UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q/A~~10-Q

		(Mark One)

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005
OR

o		~~Amendment No. 1~~ ~~(Mark One)~~ ý ~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~ ~~For the quarterly period ended March 31, 2004~~ OR oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number 0-16244

VEECO INSTRUMENTS INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		11-2989601
(State or Other Jurisdiction of Incorporation or Organization)		~~11-2989601~~ (I.R.S. Employer Identification Number)

100 Sunnyside Boulevard, Suite B Woodbury, New York		11797
(Address of Principal Executive Offices)		~~11797~~ (Zip Code)

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

Website: www.veeco.com

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

~~Website:~~ ~~www.veeco.com~~

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 ý No o

Indicate by check mark whether the Registrant is an accelerated filer ~~(as~~(as defined in Rule 12b-2 of the Exchange Act): Yes ý No o

~~29,630,153~~29,858,417 shares of common stock, $0.01 par value per share, were outstanding as of the close of business on April ~~27, 2004.~~26, 2005.

SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q (the “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such forward-looking statements may be found in Items 2 and 3 hereof, as well as within this Report generally. In addition, when used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “plans,” “intends,” and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. Factors that may cause these differences include, but are not limited to:

• The cyclicality of the microelectronics industries we serve directly affects our business. • We operate in a highly competitive industry characterized by rapid technological change. • We depend on a limited number of customers that operate in highly concentrated industries. • Our quarterly operating results fluctuate significantly. • Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses. • Our inability to attract, retain and motivate key employees could have a material adverse effect on our business. • We are exposed to the risks of operating a global business. • Our success depends on protection of our intellectual property rights. We may be subject to claims of intellectual property infringement by others. • We face securities class action and shareholder derivative lawsuits which could result in substantial costs, diversion of management’s attention and resources and negative publicity. • We rely on a limited number of suppliers. • We may not obtain sufficient affordable funds to finance our future needs. • We are subject to risks of non-compliance with environmental and safety regulations. • We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our company by another company more difficult. • The other matters discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this Report and in Veeco Instruments Inc. (the “Company’s”) Annual Report on Form 10-K for the year ended December 31, 2004.		~~Thecyclicality~~ ~~of the microelectronics industries we serve directly affects our business.~~
•		~~We operate in a highly competitive industry characterized by rapid technological change.~~
•		~~We depend on a limited number of customers that operate in highly concentrated industries.~~
•		~~Our quarterly operating results fluctuate significantly.~~
•		~~Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses.~~
•		~~Our inability to attract, retain and motivate key employees could have a material adverse effect on our business.~~
•		~~We are exposed to the risks of operating a global business.~~
•		~~Our success depends on protection of our intellectual property rights. We may be subject to claims of intellectual property infringement by others.~~
•		~~We rely on a limited number of suppliers.~~
•		~~We may not obtain sufficient affordable funds to finance our future needs.~~
•		~~We are subject to risks of non-compliance with environmental and safety regulations.~~
•		~~We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our company by another company more difficult.~~
•		The other matters discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this Report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Consequently, such forward-looking statements should be regarded solely as the Company’s current plans, estimates and beliefs. The Company does not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.

Available Information

We file annual, quarterly and current reports, information statements and other information with the Securities and Exchange Commission (the “SEC”). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

Internet Address

We maintain a website where additional information concerning our business and various upcoming events can be found. The address of our website is www.veeco.com. We provide a link on our website, under Investors — Financial Info — SEC Filings, through which investors can access our filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those ~~reports~~.reports. These filings are posted to our Internet site, as soon as reasonably practicable after we electronically file such material with the SEC.

~~EXPLANATORY NOTE~~

The Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004 was initially filed with the Securities and Exchange Commission (“SEC”) on May 3, 2004 (the “Originally Filed 10-Q”). This Amendment No. 1 is being filed to reflect restatements of the following (unaudited) financial statements: condensed consolidated statements of operations and cash flows for the three month period ended March 31, 2004; condensed consolidated balance sheets as at March 31, 2004; and to make certain conforming changes. On March 16, 2005, we announced that we would restate our condensed consolidated financial statements for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004 to reflect adjustments determined to be necessary as a result of an internal investigation of improper accounting transactions at our TurboDisc® business unit. For a description of the restatements, see “Restatements” in Note 2 to the accompanying (unaudited) condensed consolidated financial statements and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Events — ~~Internal Accounting Investigation; Restatement of 2004 Financial Results~~~~” in this Amendment No. 1.~~

This Amendment No. 1 amends and restates Items 1, 2, 3 and 4 of Part I and Item 6 of Part II of the Originally Filed 10-Q and, except for such items and Exhibits 31.1, 31.2, 32.1 and 32.2, no other information in the Originally Filed 10-Q is amended hereby. The explanatory caption at the beginning of each item of this Amendment No. 1 sets forth the nature of the revisions to that item.

~~For a discussion of events and developments subsequent to March 31, 2004, see:~~

•		~~our amended Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2004 which contains (unaudited) restated~~ condensed consolidated statements of operations for the three and six month periods ended June 30, 2004, (unaudited) restated condensed consolidated statements of cash flows for the six month period ended June 30, 2004 and (unaudited) restated condensed consolidated balance sheet as at June 30, 2004;

•		~~our amended Quarterly Report on Form 10-Q/A for the quarterly period ended September 30, 2004 which contains (unaudited) restated~~ condensed consolidated statements of operations for the three and nine month periods ended September 30, 2004, (unaudited) restated condensed consolidated statements of cash flows for the nine month period ended September 30, 2004 and (unaudited) restated condensed consolidated balance sheet as at September 30, 2004;

•		~~our Annual Report on Form 10-K for the year ended December 31, 2004; and~~

•		~~our other filings subsequent to March 31, 2004.~~

VEECO INSTRUMENTS INC.

INDEX

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, ~~2004 (Restated)~~2005 and ~~2003~~2004
	Condensed Consolidated Balance Sheets as of March 31, ~~2004 (Restated)~~2005 and December 31, ~~2003~~2004
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2004 (Restated)~~2005 and ~~2003~~2004
	Notes to Condensed Consolidated Financial Statements
Item 22..	Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~(Restated)~~
Item 33..	Quantitative and Qualitative Disclosure About Market Risk
Item 4.	Controls and Procedures
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings
Item 6.	Exhibits
SIGNATURES

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited) ~~(Unaudited)~~

Veeco Instruments Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,								Three Months Ended March 31,
	2004				2003				2005			2004
	(Restated)
Net sales	$		90,863		$	65,779			$	93,850		$	90,863
Cost of sales	54,065				34,573				56,318			54,065

Gross profit	36,798				31,206				37,532			36,798
Costs and expenses:
Selling, general and administrative expense	19,890				16,915				20,171			19,890
Research and development expense	14,027				12,158				14,824			14,027
Amortization expense	4,896				3,142				4,490			4,896
Other income, net	(286			)	(873			)	(98		)	(286		)
Restructuring expense	—				668

Total operating expenses									39,387			38,527
Operating loss	(1,729			)	(804			)	(1,855		)	(1,729		)
Interest expense, net	2,199				1,767				2,146			2,199

Loss before income taxes	(3,928			)	(2,571			)	(4,001		)	(3,928		)
Income tax benefit	(1,218			)	(874			)

Income tax expense (benefit)									701			(1,218		)
Net loss	$		(2,710	)	$	(1,697		)	$	(4,702	)	$	(2,710	)

Net loss per common share	$		(0.09	)	$	(0.06		)	$	(0.16	)	$	(0.09	)

Diluted net loss per common share	$	(0.09		)	$		(0.06	)	$	(0.16	)	$	(0.09	)

Weighted average shares outstanding	29,569				29,224				29,855			29,569
Diluted weighted average shares outstanding	29,569				29,224				29,855			29,569

See accompanying notes.

Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)

	March 31, 2005		December 31, 2004
	(Unaudited)

Assets
Current assets:
Cash and cash equivalents	$	100,676	$	100,276
Accounts receivable, less allowance for doubtful accounts of $1,866 in 2005 and $2,420 in 2004	72,703		85,914
Inventories	106,150		110,643
Prepaid expenses and other current assets	7,603		9,039
Deferred income taxes	2,931		3,096
Total current assets	290,063		308,968
Property, plant and equipment at cost, less accumulated depreciation of $70,077 in 2005 and $67,565 in 2004	70,563		73,513
Goodwill	94,636		94,645
Purchased technology, less accumulated amortization of $42,476 in 2005 and $39,181 in 2004	65,292		68,587
Other intangible assets, less accumulated amortization of $20,897 in 2005 and $19,702 in 2004	24,398		25,007
Long-term investments	3,559		3,541
Other assets	3,159		2,652
Total assets	$	551,670	$	576,913

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	23,599	$	25,476
Accrued expenses	45,367		63,438
Deferred profit	2,289		1,196
Income taxes payable	1,532		1,702
Current portion of long-term debt	359		354
Total current liabilities	73,146		92,166
Long-term debt, net of current portion	229,489		229,581
Other non-current liabilities	2,824		2,814
Shareholders’ equity	246,211		252,352
Total liabilities and shareholders’ equity	$	551,670	$	576,913

See accompanying notes.

Veeco Instruments Inc. and Subsidiaries

Condensed Consolidated ~~Balance Sheets~~Statements of Cash Flows

(In thousands)
(Unaudited)

March 31, 2004

December 31, 2003

(Unaudited)

(Restated)

Assets

Current Assets:

Cash and cash equivalents

$
111,831

$
106,830

Accounts receivable, less allowance for doubtful accounts of $2,609 in 2004 and $2,458 in 2003

72,574

69,890

Inventories

105,043

97,622

Prepaid expenses and other current assets

14,065

15,823

Deferred income taxes

31,400

24,693

Total current assets

334,913

314,858

Property, plant and equipment at cost, less accumulated depreciation of $65,651 in 2004 and $62,503 in 2003

70,903

72,742

Goodwill

72,989

72,989

Purchased technology, less accumulated amortization of $28,978 in 2004 and $25,519 in 2003

82,390

85,849

Other intangible assets, less accumulated amortization of $16,284 in 2004 and $14,846 in 2003

17,633

18,842

Long-term investments

12,461

12,376

Deferred income taxes

13,909

18,136

Other assets, net

927

672

Total assets

$
606,125

$
596,464

Liabilities and shareholders’ equity

Current Liabilities:

Accounts payable

$
25,011

$
19,603

Accrued expenses

36,607

31,616

Deferred profit

2,457

2,140

Income taxes payable

2,734

3,700

Current portion of long-term debt

338

333

Total current liabilities

67,147

57,392

Long-term debt, net of current portion

229,848

229,935

Other non-current liabilities

2,870

2,808

Shareholders’ equity

306,260

306,329

Total liabilities and shareholders’ equity

$
606,125

$
596,464

	Three Months Ended March 31,
	2005			2004

Operating Activities
Net loss	$	(4,702	)	$	(2,710	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	7,735			8,083
Deferred income taxes	52			(2,435		)
Other	3			(17		)
Changes in operating assets and liabilities:
Accounts receivable	11,408			(2,261		)
Inventories	5,372			(7,784		)
Accounts payable	(1,795		)	5,386
Accrued expenses, deferred profit and other current liabilities	(1,815		)	4,227
Other, net	(1,874		)	1,318
Net cash provided by operating activities	14,384			3,807

Investing Activities
Capital expenditures	(1,838		)	(1,408		)
Payment for net assets of businesses acquired	(15,038		)	—
Proceeds from sale of fixed assets	5			26
Proceeds from sale of assets held for sale	2,173			—
Net purchase of long-term investments	(18		)	(85		)
Net cash used in investing activities	(14,716		)	(1,467		)

Financing Activities
Proceeds from stock issuance	127			2,038
Repayment of long-term debt, net	(87		)	(82		)
Net cash provided by financing activities	40			1,956
Effect of exchange rates on cash and cash equivalents	692			705
Net change in cash and cash equivalents	400			5,001
Cash and cash equivalents at beginning of period	100,276			106,830
Cash and cash equivalents at end of period	$	100,676		$	111,831

Non-Cash Items

During the three months ended March 31, 2005 and 2004, the Company had non-cash items excluded from the Condensed Consolidated Statements of Cash Flows of approximately $1.5 million and $0.0 million respectively, which consisted of the transfer of property, plant and equipment to inventory.

See accompanying notes.

~~Veeco~~ ~~Instruments Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Cash Flows~~

~~(In thousands)~~

~~(Unaudited)~~

Three Months Ended March 31,

2004

2003

(Restated)

Operating Activities

Net loss

$
(2,710
)
$
(1,697
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

8,083

5,738

Deferred income taxes

(2,435
)
(3,018
)
Other

(17
)
(685
)
Changes in operating assets and liabilities:

Accounts receivable

(2,261
)
(6,229
)
Inventories

(7,784
)
(2,257
)
Accounts payable

5,386

4,789

Accrued expenses, deferred profit and other current liabilities

4,227

(1,922
)
Other, net

1,318

648

Net cash provided by (used in) operating activities

3,807

(4,633
)

Investing Activities

Capital expenditures

(1,408
)
(1,826
)
Proceeds from sale of fixed assets

26

7

Proceeds from sale of assets held for sale

—

1,111

Net purchase of long-term investments

(85
)
(137
)

Net cash used in investing activities

(1,467
)
(845
)

Financing Activities

Proceeds from stock issuance

2,038

45

Repayment of long-term debt, net

(82
)
(79
)

Net cash provided by (used in) financing activities

1,956

(34
)
Effect of exchange rates on cash and cash equivalents

705

(222
)

Net change in cash and cash equivalents

5,001

(5,734
)
Cash and cash equivalents at beginning of period

106,830

214,295

Cash and cash equivalents at end of period

$
111,831

$
208,561

~~See accompanying notes.~~

VEECO INSTRUMENTS INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)~~(Unaudited)~~

Note 1—Basis of 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 three months ended March 31, ~~2004~~2005, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2004.~~2005. 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, ~~2003.~~2004.

As described in Note 2, the (unaudited) condensed consolidated statements of operations and cash flows for the three month period ended March 31, 2004 and the condensed consolidated balance sheet as of March 31, 2004, including the applicable notes, have been restated.

~~Loss~~Net loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using the weighted average number of common shares and common equivalent shares outstanding during the period. The effect of approximately 197,000 and 755,000 common equivalent shares ~~of approximately 755,000 and 160,000~~ for the three months ended March 31, 2005 and 2004, ~~and 2003,~~ respectively, ~~was antidilutive.~~

~~The following table sets forth the reconciliation of diluted weighted average shares outstanding (in thousands):~~

Three Months Ended March 31,

2004

2003

Weighted average shares outstanding

29,569

29,224

Dilutive effect of stock options

—

—

Diluted weighted average shares outstanding

29,569

29,224

~~In addition, the effect of~~and the assumed conversion of subordinated convertible ~~notes~~debentures into approximately 5.7 million common equivalent shares ~~was~~is antidilutive for ~~the three months ended March 31,~~2005 and 2004, and ~~2003, and~~ therefore is not included in the ~~above~~ diluted weighted average shares outstanding.

The Company accounts for its stock option plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No compensation expense is reflected in net ~~income,~~loss, as all options granted under the stock option plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions, under which compensation expense would be recognized as incurred, of ~~SFAS~~Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

March 31,

2004

2003

(In thousands, except per share amounts)

(Restated)

Net loss, as reported

$
(2,710
)
$
(1,697
)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects

(2,750
)
(4,808
)

Pro forma net loss

$
(5,460
)
$
(6,505
)

Loss per common share:

Net loss per common share, as reported

$
(0.09
)
$
(0.06
)
Net loss per common share, pro forma

$
(0.19
)
$
(0.22
)
Diluted net loss per common share, as reported

$
(0.09
)
$
(0.06
)
Diluted net loss per common share, pro forma

$
(0.19
)
$
(0.22
)

	Three Months Ended March 31,
	2005			2004
	(In thousands, except per share amounts)

Net loss, as reported	$	(4,702	)	$	(2,710	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(4,042		)	(2,750		)
Pro forma net loss	$	(8,744	)	$	(5,460	)

Net loss per common share:
Net loss and diluted net loss per common share, as reported	$	(0.16	)	$	(0.09	)
Net loss and diluted net loss per common share, pro forma	$	(0.29	)	$	(0.19	)

Reclassifications

Certain amounts in the ~~2003~~2004 consolidated financial statements have been reclassified to conform to the 2005 presentation.

Note 2—Recent Accounting Pronouncements

On December 16, 2004, ~~presentation.~~the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R) (revised 2004), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. On April 14, 2005 the Securities and Exchange Commission extended the adoption date of SFAS No. 123(R) to no later than the beginning of the first fiscal year beginning after June 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. The Company expects to adopt SFAS No. 123(R) as of January 1, 2006.

SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:

1. A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.

2. A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures for either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

The Company has not yet determined whether it will adopt SFAS No. 123(R) using the modified prospective method or the modified retrospective method.

As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123(R)’s fair value method will have a significant impact on the consolidated results of operations, although it will have no impact on the Company’s overall consolidated financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net loss and net loss per common share in Note 1 to Veeco’s Condensed Consolidated Financial Statements. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce consolidated net operating cash flows and increase consolidated net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the Company did not recognize an amount of consolidated operating cash flows for such excess tax deductions in 2005 or 2004.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs- an amendment to ARB No. 43, Chapter 4. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal,” as previously stated in ARB No. 43. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect that the adoption of this Statement will have a significant impact on the Company’s consolidated financial position or results of operations.

Note 3—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, 2005		December 31, 2004
	(In thousands)

Raw materials	$	54,560	$	52,301
Work-in-progress	33,392		35,004
Finished goods	18,198		23,338
	$	106,150	$	110,643

Accrued Warranties

The Company estimates the costs that may be incurred under the warranty it provides and records a liability in the amount of such costs at the time the related revenue is recognized. Factors that affect the Company’s warranty liability include product failure rates, material usage and labor costs incurred in correcting product failures during the warranty period. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary. Changes in the Company’s warranty liability during the period are as follows:

	Three Months Ended March 31,
	2005			2004
	(In thousands)

Balance as of January 1	$	6,771		$	3,904
Warranties issued during the period	1,693			1,349
Settlements made during the period	(1,973		)	(838		)
Balance as of March 31	$	6,491		$	4,415

Note 4—Segment Information

The Company currently manages, reviews operating results and assesses performance, as well as allocates resources, based upon three separate reporting segments. The first segment, called “ion beam and mechanical process equipment,” combines the etch, deposition and dicing and slicing products sold mostly to data storage customers. This segment includes the production facilities in Plainview, New York, Ft. Collins, Colorado and Camarillo and Ventura, California. The second segment, called “epitaxial process equipment,” includes the Molecular Beam Epitaxy and Metal Organic Chemical Vapor Deposition products primarily sold to high brightness light emitting diode and wireless telecommunications customers. This segment includes the production facilities in St. Paul, Minnesota and Somerset, New Jersey. The third segment, called “metrology” represents equipment that is used to provide critical surface measurements on products such as semiconductor devices and thin film magnetic heads and includes Veeco’s broad line of atomic force microscopes, optical interferometers and stylus profilers sold to semiconductor customers, data storage customers and thousands of research facilities and scientific centers. This segment includes the production facilities in Santa Barbara, California and Tucson, Arizona.

The following represents the reportable product segments of the Company as of and for the three months ended March 31, 2005 and 2004, in thousands:

	Ion Beam and Mechanical Process Equipment			Epitaxial Process Equipment			Metrology		Unallocated Corporate Amount			Total
Three Months Ended March 31, 2005
Net sales	$	27,839		$	22,523		$	43,488	$	—		$	93,850
(Loss) income from operations before interest, taxes and amortization	(755		)	(1,947		)	7,762		(2,425		)	2,635
Total assets	170,495			135,750			134,014		111,411			551,670
Three Months Ended March 31, 2004
Net sales	35,348			13,957			41,558		—			90,863
Income (loss) from operations before interest, taxes and amortization	1,799			(2,813		)	6,062		(1,881		)	3,167
Total assets	$	186,283		$	122,982		$	130,083	$	166,777		$	606,125

Corporate total assets are comprised principally of cash at March 31, 2005 and cash and deferred tax assets at March 31, 2004.

The following table outlines the components of goodwill by business segment at March 31, 2005 and December 31, 2004 (in thousands):

	March 31, 2005		December 31, 2004

Ion Beam and Mechanical Process Equipment	$	27,276	$	27,276
Epitaxial Process Equipment	39,141		39,091
Metrology	28,219		28,278
Total	$	94,636	$	94,645

Note 5—Comprehensive Loss

The Company’s comprehensive loss is comprised of net loss, adjusted for foreign currency translation adjustments, the change in the fair value of forward currency contracts, and the change in the minimum pension liability. The Company had no other sources affecting comprehensive loss. The Company had total comprehensive loss of $6.3 million and $2.1 million for the three months ended March 31, 2005 and 2004, respectively.

Note 2—6—Restructuring

2004 Merger and Restructuring Charges

As a result of the acquisition of MTI and the resulting plan of consolidation of the two facilities in Ventura and Camarillo, California, certain long lived assets of Aii were classified as held for sale as of December 31, 2004. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, these long lived assets are measured at the lower of their carrying amount or fair value less cost to sell. Fair value was determined by the Company based upon the actual sale proceeds, which were received in February 2005 and April 2005. Approximately $0.8 million and $2.2 million of fixed assets held for sale are included in prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets at March 31, 2005 and December 31, 2004, respectively.

In conjunction with the plan announced by the Company in October 2004 to reduce employment levels by 10% in 2005, the Company recorded restructuring and other expenses of approximately $3.6 million in the fourth quarter of 2004. The $3.6 million charge consisted of $2.8 million of personnel severance costs and $0.8 million accrual for costs related to the internal investigation of improper accounting transactions at its TurboDisc business unit.

The $2.8 million charge for personnel costs includes severance related costs for approximately 107 employees, which included management, administration and manufacturing employees located at the Company’s Plainview, New York and Camarillo, California ion beam and mechanical process equipment operations, the Somerset, New Jersey and St. Paul, Minnesota epitaxial process equipment operations, the Santa Barbara, California and Tucson, Arizona metrology facilities, the sales and service offices located in France, England and Singapore, and the corporate offices in Woodbury, New York. As of March 31, 2005, approximately $1.9 million has been paid and approximately $0.9 million remains accrued. The remainder is expected to be paid by the fourth quarter of 2005.

The $0.8 million charge for costs related to the internal investigation of improper accounting transactions at the Company’s TurboDisc business unit include accounting, legal and other auditing fees performed by external consultants who assisted with the investigation. As of March 31, 2005, $0.7 million remained accrued and will be paid by the second quarter of 2005.

A reconciliation of the liability for the restructuring and other charges during 2004 for severance and investigation costs is as follows (in millions):

	Ion Beam and Mechanical Process Equipment		Epitaxial Process Equipment		Metrology		Unallocated Corporate		Total
Charged to accrual	$	1.0	$	0.4	$	0.4	$	1.8	$	3.6
Cash payments during 2004	0.3		—		0.1		0.3		0.7
Cash payments during the three months ended March 31, 2005	0.4		0.3		0.3		0.3		1.3
Balance as of March 31, 2005	$	0.3	$	0.1	$	—	$	1.2	$	1.6

Note 7—Subsequent Events

On April 12, 2005, the Compensation Committee (the “Committee”) of the Company’s Board of Directors approved the acceleration of vesting of unvested, out-of-the-money stock options granted prior to September 1, 2004 under Veeco’s stock option plans. An option was considered “out-of-the-money” if the option exercise price was greater than the closing price of Veeco’s common stock on the NASDAQ National Market on April 11, 2005 ($15.26), the last trading day before the Committee approved the acceleration. As a result of this action, options to purchase approximately 2,549,000 shares of Veeco’s common stock became immediately exercisable, including options held by Veeco’s executive officers to purchase approximately 852,000 shares. The weighted average exercise price of the options accelerated was $21.25.

The purpose of the accelerated vesting is to eliminate future compensation expense that Veeco would otherwise recognize in its statement of operations with respect to these accelerated options upon the adoption by Veeco of SFAS 123(R). In addition, because many of these options have exercise prices significantly in excess of current market values, they were not providing an effective means of employee retention and incentive compensation. The future compensation expense that will be avoided, based on Veeco’s implementation date for SFAS 123R of January 1, 2006, is approximately $8.4 million in 2006 and $3.9 million in 2007.

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

Executive Summary:

Veeco designs, manufactures, markets and services a broad line of equipment primarily used by manufacturers in the data storage, semiconductor, high brightness light emitting diode (“HB-LED”) and wireless telecommunications industries. Veeco’s products also enable advancements in the growing field of nanoscience and other areas of scientific and industrial research. Our process equipment products precisely deposit or remove (etch) various materials in the manufacturing of advanced thin film magnetic heads (“TFMHs”) for the data storage industry and HB-LED and wireless telecommunications industries. The Company currently manages, reviews operating results and assesses performance, as well as allocates resources, based upon three separate reporting segments. The first segment, called “ion beam and mechanical process equipment” combines the etch, deposition and dicing and slicing products sold mostly to data storage customers. The second segment, called “epitaxial process equipment,” includes the Molecular Beam Epitaxy (“MBE”) and Metal Organic Chemical Vapor Deposition (“MOCVD”) products primarily sold to HB-LED and wireless telecommunications customers. The third segment, “metrology”, represents equipment that is used to provide critical surface measurements on products such as semiconductor devices and TFMHs, and includes our broad line of atomic force microscopes (“AFMs”), optical interferometers and stylus profilers sold to semiconductor customers, data storage customers and thousands of research facilities and scientific centers. This equipment allows customers to monitor their products throughout the manufacturing process in order to improve yields, reduce costs and improve product quality. Our metrology solutions are also key research instruments used by many universities, scientific laboratories and industrial applications.

During the past several years, we have strengthened our product lines through strategic acquisitions. In our metrology business, in June 2003, we purchased the atomic force microscope probe business from Nanodevices Inc. (“Nanodevices”) for approximately $6.0 million, including transaction costs, plus a potential future earn-out payment of up to $4.0 million based on the achievement of certain operating measures. Through the end of the first quarter of 2005, the Company has made earn-out payments totaling $2.9 million relating to this acquisition. In our epitaxial process equipment business, in November 2003, we purchased the TurboDisc business from Emcore Corporation (“Emcore”) for approximately $63.7 million, including transaction costs, plus a potential future earn-out payment of up to $20.0 million based on the achievement of certain operating measures. Through the end of the first quarter of 2005, the Company has made earn-out payments totaling $13.1 million to Emcore. Also in November 2003, in our ion beam and mechanical process equipment business, we acquired the precision bar lapping company, Advanced Imaging, Inc. (“Aii”), for approximately $61.4 million, including transaction costs, plus a potential future earn-out payment of up to $9.0 million based on the achievement of certain operating measures. To date, the operating measures which trigger the Aii earn-out have not been achieved. Most recently, in our ion beam and mechanical process equipment business, Veeco expanded its TFMH “slider” technologies to include slicing and dicing processes, which are critical to controlling thin film head fly height, through the purchase of Manufacturing Technology, Inc. (“MTI”) for $9.5 million. While we believe these acquisitions will be accretive to both sales and profits going forward, gross margin percentages have been historically lower in the process equipment product lines than in the metrology business. Therefore, Veeco’s gross margin percentages have been adversely affected by lower concentration of metrology sales during 2004 and in early 2005. Veeco implemented an active plan to improve the gross margins in its Process Equipment product lines during 2005.

We currently maintain manufacturing facilities in Arizona, California, Colorado, Minnesota, New Jersey and New York, with sales and service locations around the world.

Highlights of the First Quarter of 2005:

• Sales were $93.9 million, up 3% from $90.9 million in the first quarter of 2004.

• Orders were $98.9 million, down from $117.1 million in the first quarter of 2004.

• Net loss of $4.7 million, compared with a net loss of $2.7 million in the first quarter of 2004.

• Cash generation of $0.4 million, despite making earn-out payments totaling $15.0 million relating to acquisitions, compared with cash generation of $5.0 million in the first quarter of 2004.

Current Business Conditions/Outlook:

In the first quarter of 2005, Veeco reported sales of $93.9 million, a 3% increase from the $90.9 million reported in the first quarter of 2004. Revenues were down sequentially as anticipated from the $103.0 million reported in the fourth quarter of 2004. Veeco’s first quarter 2005 bookings of $98.9 million reflected increased demand from our data storage customers who are currently investing in capacity expansions for consumer micro-drive applications and advanced development programs for next generation TFMHs. Data storage orders increased 26% sequentially to $45.3 million – the highest quarterly level the Company has experienced in several years.

Veeco implemented an active plan to improve the Company’s profitability in 2005. This plan is based both on headcount reductions which were taken in the fourth quarter of 2004, as well as a product mix expectation for 2005 revenues that should lead to increased gross margins. The Company currently expects higher 2005 revenues in data storage products, lower 2005 revenues in epitaxial equipment products and stability in its metrology revenues as compared to 2004. This revenue mix as well as other planned actions are expected to result in increased gross margins for each subsequent quarter of 2005 and for the year as a whole compared with 2004.

Technology changes are continuing in all of Veeco’s markets: the continued ramp of 80 GB hard drives in data storage and investments in next generation drives (120GB); the increased use of Veeco’s automated AFMs for sub 130 nanometer semiconductor applications; the opportunity for Veeco’s MOCVD and MBE systems to further penetrate the emerging HB-LED and wireless markets; and the continued funding of nanoscience research, which is one driver of Veeco’s scientific research business. While Veeco’s customers remain cautious regarding capital spending, they are also placing orders for Veeco Process Equipment and Metrology products that enable their next generation products. Veeco remains well positioned to provide leadership technologies for growth applications in semiconductor, data storage, HB-LED/wireless and scientific research.

Recent Events:

Internal Accounting Investigation; Restatement of 2004 Financial Results

On February 11, 2005, Veeco announced the postponement of the release of audited results for the fourth quarter and year ended December 31, 2004, pending completion of an internal investigation of improper accounting transactions at its TurboDisc business unit. Veeco acquired the assets of TurboDisc in November 2003. The investigation focused principally on the value of inventory, accounts payable and certain liabilities, as well as certain revenue transactions of TurboDisc. The investigation was commenced after Veeco’s internal audit staff and corporate financial management discovered improper accounting transactions in the course of a Veeco internal audit and transitioning the business to Veeco’s SAP accounting system during the fourth quarter of 2004. The Audit Committee of the Company’s Board of Directors supervised the accounting investigation and authorized Veeco’s outside counsel, Kaye Scholer LLP, to hire Jefferson Wells International to perform forensics and accounting reconstruction work as part of the investigation. The investigation has been completed. ~~Conclusions reached during the~~The investigation ~~included~~concluded that the improper accounting entries were made by a single individual at TurboDisc whose employment had been terminated prior to the commencement of the investigation, and that there was no evidence found of embezzlement or diversion of corporate assets.

On March 16, 2005, Veeco reported that it had completed its internal investigation and would be restating the financial statements previously issued for the three quarterly periods and nine months ended September 30, 2004. The pre-tax decrease to earnings previously reported is $2.8 million, $4.3 million and $3.1 million for the three month periods ended March 31, 2004, June 30, 2004 and September 30, 2004, respectively. In addition, as a result of revenue recognition adjustments, (decreases) increases to revenues previously reported were $(3.6) million, $(3.6) million and $5.0 million for the three month periods ended March 31, 2004, June 30, 2004 and September 30, 2004, respectively. These revenue adjustments, in the aggregate, do not reduce total revenue recognized for 2004.

~~The table set forth below shows the adjustments to the quarterly information that was previously filed on the Quarterly Report on Form 10-Q for the three month period ended March 31, 2004:~~

Three Months Ended March 31, 2004

As filed

Adjustments (1)

Restated

Net sales

$
94,487

$
(3,624
)
$
90,863

Cost of sales

54,649

(584
)
54,065

Gross profit

39,838

(3,040
)
36,798

Costs and expenses

38,767

(240
)
38,527

Operating income (loss)

1,071

(2,800
)
(1,729
)
Interest expense, net

2,199

—

2,199

Loss before income taxes

(1,128
)
(2,800
)
(3,928
)
Income tax benefit

(424
)
(794
)
(1,218
)

Net loss

(704
)
(2,006
)
$
(2,710
)

Loss per common share:

Net loss per common share

$
(0.02
)
$
(0.07
)
$
(0.09
)

Weighted average shares outstanding

29,569

29,569

Diluted weighted average shares outstanding

29,569

29,569

1. The $3.6 million reduction in revenue principally results from revenue recognition adjustments for certain system shipments. In each case, the revenue for these systems was recognized in the following quarter. The $0.6 million decrease in cost of sales results from a $2.5 million decrease in revenues due to the revenue recognition adjustments described above, partially offset by adjustments principally to inventory, accounts payable and certain accrued expenses. The decrease in costs and expenses of $0.2 million principally relates to the over accrual of certain operating expenses. The $0.8 million adjustment to income tax benefit is to reflect the tax benefit resulting from the pre-tax adjustments.

The table set forth below shows the adjustments to the condensed consolidated balance sheet information as of March 31, 2004 that was previously filed on the Quarterly Report on Form 10-Q for the three month period ended March 31, 2004:

As of March 31, 2004

As filed

Adjustments (1)

Restated

Assets

Current assets

$
340,999

$
(6,086
)
$
334,913

Non-current assets

267,027

4,185

271,212

Total assets

$
608,026

(1,901
)
606,125

Liabilities and shareholders’ equity

Current liabilities

67,042

105

67,147

Non-current liabilities

232,718

—

232,718

Shareholders’ equity

308,266

(2,006
)
306,260

Total liabilities and shareholders’ equity

$
608,026

(1,901
)
606,125

1.The $6.1 million reduction to current assets principally results from a $3.6 million decrease to accounts receivable resulting from revenue recognition adjustments, and a net decrease of $3.1 million to the current portion of deferred taxes due to a $4.2 million shift of the deferred tax asset from short-term to long-term net of a $1.1 million increase in the asset due to the higher loss incurred, which was partially offset by a $0.6 million increase to inventory principally resulting from the revenue recognition adjustments. The $4.2 million increase in non-current assets results from an increase to the non-current portion of deferred taxes due to the shift in deferred tax assets noted above. The $0.1 million increase in current liabilities is made up of a $0.3 million increase to income taxes payable relating to an adjustment of state tax liabilities, partially offset by a decrease of $0.2 million to accounts payable and accrued expenses principally relating to expenses applicable to the first quarter. The $2.0 million decrease to shareholders’ equity relates to the increase in the net loss due to the various factors previously described.

~~Note 3—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, 2004

December 31, 2003

(In thousands)

(Restated)

Raw materials

$
49,090

$
49,734

Work-in-progress

32,390

31,887

Finished goods

23,563

16,001

$
105,043

$
97,622

~~Accrued Warranties~~

The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time the related revenue is recognized. Factors that affect the Company’s warranty liability include historical and anticipated rates of warranty claims and costs per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary.

~~Changes in the Company’s product liability during the period are as follows (in thousands):~~

Balance as of January 1, 2004

$
3,904

Warranties issued during the period

1,349

Settlements made during the period

(838
)
Balance as of March 31, 2004

$
4,415

~~Note 4—Segment Information~~

During the quarter ended September 30, 2004, the Company changed the structure of its internal organization in a manner which caused the composition of its reportable segments to change. The Company currently manages, reviews operating results and assesses performance, as well as allocates resources, based upon this reporting structure. The change implemented by the Company was to split out the former process equipment segment into two separate reportable segments. The first segment, called “ion beam and mechanical process equipment,” combines the etch, deposition and dicing and slicing products sold mostly to data storage customers. This segment includes the production facilities in Plainview, New York, Ft. Collins, Colorado and Camarillo and Ventura, California. The second segment, called “epitaxial process equipment,” includes the Molecular Beam Epitaxy and Metal Organic Chemical Vapor Deposition products primarily sold to high brightness light emitting diode and wireless telecommunications customers. This segment includes the production facilities in St. Paul, Minnesota and Somerset, New Jersey. The metrology segment, which includes the production facilities in Santa Barbara, California and Tucson, Arizona remains unchanged. As such, the Company has restated the segment information for prior periods as if the composition of its reportable segments described above had existed in such prior periods.

~~The following represents the reportable product segments of the Company as of and for the three months ended March 31, 2004 and 2003, in thousands:~~

Ion Beam and Mechanical Process Equipment

Epitaxial Process Equipment

Metrology

Unallocated Corporate Amount

Restructuring Charges

Total

Three Months Ended March 31, 2004 (Restated)

Net sales

$
35,348

$
13,957

$
41,558

$
—

$
—

$
90,863

Income (loss) from operations before interest, taxes and amortization

1,799

(2,813
)
6,062

(1,881
)
—

3,167

Total assets

186,283

122,982

130,083

166,777

—

606,125

Three Months Ended March 31, 2003

Net sales

21,409

8,199

36,171

—

—

65,779

(Loss) income from operations before interest, taxes and amortization

(255
)
765

4,840

(2,344
)
(668
)
2,338

Total assets

$
117,958

$
66,308

$
134,218

$
289,196

$
—

$
607,680

~~Corporate total assets are comprised principally of cash and deferred tax assets.~~

~~The following table outlines the components of goodwill by business segment at March 31, 2004 and December 31, 2003 (in thousands):~~

March 31,
2004

December 31,
2003

Ion Beam and Mechanical Process Equipment

$
21,676

$
21,676

Epitaxial Process Equipment

25,944

25,944

Metrology

25,369

25,369

Total

$
72,989

$
72,989

~~Note 5—Comprehensive Loss~~

As defined by the Financial Accounting Standards Board (“FASB”), comprehensive loss is the change in equity of a business enterprise from transactions, other events, and circumstances from nonowner sources during a period. The Company incurred a total comprehensive loss of $2.1 million and $2.1 million for the three months ended March 31, 2004 and 2003, respectively. The Company’s comprehensive loss is comprised of net loss, foreign currency translation adjustments and minimum pension liability.

~~Note 6—Restructuring~~

In response to the significant decline in the business environment and market conditions in 2001 and 2002, the Company restructured its business and operations. The actions giving rise to the restructuring charges taken in 2003 described below were implemented in order for Veeco to remain competitive and such actions are expected to benefit Veeco by reducing future operating costs.

2003 Merger and Restructuring Charges

During the year ended December 31, 2003, the Company incurred a restructuring charge of approximately $4.8 million related to the reduction in work force announced in the fourth quarter of 2002, as a result of the decline in the markets in which the Company operates. This charge included severance related costs for approximately 180 employees, which included management, administration and manufacturing employees located at the Company’s Fort Collins, Colorado and Plainview and Rochester, New York process equipment operations, the San Diego, Sunnyvale and Santa Barbara, California and Tucson, Arizona metrology facilities, the sales and service offices located in Munich, Germany and Singapore, and the corporate offices in Woodbury, New York. The charge also included costs of vacating facilities in Sunnyvale, California, Munich, Germany and relocating the office in Japan. As of March 31, 2004, approximately $4.1 million has been paid and approximately $0.7 million remains accrued. The remainder is expected to be paid by the third quarter of 2005.

~~The Company also incurred $0.6 million in merger and acquisition related expenses, which were paid during the fourth quarter of 2003.~~

~~A reconciliation of the liability for the restructuring charge during 2003 for severance and relocation costs is as follows (in millions):~~

Ion Beam and Mechanical Process Equipment

Epitaxial Process Equipment

Metrology

Unallocated Corporate

Total

Charged to accrual

$
2.3

$
—

$
2.1

$
0.4

$
4.8

Add-back from 2002 accrual

0.3

—

—

—

0.3

Total 2003 accrual

2.6

—

2.1

0.4

5.1

Cash payments during 2003

1.6

—

1.6

0.1

3.3

Cash payments during the quarter ended March 31, 2004

0.5

—

0.5

0.1

1.1

Balance as of March 31, 2004

$
0.5

$
—

$
0.0

$
0.2

$
0.7

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

~~Executive Summary:~~

Veeco designs, manufactures, markets and services a broad line of equipment primarily used by manufacturers in the data storage, semiconductor and compound semiconductor/wireless industries. Veeco’s instruments are also enabling advancements in the growing field of nanoscience and other areas of scientific and industrial research. Our process equipment products precisely deposit or remove (etch) various materials in the manufacturing of advanced thin film magnetic heads (TFMHs) for the data storage industry, semiconductor deposition of mask reticles, and wireless/telecommunications and high brightness light emitting diode devices (“HB-LED”). During 2004, the Company split out the former process equipment segment into two separate reportable segments. The first segment, called “Ion Beam and Mechanical Process Equipment” combines the etch, deposition and dicing and slicing products sold mostly to data storage customers. The second segment, called “Epitaxial Process Equipment,” includes the Molecular Beam Epitaxy (“MBE”) and Metal Organic Chemical Vapor Deposition (“MOCVD”) products primarily sold to HB-LED and wireless telecommunications customers. As such, the Company has restated the segment information for prior periods as if the composition of its reportable segments described above had existed in such prior periods. Our metrology equipment is used to provide critical surface measurements on semiconductor devices and TFMHs. This equipment allows customers to monitor their products throughout the manufacturing process in order to improve yields, reduce costs and improve product quality. Our metrology solutions are also key research instruments used by many universities, scientific laboratories and industrial applications.

During the past several years, we have strengthened both the metrology and process equipment product lines through strategic acquisitions. In our metrology business, in June 2003, we purchased the atomic force microscope probe business from NanoDevices Inc. (“NanoDevices”) for approximately $6.0 million in cash, plus a potential future cash earn-out payment of up to $3.0 million based on the achievement of certain operating measures. In our process equipment business, in November 2003, we purchased the TurboDisc business from Emcore Corporation for approximately $63.7 million, including transaction costs, plus a potential future cash earn-out payment of up to $20.0 million based on the achievement of certain operating measures. Also in November 2003, we acquired the precision bar lapping company Advanced Imaging, Inc. (“Aii”) for approximately $61.4 million including transaction costs, plus a potential future cash earn-out payment of up to $9.0 million based on the achievement of certain operating measures. While we believe these acquisitions will be accretive to both sales and profits going forward, gross margin percentages have been historically lower in the process equipment businesses than in the metrology business. Therefore, Veeco’s gross margin percentage may be adversely affected in the future by the higher concentration of process equipment sales.

~~We currently maintain manufacturing facilities in Arizona, California, Colorado, Minnesota, New Jersey and New York, with sales and service locations around the world.~~

~~Highlights of the First Quarter of 2004:~~

•		Orders of $117.1 million, up from $72.7 million in the first quarter of 2003. The order growth included $35.9 million from companies acquired in 2003 and $8.4 million (11.5%) from Veeco’s base business.
•		Sales of $90.9 million, up from $65.8 million in the first quarter of 2003. The sales growth includes $16.1 million from companies acquired in 2003 and $9.0 million (13.7%) from Veeco’s base business.
•		~~Net loss of $2.7 million, compared with a net loss of $1.7 million in the first quarter of 2003.~~
•		~~Cash generation of $5.0 million, compared with a cash use of $5.7 million in the first quarter of 2003. The cash generation included $3.8 million generated from operations.~~

Outlook/Opportunities

The last several years have been challenging for Veeco, its customers and peers due to the prolonged economic downturn and several years of under-investment in technology. In the first quarter of 2004, Veeco experienced a significant improvement in orders in data storage, compound semiconductor/wireless and research products, driven by increased capital expenditure across these markets. Overall, worldwide economic conditions appear to have improved. Consumer spending on many types of electronics has increased and various worldwide economies, such as those in the Asia-Pacific region, are experiencing growth. ~~The Company reviews a number of indicators to predict the strength of our markets going forward. These include plant utilization trends, capacity requirements and capital spending trends.~~

Technology changes are continuing in all of Veeco’s markets: the continued ramp of 80 GB hard drives in data storage; the increased use of Veeco’s automated AFMs for sub 130 nanometer semiconductor applications; the opportunity for Veeco’s MOCVD and MBE to further penetrate the emerging wireless and HB-LED market; and the continued funding of nanoscience research. Veeco expects that its business will continue to improve in 2004 as compared to 2003, and that its newer technologies (MOCVD and precision bar lapping) will add over $80 million in revenue for 2004 compared with only a minimal contribution to Veeco’s 2003 performance due to the

~~fact that these acquisitions were consummated near the end of the year. However, there can be no assurance that Veeco’s performance expectations will be realized.~~

Recent Events:

~~Internal Accounting Investigation; Restatement of 2004 Financial Results~~

On February 11, 2005, Veeco announced the postponement of the release of audited results for the fourth quarter and year ended December 31, 2004, pending completion of an internal investigation of improper accounting transactions at its TurboDisc business unit. Veeco acquired the assets of TurboDisc in November 2003. The investigation focused principally on the value of inventory, accounts payable and certain liabilities, as well as certain revenue transactions of TurboDisc. The investigation was commenced after Veeco’s internal audit staff and corporate financial management discovered improper accounting transactions in the course of a Veeco internal audit and transitioning the business to Veeco’s SAP accounting system during the fourth quarter of 2004. The Audit Committee of the Company’s Board of Directors supervised the accounting investigation and authorized Veeco’s outside counsel, Kaye Scholer LLP, to hire Jefferson Wells International to perform forensics and accounting reconstruction work as part of the investigation. The investigation has been completed. Conclusions reached during the investigation included that the improper accounting entries were made by a single individual at TurboDisc whose employment had been terminated prior to the commencement of the investigation, and that there was no evidence found of embezzlement or diversion of corporate assets.

The results of the investigation led to the restatement of financial statements previously issued for the first three quarterly periods of 2004 and related six and nine ~~months~~month periods ended June 30, 2004 and September 30, 2004. The cumulative restatement included a $10.2 million adjustment to pre-tax earnings, comprised of $8.1 million in adjustments relating to inventory, accruals and accounts payable and $2.1 million in adjustments relating to revenue recognition issues. ~~Additional information relating to the restatement is included in~~ ~~Note 2 to the (unaudited) condensed consolidated financial statements.~~ Veeco has made a number of personnel changes to ~~help~~ strengthen the management of the epitaxial process equipment group and the TurboDisc business unit since the discovery of the accounting issues ~~giving~~that gave rise to the investigation, including the replacement of the General Manager of the epitaxial process equipment group, creation of the positions of General Manager of the TurboDisc business unit, General Manager of the St. Paul ~~MBE site,~~business unit, Group Controller of the epitaxial process equipment group and the appointment of a new controller of the TurboDisc business unit.

~~The adjustments included in the restatement are summarized in the tables included in Note 2 to the (unaudited) condensed consolidated financial statements.~~

1513

Results of Operations:

Three Months Ended March 31, 20042005 and 20032004

The following tables show selected items of Veeco’s Consolidated Statements of Operations, percentages of sales and comparisons between the three months ended March 31, ~~2004~~2005 and ~~2003~~2004 and the analysis of sales and orders for the same periods between our segments, industries and regions (in ~~$000’s)~~thousands):

	Three Months ended											Dollar
	March 31,											Inc/(Dec)
	2004					2003						Year to year				Three Months ended March 31,										Dollar Inc/(Dec)
	(Restated)											(Restated)				2005					2004					Year to year

Net sales	$	90,863		100.0	%	$	65,779			100.0	%	$	25,084			$	93,850		100.0	%	$	90,863		100.0	%	$	2,987
Cost of sales	54,065			59.5		34,573				52.6		19,492				56,318			60.0		54,065			59.5		2,253

Gross profit	36,798			40.5		31,206				47.4		5,592				37,532			40.0		36,798			40.5		734
Operating expenses:
Selling, general and administrative expense	19,890			21.9		16,915				25.7		2,957				20,171			21.5		19,890			21.9		281
Research and development expense	14,027			15.4		12,158				18.5		1,887				14,824			15.8		14,027			15.4		797
Amortization expense	4,896			5.4		3,142				4.8		1,754				4,490			4.8		4,896			5.4		(406		)
Other income, net	(286		)	(0.3	)	(873			)	(1.3	)	587				(98		)	(0.1	)	(286		)	(0.3	)	188
Merger and restructuring expenses	—			—		668				1.0		(668			)

Total operating expenses	38,527			42.4		32,010				48.7		6,517				39,387			42.0		38,527			42.4		860

Operating income (loss)	(1,729		)	(1.9	)	(804			)	(1.3	)	(925			)
Operating loss																(1,855		)	(2.0	)	(1,729		)	(1.9	)	(126		)
Interest expense, net	2,199			2.4		1,767				2.6		432				2,146			2.3		2,199			2.4		(53		)

Loss from operations before income taxes	(3,928		)	(4.3	)	(2,571			)	(3.9	)	(1,357			)

Income tax benefit	(1,218		)	(1.3	)	(874			)	(1.3	)	(344			)

Loss before income taxes																(4,001		)	(4.3	)	(3,928		)	(4.3	)	(73		)
Income tax expense (benefit)																701			0.7		(1,218		)	(1.3	)	1,919
Net loss	$	(2,710	)	(3.0	)%	$		(1,697	)	(2.6	)%	$		(1,013	)	$	(4,702	)	(5.0	)%	$	(2,710	)	(3.0	)%	$	(1,992	)

	Sales									Orders									Book to Bill Ratio
	Three Months ended March 31,				Dollar and Percentage Inc/(Dec) Year to Year					Three Months ended March 31,				Dollar and Percentage Inc/(Dec) Year to Year					Book to Bill Ratio
	2005		2004		Dollar and Percentage Inc/(Dec) Year to Year					2005		2004		Dollar and Percentage Inc/(Dec) Year to Year					2005	2004

Segment Analysis
Ion Beam and Mechanical Process Equipment	$	27,839	$	35,348	$	(7,509	)	(21.2	)%	$	41,797	$	47,268	$	(5,471	)	(11.6	)%	1.50	1.34
Epitaxial Process Equipment	22,523		13,957		8,566			61.4		13,628		37,900		(24,272		)	(64.0	)	0.61	2.72
Metrology	43,488		41,558		1,930			4.6		43,512		31,893		11,619			36.4		1.00	0.77
Total	$	93,850	$	90,863	$	2,987		3.3	%	$	98,937	$	117,061	$	(18,124	)	(15.5	)%	1.05	1.29

Industry Analysis
Data Storage	$	25,615	$	31,456	$	(5,841	)	(18.6	)%	$	45,303	$	44,948	$	355		0.8	%	1.77	1.43
HB-LED/wireless	22,304		17,030		5,274			31.0		13,967		38,981		(25,014		)	(64.2	)	0.63	2.29
Semiconductor	17,354		13,304		4,050			30.4		14,428		10,063		4,365			43.4		0.83	0.76
Research and Industrial	28,577		29,073		(496		)	(1.7	)	25,239		23,069		2,170			9.4		0.88	0.79
Total	$	93,850	$	90,863	2,987			3.3	%	$	98,937	$	117,061	$	(18,124	)	(15.5	)%	1.05	1.29

Regional Analysis
US	$	32,760	$	30,835	$	1,925		6.2	%	$	37,264	$	44,073	$	(6,809	)	(15.4	)%	1.14	1.43
Europe	21,194		13,521		7,673			56.7		9,974		12,807		(2,833		)	(22.1	)	0.47	0.95
Japan	14,215		19,136		(4,921		)	(25.7	)	17,351		16,525		826			5.0		1.22	0.86
Asia-Pacific	25,681		27,371		(1,690		)	(6.2	)	34,348		43,656		(9,308		)	(21.3	)	1.34	1.59
Total	$	93,850	$	90,863	$	2,987		3.3	%	$	98,937	$	117,061	$	(18,124	)	(15.5	)%	1.05	1.29

1614

Sales

Orders

Three Months ended March 31,

Dollar and Percentage Inc/(Dec)

Three Months ended March 31,

Dollar and Percentage Inc/(Dec)

Book to Bill Ratio

2004

2003

Year to Year

2004

2003

Year to Year

2004

2003

(Restated )

(Restated)

(Restated)

Segment Analysis

Ion Beam and Mechanical Process Equipment

$
35,348

$
21,409

$
13,939

65.1
%
$
47,268

$
30,564

$
16,704

54.7
%
1.34

1.43

Epitaxial Process Equipment

13,957

8,199

5,758

70.2

37,900

7,750

30,150

389.0

2.72

.95

Metrology

41,558

36,171

5,387

14.9

31,893

34,431

(2,538
)
(7.4
)
0.77

0.95

Total

$
90,863

$
65,779

$
25,084

38.1
%
$
117,061

$
72,745

$
44,316

60.9
%
1.29

1.11

Industry Analysis

Data Storage

$
31,456

$
19,053

$
12,403

65.1
%
$
44,948

$
29,700

$
15,248

51.3
%
1.43

1.56

HB-LED/wireless

17,030

6,196

10,834

174.9

38,981

10,461

28,520

272.6

2.29

1.69

Semiconductor

13,304

11,297

2,007

17.8

10,063

11,802

(1,739
)
(14.7
)
0.76

1.04

Research and Industrial

29,073

29,233

(160
)
(0.5
)
23,069

20,782

2,287

11.0

0.79

0.71

Total

$
90,863

$
65,779

25,084

38.1
%
$
117,061

$
72,745

$
44,316

60.9
%
1.29

1.11

Regional Analysis

US

$
30,835

$
25,104

$
5,731

22.8
%
$
44,073

$
29,575

$
14,498

49.0
%
1.43

1.18

Europe

13,335

11,975

1,360

11.4

12,704

8,887

3,817

43.0

0.95

0.74

Japan

19,136

15,520

3,616

23.3

16,525

18,080

(1,555
)
(8.6
)
0.86

1.16

Asia-Pacific

27,557

13,180

14,377

109.1

43,759

16,203

27,556

170.1

1.59

1.23

Total

$
90,863

$
65,779

$
25,084

38.1
%
$
117,061

$
72,745

$
44,316

60.9
%
1.29

1.11

During the quarter ended September 30, 2004, the Company changed the structure of its internal organization in a manner that caused the composition of its reportable segments to change. The Company currently manages, reviews operating results, and assesses performance, as well as allocates resources, based upon this reporting structure. The change implemented by the Company was to split out the former process equipment segment into two separate reporting segments. The new ion beam and mechanical process equipment segment combines the etch, deposition, and dicing and slicing products sold mostly to data storage customers. The new epitaxial process equipment segment includes the MBE and MOCVD products sold to HB-LED and wireless customers. The metrology segment remains unchanged. Accordingly, the Company has restated the segment information for the prior periods.

Net sales of ~~$90.9~~$93.9 million for the first quarter of ~~2004~~2005 were up ~~38.1%~~$3.0 million or 3.3%, from the comparable ~~2003~~2004 period. By segment, ion beam and mechanical process equipment sales were ~~up $13.9~~down $7.5 million or ~~65.1%~~21.2%, while epitaxial process equipment sales were up ~~$5.8~~$8.6 million or ~~70.2%~~61.4%, ~~while~~and metrology sales increased by ~~$5.4~~$1.9 million or ~~14.9%~~4.6%. The ~~improvement~~decrease in ion beam and mechanical process equipment sales is principally attributable to ~~increases~~decreases in the data storage market. While $6.9 million of the $13.9 million increase is attributable to the acquisition of Aii, Veeco’s historic ion beam and mechanical process equipment business experienced a 32.7% increase in net sales in the first quarter of 2004 when compared to the first quarter of 2003. The improvement in epitaxial process equipment sales is principally attributable to increases in the ~~compound semiconductor~~HB-LED/wireless market. ~~While the newly acquired TurboDisc business unit contributed $9.1 million in net sales, it was offset by a $3.3 million decrease in net sales of MBE products.~~ The ~~$5.4~~$1.9 million improvement in metrology sales is principally attributable to increased ~~optical metrology sales to the scientific research market and increased automated~~ AFM sales to the semiconductor market. By region, there continues to be a shift in sales from the U.S. to the Asia-Pacific region, although all regional sales have increased due to the acquisitions of the TurboDisc business unit and Aii, particularly in the Asia-Pacific region, which saw a $10.2 million increase in sales in ~~the first quarter of 2004 due to the acquired companies.~~Europe improved by 56.7%, while sales in Japan declined by 25.7%. The Company believes that there will continue to be quarter-to-quarter variations in the geographic distribution of sales.

Orders of ~~$117.1~~$98.9 million for the first quarter of ~~2004 were a $44.3~~2005 decreased by $18.1 million, or ~~a 60.9% increase over~~15.5%, from the comparable ~~2003~~2004 period. By segment, the ~~389.0% improvement~~64.0% decrease in epitaxial process equipment orders was driven by a ~~total of $31.6~~$22.8 million reduction in orders for ~~TurboDisc offset by a~~MOCVD systems and an additional decrease in MBE orders of $1.5 million. The ~~54.7% increase~~11.6% reduction in ion beam and mechanical process equipment was due to ~~a total of $4.3 million in~~decreased orders ~~for Aii and an~~to data storage customers. The 36.4% increase ~~in orders in Veeco’s historic ion beam and mechanical process equipment business of $12.4 million. The 7.4% reduction~~ in metrology orders was due to a ~~$0.9 reduction~~$7.8 million increase in AFM and a ~~$1.6~~$3.8 million ~~decrease~~increase in optical metrology ~~products,~~ ~~where there were a large number of slider crown systems ordered in the first quarter of 2003 that did not recur in 2004.~~products.

The Company’s book/bill ratio for the first quarter of ~~2004,~~2005, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was ~~1.29.~~ 1.05. During the quarter ended March 31, ~~2004,~~2005, the Company experienced order cancellations of ~~$0.2~~$3.0 million and the rescheduling of order delivery dates by customers. Due to changing business conditions and customer requirements, the Company may continue to experience cancellations and/or rescheduling of orders.

Gross profit for the quarter ended March 31, 2005, was 40.0%, as compared to 40.5% in the first quarter of 2004. Gross profit in the first quarter of 2004, was ~~40.5%, including~~ areduced by $1.5 million ~~reduction in gross profit related~~due to the acquisitions of TurboDisc and Aii. This charge was the result of purchase accounting adjustments due to the required capitalization of profit in inventory and permanent elimination of certain deferred revenue. Excluding the impact of this purchase accounting adjustment, gross profit as a percentage of net sales ~~was 42.1% in~~for the first quarter of 2004 ~~compared~~was 42.1%. This decrease from 42.1% to ~~47.4%~~40.0% was primarily due to declines in the ~~first quarter of 2003. This decrease was partially due to a 9.3% mix shift from the higher margin metrology segment to the lower margin~~epitaxial process equipment ~~segments, largely due to~~gross margins resulting from warranty issues and competitive pricing pressure in the ~~2003 acquisitions.~~ ~~Excluding~~MOCVD products market and the ~~purchase accounting charges, ion beam and mechanical process equipment margins decreased from 38.9% to 35.1%.~~tool mix in MBE product market revenues. The ion beam and mechanical process equipment gross ~~margin was impacted by a greater number of bifurcated sales in the first quarter of 2004 as compared~~margins increased from 35.1% to ~~the first quarter of 2003, which results in the deferral of gross profit until final field acceptance. There was also a less~~36.0% primarily due to favorable mix ~~of products in the first quarter of 2004 as compared to the first quarter of 2003. Excluding the purchase accounting charges, epitaxial process equipment~~ ~~margins declined from 38.7% in 2003 to 27.6% in the first quarter of 2004 mostly due to higher material~~ and ~~warranty costs~~cost cutting measures at the ~~TurboDisc division.~~ Plainview ion beam facility, partially offset by higher overhead costs from the newly acquired MTI business. Metrology gross margins decreased slightly from ~~54.5%~~52.9% to ~~52.9%.~~ ~~The first quarter 2004 metrology gross margin was consistent with the average 2003 metrology gross margin, but below the first quarter of 2003 which had a~~51.8% due to less favorable product mix.

Selling, general and administrative expenses were ~~$19.9~~$20.2 million, or ~~21.9%~~21.5% of sales, in the first quarter of ~~2004,~~2005, compared ~~with$16.9~~with $19.9 million, or ~~25.7%~~21.9% in the first quarter of ~~2003. Of the $3.0~~2004. The $0.3 million increase ~~$2.1 million was due to the TurboDisc and Aii acquisitions, with the balance~~is primarily attributable to higher ~~selling~~administrative expenses related to the ~~increase~~addition of senior level managers in ~~sales.~~the epitaxial process equipment group.

Research and development expense totaled ~~$14.0~~$14.8 million in the first quarter of 2004, an increase of ~~$1.9~~$0.8 million from the first quarter of ~~2003, also~~2004, due to ~~the~~increased spending in the ~~newly acquired TurboDisc business unit~~epitaxial and ~~Aii division.~~ion beam and mechanical process equipment segments of approximately $1.0 million, partially offset by reductions of $0.2 million in metrology. As a percentage of sales, research and development ~~decreased~~increased in the first quarter of 2005 to 15.8% from 15.4% for the first quarter of 2004.

Amortization expense totaled $4.5 million in the first quarter of 2005 versus $4.9 million in the first quarter of 2004, due to ~~15.4% from 18.5%~~reductions in amortization expense for intangibles that were fully amortized during 2004 partially offset by approximately $0.4 million of additional amortization expense related to the ~~first quarter of 2003~~.MTI acquisition.

Other income, net, of ~~$0.3~~$0.1 million for the first quarter of 2005 primarily consisted of rental income for subleased facility space, compared to $0.3 million in the first quarter of 2004, which was principally due to foreign exchange ~~gains, compared to a gain of $0.9 million in the first quarter of 2003, which was principally due to the sale of a laboratory tool.~~gains.

Restructuring expenses for the first quarter of 2003 of $0.7 million were primarily due to severance for layoffs that were related to the actions announced in the fourth quarter of 2002. There were no merger or restructuring expenses in the first quarter of 2004.

Net interest expense in the first quarter of ~~2004~~2005 was ~~$2.2~~$2.1 million compared to ~~$1.8~~$2.2 million in the first quarter of ~~2003. The change is due to the reduction in interest income resulting from lower cash balances as a result of the acquisitions completed in the fourth quarter of 2003.~~2004.

Income taxes for the quarter ended March 31, ~~2004, amounted to~~2005, consisted of a foreign income tax provision of $0.7 million, as compared with a benefit of $1.2 million, or 31.0% of loss before income taxes in 2004. For the year ended December 31, 2004, in accordance with the provisions of Statement of Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes, the Company recorded a charge of approximately $54.0 million to establish a valuation allowance against the balance of its domestic net deferred tax assets, which consist of net operating loss and tax credit carryforwards, as ~~compared~~well as temporary deductible differences. For the quarter ended March 31, 2005, the Company incurred a domestic net loss and, accordingly, established a valuation allowance to offset the domestic deferred tax asset. If the Company is able to realize part or all of the deferred tax assets in future periods, it will reduce its provision for income taxes with a ~~benefit~~release of ~~$0.9 million, or 34.0% of loss before~~the valuation allowance in an amount that corresponds with the income ~~taxes in 2003.~~tax liability generated.

Liquidity and Capital Resources

The Company had a net increase in cash of ~~$5.0~~$0.4 million for the three months ended March 31, ~~2004.~~2005. Cash provided by operations was ~~$3.8~~$14.4 million for this period, as compared to cash ~~used in~~provided by operations of ~~$4.6~~$3.8 million for the comparable ~~2003~~2004 period. Net loss adjusted for non-cash items provided operating cash flows of ~~$2.9~~$3.1 million for the three months ended March 31, ~~2004,~~2005, compared to ~~$0.3~~$2.9 million for the comparable ~~2003~~2004 period. Included in the net cash provided by operations for the three months ended March 31, ~~2004~~2005 was a decrease in net operating assets and liabilities of ~~$0.9~~$11.3 million. Accounts receivable for the three months ended March 31, ~~2004, increased~~2005, decreased by ~~$2.3~~$11.4 million, primarily as a result of ~~higher~~lower sales ~~volumes.~~volumes and favorable timing of collections in Japan and Asia-Pacific. During the three months ended March 31, ~~2004,~~2005, inventories ~~increased~~decreased by approximately ~~$7.8~~$5.4 million, principally ~~related~~due to ~~the build up of work-in-process and finished goods for products to be shipped~~an inventory reduction in the ~~second~~epitaxial process equipment business from the shipment of tools and a reduction of purchases during the first quarter of ~~2004.~~2005. During the three months ended March 31, ~~2004,~~2005, accounts payable ~~increased~~decreased by ~~$5.4~~$1.8 million ~~principally as a result~~due to the timing of ~~higher purchase volumes to meet shipment demand.~~payment of certain invoices. Accrued expenses and other current liabilities ~~increased $4.2~~decreased $1.8 million during the three months ended March 31, ~~2004~~2005, due to ~~accrued interest of $2.2~~$5.2 million total reductions in payroll, restructuring, warranty and other accruals, partially offset by $3.4 million in increases for the required semi-annual interest payment of the subordinated notes and ~~a $2.6 million increase in customer deposits partially offset by other smaller items that net to a reduction of $0.6 million.~~deferred gross profit.

Cash used in investing activities of ~~$1.5~~$14.7 million for the three months ended March 31, ~~2004,~~2005, resulted from aggregate earn-out payments of $15.0 million to Emcore, the former owner of TurboDisc, and to the previous shareholders of Nanodevices, and capital expenditures of ~~$1.4~~$1.8 million, ~~and net purchases~~partially offset by $2.2 million in proceeds from the sale of ~~long-term investments of $0.1 million.~~assets held for sale.

The Company believes that existing cash balances together with cash generated from operations and amounts available under the Company’s ~~$100.0~~$50.0 million revolving credit facility will be sufficient to meet the Company’s projected working capital and other cash flow requirements for the next twelve months, as well as the Company’s contractual obligations, over the next three years. The Company believes it will be able to meet its obligation to repay the outstanding $220 million subordinated notes that mature on December 21, 2008, through a combination of conversion of the notes outstanding, refinancing, cash generated from operations and/or other means.

The Company is potentially liable for payment of earn-out features to the former owners of the businesses acquired in 2003 based on revenue targets achieved by the acquired businesses. The maximum ~~amount~~remaining amounts of these contingent liabilities is $9$9.0 million to the former shareholders of Aii over a ~~three-year~~two-year period, $4$1.1 million to Nanodevices, ~~Inc,~~ over a ~~three-year~~two-year period and ~~$20~~$6.9 million to Emcore Corporation, the former owner of TurboDisc, over a ~~two-year~~one-year period. Any amounts payable are to be paid during the first quarter of ~~2005,~~ 2006 and 2007 to the former owners of Aii and to Nanodevices ~~respectively,~~ and during the first quarter of ~~2005 and~~ 2006 to Emcore. These payments are based on a set percentage of revenues in excess of certain targets for the preceding fiscal ~~year and one payment based on Nanodevices achieving certain production targets.~~year. Therefore, it is not possible to calculate the amounts, if any, that may be due for each year.

On March 15, 2005, the Company terminated its $100.0 million revolving credit facility which had been established on April 19, 2001 and entered into a new revolving credit facility which provides for borrowings of up to $50.0 million (the “Facility”). The Facility’s annual interest rate is a floating rate equal to the prime rate of the agent bank plus ¹¤₄% and in the event the Company’s ratio of debt to cash flow is below a defined amount, is adjustable to a minimum rate equal to the prime rate. A LIBOR based interest rate option is also provided. The Facility has a term of three 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 requirements, impose limitations with respect to the incurrence of indebtedness, the payment of dividends, long-term leases, investments, mergers, acquisitions, consolidations and sales of assets. The Company is required to satisfy certain financial tests under the Facility and substantially all of the assets of the Company and its material domestic subsidiaries, other than real estate, have been pledged to secure the Company’s obligations under the Facility. As of March 31, 2005, no borrowings were outstanding under the Facility.

Application of 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,~~Consolidated Financial Statements, which have been prepared in accordance with 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 bad debts, inventories, intangible assets and other long lived 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 indefinite-lived intangible assets, ~~and~~warranty costs, the impairment of long lived assets and the accounting for deferred taxes to be critical policies due to the estimation processes involved in each.

Revenue Recognition: ~~Effective January 1, 2000, the~~The Company ~~changed its method for accounting for~~recognizes revenue ~~recognition~~ in accordance with Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, which superseded the earlier related guidance in SAB No. 101, Revenue Recognition in Financial ~~Statements.~~Statements ~~In December 2003, the SEC issued SAB No. 104,~~. Certain of our product sales are accounted for as multiple-element arrangements in accordance with EITF 00-21, Revenue ~~Recognition,~~Arrangements with Multiple Deliverables. A multiple-element arrangement is a transaction which ~~updates~~may involve the ~~guidance provided~~delivery or performance of multiple products, services, or rights to use assets, and performance may occur at different points in ~~SAB No. 101, integrates the related Frequently Asked Questions, and recognizes the role~~time or over different periods of the FASB’s Emerging Issues Task Force (“EITF”) consensus on Issue 00-21. SAB 104 No. deletes certain interpretive material no longer necessary, and conforms the remaining interpretative material retained to the pronouncements issued by the EITF on various revenue recognition topics, including EITF 00-21. It further clarifies that a company should first refer to EITF 00-21 in order to determine if there is more than one unit of accounting and then to refer to SAB No. 104 for revenue recognition for the unit of accounting.time. 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, ~~which~~ generally ~~occurs~~ 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 products, new applications of existing 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. Since title to goods generally passes to the customer upon shipment and 80% to 90% of the contract amount becomes payable at that time, inventory is relieved and accounts receivable is recorded for the amount billed at the time of shipment. The profit on the amount billed for these transactions is deferred and recorded as deferred profit in the accompanying balance sheets. At March 31, ~~2004~~2005 and December 31, ~~2003, $2.5~~2004, $2.3 million and ~~$2.1~~$1.2 million, respectively, are recorded in deferred profit. 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-process, 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 Indefinite-Lived Intangible Asset Impairment: The Company has significant intangible assets related to goodwill and other acquired intangibles. In assessing the recoverability of the Company’s goodwill and other indefinite-lived intangible assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If it is determined that impairment indicators are present and that the assets will not be fully recoverable, their carrying values are reduced to estimated fair value. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profit, adverse legal or regulatory developments and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Changes in strategy and/or market conditions could significantly impact these assumptions, and thus Veeco may be required to record impairment charges for the assets not previously recorded.

Long Lived Asset Impairment:The carrying values of long-lived assets are periodically reviewed to determine if any impairment indicators are present. If it is determined that such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining depreciation period, their carrying values are reduced to estimated fair value. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profit, adverse legal or regulatory developments, and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Assumptions utilized by management in reviewing for impairment of long-lived assets could be effected by changes in strategy and/or market conditions which may require Veeco to record additional impairment charges for these assets, as well as impairment charges on other long-lived assets not previously recorded.

Warranty Costs: The Company estimates the costs that may be incurred under the warranty it provides and records a liability in the amount of such costs at the time the related revenue is recognized. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs. The Company’s warranty obligation is affected by product failure rates, material usage and labor costs incurred in correcting product failures during the warranty period. As the Company’s customer engineers and process support engineers are highly trained and deployed globally, labor availability is a significant factor in determining labor costs. The quantity and availability of critical replacement parts is another significant factor in estimating warranty costs. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs. If actual warranty costs differ substantially from the Company’s estimates, revisions to the estimated warranty liability would be required.

Deferred ~~Taxes:~~ Tax Valuation Allowance:As part of the process of preparing Veeco’s ~~consolidated financial statements, we are~~Consolidated Financial Statements, the Company is required to estimate ~~our~~its income taxes in each of the jurisdictions in which ~~we operate.~~it operates. This process involves estimating ~~our~~the actual current tax ~~exposure,~~expense, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within ~~our~~Veeco’s condensed consolidated balance sheet. The ~~measurement~~carrying value of deferred tax assets is adjusted by a valuation allowance to recognize the extent to which ~~more likely than not,~~ the future tax benefits will be ~~recognized.~~

~~At March 31, 2004, we have deferred tax assets, net of valuation allowances, of $45.3 million. We believe it is~~recognized on a more likely than not ~~that we will be able~~basis. Our net deferred tax assets consist primarily of net operating loss and tax credit carryforwards, and timing differences between the book and tax treatment of inventory and other asset valuations. Realization of these net deferred tax assets is dependent upon our ability to ~~realize these assets through the reduction of~~generate future taxable income.

We record valuation allowances in order to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of recorded valuation allowances, we consider a variety of factors, including the scheduled reversal of deferred tax liabilities, future taxable income, and prudent and feasible tax planning strategies. ~~Should we determine that we~~Under SFAS No. 109, factors such as current and previous operating losses are ~~unable~~given significantly greater weight than the outlook for future profitability in determining the deferred tax asset carrying value.

For the year ended December 31, 2004, the Company recorded a charge of approximately $54.0 million to ~~use all or part~~establish a valuation allowance against the balance of ~~our~~its domestic net deferred tax assets, which consist of net operating loss and tax credit carryforwards, as well as temporary deductible differences. The valuation allowance was calculated in accordance with the ~~future, an adjustment~~provisions of SFAS No. 109, which places primary importance on the Company’s historical results of operations. Although the Company’s results in prior years were significantly affected by restructuring and other charges, the Company’s historical losses and losses incurred during 2004 represented negative evidence sufficient to require a full valuation allowance under the provisions of SFAS No. 109. If the Company is able to realize part or all of the deferred tax assets ~~would be charged to~~in future periods, it will reduce its provision for income taxes with a release of the valuation allowance in an amount that corresponds with the income tax ~~expense, thereby reducing~~liability generated.

At March 31, 2005, we have foreign deferred tax assets, net ~~income~~of valuation allowances, of $2.9 million. We believe it is more likely than not that we will be able to realize these assets through the reduction of future taxable income.

Other Recent Accounting Pronouncements: On December 16, 2004, the Financial Accounting Standards Board issued SFAS No. 123(R) (revised 2004), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the ~~period such determination was made.~~income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123(R) must be adopted no later than the beginning of the first fiscal year beginning after June 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. The Company expects to adopt SFAS No. 123(R) on January 1, 2006.

2018

SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:

The Company has not yet determined whether it will adopt SFAS No. 123(R) using the modified prospective method or the modified retrospective method.

As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123(R)’s fair value method will have a significant impact on consolidated results of operations, although it will have no impact on the Company’s overall consolidated financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net loss and net loss per common share in Note 1 to Veeco’s Condensed Consolidated Financial Statements. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce consolidated net operating cash flows and increase consolidated net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the Company did not recognize an amount of consolidated operating cash flows for such excess tax deductions in 2005 or 2004.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Veeco’s net sales to foreign customers represented approximately ~~66.1%~~65.1% of Veeco’s total net sales for the three months ended March 31, ~~2004,~~2005, and ~~61.8%~~66.1% for the comparable ~~2003~~2004 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 ~~48.7%~~21.4% of Veeco’s total net sales for the three months ended March 31, ~~2004,~~2005, and ~~32.8%~~24.0% for the comparable ~~2003~~2004 period. The aggregate foreign currency exchange gain included in determining the consolidated results of operations was approximately ~~$0.1~~$0.0 and ~~$0.2~~$0.1 million, net of approximately ~~$0.2~~$0.0 and ~~($0.2)~~$0.2 million of hedging gains ~~(losses)~~ on forward exchange contracts, for the three months ended March 31, ~~2004~~2005 and ~~2003,~~2004, respectively. Veeco is exposed to financial market risks, including changes in foreign currency exchange rates. The changes in currency exchange rates that have the largest impact on translating Veeco’s international operating profit are the Japanese Yen and the Euro. ~~To mitigate these risks,~~ Veeco uses derivative financial ~~instruments.~~instruments to mitigate these risks. 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 ~~$5.1~~$3.6 million for the three months ended March 31, ~~2004.~~2005. As of March 31, ~~2004,~~2005, the Company had entered into forward contracts for the month of April for the notional amount of approximately ~~$20.7~~$18.7 million, which approximates the fair market value on March 31, 2004. Additionally, the Company has entered into a forward contract on March 18, 2004, in the notional amount of $0.5 million which approximates the fair market value on March 31, 2004. This contract will be settled on or about June 15, 2004.2005.

Item 4. Controls and Procedures.

The Company’s senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures under the supervision of and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic Securities and Exchange Commission filings.

As required by SEC Rule 13a-15(b), Veeco conducted an evaluation, under the supervision and with the participation of Veeco’s management, including Veeco’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of its fiscal year. As a result of the discovery by management of improper accounting entries made at its TurboDisc business unit which led to adjustments requiring the restatement of the Company’s financial statements for the quarterly periods ended March 31, 2004, June 30, 2004 and September 30, 2004, management has now determined that a deficiency existed in the internal control over financial reporting at the end of such quarterly periods. Since November 10, 2003, the date of the acquisition of the assets constituting the TurboDisc business unit, the business unit was operating under a legacy accounting system which was under the supervision of one individual and did not provide management with the depth of information Veeco is typically accustomed to. Management determined to institute a new accounting system at the business unit and in the course of the final implementation of such system in the quarter ended December 31, 2004, the improper accounting entries were discovered. Management believes that the new accounting system and attendant control process, together with the replacement of financial personnel at the TurboDisc business unit has remedied the deficiency in control over financial reporting that lead to the restatement.

Subsequent to that evaluation there have been no significant changes in our internal controls or other factors that could significantly affect these controls after such evaluation.

2120

Part II. OTHER INFORMATION

Item 1. Legal Proceedings.

On February 11, 2005, the Company issued a press release announcing, among other things (a) the postponement of the release of its financial results for the fourth quarter and full year ended December 31, 2004 pending completion of an internal investigation of improper accounting transactions at its TurboDisc business unit and (b) Veeco’s expectation that this investigation would lead to adjustments requiring the restatement of the Company’s financial statements previously issued for the three quarterly periods and nine months ended September 30, 2004.

Following the February 11 announcement, ten putative class action shareholder lawsuits were filed in federal court in the Southern District of New York and in the Eastern District of New York asserting claims for violation of federal securities laws on behalf of persons who acquired the Company’s securities during the period beginning November 3, 2003 or April 26, 2004 and ending February 10, 2005. The lawsuits name Veeco, its Chairman and Chief Executive Officer, and its Executive Vice President and Chief Financial Officer as defendants, and seek unspecified damages. The lawsuits allege claims against all defendants for violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and claims against the individual defendants for violations of Section 20(b) of the Exchange Act. Although these proceedings are in the preliminary stages, the Company expects that these lawsuits will be consolidated into a single action in which an amended and consolidated complaint will be filed. Although the Company believes these lawsuits are without merit and intends to defend vigorously against the claims the lawsuits could result in substantial costs, divert management’s attention and resources from our operations and negatively affect our public image and reputation.

In addition, during March 2005, three shareholder derivative lawsuits were filed in federal court in the Eastern District of New York against the Company’s directors and certain of its officers for breaches of fiduciary duties relating to the improper accounting transactions at the TurboDisc business unit. Each of these lawsuits is a shareholder derivative action that purports to assert claims on behalf of the Company, but as to which no demand was made on the Board of Directors and no decision had been made on whether the Company can or should pursue such claims. In addition, the Company has received a letter on behalf of a shareholder demanding that the Company commence legal action against its directors and certain of its officers for these same matters. The letter states that, if the Board does not commence such an action within a reasonable period of time, the shareholder will commence a derivative action on the Company’s behalf. These lawsuits seek damages allegedly sustained by the Company and the return of all bonuses, restricted stock, stock options and other incentive compensation. An unfavorable outcome or prolonged litigation in these matters could materially harm the Company’s business.

The Company is involved in various other legal proceedings arising in the normal course of its business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Item 6. Exhibits.

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	Description	Incorporated by ~~Referenceto~~Reference to the Following Document:
10.1	~~Seventh Amendment~~Credit Agreement, dated as of ~~February 5, 2004 to the Credit Agreement, dated April 19, 2001~~March 15, 2005, among Veeco Instruments Inc., ~~Fleet National Bank, as administrative agent, JPMorgan Chase Bank, as syndication agent,~~ HSBC Bank USA, National Association, as ~~documentation~~administrative agent, and the lenders named therein.	~~Annual Report on Form 10-K for the Year Ended December 31, 2003, Exhibit 10.8~~*

10.2	~~Letter~~Security Agreement, dated ~~January 21, 2004 between~~as of March 15, 2005, among Veeco Instruments Inc., the ~~Company~~subsidiaries of Veeco named therein and ~~John P. Kiernan.~~HSBC Bank USA, National Association, as administrative agent.	~~Annual Report on Form 10-K for the Year Ended December 31, 2003,~~ ~~Exhibit 10.38~~*

31.1	Certification of Chief Executive Officer pursuant to Rule 13a — 14(a) or Rule 15d — 14(a) of the Securities Exchange Act of 1934.	*

31.2	Certification of Chief Financial Officer pursuant to Rule 13a — 14(a) or Rule 15d — 14(a) of the Securities Exchange Act of 1934.	*

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

* Filed herewith

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: ~~March 31,~~April 29, 2005

	Veeco Instruments Inc.

	By:	/s/ EDWARD H. BRAUN
		Edward H. Braun Chairman and Chief Executive Officer

	By:	/s/ JOHN F. REIN, JR.
		John F. Rein, Jr. Executive Vice President, Chief Financial Officer and Secretary

INDEX TO 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	Description	Incorporated by ~~Referenceto~~Reference to the Following Document:
10.1	~~Seventh Amendment~~Credit Agreement, dated as of ~~February 5, 2004 to the Credit Agreement, dated April 19, 2001~~March 15, 2005, among Veeco Instruments Inc., ~~Fleet National Bank, as administrative agent, JPMorgan Chase Bank, as syndication agent,~~ HSBC Bank USA, National Association, as ~~documentation~~administrative agent, and the lenders named therein.	~~Annual Report on Form 10-K for the Year Ended December 31, 2003, Exhibit 10.8~~*

10.2	~~Letter~~Security Agreement, dated ~~January 21, 2004 between~~as of March 15, 2005, among Veeco Instruments Inc., the ~~Company~~subsidiaries of Veeco named therein and ~~John P. Kiernan.~~HSBC Bank USA, National Association, as administrative agent.	~~Annual Report on Form 10-K for the Year Ended December 31, 2003,~~ ~~Exhibit 10.38~~*

31.1	Certification of Chief Executive Officer pursuant to Rule 13a — 14(a) or Rule 15d — 14(a) of the Securities Exchange Act of 1934.	*

31.2	Certification of Chief Financial Officer pursuant to Rule 13a — 14(a) or Rule 15d — 14(a) of the Securities Exchange Act of 1934.	*

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

* Filed herewith


	March 31, 2004		December 31, 2003
	(Unaudited)
	(Restated)
Assets
Current Assets:
Cash and cash equivalents	$	111,831	$	106,830
Accounts receivable, less allowance for doubtful accounts of $2,609 in 2004 and $2,458 in 2003	72,574		69,890
Inventories	105,043		97,622
Prepaid expenses and other current assets	14,065		15,823
Deferred income taxes	31,400		24,693

Total current assets	334,913		314,858
Property, plant and equipment at cost, less accumulated depreciation of $65,651 in 2004 and $62,503 in 2003	70,903		72,742
Goodwill	72,989		72,989
Purchased technology, less accumulated amortization of $28,978 in 2004 and $25,519 in 2003	82,390		85,849
Other intangible assets, less accumulated amortization of $16,284 in 2004 and $14,846 in 2003	17,633		18,842
Long-term investments	12,461		12,376
Deferred income taxes	13,909		18,136
Other assets, net	927		672

Total assets	$	606,125	$	596,464

Liabilities and shareholders’ equity
Current Liabilities:
Accounts payable	$	25,011	$	19,603
Accrued expenses	36,607		31,616
Deferred profit	2,457		2,140
Income taxes payable	2,734		3,700
Current portion of long-term debt	338		333

Total current liabilities	67,147		57,392
Long-term debt, net of current portion	229,848		229,935
Other non-current liabilities	2,870		2,808
Shareholders’ equity	306,260		306,329

Total liabilities and shareholders’ equity	$	606,125	$	596,464

	Three Months Ended March 31, 2004
	As filed				Adjustments (1)				Restated

Net sales	$	94,487			$	(3,624		)	$		90,863
Cost of sales	54,649				(584			)	54,065

Gross profit	39,838				(3,040			)	36,798
Costs and expenses	38,767				(240			)	38,527

Operating income (loss)	1,071				(2,800			)	(1,729			)
Interest expense, net	2,199				—				2,199

Loss before income taxes	(1,128			)	(2,800			)	(3,928			)
Income tax benefit	(424			)	(794			)	(1,218			)

Net loss	(704			)	(2,006			)	$	(2,710		)

Loss per common share:

Net loss per common share	$		(0.02	)	$		(0.07	)	$	(0.09		)

Weighted average shares outstanding	29,569								29,569
Diluted weighted average shares outstanding	29,569								29,569

	As of March 31, 2004
	As filed			Adjustments (1)			Restated
Assets
Current assets	$	340,999		$	(6,086	)	$	334,913
Non-current assets	267,027			4,185			271,212

Total assets	$		608,026	(1,901		)	606,125

Liabilities and shareholders’ equity
Current liabilities	67,042			105			67,147

Non-current liabilities	232,718			—			232,718
Shareholders’ equity	308,266			(2,006		)	306,260

Total liabilities and shareholders’ equity	$		608,026	(1,901		)	606,125

Balance as of January 1, 2004	$	3,904
Warranties issued during the period	1,349
Settlements made during the period	(838		)
Balance as of March 31, 2004	$	4,415

	Ion Beam and Mechanical Process Equipment			Epitaxial Process Equipment				Metrology		Unallocated Corporate Amount			Restructuring Charges			Total
Three Months Ended March 31, 2004 (Restated)
Net sales	$	35,348		$		13,957		$	41,558	$	—		$	—		$	90,863
Income (loss) from operations before interest, taxes and amortization	1,799			(2,813			)	6,062		(1,881		)	—			3,167
Total assets	186,283			122,982				130,083		166,777			—			606,125
Three Months Ended March 31, 2003
Net sales	21,409			8,199				36,171		—			—			65,779
(Loss) income from operations before interest, taxes and amortization	(255		)	765				4,840		(2,344		)	(668		)	2,338
Total assets	$	117,958		$	66,308			$	134,218	$	289,196		$	—		$		607,680

	March 31, 2004		December 31, 2003

Ion Beam and Mechanical Process Equipment	$	21,676	$	21,676
Epitaxial Process Equipment	25,944		25,944
Metrology	25,369		25,369

Total	$	72,989	$	72,989