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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 20002001
Commission file number 0-16244
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VEECO INSTRUMENTS INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2989601
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Terminal Drive 11803
Plainview, New York (Zip Code)100 Sunnyside Blvd. 11797
Woodbury, NY (zip code)
Registrant's telephone number, including area code: (516) 349-8300677-0200
-------------------
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/|X| No ___
23,679,098|_|
24,805,839 shares of common stock, $0.01 par value per share, were outstanding
as of the close of business on August 2, 2000.July 30, 2001.
SAFE HARBOR STATEMENT
This Quarterly Report on Form 10-Q (the "Report") contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Discussions containing such forward-looking statements may be found in
Items 2 and 3 hereof, as well as within this Report generally. In addition, when
used in this Report, the words "believes," "anticipates," "expects,"
"estimates," "plans," "intends," and similar expressions are intended to
identify forward-looking statements. All forward-looking statements are subject
to a number of risks and uncertainties that could cause actual results to differ
materially from projected results. Factors that may cause these differences
include, but are not limited to:
o the dependence on principal customers and the cyclical nature of the data
storage, semiconductor and optical telecommunications industries,
o fluctuations in quarterly operating results,
o rapid technological change and risks associated with the acceptance of new
products by individual customers and by the marketplace,
o limited sales backlog,risk of cancellation or rescheduling of orders,
o the highly competitive nature of industries in which the companyCompany operates,
o changes in foreign currency exchange rates, and
o the other matters discussed in the Business Description contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.2000.
Consequently, such forward-looking statements should be regarded solely as the
Company's current plans, estimates and beliefs. The Company does not undertake
any obligation to update any forward-looking statements to reflect future events
or circumstances after the date of such statements.
2
VEECO INSTRUMENTS INC.
INDEX
PART 1. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of IncomeOperations -
Three Months Ended June 30, 20002001 and 19992000 4
Condensed Consolidated Statements of IncomeOperations -
Six Months Ended June 30, 20002001 and 19992000 5
Condensed Consolidated Balance Sheets -
June 30, 20002001 and December 31, 19992000 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 20002001 and 19992000 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1413
Item 3. Quantitative and Qualitative Disclosure About Market Risk 1918
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 2019
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 2120
SIGNATURES 2321
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of IncomeOperations
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
--------
2000 1999
---- ----
Net sales $ 93,579 $ 77,092
Cost of sales 66,857 40,808
-------- --------
Gross Profit 26,722 36,284
Costs and expenses:
Research and development expense 14,063 9,910
Selling, general and administrative expense 19,158 14,884
Amortization expense 976 108
Other expense (income), net 61 (467)
Merger and reorganization expenses 13,956 --
Asset impairment charge 3,722 --
-------- --------
Operating (loss) income (25,214) 11,849
Interest income, net (136) (236)
-------- --------
(Loss) income before income taxes (25,078) 12,085
Income tax (benefit) provision (9,815) 4,432
-------- --------
Net (loss) income ($15,263) $ 7,653
======== ========
Net (loss) income per common share ($0.65) $0.37
Diluted net (loss) income per common share ($0.65) $0.36
Three Months Ended
June 30,
--------
2001 2000
---- ----
Net sales $ 113,455 $ 102,324
Cost of sales 59,951 73,329
--------- ---------
Gross profit 53,504 28,995
Costs and expenses:
Research and development expense 15,400 14,063
Selling, general and administrative expense 21,289 19,158
Amortization expense 881 976
Other expense, net 226 61
Merger and restructuring expenses 1,000 13,956
Asset impairment charge -- 3,722
--------- ---------
Operating income (loss) 14,708 (22,941)
Interest income, net (397) (136)
--------- ---------
Income (loss) before income taxes 15,105 (22,805)
Income tax provision (benefit) 5,105 (8,779)
--------- ---------
Net income (loss) $ 10,000 $ (14,026)
========= =========
Net income (loss) per common share $ 0.40 ($0.60)
Diluted net income (loss) per common share $ 0.40 ($0.60)
Weighted average shares outstanding 24,767 23,463
Diluted weighted average shares outstanding 25,215 23,463
20,530
Diluted weighted average shares outstanding 23,463 21,186
SEE ACCOMPANYING NOTES.
4
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of IncomeOperations
(In thousands, except per share data)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
--------
2000 1999
---- ----
Net sales $ 171,469 $ 151,631
Cost of sales 110,170 80,381
--------- ---------
Gross Profit 61,299 71,250
Costs and expenses:
Research and development expense 27,408 19,649
Selling, general and administrative expense 36,286 29,916
Amortization expense 1,485 239
Other expense (income), net 40 (501)
Merger and reorganization expenses 14,206 --
Asset impairment charge 3,722 --
--------- ---------
Operating (loss) income (21,848) 21,947
Interest income, net (521) (61)
--------- ---------
(Loss) income before income taxes (21,327) 22,008
Income tax (benefit) provision (8,531) 8,189
--------- ---------
Net (loss) income ($ 12,796) $ 13,819
Six Months Ended
June 30,
--------
2001 2000
---- ----
Net sales $ 240,723 $ 189,155
Cost of sales 127,935 119,792
--------- ---------
Gross profit 112,788 69,363
Costs and expenses:
Research and development expense 31,116 27,408
Selling, general and administrative expense 42,979 36,286
Amortization expense 2,317 1,485
Other expense, net 1,632 41
Merger and restructuring expenses 1,000 14,206
Asset impairment charge -- 3,722
--------- ---------
Operating income (loss) 33,744 (13,785)
Interest income, net (1,163) (521)
--------- ---------
Income (loss) before income taxes 34,907 (13,264)
Income tax provision (benefit) 12,034 (5,186)
--------- ---------
Net income (loss) before cumulative effect of change in
accounting principle 22,873 (8,078)
Cumulative effect of change in accounting principle, net
of taxes -- (18,382)
--------- ---------
Net income (loss) $ 22,873 $ (26,460)
========= =========
Net income (loss) per common share before cumulative
effect of change in accounting principle $ 0.93 $ (0.35)
Cumulative effect of change in accounting principle -- (0.79)
--------- ---------
Net income (loss) per common share $ 0.93 $ (1.14)
========= =========
Diluted net income (loss) per common share before cumulative
effect of change in accounting principle $ 0.91 $ (0.35)
Cumulative effect of change in accounting principle -- (0.79)
--------- ---------
Diluted net income (loss) per common share $ 0.91 $ (1.14)
========= =========
Net (loss) income per common share ($0.55) $0.69
Diluted net (loss) income per common share ($0.55) $0.66
Weighted average shares outstanding 24,722 23,253
Diluted weighted average shares outstanding 25,222 23,253
20,161
Diluted weighted average shares outstanding 23,253 20,936
SEE ACCOMPANYING NOTES.
5
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31,
2000 1999
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 13,858 $ 29,852
Short-term investments 52,189 50,888
Accounts and trade notes receivable, net 96,443 79,952
Inventories 86,644 85,876
Prepaid expenses and other current assets 13,030 7,507
Deferred income taxes 14,504 12,363
-------- --------
Total current assets 276,668 266,438
Property, plant and equipment at cost, net 63,030 61,298
Excess of cost over net assets acquired, net 9,732 6,500
Other assets, net 11,304 6,960
-------- --------
Total assets $360,734 $341,196
June 30, December 31,
2001 2000
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 60,241 $ 63,420
Short-term investments 27,629 26,895
Accounts receivable, net 86,191 98,248
Inventories 134,958 100,062
Prepaid expenses and other current assets 9,467 8,307
Deferred income taxes 36,769 45,303
-------- --------
Total current assets 355,255 342,235
Property, plant and equipment at cost, net 62,981 60,094
Excess of cost over net assets acquired, net 13,437 9,481
Other assets, net 10,639 11,473
-------- --------
Total assets $442,312 $423,283
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 33,325 33,134
Accrued expenses 58,990 56,093
Deferred gross profit 19,954 28,771
Other current liabilities 3,399 3,774
-------- --------
Total current liabilities 115,668 121,772
Long-term debt, net of current portion 13,960 14,631
Other non-current liabilities 3,845 3,972
Shareholders' equity 308,839 282,908
-------- --------
Total liabilities and shareholders' equity $442,312 $423,283
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 32,933 27,723
Accrued expenses 41,958 37,706
Short-term borrowings from line of credit 17,005 10,679
Notes payable to former Digital shareholders -- 8,000
Current portion of long-term debt 1,429 2,773
Other current liabilities 847 7,580
-------- --------
Total current liabilities 94,172 94,461
Long-term debt, net of current portion 15,381 17,252
Other non-current liabilities 5,462 5,539
Shareholders' equity 245,719 223,944
-------- --------
Total liabilities and shareholders' equity $360,734 $341,196
======== ========
SEE ACCOMPANYING NOTES.
6
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
SIX MONTHS ENDED
JUNESix Months Ended
June 30,
--------
OPERATING ACTIVITIES 2001 2000 1999
---- ----
OPERATING ACTIVITIES
Net income (loss) income ($12,796) $ 13,81922,873 $(26,460)
Adjustments to reconcile net income (loss) income to net
cash provided by (used in) provided by operating activities:
Depreciation and amortization 8,501 7,493 4,479
Deferred income taxes (2,156) 2608,316 1,193
Stock option income tax benefit 1,812 5,576
Other, net 2 (21) (335)
Asset impairment charge -- 3,722 --
Write-off of CVC inventory -- 15,322
Cumulative effect of change in accounting principle, net of taxes -- 18,382
Changes in operating assets and liabilities:
Accounts receivable 8,935 (20,316)
(4,848)
Inventories (35,798) (9,136) (4,504)
Accounts payable 353 6,720 1,843
Accrued expenses, deferred gross profit and other current
liabilities (4,376) 8,991(4,555) (18,019)
Other, net (2,030) 1,472
Recoverable income taxes (9,487) -- Other, net 1,472 (992)(9,487)
Operating activities three months ended 12/31/99-99 - CVC -- 638 --
-------- --------
Net cash provided by (used in) provided by operating activities 8,409 (22,921) 18,713
INVESTING ACTIVITIES
Capital expenditures (9,083) (11,923) (8,685)
Proceeds from sale of property, plant and equipment 11 230 2,979
Proceeds from sale of leak detection business 3,000 --
Payment of net assets of businesses acquired (7,529) (7,177) --
Net purchases of short-term investments (733) (1,295)
Proceeds from sale of business -- 3,000
Investing activities three months ended 12/31/99- CVC -- (528) --
-------- --------
Net cash used in investing activities (17,334) (17,693) (5,706)
FINANCING ACTIVITIES
Proceeds from stock issuance 2,358 11,886 60,718
Repayment of long-term debt, net (809) (8,570) (1,345)
Net proceeds (repayments) from borrowings under line of credit 17,005 (4,146)
Other -- (151)17,005
Financing activities three months ended 12/31/99- CVC -- 3,627 --
-------- --------
Net cash provided by financing activities 1,549 23,948 55,076
Effect of exchange rates on cash and cash equivalents 4,197 672 804
-------- --------
Net change in cash and cash equivalents (3,179) (15,994) 68,887
Cash and cash equivalents at beginning of period 63,420 29,852 23,599
-------- --------
Cash and cash equivalents at end of period $ 13,85860,241 $ 92,48613,858
======== ========
SEE ACCOMPANYING NOTESNOTES.
7
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted accounting principlesin the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted accounting principlesin the United States for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation
(consisting of normal recurring accruals) have been included. Operating results
for the six months ended June 30, 20002001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.2001. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.2000.
Earnings per share are computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share are computed
using the weighted average number of common and common equivalent shares
outstanding during the period. The effect of common equivalent shares for the
three months and six months ended June 30, 2000 was antidilutive, and therefore
dilutive earnings per share is not presented for such periods.were excluded from the diluted weighted average shares outstanding.
The following table sets forth the reconciliation of diluted weighted average
shares outstanding:
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 19992001 2000 1999
---- ---- ---- ----
(In thousands) (In thousands)
Weighted average shares outstanding 24,767 23,463 20,53024,722 23,253 20,161
Dilutive effect of stock options and warrants448 -- 656500 -- 775
------ ------ ------ ------
Diluted weighted average shares
outstanding 25,215 23,463 21,18625,222 23,253 20,936
====== ====== ====== ======
NOTE 2 - CVC MERGER AND RELATED NON-RECURRING CHARGES
On May 5, 2000, a wholly-owned subsidiary of the Company merged with CVC,
Inc. ("CVC") of Rochester, New York. As a result, CVC became a subsidiary of
the Company. Under the terms of the agreement, CVC shareholders received 0.43
shares of Veeco Common Stock (approximately 5.4 million shares in total) for
each share of CVC Common Stock outstanding. The merger was accounted for as a
pooling of interests and, as a result, historical financial data has been
restated to include CVC data. CVC provides cluster tool manufacturing
equipment used in the production of evolving tape and disk drive recording
head fabrication, optical
8
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 2 - CVC MERGER AND RELATED NON-RECURRING CHARGES (CONTINUED)
components, passive components, MRAM, bump metallization, and next generation
logic devices.
In conjunction with the merger with CVC, Veeco incurred non-recurring charges
of $33.0 million during the six months ended June 30, 2000. Of these charges,
a $15.3 million non-cash charge related to a write-off of inventory (included
in cost of sales), $14.0 million represented merger and reorganization costs
(of which $9.2 million related to transaction costs and $4.8 million
pertained to duplicate facility and personnel costs) and $3.7 million was for
the write-down of long-lived assets. The Company implemented its
reorganization plan in an effort to integrate CVC into the Company,
consolidate duplicate manufacturing facilities and reduce other operating
costs. The $4.8 million charge for duplicate facility and personnel costs
principally related to the closing of the CVC Virginia facility and an
approximate 200-person work force reduction, which includes both management
and manufacturing employees principally located in Alexandria, Virginia,
Rochester and Plainview, New York. For the six months ended June 30, 2000,
approximately $1.0 million of termination benefits have been paid, which
reflects the termination of approximately 200 employees. The write-down of
long-lived assets to estimated net realizable value related primarily to
leasehold improvements, machinery and equipment and intangible assets for
CVC's Virginia facility. In addition, the $15.3 million non-cash write-off of
inventory principally related to the CVC Virginia facility product line of
ion beam etch and deposition equipment. The Company intends to integrate the
technology from this product line into Veeco's existing ion beam etch and
deposition products. Accordingly, the Company has determined that a portion
of this product line's inventory is not useable in the future.
The following unaudited data summarizes the combined results (in thousands) of
the operations of the Company and CVC as though the merger had occurred at the
beginning of fiscal year 1997:
Year Ended
December 31,
1999 1998 1997
------------------------------------
Net sales:
Veeco $246,606 $214,985 $223,410
CVC 82,915 68,173 62,588
-------- -------- --------
Combined $329,521 $283,158 $285,998
======== ======== ========
Net income:
Veeco $ 20,410 $ 13,373 $ 26,616
CVC 1,571 264 2,045
-------- -------- --------
Combined $ 21,981 $ 13,637 $ 28,661
======== ======== ========
Prior to the merger, CVC's fiscal year end was September 30. Therefore, the
second quarter and first half Consolidated Statements of Income for 1999 were
derived from CVC's three months
9
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 2 - CVC MERGER AND RELATED NON-RECURRING CHARGES (CONTINUED)
and six months ended March 31, 1999, respectively. In addition, the December 31,
1999 Consolidated Balance Sheet was derived from CVC's September 30, 1999
balance sheet.
NOTE 3 - OTHER RECENT EVENTS
On March 23, 2000, the Company purchased certain atomic force microscope assets.
The acquisition was accounted for using the purchase method of accounting.
Results of operations prior to the acquisition are not material to the
Consolidated Statements of Income for the three and six months ended June 30,
2000 and 1999.
On February 11, 2000, Veeco entered into a strategic alliance with Seagate
Technology, Inc. ("Seagate") under which Veeco assumed production responsibility
for Seagate's internal Slider Level Crown ("SLC") product line and acquired
rights to commercialize such products for sale to third parties. The acquisition
was accounted for using the purchase method of accounting. Results of operations
prior to the acquisition are not material to the Consolidated Statements of
Income for the three and six months ended June 30, 2000 and 1999.
On January 31, 2000, Monarch Labs, Inc. ("Monarch"), a developer and
manufacturer of automated quasi-static test systems for the data storage
industry, merged with a subsidiary of Veeco. Monarch was a privately held
company located in Longmont, Colorado. Under the terms of the merger, Monarch
shareholders received 282,224 shares of Veeco Common Stock. The merger was
accounted for as a pooling of interests transaction, however, as Monarch's
historical results of operations and financial position are not material in
relation to those of Veeco, financial information prior to the merger is not
restated.
NOTE 4 - INVENTORIES
Interim inventories have been determined by lower of cost (principally first-in,
first-out) or market. Inventories consist of:
June 30, December 31,
2000 1999
------ ------
(In thousands)
Components and spare parts $54,410 $49,609
Work-in-progress 19,476 21,736
Finished goods 12,758 14,531
------- -------
$86,644 $85,876
======= =======
10
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 5 - BALANCE SHEET INFORMATION
June 30, December 31,
2000 1999
-------- ------------
(In thousands)
Allowance for doubtful accounts $ 2,902 $ 2,403
Accumulated depreciation and amortization
of property, plant and equipment $42,869 $34,115
Accumulated amortization of excess of cost
over net assets acquired $ 1,711 $ 1,335
SHORT-TERM INVESTMENTS
The carrying amounts of available-for-sale securities approximate fair value.
The following is a summary of available-for-sale securities:
June 30, December 31,
2000 1999
-------- -----------
(In thousands)
Commercial paper $14,704 $19,047
Municipal bonds 18,529 14,527
Floating rate bonds 7,933 9,029
Corporate bonds 6,839 6,071
Obligations of U.S. Government agencies 2,004 2,003
Other debt securities 2,180 211
------- -------
$52,189 $50,888
June 30, December 31,
2001 2000
---- ----
(In thousands)
Commercial paper $ 5,578 $15,730
Obligations of U.S. Government agencies 22,016 4,404
Other debt securities 35 4,054
Municipal bonds -- 2,707
------- -------
$27,629 $26,895
======= =======
All investments at June 30, 20002001 have contractual maturities of one year or
less. During the six months ended June 30, 2000,2001, available-for-sale securities
with fair values at the date of sale of approximately $27.3$40.4 million were sold.
11INVENTORIES
Interim inventories have been determined by lower of cost (principally first-in,
first-out) or market. Inventories consist of:
June 30, December 31,
2001 2000
---- ----
(In thousands)
Raw materials $ 66,915 $ 60,281
Work-in-progress 40,651 23,703
Finished goods 27,392 16,078
-------- --------
$134,958 $100,062
======== ========
OTHER BALANCE SHEET INFORMATION
June 30, December 31,
2001 2000
---- ----
(In thousands)
Allowance for doubtful accounts $ 2,229 $ 2,116
Accumulated depreciation and amortization
of property, plant and equipment $44,949 $38,801
9
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 63 - SEGMENT INFORMATION
The following represents the reportable product segments of the Company, in
thousands:
Unallocated
Non-
Process Industrial Corporate recurringNon-recurring
Equipment Metrology Equipment Measurement Amount Charges Total
--------- --------- ----------- ------ ------- ------ ----------------------------------------------------------------------------------------------------------------
THREE MONTHS
ENDED
JUNE 30, 20002001
Net sales $ 43,13073,245 $ 47,63838,850 $ 2,811 $1,360 -- -- $ -- $ 93,579113,455
Operating income
(loss) 8,426 1,673 (565) (1,748) (33,000) (25,214)12,007 5,759 (805) (1,253) (1,000) 14,708
THREE MONTHS
ENDED
JUNE 30, 19992000
Net sales $ 25,464 $ 47,352 $ 4,276 $57,712 41,801 2,811 -- $ -- $ 77,092102,324
Operating income
(loss) 4,693 8,434 (256) (1,022)4,615 7,734 (542) (1,748) (33,000) (22,941)
SIX MONTHS ENDED
JUNE 30, 2001
Net sales 153,542 83,937 3,244 -- 11,849-- 240,723
Operating income
(loss) 28,210 12,385 (1,381) (4,470) (1,000) 33,744
Total assets 183,599 102,962 7,179 148,572 442,312
SIX MONTHS ENDED
JUNE 30, 2000
Net sales 74,017 91,915 5,537112,887 70,733 5,535 -- -- 171,469189,155
Operating income
(loss) 13,802 1,293 (1,026) (2,667)11,251 11,828 (940) (2,674) (33,250) (21,848)(13,785)
Total assets 99,507 170,308$170,567 $ 99,697 $ 11,368 79,551$ 88,395 -- 360,734
SIX MONTHS
ENDED
JUNE 30, 1999
Net sales 56,436 85,400 9,795 -- -- 151,631
Operating income
(loss) 11,406 13,232 (262) (2,429) -- 21,947
Total assets 67,874 124,261 15,731 92,328 -- 300,194$ 370,027
NOTE 74 - COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was ($15.7)$9.7 million and ($13.6)$21.7 million for the
three and six months ended June 30, 2000,2001, and $7.2($14.5) million and $12.5($27.3)
million for the three and six months ended June 30, 1999,2000, respectively. Other
comprehensive income is comprised of foreign currency translation adjustments,
minimum pension liability and net unrealized holding gains and losses on
available-for-sale securities.
1210
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 85 - NEW STAFF ACCOUNTING BULLETINRECENT EVENTS
On December 3, 1999,July 16, 2001, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition"Company acquired ThermoMicroscopes Corp. ("SAB 101"TM")., a
manufacturer of atomic force microscopes, scanning probe microscopes, near field
optical microscopes and probes. TM, formerly a subsidiary of Thermo Electron
Corporation, is based in Sunnyvale, California. The SEC Staff addresses several issues in SAB
101, includingacquisition was accounted
for using the timingpurchase method of accounting. Results of operations prior to the
acquisition are not material to the Condensed Consolidated Statements of
Operations for recognizing revenue derived from sales
arrangements involving contractual customer acceptance provisions where
installationthe three and six months ended June 30, 2001.
On April 19, 2001, the Company entered into a new revolving credit facility (the
"Facility"), which replaces the Company's prior $40 million revolving credit
facility. The Facility provides the Company with up to $100 million of
availability. The Facility's interest rate is the prime rate of the product occurslending
banks and is adjustable to a maximum rate of 1/4% 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 Facility has a term of four
years and borrowings under the Facility may be used for general corporate
purposes, including working capital and acquisitions. The Facility contains
certain restrictive covenants, which among other things, impose limitations with
respect to incurrence of indebtedness, limitation on the payment of dividends,
long-term leases, investments, mergers, consolidations and sales of assets. The
Company is also required to satisfy certain financial tests. As of June 30,
2001, no borrowings were outstanding under the Facility.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years beginning after
shipmentDecember 15, 2001. Under the new rules, goodwill and transferother intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. In addition,
Statement 141 eliminates the pooling-of-interests method of title.accounting for
business combinations, except for qualifying business combinations that were
initiated prior to July 1, 2001.
The Company's current policyCompany will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to recognize revenue at the time the customer takes
title to the product, generally at the time of shipment. Applying the
requirements of SAB No. 101 to the present selling arrangements used by the
Company may result in a changedecrease
in the Company's accounting policy for revenue
recognition and the deferralamortization expense in 2002 of approximately $1.6 million. In addition, any
goodwill recorded as a result of the recognitionacquisition of revenue or a portionTM will not be amortized in
2001 in accordance with Statement 142. During 2002, the Company will perform the
first of the revenue derived from the sale until installation is completerequired impairment tests of goodwill and the product is
accepted by the customer. Based on current SEC guidance,indefinite lived
intangible assets as of January 1, 2002. The Company has not yet determined what
the effect of these tests will be on earnings and the financial position of the
Company.
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended
11
by SFAS No. 138, "Accounting for Certain Derivative Instruments and Hedging
Activities -- An Amendment of FASB Statement No. 133." SFAS No. 133 requires
that all derivatives, including foreign currency exchange contracts, be
recognized on the balance sheet at fair value, which is recorded through
earnings. If a derivative is a qualifying hedge, depending on the nature of the
hedge, changes in the fair value of the derivative are either offset against the
change will bein fair value of the underlying assets or liabilities through earnings or
recognized as a cumulative effectin accumulated comprehensive income until the underlying hedged item
is recognized in earnings. The ineffective portion of a derivative's change in
accountingfair value is to be immediately recognized in earnings.
During the Company's fourth quarter ending December 31, 2000. Management is currently
evaluatingsix months ended June 30, 2001, the Company used derivative financial
instruments to minimize the impact of this changeforeign exchange rate changes on earnings
and believes that,cash flows. In the normal course of business, operations are exposed to
fluctuations in foreign exchange rates. In order to reduce the periodeffect of
adoption,fluctuating foreign currencies on short-term foreign currency-denominated
intercompany transactions and other known foreign currency exposures, the
amountCompany enters into monthly forward contracts (which during the six months ended
June 30, 2001 included all of revenue that will be deferred could be material.
13the Company's foreign subsidiaries). The Company
does not use derivative financial instruments for trading or speculative
purposes. The Company's forward contracts do not subject it to material risks
due to exchange rate movements because gains and losses on these contracts
offset exchange gains and losses on the underlying assets and liabilities; both
the forward contracts and the underlying assets and liabilities are
marked-to-market through earnings. For the three and six months ended June 30,
2001, approximately $62,000 and $991,000, respectively, of realized gains on
forward exchange contracts were recorded and included in other expense, net. As
of June 30, 2001, approximately $767,000 of gains related to forward contracts
are included in prepaid expenses and other current assets and have been
subsequently received in July 2001. As of June 30, 2001, there were no open
forward contracts.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS.
THREE MONTHS ENDED JUNE 30, 20002001 AND 19992000
Net sales of $93.6$113.5 million for the three months ended June 30, 2000
represents2001, represent
an increase of 21%$11.2 million, or 11%, from the 19992000 comparable period sales of
$77.1$102.3 million, resulting principally from an increase in metrology sales.sales of process
equipment products. Sales in the U.S., Europe, Japan and Asia Pacific, accounted
for 45%57%, 20%11%, 15%23% and 20%9%, respectively, of the Company's net sales for the three
months ended June 30, 2000.2001. Sales in the U.S. decreased 6%increased 36% from the comparable
19992000 period due to a 10% and 69% decrease40% increase in U.S. process equipment and industrial
measurement sales, respectively, partially offset by a 21%resulting
from an increase in U.S.
metrology sales.optical telecommunications sales for Veeco's Ion Tech
subsidiary. Sales in Europe Japan and Asia Pacific increased 76%, 19%decreased 29% and 151%39%,
respectively. The increasedecrease in Europe is principally a result of higherlower sales in
both theof
process equipment and metrology segments, as well as Veeco's CVC
subsidiary, which did not commence salesproducts. The decrease in Europe until the third quarter of
1999. The increase in Japan and Asia Pacific is principally a result
of a decline in sales of optical metrology products, partially offset by
increased process equipment sales. Sales in Japan increased 31% from the 2000
comparable period due to an
increaseincreases in both process equipment and metrology
sales. The Company believes that there will continue to be quarter-to-quarter
variations in the geographic concentration of sales.
Process equipment sales of $47.6$73.2 million for the three months ended June 30,
2001, increased by $15.5 million, or 27%, over the comparable 2000 remained relatively flat comparedperiod. The
above noted increase in process equipment is due to increased sales to the
1999 period.optical telecommunications industry, which were partially offset by decreased
sales to the data storage industry. Metrology sales of $43.1$38.9 million for the
three months ended June 30, 2000 represents an increase2001, represent a slight decrease of approximately
$17.7$3 million, or 69%7%, from the 19992000 comparable period sales of $25.5 million, due$41.8 million. The
decrease is primarily attributable to lower sales of optical metrology products
in the 2001 period, offset partly by increased sales of the Company's atomic
force microscopesmicroscope (AFM) to the semiconductor market and optical metrology products to the data
storage market. Industrial measurement sales of $2.8 million for the three
months ended June 30, 2000 represents a decrease of $1.5 million, or 34%, from
the comparable 1999 period, principally due to the sale on January 17, 2000 of
the Company's leak detection business.products.
Veeco received $132.4$81.5 million of orders during the three months ended June 30,
2000,2001, a 65% increase38% decrease compared to $80.5$132.4 million of orders for the comparable
19992000 period. Process equipment orders increased 62%decreased 52% to $83.6$40.1 million, due
primarily to an increasea decline in orders from both optical telecommunications and data storage customers.
Veeco's Ion Tech subsidiary had an increasea decrease of $27.0$30.0 million, or 227%77%, in orders
for Dense Wave Division Multiplexing (DWDM) related equipment.from the comparable 2000 period. Etch and deposition equipment orders increased 12%decreased
30% to $44.6$31.2 million from $39.8$44.6 million for the comparable 19992000 period.
Metrology orders increaseddecreased by 82%13% to $46.2$40.2 million, reflecting ana decrease in
orders for optical metrology products, partially offset by a 12% increase in bookings for atomic force microscopes
and optical metrology products.AFM
orders. The Company's book/bill ratio for the second quarter of 20002001 was 1.41.
In connection with the merger with CVC, the Company incurred non-recurring
charges of $33.0 million, of which a $15.3 million non-cash charge or 16.4% of
net sales related to the write-off of inventory, which has been included in
cost of sales. As a result, gross profit for0.72.
For the three months ended June 30, 20002001, the Company experienced order
cancellations, primarily for products related to the optical telecommunications
market, representing approximately 7% of $26.7 million represents a decreasethe June 30, 2001 backlog. The Company
also experienced rescheduling of $9.6 million fromorder delivery dates by customers. Due to the
comparable 1999 period.weak business environment, the Company may continue to experience cancellation
or rescheduling of orders.
13
Gross profit, excluding non-recurring charges, as a percentage of net sales decreasedincreased to 44.9%47.2%, from 47.1%28.3% for
the comparable 1999 period, principally due2000 period. Excluding a non-cash charge of $15.3 million in June
2000, for the write-off of inventory related to a decline in the data storage process
equipment area primarily attributable to the decrease in etch and deposition
equipment
14
sales, pricing pressure and underutilized overhead structure. As a result
of the merger with CVC Inc.
("CVC"), gross profit was 43.3%. This improvement results in part from the
Company closed CVC's Virginia facility, which
was duplicativevolume increase in Ion Tech sales, partially offset by the volume decline in
optical metrology sales. In addition, gross margin improved due to its New York operations. This action will resultoverhead
spending reductions in the process equipment area as well as a lower
overhead cost structure.more favorable
mix in optical metrology products.
Research and development expenses of $14.1$15.4 million for the three months ended
June 30, 20002001, increased by approximately $4.2$1.3 million, or 42%10%, over the
comparable period of 1999,2000, due primarily to the increase in researchCompany's development of next
generation products for AFMs and development for both process equipment and metrology products, as well as
product development in the newly acquired metrology businesses of OptiMag,
Monarch, the atomic force microscope business and the slider crown adjust
product line.Ion Tech tools.
Selling, general and administrative expenses of $19.2$21.3 million for the three
months ended June 30, 20002001, increased by approximately $4.3$2.1 million to 20.5% of
net sales infrom the
2000 from 19.3% in 1999. This increase is principallycomparable period due to an increase in selling related expenses,
principally as a result of the expansionincreased sales volume.
During the three months ended June 30, 2001, the Company recorded a
restructuring charge of direct sales$1.0 million related to the workforce reduction of
approximately 130 people, as a result of the slowdown in orders. As of June 30,
2001, approximately $230,000 has been expended and service presence in both Japan andapproximately $770,000
remains accrued. During the Asia
Pacific regions, as well as the purchase of OptiMag, the slider crown adjust
product line and the atomic force microscope business, which had no comparable
operating spending in 1999 since they were accounted for using the purchase
method of accounting.
In conjunction with the merger with CVC,three months ended June 30, 2000, Veeco incurred
non-recurring charges of $33.0 million.million, in conjunction with the merger with CVC.
Of these charges, a $15.3 million non-cash charge related to a write-off of
inventory (included in cost of sales), $14.0 million represented merger and
reorganization costs (of which $9.2 million related to transaction costs and
$4.8 million pertained to duplicate facility and personnel costs) and $3.7
million was for the write-down of long-lived assets.
Income taxes for the three months ended June 30, 20002001, amounted to a $9.8$5.1 million,
tax benefit, or 39%34% of lossincome before income taxes, as compared to $4.4an $8.8 million tax
benefit, or 38% of income tax expense, or 37% of incomeloss before income taxes, for the same period of 1999.2000.
Effective January 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which resulted in a charge to
income for the cumulative effect of change in accounting principle. The Company
recognized approximately $15.3 million in revenue during the three months ended
June 30, 2000, that was included in the cumulative effect adjustment. The effect
of that revenue was to increase second quarter income by $3.8 million (net of
income taxes of $2.7 million).
Quarterly information, previously filed on Form 10-Q, for the three months ended
June 30, 2000, has been restated due to the adoption of SAB 101. The adoption of
SAB 101 had the effect of increasing net sales and decreasing the net loss for
the second quarter of 2000 by $8.7 million and $1.2 million, respectively, and
basic and diluted earnings per share increased by $0.05.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER
14
INTANGIBLE ASSETS, effective for fiscal years beginning after December 15, 2001.
See footnote 6 to Condensed Consolidated Financial Statements for additional
disclosure.
SIX MONTHS ENDED JUNE 30, 20002001 AND 19992000
Net sales were $171.5$240.7 million for the six months ended June 30, 20002001,
representing an increase of approximately $19.8$51.6 million, or 13%27%, over the
comparable 19992000 period. The increase principally reflects growthis primarily due to an increase in process
equipment and metrology sales.Ion Tech
sales of $49.2 million. Sales in the US,U.S., Europe, Japan and Asia Pacific
accounted for 44%58%, 12%, 21%, 17% and 17%9%, respectively, of the Company's net sales for
the six months ended June 30, 2000.2001. Sales in the US and Japan remained
relatively flat from the comparable 1999 period, whileU.S. increased by 64%,
principally as a result of increased process equipment sales to Europe and Asia
Pacific increased 72% and 36%, respectively. The increase in sales in Europe is
due primarily toof optical
telecommunications equipment for Veeco's CVCIon Tech subsidiary, which did not commence sales to Europe
until the third quarter of 1999, andas well as an
increase in sales of Veeco's metrology
products. TheAFMs. Sales in Europe remained relatively flat when
compared to the comparable 2000 period. Sales in Japan increased by 12% as a
result of an increase in sales inAFM sales. Asia Pacific resulted fromsales decreased by 25% as a
48% increaseresult of a 65% decline in optical metrology sales, partially offset by
a decline of 30% in process equipmentincreased Ion Tech sales.
Process equipment sales were $91.9$153.5 million for the six months ended June 30,
2000,2001, an increase of approximately $6.5$40.7 million, or 8%36%, from the comparable
19992000 period, due to an increase in sales of Ion Tech's DWDM related
equipment,Tech products, partially offset
by a decline in etch and deposition sales. Metrology sales for the six months
ended June 30, 20002001 were $74.0
15
$83.9 million, an increase of approximately $17.6$13.2
million, or 31%19%, compared to the comparable 19992000 period, reflecting a 46% increase in optical metrology products
from the newly acquired metrology businesses of OptiMag, Monarch and the slider
crown adjust product line, as well as a 22%56%
increase in the sales of atomic
force microscopes. Industrial measurement sales for the six months ended June
30, 2000 were $5.5 million,AFMs, offset by a decrease of 43% from the comparable 1999 period
principally due to the sale on January 17, 2000 of the Company's leak detection
business.31% decline in optical metrology
sales.
Veeco received $243.6$194.3 million of orders for the six months ended June 30, 2000,2001,
a 40% increase20% decrease compared to $174.1$243.6 million of orders in the comparable 19992000
period. Process equipment orders increased 24%decreased 22% to $144.2$113.0 million, principally
reflecting an increasea decrease in optical telecommunications bookings.orders. Metrology orders
increased 86%decreased 17% to $93.6$77.4 million, reflecting a 148% increase51% decrease in optical metrology
products, as well as anoffset by a 10% increase in atomic force microscopes.AFMs. The book/bill ratio for the six
months ended June 30, 20002001 was 1.42.
In connection with the merger with CVC, the Company incurred non-recurring
charges of $33.0 million, of which a $15.3 million non-cash charge or 8.9% of
net sales related to the write-off of inventory, which has been included in
cost of sales. As a result, gross profit for the six months ended June 30,
2000 of $61.3 million represents a decrease of $10.0 million from the
comparable 1999 period.0.81.
Gross profit, excluding the non-recurring charges, as a percentage of net sales decreasedincreased to 44.7% for 200046.9%, from 47.0 %36.7% for
the comparable 1999 period, principally due2000 period. Excluding a non-cash charge of $15.3 million in June
2000, for the write-off of inventory related to a decline in the data storage
process equipment area primarily attributable to the decrease in etch and
deposition equipment sales, pricing pressure and underutilized overhead
structure. As a result of the merger with CVC, gross
profit was 44.8%. This improvement is principally attributable to the Company closed CVC's
Virginia facility, which was duplicative to its New York operations. This
action will resultvolume
increase in a lower overhead cost structure.Ion Tech and AFM sales.
Research and development expenses of $27.4$31.1 million for the six months ended June
30, 2000 increased by2001, represent an increase of approximately $7.8$3.7 million, or 39%14%, over the
comparable period of 1999,2000, due primarily to expenditures in connection with the
continued investment indevelopment of new products for the Ion Tech and technology, particularly in the process equipment area.AFM metrology product areas.
Selling, general and administrative expenses were $36.3of $43.0 million or 21.2% of net
sales for the six months
ended June 30, 2000, as compared to $29.92001, represent an increase of approximately $6.7 million, or
19.7%18%, over the comparable 2000 period. The increase is due to increased selling
and commission expense as a result of increased sales volume, primarily related
to the Ion Tech and AFM product lines. As a percentage of sales, selling,
general and administrative expenses decreased to 17.9% of net sales in 1999. This increase was principally due to the expansion
of direct sales2001 from
19.2% in 2000.
15
The Company recorded merger and service presence in both Japan and the Asia Pacific regions
as well as the purchase of OptiMag, the slider crown adjust product line and the
atomic force microscope business, which had no comparable operating spending in
1999 since they were accounted for using the purchase method of accounting.
Inrestructuring charges during the six months
ended June 30, 2001 and 2000 as discussed previously under the Company recorded $33.25 million of
non-recurring charges. In addition to the $33.0 million charge in conjunction
with the CVC merger, Veeco also recorded merger expenses of $0.25 million inthree-month
results.
Other expense, net for the six months ended June 30, 2001, increased $1.6
million over the comparable 2000 representing transaction and other costs
relatedperiod due to the merger with Monarch Labs, Inc.
16
increase in foreign currency
exchange losses.
Income taxes for the six months ended June 30, 20002001, amounted to an $8.5$12.0 million,
tax benefit, or 40%34% of lossincome before income taxes, as compared to $8.2a $5.2 million of income tax
expense,benefit, or 37%39% of incomeloss before income taxes, for the same period of 1999.2000.
As noted above, the Company changed its method of accounting for revenue
recognition in accordance with SAB No. 101. The cumulative effect of this change
on prior years resulted in the deferral of $67.0 million of revenue and a charge
to income of $18.4 million (net of income taxes of $12.6 million) recorded as of
January 1, 2000, and is included in the Consolidated Statement of Operations for
the six months ended June 30, 2000. The Company recognized approximately $53.0
million of this deferred revenue during the six months ended June 30, 2000. The
effect of that revenue was to increase income in the first half of 2000 by $14.7
million (net of income taxes of $10.1 million).
Results for the six months ended June 30, 2000, previously filed on Form 10-Q,
have been restated due to the adoption of SAB 101. The adoption of SAB 101 had
the effect of increasing net sales by $17.7 million for the first half of 2000.
Net loss for the first half of 2000 increased by $13.7 million, and basic and
diluted loss per share increased by $0.59.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used inprovided by operations totaled $22.9$8.4 million for the six months ended
June 30, 20002001, compared to cash provided byused in operations of $18.7$22.9 million for the
comparable 19992000 period. This changeCash provided by operations in 2001 includes adjustments
to reconcile net income to net cash used in operations reflectsprovided principally from net income plus
non-cash charges for depreciation and amortization, deferred income taxes and a
stock option income tax benefit aggregating $41.5 million, plus a decrease in
net income for the 2000 period of $26.6 million from the
comparable 1999 period, along with the use of cash for changes in operating
assetsaccounts receivable and liabilities. Accounts payable increased by $6.7 million, while
increasing $1.8 million in the comparable 1999 period. Thean increase in accounts payable reflects the increaseof $8.9 million and $0.4
million, respectively. These items were partially offset by a decrease in
volume for the six months ended
June 30, 2000. Accruedaccrued expenses, deferred gross profit and other current liabilities decreased by
$4.4of $4.6
million and an increase in inventories of $35.8 million during the six months
ended June 30, 2001. Accounts receivable decreased due to a slight decline in
sales volume from the fourth quarter of 2000 while increasing $9.0
million during the comparable 1999 period.and improved customer collections.
The decrease in accrued expenses, deferred gross profit and other current
liabilities is due primarily to a decrease in deferred revenue relating to the
paymentimpact of income
taxes,SAB 101, partially offset by accrued merger and reorganization costs, primarily for CVC.
Accounts receivable increased by $20.3 million during six months ended June
30, 2000, while increasing $4.8 million during the comparable 1999 period.
Thean increase in accounts receivable in 2000 is due to the increased sales
volume in 2000, as well as slower payment by certain data storage and
international customers.customer deposits.
Inventories increased by $9.1$35.8 million, due primarily to rescheduled shipments,
the increase in purchasesimpact of inventory related to increases in both metrologySAB 101 and optical telecommunications process equipment sales. As a result of the merger
and reorganization costs incurred in connection with the CVC merger, the
Company anticipates a refund of income taxes of approximately $9.5 million.new product production. Net cash used in operations
for the six months ended June 30, 2000 also included operating activities for the
three months ended December 31, 1999, related to CVC. Prior to the merger, CVC's
fiscal year end was September 30.
Net cash used in investing activities for the six months ended June 30, 20002001,
totaled $17.7$17.3 million compared to $5.7$17.7 million for the comparable 19992000 period.
Cash used in 20002001 consisted
16
of $11.9$9.1 million of capital expenditures partially
offset by $3.0 million of proceeds from the sale of the leak detection business.expenditures. The Company also expended approximately $7.2$7.5 million
for the purchase ofnet assets of businesses acquired, businesseswhich included a $6.3 million payment
of contingent consideration to the former shareholders of OptiMag, based upon
year 2000 sales and approximately $1.3the appraised value of OptiMag and a $1.2 million forpayment to
the purchase of
short-term investmentsseller in 2000. Netconnection with the atomic force microscope acquisition. Included
in the net cash used in investing activities for the six months ended June 30,
2000 also includedis investing activities for the three months ended December 31, 1999,
related to CVC.
Prior to the merger, CVC's fiscal
year end was September 30.
Net cash provided by financing activities for the six months ended June 30,
20002001, totaled $23.9$1.5 million, compared to $55.1$23.9 million for the comparable 19992000
period. Cash provided by financing activities in 20002001 consisted of $17.0 million of
proceeds from borrowings under the Company's revolving credit facilities, as
well as proceeds of
$11.9$2.4 million from stock issuances upon exercise of stock options, partially offset by $8.6$0.8
million of debt repayments. Net cash provided by financing activities for the
six months ended June 30, 2000 also included financing activities for the three
months ended December 31, 1999, related to CVC.
PriorIn connection with the acquisition of TM, the Company expended approximately
$22.0 million in July 2001.
On April 19, 2001, the Company entered into a new revolving credit facility (the
"Facility"), which replaces the Company's prior $40 million revolving credit
facility. The Facility provides the Company with up to the merger, CVC's fiscal year end was September 30.
17
$100 million of
availability. The Company has an unsecured $40.0 million Credit Facility (the "Credit
Facility") which may be used for working capital, acquisitions and general
corporate purposes. The Credit Facility bearsFacility's interest atrate is the prime rate of the lending
banks but such rate may be increasedand is adjustable to a maximum rate of .25%1/4% above the prime rate in the
event the Company's ratio of debt to cash flow exceeds a defined ratio. A LIBOR-basedLIBOR
based interest rate option is also provided. The Facility has a term of four
years and borrowings under the Facility may be used for general corporate
purposes, including working capital and acquisitions. The Facility contains
certain restrictive covenants, which among other things, impose limitations with
respect to incurrence of indebtedness, limitation on the payment of dividends,
long-term leases, investments, mergers, consolidations and sales of assets. The
Company is also required to satisfy certain financial tests. As of June 30,
2000, there was $10.0 million2001, no borrowings were outstanding under the Credit Facility. In May
2000, thisCompany's credit facility was amended to allow for the recently completed CVC
merger. The Company's CVC subsidiary also has a $15.0 million line of credit.
Maximum borrowings under this line are based upon certain financial criteria and
are at an interest rate of prime. As of June 30, 2000, there was approximately
$7.0 million outstanding under this line.
In connection with the atomic force microscope acquisition, the Company will be
required to pay approximately $4.8 million of the purchase price to the seller,
due in four equal quarterly installments, with the final payment due on March
23, 2001.
In connection with the OptiMag acquisition, the Company agreed to purchase
approximately twenty-five percent of OptiMag's outstanding stock which it does
not already own on October 15, 2000 for approximately $1.2 million. In addition,
the Company will be required to pay consideration to the former shareholders of
OptiMag based upon both future sales and the future appraised value of OptiMag.
The consideration will be calculated based upon a predetermined percentage of
OptiMag's sales for the period from January 1, 2000 to December 31, 2000, as
well as the appraised fair market value of OptiMag, adjusted for certain items,
as of December 31, 2000.facility.
The Company believes that existing cash balances together with cash generated
from operations and amounts available under the Company's credit facilitiesFacility will be sufficient to
meet the Company's projected working capital and other cash flow requirements
for the next twelve months.
1817
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Veeco's investment portfolio consists of cash equivalents, corporate bonds,
commercial paper floating rate bonds,and
obligations of U.S. Government agencies and municipal bonds.agencies. These investments are considered
available-for-sale securities; accordingly, the carrying amounts approximate
fair value. Assuming June 30, 20002001 variable debt and investment levels, a
one-point change in interest rates would not have a material impact on net
interest expense.income. Veeco's net sales to foreign customers represented
approximately 55%43% and 56%42% of Veeco's total net sales for the three and six
months ended June 30, 2000,2001, respectively, and 42%54% and 49%55% for the three and six
months ended June 30, 1999,2000, respectively. The Company expects that net sales to
foreign customers will continue to represent a large percentage of Veeco's total
net sales. Veeco's net sales denominated in foreign currencies represented
approximately 8%12% and 9%14% of Veeco's total net sales for the three and six
months ended June 30, 2000,2001, respectively, and 8% and 9% for both the three and six
months ended June 30, 1999. The Company has not engaged in foreign
currency hedging transactions.2000, respectively. The aggregate foreign currency
exchange loss included in determining consolidated results of operations was
not material
during$272,000 and $1,733,000, net of $62,000 and $991,000 of realized hedging gains
in the three and six months ended June 30, 2000 and 1999.2001, respectively. The change in
currency exchange rate that has the largest impact on translating Veeco's
international operating profit is the Japanese yen. The Company estimates that a
10% change in foreign currency exchange rates would impact reported operating
profit for the six months ended June 30, 20002001 by approximately $1.1$2.0 million. The
Company believes that this quantitative measure has inherent limitations because
it does not take into account any governmental actions or changes in either
customer purchasing patterns or financing and operating strategies. 19Veeco is
exposed to financial market risks, including changes in foreign currency
exchange rates. To mitigate these risks, commencing in March 2001 the Company
began using derivative financial instruments. Veeco does not use derivative
financial instruments for speculative or trading purposes. The Company enters
into monthly forward contracts to reduce the effect of fluctuating foreign
currencies on short-term foreign currency-denominated intercompany transactions
and other known currency exposures. The average notional amount of such
contracts was approximately $5.2 million and $7.1 million for the three and six
months ended June 30, 2001, respectively.
18
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A specialThe annual meeting of stockholders of the Company was held on May 5, 2000 to11, 2001. The
matters voted on at the meeting were: (a) approve the issuanceelection of sharesfour directors: (i)
Heinz Fridrich, (ii) Roger McDaniel, (iii) Irwin Pfister and (iv) Douglas
Kingsley, (b) the approval of the Company's common stock in connection with
the merger of CVC, Inc. with a subsidiary of the Company and (b) to approve an amendment to the Veeco Instruments Inc. 2000
Stock Option Plan; and (c) the ratification of the Board's appointment of Ernst
& Young as the independent auditors of the Company's certificate of incorporation to increasefinancial statements for
the authorized shares of common stock from 25,000,000 shares to 40,000,000 shares.year ending December 31, 2001. As of the record date for the meeting, there
were 18,137,39024,684,684 shares of common stock outstanding, each of which was entitled
to one vote with respect to each of the matters voted on at the meeting. The
results of the voting were as follows:
BROKER
MATTER FOR AGAINST ABSTAINED NON-VOTES
------ ---------- ------- --------- ---------
(a) 12,137,626 408,015 299,376 133,263
(b) 12,131,134 532,766 309,080 5,300
The annual meeting of stockholders of
Broker
Matter For Against Abstained Non-votes
- ------ --- ------- --------- ---------
(a)(i) 20,663,515 160,377 -- --
(a)(ii) 20,663,515 160,377 -- --
(a)(iii) 20,663,515 160,377 -- --
(a)(iv) 20,663,515 160,377 -- --
(b) 16,248,496 4,383,275 192,121 --
(c) 20,749,304 72,128 2,460 --
ITEM 5. OTHER INFORMATION
On July 16, 2001, the Company acquired ThermoMicroscopes Corp. ("TM"), a
manufacturer of atomic force microscopes, scanning probe microscopes, near field
optical microscopes and probes. TM, formerly a subsidiary of Thermo Electron
Corporation, is based in Sunnyvale, California. The acquisition was held on May 12, 2000. The
matters voted on ataccounted
for using the meeting were: (a)purchase method of accounting. Results of operations prior to the
electionacquisition are not material to the Condensed Consolidated Statements of
two directors, (i)
Edward H. Braun and (ii) Richard A. D'Amore; (b) the adoption of the Veeco
Instruments Inc. 2000 Stock Option Plan; and (c) the appointment of Ernst &
Young LLP as the Company's auditorsOperations for the fiscal year ending December 31,
2000. As of the record date for the meeting, there were 18,137,390 shares of
common stock outstanding, each of which was entitled to one vote with respect to
each of the matters voted on at the meeting. The results of the voting were as
follows:
BROKER
MATTER FOR AGAINST ABSTAINED NON-VOTES
------ ---------- ------- --------- ---------
(a)(i) 13,435,618 104,244 -- --
(a)(ii) 13,435,618 104,244 -- --
(b) 7,931,572 918,177 24,410 4,665,703
(c) 13,509,240 29,942 680 --
20three and six months ended June 30, 2001.
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS:
(a) Exhibits
Unless otherwise indicated, each of the following exhibits has been previously
filed with the Securities and Exchange Commission by the Company under File No.
0-16244.
INCORPORATED BY REFERENCE
NUMBER EXHIBIT TO THE FOLLOWING DOCUMENTSIncorporated by Reference
Number Exhibit to the Following Documents
- ------ ------- --------------------------
3.1 Amendment to Certificate of Incorporation of *
Veeco Instruments Inc. dated May 5, 2000
3.2 Seconded Amended and Restated Bylaws of Veeco *
Instruments Inc. effective May 5, 2000
10.1 Amendment No. 4 to Credit Agreement, dated MayApril 19, *
4, 2000 between2001 among Veeco Instruments Inc.,
Fleet National Bank, N.A. andas
administrative agent, The Chase
Manhattan Bank.Bank, as syndication
agent, HSBC Bank USA, as
documentation agent and the lenders
named therein
10.2 Employment Agreement dated as of April 3, 2000 *
between Edward H. Braun andAmendment No. 1 to Veeco Instruments
Inc.
10.3 Employment Agreement dated as of February 29, Registration Statement on Form S-4
2000 between Christine B. Whitman and Veeco (File No. 33-32608), filed March 15, 2000,
Instruments Inc. Exhibit 10.3
10.4 Employment Agreement dated as of April 3, 2000 *
between John F. Rein, Jr. and Veeco Instruments
Inc.
10.5 Veeco
Instruments Inc. 2000 Stock Option Plan Current Report on Form 8-K filed May 9, 2000,
Exhibit 10.1
10.6 CVC, Inc. 1999 Non-employee Directors' Stock Registration Statement on Form S-8 (File Number Option333-66574)
Plan, 333-36348)effective May 11, 2001 filed May 5, 2000,August 2, 2001, Exhibit
4.1
10.7 CVC, Inc. Amended and Restated 1997 Stock Registration Statement on Form S-8 (File Number
Option Plan 333-36348) filed May 5, 2000, Exhibit 4.2
21
INCORPORATED BY REFERENCE
NUMBER EXHIBIT TO THE FOLLOWING DOCUMENTS
- ------ ------- --------------------------
10.8 Amended and Restated (1996) Stock Option Plan Registration Statement on Form S-8 (File Number
of CVC, Inc. (formerly, CVC Holdings, Inc.) 333-36348) filed May 5, 2000, Exhibit 4.3
10.9 Form of Commonwealth Scientific Corporation Registration Statement on Form S-8 (File Number
Non-Qualified Stock Option Agreement 333-36348) filed May 5, 2000, Exhibit 4.4
10.10 Stock Option Agreement between CVC, Inc. Registration Statement on Form S-8 (File Number
(formerly CVC Holdings, Inc.) and Christine B. 333-36348) filed May 5, 2000, Exhibit 4.14
Whitman, effective December 21, 1990
10.11 Union Agreement dated October 31, 1998 between CVC, Inc. Registration Statement on Form S-1
CVC Products, Inc. and Local 342, International (File Number 333-38057) filed November 3, 1999,
Union of Electronic, Electrical, Salaried, Exhibit 10.42
Machine & Furniture Workers, AFL-CIO
10.12 Loan Agreement dated March 31, 1998 between CVC CVC, Inc. Registration Statement on Form S-1
Products, Inc. and Manufacturers and Traders (File Number 333-38057), Exhibits 10.44, 10.45,
Trust Company, including amendments thereto 10.46 and 10.47
dated September 30, 1998, February 19, 1999 and
September 22, 1999
10.13 Amendment No. 5 to Credit Agreement, dated *
May 4, 2000 between Veeco Instruments Inc.,
Fleet Bank N.A. and The Chase Manhattan Bank
27.1 Financial Data Schedule of Veeco Instruments *
Inc. for the quarterly period ended June 30,
2000
27.2 Financial Data Schedule of Veeco Instruments *
Inc. for the quarterly period ended June 30,
1999 (restated)
*Filed herewith.
(b) Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K on May 9, 2000 regarding
a revised version its 2000 Stock Option Plan.
The Registrant filed a Current Report on From 8-K on May 12, 2000 regarding
the completion of its merger with CVC, Inc.
22None.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: AUGUST 14, 2000
--------------August 8, 2001
Veeco Instruments Inc.
By: /s/ EDWARDEdward H. BRAUN
-----------------------Braun
---------------------------------
Edward H. Braun
Chairman, and Chief Executive Officer and
President
By: /s/ JOHNJohn F. REIN, JR.
-----------------------Rein, Jr.
---------------------------------
John F. Rein, Jr.
Executive Vice President,
Finance,
Chief Financial Officer Treasurer and Secretary
2321
EXHIBIT INDEX
EXHIBITS:
3.1 Amendment to CertificateUnless otherwise indicated, each of Incorporation of Veeco Instruments Inc. dated
May 5, 2000
3.2 Seconded Amendedthe following exhibits has been previously
filed with the Securities and Restated Bylaws of Veeco Instruments Inc. effective
May 5, 2000
10.1 AmendmentExchange Commission by the Company under File No.
4 to Credit Agreement, dated May 4, 2000 between Veeco
Instruments Inc., Fleet Bank N.A. and The Chase Manhattan Bank.
10.2 Employment Agreement dated as of April 3, 2000 between Edward H. Braun
and Veeco Instruments Inc.
10.4 Employment Agreement dated as of April 3, 2000 between John F. Rein, Jr.
and Veeco Instruments Inc.
10.13 Amendment No. 5 to Credit Agreement, dated May 4, 2000 between
Veeco Instruments Inc., Fleet Bank N.A. and The Chase Manhattan
Bank
27.1 Financial Data Schedule of Veeco Instruments Inc. for the quarterly
period ended June 30, 2000
27.2 Financial Data Schedule of Veeco Instruments Inc. for the quarterly
period ended June 30, 1999 (restated)0-16244.
Incorporated by Reference
Number Exhibit to the Following Documents
- ------ ------- --------------------------
10.1 Credit Agreement, dated April 19, *
2001 among Veeco Instruments Inc.,
Fleet National Bank, as
administrative agent, The Chase
Manhattan Bank, as syndication
agent, HSBC Bank USA, as
documentation agent and the lenders
named therein
10.2 Amendment No. 1 to Veeco Registration Statement on
Instruments Inc. 2000 Stock Option Form S-8 (File Number
Plan, effective May 11, 2001 333-66574) filed August
2, 2001, Exhibit 4.1
*Filed herewith.