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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, 1998
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 |_|
14,739,783 shares of common stock, $.01 par value per share, were outstanding as
of November 5, 1998.
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<PAGE>
VEECO INSTRUMENTS INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income -
Three Months Ended September 30, 1998 and 1997 3
Condensed Consolidated Statements of Income -
Nine Months Ended September 30, 1998 and 1997 4
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 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 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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<PAGE>
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
September 30,
----------------------
1998 1997
-------- --------
Net sales $ 50,539 $ 55,195
Cost of sales 27,317 28,234
-------- --------
Gross profit 23,222 26,961
Costs and expenses:
Research and development expense 7,052 6,154
Selling, general and administrative expense 10,172 9,825
Amortization expense 97 69
Other, net (439) (20)
Merger and reorganization expenses -- 2,250
-------- --------
Operating income 6,340 8,683
Interest expense (income), net 283 (209)
-------- --------
Income before income taxes 6,057 8,892
Income tax provision 1,817 2,007
-------- --------
Net income $ 4,240 $ 6,885
======== ========
Net income per common share $ 0.29 $ 0.48
Diluted net income per common share $ 0.29 $ 0.46
======== ========
Weighted average shares outstanding 14,654 14,432
Diluted weighted average shares outstanding 14,860 15,049
======== ========
Pro forma presentation (See Note 1):
Income before income taxes $ 6,057 $ 8,892
Pro forma income tax provision 2,241 3,350
-------- --------
Pro forma net income $ 3,816 $ 5,542
======== ========
Pro forma net income per common share $ 0.26 $ 0.38
Pro forma diluted income per common share $ 0.26 $ 0.37
======== ========
See accompanying notes. -3-
<PAGE>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
September 30,
-------------------------
1998 1997
--------- ---------
Net sales $ 155,345 $ 158,952
Cost of sales 83,883 80,829
--------- ---------
Gross profit 71,462 78,123
Costs and expenses:
Research and development expense 20,549 17,261
Selling, general and administrative expense 31,403 28,842
Amortization expense 292 206
Other, net (695) (335)
Merger and reorganization expenses 7,500 2,250
Purchased in process technology -- 4,200
--------- ---------
Operating income 12,413 25,699
Interest expense, (income) net 748 (79)
--------- ---------
Income before income taxes 11,665 25,778
Income tax provision 3,499 5,927
--------- ---------
Net income $ 8,166 $ 19,851
========= =========
Net income per common share $ 0.56 $ 1.38
Diluted net income per common share $ 0.55 $ 1.33
========= =========
Weighted average shares outstanding 14,577 14,365
Diluted weighted average shares outstanding 14,813 14,879
========= =========
Pro forma presentation (See Note 1):
Income before income taxes $ 11,665 $ 25,778
Pro forma income tax provision 4,316 9,850
--------- ---------
Pro forma net income $ 7,349 $ 15,928
========= =========
Pro forma net income per common share $ 0.50 $ 1.11
Pro forma diluted net income per common share $ 0.50 $ 1.07
========= =========
See accompanying notes. -4-
<PAGE>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 14,251 $ 20,444
Accounts and trade notes receivable, net 46,795 44,927
Inventories 51,621 44,825
Prepaid expenses and other current assets 1,403 1,695
Deferred income taxes 6,001 4,602
-------- --------
Total current assets 120,071 116,493
Property, plant and equipment at cost, net 36,262 33,344
Excess of cost over net assets acquired 4,220 4,318
Other assets, net 5,338 5,476
-------- --------
Total assets $165,891 $159,631
======== ========
Liabilities and shareholders' equity
Current liabilities $ 42,227 $ 47,715
Other non-current liabilities 995 1,012
Long term debt, net of current portion 16,995 17,146
Shareholders' equity 105,674 93,758
-------- --------
Total liabilities and shareholders' equity $165,891 $159,631
======== ========
See accompanying notes -5-
<PAGE>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended
September 30,
--------------------
1998 1997
-------- --------
Operating activities
Net income $ 8,166 $ 19,851
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,570 1,319
Deferred income taxes (1,399) (1,919)
Non-cash compensation charge 1,585 --
Purchased in process technology -- 4,200
Changes in operating assets and liabilities:
Accounts receivable (1,546) (11,344)
Inventories (6,614) (8,107)
Accounts payable (5,756) 7,571
Accrued expenses and other current liabilities 233 4,214
Other, net 2,418 620
-------- --------
Net cash provided by operating activities 657 16,405
Investing activities
Capital expenditures (6,194) (5,774)
Net assets of business acquired -- (4,375)
-------- --------
Net cash used in investing activities (6,194) (10,149)
Financing activities
Proceeds from stock issuance 1,952 1,751
Distribution to Digital shareholders (2,000) (8,000)
Other (156) (83)
-------- --------
Net cash used in financing activities (204) (6,332)
Effect of exchange rates on cash (452) (179)
-------- --------
Net change in cash and cash equivalents (6,193) (255)
Cash and cash equivalents at beginning of period 20,444 26,322
-------- --------
Cash and cash equivalents at end of period $ 14,251 $ 26,067
======== ========
See accompanying notes. -6-
<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 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, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
Earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted average number of common and common equivalent shares
outstanding during the period.
The following table sets forth the reconciliation of diluted weighted-average
shares outstanding:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
(In Thousands) (In Thousands)
1998 1997 1998 1997
---- ----- ---- ----
<S> <C> <C> <C> <C>
Weighted - average shares outstanding 14,654 14,432 14,577 14,365
Dilutive effect of stock options 206 617 236 514
------ ------ ------ ------
Diluted weighted - average shares outstanding 14,860 15,049 14,813 14,879
====== ====== ====== ======
</TABLE>
Pro forma net income and pro forma earnings per share as shown on the Condensed
Consolidated Statements of Income presents income taxes for Digital Instruments,
Inc. as if Digital Instruments, Inc., which was merged in a pooling of interest
with the Company in May 1998, had been a "C" Corporation for all periods
presented and therefore, subject to federal income taxes at the corporation
level (See Note 2).
Note 2 - Merger
On May 29, 1998, the Company merged with Digital Instruments, Inc. of Santa
Barbara, CA ("Digital") a world leader in scanning probe/atomic force microscopy
(SPM/AFM). Under the merger, Digital shareholders received 5,583,725 shares of
Veeco common stock. The merger is accounted for as a pooling of interests
transaction and, accordingly, historical financial data has been restated to
include Digital data. Merger and reorganization expenses principally related to
this transaction amounted to $7.5 million . They were comprised of transaction
fees and expenses of $3.3 million, a $1.6 million non-cash compensation charge
related to stock issued in accordance with a pre-existing agreement with a key
Digital Instruments employee, $1.4 million of duplicate facility costs and $1.2
million of reorganization costs all of which were charged to operating expenses
during the nine month period ended September 30, 1998. Prior to the merger,
Digital had elected "S" Corporation status for income tax purposes and therefore
not subject to federal income taxes at the corporation level. As a result of the
merger, Digital terminated
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<PAGE>
its "S" Corporation election. Pro forma net income presents income taxes for
Digital as if it had been a "C" Corporation for all periods presented. The
following unaudited pro forma data summarizes the combined results of operations
of the Company and Digital as though the merger occurred at the beginning of
fiscal year 1995 and as if Digital had been a "C" Corporation.
Unaudited pro forma data
(In thousands)
Years Ended
December 31,
1997 1996 1995
--------------------------------------
Revenues:
Veeco $165,408 $115,042 $ 85,825
Digital 51,320 50,017 38,151
-------- -------- --------
Combined $216,728 $165,059 $123,976
======== ======== ========
Pro forma net income:
Veeco $ 12,283 $ 10,835 $ 9,237
Digital 8,537 10,040 7,039
-------- -------- --------
Combined $ 20,820 $ 20,875 $ 16,276
======== ======== ========
Note 3 - Inventories
Interim inventories have been determined by lower of cost (principally first-in,
first-out) or market. Inventories consist of:
September 30, December 31,
1998 1997
------- -------
(In thousands)
Raw materials $29,430 $25,016
Work-in process 11,225 8,101
Finished goods 10,966 11,708
------- -------
$51,621 $44,825
======= =======
Note 4- Balance Sheet Information
Selected balance sheet account disclosures follow:
September 30, December 31,
1998 1997
------- -------
(In thousands)
Allowance for doubtful accounts $ 1,088 $ 1,005
Accumulated depreciation and amortization
of property, plant and equipment 14,895 11,589
Accumulated amortization of excess of cost
over net assets acquired 1,138 1,040
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<PAGE>
Note 5 - Other Information
Interest paid during the nine months ended September 30, 1998 and 1997 was $.9
million for each period. The Company made income tax payments of $4.3 million
during each of the nine month periods ended September 30, 1998 and 1997.
Note 6 - New Accounting Pronouncement
As of January 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income". SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this statement
had no impact on the Company's reported net income or shareholders' equity. SFAS
No. 130 requires foreign currency translation adjustments which prior to its
adoption were reported separately as part of stockholders' equity to be included
in other comprehensive income.
For the nine months ended September 30, 1998 and 1997, total comprehensive
income amounted to $8.2 million and $19.2 million, respectively.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which is
effective for both interim and annual financial statements for periods ending
after December 15, 1997. Segment information is not required to be reported in
interim financial statements in the first year of application. The Company
intends to adopt SFAS No. 131 for the fiscal year ending December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three Months Ended September 30, 1998 and 1997
Net sales of $50.5 million for the three months ended September 30, 1998
declined 8% from the 1997 comparable period sales of $55.2 million, reflecting a
decline in process equipment sales partially offset by an increase in metrology
sales. Sales in the US, Europe, Japan and Asia Pacific, respectively, accounted
for 56%, 14%, 15% and 10%, respectively, of the Company's net sales for the
three months ended September 30, 1998. Sales in the US and Japan remained flat
while sales in Europe increased 11% and sales in Asia Pacific decreased 58% from
the comparable 1997 period. Metrology sales in the U.S. increased 22% while
process equipment sales declined 14%. The increase in European sales resulted
from increased metrology and industrial measurement sales partially offset by a
decline in process equipment sales. The decrease in Asia Pacific sales reflected
the continued economic downturn in that region, particularly in the data storage
industry. The Company believes that there will continue to be quarter to quarter
variations in the geographic concentration of sales.
Metrology sales of $30.2 million for the three months ended September 30, 1998
increased by $3.6 million or 13% over the comparable 1997 period, reflecting
increased use of metrology products for in-line inspection of critical steps in
data storage. Process equipment sales of $15.6 million for the three months
ended September 30, 1998 decreased by $8.4 million or 35% from the comparable
1997 period, as sales of ion beam etch products declined, partially offset by an
increase in sales of ion beam deposition equipment. Sales of ion beam etch
products continue to be negatively affected by industry over capacity in data
storage. Industrial measurement sales of $4.7 million for the three months ended
September 30, 1998 increased 3% from the comparable 1997 period.
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<PAGE>
Veeco received $43.5 million of orders for the three months ended September 30,
1998, a 27% decrease compared to $59.5 million of orders for the comparable 1997
period. Metrology orders decreased by 24% to $25.3 million while process
equipment orders decreased 33% to $14.0 million which reflects the continued
weakness in the semiconductor and data storage industries. The book/bill ratio
for the third quarter of 1998 was .86. Based upon the continued weakness in the
semiconductor and data storage industries, the Company expects revenues and
operating income to remain relatively flat for each of the next several
quarters.
Gross profit for the three months ended September 30, 1998 of $23.2 million
represents a decline of $3.7 million from the comparable 1997 period. Gross
profit as a percentage of net sales decreased to 45.9% for 1998 from 48.8% for
the comparable 1997 period, principally due to a decrease in gross margin for
process equipment. This decline in process equipment gross margin resulted from
lower sales volume, increased field service, warranty, facility and information
system costs and the increase in sales of new deposition products with lower
initial gross margins than established ion beam etch products. The metrology
product experienced higher field service and warranty costs as it expanded sales
of production related inspection tools to data storage customers at a variety of
international locations.
Research and development expenses of $7.1 million for the three months ended
September 30, 1998 increased by $.9 million or 15% over the comparable period of
1997 as the Company continues to increase spending for new product development
in each of its product lines, particularly in its metrology product line for
in-line inspection tools for semiconductor and data storage industries.
Selling, general and administrative expenses of $10.2 million for the three
months ended September 30, 1998 were relatively flat as compared to the same
period of 1997.
In connection with the merger with Wyko Corporation, the Company incurred
approximately $2.3 million of merger related fees in the three months ended
September 30, 1997 consisting of investment banking, legal and other transaction
costs.
Income taxes for the three months ended September 30, 1998 amounted to $1.8
million or 30% of income before income taxes as compared to $2.0 million or 23%
of income before income taxes for the same period of 1997. This increase in the
effective tax rate reflects Digital's "S" Corporation tax status for five months
in 1998 (through the merger date) compared to a full year in 1997. As an "S"
Corporation, Digital was not subject to federal income tax at the corporation
level.
Nine Months Ended September 30, 1998 and 1997
Net sales were $155.3 million for the nine months ended September 30, 1998
representing a decrease of $3.6 million or 2% from the comparable 1997 period.
The decrease in sales reflects a 34% decrease in process equipment sales offset
by a 23% increase in metrology sales. Sales in the US, Europe, Japan and Asia
Pacific, respectively, accounted for 50%, 18%, 17% and 10%, respectively, of the
Company's net sales for the nine months ended September 30, 1998. Sales in the
US decreased approximately 14%, while international sales included a 92%
increase in Europe, a 21% increase in Japan and a 28% decrease in Asia Pacific
from the comparable 1997 period. The decrease in US sales principally reflects
reduced process equipment sales to data storage customers. The increase in
European sales principally reflects increased process equipment sales to data
storage customers along with increased metrology sales for data storage and
semiconductor applications. The increase in sales in Japan principally reflects
an increase in process metrology sales. The decrease in sales in Asia Pacific
principally reflects a decrease in sales of all product lines resulting from the
economic downturn in that region. The Company believes that there will continue
to be quarter to quarter variations in the geographic concentration of sales.
Metrology sales of $97.6 million for the nine months ended September 30, 1998
increased by $18.1 million or 23% over the comparable 1997 period principally
reflecting increased use of metrology products for in-line inspection of
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<PAGE>
critical steps in data storage applications. Process equipment sales of $42.6
million for the nine months ended September 30, 1998 decreased by $22.0 million
or 34% from the comparable 1997 period, as sales of ion beam etch products
declined, partially offset by sales of new deposition equipment. Ion beam etch
sales continue to be negatively affected by excess capacity in data storage.
Industrial measurement sales for the nine months ended September 30, 1998 of
$15.1 million increased 3% over the comparable 1997 period.
Veeco received $159.4 million of orders for the nine months ended September 30,
1998 representing a 5% decrease from $167.6 million of orders in the comparable
1997 period. Metrology orders increased 16% to $97.2 million reflecting the
increased use of in line metrology for production applications such as PTR (pole
tip recession) measurements for new MR/GMR thin film magnetic heads. Process
equipment orders decreased 27% to $48.9 million as a result of a reduction in
orders of ion beam etch products reflecting weak data storage market conditions
accompanied by industry wide over capacity. The book/bill ratio for the nine
months ended September 30, 1998 was 1.03.
Gross profit for the nine months ended September 30, 1998 of $71.5 million
represents a decrease of $6.6 million from the comparable 1997 period. Gross
profit as a percentage of net sales decreased to 46.0% for 1998 from 49.1% for
1997, principally due to a decrease in gross margin for the process equipment
product line. This decline resulted from lower sales volume, increased field
support, warranty, facility and information system costs and the increase in
sales of new deposition products with lower initial gross margins than
established ion beam etch products. The metrology product experienced higher
field service and warranty costs as it expanded sales of production related
inspection tools to data storage customers at a variety of international
locations.
Research and development expense for the nine months ended September 30, 1998 of
$20.5 million increased by $3.3 million or 19% over the comparable period of
1997, as the Company continues to invest in new product development in each of
its product lines with particular emphasis on in-line inspection tools in the
metrology product line and deposition tools for its process equipment line.
Selling, general and administrative expenses of $31.4 million for the nine
months ended September 30, 1998 increased by $2.6 million compared to the
comparable 1997 period as a result of increased costs to support the growth in
the metrology product line along with investments made in customer sales and
field support including the transition to more direct sales and support coverage
in Japan, Europe and Asia Pacific.
As described in Note 2, the Company recorded a $7.5 million non-recurring
pre-tax charge for merger and reorganization expenses during the nine months
ended September 30, 1998. During the nine months ended September 30, 1997, the
Company recorded a $4.2 million expense for the fair value of acquired
in-process engineering and development projects and a non-recurring $2.3 million
charge for merger related fees consisting of investment banking, legal and other
transaction costs in connection with the merger with Wyko Corporation.
Income taxes for the nine months ended September 30, 1998 amounted to $3.5
million or 30% of income before income taxes as compared to $5.9 million or 23%
of income before income taxes for the same period of 1997. This increase in the
effective tax rate reflects Digital's "S" Corporation status for five months in
1998 (through the merger date) compared to a full year in 1997. As an "S"
Corporation, Digital was not subject to federal income taxes at the corporation
level.
Liquidity and Capital Resources
Net cash provided by operations totaled $.7 million for the nine months ended
September 30, 1998 compared to $16.4 million for the comparable 1997 period.
This change in cash provided from operations reflects a decrease in net income
for the 1998 period of $11.7 million from the comparable 1997 period, along with
the use of cash for changes in operating assets and liabilities. Accounts
payable and accrued expenses and other current liabilities decreased by $5.5
million during the nine months ended September 30, 1998 while increasing $11.8
million during
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<PAGE>
the comparable period of 1997. The decrease in accounts payable and accrued
expenses and other current liabilities in 1998 reflects the payment of certain
liabilities including a portion of the non recurring merger related expenses and
the reduction in customer deposits. The increase in accounts payable and accrued
expenses and other current liabilities in 1997 reflect the growth in business in
1997 over 1996. Accounts receivable increased $1.5 million during the nine
months ended September 30, 1998 while increasing $11.3 million during the
comparable 1997 period.
Veeco made capital expenditures of $6.2 million for the nine month period ended
September 30, 1998, compared to $5.8 million in the comparable 1997 period.
Capital expenses in 1998 were principally for engineering and application lab
equipment.
The Company believes that existing cash balances together with cash generated
from operations and amounts available under the Company's credit facility will
be sufficient to meet the Company's projected working capital and other cash
flow requirements for the next twelve months.
Year 2000
The Year 2000 Issue is the result of computer programs using two digits rather
than four to define the applicable year. Any of the Company's computer programs
or hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on recent assessments, the Company has determined that it will be required
to modify or replace portions of its business systems software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Company presently believes that with modifications or replacements of
it business systems existing software and certain hardware, the Company's
computer programs should be able to continue to operate effectively after
December 31, 1999. However, if such modifications and replacements are not made,
or are not completed timely, the Year 2000 Issue could have a material impact on
the operations of the Company. Furthermore, in addition to its own systems, the
Company relies directly and indirectly, on external systems of its customers,
suppliers, creditors, financial organizations, utilities providers and
governmental agencies (collectively, "Third Parties").
The Company is utilizing both internal and external resources to resolve the
Year 2000 Issue following a phased approach which is comprised of inventory and
assessment, planning and renovation, testing and implementation. The following
describes the Company's efforts to identify and address its and applicable Third
Party Year 2000 Issues with respect to a) the Company's information technology
systems, including facilities and infrastructure, b) the Company's products and
c) the Company's suppliers:
a) The Company's information technology systems including facilities and
infrastructure:
In 1997, the Company completed its installation of a new business system for its
process equipment and industrial product lines which has been certified by the
vendor as Year 2000 compliant. The Company is in the process of either testing
or assessing the extent of upgrades or modification required for its business
systems for its metrology product lines. Furthermore, the Company is in the
process of installing a new business system for its sales and service offices in
Europe that the vendor has certified is Year 2000 compliant.
The Company is also in the process of completing its inventory and assessment of
its desktop systems
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<PAGE>
and laptops. The Company currently uses standard "off the shelf" vendor supplied
software on its desktop systems and laptops. Many of these vendors are still
implementing their Year 2000 compliance programs and the Company will implement
the Year 2000 compliant versions as required when those solutions are available.
The Company is in the process of assessing its Year 2000 risk with respect to
telephone and communications systems, utility systems and building security
systems. Formal inquires are expected to be sent to third parties before
December 31, 1998 inquiring as to such Third Parties Year 2000 readiness.
b) The Company's products:
The Company is in the process of completing its inventory and assessment of its
products Year 2000 readiness utilizing testing guidelines prepared by Sematech,
a consortium of suppliers to worldwide semiconductor manufacturers. The Company
plans to comply with Sematech's guidelines for Year 2000 compliance for its
metrology and process equipment lines. The Company believes its new products are
designed to be Year 2000 capable, however, some of the Company's older products
will require upgrades for Year 2000 capability. The Company intends to provide
upgrades for certain of such products, some of which will be provided to
customers without charge. Notwithstanding such efforts, any failure of the
Company's products to perform, including system malfunctions due to the onset of
Year 2000, could result in claims against the Company which could have a
material adverse effect on the Company's business, results of operations or
financial condition. Moreover, the Company's customers could choose to convert
to other Year 2000 capable products in order to avoid such malfunctions, which
could have a material adverse effect on the Company's business, financial
condition or results of operations.
c) The Company's suppliers:
The Company is in the process of inquiring of its significant suppliers and
subcontractors the status of their Year 2000 readiness. To date, the Company is
not aware of any Year 2000 issue that would materially impact the Company's
results of operations, liquidity or capital resources. However, the Company has
no means of ensuring that suppliers or subcontractors will be Year 2000 ready.
The inability of suppliers or subcontractors to complete their Year 2000
resolution process in a timely fashion could materially impact the Company. The
Company is unable to determine the effect of non-compliance by suppliers or
subcontractors.
The Company will utilize both internal and external resources to reprogram or
replace, test, and implement the software and operating equipment for Year 2000
modifications. The total cost of the Year 2000 project is estimated at $400,000
to $750,000 and is being funded through operating cash flows. To date, the
Company has incurred approximately $100,000 (which has been expensed), related
to all phases of the Year 2000 project. Of the total remaining project costs,
approximately $250,000 to $400,000 is attributable to the purchase of new
software and operating equipment which will be capitalized. The remaining
$50,000 to $250,000 relates to repair of hardware and software and external
consultant costs and will be expensed as incurred.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. In the event
the Company does not successfully complete any additional phases, it may disrupt
the Company's ability to do business with its suppliers and customers. In
addition, there can be no assurance that the systems of Third Parties with which
the Company interacts will not suffer from Year 2000 problems, or that such
problems would not have a material adverse effect on the Company's business,
financial condition or results of operations. In particular, Year 2000 problems
that have been or may in the future be identified with respect to the IT and
Non-IT systems of Third Parties having widespread national and international
interactions with persons and entities generally (for example, certain IT and
Non-IT systems of governmental agencies, utilities and information and financial
networks) could have a material adverse impact on the Company's financial
condition or results of operations.
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<PAGE>
The Company does not currently have any contingency plans with respect to the
Year 2000 Issue. The Company currently is in the process of reviewing its Year
2000 compliance plans to determine what contingency plans, if any are
appropriate. There can be no assurance that such measures will prevent the
occurance of Year 2000 problems, which could have a material adverse effect upon
Company's business, results of operations or financial condition.
Forward-Looking Statements
To the extent that this Report on Form 10-Q discusses expectations about market
conditions, including the continued weakness experienced by the data storage and
semiconductor industries, or about market acceptance and future sales of the
Company's products or the Company's profitability, or otherwise makes statements
about the future, including statements of the Company's Year 2000 readiness,
such statements are forward looking and are subject to a number of risks and
uncertainties that could cause actual results to differ materially from the
statements made. These factors include the cyclical nature of the data storage
and semiconductor industries, risks associated with the acceptance of new
products by individual customers and by the marketplace, and other factors
discussed in the Business Description on Form 10-K and Annual Report to
Shareholders.
-14-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's quarterly report on Form 10-Q for the quarter
ended June 30, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.1 Financial data schedule of Veeco Instruments Inc. for the quarterly period
ended September 30, 1998, filed herein.
27.2 Financial data schedule of Veeco Instruments Inc. for the quarterly period
ended September 30, 1997, (restated) filed herein.
b) Reports on Form 8-K.
None.
-15-
<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: November 12, 1998
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
-16-
<PAGE>
EXHIBIT INDEX
Exhibits:
27.1 Financial data schedule of Veeco Instruments, Inc. for the quarterly
period ended September 30, 1998, filed herein.
27.2 Financial data schedule of Veeco Instruments, Inc. for the quarterly
period ended September 30, 1997 (restated), filed herein.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements as of September 30, 1998 which are contained
in our 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 14,251
<SECURITIES> 0
<RECEIVABLES> 47,383
<ALLOWANCES> 1,088
<INVENTORY> 51,621
<CURRENT-ASSETS> 120,071
<PP&E> 51,157
<DEPRECIATION> 14,895
<TOTAL-ASSETS> 165,891
<CURRENT-LIABILITIES> 42,227
<BONDS> 0
0
0
<COMMON> 105,646
<OTHER-SE> 28
<TOTAL-LIABILITY-AND-EQUITY> 165,891
<SALES> 155,345
<TOTAL-REVENUES> 155,345
<CGS> 83,883
<TOTAL-COSTS> 59,744
<OTHER-EXPENSES> (695)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 748
<INCOME-PRETAX> 11,665
<INCOME-TAX> 3,499
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,166
<EPS-PRIMARY> .56
<EPS-DILUTED> .55
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements as of September 30, 1998 which are contained
in our 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 26,067
<SECURITIES> 0
<RECEIVABLES> 44,481
<ALLOWANCES> 1,002
<INVENTORY> 39,326
<CURRENT-ASSETS> 115,217
<PP&E> 29,969
<DEPRECIATION> 11,164
<TOTAL-ASSETS> 143,817
<CURRENT-LIABILITIES> 46,345
<BONDS> 0
0
0
<COMMON> 86,296
<OTHER-SE> 25
<TOTAL-LIABILITY-AND-EQUITY> 143,817
<SALES> 158,952
<TOTAL-REVENUES> 158,952
<CGS> 80,829
<TOTAL-COSTS> 52,759
<OTHER-EXPENSES> (335)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (79)
<INCOME-PRETAX> 25,778
<INCOME-TAX> 5,927
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,851
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.33
</TABLE>
