SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q (the “Report”"Report") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such forward-looking statements may be found in Items 2 and 3 of Part I hereof, as well as within this Report generally. In addition, when used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “plans,” “intends,”"believes," "anticipates," "expects," "estimates," "plans," "intends," and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. Factors that may cause these differences include, but are not limited to:

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the dependence on principal customers and the cyclical nature of the data storage, semiconductor and optical and wireless telecommunications and semiconductor industries,





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fluctuations in quarterly operating results,





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rapid technological change and risks associated with the acceptance of new products by individual customers and by the marketplace,





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risk of cancellation or rescheduling of orders,





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the highly competitive nature of industries in which the Company operates,





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changes in foreign currency exchange rates, and





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the risk factors and other matters discussed in the Business Description contained in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 2000.

2001.

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

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Research and development expenses of $15.4$13.3 million for the three months ended September 30, 2001, increasedMarch 31, 2002, decreased by approximately $2.3$1.8 million, or 18%12%, over the comparable period of 2000, due primarily to2001. The decrease principally relates the Company’s developmentoverall decline in business and the cost reduction efforts taken by the Company during the fourth quarter of next generation products for ion beam deposition tools.2001, which included a 15% workforce reduction, plant consolidations, selective work-week reductions and reduced management salaries.

Selling, general and administrative expenses of $21.3$19.0 million for the three months ended September 30, 2001, increasedMarch 31, 2002, decreased by approximately $1.2$2.1 million, or 10%, over the comparable 2001 period. The decrease is due to decreased selling and commission expense related to the lower sales volume and the cost cutting measures mentioned above. The decrease in selling, general and administrative expenses is offset, in part, by $2.4 million of expenses from the 2000acquisitions of Applied Epi and ThermoMicroscopes ("TM"), which had no comparable periodspending in 2001.

        Amortization expense totaled $3.7 million in the first quarter of 2002 versus $1.4 million in 2001. The increase is due primarily to the intangible assets acquired in connection with the acquisitions of Applied Epi and TM, offset in part by $0.4 million of reduced amortization expense related to the accounting requirement to no longer amortize goodwill, effective January 1, 2002, in accordance with SFAS No. 142,Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill is to be reviewed annually for impairment. As of January 1, 2002, no impairment exists.

        Other expense decreased $1.4 million due to an increasea significant reduction in selling related expenses, principally as a resultforeign currency exchange losses, compared to the first quarter of the increased sales volume.2001.

During the three months ended September 30,March 31, 2002, the Company incurred a restructuring charge of $0.8 million related to the reduction in work force announced in the fourth quarter of 2001. This charge includes severance related costs for approximately 60 employees which included both management and manufacturing employees located at the Company's Minnesota, Plainview and Rochester operations. As of March 31, 2002, approximately $0.3 million has been expended and approximately $0.5 million remains accrued. During the year ended December 31, 2001, the Company recorded restructuring charges of approximately $20.0 million in response to the significant downturn in the telecommunications industry and the overall weak business environment. These charges consisted of a $13.6 million write-off of purchased in-process technologyinventory related to order cancellations and the rationalization of $8.2certain product lines, $3.0 million related to personnel and business relocation costs and $3.4 million related to the acquisitionswrite-down of Applied Epi, which resulted in a $7.0long-lived assets. The $3.0 million charge for personnel and TM, which resulted in a $1.2 million charge.  Both chargesbusiness relocation costs principally related to projects that had not reached technological feasibilityplant consolidations and had no alternative future uses.a workforce reduction of approximately 230 employees, which included both management and manufacturing employees located in all operations of the Company. As of March 31, 2002, approximately $1.7 million of the $3.0 million charge for relocation and termination benefits has been paid and approximately $1.3 million remains accrued.

        Interest expense, net of $1.5 million for the three months ended March 31, 2002 increased $2.3 million from the comparable 2001 period as a direct result of the issuance of $220.0 million of 4.125% convertible subordinated notes, which occurred in December 2001 and January 2002.

Income taxes for the three months ended September 30, 2001,March 31, 2002 amounted to $2.5a benefit of $1.6 million, or 57%34%, of incomeloss before income taxes, as compared to a $0.4 million tax benefit for the same period of 2000.  The effective tax rate of 57% is higher than the statutory tax rate of 35%, principally due to purchased in-process technology charges associated with the Applied Epi and TM acquisitions, which are non-deductible for tax purposes.

Effective January 1, 2000, the Company changed its method of accounting for revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, which resulted in a charge to income for the cumulative effect of change in accounting principle. The Company recognized approximately $5.8 million in revenue during the three months ended September 30, 2000, that was included in the cumulative effect adjustment. The effect of that revenue was to increase third quarter income by $1.8 million (net of income taxes of $1.3 million).

The financial information presented in the Company’s previously filed Form 10-Q, with respect to the three months ended September 30, 2000, has been restated due to the adoption of SAB 101. The adoption of SAB 101 had the overall effect of decreasing net sales and net income for the third quarter of 2000 by $11.8 million and $3.0 million, respectively, and basic and diluted earnings per share by $0.13 and $0.12, respectively.  These results include the impact of the cumulative effect adjustment discussed above.

Due to the weakening business environment, the Company is planning on implementing a cost reduction plan in the fourth quarter of 2001.  The Company plans a workforce reduction of approximately 15%, plant consolidations and discretionary cost reductions. The Company expects to record a restructuring charge in the fourth quarter of approximately $15.0 to $20.0 million associated with these actions.

Nine Months Ended September 30, 2001 and 2000

Net sales were $356.7 million for the nine months ended September 30, 2001, representing an increase of approximately $86.4$7.2 million, or 32%35%, over the comparable 2000 period. The increase is primarily due to an increase in optical filter deposition system sales of $47.4 million, as well as a $39.5 million increase in sales of AFMs. Sales in the U.S., Europe, Japan and Asia Pacific accounted for 56%, 15%, 20% and 9%, respectively, of the Company’s net sales for the nine months ended September 30, 2001. Sales in the U.S. increased by 54%, principally as a result of increased process equipment sales of optical telecommunications equipment, as well as an increase in sales of AFMs. Sales in Europe increased by 19% due to increased AFM sales.  Sales in Japan increased by 31% as a result of an increase in optical filter deposition and AFM sales. Asia Pacific sales decreased by 27% as a result of a 66% decline in optical metrology sales, partially offset by increased optical filter deposition equipment sales.

Process equipment sales were $219.4 million for the nine months ended September 30, 2001, an increase of approximately $67.7 million, or 45%, from the comparable 2000 period, due primarily to the increase in sales of optical filter deposition products. Metrology sales for the nine months ended September 30, 2001 were $132.3 million, an increase of approximately $21.8 million, or 20%, compared to the comparable 2000 period, reflecting a 64% increase in the sale of AFMs, offset by a 36% decline in optical metrology sales.

Veeco received $256.9 million of orders for the nine months ended September 30, 2001, a 39% decrease compared to $423.6 million of orders in the comparable 2000 period. Process equipment orders decreased 47% to $143.4 million, principally reflecting a decrease in optical telecommunications orders. Metrology orders decreased 25% to $108.5 million, reflecting a 56% decrease in optical metrology products. The book/bill ratio for the nine months ended September 30, 2001 was 0.72.

For the nine months ended September 30, 2001, the Company experienced order cancellations, primarily for products related to the optical telecommunications market, representing approximately 31% of the December 31, 2000 backlog. The Company also experienced rescheduling of order delivery dates by customers. Due to the weak business environment, the Company may continue to experience cancellation and/or rescheduling of orders.

Gross profit, as a percentage of net sales, increased slightly to 45.9% from 45.1% for the comparable 2000 period, which excludes a non-cash charge of $15.3 million for the write-off of inventory related to the merger with CVC in May 2000. This improvement is principally attributable to the sales volume increase in optical filter deposition products and AFMs.

Research and development expenses of $46.5 million for the nine months ended September 30, 2001, represent an increase of approximately $6.0 million, or 15%, over the comparable period of 2000, due primarily to the development of ion beam deposition and AFM products.

Selling, general and administrative expenses of $64.3 million for the nine months ended September 30, 2001, represent an increase of approximately $7.9 million, or 14%, over the comparable 2000 period. The increase is due to increased selling expense as a result of increased sales volume, primarily related to the optical filter deposition and AFM product lines. As a percentage of sales, selling, general and administrative expenses decreased to 18% of net sales in 2001 from 21% in 2000.

During the nine months ended September 30, 2001, the Company recorded a write-off of purchased in-process technology of $8.2 million, as discussed previously, and a restructuring charge of $1.0 million related to the workforce reduction of approximately 130 people, as a result of the slowdown in orders. As of September 30, 2001, approximately $765,000 has been expended and approximately $235,000 remains accrued, related to the restructuring charge. During the nine months ended September 30, 2000, Veeco incurred non-recurring charges of $33.0 million, in conjunction with the merger with CVC. Of these charges, a $15.3 million non-cash charge related to a write-off of inventory (included in cost of sales), $14.0 million represented merger and reorganization costs (of which $9.2 million related to transaction costs and $4.8 million pertained to duplicate facility and personnel costs) and $3.7 million was for the write-down of long-lived assets.

Other expense, net for the nine months ended September 30, 2001, increased $1.9 million over the comparable 2000 period due to the increase in foreign currency exchange losses.

Income taxes for the nine months ended September 30, 2001, amounted to $14.5 million, or 37% of income before income taxes, as compared to a $5.6 million income tax benefit, or 53% of loss before income taxes, for the same period of 2000.2001.

        Quarterly information for the three months ended March 31, 2001, has been restated from that previously filed on the Quarterly Report on Form 10-Q for such period, due to the required accounting for the discontinued operations of the Company's industrial measurement segment.

As noted above,Critical Accounting Policies

        General:    Veeco's discussion and analysis of its financial condition and results of operations are based upon Veeco's consolidated financial statements, which have been prepared in accordance with

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

        Revenue Recognition:    The Company recognizes revenue when persuasive evidence of an arrangement exists, the seller's price is fixed or determinable and collectibility is reasonably assured. For products produced according to the Company's published specifications, where no installation is required or installation is deemed perfunctory and no substantive customer acceptance provisions exist, revenue is recognized when title passes to the customer, generally upon shipment. For products produced according to a particular customer's specifications, revenue is recognized when the product has been tested and it has been demonstrated that it meets the customer's specifications and title passes to the customer. The amount of revenue recorded is reduced by the amount of any customer retention (generally 10% to 20%), which is not payable by the customer until installation is completed and final customer acceptance is achieved. Installation is not deemed to be essential to the functionality of the equipment since installation does not involve significant changes to the features or capabilities of the equipment or building complex interfaces and connections. In addition, the equipment could be installed by the customer or other vendors and generally the cost of installation approximates only 1% to 2% of the sales value of the related equipment. For new applications of the Company's existing products, for new products or for products with substantive customer acceptance provisions where performance cannot be fully assessed prior to meeting customer specifications at the customer site, revenue is recognized upon completion of installation and receipt of final customer acceptance. Service and maintenance contract revenues are recorded as deferred revenue, which is included in other accrued expenses, and recognized as revenue on a straight-line basis over the service period of the related contract. The Company provides for warranty costs at the time the related revenue is recognized.

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

        Goodwill and Intangible Asset Impairment:    The Company has significant intangible assets related to goodwill and other acquired intangibles. In assessing the recoverability of the Company's goodwill and other intangible assets, the Company changed its methodmust make assumptions regarding estimated future cash flows and other factors to determine the fair value of accountingthe respective assets. Changes in strategy and/or market conditions could significantly impact these assumptions, and thus Veeco may be required, during the annual review process, to record an impairment charge for revenue recognitionthese assets in accordance with SABSFAS No. 101. The cumulative effect of this change on prior years resulted in142.

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        Derivatives:    During the deferral of $67.0 million of revenue and a charge to income of $18.4 million (net of income taxes of $12.6 million) recorded as of January 1, 2000, and is included in the Condensed Consolidated Statement of Operations for the ninethree months ended September 30, 2000. TheMarch 31, 2002, the Company recognized approximately $58.8 million of this deferred revenue during the nine months ended September 30, 2000. The effect of that revenue wasused derivative financial instruments to increase income in that period by $16.5 million (net of income taxes of $11.4 million).