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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, 1996
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
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
5,821,354 shares of Common Stock $.01 par value, were outstanding as of August
5, 1996.
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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 -
Three Months Ended June 30, 1996 and 1995 3
Condensed Consolidated Statements of Income -
Six Months Ended June 30, 1996 and 1995 4
Condensed Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Veeco Instruments Inc.
and Subsidiaries
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,
-----------------------
1996 1995
------ ------
Net sales $25,095 $17,498
Cost of sales 13,972 9,615
-------- ---------
Gross profit 11,123 7,883
Costs and expenses:
Research and development expense 2,579 1,802
Selling, general and administrative expense 5,216 3,972
Amortization expense 52 51
Other - net 25 38
-------- ----------
Operating income 3,251 2,020
Interest income, net 162 6
-------- ----------
Income before income taxes 3,413 2,026
Income taxes 1,307 544
-------- ---------
Net income $ 2,106 $ 1,482
======== =========
Net income per common share $ .35 $ .29
========= ==========
Shares used in computation 5,958,000 5,123,000
========= =========
See accompanying notes.
-3-
Veeco Instruments Inc.
and Subsidiaries
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
Six Months Ended
June 30,
--------------------
1996 1995
-------- ------
Net sales $45,739 $31,631
Cost of sales 25,409 17,369
------- -------
Gross profit 20,330 14,262
Costs and expenses:
Research and development expense 4,583 3,361
Selling, general and administrative expense 9,589 7,428
Amortization expense 105 100
Other - net 117 (24)
-------- ----------
Operating income 5,936 3,397
Interest income, net 362 15
-------- ----------
Income before income taxes 6,298 3,412
Income taxes 2,382 834
-------- ---------
Net income $ 3,916 $ 2,578
======= =========
Net income per common share $ .66 $ .51
========= =========
Shares used in computation 5,925,000 5,100,000
========= =========
See accompanying notes.
-4-
Veeco Instruments Inc.
and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
June 30, December 31,
1995 1996
--------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $17,061 $17,568
Accounts and trade notes receivable 19,748 18,983
Inventories 19,252 15,795
Prepaid expenses and other current assets 1,123 923
Deferred income taxes 1,241 1,221
------- -------
Total current assets 58,425 54,490
Property, plant and equipment at cost, net 8,042 7,381
Excess of cost over net assets acquired 4,514 4,579
Other assets - net 1,087 930
-------- -------
Total assets $72,068 $67,380
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY Current
liabilities:
Accounts payable $10,244 $ 8,729
Accrued expenses 6,130 7,523
Income taxes payable 1,398 777
------- -------
Total current liabilities 17,772 17,029
Deferred income taxes 118 118
Other liabilities 460 482
Shareholders' equity:
Common stock 58 58
Additional paid-in capital 47,577 47,353
Retained earnings 5,487 1,571
Cumulative translation adjustment 596 769
------- -------
Total shareholders' equity 53,718 49,751
------- -------
Total liabilities and shareholders' equity $72,068 $67,380
======= =======
See accompanying notes.
-5-
Veeco Instruments Inc.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
Six Months Ended
June 30,
------------------
1996 1995
------- ------
OPERATING ACTIVITIES
Net income $ 3,916 $ 2,578
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 657 659
Deferred income taxes (20) 234
Changes in operating assets and liabilities:
Accounts receivable (979) (1,824)
Inventories (3,570) (1,969)
Accounts payable 1,534 614
Accrued expenses and other current liabilities (733) 225
Other - net (281) (179)
--------- --------
Net cash provided by operating activities 524 338
INVESTING ACTIVITIES
Capital expenditures (1,219) (243)
-------- --------
Net cash used in investing activities (1,219) (243)
FINANCING ACTIVITIES
Proceeds from stock issuance 224 7
Deferred financing costs (150) (85)
Other - (26)
-------- --------
Net cash provided by (used in) financing activities 74 (104)
Effect of exchange rates on cash 114 (322)
--------- --------
Net change in cash and cash equivalents (507) (331)
Cash and cash equivalents at beginning of period 17,568 2,279
--------- --------
Cash and cash equivalents at end of period $ 17,061 $ 1,948
========= ========
See accompanying notes.
-6-
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, 1996, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. 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, 1995.
Earnings per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period.
NOTE 2 - INVENTORIES
Interim inventories have been determined by lower of cost (principally first-in,
first-out) or market. Inventories consist of:
June 30, December 31,
1996 1995
------- ------------
(Dollars in thousands)
Raw materials $ 5,872 $ 4,349
Work-in process 5,428 4,222
Finished goods 7,952 7,224
-------- --------
$19,252 $15,795
======= =======
-7-
NOTE 3 - BALANCE SHEET INFORMATION
Selected balance sheet account disclosures follow:
June 30, December 31,
1996 1995
-------- --------
(Dollars in thousands)
Allowance for doubtful accounts $ 594 $ 517
Accumulated depreciation and amortization
of property, plant and equipment $ 5,844 $ 5,318
Accumulated amortization of excess of cost
over net assets acquired $ 855 $ 779
NOTE 4 - CREDIT FACILITY
In place of its existing financing arrangements, in July 1996, the Company
entered into a new credit facility ("the New Credit Facility") with Fleet Bank,
N.A. and The Chase Manhattan Bank. The New Credit Facility, which is to be used
for working capital, acquisitions and general corporate purposes provides the
Company with up to $30 million of availability. The New Credit Facility bears
interest at the prime rate of the lending banks, but is adjustable to a maximum
rate of 3/4% above the prime rate in the event the Company's debt to cash flow
exceeds a defined ratio. A LIBOR based interest rate option is also provided.
The New Credit Facility expires July 31, 1999, but under certain conditions is
convertible into a term loan, which would amortize quarterly through July 31,
2002. The New Credit Facility is secured by substantially all of the Company's
personal property, as well as the stock of its Sloan subsidiary.
NOTE 5 - OTHER INFORMATION
The principal reason for the variation in the relationship between the statutory
income tax rate and the effective tax rate for the six months ended June 30,
1995 is due to the recognition of previously unrecognized deferred tax assets.
Total interest paid for the six months ended June 30, 1995 was $104,000. There
were no significant interest payments in 1996 for the same period. The Company
made income tax payments of $1,717,000 and $144,000 for the six months ended
June 30, 1996 and 1995, respectively.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1995
Net sales for three months ended June 30, 1996 increased to approximately $25.1
million or 43.4% over the comparable 1995 period. The increase reflects
significant growth in Ion Beam System sales.
Sales of Ion Beam Systems for the second quarter of 1996 increased to
approximately $14.3 million or 92.9% over the comparable 1995 period, driven
primarily by increased demand from the mass memory storage market.
Sales of Surface Metrology products for the second quarter of 1996 remained flat
compared to the second quarter of 1995, as a result of a general slow down in
semiconductor applications.
Sales of Industrial Measurement products for the second quarter of 1996
increased to approximately $5.2 million or 8.2% over the comparable 1995 period,
as the result of the introduction of new products in both the leak detection and
XRF thickness measurement systems.
Gross profit for the second quarter of 1996 of approximately $11.1 million
increased by approximately $3.2 million over the comparable 1995 period. Gross
profit as a percentage of net sales decreased from 45.1% for the second quarter
of 1995 to 44.3% for the comparable period of 1996. This decline was due to
product mix changes and new product introduction.
Research and development expense in the second quarter of 1996 increased by
approximately $777,000 or 43.1% compared to the second quarter of 1995 as the
Company increased its R&D investment in each product line.
Selling, general and administrative expenses for the second quarter of 1996
increased by approximately $1.2 million compared to the second quarter of 1995.
The increase was primarily due to approximately $996,000 of additional selling
expense comprised of sales commissions related to the higher sales volume, as
well as increased compensation and travel expense as a result of the hiring of
additional sales and service personnel to support the Company's continuing
growth. The Company booked $25.1 million of orders in the second of 1996 quarter
compared to $22.2 million of orders in the second quarter of 1995. The book to
bill ratio for the second quarter of 1996 was 1.0 compared to a book to bill
ratio of 1.23 for the first quarter of 1996. The decrease in the book to bill
ratio from the first quarter to the second quarter of 1996 may indicate that the
Company will experience a decrease in the rate of growth in sales for the
balance of the fiscal year.
Operating income for the second quarter of 1996 increased to approximately $3.3
million or 13.0% of net sales compared to approximately $2.0 million or 11.5% of
net sales for the second quarter of 1995, due to the above noted factors.
Income taxes amounted to approximately $1.3 million or 38.3% of income before
income taxes for the second quarter of 1996 as compared to $544,000 or 26.9% of
income before income taxes for the same period in 1995. The lower effective tax
rate in 1995 as compared to the statutory tax rate is a result of the Company
recognizing in 1995 previously unrecognized deferred tax assets.
-9-
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
Net sales for six months ended June 30, 1996 increased to approximately $45.7
million or 44.6% over the comparable 1995 period. The increase reflects growth
in all three product lines: Ion Beam Systems, Surface Metrology and Industrial
Measurement.
Sales of Ion Beam Systems for the six months ended June 30, 1996 increased to
approximately $24.0 million or 70.6% over the comparable 1995 period, driven by
increased demand from mass memory storage market.
Sales of Surface Metrology products for the six months ended June 30, 1996
increased to approximately $11.2 million or 33.7% over the comparable 1995
period, primarily as a result of increased activity in SXM Atomic Force
Microscopy for Semiconductor applications.
Sales of Industrial Measurement products for the six months ended June 30, 1996
increased to approximately $10.5 million or 14.8% over the comparable 1995
period as the result of new products in both the leak detection and XRF
thickness measurement systems.
Gross profit for the first six months of 1996 of approximately $20.3 million
increased by approximately $6.1 million over the comparable 1995 period. Gross
profit as a percentage of net sales decreased from 45.1% for the first six
months of 1995 to 44.4% for the first six months of 1996. This decline was due
to product mix changes and new product introductions.
Research and development expense in the first six months of 1996 increased by
approximately $1.2 million or 36.4% over the comparable period of 1995 as the
Company increased its R&D investment in each product line.
Selling, general and administrative expenses for the first six months of 1996
increased by approximately $2.3 million compared to the first six months of
1995. The increase was primarily due to approximately $1.7 million of additional
selling expense comprised of sales commissions related to the higher sales
volume, as well as increased compensation and travel expense as a result of the
hiring of additional sales and service personnel to support the Company's
continuing growth. The Company booked $50.5 million of orders in the first six
months of 1996 compared to $39.3 million of orders in the first six months of
1995.
Operating income for the first six months of 1996 increased to approximately
$5.9 million or 13.0% of net sales compared to approximately $3.4 million or
10.7% of net sales for the comparable 1995 period, due to the above noted
factors.
Income taxes for the first six months of 1996 amounted to approximately $2.4
million or 37.8% of income before income taxes as compared to $834,000 or 24.4%
of income before taxes for the same period in 1995. The lower effective tax rate
in 1995 as compared to the statutory tax rate is a result of the Company
recognizing in 1995 previously unrecognized deferred tax assets.
-10-
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totaled $524,000 for the first six months of
1996 compared to $338,000 for the comparable 1995 period. The improvement
results principally from higher net income for the period offset by increases in
working capital and fixed asset requirements.
In July, 1996 the Company entered into a new credit facility with two banks that
provides borrowing capability of $30 million. (See note 4 to the financial
statements). The new credit facility will be used for working capital,
acquisitions and other general corporate purposes.
The Company believes that existing cash balances together with cash generated
from operations and amounts available under the Company's bank credit facility
will be sufficient to meet the Company's projected working capital and other
cash flow requirements for the foreseeable future.
-11-
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on May 15,
1996. Each person nominated for election as a director of the Company was
re-elected to such position at the meeting by a minimum of 5,024,416 votes. The
other matters voted upon at the meeting were as follows: (a) the amendment and
restatement of the Veeco Instruments Inc. Amended and Restated 1992 Employees'
Stock Option Plan; (b) an amendment to the Amended and Restated Veeco
Instruments Inc. 1994 Stock Option Plan for Outside Directors; and (c) the
appointment of Ernst & Young LLP as auditors of the Company. The votes of the
Company's stockholders on these matters were as follows:
Broker
Matters In Favor Opposed Abstained Non-Vote
- - ------- -------- ------- --------- --------
(a) 3,018,130 128,237 21,800 1,867,789
(b) 2,926,910 148,624 31,471 1,928,951
(c) 5,019,956 5,335 10,665 -0-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
10.25 Credit Agreement dated July 31, 1996 among the Registrant, Fleet
Bank N.A. and The Chase Manhattan Bank.
10.26 Security Agreement dated July 31, 1996 among the Registrant, Fleet
Bank N.A. and The Chase Manhattan Bank.
10.27 Guarantee Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank.
10.28 Guarantor's Security Agreement dated July 31, 1996 among Sloan
Technology Corporation, Fleet Bank N.A. and The Chase Manhattan
Bank.
10.29 The Pledge Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank.
10.30 The Patent and Trademark Security Agreement dated July 31, 1996
among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank.
b) Reports on Form 8-K:
The Registrant filed a Form 8-K dated July 26, 1996 reporting that shares
of common stock, par value $.01 per share, of the Registrant may no longer
be offered for resale or resold pursuant to any of the following
prospectuses: (i) the Company's Prospectus dated December 15, 1994 filed
as part of the Company's Registration Statement on Form S-8, file no.
33-87394; (ii) the Company's Prospectus dated August 3, 1995 filed as part
of the Company's Registration Statement on Form S-8, file no. 33-95424;
and (iii) the Company's Prospectus dated August 3, 1995 filed as part of
the Company's Registration Statement on Form S-8, file no. 33-95422.
-12-
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 7, 1996
Veeco Instruments Inc.
By: /s/ Edward H. Braun
------------------------
Edward H. Braun
Chairman, CEO and President
By: /s/ John F. Rein, Jr.
------------------------
John F. Rein, Jr.
Vice President, Finance
and Chief Financial Officer
-13-
EXHIBIT INDEX
Exhibits:
10.25 Credit Agreement dated July 31, 1996 among the Registrant, Fleet
Bank N.A. and The Chase Manhattan Bank.
10.26 Security Agreement dated July 31, 1996 among the Registrant, Fleet
Bank N.A. and The Chase Manhattan Bank.
10.27 Guarantee Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank.
10.28 Guarantor's Security Agreement dated July 31, 1996 among Sloan
Technology Corporation, Fleet Bank N.A. and The Chase Manhattan
Bank.
10.29 The Pledge Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank.
10.30 The Patent and Trademark Security Agreement dated July 31, 1996
among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank.