•

We are subject to foreign currency exchange risks;



•

The enforcement and protection of our intellectual property rights may be expensive and could divert our limited resources;



•

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



•

If we are subject to cyber-attacks we could incur substantial costs and, if such attacks are successful, could result in significant liabilities, reputational harm and disruption of our operations;



•

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



•

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 may not receive the escrowed proceeds from the sale of our Metrology business;



•

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



•

We are subject to the internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act;Act and any delays or difficulty in satisfying these requirements or negative reports concerning our internal controls could adversely affect our future results of operations and our stock price;



•

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



•

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



•

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



•

New regulations related to conflict minerals will force us to incur additional expenses, may make our supply chain more complex, and may result in damage to our relationships with customers; and



•

The matters set forth in this Report generally, including the risk factors set forth in "Item"Part I. Item 1A. Risk Factors."

Consequently, such forward-looking statements should be regarded solely as the Company's current plans, estimates and beliefs.beliefs of Veeco Instruments Inc. (together with its consolidated subsidiaries, "Veeco", the "Company", "we", "us", and "our", unless the context indicates otherwise). 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.

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Explanatory Note

Although this report relates to the year ended December 31, 2012, certain information is presented as of the time this report is being filed, rather than as of December 31, 2012. In particular, except as expressly stated, the information in Item 1. Business, Item 1A. Risk Factors, Item 2. Properties and Item 3. Legal Proceedings, as well as information about prices of our common stock and dividends in Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, is presented as of the time this report is being filed or as close to the time this report is filed as is practicable. Our business and financial condition at the date this report is filed is different from what our business and financial condition was as of December 31, 2012. We intend to file our Quarterly Reports on Form 10-Q for each of the quarters ended March 31, 2013 and June 30, 2013 as soon as it is practical.

During 2012, the Company commenced an internal investigation in response to information it received concerning certain issues, including contract documentation issues, related to a limited number of customer transactions in South Korea. During the review of information in connection with the internal investigation, questions were raised that prompted the Company to conduct a comprehensive and extensive review of its revenue recognition accounting for certain multiple element arrangements. The Company retained experienced counsel, assisted by an experienced outside accounting consulting firm, to oversee the accounting review undertaken by the Company. The Company completed that review in October 2013.

The delay in filing our periodic reports began with an announcement, on November 15, 2012, regarding our accounting review of our application of accounting principles related to the Company's sales of multiple element arrangements of MOCVD systems in certain transactions originating in 2009 and 2010. We conducted examinations of our MOCVD transactions to determine whether the revenue and related expenses were recognized in the appropriate accounting period. Subsequently, we expanded our accounting review to other relevant transactions of similar multiple element arrangements arising since 2009. In the course of our accounting review, we have examined more than 100 multiple element arrangements.

The primary focus of the Company's accounting review concerned whether the Company correctly interpreted and applied generally accepted accounting principles in the United States ("U.S. GAAP") relating to revenue recognition for multiple element arrangements as set forth in Securities and Exchange Commission Staff Accounting Bulletin No. 104: Revenue Recognition, and ASC 605-25—Revenue Recognition: Multiple Element Arrangements (formerly known as EITF 00-21 and EITF 08-01), to certain sales of Veeco products.

We often enter into large orders with our customers consisting of several elements. For accounting purposes, these are called multiple element arrangements, and can include systems, upgrades, spare parts, service, as well as certain other items. Our accounting review examined the selected sales transactions to determine whether the Company appropriately: (1) identified all of the elements in its arrangements with customers; (2) determined the proper units of accounting as part of the arrangements; and (3) allocated the arrangements' consideration to each of the units of accounting under the applicable accounting standards. As a result of our accounting review we identified errors in the consolidated financial statements related to prior periods. The errors were primarily attributable to the misapplication of U.S. GAAP for recognizing revenue and related costs under multiple element arrangements and accounting for warranties. We assessed the materiality of these errors, both quantitatively and qualitatively, and concluded that these errors were not material, individually or in the aggregate, to our consolidated financial statements in this or any other prior periods. During the course of our review, we identified net cumulative errors which overstated cumulative net income from continuing operations through December 31, 2011 by $0.6 million. As a result, in 2012 we recorded

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adjustments to correct all prior periods resulting in a decrease in net income from continuing operations of $0.6 million.

While performing the foregoing accounting review, our Chief Executive Officer and the Chief Financial Officer supervised and participated in conducting an evaluation of the effectiveness of our internal control over financial reporting based on the criteria in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based upon that evaluation, management identified material weaknesses in the Company's internal control over financial reporting and therefore management concluded that we did not maintain effective internal control over financial reporting through the date of this report based on the criteria established by COSO.

Notwithstanding the material weaknesses discussed in "Part II, Item 9a. Controls and Procedures" in this Report and based upon our accounting review performed during the delayed filing periods, our management has concluded that our consolidated financial statements included in this report on Form 10-K are fairly stated in all material respects in accordance with U.S. GAAP.

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VEECO INSTRUMENTS INC.

INDEX

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PART I.

Item 1.    Business

The Company

Veeco Instruments Inc. (together with its consolidated subsidiaries, "Veeco,""Veeco", the "Company" or, "we") designs, manufactures, "us", and markets"our", unless the context indicates otherwise) creates Process Equipment that enables technologies for a cleaner and more productive world. We design, manufacture and market equipment primarily sold to make light emitting diodes ("LEDs"), solar panels,LED"s) and hard-disk drives, as well as for concentrator photovoltaics, power semiconductors, wireless components, and other devices. We havemicro-electromechanical systems ("MEMS").

Veeco develops highly differentiated, "best-in-class" Process Equipment for critical performance steps. Our products feature leading technology, positionslow cost-of-ownership and high throughput. Core competencies in our two segments: Light Emitting Diode ("LED") & Solaradvanced thin film technologies, over 200 patents, and Data Storage.decades of specialized process know-how helps us to stay at the forefront of these demanding industries.

        In ourVeeco's LED & Solar segment we design designs and manufacturemanufactures metal organic chemical vapor deposition ("MOCVD") systems,and molecular beam epitaxy ("MBE") systems Copper, Indium, Gallium, Selenide ("CIGS") deposition systems and thermal deposition sources that we sellcomponents sold to manufacturers of high brightness LEDs, ("HB LED")wireless components, power semiconductors, and solar panels,concentrator photovoltaics, as well as to research customers.for R&D applications.

        In ourVeeco's Data Storage segment we design designs and manufacturemanufactures systems used to create thin film magnetic heads ("TFMH"s) that read and write data on hard disk drives. These include ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, chemical vapor deposition, and slicing, dicing and slicinglapping systems. While our systems that are primarily usedsold to create thin filmhard drive customers, they also have applications in optical coatings, MEMS and magnetic headssensors, and extreme ultraviolet ("TFMHs"EUV") that read and write data on hard disk drives.lithography.

        WeAs of September 30, 2013, Veeco's approximately 780 employees support our customers through product and process development, training, manufacturing, and sales and service sites in the U.S., South Korea, Taiwan, China, Singapore, Japan, Europe and other locations.

Veeco Instruments Inc. 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:

•

Focusing our efforts on those technologies in which we have a leading market share, providingProviding differentiated technology solutionsProcess Equipment to address customers' next generation product development roadmaps;



•

Leveraging ourInvesting to win through focused research and development spending into endin markets that we believe offer high-growthprovide significant growth opportunities such as ouror are at an inflection point in Process Equipment requirements. Examples include LED, & Solar segment;power semiconductor devices, MEMS, and organic light emitting diodes ("OLED");



•

ImprovingLeveraging our operational efficiency through better supply chain management, best cost manufacturingworld-class sales channel and other activitieslocal process applications support to lower costs and increase profitability, and;build strong strategic relationships with technology leaders;



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Developing strategic relationships with worldwide technology leaders and offering these customers high-quality, differentiatedExpanding our portfolio of service products that support their costimprove the performance of ownership requirements as well as serviceour systems, including spare parts, upgrades and applications support in orderconsumables to drive growth and improve their time-to-market on leading edge devices.customer satisfaction;



•

Combining outsourced and internal manufacturing strategies to flex manufacturing capacity through industry investment cycles; and



•

Pursuing partnerships and acquisitions to expand our product portfolio and accelerate our growth.

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Business Overview and Industry Trends

General Introduction:    Our thin film deposition, etch and other technologiessystems are applicable to the creation of a broad range of microelectronic components, including HB LEDs, solar cells, thin film magnetic headsTFMHs and compound semiconductor devices. 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.

Following the global recession in 2008-2009, Veeco experienced a rapid improvement in business conditions in late 2009 and continuing into 2010. The combinationDemand for Veeco's MOCVD equipment increased dramatically, primarily from customers in South Korea and Taiwan, as LEDs became the standard illumination for TV backlighting. Veeco also experienced a strong increase in demand for MOCVD from customers in China due to government funding of an improvementLED fabrication facility expansions throughout the region. Our revenue increased over 200% in capital spending by our global customers2010 and 5% in 2011 as well as oura result of this unprecedented two year investment in MOCVD systems.

Beginning in the middle of 2011 and through the date of this Report in 2013, Veeco's MOCVD business declined significantly due to overcapacity in LED manufacturing. Veeco's total revenues declined 47% to $516.0 million in 2012, with its systems revenue declining 54%. However, due to a strong focus on high-growth end markets, particularly HB LED,expanding its offering of spare parts, upgrades and successful new product introduction enabledconsumables, our services business grew 26% during 2012. As an indication of the continued weak business environment, Veeco's bookings for the first six months of 2013 and 2012 were $155.2 million and $215.9, respectively. The weak business environment has caused us to record a total expense for slow moving items in 2012 of approximately $9.6 million, which negatively impacted our gross margin for 2012. Furthermore, the Company has been experiencing significant pricing pressures in MOCVD due to benefit from accelerated growththe weak overall market conditions in 2010.LED throughout 2013.

The following is a review of our two reportablebusiness segments and the multi-year technology trends that impact each.

LED & Solar Business Overview and Trends:    We are a leading supplier of solutionsequipment used to create HB LEDs and concentrator solar cells. MOCVD and MBE technologies are used to grow compound semiconductor materials (such as GaAs (gallium arsenide)gallium nitride ("GaN"), GaN (gallium nitride)gallium arsenide ("GaAs"), As/P (arsenic phosphide)aluminum indium gallium phosphide("AlInGaP") and InP (indium phosphide)indium phosphide ("InP")) 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.

        We believeThe demand for MOCVD tools to grow GaN based materials (the thin films that the HBconvert energy to light) to make LEDs grew dramatically beginning in mid-2009, with industry shipments of MOCVD reactors growing from approximately 230 reactors in 2009, to approximately 800 reactors in 2010 and 700 in 2011. Established LED market, while cyclical, represents a high-growth opportunity for us dueindustry leaders in Taiwan, U.S., Europe, South Korea and Japan, as well as emerging players in China spurred by government incentives and economic development funding, invested heavily in MOCVD equipment to the expanding applications for HB LEDs, such as backlighting forramp LED capacity. Following this large screen flat panel TVs (LCD—liquid crystal displays), laptop computers, automotive applications, and general illumination. In 2009 and 2010investment, the LED industry experienced significant growthentered an overcapacity situation, evidenced by low tool utilization rates being reported by many key global customers. As a result, new orders for MOCVD systems declined sharply in 2012, and we estimate that industry shipments of MOCVD reactors were approximately 240 in 2012. While utilization rates of our equipment in many customer facilities has improved in 2013 from prior trough levels in 2012, weak business conditions in MOCVD persist in 2013 and it is likely that MOCVD reactor shipments will decline again this year. In the short term, it is difficult for us to predict when the supply/demand of LEDs will return to equilibrium and when order rates for our MOCVD products will meaningfully recover.

While consumer electronics (e.g., cell phones, laptops, LED-TVs) 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

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general lighting market is in its infancy, and we believe that thousands of additional MOCVD tools will be required as LEDs penetrated laptopbecome widely adopted for this much larger market application.

As part of the shift toward more efficient energy use across the globe, we believe LED technology will play a key role in energy and television backlighting applications. Strategies Unlimited, ancost savings in lighting. We see this opportunity as both vast and long term in nature given that LED industry research organization, forecastedlighting is just now beginning to penetrate the global lighting market. LED adoption is happening initially in its June 2010 report that growth in these applications will continue, resulting in a compound annual growth rate ("CAGR") exceeding 80% from 2009 through 2014. LEDs are also starting to experience increasedoutdoor, commercial and industrial lighting where high usage and lower efficiency make incumbent lighting costly. Further adoption for generalacross all forms of lighting with Strategies Unlimited forecasting a CAGR of 45.4% during that same time period. Overall, the market for HB LEDs is expected to grow from $5.4occur 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. 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. In March 2013, LED industry forecasters at Digitimes Research projected that LED lighting will represent about 38.6% of the total lighting market, and will be worth approximately $44.2 billion by 2015.

Future equipment and capital spending will continue to drive cost reduction in 2009LED technology through larger wafers, automation and dedicated equipment to $19.6 billion in 2014,improve manufacturing yield and throughput for a CAGR of 29.5%.

lighting class LED products. In order to gain market share and capitalize onmaximize this growth opportunity, we have accelerated our R&D investments to introduceintroduced several new generations of MOCVD tools, most recentlyincluding our TurboDisc® K-Series™ and MaxBright™MaxBright® MOCVD systems. By introducing new systems we are focused on delivering better uniformity and repeatability, which helpsprovide customers with significant cost of ownership advantages when compared with alternative equipment. These activities enabled us to overtake our customers to make HB LEDs of consistent quality, ultimately with the goal to deliver more, high quality LEDs at a lower manufacturing cost.primary competitor in market share in 2012. We intend to continue to invest heavily in MOCVD research and development in order to deliver more advanced MOCVD solutions toaccelerate lighting adoption and maintain our customers. A relatedleadership position.

Another application for usMOCVD is in the solar market, since the samemarket. MOCVD tool that is critical to the LED manufacturing processequipment can also be used to manufacture high-efficiency triple junction solar cells. The Companycells, otherwise known as Concentrator Photovoltaic ("CPV"). Arsenide phosphide ("AsP") MOCVD is the technology of choice to build the critical compound semiconductor layers for the CPV device. Veeco currently sells a small number of MOCVD systems each year for this concentrator solar (CPV) applicationapplication. CPV Solar is emerging as a new technology niche with proof-of-concept scale installations (1 megawatt ("MW") or less), and is also beginning to sell tools toin 2012 and 2013 multiple pilot production utility-scale projects are being developed around the world.

Power semiconductors are an emerging growth market for power devices.

        Veeco has also identified the thin film solar cell market as offering significant growth opportunities. The global energy dilemma has triggered a significant amount of new research and spending in solar technologies as an alternative energy solution, since it is non-polluting and has the potential to supply the world with high energy efficiency at low cost. While many of today's solar panels are based upon silicon technologies, thin film CIGS solar cells offer the potential for lower manufacturing costs, and have the highest efficiency of the thin film technologies. According to an October 2010 report released by Greentech Media Research ("GTM"), CIGS module manufacturing costs are projected to be lower than those associated with silicon wafer-based modules. CIGS solar panels have broad-based end market applications for solar farms, commercial and residential rooftops, building integrated and building applied PV (BIPV/BAPV) and portable devices.

        Since PV manufacturers often build their own equipment, there is a market opportunity emerging for equipment suppliers such as Veeco. In its October 2010 report, GTM forecasted that CIGS global module capacity will have a CAGRMOCVD equipment. While silicon-based transistors are the mainstream forms of 49% from 2010 to 2013 with capacity reaching 3.4GWpower electronic devices today, GaN-on-Silicon ("Si") based power electronics developed on MOCVD tools can potentially deliver higher performance (i.e. higher efficiency and switching speed). Global industry leaders in 2013. We plan to expand our deposition product line to create "best of breed" deposition systems that can deposit materialspower electronics are currently working on flexible (stainless steel) or rigid (glass) substrates. Today Veeco supplies thermal evaporation components to over 50% of CIGS companies worldwide and has begun to penetrate CIGS customers with our deposition system solutions. We are shipping our FastFlex Web Coating Systems for the front and back contact and absorber layer CIGS deposition. These new systems are capable of processing up to 1m web widths that will enable PV manufacturers to continue lowering their cost of ownership. We intend to increase our research and development spendingprograms to explore this new technology. GaN-on-Si based power devices have potential for information technology and consumer devices (e.g. power supplies, inverters), automotive (e.g. hybrid automobiles) and industrial applications (e.g. power distribution, rail transportation, wind turbines). Additionally, Veeco supports its customers around the globe that are developing GaN-on-Si based technology 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 CIGS technologyapplications such as solar cells, fiber-optics, mobile phones, radar systems and displays. Our business continues to be influenced by long-term market trends associated with the increasing demand for bothgallium arsenide ("GaAs") devices to support the rigidadoption of smart phones within the larger mobile phone handset market. Each one of these complex devices contains an increasing number of power amplifiers or other compound semiconductor radio frequency ("RF") components. Due to industry consolidation and flexible substrate market since we believe it offers a significant growth opportunity over the next several years.resulting overcapacity, our sales of MBE production tools have been declining for

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about a year. Veeco has put additional resources in place to improve our market share in sales of MBE systems to scientific research organizations and universities.

Data Storage Business Overview and Trends:    Worldwide storage demand continues to increase, driven by the proliferation of laptop and netbook PC's, intelligent internet storage, e-mail,cloud computing, and external storage devices, and new consumer applications (e.g. digital video recorders) now reaching higher volume.storage. 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' February 20112013 report, consumer electronic applicationsshipments of HDDsTFMHs, the HDD component that Veeco's equipment makes, are forecasted to grow at a CAGRcompound annual growth rate of 9.4%6.2% from 20102013 to 2015.2017.

While technologytechnological change continues in data storage, the industry has gone through a period of maturation, including vertical integration and consolidation. Veeco is focused on remaining a valued equipment supplier to the data storage industry and is well-aligned to the industry's technology requirements and demand for lower cost of ownership tools. Veeco has restructured and refocused its Data Storage business around core technologies where we have a leadership position and utilize a flexible manufacturing strategy. A recovery in capital spending by our key Data Storagedata storage customers in 2010, combined with the successful introduction of several new deposition tools to advance areal density, technologies, 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. The floods in Thailand resulted in an unexpected increase in equipment orders for Veeco in the fourth quarter of 2011 as customers rebuilt lost capacity. This led to record levels of Data Storage revenue in the first half of 2012. However, this significant equipment investment, combined with industry consolidation and a strong growthslowdown in hard drive unit demand in mid-2012 due to weak global economic conditions, caused Veeco's hard drive customers to freeze capacity additions. So, for the full year of 2012, Veeco's Data Storage revenue was flat and orders were well below recent historical averages. Industry overcapacity and weak order rates have continued into 2013 and it is unclear when hard drive manufacturers will need to make significant investments in 2010. Going forward, new equipment capacity.

Throughout industry cycles, Veeco continues to invest in developing 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 material. 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 systems are also sold for applications in MEMS, magnetic sensors, optical coatings and also to manufacturers of EUV photomasks. Veeco has put in place new product development, team has begunmarketing and sales strategies to identify non-hard drive marketgrow the non-Data Storage applications (such as LED) for our key Data Storage technologies.

Our Products

We have two business segments, LED & Solar and Data Storage. Net sales for these business segments are illustrated in the following table:table (dollars in thousands):

        See Note 11Please see note11. Foreign Operations, Geographic Area and Product Segment Information to our Consolidated Financial Statements for additional information regarding our reportable segments and sales by geographic location.

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LED & Solar

Metal Organic Chemical Vapor Deposition Systems:Systems ("MOCVD"):    We are one of the world's leading supplierssupplier of MOCVD technology. MOCVD production systems are used to make GaN-based devices (green and blue HB LEDs) and As/P-basedAsP-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 many other applications. Our As/PAsP MOCVD Systemssystems also are used to make high-efficiency concentrator solar cells.photovoltaics. In 2011, we introduced the industry's first production-proven multi-chamber MOCVD system, the MaxBright, for high-volume production of LEDs. Veeco sells MOCVD systems in either single or multi-chamber configurations. In 2012, Veeco introduced the TurboDisc MaxBright M, MHP and K465i HP GaN MOCVD systems, the industry's highest productivity, highest footprint efficiency platforms for LED manufacturing.

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 (e.g. power amplifiers, high electron mobility transistors or hetero-junction bipolar transistors) and a broad

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Our failure to successfully manage 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 increased 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 systems, solar depositionData Storage systems and ion sources. In addition, to supplement our current staffing and our planned hiring to meet the increased MOCVD order volume, we rely heavily on our outsourcing partners and utilize technical staffing firms and contractors to assist with certain aspects of MOCVD system installation at customer sites. In order to meet the substantial increase in MOCVD system orders, weWe are relying heavily on our outsourcing partners.partners to perform their contracted functions and to allow us the flexibility to adapt 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 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 effectively manage our outsourcing strategy or if third party providers do not perform as anticipated, we may not

realize the benefits of the 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.

The further reduction or elimination of foreign government subsidies and economic incentives may adversely affect the future order rate for our MOCVD equipment.

        TheWe generate a significant portion of our revenue in China. In recent years, the Chinese government has provided various incentives to encourage development of the LED 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 purchase 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 or be reduced at some point in the future. The further reduction or elimination of these incentives may result in a further reduction in future orders for our MOCVD equipment in this region which could materially and adversely affect our business, financial condition and results of operations.

A related risk is that many customers are using theuse 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 these facilities andor the cancellation of construction plans altogether, together with other related issues pertaining to customer readiness, could adversely impact the timing of our revenue recognition, could result in further order cancellations, and could have other negative effects on our financial condition and operating results.

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

As a global company with worldwide operations, we are subject to volatility and adverse consequences associated with worldwide economic downturns. As seen in recent years, in the event of a worldwide downturn, many of our customers may delay or delays could affectfurther reduce their purchases of our abilityproducts and services. If negative conditions in the global credit markets prevent our customers' access to meet customer demand, while the failure to estimate customer demand accuratelycredit,

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

        An increasing strategic focus for Veeco isthe loss of supplier privileges 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:

•

changes in demand for solar photovoltaic ("PV") products arising from, among other things, the costa customer and performance of solar PV technology comparedwe may be subject to other energy sources, such as oil, coal, wind, hydroelectric and nuclear;



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the adequacy of or changes in government energy policies, including the availability and amount of government subsidies or incentives for solar power;



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whether thin film solar technologies, in particular Copper Indium Gallium Selenide ("CIGS") technology, will be broadly adopted as a viable solar technology over various other intensely competitive alternatives; and



•

customers' and end-users' access to affordable financial capital.

        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 operationsliabilities, which could be materially and adversely affected.

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

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the need to attract, motivate and retain employees with skills and expertise in this new area;



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new and more diverse customers and suppliers, including some with limited operating histories, uncertain and/or limited funding and/or evolving business models;



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different customer service requirements;



•

new and/or different competitors with potentially more financial or other resources and industry experience; and



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third parties' intellectual property rights and our ability to secure necessary intellectual property rights with respect to our emerging technologies.

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

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 will determine which period revenue is reported in and can often shift the related booking or sale into the next quarter, which could adversely affectcause volatility in our reported resultsrevenue for the prior quarter.a given reporting period. 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.

All 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 2011the current year 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. Some 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, thatlocated primarily in a limited number of regions, which 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 52%34%, 52%41%, and 43%55% of our total net sales for the years ended 2012, 2011 and 2010, respectively. Customer consolidation activity involving some of our largest customers could result in 2010, 2009 and 2008, respectively.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.

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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 cyclicalityOur customer base is also highly concentrated in terms of geography, and the industries we serve directly affectsmajority of our business.

        Our business dependssales are to customers located in large parta limited number of countries. In 2012, 55% of our total net sales were to customers located in China, Taiwan and South Korea alone. Dependence upon the capital expendituressales emanating from a limited number of manufacturers in the HB LED, solarregions increases our risk of exposure to local difficulties 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 significantchallenges, such as those 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 decade. As a capital equipment provider, our revenues depend in large part on the spending patternsdevelopment and growth 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 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 or longer, followed in certain cases by a periodmonths. When coupled with the fluctuating amount of customertime required for shipment, installation and final acceptance, during which the customer evaluates the performance of the system and may potentially reject the system. As a result of the build cycle and evaluation periods, the period between a customer's initial purchase decision and revenue recognition on an orderour sales cycles often variesvary 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.

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Our material weaknesses in our internal control which have impeded, and may continue to impede, our ability to file timely and accurate periodic reports may cause us to incur significant additional costs and may continue to affect our stock price.

As a public company, we are required to file annual and quarterly periodic reports containing our financial statements with the SEC within prescribed time periods. As part of the NASDAQ stock exchange listing requirements, we are also required to provide our periodic reports, or make them available, to our stockholders within prescribed time periods. We have not been able to, and may continue to be unable to, produce timely financial statements or file these financial statements as part of a periodic report in a timely manner with the SEC or in compliance with the NASDAQ stock exchange listing requirements.

Until we complete these remaining filings, we expect to continue to face many of the risks and challenges we have experienced during our extended filing delay period, including:

•

continued concern on the part of customers, partners, investors, and employees about our financial condition and extended filing delay status, including potential loss of business opportunities;

•

additional significant time and expense required to complete our remaining filings and the process of maintaining the listing of our common stock on NASDAQ beyond the significant time and expense we have already incurred in connection with our accounting review to date;

•

continued distraction of our senior management team and our board of directors as we work to complete our remaining filings;

•

limitations on our ability to raise capital and make acquisitions; and

•

general reputational harm as a result of the foregoing.

If we continue to be unable to issue our financial statements in a timely manner, or if we are not able to obtain the required audit or review of our financial statements by our independent registered public accounting firm in a timely manner, we will not be able to comply with the periodic reporting requirements of the SEC and the listing requirements of the NASDAQ stock exchange. We have been notified by the NASDAQ stock exchange that our common stock listing on the NASDAQ stock exchange could be suspended or terminated on or after November 4, 2013 if we have not filed all of our outstanding periodic reports with the SEC by that date. If our common stock listing on the NASDAQ stock exchange is suspended or terminated, or if our stock is removed as a component of certain stock market indices, our stock price could materially suffer. In addition, the Company or members of our management could be subject to investigation and sanction by the SEC and other regulatory authorities. Any or all of the foregoing could result in the commencement of stockholder lawsuits against the Company. Any such litigation, as well as any proceedings that could in the future arise as a result of our filing delay and the circumstances which gave rise to it, may be time consuming and expensive, may divert management attention from the conduct of our business, could have a material adverse effect on our business, financial condition, and results of operations, and may expose us to costly indemnification obligations to current or former officers, directors, or other personnel, regardless of the outcome of such matter, which may not be adequately covered by insurance.

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

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of their investment. The market price of our common shares could fluctuate significantly in response to several factors, including among others:

•

general stock market conditions and uncertainty, such as those occasioned by a global liquidity crisis, negative financial news, and a failure of large financial institutions;

•

receipt of substantial orders or cancellations for our products;

•

actual or anticipated variations in our results of operations;

•

announcements of financial developments or technological innovations;

•

our failure to meet the performance estimates of investment research analysts;

•

changes in recommendations and/or financial estimates by investment research analysts;

•

strategic transactions, such as acquisitions, divestitures or spin-offs;

•

the occurrence of major catastrophic events;

•

if we continue to be unable to file our required periodic reports in a timely manner with the SEC;

•

if our stock is suspended or terminated from trading on the NASDAQ stock exchange; and

•

if our stock is removed as a component from certain stock market indices.

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.

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. While 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. The market price of our common shares could fluctuate significantly in response to several factors, including among others:

•

general stock market conditions and uncertainty, such as those occasioned by the global liquidity crisis, negative financial news, and the failure of several large financial institutions;



•

receipt of substantial orders or cancellations for our products;



•

actual or anticipated variations in our results of operations;



•

announcements of financial developments or technological innovations;



•

our failure to meet the performance estimates of investment research analysts;



•

changes in recommendations and/or financial estimates by investment research analysts;



•

strategic transactions, such as acquisitions, divestitures or spin-offs; and



•

the occurrence of major catastrophic events.

        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.

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

If we are subject to cyber-attacks we could incur substantial costs and, if such attacks are successful, could result in significant liabilities, reputational harm and disruption of our operations.

We manage, store and transmit various proprietary information and sensitive data relating to our operations. We may be subject to breaches of the information technology systems we use for these purposes. Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or those of third parties,

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create system disruptions, or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our systems or our products, or that otherwise exploit any security vulnerabilities.

The costs to address the foregoing security problems and security vulnerabilities before or after a cyber-incident could be significant. Our remediation efforts may not be successful and could result in interruptions, delays, or cessation of service, and loss of existing or potential customers that may impede our sales, manufacturing, distribution, or other critical functions. In addition, breaches of our security measures and the unapproved dissemination of proprietary information or sensitive data about us or our customers or other third parties, could expose us, our customers, or other third parties to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our reputation, or otherwise harm our business.

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:

•

difficulties and increased costs in integrating the personnel, operations, technologies and products of acquired companies;



•

diversion of management's attention while evaluating, pursuing, and integrating the business to be acquired;



•

potential loss of key employees of acquired companies, especially if a relocation or change in responsibilities is involved;



•

difficulties in managing geographically dispersed operations in a cost-effective manner;



•

lack of synergy or inability to realize expected synergies;



•

unknown, underestimated and/or undisclosed commitments or liabilities;



•

increased amortization expense relating to intangible assets; and



•

the potential impairment and write-down of amounts capitalized as intangible assets and goodwill as part of the acquisition, as a result of technological advancements or worse-than-expected performance by the acquired company.

Our inability to effectively manage these risks could materially and adversely affect our business, financial condition, and operating results. We are subject to many of these risks in connection with our recent acquisition of Synos.

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

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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.

        At December 31, 2010, we had $52.0 million of goodwill and $59.2 million of intangible and long-lived assets, including $42.3 million of property, plant and equipment. 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.

We may not receive the escrowed proceeds from the sale of our Metrology business.

        In connection with the sale of our Metrology business to Bruker Corporation ("Bruker") on October 7, 2010, we agreed to indemnify Bruker, subject to certain limitations, for certain losses arising out of breaches of the representations, warranties and covenants that we made in the Stock Purchase Agreement and in certain related documents. To secure these indemnification obligations, we agreed to deposit into escrow $22.9 million of the consideration paid to us by Bruker, such funds to remain in escrow for twelve months following the closing. In the event of any qualifying indemnification claims, and after following the procedures set forth in the escrow agreement, all or a portion of the escrowed amount may be released and returned to Bruker to satisfy such claims. This would result in a reduction in the purchase price received for the sale of our Metrology business, which could result in a material adverse effect on our financial condition.

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. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Application of Critical Accounting Policies" below. New 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.Act and any delays or difficulty in satisfying these requirements or negative reports concerning our internal controls could adversely affect our future results of operations and our stock price.

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, time-consuming and time-consuming. Although ouris subject to significant judgment. Our most recent assessment, testing, and evaluation resulted in our conclusion that as of December 31, 2010, our

internal controls over financial reporting were effective,not effective. While we have taken steps to address the deficiency, we cannot predict when the deficiency will be remediated or 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 locations which could be materially and adversely impacted in the event of a natural disaster or other significant disruption.

Our operations 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

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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, thatany of which a holder of our common stock might not consider in itsthe holder's best interest. These measures include:

•

"blank check" preferred stock;



•

classified board of directors;



•

shareholder rights plan or "poison pill;" and



•

certain certificate of incorporation and bylaws provisions.

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.

New regulations related to conflict minerals will force us to incur additional expenses, and may make our supply chain more complex, and may result in damage to our relationships with customers.

On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC adopted new requirements for companies that manufacture products that contain certain minerals and metals, known as conflict minerals. These rules require public companies to perform diligence and to report annually to the SEC whether such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of minerals we use in the

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manufacture of our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals used in our products. Given the complexity of our supply chain, we may not be able to ascertain the origins of these minerals used in our products through the due diligence procedures that we implement, which may harm our reputation. We may also face difficulties in satisfying customers who may require that our products be certified as conflict mineral free, which could harm our relationships with these customers and lead to a loss of revenue. These new requirements could limit the pool of suppliers that can provide conflict-free minerals, and we may be unable to obtain conflict-free minerals at competitive prices, which could increase our costs and adversely affect our manufacturing operations and our profitability.

Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

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

(1)

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

(2)

We vacatedhave the option to renew this facility duringlease for two consecutive two year terms and also have the fourth quarteroption to purchase this facility.

Table of 2010 in conjunction with the sale of our Metrology segment to Bruker. We are currently leasing this office to Bruker in accordance with a transition services agreement which will expire on October 6, 2011.

The St. Paul, Minnesota facility is subject to a mortgage which, atas of December 31, 2010,2012, had an outstanding balance of $2.9$2.4 million. We also lease small offices in Santa Clara, California Chelmsford, Massachusetts and Edina, Minnesota for sales and service. Our foreign sales and service subsidiaries lease office space in England, France, Germany, Japan, South 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, underUnder certain circumstances, bewe could have been 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 beenare indemnified by the former owner for any liabilities we may incur in excess of $250,000 with respect to any such remediation. No comprehensive plan has been required to date. Even without consideration of such indemnification, we dodid not believe that any material loss or expense iswas probable in connection with any remediation plan that may be proposed. We reevaluated this exposure and concluded that there is no longer any potential exposure from this matter.

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 Santa Barbara, California in which our former Metrology operations were located (which business was sold to Bruker Corporation ("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 was 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

Veeco and certain other parties were named as defendants in a lawsuit filed on April 25, 2013 in the Superior Court of California, County of Sonoma. The plaintiff in the lawsuit, Patrick Colbus, seeks unspecified damages and asserts claims that he suffered burns and other injuries while he was cleaning a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleges, among other things, that the molecular beam epitaxy system was defective and that Veeco failed to adequately warn of the potential risks of the system. Although Veeco believes this lawsuit is without merit and intends to defend vigorously against the claims, and although Veeco maintains insurance which may apply to this matter, the lawsuit could result in substantial costs, divert management's attention and resources from our operations and negatively affect our public image and reputation.

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.    (Removed and Reserved).Mine Safety Disclosures

Not Applicable

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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 20102012 and 20092011 high and low closing bid prices by quarter are as follows:

On February 22, 2011,October 24, 2013, the closing bid price for our common stock on the NASDAQ National Market was $47.04$31.08 and we had 144120 shareholders of record.

        As of December 31, 2010 we had convertible notes of $105.6 million. The notes accrue interest at 4.125% per annum and mature on April 15, 2012. The notes meet the criteria for determining the effect of the assumed conversion using the treasury stock method of accounting, since we have the ability and the intent to settle the principal amount of the notes in cash. Under the terms of the notes, we may pay the principal amount of converted notes in cash or in shares of common stock. We intend to pay such amounts in cash. Holders may convert the 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 equal to or above 130% of the conversion price for at least 20 trading days during the final 30 trading days of the immediately preceding fiscal quarter. At the end of the fourth quarter of 2010, our common stock was trading at prices equal to or above 130% of the conversion price for the specified period and, as a result, the convertible notes are convertible during the first quarter of 2011. Accordingly, the balance of the convertible notes at December 31, 2010 has been classified as current in our Consolidated Balance Sheet. On February 14, 2011, at the option of the holder, $7.5 million of notes were tendered for conversion at a price of $45.95 per share 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. Accordingly, in the first quarter of 2011 we will take a charge for the related unamortized debt discount totaling $0.3 million. We pay interest on these notes on April 15 and October 15 of each year.

We have not paid dividends on our common stock. The Board of Directors will determine future dividend policy based on our consolidated results of operations, financial condition, capital requirements and other circumstances.

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Stock Performance Graph

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

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

*

$100 invested on 12/31/0507 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.

Copyright© 20112013 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

ASSUMES $100 INVESTED ON DEC. 31, 20052007
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31

Treasury StockTable of Contents

        The following table contains the Company's stock repurchases of equity securities in the fourth quarter of 2010:

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.

(1)

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 resultsTable 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 is held in escrow and is 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. 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.Contents

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

(2)

Operating loss and net loss from continuing operations include restructuring expenses of $4.8 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 segment and a $1.5 million inventory write-off associated with Data Storage legacy products.

(3)

Operating loss and net loss from continuing operations include a $51.4 million asset impairment charge of which $30.4 million was related to goodwill and $21.0 million was related to other long-lived assets, a restructuring charge of $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 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. Net loss from continuing operations also reflects a net gain from the early extinguishment of debt in the amount of $3.8 million.

(4)

Operating loss and net loss from continuing operations include restructuring expenses of $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 management's cost reduction plan. Net loss from continuing operations also reflects a net gain from the early extinguishment of debt in the amount of $0.7 million.

(5)

Operating income and net loss from continuing operations are net of a write-off of $1.2 million of in-process research and development projects related to the Fluens acquisition. Net loss from continuing operations also reflects a net gain from the early extinguishment of debt in the amount of $0.3 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", "we", "us", and "our", unless the context indicates otherwise) creates Process Equipment that enables technologies for a cleaner and more productive world. We design, manufacture and market equipment primarily sold to make equipment to developLEDs and manufacture light emitting diodes ("LEDs"), solar panels, hard-disk drives, as well as for concentrator photovoltaics, power semiconductors, wireless components, and other devices. We havemicro-electromechanical systems ("MEMS").

Veeco develops highly differentiated, "best-in-class" Process Equipment for critical performance steps. Our products feature leading technology, positionslow cost-of-ownership and high throughput. Core competencies in our two segments:advanced thin film technologies, over 200 patents, and decades of specialized process know-how helps us to stay at the forefront of these demanding industries.

Veeco's LED & Solar segment designs and Data Storage.

        In our LED & Solar segment, we design and manufacturemanufactures metal organic chemical vapor deposition ("MOCVD") systems,and molecular beam epitaxy ("MBE") systems Copper, Indium, Gallium, Selenide ("CIGS") deposition systems and thermal deposition sources which we sellcomponents sold to manufacturers of high brightness LEDs, ("HB LED")wireless components, power semiconductors, and solar panels,concentrator photovoltaics, as well as to scientific research customers.R&D applications.

        In ourVeeco's Data Storage segment we design designs and manufacturemanufactures systems used to create thin film magnetic heads ("TFMH"s) that read and write data on hard disk drives. These include ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, chemical vapor deposition, and slicing, dicing and slicinglapping systems. While our systems are primarily usedsold to create thin filmhard drive customers, they also have applications in optical coatings, MEMS and magnetic headssensors, and extreme ultraviolet ("TFMHs"EUV") that read and write data on hard disk drives.lithography.

        WeAs of September 30, 2013, Veeco's approximately 780 employees support our customers through product and process development, training, manufacturing, and sales and service sites in the U.S., South Korea, Taiwan, China, Singapore, Japan, Europe and other locations.

Veeco Instruments Inc. was organized as a Delaware corporation in 1989.

Summary of Results for 20102012

        In 2010, Veeco reported the best year in its history in terms of revenue and profitability. Selected financial highlights include:

•

Revenue increased 231%decreased 47.3% to $933.2$516.0 million in 20102012 from $282.4$979.1 million in 2009.2011. LED & Solar revenues increased 289%decreased 56.1% to $797.9$363.2 million from $205.2$827.8 million in 2009.2011. Data Storage revenues increased 75%1.0% to $135.3$152.8 million from $77.2$151.3 million in 2009;2011;



•

Orders were up 108%down 52.1%, to $1,121.6$391.9 million in 20102012, compared to $538.3$817.9 million in 2009;2011;



•

Our gross margin increaseddecreased, to 48%41.7%, in 2012 compared to 48.4% for 2010 from 39% in 2009.2011. Gross margins in LED & Solar increaseddecreased from 48.0% in 2011 to 47% from 40% in 2009, and40.9%. Data Storage gross margins increasedalso decreased from 50.7% to 49% from 37% in 2009.43.7%.



•

Our selling, general and administrative expenses increaseddecreased to $91.8$73.1 million, from $62.2$95.1 million in 2009.2011. Selling, general and administrative expenses were 10%14.2% of net sales in 2010,2012, compared with 22% of net sales9.7% in 2009;2011;



•

Our research and development expenses increaseddecreased to $71.4$95.2 million from $43.5$96.6 million in 2009.2011. Research and development expenses were 8%18.4% of net sales in 2010,2012, compared with 15%9.9% in 2009;2011;



•

Net income (loss) from continuing operations attributable to Veeco in 20102012 was $260.5$26.5 million compared ($14.2)to $190.5 million in 2009;2011;



•

Diluted net income from continuing operations per share was $0.68 compared to $4.63 in 2011.




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Business Highlights of 2012

Veeco's 2012 revenues of $516.0 million were the lowest level since 2009, primarily due to the equipment overcapacity situation in the LED industry. All of Veeco's end markets were negatively impacted by the weak global economy and our customers' hesitancy to add manufacturing capacity. A bright spot for the Company in 2012 was the growth of our services business from $97 million to $123 million, a 27% increase. One of Veeco's top goals for 2012 was to grow our services business in both the LED & Solar and Data Storage segments, as we see this as a way to not only grow revenues but to also improve customer satisfaction. Other key accomplishments for the Company in 2012 included:

•

We maintained or gained market share in all of our core technologies;



•

Net income (loss) from continuing operations attributableWe penetrated new markets (such as MEMS, power electronics, and OLED) and shipped tools to Veeco per share was $6.13 compared to ($0.44)new customers in 2009;all key regions;



•

We delivered on our target for shipments, met our annual guidance of more than $500 million in revenue and generated approximately $87 million in cash, cash equivalents and short-term investments;



•

We generated net cash of $96.6 million during 2010, principally dueeffectively managed operations and moved quickly in response to $45.2 million in proceeds from stock option exercises, $23.3 million of excess tax benefits relating to stock option exercises, and cash provided by operations of $194.2 million, partially offset by treasury stock repurchases of $38.1 million and restricted stock tax withholdings of $4.6 million and cash used in investing activities of $121.6 million, which is net of $225.2 million in net proceeds from the sale of our Metrology segment.changing business conditions.

Business Highlights of 2010

        Veeco's 2010 results were at record levels, with revenue of $933 million and net income from continuing operations of $261 million. These results were achieved through a combination of world-class products, a focus on high-growth market opportunities, operational excellence, our flexible manufacturing strategy, and a deep commitment to satisfying our global customers.

•

Veeco increased growth and profitability in our LED & Solar segment, which is also referred to as our "green" equipment business. In LED we penetrated new customers, significantly increased our market share, increased R&D investment, launched a next-generation MOCVD system and ramped our manufacturing capacity utilizing a scalable, outsourced model. In Solar we continued to improve the process development of our CIGS product line.



•

Veeco's Data Storage business delivered record levels of profitability over the last 5 years as a result of a turnaround in business conditions combined with our flexible manufacturing strategy.

Outlook

        With starting backlogThrough the first nine months of $555 million, and anticipating strong first half 2011 bookings,2013, we currently forecasthave not seen any clear signs that Veeco's 2011 revenues will be greater than $1 billion. We are optimistic about the future and believe that we are well positioned from a technology, product and operational standpoint to grow our LED & Solar and Data Storage businesses in 2011 and beyond.

        As we look toward the future, we believe that the HB LED industry will continue its multi-year MOCVD tool investment cycle as HB LEDs increase their penetration in backlighting applications and general illumination. We are also seeing strong interestcustomer overcapacity in our thermal deposition solutions for the manufacturing of CIGS solar cells,MOCVD business and believe that Veeco is well positioned to increase our business in this market. In addition, overall business conditionsweak end market demand in our Data Storage segment appearwill improve in the near term. Our customers continue to be continuingguard spending tightly and limit capacity expansions. The LED industry is still in an equipment digestion period and near term visibility remains limited. With few MOCVD deals available, we have also experienced increased pricing pressure. In our Data Storage segment, our hard drive customers are experiencing weak end market demand which has resulted in excess manufacturing capacity, therefore they are only making select technology purchases. While our overall bookings have continued to improvedecline in 2013, bookings in our Data Storage segment have been relatively flat for the first nine months of 2013 compared to the first nine months of 2012.

While the Company has been actively working to reduce costs during this extended business downturn, pricing pressure and withpersistent low volumes in MOCVD represent significant headwinds and have caused the Company to move to a strong starting-year backlog, we are forecasting revenue growthloss in this business in 2011.2013.

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

Out of Period Adjustment

As a result of our accounting review we identified errors in the consolidated financial statements related to prior periods. The errors were primarily attributable to the misapplication of U.S. GAAP for recognizing revenue and related costs under multiple element arrangements and accounting for warranties. We assessed the materiality of these errors, both quantitatively and qualitatively, and concluded that these errors were not material, individually or in the aggregate, to our consolidated financial statements in this or any other prior periods. During the course of our review, we identified

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net cumulative errors which overstated cumulative net income from continuing operations through December 31, 2011 by $0.6 million. As a result, in 2012 we recorded adjustments to correct all prior periods resulting in a decrease in income from continuing operations of $0.6 million.

Years Ended December 31, 20102012 and 20092011

The following table shows our Consolidated Statements of Operations,Income, percentages of sales and comparisons between 20102012 and 20092011 (dollars in 000s)thousands):

*

Not Meaningful

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Net Sales and Orders

Net sales of $933.2$516.0 million for the year ended December 31, 2010,2012, were up 230.5%down 47.3% compared to 2009.2011. The following is an analysis of sales and orders by segment and by region (dollars in 000s)thousands):

By segment, LED & Solar sales decreased 56.1% in 2012 primarily due to a 62.0% decrease in MOCVD reactor shipments from the prior year as a result of industry overcapacity following over two years of strong customer investments. Data Storage sales increased slightly by 1.0%, primarily due to an increase in shipments to replace equipment destroyed by flooding in customer facilities in Thailand offset by reduced demand due to our customers' hesitancy to add manufacturing capacity during weak global economic conditions. LED & Solar sales represented 70.4% of total sales for the year ended December 31, 2012, down from 84.5% in the prior year. Data Storage sales accounted for 29.6% of net sales, up from 15.5% in the prior year. By region, net sales decreased by 52.4% in Asia Pacific ("APAC"), primarily due to lower MOCVD sales to LED customers. Sales in the Americas and Europe, Middle East and Africa ("EMEA") also decreased 17.2% and 27.6%, respectively, due to reduced end market demand resulting from the weak global economy. We believe that there will continue to be year-to-year variations in the geographic distribution of sales.

Orders in 2012 decreased 52.1% compared to 2011, primarily attributable to a 53.1% decrease in LED & Solar orders that were principally driven by a decline in MOCVD bookings due to industry overcapacity. After hitting a peak in the second quarter of 2011, Veeco's bookings slowed dramatically in the second half of 2011 which continued throughout 2012. Data Storage orders decreased 48.1% as strong prior year orders from hard drive customers recovering from the flood in Thailand resulted in those customers being over-invested in capacity. In addition, the industry appears to have frozen further investments as end-user hard drive demand has slowed.

Our book-to-bill ratio for 2012, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was 0.76 to 1 compared to 0.84 to 1 in 2011. Our backlog as of December 31, 2012 was $150.2 million, compared to $332.9 million as of December 31, 2011. During the year ended December 31, 2012, we recorded net backlog adjustments of approximately $58.5 million. The adjustments consisted of $42.0 million related to orders that no longer met our booking criteria, primarily due to contracts being extended past a twelve month delivery time frame, and $15.4 million of order cancellations and order adjustments of $1.1 million. For certain sales arrangements we require a deposit for a portion of the sales price before shipment. As of December 31, 2012 and 2011, we had deposits of $32.7 million and $57.1 million, respectively.

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Gross Profit