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QuickLinks-- Click here to rapidly navigate through this documentSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-----------------FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTER ENDED
JUNE 30, 2001MARCH 31, 2002Commission file number 0-16244
------------------VEECO INSTRUMENTS INC.
(Exact
(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) 100 Sunnyside Blvd. 11797 Woodbury, NY (zip code)
| Delaware (State or other jurisdiction of incorporation or organization) | 11-2989601 (I.R.S. Employer Identification Number) | |
100 Sunnyside Boulevard Woodbury, New York (Address of principal executive offices) | 11797 (Zip Code) |
Registrant's telephone number, including area code:(516) 677-0200
-------------------
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|ý No |_|
24,805,839o
29,043,674 shares of common stock, $0.01 par value per share, were outstanding as of the close of business on July 30, 2001.
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
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-lookingforward- looking statements to reflect future events or circumstances after the date of such statements.
2
VEECO INSTRUMENTS INC.
| Page | ||||
|---|---|---|---|---|
| PART 1. FINANCIAL INFORMATION | ||||
Item 1. | Financial Statements (Unaudited): | |||
Condensed Consolidated Statements of Operations— Three Months Ended March 31, 2002 and 2001 | 4 | |||
Condensed Consolidated Balance Sheets— March 31, 2002 and December 31, 2001 | 5 | |||
Condensed Consolidated Statements of Cash Flows— Three Months Ended March 31, 2002 and 2001 | 6 | |||
Notes to Condensed Consolidated Financial Statements | 7 | |||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||
Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 14 | ||
PART II. OTHER INFORMATION | ||||
Item 6. | Exhibits and Reports on Form 8-K | 15 | ||
SIGNATURES | 16 | |||
3
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements (Unaudited):
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 2001
(In thousands, except per share data)
(Unaudited)
| | Three Months Ended March 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||||
| Net sales | $ | 80,149 | $ | 125,386 | ||||
| Cost of sales | 46,414 | 66,696 | ||||||
| Gross profit | 33,735 | 58,690 | ||||||
Costs and expenses: | ||||||||
| Research and development expense | 13,329 | 15,107 | ||||||
| Selling, general and administrative expense | 19,037 | 21,134 | ||||||
| Amortization expense | 3,747 | 1,436 | ||||||
| Other expense, net | 49 | 1,406 | ||||||
| Restructuring expense | 837 | — | ||||||
| Operating (loss) income | (3,264 | ) | 19,607 | |||||
| Interest expense (income), net | 1,486 | (767 | ) | |||||
| (Loss) income from continuing operations before income taxes | (4,750 | ) | 20,374 | |||||
| Income tax (benefit) provision | (1,598 | ) | 7,158 | |||||
| (Loss) income from continuing operations | (3,152 | ) | 13,216 | |||||
| Discontinued operations: | ||||||||
| Loss from discontinued operations, net of taxes | — | (343 | ) | |||||
| Loss on the disposal of discontinued operations, net of taxes | (346 | ) | — | |||||
| Net (loss) income | $ | (3,498 | ) | $ | 12,873 | |||
| (Loss) earnings per common share: | ||||||||
Net (loss) income per common share from continuing operations | $ | (0.11 | ) | $ | 0.54 | |||
| Loss from discontinued operations | (0.01 | ) | (0.02 | ) | ||||
| Net (loss) income per common share | $ | (0.12 | ) | $ | 0.52 | |||
| Diluted (loss) income per common share from continuing operations | $ | (0.11 | ) | $ | 0.52 | |||
| Loss from discontinued operations | (0.01 | ) | (0.01 | ) | ||||
| Diluted net (loss) income per common share | $ | (0.12 | ) | $ | 0.51 | |||
| Weighted average shares outstanding | 29,021 | 24,678 | ||||||
| Diluted weighted average shares outstanding | 29,021 | 25,230 | ||||||
See accompanying notes.
4
Veeco Instruments Inc. and 2000 4
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 2001 and 2000 5
Subsidiaries
Condensed Consolidated Balance Sheets -
June 30, 2001
(In thousands)
| | March 31, 2002 | December 31, 2001 | ||||
|---|---|---|---|---|---|---|
| | (Unaudited) | | ||||
| Assets | ||||||
| Current Assets: | ||||||
| Cash and cash equivalents | $ | 219,108 | $ | 203,154 | ||
| Accounts receivable, net | 69,815 | 88,449 | ||||
| Inventories | 99,273 | 101,419 | ||||
| Prepaid expenses and other current assets | 15,611 | 22,636 | ||||
| Deferred income taxes | 49,549 | 46,832 | ||||
| Total current assets | 453,356 | 462,490 | ||||
Property, plant and equipment at cost, net | 76,699 | 78,547 | ||||
| Goodwill | 125,585 | 125,585 | ||||
| Long-term investments | 34,912 | 23,519 | ||||
| Other assets, net | 63,054 | 65,378 | ||||
| Total assets | $ | 753,606 | $ | 755,519 | ||
| Liabilities and shareholders' equity | ||||||
| Current Liabilities: | ||||||
| Accounts payable | 19,809 | 19,657 | ||||
| Accrued expenses | 49,163 | 58,070 | ||||
| Deferred gross profit | 9,265 | 14,566 | ||||
| Other current liabilities | 7,875 | 12,174 | ||||
| Total current liabilities | 86,112 | 104,467 | ||||
Long-term debt, net of current portion | 235,156 | 215,519 | ||||
| Other non-current liabilities | 11,932 | 11,562 | ||||
| Shareholders' equity | 420,406 | 423,971 | ||||
| Total liabilities and shareholders' equity | $ | 753,606 | $ | 755,519 | ||
See accompanying notes.
5
Veeco Instruments Inc. and December 31, 2000 6
Subsidiaries
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 7
(In thousands)
(Unaudited)
| | Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | |||||
| Net cash provided by operating activities | $ | 1,783 | $ | 2,049 | |||
Investing Activities | |||||||
| Capital expenditures | (2,078 | ) | (4,451 | ) | |||
| Payment for net assets of businesses acquired | — | (1,791 | ) | ||||
| Net purchases of short-term investments | — | (391 | ) | ||||
| Net purchases of long-term investments | (2,387 | ) | — | ||||
| Net cash used in investing activities | (4,465 | ) | (6,633 | ) | |||
Financing Activities | |||||||
| Proceeds from stock issuance | 255 | 272 | |||||
| Repayment of long-term debt, net | (449 | ) | (507 | ) | |||
| Proceeds from issuance of long-term debt | 20,000 | — | |||||
| Payment for debt issuance costs | (1,185 | ) | — | ||||
| Net cash provided by (used in) financing activities | 18,621 | (235 | ) | ||||
| Effect of exchange rates on cash and cash equivalents | 15 | 2,253 | |||||
| Net change in cash and cash equivalents | 15,954 | (2,566 | ) | ||||
| Cash and cash equivalents at beginning of period | 203,154 | 63,419 | |||||
| Cash and cash equivalents at end of period | $ | 219,108 | $ | 60,853 | |||
See accompanying notes.
6
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis(Unaudited)
Note 1—Basis 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 Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,
--------
2001 2000
---- ----
Net sales $ 113,455 $ 102,324
Cost of sales 59,951 73,329
--------- ---------
Gross profit 53,504 28,995
Costs and expenses:
Research and development expense 15,400 14,063
Selling, general and administrative expense 21,289 19,158
Amortization expense 881 976
Other expense, net 226 61
Merger and restructuring expenses 1,000 13,956
Asset impairment charge -- 3,722
--------- ---------
Operating income (loss) 14,708 (22,941)
Interest income, net (397) (136)
--------- ---------
Income (loss) before income taxes 15,105 (22,805)
Income tax provision (benefit) 5,105 (8,779)
--------- ---------
Net income (loss) $ 10,000 $ (14,026)
========= =========
Net income (loss) per common share $ 0.40 ($0.60)
Diluted net income (loss) per common share $ 0.40 ($0.60)
Weighted average shares outstanding 24,767 23,463
Diluted weighted average shares outstanding 25,215 23,463
SEE ACCOMPANYING NOTES.
4
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Six Months Ended
June 30,
--------
2001 2000
---- ----
Net sales $ 240,723 $ 189,155
Cost of sales 127,935 119,792
--------- ---------
Gross profit 112,788 69,363
Costs and expenses:
Research and development expense 31,116 27,408
Selling, general and administrative expense 42,979 36,286
Amortization expense 2,317 1,485
Other expense, net 1,632 41
Merger and restructuring expenses 1,000 14,206
Asset impairment charge -- 3,722
--------- ---------
Operating income (loss) 33,744 (13,785)
Interest income, net (1,163) (521)
--------- ---------
Income (loss) before income taxes 34,907 (13,264)
Income tax provision (benefit) 12,034 (5,186)
--------- ---------
Net income (loss) before cumulative effect of change in
accounting principle 22,873 (8,078)
Cumulative effect of change in accounting principle, net
of taxes -- (18,382)
--------- ---------
Net income (loss) $ 22,873 $ (26,460)
========= =========
Net income (loss) per common share before cumulative
effect of change in accounting principle $ 0.93 $ (0.35)
Cumulative effect of change in accounting principle -- (0.79)
--------- ---------
Net income (loss) per common share $ 0.93 $ (1.14)
========= =========
Diluted net income (loss) per common share before cumulative
effect of change in accounting principle $ 0.91 $ (0.35)
Cumulative effect of change in accounting principle -- (0.79)
--------- ---------
Diluted net income (loss) per common share $ 0.91 $ (1.14)
========= =========
Weighted average shares outstanding 24,722 23,253
Diluted weighted average shares outstanding 25,222 23,253
SEE ACCOMPANYING NOTES.
5
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31,
2001 2000
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 60,241 $ 63,420
Short-term investments 27,629 26,895
Accounts receivable, net 86,191 98,248
Inventories 134,958 100,062
Prepaid expenses and other current assets 9,467 8,307
Deferred income taxes 36,769 45,303
-------- --------
Total current assets 355,255 342,235
Property, plant and equipment at cost, net 62,981 60,094
Excess of cost over net assets acquired, net 13,437 9,481
Other assets, net 10,639 11,473
-------- --------
Total assets $442,312 $423,283
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 33,325 33,134
Accrued expenses 58,990 56,093
Deferred gross profit 19,954 28,771
Other current liabilities 3,399 3,774
-------- --------
Total current liabilities 115,668 121,772
Long-term debt, net of current portion 13,960 14,631
Other non-current liabilities 3,845 3,972
Shareholders' equity 308,839 282,908
-------- --------
Total liabilities and shareholders' equity $442,312 $423,283
======== ========
SEE ACCOMPANYING NOTES.
6
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
--------
OPERATING ACTIVITIES 2001 2000
---- ----
Net income (loss) $ 22,873 $(26,460)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 8,501 7,493
Deferred income taxes 8,316 1,193
Stock option income tax benefit 1,812 5,576
Other, net 2 (21)
Asset impairment charge -- 3,722
Write-off of CVC inventory -- 15,322
Cumulative effect of change in accounting principle, net of taxes -- 18,382
Changes in operating assets and liabilities:
Accounts receivable 8,935 (20,316)
Inventories (35,798) (9,136)
Accounts payable 353 6,720
Accrued expenses, deferred gross profit and other current
liabilities (4,555) (18,019)
Other, net (2,030) 1,472
Recoverable income taxes -- (9,487)
Operating activities three months ended 12/31/99 - CVC -- 638
-------- --------
Net cash provided by (used in) operating activities 8,409 (22,921)
INVESTING ACTIVITIES
Capital expenditures (9,083) (11,923)
Proceeds from sale of property, plant and equipment 11 230
Payment of net assets of businesses acquired (7,529) (7,177)
Net purchases of short-term investments (733) (1,295)
Proceeds from sale of business -- 3,000
Investing activities three months ended 12/31/99- CVC -- (528)
-------- --------
Net cash used in investing activities (17,334) (17,693)
FINANCING ACTIVITIES
Proceeds from stock issuance 2,358 11,886
Repayment of long-term debt, net (809) (8,570)
Net proceeds from borrowings under line of credit -- 17,005
Financing activities three months ended 12/31/99- CVC -- 3,627
-------- --------
Net cash provided by financing activities 1,549 23,948
Effect of exchange rates on cash and cash equivalents 4,197 672
-------- --------
Net change in cash and cash equivalents (3,179) (15,994)
Cash and cash equivalents at beginning of period 63,420 29,852
-------- --------
Cash and cash equivalents at end of period $ 60,241 $ 13,858
======== ========
SEE ACCOMPANYING NOTES.
7
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATIONPresentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in 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 in 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 sixthree months ended June 30, 2001March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001.2002. 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, 2000.2001.
Earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of common and common equivalent shares outstanding during the period. The effect of common equivalent shares for the three months and six months ended June 30, 2000March 31, 2002 was antidilutive, and therefore were excluded from the diluted weighted average shares outstanding.earnings per share is not presented for such period.
The following table sets forth the reconciliation of diluted weighted average shares outstanding:
| | Three Months Ended March 31, | |||
|---|---|---|---|---|
| | 2002 | 2001 | ||
| | (In thousands) | |||
| Weighted average shares outstanding | 29,021 | 24,678 | ||
| Dilutive effect of stock options | — | 552 | ||
| Diluted weighted average shares outstanding | 29,021 | 25,230 | ||
In addition, the assumed conversion of available-for-sale securities approximate fair value.
The followingsubordinated convertible notes is a summary of available-for-sale securities:
Note 2—Balance Sheet Information
Inventories
Interim inventories have been determined by lower of cost (principally first-in, first-out) or market. Inventories consist of:
| | March 31, 2002 | December 31, 2001 | ||||
|---|---|---|---|---|---|---|
| | (In thousands) | |||||
| Raw materials | $ | 56,128 | $ | 59,065 | ||
| Work-in-progress | 22,318 | 26,068 | ||||
| Finished goods | 20,827 | 16,286 | ||||
| $ | 99,273 | $ | 101,419 | |||
7
Other Balance Sheet Information
| | March 31, 2002 | December 31, 2001 | ||||
|---|---|---|---|---|---|---|
| | (In thousands) | |||||
| Allowance for doubtful accounts | $ | 3,253 | $ | 3,350 | ||
| Accumulated depreciation and amortization of property, plant and equipment | $ | 58,110 | $ | 54,826 | ||
| Accumulated amortization of intangible assets | $ | 16,926 | $ | 13,179 | ||
Note 3—Segment Information
The following represents the reportable product segments of the Company as of and for the three months ended March 31, 2002 and 2001, in thousands:
| | Net Sales | Income (loss) before interest, taxes and amortization | Total Assets | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | ||||||||||||
| Process Equipment | $ | 44,852 | $ | 80,297 | $ | (1,856 | ) | $ | 16,302 | $ | 308,567 | $ | 180,653 | |||||
| Metrology | 35,297 | 45,089 | 5,121 | 7,349 | 136,753 | 106,441 | ||||||||||||
| Restructuring expense | — | — | (837 | ) | — | — | — | |||||||||||
| Unallocated Corporate amount | — | — | (1,945 | ) | (2,608 | ) | 308,286 | 159,809 | ||||||||||
| Total | $ | 80,149 | $ | 125,386 | $ | 483 | $ | 21,043 | $ | 753,606 | $ | 446,903 | ||||||
Note 4—Comprehensive Income (Loss)
Total comprehensive (loss) income (loss) was $9.7($3.9) million and $21.7$12.0 million for the three and six months ended June 30,March 31, 2002 and 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,
Note 5—Recent Accounting Pronouncements
Effective January 1, 2002, the Company acquired ThermoMicroscopes Corp. ("TM"), a
manufacturer of atomic force microscopes, scanning probe microscopes, near field
optical microscopesadopted SFAS No. 142,Goodwill and probes. TM, formerly a subsidiary of Thermo Electron
Corporation, is based in Sunnyvale, California.Other Intangible Assets. The acquisition was accounted
for using the purchase method of accounting. Results of operations prior to the
acquisitionintangible assets that are not material to the Condensed Consolidated Statements of
Operations for the threeclassified as goodwill and six months ended June 30, 2001.
On April 19, 2001, the Company entered into a new revolving credit facility (the
"Facility"), which replaces the Company's prior $40 million revolving credit
facility. The Facility provides the Companythose 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 borrowingsindefinite lives are no longer amortized 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 limitationsprovisions of this standard. Intangible assets with respect to incurrence of indebtedness, limitation on the payment of dividends,
long-term leases, investments, mergers, consolidations and sales of assets. The
Company is also required to satisfy certain financial tests. As of June 30,
2001, no borrowings were outstanding under the Facility.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and other intangible assets
deemed to have indefinitedeterminable 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 estimated useful lives. In addition,
Statement 141 eliminateslife. The standard also requires that an impairment test be performed to support the pooling-of-interests methodcarrying value of accounting for
business combinations, except for qualifying business combinations that were
initiated prior to July 1, 2001.goodwill and indefinite lived intangible assets at least annually.
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 performcompleted the first of the required impairment tests of goodwill and indefinite lived intangible assets in the first quarter of 2002. The Company utilized an independent appraisal as part of its evaluation process. The Company has reviewed its business and determined that four reporting units be reviewed for impairment in accordance with the standard. The four reporting units are New York Equipment and Telecommunications, which comprise the process equipment operating segment, and AFM and Optical, which comprise the metrology operating segment. Based upon the independent appraisal and the judgment of management, it was determined that there is no impairment to goodwill as of January 1, 2002.
8
The following table outlines the components of goodwill and intangible assets by business segment at March 31, 2002 after the adoption of the standard, in thousands:
| | Process Equipment Segment | Metrology Segment | Unallocated Corporate | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Goodwill | $ | 102,808 | $ | 22,777 | $ | — | $ | 125,585 | ||||
| Intangible assets | 42,210 | 12,606 | 7,325 | 62,141 | ||||||||
| Total | $ | 145,018 | $ | 35,383 | $ | 7,325 | $ | 187,726 | ||||
Net income for the three months ended March 31, 2001, includes approximately $0.4 million of goodwill amortization expense. Excluding this amount would have resulted in net income per common share and diluted net income per common share of $0.54 and $0.53, respectively, for the three months ended March 31, 2001.
In January 2002, the Company adopted SFAS No. 144,Accounting for the Impairment or Disposal of Long Lived Assets (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30,Reporting the Results of Operations for a Disposal of a Segment of a Business. Adoption of this Statement did not have an impact on the Company's consolidated financial position or results of operations.
Note 6—Recent Events
Restructuring
During the three months ended March 31, 2002, the Company incurred a restructuring charge of $0.8 million related to the reduction in work force announced in the fourth quarter of 2001. This charge includes severance related costs for approximately 60 employees which included both management and manufacturing employees located at the Company's Minnesota, Plainview and Rochester operations. As of March 31, 2002, approximately $0.3 million has been expended and approximately $0.5 million remains accrued.
During the year ended December 31, 2001, the Company recorded restructuring charges of approximately $20.0 million in response to the significant downturn in the telecommunications industry and the overall weak business environment. These charges consisted of a $13.6 million write-off of inventory related to order cancellations and the rationalization of certain product lines, $3.0 million related to personnel and business relocation costs and $3.4 million related to the write-down of long-lived assets. The $3.0 million charge for personnel and business relocation costs principally related to plant consolidations and a workforce reduction of approximately 230 employees, which included both management and manufacturing employees located in all operations of the Company. As of March 31, 2002, approximately $1.7 million of the $3.0 million charge for relocation and termination benefits has been paid and approximately $1.3 million remains accrued.
Discontinued Operations
In January 2002, Veeco signed a letter of intent to sell the remainder of its industrial measurement business. This is the measurement date of the disposal and accordingly, the Company has classified the industrial measurement business as a discontinued operation. During the three months ended March 31, 2002, the Company recorded an additional loss on the disposal of the discontinued operations of $0.3 million, net of taxes of approximately $0.2 million. The net assets held for sale of approximately $4.0 million are included in prepaid expenses and other current assets in the accompanying March 31, 2002 Condensed Consolidated Balance Sheet. The closing of the sale is expected to take place in the second quarter of 2002.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations.
Three Months Ended March 31, 2002 and 2001
Net sales of $80.1 million for the three months ended March 31, 2002, represents a decrease of 36% from the 2001 comparable period net sales of $125.4 million, reflecting a decrease in both process equipment and metrology sales. Sales in the U.S., Europe, Japan and Asia Pacific, accounted for 55%, 14%, 17% and 14%, respectively, of the Company's net sales for the three months ended March 31, 2002. Sales in the U.S. decreased 40% from the comparable 2001 period due to a 43% decline in U.S. process equipment sales, particularly in sales of optical filter deposition products to the telecommunications industry, and a 31% decrease in U.S. metrology sales. This decrease in U.S. sales is offset in part by $9.3 million of sales of molecular beam epitaxy (MBE) equipment produced by Applied Epi, which was acquired in September 2001. Sales in Europe decreased 29% from the comparable 2001 period, due primarily to a decline in etch and deposition equipment sales to the data storage industry. Sales in Japan decreased 49% from the comparable 2001 period as a result of a decline in sales for both etch and deposition equipment and atomic force microscopes (AFMs). Sales in Asia Pacific remained relatively flat from the comparable 2001 period. The Company believes that there will continue to be quarter-to-quarter variations in the geographic concentration of sales.
Process equipment sales of $44.8 million for the three months ended March 31, 2002, represents a decrease of $35.5 million, or 44%, from the comparable 2001 period, due primarily to an 88% decrease in optical filter deposition sales to the telecommunications industry, as well as a 30% decline in etch and deposition sales, principally to the data storage industry. Metrology sales of $35.3 million for the three months ended March 31, 2002 decreased by $9.8 million, or 22%, over the comparable 2001 period, due primarily to a 43% decline in sales of optical metrology products, as well as a 15% decrease in the sale of AFMs.
Veeco received $70.2 million of orders during the three months ended March 31, 2002, a 36% decrease compared to $110.2 million of orders for the comparable 2001 period. Process equipment orders decreased 47% to $38.4 million, principally reflecting a decrease in orders for the telecommunications industry, as well as a decrease in orders for etch and deposition systems by data storage customers. Metrology orders decreased by 15% to $31.8 million, reflecting a decrease in bookings for both the Company's AFM and optical metrology line of products. The book/bill ratio for the first quarter of 2002 was 0.88.
The order and sales declines are a result of the general economic slowdown that has had a very significant impact on the telecommunications, data storage and semiconductor markets that the Company serves.
The Company's backlog generally consists of product orders for which a purchase order has been received and which are scheduled for shipment within twelve months. Veeco schedules production of its systems based on order backlog and customer commitments. Because certain of the Company's orders require products to be shipped in the same quarter in which the order was received, and due to possible changes in delivery schedules, cancellations of orders and delays in shipment, the Company does not believe that the level of backlog at any point in time is an accurate indicator of the Company's future performance. Due to the current weak business environment, the Company may experience cancellation and/or rescheduling of orders.
Gross profit for the three months ended March 31, 2002 of $33.7 million, represents a decrease of $25.0 million from the comparable 2001 period. Gross profit as a percentage of net sales decreased to 42.1% from 46.8% for the three months ended March 31, 2001, primarily as a result of the significant decline in sales volume for both process equipment and metrology.
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Research and development expenses of $13.3 million for the three months ended March 31, 2002, decreased by $1.8 million, or 12%, over the comparable period of 2001. The decrease principally relates the overall decline in business and the cost reduction efforts taken by the Company during the fourth quarter of 2001, which included a 15% workforce reduction, plant consolidations, selective work-week reductions and reduced management salaries.
Selling, general and administrative expenses of $19.0 million for the three months ended March 31, 2002, decreased by approximately $2.1 million, or 10%, over the comparable 2001 period. The decrease is due to decreased selling and commission expense related to the lower sales volume and the cost cutting measures mentioned above. The decrease in selling, general and administrative expenses is offset, in part, by $2.4 million of expenses from the acquisitions of Applied Epi and ThermoMicroscopes ("TM"), which had no comparable spending in 2001.
Amortization expense totaled $3.7 million in the first quarter of 2002 versus $1.4 million in 2001. The increase is due primarily to the intangible assets acquired in connection with the acquisitions of Applied Epi and TM, offset in part by $0.4 million of reduced amortization expense related to the accounting requirement to no longer amortize goodwill, effective January 1, 2002, in accordance with SFAS No. 142,Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill is to be reviewed annually for impairment. As of January 1, 2002, no impairment exists.
Other expense decreased $1.4 million due to a significant reduction in foreign currency exchange losses, compared to the first quarter of 2001.
During the three months ended March 31, 2002, the Company incurred a restructuring charge of $0.8 million related to the reduction in work force announced in the fourth quarter of 2001. This charge includes severance related costs for approximately 60 employees which included both management and manufacturing employees located at the Company's Minnesota, Plainview and Rochester operations. As of March 31, 2002, approximately $0.3 million has been expended and approximately $0.5 million remains accrued. During the year ended December 31, 2001, the Company recorded restructuring charges of approximately $20.0 million in response to the significant downturn in the telecommunications industry and the overall weak business environment. These charges consisted of a $13.6 million write-off of inventory related to order cancellations and the rationalization of certain product lines, $3.0 million related to personnel and business relocation costs and $3.4 million related to the write-down of long-lived assets. The $3.0 million charge for personnel and business relocation costs principally related to plant consolidations and a workforce reduction of approximately 230 employees, which included both management and manufacturing employees located in all operations of the Company. As of March 31, 2002, approximately $1.7 million of the $3.0 million charge for relocation and termination benefits has been paid and approximately $1.3 million remains accrued.
Interest expense, net of $1.5 million for the three months ended March 31, 2002 increased $2.3 million from the comparable 2001 period as a direct result of the issuance of $220.0 million of 4.125% convertible subordinated notes, which occurred in December 2001 and January 2002.
Income taxes for the three months ended March 31, 2002 amounted to a benefit of $1.6 million, or 34%, of loss before income taxes, as compared to $7.2 million, or 35%, of income before income taxes, for the same period of 2001.
Quarterly information for the three months ended March 31, 2001, has been restated from that previously filed on the Quarterly Report on Form 10-Q for such period, due to the required accounting for the discontinued operations of the Company's industrial measurement segment.
Critical Accounting Policies
General: Veeco's discussion and analysis of its financial condition and results of operations are based upon Veeco's consolidated financial statements, which have been prepared in accordance with
11
accounting principles generally accepted in the United States. The preparation of these financial statements requires Veeco to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, management evaluates its estimates and judgments, including those related to derivatives, bad debts, inventories, intangible assets, income taxes, warranty obligations, restructuring costs and contingent litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company considers certain accounting policies related to revenue recognition, the valuation of inventories, the impairment of goodwill and intangible assets and derivatives to be critical policies due to the estimation processes involved in each.
Revenue Recognition: The Company recognizes revenue when persuasive evidence of an arrangement exists, the seller's price is fixed or determinable and collectibility is reasonably assured. For products produced according to the Company's published specifications, where no installation is required or installation is deemed perfunctory and no substantive customer acceptance provisions exist, revenue is recognized when title passes to the customer, generally upon shipment. For products produced according to a particular customer's specifications, revenue is recognized when the product has been tested and it has been demonstrated that it meets the customer's specifications and title passes to the customer. The amount of revenue recorded is reduced by the amount of any customer retention (generally 10% to 20%), which is not payable by the customer until installation is completed and final customer acceptance is achieved. Installation is not deemed to be essential to the functionality of the equipment since installation does not involve significant changes to the features or capabilities of the equipment or building complex interfaces and connections. In addition, the equipment could be installed by the customer or other vendors and generally the cost of installation approximates only 1% to 2% of the sales value of the related equipment. For new applications of the Company's existing products, for new products or for products with substantive customer acceptance provisions where performance cannot be fully assessed prior to meeting customer specifications at the customer site, revenue is recognized upon completion of installation and receipt of final customer acceptance. Service and maintenance contract revenues are recorded as deferred revenue, which is included in other accrued expenses, and recognized as revenue on a straight-line basis over the service period of the related contract. The Company provides for warranty costs at the time the related revenue is recognized.
Inventory Valuation: Inventories are stated at the lower of cost (principally first-in, first-out method) or market. Management evaluates the need to record adjustments for impairment of inventory on a quarterly basis. The Company's policy is to assess the valuation of all inventories, including raw materials, work-in-progress, finished goods and spare parts. Obsolete inventory or inventory in excess of management's estimated usage for the next 18 to 24 month's requirements is written-down to its estimated market value, if less than its cost. Inherent in the estimates of market value are management's estimates related to Veeco's future manufacturing schedules, customer demand, technological and/or market obsolescence, possible alternative uses and ultimate realization of excess inventory.
Goodwill and Intangible Asset Impairment: The Company has not yet determined whatsignificant intangible assets related to goodwill and other acquired intangibles. In assessing the effect of these tests will be on earnings and the financial positionrecoverability of the Company.
On January 1, 2001,Company's goodwill and other intangible assets, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instrumentsmust make assumptions regarding estimated future cash flows and Hedging
Activities," as amended
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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 inother factors to determine the fair value of the derivative are either offset againstrespective assets. Changes in strategy and/or market conditions could significantly impact these assumptions, and thus Veeco may be required, during the changeannual review process, to record an impairment charge for these assets 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.accordance with SFAS No. 142.
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Derivatives: During the sixthree months ended June 30, 2001,March 31, 2002, 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 sixthree months ended June 30, 2001March 31, 2002, included alla majority 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 are intended to 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
Liquidity and six months ended June 30,
2001, approximately $62,000 and $991,000, respectively, of realized gains on
forward exchange contractsCapital Resources
Cash flows from operations 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.
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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$1.8 million for the three months ended June 30, 2001, represent
an increase of $11.2March 31, 2002, as compared to $2.0 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 sales2001 period. Net income adjusted for Veeco's Ion Tech
subsidiary. Sales in Europe and Asia Pacific decreased 29% and 39%,
respectively. The decrease in Europe is principally a resultnon-cash items provided operating cash flows 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$2.1 million for the three months ended June 30,
2001, increased by $15.5March 31, 2002 compared to $24.7 million or 27%, overfor the comparable 20002001 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 salesamount of $38.9 millionnet income adjusted for non-cash items 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,March 31, 2002 was 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 quarterworking capital 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.
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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$0.3 million. Accounts receivable for the three months ended June 30, 2001, increasedMarch 31, 2002 decreased by approximately $1.3$18.1 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, in conjunction with the merger with CVC.
Of these charges, a $15.3 million non-cash charge related to a write-off of
inventory (included in cost of sales), $14.0 million represented merger and
reorganization costs (of which $9.2 million related to transaction costs and
$4.8 million pertained to duplicate facility and personnel costs) and $3.7
million was for the write-down of long-lived assets.
Income taxes for the three months ended June 30, 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, that was included in the cumulative effect adjustment. The effect
of that revenue was to increase second quarter income by $3.8 million (net of
income taxes of $2.7 million).
Quarterly information, previously filed on Form 10-Q, for the three months ended
June 30, 2000, has been restated due to the adoption of SAB 101. The adoption of
SAB 101 had the effect of increasing net sales and decreasing the net loss for
the second quarter of 2000 by $8.7 million and $1.2 million, respectively, and
basic and diluted earnings per share increased by $0.05.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER
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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 approximately $51.6 million, or 27%, over the
comparable 2000 period. The increase is primarily due to an increase in Ion Tech
sales of $49.2 million. Sales in the U.S., Europe, Japan and Asia Pacific
accounted for 58%, 12%, 21% and 9%, respectively, of the Company's net sales for
the six months ended June 30, 2001. Sales in the U.S. increased by 64%,
principally as a result of increased process equipment sales of optical
telecommunications equipment for Veeco's Ion Tech subsidiary, as well as an
increase in sales of AFMs. Sales in Europe remained relatively flat when
compared to the comparable 2000 period. Sales in Japan increased by 12% as a
result of an increase in AFM sales. Asia Pacific sales decreased by 25% as a
result of a 65% decline in optical metrology sales, partially offset by
increased Ion Tech sales.
Process equipment sales were $153.5 million for the six months ended June 30,
2001, an increase of approximately $40.7 million, or 36%, from the comparable
2000 period, due to an increase in sales of Ion Tech products, partially offset
by a decline in etch and deposition sales. Metrology sales for the 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 AFMs, offset by a 31% decline in optical metrology
sales.
Veeco received $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 2000
period. Process equipment orders decreased 22% to $113.0 million, principally
reflecting a decrease in optical telecommunications orders. Metrology orders
decreased 17% to $77.4 million, reflecting a 51% decrease in optical metrology
products, offset by a 10% increase in AFMs. The book/bill ratio for the six
months ended June 30, 2001 was 0.81.
Gross profit, as a percentage of net sales increased to 46.9%, from 36.7% 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, 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 $31.1 million for the six months ended June
30, 2001, represent an increase of approximately $3.7 million, or 14%, over the
comparable period of 2000, due primarily to expenditures in connection with the
development of new products for the Ion Tech and AFM metrology product areas.
Selling, general and administrative expenses of $43.0 million for the six months
ended June 30, 2001, represent an increase of approximately $6.7 million, or
18%, over the comparable 2000 period. The increase is due to increased selling
and commission expense as a result of increased sales volume, primarily related
to the Ion Tech and AFM product lines. As a percentage of sales, selling,
general and administrative expenses decreased to 17.9% of net sales in 2001 from
19.2% in 2000.
15
The Company recorded merger and restructuring charges during the six months
ended June 30, 2001 and 2000 as 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 increase in foreign currency
exchange losses.
Income taxes for the six months ended June 30, 2001, amounted to $12.0 million,
or 34% of income before income taxes, as compared to a $5.2 million income tax
benefit, or 39% of loss before income taxes, for the same period of 2000.
As noted above, the Company changed its method of accounting for revenue
recognition in accordance with SAB No. 101. The cumulative effect of this change
on prior years resulted in the deferral of $67.0 million of revenue and a charge
to income of $18.4 million (net of income taxes of $12.6 million) recorded as of
January 1, 2000, and is included in the Consolidated Statement of Operations for
the six months ended June 30, 2000. The Company recognized approximately $53.0
million of this deferred revenue during the six months ended June 30, 2000. The
effect of that revenue was to increase income in the first half of 2000 by $14.7
million (net of income taxes of $10.1 million).
Results for the six months ended June 30, 2000, previously filed on Form 10-Q,
have been restated due to the adoption of SAB 101. The adoption of SAB 101 had
the effect of increasing net sales by $17.7 million for the first half of 2000.
Net loss for the first half of 2000 increased by $13.7 million, and basic and
diluted loss per share increased by $0.59.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totaled $8.4 million for the six months ended
June 30, 2001, compared to cash used in operations of $22.9 million for the
comparable 2000 period. Cash provided by operations in 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
accounts receivable and an increase in accounts payable of $8.9 million and $0.4
million, respectively. These items were partially offset by a decrease in
accrued expenses, deferred gross profit and other current liabilities of $4.6
million and an increase in inventories of $35.8 million during the six months
ended June 30, 2001. Accounts receivable decreased due to a slight decline in sales volume from the fourth quarter of 2000 and improved customer collections.
The decrease in accrued expenses, deferred2001. 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.
Inventories increased by $35.8 million, due primarily to rescheduled shipments,
the impact of SAB 101 and new product production. Net cash used in operations
for the six months ended June 30, 2000 included operating activities for the three months ended DecemberMarch 31, 1999,2002 decreased by $5.3 million as a result of revenue recognition on tools that received final customer acceptance. Taxes payable decreased by $8.1 million, as a result of income tax payments made by the Company's Japanese subsidiary and various other tax payments made in the first quarter of 2002 related to CVC. Priorsales and foreign taxes. In addition, accrued expenses decreased as a result of bonuses paid in the first quarter of 2002 and the decrease in accrued commission expense related to the merger, CVC's
fiscal year end was September 30.
Net cash useddecline in investing activities forsales volume.
In December 2001, the six months ended June 30, 2001,
totaled $17.3 million compared to $17.7 million for the comparable 2000 period.
Cash used in 2001 consisted
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of $9.1Company issued $200.0 million of capital expenditures. The4.125% convertible subordinated notes, and in January 2002, the Company also expended $7.5 million
for the net assets of businesses acquired, which included a $6.3 million payment
of contingent consideration to the former shareholders of OptiMag, based upon
year 2000 sales and the appraised value of OptiMag and a $1.2 million payment to
the seller in connection with the atomic force microscope acquisition. Included
in the net cash used in investing activities for the six months ended June 30,
2000 is investing activities for the three months ended December 31, 1999,
related to CVC.
Net cash provided by financing activities for the six months ended June 30,
2001, totaled $1.5 million, compared to $23.9 million for the comparable 2000
period. Cash provided by financing activities in 2001 consisted of proceeds of
$2.4 million from stock issuances upon exercise of stock options, offset by $0.8issued an additional $20.0 million of debt repayments. Net cash provided by financing activities for the
six months ended June 30, 2000 included financing activities for the three
months ended December 31, 1999, relatednotes pursuant to CVC.an over allotment option.
In connection with the acquisition of TM,subordinated notes issuance in December 2001 and January 2002, the Company expendedpurchased 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 $100$25.9 million of availability. The Facility's interest rate isU.S. government securities, which have been pledged to the prime ratetrustee under the indenture as security for the exclusive benefit of the lending
banks and is adjustableholders of the notes. These securities will be sufficient to a maximum rateprovide for the payment in full 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
basedfirst six scheduled 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, limitationpayments due on the paymentnotes and represent restricted investments.
Funds from operations and the use of dividends,proceeds received from the issuance of the subordinated note over allotment option in January 2002 were used to pay for capital expenditures and the scheduled repayment of long-term leases, investments, mergers, consolidationsdebt.
At March 31, 2002, Veeco's contractual cash obligations and sales of assets. The
Company is also requiredcommitments relating to satisfy certain financial tests. As of June 30,
2001, no borrowings were outstanding under the Company's credit facility.its debt obligations and lease payments are as follows (in thousands):
| Contractual Obligations | Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Long-term debt | $ | 238,614 | $ | 3,458 | $ | 3,022 | $ | 1,261 | $ | 230,873 | |||||
| Operating leases | 17,060 | 2,456 | 4,558 | 3,205 | 6,841 | ||||||||||
| Letters of credit | 3,971 | 3,971 | — | — | — | ||||||||||
| $ | 259,645 | $ | 9,885 | $ | 7,580 | $ | 4,466 | $ | 237,714 | ||||||
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The Company believes that existing cash balances together with cash generated from operations and amounts available under the FacilityCompany's $100.0 million credit facility will be sufficient to meet the Company's projected working capital and other cash flow requirements for the next twelve months.
17
ITEM
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Veeco's investment portfolio consists of cash equivalents, commercial paperQuantitative and obligations of U.S. Government agencies. These investments are considered
available-for-sale securities; accordingly, the carrying amounts approximate
fair value. Assuming June 30, 2001 variable debt and investment levels, a
one-point change in interest rates would not have a material impact on net
interest income.Qualitative Disclosure About Market Risk.
Veeco's net sales to foreign customers represented approximately 43% and 42%45% of Veeco's total net sales for the three and six
months ended June 30, 2001, respectively,March 31, 2002 and 54% and 55%41% for the three and six
months ended June 30, 2000, respectively.comparable 2001 period. The Company expects that net sales to foreign customers will continue to represent a large percentage of Veeco's total net sales. Veeco's net sales denominated in foreign currencies represented approximately 12% and 14%19% of Veeco's total net sales for the three and six
months ended June 30, 2001, respectively,March 31, 2002, and 8% and 9%15% for the three and six
months ended June 30, 2000, respectively.comparable 2001 period. The aggregate foreign currency exchange loss included in determining consolidated results of operations was $272,000immaterial during the three months ended March 31, 2002, and $1,733,000,was $1.5 million, net of $62,000 and $991,000$0.9 million of realized hedging gains inon forward exchange contracts, for the three and six months ended June 30, 2001, respectively.March 31, 2001. The change in currency exchange raterates that hashave the largest impact on translating Veeco's international operating profit isare the Japanese yen.Yen and the Euro. The Company estimates that based upon the March 31, 2002 balance sheet, a 10% change in foreign currency exchange rates would impact reported operating profit for the six months ended June 30, 2001 by approximately $2.0$1.4 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 usingVeeco uses 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$1.2 million for the three and six
months ended June 30, 2001, respectively.
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14
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
Item 6. Exhibits and Reports on May 11, 2001. The
matters voted on at the meeting were: Form 8-K.
Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities and Exchange Commission by the Company under File No. 0-16244.
| Number | Exhibit | Incorporated by Reference | ||
|---|---|---|---|---|
| 10.1 | Third Amendment dated as of February 7, 2002 to the Credit Agreement, dated April 19, | Annual Report on Form 10-K for the Year Ended December 31, 2001 Exhibit 10.4 | ||
10.2 | Fourth Amendment dated as of March 20, 2002 to the Credit Agreement, dated April 19, 2001 among Veeco Instruments Inc. | Annual Report on Form 10-K for the Year Ended December 31, 2001 Exhibit | ||
10.3 | Security Agreement dated as of March 20, 2002 among Veeco Instruments Inc., the subsidiaries of Veeco named therein and Fleet National Bank, as administrative agent. | * |
None.
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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 8, 2001
May 9, 2002
| Veeco Instruments Inc. | ||||
By: | /s/ EDWARD H. BRAUN | |||
| Edward H. Braun Chairman, Chief Executive Officer and President | ||||
By: | /s/ JOHN F. REIN, JR. | |||
| John F. Rein, Jr. Executive Vice President, Chief Financial Officer, Treasurer and Secretary | ||||