<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1999
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 |_|
15,936,333 shares of common stock, $.01 par value per share, were
outstanding as of July 30, 1999.
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<PAGE>
VEECO INSTRUMENTS INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income -
Three Months Ended June 30, 1999 and 1998 3
Condensed Consolidated Statements of Income -
Six Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
SIGNATURES 17
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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)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 55,177 $ 51,147
Cost of sales 28,241 27,048
-------- --------
Gross profit 26,936 24,099
Costs and expenses:
Research and development expense 7,207 7,007
Selling, general and administrative expense 11,187 11,184
Other, net (18) (26)
Merger and reorganization expenses -- 7,500
-------- --------
Operating income (loss) 8,560 (1,566)
Interest (income) expense, net (446) 267
-------- --------
Income (loss) before income taxes 9,006 (1,833)
Income tax provision (benefit) 3,332 (51)
-------- --------
Net income (loss) $ 5,674 $ (1,782)
======== ========
Net income (loss) per common share $ 0.36 $ (0.12)
Diluted net income (loss) per common share $ 0.35 $ (0.12)
Pro forma income tax presentation:
Loss before income taxes $ (1,833)
Pro forma income tax benefit (678)
--------
Pro forma net loss $ (1,155)
========
Pro forma net loss per common share $ (0.08)
Pro forma diluted net loss per common share $ (0.08)
Weighted average shares outstanding 15,929 14,566
Diluted weighted average shares outstanding 16,228 14,827
</TABLE>
SEE ACCOMPANYING NOTES.
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<PAGE>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net sales $ 111,156 $ 104,806
Cost of sales 57,703 56,566
--------- ---------
Gross profit 53,453 48,240
Costs and expenses:
Research and development expense 14,338 13,497
Selling, general and administrative expense 22,661 21,231
Other, net (89) (61)
Merger and reorganization expenses -- 7,500
--------- ---------
Operating income 16,543 6,073
Interest (income) expense, net (587) 465
--------- ---------
Income before income taxes 17,130 5,608
Income tax provision 6,338 1,682
--------- ---------
Net income $ 10,792 $ 3,926
========= =========
Net income per common share $ 0.69 $ 0.27
Diluted net income per common share $ 0.67 $ 0.27
Pro forma income tax presentation:
Income before income taxes $ 5,608
Pro forma income tax provision 2,158
---------
Pro forma net income $ 3,450
=========
Pro forma net income per common share $ 0.24
Pro forma diluted net income per common share $ 0.23
Weighted average shares outstanding 15,731 14,538
Diluted weighted average shares outstanding 16,130 14,774
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 84,567 $ 23,492
Accounts and trade notes receivable, net 42,882 43,018
Inventories 57,542 53,324
Prepaid expenses and other current assets 1,734 1,388
Deferred income taxes 5,792 5,910
-------- --------
Total current assets 192,517 127,132
Property, plant and equipment at cost, net 37,109 37,204
Excess of cost over net assets acquired 4,122 4,187
Other assets, net 4,254 4,314
-------- --------
Total assets $238,002 $172,837
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 17,474 15,624
Accrued expenses 23,590 24,549
Notes payable to former Digital shareholders 8,000 --
Other current liabilities 4,525 1,433
-------- --------
Total current liabilities 53,589 41,606
Long term debt 8,825 8,940
Notes payable to former Digital shareholders -- 8,000
Other non-current liabilities 1,191 1,067
Shareholders' equity 174,397 113,224
-------- --------
Total liabilities and shareholders' equity $238,002 $172,837
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
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<PAGE>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,792 $ 3,926
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,684 2,311
Deferred income taxes 256 (1,199)
Non-cash compensation charge -- 1,585
Other, net (258) --
Changes in operating assets and liabilities:
Accounts receivable (1,401) (3,048)
Inventories (5,151) (4,536)
Accounts payable 1,982 (1,121)
Accrued expenses and other current liabilities 3,255 4,814
Other, net (460) (451)
-------- --------
Net cash provided by operating activities 11,699 2,281
INVESTING ACTIVITIES
Capital expenditures (4,858) (4,212)
Proceeds from sale of property, plant and equipment 2,679 --
-------- --------
Net cash used in investing activities (2,179) (4,212)
FINANCING ACTIVITIES
Proceeds from stock issuance 50,862 364
Distribution to Digital shareholders -- (2,000)
Other (111) (28)
-------- --------
Net cash provided by (used in) financing activities 50,751 (1,664)
Effect of exchange rates on cash 804 (190)
-------- --------
Net change in cash and cash equivalents 61,075 (3,785)
Cash and cash equivalents at beginning of period 23,492 20,444
-------- --------
Cash and cash equivalents at end of period $ 84,567 $ 16,659
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
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<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 six months ended June 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 Six Months Ended
June 30, June 30,
-------- --------
(In thousands) (In thousands)
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted-average shares outstanding 15,929 14,566 15,731 14,538
Dilutive effect of stock options 299 261 399 236
------ ------ ------ ------
Diluted weighted-average shares outstanding 16,228 14,827 16,130 14,774
====== ====== ====== ======
</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 for all periods presented 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.
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<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>
June 30, December 31,
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Raw materials $32,205 $28,202
Work-in-process 13,208 12,652
Finished goods 12,129 12,470
------- -------
$57,542 $53,324
======= =======
</TABLE>
NOTE 4- BALANCE SHEET INFORMATION
Selected balance sheet account disclosures follow:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Allowance for doubtful accounts $ 1,445 $ 1,725
Accumulated depreciation and amortization
of property, plant and equipment 17,730 15,861
Accumulated amortization of excess of cost
over net assets acquired 1,236 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
--------- --------- ----------- ------ -----
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
JUNE 30, 1999
Net sales $ 25,463 $ 25,437 $ 4,277 $ -- $ 55,177
Operating income (loss) 4,693 5,144 (256) (1,021) 8,560
SIX MONTHS ENDED
JUNE 30, 1999
Net sales 56,436 44,925 9,795 -- 111,156
Operating income (loss) 11,407 7,825 (262) (2,427) 16,543
Total assets 67,874 62,069 15,731 92,328 238,002
</TABLE>
<TABLE>
<CAPTION>
Merger and Unallocated
Process Industrial Reorganization Corporate
Metrology Equipment Measurement Expenses Amount Total
--------- --------- ----------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
JUNE 30, 1998
Net sales $ 34,419 $ 11,861 $ 4,867 $ -- $ -- $ 51,147
Operating income (loss) 7,555 (1,069) (3) (7,500) (549) (1,566)
SIX MONTHS ENDED
JUNE 30, 1998
Net sales 67,338 27,021 10,447 -- -- 104,806
Operating income (loss) 14,753 (289) 454 (7,500) (1,345) 6,073
Total assets 76,771 51,047 15,046 -- 23,887 166,751
</TABLE>
NOTE 6 - COMPREHENSIVE INCOME
Total comprehensive income (loss) was $5.4 million and $10.0 million for the
three and six-months ended June 30, 1999 and ($1.9) million and $3.6 million for
the three and six-months ended June 30, 1998. Other comprehensive income is
comprised of foreign currency translation adjustments.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Net sales of $55.2 million for the three months ended June 30, 1999 represents
an increase of 8% from the 1998 comparable period sales of $51.1 million,
reflecting an increase in process equipment sales partially offset by a decline
in metrology sales. Sales in the US, Europe, Japan and Asia Pacific, accounted
for 56%, 19%, 9% and 13%, respectively, of the Company's net sales for the three
months ended June 30, 1999. Sales in the U.S. increased 25% from the comparable
1998 period due to a 90% increase in U.S. process equipment sales partially
offset by a 9% decline in U.S. metrology sales. Sales in Europe and Japan
decreased 10% and 27%, respectively, due to a decrease in metrology sales. Sales
in Asia Pacific increased 37% principally as a result of an increase in
metrology sales. The Company believes that there will continue to be quarter to
quarter variations in the geographic concentration of sales.
Process equipment sales of $25.4 million for the three months ended June 30,
1999 represents an increase of $13.6 million or 114% 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 focused their capital spending
on process equipment to manufacture GMR heads, metrology sales of $25.5 million
for the three months ended June 30, 1999 decreased $9.0 million or 26% from
the comparable 1998 period. Industrial measurement sales of $4.3 million for
the three months ended June 30, 1999 represents a decrease of $.6 million or
12% from the comparable 1998 period.
Veeco received $53.6 million of orders for the three months ended June 30, 1999,
a 7% increase compared to $50.0 million of orders for the comparable 1998
period. Process equipment orders increased 91% to $24.8 million, reflecting
continued acceptance of Veeco's technology and equipment for next generation GMR
thin film magnetic head manufacturing by the leading data storage companies.
Metrology orders decreased by 22% to $25.3 million, reflecting the data
storage focus on process equiptment. The book/bill ratio for the second
quarter of 1999 was .97.
Gross profit for the three months ended June 30, 1999 of $26.9 million
represents an increase of $2.8 million from the comparable 1998 period. Gross
profit as a percentage of net sales increased to 48.8% for 1999 from 47.1% 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 of
Veeco's newer deposition products, lower product costs and increased efficiency.
The increase in gross margin for metrology is principally related to a sales mix
shift to higher margin atomic force microscopes and optical interferometers.
Research and development expenses of $7.2 million for the three months ended
June 30, 1999 remained relatively flat from the comparable 1998 period.
Selling, general and administrative expenses of $11.2 million for the three
months ended June 30, 1999 remained relatively flat when compared to the 1998
comparable period.
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<PAGE>
The Company recorded a $7.5 million non-recurring pre-tax charge for merger and
reorganization expenses during the three months ended June 30, 1998, relating to
the merger with Digital in May 1998.
Income taxes for the three months ended June 30, 1999 amounted to $3.3 million
or 37% of income before income taxes as compared to $.1 million income tax
benefit or 3% of loss before income taxes for the same period of 1998. The
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.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net sales were $111.2 million for the six months ended June 30, 1999
representing an increase of $6.4 million or 6% 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 44%, 18%, 17% and 19%, respectively, of the Company's net
sales for the six months ended June 30, 1999. Sales in the US, Europe and Japan
decreased approximately 3% each, while sales to Asia Pacific and other areas
increased $8.7 million or 58%. The increase in sales in Asia Pacific is 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 $44.9 million for the six months ended June 30, 1999
increased by $17.9 million or 66% from the comparable 1998 period, due to
continued acceptance of ion beam deposition, ion beam etch and physical vapor
deposition equipment for GMR thin film magnetic head manufacturing by the
leading data storage companies worldwide. Metrology sales for the six months
ended June 30, 1999 of $56.4 million decreased by $10.9 million or 16% 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 six months ended June 30, 1999 of $9.8 million decreased 6% from
the comparable 1998 period.
Veeco received $118.6 million of orders for the six months ended June 30, 1999,
a 2% increase compared to $115.9 million of orders in the comparable 1998
period. Process equipment orders increased 75% to $61.0 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 30% to $50.3 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 six months ended June 30, 1999 was 1.07.
Gross profit for the six months ended June 30, 1999 of $53.5 million represents
an increase of $5.2 million from the comparable 1998 period. Gross profit as a
percentage of net sales increased to 48.1% for 1999 from 46.0% for 1998, due
principally to an increase in gross margin for the process equipment product
line, which is attributable to higher sales volume of Veeco's newer deposition
products, lower product costs and increased efficiency.
-11-
<PAGE>
Research and development expense in the first half of 1999 increased by $.8
million or 6% over the comparable period of 1998.
Selling, general and administrative expenses increased by $1.4 million for the
six months ended June 30, 1999 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 six months ended June 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 six
months ended June 30, 1999 the Company incurred approximately $.4 million of
costs that were charged against the accrual.
Income taxes for the six months ended June 30, 1999 amounted to $6.3 million or
37% of income before income taxes as compared to $1.7 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 $11.7 million for the six months ended
June 30, 1999 compared to $2.3 million for the comparable 1998 period. This
change in cash provided by operations reflects an increase in net income for the
1999 period of $6.9 million from the comparable 1998 period, along with the cash
provided by operations for changes in operating assets and liabilities. Accounts
payable and accrued expenses and other current liabilities increased by $5.2
million during the six months ended June 30, 1999, due primarily to the timing
of income tax payments, which will occur in the third quarter of 1999. Accounts
receivable increased by $1.4 million during the six months ended June 30, 1999
due to increased sales volume. Inventories increased by $5.2 million during the
six months ended June 30, 1999 reflecting the increase in process equipment
orders.
Net cash used in investing activities for the six months ended June 30, 1999
totaled $2.2 million compared to $4.2 million for the comparable 1998 period.
Cash used in 1999 consisted of $4.9 million of capital expenditures partially
offset by $2.7 million of proceeds from sale of property, plant and equipment
compared to $4.2 million of cash used for capital expenditures for the
comparable 1998 period.
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 expects to use 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 June 30, 1999 there
were no amounts outstanding under the Credit Facility.
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 March 2000. The notes bear interest at an annual rate of
7.21%.
-12-
<PAGE>
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 determined that it needs 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 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. However, if such
modifications and replacements are not completed in a timely manner, 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
(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 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 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.
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.
-13-
<PAGE>
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. In such event, the Company's customers could
choose to convert to other Year 2000 ready 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 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. 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, the Company's
ability to do business with its suppliers and customers may be disrupted. 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.
The Company does not currently have any contingency plans and has not yet
determined its most reasonably likely worst case scenario 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
occurrence of Year 2000 problems, which could have a material adverse effect
upon the Company's business, results of operations or financial condition.
-14-
<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; accordingly, the
carrying amounts approximate market value. It is the Company's practice to hold
these investments to maturity. Assuming June 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 44% and 56% of Veeco's total net sales for the three
and six-months ended June 30, 1999 and 52% and 54% for the three and six-months
ended June 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 13% of Veeco's
total net sales for the three and six-months ended June 30, 1999 and 10% and 12%
for the three and six-months ended June 30, 1998. The Company generally has not
engaged in foreign currency hedging transactions. The aggregate foreign exchange
losses included in determining consolidated results of operations was $136,000
and $827,000 for the three and six-months ended June 30, 1999 and were $116,000
for both the three and six-months ended June 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 six months ended June 30, 1999 by less than $1.3 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.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on May 14, 1999 and
for purposes of taking a vote on matter (a) below, was continued on May 21,
1999. Each person nominated for election as a director of the Company was
elected to such position at the meeting by a minimum of 12,771,538 votes. The
other matters voted upon at the meeting were as follows: (a) An amendment to the
Amended and Restated Veeco Instruments Inc. 1994 Stock Option Plan for Outside
Directors; (b) an amendment to the Veeco Instruments Inc. Amended and Restated
1992 Employees' Stock Option Plan; and (c) the appointment of Ernst & Young LLP
as auditors of the Company for the fiscal year ending December 31, 1999. The
votes of the Company's stockholders on these matters were as follows:
<TABLE>
<CAPTION>
Broker
Matters In Favor Opposed Abstained Non-Vote
------- -------- ------- --------- --------
<S> <C> <C> <C> <C>
(a) 8,010,406 5,469,367 15,977 1,097,407
(b) 12,740,500 392,818 42,162 1,417,677
(c) 14,583,340 5,587 4,230 -
</TABLE>
-15-
<PAGE>
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 June 30, 1999, filed herein.
b) Reports on Form 8-K.
None.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 6, 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
-17-
<PAGE>
EXHIBIT INDEX
Exhibits:
27.1 Financial data schedule of Veeco Instruments Inc. for the quarterly
period ended June 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 JUNE 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> JUN-30-1999
<CASH> 84,567
<SECURITIES> 0
<RECEIVABLES> 44,327
<ALLOWANCES> 1,445
<INVENTORY> 57,542
<CURRENT-ASSETS> 192,517
<PP&E> 54,839
<DEPRECIATION> 17,730
<TOTAL-ASSETS> 238,002
<CURRENT-LIABILITIES> 53,589
<BONDS> 17,036
0
0
<COMMON> 159
<OTHER-SE> 174,238
<TOTAL-LIABILITY-AND-EQUITY> 238,002
<SALES> 55,177
<TOTAL-REVENUES> 55,177
<CGS> 28,241
<TOTAL-COSTS> 18,394
<OTHER-EXPENSES> (18)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (446)
<INCOME-PRETAX> 9,006
<INCOME-TAX> 3,332
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,674
<EPS-BASIC> .36
<EPS-DILUTED> .35
</TABLE>
