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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 SEPTEMBER 30, 1996
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
Plainview, New York 11803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 349-8300
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
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5,826,534 shares of Common Stock $.01 par value, were outstanding as of
October 25, 1996.
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<PAGE>
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 September 30, 1996 and 1995 3
Condensed Consolidated Statements of Income -
Nine Months Ended September 30, 1996 and 1995 4
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 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 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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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
September 30,
---------------------------------
1996 1995
-------- --------
Net sales $ 24,071 $ 18,430
Cost of sales 13,602 10,061
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Gross profit 10,469 8,369
Costs and expenses:
Research and development expense 2,601 1,589
Selling, general and administrative expense 4,745 4,200
Amortization expense 63 51
Other - net 46 108
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Operating income 3,014 2,421
Interest income, net 148 152
-------- --------
Income before income taxes 3,162 2,573
Income taxes 1,168 695
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Net income $ 1,994 $ 1,878
-------- --------
-------- --------
Net income per common share $ 0.34 $ 0.33
-------- --------
-------- --------
Shares used in computation 5,860,000 5,750,000
-------- --------
-------- --------
SEE ACCOMPANYING NOTES.
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<PAGE>
Veeco Instruments Inc.
and Subsidiaries
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
Nine Months Ended
September 30,
-----------------------------------
1996 1995
---------- ----------
Net sales $ 69,810 $ 50,061
Cost of sales 39,011 27,430
---------- ----------
Gross profit 30,799 22,631
Costs and expenses:
Research and development expense 7,184 4,950
Selling, general and administrative
expense 14,334 11,628
Amortization expense 168 151
Other - net 163 84
---------- ----------
Operating income 8,950 5,818
Interest income, net 510 167
---------- ----------
Income before income taxes 9,460 5,985
Income taxes 3,550 1,529
---------- ----------
Net income $ 5,910 $ 4,456
---------- ----------
---------- ----------
Net income per common share $ 1.00 $ 0.84
---------- ----------
---------- ----------
Shares used in computation 5,889,000 5,317,000
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES.
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Veeco Instruments Inc.
and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
September 30, December 31,
1996 1995
-----------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 18,109 $ 17,568
Accounts and trade notes receivable 17,878 18,983
Inventories 21,569 15,795
Prepaid expenses and other current assets 925 923
Deferred income taxes 1,261 1,221
---------- ----------
Total current assets 59,742 54,490
Property, plant and equipment at cost, net 8,932 7,381
Excess of cost over net assets acquired 4,481 4,579
Other assets - net 1,053 930
---------- ----------
Total assets $ 74,208 $ 67,380
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---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,880 $ 8,729
Accrued expenses 6,661 7,523
Income taxes payable 336 777
---------- ----------
Total current liabilities 17,877 17,029
Deferred income taxes 118 118
Other liabilities 463 482
Shareholders' equity:
Common stock 58 58
Additional paid-in capital 47,610 47,353
Retained earnings 7,481 1,571
Cumulative translation adjustment 601 769
---------- ----------
Total shareholders' equity 55,750 49,751
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Total liabilities and shareholders' equity $ 74,208 $ 67,380
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES.
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<PAGE>
Veeco Instruments Inc.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
---------------------------------
1996 1995
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OPERATING ACTIVITIES
Net income $ 5,910 $ 4,456
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,012 965
Deferred income taxes (40) 495
Changes in operating assets and
liabilities:
Accounts and trade notes receivable 867 (1,627)
Inventories (5,886) (3,159)
Accounts payable 2,169 (171)
Accrued expenses and other current
liabilities (1,263) 1,415
Other - net (11) 266
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Net cash provided by operating activities 2,758 2,640
INVESTING ACTIVITIES
Capital expenditures (2,403) (703)
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Net cash used in investing activities (2,403) (703)
FINANCING ACTIVITIES
Proceeds from stock issuance 257 14,538
Deferred financing costs (193) (85)
Other - (29)
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Net cash provided by financing activities 64 14,424
Effect of exchange rates on cash 122 (172)
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Net change in cash and cash equivalents 541 16,189
Cash and cash equivalents at beginning
of period 17,568 2,279
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Cash and cash equivalents at end
of period $18,109 $18,468
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---------- ----------
SEE ACCOMPANYING NOTES.
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VEECO INSTRUMENTS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation (consisting of normal recurring accruals) have
been included. Operating results for the nine months ended September 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:
September 30, December 31,
1996 1995
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(Dollars in thousands)
Raw materials $ 8,052 $ 4,349
Work-in process 6,142 4,222
Finished goods 7,375 7,224
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$ 21,569 $15,795
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Note 3 - Balance Sheet Information
Selected balance sheet account disclosures follow:
September 30, December 31,
1996 1995
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(Dollars in thousands)
Allowance for doubtful accounts $ 654 $ 517
Accumulated depreciation and amortization
of property, plant and equipment $ 6,138 $ 5,318
Accumulated amortization of excess of cost
over net assets acquired $ 877 $ 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 three and nine months ended
September 30, 1995 is due to the recognition of previously unrecognized deferred
tax assets.
Total interest paid for the nine months ended September 30, 1995 was $106,000.
The Company made income tax payments of $3,967,000 and $647,000 for the nine
months ended September 30, 1996 and 1995, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for three months ended September 30, 1996 increased by approximately
$5.6 million or 30.6% over the comparable 1995 period. The increase principally
reflects continuing growth in Ion Beam System sales. .
Sales of Ion Beam Systems for the third quarter of 1996 increased to
approximately $13.2 million or 62.8% over the comparable period in 1995, driven
primarily by increased demand from the mass memory storage market. Sales of
Surface Metrology products for the third quarter of 1996 of approximately $6.1
million remained flat compared to the third quarter of 1995, as a result of a
general slow down in semiconductor applications. Sales of Industrial
Measurement products for the third quarter of 1996 increased to approximately
$4.8 million or 13.4% over the comparable period in 1995, as the result of
increased sales of new leak detection products.
The Company booked $18.3 million of orders in the quarter compared to $21.2
million of orders in the third quarter of 1995, as the general over capacity in
the semiconductor device industry has impacted customers short term purchasing
patterns.
Gross profit for the third quarter of 1996 of approximately $10.5 million
represents an increase of approximately $2.1 million over the comparable 1995
period. Gross profit as a percentage of net sales decreased from 45.4% in 1995
to 43.5% in 1996. This decline was principally due to product and geographic
mix changes in Surface Metrology products in the 1996 third quarter.
Research and development expense in the third quarter of 1996 increased by
approximately $1.0 million or 63.7% compared to the third quarter of 1995 as the
Company increased its R&D investment in each product line with particular
emphasis on ion beam deposition products.
Selling, general and administrative expenses increased by approximately $545,000
compared to the third quarter of 1995. The increase was primarily due to
approximately $401,000 of additional selling expense comprised of sales
commissions related to the higher sales volume, as well as increased
compensation and travel expense.
Operating income increased to approximately $3.0 million or 12.5% of net sales
for the third quarter of 1996 compared to approximately $2.4 million or 13.1% of
net sales for the third quarter of 1995, due to the above noted factors.
Income taxes for the third quarter of 1996 amounted to approximately $1.2
million or 36.9% of income before income taxes in 1996 as compared to $695,000
or 27.0% 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.
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NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for nine months ended September 30, 1996 increased by approximately
$19.7 million or 39.5% 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 nine months ended September 30, 1996 increased
to approximately $37.2 million or 67.8% over the comparable 1995 period, driven
by increased demand from the mass memory storage market. Sales of Surface
Metrology products for the nine months ended September 30, 1996 increased to
approximately $17.3 million or 19.4% 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
nine months ended September 30, 1996 increased to approximately $15.3 million or
14.4% over the comparable 1995 period, as a result of new leak detection
products.
Gross profit for the first nine months of 1996 of approximately $30.8 million
represents an increase of 36.1% or approximately $8.2 million over the
comparable 1995 period. Gross profit as a percentage of net sales decreased
from 45.2% in 1995 for the first nine months to 44.1% in 1996 for the same
period. This decline was principally due to product mix changes in Surface
Metrology and Industrial Measurement.
Research and development expense increased by approximately $2.2 million or
45.1% in the first nine months of 1996 compared to the comparable period of 1995
as the Company increased its R&D investment in all product lines, with $1.5
million of the increase directed at Ion Beam Systems.
Selling, general and administrative expenses for the first nine months of 1996
increased by approximately $2.7 million compared to the first nine months of
1995. The increase was primarily due to approximately $2.1 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 $68.8 million of orders in the first nine
months of 1996 compared to $60.5 million of orders in the first nine months of
1995.
Operating income increased to approximately $9.0 million or 12.8% of net sales
for the nine months ended September 30, 1996 compared to approximately $5.8
million or 11.6% of net sales for the nine months ended September 30, 1995, due
to the above noted factors.
Income taxes for the nine months ended September 30, 1996 amounted to $3.6
million or 37.5% of income before income taxes as compared to approximately $1.5
million or 25.5% 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.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totaled $2.8 million for the first nine months
of 1996 compared to $2.6 million for the comparable 1995 period. Inventories
increased $5.9 million as a result of purchases required for the increased sales
level.
The Company had capital expenditures of $2.4 million for the nine months ended
September 30, 1996, principally for laboratory tools and test equipment. In
addition, the Company began an upgrade of its computer systems in the 1996 third
quarter and anticipates spending $1.5 million on this program in the next six to
nine months.
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.
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PART II. OTHER INFORMATION
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. (1)
10.26 Security Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.27 Guarantee Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.28 Guarantor's Security Agreement dated July 31, 1996 among Sloan
Technology Corporation, Fleet Bank N.A. and The Chase Manhattan
Bank.(1)
10.29 The Pledge Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.30 The Patent and Trademark Security Agreement dated July 31, 1996
among the Registrant, Fleet Bank N.A. and The Chase Manhattan
Bank.(1)
27. Financial Data Schedule of Veeco Instruments Inc. for the
quarterly period ended September 30, 1996.
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.
(1) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 filed with the Securities
and Exchange Commission on August 8, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 29, 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
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EXHIBIT INDEX
Exhibits:
10.25 Credit Agreement dated July 31, 1996 among the Registrant, Fleet
Bank N.A. and The Chase Manhattan Bank. (1)
10.26 Security Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.27 Guarantee Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.28 Guarantor's Security Agreement dated July 31, 1996 among Sloan
Technology Corporation, Fleet Bank N.A. and The Chase Manhattan
Bank.(1)
10.29 The Pledge Agreement dated July 31, 1996 among the Registrant,
Fleet Bank N.A. and The Chase Manhattan Bank. (1)
10.30 The Patent and Trademark Security Agreement dated July 31, 1996
among the Registrant, Fleet Bank N.A. and The Chase Manhattan
Bank. (1)
27. Financial Data Schedule of Veeco Instruments Inc. for the
quarterly period ended September 30, 1996.
(1) Incorporated by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 filed with the
Securities and Exchange Commission on August 8, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 WHICH ARE CONTAINED IN FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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