UNITED STATES
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 QUARTERLY PERIOD ENDED JUNE 30, 2003
Commission file number 0-16244
VEECO INSTRUMENTS INC.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
11-2989601 (I.R.S. Employer Identification Number) |
|
100 Sunnyside Blvd. Woodbury, NY (Address of principal executive offices) |
11797 (zip code) |
Registrant's
telephone number, including area code:
(516) 677-0200
Website: www.veeco.com
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 the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): Yes ý No o
29,258,577 shares of common stock, $0.01 par value per share, were outstanding as of the close of business on August 5, 2003.
This Quarterly Report on Form 10-Q (the "Report") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such forward-looking statements may be found in Items 2 and 3 hereof, as well as within this Report generally. In addition, when used in this Report, the words "believes," "anticipates," "expects," "estimates," "plans," "intends," and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. Factors that may cause these differences include, but are not limited to:
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 appear on our Internet website via links to the SEC site simultaneously to their filing.
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| |
|
Page |
||
|---|---|---|---|---|
| Part I. | Financial Information | |||
| Item 1. | Financial Statements (Unaudited): | |||
| Condensed Consolidated Statements of Operations—Three Months Ended June 30, 2003 and 2002 | 4 | |||
| Condensed Consolidated Statements of Operations—Six Months Ended June 30, 2003 and 2002 | 5 | |||
| Condensed Consolidated Balance Sheets—June 30, 2003 and December 31, 2002 | 6 | |||
| Condensed Consolidated Statements of Cash Flows—Six Months Ended June 30, 2003 and 2002 | 7 | |||
| Notes to Condensed Consolidated Financial Statements | 8 | |||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||
| Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 20 | ||
| Item 4. | Controls and Procedures | 21 | ||
| Part II. | Other Information | |||
| Item 4. | Submission of Matters to a Vote of Security Holders | 21 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 21 | ||
| SIGNATURES | 23 | |||
3
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| |
Three Months Ended June 30, |
|||||||
|---|---|---|---|---|---|---|---|---|
| |
2003 |
2002 |
||||||
| Net sales | $ | 73,449 | $ | 77,339 | ||||
| Cost of sales | 40,655 | 42,137 | ||||||
| Gross profit | 32,794 | 35,202 | ||||||
| Costs and expenses: | ||||||||
| Selling, general and administrative expense | 18,568 | 19,335 | ||||||
| Research and development expense | 11,039 | 13,928 | ||||||
| Amortization expense | 3,159 | 3,172 | ||||||
| Other income, net | (22 | ) | (285 | ) | ||||
| Restructuring expense | 789 | 1,050 | ||||||
| Operating loss | (739 | ) | (1,998 | ) | ||||
| Interest expense, net | 1,886 | 1,477 | ||||||
| Loss before income taxes | (2,625 | ) | (3,475 | ) | ||||
| Income tax benefit | (1,490 | ) | (1,856 | ) | ||||
| Net loss | $ | (1,135 | ) | $ | (1,619 | ) | ||
Loss per common share: |
||||||||
Net loss per common share |
$ |
(0.04 |
) |
$ |
(0.06 |
) |
||
| Diluted net loss per common share | $ | (0.04 | ) | $ | (0.06 | ) | ||
Weighted average shares outstanding |
29,247 |
29,083 |
||||||
| Diluted weighted average shares outstanding | 29,247 | 29,083 | ||||||
See Accompanying Notes.
4
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| |
Six Months Ended June 30, |
|||||||
|---|---|---|---|---|---|---|---|---|
| |
2003 |
2002 |
||||||
| Net sales | $ | 139,228 | $ | 157,488 | ||||
| Cost of sales | 75,228 | 88,551 | ||||||
| Gross profit | 64,000 | 68,937 | ||||||
| Costs and expenses: | ||||||||
| Selling, general and administrative expense | 36,153 | 38,372 | ||||||
| Research and development expense | 22,527 | 27,257 | ||||||
| Amortization expense | 6,301 | 6,919 | ||||||
| Other income, net | (895 | ) | (236 | ) | ||||
| Restructuring expense | 1,457 | 1,887 | ||||||
| Operating loss | (1,543 | ) | (5,262 | ) | ||||
| Interest expense, net | 3,653 | 2,963 | ||||||
| Loss from continuing operations before income taxes | (5,196 | ) | (8,225 | ) | ||||
| Income tax benefit | (2,364 | ) | (3,454 | ) | ||||
| Loss from continuing operations | (2,832 | ) | (4,771 | ) | ||||
| Loss on disposal of discontinued operations, net of taxes | — | (346 | ) | |||||
| Net loss | $ | (2,832 | ) | $ | (5,117 | ) | ||
Loss per common share: |
||||||||
Loss per common share from continuing operations |
$ |
(0.10 |
) |
$ |
(0.16 |
) |
||
| Loss from discontinued operations | — | (0.02 | ) | |||||
| Net loss per common share | $ | (0.10 | ) | $ | (0.18 | ) | ||
| Diluted loss per common share from continuing operations | $ | (0.10 | ) | $ | (0.16 | ) | ||
| Loss from discontinued operations | — | (0.02 | ) | |||||
| Diluted net loss per common share | $ | (0.10 | ) | $ | (0.18 | ) | ||
Weighted average shares outstanding |
29,236 |
29,052 |
||||||
| Diluted weighted average shares outstanding | 29,236 | 29,052 | ||||||
See Accompanying Notes.
5
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
| |
June 30, 2003 |
December 31, 2002 |
||||
|---|---|---|---|---|---|---|
| |
(Unaudited) |
|
||||
| Assets | ||||||
| Current Assets: | ||||||
| Cash and cash equivalents | $ | 210,361 | $ | 214,295 | ||
| Accounts receivable, less allowance for doubtful accounts of $3,234 in 2003 and $2,815 in 2002 | 69,250 | 68,777 | ||||
| Inventories | 84,545 | 86,250 | ||||
| Prepaid expenses and other current assets | 17,009 | 18,392 | ||||
| Deferred income taxes | 27,326 | 31,549 | ||||
| Total current assets | 408,491 | 419,263 | ||||
| Property, plant and equipment at cost, less accumulated depreciation of $59,776 in 2003 and $56,878 in 2002 | 54,887 | 55,872 | ||||
| Goodwill | 33,782 | 30,658 | ||||
| Purchased technology, less accumulated amortization of $20,077 in 2003 and $15,287 in 2002 | 36,491 | 39,331 | ||||
| Other intangible assets, less accumulated amortization of $12,726 in 2003 and $11,215 in 2002 | 13,710 | 14,425 | ||||
| Long-term investments | 13,207 | 17,483 | ||||
| Deferred income taxes | 37,781 | 28,888 | ||||
| Other assets, net | 713 | 898 | ||||
| Total assets | $ | 599,062 | $ | 606,818 | ||
Liabilities and shareholders' equity |
||||||
| Current Liabilities: | ||||||
| Accounts payable | $ | 19,096 | $ | 13,078 | ||
| Accrued expenses | 33,916 | 44,993 | ||||
| Deferred profit | 3,245 | 5,966 | ||||
| Income taxes payable | 5,584 | 3,808 | ||||
| Current portion of long-term debt | 323 | 312 | ||||
| Total current liabilities | 62,164 | 68,157 | ||||
| Long-term debt, net of current portion | 230,104 | 230,273 | ||||
| Other non-current liabilities | 937 | 815 | ||||
| Shareholders' equity | 305,857 | 307,573 | ||||
| Total liabilities and shareholders' equity | $ | 599,062 | $ | 606,818 | ||
See Accompanying Notes.
6
Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| |
Six Months Ended June 30, |
|||||||
|---|---|---|---|---|---|---|---|---|
| |
2003 |
2002 |
||||||
| Operating Activities | ||||||||
Net loss |
$ |
(2,832 |
) |
$ |
(5,117 |
) |
||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 11,420 | 14,167 | ||||||
| Deferred income taxes | (4,656 | ) | (6,922 | ) | ||||
| Stock option income tax benefit | 100 | 962 | ||||||
| Other | (738 | ) | 140 | |||||
| Loss on disposal of discontinued operations | — | 346 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 350 | 19,148 | ||||||
| Inventories | 3,528 | 1,108 | ||||||
| Accounts payable | 5,946 | 1,324 | ||||||
| Accrued expenses, deferred profit and other current liabilities | (12,405 | ) | (25,033 | ) | ||||
| Other, net | 1,017 | (2,782 | ) | |||||
| Net cash provided by (used in) operating activities | 1,730 | (2,659 | ) | |||||
Investing Activities |
||||||||
Capital expenditures |
(4,666 |
) |
(4,242 |
) |
||||
| Net assets of business acquired | (5,980 | ) | — | |||||
| Proceeds from sale of assets held for sale | 1,132 | — | ||||||
| Proceeds from sale of property, plant and equipment | — | 1,790 | ||||||
| Proceeds from sale of industrial measurement business | — | 3,750 | ||||||
| Net maturities of long-term investments | 4,276 | 1,779 | ||||||
| Net cash (used in) provided by investing activities | (5,238 | ) | 3,077 | |||||
| Financing Activities | ||||||||
| Proceeds from stock issuance | 306 | 983 | ||||||
| Repayment of long-term debt, net | (158 | ) | (815 | ) | ||||
| Proceeds from issuance of long-term debt | — | 20,000 | ||||||
| Payment for debt issuance costs | — | (1,260 | ) | |||||
| Net cash provided by financing activities | 148 | 18,908 | ||||||
| Effect of exchange rates on cash and cash equivalents | (574 | ) | (1,137 | ) | ||||
| Net change in cash and cash equivalents | (3,934 | ) | 18,189 | |||||
| Cash and cash equivalents at beginning of period | 214,295 | 203,154 | ||||||
| Cash and cash equivalents at end of period | $ | 210,361 | $ | 221,343 | ||||
See Accompanying Notes.
7
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, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002.
Loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. The effect of common equivalent shares of approximately 233,000 and 198,000 for the three and six months ended June 30, 2003, respectively, and 320,000 and 356,000 for the three and six months ended June 30, 2002, respectively, were antidilutive, therefore diluted loss per share is not presented for such periods.
The following table sets forth the reconciliation of diluted weighted average shares outstanding (in thousands):
| |
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||
|---|---|---|---|---|---|---|---|---|
| |
2003 |
2002 |
2003 |
2002 |
||||
| Weighted average shares outstanding | 29,247 | 29,083 | 29,236 | 29,052 | ||||
| Dilutive effect of stock options and warrants | — | — | — | — | ||||
| Diluted weighted average shares outstanding | 29,247 | 29,083 | 29,236 | 29,052 | ||||
In addition, the effect of the assumed conversion of subordinated convertible notes into approximately 5.7 million common equivalent shares is antidilutive for the three and six months ended June 30, 2003 and 2002, respectively, and therefore is not included in the above diluted weighted average shares outstanding.
The Company accounts for its stock option plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No compensation expense is reflected in net loss, as all options granted under the stock option plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions, under which compensation
8
expense would be recognized as incurred, of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation:
| |
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2003 |
2002 |
2003 |
2002 |
|||||||||
| |
(In thousands, except per share amounts) |
||||||||||||
| Net loss, as reported | $ | (1,135 | ) | $ | (1,619 | ) | $ | (2,832 | ) | $ | (5,117 | ) | |
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (4,131 | ) | (4,979 | ) | (8,562 | ) | (9,800 | ) | |||||
Pro forma net loss |
$ |
(5,266 |
) |
$ |
(6,598 |
) |
$ |
(11,394 |
) |
$ |
(14,917 |
) |
|
Loss per common share: |
|||||||||||||
| Net loss per common share, as reported | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.10 | ) | $ | (0.18 | ) | |
| Net loss per common share, pro forma | $ | (0.18 | ) | $ | (0.23 | ) | $ | (0.39 | ) | $ | (0.51 | ) | |
| Diluted net loss per common share, as reported | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.10 | ) | $ | (0.18 | ) | |
| Diluted net loss per common share, pro forma | $ | (0.18 | ) | $ | (0.23 | ) | $ | (0.39 | ) | $ | (0.51 | ) | |
Reclassifications
Certain amounts in the 2002 consolidated financial statements have been reclassified to conform to the 2003 presentation.
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:
| |
June 30, 2003 |
December 31, 2002 |
||||
|---|---|---|---|---|---|---|
| |
(In thousands) |
|||||
| Raw materials | $ | 47,838 | $ | 48,657 | ||
| Work-in-progress | 19,561 | 21,763 | ||||
| Finished goods | 17,146 | 15,830 | ||||
| $ | 84,545 | $ | 86,250 | |||
Accrued Warranty
The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time the related revenue is recognized. Factors that affect the Company's warranty liability include historical and anticipated rates of warranty claims and costs per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the
9
amount as necessary. Changes in the Company's warranty liability during the period are as follows (in thousands):
| Balance as of January 1, 2003 | $ | 4,481 | ||
| Warranties issued during the period | 1,115 | |||
| Settlements made during the period | (1,242 | ) | ||
| Changes in liability for pre-existing warranties during the period, including expirations | (70 | ) | ||
| Balance as of June 30, 2003 | $ | 4,284 | ||
Note 3—Segment Information
The following table represents the reportable product segments of the Company, in thousands:
| |
Process Equipment |
Metrology |
Unallocated Corporate Amount |
Restructuring Charges |
Total |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended June 30, 2003 | |||||||||||||||
| Net sales | $ | 34,280 | $ | 39,169 | $ | — | $ | — | $ | 73,449 | |||||
| Income (loss) from continuing operations before interest, taxes and amortization | 1,655 | 4,122 | (2,568 | ) | (789 | ) | 2,420 | ||||||||
Three Months Ended June 30, 2002 |
|||||||||||||||
| Net sales | 36,923 | 40,416 | — | — | 77,339 | ||||||||||
| Income (loss) from continuing operations before interest, taxes and amortization | (2,396 | ) | 6,695 | (2,075 | ) | (1,050 | ) | 1,174 | |||||||
Six Months Ended June 30, 2003 |
|||||||||||||||
| Net sales | 63,888 | 75,340 | — | — | $ | 139,228 | |||||||||
| Income (loss) from continuing operations before interest, taxes and amortization | 2,165 | 8,962 | (4,912 | ) | (1,457 | ) | 4,758 | ||||||||
| Total assets | 174,080 | 135,649 | 289,333 | — | 599,062 | ||||||||||
Six Months Ended June 30, 2002 |
|||||||||||||||
| Net sales | 81,775 | 75,713 | — | — | 157,488 | ||||||||||
| Income (loss) from continuing operations before interest, taxes and amortization | (4,252 | ) | 11,816 | (4,020 | ) | (1,887 | ) | 1,657 | |||||||
| Total assets | $ | 309,312 | $ | 130,906 | $ | 312,347 | $ | — | $ | 752,565 | |||||
Corporate total assets are principally comprised of cash and deferred tax assets.
The following table outlines the components of goodwill by business segment at June 30, 2003 and December 31, 2002 (in thousands):
| |
June 30, 2003 |
December 31, 2002 |
||||
|---|---|---|---|---|---|---|
| Process Equipment | $ | 8,413 | $ | 8,413 | ||
| Metrology | 25,369 | 22,245 | ||||
| Total | $ | 33,782 | $ | 30,658 | ||
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Note 4—Comprehensive (Loss) Income
As defined by the Financial Accounting Standards Board ("FASB"), comprehensive (loss) income is the change in equity of a business enterprise from transactions, other events, and circumstances from nonowner sources during a period. The Company incurred a total comprehensive (loss) income of ($0.1) million and ($2.1) million for the three and six months ended June 30, 2003, respectively, and $1.9 million and ($2.1) million for the three and six months ended June 30, 2002, respectively. The Company's comprehensive (loss) income is comprised of net loss, foreign currency translation adjustments and minimum pension liability.
Note 5—Recent Accounting Pronouncements
On January 1, 2003, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses the accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). It also substantially nullifies EITF Issue No. 88-10, Costs Associated with Lease Modification or Termination. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The effect of the adoption of SFAS No. 146 did not have a material effect on the Company's consolidated financial position or results of operations.
Note 6—Restructuring
In response to the significant decline in the business environment and current market conditions, the Company has restructured its business and operations. The actions giving rise to the restructuring charges below were implemented in order for Veeco to remain competitive and such actions are expected to benefit Veeco by reducing current and future operating costs.
2003 Restructuring Charges
During the three months ended June 30, 2003, the Company incurred a restructuring charge of approximately $0.8 million related to the reduction in work force announced in the fourth quarter of 2002, as a result of the continued decline in the markets in which the Company operates. This charge includes severance related costs for approximately 50 employees, which included management, administration and manufacturing employees located at the Company's Fort Collins, Colorado, and Plainview and Rochester, New York process equipment operations, the San Diego and Santa Barbara, California and Tucson, Arizona metrology facilities and the sales and service office located in Munich, Germany. As of June 30, 2003, approximately $0.5 million has been paid and approximately $0.3 million remains accrued, with the majority of this balance to be paid by the end of 2003.
During the three months ended March 31, 2003, the Company incurred a restructuring charge of approximately $0.7 million related to the reduction in work force announced in the fourth quarter of 2002. This charge included severance related costs for approximately 20 employees, which included both management and manufacturing employees located at the Company's Fort Collins, Colorado and Plainview and Rochester, New York process equipment operations. As of June 30, 2003, approximately $0.5 million has been paid and approximately $0.2 million remains accrued, and is expected to be paid by the end of 2003.
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A reconciliation of the liability for the restructuring charge for the first and second quarters of 2003 for severance related costs is as follows (in millions):
| |
Second Quarter 2003 Charge |
First Quarter 2003 Charge |
||||
|---|---|---|---|---|---|---|
| Charged to accrual | $ | 0.8 | $ | 0.7 | ||
| Cash payments during the quarter ended March 31, 2003 | — | 0.3 | ||||
| Cash payments during the quarter ended June 30, 2003 | 0.5 | 0.2 | ||||
| Balance as of June 30, 2003 | $ | 0.3 | $ | 0.2 | ||
2002 Merger and Restructuring Charges
The Company recorded merger and restructuring charges of approximately $124.0 million during the fourth quarter of 2002. The $124.0 million charge consisted of a $15.0 million inventory write-down (included in cost of sales) in the process equipment segment, due to the rationalization and discontinuance of certain product lines, $2.6 million of personnel and business relocation costs, $6.4 million of merger-related expenses, $0.3 million for a prepayment penalty on the early extinguishment of debt and $99.7 million of asset impairment charges, primarily in the process equipment segment. The $99.7 million of asset impairment charges included a $94.4 million write-down of goodwill, a $3.5 million impairment of two buildings and a $1.8 million impairment of other fixed assets.