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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ý  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002
OR

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                           .

Commission file number 0-16244

VEECO INSTRUMENTS INC.
(Registrant)

        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  ý  No  o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Registration S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by references in Part III of this Form 10-K or any amendment to this Form 10-K.  ý

        Indicate by check mark if the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)  Yes  ý  No  o

        The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Common Stock on June 28, 2002 as reported on The Nasdaq National Market, was approximately $484,218,000. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded from this computation in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

        At March 20, 2003, the Registrant had 29,225,051 outstanding shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 9, 2003 are incorporated by reference into Part III of this Annual Report on Form 10-K.

SAFE HARBOR STATEMENT

        This Annual Report on Form 10-K (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 1, 3, 7 and 7A 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:

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the dependence on principal customers and the cyclical nature of the data storage, telecommunications/wireless, semiconductor, research and industrial industries,



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rapid technological change and risks associated with the acceptance of new products by individual customers and by the marketplace,



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fluctuations in quarterly operating results,



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risk of cancellation or rescheduling of orders,



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risks associated with evaluating and pursuing acquisition opportunities and integrating acquired businesses into our business,



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loss of key management or our inability to attract and retain sufficient numbers of managerial, engineering and other technical persons,



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the highly competitive nature of industries in which the Company operates,



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changes in foreign currency exchange rates, and



•

matters set forth in this Report generally, including the risk factors set forth in "Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations".

        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.

Available Information

        We file annual, quarterly and current reports, information statements and other information with the Securities and Exchange Commission (the "SEC"). The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

Internet Address

        We maintain a website where additional information concerning our business and various upcoming events can be found. The address of our website is www.veeco.com. We provide a link on our website, under Investors—Financial Info—SEC Filings, through which investors can access our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports. These filings are posted to our internet as soon as reasonably practicable after we electronically file such material with the SEC.

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Item 1. Business.

The Company

        Veeco Instruments Inc. (together with its consolidated subsidiaries, "Veeco", the "Company" or "we") designs, manufactures, markets and services a broad line of equipment primarily used by manufacturers in the data storage, semiconductor and telecommunications/wireless industries. These industries help create a wide range of information age products such as computer integrated circuits, personal computers, hard disk drives, network servers, fiber optic networks, digital cameras, wireless phones, TV set-top boxes and personal digital assistants. Our broad line of products featuring leading edge technology allows customers to improve time to market of next generation products. Veeco's products are also enabling advancements in the growing field of nanoscience and other areas of scientific and industrial research.

        Our process equipment products precisely deposit or remove (etch) various materials in the manufacturing of advanced thin film magnetic heads (TFMHs) for the data storage industry, semiconductor deposition of mask reticles, and telecommunications/ wireless devices. Our metrology equipment is used to provide critical surface measurements on semiconductor devices and TFMHs. This equipment allows customers to monitor their products throughout the manufacturing process in order to improve yields, reduce costs and improve product quality. Our metrology solutions are also key instruments used by many universities, scientific laboratories and industrial applications.

        Demand for our products has been driven by the increasing miniaturization of microelectronic components; the need for manufacturers to meet reduced time-to-market schedules while ensuring the quality of those components; and, in the data storage industry, the introduction of giant magnetoresistive (GMR) and tunneling magnetoresisitve (TMR) TFMHs which require additional manufacturing steps and the ability to conduct critical measurements for quality control and other purposes during the manufacturing process. The ability of Veeco's products to precisely deposit thin films, and/or etch sub-micron patterns and make critical surface measurements in these components enables manufacturers to improve yields and quality in the fabrication of advanced microelectronic devices.

        Veeco serves its worldwide customers through our global sales and service organization located throughout the United States, Europe, Japan and Asia Pacific. At December 31, 2002, Veeco had 1,067 employees, with manufacturing, research and development and engineering facilities located in New York, California, Minnesota, Colorado and Arizona.

        Veeco was organized as a Delaware corporation in 1989.

Our Strategy

        Veeco's strategy is to:

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Capitalize on the long-term growth opportunities in the data storage and telecommunications/wireless industries by expanding process equipment and metrology solutions;



•

Pursue focused market opportunities in the semiconductor industry in which Veeco has specific technology leadership;



•

Pursue market opportunities in scientific research and capitalize on the growing worldwide investment in nanoscience and nanotechnology through the sale of Veeco's enabling metrology instruments;



•

Pursue internal growth, as well as strategic acquisitions and, where appropriate, to further expand the Company's breadth of product line;

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•

Leverage Veeco's technology and strategic customer relationships and assist customers' time to market for their new products;



•

Utilize the Company's industry-leading global sales and service network to further strengthen customer relationships.

Recent Events

        In October 2002, the Company announced a plan designed to reduce its operating costs by approximately $24.0 million in 2003. The plan included layoffs of approximately 20% of its employees, primarily in the process equipment group, and the closure of certain facilities. As a result of these actions and due to the continued weakness in the Company's served markets and the uncertainty of their recovery, Veeco recorded a $124.0 million charge in the fourth quarter of 2002. The charge consisted of a $15.0 million write-off of inventory (included in cost of sales) in the process equipment group for the rationalization and discontinuance of certain product lines; $2.6 million of severance and business relocation costs as a result of the workforce reduction and consolidation or elimination of certain facilities; $6.4 million of costs related to the proposed merger with FEI Company ("FEI") (including investment banking, legal, accounting and other expenses related to the terminated merger agreement); $0.3 million for a prepayment penalty on the early extinguishment of debt; and $99.7 million in asset impairment charges, primarily in the process equipment group. The asset impairment charge includes $94.4 million of impairment to goodwill, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142. The Company concluded that the goodwill arising from the acquisition of Applied Epi, Inc. ("Applied Epi"), which took place in September 2001, was significantly impaired due to the severe and continued weakness in the telecommunications/wireless industry and the uncertainty of its recovery. In addition to the goodwill impairment, asset impairment charges also included $3.5 million for the impairment of two buildings (CVC, Inc. ("CVC") and Ion Tech, Inc. ("Ion Tech") facilities) and $1.8 million for the impairment of other fixed assets due primarily to the closing of these facilities.

        On January 9, 2003, the Company and FEI jointly announced the mutual termination of their merger agreement that was entered into on July 11, 2002. Veeco and FEI mutually determined not to proceed with the merger due to the difficult overall market and economic conditions, and the uncertain timing of an industry recovery.

Industry Background

        General Introduction:    The market for microelectronic components continues to be driven by corporate and consumer use of information age products such as networked personal computers (PCs), servers and the Internet, among others. While the Company believes that the PC and server markets are the primary driver of disk drive unit growth, disk drives are also increasingly being used for emerging applications such as television set-top boxes, video-on-demand systems, and small electronic devices such as digital cameras and personal digital assistants.

        Continued demand for smaller, faster and less expensive microelectronic components, particularly in the computer industry, has led to increasing miniaturization. This increasing miniaturization is achieved through an increased number of manufacturing steps involving greater use of precise etching and deposition equipment. In addition, metrology systems are used throughout the manufacturing process in order to monitor process accuracy, product quality, repeatability and to measure critical dimensions and other physical features such as film thickness, line width, step height, sidewall angle and surface roughness, thereby improving yields. Telecommunications/wireless components, semiconductor devices, TFMHs and other electronic components often consist of many intricate patterns on circuits or film layers. Depending upon the specific design of any given integrated circuit, a

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variety of film thicknesses and a number of layers and film types will be used to achieve desired performance characteristics.

        Trends in the Data Storage Industry:    In order to satisfy market demand for devices with greater storage capacity, the data storage industry developed new head designs incorporating higher areal densities which enable storage of more data. The capacity of disk drives is largely determined by the capability of the magnetic recording heads, which read and write signals onto hard disks. In November 2002, Peripheral Research forecasted that GMR head production will grow from approximately 730 million heads in 2001 to 750 million heads in 2005. In November 2002, Gartner Dataquest forecasted that the volume shipments of hard drives will increase from 200 million units in 2001 to over 250 million units by 2006. The Company believes that despite capital spending constraints within the data storage industry, substantial investment continues to be made in GMR and more advanced technology. In 2003, Veeco intends to introduce several new Process Equipment products to respond to the data storage industry's continued technology advances.

        Trends in the Semiconductor Industry:    Current semiconductor industry technology trends include smaller feature sizes (sub-0.13 micron line widths), larger substrates (i.e., the transition to 300mm wafers) and the increased use of metrology in the manufacturing process. In fact, according to VLSI the percentage of capital expenditures being devoted to metrology tools by semiconductor manufacturers is the fastest growing part of the equipment business and VLSI forecasts that these expenditures will increase from approximately $1.8 billion in 2002 (or 10% of the $17.3 million wafer fab equipment market) to approximately $4.5 billion in 2005 (or 12% of the $37.1 billion wafer fab equipment market). Semiconductor manufacturers use metrology tools in their wafer fabrication facilities to detect process deviations as early in the manufacturing process as possible. These tools are critical for yield enhancement resulting in cost reduction in this increasingly competitive environment. Veeco has sold over 100 automated Atomic Force Microscope (AFM) systems to be used in-line by manufacturers of semiconductor chips in their fabrication facilities.

        Another trend in the semiconductor industry is that research and development expenditures by semiconductor companies and photomask manufacturers are increasing to extend the capabilities of photomasks, which are used to create intricate patterns on semiconductor wafers. One example of this is the investment being made to develop extreme ultraviolet processes to be used in the manufacturing of photomasks. Veeco has created metrology and selected process equipment products to respond to these industry trends, including our Dimension X3D AFM for photomask metrology and our NEXUS Low Defect Density (LDD) ion beam deposition (IBD) system for advanced photomask deposition.

        Trends in the Research Industry:    A meaningful trend in the research industry is the growth in nanotechnology investment occurring at the scientific and university level. Nanotechnology is a field of science whose goal is to control individual atoms and molecules to potentially create computer chips and other devices that are thousands of times smaller than current technologies permit. Nanoscience and nanotechnology have received significant funding from the U.S. and other countries, and are beginning to impact many industries, including life sciences, data storage, semiconductor, telecommunications and materials sciences. According to the National Nanotechnology Institute (NNI) (1/03) worldwide nanotechnology funding has increased from approximately $400 million in 1997 to over $2 billion in 2002. Evolution Capital, an industry research company based in the United Kingdom, forecasted in 2002 that nanotechnology would grow to be a $1.5 trillion industry by 2010. Veeco's metrology instruments are used by nanotechnology researchers and Veeco currently sells to nearly every major scientific or research organization engaged in the field of nanotechnology. In 2002 Veeco introduced several new AFMs and Scanning Probe microscopes (SPMs) to respond to the growing need for specialized scientific research metrology tools and intends to introduce additional AFM and SPM products in 2003.

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        Trends in the Telecommunications/Wireless Industry:    Beginning in 2001 and continuing through 2002, the telecommunications industry underwent a severe downturn caused by industry overcapacity, overly aggressive manufacturing ramps by device manufacturers, and a glut of optical components. Despite this downturn, Veeco continued to broaden its equipment solutions to this industry, expanding more into the wireless/active device segment. In September 2001 Veeco purchased Applied Epi, a leading supplier of MBE technology to the wireless device industry. Applied Epi's equipment is used to manufacture wireless devices such as power amplifiers, application specific integrated circuits (ASICs) for cell phones, PDAs and base stations. According to Micrologic Research, the worldwide wireless chip equipment market is forecasted to grow from approximately $20 billion in 2001 to over $40 billion in 2005. The Company believes that future growth in this industry will be tied to the trend toward convergence and integration of semiconductor, telecommunications and wireless devices to produce cheaper, faster integrated components. Despite the ongoing slump in the telecommunications/wireless market in 2002, Veeco has continued to receive technology buys from worldwide customers for R&D applications.

Veeco's Products

        Veeco offers two principal product lines: process equipment and metrology. Veeco divested its leak detection business in January 2000, and its remaining industrial measurement business (NeXray) in May 2002. Historical contribution to net sales by each of these product lines is shown below for the years indicated:

        See Note 8 to the Consolidated Financial Statements of the Company for additional information regarding the Company's reportable segments and sales by geographic location.

        Below is a matrix indicating the markets Veeco's Process Equipment and Metrology product families are primarily sold to:

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Process Equipment

        Veeco produces and sells several types of process equipment able to precisely deposit or etch thin film products used in the manufacture of telecommunications components such as filters and lasers, data storage components such as TFMHs and specialty semiconductors such as GaAs (gallium arsenide) devices and MRAM (magnetic random access memory). Veeco's process equipment product line includes:

        Ion Beam Deposition (IBD) Systems:    Veeco's IBD systems utilize an ion beam to deposit precise layers of thin films and may be mated to Veeco's cluster system platform to allow either parallel or sequential etch/deposition processes. Ion beam deposition systems deposit high purity thin film layers and provide maximum uniformity and repeatability.

        Ion Beam Etch (IBE) Systems:    Veeco develops and produces ion beam etch systems which etch precise, complex features for use primarily by data storage and telecommunications device manufacturers in the fabrication of discrete and integrated microelectronic devices.

        Physical Vapor Deposition (PVD) Systems:    Veeco believes that its PVD system, which deposits greater than 20 types of materials, offer manufacturers the most flexible platform for developing next-generation data storage applications. The NEXUS PVD provides multiple targets, speeding the transition from development to high-volume production.

        Molecular Beam Epitaxy (MBE) Systems:    MBE is the process of precisely depositing epitaxially aligned atomically thin crystal layers, or epilayers, of elemental materials onto a substrate in an ultra-high vacuum environment. For many compound semiconductors, MBE is the critical first step of the fabrication process, ultimately determining device functionality and performance. The performance characteristics of compound semiconductors are dependent on the crystalline structure, chemical composition, number, and precise thickness of the epilayers. As a result, MBE is considered to be one of the highest value added steps in the production of compound semiconductors. Veeco provides a broad array of MBE components and systems.

        Diamond-Like Carbon (DLC) Deposition Systems:    Veeco's DLC deposition system deposits protective coatings on advanced TFMHs. The system consists of a single cassette vacuum loadlock and a high vacuum processing chamber with two ion beam sources.

Metrology

        Veeco's surface metrology product line includes atomic force/scanning probe microscopes, optical metrology tools and stylus profilers. These products offer a broad range of solutions to customers in the data storage and semiconductor industries, as well as versatile tools for use by research and development centers and universities.

Atomic Force/Scanning Probe Microscopes (AFM/SPMs)

        Veeco produces a broad range of AFM/SPM products designed for data storage, semiconductor, and research and other industrial applications. Veeco's Series Vx™ Atomic Force Profiler delivers a combination of atomic force resolution with long-scan capability, which is ideal for monitoring specific thin film process applications in semiconductor manufacturing and specific growth applications in semiconductor metrology, such as Chemical Mechanical Planarization (CMP). The Vx-330 has been sold into all major semiconductor fabs and is an award-winning tool (Semiconductor International Magazine 2001), and in 2002 Veeco introduced a next-generation 3D AFM for lithography applications. Veeco's NanoScope products are widely used by leading nanotechnology research centers worldwide. In 2002, Veeco introduced several new products, including the NanoMan and PicoForce systems, designed specifically for the nanoscience market.

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        The atomic force microscope "feels" the sample surface directly using a probe consisting of a very sharp tip mounted on a microscopic spring arm (a cantilever). The interaction of the probe with the surface is detected by measuring deflections of the cantilever with an optical beam system. AFMs permit resolution at the molecular level. Veeco developed some of the first AFMs used in commercial applications and most of the SPMs manufactured and sold by Veeco are AFMs. SPMs, and particularly AFMs, can directly measure both lateral and vertical shapes with nanometer resolution and with direct 3D capability. In contrast, light-based metrology instruments, including confocal microscopes, have limited lateral resolution for measurements of less than half the wavelength of light, or less than about 250 nanometers. In addition to topography, AFMs can also directly measure magnetic field (such as magnetic bits on a hard disk); electric field; hardness (such as thin film integrity); electric charge density (such as dopant concentrations in semiconductors); temperature (such as temperature distribution in disk drive recording head elements); and various chemical properties (such as the difference in binding preference among biological molecules). AFMs make these measurements on almost any surface; in air, vacuum or under fluids; and with minimal sample preparation.

Stylus Profilers

        Stylus profilers are used to produce cross-sectional representations and/or quantitative measurements, which are displayed on a video monitor. Veeco's stylus profiler systems utilize a precision translation stage which creates relative motion between the sample and a diamond tipped stylus. As the sample moves under the stylus, surface variations cause vertical translation of the stylus, which is tracked and measured. Stylus profilers are widely used for height, width, pitch and roughness measurements of features on semiconductor devices, magnetic and optical storage media (e.g., hard drives), flat panel displays and hybrid circuits. Veeco believes that its stylus profiler products are recognized for their accuracy, repeatability, ease of use and technology features, and are designed to meet a range of industry specifications and customer requirements.

Optical Metrology (Interferometry) Products

        Substantially all of Veeco's optical metrology instruments are designed to make non-contact surface measurements using interferometry technology. This process involves the use of either white light or laser sources to measure surface roughness and shape by creating interference patterns from the optical path difference between the test surface and a reference surface. Using a combination of phase shifting interferometry (PSI) and vertical scanning interferometry (VSI), these instruments are designed to rapidly and precisely measure and characterize a range of surface sizes and shapes. Veeco's major optical products include the NT family and SP3000 and the HD-Series optical profilers. The NT family product line measures surface roughness, heights and shapes. The HD-Series instruments are a line of microstructure measurement equipment used by manufacturers of mass memory components including manufacturers of TFMHs, disks, drives and suspensions. HD-Series instruments are used for research and development, production control, process improvement, incoming parts inspection, final parts inspection and field failure analysis.

Service and Sales

        Veeco recognizes that its customer service organization is a significant factor in the Company's success. The Company provides service and support on a warranty, service contract or an individual service-call basis. Veeco also offers enhanced warranty coverage and services, including preventative maintenance plans, on-call and on-site service plans and other comprehensive service arrangements, product and application training, consultation services and a 24-hour hotline service for certain products. The Company believes that offering 24 hour, 7 day per week worldwide support creates stronger relationships with customers and provides a significant competitive advantage. Approximately

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5.9% of Veeco's net sales for the year ended December 31, 2002 constituted revenues from service and support.

        Veeco sells its products worldwide through various strategically located sales and service facilities located in the U.S., Europe, Asia Pacific, and Japan. As of December 31, 2002, Veeco employed 139 sales and marketing representatives, 150 field service representatives and 98 product support representatives. During the years ended December 31, 2002 and 2001, Veeco recorded approximately $5.6 million and $30.6 million in revenues from independent representatives, respectively, which represented approximately 2% and 7% of total consolidated revenues, respectively. During 2002 and 2001, revenues related to the sale of process equipment's units approximated $1.7 million and $18.4 million, respectively, and revenues related to the sale of metrology's units approximated $3.9 million and $12.2 million, respectively.

Customers

        Veeco sells its products to many of the world's major data storage, semiconductor and telecommunications/wireless component manufacturers, and to customers in other industries, research centers and universities. For the year ended December 31, 2002, 40% of Veeco's sales were to scientific research and industrial customers, 32% to data storage customers, 15% to telecommunications/wireless, and 13% to semiconductor customers. We rely on certain principal customers for a significant portion of our sales including Seagate Technology, Inc., which has been one of our largest customers during the last three years. Sales to Seagate accounted for 13%, 7%, and 18% of Veeco's total net sales in the years ended December 31, 2002, 2001, and 2000, respectively. If any principal customer discontinues its relationship with us or suffers economic setbacks, our business, prospects, financial condition and operating results could be materially and adversely affected.

Research and Development

        Veeco believes that continued and timely development of new products and enhancements to existing products are necessary to maintain its competitive position. Veeco works collaboratively with its customers to help ensure its technology and product roadmaps are aligned with customer requirements. Veeco's research and development programs are organized by product line; new products have been introduced into each of Veeco's product lines in each of the past three years.

        Veeco's research and development expenses were approximately $53.9 million, $59.7 million and $51.2 million, or approximately 18.0%, 13.3% and 13.6% of net sales, for the years ended December 31, 2002, 2001 and 2000, respectively. These expenses consisted primarily of salaries, project material and other product development and enhancement costs.

Manufacturing

        The Company's principal manufacturing activities, which consist principally of design, assembly, integration and test operations, are organized by product and take place at our facilities in Plainview, New York, Santa Barbara, California, Sunnyvale, California, Tucson, Arizona, Ft. Collins, Colorado, and St. Paul, Minnesota.

        The Company's manufacturing and research and development functions are organized by product families. The Company believes that this organizational structure allows each product family manager to more closely monitor the products for which he is responsible, resulting in more efficient sales, marketing, manufacturing and research and development. The Company seeks to emphasize customer responsiveness, customer service, high quality products and a more interactive management style. By implementing these management philosophies, the Company believes that it has increased its competitiveness and positioned itself for future growth.

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        Certain of the components and sub-assemblies included in the Company's products are obtained from a single source or a limited group of suppliers. Although the Company does not believe it is dependent upon any of these suppliers as a sole source or limited source for any critical components, the inability of the Company to develop alternative sources, if required, an inability to meet a demand, a prolonged interruption in supply or a significant increase in the price of one or more components could adversely affect the Company's operating results.

Backlog

        Veeco's backlog decreased from $122.0 million at December 31, 2001 to $89.1 million at December 31, 2002. Backlog adjustments for 2002 included order cancellations of $20.9 million. 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 continue to experience cancellation and/or rescheduling of orders.

Competition

        In each of the markets that it serves, Veeco faces substantial competition from established competitors, some of which have greater financial, engineering, manufacturing and marketing resources than Veeco. In addition, many of Veeco's products face competition from alternative technologies, some of which are more established than those used in Veeco products. Significant factors for customer selection of metrology and process equipment tools include system performance, accuracy, repeatability, ease of use, reliability, cost of ownership, and technical service and support. Veeco believes it competes favorably on the basis of these factors in each market Veeco serves. None of Veeco's competitors competes with Veeco across all of Veeco's product lines.

        Veeco competes with metrology product manufacturers such as KLA-Tencor, Seiko, Hitachi, Zygo Corporation and a variety of small manufacturers. Veeco competes with process equipment manufacturers such as Anelva, Unaxis, Hitachi, Nordiko, Riber, and Oxford Instruments.

Intellectual Property

        Veeco's success depends in part on its proprietary technology. Although Veeco attempts to protect its intellectual property rights through patents, copyrights, trade secrets and other measures, there can be no assurance that Veeco will be able to protect its technology adequately or that competitors will not be able to develop similar technology independently. Veeco believes that there is no single patent which is material to its operations.

        Veeco has patents and exclusive and non-exclusive licenses to patents owned by others covering certain of its products, which Veeco believes provide it with a competitive advantage. Veeco has a policy of seeking patents on inventions concerning new products and improvements as part of its ongoing research, development and manufacturing activities. Veeco believes that there are no patents which are critical to its operations, and that the success of its business depends primarily on the technical expertise, innovation, and experience of its employees.

        Veeco also relies upon trade secret protection for its confidential and propriety information. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to Veeco's trade secrets or that Veeco can meaningfully protect its trade secrets. In addition, the Company cannot be certain that it will not be

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sued by third parties alleging that the Company has infringed their patents or other intellectual property rights. If any third party sues Veeco, the Company's business, results of operations or financial condition could be materially adversely affected.

        Following the merger with Digital Instruments, in September 1998, Veeco and IBM entered into a cross license agreement providing for the grant by Veeco to IBM and the grant by IBM to Veeco of the non-exclusive right to make, use and sell AFM/SPM products utilizing technology covered by certain patents held by Veeco and IBM, respectively. The agreement is scheduled to expire in August 2003, although, the Company expects to negotiate an extension of this agreement with IBM prior to that time.

Employees

        At December 31, 2002, the Company had 1,067 employees, of which there were 259 in manufacturing and testing, 139 in sales and marketing, 150 in service, 98 in product support, 260 in engineering, research and development, and 161 in information technology, general administration and finance. The success of the Company's future operations depends in large part on the Company's ability to recruit and retain engineers, technicians and other highly-skilled professionals who are in considerable demand. There can be no assurance that the Company will be successful in retaining or recruiting key personnel. The Company believes that its relations with its employees are good.

        Other than Edward H. Braun and John F. Rein, Jr., the Company's Chairman and Chief Executive Officer and the Company's Executive Vice President and Chief Financial Officer, respectively, the Company's executive officers are not, in general, subject to employment agreements or non-competition agreements with the Company.

Item 2.    Properties.

        The Company's headquarters office and its principal manufacturing, research and development and sales and service facilities, as well as the approximate size and the segments which utilize such facilities, are:

(1)

The land and building are classified as assets held for sale at December 31, 2002. See Note 7 to the Consolidated Financial Statements of the Company for further discussion.

(2)

The Company's optical metrology business utilizes approximately 75,000 square feet of this facility. The balance is available for expansion.

        The Santa Barbara and St. Paul facilities are subject to mortgages, which at December 31, 2002, had outstanding balances of, $6.3 million and $4.2 million, respectively. The Company also leases small

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offices in Chadds Ford, Pennsylvania and Edina, Minnesota, for sales and service. The Company's foreign subsidiaries lease space for use as sales and service centers in England, France, Germany, Ireland, Japan, Korea, Malaysia, Singapore, China and Taiwan. The Company believes its facilities are adequate to meet its current needs.

Item 3.    Legal Proceedings.

Environmental

        The Company may, under certain circumstances, be obligated to pay up to $250,000 in connection with the implementation of a comprehensive plan of environmental remediation at its Plainview, New York facility. The Company has been indemnified for any liabilities it may incur in excess of $250,000 with respect to any such remediation. No comprehensive plan has been required to date. Even without consideration of such indemnification, the Company does not believe that any material loss or expense is probable in connection with any remediation plan that may be proposed.

        The Company is aware that petroleum hydrocarbon contamination has been detected in the soil at the site of a facility leased by the Company in Santa Barbara, California. The Company has been indemnified for any liabilities it may incur which arise from environmental contamination at the site. Even without consideration of such indemnification, the Company does not believe that any material loss or expense is probable in connection with any such liabilities.

        The former owner of the land and building in which the Company's Santa Barbara, California metrology operations are located has disclosed that there are hazardous substances present in the ground under the building. Management believes that the comprehensive indemnification clause that is part of the purchase contract provides adequate protection against any environmental issues that may arise.

Non-Environmental

        On August 15, 2001, a lawsuit was commenced in the Superior Court of California, County of Santa Clara, by Toyo Corporation ("Toyo") against ThemoMicroscopes Corp. ("TM"), the Company, Thermo Spectra Corporation and Thermo Electron Corporation. The lawsuit related to a Distribution Agreement between Toyo and TM under which Toyo had been appointed the exclusive distributor for the sale of TM products in Japan. In the lawsuit, Toyo claimed, among other things, that TM breached the Distribution Agreement and that the Company, Thermo Spectra and Thermo Electron intentionally interfered with Toyo's contractual relationship with TM, in each case, by virtue of the sale of the outstanding shares of TM to the Company, which Toyo alleges constituted an assignment of the Distribution Agreement without Toyo's consent. In February 2003, the parties agreed in principle to settle the lawsuit, with the Company and Thermo Electron each making an equal payment to Toyo. The Company adequately provided for this liability in purchase accounting for the TM acquisition and thus the settlement of this lawsuit will not have an impact on the consolidated results of operations, nor will it have a material impact on the Company's consolidated balance sheet or its cash position. See Note 7 to the Consolidated Financial Statements of the Company for further discussion.

        The Company is involved in various other legal proceedings arising in the normal course of its business. Based upon the advice of counsel, the Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

Item 4.    Submission of Matters to a Vote of Security Holders.

        None.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

        The Company's Common Stock is quoted on The NASDAQ National Market under the symbol "VECO". The 2002 and 2001 high and low closing prices are as follows:

        On March 20, 2003, the closing price for the Company's Common Stock on the NASDAQ National Market was $17.34. As of March 20, 2003, the Company had approximately 211 shareholders of record.

        In December 2001 and January 2002, the Company issued $220.0 million of 4.125% convertible subordinated notes, which are due in 2008, in a private placement. The notes are convertible, at the option of the holder, at any time on or prior to maturity into shares of common stock at a conversion price of $38.51 per share. The Company pays interest on these notes on June 21 and December 21 of each year. The notes will mature on December 21, 2008. The total $220.0 million of convertible subordinated notes are convertible into approximately 5,712,800 shares of Veeco Common Stock, which number is subject to adjustment in the event of stock splits and certain other transactions.

        The Company has not paid dividends on the Common Stock. The Company intends to retain future earnings, if any, for the development of its business and, therefore, does not anticipate that the Board of Directors will declare or pay any dividends on the Common Stock in the foreseeable future. In addition, the provisions of the Company's current credit facility limits the Company's ability to pay dividends. The Board of Directors will determine future dividend policy based on the Company's consolidated results of operations, financial condition, capital requirements and other circumstances.

        The following table gives information about our Common Stock that may be issued under our equity compensation plans as of December 31, 2002. See Note 5 to the Consolidated Financial Statements included herein for information regarding the material features of these plans.

(A)

Includes 82,867 stock options assumed in connection with the acquisition of CVC on May 10, 2000, which merger was approved by stockholders.

(B)

Includes 387,514 stock options assumed in connection with the acquisition of Applied Epi, Inc. on September 17, 2001.

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Item 6. Selected Consolidated Financial Data.

        The financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Company's Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-K.

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