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| VECO > SEC Filings for VECO > Form 10-Q on 27-Jul-2012 | All Recent SEC Filings |
27-Jul-2012
Quarterly Report
Executive Summary
Veeco Instruments Inc. (together with its consolidated subsidiaries, "Veeco," the "Company" or "we") creates Process Equipment solutions that enable technologies for a cleaner and more productive world. We design, manufacture and market equipment primarily sold to make light emitting diodes ("LEDs") and hard-disk drives, as well as for emerging applications such as concentrator photovoltaics, power semiconductors, wireless components, microelectromechanical systems (MEMS), and other next-generation devices.
Veeco focuses on developing highly differentiated, "best-in-class" Process Equipment products for critical performance steps. Our products feature leading technology, low cost-of-ownership and high throughput, offering a time-to-market advantage for our customers around the globe. Core competencies in advanced thin film technologies, over 200 patents and decades of specialized process know-how helps us to stay at the forefront of these demanding industries.
Veeco's LED & Solar segment designs and manufactures metal organic chemical vapor deposition ("MOCVD") and molecular beam epitaxy ("MBE") systems and components sold to manufacturers of LEDs, wireless devices, power semiconductors, and concentrator photovoltaics, as well as for R&D applications. In 2011, we discontinued the sale of our products related to Copper, Indium, Gallium, Selenide ("CIGS") solar systems technology.
Veeco's Data Storage segment designs and manufactures the critical technologies used to create thin film magnetic heads ("TFMHs") that read and write data on hard disk drives. These technologies include ion beam etch (IBE), ion beam deposition (IBD), diamond-like carbon (DLC), physical vapor deposition (PVD), chemical vapor deposition (CVD), and slicing, dicing and lapping systems. These technologies are sold to customers in hard drive, MEMS, optical coatings and other markets.
Veeco's approximately 900 employees support our customers through product and process development, training, manufacturing, and sales and service sites in the U.S., Korea, Taiwan, China, Singapore, Japan, Europe and other locations.
Highlights of the Second Quarter of 2012 † Revenue was $136.5 million, a 48% decrease from the second quarter of 2011. † Bookings were $102.5 million, a 67% decrease from the second quarter of 2011. † Net income from continuing operations was $11.0 million, or $0.28 per |
† Gross margins were 44.9%, compared to 51.1% in the second quarter of 2011.
Third Quarter and Second Half 2012 Outlook
Veeco's third quarter 2012 revenue is currently forecasted to be between $120 million and $140 million. Earnings per share are currently forecasted to be between $0.12 to $0.29 on a GAAP basis. At the midpoint of the year, we are tightening our 2012 revenue guidance to between $520 and $560 million.
While MOCVD bookings have stabilized, we have not yet seen a clear inflection in customer buying patterns. LED customers remain cautious about capacity investment plans and it remains unclear when the MOCVD market will recover. Some positive signs are emerging, including increasing tool utilization rates in Korea, Taiwan and China, and continuing customer quoting activity. Veeco's Data Storage and MBE businesses also do not appear to be immune to the macro-economic sluggishness, with orders falling sequentially from the first quarter of 2012 to the second quarter.
Assuming macro-economic conditions do not worsen, we currently anticipate a gradual order recovery in the second half of 2012. Veeco is focused on keeping our infrastructure lean and discretionary costs low, while at the same time developing next-generation technology solutions to drive future growth.
Overall, we are seeing positive trends in LED lighting - lower prices, more LED lamp products, and heightened consumer awareness. LED manufacturers are focused on how to position their businesses for growth as
LEDs become the dominant lighting technology.
Our outlook discussion above constitutes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Our expectations
regarding future results are subject to risks and uncertainties. Our actual
results may differ materially from those anticipated. Risks associated with our
ability to achieve these results are set forth in Items 1, 1A, 3, 7 and 7A in
our annual report on Form 10-K for the year ended December 31, 2011, as well as
any modifications or revisions to risk factors contained in our subsequent
filings with the SEC.
You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made.
Results of Operations:
Three Months Ended June 30, 2012 and 2011
Consistent with prior years, we report interim quarters, other than fourth quarters which always end on December 31, on a 13-week basis ending on the last Sunday within such period. The interim quarter ends are determined at the beginning of each year based on the 13-week quarters. The 2012 interim quarter ends are April 1, July 1 and September 30. The 2011 interim quarter ends were April 3, July 3 and October 2. For ease of reference, we report these interim quarter ends as March 31, June 30 and September 30 in our interim condensed consolidated financial statements.
The following table shows our Condensed Consolidated Statements of Income, percentages of sales, and comparisons between the three months ended June 30, 2012 and 2011 (dollars in thousands):
Dollar and
Three months ended Percentage
June 30, Change
2012 2011 Period to Period
Net sales $ 136,547 100.0 % $ 264,815 100.0 % $ (128,268 ) (48.4 )%
Cost of sales 75,293 55.1 129,466 48.9 (54,173 ) (41.8 )
Gross profit 61,254 44.9 135,349 51.1 (74,095 ) (54.7 )
Operating expenses
(income):
Selling, general and
administrative 20,893 15.3 27,461 10.4 (6,568 ) (23.9 )
Research and
development 23,910 17.5 23,652 8.9 258 1.1
Amortization 1,185 0.9 1,334 0.5 (149 ) (11.2 )
Other, net 146 0.1 (68 ) (0.0 ) 214 *
Total operating
expenses 46,134 33.8 52,379 19.8 (6,245 ) (11.9 )
Operating income 15,120 11.1 82,970 31.3 (67,850 ) (81.8 )
Interest (income)
expense, net (329 ) (0.2 ) 86 0.0 (415 ) *
Loss on extinguishment
of debt - - 3,045 1.1 (3,045 ) (100.0 )
Income from continuing
operations before
income taxes 15,449 11.3 79,839 30.1 (64,390 ) (80.6 )
Income tax provision 4,438 3.3 23,521 8.9 (19,083 ) (81.1 )
Income from continuing
operations 11,011 8.1 56,318 21.3 (45,307 ) (80.4 )
Discontinued
operations:
Income (loss) from
discontinued operations
before income taxes 1,219 0.9 (59,698 ) (22.5 ) 60,917 *
Income tax provision
(benefit) 412 0.3 (22,586 ) (8.5 ) 22,998 *
Income (loss) from
discontinued operations 807 0.6 (37,112 ) (14.0 ) 37,919 *
Net income $ 11,818 8.7 % $ 19,206 7.3 % $ (7,388 ) (38.5 )%
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Net Sales and Bookings
Net sales of $136.5 million for the three months ended June 30, 2012 were down
48.4% compared to the prior year period. The following is an analysis of net
sales by segment and by region (dollars in thousands):
Net Sales
Three months ended Dollar and
June 30, Percentage Change
2012 2011 Period to Period
Segment Analysis
LED & Solar $ 86,778 $ 219,135 $ (132,357 ) (60.4 )%
Data Storage 49,769 45,680 4,089 9.0
Total $ 136,547 $ 264,815 $ (128,268 ) (48.4 )%
Regional Analysis
Americas $ 23,815 $ 32,391 $ (8,576 ) (26.5 )%
Europe, Middle East and Africa ("EMEA") 12,573 20,955 (8,382 ) (40.0 )
Asia Pacific ("APAC") 100,159 211,469 (111,310 ) (52.6 )
Total $ 136,547 $ 264,815 $ (128,268 ) (48.4 )%
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By segment, LED & Solar sales decreased 60.4% in 2012 primarily due to a 64.3% decrease in MOCVD reactor shipments from the prior year period as a result of industry overcapacity following over two years of strong customer investments. Data Storage sales increased 9.0%, primarily as a result of an increase in shipments to data
storage customers to replace equipment destroyed by flooding in customer facilities in Thailand. LED & Solar sales represented 63.6% of total sales for the three months ended June 30, 2012, down from 82.8% in the prior year. Data Storage sales accounted for 36.4% of net sales, up from 17.2% in the prior year period. By region, net sales decreased by 52.6% in Asia Pacific, primarily due to a significant decrease in MOCVD sales in China. Net sales in the Americas and EMEA also decreased 26.5% and 40.0%, respectively. We believe that there will continue to be period-to-period variations in the geographic distribution of sales.
Bookings decreased 67.0% compared to the prior year period, primarily attributable to a 71.7% decrease in LED & Solar bookings that was principally driven by a decline in MOCVD bookings from the prior year period due to industry overcapacity. After hitting a peak in second quarter of 2011, Veeco's bookings slowed dramatically in the second half of 2011 which continued throughout the first half of 2012. Data Storage bookings decreased 32.8% as customer consolidation activity continued to temporarily stall capacity investments.
Our book-to-bill ratio for the three months ended June 30, 2012, which is calculated by dividing bookings recorded in a given time period by revenue recognized in the same time period, was 0.75 to 1. Our backlog as of June 30, 2012 was $240.8 million, compared to $332.9 million as of December 31, 2011. During the three months ended June 30, 2012, we recorded backlog adjustments of approximately $30.4 million related to orders that no longer met our booking criteria. Our backlog consists of orders for which we received a firm purchase order, a customer-confirmed shipment date within twelve months and a deposit, where required. As of June 30, 2012, we had customer deposits and advanced billings of $52.0 million.
Gross Profit
Gross profit, as a percentage of net sales, for the three months ended June 30, 2012, was 44.9%, compared to 51.1% in the prior year period. LED & Solar gross margins decreased to 42.7% from 51.2% primarily resulting from decreased sales volume, lower average selling price and unfavorable product mix, partially offset by product cost reductions. In this weak business environment, we anticipate continued average selling price pressure in our MOCVD business. Data Storage gross margins decreased to 48.6% from 50.5%, driven primarily by an unfavorable product mix.
Operating Expenses
Selling, general and administrative expenses decreased by $6.6 million or 23.9%, from the prior year period primarily as a result of cost controls put in place in response to declining sales. Selling, general and administrative expenses were 15.3% of net sales, compared with 10.4% of net sales in the prior year period.
Research and development expense increased $0.3 million or 1.1% from the prior year period, as the company continues its focus on product development in areas of high-growth for future end market opportunities in our LED & Solar segment. As a percentage of net sales, research and development expense increased to 17.5% from 8.9% in the prior year period.
Income Taxes
Our provision for income taxes consists of U.S. federal, state and local and foreign taxes in amounts necessary to align our quarter-to-date tax provision with the effective tax rate we expect to achieve for the full year.
For the three months ended June 30, 2012, the Company had an effective tax rate of 28.7% and recorded a provision for income taxes of $4.4 million from continuing operations. The effective tax rate was lower than the statutory tax rate primarily due to tax rate differences in the foreign jurisdictions in which the Company operates and an income tax benefit related to the manufacturer's deduction under IRC Section 199. The reduction in the effective tax rate in 2012 compared to 2011 was due to a higher portion of earnings being generated in foreign jurisdictions. A further reduction in the effective tax rate in 2012 compared to 2011 may result from the potential extension of the federal research and development tax credit which expired December 31, 2011.
For the three months ended June 30, 2011, the Company had an effective tax rate
of 29.5% and recorded a provision for income taxes of $23.5 million from
continuing operations. The effective tax rate was lower than the statutory tax
rate primarily due to tax rate differences in the foreign jurisdictions in which
the Company operates, the generation of research and development tax credits and
an income tax benefit related to the manufacturer's deduction under IRC
Section 199.
Discontinued Operations
Discontinued operations represent the results of the operations of our disposed CIGS solar systems business which was discontinued on September 27, 2011 as well as our Metrology business, which was disposed of in 2010. The three months ended June 30, 2012, included a $1.4 million gain on the sale of the assets of discontinued segment held for sale. The three months ended June 30, 2011, included the results of operations of our discontinued CIGS solar systems business.
Six Months Ended June 30, 2012 and 2011
The following table shows our Condensed Consolidated Statements of Income,
percentages of sales, and comparisons between the six months ended June 30, 2012
and 2011 (dollars in thousands):
Dollar and
Six months ended Percentage
June 30, Change
2012 2011 Period to Period
Net sales $ 276,456 100.0 % $ 519,491 100.0 % $ (243,035 ) (46.8 )%
Cost of sales 149,934 54.2 253,179 48.7 (103,245 ) (40.8 )
Gross profit 126,522 45.8 266,312 51.3 (139,790 ) (52.5 )
Operating expenses
(income):
Selling, general
and administrative 40,666 14.7 50,397 9.7 (9,731 ) (19.3 )
Research and
development 47,216 17.1 43,523 8.4 3,693 8.5
Amortization 2,400 0.9 2,242 0.4 158 7.0
Restructuring 63 0.0 - - 63 *
Other, net 111 0.0 (28 ) (0.0 ) 139 *
Total operating
expenses 90,456 32.7 96,134 18.5 (5,678 ) (5.9 )
Operating income 36,066 13.0 170,178 32.8 (134,112 ) (78.8 )
Interest expense,
net (532 ) (0.2 ) 1,385 0.3 (1,917 ) *
Loss on
extinguishment of
debt - - 3,349 0.6 (3,349 ) (100.0 )
Income from
continuing
operations before
income taxes 36,598 13.2 165,444 31.8 (128,846 ) (77.9 )
Income tax
provision 9,125 3.3 51,147 9.8 (42,022 ) (82.2 )
Income from
continuing
operations 27,473 9.9 114,297 22.0 (86,824 ) (76.0 )
Discontinued
operations:
Income (loss) from
discontinued
operations before
income taxes 1,138 0.4 (67,735 ) (13.0 ) 68,873 *
Income tax
provision (benefit) 381 0.1 (25,286 ) (4.9 ) 25,667 *
Income (loss) from
discontinued
operations 757 0.3 (42,449 ) (8.2 ) 43,206 *
Net income $ 28,230 10.2 % $ 71,848 13.8 % $ (43,618 ) (60.7 )%
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Net Sales and Bookings
Net sales of $276.5 million for the six months ended June 30, 2012 were down
46.8% compared to the prior year period. The following is an analysis of net
sales by segment and by region (dollars in thousands):
Net Sales
Six months ended Dollar and
June 30, Percentage Change
2012 2011 Period to Period
Segment Analysis
LED & Solar $ 182,352 $ 433,833 $ (251,481 ) (58.0 )%
Data Storage 94,104 85,658 8,446 9.9
Total $ 276,456 $ 519,491 $ (243,035 ) (46.8 )%
Regional Analysis
Americas $ 44,031 $ 61,645 $ (17,614 ) (28.6 )%
EMEA 17,804 36,404 (18,600 ) (51.1 )
APAC 214,621 421,442 (206,821 ) (49.1 )
Total $ 276,456 $ 519,491 $ (243,035 ) (46.8 )%
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By segment, LED & Solar sales decreased 58.0% in 2012 primarily due to a 64.7% decrease in MOCVD reactor shipments from the prior year period as a result of industry overcapacity following over two years of strong customer investments. Data Storage sales increased 9.9%, primarily as a result of an increase in shipments to data storage customers to replace equipment destroyed by flooding in customer facilities in Thailand. LED & Solar sales represented 66.0% of total sales for the six months ended June 30, 2012, down from 83.5% in the prior year. Data Storage sales accounted for 34.0% of net sales, up from 16.5% in the prior year period. By region, net sales decreased by 49.1% in Asia Pacific, primarily due to the decrease in MOCVD sales in China. Net sales in the Americas and EMEA also decreased 28.6% and 51.1%, respectively. We believe that there will continue to be period-to-period variations in the geographic distribution of sales.
Bookings decreased 60.1% compared to the prior year period, primarily attributable to a 65.7% decrease in LED & Solar bookings that was principally driven by a decline in MOCVD bookings from the prior year period due to industry overcapacity. After hitting a peak in second quarter of 2011, Veeco's bookings slowed dramatically in the second half of 2011 which continued throughout the first half of 2012. Data Storage bookings decreased 23.0% as customer consolidation activity continued to temporarily stall capacity investments.
Our book-to-bill ratio for the six months ended June 30, 2012, which is calculated by dividing bookings recorded in a given time period by revenue recognized in the same time period, was 0.78 to 1. Our backlog as of June 30, 2012 was $240.8 million, compared to $332.9 million as of December 31, 2011. During the six months ended June 30, 2012, we recorded backlog adjustments of approximately $31.5 million, related to orders that no longer met our booking criteria. Our backlog consists of orders for which we received a firm purchase order, a customer-confirmed shipment date within twelve months and a deposit, where required. As of June 30, 2012, we had customer deposits and advanced billings of $52.0 million.
Gross Profit
Gross profit, as a percentage of net sales, for the six months ended June 30, 2012, was 45.8%, compared to 51.3% in the prior year period. LED & Solar gross margins decreased to 45.1% from 51.1% primarily resulting from a significant decrease in sales volume, lower average selling price and unfavorable product mix, partially offset by product cost reductions. In this weak business environment, we anticipate continued average selling price pressure in our MOCVD business. Data Storage gross margins decreased to 47.0% from 52.0%, driven primarily by an unfavorable product mix.
Operating Expenses
Selling, general and administrative expenses decreased by $9.7 million or 19.3%, from the prior year period primarily as a result of cost controls put in place in response to declining sales. Selling, general and administrative expenses were 14.7% of net sales, compared with 9.7% of net sales in the prior year period.
Research and development expense increased $3.7 million or 8.5% from the prior year period, as the company continues its focus on product development in areas of high-growth for future end market opportunities in our LED & Solar segment. As a percentage of net sales, research and development expense increased to 17.1% from 8.4% in the prior year period.
Income Taxes
Our provision for income taxes consists of U.S. federal, state and local and foreign taxes in amounts necessary to align our quarter-to-date tax provision with the effective tax rate we expect to achieve for the full year.
For the six months ended June 30, 2012, the Company had an effective tax rate of 24.9% and recorded a provision for income taxes of $9.1 million from continuing operations. The effective tax rate was lower than the statutory tax rate primarily due to tax rate differences in the foreign jurisdictions in which the Company operates and an income tax benefit related to the manufacturer's deduction under IRC Section 199. The reduction in the effective tax rate in 2012 compared to 2011 was due to a higher portion of earnings being generated in foreign jurisdictions.
For the six months ended June 30, 2011, the Company had an effective tax rate of 30.9% and recorded a provision for income taxes of $51.1 million from continuing operations. The effective tax rate was lower than the statutory tax rate primarily due to tax rate differences in the foreign jurisdictions in which the Company operates, the generation of research and development tax credits and an income tax benefit related to the manufacturer's deduction
under IRC Section 199.
Discontinued Operations
Discontinued operations represent the results of the operations of our disposed CIGS solar systems business which was discontinued on September 27, 2011 as well as our Metrology business, which was disposed of in 2010. The six months ended June 30, 2012, included a $1.4 million gain on the sale of the assets of discontinued segment held for sale. The six months ended June 30, 2011, included the results of operations of our discontinued CIGS solar systems business.
Liquidity and Capital Resources
Historically, our principal capital requirements have included the funding of acquisitions, capital expenditures and repayment of debt. We traditionally have generated cash from operations and stock issuances. Our ability to generate sufficient cash flows from operations is dependent on the continued demand for our products and services. A summary of the cash flow activity for the six months ended June 30, 2012 and 2011, respectively, is as follows (in thousands):
Six months ended
June 30,
2012 2011
Net income $ 28,230 $ 71,848
Net cash provided by operating activities $ 60,551 $ 75,312
Net cash provided by (used in) investing activities 37,401 (24,755 )
Net cash provided by (used in) financing activities 1,688 (99,750 )
Effect of exchange rate changes on cash and cash equivalents (515 ) 1,729
Net increase (decrease) in cash and cash equivalents 99,125 (47,464 )
Cash and cash equivalents at beginning of period 217,922 245,132
Cash and cash equivalents at end of period $ 317,047 $ 197,668
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Cash provided by operations for the six months ended June 30, 2012 was $60.6 million compared to $75.3 million during the six months ended June 30, 2011. The $60.6 million cash provided by operations in the current quarter included $13.3 million in adjustments to the $28.2 million of net income for non-cash items. Net cash provided by operations was favorably impacted by a net $19.0 million of changes in operating assets and liabilities, which included a $22.9 million decrease in inventory, an $8.9 million decrease in prepaid expenses and other current assets, a $5.4 million decrease in other assets and a $3.3 million decrease in supplier deposits, partially offset by a $12.5 million decrease in accrued expenses, a $7.8 million decrease in accounts payable and a $1.2 million decrease in income taxes payable. The $75.3 million cash provided by operations in 2011 included $69.3 million in adjustments to the $71.8 million of net income for non-cash items. Net cash provided by operations was unfavorably impacted by a net $65.8 million change in operating assets and liabilities.
Cash provided by investing activities of $37.4 million during the six months ended June 30, 2012, consisted primarily of $99.5 million in proceeds from sales of short-term investments and $3.8 million of proceeds from sale of assets from discontinued segment, partially offset by $49.0 million of purchases of short-term investments, $16.6 million of capital expenditures and $0.3 million in transfers to restricted cash. Cash used in investing activities of . . .
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