<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Commission file number 0-16244
----------------
VEECO INSTRUMENTS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2989601
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
TERMINAL DRIVE
PLAINVIEW, NEW YORK 11803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 349-8300
------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
17,516,776 shares of common stock, $.01 par value per share, were outstanding as
of November 8, 1999.
- --------------------------------------------------------------------------------
<PAGE>
VEECO INSTRUMENTS INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income - 3
Three Months Ended September 30, 1999 and 1998
Condensed Consolidated Statements of Income - 4
Nine Months Ended September 30, 1999 and 1998
Condensed Consolidated Balance Sheets - 5
September 30, 1999 and December 31, 1998
Condensed Consolidated Statements of Cash Flows - 6
Nine Months Ended September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk 16
PART II. OTHER INFORMATION
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 58,762 $ 50,539
Cost of sales 30,026 27,317
-------- --------
Gross profit 28,736 23,222
Costs and expenses:
Research and development expense 7,880 7,052
Selling, general and administrative expense 11,803 10,172
Other income, net (92) (342)
-------- --------
Operating income 9,145 6,340
Interest (income) expense, net (384) 283
-------- --------
Income before income taxes 9,529 6,057
Income tax provision 3,258 1,817
-------- --------
Net income $ 6,271 $ 4,240
======== ========
Net income per common share $ 0.39 $ 0.29
Diluted net income per common share $ 0.39 $ 0.29
Pro forma income tax presentation:
Income before income taxes $ 6,057
Pro forma income tax provision 2,241
-------
Pro forma net income $ 3,816
=======
Pro forma net income per common share $ 0.26
Pro forma diluted net income per common share $ 0.26
Weighted average shares outstanding 15,965 14,654
Diluted weighted average shares outstanding 16,205 14,860
</TABLE>
SEE ACCOMPANYING NOTES.
-3-
<PAGE>
<TABLE>
<CAPTION>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998
--------- --------
<S> <C> <C>
Net sales $ 169,918 $155,345
Cost of sales 87,729 83,883
--------- --------
Gross profit 82,189 71,462
Costs and expenses:
Research and development expense 22,218 20,549
Selling, general and administrative expense 34,464 31,403
Other income, net (181) (403)
Merger and reorganization expenses - 7,500
--------- --------
Operating income 25,688 12,413
Interest (income) expense, net (971) 748
--------- --------
Income before income taxes 26,659 11,665
Income tax provision 9,596 3,499
--------- --------
Net income $ 17,063 $ 8,166
========= ========
Net income per common share $ 1.08 $ 0.56
Diluted net income per common share $ 1.05 $ 0.55
Pro forma income tax presentation:
Income before income taxes $ 11,665
Pro forma income tax provision 4,316
--------
Pro forma net income $ 7,349
========
Pro forma net income per common share $ 0.50
Pro forma diluted net income per common share $ 0.50
Weighted average shares outstanding 15,810 14,577
Dilued weighted average shares outstanding 16,181 14,813
</TABLE>
SEE ACCOMPANYING NOTES.
-4-
<PAGE>
<TABLE>
<CAPTION>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 30,660 $ 23,492
Short-term investments 50,241 -
Accounts and trade notes receivable, net 53,394 43,018
Inventories 56,892 53,324
Prepaid expenses and other current assets 1,963 1,388
Deferred income taxes 5,732 5,910
--------- ---------
Total current assets 198,882 127,132
Property, plant and equipment at cost, net 37,243 37,204
Excess of cost over net assets acquired 4,089 4,187
Other assets, net 5,038 4,314
--------- ---------
Total assets $ 245,252 $ 172,837
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 15,081 15,624
Accrued expenses 24,807 24,549
Notes payable to former Digital shareholders 8,000 -
Other current liabilities 4,409 1,433
--------- ---------
Total current liabilities 52,297 41,606
Long term debt, net of current portion 8,766 8,940
Notes payable to former Digital shareholders - 8,000
Other non-current liabilities 1,280 1,067
Shareholders' equity 182,909 113,224
--------- ---------
Total liabilities and shareholders' equity $ 245,252 $ 172,837
========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
-5-
<PAGE>
<TABLE>
<CAPTION>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $17,063 $ 8,166
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,087 3,570
Deferred income taxes 387 (1,399)
Non-cash compensation charge - 1,585
Other, net (339) -
Changes in operating assets and liabilities:
Accounts receivable (9,978) (1,546)
Inventories (3,958) (6,614)
Accounts payable (474) (5,756)
Accrued expenses and other current liabilities 4,184 233
Other, net (1,426) 2,418
------- -------
Net cash provided by operating activities 9,546 657
INVESTING ACTIVITIES
Capital expenditures (6,641) (6,194)
Proceeds from sale of property, plant and equipment 3,129 -
Net purchases of short-term investments (50,248) -
------- -------
Net cash used in investing activities (53,760) (6,194)
FINANCING ACTIVITIES
Proceeds from stock issuance 52,311 1,952
Distribution to Digital shareholders - (2,000)
Other (168) (156)
------- -------
Net cash provided by (used in) financing activities 52,143 (204)
Effect of exchange rates on cash (761) (452)
------- -------
Net change in cash and cash equivalents 7,168 (6,193)
Cash and cash equivalents at beginning of period 23,492 20,444
------- -------
Cash and cash equivalents at end of period $30,660 $14,251
======= =======
</TABLE>
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, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. 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, 1998.
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 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)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding 15,965 14,654 15,810 14,577
Dilutive effect of stock options 240 206 371 236
------ ------ ------ ------
Diluted weighted average shares outstanding 16,205 14,860 16,181 14,813
====== ====== ====== ======
</TABLE>
Pro forma net income and pro forma earnings per share as shown on the Condensed
Consolidated Statements of Income presents income taxes as if Digital
Instruments, Inc. ("Digital"), which was merged with the Company in May 1998 in
a transaction accounted for as a pooling of interests, had been a "C"
Corporation and therefore, subject to federal income taxes at the corporation
level. Prior to the merger, Digital had elected "S" Corporation status for
income tax purposes and, therefore, was not subject to federal income taxes at
the Corporation level.
-7-
<PAGE>
NOTE 2 - PUBLIC OFFERING
On February 2, 1999, the Company completed a public offering pursuant to which
1,000,000 shares of Common Stock, par value $.01 per share were issued and sold
for $52.00 per share, less underwriting discounts and commissions of $2.34 per
share. In addition, as part of the public offering, certain stockholders of the
Company sold 2,575,000 shares of Common Stock. The Company did not receive any
of the proceeds from the sale of shares by the selling stockholders.
NOTE 3 - INVENTORIES
Interim inventories have been determined by lower of cost (principally first-in,
first-out) or market. Inventories consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Raw materials $34,354 $28,202
Work-in-process 13,345 12,652
Finished goods 9,193 12,470
------- -------
$56,892 $53,324
======= =======
</TABLE>
NOTE 4- BALANCE SHEET INFORMATION
Selected balance sheet account disclosures follow:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Allowance for doubtful accounts $ 1,321 $ 1,725
Accumulated depreciation and amortization
of property, plant and equipment 18,279 15,861
Accumulated amortization of excess of cost
over net assets acquired 1,269 1,171
</TABLE>
-8-
<PAGE>
NOTE 5 - SEGMENT INFORMATION
The following represents the reportable product segments of the Company, in
thousands:
<TABLE>
<CAPTION>
UNALLOCATED
PROCESS INDUSTRIAL CORPORATE
METROLOGY EQUIPMENT MEASUREMENT AMOUNT TOTAL
--------- --------- ----------- ------ -----
THREE MONTHS ENDED
SEPTEMBER 30, 1999
<S> <C> <C> <C> <C> <C>
Net sales $ 31,150 $ 23,618 $ 3,994 $ -- $ 58,762
Operating income (loss) 7,362 3,229 (486) (960) 9,145
NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales 87,586 68,542 13,790 -- 169,918
Operating income (loss) 18,769 11,054 (748) (3,387) 25,688
Total assets 66,413 70,889 16,495 91,455 245,252
</TABLE>
<TABLE>
<CAPTION>
MERGER AND UNALLOCATED
PROCESS INDUSTRIAL REORGANIZATION CORPORATE
METROLOGY EQUIPMENT MEASUREMENT EXPENSES AMOUNT TOTAL
--------- --------- ----------- --------- ------ -----
THREE MONTHS ENDED
SEPTEMBER 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 30,178 $ 15,620 $ 4,741 $ -- $ -- $ 50,539
Operating income (loss) 5,857 741 (62) -- (196) 6,340
NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net sales 97,516 42,641 15,188 -- -- 155,345
Operating income (loss) 20,610 452 392 (7,500) (1,541) 12,413
Total assets 76,370 53,173 16,434 -- 19,914 165,891
</TABLE>
NOTE 6 - COMPREHENSIVE INCOME
Total comprehensive income was $6.6 million and $16.6 million for the three and
nine months ended September 30, 1999 and $4.6 million and $8.2 million for the
three and nine months ended September 30, 1998. Other comprehensive income is
comprised of foreign currency translation adjustments and net unrealized holding
gains and losses on available-for-sale securities.
-9-
<PAGE>
NOTE 7 - SHORT-TERM INVESTMENTS
Management determines the appropriate classification of securities at the
time of purchase and reevaluates such designation as of each balance sheet
date. All investments are classified as available-for-sale securities.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of
shareholders' equity. The amortized cost of debt securities in this category
is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in interest income. Realized gains
and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in interest income (expense). The
cost of securities sold is based on the specific identification method.
Interest and dividends on securities classified as available-for-sale are
included in interest income.
The carrying amounts of available-for-sale securities approximate fair value.
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
(in thousands)
<S> <C>
Commercial paper $ 22,291
Municipal bonds 14,085
Floating rate bonds 7,211
Corporate bonds 6,619
Other debt securities 35
----------
Total investments $ 50,241
==========
</TABLE>
All investments at September 30, 1999 have a contractual maturity of one year or
less. During the nine months ended September 30, 1999, available-for-sale
securities with a fair value at the date of sale of approximately $10.0 million
were sold.
NOTE 8 - RECENT EVENTS
On November 4, 1999, Veeco merged with Ion Tech, Inc. ("Ion Tech") a leading
supplier of ion beam deposition systems used to manufacture precise multi-layer
optical filters. Ion Tech was a privately held company located in Fort Collins,
Colorado. Under the terms of the merger, Ion Tech shareholders received
approximately 1.5 million shares of Veeco common stock. The merger is accounted
for as a pooling of interests transaction and, accordingly, historical financial
data in future reports will be restated to include Ion Tech.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS SEPTEMBER 30, 1999 AND 1998
Net sales of $58.8 million for the three months ended September 30, 1999
represents an increase of 16% from the 1998 comparable period sales of $50.5
million, reflecting an increase in process equipment sales. Sales in the US,
Europe, Japan and Asia Pacific, accounted for 38%, 18%, 29% and 14%,
respectively, of the Company's net sales for the three months ended September
30, 1999. Sales in the U.S. decreased 21% from the comparable 1998 period due
to a 66% decline in U.S. process equipment sales partially offset by a 17%
increase in U.S. metrology sales. Sales in Europe, Japan and Asia Pacific
increased 54%, 120% and 59%, respectfully, principally due to an increase in
process equipment sales. The Company believes that there will continue to be
quarter to quarter variations in the geographic concentration of sales.
Process equipment sales of $23.6 million for the three months ended September
30, 1999 represents an increase of $8.0 million or 51% from the comparable 1998
period, reflecting continued acceptance of Veeco's ion beam deposition, ion beam
etch and physical vapor deposition equipment for giant magnetoresistive (GMR)
thin film magnetic head manufacturing by the leading data storage companies
worldwide. As Veeco's data storage customers have continued to focus their
capital spending on process equipment to manufacture GMR heads, metrology sales
of $31.1 million for the three months ended September 30, 1999 remained
relatively flat from the comparable 1998 period. Industrial measurement sales of
$4.0 million for the three months ended September 30, 1999 represents a decrease
of $.7 million or 16% from the comparable 1998 period.
Veeco received $48.2 million of orders for the three months ended September
30, 1999, an 11% increase compared to $43.5 million of orders for the
comparable 1998 period. While process equipment orders increased 24% to $17.5
million, compared to the three months ended September 30, 1998, process
equipment orders decreased 30% from the second quarter 1999 level. This was
due to a delay in deposition equipment orders as a result of financial
pressures in the data storage industry. Certain of the Company's data storage
customers are delaying their capital spending in order to improve their
financial condition. Metrology orders increased by 8% to $27.2 million. The
book/bill ratio for the third quarter of 1999 was .82.
Gross profit for the three months ended September 30, 1999 of $28.7 million
represents an increase of $5.5 million or 24% from the comparable 1998 period.
Gross profit as a percentage of net sales increased to 48.9% for 1999 from 45.9%
for the comparable 1998 period, as gross margin improvements were experienced in
Veeco's process equipment and metrology product segments. The increase in gross
margin for process equipment is principally due to the increased sales volume.
The increase in gross margin for metrology is principally related to
increased sales volume of atomic force microscopes and for the optical
interferometer's favorable sales price, spending and product mix changes.
Research and development expenses of $7.9 million for the three months ended
September 30, 1999 increased by $.8 million or 12% from the comparable period of
1998 as the Company continued to increase spending for new product development,
particularly in the process equipment and metrology business for the next
generation GMR thin film magnetic head technology.
Selling, general and administrative expenses of $11.8 million for the three
months ended September 30, 1999 increased by approximately $1.6 million or 16%
over the comparable period of 1998, principally due to higher commissions on the
increased sales, establishment of an Asia Pacific subsidiary and increased
profit sharing and bonus accruals.
-11-
<PAGE>
Income taxes for the three months ended September 30, 1999 amounted to $3.3
million or 34% of income before income taxes as compared to $1.8 million or 30%
of income before income taxes for the same period of 1998. The lower effective
tax rate in 1998 reflects Digital's "S" Corporation tax status for five months
in 1998 (through the merger date). As an "S" Corporation, Digital was not
subject to federal income tax at the corporation level.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net sales were $169.9 million for the nine months ended September 30, 1999
representing an increase of $14.6 million or 9% over the comparable 1998 period.
The increase principally reflects growth in process equipment, partially offset
by a decrease in metrology sales. Sales in the US, Europe, Japan and Asia
Pacific, accounted for 42%, 18%, 21% and 18%, respectively, of the Company's net
sales for the nine months ended September 30, 1999. Sales in the US decreased
approximately 9% from the comparable 1998 period due to a decline in US
metrology sales and process equipment sales. Sales in Europe and Japan increased
11% and 31%, respectively, due primarily to an increase in process equipment
sales partially offset by a decrease in metrology sales. Sales in Asia Pacific
increased approximately 92% over the comparable 1998 period due to an increase
in metrology sales primarily related to an increase in the sale of in-line
inspection tools to a leading data storage customer.
Process equipment sales of $68.5 million for the nine months ended September
30, 1999 increased by $25.9 million or 61% from the comparable 1998 period,
due to increased requirements for ion beam deposition, ion beam etch and
physical vapor deposition equipment for the transition to GMR thin film
magnetic head manufacturing by the leading data storage companies worldwide.
Metrology sales for the nine months ended September 30, 1999 of $87.6 million
decreased by $9.9 million or 10% compared to the comparable 1998 period,
reflecting the data storage industry's focus on capital spending for process
equipment for GMR products. Industrial measurement sales for the nine months
ended September 30, 1999 of $13.8 million decreased 9% from the comparable
1998 period.
Veeco received $166.8 million of orders for the nine months ended September 30,
1999, a 5% increase compared to $159.4 million of orders in the comparable 1998
period. Process equipment orders increased 60% to $78.4 million reflecting
continued acceptance of Veeco's equipment for GMR thin film magnetic head
manufacturing by the leading data storage companies worldwide. Metrology orders
decreased 20% to $77.5 million reflecting the reduction in orders for in-line
inspection equipment for data storage customers and the slow acceptance by the
semiconductor market of atomic force microscopes in production applications. The
book/bill ratio for the nine months ended September 30, 1999 was .98.
Gross profit for the nine months ended September 30, 1999 of $82.2 million
represents an increase of $10.7 million or 15% from the comparable 1998
period. Gross profit as a percentage of net sales increased to 48.4% for 1999
from 46.0% for 1998, as gross margin improvements were experienced in the
process equipment and metrology product segments. The increase in gross
margin for process equipment is principally due to increased sales. The
increase in gross margin for metrology is related to a mix shift in sales to
higher margin atomic force microscopes and optical in-line inspection tools.
Research and development expense for the nine months ended September 30, 1999
increased by $1.7 million or 8% over the comparable period of 1998 as the
Company continued to increase spending for new product development, particularly
in the process equipment area.
-12-
<PAGE>
Selling, general and administrative expenses of $34.5 million for the nine
months ended September 30, 1999 increased by $3.1 million or 10% compared to
the comparable 1998 period as a result of increased sales and product support
costs for new products as well as incremental costs related to the increased
process equipment sales.
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 relating
to the merger with Digital in May 1998, of which approximately $1.7 million
represented severance and other costs and an estimated loss on a future sublease
of an abandoned office and manufacturing facility. At December 31, 1998
approximately $.8 million remained accrued for these expenses. During the nine
months ended September 30, 1999 the Company incurred approximately $.6 million
of costs that were charged against the accrual.
Income taxes for the nine months ended September 30, 1999 amounted to $9.6
million or 36% of income before income taxes as compared to $3.5 million or 30%
of income before income taxes for the same period of 1998. The lower effective
tax rate in 1998 reflects Digital's "S" Corporation tax status for five months
in 1998 (through the merger date). As an "S" corporation, Digital was not
subject to federal income tax at the corporation level.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totaled $9.5 million for the nine months ended
September 30, 1999 compared to $.7 million for the comparable 1998 period. This
change in cash provided by operations reflects an increase in net income for the
1999 period of $8.9 million from the comparable 1998 period, along with the cash
provided by operations for changes in operating assets and liabilities. Accounts
receivable increased by $10.0 million during the nine months ended September 30,
1999 due to increased sales volume. Inventories increased by $4.0 million during
the nine months ended September 30, 1999 reflecting the increase in process
equipment orders. Accrued expenses and other current liabilities increased by
$4.2 million during the nine months ended September 30, 1999 due primarily to
the increase in income taxes payable.
Net cash used in investing activities for the nine months ended September 30,
1999 totaled $53.8 million compared to $6.2 million for the comparable 1998
period. Cash used in 1999 consisted of net purchases of short-term investments
of $50.2 million and $6.6 million of capital expenditures partially offset by
$3.1 million of proceeds from sale of property, plant and equipment. The net
purchases of short-term investments resulted from the proceeds of the
Company's public offering.
On February 2, 1999, the Company completed a public offering, pursuant to which
1,000,000 shares of Common Stock, par value $.01 per share, were issued and sold
for $52.00 per share, less underwriting discounts and commissions of $2.34 per
share. The Company is using the net proceeds of the offering (approximately
$49.0 million) for capital expenditures including clean manufacturing areas and
expanded customer application laboratories and for working capital and general
corporate purposes, including potential acquisitions.
The Company has an unsecured $40.0 million Credit Facility (the "Credit
Facility") which may be used for working capital, acquisitions and general
corporate purposes. The Credit Facility bears interest at the prime rate of the
lending banks, but 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. As of September 30, 1999
there were no amounts outstanding under the Credit Facility.
-13-
<PAGE>
The Company will be required to repay promissory notes owed to former
stockholders of Digital in the aggregate principal amount of $8.0 million when
they become due in January 2000. The notes bear interest at an annual rate of
7.21%.
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 computer program or hardware or
other equipment 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.
The Company has modified or replaced 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 these modifications
or replacements of its business systems' existing software and certain hardware,
the Company's computer programs should be able to continue to operate
effectively after December 31, 1999. 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
(IT) and non-IT systems, including facilities and infrastructure, b) the
Company's products and c) the Company's suppliers:
a) The Company's IT and non-IT systems including facilities and
infrastructure:
In 1997, the Company completed the 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 has
completed its assessment and testing of its business systems for its
metrology business lines. Based upon such assessment and testing, along
with installing vendor upgrades and relying upon compliance statements
received from its software and hardware vendors, the Company believes
its metrology business systems will properly utilize dates beyond
December 31, 1999. Furthermore, the Company recently completed
installing a new business system for its sales and service offices in
Europe that the vendor has certified is Year 2000 compliant.
The Company completed its inventory and assessment of its desktop
systems and laptops. The Company currently uses standard "off the
shelf" vendor-supplied software on its desktop systems and laptops.
Based upon this assessment, the Company is not aware of any business
critical remediation that is required and believes that its business
critical desktop systems and laptops will properly utilize dates beyond
December 31, 1999.
-14-
<PAGE>
The Company completed its assessment of its Year 2000 risk with respect
to telephone and communications systems, utility systems and building
security systems. The Company is not aware of any such systems that are
critical to the business that will require significant remediation and
believes that such systems will properly function beyond December 31,
1999.
b) The Company's products:
The Company has completed 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's
new products are designed to be Year 2000 ready; however, some of the
Company's older products will require upgrades for Year 2000 readiness.
The Company intends to provide upgrades for certain of such products,
some of which will be provided to customers without charge. Major
customers have been notified of the Company's upgrade program.
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.
c) The Company's suppliers:
The Company has completed its assessment of its significant suppliers
and subcontractors regarding the status of their Year 2000 readiness.
The Company is not aware of any Year 2000 issue that would materially
impact the Company's business, financial condition or results of
operations. 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 $ 0.4
million and is being funded through operating cash flows. To date, the Company
has incurred approximately $0.3 million, of which $0.1 million has been expensed
and $0.2 million has been capitalized, related to all phases of the Year 2000
project.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner, however, 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.
The Company has reviewed its Year 2000 readiness status to determine what
contingency plans are appropriate. The Company is developing contingency plans
but has not yet determined its most reasonably likely worst case scenario with
respect to the Year 2000 Issue. There can be no assurance that such measures
will prevent the occurrence of Year 2000 problems, which could have a material
adverse effect upon the Company's business, results of operations or financial
condition.
-15-
<PAGE>
FORWARD-LOOKING STATEMENTS
To the extent that this Report on Form 10-Q discusses expectations about market
conditions 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Veeco's investment portfolio consists of cash equivalents, corporate bonds,
commercial paper, floating rate bonds and municipal bonds. These investments are
considered available-for-sale securities; accordingly, the carrying amounts
approximate market value. Assuming September 30, 1999 variable debt and
investment levels, a one-point change in interest rates would not have a
material impact on net interest expense. Veeco's net sales to foreign customers
represented approximately 62% and 58% of Veeco's total net sales for the three
and nine months ended September 30, 1999 and 44% and 50% for the three and
nine months ended September 30, 1998. The Company expects 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 16% and 14% of Veeco's total net sales for the three and nine
months ended September 30, 1999 and 10% and 12% for the three and nine months
ended September 30, 1998. The Company generally has not engaged in foreign
currency hedging transactions. The aggregate foreign exchange gains (losses)
included in determining consolidated results of operations were $669,000 and
$(158,000) for the three and nine months ended September 30, 1999 and were
$229,000 and $113,000 for the three and nine months ended September 30, 1998.
Changes in currency exchange rates that have the largest impact on translating
Veeco's international operating profit include the German mark and Japanese yen.
The Company estimates that a 10% change in foreign exchange rates would impact
reported operating profit for the nine months ended September 30, 1999 by less
than $1.2 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 our financing and
operating strategies.
-16-
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
a) On November 4, 1999, Veeco merged with Ion Tech, Inc. ("Ion Tech") a
leading supplier of ion beam deposition systems used to manufacture
precise multi-layer optical filters. Ion Tech was a privately held
company located in Fort Collins, Colorado. Under the terms of the
merger, Ion Tech shareholders received approximately 1.5 million shares
of Veeco common stock. The merger is accounted for as a pooling of
interests transaction and, accordingly, historical financial data in
future reports will be restated to include Ion Tech.
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, 1999, filed herein.
b) Reports on Form 8-K.
None.
-17-
<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 15, 1999
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
-18-
<PAGE>
EXHIBIT INDEX
Exhibits:
27.1 Financial data schedule of Veeco Instruments Inc. for
the quarterly period ended September 30, 1999, filed herein.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1999 WHICH ARE CONTAINED
IN OUR 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 30,660
<SECURITIES> 50,241
<RECEIVABLES> 54,715
<ALLOWANCES> 1,321
<INVENTORY> 56,892
<CURRENT-ASSETS> 198,882
<PP&E> 55,522
<DEPRECIATION> 18,279
<TOTAL-ASSETS> 245,252
<CURRENT-LIABILITIES> 52,297
<BONDS> 16,979
0
0
<COMMON> 160
<OTHER-SE> 182,749
<TOTAL-LIABILITY-AND-EQUITY> 245,252
<SALES> 58,762
<TOTAL-REVENUES> 58,762
<CGS> 30,026
<TOTAL-COSTS> 19,683
<OTHER-EXPENSES> (92)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (384)
<INCOME-PRETAX> 9,529
<INCOME-TAX> 3,258
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,271
<EPS-BASIC> .39
<EPS-DILUTED> .39
</TABLE>
