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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 SEPTEMBERJUNE 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 ___
Approximately 24,534,700|_|
24,805,839 shares of common stock, $0.01 par value per share, were outstanding
as of the close of business on October 24, 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 and, where backlog exists, the potential inabilityrisk of the Company to increase production capacity to satisfy such backlog,cancellation or rescheduling of orders,
o the highly competitive nature of industries in which the Company operates,
o the impact of Staff Accounting Bulletin No. 101 on the Company's revenue
recognition policies, especially in the period of adoption, during which
the cumulative revenue deferral could be material,
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 Income -
Three Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Income -
Nine Months Ended September 30, 2000 and 1999 5
Condensed Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk 19PART 1. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 2001 and 2000 5
Condensed Consolidated Balance Sheets -
June 30, 2001 and December 31, 2000 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
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
SeptemberJune 30,
---------------------
2001 2000 1999
---- ----
Net sales $ 92,924113,455 $ 86,973102,324
Cost of sales 50,617 47,413
-------- --------59,951 73,329
--------- ---------
Gross profit 42,307 39,56053,504 28,995
Costs and expenses:
Research and development expense 13,115 11,70215,400 14,063
Selling, general and administrative expense 20,164 16,50121,289 19,158
Amortization expense 1,180 114881 976
Other expense, (income), net 496 (3)
In-process research226 61
Merger and development write-offrestructuring expenses 1,000 13,956
Asset impairment charge -- 1,174
-------- --------3,722
--------- ---------
Operating income 7,352 10,072(loss) 14,708 (22,941)
Interest income, net (407) (138)
-------- --------(397) (136)
--------- ---------
Income (loss) before income taxes 7,759 10,21015,105 (22,805)
Income tax provision 1,611 3,967
-------- --------(benefit) 5,105 (8,779)
--------- ---------
Net income (loss) $ 6,14810,000 $ 6,243
======== ========(14,026)
========= =========
Net income (loss) per common share $ 0.26 $ 0.300.40 ($0.60)
Diluted net income (loss) per common share $ 0.24 $ 0.290.40 ($0.60)
Weighted average shares outstanding 24,098 20,87424,767 23,463
Diluted weighted average shares outstanding 25,561 21,49925,215 23,463
SEE ACCOMPANYING NOTES.
4
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of IncomeOperations
(In thousands, except per share data)
(Unaudited)
NineSix Months Ended
SeptemberJune 30,
---------------------
2001 2000 1999
---- ----
Net sales $ 264,393240,723 $ 238,604189,155
Cost of sales 160,787 127,794127,935 119,792
--------- ---------
Gross profit 103,606 110,810112,788 69,363
Costs and expenses:
Research and development expense 40,523 31,35131,116 27,408
Selling, general and administrative expense 56,450 46,41742,979 36,286
Amortization expense 2,665 3532,317 1,485
Other expense, (income), net 536 (504)1,632 41
Merger and reorganizationrestructuring expenses 1,000 14,206 --
Asset impairment charge 3,722 -- In-process research and development write-off -- 1,1743,722
--------- ---------
Operating income (loss) income (14,496) 32,01933,744 (13,785)
Interest income, net (928) (199)(1,163) (521)
--------- ---------
(Loss) incomeIncome (loss) before income taxes (13,568) 32,21834,907 (13,264)
Income tax provision (benefit) provision (6,920) 12,15612,034 (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 ($6,648)(loss) $ 20,06222,873 $ (26,460)
========= =========
Net income (loss) income per common share ($0.28)before cumulative
effect of change in accounting principle $ 0.98
Diluted net0.93 $ (0.35)
Cumulative effect of change in accounting principle -- (0.79)
--------- ---------
Net income (loss) income per common share ($0.28) $ 0.950.93 $ (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)
========= =========
Weighted average shares outstanding 23,537 20,40024,722 23,253
Diluted weighted average shares outstanding 23,537 21,16025,222 23,253
SEE ACCOMPANYING NOTES.
5
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
SeptemberJune 30, December 31,
2001 2000 1999
---- ----
(Unaudited)
ASSETS
Current assets:Assets:
Cash and cash equivalents $ 51,64260,241 $ 29,85263,420
Short-term investments 52,945 50,88827,629 26,895
Accounts and trade notes receivable, net 80,118 79,95286,191 98,248
Inventories 94,512 85,876134,958 100,062
Prepaid expenses and other current assets 8,714 7,5079,467 8,307
Deferred income taxes 40,437 12,36336,769 45,303
-------- --------
Total current assets 328,368 266,438355,255 342,235
Property, plant and equipment at cost, net 60,609 61,29862,981 60,094
Excess of cost over net assets acquired, net 9,042 6,50013,437 9,481
Other assets, net 12,431 6,96010,639 11,473
-------- --------
Total assets $410,450 $341,196$442,312 $423,283
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:Liabilities:
Accounts payable 27,896 27,72333,325 33,134
Accrued expenses 53,763 37,706
Short-term borrowings from lines of credit 17,240 10,679
Notes payable to former Digital shareholders -- 8,000
Current portion of long-term debt 1,431 2,77358,990 56,093
Deferred gross profit 19,954 28,771
Other current liabilities 782 7,5803,399 3,774
-------- --------
Total current liabilities 101,112 94,461115,668 121,772
Long-term debt, net of current portion 14,957 17,25213,960 14,631
Other non-current liabilities 5,547 5,5393,845 3,972
Shareholders' equity 288,834 223,944308,839 282,908
-------- --------
Total liabilities and shareholders' equity $410,450 $341,196$442,312 $423,283
======== ========
SEE ACCOMPANYING NOTES.
6
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
NineSix Months Ended
SeptemberJune 30,
--------
OPERATING ACTIVITIES 2001 2000 1999
---- ----
OPERATING ACTIVITIES
Net income (loss) income ($6,648) $20,062$ 22,873 $(26,460)
Adjustments to reconcile net income (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 11,594 7,0788,501 7,493
Deferred income taxes (28,095) 248
Other, net (39) (416)
Asset impairment charge 3,722 --
Write-off of CVC inventory 15,322 --8,316 1,193
Stock option income tax benefit 28,452 1,025
In-process research and development write-off1,812 5,576
Other, net 2 (21)
Asset impairment charge -- 1,1743,722
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 (4,825) (18,364)8,935 (20,316)
Inventories (16,065) (2,423)(35,798) (9,136)
Accounts payable 1,737 (1,968)353 6,720
Accrued expenses, deferred gross profit and other current
liabilities 6,004 7,749(4,555) (18,019)
Other, net (2,030) 1,472
Recoverable income taxes (3,500) -- Other, net (1,462) (1,912)(9,487)
Operating activities three months ended 12/31/99-99 - CVC -- 638
--
------- --------------- --------
Net cash provided by (used in) operating activities 6,835 12,2538,409 (22,921)
INVESTING ACTIVITIES
Capital expenditures (14,140) (11,501)(9,083) (11,923)
Proceeds from sale of property, plant and equipment 495 3,429
Proceeds from sale11 230
Payment of leak detection business 3,000 --
Payment for net assets of businesses acquired (11,433) --(7,529) (7,177)
Net purchases of short-term investments (2,058) (50,248)(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 (24,664) (58,320)(17,334) (17,693)
FINANCING ACTIVITIES
Proceeds from stock issuance 26,628 62,2342,358 11,886
Repayment of long-term debt, net (8,992) (7,888)(809) (8,570)
Net proceeds from borrowings under linesline of credit 17,240 1,607
Other -- (238)17,005
Financing activities three months ended 12/31/99- CVC -- 3,627
--
------- --------------- --------
Net cash provided by financing activities 38,503 55,7151,549 23,948
Effect of exchange rates on cash and cash equivalents 1,116 (761)
------- -------4,197 672
-------- --------
Net change in cash and cash equivalents 21,790 8,887(3,179) (15,994)
Cash and cash equivalents at beginning of period 63,420 29,852
23,599
------- --------------- --------
Cash and cash equivalents at end of period $51,642 $32,486
======= =======$ 60,241 $ 13,858
======== ========
SEE ACCOMPANYING NOTES.
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 ninesix months ended SeptemberJune 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
ninethree months and six months ended SeptemberJune 30, 2000 was antidilutive, and therefore
dilutive
earnings per share is not presented for such period.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 NineSix Months Ended
SeptemberJune 30, SeptemberJune 30,
2001 2000 19992001 2000 1999
---- ---- ---- ----
(In thousands) (In thousands)
Weighted average shares outstanding 24,098 20,874 23,537 20,40024,767 23,463 24,722 23,253
Dilutive effect of stock options and warrants 1,463 625448 -- 760500 --
------ ------ ------ ------
Diluted weighted average shares
outstanding 25,561 21,499 23,537 21,16025,215 23,463 25,222 23,253
====== ====== ====== ======
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 deposition equipment used in
8
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 2 - CVC MERGERBALANCE SHEET INFORMATION
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,
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, 2001 have contractual maturities of one year or
less. During the six months ended June 30, 2001, available-for-sale securities
with fair values at the date of sale of approximately $40.4 million were sold.
INVENTORIES
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 RELATED NON-RECURRING CHARGES (CONTINUED)SUBSIDIARIES
NOTE 3 - SEGMENT INFORMATION
The following represents the productionreportable product segments of disk drive head fabrication,the Company, in
thousands:
Unallocated
Process Industrial Corporate Non-recurring
Equipment Metrology Measurement Amount Charges Total
- ----------------------------------------------------------------------------------------------------------------
THREE MONTHS
ENDED
JUNE 30, 2001
Net sales $ 73,245 $ 38,850 $ 1,360 -- -- $ 113,455
Operating income
(loss) 12,007 5,759 (805) (1,253) (1,000) 14,708
THREE MONTHS
ENDED
JUNE 30, 2000
Net sales 57,712 41,801 2,811 -- -- 102,324
Operating income
(loss) 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 -- -- 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 112,887 70,733 5,535 -- -- 189,155
Operating income
(loss) 11,251 11,828 (940) (2,674) (33,250) (13,785)
Total assets $170,567 $ 99,697 $ 11,368 $ 88,395 -- $ 370,027
NOTE 4 - COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was $9.7 million and $21.7 million for the
three and six months ended June 30, 2001, and ($14.5) million and ($27.3)
million for the three and six months ended June 30, 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.
10
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 5 - RECENT EVENTS
On July 16, 2001, the Company acquired ThermoMicroscopes Corp. ("TM"), a
manufacturer of atomic force microscopes, scanning probe microscopes, near field
optical activemicroscopes and passive
componentsprobes. TM, formerly a subsidiary of Thermo Electron
Corporation, is based in Sunnyvale, California. The acquisition was accounted
for using the purchase method of accounting. Results of operations prior to the
acquisition are not material to the Condensed Consolidated Statements of
Operations for the three and MRAM devices.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 lending
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 conjunctionJune 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
December 15, 2001. Under the new rules, goodwill and other 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 accounting for
business combinations, except for qualifying business combinations that were
initiated prior to July 1, 2001.
The Company 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 result in a decrease
in amortization expense in 2002 of approximately $1.6 million. In addition, any
goodwill recorded as a result of the acquisition of TM will not be amortized in
2001 in accordance with Statement 142. During 2002, the Company will perform the
first of the required impairment tests of goodwill and 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 in fair value of the underlying assets or liabilities through earnings or
recognized in accumulated comprehensive income until the underlying hedged item
is recognized in earnings. The ineffective portion of a derivative's change in
fair value is to be immediately recognized in earnings.
During the six months ended June 30, 2001, the Company used derivative financial
instruments to minimize the impact of foreign exchange rate changes on earnings
and cash flows. In the normal course of business, operations are exposed to
fluctuations in foreign exchange rates. In order to reduce the effect of
fluctuating foreign currencies on short-term foreign currency-denominated
intercompany transactions and other known foreign currency exposures, the
Company enters into monthly forward contracts (which during the six months ended
June 30, 2001 included all of the 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, 2001 AND 2000
Net sales of $113.5 million for the three months ended June 30, 2001, represent
an increase of $11.2 million, or 11%, from the 2000 comparable period sales of
$102.3 million, resulting principally from an increase in sales of process
equipment products. Sales in the U.S., Europe, Japan and Asia Pacific, accounted
for 57%, 11%, 23% and 9%, respectively, of the Company's net sales for the three
months ended June 30, 2001. Sales in the U.S. increased 36% from the comparable
2000 period due to a 40% increase in U.S. process equipment sales, resulting
from an increase in optical telecommunications sales for Veeco's Ion Tech
subsidiary. Sales in Europe and Asia Pacific decreased 29% and 39%,
respectively. The decrease in Europe is principally a result of lower sales of
process equipment products. The decrease in 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 increases 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 $73.2 million for the three months ended June 30,
2001, increased by $15.5 million, or 27%, over the comparable 2000 period. The
above noted increase in process equipment is due to increased sales to the
optical telecommunications industry, which were partially offset by decreased
sales to the data storage industry. Metrology sales of $38.9 million for the
three months ended June 30, 2001, represent a slight decrease of approximately
$3 million, or 7%, from the 2000 comparable period sales of $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 microscope (AFM) products.
Veeco received $81.5 million of orders during the three months ended June 30,
2001, a 38% decrease compared to $132.4 million of orders for the comparable
2000 period. Process equipment orders decreased 52% to $40.1 million, due
primarily to a decline in orders from optical telecommunications customers.
Veeco's Ion Tech subsidiary had a decrease of $30.0 million, or 77%, in orders
from the comparable 2000 period. Etch and deposition equipment orders decreased
30% to $31.2 million from $44.6 million for the comparable 2000 period.
Metrology orders decreased by 13% to $40.2 million, reflecting a decrease in
orders for optical metrology products, partially offset by a 12% increase in AFM
orders. The Company's book/bill ratio for the second quarter of 2001 was 0.72.
For the three months ended June 30, 2001, the Company experienced order
cancellations, primarily for products related to the optical telecommunications
market, representing approximately 7% of the June 30, 2001 backlog. The Company
also experienced rescheduling of order delivery dates by customers. Due to the
weak business environment, the Company may continue to experience cancellation
or rescheduling of orders.
13
Gross profit, as a percentage of net sales increased to 47.2%, from 28.3% for
the comparable 2000 period. Excluding a non-cash charge of $15.3 million in June
2000, for the write-off of inventory related to the merger with CVC Inc.
("CVC"), gross profit was 43.3%. This improvement results in part from the
volume increase in Ion Tech sales, partially offset by the volume decline in
optical metrology sales. In addition, gross margin improved due to overhead
spending reductions in the process equipment area as well as a more favorable
mix in optical metrology products.
Research and development expenses of $15.4 million for the three months ended
June 30, 2001, increased by approximately $1.3 million, or 10%, over the
comparable period of 2000, due primarily to the Company's development of next
generation products for AFMs and Ion Tech tools.
Selling, general and administrative expenses of $21.3 million for the three
months ended June 30, 2001, increased by approximately $2.1 million from the
2000 comparable period due to an increase in selling related expenses,
principally as a result of the increased sales volume.
During the three months ended June 30, 2001, the Company recorded a
restructuring charge of $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 approximately $770,000
remains accrued. During the three months ended June 30, 2000, Veeco incurred
non-recurring charges of $33.0 million, duringin conjunction with the nine months ended September 30, 2000.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.
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, and Rochester and Plainview, New York. During the second
and third quarters of 2000, approximately $12.5 million was charged against the
$14.0 million accrual for merger and reorganization costs, which represented
$8.9 million for transaction costs, $3.0 million for termination benefits paid
and $0.6 million for duplicate facility costs. At September 30, 2000, the
balance of the accrual is approximately $1.5 million. 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
======== ======== ========
9
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 2 - CVC MERGER AND RELATED NON-RECURRING CHARGES (CONTINUED)
Prior to the merger, CVC's fiscal year end was September 30. Therefore, the
third quarter and nine month Consolidated Statements of Income for 1999 were
derived from CVC's three months and nine months ended June 30, 1999,
respectively. In addition, the December 31, 1999 Consolidated Balance Sheet was
derived from CVC's September 30, 1999 balance sheet.
NOTE 3 - OTHER MERGERS AND ACQUISITIONS
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 nine months ended September
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 nine months ended September
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:
September 30, December 31,
2000 1999
------------- ------------
(In thousands)
Components and spare parts $58,343 $49,609
Work-in-progress 23,812 21,736
Finished goods 12,357 14,531
------- -------
$94,512 $85,876
======= =======
10
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 5 - BALANCE SHEET INFORMATION
September 30, December 31,
2000 1999
------------- ------------
(In thousands)
Allowance for doubtful accounts $ 2,738 $ 2,403
Accumulated depreciation and amortization
of property, plant and equipment $43,607 $34,115
Accumulated amortization of excess of cost
over net assets acquired $ 1,739 $ 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:
September 30, December 31,
2000 1999
------------- ------------
(In thousands)
Commercial paper $21,692 $ 19,047
Municipal bonds 10,022 14,527
Floating rate bonds 7,932 9,029
Corporate bonds 7,877 6,071
Obligations of U.S. Government agencies 2,038 2,003
Other debt securities 3,384 211
-------- ---------
$ 52,945 $ 50,888
======== =========
All investments at September 30, 2000 have contractual maturities of one year or
less. During the nine months ended September 30, 2000, available-for-sale
securities with fair values at the date of sale of approximately $56.8 million
were sold.
11
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 6 - SEGMENT INFORMATION
The following represents the reportable product segments of the Company, in
thousands:
Unallocated
Process Industrial Corporate Non-recurring
Metrology Equipment Measurement Amount Charges Total
- ---------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales $ 42,834 $ 47,517 $ 2,573 $-- $-- $ 92,924
Operating income (loss) 9,363 2,215 (1,368) (2,858) -- 7,352
THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales 31,150 51,829 3,994 -- -- 86,973
Operating income (loss) 7,362 5,330 (486) (960) (1,174) 10,072
NINE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales 116,851 139,432 8,110 -- -- 264,393
Operating income (loss) 23,051 3,540 (2,312) (5,525) (33,250) (14,496)
Total assets 95,859 150,118 11,163 153,310 -- 410,450
NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales 87,586 137,228 13,790 -- -- 238,604
Operating income (loss) 18,769 18,559 (748) (3,387) (1,174) 32,019
Total assets $ 66,413 $ 155,697 $ 16,495 $ 91,455 $ -- $ 330,060
NOTE 7 - COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was $5.6 million and ($8.0) million for the
three and nine months ended September 30, 2000, and $6.8 million and $19.3
million for the three and nine months ended September 30, 1999, 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.
12
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 8 - NEW STAFF ACCOUNTING BULLETIN
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition" ("SAB 101"). The SEC Staff addresses several issues in SAB
101, including the timing for recognizing revenue derived from sales
arrangements involving contractual customer acceptance provisions where
installation of the product occurs after shipment and transfer of title. The
Company's current policy is to recognize revenue at the time the customer takes
title to the product, generally at the time of shipment. Applying the
requirements of SAB 101 to the present selling arrangements used by the Company
may result in a change in the Company's accounting policy for revenue
recognition and the deferral of the recognition of revenue or a portion of the
revenue derived from the sale until installation is complete and the product is
accepted by the customer. Based on current SEC guidance, the effect of the
change will be recognized as a cumulative effect of a change in accounting in
the Company's fourth quarter ending December 31, 2000. Management is currently
evaluating the impact of this change and believes that, in the period of
adoption, the amount of revenue that will be deferred could be material.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net sales of $92.9 milliontaxes for the three months ended SeptemberJune 30, 2001, amounted to $5.1 million,
or 34% of income before income taxes, as compared to an $8.8 million tax
benefit, or 38% of loss before income taxes, for the same period of 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, representsthat 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, 2001 AND 2000
Net sales were $240.7 million for the six months ended June 30, 2001,
representing an increase of 7% fromapproximately $51.6 million, or 27%, over the
1999 comparable period sales of $87.0
million, resulting principally from2000 period. The increase is primarily due to an increase in metrologyIon Tech
sales offset in
part by a decrease in process equipment and industrial measurement sales.of $49.2 million. Sales in the U.S., Europe, Japan and Asia Pacific
accounted for 57%58%, 10%12%, 18%21% and 15%9%, respectively, of the Company's net sales for
the threesix months ended SeptemberJune 30, 2000.2001. Sales in the U.S. increased 42% from the comparable 1999
period due toby 64%,
principally as a 74% and 21%result of increased process equipment sales of optical
telecommunications equipment for Veeco's Ion Tech subsidiary, as well as an
increase in U.S. process equipment and metrology
sales respectively, partially offset by a 52% decrease in U.S. industrial
measurement sales. The U.S. Process Equipment sales increase is due primarily to
the growth of Ion Tech's ion beam deposition equipment sales to the
opto-telecommunications industry.AFMs. Sales in Europe andremained relatively flat when
compared to the comparable 2000 period. Sales in Japan decreased 55% and
20%, respectively. The decrease in both Europe and Japan isincreased by 12% as a
result of lower
salesan increase in the process equipment segment. Sales inAFM sales. Asia Pacific increased 67%,
principally due to increasedsales decreased by 25% as a
result of a 65% decline in optical metrology sales, partially offset by
a decrease in
process equipment sales. The Company believes that there will continue to be
quarter-to-quarter variations in the geographic concentration ofincreased Ion Tech sales.
Process equipment sales of $47.5were $153.5 million for the threesix months ended SeptemberJune 30,
2000 represents an 8% decrease from the comparable period of $51.8 million,
partly due to an $11.7 million sales decline in Veeco's CVC subsidiary, due to
delayed orders and shipments from data storage and specialty semiconductor
customers, a $6.7 million decline in ion beam etch and deposition sales
principally to data storage customers, partially offset by a $14.1 million
increase in sales of Veeco's Ion Tech subsidiary's Dense Wavelength Division
Multiplexing (DWDM) related equipment. Metrology sales of $42.8 million for
the three months ended September 30, 2000 represents2001, an increase of approximately $11.7 million, or 38%, from the 1999 comparable period sales of
$31.2 million, due primarily to the increase in sales of the Company's atomic
force microscopes (AFM's) to the semiconductor market. Industrial measurement
sales of $2.6 million for the three months ended September 30, 2000 represent
a decrease of $1.4$40.7 million, or 36%, from the comparable
19992000 period,
principally due to an increase in sales of Ion Tech products, partially offset
by a decline in etch and deposition sales. Metrology sales for the sale on January 17,six months
ended June 30, 2001 were $83.9 million, an increase of approximately $13.2
million, or 19%, compared to the comparable 2000 period, reflecting a 56%
increase in the sales of the Company's leak
detection business.AFMs, offset by a 31% decline in optical metrology
sales.
Veeco received $179.9 million of orders during the three months ended September
30, 2000, a 106% increase compared to $87.2$194.3 million of orders for the six months ended June 30, 2001,
a 20% decrease compared to $243.6 million of orders in the comparable 19992000
period. Process equipment orders increased 122%decreased 22% to $125.4$113.0 million, due
primarily to an increase of $78.1 millionprincipally
reflecting a decrease in orders for Veeco's Ion Tech
subsidiary's DWDM related equipment.optical telecommunications orders. Metrology orders
increased 92%decreased 17% to $52.1$77.4 million, reflecting an 82% increase in orders for AFM's and a 118% increase in
orders for optical metrology products. Approximately $6.9 million of the
increase51% decrease in optical metrology
orders came from businesses purchasedproducts, offset by a 10% increase in the first
quarter of 2000.AFMs. The Company's book/bill ratio for the third quarter of 2000 was
1.94.
14
Gross profit for the threesix
months ended SeptemberJune 30, 2000 of $42.3 million
represents an increase of $2.7 million, or 7%, from the comparable 1999 period.2001 was 0.81.
Gross profit, as a percentage of net sales remained consistent at 45.5%increased to 46.9%, from 36.7% for
the comparable 19992000 period. Excluding a non-cash charge of $15.3 million in June
2000, for the write-off of inventory related to the merger with CVC, gross
profit was 44.8%. This improvement is principally attributable to the volume
increase in Ion Tech and AFM sales.
Research and development expenses of $13.1$31.1 million for the threesix months ended SeptemberJune
30, 2000 increased by2001, represent an increase of approximately $1.4$3.7 million, to 14.1%or 14%, over the
comparable period of net sales
in 2000, from 13.5% in 1999, due primarily to expenditures in connection with the
increase in investment in AFM
anddevelopment of new products for the Ion Tech and AFM metrology product development. Increased R&D spending as a result of the
recently acquired OptiMag, Monarch and the slider crown adjust product lines was
offset in part by a decrease in spending for Process Equipment data storage
products.areas.
Selling, general and administrative expenses of $20.2$43.0 million for the threesix months
ended SeptemberJune 30, 2000 increased by2001, represent an increase of approximately $3.7$6.7 million, or
22%18%, over the comparable 2000 period. The increase is due to 21.7%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 2001 from
19.2% in 2000.
15
The Company recorded merger and restructuring charges during the six months
ended June 30, 2001 and 2000 from 19.0% in 1999. This increase is principallyas discussed previously under the three-month
results.
Other expense, net for the six months ended June 30, 2001, increased $1.6
million over the comparable 2000 period due to the expansion of direct sales and service presence in both Japan and the
Asia Pacific regions, the increase in sales commissions in the Company's Ion
Tech subsidiary, as well as the purchase of OptiMag, Monarch and the slider
crown adjust product lines, which had no comparable operating spending in 1999
since they were principally accounted for using the purchase method of
accounting.
The Company recorded a $1.2 million non-recurring charge during the three months
ended September 30, 1999 relating to the write-off of in-process research and
development in connection with CVC's acquisition of Commonwealth Scientific
Corporation.foreign currency
exchange losses.
Income taxes for the threesix months ended SeptemberJune 30, 20002001, amounted to $1.6$12.0 million,
or 21%34% of income before income taxes, as compared to $4.0a $5.2 million income tax
benefit, or 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 lower
effective tax ratecumulative 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 threesix months ended SeptemberJune 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, is based upon a
revisionpreviously filed on Form 10-Q,
have been restated due to the adoption of SAB 101. The adoption of SAB 101 had
the projected pre-tax income for the year.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Neteffect of increasing net sales were $264.4by $17.7 million for the nine months ended September 30, 2000
representing an increasefirst half of approximately $25.8 million or 11% over the
comparable 1999 period. The increase principally reflects growth in metrology
sales of 33%. Sales in the U.S. accounted for 49% of the Company's net sales2000.
Net loss for the nine months ended September 30, 2000, while sales in Japan, Europe and Asia
Pacific each accounted for 17%first half of sales for the nine months ended September 30,
2000. Sales in the U.S., Europe and Asia Pacific increased 13%, 10% and 45%,
respectively, while sales in Japan decreased 8% over the comparable 1999 period.
The increase in sales in the U.S. resulted primarily from a 25% increase in
metrology sales and a 17% increase in process equipment sales, partially offset
by a $6 million decline in industrial measurement sales. The increase in sales
in Europe is attributed to increased metrology sales. The increase in sales in
Asia Pacific resulted from a 71% increase in metrology sales partially offset by
a decline of 40% in process equipment sales.
Process equipment sales were $139.4 million for the nine months ended September
30, 2000, remaining relatively flat from the comparable 1999 period. Metrology
sales for the nine months ended September 30, 2000 were $116.9 million, an
increase of approximately $29.3 million or 33% compared to the comparable 1999
period, reflecting a 53% increase in optical metrology
15
products from the newly acquired metrology businesses of OptiMag, Monarch and
the slider crown adjust product lines, as well as a 22% increase in the sales of
AFM's. Industrial measurement sales for the nine months ended September 30, 2000
were $8.1 million, a decrease of 41% from the comparable 1999 period principally
due to the sale on January 17, 2000 of the Company's leak detection business.
Veeco received $423.6 million of orders for the nine months ended September 30,
2000, a 62% increase compared to $261.3 million of orders in the comparable 1999
period. Process equipment orders increased 56% to $269.6 million, reflecting an
increase of 495% or $119.4 million in Veeco's Ion Tech subsidiary's DWDM related
equipment, partially offset by a 15% decrease in data storage related equipment
orders. Metrology orders increased 88% to $145.7 million, reflecting a 139%
increase in optical metrology products, as well as a 65% increase in atomic
force microscopes. The book/bill ratio for the nine months ended September 30,
2000 was 1.60.
In connection with the merger with CVC, the Company incurred non-recurring
charges of $33.0 million for the second quarter of 2000, of which a $15.3
million non-cash charge or 5.8% 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 nine months ended September 30, 2000 of $103.6 million represents a
decrease of $7.2 million from the comparable 1999 period. Gross profit,
excluding the non-recurring charges, as a percentage of net sales decreased to
45.0% for 2000 from 46.4% for the comparable 1999 period, principally due to
weak margins on process equipment sales for the data storage industry. As a
result of the merger with CVC, the Company closed CVC's Virginia facility, which
was duplicative to its New York operations. This action will result in a lower
overhead cost structure.
Research and development expenses of $40.5 million for the nine months ended
September 30, 2000 increased by approximately $9.2$13.7 million, or 29%, over the
comparable period of 1999, due primarily to the continued investment in new
products and technology, for both Process Equipmentbasic and
Metrology businesses.
Research and development expenses for Commonwealth, OptiMag and the slider
crown adjust product lines had lower comparable research and development
expense spending in 1999, since these acquisitions were accounted for using
the purchase method of accounting.
Selling, general and administrative expenses were $56.5 million or 21.4% of net
sales for the nine months ended September 30, 2000, as compared to $46.4 million
or 19.5% of net sales in 1999. This increase was principally due to the
expansion of direct sales and service presence in both Japan and the Asia
Pacific regions as well as the purchase of Commonwealth, OptiMag and the slider
crown adjust product lines, which had lower comparable operating spending in
1999, since these acquisitions were accounted for using the purchase method of
accounting.
In the nine months ended September 30, 2000, the Company recorded $33.25 million
of non-recurring charges. In conjunction with the merger with CVC, Veeco
incurred non-recurring charges of $33.0 million. 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. During the second and third quarters of 2000, approximately
$12.5 million was charged against
16
the $14.0 million accrual for merger and reorganization costs, which represented
$8.9 million for transaction costs, $3.0 million for termination benefits paid
and $0.6 million for duplicate facility costs. At September 30, 2000,
approximately $1.5 million of the accrual is remaining. In addition to the $33.0
million charge in conjunction with the CVC merger, Veeco also recorded merger
expenses of $0.25 million in the nine months ended September 30, 2000
representing transaction and other costs related to the merger with Monarch
Labs, Inc.
The Company recorded a $1.2 million non-recurring charge during the nine months
ended September 30, 1999 relating to CVC's write-off of in-process research and
development in connection with CVC's acquisition of Commonwealth Scientific
Corporation.
Income taxes for the nine months ended September 30, 2000 amounted to a tax
benefit of $6.9 million, or 51% ofdiluted loss before income taxes, as compared to
$12.2 million of income tax expense, or 38% of income before income taxes, for
the same period of 1999.per share increased by $0.59.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totaled $6.8$8.4 million for the ninesix months ended
SeptemberJune 30, 20002001, compared to cash provided byused in operations of $12.3$22.9 million for the
comparable 19992000 period. This change in cashCash provided by operations reflectsin 2001 includes adjustments
to reconcile net income to net cash provided 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 periodaccounts receivable and an increase in accounts payable of $26.7$8.9 million from the comparable 1999 period, along with the use of cash for
changesand $0.4
million, respectively. These items were partially offset by a decrease in
operating assets and liabilities. Accruedaccrued expenses, deferred gross profit and other current liabilities increased by $6.0of $4.6
million and an increase in inventories of $35.8 million during the ninesix months
ended SeptemberJune 30, 2001. Accounts receivable decreased due to a slight decline in
sales volume from the fourth quarter of 2000 while increasing $7.7 million during the comparable 1999
period.and improved customer collections.
The increasedecrease in accrued expenses, deferred gross profit and other current
liabilities is due primarily to a decrease in deferred revenue relating to the
impact of SAB 101, partially offset by an increase in customer deposits and advanced billings for
Veeco's Ion Tech subsidiary's DWDM orders. Accounts receivable increased by
$4.8 million during the nine months ended September 30, 2000 due to the
increased sales volume for atomic force microscopes and optical metrology
products.deposits.
Inventories increased by $16.1$35.8 million, due primarily due to production
ramp for both Ion Tech productsrescheduled shipments,
the impact of SAB 101 and metrology tools, as well as certain
shipment delays for Ion Tech's and CVC's products. As a result of the merger
and reorganization costs incurred in connection with the CVC merger, as well
as the income tax benefit associated with the stock option exercises, the
Company anticipates a refund of income taxes of approximately $3.5 million.new product production. Net cash provided byused in operations
for the ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 20002001,
totaled $24.7$17.3 million compared to $58.3$17.7 million for the comparable 19992000 period.
Cash used in 20002001 consisted
16
of $14.1$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 $11.4$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 $2.1the 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 ninesix months ended SeptemberJune 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.
17
Net cash provided by financing activities for the ninesix months ended SeptemberJune 30,
20002001, totaled $38.5$1.5 million, compared to $55.7$23.9 million for the comparable 19992000
period. Cash provided by financing activities in 20002001 consisted of $17.2
million of proceeds from borrowings under the Company's revolving credit
facilities, as well as proceeds of
$26.6$2.4 million from stock issuances upon exercise of stock options, partially offset by $9.0$0.8
million of debt repayments. Net cash provided by financing activities for the
ninesix months ended SeptemberJune 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.$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 SeptemberJune 30,
2000, there was $10.0 million2001, no borrowings were outstanding under the Credit
Facility. 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 September 30, 2000, there was
approximately $7.2 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. As of September 30, 2000, approximately $2.4 million had been paid.
In connection with the OptiMag acquisition in October, 1999, the Company agreed
to purchase approximately twenty-five percent of OptiMag's outstanding stock,
which it does not already own, during October 2000 for approximately $1.2
million. This purchase occurred on October 27, 2000 and, as a result, OptiMag
became a wholly-owned subsidiary of the Company. Under the purchase agreement,
the Company will be required to pay additional consideration to the former
shareholders of OptiMag based upon both sales achieved and the appraised fair
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.credit 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 SeptemberJune 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 43% and 51%42% of Veeco's total net sales for the three and ninesix
months ended SeptemberJune 30, 2000,2001, respectively, and 57%54% and 52%55% for the three and ninesix
months ended SeptemberJune 30, 1999,2000, respectively. The Company expects that net sales to
foreign customers will continue to represent a large percentage of itsVeeco's total
net sales. Veeco's net sales denominated in foreign currencies represented
approximately 13%12% and 10%14% of Veeco's total net sales for the three and ninesix
months ended SeptemberJune 30, 2000,2001, respectively, and 11%8% and 10%9% for the three and ninesix
months ended SeptemberJune 30, 1999. The Company has not engaged in foreign currency hedging transactions.2000, respectively. The aggregate foreign currency
exchange losses (gains)loss included in determining consolidated results of operations were $439,000was
$272,000 and $506,000 for$1,733,000, net of $62,000 and $991,000 of realized hedging gains
in the three and ninesix months ended SeptemberJune 30, 2000, respectively, and ($669,000) and $158,000
for the three and nine months ended September 30, 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.yen. The Company estimates that a
10% change in foreign currency exchange rates would impact reported operating
profit for the ninesix months ended SeptemberJune 30, 20002001 by approximately $1.0$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. Veeco 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
The annual meeting of stockholders of the Company was held on May 11, 2001. The
matters voted on at the meeting were: (a) the election of four directors: (i)
Heinz Fridrich, (ii) Roger McDaniel, (iii) Irwin Pfister and (iv) Douglas
Kingsley, (b) the approval of 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 financial statements for
the year ending December 31, 2001. As of the record date for the meeting, there
were 24,684,684 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)(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 accounted
for using the purchase method of accounting. Results of operations prior to the
acquisition are not material to the Condensed Consolidated Statements of
Operations for the three and six months ended June 30, 2001.
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS:
(a) Exhibits
27.1 Financial Data ScheduleUnless otherwise indicated, each of Veeco Instruments *
Inc. for the nine months ended September 30,
2000
27.2 Financial Data Schedule of Veeco Instruments *
Inc. forfollowing exhibits has been previously
filed with the nine months ended September 30,
1999 (restated)Securities and Exchange Commission by the Company under File No.
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 Form
Instruments Inc. 2000 Stock Option S-8 (File Number 333-66574)
Plan, effective May 11, 2001 filed August 2, 2001, Exhibit
4.1
*Filed herewith.
(b) Reports on Form 8-K.
None.
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: November 2, 2000August 8, 2001
Veeco Instruments Inc.
By: /S/ EDWARD/s/ Edward H. BRAUN
-------------------Braun
---------------------------------
Edward H. Braun
Chairman, Chief Executive Officer and
President
By: /S/ JOHN/s/ John F. REIN, JR.
---------------------Rein, Jr.
---------------------------------
John F. Rein, Jr.
Executive Vice President,
Finance,
Chief Financial Officer Treasurer and Secretary
21
EXHIBIT INDEX
Exhibits:
27.1 Financial Data ScheduleUnless otherwise indicated, each of Veeco Instruments Inc. for the nine
month period ended September 30, 2000
27.2 Financial Data Schedule of Veeco Instruments Inc. forfollowing exhibits has been previously
filed with the nine
month ended September 30, 1999 (restated)Securities and Exchange Commission by the Company under File No.
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.