================================================================================ 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 JUNE 30, 1996 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 5,821,354 shares of Common Stock $.01 par value, were outstanding as of August 5, 1996. ================================================================================
VEECO INSTRUMENTS INC. INDEX PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Condensed Consolidated Statements of Income - Three Months Ended June 30, 1996 and 1995 3 Condensed Consolidated Statements of Income - Six Months Ended June 30, 1996 and 1995 4 Condensed Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 5 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 -2-
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Veeco Instruments Inc. and Subsidiaries Condensed Consolidated Statements of Income (Dollars in thousands, except per share data) (Unaudited) Three Months Ended June 30, ----------------------- 1996 1995 ------ ------ Net sales $25,095 $17,498 Cost of sales 13,972 9,615 -------- --------- Gross profit 11,123 7,883 Costs and expenses: Research and development expense 2,579 1,802 Selling, general and administrative expense 5,216 3,972 Amortization expense 52 51 Other - net 25 38 -------- ---------- Operating income 3,251 2,020 Interest income, net 162 6 -------- ---------- Income before income taxes 3,413 2,026 Income taxes 1,307 544 -------- --------- Net income $ 2,106 $ 1,482 ======== ========= Net income per common share $ .35 $ .29 ========= ========== Shares used in computation 5,958,000 5,123,000 ========= ========= See accompanying notes. -3-
Veeco Instruments Inc. and Subsidiaries Condensed Consolidated Statements of Income (Dollars in thousands, except per share data) (Unaudited) Six Months Ended June 30, -------------------- 1996 1995 -------- ------ Net sales $45,739 $31,631 Cost of sales 25,409 17,369 ------- ------- Gross profit 20,330 14,262 Costs and expenses: Research and development expense 4,583 3,361 Selling, general and administrative expense 9,589 7,428 Amortization expense 105 100 Other - net 117 (24) -------- ---------- Operating income 5,936 3,397 Interest income, net 362 15 -------- ---------- Income before income taxes 6,298 3,412 Income taxes 2,382 834 -------- --------- Net income $ 3,916 $ 2,578 ======= ========= Net income per common share $ .66 $ .51 ========= ========= Shares used in computation 5,925,000 5,100,000 ========= ========= See accompanying notes. -4-
Veeco Instruments Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands) June 30, December 31, 1995 1996 --------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $17,061 $17,568 Accounts and trade notes receivable 19,748 18,983 Inventories 19,252 15,795 Prepaid expenses and other current assets 1,123 923 Deferred income taxes 1,241 1,221 ------- ------- Total current assets 58,425 54,490 Property, plant and equipment at cost, net 8,042 7,381 Excess of cost over net assets acquired 4,514 4,579 Other assets - net 1,087 930 -------- ------- Total assets $72,068 $67,380 ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $10,244 $ 8,729 Accrued expenses 6,130 7,523 Income taxes payable 1,398 777 ------- ------- Total current liabilities 17,772 17,029 Deferred income taxes 118 118 Other liabilities 460 482 Shareholders' equity: Common stock 58 58 Additional paid-in capital 47,577 47,353 Retained earnings 5,487 1,571 Cumulative translation adjustment 596 769 ------- ------- Total shareholders' equity 53,718 49,751 ------- ------- Total liabilities and shareholders' equity $72,068 $67,380 ======= ======= See accompanying notes. -5-
Veeco Instruments Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Dollars in thousands) Six Months Ended June 30, ------------------ 1996 1995 ------- ------ OPERATING ACTIVITIES Net income $ 3,916 $ 2,578 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 657 659 Deferred income taxes (20) 234 Changes in operating assets and liabilities: Accounts receivable (979) (1,824) Inventories (3,570) (1,969) Accounts payable 1,534 614 Accrued expenses and other current liabilities (733) 225 Other - net (281) (179) --------- -------- Net cash provided by operating activities 524 338 INVESTING ACTIVITIES Capital expenditures (1,219) (243) -------- -------- Net cash used in investing activities (1,219) (243) FINANCING ACTIVITIES Proceeds from stock issuance 224 7 Deferred financing costs (150) (85) Other - (26) -------- -------- Net cash provided by (used in) financing activities 74 (104) Effect of exchange rates on cash 114 (322) --------- -------- Net change in cash and cash equivalents (507) (331) Cash and cash equivalents at beginning of period 17,568 2,279 --------- -------- Cash and cash equivalents at end of period $ 17,061 $ 1,948 ========= ======== See accompanying notes. -6-
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, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Earnings per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. NOTE 2 - INVENTORIES Interim inventories have been determined by lower of cost (principally first-in, first-out) or market. Inventories consist of: June 30, December 31, 1996 1995 ------- ------------ (Dollars in thousands) Raw materials $ 5,872 $ 4,349 Work-in process 5,428 4,222 Finished goods 7,952 7,224 -------- -------- $19,252 $15,795 ======= ======= -7-
NOTE 3 - BALANCE SHEET INFORMATION Selected balance sheet account disclosures follow: June 30, December 31, 1996 1995 -------- -------- (Dollars in thousands) Allowance for doubtful accounts $ 594 $ 517 Accumulated depreciation and amortization of property, plant and equipment $ 5,844 $ 5,318 Accumulated amortization of excess of cost over net assets acquired $ 855 $ 779 NOTE 4 - CREDIT FACILITY In place of its existing financing arrangements, in July 1996, the Company entered into a new credit facility ("the New Credit Facility") with Fleet Bank, N.A. and The Chase Manhattan Bank. The New Credit Facility, which is to be used for working capital, acquisitions and general corporate purposes provides the Company with up to $30 million of availability. The New Credit Facility bears interest at the prime rate of the lending banks, but is adjustable to a maximum rate of 3/4% above the prime rate in the event the Company's debt to cash flow exceeds a defined ratio. A LIBOR based interest rate option is also provided. The New Credit Facility expires July 31, 1999, but under certain conditions is convertible into a term loan, which would amortize quarterly through July 31, 2002. The New Credit Facility is secured by substantially all of the Company's personal property, as well as the stock of its Sloan subsidiary. NOTE 5 - OTHER INFORMATION The principal reason for the variation in the relationship between the statutory income tax rate and the effective tax rate for the six months ended June 30, 1995 is due to the recognition of previously unrecognized deferred tax assets. Total interest paid for the six months ended June 30, 1995 was $104,000. There were no significant interest payments in 1996 for the same period. The Company made income tax payments of $1,717,000 and $144,000 for the six months ended June 30, 1996 and 1995, respectively. -8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1995 Net sales for three months ended June 30, 1996 increased to approximately $25.1 million or 43.4% over the comparable 1995 period. The increase reflects significant growth in Ion Beam System sales. Sales of Ion Beam Systems for the second quarter of 1996 increased to approximately $14.3 million or 92.9% over the comparable 1995 period, driven primarily by increased demand from the mass memory storage market. Sales of Surface Metrology products for the second quarter of 1996 remained flat compared to the second quarter of 1995, as a result of a general slow down in semiconductor applications. Sales of Industrial Measurement products for the second quarter of 1996 increased to approximately $5.2 million or 8.2% over the comparable 1995 period, as the result of the introduction of new products in both the leak detection and XRF thickness measurement systems. Gross profit for the second quarter of 1996 of approximately $11.1 million increased by approximately $3.2 million over the comparable 1995 period. Gross profit as a percentage of net sales decreased from 45.1% for the second quarter of 1995 to 44.3% for the comparable period of 1996. This decline was due to product mix changes and new product introduction. Research and development expense in the second quarter of 1996 increased by approximately $777,000 or 43.1% compared to the second quarter of 1995 as the Company increased its R&D investment in each product line. Selling, general and administrative expenses for the second quarter of 1996 increased by approximately $1.2 million compared to the second quarter of 1995. The increase was primarily due to approximately $996,000 of additional selling expense comprised of sales commissions related to the higher sales volume, as well as increased compensation and travel expense as a result of the hiring of additional sales and service personnel to support the Company's continuing growth. The Company booked $25.1 million of orders in the second of 1996 quarter compared to $22.2 million of orders in the second quarter of 1995. The book to bill ratio for the second quarter of 1996 was 1.0 compared to a book to bill ratio of 1.23 for the first quarter of 1996. The decrease in the book to bill ratio from the first quarter to the second quarter of 1996 may indicate that the Company will experience a decrease in the rate of growth in sales for the balance of the fiscal year. Operating income for the second quarter of 1996 increased to approximately $3.3 million or 13.0% of net sales compared to approximately $2.0 million or 11.5% of net sales for the second quarter of 1995, due to the above noted factors. Income taxes amounted to approximately $1.3 million or 38.3% of income before income taxes for the second quarter of 1996 as compared to $544,000 or 26.9% of income before income taxes for the same period in 1995. The lower effective tax rate in 1995 as compared to the statutory tax rate is a result of the Company recognizing in 1995 previously unrecognized deferred tax assets. -9-
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995 Net sales for six months ended June 30, 1996 increased to approximately $45.7 million or 44.6% over the comparable 1995 period. The increase reflects growth in all three product lines: Ion Beam Systems, Surface Metrology and Industrial Measurement. Sales of Ion Beam Systems for the six months ended June 30, 1996 increased to approximately $24.0 million or 70.6% over the comparable 1995 period, driven by increased demand from mass memory storage market. Sales of Surface Metrology products for the six months ended June 30, 1996 increased to approximately $11.2 million or 33.7% over the comparable 1995 period, primarily as a result of increased activity in SXM Atomic Force Microscopy for Semiconductor applications. Sales of Industrial Measurement products for the six months ended June 30, 1996 increased to approximately $10.5 million or 14.8% over the comparable 1995 period as the result of new products in both the leak detection and XRF thickness measurement systems. Gross profit for the first six months of 1996 of approximately $20.3 million increased by approximately $6.1 million over the comparable 1995 period. Gross profit as a percentage of net sales decreased from 45.1% for the first six months of 1995 to 44.4% for the first six months of 1996. This decline was due to product mix changes and new product introductions. Research and development expense in the first six months of 1996 increased by approximately $1.2 million or 36.4% over the comparable period of 1995 as the Company increased its R&D investment in each product line. Selling, general and administrative expenses for the first six months of 1996 increased by approximately $2.3 million compared to the first six months of 1995. The increase was primarily due to approximately $1.7 million of additional selling expense comprised of sales commissions related to the higher sales volume, as well as increased compensation and travel expense as a result of the hiring of additional sales and service personnel to support the Company's continuing growth. The Company booked $50.5 million of orders in the first six months of 1996 compared to $39.3 million of orders in the first six months of 1995. Operating income for the first six months of 1996 increased to approximately $5.9 million or 13.0% of net sales compared to approximately $3.4 million or 10.7% of net sales for the comparable 1995 period, due to the above noted factors. Income taxes for the first six months of 1996 amounted to approximately $2.4 million or 37.8% of income before income taxes as compared to $834,000 or 24.4% of income before taxes for the same period in 1995. The lower effective tax rate in 1995 as compared to the statutory tax rate is a result of the Company recognizing in 1995 previously unrecognized deferred tax assets. -10-
LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations totaled $524,000 for the first six months of 1996 compared to $338,000 for the comparable 1995 period. The improvement results principally from higher net income for the period offset by increases in working capital and fixed asset requirements. In July, 1996 the Company entered into a new credit facility with two banks that provides borrowing capability of $30 million. (See note 4 to the financial statements). The new credit facility will be used for working capital, acquisitions and other general corporate purposes. The Company believes that existing cash balances together with cash generated from operations and amounts available under the Company's bank credit facility will be sufficient to meet the Company's projected working capital and other cash flow requirements for the foreseeable future. -11-
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 15, 1996. Each person nominated for election as a director of the Company was re-elected to such position at the meeting by a minimum of 5,024,416 votes. The other matters voted upon at the meeting were as follows: (a) the amendment and restatement of the Veeco Instruments Inc. Amended and Restated 1992 Employees' Stock Option Plan; (b) an amendment to the Amended and Restated Veeco Instruments Inc. 1994 Stock Option Plan for Outside Directors; and (c) the appointment of Ernst & Young LLP as auditors of the Company. The votes of the Company's stockholders on these matters were as follows: Broker Matters In Favor Opposed Abstained Non-Vote - - ------- -------- ------- --------- -------- (a) 3,018,130 128,237 21,800 1,867,789 (b) 2,926,910 148,624 31,471 1,928,951 (c) 5,019,956 5,335 10,665 -0- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 10.25 Credit Agreement dated July 31, 1996 among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank. 10.26 Security Agreement dated July 31, 1996 among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank. 10.27 Guarantee Agreement dated July 31, 1996 among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank. 10.28 Guarantor's Security Agreement dated July 31, 1996 among Sloan Technology Corporation, Fleet Bank N.A. and The Chase Manhattan Bank. 10.29 The Pledge Agreement dated July 31, 1996 among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank. 10.30 The Patent and Trademark Security Agreement dated July 31, 1996 among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank. b) Reports on Form 8-K: The Registrant filed a Form 8-K dated July 26, 1996 reporting that shares of common stock, par value $.01 per share, of the Registrant may no longer be offered for resale or resold pursuant to any of the following prospectuses: (i) the Company's Prospectus dated December 15, 1994 filed as part of the Company's Registration Statement on Form S-8, file no. 33-87394; (ii) the Company's Prospectus dated August 3, 1995 filed as part of the Company's Registration Statement on Form S-8, file no. 33-95424; and (iii) the Company's Prospectus dated August 3, 1995 filed as part of the Company's Registration Statement on Form S-8, file no. 33-95422. -12-
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 7, 1996 Veeco Instruments Inc. By: /s/ Edward H. Braun ------------------------ Edward H. Braun Chairman, CEO and President By: /s/ John F. Rein, Jr. ------------------------ John F. Rein, Jr. Vice President, Finance and Chief Financial Officer -13-
EXHIBIT INDEX Exhibits: 10.25 Credit Agreement dated July 31, 1996 among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank. 10.26 Security Agreement dated July 31, 1996 among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank. 10.27 Guarantee Agreement dated July 31, 1996 among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank. 10.28 Guarantor's Security Agreement dated July 31, 1996 among Sloan Technology Corporation, Fleet Bank N.A. and The Chase Manhattan Bank. 10.29 The Pledge Agreement dated July 31, 1996 among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank. 10.30 The Patent and Trademark Security Agreement dated July 31, 1996 among the Registrant, Fleet Bank N.A. and The Chase Manhattan Bank.