SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2000
Commission file number 0-16244
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VEECO INSTRUMENTS INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2989601
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Terminal Drive 11803
Plainview, New York (Zip Code)
Registrant's telephone number, including area code: (516) 349-8300
-------------------
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 ___
23,679,098 shares of common stock, $0.01 par value per share, were outstanding
as of the close of business on August 2, 2000.
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:
o the dependence on principal customers and the cyclical nature of the data
storage, semiconductor and optical telecommunications industries,
o fluctuations in quarterly operating results,
o rapid technological change and risks associated with the acceptance of new
products by individual customers and by the marketplace,
o limited sales backlog,
o the highly competitive nature of industries in which the company operates,
o changes in foreign currency exchange rates, and
o the other matters discussed in the Business Description contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
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.
2
VEECO INSTRUMENTS INC.
INDEX
PART 1. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income -
Three Months Ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Income -
Six Months Ended June 30, 2000 and 1999 5
Condensed Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk 19
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 23
3
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
JUNE 30,
--------
2000 1999
---- ----
Net sales $ 93,579 $ 77,092
Cost of sales 66,857 40,808
-------- --------
Gross Profit 26,722 36,284
Costs and expenses:
Research and development expense 14,063 9,910
Selling, general and administrative expense 19,158 14,884
Amortization expense 976 108
Other expense (income), net 61 (467)
Merger and reorganization expenses 13,956 --
Asset impairment charge 3,722 --
-------- --------
Operating (loss) income (25,214) 11,849
Interest income, net (136) (236)
-------- --------
(Loss) income before income taxes (25,078) 12,085
Income tax (benefit) provision (9,815) 4,432
-------- --------
Net (loss) income ($15,263) $ 7,653
======== ========
Net (loss) income per common share ($0.65) $0.37
Diluted net (loss) income per common share ($0.65) $0.36
Weighted average shares outstanding 23,463 20,530
Diluted weighted average shares outstanding 23,463 21,186
SEE ACCOMPANYING NOTES.
4
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
--------
2000 1999
---- ----
Net sales $ 171,469 $ 151,631
Cost of sales 110,170 80,381
--------- ---------
Gross Profit 61,299 71,250
Costs and expenses:
Research and development expense 27,408 19,649
Selling, general and administrative expense 36,286 29,916
Amortization expense 1,485 239
Other expense (income), net 40 (501)
Merger and reorganization expenses 14,206 --
Asset impairment charge 3,722 --
--------- ---------
Operating (loss) income (21,848) 21,947
Interest income, net (521) (61)
--------- ---------
(Loss) income before income taxes (21,327) 22,008
Income tax (benefit) provision (8,531) 8,189
--------- ---------
Net (loss) income ($ 12,796) $ 13,819
========= =========
Net (loss) income per common share ($0.55) $0.69
Diluted net (loss) income per common share ($0.55) $0.66
Weighted average shares outstanding 23,253 20,161
Diluted weighted average shares outstanding 23,253 20,936
SEE ACCOMPANYING NOTES.
5
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31,
2000 1999
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 13,858 $ 29,852
Short-term investments 52,189 50,888
Accounts and trade notes receivable, net 96,443 79,952
Inventories 86,644 85,876
Prepaid expenses and other current assets 13,030 7,507
Deferred income taxes 14,504 12,363
-------- --------
Total current assets 276,668 266,438
Property, plant and equipment at cost, net 63,030 61,298
Excess of cost over net assets acquired, net 9,732 6,500
Other assets, net 11,304 6,960
-------- --------
Total assets $360,734 $341,196
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 32,933 27,723
Accrued expenses 41,958 37,706
Short-term borrowings from line of credit 17,005 10,679
Notes payable to former Digital shareholders -- 8,000
Current portion of long-term debt 1,429 2,773
Other current liabilities 847 7,580
-------- --------
Total current liabilities 94,172 94,461
Long-term debt, net of current portion 15,381 17,252
Other non-current liabilities 5,462 5,539
Shareholders' equity 245,719 223,944
-------- --------
Total liabilities and shareholders' equity $360,734 $341,196
======== ========
SEE ACCOMPANYING NOTES.
6
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
SIX MONTHS ENDED
JUNE 30,
--------
2000 1999
---- ----
OPERATING ACTIVITIES
Net (loss) income ($12,796) $ 13,819
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 7,493 4,479
Deferred income taxes (2,156) 260
Other, net (21) (335)
Asset impairment charge 3,722 --
Write-off of CVC inventory 15,322 --
Changes in operating assets and liabilities:
Accounts receivable (20,316) (4,848)
Inventories (9,136) (4,504)
Accounts payable 6,720 1,843
Accrued expenses and other current liabilities (4,376) 8,991
Recoverable income taxes (9,487) --
Other, net 1,472 (992)
Operating activities three months ended 12/31/99- CVC 638 --
-------- --------
Net cash (used in) provided by operating activities (22,921) 18,713
INVESTING ACTIVITIES
Capital expenditures (11,923) (8,685)
Proceeds from sale of property, plant and equipment 230 2,979
Proceeds from sale of leak detection business 3,000 --
Payment of net assets of businesses acquired (7,177) --
Net purchases of short-term investments (1,295) --
Investing activities three months ended 12/31/99- CVC (528) --
-------- --------
Net cash used in investing activities (17,693) (5,706)
FINANCING ACTIVITIES
Proceeds from stock issuance 11,886 60,718
Repayment of long-term debt, net (8,570) (1,345)
Net proceeds (repayments) from borrowings under line of credit 17,005 (4,146)
Other -- (151)
Financing activities three months ended 12/31/99- CVC 3,627 --
-------- --------
Net cash provided by financing activities 23,948 55,076
Effect of exchange rates on cash and cash equivalents 672 804
-------- --------
Net change in cash and cash equivalents (15,994) 68,887
Cash and cash equivalents at beginning of period 29,852 23,599
-------- --------
Cash and cash equivalents at end of period $ 13,858 $ 92,486
======== ========
SEE ACCOMPANYING NOTES
7
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 six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. 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, 1999.
Earnings per share are computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share are computed
using the weighted average number of common and common equivalent shares
outstanding during the period. The effect of common equivalent shares for the
three months and six months ended June 30, 2000 was antidilutive, therefore
dilutive earnings per share is not presented for such periods.
The following table sets forth the reconciliation of diluted weighted average
shares outstanding:
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands) (In thousands)
Weighted average shares outstanding 23,463 20,530 23,253 20,161
Dilutive effect of stock options and warrants -- 656 -- 775
------ ------ ------ ------
Diluted weighted average shares outstanding 23,463 21,186 23,253 20,936
====== ====== ====== ======
NOTE 2 - CVC MERGER AND RELATED NON-RECURRING CHARGES
On May 5, 2000, a wholly-owned subsidiary of the Company merged with CVC,
Inc. ("CVC") of Rochester, New York. As a result, CVC became a subsidiary of
the Company. Under the terms of the agreement, CVC shareholders received 0.43
shares of Veeco Common Stock (approximately 5.4 million shares in total) for
each share of CVC Common Stock outstanding. The merger was accounted for as a
pooling of interests and, as a result, historical financial data has been
restated to include CVC data. CVC provides cluster tool manufacturing
equipment used in the production of evolving tape and disk drive recording
head fabrication, optical
8
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 2 - CVC MERGER AND RELATED NON-RECURRING CHARGES (CONTINUED)
components, passive components, MRAM, bump metallization, and next generation
logic devices.
In conjunction with the merger with CVC, Veeco incurred non-recurring charges
of $33.0 million during the six months ended June 30, 2000. Of these charges,
a $15.3 million non-cash charge related to a write-off of inventory (included
in cost of sales), $14.0 million represented merger and reorganization costs
(of which $9.2 million related to transaction costs and $4.8 million
pertained to duplicate facility and personnel costs) and $3.7 million was for
the write-down of long-lived assets. The Company implemented its
reorganization plan in an effort to integrate CVC into the Company,
consolidate duplicate manufacturing facilities and reduce other operating
costs. The $4.8 million charge for duplicate facility and personnel costs
principally related to the closing of the CVC Virginia facility and an
approximate 200-person work force reduction, which includes both management
and manufacturing employees principally located in Alexandria, Virginia,
Rochester and Plainview, New York. For the six months ended June 30, 2000,
approximately $1.0 million of termination benefits have been paid, which
reflects the termination of approximately 200 employees. The write-down of
long-lived assets to estimated net realizable value related primarily to
leasehold improvements, machinery and equipment and intangible assets for
CVC's Virginia facility. In addition, the $15.3 million non-cash write-off of
inventory principally related to the CVC Virginia facility product line of
ion beam etch and deposition equipment. The Company intends to integrate the
technology from this product line into Veeco's existing ion beam etch and
deposition products. Accordingly, the Company has determined that a portion
of this product line's inventory is not useable in the future.
The following unaudited data summarizes the combined results (in thousands) of
the operations of the Company and CVC as though the merger had occurred at the
beginning of fiscal year 1997:
Year Ended
December 31,
1999 1998 1997
------------------------------------
Net sales:
Veeco $246,606 $214,985 $223,410
CVC 82,915 68,173 62,588
-------- -------- --------
Combined $329,521 $283,158 $285,998
======== ======== ========
Net income:
Veeco $ 20,410 $ 13,373 $ 26,616
CVC 1,571 264 2,045
-------- -------- --------
Combined $ 21,981 $ 13,637 $ 28,661
======== ======== ========
Prior to the merger, CVC's fiscal year end was September 30. Therefore, the
second quarter and first half Consolidated Statements of Income for 1999 were
derived from CVC's three months
9
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 2 - CVC MERGER AND RELATED NON-RECURRING CHARGES (CONTINUED)
and six months ended March 31, 1999, respectively. In addition, the December 31,
1999 Consolidated Balance Sheet was derived from CVC's September 30, 1999
balance sheet.
NOTE 3 - OTHER RECENT EVENTS
On March 23, 2000, the Company purchased certain atomic force microscope assets.
The acquisition was accounted for using the purchase method of accounting.
Results of operations prior to the acquisition are not material to the
Consolidated Statements of Income for the three and six months ended June 30,
2000 and 1999.
On February 11, 2000, Veeco entered into a strategic alliance with Seagate
Technology, Inc. ("Seagate") under which Veeco assumed production responsibility
for Seagate's internal Slider Level Crown ("SLC") product line and acquired
rights to commercialize such products for sale to third parties. The acquisition
was accounted for using the purchase method of accounting. Results of operations
prior to the acquisition are not material to the Consolidated Statements of
Income for the three and six months ended June 30, 2000 and 1999.
On January 31, 2000, Monarch Labs, Inc. ("Monarch"), a developer and
manufacturer of automated quasi-static test systems for the data storage
industry, merged with a subsidiary of Veeco. Monarch was a privately held
company located in Longmont, Colorado. Under the terms of the merger, Monarch
shareholders received 282,224 shares of Veeco Common Stock. The merger was
accounted for as a pooling of interests transaction, however, as Monarch's
historical results of operations and financial position are not material in
relation to those of Veeco, financial information prior to the merger is not
restated.
NOTE 4 - INVENTORIES
Interim inventories have been determined by lower of cost (principally first-in,
first-out) or market. Inventories consist of:
June 30, December 31,
2000 1999
------ ------
(In thousands)
Components and spare parts $54,410 $49,609
Work-in-progress 19,476 21,736
Finished goods 12,758 14,531
------- -------
$86,644 $85,876
======= =======
10
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 5 - BALANCE SHEET INFORMATION
June 30, December 31,
2000 1999
-------- ------------
(In thousands)
Allowance for doubtful accounts $ 2,902 $ 2,403
Accumulated depreciation and amortization
of property, plant and equipment $42,869 $34,115
Accumulated amortization of excess of cost
over net assets acquired $ 1,711 $ 1,335
SHORT-TERM INVESTMENTS
The carrying amounts of available-for-sale securities approximate fair value.
The following is a summary of available-for-sale securities:
June 30, December 31,
2000 1999
-------- -----------
(In thousands)
Commercial paper $14,704 $19,047
Municipal bonds 18,529 14,527
Floating rate bonds 7,933 9,029
Corporate bonds 6,839 6,071
Obligations of U.S. Government agencies 2,004 2,003
Other debt securities 2,180 211
------- -------
$52,189 $50,888
======= =======
All investments at June 30, 2000 have contractual maturities of one year or
less. During the six months ended June 30, 2000, available-for-sale securities
with fair values at the date of sale of approximately $27.3 million were sold.
11
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 6 - SEGMENT INFORMATION
The following represents the reportable product segments of the Company, in
thousands:
Unallocated Non-
Process Industrial Corporate recurring
Metrology Equipment Measurement Amount Charges Total
--------- --------- ----------- ------ ------- -----
THREE MONTHS
ENDED
JUNE 30, 2000
Net sales $ 43,130 $ 47,638 $ 2,811 $ -- $ -- $ 93,579
Operating income (loss) 8,426 1,673 (565) (1,748) (33,000) (25,214)
THREE MONTHS
ENDED
JUNE 30, 1999
Net sales $ 25,464 $ 47,352 $ 4,276 $ -- $ -- $ 77,092
Operating income (loss) 4,693 8,434 (256) (1,022) -- 11,849
SIX MONTHS
ENDED
JUNE 30, 2000
Net sales 74,017 91,915 5,537 -- -- 171,469
Operating income
(loss) 13,802 1,293 (1,026) (2,667) (33,250) (21,848)
Total assets 99,507 170,308 11,368 79,551 -- 360,734
SIX MONTHS
ENDED
JUNE 30, 1999
Net sales 56,436 85,400 9,795 -- -- 151,631
Operating income
(loss) 11,406 13,232 (262) (2,429) -- 21,947
Total assets 67,874 124,261 15,731 92,328 -- 300,194
NOTE 7 - COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was ($15.7) million and ($13.6) million for
the three and six months ended June 30, 2000, and $7.2 and $12.5 million for the
three and six months ended June 30, 1999, respectively. Other comprehensive
income is comprised of foreign currency translation adjustments, minimum pension
liability and net unrealized holding gains and losses on available-for-sale
securities.
12
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 8 - NEW STAFF ACCOUNTING BULLETIN
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition" ("SAB 101"). The SEC Staff addresses several issues in SAB
101, including the timing for recognizing revenue derived from sales
arrangements involving contractual customer acceptance provisions where
installation of the product occurs after shipment and transfer of title. The
Company's current policy is to recognize revenue at the time the customer takes
title to the product, generally at the time of shipment. Applying the
requirements of SAB No. 101 to the present selling arrangements used by the
Company may result in a change in the Company's accounting policy for revenue
recognition and the deferral of the recognition of revenue or a portion of the
revenue derived from the sale until installation is complete and the product is
accepted by the customer. Based on current SEC guidance, the effect of the
change will be recognized as a cumulative effect of a change in accounting in
the Company's fourth quarter ending December 31, 2000. Management is currently
evaluating the impact of this change and believes that, in the period of
adoption, the amount of revenue that will be deferred could be material.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS.
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Net sales of $93.6 million for the three months ended June 30, 2000
represents an increase of 21% from the 1999 comparable period sales of $77.1
million, resulting principally from an increase in metrology sales. Sales in
the U.S., Europe, Japan and Asia Pacific, accounted for 45%, 20%, 15% and
20%, respectively, of the Company's net sales for the three months ended June
30, 2000. Sales in the U.S. decreased 6% from the comparable 1999 period due
to a 10% and 69% decrease in U.S. process equipment and industrial
measurement sales, respectively, partially offset by a 21% increase in U.S.
metrology sales. Sales in Europe, Japan and Asia Pacific increased 76%, 19%
and 151%, respectively. The increase in Europe is a result of higher sales in
both the process equipment and metrology segments, as well as Veeco's CVC
subsidiary, which did not commence sales in Europe until the third quarter of
1999. The increase in Japan and Asia Pacific is principally due to an
increase in metrology sales. The Company believes that there will continue to
be quarter-to-quarter variations in the geographic concentration of sales.
Process equipment sales of $47.6 million for the three months ended June 30,
2000 remained relatively flat compared to the 1999 period. Metrology sales of
$43.1 million for the three months ended June 30, 2000 represents an increase
of approximately $17.7 million, or 69%, from the 1999 comparable period sales of
$25.5 million, due primarily to sales of the Company's atomic force microscopes
(AFM) to the semiconductor market and optical metrology products to the data
storage market. Industrial measurement sales of $2.8 million for the three
months ended June 30, 2000 represents a decrease of $1.5 million, or 34%, from
the comparable 1999 period, principally due to the sale on January 17, 2000 of
the Company's leak detection business.
Veeco received $132.4 million of orders during the three months ended June 30,
2000, a 65% increase compared to $80.5 million of orders for the comparable 1999
period. Process equipment orders increased 62% to $83.6 million, due primarily
to an increase in orders from both optical telecommunications and data storage
customers. Veeco's Ion Tech subsidiary had an increase of $27.0 million or 227%
in orders for Dense Wave Division Multiplexing (DWDM) related equipment. Etch
and deposition equipment orders increased 12% to $44.6 million from $39.8
million for the comparable 1999 period. Metrology orders increased by 82% to
$46.2 million, reflecting an increase in bookings for atomic force microscopes
and optical metrology products. The Company's book/bill ratio for the second
quarter of 2000 was 1.41.
In connection with the merger with CVC, the Company incurred non-recurring
charges of $33.0 million, of which a $15.3 million non-cash charge or 16.4% of
net sales related to the write-off of inventory, which has been included in
cost of sales. As a result, gross profit for the three months ended June 30,
2000 of $26.7 million represents a decrease of $9.6 million from the
comparable 1999 period. Gross profit, excluding non-recurring charges, as a
percentage of net sales decreased to 44.9%, from 47.1% for the comparable
1999 period, principally due to a decline in the data storage process
equipment area primarily attributable to the decrease in etch and deposition
equipment
14
sales, pricing pressure and underutilized overhead structure. As a result
of the merger with CVC, the Company closed CVC's Virginia facility, which
was duplicative to its New York operations. This action will result in a lower
overhead cost structure.
Research and development expenses of $14.1 million for the three months ended
June 30, 2000 increased by approximately $4.2 million, or 42%, over the
comparable period of 1999, due primarily to the increase in research and
development for both process equipment and metrology products, as well as
product development in the newly acquired metrology businesses of OptiMag,
Monarch, the atomic force microscope business and the slider crown adjust
product line.
Selling, general and administrative expenses of $19.2 million for the three
months ended June 30, 2000 increased by approximately $4.3 million to 20.5% of
net sales in 2000 from 19.3% in 1999. This increase is principally due to the
expansion of direct sales and service presence in both Japan and the Asia
Pacific regions, as well as the purchase of OptiMag, the slider crown adjust
product line and the atomic force microscope business, which had no comparable
operating spending in 1999 since they were accounted for using the purchase
method of accounting.
In conjunction with the merger with CVC, Veeco incurred non-recurring charges
of $33.0 million. Of these charges, a $15.3 million non-cash charge related
to a write-off of inventory (included in cost of sales), $14.0 million
represented merger and reorganization costs (of which $9.2 million related to
transaction costs and $4.8 million pertained to duplicate facility and
personnel costs) and $3.7 million was for the write-down of long-lived assets.
Income taxes for the three months ended June 30, 2000 amounted to a $9.8 million
tax benefit, or 39% of loss before income taxes, as compared to $4.4 million of
income tax expense, or 37% of income before income taxes, for the same period of
1999.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Net sales were $171.5 million for the six months ended June 30, 2000
representing an increase of approximately $19.8 million or 13% over the
comparable 1999 period. The increase principally reflects growth in process
equipment and metrology sales. Sales in the US, Europe, Japan and Asia Pacific
accounted for 44%, 21%, 17% and 17%, respectively, of the Company's net sales
for the six months ended June 30, 2000. Sales in the US and Japan remained
relatively flat from the comparable 1999 period, while sales to Europe and Asia
Pacific increased 72% and 36%, respectively. The increase in sales in Europe is
due primarily to Veeco's CVC subsidiary, which did not commence sales to Europe
until the third quarter of 1999, and an increase in sales of Veeco's metrology
products. The increase in sales in Asia Pacific resulted from a 48% increase in
metrology sales partially offset by a decline of 30% in process equipment sales.
Process equipment sales were $91.9 million for the six months ended June 30,
2000, an increase of approximately $6.5 million or 8% from the comparable
1999 period, due to an increase in sales of Ion Tech's DWDM related
equipment, partially offset by a decline in etch and deposition sales.
Metrology sales for the six months ended June 30, 2000 were $74.0
15
million, an increase of approximately $17.6 million or 31% compared to the
comparable 1999 period, reflecting a 46% increase in optical metrology products
from the newly acquired metrology businesses of OptiMag, Monarch and the slider
crown adjust product line, as well as a 22% increase in the sales of atomic
force microscopes. Industrial measurement sales for the six months ended June
30, 2000 were $5.5 million, a decrease of 43% from the comparable 1999 period
principally due to the sale on January 17, 2000 of the Company's leak detection
business.
Veeco received $243.6 million of orders for the six months ended June 30, 2000,
a 40% increase compared to $174.1 million of orders in the comparable 1999
period. Process equipment orders increased 24% to $144.2 million, principally
reflecting an increase in optical telecommunications bookings. Metrology orders
increased 86% to $93.6 million, reflecting a 148% increase in optical metrology
products, as well as an increase in atomic force microscopes. The book/bill
ratio for the six months ended June 30, 2000 was 1.42.
In connection with the merger with CVC, the Company incurred non-recurring
charges of $33.0 million, of which a $15.3 million non-cash charge or 8.9% of
net sales related to the write-off of inventory, which has been included in
cost of sales. As a result, gross profit for the six months ended June 30,
2000 of $61.3 million represents a decrease of $10.0 million from the
comparable 1999 period. Gross profit, excluding the non-recurring charges, as
a percentage of net sales decreased to 44.7% for 2000 from 47.0 % for the
comparable 1999 period, principally due to a decline in the data storage
process equipment area primarily attributable to the decrease in etch and
deposition equipment sales, pricing pressure and underutilized overhead
structure. As a result of the merger with CVC, the Company closed CVC's
Virginia facility, which was duplicative to its New York operations. This
action will result in a lower overhead cost structure.
Research and development expenses of $27.4 million for the six months ended June
30, 2000 increased by approximately $7.8 million, or 39%, over the comparable
period of 1999, due primarily to the continued investment in new products and
technology, particularly in the process equipment area.
Selling, general and administrative expenses were $36.3 million or 21.2% of net
sales for the six months ended June 30, 2000, as compared to $29.9 million or
19.7% of net sales in 1999. This increase was principally due to the expansion
of direct sales and service presence in both Japan and the Asia Pacific regions
as well as the purchase of OptiMag, the slider crown adjust product line and the
atomic force microscope business, which had no comparable operating spending in
1999 since they were accounted for using the purchase method of accounting.
In the six months ended June 30, 2000, the Company recorded $33.25 million of
non-recurring charges. In addition to the $33.0 million charge in conjunction
with the CVC merger, Veeco also recorded merger expenses of $0.25 million in
the six months ended June 30, 2000 representing transaction and other costs
related to the merger with Monarch Labs, Inc.
16
Income taxes for the six months ended June 30, 2000 amounted to an $8.5
million tax benefit, or 40% of loss before income taxes, as compared to $8.2
million of income tax expense, or 37% of income before income taxes, for the
same period of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations totaled $22.9 million for the six months ended
June 30, 2000 compared to cash provided by operations of $18.7 million for
the comparable 1999 period. This change in cash used in operations reflects a
decrease in net income for the 2000 period of $26.6 million from the
comparable 1999 period, along with the use of cash for changes in operating
assets and liabilities. Accounts payable increased by $6.7 million, while
increasing $1.8 million in the comparable 1999 period. The increase in
accounts payable reflects the increase in volume for the six months ended
June 30, 2000. Accrued expenses and other current liabilities decreased by
$4.4 million during the six months ended June 30, 2000, while increasing $9.0
million during the comparable 1999 period. The decrease in accrued expenses
and other current liabilities is due primarily to the payment of income
taxes, offset by accrued merger and reorganization costs, primarily for CVC.
Accounts receivable increased by $20.3 million during six months ended June
30, 2000, while increasing $4.8 million during the comparable 1999 period.
The increase in accounts receivable in 2000 is due to the increased sales
volume in 2000, as well as slower payment by certain data storage and
international customers. Inventories increased by $9.1 million due to the
increase in purchases of inventory related to increases in both metrology and
optical telecommunications process equipment sales. As a result of the merger
and reorganization costs incurred in connection with the CVC merger, the
Company anticipates a refund of income taxes of approximately $9.5 million.
Net cash used in operations for the six months ended June 30, 2000 also
included operating activities for the three months ended December 31, 1999
related to CVC. Prior to the merger, CVC's fiscal year end was September 30.
Net cash used in investing activities for the six months ended June 30, 2000
totaled $17.7 million compared to $5.7 million for the comparable 1999 period.
Cash used in 2000 consisted of $11.9 million of capital expenditures partially
offset by $3.0 million of proceeds from the sale of the leak detection business.
The Company also expended approximately $7.2 million for the purchase of assets
of acquired businesses and approximately $1.3 million for the purchase of
short-term investments in 2000. Net cash used in investing activities for the
six months ended June 30, 2000 also included investing activities for the three
months ended December 31, 1999 related to CVC. Prior to the merger, CVC's fiscal
year end was September 30.
Net cash provided by financing activities for the six months ended June 30, 2000
totaled $23.9 million, compared to $55.1 million for the comparable 1999 period.
Cash provided by financing activities in 2000 consisted of $17.0 million of
proceeds from borrowings under the Company's revolving credit facilities, as
well as proceeds of $11.9 million from stock issuances upon exercise of stock
options, partially offset by $8.6 million of debt repayments. Net cash provided
by financing activities for the six months ended June 30, 2000 also included
financing activities for the three months ended December 31, 1999 related to
CVC. Prior to the merger, CVC's fiscal year end was September 30.
17
The Company has an unsecured $40.0 million Credit Facility (the "Credit
Facility") which may be used for working capital, acquisitions and general
corporate purposes. The Credit Facility bears interest at the prime rate of the
lending banks, but such rate may be increased to a maximum rate of .25% above
the prime rate in the event the Company's ratio of debt to cash flow exceeds a
defined ratio. A LIBOR-based interest rate option is also provided. As of June
30, 2000, there was $10.0 million outstanding under the Credit Facility. In May
2000, this credit facility was amended to allow for the recently completed CVC
merger. The Company's CVC subsidiary also has a $15.0 million line of credit.
Maximum borrowings under this line are based upon certain financial criteria and
are at an interest rate of prime. As of June 30, 2000, there was approximately
$7.0 million outstanding under this line.
In connection with the atomic force microscope acquisition, the Company will be
required to pay approximately $4.8 million of the purchase price to the seller,
due in four equal quarterly installments, with the final payment due on March
23, 2001.
In connection with the OptiMag acquisition, the Company agreed to purchase
approximately twenty-five percent of OptiMag's outstanding stock which it does
not already own on October 15, 2000 for approximately $1.2 million. In addition,
the Company will be required to pay consideration to the former shareholders of
OptiMag based upon both future sales and the future appraised value of OptiMag.
The consideration will be calculated based upon a predetermined percentage of
OptiMag's sales for the period from January 1, 2000 to December 31, 2000, as
well as the appraised fair market value of OptiMag, adjusted for certain items,
as of December 31, 2000.
The Company believes that existing cash balances together with cash generated
from operations and amounts available under the Company's credit facilities will
be sufficient to meet the Company's projected working capital and other cash
flow requirements for the next twelve months.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Veeco's investment portfolio consists of cash equivalents, corporate bonds,
commercial paper, floating rate bonds, obligations of U.S. Government
agencies and municipal bonds. These investments are considered
available-for-sale securities; accordingly, the carrying amounts approximate
fair value. Assuming June 30, 2000 variable debt and investment levels, a
one-point change in interest rates would not have a material impact on net
interest expense. Veeco's net sales to foreign customers represented
approximately 55% and 56% of Veeco's total net sales for the three and six
months ended June 30, 2000, respectively, and 42% and 49% for the three and
six months ended June 30, 1999, respectively. 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 8% and 9% of Veeco's total net sales for the three
and six months ended June 30, 2000, respectively, and 9% for both the three
and six months ended June 30, 1999. The Company has not engaged in foreign
currency hedging transactions. The aggregate foreign currency exchange loss
included in determining consolidated results of operations was not material
during the three and six months ended June 30, 2000 and 1999. The change in
currency exchange rate that has the largest impact on translating Veeco's
international operating profit is the Japanese yen. The Company estimates
that a 10% change in foreign currency exchange rates would impact reported
operating profit for the six months ended June 30, 2000 by approximately $1.1
million. The Company believes that this quantitative measure has inherent
limitations because it does not take into account any governmental actions or
changes in either customer purchasing patterns or financing and operating
strategies.
19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders of the Company was held on May 5, 2000 to (a)
approve the issuance of shares of the Company's common stock in connection with
the merger of CVC, Inc. with a subsidiary of the Company and (b) to approve an
amendment to the Company's certificate of incorporation to increase the
authorized shares of common stock from 25,000,000 shares to 40,000,000 shares.
As of the record date for the meeting, there were 18,137,390 shares of common
stock outstanding, each of which was entitled to one vote with respect to each
of the matters voted on at the meeting. The results of the voting were as
follows:
BROKER
MATTER FOR AGAINST ABSTAINED NON-VOTES
------ ---------- ------- --------- ---------
(a) 12,137,626 408,015 299,376 133,263
(b) 12,131,134 532,766 309,080 5,300
The annual meeting of stockholders of the Company was held on May 12, 2000. The
matters voted on at the meeting were: (a) the election of two directors, (i)
Edward H. Braun and (ii) Richard A. D'Amore; (b) the adoption of the Veeco
Instruments Inc. 2000 Stock Option Plan; and (c) the appointment of Ernst &
Young LLP as the Company's auditors for the fiscal year ending December 31,
2000. As of the record date for the meeting, there were 18,137,390 shares of
common stock outstanding, each of which was entitled to one vote with respect to
each of the matters voted on at the meeting. The results of the voting were as
follows:
BROKER
MATTER FOR AGAINST ABSTAINED NON-VOTES
------ ---------- ------- --------- ---------
(a)(i) 13,435,618 104,244 -- --
(a)(ii) 13,435,618 104,244 -- --
(b) 7,931,572 918,177 24,410 4,665,703
(c) 13,509,240 29,942 680 --
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS:
(a) Exhibits
Unless otherwise indicated, each of the following exhibits has been previously
filed with the Securities and Exchange Commission by the Company under File No.
0-16244.
INCORPORATED BY REFERENCE
NUMBER EXHIBIT TO THE FOLLOWING DOCUMENTS
- ------ ------- --------------------------
3.1 Amendment to Certificate of Incorporation of *
Veeco Instruments Inc. dated May 5, 2000
3.2 Seconded Amended and Restated Bylaws of Veeco *
Instruments Inc. effective May 5, 2000
10.1 Amendment No. 4 to Credit Agreement, dated May *
4, 2000 between Veeco Instruments Inc., Fleet
Bank N.A. and The Chase Manhattan Bank.
10.2 Employment Agreement dated as of April 3, 2000 *
between Edward H. Braun and Veeco Instruments
Inc.
10.3 Employment Agreement dated as of February 29, Registration Statement on Form S-4
2000 between Christine B. Whitman and Veeco (File No. 33-32608), filed March 15, 2000,
Instruments Inc. Exhibit 10.3
10.4 Employment Agreement dated as of April 3, 2000 *
between John F. Rein, Jr. and Veeco Instruments
Inc.
10.5 Veeco Instruments Inc. 2000 Stock Option Plan Current Report on Form 8-K filed May 9, 2000,
Exhibit 10.1
10.6 CVC, Inc. 1999 Non-employee Directors' Stock Registration Statement on Form S-8 (File Number
Option Plan 333-36348) filed May 5, 2000, Exhibit 4.1
10.7 CVC, Inc. Amended and Restated 1997 Stock Registration Statement on Form S-8 (File Number
Option Plan 333-36348) filed May 5, 2000, Exhibit 4.2
21
INCORPORATED BY REFERENCE
NUMBER EXHIBIT TO THE FOLLOWING DOCUMENTS
- ------ ------- --------------------------
10.8 Amended and Restated (1996) Stock Option Plan Registration Statement on Form S-8 (File Number
of CVC, Inc. (formerly, CVC Holdings, Inc.) 333-36348) filed May 5, 2000, Exhibit 4.3
10.9 Form of Commonwealth Scientific Corporation Registration Statement on Form S-8 (File Number
Non-Qualified Stock Option Agreement 333-36348) filed May 5, 2000, Exhibit 4.4
10.10 Stock Option Agreement between CVC, Inc. Registration Statement on Form S-8 (File Number
(formerly CVC Holdings, Inc.) and Christine B. 333-36348) filed May 5, 2000, Exhibit 4.14
Whitman, effective December 21, 1990
10.11 Union Agreement dated October 31, 1998 between CVC, Inc. Registration Statement on Form S-1
CVC Products, Inc. and Local 342, International (File Number 333-38057) filed November 3, 1999,
Union of Electronic, Electrical, Salaried, Exhibit 10.42
Machine & Furniture Workers, AFL-CIO
10.12 Loan Agreement dated March 31, 1998 between CVC CVC, Inc. Registration Statement on Form S-1
Products, Inc. and Manufacturers and Traders (File Number 333-38057), Exhibits 10.44, 10.45,
Trust Company, including amendments thereto 10.46 and 10.47
dated September 30, 1998, February 19, 1999 and
September 22, 1999
10.13 Amendment No. 5 to Credit Agreement, dated *
May 4, 2000 between Veeco Instruments Inc.,
Fleet Bank N.A. and The Chase Manhattan Bank
27.1 Financial Data Schedule of Veeco Instruments *
Inc. for the quarterly period ended June 30,
2000
27.2 Financial Data Schedule of Veeco Instruments *
Inc. for the quarterly period ended June 30,
1999 (restated)
*Filed herewith.
(b) Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K on May 9, 2000 regarding
a revised version its 2000 Stock Option Plan.
The Registrant filed a Current Report on From 8-K on May 12, 2000 regarding
the completion of its merger with CVC, Inc.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: AUGUST 14, 2000
--------------
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, Finance,
Chief Financial Officer,
Treasurer and Secretary
23
EXHIBIT INDEX
EXHIBITS:
3.1 Amendment to Certificate of Incorporation of Veeco Instruments Inc. dated
May 5, 2000
3.2 Seconded Amended and Restated Bylaws of Veeco Instruments Inc. effective
May 5, 2000
10.1 Amendment No. 4 to Credit Agreement, dated May 4, 2000 between Veeco
Instruments Inc., Fleet Bank N.A. and The Chase Manhattan Bank.
10.2 Employment Agreement dated as of April 3, 2000 between Edward H. Braun
and Veeco Instruments Inc.
10.4 Employment Agreement dated as of April 3, 2000 between John F. Rein, Jr.
and Veeco Instruments Inc.
10.13 Amendment No. 5 to Credit Agreement, dated May 4, 2000 between
Veeco Instruments Inc., Fleet Bank N.A. and The Chase Manhattan
Bank
27.1 Financial Data Schedule of Veeco Instruments Inc. for the quarterly
period ended June 30, 2000
27.2 Financial Data Schedule of Veeco Instruments Inc. for the quarterly
period ended June 30, 1999 (restated)