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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 JUNE 30, 2001
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)
100 Sunnyside Blvd. 11797
Woodbury, NY (zip code)
Registrant's telephone number, including area code: (516) 677-0200
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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 |_|
24,805,839 shares of common stock, $0.01 par value per share, were outstanding
as of the close of business on July 30, 2001.
<Page>
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 risk of cancellation or rescheduling of orders,
o the highly competitive nature of industries in which the Company operates,
o changes in foreign currency exchange rates, and
o the other matters discussed in the Business Description contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Consequently, such forward-looking statements should be regarded solely as the
Company's 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
<Page>
VEECO INSTRUMENTS INC.
INDEX
PART 1. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 2001 and 2000 5
Condensed Consolidated Balance Sheets -
June 30, 2001 and December 31, 2000 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
3
<Page>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<Table>
<Caption>
Three Months Ended
June 30,
--------
2001 2000
---- ----
Net sales $ 113,455 $ 102,324
Cost of sales 59,951 73,329
--------- ---------
Gross profit 53,504 28,995
Costs and expenses:
Research and development expense 15,400 14,063
Selling, general and administrative expense 21,289 19,158
Amortization expense 881 976
Other expense, net 226 61
Merger and restructuring expenses 1,000 13,956
Asset impairment charge -- 3,722
--------- ---------
Operating income (loss) 14,708 (22,941)
Interest income, net (397) (136)
--------- ---------
Income (loss) before income taxes 15,105 (22,805)
Income tax provision (benefit) 5,105 (8,779)
--------- ---------
Net income (loss) $ 10,000 $ (14,026)
========= =========
Net income (loss) per common share $ 0.40 ($0.60)
Diluted net income (loss) per common share $ 0.40 ($0.60)
Weighted average shares outstanding 24,767 23,463
Diluted weighted average shares outstanding 25,215 23,463
</Table>
SEE ACCOMPANYING NOTES.
4
<Page>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<Table>
<Caption>
Six Months Ended
June 30,
--------
2001 2000
---- ----
Net sales $ 240,723 $ 189,155
Cost of sales 127,935 119,792
--------- ---------
Gross profit 112,788 69,363
Costs and expenses:
Research and development expense 31,116 27,408
Selling, general and administrative expense 42,979 36,286
Amortization expense 2,317 1,485
Other expense, net 1,632 41
Merger and restructuring expenses 1,000 14,206
Asset impairment charge -- 3,722
--------- ---------
Operating income (loss) 33,744 (13,785)
Interest income, net (1,163) (521)
--------- ---------
Income (loss) before income taxes 34,907 (13,264)
Income tax provision (benefit) 12,034 (5,186)
--------- ---------
Net income (loss) before cumulative effect of change in
accounting principle 22,873 (8,078)
Cumulative effect of change in accounting principle, net
of taxes -- (18,382)
--------- ---------
Net income (loss) $ 22,873 $ (26,460)
========= =========
Net income (loss) per common share before cumulative
effect of change in accounting principle $ 0.93 $ (0.35)
Cumulative effect of change in accounting principle -- (0.79)
--------- ---------
Net income (loss) per common share $ 0.93 $ (1.14)
========= =========
Diluted net income (loss) per common share before cumulative
effect of change in accounting principle $ 0.91 $ (0.35)
Cumulative effect of change in accounting principle -- (0.79)
--------- ---------
Diluted net income (loss) per common share $ 0.91 $ (1.14)
========= =========
Weighted average shares outstanding 24,722 23,253
Diluted weighted average shares outstanding 25,222 23,253
</Table>
SEE ACCOMPANYING NOTES.
5
<Page>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
<Table>
<Caption>
June 30, December 31,
2001 2000
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 60,241 $ 63,420
Short-term investments 27,629 26,895
Accounts receivable, net 86,191 98,248
Inventories 134,958 100,062
Prepaid expenses and other current assets 9,467 8,307
Deferred income taxes 36,769 45,303
-------- --------
Total current assets 355,255 342,235
Property, plant and equipment at cost, net 62,981 60,094
Excess of cost over net assets acquired, net 13,437 9,481
Other assets, net 10,639 11,473
-------- --------
Total assets $442,312 $423,283
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 33,325 33,134
Accrued expenses 58,990 56,093
Deferred gross profit 19,954 28,771
Other current liabilities 3,399 3,774
-------- --------
Total current liabilities 115,668 121,772
Long-term debt, net of current portion 13,960 14,631
Other non-current liabilities 3,845 3,972
Shareholders' equity 308,839 282,908
-------- --------
Total liabilities and shareholders' equity $442,312 $423,283
======== ========
</Table>
SEE ACCOMPANYING NOTES.
6
<Page>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<Table>
<Caption>
Six Months Ended
June 30,
--------
OPERATING ACTIVITIES 2001 2000
---- ----
Net income (loss) $ 22,873 $(26,460)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 8,501 7,493
Deferred income taxes 8,316 1,193
Stock option income tax benefit 1,812 5,576
Other, net 2 (21)
Asset impairment charge -- 3,722
Write-off of CVC inventory -- 15,322
Cumulative effect of change in accounting principle, net of taxes -- 18,382
Changes in operating assets and liabilities:
Accounts receivable 8,935 (20,316)
Inventories (35,798) (9,136)
Accounts payable 353 6,720
Accrued expenses, deferred gross profit and other current
liabilities (4,555) (18,019)
Other, net (2,030) 1,472
Recoverable income taxes -- (9,487)
Operating activities three months ended 12/31/99 - CVC -- 638
-------- --------
Net cash provided by (used in) operating activities 8,409 (22,921)
INVESTING ACTIVITIES
Capital expenditures (9,083) (11,923)
Proceeds from sale of property, plant and equipment 11 230
Payment of net assets of businesses acquired (7,529) (7,177)
Net purchases of short-term investments (733) (1,295)
Proceeds from sale of business -- 3,000
Investing activities three months ended 12/31/99- CVC -- (528)
-------- --------
Net cash used in investing activities (17,334) (17,693)
FINANCING ACTIVITIES
Proceeds from stock issuance 2,358 11,886
Repayment of long-term debt, net (809) (8,570)
Net proceeds from borrowings under line of credit -- 17,005
Financing activities three months ended 12/31/99- CVC -- 3,627
-------- --------
Net cash provided by financing activities 1,549 23,948
Effect of exchange rates on cash and cash equivalents 4,197 672
-------- --------
Net change in cash and cash equivalents (3,179) (15,994)
Cash and cash equivalents at beginning of period 63,420 29,852
-------- --------
Cash and cash equivalents at end of period $ 60,241 $ 13,858
======== ========
</Table>
SEE ACCOMPANYING NOTES.
7
<Page>
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 accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation
(consisting of normal recurring accruals) have been included. Operating results
for the six months ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Earnings per share are computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share are computed
using the weighted average number of common and common equivalent shares
outstanding during the period. The effect of common equivalent shares for the
three months and six months ended June 30, 2000 was antidilutive, and therefore
were excluded from the diluted weighted average shares outstanding.
The following table sets forth the reconciliation of diluted weighted average
shares outstanding:
<Table>
<Caption>
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
(In thousands) (In thousands)
Weighted average shares outstanding 24,767 23,463 24,722 23,253
Dilutive effect of stock options 448 -- 500 --
------ ------ ------ ------
Diluted weighted average shares
outstanding 25,215 23,463 25,222 23,253
====== ====== ====== ======
</Table>
8
<Page>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 2 - BALANCE SHEET INFORMATION
SHORT-TERM INVESTMENTS
The carrying amounts of available-for-sale securities approximate fair value.
The following is a summary of available-for-sale securities:
<Table>
<Caption>
June 30, December 31,
2001 2000
---- ----
(In thousands)
Commercial paper $ 5,578 $15,730
Obligations of U.S. Government agencies 22,016 4,404
Other debt securities 35 4,054
Municipal bonds -- 2,707
------- -------
$27,629 $26,895
======= =======
</Table>
All investments at June 30, 2001 have contractual maturities of one year or
less. During the six months ended June 30, 2001, available-for-sale securities
with fair values at the date of sale of approximately $40.4 million were sold.
INVENTORIES
Interim inventories have been determined by lower of cost (principally first-in,
first-out) or market. Inventories consist of:
<Table>
<Caption>
June 30, December 31,
2001 2000
---- ----
(In thousands)
Raw materials $ 66,915 $ 60,281
Work-in-progress 40,651 23,703
Finished goods 27,392 16,078
-------- --------
$134,958 $100,062
======== ========
</Table>
OTHER BALANCE SHEET INFORMATION
<Table>
<Caption>
June 30, December 31,
2001 2000
---- ----
(In thousands)
Allowance for doubtful accounts $ 2,229 $ 2,116
Accumulated depreciation and amortization
of property, plant and equipment $44,949 $38,801
</Table>
9
<Page>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 3 - SEGMENT INFORMATION
The following represents the reportable product segments of the Company, in
thousands:
<Table>
<Caption>
Unallocated
Process Industrial Corporate Non-recurring
Equipment Metrology Measurement Amount Charges Total
- ----------------------------------------------------------------------------------------------------------------
THREE MONTHS
ENDED
JUNE 30, 2001
Net sales $ 73,245 $ 38,850 $ 1,360 -- -- $ 113,455
Operating income
(loss) 12,007 5,759 (805) (1,253) (1,000) 14,708
THREE MONTHS
ENDED
JUNE 30, 2000
Net sales 57,712 41,801 2,811 -- -- 102,324
Operating income
(loss) 4,615 7,734 (542) (1,748) (33,000) (22,941)
SIX MONTHS ENDED
JUNE 30, 2001
Net sales 153,542 83,937 3,244 -- -- 240,723
Operating income
(loss) 28,210 12,385 (1,381) (4,470) (1,000) 33,744
Total assets 183,599 102,962 7,179 148,572 442,312
SIX MONTHS ENDED
JUNE 30, 2000
Net sales 112,887 70,733 5,535 -- -- 189,155
Operating income
(loss) 11,251 11,828 (940) (2,674) (33,250) (13,785)
Total assets $170,567 $ 99,697 $ 11,368 $ 88,395 -- $ 370,027
</Table>
NOTE 4 - COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was $9.7 million and $21.7 million for the
three and six months ended June 30, 2001, and ($14.5) million and ($27.3)
million for the three and six months ended June 30, 2000, respectively. Other
comprehensive income is comprised of foreign currency translation adjustments,
minimum pension liability and net unrealized holding gains and losses on
available-for-sale securities.
10
<Page>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 5 - RECENT EVENTS
On July 16, 2001, the Company acquired ThermoMicroscopes Corp. ("TM"), a
manufacturer of atomic force microscopes, scanning probe microscopes, near field
optical microscopes and probes. TM, formerly a subsidiary of Thermo Electron
Corporation, is based in Sunnyvale, California. The acquisition was accounted
for using the purchase method of accounting. Results of operations prior to the
acquisition are not material to the Condensed Consolidated Statements of
Operations for the three and six months ended June 30, 2001.
On April 19, 2001, the Company entered into a new revolving credit facility (the
"Facility"), which replaces the Company's prior $40 million revolving credit
facility. The Facility provides the Company with up to $100 million of
availability. The Facility's interest rate is the prime rate of the lending
banks and is adjustable to a maximum rate of 1/4% 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. The Facility has a term of four
years and borrowings under the Facility may be used for general corporate
purposes, including working capital and acquisitions. The Facility contains
certain restrictive covenants, which among other things, impose limitations with
respect to incurrence of indebtedness, limitation on the payment of dividends,
long-term leases, investments, mergers, consolidations and sales of assets. The
Company is also required to satisfy certain financial tests. As of June 30,
2001, no borrowings were outstanding under the Facility.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and other intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. In addition,
Statement 141 eliminates the pooling-of-interests method of accounting for
business combinations, except for qualifying business combinations that were
initiated prior to July 1, 2001.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in a decrease
in amortization expense in 2002 of approximately $1.6 million. In addition, any
goodwill recorded as a result of the acquisition of TM will not be amortized in
2001 in accordance with Statement 142. During 2002, the Company will perform the
first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002. The Company has not yet determined what
the effect of these tests will be on earnings and the financial position of the
Company.
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended
11
<Page>
by SFAS No. 138, "Accounting for Certain Derivative Instruments and Hedging
Activities -- An Amendment of FASB Statement No. 133." SFAS No. 133 requires
that all derivatives, including foreign currency exchange contracts, be
recognized on the balance sheet at fair value, which is recorded through
earnings. If a derivative is a qualifying hedge, depending on the nature of the
hedge, changes in the fair value of the derivative are either offset against the
change in fair value of the underlying assets or liabilities through earnings or
recognized in accumulated comprehensive income until the underlying hedged item
is recognized in earnings. The ineffective portion of a derivative's change in
fair value is to be immediately recognized in earnings.
During the six months ended June 30, 2001, the Company used derivative financial
instruments to minimize the impact of foreign exchange rate changes on earnings
and cash flows. In the normal course of business, operations are exposed to
fluctuations in foreign exchange rates. In order to reduce the effect of
fluctuating foreign currencies on short-term foreign currency-denominated
intercompany transactions and other known foreign currency exposures, the
Company enters into monthly forward contracts (which during the six months ended
June 30, 2001 included all of the Company's foreign subsidiaries). The Company
does not use derivative financial instruments for trading or speculative
purposes. The Company's forward contracts do not subject it to material risks
due to exchange rate movements because gains and losses on these contracts
offset exchange gains and losses on the underlying assets and liabilities; both
the forward contracts and the underlying assets and liabilities are
marked-to-market through earnings. For the three and six months ended June 30,
2001, approximately $62,000 and $991,000, respectively, of realized gains on
forward exchange contracts were recorded and included in other expense, net. As
of June 30, 2001, approximately $767,000 of gains related to forward contracts
are included in prepaid expenses and other current assets and have been
subsequently received in July 2001. As of June 30, 2001, there were no open
forward contracts.
12
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS.
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
Net sales of $113.5 million for the three months ended June 30, 2001, represent
an increase of $11.2 million, or 11%, from the 2000 comparable period sales of
$102.3 million, resulting principally from an increase in sales of process
equipment products. Sales in the U.S., Europe, Japan and Asia Pacific, accounted
for 57%, 11%, 23% and 9%, respectively, of the Company's net sales for the three
months ended June 30, 2001. Sales in the U.S. increased 36% from the comparable
2000 period due to a 40% increase in U.S. process equipment sales, resulting
from an increase in optical telecommunications sales for Veeco's Ion Tech
subsidiary. Sales in Europe and Asia Pacific decreased 29% and 39%,
respectively. The decrease in Europe is principally a result of lower sales of
process equipment products. The decrease in Asia Pacific is principally a result
of a decline in sales of optical metrology products, partially offset by
increased process equipment sales. Sales in Japan increased 31% from the 2000
comparable period due to increases in both process equipment and metrology
sales. The Company believes that there will continue to be quarter-to-quarter
variations in the geographic concentration of sales.
Process equipment sales of $73.2 million for the three months ended June 30,
2001, increased by $15.5 million, or 27%, over the comparable 2000 period. The
above noted increase in process equipment is due to increased sales to the
optical telecommunications industry, which were partially offset by decreased
sales to the data storage industry. Metrology sales of $38.9 million for the
three months ended June 30, 2001, represent a slight decrease of approximately
$3 million, or 7%, from the 2000 comparable period sales of $41.8 million. The
decrease is primarily attributable to lower sales of optical metrology products
in the 2001 period, offset partly by increased sales of the Company's atomic
force microscope (AFM) products.
Veeco received $81.5 million of orders during the three months ended June 30,
2001, a 38% decrease compared to $132.4 million of orders for the comparable
2000 period. Process equipment orders decreased 52% to $40.1 million, due
primarily to a decline in orders from optical telecommunications customers.
Veeco's Ion Tech subsidiary had a decrease of $30.0 million, or 77%, in orders
from the comparable 2000 period. Etch and deposition equipment orders decreased
30% to $31.2 million from $44.6 million for the comparable 2000 period.
Metrology orders decreased by 13% to $40.2 million, reflecting a decrease in
orders for optical metrology products, partially offset by a 12% increase in AFM
orders. The Company's book/bill ratio for the second quarter of 2001 was 0.72.
For the three months ended June 30, 2001, the Company experienced order
cancellations, primarily for products related to the optical telecommunications
market, representing approximately 7% of the June 30, 2001 backlog. The Company
also experienced rescheduling of order delivery dates by customers. Due to the
weak business environment, the Company may continue to experience cancellation
or rescheduling of orders.
13
<Page>
Gross profit, as a percentage of net sales increased to 47.2%, from 28.3% for
the comparable 2000 period. Excluding a non-cash charge of $15.3 million in June
2000, for the write-off of inventory related to the merger with CVC Inc.
("CVC"), gross profit was 43.3%. This improvement results in part from the
volume increase in Ion Tech sales, partially offset by the volume decline in
optical metrology sales. In addition, gross margin improved due to overhead
spending reductions in the process equipment area as well as a more favorable
mix in optical metrology products.
Research and development expenses of $15.4 million for the three months ended
June 30, 2001, increased by approximately $1.3 million, or 10%, over the
comparable period of 2000, due primarily to the Company's development of next
generation products for AFMs and Ion Tech tools.
Selling, general and administrative expenses of $21.3 million for the three
months ended June 30, 2001, increased by approximately $2.1 million from the
2000 comparable period due to an increase in selling related expenses,
principally as a result of the increased sales volume.
During the three months ended June 30, 2001, the Company recorded a
restructuring charge of $1.0 million related to the workforce reduction of
approximately 130 people, as a result of the slowdown in orders. As of June 30,
2001, approximately $230,000 has been expended and approximately $770,000
remains accrued. During the three months ended June 30, 2000, Veeco incurred
non-recurring charges of $33.0 million, in conjunction with the merger with CVC.
Of these charges, a $15.3 million non-cash charge related to a write-off of
inventory (included in cost of sales), $14.0 million represented merger and
reorganization costs (of which $9.2 million related to transaction costs and
$4.8 million pertained to duplicate facility and personnel costs) and $3.7
million was for the write-down of long-lived assets.
Income taxes for the three months ended June 30, 2001, amounted to $5.1 million,
or 34% of income before income taxes, as compared to an $8.8 million tax
benefit, or 38% of loss before income taxes, for the same period of 2000.
Effective January 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which resulted in a charge to
income for the cumulative effect of change in accounting principle. The Company
recognized approximately $15.3 million in revenue during the three months ended
June 30, 2000, that was included in the cumulative effect adjustment. The effect
of that revenue was to increase second quarter income by $3.8 million (net of
income taxes of $2.7 million).
Quarterly information, previously filed on Form 10-Q, for the three months ended
June 30, 2000, has been restated due to the adoption of SAB 101. The adoption of
SAB 101 had the effect of increasing net sales and decreasing the net loss for
the second quarter of 2000 by $8.7 million and $1.2 million, respectively, and
basic and diluted earnings per share increased by $0.05.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER
14
<Page>
INTANGIBLE ASSETS, effective for fiscal years beginning after December 15, 2001.
See footnote 6 to Condensed Consolidated Financial Statements for additional
disclosure.
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
Net sales were $240.7 million for the six months ended June 30, 2001,
representing an increase of approximately $51.6 million, or 27%, over the
comparable 2000 period. The increase is primarily due to an increase in Ion Tech
sales of $49.2 million. Sales in the U.S., Europe, Japan and Asia Pacific
accounted for 58%, 12%, 21% and 9%, respectively, of the Company's net sales for
the six months ended June 30, 2001. Sales in the U.S. increased by 64%,
principally as a result of increased process equipment sales of optical
telecommunications equipment for Veeco's Ion Tech subsidiary, as well as an
increase in sales of AFMs. Sales in Europe remained relatively flat when
compared to the comparable 2000 period. Sales in Japan increased by 12% as a
result of an increase in AFM sales. Asia Pacific sales decreased by 25% as a
result of a 65% decline in optical metrology sales, partially offset by
increased Ion Tech sales.
Process equipment sales were $153.5 million for the six months ended June 30,
2001, an increase of approximately $40.7 million, or 36%, from the comparable
2000 period, due to an increase in sales of Ion Tech products, partially offset
by a decline in etch and deposition sales. Metrology sales for the six months
ended June 30, 2001 were $83.9 million, an increase of approximately $13.2
million, or 19%, compared to the comparable 2000 period, reflecting a 56%
increase in the sales of AFMs, offset by a 31% decline in optical metrology
sales.
Veeco received $194.3 million of orders for the six months ended June 30, 2001,
a 20% decrease compared to $243.6 million of orders in the comparable 2000
period. Process equipment orders decreased 22% to $113.0 million, principally
reflecting a decrease in optical telecommunications orders. Metrology orders
decreased 17% to $77.4 million, reflecting a 51% decrease in optical metrology
products, offset by a 10% increase in AFMs. The book/bill ratio for the six
months ended June 30, 2001 was 0.81.
Gross profit, as a percentage of net sales increased to 46.9%, from 36.7% for
the comparable 2000 period. Excluding a non-cash charge of $15.3 million in June
2000, for the write-off of inventory related to the merger with CVC, gross
profit was 44.8%. This improvement is principally attributable to the volume
increase in Ion Tech and AFM sales.
Research and development expenses of $31.1 million for the six months ended June
30, 2001, represent an increase of approximately $3.7 million, or 14%, over the
comparable period of 2000, due primarily to expenditures in connection with the
development of new products for the Ion Tech and AFM metrology product areas.
Selling, general and administrative expenses of $43.0 million for the six months
ended June 30, 2001, represent an increase of approximately $6.7 million, or
18%, over the comparable 2000 period. The increase is due to increased selling
and commission expense as a result of increased sales volume, primarily related
to the Ion Tech and AFM product lines. As a percentage of sales, selling,
general and administrative expenses decreased to 17.9% of net sales in 2001 from
19.2% in 2000.
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<Page>
The Company recorded merger and restructuring charges during the six months
ended June 30, 2001 and 2000 as discussed previously under the three-month
results.
Other expense, net for the six months ended June 30, 2001, increased $1.6
million over the comparable 2000 period due to the increase in foreign currency
exchange losses.
Income taxes for the six months ended June 30, 2001, amounted to $12.0 million,
or 34% of income before income taxes, as compared to a $5.2 million income tax
benefit, or 39% of loss before income taxes, for the same period of 2000.
As noted above, the Company changed its method of accounting for revenue
recognition in accordance with SAB No. 101. The cumulative effect of this change
on prior years resulted in the deferral of $67.0 million of revenue and a charge
to income of $18.4 million (net of income taxes of $12.6 million) recorded as of
January 1, 2000, and is included in the Consolidated Statement of Operations for
the six months ended June 30, 2000. The Company recognized approximately $53.0
million of this deferred revenue during the six months ended June 30, 2000. The
effect of that revenue was to increase income in the first half of 2000 by $14.7
million (net of income taxes of $10.1 million).
Results for the six months ended June 30, 2000, previously filed on Form 10-Q,
have been restated due to the adoption of SAB 101. The adoption of SAB 101 had
the effect of increasing net sales by $17.7 million for the first half of 2000.
Net loss for the first half of 2000 increased by $13.7 million, and basic and
diluted loss per share increased by $0.59.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totaled $8.4 million for the six months ended
June 30, 2001, compared to cash used in operations of $22.9 million for the
comparable 2000 period. Cash provided by operations in 2001 includes adjustments
to reconcile net income to net cash provided principally from net income plus
non-cash charges for depreciation and amortization, deferred income taxes and a
stock option income tax benefit aggregating $41.5 million, plus a decrease in
accounts receivable and an increase in accounts payable of $8.9 million and $0.4
million, respectively. These items were partially offset by a decrease in
accrued expenses, deferred gross profit and other current liabilities of $4.6
million and an increase in inventories of $35.8 million during the six months
ended June 30, 2001. Accounts receivable decreased due to a slight decline in
sales volume from the fourth quarter of 2000 and improved customer collections.
The decrease in accrued expenses, deferred gross profit and other current
liabilities is due primarily to a decrease in deferred revenue relating to the
impact of SAB 101, partially offset by an increase in customer deposits.
Inventories increased by $35.8 million, due primarily to rescheduled shipments,
the impact of SAB 101 and new product production. Net cash used in operations
for the six months ended June 30, 2000 included operating activities for the
three months ended December 31, 1999, related to CVC. Prior to the merger, CVC's
fiscal year end was September 30.
Net cash used in investing activities for the six months ended June 30, 2001,
totaled $17.3 million compared to $17.7 million for the comparable 2000 period.
Cash used in 2001 consisted
16
<Page>
of $9.1 million of capital expenditures. The Company also expended $7.5 million
for the net assets of businesses acquired, which included a $6.3 million payment
of contingent consideration to the former shareholders of OptiMag, based upon
year 2000 sales and the appraised value of OptiMag and a $1.2 million payment to
the seller in connection with the atomic force microscope acquisition. Included
in the net cash used in investing activities for the six months ended June 30,
2000 is investing activities for the three months ended December 31, 1999,
related to CVC.
Net cash provided by financing activities for the six months ended June 30,
2001, totaled $1.5 million, compared to $23.9 million for the comparable 2000
period. Cash provided by financing activities in 2001 consisted of proceeds of
$2.4 million from stock issuances upon exercise of stock options, offset by $0.8
million of debt repayments. Net cash provided by financing activities for the
six months ended June 30, 2000 included financing activities for the three
months ended December 31, 1999, related to CVC.
In connection with the acquisition of TM, the Company expended approximately
$22.0 million in July 2001.
On April 19, 2001, the Company entered into a new revolving credit facility (the
"Facility"), which replaces the Company's prior $40 million revolving credit
facility. The Facility provides the Company with up to $100 million of
availability. The Facility's interest rate is the prime rate of the lending
banks and is adjustable to a maximum rate of 1/4% 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. The Facility has a term of four
years and borrowings under the Facility may be used for general corporate
purposes, including working capital and acquisitions. The Facility contains
certain restrictive covenants, which among other things, impose limitations with
respect to incurrence of indebtedness, limitation on the payment of dividends,
long-term leases, investments, mergers, consolidations and sales of assets. The
Company is also required to satisfy certain financial tests. As of June 30,
2001, no borrowings were outstanding under the Company's credit facility.
The Company believes that existing cash balances together with cash generated
from operations and amounts available under the Facility will be sufficient to
meet the Company's projected working capital and other cash flow requirements
for the next twelve months.
17
<Page>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Veeco's investment portfolio consists of cash equivalents, commercial paper and
obligations of U.S. Government agencies. These investments are considered
available-for-sale securities; accordingly, the carrying amounts approximate
fair value. Assuming June 30, 2001 variable debt and investment levels, a
one-point change in interest rates would not have a material impact on net
interest income. Veeco's net sales to foreign customers represented
approximately 43% and 42% of Veeco's total net sales for the three and six
months ended June 30, 2001, respectively, and 54% and 55% for the three and six
months ended June 30, 2000, 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 12% and 14% of Veeco's total net sales for the three and six
months ended June 30, 2001, respectively, and 8% and 9% for the three and six
months ended June 30, 2000, respectively. The aggregate foreign currency
exchange loss included in determining consolidated results of operations was
$272,000 and $1,733,000, net of $62,000 and $991,000 of realized hedging gains
in the three and six months ended June 30, 2001, respectively. 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, 2001 by approximately $2.0 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. Veeco is
exposed to financial market risks, including changes in foreign currency
exchange rates. To mitigate these risks, commencing in March 2001 the Company
began using derivative financial instruments. Veeco does not use derivative
financial instruments for speculative or trading purposes. The Company enters
into monthly forward contracts to reduce the effect of fluctuating foreign
currencies on short-term foreign currency-denominated intercompany transactions
and other known currency exposures. The average notional amount of such
contracts was approximately $5.2 million and $7.1 million for the three and six
months ended June 30, 2001, respectively.
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<Page>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on May 11, 2001. The
matters voted on at the meeting were: (a) the election of four directors: (i)
Heinz Fridrich, (ii) Roger McDaniel, (iii) Irwin Pfister and (iv) Douglas
Kingsley, (b) the approval of an amendment to the Veeco Instruments Inc. 2000
Stock Option Plan; and (c) the ratification of the Board's appointment of Ernst
& Young as the independent auditors of the Company's financial statements for
the year ending December 31, 2001. As of the record date for the meeting, there
were 24,684,684 shares of common stock outstanding, each of which was entitled
to one vote with respect to each of the matters voted on at the meeting. The
results of the voting were as follows:
<Table>
<Caption>
Broker
Matter For Against Abstained Non-votes
- ------ --- ------- --------- ---------
(a)(i) 20,663,515 160,377 -- --
(a)(ii) 20,663,515 160,377 -- --
(a)(iii) 20,663,515 160,377 -- --
(a)(iv) 20,663,515 160,377 -- --
(b) 16,248,496 4,383,275 192,121 --
(c) 20,749,304 72,128 2,460 --
</Table>
ITEM 5. OTHER INFORMATION
On July 16, 2001, the Company acquired ThermoMicroscopes Corp. ("TM"), a
manufacturer of atomic force microscopes, scanning probe microscopes, near field
optical microscopes and probes. TM, formerly a subsidiary of Thermo Electron
Corporation, is based in Sunnyvale, California. The acquisition was accounted
for using the purchase method of accounting. Results of operations prior to the
acquisition are not material to the Condensed Consolidated Statements of
Operations for the three and six months ended June 30, 2001.
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<Page>
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.
<Table>
<Caption>
Incorporated by Reference
Number Exhibit to the Following Documents
- ------ ------- --------------------------
10.1 Credit Agreement, dated April 19, *
2001 among Veeco Instruments Inc.,
Fleet National Bank, as
administrative agent, The Chase
Manhattan Bank, as syndication
agent, HSBC Bank USA, as
documentation agent and the lenders
named therein
10.2 Amendment No. 1 to Veeco Registration Statement on Form
Instruments Inc. 2000 Stock Option S-8 (File Number 333-66574)
Plan, effective May 11, 2001 filed August 2, 2001, Exhibit
4.1
</Table>
*Filed herewith.
(b) Reports on Form 8-K.
None.
20
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 8, 2001
Veeco Instruments Inc.
By: /s/ Edward H. Braun
---------------------------------
Edward H. Braun
Chairman, Chief Executive Officer and
President
By: /s/ John F. Rein, Jr.
---------------------------------
John F. Rein, Jr.
Executive Vice President,
Chief Financial Officer and Secretary
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<Page>
EXHIBIT INDEX
Unless otherwise indicated, each of the following exhibits has been previously
filed with the Securities and Exchange Commission by the Company under File No.
0-16244.
<Table>
<Caption>
Incorporated by Reference
Number Exhibit to the Following Documents
- ------ ------- --------------------------
10.1 Credit Agreement, dated April 19, *
2001 among Veeco Instruments Inc.,
Fleet National Bank, as
administrative agent, The Chase
Manhattan Bank, as syndication
agent, HSBC Bank USA, as
documentation agent and the lenders
named therein
10.2 Amendment No. 1 to Veeco Registration Statement on
Instruments Inc. 2000 Stock Option Form S-8 (File Number
Plan, effective May 11, 2001 333-66574) filed August
2, 2001, Exhibit 4.1
</Table>
*Filed herewith.