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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, 2002

Commission file number 0-16244

VEECO INSTRUMENTS INC.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code:(516) 677-0200

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 / /

29,134,679 shares of common stock, $0.01 par value per share, were outstanding as of the close of business on July 30, 2002.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This Quarterly Report on Form 10-Q (the "Report") contains certain forward-looking statements about Veeco within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties. Forward-looking statements include expectations about market conditions or about market acceptance, expectations of future sales or gross profits, possible or assumed future results of operations of Veeco and the statements included in Items 2 and 3 hereof, as well as within this Report generally. Forward-looking statements relate to expectations concerning matters that are not historical facts. Words or phrases such as "will likely result," "expect," "will continue," "anticipate," "believe," "estimate," "intend," "plan," "project" and similar expressions are intended to identify forward-looking statements. Actual results may vary materially from those expressed in such forward-looking statements as a result of various factors, including:

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The fact that these forward-looking statements are based on information of a preliminary nature which may be subject to further and continuing review and adjustment;



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The risk of favorable customer contracts expiring or being renewed on less attractive terms;



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Dependence on principal customers;



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Seasonality in the scientific research sector;



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The cyclical nature of the semiconductor, data storage, telecommunications/wireless and scientific research industries;



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Fluctuations in quarterly operating results;



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Risks associated with the acceptance of new products by individual customers and by the marketplace;



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Risk of cancellation or rescheduling of orders;



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The highly competitive nature of the industries in which the Company operates;



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The financial condition of Veeco's customers;



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Changes in foreign currency exchange rates; and



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The other matters discussed under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

        Although Veeco believes that these forward-looking statements are reasonable, Veeco cannot assure you that these expectations will prove to be correct.

        Veeco cautions you not to put undue reliance on any forward-looking statement contained in this Report. The risk factors and cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that Veeco or persons acting on its behalf may issue. Except as otherwise required by federal securities laws, Veeco has no intention or obligation to update or revise any forward-looking statement after this document is filed to reflect the occurrence of unanticipated events or to reflect events or circumstances after the date on which such statement is made.

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VEECO INSTRUMENTS INC.
INDEX

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Part I.    Financial Information

Item 1.    Financial Statements

Veeco Instruments Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data)
(Unaudited)

See Accompanying Notes.

4

Veeco Instruments Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data)
(Unaudited)

See Accompanying Notes.

5

Veeco Instruments Inc. and Subsidiaries

Condensed Consolidated Balance Sheets
(In thousands)

See Accompanying Notes.

6

Veeco Instruments Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

See Accompanying Notes.

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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 accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 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, 2001.

        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 three and six months ended June 30, 2002 was antidilutive, therefore diluted earnings per share is not presented for such periods.

        The following table sets forth the reconciliation of diluted weighted average shares outstanding:

        The assumed conversion of subordinated convertible notes is antidilutive for the three and six months ended June 30, 2002 and therefore is not included in the above diluted weighted average shares outstanding.

Note 2—Balance Sheet Information

Inventories

        Interim inventories have been determined by lower of cost (principally first-in, first-out) or market. Inventories consist of:

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Other Balance Sheet Information

Reclassifications

        Certain amounts in the 2001 condensed consolidated financial statements have been reclassified to conform to the 2002 presentation.

Note 3—Segment Information

        The following represents the reportable product segments of the Company, in thousands:

Note 4—Comprehensive Income (Loss)

        Total comprehensive income (loss) was $1.9 million and ($2.1) million for the three and six months ended June 30, 2002, respectively, and $9.7 million and $21.7 million for the three and six months ended June 30, 2001, respectively. Other comprehensive income (loss) is comprised of foreign currency translation adjustments, minimum pension liability and net unrealized holding gains and losses on available-for-sale securities.

Note 5—Recent Accounting Pronouncements

        Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. The intangible assets that are classified as goodwill and those with indefinite lives are no longer amortized under the provisions of this standard. Intangible assets with definite lives will continue to be

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amortized over their estimated useful life. The standard also requires that an impairment test be performed to support the carrying value of goodwill and indefinite lived intangible assets at least annually.

        The Company completed the first of the required impairment tests of goodwill and indefinite lived intangible assets in the first quarter of 2002. The Company utilized an independent appraisal as part of its evaluation process. The Company has reviewed its business and determined that four reporting units be reviewed for impairment in accordance with the standard. The four reporting units are New York Equipment and Telecommunications Equipment, which comprise the process equipment operating segment, and Atomic Force Microscope ("AFM") and Optical, which comprise the metrology operating segment. Based upon the independent appraisal and the judgment of management, it was determined that there is no impairment to goodwill or intangibles with definite lives as of January 1, 2002.

        The following table outlines the components of goodwill and intangible assets by business segment at June 30, 2002 after the adoption of the standard, in thousands:

        Net income for the three and six months ended June 30, 2001, includes approximately $0.4 million and $0.8 million of goodwill amortization expense, respectively. Excluding these amounts would have resulted in net income per common share and diluted net income per common share of $0.42 and $0.41, and $0.96 and $0.94, respectively for the three and six months ended June 30, 2001.

        In January 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a Disposal of a Segment of a Business. Adoption of this Statement did not have an impact on the Company's consolidated financial position or results of operations.

Note 6—Recent Events

Restructuring

        During the six months ended June 30, 2002, the Company incurred a restructuring charge of approximately $1.9 million related to the reduction in work force announced in both the fourth quarter of 2001 and the first quarter of 2002. Of this amount, approximately $1.1 million was recorded in the second quarter of 2002. The $1.9 million charge includes severance related costs for approximately 90 employees which included both management and manufacturing employees located at each of the Company's process equipment operations, as well as at the Company's Minnesota metrology facility. As of June 30, 2002, approximately $0.7 million has been expended and approximately $1.2 million remains accrued, which is expected to be paid during the next six months.

        During the year ended December 31, 2001, the Company recorded restructuring charges of approximately $20.0 million in response to the significant downturn in the telecommunications industry and the overall weak business environment. These charges consisted of a $13.6 million write-off of inventory related to order cancellations and the rationalization of certain product lines, $3.0 million

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related to personnel and business relocation costs and $3.4 million related to the write-down of long-lived assets. The $3.0 million charge for personnel and business relocation costs principally related to plant consolidations and a workforce reduction of approximately 230 employees, which included both management and manufacturing employees located in all operations of the Company. As of June 30, 2002, approximately $2.2 million of the $3.0 million charge for relocation and termination benefits has been paid and approximately $0.8 million remains accrued. Of the $0.8 million, $0.3 million relates to rental payments on a lease agreement for space that the Company has vacated and will be paid over the next four years.

Discontinued Operations

        In May 2002, the Company sold the remainder of its industrial measurement business. During the six months ended June 30, 2002, the Company recorded an additional loss on the disposal of the discontinued operations of $0.3 million, net of taxes of approximately $0.2 million.

Note 7—Subsequent Events

        On July 11, 2002, the Company signed a definitive merger agreement with FEI Company ("FEI"), of Hillsboro, Oregon. Under the terms of the agreement, FEI shareholders will receive 1.355 shares of Veeco common stock for each share of FEI common stock outstanding. Based upon FEI's approximately 32 million shares outstanding, the FEI shareholders will receive approximately 44 million Veeco shares. The merger, which will be accounted for under the purchase method, is expected to close in the fourth quarter of 2002, subject to the approval of shareholders of both companies, certain regulatory approvals and other customary closing conditions. Upon consummation of the merger, FEI will become a wholly-owned subsidiary of Veeco, and Veeco will be renamed Veeco FEI Inc. FEI designs, manufactures, markets and services products based on focused charged particle beam technology. FEI's products include transmission electron microscopes (TEM), scanning electron microscopes (SEM), focused ion-beam systems (FIBs) and DualBeam systems that combine a FIB column and a SEM column on a single platform. FEI also designs, manufactures and sells certain components of electron microscopes and FIBs to other manufacturers.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations.

Three Months Ended June 30, 2002 and 2001

        Net sales of $77.3 million for the three months ended June 30, 2002, represent a decrease of $34.8 million, or 31%, from the 2001 comparable period sales of $112.1 million, resulting principally from a decrease in sales of process equipment products. Sales in the U.S., Europe, Japan and Asia Pacific, accounted for 36%, 21%, 18% and 25%, respectively, of the Company's net sales for the three months ended June 30, 2002. Sales in the U.S. decreased 56% from the comparable 2001 period due to a 67% decline in U.S. process equipment sales, particularly for sales of optical filter deposition products to the telecommunications industry, as well as a 27% decrease in U.S. metrology sales. Sales in Europe and Asia Pacific increased 32% and 81%, respectively. The increase in Europe is principally a result of $3.7 million of sales of molecular beam epitaxy (MBE) equipment produced by Veeco's Applied Epi subsidiary, which was acquired by the Company in September 2001. The increase in Asia Pacific is principally a result of an increase in etch and deposition equipment sales to the data storage industry, as well as an increase of $6.5 million in sales of optical metrology products. Sales in Japan decreased 49% from the 2001 comparable period, due primarily to declines in sales in both etch and deposition and optical filter deposition products. The Company believes that there will continue to be quarter-to-quarter variations in the geographic concentration of sales.

        Process equipment sales of $36.9 million for the three months ended June 30, 2002, decreased by $36.3 million, or 50%, from the comparable 2001 period. The decrease in process equipment sales has resulted from a decline in sales of optical filter deposition equipment to the telecommunications industry, as well as a decrease in sales to the data storage industry. Metrology sales of $40.4 million for the three months ended June 30, 2002, increased slightly (4%) from the comparable prior period sales of $38.9 million.

        Veeco received $78.2 million of orders during the three months ended June 30, 2002, a 3% decrease compared to $80.3 million of orders for the comparable 2001 period. Process equipment orders decreased 8% to $37.1 million, due to a decline in orders from optical telecommunications and data storage customers. Veeco's Ion Tech subsidiary had a decrease of $2.3 million, or 25%, in orders from the comparable 2001 period. Etch and deposition equipment orders decreased 19% to $25.2 million from $31.2 million for the comparable 2001 period. Metrology orders increased slightly (2%) to $41.1 million. The Company's book/bill ratio for the second quarter of 2002 was 1.01.

        The order and sales declines are a result of the general economic slowdown that has had a very significant impact on the telecommunications, data storage and semiconductor markets that the Company serves.

        The Company's backlog generally consists of product orders for which a purchase order has been received and which are scheduled for shipment within twelve months. Veeco schedules production of its systems based on order backlog and customer commitments. Because certain of the Company's orders require products to be shipped in the same quarter in which the order was received, and due to possible changes in delivery schedules, cancellations of orders and delays in shipment, the Company does not believe that the level of backlog at any point in time is an accurate indicator of the Company's future performance. Due to the current weak business environment, the Company may experience cancellation and/or rescheduling of orders.

        Gross profit, as a percentage of net sales decreased to 45.5%, for the second quarter of 2002, from 47.4% for the comparable 2001 period. The decline is attributable to the decrease in sales volume of process equipment products.

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        Selling, general and administrative expenses of $19.3 million for the three months ended June 30, 2002, decreased by approximately $1.4 million from the 2001 comparable period due principally to cost reductions implemented by the Company in the fourth quarter of 2001 and the first quarter of 2002, as well as a decrease in selling and commission expenses as a result of the decreased sales volume. The decrease is partially offset by the selling, general and administrative expenses of Veeco's Applied Epi and TM Microscopes ("TM") subsidiaries, which were acquired in the third quarter of 2001, and thus had no comparable spending in the second quarter of 2001.

        Research and development expenses of $13.9 million for the three months ended June 30, 2002, decreased by approximately $0.9 million, or 6%, from the comparable period of 2001, due primarily to cost reduction efforts implemented by the Company in the fourth quarter of 2001 and the first quarter of 2002.

        Amortization expense totaled $3.2 million in the three months ended June 30, 2002 compared with $0.9 million in 2001. The increase is due primarily to the intangible assets acquired in connection with the acquisitions of Applied Epi and TM, offset in part by $0.4 million of reduced amortization expense related to the accounting requirement to no longer amortize goodwill, effective January 1, 2002, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill is to be reviewed annually for impairment. As of January 1, 2002, no impairment exists.

        During the three months ended June 30, 2002, the Company recorded a restructuring charge of $1.1 million. This charge includes severance related costs for approximately 30 employees, which included both management and manufacturing employees, located in each of the Company's process equipment group and the Minnesota metrology facility. As of June 30, 2002, approximately $0.2 million has been expended and approximately $0.9 million remains accrued.

        Other (income) expense, net, for the three months ended June 30, 2002, decreased $0.5 million from the comparable 2001 period due to the decrease in foreign currency exchange losses.

        Interest expense, net, of $1.5 million for the three months ended June 30, 2002 increased $1.9 million from the comparable 2001 period as a direct result of the issuance of $220.0 million of 4.125% convertible subordinated notes, which occurred in December 2001 and January 2002.

        Income taxes for the three months ended June 30, 2002, amounted to a $1.9 million income tax benefit, or 53% of loss before income taxes, as compared to a $5.4 million income tax provision, or 34% of income before income taxes, for the same period of 2001. The higher than statutory effective benefit rate of 53% in 2002 is a result of the impact of R&D tax credits along with foreign tax benefits.

        Quarterly information for the three months ended June 30, 2001, has been restated from that previously filed on the Quarterly Report on Form 10-Q for such period, due to the required accounting to reflect the discontinued operations of the Company's industrial measurement segment, which was recorded in the quarter ended December 31, 2001.

Six Months Ended June 30, 2002 and 2001

        Net sales were $157.5 million for the six months ended June 30, 2002, representing a decrease of approximately $80.0 million, or 34%, from the comparable 2001 period. The decrease is primarily a result of a decrease in process equipment sales. Sales in the U.S., Europe, Japan and Asia Pacific accounted for 46%, 17%, 17% and 20%, respectively, of the Company's net sales for the six months ended June 30, 2002. Sales in the U.S. decreased by 47%, principally as a result of decreased process equipment sales of optical filter deposition products to the telecommunications industry, as well as a decline in sales to the data storage industry. Metrology sales also decreased, primarily as a result of a decline in sales to customers in the semiconductor industry. Sales in Europe remained relatively flat when compared to the comparable 2001 period. Sales in Japan decreased by 49%, primarily as a result of decreases in process equipment sales, as well as decreased metrology sales from the comparable

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2001 period. Asia Pacific sales increased by 45% principally as a result of a 78% increase in process equipment sales, primarily from sales of etch and deposition equipment to data storage customers. Metrology sales for Asia Pacific also increased by 32% from the prior period, as a result of increased sales of optical metrology products.

        Process equipment sales were $81.8 million for the six months ended June 30, 2002, a decrease of approximately $71.8 million, or 47%, from the comparable 2001 period. The decrease is primarily due to a decrease in process equipment sales of $89.3 million to the telecommunications and data storage industries, offset in part by sales of $17.5 million of MBE equipment produced by Veeco's Applied Epi subsidiary. Metrology sales for the six months ended June 30, 2002, were $75.7 million, a decrease of approximately $8.2 million, or 10%, compared to the comparable 2001 period, reflecting a 9% drop in sales of AFMs and a 13% decline in optical metrology sales.

        Veeco received $148.5 million of orders for the six months ended June 30, 2002, a 22% decrease compared to $190.5 million of orders in the comparable 2001 period. Process equipment orders decreased 33% to $75.6 million, principally reflecting decreases in both telecommunications and data storage orders. Metrology orders decreased 6% to $72.9 million, reflecting a decrease in AFM orders. The book/bill ratio for the six months ended June 30, 2002 was 0.94.

        Gross profit for the six months ended June 30, 2002, as a percentage of net sales decreased to 43.8%, from 47.1% for the comparable 2001 period. The decline from the prior period is primarily attributable to the volume decrease in process equipment sales, in particular optical filter deposition products to the telecommunications industry.

        Selling, general and administrative expenses of $38.4 million for the six months ended June 30, 2002, represent a decrease of approximately $3.5 million, or 8%, from the comparable 2001 period, due principally to a decrease in selling and commission expense in response to the decreased sales volume, as well as cost reduction efforts implemented by the Company in the fourth quarter of 2001 and the first quarter of 2002. The decrease is partially offset by the selling, general and administrative expenses of Applied Epi and TM subsidiaries, which were acquired by the Company in the third quarter of 2001, and thus had no comparable spending in the first six months of 2001.

        Research and development expenses of $27.3 million for the six months ended June 30, 2002, represent a decrease of approximately $2.7 million, or 9%, from the comparable period of 2001, as a result of the cost reduction efforts implemented by the Company in the fourth quarter of 2001 and the first quarter of 2002.

        During the six months ended June 30, 2002, the Company incurred restructuring charges of $1.9 million in connection with a reduction in work force announced in the fourth quarter of 2001 and the first quarter of 2002. This charge includes severance related costs for approximately 90 employees which included both management and manufacturing employees located at each of the Company's process equipment operations and Minnesota metrology facility. As of June 30, 2002, approximately $0.7 million has been expended and approximately $1.2 million remains accrued. During the year ended December 31, 2001, the Company recorded restructuring charges of approximately $20.0 million in response to the significant downturn in the telecommunications industry and the overall weak business environment. These charges consisted of a $13.6 million write-off of inventory related to order cancellations and the rationalization of certain product lines, $3.0 million related to personnel and business relocation costs and $3.4 million related to the write-down of long-lived assets. The $3.0 million charge for personnel and business relocation costs principally related to plant consolidations and a workforce reduction of approximately 230 employees, which included both management and manufacturing employees located in all operations of the Company. As of June 30, 2002, approximately $2.2 million of the $3.0 million charge for relocation and termination benefits has been paid and approximately $0.8 million remains accrued.

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        Amortization expense totaled $6.9 million in the six months ended June 30, 2002 compared with $2.3 million in 2001 period, due to the acquisition of intangible assets discussed in the three-month results. This amount is offset in part by $0.8 million of reduced amortization expense related to the accounting requirement to no longer amortize goodwill, effective January 1, 2002, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill is to be reviewed annually for impairment. As of January 1, 2002, no impairment exists.

        Other (income) expense, net, for the six months ended June 30, 2002, decreased $1.9 million from the comparable 2001 period due to the foreign currency exchange losses experienced in the first quarter of 2001, which did not occur in 2002.

        Interest expense, net, of $3.0 million for the six months ended June 30, 2002, increased $4.1 million from the comparable 2001 period as a direct result of the issuance of $220.0&nbs