<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
_____ EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
OF 1934
For the transition period from __________ to ____________
Commission file number 0-21321
CYMER, INC.
(Exact name of registrant as specified in its charter)
Nevada 33-0175463
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
16750 Via Del Campo Court, San Diego, CA
(Address of principal executive offices) 92127
(Zip Code)
Registrant's telephone number, including area code (858) 385-7300
Former name, former address and former fiscal year, if changed since last
report.
N/A
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Common Stock, with $0.001 par value, outstanding on
May 10, 2000 was 29,033,166.
<PAGE>
CYMER, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 3
1999 and March 31, 2000
Consolidated Statements of Operations for the 4
three months ended March 31, 1999 and 2000
Consolidated Statements of Cash Flows for the 5
three months ended March 31, 1999 and 2000
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About 24
Market Risk
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 26
ITEM 2. Changes in Securities and Use of Proceeds 26
ITEM 3. Defaults upon Senior Securities 26
ITEM 4. Submission of Matters to a Vote of Security Holders 26
ITEM 5. Other Information 26
ITEM 6. Exhibits and Reports on Form 8-K 26
SIGNATURE PAGE 27
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CYMER, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
- -----------------------------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31,
------------- -----------
1999 2000
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 75,765 $ 80,049
Short-term investments 97,564 104,016
Accounts receivable - net 69,251 70,190
Foreign exchange contracts receivable 21,706 22,559
Inventories 51,409 56,926
Deferred income taxes 16,360 16,358
Prepaid expenses and other 3,110 3,227
--------- ---------
Total current assets 335,165 353,325
PROPERTY - net 56,921 64,352
LONG-TERM INVESTMENTS 19,760 10,809
DEFERRED TAXES - NON-CURRENT 8,562 7,716
OTHER ASSETS 6,413 6,647
--------- ---------
TOTAL ASSETS $ 426,821 $ 442,849
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,599 $ 20,871
Accrued and other liabilities 52,292 53,046
Foreign exchange contracts payable 24,276 22,756
Income taxes payable 6,482 6,970
Revolving loan 18,395 18,241
--------- ---------
Total current liabilities 122,044 121,884
--------- ---------
LONG-TERM LIABILITIES:
Convertible subordinated notes 172,500 172,335
Other liabilities 3,271 3,253
MINORITY INTEREST 2,113 1,645
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Preferred stock - authorized 5,000,000 shares; $.001 par value,
no shares issued or outstanding
Common stock - authorized 50,000,000 shares; $.001 par value,
issued and outstanding 28,435,000 and 28,988,000 shares 28 29
Paid-in capital 125,623 131,070
Treasury stock at cost (2,000,000 common shares) (24,871) (24,871)
Accumulated other comprehensive loss (3,620) (2,403)
Retained earnings 29,733 39,907
--------- ---------
Total stockholders' equity 126,893 143,732
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 426,821 $ 442,849
========= =========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
CYMER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 2000
<S> <C> <C>
REVENUES:
Product sales $ 39,823 $ 80,532
Other 269 85
-------- --------
Total revenues 40,092 80,617
-------- --------
COSTS AND EXPENSES:
Cost of product sales 28,116 46,151
Research and development 7,452 10,764
Sales and marketing 3,532 3,798
General and administrative 2,794 4,574
-------- --------
Total costs and expenses 41,894 65,287
-------- --------
OPERATING INCOME (LOSS) (1,802) 15,330
-------- --------
OTHER INCOME (EXPENSE):
Foreign currency exchange loss - net (234) 18
Interest and other income 1,771 2,388
Interest and other expense (2,769) (2,909)
-------- --------
Total other income (expense) - net (1,232) (503)
-------- --------
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT)
AND MINORITY INTEREST (3,034) 14,827
-------- --------
INCOME TAX PROVISION (BENEFIT) (758) 4,448
MINORITY INTEREST (22) (205)
-------- --------
NET INCOME (LOSS) $ (2,298) $ 10,174
======== ========
EARNINGS PER SHARE:
Basic:
Earnings (loss) per share $ (0.08) $ 0.35
======== ========
Weighted average common shares outstanding 27,385 28,711
======== ========
Diluted:
Earnings (loss) per share $ (0.08) $ 0.33
======== ========
Weighted average common and potential common
shares outstanding 27,385 31,166
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CYMER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
------------------------------
1999 2000
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ($ 2,298) $ 10,174
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Depreciation and amortization 4,152 4,784
Minority interest 22 205
Deferred income taxes (461)
(Gain) loss on disposal of property (51) 95
Change in assets and liabilities:
Accounts receivable (6,226) (1,656)
Foreign exchange contracts receivable 605 (995)
Inventories 1,936 (5,451)
Prepaid expenses and other assets (446) (648)
Accounts payable (590) 43
Accrued and other liabilities 2,033 1,884
Foreign exchange contracts payable (2,160) (1,268)
Income taxes payable (510) (234)
-------- --------
Net cash (used in) provided by operating activities (3,994) 6,933
-------- --------
INVESTING ACTIVITIES:
Acquisition of property (5,748) (12,148)
Purchases of investments (40,872) (50,555)
Proceeds from sold or matured investments 53,527 53,071
Acquisition of minority interest (1,104)
-------- --------
Net cash provided by (used in) investing activities 6,907 (10,736)
-------- --------
FINANCING ACTIVITIES:
Net payments under revolving loan and security agreements 4,806
Proceeds from issuance of common stock 2,287 5,283
Payments on capital lease obligations (144) (143)
-------- --------
Net cash provided by financing activities 6,949 5,140
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 801 2,947
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,663 4,284
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 53,130 75,765
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 63,793 $ 80,049
======== ========
5
<PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $3,192 $ 3,284
====== ========
Income taxes paid $ 648 $ 4,100
====== ========
SUPPLEMENTAL DISCLOSURE OF NON CASH FLOW ACTIVITIES:
Conversion of debt to equity $165,000
====== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
CYMER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial information has been
prepared by Cymer, Inc., and its wholly-owned and majority-owned subsidiaries
(collectively "Cymer"), without audit, in accordance with the instructions to
Form 10-Q and therefore does not include all information and footnotes
necessary for a fair presentation of financial position, results of
operations and cash flows in accordance with generally accepted accounting
principles.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Cymer, Inc., its wholly-owned subsidiaries, Cymer
Japan, Inc. (Cymer Japan), Cymer Singapore Pte Ltd. (Cymer Singapore), Cymer
B.V. in the Netherlands (Cymer B.V.), and Cymer Southeast Asia, Inc., and its
majority-owned subsidiary, Cymer Korea, Inc. (Cymer Korea). (Cymer SEA).
Cymer, Inc. owns 70% of Cymer Korea. During the first quarter of 2000, Cymer,
Inc. acquired the 25% minority interest in Cymer Southeast Asia, Inc. for
$1,104,000. Cymer sells its excimer lasers in Japan primarily through Cymer
Japan. Cymer Korea, Cymer SEA, Cymer Singapore and Cymer B.V. are field
service offices for customers in those regions. All significant intercompany
balances have been eliminated in consolidation.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
UNAUDITED INTERIM FINANCIAL DATA - In the opinion of management, the
unaudited consolidated financial statements for the interim periods presented
reflect all adjustments, consisting of only normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations as of and for such periods indicated. These consolidated financial
statements and notes thereto should be read in conjunction with the
consolidated financial statements and notes thereto included in Cymer's
Annual Report on Form 10-K (including items incorporated by reference
therein) for the year ended December 31, 1999. Results for the interim
periods presented herein are not necessarily indicative of results which may
be reported for any other interim period or for the entire fiscal year.
2. EARNINGS PER SHARE
EARNINGS PER SHARE - Basic Earnings Per Share ("EPS") excludes
dilution and is computed by dividing net income or loss attributable to
common stockholders by the weighted-average of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (convertible preferred
stock, warrants to purchase common stock and common stock options using the
treasury stock method) were exercised or converted into common stock.
Potential common shares in the diluted EPS computation are excluded in net
loss periods as their effect would be antidilutive. EPS for all periods have
been computed in accordance with SFAS No. 128.
7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1999 2000
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net income (loss) ($ 2,298) $ 10,174
======== ========
Basic earnings (loss) per share ($ 0.08) $ 0.35
======== ========
Basic weighted average common shares
outstanding 27,385 28,711
Effect of dilutive securities:
Warrants 34
Options 2,421
-------- --------
Diluted weighted average common and potential
common shares outstanding 27,385 31,166
======== ========
Diluted earnings (loss) per share ($ 0.08) $ 0.33
======== ========
</TABLE>
Weighted average options and warrants to purchase 329,000 and 12,000
shares of common stock were outstanding for the three months ended March 31,
1999 and 2000, respectively, and were not included in the computation of
earnings per share as their effect was anti-dilutive. In addition, for the three
months ended March 31, 1999 and 2000, potential common shares attributable to
Convertible Subordinated Notes of 3,670,213 and 3,666,703, respectively, were
not included in the calculation of diluted earnings per share as they were also
anti-dilutive.
3. BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
INVENTORIES:
Raw Materials $ 16,199 $ 14,630
Work-in-progress 18,661 24,078
Finished goods 28,849 29,218
-------- --------
63,709 67,926
Allowance for excess and obsolete (12,300) (11,000)
-------- --------
Total $ 51,409 $ 56,926
======== ========
ACCRUED AND OTHER LIABILITIES:
Warranty and installation accruals $ 24,600 $ 29,500
Payroll and payroll related 11,952 8,020
Interest 11,371 10,751
Other 4,369 4,775
-------- --------
Total $ 52,292 $ 53,046
======== ========
</TABLE>
4. REPORTING COMPREHENSIVE INCOME
The accumulated balance of other comprehensive income (loss) is
disclosed as a separate component of stockholders' equity. For Cymer,
comprehensive income includes foreign currency translation adjustments and
unrealized holding gains and losses on available-for-sale securities.
8
<PAGE>
The following table summarizes the change in each component of
accumulated other comprehensive loss for the periods ended December 31, 1999 and
March 31, 2000:
<TABLE>
<CAPTION>
Total unrealized
gains (losses) on Accumulated
Translation available-for-sale other
adjustment, investments, comprehensive
net of tax net of tax income (loss)
----------------- --------------------- ------------------
<S> <C> <C> <C> <C>
January 1, 1999 Balance ($1,862) $ 235 ($1,627)
Period net change (1,719) (274) (1,993)
------- ------- -------
December 31, 1999 Balance (3,581) (39) (3,620)
Period net change 1,206 11 1,217
------- ------- -------
March 31, 2000 Balance ($2,375) ($ 28) ($2,403)
======= ======= =======
</TABLE>
5. CLASS ACTION LAWSUITS
Cymer has been named as a defendant in several putative shareholder
class action lawsuits which were filed in September and October, 1998 in the
U.S. District Court for the Southern District of California. Certain executive
officers and directors of Cymer are also named as defendants. The plaintiffs
purport to represent a class of all persons who purchased Cymer's Common Stock
between April 24, 1997 and September 26, 1997 (the "Class Period"). The
complaints allege claims under the federal securities laws. The plaintiffs
allege that Cymer and the other defendants made various material
misrepresentations and omissions during the Class Period. The complaints do not
specify the amount of damages sought. The complaints have been consolidated into
a single action and a class representative has been appointed by the court. A
consolidated amended complaint was filed in early August 1999. On November 5,
1999 Cymer and the other defendants filed a motion to dismiss the consolidated
amended claim for failure to state a cause of action. On April 1, 2000 the court
granted defendant's motion to dismiss with leave to amend the complaint by the
plaintiffs. Accordingly, no provision for any liability or loss that may result
from adjudication or settlement thereof has been made in the accompanying
consolidated financial statements.
6. CONVERTIBLE SUBORDINATED NOTES
In the first quarter of 2000, $165,000 of Cymer's subordinated notes
were converted to 3,510 shares of common stock.
7. CONTINGENCIES
Cymer's Japanese manufacturing partner has been notified that its
manufacture of Cymer's laser systems in Japan may infringe a Japanese patent
held by another Japanese company. Cymer has agreed to indemnify its Japanese
manufacturing partner against patent infringement claims under certain
circumstances. Cymer believes, based upon the advice of counsel, that Cymer's
products do not infringe any valid claim of the asserted patent or that it is
entitled to prior user rights in Japan.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AN ASTERISK ("*") DENOTES A FORWARD-LOOKING STATEMENT REFLECTING
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND
STOCKHOLDERS OF CYMER, INC. (TOGETHER WITH ITS WHOLLY-OWNED AND MAJORITY-OWNED
SUBSIDIARIES COLLECTIVELY "CYMER") SHOULD CAREFULLY REVIEW THE CAUTIONARY
STATEMENTS SET FORTH IN THIS FORM 10-Q, INCLUDING "RISK FACTORS" BEGINNING ON
PAGE 14 HEREOF. CYMER MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS CONTAINED IN CYMER'S FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO STOCKHOLDERS.
CYMER DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT THAT MAY BE
MADE FROM TIME TO TIME BY OR ON BEHALF OF CYMER.
RESULTS OF OPERATIONS
The following table sets forth certain items in Cymer's statements of
operations as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 2000
<S> <C> <C>
Revenues:
Product sales 99.3% 99.9%
Other .7 .1
------ ------
Total revenues 100.0% 100.0%
Cost and expenses:
Cost of product sales 70.0 57.2
Research and development 18.6 13.4
Sales and marketing 8.8 4.7
General and administrative 7.0 5.7
------ ------
Total costs and expenses 104.4 81.0
------ ------
Operating income (loss) (4.4) 19.0
Other income (expense) - net (3.1) (.6)
------ ------
Income before income tax provision (benefit)
and minority interest (7.5) 18.4
Income tax provision (benefit) (1.9) 5.5
Minority interest (.1) (.3)
------ ------
Net income (loss) (5.7%) 12.6%
------ ------
Gross margin on product sales 29.4% 42.7%
------ ------
</TABLE>
10
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
REVENUES. Cymer's total revenues consist of product sales, which
include sales of laser systems, spare parts, service and training, and other
revenues, which primarily include revenues from funded development activities
performed for SEMATECH. Revenue from product sales is generally recognized at
the time of shipment, unless customer agreements contain inspection or other
conditions, in which case revenue is recognized at the time such conditions are
satisfied. Funded development contracts are accounted for on the
percentage-of-completion method based on the relationship of costs incurred to
total estimated costs, after giving effect to estimates of costs to complete the
development project.
Product sales increased 102% from $39.8 million in the three months
ended March 31, 1999 to $80.5 million in the three months ended March 31, 2000,
primarily due to increased sales of DUV photolithography laser systems. Due to
the increase in Cymer's installed base of lasers, Cymer's revenues from spares,
replacement parts and services has increased and has become a larger component
of product sales. Funded development revenues decreased from $269,000 for the
three months ended March 31, 1999 to $85,000 for the three months ended March
31, 2000, primarily due to the completion of various laser research projects
sponsored by customers and SEMATECH in 2000 compared to the addition of various
projects in 1999.
Cymer's sales are generated primarily by shipments to customers in
Japan, the Netherlands, and the United States. Approximately 88%, 85% and 91% of
Cymer's sales in 1998, 1999 and the first three months of 2000, respectively,
were derived from customers outside the United States. Cymer maintains a
wholly-owned Japanese subsidiary which sells to Cymer's Japanese customers.
Revenues from Japanese customers, generated primarily by this subsidiary,
accounted for 48%, 37% and 43% of revenues from 1998, 1999 and the first three
months of 2000, respectively. The activities of Cymer's Japanese subsidiary are
limited to sales and service of products purchased by the subsidiary from the
parent corporation. All costs of development and production of Cymer's products,
including costs of shipment to Japan, are recorded on the books of the parent
company. Cymer anticipates that international sales will continue to account for
a significant portion of its net sales.*
COST OF PRODUCT SALES. Cost of product sales includes direct material
and labor, warranty expenses, license fees, manufacturing and service overhead,
and foreign exchange gains and losses on foreign currency exchange contracts
associated with purchases of Cymer's products by the Japanese subsidiary for
resale under firm third-party sales commitments.
Cost of product sales increased 64% from $28.1 million for the three
months ended March 31, 1999 to $46.2 million for the three months ended March
31, 2000 due to the increase in sales volume. The gross margin on these sales
increased from 29.4% for the three months ended March 31, 1999 to 42.7% for the
same three month period in 2000. This increase was primarily due to increased
product sales absorbing fixed manufacturing facility costs and reduced costs due
to improved efficiencies in some manufacturing processes.
Net gains or losses from foreign currency exchange contracts are
included in cost of product sales in the consolidated statements of operations
as the related sales are recognized. Cymer recognized a net loss on such
contracts of $951,000 for the three months ended March 31, 1999 compared to a
gain of $746,000 for the three months ended March 31, 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses include
costs of internally-funded and externally-funded projects as well as continuing
research support expenses which primarily include employee and material costs,
depreciation of equipment and other engineering related costs. Research and
development expenses increased 44% from $7.5 million for the three months ended
March 31, 1999 to $10.8 million for the three months ended March 31, 2000, due
primarily to increased product development effort related to an increase in
projected product introductions. Research and development expenses in 1999
consisted of costs
11
<PAGE>
associated with the initial development stages of the Orion or ELS-6000 laser
system. During the first quarter of 2000, the increased expenses reflect the
continued development efforts for the ELS-6000 laser system. As a percentage
of total revenues, such expenses decreased from 18.6% to 13.4% in the
respective periods due to substantially increased revenues.
SALES AND MARKETING. Sales and marketing expenses include the expenses
of the sales, marketing and customer support staffs and other marketing
expenses. Sales and marketing expenses increased 8% from $3.5 million for the
three months ended March 31, 1999 to $3.8 million for the three months ended
March 31, 2000 due primarily to increased staffing expenses due to expanded
operations in the areas of product marketing and sales administration. As a
percentage of total revenues, such expenses decreased from 8.8% to 4.7% in the
respective periods due to higher sales volumes.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of management and administrative personnel costs, professional
services and administrative operating costs. General and administrative expenses
increased 64% from $2.8 million in the three months ended March 31, 1999 to $4.6
million for the three months ended March 31, 2000, due to the continuing process
quality development efforts, including the implementation of a new Enterprise
Resource Planning ("ERP") system which is currently in process and the required
general and administrative support activities. As a percentage of total
revenues, such expenses decreased from 7% to 5.7% from period to period.
OTHER INCOME (EXPENSE) - NET. Net other income (expense) consists
primarily of interest income and expense and foreign currency exchange gains and
losses associated with the fluctuations in the value of the Japanese yen against
the United States dollar. Net other expense decreased from $1.2 million for the
three months ended March 31, 1999 to $503,000 for the three months ended March
31, 2000, primarily due to the increase in interest income associated with
higher market yields in 2000 on the investment of increased cash balances.
Foreign currency exchange losses totaled $234,000, interest income totaled $1.8
million and interest expense totaled $2.8 million for the three months ended
March 31, 1999, compared to an exchange gain of $18,000, interest income of $2.4
million and $2.9 million in interest expense for the three months ended March
31, 2000.
Cymer's results of operations are subject to fluctuations in the value
of the Japanese yen against the United States dollar. Sales by Cymer to its
Japanese subsidiary are denominated in dollars, and sales by the subsidiary to
customers in Japan are denominated in yen. Cymer's Japanese subsidiary manages
its exposure to such fluctuations by entering into foreign currency exchange
contracts to hedge its purchase commitments to Cymer. The gains or losses from
these contracts are recorded as a component of cost of product sales, while the
remaining foreign currency exposure is recorded as other income (expense) in the
consolidated statements of operations. Gains and losses resulting from foreign
currency translation are accumulated as a separate component of consolidated
stockholders' equity.
INCOME TAX PROVISION (BENEFIT). The tax benefit of $758,000 reported
for the three months ended March 31, 1999 reflects an annual effective tax rate
of 25%. The provision for income taxes for the three months ended March 31, 2000
of $4,448,000 reflects an annual effective tax rate of 30%. The annual effective
tax rates for both periods are less than the U.S. statutory rate of 35%
primarily as a result of permanent book/tax differences and tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Since its initial public offering and a second public offering, both
in 1996, Cymer has funded its operations primarily through a convertible
subordinated note offering on August 6, 1997, which generated $167.3 million in
net proceeds, and from bank borrowings, cash flow from operations and the
proceeds from employee stock option exercises. As of March 31, 2000, Cymer had
approximately $80.0 million in cash and cash equivalents, $104.0 million in
short-term
12
<PAGE>
investments, $10.8 million in long-term investments, $231.4 million in working
capital and $18.2 million in bank debt.
Net cash used for operating activities was approximately $4.0 million
for the three months ended March 31, 1999. For the three months ended March 31,
2000, operating activities provided $6.9 million in cash. The reversal from cash
use to cash provided was due primarily to Cymer's return to profitable
operations. For the quarter ended March 31, 1999, a net loss of $2.3 million was
recorded versus net income of $10.2 million for the quarter ended March 31,
2000. In addition, cash collections on accounts receivable for the three months
ended March 31, 2000 were offset by increases in inventory due to the increase
in revenues and bookings.
Net cash provided by investing activities was approximately $6.9
million for the three months ended March 31, 1999 as compared to $10.7 million
used in investing activities for the three months ended March 31, 2000. The net
cash provided by investing activities during the first three months of 1999
primarily reflects property acquisitions to accommodate business expansion and
focus, offset by the timing of short and long term investments maturing and
being reinvested during the period. For the first three months of 2000, the cash
used primarily reflects the continued investment in property acquisitions to
accommodate the increased business activity, such as the construction of an
additional facility at the San Diego, California location, as well as the
implementation of a new ERP system. In addition, $1.1 million in cash was used
for the acquisition of the minority shareholder interest in Cymer's Taiwan
subsidiary.
Net cash provided by financing activities was approximately $6.9
million and $5.1 million for the three months ended March 31, 1999 and 2000,
respectively. The net cash provided by financing activities for the three months
ended March 31, 1999 was primarily attributable to $4.8 million in bank
borrowings in Japan and the receipt of $2.3 million upon the issuance of common
stock due to the exercising of stock options by Cymer employees. For the period
ended March 31, 2000, the cash provided was primarily attributable to the
receipt of $5.3 million upon issuance of common stock due to employee stock
option exercises.
Cymer requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable and for capital
expenditures. Cymer's future capital requirements will depend on many factors,
including the rate of Cymer's manufacturing expansion, the timing and extent of
spending to support product development efforts and expansion of sales and
marketing and field service and support, the timing of introductions of new
products and enhancements to existing products, and overall industry conditions.
Cymer believes that it has sufficient working capital and available bank credit
to sustain operations and provide for the future expansion of its business
during 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
new standard, as amended, will become effective for Cymer for the first quarter
of 2001. Interim reporting for this standard will be required. Cymer has not yet
assessed the effect of this standard on Cymer's current reporting and
disclosures.
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RISK FACTORS
LIKELY FLUCTUATIONS IN OPERATING RESULTS
CERTAIN FACTORS CAUSING FLUCTUATIONS
Cymer's operating results have in the past fluctuated and are likely in
the future to fluctuate significantly. These fluctuations depend on a variety of
factors which may include:
- the demand for semiconductors in general and, in particular, for
leading edge devices with smaller circuit geometries;
- the rate at which semiconductor manufacturers take delivery of
photolithography tools from Cymer's customers and rate at which
those customers take delivery of lightsources from Cymer;
- cyclicality in the market for semiconductor manufacturing
equipment;
- the timing and size of orders from Cymer's small base of customers;
- the ability of Cymer to manufacture, test and deliver laser systems
in a timely and cost effective manner;
- the mix of laser models, replacement parts and service revenues;
- the ability of Cymer's competitors to obtain orders from Cymer's
customers;
- the entry of new competitors into the market for DUV
photolithography illumination sources;
- the ability of Cymer to manage its costs as it supplies its
products in higher volumes and multiple different models; and
- Cymer's ability to effectively manage its exposure to foreign
currency exchange rate fluctuations, principally with respect to
the Japanese yen (in which sales by Cymer's Japanese subsidiary are
denominated).
In addition, as customers become more efficient at integrating Cymer's lasers
into their photolithography tools, reductions in customer laser inventories may
affect Cymer's operating results.
TIMING OF REVENUE RECOGNITION
Cymer has historically derived a substantial portion of its quarterly
and annual revenues from the sale of a relatively small number of systems. As a
result, the precise timing of the recognition of revenue from an order for a
small number of systems can have a significant impact on Cymer's total revenues
and operating results for a particular period. If customers cancel or reschedule
orders for a small number of systems or if Cymer cannot fill orders in time to
recognize revenue during a particular period, this could adversely affect
Cymer's operating results for that period. For example, unanticipated
manufacturing, testing, shipping or product acceptance delays could cause such
cancellations, rescheduling or inability to fill orders promptly.
FIXED EXPENSES
Cymer's expense levels are based, in large part, on Cymer's
expectations as to future revenues. Therefore, Cymer's expenses are relatively
fixed in the short term. If revenue levels fall below expectations, this would
disproportionately and adversely affect net income. Cymer cannot forecast the
impact of these and other factors on its revenues and operating results in any
future period with any degree of certainty.
SEMICONDUCTOR MANUFACTURER DEMAND
Cymer believes that semiconductor manufacturers are currently
developing capability for production and pilot production of 0.25um, 0.18um and
below devices. Cymer also believes that the efforts to develop such capability
are driving present demand for its laser systems for DUV photolithography tools.
Once semiconductor manufacturers have acquired such capability, their
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demand for Cymer's DUV photolithography tools will depend on whether they
want to expand their capacity to manufacture such devices. This will in turn
depend on whether their sales forecasts and manufacturing process yields
justify such an investment. Cymer currently expects that demand for its DUV
laser systems will depend on such demand and process development constraints
of the semiconductor manufacturers.
INDUSTRY CONDITIONS
Cymer has expanded some aspects of its operations in response to
improvements in industry conditions. Should continued improvements not
materialize, the planned increases in spending may negatively impact profitable
operations.
Due to the foregoing, as well as other unanticipated factors, Cymer's
operating results will likely fall below the expectations of public market
analysts or investors in some future quarter or quarters. Such failure to meet
operating result expectations would materially adversely affect the price of
Cymer's Common Stock.
DEPENDENCE ON SEMICONDUCTOR INDUSTRY
Cymer derives substantially all of its revenues from photolithography
tool manufacturers. Photolithography tool manufacturers depend in turn on the
demand for their products from semiconductor manufacturers. Semiconductor
manufacturers depend on the demand from manufacturers of end-products or systems
that use semiconductors. The semiconductor industry is highly cyclical and has
historically experienced periodic and significant downturns. These downturns
have often had a severe effect on the demand for semiconductor manufacturing
equipment, including photolithography tools. Cymer believes that downturns in
the semiconductor manufacturing industry will periodically occur, resulting in
periodic decreases in demand for semiconductor manufacturing equipment. In
addition, Cymer believes that in a future downturn Cymer's need to continue
investment in research and development, and to maintain extensive ongoing
customer service and support capability, will constrain its ability to reduce
expenses. Accordingly, downturns in the semiconductor industry would likely have
a material adverse effect on Cymer's business, financial condition and results
of operations.
DEPENDENCE ON SMALL NUMBER OF CUSTOMERS
A small number of manufacturers of DUV photolithography tools
constitute Cymer's primary customer base. Four large firms, ASM Lithography,
Canon, Nikon and SVG Lithography (a subsidiary of Silicon Valley Group, Inc.),
dominate the photolithography tool business. Collectively, they accounted for
approximately 94%, 79% and 82% of Cymer's total revenues in 1998, 1999, and the
three months ended March 31, 2000, respectively. Individually, sales to ASM
Lithography, Canon, Nikon and SVG Lithography accounted for approximately 33%,
17%, 24% and 5%, respectively, of total revenues in 1999 and 33%, 16%, 32% and
1%, respectively, of total revenues for the three months ended March 31, 2000.
Cymer expects that sales of its systems to these customers will continue to
account for a substantial majority of its revenues in the foreseeable future.
None of Cymer's customers are obligated to purchase a minimum number of Cymer's
products. The loss of any significant business from any one of these customers,
a significant reduction in orders from any one of these customers or production
problems for any one of these customers that cause a slow down in Cymer's
deliveries, would have a material adverse effect on Cymer's business, financial
condition and results of operations. Reductions caused by changes in a
customer's competitive position, a decision to purchase illumination sources
from other suppliers, or economic conditions in the semiconductor and
photolithography tool industries, could all cause such a loss of business or
reduction in orders.
NEED TO MANAGE A CHANGING BUSINESS
In recent years, Cymer has sharply expanded and contracted the scope of
its operations and the number of employees in most of its functional areas. As
of March 31, 2000, Cymer had
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787 employees. Cymer has substantially expanded its facilities and
manufacturing capacity. For example, since December 31, 1996 Cymer has
occupied three additional buildings covering approximately 187,000 square
feet. In a cyclical environment of dramatic growth or contraction, Cymer will
need:
- to continue close management of these areas, and
- to improve its management, operational and financial systems,
including
- accounting and other internal management systems,
- quality control,
- delivery,
- field service and customer support capabilities and,
- changing sales and marketing channels.
Cymer must also effectively manage its inventory levels, including assessing and
managing excess and obsolete inventories associated with the changing
environment and new product introductions. Cymer will need to attract, train,
retain and manage key technical personnel in order to support Cymer's growth
and/or contraction. Cymer will also need to manage effectively its international
operations, including:
- the operations of its subsidiaries in Japan, Korea, Taiwan,
Singapore and The Netherlands,
- its field service and support presence in Asia and Europe and
- its relationship with Seiko as a manufacturer of its
photolithography lasers.
Cymer must also effect timely deliveries of its products and maintain the
product quality and reliability required by its customers. Any failure to
effectively manage Cymer's growth or contraction would materially adversely
affect Cymer's financial condition and results of operations.
RISKS ASSOCIATED WITH IMPLEMENTING A NEW ENTERPRISE RESOURCE PLANNING SYSTEM
Cymer is in the process of of implementing a new corporate wide
enterprise resource planning ("ERP") system to replace its current ERP system.
Cymer has scheduled implementation of the new ERP system and training of
personnel to use the system to be completed during the year 2000.* The
implementation of a new ERP system requires full commitment of management and
the dedication and utilization of significant internal as well as external
resources in managing the project, process redesigns, system integration and
employee training. Historically, many companies have experienced difficulties in
implementing ERP systems. These difficulties range from cost overruns, push-outs
of implementation deadlines, process and operations gridlock, failure to execute
operating plans, including inability to ship products for revenue, and
abandonment of the effort altogether. Cymer must effectively manage its planning
and execution of the implementation of the system and the training of personnel
throughout the Company. Any failure to effectively manage Cymer's efforts or
process and operations designs would materially adversely affect Cymer's
financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT INTRODUCTIONS
Semiconductor manufacturing equipment and processes are subject to
rapid technological change. Cymer believes that its future success will depend
in part upon its ability to:
- continue to enhance its excimer laser products and their process
capabilities, and
- develop and manufacture new products with improved capabilities.
In order to enhance and improve its products and develop new products, among
other things, Cymer must work closely with its customers, particularly in the
product development stage, to integrate its lasers with its customers'
photolithography tools. Future technologies, such as EUV and scalpel processes,
might render Cymer's excimer laser products obsolete. Further, Cymer
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might not be able to develop and introduce new products or enhancements to
its existing products and processes in a timely or cost effective manner that
satisfy customer needs or achieve market acceptance. The failure to do so
could materially adversely affect Cymer's business, financial condition and
results of operations.
COMPETITION
LAMBDA-PHYSIK, KOMATSU AND USHIO
Cymer currently has three significant competitors in the market for
excimer laser systems for photolithography applications:
- Lambda-Physik,
- Komatsu, Ltd. and
- Ushio.
All of these companies:
- are larger than Cymer,
- have access to greater financial, technical and other resources
than does Cymer, and
- are located in closer proximity to Cymer's customers than is Cymer.
Cymer believes that Lambda-Physik and Komatsu are aggressively seeking to gain
larger positions in this market. Cymer believes that its customers have each
purchased products offered by these competitors and that its customers have
qualified competitors' lasers for use with their products. Cymer believes that
Komatsu in particular has been qualified for production use by chipmakers in
Japan and elsewhere. Cymer also believes that Lambda-Physik has been qualified
for production use by chipmakers in the U.S. Cymer could lose market share and
its growth could slow or even decline as competitors gain market acceptance.
OTHER TECHNOLOGIES
In the future, Cymer will likely experience competition from other
technologies, such as EUV and scalpel processes. To remain competitive, Cymer
believes that it will need to:
- manufacture and deliver products to customers on a timely basis and
without significant defects, and
- maintain a high level of investment in research and development and
in sales and marketing.
Cymer might not have sufficient resources to continue to make the investments
necessary to maintain its competitive position.
SMALL AND IMMATURE MARKET FOR EXCIMER LASERS
The market for excimer lasers is still small and immature. Larger
competitors with substantially greater financial resources, including other
manufacturers of industrial lasers, might attempt to enter the market.
Cymer might not remain competitive. A failure to remain competitive
would have a material adverse effect on Cymer's business, financial condition
and results of operations.
DEPENDENCE ON SINGLE PRODUCT LINE
Cymer's only product line is excimer lasers ("KrF, ArF and F2 laser
systems"). The primary market for excimer lasers is for use in DUV
photolithography equipment for manufacturing deep-submicron semiconductor
devices. Demand for Cymer's products will depend in part on the
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rate at which semiconductor manufacturers adopt excimer lasers as the
illumination source for their photolithography tools.
Impediments to such adoption include:
- instability of photoresists used in advanced DUV photolithography
and
- potential shortages of specialized materials used in DUV optics.
There can be no assurance that such impediments can or will be overcome. In any
event, such impediments may materially reduce the demand for Cymer's products.
Further, if Cymer's customers experience reduced demand for DUV photolithography
tools, or if Cymer's competitors are successful in obtaining significant orders
from such customers, Cymer's financial condition and results of operations would
be materially adversely affected.
RISK OF EXCESSIVE INVENTORY BUILDUPS BY PHOTOLITHOGRAPHY TOOL MANUFACTURERS
Photolithography tool manufacturers constitute substantially all of
Cymer's customers. Photolithography tool manufacturers sell their systems in
turn to semiconductor manufacturers. Market conditions in the industry can cause
Cymer's customers to expand or reduce their orders for new laser systems as they
try to manage their inventories to appropriate levels which better reflect their
expected sales forecasts. Cymer is working with its customers to better
understand end user demand for DUV photolithography tools. However, there can be
no assurance that Cymer will be successful in this regard, or that its customers
will not build excessive laser inventories. Excessive customer laser inventories
could result in a material decline in Cymer's revenues and operating results in
future periods as such inventories are brought into balance.
DEPENDENCE ON KEY SUPPLIERS
Cymer obtains certain of the components and subassemblies included in
its products from a single supplier or a limited group of suppliers. In
particular, there are no alternative sources for certain of such components and
subassemblies, including certain optical components used in Cymer's lasers. In
addition, Cymer is increasingly outsourcing the manufacture of various
subassemblies. To date Cymer has been able to obtain adequate supplies of the
components and subassemblies in a timely manner from existing sources. However,
due to the nature of Cymer's product development requirements, key suppliers
often need to rapidly advance their own technologies in order to support Cymer's
new product introduction schedule. These suppliers may or may not be able to
satisfy Cymer's schedule requirements in providing new modules and subassemblies
to Cymer. If Cymer cannot obtain sufficient quantities of such materials,
components or subassemblies, or if such items do not meet Cymer's quality
standards, delays or reductions in product shipments could have a material
adverse effect on Cymer's business, financial condition and results of
operations.
PRODUCTION USE OF EXCIMER LASERS
Cymer's products might not meet production specifications or cost of
operation requirements over time when subjected to prolonged and intense use in
volume production in semiconductor manufacturing processes. If any semiconductor
manufacturer cannot successfully achieve or sustain volume production using
Cymer's lasers, Cymer's reputation with semiconductor manufacturers or the
limited number of photolithography tool manufacturers could be damaged. This
would have a material adverse effect on Cymer's business, financial condition
and results of operations.
DEVELOPMENT OF FIELD SERVICE AND SUPPORT ORGANIZATION
Cymer believes that the need to provide fast and responsive service to
the semiconductor manufacturers using its lasers is critical. Cymer cannot
depend solely on its direct customers to provide this specialized service.
Therefore, Cymer believes it is essential to establish through its
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own personnel, a rapid response capability to service its lasers throughout
the world. Accordingly, Cymer has an ongoing effort to develop its direct
support infrastructure in the United States, Japan, Europe, Korea, Singapore,
Taiwan and Southeast Asia. This development entails recruiting and training
qualified field service personnel and building effective and highly trained
organizations that can provide service to customers in various countries in
their assigned regions. Cymer has historically experienced difficulties in
effectively training field service personnel. Cymer might not be able to
attract and train qualified personnel to establish these operations
successfully. Further, the costs of such operations might be excessive. A
failure to implement this plan effectively could have a material adverse
effect on Cymer's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
Cymer is highly dependent on the services of a number of key employees
in various areas, including:
- engineering,
- research and development,
- sales and marketing, and
- manufacturing.
In particular, there are a limited number of experts in excimer laser
technology. There is intense competition for such personnel, as well as for the
highly-skilled hardware and software engineers Cymer requires. Cymer has in the
past experienced, and continues to experience, difficulty in hiring personnel,
including experts in excimer laser technology. Cymer believes that, to a large
extent, its future success will depend upon:
- the continued services of its engineering, research and
development, sales and marketing and manufacturing and service
personnel, and
- its ability to attract, train and retain highly skilled personnel
in each of these areas.
Cymer does not have employment agreements with most of its employees, and Cymer
might not be able to retain its key employees. The failure of Cymer to hire,
train and retain such personnel could have a material adverse effect on Cymer's
business, financial condition and results of operations.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
CYMER PATENTS
Cymer believes that the success of its business depends more on such
factors as the technical expertise of its employees, as well as their innovative
skills and marketing and customer relations ability, than on patents,
copyrights, trade secrets and other intellectual property rights. Nevertheless,
the success of Cymer may depend in part on patents. As of March 31, 2000, Cymer
owned 73 United States patents covering certain aspects of technology associated
with excimer lasers. Such patents will expire at various times during the period
from January 2008 to May 2019. As of March 31, 2000, Cymer had also applied for
68 additional patents in the United States, 1 of which has been allowed. As of
March 31, 2000, Cymer owned 45 foreign patents and had filed 215 patent
applications pending in various foreign countries.
Cymer's pending patent applications and any future applications might
not be approved. Cymer's patents might not provide Cymer with competitive
advantages. Third parties might challenge Cymer's patents. In addition, third
parties' patents might have an adverse effect on Cymer's ability to do business.
In this regard, due to cost constraints, Cymer did not begin filing for patents
in Japan or other countries with respect to inventions covered by its United
States patents and patent applications until 1993. Therefore, Cymer lost the
right to seek foreign patent protection for certain of its inventions.
Additionally, because foreign patents may afford less
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protection under foreign law than is available under United States patent
law, any such patents issued to Cymer might not adequately protect Cymer's
technology in a given foreign jurisdiction. Furthermore, third parties might
independently develop similar products, duplicate Cymer's products or, to the
extent patents are issued to Cymer, design around the patents issued to Cymer.
COMPETITIVE PATENTS
Others may have filed and in the future may file patent applications
that are similar or identical to those of Cymer. To determine the priority of
inventions, Cymer may have to participate in interference proceedings declared
by the United States Patent and Trademark Office. Such interference proceedings
could result in substantial cost to Cymer. Such third party patent applications
might have priority over patent applications filed by Cymer.
OTHER FORMS OF PROTECTION
Cymer also relies upon:
- trade secret protection,
- employee nondisclosure agreements,
- third-party nondisclosure agreements, and
- other intellectual property protection methods
to protect its confidential and proprietary information. Despite these efforts,
third parties might:
- independently develop substantially equivalent proprietary
information and techniques,
- otherwise gain access to Cymer's trade secrets, or
- disclose such technology.
Cymer might not be able to meaningfully protect its trade secrets.
POSSIBLE CLAIMS TO OWNERSHIP OF CYMER'S INTELLECTUAL PROPERTY
Cymer has in the past funded a significant portion of its research and
development expenses from outside research and development revenues. Cymer has
received such revenues from photolithography tool manufacturers and from
SEMATECH, a semiconductor industry consortium, in connection with the design and
development of specific products. Cymer currently funds a small portion of its
development expenses through SEMATECH. Although Cymer's arrangements with
photolithography tool manufacturers and SEMATECH seek to clarify the ownership
of the intellectual property arising from research and development services
performed by Cymer, disputes over the ownership or rights to use or market such
intellectual property might arise between Cymer and such parties. Any such
dispute could result in restrictions on Cymer's ability to market its products
and could have a material adverse effect on Cymer's business, financial
condition and results of operations.
PATENT INFRINGEMENT
Third parties have in the past notified, and may in the future notify,
Cymer that it may be infringing their intellectual property rights. Conversely,
Cymer has in the past notified, and may in the future notify, third parties that
they may be infringing Cymer's intellectual property rights.
Specifically, Cymer has engaged in discussions with one of its
competitors, Komatsu, with respect to certain of Komatsu's Japanese patents, in
the course of which Komatsu has also identified to Cymer a number of additional
Japanese patents that Komatsu asserts may be infringed by Cymer and Cymer's
Japanese manufacturing partner, Seiko. Cymer, in consultation with Japanese
patent counsel, has initiated oppositions to certain Komatsu Japanese patents
and
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patent applications in the Japanese Patent Office. Some of these oppositions
have been dismissed by the Japanese Patent Office. Litigation might ensue with
respect to the Komatsu Japanese patents. Also, Komatsu might assert infringement
claims under additional patents. Komatsu has notified Seiko that Komatsu intends
to enforce its rights under the Komatsu Japanese patents against Seiko if Seiko
engages in manufacturing activities for Cymer. In connection with its
manufacturing agreement with Seiko, Cymer has agreed to indemnify Seiko against
such claims under certain circumstances. Cymer and Seiko might not ultimately
prevail in any such litigation.
Cymer has notified its competitors and others of Cymer's United States
patent portfolio. Cymer has specifically asserted certain of its U.S. patents
against Komatsu when informed that Komatsu lasers might be integrated into
steppers intended for shipment into the U.S. Cymer and Komatsu are currently
engaged in discussions with regard to each party's claims. Those discussions
might not be successful and litigation could result. Attorneys representing
Komatsu are currently challenging one of Cymer's U.S. patents in the U.S. Patent
Office.
Any patent litigation initiated by Cymer, or initiated by Cymer's
competitors against Cymer, would, at a minimum, be costly. Litigation could also
divert the efforts and attention of Cymer's management and technical personnel.
Both could have a material adverse effect on Cymer's business, financial
condition and results of operations. Furthermore, in the future other third
parties might assert other infringement claims, and customers and end users of
Cymer's products might assert other claims for indemnification resulting from
infringement claims. Such assertions, if proven to be true, might materially
adversely affect Cymer's business, financial condition and results of
operations. If any such claims are asserted against Cymer, Cymer may seek to
obtain a license under the third party's intellectual property rights. However,
such a license might not be available on reasonable terms or at all. Cymer could
decide, in the alternative, to resort to litigation to challenge such claims or
to design around the patented technology. Such actions could be costly and would
divert the efforts and attention of Cymer's management and technical personnel,
which would materially adversely affect Cymer's business, financial condition
and results of operations.
TRADEMARK
Cymer has registered the trademark CYMER in the United States and
certain other countries and is seeking additional registrations of other
trademarks including "Insist on Cymer" in the United States and in certain other
countries. Cymer uses these and a variety of other marks in its advertisements
and other business activities around the world. Based on the use of these marks,
Cymer might be subjected to actions for trademark infringement, which could be
costly to defend. If a challenge to a mark were to be successful, Cymer might be
required to cease use of the mark and, potentially, to pay damages.
RISKS ASSOCIATED WITH MANUFACTURING IN JAPAN
Cymer has qualified Seiko of Japan as a contract manufacturer of its
photolithography lasers. Komatsu, a competitor of Cymer, has advised Seiko that
certain aspects of Cymer's lasers might infringe certain patents that have been
issued to Komatsu in Japan. Komatsu has advised Seiko it intends to enforce its
rights under such patents against Seiko if Seiko engages in manufacturing
activities for Cymer. In the event that, notwithstanding its manufacturing
agreement with Cymer, Seiko should determine not to continue manufacturing
Cymer's products until resolution of the matter with Komatsu, Cymer's ability to
meet any heavy demand for its products could be materially adversely affected.
See -- "Uncertainty Regarding Patents and Protection of Proprietary Technology."
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RISKS OF INTERNATIONAL SALES AND OPERATIONS
SIGNIFICANT INTERNATIONAL TRADE
Cymer derived approximately 88%, 85% and 91% of its revenues in 1998,
1999 and the three months ended March 31, 2000, respectively, from customers
located outside the United States. Because a significant majority of Cymer's
principal customers are located in other countries, particularly Asia, Cymer
anticipates that international sales will continue to account for a significant
portion of its revenues.* In order to support its overseas customers, Cymer:
- maintains subsidiaries in Japan, Korea, Taiwan, Singapore and the
Netherlands,
- is further developing its field service and support operations
worldwide, and
- will continue to work with Seiko as a manufacturer of its products
in Japan.*
Cymer might not be able to manage these operations effectively. Cymer's
investment in these activities might not enable it to compete successfully in
international markets or to meet the service and support needs of its customers.
Additionally, a significant portion of Cymer's sales and operations could be
subject to certain risks, including:
- tariffs and other barriers,
- difficulties in staffing and managing foreign subsidiary and branch
operations,
- currency exchange risks and exchange controls,
- potentially adverse tax consequences, and
- the possibility of difficulty in accounts receivable collection.
Because many of Cymer's principal customers, as well as many of the end-users of
Cymer's laser systems, are located in Asia, the recent economic problems and
currency fluctuations affecting that region could intensify Cymer's
international risk. Further, while Cymer has experienced no difficulty to date
in complying with United States export controls, these rules could change in the
future and make it more difficult or impossible for Cymer to export its products
to various countries. These factors could have a material adverse effect on
Cymer's business, financial condition and results of operations.
CURRENCY FLUCTUATIONS
Sales by Cymer to its Japanese subsidiary are denominated in dollars,
while sales by the subsidiary to customers in Japan are denominated in yen. This
means that Cymer's results of operations show some fluctuation based on the
value of the Japanese yen against the U.S. dollar. Cymer's Japanese subsidiary
manages its exposure to such fluctuations by entering into foreign currency
exchange contracts to hedge its purchase commitments. Management will continue
to monitor Cymer's exposure to currency fluctuations, and, when appropriate, use
financial hedging techniques to minimize the effect of these fluctuations.
However, exchange rate fluctuations might have a material adverse effect on
Cymer's results of operations or financial condition. In the future, Cymer might
need to sell its products in other currencies, which would make the management
of currency fluctuations more difficult and expose Cymer to greater risks in
this regard.
FOREIGN REGULATIONS
Numerous foreign government standards and regulations apply to Cymer's
products. These standards and regulations are continually being amended.
Although Cymer endeavors to meet foreign technical and regulatory standards,
Cymer's products might not continue to comply with foreign government standards
and regulations, or changes thereto. It might not be cost effective for Cymer to
redesign its products to comply with such standards and regulations. The
inability of Cymer to design or redesign products to comply with foreign
standards could have a material adverse effect on Cymer's business, financial
condition and results of operations.
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ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS
Federal, state and local regulations impose various controls on the
storage, handling, discharge and disposal of substances used in Cymer's
manufacturing process and on the facility leased by Cymer. Cymer believes that
its activities conform to present governmental regulations applicable to its
operations and its current facilities. These regulations include those related
to environmental, land use, public utility utilization and fire code matters.
Such governmental regulations might in the future impose the need for additional
capital equipment or other process requirements upon Cymer. They might also
restrict Cymer's ability to expand its operations. The adoption of such
measures, or the failure by Cymer to comply with applicable environmental and
land use regulations or to restrict the discharge of hazardous substances, could
subject Cymer to future liability or could cause its manufacturing operations to
be curtailed or suspended.
RISKS OF PRODUCT LIABILITY CLAIMS
Cymer faces a significant risk of exposure to product liability claims
in the event that the use of its products results in personal injury or death.
Cymer might experience material product liability losses in the future. Cymer
maintains insurance against product liability claims. However, such coverage
might not continue to be available on terms acceptable to Cymer. Such coverage
also might not be adequate for liabilities actually incurred. Further, in the
event that any of Cymer's products prove to be defective, Cymer may need to
recall or redesign such products. A successful claim brought against Cymer in
excess of available insurance coverage, or any claim or product recall that
results in significant adverse publicity against Cymer, could have a material
adverse effect on Cymer's business, financial condition and results of
operations.
POSSIBLE PRICE VOLATILITY OF COMMON STOCK
The following factors may significantly affect the market price of
Cymer's Common Stock:
- actual or anticipated fluctuations in Cymer's operating results,
- announcements of technological innovations,
- new products or new contracts by Cymer or its competitors,
- developments with respect to patents or proprietary rights,
- conditions and trends in the laser device and other technology
industries,
- changes in financial estimates by securities analysts,
- general market conditions, and
- other factors.
In addition, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market price for many high
technology companies. Such fluctuations have in some cases been unrelated to the
operating performance of these companies. Severe price fluctuations in a
company's stock have frequently been followed by securities litigation. Cymer is
currently in the process of defending such an action (see - "Legal Matters").
Such litigation can result in substantial costs and a diversion of management's
attention and resources.
LEGAL MATTERS
Cymer has been named as a defendant in several putative shareholder
class action lawsuits which were filed in September and October, 1998 in the
U.S. District Court for the Southern District of California. Certain executive
officers and directors of Cymer are also named as defendants. The plaintiffs
purport to represent a class of all persons who purchased Cymer's Common Stock
between April 24, 1997 and September 26, 1997 (the "Class Period"). The
complaints allege claims under the federal securities laws. The plaintiffs
allege that Cymer and the other defendants made various material
misrepresentations and omissions during the Class Period. The complaints do
not specify the amount of damages sought. The complaints have been
consolidated into a single action and a class representative has been
appointed by the court. A consolidated amended complaint was filed in early
August, 1999. On November 5, 1999
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Cymer and the other defendants filed a motion to dismiss the consolidated
amended claim for failure to state a cause of action. On April 1, 2000 the
court granted defendant's motion to dismiss with leave to amend the
complaint by the plaintiffs. Accordingly, no provision for any liability or
loss that may result from adjudication or settlement thereof has been made
in the accompanying consolidated financial statements.
ANTI-TAKEOVER EFFECT OF NEVADA LAW AND CHARTER AND BYLAW PROVISIONS;
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE
Nevada law as well as Cymer's charter and other documents contain
provisions that could discourage a proxy contest or make more difficult the
acquisition of a substantial block of Cymer's Common Stock, including Cymer's
Articles of Incorporation and Bylaws and Cymer's Preferred Shares Rights
Agreement ("poison pill") dated February 13, 1998. In addition, the Board of
Directors is authorized to issue, without shareholder approval, up to 5,000,000
shares of Preferred Stock. Such shares of Preferred Stock may have voting,
conversion and other rights and preferences that may be superior to those of the
Common Stock and that could adversely affect the voting power or other rights of
the holders of Common Stock. The Board of Directors could use the issuance of
Preferred Stock or of rights to purchase Preferred Stock to discourage an
unsolicited acquisition proposal.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY RISK
Cymer conducts business in several international currencies through its
worldwide operations. Due to the large volume of business Cymer manages in
Japan, the Japanese operation poses the greatest foreign currency risk. Cymer
uses financial instruments, principally forward exchange contracts, in Japan to
manage its foreign currency exposures. Cymer does not enter into forward
exchange contracts for trading purposes.
Cymer enters into foreign currency exchange contracts in order to
reduce the impact of currency fluctuations related to purchases of Cymer's
inventories by Cymer Japan for resale under firm third-party sales commitments.
Net gains or losses are recorded on the date the inventories are received by
Cymer Japan (the transaction date) and are included in cost of product sales in
the consolidated statements of income as the related sale is consummated.
Amounts due from/to the bank on contracts not settled as of the transaction date
are recorded as foreign exchange contracts receivable/payable in the
consolidated balance sheets.
At March 31, 2000, Cymer had outstanding forward foreign exchange
contracts to buy US$61.9 million for 6.5 billion yen under foreign currency
exchange facilities with contract rates ranging from 100.37 yen to 112.95 yen
per US$ and various expiration dates through April 2001.
INVESTMENT AND DEBT RISK
Cymer maintains an investment portfolio consisting primarily of
government and corporate fixed income securities, certificates of deposit and
commercial paper. While it is Cymer's general intent to hold such securities
until maturity, management will occasionally sell particular securities for cash
flow purposes.* Therefore, Cymer's investments are classified as
available-for-sale and are carried on the balance sheet at fair value. Due to
the conservative nature of the investment portfolio, a sudden change in interest
rates would not have a material effect on the value of the portfolio.
In August 1997, Cymer issued $172.5 million aggregate principal amount
of Step-Up Convertible Subordinated Notes due August 6, 2004, with interest
payable semi-annually February 6 and August 6, commencing February 6, 1998.
Interest on the notes is stated at 3 1/2% per annum from August 6, 1997 through
August 5, 2000 and at 7 1/4% per annum from August 6, 2000
24
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to maturity or earlier redemption, representing a yield to maturity accrued
at approximately 5.47%. The Notes are convertible at the option of the holder
into shares of Common Stock of Cymer at any time on or after November 5, 1997
and prior to redemption or maturity, at a conversion rate of 21.2766 shares
per $1,000 principal amount of Notes, subject to adjustment under certain
conditions. Cymer cannot redeem the Notes prior to August 9, 2000.
Thereafter, Cymer can redeem the Notes from time to time, in whole or in
part, at specified redemption prices. The Notes are unsecured and
subordinated to all existing and future senior indebtedness of Cymer. The
indenture governing the Notes does not restrict the incurrence of senior
indebtedness or other indebtedness by Cymer. These Notes are recorded at face
value on the balance sheets. The fair value of such debt, based on quoted
market prices at March 31, 2000 was $215.4 million. As of December 31, 1999,
$172.5 million in Convertible Subordinated Notes was outstanding, as compared
to $172.3 million outstanding as of March 31, 2000.
25
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Cymer has been named as a defendant in several
putative shareholder class action lawsuits which were filed in
September and October, 1998 in the U.S. District Court for the
Southern District of California. Certain executive officers
and directors of Cymer are also named as defendants. The
plaintiffs purport to represent a class of all persons who
purchased Cymer's Common Stock between April 24, 1997 and
September 26, 1997 (the "Class Period"). The complaints allege
claims under the federal securities laws. The plaintiffs
allege that Cymer and the other defendants made various
material misrepresentations and omissions during the Class
Period. The complaints do not specify the amount of damages
sought. The complaints have been consolidated into a single
action and a class representative has been appointed by the
court. A consolidated amended complaint was filed in early
August, 1999. On November 5, 1999 Cymer and the other
defendants filed a motion to dismiss the consolidated amended
claim for failure to state a cause of action. On April 1, 2000
the court granted defendant's motion to dismiss with leave to
amend the complaints by the plaintiffs. Accordingly, no
provision for any liability or loss that may result from
adjudication or settlement thereof has been made in the
accompanying consolidated financial statements.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits And Reports On Form 8-K
(a) Exhibits
10.1. Cymer Executive Deferred Compensation Plan, as
amended and restated
27.1 Financial Data Schedule (submitted for SEC use only)
(b) Reports on Forms 8-K.
None.
26
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYMER, INC.
(Registrant)
Date: May 11, 2000 By: /s/ WILLIAM A. ANGUS, III
-------------------------
William A. Angus, III
Sr. Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
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Cymer Inc.
Executive Deferred Compensation Plan
1. STATEMENT OF PURPOSE
The purpose of the Cymer Inc. Executive Deferred Compensation Plan (the
"Plan") is to aid Cymer Inc. and its subsidiaries in attracting and
retaining key employees by providing a non-qualified compensation
deferral vehicle.
2. DEFINITIONS
2.01 BENEFICIARY - "Beneficiary" means the person or persons designated
as such in accordance with Section 8.
2.02 BOARD OF DIRECTORS - "Board of Directors" means the Board of
Directors of Cymer Inc.
2.03 CALENDAR QUARTER - "Calendar Quarter" means any of the four
calendar quarters in a full calendar year (e.g. January, February
& March comprise the first calendar quarter).
2.04 COMMITTEE - "Committee" means a Committee of two or more directors
of the Company appointed by the Board of Directors of Cymer Inc.
that will administer the Plan pursuant to the provisions of
Section 3 of the Plan.
2.05 COMPANY - "Company" means Cymer Inc. and, for purposes of Section
2.24 and such other purposes as determined by the Committee, shall
include any subsidiary of Cymer Inc.
2.06 COMPENSATION - "Compensation" means the Participant's salary,
Executive Incentive Plan (EIP) annual incentive bonus, or other
items deemed Compensation by the Committee for purposes of this
Plan.
2.07 CYCLE - "Cycle" means the twelve month pay-in period for each
deferral. The first Cycle shall begin on January 1, 2000 and end
on December 31, 2000. The following Cycles shall begin on January
1 of each year and end on December 31 of such year.
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2.08 DECLINING BALANCE INSTALLMENTS - "Declining Balance Installments"
means a series of annual payments such that each payment is
determined by taking that portion of the Participant's account as
of the Distribution Date and dividing by the number of years of
distributions remaining.
2.09 DEFERRAL AMOUNT - "Deferral Amount" means the total amount of
Elective Deferred Compensation and/or Non-Elective Deferred
Compensation with respect to a Participant.
2.010 DEFERRED COMPENSATION ACCOUNT - "Deferred Compensation Account"
means the account maintained on the books of account of the
Company for a Participant pursuant to Section 6.
2.10 DISABILITY - "Disability" means the Participant is eligible to
receive benefits under a long term disability plan maintained by
the Company.
2.11 DISTRIBUTION DATE - "Distribution Date" means the date on which
the Company makes distributions from the Participant's Deferred
Compensation Account(s).
2.12 EFFECTIVE DATE - "Effective Date" means the date on which this
Plan is effective, December 20, 1999.
2.13 ELECTION FORM - "Election Form" means the form or forms attached
to this Plan and filed with the Committee by the Participant in
order to participate in the Plan. The terms and conditions
specified in the Election Form(s) are incorporated by reference
herein and form a part of the Plan.
2.14 ELECTIVE DEFERRED COMPENSATION - "Elective Deferred Compensation"
means the total amount elected to be deferred by an Eligible
Employee on his/her Election Form, subject to approval by the
Committee.
2.15 ELIGIBLE EMPLOYEE - "Eligible Employee" means any employee of the
Company who is an officer, or such other key executives of the
Company as may be designated by the Chief Executive Officer of
Cymer Inc.
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2.16 INVESTMENT ALLOCATION CHANGE FORM - "Investment Allocation Change
Form" means a form filed with the Committee by the Participant in
order to request a change in the allocation of the Participant's
Deferred Compensation Account(s) among the investment choices
offered under the Plan. The terms and conditions specified in the
Investment Allocation Change Form are incorporated by reference
herein and form a part of the Plan.
2.17 INVESTMENT FUNDS - "Investment Funds" means those mutual funds,
investment indexes or other measures of performance identified by
the Committee, which shall be used to determine the returns on the
Participants' Deferred Compensation Accounts. The initial
investment fund shall be the Prime Rate Account. The Investment
Funds may be changed by the Committee from time to time, at the
sole discretion of the Committee.
2.18 NON-ELECTIVE DEFERRED COMPENSATION - "Non-Elective Deferred
Compensation" means the amount awarded to a Participant by the
Committee pursuant to Section 4.02.
2.19 PARTICIPANT - "Participant" means an Eligible Employee
participating in the Plan in accordance with the provisions of
Section 4.
2.20 PLAN YEAR - "Plan Year" means the twelve month period beginning on
the first day of the first Cycle in which the Eligible Employee
elects to participate in the Plan. The initial Plan Year will
commence on January 1, 2000 and end on December 31, 2000. Each
later Plan year will begin on January 1 and end on December 31.
2.21 PRIME RATE ACCOUNT - "Prime Rate Account" means an investment
option providing for a return based on the hypothetical investment
of the Deferral Amount, or a portion thereof, earning the Prime
Rate as reported in the Wall Street Journal as of the last
business day of each calendar quarter which rate shall be credited
for the following calendar quarter.
2.22 RELATED EMPLOYMENT - "Related Employment" means the employment of
a Participant by an employer that is not the Company provided (i)
such employment is undertaken by the Participant at the request of
the
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Company; (ii) immediately prior to undertaking such employment,
the Participant was an employee of the Company, or was engaged in
Related Employment as herein defined; and (iii) such employment is
recognized by the Committee, in its sole discretion, as Related
Employment.
2.23 SUBSTANTIALLY EQUAL INSTALLMENTS - "Substantially Equal
Installments" means a series of annual payments, such that equal
payments over the remaining payment period would exactly amortize
the Participant's Deferred Compensation Account balance in the
Prime Rate Account as of the Distribution Date if the investment
return remained constant at the return credited as of the
Valuation Date immediately preceding the Distribution Date for the
remainder of the payment period.
2.24 TERMINATION OF EMPLOYMENT - "Termination of Employment" means the
end of a Participant's employment with the Company for any reason
other than Disability, Related Employment, or the termination of a
Participant's Related Employment if the Participant returns to the
Company.
2.25 VALUATION DATE - "Valuation Date" means the date on which the
value of a Participant's Deferred Compensation Account is
determined for each Calendar Quarter as provided in Section 6
hereof. Unless and until changed by the Committee, the Valuation
Dates within each Cycle shall be the last day of each of the four
Calendar Quarters of the calendar year. If a Participant requests
a Liquidating Distribution under Section 7.06, then, for such
Participant's Deferred Compensation Account, the Valuation Date
for the Plan Year in which the Liquidating Distribution is
requested shall be the last day of the Calendar Quarter in which
the Participant submits the request.
2.26 VESTED PARTICIPANT - "Vested Participant" means a Participant who
would be eligible immediately for normal or early retirement under
the qualified pension plan maintained by the Company.
3. ADMINISTRATION OF THE PLAN
3.01 PLAN ADMINISTRATOR. The Committee, subject to Section 3.02, shall
be the sole administrator of the Plan, and will administer the
Plan. The Committee shall have the power to formulate additional
details and
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regulations for carrying out this Plan. The Committee also
shall be empowered to make any and all determinations not
authorized specifically herein that may be necessary or
desirable for the effective administration of the Plan. The
Committee is authorized to engage such accountants, consultants
and other service providers necessary to assist in the
administration of the Plan. Any decision or interpretation of
any provision of this Plan adopted by the Committee shall be
final and conclusive.
3.02 DELEGATION OF DUTIES. The Committee may delegate any or all of
its duties as to the administration of this Plan to other
individuals or groups of individuals within the Company, as it
deems appropriate.
4. PARTICIPATION
4.01 ELECTIVE PARTICIPATION
a. Any Eligible Employee may elect to participate in the Plan
for a given Cycle by filing a completed Election Form for
the Cycle with the Vice-President of Human Resources. With
regard to an election to participate:
i. The Election Form must be filed with the
Vice-President of Human Resources prior to the
commencement of the Cycle to which the Election Form
pertains, or at such earlier time as determined by
the Committee. Provided, however, with respect to a
deferral of salary, the Committee may allow an
Election Form for a Cycle to be filed after the
commencement of the Cycle with respect to salary to
be paid after the Election Form is filed.
ii. In the event that an Eligible Employee first becomes
eligible to participate in the Plan during any given
year, such Eligible Employee shall as soon as
practicable be so notified in writing by the Company
and provided with an Election Form; provided,
however, that such Employee may only make an
election to defer with respect to that portion of
his or her Compensation for such year which is to be
paid after the date of filing of the deferral
election.
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<PAGE>
iii. The minimum deferral for a Cycle shall be $5,000.
iv. A Participant may elect to receive payment of
amounts deferred during a Cycle upon Termination of
Employment, or in a specified year which shall be no
earlier than in the third Plan Year following the
Plan Year in which such amounts are deferred.
Further, a Participant may elect to receive payment
in a lump sum or in up to fifteen (15) annual
installments.
b. A Participant's election to defer future Compensation is
irrevocable upon the filing of his/her Election Form with
the Vice-President of Human Resources provided, however,
that an election to defer salary may be terminated with
respect to amounts not yet earned by mutual agreement in
writing between the Participant and the Committee. Such
termination, if approved, shall be effective immediately.
4.02 NON-ELECTIVE PARTICIPATION. The Committee can, in its sole
discretion, award to an Eligible Employee Non-Elective Deferred
Compensation. Unless otherwise specified by the Committee, the
Participant shall determine the timing and form of payment of any
Non-Elective Deferred Compensation at the time it is awarded,
provided that the Participant may not elect to receive payment in
a specific year which is prior to the third Plan Year following
the Plan Year during which the amount is awarded.
5. VESTING OF DEFERRED COMPENSATION ACCOUNT
A Participant's interest in his/her Deferred Compensation Account shall
vest immediately.
6. ACCOUNTS AND VALUATIONS
6.01 DEFERRED COMPENSATION ACCOUNTS. A separate Deferred
Compensation Account shall be established and maintained for
each Participant for each Cycle. Deferred amounts will be
credited to a Participant's account on the first day of the
month following the time at which the amount would otherwise
have been paid. Any Non-Elective Deferred Compensation
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<PAGE>
awarded to a Participant shall be credited to the Participant's
Deferred Compensation Account on such date as specified by the
Committee.
6.02 INVESTMENT ALLOCATION OF DEFERRED COMPENSATION ACCOUNT. The
Participant's Deferral Amount shall be deemed to be invested in
the Investment Funds in accordance with the Participant's
election.
6.03 INVESTMENT RETURN CREDITED. The Participant's Deferred
Compensation Account shall be credited quarterly with an
investment return based on the investment return (gain or loss) of
the fund or funds in which the Deferral Amount is deemed to be
hypothetically invested.
6.04 TIMING OF CREDITING OF INVESTMENT RETURN. That portion of the
Participant's Deferred Compensation Account in the Prime Rate
Account shall be revalued and credited with investment return as
of each Valuation Date. As of each Valuation Date, the value of
that portion of the Participant's Deferred Compensation Account in
any such account shall consist of the balance of such account as
of the immediately preceding Valuation Date, plus the amount of
any transfers from another account since the preceding Valuation
Date, minus the amount of all distributions and transfers to
another account, if any, made from such account since the
preceding Valuation Date. As of each Valuation Date, investment
return shall be credited on that portion of the Participant's
Deferred Compensation Account in the Prime Rate Account since the
immediately preceding Valuation Date after adjustment for any
transfers thereto or distributions or transfers therefrom. With
respect to any Elective Deferred Compensation or Non-Elective
Deferred Compensation deferred and credited to a Participant's
account since the immediately preceding Valuation Date, investment
return (or loss) credited on the Valuation Date shall be credited
from the time the amount is credited to the Participant's account
pursuant to Section 6.01.
6.05 CHANGE OF INVESTMENT ALLOCATION BY A PARTICIPANT. If the Plan
offers more than one Investment Fund, a Participant may make
different investment allocations for each Cycle, and may change a
Cycle's investment allocation once a year. Any change will be
effective as of April 1 of the next year if the Participant
submits an Investment Allocation
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Change Form to the Vice-President, Human Resources by December 1
of any Plan year.
6.06 CHANGE OF INVESTMENT FUNDS BY COMMITTEE. The Committee may change
the Investment Funds from time to time. In the event of any such
change, all Participants shall be given notice of the change at
least thirty (30) days before the change is to be effective. In
addition, each Participant shall be given the opportunity to
change his or her allocation of Investment Funds for his or her
Deferred Compensation Account as of the effective date for the
change; this change shall be in addition to any change permitted
under 6.05.
The Committee's decision to change the Investment Funds shall not
in any manner alter the returns on the Participants' Deferred
Compensation Accounts prior to the effective date of the change.
6.07 NATURE OF ACCOUNT ENTRIES. The establishment and maintenance of
Participants' Deferred Compensation Accounts and the crediting of
gains and losses pursuant to this Section 6, shall be merely
bookkeeping entries and shall not be construed as giving any
person any interest in any specific assets of the Company or of
any subsidiary of the Company or any trust created by the Company,
including any mutual funds or other investment funds owned by the
Company or any such subsidiary or trust. The hypothetical
investment of the Participants' Deferred Compensation Accounts in
the Investment Funds shall be for bookkeeping purposes only, and
shall not require the establishment of actual corresponding funds
by the Committee or the Company. Benefits accrued under this Plan
shall constitute an unsecured general obligation of the Company.
7. BENEFITS
7.01 NORMAL BENEFIT
a. A Participant's Deferred Compensation Account shall be paid
to the Participant in accordance with the terms of the
Participant's Election Form, subject to the terms and
conditions specified in the Election Form. If a
Participant elects to receive payment of that portion of
his/her Deferred Compensation Account in the Prime
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Rate Account in installments, subject to a maximum of
fifteen (15) installments, payments shall be made in
Substantially Equal Installments. If a Participant
elects to receive payment of his/her Deferred
Compensation Account in any other account in
installments, payments shall be made in Declining
Balance Installments.
b. Notwithstanding the provisions of Section 7.01a, and
notwithstanding any contrary election made by the
Participant on his/her Election Form, if a Participant has
a Termination of Employment, and if the Participant does
not qualify as a Vested Participant at the time of his/her
Termination of Employment, the Participant's Deferred
Compensation Account balance will be paid to the
Participant in a lump sum in the year following the
Participant's Termination of Employment. However, upon the
written request of the Participant, the Committee, in its
sole discretion, may allow payments to be made to the
Participant in up to five (5) annual installments.
c. In the event of a Participant's death prior to receiving
any payments with respect to a Deferral Amount for a Cycle,
the Participant's designated Beneficiary will receive an
amount equal to the Participant's Deferred Compensation
Account for such Cycle, and such amount shall be paid in a
single sum or annual installments (not to exceed 10) in
accordance with the Participant's election. However, the
Committee may, in its sole discretion, pay the
Participant's remaining account balance in a single sum if
so requested by the Participant's Beneficiary. If the
Participant's designated Beneficiary survives the
Participant but dies before receiving a complete
distribution of the Participant's account, the remaining
account balance shall be paid to the estate of such
Beneficiary in a lump sum.
d. If a Participant dies after beginning to receive
payments with respect to a Deferral Amount for a Cycle,
the Participant's designated Beneficiary will receive an
amount equal to the Participant's remaining account
balance for such Cycle. Such
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remaining account balance shall continue to be paid in
accordance with the Participant's election. However,
the Committee may, in its sole discretion, pay the
Participant's remaining account balance in a single sum
if so requested by the Participant's Beneficiary. If
the Participant's designated Beneficiary survives the
Participant but dies before receiving a complete
distribution of the Participant's account, the remaining
account balance shall be paid to the estate of such
Beneficiary in a lump sum.
7.02 HARDSHIP BENEFIT. In the event that the Committee, upon written
petition of the Participant, determines in its sole discretion,
that the Participant has suffered an unforeseeable financial
emergency, the Company may pay to the Participant, as soon as is
practicable following such determination, an amount necessary to
meet the emergency, not in excess of the Deferred Compensation
Account credited to the Participant. The Deferred Compensation
Account of the Participant thereafter shall be reduced to reflect
the payment of a Hardship Benefit.
7.03 REQUEST TO COMMITTEE FOR DELAY IN PAYMENT. A Participant shall
have no right to modify in any way the schedule for the
distribution of amounts from his/her Deferred Compensation Account
that the Participant has specified in his/her Election Form.
However, upon a written request submitted by the Participant to
the Committee, the Committee may, in its sole discretion, with
respect to the Deferred Compensation Account for each Cycle:
a. Postpone one time the date on which payment shall commence;
and
b. Increase one time the number of installments to a number
not to exceed fifteen (15).
Any such request(s) must be made at least ninety (90) days prior to the
earlier of (1) the beginning of the Plan Year in which the Participant
has elected for distributions to commence, or (2) the Participant's
Termination of Employment.
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7.04 TAXES; WITHHOLDING. To the extent required by law, the Company
shall withhold from payments made hereunder an amount equal to at
least the minimum taxes required to be withheld by the federal, or
any state or local, government.
7.05 DATE OF PAYMENTS. Except as otherwise provided in this Plan,
payments under this Plan shall be made (or begin in the case of
installments) on or before the fifteenth (15th) day of February of
the calendar year following receipt of notice by the Committee of
an event that entitles a Participant (or Beneficiary) to payments
under the Plan, or at such other date as may be determined by the
Committee. Amounts that become payable to the estate of a
Beneficiary under Sections 7.01c or 7.01d or pursuant to Section
7.02 or Section 7.06 shall be paid within fifteen (15) days
following the end of the calendar quarter in which a determination
is made that an amount is payable, or at such other date as may be
determined by the Committee.
7.06 LIQUIDATING DISTRIBUTION. Notwithstanding any provisions of the
Plan or the Participant's Election Form to the contrary, following
the receipt of a written request from a Participant for a
Liquidating Distribution, the Company shall pay to the Participant
the Participant's Liquidating Distribution Account Balance in a
lump sum. "Liquidating Distribution" shall mean a distribution
requested by the Participant in writing directed to the Committee
and specifically referencing this section. "Liquidating
Distribution Account Balance" shall mean all of the Deferred
Compensation Accounts under the Plan in which the Participant has
an undistributed balance, decreased by a forfeiture penalty equal
to ten percent (10%) of the value of the Participant's Deferred
Compensation Account(s). A Liquidating Distribution shall be paid
to a Participant on or before the fifteenth (15th) day of the
month following the end of the calendar quarter during which the
Participant requests the Liquidating Distribution.
Notwithstanding any provisions of the Plan or the Participant's
Election Form to the contrary, if the Participant requesting the
Liquidating Distribution is, at the time of the request, an active
employee of the Company, then the Participant, for a period of one
(1) Plan Year following
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the Plan Year during which the request for the Liquidating
Distribution is made, shall be ineligible to participate in the
Plan with respect to any Compensation not yet deferred.
7.07 ALLOCATION OF DISTRIBUTIONS. If a distribution of a portion of an
account for a Cycle is made to a Participant or Beneficiary, and
the amounts for such Cycle are invested in more than one
Investment Fund, then a portion of such distribution shall be
deemed to have been made from each Investment Fund on a prorata
basis, based on the values of the Investment Funds as of the
Valuation Date immediately preceding the distribution.
8. BENEFICIARY DESIGNATION
At any time prior to complete distribution of the benefits due to a
Participant under the Plan, he/she shall have the right to designate,
change, and/or cancel, any person(s) or entity as his/her Beneficiary
(either primary or contingent) to whom payment under this Plan shall be
made in the event of his/her death. Each Beneficiary designation shall
become effective only when filed in writing with the Committee during the
Participant's lifetime on a form provided by the Committee. The filing
of a new beneficiary designation form will cancel all previously filed
beneficiary designations relating to such Cycle or Cycles. Further, any
finalized divorce of a Participant subsequent to the date of filing of a
beneficiary designation form in favor of Participant's spouse shall
revoke such designation.
If a Participant fails to designate a Beneficiary as provided above, or
if his/her beneficiary designation is revoked by divorce or otherwise
without execution of a new designation, or if all designated
Beneficiaries predecease the Participant, then the distribution of such
benefits shall be made to the Participant's estate in a lump sum. If the
Participant's designated Beneficiary survives the Participant but dies
before receiving a complete distribution of the Participant's account,
the remaining account balance shall be paid to the estate of such
Beneficiary in a lump sum.
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9. AMENDMENT AND TERMINATION OF PLAN
9.01 AMENDMENT. The Board of Directors may amend the Plan at any time
in whole or in part, provided, however, that, except as provided
in 9.02, no amendment shall be effective to decrease the benefits
under the Plan payable to any Participant or Beneficiary with
respect to any Elective or Non-Elective Deferred Compensation
deferred prior to the date of the amendment. Written notice of
any amendments shall be given to each Participant in the Plan.
9.02 TERMINATION OF PLAN
a. COMPANY'S RIGHT TO TERMINATE. The Board of Directors may
terminate the Plan at any time.
b. PAYMENTS UPON TERMINATION. Upon any termination of the
Plan under this section, Compensation shall cease to be
deferred prospectively, and, with respect to Compensation
deferred previously, the Company will pay to the
Participant (or the Participant's Beneficiary, if after the
Participant's death), in a lump-sum, the value of his/her
Deferred Compensation Account.
10. MISCELLANEOUS
10.01 UNSECURED GENERAL CREDITOR. Participants and their beneficiaries,
heirs, successors and assignees shall have no legal or equitable
rights, interests, or other claims in any property or assets of
the Company, nor shall they be beneficiaries of, or have any
rights, claims, or interests in any life insurance policies,
annuity contracts, or the policies therefrom owned or that may be
acquired by the Company ("policies"). Such policies or other
assets of the Company shall not be held in any way as collateral
security for the fulfilling of the obligations of the Company
under this Plan. Any and all of the Company's assets and policies
shall be and will remain general, unpledged, unrestricted assets
of the Company. The Company's obligation under the Plan shall be
that of an unfunded and unsecured promise of the Company to pay
money in the future.
-13-
<PAGE>
10.02 GRANTOR TRUST. Although the Company is responsible for the
payment of all benefits under the Plan, the Company, in its sole
discretion, may contribute funds as it deems appropriate to a
grantor trust for the purpose of paying benefits under this Plan.
Such trust may be irrevocable, but assets of the trust shall be
subject to the claims of creditors of the Company. To the extent
any benefits provided under the Plan actually are paid from the
trust, the Company shall have no further obligation with respect
thereto, but to the extent not so paid, such benefits shall remain
the obligation of, and shall be paid by, the Company.
Participants shall have the status of unsecured creditors on any
legal claim for benefits under the Plan, and shall have no
security interest in any such grantor trust.
10.03 SUCCESSORS AND MERGERS, CONSOLIDATIONS OR CHANGE IN CONTROL. The
terms and conditions of this Plan shall inure to the benefit of
the Participants and shall bind the Company, its successors,
assignees, and personal representatives. If substantially all of
the stock or assets of the Company are acquired by another entity,
or if the Company is merged into, or consolidated with, another
entity, then the obligations created hereunder shall be
obligations of the acquirer or successor entity.
10.04 NON-ASSIGNABILITY. Neither a Participant, nor any other person,
shall have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate,
or convey in advance of the actual receipt, any amounts payable
hereunder, or any part thereof. All rights to payments expressly
are declared to be unassignable and nontransferable. No part of
the amounts payable, prior to actual payment, shall be subject to
seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant, or any
other person, nor shall they be transferable by operation of law
in the event of a Participant's, or any other person's, bankruptcy
or insolvency.
10.05 EMPLOYMENT OR FUTURE ELIGIBILITY TO PARTICIPATE NOT GUARANTEED.
Nothing contained in this Plan, nor any action taken hereunder,
shall be construed as a contract of employment, or as giving any
Eligible Employee any right to be retained in the employ of the
Company.
-14-
<PAGE>
Designation as an Eligible Employee may be revoked at any time
by the Board of Directors with respect to any Compensation not
yet deferred.
10.06 PROTECTIVE PROVISIONS. A Participant will cooperate with the
Company by furnishing any and all information requested by the
Company in order to facilitate the payment of benefits hereunder,
including taking such physical examinations as the Company
reasonably may deem necessary and taking such other relevant
action as may be requested by the Company. If a Participant
refuses to cooperate, the Participant's election to defer any
Compensation which has not yet been deferred shall become null and
void, and the Participant shall not be eligible to make any
further deferral elections under the Plan.
10.07 GENDER, SINGULAR AND PLURAL. All pronouns, and any variations
thereof, shall be deemed to refer to the masculine, feminine, or
neuter, as the identity of the person(s) or entity(s) may require.
As the context may require, the singular may be read as the plural
and the plural as the singular.
10.08 CAPTIONS. The captions to the articles, sections, and paragraphs
of this Plan are for convenience only and shall not control or
affect the meaning or construction of any of its provisions.
10.09 APPLICABLE LAW. This Plan shall be governed and construed in
accordance with the laws of the State of California.
10.10 VALIDITY. In the event any provision of this Plan is found to be
invalid, void, or unenforceable, the same shall not affect, in any
respect whatsoever, the validity of any other provision of this
Plan.
10.11 NOTICE. Any notice or filing required or permitted to be given to
the Committee shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to the
principal office of the Company at 16750 Via Del Campo Court, San
Diego, CA 92127, directed to the attention of the Vice-President,
Human Resources. Such notice shall be deemed given as of the date
of delivery or, if delivery is made by mail, as of the date shown
on the postmark on the receipt for registration or certification.
Any notice to the Participant shall be addressed to the
Participant at the
-15-
<PAGE>
Participant's residence address as maintained in the Company's
records. Any party may change the address for such party here
set forth by giving notice of such change to the other parties
pursuant to this Section.
-16-
<PAGE>
CYMER INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
2000 ELECTION FORM
Name:__________________________ Social Security No:_____________________
COMPLETE SECTIONS A, B, C AND D OF THIS FORM. COMPLETE SECTION E ONLY IF YOU
LIVE IN A COMMUNITY PROPERTY STATE AND DO NOT NAME YOUR SPOUSE AS BENEFICIARY IN
SECTION C. RETURN YOUR COMPLETED FORM TO WALLACE BREITMAN, VICE PRESIDENT,
HUMAN RESOURCES.
A. SALARY DEFERRAL ELECTION
I elect to defer under the terms of the Cymer Executive Deferred
Compensation Plan receipt of the following percentage or amount of my
base salary payable in 2000 after the following date ___________ (select
a, b or c):
a. / / ______ % of my salary (5% - 100% in whole percentages).
b. / / ______ % of my salary in excess of $170,000.
c. / / $______ (indicate dollar amount) of my salary. (If my
total salary is less than the dollar amount indicated, the
amount shall be reduced to the amount of my salary.)
BONUS DEFERRAL ELECTION
I elect to defer under the terms of the Cymer Inc. Executive Deferred
Compensation Plan receipt of the following percentage of my eligible
Executive Incentive Plan (EIP) award for 2000, payable in March, 2001
(select a or b):
a. / / ______ % of my eligible bonus (5% - 100% in whole
percentages).
b. / / $__________ (indicate amount - $5,000 minimum) from my
bonus. (If my bonus is less than this amount, the amount
shall be reduced to the amount of my bonus).
I understand that an eligible bonus is a bonus payable from the Executive
Incentive Plan (EIP) and that bonuses are discretionary and are not
guaranteed. I also
March 2000 Page 1
<PAGE>
understand that FICA tax must be paid in the year in which this bonus is
granted to me and that applicable FICA, and local taxes if required,
will be withheld from the portion of my bonus or other cash compensation
that I receive in cash.
B. FORM AND TIMING OF DISTRIBUTIONS
(COMPLETE PART 1 AND PART 2 OF THIS SECTION)
1. FORM OF DISTRIBUTION
Indicate the form of distribution of your deferred compensation.
You can elect to receive payment in a lump sum or in up to 15
annual installments.
I elect to receive payment of my deferred compensation as follows
(select a or b):
a. / / In a lump sum.
b. / / In _____ (specify number not exceeding 15) annual
installments.
2. TIMING OF DISTRIBUTION
INDICATE WHETHER YOU WANT TO RECEIVE YOUR FIRST INSTALLMENT (OR
YOUR ENTIRE AMOUNT, IF YOU ELECT TO RECEIVE PAYMENT IN A LUMP SUM)
OF YOUR DEFERRED COMPENSATION IN A SPECIFIC YEAR (MINIMUM DEFERRAL
PERIOD OF 3 YEARS), OR IN THE YEAR FOLLOWING TERMINATION OF YOUR
EMPLOYMENT. IN GENERAL, PAYMENTS WILL BE MADE IN FEBRUARY OF THE
YEAR DISTRIBUTION IS TO OCCUR.
I elect to receive the first installment (or my entire account, if
I elect a lump sum) of my deferred compensation (select a or b):
a. / / in a specific year _________(specify year, but must
be 2004 or after).
b. / / following my Termination of Employment.
Notwithstanding any election under Part 1 or Part 2 of this
Section B, in the event of my Termination of Employment for any
reason other than death prior to being a Retirement Eligible
Participant, I understand that payment shall be made in a lump sum
in the year following my Termination of Employment unless, upon my
written request, the Committee, in its sole discretion, determines
that payments shall be made in up to five (5) annual installments.
March 2000 Page 2
<PAGE>
C. DEATH BENEFITS (BENEFICIARY DESIGNATION AND PAYMENT ELECTION)
1. BENEFICIARY DESIGNATION
If I die prior to the receipt of all payments to which I am
entitled under the plan, payments shall be made to (select one):
a. / / my estate
b. / / the following beneficiary or beneficiaries
Name Address
__________________________________________________________
__________________________________________________________
2. PAYMENT ELECTION
As to any death benefits payable to my beneficiary or to my
estate, I elect to have payments made as follows (select one):
a. / / In a lump sum within 90 days after my death.
b. / / In _____ (specify number, not to exceed 10) annual
installments. Payment shall be made in
Substantially Equal Installments or Declining
Balance Installments, with the first payment to be
made in the February following my death, and later
installments to be paid in February of each year.
If I fail to designate a beneficiary as provided
above, or if my beneficiary designation is revoked
by divorce, or otherwise, without execution of a new
designation, or if all my designated beneficiaries
predecease me or die prior to complete distribution
of my benefits, then the distribution of such
benefits shall be made to my estate. However, if
any distribution to my primary beneficiary is to be
made in installments, and my primary beneficiary
dies before receiving all installments, the
remaining installments shall be paid to the estate
of my primary beneficiary.
I reserve the right to change this designation of beneficiary at
any time by completing a Change of Beneficiary Form.
March 2000 Page 3
<PAGE>
D. ACKNOWLEDGMENT
SIGN AND DATE IN THIS SECTION.
I agree to be bound by the terms and conditions of the Plan and agree
that such terms and conditions shall be binding upon my beneficiaries and
personal representatives.
----------------------------------- -----------------------
Signature of Employee Date
E. COMMUNITY PROPERTY STATE REQUIREMENTS
THIS SECTION SHOULD BE COMPLETED BY YOUR SPOUSE IF YOU RESIDE IN A
COMMUNITY PROPERTY STATE (ARIZONA, CALIFORNIA, IDAHO, LOUISIANA, NEVADA,
NEW MEXICO, TEXAS, WASHINGTON, OR WISCONSIN) AND IF YOU DO NOT NAME YOUR
SPOUSE AS SOLE PRIMARY BENEFICIARY IN SECTION C.
I hereby consent to the designation of beneficiary set forth above.
_____________________ ________ __________________________
Witness Date Signature of Spouse
THIS FORM SHOULD BE RETURNED, BY ________________, 2000.
TO THE OFFICE OF:
WALLACE BREITMAN
VICE PRESIDENT, HUMAN RESOURCES
CYMER, INC.
1675 VIA DEL CAMPO COURT
SAN DIEGO, CA 92172
ACCEPTANCE:
THE COMMITTEE, ON BEHALF OF CYMER, INC., HEREBY ACCEPTS THE PARTICIPANT'S
ELECTION FORM.
- -------------------------------------------- ---------------------------
By Date
March 2000 Page 4
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 80,049
<SECURITIES> 104,016
<RECEIVABLES> 68,450
<ALLOWANCES> 741
<INVENTORY> 56,926
<CURRENT-ASSETS> 353,325
<PP&E> 113,337
<DEPRECIATION> 48,985
<TOTAL-ASSETS> 442,849
<CURRENT-LIABILITIES> 121,884
<BONDS> 172,335
0
0
<COMMON> 29
<OTHER-SE> 143,703
<TOTAL-LIABILITY-AND-EQUITY> 442,849
<SALES> 80,532
<TOTAL-REVENUES> 80,617
<CGS> 46,151
<TOTAL-COSTS> 46,227
<OTHER-EXPENSES> 19,060
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,909
<INCOME-PRETAX> 14,827
<INCOME-TAX> 4,448
<INCOME-CONTINUING> 10,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,174
<EPS-BASIC> .35
<EPS-DILUTED> .33
</TABLE>
