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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-K/A
[ Xx ] AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SectionSECTION 13
OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBERFor the fiscal year ended December 31, 19961997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(D)15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBERFor the transition period from to
Commission file number 0-16244
VEECO INSTRUMENTS INC.
(REGISTRANT)
DELAWARE(Registrant)
Delaware 11-2989601
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
TERMINAL DRIVETerminal Drive 11803
PLAINVIEW, NEW YORKPlainview, New York (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:Registrant's telephone number, including area code: (516) 349-8300
Securities registered pursuant to Section 12(b) of the Act:
NONENone
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUECommon Stock, par value $.01 PER SHAREper share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of RegulationRegistration S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by references in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of the Common Stock on February 24, 1997March 2, 1998
as reported on the Nasdaq National Market, was approximately $130,306,039.$171,781,000.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded from this
computation in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
At February 24, 1997,March 2, 1998, the Registrant had outstanding 5,870,6278,963,160 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 15, 1997 are incorporated by reference into Part
III of this Form 10-K Report.
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The Registrant, Veeco Instruments Inc. ("Veeco" or the "Company"), hereby amends
its Annual Report on Form 10-K (the "10-K") for the year ended December 31,
1996,1997, filed with the Securities and Exchange Commission (the "Commission") on
February 28, 1997,March 31, 1998, to provideinclude certain information included in
itswhich had been incorporated by
reference to the Company's definitive Schedule 14A dated July 2, 1997.
PART II
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The financial data set forth below shouldproxy statement, which will not be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" andfiled
with the Commission within 120 days after the end of the Company's Consolidated Financial Statements and notes
thereto included elsewhere in this Form 10-K.fiscal year.
1
VEECO INSTRUMENTS INC.
1997 FORM 10-K/A ANNUAL REPORT
TABLE OF CONTENTS
PART III
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31
1996 1995 1994 1993 1992
--------------------------------------------------Page
----
Item 10. Directors and Executive Officers of the
Registrant...................................................... 3
Item 11. Executive Compensation............................................ 6
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................... 11
Item 13. Certain Relationships and Related
Transactions.................................................... 12
2
Part III
Items 10, 11, 12 and 13 are hereby amended in their entirety as follows:
Item 10. Directors and Executive Officers of the Registrant
The Directors and executive officers of the Company, as of March 31, 1998, are
as follows:
Name Age Position
---- --- --------
Edward H. Braun........................ 58 Director, Chairman, Chief Executive Officer and
President(3)
Richard A. D'Amore..................... 44 Director(1)(2)(3)
Joel A. Elftmann....................... 58 Director(1)(2)
Dr. Paul R. Low........................ 65 Director(1)(2)(3)
Walter J. Scherr....................... 73 Director
James C. Wyant......................... 54 Director
Thomas A. Cully........................ 52 Assistant Treasurer
Don R. Kania Ph.D...................... 43 Chief Technology Officer
John P. Kiernan........................ 36 Corporate Controller
Emmanuel N. Lakios..................... 36 Executive Vice President-Worldwide
Field Operations
Robert P. Oates........................ 44 Vice President and General Manager- Industrial
Measurement Products
David S. Perloff Ph.D.................. 56 President - Process Metrology Group
John F. Rein, Jr....................... 51 Vice President-Finance, Chief Financial Officer,
Treasurer and Secretary
Francis Steenbeke...................... 52 Vice President-International Sales and Marketing
- ------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
Edward H. Braun has been a Director, Chairman, Chief Executive Officer and
President of the Company since January 1990. Prior to 1990, Mr. Braun was
employed as the Executive Vice President and Chief Operating Officer of Veeco
Instruments Inc. (now Lambda Electronics, Inc.), the company from which the
Company acquired its business operations (the "Predecessor"). Mr. Braun joined
the Predecessor in 1966 as a Regional Sales Manager/Sales Engineer and held
numerous positions with the Predecessor, including Director of Marketing,
Director of Operations, and General Manager. Mr. Braun is a member of the board
of Semiconductor Equipment and Materials International, of which he was Chairman
of the Board in 1993.
Richard A. D'Amore has been a Director of the Company since January 1990.
Mr. D'Amore has been a General Partner of Hambro International Venture Fund II,
L.P. since 1982 and a General Partner of North Bridge Venture Partners since
1992. In addition to the Company, Mr. D'Amore is a director of Solectron
Corporation and Xionics Document Technologies.
Joel A. Elftmann has been a Director of the Company since May 1994.
Mr. Elftmann has been the Chairman of the Board and President of FSI
International ("FSI"), a manufacturer of semiconductor processing
3
products, since 1983. From August 1983 through August 1989, and from May 1991
through the present, he also served as Chief Executive Officer of FSI.
Dr. Paul R. Low has been a Director of the Company since May 1994. Dr. Low
has been the President and Chief Executive Officer of PRL Associates, a
technology consulting firm, since founding the firm in 1992. Previously, Dr. Low
was Vice President-General Manager, Technology Products for International
Business Machines, Inc. ("IBM") from 1989 through 1992 and a member of IBM's
Management Board from 1990 to 1992. Dr. Low is a director of Applied Materials
Corporation, Integrated Packaging Assembly Corp., Solectron Corporation, VLSI
Technology and Xionics Document Technologies.
Walter J. Scherr has been a Director of the Company since January 1990.
Since December 1995 Mr. Scherr has been employed by the Company as a consultant.
From December 1993 through December 1995 he was Executive Vice President of the
Company. From January 1990 through December 1993, he was the Chief Financial
Officer of the Company. Mr. Scherr joined the Predecessor in 1986 as the General
Manager of the Predecessor's UPA Technology division of the Predecessor's
Instrument Group. Prior to joining the Predecessor, Mr. Scherr was the principal
and founder of Visual Sciences, Inc./Panafax (the first publicly traded
facsimile company); prior to that, he held a variety of other financial and
operating management positions with Litton Industries and Sperry Gyroscope Co.
James C. Wyant has been a director of the Company since July 1997. From
1984 to July 1997, Dr. Wyant was Chairman of the Board and President of Wyko
Corporation. Dr. Wyant has been a Professor of Optical Sciences at the
University of Arizona since 1974. Prior to joining the faculty at the University
of Arizona, Dr. Wyant spent six years at the Itek Corporation, first as an
optical engineer and later, as manager of advanced optical techniques.
Thomas A. Cully has been Assistant Treasurer of the Company since November,
1997 and was appointed an executive officer in January 1998. Prior to November,
1997, Mr. Cully was employed in various other financial management positions
within the Company. Mr. Cully was employed by the Predecessor from 1979 to 1991,
where he held the position of Manager of Internal Audit; prior to that, he held
various audit positions with Ernst & Young LLP from 1972 to 1979.
Dr. Don R. Kania Ph.D. has been Chief Technology Officer of the Company
since January 1998. Starting in 1993, Dr. Kania was a senior manager at Lawrence
Livermore Laboratory. There he directed the Advanced Microtechnology Program in
the development of advanced sensors for data storage, extreme ultraviolet
lithography for semiconductor manufacturing and several other leading-edge
technologies. From 1991 to 1993, Dr. Kania was Research Director at Crystallume,
a thin film diamond company. Dr. Kania's other experience includes nine years of
research experience at the Department of Energy's Los Alamos and Livermore
Laboratories.
John P. Kiernan has been Corporate Controller of the Company since
February 1995. Prior to joining the Company, Mr. Kiernan was an Audit Senior
Manager at Ernst & Young LLP from October 1991 through January 1995 and held
various audit staff positions with Ernst & Young LLP from June 1984 through
September 1991.
Emmanuel N. Lakios has been Executive Vice President of Worldwide Field
Operations since October, 1997. From June 1991 to October 1997 Mr. Lakios had
been Vice President and General Manager of Process Equipment. Prior to 1991,
Mr. Lakios was employed in various other positions within the Company.
Mr. Lakios joined the Predecessor in June 1984 as an engineer and held positions
of Program Manager, Product Marketing Manager and Director of Engineering.
Robert P. Oates has been Vice President and General Manager-Industrial
Measurement Products since March 1995. From September 1994 until March 1995,
Mr. Oates had been Vice President and General Manager-XRF Thickness Measurement
Systems of the Company, and he was Vice President and Treasurer of the Company
from January 1993 through September 1994. From January 1990 through
December 1992, he was
4
Assistant Treasurer of the Company. Mr. Oates was employed by the Predecessor
from 1976 to 1990, where he held a variety of financial positions.
David S. Perloff Ph.D. has been President of Veeco Process Metrology since
October 1997. Dr. Perloff was the founder of Prometrix Corporation in 1983, and
served as its President until its acquisition by Tencor Instruments in 1993. At
Tencor, he held the position of Vice President and General Manager of the Film
Measurement Division until April 1996. Earlier, Dr. Perloff held various
management positions at Corning Glass Works Signetics and N.V. Philips in the
period 1969-1983.
John F. Rein, Jr. has been Vice President-Finance and Chief Financial
Officer of the Company since December 1993, and became Treasurer and Secretary
of the Company in October 1994. Prior to joining the Company, Mr. Rein served
for eight years as Vice President-Controller for Axsys Technologies, Inc.
(formerly known as Vernitron Corporation). From 1979 to 1986, Mr. Rein was
Treasurer of Industrial General Corporation; prior to that, he was on the audit
staff of Ernst & Young LLP.
Francis Steenbeke has been Vice President-International Sales and Marketing
of the Company since January 1990. Mr. Steenbeke joined the Predecessor in 1968
as a sales engineer and held a variety of general management and sales positions
with the Predecessor until January 1990.
5
Item 11. Executive Compensation
Executive Compensation
The following table sets forth a summary of annual and long-term
compensation awarded to, earned by, or paid to the Chief Executive Officer of
Veeco and each of the four most highly compensated executive officers (as
defined in Rule 3b-7 promulgated under the Securities Exchange Act) of Veeco
(other than the Chief Executive Officer) whose total annual salary and bonus for
the year ended December 31, 1997 was in excess of $100,000 (collectively, the
"Named Officers"):
Annual Compensation
-------------------
Long Term
Compensation
Awards
Other Annual Securities
Compensa- Underlying All Other
Year Salary(1) Bonus(2) tion(3) Options(#) Compensation
---- --------- -------- ------- ---------- ------------
STATEMENT OF OPERATIONS DATA:
Net sales $96,832 $72,359 $49,434 $43,149 $36,346
Cost
Edward H. Braun................... 1997 $315,131 $185,000 $10,200 60,000 $2,352(4)(5)
Chairman, Chief Executive 1996 288,950 55,000 10,200 12,000 1,800(4)
Officer and President 1995 274,918 108,000 10,200 25,000 1,800(4)
Emmanuel N. Lakios................ 1997 185,539 120,000 8,400 32,000 1,605(4)(5)(6)
Executive Vice President of sales 54,931 39,274 28,940 25,736 21,847
--------------------------------------------------
Gross profit 41,901 33,085 20,494 17,413 14,499
Cost1996 143,720 242,033 8,400 12,000 2,094(4)(5)(6)
Field Operations 1995 125,650 165,500 8,400 35,000 6,981(4)(5)(6)
John F. Rein, Jr.................. 1997 175,480 80,000 8,400 42,000 2,847(4)(5)(6)
Vice President- Finance, Chief 1996 151,186 30,000 8,400 10,000 2,259(4)(5)(6)
Financial Officer, Treasurer 1995 140,150 60,000 8,400 20,000 1,926(4)(5)(6)
and expenses 29,719 24,289 16,511 15,482 13,081
--------------------------------------------------
Operating income 12,182 8,796 3,983 1,931 1,418
Interest (income) expenseSecretary
Francis Steenbeke (7).............. 1997 147,570 40,000 44,400(8) 10,000 -
net (678) (391) 2,620 2,341 3,006
--------------------------------------------------
Income (loss) before income
taxesVice President- International 1996 142,910 40,000 44,400(8) 8,000 -
Sales and extraordinary item 12,860 9,187 1,363 (410) (1,588)
Income tax provision (benefit) 4,822 2,395 (795)Marketing 1995 148,828 60,000 36,663(8) 15,000 -
Robert P. Oates.................... 1997 133,240 5,000 8,400 10,000 1,867(4)(5)(6)
Vice President and General 1996 123,700 7,575 8,400 5,000 1,853(4)(5)(6)
Manager - --------------------------------------------------
Income (loss) before
extraordinary item 8,038 6,792 2,158 (410) (1,588)
Extraordinary (loss), net
of $355 tax benefitIndustrial 1995 119,769 10,000 8,400 15,000 1,838(4)(5)(6)
Measurement Products
Dr. Timothy J. Stultz............. 1997 178,729 - - (679) - -
--------------------------------------------------
Net income (loss) $8,038 $6,792 $1,479 $(410) $(1,588)
--------------------------------------------------
--------------------------------------------------
Earnings per share:
Income (loss) before
extraordinary item $1.36 $1.24 .87 $(.22) $(.84)
Extraordinary (loss) - - (.27) - -
--------------------------------------------------
Net income (loss) $1.36 $1.24 $.60 $(.22) $(.84)
--------------------------------------------------
--------------------------------------------------
Shares used in computing
earnings per share 5,906 5,484 2,472 1,874 1,897
--------------------------------------------------
--------------------------------------------------
AS OF DECEMBER 3138,400 20,000 2,490(4)(5)(6)
Vice President and General 1996 165,769 25,000 70,090(9) 10,000 2,365(4)(5)(6)
Manager- Process Metrology- 1995 1994 1993 1992
--------------------------------------------------
BALANCE SHEET DATA(1):
Cash and cash equivalents $21,209 $17,568 $ 2,279 $386 $1,063
Working capital 43,454 37,461 16,122 6,666 7,264
Excess of cost over net
assets acquired 4,448 4,579 4,710 4,840 4,835
Total assets 80,327 67,380 40,931 32,596 31,464
Long-term debt and capital
leases (including current
installments) - - 39 24,934 25,150
Shareholders' equity (deficit) 57,970 49,751 28,289 (1,681) (1,226)147,663 60,000 24,214(9) 15,000 1,679(4)(5)(6)
Santa Barbara
- -----------------------------------
(1) Veeco completed an initial public offering (the "IPO") on December 6,
1994 in which $24,290,000Amounts shown include the dollar value of net proceeds werebase salary (cash and
non-cash) earned and received by Veeco. The net
proceeds were used to repay the Company's outstanding debt andNamed Officers.
(2) Bonuses listed for working
capital and other general corporate purposes. Prior to the IPO, the Company
was highly leveraged with approximately $23,700,000 of debt and accrued
interest outstanding. Veeco completed an additional public offering on July
31, 1995 (the "Follow-On Offering") in which $14,460,000 of net proceeds
were received by Veeco. The net proceeds have been used for general
corporate purposes. Prior to the completion of the IPO, Veeco incurred
significant interest expense on its outstanding debt. Since the completion
of the IPO and the Follow-On Offering, Veeco has earned net interest income.
1
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth,1997 include bonuses for the periods indicated, the relationship
(in percentages)year ended
December 31, 1997, all or part of selected items of the Company's consolidated statements of
operations to its total net sales:
YEARS ENDED DECEMBER 31which were paid in March 1998.
Bonuses listed for 1996 1995 1994
---------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 56.7 54.3 58.
---------------------------------
Gross profit 43.3 45.7 41.5
Operating expenses:
Research and development 10.1 9.8 10.3
Selling, general and administrative 20.2 23.3 22.6
Amortization .2 .2 .7
Other - net .2 .2 (.2)
---------------------------------
Total operating expenses 30.7 33.5 33.4
Operating income 12.6 12.2 8.1
Interest (income) expense (.7) (.5) 5.3
---------------------------------
Income before income taxes
and extraordinary item 13.3 12.7 2.8
Income tax provision (benefit) 5.0 3.3 (1.6)
---------------------------------
Income before extraordinary item 8.3 9.4 4.4
Extraordinary (loss), net of tax -- -- (1.4)
---------------------------------
Net income 8.3% 9.4% 3.0 %
---------------------------------
---------------------------------
YEARS ENDED DECEMBER 31, 1996 AND 1995
Net sales were $96,832,000include bonuses for the year ended
December 31, 1996, representing an increase of approximately $24,473,000,all or 33.8%, for the
fiscal year ended December 31, 1996 as compared to 1995. The increase
reflects growth in all three of Veeco's product lines - ion beam systems,
surface metrology and industrial measurement. Sales in the U.S. increased
approximately 38.6%, while international sales included a 37.8% increase in
Asia Pacific and a 56.2% increase in Japan and a 3% decrease in Europe.
Sales of ion beam systems increased by 60.3% to approximately
$53,213,000 in 1996 compared to 1995. Of this increase, approximately 55.9%
is due to growth in volume, with the balance of the increase attributable to
an approximately 27.7% higher average selling price of a system resulting
from a shift in customer demand to multi-process modules with increased
automation. This growth was principally driven by increased demand for mass
memory storage due to the capacity ramp up in both magnetoresistive and
inductive thin film magnetic heads required in high density hard drives.
Sales of surface metrology products increased by 14.6% to approximately
$23,902,000 in 1996 compared to 1995 principally as a result of increased sales
of SXM Workstations for semiconductor applications.
Sales of industrial measurement products increased by 7.7% to
approximately $19,717,000 in 1996 compared to 1995 as a result of increased
volume due to the introduction of new products in the leak detection product
line, while the average sales price of a product was comparable in 1996 and
1995.
Gross profit increased to approximately $41,901,000, or 43.3% of net
sales for 1996, compared to $33,085,000, or 45.7% of net sales for 1995. The
decline in gross margin percentage was principally due to product and
geographic mix changes in surface metrology and industrial measurement
products lines. The lower gross profit percentage attributable to product
mix resulted from increased sales of the SXM Workstation and other products
distributed for other manufacturers, which historically have had lower gross
margins, as well as for increases in sales of newly introduced products, the
costspart of which are generally higher than for mature products. Export sales,
which generally have higher sales discounts and service and distribution
costs, increased by 46.0%, which negatively impacted gross margins.
Research and development expense increased by approximately $2,703,000 to
approximately $9,804,000, or 10.1% of net saleswere paid in 1996 compared to
approximately $7,101,000 or 9.8% of sales in 1995, as Veeco increased its
R&D investment in each of its product lines with particular emphasis on ion beam
products.
2
Selling, general and administrative expenses increased by approximately
$2,714,000 to 20.2% of net sales in 1996 from 23.3% for 1995. Selling expense
increased $2,353,000 principally comprised of sales commissions related to
higher sales volume, as well as increased compensation and travel expense as
a result of additional sales and service personnel required to support
Veeco's growth. Veeco received approximately $107 million of orders in 1996
compared to approximately $84 million of orders in 1995 for a 27.9% increase.
This resulted in a book to bill ratio of 1.11 to 1 for 1996.
Operating income increased to approximately $12,182,000 or 12.6% of net
sales for 1996 compared to $8,796,000 or 12.2% of net salesFebruary 1997.
Bonuses listed for 1995 due to the
above noted factors. Veeco incurred an operating loss in its foreign
operations for the year ended December 31, 1996 of approximately $300,000
compared to operating income of approximately $257,000include bonuses for the year ended
December 31, 1995, principallyall or part of which were paid in February 1996.
6
(3) Unless otherwise described in other notes to this table,
reflects reimbursement for automobile-related expenses.
Does not include any discount a Named Officer received on
the purchase of the common stock, $.01 par value per
share, of Veeco (the "Veeco Common Stock") under the Veeco
Instruments Inc. Employee Stock Purchase Plan since
full-time employees generally are eligible to participate
in such plan.
(4) Reflects payments by Veeco of premiums for group term life
insurance.
(5) Reflects contributions by Veeco to Veeco's 401(k) Plan.
(6) Reflects payments by Veeco of premiums for supplemental
long-term disability insurance.
(7) Certain components of Mr. Steenbeke's compensation have
been paid in French Francs. In 1997, Mr. Steenbeke was
paid 859,740 French Francs in salary. In 1996,
Mr. Steenbeke was paid 813,156 French Francs in salary and
227,600 French Francs in bonus. In 1995, Mr. Steenbeke
was paid 742,560 French Francs in salary, 302,200 French
Francs in bonus and 90,525 French Francs as a resultportion of
his other annual compensation.
(8) For 1997 and 1996, includes an approximately $253,000
unfavorable change$8,400 car allowance and a
$36,000 housing allowance paid to Mr. Steenbeke. For 1995,
includes a $15,000 housing allowance and a $21,663
automobile allowance (the equivalent of $18,163 of which
was paid in foreign exchange transactions, a sales volume declineFrench Francs) paid to Mr. Steenbeke. The
1996 allowances and 1995 allowances (other than the
sale of additional SXM Workstations at lower gross profit margins
than Veeco's other product lines.
Income taxes amounted$18,163 (or 90,525 French Francs) automobile allowance)
were provided because Mr. Steenbeke was required to
$4,822,000 or 37.5% of income before income
taxes and extraordinary itemperform services for 1996 as compared to $2,395,000 or 26.1% of
income before income taxes and extraordinary item for 1995. Veeco's
effective tax rateVeeco in 1995 was lower as a result of Veeco recognizing
previously unrecognized deferred tax assets.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Net sales increased by approximately $22,925,000, or 46.4%,the United States for the
fiscalentire year ended December 31, 1995in 1997 and 1996 and for five months during
1995.
(9) In addition to approximately $72,359,000 as compared to 1994.
The increase reflects growth in all threea reimbursement of Veeco's product lines - ion
beam systems, surface metrology and industrial measurement. Sales in the U.S.
increased approximately 48%, while international sales included an
approximately 44% increase in European sales and an approximately 47% increase
in Asia Pacific sales including Japan.
Sales of ion beam systems increased by 58.1% to approximately $33,184,000
in 1995 compared to 1994. This increase was principally attributable to an
increase in volume while the average sales price of a system was comparable
in 1995 and 1994. This increase was driven by increased demand from
mass memory storage and telecommunications markets.
Sales of surface metrology products increased by 58.0% to approximately
$20,830,000 in 1995 compared to 1994 as a result of increased sales of SXM
Workstations for semiconductor applications and increased sales of surface
profilers in Asia Pacific and Europe. This increase was principally
attributable to an increase in volume while the average sales price of a
system was comparable in 1995 and 1994.
Sales of industrial measurement products increased by 20.2% to
approximately $18,345,000 in 1995 compared to 1994 as a result of the
introduction of new products in both the leak detection and XRF thickness
measurement systems product lines. This increase was principally
attributable to an increase in volume while the average sales price of a
system was comparable in 1995 and 1994.
Gross profit increased to approximately $33,085,000, or 45.7% of net
sales, for 1995 compared to $20,494,000, or 41.5% of net sales for 1994.
This improvement was due to the sales volume increases described above,
product mix changes and improved operating efficiencies. Product mix
favorably impacted gross margins in 1995 as compared to 1994 due to the
increase in sales of ion beam systems and stylus profilers which generate
higher gross margins than Veeco's industrial measurement products. Operating
efficiencies were obtained in 1996 compared to 1995 by reduction in cycle
times and higher throughput.
Research and development expense increased by approximately $2,005,000
to approximately $7,101,000, or 9.8% of net sales in 1995 compared to
approximately $5,096,000 or 10.3% of sales in 1994, as Veeco increased its
R&D investment$8,400 in each of its product lines.
Selling, general1995,
1996 and administrative1997 for automobile-related expenses, increased by approximately
$5,651,000Dr. Stultz
was paid, in connection with his relocation to 23.3%Santa
Barbara, California, a housing allowance of net sales$15,814 in
1995, from 22.6%$61,690 in 1996 and $30,000 in 1997. See also "Item
13. Certain Relationships and Related Transactions".
7
The following table sets forth certain information concerning individual
grants of stock options made during 1997 to the Named Officers. Also reported
are potential realizable values of each such stock option at assumed annual
rates of stock price appreciation for 1994. Selling expense
increased $4,150,000 principally comprisedthe term of sales commissions relatedthe option representing the
product of (a) the difference between: (i) the product of the closing price per
share of Veeco Common Stock as reported by NASDAQ on the date of the grant
($25.625 on January 17, 1997 and $29.25 on April 25, 1997, respectively) and the
sum of one plus the adjusted stock price appreciation rate (5% and 10%)
compounded annually over the term of the option (10 years) and (ii) the exercise
price of the option ($24.875 for grants on January 17, 1997 and $31.00 for
grants on April 25, 1997); and (b) the number of shares of Veeco Common Stock
underlying the option grant at December 31, 1997.
Option/SAR Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term($)
----------------- --------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Per Expiration
Name Granted(1) Fiscal Year Share($)(2) Date(3) 5% 10%
- ---- ---------- ----------- ----------- ------- --- ---
Edward H. Braun................ 20,000 3.03% $24.875 01/17/07 $337,300 $ 831,700
Edward H. Braun................ 40,000 6.06% $31.00 04/25/07 $665,600 $ 1,794,400
Emmanuel N. Lakios............. 12,000 1.82% $24.875 01/17/07 $202,380 $ 499,020
Emmanuel N. Lakios............. 20,000 3.03% $31.00 04/25/07 $332,800 $ 897,200
John F. Rein, Jr............... 12,000 1.82% $24.875 01/17/07 $202,380 $ 499,020
John F. Rein, Jr............... 30,000 4.55% $31.00 04/25/07 $499,200 $ 1,345,800
Francis Steenbeke.............. 10,000 1.52% $24.875 01/17/07 $168,650 $ 415,850
Robert P. Oates................ 10,000 1.52% $24.875 01/17/07 $168,650 $ 415,850
Dr. Timothy J. Stultz.......... 10,000 1.52% $24.875 01/17/07 $168,650 $ 415,850
Dr. Timothy J. Stultz.......... 10,000 1.52% $31.000 04/25/07 $166,400 $ 448,600
- -----------
(1) On January 17, 1997 and April 25, 1997, respectively, pursuant to
higher sales volume,the Veeco Instruments Inc. Amended and Restated 1992 Employees'
Stock Option Plan (the "Employees' Plan") options to acquire an
aggregate of 146,300 shares and 120,000 shares, respectively, of
Veeco Common Stock were granted to certain employees of Veeco,
including the Named Officers. The options granted to the Named
Officers become exercisable as follows: (i) for one-third of the
shares covered thereby, on the first anniversary of the grant date;
(ii) for an additional one-third of the shares covered thereby, on
the second anniversary of the grant date; and (iii) for the
remaining shares covered thereby, on the third anniversary of the
grant date.
(2) Represents the closing price per share of the Veeco Common Stock as
reported by NASDAQ on the last date preceding the date of grant on
which a sale was reported.
(3) Options may terminate at an earlier date upon the occurrence of
certain events.
8
The following table sets forth certain information concerning the number of
shares of Veeco Common Stock acquired upon the exercise of options by the Named
Officers during 1997 and the value realized upon such exercises determined by
calculating the positive spread between the exercise price of the options
exercised and the closing price of the Veeco Common Stock on the date of
exercise. Also reported are the number of options to purchase Veeco Common Stock
held by the Named Officers as of December 31, 1997 and values for "in-the-money"
options that represent the positive spread between the exercise price of the
outstanding options ($4.50 to $14.50) and the closing price ($22.00) of the
Veeco Common Stock on December 31, 1997 as reported by NASDAQ.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Value of Unexercised
Number of Number of Unexercised In-the-Money Options at
Securities Options at Fiscal Year-End Fiscal Year-End
Acquired on Value -------------------------- ---------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- --------- -------- ----------- ------------ ------------ -------------
Edward H. Braun........... - - 20,666 76,334 $173,744 $131,881
Emmanuel N. Lakios........ 31,222 $765,926 - 51,667 - $180,003
John F. Rein, Jr.......... - - 46,666 55,334 $709,995 $107,505
Francis Steenbeke......... 12,667 $311,300 - 20,333 - $83,123
Robert P. Oates........... 22,120 $792,460 11,666 18,334 $ 98,703 $68,114
Dr. Timothy J. Stultz..... 15,000 $505,000 13,333 31,667 $111,248 $93,128
Director Compensation
Directors, other than those who are employees of Veeco, receive a per
meeting fee of $2,000 for attendance at Board of Directors and committee
meetings. In addition, each of the current non-employee directors received
16,999 options, in the aggregate, to purchase Veeco Common Stock pursuant to
the Veeco Instruments Inc. 1994 Stock Option Plan for Outside Directors (the
"Directors Plan") and under such plan each non-employee director who meets the
eligibility criteria for such plan will receive an annual grant of 7,000
options. Mr. Braun, the Chairman, Chief Executive Officer and President of
Veeco, receives no compensation for his service as a director.
Veeco is party to an agreement with Walter J. Scherr, a director of Veeco,
pursuant to which he is employed as a consultant to Veeco with respect to
acquisition and new business opportunities, as well as increasedother matters. During
1997, Mr. Scherr received $78,967 pursuant to such consulting arrangement. On
April 25, 1997, Mr. Scherr also received options to purchase 20,000 shares of
Veeco Common Stock at an exercise price of $31.00 per share pursuant to the
Employees' Plan. Mr. Scherr also received a discretionary additional payment of
$35,000 in consideration for services with respect to mergers and acquisitions
activities in 1997, which payment was made in March 1998.
Compensation Committee Interlocks and Insider Participation
Veeco's Compensation Committee is comprised of Messrs. D'Amore, Elftmann
and Low.
9
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy
The Compensation Committee of the Board of Directors is comprised of
three outside, non-employee directors. The Committee reviews and approves
all of Veeco's executive compensation programs. The Compensation program is
based on the following principles:
1) Executive officers' compensation should be tied to annual
performance goals that maximize Veeco Stockholder value.
2) Veeco emphasizes variable incentive compensation in order to ensure
continuously improving corporate performance and travel expenseto align the interests of
executive officers with those of stockholders of Veeco ("Veeco
Stockholders").
3) Compensation must be competitive in order to attract, motivate and
retain the management talent needed to achieve Veeco's business objectives.
In determining competitive levels, the committee reviews information of
comparative companies from both independent survey data and public company
filings.
Components of Compensation
Veeco's executive compensation program consists of three principal
elements:
1) Base Salary-Base salaries have been set within salary ranges based
on compensation reports published by Radford Associates and Alexander and
Alexander Consulting Group and a study performed by Ernst & Young LLP on
comparable size and type manufacturing companies. Individual salary
increases are based on the officer's contribution to Veeco and the
relationship of current pay to the current value of the job.
2) Annual Incentive Awards-Annual incentive awards are based on
performance against objectives in the calendar year and are ordinarily
payable in the first quarter of the succeeding year. Incentive awards for
executive officers are a percentage of base salary. The percentage can
range to up to 80% of base salary for the chief executive officer and up to
60% of base salary for the other executive officers for achievement of 110%
of business plan objectives. In exceptional circumstances, when Veeco or a
business unit exceeds 110% of planned objectives, the Compensation
Committee may selectively make incentive awards at a higher level. Annual
incentive awards are based on selected financial criteria tied to the
annual business plan. In 1997, this plan was objectively based on operating
income criteria and subjectively on the ability of executive management to
strategically position Veeco for growth.
3) Stock Option Grants-Stock option grants are awarded as a
recognition of exceptional current performance and an expectation of
continued high quality contribution to enhancing Veeco Stockholder value.
The committee believes that stock options encourage officers to relate
their long-term economic interests to those of other Veeco Stockholders.
Stock options are granted at fair market value on the date of grant and
vest over three years. The options have an exercise period of ten years
from the date of grant.
Chief Executive Officer's Compensation
The compensation of Veeco's Chief Executive Officer, Edward H. Braun, is
determined by the Compensation Committee in accordance with the policies
described above relating to all executive officers' compensation. In particular,
the Compensation Committee established Mr. Braun's base salary after an
evaluation of his personal performance and the committee's objective to have his
base salary comparable with salaries being paid to similarly situated chief
executive officers. Mr. Braun's bonus was based upon Veeco's operating income
achieved compared with the 1997 business plan, as well as development of and
progress in Veeco's long-term goals and strategies.
10
Policy on Deductibility of Compensation
Section 162(m) of the Code limits to $1,000,000 per year Veeco's tax
deduction for compensation paid to each of the Named Officers, unless certain
requirements are met. The Compensation Committee believes it unlikely in the
short term that such limitation will affect Veeco. The Compensation Committee's
present intention is to structure executive compensation so that it will be
fully deductible, while maintaining flexibility to take actions which it deems
to be in the best interest of Veeco and the Veeco Stockholders but which may
result in Veeco paying certain items of additional salescompensation that may not be fully
deductible.
Submitted by the Compensation Committee:
Richard A. D'Amore
Paul R. Low
Joel A. Elftmann
Item 12. Security Ownership of Certain Beneficial Owners and service personnel requiredManagement
The following table sets forth certain information regarding the beneficial
ownership of Veeco Common Stock as of April 15, 1998 (unless otherwise specified
below) by (i) each person known by Veeco to support
Veeco's growth.own beneficially more than five
percent of the outstanding shares of Veeco received approximately $84 millionCommon Stock, (ii) each director of
ordersVeeco, and (iii) all executive officers and directors of Veeco as a group.
Unless otherwise indicated, Veeco believes that each of the persons or entities
named in 1995
comparedthe table exercises sole voting and investment power over the shares
that each of them beneficially owns, subject to approximately $55 millioncommunity property laws where
applicable.
Shares of Common Stock
Beneficially Owned(1)
----------------------
Percent of
Total Shares
Name of Beneficial Owner Shares Options(2) Total Outstanding
- ------------------------ ------ ---------- ----- -----------
James Wyant(3)................................................ 2,100,127 - 2,100,127 23.4%
John B. Hayes(4).............................................. 763,683 - 763,683 8.5
EQSF Advisers, Inc.(5)........................................ 464,200 - 464,200 5.2
Edward H. Braun............................................... 223,019 52,999 276,018 3.1
Walter J. Scherr.............................................. - 16,665 16,665 *
Richard A. D'Amore............................................ 16,701 16,999 33,700 *
Paul R. Low................................................... - 16,999 16,999 *
Joel A. Elftmann(6)........................................... 2,000 16,999 18,999 *
John F. Rein, Jr.............................................. 1,328 70,666 71,994 *
Francis Steenbeke............................................. 74,339 10,999 85,338 *
Emmanuel N. Lakios............................................ 937 26,332 27,269 *
Robert P. Oates............................................... 10,617 21,666 32,283 *
Dr. Timothy J. Stultz....................................... 589 28,332 28,921 *
All Executive Officers and Directors
as a Group (12 persons)....................................... 2,430,610 284,698 2,715,308 29.4%
- --------------
* Denotes less than a 1% interest.
(1) A person is deemed to be the beneficial owner of orderssecurities that can be
acquired by such person within 60 days of April 15, 1998 upon the exercise
of warrants and/or stock options. Each person's percentage ownership is
determined
11
by assuming that warrants and stock options held by such person (but not
those held by any other person) which are exercisable within 60 days of
April 15, 1998 have been exercised.
(2) Represents stock options exercisable within 60 days of April 15, 1998.
(3) Mr. Wyant shares voting and dispositive power over 2,100,127 shares of
Veeco Common Stock with his wife, Louise Wyant.
(4) This information is based on a Schedule 13D filed with the Commission
in 1994.
Operating income increasedAugust 1997. Mr. Hayes' business address is c/o Wyko Corporation, 2650
East Elvira Road, Tucson, Arizona 85706.
(5) This information is based solely on a Schedule 13G filed with the
Commission in February 1998. EQSF Advisers, Inc. beneficially owns and
holds sole dispositive and voting power over 464,200 shares of Veeco Common
Stock. The address of EQSF Advisers, Inc. is 767 Third Avenue, New York, NY
10017.
(6) Includes 2,000 shares of the Veeco Common Stock held by the Elftmann
Family Limited Partnership, a family limited partnership of which
Mr. Elftmann is the general partner.
Item 13. Certain Relationships and Related Transactions
On January 17, 1997, options to approximately $8,796,000 or 12.2%purchase shares of net
sales for 1995 comparedthe Veeco Common
Stock were issued to $3,983,000 or 8.1%each of net sales for 1994, duethe following executive officers and significant
employees in the following amounts pursuant to the above noted factors.
As a resultEmployee's Plan, all at an
exercise price of $24.875 per share (the fair market value at the date of
grant): Edward H. Braun, options to purchase 20,000 shares; John F. Rein,
Jr., options to purchase 12,000 shares; Francis Steenbeke, options to
purchase 10,000 shares; Emmanuel N. Lakios, options to purchase 12,000
shares; Robert P. Oates, options to purchase 10,000 shares; Dr. Timothy J.
Stultz, options to purchase 10,000 shares; John P. Kiernan, options to
purchase 2,000 shares; and Thomas A. Cully, options to purchase 500 shares.
On April 25, 1997, options to purchase shares of the repayment of all outstanding debt in December 1994
from the proceedsVeeco Common Stock were
issued to each of the IPOfollowing executive officers in the following amounts
pursuant to the Employees' Plan, all at an exercise price of $31.00 per share
(the fair market value at the date of grant): Edward H. Braun, options to
purchase 40,000 shares; John F. Rein, Jr., options to purchase 30,000 shares;
Emmanuel N. Lakios, options to purchase 20,000 shares; and Dr. Timothy J.
Stultz, options to purchase 10,000 shares. Also on April 25, 1997, options to
purchase 20,000 shares at an exercise price of $31.00 per share were issued
to Walter J. Scherr under the investmentEmployees' Plan. On December 12, 1997, pursuant
to the Employees' Plan, options to purchase 90,000 shares were issued to
David S. Perloff at an exercise price of $26.875 per share (fair market value
on the date of grant). On January 5, 1998, pursuant to the Employees' Plan,
options to purchase 25,000 shares were issued to Don R. Kania at an exercise
price of $24.4375 per share (fair market value on date of grant).
In May 1997, 21,000 options, in the aggregate, were granted to the
non-employee directors pursuant to the Directors Plan.
An involuntary petition for relief under Chapter 7 of Title 11 of the
net proceeds fromUnited States Code was filed against Peak Systems, Inc. (case no. 93-48654)
in the Public Offering completed in July 1995, Veeco had $391,000 of interest income
in 1995 compared to $2,620,000 of interest expense in 1994.
3
Income taxes amounted to $2,395,000 or 26.1% of income before income
taxes and extraordinary item for 1995. Veeco's effective tax rate is lower
than the statutory tax rate as a result of Veeco recognizing previously
unrecognized deferred tax assets. It is anticipated that Veeco's effective
tax rate in 1996 will approach the statutory tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totaled $7,173,000United States Bankruptcy Court for the fiscal year
endedNorthern District of California
on December 31, 1996 compared to $1,980,00010, 1993, and an Order for 1995, due primarily to net
income of $8,038,000 in 1996 compared to net income of $6,792,000 in 1995. Cash
flow in 1995Relief was also impactedgranted by an increase of approximately $6,072,000 in
accounts receivable. Net cash provided by operations of $1,980,000 for the fiscal year ended December 31, 1995 compared to $808,000 for 1994 primarily due
to net income of $6,792,000 in 1995 compared to net income of $1,479,000 in 1994
partially offset by changes in operating assets and liabilities.
Accounts receivable increased by approximately $843,000 at December 31,
1996 to $19,826,000 from $18,983,000 at December 31, 1995, due primarily to
increased sales. Accounts receivable increased by approximately $6,291,000 to
$18,983,000 at December 31, 1995 from $12,692,000 at December 31, 1994,
primarily dueCourt to the
increased sales.
Inventories increased by approximately $5,468,000 at December 31,petitioning creditors on January 13, 1994. As of April 15, 1998, such case
remained open. Dr. Timothy J. Stultz, Veeco's Vice President and General
Manager-Process Metrology-Santa Barbara, was President and Chief Executive
Officer of Peak Systems, Inc. from September 1983 to November 1993.
In May 1996, to
$21,263,000 from $15,795,000 at December 31, 1995. The increase was principally
due to purchases required for the increased level of sales orders. Inventories
increased by approximately $5,101,000 at December 31, 1995 to $15,795,000 at
December 31, 1995 from $10,694,000 at December 31, 1994 principally due to
purchases required for the introduction of new products and increased level of
sales orders.
Accounts payable increased by $2,467,000 at December 31, 1996 to
$11,196,000 from $8,729,000 at December 31, 1995 due to a higher level of
purchases associated with the increased sales volume. Accounts payable increased
by $1,316,000 at December 31, 1995 to $8,729,000 from $7,413,000 as a result of
purchases required for the introduction of new products.
Accrued expenses increased by $2,441,000 at December 31, 1996 to $9,964,000
from $7,523,000 at December 31, 1995 as a result of increased customer deposits
and payroll-related liabilities.
Working capital totaled approximately $43,454,000 at December 31, 1996
compared to approximately $37,461,000 at December 31, 1995. Cash increased to
approximately $21,209,000 at December 31, 1996 as a result of cash from
operations partially offset by approximately $3,766,000 of capital
expenditures. Working capital was approximately $37,461,000 at December 31,
1995 compared to approximately $16,122,000 at December 31, 1994. Cash
increased to approximately $17,568,000 at December 31, 1995 from $2,279,000
at December 31, 1994 as a result of cash from operations and Veeco's Public
Offering. Veeco made capital expenditures of $3,766,000 for fiscal year 1996,
principally for manufacturing facilities, laboratory and test equipment and
computer system upgrades, as compareda loan to $965,000 of capital expenditures for
1995. Veeco's capital expenditures for 1995 related primarilyDr. Timothy J. Stultz to finance the
purchase of laboratory and test equipment and manufacturing facility improvements.
Veeco expects that capital expenditures will increasehis home in the next year as it
improves its manufacturing facilities and acquires additional equipment for
its ion beam deposition systems business.
In July 1996, Veeco entered into a new credit facility (the "Credit
Facility")principal sum of $100,000, with Fleet Bank, N.A. and The Chase Manhattan Bank. The Credit
Facility, which may be used for working capital, acquisitions and general
corporate purposes, provides Veeco with up to $30 million of availability.
The Credit Facility bearssimple interest on
unpaid principal at the prime rate of 5% per annum. Interest is payable annually, on
each January 5 during the lending banks,term of the loan. The principal and all accrued but
is adjustable to a maximum rate of 3/4% above the prime rateunpaid interest will be due in the event
Veeco's ratio of debt to cash flow exceeds a defined ratio. A LIBOR based
interest rate option is also provided. As of December 31, 1996 there were no
amounts outstanding under the Credit Facility.
4
As of December 31, 1996, Veeco's availability under the Credit Facility
was reduced by approximately $931,000 as a result of outstanding letters of
credit.full in one lump sum on January 5, 2001. The Credit Facilityloan
is secured by substantially all of the Company's
personal property, as well as the stock of its Sloan subsidiary.
Pursuant to a sales and marketing agreement with IBM, the Company has
agreed to purchase a minimum number of IBM-manufactured SXM Workstations for
sale by the Company to customers in the semiconductor and data storage
industries for an aggregate purchase price of approximately $2,250,000. These
products are required to be purchased prior to July 1997. In addition, the
Company has minimum purchase obligations pursuant to agreements with certain
other suppliers. See "Business--Strategic Alliances."
Veeco believes that the cash generated from operations, funds available
from the Credit Facility described above and existing cash balances will be
sufficient to meet the Company's projected working capital and other cash flow
requirements for at least the next 24 months.
RISK FACTORS THAT MAY IMPACT FUTURE RESULTS
Certain information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission may contain statements which are "forward-looking
statements" which involve risks and uncertainties. The following risk factors
should be considered by shareholders of and by potential investors in the
Company.
CYCLICALITY OF SEMICONDUCTOR INDUSTRY. The semiconductor industry has been
characterized by cyclicality. The industry has experienced significant economic
downturns at various times in the last decade, characterized by diminished
product demand, accelerated erosion of average selling prices and production
over-capacity. The Company may experience substantial period-to-period
fluctuations in future operating results due to general industry conditions or
events occurring in the general economy.
RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION. The
semiconductor manufacturing industry is subject to rapid technological change
and new product introductions and enhancements. The Company's ability to remain
competitive will depend in part upon its ability to develop in a timely and cost
effective manner new and enhanced systems at competitive prices. In addition,
new product introductions or enhancements by the Company's competitors could
cause a decline in sales or loss of market acceptance of the Company's existing
products. Increased competitive pressure could also lead to intensified price
competition resulting in lower margins, which could materially adversely affect
the Company's business, financial condition and results of operations. The
success of the Company in developing, introducing and selling new and enhanced
systems depends upon a variety of factors, including product selections, timely
and efficient completion of product design and development, timely and efficient
implementation of manufacturing processes, effective sales, service and
marketing and product performance in the field. Because new product development
commitments must be made well in advance of sales, new product decisions must
anticipate both the future demand for the products under development and the
equipment required to produce such products. There can be no assurance that the
Company will be successful in selecting, developing, manufacturing and marketing
new products or in enhancing existing products.
LIMITED SALES BACKLOG. The Company derives a substantial portion of its
sales from the sale of a relatively small number of systems which typically
range in purchase price from approximately $400,000 to $1,500,000. As a result,
the timing of recognition of revenue for a single transaction could have a
material adverse affectsecond mortgage on the Company's sales and operating results. The
Company's backlog at the beginningproperty. Dr. Stultz prepaid $20,000 of
a quarter typically does not include all
sales required to achieve the Company's sales objective for that quarter.
Moreover, all customer purchase orders are subject to cancellation or
rescheduling by the customer with limited or no penalties. Therefore, backlog
at any particular date is not necessarily representative of actual sales for any
succeeding period. The Company's net sales and operating results for a quarter
may depend upon the Company obtaining orders for systems to be shippedprincipal in the
same quarter that the order is received. The Company's
51997.
12
business and financial results for a particular period could be materially
adversely affected if an anticipated order for even one system is not received
in time to permit shipping during the period.
HIGHLY COMPETITIVE INDUSTRY. The semiconductor capital equipment industry
is intensely competitive. A substantial investment is required by customers to
install and integrate capital equipment into a production line. As a result,
once a manufacturer has selected a particular vendor's capital equipment, the
Company believes that the manufacturer generally relies upon that equipment for
the specific production line application and frequently will attempt to
consolidate its other capital equipment requirements with the same vendor.
Accordingly, the Company expects to experience difficulty in selling to a
particular customer for a significant period of time if that customer selects a
competitor's capital equipment. The Company expects its competitors to continue
to develop enhancements to and future generations of competitive products that
may offer improved price or performance features. New product introductions and
enhancements by the Company's competitors could cause a significant decline in
sales or loss of market acceptance of the Company's systems in addition to
intense price competition or otherwise make the Company's systems or technology
obsolete or noncompetitive. Increased competitive pressure could lead to
reduced demand and lower prices for the Company's products, thereby materially
adversely affecting the Company's operating results. There can be no assurance
that the Company will be able to compete successfully in the future.
FOREIGN OPERATIONS
Approximately 12.5%, 17.3%, and 14.9% of the Company's net sales for years
ended December 31, 1996, 1995 and 1994, respectively, were derived from sales
denominated in foreign currencies. The effect of foreign currency exchange rate
fluctuations on such revenues is largely offset to the extent expenses of the
Company's international operations are incurred and paid for in the same
currencies as those of its revenues.
The Company has mitigated its exposure to foreign currency transaction
adjustments by substantially offsetting assets denominated in foreign currencies
with foreign currency liabilities. The Company does not engage in foreign
currency hedging transactions. Foreign currency translation adjustments of
$104,000, ($128,000) and ($233,000) were (credited) charged to Shareholder's
Equity for the years ended December 31, 1996, 1995 and 1994, respectively. The
aggregate exchange gains and (losses) included in determining consolidated
results of operations were ($153,000), $100,000, and $185,000 for the years
ended December 31, 1996, 1995 and 1994 respectively.
DEPENDENCE ON MICROELECTRONICS INDUSTRY
The Company's business depends in large part upon the capital expenditures
of data storage, semiconductor and flat panel display manufacturers which
accounted for the following percentages of the Company's net sales:
DECEMBER 31
1996 1995 1994
-------------------------------------------
Data storage 55.5% 40.2% 38.1%
Semiconductor 27.4 36.4 33.2
Flat panel display 3.8 6.1 7.3
The Company cannot predict whether the growth experienced in the
microelectronics industry in the recent past will continue.
6
SIGNATURESSignatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VEECO INSTRUMENTS INC.
ByBy: /s/ Edward H. Braun
---------------------------------------------------------
Edward H. Braun
Chairman, Chief Executive Officer
and President
7
Form 10-K-Item 14(a)(1) and (2)
Veeco Instruments Inc. and Subsidiaries
Index to Consolidated Financial Statements
and Financial Statement Schedule
The following consolidated financial statements of Veeco Instruments Inc. and
subsidiaries are included in Item 8:
Consolidated Balance Sheets at December 31, 1996 and 1995.............F-3
Consolidated Statements of Income for the Years Ended December 31,
1996, 1995 and 1994..............................................F-4
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1996, 1995 and 1994.................F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994..............................................F-6
Notes to Consolidated Financial Statements............................F-7
The following consolidated financial statement schedule of Veeco Instruments
Inc. and subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts......................F-20
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
instructions or are inapplicable and therefore have been omitted.
F-1
Report of Independent Auditors
Shareholders and The Board of Directors
Veeco Instruments Inc.
We have audited the accompanying consolidated balance sheets of Veeco
Instruments Inc. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Veeco Instruments
Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young
Melville, New York
February 7, 1997
F-2
Veeco Instruments Inc. and Subsidiaries
Consolidated Balance Sheets
(DOLLARS IN THOUSANDS)
DECEMBER 31
1996 1995
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $21,209 $17,568
Accounts and trade notes receivable, less
allowance for doubtful accounts of $482 in 1996
and $517 in 1995 19,826 18,983
Inventories 21,263 15,795
Prepaid expenses and other current assets 858 923
Deferred income taxes 1,937 1,221
------------- ---------------
Total current assets 65,093 54,490
Property, plant and equipment at cost, net 9,761 7,381
Excess of cost over net assets acquired, less
accumulated amortization of $910 in 1996
and $779 in 1995 4,448 4,579
Other assets--net 1,025 930
------------- ---------------
Total assets $80,327 $67,380
------------- ---------------
------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,196 $ 8,729
Accrued expenses 9,964 7,523
Income taxes payable 479 777
------------- ---------------
Total current liabilities 21,639 17,029
Deferred income taxes 257 118
Other liabilities 461 482
Shareholders' equity:
Common stock (9,500,000 shares authorized, 5,836,021
and 5,787,214 shares issued and outstanding at
December 31, 1996 and 1995, respectively) 58 58
Additional paid-in capital 47,638 47,353
Retained earnings 9,609 1,571
Cumulative translation adjustment 665 769
------------- ---------------
Total shareholders' equity 57,970 49,751
------------- ---------------
Total liabilities and shareholders' equity $80,327 $67,380
------------- ---------------
------------- ---------------
SEE ACCOMPANYING NOTES.
F-3
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Income
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31
1996 1995 1994
----------- ----------- -----------
Net sales $ 96,832 $72,359 $49,434
Cost of sales 54,931 39,274 28,940
----------- ------------ ------------
Gross profit 41,901 33,085 20,494
Costs and expenses:
Research and development expense 9,804 7,101 5,096
Selling, general and administrative expense 19,536 16,822 11,171
Amortization expense 236 202 344
Other--net 143 164 (100)
----------- ------------ ------------
29,719 24,289 16,511
----------- ------------ ------------
Operating income 12,182 8,796 3,983
Interest (income) expense--net (678) (391) 2,620
----------- ------------ ------------
Income before income taxes and
extraordinary item 12,860 9,187 1,363
Income tax provision (benefit) 4,822 2,395 (795)
----------- ------------ ------------
Income before extraordinary item 8,038 6,792 2,158
----------- ------------ ------------
Extraordinary (loss) on prepayment of debt,
net of $355 tax benefit - - (679)
----------- ------------ ------------
Net income $ 8,038 $ 6,792 $ 1,479
----------- ------------ ------------
----------- ------------ ------------
Earnings per share:
Income before extraordinary item $ 1.36 $ 1.24 $ .87
Extraordinary (loss) - - (.27)
----------- ------------ ------------
Net income $ 1.36 $ 1.24 $ .60
----------- ------------ ------------
----------- ------------ ------------
Shares used in computing earnings per share 5,906 5,484 2,472
----------- ------------ ------------
----------- ------------ ------------
SEE ACCOMPANYING NOTES.
F-4
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(DOLLARS IN THOUSANDS)
Preferred Treasury
Common Stock Preferred Stocks Additional Retained Stock Cumulative
------------------ -------------------- Paid-in Earnings --------------- Translation
Shares Amount Shares Amount Capital (Deficit) Shares Amount Adjustment Total
--------- -------- --------- --------- ---------- --------- ------- ------- ----------- ------
Balance at December 31, 1993 1,846,154 $ 4,354 $ 316 $ (6,700) (85,128) $ (59) $ 408 $(1,681)
Conversion of
Preferred Stocks 1,761,026 $18 (1,846,154) (4,354) 4,277 85,128 59 -
Exercise of outstanding
warrants 337,449 3 112 115
Conversion of
Series B Subordinated
debt and accrued
interest 313,878 3 3,450 3,453
Stock issued for
prepayment penalty 36,364 1 399 400
Net proceeds from
initial public
offering 2,500,000 25 24,265 24,290
Translation adjustment 233 233
Net income 1,479 1,479
--------- -------- --------- --------- ---------- --------- ------- ------- ----------- ------
Balance at
December 31, 1994 4,948,717 50 - - 32,819 (5,221) - - 641 28,289
Exercise of stock options 38,497 - 82 82
Net proceeds from
public offering 800,000 8 14,452 14,460
Translation adjustment 128 128
Net income 6,792 6,792
--------- -------- --------- --------- ---------- --------- ------- ------- ----------- ------
Balance at
December 31, 1995 5,787,214 58 - - 47,353 1,571 - - 769 49,751
Exercise of stock
options and stock
issuances under stock
purchase plan 48,807 - 285 285
Translation adjustment (104) (104)
Net income 8,038 8,038
--------- -------- --------- --------- ---------- --------- ------- ------- ----------- ------
Balance at
December 31, 1996 5,836,021 $ 58 - $ - $ 47,638 $ 9,609 - $ - $ 665 $ 57,970
--------- -------- --------- --------- ---------- --------- ------- ------- ------- ------
--------- -------- --------- --------- ---------- --------- ------- ------- ------- ------
SEE ACCOMPANYING NOTES.
F-5
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1996 1995 1994
---------- --------- ---------
OPERATING ACTIVITIES
Net income $ 8,038 $ 6,792 $ 1,479
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,599 1,200 1,425
Deferred income taxes (577) 147 (1,250)
Loss on debt prepayment - - 1,034
Other 11 - (28)
Changes in operating assets and liabilities:
Accounts receivable (1,062) (6,072) (3,355)
Inventories (5,560) (4,948) (2,071)
Accounts payable 2,485 1,291 3,492
Accrued expenses and other current liabilities 2,460 2,984 (2)
Income taxes payable (298) 686 92
Other--net 77 (100) (8)
--------- -------- --------
Net cash provided by operating activities 7,173 1,980 808
INVESTING ACTIVITIES
Capital expenditures (3,766) (965) (364)
Patents (17) - (165)
--------- -------- --------
Net cash used in investing activities (3,783) (965) (529)
FINANCING ACTIVITIES
Net proceeds from public stock offering - 14,460 24,290
Net repayments under revolving credit agreement - - (8,786)
Long-term debt repayments - - (13,459)
Deferred financing costs (195) (85) (201)
Exercise of stock options and issuance of stock
under stock purchase plan 285 82 -
Other - (39) 9
--------- -------- --------
Net cash provided by financing activities 90 14,418 1,853
Effect of exchange rate changes on cash and cash
equivalents 161 (144) (239)
--------- -------- --------
Net increase in cash and cash equivalents 3,641 15,289 1,893
Cash and cash equivalents at beginning of year 17,568 2,279 386
--------- -------- --------
Cash and cash equivalents at end of year $ 21,209 $ 17,568 $ 2,279
--------- -------- --------
--------- -------- --------
SEE ACCOMPANYING NOTES.
F-6
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Veeco Instruments Inc. ("Veeco" or the "Company") designs, manufactures, markets
and services a broad line of precision ion beam systems, surface metrology
systems, and industrial measurement equipment used in the manufacture of
microelectronic products. The company sells its products worldwide to many of
the leading semiconductor and data storage manufacturers. In addition, the
Company sells its products to companies in the flat panel display and high
frequency device industries, as well as to other industries, research and
development centers and universities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Veeco and its
subsidiaries. Intercompany items and transactions have been eliminated in
consolidation.
REVENUE
Revenue is recognized when title passes to the customer, generally upon
shipment. Service and maintenance contract revenues are recorded as deferred
income, which is included in other accrued expenses, and recognized as income on
a straight-line basis over the service period of the related contract. The
Company provides for (1) the estimated costs of fulfilling its installation
obligations and (2) warranty costs at the time the related revenue is recorded.
CASH FLOWS
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents. Interest paid during
1996, 1995 and 1994 was approximately $70,000, $113,000 and, $2,661,000,
respectively. Taxes paid in 1996 and 1995 were approximately $5,226,000 and
$916,000, respectively. No significant tax payments were made in 1994.
F-7
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost (principally first-in, first-out
method) or market.
DEPRECIABLE ASSETS
Depreciation and amortization are generally computed by the straight-line method
and are charged against income over the estimated useful lives of depreciable
assets. Amortization of equipment recorded under capital lease obligations is
included in depreciation of property, plant and equipment.
INTANGIBLE ASSETS
Excess of cost of investment over net assets of business acquired is being
amortized on a straight-line basis over 40 years. Other intangible assets,
principally patents, software licenses and deferred finance costs, of $892,000
and $880,000 at December 31, 1996 and 1995, respectively, are net of accumulated
amortization of $577,000 and $312,000. Other intangible assets are amortized
over periods ranging from 3 to 17 years.
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.
FOREIGN OPERATIONS
Foreign currency denominated assets and liabilities are translated into U.S.
dollars at the exchange rates existing at the balance sheet date. Resulting
translation adjustments due to fluctuations in the exchange rates are recorded
as a separate component of shareholders' equity. Income and expense items are
translated at the average exchange rates during the respective periods.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred and include
expenses for development of new technology and the transition of the
technology into new products or services.
ADVERTISING EXPENSE
The cost of advertising is expensed as of the first showing. The Company
incurred $1,819,000, $1,155,000 and $638,000 in advertising costs during 1996,
1995 and 1994, respectively.
F-8
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
At December 31, 1996, the Company has three stock-based compensation plans,
which are described in Note 5 to the consolidated financial statements. The
Company has elected to continue to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its stock-based compensation plans. Under APB
25, because the exercise price of the Company's employee stock options granted
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1995 financial statements have been reclassified
to conform with the 1996 presentation.
EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of common and
common equivalent shares outstanding during the year. The Company completed an
initial public offering (the "IPO") on December 6, 1994, pursuant to which
2,500,000 shares of Common Stock, par value $.01 per share (the "Common Stock")
were issued and sold at $11 per share. As a consequence of the IPO and pursuant
to the requirements of the Securities and Exchange Commission, stock issued by
the Company during the twelve months immediately preceding the IPO, plus the
number of equivalent shares issuable pursuant to the grant of options during the
same period, have been included in the number of shares used in the calculation
of earnings per share for 1994 as if they were outstanding (using the treasury
stock method and the IPO price). In addition, the calculation of the shares used
in computing earnings per share for 1994 also includes the outstanding
convertible preferred stock which automatically converted into 1,761,026 shares
of Common Stock upon the closing of the IPO as if they were converted to Common
Stock on the respective original dates of issuance.
F-9
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. BALANCE SHEET INFORMATION
DECEMBER 31
1996 1995
-------------------------------
Inventories:
Raw materials $ 9,546,000 $ 4,349,000
Work in process 4,909,000 4,222,000
Finished goods 6,808,000 7,224,000
-------------------------------
$ 21,263,000 $ 15,795,000
-------------------------------
-------------------------------
DECEMBER 31 ESTIMATED
1996 1995 USEFUL LIVES
-------------------------------------------
Property, plant and equipment:
Land $ 1,400,000 $ 1,400,000
Buildings and improvements 4,965,000 4,776,000 30 years
Machinery and equipment 9,749,000 6,376,000 3-10 years
Leasehold improvements 150,000 147,000 3-10 years
-------------------------------
16,264,000 12,699,000
Less accumulated depreciation
and amortization 6,503,000 5,318,000
-------------------------------
$ 9,761,000 $ 7,381,000
-------------------------------
-------------------------------
DECEMBER 31
1996 1995
-------------------------------
Accrued expenses:
Deferred service contract revenue $ 401,000 $ 670,000
Customer deposits and advance billings 3,540,000 1,842,000
Payroll and related benefits 1,836,000 2,046,000
Other 4,187,000 2,965,000
-------------------------------
$ 9,964,000 $7,523,000
-------------------------------
-------------------------------
F-10
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. FINANCING ARRANGEMENTS
In July 1996, the Company entered into a new credit facility ("the Credit
Facility") with Fleet Bank, N.A. and The Chase Manhattan Bank. The Credit
Facility, which is to be used for working capital, acquisitions and general
corporate purposes provides the Company with up to $30 million of availability.
The Credit Facility bears interest at the prime rate of the lending banks, but
is adjustable to a maximum rate of 3/4% above the prime rate in the event the
Company's ratio of debt to cash flow exceeds a defined ratio. A LIBOR based
interest rate option is also provided. The Credit Facility expires July 31,
1999, but under certain conditions is convertible into a term loan, which would
amortize quarterly through July 31, 2002.
The Credit Facility is secured by substantially all of the Company's personal
property as well as the stock of its subsidiary Sloan Technology Corporation.
The Credit Facility also contains certain restrictive covenants, which among
other things, impose limitations with respect to incurrence of certain
additional indebtedness, incurrence of liens, payments of dividends, long-term
leases, investments, mergers, consolidations and specified sales of assets. The
Company is also required to satisfy certain financial tests including
maintaining specified consolidated tangible net worth and maintaining certain
interest coverage and capitalization ratios.
As of December 31, 1996 and 1995, no borrowings were outstanding under the
Company's credit facilities. Letters of credit of approximately $931,000 and
$1,900,000 were outstanding at December 31, 1996 and 1995, respectively,
reducing the Company's availability under its credit facilities.
4. SHAREHOLDERS' EQUITY
The Company completed the IPO on December 6, 1994, whereby 2,500,000 shares of
Common Stock, par value $.01 per share (the "Common Stock") were issued and sold
at $11 per share. The net proceeds were used to prepay debt in the amount of
$23,700,000 and for working capital and other general corporate purposes .
The prepayment of the Company's debt and the conversion of the Senior
Subordinated Series B Notes into Common Stock in December 1994, resulted in an
extraordinary charge of $679,000, net of $355,000 of income tax benefit. The
extraordinary charge is principally
F-11
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. SHAREHOLDERS' EQUITY (CONTINUED)
comprised of a prepayment penalty and the writeoff of unamortized deferred
finance costs.
On July 31, 1995, the Company completed a public offering (the "Public
Offering") in which 2,300,000 shares of Common Stock were sold, 800,000 of which
were sold by the Company and 1,500,000 of which were sold by certain selling
stockholders, at the public offering price of $20 per share.
As of December 31, 1996, the Company has reserved 805,959 and 233,524 shares of
common stock for issuance upon exercise of stock options and issuance of shares
pursuant to the Stock Purchase Plan, respectively.
5. STOCK COMPENSATION PLANS
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-Based Compensation" which requires
that the information be determined as if the Company has accounted for its stock
options granted subsequent to December 31, 1994 under the fair value method of
that Statement. The fair value for these options, was estimated at the date of
grant using a Black-Scholes option pricing model. The Company's pro forma
information follows:
DECEMBER 31
1996 1995
----------------------------
Pro forma net income $ 7,540,000 $ 6,444,000
Pro forma earnings per share $ 1.30 $ 1.20
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994 and employee stock options granted vest over a three year
period, its effect will not be fully reflected in pro forma net income until
1997.
F-12
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCK COMPENSATION PLANS (CONTINUED)
FIXED OPTION PLANS
The Company has two fixed option plans. The Veeco Instruments Inc. Amended and
Restated 1992 Employees' Stock Option Plan (the "Stock Option Plan") provides
for the grant to officers and key employees of up to 826,787 options (264,245
options available for future grants as of December 31, 1996) to purchase share
of Common Stock of the Company. Stock options granted pursuant to the Stock
Option Plan become exercisable over a three-year period following the grant date
and expire after ten years. The Veeco Instruments Inc. 1994 Stock Option Plan
for Outside Directors (as amended, the "Directors' Option Plan") provides for
the automatic grants of stock options to each member of the Board of Directors
of the Company who is not an employee of the Company. The Directors' Option Plan
provides for the grant of up to 50,000 options (20,003 options available for
future grants as of December 31, 1996) to purchase shares of Common Stock of the
Company. Such options granted are exercisable immediately and expire after ten
years.
The fair values of these options at the date of grant was estimated with the
following weighted-average assumptions for 1996 and 1995: risk-free interest
rate of 6.3%, no dividend yield, volatility factor of the expected market price
of the Company's common stock of 50% and a weighted-average expected life of the
option of four years.
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1994, 1995 and 1996, and changes during the years ending on those
dates is presented below:
1994 1995 1996
------------------------- ------------------------- ------------------------
OPTION OPTION WEIGHTED-
SHARES PRICE SHARES PRICE SHARES AVERAGE
(000) PER SHARE (000) PER SHARE (000) EXERCISE PRICE
------ ------------------ ------ ----------------- ---------- --------------
Outstanding at beginning of year 124 $ .69 to $ 3.00 175 $ .69 to $11.00 441 $ 11.10
Granted 56 4.50 to 11.00 314 9.50 to 22.75 175 13.68
Exercised - - (38) .69 to 4.50 (32) 2.68
Forfeited (5) .69 to 4.50 (10) .69 to 13.38 (62) 19.14
-------------------------------------------------------------------------------------
Outstanding at end of year 175 $ .69 to 11.00 441 $ .69 to 22.75 522 $ 11.50
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Options exercisable at year-end 91 $ .69 to $ 4.50 104 $ .69 to $13.38 188 $ 8.74
Weighted-average fair value of
options granted during the year $ 6.62 $ 6.24
F-13
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCK COMPENSATION PLANS (CONTINUED)
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ---------------------------
NUMBER NUMBER
RANGE OF OUTSTANDING WEIGHTED-AVERAGE WEIGHTED- OUTSTANDING WEIGHTED-
EXERCISE AT DECEMBER REMAINING AVERAGE AT DECEMBER AVERAGE
PRICE 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE 31, 1996 EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------
(000) (000)
$ .69 to $ 5.00 101 7.2 years $ 3.46 88 $ 3.32
5.01 to 10.00 24 8.0 9.50 8 9.50
10.00 to 15.00 387 8.9 13.45 82 12.99
15.00 to 21.50 10 8.5 21.32 10 21.50
----------------------------------------------------------------------------------
$ .69 to $21.50 522 8.5 $ 11.50 188 $ 8.74
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN
Under the Veeco Instruments Inc. Employees Stock Purchase Plan (the "Plan"), the
Company is authorized to issue up to 250,000 shares of Common Stock to its
full-time domestic employees, nearly all of whom are eligible to participate.
Under the terms of the Plan, employees can choose each year to have up to 6% of
their annual base earnings withheld to purchase the Company's Common Stock. The
purchase price of the stock is 85% of the lower of its beginning-of-year or
end-of-year market price. Under the Plan, the Company granted 14,278 shares and
16,476 shares to employees in 1996 and 1995, respectively. The fair value of the
employees' purchase rights were estimated using the following assumptions for
1996 and 1995, respectively: no dividend yield for both years; an expected life
of one year and six months; expected volatility of 70% and 64%; and risk-free
interest rates of 5.2% and 5.7% The weighted-average fair value of those
purchase rights granted in 1996 and 1995 was $5.20 and $4.40 respectively.
F-14
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1996 and
1995 are as follows:
DECEMBER 31
1996 1995
--------------------------
Deferred tax liabilities:
Tax over book depreciation $ 257,000 $ 118,000
--------------------------
Total deferred tax liabilities 257,000 118,000
---------------------------
Deferred tax assets:
Inventory valuation 1,620,000 1,122,000
Foreign net operating loss carryforwards 795,000 1,276,000
Research tax credit carryforward - 277,000
Other 317,000 459,000
---------------------------
Total deferred tax assets 2,732,000 3,134,000
Valuation allowance (795,000) (1,913,000)
---------------------------
Net deferred tax assets 1,937,000 1,221,000
---------------------------
Net deferred taxes $1,680,000 $ 1,103,000
---------------------------
---------------------------
For financial reporting purposes, income before income taxes and extraordinary
item includes the following components:
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------------
Domestic $13,157,000 $8,926,000 $2,064,000
Foreign (297,000) 261,000 (701,000)
----------------------------------------------
$12,860,000 $9,187,000 $1,363,000
----------------------------------------------
----------------------------------------------
F-15
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Significant components of the provision (benefit) for income taxes for income
before extraordinary item are presented below.
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
Current:
Federal $4,712,000 $3,226,000 $ 1,067,000
Foreign 129,000 379,000 217,000
State 835,000 260,000 180,000
Utilization of research tax
credits (277,000) (909,000) -
Utilization of net operating
losses - (708,000) (1,294,000)
--------------------------------------------
5,399,000 2,248,000 170,000
Deferred:
Federal (525,000) 335,000 (965,000)
Foreign - (90,000) -
State (52,000) (98,000) -
--------------------------------------------
(577,000) 147,000 (965,000)
--------------------------------------------
$4,822,000 $2,395,000 $ (795,000)
--------------------------------------------
--------------------------------------------
The reconciliation of income taxes attributable to income before extraordinary
item computed at U.S. federal statutory rates to income tax expense is:
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
Tax at U.S. statutory rates $ 4,501,000 $ 3,123,000 $ 463,000
State income taxes (net of
federal benefit) 334,000 74,000 119,000
Goodwill amortization 46,000 44,000 44,000
Nondeductible expenses 39,000 42,000 31,000
Recognition of previously
unrecognized deferred tax
assets, net - (314,000) (639,000)
Operating losses not currently
realizable 225,000 212,000 456,000
Operating losses currently
realizable - (708,000) (1,294,000)
Other (323,000) (78,000) 25,000
--------------------------------------------
$ 4,822,000 $ 2,395,000 $ (795,000)
--------------------------------------------
--------------------------------------------
F-16
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Several of the Company's foreign subsidiaries have net operating loss
carryforwards for foreign tax purposes of approximately $2.0 million at December
31, 1996, a portion of which expires in years 1997 through 2001 and a portion
for which the carryforward period is unlimited.
7. COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS
The Company has an agreement with IBM pursuant to which the Company is IBM's
exclusive worldwide sales and marketing representative for the SXM Workstation
to the semiconductor and data storage industries. Under this agreement, the
Company has agreed to purchase a minimum number of SXM Workstations by July
1997. At December 31, 1996 such purchase commitment amounted to approximately
$2.25 million. IBM has the right to discontinue production at any time upon
written notice to the Company, in which event IBM has agreed to grant to the
Company an exclusive worldwide license to manufacture the SXM Workstation for
sale to the semiconductor and data storage industries pursuant to a royalty and
license agreement to be negotiated at such time.
Minimum lease commitments as of December 31, 1996 for property and equipment
under operating lease agreements (exclusive of renewal options) are payable as
follows:
1997 $ 737,000
1998 489,000
1999 223,000
2000 98,000
2001 36,000
Thereafter 98,000
-------------
$1,681,000
-------------
-------------
Rent charged to operations amounted to $870,000, $772,000 and $825,000 in 1996,
1995 and 1994, respectively. In addition, the Company is obligated under the
leases for certain other expenses, including real estate taxes and insurance.
In compliance with a Cleanup and Abatement Order ("CAO") issued by the
California Regional Water Quality Control Board, Central Coast Region, the
Company completed soil remediation of a site which was leased by a
predecessor of the Company in September 1995. The cost of the soil
remediation was approximately $35,000. The Company is currently performing
post-soil remediation groundwater monitoring at the site. Reports prepared by
consultants indicate certain contaminants in samples of groundwater
underneath the site. The Company cannot predict the extent of groundwater
contamination at the site and cannot determine at this time whether any or
all of the groundwater contamination may be attributable to activities of
neighboring parties. The Company cannot predict whether any groundwater
remediation will be necessary or the costs, if any, of such remediation.
The Company may, under certain circumstances, be obligated to pay up to
$250,000 in connection with the implementation of a comprehensive plan of
environmental remediation at its Plainview facility. The Company has been
indemnified for any liabilities it may incur in excess of $250,000 with
respect to any such remediation. No comprehensive plan has been required to
date. Despite such indemnification, the Company does not believe that any
material loss or expense is probable in connection with any remediation plan
that may be proposed.
The Company is aware that petroleum hydrocarbon contamination has been
detected in the soil at the site of a facility leased by the Company in
Santa Barbara, California. The Company has been indemnified for any
liabilities it may incur which arise from environmental contamination at the
site. Despite such indemnification, the Company does not believe that any
material loss or expense is probable in connection with any such liabilities.
F-17
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS (CONTINUED)
The Company's business depends in large part upon the capital expenditures of
data storage, semiconductor and flat panel display manufacturers which accounted
for the following percentages of the Company's net sales:
DECEMBER 31
1996 1995 1994
-------------------------------
Data storage 55.5% 40.2% 38.1%
Semiconductor 27.4 36.4 33.2
Flat panel display 3.8 6.1 7.3
The Company cannot predict whether the growth experienced in the
microelectronics industry in the recent past will continue.
Sales to one customer accounted for approximately 17%, 9% and 2% and sales to
another customer accounted for approximately 16%, 23% and 27% of the Company's
net sales during the years ended December 31, 1996, 1995 and 1994, respectively.
The Company manufactures and sells its products to companies in different
geographic locations. The Company performs periodic credit evaluations of its
customers' financial condition, generally does not require collateral, and where
appropriate, requires that letters of credit be provided on foreign sales.
Receivables generally are due within 30 days. The Company's accounts receivable
are concentrated in the following geographic locations:
DECEMBER 31
1996 1995
-------------------------------
United States $10,699,000 $ 10,892,000
Europe 3,161,000 5,008,000
Far East 5,729,000 3,069,000
Other 237,000 14,000
-------------------------------
$19,826,000 $18,983,000
-------------------------------
-------------------------------
F-18
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. FOREIGN OPERATIONS AND GEOGRAPHIC AREA INFORMATION
Information as to the Company's foreign operations and geographic area
information (assets not specifically identified to Europe and the Far East are
included in the United States) is summarized below:
NET SALES
UNAFFILIATED CUSTOMERS OPERATING INCOME Total Assets
-------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
United States $92,063 $66,826 $45,713 $12,613 $8,670 $4,702 $72,589 $58,051 $32,518
Europe(1) 11,214 11,863 7,297 (69) 651 (541) 6,953 8,790 7,563
Far East 915 913 681 (231) (394) (15) 785 539 850
Eliminations (7,360) (7,243) (4,257) (131) (131) (163) - - -
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$96,832 $72,359 $49,434 $12,182 $8,796 $3,983 $80,327 $67,380 $40,931
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(1) Principally reflects the Company's operations and assets in France,
United Kingdom and Germany.
Export sales from the Company's United States operations are as follows:
1996 1995 1994
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(IN THOUSANDS)
Asia Pacific $19,060 $13,827 $ 8,336
Japan 14,606 9,020 7,119
Europe 566 544 1,802
Other 749 564 556
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$34,981 $23,955 $17,813
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-----------------------------------
The aggregate foreign exchange gains and (losses) included in determining
consolidated results of operations were $(153,000), $100,000 and $185,000 in
1996, 1995 and 1994, respectively.
F-19
Veeco Instruments Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ------------ ---------- ---------- ---------- ----------
Deducted from asset accounts:
Year ended December 31, 1996
Allowance for doubtful accounts $ 517,000 $ 14,000 $ - $ 49,000 $ 482,000
Valuation allowance on net deferred tax assets 1,913,000 - - 1,118,000 795,000
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$ 2,430,000 $ 14,000 $ - $ 1,167,000 $ 1,277,000
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Deducted from asset accounts:
Year ended December 31, 1995:
Allowance for doubtful accounts $ 383,000 $ 147,000 $ - $ 13,000 $ 517,000
Valuation allowance on net deferred tax assets 2,858,000 - - 945,000 1,913,000
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$ 3,241,000 $ 147,000 $ - $ 958,000 $ 2,430,000
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Deducted from asset accounts:
Year ended December 31, 1994:
Allowance for doubtful accounts $ 385,000 $ 54,000 $ - $ 56,000 $ 383,000
Valuation allowance on net deferred tax assets 4,294,000 - - 1,436,000 2,858,000
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$ 4,679,000 $ 54,000 $ - $ 1,492,000 $ 3,241,000
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F-2013