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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 JUNESEPTEMBER 30, 1996
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
Plainview, New York 11803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 349-8300
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
5,821,354--- ---
5,826,534 shares of Common Stock $.01 par value, were outstanding as of
August
5,October 25, 1996.
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VEECO INSTRUMENTS INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income -
Three Months Ended JuneSeptember 30, 1996 and 1995 3
Condensed Consolidated Statements of Income -
SixNine Months Ended JuneSeptember 30, 1996 and 1995 4
Condensed Consolidated Balance Sheets -
JuneSeptember 30, 1996 and December 31, 1995 5
Condensed Consolidated Statements of Cash Flows -
SixNine Months Ended JuneSeptember 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Veeco Instruments Inc.
and Subsidiaries
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
JuneSeptember 30,
--------------------------------------------------------
1996 1995
------ -------------- --------
Net sales $25,095 $17,498$ 24,071 $ 18,430
Cost of sales 13,972 9,615
-------- ---------13,602 10,061
---------- ----------
Gross profit 11,123 7,88310,469 8,369
Costs and expenses:
Research and development expense 2,579 1,8022,601 1,589
Selling, general and administrative expense 5,216 3,9724,745 4,200
Amortization expense 5263 51
Other - net 25 3846 108
-------- ------------------
Operating income 3,251 2,0203,014 2,421
Interest income, net 162 6148 152
-------- ------------------
Income before income taxes 3,413 2,0263,162 2,573
Income taxes 1,307 5441,168 695
-------- -----------------
Net income $ 2,1061,994 $ 1,482
======== =========1,878
-------- --------
-------- --------
Net income per common share $ .350.34 $ .29
========= ==========0.33
-------- --------
-------- --------
Shares used in computation 5,958,000 5,123,000
========= =========
See accompanying notes.5,860,000 5,750,000
-------- --------
-------- --------
SEE ACCOMPANYING NOTES.
-3-
Veeco Instruments Inc.
and Subsidiaries
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
SixNine Months Ended
JuneSeptember 30,
-------------------------------------------------------
1996 1995
-------- ---------------- ----------
Net sales $45,739 $31,631$ 69,810 $ 50,061
Cost of sales 25,409 17,369
------- -------39,011 27,430
---------- ----------
Gross profit 20,330 14,26230,799 22,631
Costs and expenses:
Research and development expense 4,583 3,3617,184 4,950
Selling, general and administrative
expense 9,589 7,42814,334 11,628
Amortization expense 105 100168 151
Other - net 117 (24)
--------163 84
---------- ----------
Operating income 5,936 3,3978,950 5,818
Interest income, net 362 15
--------510 167
---------- ----------
Income before income taxes 6,298 3,4129,460 5,985
Income taxes 2,382 834
-------- ---------3,550 1,529
---------- ----------
Net income $ 3,9165,910 $ 2,578
======= =========4,456
---------- ----------
---------- ----------
Net income per common share $ .661.00 $ .51
========= =========0.84
---------- ----------
---------- ----------
Shares used in computation 5,925,000 5,100,000
========= =========
See accompanying notes.5,889,000 5,317,000
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES.
-4-
Veeco Instruments Inc.
and Subsidiaries
Consolidated Balance SheetsSheet
(Dollars in thousands)
JuneSeptember 30, December 31,
1996 1995
1996
--------- ----------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $17,061 $17,568$ 18,109 $ 17,568
Accounts and trade notes receivable 19,74817,878 18,983
Inventories 19,25221,569 15,795
Prepaid expenses and other current assets 1,123925 923
Deferred income taxes 1,2411,261 1,221
------- ----------------- ----------
Total current assets 58,42559,742 54,490
Property, plant and equipment at cost, net 8,0428,932 7,381
Excess of cost over net assets acquired 4,5144,481 4,579
Other assets - net 1,0871,053 930
-------- ----------------- ----------
Total assets $72,068 $67,380
======== =======$ 74,208 $ 67,380
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $10,244$ 10,880 $ 8,729
Accrued expenses 6,1306,661 7,523
Income taxes payable 1,398336 777
------- ----------------- ----------
Total current liabilities 17,77217,877 17,029
Deferred income taxes 118 118
Other liabilities 460463 482
Shareholders' equity:
Common stock 58 58
Additional paid-in capital 47,57747,610 47,353
Retained earnings 5,4877,481 1,571
Cumulative translation adjustment 596601 769
------- ----------------- ----------
Total shareholders' equity 53,71855,750 49,751
------- ----------------- ----------
Total liabilities and shareholders' equity $72,068 $67,380
======= =======
See accompanying notes.$ 74,208 $ 67,380
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---------- ----------
SEE ACCOMPANYING NOTES.
-5-
Veeco Instruments Inc.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
Six(Unaudited)
Nine Months Ended
JuneSeptember 30,
---------------------------------------------------
1996 1995
------- ---------------- ----------
OPERATING ACTIVITIES
Net income $ 3,9165,910 $ 2,5784,456
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 657 6591,012 965
Deferred income taxes (20) 234(40) 495
Changes in operating assets and
liabilities:
Accounts and trade notes receivable (979) (1,824)867 (1,627)
Inventories (3,570) (1,969)(5,886) (3,159)
Accounts payable 1,534 6142,169 (171)
Accrued expenses and other current
liabilities (733) 225(1,263) 1,415
Other - net (281) (179)
--------- --------(11) 266
---------- ----------
Net cash provided by operating activities 524 3382,758 2,640
INVESTING ACTIVITIES
Capital expenditures (1,219) (243)
-------- --------(2,403) (703)
---------- ----------
Net cash used in investing activities (1,219) (243)(2,403) (703)
FINANCING ACTIVITIES
Proceeds from stock issuance 224 7257 14,538
Deferred financing costs (150)(193) (85)
Other - (26)
-------- --------(29)
---------- ----------
Net cash provided by (used in) financing activities 74 (104)64 14,424
Effect of exchange rates on cash 114 (322)
--------- --------122 (172)
---------- ----------
Net change in cash and cash equivalents (507) (331)541 16,189
Cash and cash equivalents at beginning
of period 17,568 2,279
--------- ------------------ ----------
Cash and cash equivalents at end
of period $ 17,061 $ 1,948
========= ========
See accompanying notes.$18,109 $18,468
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES.
-6-
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTENote 1 - BASIS OF PRESENTATIONBasis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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 sixnine months ended JuneSeptember 30, 1996,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. 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, 1995.
Earnings per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period.
NOTENote 2 - INVENTORIESInventories
Interim inventories have been determined by lower of cost (principally first-in,
first-out) or market. Inventories consist of:
JuneSeptember 30, December 31,
1996 1995
------- ---------------- ----
(Dollars in thousands)
Raw materials $ 5,8728,052 $ 4,349
Work-in process 5,4286,142 4,222
Finished goods 7,9527,375 7,224
-------- -------
$ 21,569 $15,795
-------- $19,252 $15,795
======= =======-------
-7-
NOTENote 3 - BALANCE SHEET INFORMATIONBalance Sheet Information
Selected balance sheet account disclosures follow:
JuneSeptember 30, December 31,
1996 1995
-------- ------------ ----
(Dollars in thousands)
Allowance for doubtful accounts $ 594654 $ 517
Accumulated depreciation and amortization
of property, plant and equipment $ 5,8446,138 $ 5,318
Accumulated amortization of excess of cost
over net assets acquired $ 855877 $ 779
NOTENote 4 - CREDIT FACILITYCredit Facility
In place of its existing financing arrangements, in July 1996, the Company
entered into a new credit facility ("the New(the "New Credit Facility") with Fleet Bank,
N.A. and The Chase Manhattan Bank. The New Credit Facility, which is to be used
for working capital, acquisitions and general corporate purposes, provides the
Company with up to $30 million of availability. The New Credit Facility bears
interest at the prime rate of the lending banks, but is adjustable to a maximum
rate of 3/4% above the prime rate in the event the Company's debt to cash flow
exceeds a defined ratio. A LIBOR based interest rate option is also provided.
The New Credit Facility expires July 31, 1999, but under certain conditions is
convertible into a term loan, which would amortize quarterly through July 31,
2002. The New Credit Facility is secured by substantially all of the Company's
personal property, as well as the stock of its Sloan subsidiary.
NOTENote 5 - OTHER INFORMATIONOther Information
The principal reason for the variation in the relationship between the statutory
income tax rate and the effective tax rate for the sixthree and nine months ended
JuneSeptember 30, 1995 is due to the recognition of previously unrecognized deferred
tax assets.
Total interest paid for the sixnine months ended JuneSeptember 30, 1995 was $104,000. There
were no significant interest payments in 1996 for the same period.$106,000.
The Company made income tax payments of $1,717,000$3,967,000 and $144,000$647,000 for the sixnine
months ended JuneSeptember 30, 1996 and 1995, respectively.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNESEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
JUNESEPTEMBER 30, 1995
Net sales for three months ended JuneSeptember 30, 1996 increased toby approximately
$25.1$5.6 million or 43.4%30.6% over the comparable 1995 period. The increase principally
reflects significantcontinuing growth in Ion Beam System sales. .
Sales of Ion Beam Systems for the secondthird quarter of 1996 increased to
approximately $14.3$13.2 million or 92.9%62.8% over the comparable period in 1995, period, driven
primarily by increased demand from the mass memory storage market. Sales of
Surface Metrology products for the secondthird quarter of 1996 of approximately $6.1
million remained flat compared to the secondthird quarter of 1995, as a result of a
general slow down in semiconductor applications. Sales of Industrial
Measurement products for the secondthird quarter of 1996 increased to approximately
$5.2$4.8 million or 8.2%13.4% over the comparable period in 1995, period, as the result of
the introductionincreased sales of new products in both the leak detection and
XRF thickness measurement systems.products.
The Company booked $18.3 million of orders in the quarter compared to $21.2
million of orders in the third quarter of 1995, as the general over capacity in
the semiconductor device industry has impacted customers short term purchasing
patterns.
Gross profit for the secondthird quarter of 1996 of approximately $11.1$10.5 million
increased byrepresents an increase of approximately $3.2$2.1 million over the comparable 1995
period. Gross profit as a percentage of net sales decreased from 45.1% for the second quarter
of45.4% in 1995
to 44.3% for the comparable period of43.5% in 1996. This decline was principally due to product and geographic
mix changes and new product introduction.in Surface Metrology products in the 1996 third quarter.
Research and development expense in the secondthird quarter of 1996 increased by
approximately $777,000$1.0 million or 43.1%63.7% compared to the secondthird quarter of 1995 as the
Company increased its R&D investment in each product line.line with particular
emphasis on ion beam deposition products.
Selling, general and administrative expenses for the second quarter of 1996
increased by approximately $1.2 million$545,000
compared to the secondthird quarter of 1995. The increase was primarily due to
approximately $996,000$401,000 of additional selling expense comprised of sales
commissions related to the higher sales volume, as well as increased
compensation and travel expense as a result of the hiring of
additional sales and service personnel to support the Company's continuing
growth. The Company booked $25.1 million of orders in the second of 1996 quarter
compared to $22.2 million of orders in the second quarter of 1995. The book to
bill ratio for the second quarter of 1996 was 1.0 compared to a book to bill
ratio of 1.23 for the first quarter of 1996. The decrease in the book to bill
ratio from the first quarter to the second quarter of 1996 may indicate that the
Company will experience a decrease in the rate of growth in sales for the
balance of the fiscal year.expense.
Operating income for the second quarter of 1996 increased to approximately $3.3$3.0 million or 13.0% of net sales compared to approximately $2.0 million or 11.5%12.5% of net sales
for the secondthird quarter of 1996 compared to approximately $2.4 million or 13.1% of
net sales for the third quarter of 1995, due to the above noted factors.
Income taxes for the third quarter of 1996 amounted to approximately $1.3$1.2
million or 38.3%36.9% of income before income taxes for the second quarter ofin 1996 as compared to $544,000$695,000
or 26.9%27.0% of income before income taxes for the same period in 1995. The lower
effective tax rate in 1995 as compared to the statutory tax rate is a result of
the Company recognizing in 1995 previously unrecognized deferred tax assets.
-9-
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 1996 COMPARED TO THE SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, 1995
Net sales for sixnine months ended JuneSeptember 30, 1996 increased toby approximately
$45.7$19.7 million or 44.6%39.5% over the comparable 1995 period. The increase reflects
growth in all three product lines: Ion Beam Systems, Surface Metrology and
Industrial Measurement.
Sales of Ion Beam Systems for the sixnine months ended JuneSeptember 30, 1996 increased
to approximately $24.0$37.2 million or 70.6%67.8% over the comparable 1995 period, driven
by increased demand from the mass memory storage market. Sales of Surface
Metrology products for the sixnine months ended JuneSeptember 30, 1996 increased to
approximately $11.2$17.3 million or 33.7%19.4% over the comparable 1995 period, primarily
as a result of increased activity in SXM Atomic Force Microscopy for
Semiconductorsemiconductor applications. Sales of Industrial Measurement products for the
sixnine months ended JuneSeptember 30, 1996 increased to approximately $10.5$15.3 million or
14.8%14.4% over the comparable 1995 period, as thea result of new products in both the leak detection
and XRF
thickness measurement systems.products.
Gross profit for the first sixnine months of 1996 of approximately $20.3$30.8 million
increased byrepresents an increase of 36.1% or approximately $6.1$8.2 million over the
comparable 1995 period. Gross profit as a percentage of net sales decreased
from 45.1%45.2% in 1995 for the first sixnine months of 1995 to 44.4%44.1% in 1996 for the first six months of 1996.same
period. This decline was principally due to product mix changes in Surface
Metrology and new product introductions.Industrial Measurement.
Research and development expense increased by approximately $2.2 million or
45.1% in the first sixnine months of 1996 increased by
approximately $1.2 million or 36.4% overcompared to the comparable period of 1995
as the Company increased its R&D investment in eachall product line.lines, with $1.5
million of the increase directed at Ion Beam Systems.
Selling, general and administrative expenses for the first sixnine months of 1996
increased by approximately $2.3$2.7 million compared to the first sixnine months of
1995. The increase was primarily due to approximately $1.7$2.1 million of
additional selling expense comprised of sales commissions related to the higher
sales volume, as well as increased compensation and travel expense as a result
of the hiring of additional sales and service personnel to support the Company's
continuing growth. The Company booked $50.5$68.8 million of orders in the first sixnine
months of 1996 compared to $39.3$60.5 million of orders in the first sixnine months of
1995.
Operating income for the first six months of 1996 increased to approximately $5.9$9.0 million or 13.0% of net sales compared to approximately $3.4 million or
10.7%12.8% of net sales
for the comparablenine months ended September 30, 1996 compared to approximately $5.8
million or 11.6% of net sales for the nine months ended September 30, 1995, period, due
to the above noted factors.
Income taxes for the first sixnine months ofended September 30, 1996 amounted to approximately $2.4$3.6
million or 37.8%37.5% of income before income taxes as compared to $834,000approximately $1.5
million or 24.4%25.5% of income before income taxes for the same period in 1995. The
lower effective tax rate in 1995 as compared to the statutory tax rate is a
result of the Company recognizing in 1995 previously unrecognized deferred tax
assets.
-10-
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totaled $524,000$2.8 million for the first sixnine months
of 1996 compared to $338,000$2.6 million for the comparable 1995 period. The improvement
results principally from higher net incomeInventories
increased $5.9 million as a result of purchases required for the period offset by increasesincreased sales
level.
The Company had capital expenditures of $2.4 million for the nine months ended
September 30, 1996, principally for laboratory tools and test equipment. In
addition, the Company began an upgrade of its computer systems in working capitalthe 1996 third
quarter and fixed asset requirements.anticipates spending $1.5 million on this program in the next six to
nine months.
In July, 1996 the Company entered into a new credit facility with two banks that
provides borrowing capability of $30 million. (See note 4 to the financial
statements). The new credit facility will be used for working capital,
acquisitions and other general corporate purposes.
The Company believes that existing cash balances together with cash generated
from operations and amounts available under the Company's bank credit facility
will be sufficient to meet the Company's projected working capital and other
cash flow requirements for the foreseeable future.
-11-
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 15,
1996. Each person nominated for election as a director of the Company was
re-elected to such position at the meeting by a minimum of 5,024,416 votes. The
other matters voted upon at the meeting were as follows: (a) the amendment and
restatement of the Veeco Instruments Inc. Amended and Restated 1992 Employees'
Stock Option Plan; (b) an amendment to the Amended and Restated Veeco
Instruments Inc. 1994 Stock Option Plan for Outside Directors; and (c) the
appointment of Ernst & Young LLP as auditors of the Company. The votes of the
Company's stockholders on these matters were as follows:
Broker
Matters In Favor Opposed Abstained Non-Vote
- - ------- -------- ------- --------- --------
(a) 3,018,130 128,237 21,800 1,867,789
(b) 2,926,910 148,624 31,471 1,928,951
(c) 5,019,956 5,335 10,665 -0-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
10.25 Credit Agreement dated July 31, 1996 among the Registrant, Fleet
Bank N.A. and The Chase Manhattan Bank. (1)
10.26 Security Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.27 Guarantee Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.28 Guarantor's Security Agreement dated July 31, 1996 among Sloan
Technology Corporation, Fleet Bank N.A. and The Chase Manhattan
Bank.(1)
10.29 The Pledge Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.30 The Patent and Trademark Security Agreement dated July 31, 1996
among the Registrant, Fleet Bank N.A. and The Chase Manhattan
Bank.(1)
27. Financial Data Schedule of Veeco Instruments Inc. for the
quarterly period ended September 30, 1996.
b) Reports on Form 8-K:
The Registrant filed a Form 8-K dated July 26, 1996 reporting that shares
of common stock, par value $.01 per share, of the Registrant may no longer
be offered for resale or resold pursuant to any of the following
prospectuses: (i) the Company's Prospectus dated December 15, 1994 filed
as part of the Company's Registration Statement on Form S-8, file no.
33-87394; (ii) the Company's Prospectus dated August 3, 1995 filed as part
of the Company's Registration Statement on Form S-8, file no. 33-95424; and
(iii) the Company's Prospectus dated August 3, 1995 filed as part of the
Company's Registration Statement on Form S-8, file no. 33-95422.
(1) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 filed with the Securities
and Exchange Commission on August 8, 1996.
-12-
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 7,October 29, 1996
Veeco Instruments Inc.
By: /s/ Edward H. Braun
------------------------
Edward H. Braun
Chairman, CEO and President
By: /s/ John F. Rein, Jr.
------------------------
John F. Rein, Jr.
Vice President, Finance
and Chief Financial Officer
-13-
EXHIBIT INDEX
Exhibits:
10.25 Credit Agreement dated July 31, 1996 among the Registrant, Fleet
Bank N.A. and The Chase Manhattan Bank. (1)
10.26 Security Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.27 Guarantee Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.28 Guarantor's Security Agreement dated July 31, 1996 among Sloan
Technology Corporation, Fleet Bank N.A. and The Chase Manhattan
Bank.(1)
10.29 The Pledge Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.30 The Patent and Trademark Security Agreement dated July 31, 1996
among the Registrant, Fleet Bank N.A. and The Chase Manhattan
Bank. (1)
27. Financial Data Schedule of Veeco Instruments Inc. for the
quarterly period ended September 30, 1996.
(1) Incorporated by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 filed with the
Securities and Exchange Commission on August 8, 1996.