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Veeco Instruments Inc. and Subsidiaries Index to Consolidated Financial Statements and Financial Statement Schedule

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



FORM 10-K

(Mark One)  

ý

 

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


For the fiscal year ended December 31, 2010
2012


OR

o

 

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

For the transition period from            to            .

Commission file number 0-16244



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

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

Terminal Drive
Plainview, New York

(Address of Principal Executive Offices)

 

11803
(Zip Code)

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

Website:www.veeco.com

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

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

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

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

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

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ýo    No oý

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by references in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the common stock on June 27, 201028, 2013 as reported on The Nasdaq National Market, was $1,566,934,944.$1,376,219,104. Shares of common stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded from this computation in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

At February 22, 2011, the Registrant had 40,616,024 outstanding39,246,279 shares of common stock.stock were outstanding as of the close of business on October 24, 2013.

DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 19, 2011 are incorporated by reference into Part III of this Annual Report on Form 10-K.


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SAFE HARBOR STATEMENT
Safe Harbor Statement

This Annual Reportannual report on Form 10-K (the "Report") contains forward-looking statements within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1995.1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Discussions containing such forward-looking statements may be found in Part I. Items 1, 3, 7 and 7A hereof, as well as within this Report generally. In addition, when used in this Report, the words "believes," "anticipates," "expects," "estimates," "plans," "intends", "will" and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. These risks and uncertainties include, without limitation, the following:


Consequently, such forward-looking statements should be regarded solely as the Company's current plans, estimates and beliefs.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

Safe Harbor Statement

2

Explanatory Note


4

PART I


7

Item 1. Business


7

Item 1A. Risk Factors


15

Item 1B. Unresolved Staff Comments


29

Item 2. Properties


29

Item 3. Legal Proceedings


30

Item 4. Mine Safety Disclosures


30

PART II


31

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


31

Item 6. Selected Consolidated Financial Data


33

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


34

Item 7A. Quantitative and Qualitative Disclosures about Market Risk


55

Item 8. Financial Statements and Supplementary Data


56

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


56

Item 9A. Controls and Procedures


56

Item 9B. Other Information


58

PART III


59

Item 10. Directors, Executive Officers, and Corporate Governance


59

Item 11. Executive Compensation


69

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


94

Item 13. Certain Relationships, Related Transactions and Director Independence


95

Item 14. Principal Accounting Fees and Services


96

PART IV


98

Item 15. Exhibits and Financial Statement Schedules


98

SIGNATURES


102

INDEX TO EXHIBITS


104

Financial Statement Schedule


F-1

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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:


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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):



 Year ended December 31,  For the year ended December 31, 


 2010 2009 2008  2012 2011 2010 

 (Dollars in millions)
 

Segment Analysis

 

LED & Solar

LED & Solar

 $797.9 $205.2 $165.8  $363,181 $827,797 $795,565 

% of net sales

 85.5% 72.7% 52.7% 70.4% 84.5% 85.5%

Data Storage

Data Storage

 $135.3 $77.2 $149.1  152,839 151,338 135,327 

% of net sales

 14.5% 27.3% 47.3% 29.6% 15.5% 14.5%

Total net sales

 $933.2 $282.4 $314.9 

Total

 $516,020 $979,135 $930,892 

        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



array of MBE components and systems forcompound semiconductor materials research and production applications and thermal evaporation sources for the CIGS solar industry.applications.

        Web and Glass Coaters for Thin Film Solar Cells:    We are a manufacturer of web deposition equipment used to make CIGS solar cells. We have expanded our product line to include "best of breed" solutions that perform the critical CIGS deposition steps on flexible and rigid (glass) substrates. We believe that our FastFlex™ and FastLine™ systems offer high throughput and excellent performance for thin film solar cell production, contributing to a lower cost of ownership for our customers.Data Storage

Data Storage

Ion Beam Deposition ("IBD") Systems:    Our SPECTOR-HT™ IBD systems and NEXUS® IBD systems utilize ion beam technology to deposit precise layers of thin films andfilms. The NEXUS systems may be included on our cluster system platform to allow either parallel or sequential etch/deposition processes. IBD systems deposit high purity thin film layers and provide maximum uniformity and repeatability. In addition to IBD systems, we provide a broad array of ion beam sources. These technologies are applicable in the hard drive industry as well as for optical coatings and other end markets.

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

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

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

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

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

Optical Coatings:    Our SPECTOR-HT IBD system offers manufacturers improvements in target material utilization, optical endpoint control and process time for cutting-edge optical interference coating applications.


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Service and Sales

We sell our products and services worldwide primarily through various strategically located sales and service facilities in the U.S., Europe and Asia Pacific, and we believe that our customer service organization is a significant factor in our success. In 2010 and 2011, we significantly expanded our footprint in Asia to bring training, technology support and R&D closer to our customers through new sites in China, Taiwan and South Korea. We provide service and support on a warranty, service contract or an individual service-call basis. We offer enhanced warranty coverage and services, including preventative maintenance plans, on-call and on-site service plans and other comprehensive service arrangements, product and application training, consultation services, and a 24-hour hotline service for certain products. We believe that offering timely support creates stronger relationships with customers and provides us with a significant competitive advantage. Revenues from the sale of parts, service and support represented approximately 7%21%, 16%9% and 21%7% of our net sales for the years ended December 31, 2010, 20092012, 2011 and 2008,2010, respectively. Parts and consumables sales represented approximately 5%17%, 9%7% and 14%5% of our net sales for those years, respectively, and service and support sales were 4%, 2% and 2%, 7% and 7%, respectively.


Customers

We sell our products to many of the world's major HB LED, solar and hard drive manufacturers as well as to customers in other industries, research centers, and universities. We rely on certain principal customers for a significant portion of our sales. Sales to LG InnotekWestern Digital in our Data Storage segment accounted for more than 10% of Veeco's total net sales in 2012, Elec-Tech International Co. Ltd. and Seoul OptoDevice Co. Ltd.Sanan Optoelectronics in our LED and Solar segment each accounted for more than 10% of Veeco's total net sales in 2010,2011 and LG Innotek Co. Ltd., Seoul OptoDevice Co. Ltd. and Seagate Technology, Inc.Sanan Optoelectronics in our LED and Solar segment each accounted for more than 10% of Veeco's total net sales in 2009 and sales to Seagate Technology, Inc. accounted for 10% or more of Veeco's total net sales in 2008.2010. If any principal customer discontinues its relationship with us or suffers economic difficulties, our business, prospects, financial condition and operating results could be materially and adversely affected.

Research and Development and Marketing

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

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

Our research and development expenses were approximately $71.4$95.2 million, $43.5$96.6 million and $39.6$56.9 million, or approximately 8%18%, 15%10% and 13%6% of net sales for the years ended December 31, 2010, 20092012, 2011 and 2008,2010, respectively. These expenses consisted primarily of salaries, project materialmaterials and other product development and enhancement costs.

Suppliers

We currently outsource 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. We primarily rely on several suppliers for the manufacturing of these systems. We plan to maintain internal manufacturing capability for these systems at least until such time as we have qualified one or more alternate suppliers to perform this manufacturing. The failure of our present suppliers to meet their contractual obligations under our supply arrangements and our inability to make alternative arrangements or resume the manufacture of these systems ourselves could have a material adverse effect on our revenues, profitability, cash flows and relationships with our customers.

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

Product Development, Marketing and Operations

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

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



management philosophies, we believe that we have increased our competitiveness and are well-positioned for future growth.Table of Contents

Backlog

        Our backlog increased to $555.0 million as of December 31, 2010 from $377.3 million as of December 31, 2009. During the year ended December 31, 2010, we experienced net backlog adjustments of approximately $10.7 million, consisting of $12.5 million for order adjustments ($10.2 million is related to our Solar and MBE businesses) offset by $1.8 million of adjustments related to foreign currency translation.

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

Our backlog decreased to $150.2 million as of December 31, 2012 from $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. Our backlog at September 30, 2013 remained relatively flat compared to December 31, 2012.

Competition

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

        We compete with manufacturers such as Aixtron,Some of our competitors include, but are not limited to: Aixtron; Canon Anelva Applied Materials, Centrotherm,Corporation; DCA Instruments; Leybold Optics; Oerlikon Balzers; Oxford Instruments; Toyo Nippon Sanso, OerlikonSanso; and Riber.

Intellectual Property

Our success depends in part on our proprietary technology. Although we attempt to protect our intellectual property rights through patents, copyrights, trade secrets and other measures, there can be no assurance that we will be able to protect our technology adequately or that competitors will not be able to develop similar technology independently.

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

We also rely upon trade secret protection for our confidential and propriety information. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or that we can meaningfully protect our trade secrets. In addition, we cannot be certain that we will not be sued by third parties alleging that we have infringed their patents or other intellectual property rights. If any third party sues us, our business, results of operations or financial condition could be materially adversely affected.

Employees

As of December 31, 2010,September 30, 2013, we had 900approximately 780 employees of which there were 192and contractors 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. We had 159 in manufacturing and testing, 10988 in sales and marketing, 153155 in service 33 inand product support, 274233 in


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engineering, research and development and 139122 in information technology, general administration and finance. In addition,



we also had 12323 temporary employees/outside contractors.

As of December 31, 2012, we had approximately 853 employees, of which there were 161 in manufacturing and testing, 101 in sales and marketing, 173 in service and product support, 263 in engineering, research and development and 124 in information technology, general administration and finance. In addition, we also had 31 temporary employees/outside contractors, which support our variable cost strategy. The success of our future operations depends in large part on our ability to recruit and retain engineers, technicians and other highly-skilled professionals who are in considerable demand. We feel that we have adequate programs in place to attract, motivate and retain our employees. We plan to monitor industry practices to make sure that our compensation and employee benefits remain competitive. However, there can be no assurance that we will be successful in recruiting or retaining key personnel. We believe that our relations with our employees are good.

Available Information

We file annual, quarterly and current reports, information statements and other information with the Securities and Exchange Commission (the "SEC"). The public may obtain information by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site iswww.sec.gov. www.sec.gov. For quarterly and annual reports, only those reports that were required to be filed through December 31, 2012 are available as of the date of this report.

Internet Address

We maintain a website where additional information concerning our business and various upcoming events can be found. The address of our website iswww.veeco.com. www.veeco.com. We provide a link on our website, under Investors—Financial—SEC Filings, through which investors can access our filings with the SEC, including our filed annual report on Form 10-K, filed quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports. These filings are posted to our website, as soon as reasonably practicable after we electronically file such material with the SEC. For quarterly and annual reports, only those reports that were required to be filed through December 31, 2012 are available as of the date of this report.


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Item 1A.    Risk Factors

Risk Factors That May Impact Future Results

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

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

Market conditions relative to the segments in which we operate have deteriorated significantly in many of the countries and regions in which we do business, and may remain depressed for the foreseeable future. Our MOCVD order volumes decreased significantly in the latter part of 2011, remained depressed through 2012 and 2013, and may continue to remain at low levels. Foreign government incentives designed to encourage the development of the LED industry have been curtailed, and the demand for our MOCVD products has softened. We have experienced and may continue to experience customer rescheduling and, to a lesser extent, cancellations of orders for our products. Continuing adverse market conditions relative to our products would negatively impact our business, and could result in:

further reduced demand for our products;

further rescheduling and cancellations of orders for our products, resulting in negative backlog adjustments;

increased price competition and lower margin for our products;

increased competition from sellers of used equipment or lower-priced alternatives to our products;

increased risk of excess and obsolete inventories;

increased risk in the collectability of amounts due from our customers;

increased risk in potential reserves for doubtful accounts and write-offs of accounts receivable;

disruptions in our supply chain as we reduce our purchasing volumes and limit our contract manufacturing operations; and

higher operating costs as a percentage of revenues.

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

Timing of market adoption of LED technology for general lighting is uncertain.

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


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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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product orders in these channels may decrease which could result in excess or obsolete inventory and/or liabilities tolower revenue. Likewise, if our suppliers forface challenges in obtaining credit, in selling their products no longer needed.

        Our business depends onor otherwise in operating their businesses, they may become unable to continue to offer the materials we use to manufacture our ability to supply equipment, services and related products that meetproducts. With the rapidly changing technical and volume requirements of our customers, which depends in part on the timely delivery of parts, components and subassemblies (collectively, parts) from suppliers. Some key parts may be subject to long lead-times and/or obtainable only from a single supplier or limited group of suppliers, and some sourcing or subassembly is provided by suppliers located in countries other than the United States. We may experience significant interruptions of our manufacturing operations, delaysrecent downturn in our ability to deliver products or services, increased costs or customer order cancellations as a result of:

        In addition, our need to rapidly increase our business and manufacturing capacity to meet unanticipated increases in demand may be limited by working capital constraints of our suppliersMOCVD segment, we have experienced, and may exacerbate any interruptionscontinue to experience, lower than anticipated order levels, cancellations of orders in our manufacturing operationsbacklog, rescheduling of customer deliveries, and supply chain and the associated effect on our working capital. Moreover, if actual demand for our products is different than expected,



we may purchase more/fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. The volatility of demand for capital equipment increases capital, technical and other risks for companies in the supply chain. Any orattendant pricing pressures, all of these factors could materially and adversely affect our business, financial condition and results of operations.

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

        We currently outsource certain functions to third parties, including the manufacture of all or substantially all of our new MOCVD systems, data storage systems, solar deposition systems and ion sources. We primarily rely on several suppliers for the manufacturing of these systems. We plan to maintain internal manufacturing capability for these systems at least until such time as we have qualified one or more alternate suppliers to perform this manufacturing. The failure of our present suppliers to meet their contractual obligations under our supply arrangements and our inability to make alternative arrangements or resume the manufacture of these systems ourselves could have a material adverse effect on our revenues, profitability, cash flows, and relationships with our customers.

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

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

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

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

Customer purchase orders are subject to cancellation or rescheduling by the customer, generallysometimes with limited or no penalties. Often, we have incurred expenses prior to such cancellation without adequate monetary compensation. During theWe adjust our backlog for such cancellations, contract modifications, and delivery delays that result in a delivery period in excess of one year, ended December 31, 2010, we experienced net backlog adjustments of approximately $10.7 million, consisting of $12.5 million for order adjustments ($10.2 million is related to our Solaramong other items. The current and MBE businesses), offset by $1.8 million of adjustments related to foreign currency translation. With our current high backlog, aforecasted downturn in one or more of our served marketsMOCVD reporting unit could result in a significant increasefurther increases in order cancellations and/or rescheduling.postponements.

We record a provision for excess and obsolete inventory based on historical and future usage trends and other factors including the consideration of the amount of backlog we have on hand at any particular point in time. If our backlog is canceled or modified, our estimates of future product demand may prove to be inaccurate, in which case we may have understated the provision required for excess and obsolete inventory. A weaker than expected business environment has caused us to record a greater expense for slow moving items in 2012 compared to 2011 which negatively impacted our gross margin for 2012. In the future, if we determine that our inventory is overvalued, we will be required to recognize such costs in our financial statements at the time of such determination. In addition, we place orders with our suppliers based on our customers' orders to us. If our customers cancel their orders with us, we may not be able to cancel our orders with our suppliers and may be required to take a charge for these cancelled commitments to our suppliers. Any such charges could be material to our results of operations and financial condition.

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

Our business depends on our ability to accurately forecast and supply equipment, services and related products that meet the rapidly changing technical and volume requirements of our customers, which depends in part on the timely delivery of parts, components and subassemblies (collectively, parts) from suppliers. The current uncertain worldwide economic conditions and market instabilities make it


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increasingly difficult for us (and our customers and our suppliers) to accurately forecast future product demand. If actual demand for our products is different than expected, we may purchase more/fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. If we overestimate the demand for our products, excess inventory could result which could be subject to heavy price discounting, which could become obsolete, and which could subject us to liabilities to our suppliers for products no longer needed. In addition, the volatility of demand for capital equipment increases capital, technical and other risks for companies in the supply chain.

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

the failure or inability of suppliers to timely deliver quality parts;

volatility in the availability and cost of materials;

difficulties or delays in obtaining required import or export approvals;

information technology or infrastructure failures;

natural disasters (such as earthquakes, tsunamis, floods or storms); or

other causes (such as regional economic downturns, pandemics, political instability, terrorism, or acts of war) could result in delayed deliveries, manufacturing inefficiencies, increased costs or order cancellations.

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

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

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


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

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

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

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

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



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

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

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

        As a global company with worldwide operations, we are subject to volatility and adverse consequences associated with worldwide economic downturns. In the event of a worldwide downturn, many of our customers may delay or further reduce their purchases of our products and services. If negative conditions in the global credit markets prevent our customers' access to credit, product orders in these channels may decrease which could result in lower revenue. Likewise, if our suppliers face challenges in obtaining credit, in selling their products or otherwise in operating their businesses, they may become unable to continue to offer the materials we use to manufacture our products. Our results of operations would be further adversely affected if we were to experience lower than anticipated order levels, cancellations of orders in backlog, postponement of customer deliveries, or pricing pressure as a result of a prolonged slowdown.

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

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

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

Approximately 84%, 90%, and 90% of our 2010 net sales 79% of our 2009 net sales and 58% of our 2008 net salesfor the years ended 2012, 2011 & 2010, respectively were generated from sales outside of the United States. We expect sales from non-U.S. markets to continue to represent a significant, and possibly increasing, portion of our sales in the future. Our



non-U.S. sales and operations are subject to risks inherent in conducting business abroad, many of which are outside our control, including:

        ManyThese challenges, many of these challengeswhich are present inassociated with sales into China, which accounted for approximately 30% of our total 2010 revenues. These conditions in China and other foreign economies may continue and recur again in the future, which could have a material adverse effect on our business. In addition, political instability, terrorism, acts of war or epidemics in regions where we operate may adversely affect or disrupt our business and results of operations.

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

We may be exposed to liabilities under the Foreign Corrupt Practices Act and any determination that we violated these or similar laws could have a material adverse effect on our business.

We are subject to the Foreign Corrupt Practices Act ("FCPA") and other laws that prohibit improper payments or offers of payments to foreign government officials, as defined by the statute, for the purpose of obtaining or retaining business. In addition, many of our customers have policies limiting or prohibiting us from providing certain types or amounts of entertainment, meals or gifts to their employees. It is our policy to implement safeguards to discourage these practices by our employees and representatives. However, our safeguards may prove to be ineffective and our employees, consultants, sales agents or distributors may engage in conduct for which we may be held responsible. Violations of the FCPA or similar laws or similar customer policies may result in severe criminal or civil sanctions or



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:

        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:

        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:

        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:

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:

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:

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

Plainview, NY

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

Somerset, NJ

  80,000 No LED & Solar

Somerset, NJ

38,000NoLED & Solar

St. Paul, MN(1)

  125,000111,000 Yes LED & Solar

Tucson, AZ(2)Yongin-city, South Korea

  110,00056,000 No Former Metrology SiteSales Office, Customer Training Center & R&D Center

 

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

Camarillo, CA

  23,000  2015 Data Storage

Fort Collins, CO

  26,000  2018 Data Storage

Peabody, MA

  30,000  2014 Held for Sublease

Somerset, NJ

  14,000  2014 LED & Solar

Poughkeepsie, NY

  9,000  2015 LED & Solar

Kingston, NY

  44,000  2018 LED & Solar

Shanghai, China(2)

  18,700  2014 Customer Training Center

Hsinchu City, Taiwan

  13,500  2015 Sales Office, Process Development, & Customer Training Center

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

Camarillo, CA(3)

  26,000  2012 Data Storage and partially held for sublease

Fort Collins, CO

  26,000  2011 Data Storage

Clifton Park, NY

  18,000  2014 LED & Solar

Clifton Park, NY

  8,000  2011 LED & Solar

Lowell, MA

  28,000  2012 LED & Solar

Somerset, NJ

  14,500  2011 LED & Solar

Somerset, NJ

  9,500  2012 LED & Solar

Shanghai, China

  17,400  2012 Customer Training Center

Woodbury, NY(4)

  32,000  2011 Former Corporate Headquarters

(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.


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

(4)
We vacated our former Woodbury headquarters during the first quarter of 2008 and consolidated our operations into our Plainview manufacturing facility.

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


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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:


 2010 2009  2012 2011 

 High Low High Low  High Low High Low 

First Quarter

 $43.72 $30.42 $7.16 $3.96  $33.40 $21.46 $52.70 $42.82 

Second Quarter

 51.61 31.79 12.99 6.19  36.97 26.54 57.59 46.47 

Third Quarter

 45.52 31.02 23.49 11.36  38.11 30.00 47.21 24.40 

Fourth Quarter

 49.97 33.71 34.35 21.90  31.52 26.89 29.20 20.80 

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


 2005 2006 2007 2008 2009 2010  2007 2008 2009 2010 2011 2012 

Veeco Instruments Inc.

 100.00 108.08 96.36 36.58 190.65 247.89 

Veeco Instruments Inc.

 100.00 37.96 197.84 257.25 124.55 176.59 

S&P Smallcap 600

 100.00 115.12 114.78 79.11 99.34 125.47  100.00 68.93 86.55 109.32 110.43 128.46 

PHLX Semiconductor

 100.00 94.47 102.99 56.15 91.67 103.11  100.00 64.12 101.17 115.04 116.92 139.17 

RDG MidCap Technology

 100.00 111.34 110.83 56.91 90.56 114.02  100.00 48.67 80.21 101.25 86.44 86.44 

Treasury StockTable of Contents

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

Period
 Total Number of
Shares
Repurchased
 Average Price
Paid Per Share
 Total Number of Shares
Purchased as Part of Publicly
Announced Program(1)
 Approximate Dollar Value of
Shares that May Yet Be Purchased
Under the Program(1)
 

Fiscal month of October 2010 (September 27, 2010—October 24, 2010)(2)

  189,218  34.33  1,118,600  161,901,746 

(1)
On August 24, 2010, we announced that our Board of Directors had authorized the repurchase of up to $200 million of our common stock until August 26, 2011. The program does not obligate the Company to acquire any particular amount of common stock and may be modified or suspended at any time at the Company's discretion.

(2)
We had no repurchases in the fiscal months of November and December 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.



 Year ended December 31,  Year ended December 31, 


 2010(1) 2009(2) 2008(3) 2007(4) 2006(5)  2012 2011 2010 2009 2008 


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

Statement of Operations Data:

Statement of Operations Data:

  

Net sales

Net sales

 $933,231 $282,412 $314,935 $252,031 $268,880  $516,020 $979,135 $930,892 $282,262 $302,067 
           

Operating income (loss) from continuing operations

Operating income (loss) from continuing operations

 277,575 (4,732) (46,140) (18,245) (5,767) 37,212 276,259 303,253 7,631 (44,055)

Income (loss) from continuing operations, net of income taxes

 260,531 (14,229) (50,833) (23,655) (4,620)

Income (loss) from discontinued operations, net of income taxes

 101,229 (1,403) (24,588) 3,817 18,179 
           

Income (loss) from continuing operations net of income taxes

 26,529 190,502 277,176 (1,777) (48,748)

Income (loss) from discontinued operations net of income taxes

 4,399 (62,515) 84,584 (13,855) (26,673)

Net loss attributable to noncontrolling interest

Net loss attributable to noncontrolling interest

  (65) (230) (628) (1,358)    (65) (230)
                      

Net income (loss) attributable to Veeco

Net income (loss) attributable to Veeco

 $361,760 $(15,567)$(75,191)$(19,210)$14,917  $30,928 $127,987 $361,760 $(15,567)$(75,191)
                      

Income (loss) per common share attributable to Veeco:

Income (loss) per common share attributable to Veeco:

  

Basic:

Basic:

  

Continuing operations

 $0.69 $4.80 $7.02 $(0.05)$(1.55)

Discontinued operations

 0.11 (1.57) 2.14 (0.43) (0.85)
 

Continuing operations

 $6.60 $(0.44)$(1.62)$(0.74)$(0.11)           
 

Discontinued operations

 2.56 (0.04) (0.78) 0.12 0.60 
           

Income (loss)

 $9.16 $(0.48)$(2.40)$(0.62)$0.49 

Income (loss)

 $0.80 $3.23 $9.16 $(0.48)$(2.40)
                      

Diluted :

Diluted :

  

Continuing operations

 $0.68 $4.63 $6.52 $(0.05)$(1.55)

Discontinued operations

 0.11 (1.52) 1.99 (0.43) (0.85)
 

Continuing operations

 $6.13 $(0.44)$(1.62)$(0.74)$(0.11)           
 

Discontinued operations

 2.38 (0.04) (0.78) 0.12 0.60 
           

Income (loss)

 $8.51 $(0.48)$(2.40)$(0.62)$0.49 

Income (loss)

 $0.79 $3.11 $8.51 $(0.48)$(2.40)
                      

Weighted average shares outstanding:

Weighted average shares outstanding:

��  
 

Basic

 39,499 32,628 31,347 31,020 30,492 
 

Diluted

 42,514 32,628 31,347 31,020 30,492 

Basic

 38,477 39,658 39,499 32,628 31,347 

Diluted

 39,051 41,155 42,514 32,628 31,347 

 


 December 31,  December 31, 

 2010 2009 2008 2007 2006  2012 2011 2010 2009 2008 

 (In thousands)
  (in thousands)
 

Balance Sheet Data:

  

Cash and cash equivalents

 $245,132 $148,500 $102,521 $116,875 $146,880  $384,557 $217,922 $245,132 $148,500 $102,521 

Short-term investments

 394,180 135,000     192,234 273,591 394,180 135,000  

Restricted cash

 76,115      2,017 577 76,115   

Working capital

 640,139 317,317 168,528 112,089 172,447  632,197 587,076 640,139 317,317 168,528 

Goodwill

 52,003 52,003 51,741 71,544 71,544  55,828 55,828 52,003 52,003 51,741 

Total assets

 1,148,034 605,372 429,541 529,334 589,600  937,304 936,063 1,148,034 605,372 429,541 

Long-term debt (including current installments)

 104,021 101,176 98,526 132,118 203,774  2,406 2,654 104,021 101,176 98,526 

Total equity

 762,512 359,059 225,026 288,144 281,751  811,212 760,520 762,512 359,059 225,026 

(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

(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:


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.

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


Table of Contents

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):

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage Change
Year to Year
 
 
 2012 2011 

Net sales

 $516,020  100.0%$979,135  100.0%$(463,115) (47.3)%

Cost of sales

  300,887  58.3% 504,801  51.6% (203,914) (40.4)%
               

Gross profit

  215,133  41.7% 474,334  48.4% (259,201) (54.6)%
               

Operating expenses (income):

                   

Selling, general and administrative

  73,110  14.2% 95,134  9.7% (22,024) (23.2)%

Research and development

  95,153  18.4% 96,596  9.9% (1,443) (1.5)%

Amortization

  4,908  1.0% 4,734  0.5% 174  3.7%

Restructuring

  3,813  0.7% 1,288  0.1% 2,525  196.0%

Asset impairment

  1,335  0.3% 584  0.1% 751  128.6%

Other, net

  (398) (0.1)% (261) (0.0)% (137) 52.5%
               

Total operating expenses

  177,921  34.5% 198,075  20.2% (20,154) (10.2)%
               

Operating income

  37,212  7.2% 276,259  28.2% (239,047) (86.5)%
               

Interest income (expense), net

  974  0.2% (824) (0.1)% 1,798   *

Loss on extinguishment of debt

    0.0% (3,349) (0.3)% 3,349   *
               

Income from continuing operations before income taxes

  38,186  7.4% 272,086  27.8% (233,900) (86.0)%

Income tax provision

  11,657  2.3% 81,584  8.3% (69,927) (85.7)%
               

Income from continuing operations

  26,529  5.1% 190,502  19.5% (163,973) (86.1)%
               

Discontinued operations:

                   

Income (loss) from discontinued operations before income taxes

  6,269  1.2% (91,885) (9.4)% 98,154   *

Income tax provision (benefit)

  1,870  0.4% (29,370) (3.0)% 31,240   *
               

Income (loss) from discontinued operations

  4,399  0.9% (62,515) (6.4)% 66,914   *
               

Net income

 $30,928  6.0%$127,987  13.1%$(97,059) (75.8)%
               

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

Net sales

 $933,231  100.0%$282,412  100.0%$650,819  230.5%

Cost of sales

  489,406  52.4  171,177  60.6  318,229  185.9 
              

Gross profit

  443,825  47.6  111,235  39.4  332,590  299.0 

Operating expenses (income):

                   

Selling, general and administrative

  91,777  9.8  62,151  22.0  29,626  47.7 

Research and development

  71,390  7.6  43,483  15.4  27,907  64.2 

Amortization

  4,876  0.5  5,168  1.8  (292) (5.7)

Restructuring

  (179)   4,837  1.7  (5,016) * 

Asset impairment

      304  0.1  (304) (100.0)

Other, net

  (1,614) (0.2) 24  0.0  (1,638) * 
              

Total operating expenses

  166,250  17.8  115,967  41.1  50,283  43.4 
              

Operating income (loss)

  277,575  29.7  (4,732) (1.7) 282,307  * 

Interest expense, net

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

Income (loss) from continuing operations before income taxes

  271,003  29.0  (11,582) (4.1) 282,585  * 

Income tax provision

  10,472  1.1  2,647  0.9  7,825  295.6 
              

Income (loss) from continuing operations

  260,531  27.9  (14,229) (5.0) 274,760  * 

Discontinued operations:

                   
 

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

  155,455  16.7  (2,703) (1.0) 158,158  * 
 

Income tax provision (benefit)

  54,226  5.8  (1,300) (0.5) 55,526  * 
              

Income (loss) from discontinued operations

  101,229  10.8  (1,403) (0.5) 102,632  * 
              

Net income (loss)

  361,760  38.8  (15,632) (5.5) 377,392  * 

Net loss attributable to noncontrolling interest

      (65) 0.1  65  (100.0)
              

Net income (loss) attributable to Veeco

 $361,760  38.8%$(15,567) (5.5)%$377,327  * 
              

*
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):

 
 For the year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
 
 2012 2011 

Segment Analysis

             

LED & Solar

 $363,181 $827,797 $(464,616) (56.1)%

Data Storage

  152,839  151,338  1,501  1.0%
           

Total

 $516,020 $979,135 $(463,115) (47.3)%
           

Regional Analysis

             

Asia Pacific

 $390,995 $820,883 $(429,888) (52.4)%

United States(1)

  83,317  100,635  (17,318) (17.2)%

Europe, Middle East and Africa

  41,708  57,617  (15,909) (27.6)%
           

Total

 $516,020 $979,135 $(463,115) (47.3)%
           

(1)
Less than 1%, of sales included within the United States caption above has been derived from other regions within the Americas.

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

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

Segment Analysis

                               
 

LED & Solar

 $797,904 $205,153 $592,751  288.9%$968,232 $440,784 $527,448  119.7% 1.21  2.15 
 

Data Storage

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

Total

 $933,231 $282,412 $650,819  230.5%$1,121,638 $538,281 $583,357  108.4% 1.20  1.91 
                      

Regional Analysis

                               
 

Americas

 $94,985 $60,730 $34,255  56.4%$107,128 $78,196 $28,932  37.0% 1.13  1.29 
                      
 

Europe, Middle East and Africa ("EMEA")

  92,112  50,088  42,024  83.9  83,784  47,186  36,598  77.6  0.91  0.94 
                      
  

Korea

  301,026  99,132  201,894  203.7  207,337  236,114  (28,777) (12.2) 0.69  2.38 
  

China

  266,813  31,114  235,699  757.5  537,740  90,724  447,016  492.7  2.02  2.92 
  

Taiwan

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

Other Asia Pacific

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

Asia Pacific

  746,134  171,594  574,540  334.8  930,726  412,899  517,827  125.4  1.25  2.41 
                      
 

Total

 $933,231 $282,412 $650,819  230.5%$1,121,638 $538,281 $583,357  108.4% 1.20  1.91 
                      
 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage Change
Year to Year
 
(dollars in thousands)
 2012 2011 

Gross profit

 $215,133 $474,334 $(259,201) (54.6)%

Gross margin

  41.7% 48.4%      

Gross profit was $215.1 million or 41.7% for 2012 compared to $474.3 million or 48.4% in 2011. 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.

LED & Solar gross margins decreased to 40.9% from 48.0% in the prior year, primarily due to a significant decrease in sales volumes, lower average selling prices and fewer final acceptances partially offset by lower plant and service spending associated with reduced volumes and cost reductions in response to lower business levels. Data Storage gross margins decreased to 43.7% from 50.7% in the prior year, primarily due to a sales mix of lower margin products. We anticipate a continuing weak business environment resulting in persistent selling price pressure in our MOCVD business.

Operating Expenses

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage Change
Year to Year
 
(dollars in thousands)
 2012 2011 

Selling, general and administrative

 $73,110 $95,134 $(22,024) (23.2)%

Percentage of sales

  14.2% 9.7%      

Selling, general and administrative expenses decreased by $22.0 million or 23.2%, from the prior year primarily due to lower commissions and bonus and profit sharing expenses from the reduced level of business in each of our segments. In addition our cost control measures put into place throughout the year resulting in lower personnel-related costs, travel and entertainment expense, professional consulting fees and other discretionary expenses. Selling, general and administrative expenses were 14.2% of net sales in 2012, compared with 9.7% of net sales in the prior year.

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2012 2011 

Research and development

 $95,153 $96,596 $(1,443) (1.5)%

Percentage of sales

  18.4% 9.9%      

Research and development expense decreased $1.4 million or 1.5% from the prior year. The Company continued to invest, at approximately the prior year levels, in the development of products in areas of high-growth for end market opportunities in our LED & Solar segment. As a percentage of net sales, research and development expense increased to 18.4% from 9.9% in the prior year.

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2012 2011 

Amortization

 $4,908 $4,734 $174  3.7%

Percentage of sales

  1.0% 0.5%      

Amortization expense increased $0.2 million from the prior year, primarily due to additional amortization associated with intangible assets acquired as part of our acquisition of a privately held


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company during the second quarter of 2011, partially offset by certain intangible assets becoming fully amortized.

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2012 2011 

Restructuring

 $3,813 $1,288 $2,525  196.0%

Percentage of sales

  0.7% 0.1%      

During 2012, we took measures to improve profitability, including a reduction in discretionary expenses, realignment of our senior management team and consolidation of certain sales, business and administrative functions. As a result of these actions, we recorded a $3.8 million restructuring charge consisting of $3.0 million in personnel severance and related costs, $0.4 million in equity compensation and related costs and $0.4 million in other severance costs resulting from a headcount reduction of 52 employees. During 2011, we recorded $1.3 million in personnel severance and related costs related to a companywide reorganization resulting in a headcount reduction of 65 employees. These reductions in workforce included executives, management, administration, sales and service personnel and manufacturing employees companywide.

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2012 2011 

Asset Impairment

 $1,335 $584 $751  128.6%

Percentage of sales

  0.3% 0.1%      

During 2012, we recorded an asset impairment charge of $1.3 million related to a license agreement in our Data Storage segment. During 2011, we recorded a $0.6 million asset impairment charge for property, plant and equipment related to the discontinuance of a certain product line in our LED & Solar segment.

Interest Income (Expense), Net

 
 Year ended
December 31,
  
  
 
 Dollar and
Percentage
Change
Year to Year
(dollars in thousands)
 2012 2011

Interest income (expense), net

 $974 $(824)$1,798 *

Percentage of sales

  0.2% (0.1)%    

*
Not Meaningful

Interest income, net for 2012 was $1.0 million, comprised of $2.5 million in cash interest income, partially offset by $0.2 million in cash interest expense and $1.3 million in non-cash interest expense relating to net amortization of our short-term investments. Interest expense, net for 2011 was $0.8 million, comprised of $1.4 million in cash interest expense, $1.9 million in non-cash interest expense relating to net amortization of our short-term investments and $1.3 million in non-cash interest expense relating to our convertible debt, which was retired during the first half of 2011 creating a loss on extinguishment of approximately $3.3 million. Interest expense in 2011 was partially offset by $3.8 million in interest income earned on our cash and short-term investment balances. The non-cash interest expense is related to accounting rules that requires a portion of convertible debt to be allocated to equity in 2011 and accretion of debt discounts and amortization of debt premiums related to our short-term investments in 2012 and 2011.


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Income Taxes

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage Change
Year to Year
 
(dollars in thousands)
 2012 2011 

Income tax provision

 $11,657 $81,584 $(69,927) (85.7)%

Effective tax rate

  30.5% 30.0%      

The income tax provision attributable to continuing operations for the year ended December 31, 2012 was $11.7 million or 30.5% of income from continuing operations before income taxes compared to $81.6 million or 30.0% of income from continuing operations before income taxes in the prior year. The 2012 provision for income taxes included $8.3 million relating to our foreign operations and $3.4 million relating to our domestic operations. The 2011 provision for income taxes included $9.6 million relating to our foreign operations and $72.0 million relating to our domestic operations. Our 2012 effective tax rate is lower than the statutory rate as a result of the jurisdictional mix of earnings in our foreign locations and other favorable tax benefits including the Domestic Production Activities Deduction and an adjustment for the Research and Development Credit related to the filing of our 2011 Federal income tax return.

During the fourth quarter of 2012, the Company determined that it may not meet the criteria required to receive a certain incentive tax rate pursuant to a negotiated tax holiday in one foreign jurisdiction. Although the Company is continuing to negotiate the criteria for the incentive, for financial reporting purposes the Company has recorded an additional tax provision of $4.0 million which represents the cumulative effect of calculating the tax provision using the incentive tax rate as compared to the foreign country's statutory rate. As such amount is not expected to be paid within twelve months, the Company has recorded the $4.0 million as a long term taxes payable. If the Company successfully renegotiates the incentive criteria, this additional tax provision could be reversed as a future benefit in the period in which the successful negotiations are finalized.

Discontinued Operations

 
 Year ended
December 31,
  
  
 
 Dollar and
Percentage
Change
Year to Year
(dollars in thousands)
 2012 2011

Income (loss) from discontinued operations before income taxes

 $6,269 $(91,885)$98,154 *

Income tax provision (benefit)

  1,870  (29,370) 31,240 *
         

Income (loss) from discontinued operations

 $4,399 $(62,515)$66,914 *
         

*
Not Meaningful

Discontinued operations represent the results of the operations of our disposed Metrology segment, which was sold to Bruker on October 7, 2010, and our CIGS solar systems business, which was discontinued on September 27, 2011, reported as discontinued operations. The 2012 results included a $1.4 million gain ($1.1 million net of taxes) on the sale of the assets of discontinued segment held for sale and a $5.4 million gain ($4.1 million net of taxes) associated with the closing of the China Assets with Bruker. The 2011 results reflect an operational loss before taxes of $1.6 million related to the Metrology segment and an operational loss before taxes of $90.3 million related to the CIGS solar systems business.


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Years Ended December 31, 2011 and 2010

The following table shows our Consolidated Statements of Income, percentages of sales and comparisons between 2011 and 2010 (dollars in thousands):

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

Net sales

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

Cost of sales

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

Gross profit

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

Operating expenses (income):

                   

Selling, general and administrative

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

Research and development

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

Amortization

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

Restructuring

  1,288  0.1% (179) (0.0)% 1,467   *

Asset impairment

  584  0.1%   0.0% 584   *

Other, net

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

Total operating expenses

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

Operating income

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

Interest expense, net

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

Loss on extinguishment of debt

  (3,349) (0.3)%   0.0% (3,349)  *
               

Income from continuing operations before income taxes

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

Income tax provision

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

Income from continuing operations

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

Discontinued operations:

                   

(Loss) income from discontinued operations before income taxes

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

Income tax (benefit) provision

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

(Loss) income from discontinued operations

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

Net income

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

*
Not Meaningful

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Net Sales and Orders

Net sales of $979.1 million for the year ended December 31, 2011, were up 5.2% compared to 2010. The following is an analysis of sales and orders by segment and by region (dollars in thousands):

 
 Sales 
 
 For the year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
 
 2011 2010 

Segment Analysis

             

LED & Solar

 $827,797 $795,565 $32,232  4.1%

Data Storage

  151,338  135,327  16,011  11.8%
           

Total

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

Regional Analysis

             

APAC

 $820,883 $746,134 $74,749  10.0%

United States(1)

  100,635  92,646  7,989  8.6%

EMEA

  57,617  92,112  (34,495) (37.4)%
           

Total

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

(1)
Less than 1%, of sales included within the United States caption above has been derived from other regions within the Americas.

By segment, LED & Solar sales increased 288.9%4.1% in 20102011 primarily due to increases in shipments of our newest systems as compared to 2009 (334 system2010 (3.9% increase in MOCVD reactor shipments in 2010 versus 72 system shipments in 2009 in our MOCVD business)from 2010) as a result of an increase inthe high demand which slowed by the beginning of the second half 2011 for HB LED backlighting applications and general illumination.applications. Data Storage sales also increased 75.2%11.8%, primarily as a result of an increase in capital spending by data storage customers for capacity and technology buys. LED & Solar sales represented 85.5%84.5% of total sales for the year ended December 31, 2010, up2011, down from 72.6%85.5% in the prior year. Data Storage sales accounted for 14.5%15.5% of net sales, downup from 27.4%14.5% in the prior year. By region, net sales increased by 334.8%10.0% in Asia Pacific, primarily due to MOCVD sales to HB LED customers. In addition, sales in the Americas increased 8.6% and sales in EMEA also increased 56.4% and 83.9%, respectively.decreased 37.4%. We believe that there will continue to be year-to-year variations in the geographic distribution of sales.

Orders in 2010 increased 108.4%2011 decreased 27.1% compared to 2009,2010, primarily attributable to a 119.7% increase32.8% decrease in LED & Solar orders that were principally driven by HBa mid-year deterioration due to oversupply in the LED manufacturers increasing production for televisionmarket, slowing orders dramatically in the third and laptop backlighting applications.fourth quarters after hitting a peak in the second quarter of 2011. Data Storage orders increased 57.3%9.0% from the continued increase in our customer'scustomers' capital spending for capacity and technology buys.

Our book-to-bill ratio for 2010,2011, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was 1.200.84 to 1 compared to 1.911.20 to 1 in 2009.2010. Our backlog as of December 31, 20102011 was $555.0$332.9 million, compared to $377.3$535.4 million as of December 31, 2009.2010. During the year ended December 31, 2010,2011, we experienced a net backlog adjustmentsadjustment of approximately $10.7$41.4 million. The adjustment consisted of $38.1 million consisting of $12.5order cancellations and $3.3 million for order adjustments ($10.2 million is related to our Solar and MBE businesses), offset by $1.8 million of adjustmentsother order adjustments. During the year ended December 31, 2011, we had a positive adjustment related to foreign currency translation.translation of $0.1 million. For certain sales arrangements we require a deposit for a portion of the sales price before shipment. As of December 31, 20102011 and 20092010 we had deposits and advanced billings of $129.2$57.1 million and $59.8$129.2 million, respectively.


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Gross Profit

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2011 2010 

Gross profit

 $474,334 $449,485 $24,849  5.5%

Gross margin

  48.4% 48.3%      

Gross profit was $443.8$474.3 million or 47.6%48.4% for 20102011 compared to $111.2$449.5 million or 39.4%48.3% in 2009.2010. LED & Solar gross margins increaseddecreased to 47.4%48.0% from 40.4%48.3% in the prior year, primarily due to higher overhead costs, service support spending and a $0.8 million inventory write-off, which was included in Cost of sales, partially offset by increases in volume, (262 additional system shipmentsfavorable product mix and 185 additional final acceptances received compared to prior year in our MOCVD business) and higherlower average selling prices coupled with lower manufacturingmaterial costs. Data Storage gross margins increased to 48.5%50.7% from 36.6%48.4% in the prior year due to increased sales volume and a favorable product mix. During 2009, Data Storage gross margins were also negatively impactedmix, partially offset by a charge to cost of sales of $1.5 million for the write off of inventory associated with discontinued legacy product lines.higher overhead costs and service support spending.

Operating Expenses

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2011 2010 

Selling, general and administrative

 $95,134 $87,250 $7,884  9.0%

Percentage of sales

  9.7% 9.4%      

Selling, general and administrative expenses increased by $29.6$7.9 million or 47.7%9.0%, from the prior year primarily to support the increased level of business ramp in our LED & Solar segment. Selling, general and administrative expenses were 9.8%9.7% of net sales in 2010,2011, compared with 22.0%9.4% of net sales in the prior year.

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2011 2010 

Research and development

 $96,596 $56,948 $39,648  69.6%

Percentage of sales

  9.9% 6.1%      

Research and development expense increased $27.9$39.6 million or 64.2%69.6% from the prior year, primarily due to continued product development in areas of high-growth for end market opportunities in our LED & Solar segment. As a percentage of net sales, research and development expense decreasedincreased to 7.6%9.9% from 15.4%6.1% in the prior year.

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2011 2010 

Amortization

 $4,734 $3,703 $1,031  27.8%

Percentage of sales

  0.5% 0.4%      

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Amortization expense decreased $0.3increased $1.0 million or 5.7% from the prior year. This decrease is mainly due to certain intangibles being fully amortized atyear, primarily resulting from the endincrease in intangible assets as a result of 2009.our acquisition of a privately held company that occurred during the second quarter of 2011.

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2011 2010 

Restructuring

 $1,288 $(179)$1,467  * 

Percentage of sales

  0.1% 0.0%      

*
Not Meaningful

Restructuring expense of $1.3 million for the year ended December 31, 2011, consisted of personnel severance costs associated with the company-wide reduction of approximately 65 employees in our workforce. Restructuring credit of $0.2 million for the year ended December 31, 2010, was attributable to a change in estimate in our Data Storage segment. Restructuring expense of $4.8 million for the year ended December 31, 2009, consisted primarily of personnel severance costs of $3.4 million associated with the reduction of approximately 164 employees in our workforce. Additionally, we took a $1.4 million charge during the second quarter of 2009 for costs associated with vacating a leased facility in Camarillo, California and the related relocation of 27 employees.

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2011 2010 

Asset Impairment

 $584 $ $584  * 

Percentage of sales

  0.1% 0.0%      

During 2009,2011, the Company recorded a $0.3$0.6 million asset impairment charge. The charge was for property, plant andrelated to the disposal of equipment no longer being utilizedassociated with the discontinuance of a certain product line in our Data StorageLED & Solar segment.

Interest Expense, netNet

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2011 2010 

Interest expense, net

 $(824)$(6,572)$5,748  (87.5)%

Percentage of sales

  (0.1)% (0.7)%      

Interest expense, net for 2011 was $0.8 million, comprised of $1.4 million in cash interest expense, $1.9 million in non-cash interest expense relating to net amortization of our short-term investments and $1.3 million in non-cash interest expense relating to our convertible debt, which was retired during the first half of 2011 creating a loss on extinguishment of approximately $3.3 million. Interest expense was partially offset by $3.8 million in interest income earned on our cash and short-term investment balances. Interest expense, net for 2010 was $6.6 million, comprised of $4.7 million in cash interest and $3.5expense, $0.4 million in non-cash interest primarilyexpense relating to our short-term investments and $3.1 million in non-cash interest expense relating to our convertible debt, partially offset by $1.6 million in interest income earned on our cash and short-term investment balances. Interest expense, net for 2009 was $6.9 million, comprised of $4.9 million in cash interest and $2.8 million in non-cash interest, partially offset by $0.8 million in interest income. The non-cash interest expense is related to accounting rules that requires a portion of convertible debt to be allocated to equity in 20102011 and 20092010 and accretion of debt discounts and amortization of debt premiums related to our short-term investments in 2011 and 2010.


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Income Taxes

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage
Change
Year to Year
 
(dollars in thousands)
 2011 2010 

Income tax provision

 $81,584 $19,505 $62,079  318.3%

Effective tax rate

  30.0% 6.6%      

The income tax provision attributable to continuing operations for the year ended December 31, 20102011 was $10.5$81.6 million or 30.0% of income from continuing operations before income taxes compared to $2.6$19.5 million or 22.9%6.6% of income from continuing operations before income taxes in the prior year. The 2011 provision for income taxes included $9.6 million relating to our foreign operations and $72.0 million relating to our domestic operations. The 2010 provision for income taxes included $8.0 million relating to our foreign operations and $2.5$11.5 million relating to our domestic operations. The 2009 provision for income taxes included $1.6 million relating toOur 2010 effective tax rate was lower than our foreign operations and $1.0 million relating to2011 effective tax rate as a result of the utilization of our domestic operations.net operating loss and tax credit carry forwards due to the reversal of our valuation allowance during 2010. Our 2011 effective tax rate is lower than the statutory rate as a result of the utilizationjurisdictional mix of earnings in our domestic net



operating loss and tax credit carry forwards. It is anticipated that ourforeign locations, which impacted the effective tax rate for 2011 will approachby approximately 1.9%, and other favorable tax benefits including the U.S. statutoryDomestic Production Activities Deduction and the Research and Development Credit, which impacted the effective tax rate by approximately 3.4%.

Discontinued Operations

 
 Year ended
December 31,
  
  
 
 
 Dollar and
Percentage Change
Year to Year
 
 
 2011 2010 
(dollars in thousands)
  
  
 

(Loss) income from discontinued operations before income taxes

 $(91,885)$129,776 $(221,661) * 

Income tax (benefit) provision

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

(Loss) income from discontinued operations

 $(62,515)$84,584 $(147,099) * 
           

*
Not Meaningful

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

Years Ended December 31, 2009 and 2008

        The following table shows our Consolidated Statements of Operations, percentages of sales, and comparisons between 2009 and 2008 (dollars in 000s):

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

Net sales

 $282,412  100.0%$314,935  100.0%$(32,523) (10.3)%

Cost of sales

  171,177  60.6  191,664  60.9  (20,487) (10.7)
              

Gross profit

  111,235  39.4  123,271  39.1  (12,036) (9.8)

Operating expenses (income):

                   

Selling, general and administrative

  62,151  22.0  60,542  19.2  1,609  2.7 

Research and development

  43,483  15.4  39,608  12.6  3,875  9.8 

Amortization

  5,168  1.8  8,864  2.8  (3,696) (41.7)

Restructuring

  4,837  1.7  9,424  3.0  (4,587) (48.7)

Asset impairment

  304  0.1  51,387  16.3  (51,083) (99.4)

Other, net

  24    (414) (0.1) 438  * 
              

Total operating expenses

  115,967  41.1  169,411  53.8  (53,444) (31.5)
              

Operating loss

  (4,732) (1.7) (46,140) (14.7) 41,408  (89.7)

Interest expense, net

  6,850  2.4  6,729  2.1  121  1.8 

Gain on extinguishment of debt

      (3,758) (1.2) 3,758  (100.0)
              

Loss from continuing operations before income taxes

  (11,582) (4.1) (49,111) (15.6) 37,529  (76.4)

Income tax provision

  2,647  0.9  1,722  0.5  925  53.7 
              

Loss from continuing operations

  (14,229) (5.0) (50,833) (16.1) 36,604  (72.0)

Discontinued operations:

                   
 

Loss from discontinued operations, before income taxes

  (2,703) (1.0) (24,418) (7.8) 21,715  (88.9)
 

Income tax (benefit) provision

  (1,300) (0.5) 170  0.1  (1,470) * 
              

Loss from discontinued operations

  (1,403) (0.5) (24,588) (7.8) 23,185  (94.3)
              

Net loss

  (15,632) (5.5) (75,421) (23.9) 59,789  (79.3)

Net loss attributable to noncontrolling interest

  (65)   (230) (0.1) 165  (71.7)
              

Net loss attributable to Veeco

 $(15,567) (5.5)%$(75,191) (23.9)%$59,624  (79.3)%
              

*
Not Meaningful

Net Sales and Orders

        Net sales of $282.4 million fortaxes related to the year ended December 31, 2009, were down 10.3% compared to 2008. The following is an analysis of sales and orders byMetrology segment and by region (dollars in 000s):

 
 Sales Orders  
  
 
 
 Year ended December 31, Dollar and Percentage Change Year ended December 31, Dollar and Percentage Change Book to Bill Ratio 
 
 2009 2008 Year to Year 2009 2008 Year to Year 2009 2008 

Segment Analysis

                               
 

LED & Solar

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

Data Storage

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

Total

 $282,412 $314,935 $(32,523) (10.3)%$538,281 $298,815 $239,466  80.1% 1.91  0.95 
                      

Regional Analysis

                               
 

Americas

 $60,730 $130,573 $(69,843) (53.5)%$78,196 $108,172 $(29,976) (27.7)% 1.29  0.83 
                      
 

EMEA

  50,088  57,567  (7,479) (13.0) 47,186  51,731  (4,545) (8.8) 0.94  0.90 
                      
  

Korea

  99,132  8,887  90,245  1,015.5  236,114  15,864  220,250  1,388.4  2.38  1.79 
  

China

  31,114  19,575  11,539  58.9  90,724  32,202  58,522  181.7  2.92  1.65 
  

Taiwan

  13,882  39,124  (25,242) (64.5) 34,642  30,999  3,643  11.8  2.50  0.79 
  

Other Asia Pacific

  27,466  59,209  (31,743) (53.6) 51,419  59,847  (8,428) (14.1) 1.87  1.01 
                      
 

Asia Pacific

  171,594  126,795  44,799  35.3  412,899  138,912  273,987  197.2  2.41  1.10 
                      
 

Total

 $282,412 $314,935 $(32,523) (10.3)%$538,281 $298,815 $239,466  80.1% 1.91  0.95 
                      

        By segment, LED & Solar sales increased 23.7% due to an increase in end user demand for HB LED backlighting applications, higher average selling prices and strong customer acceptanceoperational loss before taxes of Veeco's newest generation systems. Offsetting this increase, Data Storage sales were down 48.2%, primarily as a result of a slowdown in capital spending by data storage customers. LED & Solar sales represented 72.6% of total sales for the year ended December 31, 2009, up from 52.6% in the prior year. Data Storage sales accounted for 27.4% of net sales, down from 47.4% in the prior year. By region, net sales increased by 35.3% in Asia Pacific, primarily due to MOCVD sales to HB LED customers, while sales in the Americas and EMEA declined 53.5% and 13.0%, respectively.

        Orders in 2009 increased 80.1% compared to 2008, primarily attributable to a 175.2% increase in LED & Solar orders that were principally driven by HB LED manufacturers increasing production for television and laptop backlighting applications and demand for CIGS deposition systems and components. Data Storage orders declined 29.7% from the continued slow down in our customers capital spending.

        Our book-to-bill ratio for 2009 was 1.91 to 1 compared to 0.95 to 1 in 2008. Our backlog as of December 31, 2009 was $377.3 million, compared to $125.6 million as of December 31, 2008. During the year ended December 31, 2009, we experienced net backlog adjustments of approximately $4.1 million, consisting of $3.2 million for order cancellations, primarily in the first half of the year, and $0.9 million of adjustments related to foreign currency translation. For certain sales arrangements we require a deposit for a portion of the sales price before shipment. As of December 31, 2009 and 2008 we had deposits and advanced billings of $59.8 million and $16.1 million, respectively.

Gross Profit

        Gross profit increased to $111.2 million or 39.4% in 2009 compared to $123.3 million or 39.1% in 2008. Despite the overall $32.5 million decrease in sales, gross margin remained flat, primarily due to the favorable impact of significant cost reductions from a reduced workforce, lower facilities costs associated with closing and consolidating facilities and the outsourcing of certain Data Storage product manufacturing to Asia. LED & Solar gross margins increased from 38.3% in the prior year to 40.4%,



primarily due to the impact of our lower fixed cost structure and a 23.7% increase in sales volume as well as favorable pricing and higher margins on new MOCVD products. Data Storage gross margins decreased from 40.2% in the prior year to 36.6% mainly due to decreased sales volume partially offset by reduced costs due to our expense reduction plans compared to the prior year. Data Storage gross margins were also negatively impacted by a charge to cost of sales of $1.5 million during 2009 for the write off of inventory associated with discontinued legacy product lines.

Operating Expenses

        Selling, general and administrative expenses increased by $1.6 million or 2.7%, from the prior year primarily due to the ramp-up in our MOCVD business in the second half of 2009. Selling, general and administrative expenses were 22.0% of net sales in 2009, compared with 19.2% of net sales in the prior year.

        Research and development expense increased $3.9 million or 9.8% from the prior year, primarily due to investments in areas that we believe are higher-growth end market opportunities, particularly in our LED & Solar segment. As a percentage of net sales, research and development expense increased to 15.4% from 12.6% in the prior year.

        Amortization expense decreased $3.7 million or 41.7% from the prior year. This decrease is mainly due to certain intangibles in LED & Solar being fully amortized at the end of 2008 as well as the write-off of purchased technology in Data Storage in connection with the asset impairment charges recorded during the fourth quarter of 2008.

        Restructuring expense of $4.8 million for the year ended December 31, 2009, consisted primarily of personnel severance costs of $3.4 million associated with the reduction of approximately 164 employees in our workforce. Additionally, we took a $1.4 million charge during 2009 for costs associated with vacating a leased facility in Camarillo, California, during the second quarter and the related relocation of 27 employees.

        During the second quarter of 2009, the Company recorded a $0.3 million asset impairment charge. The charge was for property, plant and equipment no longer being utilized in our Data Storage reporting unit. During 2008, the Company recorded a $51.4 million asset impairment charge, of which $51.1 million was recorded during the fourth quarter and $0.3 million was recorded during the first quarter. The fourth quarter charge consisted of $30.4$25.7 million related to goodwill, $19.6 million related to intangible assets and $1.1 million in property, plant and equipment. The first quarter charge consisted of $0.3 million associated with property and equipment abandoned as part of the consolidation of our corporate headquarters into our Plainview facility.CIGS solar systems business.

Interest Expense, net

        Interest expense, net for 2009 was $6.9 million, comprised of $4.9 million in cash interest and $2.8 million in non-cash interest relating to our convertible debt, partially offset by $0.8 million in interest income earned on our cash and short-term investment balances. Interest expense, net for 2008 was $6.7 million, comprised of $6.4 million in cash interest and $2.9 million in non-cash interest, partially offset by $2.6 million in interest income. The non-cash interest expense in both years is related to accounting rules that requires a portion of convertible debt to be allocated to equity. The decrease of $1.5 million in cash interest expense from the prior year was primarily due to the repayment of $25.3 million of our convertible notes in the fourth quarter of 2008. Interest income decreased by $1.7 million due principally to the lower interest rate yields on cash balances invested during 2009 compared to the prior year.


Gain on Extinguishment of Debt

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

Income Taxes

        The income tax provision attributable to continuing operations for the year ended December 31, 2009 was $2.6 million compared to $1.7 million in the prior year. The 2009 provision for income taxes included $1.6 million relating to our foreign operations and $1.0 million relating to our domestic operations. Due to significant domestic net operating loss carry forwards, which are fully reserved by a valuation allowance, our domestic operations are not expected to incur significant federal income taxes until such time as the net operating losses are utilized.

Discontinued Operations

        Discontinued operations represent the results of the operations of our disposed Metrology segment, which was sold to Bruker on October 7, 2010.

Liquidity and Capital Resources

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

Cash and cash equivalents as of December 31, 20102012 was $245.1$384.6 million. This amount represents an increase of $96.6$166.6 million from December 31, 2009.2011. We also had short-term investments and restricted


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cash of $394.2$192.2 million and $76.1$2.0 million, respectively, as of December 31, 2010.2012. A summary of the current year cash flow activity is as follows (in thousands):

 
 Year ended
December 31,
 
 
 2010 2009 

Net income (loss)

 $361,760 $(15,632)
      

Net cash provided by operating activities

 $194,214 $59,038 

Net cash used in investing activities

  (121,621) (154,765)

Net cash provided by financing activities

  25,505  141,869 

Effect of exchange rates on cash and cash equivalents

  (1,466) (163)
      

Net increase in cash and cash equivalents

  96,632  45,979 

Cash and cash equivalents at beginning of year

  148,500  102,521 
      

Cash and cash equivalents at end of year

 $245,132 $148,500 
      
 
 Year ended December 31, 
 
 2012 2011 

Net income

 $30,928 $127,987 
      

Net cash provided by operating activities

 $111,963  115,442 

Net cash provided by investing activities

  48,321  106,294 

Net cash provided by (used in) financing activities

  5,555  (249,935)

Effect of exchange rate changes on cash and cash equivalents

  796  989 
      

Net increase (decrease) in cash and cash equivalents

  166,635  (27,210)

Cash and cash equivalents as of beginning of year

  217,922  245,132 
      

Cash and cash equivalents as of end of year

 $384,557 $217,922 
      

Cash provided byfrom operations during the year ended December 31, 20102012 was $194.2 millionrelatively flat compared to $59.02011 despite the $97.1 million during the year ended December 31, 2009. The $194.2 million cash provided by operationsreduction in 2010 included adjustments to the $361.8 million of net income forand the prior year benefit of $44.4 million from non-cash items which reduced the cash provided by net income by $168.3 million. The adjustments consisted of $12.9from discontinued operations and $11.3 million of depreciation and amortization, $9.6 million of non-cash equity-based compensation expense, $3.1 million of amortization of debt discount, $(25.1) million ofin deferred income taxes, $(23.3) million of excess tax benefits from stock option exercises, $(156.3) million of gain on disposal of our


Metrology segment and $10.0 million of discontinued operations. Net cash provided by operations was favorably impacted by a net $0.7 million of changestaxes. Changes in operating assets and liabilities which included an $83.2contributed $56.3 million increase in accounts receivable, a $49.5 million increase in inventories, duepositive cash flows for 2012 compared to the significant increaseutilization of $88.7 million in orderscash during 2011, resulting in our LED & Solar segment compared to 2009, a $23.3 million increase in supplier deposits and a $5.5 million increase in discontinued operations, partially offset by an $85.5 million increase in accrued expenses, principally resulting from customer deposits associated primarily with the significant increase in orders in our LED & Solar segment and a $78.9 million increase in income taxes payable. favorable impact of $145.0 million.

Cash provided by operations duringinvesting activities in 2012 declined by $58.0 million compared to the year ended December 31, 2009 was $59.0prior year. We consumed less cash in capital expenditures by $35.4 million and included adjustments to the $15.6 million net loss for non-cash items, which primarily consisted of $13.9 million of depreciation and amortization, $7.5 million of non-cash stock-based compensation expense, $2.8 million of amortization of debt discount, a $1.5 million non-cash inventory write-off and $8.8 million of discontinued operations. Net cash providedour acquisition costs declined by operations in 2009 was favorably impacted by a net $40.1 million of changes in operating assets and liabilities.

        Cash used in investing activities of $121.6 million during the year ended December 31, 2010, resulted primarily from $506.1 million of purchases of short-term investments, $10.7 million of capital expenditures, $76.1 million of transfers to restricted cash and $0.5 million of discontinued operations, partially offset by proceeds of $33.0$17.9 million from the saleprior year. During 2012, the Company did not have the benefit of $75.5 million released from restricted cash related to discontinued operations which it had in 2011. Furthermore, we generated $39.3 million less from our short-term investments, $225.2investment activity in 2012 compared to 2011.

We generated $5.6 million net proceedsin cash from our financing activities in 2012 compared to using $249.9 million in 2011, a favorable change of $255.5 million. This change results in part from the disposaluse of our Metrology segment and $213.6 million from the maturity of CDAR's. Cash used in investing activities of $154.8$162.1 million for the year ended December 31, 2009, resulted primarily from $135.0 million of purchases of short-term investments, $7.5 million of capital expenditures, $0.9 million of discontinued operations, $9.8 million of earn-out payments to the former owners of businesses acquired and $2.4 million for certain acquisitions, partially offset by $0.8 million of proceeds from the sale of property, plant and equipment.

        Cash provided by financing activities of $25.5 million during the year ended December 31, 2010, consisted primarily of $45.2 million of cash proceeds from stock option exercises and $23.3 million excess tax benefits from stock options exercises, partially offset by $4.6 million of restricted stock tax withholdings, $38.1 million of purchasespurchase of treasury stock in 2011 which we did not do in 2012 and $0.2repayments on our long-term debt were reduced by $105.6 million in 2012 compared to 2011.

As of September 30, 2013 our cash and cash equivalent balance, including restricted cash of $2.9 million was $250.5 million. The balance of our short term investments at September 30, 2013 was $322.5 million. On October 1, 2013 we utilized $70 million of repaymentsthe foregoing cash balance to close on the Synos Technology, Inc. ("Synos") acquisition. We believe that our September 30, 2013 existing cash balances and our projected cash generated from operations will be sufficient to meet our projected working capital and other cash flow requirements for the next twelve months, as well as our contractual obligations.


Table of long-term debt. Cash provided by financing activities of $141.9 million during the year ended December 31, 2009, consisted primarily of $130.1 million in cash proceeds from the issuance of common stock through a secondary public offering and $12.6 million from stock option exercises partially offset by $0.6 million of restricted stock tax withholdings and $0.2 million of repayments of long-term debt.Contents

As of December 31, 2010 we had notes of $105.6 million principal amount outstanding. 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.

        The notes are initially convertible into 36.7277 shares of common stock per $1,000 principal amount of notes (equivalent to a conversion price of $27.23 per share or a premium of 38% over the closing market price for our common stock on April 16, 2007). On or after April 20, 2011, we may redeem the notes, in whole or in part, for cash at 100% of the principal amount of the notes to be redeemed and the conversion premium in shares of our common stock plus accrued and unpaid interest to, but not including, the redemption date. 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. If the



convertible notes are converted, we have the ability and intent to pay the principal balance of notes tendered for conversion in cash. We will re-perform this test each quarter up to and including the fourth 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. The notes are unsecured and are effectively subordinated to all of our senior and secured indebtedness and to all indebtedness and other liabilities of our subsidiaries.

        As of December 31, 2010, we had $76.1 million of restricted cash consisting of $22.9 million that relates to the proceeds received from the sale of our Metrology segment. This cash is held in escrow and is restricted from use for one year from the closing date of the transaction to secure any losses arising out of breaches of representations, warranties and covenants we made in the stock purchase agreement and related documents. Additionally, we also had restricted cash consisting of $53.2 million which serves as collateral for bank guarantees that provide financial assurance that the Company will fulfill certain customer obligations. This cash is held in custody by the issuing bank, and is restricted as to withdrawal or use while the related bank guarantees are outstanding.

        As of December 31, 2010, our contractual cash obligations and commitments are as follows (in thousands)(in thousands):

 
 Payments due by period 
 
 Total Less than
1 year
 1 - 3 years 3 - 5 years More
than 5
years
 

Long-term debt(1)

 $2,406 $268 $604 $708 $826 

Interest on debt(1)

  735  181  294  190  70 

Operating leases(2)

  7,903  3,491  3,191  1,128  93 

Letters of credit and bank guarantees(3)

  15,998  15,998       

Purchase commitments(4)

  62,556  62,556       
            

 $89,598 $82,494 $4,089 $2,026 $989 
            

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

Long-term debt(1)

 $108,457 $105,803 $516 $604 $1,534 

Interest on debt(1)

  6,976  4,575  1,833  298  270 

Operating leases(2)

  9,464  3,915  4,083  1,236  230 

Letters of credit and bank guarantees(3)

  136,315  136,315       

Purchase commitments(4)

  200,296  200,296       
            

 $461,508 $450,904 $6,432 $2,138 $2,034 
            

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

(2)
In accordance with relevant accounting guidance, we account for our office leases as operating leases with expiration dates ranging from 20102013 through 2017.2018. There are future minimum annual rental payments required under the leases. Leasehold improvements made at the beginning of or during a lease are amortized over the shorter of the remaining lease term or the estimated useful lives of the assets. This also includes other operating leases we hold, such as cars, apartments and office equipment. There are no material sublease payments receivable associated with the leases.

(3)
Issued by a bank on our behalf as needed. We had letters of credit outstanding of $0.2$0.9 million and bank guarantees outstanding of $135.8$15.1 million, of which, $83.2 million can be drawn against lines of credit in our foreign subsidiaries and $52.6$2.0 million that is collateralized against cash that is restricted from use. As of December 31, 2012, we had $30.5 million of unused lines of credit and bank guarantees available to draw upon if needed.

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

As of September 30, 2013 our purchase commitments have been reduced to $58.6 million. Pursuant to our agreement to acquire Synos, we may be obligated to pay up to an additional $115 million if certain conditions are met. See note15. Subsequent Events in our consolidated financial statements in this Report.

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

Off-Balance Sheet Arrangements

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

Application of Critical Accounting Policies

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


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that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We consider certain accounting policies related to revenue recognition, short-term investments, the valuation of inventories, the impairment of goodwill and indefinite-lived intangible assets, the impairment of long-lived assets, fair value measurements, warranty costs, income taxes and equity-based compensation to be critical policies due to the estimation processes involved in each. We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation, including amounts related to discontinued operations.

Revenue Recognition:    We recognize revenue basedwhen all of the following criteria have been met: persuasive evidence of an arrangement exists with a customer; delivery of the specified products has occurred or services have been rendered; prices are contractually fixed or determinable; and collectability is reasonably assured. Revenue is recorded including shipping and handling costs and excluding applicable taxes related to sales. A significant portion of our revenue is derived from contractual arrangements with customers that have multiple elements, such as systems, upgrades, components, spare parts, maintenance and service plans. For sales arrangements that contain multiple elements, we split the arrangement into separate units of accounting if the individually delivered elements have value to the customer on currenta standalone basis. We also evaluate whether multiple transactions with the same customer or related party should be considered part of a multiple element arrangement, whereby we assess, among other factors, whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of each other. When we have separate units of accounting, guidance provided by the Securities and Exchange Commission ("SEC") and the Financial Accounting Standards Board ("FASB"). Ourwe allocate revenue transactions include sales of products under multiple-element arrangements. Revenue under these arrangements is allocated to each element based upon its estimated fair market value.on the following selling price hierarchy: vendor-specific objective evidence ("VSOE") if available; third party evidence ("TPE") if VSOE is not available; or our best estimate of selling price ("BESP") if neither VSOE nor TPE is available. For the majority of the elements in our arrangements we utilize BESP. The accounting guidance for selling price hierarchy did not include BESP for arrangements entered into prior to January 1, 2011, and as such we recognized revenue for those arrangements as described below.

We consider a broad array ofmany facts and circumstances when evaluating each of our sales arrangements in determining when to recognizedetermine the timing of revenue recognition, including specific terms of the purchase order, contractual obligations, to the customer,customer's creditworthiness and the complexitynature of the customer's post-delivery acceptance provisions, customer creditworthiness and the installation process. Management also considers the party responsible for installation, whether there are process specification requirements which need to be demonstrated before final sign off and payment, whether Veeco can replicate the field testing conditions and procedures in our factory and our past experience with demonstrating and installing a particular system. Salesprovisions. Our system sales arrangements, are reviewed on a case-by-case basis; however, the Company's revenue recognition protocol for established systems is as described below.

        System revenue isincluding certain upgrades, generally recognized upon shipment or delivery provided title and risk of loss has passed to the customer, evidence of an arrangement exists, prices are contractually fixed or determinable, collectability is reasonably assured and there are no material uncertainties regarding customer acceptance. Revenue from installation services is recognized at the time acceptance is



received from the customer. If the arrangement does not meet all the above criteria, the entire amount of the sales arrangement is deferred until the criteria have been met or all elements have been delivered to the customer or been completed.

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

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

        Our systems are principally sold to manufacturers in the HB-LED, the data storage and solar industries. Salesour arrangements, for these systems generally include customer acceptance criteria based upon Veeco and/or customer specifications. Prior to shipment a customer source inspection of the system is performed in our facility or test data is sent to the customer documenting that the system is functioning withinto the agreed upon specifications. Suchspecifications prior to delivery. Historically, such source inspection or test data replicates the field acceptance testingprovisions that will be performed at the customer's site prior to final acceptance of the system. CustomerAs such, we objectively demonstrate that the criteria specified in the contractual acceptance provisions include reassemblyare achieved prior to delivery and, installationtherefore, we recognize revenue upon delivery since there is no substantive contingency remaining related to the acceptance provisions at that date, subject to the retention amount constraint described below. For new products, new applications of existing products or for products with substantive customer acceptance provisions where we cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred and fully recognized upon the receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.

Our system sales arrangements, including certain upgrades, generally do not contain provisions for right of return or forfeiture, refund, or other purchase price concessions. In the rare instances where such provisions are included, we defer all revenue until such rights expire. In many cases our products are sold with a billing retention, typically 10% of the system atsales price (the "retention amount"), which is


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typically payable by the customer site, which includes performing functionalwhen field acceptance provisions are completed. The amount of revenue recognized upon delivery of a system or mechanical test procedures (i.e. hardware checks, leak testing, gas flow monitoring and quality control checksupgrade is limited to the lower of i) the amount that is not contingent upon acceptance provisions or ii) the value allocated to the delivered elements, if such sale is part of a multiple-element arrangement.

For transactions entered into prior to January 1, 2011, under the accounting rules for multiple-element arrangements in place at that time, we deferred the greater of the basic featuresretention amount or the relative fair value of the product.) Additionally, a material demonstration process may be performed to validateundelivered elements based on VSOE. When we could not establish VSOE or TPE for all undelivered elements of an arrangement, revenue on the functionalityentire arrangement was deferred until the earlier of the product. Upon meetingpoint when we did have VSOE for all undelivered elements or the agreed upon specifications the customer approves final acceptancedelivery of all elements of the product.arrangement.

        VeecoOur sales arrangements, including certain upgrades, generally is required to install these products and demonstrate compliance with acceptance tests at the customer's facility. Such installations typically are not considered complex and theinclude installation. The installation process is not deemed essential to the functionality of the equipment becausesince it is not complex; that is, it does not involverequire significant changes to the features or capabilities of the equipment or involve building complexelaborate interfaces or connections.connections subsequent to factory acceptance. We have a demonstrated history of consistently completing such installations in a timely consistent manner and can reliably estimate the costs of such. In such cases, the test environment at our facilities prior to shipment replicates the customer's environment. While there are others in the industry with sufficient knowledge about the installation process for our systems as a practical matter, mostactivities. Most customers engage the Companyus to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, we deem the installation of our systems to be inconsequential and perfunctory relative to the system as a whole, and as a result, do not consider such services to be a separate element of the arrangement. As such, we accrue the cost of the installation at the time of revenue recognition for the system.

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

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

Short-Term Investments:    We determine the appropriate balance sheet classification of our investments at the time of purchase and evaluate the classification at each balance sheet date. As part of our cash management program, we maintain a portfolio of marketable securities which are classified as available-for-sale. These securities include FDIC insuredguaranteed corporate bonds,debt, treasury bills commercial



paper and CDARSgovernment agency securities with maturities of greater than three months when purchased in principal amounts that, when aggregated with interest to accrue over the term, will not exceed FDIC limits.months. Securities classified as available-for-sale are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income (loss) and reported in equity. Net realized gains and losses are included in net income (loss) attributable to Veeco..

Inventory Valuation:    Inventories are stated at the lower of cost (principally first-in, first-out method) or market. On a quarterly basis, management assesses the valuation and recoverability of all inventories, classified as materials (which include raw materials, spare parts and service inventory), work-in-process and finished goods.

Materials inventory is used primarily to support the installed tool base and spare parts sales and is reviewed for excess quantities or obsolescence by comparing on-hand balances to historical usage, and adjusted for current economic conditions and other qualitative factors. Historically, the variability of such estimates has been impacted by customer demand and tool utilization rates.

The work-in-process and finished goods inventory is principally used to support system sales and is reviewed for excess quantities or obsolescence by considering whether on hand inventory would be utilized to fulfill the related backlog. As the Company typically receives deposits for its orders, the variability of this estimate is reduced as customers have a vested interest in the orders they place with the Company. Management also considers qualitative factors such as future product demand based on


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market outlook, which is based principally upon production requirements resulting from customer purchase orders received with a customer-confirmed shipment date within the next twelve months. Historically, the variability of these estimates of future product demand has been impacted by backlog cancellations or modifications resulting from unanticipated changes in technology or customer demand.

Following identification of potential excess or obsolete inventory, management evaluates the need to record adjustments for impairment ofwrite down inventory on a quarterly basis. Our policy is to assess the valuation of all inventories, including raw materials, work-in-process, finished goods, and spare parts and other service inventory. Obsolete or slow-moving inventory, based upon historical usage, or inventory in excess of management's estimated usage for the next 12 month's requirements is written-downbalances to its estimated market value, if less than its cost. Inherent in the estimates of market value are management's estimates related to our future manufacturing schedules, customer demand, technological and/or market obsolescence, possible alternative uses, and ultimate realization of potential excess inventory. Unanticipated changes in demand for our products may require a write down of inventory that could materially affect our operating results.

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

Pursuant to relevant accounting pronouncements, we are required to determine if it is appropriate to use the operating segment as defined under accounting guidance as the reporting unit or one level below the operating segment, depending on whether certain criteria are met. We have identified twofour reporting units that are required to be reviewed for impairment. The four reporting units are aggregated into two segments: the VIBE and Mechanical reporting units which are reported in our Data Storage segment; and the MOCVD and MBE reporting units which are reported in our LED &and Solar and Data Storage.segment. In identifying the reporting units management considered the economic characteristics of operating segments including the products and services provided, production processes, types or classes of customer and product distribution.

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

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

Definite-Lived Intangible and Long-Lived Assets:    IntangibleDefinite-lived intangible assets consist of purchased technology, customer-related intangible assets, patents, trademarks, covenants not-to-compete, software licenses and deferred financing costs. Purchased technology consists of the core proprietary manufacturing



technologies associated with the products and offerings obtained through acquisition and are initially recorded at fair value. Customer-related intangible assets, patents, trademarks, and covenants not-to-compete and software licenses that are obtained in an acquisition are initially recorded at fair value and


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value. Other software licenses and deferred financing costs are initially recorded at cost. Intangible assets with definitive useful lives are amortized using the straight-line method over their estimated useful lives for periods ranging from 2 years to 17 years.

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

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

Fair Value Measurements:    Accounting guidance for our non-financial assets and non-financial liabilities requires that we disclose the type of inputs we use to value our assets and liabilities, based on three categories of inputs as defined in such. Level 1 inputs are quoted, unadjusted prices in active markets for identical assets or liabilities that the company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. These requirements apply to our long-lived assets, goodwill, cost method investment and intangible assets. We use Level 3 inputs to value all of such assets and the methodology we use to value such assets has not changed since December 31, 2009.assets. The Company primarily applies the market approach for recurring fair value measurements.

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

Income Taxes:    As part of the process of preparing our Consolidated Financial Statements, weWe are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax expense, together with assessing temporary differences resulting from differing treatment of items for tax and accountingfinancial reporting purposes. These differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. The carrying value of our deferred tax assets is adjusted by a partial valuation allowance to recognize the extent to which the future tax benefits will be recognized on a more likely than not basis. Our net



deferred tax assets consist primarily of net operating loss and tax credit carry forwards and timing differences between the book and tax treatment of inventory, acquired intangible assets and


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other asset valuations. Realization of these net deferred tax assets is dependent upon our ability to generate future taxable income.

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

Relevant accounting guidance addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under such guidance, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

        Equity-basedEquity-Based Compensation:    The Company grants equity-based awards, such as stock options and restricted stock or restricted stock units, to certain key employees to create a clear and meaningful alignment between compensation and shareholder return and to enable the employees to develop and maintain a stock ownership position. While the majority of our equity awards feature time-based vesting, performance-based equity awards, which are awarded from time to time to certain key Company executives, vest as a function of performance, and may also be subject to the recipient's continued employment which also acts as a significant retention incentive.

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

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

We use an expected stock-price volatility assumption that is a combination of both historical volatility calculated based on the daily closing prices of our common stock over a period equal to the expected term of the option and implied volatility, utilizingand utilization of market data of actively traded options on our common stock, which are obtained from public data sources. We believe that the historical volatility of the price of our common stock over the expected term of the option is a strong indicator of the expected future volatility and that implied volatility takes into consideration market expectations of how future volatility will differ from historical volatility. Accordingly, we believe a combination of both historical and implied volatility provides the best estimate of the future volatility of the market price of our common stock.

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

We estimate forfeitures using our historical experience, which is adjusted over the requisite service period based on the extent to which actual forfeitures differ or are expected to differ, from such


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estimates. Because of the significant amount of judgment used in these calculations, it is reasonably likely that circumstances may cause the estimate to change.

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


We settle the exercise of stock options with newly issued shares.

With respect to grants of performance based awards, we assess the probability that such performance criteria will be met in order to determine the compensation expense. Consequently, the compensation expense is recognized straight-line over the vesting period. If that assessment of the probability of the performance condition being met changes, the company would recognize the impact of the change in estimate in the period of the change. As with the use of any estimate, and owing to the significant judgment used to derive those estimates, actual results may vary.

The Company has elected to treat awards with only service conditions and with graded vesting as one award. Consequently, the total compensation expense is recognized straight-line over the entire vesting period, so long as the compensation cost recognized at any date at least equals the portion of the grant date fair value of the award that is vested at that date.

Recent Accounting Pronouncements

        Business Combinations:Parent's Accounting for the Cumulative Translation Adjustment:    In March 2013, the FASB issued ASU No. 2013-05,Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This new standard is intended to resolve diversity in practice regarding the release into net income of a cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. ASU No. 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 2010,15, 2013. We are currently reviewing this standard, but we do not anticipate that its adoption will have a material impact on our consolidated financial statements, absent any material transactions involving the derecognition of subsidiaries or groups of assets within a foreign entity.

Comprehensive Income:    In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-02,Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which contained amended standards regarding disclosure requirements for items reclassified out of accumulated other comprehensive income ("AOCI"). These amended standards require the disclosure of information about the amounts reclassified out of AOCI by component and, in addition, require disclosure, either on the face of the financial statements or in the notes, of significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. These amended standards do not change the current requirements for reporting net income or other comprehensive income in the consolidated financial statements. These amended standards were effective for us on January 1, 2013, and the adoption of this guidance did not materially impact our consolidated financial statements.

Technical Corrections and Improvements:    In October 2012, the FASB issued amended guidance related to Business Combinations.Technical Corrections and Improvements. The amendments affect any public entity that enters into business combinationsrepresent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are materialnot expected to have a significant effect on an individualcurrent accounting practice or aggregate basis.create a significant administrative cost to most entities. The amendments specify that if a publicwill make the Codification easier to understand and the fair value measurement guidance easier to apply by eliminating inconsistencies and


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providing needed clarifications. An entity presents comparative financial statements,is required to apply the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prioramendments for annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting periodperiods beginning on or after December 15, 2010. Early adoption is permitted.2012. The amendment has no transition guidance. The Company does not believe that this guidance will assess thehave a material impact of these amendments on its consolidated financial statements if and when an acquisition occurs.statements.

        Intangibles—Goodwill and Other:Indefinite-Lived Intangible Assets:    In December 2010,July 2012, the FASB issued amended guidance related to Intangibles—Goodwill and Other.Other: Testing of Indefinite-Lived Intangible Assets for Impairment. This amendment intends to simplify the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. Some examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses and distribution rights. The amendments modify Step 1guidance allows companies to perform a qualitative assessment about the likelihood of impairment of an indefinite-lived intangible asset to determine whether further impairment testing is necessary, similar in approach to the goodwill impairment testtest. The ASU will become effective for reporting units with zero or negative carrying amounts. Forannual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company early adopted this standard in the third quarter of 2012 and this guidance did not have a material impact on its consolidated financial statements.

Balance Sheet:    In December 2011, the FASB issued amended guidance related to the Balance Sheet (Disclosures about Offsetting Assets and Liabilities). This amendment requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those reporting units, anarrangements on its financial position. An entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities,apply the amendments are effective for fiscal years,annual reporting periods beginning on or after January 1, 2013, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted.annual periods. The amendment should be applied retrospectively. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

        Subsequent Events:Comprehensive Income:    TheIn December 2011, the FASB has issued amended guidance for subsequent events.related to Comprehensive Income. In order to defer only those changes in the June amendment (addressed below) that relate to the presentation of reclassification adjustments, the FASB issued this amendment to supersede certain pending paragraphs in the June amendment. The amendment removesamendments are being made to allow the requirement for an SEC filerFASB time to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a resultredeliberate whether to present on the face of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity thatthe effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is not an SEC filer should disclose bothconsidering the date thatoperational concerns about the financial statements were issued or available to be issuedpresentation requirements for reclassification adjustments and the date the revisedneeds of financial statements were issued or availablestatement users for additional information about reclassification adjustments, entities should continue to be issued. The FASB believes these amendments remove potential conflictsreport reclassifications out of accumulated other comprehensive income consistent with the SEC's literature.presentation requirements in effect before the June amendment. All ofother requirements are not affected, including the amendments were effective upon issuance (February 24, 2010).requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

        Fair Value Measurements:Intangibles—Goodwill and Other:    In January 2010,September 2011, the FASB issued amended guidance related to Intangibles—Goodwill and Other: Testing Goodwill for Fair Value Measurements and Disclosures. This update requires some new disclosures and clarifies existing disclosure requirements aboutImpairment. The amendment is intended to simplify how entities test goodwill for impairment. The amendment permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value measurement. The FASB's objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, this update requires thatof a reporting entity disclose separatelyunit is less than its carrying amount as a basis for determining whether it is necessary to perform the amountstwo-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of significant transfers inmore than 50%. This amendment is effective for annual and out of Level 1 and Level 2 fair value measurements and describe the reasonsinterim goodwill impairment tests performed for the transfers; and in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition, this update clarifies the requirements of existing disclosures. For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and a reporting entity should provide disclosures about the



valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This update was adopted on January 1, 2010, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.fiscal years beginning after December 15, 2011. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.


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        Revenue Recognition:Comprehensive Income:    In October 2009,June 2011, the FASB issued amended guidance related to multiple-element arrangements which requiresComprehensive Income. This amendment allows an entity the option to allocate arrangement consideration atpresent the inceptiontotal of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an arrangemententity is required to allpresent each component of its deliverables based on their relative selling prices. This updatenet income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendment eliminates the useoption to present the components of other comprehensive income as part of the residual methodstatement of allocationequity. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendment should be applied retrospectively. The amendments are effective for fiscal years, and requires the relative-selling-price method in all circumstances. All entities must adopt the guidance no later than theinterim periods within those years, beginning of their first fiscal year beginning on or after JuneDecember 15, 2010. Entities may elect to adopt the guidance through either prospective application for revenue arrangements entered into or materially modified, after the effective date or through retrospective application to all revenue arrangements for all periods presented.2011. The Company does not believe thatadoption of this guidance willdid not have a material impact on itsthe Company's consolidated financial statements.

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

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

Market Risk

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

Interest Rates

We centrally manage our debt and investment portfolios considering investment opportunities and risk, tax consequences and overall financing strategies. Our investment portfolio includes fixed-income securities with a fair value of approximately $394.2$192.2 million atas of December 31, 2010.2012. These securities are subject to interest rate risk and will decline in value if interest rates increase. Based on our investment portfolio atas of December 31, 2010,2012, an immediate 100 basis point increase in interest rates may result in a significant decrease in the fair value of the portfolio.portfolio of approximately $1.4 million. Our investment portfolio as of September 30, 2013 had a fair value of approximately $322.5 million. An immediate 100 basis point increase in interest rates may result in a decrease in the fair value of the September 30, 2013 portfolio of approximately $2.9 million. While an increase in interest rates may reduce the fair value of the investment portfolio, we will not realize the losses in the consolidated statementstatements of operationsincome unless the individual fixed-income securities are sold prior to recovery or the loss is determined to be other-than-temporary. Our debt portfolio consists of fixed rate and fixed maturity instruments therefore any changes in interest rates will not have an impact on net interest expense.


Foreign Operations

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

Our net sales to foreign customers represented approximately 90%84%, 79%90% and 59%90% of our total net sales in 2010, 20092012, 2011 and 2008,2010, respectively. We expect that net sales to foreign customers will continue to represent a large percentage of our total net sales. Our net sales denominated in foreign currencies represented approximately 2%4%, 6%3% and 5%2% of total net sales in 2010, 20092012, 2011 and 2008,2010, respectively. The aggregate foreign currency exchange (loss) gain (loss) included in determining consolidated results of operations was approximately $(0.5) million, $(1.0) million and $1.3 million $(0.7) millionin 2012, 2011 and $(0.1) million in 2010, 2009 and 2008,


Table of Contents

respectively. Included in the aggregate foreign currency exchange (loss) gain (loss) were gains (losses) relating to forward contracts of $0.3 million, $0.5 million and $0.1 million $0.2 millionin 2012, 2011 and ($0.4) million in 2010, 2009 and 2008, respectively. These amounts were recognized and are included in other, expense (income), net.net in the accompanying Consolidated Statements of Income.

As of December 31, 2012, there was a $0.2 million gain related to forward contracts included in prepaid expenses and other current assets. As of December 31, 2011, there were no gains or losses related to forward contracts included in prepaid expenses and other current assets or accrued expenses and other current liabilities. As of December 31, 2010, approximately $0.3 million of gains related to forward contracts were included in prepaid expenses and other current assets and these amounts were subsequently received in January 2011.assets. As of December 31, 2009, approximately $0.2 million of gains related to2012, there are monthly forward contracts were included in prepaid expenses and other current assets and these amounts were subsequently received in January 2010. Monthly forward contracts foroutstanding with a notional amount of $18.5$9.6 million, for the month ofwhich settled in January 2011 were entered into in December 2010. 2013.

We are exposed to financial market risks, including changes in foreign currency exchange rates. To mitigate these risks, we use derivative financial instruments. We do not use derivative financial instruments for speculative or trading purposes. We enter into monthly forward contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known currency exposures. The weighted average notional amount of such contracts outstanding was approximately $6.2$3.5 million for the year ended December 31, 2010.2012. The changes in currency exchange rates that have the largest impact on translating our international operating profit (loss) are the Japanese Yen, the British Poundyen and the Euro.euro. We believe that based upon our hedging program, a 10% change in foreign exchange rates would have an immaterial impact on the consolidated results of operations. We believe that this quantitative measure has inherent limitations because as discussed in the first paragraph of this section, it does not take into account any governmental actions or changes in either customer purchasing patterns or our financing and operating strategies. From December 31, 2012 through September 30, 2013, we did not have a material net foreign currency exchange effect on our financial position, results of operations, or cash flows from currencies that we have exposure to.

Item 8.    Financial Statements and Supplementary Data

Our Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements and Financial Statement Schedule filed as part of this Form 10-K.

Quarterly Results of Operations

        The following table presents selected unaudited financial data for each quarter of fiscal 2010 and 2009. Consistent with prior years, we report interim quarters, other than fourth quarters which always end on December 31, on a 13-week basis ending on the last Sunday within such period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 2010 interim quarter ends were March 28, June 27 and September 26. The 2009 interim quarter ends were March 29, June 28 and September 27. For ease of reference, we report these interim quarter ends as March 31, June 30 and September 30 in our interim condensed consolidated financial statements.


        Although unaudited, this information has been prepared on a basis consistent with our audited Consolidated Financial Statements and, in the opinion of our management, reflects all adjustments (consisting only of normal recurring adjustments) that we consider necessary for a fair presentation of this information in accordance with accounting principles generally accepted in the United States. Such quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with our audited Consolidated Financial Statements and the notes thereto.

 
 Fiscal 2010 Fiscal 2009 
 
 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year 
 
 (in thousands, except per share data)
 

Net sales

 $134,750 $221,389 $277,094 $299,998 $933,231 $39,107 $49,475 $74,688 $119,142 $282,412 

Gross profit

  56,740  98,801  135,482  152,802  443,825  10,909  16,248  30,547  53,531  111,235 

Income (loss) from continuing operations, net of income taxes

  22,824  49,931  91,104  96,672  260,531  (17,661) (12,577) 31  15,978  (14,229)

Income (loss) from discontinued operations, net of income taxes

  3,220  2,462  (4,941) 100,488  101,229  (3,283) (2,126) 1,239  2,767  (1,403)

Net loss attributable to noncontrolling interest

            (42) (23)     (65)
                      

Net income (loss) attributable to Veeco

 $26,044 $52,393 $86,163 $197,160 $361,760 $(20,902)$(14,680)$1,270 $18,745 $(15,567)
                      

Income (loss) per common share attributable to Veeco:

                               

Basic:

                               
 

Continuing operations

 $0.59 $1.26 $2.28 $2.45 $6.60 $(0.56)$(0.40)$ $0.45 $(0.44)
 

Discontinued operations

  0.08  0.06  (0.12) 2.55  2.56  (0.10) (0.07) 0.04  0.08  (0.04)
                      
 

Income (loss)

 $0.67 $1.32 $2.16 $5.00 $9.16 $(0.66)$(0.47)$0.04 $0.53 $(0.48)
                      

Diluted :

                               
 

Continuing operations

 $0.54 $1.15 $2.16 $2.30 $6.13 $(0.56)$(0.40)$ $0.42 $(0.44)
 

Discontinued operations

  0.08  0.05  (0.12) 2.40  2.38  (0.10) (0.07) 0.04  0.08  (0.04)
                      
 

Income (loss)

 $0.62 $1.20 $2.04 $4.70 $8.51 $(0.66)$(0.47)$0.04 $0.50 $(0.48)
                      

Weighted average shares outstanding:

                               
 

Basic

  38,784  39,761  39,946  39,453  39,499  31,515  31,497  31,608  35,623  32,628 
 

Diluted

  42,269  43,506  42,258  41,972  42,514  31,515  31,497  32,375  37,742  32,628 

        On August 15, 2010, we signed a definitive agreement to sell our Metrology business to Bruker comprising our entire Metrology reporting segment for $229.4 million. Accordingly, Metrology's operating results are accounted for as discontinued operations in determining the consolidated results of operations. The sales transaction closed on October 7, 2010, except for assets located in China due to local restrictions. Total proceeds, which included a working capital adjustment of $1 million, totaled $230.4 million of which $7.2 million relates to the assets in China. As part of our agreement with Bruker, $22.9 million of proceeds 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. During the fourth quarter of 2010, we recognized a pre-tax gain on disposal of $156.3 million and a pre-tax deferred gain of $5.4 million related to the assets in China.

        During the first quarter of 2010, we recognized a restructuring credit of $0.2 million associated with a change in estimate.


        During the first quarter of 2009, we recognized a restructuring charge of $2.3 million, primarily for personnel severance. During the second quarter of 2009, we recognized an additional restructuring charge of approximately $1.7 million primarily for lease-related and personnel severance costs and an asset impairment charge of $0.3 million for property and equipment no longer being utilized in our Data Storage segment. During the third quarter of 2009, we recognized an additional restructuring charge of $0.8 million, primarily for personnel severance costs. During the fourth quarter of 2009, we recognized an additional restructuring charge of $0.1 million related to personnel severance costs.

        A variety of factors influence the level of our net sales in a particular quarter including economic conditions in the HB LED, solar, data storage and semiconductor industries, the timing of significant orders, shipment delays, specific feature requests by customers, the introduction of new products by us and our competitors, production and quality problems, changes in material costs, disruption in sources of supply, seasonal patterns of capital spending by customers, and other factors, many of which are beyond our control. In addition, we derive a substantial portion of our revenues from the sale of products which have an average selling price in excess of $2,000,000. As a result, the timing of recognition of revenue from a single transaction could have a significant impact on our net sales and operating results in any given quarter.

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

None.

Item 9A.    Controls and Procedures

This Item 9A includes information concerning the controls and control evaluations referred to in the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Exchange Act included in this Report as Exhibits 31.1 and 31.2.

Evaluation of Disclosure Controls and Procedures

        Our senior management is responsible for establishing and maintaining a system of disclosureDisclosure controls and procedures (as defined in Rule 13a-14Rules 13a-15(e) and 15d-14 under15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"))Act) are designed to ensure that information required to be disclosed by us in the reports that we filefiled or submitsubmitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission'sSEC rules and forms. Disclosure controlsforms and procedures include, without limitation, controls, and procedures designed to ensure that such information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officersthe Chief Executive Officer and principal financial officer or officers, or persons performing similar functions, as appropriateChief Financial Officer, to allow timely decisions regarding required disclosure.disclosures.

        We have evaluatedIn connection with the preparation of this report, Veeco's management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervisionas


Table of andContents

of December 31, 2012 in connection with the participationfiling of this Annual Report on Form 10-K. As described below, management including the chief executive officerhas identified material weaknesses in our internal control over financial reporting, which is an integral component of our disclosure controls and chief financial officer, asprocedures. As a result of the end ofmaterial weaknesses and the inability to file Annual Reports on Form 10-K within the statutory time period, covered by this report. Based on that evaluation, our chief executive officer and our chief financial officermanagement has concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions,were ineffective as appropriate to allow timely decisions regarding required disclosure.

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


Design and Evaluation of Internal Control Over Financial Reporting

        Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report of management's assessment of the design and effectiveness of its internal controls as part of this Annual Report on Form 10-K for the year ended December 31, 2010. Our independent registered public accounting firm also attested to, and reported on, the effectiveness of internal control over financial reporting. 2012.

Management's report and the independent registered public accounting firm's attestation report are included in our Consolidated Financial Statements for the year ended December 31, 2010 under the caption entitled "Management's Report on Internal Control Over Financial Reporting" and "Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting."

Changes in Internal Control Over Financial Reporting

        There have been no significant changes in our internal controls or other factors during the fiscal year ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information

        None.



PART III

        PortionsManagement of the information required by Part III of Form 10-K are incorporated by reference from Veeco's Proxy Statement to be filed with the SEC in connection with Veeco's 2011 Annual Meeting of Stockholders (the "Proxy Statement").

Item 10.    Directors, Executive Officers,Veeco and Corporate Governance

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

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

Item 11.    Executive Compensation

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

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

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

        The following table gives information about our common stock that may be issued under our equity compensation plans as of December 31, 2010. See Note 8 to the Consolidated Financial Statements included herein for information regarding the material features of these plans.

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

Equity compensation plans approved by security holders

  2,560,354 $19.62  2,623,776 

Equity compensation plans not approved by security holders

  9,272(1)$43.19   
         

Total

  2,569,626     2,623,776 
         

(1)
Stock options assumed in connection with the acquisition of Applied Epi, Inc. on September 17, 2001.

Item 13.    Certain Relationships, Related Transactions and Director Independence

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

Item 14.    Principal Accounting Fees and Services

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



PART IV

Item 15.    Exhibits and Financial Statement Schedules

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

(b)
Exhibits

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

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

3.1


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


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

3.2


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


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

3.3


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


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

3.4


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


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

3.5


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


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

3.6


Amendment to Certificate of Incorporation of Veeco dated May 14, 2010


Filed herewith

3.7


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


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

3.8


Amendment No. 1 to the Fourth Amended and Restated Bylaws of Veeco effective May 20, 2010


Current Report on Form 8-K, filed May 26, 2010, Exhibit 3.1

NumberExhibitIncorporated by Reference to the Following Documents
4.1Rights Agreement, dated as of March 13, 2001, between Veeco and American Stock Transfer and Trust Company, as Rights Agent, including the form of the Certificate of Designation, Preferences, and Rights setting forth the terms of the Series A Junior Participating Preferred Stock, par value $0.01 per share, as Exhibit A, the form of Rights Certificates as Exhibit B and the Summary of Rights to Purchase Preferred Stock as Exhibit C.Registration Statement on Form 8-A dated March 15, 2001, Exhibit 1

4.2


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


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

4.3


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


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

4.4


Indenture, dated April 16, 2007, between Veeco and U.S. Bank National Trust


Post-Effective Amendment No. 1 To Registration Statement on Form S-3 (File No. 333-128004) filed April 16, 2007, Exhibit 4.1

4.5


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


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

10.1


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


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

10.2


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


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

10.3


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


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

10.4

*

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


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

10.5

*

Veeco Amended and Restated 1992 Employees' Stock Option Plan.


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

10.6

*

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


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

NumberExhibitIncorporated by Reference to the Following Documents
10.7*Amendment dated July 25, 1997 to Veeco Amended and Restated 1992 Employees' Stock Option Plan.Registration Statement on Form S-8 (File No. 333-35009) filed September 5, 1997, Exhibit 10.2

10.8

*

Amendment dated May 29, 1998 to Veeco Amended and Restated 1992 Employees' Stock Option Plan.


Registration Statement on Form S-8 (File No. 333-79469) filed May 27, 1999, Exhibit 10.1

10.9

*

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


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

10.10

*

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


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

10.11

*

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


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

10.12

*

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


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

10.13

*

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


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

10.14

*

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


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

10.15

*

Veeco 2010 Stock Incentive Plan, effective May 14, 2010


Registration Statement on Form S-8 (File Number 333-166852) filed May 14, 2010, Exhibit 10.1

10.16

*

Form of 2010 Stock Incentive Plan Stock Option Agreement


Registration Statement on Form S-8 (File Number 333-166852) filed May 14, 2010, Exhibit 10.2

10.17

*

Form of 2010 Stock Incentive Plan Restricted Stock Agreement


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

10.18

*

Veeco Performance-Based Restricted Stock 2010


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

10.19

*

Veeco 2010 Management Bonus Plan dated January 22, 2010


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

10.20

*

Veeco 2010 Special Profit Sharing Plan dated February 15, 2010


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

10.21

*

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


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

NumberExhibitIncorporated by Reference to the Following Documents
10.22*Amendment No. 1 dated December 23, 2008 (effective September 12, 2008) to Veeco Senior Executive Change in Control PolicyAnnual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.37

10.23

*

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


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

10.24

*

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


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

10.25

*

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


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

10.26

*

Second Amendment effective June 11, 2010 to Employment Agreement between Veeco and John R. Peeler


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

10.27

*

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


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

10.28

*

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


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

10.29

*

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


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

10.30

*

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


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

10.31

*

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


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

10.32

*

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


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

10.33

*

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


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

10.34

*

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


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

10.35

*

Amendment effective June 9, 2006 to Employment Agreement between Veeco and John F. Rein, Jr.


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

10.36

*

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


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

NumberExhibitIncorporated by Reference to the Following Documents
10.37*Amendment effective December 31, 2008 to Employment Agreement between Veeco and John F. Rein, Jr.Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.39

10.38

*

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


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

10.39

*

Letter Agreement dated September 23, 2010 between Veeco and Mark R. Munch


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

21.1


Subsidiaries of the Registrant.


Filed herewith

23.1


Consent of Ernst & Young LLP.


Filed herewith

31.1


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


Filed herewith

31.2


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


Filed herewith

32.1


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


Filed herewith

32.2


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


Filed herewith

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


SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 23, 2011.

VEECO INSTRUMENTS INC.



By:


/s/ JOHN R. PEELER

John R. Peeler
Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on February 23, 2011.

Signature
Title



/s/ EDWARD H. BRAUN

Edward H. Braun
Director and Chairman

/s/ RICHARD A. D'AMORE

Richard A. D'Amore


Director

/s/ JOEL A. ELFTMANN

Joel A. Elftmann


Director

/s/ THOMAS GUTIERREZ

Thomas Gutierrez


Director

/s/ GORDON HUNTER

Gordon Hunter


Director

/s/ ROGER D. MCDANIEL

Roger D. McDaniel


Director

/s/ JOHN R. PEELER

John R. Peeler


Director and Chief Executive Officer
(principal executive officer)

/s/ PETER J. SIMONE

Peter J. Simone


Director

/s/ DAVID D. GLASS

David D. Glass


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

/s/ JOHN P. KIERNAN

John P. Kiernan


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

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Veeco Instruments Inc. and Subsidiaries

Index to Consolidated Financial Statements

and Financial Statement Schedule


Page

Management's Report on Internal Control Over Financial Reporting

F-2

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

F-3

Report of Independent Registered Public Accounting Firm on Financial Statements

F-4

Consolidated Balance Sheets at December 31, 2010 and 2009

F-5

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

F-6

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2010, 2009 and 2008

F-7

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

F-8

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

F-9

Notes to Consolidated Financial Statements

F-10

Schedule II—Valuation and Qualifying Accounts

S-1

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Management's Report on Internal Control
Over Financial Reporting

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

    pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

    provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

    provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

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

        As required by Section 404 A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Sarbanes-Oxley Actannual or interim financial statements will not be prevented or detected on a timely basis.

Veeco management, under the supervision of 2002, management assessedits Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of the Company'sits internal control over financial reporting as of December 31, 2010. In making this assessment, management used2012 based on the criteria set forthestablished inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") inInternal Control-Integrated Framework(COSO). In connection with the above assessment, Veeco management identified the following material weaknesses:

        Based onInadequate and ineffective controls over the recognition of revenue

We did not have adequate controls to ensure that revenue was recorded in accordance with GAAP. Specifically, we noted the following with respect to our assessmentaccounting for certain revenue transactions:

We did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience, and those criteria, management believestraining in the application of US GAAP related to revenue recognition for multiple-element arrangements.

We did not design and maintain effective controls over the adequate review and approval of customer orders at certain of our foreign subsidiaries to ensure that the Company maintainedorder documentation received from the customer constituted the final order documentation. Additionally, in some cases, our foreign subsidiaries did not always communicate to our corporate accounting staff all of the information necessary to make accurate revenue recognition determinations.

We did not design and maintain adequate procedures or effective review and approval controls over the accurate recording, presentation and disclosure of revenue and related costs related to multiple-element arrangements, including ensuring that multiple-element arrangements were identified, evaluated and effectively reviewed by appropriate accounting personnel. Specifically, we did not establish adequate procedures or design effective controls to:

Identify the nature of contracts, capture necessary data and determine how revenue should be recognized in accordance with applicable revenue recognition guidance;

Ensure consistent communication and coordination between and among various finance and non-finance personnel about the scope, terms and modifications to customer arrangements; and

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Ensure that all elements included in multiple-element arrangements were identified and accounted for appropriately.

Assess whether vendor-specific objective evidence, third-party evidence of fair value or, for periods subsequent to January 1, 2011, adequate documentation of management's determination of best estimate of selling price existed for all the elements in the arrangement.

As a result of the material weaknesses described above, management has concluded that, as of December 31, 2012, our internal control over financial reporting was not effective. The Company's independent registered public accounting firm audited the effectiveness of internal control over financial reporting as of December 31, 2012. Their report on the effectiveness of internal control over financial reporting as of December 31, 2012 is set forth herein. The Company's independent registered public accounting firm has issued an unqualified opinion on the Company's consolidated financial statements for 2012, which is included in Part II, Item 8 of this annual report on Form 10-K.

Remediation of Material Weaknesses in Internal Control Over Financial Reporting

Management is committed to the planning and implementation of remediation efforts to address the material weaknesses. These remediation efforts, summarized below, which have been implemented or are in process of implementation, are intended to both address the identified material weaknesses and to enhance our overall financial control environment. In this regard, our initiatives include:

Organizational Enhancements—The Company has hired a new Vice President—Global Revenue Recognition who will be responsible for all aspects of the Company's revenue recognition policies, procedures and accounting. The Company has also created three new corporate revenue recognition positions, two of which have already been filled. Additionally, the Company has replaced certain key personnel in some of its foreign subsidiaries.

Training—The Company is developing a comprehensive revenue recognition training program, portions of which have already been delivered. This training is focused on senior-level management, customer-facing employees as well as business unit, finance, sales and marketing personnel, including those at our foreign subsidiaries.

Revenue Practices—The Company is currently evaluating its revenue practices and has begun implementing changes in those practices. Improvements are focused in the areas of (1) development of more comprehensive revenue recognition policies and improved procedures to ensure that such policies are understood and consistently applied, (2) better communication among all functions involved in the sales process (e.g., sales, business unit, foreign subsidiaries, legal, accounting, finance), (3) more standardization of contract documentation and revenue analyses for individual transactions and (4) system improvements and automation of manual processes.

While this remediation plan is being executed, the Company has also engaged additional external resources to support and supplement the Company's existing internal resources.

When fully implemented and operational, we believe the measures described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, our management may determine to take additional measures.

Changes in Internal Control Over Financial Reporting

Other than the ongoing remediation efforts described above, there have been no changes in our internal control over financial reporting during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information

None.


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PART III

Item 10.    Directors, Executive Officers, and Corporate Governance

Veeco's Board of Directors and management are committed to responsible corporate governance to ensure that Veeco is managed for the long-term benefit of its stockholders. To that end, the Board of Directors and management review published guidelines and recommendations of institutional stockholder organizations and current best practices of similarly situated public companies. The Board and management periodically evaluate and, when appropriate, revise Veeco's corporate governance policies and practices in light of these guidelines and practices and to comply with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and listing standards issued by the Securities and Exchange Commission ("SEC") and The Nasdaq Stock Market, Inc. ("Nasdaq").

Members of the Board of Directors

The Directors of Veeco, and their ages, year they joined the Board and committee memberships as of October 18, 2013, are:

 
  
  
 Committee Membership
Name
 Age Director
since
 Audit Compensation Governance Strategic
Planning

Edward H. Braun

 73 1990       Chair

Richard A. D'Amore

 60 1990   X   X

Gordon Hunter

 62 2010   X Chair X

Keith D. Jackson

 58 2012 X      

Roger D. McDaniel(A)

 74 1998 X Chair    

John R. Peeler

 58 2007       X

Peter J. Simone

 66 2004 Chair   X  

(A)
Mr. McDaniel also serves as Lead Director.

Edward H. Braun was Chairman and Chief Executive Officer of Veeco from January 1990 through July 2007, and Chairman from July 2007 through May 2012. Mr. Braun led a management buyout of a portion of Veeco's predecessor in January 1990 to form the Company. He joined the predecessor in 1966 and held numerous executive positions during his tenure there. Mr. Braun is a Director Emeritus of Semiconductor Equipment and Materials International (SEMI), a trade association, of which he was Chairman of the Board in 1993. In addition, within the past five years, Mr. Braun served as a director of Axcelis Technologies, Inc. and Cymer, Inc.

Mr. Braun has been associated with Veeco and Veeco's predecessor for over 40 years and brings to the Board extensive knowledge about our business operations and our served markets. Mr. Braun also brings to the Board significant executive leadership and operational experience. Mr. Braun's prior business experience and board service, along with his long tenure at Veeco, give him a broad and extensive understanding of our operations and the proper role and function of the Board.

Richard A. D'Amore has been a General Partner of North Bridge Venture Partners, a venture capital firm, since 1994. In addition, during the past five years, Mr. D'Amore served as a director of Phase Forward Incorporated and Solectron Corporation.

Mr. D'Amore brings a strong business background to Veeco, having worked in the venture capital field for over 30 years. Mr. D'Amore has experience as a certified public accountant and gained substantial experience in overseeing the management of diverse organizations, having served as a board member on other public company boards and numerous private company boards. As a result of this service, Mr. D'Amore has a broad understanding of the operational, financial and strategic issues facing public


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companies. He has served on our Board for 20 years and through that service has developed extensive knowledge of our business.

Gordon Hunter is Chairman, President and Chief Executive Officer of Littelfuse, Inc., a provider of circuit protection products and solutions. He also serves on the Council of Advisors of Shure Incorporated. Mr. Hunter has been a director of Littelfuse since June 2002 and became Chairman, President and Chief Executive Officer of Littelfuse in January 2005. Prior to joining Littelfuse, Mr. Hunter was Vice President of Intel Communications Group and General Manager of Optical Products Group. At Intel, Mr. Hunter was responsible for Intel's access and optical communications business segments within the Intel Communications Group. Prior to joining Intel in February 2002, he served as President of Elo TouchSystems, a subsidiary of Raychem Corporation. Mr. Hunter also served in a variety of positions during a 20 year career at Raychem Corporation, including Vice President of Commercial Electronics and a variety of sales, marketing, engineering and management positions. Mr. Hunter also serves on the Board of Littelfuse and CTS Corporation.

Mr. Hunter has substantial leadership and management experience, having served as the Chairman, President and Chief Executive Officer of Littelfuse and in various leadership roles at a number of other companies. He has a strong background and valuable experience in the technology industry, gained from his tenure at Littelfuse, Intel and Raychem. Mr. Hunter brings a broad understanding of the operational, financial and strategic issues facing public and private companies to the board as a result of his service on other public and private boards.

Keith D. Jackson is President and Chief Executive Officer of ON Semiconductor Corporation, appointed in November 2002. Mr. Jackson has over 30 years of semiconductor industry experience. Before joining ON Semiconductor, he was with Fairchild Semiconductor Corporation, serving as Executive Vice President and General Manager, Analog, Mixed Signal, and Configurable Products Groups beginning in 1998, and, more recently, was head of its Integrated Circuits Group. From 1996 to 1998, he served as President and a member of the board of directors of Tritech Microelectronics in Singapore, a manufacturer of analog and mixed signal products. From 1986 to 1996, Mr. Jackson worked for National Semiconductor Corporation, most recently as Vice President and General Manager of the Analog and Mixed Signal division. He also held various positions at Texas Instruments Incorporated, including engineering and management positions, from 1973 to 1986. Mr. Jackson has served on the board of directors of the Semiconductor Industry Association since 2008.

Mr. Jackson has extensive international experience in product development, manufacturing, marketing and sales. Mr. Jackson is uniquely qualified to bring strategic insight and industry knowledge to the Board, having served in numerous management positions in our industry. In addition, Mr. Jackson brings to the Board his perspective as a director of other corporate boards.

Roger D. McDaniel, currently retired, was President and Chief Executive Officer of IPEC, Inc., which manufactured chemical-mechanical planarization ("CMP") equipment for the semiconductor industry, from 1997 to April 1999. Through August 1996, Mr. McDaniel was Chief Executive Officer of MEMC Electronic Materials, Inc., a producer of silicon wafers. Mr. McDaniel is a past Chairman of SEMI and also serves on the board of Entegris, Inc.

Mr. McDaniel has significant experience in the process equipment and materials industry, having served as chief executive officer at several companies operating in this field. Mr. McDaniel has also served on public and private boards, both domestic and international, which has resulted in a broad understanding of the operational, financial and strategic issues facing public and private companies. Mr. McDaniel's in-depth knowledge of our business and his extensive management experience are important aspects of his service on the Board.

John R. Peeler has been Chief Executive Officer and a Director of Veeco since July 2007, and Chairman since May 2012. Prior thereto, he was Executive Vice President of JDS Uniphase Corp. ("JDSU") and


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President of the Communications Test & Measurement Group of JDSU, which he joined upon the closing of JDSU's merger with Acterna, Inc. ("Acterna") in August 2005. Before joining JDSU, Mr. Peeler served as President and Chief Executive Officer of Acterna. Mr. Peeler joined a predecessor of Acterna in 1980 and served in a series of increasingly senior leadership roles including Vice President of Product Development, Executive Vice President and Chief Operating Officer, and President and CEO of Telecommunications Techniques Corporation (TTC). Mr. Peeler also serves on the board of IPG Photonics Corporation.

Mr. Peeler has substantial industry and management experience, having served in senior management positions for the last 30 years culminating in his appointment as our Chief Executive Officer in 2007. He has experience in managing diversified global companies and has a broad understanding of the challenges and opportunities facing public companies.

Peter J. Simone is a retired executive who currently serves as an independent consultant to several private companies and the investment community. From June 2001 to December 2002, Mr. Simone was Executive Chairman of SpeedFam-IPEC, Inc., a semiconductor equipment company which was acquired by Novellus Systems, Inc. From August 2000 to February 2001, Mr. Simone was President and a director of, and from January 2000 to August 2000 was a consultant to, Active Control eXperts, Inc., a supplier of precision motion control and smart structures technology. From April 1997 to January 2000, Mr. Simone served as President and Chief Executive Officer and a director of Xionics Document Technologies, Inc. Prior thereto, Mr. Simone spent 17 years with GCA Corporation, a manufacturer of semiconductor photolithography capital equipment, where he held various management positions, including president and director. Mr. Simone is also a director of Monotype Imaging, Inc. and Newport Corporation. Additionally, during the past five years, he served as a director of Cymer, Inc., Inphi Corporation and Sanmina-SCI Corporation.

Mr. Simone has held numerous executive positions in the technology and semiconductor industries. Mr. Simone has also worked in the consulting field, advising private companies and the investment community. Mr. Simone has served on a number of public and private boards and his experiences have resulted in a broad understanding of the operational, financial and strategic issues facing public and private companies. He brings significant financial and operational management, as well as financial reporting, experience to the Board.

Executive Officers

The executive officers of Veeco, and their ages, as of October 18, 2013, are as follows:

Name
AgePosition

John R. Peeler

58Chairman and Chief Executive Officer

David D. Glass

54Executive Vice President and Chief Financial Officer

William J. Miller, Ph.D. 

45Executive Vice President, Process Equipment

Peter Collingwood

53Senior Vice President, Worldwide Sales and Service

John P. Kiernan

51Senior Vice President, Finance, Chief Accounting Officer, Corporate Controller and Treasurer

John R. Peelerhas been Chief Executive Officer and a Director of Veeco since July 2007, and Chairman since May 2012. A description of Mr. Peeler's business experience appears above under Members of the Board of Directors.

David D. Glass has been Executive Vice President and Chief Financial Officer of Veeco since January 2010. Prior to joining Veeco, Mr. Glass served in various senior executive positions with Rohm and Haas Company, a $10 billion global specialty materials company that was acquired in 2009 by The Dow Chemical Company. These positions included serving from 2007 to January 2009 as Chief Financial Officer of Rohm and Haas' $2 billion Electronic Materials division and Chief Financial Officer of the


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Rohm and Haas Asia-Pacific region, serving from 2003-2007 as Rohm and Haas' Corporate Controller. Prior thereto, Mr. Glass was President of Toso-Haas, a stand-alone joint venture between Rohm and Haas and Tosoh of Japan.

William J. Miller, Ph.D. has been Executive Vice President, Process Equipment since December 2011, and was Executive Vice President, Compound Semiconductor from July 2010 until December 2011. Prior thereto, he was Senior Vice President and General Manager of Veeco's MOCVD business since January 2009. Dr. Miller was Vice President, General Manager of Veeco's Data Storage equipment business since January 2006. He held leadership positions of increasing responsibility in both the engineering and operations organizations since he joined Veeco in November 2002. Prior to joining Veeco, he held a range of engineering and operations leadership positions at Advanced Energy Industries.

Peter Collingwood has been Senior Vice President, Worldwide Sales and Service since January 2009. From October 2008 to December 2008, he was Vice President and General Manager for Veeco's European operations. He joined Veeco from JDSU (formerly Acterna, which was formerly TTC), where he served as the Regional Vice President of Sales for Europe, Middle East and Africa for the Communications Test Division from April 2004 to December 2008. Prior to that, he held various management positions at JDSU and JDSU's predecessors from January 1987 to April 2004.

John P. Kiernan has been Senior Vice President, Finance, Chief Accounting Officer, Corporate Controller and Treasurer since December 2011. From July 2005 to November 2011, he was Senior Vice President, Finance, Chief Accounting Officer and Corporate Controller. Prior thereto, he was Vice President, Finance and Corporate Controller of Veeco from April 2001 to June 2005, Vice President and Corporate Controller from November 1998 to March 2001, and Corporate Controller from February 1995 to November 1998. Prior to joining Veeco, Mr. Kiernan was an Audit Senior Manager at Ernst & Young LLP from October 1991 through January 1995 and held various audit staff positions with Ernst & Young LLP from June 1984 through September 1991.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires Veeco's officers and directors, and persons who own more than 10% of Veeco's common stock to file reports of ownership and changes in ownership with the SEC. These persons are required by SEC regulations to furnish Veeco with copies of all Section 16(a) forms they file. SEC regulations require us to identify in this proxy statement anyone who filed a required report late or failed to file a required report. Based on our review of forms we received, or written representations from reporting persons stating that they were not required to file these forms, we believe that during 2012 all Section 16(a) filing requirements were satisfied on a timely basis.

Corporate Governance Policies and Practices

Veeco has instituted a variety of policies and practices to foster and maintain corporate governance, including the following:

    Corporate Governance Guidelines—Veeco adheres to written Corporate Governance Guidelines, adopted by the Board and reviewed by the Governance Committee from time to time. The Corporate Governance Guidelines relate to director qualifications, conflicts of interest, succession planning, periodic board and committee self-assessment and other governance matters.

    Code of Business Conduct—Veeco maintains written standards of business conduct applicable to all of its employees worldwide.


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    Code of Ethics for Senior Officers—Veeco maintains a Code of Ethics that applies to its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer.

    Environmental, Health & Safety Policy—Veeco maintains a written policy that applies to all of its employees with regard to environmental, health and safety matters.

    Director Education Policy—Veeco has adopted a written policy under which it encourages directors to attend, and provides reimbursement for the cost of attending, director education programs.

    Disclosure Policy—Veeco maintains a written policy that applies to all of its employees with regard to the dissemination of information.

    Board Committee Charters—Each of Veeco's Audit, Compensation, Governance and Strategic Planning Committees has a written charter adopted by Veeco's Board that establishes practices and procedures for each committee in accordance with applicable corporate governance rules and regulations.

Copies of each of these documents can be found on the Company's website (www.veeco.com) via the Investors page.

Board Leadership Structure

On May 4, 2012, Mr. Peeler, the Company's Chief Executive Officer, was appointed Chairman of the Board. We currently have a Lead Director separate from the Chairman of the Board. Although we do not have a formal policy addressing the topic, we believe that when the Chairman of the Board is an employee of the Company or otherwise not independent, it is important to have a separate Lead Director, who is an independent director.

Mr. McDaniel serves as the Lead Director. In that role, he presides over the Board's executive sessions, during which our independent directors meet without management, and serves as the principle liaison between management and the independent directors of the Board. Mr. McDaniel has served as a Veeco director since 1998.

We believe the combination of Mr. Peeler as our Chairman of the Board and Mr. McDaniel as our Lead Director is an effective structure for the Company. The division of duties and the additional avenues of communication between the Board and our management associated with having Mr. Peeler serve as Chairman of the Board and Mr. McDaniel as Lead Director provides the basis for the proper functioning of our Board and its oversight of management.

Oversight of Risk Management

The Board has an active role, as a whole and also at the committee level, in overseeing management of the Company's risks. The Board regularly reviews information regarding the Company's strategy, finances and operations, as well as the risks associated with each. The Audit Committee is responsible for oversight of Company risks relating to accounting matters, financial reporting, internal controls and legal and regulatory compliance. The Audit Committee undertakes, at least annually, a review to evaluate these risks. Individual members of the Audit Committee are each assigned an area of risk to oversee. The members then meet separately with management responsible for such area, including the Company's chief accounting officer, internal auditor and general counsel, and report to the Committee on any matters identified during such discussions with management. In addition, the Governance Committee manages risks associated with the independence of the Board and potential conflicts of interest. The Company's Compensation Committee is responsible for overseeing the management of risks relating to the Company's executive compensation plans and arrangements. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about such risks.


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Compensation Risk

Our Compensation Committee conducted a risk-assessment of our compensation programs and practices and concluded that our compensation programs and practices, as a whole, are appropriately structured and do not pose a material risk to the Company. Our compensation programs are intended to reward the management team and other employees for strong performance over the long-term, with consideration to near-term actions and results that strengthen and grow our Company. We believe our compensation programs provide the appropriate balance between short-term and long-term incentives, focusing on sustainable operating success for the Company. We consider the potential risks in our business when designing and administering our compensation programs and we believe our balanced approach to performance measurement and compensation decisions works to mitigate the risk that individuals will be encouraged to undertake excessive or inappropriate risk. Further, our compensation program administration is subject to considerable internal controls, and when determining the principal outcomes—performance assessments and compensation decisions—we rely on principles of sound governance and good business judgment.

Board Meetings and Committees

During 2012, Veeco's Board held ten meetings. Each Director attended at least 75% of the meetings of the Board and Board committees on which such Director served during 2012. It is the policy of the Board to hold executive sessions without management at every regular quarterly board meeting and as requested by a Director. The Lead Director presides over these executive sessions. All members of the Board are welcome to attend the Annual Meeting of Stockholders. In 2012, Mr. Peeler was the only director who attended the Annual Meeting of Stockholders. The Board has established the following committees: an Audit Committee, a Compensation Committee, a Governance Committee and a Strategic Planning Committee.

    Audit Committee

    As defined in Section 3(a)(58)(A) of the Exchange Act, the Company has established an Audit Committee which reviews the scope and results of the audit and other services provided by Veeco's independent registered public accounting firm. The Audit Committee consists of Messrs. Jackson, McDaniel and Simone (Chairman). The Board has determined that all members of the Audit Committee are financially literate as that term is defined by Nasdaq and by applicable SEC rules. The Board has determined that each of Messrs. Jackson, McDaniel and Simone is an "audit committee financial expert" as defined by applicable SEC rules. During 2012, the Audit Committee met fourteen times.

    Compensation Committee

    The Compensation Committee sets the compensation levels of senior management and administers Veeco's stock incentive plans. All members of the Compensation Committee are "non-employee directors" (within the meaning of Rule 16b-3 of the Exchange Act), and "outside directors" (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")). None of the members of the Compensation Committee has interlocking relationships as defined by the SEC. The Compensation Committee consists of Messrs. D'Amore, Hunter and McDaniel (Chairman). During 2012, the Compensation Committee met six times.

    Governance Committee

    The Company's Governance Committee addresses Board organizational issues and develops and reviews corporate governance principles applicable to Veeco. In addition, the committee searches for persons qualified to serve on the Board of Directors and makes recommendations to the Board


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    with respect thereto. The Governance Committee currently consists of Messrs. Hunter (Chairman) and Simone. During 2012, the Governance Committee met three times.

    Strategic Planning Committee

    The Company's Strategic Planning Committee oversees the Company's strategic planning process. The Strategic Planning Committee consists of Messrs. Braun (Chairman), D'Amore, Hunter and Peeler. During 2012, the Strategic Planning Committee met five times.

Compensation of Directors

The following table provides information on compensation awarded or paid to the non-employee directors of Veeco for the fiscal year ended December 31, 2012.

Name
 Fees Earned or
Paid in Cash
($)(1)
 Stock
Awards
($)(2)(3)
 All Other
Compensation
($)(4)
 Total ($) 

Edward H. Braun(5)

  113,652  99,976  2,668  216,296 

Richard A. D'Amore

  66,000  99,976    165,976 

Joel A. Elftmann(6)

  36,221      36,221 

Gordon Hunter

  78,556  99,976    178,532 

Keith D. Jackson

  59,111  119,115    178,226 

Roger D. McDaniel

  109,000  99,976    208,976 

Peter J. Simone

  103,000  99,976    202,976 

(1)
Represents quarterly retainers and meeting fees paid for Board service during 2012. Includes payments for service and attendance at certain meetings held at the end of 2012 for which payments were made during the first quarter of 2013. For Mr. Braun, includes payments under the Service Agreement dated January 1, 2012, which sets forth the compensation terms for Mr. Braun's service to the Board.

(2)
Reflects awards of 2,837 shares of restricted stock to each director on May 7, 2012, other than Mr. Jackson, who received an award of 3,403 shares of restricted stock on February 24, 2012, and an award of 543 shares of restricted stock on May 7, 2012. These restricted stock awards vest on the earlier of the first anniversary of the date of grant and the date of the next annual meeting of stockholders (with the exception of Mr. Jackson's February 24, 2012 award, which vested on the date immediately preceding the date of the 2012 annual meeting of stockholders). In accordance with SEC rules, the amounts shown reflect the grant date fair value of the award, which was $35.24 per share for awards made on May 7, 2012, and $29.38 per share for Mr. Jackson's award on February 24, 2012.

(3)
As of December 31, 2012, there were outstanding the following aggregate number of stock awards and option awards held by each non-employee director of the Company:


Outstanding Equity Awards at Fiscal Year End

Name
 Stock
Awards (#)
 Option
Awards (#)
 

Edward H. Braun

  2,837  50,000 

Richard A. D'Amore

  2,837   

Gordon Hunter

  2,837   

Keith D. Jackson

  543   

Roger D. McDaniel

  2,837   

Peter J. Simone

  2,837   

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(4)
All Other Compensation consists of a 401(k) matching contribution ($1,385) and premiums for group term life insurance ($1,283) payable to Mr. Braun under the Service Agreement dated January 1, 2012.

(5)
Reflects the compensation paid to Mr. Braun as a Director under the Service Agreement dated January 1, 2012, including set compensation ($97,847) plus quarterly retainers and meeting fees paid during 2012 ($15,805).

(6)
Mr. Elftmann left the Board effective as of May 4, 2012.

Director Compensation Policy

Veeco's Director Compensation Policy provides that members of the Board of Directors who are not employees of Veeco shall be paid a retainer of $10,000 per quarter, plus additional retainers of $2,500 per quarter for the chairman of the Compensation Committee and the chairman of the Governance Committee, $3,750 per quarter for the chairman of the Audit Committee, and $3,750 per quarter for the Lead Director. In addition, non-employee Directors receive a fee of $2,000 for attending each board, committee or stockholder meeting held in person and $1,000 for participating in each board or committee meeting held by conference call. Each non-employee Director also receives an annual grant of shares of restricted stock having a fair market value in the amount determined by the Compensation Committee from time to time. The Compensation Committee has determined that the value of this annual award should be $100,000 per director. The restrictions on these shares lapse on the earlier of the first anniversary of the date of grant and the date of the next annual meeting of stockholders. In addition, the Company's director compensation policy gives the Board the authority to compensate Directors who perform significant additional services on behalf of the Board or a Committee. Such compensation shall be determined by the Board in its discretion, taking into consideration the scope and extent of such additional services. Directors who are employees, such as Mr. Peeler, do not receive additional compensation for serving as Directors or for attending board, committee or stockholder meetings.


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Braun Service Agreement

Mr. Braun, the Company's former Chairman and former CEO, serves on the Board and is compensated for such service pursuant to a Service Agreement dated January 1, 2012 (which amended and replaced a Service Agreement dated July 24, 2008). The Service Agreement provides that, during the period from January 1, 2012 through May 4, 2012 (the "2012 Service Period"), Mr. Braun shall be compensated at a rate of $200,000 per year, pro-rated as appropriate. The Service Agreement further provides that during the 2012 Service Period, (a) Mr. Braun shall be entitled to participate in all group health and insurance programs available generally to senior executives of the Company, including, in the case of health programs, continued coverage for Mr. Braun's spouse and eligible dependents, and (b) Mr. Braun shall not be entitled to any additional compensation, including, without limitation, bonuses, equity awards, meeting fees, retainers or other compensation for his service on the Board. Following the expiration of the 2012 Service Period, the Company shall pay Mr. Braun such compensation and equity awards as are consistent with the Company's then current Board Compensation Policy, provided that any annual and/or quarterly cash retainers shall be paid through the Company's regular, bi-weekly payroll process. In addition, Mr. Braun shall be entitled to participate in all group health and insurance programs available generally to senior executives of the Company. While serving on the Board, Mr. Braun shall be treated as an employee for purposes of the Company's stock incentive plans and any prior employment agreements which Mr. Braun had with the Company.

Certain Contractual Arrangements with Directors and Executive Officers

Veeco has entered into indemnification agreements with each of its directors, executive officers and certain senior officers and anticipates that it will enter into similar agreements with any future directors and executive officers. Generally, the indemnification agreements are designed to provide the maximum protection permitted by Delaware law with respect to indemnification of a director or executive officer. The indemnification agreements provide that Veeco will indemnify such persons against certain liabilities that may arise by reason of their status or service as a director or executive officer of the Company and that the Company will advance expenses incurred as a result of proceedings against them as to which they may be indemnified. Under the indemnification agreements, a director or executive officer will receive indemnification if he or she is found to have acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of Veeco and with respect to any criminal action, if he or she had no reasonable cause to believe his or her conduct was unlawful.

Audit Committee Report

The Audit Committee is responsible for providing independent objective oversight of the Company's auditing, accounting, financial reporting process, its system of internal controls, and legal and ethical compliance on behalf of the Board of Directors. The Committee operates under a charter adopted by the Board, a copy of which is available on Veeco's website (www.veeco.com). Management has the primary responsibility for the financial statements and the reporting process including the system of internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the "Annual Report on Form 10-K") and the quarterly financial statements for 2012 with management, including the specific disclosures in the section entitled "Management Discussion and Analysis of Financial Condition and Results of Operations." The review with management included a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Chairman of the Audit Committee provided active oversight for the accounting review described in the Explanatory Note above and the other members of the Audit Committee received periodic updates and provided additional oversight for the accounting review.


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The Committee reviewed with the independent registered public accounting firm, who is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company's accounting principles and such other matters as are required to be discussed with the Audit Committee by SAS 61, as amended by SAS 90,Communication with Audit Committees and PCAOB Auditing Standard No. 5,An Audit of Internal Control Over Financial Reporting That is Integrated With an Audit of Financial Statements and related Independence Rule and Conforming Amendments. In addition, the Audit Committee has discussed with the independent registered public accounting firm the auditors' independence from management and the Company including the matters in the written disclosures and the letter from the independent auditors required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the Audit Committee concerning independence, and the matters required to be discussed by SAS 90 and considered the compatibility of non-audit services with the auditors' independence and satisfied itself as to the independence of the independent registered public accounting firm.

During 2012, management evaluated the Company's system of internal control over financial reporting in accordance with the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. The Audit Committee was kept apprised of the progress of the evaluation and provided oversight and advice to management during the process. In connection with this oversight, the Committee received periodic updates provided by management and the independent registered public accounting firm at each regularly scheduled Audit Committee meeting. At the conclusion of the process, management provided the Audit Committee with a report on the effectiveness of the Company's internal control over financial reporting. The Audit Committee also reviewed the report of management contained in the Company's Annual Report on Form 10-K filed with the SEC, as well as the Reports of Independent Registered Public Accounting Firm (included in the Company's Annual Report on Form 10-K). These reports related to its audit of (i) the consolidated financial statements and (ii) the effectiveness of internal control over financial reporting. The Committee continues to oversee the Company's efforts related to its internal control over financial reporting and management's preparations for the evaluations in fiscal 2013.

The Audit Committee discussed with the Company's internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditors and independent registered public accounting firm with and without management present, to discuss the results of their examinations, their evaluations of the Company's internal control over financial reporting, and the overall quality of the Company's financial reporting. The Committee held fourteen meetings during 2012. In addition, the Chairman of the Audit Committee held numerous meetings during 2012 and 2013 with the Company and with representatives of the independent registered public accounting firm in connection with the accounting review discussed above.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board approved) that the audited financial statements be included in the Annual Report on Form 10-K for filing with the SEC. The Audit Committee and the Board have also recommended, subject to stockholder approval, the selection of the Company's independent registered public accounting firm.

Keith D. Jackson
Roger D. McDaniel
Peter J. Simone (Chairman)


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Item 11.    Executive Compensation

Compensation Discussion and Analysis

Veeco's compensation programs for the named executive officers ("NEOs") listed in the Summary Compensation Table and the Company's other executives are designed to aid in the attraction, retention and motivation of these employees. The Company seeks to foster a performance-oriented culture through these compensation programs by linking a significant portion of each executive's compensation to the achievement of performance targets important to the success of the Company and its shareholders. This Compensation Discussion and Analysis describes Veeco's current compensation programs and policies, which are subject to change.

Executive Compensation Strategy and Objectives

The Company's executive compensation strategy is designed to deliver competitive, performance-based total compensation that reflects our culture and the markets we serve. The primary objectives of Veeco's executive compensation programs are to attract, retain and motivate executives critical to the Company's long-term growth and success resulting in the creation of increased shareholder value without subjecting shareholders to unnecessary and unreasonable risks. To this end, the Company has adopted the following guiding principles:

    a.
    Performance-based:    Compensation levels should be determined based on Company, business unit and individual results compared to quantitative and qualitative performance priorities set at the beginning of the performance period. Additionally, the ratio of performance-based compensation to fixed compensation should increase with the level of the executive, with the greatest amount of performance-based at-risk compensation at the CEO level.

    b.
    Shareholder-aligned:    Cash bonus metrics and equity-based compensation should represent a significant portion of potential compensation to more closely align the interests of executives with those of the shareholders.

    c.
    Fair and Competitive:    Compensation levels should be fair, internally and externally, and competitive with overall compensation levels at other companies in our industry, including larger companies from which we may want to recruit.

Our compensation programs are comprised of four elements: base salary, cash bonus, equity-based compensation and benefits and perquisites. Each of these programs is used to attract executives and reward them for performance results. In addition to cash-based compensation, the Company uses equity-based compensation to (i) align the interests of executives with stockholders in the creation of long-term value, (ii) retain employees through the use of vesting schedules, and (iii) foster a culture of stock ownership. The Company provides cost-effective benefits and perquisites it believes are required to remain competitive, with the goal of promoting enhanced employee productivity and loyalty to the Company.

Additional information regarding each element of our compensation program is described below.

Process for Making Compensation Decisions

The Compensation Committee of the Board (the "Committee") administers the Company's compensation programs operating under a charter adopted by the Board of Directors. This charter authorizes the Committee to interpret the Company's compensation, equity and other benefit plans and establish the rules for their implementation and administration. The Committee consists of three non-employee directors who are appointed annually. The Committee works closely with the Chief Executive Officer ("CEO") and the Senior Vice President, Human Resources and relies upon information provided by independent compensation consultants.


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In making compensation decisions, the Committee considers the compensation practices and the competitive market for executives at companies with which we compete for talent. To this end, the Company utilizes a number of resources which, during 2012, included: meetings with Compensation Strategies, Inc., an independent compensation consultant; compensation surveys prepared by Radford; and executive compensation information compiled by Compensation Strategies, Inc. from the proxy statements of other companies, including a peer group.

In 2012, our peer group (the "Peer Group") consisted of sixteen companies. Following a review of companies operating in the same general industry as Veeco with revenues within a comparable range, four companies were removed from the Peer Group in 2012 because their revenues fell outside the comparable range: Electro Scientific Industries, Inc., FSI International Inc., LTX Credence Corporation, and Ultra Clean Holdings, Inc. In addition, two companies were removed from the Peer Group in 2012 because they were acquired during the period: Varian Semiconductor Equipment Associates and Verigy Limited. For 2012, the Peer Group consisted of the following companies:

Applied Materials Inc.Kulicke and Soffa Industries, Inc.
Axcelis Technologies Inc.Lam Research Corporation
Brooks Automation Inc.MKS Instruments, Inc.
Coherent Inc.Newport Corporation
Coho, Inc.Novellus Systems, Inc.
Cymer, Inc.Teradyne, Inc.
GT Advanced Technologies Inc.Tessera Technologies, Inc.
KLA-Tencor CorporationUltratech Inc.

Compensation Strategies uses statistical regression techniques to adjust the market data to construct market pay levels that are reflective of Veeco's size based on revenues.

The Company considers the executive compensation practices of the companies in its Peer Group and the Radford survey (collectively, the "market data") as only one of several factors in setting compensation. The Company does not target a percentile range within the Peer Group and instead uses the market data only as a reference point in its determination of the types and amount of compensation based on its own evaluation. For 2012, total compensation of Veeco's NEOs and other executives is believed to be generally within the 50th to 75th percentile of the market, although individuals may be compensated above or below this level for various reasons including but not limited to competitive factors, Veeco's financial and operating performance and consideration of individual performance and experience.

In addition to reviewing the market data, the Committee meets with the Company's CEO and Senior Vice President, Human Resources to consider recommendations with respect to the compensation packages for the NEOs and other executives. These recommendations include base salary levels, cash bonus targets, equity compensation awards and benefit and perquisite programs. The Committee considers these recommendations along with other factors in determining specific compensation levels for the NEOs.

The Committee discusses the elements of the CEO's compensation with him but makes the final decisions regarding his compensation without him present. The Committee presents its recommendations to the full Board of Directors for final approval, without the CEO present.

Decisions regarding the Company's compensation program elements are made by the Committee in regularly scheduled meetings. The Committee also meets to consider ad hoc issues. Issues of significant importance are frequently discussed over several meetings. This practice provides the Committee with the opportunity to raise and address concerns before arriving at a decision. Prior to each meeting, the Committee is provided with the written materials, information and analysis, as may be required to assist the Committee in its decision-making process. To the extent possible, meetings of the Committee are


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conducted in person; where this is not possible, meetings are conducted telephonically. The CEO and the Senior Vice President, Human Resources are regularly invited to attend Committee meetings. The Committee meets privately in executive sessions to consider certain matters, including, but not limited to, the compensation of the CEO.

The accounting review described in the Explanatory Note above impacted certain of the Company's executive compensation practices including the calculation of 2012 bonus awards, the 2013 annual equity award process and the vesting of restricted stock unit awards previously granted. The impact on each of these practices is discussed below in the relevant section.

Elements of Our Compensation Program

The Company seeks to achieve its compensation objectives through four key elements of compensation:

Base Salary,

Cash Bonus,

Equity-based Compensation and

Benefits and Perquisites.

Base Salary

The Company pays base salaries to attract executives and reward them for performance. Base salaries are determined in accordance with the responsibilities of each executive, market data for the position and the executive's experience and individual performance. The Company considers each of these factors but does not assign a specific value to any one factor.

In January 2012, following a review of the market data and individual performance results, including management's recommendations, and in recognition of his promotion to Executive Vice President, Process Equipment, the Committee approved an increase in base salary for Dr. Miller from $385,000 to $415,002.

Base salaries for executives are typically set during the first half of the year in conjunction with the Company's annual performance management process. However, in April 2012, following a review of the market data and management's recommendations in connection with the Company's cost reduction initiatives, the Committee decided to maintain base salaries for the other NEOs at their current levels.

Cash Bonus Plans

The Company provides the opportunity for cash bonuses under its annual Management Bonus Plan and, in the case of sales executives including Mr. Collingwood, the Sales Commission Plan, to attract executives and reward them for performance consistent with the belief that a significant portion of the compensation of its executives should be performance-based. As a result, individuals are compensated based on the achievement of specific financial and individual performance goals intended to correlate closely with shareholder value. The Company believes that the opportunity to earn cash bonuses motivates executives to meet Company performance objectives that, in turn, are linked to the creation of shareholder value. The cost of bonus awards is factored into financial performance results before bonus awards are determined. This ensures that the cost of our bonus plans is included in our financial results. Executives must generally be employees at the end of the applicable performance period to be eligible to receive a bonus for that period, a feature that aids in the retention of talent.


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Target bonus awards under the Management Bonus Plan for each NEO are expressed as a percentage of base salary. For 2012, the target bonus for the CEO was 100% and the target bonuses for Messrs. Glass, Collingwood and Kiernan were 70%, 30%, and 50%, respectively. In January 2012, in recognition of his promotion to Executive Vice President, Process Equipment, the Committee approved an increase in the target bonus for Dr. Miller from 60% to 70%.

In 2012, the Management Bonus Plan for the NEOs and all other executives was comprised of (i) the annual Management Incentive Plan, the target bonus for which is equal to 75% of each NEO's Management Bonus Plan target bonus, and (ii) the quarterly Management Profit Sharing Plan, the target bonus for which is equal to 25% of each NEO's Management Bonus Plan target bonus.

In the fourth quarter of 2012, the Company's accounting review commenced and the calculation and payment of 2012 bonuses including the fourth quarter 2012 Management Profit Sharing Plan and the full year 2012 Management Incentive Plan was suspended pending completion of the accounting review and a return to timely financial reporting. Following completion of the accounting review, bonuses under each of the aforementioned plans were calculated based on the financial results as reported in the Form 10-K for 2012.

2012 Management Incentive Plan

In January 2012, the Committee adopted the 2012 Management Incentive Plan (the "MIP") which was based on the financial performance of the Company as measured primarily by adjusted earnings before interest, income taxes and amortization, excluding certain items ("EBITA"). EBITA is the financial measure used by the Company as the primary measure of financial performance. The MIP also incorporates secondary performance measures including: (1) revenue, (2) bookings, and (3) individual performance.

If EBITA results exceeded a pre-determined threshold, MIP funding targets were adjusted, ranging from 50% of the target (for threshold performance) to 100% of the target (for target performance) to 200% of the target (for maximum or greater performance). No awards were earned under the MIP if EBITA results were less than the threshold performance level. Otherwise, the adjusted MIP funding target was divided into three secondary elements: (1) Revenue (weighted at 30%), (2) Bookings (weighted at 30%), and (3) Individual Performance (weighted at 40%).

Actual bonus awards under the MIP were based on these secondary measures, each as compared to targets, calculated independently and then added together. Awards under each of the secondary performance measures could range from 70% of target for threshold performance to 100% for target performance and 150% for maximum or greater performance with no award for performance less than threshold. In the case of individual performance, awards may be decreased but not increased based on individual performance results.

Following the accounting review and the completion of our 2012 financial statements, the Committee compared performance results to pre-established targets for each element of the plan for fiscal 2012. Bonus payments under the MIP were calculated as follows: Each NEO's MIP target was first modified by the performance of the primary element (EBITA) resulting in an adjusted funding target. The adjusted funding target was then divided into three secondary elements, with weights as described above, and a bonus award for each element was calculated based on the comparison of actual results to the pre-established targets. The final MIP award was the sum of the three secondary elements, each as


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adjusted for performance results. The following tables illustrate performance versus plan and the resulting bonus award for each financial element (dollars in thousands):

 
 Primary Element 
 
 EBITA 
 
 Target Plan
Performance
 Funding
Target
Adjustment
 

Veeco Consolidated

 $77,768  79.90% 59.80%


 
 Secondary Elements 
 
 Revenue Bookings 
 
 Target Plan
Performance
 Bonus
Award
 Target Plan
Performance
 Bonus
Award
 

Veeco Consolidated

 $571,129  90.40% 85.50%$617,177  63.50% 0%

Awards for individual performance were based on results compared to goals set by the CEO at the beginning of the year in connection with the Company's performance management process. The CEO's individual performance goals were set by the Board at the beginning of the year. Mr. Peeler's individual performance goals and bonus award are discussed in more detail in the "Compensation of the Chief Executive Officer" section below.

Mr. Peeler evaluated the individual performance of the other NEOs and executives by reviewing the goals set at the beginning of the year and determining the level of achievement of each goal. The goals were not weighted and the award was considered on the totality of the individual performance results for each executive. Individual performance results could range from zero to 100%. After evaluation, Mr. Peeler made individual performance recommendations to the Committee, for each of the other NEOs, equal to 100%.


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The individual goals for the NEOs (other than Mr. Peeler, whose goals are discussed in the section "Compensation of the Chief Executive Officer" below) are described in the table below.

NEO
Position2012 Individual Performance Goals
D. GlassExecutive Vice President and1.Help drive Veeco's acquisition strategy and decision process.
Chief Financial Officer2.Drive improvements in metrics and measure progress toward goals in delivering services and consumables.
3.Continue to enhance business and financial processes commensurate with managing results during industry down-cycle.
4.Implement a new finance organization structure.
5.Drive Veeco-wide expense reduction and cash generation improvements during industry down-cycle.
6.Enhance IT team performance and drive to best-in-class benchmark performance vs. peer companies.

W. Miller


Executive Vice President, Process Equipment



1.


Implement PLC methodology and discipline to improve product development success rate.
2.Refine and strengthen services strategy and deliver service revenue growth.
3.Development of leadership and organization.
4.Drive acquisition strategy.
5.Expand key account structure to sell multiple BU products cohesively to key accounts.
6.Implement a responsive field/factory escalation process and make technical support a competitive weapon.

P. Collingwood


Senior Vice President,



1.


Grow market share in top 15 accounts.
Worldwide Sales & Service2.50% growth in services bookings.
3.Product growth in 2012.
4.Achieve specific regional goals.

J. Kiernan


Senior Vice President, Finance



1.


Support merger and acquisition activity.
and Corporate Controller2.Create a competitive advantage for Veeco by (a) introducing lease financing alternatives and (b) streamlining customer touch points from quote to cash.
3.Continue to drive excellence in financial reporting accuracy and controls.
4.Implement a new finance organization structure.
5.Deliver solid financial performance during industry down-cycle.

As a result of financial performance for EBITA, revenue and bookings and individual performance, Messrs. Peeler, Glass, Collingwood and Kiernan and Dr. Miller earned MIP awards for 2012 equal to 39.3% of their MIP target bonus or $206,274, $79,416, $28,311, $42,231 and $85,604, respectively. After reducing these awards to account for the excess Management Profit Sharing Plan payments made with respect to Q3 2012 (described below), the MIP awards for 2012 for Messrs. Peeler, Glass, Collingwood and Kiernan and Dr. Miller are $200,483, $77,186, $27,549, $41,045 and $83,201, respectively.

2012 Management Profit Sharing Plan

In January 2012, the Committee approved the 2012 Management Profit Sharing Plan (the "MPSP"). Awards under the MPSP were earned when quarterly Company EBITA was at least 5% of revenue for the period, in which case a pool comprised of 2.36% of EBITA (as determined in January 2012 based on the sum of the target profit sharing bonuses for all participants and planned 2012 EBITA) was funded. Awards to participants were made from this pool in accordance with their target bonus


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amounts. The Company's 2012 quarterly EBITA (as a percentage of Company revenue) and the profit sharing award for each quarter (as a percentage of the target bonus) are set forth in the chart below.

 
 Q1 Q2 Q3 Q4 

EBITA (as % of Revenue)

  18.1% 14.9% 13.0% <5%

Award (as % of Target Bonus)

  146.2% 113.4% 93.9% 0%

Following the conclusion of the accounting review and the completion of our 2012 financial statements, the Committee reviewed the 2012 MPSP payments made in Q1, Q2 and Q3 and determined that awards paid for Q3 2012 were overstated relative to adjusted financial results. Q3 EBITA, as a percentage of revenue, was revised downward to 10.7% (from 13.0%) and the Q3 MPSP Award was reduced to 80.6% (from 93.9%).

Any excess Q3 MPSP payments were deducted from amounts payable under the 2012 MIP awards. Messrs. Peeler, Glass, Collingwood and Kiernan and Dr. Miller were paid 2012 awards of $154,652, $59,541, $20,347, $31,662 and $64,181, respectively, and earned 2012 awards of $148,861, $57,311, $19,586, $30,476 and $61,777, respectively.

2012 Sales Commission Plan

The Company's Sales Commission Plan provides eligible participants, including Mr. Collingwood, with an opportunity to earn cash commissions based on the achievement of sales objectives, or quotas. Mr. Collingwood's 2012 target under the Sales Commission Plan was $122,800, which was based on a quota of $617.177M. For 2012, 25% of commissions are earned at the time of booking, with the balance earned upon revenue recognition. Mr. Collingwood's quota was established in early 2012. Mr. Collingwood achieved 64% of his quota, which will result in commissions of $80,537 upon completion of revenue recognition.

2012 Supplemental Services Bonus Plan

In March 2012, the Committee approved the 2012 Supplemental Services Bonus Plan (the "SSBP"). The Plan was established to provide a specific incentive for participants to achieve the Company's 2012 services revenue plan.

Awards under the SSBP were based on 2012 total Company services revenue. Each of the participants in the Company's 2012 Management Bonus Plan participated in the SSBP, including Messrs. Peeler, Glass, Collingwood and Kiernan and Dr. Miller. The target bonuses, as a percentage of base salary, for Messrs. Peeler, Glass, Collingwood and Kiernan and Dr. Miller were 7.5%, 5.25%, 4.5%, 3.75% and 10.5%, respectively. Awards under the Plan ranged from 0% to 300% of target and were calculated for results between threshold ($125M, at which 20% of the target bonus would be paid and below which no bonus would be paid), target ($148M, at which 100% of the target bonus would be paid) and maximum ($200M, at which 300% of the target bonus would be paid). Participants must have been active employees on December 31, 2012 to have been eligible for an award. Awards, if earned, would have been paid during the first quarter of 2013.

No awards were earned or paid under the SSBP because the actual results were less than the threshold.

Summary of 2012 Cash Bonus Awards

Under the 2012 Cash Bonus Plans, as described above, the total awards earned by Messrs. Peeler, Glass, Collingwood and Kiernan and Dr. Miller was equal to $355,135, $136,727, $128,433, $72,707 and $147,382, respectively.


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2013 Cash Bonus Plans

In January 2013, the Committee elected to defer adoption of the 2013 Management Bonus Plan (the "MBP"), including the Management Incentive Plan and the Management Profit Sharing Plan, for the first half of the year in connection with the Company's cost-reduction efforts. The Committee also confirmed its intention to consider reinstating the MBP for the second half of the year. In July 2013, the Committee elected to not adopt a 2013 MBP.

Equity-Based Compensation

The Company believes that a substantial portion of an executive's compensation should be awarded in equity since equity-based compensation is directly linked to shareholder interests. The Company grants equity-based awards, such as stock options and restricted stock or restricted stock units ("restricted stock"), to the NEOs and certain other key employees to create a clear and meaningful alignment between compensation and shareholder return and to enable the NEOs and other employees to develop and maintain a stock ownership position. Equity-based awards vest over time and, in certain cases as a function of performance, and are subject to the recipient's continued employment, therefore also acting as a significant retention incentive.

The Company uses a combination of stock option grants and performance-based restricted stock awards as elements of a cost-effective, long-term incentive compensation strategy. Because stock options have intrinsic value to the holder only if the Company's stock price increases, the Committee believes that higher-level executives should receive a greater portion of their long term incentive in the form of stock options. The Committee believes that performance-based restricted stock awards are an effective means for creating stock ownership among the Company's executives and incentivizing key performance objectives.

The Company considered several factors in the design of the 2012 annual equity award process. Long term incentive compensation guidelines, denominated as a dollar value and based on the market data (as discussed above), were developed for each of the NEOs and the other executives. The Company determined the value of its stock options based on the Black-Scholes option valuation methodology. Performance-based restricted stock awards were valued at fair market value. The guideline value for each NEO was then split between stock options and restricted stock awards with a designated ratio.

The actual number of stock options or restricted stock awards granted to each individual was based on several factors including, but not limited to, a fixed budget for awards, the Company's guidelines (as described above), the individual's level of responsibility, past performance and ability to affect future Company performance and noteworthy achievements. The CEO applied these factors, in a review of each of his direct reports, and made equity award recommendations to the Committee. The CEO discussed the rationale for his recommendations with the Committee. The Committee then approved a schedule setting forth all awards to all employees, on an individual-by-individual basis.

On May 25, 2012, the Committee granted stock option and performance-based restricted stock awards to the NEOs as follows:

 
  
 Stock Options Restricted Stock 
Name
 Date of
Grant
 Amount Exercise
Price
 Amount Fair Market
Value Per
Share
 

John Peeler

  5/25/12  80,000 $33.00  30,000 $33.00 

David Glass

  5/25/12  30,000 $33.00  9,500 $33.00 

William Miller

  5/25/12  35,000 $33.00  10,200 $33.00 

Peter Collingwood

  5/25/12  20,000 $33.00  6,500 $33.00 

John Kiernan

  5/25/12  18,500 $33.00  5,750 $33.00 

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The Committee considered the following factors in determining the equity awards for each NEO. Stock option awards and performance-based restricted stock grants to Mr. Peeler are discussed under "Compensation of the Chief Executive Officer" below. In determining the award to Mr. Glass, the Committee took into account his leadership of the Company's finance function, the positive contributions he made to the Company over the prior year and the total value of his compensation when compared to market data. Dr. Miller's equity awards were determined after taking into account his continued strong contributions to the Company's Process Equipment Group, the total value of his compensation when compared to market data and his promotion to Executive Vice President, Process Equipment. Mr. Collingwood's equity awards reflect his significant contributions to the Company's global sales and services organization over the previous year and the total value of his compensation when compared to market data. Mr. Kiernan's equity awards were determined after taking into account his contributions to the Company and the total value of his compensation package compared to market data.

Stock option awards, including those granted in 2012, reflect an exercise price equal to the closing price of Veeco common stock on the trading day prior to the grant date, have a term of ten years from the grant date and become exercisable over a three year period with one third of the award becoming exercisable on each of the first three anniversaries of the grant. All of the restricted stock awards granted to the NEOs on May 25, 2012 are subject to the achievement of designated performance criteria. The restricted stock awards are eligible for vesting over a four (4) year period based on achievement of EBITA goals as follows: 100% of the award will vest if EBITA for the four fiscal quarters ended June 30, 2013 (the "initial performance period") is at least 10% of revenue and 25% of the award will vest if EBITA is at least 6% of revenue (with prorated vesting for results between the threshold and target amounts). If all or any portion of the award does not vest based on performance during the initial performance period, then 100% of the award will vest if EBITA for the four fiscal quarters ending September 30, 2013 is at least 8% of revenue, and 25% vest if EBITA is at least 4% of revenue (with prorated vesting for results between the threshold and target amounts). Once earned, performance-based restricted stock awards vest, and are no longer subject to risk of forfeiture over a four year period with one third of the award vesting on the second anniversary of the grant and an additional one third of the award becoming vested on each of the next two anniversaries.

Except as otherwise set forth in the employment agreement between the Company and Mr. Peeler, restricted stock awards granted in June 2008 vested 100% on the fifth anniversary of the grant and were subject to accelerated vesting based on the achievement of certain two-year cumulative financial performance objectives. As a result of 2008 and 2009 financial performance, the Company previously determined that the vesting would not be accelerated under these provisions. Concerned that the five-year vesting schedule, coupled with the fact that most outstanding stock options were significantly underwater, would reduce the retention incentive of outstanding equity awards, the Committee approved a three-year vesting schedule for the May 2009 restricted stock awards with one-third of each award vesting on each of the first three anniversaries of the date of grant. The restricted stock awards granted in June 2010 (other than to Messrs. Peeler and Glass) were subject to the general vesting schedule of four years, with one third of the award vesting on the second anniversary of the grant and an additional one third becoming exercisable on each of the next two anniversaries of the grant. Based on achievement of pre-determined performance goals, the June 2010 restricted stock unit awards to Messrs. Peeler and Glass were deemed to have been earned on August 2, 2011 with one third of the award vesting on that date and another third vesting on August 2, 2012 and the remaining third would have become vested on August 2, 2013 except for the then current suspension of vesting for restricted stock unit awards as described below. The restricted stock awards granted in June 2011 to the NEOs, including Messrs. Peeler and Glass, were based on the achievement of pre-determined performance goals. These goals were deemed to have been met in July 2012 following which the awards commenced vesting in accordance with the general four year vesting schedule, with one third of the award vesting


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on the second anniversary of the grant and an additional one third becoming vested on each of the next two anniversaries of the grant.

The Committee typically approves annual equity awards at a scheduled meeting, held during the two month period following the annual meeting of stockholders and during an open trading window in accordance with the Company's Corporate Governance Guidelines. The 2012 equity awards were approved by the Committee in accordance with this practice and the number of stock options and restricted shares awarded to each employee, including the NEOs, was determined on May 25, 2012. As with all equity awards, the stock option exercise price is the closing price of Veeco common stock on the trading day prior to the grant date ($33.00 for stock options granted on May 25, 2012). The Committee has not granted, nor does it intend to grant, equity compensation to executives in anticipation of the release of material nonpublic or other information that could result in changes to the price of the Company's stock. Furthermore, the Committee has not "timed," nor does it intend to "time," the release of material nonpublic information based on equity award grant dates.

As a result of the Company's delayed filing of this 2012 Form 10-K, on May 1, 2013 the Company suspended the exercise of stock option awards and the delivery of shares for vested restricted stock unit awards previously granted.

In addition, as a result of the accounting review being conducted at the time equity awards would have normally been granted in 2013, the Committee determined that it was appropriate to delay the grant of 2013 equity awards until the accounting review was completed and following the subsequent meeting of stockholders.

Say-on-Pay

Our Board of Directors, the Committee and our management value the opinions of our stockholders. At the 2012 annual meeting of stockholders, more than 89% of the votes cast on the say-on-pay proposal were in favor of our named executive officer compensation. The Board of Directors and the Committee reviewed the final vote results and we did not make any changes to our executive compensation program as a result of the vote results. We have determined that our stockholders should vote on a say-on-pay proposal each year.

Benefits and Perquisites

The Company provides the benefits and perquisites to its executive officers that it believes are required to remain competitive, with the goal of promoting enhanced employee productivity and loyalty to the Company. The Committee periodically reviews the levels of benefits and perquisites provided to executive officers. The NEOs participate in the Company's 401(k) savings plan and other benefit plans on the same basis as other similarly-situated employees. The Company provides a 401(k) savings plan under which it provides matching contributions of fifty cents for every dollar an eligible employee contributes, up to 6% of such employee's eligible compensation. The plan calls for vesting of Company contributions over the initial five years of a participant's employment with the Company. The Company also provides group term life insurance for its employees, including the NEOs. The amounts of the Company's 401(k) matching contributions and group term life insurance premiums for the NEOs are included under the caption "All Other Compensation" in the Summary Compensation Table appearing elsewhere in this Annual Report on Form 10-K. The Company also provides a car allowance for each of the NEOs. Such amounts are also included under the caption "All Other Compensation" in the Summary Compensation Table. The Company does not maintain other perquisite programs, such as post-retirement health and welfare benefits, defined or supplemental pension benefits or deferred compensation arrangements.


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The Company adopted, in early 2009, the Senior Executive Change in Control policy intended to provide specified executives, including Messrs. Collingwood, Glass, Kiernan and Dr. Miller, with certain severance benefits in the event that their employment is terminated under qualifying circumstances related to a Change in Control. The Committee recognizes that, as is the case for most publicly held companies, the possibility of a change in control exists, and the Company wishes to ensure that the NEOs are not disincentivized from discharging their duties in respect of a proposed or actual transaction involving a change in control. Accordingly, the Company wanted to provide additional inducement for such NEOs to remain in the employ of the Company. Before approving the policy, the Committee reviewed similar practices at peer companies and a tally sheet illustrating the value of the benefits provided to each covered employee under the policy.

Compensation of the Chief Executive Officer

Mr. Peeler's compensation for 2012, which is consistent with the compensation objectives expressed herein and determined in connection with his hiring in 2007, was designed to successfully recruit him to and retain him at Veeco. His package originally reflected compensation at his previous employer, including its efforts to retain him, and a review of the market data for CEO compensation. The principal elements of Mr. Peeler's compensation package include: (i) a base salary of $630,000 (which was increased to $700,000 in 2011 and maintained at that level for 2012); (ii) eligibility for an annual Management Bonus Plan award equal, at target, to 100% of his base salary; and (iii) a car allowance of $1,500 per month.

In addition, the Company reimburses Mr. Peeler's reasonable housing and related transportation expenses. On April 25, 2012, the Company amended its employment agreement with Mr. Peeler. The amendment extended the Company's obligation to reimburse the reasonable housing expenses of Mr. Peeler in the Woodbury, New York area and his transportation expenses to/from the Woodbury area from/to his home in Maryland, including tax gross-up for these amounts, through April 25, 2015, and provides that such amounts shall not exceed $150,000 per year. For 2012, the actual expenses associated with Mr. Peeler's housing and transportation allowance were approximately $48,618 (which amount, when grossed-up for tax purposes, totaled approximately $94,349).

For 2012, Mr. Peeler earned a Management Incentive Plan award of $206,274, representing 39.3% of his target. This amount was based on Veeco Consolidated EBITA, revenue and bookings each as compared to pre-determined targets and a review of his performance against individual objectives. His individual performance objectives included: (1) increasing the Company's product portfolio and gaining market share, (2) increasing the Company's services and consumables business, (3) preparing the Company's talent and organization for long-term growth, and (4) delivering solid financial performance during an industry down cycle. The Committee evaluated Mr. Peeler's performance in executive session and formulated and presented a recommendation to award Mr. Peeler 100% of the value for individual performance to the full Board of Directors. The Board approved this recommendation. Mr. Peeler's Management Incentive Plan award will be paid in the fourth quarter of 2013.

Under the terms of the quarterly 2012 Management Profit Sharing Plan, Mr. Peeler earned $63,975, $49,608, $35,277 and $0 for the first, second, third and fourth quarters of 2012, representing 146.2%, 113.4%, 80.6% and 0%, respectively, of his profit sharing target for the first, second, third and fourth quarters of 2012. Profit-sharing awards were based on EBITA results.

Mr. Peeler's 2012 equity compensation was comprised of a combination of stock options and performance-based restricted stock. In conjunction with an analysis of Mr. Peeler's total compensation package, and taking into consideration market data, his strong performance during 2012 and the importance of retaining him, the Committee formulated an equity compensation recommendation, proposed this recommendation to the full Board of Directors, and on May 25, 2012, Mr. Peeler received a performance-based restricted stock award of 30,000 shares of Veeco common stock and was


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granted a stock option award to purchase 80,000 shares of Veeco common stock, the combined value of which was consistent with the equity compensation practices described above. Mr. Peeler's stock options have an exercise price equal to the closing price of Veeco common stock on the trading day prior to the grant date and are subject to the same terms as the Company's other stock option awards, as described above.

The Committee reviewed a tally sheet setting forth the components of compensation for Mr. Peeler, including base salary, annual incentive bonus, stock option and restricted stock grants, potential stock option and restricted stock gains, the dollar value to Mr. Peeler and cost to the Company of all perquisites and other personal benefits. Based on its review, the Committee concluded that Mr. Peeler's compensation, in the aggregate, is reasonable and appropriate in light of our desire to retain him, the stated objectives of the Company's compensation programs and the Company's financial and operating performance.

Compensation of the Chief Financial Officer

On January 5, 2010, Veeco announced that David D. Glass would join the Company as Executive Vice President and Chief Financial Officer. In connection with his appointment, the Company entered into an agreement with Mr. Glass, effective January 18, 2010. Pursuant to the terms of the agreement, Mr. Glass will be paid an annual base salary of $360,000 (which was increased to $385,000 in 2011 and maintained at that level for 2012). He is eligible to participate in the Company's Management Bonus Plan, with a target bonus of 70% of base salary. Mr. Glass also receives a car allowance of $700 per month. Mr. Glass is eligible for certain severance benefits in the event his employment is terminated by the Company without cause or by him for good reason, including 18 months of salary continuation and extended stock option exercise rights for up to 12 months following separation, not to exceed the expiration date of the option. Mr. Glass has been named as a participant in the Company's Senior Executive Change in Control policy.

Other Employment Agreements: Letter Agreement with Dr. Miller

On January 30, 2012, the Company entered into a letter agreement with Dr. Miller in connection with his promotion to the position of Executive Vice President, Process Equipment. The letter agreement provides that Dr. Miller will be paid an annual base salary of $415,002. He will continue to participate in the Company's Management Bonus Plan with a target bonus increased to 70% of his base salary. Dr. Miller will also be eligible for certain severance benefits in the event his employment is terminated by the Company without cause or by him for good reason, including 52 weeks of salary continuation, subsidized COBRA contributions during the period of salary continuation and extended stock option exercise rights for up to 12 months following separation, not to exceed the expiration date of the option. Dr. Miller was previously named as a participant in the Company's Senior Executive Change in Control policy.

Financial and Tax Considerations

In designing our compensation programs, the Company takes into account the financial impact and tax effects that each element will or may have on the Company and the executives. Section 162(m) of the Code limits Veeco's tax deduction to $1,000,000 per year for compensation paid to each of the NEOs, unless certain requirements are met. The Committee's present intention is to structure executive compensation so that it will be predominantly deductible, while maintaining flexibility to take actions which it deems to be in the best interest of Veeco and its stockholders, even if these actions may result in Veeco paying certain items of compensation that may not be fully deductible.


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Conclusion

Attracting and retaining talented and motivated management and key employees is essential to creating long-term shareholder value. Offering a competitive, performance-based compensation program with a substantial equity component helps to achieve this objective by aligning the interests of the executive officers and other key employees with those of shareholders. We believe that Veeco's 2012 compensation program met these objectives and that the Company's 2013 compensation program is appropriate in light of the challenges facing the Company and its employees.

Compensation Committee Report

The Committee has reviewed and discussed with management the Compensation Discussion and Analysis for 2012. Based on the review and the discussions, the Committee recommended to the Board of Directors (and the Board approved), that the Compensation Discussion and Analysis be included in Veeco's Annual Report on Form 10-K and Proxy Statement.

This report is submitted by the Committee.

Richard A. D'Amore
Gordon Hunter
Roger D. McDaniel (Chairman)

Summary Compensation Table

The following table sets forth a summary of annual and long-term compensation awarded to, earned by, or paid for the fiscal year ended December 31, 2012 to (a) the principal executive officer of Veeco, (b) the principal financial officer of Veeco, and (c) each of the next three most highly compensated executive officers (as defined in Rule 3b-7 under the Exchange Act) of Veeco serving at the end of the year (the "NEOs").

Name and Principal
Position
 Year Salary
($)
 Bonus
($)(1)
 Stock
Awards
($)(2)
 Option
Awards
($)(3)
 Non-
Equity
Incentive
Plan
Compensation
($)(4)
 All
Other
Compensation
($)(5)
 Total ($) 

John R. Peeler

 2012  700,000    990,000  1,263,659  355,135  120,881  3,429,676 

CEO

 2011  681,154    858,220  741,194  559,773  117,944  2,958,285 

 2010  621,923    358,365  1,516,668  2,000,461  126,283  4,623,700 

David D. Glass

 2012  385,000    313,500  473,872  136,727  16,452  1,325,552 

EVP and CFO(6)

 2011  378,269    351,560  301,622  216,670  76,284  1,324,406 

 2010  339,231    882,760  1,068,550  765,478  279,431  3,335,450 

William J. Miller, Ph.D. 

 2012  414,425    336,600  552,851  147,382  16,140  1,467,398 

EVP, Process

 2011  371,538    538,235  468,062  172,163  11,640  1,561,639 

Equipment(7)

 2010  306,959  150,000  238,910  736,770  842,353  11,640  2,286,633 

Peter Collingwood

 2012  423,435    214,500  315,915  128,433  294,374  1,376,658 

SVP, Worldwide Sales

 2011  290,625    180,950  163,671  152,401  467,220  1,254,867 

and Service(8)

 2010  286,339    119,455  463,626  362,234  478,124  1,709,777 

John P. Kiernan,

 2012  286,624    189,750  292,221  72,707  16,452  857,755 

SVP, Finance, Corp.

 2011  283,656  30,000  180,950  163,671  115,684  41,760  815,721 

Controller and Treasurer

 2010  275,600    78,499  316,272  442,132  121,760  1,234,263 

(1)
Reflects a special incentive bonus for Dr. Miller for the achievement of a specified MOCVD revenue level in 2010, and a recognition award paid to Mr. Kiernan in 2011. All other bonuses were either performance-based bonuses pursuant to the Company's Management Bonus Plan, Management Profit Sharing Plan or the Special Profit Sharing Plan, which are reflected under the column labeled

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    "Non-Equity Incentive Plan Compensation," or signing bonuses, which are reflected under the column labeled "All Other Compensation," in accordance with SEC rules.

(2)
Reflects awards of restricted stock. In accordance with SEC rules, the amounts shown above reflect the grant date fair value of the stock awards. The amounts shown relate to the following stock awards:

Grant Date
 Grant Date
Fair Value
 Name Number of
Shares
 

1/18/2010

 $32.58 D. Glass  25,000 

6/11/2010

 $34.13 J. Peeler  10,500 

    D. Glass  2,000 

    W. Miller  7,000 

    P. Collingwood  3,500 

    J. Kiernan  2,300 

6/9/2011

 $51.70 J. Peeler  16,600 

    D. Glass  6,800 

    W. Miller  6,800 

    P. Collingwood  3,500 

    J. Kiernan  3,500 

12/1/2011

 $24.89 W. Miller  7,500 

5/25/2012

 $33.00 J. Peeler  30,000 

    D. Glass  9,500 

    W. Miller  10,200 

    P. Collingwood  6,500 

    J. Kiernan  5,750 
(3)
In accordance with SEC rules, the amounts shown above reflect the grant date fair value of the option awards. Assumptions used in the calculation of these amounts are included in Note 8 to the Company's audited financial statements for the fiscal year ended December 31, 2012, included elsewhere in this Annual Report on Form 10-K (the "Consolidated Financial Statements"). The amounts shown relate to the following option awards:

Grant Date
 Grant Date
Fair Value
 Name Number of
Shares
 

1/18/2010

 $15.98 D. Glass  50,000 

6/11/2010

 $17.97 J. Peeler  84,400 

    D. Glass  15,000 

    W. Miller  41,000 

    P. Collingwood  25,800 

    J. Kiernan  17,600 

6/9/2011

 $23.38 J. Peeler  31,700 

    D. Glass  12,900 

    W. Miller  12,900 

    P. Collingwood  7,000 

    J. Kiernan  7,000 

12/1/2011

 $11.10 W. Miller  15,000 

5/25/2012

 $15.80 J. Peeler  80,000 

    D. Glass  30,000 

    W. Miller  35,000 

    P. Collingwood  20,000 

    J. Kiernan  18,500 

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(4)
Reflects profit-sharing and cash bonuses under the Company's Management Profit Sharing Plan, Management Bonus Plan and Special Profit Sharing Plan and commissions. Profit-sharing, bonuses and commissions listed for a particular year represent amounts earned with respect to such year even though all or part of such amount may have been paid during the following year. These amounts are comprised of the following:

Name
 Year Profit
Sharing Plan
($)
 Bonus
Plan
($)
 Special Profit
Sharing Plan
($)
 Commissions
($)
 Total Non-
Equity
Incentive Plan
Compensation
($)
 

J. Peeler

  2012* 154,652  200,483       355,135 

  2011  265,159  294,614       559,773 

  2010  400,617  1,228,501  371,343     2,000,461 

D. Glass

  2012* 59,541  77,186       136,727 

  2011  103,244  113,426       216,670 

  2010  157,516  466,847  141,115     765,478 

W. Miller

  2012* 64,181  83,201       147,382 

  2011  86,657  85,506       172,163 

  2010  121,415  391,950  328,988     842,353 

P. Collingwood

  2012* 20,347  27,549    80,537** 128,433 

  2011  35,576  38,763    78,061  152,400 

  2010  56,283  172,612  52,176  81,162  362,234 

J. Kiernan

  2012* 31,662  41,045       72,707 

  2011  55,367  60,316       115,684 

  2010  88,094  272,814  81,224     442,132 

*
Following the conclusion of the accounting review and the completion of the Company's 2012 financial statements, it was determined that the 2012 MPSP awards paid for Q3 2012 were overstated relative to adjusted financial results. Excess Q3 2012 MPSP payments were subsequently deducted from awards otherwise payable under the 2012 Management Bonus Plan.

**
A portion of this amount ($2,518) reflects commissions that may be earned by Mr. Collingwood upon the recognition of revenue associated with orders booked in 2012.
(5)
All Other Compensation for 2012 consists of car allowance, 401(k) matching contribution, premiums for group term life insurance, relocation/housing allowance, and in the case of Mr. Collingwood, car lease payments, an employer UK pension contribution, and Veeco-funded tax payments.

Name
 Car
Allowance /
Lease ($)
 401(k)
Matching
Contribution
($)
 Premium
for Group
Term Life
Insurance
($)
 Relocation /
Housing
Allowance
($)
 Veeco-
Funded
Tax
Payments
($)
 Separation
Payments
($)
 Total
Other
Compensation
($)
 

J. Peeler

  18,000  7,500  1,032  94,349        120,881 

D. Glass

  8,400  7,500  552           16,452 

W. Miller

  8,400  7,500  240           16,140 

P. Collingwood

  17,029  3,190*    92,044  182,111     294,374 

J. Kiernan

  8,400  7,500  552           16,452 

*
Amount reflects an employer UK pension contribution made on Mr. Collingwood's behalf in December of 2012.

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(6)
Mr. Glass joined Veeco as Executive Vice President and Chief Financial Officer on January 18, 2010.

(7)
Dr. Miller was appointed as an executive officer of Veeco during 2010.

(8)
Mr. Collingwood's compensation for 2012 includes a six month salary increase of $20,000 per month paid in conjunction with his temporary assignment to Veeco's Shanghai office in 2012. Mr. Collingwood subsequently returned to the United Kingdom and his compensation for the month of December, 2012 was tendered in Great Britain Pounds (GBP). For purposes of these tables, this compensation has been converted to United States Dollars (USD) at a rate of 1 GBP = 1.6139 USD, which was the average exchange rate for the month of December, 2012.

Grants of Plan-Based Awards

The following table sets forth certain information concerning grants to each NEO during 2012 of stock options, shares of restricted stock and shares of restricted stock units made under the Company's 2010 Stock Incentive Plan (the "2010 Plan"). The option, restricted stock and restricted stock unit awards are also included in the Stock Awards and Option Awards columns of the Summary Compensation Table. The options granted under the 2010 Plan have a ten-year life. The options vest one third per year on each of the first, second and third anniversaries of the date of grant. One third of the shares of restricted stock vest on each of the second, third and fourth anniversaries of the date of grant. Holders of restricted stock are entitled to dividends to the same extent as holders of unrestricted stock.

 
  
 Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(1)
 All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (#)
 All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
 Exercise
or Base
Price of
Option
Awards
($/Sh)(2)
  
  
 
 
  
 Market
Price on
Date of
Grant
($/Sh)(3)
 Grant Date
Fair Value
of Stock
and Option
Awards ($)
 
Name
 Grant Date Threshold
($)
 Target
($)
 Maximum
($)
 

J. Peeler

  5/25/2012           30,000           990,000 

  5/25/2012              80,000  33.00  33.31  1,263,659 

D. Glass

  5/25/2012           9,500           313,500 

  5/25/2012              30,000  33.00  33.31  473,872 

W. Miller

  5/25/2012           10,200           336,600 

  5/25/2012              35,000  33.00  33.31  552,851 

P. Collingwood

  5/25/2012           6,500           214,500 

  5/25/2012              20,000  33.00  33.31  315,915 

J. Kiernan

  5/25/2012           5,750           189,750 

  5/25/2012              18,500  33.00  33.31  292,221 

(1)
The Company made awards under its annual Management Bonus Plan for performance in 2012. These bonuses, which were earned during 2012 and paid in the fourth quarter of 2013, are reflected in the Summary Compensation Table under the Column entitled Non-Equity Incentive Plan Compensation. Aside from these awards, the Company did not grant long-term cash or other non-equity incentive plan awards in 2012.

(2)
The exercise price reflects the closing price of Veeco common stock on the trading day immediately preceding the grant date, as provided under the terms of the 2010 Plan.

(3)
Reflects the closing market price of Veeco common stock on the date of grant for dates, if any, on which the option exercise price was less than the closing price on the date of grant. Under the 2010 Plan, option exercise prices are based on the closing price on the trading day immediately preceding the date of grant. The date-prior closing price was originally chosen when the 2010 Plan was adopted to facilitate administration of the plan, approval and issuance of awards and reporting of awards under applicable SEC rules.

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Outstanding Equity Awards at Fiscal Year End

The following table provides certain information as of December 31, 2012, concerning unexercised options and stock awards including those that had been granted but not yet vested as of such date for each of the NEOs. The value of stock awards shown below is based upon the fair market value of the Company's common stock on December 31, 2012, which was $29.49 per share.

 
 Option Awards Stock Awards 
Name
 Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
 Number of
Securities
Underlying
Unexercised
Options (#)(1)
Unexercisable
 Option
Exercise
Price ($)
 Option
Expiration
Date
 Number of
Shares or
Units of
Stock That
Have Not
Vested (#)(1)
 Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)
 

J. Peeler

  83,334     20.74  6/30/2014  3,500  103,215 

  58,334     17.48  6/11/2015  16,600  489,534 

  100,000     8.82  5/17/2016  30,000  884,700 

  150,000     12.36  6/28/2016       

  56,266  28,134  34.13  6/10/2020       

  10,566  21,134  51.70  6/8/2021       

     80,000  33.00  5/24/2022       

D. Glass

  16,667  16,667  32.58  1/17/2017  16,667  491,510 

  10,000  5,000  34.13  6/10/2020  667  19,670 

  4,300  8,600  51.70  6/8/2021  6,800  200,532 

     30,000  33.00  5/24/2022  9,500  280,155 

W. Miller

  1,000     18.11  6/7/2014  4,500  132,705 

  3,334     16.37  11/8/2014  4,667  137,630 

  5,834     17.48  6/11/2015  6,800  200,532 

  13,334     8.82  5/17/2016  7,500  221,175 

  13,334     12.36  6/28/2016  10,200  300,798 

  27,333  13,667  34.13  6/10/2020       

  4,300  8,600  51.70  6/8/2021       

  5,000  10,000  24.89  11/30/2021       

     35,000  33.00  5/24/2022       

P. Collingwood

  6,667     12.38  10/5/2015  3,334  98,320 

  6,668     8.82  5/17/2016  2,334  68,830 

  6,667     12.02  6/17/2016  3,500  103,215 

  13,334     12.36  6/28/2016  6,500  191,685 

  17,200  8,600  34.13  6/10/2020       

  2,333  4,667  51.70  6/8/2021       

     20,000  33.00  5/24/2022       

J. Kiernan

  4,584     8.82  5/17/2016  6,000  176,940 

  4,584     12.36  6/28/2016  1,534  45,238 

  5,867  5,867  34.13  6/10/2020  3,500  103,215 

  2,333  4,667  51.70  6/8/2021  5,750  169,568 

     18,500  33.00  5/24/2022       

(1)
The options which were not vested as of December 31, 2012 are to vest one third per year on each of the first, second and third anniversaries of the date of grant. The shares of restricted stock which were not vested as of December 31, 2012 are to vest as described herein. With respect to restricted stock awards granted in 2008, vesting is to occur, and did in fact occur, on the fifth anniversary of the date of grant, specifically on June 12, 2013 (except for the awards to

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    Mr. Collingwood, which vested in accordance with agreements entered in connection with his initial hiring). With respect to restricted stock awards granted in 2010 (other than for Messrs. Peeler and Glass), vesting is to occur one third per year on each of the second, third and fourth anniversaries of the date of grant. The June 2010 restricted stock awards to Messrs. Peeler and Glass were in the form of performance restricted stock units. The June 2011 and May 2012 restricted stock awards to all NEOs were in the form of performance restricted stock awards. If the designated performance criteria is met, then one third of these units or awards, as the case may be, will vest on the date on which the performance criteria is determined to have been met and one third will vest on each of the first and second anniversaries of such date. The performance criteria established for the 2010 and 2011 performance awards was met and vesting associated with these awards has begun (although the vesting of the remaining third of the 2010 restricted stock unit awards to Messrs. Peeler and Glass, scheduled to occur on August 2, 2013, was suspended as a result of the accounting review). The grant dates for the awards shown above which were not vested as of December 31, 2012 are as follows:

    (the following table is part of footnote (1) to the Outstanding Equity Awards at Fiscal Year End table above)

 
 Option Awards Stock Awards 
Name
 Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
 Option
Exercise
Price ($)
 Option
Grant
Date
 Number of
Shares
That Have
Not Vested (#)
 Restricted
Stock
Grant Date
 

J. Peeler

  28,134  34.13  6/11/2010  3,500  6/11/2010 

  21,134  51.70  6/9/2011  16,600  6/9/2011 

  80,000  33.00  5/25/2012  30,000  5/25/2012 

D. Glass

  16,667  32.58  1/18/2010  16,667  1/18/2010 

  5,000  34.13  6/11/2010  667  6/11/2010 

  8,600  51.70  6/9/2011  6,800  6/9/2011 

  30,000  33.00  5/25/2012  9,500  5/25/2012 

W. Miller

  13,667  34.13  6/11/2010  4,500  6/12/2008 

  8,600  51.70  6/9/2011  4,667  6/11/2010 

  10,000  24.89  12/1/2011  6,800  6/9/2011 

  35,000  33.00  5/25/2012  7,500  12/1/2011 

           10,200  5/25/2012 

P. Collingwood

  8,600  34.13  6/11/2010  3,334  6/18/2009 

  4,667  51.70  6/9/2011  2,334  6/11/2010 

  20,000  33.00  5/25/2012  3,500  6/9/2011 

           6,500  5/25/2012 

J. Kiernan

  5,867  34.13  6/11/2010  6,000  6/12/2008 

  4,667  51.70  6/9/2011  1,534  6/11/2010 

  18,500  33.00  5/25/2012  3,500  6/9/2011 

           5,750  5/25/2012 

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Options Exercises and Stock Vested During 2012

The following table sets forth certain information concerning the exercise of stock options and the vesting of shares of restricted stock during the last fiscal year for each of the NEOs.

 
 Option Awards Stock Awards 
Name
 Number of
Shares Acquired
on Exercise (#)
 Value Realized
on Exercise ($)
 Number of
Shares Acquired
on Vesting (#)(1)
 Value Realized
on Vesting ($)
 

J. Peeler

      20,167  695,945 

D. Glass

      9,000  215,654 

W. Miller

      6,000  207,197 

P. Collingwood

      11,500  377,427 

J. Kiernan

      3,433  118,488 

(1)
Includes the following shares of stock surrendered to the Company and/or sold to satisfy tax withholding obligations due upon the vesting of restricted stock:

Name
Number of Shares Withheld and/or
Sold for Tax Withholding (#)

J. Peeler

7,905

D. Glass

3,433

W. Miller

2,165

P. Collingwood

3,983

J. Kiernan

1,239

Equity Compensation Plan Information

The Company maintains the Veeco 2010 Stock Incentive Plan (the "2010 Plan") to provide for equity awards to employees, directors and consultants. In the past, the Company had maintained certain other stock option plans, including plans not approved by the Company's stockholders, all of which have expired and/or been frozen and, as a result, no awards are available for future grant under such plans, although past awards under these plans may still be outstanding. A brief description of the plans approved by the Company's stockholders follows.

Plans Approved by Securityholders

The 2010 Plan was approved by the Board of Directors and by the Company's stockholders in May 2010. The 2010 Plan provides for the issuance of up 3,500,000 shares of Common Stock pursuant to stock options, restricted stock, restricted stock units, stock appreciation rights, and dividend equivalent rights (collectively, the "awards"). As of December 31, 2012, 1,448,132 options were outstanding under the 2010 Plan and there were 965,417 shares of Common Stock available for future issuance. The term of any award granted under the 2010 Plan shall be the term stated in the award agreement, provided, however, that the term of awards may not be longer than ten (10) years (or five (5) years in the case of an incentive stock option granted to any participant who owns stock representing more than 10% of the combined voting power of the Company or any parent or subsidiary of the Company), excluding any period for which the participant has elected to defer the receipt of the shares or cash issuable pursuant to the award and any deferral program the administrator of the 2010 Plan may establish in its discretion.


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The Veeco 2000 Stock Incentive Plan, as amended (the "2000 Plan"), provided for the grant of up to 8,530,000 share-equivalent awards (either shares of restricted stock, restricted stock units or options to purchase shares of Common Stock). Stock options granted pursuant to the 2000 Plan expire after seven (7) years and generally become exercisable over a three-year period following the grant date. In addition, the 2000 Plan provided for automatic annual grants of shares of restricted stock to each non-employee Director of the Company having a fair market value in the amount determined by the Compensation Committee from time to time. The 2000 Plan expired on April 3, 2010. As a result, no further awards are available for grant under the 2000 Plan and this plan cannot be used for future awards. As of December 31, 2012, 873,522 awards were outstanding under the 2000 Plan.

Plans Not Approved by Securityholders

In connection with the Company's acquisition of Synos Technology, Inc. on October 1, 2013, the Board of Directors granted equity awards to 52 Synos employees. Pursuant to Nasdaq Listing Rule 573(c)(4), the equity awards were granted under the Company's 2013 Inducement Stock Incentive Plan, which the Board of Directors adopted to facilitate the granting of equity awards as an inducement to these employees to commence employment with Veeco. Awards granted to Synos employees as a part of this plan were comprised of (i) 124,500 stock options that will vest, subject to the recipient's continued service, over a three year period with one-third of each award vesting on each of the first three anniversaries of the award; the stock option awards have a ten-year term, and (ii) 62,500 restricted stock units were granted that will vest, subject to the recipient's continued service, over a four year period with one third of each award vesting on each anniversary of the award, beginning with the second anniversary and vesting, and (iii) 25,200 restricted stock units were granted that will vest, subject to the recipient's continued service, on the second anniversary of the award. There are no awards available for future grant under the 2013 Inducement Stock Incentive Plan.

Potential Payments Upon Termination or Change-in-Control

The Company has entered into an employment agreement or letter agreement with each of the NEOs. These agreements provide for the payment of severance and certain other benefits to the executive in the event (i) the executive's employment is terminated by Veeco without "cause" (defined as specified serious misconduct), (ii) the executive resigns for "good reason" or (iii) in the case of Mr. Peeler, in the event of death or disability. "Good reason" is defined in the employment and letter agreements as (a) a salary reduction, other than pursuant to a management-wide salary reduction program, (b) in the case of Messrs. Peeler, an involuntary relocation of the executive's primary place of work by more than 50 miles from its then current location, (c) in the case of Mr. Peeler, an involuntary diminution in position, title, responsibilities, authority or reporting responsibilities; (d) in the case of Messrs. Peeler and Glass, a significant reduction in total benefits available (other than a reduction affecting employees generally); and (e) in the case of Mr. Peeler, involuntarily ceasing to be a member of the Board. The nature and extent of the benefits payable vary from executive to executive and, for Mr. Glass, vary depending on whether the termination occurs in connection with or following a "change of control." The specific benefits payable to each individual under these agreements are described below. Payment of these severance and other benefits is conditioned on the executive's release of claims against the Company and on non-competition and non-solicitation provisions applicable during the period in which executive is entitled to severance payments, as described below. If the termination is for "cause" or by the executive without "good reason," the severance obligations do not apply. These agreements contain provisions intended to ensure that payments under the agreement comply with Section 409A of the Code. Such provisions may have the effect of delaying or accelerating certain payments under the agreements. The description of the employment agreements and letter agreements contained herein is a summary only. Reference is made to the full text of these agreements which have been filed previously with the SEC.


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Peeler Agreement

The Company has entered into an employment agreement with Mr. Peeler dated July 1, 2007 and amendments thereto dated June 12, 2008, December 31, 2008, June 11, 2010 and April 25, 2012. Under the agreement, in the event of a specified termination as described above, Mr. Peeler will be entitled to severance in an amount equal to 36 months of base salary and he will be entitled to a payment equal to his target bonus for the year of termination, pro-rated for the period of his service during such year. In addition, upon any such termination, (i) Mr. Peeler will have 36 months (or until the end of the original term of the options, if earlier) to exercise options to purchase common stock of Veeco which are or become vested and are held by Mr. Peeler at the time of such termination, (ii) the vesting of any options which are held by the executive at the time of such termination will be accelerated, and (iii) the vesting of any shares of restricted stock held by Mr. Peeler at the time of such termination will be accelerated and restrictions with regard thereto shall lapse. In addition, if Mr. Peeler elects to continue healthcare coverage under COBRA, then his contributions will be at the same Company-subsidized rates which Mr. Peeler would have paid had his employment not been terminated.

Glass Agreement

The Company has entered into a letter agreement with Mr. Glass dated December 17, 2009. Under the agreement, in the event of a specified termination as described above, Mr. Glass will be entitled to severance in an amount equal to 18 months of base salary. In addition, upon any such termination, (i) Mr. Glass will have 12 months (or until the end of the original term of the options, if earlier) to exercise options to purchase common stock of Veeco which were granted after the date of the employment agreement and which are or become vested and are held by Mr. Glass at the time of such termination, and (ii) if such termination occurs within 12 months following a change of control, the vesting of any such options which are held by the executive at the time of such termination will be accelerated. In addition, if Mr. Glass elects to continue healthcare coverage under COBRA, then his contributions during the period in which he is receiving severance under the agreement will be at the same Company-subsidized rates which Mr. Glass would have paid had his employment not been terminated.

Miller Agreement

The Company has entered into a letter agreement with Dr. Miller dated January 30, 2012. Under the agreement, in the event of a specified termination as described above, Dr. Miller will be entitled to severance in an amount equal to 12 months of base salary. In addition, upon any such termination, (i) Dr. Miller will have 12 months (or until the end of the original term of the options, if earlier) to exercise vested options to purchase common stock of Veeco which are held by Dr. Miller at the time of such termination and (ii) if Dr. Miller elects to continue healthcare coverage under COBRA, then his contributions during the period in which he is receiving severance under the agreement will be at the same Company-subsidized rates which Dr. Miller would have paid had his employment not been terminated.

Collingwood Agreement

The Company entered into a letter agreement with Mr. Collingwood effective January 1, 2010, in connection with his temporary assignment at the Company's headquarters office in Plainview, New York. Under the agreement, in the event Mr. Collingwood's employment is terminated by the Company without cause, Mr. Collingwood will be entitled to severance in an amount equal to 12 months of base salary. In addition, both the Company and Mr. Collingwood are required to give the other three months' notice should either party wish to terminate Mr. Collingwood's employment, except in cases of gross misconduct or other fundamental breach of his obligations by Mr. Collingwood's obligations, in which case the Company may terminate Mr. Collingwood's employment with immediate effect.


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Kiernan Agreement

The Company has entered into a letter agreement with Mr. Kiernan dated January 21, 2004, and amendments thereto dated June 9, 2006 and December 29, 2008. Under the agreement, in the event of a specified termination as described above, Mr. Kiernan will be entitled to severance in an amount equal to 18 months of base salary. In addition, upon any such termination, Mr. Kiernan will have 12 months to exercise stock options held by him at such time (or until the end of the original term of the options, if earlier) and, if such termination occurs within 12 months of a change of control, the vesting of any options which are held by Mr. Kiernan at the time of such termination will be accelerated. In addition, upon such termination, the vesting of any shares of restricted stock awarded to Mr. Kiernan after June 9, 2006 and which are held by Mr. Kiernan at the time of such termination will be accelerated and all restrictions with regard thereto shall lapse upon such termination. Furthermore, upon such termination, Mr. Kiernan will be entitled to receive a pro-rated portion of any outstanding long-term cash incentive awards. However, the calculation of the pro-rated amount varies depending upon whether such termination occurs within 12 months of a change in control or such other period of time.

Change in Control Policy

Veeco has adopted a Senior Executive Change in Control Policy (the "Policy") dated September 12, 2008 and amended December 23, 2008. The Policy provides certain severance and other benefits to designated senior executives in the event of a change in control of Veeco. The Policy was implemented to ensure that the executives to whom the policy applies remain available to discharge their duties in respect of a proposed or actual transaction involving a change in control that, if consummated, might result in a loss of such executive's position with the Company or the surviving entity. The policy was not adopted with any particular change in control in mind. The policy applies to designated senior executives of Veeco ("Eligible Employees"), including Messrs. Glass, Miller, Collingwood and Kiernan. The policy does not apply to Mr. Peeler. Benefits under the Senior Executive Change in Control Policy are intended to supplement, but not duplicate, benefits to which the covered executive may be entitled under the employment and letter agreements described above. The following description of the Senior Executive Change in Control Policy contained above is a summary only. Reference is made to the full text of the policy which has been filed previously with the SEC. The principal terms of the policy are:

    (a)
    Upon the consummation of a Change in Control (as defined in the policy), the vesting of all equity awards held by the Eligible Employee shall be accelerated and any outstanding stock options then held by the employee shall remain exercisable until the earlier of (x) 12 months following the date of termination of the employee's employment and (y) the expiration of the original term of such options.

    (b)
    If an Eligible Employee's employment shall be terminated by the Company without Cause (as defined in the policy), or by the Eligible Employee for Good Reason (as defined in the policy), during the period commencing 3 months prior to, and ending 18 months following, a Change in Control, and subject to the Eligible Employee's execution of a separation and release agreement in a form reasonably satisfactory to the Company:

        (i)  The Company shall pay to the Eligible Employee in a lump sum an amount equal to the sum of (A) his or her then current annual base salary and (B) the target bonus payable to the Eligible Employee pursuant to the Company's performance-based compensation bonus plan with respect to the fiscal year ending immediately prior to the date of termination, multiplied by 1.5;

       (ii)  The Company shall continue to provide the Eligible Employee with all health and welfare benefits which he or she was participating in or receiving as of the date of termination until the 18-month anniversary of the date of termination; and


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      (iii)  The Company shall pay to the Eligible Employee a pro-rated amount of the Eligible Employee's bonus for the fiscal year in which the date of termination occurs.

Payment of the benefits described above is conditioned on the executive's release of claims against the Company and on non-competition and non-solicitation provisions applicable during the 18-month period following termination of executive's employment.

Potential Payments Upon Termination or Change-in-Control

The following table shows the estimated, incremental amounts that would have been payable to the NEOs upon the occurrence of the indicated event, had the applicable event occurred on December 31, 2012. These amounts would be incremental to the compensation and benefit entitlements described above in this Proxy Statement that are not contingent upon a termination or change-in-control. The amounts attributable to the accelerated vesting of stock options and restricted shares are based upon the fair market value of the Company's common stock on December 31, 2012, which was $29.49 per share. The actual compensation and benefits the executive would receive at any subsequent date would likely vary from the amounts set forth below as a result of certain factors, such as a change in the price of the Company's common stock and any additional benefits the officer may have accrued as of that time under applicable benefit or compensation plans.

 
  
  
 Stock Options  
  
 
Name
 Event Salary &
Other
Continuing
Payments
($)(1)
 Accelerated
Vesting of
Stock
Options
($)(2)
 Extension of
Post-
Termination
Exercise
Period
($)(3)
 Accelerated
Vesting of
Stock
Awards ($)
 Total ($) 

J. Peeler

 Termination without Cause or resignation for Good Reason or upon Death or Disability(4)  2,505,944    1,805,632  1,477,449  5,789,017 

D. Glass

 Termination without Cause or resignation for Good Reason or upon Death or Disability  604,350        604,350 

 Termination without Cause or resignation for Good Reason following a Change of Control(5)  1,143,351      991,867  2,135,217 

W. Miller

 Termination without Cause or resignation for Good Reason  441,852        441,852 

 Termination without Cause or resignation for Good Reason following a Change of Control(5)  1,230,355  46,000  76,432  992,840  2,345,627 

P. Collingwood(6)

 Termination without Cause or resignation for Good Reason  320,250        320,250 

 Termination without Cause or resignation for Good Reason following a Change of Control(5)  700,497    49,154  462,049  1,211,701 

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 Stock Options  
  
 
Name
 Event Salary &
Other
Continuing
Payments
($)(1)
 Accelerated
Vesting of
Stock
Options
($)(2)
 Extension of
Post-
Termination
Exercise
Period
($)(3)
 Accelerated
Vesting of
Stock
Awards ($)
 Total ($) 

J. Kiernan

 Termination without Cause or resignation for Good Reason  457,908    20,277  494,960  973,145 

 Termination without Cause or resignation for Good Reason following a Change of Control(5)  744,532    20,277  494,960  1,259,769 

(1)
Reflects salary continuation benefits and, where provided under the applicable employment agreement or Change in Control Policy, pro-rated bonus and COBRA subsidy. Pro-rated bonus amounts assume 6 months of bonus at 100% of target performance.

(2)
Reflects the spread, or in-the-money value, as of December 31, 2012, of options to purchase Veeco common stock which would vest upon the specified event where provided under the applicable employment agreement or Change in Control Policy. Does not include the value of out-of-the-money options or options which vested prior to the specified event. As of December 31, 2012, the closing price of Veeco common stock was $29.49 per share. Please refer to the Outstanding Equity Awards At Fiscal Year End table above for a listing of unvested stock options held by the NEO as of December 31, 2012.

(3)
Reflects the increase in value of the spread, or in-the-money value, as of the end of the extended exercise period provided under the applicable agreement, as compared to the value of the spread as of December 31, 2012, of options to purchase Veeco common stock which were vested as of, or which would vest upon the occurrence of, the specified event, where provided under the applicable employment agreement or Change in Control Policy, and assuming that the price of Veeco common stock appreciates at a rate of 5% per annum from the closing price on December 31, 2012, which was $29.49 per share. Does not include the value of out-of-the-money options. Please refer to the Outstanding Equity Awards At Fiscal Year End table above for a listing of vested and unvested stock options held by the NEO as of December 31, 2012.

(4)
The agreement for Mr. Peeler does not distinguish between Change of Control and non-Change of Control scenarios.

(5)
As used in the Senior Executive Change in Control Policy, "Change in Control" is defined to mean the case where:

       (i)  any person or group acquires more than 50% of the total fair market value or total voting power of the stock of the Company;

      (ii)  any person or group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or group) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company;

     (iii)  a majority of the members of Veeco's Board is replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority of the members of Veeco's Board prior to the date of the appointment or election; or

     (iv)  any person or group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or group) substantially all of the assets of the Company immediately prior to such acquisition or acquisitions. However, no Change in Control shall be deemed to occur under this subsection (iv) as a result of a transfer to:

      (A)
      A shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock;

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      (B)
      An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company;

      (C)
      A person or group that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company; or

      (D)
      An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in clause (iii) above.

(6)
Salary for Mr. Collingwood, who is based in the United Kingdom, is denominated in Great Britain Pounds (GBP). Amounts reflected above have been converted to United States Dollars (USD) at a rate of 1 GBP = 1.6259 USD, which was the exchange rate in effect on December 31, 2012.

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

The following table sets forth certain information regarding the beneficial ownership of Common Stock as of October 22, 2013 (unless otherwise specified below) by (i) each person known by Veeco to own beneficially more than five percent of the outstanding shares of Common Stock, (ii) each director of Veeco, (iii) each NEO, and (iv) all executive officers and directors of Veeco as a group. Unless otherwise indicated, Veeco believes that each of the persons or entities named in the table exercises sole voting and investment power over the shares of Common Stock that each of them beneficially owns, subject to community property laws where applicable.

 
 Shares of Common Stock
Beneficially Owned(1)
  
 
 
 Percentage of
Total Shares
Outstanding(1)
 
 
 Shares Options Total 

5% or Greater Stockholders:

             

BlackRock, Inc.(2)

  6,762,360    6,762,360  17.2%

Royce & Associates, LLC(3)

  3,722,612    3,722,612  9.5%

The Vanguard Group(4)

  2,364,235    2,364,235  6.0%

AllianceBernstein LP(5)

  2,336,157    2,336,157  6.0%

Fisher Investments(6)

  2,202,762    2,202,762  5.6%

ClearBridge Investments, LLC(7)

  2,047,866    2,047,866  5.2%

Directors:

             

Edward H. Braun

  1,666  50,000  51,666  * 

Richard A. D'Amore

  74,087    74,087  * 

Gordon Hunter

  7,746    7,746  * 

Keith D. Jackson

  3,946    3,946  * 

Roger McDaniel

  19,151    19,151  * 

John R. Peeler

  161,609  523,867  685,476  1.7%

Peter J. Simone

  12,386    12,386  * 

Named Executive Officers:

             

John R. Peeler

  161,609  523,867  685,476  1.7%

David D. Glass

  34,896  66,934  101,830  * 

William J. Miller, Ph.D. 

  37,628  103,102  140,730  * 

Peter Collingwood

  16,559  70,468  87,027  * 

John Kiernan

  19,730  31,734  51,464  * 

All Directors and Executive Officers as a Group (11 persons)

  389,404  846,105  1,235,509  3.1%

*
Less than 1%.

(1)
A person is deemed to be the beneficial owner of securities owned or which can be acquired by such person within 60 days of the measurement date upon the exercise of stock options. Shares owned include awards of restricted stock from the Company, whether or not vested. Each person's percentage ownership is determined by assuming that stock options beneficially owned by such person (but not those owned by any other person) have been exercised.

(2)
Share ownership information is based on information contained in a Schedule 13G/A filed with the SEC on January 11, 2013. The address of this holder is 40 East 52nd Street, New York, New York 10022.

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(3)
Share ownership information is based on information contained in a Schedule 13G/A filed with the SEC on January 24, 2013. The address of this holder is 745 Fifth Avenue, New York, New York 10151.

(4)
Share ownership information is based on information contained in a Schedule 13G/A filed with the SEC on February 11, 2013. The address of this holder is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.

(5)
Share ownership information is based on information contained in a Schedule 13G filed with the SEC on February 13, 2013. The address of this holder is 1345 Avenue of the Americas, New York, New York 10105.

(6)
Share ownership information is based on information contained in a Schedule 13G filed with the SEC on February 6, 2013. The address of this holder is 13100 Skyline Boulevard, Woodside, California 94062.

(7)
Share ownership information is based on information contained in a Schedule 13G filed with the SEC on February 14, 2013. The address of this holder is 620 8th Avenue, New York, New York 10018.

Item 13.    Certain Relationships, Related Transactions and Director Independence

The Company's Audit Committee charter provides that the Audit Committee, or one or more of its members, has the authority and responsibility to review and, if appropriate, approve all proposed related party transactions. For purposes of the Audit Committee's review, a "related party transaction" is a transaction, arrangement or relationship between the Company and any Related Party where the aggregate amount will or may be expected to exceed $120,000 and any Related Party had, has or will have a direct or indirect material interest (as such terms are used in Item 404 of Regulation S-K under the Exchange Act). A "Related Party" is: (i) any director, nominee for director or executive officer (as such term is used in Section 16 of the Exchange Act) of the Company; (ii) any immediate family member of a director, nominee for director or executive officer of the Company; (iii) any person (including any "group" as such term is used in Section 13(d) of the Exchange Act) who is known to the Company as a beneficial owner of more than five percent of the Company's voting common stock (a "significant stockholder"); and (iv) any immediate family member of a significant stockholder.

When reviewing a related party transaction, the Audit Committee will take into consideration all of the relevant facts and circumstances available to it, including (if applicable), but not limited to:

the material terms and conditions of the transaction or transactions;

the Related Party's relationship to the Company;

the Related Party's interest in the transaction, including their position or relationship with, or ownership of, any entity that is a party to or has an interest in the transaction;

the approximate dollar value of the transaction;

the availability from other sources of comparable products or services; and

an assessment of whether the transaction is on terms that are comparable to the terms available to the Company from an unrelated third party.

During 2012, the Company has not been a participant in any related party transactions.

Independence of the Board of Directors

Veeco's Corporate Governance Guidelines provide that at least two-thirds of the Board of Directors must be independent in accordance with the Nasdaq listing standards. In addition, service on other


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boards must be consistent with Veeco's conflict of interest policy and the nature and time involved in such service is reviewed when evaluating suitability of individual directors for election.

Independence of Current Directors

Veeco's Board of Directors has determined that all of the directors are "independent" within the meaning of the applicable Nasdaq listing standards, except Mr. Peeler, the Company's Chief Executive Officer, and Mr. Braun, the Company's Chairman and former Chief Executive Officer.

Independence of Committee Member

All members of Veeco's Audit, Compensation and Governance Committees are required to be and are independent in accordance with Nasdaq listing standards.

Compensation Committee Interlocks and Insider Participation.    During 2012, none of Veeco's executive officers served on the board of directors of any entity whose executive officers served on Veeco's Compensation Committee. No current or past executive officer of Veeco serves on our Compensation Committee. The members of our Compensation Committee are Messrs. D'Amore, Hunter and McDaniel.

Item 14.    Principal Accounting Fees and Services

Our independent registered public accounting firm, Ernst & Young LLP, the member firms of Ernst & Young LLP and their respective affiliates (collectively "E&Y"), rendered professional services for the Company and its subsidiaries during the fiscal years ended December 31, 2012, 2011 and 2010. E&Y has advised us that it has no direct or indirect financial interests in us or any of our subsidiaries and that it has had, during the last five years, no connection with us or any of our subsidiaries other than as our independent registered public accounting firm and certain other activities as described below.

The fees for December 31, 2012 and 2011 that have been billed through the date of this Report are presented for the fiscal year in which they are applicable. Also included in the fees for the year ended December 31, 2012 are services related to the accounting for the results of revenue recognition evaluations, accounting review for the years ended December 31, 2012, 2011, 2010 and 2009 as well as efforts to become current in periodic reporting obligations under the federal securities laws. The following table sets forth the aggregate amount of fees billed for professional services rendered by E&Y to the Company and its subsidiaries in these years.

 
 For the year ended
December 31,
 
(in thousands)
 2012 2011 

Audit fees(1)

 $6,675 $1,180 

Audit-related fees(2)

    174 

Tax fees(3)

  265  803 
      

Total fees

 $6,940 $2,157 
      

(1)
The aggregate fees billed for professional services rendered by E&Y for the audits of annual financial statements and internal control over financial reporting, review of quarterly financial statements, services that are normally provided by E&Y in connection with statutory and regulatory filings or engagements. Also included in 2012 are fees billed for services related to the accounting for the results of revenue recognition evaluations, accounting review and efforts to become current in periodic reporting obligations under the federal securities laws.

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(2)
The aggregate fees billed for audit-related services rendered by E&Y, including acquisition due diligence.

(3)
The aggregate fees billed for professional services rendered by E&Y for worldwide tax compliance, tax advice and tax planning.

The Company's Audit Committee has determined that the provision of services described in the foregoing table to the Company and its subsidiaries is compatible with maintaining the independence of E&Y. All of the services described in the foregoing table with respect to the Company and its subsidiaries were approved by the Company's Audit Committee in conformity with its Pre-Approval Policy (as described below).

Pre-Approval Policy for Audit, Audit Related and Non-Audit Services

Consistent with applicable securities laws regarding auditor independence and pursuant to the Audit Committee charter, the Audit Committee has the direct and sole responsibility for the appointment, evaluation, compensation, direction and termination of any independent registered public accounting firm engaged for the purpose of performing any services to the Company and its subsidiaries. For that purpose, the Audit Committee adopted a policy to pre-approve all audit, audit-related, tax and permissible non-audit services to be provided by the independent registered public accounting firm (or the Pre-Approval Policy).

Pursuant to the Pre-Approval Policy, the Audit Committee is responsible for pre-approving all audit, audit-related, tax and non-audit services to be provided by an independent registered public accounting firm, including any proposed modification or change in scope or extent of any such services previously approved by the Audit Committee. In furtherance thereof, annually, prior to the commencement of any services, the Audit Committee reviews the services expected to be rendered in the coming year, the specific engagement terms, the related fees and the conditions of the engagement of the independent registered public accounting firm. Any services to be provided must be approved by the Audit Committee in advance. Quarterly, the Audit Committee receives status reports detailing services provided and expected to be provided by the independent registered public accounting firm. At such time, or more expeditiously if the need arises during the fiscal year, the Audit Committee reviews and, if appropriate, approves any services that have not been previously pre-approved and any proposed additions or modifications to any previously approved services or lines of service to be provided, together with any changes in fees. With respect to all permissible tax or internal control-related services, the Audit Committee shall specifically consider the impact of the provision of such services on the auditor's independence.

To ensure prompt handling of unforeseeable or unexpected matters that arise between Audit Committee meetings, the Audit Committee may delegate pre-approval authority to its chairperson and/or other members of such committee as the chairperson may from time to time designate provided that any such interim pre-approvals must be reviewed by the full Audit Committee at its next meeting and, in accordance with the Audit Committee charter, such delegation is not otherwise inconsistent with law or applicable rules of the SEC and the NASDAQ Stock Market. The Audit Committee cannot delegate its pre-approval authority to members of management.


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PART IV

Item 15.    Exhibits and Financial Statement Schedules

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

    (b)
    Exhibits

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

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


3.1


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


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


3.2


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


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


3.3


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


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


3.4


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


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


3.5


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


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


3.6


Amendment to Certificate of Incorporation of Veeco dated May 14, 2010


Annual Report on Form 10-K for the year ended December 31, 2010, Exhibit 3.8


3.7


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


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


3.8


Amendment No. 1 to the Fourth Amended and Restated Bylaws of Veeco effective May 20, 2010


Current Report on Form 8-K, filed May 26, 2010, Exhibit 3.1


3.9


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


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


10.1


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


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

Table of Contents

NumberExhibitIncorporated by Reference to the Following Documents
10.2Amendment to Loan Documents effective as of September 17, 2001 between Applied Epi, Inc. and Jackson National Life Insurance Company (executed in June 2002).Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Exhibit 10.2


10.3


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


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


10.4*


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


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


10.5*


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


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


10.6*


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


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


10.7*


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


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


10.8*


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


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


10.9*


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


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


10.10*


Veeco 2010 Stock Incentive Plan, effective May 14, 2010


Registration Statement on Form S-8 (File Number 333-166852) filed May 14, 2010, Exhibit 10.1


10.11*


Form of 2010 Stock Incentive Plan Stock Option Agreement (2012 rev.)


Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, Exhibit 10.2


10.12*


Form of 2010 Stock Incentive Plan Restricted Stock Agreement (2012 rev.)


Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, Exhibit 10.3


10.13*


Form of 2010 Stock Incentive Plan Restricted Stock Unit Agreement (2012 rev.)


Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, Exhibit 10.4


10.14*


Form of 2010 Stock Incentive Plan Restricted Stock Agreement (Non-Employee Director) (2011 rev.)


Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, Exhibit 10.5


10.15*


Form of 2010 Stock Incentive Plan Restricted Stock Agreement (Performance Based) (2012 rev.)


Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, Exhibit 10.6

Table of Contents

NumberExhibitIncorporated by Reference to the Following Documents
10.16*Veeco 2013 Inducement Stock Incentive Plan, effective September 26, 2013Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, Exhibit 10.1


10.17*


Form of 2013 Inducement Stock Incentive Plan Stock Option Agreement


Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, Exhibit 10.2


10.18*


Form of 2013 Inducement Stock Incentive Plan Restricted Stock Unit Agreement


Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, Exhibit 10.3


10.19*


Veeco Performance-Based Restricted Stock 2010


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


10.20*


Veeco 2010 Management Bonus Plan dated January 22, 2010


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


10.21*


Veeco 2010 Special Profit Sharing Plan dated February 15, 2010


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


10.22*


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


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


10.23*


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


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


10.24*


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


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


10.25*


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


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


10.26*


Second Amendment effective June 11, 2010 to Employment Agreement between Veeco and John R. Peeler


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


10.27*


Third Amendment effective April 27, 2012 to Employment Agreement between Veeco and John R. Peeler


Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, Exhibit 10.2


10.28*


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


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


10.29*


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


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


10.30*


Amendment effective June 9, 2006 to Letter Agreement between Veeco and John P. Kiernan


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

Table of Contents

NumberExhibitIncorporated by Reference to the Following Documents
10.31*Amendment effective December 31, 2008 to Letter Agreement between Veeco and John P. KiernanAnnual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.40


10.32*


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


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


10.33*


Letter agreement effective as of January 4, 2010 between Veeco and Peter Collingwood


Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, Exhibit 10.1


10.34*


Veeco 2011 Management Bonus Plan, dated January 26, 2011


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


10.35*


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


Annual Report on Form 10-K for the year ended December 31, 2011, Exhibit 10.29


10.36*


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


Annual Report on Form 10-K for the year ended December 31, 2011, Exhibit 10.30


21.1


Subsidiaries of the Registrant.


Filed herewith


23.1


Consent of Ernst & Young LLP.


Filed herewith


31.1


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


Filed herewith


31.2


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


Filed herewith


32.1


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


Filed herewith


32.2


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


Filed herewith


101.INS


XBRL Instance


**


101.XSD


XBRL Schema


**


101.PRE


XBRL Presentation


**


101.CAL


XBRL Calculation


**


101.DEF


XBRL Definition


**


101.LAB


XBRL Label


**

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

**
Filed herewith electronically

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 3, 2013.

Veeco Instruments Inc.



By:


/s/ JOHN R. PEELER

John R. Peeler
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on November 3, 2013.

Signature
Title



/s/ JOHN R. PEELER

John R. Peeler
Chairman and Chief Executive Officer (principal executive officer)

/s/ DAVID D. GLASS

David D. Glass


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

/s/ JOHN P. KIERNAN

John P. Kiernan


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

/s/ EDWARD H. BRAUN

Edward H. Braun


Director

/s/ RICHARD A. D'AMORE

Richard A. D'Amore


Director

/s/ GORDON HUNTER

Gordon Hunter


Director

/s/ KEITH D. JACKSON

Keith D. Jackson


Director

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Signature
Title



/s/ ROGER D. MCDANIEL

Roger D. McDaniel
Director

/s/ PETER J. SIMONE

Peter J. Simone


Director

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INDEX TO EXHIBITS

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

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


3.1


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


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


3.2


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


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


3.3


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


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


3.4


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


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


3.5


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


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


3.6


Amendment to Certificate of Incorporation of Veeco dated May 14, 2010


Annual Report on Form 10-K for the year ended December 31, 2010, Exhibit 3.8


3.7


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


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


3.8


Amendment No. 1 to the Fourth Amended and Restated Bylaws of Veeco effective May 20, 2010


Current Report on Form 8-K, filed May 26, 2010, Exhibit 3.1


3.9


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


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


10.1


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


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


10.2


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


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


10.3


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


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

Table of Contents

NumberExhibitIncorporated by Reference to the Following Documents
10.4*Form of Indemnification Agreement entered into between Veeco and each of its directors and executive officers.Current Report on Form 8-K filed on October 23, 2006, Exhibit 10.1


10.5*


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


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


10.6*


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


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


10.7*


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


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


10.8*


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


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


10.9*


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


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


10.10*


Veeco 2010 Stock Incentive Plan, effective May 14, 2010


Registration Statement on Form S-8 (File Number 333-166852) filed May 14, 2010, Exhibit 10.1


10.11*


Form of 2010 Stock Incentive Plan Stock Option Agreement (2012 rev.)


Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, Exhibit 10.2


10.12*


Form of 2010 Stock Incentive Plan Restricted Stock Agreement (2012 rev.)


Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, Exhibit 10.3


10.13*


Form of 2010 Stock Incentive Plan Restricted Stock Unit Agreement (2012 rev.)


Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, Exhibit 10.4


10.14*


Form of 2010 Stock Incentive Plan Restricted Stock Agreement (Non-Employee Director) (2011 rev.)


Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, Exhibit 10.5


10.15*


Form of 2010 Stock Incentive Plan Restricted Stock Agreement (Performance Based) (2012 rev.)


Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, Exhibit 10.6


10.16*


Veeco 2013 Inducement Stock Incentive Plan, effective September 26, 2013


Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, Exhibit 10.1


10.17*


Form of 2013 Inducement Stock Incentive Plan Stock Option Agreement


Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, Exhibit 10.2


10.18*


Form of 2013 Inducement Stock Incentive Plan Restricted Stock Unit Agreement


Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, Exhibit 10.3

Table of Contents

NumberExhibitIncorporated by Reference to the Following Documents
10.19*Veeco Performance-Based Restricted Stock 2010Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, Exhibit 10.2


10.20*


Veeco 2010 Management Bonus Plan dated January 22, 2010


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


10.21*


Veeco 2010 Special Profit Sharing Plan dated February 15, 2010


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


10.22*


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


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


10.23*


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


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


10.24*


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


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


10.25*


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


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


10.26*


Second Amendment effective June 11, 2010 to Employment Agreement between Veeco and John R. Peeler


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


10.27*


Third Amendment effective April 27, 2012 to Employment Agreement between Veeco and John R. Peeler


Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, Exhibit 10.2


10.28*


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


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


10.29*


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


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


10.30*


Amendment effective June 9, 2006 to Letter Agreement between Veeco and John P. Kiernan


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


10.31*


Amendment effective December 31, 2008 to Letter Agreement between Veeco and John P. Kiernan


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


10.32*


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


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


10.33*


Letter agreement effective as of January 4, 2010 between Veeco and Peter Collingwood


Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, Exhibit 10.1


10.34*


Veeco 2011 Management Bonus Plan, dated January 26, 2011


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

Table of Contents

NumberExhibitIncorporated by Reference to the Following Documents
10.35*Service Agreement effective January 1, 2012 between Veeco and Edward H. BraunAnnual Report on Form 10-K for the year ended December 31, 2011, Exhibit 10.29


10.36*


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


Annual Report on Form 10-K for the year ended December 31, 2011, Exhibit 10.30


21.1


Subsidiaries of the Registrant.


Filed herewith


23.1


Consent of Ernst & Young LLP.


Filed herewith


31.1


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


Filed herewith


31.2


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


Filed herewith


32.1


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


Filed herewith


32.2


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


Filed herewith


101.INS


XBRL Instance


**


101.XSD


XBRL Schema


**


101.PRE


XBRL Presentation


**


101.CAL


XBRL Calculation


**


101.DEF


XBRL Definition


**


101.LAB


XBRL Label


**

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

**
Filed herewith electronically

Table of Contents


Veeco Instruments Inc. and Subsidiaries
Index to Consolidated Financial Statements and
Financial Statement Schedule


Page

Management's Report on Internal Control Over Financial Reporting

F-2

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

F-4

Report of Independent Registered Public Accounting Firm on Financial Statements

F-6

Consolidated Balance Sheets as of December 31, 2012 and 2011

F-7

Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010

F-8

Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010

F-9

Consolidated Statements of Equity for the years ended December 31, 2012, 2011 and 2010

F-10

Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010

F-12

Notes to Consolidated Financial Statements

F-13

Schedule II—Valuation and Qualifying Accounts

S-1

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Management's Report on Internal Control
Over Financial Reporting

Management of Veeco and its consolidated subsidiaries, under the supervision of its Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles (GAAP). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Veeco management, under the supervision of its Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of its internal control over financial reporting as of December 31, 2012 based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In connection with the above assessment, Veeco management identified the following material weaknesses:

Inadequate and ineffective controls over the recognition of revenue

We did not have adequate controls to ensure that revenue was recorded in accordance with GAAP. Specifically, we noted the following with respect to our accounting for certain revenue transactions:

We did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience, and training in the application of US GAAP related to revenue recognition for multiple-element arrangements;

We did not design and maintain effective controls over the adequate review and approval of customer orders at certain of our foreign subsidiaries to ensure that the order documentation received from the customer constituted the final order documentation. Additionally, in some cases, our foreign subsidiaries did not always communicate to our corporate accounting staff all of the information necessary to make accurate revenue recognition determinations;

We did not design and maintain adequate procedures or effective review and approval controls over the accurate recording, presentation and disclosure of revenue and related costs related to multiple-element arrangements, including ensuring that multiple-element arrangements were identified, evaluated and effectively reviewed by appropriate accounting personnel. Specifically, we did not establish adequate procedures or design effective controls to:

    Identify the nature of contracts, capture necessary data and determine how revenue should be recognized in accordance with applicable revenue recognition guidance;

    Ensure consistent communication and coordination between and among various finance and non-finance personnel about the scope, terms and modifications to customer arrangements; and

    Ensure that all elements included in multiple-element arrangements were identified and accounted for appropriately.

    Assess whether vendor-specific objective evidence, third-party evidence of fair value or, for periods subsequent to January 1, 2011, adequate documentation of management's

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        determination of best estimate of selling price existed for all the elements in the arrangement.

As a result of the material weaknesses described above, management has concluded that, as of December 31, 2012, our internal control over financial reporting was not effective. The Company's independent registered public accounting firm audited the effectiveness of internal control over financial reporting as of December 31, 2012. Their report on the effectiveness of internal control over financial reporting as of December 31, 2012 is set forth herein. The Company's independent registered public accounting firm has issued an unqualified opinion on the Company's consolidated financial statements for 2012, which is included in Part II, Item 8 of this annual report on Form 10-K.

The effectiveness of the Company's internal control over financial reporting as of December 31, 20102012 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears under the heading "Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting."

Veeco Instruments Inc.
Plainview, NY
February 23, 2011

Veeco Instruments Inc.
Plainview, NY
November 3, 2013

/s/ JOHN R. PEELER

John R. Peeler
Chairman and Chief Executive Officer

Veeco Instruments Inc.
February 23, 2011November 3, 2013

 

 

/s/ DAVID D. GLASS

David D. Glass
Executive Vice President and
Chief Financial Officer

Veeco Instruments Inc.
February 23, 2011November 3, 2013

 

 

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

The Board of Directors and Shareholders of Veeco Instruments Inc.

We have audited Veeco Instruments Inc. and Subsidiaries (the "Company") internal control over financial reporting as of December 31, 2010,2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

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

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

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

        In our opinion, the Company maintained,A material weakness is a deficiency, or combination of deficiencies, in all material respects, effective internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The Company's management identified material weaknesses in the control environment and at the control activity level over revenue recognition, as of December 31, 2010, baseddetailed in Management's Report on the COSO criteria.

Internal Control Over Financial Reporting. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2010consolidated balance sheets of the Company as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2012. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2012 consolidated financial statements, of the Company and this report does not affect our report dated February 23, 2011November 3, 2013, which expressed an unqualified opinion thereon.on those consolidated financial statements.


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In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.

 

/s/ ERNST & YOUNG LLP

New York, New York
February 23, 2011November 3, 2013


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Report of Independent Registered Public Accounting Firm on Financial Statements

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

We have audited the accompanying consolidated balance sheets of Veeco Instruments Inc. and Subsidiaries (the "Company") as of December 31, 20102012 and 2009,2011, and the related consolidated statements of operations, equity,income, comprehensive income, (loss)equity, and cash flows for each of the three years in the period ended December 31, 2010.2012. Our audits also included the financial statement schedule in the accompanying Index.index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20102012 and 2009,2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2010,2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2010,2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated February 23, 2011,November 3, 2013, expressed an unqualifiedadverse opinion thereon.

 /s/ ERNST & YOUNG LLP

New York, New York
February 23, 2011November 3, 2013


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Veeco Instruments Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands)

 
 December 31, 
 
 2010 2009 

Assets

       

Current assets:

       
 

Cash and cash equivalents

 $245,132 $148,500 
 

Short-term investments

  394,180  135,000 
 

Restricted cash

  76,115   
 

Accounts receivable, less allowance for doubtful accounts of $512 in 2010 and $438 in 2009

  150,528  67,546 
 

Inventories

  108,487  55,807 
 

Prepaid expenses and other current assets

  34,328  6,419 
 

Assets of discontinued segment held for sale

    40,058 
 

Deferred income taxes

  13,803  3,105 
      

Total current assets

  1,022,573  456,435 

Property, plant and equipment at cost, net

  42,320  44,707 

Goodwill

  52,003  52,003 

Deferred income taxes

  9,403   

Intangible assets, net

  16,893  21,770 

Other assets

  4,842  429 

Assets of discontinued segment held for sale

    30,028 
      

Total assets

 $1,148,034 $605,372 
      

Liabilities and equity

       

Current liabilities:

       
 

Accounts payable

 $32,220 $24,910 
 

Accrued expenses and other current liabilities

  183,010  99,823 
 

Deferred profit

  4,109  2,520 
 

Income taxes payable

  56,369  829 
 

Liabilities of discontinued segment held for sale

  5,359  10,824 
 

Current portion of long-term debt

  101,367  212 
      

Total current liabilities

  382,434  139,118 

Deferred income taxes

    5,039 

Long-term debt

  2,654  100,964 

Other liabilities

  434  1,192 

Equity:

       
 

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

     
 

Common stock; $.01 par value; authorized 120,000,000 shares; 40,337,950 and 39,003,114 shares issued and outstanding in 2010 and 2009, respectively

  409  382 
 

Additional paid-in-capital

  656,969  575,860 
 

Retained earnings (accumulated deficit)

  137,436  (224,324)
 

Accumulated other comprehensive income

  5,796  7,141 
 

Less: treasury stock, at cost; 1,118,600 shares in 2010

  (38,098)  
      

Total equity

  762,512  359,059 
      

Total liabilities and equity

 $1,148,034 $605,372 
      

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


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Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

 
 Year ended December 31, 
 
 2010 2009 2008 

Net sales

 $933,231 $282,412 $314,935 

Cost of sales

  489,406  171,177  191,664 
        

Gross profit

  443,825  111,235  123,271 

Operating expenses (income):

          
 

Selling, general and administrative

  91,777  62,151  60,542 
 

Research and development

  71,390  43,483  39,608 
 

Amortization

  4,876  5,168  8,864 
 

Restructuring

  (179) 4,837  9,424 
 

Asset impairment

    304  51,387 
 

Other, net

  (1,614) 24  (414)
        

Total operating expenses

  166,250  115,967  169,411 
        

Operating income (loss)

  277,575  (4,732) (46,140)

Interest expense

  8,201  7,732  9,317 

Interest income

  (1,629) (882) (2,588)

Gain on extinguishment of debt

      (3,758)
        

Income (loss) from continuing operations before income taxes

  271,003  (11,582) (49,111)

Income tax provision

  10,472  2,647  1,722 
        

Income (loss) from continuing operations

  260,531  (14,229) (50,833)

Discontinued operations:

          
 

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

  155,455  (2,703) (24,418)
 

Income tax provision (benefit)

  54,226  (1,300) 170 
        

Income (loss) from discontinued operations

  101,229  (1,403) (24,588)
        

Net income (loss)

  361,760  (15,632) (75,421)

Net loss attributable to noncontrolling interest

    (65) (230)
        

Net income (loss) attributable to Veeco

 $361,760 $(15,567)$(75,191)
        

Income (loss) per common share attributable to Veeco:

          

Basic:

          
  

Continuing operations

 $6.60 $(0.44)$(1.62)
  

Discontinued operations

  2.56  (0.04) (0.78)
        
 

Income (loss)

 $9.16 $(0.48)$(2.40)
        

Diluted:

          
  

Continuing operations

 $6.13 $(0.44)$(1.62)
  

Discontinued operations

  2.38  (0.04) (0.78)
        
 

Income (loss)

 $8.51 $(0.48)$(2.40)
        

Weighted average shares outstanding:

          

Basic

  39,499  32,628  31,347 

Diluted

  42,514  32,628  31,347 
 
 December 31, 
 
 2012 2011 

Assets

       

Current assets:

       

Cash and cash equivalents

 $384,557 $217,922 

Short-term investments

  192,234  273,591 

Restricted cash

  2,017  577 

Accounts receivable, net

  63,169  95,038 

Inventories

  59,807  113,434 

Prepaid expenses and other current assets

  32,155  40,756 

Assets of discontinued segment held for sale

    2,341 

Deferred income taxes

  10,545  10,885 
      

Total current assets

  744,484  754,544 

Property, plant and equipment at cost, net

  98,302  86,067 

Goodwill

  55,828  55,828 

Deferred income taxes

  935   

Intangible assets, net

  20,974  25,882 

Other assets

  16,781  13,742 
      

Total assets

 $937,304 $936,063 
      

Liabilities and equity

       

Current liabilities:

       

Accounts payable

 $26,087 $40,398 

Accrued expenses and other current liabilities

  74,260  106,626 

Deferred revenue

  9,380  11,305 

Income taxes payable

  2,292  3,532 

Liabilities of discontinued segment held for sale

    5,359 

Current portion of long-term debt

  268  248 
      

Total current liabilities

  112,287  167,468 

Deferred income taxes

  
7,137
  
5,029
 

Long-term debt

  2,138  2,406 

Other liabilities

  4,530  640 
      

Total liabilities

  126,092  175,543 
      

Equity:

       

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

     

Common stock; $.01 par value; authorized 120,000,000 shares; 39,328,503 and 39,328,503 shares issued and outstanding in 2012; and 44,047,264 and 38,768,436 shares issued and outstanding in 2011

  393  435 

Additional paid-in-capital

  708,723  688,353 

Retained earnings

  96,123  265,317 

Accumulated other comprehensive income

  5,973  6,590 

Less: treasury stock, at cost; 5,278,828 shares in 2011

    (200,175)
      

Total equity

  811,212  760,520 
      

Total liabilities and equity

 $937,304 $936,063 
      

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


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Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

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

 
 Year ended December 31, 
 
 2010 2009 2008 

Net income (loss)

 $361,760 $(15,632)$(75,421)

Other comprehensive income (loss), net of tax

          
 

Foreign currency translation

  (1,322) (58) 1,845 
 

Unrealized gain on available-for-sale securities

  97     
 

Minimum pension liability

  (120) 32  37 
        

Comprehensive income (loss)

  360,415  (15,658) (73,539)

Comprehensive loss attributable to noncontrolling interest

    (65) (230)
        

Comprehensive income (loss) attributable to Veeco

 $360,415 $(15,593)$(73,309)
        
 
 For the year ended
December 31,
 
 
 2012 2011 2010 

Net sales

 $516,020 $979,135 $930,892 

Cost of sales

  300,887  504,801  481,407 
        

Gross profit

  215,133  474,334  449,485 
        

Operating expenses (income):

          

Selling, general and administrative

  73,110  95,134  87,250 

Research and development

  95,153  96,596  56,948 

Amortization

  4,908  4,734  3,703 

Restructuring

  3,813  1,288  (179)

Asset impairment

  1,335  584   

Other, net

  (398) (261) (1,490)
        

Total operating expenses

  177,921  198,075  146,232 
        

Operating income

  37,212  276,259  303,253 
        

Interest income

  2,476  3,776  1,629 

Interest expense

  (1,502) (4,600) (8,201)
        

Interest income (expense), net

  974  (824) (6,572)

Loss on extinguishment of debt

    (3,349)  
        

Income from continuing operations before income taxes

  38,186  272,086  296,681 

Income tax provision

  11,657  81,584  19,505 
        

Income from continuing operations

  26,529  190,502  277,176 
        

Discontinued operations:

          

Income (loss) from discontinued operations before income taxes

  6,269  (91,885) 129,776 

Income tax provision (benefit)

  1,870  (29,370) 45,192 
        

Income (loss) from discontinued operations

  4,399  (62,515) 84,584 
        

Net income

 $30,928 $127,987 $361,760 
        

Income (loss) per common share:

          

Basic:

          

Continuing operations

 $0.69 $4.80 $7.02 

Discontinued operations

  0.11  (1.57) 2.14 
        

Income

 $0.80 $3.23 $9.16 
        

Diluted :

          

Continuing operations

 $0.68 $4.63 $6.52 

Discontinued operations

  0.11  (1.52) 1.99 
        

Income

 $0.79 $3.11 $8.51 
        

Weighted average shares outstanding:

          

Basic

  38,477  39,658  39,499 

Diluted

  39,051  41,155  42,514 

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


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Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

 
 For the year ended December 31, 
 
 2012 2011 2010 

Net income

 $30,928 $127,987 $361,760 
        

Other comprehensive (loss) income, net of tax

          

Unrealized (loss) gain on available-for-sale securities

  (68) 314  99 

Less: Reclassification adjustments for gains included in net income          

  (24) (271) (2)
        

Net unrealized (loss) gain on available-for-sale securities

  (92) 43  97 

Minimum pension liability

  (137) (43) (120)

Foreign currency translation

  (388) 794  (1,322)
        

Comprehensive income

 $30,311 $128,781 $360,415 
        

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


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Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)thousands, except share data)


  
  
  
  
  
  
 Equity Attributable to  Common Stock  
  
 (Accumulated
Deficit)
Retained
Earnings
 Accumulated
Other
Comprehensive
Income
  
 

 Common Stock  
  
 Retained
Earnings
(Accumulated
Deficit)
  
  Treasury
Stock
 Additional
Paid-in
Capital
 Total
Equity
 

 Treasury
Stock
 Additional
Paid-in
Capital
 Accumulated Other
Comprehensive
Income
  
 Noncontrolling
Interest
  
  Shares AmountAccumulated
Other
Comprehensive
Income

 Shares Amount Total Retained
Earnings
(Accumulated
Deficit)
 

Balance at January 1, 2008

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

Exercise of stock options

 67,080 1  680   681  

Equity-based compensation expense-continuing operations

    9,668   9,668  9,668 

Equity-based compensation expense-discontinued operations

    858   858  858 

Issuance, vesting and cancellation of restricted stock

 296,629 3  (1,019)   (1,016)  (1,016)

Translation adjustments

      1,845 1,845  1,845 

Defined benefit pension plan

      37 37  37 

Net loss

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

Balance at December 31, 2008

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

Exercise of stock options

 755,229 8  12,578   12,586  12,586 

Equity-based compensation expense-continuing operations

    7,547   7,547  7,547 

Equity-based compensation expense-discontinued operations

    990   990  990 

Issuance, vesting and cancellation of restricted stock

 310,286   (607)   (607)  (607)

Issuance of common stock

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

Translation adjustments

      (58) (58)  (58)

Defined benefit pension plan

      32 32  32 

Purchase of remaining 80.1% of noncontrolling interest

    (976)   (976) (719) (1,695)

Net loss

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

Balance at December 31, 2009

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

Balance as of January 1, 2010

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

Exercise of stock options

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

Equity-based compensation expense-continuing operations

    9,648   9,648  9,648     8,769   8,769 

Equity-based compensation expense-discontinued operations

    7,672   7,672  7,672     8,551   8,551 

Issuance, vesting and cancellation of restricted stock

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

Treasury stock

 (1,118,600)  (38,098)    (38,098)  (38,098) (1,118,600)  (38,098)    (38,098)

Excess tax benefits from stock option exercises

    23,271   23,271  23,271     23,271   23,271 

Translation adjustments

      (1,322) (1,322)  (1,322)

Defined benefit pension plan

      (120) (120)  (120)

Unrealized gain on short-term investments

      97 97  97 

Foreign currency translation

      (1,322) (1,322)

Minimum pension liability

      (120) (120)

Unrealized gain on available-for-sale securities

      99 99 

Reclassification adjustments for gains included in net income

      (2) (2)

Net income

     361,760  361,760  361,760      361,760  361,760 
                                  

Balance at December 31, 2010

 40,337,950 $409 $(38,098)$656,969 $137,436 $5,796 $762,512 $ $762,512 

Balance as of December 31, 2010

 40,337,950 409 (38,098) 656,969 137,436 5,796 762,512 

Exercise of stock options

 688,105 7  10,707   10,714 

Equity-based compensation expense-continuing operations

    12,807   12,807 

Equity-based compensation expense-discontinued operations

    689   689 

Issuance, vesting and cancellation of restricted stock

 131,196 1  (3,175)   (3,174)

Treasury stock

 (4,160,228)  (162,077)    (162,077)

Debt Conversion

 1,771,413 18  (50)   (32)

Excess tax benefits from stock option exercises

    10,406   10,406 

Foreign currency translation

     (106) 794 688 

Minimum pension liability

      (43) (43)

Unrealized gain on available-for-sale securities

      314 314 

Reclassification adjustments for gains included in net income

      (271) (271)

Net income

     127,987  127,987 
                                  

Balance as of December 31, 2011

 38,768,436 $435 $(200,175)$688,353 $265,317 $6,590 $760,520 

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


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Equity (Continued)

(Dollars in thousands, except share data)

 
 Common Stock  
  
 (Accumulated
Deficit)
Retained
Earnings
 Accumulated
Other
Comprehensive
Income
  
 
 
 Treasury
Stock
 Additional
Paid-in
Capital
 Total
Equity
 
 
 Shares Amount 

Balance as of December 31, 2011

  38,768,436 $435 $(200,175)$688,353 $265,317 $6,590 $760,520 

Exercise of stock options

  351,436  4    5,405      5,409 

Equity-based compensation expense-continuing operations

        14,268      14,268 

Issuance, vesting and cancellation of restricted stock

  208,631  7    (1,732)     (1,725)

Treasury stock

    (53) 200,175    (200,122)    

Prior period debt conversion adjustment

        310      310 

Excess tax benefits from stock option exercises

        2,119      2,119 

Foreign currency translation

            (388) (388)

Minimum pension liability

            (137) (137)

Unrealized loss on available-for-sale securities. 

            (68) (68)

Reclassification adjustments for gains included in net income

            (24) (24)

Net income

          30,928    30,928 
                

Balance as of December 31, 2012

  39,328,503 $393 $ $708,723 $96,123 $5,973 $811,212 
                

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


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(InDollars in thousands)



 Year ended December 31,  Year ended December 31, 


 2010 2009 2008  2012 2011 2010 

Operating activities

 

Net income (loss)

 $361,760 $(15,632)$(75,421)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

Depreciation and amortization

 12,854 13,865 17,685 

Amortization of debt discount

 3,058 2,846 2,917 

Non-cash equity-based compensation

 9,648 7,547 9,668 

Non-cash asset impairment

  304 51,387 

Non-cash inventory write-off

  1,526  

Non-cash restructuring

 (179)  (105)

Net gain on early extinguishment of debt

   (3,758)

Deferred income taxes

 (25,141) (414) 1,569 

Gain on disposal of segment (see Note 3)

 (156,290)   

Excess tax benefits from stock option exercises

 (23,271)   

Other, net

 1,034 44 (87)

Non-cash items from discontinued operations

 10,025 8,805 33,070 

Changes in operating assets and liabilities:

 
 

Accounts receivable

 (83,160) (28,379) 12,727 
 

Inventories

 (49,535) 10,322 3,683 
 

Supplier deposits

 (23,296) 117 (122)
 

Accounts payable

 7,299 3,067 (6,110)
 

Accrued expenses, deferred profit and other current liabilities

 85,500 51,582 (4,453)
 

Income taxes payable

 78,894 1,482 (2,931)
 

Other, net

 (9,491) (2,904) 2,287 
 

Discontinued operations

 (5,495) 4,860 1,188 

Cash Flows from Operating Activities

 

Net income

 $30,928 $127,987 $361,760 

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization

 16,192 12,892 10,789 

Amortization of debt discount

  1,260 3,058 

Non-cash equity-based compensation

 14,268 12,807 8,769 

Non-cash asset impairment

 1,335 584  

Loss on extinguishment of debt

  3,349  

Deferred income taxes

 (340) 11,276 (25,141)

Gain on disposal of segment (see Note 3)

 (4,112)  (156,290)

Excess tax benefits from stock option exercises

 (2,119) (10,406) (23,271)

Other, net

 262 (31) (206)

Non-cash items from discontinued operations

 (706) 44,381 14,030 

Changes in operating assets and liabilities:

 

Accounts receivable

 31,215 56,843 (83,160)

Inventories

 53,937 (18,627) (49,535)

Prepaid expenses and other current assets

 5,518 (25,487) (4,749)

Supplier deposits

 3,006 12,400 (23,296)

Accounts payable

 (12,106) 8,098 7,299 

Accrued expenses, deferred revenue and other current liabilities

 (34,227) (72,723) 85,500 

Income taxes payable

 1,199 (42,204) 78,894 

Transfers to restricted cash

 (1,440)   

Other, net

 11,085 (6,957) (4,742)

Discontinued operations

 (1,932)  (5,495)
              

Net cash provided by operating activities

Net cash provided by operating activities

 194,214 59,038 43,194  111,963 115,442 194,214 

Investing activities

 
       

Cash Flows from Investing Activities

 

Capital expenditures

Capital expenditures

 (10,724) (7,460) (11,126) (24,994) (60,364) (10,724)

Payments for net assets of businesses acquired

Payments for net assets of businesses acquired

  (2,413) (10,981)  (28,273)  

Payments of earn-outs for businesses acquired

  (9,839)  

Transfers to restricted cash

 (76,115)   

Payment for purchase of cost method investment

 (10,341)   

Transfers from (to) restricted cash related to discontinued operations

  75,540 (76,115)

Proceeds from the maturity of CDARS

Proceeds from the maturity of CDARS

 213,641      213,641 

Proceeds from sales of short-term investments

Proceeds from sales of short-term investments

 32,971    244,929 707,649 32,971 

Payments for purchases of short-term investments

Payments for purchases of short-term investments

 (506,103) (135,000)   (165,080) (588,453) (506,103)

Proceeds from the sale of property, plant and equipment

 13 834 103 

Proceeds from disposal of segment, net of transaction fees (see Note 3)

 225,188   

Discontinued operations

 (492) (887) (1,680)

Proceeds from disposal of segment, net of transaction fees

   225,188 

Other

 49 195 13 

Proceeds from sale of assets from discontinued segment

 3,758  (492)
              

Net cash used in investing activities

 (121,621) (154,765) (23,684)

Financing activities

 

Net cash provided by (used in) investing activities

 48,321 106,294 (121,621)
       

Cash Flows from Financing Activities

 

Proceeds from stock option exercises

Proceeds from stock option exercises

 45,164 12,586 681  5,409 10,714 45,164 

Proceeds from issuance of common stock

  130,086  

Restricted stock tax withholdings

Restricted stock tax withholdings

 (4,619) (607) (1,019) (1,725) (3,173) (4,619)

Excess tax benefits from stock option exercises

Excess tax benefits from stock option exercises

 23,271    2,119 10,406 23,271 

Purchases of treasury stock

Purchases of treasury stock

 (38,098)     (162,077) (38,098)

Repayments of long-term debt

Repayments of long-term debt

 (213) (196) (32,659) (248) (105,803) (213)

Other

  (2)  
              

Net cash provided by (used in) financing activities

Net cash provided by (used in) financing activities

 25,505 141,869 (32,997) 5,555 (249,935) 25,505 

Effect of exchange rate changes on cash and cash equivalents

Effect of exchange rate changes on cash and cash equivalents

 (1,466) (163) (867) 796 989 (1,466)
              

Net increase (decrease) in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

 96,632 45,979 (14,354) 166,635 (27,210) 96,632 

Cash and cash equivalents at beginning of year

 148,500 102,521 116,875 

Cash and cash equivalents at beginning of period

 217,922 245,132 148,500 
              

Cash and cash equivalents at end of year

 $245,132 $148,500 $102,521 

Cash and cash equivalents at end of period

 $384,557 $217,922 $245,132 
              

Supplemental disclosure of cash flow information

Supplemental disclosure of cash flow information

  

Interest paid

Interest paid

 $4,727 $4,935 $6,530  $209 $1,393 $4,727 

Income taxes paid

Income taxes paid

 9,925 1,808 3,215  11,566 89,745 9,925 

Non-cash investing and financing activities

Non-cash investing and financing activities

  

Accrual of payment for net assets of businesses acquired

 $ $1,000 $ 

Accrual of contingent earn-out payment to former shareholders of acquired company

   9,644 

Transfers from property, plant and equipment to inventory

Transfers from property, plant and equipment to inventory

 3,913 1,159 404  $1,230 $ $3,913 

Transfers from inventory to property, plant and equipment

Transfers from inventory to property, plant and equipment

 850 23 385    850 

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


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 20102012

1. Description of Business and Significant Accounting Policies

Business

Veeco Instruments Inc. (together with its consolidated subsidiaries, "Veeco," the "Company" or "we") designs, manufacturescreates Process Equipment solutions that enable technologies for a cleaner and marketsmore productive world. We design, manufacture and market equipment primarily sold to develop and manufacturemake light emitting diodes ("LEDs"), solar panels,LED"s) and hard-disk drives, as well as for emerging applications such as concentrator photovoltaics, power semiconductors, wireless components, micro-electromechanical systems ("MEMS"), and other next-generation devices. We have leading technology positions in our two segments: Light Emitting Diode ("LED") & Solar and Data Storage.

        In ourVeeco's LED & Solar segment we design designs and manufacturemanufactures metal organic chemical vapor deposition ("MOCVD") systems,and molecular beam epitaxy ("MBE") systems and components sold to manufacturers of LEDs, wireless devices, power semiconductors, and concentrator photovoltaics, as well as for R&D applications. In 2011 we discontinued the sale of our products related to Copper, Indium, Gallium, Selenide ("CIGS") depositionsolar systems and thermal deposition sources that we sell to manufacturers of high brightness LEDs ("HB LED") and solar panels, as well as to scientific research customers.technology.

        In ourVeeco's Data Storage segment we design designs and manufacture ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, chemical vapor deposition, and dicing and slicing systems that we primarilymanufactures the critical technologies used to create thin film magnetic heads ("TFMHs") that read and write data on hard disk drives. These technologies include ion beam etch ("IBE"), ion beam deposition ("IBD"), diamond-like carbon ("DLC"), physical vapor deposition ("PVD"), chemical vapor deposition ("CVD"), and slicing, dicing and lapping systems. While these technologies are primarily sold to hard drive customers, they also have applications in optical coatings, MEMS and magnetic sensors and other markets.

Accounting Review

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 supportconducted 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 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.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

1. Description of Business and Significant Accounting Policies (Continued)

We often enter into large orders with our customers through product development, manufacturing,consisting of several elements. For accounting purposes, these are called multiple element arrangements, and can include systems, upgrades, spare parts, services, 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 service sites(3) allocated the arrangement's 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., Korea, Taiwan, China, Singapore, Japan, Europe 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 locations.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 adjustments to correct all prior periods resulting in an increase in revenues of $2.2 million and a decrease in net income from continuing operations of $0.6 million.

Basis of Presentation

We report interim quarters, other than fourth quarters which always end on December 31, on a 13-week basis ending on the last Sunday within such period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 20102012 interim quarter ends were March 28, June 27April 1, July 1 and September 26.30. The 20092011 interim quarter ends were March 29, June 28April 3, July 3 and September 27.October 2. For ease of reference, we report these interim quarter ends as March 31, June 30 and September 30 in our interim condensed consolidated financial statements. We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation, including amounts related to discontinued operations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United StatesU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management includeinclude: the best estimate of selling price for our products and services; allowance for doubtful accounts,accounts; inventory obsolescence, purchase accounting allocations,valuation; recoverability and useful lives of property, plant and equipment and identifiable intangible assets,assets; investment valuations; fair value of derivatives; recoverability of goodwill and long lived assets; recoverability of deferred tax assets,assets; liabilities for product warranty,warranty; accruals for contingencies andcontingencies; equity-based payments, including forfeitures and performance based vesting; and liabilities for tax uncertainties. Actual results could differ from those estimates.

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of Veeco and its subsidiaries. Intercompany items and transactions have been eliminated in consolidation.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

1. Description of Business and Significant Accounting Policies (Continued)

Revenue Recognition

We recognize revenue basedwhen all of the following criteria have been met: persuasive evidence of an arrangement exists with a customer; delivery of the specified products has occurred or services have been rendered; prices are contractually fixed or determinable; collectability is reasonably assured. Revenue is recorded including shipping and handling costs and excluding applicable taxes related to sales. A significant portion of our revenue is derived from contractual arrangements with customers that have multiple elements, such as systems, upgrades, components, spare parts, maintenance and service plans. For sales arrangements that contain multiple elements, we split the arrangement into separate units of accounting if the individually delivered elements have value to the customer on currenta standalone basis. We also evaluate whether multiple transactions with the same customer or related party should be considered part of a multiple element arrangement, whereby we assess, among other factors, whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of each other. When we have separate units of accounting, guidance provided by the Securities and Exchange Commission ("SEC") and the Financial Accounting Standards Board ("FASB"). Ourwe allocate revenue transactions include sales of products under multiple-element arrangements. Revenue under these arrangements is allocated to each element based upon its estimated fair market value.on the following selling price hierarchy: vendor-specific objective evidence ("VSOE") if available; third party evidence ("TPE") if VSOE is not available; or our best estimate of selling price ("BESP") if neither VSOE nor TPE is available. For the majority of the elements in our arrangements we utilize BESP. The accounting guidance for selling price hierarchy did not include BESP for arrangements entered into prior to January 1, 2011, and as such we recognized revenue for those arrangements as described below.

We consider a broad array ofmany facts and circumstances when evaluating each of our sales arrangements in determining when to recognizedetermine the timing of revenue recognition, including specific terms of the purchase order, contractual obligations, to the customer,customer's creditworthiness and the complexitynature of the customer's post-delivery acceptance provisions, customer creditworthiness and the installation process. Management also considers the party responsible for installation, whether there are process specification requirements which need to be demonstrated before final sign off and payment, whether Veeco can replicate the field testing conditions and procedures in our factory and our past experience with demonstrating and installing a particular system. Salesprovisions. Our system sales arrangements, are reviewed on a case-by-case basis; however, the Company's revenue recognition protocol for established systems is as described below.

        System revenue isincluding certain upgrades, generally recognized upon shipment or delivery provided title and risk of loss has passed to the customer, evidence of an arrangement exists, prices are contractually fixed or determinable, collectability is reasonably assured and there are no material uncertainties regarding customer acceptance. Revenue from installation services is recognized at the time acceptance is received from the customer. If the arrangement does not meet all the above criteria, the entire amount of the sales arrangement is deferred until the criteria have been met or all elements have been delivered to the customer or been completed.

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

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

        Our systems are principally sold to manufacturers in the HB-LED, the data storage and solar industries. Salesour arrangements, for these systems generally include customer acceptance criteria based upon Veeco and/or customer specifications. Prior to shipment a customer source inspection of the system is performed in our facility or test data is sent to the customer documenting that the system is functioning withinto the agreed upon specifications. Suchspecifications prior to delivery. Historically, such source inspection or test data replicates the field acceptance testingprovisions that will be performed at the customer's site prior to final acceptance of the system. CustomerAs such, we objectively demonstrate that the criteria specified in the contractual acceptance provisions include reassemblyare achieved prior to delivery and, installationtherefore, we recognize revenue upon delivery since there is no substantive contingency remaining related to the acceptance provisions at that date, subject to the retention amount constraint described below. For new products, new applications of existing products or for products with substantive customer acceptance provisions where we cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions have been achieved prior to delivery, revenue and the associated costs are deferred and fully recognized upon the receipt of final customer acceptance, assuming all other revenue recognition criteria have been met.

Our system sales arrangements, including certain upgrades, generally do not contain provisions for right of return or forfeiture, refund, or other purchase price concessions. In the rare instances where such provisions are included, we defer all revenue until such rights expire. In many cases our products are sold with a billing retention, typically 10% of the system atsales price (the "retention amount"), which is typically payable by the customer site, which includes performing functional or mechanical test procedures (i.e. hardware checks, leak testing,when field acceptance provisions are completed. The amount of


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012


gas flow monitoring1. Description of Business and quality control checksSignificant Accounting Policies (Continued)

revenue recognized upon delivery of a system or upgrade is limited to the lower of i) the amount that is not contingent upon acceptance provisions or ii) the value allocated to the delivered elements, if such sale is part of a multiple-element arrangement.

For transactions entered into prior to January 1, 2011, under the accounting rules for multiple-element arrangements in place at that time, we deferred the greater of the basic featuresretention amount or the relative fair value of the product.) Additionally, a material demonstration process may be performed to validateundelivered elements based on VSOE. When we could not establish VSOE or TPE for all undelivered elements of an arrangement, revenue on the functionalityentire arrangement was deferred until the earlier of the product. Upon meetingpoint when we did have VSOE for all undelivered elements or the agreed upon specifications the customer approves final acceptancedelivery of all elements of the product.arrangement.

        VeecoOur sales arrangements, including certain upgrades, generally is required to install these products and demonstrate compliance with acceptance tests at the customer's facility. Such installations typically are not considered complex and theinclude installation. The installation process is not deemed essential to the functionality of the equipment becausesince it is not complex; that is, it does not involverequire significant changes to the features or capabilities of the equipment or involve building complexelaborate interfaces or connections.connections subsequent to factory acceptance. We have a demonstrated history of consistently completing such installations in a timely consistent manner and can reliably estimate the costs of such. In such cases, the test environment at our facilities prior to shipment replicates the customer's environment. While there are others in the industry with sufficient knowledge about the installation process for our systems as a practical matter, mostactivities. Most customers engage the Companyus to perform the installation services, although there are other third-party providers with sufficient knowledge who could complete these services. Based on these factors, we deem the installation of our systems to be inconsequential and perfunctory relative to the system as a whole, and as a result, do not consider such services to be a separate element of the arrangement. As such, we accrue the cost of the installation at the time of revenue recognition for the system.

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

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

Cash and Cash Equivalents

Cash and cash equivalents include cash and certain highly liquid investments. Highly liquid investments with maturities of three months or less when purchased.purchased may be classified as cash equivalents. Such items may include cash in operating bank accounts, liquid money market accounts, treasury bills, commercial paper, Federal Deposit Insurance Corporation ("FDIC") insuredgovernment agency securities and corporate bonds and certificates of deposit placed through an account registry service ("CDARS") with maturities of three months or less when purchased. CDARS, commercial paper and treasury billsdebt. The investments that are classified as cash equivalents are carried at cost, which approximates fair market value.

Short-Term Investments

We determine the appropriate balance sheet classification of our investments at the time of purchase and evaluate the classification at each balance sheet date. As part of our cash management program, we maintain a portfolio of marketable securities which are classified as available-for-sale. These securities include FDIC insuredguaranteed corporate bonds,debt, treasury bills commercial paper and CDARSGovernment agency securities with maturities of greater than three months when purchased in principal amounts that, when aggregated with interest to accrue over the term, will not exceed FDIC limits.purchased. Securities classified as available-for-sale are carried at fair market value, with the unrealized gains and losses, net of tax, included in the


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

1. Description of Business and Significant Accounting Policies (Continued)

determination of comprehensive income (loss) and reported in equity. Net realized gains and losses are included in net income (loss) attributable.

Accounts Receivable, Net

Accounts receivable are presented net of allowance for doubtful accounts of $0.5 million as of December 31, 2012 and 2011. The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company becomes aware of circumstances that may impair a customer's ability to Veeco.meet its financial obligations subsequent to the original sale, the Company will record an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes an allowance for doubtful accounts based on the length of time the receivables are past due and consideration of other factors such as industry conditions, the current business environment and its historical experience.

Concentration of Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of accounts receivable, short-term investments and cash and cash equivalents. We perform ongoing credit evaluations of our customers and, where appropriate, require that letters of credit be provided on certain foreign sales arrangements. We maintain allowances for potential credit losses and make investments with strong, higher credit quality issuers and continuously monitor the amount of credit exposure to any one issuer.

Inventories

Inventories are stated at the lower of cost (principally first-in, first-out method) or market. On a quarterly basis, management assesses the valuation and recoverability of all inventories, classified as materials (which include raw materials, spare parts and service inventory), work-in-process and finished goods.

Materials inventory is used primarily to support the installed tool base and spare parts sales and is reviewed for excess quantities or obsolescence by comparing on-hand balances to historical usage, and adjusted for current economic conditions and other qualitative factors. Historically, the variability of such estimates has been impacted by customer demand and tool utilization rates.

The work-in-process and finished goods inventory is principally used to support system sales and is reviewed for excess quantities or obsolescence by considering whether on hand inventory would be utilized to fulfill the related backlog. As the Company typically receives deposits for its orders, the variability of this estimate is reduced as customers have a vested interest in the orders they place with the Company. Management also considers qualitative factors such as future product demand based on market outlook, which is based principally upon production requirements resulting from customer purchase orders received with a customer-confirmed shipment date within the next twelve months. Historically, the variability of these estimates of future product demand has been impacted by backlog cancellations or modifications resulting from unanticipated changes in technology or customer demand.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012


investments with strong, higher credit quality issuers and continuously monitor the amount of credit exposure to any one issuer.

Inventories1. Description of Business and Significant Accounting Policies (Continued)

        Inventories are stated at the lowerFollowing identification of cost (principally first-in, first-out method)potential excess or market. Managementobsolete inventory, management evaluates the need to record adjustments for impairment ofwrite down inventory on a quarterly basis. Our policy is to assess the valuation of all inventories, including raw materials, work in process, finished goods, and spare parts and other service inventory. Obsolete or slow-moving inventory, based upon historical usage or inventory in excess of management's estimated usage for the next 12 months' requirements is written downbalances to its estimated market value, if less than its cost. Inherent in the estimates of market value are management's estimates related to our future manufacturing schedules, customer demand, technological and/or market obsolescence, possible alternative uses, and ultimate realization of potential excess inventory. Unanticipated changes in demand for our products may require a write down of inventory that could materially affect our operating results.

Goodwill and Indefinite-Lived Intangibles

We account for goodwill and intangible assets with indefinite useful lives in accordance with relevant accounting guidance related to goodwill and other intangible assets, which states that goodwill and intangible assets with indefinite useful lives should not be amortized, but instead tested for impairment at least annually at the reporting unit level. Our policy is to perform this annual impairment test in the fourth quarter, using a measurement date of October 1st, of each fiscal year or more frequently if impairment indicators arise. Impairment indicators include, among other conditions, cash flow deficits, a historical or anticipated decline in revenue or operating profit, adverse legal or regulatory developments and a material decrease in the fair value of some or all of the assets.

Pursuant to the aforementioned guidance we are required to determine if it is appropriate to use the operating segment, as defined under guidance for segment reporting, as the reporting unit, or one level below the operating segment, depending on whether certain criteria are met. We have identified twofour reporting units that are required to be reviewed for impairment. The four reporting units are aggregated into two segments: the VIBE and Mechanical reporting units which are reported in our Data Storage segment; and the MOCVD and MBE reporting units which are reported in our LED & Solar.and Solar segment. In identifying the reporting units management considered the economic characteristics of operating segments including the products and services provided, production processes, types or classes of customer and product distribution.

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


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010

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


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

1. Description of Business and Significant Accounting Policies (Continued)

Definite-Lived Intangible and Long-Lived Assets

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

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

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

Cost Method of Accounting for Investments

Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company's share of the earnings or losses of such investee companies is not included in the Consolidated Balance Sheet or StatementStatements of Operations.Income. However, impairment charges are recognized in the Consolidated StatementStatements of Operations.Income. If circumstances suggest that the value of the investee company has subsequently recovered, such recovery is not recorded.

Fair Value of Financial Instruments

We believe the carrying amounts of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, reflected in the consolidated financial statements approximate fair value due to their short-term maturities. The fair value of our debt, including current maturities, is estimated using a discounted cash flow analysis, based on the estimated current incremental borrowing rates for similar types of securities or based on market value for our publicly traded debt (see Note 7).securities.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

Derivative Financial Instruments1. Description of Business and Significant Accounting Policies (Continued)

        We use derivative financial instruments to minimize the impact of foreign exchange rate changes on earnings and cash flows. In the normal course of business, our operations are exposed to fluctuations in foreign exchange rates. In order to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known foreign currency exposures, we enter into monthly forward contracts. We do not use derivative financial instruments for trading or speculative purposes. Our forward contracts are not expected to subject us to material risks due to exchange rate movements because gains and losses on these contracts are intended to offset exchange gains and losses on the underlying assets and liabilities. The forward contracts are marked-to-market through earnings. We conduct our derivative transactions with highly rated financial institutions in an effort to mitigate any material credit risk.

        The aggregate foreign currency exchange gain (loss) included in determining consolidated results of operations was approximately $1.3 million, $(0.7) million and $(0.1) million in 2010, 2009 and 2008, respectively. Included in the aggregate foreign currency exchange gain (loss) were gains (losses) relating to forward contracts of $0.1 million, $0.2 million and ($0.4) million in 2010, 2009 and 2008, respectively. These amounts were recognized and are included in other, net in the accompanying Consolidated Statements of Operations.

        As of December 31, 2010, approximately $0.3 million of gains related to forward contracts were included in prepaid expenses and other current assets and were subsequently received in January 2011. As of December 31, 2009, approximately $0.2 million of gains related to forward contracts were included in prepaid expenses and other current assets and were subsequently received in January 2010. Monthly forward contracts with a notional amount of $18.5 million, entered into in December 2010 for January 2011, will be settled in January 2011.

        The weighted average notional amount of derivative contracts outstanding during the year ended December 31, 2010 was approximately $6.2 million.

Translation of Foreign Currencies

Certain of our international subsidiaries operate primarily using local functional currencies. Foreign currency denominated assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date, and income and expense accounts and cash flow items are translated at average monthly exchange rates during the respective periods. Net exchange gains or losses resulting from the translation of foreign financial statements and the effect of exchange rates on intercompany transactions of a long-term investment nature are recorded as a separate component of equity in accumulated other comprehensive income. Any foreign currency gains or losses related to transactions are included in operating results.

Environmental Compliance and Remediation

Environmental compliance costs include ongoing maintenance, monitoring and similar costs. Such costs are expensed as incurred. Environmental remediation costs are accrued when environmental assessments and/or remedial efforts are probable and the cost can be reasonably estimated.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010

Accumulated Other Comprehensive Income

        Our accumulated other comprehensive income of $5.8 million and $7.1 million at December 31, 2010 and 2009, respectively, consists primarily of foreign currency translation adjustments.

Research and Development Costs

Research and development costs are charged to expense as incurred and include expenses for the development of new technology and the transition of technology into new products or services.

Warranty Costs

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

Income Taxes

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


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

1. Description of Business and Significant Accounting Policies (Continued)

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

Relevant accounting guidance addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under such guidance, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010

Advertising Expense

The cost of advertising is expensed as of the first showing of each advertisement. We incurred $1.5$0.8 million, $0.7$1.4 million and $1.3 million in advertising expenses during 2010, 20092012, 2011 and 2008,2010, respectively.

Shipping and Handling Costs

Shipping and handling costs are costs that are incurred to move, package and prepare our products for shipment and then to move the products to the customer's designated location. These costs are generally comprised of payments to third-party shippers. Shipping and handling costs are included in cost of sales in our Consolidated Statements of Operations.Income.

Equity-Based Compensation

The Company grants equity-based awards, such as stock options and restricted stock or restricted stock units, to certain key employees to create a clear and meaningful alignment between compensation and shareholder return and to enable the employees to develop and maintain a stock ownership position. While the majority of our equity awards feature time-based vesting, performance-based equity awards, which are awarded from time to time to certain key Company executives, vest as a function of performance, and may also be subject to the recipient's continued employment which also acts as a significant retention incentive.

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

The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The dividend yield assumption is based on ourthe Company's historical and future expectation of dividend payouts. While the risk-free interest rate and


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

1. Description of Business and Significant Accounting Policies (Continued)

dividend yield are less subjective assumptions, typically based on factualobjective data derived from public sources, the expected stock-price volatility and expected option termlife assumptions require a level of judgment which make them critical accounting estimates.

We use an expected stock-price volatility assumption that is a combination of both historical volatility calculated based on the daily closing prices of our common stock over a period equal to the expected term of the option and implied volatility, utilizingand utilization of market data of actively traded options on our common stock, which are obtained from public data sources. We believe that the historical volatility of the price of our common stock over the expected term of the option is a strong indicator of the expected future volatility and that implied volatility takes into consideration market expectations of how future volatility will differ from historical volatility. Accordingly, we believe a combination of both historical and implied volatility provides the best estimate of the future volatility of the market price of our common stock.

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

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

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

We settle the exercise of stock options with newly issued shares.

With respect to grants of performance based awards, we assess the probability that such performance criteria will be met in order to determine the compensation expense. Consequently, the compensation expense is recognized straight-line over the vesting period. If that assessment of the probability of the performance condition being met changes, the Company would recognize the impact of the change in estimate in the period of the change. As with the use of any estimate, and owing to the significant judgment used to derive those estimates, actual results may vary.

The Company has elected to treat awards with only service conditions and with graded vesting as one award. Consequently, the total compensation expense is recognized straight-line over the entire vesting period, so long as the compensation cost recognized at any date at least equals the portion of the grant date fair value of the award that is vested at that date.

Negotiable Letters of Credit

For certain transactions, we request that our customers provide us with a negotiable irrevocable letter of credit drawn on a reputable financial institution. These irrevocable letters of credit are typically issued to mature, on average, for 0 to 90 days post documentation requirements, but occasionally for longer. For a fee, one of our banks, confirms the reputation of the issuing institution and, at our option, monetizes these letters of credit on an non-recourse basis soon after they become negotiable. Once we negotiate the letter of credit with the confirming bank, we have no further obligations or


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

1. Description of Business and Significant Accounting Policies (Continued)

interest in the letter of credit and they are not included in our consolidated balance sheets. The fees that we pay are included in selling, general and administrative expense and are not material.

Recent Accounting Pronouncements

        Business Combinations:Parent's Accounting for the Cumulative Translation Adjustment :    In December 2010,March 2013, the FASB issued amended guidance relatedASU No. 2013-05,Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This new standard is intended to Business Combinations. The amendments affect any public entity that entersresolve diversity in practice regarding the release into business combinations that are material on an individualnet income of a cumulative translation adjustment upon derecognition of a subsidiary or aggregate basis. The amendments specify that ifgroup of assets within a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments areforeign entity. ASU No. 2013-05 is effective prospectively for business combinations for which the acquisition date is on or after thefiscal years (and interim reporting periods within those years) beginning of the first annual reporting period beginning on or after December 15, 2010. Early2013. We are currently reviewing this standard, but we do not anticipate that its adoption is permitted. The Company will assess thehave a material impact of these amendments on itsour consolidated financial statements, if and when an acquisition occurs.absent any material transactions involving the derecognition of subsidiaries or groups of assets within a foreign entity.

        Intangibles—Goodwill and Other:Comprehensive Income:    In December 2010,February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-02,Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which contained amended standards regarding disclosure requirements for items reclassified out of accumulated other comprehensive income ("AOCI"). These amended standards require the disclosure of information about the amounts reclassified out of AOCI by component and, in addition, require disclosure, either on the face of the financial statements or in the notes, of significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. These amended standards do not change the current requirements for reporting net income or other comprehensive income in the consolidated financial statements. These amended standards were effective for us on January 1, 2013, and the adoption of this guidance did not materially impact our consolidated financial statements.

Indefinite-Lived Intangible Assets:    In July 2012, the FASB issued amended guidance related to Intangibles—Goodwill and Other.Other: Testing of Indefinite-Lived Intangible Assets for Impairment. This amendment intends to simplify the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. Some examples of intangible assets subject to the guidance include indefinite-lived trademarks, licenses and distribution rights. The amendments modify Step 1guidance allows companies to perform a qualitative assessment about the likelihood of impairment of an indefinite-lived intangible asset to determine whether further impairment testing is necessary, similar in approach to the goodwill impairment testtest. The ASU will become effective for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwillannual and interim impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments are effectiveperformed for fiscal years and interim periods within those years, beginning after DecemberSeptember 15, 2010.2012. Early adoption is not permitted. The Company does not believe thatearly adopted this standard in the third quarter of 2012 and this guidance willdid not have a material impact on its consolidated financial statements.

        Subsequent Events:    The FASB has issued amended guidance for subsequent events. The amendment removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The FASB believes these amendments remove potential conflicts with the SEC's literature. All of the amendments were effective upon issuance (February 24, 2010). The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

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


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012


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

        Revenue Recognition:Balance Sheet:    In October 2009,December 2011, the FASB issued amended guidance related to multiple-element arrangements whichthe Balance Sheet (Disclosures about Offsetting Assets and Liabilities). This amendment requires an entity to allocate arrangement consideration at the inception of an arrangementdisclose information about offsetting and related arrangements to allenable users of its deliverables basedfinancial statements to understand the effect of those arrangements on their relative selling prices. This update eliminatesits financial position. An entity is required to apply the use of the residual method of allocation and requires the relative-selling-price method in all circumstances. All entities must adopt the guidance no later than the beginning of their first fiscal yearamendments for annual reporting periods beginning on or after June 15, 2010. Entities may elect to adopt the guidance through either prospective application for revenue arrangements entered into or materially modified, after the effective date or through retrospective application to all revenue arrangements for allJanuary 1, 2013, and interim periods presented.within those annual periods. The amendment should be applied retrospectively. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

Comprehensive Income:    In October 2009,December 2011, the FASB issued amended guidance related to Comprehensive Income. In order to defer only those changes in the June amendment (addressed below) that relate to the presentation of reclassification adjustments, the FASB issued this amendment to supersede certain pending paragraphs in the June amendment. The amendments are being made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is expectedconsidering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to significantly affect howreport reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before the June amendment. All other requirements are not affected, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities accountshould apply these requirements for revenue arrangements that contain both hardware and software elements. As a result, many tangible products that rely on software will be accounted for under the revised multiple-element arrangements revenue recognition guidance, rather than the software revenue recognition guidance. The revised guidance must be adopted by all entities no later than fiscal years, and interim periods within those years, beginning on or after JuneDecember 15, 2010. An entity must select the same transition method and same period for the2011. The adoption of both this guidance and the revisions to the multiple-element arrangements guidance noted above. The Company doesdid not believe that this guidance will have a material impact on itsthe Company's consolidated financial statements.

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

Comprehensive Income:    In June 2011, the FASB issued amended guidance related to Comprehensive Income. This amendment allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendment eliminates the option to present the components of other comprehensive income as part of the statement of equity. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendment should be applied


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

1. Description of Business and Significant Accounting Policies (Continued)

retrospectively. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

2. Income Per Common Share

The following table sets forth basic and diluted net income per common share and the basic weighted average shares outstanding and diluted weighted average shares outstanding (in thousands, except per share data):

 
 Year ended December 31, 
 
 2012 2011 2010 

Net income

 $30,928 $127,987 $361,760 
        

Income from continuing operations per common share:

          

Basic

 $0.80 $3.23 $9.16 
        

Diluted

 $0.79 $3.11 $8.51 
        

Basic weighted average shares outstanding

  38,477  39,658  39,499 

Dilutive effect of stock options, restricted stock awards and units and convertible debt

  574  1,497  3,015 
        

Diluted weighted average shares outstanding

  39,051  41,155  42,514 
        

Basic income per common share is computed using the basic weighted average number of common shares outstanding during the period. Diluted income per common share is computed using the basic weighted average number of common shares and common equivalent shares outstanding during the period. Potentially dilutive securities attributable to outstanding stock options and restricted stock of approximately 1.3 million, 0.7 million and 0.3 million common equivalent shares during the years ended December 31, 2012, 2011 and 2010 were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive.

During the second quarter of 2011 the entire outstanding principal balance of our convertible debt was converted, with the principal amount paid in cash and the conversion premium paid in shares. The convertible notes met the criteria for determining the effect of the assumed conversion using the treasury stock method of accounting, since we had settled the principal amount of the notes in cash. Using the treasury stock method, it was determined that the impact of the assumed conversion for the years ended December 31, 2011 and 2010 had a dilutive effect of 0.6 million shares and 1.2 million shares, respectively.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

2.     Income (Loss) Per Common Share Attributable to Veeco3. Discontinued Operations

CIGS Solar Systems Business

On July 28, 2011, we announced a plan to discontinue our CIGS solar systems business. The following table sets forth basicaction, which was completed on September 27, 2011 and diluted net income (loss) per common shareimpacted approximately 80 employees, was in response to the dramatically reduced cost of mainstream solar technologies driven by significant reductions in prices, large industry investment, a lower than expected end market acceptance for CIGS technology and the weighted average shares outstanding and diluted weighted average shares outstanding (technical barriers in thousands, except per share data):

 
 Year ended December 31, 
 
 2010 2009 2008 

Net income (loss)

 $361,760 $(15,632)$(75,421)

Net loss attributable to noncontrolling interest

    (65) (230)
        

Net income (loss) attributable to Veeco

 $361,760 $(15,567)$(75,191)
        

Income (loss) per common share attributable to Veeco:

          

Basic

 $9.16 $(0.48)$(2.40)
        

Diluted

 $8.51 $(0.48)$(2.40)
        

Basic weighted average shares outstanding

  39,499  32,628  31,347 

Dilutive effect of stock options, restricted stock awards and units and convertible debt

  3,015     
        

Diluted weighted average shares outstanding

  42,514  32,628  31,347 
        

        Basic income (loss) per common share is computed using the weighted average numberscaling CIGS. This business was previously included as part of common shares outstanding during the period. Diluted income (loss) per common share is computed using the weighted average numberour LED & Solar segment.

The results of common shares and common equivalent shares outstanding during the period. The effect of approximately 761,000 and 170,000 common equivalent sharesoperations for the years ended December 31, 2009 and 2008, respectively, were excluded fromCIGS solar systems business have been recorded as discontinued operations in the diluted weighted average shares outstanding due to the net losses sustainedaccompanying consolidated statements of income for these periods. No shares were excluded from the computation of diluted weighted average shares outstanding forall periods presented. During the year ended December 31, 2010.

        At January 1, 2008 we had unsecured convertible subordinated notes2011, total discontinued operations include pre-tax charges totaling $69.8 million. These charges include an asset impairment charge totaling $6.2 million, a goodwill write-off of $25.2$10.8 million, having a conversion price of $38.51 per share (the "Old Notes") which was due and subsequently paid in December 2008. For the year ended December 31, 2008, the assumed conversion of the Old Notes was 0.5an inventory write-off totaling $27.0 million, common equivalent shares. Due to the net loss reported for the period, the convertible shares are anti-dilutive and, therefore, are not included in the diluted weighted average shares outstanding for the year ended December 31, 2008.

        At January 1, 2008 we had new unsecured convertible subordinated notes of $117.8 million having a conversion price of $27.23 per share (the "New Notes") of which $12.2 million was repurchased in the fourth quarter of 2008. The New Notes meet the criteria for determining the effect of the assumed conversion using the treasury stock method of accounting, as long as we have the ability and the intentcharges to settle the principal amount of the New Notes in cash. Under the terms of the New Notes, we may pay the principal amount of converted New Notes in cash or in shares of common stock. We have indicated that we intend to pay such amounts in cash. Using the treasury stock method, the impact of the assumed conversion of the New Notes had a dilutive affect of 1.2contracts totaling $22.1 million, shares for the year ended December 31, 2010lease related charges totaling $1.4 million and was anti-dilutive for the years ended December 31, 2009 and 2008, as thepersonnel severance charges totaling $2.3 million.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010


average stock price was below the conversion price of $27.23 for the period. The effect of the assumed converted shares is dependent on the stock price at the time of the conversion. The maximum number of shares that can be issued upon conversion of the New Notes were 5.4 million common equivalent shares for the years ended December 31, 2010, 2009 and 2008 (see Note 7).

3.     Discontinued Operations

On August 15, 2010, we signed a definitive agreement to sell our Metrology business to Bruker Corporation ("Bruker") comprising our entire Metrology reporting segment for $229.4 million. Accordingly, Metrology's operating results are accounted for as discontinued operations in determining the consolidated results of operations and the related assets and liabilities are classified as held foroperations. The sale on our Consolidated Balance Sheet for all periods presented. The sales transaction closed on October 7, 2010, except for assets located in China due to local restrictions. Total proceeds, which included a working capital adjustment of $1 million, totaled $230.4 million of which $7.2 million relates to the assets in China. As part of our agreement with Bruker, $22.9 million of proceeds iswas held in escrow and iswas restricted from use for one year fromfollowing the closing date of the transaction to secure certain specified losses arising outin the event of breaches of representations, warranties and covenants we made in the stock purchase agreement and related documents. The restriction relating to the escrowed proceeds was released on October 6, 2011. As part of the sale we incurred transaction costs, which consisted of investment bankbanking fees and legal fees, totaling $5.2 million. The CompanyDuring the fourth quarter of 2010, we recognized a pre-tax gain on disposal of $156.3 million and a pre-tax deferred gain of $5.4 million related to the assets in China. We recognized into income the pre-tax deferred gain of $5.4 million during the third quarter of 2012 related to the completion of the sale of the assets in China to Bruker.

Discontinued operations for the year ended December 31, 2012 include the realization of the $5.4 million 2010 deferred gain ($4.1 million net of taxes) relating to the net assets in China, which was finalized during the third quarter of 2012, and a $1.4 million gain ($1.1 million net of taxes) on the sale of assets of this discontinued segment that were previously held for sale and sold during the second quarter of 2012.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

3. Discontinued Operations (Continued)

The following is a summary of the net assets sold as of the closing date on October 7, 2010(in thousands):


 October 7, 2010  October 7,
2010
 

Assets

  

Accounts receivable, net

 $21,866  $21,866 

Inventories

 26,431  26,431 

Property, plant and equipment at cost, net

 13,408  13,408 

Goodwill

 7,419  7,419 

Other assets

 5,485  5,485 
      

Assets of discontinued segment held for sale

 $74,609  $74,609 
      

Liabilities

  

Accounts payable

 $7,616  $7,616 

Accrued expenses and other current liabilities

 5,284  5,284 
      

Liabilities of discontinued segment held for sale

 $12,900  $12,900 
      

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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010

Summary information related to discontinued operations is as follows (in thousands):

 
 Year ended December 31, 
 
 2010 2009 2008 

Net sales

 $92,011 $97,737 $127,874 

Cost of sales

  47,822  57,410  74,551 
        

Gross profit

  44,189  40,327  53,323 

Total operating expenses

  45,024  43,030  77,741 
        

Operating loss

 $(835)$(2,703)$(24,418)
        

Net income (loss) from discontinued operations, net of tax

 $101,229 $(1,403)$24,588 
        
 
 The year ended December 31, 
 
 2012 2011 2010 
 
 Solar
Systems
 Metrology Total Solar
Systems
 Metrology Total Solar
Systems
 Metrology Total 

Net sales

 $ $ $ $ $ $ $2,339 $92,011 $94,350 
                    

Net (loss) income from discontinued operations

 $(62)$4,461 $4,399 $(61,453)$(1,062)$(62,515)$(16,645)$101,229 $84,584 
                    


Liabilities of discontinued segment held for sale, totaling $5.4 million, as of December 31, 2011 consisted of the deferred gain related to the assets in China recognized in 2012.

 
 December 31,  
 
 
 2010 2009  
 

Assets

          

Cash

 $ $89    

Accounts receivable, net

    16,812    

Inventories

    21,757    

Property, plant and equipment at cost, net

    14,682    

Goodwill

    7,419    

Other assets

    9,327    
         

Assets of discontinued segment held for sale

 $ $70,086    
         

Liabilities

          

Accounts payable

 $ $4,202    

Accrued expenses and other current liabilities

  5,359  6,622    
         

Liabilities of discontinued segment held for sale

 $5,359 $10,824    
         

4. Fair Value Measurements

We have categorized our assets and liabilities recorded at fair value based upon the fair value hierarchy. The levels of fair value hierarchy are as follows:

    Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

    Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

    Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

4. Fair Value Measurements (Continued)

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, we categorize such assets or liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010

particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset.

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category presented below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs.

The major categories of assets and liabilities measured on a recurring basis, at fair value, as of December 31, 20102012 and 20092011 are as follows (in millions):

 
 December 31, 2010 
 
 Level 1 Level 2 Level 3 Total 

Treasury bills

 $136.2 $79.5 $ $215.7 

FDIC insured corporate bonds

  129.4      129.4 

Commercial paper

  128.6  62.8    191.4 

Money market instruments

    0.6    0.6 

Derivative instrument

    0.3    0.3 
          
 

Total

 $394.2 $143.2 $ $537.4 
          
 
 December 31, 2012 
 
 Level 1 Level 2 Level 3 Total 

Treasury bills

 $278.7 $ $ $278.7 

Government agency securities

    123.0    123.0 
          

Total

 $278.7 $123.0 $ $401.7 
          

 

 
 December 31, 2009 
 
 Level 1 Level 2 Level 3 Total 

CDAR's

 $ $180.0 $ $180.0 

Derivative instrument

    0.2    0.2 
          
 

Total

 $ $180.2 $ $180.2 
          
 
 December 31, 2011 
 
 Level 1 Level 2 Level 3 Total 

Treasury bills

 $90.2 $ $ $90.2 

FDIC guaranteed corporate debt

    114.8    114.8 

Government agency securities

    169.8    169.8 

Money market instruments

    0.2    0.2 
          

Total

 $90.2 $284.8 $ $375.0 
          

        CDARS, commercial paper andThe classification in the fair value table as of December 31, 2011 has been revised to conform to current period classifications due to an immaterial error related to previously disclosed fair value hierarchy tables.

Highly liquid investments with maturities of three months or less when purchased may be classified as cash equivalents. Such items may include liquid money market accounts, treasury bills, government agency securities and corporate debt. The investments that are classified as cash equivalents are carried at cost, which approximates marketfair value. Accordingly, no gains or losses (realized/unrealized) have been incurred for cash equivalents. All investments classified as available-for-sale containare recorded at fair value within short-term investments in the Consolidated Balance Sheets.

In determining the fair value of its investments and levels, through a third-party service provider the Company uses pricing information from pricing services that value securities based on quoted market prices in active markets.

        Derivative instruments include foreign currency forward contracts to hedge certain foreign currency transactions. Derivative instruments are valued using standard calculations/modelsmarkets and matrix pricing. Matrix pricing is a mathematical valuation technique that are primarily based on observable inputs, including foreign currency exchange rates, volatilities and interest rates.

        The major categories of assets and liabilities measured on a nonrecurring basis, at fair value, as of December 31, 2010 and 2009 are as follows (in millions):

 
 December 31, 2010 
 
 Level 1 Level 2 Level 3 Total 

Property, plant and equipment, net

 $ $ $42.3 $42.3 

Goodwill

      52.0  52.0 

Intangible assets, net

      16.9  16.9 

Restructuring liability

      (1.0) (1.0)
          
 

Total

 $ $ $110.2 $110.2 
          

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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010


 
 December 31, 2009 
 
 Level 1 Level 2 Level 3 Total 

Property, plant and equipment, net

 $ $ $44.7 $44.7 

Goodwill

      52.0  52.0 

Intangible assets, net

      21.8  21.8 

Asset retirement obligation

      (0.2) (0.2)

Restructuring liability

      (2.4) (2.4)
          
 

Total

 $ $ $115.9 $115.9 
          

5.     Business Combinations

Mill Lane Engineering Co., Inc.

        On May 22, 2008, we acquired Mill Lane Engineering Co., Inc. ("Mill Lane"), a privately held manufacturer of web coating systems for flexible solar panels, for a purchase price of $11.0 million, net of cash acquired, plus potential future earn-out payments of up to $19.0 million (representing additional purchase price) contingent upon the future achievement of certain operating performance criteria. Fees related to the acquisition were $0.7 million. Mill Lane is based in Lowell, Massachusetts and at the time of acquisition had approximately 20 employees. The financial results of Mill Lane are included in our LED & Solar segment (see Note 11) as of the acquisition date. We have determined that this acquisition does not constituterely exclusively on quoted prices of specific investments, but on the investment's relationship to other benchmarked quoted securities. The Company has a material business combinationchallenge process in place for investment valuations to facilitate identification and therefore are not including pro forma financial statements in this report.

        Asresolution of December 31, 2008, we had accrued $9.6 million for our earn-out obligation due to the former owners of Mill Lane resulting from the achievement of certain operating performance criteria earned through the end of the fourth quarter of 2008. Payment of this earn-out obligation was made in the first quarter of 2009. As of December 31, 2010, no earn-out obligations remain under this purchase arrangement.

6.     Balance Sheet Information

Short-term Investments

        Available-for-sale securities consist of the following (in thousands):

 
 December 31, 2010 
 
 Amortized
Cost
 Gains in Accumulated
Other Comprehensive
Income
 Losses in Accumulated
Other Comprehensive
Income
 Estimated
Fair Value
 

Commercial paper

 $128,527 $61 $ $128,588 

FDIC insured corporate bonds

  129,353  24    129,377 

Treasury bills

  136,203  12    136,215 
          
 

Total available-for-sale securities

 $394,083 $97 $ $394,180 
          

        During the year ended December 31, 2010, available-for-sale securities were sold for total proceeds of $246.6 million.potentially erroneous prices. The gross realized gains on these sales were minimal for the year ended December 31, 2010. For purpose of determining gross realized gains, the cost of securities sold is based on specific identification. The net unrealized holding gain on available-for-sale securities amounted toCompany


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

4. Fair Value Measurements (Continued)

reviews the information provided by the third-party service provider to record the fair value of its portfolio.

Consistent with Level 1 measurement principles, Treasury bills are priced using active market prices of identical securities. Consistent with Level 2 measurement principles, FDIC guaranteed corporate debt, Government agency securities, and Money market instruments are priced with matrix pricing.

We measure certain assets for fair value on a non-recurring basis when there are indications of impairment.

In 2012, we evaluated an asset in our Data Storage segment for impairment. We measured the assets consistent with Level 3 measurement principals using an income approach based on a discounted cash flow model. As a result of the evaluation we adjusted the carrying value of the asset carried in Other assets from $1.4 million to $0.1 million with the $1.3 million adjustment recorded as impairment in 2012. In 2011, we evaluated certain tangible assets in our MBE reporting unit for impairment. We measured the assets consistent with Level 3 measurement principals. As a result of the evaluation we fully expensed $0.6 million related to the tangible assets as an impairment in 2011.

In the fourth quarter of 2012, management identified a change in the business climate for certain asset groups which can be an indication of a potential impairment. We noted that our long-term forecast for each of these asset groups, including growth assumptions, was lower than the prior year's financial projections of each group. As a result, management performed an asset recoverability test that included the use of an undiscounted cash flow analysis. Based on the analysis performed, no indications of impairment were noted as the undiscounted cash flows of each asset group were in excess of carrying value.

5. Business Combinations

On April 4, 2011, we purchased a privately-held company which supplies certain components to one of our businesses for $28.3 million in cash. As a result of this purchase, we acquired $16.4 million of definite-lived intangibles, of which $13.6 million related to core technology, and $14.7 million of goodwill. The financial results of this acquisition are included in our LED & Solar segment as of the acquisition date. We determined that this acquisition does not constitute a material business combination and therefore we have not included pro forma financial information in this report.


$0.1Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

6. Balance Sheet Information

Short-Term Investments

Available-for-sale securities consist of the following (in thousands):

 
 December 31, 2012 
 
 Amortized
Cost
 Gains in
Accumulated
Other
Comprehensive
Income
 Losses in
Accumulated
Other
Comprehensive
Income
 Estimated
Fair Value
 

Treasury bills

 $184,102 $76 $ $184,178 

Government agency securities

  8,056      8,056 
          

Total available-for-sale securities

 $192,158 $76 $ $192,234 
          

During the year ended December 31, 2012, available-for-sale securities were sold for total proceeds of $244.9 million. The gross realized gains on these sales were minimal for the year ended December 31, 2012. For purpose of determining gross realized gains, the cost of securities sold is based on specific identification. The change in the net unrealized holding loss on available-for-sale securities amounted to $0.1 million for the year ended December 31, 2010,2012, and has been included in accumulated other comprehensive income. The tax impact on the unrealized gains, which is excluded from the table above, was less than $0.1 million.

 
 December 31, 2011 
 
 Amortized
Cost
 Gains in
Accumulated
Other
Comprehensive
Income
 Losses in
Accumulated
Other
Comprehensive
Income
 Estimated
Fair Value
 

Treasury bills

 $70,147 $46 $(1)$70,192 

Government agency securities

  88,585  62  (6) 88,641 

FDIC guaranteed corporate debt

  114,641  124  (7) 114,758 
          

Total available-for-sale securities

 $273,373 $232 $(14)$273,591 
          

During the year ended December 31, 2011, available-for-sale securities were sold for total proceeds of $707.6 million. The gross realized gains on these sales were $0.4 million for the year ended December 31, 2011. For purpose of determining gross realized gains, the cost of securities sold is based on specific identification. The change in the net unrealized holding gain on available-for-sale securities amounted to $0.2 million for the year ended December 31, 2011, and has been included in accumulated other comprehensive income. The tax impact on the unrealized gains, which was excluded from the table above, was $0.1 million.

As of December 31, 2012 we did not hold any short-term investments that were in a loss position. As of December 31, 2011 we had $33.5 million in short-term investments that had an aggregate unrealized fair value loss of less than $0.2 million none of which had been in an unrealized loss position for 12 months or longer. For investments that were in an unrealized loss position, we held the securities through maturity.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

6. Balance Sheet Information (Continued)

Contractual maturities of available-for-sale debt securities atas of December 31, 2010,2012 are as follows (in thousands):



 Estimated
Fair Value
  Estimated
Fair Value
 

Due in one year or less

Due in one year or less

 $216,244  $120,621 

Due in 1-2 years

 177,936 

Due in 1 - 2 years

 71,613 
      

Total investments in debt securities

 $192,234 

Total investments in debt securities

 $394,180    
   

Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Restricted Cash

As of December 31, 2010,2012 and 2011, restricted cash consistsconsisted of $22.9$2.0 million that relates to the proceeds received from the sale of our Metrology segment. This cash is held in escrow and is restricted from use for one year from the closing date of the transaction (see Note 3). Additionally, restricted cash also consists of $53.2$0.6 million, respectively, which serves as collateral for bank guarantees that provide financial assurance that the Company will fulfill certain customer obligations. This cash is held in custody by the issuing bank, and is restricted as to withdrawal or use while the related bank guarantees are outstanding.

Accounts Receivable, Net

Accounts receivable are shown net of the allowance for doubtful accounts of $0.5 million as of December 31, 2012 and 2011.

Inventories (in thousands):

 
 December 31,  
 
 2010 2009  
 

Raw materials

 $49,953 $34,214  
 

Work in process

  33,181  17,908  
 

Finished goods

  25,353  3,685  
       

 $108,487 $55,807  
       

Property, Plant and Equipment

 
 December 31,  
 
 Estimated
Useful Lives
 
 2010 2009
 

Land

 $7,274 $7,274  
 

Buildings and improvements

  30,731  30,707 10-40 years
 

Machinery and equipment

  73,173  71,358 3-10 years
 

Leasehold improvements

  2,276  3,548 3-7 years
       
 

Gross property, plant, and equipment at cost

  113,454  112,887  

Less accumulated depreciation and amortization

  71,134  68,180  
       

Net property, plant, and equipment at cost

 $42,320 $44,707  
       
 
 December 31, 
 
 2012 2011 

Materials

 $36,523 $57,169 

Work in process

  13,363  20,118 

Finished goods

  9,921  36,147 
      

 $59,807 $113,434 
      

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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

6. Balance Sheet Information (Continued)

Property, Plant and Equipment (in thousands):

 
 December 31,  
 
 Estimated
Useful Lives
 
 2012 2011

Land

 $12,535 $12,535  

Building and improvements

  49,498  34,589 10 - 40 years

Machinery and equipment

  110,150  102,241 3 - 10 years

Leasehold improvements

  5,677  6,025 3 - 7 years
       

Gross property, plant and equipment at cost

  177,860  155,390  

Less: accumulated depreciation and amortization

  79,558  69,323  
       

Net property, plant and equipment

 $98,302 $86,067  
       

For the years ended December 31, 2010, 20092012, 2011 and 2008,2010, depreciation expense was $8.0$11.3 million, $8.7$8.2 million and $8.8$7.1 million, respectively.

Goodwill and Indefinite-Lived Intangible Assets

In accordance with the relevant accounting guidance related to goodwill and other intangible assets, we conducted our annual impairment test of goodwill and indefinite-lived intangible assets during the fourth quarters of 20102012 and 2009,2011, using October 1st as our measurement date, and utilizing a discounted future cash flow approach as described in Note 1. This was consistent with the approach used in previous years. Based upon the results of such assessments, we determined that no goodwill and indefinite-lived intangible asset impairment existed in any of its reporting units, as of October 1, 20102012 and 2009,2011, respectively.

Changes in our goodwill are as follows (in thousands):

 
 Year ended December 31, 
 
 2010 2009 

Balance as of January 1

 $52,003 $51,741 

Acquisition

    262 
      

Balance as of December 31

 $52,003 $52,003 
      
 
 December 31, 
 
 2012 2011 

Beginning Balance

 $55,828 $52,003 

Write-off (see Note3. Discontinued Operations)

    (10,836)

Acquisition (see Note5. Business Combinations)

    14,661 
      

Ending Balance

 $55,828 $55,828 
      

As of December 31, 20102012 and 2009,2011, we had $2.9 million of indefinite-lived intangible assets consisting of trademarks and tradenames, which are included in the accompanying Consolidated Balance Sheets in the caption intangible assets, net.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

6. Balance Sheet Information (Continued)

Intangible Assets


 December 31, 2010 December 31, 2009  December 31, 2012 December 31, 2011 

 Purchased
technology
 Other
intangible
assets
 Total
intangible
assets
 Purchased
technology
 Other
intangible
assets
 Total
intangible
assets
 
(in thousands)
 Purchased
technology
 Other
intangible
assets
 Total
intangible
assets
 Purchased
technology
 Other
intangible
assets
 Total
intangible
assets
 

Gross intangible assets

 $98,473 $22,734 $121,207 $98,473 $22,734 $121,207  $109,248 $19,635 $128,883 $109,248 $19,635 $128,883 

Less accumulated amortization

 (86,376) (17,938) (104,314) (83,352) (16,085) (99,437) (93,436) (14,473) (107,909) (89,620) (13,381) (103,001)
                          

Intangible assets, net

 $12,097 $4,796 $16,893 $15,121 $6,649 $21,770  $15,812 $5,162 $20,974 $19,628 $6,254 $25,882 
                          

The estimated aggregate amortization expense for intangible assets with definite useful lives for each of the next five fiscal years is as follows (in thousands):

2011

 $4,054 

2012

 3,154 

2013

 1,796  $3,556 

2014

 1,433  2,919 

2015

 1,334  2,752 

2016

 2,530 

2017

 1,544 

In accordance with the relevant accounting guidance related to the impairment or disposal of long-lived assets, we performed an analysis as of December 31, 20102012 and 20092011 of our definite-lived intangible and long-lived assets. No

As a result of the delay in filing this report and because our last annual impairment existedtest was performed as of October 1, 2012, we were required to evaluate the impact of events and circumstances occurring through the date of the filing of this report. We considered several factors including our current year financial projections, changes in anyindustry or market conditions, political factors, legal factors, regulatory factors, whether triggering events exist, and performed other analyses to assess whether our goodwill and/or long-lived assets are impaired. Based on our evaluation of the foregoing considerations, we concluded that no impairment exists through the date of this filing.

Cost Method Investment

On September 28, 2010, Veeco completed a $3 million investment in a rapidly developing organic light emitting diode (also known as OLED) equipment company (the "Investment"). Veeco invested an additional $10.3 million and $1.2 million in the Investment during 2012 and 2011, respectively. As of December 31, 2012, we have a 15.3% ownership of the preferred shares, and effectively hold a 12.0% ownership interest of the total company. Since we do not exert significant influence on the Investment, this investment is treated under the cost method in accordance with applicable accounting guidance. The fair value of this investment is not estimated because there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment and the investment does not meet the definition of a publicly traded company. This investment is recorded in other assets in our reporting units.Consolidated Balance Sheets as of December 31, 2012 and 2011. In 2013, Veeco invested an additional $1.6 million in the Investment.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

6. Balance Sheet Information (Continued)

Accrued Expenses and Other Current Liabilities


 December 31,  December 31, 

 2010 2009 
(in thousands)
 2012 2011 

Payroll and related benefits

 $27,374 $20,245  $14,581 $19,017 

Sales, use, income and other taxes

 4,914 3,287 

Customer deposits and advanced billings

 129,225 59,758 

Sales, use and other taxes

 6,480 6,315 

Customer deposits

 32,719 57,075 

Warranty

 9,238 6,675  4,942 8,731 

Restructuring liability

 714 2,451  1,875 956 

Other

 11,545 7,407  13,663 14,532 
          

 $183,010 $99,823  $74,260 $106,626 
          

Accrued Warranty

Typically, we provide our customers a one year manufacturer's warranty from the date of final acceptance on the products they purchase from us. We estimate the costs that may be incurred under the warranty we provide for our products and recognize a liability in the amount of such costs at the time the related revenue is recognized. Factors that affect our warranty liability include product failure rates, material usage and labor costs incurred in correcting product failures during the warranty period. Changes in our warranty liability during the year are as follows:follows(in thousands):


 Year ended December 31,  December 31, 

 2010 2009  2012 2011 

Balance as of the beginning of year

 $6,675 $5,533  $8,731 $8,266 

Warranties issued during the year

 9,695 4,777  3,563 7,366 

Settlements made during the year

 (7,132) (3,635) (7,060) (8,462)

Changes in estimate during the period

 (292) 1,561 
          

Balance as of the end of year

 $9,238 $6,675  $4,942 $8,731 
          

In the current year's presentation we no longer include certain accrued installation costs in the accrued warranty balance; therefore, in order to conform the balance to current year presentation, we have reclassified $1.047 million and $0.972 million in 2012 and 2011, respectively, of the beginning balance of accrued warranty to accrued installation which, along with accrued warranty, is also a component of accrued expenses and other current liabilities.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

6. Balance Sheet Information (Continued)

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income are(in thousands):

December 31, 2012
 Gross Taxes Net 

Translation adjustments

 $7,040 $(339)$6,701 

Defined benefit pension plan

  (1,285) 510  (775)

Unrealized gain (loss) on available for sale securities

  76  (29) 47 
        

Accumulated other comprehensive income

 $5,831 $142 $5,973 
        


December 31, 2011
 Gross Taxes Net 

Translation adjustments

 $8,111 $(1,022)$7,089 

Defined benefit pension plan

  (1,069) 431  (638)

Unrealized gain (loss) on available for sale securities

  218  (79) 139 
        

Accumulated other comprehensive income

 $7,260 $(670)$6,590 
        

7. Debt

Long-termLong-Term Debt

Long-term debt as of December 31, 2012, consists of a mortgage note payable, which is summarizedsecured by certain land and buildings with carrying amounts aggregating approximately $4.8 million and $5.0 million as of December 31, 2012 and December 31, 2011, respectively. The mortgage note payable ($2.4 million as of December 31, 2012 and $2.7 million as of December 31, 2011) bears interest at an annual rate of 7.91%, with the final payment due on January 1, 2020. Since there is no readily comparable market for our notes (fair value hierarchy Level 3, please see Note4. Fair Value Measurements), we computed the fair value of the note using a discounted cash flow model, adjusted for current interest rates and our current risk profile. We estimate the fair market value of this note as of December 31, 2012 and 2011 was approximately $2.6 million and $2.9 million, respectively.

Maturity of Long-Term Debt

Long-term debt matures as follows (in thousands):

 
 December 31, 
 
 2010 2009 

Convertible subordinated debt

 $101,138 $98,081 

Mortgage notes payable

  2,883  3,095 
      

  104,021  101,176 

Less current portion

  101,367  212 
      

 $2,654 $100,964 
      

2013

 $268 

2014

  290 

2015

  314 

2016

  340 

2017

  368 

Thereafter

  826 
    

  2,406 

Less current portion

  268 
    

 $2,138 
    

Convertible Subordinated Debt

        At January 1, 2008 we had new unsecured convertible subordinated notes of $117.8 million having a conversion price of $27.23 per share (the "Notes") of which $12.2 million was repurchased in the fourth quarter of 2008. The Notes meet the criteria for determining the effect of the assumed conversion using the treasury stock method of accounting, as long as 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 have indicated that we intend to pay such amounts in cash. Using the treasury stock method, the impact of the assumed conversion of the Notes had a dilutive affect of 1.2 million shares for the year ended December 31, 2010 and was anti-dilutive for the years ended December 31, 2009 and 2008, as the average stock price was below the conversion price of $27.23 for the period. The effect of the assumed converted shares is dependent on the stock price at the time of the conversion. The maximum number of shares that can be issued upon conversion of the Notes were 5.4 million common equivalent shares for the years ended December 31, 2010, 2009 and 2008.

        The Notes are initially convertible into 36.7277 shares of common stock per $1,000 principal amount of Notes (equivalent to a conversion price of $27.23 per share or a premium of 38% over the closing market price for our common stock on April 16, 2007). On or after April 20, 2011, we may redeem the Notes, in whole or in part, for cash at 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest to, but not including, the redemption date. 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 Notes are convertible during the first quarter of 2011. If the Notes are converted, we have the ability and intent to pay the principal balance of notes tendered for conversion in cash. We will re-perform this test each quarter up to and including the fourth 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


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012


in a net share settlement. As a result, we paid the7. Debt (Continued)

Convertible Notes

Our convertible notes were initially convertible into 36.7277 shares of common stock per $1,000 principal amount of $7.5 million in cash and issued 111,318 sharesnotes (equivalent to a conversion price of our$27.23 per share or a premium of 38% over the closing market price for Veeco's common stock. Accordingly, in the first quarter of 2011 we will take a charge for the related unamortized debt discount totaling $0.3 million.stock on April 16, 2007). We paypaid interest on these notes on April 15 and October October��15 of each year. The Notes arenotes were unsecured and arewere effectively subordinated to all of our senior and secured indebtedness and to all indebtedness and other liabilities of our subsidiaries.

During the fourthfirst quarter of 2008, we repurchased $12.2 million aggregate2011, at the option of the Notesholders, $7.5 million of notes were tendered for $7.2conversion at a price of $45.95 per share in a net share settlement. We paid the principal amount of $7.5 million in cash and issued 111,318 shares of which $7.1our common stock. We recorded a loss on extinguishment totaling $0.3 million related to these transactions.

During the second quarter of 2011, we issued a notice of redemption on the remaining outstanding principal balance of notes outstanding. As a result, at the option of the holders, the notes were tendered for conversion at a price of $50.59 per share, calculated as defined in the indenture relating to the notes, in a net share settlement. As a result, we paid the principal amount of $98.1 million in cash and $0.1issued 1,660,095 shares of our common stock. We recorded a loss on extinguishment totaling $3.0 million related to accrued interest, reducing the amount outstanding from $117.8 million to $105.6 million. A gross gain of approximately $5.1 million was recorded on these repurchases offset by the write-off of approximately $0.1 million of unamortized deferred financing costs associated with the Notes, for a net gain of approximately $5.0 million. Such net gain was reduced to $3.8 million upon the application oftransactions.

Certain accounting guidance (see below), which required that the gain be calculated based on the fair valuerequires a portion of the portion repurchased as of the repurchase date. The fair value approximated the carrying value net of the unamortized discount on the portion repurchased. The difference of approximately $1.2 million between the fair value and the amount paid was recorded as a reduction in the gain originally reported, which increased the accumulated deficit as of December 31, 2008 by that amount.

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

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

        For the years ended December 31, 2010, 2009 and 2008, we recorded approximately $3.1 million, $2.8 million and $2.9 million, respectively, additional interest expense in each period resulting from the amortization of the debt discount.guidance. This additional interest expense did not require the use of cash.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010

The components of interest expense recorded on the Notes for the years ended December 31, 2010, 2009 and 2008notes were as follows (in thousands):

 
 Year ended December 31, 
 
 2010 2009 2008 

Contractual interest

 $4,355 $4,356 $4,801 

Amortization of the discount on the Notes

  3,057  2,846  2,917 
        

Total interest expense on the Notes

 $7,412 $7,202 $7,718 
        

Effective interest rate

  7.0% 6.8% 6.7%
        

        The carrying amounts of the liability and equity components of the Notes as of December 31, 2010 and 2009 were as follows (in thousands):

 
 Year ended December 31, 
 
 2010 2009 

Carrying amount of the equity component

 $16,318 $16,318 
      

Principal balance of the liability component

 $105,574 $105,574 

Less: unamortized discount

  4,436  7,493 
      

Net carrying value of the liability component

 $101,138 $98,081 
      

        At December 31, 2010 and 2009, $105.6 million of the Notes were outstanding with fair values of approximately $164.1 million and $144.6 million, respectively.

Mortgage Notes Payable

        Long-term debt as of December 31, 2010, also includes a mortgage note payable, which is secured by certain land and buildings with carrying amounts aggregating approximately $5.1 million and $5.2 million as of December 31, 2010 and December 31, 2009, respectively. The mortgage note payable ($2.9 million as of December 31, 2010 and $3.1 million as of December 31, 2009) bears interest at an annual rate of 7.91%, with the final payment due on January 1, 2020. The fair market value of this note as of December 31, 2010 and 2009 was approximately $3.1 million and $3.3 million, respectively.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010

Maturity of Long-term Debt

        Long-term debt matures as follows (in thousands):

2011

 $105,803 

2012

  248 

2013

  268 

2014

  290 

2015

  314 

Thereafter

  1,534 
    

  108,457 

Less current portion

  105,803*
    

 $2,654 
    

*
Difference of $4,436 from $101,367 in the Consolidated Balance Sheet is due to the unamortized debt discount.
 
 For the year ended
December 31,
 
 
 2011 2010 

Contractual interest

 $2,025 $4,355 

Accretion of the discount on the notes

  1,260  3,058 
      

Total interest expense on the notes

 $3,285 $7,413 
      

Effective interest rate

  6.7% 7.0%

8. Equity Compensation Plans and Equity

    Stock Option and Restricted Stock Plans

We have several stock option and restricted stock plans. On April 1, 2010, the Board of Directors of the Company, and on May 14, 2010, our shareholders, approved the 2010 Stock Incentive Plan (the "2010 Plan"). The 2010 Plan replaced the 2000 Stock Incentive Plan, as amended (the "2000 Plan"), as


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

8. Equity Compensation Plans and Equity (Continued)

the Company's active stock plan. The Company's employees, directors and consultants are eligible to receive awards under the 2010 Plan. The 2010 Plan permits the granting of a variety of awards, including both non-qualified and incentive stock options, share appreciation rights, restricted shares, restricted share units and dividend equivalent rights. The Company is authorized to issue up to 3,500,000 shares under the 2010 Plan. Option awards are generally granted with an exercise price equal to the closing price of the Company's stock on the trading day prior to the date of grant; those option awards generally vest over a 3 year period and have a 7 or 10-year term. Restricted share awards generally vest over 4-51-5 years. Certain option and share awards provide for accelerated vesting if there is a change in control, as defined in the 2010 Plan. As of December 31, 2010,2012, there are 625,5311,448,132 options outstanding under this plan.

The 2000 Plan was approved by the Board of Directors and shareholders in May 2000. The 2000 Plan provides for the grant to officers and key employees of stock awards, either in the form of options to purchase shares of our common stock or restricted stock awards. Stock awards granted pursuant to the 2000 Plan expire after seven years and generally vest over a two-year to five-year period following the grant date. In addition, the 2000 Plan provides for automatic annual grants of restricted stock to each member of our Board of Directors who is not an employee. As of December 31, 2010,2012, there are 1,933,623873,522 options outstanding under this plan.

        The Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan (the "1992 Plan") provided for the grant to officers and key employees of stock options to purchase shares of our common stock. Stock options granted pursuant to the 1992 Plan became exercisable over a three-year period following the grant date and expire after ten years. As of December 31, 2010, there are 1,200 stock options outstanding under this plan.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010

        In addition to the plans described above, we assumed certain stock option plans and agreements relating to the merger in September 2001 with Applied Epi, Inc. ("Applied Epi"). These stock option plans do not have options available for future grants. Options granted under these plans expire after ten years from the date of grant. Options granted under two of these plans vested over three years and options granted under one of these plans vested immediately. As of December 31, 2010, there are 9,272 options outstanding under the various Applied Epi plans.

Equity-Based Compensation Expense, Stock Option and Restricted Stock Activity

Equity-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period. The followingWe recorded equity compensation expense was included as part of continuing operations in the Consolidated Statements of Operations$14.3 million, $12.8 million and $8.8 million for the years ended December 31, 2012, 2011 and 2010, 2009respectively. We did not capitalize any equity compensation in the years ended December 31, 2012, 2011, and 2008 (2010.

During the year ended December 31, 2011, we discontinued our CIGS solar systems business and as a result the equity-based compensation expense related to each CIGS solar systems business employee has been classified as discontinued operations in thousands):determining the consolidated results of operations for the years ended December 31, 2011 and 2010. For the years ended December 31, 2011 and 2010 discontinued operations included compensation expense of $0.7 million and $0.9 million, respectively.

 
 Year ended December 31, 
 
 2010 2009 2008 

Equity-based compensation expense

 $9,648 $7,547 $9,668 

As a result of the sale of our Metrology segment to Bruker, equity-based compensation expense related to Metrology employees has been classified as discontinued operations in determining the consolidated results of operations for the yearsyear ended December 31, 2010, 2009 and 2008.2010. For the year ended December 31, 2010, discontinued operations included compensation expense of $7.7 million that related to the acceleration of equity awards from employees that were terminated as a result of the sale of our Metrology segment to Bruker. For the year ended December 31, 2009, total equity-based compensation expense included a charge of $0.7 million for the acceleration of equity awards associated with the retirement of our former CFO. For the year ended December 31, 2008, total equity-based compensation expense included a charge of $3.0 million for the acceleration of equity awards associated with a mutually agreed-upon termination of the employment agreement with our former CEO (who currently remains as Chairman of the Board of Directors) following the successful completion of the CEO transition.

As of December 31, 2010,2012, the total unrecognized compensation cost related to nonvested stock awards and option awards expected to vest is $9.0$17.2 million and $14.9$13.1 million, respectively, and the related weighted average period over which it is expected that such unrecognized compensation costs will be recognized is approximately 2.62.8 years and 2.12.0 years for the nonvested stock awards and for option awards, respectively.

        The fair value of each option granted during the years ended December 31, 2010, 2009 and 2008, was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 
 Year ended December 31,
 
 2010 2009 2008

Weighted-average expected stock-price volatility

 62% 65% 49%

Weighted-average expected option life

 5 years 4 years 3 years

Average risk-free interest rate

 1.92% 1.79% 3.14%

Average dividend yield

 0% 0% 0%

Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010

        A summary of our restricted stock awards including restricted stock units as of December 31, 2010, is presented below:

 
 Shares (000's) Weighted-
Average
Grant-Date
Fair Value
 

Nonvested at December 31, 2009

  892 $12.97 

Granted

  186  34.97 

Vested(1)

  (365) 12.78 

Forfeited (including cancelled awards)(2)

  (97) 17.15 
       

Nonvested at December 31, 2010

  616 $19.06 
       

(1)
Includes the effect of approximately 43,383 shares whose vesting was accelerated as a result of the sale of our Metrology business.

(2)
Includes the effect of approximately 73,282 shares forfeited as a result of the sale of our Metrology business.

        During the year ended December 31, 2010, we granted 130,665 shares of restricted common stock and 40,200 restricted stock units to key employees, which vest over three or four year periods. Included in this grant were 14,518 shares of restricted common stock granted to the non-employee members of the Board of Directors throughout the year in May, June and December 2010, which vest over the lesser of one year or at the time of the next annual meeting. The vested shares include the impact of 121,230 shares of restricted stock which were cancelled in 2010 due to employees electing to receive fewer shares in lieu of paying withholding taxes. The total grant date fair value of shares that vested during 2010 was $13.6 million.

        A summary of our stock option plans as of and for the year ended December 31, 2010, is presented below:

 
 Shares (000s) Weighted-
Average
Exercise
Price
 Aggregate
Intrinsic
Value (000s)
 Weighted-
Average
Remaining
Contractual
Life
(in years)
 

Outstanding at December 31, 2009

  4,506 $16.35       

Granted

  721  35.19       

Exercised

  (2,500) 18.07       

Forfeited (including cancelled options)

  (158) 20.47       
             

Outstanding at December 31, 2010

  2,569 $19.71 $59,807  5.9 
             

Options exercisable at December 31, 2010

  778 $16.36 $20,793  3.9 
             

        The weighted-average grant date fair value of stock options granted for the years ended December 31, 2010, 2009 and 2008 was $18.41, $5.35, and $5.26, respectively, per option. The total


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

8. Equity Compensation Plans and Equity (Continued)

The fair value of each option granted during the years ended December 31, 2012, 2011 and 2010, was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 
 For the year ended
December 31,
 
 
 2012 2011 2010 

Weighted-average expected stock-price volatility

  59% 55% 62%

Weighted-average expected option life

  5 years  4 years  5 years 

Average risk-free interest rate

  0.70% 1.40% 1.92%

Average dividend yield

  0% 0% 0%

A summary of our restricted stock awards including restricted stock units as of December 31, 2012 is presented below:

 
 Shares
(000's)
 Weighted-
Average
Grant-Date
Fair Value
 

Nonvested as of December 31, 2011

  618 $33.61 

Granted

  324  32.62 

Vested

  (167) 20.60 

Forfeited (including cancelled awards)

  (82) 34.98 
       

Nonvested as of December 31, 2012

  693 $36.11 
       

During the year ended December 31, 2012, we granted 323,766 shares of restricted common stock and restricted stock units to key employees, which generally vest over a four year period. Included in this grant were 15,294 shares of restricted common stock granted to the non-employee members of the Board of Directors, which vest over the lesser of one year or at the time of the next annual meeting. The vested shares include the impact of 53,399 shares of restricted stock which were cancelled in 2012 due to employees electing to receive fewer shares in lieu of paying withholding taxes. The total grant date fair value of shares that vested during the years ended December 31, 2012, 2011 and 2010 was $5.4 million, $9.7 million and $13.6 million, respectively.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

8. Equity Compensation Plans and Equity (Continued)

A summary of our stock option plans as of and for the year ended December 31, 2012 is presented below:

 
 Shares
(000's)
 Weighted-
Average
Exercise
Price
 Aggregate
Intrinsic
Value (000's)
 Weighted-
Average
Remaining
Contractual
Life
(in years)
 

Outstanding as of December 31, 2011

  2,106 $25.58       

Granted

  704  32.55       

Exercised

  (351) 15.39       

Forfeited (including cancelled options)

  (137) 35.88       
             

Outstanding as of December 31, 2012

  2,322 $28.63 $13,149  6.4 
             

Options exercisable as of December 31, 2012

  1,282 $22.63 $12,948  4.5 
             

The weighted-average grant date fair value of stock options granted for the years ended December 31, 2012, 2011 and 2010 was $15.56, $21.90 and $18.41 per option, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2012, 2011 and 2010 2009was $6.8 million, $22.8 million and 2008 was $53.1 million, $7.3 million and $0.4 million, respectively.

The following table summarizes information about stock options outstanding atas of December 31, 2010:2012:

 
 Options Outstanding Options Exercisable 
Range of Exercise Prices
 Number
Outstanding at
December 31, 2010
(000s)
 Weighted-
Average
Remaining
Contractual Life
(in years)
 Weighted-
Average
Exercise Price
 Number
Exercisable at
December 31, 2010
(000s)
 Weighted-
Average
Exercise Price
 

$0.27-8.82

  491  5.4 $8.79  122 $8.69 

9.69-15.08

  656  5.3  12.51  173  12.72 

15.29-23.55

  713  3.8  18.46  457  18.83 

23.81-36.00

  594  9.0  33.71  18  24.97 

39.85-54.35

  115  9.3  42.91  8  54.35 
            

  2,569  5.9 $19.71  778 $16.36 
            
 
 Options Outstanding Options Exercisable 
Range of Exercise Prices
 Number
Outstanding at
December 31,
2012 (000s)
 Weighted-Average
Remaining
Contractual Life
(in years)
 Weighted-
Average
Exercise
Price
 Number
Exercisable at
December 31,
2012 (000s)
 Weighted-
Average
Exercise
Price
 

$8.82 - 16.37

  522  3.4 $11.05  522 $11.05 

17.48 - 26.69

  352  2.9  19.66  320  19.16 

28.60 - 42.96

  1,155  8.4  33.64  339  35.29 

44.09 - 51.70

  293  8.4  50.91  101  50.79 
               

  2,322  6.4 $28.63  1,282 $22.63 
               

Shares Reserved for Future Issuance

As of December 31, 2010,2012, we have 3,358,032 shares reserved the following shares for future issuance related to:

Issuance upon exercise of stock options and grants of restricted stock

5,280,841

Issuance upon conversion of subordinated debt

5,350,934

Total shares reserved

10,631,775

Issuance of Common Stock

        On October 28, 2009 the Company entered into an Underwriting Agreement (the "Underwriting Agreement") with Citigroup Global Markets Inc.stock options and J.P. Morgan Securities Inc. (the "Underwriters"), for the salegrants of 5,000,000 shares of our commonrestricted stock. In addition, the Underwriters had an option, which they exercised in full, to purchase up to an additional 750,000 shares of our common stock on the same terms for 30 days from the date of the Underwriting Agreement, solely to cover over-allotments. On November 3, 2009, we completed this offering selling 5,750,000 shares for net proceeds totaling $130.1 million, net of transaction costs totaling $0.3 million.

Preferred Stock

Our Board of Directors has authority under our Certificate of Incorporation to issue shares of preferred stock with voting and economic rights to be determined by the Board of Directors.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

8. Equity Compensation Plans and Equity (Continued)

Treasury Stock

On August 24, 2010, our Board of Directors authorized the repurchase of up to $200 million of our common stock untilstock. All funds for this repurchase program were exhausted as of August 26,19, 2011. Repurchases are expected to bewere made from time to time on the open market in accordance with applicable federal securities laws. The timingDuring 2011, we purchased 4,160,228 shares for $162 million (including transaction costs) under the program at an average cost of repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions, SEC regulations, and other factors. The repurchases will be funded using the Company's available cash balances and cash generated from operations. The program does not obligate the Company to acquire any particular amount of common stock and may be modified or suspended at any time at the Company's discretion.$38.96 per share. During 2010, we purchased 1,118,600 shares for $38.1$38 million (including transaction costs) under the program at an average cost of $34.06 per share. This stock repurchase is included as treasury stock in the Consolidated Balance Sheet.Sheet as of December 31, 2011. During the year ended December 31, 2012, we cancelled and retired the 5,278,828 shares of treasury stock we purchased under this repurchase program. As a result of this transaction, we recorded a reduction in treasury stock of $200.2 million and a corresponding reduction of $200.1 million and $0.1 million in retained earnings and common stock, respectively.

9. Income Taxes

Our income (loss) from continuing operations before income taxes in the accompanying Consolidated Statements of OperationsIncome consists of (in thousands):


 Year ended December 31,  Year ended December 31, 

 2010 2009 2008  2012 2011 2010 

Domestic

 $242,305 $(15,789)$(59,777) $5,811 $230,204 $260,268 

Foreign

 28,698 4,207 10,666  32,375 41,882 36,413 
              

 $271,003 $(11,582)$(49,111) $38,186 $272,086 $296,681 
              

Significant components of the provision for income taxes from continuing operations are presented below (in thousands):


 Year ended December 31,  Year ended December 31, 

 2010 2009 2008  2012 2011 2010 

Current:

  

Federal

 $34,097 $(344)$(360) $2,515 $59,921 $42,324 

Foreign

 7,720 1,879 1,019  7,576 10,714 7,720 

State and local

 4,720 799 192  (317) 805 5,215 
              

Total current provision for income taxes

 46,537 2,334 851  9,774 71,440 55,259 
       

Deferred:

  

Federal

 (32,033) 1,015 437  (482) 10,454 (32,033)

Foreign

 239 (273) 359  727 (1,073) 239 

State and local

 (4,271) (429) 75  1,638 763 (3,960)
              

Total deferred (benefit) provision for income taxes

 (36,065) 313 871 

Total deferred provision (benefit) for income taxes

 1,883 10,144 (35,754)
              

Total provision for income taxes

 $10,472 $2,647 $1,722  $11,657 $81,584 $19,505 
              

Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

9. Income Taxes (Continued)

The following is a reconciliation of the income tax provision (benefit) computed using the Federal statutory rate to our actual income tax provision (in thousands):


 Year ended December 31,  Year ended December 31, 

 2010 2009 2008  2012 2011 2010 

Income tax provision (benefit) at U.S. statutory rates

 $94,851 $(4,053)$(17,189)

State income tax expense (benefit) (net of federal impact)

 5,746 188 (1,135)

Goodwill impairment

   7,985 

Income tax provision at U.S. statutory rates

 $13,366 $95,231 $103,838 

State income tax (benefit) expense (net of federal impact)

 (89) 1,616 6,379 

Nondeductible expenses

 333 145 158  622 (749) 333 

Noncontrolling interest

  28 495 

Equity compensation

  1,678 2,519 

Domestic production activities deduction

 (5,779)    (489) (4,581) (6,365)

Nondeductible compensation

 2,840 826 1,473  205 841 2,840 

Research and development tax credit

 (1,823) (1,855) (1,031) (3,013) (4,675) (1,823)

Net change in valuation allowance

 (83,079) 5,198 10,955  2,943 121 (83,079)

Change in accrual for unrecognized tax benefits

 (1,076) (4,114)   533 824 (1,076)

Foreign tax rate differential

 (5,280) 5,450 (1,419) (2,387) (5,225) (5,280)

Other

 3,739 (844) (1,089) (34) (1,819) 3,738 
              

Total provision for income taxes

 $11,657 $81,584 $19,505 

 $10,472 $2,647 $1,722        
       

Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

9. Income Taxes (Continued)

During the fourth quarter of 2012, the Company determined that it may not meet the criteria required to receive a certain incentive tax rate pursuant to a negotiated tax holiday in one foreign jurisdiction. Although the Company is continuing to negotiate the criteria for the incentive, for financial reporting purposes the Company has recorded an additional tax provision of $4.0 million which represents the cumulative effect of calculating the tax provision using the incentive tax rate as compared to the foreign country's statutory rate. As such amount is not expected to be paid within twelve months, the Company has recorded the $4.0 million as a long term taxes payable. If the Company successfully renegotiates the incentive criteria, this additional tax provision could be reversed as a future benefit in the period in which the successful negotiations are finalized.

During 2012, the Company recorded an income tax expense of $1.9 million relating to discontinued operations compared to the $29.4 million income tax benefit from discontinued operations in the prior year which was reported in accordance with the intraperiod tax allocation provisions. In addition, the Company recorded a current tax benefit of $2.1 million related to equity-based compensation which was a credit to additional paid-in capital compared to $10.4 million tax benefit recorded in the prior year.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities are as follows (in thousands):

 
 December 31, 
 
 2012 2011 

Deferred tax assets:

       

Inventory valuation

 $6,386 $5,468 

Domestic net operating loss carry forwards

  1,144  1,082 

Tax credit carry forwards

  4,145  3,015 

Foreign net operating loss carry forwards

    89 

Warranty and installation accruals

  2,174  3,044 

Equity compensation

  9,114  5,821 

Other accruals

  3,270  2,373 

Other

  760  1,636 
      

Total deferred tax assets

  26,993  22,528 

Valuation allowance

  (4,708) (1,765)
      

Net deferred tax assets

  22,285  20,763 
      

Deferred tax liabilities:

       

Purchased intangible assets

  9,973  9,818 

Undistributed earnings

  1,095  974 

Depreciation

  7,014  4,115 
      

Total deferred tax liabilities

  18,082  14,907 
      

Net deferred taxes

 $4,203 $5,856 
      

Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

        Significant components of our deferred tax assets and liabilities are as follows (in thousands):9. Income Taxes (Continued)

 
 December 31, 
 
 2010 2009 

Deferred tax assets:

       
 

Inventory valuation

 $8,999 $13,261 
 

Domestic net operating loss carry forwards

  1,219  39,312 
 

Tax credit carry forwards

  9,961  24,216 
 

Foreign net operating loss carry forwards

  147  834 
 

Purchased intangible assets

    6,662 
 

Warranty and installation accruals

  2,742  2,432 
 

Equity compensation

  3,655  4,659 
 

Other accruals

  2,063  1,654 
 

Depreciation

  1,325  1,815 
 

Other

  1,890  3,235 
      

Total deferred tax assets

  32,001  98,080 

Valuation allowance

  (1,644) (84,723)
      

Net deferred tax assets

  30,357  13,357 

Deferred tax liabilities:

       
 

Purchased intangible assets

  4,854  8,439 
 

DISC termination

    201 
 

Convertible debt discount

  1,663  3,072 
 

Undistributed earnings

  370  3,292 
 

Other

  264  287 
      

Total deferred tax liabilities

  7,151  15,291 
      

Net deferred taxes

 $23,206 $(1,934)
      

A provision has not been made atas of December 31, 20102012 for U.S. or additional foreign withholding taxes on approximately $39.0$96.4 million of undistributed earnings of our foreign subsidiaries because it is the present intention of management to permanently reinvest the undistributed earnings of our foreign subsidiaries in China, South Korea, Japan, Malaysia, Singapore and Taiwan. As it is our intention to reinvest those earnings permanently, it is not practicable to estimate the amount of tax that might be payable if they were remitted. We have provided deferred income taxes and future withholding taxes on the earnings that we anticipate will be remitted.

        We have approximately $9.2 million of foreign tax credit carry forwards which expire at various times between 2016 and 2019.

        Based on current operating results, we reversed approximately $83.1 million of the valuation allowance as our net deferred tax assets became realizable on a more-likely-than-not basis. Our remaining valuation allowance of approximately $1.6$4.7 million as of December 31, 2012 increased by approximately $2.9 million during the year then ended and relates primarily to state and local tax attributes for which we could not conclude were realizable on a more-likely-than-not basis.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


 December 31,  December 31, 

 2010 2009  2012 2011 

Beginning balance as of December 31

 $1,357 $694  $4,748 $3,660 

Additions for tax positions related to current year

 1,227 725  435 1,069 

Reductions for tax positions relating to current year

   

Additions for tax positions relating to prior years

 1,736  

Reductions for tax positions relating to prior years

 (478) (62)

Reductions for tax positions related to current year

   

Additions for tax positions related to prior years

 742 1,209 

Reductions for tax positions related to prior years

 (59) (422)

Reductions due to the lapse of the applicable statute of limitations

 (17)   (48) (586)

Settlements

 (165)    (182)
          

Ending balance as of December 31

 $3,660 $1,357  $5,818 $4,748 
          

The Company does not anticipate that its uncertain tax position will change significantly within the next twelve months.

Of the amounts reflected in the table above atas of December 31, 2010,2012, the entire amount if recognized would reduce our effective tax rate. It is our policy to recognize interest and penalties related to income tax matters in income tax expense. The total accrual for interest and penalties related to unrecognized tax benefits was approximately $0.3$0.5 million and $0.5$0.2 million as of December 31, 20102012 and 2009,2011, respectively.

We or one of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. All material federal income tax matters have been concluded for years through 2006 subject to subsequent utilization of net operating losses generated in such years. Our 2010 federal tax return is currently under examination. All material state and local income tax matters have been concludedreviewed through 2008 with two state jurisdictions currently under examination for open tax years through 2006.between 2007 and 2010. The majority of our foreign jurisdictions have been reviewed through 20082009. Principally all our foreign jurisdictions remain open with only a few jurisdictions having openrespect to the 2011 and 2012 tax years between 2005years.


Table of Contents


Veeco Instruments Inc. and 2008. None of our federal tax returns are currently under examination.Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

10. Commitments and Contingencies and Other Matters

Restructuring and Other Charges

During 20082011 and 2009,2012, in response to challenging business conditions, we continued our multi-quarter planinitiated activities to improve profitability and reduce and contain spending. We made progress against the initiatives that management set in 2007, continued our restructuring plan and executed activities with a focus on creating a more cost effective organization, with a greater percentage of variable costs. These activities included downsizing and consolidating some locations,spending, including reducing our workforce, consultants and discretionary expenses and realigning our sales organization and engineering groups.expenses.

In conjunction with these activities, we recognized restructuring charges (credits) charges of approximately $(0.2)$3.8 million, $4.8$1.3 million and $9.4$(0.2) million during the years ended December 31, 2012, 2011 and 2010, 2009respectively. During the years ended December 31, 2012 and 2008, respectively,2011, we also recorded inventory write-offs of $1.0 million related to a discontinued product line in our Data Storage segment and an$0.8 million related to a discontinued product line in our LED & Solar segment, respectively. These inventory write-off of $1.5 million,write offs are included in cost of sales in the accompanying Consolidated StatementStatements of Operations, related to discontinued data storage products during the year


Table of ContentsIncome.


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010


ended December 31, 2009. Restructuring expense for the years ended December 31, 2010, 20092012, 2011 and 20082010 are as follows (in thousands):

 
 Year ended December 31, 
 
 2010 2009 2008 

Personnel severance and related costs

 $ $3,467 $2,614 

Lease-related and other (credits) costs

  (179) 1,370  3,873 

Modification of stock awards

      3,018 
        

 $(179)$4,837 $9,505 

Less adjustment of 2007 restructuring liability

      (81)
        

 $(179)$4,837 $9,424 
        
 
 Year ended December 31, 
 
 2012 2011 2010 

Personnel severance and related costs

 $3,040 $1,288 $ 

Equity compensation and related costs

  414     

Lease-related and other severance costs (credits)

  359    (179)
        

 $3,813 $1,288 $(179)
        

Personnel Severance Costs

During 2009,2012, we recorded $3.5$3.0 million in personnel severance and related costs resulting from a headcount reduction of 16452 employees. ThisDuring 2011, we recorded $1.3 million in personnel severance and related costs related to a companywide reorganization resulting in a headcount reduction of 65 employees. These reductions in workforce included executives, management, administration, sales and service personnel and manufacturing employees' companywide.

Lease-Related and Other Severance Costs (Credits)

During 2008,2012, we recorded $0.4 million in other associated costs resulting from a $3.7 million restructuring charge related to a mutually agreed-upon terminationheadcount reduction of 52 employees. These charges primarily consist of job placement services, consulting and relocation expenses, as well as duplicate wages incurred during the employment agreement with our former CEO (who currently remains as Chairman of the Board of Directors) following the successful completion of the CEO transition which included a charge of $3.0 million for the acceleration of stock-based compensation expense and $0.7 million related to salary and other related compensation, as specified in the employment agreement. The modification of the stock awards was recorded as an increase to additional paid-in capital. In addition, we eliminated approximately 49 employees during 2008 resulting in personnel severance costs of approximately $1.9 million, primarily in connection with increased outsourcing in our LED & Solar and Data Storage segments and realignment of the sales and service organization. This reduction in workforce included executives, management, administration and manufacturing employees' companywide.period.

Lease-related and Other Costs

During 2010, we had a change in estimate relating to one of our leased Data Storage facilities. As a result, we incurred a restructuring credit of $0.2 million, consisting primarily of the remaining lease payment obligations and estimated property taxes for a portion of the facility we will occupy, offset by a reduction in expected sublease income. We made certain assumptions in determining the credit, which included a reduction in estimated sublease income and terms of the sublease as well as the estimated discount rate to be used in determining the fair value of the remaining liability. We developed these assumptions based on our understanding of the current real estate market as well as current market interest rates. The assumptions are based on management's best estimates, and will be adjusted periodically if new information is obtained.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010

        During 2009, we vacated our Data Storage facilities in Camarillo, CA. As a result, we incurred a $1.4 million restructuring charge, consisting primarily of the remaining lease payment obligations and estimated property taxes for the facility we vacated, offset by the estimated expected sublease income to be received. We made certain assumptions in determining the charge, which included estimated sublease income and terms of the sublease as well as the estimated discount rate to be used in determining the fair value of the liability. We developed these assumptions based on our understanding of the current real estate market as well as current market interest rates. The assumptions are based on management's best estimates, and will be adjusted periodically if new information is obtained.

        During 2008, we recorded a $3.9 million restructuring charge for lease-related costs as part of the consolidation of our corporate headquarters into our Plainview, New York manufacturing facility during the first quarter of 2008. This charge primarily consisted of the liability for the remaining lease payments and property taxes relating to the facility we vacated, offset by expected sublease income. We made certain assumptions in determining the charge, which included estimated sublease income and terms of the sublease as well as the estimated discount rate to be used in determining the fair value of the net cash flows. We developed these assumptions, based on our understanding of the current real estate market as well as current market interest rates, which are adjusted periodically based upon new information, events and changes in the real estate market.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

10. Commitments and Contingencies and Other Matters (Continued)

The following is a reconciliation of the liability for the 2012, 2011 and 2010 2009 and 2008 restructuring charge from inceptioncharges through December 31, 20102012 (in thousands):

 
 LED & Solar Data Storage Unallocated
Corporate
 Total 

Short-term liability

             

Lease-related and other costs 2008

 $ $ $1,189 $1,189 

Personnel severance and related costs 2008

  732  477  1,405  2,614 
          

Total charged to accrual 2008

  732  477  2,594  3,803 
          

Lease-related and other costs 2009

  190  803    993 

Personnel severance and related costs 2009

  1,005  1,826  636  3,467 
          

Total charged to accrual 2009

  1,195  2,629  636  4,460 
          

Lease-related and other (credits) costs 2010

    (87)   (87)
          

Total (credited) charged to accrual 2010

    (87)   (87)
          

Short-term/long-term reclassification 2008

      892  892 

Short-term/long-term reclassification 2009

    148  1,084  1,232 

Short-term/long-term reclassification 2010

    123  536  659 

Cash payments 2008

  (72) (207) (1,627) (1,906)

Cash payments 2009

  (1,502) (2,561) (1,982) (6,045)

Cash payments 2010

  (353) (344) (1,597) (2,294)
          

Balance as of December 31, 2010

 $ $178 $536 $714 
          

Long-term liability

             

Lease-related and other costs 2008

 $ $ $2,684 $2,684 

Lease-related and other costs 2009

    377    377 

Lease-related and other (credits) costs 2010

    (48)   (48)

Short-term/long-term reclassification 2008

      (892) (892)

Short-term/long-term reclassification 2009

    (148) (1,084) (1,232)

Short-term/long-term reclassification 2010

    (123) (536) (659)

Other adjustments

      (172) (172)
          

Balance as of December 31, 2010

 $ $58 $ $58 
          
 
 LED & Solar Data Storage Unallocated
Corporate
 Total 

Balance as of January 1, 2010

 $196 $486 $1,597 $2,279 

Lease-related and other credits 2010

    (87)   (87)
          

Total credited to accrual 2010

    (87)   (87)
          

Personnel severance and related costs 2011

  672  51  311  1,034 
          

Total charged to accrual 2011

  672  51  311  1,034 
          

Personnel severance and related costs 2012

  874  1,684  135  2,693 
          

Total charged to accrual 2012

  874  1,684  135  2,693 
          

Short-term/long-term reclassification 2010

    123  536  659 

Short-term/long-term reclassification 2011

    58    58 

Cash payments 2010

  (196) (344) (1,597) (2,137)

Cash payments 2011

  (138) (159) (553) (850)

Cash payments 2012

  (960) (504) (310) (1,774)
          

Balance as of December 31, 2012

 $448 $1,308 $119 $1,875 
          

Long-term liability

             

Balance as of January 1, 2010

 $ $229 $536 $765 

Lease-related and other credits 2010

    (48)   (48)

Short-term/long-term reclassification 2010

    (123) (536) (659)

Short-term/long-term reclassification 2011

    (58)   (58)
          

Balance as of December 31, 2011

 $ $ $ $ 
          

        The long-term liability will be paid over the remaining lifeAsset Impairment Charges

During 2012, we recorded an asset impairment charge of the leases for the former corporate headquarters and$1.3 million related to a formerparticular asset in our Data Storage facility, which expiresegment. During 2011, we recorded a $0.6 million asset impairment charge for property, plant and equipment related to the discontinuance of a certain product line in June 2011 and May 2012, respectively. We currently do not anticipate or expect to incur additional restructuring charges during 2011.our LED & Solar segment.


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

        The following is a reconciliation of the liability for the 2007 restructuring charge from inception through December 31, 2010 (in thousands):

 
 LED & Solar Data Storage Unallocated
Corporate
 Total 

Beginning balance at January 1, 2008

 $17 $2,063 $1,492 $3,572 

Reversal of accrual during 2008

    (81)   (81)

Cash payments during 2008

  (17) (1,982) (1,247) (3,246)

Cash payments during 2009

      (245) (245)
          

Balance as of December 31, 2010

 $ $ $ $ 
          

Asset Impairment Charges10. Commitments and Contingencies and Other Matters (Continued)

        During 2009, we recorded a $0.3 million asset impairment charge in the second quarter for property, plant and equipment no longer being utilized in our Data Storage reporting unit.

        During 2008, we recorded a $51.4 million asset impairment charge, of which $51.1 million was recorded during the fourth quarter and $0.3 million was recorded during the first quarter. The fourth quarter charge consisted of $30.4 million related to goodwill, $19.6 million related to intangible assets ($5.0 million of indefinite-lived trademarks and $14.6 of other definite-lived intangibles) and $1.1 million in property, plant and equipment in Data Storage. The first quarter charge consisted of $0.3 million associated with property and equipment abandoned as part of the consolidation of our corporate headquarters into our Plainview facility.

Minimum Lease Commitments

Minimum lease commitments as of December 31, 20102012 for property and equipment under operating lease agreements (exclusive of renewal options) are payable as follows (in thousands):

2011

 $3,915 

2012

 2,360 

2013

 1,723  $3,491 

2014

 835  2,128 

2015

 401  1,063 

2016

 588 

2017

 540 

Thereafter

 230  93 
      

 $9,464  $7,903 
      

Rent charged to operations amounted to $2.3$3.5 million, $2.0$2.7 million and $2.5$1.7 million in 2010, 20092012, 2011 and 2008,2010, respectively. In addition, we are obligated under such leases for certain other expenses, including real estate taxes and insurance.

Environmental Remediation

        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


Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010


$250,000 $250,000 with respect to any such remediation and have a liability recorded for this amount as of December 31, 2009.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 revaluated 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 (sold to Bruker on October 7, 2010), has disclosed that there are hazardous substances present in the ground under the building. Management believes that the comprehensive indemnification clause that 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 indemnification as part of the sale.

Litigation

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,


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

10. Commitments and Contingencies and Other Matters (Continued)

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. Because the Company believes that this potential loss is not probable or estimable, it has not recorded any reserves related to this legal matter.

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

Concentrations of Credit Risk

Our business depends in large part upon the capital expenditures of our top ten customers, which accounted for 80%77% and 88%79% of total accounts receivable atas of December 31, 20102012 and 2009,2011, respectively. Of such, HB LED and data storage customers accounted for approximately 62%56% and 18%21%, and 65%58% and 23%19%, respectively, of total accounts receivable atas of December 31, 20102012 and 2009.2011.

Customers who accounted for more than 10% of our aggregate accounts receivable or net sales are as follows:

 
  
 Accounts
Receivable
December 31,
 Net Sales for the
year ended
December 31,
 
Customer
 Segment 2012 2011 2012 2011 2010 
Customer A Data Storage  16% *  14% *  * 
Customer B LED and Solar  16% *  *  *  * 
Customer C LED and Solar  *  31% *  11% * 
Customer D LED and Solar  *  *  *  12% 12%
Customer E LED and Solar  *  *  *  *  17%
Customer F LED and Solar  *  *  *  *  12%

 
 Accounts Receivable
December 31,
 Net Sales
For the Year Ended
December 31,
 
 
 2010 2009 2010 2009 2008 

Customer A

  20% 43% 17% 27% * 

Customer B

  26% *  *  *  * 

Customer C

  *  *  12% *  * 

Customer D

  *  14% *  10% 21%

*
Less than 10% of aggregate accounts receivable or net sales.

        BothTable of our operating segments sellContents


Veeco Instruments Inc. and Subsidiaries

Notes to these major customers.Consolidated Financial Statements (Continued)

December 31, 2012

10. Commitments and Contingencies and Other Matters (Continued)

We manufacture and sell our products to companies in different geographic locations. In certain instances, we require deposits for a portion of the sales price in advance of shipment. We perform periodic credit evaluations of our customers' financial condition and, where appropriate, require that


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2010


letters of credit be provided on certain foreign sales arrangements. Receivables generally are due within 30-6030-90 days, other than receivables generated from customers in Japan where payment terms generally range from 60-9060-150 days. Our net accounts receivable balance is concentrated in the following geographic locations (in thousands):

 
 December 31, 
 
 2010 2009 

Americas

 $13,600 $15,696 

Europe, Middle East and Africa ("EMEA")

  17,321  10,367 

Asia Pacific(1)

  119,607  41,483 
      

 $150,528 $67,546 
      

(1)
As of December 31, 2010, accounts receivable in China and Singapore amounted to $66.5 million and $48.3 million, respectively. As of December 31, 2009, accounts receivable in Singapore amounted to $34.0 million. No other country accounted for more than 10% of our accounts receivable as of December 31 for the years presented.
 
 December 31, 
 
 2012 2011 

China

 $28,132 $59,154 

Singapore

  7,266  15,338 

Taiwan

  6,390  1,281 

Other

  3,853  4,188 
      

Asia Pacific

  45,641  79,961 

Americas

  13,917  11,098 

Europe, Middle East and Africa

  3,611  3,979 
      

 $63,169 $95,038 
      

Suppliers

We currently outsource and plan to continue the outsourcing of, 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. We primarily rely on several suppliers for the manufacturing of these systems. We plan to maintain some level of internal manufacturing capability for these systems at least until such time as we have qualified one or more alternate suppliers to perform this manufacturing.systems. The failure of our present suppliers to meet their contractual obligations under our supply arrangements and our inability to make alternative arrangements or resume the manufacture of these systems ourselves could have a material adverse effect on our revenues, profitability, cash flows and relationships with our customers.

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

Purchase Commitments

As of December 31, 2012, we had purchase commitments totaling $62.6 million all of which come due within one year.

Lines of Credit and Guarantees

As of December 31, 2012, we had bank guarantees outstanding of $15.1 million, which were partially collateralized by $2.0 million in cash that is therefore restricted from use. We had outstanding letters of credit of $0.9 million as of December 31, 2012. We also had $30.5 million of unused lines of credit and bank guarantees available to draw upon if needed.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

11. Foreign Operations, Geographic Area and Product Segment Information

Net sales which are attributed to the geographic location in which the customer facility is located and long-lived tangible assets related to operations in the United States and other foreign countries as of and for the years ended December 31, 2010, 20092012, 2011 and 20082010 are as follows (in thousands):

 
 Net Sales to Unaffiliated
Customers
 Long-Lived Tangible Assets 
 
 2012 2011 2010 2012 2011 2010 

United States(1)

 $83,317 $100,635 $92,646 $74,497 $67,788 $41,072 

Europe, Middle East and Africa(1)

  41,708  57,617  92,112  36  203  274 

Asia Pacific(1)

  390,995  820,883  746,134  23,769  20,417  974 
              

 $516,020 $979,135 $930,892 $98,302 $88,408 $42,320 
              

 
 Net Sales to Unaffiliated Customers Long-Lived Assets 
 
 2010 2009 2008 2010 2009 2008 

United States

 $94,753 $60,553 $130,088 $123,543 $117,350 $124,480 

Other

  232  177  485       
              
 

Total Americas

  94,985  60,730  130,573  123,543  117,350  124,480 

EMEA(1)

  
92,112
  
50,088
  
57,567
  
274
  
315
  
413
 

Asia Pacific(1)

  746,134  171,594  126,795  974  815  706 
              
 

Total Other Foreign Countries

  838,246  221,682  184,362  1,248  1,130  1,119 
              

 $933,231 $282,412 $314,935 $124,791 $118,480 $125,599 
              

(1)
For the year ended December 31, 2012, net sales to customers in China and Taiwan were 42.0% and 11.4% of total net sales, respectively. For the year ended December 31, 2011, net sales to customers in China were 66.4% of total net sales. For the year ended December 31, 2010, net sales to customers in South Korea, China and Taiwan were 32.3%, 28.6%28.7% and 10.8% of total net sales, respectively. For the year ended December 31, 2009, net sales to customers in South Korea and China were 35.1% and 11.0% of total net sales, respectively. For the year ended December 31, 2008, net sales to customers in Germany and Taiwan were 10.3% and 12.4%10.9% of total net sales, respectively. No other country in EMEAEurope, Middle East, and Africa ("EMEA") and Asia Pacific ("APAC") accounted for more than 10% of our net sales for the years presented. A minimal amount, less than 1%, of sales included within the United States caption above have been derived from other regions within the Americas.

We have four identified reporting units that we aggregate into two reportable segments: the VIBE and Mechanical reporting units which are reported in our Data Storage segment; and the MOCVD and MBE reporting units are reported in our LED and Solar segment. We manage the business, review operating results and assess performance, as well as allocate resources, based upon two separateour reporting segmentsunits that reflect the market focus of each business. The Light Emitting Diode ("LED")Our LED & Solar segment consists of metal organic chemical vapor deposition ("MOCVD") systems, molecular beam epitaxy ("MBE") systems, thermal deposition sources and other types of deposition systems used to deposit materials on flexible and glass substrates.systems. These systems are primarily sold to customers in the high-brightness light emitting diode ("HB LED")LED and solar industries, as well as to scientific research customers. This segment has product development and marketing sites in Somerset, New Jersey, Poughkeepsie, New York, and St. Paul, Minnesota, Lowell,Minnesota. During 2011 we discontinued our CIGS solar systems business, located in Tewksbury, Massachusetts and Clifton Park, New York. TheOur Data Storage segment consists of the ion beam etch, ion beam deposition, diamond-like carbon, physical vapor deposition, and dicing and slicing products sold primarily to customers in the data storage industry. This segment has product development and marketing sites in Plainview, New York, Ft. Collins, Colorado and Camarillo, California.

We evaluate the performance of our reportable segments based on income (loss) from operations before interest, income taxes, amortization and certain items ("segment profit (loss)"), which is the primary indicator used to plan and forecast future periods. The presentation of this financial measure facilitates meaningful comparison with prior periods, as management believes segment profit (loss) reports baseline performance and thus provides useful information. Certain items include restructuring expenses, asset impairment charges, inventory write-offs, equity-based compensation expense and other non-recurring items. The accounting policies of the reportable segments are the same as those described in the summary of critical accounting policies.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012

11. Foreign Operations, Geographic Area and Product Segment Information (Continued)

The following tables present certain data pertaining to our reportable product segments and a reconciliation of segment profit (loss) to income (loss) from continuing operations, before income taxes for the years ended December 31, 2010, 20092012, 2011 and 2008,2010, and goodwill and total assets as of December 31, 20102012 and 2009 (2011(in thousandsthousands)):

 
 LED & Solar Data Storage Unallocated
Corporate
 Total 

Year ended December 31, 2010

             

Net sales

 $797,904 $135,327 $ $933,231 
          

Segment profit (loss)

 $276,060 $34,534 $(18,674)$291,920 

Interest expense, net

      6,572  6,572 

Amortization expense

  3,121  1,522  233  4,876 

Equity-based compensation expense

  2,643  1,140  5,865  9,648 

Restructuring credit

    (179)   (179)
          

Income (loss) from continuing operations, before income taxes

 $270,296 $32,051 $(31,344)$271,003 
          

Year ended December 31, 2009

             

Net sales

 $205,153 $77,259 $ $282,412 
          

Segment profit (loss)

 $27,826 $(2,578)$(10,598)$14,650 

Interest expense, net

      6,850  6,850 

Amortization expense

  3,137  1,599  432  5,168 

Equity-based compensation expense

  1,358  1,020  5,169  7,547 

Restructuring expense

  1,196  3,006  635  4,837 

Asset impairment charge

    304    304 

Inventory write-offs

    1,526    1,526 
          

Income (loss) from continuing operations, before income taxes

 $22,135 $(10,033)$(23,684)$(11,582)
          

Year ended December 31, 2008

             

Net sales

 $165,812 $149,123 $ $314,935 
          

Segment profit (loss)

 $23,913 $16,986 $(9,221)$31,678 

Interest expense, net

      6,729  6,729 

Amortization expense

  4,627  3,790  448  8,865 

Equity-based compensation expense

  495  990  5,165  6,650 

Restructuring expense

  732  396  8,296  9,424 

Asset impairment charges

    51,102  285  51,387 

Purchase accounting adjustment

  1,492      1,492 

Gain on extinguishment of debt

      (3,758) (3,758)
          

Income (loss) from continuing operations, before income taxes

 $16,567 $(39,292)$(26,386)$(49,111)
          
 
 LED & Solar Data
Storage
 Unallocated
Corporate
Amount
 Total 

Year ended December 31, 2012

             

Net sales

 $363,181 $152,839 $ $516,020 
          

Segment profit (loss)

 $41,603 $25,414 $(4,919)$62,098 

Interest income, net

      974  974 

Amortization

  (3,586) (1,322)   (4,908)

Equity-based compensation

  (5,400) (1,920) (6,534) (13,854)

Restructuring

  (1,233) (2,521) (59) (3,813)

Asset impairment charge

    (1,335)   (1,335)

Other

    (976)   (976)
          

Income (loss) from continuing operations before income taxes

 $31,384 $17,340 $(10,538)$38,186 
          

Year ended December 31, 2011

             

Net sales

 $827,797 $151,338 $ $979,135 
          

Segment profit (loss)

 $267,059 $38,358 $(8,987)$296,430 

Interest expense, net

      (824) (824)

Amortization

  (3,227) (1,424) (83) (4,734)

Equity-based compensation

  (3,473) (1,458) (7,876) (12,807)

Restructuring

  (204) (12) (1,072) (1,288)

Asset impairment charge

  (584)     (584)

Other

  (758)     (758)

Loss on extinguishment of debt

      (3,349) (3,349)
          

Income (loss) from continuing operations before income taxes

 $258,813 $35,464 $(22,191)$272,086 
          

Year ended December 31, 2010

             

Net sales

 $795,565 $135,327 $ $930,892 
          

Segment profit (loss)

 $300,311 $33,910 $(18,675)$315,546 

Interest, net

      (6,572) (6,572)

Amortization

  (1,948) (1,522) (233) (3,703)

Equity-based compensation

  (1,764) (1,140) (5,865) (8,769)

Other

    179    179 
          

Income (loss) from continuing operations before income taxes

 $296,599 $31,427 $(31,345)$296,681 
          

Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 20102012


11. Foreign Operations, Geographic Area and Product Segment Information (Continued)


 LED & Solar Data Storage Unallocated
Corporate
 Total  LED & Solar Data Storage Unallocated
Corporate
Amount
 Total 

As of December 31, 2010

 

As of December 31, 2012

 

Goodwill

 $52,003 $ $ $52,003  $55,828 $ $ $55,828 

Total assets

 $323,096 $61,691 $763,247 $1,148,034  $276,352 $38,664 $622,288 $937,304 

As of December 31, 2009

 

As of December 31, 2011

 

Goodwill

 $52,003 $ $ $52,003  $55,828 $ $ $55,828 

Total assets

 $178,420 $54,106 $372,846 $605,372  $319,457 $57,203 $559,403 $936,063 

Corporate total assets are comprised principally of cash and cash equivalents, short-term investments and restricted cash as of December 31, 20102012 and 2009.2011.

Other Segment Data (in thousands):



 Year ended December 31,  Year ended December 31, 


 2010 2009 2008  2012 2011 2010 

Depreciation and amortization expense:

Depreciation and amortization expense:

  

LED & Solar

 $12,020 $8,320 $5,506 

Data Storage

 3,008 3,245 3,581 

Unallocated Corporate

 1,164 1,327 1,702 

LED & Solar

 $7,573 $7,392 $7,850        

Data Storage

 3,582 4,448 7,690 

Unallocated Corporate

 1,699 2,025 2,145 
       

Total depreciation and amortization expense

 $12,854 $13,865 $17,685 

Total depreciation and amortization expense

 $16,192 $12,892 $10,789 
              

Expenditures for long-lived assets:

Expenditures for long-lived assets:

  

LED & Solar

 $20,279 $56,141 $8,086 

Data Storage

 3,341 2,703 572 

Unallocated Corporate

 1,374 1,520 2,066 

LED & Solar

 $8,086 $6,656 $5,605        

Total expenditures for long-lived assets

 $24,994 $60,364 $10,724 

Data Storage

 572 192 4,256        

Unallocated Corporate

 2,066 612 1,265 
       

Total expenditures for long-lived assets

 $10,724 $7,460 $11,126 
       

12. Derivative Financial Instruments

We use derivative financial instruments to minimize the impact of foreign exchange rate changes on earnings and cash flows. In the normal course of business, our operations are exposed to fluctuations in foreign exchange rates. In order to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known foreign currency exposures, we enter into monthly forward contracts. We do not use derivative financial instruments for trading or speculative purposes. Our forward contracts are not expected to subject us to material risks due to exchange rate movements because gains and losses on these contracts are intended to offset exchange gains and losses on the underlying assets and liabilities. The forward contracts are marked-to-market through earnings. We conduct our derivative transactions with highly rated financial institutions in an effort to mitigate any material counterparty risk.

The aggregate foreign currency exchange (loss) gain included in determining consolidated results of operations was approximately $(0.5) million, $(1.0) million and $1.3 million in 2012, 2011 and 2010, respectively. Included in the aggregate foreign currency exchange (loss) gain were gains relating to


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

12. Derivative Financial Instruments (Continued)

foreign exchange forward contracts of $0.3 million, $0.5 million and $0.1 million in 2012, 2011 and 2010, respectively. These amounts were recognized and are included in other, net in the accompanying Consolidated Statements of Income.

As of December 31, 2012 and 2011, the notional amount of such contracts outstanding was approximately $9.6 million and $3.6 million, respectively. The fair value of the outstanding contracts as of December 31, 2012 and 2011, was $0.2 million and $0.0 million, respectively. The fair value of the outstanding contracts is included as a component of Prepaid expenses and other current assets. These contracts were valued using market quotes in the secondary market for similar instruments (fair value Level 2, See Note4. Fair Value Measurements).

The weighted average notional amount of derivative contracts outstanding during the year ended December 31, 2012 and 2011 was approximately $3.5 million and $10.3 million, respectively.

13. Defined Contribution Benefit Plan

We maintain a defined contribution benefit plan under Section 401(k) of the Internal Revenue Code. Almost all of our domestic full-time employees are eligible to participate in this plan. Under the plan during 2011, we provideprovided matching contributions of fifty cents for every dollar employees contribute up to a maximum of $3,000. Generally,During 2012, we provided matching contributions of fifty cents for every dollar employees contribute, up to the lesser of 3% of the employee's eligible compensation or $7,500. During 2013, we will provide matching contributions of fifty cents for every dollar employees contribute, up to the lesser of 3% of the employee's eligible compensation or $7,650.Generally, the plan calls for vesting of Company contributions over the initial five years of a participant's employment. Beginning in 2007, we maintainedWe maintain a similar type of contribution plan at one of our foreign subsidiaries. Our contributions to these plans in 2012, 2011 and 2010 2009 and 2008 were $1.8$2.5 million, $1.0$2.1 million and $1.4$1.7 million, respectively.


13. Cost Method InvestmentTable of Contents

        On
Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

14. Selected Quarterly Financial Information (unaudited)

The following table presents selected unaudited financial data for each quarter of fiscal 2012 and 2011. Consistent with prior years, we report interim quarters, other than fourth quarters which always end on December 31, on a 13-week basis ending on the last Sunday within such period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 2012 interim quarter ends were April 1, July 1 and September 28, 2010, Veeco completed an investment30. The 2011 interim quarter ends were April 3, July 3 and October 2. For ease of reference, we report these interim quarter ends as March 31, June 30 and September 30 in our interim condensed consolidated financial statements.

Although unaudited, this information has been prepared on a rapidly developing organic light emitting diode (OLED) equipment company. Veeco has investedbasis consistent with our audited Consolidated Financial Statements and, in the opinion of our management, reflects all adjustments (consisting only of normal recurring adjustments) that we consider necessary for a fair presentation of this company's Round B funding extension totaling $3 million, resulting in 7.8% ownership of the preferred shares, and 5.6% ownership of the company. Since we do not exhibit significant influence on such company, this investment is treated under the cost methodinformation in accordance with applicable accounting guidance.principles generally accepted in the United States. Such quarterly results are not necessarily indicative of future results of operations.

 
 Fiscal 2012 (unaudited) Fiscal 2011 (unaudited) 
(in thousands, except per
share data)

 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 

Net sales

 $139,909 $136,547 $132,715 $106,849 $254,676 $264,815 $267,959 $191,685 

Gross profit

  65,268  61,254  49,884  38,727  130,963  135,349  124,934  83,088 

Income (loss) from continuing operations, net of income taxes

  16,462  11,011  7,698  (8,642) 57,979  56,318  52,617  23,588 

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

  (50) 807  4,055  (413) (5,337) (37,112) (16,754) (3,312)
                  

Net income (loss)

 $16,412 $11,818 $11,753 $(9,055)$52,642 $19,206 $35,863 $20,276 
                  

Income (loss) per common share:

                         

Basic:

                         

Continuing operations

 $0.43 $0.29 $0.20 $(0.22)$1.46 $1.37 $1.34 $0.62 

Discontinued operations

    0.02  0.10  (0.01) (0.14) (0.90) (0.43) (0.09)
                  

Income (loss)

 $0.43 $0.31 $0.30 $(0.23)$1.32 $0.47 $0.91 $0.53 
                  

Diluted :

                         

Continuing operations

 $0.42 $0.28 $0.20 $(0.22)$1.36 $1.31 $1.31 $0.61 

Discontinued operations

    0.02  0.10  (0.01) (0.12) (0.86) (0.41) (0.09)
                  

Income (loss)

 $0.42 $0.30 $0.30 $(0.23)$1.24 $0.45 $0.90 $0.52 
                  

Weighted average shares outstanding:

                         

Basic

  38,261  38,370  38,577  38,698  39,842  40,998  39,335  38,212 

Diluted

  38,863  38,988  39,169  38,698  42,531  43,002  40,069  38,771 

Table of Contents


Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

14. Selected Quarterly Financial Information (unaudited) (Continued)

A variety of factors influence the level of our net sales in a particular quarter including economic conditions in the LED, solar, data storage and semiconductor industries, the timing of significant orders, shipment delays, specific feature requests by customers, the introduction of new products by us and our competitors, production and quality problems, changes in material costs, disruption in sources of supply, seasonal patterns of capital spending by customers, interpretation and application of accounting principles, and other factors, many of which are beyond our control. In addition, we derive a substantial portion of our revenues from the sale of products with a selling price of up to $8.0 million. As a result, the timing of recognition of revenue from a single transaction could have a significant impact on our net sales and operating results in any given quarter.

CIGS Solar Systems Business Disposal

On July 28, 2011, we announced a plan to discontinue our CIGS solar systems business. The fair valueaction, which was completed on September 27, 2011 and impacted approximately 80 employees, was in response to the dramatically reduced cost of mainstream solar technologies driven by significant reductions in prices, large industry investment, a lower than expected end market acceptance for CIGS technology and technical barriers in scaling CIGS. This business was previously included as part of our LED & Solar segment.

Accordingly, the results of operations for the CIGS solar systems business have been excluded from continuing operations in the foregoing selected quarterly financial information and disclosed separately as discontinued operations. During the year ended December 31, 2011, total discontinued operations include charges totaling $69.8 million ($50.7 million in the second quarter and $19.1 million in the third quarter). These charges include an asset impairment charge totaling $6.2 million, a goodwill write-off of $10.8 million, an inventory write-off totaling $27.0 million, charges to settle contracts totaling $22.1 million, lease related charges totaling $1.4 million and personnel severance charges totaling $2.3 million.

Metrology Divestiture

On August 15, 2010, we signed a definitive agreement to sell our Metrology business to Bruker comprising our entire Metrology reporting segment for $229.4 million. Accordingly, Metrology's operating results are accounted for as discontinued operations in determining the consolidated results of operations. The sale transaction closed on October 7, 2010, except for assets located in China due to local restrictions. Total proceeds, which included a working capital adjustment of $1 million, totaled $230.4 million of which $7.2 million relates to the assets in China. As part of our agreement with Bruker, $22.9 million of proceeds was held in escrow and was restricted from use for one year following the closing date of the transaction to secure certain specified losses arising out of breaches of representations, warranties and covenants we made in the stock purchase agreement and related documents. The restriction relating to the escrowed proceeds was released on October 6, 2011. As part of the sale we incurred transaction costs, which consisted of investment banking fees and legal fees, totaling $5.2 million. During the fourth quarter of 2010, we recognized a pre-tax gain on disposal of $156.3 million and a pre-tax deferred gain of $5.4 million related to the assets in China. We recognized into income the pre-tax deferred gain of $5.4 million during the third quarter of 2012 related to the completion of the sale of the assets in China to Bruker.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

14. Selected Quarterly Financial Information (unaudited) (Continued)

Other Quarterly Items

During 2012, we took measures to improve profitability, including a reduction in discretionary expenses, realignment of our senior management team and consolidation of certain sales, business and administrative functions. As a result of these actions, we recorded a $3.8 million restructuring charge consisting of $3.0 million in personnel severance and related costs, $0.4 million in equity compensation and related costs and $0.4 million in other severance costs resulting from a headcount reduction of 52 employees. We recorded $2.0 million of these charges in the third quarter of 2012 and $1.8 million of these charges in the fourth quarter of 2012 with the balance recorded in the first quarter of 2012.

During the fourth quarter of 2011, we recognized a restructuring charge of $1.3 million for personnel severance related to a company-wide reorganization. We also recognized an asset impairment charge of $0.6 million for property and equipment and $0.8 million inventory write-off charged to cost of sales related to the discontinuance of a certain product line in our LED & Solar segment.

During the third quarter of 2011 there was overstatement in our discontinued operations tax benefit totaling $3.4 million. We corrected this error in the discontinued operations income tax provision in the fourth quarter of 2011 for the same amount, representing the amount not previously recorded in the third quarter of 2011. We do not believe that this difference was material to our results of operations for the third and fourth quarter of 2011.

As a result of the delay in filing our Form 10-Q for September 30, 2012 ("Q3 10-Q"), we were required to evaluate the impact of events and circumstances occurring through the date of the filing of the Q3 10-Q. After considering declines in systems shipments and parts usage occurring though the date of the filing of the Q3 10-Q, we determined that an increase in our reserve for slow moving and obsolete inventory was warranted and resulted in us recording a total charge of $7.2 million to cost of sales in the third quarter of 2012. We anticipate that the evaluation will also result in relatively lower provisions for inventory reserves over the first three quarters of 2013. We recorded a $1.8 million charge to cost of sales for inventory write downs in the fourth quarter of 2012 that related to a terminated program. The effect on the comparative statements above was to reduce gross profit for September 30, 2012 compared to all other periods presented.

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 net cumulative errors which overstated cumulative net income from continuing operations through December 31, 2011 by $0.6 million and net cumulative errors that understated net income from continuing operations in the six month period ended June 30, 2012 by $1.1 million. As a result, in the third quarter of 2012, we recorded adjustments to correct all prior periods resulting in an increase in income from continuing operations of $0.5 million.


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Veeco Instruments Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 31, 2012

15. Subsequent Events

Notice of potential de-listing:    During our internal control evaluation and accounting review, we were unable to timely file our periodic statements with the SEC and, as of the date of this investmentreport, have yet to become current with all our required filings. We have been notified by The NASDAQ Stock Market that our common stock listing will be suspended if we have not filed all of our outstanding periodic reports with the SEC on or before November 4, 2013. If our stock is not estimated because there aredelisted, then it will no identified events or changeslonger be traded on the NASDAQ Global Select Market, however, it would continue to trade in circumstances thatthe over-the-counter market, which may have a significantan adverse effect on the fair valuetrading price of our stock.

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 investment,potential risks of the system. Veeco believes this lawsuit is without merit and intends to defend vigorously against the claims and Veeco maintains insurance which may apply to this matter. Because the Company believes that this potential loss is not probable or estimable, it has not recorded any reserves related to this legal matter.

Acquisition of Synos Technology, Inc. ("Synos"):    On October 1, 2013, we acquired Synos, which designs and manufactures Fast Array Scanning™ Atomic Layer Deposition systems ("ALD") that are exempt from estimating interim fair values becauseenabling the investment does not meet the definitionproduction of a publicly traded company. This investmentflexible organic light-emitting diode ("OLED") displays for mobile devices. The initial purchase price is recorded in other assets in our Consolidated Balance Sheet as$70 million. The agreement also includes an earn-out feature that would require an additional payment of up to $115 million if future performance milestones are achieved prior to December 31, 2010.2014. With the earn-out feature, the total maximum potential purchase price is $185 million. Synos is headquartered in Fremont, California and has approximately 50 employees. Preliminary purchase accounting estimates for Synos are not yet available.


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Schedule II—Valuation and Qualifying Accounts(in (in thousands)

COL. ACOL. A COL. B COL. C COL. D COL. E  COL. B COL. C COL. D COL. E 


  
 Additions  
  
   
 Additions  
  
 
DescriptionDescription Balance at
Beginning of
Period
 Charged to
Costs and
Expenses
 Charged to
Other
Accounts
 Deductions Balance at
End of
Period
  Balance at
Beginning
of Period
 Charged to
Costs and
Expenses
 Charged to
Other
Accounts
 Deductions Balance at
End of
Period
 

Deducted from asset accounts:

Deducted from asset accounts:

  

Year ended December 31, 2012

 

Allowance for doubtful accounts

 $468 $198 $ $(174)$492 

Valuation allowance in net deferred tax assets

 1,765 2,943   4,708 

Year ended December 31, 2010:

            
 

Allowance for doubtful accounts

 $438 $40 $34 $ $512  $2,233 $3,141 $ $(174)$5,200 
 

Valuation allowance on net deferred tax assets

 84,723  (2,663) (80,416) 1,644            

Year ended December 31, 2011

 

Allowance for doubtful accounts

 $512 $ $ $(44)$468 

Valuation allowance in net deferred tax assets

 1,644   121 1,765 
                      

 $85,161 $40 $(2,629)$(80,416)$2,156  $2,156 $ $ $77 $2,233 
                      

Deducted from asset accounts:

 

Year ended December 31, 2010

 

Allowance for doubtful accounts

 $438 $40 $34 $ $512 

Valuation allowance in net deferred tax assets

 84,723  (2,663) (80,416) 1,644 

Year ended December 31, 2009:

            
 

Allowance for doubtful accounts

 $583 $(52)$ $(93)$438  $85,161 $40 $(2,629)$(80,416)$2,156 
 

Valuation allowance on net deferred tax assets

 78,706 6,017   84,723            
           

 $79,289 $5,965 $ $(93)$85,161 
           

Deducted from asset accounts:

 

Year ended December 31, 2008:

 
 

Allowance for doubtful accounts

 $641 $(67)$9 $ $583 
 

Valuation allowance on net deferred tax assets

 67,360 14,150 317 (3,121) 78,706 
           

 $68,001 $14,083 $326 $(3,121)$79,289 
           


INDEX TO EXHIBITS

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

NumberExhibitIncorporated by Reference to the Following Documents
2.1Stock Purchase Agreement dated August 15, 2010 among Veeco Instruments Inc. (Veeco), Veeco Metrology Inc. and Bruker CorporationQuarterly Report on Form 10-Q for the quarter ended September 30, 2010, Exhibit 2.1
3.1Amended and Restated Certificate of Incorporation of Veeco dated December 1, 1994, as amended June 2, 1997 and July 25, 1997.Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, Exhibit 3.1
3.2Amendment to Certificate of Incorporation of Veeco dated May 29, 1998.Annual Report on Form 10-K for the year ended December 31, 2000, Exhibit 3.2
3.3Amendment to Certificate of Incorporation of Veeco dated May 5, 2000.Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Exhibit 3.1
3.4Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of Veeco.Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, Exhibit 3.1
3.5Amendment to Certificate of Incorporation of Veeco dated May 16, 2002Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, Exhibit 3.1
3.6Amendment to Certificate of Incorporation of Veeco dated May 14, 2010Filed herewith
3.7Fourth Amended and Restated Bylaws of Veeco, effective October 23, 2008Current Report on Form 8-K filed October 27, 2008, Exhibit 3.1
3.8Amendment No. 1 to the Fourth Amended and Restated Bylaws of Veeco effective May 20, 2010Current Report on Form 8-K, filed May 26, 2010, Exhibit 3.1
4.1Rights Agreement, dated as of March 13, 2001, between Veeco and American Stock Transfer and Trust Company, as Rights Agent, including the form of the Certificate of Designation, Preferences, and Rights setting forth the terms of the Series A Junior Participating Preferred Stock, par value $0.01 per share, as Exhibit A, the form of Rights Certificates as Exhibit B and the Summary of Rights to Purchase Preferred Stock as Exhibit C.Registration Statement on Form 8-A dated March 15, 2001, Exhibit 1
4.2Amendment to Rights Agreement, dated as of September 6, 2001, between Veeco and American Stock Transfer and Trust Company, as rights agent.Current Report on Form 8-K, filed September 21, 2001, Exhibit 4.1
4.3Amendment No 2 to Rights Agreement, dated as of July 11, 2002, between Veeco and American Stock Transfer and Trust Company, as rights agent.Current Report on Form 8-K, filed July 12, 2002, Exhibit 4.1

NumberExhibitIncorporated by Reference to the Following Documents
4.4Indenture, dated April 16, 2007, between Veeco and U.S. Bank National TrustPost-Effective Amendment No. 1 To Registration Statement on Form S-3 (File No. 333-128004) filed April 16, 2007, Exhibit 4.1
4.5First Supplemental Indenture, dated April 20, 2007, by and between Veeco and U.S. Bank Trust National Association, as TrusteeCurrent Report on Form 8-K, filed April 20, 2007, Exhibit 4.1
10.1Loan Agreement dated as of December 15, 1999 between Applied Epi, Inc. and Jackson National Life Insurance Company.Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, Exhibit 10.2
10.2Amendment to Loan Documents effective as of September 17, 2001 between Applied Epi, Inc. and Jackson National Life Insurance Company (executed in June 2002).Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, Exhibit 10.2
10.3Promissory Note dated as of December 15, 1999 issued by Applied Epi, Inc. to Jackson National Life Insurance Company.Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, Exhibit 10.3
10.4*Form of Indemnification Agreement entered into between Veeco and each of its directors and executive officers.Current Report on Form 8-K filed on October 23, 2006, Exhibit 10.1
10.5*Veeco Amended and Restated 1992 Employees' Stock Option Plan.Registration Statement on Form S-1 (File No. 33-93958), Exhibit 10.20
10.6*Amendment dated May 15, 1997 to Veeco Amended and Restated 1992 Employees' Stock Option Plan.Registration Statement on Form S-8 (File No. 333-35009) filed September 5, 1997, Exhibit 10.1
10.7*Amendment dated July 25, 1997 to Veeco Amended and Restated 1992 Employees' Stock Option Plan.Registration Statement on Form S-8 (File No. 333-35009) filed September 5, 1997, Exhibit 10.2
10.8*Amendment dated May 29, 1998 to Veeco Amended and Restated 1992 Employees' Stock Option Plan.Registration Statement on Form S-8 (File No. 333-79469) filed May 27, 1999, Exhibit 10.1
10.9*Amendment dated May 14, 1999 to Veeco Amended and Restated 1992 Employees' Stock Option Plan.Registration Statement on Form S-8 (File No. 333-79469) filed May 27, 1999, Exhibit 10.2
10.10*Veeco Amended and Restated 2000 Stock Incentive Plan, effective July 20, 2006.Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, Exhibit 10.4
10.11*Amendment No. 1 effective April 18, 2007 (ratified by the Board August 7, 2007) to Veeco Amended and Restated 2000 Stock Incentive Plan.Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, Exhibit 10.1
10.12*Amendment No. 2 dated January 22, 2009 to Veeco Amended and Restated 2000 Stock Incentive Plan.Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.41
10.13*Form of Restricted Stock Agreement pursuant to the Veeco 2000 Stock Incentive Plan, effective November 2005Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, Exhibit 10.3

NumberExhibitIncorporated by Reference to the Following Documents
10.14*Form of Notice of Restricted Stock Award and related terms and conditions pursuant to the Veeco 2000 Stock Incentive Plan, effective June 2006Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, Exhibit 10.3
10.15*Veeco 2010 Stock Incentive Plan, effective May 14, 2010Registration Statement on Form S-8 (File Number 333-166852) filed May 14, 2010, Exhibit 10.1
10.16*Form of 2010 Stock Incentive Plan Stock Option AgreementRegistration Statement on Form S-8 (File Number 333-166852) filed May 14, 2010, Exhibit 10.2
10.17*Form of 2010 Stock Incentive Plan Restricted Stock AgreementRegistration Statement on Form S-8 (File Number 333-166852) filed May 14, 2010, Exhibit 10.3
10.18*Veeco Performance-Based Restricted Stock 2010Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, Exhibit 10.2
10.19*Veeco 2010 Management Bonus Plan dated January 22, 2010Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, Exhibit 10.2
10.20*Veeco 2010 Special Profit Sharing Plan dated February 15, 2010Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, Exhibit 10.3
10.21*Senior Executive Change in Control Policy effective as of September 12, 2008Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, Exhibit 10.3
10.22*Amendment No. 1 dated December 23, 2008 (effective September 12, 2008) to Veeco Senior Executive Change in Control PolicyAnnual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.37
10.23*Service Agreement effective July 24, 2008 between Veeco and Edward H. BraunQuarterly Report on Form 10-Q for the quarter ended June 30, 2008, Exhibit 10.1
10.24*Employment Agreement effective as of July 1, 2007 between Veeco and John R. PeelerQuarterly Report on Form 10-Q for the quarter ended June 30, 2007, Exhibit 10.3
10.25*Amendment effective December 31, 2008 to Employment Agreement between Veeco and John R. PeelerAnnual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.38
10.26*Second Amendment effective June 11, 2010 to Employment Agreement between Veeco and John R. PeelerQuarterly Report on Form 10-Q for the quarter ended June 30, 2010, Exhibit 10.1
10.27*Employment Agreement dated December 17, 2009 (effective January 18, 2010) between Veeco and David D. GlassQuarterly Report on Form 10-Q for the quarter ended March 31, 2010, Exhibit 10.1
10.28*Letter Agreement dated January 21, 2004 between Veeco and John P. Kiernan.Annual Report on Form 10-K for the year ended December 31, 2003, Exhibit 10.38
10.29*Form of Amendment effective June 9, 2006 to Letter Agreements between Veeco and each of John P. Kiernan and Robert P. OatesQuarterly Report on Form 10-Q for the quarter ended June 30, 2006, Exhibit 10.3

NumberExhibitIncorporated by Reference to the Following Documents
10.30*Form of Amendment effective December 31, 2008 to Letter Agreements between Veeco and each of John P. Kiernan, Mark R. Munch and Robert P. OatesAnnual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.40
10.31*Letter agreement effective as of June 19, 2009 between Veeco and John P. KiernanQuarterly Report on Form 10-Q for the quarter ended June 30, 2009, Exhibit 10.2
10.32*Letter Agreement dated October 31, 2005 between Veeco and Robert P. OatesQuarterly Report on Form 10-Q for the quarter ended September 30, 2005, Exhibit 10.1
10.33*Amendment dated September 12, 2008 to Employment Agreement between Veeco and Robert P. OatesQuarterly Report on Form 10-Q for the quarter ended September 30, 2008, Exhibit 10.2
10.34*Employment Agreement dated as of April 1, 2003 between Veeco and John F. Rein, Jr.Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, Exhibit 10.5
10.35*Amendment effective June 9, 2006 to Employment Agreement between Veeco and John F. Rein, Jr.Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, Exhibit 10.2
10.36*Amendment dated as of September 12, 2008 to Employment Agreement between Veeco and John F. Rein, Jr.Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, Exhibit 10.1
10.37*Amendment effective December 31, 2008 to Employment Agreement between Veeco and John F. Rein, Jr.Annual Report on Form 10-K for the year ended December 31, 2008, Exhibit 10.39
10.38*Letter Agreement dated January 11, 2008 between Veeco and Mark R. MunchAnnual Report on Form 10-K for the year ended December 31, 2007, Exhibit 10.33
10.39*Letter Agreement dated September 23, 2010 between Veeco and Mark R. MunchQuarterly Report on Form 10-Q for the quarter ended September 30, 2010, Exhibit 10.1
21.1Subsidiaries of the Registrant.Filed herewith
23.1Consent of Ernst & Young LLP.Filed herewith
31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934.Filed herewith
31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934.Filed herewith
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Filed herewith
32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Filed herewith

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