Business Context and Reporting Period
Company: Veeco Instruments Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2001
Business Overview: Veeco designs, manufactures, and services precision process equipment (etch/deposition) and metrology equipment for the data storage, telecommunications/wireless, semiconductor, and research industries. The company operates two reportable segments: Process Equipment and Metrology.
Key Financial Metrics (Year Ended Dec 31, 2001)
| Metric | 2001 | 2000 |
|---|---|---|
| Net Sales | $449.3 million | $376.1 million |
| Gross Profit | $189.1 million (42.1% margin) | $156.5 million (41.6% margin) |
| Operating Income | $20.3 million | $7.1 million |
| Net Income | $10.3 million ($0.40 EPS) | ($17.9 million) ($0.75 EPS) |
| Cash & Equivalents | $203.2 million | $63.4 million |
| Long-Term Debt | $215.5 million | $14.6 million |
| Working Capital | $358.0 million | $220.5 million |
| Backlog | $122.0 million | $363.4 million |
Note: 2000 Net Loss included a $18.4 million cumulative effect of a change in accounting principle.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 19% to $449.3 million, driven by a 28% increase in Process Equipment sales and an 8% increase in Metrology sales. U.S. sales rose 29%, while Asia Pacific sales declined 32%.
- Profitability Turnaround: The company returned to profitability with $10.3 million in net income, reversing a $17.9 million loss in 2000. Operating income improved significantly to $20.3 million.
- Order Cancellations: Total orders dropped 47% to $318.9 million. The company recorded $136.3 million in order cancellations, primarily in the optical telecommunications sector, resulting in a book-to-bill ratio of 0.71.
- Debt Structure: Long-term debt increased substantially from $14.6 million to $215.5 million following the issuance of $200 million in convertible subordinated notes in December 2001.
- Restructuring Charges: The company incurred approximately $20.0 million in restructuring charges in Q4 2001, including a $13.6 million inventory write-off and a 15% workforce reduction (approx. 230 employees).
Guidance, Outlook, Risks, and Unusual Items
- Acquisitions: Completed acquisitions of ThermoMicroscopes Corp. (July 2001) and Applied Epi, Inc. (Sept 2001). These added $17.8 million in MBE sales and expanded the metrology portfolio. $8.2 million of purchased in-process technology was written off immediately.
- Discontinued Operations: Classified the industrial measurement business as discontinued, incurring a $4.6 million loss (net of tax) for the year. Sale is expected in Q2 2002.
- Outlook & Risks: Management cites a significant downturn in the telecommunications industry and a weak general business environment. Risks include continued order cancellations, rescheduling, and the cyclical nature of the data storage and semiconductor markets.
- Capital Resources: The company maintains a strong liquidity position with $203.2 million in cash and a $100 million revolving credit facility (currently unutilized). Management believes existing cash and operating cash flows are sufficient to meet requirements through 2002.
Investor Verification Checklist
- Order Cancellation Impact: Verify the extent of the $136.3 million in cancellations and the potential for further rescheduling in the telecommunications sector.
- Inventory Valuation: Review the $13.6 million inventory write-off and assess remaining inventory levels against the current weak demand environment.
- Convertible Debt Dilution: Analyze the impact of the $220 million convertible notes (conversion price $38.51) on potential future share dilution.
- Customer Concentration: Note that Seagate (7%) and IBM (9%) were the top two customers in 2001; monitor their capital spending plans.
- Goodwill Impairment: Monitor the upcoming SFAS No. 142 goodwill impairment tests required in Q1 2002, given the significant acquisition activity and industry downturn.