VEECO INSTRUMENTS INC - 10-Q Quarterly Report

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 September 30,
	2004			2003

Net sales	$	92,367		$	63,144
Cost of sales	53,634			32,845
Gross profit	38,733			30,299
Costs and expenses:
Selling, general and administrative expense	20,177			15,204
Research and development expense	14,462			11,640
Amortization expense	4,336			3,262
Other expense, net	170			146
Restructuring expense, net	—			1,804
Operating loss	(412		)	(1,757		)
Interest expense, net	1,793			2,050
Loss before income taxes	(2,205		)	(3,807		)
Income tax benefit	(750		)	(1,692		)
Net loss	$	(1,455	)	$	(2,115	)

Net loss per common share	$	(0.05	)	$	(0.07	)
Diluted net loss per common share	$	(0.05	)	$	(0.07	)

Weighted average shares outstanding	29,670			29,262
Diluted weighted average shares outstanding	29,670			29,262

See Accompanying Notes.

Veeco Instruments Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Nine Months Ended September 30,
	2004			2003

Net sales	$	289,738		$	202,372
Cost of sales	165,825			108,073
Gross profit	123,913			94,299
Costs and expenses:
Selling, general and administrative expense	62,137			50,017
Research and development expense	43,085			35,507
Amortization expense	13,807			9,563
Other income, net	(471		)	(749		)
Restructuring expense, net	—			3,261
Operating income (loss)	5,355			(3,300		)
Interest expense, net	6,231			5,703
Loss before income taxes	(876		)	(9,003		)
Income tax benefit	(298		)	(4,056		)
Net loss	$	(578	)	$	(4,947	)

Net loss per common share	$	(0.02	)	$	(0.17	)
Diluted net loss per common share	$	(0.02	)	$	(0.17	)

Weighted average shares outstanding	29,629			29,245
Diluted weighted average shares outstanding	29,629			29,245

See Accompanying Notes.

Veeco Instruments Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

	September 30, 2004		December 31, 2003
	(Unaudited)

Assets
Current Assets:
Cash and cash equivalents	$	110,981	$	106,830
Accounts receivable, less allowance for doubtful accounts of $2,480 in 2004 and $2,458 in 2003	81,698		69,890
Inventories	123,885		97,622
Prepaid expenses and other current assets	9,866		15,823
Deferred income taxes	32,680		24,693
Total current assets	359,110		314,858
Property, plant and equipment at cost, less accumulated depreciation of $69,216 in 2004 and $62,504 in 2003	73,586		72,742
Goodwill	79,947		72,989
Purchased technology, less accumulated amortization of $35,726 in 2004 and $25,519 in 2003	75,642		85,849
Other intangible assets, less accumulated amortization of $18,446 in 2004 and $14,846 in 2003	16,717		18,842
Long-term investments	8,043		12,376
Deferred income taxes	15,328		18,136
Other assets, net	2,011		672
Total assets	$	630,384	$	596,464

Liabilities and shareholders’ equity
Current Liabilities:
Accounts payable	$	35,343	$	19,603
Accrued expenses	47,074		31,616
Deferred profit	2,638		2,140
Income taxes payable	4,173		3,700
Current portion of long-term debt	348		333
Total current liabilities	89,576		57,392
Long-term debt, net of current portion	229,671		229,935
Other non-current liabilities	2,885		2,808
Shareholders’ equity	308,252		306,329
Total liabilities and shareholders’ equity	$	630,384	$	596,464

See Accompanying Notes.

Veeco Instruments Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2004			2003
Operating Activities
Net loss	$	(578	)	$	(4,947	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	23,696			17,169
Deferred income taxes	(5,218		)	(6,941		)
Other	35			(67		)
Changes in operating assets and liabilities:
Accounts receivable	(12,170		)	8,001
Inventories	(26,823		)	2,619
Accounts payable	15,762			989
Accrued expenses, deferred profit and other current liabilities	10,543			(10,313		)
Other, net	(316		)	354
Net cash provided by operating activities	4,931			6,864
Investing Activities
Capital expenditures	(9,518		)	(6,464		)
Net assets of business acquired	(1,000		)	(5,980		)
Proceeds from sale of assets held for sale	2,615			2,332
Proceeds from sale of property, plant and equipment	26			—
Net maturities of long-term investments	4,333			4,165
Net cash used in investing activities	(3,544		)	(5,947		)
Financing Activities
Proceeds from stock issuance	3,017			368
Repayment of long-term debt, net	(250		)	(237		)
Net cash provided by financing activities	2,767			131
Effect of exchange rates on cash and cash equivalents	(3		)	(184		)
Net change in cash and cash equivalents	4,151			864
Cash and cash equivalents at beginning of period	106,830			214,295
Cash and cash equivalents at end of period	$	110,981		$	215,159

Non-Cash Items

During the first nine months of 2004, the Company had non-cash items excluded from the Condensed Consolidated Statement of Cash Flows of approximately $7.3 million. This amount consists of (1) $6.0 million for the accrual of a contingent earnout payment to Emcore, the former owner of TurboDisc, resulting from the achievement of certain revenue targets which is payable in the first quarter of 2005 and has been reflected as additional goodwill; (2) $0.9 million for the transfer of other current assets to property plant and equipment; and (3) $0.4 million for the transfer of inventory to property plant and equipment.

See Accompanying Notes.

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 nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. 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, 2003.

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 283,000 and 525,000 for the three and nine months ended September 30, 2004, respectively, and 329,000 and 242,000 for the three and nine months ended September 30, 2003, 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:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2004	2003	2004	2003
	(In thousands)		(In thousands)

Weighted average shares outstanding	29,670	29,262	29,629	29,245
Dilutive effect of stock options and warrants	—	—	—	—
Diluted weighted average shares outstanding	29,670	29,262	29,629	29,245

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 nine months ended September 30, 2004 and 2003, 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 expense would be recognized as incurred, of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation:

	Three Months Ended September 30,											Nine Months Ended September 30,
	2004								2003			2004			2003
	(In thousands, except per share amounts)

Net loss, as reported	$						(1,455	)	$	(2,115	)	$	(578	)	$	(4,947	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(3,234							)	(3,822		)	(9,162		)	(12,451		)

Pro forma net loss	$					(4,689		)	$	(5,937	)	$	(9,740	)	$	(17,398	)

Loss per common share:
Net loss per common share, as reported	$				(0.05			)	$	(0.07	)	$	(0.02	)	$	(0.17	)
Net loss per common share, pro forma	$			(0.16				)	$	(0.20	)	$	(0.33	)	$	(0.59	)
Diluted net loss per common share, as reported	$		(0.05					)	$	(0.07	)	$	(0.02	)	$	(0.17	)
Diluted net loss per common share, pro forma	$	(0.16						)	$	(0.20	)	$	(0.33	)	$	(0.59	)

Reclassifications

Certain amounts in the 2003 consolidated financial statements have been reclassified to conform to the 2004 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 (in thousands):

	September 30, 2004		December 31, 2003

Raw materials	$	59,849	$	49,734
Work-in-progress	44,471		31,887
Finished goods	19,565		16,001
	$	123,885	$	97,622

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 amount as necessary. Changes in the Company’s warranty liability during the period are as follows (in thousands):

Balance as of January 1, 2004	$	3,904
Warranties issued during the period	4,015
Settlements made during the period	(2,715		)
Balance as of September 30, 2004	$	5,204

Note 3—Segment Information

During the quarter ended September 30, 2004, the Company changed the structure of its internal organization in a manner which caused the composition of its reportable segments to change. The Company currently manages, reviews operating results, and assesses performance, as well as allocates resources, based upon this reporting structure. The change implemented by the Company was to split out the former process equipment segment into two separate reportable segments. The first segment, called “ion beam and mechanical process equipment”, combines the etch, deposition, and dicing and slicing products sold mostly to data storage customers. This segment includes the production facilities in Plainview, New York, Ft. Collins, Colorado, and Camarillo, California. The second segment, called “epitaxial process equipment”, includes the Molecular Beam Epitaxy (“MBE”) and Metal Organic Chemical Vapor Deposition (“MOCVD”) products primarily sold to high brightness light emitting diodes (“HB-LED”) and wireless telecommunications customers. This segment includes the production facilities in St. Paul, Minnesota, and Somerset, New Jersey. The metrology segment, which includes the production facilities in Santa Barbara, California, and Tucson, Arizona, remains unchanged. As such, the Company has restated the segment information for prior periods as if the composition of its reportable segments described above had existed in such prior periods.

The following table represents the reportable product segments of the Company (in thousands):

	Ion Beam and Mechanical Process Equipment			Epitaxial Process Equipment		Metrology		Unallocated Corporate Amount			Restructuring Charges			Total
Three Months Ended September 30, 2004
Net sales	$	30,297		$	28,407	$	33,663	$	—		$	—		$	92,367
(Loss) income from operations before interest, taxes and amortization	(235		)	3,882		1,933		(1,656		)	—			3,924
Three Months Ended September 30, 2003
Net sales	17,612			7,279		38,253		—			—			63,144
(Loss) income from operations before interest, taxes and amortization	(1,173		)	600		5,572		(1,690		)	(1,804		)	1,505
Nine Months Ended September 30, 2004
Net sales	103,549			68,704		117,485		—			—			289,738
Income (loss) from operations before interest, taxes and amortization	2,857			7,831		14,386		(5,912		)	—			19,162
Total assets	180,549			142,863		135,830		171,142			—			630,384
Nine Months Ended September 30, 2003
Net sales	64,660			24,119		113,593		—			—			202,372
(Loss) income from operations before interest, taxes and amortization	(334		)	1,926		14,534		(6,602		)	(3,261		)	6,263
Total assets	$	99,506		$	60,053	$	139,291	$	296,132		$	—		$	594,982

Corporate total assets are principally comprised of cash and deferred tax assets.

The following table outlines the components of goodwill by business segment at September 30, 2004 and December 31, 2003 (in thousands):

	September 30, 2004		December 31, 2003

Ion Beam and Mechanical Process Equipment	$	21,676	$	21,676
Epitaxial Process Equipment	31,902		25,944
Metrology	26,369		25,369

Total	$	79,947	$	72,989

Note 4 — Comprehensive Loss

The Company’s comprehensive loss is comprised of net loss, adjusted for foreign currency translation adjustments, the change in the fair value of forward currency contracts, and the change in the minimum pension liability, and had no other sources affecting comprehensive loss. The Company had total comprehensive loss of $(1.6) million and $(1.1) million for the three and nine months ended September 30, 2004, respectively, and $(0.2) million and $(2.3) million for the three and nine months ended September 30, 2003, respectively.

Note 5—Restructuring

In response to the significant decline in the business environment and market conditions in 2001 and 2002, the Company restructured its business and operations. The actions giving rise to the restructuring charges taken in 2003 described below were implemented in order for Veeco to remain competitive and such actions have benefited Veeco by reducing future operating costs.

2003 Restructuring Charges

During the year ended December 31, 2003, the Company incurred a restructuring charge of approximately $4.8 million related to the reduction in work force announced in the fourth quarter of 2002, as a result of the decline in the markets in which the Company operates. This charge included severance related costs for approximately 180 employees, which included management, administration and manufacturing employees located at the Company’s Fort Collins, Colorado, and Plainview and Rochester, New York ion beam and mechanical process equipment operations, the San Diego, Sunnyvale and Santa Barbara, California and Tucson, Arizona metrology facilities, the sales and service offices located in Munich, Germany and Singapore, and the corporate office in Woodbury, New York. The charge also included costs of vacating facilities in Sunnyvale, California, Munich, Germany, and relocating the office

in Japan. During the nine months ended September 30, 2004, approximately $1.3 million has been paid and approximately $0.5 million remains accrued. The remainder is expected to be paid by the third quarter of 2005.

A reconciliation of the liability for the restructuring charge recorded during 2003 for severance and relocation costs is as follows (in millions):

	Ion Beam and Mechanical Process Equipment		Epitaxial Process Equipment		Metrology		Unallocated Corporate		Total

Charged to accrual	$	2.3	$	—	$	2.1	$	0.4	$	4.8
Add-back from 2002 accrual	0.3		—		—		—		0.3
Total 2003 accrual	2.6		—		2.1		0.4		5.1
Cash payments during 2003	1.6		—		1.6		0.1		3.3
Cash payments during the nine months ended September 30, 2004	0.6		—		0.5		0.2		1.3
Balance as of September 30, 2004	$	0.4	$	—	$	0.0	$	0.1	$	0.5

Note 6–Subsequent Events

On October 5, 2004, the Company acquired substantially all of the assets and assumed certain liabilities of Manufacturing Technology Inc., (“MTI”) for $9.5 million in cash. The MTI business includes the assets necessary for engineering, design and manufacturing of slicing and dicing systems ranging from R&D to high-volume production systems, and MTI’s intellectual property. Additionally, the Company entered into a lease with the former owner of MTI, to lease MTI’s 125,000 square foot manufacturing facility in Ventura, California. The lease period is for an initial term of 5 years with an option to renew for an additional five years. At the time of the acquisition, approximately 70 MTI employees became employees of Veeco. The acquisition will be accounted for under the purchase method of accounting. The purchase price allocation for this transaction has not yet been completed. Further information regarding this transaction will be included in the Company’s Annual Report on Form 10-K for the year ending December 31, 2004.

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

Executive Summary:

Veeco designs, manufactures, markets and services a broad line of equipment primarily used by manufacturers in the data storage, semiconductor, HB-LED and wireless telecommunications industries. Veeco’s products also enable 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 and HB-LED and wireless telecommunications industries. 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 research instruments used by many universities, scientific laboratories and industrial applications.

During the past several years, we have strengthened our product lines through strategic acquisitions. In our metrology business, in June 2003, we purchased the atomic force microscope probe business from NanoDevices Inc. (“NanoDevices”) for approximately $6.0 million, including transaction costs, plus a potential future earn-out payment of up to $4.0 million based on the achievement of certain operating measures. In our epitaxial process equipment business, in November 2003, we purchased the TurboDisc business from Emcore Corporation (“Emcore”) for approximately $63.7 million, including transaction costs, plus a potential future earn-out payment of up to $20.0 million based on the achievement of certain operating measures. Also in November 2003, in our ion beam and mechanical process equipment business, we acquired the precision bar lapping company, Advanced Imaging, Inc. (“Aii”), for approximately $61.4 million, including transaction costs, plus a potential future earn-out payment of up to $9.0 million based on the achievement of certain operating measures. Most recently, in our ion beam and mechanical process equipment business, Veeco expanded its TFMH “slider” technologies to include slicing and dicing processes which are critical to controlling thin film head fly height, through the purchase of MTI for $9.5 million. While we believe these acquisitions will be accretive to both sales and profits going forward, gross margin percentages have been historically lower in these product lines than in the metrology business. Therefore, Veeco’s gross margin percentage may be adversely affected in the future by the lower concentration of metrology sales.

We currently maintain manufacturing facilities in Arizona, California, Colorado, Minnesota, New Jersey, and New York, with sales and service locations around the world.

Highlights of the Third Quarter of 2004:

• Orders of $79.5 million, up from $64.0 million in the third quarter of 2003. The order growth included $12.3 million from companies acquired in 2003 and $3.2 million from Veeco’s historical business.

• Sales of $92.4 million, up from $63.1 million in the third quarter of 2003. The sales growth included $24.3 million from companies acquired in 2003 and $5.0 million from Veeco’s historical business.

• Net loss of $1.5 million, compared with a net loss of $2.1 million in the third quarter of 2003.

• Cash use of $6.4 million, compared with cash generation of $4.8 million in the third quarter of 2003.

Highlights of the First Nine Months of 2004:

• Orders of $321.3 million, up from $200.8 million in the first nine months of 2003. The order growth included $91.3 million from companies acquired in 2003 and $29.2 million from Veeco’s historical business.

• Sales of $289.7 million, up from $202.4 million in the first nine months of 2003. The sales growth included $65.2 million from companies acquired in 2003 and $22.1 million from Veeco’s historical business.

• Net loss of $0.6 million, compared with a net loss of $4.9 million in the first nine months of 2003.

• Cash generation of $4.2 million, compared with cash generation of $0.9 million in the nine months of 2003.

Current Business Conditions/Outlook

In the third quarter of 2004, Veeco was adversely impacted by weak industry-wide capital equipment spending conditions, particularly in the HB-LED/wireless and data storage industries. As with many suppliers in the capital equipment industry, Veeco typically books approximately 60% of its orders in the last several weeks of the quarter. However, in the third quarter, many of these late quarter orders did not occur. Veeco’s third quarter orders declined 36.3% sequentially from the second quarter of 2004 with orders down in all markets with the exception of scientific research. Veeco’s orders for MOCVD equipment declined 71.4% sequentially as a result of spending freezes initiated by many Asian customers at the end of the quarter. Veeco’s orders from data storage and semiconductor customers declined approximately 28.7% sequentially as customers in those industries carefully managed their capital spending. Veeco’s third quarter revenues were down 10.2% sequentially from the second quarter due to customer postponement and shipment delays in data storage, semiconductor, and HB-LED/wireless. The decline in business conditions experienced by Veeco is similar to what other companies serving the semiconductor, data storage and HB-LED/wireless markets are reporting.

Results of Operations:

Three Months Ended September 30, 2004 and 2003

The following tables show selected items of Veeco’s Consolidated Statements of Operations, percentages of sales, and comparisons between the three months ended September 30, 2004 and 2003 and the analysis of sales and orders for the same periods between our segments, industries, and regions (in thousands):

	Three Months ended September 30,												Dollar Incr/(Decr)
	2004						2003						Year to Year

Net sales	$	92,367			100.0	%	$	63,144			100.0	%	$	29,223
Cost of sales	53,634				58.1		32,845				52.0		20,789
Gross profit	38,733				41.9		30,299				48.0		8,434
Operating expenses:
Selling, general and administrative expense	20,177				21.8		15,204				24.1		4,973
Research and development expense	14,462				15.7		11,640				18.4		2,822
Amortization expense	4,336				4.7		3,262				5.2		1,074
Other expense, net	170				0.2		146				0.2		24
Restructuring expenses	—				—		1,804				2.9		(1,804		)
Total operating expenses	39,145				42.4		32,056				50.8		7,089
Operating loss	(412			)	(0.5	)	(1,757			)	(2.8	)	1,345
Interest expense, net	1,793				1.9		2,050				3.2		(257		)
Loss before income taxes	(2,205			)	(2.4	)	(3,807			)	(6.0	)	1,602
Income tax benefit	(750			)	(0.8	)	(1,692			)	(2.7	)	942

Net loss	$		(1,455	)	(1.6	)%	$		(2,115	)	(3.3	)%	$	660

	Sales									Orders
	Three Months ended September 30,				Dollar and Percentage Incr/(Decr)					Three Months ended September 30,				Dollar and Percentage Incr/(Decr)					Book to Bill Ratio
	2004		2003		Year to Year					2004		2003		Year to Year					2004	2003

Segment Analysis
Ion Beam and Mechanical Process Equipment	$	30,297	$	17,612	$	12,685		72.0	%	$	18,728	$	24,985	$	(6,257	)	(25.0	)%	0.62	1.42
Epitaxial Process Equipment	28,407		7,279		21,128			290.3		15,545		2,200		13,345			606.6		0.55	0.30
Metrology	33,663		38,253		(4,590		)	(12.0	)	45,224		36,857		8,367			22.7		1.34	0.96
Total	$	92,367	$	63,144	$	29,233		46.3	%	$	79,497	$	64,042	$	15,455		24.1	%	0.86	1.01

Industry Analysis
Data Storage	$	27,055	$	19,341	$	7,714		39.9	%	$	18,832	$	21,247	$	(2,415	)	(11.4	)%	0.70	1.10
HB-LED/wireless	29,424		7,673		21,751			283.5		14,652		6,914		7,738			111.9		0.50	0.90
Semiconductor	10,366		8,708		1,658			19.0		15,866		9,411		6,455			68.6		1.53	1.08
Research and Industrial	25,522		27,422		(1,900		)	(6.9	)	30,147		26,470		3,677			13.9		1.18	0.97
Total	$	92,367	$	63,144	$	29,233		46.3	%	$	79,497	$	64,042	$	15,455		24.1	%	0.86	1.01

Regional Analysis
US	$	30,809	$	24,242	$	6,567		27.1	%	$	31,825	$	25,468	$	6,357		25.0	%	1.03	1.05
Europe	17,029		9,436		7,593			80.5		17,343		11,510		5,833			50.7		1.02	1.22
Japan	14,328		13,192		1,136			8.6		12,959		10,679		2,280			21.4		0.90	0.81
Asia Pacific	30,201		16,274		13,927			85.6		17,370		16,385		985			6.0		0.58	1.01
Total	$	92,367	$	63,144	$	29,233		46.3	%	$	79,497	$	64,042	$	15,455		24.1	%	0.86	1.01

During the quarter ended September 30, 2004, the Company changed the structure of its internal organization in a manner that caused the composition of its reportable segments to change. The Company currently manages, reviews operating results, and assesses performance, as well as allocates resources, based upon this reporting structure. The change implemented by the Company was to split out the former process equipment segment into two separate reporting segments. The new ion beam and mechanical process equipment segment combines the etch, deposition, and dicing and slicing products sold mostly to data storage customers. The new epitaxial process equipment segment includes the MBE and MOCVD products sold to HB-LED and wireless customers. The metrology segment remains unchanged. Accordingly, the Company has restated the segment information for the prior periods.

Net sales of $92.4 million for the third quarter of 2004 were up 46.3% from the comparable 2003 period. By segment, ion beam and mechanical process equipment sales were up $12.7 million, or 72.0%, while epitaxial process equipment sales were up $21.1 million, or 290.3%, and metrology sales decreased by $4.6 million, or 12.0%, each as compared to the third quarter of 2003. The improvement in ion beam and mechanical process equipment sales is principally attributable to a $12.3 million increase in the data storage market and a $0.4 million net increase in other market segments. The increase in the data storage market included $9.3 million in deposition and etch equipment sales and $3.0 million from the Aii business. The improvement in epitaxial process equipment is primarily due to $21.3 million in sales from the TurboDisc business, partially offset by a $0.2 million net decrease in other businesses. The decrease in metrology sales is principally attributable to a $4.7 million decrease in optical metrology, particularly sales to data storage customers in the APAC region. By region, there continues to be a shift in sales from the U.S. to the APAC region. We are also beginning to see our customers shift manufacturing from Japan to the APAC region. APAC region sales increased by $13.9 million in the third quarter of 2004 as compared to the third quarter of 2003. This significant growth in sales was attributable to sales from the acquired companies and the manufacturing base shift noted above. The Company believes that there will continue to be quarter-to-quarter variations in the geographic distribution of sales.

Orders of $79.5 million for the third quarter of 2004 represented an increase of $15.5 million, or 24.1%, over the comparable 2003 period. By segment, ion beam and mechanical process equipment orders declined by 25.0%, as a result of reductions in deposition and etch equipment orders. The $13.3 million increase in epitaxial process equipment orders was principally due to $12.1 million in orders for TurboDisc, plus an increase of $1.2 million in MBE orders. The 22.7% increase in metrology orders was due to a $6.7 million increase in AFM orders, consisting mostly of automated AFM products sold to customers in the semiconductor business, and a $1.7 million increase in optical metrology products primarily to research and industrial customers. Orders for the third quarter of 2004 were down 36.3% sequentially from the $124.7 million reported in the second quarter of 2004. Compared to the second quarter, orders to HB-LED/wireless

Nine Months Ended September 30, 2004 and 2003

The following tables show selected items of Veeco’s Consolidated Statements of Operations, percentages of sales, and comparisons between the nine months ended September 30, 2004 and 2003 and the analysis of sales and orders for the same periods between our segments, industries, and regions (in thousands):

	Nine Months ended September 30,										Dollar Incr/(Decr)
	2004					2003					Year to Year

Net sales	$	289,738		100.0	%	$	202,372		100.0	%	$	87,366
Cost of sales	165,825			57.2		108,073			53.4		57,752
Gross profit	123,913			42.8		94,299			46.6		29,614
Operating expenses:
Selling, general and administrative expense	62,137			21.4		50,017			24.7		12,120
Research and development expense	43,085			14.9		35,507			17.5		7,578
Amortization expense	13,807			4.8		9,563			4.7		4,244
Other income, net	(471		)	(0.2	)	(749		)	(0.3	)	278
Restructuring expenses	—			—		3,261			1.6		(3,261		)
Total operating expenses	118,558			40.9		97,599			48.2		20,959
Operating income (loss)	5,355			1.9		(3,300		)	(1.6	)	8,655
Interest expense, net	6,231			2.2		5,703			2.8		528
Loss before income taxes	(876		)	(0.3	)	(9,003		)	(4.4	)	8,127
Income taxes benefit	(298		)	(0.1	)	(4,056		)	(2.0	)	3,758

Net loss	$	(578	)	(0.2	)%	$	(4,947	)	(2.4	)%	$	4,369

	Sales									Orders
	Nine Months ended September 30,				Dollar and Percentage Incr/(Decr)					Nine Months ended September 30,				Dollar and Percentage Incr/(Decr)				Book to Bill Ratio
	2004		2003		Year to Year					2004		2003		Year to Year				2004	2003

Segment Analysis
Ion Beam and Mechanical Process Equipment	$	103,549	$	64,660	$	38,889		60.1	%	$	92,934	$	78,135	$	14,799	18.9	%	0.90	1.21
Epitaxial Process Equipment	68,704		24,119		44,585			184.9		109,231		14,887		94,344		633.7		1.59	0.62
Metrology	117,485		113,593		3,892			3.4		119,133		107,766		11,367		10.5		1.01	0.95
Total	$	289,738	$	202,372	$	87,366		43.2	%	$	321,298	$	200,788	$	120,510	60.0	%	1.11	0.99

Industry Analysis
Data Storage	$	94,020	$	62,746	$	31,274		49.8	%	$	90,221	$	70,344	$	19,877	28.3	%	0.96	1.12
HB-LED/wireless	74,663		26,169		48,494			185.3		104,745		27,119		77,626		286.2		1.40	1.04
Semiconductor	39,187		30,785		8,402			27.3		48,187		28,462		19,725		69.3		1.23	0.92
Research and Industrial	81,868		82,672		(804		)	(1.0	)	78,145		74,863		3,282		4.4		0.95	0.91
Total	$	289,738	$	202,372	$	87,366		43.2	%	$	321,298	$	200,788	$	120,510	60.0	%	1.11	0.99

Regional Analysis
US	$	103,514	$	76,885	$	26,629		34.6	%	$	133,063	$	82,023	$	51,040	62.2	%	1.29	1.07
Europe	49,223		34,505		14,718			42.7		43,998		30,945		13,053		42.2		0.89	0.90
Japan	48,839		44,579		4,260			9.6		48,550		41,225		7,325		17.8		0.99	0.92
Asia Pacific	88,162		46,403		41,759			90.0		95,687		46,595		49,092		105.4		1.09	1.00
Total	$	289,738	$	202,372	$	87,366		43.2	%	$	321,298	$	200,788	$	120,510	60.0	%	1.11	0.99

Net sales of $289.7 million for the nine months ended September 30, 2004 were up 43.2% from the comparable 2003 period. By segment, ion beam and mechanical process equipment sales were up $38.9 million, or 60.1%, due to increases of $25.6 million in etch and deposition equipment, mostly to the data storage market, and $13.3 million of Aii products, also to data storage customers, each as compared to the first nine months of 2003. Epitaxial process equipment sales were up $44.6 million, or 184.9%, due to $51.9 million of TurboDisc sales, mostly to customers in the HB-LED industry, partially offset by a $7.3 million reduction in MBE sales. Metrology sales increased by $3.9 million, or 3.4%. By region, there continues to be a shift in sales from the U.S. to the Asia Pacific region, which experienced a $41.8 million increase in sales in the nine months ended September 30, 2004, compared to the 2003 period, due to the acquired companies and the manufacturing base shifts noted above. The Company believes that there will continue to be period-to-period variations in the geographic distribution of sales.

Orders of $321.3 million for the nine months ended September 30, 2004 represented a $120.5 million, or 60.0%, increase over the comparable 2003 period. By segment, the 18.9% improvement in ion beam and mechanical process equipment orders was driven by $5.1 million in orders for Aii systems plus a $9.7 million increase in deposition and etch product orders. The 633.7% increase in epitaxial process equipment orders was principally due to orders for TurboDisc products, which amounted to approximately $86.2 million. The 10.5% improvement in metrology orders was due to a $14.7 million increase in automated AFM orders, mainly to the semiconductor market.

The Company’s book/bill ratio for the nine months ended September 30, 2004, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was 1.11.

Gross profit for the nine months ended September 30, 2004, was 42.8%, including a $1.5 million reduction in gross profit related to the acquisitions of TurboDisc and Aii. This charge was the result of purchase accounting adjustments due to the required capitalization of profit in inventory and the elimination of certain deferred revenue. Excluding the impact of these adjustments, gross profit as a percentage of net sales was 43.3% in the nine months ended September 30, 2004, compared to 46.6% in the comparable period of 2003. This decrease was mostly due to a product mix shift from the higher margin metrology segment to the lower margin ion beam and mechanical process equipment and epitaxial process equipment segments, largely due to the 2003 acquisitions. The metrology percentage of total sales declined from 56.1% in 2003 to 40.5% in 2004. The ion beam and mechanical process equipment margins decreased from 40.1% to 35.0%. This reduction was principally due to an unfavorable product mix including lower margins for certain advance development products. Epitaxial process equipment margins improved from 37.0% to 39.5%, due to the favorable mix of TurboDisc MOCVD sales which are higher in margin than MBE products. The metrology gross margin for the first nine months of 2004 was consistent with 2003 at 52.7%.

Selling, general and administrative expenses were $62.1 million, or 21.4% of sales, in the nine months ended September 30, 2004, compared with $50.0 million, or 24.7% of sales, in the nine months ended September 30, 2003. Of the $12.1 million increase, $9.0 million was due to expenses of the TurboDisc and Aii businesses, with the balance attributable to higher selling expenses related to the increase in sales, as well as consulting and audit costs related to the implementation of Section 404 of Sarbanes-Oxley.

Research and development expense totaled $43.1 million during the first nine months of 2004, an increase of $7.6 million from the first nine months of 2003. The increase is primarily attributable to $6.4 million in spending in the TurboDisc and Aii businesses. As a percentage of sales, research and development decreased during the nine months ended September 30, 2004 to 14.9% from 17.5% for the corresponding period of 2003.

There were no restructuring expenses during the first nine months of 2004. The restructuring expense of $3.3 million in the first nine months of 2003 was primarily due to severance costs for layoffs that were related to the actions announced in the fourth quarter of 2002.

Net interest expense in the nine months ended September 30, 2004 was $6.2 million compared to $5.7 million in the nine months ended September 30, 2003. The change is due to the reduction in interest income resulting from lower cash balances as a result of the acquisitions completed in the fourth quarter of 2003, partially offset by $0.4 million in interest income on a federal income tax refund received in the third quarter of 2004.

Income taxes for the nine months ended September 30, 2004, amounted to a benefit of $0.3 million, or 34.0% of loss before income taxes, as compared with a benefit of $4.1 million, or 45.1% of loss before income taxes, in 2003. The higher than statutory effective benefit rate in 2003 was a result of the impact of foreign and state tax benefits.

Liquidity and Capital Resources

The Company had a net increase in cash of $4.2 million in the nine months ended September 30, 2004. Cash provided by operations was $4.9 million for this period, as compared to cash provided by operations of $6.9 million for the comparable 2003 period. Net loss adjusted for non-cash items provided operating cash flows of $17.9 million for the nine months ended September 30, 2004, compared to $5.2 million for the comparable 2003 period. The amount of net loss adjusted for non-cash items for the nine months ended September 30, 2004 was partially offset by an increase in net operating assets and liabilities of $13.0 million. Accounts receivable for the nine months ended September 30, 2004 increased by $12.1 million, primarily as a result of higher sales volume. During the nine months ended September 30, 2004, inventories increased by approximately $26.8 million, principally related to shipment delays in the process equipment segments and the build up of raw materials and work-in-process for products to be shipped in the fourth quarter of 2004 and first quarter of 2005. During the nine months ended September 30, 2004, accounts payable increased by $15.8 million, principally as a result of increased inventory levels. Accrued expenses and other current liabilities increased $10.5 million during the nine months ended September 30, 2004. This increase is due to a $3.8 million increase in customer deposits, a $3.8 million increase in accrued personnel costs including salaries, benefits, bonus and commissions, accrued interest costs of $2.3 million, and accrued installation and warranty costs of $1.5 million, partially offset by items that amounted to an net reduction of $0.9 million.

Cash used by investing activities of $3.5 million for the nine months ended September 30, 2004 resulted from capital expenditures of $9.5 million and $1.0 million for the payment to Nanodevices for the earn-out provision related to production targets achieved by the acquired business partially offset by cash received from the sale of a building and other assets of $2.7 million and the utilization of long-term investments of $4.3 million.

Cash provided by financing activities of $2.8 million for the nine months ended September 30, 2004 resulted from proceeds received from stock issuance of $3.0 million partially offset by $0.2 million in net repayments of long-term debt.

The Company believes that existing cash balances together with cash generated from operations and amounts available under the Company’s $100.0 million revolving credit facility (“the Facility”) will be sufficient to meet the Company’s projected working capital and other cash flow requirements for the next twelve months, as well as the Company’s contractual obligations over the next three years. Amounts available for borrowing under the Facility are subject to certain financial tests. At September 30, 2004, the amount available for borrowing under the facility was approximately $100.0 million. The Facility expires on March 31, 2005. The Company is currently in negotiations with the banks who are parties to the Facility and expects to be able to secure a similar facility prior to the expiration of the current Facility. The Company believes it will be able to meet its obligation to repay the outstanding $220.0 million convertible subordinated notes that mature on December 21, 2008 through a combination of conversion of the notes outstanding, refinancing, cash generated from operations, and/or other means. The Company is required to pay interest on the outstanding convertible subordinated notes in June and December of each year until the notes mature. Based on the full outstanding value of the notes as of September 30, 2004, the semi-annual interest obligation is approximately $4.5 million. The Company believes it will be able to meet its obligation to pay the interest required through existing cash balances and cash generated from operations. In connection with the issuance of these notes, the Company purchased U.S government securities to secure the first six scheduled interest payments due on the notes. The last of these securities will be used for the interest payment due in December 2004.

The Company is potentially liable for payment of earn-out provisions to the former owners of the businesses acquired in 2003 based on operating targets achieved by those acquired businesses. The maximum amount of these contingent liabilities is $32.0 million consisting of $9.0 million to the former shareholders of Aii, $3.0 million to the former shareholders of Nanodevices, Inc., and $20.0 million to Emcore, the former owner of TurboDisc. Earn-out amounts would be paid to Nanodevices, Inc., during each of the first quarters of 2005, 2006, and 2007, if revenue targets are reached during the proceeding year. Earn-out amounts would be paid during each of the first quarters of 2005, 2006, and 2007 to the former owners of Aii, and during each of the first quarters of 2005 and 2006 to Emcore, if revenue targets are met. Payments to the former shareholders of Aii and to Emcore are based on a set percentage of revenues in excess of certain targets for the preceding fiscal year. The Company paid $1.0 million of the amount potentially payable to Nanodevices, Inc., during the third quarter of 2004 and, based on the Company’s current projections, expects to pay Nanodevices approximately $1.5 million during the first quarter of 2005. Additionally, the Company expects to pay a substantial portion ($15.0 million to $18.0 million) of the amount potentially payable to Emcore during the first quarter of 2005, based upon revenue achieved through September 30, 2004 and projections for the fourth quarter of 2004. Except as noted herein, the Company does not have an estimate of how much, or when, amounts may be due to the former owners of Aii, Nanodevices or Emcore for each fiscal year.

Application of Critical Accounting Policies

General: Veeco’s discussion and analysis of its financial condition and results of operations are based upon Veeco’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Veeco to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, intangible assets and other long lived assets, income taxes, warranty obligations, restructuring costs and contingent litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company considers certain accounting policies related to revenue recognition, the valuation of inventories, the impairment of goodwill and indefinite-lived intangible assets and the impairment of long lived assets to be critical policies due to the estimation processes involved in each.

Revenue Recognition: Effective January 1, 2000, the Company changed its method for accounting for revenue recognition in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements. In December 2003, the SEC issued SAB No. 104, Revenue Recognition, which updates the guidance provided in SAB 101, integrates the related Frequently Asked Questions, and recognizes the role of the FASB’s Emerging Issues Task Force (“EITF”) consensus on Issue 00-21. SAB 104 deletes certain interpretive material no longer necessary, and conforms the remaining interpretative material retained to the pronouncements issued by the EITF on various revenue recognition topics, including EITF 00-21. It further clarifies that a company should first refer to EITF 00-21 in order to determine if there is more than one unit of accounting and then to refer to SAB 104 for revenue recognition for the unit of accounting. The Company recognizes revenue when persuasive evidence of an arrangement exists, the seller’s price is fixed or determinable and collectibility is reasonably assured. For products produced according to the Company’s published specifications, where no installation is required or installation is deemed perfunctory and no substantive customer acceptance provisions exist, revenue is recognized when title passes to the customer, generally upon shipment. For products produced according to a particular customer’s specifications, revenue is recognized when the product has been tested and it has been demonstrated that it meets the customer’s specifications and title passes to the customer. The amount of revenue recorded is reduced by the amount of any customer retention (generally 10% to 20%), which is not payable by the customer until installation is completed and final customer acceptance is achieved. Installation is not deemed to be essential to the functionality of the equipment since installation does not involve significant changes to the features or capabilities of the equipment or building complex interfaces and connections. In addition, the equipment could be installed by

the customer or other vendors and generally the cost of installation approximates only 1% to 2% of the sales value of the related equipment. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where performance cannot be fully assessed prior to meeting customer specifications at the customer site, revenue is recognized upon completion of installation and receipt of final customer acceptance. Since title to goods generally passes to the customer upon shipment and 80% to 90% of the contract amount becomes payable at that time, inventory is relieved and accounts receivable is recorded for the amount billed at the time of shipment. The profit on the amount billed for these transactions is deferred and recorded as deferred profit in the accompanying balance sheets. At September 30, 2004 and December 31, 2003, $2.6 million and $2.1 million, respectively, are recorded in deferred profit. Service and maintenance contract revenues are recorded as deferred revenue, which is included in other accrued expenses, and recognized as revenue on a straight-line basis over the service period of the related contract. The Company provides for warranty costs at the time the related revenue is recognized.

Inventory Valuation: Inventories are stated at the lower of cost (principally first-in, first-out method) or market. Management evaluates the need to record adjustments for impairment of inventory on a quarterly basis. The Company’s policy is to assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts. Obsolete inventory or inventory in excess of management’s estimated usage for the next 18 to 24 month’s requirements is written-down to its estimated market value, if less than its cost. Inherent in the estimates of market value are management’s estimates related to Veeco’s future manufacturing schedules, customer demand, technological and/or market obsolescence, possible alternative uses and ultimate realization of excess inventory.

Goodwill and Indefinite-Lived Intangible Asset Impairment: The Company has significant intangible assets related to goodwill and other acquired intangibles. In assessing the recoverability of the Company’s goodwill and other indefinite-lived intangible assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If it is determined that impairment indicators are present and that the assets will not be fully recoverable, their carrying values are reduced to estimated fair value. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profit, adverse legal or regulatory developments and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Changes in strategy and/or market conditions could significantly impact these assumptions, and thus Veeco may be required to record impairment charges for the assets not previously recorded.

Long Lived Asset Impairment: The carrying values of long-lived assets are periodically reviewed to determine if any impairment indicators are present. If it is determined that such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining depreciation period, their carrying values are reduced to estimated fair value. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profit, adverse legal or regulatory developments and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of the cash flows generated by other asset groups.

Deferred Taxes: As part of the process of preparing Veeco’s consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. The measurement of deferred tax assets is adjusted by a valuation allowance to recognize the extent to which, more likely than not, the future tax benefits will be recognized.

At September 30, 2004, we have deferred tax assets, net of valuation allowances, of $48.0 million. We believe it is more likely than not that we will be able to realize these assets through the reduction of future taxable income.

We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of recorded valuation allowances, we consider a variety of factors, including the scheduled reversal of deferred tax liabilities, future taxable income, and prudent and feasible tax planning strategies. Should we determine that we are unable to use all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income tax expense, thereby reducing net income in the period such determination was made.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Veeco’s net sales to foreign customers represented approximately 67% and 64% of Veeco’s total net sales for the three and nine months ended September 30, 2004, respectively, and 62% for both the three and nine months ended September 30, 2003, respectively. The Company expects that net sales to foreign customers will continue to represent a large percentage of Veeco’s total net sales. Veeco’s net sales denominated in foreign currencies represented approximately 19% and 20% of Veeco’s total net sales for the three and nine months ended September 30, 2004, respectively, and 25% and 26% of Veeco’s total net sales for the three and nine months ended September 30, 2003, respectively. The aggregate foreign currency exchange (losses) gains for the three and nine months ended September 30, 2004, were $(0.3) million and $(0.1) million, respectively, compared to $0.1 million and $0.3 million for the three and nine months ended September 30, 2003. Included in the aggregate foreign currency exchange (losses) gains were (losses) gains relating to forward contracts of $(0.1) million and $0.1 million for the three and nine months ended September 30, 2004, respectively, compared to $0.4 million and $(0.1) million for the three and nine months ended September 30, 2003. Veeco is exposed to financial market risks, including changes in foreign currency exchange rates. The changes in currency exchange rates that have had the largest impact on translating Veeco’s international operating profit related to exchange rates for the Yen and the Euro. To mitigate these risks, Veeco uses derivative financial instruments. Veeco does not use derivative financial instruments for speculative or trading purposes. The Company entered into monthly forward contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known currency exposures. The average notional amount was $3.8 million and $4.4 million for the three and nine months ended September 30, 2004, respectively. As of September 30, 2004, the Company had entered into forward contracts for the month of October for the notional amount of approximately $4.2 million, which approximates the fair market value of the contracts on September 30, 2004. In addition, the Company enters into derivative contracts designed to hedge exposure to forecasted cash flows for certain transactions. The Company entered into a forward contract on April 21, 2004, for the notional amount of $0.5 million, which will be settled on or about November 1, 2004. On April 22, 2004 the company entered into an additional forward contract for the notional amount of $0.5 million, which will be settled on or about March 1, 2005. Due to a decline in value of these contracts the Company has included $0.1 million in other comprehensive loss, to account for the fair value of these contracts in accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities.

Item 4. Controls and Procedures.

The Company’s senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures under the supervision of and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic Securities and Exchange Commission filings.

Subsequent to that evaluation there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, these controls after such evaluation.

Item 5. Other Information

Delaware		11-2989601
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

100 Sunnyside Boulevard, Suite B Woodbury, New York		11797
(Address of Principal Executive Offices)		(Zip Code)

Part I.	Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Statements of Operations—Three Months Ended September 30, 2004 and 2003

	Condensed Consolidated Statements of Operations—Nine Months Ended September 30, 2004 and 2003

	Condensed Consolidated Balance Sheets—September 30, 2004 and December 31, 2003

	Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2004 and 2003

	Notes to Condensed Consolidated Financial Statements

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

Item 3.	Quantitative and Qualitative Disclosure About Market Risk

Item 4.	Controls and Procedures

Item 5.	Other Information

Part II.	Other Information

Item 6.	Exhibits

SIGNATURES

Number	Description	Incorporated by Reference to the Following Document:

10.1	Eighth Amendment dated as of August 25, 2004 to the Credit Agreement, dated April 19, 2001 among Veeco Instruments Inc., Fleet National Bank, as administrative agent, JPMorgan Chase Bank, as syndication agent, HSBC Bank USA, as documentation agent and the lenders named therein.	Current Report on Form 8-K, filed August 31, 2004, Exhibit 10.1

31.1	Certification of Chief Executive Officer pursuant to 13a – 14(a) or Rule 15d – 14(a) of the Securities and Exchange Act of 1934.	*

31.2	Certification of Chief Financial Officer pursuant to 13a – 14(a) or Rule 15d – 14(a) of the Securities and Exchange Act of 1934.	*

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

	Veeco Instruments Inc.

	By:	/s/ EDWARD H. BRAUN
		Edward H. Braun
		*Chairman and Chief Executive Officer*

	By:	/s/ JOHN F. REIN, JR.
		John F. Rein, Jr.
		Executive Vice President, Chief Financial Officer and Secretary

Number	Description	Incorporated by Reference to the Following Document:
10.1	Eighth Amendment dated as of August 25, 2004 to the Credit Agreement, dated April 19, 2001 among Veeco Instruments Inc., Fleet National Bank, as administrative agent, JPMorgan Chase Bank, as syndication agent, HSBC Bank USA, as documentation agent and the lenders named therein.	Current Report on Form 8-K, filed August 31, 2004, Exhibit 10.1

31.1	Certification of Chief Executive Officer pursuant to 13a – 14(a) or Rule 15d – 14(a) of the Securities and Exchange Act of 1934.	*

31.2	Certification of Chief Financial Officer pursuant to 13a – 14(a) or Rule 15d – 14(a) of the Securities and Exchange Act of 1934.	*

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

FORM 10-Q

2003 Restructuring Charges

Edward H. Braun

Chairman and Chief Executive Officer