the reporting units exceed the fair value we would then compare the implied fair value of our goodwill to the carrying amount in order to determine the amount of the impairment, if any.

Definite-Lived Intangible and Long-Lived Assets

        Intangible assets consist of purchased technology, customer-related intangible assets, patents, trademarks, covenants not-to-compete, capitalized software costs, software licenses and deferred financing costs. Purchased technology consists of the core proprietary manufacturing technologies associated with the products and offerings obtained through acquisition.acquisition and are initially recorded at fair value. Customer-related intangible assets, patents, trademarks and covenants not-to-compete are initially recorded at fair value and software licenses and deferred financing costs are initially recorded at cost. Intangible assets with definitive useful lives are amortized using the straight-line method over their estimated useful lives for periods ranging from 2 years to 17 years.

        Costs of applying forProperty, plant and registering specific patents, as well as patent defense costsequipment are capitalized and classified as intangible assets in our accompanying Consolidated Balance Sheets. As of December 31, 2009 and 2008, we had net capitalized patent costs of $5.4 million and $7.7 million, respectively, which consist primarily of costs to successfully defend certain patents. The Companyrecorded at cost. Depreciation is amortizing these capitalized costs over the respective remaining lives of the patents. Payments received for license fees and royalties associated with patent litigation have been and will continue to be netted against the capitalized patent defense costs upon receipt (see Note 9).

        Software development costs are accounted for in accordance with the relevant guidance related to costs of computer software to be sold, leased or otherwise marketed and costs of computer software developed or obtained for internal use. The capitalization of software costs includes costs incurred by us in developing products that qualify for capitalization as well as costs to purchase and develop software for internal use. We capitalize costs associated with product development, coding, and testing subsequent to establishing technological feasibility of the product. Technological feasibility is established after completion of a detailed program design or working model. Capitalization of computer software costs ceases upon a product's general availability or release.

        Capitalized software development costs are included in intangible assets in the accompanying Consolidated Balance Sheets and are amortizedprovided over the estimated useful lifelives of the software product starting fromrelated assets using the datestraight-line method for financial statement purposes. Amortization of general availability. Amortization expenseleasehold improvements is computed using the straight-line method over the shorter of $1.5 million, $1.5 million, and $1.1 million related to capitalized costs incurred in developing products in our Metrology segment is included in costthe remaining lease term or the estimated useful lives of sales in the accompanying Consolidated Statements of Operations for the years ended December 31, 2009, 2008, and 2007, respectively.

        The Company has capitalized certain costs associated with implementing our company-wide integrated applications software, which are included in intangible assets in the accompanying Consolidated Balance Sheets. Such costs are being depreciated over seven years and include consulting fees and employee time spent on software configuration and interface, coding, installation and testing, as well as the purchase of new computer equipment. Data conversion costs, training and maintenance fees associated with this integrated applications software implementation are expensed as incurred.



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009improvements.

        Long-lived assets, such as property, plant, and equipment and intangible assets with definite useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, a historical or anticipated decline in revenue or operating profit, adverse legal or regulatory developments and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flow expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

        Depreciation and amortizationCost Method of Accounting for Investments

        Investee companies not accounted for under the consolidation or the equity method of accounting are generally computed usingaccounted for under the straight-linecost method and are charged to operations overof accounting. Under this method, the estimated useful lives of depreciable assets. Leasehold improvements are amortized over the lesserCompany's share of the useful lifeearnings or losses of such investee companies is not included in the Consolidated Balance Sheet or Statement of Operations. However, impairment charges are recognized in the Consolidated Statement of Operations. If circumstances suggest that the value of the leasehold improvementinvestee company has subsequently recovered, such recovery is not recorded.


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Veeco Instruments Inc. and the lease term.Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

Fair Value of Financial Instruments

        We believe the carrying amounts of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, reflected in the consolidated financial statements approximate fair value due to their short-term maturities. The fair value of our debt, including current maturities, is estimated using a discounted cash flow analysis, based on the estimated current incremental borrowing rates for similar types of securities, or based on market value for our publicly traded debt (see Note 6).securities.

Derivative Financial Instruments

        We use derivative financial instruments to minimize the impact of foreign exchange rate changes on earnings and cash flows. In the normal course of business, our operations are exposed to fluctuations in foreign exchange rates. In order to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known foreign currency exposures, we enter into monthly forward contracts. We do not use derivative financial instruments for trading or speculative purposes. Our forward contracts doare not expected to subject us to material risks due to exchange rate movements because gains and losses on these contracts are intended to offset exchange gains and losses on the underlying assets and liabilities; both theliabilities. The forward contracts and the underlying assets and liabilities are marked-to-market through earnings. We conduct our derivative transactions with highly rated financial institutions in an effort to mitigate any material credit risk.

        The aggregate foreign currency exchange (loss) gain included in determining consolidated results of operations was approximately ($1.5)$(1.0) million, $0.1$1.3 million and ($0.5)$(0.7) million in 2009, 2008,2011, 2010 and 2007,2009, respectively. Included in the aggregate foreign currency exchange (loss) gain were gains (losses) relating to forward contracts of $0.4$0.5 million, ($1.0)$0.1 million and ($0.1)$0.1 million in 2009, 2008,2011, 2010 and 2007,2009, respectively. These amounts were recognized and are included in other, expense (income), net.net in the accompanying Consolidated Statements of Operations.

        As of December 31, 2009,2011, there were no gains or losses related to forward contracts included in prepaid expenses and other current assets or accrued expenses and other current liabilities. As of December 31, 2010, approximately $0.2$0.3 million of gains related to forward contracts were included in prepaid expenses and other current assets and were subsequently received in January 2010. As of December 31, 2008, approximately $0.9 million of losses related to forward contracts were included in accrued expenses and were subsequently paid in January 2009.2011. Monthly forward contracts with a notional amount of $3.0$3.6 million, for the month of January 2010 were entered into in December 2009.



Veeco Instruments Inc. and Subsidiaries
2011 for January 2012, will be settled in January 2012.

Notes to Consolidated Financial Statements (Continued)

        The weighted average notional amount of derivative contracts outstanding during the year ended December 31, 20092011 was approximately $10.3 million.

Translation of Foreign Currencies

        Certain of our international subsidiaries operate primarily using local functional currencies. Foreign currency denominated assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date, and income and expense accounts and cash flow items are translated at average monthly exchange rates during the respective periods. Net exchange gains or losses resulting from the translation of foreign financial statements and the effect of exchange rates on intercompany transactions of a long-term investment nature are recorded as a separate component of stockholders' equity in accumulated other comprehensive income. Any foreign currency gains or losses related to transactions are included in operating results.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

Environmental Compliance and Remediation

        Environmental compliance costs include ongoing maintenance, monitoring and similar costs. Such costs are expensed as incurred. Environmental remediation costs are accrued when environmental assessments and/or remedial efforts are probable and the cost can be reasonably estimated.

Accumulated Other Comprehensive Income

        Our accumulated other comprehensive income of $7.1 million and $7.2 million at December 31, 2009 and 2008, respectively, consists primarily of foreign currency translation adjustments.

Research and Development Costs

        Research and development costs are charged to expense as incurred and include expenses for the development of new technology and the transition of technology into new products or services.

Warranty Costs

        We estimate the costs that may be incurred under the warranty we provide for our products and record a liability in the amount of such costs at the time the related revenue is recognized. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs. Our warranty obligation is affected by product failure rates, material usage, and labor costs incurred in correcting product failures during the warranty period. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs. If actual warranty costs differ substantially from our estimates, revisions to the estimated warranty liability would be required.

Income Taxes

        As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax expense, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. The carrying value of our deferred tax assets is adjusted by a partial valuation allowance to recognize the extent to which the future tax benefits will be recognized on a more likely than not basis. Our net deferred tax assets consist primarily of net operating loss and tax credit carry forwards, and timing differences between the book and tax treatment of inventory, acquired intangible assets and other asset valuations. Realization of these net deferred tax assets is dependent upon our ability to generate future taxable income.

        We record valuation allowances in order to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of recorded valuation allowances, we consider a variety of factors, including the scheduled reversal of deferred tax liabilities, future taxable income, and prudent and feasible tax planning strategies. Under the relevant accounting guidance, factors such as current and previous operating losses are given significantly greater weight than the outlook for future profitability in determining the deferred tax asset carrying value.

        Relevant accounting guidance addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under such guidance, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

Advertising Expense

        The cost of advertising is expensed as of the first showing of each advertisement. We incurred $2.2$1.4 million, $3.1$1.3 million and $3.3$0.6 million in advertising costsexpenses during 2011, 2010 and 2009, 2008, and 2007, respectively.

Royalties

        We have licensing arrangements with a number of third parties under which we use patents of such third parties. Royalties and license fees expensed under these agreements approximated $0.8 million, $0.5 million, and $2.0 million in 2009, 2008, and 2007, respectively, and are included in cost of sales in our Consolidated Statements of Operations.



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

Shipping and Handling Costs

        Shipping and handling costs are costs that are incurred to move, package and prepare our products for shipment and then to move the products to the customer's designated location. These costs are generally comprised of payments to third-party shippers. Shipping and handling costs are included in cost of sales in our Consolidated Statements of Operations.

Equity-Based Compensation

        Equity-based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as expense over the employee requisite service period. In order to determine the fair value of stock options on the date of grant, we apply the Black-Scholes option-pricing model. Inherent in the model are assumptions related to risk-free interest rate, dividend yield, expected stock-price volatility and expected option term.

        The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The dividend yield assumption is based on our historical and future expectation of dividend payouts. While the risk-free interest rate and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility and expected option term assumptions require a level of judgment which make them critical accounting estimates.

        We use an expected stock-price volatility assumption that is a combination of both historical volatility, calculated based on the daily closing prices of our common stock over a period equal to the expected term of the option and implied volatility, utilizing market data of actively traded options on our common stock, which are obtained from public data sources. We believe that the historical volatility of the price of our common stock over the expected term of the option is a strong indicator of the expected future volatility and that implied volatility takes into consideration market expectations of how future volatility will differ from historical volatility. Accordingly, we believe a combination of both historical and implied volatility provides the best estimate of the future volatility of the market price of our common stock.

        The expected option term, representing the period of time that options granted are expected to be outstanding, is estimated using a lattice-based model incorporating historical post vest exercise and employee termination behavior.

        We estimate forfeitures using historical experience, which is adjusted over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Because of the significant amount of judgment used in these calculations, it is reasonably likely that circumstances may cause the estimate to change.

        With regard to the expected option term assumption, we consider the exercise behavior of past grants and model the pattern of aggregate exercises.

Subsequent Events

        We have evaluated the consolidated financial statements for subsequent events through the filing date of this Form 10-K.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011

Recent Accounting Pronouncements

        Balance Sheet:    In December 2011, the FASB issued amended guidance related to the Balance Sheet (Disclosures about Offsetting Assets and Liabilities). This amendment requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The amendment should be applied retrospectively. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        Comprehensive Income:    In December 2011, the FASB issued amended guidance related to Comprehensive Income. In order to defer only those changes in the June amendment (addressed below) that relate to the presentation of reclassification adjustments, the FASB issued this amendment to supersede certain pending paragraphs in the June amendment. The amendments are being made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before the June amendment. All other requirements are not affected, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        In June 2011, the FASB issued amended guidance related to Comprehensive Income. This amendment allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendment eliminates the option to present the components of other comprehensive income as part of the statement of equity. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendment should be applied retrospectively. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        Business Combinations:    In December 2010, the FASB issued amended guidance related to Business Combinations. The amendments affect any public entity that enters into business combinations that are material on an individual or aggregate basis. The amendments specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company will assess the impact of these amendments on its consolidated financial statements if and when a material acquisition occurs.

        Intangibles—Goodwill and Other:    In September 2011, the FASB issued amended guidance related to Intangibles—Goodwill and Other: Testing Goodwill for Impairment. The amendment is intended to simplify how entities test goodwill for impairment. The amendment permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. This amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        In December 2010, the FASB issued amended guidance related to Intangibles—Goodwill and Other. The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

        Fair Value Measurements:    In January 2010, the FASB issued amended guidance related tofor Fair Value Measurements and Disclosures. This update requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement. The FASB's objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, this update requires that a reporting entity disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition, this update clarifies the requirements of existing disclosures. For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This update is effective for interim and annual reporting periods beginning after December 15, 2009,was adopted on January 1, 2010, except for the disclosures about


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

        In May 2011, the FASB issued amended guidance related to Fair Value Measurements. This amendment represents the converged guidance of the FASB and the International Accounting Standards Board (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in this amendment, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term "fair value." The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. Early application is not permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        We implemented new accounting guidance for our non-financial assets and non-financial liabilities as of January 1, 2009. This new guidance defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure. The accounts subject to the guidance are our long-lived assets, goodwill, and intangible assets. The implementation expanded our fair value disclosures but did not impact our consolidated financial position or results of operations. However, applying the provisions of this new guidance may impact our periodic fair value measurements for long-lived assets, goodwill and intangible assets in the future, as fair values calculated under the new guidance may be different from the fair values that would have been calculated under previous guidance (see Note 3).

        Revenue Recognition:    In October 2009, the FASB issued amended guidance related to multiple-element arrangements which requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. This update eliminates the use of the residual method of allocation and requires the relative-selling-price method in all circumstances. All entities must adopt the guidance no later than the beginning of their first fiscal year beginning on or after June 15, 2010. Entities may elect to adopt the guidance through either prospective application for revenue arrangements entered into or materially modified, after the effective date or through retrospective application to all revenue arrangements for all periods presented. The Company believes thatadoption of this guidance willdid not have a material impact on itsthe Company's consolidated financial statements.

        In October 2009, the FASB issued amended guidance that is expected to significantly affect how entities account for revenue arrangements that contain both hardware and software elements. As a result, many tangible products that rely on software will be accounted for under the revised multiple-element arrangements revenue recognition guidance, rather than the software revenue recognition guidance. The revised guidance must be adopted by all entities no later than fiscal years beginning on or after June 15, 2010. An entity must select the same transition method and same period for the adoption of both this guidance and the revisions to the multiple-element arrangements guidance noted above. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009


both this guidance and the revisions to the multiple-element arrangements guidance noted above. The Company believes that this guidance will not have a material impact on its consolidated financial statements.

        Subsequent Events:    In May 2009, the FASB issued a new pronouncement relating to subsequent events. The termsubsequent events refers to events that occur after the last date in the period on which we are reporting through the date the financial statements are issued, and which may require recognition or disclosure in the financial statements. Adoption of this pronouncement should not result in significant changes in the subsequent events that are reported, but rather requires disclosure of the date through which the company evaluates whether subsequent events have occurred. We have evaluated subsequent events from the date of these financial statements through the date on which these financial statements were issued.

        Derivative Instruments and Hedging Activities:    In March 2008, the FASB issued a new pronouncement relating to Disclosures about Derivative Instruments and Hedging Activities. This pronouncement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under original guidance, and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. This pronouncement was effective for fiscal years and interim periods beginning after November 15, 2008 and requires comparative disclosures only for periods subsequent to initial adoption. The adoption of this accounting guidance did not impact our consolidated financial position or results of operations.

        Convertible debt:    In May 2008, new accounting guidance was issued that requires a portion of convertible debt to be allocated to equity. We implemented the new guidance as of January 1, 2009 and have applied it retrospectively to all periods presented, as required. This new guidance requires issuers of convertible debt that can be settled in cash to separately account for (i.e., bifurcate) a portion of the debt associated with the conversion feature and reclassify this portion to equity. The liability portion, which represents the fair value of the debt without the conversion feature, is accreted to its face value over the life of the debt using the effective interest method by amortizing the discount between the face amount and the fair value. The amortization is recorded as interest expense. The Notes are subject to such accounting guidance since they may be settled in cash upon conversion. Thus, as a result of the adoption of this accounting guidance, we reclassified approximately $16.3 million from long-term debt to additional paid-in capital effective as of the date of issuance of the Notes. This reclassification created a $16.3 million discount on the debt that will be amortized over the remaining life of the Notes, which will be through April 15, 2012. The reclassification generated a $6.7 million deferred tax liability, which we offset with a corresponding decrease of the valuation allowance by the same amount. Prior periods are presented as if the new guidance was in effect as of the date of issuance. Thus, we have presented all financial data for prior periods in this report as if we had reclassified the $16.3 million and began amortizing the resultant debt discount in April 2007. The retrospective application of the new guidance described above to the results for the year ended December 31, 2008 increased the net loss attributable to Veeco from ($71.1) million to ($75.2) million and increased the loss per share attributable to Veeco from ($2.27) to ($2.40).

        During the fourth quarter of 2008, we repurchased an aggregate principal amount of $12.2 million of the Notes for $7.2 million in cash, of which $7.1 million related to principal and $0.1 million related to accrued interest, reducing the amount outstanding from $117.8 million to $105.6 million. A gross



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009


gain of approximately $5.1 million was recorded on these repurchases, which was partially offset by the write-off of approximately $0.1 million of unamortized deferred financing costs associated with the Notes, for a net gain of approximately $5.0 million. Such net gain was reduced to $3.8 million upon the adoption of the new accounting guidance, which required that the gain be calculated based on the fair value of the portion repurchased as of the repurchase date. The fair value approximated the carrying value net of the unamortized discount on the portion repurchased. The difference of approximately $1.2 million between the fair value and the amount paid was recorded as a reduction in the gain originally reported, which increased the accumulated deficit as of December 31, 2008 by that amount.

        For the years ended December 31, 2009 and 2008, we recorded $2.8 and $2.9 million, respectively, of additional interest expense in each period resulting from the amortization of the debt discount. This additional interest expense did not require the use of cash.

        The total effect on equity as of the date of adoption on January 1, 2009 was a net increase of $10.3 million, comprised of an increase in additional paid-in capital of $16.3 million and an increase in the accumulated deficit of $6.0 million. The $6.0 million is comprised of $2.9 million and $1.9 million in amortization of the debt discount for 2008 and 2007, respectively, as well as the $1.2 million reduction in the gain that was recorded on the November 2008 repurchases.

        Noncontrolling Interest:    In December 2007, new accounting requirements were issued by the FASB with the objective to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. The most significant provisions of this statement result in changes to the presentation of noncontrolling interests in the consolidated financial statements. We implemented these new rules as of January 1, 2009. The adoption of this statement impacted the manner in which we present noncontrolling interests for all periods included in this report, but did not impact our consolidated financial position or results of operations.2011

2.     LossIncome (Loss) Per Common Share Attributable to Veeco

        The following table sets forth basic and diluted net lossincome (loss) per common share and the weighted average shares outstanding and diluted weighted average shares outstanding (in(in thousands, except per share data)data):

 
 Year ended December 31, 
 
 2009 2008 2007 

Net loss

 $(15,632)$(75,421)$(19,838)

Net loss attributable to noncontrolling interest

  (65) (230) (628)
        

Net loss attributable to Veeco

 $(15,567)$(75,191)$(19,210)
        

Loss per common share attributable to Veeco:

          

Basic and diluted

 $(0.48)$(2.40)$(0.62)
        

Basic and diluted weighted average shares outstanding

  32,628  31,347  31,020 
        
 
 Year ended December 31, 
 
 2011 2010 2009 

Net income (loss)

 $127,987 $361,760 $(15,632)

Net loss attributable to noncontrolling interest

      (65)
        

Net income (loss) from continuing operations attributable to Veeco

 $127,987 $361,760 $(15,567)
        

Income (loss) from continuing operations per common share attributable to Veeco:

          

Basic

 $3.23 $9.16 $(0.48)
        

Diluted

 $3.11 $8.51 $(0.48)
        

Basic weighted average shares outstanding

  39,658  39,499  32,628 

Dilutive effect of stock options, restricted stock awards and units and convertible debt

  1,497  3,015   
        

Diluted weighted average shares outstanding

  41,155  42,514  32,628 
        


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

        Basic lossincome (loss) per common share is computed using the weighted average number of common shares outstanding during the period. Diluted lossincome (loss) per common share is computed using the weighted average number of common shares and common equivalent shares outstanding during the period. The effect of approximately 761,000, 170,000 and 326,0000.8 million common equivalent shares for the yearsyear ended December 31, 2009 2008 and 2007, respectively, were excluded from the diluted weighted average shares outstanding due to the net losses sustained for these periods.

        In December 2001 and January 2002, we issued a total No shares were excluded from the computation of $220.0 million of unsecured convertible subordinated notes due December 2008 and having a conversion price of $38.51 per share (the "Old Notes"). During 2006 and 2007, we repurchased $76.0 million of the Old Notes. During 2007, we issued a new series of convertible subordinated notes (the "New Notes") due April 15, 2012. We exchanged $118.8 million of Old Notes for $117.8 million of New Notes. Of the Old Notes, $25.2 million remained outstanding subsequent to the exchange. For the year ended December 31, 2007, the weighted-average effect of the assumed conversion of the Old Notes was approximately 1.8 million shares. During the fourth quarter of 2008, we paid the remaining $25.2 million of Old Notes outstanding. For the year ended December 31, 2008, the assumed conversion of the Old Notes was 0.5 million common equivalent shares. Due to the net loss reported for the periods, the convertible shares are anti-dilutive and, therefore, are not included in the diluted weighted average shares outstanding for the years ended December 31, 20082011 and 2007.2010.

        During the second quarter of 2011 the entire outstanding principal balance of our convertible debt was converted, with the principal amount paid in cash and the conversion premium paid in shares. The New Notes meetconvertible notes met the criteria for determining the effect of the assumed conversion using the treasury stock method of accounting, as long assince we have the ability and the intent to settlehad settled the principal amount of the New Notes in cash. Under the terms of the New Notes, we may pay the principal amount of converted New Notes in cash or in shares of common stock. We have indicated that we intend to pay such amountsnotes in cash. Using the treasury stock method, it was determined that the impact of the assumed conversion of the New Notes was anti-dilutive for the years ended December 31, 20082011 and 2007,2010 had a dilutive effect of 0.6 million shares and 1.2 million shares, respectively. For the year ended December 31, 2009, the assumed conversion was anti-dilutive, as the average stock price was below the conversion price of $27.23 for the period.

3.     Discontinued Operations

CIGS Solar Systems Business

        On July 28, 2011, we announced a plan to discontinue our CIGS solar systems business. The effectaction, which was completed on September 27, 2011 and impacted approximately 80 employees, was in response to the dramatically reduced cost of the assumed converted shares is dependent on the stock price at the timemainstream solar technologies driven by significant


Table of the conversion. The maximum number of common equivalent shares issuable upon conversion at Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20072011

reductions in prices, large industry investment, a lower than expected end market acceptance for CIGS technology and technical barriers in scaling CIGS. This business was approximately 6.0 million. Duringpreviously included as part of our LED & Solar segment.

        Accordingly, the fourth quarterresults of 2008, we repurchased $12.2 million of New Notes, andoperations for the years ended December 31, 2009 and 2008, the assumed conversion of the remaining $105.6 million of these New Notes were 5.3 million common equivalent shares. Due to the net loss reported for the period, the convertible shares are anti-dilutive and, therefore, are not includedCIGS solar systems business have been recorded as discontinued operations in the diluted weighted average shares outstandingaccompanying consolidated statements of operations for all periods presented. During the year ended December 31, 2009. See Note 62011, total discontinued operations include pre-tax charges totaling $69.8 million. These charges include an asset impairment charge totaling $6.2 million, a goodwill write-off of $10.8 million, an inventory write-off totaling $27.0 million, charges to settle contracts totaling $22.1 million, lease related charges totaling $1.4 million and personnel severance charges totaling $2.3 million.

Metrology

        On August 15, 2010, we signed a definitive agreement to sell our Metrology business to Bruker Corporation ("Bruker") comprising our entire Metrology reporting segment for further details$229.4 million. Accordingly, Metrology's operating results are accounted for as discontinued operations in determining the consolidated results of operations and the related assets and liabilities are classified as held for sale on our debt.consolidated balance sheet for all periods presented. The sales transaction closed on October 7, 2010, except for assets located in China due to local restrictions. Total proceeds, which included a working capital adjustment of $1 million, totaled $230.4 million of which $7.2 million relates to the assets in China. As part of our agreement with Bruker, $22.9 million of proceeds was held in escrow and was restricted from use for one year from the closing date of the transaction to secure certain specified losses arising out of breaches of representations, warranties and covenants we made in the stock purchase agreement and related documents. This restriction lapsed on October 6, 2011. As part of the sale we incurred transaction costs, which consisted of investment bank fees and legal fees, totaling $5.2 million. The Company recognized a pre-tax gain on disposal of $156.3 million and a pre-tax deferred gain of $5.4 million related to the assets in China.

3.        The following is a summary of the net assets sold as of the closing date on October 7, 2010(in thousands):

 
 October 7, 2010 

Assets

    

Accounts receivable, net

 $21,866 

Inventories

  26,431 

Property, plant and equipment at cost, net

  13,408 

Goodwill

  7,419 

Other assets

  5,485 
    

Assets of discontinued segment held for sale

 $74,609 
    

Liabilities

    

Accounts payable

 $7,616 

Accrued expenses and other current liabilities

  5,284 
    

Liabilities of discontinued segment held for sale

 $12,900 
    

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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

        Summary information related to discontinued operations is as follows (in thousands):

 
 Year ended December 31, 2011 Year ended December 31, 2010 Year ended December 31, 2009 
 
 Solar Systems Metrology Total Solar Systems Metrology Total Solar Systems Metrology Total 

Net sales

 $ $ $ $2,339 $92,011 $94,350 $150 $97,737 $97,887 

Cost of sales

  30,904    30,904  8,000  47,822  55,822  3,174  57,410  60,584 
                    

Gross profit

  (30,904)   (30,904) (5,661) 44,189  38,528  (3,024) 40,327  37,303 

Total operating expenses

  59,420  1,561  60,981  20,018  45,024  65,042  9,339  43,030  52,369 
                    

Operating loss

 $(90,324)$(1,561)$(91,885)$(25,679)$(835)$(26,514)$(12,363)$(2,703)$(15,066)
                    

Net (loss) income from discontinued operations, net of tax

 $(61,453)$(1,062)$(62,515)$(16,645)$101,229 $84,584 $(12,452)$(1,403)$(13,855)
                    

        Liabilities of discontinued segment held for sale, totaling $5.4 million, as of December 31, 2011 and 2010, consist of the deferred gain related to the assets in China.

4.     Fair Value Measurements

        We have categorized our assets and liabilities recorded at fair value based upon the fair value hierarchy. The levels of fair value hierarchy are as follows:



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

        In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, we categorize such assets or liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset.

        Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs.


        AsTable of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009,2011

        The major categories of assets measured at fair value on a recurring basis under Level 2 consisted of CDARs totaling $180.0 million and derivative instruments totaling $0.2 million. As of December 31, 2008, the major category of liabilities measured at fair value on a recurring basis under Level 2 consisted of derivative instruments totaling ($0.9) million. The Company had no Level 1 and Level 3 assets and liabilities measured on a recurring basis, during the years endedat fair value, as of December 31, 20092011 and 2008.2010 are as follows (in millions):

 
 December 31, 2011 
 
 Level 1 Level 2 Level 3 Total 

Treasury bills

 $70.2 $20.0 $ $90.2 

FDIC insured corporate bonds

  187.5      187.5 

Commercial paper

  15.9  81.2    97.1 

Money market instruments

    0.2    0.2 
          

Total

 $273.6 $101.4 $ $375.0 
          

 During the year ended December 31, 2009, we purchased CDARs totaling $180.0 million. CDARs

 
 December 31, 2010 
 
 Level 1 Level 2 Level 3 Total 

Treasury bills

 $136.2 $79.5 $ $215.7 

FDIC insured corporate bonds

  129.4      129.4 

Commercial paper

  128.6  62.8    191.4 

Money market instruments

    0.6    0.6 

Derivative instrument

    0.3    0.3 
          

Total

 $394.2 $143.2 $ $537.4 
          

        CDARS, commercial paper and treasury bills that are classified as cash equivalents are carried at cost, which approximates market value. Accordingly, no gains or losses (realized/unrealized) have been incurred.incurred for cash equivalents. All investments classified as available-for-sale contain quoted prices in active markets.

        Derivative instruments include foreign currency forward contracts to hedge certain foreign currency transactions. Derivative instruments are valued using standard calculations/models that are primarily based on observable inputs, including foreign currency exchange rates, volatilities and interest rates.

        As of December 31, 2009,        The major categories of assets and liabilities measured at fair value under Level 3 on a nonrecurring basis consisted of property, plant and equipment totaling $59.4 million, goodwill totaling $59.4 million, intangible assets totaling $29.7 million, an asset retirement obligation totaling ($0.2) million and a restructuring liability totaling ($2.5) million. As of December 31, 2008, major categories of assets and liabilities measured at fair value under Level 3 on a nonrecurring basis consisted of property, plant and equipment totaling $64.4 million, goodwill totaling $59.2 million, intangible assets totaling $38.8 million and a restructuring liability totaling ($3.6) million. The Company had no Level 1 or Level 2 assets and liabilities measured on a nonrecurring basis, during the years endedat fair value, as of December 31, 20092011 and 2008.

        In 2009, property, plant and equipment with a carrying amount of $54.7 million was written down to its implied fair value of $54.4 million, resulting 2010 are as follows (in an impairment charge of $0.3 million, which was included in the statement of operations for the year ended December 31, 2009 (see Note 5).millions):

        In 2008, property, plant and equipment with a carrying amount of $64.7 million was written down to its implied fair value of $64.4 million, resulting in an impairment charge of $0.3 million, which was included in the statement of operations for the year ended December 31, 2008 (see Note 5).

 
 December 31, 2011 
 
 Level 1 Level 2 Level 3 Total 

Property, plant and equipment, net

 $ $ $86.1 $86.1 

Goodwill

      55.8  55.8 

Intangible assets, net

      25.9  25.9 
          

Total

 $ $ $167.8 $167.8 
          

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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011

        In 2008, goodwill with a carrying amount of $111.5 million was written down to its implied fair value of $59.2 million, resulting in an impairment charge of $52.3 million, which was included in the statement of operations for the year ended December 31, 2008 (see Note 5).

        In 2008, intangible assets with carrying amounts of $58.4 million were written down to their implied fair value of $38.8 million, resulting in an impairment charge of $19.6 million, which was included in the statement of operations for the year ended December 31, 2008 (see Note 5).

 
 December 31, 2010 
 
 Level 1 Level 2 Level 3 Total 

Property, plant and equipment, net

 $ $ $42.3 $42.3 

Goodwill

      52.0  52.0 

Intangible assets, net

      16.9  16.9 
          

Total

 $ $ $111.2 $111.2 
          

4.5.     Business Combinations

Mill Lane Engineering Co., Inc.

        On May 22, 2008,April 4, 2011, we purchased a privately-held company which supplies certain components to one of our businesses for $28.3 million in cash. As a result of this purchase, we acquired Mill Lane Engineering Co., Inc. ("Mill Lane"), a privately held manufacturer$16.4 million of web coating systems for flexible solar panels, for a purchase pricedefinite-lived intangibles, of $11.0which $13.6 million net of cash acquired, plus potential future earn-out payments of up to $19.0 million (representing additional purchase price) contingent upon the future achievement of certain operating performance criteria. Fees related to the acquisition were $0.7 million. Mill Lane is based in Lowell, Massachusettscore technology, and at the time$14.7 million of acquisition had approximately 20 employees.goodwill. The financial results of Mill Lanethis acquisition are included in our LED & Solar Process Equipment segment (see Note 10) as of the acquisition date. We have determined that this acquisition does not constitute a material business combination and therefore are not including pro forma financial statements in this report.

        As6.     Balance Sheet Information

Short-term Investments

        Available-for-sale securities consist of the following (in thousands):

 
 December 31, 2011 
 
 Amortized
Cost
 Gains in Accumulated
Other Comprehensive
Income
 Losses in Accumulated
Other Comprehensive
Income
 Estimated
Fair Value
 

Commercial paper

 $15,889 $6 $ $15,895 

FDIC insured corporate bonds

  187,336  169    187,505 

Treasury bills

  70,147  44    70,191 
          

Total available-for-sale securities

 $273,372 $219 $ $273,591 
          

        During the year ended December 31, 2008, we had accrued $9.62011, available-for-sale securities were sold for total proceeds of $707.6 million. The gross realized gains on these sales were $0.4 million for our earn-out obligation duethe year ended December 31, 2011. For purpose of determining gross realized gains, the cost of securities sold is based on specific identification. The net unrealized holding gain on available-for-sale securities amounted to $0.1 million for the former owners of Mill Lane resultingyear ended December 31, 2011, and has been included in accumulated other comprehensive income. The tax impact on the unrealized gains, which was excluded from the achievement of certain operating performance criteria earned through the end of the fourth quarter of 2008. Payment of this earn-out obligationtable above, was made in the first quarter of 2009. As of December 31, 2009, no earn-out obligations remain under this purchase arrangement.$0.1 million.

Fluens Corporation

        In 2006 we purchased 19.9% of the common stock of Fluens Corporation ("Fluens"). Veeco and Fluens jointly developed a next-generation process for high-rate deposition of aluminum oxide for data storage applications. For accounting purposes, we had consolidated Fluens into our financial results and financial position, and recorded the remaining 80.1% portion of its net loss and net assets as a noncontrolling interest. On May 14, 2009, we acquired the remaining 80.1% of Fluens for $1.5 million and an earn-out arrangement based on future performance. Since we already were consolidating Fluens, the purchase of the remaining 80.1% was treated in accordance with the applicable accounting guidance as a transaction among shareholders and not as a new business acquisition. Thus no gain or loss was recognized upon the purchase of the 80.1% portion, and the difference between the purchase price including the earn-out consideration and the amount by which noncontrolling interest was reduced on the balance sheet was attributed to equity of Veeco. Such difference amounted to approximately $1.0 million, and was recorded as additional paid-in capital.

        We paid $0.5 million of the $1.5 million purchase price of the 80.1% remaining portion of Fluens upon closing, as well as $0.2 million in respect of the earn-out arrangement for periods prior to 2009. We paid a second installment of $0.5 million of the purchase price on September 30, 2009. We will pay the remaining $0.5 million of the $1.5 million in the first quarter of 2010, which is included in accrued expenses in the accompanying Balance Sheet at December 31, 2009. Prior to our purchase of the

 
 December 31, 2010 
 
 Amortized
Cost
 Gains in Accumulated
Other Comprehensive
Income
 Losses in Accumulated
Other Comprehensive
Income
 Estimated
Fair Value
 

Commercial paper

 $128,527 $61 $ $128,588 

FDIC insured corporate bonds

  129,353  24    129,377 

Treasury bills

  136,203  12    136,215 
          

Total available-for-sale securities

 $394,083 $97 $ $394,180 
          

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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011


remaining 80.1%, approximately 31%        During the year ended December 31, 2010, available-for-sale securities were sold for total proceeds of Fluens was owned by an individual then serving$246.6 million. The gross realized gains on these sales were minimal for the year ended December 31, 2010. For purpose of determining gross realized gains, the cost of securities sold is based on specific identification. The net unrealized holding gain on available-for-sale securities amounted to $0.1 million for the year ended December 31, 2010, and has been included in accumulated other comprehensive income.

        Contractual maturities of available-for-sale debt securities at December 31, 2011 are as Senior Vice President of Veeco.follows (in thousands):

 
 Estimated
Fair Value
 

Due in one year or less

 $37,088 

Due in 1-2 years

  236,503 
    

Total investments in debt securities

 $273,591 
    

        Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

DayStar Technologies, Inc.Restricted Cash

        In July 2009, Veeco acquiredAs of December 31, 2011, restricted cash consists of $0.6 million which serves as collateral for bank guarantees that provide financial assurance that the Company will fulfill certain assets, deemedcustomer obligations. This cash is held in custody by the issuing bank, and is restricted as to be a business pursuantwithdrawal or use while the related bank guarantees are outstanding.

        As of December 31, 2010, restricted cash consists of $22.9 million that relates to relevant accounting guidance,the proceeds received from DayStar Technologies, Inc. ("DayStar")the sale of our Metrology segment. This cash was held in order to accelerate Veeco's penetrationescrow and was restricted from use for one year from the closing date of the rapidly growing copper, indium, gallium, selenium ("CIGS") solar market. Veeco purchased selected equipment, took over leased facilities and hired employees from DayStar's research and development group in Clifton Park, New York. In connection with these transactions, Veeco paid DayStar $1.9 million in cash. The assets and financial results of DayStar are included in our LED & Solar Process Equipment segmenttransaction (see Note 10)3). Additionally, restricted cash also consisted of $53.2 million which serves as collateral for bank guarantees that provide financial assurance that the Company will fulfill certain customer obligations. This cash is held in custody by the issuing bank, and is restricted as to withdrawal or use while the related bank guarantees are outstanding.

5.     Balance Sheet Information (in thousands)Accounts Receivable, net

        Accounts receivable are shown net of the allowance for doubtful accounts of $0.5 million as of December 31, 2011 and December 31, 2010.

Inventories

 
 December 31,  
 
 2009 2008  
 

Raw materials

 $49,013 $57,815  
 

Work in process

  21,560  28,733  
 

Finished goods

  6,991  8,382  
       

 $77,564 $94,930  
       
 
 December 31,
2011
 December 31,
2010
  

Raw materials

 $57,169 $49,953  

Work in process

  20,118  33,181  

Finished goods

  36,147  25,353  
       

 $113,434 $108,487  
       

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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

Property, Plant and Equipment


 December 31,  
 December 31,  

 Estimated
Useful Lives
 Estimated
Useful Lives

 2009 2008 2011 2010

Land

 $9,274 $9,274  $12,535 $7,274 

Buildings and improvements

 44,383 43,743 10-40 years 34,589 30,731 10-40 years

Machinery and equipment

 100,156 105,194 3-10 years 102,241 73,173 3-10 years

Leasehold improvements

 5,088 5,163 3-7 years 6,025 2,276 3-7 years
          

Gross property, plant, and equipment at cost

 158,901 163,374  155,390 113,454 

Less accumulated depreciation and amortization

 99,512 99,002 

Less: accumulated depreciation and amortization

 69,323 71,134 
          

Net property, plant, and equipment at cost

 $59,389 $64,372  $86,067 $42,320 
          

        For the years ended December 31, 2009, 2008,2011, 2010 and 2007,2009, depreciation expense was $12.8$8.2 million, $12.9$7.1 million and $13.6$8.3 million, respectively.

Goodwill and Indefinite-Lived Intangible Assets

        In accordance with the relevant accounting guidance related to goodwill and other intangible assets, we conducted our annual impairment test of goodwill and indefinite-lived intangible assets during the fourth quarters of 20092011 and 2008,2010, using October 1st as our measurement date, and utilizing a discounted future cash flow approach as described in Note 1. This was consistent with the approach used in previous years. Based upon the results of such assessments, we determined that no goodwill



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009


and indefinite-lived intangible asset impairment existed in any of its reporting units, as of October 1, 20092011 and 2008,2010, respectively.

        During the fourth quarter of 2008, the economic downturn became more significant and wide ranging as credit availability tightened and overall business and economic conditions deteriorated. It became apparent that the revenue, profitability, growth and other assumptions we used in our fair value determination at October 1, 2008, required revisions. Additionally, we realized a significant decline in our market capitalization which resulted in the carrying value of our net assets exceeding our market capitalization. Given these factors we were required to perform an interim goodwill impairment assessment as of December 31, 2008.

        In performing the impairment assessment as of December 31, 2008, we updated our financial forecast and growth rate assumptions based upon current market conditions and determined that the carrying amounts of our Data Storage Process Equipment and AFM reporting units were in excess of their respective estimated fair values. As such, the Company was required to allocate the estimated fair value to all assets and liabilities in these two reporting units and determined there was no implied value related to goodwill or indefinite-lived intangible assets. We recorded an asset impairment charge of $52.3 million in the fourth quarter of 2008 relating to goodwill, which consisted of $30.4 million in our Data Storage Process Equipment reporting unit and $21.9 million in our AFM reporting unit, and recorded a charge of $5.0 million in our Data Storage Process Equipment reporting unit relating to indefinite-lived intangible assets, pertaining to trademarks.

        Changes in our goodwill during 2009 and 2008 are as follows (in thousands)(in thousands):

 
 2009 2008 

Balance as of January 1

 $59,160 $100,898 

Impairment

    (52,312)

DayStar acquisition

  262   

Mill Lane acquisition

    930 

Mill Lane earnout

    9,644 
      

Balance as of December 31

 $59,422 $59,160 
      
 
 Year ended
December 31,
 
 
 2011 2010 

Beginning Balance

 $52,003 $52,003 

Write-off (see Note 3)

  (10,836)  

Acquisition (see Note 5)

  14,661   
      

Ending Balance

 $55,828 $52,003 
      

        As of December 31, 20092011 and 2008,2010, we had $2.9 million of indefinite-lived intangible assets consisting of trademarks and tradenames, which are included in the accompanying Consolidated Balance Sheets in the caption Intangibleintangible assets, net. See Note 9 for a summary of the 2008 goodwill impairment charge.

Intangible Assets

 
 December 31, 2009 December 31, 2008 
 
 Purchased
technology
 Other
intangible
assets
 Total
intangible
assets
 Purchased
technology
 Other
intangible
assets
 Total
intangible
assets
 

Gross intangible assets

 $111,373 $48,190 $159,563 $111,033 $49,113 $160,146 

Less accumulated amortization

  (95,533) (34,333) (129,866) (92,094) (29,234) (121,328)
              

Intangible assets, net

 $15,840 $13,857 $29,697 $18,939 $19,879 $38,818 
              

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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011

Intangible Assets

 
 December 31, 2011 December 31, 2010 
 
 Purchased
technology
 Other
intangible
assets
 Total
intangible
assets
 Purchased
technology
 Other
intangible
assets
 Total
intangible
assets
 

Gross intangible assets

 $109,248 $19,635 $128,883 $98,473 $22,734 $121,207 

Less accumulated amortization

  (89,620) (13,381) (103,001) (86,376) (17,938) (104,314)
              

Intangible assets, net

 $19,628 $6,254 $25,882 $12,097 $4,796 $16,893 
              

        The estimated aggregate amortization expense for intangible assets with definite useful lives for each of the next five fiscal years is as follows (in thousands)(in thousands):

2010

 $6,099 

2011

 5,359 

2012

 3,729  $4,538 

2013

 2,086  3,286 

2014

 1,674  2,961 

2015

 2,859 

2016

 2,671 

        In accordance with the relevant accounting guidance related to the impairment or disposal of long-lived assets, we performed an analysis as of December 31, 20082011 and 2010 of our definite-lived intangible and long-lived assets due to impairment indicators noted during the fourth quarter of 2008, pertaining to our Data Storage Process Equipment and AFM reporting units. Indications of impairment included deteriorating economic conditions, reduced orders, reduced revenue projections, and losses in our AFM reporting unit and a significant reduction in our market capitalization.assets. No impairment indicators were presentexisted in the other two reporting units. For the purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. For the Data Storage Process Equipment reporting unit the long-lived assets were grouped at one level below the reporting unit and at the reporting unit level for AFM. The recoverability of long-lived asset groups was measured by a comparison of the carrying amount of the assets to the estimated undiscounted future cash flows expected to be generated by such assets. Developing the estimate of the undiscounted future cash flows requires significant judgment and projection of future financial performance, including projection of future revenue and expenses, working capital requirements and the time period in which the assets will be utilized. We used the economic life of the primary asset in the long-lived asset group to determine the forecast period of the future cash flows. For the AFM reporting unit, we analyzed long-lived assets with a carrying value of $27.8 million (consisting of $16.6 million of property, plant and equipment and $11.2 million of intangible assets principally patent defense and capitalized software costs) at December 31, 2008 for impairment and determined that no impairment existed. For the Data Storage Process Equipment reporting unit, we analyzed long-lived assets with a carrying value of $38.6 million at December 31, 2008 for impairment and determined that no impairment existed for one of the identifiable long-lived asset groups with a carrying value of $12.8 million (consisting principally of property, plant and equipment). Since the carrying amount of long-lived assets within the other identifiable asset group exceeded the estimated future cash flows of such assets, an impairment existed. This long-lived asset group consists of intangible assets of $24.0 million (primarily purchased technology) and $1.8 million of property, plant and equipment pertaining to its mechanical processing product line of Saws and Lappers. The amount of the impairment is determined by comparing the fair value of the long-lived asset group to the carrying value. As permitted under applicable accounting guidance we determined the fair valueany of our long-lived asset groups utilizing a discounted cash flow approach applying a risk free interest rate. The carrying value of the long-lived assets exceeded the fair value by $15.7, million which was recorded as an impairment charge and was allocated on a pro rata basis to the long-lived assets with $14.6 million allocated to intangible assets and $1.1 million allocated to property, plant and equipment. We currently expect to recover the remaining carrying value of the asset group of $10.1 million by cash flows generated by the use of the assets over their remaining useful life. See Note 9 for a summary of the asset impairment charge. As of December 31, 2009, no impairment indicators were noted.



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009reporting units.

Accrued Expenses


 December 31,  December 31, 

 2009 2008  2011 2010 

Payroll and related benefits

 $22,848 $20,059  $19,017 $27,374 

Sales, use, income and other taxes

 3,464 2,776  6,315 4,914 

Customer deposits and advanced billings

 61,976 18,021  57,075 129,225 

Warranty

 7,556 6,892  9,778 9,238 

Restructuring liability

 2,451 3,568  956 714 

Contingent earn-out payment

  9,644 

Other

 8,150 6,004  14,515 11,545 
          

 $106,445 $66,964  $107,656 $183,010 
          

Accrued Warranty

        We estimate the costs that may be incurred under the warranty we provide for our products and recognize a liability in the amount of such costs at the time the related revenue is recognized. Factors that affect our warranty liability include product failure rates, material usage and labor costs incurred in correcting product failures during the warranty period. Changes in our warranty liability during the period are as follows:

 
 2009 2008 

Balance as of beginning of year

 $6,892 $6,502 

Warranties issued during the period

  5,156  4,783 

Settlements made during the period

  (4,492) (4,393)
      

Balance as of end of year

 $7,556 $6,892 
      

6.     Debt

Credit Agreement

        In February 2009, we entered into an amendment to our then existing credit agreement with HSBC Bank USA, National Association ("HSBC"), as administrative agent, and the lenders named therein (as amended, the "Credit Agreement"). As part of the amendment, we reduced the amount of the revolving credit facility, modified certain existing covenants and added certain new covenants. In addition, the commitment fees and interest rate were increased. As amended, the Credit Agreement provided for revolving credit borrowings of up to $30.0 million. The annual interest rate under the Credit Agreement was a floating rate equal to the prime rate of the agent bank plus 2.0%. A LIBOR-based interest rate option was also provided. Borrowings could have been used for general corporate purposes, including working capital requirements. The Credit Agreement contained certain restrictive covenants which included the maintenance of minimum cash balances and limitations with respect to incurrence of indebtedness, the payment of dividends, long-term leases, investments, mergers, acquisitions, consolidations and sales of assets. In addition, under such Credit Agreement, we were required to satisfy certain financial tests, including minimum profitability levels. Substantially all of our assets and those of our material domestic subsidiaries, other than real estate, were pledged to secure our obligations under the Credit Agreement. As of December 31, 2008, there were no borrowings


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011


outstanding underin correcting product failures during the Credit Agreement and letters of credit outstanding were approximately $0.4 million. Interest expense associated withwarranty period. Changes in our warranty liability during the Credit Agreement recorded during 2009, 2008 and 2007 was approximately $0.2 million, $0.3 million and $0.2 million, respectively.year are as follows:

        The cash proceeds received from our secondary public offering of $130.0 million, coupled with cash generated from operations of $57.8 million during 2009 resulted in $283.6 million of cash and short-term investments at December 31, 2009. As a result, we elected to terminate the Credit Agreement, effective December 31, 2009. The termination of the Credit Agreement eliminates future commitment fees, restrictive covenants and collateral pledges, which were part of this facility. As of December 31, 2009, there were no borrowings outstanding under the Credit Agreement, but there was a letter of credit outstanding of approximately $0.5 million, which will be continued under a separate arrangement with HSBC.

 
 Year ended
December 31,
 
 
 2011 2010 

Balance as of the beginning of year

 $9,238 $6,675 

Warranties issued during the year

  12,465  9,695 

Settlements made during the year

  (11,925) (7,132)
      

Balance as of the end of year

 $9,778 $9,238 
      

7.     Debt

Long-term Debt

        Long-term debt as of December 31, 2011, consists of a mortgage note payable, which is summarizedsecured by certain land and buildings with carrying amounts aggregating approximately $5.0 million and $5.1 million as of December 31, 2011 and December 31, 2010, respectively. The mortgage note payable ($2.7 million as of December 31, 2011 and $2.9 million as of December 31, 2010) bears interest at an annual rate of 7.91%, with the final payment due on January 1, 2020. The fair market value of this note as of December 31, 2011 and 2010 was approximately $2.9 million and $3.1 million, respectively.

Maturity of Long-term Debt

        Long-term debt matures as follows (in thousands)(in thousands):

 
 December 31, 
 
 2009 2008 

Convertible subordinated debt (New Notes)

 $98,081 $95,235 

Mortgage notes payable

  3,095  3,291 
      

  101,176  98,526 

Less current portion

  212  196 
      

 $100,964 $98,330 
      

2012

 $248 

2013

  268 

2014

  290 

2015

  314 

2016

  340 

Thereafter

  1,194 
    

  2,654 

Less current portion

  248 
    

 $2,406 
    

Convertible Subordinated DebtNotes

        On December 21, 2001, we issued $200.0 million of unsecured 4.125%Our convertible subordinated notes due December 2008 ("Old Notes"), and on January 3, 2002, we issued an additional $20.0 million of Old Notes pursuant to the exercise of an over-allotment option. The Old Notes were convertible, at the option of the holder, at any time on or prior to maturity, into shares of common stock at a conversion price of $38.51 per share. We paid interest on the Old Notes on June 21 and December 21 of each year.

        During 2006, we repurchased $20.0 million of Old Notes, reducing the amount outstanding from $220.0 million to $200.0 million. During 2007, we repurchased an additional $56.0 million of Old Notes, reducing the amount of Old Notes outstanding from $200.0 million to $144.0 million. As a result of these repurchases, we recorded a net gain from the extinguishment of debt of $0.7 million in 2007.

        During the second quarter of 2007, we issued new convertible subordinated notes (the "New Notes") pursuant to privately negotiated exchange agreements with certain holders of the Old Notes. The New Notes bear interest at 4.125% per annum and mature on April 15, 2012. Under these agreements, such holders agreed to exchange $118.8 million aggregate principal amount of Old Notes for approximately $117.8 million aggregate principal amount of New Notes. Following the exchange transactions, approximately $25.2 million of Old Notes remained outstanding. A gross gain of approximately $1.0 million was recorded on the exchange transactions offset by the write-off of approximately $1.0 million of unamortized deferred financing costs associated with the Old Notes.



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

        The New Notes are initially convertible into 36.7277 shares of common stock per $1,000 principal amount of New Notesnotes (equivalent to a conversion price of $27.23 per share or a premium of 38% over the closing market price for ourVeeco's common stock on April 16, 2007). Holders may convert the New Notes at any time during the period beginning on January 15, 2012 through the close of business on the second day prior to April 15, 2012 and earlier upon the occurrence of certain events including our common stock trading at prices 130% of the conversion price for a specified period. We paypaid interest on these notes on April 15 and October 15 of each year. The New Notes arenotes were unsecured and arewere effectively subordinated to all of our senior and secured indebtedness and to all indebtedness and other liabilities of our subsidiaries.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

        During the fourthfirst quarter of 2008, we paid off2011, at the remaining $25.2option of the holders, $7.5 million of Old Notes outstanding. In addition, we repurchased $12.2 million aggregatenotes were tendered for conversion at a price of $45.95 per share in a net share settlement. We paid the New Notes for $7.2principal amount of $7.5 million in cash and issued 111,318 shares of which $7.1our common stock. We recorded a loss on extinguishment totaling $0.3 million related to these transactions.

        During the second quarter of 2011, we issued a notice of redemption on the remaining outstanding principal balance of notes outstanding. As a result, at the option of the holders, the notes were tendered for conversion at a price of $50.59 per share, calculated as defined in the indenture relating to the notes, in a net share settlement. As a result, we paid the principal amount of $98.1 million in cash and $0.1issued 1,660,095 shares of our common stock. We recorded a loss on extinguishment totaling $3.0 million related to accrued interest, reducing the amount outstanding from $117.8 million to $105.6 million. A gross gain of approximately $5.1 million was recorded on these repurchases offset by the write-off of approximately $0.1 million of unamortized deferred financing costs associated with the New Notes, for a net gain of approximately $5.0 million. Such net gain was reduced to $3.8 million upon the adoption of the newtransactions.

        Certain accounting guidance (see Note 1), which required that the gain be calculated based on the fair valuerequires a portion of the portion repurchased as of the repurchase date. The fair value approximated the carrying value net of the unamortized discount on the portion repurchased. The difference of approximately $1.2 million between the fair value and the amount paid was recorded as a reduction in the gain originally reported, which increased the accumulated deficit as of December 31, 2008 by that amount.

        As of January 1, 2009, we implemented new accounting guidance related to our convertible debt and have applied it retrospectively to all periods presented, as required.be allocated to equity. This new guidance requires issuers of convertible debt that can be settled in cash to separately account for (i.e., bifurcate) a portion of the debt associated with the conversion feature and reclassify this portion to equity. The liability portion, which represents the fair value of the debt without the conversion feature, is accreted to its face value over the life of the debt using the effective interest method by amortizing the discount between the face amount and the fair value. The amortization is recorded as interest expense. The Notes areOur convertible notes were subject to suchthis accounting guidance since they may be settled in cash upon conversion (see Note 1).

        For the years ended December 31, 2009, 2008 and 2007, we recorded approximately $2.8, $2.9 and $1.9 million, respectively, of additional interest expense in each period resulting from the amortization of the debt discount.guidance. This additional interest expense did not require the use of cash.

        The components of interest expense recorded on the New Notes for the years ended December 31, 2009, 2008 and 2007notes were as follows (in thousands)(in thousands):


 Year ended December 31,  Year ended December 31, 

 2009 2008 2007  2011 2010 2009 

Contractual interest

 $4,356 $4,801 $3,642  $2,025 $4,355 $4,356 

Amortization of the discount on the New Notes

 2,846 2,917 1,850 

Accretion of the discount on the notes

 1,260 3,058 2,846 
              

Total interest expense on the New Notes

 $7,202 $7,718 $5,492 

Total interest expense on the notes

 $3,285 $7,413 $7,202 
              

Effective interest rate

 6.8% 6.7% 6.5% 6.7% 7.0% 6.8%
              


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

        The carrying amounts of the liability and equity components of the New Notes as of December 31, 2009 and 2008notes were as follows (in thousands)(in thousands):

 
 December 31, 
 
 2009 2008 

Carrying amount of the equity component

 $16,318 $16,318 
      

Principal balance of the liability component

 $105,574 $105,574 

Less: unamortized discount

  7,493  10,339 
      

Net carrying value of the liability component

 $98,081 $95,235 
      

        At December 31, 2009 and 2008, $105.6 million of the New Notes were outstanding with fair values of approximately $144.6 million and $68 million, respectively.

Mortgage Notes Payable

        Long-term debt at December 31, 2009, also includes a mortgage note payable, which is secured by certain land and buildings with carrying amounts aggregating approximately $5.2 million and $5.3 million at December 31, 2009 and December 31, 2008, respectively. The mortgage note payable ($3.1 million at December 31, 2009 and $3.3 million at December 31, 2008) bears interest at an annual rate of 7.91%, with the final payment due on January 1, 2020. The fair market value of this note at December 31, 2009 and 2008 was approximately $3.3 million and $3.6 million, respectively.

Maturity of Long-term Debt

        Long-term debt matures as follows (in thousands):

2010

 $212 

2011

  229 

2012

  105,822 

2013

  268 

2014

  290 

Thereafter

  1,848 
    

  108,669*

Less current portion

  212 
    

 $108,457 
    

*
Difference of $7,493 from $101,176 in the Consolidated Balance Sheet is due to the unamortized debt discount.
 
 December 31,
2011
 December 31,
2010
 

Carrying amount of the equity component

 $ $16,318 
      

Principal balance of the liability component

 $ $105,574 

Less: unamortized discount

    4,436 
      

Net carrying value of the liability component

 $ $101,138 
      

7.     Stock8.     Equity Compensation Plans and Equity

Stock Option and Restricted Stock Plans

        We have several stock option and restricted stock plans. The On April 1, 2010, the Board of Directors of the Company, and on May 14, 2010, our shareholders, approved the 2010 Stock Incentive Plan (the


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

"2010 Plan"). The 2010 Plan replaced the 2000 Stock Incentive Plan, as amended (the "2000 Plan"), as the Company's active stock plan. The Company's employees, directors and consultants are eligible to receive awards under the 2010 Plan. The 2010 Plan permits the granting of a variety of awards, including both non-qualified and incentive stock options, share appreciation rights, restricted shares, restricted share units and dividend equivalent rights. The Company is authorized to issue up to 3,500,000 shares under the 2010 Plan. Option awards are generally granted with an exercise price equal to the closing price of the Company's stock on the trading day prior to the date of grant; those option awards generally vest over a 3 year period and have a 7 or 10-year term. Restricted share awards generally vest over 1-5 years. Certain option and share awards provide for accelerated vesting if there is a change in control, as defined in the 2010 Plan. As of December 31, 2011, there are 900,034 options outstanding under this plan.

        The 2000 Plan was approved by the Board of Directors and shareholders in May 2000. The 2000 Plan provides for the grant to officers and key employees of up to



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009


8,530,000 stock awards, either in the form of options to purchase shares of our common stock or restricted stock awards. Up to 1,700,000 of the awards authorized under the 2000 Plan may be issued in the form of restricted stock. As of December 31, 2009, there are 554,950 shares available for future grants. Stock awards granted pursuant to the 2000 Plan expire after seven years and generally vest over a two-year to five-year period following the grant date. In addition, the 2000 Plan provides for automatic annual grants of restricted stock to each member of our Board of Directors who is not an employee. As of December 31, 2009,2011, there are 4,356,3731,205,743 options outstanding under this plan.

        The Veeco Instruments Inc. 2000 Stock Option Plan for Non-Officer Employees (the "Non-Officer Plan") was approved by the Board of Directors in October 2000. The Non-Officer Plan provided for the grant of stock options to non-officer employees to purchase shares of our common stock. Stock options granted pursuant to the Non-Officer Plan become exercisable over a three-year period following the grant date and expire after seven years. As of December 31, 2009, there are 16,950 options outstanding under this plan.

        The Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan (the "1992 Plan") provided for the grant to officers and key employees of stock options to purchase shares of our common stock. Stock options granted pursuant to the 1992 Plan became exercisable over a three-year period following the grant date and expire after ten years. As of December 31, 2009, there are 5,840 stock options outstanding under this plan.

        The Veeco Instruments Inc. 1994 Stock Option Plan for Outside Directors, as amended, (the "Directors' Option Plan"), provided for automatic annual grants of stock options to each member of our Board of Directors who is not an employee. Such options are exercisable immediately and expire after ten years. As of December 31, 2009, there are 2,333 options outstanding under this plan.

        The Non-Officer Plan, the 1992 Plan and the Directors' Option Plan have been frozen; and, thus, there are no options available for future grant as of December 31, 2009 under these plans.

        In addition to the plans described above, we assumed certain stock option plans and agreements relating to the merger in September 2001 with Applied Epi, Inc. ("Applied Epi"). These stock option plans do not have options available for future grants. Options granted under these plans expire after ten years from the date of grant. Options granted under two of these plans vested over three years and options granted under one of these plans vested immediately. As of December 31, 2009, there are 123,614 options outstanding under the various Applied Epi plans.

        In May 2000, we assumed certain stock option plans and agreements related to CVC, Inc. ("CVC") and Commonwealth Scientific Corporation, a subsidiary of CVC, which were in effect prior to the merger with Veeco. These plans do not have options available for future grants. The options granted under these plans generally vested over a three to five year period and expire five to ten years from the date of grant. As of December 31, 2009, there are 860 options outstanding under the various CVC and Commonwealth Scientific Corporation plans.



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

Equity-Based Compensation Expense, Stock Option and Restricted Stock Activity

        Equity-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period. The following compensation expense was included as part of continuing operations in the Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009 (in thousands):

 
 Years ended December 31, 
 
 2011 2010 2009 

Equity-based compensation expense

 $12,807 $8,769 $7,113 

        During the year ended December 31, 2011, we discontinued our CIGS solar systems business and as a result the equity-based compensation expense related to each CIGS solar systems business employee has been classified as discontinued operations in determining the consolidated statementsresults of operations for the years ended December 31, 2011, 2010 and 2009. For the years ended December 31, 2011, 2010 and 2009 2008discontinued operations included compensation expense of $0.7 million, $0.9 million and 2007 (in thousands):$0.4 million, respectively.

        As a result of the sale of our Metrology segment to Bruker, equity-based compensation expense related to Metrology employees has been classified as discontinued operations in determining the consolidated results of operations for the years ended December 31, 2010 and 2009. For the year ended December 31, 2010, discontinued operations included compensation expense of $7.7 million that related to the acceleration of equity awards from employees that were terminated as a result of the sale of our Metrology segment to Bruker. For the year ended December 31, 2009, discontinued operations included compensation expense of $1.0 million.

 
 Years ended December 31, 
 
 2009 2008 2007 

Equity-based compensation expense

 $8,537 $10,526 $5,620 

        For the year ended December 31, 2009, total equity-based compensation expense included a charge of $0.7 million for the acceleration of equity awards associated with the retirement of our former CFO. For the year ended


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2008, total equity-based compensation expense included a charge of $3.0 million for the acceleration of equity awards associated with a mutually agreed-upon termination of the employment agreement with our former CEO (who currently remains as Chairman of the Board of Directors) following the successful completion of the CEO transition. For the year ended December 31, 2007, total compensation expense included a charge of $0.6 million for the modification of equity awards associated with termination agreements made with five key employees.2011

        As of December 31, 2009,2011, the total unrecognized compensation cost related to nonvested stock awards and option awards expected to vest is $7.3$15.7 million and $9.3$12.8 million, respectively, and the related weighted average period over which it is expected that such unrecognized compensation costs will be recognized is approximately 2.43.0 years and 2.11.9 years for the nonvested stock awards and for option awards, respectively.

        The fair value of each option granted during the years ended December 31, 2009, 2008,2011, 2010 and 2007,2009, was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:


 Year ended December 31,  Year ended December 31, 

 2009 2008 2007  2011 2010 2009 

Weighted-average expected stock-price volatility

 65% 49% 39%  55% 62% 65% 

Weighted-average expected option life

 4 years 3 years 3 years  4 years 5 years 4 years 

Average risk-free interest rate

 1.79% 3.14% 4.60%  1.40% 1.92% 1.79% 

Average dividend yield

 0% 0% 0%  0% 0% 0% 


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

        A summary of our restricted stock awards including restricted stock units as of December 31, 2009,2011, is presented below:


 Shares
(000s)
 Weighted-
Average
Grant-Date
Fair Value
  Shares (000's) Weighted-
Average
Grant-Date
Fair Value
 

Nonvested at December 31, 2008

 679 $17.84 

Nonvested at December 31, 2010

 616 $19.06 

Granted

 512 9.60  304 48.91 

Vested

 (178) 19.61  (199) 14.50 

Forfeited (including cancelled awards)

 (121) 16.25  (103) 28.72 
          

Nonvested at December 31, 2009

 892 $12.97 

Nonvested at December 31, 2011

 618 $33.61 
          

        During the year ended December 31, 2009,2011, we granted 465,018304,356 shares of restricted common stock and 47,500 restricted stock units to key employees, which vest over three or four year periods. Included in this grant were 51,0189,826 shares of restricted common stock granted to the non-employee members of the Board of Directors in May, 2009, which vest over a periodthe lesser of one year.year or at the time of the next annual meeting. The vested shares include the impact of 47,87967,256 shares of restricted stock which were cancelled in 20092011 due to employees electing to receive fewer shares in lieu of paying withholding taxes. The total grant date fair value of shares that vested during 20092011 was $3.4$9.7 million.

        A summary of our stock option plans as of and for the year ended December 31, 2009, is presented below:

 
 Shares
(000s)
 Weighted-
Average
Exercise
Price
 Aggregate
Intrinsic Value
(000s)
 Weighted-
Average
Remaining
Contractual Life
(in years)
 

Outstanding at December 31, 2008

  5,521 $20.23       

Granted

  1,633  11.02       

Exercised

  (755) 16.66       

Forfeited (including cancelled options)

  (1,893) 22.94       
             

Outstanding at December 31, 2009

  4,506 $16.35 $75,763  4.5 
             

Options exercisable at December 31, 2009

  2,126 $19.84 $28,618  2.7 
             

        The weighted-average grant date fair value of stock options granted for the years ended December 31, 2009, 2008, and 2007 was $5.35, $5.26, and $5.68, respectively, per option. The total intrinsic value of stock options exercised during the years ended December 31, 2009, 2008, and 2007 was $7.3 million, $0.4 million, and $0.9 million, respectively.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

        A summary of our stock option plans as of and for the year ended December 31, 2011, is presented below:

 
 Shares (000s) Weighted-
Average
Exercise
Price
 Aggregate
Intrinsic
Value (000s)
 Weighted-
Average
Remaining
Contractual
Life
(in years)
 

Outstanding at December 31, 2010

  2,569 $19.71       

Granted

  404  48.11       

Exercised

  (688) 15.57       

Forfeited (including cancelled options)

  (179) 30.72       
             

Outstanding at December 31, 2011

  2,106 $25.58 $8,274  6.0 
             

Options exercisable at December 31, 2011

  983 $17.92 $4,963  4.4 
             

        The weighted-average grant date fair value of stock options granted for the years ended December 31, 2011, 2010 and 2009 was $21.90, $18.41, and $5.35 per option, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2011, 2010 and 2009 was $22.8 million, $53.1 million and $7.3 million, respectively.

        The following table summarizes information about stock options outstanding at December 31, 2009:2011:

 
 Options Outstanding Options Exercisable 
Range of Exercise Prices
 Number
Outstanding at
December 31, 2009
(000s)
 Weighted-
Average
Remaining
Contractual Life
(in years)
 Weighted-
Average
Exercise
Price
 Number
Exercisable at
December 31, 2009
(000s)
 Weighted-
Average
Exercise
Price
 

$0.27-6.51

  55  2.8 $2.54  42 $1.27 

8.82-13.34

  1,526  6.4  10.78  6  12.38 

14.46-21.84

  2,666  3.7  18.54  1,843  18.97 

21.93-54.35

  255  1.9  28.93  231  29.51 

60.44-72.00

  4  0.4  65.35  4  65.35 
            

  4,506  4.5 $16.35  2,126 $19.84 
            
 
 Options Outstanding Options Exercisable 
Range of Exercise Prices
 Number
Outstanding at
December 31, 2011
(000s)
 Weighted-
Average
Remaining
Contractual Life
(in years)
 Weighted-
Average
Exercise Price
 Number
Exercisable at
December 31, 2011
(000s)
 Weighted-
Average
Exercise Price
 

$8.82-15.08

  737  4.4 $10.98  412 $11.27 

15.29-23.55

  425  3.1  18.49  417  18.39 

24.40-39.79

  545  8.3  33.39  150  34.11 

42.19-51.70

  399  8.9  49.45  4  47.37 
            

  2,106  6.0 $25.58  983 $17.92 
            

Shares Reserved for Future Issuance

        As of December 31, 2009,2011, we have 3,961,178 shares reserved the following shares for future issuance related to:upon exercise of stock options and grants of restricted stock.

Issuance upon exercise of stock options and grants of restricted stock

5,135,647

Issuance upon conversion of subordinated debt

5,350,934

Total shares reserved

10,486,581

Issuance of Common Stock

        On October 28, 2009 the Company entered into an Underwriting Agreement (the "Underwriting Agreement") with Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. (the "Underwriters"), for the sale of 5,000,000 shares of our common stock. In addition, the Underwriters had an option, which they exercised in full, to purchase up to an additional 750,000 shares of our common stock on


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

the same terms for 30 days from the date of the Underwriting Agreement, solely to cover over-allotments. On November 3, 2009, we completed this offering selling 5,750,000 shares for net proceeds totaling $130.1 million, net of transaction costs totaling $0.3 million.

Preferred Stock

        Our Board of Directors has authority under our Certificate of Incorporation to issue shares of preferred stock with voting and economic rights to be determined by the Board of Directors.

Treasury Stock

        On August 24, 2010, our Board of Directors authorized the repurchase of up to $200 million of our common stock. All funds for this repurchase program were exhausted as of August 19, 2011. Repurchases were made from time to time on the open market in accordance with applicable federal securities laws. During 2011, we purchased 4,160,228 shares for $162 million (including transaction costs) under the program at an average cost of $38.96 per share. During 2010, we purchased 1,118,600 shares for $38 million (including transaction costs) under the program at an average cost of $34.06 per share. This stock repurchase is included as treasury stock in the Consolidated Balance Sheet.

9.     Income Taxes

        Our income (loss) from continuing operations before income taxes in the accompanying Consolidated Statements of Operations consists of (in thousands):

 
 Year ended December 31, 
 
 2011 2010 2009 

Domestic

 $230,204 $260,268 $(3,425)

Foreign

  41,882  36,413  4,206 
        

 $272,086 $296,681 $781 
        

        Significant components of the provision for income taxes from continuing operations are presented below (in thousands):

 
 Year ended December 31, 
 
 2011 2010 2009 

Current:

          

Federal

 $59,921 $42,324 $(344)

Foreign

  10,714  7,720  1,879 

State and local

  805  5,215  799 
        

Total current provision for income taxes

  71,440  55,259  2,334 

Deferred:

          

Federal

  10,454  (32,033) 940 

Foreign

  (1,073) 239  (273)

State and local

  763  (3,960) (443)
        

Total deferred (benefit) provision for income taxes

  10,144  (35,754) 224 
        

Total provision for income taxes

 $81,584 $19,505 $2,558 
        

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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011

8.    Income Taxes

        (Loss) income before income taxes in the accompanying Consolidated Statements of Operations consists of (in thousands):

 
 Year ended December 31, 
 
 2009 2008 2007 

Domestic

 $(14,225)$(82,914)$(25,797)

Foreign

  (60) 9,385  9,610 
        

 $(14,285)$(73,529)$(16,187)
        

        Significant components of the provision for income taxes are presented below (in thousands):

 
 Year ended December 31, 
 
 2009 2008 2007 

Current:

          
 

Federal

 $(344)$(360)$(13)
 

Foreign

  1,309  1,078  2,239 
 

State

  803  199  221 
        

Total current provision for income taxes

  1,768  917  2,447 

Deferred:

          
 

Federal

  940  437  2,188 
 

Foreign

  (919) 463  (83)
 

State

  (442) 75  (901)
        

Total deferred provision for income taxes

  (421) 975  1,204 
        

Total provision for income taxes

 $1,347 $1,892 $3,651 
        


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

        The following is a reconciliation of the income tax provision (benefit) computed using the Federal statutory rate to our actual income tax provision (in thousands)(in thousands):


 Year ended December 31,  Year ended December 31, 

 2009 2008 2007  2011 2010 2009 

Income tax (benefit) at U.S. statutory rates

 $(5,003)$(25,735)$(5,665)

Income tax provision (benefit) at U.S. statutory rates

 $95,231 $103,838 $(4,053)

State income tax expense (benefit) (net of federal impact)

 179 (1,128) (761) 1,616 6,379 188 

Goodwill impairment

  13,169  

Nondeductible expenses

 201 228 250  (749) 333 145 

Noncontrolling interest

 28 495 219    28 

Equity compensation

 1,678 2,616 734    1,678 

Domestic production activities deduction

 (4,581) (6,365)  

Nondeductible compensation

 826 1,473 181  841 2,840 826 

Research and development tax credit

 (1,855) (1,031) (1,341) (4,675) (1,823) (1,855)

Foreign operating loss currently realizable

   (2,083)

Convertible debt discount

  (248) 6,579 

Net change in valuation allowance

 6,017 14,150 5,482  121 (83,079) 5,110 

Change in accrual for unrecognized tax benefits

 (4,114)  (702) 824 (1,076) (4,114)

Foreign tax rate differential

 4,234 (1,256) 684  (5,225) (5,280) 5,450 

Other

 (844) (841) 74  (1,819) 3,738 (845)
              

 $1,347 $1,892 $3,651  $81,584 $19,505 $2,558 
              

        During 2011, the Company recorded an income tax benefit of $29.4 million relating to discontinued operations compared to the $45.2 million income tax expense from discontinued operations in the prior which was reported in accordance with the intraperiod tax allocation provisions. In addition, the Company recorded a current tax benefit of $10.4 million related to equity-based compensation which was credit to additional paid-in capital compared to $23.3 million tax benefit recorded in the prior year.

        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.



Veeco Instruments Inc. and Subsidiaries
Table of Contents

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

        Significant components of our deferred tax assets and liabilities are as follows (in thousands):

 
 December 31, 
 
 2009 2008 

Deferred tax assets:

       
 

Inventory valuation

 $13,261 $15,094 
 

Domestic net operating loss carry forwards

  39,312  31,644 
 

Tax credit carry forwards

  24,216  23,618 
 

Foreign net operating loss carry forwards

  834  692 
 

Purchased intangible assets

  6,662  7,335 
 

Warranty and installation accruals

  2,432  2,261 
 

Equity compensation

  4,659  3,175 
 

Other accruals

  1,654  3,240 
 

Depreciation

  1,815   
 

Other

  3,235  3,156 
      

Total deferred tax assets

  98,080  90,215 

Valuation allowance

  (84,723) (78,706)
      

Net deferred tax assets

  13,357  11,509 

Deferred tax liabilities:

       
 

Depreciation

    27 
 

Purchased intangible assets

  8,439  8,482 
 

DISC termination

  201  402 
 

Noncontrolling interest

    426 
 

Convertible debt discount

  3,072  4,239 
 

Undistributed earnings

  3,292   
 

Other

  287  288 
      

Total deferred tax liabilities

  15,291  13,864 
      

Net deferred taxes

 $(1,934)$(2,355)
      

        U.S. income taxes have not been provided for approximately $6.6 million of cumulative undistributed earnings of our non-U.S. subsidiaries located in China, Korea, Malaysia, the Netherlands, Singapore, Taiwan, and the United Kingdom. We intend to reinvest these earnings indefinitely. If these earnings were repatriated, additional foreign withholding taxes of approximately $1.0 million would be payable. No additional U.S. tax would be due based on available net operating loss and tax credit carry forwards.

        We have domestic net operating loss carry forwards of approximately $95.9 million for financial reporting purposes and $118.6 million for tax purposes, which expire at various times between 2020 and 2029. The net operating loss carry forward amounts differ for tax and financial reporting purposes principally due to the application of the 'with and without method' of accounting for equity-based compensation as provided for under relevant accounting guidance. We also have credit carry forwards of approximately $24.2 million for financial reporting purposes and $25.3 million for tax purposes, consisting primarily of foreign tax credits, which expire at various times between 2012 and 2019, and research and development credits, which expire between 2017 and 2029. The credit carry forward amounts differ for tax and financial reporting purposes due to the impact of unrecognized tax benefits established under relevant accounting guidance for the accounting for uncertainty in income taxes.



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011

        The        Significant components of our deferred tax assets and liabilities are as follows (in thousands):

 
 December 31, 
 
 2011 2010 

Deferred tax assets:

       

Inventory valuation

 $5,468 $8,999 

Domestic net operating loss carry forwards

  1,082  1,219 

Tax credit carry forwards

  3,015  9,961 

Foreign net operating loss carry forwards

  89  147 

Warranty and installation accruals

  3,044  2,742 

Equity compensation

  5,821  3,655 

Other accruals

  2,373  2,063 

Depreciation

    1,325 

Other

  1,636  1,890 
      

Total deferred tax assets

  22,528  32,001 

Valuation allowance

  (1,765) (1,644)
      

Net deferred tax assets

  20,763  30,357 
      

Deferred tax liabilities:

       

Purchased intangible assets

  9,818  4,854 

Convertible debt discount

    1,663 

Undistributed earnings

  974  370 

Depreciation

  4,115   

Other

    264 
      

Total deferred tax liabilities

  14,907  7,151 
      

Net deferred taxes

 $5,856 $23,206 
      

        A provision has not been made at December 31, 2011 for U.S. or additional foreign withholding taxes on approximately $72.5 million of undistributed earnings of our foreign subsidiaries because it is the present intention of management to permanently reinvest the undistributed earnings of our foreign subsidiaries in China, Korea, Japan, Malaysia, Singapore and Taiwan. As it is our intention to reinvest those earnings permanently, it is not practicable to estimate the amount of tax that might be payable if they were remitted. We have provided deferred income taxes and future withholding taxes on the earnings that we anticipate will be remitted.

        Our valuation allowance of $84.7approximately $1.8 million at December 31, 20092011 increased by approximately $6.0$0.1 million during the year then ended. This increase is principally dueended and relates primarily to the increase in the net operating loss carry forwards, partially offset by changes in temporary differences. Ifstate and local tax attributes for which we are ablecould not conclude were realizable on a more-likely-than-not basis.


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Veeco Instruments Inc. and Subsidiaries

Notes to realize part or all of the domestic deferred tax assets in future periods, we will reduce our provision for income taxes with a release of the valuation allowance in an amount that corresponds with the income tax liability generated. Our net deferred tax liability of approximately $1.9 million at Consolidated Financial Statements (Continued)

December 31, 2009 principally related to a $5.0 million net deferred tax liability pertaining to our domestic operations, offset by $3.1 million of deferred tax assets pertaining to our foreign operations. Our net deferred tax liability of approximately $2.4 million at December 31, 2008 principally related to a $4.6 million net deferred tax liability pertaining to our domestic operations, offset by $2.2 million of deferred tax assets pertaining to our foreign operations.2011

        Pursuant to the accounting for uncertainty in income taxes accounting guidance, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. To the extent we prevail in matters for which accruals have been established or are required to pay amounts in excess of accruals, our effective tax rate in a given financial statement period could be affected.

        We had a net increase of approximately $0.7 million in our accrual for unrecognized tax benefits for the year ended December 31, 2009 as a result of an increase to our accrual for existing domestic and foreign unrecognized tax benefits and newly established foreign uncertain tax positions. As a result, we had approximately $1.4 million of unrecognized tax benefits at December 31, 2009, which predominantly relate to positions taken on our foreign tax returns and all of which represent the amount of unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate in future periods. At December 31, 2008, the reserve for unrecognized tax benefits was $0.7 million relating to foreign unrecognized tax benefits.

        A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands)(in thousands):


 December 31,  December 31, 

 2009 2008  2011 2010 

Beginning balance as of December 31

 $694 $1,386  $3,660 $1,357 

Additions for tax positions related to current year

 725 70  1,069 1,227 

Reductions for tax positions relating to current year

      

Additions for tax positions relating to prior years

  165  1,209 1,736 

Reductions for tax positions relating to prior years

 (62) (597) (422) (478)

Reductions due to the lapse of the applicable statute of limitations

  (330) (586) (17)

Settlements

    (182) (165)
          

Ending balance as of December 31

 $1,357 $694  $4,748 $3,660 
          

        The Company does not anticipate that its uncertain tax position will change significantly within the next twelve months.

        Of the amounts reflected in the table above at December 31, 2011, the entire amount if recognized would reduce our effective tax rate. It is our policy to recognize interest and penalties related to income tax matters in income tax expense. The total accrual for interest and penalties related to unrecognized tax benefits was approximately $0.5$0.2 million and $0.3 million as of December 31, 20092011 and 2008,2010, respectively. The



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009


change in the accrual for interest and penalties increased our tax expense by approximately $0.2 million during 2009 and decreased our accrual for interest and penalties by approximately $0.2 million during 2008.

        At December 31, 2009 and 2008, our deferred tax asset and related valuation allowance excluded $1.1 million and $5.1 million, respectively, relating to unrecognized tax benefits. The approximately $4.0 million decrease in our deferred tax asset and the related valuation allowance for unrecognized tax benefits is the result of the conclusion of the Internal Revenue Service examination discussed below.

        We or one of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. During the year ended December 31, 2009, the Internal Revenue Service concluded its examination of our 2006 federal income tax return with a minor adjustment to our credit carry forwards. All material federal income tax matters have been concluded for years through 2006 subject to subsequent utilization of net operating losses generated in such years. None of our federal tax returns are currently under examination. All material state and local income tax matters have been concludedreviewed through 2008 with two states currently under examination for open tax years through 2005.between 2007 and 2010. The majority of our foreign jurisdictions have been reviewed through 20072009 with only a few jurisdictions having open tax years between 20042006 and 2007. None of2009. Principally all our foreign jurisdictions remain open with respect to the 2010 tax returns are currently under examination in the federal and foreign jurisdictions.year.

9.10.   Commitments and Contingencies and Other Matters

Restructuring and Other Charges

        During 2007, management2011, in response to challenging business conditions, we initiated a profit improvement plan, resulting in personnel severance costs associated with a reduction ofactivities to reduce and contain spending, including reducing our workforce, which included management, administrationconsultants and manufacturing employees' companywide. Additionally, during the fourth quarter of 2007, we took additional measures to improve profitability, including a reduction of discretionary expenses, realignment of our sales organization to more closely match current market and regional opportunities, and consolidation of certain engineering groups within our data storage business, which included the discontinuation of two products.expenses.

        During 2008 and 2009, we continued our multi-quarter plan to improve profitability and reduce and contain spending. We made progress against the initiatives that management set in 2007, continued our restructuring plan and executed activities with a focus on creating a more cost effective organization, with a greater percentage of variable costs. These activities included downsizing and consolidating some locations, reducing our workforce, consultants and discretionary expenses and realigning our sales organization and engineering groups. In addition, due to a weakened and deteriorated business environment we have intensified and accelerated our restructuring activities.

        In conjunction with these activities, we recognized restructuring charges (credits) of approximately $7.7$1.3 million, $10.6$(0.2) million and $6.7$4.5 million during the years ended December 31, 2011, 2010 and 2009, 2008 and 2007, respectively, andrespectively. We also recognized inventory write-offs of $1.5$0.8 million and $2.9$1.5 million, included in cost of sales in the accompanying Consolidated Statement of Operations, related to a discontinued data storage and legacy semiconductor products during the years ended December 31, 2009 and 2008, respectively. Additionally,product line in our LED & Solar segment during the year ended December 31, 2007, we2011 and discontinued two data storage product lines, resulting in an inventory write-off, included in cost of sales in the accompanying Consolidated Statement of


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011


Operations, of $4.8 million.storage products during the year ended December 31, 2009. Restructuring expense for the years ended December 31, 2011, 2010 and 2009 2008 and 2007 isare as follows (in thousands)(in thousands):

 
 Years ended December 31, 
 
 2009 2008 2007 

Personnel severance costs

 $6,297 $3,493 $4,314 

Lease-related and other costs

  1,383  4,132   

Modification of stock awards

    3,018  572 

Purchase order commitments

      1,840 
        

  7,680  10,643  6,726 

Less adjustment of 2007 restructuring liability

    (81)  
        

 $7,680 $10,562 $6,726 
        
 
 Year ended December 31, 
 
 2011 2010 2009 

Personnel severance and related costs

 $1,288 $ $3,109 

Lease-related and other (credits) costs

    (179) 1,370 
        

 $1,288 $(179)$4,479 
        

Personnel severance costsSeverance Costs

        During 2011, we recorded $1.3 million in personnel severance and related costs related to a companywide reorganization resulting in a headcount reduction of 65 employees. During 2009, we recorded $6.3$3.1 million in personnel severance and related costs resulting from a headcount reduction of 239161 employees. This reductionThese reductions in workforce included executives, management, administration, sales and service personnel and manufacturing employees' companywide.

Lease-related and Other Costs

        During 2008,2010, we recordedhad a $3.7change in estimate relating to one of our leased Data Storage facilities. As a result, we incurred a restructuring credit of $0.2 million, restructuring charge related to a mutually agreed-upon terminationconsisting primarily of the employment agreement with our former CEO (who currently remains as Chairmanremaining lease payment obligations and estimated property taxes for a portion of the Board of Directors) followingfacility we will occupy, offset by a reduction in expected sublease income. We made certain assumptions in determining the successful completion of the CEO transition,credit, which included a charge of $3.0 million for the acceleration of stock-based compensation expense and $0.7 million related to salary and other related compensation, as specified in the employment agreement. The modification of the stock awards was recorded as an increase to additional paid-in capital. In addition, we eliminated approximately 74 employees or 6.0% of total employees during 2008 resulting in personnel severance costs of approximately $2.8 million, primarily in connection with increased outsourcing in our Data Storage and LED & Solar Process Equipment segments, downsizing and realignment in our Metrology segment associated with executing an operational turnaround, and realignment of the sales and service organization. This reduction in workforce included executives, management, administrationestimated sublease income and manufacturing employees' companywide.

        During 2007, we incurred a $4.3 million restructuring charge for personnel severance costs related to a headcount reduction of approximately 90 employees, or approximately 7.5% of total employees, which included management, administration and manufacturing employees' companywide. Additionally, a charge of $0.6 million for the modification of stock awards was recorded as part of a termination agreement with each of five key employees as an increase to additional paid-in capital. The terms of the modifications included accelerated vestingsublease as well as the estimated discount rate to be used in determining the fair value of the remaining liability. We developed these assumptions based on our understanding of the current real estate market as well as current market interest rates. The assumptions are based on management's best estimates, and extended exercise periods.

Lease-related and other costswill be adjusted periodically if new information is obtained.

        During 2009, we vacated our Data Storage Process Equipment facilities in Camarillo, CA. As a result, we incurred a $1.4 million restructuring charge, consisting primarily of the remaining lease payment obligations and estimated property taxes for the facility we vacated, offset by the estimated expected sublease income to be received. We made certain assumptions in determining the charge, which included estimated sublease income and terms of the sublease as well as the estimated discount rate to be used in determining the fair value of the liability. We developed these assumptions based on our understanding of the current real estate market as well as current market interest rates. The assumptions are based on management's best estimates, and will be adjusted periodically if new information is obtained.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011


assumptions are based on management's best estimates, and will be adjusted periodically if new information is obtained.

        During 2008, we recorded a $3.7 million restructuring charge for lease-related costs as part of the consolidation of our corporate headquarters into our Plainview, New York manufacturing facility during the first quarter of 2008. This charge primarily consisted of the liability for the remaining lease payments and property taxes relating to the facility we vacated, offset by expected sublease income. We made certain assumptions in determining the charge, which included estimated sublease income and terms of the sublease as well as the estimated discount rate to be used in determining the fair value of the net cash flows. We developed these assumptions, based on our understanding of the current real estate market as well as current market interest rates, which are adjusted periodically based upon new information, events and changes in the real estate market. In addition, we incurred a restructuring charge of $0.4 million associated with the termination of a leased facility in Santa Barbara, California that we vacated during the third quarter of 2008.

        The following is a reconciliation of the liability for the 20092011, 2010 and 20082009 restructuring charge from inception through December 31, 2009 (in thousands)2011 (in thousands):

 
 LED & Solar
Process
Equipment
 Data Storage
Process Equipment
 Metrology Unallocated
Corporate
 Total 

Short-term liability

                

Lease-related costs 2008

 $ $ $259 $1,189 $1,448 

Personnel severance charges 2008

  732  477  879  1,405  3,493 
            

Total charged to accrual 2008

  732  477  1,138  2,594  4,941 
            

Lease-related costs 2009

  190  803  13    1,006 

Personnel severance charges 2009

  1,005  1,826  2,830  636  6,297 
            

Total charged to accrual 2009

  1,195  2,629  2,843  636  7,303 
            

Short-term/long-term reclassification 2008

        892  892 

Short-term/long-term reclassification 2009

    148    1,084  1,232 

Cash payments 2008

  (72) (207) (604) (1,627) (2,510)

Cash payments 2009

  (1,502) (2,561) (3,362) (1,982) (9,407)
            

Balance as of December 31, 2009

 $353 $486 $15 $1,597 $2,451 
            

Long-term liability

                

Lease-related costs 2008

 $ $ $ $2,684 $2,684 

Lease-related costs 2009

    377      377 

Short-term/long-term reclassification 2008

        (892) (892)

Short-term/long-term reclassification 2009

    (148)   (1,084) (1,232)

Other adjustments

        (172) (172)
            

Balance as of December 31, 2009

 $ $229 $ $536 $765 
            


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

        The balance of the short-term restructuring liability relating to personnel severance charges is expected to be paid over the next three to six months. The long-term liability will be paid over the remaining life of the leases for the former corporate headquarters and a former Data Storage Process Equipment facility, which expire in June 2011 and May 2012, respectively. We currently do not anticipate or expect to incur additional restructuring charges during 2010.

        The following is a reconciliation of the liability for the 2007 restructuring charge from inception through December 31, 2009 (in thousands):

 
 LED & Solar
Process
Equipment
 Data Storage
Process
Equipment
 Metrology Unallocated
Corporate
 Total 

Personnel severance charges

 $34 $658 $1,497 $2,125 $4,314 

Purchase order commitments

    1,840      1,840 
            

Total charged to accrual

  34  2,498  1,497  2,125  6,154 

Cash payments during 2007

  (17) (435) (751) (633) (1,836)

Reversal of accrual during 2008

    (81)     (81)

Cash payments during 2008

  (17) (1,982) (746) (1,247) (3,992)

Cash payments during 2009

        (245) (245)
            

Balance as of December 31, 2009

 $ $ $ $ $ 
            
 
 LED & Solar Data Storage Unallocated Corporate Total 

Short-term liability

             

Beginning Balance January 1, 2009

 $36 $270 $1,859 $2,165 

Lease-related and other costs 2009

  190  803    993 

Personnel severance and related costs 2009

  647  1,826  636  3,109 
          

Total charged to accrual 2009

  837  2,629  636  4,102 
          

Lease-related and other credits 2010

    (87)   (87)
          

Total credited to accrual 2010

    (87)   (87)
          

Personnel severance and related costs 2011

  672  51  311  1,034 
          

Total charged to accrual 2011

  672  51  311  1,034 
          

Short-term/long-term reclassification 2009

    148  1,084  1,232 

Short-term/long-term reclassification 2010

    123  536  659 

Short-term/long-term reclassification 2011

    58    58 

Cash payments 2009

  (677) (2,561) (1,982) (5,220)

Cash payments 2010

  (196) (344) (1,597) (2,137)

Cash payments 2011

  (138) (159) (553) (850)
          

Balance as of December 31, 2011

 $534 $128 $294 $956 
          

Long-term liability

             

Beginning Balance January 1, 2009

 $ $ $1,620 $1,620 

Lease-related and other costs 2009

    377    377 

Lease-related and other credits 2010

    (48)   (48)

Short-term/long-term reclassification 2009

    (148) (1,084) (1,232)

Short-term/long-term reclassification 2010

    (123) (536) (659)

Short-term/long-term reclassification 2011

    (58)   (58)
          

Balance as of December 31, 2011

 $ $ $ $ 
          

Asset Impairment Charges

        During 2011, we recorded a $0.6 million asset impairment charge in the fourth quarter for property, plant and equipment related to the discontinuance of a certain product line in our LED & Solar reporting unit.

        During 2009, we recorded a $0.3 million asset impairment charge in the second quarter for property, plant and equipment no longer being utilized in our Data Storage Process Equipment reporting unit.

        During 2008, we recorded a $73.3 million asset impairment charge, of which $73.0 million was recorded during the fourth quarter and $0.3 million was recorded during the first quarter. The fourth quarter charge consisted of $52.3 million related to goodwill ($30.4 million in our Data Storage Process Equipment reporting unit and $21.9 million in our Metrology reporting unit), $19.6 million related to intangible assets ($5.0 million of indefinite-lived trademarks and $14.6 of other definite-lived intangibles in our Process Equipment Data Storage reporting unit) and $1.1 million in property, plant and equipment in our Data Storage Process Equipment reporting unit (see Note 5).

        The first quarter charge consisted of $0.3 million associated with property and equipment abandoned as part of the consolidation of our corporate headquarters into our Plainview facility.

        During 2007, we recorded an asset impairment charge of $1.1 million attributable to certain property and equipment associated with the discontinuance of two product lines in our Data Storage Process Equipment reporting unit.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011

Minimum Lease Commitments

        Minimum lease commitments as of December 31, 20092011 for property and equipment under operating lease agreements (exclusive of renewal options) are payable as follows (in thousands)(in thousands):

2010

 $3,814 

2011

 2,358 

2012

 1,289  $3,936 

2013

 968  2,659 

2014

 462  1,689 

2015

 1,150 

2016

 654 

Thereafter

 476  716 
      

 $9,367  $10,804 
      

        Rent charged to operations amounted to $3.4$2.7 million, $4.3$1.7 million and $5.3$1.6 million in 2009, 2008,2011, 2010 and 2007,2009, respectively. In addition, we are obligated under such leases for certain other expenses, including real estate taxes and insurance.

Environmental Remediation

        We may, under certain circumstances, be obligated to pay up to $250,000 in connection with the implementation of a comprehensive plan of environmental remediation at our Plainview, New York facility. We have been indemnified by the former owner for any liabilities we may incur in excess of $250,000 with respect to any such remediation and have a liability recorded for this amount as of December 31, 2009.2011. No comprehensive plan has been required to date. Even without consideration of such indemnification, we do not believe that any material loss or expense is probable in connection with any remediation plan that may be proposed.

        We are aware that petroleum hydrocarbon contamination has been detected in the soil at the site of a facility formerly leased by us in Santa Barbara, California. We have been indemnified for any liabilities we may incur which arise from environmental contamination at the site. Even without consideration of such indemnification, we do not believe that any material loss or expense is probable in connection with any such liabilities.

        The former owner of the land and building in which our Santa Barbara, California in which our former Metrology operations arewere located, which business (sold to Bruker on October 7, 2010), has disclosed that there are hazardous substances present in the ground under the building. Management believes that the comprehensive indemnification clause that iswas part of the purchase contract relating to the purchase of such land provides adequate protection against any environmental issues that may arise. We have provided Bruker indemnification as part of the sale.

Litigation

        On September 17, 2003, we filed a lawsuit in the United States District Court for the Central District of California against Asylum Research Inc., a privately-held company founded by former Veeco employees. The lawsuit alleged that the manufacture, use, and sale of Asylum's MFP-3D AFM constituted willful infringement of five patents owned by us, as well as other claims. We sued for unspecified monetary damages and a permanent injunction to stop infringement. Asylum had asserted



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

that the patents we had sued on were invalid and unenforceable, and had filed a counterclaim for infringement of a patent licensed by Asylum, and payment of royalties it believed it was owed.

        In August of 2008, we settled the patent litigation which we had brought against Asylum. In the settlement, Veeco and Asylum agreed to drop all pending claims against each other and agreed to a five year, worldwide cross license of each company's patents and a mutual covenant not to sue on patents either party has a right to assert. As part of the settlement, Asylum acknowledged the validity of our patents asserted in the case and made payment to us for license fees and will pay an ongoing royalty to us for the five-year term of the cross license. During the case, we capitalized legal costs incurred to defend our patents and are now amortizing these capitalized costs over the remaining lives of these patents. Payments received from Asylum for license fees and royalties have been and will continue to be netted against these capitalized patent defense costs upon receipt. We are not required to make any payments to Asylum under this settlement including any royalties relating to the cross license.

        In accordance with the relevant accounting guidance for Revenue Arrangements with Multiple Deliverables, we identified five elements to this settlement agreement as follows: (1) the dismissal of the pending litigation by us against Asylum, (2) the dismissal of the pending litigation by Asylum against us, (3) the licensing of certain patents from Asylum, (4) the licensing of certain patents to Asylum and (5) a mutual covenant not to sue. We have allocated all of the consideration and value received from the settlement to element number 4—the licensing of certain patents to Asylum, primarily because Asylum admitted in the settlement agreement that the five Veeco patents included in the infringement suit are valid and enforceable. Accordingly, the consideration received by us pursuant to the settlement relates primarily to the fees and royalties associated with the licenses granted to Asylum.

        We are involved in various other legal proceedings arising in the normal course of our business. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Concentrations of Credit Risk

        Our business depends in large part upon the capital expenditures of our top ten customers, which accounted for 71%79% and 48%80% of total accounts receivable at December 31, 20092011 and 2008,2010, respectively. Of such, HB LED, data storage and metrology customers accounted for approximately 50%, 19% and 2%, and 9%, 38% and 1%, respectively, of total accounts receivable at December 31, 2009 and 2008.

        Customers who accounted for more than 10% of our aggregate accounts receivable and net sales are as follows:

 
 Accounts Receivable
December 31,
 Net Sales
For the Year Ended
December 31,
 
 2009 2008 2009 2008 2007

Customer A. 

  34% * 20% * *

Customer B. 

  12% 23%* 17% 10%

Customer C

  *  11%* * *

*
Less than 10% of aggregate accounts receivable or net sales.

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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011

Of such, HB LED and data storage customers accounted for approximately 58% and 19%, and 62% and 18%, respectively, of total accounts receivable at December 31, 2011 and 2010.

        Customers who accounted for more than 10% of our aggregate accounts receivable or net sales are as follows:

 
 Accounts
Receivable
December 31,
 Net Sales
For the Year Ended
December 31,
 
 
 2011 2010 2011 2010 2009 

Customer A

  33% *  11% *  * 

Customer B

  *  26% 12% 12% * 

Customer C

  *  20% *  17% 27%

Customer D

  *  *  *  12% * 

Customer E

  *  *  *  *  10%

*
Less than 10% of aggregate accounts receivable or net sales.

        The LED & Solar Process Equipment, Data Storage Process Equipment and MetrologyBoth of our reportable product segments sell to these major customers.

        We manufacture and sell our products to companies in different geographic locations. In certain instances, we require deposits for a portion of the sales price in advance of shipment. We perform periodic credit evaluations of our customers' financial condition and, where appropriate, require that letters of credit be provided on certain foreign sales arrangements. Receivables generally are due within 30-60 days, other than receivables generated from customers in Japan where payment terms generally range from 60-90 days. Our net accounts receivable balance is concentrated in the following geographic locations (in thousands)(in thousands):

 
 December 31, 
 
 2011 2010 

Americas

 $11,098 $13,600 

Europe, Middle East and Africa ("EMEA")

  3,979  17,321 

Asia Pacific(1)

  79,961  119,607 
      

 $95,038 $150,528 
      

 
 December 31, 
 
 2009 2008 

Americas

 $20,157 $21,051 

Europe, Middle East and Africa ("EMEA")

  15,838  15,341 

Japan

  3,301  8,183 

Asia Pacific

  45,062  15,075 

Other

    9 
      

 $84,358 $59,659 
      
(1)
As of December 31, 2011, accounts receivable in China and Singapore amounted to $59.2 million and $15.3 million, respectively. As of December 31, 2010, accounts receivable in China and Singapore amounted to $66.5 million and $48.3 million, respectively. No other country accounted for more than 10% of our accounts receivable as of December 31 for the years presented.

Suppliers

        We currently outsource and plan to increase the outsourcing of, certain functions to third parties, including the manufacture of all or substantially all of our new MOCVD systems, data storage process equipmentData Storage systems solar deposition systems,and ion sources and certain components in our metrology products.sources. We primarily rely on several suppliers for the manufacturing of these systems. We plan to maintain some level of internal manufacturing capability for these systems at least until such time as we have qualified one or more alternate suppliers to perform this manufacturing.systems. The failure of our present suppliers to meet their contractual obligations under our supply arrangements and our inability to make alternative arrangements or resume the manufacture of these systems ourselves could have a material adverse effect on our revenues, profitability, cash flows, and relationships with our customers.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

        In addition, certain of the components and sub-assemblies included in our products are obtained from a single source or a limited group of suppliers. Our inability to develop alternative sources, if necessary, could result in a prolonged interruption in supply or a significant increase in the price of one or more components, which could adversely affect our operating results.



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

10.11.   Foreign Operations, Geographic Area and Product Segment Information

        Net sales which are attributed to the geographic location in which the customer facility is located and long-lived tangible assets related to operations in the United States and other foreign countries as of and for the years ended December 31, 2009, 2008,2011, 2010 and 20072009 are as follows (in thousands)(in thousands):

 
 Net Sales to Unaffiliated Customers Long-Lived Tangible Assets 
 
 2011 2010 2009 2011 2010 2009 

United States

 $100,310 $92,414 $60,553 $67,788 $41,072 $43,577 

Other

  325  232  177       
              

Total Americas

  100,635  92,646  60,730  67,788  41,072  43,577 

EMEA(1)

  
57,617
  
92,112
  
49,938
  
203
  
274
  
315
 

Asia Pacific(1)

  820,883  746,134  171,594  20,417  974  815 
              

Total Other Foreign Countries

  878,500  838,246  221,532  20,620  1,248  1,130 
              

 $979,135 $930,892 $282,262 $88,408 $42,320 $44,707 
              

 
 Net Sales to
Unaffiliated Customers
 Long-Lived Assets 
 
 2009 2008 2007 2009 2008 2007 

United States

 $87,531 $163,754 $127,884 $147,383 $161,217 $225,395 

Other

  2,963  2,172  2,616       
              
 

Total Americas

  
90,494
  
165,926
  
130,500
  
147,383
  
161,217
  
225,395
 

EMEA(1)

  78,042  94,142  77,985  315  427  603 

Japan

  19,640  38,453  55,815  445  308  250 

Asia Pacific(1)

  191,973  144,288  138,175  365  398  439 
              
 

Total Other Foreign Countries

  289,655  276,883  271,975  1,125  1,133  1,292 
              

 $380,149 $442,809 $402,475 $148,508 $162,350 $226,687 
              

(1)
For the year ended December 31, 2011, net sales to customers in China were 66.4% of total net sales. For the year ended December 31, 2010, net sales to customers in Korea, China and Taiwan were 32.3%, 28.7% and 10.9% of total net sales, respectively. For the year ended December 31, 2009, net sales to customers in South Korea and China were 26.6%35.1% and 10.2%11.0% of total net sales, respectively. For the year ended December 31, 2008, net sales to customers in Taiwan were 10.1% of total net sales. No other country in EMEA and Asia Pacific accounted for more than 10% of our net sales for the periodsyears presented.

        We manage the business, review operating results and assess performance, as well as allocate resources, based upon threetwo separate reporting segments that reflect the market focus of each business. The Light Emitting Diode ("LED") & Solar Process Equipment segment consists of metal organic chemical vapor deposition ("MOCVD") systems, molecular beam epitaxy ("MBE") systems, thermal deposition sources and other types of deposition systems used to deposit materials on flexible and glass substrates.systems. These systems are primarily sold to customers in the high-brightness light emitting diode ("HB LED") and solar industries, as well as to scientific research customers. This segment has product development and marketing sites in Somerset, New Jersey and St. Paul, Minnesota,Minnesota. During 2011 we discontinued our CIGS solar systems business, located in Tewksbury, Massachusetts and Lowell, Massachusetts.Clifton Park, New York. The Data Storage Process Equipment segment consists of the ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, and dicing and slicing products sold primarily to customers in the data storage industry. This segment has product development and marketing sites in Plainview, New York, Ft. Collins, Colorado and Santa Barbara,Camarillo, California. In our Metrology segment, we design and manufacture atomic force microscopes, scanning probe microscopes, stylus profilers, and optical interferometers used to provide critical surface measurements in research and production environments. This broad line of products is used in universities, research facilities and scientific centers worldwide. In production environments such as semiconductor, data storage and other broad industries, our metrology instruments enable customers to monitor their products throughout the manufacturing process to improve yields, reduce costs, and improve product quality. This segment has product development and marketing sites in Camarillo and Santa Barbara, California and Tucson, Arizona.

        We evaluate the performance of our reportable segments based on income (loss) from operations before interest, income taxes, amortization and certain items ("Segmentsegment profit (loss)"), which is the



Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009


primary indicator used to plan and forecast future periods. The presentation of this financial measure facilitates meaningful comparison with prior periods, as management believes segment profit (loss)


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2011

reports baseline performance and thus provides useful information. Certain items include restructuring expenses, asset impairment charges, inventory write-offs, and equity-based compensation expense.expense and other non-recurring items. The accounting policies of the reportable segments are the same as those described in the summary of critical accounting policies.

        The following tables present certain data pertaining to our reportable product segments and a reconciliation of segment profit (loss) to income (loss) from continuing operations, before income taxes for the years ended December 31, 2009, 2008,2011, 2010 and 2007,2009, and goodwill and total assets as of December 31, 20092011 and 2008 (in thousands)2010 (in thousands):


 LED & Solar Data Storage Unallocated
Corporate
 Total 

Year ended December 31, 2011

 

Net sales

 $827,797 $151,338 $ $979,135 
         

Segment profit (loss)

 $267,059 $38,358 $(8,987)$296,430 

Interest expense, net

   824 824 

Amortization expense

 3,227 1,424 83 4,734 

Equity-based compensation expense

 3,473 1,458 7,876 12,807 

Restructuring expense

 204 12 1,072 1,288 

Asset impairment charge

 584   584 

Inventory write-offs

 758   758 

Loss on extinguishment of debt

   3,349 3,349 
         

Income (loss) from continuing operations, before income taxes

 $258,813 $35,464 $(22,191)$272,086 
         

Year ended December 31, 2010

 

Net sales

 $795,565 $135,327 $ $930,892 
         

Segment profit (loss)

 $300,311 $33,910 $(18,675)$315,546 

Interest expense, net

   6,572 6,572 

Amortization expense

 1,948 1,522 233 3,703 

Equity-based compensation expense

 1,764 1,140 5,865 8,769 

Restructuring credit

  (179)  (179)
         

Income (loss) from continuing operations, before income taxes

 $296,599 $31,427 $(31,345)$296,681 

 LED & Solar
Process
Equipment
 Data Storage
Process
Equipment
 Metrology Unallocated
Corporate
Amount
 Total          

Year ended December 31, 2009

  

Net sales

 $205,153 $77,259 $97,737 $ $380,149  $205,003 $77,259 $ $282,262 
                    

Segment profit (loss)

 $32,454 $25 $(3,931)$(10,598)$17,950  $38,836 $(3,208)$(10,598)$25,030 

Interest expense, net

    6,850 6,850    6,850 6,850 

Amortization expense

 3,137 1,599 2,170 432 7,338  1,946 1,599 432 3,977 

Equity-based compensation expense

 1,358 1,020 990 5,169 8,537  924 1,020 5,169 7,113 

Restructuring expense

 1,196 3,006 2,843 635 7,680  838 3,006 635 4,479 

Asset impairment charge

  304   304   304  304 

Inventory write-offs

  1,526   1,526   1,526  1,526 
                    

Income (loss) before income taxes

 $26,763 $(7,430)$(9,934)$(23,684)$(14,285)

Income (loss) from continuing operations, before income taxes

 $35,128 $(10,663)$(23,684)$781 
                    

Year ended December 31, 2008

 

Net sales

 $165,812 $149,123 $127,874 $ $442,809 
           

Segment profit (loss)

 $26,962 $20,867 $(2,637)$(9,221)$35,971 

Interest expense, net

    6,729 6,729 

Amortization expense

 4,627 3,790 1,880 448 10,745 

Equity-based compensation expense

 495 990 858 5,165 7,508 

Restructuring expense

 732 396 1,138 8,296 10,562 

Asset impairment charges

  51,102 21,935 285 73,322 

Inventory write-offs

   2,900  2,900 

Purchase accounting adjustment

 1,492    1,492 

Gain on extinguishment of debt

    (3,758) (3,758)
           

Income (loss) before income taxes

 $19,616 $(35,411)$(31,348)$(26,386)$(73,529)
           

Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20092011

 
 LED & Solar
Process
Equipment
 Data Storage
Process
Equipment
 Metrology Unallocated
Corporate
Amount
 Total 

Year ended December 31, 2007

                

Net sales

 $115,863 $136,169 $150,443 $ $402,475 
            

Segment profit (loss)

 $14,170 $6,428 $2,911 $(7,657)$15,852 

Interest expense, net

        4,864  4,864 

Amortization expense

  4,263  3,806  1,486  695  10,250 

Equity-based compensation expense

  179  567  470  3,832  5,048 

Restructuring expense

  34  2,498  1,952  2,242  6,726 

Asset impairment charge

    1,068      1,068 

Inventory write-offs

    4,821      4,821 

Gain on extinguishment of debt

        (738) (738)
            

Income (loss) before income taxes

 $9,694 $(6,332)$(997)$(18,552)$(16,187)
            



 LED & Solar
Process
Equipment
 Data Storage
Process
Equipment
 Metrology Unallocated
Corporate
Amount
 Total  LED & Solar Data Storage Unallocated
Corporate
 Total 

As of December 31, 2009

 

As of December 31, 2011

 

Goodwill

 $51,989 $ $7,433 $ $59,422  $55,828 $ $ $55,828 

Total assets

 $178,406 $54,106 $72,912 $299,948 $605,372  $319,457 $57,203 $559,403 $936,063 

As of December 31, 2008

 

As of December 31, 2010

 

Goodwill

 $51,727 $ $7,433 $ $59,160  $52,003 $ $ $52,003 

Total assets

 $137,037 $84,335 $85,390 $122,779 $429,541  $323,096 $61,691 $763,247 $1,148,034 

        Corporate total assets are comprised principally of cash and cash equivalents, and short-term investments atand restricted cash as of December 31, 20092011 and 2008, respectively.2010.

        Other Segment Data (in thousands)(in thousands):



 Year ended December 31,  Year ended December 31, 


 2009 2008 2007  2011 2010 2009 

Depreciation and amortization expense:

Depreciation and amortization expense:

  

LED & Solar

 $8,320 $5,506 $5,753 

Data Storage

 3,245 3,581 4,448 

Unallocated Corporate

 1,327 1,702 2,026 

LED & Solar Process Equipment

 $7,392 $7,850 $6,903        

Data Storage Process Equipment

 4,448 7,690 9,063 

Metrology

 7,737 7,393 6,618 

Unallocated Corporate

 2,039 2,156 2,407 
       

Total depreciation and amortization expense

 $21,616 $25,089 $24,991 

Total depreciation and amortization expense

 $12,892 $10,789 $12,227 
              

Expenditures for long-lived assets:

Expenditures for long-lived assets:

  

LED & Solar

 $56,141 $8,086 $6,656 

Data Storage

 2,703 572 192 

Unallocated Corporate

 1,520 2,066 612 

LED & Solar Process Equipment

 $6,656 $5,605 $2,620        

Total expenditures for long-lived assets

 $60,364 $10,724 $7,460 

Data Storage Process Equipment

 192 4,256 2,844        

Metrology

 897 1,728 1,682 

Unallocated Corporate

 602 1,217 1,946 
       

Total expenditures for long-lived assets

 $8,347 $12,806 $9,092 
       


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2009

11.12.   Defined Contribution Benefit Plan

        We maintain a defined contribution benefit plan under Section 401(k) of the Internal Revenue Code. Almost all of our domestic full-time employees are eligible to participate in this plan. Under the plan during 2011, we provideprovided matching contributions of fifty cents for every dollar employees contribute up to a maximum of $3,000. During 2012, we will provide matching contributions of fifty cents for every dollar employees contribute, up to the lesser of 6%3% of anthe employee's eligible compensation or $2,500. The plan also allows the Board of Directors to determine annual discretionary profit sharing contributions at each plan year-end.$7,500. Generally, the plan calls for vesting of Company contributions over the initial five years of a participant's employment. Beginning in 2007, we maintainedWe maintain a similar type of contribution plan at one of our foreign subsidiaries. Our contributions to these plans in 2011, 2010 and 2009 2008, and 2007 were $1.5$2.1 million, $2.3$1.7 million and $1.7$0.9 million, respectively.

13.   Cost Method Investment

        On September 28, 2010, Veeco completed an investment in, a rapidly developing organic light emitting diode (OLED) equipment company. Veeco has invested in this company's Round B funding extension totaling $3 million, resulting in 7.8% ownership of the preferred shares, and 5.6% ownership of the company. During 2011, Veeco invested and additional $1.2 million in this company. Since we do not exhibit significant influence on such company, this investment is treated under the cost method in accordance with applicable accounting guidance. The fair value of this investment is not estimated because there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment, and we are exempt from estimating interim fair values because the investment does not meet the definition of a publicly traded company. This investment is recorded in other assets in our Consolidated Balance Sheets as of December 31, 2011 and 2010.



Schedule II—Valuation and Qualifying Accounts (in thousands)(in thousands)

COL. ACOL. A COL. B COL. C COL. D COL. E  COL. B COL. C COL. D COL. E 


  
 Additions  
  
   
 Additions  
  
 
DescriptionDescription Balance at
Beginning of
Period
 Charged to
Costs and
Expenses
 Charged to
Other
Accounts
 Deductions Balance at
End of
Period
  Balance at
Beginning of
Period
 Charged to
Costs and
Expenses
 Charged to
Other
Accounts
 Deductions Balance at
End of
Period
 

Deducted from asset accounts:

Deducted from asset accounts:

  

Year ended December 31, 2009:

 
 

Allowance for doubtful accounts

 $937 $77 $ $(157)$857 
 

Valuation allowance on net deferred tax assets

 78,706 6,017   84,723 

Year ended December 31, 2011:

 

Allowance for doubtful accounts

 $512 $ $ $(44)$468 

Valuation allowance on net deferred tax assets

 1,644   121 1,765 
                      

 $79,643 $6,094 $ $(157)$85,580  $2,156 $ $ $77 $2,233 
                      

Deducted from asset accounts:

Deducted from asset accounts:

  

Year ended December 31, 2008:

 
 

Allowance for doubtful accounts

 $984 $(49)$ $2 $937 
 

Valuation allowance on net deferred tax assets

 67,360 14,150 317 (3,121) 78,706 

Year ended December 31, 2010:

 

Allowance for doubtful accounts

 $438 $40 $34 $ $512 

Valuation allowance on net deferred tax assets

 84,723  (2,663) (80,416) 1,644 
                      

 $68,344 $14,101 $317 $(3,119)$79,643  $85,161 $40 $(2,629)$(80,416)$2,156 
                      

Deducted from asset accounts:

Deducted from asset accounts:

  

Year ended December 31, 2009:

 

Allowance for doubtful accounts

 $583 $(52)$ $(93)$438 

Valuation allowance on net deferred tax assets

 78,706 6,017   84,723 

Year ended December 31, 2007:

            
 

Allowance for doubtful accounts

 $2,683 $(1,070)$ $(629)$984  $79,289 $5,965 $ $(93)$85,161 
 

Valuation allowance on net deferred tax assets

 67,770 12,172  (12,582) 67,360            
           

 $70,453 $11,102 $ $(13,211)$68,344 
           


INDEX TO EXHIBITS

        Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities and Exchange Commission by the Company under File No. 0-16244.

Number Exhibit Incorporated by Reference to the Following Documents
2.1Stock Purchase Agreement dated August 15, 2010 among Veeco Instruments Inc. (Veeco), Veeco Metrology Inc. and Bruker CorporationQuarterly Report on Form 10-Q for the quarter ended September 30, 2010, Exhibit 2.1
3.1 Amended and Restated Certificate of Incorporation of the CompanyVeeco dated December 1, 1994, as amended June 2, 1997 and July 25, 1997. Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, Exhibit 3.1
3.2 Amendment to Certificate of Incorporation of Veeco dated May 29, 1998. Annual Report on Form 10-K for the year ended December 31, 2000, Exhibit 3.2
3.3 Amendment to Certificate of Incorporation of Veeco dated May 5, 2000. Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Exhibit 3.1
3.4 Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of Veeco. Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, Exhibit 3.1
3.5Fourth Amended and Restated Bylaws of the Company, effective October 23, 2008Current Report on Form 8-K filed October 27, 2008, Exhibit 3.1
3.63.5 Amendment to Certificate of Incorporation of Veeco dated May 16, 2002 Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, Exhibit 3.1
4.1Rights Agreement, dated as of March 13, 2001, between Veeco Instruments Inc. and American Stock Transfer and Trust Company, as Rights Agent, including the form of the Certificate of Designation, Preferences, and Rights setting forth the terms of the Series A Junior Participating Preferred Stock, par value $0.01 per share, as Exhibit A, the form of Rights Certificates as Exhibit B and the Summary of Rights to Purchase Preferred Stock as Exhibit C.Registration Statement on Form 8-A dated March 15, 2001, Exhibit 1
4.23.6 Amendment to Rights Agreement,Certificate of Incorporation of Veeco dated as of September 6, 2001, between Veeco Instruments Inc. and American Stock Transfer and Trust Company, as rights agent.Current Report on Form 8-K, filed September 21, 2001, Exhibit 4.1
4.3Amendment No 2 to Rights Agreement, dated as of July 11, 2002, between Veeco Instruments Inc. and American Stock Transfer and Trust Company, as rights agent.Current Report on Form 8-K, filed July 12, 2002, Exhibit 4.1
4.4Indenture, dated April 16, 2007, between Veeco Instruments Inc. and U.S. Bank National TrustPost-Effective Amendment No. 1 To Registration Statement on Form S-3 (File No. 333-128004) filed April 16, 2007, Exhibit 4.1
4.5First Supplemental Indenture, dated April 20, 2007, by and between Veeco Instruments Inc. and U.S. Bank Trust National Association, as TrusteeCurrent Report on Form 8-K, filed April 20, 2007, Exhibit 4.1

NumberExhibitIncorporated by Reference to the Following Documents
10.1Credit Agreement, dated as of August 20, 2007, by and among Veeco Instruments Inc., HSBC Bank USA, National Association, as administrative agent, and the lenders named therein.Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, Exhibit 10.1
10.2First Amendment dated as of February 25, 2008 to the Credit Agreement dated August 20, 2007 among Veeco Instruments Inc., HSBC Bank USA, National Association, as administrative agent, and the lenders named therein.May 14, 2010 Annual Report on Form 10-K for the year ended December 31, 2007,2010, Exhibit 10.23.8
10.33.7Fourth Amended and Restated Bylaws of Veeco, effective October 23, 2008Current Report on Form 8-K filed October 27, 2008, Exhibit 3.1
3.8 Amendment No. 1 to the Fourth Amended and Reaffirmation dated August 20, 2007 of Security Agreement dated as of March 15, 2005 among Veeco Instruments Inc., the subsidiariesRestated Bylaws of Veeco named therein and HSBC Bank USA, National Association, as administrative agent.effective May 20, 2010 QuarterlyCurrent Report on Form 10-Q for the quarter ended September 30, 2007,8-K, filed May 26, 2010, Exhibit 10.23.1
10.43.9Amendment No. 2 to the Fourth Amended and Restated Bylaws of Veeco effective October 20, 2011Current Report on Form 8-K, filed October 24, 2011, Exhibit 3.1
10.1 Loan Agreement dated as of December 15, 1999 between Applied Epi, Inc. and Jackson National Life Insurance Company. Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, Exhibit 10.2
10.510.2 Amendment to Loan Documents effective as of September 17, 2001 between Applied Epi, Inc. and Jackson National Life Insurance Company (executed in June 2002). Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Exhibit 10.2
10.610.3 Promissory Note dated as of December 15, 1999 issued by Applied Epi, Inc. to Jackson National Life Insurance Company. Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, Exhibit 10.3
10.7*10.4*Form of Indemnification Agreement entered into between Veeco and each of its directors and executive officers. Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan.Registration StatementCurrent Report on Form S-1 (File No. 33-93958), Exhibit 10.20
10.8*Amendment dated May 15, 1997 to Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan.Registration Statement8-K filed on Form S-8 (File No. 333-35009) filed September 5, 1997,October 23, 2006, Exhibit 10.1
10.9*Amendment dated July 25, 1997 to Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan.Registration Statement on Form S-8 (File No. 333-35009) filed September 5, 1997, Exhibit 10.2
10.10*Amendment dated May 29, 1998 to Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan.Registration Statement on Form S-8 (File No. 333-79469) filed May 27, 1999, Exhibit 10.1
10.11*Amendment dated May 14, 1999 to Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan.Registration Statement on Form S-8 (File No. 333-79469) filed May 27, 1999, Exhibit 10.2
10.1210.5*Veeco Instruments Inc. 1994 Stock Option Plan for Outside Directors.Registration Statement on Form S-1 (File No. 33-85184), Exhibit 10.17
10.13*Amendment dated May 15, 1996 to Veeco Instruments Inc. Amended and Restated 1994 Stock Option Plan for Outside Directors.Registration Statement on Form S-8 (File No. 333-08981) filed July 26, 1996, Exhibit 10.2

NumberExhibitIncorporated by Reference to the Following Documents
10.14*Amendment dated May 15, 1997 to Veeco Instruments Inc. Amended and Restated 1994 Stock Option Plan for Outside Directors.Registration Statement on Form S-8 (File No. 333-35009) filed September 5, 1997, Exhibit 10.3
10.15*Amendment dated May 21, 1999 to Veeco Instruments Inc. Amended and Restated 1994 Stock Option Plan for Outside Directors.Registration Statement on Form S-8 (File No. 333-79469) filed May 27, 1999, Exhibit 10.3
10.16*Veeco Instruments Inc. Amended and Restated 2000 Stock Incentive Plan, effective July 20, 2006. Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, Exhibit 10.4

10.17
NumberExhibitIncorporated by Reference to the Following Documents
10.6*Amendment No. 1 effective April 18, 2007 (ratified by the Board August 7, 2007) to Veeco Instruments Inc. Amended and Restated 2000 Stock Incentive Plan. Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, Exhibit 10.1
10.1810.7*Amendment No. 2 dated January 22, 2009 to Veeco Amended and Restated 2000 Stock Incentive Plan.Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.41
10.8*Form of Restricted Stock Agreement pursuant to the Veeco Instruments Inc. 2000 Stock Incentive Plan, effective November 2005 Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, Exhibit 10.3
10.19*Form of Directors Restricted Stock Agreement pursuant to the Veeco Instruments Inc. 2000 Stock Incentive Plan, effective May 2006Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, Exhibit 10.2
10.2010.9*Form of Notice of Restricted Stock Award and related terms and conditions pursuant to the Veeco Instruments Inc. 2000 Stock Incentive Plan, effective June 2006 Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, Exhibit 10.3
10.2110.10*Veeco Instruments Inc. 20002010 Stock OptionIncentive Plan, for Non-Officer Employees.effective May 14, 2010 Registration Statement on Form S-8 (File Number 333-49476)333-166852) filed November 7, 2000,May 14, 2010, Exhibit 4.410.1
10.2210.11*Amendment No. 1 to the Veeco Instruments Inc. 2000Form of 2010 Stock Incentive Plan Stock Option Plan for Non-Officer Employees, effective dated July 26, 2001.Agreement Registration Statement on Form S-8 (File Number 333-66574)333-166852) filed August 2, 2001,May 14, 2010, Exhibit 4.210.2
10.2310.12*Form of 2010 Stock Incentive Plan Restricted Stock AgreementRegistration Statement on Form S-8 (File Number 333-166852) filed May 14, 2010, Exhibit 10.3
10.13*Veeco Instruments Inc. 2006 Long-Term Cash Incentive PlanPerformance-Based Restricted Stock 2010 Quarterly Report on Form 10-Q for the quarter ended June 30, 2006,2010, Exhibit 10.110.2
10.2410.14*Employment agreement effective as of July 1, 2007 between John R. Peeler and Veeco Instruments Inc.2010 Management Bonus Plan dated January 22, 2010 Quarterly Report on Form 10-Q for the quarter ended June 30, 2007,March 31, 2010, Exhibit 10.310.2
10.2510.15*Employment AgreementVeeco 2010 Special Profit Sharing Plan dated as of April 1, 2003 between John F. Rein, Jr. and Veeco Instruments Inc.February 15, 2010 Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, Exhibit 10.5
10.26*Amendment to Employment Agreement of John F. Rein, Jr., effective June 9, 2006Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, Exhibit 10.2
10.27*Letter Agreement dated January 21, 2004 between the Company and John P. Kiernan.Annual Report on Form 10-K for the year ended DecemberMarch 31, 2003, Exhibit 10.38
10.28*Letter Agreement dated October 31, 2005 between Veeco Instruments Inc. and Robert P. OatesQuarterly Report on Form 10-Q for the quarter ended September 30, 2005, Exhibit 10.1

NumberExhibitIncorporated by Reference to the Following Documents
10.29*Form of Amendment to Letter Agreements of John P. Kiernan and Robert P. Oates effective June 9, 2006Quarterly Report on Form 10-Q for the quarter ended June 30, 2006,2010, Exhibit 10.3
10.30*Letter Agreement dated January 11, 2008 between Veeco Instruments Inc. and Mark R. MunchAnnual Report on Form 10-K for the year ended December 31, 2007, Exhibit 10.33
10.31*Form of Indemnification Agreement entered into between Veeco Instruments Inc. and each of its directors and executive officers.Current Report on Form 8-K filed on October 23, 2006, Exhibit 10.1
10.32*Amendment to Employment Agreement dated as of September 12, 2008 between John F. Rein, Jr. and Veeco Instruments Inc.Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, Exhibit 10.1
10.33*Amendment to Employment Agreement dated as of September 12, 2008 between Robert P. Oates and Veeco Instruments Inc.Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, Exhibit 10.2
10.3410.16*Senior Executive Change in Control Policy effective as of September 12, 2008 Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, Exhibit 10.3
10.35*Service Agreement effective July 24, 2008 between Edward H. Braun and Veeco Instruments Inc.Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, Exhibit 10.1
10.3610.17*Amendment No. 1 dated December 23, 2008 (effective September 12, 2008) to Veeco Instruments Inc. Senior Executive Change in Control Policy Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.37
10.3710.18*Employment Agreement effective as of July 1, 2007 between Veeco and John R. PeelerQuarterly Report on Form 10-Q for the quarter ended June 30, 2007, Exhibit 10.3
10.19*Amendment effective December 31, 2008 to Employment Agreement between Veeco Instruments Inc. and John R. Peeler Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.38
10.3810.20*Second Amendment effective December 31, 2008June 11, 2010 to Employment Agreement between Veeco Instruments Inc. and John F. Rein, Jr.R. Peeler AnnualQuarterly Report on Form 10-K10-Q for the yearquarter ended December 31, 2008,June 30, 2010, Exhibit 10.3910.1
10.3910.21*Form of Amendment effectiveEmployment Agreement dated December 31, 2008 to Letter Agreements17, 2009 (effective January 18, 2010) between Veeco Instruments Inc. and each of John P. Kiernan, Mark R. Munch and Robert P. OatesDavid D. Glass AnnualQuarterly Report on Form 10-K10-Q for the yearquarter ended DecemberMarch 31, 2008,2010, Exhibit 10.40
10.40*Amendment No. 2 dated January 22, 2009 to Veeco Instruments Inc. Amended and Restated 2000 Stock Incentive Plan.Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.41
10.41*Second Amendment dated as of February 27, 2009 (effective December 31, 2008) to the Credit Agreement dated August 20, 2007 among Veeco Instruments Inc., HSBC Bank USA, National Association, as administrative agent, and the lenders named herein.Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.4210.1

Number Exhibit Incorporated by Reference to the Following Documents
10.4210.22*Letter Agreement dated January 21, 2004 between Veeco and John P. Kiernan. Third Amendment dated as of May 7, 2009 (effectiveAnnual Report on Form 10-K for the year ended December 31, 2008)2003, Exhibit 10.38
10.23*Form of Amendment effective June 9, 2006 to the Credit Agreement dated August 20, 2007 amongLetter Agreements between Veeco Instruments Inc., HSBC Bank USA, National Association, as administrative agent, and the lenders named herein.each of John P. Kiernan and Robert P. Oates Quarterly Report on Form 10-Q for the quarter ended March 31, 2009,June 30, 2006, Exhibit 10.3
10.4310.24*Form of Amendment effective December 31, 2008 to Letter Agreements between Veeco and each of John P. Kiernan and Robert P. Oates Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.40
10.25*Letter agreement effective as of June 19, 2009 between Veeco and John P. Kiernan and Veeco Instruments Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, Exhibit 10.2
10.4410.26*Letter Agreement dated October 31, 2005 between Veeco Instruments Inc. 2009 Management Bonus Plan dated February 27, 2009and Robert P. Oates Quarterly Report on Form 10-Q for the quarter ended September 30, 2009,2005, Exhibit 10.1
10.4510.27*Amendment dated September 12, 2008 to Employment Agreement between Veeco Instruments Inc. 2009 Supplemental Management Profit Sharing Plan dated August 20, 2009and Robert P. Oates Quarterly Report on Form 10-Q for the quarter ended September 30, 2009,2008, Exhibit 10.2
10.28*Veeco 2011 Management Bonus Plan, dated January 26, 2011Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, Exhibit 10.1
10.29*Service Agreement effective January 1, 2012 between Veeco and Edward H. BraunFiled herewith
10.30*Letter Agreement dated January 30, 2012 between Veeco and Dr. William J. MillerFiled herewith
21.1 Subsidiaries of the Registrant. Filed herewith
23.1 Consent of Ernst & Young LLP. Filed herewith
31.1 Certification of Chief Executive Officer pursuant to Rule 13a—14(a)13a-14(a) or Rule 15d—14(a)15d-14(a) of the Securities and Exchange Act of 1934. Filed herewith
31.2 Certification of Chief Financial Officer pursuant to Rule 13a—14(a)13a-14(a) or Rule 15d—14(a)15d-14(a) of the Securities and Exchange Act of 1934. Filed herewith
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- OxleySarbanes-Oxley Act of 2002 Filed herewith
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- OxleySarbanes-Oxley Act of 2002 Filed herewith
101.INSXBRL Instance**
101.XSDXBRL Schema**
101.PREXBRL Presentation**
101.CALXBRL Calculation**
101.DEFXBRL Definition**
101.LABXBRL Label**

*
Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a) (3) of Form 10-K.

**
Filed herewith electronically.



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SAFE HARBOR STATEMENT
PART II
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES $100 INVESTED ON DEC. 31, 2004 ASSUMES DIVIDENDS REINVESTED FISCAL YEAR ENDING DEC. 31
PART III
PART IV
SIGNATURES
Veeco Instruments Inc. and Subsidiaries Index to Consolidated Financial Statements and Financial Statement Schedule
Report of Independent Registered Public Accounting Firm on Financial Statements
INDEX TO EXHIBITS