<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, 2000
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 11803
Plainview, New York (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 ___
Approximately 24,534,700 shares of common stock, $0.01 par value per share, were
outstanding as of the close of business on October 24, 2000.
<PAGE>
SAFE HARBOR STATEMENT
This Quarterly Report on Form 10-Q (the "Report") contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Discussions containing such forward-looking statements may be found in
Items 2 and 3 hereof, as well as within this Report generally. In addition, when
used in this Report, the words "believes," "anticipates," "expects,"
"estimates," "plans," "intends," and similar expressions are intended to
identify forward-looking statements. All forward-looking statements are subject
to a number of risks and uncertainties that could cause actual results to differ
materially from projected results. Factors that may cause these differences
include, but are not limited to:
o the dependence on principal customers and the cyclical nature of the
data storage, semiconductor and optical telecommunications industries,
o fluctuations in quarterly operating results,
o rapid technological change and risks associated with the acceptance of
new products by individual customers and by the marketplace,
o limited sales backlog and, where backlog exists, the potential inability of
the Company to increase production capacity to satisfy such backlog,
o the highly competitive nature of industries in which the Company operates,
o the impact of Staff Accounting Bulletin No. 101 on the Company's revenue
recognition policies, especially in the period of adoption, during which
the cumulative revenue deferral could be material,
o changes in foreign currency exchange rates, and
o the other matters discussed in the Business Description contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Consequently, such forward-looking statements should be regarded solely as the
Company's current plans, estimates and beliefs. The Company does not undertake
any obligation to update any forward-looking statements to reflect future events
or circumstances after the date of such statements.
2
<PAGE>
VEECO INSTRUMENTS INC.
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
PAGE
----
<S> <C>
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income -
Three Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Income -
Nine Months Ended September 30, 2000 and 1999 5
Condensed Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
3
<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
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Net sales $ 92,924 $ 86,973
Cost of sales 50,617 47,413
-------- --------
Gross profit 42,307 39,560
Costs and expenses:
Research and development expense 13,115 11,702
Selling, general and administrative expense 20,164 16,501
Amortization expense 1,180 114
Other expense (income), net 496 (3)
In-process research and development write-off -- 1,174
-------- --------
Operating income 7,352 10,072
Interest income, net (407) (138)
-------- --------
Income before income taxes 7,759 10,210
Income tax provision 1,611 3,967
-------- --------
Net income $ 6,148 $ 6,243
======== ========
Net income per common share $ 0.26 $ 0.30
Diluted net income per common share $ 0.24 $ 0.29
Weighted average shares outstanding 24,098 20,874
Diluted weighted average shares outstanding 25,561 21,499
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Net sales $ 264,393 $ 238,604
Cost of sales 160,787 127,794
--------- ---------
Gross profit 103,606 110,810
Costs and expenses:
Research and development expense 40,523 31,351
Selling, general and administrative expense 56,450 46,417
Amortization expense 2,665 353
Other expense (income), net 536 (504)
Merger and reorganization expenses 14,206 --
Asset impairment charge 3,722 --
In-process research and development write-off -- 1,174
--------- ---------
Operating (loss) income (14,496) 32,019
Interest income, net (928) (199)
--------- ---------
(Loss) income before income taxes (13,568) 32,218
Income tax (benefit) provision (6,920) 12,156
--------- ---------
Net (loss) income ($6,648) $ 20,062
========= =========
Net (loss) income per common share ($0.28) $ 0.98
Diluted net (loss) income per common share ($0.28) $ 0.95
Weighted average shares outstanding 23,537 20,400
Diluted weighted average shares outstanding 23,537 21,160
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 51,642 $ 29,852
Short-term investments 52,945 50,888
Accounts and trade notes receivable, net 80,118 79,952
Inventories 94,512 85,876
Prepaid expenses and other current assets 8,714 7,507
Deferred income taxes 40,437 12,363
-------- --------
Total current assets 328,368 266,438
Property, plant and equipment at cost, net 60,609 61,298
Excess of cost over net assets acquired, net 9,042 6,500
Other assets, net 12,431 6,960
-------- --------
Total assets $410,450 $341,196
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 27,896 27,723
Accrued expenses 53,763 37,706
Short-term borrowings from lines of credit 17,240 10,679
Notes payable to former Digital shareholders -- 8,000
Current portion of long-term debt 1,431 2,773
Other current liabilities 782 7,580
-------- --------
Total current liabilities 101,112 94,461
Long-term debt, net of current portion 14,957 17,252
Other non-current liabilities 5,547 5,539
Shareholders' equity 288,834 223,944
-------- --------
Total liabilities and shareholders' equity $410,450 $341,196
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income ($6,648) $20,062
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 11,594 7,078
Deferred income taxes (28,095) 248
Other, net (39) (416)
Asset impairment charge 3,722 --
Write-off of CVC inventory 15,322 --
Stock option income tax benefit 28,452 1,025
In-process research and development write-off -- 1,174
Changes in operating assets and liabilities:
Accounts receivable (4,825) (18,364)
Inventories (16,065) (2,423)
Accounts payable 1,737 (1,968)
Accrued expenses and other current liabilities 6,004 7,749
Recoverable income taxes (3,500) --
Other, net (1,462) (1,912)
Operating activities three months ended 12/31/99- CVC 638 --
------- -------
Net cash provided by operating activities 6,835 12,253
INVESTING ACTIVITIES
Capital expenditures (14,140) (11,501)
Proceeds from sale of property, plant and equipment 495 3,429
Proceeds from sale of leak detection business 3,000 --
Payment for net assets of businesses acquired (11,433) --
Net purchases of short-term investments (2,058) (50,248)
Investing activities three months ended 12/31/99- CVC (528) --
------- -------
Net cash used in investing activities (24,664) (58,320)
FINANCING ACTIVITIES
Proceeds from stock issuance 26,628 62,234
Repayment of long-term debt, net (8,992) (7,888)
Net proceeds from borrowings under lines of credit 17,240 1,607
Other -- (238)
Financing activities three months ended 12/31/99- CVC 3,627 --
------- -------
Net cash provided by financing activities 38,503 55,715
Effect of exchange rates on cash and cash equivalents 1,116 (761)
------- -------
Net change in cash and cash equivalents 21,790 8,887
Cash and cash equivalents at beginning of period 29,852 23,599
------- -------
Cash and cash equivalents at end of period $51,642 $32,486
======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with 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, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. 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, 1999.
Earnings per share are computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share are computed
using the weighted average number of common and common equivalent shares
outstanding during the period. The effect of common equivalent shares for the
nine months ended September 30, 2000 was antidilutive, therefore dilutive
earnings per share is not presented for such 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,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Weighted average shares outstanding 24,098 20,874 23,537 20,400
Dilutive effect of stock options and warrants 1,463 625 -- 760
------ ------ ------ ------
Diluted weighted average shares outstanding 25,561 21,499 23,537 21,160
====== ====== ====== ======
</TABLE>
NOTE 2 - CVC MERGER AND RELATED NON-RECURRING CHARGES
On May 5, 2000, a wholly-owned subsidiary of the Company merged with CVC, Inc.
("CVC") of Rochester, New York. As a result, CVC became a subsidiary of the
Company. Under the terms of the agreement, CVC shareholders received 0.43 shares
of Veeco Common Stock (approximately 5.4 million shares in total) for each share
of CVC Common Stock outstanding. The merger was accounted for as a pooling of
interests and, as a result, historical financial data has been restated to
include CVC data. CVC provides cluster tool deposition equipment used in
8
<PAGE>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 2 - CVC MERGER AND RELATED NON-RECURRING CHARGES (CONTINUED)
the production of disk drive head fabrication, optical active and passive
components and MRAM devices.
In conjunction with the merger with CVC, Veeco incurred non-recurring charges of
$33.0 million during the nine months ended September 30, 2000. Of these charges,
a $15.3 million non-cash charge related to a write-off of inventory (included in
cost of sales), $14.0 million represented merger and reorganization costs (of
which $9.2 million related to transaction costs and $4.8 million pertained to
duplicate facility and personnel costs) and $3.7 million was for the write-down
of long-lived assets. The Company implemented its reorganization plan in an
effort to integrate CVC into the Company, consolidate duplicate manufacturing
facilities and reduce other operating costs. The $4.8 million charge for
duplicate facility and personnel costs principally related to the closing of the
CVC Virginia facility and an approximate 200-person work force reduction, which
includes both management and manufacturing employees principally located in
Alexandria, Virginia, and Rochester and Plainview, New York. During the second
and third quarters of 2000, approximately $12.5 million was charged against the
$14.0 million accrual for merger and reorganization costs, which represented
$8.9 million for transaction costs, $3.0 million for termination benefits paid
and $0.6 million for duplicate facility costs. At September 30, 2000, the
balance of the accrual is approximately $1.5 million. The write-down of
long-lived assets to estimated net realizable value related primarily to
leasehold improvements, machinery and equipment and intangible assets for CVC's
Virginia facility. In addition, the $15.3 million non-cash write-off of
inventory principally related to the CVC Virginia facility product line of ion
beam etch and deposition equipment. The Company intends to integrate the
technology from this product line into Veeco's existing ion beam etch and
deposition products. Accordingly, the Company has determined that a portion of
this product line's inventory is not useable in the future.
The following unaudited data summarizes the combined results (in thousands) of
the operations of the Company and CVC as though the merger had occurred at the
beginning of fiscal year 1997:
Year Ended
December 31,
1999 1998 1997
------------------------------
Net sales:
Veeco $246,606 $214,985 $223,410
CVC 82,915 68,173 62,588
-------- -------- --------
Combined $329,521 $283,158 $285,998
======== ======== ========
Net income:
Veeco $ 20,410 $ 13,373 $ 26,616
CVC 1,571 264 2,045
-------- -------- --------
Combined $ 21,981 $ 13,637 $ 28,661
======== ======== ========
9
<PAGE>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 2 - CVC MERGER AND RELATED NON-RECURRING CHARGES (CONTINUED)
Prior to the merger, CVC's fiscal year end was September 30. Therefore, the
third quarter and nine month Consolidated Statements of Income for 1999 were
derived from CVC's three months and nine months ended June 30, 1999,
respectively. In addition, the December 31, 1999 Consolidated Balance Sheet was
derived from CVC's September 30, 1999 balance sheet.
NOTE 3 - OTHER MERGERS AND ACQUISITIONS
On March 23, 2000, the Company purchased certain atomic force microscope assets.
The acquisition was accounted for using the purchase method of accounting.
Results of operations prior to the acquisition are not material to the
Consolidated Statements of Income for the three and nine months ended September
30, 2000 and 1999.
On February 11, 2000, Veeco entered into a strategic alliance with Seagate
Technology, Inc. ("Seagate") under which Veeco assumed production responsibility
for Seagate's internal Slider Level Crown ("SLC") product line and acquired
rights to commercialize such products for sale to third parties.
The acquisition was accounted for using the purchase method of accounting.
Results of operations prior to the acquisition are not material to the
Consolidated Statements of Income for the three and nine months ended September
30, 2000 and 1999.
On January 31, 2000, Monarch Labs, Inc. ("Monarch"), a developer and
manufacturer of automated quasi-static test systems for the data storage
industry, merged with a subsidiary of Veeco. Monarch was a privately held
company located in Longmont, Colorado. Under the terms of the merger, Monarch
shareholders received 282,224 shares of Veeco Common Stock. The merger was
accounted for as a pooling of interests transaction, however, as Monarch's
historical results of operations and financial position are not material in
relation to those of Veeco, financial information prior to the merger is not
restated.
NOTE 4 - 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,
2000 1999
------------- ------------
(In thousands)
<S> <C> <C>
Components and spare parts $58,343 $49,609
Work-in-progress 23,812 21,736
Finished goods 12,357 14,531
------- -------
$94,512 $85,876
======= =======
</TABLE>
10
<PAGE>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 5 - BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(In thousands)
<S> <C> <C>
Allowance for doubtful accounts $ 2,738 $ 2,403
Accumulated depreciation and amortization
of property, plant and equipment $43,607 $34,115
Accumulated amortization of excess of cost
over net assets acquired $ 1,739 $ 1,335
</TABLE>
SHORT-TERM INVESTMENTS
The carrying amounts of available-for-sale securities approximate fair value.
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(In thousands)
<S> <C> <C>
Commercial paper $21,692 $ 19,047
Municipal bonds 10,022 14,527
Floating rate bonds 7,932 9,029
Corporate bonds 7,877 6,071
Obligations of U.S. Government agencies 2,038 2,003
Other debt securities 3,384 211
-------- ---------
$ 52,945 $ 50,888
======== =========
</TABLE>
All investments at September 30, 2000 have contractual maturities of one year or
less. During the nine months ended September 30, 2000, available-for-sale
securities with fair values at the date of sale of approximately $56.8 million
were sold.
11
<PAGE>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 6 - SEGMENT INFORMATION
The following represents the reportable product segments of the Company, in
thousands:
<TABLE>
<CAPTION>
Unallocated
Process Industrial Corporate Non-recurring
Metrology Equipment Measurement Amount Charges Total
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales $ 42,834 $ 47,517 $ 2,573 $-- $-- $ 92,924
Operating income (loss) 9,363 2,215 (1,368) (2,858) -- 7,352
THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales 31,150 51,829 3,994 -- -- 86,973
Operating income (loss) 7,362 5,330 (486) (960) (1,174) 10,072
NINE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales 116,851 139,432 8,110 -- -- 264,393
Operating income (loss) 23,051 3,540 (2,312) (5,525) (33,250) (14,496)
Total assets 95,859 150,118 11,163 153,310 -- 410,450
NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales 87,586 137,228 13,790 -- -- 238,604
Operating income (loss) 18,769 18,559 (748) (3,387) (1,174) 32,019
Total assets $ 66,413 $ 155,697 $ 16,495 $ 91,455 $ -- $ 330,060
</TABLE>
NOTE 7 - COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was $5.6 million and ($8.0) million for the
three and nine months ended September 30, 2000, and $6.8 million and $19.3
million for the three and nine months ended September 30, 1999, respectively.
Other comprehensive income is comprised of foreign currency translation
adjustments, minimum pension liability and net unrealized holding gains and
losses on available-for-sale securities.
12
<PAGE>
VEECO INSTRUMENTS INC. AND SUBSIDIARIES
NOTE 8 - NEW STAFF ACCOUNTING BULLETIN
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition" ("SAB 101"). The SEC Staff addresses several issues in SAB
101, including the timing for recognizing revenue derived from sales
arrangements involving contractual customer acceptance provisions where
installation of the product occurs after shipment and transfer of title. The
Company's current policy is to recognize revenue at the time the customer takes
title to the product, generally at the time of shipment. Applying the
requirements of SAB 101 to the present selling arrangements used by the Company
may result in a change in the Company's accounting policy for revenue
recognition and the deferral of the recognition of revenue or a portion of the
revenue derived from the sale until installation is complete and the product is
accepted by the customer. Based on current SEC guidance, the effect of the
change will be recognized as a cumulative effect of a change in accounting in
the Company's fourth quarter ending December 31, 2000. Management is currently
evaluating the impact of this change and believes that, in the period of
adoption, the amount of revenue that will be deferred could be material.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net sales of $92.9 million for the three months ended September 30, 2000
represents an increase of 7% from the 1999 comparable period sales of $87.0
million, resulting principally from an increase in metrology sales, offset in
part by a decrease in process equipment and industrial measurement sales. Sales
in the U.S., Europe, Japan and Asia Pacific, accounted for 57%, 10%, 18% and
15%, respectively, of the Company's net sales for the three months ended
September 30, 2000. Sales in the U.S. increased 42% from the comparable 1999
period due to a 74% and 21% increase in U.S. process equipment and metrology
sales, respectively, partially offset by a 52% decrease in U.S. industrial
measurement sales. The U.S. Process Equipment sales increase is due primarily to
the growth of Ion Tech's ion beam deposition equipment sales to the
opto-telecommunications industry. Sales in Europe and Japan decreased 55% and
20%, respectively. The decrease in both Europe and Japan is a result of lower
sales in the process equipment segment. Sales in Asia Pacific increased 67%,
principally due to increased metrology sales, partially offset by a decrease 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 $47.5 million for the three months ended September
30, 2000 represents an 8% decrease from the comparable period of $51.8 million,
partly due to an $11.7 million sales decline in Veeco's CVC subsidiary, due to
delayed orders and shipments from data storage and specialty semiconductor
customers, a $6.7 million decline in ion beam etch and deposition sales
principally to data storage customers, partially offset by a $14.1 million
increase in sales of Veeco's Ion Tech subsidiary's Dense Wavelength Division
Multiplexing (DWDM) related equipment. Metrology sales of $42.8 million for
the three months ended September 30, 2000 represents an increase of
approximately $11.7 million, or 38%, from the 1999 comparable period sales of
$31.2 million, due primarily to the increase in sales of the Company's atomic
force microscopes (AFM's) to the semiconductor market. Industrial measurement
sales of $2.6 million for the three months ended September 30, 2000 represent
a decrease of $1.4 million, or 36%, from the comparable 1999 period,
principally due to the sale on January 17, 2000 of the Company's leak
detection business.
Veeco received $179.9 million of orders during the three months ended September
30, 2000, a 106% increase compared to $87.2 million of orders for the comparable
1999 period. Process equipment orders increased 122% to $125.4 million, due
primarily to an increase of $78.1 million in orders for Veeco's Ion Tech
subsidiary's DWDM related equipment. Metrology orders increased 92% to $52.1
million, reflecting an 82% increase in orders for AFM's and a 118% increase in
orders for optical metrology products. Approximately $6.9 million of the
increase in optical metrology orders came from businesses purchased in the first
quarter of 2000. The Company's book/bill ratio for the third quarter of 2000 was
1.94.
14
<PAGE>
Gross profit for the three months ended September 30, 2000 of $42.3 million
represents an increase of $2.7 million, or 7%, from the comparable 1999 period.
Gross profit as a percentage of net sales remained consistent at 45.5% from the
comparable 1999 period.
Research and development expenses of $13.1 million for the three months ended
September 30, 2000 increased by approximately $1.4 million to 14.1% of net sales
in 2000 from 13.5% in 1999, due primarily to the increase in investment in AFM
and Ion Tech product development. Increased R&D spending as a result of the
recently acquired OptiMag, Monarch and the slider crown adjust product lines was
offset in part by a decrease in spending for Process Equipment data storage
products.
Selling, general and administrative expenses of $20.2 million for the three
months ended September 30, 2000 increased by approximately $3.7 million, or 22%,
to 21.7% of net sales in 2000 from 19.0% in 1999. This increase is principally
due to the expansion of direct sales and service presence in both Japan and the
Asia Pacific regions, the increase in sales commissions in the Company's Ion
Tech subsidiary, as well as the purchase of OptiMag, Monarch and the slider
crown adjust product lines, which had no comparable operating spending in 1999
since they were principally accounted for using the purchase method of
accounting.
The Company recorded a $1.2 million non-recurring charge during the three months
ended September 30, 1999 relating to the write-off of in-process research and
development in connection with CVC's acquisition of Commonwealth Scientific
Corporation.
Income taxes for the three months ended September 30, 2000 amounted to $1.6
million, or 21% of income before income taxes, as compared to $4.0 million, or
39% of income before income taxes, for the same period of 1999. The lower
effective tax rate for the three months ended September 30, 2000 is based upon a
revision of the projected pre-tax income for the year.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net sales were $264.4 million for the nine months ended September 30, 2000
representing an increase of approximately $25.8 million or 11% over the
comparable 1999 period. The increase principally reflects growth in metrology
sales of 33%. Sales in the U.S. accounted for 49% of the Company's net sales for
the nine months ended September 30, 2000, while sales in Japan, Europe and Asia
Pacific each accounted for 17% of sales for the nine months ended September 30,
2000. Sales in the U.S., Europe and Asia Pacific increased 13%, 10% and 45%,
respectively, while sales in Japan decreased 8% over the comparable 1999 period.
The increase in sales in the U.S. resulted primarily from a 25% increase in
metrology sales and a 17% increase in process equipment sales, partially offset
by a $6 million decline in industrial measurement sales. The increase in sales
in Europe is attributed to increased metrology sales. The increase in sales in
Asia Pacific resulted from a 71% increase in metrology sales partially offset by
a decline of 40% in process equipment sales.
Process equipment sales were $139.4 million for the nine months ended September
30, 2000, remaining relatively flat from the comparable 1999 period. Metrology
sales for the nine months ended September 30, 2000 were $116.9 million, an
increase of approximately $29.3 million or 33% compared to the comparable 1999
period, reflecting a 53% increase in optical metrology
15
<PAGE>
products from the newly acquired metrology businesses of OptiMag, Monarch and
the slider crown adjust product lines, as well as a 22% increase in the sales of
AFM's. Industrial measurement sales for the nine months ended September 30, 2000
were $8.1 million, a decrease of 41% from the comparable 1999 period principally
due to the sale on January 17, 2000 of the Company's leak detection business.
Veeco received $423.6 million of orders for the nine months ended September 30,
2000, a 62% increase compared to $261.3 million of orders in the comparable 1999
period. Process equipment orders increased 56% to $269.6 million, reflecting an
increase of 495% or $119.4 million in Veeco's Ion Tech subsidiary's DWDM related
equipment, partially offset by a 15% decrease in data storage related equipment
orders. Metrology orders increased 88% to $145.7 million, reflecting a 139%
increase in optical metrology products, as well as a 65% increase in atomic
force microscopes. The book/bill ratio for the nine months ended September 30,
2000 was 1.60.
In connection with the merger with CVC, the Company incurred non-recurring
charges of $33.0 million for the second quarter of 2000, of which a $15.3
million non-cash charge or 5.8% of net sales related to the write-off of
inventory, which has been included in cost of sales. As a result, gross profit
for the nine months ended September 30, 2000 of $103.6 million represents a
decrease of $7.2 million from the comparable 1999 period. Gross profit,
excluding the non-recurring charges, as a percentage of net sales decreased to
45.0% for 2000 from 46.4% for the comparable 1999 period, principally due to
weak margins on process equipment sales for the data storage industry. As a
result of the merger with CVC, the Company closed CVC's Virginia facility, which
was duplicative to its New York operations. This action will result in a lower
overhead cost structure.
Research and development expenses of $40.5 million for the nine months ended
September 30, 2000 increased by approximately $9.2 million, or 29%, over the
comparable period of 1999, due primarily to the continued investment in new
products and technology, for both Process Equipment and Metrology businesses.
Research and development expenses for Commonwealth, OptiMag and the slider
crown adjust product lines had lower comparable research and development
expense spending in 1999, since these acquisitions were accounted for using
the purchase method of accounting.
Selling, general and administrative expenses were $56.5 million or 21.4% of net
sales for the nine months ended September 30, 2000, as compared to $46.4 million
or 19.5% of net sales in 1999. This increase was principally due to the
expansion of direct sales and service presence in both Japan and the Asia
Pacific regions as well as the purchase of Commonwealth, OptiMag and the slider
crown adjust product lines, which had lower comparable operating spending in
1999, since these acquisitions were accounted for using the purchase method of
accounting.
In the nine months ended September 30, 2000, the Company recorded $33.25 million
of non-recurring charges. In conjunction with the merger with CVC, Veeco
incurred non-recurring charges of $33.0 million. Of these charges, a $15.3
million non-cash charge related to a write-off of inventory (included in cost of
sales), $14.0 million represented merger and reorganization costs (of which $9.2
million related to transaction costs and $4.8 million pertained to duplicate
facility and personnel costs) and $3.7 million was for the write-down of
long-lived assets. During the second and third quarters of 2000, approximately
$12.5 million was charged against
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the $14.0 million accrual for merger and reorganization costs, which represented
$8.9 million for transaction costs, $3.0 million for termination benefits paid
and $0.6 million for duplicate facility costs. At September 30, 2000,
approximately $1.5 million of the accrual is remaining. In addition to the $33.0
million charge in conjunction with the CVC merger, Veeco also recorded merger
expenses of $0.25 million in the nine months ended September 30, 2000
representing transaction and other costs related to the merger with Monarch
Labs, Inc.
The Company recorded a $1.2 million non-recurring charge during the nine months
ended September 30, 1999 relating to CVC's write-off of in-process research and
development in connection with CVC's acquisition of Commonwealth Scientific
Corporation.
Income taxes for the nine months ended September 30, 2000 amounted to a tax
benefit of $6.9 million, or 51% of loss before income taxes, as compared to
$12.2 million of income tax expense, or 38% of income before income taxes, for
the same period of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totaled $6.8 million for the nine months
ended September 30, 2000 compared to cash provided by operations of $12.3
million for the comparable 1999 period. This change in cash provided by
operations reflects a decrease in net income for the 2000 period of $26.7
million from the comparable 1999 period, along with the use of cash for
changes in operating assets and liabilities. Accrued expenses and other
current liabilities increased by $6.0 million during the nine months ended
September 30, 2000, while increasing $7.7 million during the comparable 1999
period. The increase in accrued expenses and other current liabilities is due
primarily to the increase in customer deposits and advanced billings for
Veeco's Ion Tech subsidiary's DWDM orders. Accounts receivable increased by
$4.8 million during the nine months ended September 30, 2000 due to the
increased sales volume for atomic force microscopes and optical metrology
products. Inventories increased by $16.1 million primarily due to production
ramp for both Ion Tech products and metrology tools, as well as certain
shipment delays for Ion Tech's and CVC's products. As a result of the merger
and reorganization costs incurred in connection with the CVC merger, as well
as the income tax benefit associated with the stock option exercises, the
Company anticipates a refund of income taxes of approximately $3.5 million.
Net cash provided by operations for the nine months ended September 30, 2000
also included operating activities for the three months ended December 31,
1999 related to CVC. Prior to the merger, CVC's fiscal year end was
September 30.
Net cash used in investing activities for the nine months ended September 30,
2000 totaled $24.7 million compared to $58.3 million for the comparable 1999
period. Cash used in 2000 consisted of $14.1 million of capital expenditures
partially offset by $3.0 million of proceeds from the sale of the leak detection
business. The Company also expended approximately $11.4 million for the purchase
of assets of acquired businesses and approximately $2.1 million for the purchase
of short-term investments in 2000. Net cash used in investing activities for the
nine months ended September 30, 2000 also included investing activities for the
three months ended December 31, 1999 related to CVC. Prior to the merger, CVC's
fiscal year end was September 30.
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Net cash provided by financing activities for the nine months ended September
30, 2000 totaled $38.5 million, compared to $55.7 million for the comparable
1999 period. Cash provided by financing activities in 2000 consisted of $17.2
million of proceeds from borrowings under the Company's revolving credit
facilities, as well as proceeds of $26.6 million from stock issuances upon
exercise of stock options, partially offset by $9.0 million of debt repayments.
Net cash provided by financing activities for the nine months ended September
30, 2000 also included financing activities for the three months ended December
31, 1999 related to CVC. Prior to the merger, CVC's fiscal year end was
September 30.
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 such rate may be increased to a maximum rate of .25% 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, 2000, there was $10.0 million outstanding under the Credit
Facility. The Company's CVC subsidiary also has a $15.0 million line of credit.
Maximum borrowings under this line are based upon certain financial criteria and
are at an interest rate of prime. As of September 30, 2000, there was
approximately $7.2 million outstanding under this line.
In connection with the atomic force microscope acquisition, the Company will be
required to pay approximately $4.8 million of the purchase price to the seller,
due in four equal quarterly installments, with the final payment due on March
23, 2001. As of September 30, 2000, approximately $2.4 million had been paid.
In connection with the OptiMag acquisition in October, 1999, the Company agreed
to purchase approximately twenty-five percent of OptiMag's outstanding stock,
which it does not already own, during October 2000 for approximately $1.2
million. This purchase occurred on October 27, 2000 and, as a result, OptiMag
became a wholly-owned subsidiary of the Company. Under the purchase agreement,
the Company will be required to pay additional consideration to the former
shareholders of OptiMag based upon both sales achieved and the appraised fair
value of OptiMag. The consideration will be calculated based upon a
predetermined percentage of OptiMag's sales for the period from January 1, 2000
to December 31, 2000, as well as the appraised fair market value of OptiMag,
adjusted for certain items, as of December 31, 2000.
The Company believes that existing cash balances together with cash generated
from operations and amounts available under the Company's credit facilities will
be sufficient to meet the Company's projected working capital and other cash
flow requirements for the next twelve months.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Veeco's investment portfolio consists of cash equivalents, corporate bonds,
commercial paper, floating rate bonds, obligations of U.S. Government agencies
and municipal bonds. These investments are considered available-for-sale
securities; accordingly, the carrying amounts approximate fair value. Assuming
September 30, 2000 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 43% and 51% of Veeco's
total net sales for the three and nine months ended September 30, 2000,
respectively, and 57% and 52% for the three and nine months ended September 30,
1999, respectively. The Company expects that net sales to foreign customers will
continue to represent a large percentage of its total net sales. Veeco's net
sales denominated in foreign currencies represented approximately 13% and 10% of
Veeco's total net sales for the three and nine months ended September 30, 2000,
respectively, and 11% and 10% for the three and nine months ended September 30,
1999. The Company has not engaged in foreign currency hedging transactions. The
aggregate foreign currency exchange losses (gains) included in determining
consolidated results of operations were $439,000 and $506,000 for the three and
nine months ended September 30, 2000, respectively, and ($669,000) and $158,000
for the three and nine months ended September 30, 1999, respectively. The change
in currency exchange rate that has the largest impact on translating Veeco's
international operating profit is the Japanese Yen. The Company estimates that a
10% change in foreign currency exchange rates would impact reported operating
profit for the nine months ended September 30, 2000 by approximately $1.0
million. The Company believes that this quantitative measure has inherent
limitations because it does not take into account any governmental actions or
changes in either customer purchasing patterns or financing and operating
strategies.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS:
(a) Exhibits
27.1 Financial Data Schedule of Veeco Instruments *
Inc. for the nine months ended September 30,
2000
27.2 Financial Data Schedule of Veeco Instruments *
Inc. for the nine months ended September 30,
1999 (restated)
*Filed herewith.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 2, 2000
Veeco Instruments Inc.
By: /S/ EDWARD H. BRAUN
-------------------
Edward H. Braun
Chairman, Chief Executive Officer and President
By: /S/ JOHN F. REIN, JR.
---------------------
John F. Rein, Jr.
Executive Vice President, Finance,
Chief Financial Officer, Treasurer and Secretary
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EXHIBIT INDEX
Exhibits:
27.1 Financial Data Schedule of Veeco Instruments Inc. for the nine
month period ended September 30, 2000
27.2 Financial Data Schedule of Veeco Instruments Inc. for the nine
month ended September 30, 1999 (restated)
