SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 ~~-----------------~~

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR ~~15 (d)~~ 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED ~~JUNE~~SEPTEMBER 30, 2001

Commission file number 0-16244 ~~------------------~~

VEECO INSTRUMENTS ~~INC. (Exact~~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) 100 Sunnyside Blvd. 11797 Woodbury, NY (zip code) Registrant's telephone number, including area code: (516) 677-0200 -------------------

Delaware		11-2989601
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

100 Sunnyside Boulevard		11797
Woodbury, NY		(zip code)
(Address of principal executive offices)

(516) 677-0200
Registrant’s telephone number, including area code

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 ~~|_| 24,805,839~~o

28,738,687 shares of common stock, $0.01 par value per share, were outstanding as of the close of business on ~~July 30,~~November 2, 2001.

SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q (the ~~"Report"~~“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 of Part I hereof, as well as within this Report generally. In addition, when used in this Report, the words ~~"believes," "anticipates," "expects," "estimates," "plans," "intends,"~~“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 and wireless 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

• risk of cancellation or rescheduling of orders, o

• the highly competitive nature of industries in which the Company operates, o

• changes in foreign currency exchange rates, and o

• the other matters discussed in the Business Description contained in the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

Consequently, such forward-looking statements should be regarded solely as the ~~Company's~~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. AND SUBSIDIARIES

INDEX ~~PART 1. FINANCIAL INFORMATION PAGE ----~~

Part I.	Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Statements of Operations — Three Months Ended September 30, 2001 and 2000

	Condensed Consolidated Statements of Operations — Nine Months Ended September 30, 2001 and 2000

	Condensed Consolidated Balance Sheets — September 30, 2001 and December 31, 2000

	Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2001 and 2000

	Notes to Condensed Consolidated Financial Statements

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosure About Market Risk

Part II.	Other Information

Item 1.	Legal Proceedings

Item 6.	Exhibits and Reports on Form 8-K

SIGNATURES

Part I. Financial Information

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
	September 30,
	2001			2000
Net sales	$	115,951		$	81,146
Cost of sales	65,115			43,805
Gross profit	50,836			37,341

Costs and expenses:
Research and development expense	15,414			13,115
Selling, general and administrative expense	21,348			20,164
Amortization expense	1,039			1,180
Other expense, net	765			496
Write-off of purchased in-process technology	8,200			-
Operating income	4,070			2,386
Interest income, net	(263		)	(407		)
Income before income taxes	4,333			2,793
Income tax provision (benefit)	2,485			(392		)
Net income	$	1,848		$	3,185

Net income per common share	$	0.07		$	0.13
Diluted net income per common share	$	0.07		$	0.12

Weighted average shares outstanding	25,413			24,098

Diluted weighted average shares outstanding	25,669			25,561

See Accompanying Notes.

Veeco Instruments Inc. and ~~2000 4~~ Subsidiaries

Condensed Consolidated Statements of Operations ~~- Six Months Ended June 30, 2001~~

(In thousands, except per share data)

(Unaudited)

	Nine Months Ended
	September 30,
	2001			2000
Net sales	$	356,674		$	270,301
Cost of sales	193,050			163,597
Gross profit	163,624			106,704
Costs and expenses:
Research and development expense	46,530			40,523
Selling, general and administrative expense	64,327			56,450
Amortization expense	3,356			2,665
Other expense, net	2,397			537
Merger and restructuring expense	1,000			14,206
Write-off of purchased in-process technology	8,200			-
Asset impairment charge	-			3,722
Operating income (loss)	37,814			(11,399		)
Interest income, net	(1,426		)	(928		)
Income (loss) before income taxes	39,240			(10,471		)
Income tax provision (benefit)	14,519			(5,578		)
Net income (loss) before cumulative effect of change in accounting principle	24,721			(4,893		)
Cumulative effect of change in accounting principle, net of taxes	-			(18,382		)
Net income (loss)	$	24,721		$	(23,275	)

Net income (loss) per common share before cumulative effect of change in accounting principle	$	0.99		$	(0.21	)
Cumulative effect of change in accounting principle	-			(0.78		)
Net income (loss) per common share	$	0.99		$	(0.99	)
Diluted net income (loss) per common share before cumulative effect of change in accounting principle	$	0.97		$	(0.21	)
	$	0.97		$	(0.21	)
Cumulative effect of change in accounting principle	-			(0.78		)
Diluted net income (loss) per common share	$	0.97		$	(0.99	)

Weighted average shares outstanding	24,956			23,537

Diluted weighted average shares outstanding	25,373			23,537

See Accompanying Notes.

Veeco Instruments Inc. and ~~2000 5~~ Subsidiaries

Condensed Consolidated Balance Sheets ~~- June 30, 2001~~

(In thousands)

	September 30,		December 31,
	2001		2000
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	55,160	$	63,420
Short-term investments	-		26,895
Accounts receivable, net	94,001		98,248
Inventories	142,202		100,062
Prepaid expenses and other current assets	10,812		8,307
Deferred income taxes	41,399		45,303
Total current assets	343,574		342,235

Property, plant and equipment at cost, net	75,493		60,094
Excess of cost over net assets acquired, net	129,871		9,481
Intangible assets, net	64,223		6,315
Other non-current assets, net	1,088		5,158
Total assets	$	614,249	$	423,283

Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	25,536	$	33,134
Accrued expenses	63,786		56,093
Deferred gross profit	14,489		28,771
Other current liabilities	10,143		3,774
Total current liabilities	113,954		121,772

Long-term debt, net of current portion	38,055		14,631
Deferred income taxes	28,020		2,681
Other non-current liabilities	1,287		1,291
Shareholders’ equity	432,933		282,908
Total liabilities and shareholders’ equity	$	614,249	$	423,283

See Accompanying Notes.

Veeco Instruments Inc. and ~~December 31, 2000 6~~ Subsidiaries

Condensed Consolidated Statements of Cash Flows ~~- Six Months Ended June 30, 2001~~

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2001			2000

Net cash provided by operating activities	$	13,428		$	6,835

Investing Activities
Capital expenditures	(10,975		)	(14,140		)
Payment for net assets of businesses acquired	(59,557		)	(11,433		)
Net sales/(purchases) of short-term investments	26,896			(2,058		)
Proceeds from sale of business	-			3,000
Other, net	11			(33		)
Net cash used in investing activities	(43,625		)	(24,664		)

Financing Activities
Proceeds from stock issuance	3,002			26,628
Repayment of long-term debt, net	(7,721		)	(8,992		)
Net proceeds from borrowings under line of credit	25,000			17,240
Financing activities three months ended 12/31/99 – CVC	-			3,627
Net cash provided by financing activities	20,281			38,503
Effect of exchange rates on cash and cash equivalents	1,656			1,116
Net change in cash and cash equivalents	(8,260		)	21,790
Cash and cash equivalents at beginning of period	63,420			29,852
Cash and cash equivalents at end of period	$	55,160		$	51,642

See Accompanying Notes.

Veeco Instruments Inc. and ~~2000 7~~ 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 PRESENTATION~~ Presentation

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 ~~six~~nine months ended ~~June~~September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the financial statements and footnotes thereto included in the ~~Company's~~Company’s Annual Report on
Form 10-K for the year ended December 31, 2000.

Earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of common and common equivalent shares outstanding during the period. The effect of common equivalent shares for the ~~three months and six~~nine months ended ~~June~~September 30, 2000 was antidilutive, and therefore ~~were~~was excluded from the diluted weighted average shares outstanding.

The following table sets forth the reconciliation of diluted weighted average shares outstanding:
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands) (In thousands) Weighted average shares outstanding 24,767 23,463 24,722 23,253 Dilutive effect of stock options 448 -- 500 -- ------ ------ ------ ------ Diluted weighted average shares outstanding 25,215 23,463 25,222 23,253 ====== ====== ====== ======
8 ~~VEECO INSTRUMENTS INC. AND SUBSIDIARIES NOTE~~

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2001	2000	2001	2000
	(In Thousands)		(In Thousands)

Weighted average shares outstanding	25,413	24,098	24,956	23,537
Dilutive effect of stock options and warrants	256	1,463	417	—
Diluted weighted average shares outstanding	25,669	25,561	25,373	23,537

Note 2 ~~- BALANCE SHEET INFORMATION SHORT-TERM INVESTMENTS~~ — Balance 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~~

	September 30,		December 31,
	2001		2000
	(In thousands)
Commercial paper	$	-	$	15,730
Obligations of U.S. Government agencies	-		4,404
Other debt securities	-		4,054
Municipal bonds	-		2,707
	$	-	$	26,895

As of September 30, 2001, ~~have contractual maturities~~the Company had sold all of ~~one year or less. During the six months ended June 30, 2001,~~its available-for-sale securities, ~~with~~which had fair values at the ~~date~~dates of sale of approximately ~~$40.4 million were sold. INVENTORIES~~ $67.9 million. The cash generated from the sale of these securities was used for acquisitions and general corporate purposes.

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 SUBSIDIARIES NOTE~~

	September 30,		December 31,
	2001		2000
	(In thousands)
Raw materials	$	74,035		$	60,281
Work-in-progress	41,805			23,703
Finished goods	26,362			16,078
	$	142,202		$	100,062

Other Balance Sheet Information

	September 30,		December 31,
	2001		2000
	(In thousands)
Allowance for doubtful accounts	$	2,206	$	2,116
Accumulated depreciation and amortization of property, plant and equipment	$	51,125	$	38,801

Note 3 ~~- SEGMENT INFORMATION~~ — Segment Information

The following represents the reportable product segments of 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~~

	Process Equipment			Metrology		Industrial Measurement			Unallocated Corporate Amount			Non-recurring Charges			Total
Three Months Ended September 30, 2001

Net sales	$	65,887		$	48,389	$	1,675		$	—		$	—		$	115,951
Operating income (loss)	7,443			7,685		(591		)	(2,267		)	(8,200		)	4,070

Three Months Ended September 30, 2000

Net sales	38,819			39,753		2,574			—			—			81,146
Operating income (loss)	(875		)	7,487		(1,368		)	(2,858		)	__			2,386

Nine Months Ended September 30, 2001

Net sales	219,429			132,326		4,919			—			—			356,674
Operating income (loss)	35,653			20,070		(1,972		)	(6,737		)	(9,200		)	37,814
Total assets	354,357			135,858		6,860			117,174			__			614,249

Nine Months Ended September 30, 2000

Net sales	151,706			110,486		8,109			—			—			270,301
Operating income (loss)	10,376			19,315		(2,308		)	(5,532		)	(33,250		)	(11,399		)
Total assets	$	150,658		$	96,038	$	11,163		$	163,888		$	—		$	421,747

Note 4 ~~- COMPREHENSIVE INCOME (LOSS)~~ — Comprehensive Income (Loss)

Total comprehensive income (loss) was ~~$9.7~~$3.0 million and ~~$21.7~~$24.7 million for the three and ~~six~~nine months ended ~~June~~September 30, 2001, respectively, and ~~($14.5)~~$2.6 million and ($~~27.3)~~24.6) million for the three and ~~six~~nine months ended ~~June~~September 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~~

Note 5 ~~- RECENT EVENTS~~ — Recent Events

Acquisition of Applied Epi, Inc.

On September 17, 2001, a wholly owned subsidiary of the Company merged with and into Applied Epi, Inc. (“Applied Epi”), of St. Paul, Minnesota. As a result of the merger, Applied Epi became a subsidiary of the Company. Applied Epi provides molecular beam epitaxy (“MBE”) equipment used in manufacturing high-speed compound semiconductor devices for telecommunications, optoelectronic and wireless markets. Applied Epi, founded in 1986, was a privately held company. Under the merger agreement, the stockholders of Applied Epi received an aggregate of 3,883,460 shares of Veeco common stock and $29.8 million in cash. In addition, the Company incurred acquisition costs and exchanged and assumed options and warrants of Applied Epi for options and warrants to purchase 1,021,248 shares of the Company’s common stock. The assumed options and warrants were recorded at fair market value using the Black-Scholes option-pricing model. The merger consideration is computed as follows (in thousands):

Fair market value of shares issued	$	101,040
Cash payment	29,800
Fair market of stock options/warrants assumed	19,223
Transaction costs	2,905
Total purchase price	$	152,968

The merger was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired, based upon their estimated fair values, as determined by an independent appraisal as follows (in thousands):

Accounts receivable, net	$	12,389
Inventories	11,966
Other current assets	418
Property, plant and equipment, net	12,812
Excess cost over net assets acquired, net	101,397
Amortizable intangible assets, net	48,500
In-process technology	7,000
Other non-current assets	4,830
Total assets	199,312
Accounts payable	2,139
Other current liabilities	10,582
Deferred income taxes	22,663
Long-term debt	10,960
Total liabilities	46,344
Total purchase price	$	152,968

The purchase price was allocated to intangible assets as follows: approximately $101.4 million to excess of cost over net assets acquired, which is non-amortizable under Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets; $41.0 million to core technology, amortizable over approximately six years; $1.0 million to non-compete agreements, amortizable over three years; $4.5 million to customer related intangibles, amortizable over six months to five years and$2.0 million to trademarks and trade names, amortizable over ten years. In-process research and development (“R&D”) projects that had not reached technological feasibility and had no alternative future uses totaled $7.0 million, and thus were expensed as of the date of the acquisition. The value assigned to purchased in-process R&D was determined by using the income approach, which involves estimating the discounted after-tax cash flows attributable to projects, based on the projects’ stage of completion. The rate utilized to discount the net cash flows to their present value was 25%.

The following table represents the pro forma results of Veeco and Applied Epi, as if the combination had been consummated as of January 1, 2000:

	Nine months ended
	September 30,
	2001		2000
	(In thousands, except earnings per share)
Revenue	$	387,658	$	279,217
Income (loss) before cumulative effect of change in accounting principle	27,849		(33,120		)
Net income (loss)	27,849		(51,502		)

Net income (loss) per common share before cumulative effect of change in accounting principle	$	0.94	$	(1.16	)
Net income (loss) per common share	$	0.94	$	(1.81	)
Diluted net income (loss) per common share before cumulative effect of change in accounting principle	$	0.92	$	(1.16	)
Diluted net income (loss) per common share	$	0.92	$	(1.81	)

The results of operations for Applied Epi for the nine months ended September 30, 2001 and 2000 include non-recurring charges of $1.1 million and $18.1 million, respectively, related to stock based compensation expense. The pro forma results of operations for the nine months ended September 30, 2000 include a $7.0 million charge related to the write-off of purchased in-process technology.

The results of operations for Applied Epi for the period from September 18, 2001 to September 30, 2001 are included in the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2001.

Acquisition of ThermoMicroscopes Corp.

On July 16, 2001, the Company acquired ThermoMicroscopes Corp. ~~("TM"~~(“TM”), formerly a subsidiary of Thermo Electron Corporation, based in Sunnyvale, California, for cash. TM is 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~~nine months ended ~~June~~September 30, 2001. The results of operations for TM for the period from July 17, 2001 through September 30, 2001 are included in the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2001.

Litigation

On ~~April 19,~~August 15, 2001, a lawsuit was commenced in the Superior Court of California, County of Santa Clara, by Toyo Corporation (“Toyo”) against TM, 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 banksThermo Spectra Corporation and ~~is adjustable~~Thermo Electron Corporation. This lawsuit relates to a ~~maximum rate~~Distribution Agreement between Toyo and TM under which Toyo had been appointed the exclusive distributor for the sale of ~~1/4% above~~TM products in Japan. In 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, whichlawsuit, Toyo claims, among other things, ~~impose limitations~~that TM breached the Distribution Agreement and that the Company, Thermo Spectra and Thermo Electron intentionally interfered with ~~respect~~Toyo’s contractual relationship with TM, in each case, by virtue of the sale of the outstanding shares of TM to ~~incurrence of indebtedness, limitation on~~ the ~~payment of dividends, long-term leases, investments, mergers, consolidations and sales of assets.~~Company, which Toyo alleges was an assignment without Toyo’s consent. The suit alleges damages in a currently unascertained amount. The Company ~~is also required~~intends to ~~satisfy certain~~vigorously defend this lawsuit and has filed a counterclaim against Toyo. The Company does not expect this matter to have a material effect on its consolidated financial ~~tests. As~~condition or results of ~~June 30, 2001, no borrowings were outstanding under the Facility. NOTE~~operations.

Note 6 ~~- RECENT ACCOUNTING PRONOUNCEMENTS~~ — Recent Accounting Pronouncements

In June 2001, the ~~Financial Accounting Standards Board~~FASB issued ~~Statements of Financial Accounting Standards~~SFAS No. 141, ~~BUSINESS COMBINATIONS,~~Business Combinations, and SFAS No. 142, ~~GOODWILL AND OTHER INTANGIBLE ASSETS,~~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~~non-amortization provisions of the Statement is expected to result in a decrease in amortization expense in 2002 of approximately $1.6 million. In addition, ~~any~~the goodwill recorded as a result of the ~~acquisition~~acquisitions of Applied Epi and 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~~standards will behave on the earnings ~~and the~~or financial position of the Company.

On January 1, 2001, the Company adopted ~~Statement of Financial Accounting Standards ("SFAS")~~SFAS No. 133, ~~"Accounting~~Accounting for Derivative Instruments and Hedging Activities", as amended 11 by SFAS No. 138, ~~"Accounting~~Accounting for Certain Derivative Instruments and Hedging Activities --— An Amendment of FASB Statement No. ~~133."~~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~~derivative’s change in fair value is to be immediately recognized in earnings.

During the ~~six~~nine months ended ~~June~~September 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~~nine months ended ~~June~~September 30, 2001 included all of the ~~Company's~~Company’s material foreign subsidiaries). The Company does not use derivative financial instruments for trading or speculative purposes. The ~~Company's~~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~~earnings The aggregate foreign currency exchange gain/(loss) included in determining consolidated results of operations was approximately $105,000 and ~~six months ended June 30, 2001,~~($1,628,000), net of approximately ~~$62,000~~($530,000) and ~~$991,000, respectively,~~$460,000 of realized hedging (losses)/gains, ~~on forward exchange contracts~~which were recorded and included in other expense, ~~net.~~net, in the three and nine months ended September 30, 2001, respectively. 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~~September 30, 2001, there were no open forward contracts. 12 ~~ITEM~~

Item 2. ~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS. THREE MONTHS ENDED JUNE~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations.

Three Months Ended September 30, 2001 ~~AND~~and 2000

Net sales of ~~$113.5~~$116.0 million for the three months ended ~~June~~September 30, 2001, represent an increase of ~~$11.2~~$34.9 million, or ~~11%~~43%, from the 2000 comparable period sales of ~~$102.3~~$81.1 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%~~51%, ~~11%~~22%, ~~23%~~18% and 9%, respectively, of the ~~Company's~~Company’s net sales for the three months ended ~~June~~September 30, 2001. Sales in the U.S. increased ~~36%~~38% from the comparable 2000 period due to a ~~40%~~50% increase in U.S. process equipment sales, principally resulting from an increase in ~~optical telecommunications~~ sales ~~for Veeco's Ion Tech subsidiary.~~into the data storage market. Sales in Europe and ~~Asia Pacific decreased 29%~~Japan increased 73% and ~~39%~~129%, respectively. The ~~decrease~~increases in Europe isand Japan are principally a result of ~~lower~~higher sales of both process equipment and metrology products. ~~The decrease~~Sales in Asia Pacific isdecreased by 30% over the comparable 2000 period, principally as 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~~$65.9 million for the three months ended ~~June~~September 30, 2001, increased by ~~$15.5~~$27.1 million, or ~~27%~~70%, over the comparable 2000 period. The ~~above noted~~ increase in process equipment sales is due principally to increased ~~sales to the optical telecommunications industry, which were partially offset by decreased~~etch and deposition equipment sales to the data storage industry. Metrology sales of ~~$38.9~~$48.4 million for the three months ended ~~June~~September 30, 2001, represent ~~a slight decrease~~an increase of approximately $3$8.6 million, or 7%22%, from the 2000 comparable period sales of ~~$41.8~~$39.8 million. The ~~decrease~~increase in the 2001 period is primarily attributable to increased sales of the Company’s atomic force microscope (AFM) products, offset partly by 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~~$62.6 million of orders during the three months ended ~~June~~September 30, 2001, a ~~38%~~65% decrease compared to ~~$132.4~~$179.9 million of orders for the comparable 2000 period. Process equipment orders decreased ~~52%~~76% to ~~$40.1~~$30.4 million, due primarily to a decline in orders from optical telecommunications customers. ~~Veeco's Ion Tech subsidiary had a decrease of $30.0~~Orders for ion beam deposition products for optical filter manufacturing decreased by $80.6 million, or ~~77%~~95%, ~~in orders~~ from the comparable 2000 period. ~~Etch~~Ion beam etch and deposition equipment orders, principally for data storage manufacturing, decreased ~~30%~~44% to ~~$31.2~~$22.3 million from ~~$44.6~~$40.1 million for the comparable 2000 period. Metrology orders decreased by ~~13%~~40% to ~~$40.2~~$31.1 million, reflecting a decrease in orders for both AFM and optical metrology ~~products, partially offset by a 12% increase in AFM orders.~~products. The ~~Company's~~Company’s book/bill ratio for the ~~second~~third quarter of 2001 was ~~0.72.~~ 0.54.

For the three months ended ~~June~~September 30, 2001, the Company experienced order cancellations, primarily for products related to the optical telecommunications market, representing approximately 7%26% 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 and/or rescheduling of orders. 13

Gross profit, as a percentage of net sales, ~~increased~~for the three months ended September 30, 2001, decreased to ~~47.2%~~43.8%, from ~~28.3%~~46.0% for the comparable 2000 period. ~~Excluding~~The gross margin decline is attributable to a ~~non-cash charge~~significant increase in automated AFM sales where 15% of ~~$15.3 million in June 2000, for the write-off~~revenue was deferred under SAB 101, until final customer acceptance. Nearly all of ~~inventory related~~this deferred revenue equates to profit, due to the ~~merger with CVC Inc. ("CVC"), gross~~fact that minimal related costs have been deferred. During the same period in 2000, AFM sales consisted mostly of non-automated models, for which revenue recognition was not deferred and therefore higher 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. margins were realized upon shipment.

Research and development expenses of $15.4 million for the three months ended ~~June~~September 30, 2001, increased by approximately ~~$1.3~~$2.3 million, or ~~10%~~18%, over the comparable period of 2000, due primarily to the ~~Company's~~Company’s development of next generation products for ~~AFMs and Ion Tech~~ion beam deposition tools.

Selling, general and administrative expenses of $21.3 million for the three months ended ~~June~~September 30, 2001, increased by approximately ~~$2.1~~$1.2 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~~September 30, 2001, the Company recorded a write-off of purchased in-process technology of $8.2 million related to the acquisitions of Applied Epi, which resulted in a $7.0 million charge, and TM, which resulted in a $1.2 million charge. Both charges related to projects that had not reached technological feasibility and had no alternative future uses.

Income taxes for the three months ended September 30, 2001, amounted to $2.5 million, or 57% of income before income taxes, as compared to a $0.4 million tax benefit for the same period of 2000. The effective tax rate of 57% is higher than the statutory tax rate of 35%, principally due to purchased in-process technology charges associated with the Applied Epi and TM acquisitions, which are non-deductible for tax purposes.

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 $5.8 million in revenue during the three months ended September 30, 2000, that was included in the cumulative effect adjustment. The effect of that revenue was to increase third quarter income by $1.8 million (net of income taxes of $1.3 million).

The financial information presented in the Company’s previously filed Form 10-Q, with respect to the three months ended September 30, 2000, has been restated due to the adoption of SAB 101. The adoption of SAB 101 had the overall effect of decreasing net sales and net income for the third quarter of 2000 by $11.8 million and $3.0 million, respectively, and basic and diluted earnings per share by $0.13 and $0.12, respectively. These results include the impact of the cumulative effect adjustment discussed above.

Due to the weakening business environment, the Company is planning on implementing a cost reduction plan in the fourth quarter of 2001. The Company plans a workforce reduction of approximately 15%, plant consolidations and discretionary cost reductions. The Company expects to record a restructuring charge in the fourth quarter of approximately $15.0 to $20.0 million associated with these actions.

Nine Months Ended September 30, 2001 and 2000

Net sales were $356.7 million for the nine months ended September 30, 2001, representing an increase of approximately $86.4 million, or 32%, over the comparable 2000 period. The increase is primarily due to an increase in optical filter deposition system sales of $47.4 million, as well as a $39.5 million increase in sales of AFMs. Sales in the U.S., Europe, Japan and Asia Pacific accounted for 56%, 15%, 20% and 9%, respectively, of the Company’s net sales for the nine months ended September 30, 2001. Sales in the U.S. increased by 54%, principally as a result of increased process equipment sales of optical telecommunications equipment, as well as an increase in sales of AFMs. Sales in Europe increased by 19% due to increased AFM sales. Sales in Japan increased by 31% as a result of an increase in optical filter deposition and AFM sales. Asia Pacific sales decreased by 27% as a result of a 66% decline in optical metrology sales, partially offset by increased optical filter deposition equipment sales.

Process equipment sales were $219.4 million for the nine months ended September 30, 2001, an increase of approximately $67.7 million, or 45%, from the comparable 2000 period, due primarily to the increase in sales of optical filter deposition products. Metrology sales for the nine months ended September 30, 2001 were $132.3 million, an increase of approximately $21.8 million, or 20%, compared to the comparable 2000 period, reflecting a 64% increase in the sale of AFMs, offset by a 36% decline in optical metrology sales.

Veeco received $256.9 million of orders for the nine months ended September 30, 2001, a 39% decrease compared to $423.6 million of orders in the comparable 2000 period. Process equipment orders decreased 47% to $143.4 million, principally reflecting a decrease in optical telecommunications orders. Metrology orders decreased 25% to $108.5 million, reflecting a 56% decrease in optical metrology products. The book/bill ratio for the nine months ended September 30, 2001 was 0.72.

For the nine months ended September 30, 2001, the Company experienced order cancellations, primarily for products related to the optical telecommunications market, representing approximately 31% of the December 31, 2000 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 and/or rescheduling of orders.

Gross profit, as a percentage of net sales, increased slightly to 45.9% from 45.1% for the comparable 2000 period, which excludes a non-cash charge of $15.3 million for the write-off of inventory related to the merger with CVC in May 2000. This improvement is principally attributable to the sales volume increase in optical filter deposition products and AFMs.

Research and development expenses of $46.5 million for the nine months ended September 30, 2001, represent an increase of approximately $6.0 million, or 15%, over the comparable period of 2000, due primarily to the development of ion beam deposition and AFM products.

Selling, general and administrative expenses of $64.3 million for the nine months ended September 30, 2001, represent an increase of approximately $7.9 million, or 14%, over the comparable 2000 period. The increase is due to increased selling expense as a result of increased sales volume, primarily related to the optical filter deposition and AFM product lines. As a percentage of sales, selling, general and administrative expenses decreased to 18% of net sales in 2001 from 21% in 2000.

During the nine months ended September 30, 2001, the Company recorded a write-off of purchased in-process technology of $8.2 million, as discussed previously, and 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~~September 30, 2001, approximately ~~$230,000~~$765,000 has been expended and approximately ~~$770,000~~$235,000 remains ~~accrued.~~accrued, related to the restructuring charge. During the ~~three~~nine months ended ~~June~~September 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 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 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~~nine months ended ~~June~~September 30, 2001, increased ~~$1.6~~$1.9 million over the comparable 2000 period due to the increase in foreign currency exchange losses.

Income taxes for the ~~six~~nine months ended ~~June~~September 30, 2001, amounted to ~~$12.0~~$14.5 million, or ~~34%~~37% of income before income taxes, as compared to a ~~$5.2~~$5.6 million income tax benefit, or ~~39%~~53% 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 Condensed Consolidated Statement of Operations for the ~~six~~nine months ended ~~June~~September 30, 2000. The Company recognized approximately ~~$53.0~~$58.8 million of this deferred revenue during the ~~six~~nine months ended ~~June~~September 30, 2000. The effect of that revenue was to increase income in ~~the first half of 2000~~that period by ~~$14.7~~$16.5 million (net of income taxes of ~~$10.1~~$11.4 million). ~~Results for~~

The financial information presented in the ~~six~~Company’s previously filed Form 10-Q, with respect to the nine months ended ~~June~~September 30, 2000, ~~previously filed on Form 10-Q, have~~has been restated due to the adoption of SAB 101. The adoption of SAB 101 had the overall effect of increasing net sales by ~~$17.7~~$5.9 million for the ~~first half of~~nine months ended September 30, 2000. Net loss for ~~the first half of 2000~~that period increased by ~~$13.7~~$16.6 million, and basic and diluted loss per share increased by ~~$0.59. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by~~$0.71. These results include the impact of the cumulative effect adjustment discussed above.

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. See Note 6 to the Condensed Consolidated Financial Statements above for additional disclosure, as to the impact of these new rules.

Liquidity and Capital Resources

Cash flows from operations ~~totaled $8.4~~were $13.4 million for the ~~six~~nine months ended ~~June~~September 30, 2001, as compared to ~~cash used in operations of $22.9~~$6.8 million for the comparable 2000 period. ~~Cash~~Net income adjusted for non-cash items provided ~~by operations~~operating cash flows of $55.8 million, for the nine months ended September 30, 2001 compared to $27.4 million for the comparable 2000 period. This increase in ~~2001 includes adjustments to reconcile~~ net income ~~to net cash provided principally from net income plus~~adjusted for 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~~was offset by ~~a decrease~~increases in ~~accrued expenses, deferred gross profit and other current liabilities~~working capital accounts 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, 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$21.8 million. Inventory balances increased by ~~$35.8~~$30.4 million due primarily to rescheduled shipments and the impact of SAB ~~101 and new product production. Net cash used in~~101. Deferred gross profit decreased by $9.3 million due to revenue recognition on tools that received final customer acceptance. Accounts receivable decreased by $17.9 million due to improved customer collections.

Funds from operations, ~~for~~ the six months ended June 30, 2000 included operating activities for the three months ended December 31, 1999, related to CVC. Prior to the merger, CVC's fiscal year end was September 30. Net cash used in investing activities for the six months ended June 30, 2001, totaled $17.3liquidation of short-term investments of $26.9 million ~~compared to $17.7 million for the comparable 2000 period. Cash used in 2001 consisted 16~~ of $9.1 million of capital expenditures. 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~~borrowing of ~~OptiMag~~$25.0 million under the Facility were used to pay for capital expenditures, the scheduled repayment of long-term debt 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 $0.8 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, related to CVC. In connection with the acquisition of TM, the Company expended approximately $22.0 million in July 2001. acquisitions.

On April 19, 2001, the Company entered into a new, $100 million revolving credit facility (the ~~"Facility"~~“Facility”), which ~~replaces~~replaced the ~~Company's~~Company’s prior $40 million revolving credit facility. The ~~Facility provides the Company with up to $100 million of availability. The Facility's~~Facility’s interest rate is a floating rate based on 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~~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 the incurrence of indebtedness, ~~limitation on~~ the payment of dividends, long-term leases, investments, mergers, acquisitions, consolidations and sales of assets. The Company is also required to satisfy certain financial tests. As of ~~June~~September 30, 2001, ~~no borrowings were~~$25.0 million was outstanding under the ~~Company's credit facility.~~ Facility.

The Company believes that existing cash balances together with cash generated from operations and amounts available under the Facility will be sufficient to meet the ~~Company's~~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 paper~~Quantitative 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. Veeco'sQualitative Disclosure About Market Risk.

Veeco’s net sales to foreign customers represented approximately ~~43%~~49% and ~~42%~~44% of ~~Veeco's~~Veeco’s total net sales for the three and ~~six~~nine months ended ~~June~~September 30, 2001, respectively, and ~~54%~~47% and ~~55%~~53% for the three and ~~six~~nine months ended ~~June~~September 30, 2000, respectively. The Company expects that net sales to foreign customers will continue to represent a large percentage of ~~Veeco's~~Veeco’s total net sales. ~~Veeco's~~Veeco’s net sales denominated in foreign currencies represented approximately 12% and ~~14%~~13% of ~~Veeco's~~Veeco’s total net sales for the three and ~~six~~nine months ended ~~June~~September 30, 2001, respectively, and 8%13% and 9%10% for the three and ~~six~~nine months ended ~~June~~September 30, 2000, respectively. The aggregate foreign currency exchange ~~loss~~gain/(loss) included in determining consolidated results of operations was ~~$272,000~~approximately $105,000 and ~~$1,733,000,~~($1,628,000), net of ~~$62,000~~approximately ($530,000) and ~~$991,000~~$460,000 of realized hedging (losses)/gains, which were recorded and included in other expense, net, in the three and ~~six~~nine months ended ~~June~~September 30, 2001, respectively. The ~~change~~changes in currency exchange ~~rate~~rates that ~~has~~have the largest impact on translating ~~Veeco's~~Veeco’s international operating profit isare the Japanese ~~yen.~~yen and the German mark. The Company estimates that based upon the September 30, 2001 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 million.~~$527,000. 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~~$2.5 million and ~~$7.1~~$4.8 million for the three and ~~six~~nine months ended ~~June~~September 30, 2001, respectively. 18 ~~PART~~

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.~~

Item 1. Legal Proceedings

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 thediscussed above under Condensed Consolidated Financial Statements ~~of Operations for the three~~Note 5 - Recent Events - Litigation are hereby incorporated by reference.

Item 6. Exhibits and ~~six months ended June 30, 2001. 19~~ ~~ITEM 6. EXHIBITS AND REPORTS ON FORM~~Reports on Form 8-K. ~~EXHIBITS:~~

(a) Exhibits

Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities and Exchange Commission by the Company under File No. 0-16244.


Number	Exhibit	Incorporated by Reference ~~Number Exhibit~~ to the Following Documents ~~- ------ ------- --------------------------~~
2.1	Agreement and Plan of Merger, dated as of September 6, 2001, among Veeco Instruments Inc., Veeco Acquisition Corp., Applied Epi, Inc., the shareholders of Applied Epi, Inc. listed on the signature pages thereto and Paul E. Colombo, as Stockholders' Representative	Current Report on Form 8-K, filed on September 14, 2001, Exhibit 99.1

4.1	Amendment No. 1 dated July 26, 2001 to the Veeco Instruments Inc. 2000 Stock Option Plan for Non-Officer Employees	Registration Statement on Form S-8 (File Number 333-66574) filed on August 2, 2001, Exhibit 4.2

4.2	Amendment to Rights Agreement, dated as of September 6, 2001, between Veeco Instruments Inc. and American Stock Transfer and Trust Company, as rights agent	Current Report on Form 8-K, filed on September 21, 2001, Exhibit 4.1

4.3	Applied Epi, Inc. 1993 Stock Option Plan	Registration Statement on Form S-8 (File Number 333-69554) filed on September 18, 2001, Exhibit 4.1

4.4	Applied Epi, Inc. 2000 Stock Option Plan	Registration Statement on Form S-8 (File Number 333-69554) filed on September 18, 2001, Exhibit 4.2

4.5	Form of Applied Epi, Inc. Non-Qualified Restricted Stock Option Agreement	Registration Statement on Form S-8 (File Number 333-69554) filed on September 18, 2001, Exhibit 4.3

4.6	Form of Warrant to Purchase Shares of Common Stock of Applied Epi, Inc. (assumed in connection with the Applied Epi merger and now exercisable for shares of common stock of Veeco Instruments Inc.)	*

10.1	Amendment No. 1 dated as of September 17, 2001 to the 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~~	Loan Agreement dated as of December 15, 1999 between Applied Epi, Inc. and Jackson National Life Insurance Company	*

10.3	Promissory Note dated as of December 15, 1999 issued by Applied Epi, Inc. 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 Jackson National Life Insurance Company	*

*Filed herewith.

(b) Reports on Form 8-K. ~~None. 20~~

On September 14, 2001, the Company filed a Current Report on Form 8-K regarding the signing of a merger agreement with Applied Epi, Inc.

On September 21, 2001, the Company filed a Current Report on Form 8-K regarding the closing of the merger with Applied Epi, Inc. and certain amendments to the Company’s Rights Plan (the “Form 8-K”).

On October 1, 2001, the Company filed an Amendment on Form 8-K/A to the Form 8-K, amending certain information in the Form 8-K.

On October 2, 2001, the Company filed an Amendment on Form 8-K/A to the Form 8-K, further amending certain information in the Form 8-K.

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 8, 2001 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 and Secretary 21

Date: November 13, 2001
	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 and Secretary

EXHIBIT INDEX

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 ~~Number Exhibit~~ to the Following Documents ~~- ------ ------- --------------------------~~
2.1	Agreement and Plan of Merger, dated as of September 6, 2001, among Veeco Instruments Inc., Veeco Acquisition Corp., Applied Epi, Inc., the shareholders of Applied Epi, Inc. listed on the signature pages thereto and Paul E. Colombo, as Stockholders' Representative	Current Report on Form 8-K, filed on September 14, 2001, Exhibit 99.1

4.1	Amendment No. 1 dated July 26, 2001 to the Veeco Instruments Inc. 2000 Stock Option Plan for Non-Officer Employees	Registration Statement on Form S-8 (File Number 333-66574) filed on August 2, 2001, Exhibit 4.2

4.2	Amendment to Rights Agreement, dated as of September 6, 2001, between Veeco Instruments Inc. and American Stock Transfer and Trust Company, as rights agent	Current Report on Form 8-K, filed on September 21, 2001, Exhibit 4.1

4.3	Applied Epi, Inc. 1993 Stock Option Plan	Registration Statement on Form S-8 (File Number 333-69554) filed on September 18, 2001, Exhibit 4.1

4.4	Applied Epi, Inc. 2000 Stock Option Plan	Registration Statement on Form S-8 (File Number 333-69554) filed on September 18, 2001, Exhibit 4.2

4.5	Form of Applied Epi, Inc. Non-Qualified Restricted Stock Option Agreement	Registration Statement on Form S-8 (File Number 333-69554) filed on September 18, 2001, Exhibit 4.3

4.6	Form of Warrant to Purchase Shares of Common Stock of Applied Epi, Inc. (assumed in connection with the Applied Epi merger and now exercisable for shares of common stock of Veeco Instruments Inc.)	*

10.1	Amendment No. 1 dated as of September 17, 2001 to the 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~~	Loan Agreement dated as of December 15, 1999 between Applied Epi, Inc. and Jackson National Life Insurance Company	*

10.3	Promissory Note dated as of December 15, 1999 issued by Applied Epi, Inc. 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 Jackson National Life Insurance Company	*

*Filed herewith.

4.6

Form of Warrant to Purchase Shares of Common Stock of Applied Epi, Inc. (assumed in connection with the Applied Epi merger and now exercisable for shares of common stock of Veeco Instruments Inc.)

*

10.1

Amendment No. 1 dated as of September 17, 2001 to the 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

Loan Agreement dated as of December 15, 1999 between Applied Epi, Inc. and Jackson National Life Insurance Company

*

10.3

Promissory Note dated as of December 15, 1999 issued by Applied Epi, Inc. 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 Jackson National Life Insurance Company

*

*

*

*

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