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SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998
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 (I.R.S. Employer
incorporation or organization) Identification Number)
Terminal Drive
Plainview, New York 11803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 349-8300
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes _X_ No ___
8,966,243 shares of Common Stock $.01 par value, were outstanding as of May 11,
1998.
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VEECO INSTRUMENTS INC.
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income - 3
Three Months Ended March 31, 1998 and 1997
Condensed Consolidated Balance Sheets - 4
March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of Cash Flows - 5
Three Months Ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Veeco Instruments Inc.
and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
----------------------
1998 1997
-------- --------
Net sales $ 40,967 $ 37,754
Cost of sales 23,533 20,245
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Gross profit 17,434 17,509
Costs and expenses:
Research and development expense 4,967 3,689
Selling, general and administrative expense 8,198 7,304
Amortization expense 97 68
Other - net (128) (124)
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Operating income 4,300 6,572
Interest income, net 54 89
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Income before income taxes 4,354 6,661
Income taxes 1,652 2,554
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Net income $ 2,702 $ 4,107
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Earnings per share:
Net income per common share $ 0.30 $ 0.47
Diluted net income per common share $ 0.30 $ 0.45
Weighted-average shares outstanding 8,926 8,724
Diluted weighted-average shares outstanding 9,149 9,150
See accompanying notes.
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Veeco Instruments Inc.
and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
1998 1997
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(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 11,799 $ 18,505
Accounts and trade notes receivable, net 38,611 33,265
Inventories 39,476 39,077
Prepaid expenses and other current assets 6,351 6,036
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Total current assets 96,237 96,883
Property, plant and equipment, net 21,583 21,455
Excess of cost over net assets acquired, net 4,285 4,318
Other assets - net 5,055 5,083
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Total assets $127,160 $127,739
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Liabilities and shareholders' equity
Current liabilities $ 38,509 $ 42,497
Other non-current liabilities 1,001 1,012
Long-term debt 2,418 2,448
Shareholders' equity 85,232 81,782
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Total liabilities and shareholders' equity $127,160 $127,739
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See accompanying notes.
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Veeco Instruments Inc.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
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1998 1997
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Operating activities
Net income $ 2,702 $ 4,107
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 889 350
Deferred income taxes (55) (50)
Changes in operating assets and liabilities:
Accounts receivable (5,427) (3,515)
Inventories (416) (2,906)
Current liabilities (3,951) 6,248
Other - net 495 (332)
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Net cash (used in) provided by operating activities (5,763) 3,902
Investing activities
Capital expenditures (921) (1,301)
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Net cash used in investing activities (921) (1,301)
Financing activities
Proceeds from stock issuance 152 356
Other (38) (39)
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Net cash provided by financing activities 114 317
Effect of exchange rates on cash (136) (184)
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Net change in cash and cash equivalents (6,706) 2,734
Cash and cash equivalents at beginning of period 18,505 23,465
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Cash and cash equivalents at end of period $ 11,799 $ 26,199
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See accompanying notes.
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VEECO INSTRUMENTS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation (consisting of normal recurring accruals) have
been included. Operating results for the three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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, 1997.
Earnings per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted-average number of common and common equivalent shares
outstanding during the period.
The following table sets forth the reconciliation of weighted-average shares
outstanding and diluted weighted- average shares outstanding:
Three Months Ended
March 31,
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(In Thousands)
1998 1997
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Weighted-average shares outstanding 8,926 8,724
Dilutive effect of stock options 223 426
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Diluted weighed-average shares outstanding 9,149 9,150
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Note 2 - Recent Events
On February 28, 1998, the Company signed a definitive agreement with Digital
Instruments, Inc. of Santa Barbara, California ("Digital"), pursuant to which
the Company will merge with Digital. Under the merger agreement, as amended,
each issued and outstanding common share of Digital ("Digital Shares") will be
converted into the right to receive that number of shares of Veeco common stock
as determined by dividing 5,583,725 by the aggregate number of Digital Shares
issued and outstanding immediately prior to the effective time of the merger.
The merger is intended to be accounted for as a pooling of interests
transaction. The consummation of the merger is subject to a number of
conditions, including approval by the Company's shareholders. The Company
expects the transaction to be consummated during the second quarter of 1998.
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Note 3 - Inventories
Inventories are stated at the lower of cost (principally first-in, first-out) or
market. Inventories consist of:
March 31, December 31,
1998 1997
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(In thousands)
Raw materials $20,983 $21,671
Work-in process 9,601 7,253
Finished goods 8,892 10,153
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$39,476 $39,077
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Note 4 - Balance Sheet Information
Selected balance sheet account disclosures follow:
March 31, December 31,
1998 1997
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(In thousands)
Allowance for doubtful accounts $ 758 $ 755
Accumulated depreciation and amortization
of property, plant and equipment 11,129 10,344
Accumulated amortization of excess of
cost over net assets acquired 1,073 1,040
Note 5 - Other Information
Net interest paid for the three months ended March 31, 1998 and 1997 was
immaterial. The Company made income tax payments of $2.4 million and $1.1
million for the three months ended March 31, 1998 and 1997, respectively.
Note 6 - New Accounting Pronouncements
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's reported net income or
shareholders' equity. SFAS No. 130 requires foreign currency translation
adjustments which prior to its adoption were reported separately as part of
stockholders' equity to be included in other comprehensive income.
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For the three months ended March 31, 1998 and 1997, total comprehensive income
amounted to $2.5 million and $3.6 million respectively.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which is
effective for both interim and annual financial statements for periods ending
after December 15, 1997. Segment information is not required to be reported in
interim financial statements in the first year of application. The Company
intends to adopt SFAS No. 131 for the fiscal year ended December 31, 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1998 and 1997
Net sales were approximately $41.0 million for the three months ended March 31,
1998 representing an increase of approximately $3.2 million or 8.5% over the
comparable 1997 period. The increase principally reflects growth in process
metrology sales, partially offset by a decrease in sales of process equipment
sales. Sales in the U.S., Europe, Japan and Asia Pacific comprised 48%, 19%, 20%
and 8% of the Company's net sales for the three months ended March 31, 1998,
respectively. Sales in the U.S. decreased approximately 10.7%, while
international sales included an approximately 209.6% increase in Europe, a
125.4% increase in Japan, and a 67.3% decrease in Asia Pacific. The decrease in
U.S. sales reflects reduced process equipment sales to data storage customers
partially offset by increased process metrology sales. The increase in European
sales reflects increased process equipment sales to data storage customers along
with increased sales of SXM Workstations for semiconductor applications. The
increase in sales in Japan reflects an increase in process metrology sales. The
decrease in sales in Asia Pacific reflects a decrease in sales of all product
lines resulting from the downturn in the economy in that region. The Company
believes that there will continue to be quarter to quarter variations in the
geographic concentration of sales.
Process metrology sales for the three months ended March 31, 1998 of
approximately $20.2 million increased by approximately $5.4 million or 36.6%
over the comparable 1997 period reflecting increased use of process metrology
products for in-line inspection of critical steps in data storage and
semiconductor applications. Process equipment sales of approximately $15.2
million for the three months ended March 31, 1998 decreased by approximately
$2.7 million or 15.3% from the comparable 1997 period, as sales of ion beam etch
products declined, while sales of new ion beam deposition and physical vapor
deposition equipment for use in high density thin film magnetic head (TFMH) data
storage applications increased. Industrial measurement sales for the three
months ended March 31, 1998 of approximately $5.6 million increased 10.7% over
the comparable 1997 period.
Veeco received approximately $51.5 million of orders for the three months ended
March 31, 1998, a 33.4% increase compared to approximately $38.6 million of
orders in the comparable 1997 period. Process metrology orders increased 72.0%
to $25.0 million reflecting the increased use of in line metrology for
production applications such as PTR (pole tip recession) measurements for new
MR/GMR thin film magnetic heads, and semiconductor use of AFM for .25 micron
line widths. Process equipment orders increased 17.4% to $21.9 million
reflecting increases in new deposition products for MR/GMR development and less
ion beam etch reflecting excess data storage capacity for older TFMH porducts.
The book/bill ratio for the first quarter of 1998 was 1.26.
Gross profit for the first quarter of 1998 of approximately $17.4 million
represents a decrease of approximately $0.1 million from the comparable 1997
period. Gross profit as a percentage of net sales decreased to 42.6% for 1998
from 46.4% for 1997, due principally to a decrease in gross margin for the
process equipment product line. Gross margin for the process equipment product
line was negatively impacted by lower sales volume, increased facility and
information system costs and the increase in sales of new deposition products
with lower initial gross margins than established ion beam etch products.
Research and development expense in the first quarter of 1998 increased by
approximately $1.3 million or 34.6% over the comparable period of 1997 as the
Company invested an additional $1.0 million in deposition R&D for its process
equipment product line and increased its R&D investment for in-line inspection
metrology products.
Selling, general and administrative expenses increased by
approximately $0.9 million for the three months ended March 31, 1998 compared to
the comparable 1997 period as a result of increased sales and product support
costs for deposition products as well as incremental selling costs related to
the increased process metrology sales.
-9-
Income taxes for 1998 amounted to approximately $1.7 million or 37.9% of income
before income taxes in 1998 as compared to $2.6 million or 38.3% of income
before taxes for the same period in 1997.
Liquidity and Capital Resources
Net cash used in operations totaled approximately $5.8 million for the first
three months of 1998 compared to net cash provided by operations of
approximately $3.9 million for the comparable 1997 period. This change in cash
reflects a decrease in net income for the first quarter of 1998 of approximately
$1.4 million from the comparable 1997 period, coupled with unfavorable changes
in operating assets and liabilities. Accounts receivable increased approximately
$5.4 million during the three months ended March 31, 1998 as a result of sales
being more heavily weighted towards the end of the quarter, when compared to the
three months ended December 31, 1997. Current liabilities decreased by
approximately $4.0 million during the three months ended March 31, 1998
reflecting the reduction of income taxes payable and the payment of accrued 1997
bonus and commissions.
Veeco made capital expenditures of approximately $0.9 million for the three
months ended March 31, 1998, compared to $1.3 million in the comparable 1997
period. The Company expects that capital expenditures in 1998 will remain
relatively consistent with 1997.
The Company believes that existing cash balances together with cash generated
from operations and amounts available under the Company's credit facility will
be sufficient to meet the Company's projected working capital and other cash
flow requirements for the next twelve months.
Forward - Looking Statements
To the extent that this Report on Form 10-Q discusses expectations about market
conditions or about market acceptance and future sales of the Company's
products, or otherwise makes statements about the future, such statements are
forward looking and are subject to a number of risks and uncertainties that
could cause actual results to differ materially from the statements made. These
factors include the cyclical nature of the data storage and semiconductor
industry, risks associated with the acceptance of new products by individual
customers and by the marketplace, and other factors discussed in the Business
Description and Management and Analysis sections of the Company's Report on Form
10-K and Annual Report to Shareholders.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits.
27.1 Financial Data Schedule of Veeco Instruments Inc. for the
quarterly period ended March 31, 1998. Filed herein.
27.2 Financial Data Schedule of Veeco Instruments Inc. for the
quarterly period ended March 31, 1997 (Restated). Filed herein.
b) Reports on Form 8-K.
The Registrant filed a Form 8-K on February 13, 1998 reporting that the
Registrant entered into an agreement in principle with Digital Instruments Inc.,
("Digital"), pursuant to which Digital agreed to merge with and into the
Registrant.
The Registrant filed a Form 8-K on March 9, 1998 reporting that the Registrant
signed a definitive merger agreement with Digital.
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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: May 14, 1998
Veeco Instruments Inc.
By: /s/ Edward H. Braun
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Edward H. Braun
Chairman, CEO and President
By: /s/ John F. Rein, Jr.
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John F. Rein, Jr.
Vice President, Finance
and Chief Financial Officer
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Exhibit Index
Exhibits:
27.1 Financial Data Schedule of Veeco Instruments Inc. for the quarterly period
ended March 31, 1998. Filed herein.
27.2 Financial Data Schedule of Veeco Instruments Inc. for the quarterly period
ended March 31, 1997 (restated). Filed herein.