Table of Contents

 

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

----

 

**FORM 10-Q**

 

**(MarkOne)**

** **

**x****     ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**Forthe quarterly period ended March 31, 2010**

** **

**OR**

** **

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

 

**Forthe transition periodfrom              to              .**

 

**Commissionfile number 0-16244**

 

----

 

**VEECOINSTRUMENTS INC.**

(Exact Name ofRegistrant as Specified in Its Charter)

 

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

 

| **Terminal  Drive  Plainview, New York**  | ** ** | **11803**  |
|-------------------------------------------|------------|------------|
| (Address of  Principal Executive Offices) |       | (Zip Code) |

 

Registrant’stelephone number, including area code: **(516) 677-0200**

 

Website: **www.veeco.com**

 

----

 

Indicateby check mark whether the Registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12 months(or for such shorter period that the registrant was required to submit and postsuch files).  Yes o  No o

 

Indicate by check markwhether the Registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 

| Large  accelerated filer o                    |   | Accelerated  filer x         |
|-----------------------------------------------|--------|------------------------------|
|                                          |   |                         |
| Non-accelerated  filer o                      |   | Smaller reporting  company o |
| (Do not check if a Smaller reporting company) |   |                         |

 

Indicate by check mark whether the Registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

40,541,835 shares ofcommon stock, $0.01 par value per share, were outstanding as of the close ofbusiness on April 27, 2010.

 

 

 

----

Table of Contents

 

**SAFEHARBOR STATEMENT**

 

This Quarterly Report on Form 10-Q (the “Report”)contains forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. Discussions containing such forward-looking statements may be found in Part 1.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 identifyforward-looking statements. All forward-looking statements are subject to anumber of risks and uncertainties that could cause actual results to differmaterially from projected results. These risks and uncertainties include,without limitation, the following:

 

·                  Our failure to successfully implementoutsourcing activities or failure of our outsourcing partners to perform asanticipated could adversely affect our results of operations and our ability torealize the benefits of the recent increase in MOCVD order volume;

 

·                  Manufacturinginterruptions or delays could affect our ability to meet customer demand, whilethe failure to estimate customer demand accurately could result in excess orobsolete inventory and/or liabilities to our suppliers for products no longerneeded;

 

·                  We rely on alimited number of suppliers, some of which are sole-source suppliers;

 

·                  Our backlog issubject to customer cancellation or modification and such cancellation couldresult in decreased sales and increased provisions for excess and obsoleteinventory and/or liabilities to our suppliers for products no longer needed;

 

·                  Our sales to HB LED and data storage manufacturers are highly dependenton these manufacturers’ sales for consumer electronics applications, which canexperience significant volatility due to seasonal and other factors. This couldmaterially adversely impact our future results of operations;

 

·                  Negativeworldwide economic conditions could result in a decrease in our net sales andan increase in our operating costs, which could adversely affect our businessand operating results;

 

·                  We are exposedto the risks of operating a global business, including the need to obtainexport licenses for certain of our shipments;

 

·                  We are exposed torisks associated with our entrance into the emerging solar industry;

 

·                  The timing ofour orders, shipments, and revenue recognition may cause our quarterlyoperating results to fluctuate significantly;

 

·                  We operate inindustries characterized by rapid technological change;

 

·                  We facesignificant competition;

 

·                  We depend on alimited number of customers that operate in highly concentrated industries;

 

·                  The cyclicalityof the industries we serve directly affects our business;

 

·                  Our sales cycleis long and unpredictable;

 

·                  Our inabilityto attract, retain, and motivate key employees could have a material adverseeffect on our business;

 

·                  The price of our common shares may be volatile and could declinesignificantly;

 

·                  We are subjectto foreign currency exchange risks;

 

·                  Theenforcement and protection of our intellectual property rights may be expensiveand could divert our 

 

2

----

Table of Contents

 

valuable resources;

 

·                  We may be subjectto claims of intellectual property infringement by others;

 

·                  Our acquisitionstrategy subjects us to risks associated with evaluating and pursuing theseopportunities and integrating these businesses;

 

·                  We may be required to take additional impairment charges for goodwill and indefinite-lived intangible assets or definite-livedintangible and long-lived assets;

 

·                  Changes in accountingpronouncements or taxation rules or practices may adversely affect ourfinancial results;

 

·                  We are subject to the internal control evaluations and attestationrequirements of Section 404 of the Sarbanes-Oxley Act;

 

·                  We are subjectto risks of non-compliance with environmental, health and safety regulations;

 

·                  We havesignificant operations in California and other locations which could bematerially and adversely impacted, in the event of a natural disaster or othersignificant disruption;

 

·                  We have adoptedcertain measures that may have anti-takeover effects which may make anacquisition of our Company by another company more difficult; and

 

·                  The matters setforth in this Report generally, including the risk factors set forth in “Part 2.Item 1A. Risk Factors.”

 

Consequently, suchforward-looking statements should be regarded solely as the Company’s current plans,estimates, and beliefs. The Company does not undertake any obligation to updateany forward-looking statements to reflect future events or circumstances afterthe date of such statements.

 

**Available Information**

 

We file annual,quarterly and current reports, information statements and other informationwith the Securities and Exchange Commission (the “SEC”). The public may obtaininformation by calling the SEC at 1-800-SEC-0330. The SEC also maintains anInternet site that contains reports, proxy and information statements, andother information regarding issuers that file electronically with the SEC. Theaddress of that site is http://www.sec.gov.

 

**Internet Address**

 

We maintain a websitewhere additional information concerning our business and various upcomingevents can be found. The address of our website is www.veeco.com. We provide alink on our website, under Investors — Financial Information — SEC Filings,through which investors can access our filings with the SEC, including ourAnnual Reports on Form 10-K, Quarterly Reports on Form 10-Q, CurrentReports on Form 8-K, and all amendments to such reports. These filings areposted to our Internet site, as soon as reasonably practicable after weelectronically file such material with the SEC.

 

3

----

Table of Contents

 

**VEECOINSTRUMENTS INC.**

 

**INDEX**

 
| ** **                              | ** **                                                                                                                                            | **Page** |
|-----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| **PART I.  FINANCIAL INFORMATION** |                                                                                                                                                  |
|                                    |                                                                                                                                                  |     |
| **Item 1.**                             | Financial Statements:                                                                                                                                 |     |
|                                    |                                                                                                                                                  |     |
|                                    | Condensed  Consolidated Statements of Operations and Comprehensive Income (Loss) for the  Three Months Ended March 31, 2010 and 2009 (Unaudited) | 5        |
|                                    |                                                                                                                                                  |     |
|                                    | Condensed  Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and  December 31, 2009                                              | 6        |
|                                    |                                                                                                                                                  |     |
|                                    | Condensed  Consolidated Statements of Cash Flows for the Three Months Ended  March 31, 2010 and 2009 (Unaudited)                                 | 7        |
|                                    |                                                                                                                                                  |     |
|                                    | Notes to  Condensed Consolidated Financial Statements (Unaudited)                                                                                     | 8        |
|                                    |                                                                                                                                                  |     |
| **Item 2.**                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                           | 17       |
|                                    |                                                                                                                                                  |     |
| **Item 3.**                             | Quantitative  and Qualitative Disclosures About Market Risk                                                                                           | 27       |
|                                    |                                                                                                                                                  |     |
| **Item 4.**                             | Controls and  Procedures                                                                                                                              | 27       |
|                                    |                                                                                                                                                  |     |
| **PART II.  OTHER INFORMATION**    |                                                                                                                                                  |
|                                    |                                                                                                                                                  |     |
| **Item 1.**                             | Legal Proceedings                                                                                                                                     | 29       |
|                                    |                                                                                                                                                  |     |
| **Item 1A.**                            | Risk Factors                                                                                                                                          | 29       |
|                                    |                                                                                                                                                  |     |
| **Item 6.**                             | Exhibits                                                                                                                                              | 29       |
|                                    |                                                                                                                                                  |     |
| **SIGNATURES**                          | 30                                                                                                                                                    |

 

4

----

Table of Contents

 

**PART I.FINANCIAL INFORMATION**

 

**Item1. Financial Statements**

 

**Veeco Instruments Inc. andSubsidiariesCondensed Consolidated Statements of Operations(In thousands, except per share data)(Unaudited)**

 
| ** **                                             | ** ** | **Three months ended** | ** ** |
|--------------------------------------------------------|------------|------------------------|------------|
| ** **                                             | ** ** | **March 31,**     | ** ** |
| ** **                                             | ** ** | **2010**               | ** ** | **2009** | ** ** |
| Net sales                                              |       | $                      | 163,231    |   | $ | 62,849 |   |
| Cost of sales                                          |       | 92,882                 |       | 42,467 |   |
| Gross profit                                           |       | 70,349                 |       | 20,382 |   |
| Operating (income) expenses:                           | ** ** | ** **             | ** ** | ** ** | ** ** |
| Selling, general and administrative                    |       | 23,420                 |       | 18,607 |   |
| Research and development                               |       | 16,440                 |       | 12,886 |   |
| Amortization                                           |       | 1,685                  |       | 1,829 |   |
| Restructuring                                          |       | (179                   | )          | 4,431 |   |
| Other, net                                             |       | (153                   | )          | 1,486 |   |
| Total operating expenses                               |       | 41,213                 |       | 39,239 |   |
| Operating income (loss)                                |       | 29,136                 |       | (18,857 | ) |
| Interest expense, net                                  |       | 1,782                  |       | 1,709 |   |
| Income (loss) before income taxes                      |       | 27,354                 |       | (20,566 | ) |
| Income tax provision                                   |       | 1,310                  |       | 378 |   |
| Net income (loss)                                      |       | 26,044                 |       | (20,944 | ) |
| Net loss attributable to noncontrolling interest       |       | —                 |       | (42 | ) |
| Net income (loss) attributable to Veeco                |       | $                      | 26,044     |   | $ | (20,902 | ) |
|                                                   |       |                   |       |   |   |
| Income (loss) per common share attributable to  Veeco: | ** ** | ** **             | ** ** | ** ** | ** ** |
| Basic                                                  |       | $                      | 0.67       |   | $ | (0.66 | ) |
| Diluted                                                |       | $                      | 0.62       |   | $ | (0.66 | ) |
|                                                   |       |                   |       |   |   |
| Weighted average shares outstanding:                   |       |                   |       |   |   |
| Basic                                                  |       | 38,784                 |       | 31,515 |   |
| Diluted                                                |       | 42,269                 |       | 31,515 |   |

 

**VeecoInstruments Inc. and SubsidiariesCondensed Consolidated Statements of Comprehensive Income (Loss)(In thousands)(Unaudited)**

 
| ** **                                                  | ** ** | **Three months ended** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                  | ** ** | **March 31,**     | ** ** |
| ** **                                                  | ** ** | **2010**               | ** ** | **2009** | ** ** |
| Net income (loss)                                           |       | $                      | 26,044     |   | $ | (20,944 | ) |
| Other comprehensive loss, net of tax                        |       |                   |       |   |   |
| Foreign currency translation                                |       | (673                   | )          | (1,665 | ) |
| Comprehensive income (loss)                                 |       | 25,371                 |       | (22,609 | ) |
| Comprehensive loss attributable to noncontrolling  interest |       | —                 |       | (42 | ) |
| Comprehensive income (loss) attributable to Veeco           |       | $                      | 25,371     |   | $ | (22,567 | ) |

 

The accompanying notesare an integral part of these condensed consolidated financial statements*.*

 

5

----

Table of Contents

 

**Veeco Instruments Inc. and SubsidiariesCondensed Consolidated Balance Sheets(In thousands)**

 
| ** **                                 | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                                 | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
| **Assets**                                 |       |               |       |                  |       |
| Current assets:                            |       |               |       |                  |       |
| Cash and cash equivalents                  |       | $                  | 194,047    |                  | $          | 148,589 |   |
| Short-term investments                     |       | 155,500            |       | 135,000               |       |
| Accounts receivable, net                   |       | 89,828             |       | 84,358                |       |
| Inventories                                |       | 84,959             |       | 77,564                |       |
| Prepaid expenses and other current assets  |       | 10,238             |       | 7,819                 |       |
| Deferred income taxes                      |       | 3,029              |       | 3,105                 |       |
| Total current assets                       |       | 537,601            |       | 456,435               |       |
| Property, plant and equipment at cost, net |       | 56,968             |       | 59,389                |       |
| Goodwill                                   |       | 59,422             |       | 59,422                |       |
| Intangible assets, net                     |       | 27,165             |       | 29,697                |       |
| Other assets                               |       | 491                |       | 429                   |       |
| Total assets                               |       | $                  | 681,647    |                  | $          | 605,372 |   |
| **Liabilities and equity**                 | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current liabilities:                       | ** ** | ** **         | ** ** | ** **            | ** ** |
| Accounts payable                           |       | $                  | 35,836     |                  | $          | 29,112 |   |
| Accrued expenses                           |       | 117,375            |       | 106,445               |       |
| Deferred profit                            |       | 6,362              |       | 2,520                 |       |
| Income taxes payable                       |       | 1,341              |       | 829                   |       |
| Current portion of long-term debt          |       | 216                |       | 212                   |       |
| Total current liabilities                  |       | 161,130            |       | 139,118               |       |
| Deferred income taxes                      |       | 5,039              |       | 5,039                 |       |
| Long-term debt                             |       | 101,649            |       | 100,964               |       |
| Other non-current liabilities              |       | 717                |       | 1,192                 |       |
| ** **                                 | ** ** | ** **         | ** ** | ** **            | ** ** |
| Equity                                     |       | 413,112            |       | 359,059               |       |
|                                       |       |               |       |                  |       |
| Total liabilities and equity               |       | $                  | 681,647    |                  | $          | 605,372 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financial statements*.*

 

6

----

Table of Contents

 

**Veeco Instruments Inc. andSubsidiariesCondensed Consolidated Statements of Cash Flows(In thousands)(Unaudited)**

** **
| ** **                                                                                | ** ** | **Three  months ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                | ** ** | **March 31,**      | ** ** |
| ** **                                                                                | ** ** | **2010**                | ** ** | **2009** | ** ** |
| **Operating  activities**                                                                 |       |                    |       |   |   |
| Net income (loss)                                                                         |       | $                       | 26,044     |   | $ | (20,944 | ) |
| Adjustments to reconcile  net income (loss) to net cash provided by operating activities: |       |                    |       |   |   |
| Depreciation and  amortization                                                            |       | 4,986                   |       | 5,556 |   |
| Amortization of debt  discount                                                            |       | 741                     |       | 693 |   |
| Non-cash equity-based  compensation                                                       |       | 2,170                   |       | 1,398 |   |
| Non-cash inventory  write-off                                                             |       | —                  |       | 1,526 |   |
| Non-cash restructuring                                                                    |       | (179                    | )          | — |   |
| Deferred income taxes                                                                     |       | 152                     |       | 222 |   |
| Other, net                                                                                |       | (2                      | )          | 39 |   |
| Changes in operating assets  and liabilities:                                             |       |                    |       |   |   |
| Accounts receivable                                                                       |       | (4,536                  | )          | 20,709 |   |
| Inventories                                                                               |       | (7,161                  | )          | 4,960 |   |
| Accounts payable                                                                          |       | 6,690                   |       | (4,470 | ) |
| Accrued expenses, deferred  profit and other current liabilities                          |       | 15,173                  |       | (7,209 | ) |
| Other, net                                                                                |       | (2,373                  | )          | (348 | ) |
| Net cash provided by  operating activities                                                |       | 41,705                  |       | 2,132 |   |
| **Investing  activities**                                                                 |       |                    |       |   |   |
| Capital expenditures                                                                      |       | (1,122                  | )          | (2,418 | ) |
| Payments for net assets of  businesses acquired                                           |       | —                  |       | (9,644 | ) |
| Proceeds from the  redemption of short-term investments                                   |       | 40,025                  |       | — |   |
| Payments for purchases of  short-term investments                                         |       | (60,500                 | )          | — |   |
| Proceeds from the sale of  property, plant and equipment                                  |       | 13                      |       | — |   |
| Net cash used in investing  activities                                                    |       | (21,584                 | )          | (12,062 | ) |
| **Financing  activities**                                                                 |       |                    |       |   |   |
| Proceeds from stock option  exercises                                                     |       | 26,968                  |       | — |   |
| Restricted stock tax withholdings                                                         |       | (456                    | )          | (2 | ) |
| Repayments of long-term  debt                                                             |       | (52                     | )          | (48 | ) |
| Net cash provided by (used  in) financing activities                                      |       | 26,460                  |       | (50 | ) |
| Effect of exchange rate  changes on cash and cash equivalents                             |       | (1,123                  | )          | (771 | ) |
| Net increase (decrease) in  cash and cash equivalents                                     |       | 45,458                  |       | (10,751 | ) |
| Cash and cash equivalents  at beginning of period                                         |       | 148,589                 |       | 103,799 |   |
| Cash and cash equivalents  at end of period                                               |       | $                       | 194,047    |   | $ | 93,048 |   |
|                                                                                      |       |                    |       |   |   |
| **Non-cash  investing and financing activities**                                          | ** ** | ** **              | ** ** | ** ** | ** ** |
| Transfers from property,  plant and equipment to inventory                                |       | $                       | 1,123      |   | $ | 360 |   |
| Transfers from inventory to  property, plant and equipment                                |       | 850                     |       | 23 |   |
| Sale of property, plant and  equipment with note receivable                               |       | 140                     |       | — |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financial statements*.*

 

7

----

Table of Contents

 

**Veeco Instruments Inc. andSubsidiariesNotes to Condensed Consolidated Financial Statements (Unaudited)**

 

**Note 1—Basisof Presentation**

 

The accompanyingunaudited condensed consolidated financial statements of Veeco Instruments Inc.(together with its consolidated subsidiaries, “Veeco,” the “Company” or “we”)have been prepared in accordance with accounting principles generally acceptedin the United States (“U.S.”) for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X.Accordingly, they do not include all of the information and footnotes requiredby U.S. generally accepted accounting principles for complete financialstatements. In the opinion of management, all adjustments considered necessaryfor a fair presentation (consisting of normal recurring accruals) have beenincluded. Operating results for the three months ended March 31, 2010, arenot necessarily indicative of the results that may be expected for the yearending December 31, 2010. For further information, refer to theconsolidated financial statements and footnotes thereto included in our AnnualReport on Form 10-K for the year ended December 31, 2009.

 

Consistent with prioryears, we report interim quarters, other than fourth quarters which always endon December 31, on a 13-week basis ending on the last Sunday within suchperiod. The interim quarter ends are determined at the beginning of each yearbased on the 13-week quarters. The 2010 interim quarter ends are March 28,June 27 and September 26. The 2009 interim quarter ends were March 29,June 28 and September 27. For ease of reference, we report theseinterim quarter ends as March 31, June 30 and September 30 inour interim condensed consolidated financial statements.

 

*NetIncome (Loss) Per Common Share*

 

The following table sets forth the reconciliation ofbasic weighted average shares outstanding and diluted weighted average sharesoutstanding (in thousands):

 
| ** **                                                              | ** ** | **Three months ended** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                              | ** ** | **March 31,**     | ** ** |
| ** **                                                              | ** ** | **2010**               | ** ** | **2009** | ** ** |
|                                                                    |       |                   |       |   |   |
| Basic  weighted average shares outstanding                              |       | 38,784                 |       | 31,515 |   |
| Dilutive  effect of stock options and restricted stock awards and units |       | 2,533                  |       | — |   |
| Dilutive  effect of convertible notes                                   |       | 952                    |       | — |   |
| Diluted  weighted average shares outstanding                            |       | 42,269                 |       | 31,515 |   |

 

Net income (loss) percommon share is computed using the weighted average number of common sharesoutstanding during the period. Diluted net income (loss) per common share iscomputed using the weighted average number of common shares and commonequivalent shares outstanding during the period. For the three months ended March 31,2009, the effect of approximately 3.8 million stock options and 0.6 millionrestricted shares were excluded from the computation of diluted weightedaverage shares outstanding due to the net loss sustained in the period as theirinclusion would have been anti-dilutive.

 

Our convertible notes meet the criteria for determining the effect ofthe assumed conversion using the treasury stock method of accounting, as longas we have the ability and the intent to settle the principal amount of theNotes in cash. Under the terms of these notes, we may pay the principal amountof converted notes in cash or in shares of common stock. We have indicated thatwe intend to pay the principal amount in cash. Using the treasury stock method,it was determined that the impact of the assumed conversion for the threemonths ended March 31, 2010, had a dilutive affect of 952,000 commonequivalent shares and for the three months ended March 31, 2009, theimpact was anti-dilutive, due to the net loss sustained in the period. The effect of the assumedconverted shares is dependent on the stock price at the time of the conversion.The maximum number of common equivalent shares issuable upon conversion at March 31,2010 was approximately 5.4 million. See Note 6 for further details on our debt.

 

8

----

Table of Contents

 

*Short-TermInvestments*

 

We determine theappropriate balance sheet classification of our investments at the time ofpurchase and evaluate the classification at each balance sheet date. As part ofour cash management program, we maintain a portfolio of marketable securitieswhich are classified as available-for-sale. These securities includecertificates of deposit placed through an account registry service (“CDARS”)with maturities of greater than three months but less than one year whenpurchased in principal amounts that, when aggregated with interest to accrueover the term, will not exceed Federal Deposit Insurance Corporation limits.These securities are carried at cost, which approximates market value.

 

#### ***Derivative Financial Instruments***

#### ** **

We use derivative financial instruments to minimizethe impact of foreign exchange rate changes on earnings and cash flows. In thenormal course of business, our operations are exposed to fluctuations inforeign exchange rates. In order to reduce the effect of fluctuating foreigncurrencies on short-term foreign currency-denominated intercompany transactionsand other known foreign currency exposures, we enter into monthly forwardcontracts. We do not use derivative financial instruments for trading orspeculative purposes. Our forward contracts are not expected to subject us tomaterial risks due to exchange rate movements because gains and losses on thesecontracts are intended to offset exchange gains and losses on the underlyingassets and liabilities. The forward contracts are marked-to-market throughearnings. We conduct our derivative transactions with highly rated financialinstitutions in an effort to mitigate any material credit risk. The aggregateforeign currency exchange gain (loss) included in determining the condensedconsolidated results of operations was approximately $0.1 million and($1.4) million during the three months ended March 31, 2010 and 2009,respectively. Included in the aggregate foreign currency exchange gain (loss)were gains related to forward contracts of $0.1 million and $0.2 millionduring the three months ended March 31, 2010, and 2009, respectively.These amounts were recognized and are included in other, net in theaccompanying condensed consolidated statements of operations. As of March 31,2010, approximately $0.1 million of gains related to forward contracts areincluded in prepaid expenses and other current assets and were subsequentlyreceived in April 2010. As of December 31, 2009, approximately $0.2million of gains related to forward contracts were included in prepaid expensesand other current assets and subsequently received in January 2010.Monthly forward contracts with a notional amount of $6.7 million for the monthof April 2010 were entered into in March.

 

The weighted averagenotional amount of derivative contracts outstanding during the three monthsended March 31, 2010 was approximately $3.2 million.

 

**Note 2—****Equity-BasedCompensation Plans**

 

*Equity-Based Compensation*

 

Equity-based compensationcost is measured at the grant date, based on the fair value of the award, andis recognized as expense over the employee requisite service period.The following compensation expense was included in the condensed consolidatedstatements of operations for the three months ended March 31, 2010 and2009 (in thousands):

 
| ** **                        | ** ** | **Three  months ended** | ** ** |
|-----------------------------------|------------|-------------------------|------------|
| ** **                        | ** ** | **March 31,**      | ** ** |
| ** **                        | ** ** | **2010**                | ** ** | **2009** | ** ** |
| Equity-based compensation expense |       | $                       | 2,170      |   | $ | 1,398 |   |
|                                   |            |                         |            |  |  |  |  |

 

As of March 31, 2010, the total unrecognizedcompensation related to nonvested stock and stock option awards is $8.3 millionand $9.7 million, respectively. The related weighted average period over whichwe expect that such unrecognized compensation will be recognized isapproximately 2.6 years for nonvested stock awards and 2.0 years for optionawards.

 

9

----

Tableof Contents

 

*Stock Option and Restricted Stock Activity*

 

A summary of ourrestricted stock awards including restricted stock units for the three monthsended March 31, 2010, is presented below:

 
| ** **                              | ** ** | **Shares  (000s)** | ** ** | **Weighted  Average Grant-  Date Fair Value** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-----------------------------------------------|------------|
| Nonvested at January 1, 2010       |       | 892                |       | $                                             | 12.97      |   |
| Granted                                 |       | 36                 |       | 32.81                                         |       |
| Vested                                  |       | (40                | )          | 14.39                                         |       |
| Forfeited  (including cancelled awards) |       | (13                | )          | 14.38                                         |       |
| Nonvested  at March 31, 2010       |       | 875                |       | 13.69                                         |       |
|                                         |            |                    |            |                                               |            |  |

 

A summary of ourstock option awards for the three months ended March 31, 2010, ispresented below:

 
| ** **                                 | ** ** | **Shares  (000s)** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Aggregate  Intrinsic  Value (000s)** | ** ** | **Weighted-  Average  Remaining  Contractual  Life (in years)** | ** ** |
|--------------------------------------------|------------|--------------------|------------|----------------------------------------|------------|----------------------------------------|------------|-----------------------------------------------------------------|------------|
| Outstanding at January 1, 2010        |       | 4,506              |       | $                                      | 16.35      |                                   |       |                                                            |       |   |
| Granted                                    |       | 71                 |       | 32.81                                  |       |                                   |       |                                                            |       |
| Exercised                                  |       | (1,386             | )          | 19.46                                  |       |                                   |       |                                                            |       |
| Forfeited (including cancelled options)    |       | (33                | )          | 13.78                                  |       |                                   |       |                                                            |       |
| Expirations of vested options              |       | (1                 | )          | 20.25                                  |       |                                   |       |                                                            |       |
| Outstanding at March 31, 2010         |       | 3,157              |       | 15.40                                  |       | $                                      | 65,327     |                                                            | 5.0        |   |
| Options exercisable at March 31, 2010 |       | 842                |       | 19.80                                  |       | $                                      | 20,431     |                                                            | 2.6        |   |
|                                            |            |                    |            |                                        |            |                                        |            |                                                                 |            |  |  |

 

**Note 3—Balance SheetInformation**

 

*AccountsReceivable, net*

 

Accounts receivable areshown net of the allowance for doubtful accounts of $0.8 million and $0.9million as of March 31, 2010 and December 31, 2009, respectively.

 

*Inventories*

 

Inventories are stated atthe lower of cost (principally first-in, first-out) or market. Inventoriesconsist of (in thousands):

 
| ** **      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|--------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| Raw materials   |       | $                  | 48,125     |                  | $          | 49,013 |   |
| Work in process |       | 31,509             |       | 21,560                |       |
| Finished goods  |       | 5,325              |       | 6,991                 |       |
|            |       | $                  | 84,959     |                  | $          | 77,564 |   |

 

10

----

Tableof Contents

 

*Accrued Warranty*

 

We estimate the costs that may be incurred under thewarranty we provide and record a liability in the amount of such costs at thetime the related revenue is recognized. Factors that affect our warrantyliability include product failure rates, material usage and labor costsincurred in correcting product failures during the warranty period.  We periodically assess the adequacy of ourrecognized warranty liability and adjust the amount as necessary.  Changes in our warranty liability during theperiod are as follows (in thousands):

 
| ** **                           | ** ** | **Three months ended********March 31** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|
| ** **                           | ** ** | **2010**                                    | ** ** | **2009** | ** ** |
| Balance as of  beginning of period   |       | $                                           | 7,556      |   | $ | 6,892 |   |
| Warranties issued  during the period |       | 1,608                                       |       | 426 |   |
| Settlements made  during the period  |       | (1,559                                      | )          | (775 | ) |
| Balance at end  of period            |       | $                                           | 7,605      |   | $ | 6,543 |   |

 

**Note 4—Segment Information**

 

We manage the business,review operating results and assess performance, as well as allocate resources,based upon three separate reporting segments that reflect the market focus ofeach business. The Light Emitting Diode (“LED”) & Solar ProcessEquipment segment consists of metal organic chemical vapor deposition (“MOCVD”)systems, molecular beam epitaxy (“MBE”) systems, thermal deposition sources,and other types of deposition systems used to deposit materials on flexible andglass substrates. These systems are primarily sold to customers in thehigh-brightness LED (“HB LED”) and solar industries, as well as to scientificresearch customers. This segment has product development and marketing sites inSomerset, New Jersey, St. Paul, Minnesota and Lowell, Massachusetts. The DataStorage Process Equipment segment consists of the ion beam etch, ion beamdeposition, diamond-like carbon, physical vapor deposition and dicing andslicing products sold primarily to customers in the data storage industry.  This segment has product development andmarketing sites in Plainview, New York, Ft. Collins, Colorado and SantaBarbara, California. In our Metrology segment, we design and manufacture atomicforce microscopes, scanning probe microscopes, stylus profilers and opticalinterferometers used to provide critical surface measurements in research andproduction environments. This broad line of products is used in universities,research facilities and scientific centers worldwide. In productionenvironments such as semiconductor, data storage and other broad industries,our metrology instruments enable customers to monitor their products throughoutthe manufacturing process to improve yields, reduce costs and improve productquality. This segment has product development and marketing sites in Camarilloand Santa Barbara, California and Tucson, Arizona.

 

We evaluate theperformance of our reportable segments based on income (loss) from operationsbefore interest, income taxes, amortization and certain items (“Segment profit(loss)”), which is the primary indicator used to plan and forecast futureperiods. The presentation of this financial measure facilitates meaningfulcomparison with prior periods, as management believes segment profit (loss)reports baseline performance and thus provides useful information. The otherexcluded items include restructuring (credits) expenses, asset impairmentcharges, inventory write-offs and equity-based compensation expense. Theaccounting policies of the reportable segments are the same as those describedin the summary of critical accounting policies.

 

11

----

Tableof Contents

 

Thefollowing tables present certain data pertaining to our reportable productsegments and a reconciliation of segment profit (loss) to income (loss) beforeincome taxes for the three months ended March 31, 2010 and 2009,respectively, and goodwill and total assets as of March 31, 2010 and December 31,2009 (in thousands):

 
| ** **                                  | ** ** | **LED &  Solar  Process  Equipment** | ** ** | **Data  Storage  Process  Equipment** | ** ** | **Metrology** | ** ** | **Unallocated  Corporate  Amount** | ** ** | **Total**  | ** ** |
|---------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------|------------|---------------|------------|------------------------------------|------------|------------|------------|
| **Three  months ended March 31, 2010** | ** ** | ** **                                    | ** ** | ** **                            | ** ** | ** **    | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Net sales                                   |       | $                                             | 111,504    |                                  | $          | 23,245        |       | $                                  | 28,482     |       | $          | — |   | $ | 163,231 |   |
| Segment profit  (loss)                      |       | $                                             | 29,817     |                                  | $          | 3,197         |       | $                                  | 2,932      |       | $          | (3,134 | ) | $ | 32,812 |   |
| Interest, net                               |       | —                                        |       | —                                |       | —        |       | 1,782                              |       | 1,782      |       |
| Amortization                                |       | 796                                           |       | 383                                   |       | 447           |       | 59                                 |       | 1,685      |       |
| Equity-based  compensation                  |       | 467                                           |       | 215                                   |       | 304           |       | 1,184                              |       | 2,170      |       |
| Restructuring                               |       | —                                        |       | (179                                  | )          | —        |       | —                             |       | (179       | )          |
| Income (loss)  before income taxes          |       | $                                             | 28,554     |                                  | $          | 2,778         |       | $                                  | 2,181      |       | $          | (6,159 | ) | $ | 27,354 |   |
| **Three  months ended March 31, 2009** |       |                                          |       |                                  |       |          |       |                               |       |       |       |
| Net sales                                   |       | $                                             | 22,202     |                                  | $          | 16,905        |       | $                                  | 23,742     |       | $          | — |   | $ | 62,849 |   |
| Segment loss                                |       | $                                             | (3,712     | )                                     | $          | (1,632        | )          | $                                  | (2,705     | )          | $          | (1,624 | ) | $ | (9,673 | ) |
| Interest, net                               |       | —                                        |       | —                                |       | —        |       | 1,709                              |       | 1,709      |       |
| Amortization                                |       | 775                                           |       | 405                                   |       | 577           |       | 72                                 |       | 1,829      |       |
| Equity-based  compensation                  |       | 156                                           |       | 252                                   |       | 236           |       | 754                                |       | 1,398      |       |
| Restructuring                               |       | 734                                           |       | 1,386                                 |       | 2,124         |       | 187                                |       | 4,431      |       |
| Inventory  write-offs                       |       | —                                        |       | 1,526                                 |       | —        |       | —                             |       | 1,526      |       |
| Loss before  income taxes                   |       | $                                             | (5,377     | )                                     | $          | (5,201        | )          | $                                  | (5,642     | )          | $          | (4,346 | ) | $ | (20,566 | ) |

 
| ** **                        | ** ** | **LED &  Solar  Process  Equipment** | ** ** | **Data  Storage  Process  Equipment** | ** ** | **Metrology** | ** ** | **Unallocated  Corporate  Amount** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|-----------------------------------------------|------------|---------------------------------------|------------|---------------|------------|------------------------------------|------------|-----------|------------|
| **As  of March 31, 2010**    |       |                                          |       |                                  |       |          |       |                               |       |      |       |
| Goodwill                          |       | $                                             | 51,989     |                                  | $          | —        |       | $                                  | 7,433      |      | $          | — |   | $ | 59,422 |   |
| Total assets                      |       | $                                             | 182,814    |                                  | $          | 50,034        |       | $                                  | 81,213     |      | $          | 367,586 |   | $ | 681,647 |   |
|                              |       |                                          |       |                                  |       |          |       |                               |       |      |       |
| **As  of December 31, 2009** |       |                                          |       |                                  |       |          |       |                               |       |      |       |
| Goodwill                          |       | $                                             | 51,989     |                                  | $          | —        |       | $                                  | 7,433      |      | $          | — |   | $ | 59,422 |   |
| Total assets                      |       | $                                             | 178,406    |                                  | $          | 54,106        |       | $                                  | 72,912     |      | $          | 299,948 |   | $ | 605,372 |   |

 

Corporatetotal assets are comprised principally of cash and cash equivalents andshort-term investments at March 31, 2010 and December 31, 2009,respectively.

 

**Note 5—Income Taxes**

 

We hadapproximately $1.4 million of unrecognized tax benefits at March 31, 2010and December 31, 2009, which predominantly relate to positions taken onour foreign tax returns and all of which represent the amount of unrecognizedtax benefits that, if recognized, would favorably impact the effective incometax rate in future periods.

 

We or one of our subsidiaries file income tax returnsin the U.S. federal jurisdiction and various state, local, and foreignjurisdictions. All material federal income tax matters have been concluded foryears through 2006 subject to subsequent utilization of net operating lossesgenerated in such years. All material state and local income tax matters havebeen concluded for years through 2005. The majority of our foreignjurisdictions have been reviewed through 2007 with only a few jurisdictionshaving open tax years between 2004 and 2007. None of our tax returns arecurrently under examination in the federal and foreign jurisdictions.

 

Werecognize interest and penalties related to income tax matters in income taxexpense. The total accrual for interest and penalties related to uncertain taxpositions was approximately $0.5 million as of March 31, 2010 and December 31,2009.

 

12

----

Tableof Contents

 

**Note 6—Debt**

 

*Convertible Notes*

 

Theconvertible notes are initially convertible into 36.7277 shares of common stockper $1,000 principal amount of notes (equivalent to a conversion price of$27.23 per share or a premium of 38% over the closing market price for Veeco’scommon stock on April 16, 2007). Holders may convert the notes at any timeduring the period beginning on January 15, 2012 through the close ofbusiness on the second day prior to April 15, 2012 and earlier upon theoccurrence of certain events including our common stock trading at prices equalto 130% of the conversion price for a specified period. We pay interest onthese notes on April 15 and October 15 of each year. The notes areunsecured and are effectively subordinated to all of our senior and securedindebtedness, and to all indebtedness and other liabilities of oursubsidiaries.

 

In May 2008, accountingguidance was issued that requires a portion of convertible debt to be allocatedto equity. We implemented the new guidance as of January 1, 2009 and haveapplied it retrospectively to all periods presented, as required.  This guidance requires issuers of convertibledebt that can be settled in cash to separately account for (*i.e.,* bifurcate) a portion of the debt associated with theconversion feature and reclassify this portion to equity. The liabilityportion, which represents the fair value of the debt without the conversionfeature, is accreted to its face value over the life of the debt using theeffective interest method by amortizing the discount between the face amountand the fair value. The amortization is recorded as interest expense. The convertiblenotes are subject to such accounting guidance since they may be settled in cashupon conversion. Thus, as a result of the adoption of this accounting guidance,we reclassifiedapproximately $16.3 million from long-term debt to additional paid-in capitaleffective as of the date of issuance of the notes. This reclassificationcreated a $16.3 million discount on the debt that is amortized over theremaining life of the notes, which will be through April 15, 2012. For thethree months ended March 31, 2010 and 2009, respectively, we recordedapproximately $0.7 million of additional interest expense in each periodresulting from the amortization of the debt discount. This additional interestexpense did not require the use of cash.

 

The components ofinterest expense recorded on the notes for the three months ended March 31,2010 and 2009, respectively, were as follows (in thousands):

 
| ** **                                 | ** ** | **Three  months ended********March 31,** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | **2010**                                      | ** ** | **2009** | ** ** |
| ** **                                 | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Contractual  interest                      |       | $                                             | 1,089      |   | $ | 1,089 |   |
| Amortization of  the discount on the notes |       | 741                                           |       | 693 |   |
| Total interest  expense on the notes       |       | $                                             | 1,830      |   | $ | 1,782 |   |
| Effective  interest rate                   |       | 6.9                                           | %          | 6.8 | % |

 

The carrying amounts ofthe liability and equity components of the notes as of March 31, 2010 and December 31,2009, respectively, were as follows (in thousands):

 
| ** **                                     | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Carrying amount  of the equity component       |       | $                        | 16,318     |                        | $          | 16,318 |   |
| ** **                                     | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Principal  balance of the liability component  |       | $                        | 105,574    |                        | $          | 105,574 |   |
| Less:  unamortized discount                    |       | 6,752                    |       | 7,493                       |       |
| Net carrying  value of the liability component |       | $                        | 98,822     |                        | $          | 98,081 |   |

 

At March 31, 2010,$105.6 million of the notes outstanding had a fair value of approximately$172.7 million.

 

13

----

Tableof Contents

 

*Mortgage Payable*

 

We also have a mortgagepayable, with approximately $3.0 million outstanding at March 31,2010. The mortgage accrues interest at an annual rate of 7.91%, and the finalpayment is due on January 1, 2020. The fair value of the mortgage at March 31,2010 was approximately $3.3 million.

 

**Note 7—****Fair Value Measurements**

 

We have categorized our assets and liabilitiesrecorded at fair value based upon the fair value hierarchy. The levels of fairvalue hierarchy are as follows:

 

·                  Level 1 inputs utilize quoted prices (unadjusted) inactive markets for identical assets or liabilities that we have the ability toaccess.

 

·                  Level 2 inputs utilize other-than-quoted prices thatare observable, either directly or indirectly. Level 2 inputs include quotedprices for similar assets and liabilities in active markets, and inputs such asinterest rates and yield curves that are observable at commonly quotedintervals.

 

·                  Level 3 inputs are unobservable and are typicallybased on our own assumptions, including situations where there is little, ifany, market activity.

 

In certain cases, the inputs used to measure fairvalue may fall into different levels of the fair value hierarchy. In suchcases, we categorize such assets or liabilities based on the lowest level inputthat is significant to the fair value measurement in its entirety. Ourassessment of the significance of a particular input to the fair valuemeasurement in its entirety requires judgment and considers factors specific tothe asset.

 

Both observable and unobservable inputs may be used todetermine the fair value of positions that are classified within theLevel 3 category. As a result, the unrealized gains and losses for assetswithin the Level 3 category presented below may include changes in fairvalue that were attributable to both observable (e.g., changes in marketinterest rates) and unobservable (e.g., changes in historical company data)inputs.

 

As of March 31, 2010, major categories of assetsmeasured at fair value on a recurring basis under Level 2 consisted of CDARStotaling $211.0 million, treasury bills totaling $62.0 million and derivativeinstruments totaling $0.1 million. As of December 31, 2009, majorcategories of assets measured at fair value on a recurring basis under Level 2consisted of CDARS totaling $180.0 million and derivative instruments totaling$0.2 million. The Company had no Level 1 and Level 3 assets and liabilitiesmeasured on a recurring basis at March 31, 2010 and December 31,2009.

 

CDARS and treasury bills are carried at cost, whichapproximates market value. Accordingly, no gains or losses (realized/unrealized) have been incurred.

 

Derivative instruments include foreign currencyforward contracts to hedge certain foreign currency transactions. Derivativeinstruments are valued using standard calculations/models that are primarilybased on observable inputs, including foreign currency exchange rates,volatilities and interest rates.

 

As of March 31, 2010, major categories of assetsand liabilities measured at fair value under Level 3 on a nonrecurring basisconsisted of property, plant and equipment totaling $57.0 million, goodwilltotaling $59.4 million, intangible assets totaling $27.2 million, an assetretirement obligation totaling ($0.2) million and a restructuring liabilitytotaling ($1.5) million. As of December 31, 2009, major categories ofassets and liabilities measured at fair value under Level 3 on a nonrecurringbasis consisted of property, plant and equipment totaling $59.4 million, goodwilltotaling $59.4 million, intangible assets totaling $29.7 million, an assetretirement obligation totaling ($0.2) million and a restructuring liabilitytotaling ($2.5) million. The Company had no Level 1 or Level 2 assets andliabilities measured on a nonrecurring basis at March 31, 2010 and December 31,2009.

 

14

----

Tableof Contents

 

**Note 8—****Commitments, Contingencies and Other Matters**

 

*Restructuring and Other (Credits) Charges*

 

During 2007, management initiated a profit improvementplan, resulting in personnel severance costs associated with a reduction of ourworkforce which included management, administration and manufacturing employees’companywide. Additionally, during the fourth quarter of 2007, we tookadditional measures to improve profitability, including a reduction ofdiscretionary expenses, realignment of our sales organization to more closelymatch current market and regional opportunities, and consolidation of certainengineering groups within our data storage business, which included thediscontinuation of two products. During 2008 and 2009, we continued ourmulti-quarter plan to improve profitability and reduce and contain spending. Wemade progress against the initiatives that management set in 2007, continuedour restructuring plan and executed activities with a focus on creating a morecost effective organization, with a greater percentage of variable costs. Theseactivities included downsizing and consolidating some locations, reducing ourworkforce, consultants and discretionary expenses and realigning our salesorganization and engineering groups.

 

In conjunction with these activities, we recorded a ofrestructuring credit of approximately $0.2 million during the three monthsended March 31, 2010 and restructuring charges of approximately $4.4million during the three months ended March 31, 2009, and inventorywrite-offs of $1.5 million, included in cost of sales in the accompanyingCondensed Consolidated Statement of Operations, associated with thediscontinuance of certain products in connection with transitioning tooutsourced manufacturing during the three months ended March 31, 2009.Restructuring for the three months ended March 31, 2010 and 2009 is asfollows (in thousands):

 
| ** **                               | ** ** | **Three months ended********March 31,** | ** ** |
|------------------------------------------|------------|----------------------------------------------|------------|
| ** **                               | ** ** | **2010**                                     | ** ** | **2009** | ** ** |
| Personnel  severance and related costs   |       | $                                            | —     |   | $ | 4,386 |   |
| Lease-related  and other (credits) costs |       | (179                                         | )          | 45 |   |
|                                     |       | $                                            | (179       | ) | $ | 4,431 |   |

 

*Personnel severance and related costs*

 

During the first quarterof 2009, we recorded $4.4 million in personnel severance and related costsresulting from a headcount reduction of approximately 140 employees. Thisreduction in workforce included executives, management, administration, salesand service personnel and manufacturing employees’ companywide.

 

*Lease-related and other (credits) costs*

 

During the first quarter of 2010, we had a change inestimate relating to one of our leased facilities. As a result, we incurred arestructuring credit of $0.2 million, consisting primarily of the remaininglease payment obligations and estimated property taxes for a portion of thefacility we will occupy, offset by a reduction in expected sublease income. Wemade certain assumptions in determining the credit, which included a reductionin estimated sublease income and terms of the sublease as well as the estimateddiscount rate to be used in determining the fair value of the remainingliability. We developed these assumptions based on our understanding of thecurrent real estate market as well as current market interest rates. Theassumptions are based on management’s best estimates, and will be adjustedperiodically if new information is obtained.

 

During the first quarter of 2009, we incurred chargesrelated to various moving and consolidation activities.

 

15

----

Tableof Contents

 

*Restructuring liability*

 

The following is areconciliation of the liability for the 2009 and 2008 restructuring charge frominception through March 31, 2010 (in thousands):

 
| ** **                                  | ** ** | **LED & Solar  Process  Equipment** | ** ** | **Data Storage Process  Equipment** | ** ** | **Metrology** | ** ** | **Unallocated  Corporate** | ** ** | **Total** | ** ** |
|---------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------|------------|---------------|------------|----------------------------|------------|-----------|------------|
| Short-term  liability                       |       |                                         |       |                                |       |          |       |                       |       |      |       |
| Lease-related  costs 2008                   |       | $                                            | —     |                                | $          | —        |       | $                          | 259        |      | $          | 1,189 |   | $ | 1,448 |   |
| Personnel  severance charges 2008           |       | 732                                          |       | 477                                 |       | 879           |       | 1,405                      |       | 3,493     |       |
| Total charged to  accrual 2008              |       | 732                                          |       | 477                                 |       | 1,138         |       | 2,594                      |       | 4,941     |       |
| Lease-related  costs 2009                   |       | 190                                          |       | 803                                 |       | 13            |       | —                     |       | 1,006     |       |
| Personnel  severance charges 2009           |       | 1,005                                        |       | 1,826                               |       | 2,830         |       | 636                        |       | 6,297     |       |
| Total charged to  accrual 2009              |       | 1,195                                        |       | 2,629                               |       | 2,843         |       | 636                        |       | 7,303     |       |
| Reversal of  lease-related costs 2010       |       | —                                       |       | (108                                | )          | —        |       | —                     |       | (108      | )          |
| Short-term/long-term  reclassification 2008 |       | —                                       |       | —                              |       | —        |       | 892                        |       | 892       |       |
| Short-term/long-term  reclassification 2009 |       | —                                       |       | 148                                 |       | —        |       | 1,084                      |       | 1,232     |       |
| Short-term/long-term  reclassification 2010 |       | —                                       |       | 44                                  |       | —        |       | 267                        |       | 311       |       |
| Cash payments  2008                         |       | (72                                          | )          | (207                                | )          | (604          | )          | (1,627                     | )          | (2,510    | )          |
| Cash payments  2009                         |       | (1,502                                       | )          | (2,561                              | )          | (3,362        | )          | (1,982                     | )          | (9,407    | )          |
| Cash payments  2010                         |       | (289                                         | )          | (156                                | )          | (15           | )          | (656                       | )          | (1,116    | )          |
| Balance as of  March 31, 2010          |       | $                                            | 64         |                                | $          | 266           |       | $                          | —     |      | $          | 1,208 |   | $ | 1,538 |   |
|                                        |       |                                         |       |                                |       |          |       |                       |       |      |       |
| Long-term  liability                        |       |                                         |       |                                |       |          |       |                       |       |      |       |
| Lease-related  costs 2008                   |       | $                                            | —     |                                | $          | —        |       | $                          | —     |      | $          | 2,684 |   | $ | 2,684 |   |
| Lease-related  costs 2009                   |       | —                                       |       | 377                                 |       | —        |       | —                     |       | 377       |       |
| Reversal of  lease-related costs 2010       |       | —                                       |       | (71                                 | )          | —        |       | —                     |       | (71       | )          |
| Short-term/long-term  reclassification 2008 |       | —                                       |       | —                              |       | —        |       | (892                       | )          | (892      | )          |
| Short-term/long-term  reclassification 2009 |       | —                                       |       | (148                                | )          | —        |       | (1,084                     | )          | (1,232    | )          |
| Short-term/long-term  reclassification 2010 |       | —                                       |       | (44                                 | )          | —        |       | (267                       | )          | (311      | )          |
| Other  adjustments                          |       | —                                       |       | —                              |       | —        |       | (172                       | )          | (172      | )          |
| Balance as of  March 31, 2010          |       | $                                            | —     |                                | $          | 114           |       | $                          | —     |      | $          | 269 |   | $ | 383 |   |

** **

**The balance of the short-termrestructuring liability relating to personnel severance charges is expected tobe paid over the next three months. The long-term liability will be paid overthe remaining life of the leases for the former corporate headquarters and aformer Data Storage Process Equipment facility, which expire in June 2011and May 2012, respectively. We have not incurred and currently do notanticipate or expect to incur additional restructuring charges during 2010.**

 

16

----

Tableof Contents

 

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

 

**ExecutiveSummary**

 

We design, manufacture,market and service enabling solutions for customers in the high brightness (“HB”)light emitting diode (“LED”) (“HB LED”), solar, data storage, scientificresearch, semiconductor, and industrial markets. We have leading technologypositions in our three segments: LED & Solar Process Equipment, DataStorage Process Equipment, and Metrology.

 

In our LED & Solarsegment, we design and manufacture metal organic chemical vapor deposition (“MOCVD”)systems, molecular beam epitaxy (“MBE”) systems and sources, and other types ofdeposition systems such as web and glass coaters, which we sell tomanufacturers of HB LEDs and solar panels, as well as to scientific researchcustomers.

 

In our Data Storage segment, wedesign and manufacture ion beam etch, ion beam deposition, diamond-like carbon,physical vapor deposition, chemical vapor deposition, and dicing and slicingsystems primarily used to create thin film magnetic heads (“TFMHs”) that readand write data on hard disk drives.

 

In our Metrology segment, we designand manufacture atomic force microscopes (“AFMs”), scanning probe microscopes (“SPMs”),stylus profilers, and optical interferometers used to provide critical surfacemeasurements in research and production environments. This broad line ofproducts is used in universities, research facilities and scientific centersworldwide. In production environments such as semiconductor, data storage andother industries, our metrology instruments enable customers to monitor theirproducts throughout the manufacturing process to improve yields, reduce costs,and improve product quality.

 

We currently maintain facilities inArizona, California, Colorado, Massachusetts, Minnesota, New Jersey and NewYork, with sales and service locations in Minnesota, Pennsylvania, France,England, Germany, Netherlands, Japan, Singapore, China, Taiwan, Korea,Malaysia, Philippines and Thailand.

 

**Highlights of the First Quarter of2010**

 

·                  Revenue was $163.2 million, a 159.7% increase from thefirst quarter of 2009.

·                  Orders were $267.8 million, up 404.9% from the firstquarter of 2009.

·                  Net income was $26.0 million, or $0.62 per share,compared to a net loss of $20.9 million, or ($0.66) per share, in the firstquarter of 2009.

·                  Gross margins were 43.1%, compared to 32.4% in thefirst quarter of 2009.

 

**Outlook**

 

With record backlog of$502 million at the end of March 2010 Veeco continues to have very strongbusiness momentum beginning the second quarter.  We continue to experiencehigh levels of activity in our LED & Solar business, similar to thelast three quarters, with multi-tool system orders being quoted across a largenumber of customers.  Our K465i is performing well in the market and weare increasing manufacturing capacity to satisfy customer demand.  In thefirst quarter of 2010, we shipped 48 systems, with a goal to ship more than 75systems in the second quarter.  We are currently planning to further buildcapacity to ship more than 100 and 120 systems in the third and fourthquarters, respectively.  As a result, 2010 is currently forecasted to be astrong year of revenue and profit growth for our LED & Solarbusiness.  We believe the HB LED industry is at the beginning of amulti-year MOCVD investment cycle as HB LEDs increase their penetration inlaptop and TV backlighting and gain momentum for general illumination.  Wecontinue to invest in our new copper, indium, gallium, selenide (“CIGS”) Solarbusiness, with a goal to build a “best of breed” deposition product line andultimately help to drive CIGS technology as a low-cost, high efficiency solartechnology. We currently plan to begin shipping our first new CIGS depositionsystems to customers in Asia during the second quarter of 2010.

 

In 2010, our Data Storagebusiness is also currently anticipated to perform well as customers invest incapacity additions and next-generation recording head technology.  InMetrology we are winning in the market due to our new AFM products. Wecurrently expect both of these businesses to gain share and grow revenue andprofits in 2010.

 

17

----

Tableof Contents

 

Our outlook discussionabove constitutes “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. Our expectations regarding futureresults are subject to risks and uncertainties. Our actual results may differmaterially from those anticipated. Risks associated with our ability to achievethese results are set forth in Items 1, 1A, 3, 7 and 7A in our annual report onForm 10-K for the year ended December 31, 2009, as well as anymodifications or revisions to risk factors contained in our subsequent filingswith the SEC

 

You should not placeundue reliance on any forward-looking statements, which speak only as of thedates they are made.

 

18

----

Tableof Contents

 

**Results of Operations:**

 

# ***Three Months Ended March 31,2010 and 2009***

# * *

Consistent with prior years, we report interimquarters, other than fourth quarters which always end on December 31, on a13-week basis ending on the last Sunday within such period. The interim quarterends are determined at the beginning of each year based on the 13-weekquarters. The 2010 interim quarter ends are March 28, June 27 and September 26.The 2009 interim quarter ends were March 29, June 28 and September 27.For ease of reference, we report these interim quarter ends as March 31, June 30and September 30 in our interim condensed consolidated financialstatements.

 

The following table shows our Condensed ConsolidatedStatements of Operations, percentages of sales, and comparisons between thethree months ended March 31, 2010 and 2009 (dollars in thousands):

 
| ** **                                        | ** ** | ** **              | ** ** | ** **     | ** ** | ** **        | ** ** | ** ** | ** ** | **Dollar  and** | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|----------------|------------|-------------------|------------|------------|------------|-----------------|------------|
| ** **                                        | ** ** | **Three  months ended** | ** ** | **Percentage** | ** ** |
| ** **                                        | ** ** | **March 31,**      | ** ** | **Change**     | ** ** |
| ** **                                        | ** ** | **2010**                | ** ** | **2009**       | ** ** | **Year to  Year** | ** ** |
| Net sales                                         |       | $                       | 163,231    |           | 100.0      | %                 | $          | 62,849     |       | 100.0           | %          | $ | 100,382 |   | 159.7 | % |
| Cost of sales                                     |       | 92,882                  |       | 56.9           |       | 42,467            |       | 67.6       |       | 50,415          |       | 118.7 |   |
| Gross profit                                      |       | 70,349                  |       | 43.1           |       | 20,382            |       | 32.4       |       | 49,967          |       | 245.2 |   |
| Operating  (income) expenses:                     |       |                    |       |           |       |              |       |       |       |            |       |   |   |
| Selling, general  and administrative              |       | 23,420                  |       | 14.3           |       | 18,607            |       | 29.6       |       | 4,813           |       | 25.9 |   |
| Research and  development                         |       | 16,440                  |       | 10.1           |       | 12,886            |       | 20.5       |       | 3,554           |       | 27.6 |   |
| Amortization                                      |       | 1,685                   |       | 1.0            |       | 1,829             |       | 2.9        |       | (144            | )          | (7.9 | ) |
| Restructuring                                     |       | (179                    | )          | (0.1           | )          | 4,431             |       | 7.1        |       | (4,610          | )          | * |   |
| Other, net                                        |       | (153                    | )          | (0.1           | )          | 1,486             |       | 2.4        |       | (1,639          | )          | * |   |
| Total operating  expenses                         |       | 41,213                  |       | 25.2           |       | 39,239            |       | 62.4       |       | 1,974           |       | 5.0 |   |
| Operating income  (loss)                          |       | 29,136                  |       | 17.8           |       | (18,857           | )          | (30.0      | )          | 47,993          |       | * |   |
| Interest  expense, net                            |       | 1,782                   |       | 1.1            |       | 1,709             |       | 2.7        |       | 73              |       | 4.3 |   |
| Income (loss)  before income taxes                |       | 27,354                  |       | 16.8           |       | (20,566           | )          | (32.7      | )          | 47,920          |       | * |   |
| Income tax  provision                             |       | 1,310                   |       | 0.8            |       | 378               |       | 0.6        |       | 932             |       | 246.6 |   |
| Net income  (loss)                                |       | 26,044                  |       | 16.0           |       | (20,944           | )          | (33.3      | )          | 46,988          |       | * |   |
| Net loss  attributable to noncontrolling interest |       | —                  |       | —         |       | (42               | )          | 0.0        |       | 42              |       | * |   |
| Net income  (loss) attributable to Veeco          |       | $                       | 26,044     |           | 16.0       | %                 | $          | (20,902    | )          | (33.3           | )%         | $ | 46,946 |   | * |   |

 

----

* Not Meaningful

 

*Net Salesand Orders*

 

Net sales of $163.2million for the three months ended March 31, 2010 were up 159.7% comparedto the comparable 2009 quarter. The following is an analysis of net sales andorders by segment and by region (dollars in thousands):

 
| ** **                                         | ** ** | **Net  Sales**          | ** ** | **Orders**                 | ** ** | ** **              | ** ** | ** **                 | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                         | ** ** | **Three  months ended** | ** ** | **Dollar  and Percentage** | ** ** | **Three  months ended** | ** ** | **Dollar  and Percentage** | ** ** | **Book to  Bill** | ** ** |
| ** **                                         | ** ** | **March 31,**      | ** ** | **Change**                 | ** ** | **March 31,**      | ** ** | **Change**                 | ** ** | **Ratio** | ** ** |
| ** **                                         | ** ** | **2010**                | ** ** | **2009**                   | ** ** | **Year to  Year**       | ** ** | **2010**                   | ** ** | **2009** | ** ** | **Year to  Year** | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Segment  Analysis**                              | ** ** | ** **              | ** ** | ** **                 | ** ** | ** **              | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| LED &  Solar Process Equipment            |       | $                       | 111,504    |                       | $          | 22,202                  |       | $                          | 89,302     |   | 402.2 | % | $ | 211,663 |   | $ | 28,521 |   | $ | 183,142 |   | 642.1 | % | 1.90 |   | 1.28 |   |
| Data Storage  Process Equipment                    |       | 23,245                  |       | 16,905                     |       | 6,340                   |       | 37.5                       |       | 26,373 |   | 7,818 |   | 18,555 |   | 237.3 |   | 1.13 |   | 0.46 |   |
| Metrology                                          |       | 28,482                  |       | 23,742                     |       | 4,740                   |       | 20.0                       |       | 29,808 |   | 16,711 |   | 13,097 |   | 78.4 |   | 1.05 |   | 0.70 |   |
| Total                                              |       | $                       | 163,231    |                       | $          | 62,849                  |       | $                          | 100,382    |   | 159.7 | % | $ | 267,844 |   | $ | 53,050 |   | $ | 214,794 |   | 404.9 | % | 1.64 |   | 0.84 |   |
| **Regional  Analysis**                             | ** ** | ** **              | ** ** | ** **                 | ** ** | ** **              | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Americas                                           |       | $                       | 27,211     |                       | $          | 19,969                  |       | $                          | 7,242      |   | 36.3 | % | $ | 32,243 |   | $ | 11,572 |   | $ | 20,671 |   | 178.6 | % | 1.18 |   | 0.58 |   |
| Europe, Middle  East and Africa (“EMEA”) |       | 23,756                  |       | 18,261                     |       | 5,495                   |       | 30.1                       |       | 39,125 |   | 11,304 |   | 27,821 |   | 246.1 |   | 1.65 |   | 0.62 |   |
| Japan                                              |       | 10,425                  |       | 5,476                      |       | 4,949                   |       | 90.4                       |       | 6,786 |   | 6,926 |   | (140 | ) | (2.0 | ) | 0.65 |   | 1.26 |   |
| Asia Pacific                                       |       | 101,839                 |       | 19,143                     |       | 82,696                  |       | 432.0                      |       | 189,690 |   | 23,248 |   | 166,442 |   | 715.9 |   | 1.86 |   | 1.21 |   |
| Total                                              |       | $                       | 163,231    |                       | $          | 62,849                  |       | $                          | 100,382    |   | 159.7 | % | $ | 267,844 |   | $ | 53,050 |   | $ | 214,794 |   | 404.9 | % | 1.64 |   | 0.84 |   |

 

Sales and ordersincreased in each segment in the first quarter of 2010 compared with the firstquarter in 2009 due to our customers’ requirements in response to increasinglyfavorable economic conditions compared to 2009. LED & Solar ProcessEquipment sales were up 402.2% from the first quarter of 2009 primarily due toan increase in end user demand for HB-LED backlighting applications and strongcustomer acceptance of Veeco’s

 

19

----

Tableof Contents

 

newest generationsystems. Data Storage Process Equipment segment sales were up 37.5% from thefirst quarter of 2009 due to an increase in demand by our data storagecustomers as the economy begins to improve. Additionally, Metrology sales wereup 20.0% from the first quarter of 2009, due to higher demand in thesemiconductor, research and industrial markets as the economy begins toimprove. By region, net sales increased by 432.0% in the Asia Pacific region,primarily due to MOCVD sales to HB LED customers, while sales in the Americas,EMEA and Japan also increased 36.3%, 30.1% and 90.4%, respectively. We believethat there will continue to be period-to-period variations in the geographicdistribution of sales.

 

Orders for the first quarter of 2010 increased 404.9%from the first quarter of 2009. By segment, the 642.1% increase in orders forLED & Solar Process Equipment was principally driven by HB-LED basedmanufacturers increasing production for television and laptop backlightingapplications. The 237.3% increase in Data Storage Process Equipment ordersresulted from an increase in demand by our data storage customers. The 78.4%increase in Metrology orders is due to higher demand in the semiconductor,research and industrial markets.

 

Our book-to-bill ratio for the first quarter of 2010,which is calculated by dividing orders received in a given time period byrevenue recognized in the same time period, was 1.64 to 1, reflecting theincreasingly favorable economic conditions experienced in the last twoquarters, specifically related to our LED & Solar Process Equipmentsegment. Our backlog as of March 31, 2010 was $502.1 million, compared to$402.0 million as of December 31, 2009. During the quarter ended March 31,2010, we experienced backlog adjustments of approximately $4.5 million,consisting of $3.2 million for customer delayed shipments and $1.3 million ofadjustments related to foreign currency translation.  For certain sales arrangements we require adeposit for a portion of the sales price before shipment. As of March 31,2010 we had customer deposits and advanced billings of $80.0 million.

 

*Gross Profit*

 

Gross profit for thefirst quarter of 2010, was 43.1%, compared to 32.4% in the first quarter of2009. LED & Solar Process Equipment gross margins increased to 42.8%from 29.2% in the first quarter of 2009, primarily due to a significantincrease in sales volume as well as favorable product mix. Data Storage ProcessEquipment gross margins increased to 39.6% from 27.4% in the prior-year period,due to the favorable impact of cost reductions from a reduced workforce, lowerfacility costs associated with closing and consolidating facilities and theoutsourcing of certain Data Storage Process Equipment product manufacturing toAsia. In the first quarter of 2009 gross margins were also negatively impactedby a charge of $1.5 million for the write-off of inventory associated withcertain discontinued data storage product lines. Metrology gross marginsincreased to 47.1% from 39.1%, principally due to higher sales volume and areduction in service spending.

 

*Operating Expenses*

 

Selling, general andadministrative expenses increased by $4.8 million, or 25.9%, from the firstquarter of 2009, primarily due to an increase in bonus and profit sharingexpense, equity-based compensation, travel and entertainment expenses andsalary and related expenses associated primarily with the significant increasein business activity in our LED & Solar Process Equipment segment. As a percentage of sales, selling, generaland administrative expenses decreased to 14.3% in the first quarter of 2010from 29.6% in the first quarter of 2009.

 

Researchand development expenses increased $3.6 million from the first quarter of 2009,primarily due to increased spending in our LED & Solar ProcessEquipment segment to support future growth. As a percentage of sales, research and development decreased to 10.1%in the first quarter of 2010 from 20.5% in the first quarter of 2009.

 

Restructuring included a credit of approximately $0.2million during the first quarter of 2010 due to a change in estimate for one ofour leased facilities. Restructuring expense of $4.4 million for the first quarter of 2009 consists primarily ofpersonnel severance costs resulting from a reduction in workforce associatedwith management’s restructuring plan.

 

Other, net for the first quarter of 2010 includes aforeign currency exchange gain of $(0.1) million compared to a loss of $1.3million in the first quarter of 2009. In the first quarter of 2009, foreigncurrency exchange rates were impacted by the significant strengthening of theU.S. dollar against the Euro.

 

*Income Taxes*

 

Our provision for income taxes consists of U.S., stateand local and foreign taxes in amounts necessary to 

 

20

----

Tableof Contents

 

align our year-to-date tax provision with the effective tax rate weexpect to achieve for the full year. For the quarter ended March 31, 2010,we recorded a provision for income taxes of $1.3 million compared to $0.4million for the same period in 2009. The 2010 provision for income taxesincluded $1.0 million relating to our foreign operations and $0.3 millionrelating state and local taxes. The 2009 provision for income taxes included$0.2 million relating to our foreign operations and $0.2 million relating tostate and local taxes.

 

**Liquidity and Capital Resources**

 

Historically, ourprincipal capital requirements have included the funding of acquisitions,capital expenditures and repayment of debt. We traditionally have generatedcash from operations and debt and stock issuances. Our ability to generatesufficient cash flows from operations is dependent on the continued demand forour products and services. A summary of the cash flow activity for the threemonths ended March 31, 2010 and 2009, respectively, is as follows (inthousands):

 
| ** **                                             | ** ** | **Three  months ended** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **March 31,**      | ** ** |
| ** **                                             | ** ** | **2010**                | ** ** | **2009** | ** ** |
| Net income  (loss)                                     |       | $                       | 26,044     |   | $ | (20,944 | ) |
| Net cash  provided by operating activities             |       | $                       | 41,705     |   | $ | 2,132 |   |
| Net cash used in  investing activities                 |       | (21,584                 | )          | (12,062 | ) |
| Net cash  provided by (used in) financing activities   |       | 26,460                  |       | (50 | ) |
| Effect of  exchange rates on cash and cash equivalents |       | (1,123                  | )          | (771 | ) |
| Net increase  (decrease) in cash and cash equivalents  |       | 45,458                  |       | (10,751 | ) |
| Cash and cash  equivalents at beginning of period      |       | 148,589                 |       | 103,799 |   |
| Cash and cash  equivalents at end of period            |       | $                       | 194,047    |   | $ | 93,048 |   |

 

We had a net increase incash of $45.5 million during the three months ended March 31, 2010. Cashprovided by operations was $41.7 million for this period, as compared tocash provided by operations of $2.1 million for the comparable 2009period. Net income adjusted for non-cash items provided operating cash flows of$33.9 million for the three months ended March 31, 2010, whereas $11.5million of net cash from operations was used in the comparable 2009 period. Netcash provided by operations for the three months ended March 31, 2010included a net change in net operating assets and liabilities that provided$7.8 million of cash. Inventories increased by approximately $7.2 million,principally due to an increase in purchases to support the significant MOCVDorders when compared to the first quarter of 2009. Accounts receivableincreased $4.5 million during the three months ended March 31, 2010, dueto higher sales volume when compared to the fourth quarter of 2009. Accruedexpenses and other current liabilities increased $15.2 million during the threemonths ended March 31, 2010, due primarily to an increase in customerdeposits, partially offset by the payment of management bonuses and profitsharing in the first quarter of 2010. Accounts payable also increased by $6.7million during the first quarter of 2010 due to the higher level of businessactivity.

 

Cashused in investing activities of $21.6 million for the three months ended March 31,2010 primarily related to the net purchases of short-term investments of $20.5million and $1.1 million in capital expenditures principally in our LED &Solar Process Equipment segment. Cash used in investing activities of $12.1million for the three months ended March 31, 2009 primarily related to the$9.6 million earn-out payment with respect to the Mill Lane acquisition, and$2.4 million in capital expenditures principally in our LED & SolarProcess Equipment segment. During the remainder of 2010, we estimate we willinvest an additional $26.6 million in capital expenditures primarilyrelated to lab tools for high-growth opportunities, as well as for plantexpansion and building improvements.

 

Cash provided by financing activities of $26.5 millionfor the three months ended March 31, 2010 primarily related to stockoption exercises. Cash used in financing activities of $0.1 million for thethree months ended March 31, 2009 primarily related to mortgage paymentson our facility in St. Paul, Minnesota.

 

Asof March 31, 2010, we have outstanding $105.6 million aggregate principalamount of 4.125% convertible subordinated notes due April 15, 2012 (the “Notes”).We pay interest on the Notes on April 15 and October 15 of each year.We have previouslyengaged in repurchase transactions of our Notes and may enter into similartransactions in the future depending on market conditions, our cash positionand other factors.

 

The Notes are initially convertible into 36.7277shares of common stock per $1,000 principal amount of 

 

21

----

Tableof Contents

 

Notes (equivalent to a conversion price of $27.23 per share or apremium of 38% over the closing market price for Veeco’s common stock on April 16,2007). Holders may convert the Notes at any time during the period beginning onJanuary 15, 2012 through the close of business on the second day prior to April 15,2012 and earlier upon the occurrence of certain events including our commonstock trading at prices equal to 130% of the conversion price for a specifiedperiod, which is at least 20 trading days during the 30 consecutive tradingdays of the immediately preceding fiscal quarter and only during such fiscalquarter. At the end of the first quarter of 2010 our common stock was tradingat prices equal to or above 130% of the conversion price for the specifiedperiod and, as a result, the Notes will be convertible during the secondquarter of 2010.  If the Notes are converted, we have the ability andintent to pay the principal balance of notes tendered for conversion in cash.We will re-perform this test each quarter up to and including the fourthquarter of 2011.

 

We believe that existingcash balances together with cash generated from operations will be sufficientto meet our projected working capital and other cash flow requirements for thenext twelve months, as well as our contractual obligations. We believe we willbe able to meet our obligation to repay the $105.6 million of outstanding Notesthat mature on April 15, 2012 through a combination of conversion of theNotes outstanding, cash and short-term investments on hand, cash generated fromoperations, and other means.

 

In 2006 we purchased 19.9% of the common stock ofFluens Corporation (“Fluens”). On May 14, 2009, we acquired the remaining80.1% of Fluens for $1.5 million and an earn-out arrangement based on futureperformance. No gain or loss was recognized upon the purchase of the 80.1%portion. The difference between the purchase price including the earn-outconsideration and the amount by which noncontrolling interest was reduced onthe balance sheet was attributed to equity of Veeco. Such difference amountedto approximately $1.0 million, and was recorded as additional paid-in capital.We paid $0.5 million of the $1.5 million purchase price of the 80.1% remainingportion of Fluens upon closing, as well as $0.2 million in respect of theearn-out arrangement for periods prior to 2009. We paid a second installment of$0.5 million of the purchase price on September 30, 2009. We paid theremaining $0.5 million of the $1.5 million in the first quarter of 2010, whichwas included in accrued expenses in the accompanying condensed consolidatedBalance Sheet at December 31, 2009.

 

**Contractual Obligations**

 

There have been no significant changes to our “ContractualObligations” table in Part II, Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” of our 2009 AnnualReport on Form 10-K.

 

**Applicationof Critical Accounting Policies**

 

*General:* Our discussion and analysis of our financial condition and results ofoperations are based upon our Consolidated Financial Statements, which havebeen prepared in accordance with accounting principles generally accepted inthe United States. The preparation of these financial statements requires us tomake estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses. Management continually monitors andevaluates its estimates and judgments, including those related to bad debts,inventories, intangible and other long-lived assets, income taxes, warrantyobligations, restructuring costs, and contingent liabilities, includingpotential litigation. Management bases its estimates and judgments onhistorical experience and on various other factors that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. We consider certainaccounting policies related to revenue recognition, the valuation ofinventories, the impairment of goodwill and indefinite-lived intangible assets,the impairment of long-lived assets, fair value measurements, warranty costs,the accounting for income taxes, and share-based compensation to be criticalpolicies due to the estimation processes involved in each.

 

*RevenueRecognition:*  We recognize revenue based on currentaccounting guidance provided by the Securities and Exchange Commission and theFinancial Accounting Standards Board (“FASB”). Our revenue transactions includesales of products under multiple-element arrangements.  Revenue under these arrangements is allocatedto each element based upon its estimated fair market value*.*

 

We consider a broad arrayof facts and circumstances when evaluating each of our sales arrangements indetermining when to recognize revenue, including specific terms of the purchaseorder, contractual obligations to the customer, the complexity of the customer’spost delivery acceptance provisions, customer creditworthiness and theinstallation process.  Revenue isrecognized when persuasive evidence of an arrangement exists, the sales priceis fixed or determinable, collectability is reasonably assured and nouncertainties exist regarding customer acceptance.  For

 

22

----

Tableof Contents

 

transactions on which we recognize systems revenue,either at the time of shipment or delivery, our contractual arrangements withcustomers do not contain provisions for right of return or forfeiture, refundor other purchase price concessions. Sales arrangements are reviewed on a case-by-case basis; however, ourproducts generally fall into one of two categories; either instruments orsystems, for which we have established revenue recognition protocols asdescribed below.

 

Instruments - Forstandard products produced according to our published specifications,principally metrology instruments sold typically to universities, researchfacilities and scientific centers and in general industrial applications whereinstallation is inconsequential or perfunctory and no substantive customeracceptance provisions exist, revenue is recognized when title and risk of losspass to the customer, either at time of shipment or delivery.  Acceptance of the product by the customer isbased upon meeting standard published specifications.  Customer acceptance provisions includeinitial setup at the customer site, performance of functional test proceduresand calibration testing of the basic features and functionality of the product.  These provisions are a replication of thetesting performed in our facilities prior to shipment.  The skills and equipment required to completeinstallation of such instruments are not specialized and are readily availablein the market and are often performed by distributors or representative organizations.

 

Systems - Processequipment systems and certain metrology systems, which are sold tomanufacturers in the LED, solar, data storage and semiconductor industries andare used in manufacturing facilities and commercial production environmentstypically include process acceptance criteria based upon Veeco and/or customerspecifications.  We are generallyrequired to install these products and demonstrate compliance with acceptancetests at the customer’s facility. Generally, based upon the terms of the sales arrangement, these productsare sold with a retention (typically 10% to 20% of the sales contract value)which is payable by the customer when installation and field acceptance iscompleted. Such installations are not considered complex and are not deemedessential to the functionality of the equipment because they do not involvesignificant changes to the features or capabilities of the equipment or involvebuilding complex interfaces or connections. Installation normally represents only 2% - 4% of the fair value of thesales contract.   Sales arrangements forthese systems are bifurcated into separate units of accounting or elementsbased on objective evidence of fair value. The two elements are the system andinstallation of the system. The amount of revenue allocated to each element isbased upon its relative fair value. The price charged when the system orinstallation service is sold separately generally determines fair value.  The value of the installation service isbased upon the fair value of the service performed, including labor, which isbased upon the estimated time to complete the installation at hourly rates, andmaterial components. We recognize revenue for the system or delivered elementsince the delivered item has value to the customer on a standalonebasis, there is objective and reliable evidence of the fair value of theundelivered item (i.e., the installation service) and delivery or performanceof the undelivered item is considered probable and substantially in our control,based on our historical experience.  Thevalue of the undelivered element is the greater of the fair value of theinstallation or the portion of the sales price that will not be received untilthe installation is completed (i.e., the retention amount). System revenue isgenerally recognized upon shipment or delivery provided title and risk of losshas passed to the customer. Revenue from installation services is recognized atthe time acceptance is received from the customer. If the arrangement does notmeet all the above criteria, the entire amount of the sales arrangement isdeferred until the criteria have been met or all elements have been deliveredto the customer or been completed.

 

For new products, newapplications of existing products, or for products with substantive customeracceptance provisions where performance cannot be fully assessed prior tomeeting customer specifications at the customer site, revenue is recognizedupon completion of installation and receipt of final customer acceptance. Sincetitle to goods generally passes to the customer upon shipment or delivery and80% to 90% of the contract amount becomes payable at that time, inventory isrelieved and accounts receivable is recognized for the amount billed at thetime of shipment. The profit on the amount billed for these transactions isdeferred and recognized as deferred profit in the accompanying Condensed ConsolidatedBalance Sheets.

 

In Japan, where ourcontractual terms with customers generally specify risk of loss and titletransfers upon customer acceptance, revenue is recognized and the customer isbilled upon receipt of written customer acceptance.

 

Revenue related tomaintenance and service contracts is recognized ratably over the applicablecontract term.  Component and spare partrevenue is recognized at the time of shipment or delivery in accordance withthe terms of the applicable sales arrangement.

 

*InventoryValuation:*  Inventories are stated at the lower of cost(principally first-in, first-out method) or market. Management evaluates theneed to record adjustments for impairment of inventory on a quarterly basis.Our policy is to assess the valuation of all inventories, including rawmaterials, work-in-process, finished goods, and spare parts and

 

23

----

Tableof Contents

 

other service inventory. Obsolete inventory orinventory in excess of management’s estimated usage for the next 12 month’srequirements is written-down to its estimated market value, if less than itscost. Inherent in the estimates of market value are management’s estimatesrelated to our future manufacturing schedules, customer demand, technologicaland/or market obsolescence, possible alternative uses, and ultimate realizationof excess inventory.

 

*Goodwilland Indefinite-Lived Intangible Asset Impairment:* The Company does not amortize goodwill or intangible assets withindefinite useful lives, but instead tests the balances in these asset accountsfor impairment at least annually at the reporting unit level. Our policy is toperform this annual impairment test in the fourth quarter of each fiscal yearor more frequently if impairment indicators arise. Impairment indicatorsinclude, among other conditions, cash flow deficits, a historical oranticipated decline in revenue or operating profit, adverse legal or regulatorydevelopments, and a material decrease in the fair value of some or all of theassets.

 

Pursuant to relevant accounting pronouncements we arerequired to determine if it is appropriate to use the operating segment asdefined under accounting guidance as the reporting unit, or one level below theoperating segment, depending on whether certain criteria are met.  We have identified four reporting units thatare required to be reviewed for impairment. The reporting units are Data Storage Process Equipment, LED &Solar Process Equipment, AFM and Optical Metrology.  AFM and Optical Metrology comprise theMetrology operating segment.  Inidentifying the reporting units management considered the economiccharacteristics of operating segments including the products and servicesprovided, production processes, types or classes of customer and productdistribution.

 

We perform this impairment test by first comparing thefair value of our reporting units to their respective carrying amount. Whendetermining the estimated fair value of a reporting unit, we utilize adiscounted future cash flow approach since reported quoted market prices arenot available for our reporting units. Developing the estimate of thediscounted future cash flow requires significant judgment and projections offuture financial performance. The key assumptions used in developing thediscounted future cash flows are the projection of future revenues andexpenses, working capital requirements, residual growth rates and the weightedaverage cost of capital. In developing our financial projections, we considerhistorical data, current internal estimates and market growth trends.  Changes to any of these assumptions couldmaterially change the fair value of the reporting unit. We reconcile theaggregate fair value of our reporting units to the Company’s adjusted marketcapitalization as a supporting calculation. The adjusted market capitalizationis calculated by multiplying the average share price of our common stock forthe last ten trading days prior to the measurement date by the number ofoutstanding common shares and adding a control premium.

 

If the carrying value of the reporting units exceedthe fair value we would then compare the implied fair value of our goodwill tothe carrying amount in order to determine the amount of the impairment, if any.

 

*Definite-LivedIntangible and Long-Lived Asset Impairment:* Long-lived assets, such as property, plant, and equipment, and intangibleassets with definite useful lives, are reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying amount of an asset maynot be recoverable. Impairment indicators include, among other conditions, cashflow deficits, a historical or anticipated decline in revenue or operatingprofit, adverse legal or regulatory developments, and a material decrease inthe fair value of some or all of the assets. Assets are grouped at the lowestlevel for which there is identifiable cash flows that are largely independentof the cash flows generated by other asset groups. Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an assetto the estimated undiscounted future cash flows expected to be generated by theasset. If the carrying amount of an asset exceeds its estimated future cashflows, an impairment charge is recognized by the amount by which the carryingamount of the asset exceeds the fair value of the asset.

 

*FairValue Measurements:*Accounting guidance for our non-financial assets and non-financial liabilitiesrequires that we disclose the type of inputs we use to value our assets andliabilities, based on three categories of inputs as defined in such. Level 1inputs are quoted, unadjusted prices in active markets for identical assets orliabilities that the company has the ability to access at the measurementdate.  Level 2 inputs are inputs otherthan quoted prices included within Level 1 that are observable for the asset orliability, either directly or indirectly, such as quoted prices for similarassets or liabilities. Level 3 inputs are unobservable inputs for the asset orliability. Unobservable inputs are used to measure fair value to the extentthat observable inputs are not available, thereby allowing for situations inwhich there is little, if any, market activity for the asset or liability atthe measurement date. These requirements apply to our long-lived assets, goodwill,and intangible assets. We use Level 3 inputs to value all of such assets, andthe methodology we use to value such assets has not changed since December 31,2009. The Company primarily applies the market approach for recurring fairvalue measurements.

 

24

----

Tableof Contents

 

*WarrantyCosts:*  We estimate the costs that may be incurredunder the warranty we provide and record a liability in the amount of suchcosts at the time the related revenue is recognized. Estimated warranty costsare determined by analyzing specific product and historical configurationstatistics and regional warranty support costs. Our warranty obligation is affectedby product failure rates, material usage, and labor costs incurred incorrecting product failures during the warranty period. Unforeseen componentfailures or exceptional component performance can also result in changes towarranty costs. If actual warranty costs differ substantially from ourestimates, revisions to the estimated warranty liability would be required.

 

*IncomeTaxes:*  As part of the process of preparing our CondensedConsolidated Financial Statements, we are required to estimate our income taxesin each of the jurisdictions in which we operate. This process involvesestimating the actual current tax expense, together with assessing temporarydifferences resulting from differing treatment of items for tax and accountingpurposes. These differences result in deferred tax assets and liabilities,which are included within our Condensed Consolidated Balance Sheets. Thecarrying value of our deferred tax assets is adjusted by a valuation allowanceto recognize the extent to which the future tax benefits will be recognized ona more likely than not basis. Our net deferred tax assets consist primarily ofnet operating loss and tax credit carry forwards, and timing differencesbetween the book and tax treatment of inventory, acquired intangible assets andother asset valuations. Realization of these net deferred tax assets isdependent upon our ability to generate future taxable income.

 

We record valuationallowances in order to reduce our deferred tax assets to the amount expected tobe realized. In assessing the adequacy of recorded valuation allowances, weconsider a variety of factors, including the scheduled reversal of deferred taxliabilities, future taxable income, and prudent and feasible tax planningstrategies. Under the relevant accounting guidance, factors such as current andprevious operating losses are given significantly greater weight than theoutlook for future profitability in determining the deferred tax asset carryingvalue.  If we are able to realize part orall of the domestic deferred tax assets in future periods, we will reduce ourprovision for income taxes with a release of the valuation allowance in anamount that corresponds with the income tax liability generated.

 

Relevant accountingguidance addresses the determination of how tax benefits claimed or expected tobe claimed on a tax return should be recorded in the financial statements.Under such guidance, we must recognize the tax benefit from an uncertain taxposition only if it is more likely than not that the tax position will besustained on examination by the taxing authorities, based on the technicalmerits of the position. The tax benefits recognized in the financial statementsfrom such uncertain tax positions are measured based on the largest benefitthat has a greater than fifty percent likelihood of being realized uponultimate resolution. We had approximately $1.4 million of unrecognized taxbenefits at March 31, 2010 and December 31, 2009, which predominantlyrelate to positions taken on our foreign tax returns and all of which representthe amount of unrecognized tax benefits that, if recognized, would favorablyimpact the effective income tax rate in future periods.

 

*Equity-BasedCompensation:*Equity-based compensation cost is measured at thegrant date, based on the fair value of the award, and is recognized as expenseover the employee requisite service period. In order todetermine the fair value of stock options on the date of grant, we apply theBlack-Scholes option-pricing model. Inherent in the model are assumptionsrelated to risk-free interest rate, dividend yield, expected stock-pricevolatility and option life.

 

The risk-free rate assumed in valuing the options isbased on the U.S. Treasury yield curve in effect at the time of grant for theexpected term of the option. The dividend yield assumption is based on theCompany’s historical and future expectation of dividend payouts. While therisk-free interest rate and dividend yield are less subjective assumptions,typically based on factual data derived from public sources, the expectedstock-price volatility and option life assumptions require a level of judgmentwhich make them critical accounting estimates.

 

We use an expected stock-price volatility assumptionthat is a combination of both historical volatility, calculated based on thedaily closing prices of our common stock over a period equal to the expectedterm of the option and implied volatility, utilizing market data of activelytraded options on our common stock, which are obtained from public datasources. We believe that the historical volatility of the price of our commonstock over the expected term of the option is a strong indicator of theexpected future volatility and that implied volatility takes into considerationmarket expectations of how future volatility will differ from historicalvolatility.  Accordingly, we believe acombination of both historical and implied volatility provides the bestestimate of the future volatility of the market price of our common stock.

 

The expected term, representing the period of timethat options granted are expected to be outstanding, is estimated using alattice-based model incorporating historical post vest exercise and employeetermination behavior.

 

We estimate forfeitures using our historicalexperience, which is adjusted over the requisite service period 

 

25

----

Tableof Contents

 

based on the extent to which actual forfeitures differ, or are expectedto differ, from such estimates. Because of the significant amount of judgmentused in these calculations, it is reasonably likely that circumstances maycause the estimate to change.

 

With regard to the weighted-average option lifeassumption, we consider the exercise behavior of past grants and model thepattern of aggregate exercises.

 

**RecentAccounting Pronouncements**

 

*Subsequent Events:* The FASB has issued amended guidance for Subsequent Events. The amendmentremoves the requirement for an SEC filer to disclose a date through whichsubsequent events have been evaluated in both issued and revised financialstatements. Revised financial statements include financial statements revisedas a result of either correction of an error or retrospective application ofU.S. GAAP. The FASB also clarified that if the financial statements have beenrevised, then an entity that is not an SEC filer should disclose both the datethat the financial statements were issued or available to be issued and thedate the revised financial statements were issued or available to be issued.The FASB believes these amendments remove potential conflicts with the SEC’sliterature. In addition, the amendments require an entity that is a conduitbond obligor for conduit debt securities that are traded in a public market toevaluate subsequent events through the date of issuance of its financialstatements and must disclose such date. All of the amendments were effectiveupon issuance (February 24, 2010) except for the use of the issued datefor conduit debt obligors. That amendment is effective for interim or annualperiods ending after June 15, 2010. The adoption of this guidance did nothave a material impact on the Company’s condensed consolidated financial statements.

 

*Fair Value Measurements*: In January 2010, the FASB issuedamended guidance for Fair ValueMeasurements and Disclosures. This update requires some new disclosuresand clarifies existing disclosure requirements about fair value measurement.The FASB’s objective is to improve these disclosures and, thus, increase thetransparency in financial reporting. Specifically, this update requires that areporting entity disclose separately the amounts of significant transfers inand out of Level 1 and Level 2 fair value measurements and describe the reasonsfor the transfers; and in the reconciliation for fair value measurements usingsignificant unobservable inputs, a reporting entity should present separatelyinformation about purchases, sales, issuances, and settlements. In addition,this update clarifies the requirements of existing disclosures. For purposes ofreporting fair value measurement for each class of assets and liabilities, areporting entity needs to use judgment in determining the appropriate classesof assets and liabilities; and a reporting entity should provide disclosuresabout the valuation techniques and inputs used to measure fair value for bothrecurring and nonrecurring fair value measurements. This update is effectivefor interim and annual reporting periods beginning after December 15,2009, except for the disclosures about purchases, sales, issuances, andsettlements in the roll forward of activity in Level 3 fair value measurements.Those disclosures are effective for fiscal years beginning after December 15,2010, and for interim periods within those fiscal years. Early application ispermitted. The Company does not believe that this guidance will have a materialimpact on its condensed consolidated financial statements.

 

*Revenue Recognition:* In October 2009, the FASB issued amendedguidance related to multiple-element arrangements which requires an entity toallocate arrangement consideration at the inception of an arrangement to all ofits deliverables based on their relative selling prices. This update eliminatesthe use of the residual method of allocation and requires therelative-selling-price method in all circumstances. All entities must adopt theguidance no later than the beginning of their first fiscal year beginning on orafter June 15, 2010. Entities may elect to adopt the guidance througheither prospective application for revenue arrangements entered into, ormaterially modified, after the effective date or through retrospectiveapplication to all revenue arrangements for all periods presented. The Companydoes not believe that this guidance will have a material impact on itscondensed consolidated financial statements.

 

In October 2009, the FASB issued amended guidancethat is expected to significantly affect how entities

 

26

----

Tableof Contents

 

account forrevenue arrangements that contain both hardware and software elements. As aresult, many tangible products that rely on software will be accounted forunder the revised multiple-element arrangements revenue recognition guidance,rather than the software revenue recognition guidance. The revised guidancemust be adopted by all entities no later than fiscal years beginning on orafter June 15, 2010. An entity must select the same transition method andsame period for the adoption of both this guidance and the revisions to themultiple-element arrangements guidance noted above.  The Company does notbelieve that this guidance will have a material impact on its condensedconsolidated financial statements.

 

**Item 3. Quantitative and Qualitative DisclosuresAbout Market Risk.**

 

Our net sales to foreigncustomers represented approximately 83.9% of our total net sales for the threemonths ended March 31, 2010, and 69.1% for the comparable 2009 period. Weexpect that net sales to foreign customers will continue to represent a largepercentage of our total net sales. Our net sales denominated in foreigncurrencies represented approximately 10.1% of our total net sales for the threemonths ended March 31, 2010, and 14.4% for the comparable 2009 period.

 

The aggregate foreigncurrency exchange gain (loss) included in determining the condensedconsolidated results of operations was approximately $0.1 million and($1.4) million during the three months ended March 31, 2010 and 2009,respectively. Included in the aggregate foreign currency exchange gain (loss)were gains related to forward contracts of $0.1 million and $0.2 millionduring the three months ended March 31, 2010, and 2009, respectively.These amounts were recognized and are included in other, net in theaccompanying condensed consolidated statements of operations.

 

We are exposed tofinancial market risks, including changes in foreign currency exchange rates.The changes in currency exchange rates that have the largest impact ontranslating our international operating profit are the Japanese Yen and theEuro. We use derivative financial instruments to mitigate these risks. We donot use derivative financial instruments for speculative or trading purposes.We generally enter into monthly forward contracts to reduce the effect offluctuating foreign currencies on short-term foreign currency-denominatedintercompany transactions and other known currency exposures. The weightedaverage notional amount of derivative contracts outstanding during the threemonths ended March 31, 2009 was approximately $3.2 million.

 

As of March 31, 2010, approximately $0.1 millionof gains related to forward contracts were included in prepaid expenses andother current assets and were subsequently received in April 2010. As of December 31,2009, approximately $0.2 million of gains related to forward contracts wereincluded in prepaid expenses and other current assets and were subsequently receivedin January 2010. Monthly forward contracts with a notional amount of $6.7million for the month of April 2010 were entered into in March 2010and will be settled in April 2010. The fair value of the contracts atinception was zero, which did not significantly change at March 31, 2010.

 

We believe that based upon our hedging program, a 10%change in foreign exchange rates would have an immaterial impact on theconsolidated results of operations. We believe that this quantitative measurehas inherent limitations because, as discussed in the first paragraph of thissection, it does not take into account any governmental actions or changes ineither customer purchasing patterns or our financing and operating strategies.

 

Assuming first quarter2010 variable debt and investment levels, the effect of a one-point change ininterest rates would not have a material effect on net interest expense.

 

**Item4. Controls and Procedures.**

 

Our senior management is responsible for establishingand maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”))designed to ensure that information required to be disclosed by us in thereports that we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the Securities andExchange Commission’s rules and forms. Disclosure controls andprocedures include, without limitation, controls 

 

27

----

Tableof Contents

 

andprocedures designed to ensure that information required to be disclosed by anissuer in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the issuer’s management, including itsprincipal executive officer or officers and principal financial officer orofficers, or persons performing similar functions, as appropriate to allowtimely decisions regarding required disclosure.

 

We have evaluated the effectiveness of the design andoperation of our disclosure controls and procedures under the supervision ofand with the participation of management, including the chief executive officerand chief financial officer, as of the end of the period covered by thisreport. Based on that evaluation, our chief executive officer and our chieffinancial officer concluded that our disclosure controls and procedures areeffective to ensure that information required to be disclosed by us in reportsthat we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission rules and forms and is accumulated and communicated toour management, including our principal executive officer and principalfinancial officer, or persons performing similar functions, as appropriate toallow timely decisions regarding required disclosure.

 

There have been no significant changes in our internalcontrols or other factors during the fiscal quarter ended March 31, 2010that have materially affected or are reasonably likely to materially affect ourinternal control over financial reporting.

 

28

----

Tableof Contents

 

**Part II.OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

We are involved in various legal proceedings arisingin the normal course of our business. We do not believe that the ultimateresolution of these matters will have a material adverse effect on ourconsolidated financial position, results of operations or cash flows.

 

**Item1A.  Risk Factors.**

 

Information regardingrisk factors appears in the “Safe Harbor Statement” at the beginning of thisQuarterly Report on Form 10-Q and in Part I — Item 1A of our AnnualReport on Form 10-K for the year ended December 31, 2009. There havebeen no material changes from the risk factors previously disclosed in ourAnnual Report on Form 10-K.

 

**Item6. Exhibits.**

 

Unless otherwiseindicated, each of the following exhibits has been previously filed with theSEC by the Company under File No. 0-16244.

 
| **Number** | ** ** | **Description**                                                                                                                                                   | ** ** | **Incorporated by Reference to the  Following Document:** |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|
|       |       |                                                                                                                                                              |       |                                                      |
| 10.1       |       | Employment Agreement  dated December 17, 2009 (effective January 18, 2010) between David  D. Glass and Veeco Instruments Inc.                      |       | *                                                         |
| 10.2       |       | Veeco Instruments Inc.  2010 Management Bonus Plan dated January 22, 2010                                                                                    |       | *                                                         |
| 10.3       |       | Veeco Instruments Inc.  2010 Special Profit Sharing Plan dated February 15, 2010                                                                             |       | *                                                         |
| 31.1       |       | Certification of Chief  Executive Officer pursuant to Rule 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 Rule 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.   |       | *                                                         |

 

----

| * | Filed herewith |   |   |
|---|----------------|--------|--------|

 

29

----

Tableof Contents

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

Date:  April 28, 2010

 
|   | Veeco  Instruments Inc. |
|--------|------------------------------|
|   |                         |
|   | By:                          | /s/ JOHN R. PEELER |
|   | * *                     | John R. Peeler |
|   |                         | *Chief  Executive Officer* |
|   |                         |
|   | By:                          | /s/ DAVID D. GLASS |
|   |                         | David D. Glass |
|   |                         | *Executive  Vice President and Chief Financial Officer* |

 

30

----

Table of Contents

 

**INDEX TOEXHIBITS**

 

Unless otherwiseindicated, each of the following exhibits has been previously filed with theSecurities and Exchange Commission by the Company under File No. 0-16244.

 
| **Number** | ** ** | **Description**                                                                                                                                                   | ** ** | **Incorporated by Reference to the********Following Document:** |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|
|       |       |                                                                                                                                                              |       |                                                            |
| 10.1       |       | Employment Agreement  dated December 17, 2009 (effective January 18, 2010) between David  D. Glass and Veeco Instruments Inc.                      |       | *                                                               |
| 10.2       |       | Veeco Instruments Inc.  2010 Management Bonus Plan dated January 22, 2010                                                                                    |       | *                                                               |
| 10.3       |       | Veeco Instruments Inc.  2010 Special Profit Sharing Plan dated February 15, 2010                                                                             |       | *                                                               |
| 31.1       |       | Certification of Chief  Executive Officer pursuant to Rule 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 Rule 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.   |       | *                                                               |

 

----

*       Filed herewith

 

31

----