<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
--------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission File Number 0-22248
-------------------
ULTRATECH STEPPER, INC.
- - - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-3169580
- - - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
3050 Zanker Road, San Jose, California 95134
- - - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 321-8835
------------------
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 re-
quired to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares of the issuer's class of common stock, as of the
latest practical date:
Class Outstanding as of May 7, 1996
- - - -------------------------------------- --------------------------------------
Common Stock, $.001 par value 20,034,986
<PAGE>
ULTRATECH STEPPER, INC.
INDEX
Page No.
--------
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995........................................... 3
Condensed Consolidated Statements of Income for the three months
ended March 31, 1996 and March 31, 1995......................... 4
Condensed Consolidated Statement of Cash Flows for the three
months ended March 31, 1996 and 1995............................ 5
Notes to Condensed Consolidated Financial Statements............ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................... 7
PART 2. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................. 18
ITEM 2. CHANGES IN SECURITIES..................................... 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 18
ITEM 5. OTHER INFORMATION......................................... 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 18
SIGNATURES............................................................... 19
2
<PAGE>
Part 1. Financial Information
Item 1. Condensed Consolidated Financial Statements
ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Mar. 31, Dec. 31,
(In thousands) 1996 1995 *
-------------------------------------------------------------------------
ASSETS (Unaudited)
Current assets:
Cash, cash equivalents and
short-term investments $160,624 $161,356
Accounts receivable, net 33,481 23,917
Inventories 31,665 27,387
Prepaid expenses and other
current assets 1,422 1,332
Deferred income taxes 7,939 6,883
-------------------------------------------------------------------------
Total current assets 235,131 220,875
Equipment and leasehold
improvements, net 18,044 16,352
Restricted investments 5,020 4,996
Other assets 3,291 3,205
-------------------------------------------------------------------------
Total assets $261,486 $245,428
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $17,838 $12,925
Other current liabilities 33,886 31,376
Current portion of long-term debt - 400
-------------------------------------------------------------------------
Total current liabilities 51,724 44,701
Other liabilities 924 1,069
Stockholders' equity 208,838 199,658
-------------------------------------------------------------------------
Total liabilities and stockholders' equity $261,486 $245,428
-------------------------------------------------------------------------
-------------------------------------------------------------------------
* The Balance Sheet as of December 31, 1995 has been derived from the
audited financial statements at that date.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
- - - ----------------------------------------------------------------------------------------------------
Three Months Ended
----------------------------
Mar. 31, Mar. 31,
(In thousands, except per share amounts) 1996 1995
<S> <C> <C>
- - - ----------------------------------------------------------------------------------------------------
Net sales $51,713 $32,075
Cost of sales 24,059 15,850
- - - ----------------------------------------------------------------------------------------------------
Gross profit 27,654 16,225
OPERATING EXPENSES:
Research, development, and
engineering 7,393 4,728
Selling, general, and
administrative 8,734 5,869
- - - ----------------------------------------------------------------------------------------------------
Operating income 11,527 5,628
Other income, net 1,566 516
- - - ----------------------------------------------------------------------------------------------------
Income before income taxes 13,093 6,144
Income taxes 4,452 2,028
- - - ----------------------------------------------------------------------------------------------------
Net income $8,641 $4,116
- - - ----------------------------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------------------------
Net income per share $0.41 $0.22
Number of shares used in
per share computations 21,225 18,360
- - - ----------------------------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------------------------
</TABLE>
Note:
All share and per share data have been retroactively restated to reflect a
two-for-one stock split distributed on May 10, 1995.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
(In thousands) Mar. 31, 1996 Mar. 31, 1995
<S> <C> <C>
- - - ----------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $8,641 $4,116
Charges to income not affecting cash 348 749
Net effect of changes in operating assets
and liabilities (6,090) 165
- - - ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,899 5,030
Cash flows from investing activities:
Capital expenditures (2,800) (2,385)
Net investment in available-for-sale securities (8,348) (2,433)
Segregation of restricted investments (24) -
- - - ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,172) (4,818)
Cash flows from financing activities:
Repayment of long-term debt (400) (400)
Proceeds from issuance of short-term debt 5,000 2,000
Repayment of short-term debt (5,000) (2,000)
Net proceeds from issuance of common stock 179 14
- - - ----------------------------------------------------------------------------------------------------
Net cash used in financing activities (221) (386)
Net decrease in cash and cash
equivalents (8,494) (174)
Cash and cash equivalents at beginning
of period 30,361 14,455
- - - ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $21,867 $14,281
- - - ----------------------------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------------------------
</TABLE>
Note:
Certain reclassifications to the March 31, 1995 Condensed Consolidated
Statement of Cash Flows have been made to conform to the March 31, 1996
presentation.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
ULTRATECH STEPPER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for fair presentation have been included.
On May 10, 1995, the Company paid a 100 percent stock dividend to holders of
record of the Company's common stock. All share and per share data have been
retroactively restated to reflect this stock dividend.
The Company's first fiscal quarter ended on March 30, 1996 and April 1, 1995.
For convenience of presentation, the Company's financial statements have been
shown as ending on March 31, 1996 and March 31, 1995.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996, or any future period.
The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the audited combined financial statements of Ultratech
Stepper, Inc. for the year ended December 31, 1995, which are incorporated by
reference in the Annual Report on Form 10-K.
(2) INVENTORIES
Inventories consist of the following:
Mar. 31, 1996 Dec. 31, 1995
--------------- ---------------
(In thousands) (Audited)
Raw materials.................................. $14,459 $12,201
Work-in-process................................ 15,665 12,426
Finished products ............................. 1,541 2,760
--------------- ---------------
$31,665 $27,387
--------------- ---------------
--------------- ---------------
(3) OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
Mar. 31, 1996 Dec. 31, 1995
--------------- ---------------
(In thousands) (Audited)
Salaries and benefits.......................... $6,951 $6,916
Warranty reserves.............................. 9,551 9,328
Advance billings............................... 1,921 4,071
Income taxes payable........................... 6,886 4,088
Other.......................................... 8,577 6,973
--------------- ---------------
$33,886 $31,376
--------------- ---------------
--------------- ---------------
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Ultratech develops, manufactures and markets photolithography equipment
designed to reduce the cost of ownership for manufacturers of integrated
circuits and thin film head magnetic recording devices. The Company supplies
step-and-repeat systems based on one-to-one optical technology to customers
located throughout the United States, Europe, Japan, and the Far East.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations may contain forward-looking statements which involve
related uncertainties. The Company's actual results could differ materially from
those anticipated in any such forward-looking statement as a result of certain
factors, including those set forth under "Additional Risk Factors", and
elsewhere in this report. Additionally, historical results and percentage
relationships discussed below will not necessarily be indicative of the results
of operations for any future period.
The following discussion should be read in conjunction with the Company's
1995 Annual Report on Form 10-K, available upon request.
RESULTS OF OPERATIONS
The Company's operating results have fluctuated significantly in the past and
may fluctuate significantly in the future depending upon a variety of factors,
including the timing of new product announcements and releases by the Company or
its competitors; market acceptance of new products and enhanced versions of the
Company's products; manufacturing inefficiencies associated with the start up of
new product introductions; lengthy sales cycles for the Company's systems;
customer concentration; the timing of significant orders; ability to volume
produce systems and meet customer requirements; patterns of capital spending by
customers; product discounts; changes in pricing by the Company, its
competitors, customers or suppliers; the mix of products sold; cyclicality in
the Company's targeted markets; political and economic instability; natural
disasters; regulatory changes; business interruptions related to the Company's
occupation of its facilities; and various competitive factors including price-
based competition and competition from other technologies. The Company's gross
profit as a percentage of sales has been and will continue to be significantly
affected by a variety of factors, including the percentage of international
sales, which typically have lower gross margins than domestic sales principally
due to higher field service and support costs; the introduction of new products,
which typically have higher manufacturing costs until manufacturing efficiencies
are realized and are discounted more than existing products until the products
gain market acceptance; increased competition in the Company's targeted markets;
the mix of products sold; and the implementation of subcontracting arrangements.
As a result of its distribution agreement with Innotech Corporation, its
Japanese distributor, gross profit as a percentage of total net sales may be
negatively impacted in any particular period by significant system shipments to
the Japanese market.
The Company derives a substantial portion of its total net sales from the
sale of a relatively small number of systems which typically range in price from
$700,000 to $2.0 million. As a result, the timing of recognition of revenue from
a single transaction could have a significant impact on the Company's net sales
and operating results. The Company's backlog at the beginning of a period may
not include all of the stepper sales needed to achieve the Company's objectives
for that period. In addition, orders in backlog are subject to cancellation,
delay, deferral or rescheduling by a customer with limited or no penalties.
Consequently, the Company's net sales and operating results for a period may
depend upon the Company obtaining orders for systems to be shipped in the same
period in which the order is received. The Company's business and financial
results for a particular period could be materially adversely affected if an
anticipated order for even one system is not received in time to permit shipment
during the particular period. Furthermore, a substantial portion of the
Company's net sales has historically been realized near the end of each quarter.
Accordingly,
7
<PAGE>
the failure to receive anticipated orders or delays in shipments near the end of
a particular quarter, due, for example, to unanticipated shipment reschedulings,
cancellations, delays or deferrals by customers or to unexpected manufacturing
difficulties or delays in deliveries by suppliers due to their long production
lead times or otherwise, may cause net sales in a particular quarter to fall
significantly below the Company's expectations, which would materially adversely
affect the Company's operating results for such quarter. In particular, the
significantly long manufacturing cycles of the Model 2244i stepper, Model 4700
stepper, Titan Wafer Stepper-TM- and Saturn Wafer Stepper-TM-, and the long lead
time for lenses and other materials, could cause shipments of such products to
be delayed from one quarter to the next, which could materially adversely affect
the Company's financial condition and results of operations for a particular
quarter. Furthermore, announcements by the Company or its competitors of new
products and technologies could cause customers to defer or cancel purchases of
the Company's existing systems, which would also materially adversely affect the
Company's business, financial condition and results of operations.
The impact of these and other factors on the Company's sales and operating
results in any future period cannot be forecast with certainty. The Company's
business has in prior years been subject to seasonality, although the Company
believes such seasonality has been masked in recent years by its growth. In
addition, the need for continued expenditures for research and development,
capital equipment purchases, and ongoing training and customer service and
support worldwide, among other factors, will make it difficult for the Company
to reduce its significant operating expenses in a particular period if the
Company's net sales goals for the period are not met. The Company has
significantly increased its expense levels to support its recent growth, and
there can be no assurance that the Company will maintain or exceed its current
level of net sales or rate of growth for any period in the future. Accordingly,
there can be no assurance that the Company will be able to remain profitable or
that it will not sustain losses in future periods.
NET SALES
Net sales consist of revenue from system sales, spare parts sales, and
service. Net sales for the quarter ended March 31, 1996 were $51.7 million, an
increase of 61% as compared with net sales of $32.1 million for the comparable
period in 1995. This increase, relative to the comparable period in 1995, was
primarily attributed to higher unit sales and average selling prices of the
Company's Model 1500 series steppers, which address the markets for scanner
replacement and high volume/low cost semiconductor fabrication; higher unit
sales of the Company's Model 2700 and Model 4700 steppers, which are designed to
meet the needs of leading-edge thin film head manufacturers; and higher unit
sales of the Company's Titan Wafer Stepper, which addresses the market for
photosensitive polyimide applications as well as the markets for scanner
replacement and high volume/low cost semiconductor fabrication. Overall, the
Company's system shipments for the quarter increased 42%, relative to the
comparable period in 1995, while the weighted average selling price of all
systems sold increased 12%. Excluding the impact of recently introduced system
options, the weighted average selling price of all systems sold increased 10%,
relative to the comparable period in 1995. Net sales from spare parts and
service in the first quarter of 1996 increased 40% over the comparable period in
1995, resulting primarily from a larger installed base of the Company's systems.
International net sales for the quarter ended March 31, 1996 were $26.8
million, as compared with $19.4 million for the comparable period in 1995.
International net sales represented 52% of total net sales for the quarter
ended March 31, 1996, as compared with 60% for the comparable period in 1995.
This year-over-year increase, in absolute dollars, was primarily attributed
to increased system sales to the Japanese market. The Company's operations in
foreign countries are not currently subject to significant exchange rate
fluctuations, principally because sales contracts for the Company's systems
are generally denominated in U.S. dollars. However, international sales
expose the Company to a number of additional risk factors, including
fluctuations in the value of local currencies relative to the U.S. dollar,
which, in turn, impact the relative cost of ownership of the Company's
products. See "Additional Risk Factors: International Sales; Japanese Market;
Dependence on Local Distributor."
Although the semiconductor industry and the thin film head segment of the
magnetic recording head industry have recently experienced significant growth,
the Company expects that these industries may not sustain such
8
<PAGE>
a growth rate in the future. Accordingly, the Company presently anticipates that
it will not be able to achieve the rate of sales growth in 1996 that it
experienced in 1995, as compared to the previous year. Additionally, the
Company believes that its customers may become more cautious in adding new
capacity in response to moderating demand for their products. The Company
has, from time-to-time, received communications from customers requesting
rescheduling or restructuring of shipments. Although, to date, such
communications have not had a material impact on the Company's results of
operations, there can be no assurance that future reschedulings,
cancellations, delays or deferrals by customers will not materially impact
the Company's business, financial condition and results of operations.
GROSS PROFIT
Gross margin for the quarter ended March 31, 1996 was 53.5%, as compared
with 50.6% for the comparable period in 1995. The improvement in gross margin
can be primarily attributed to higher weighted average selling prices for the
Company's systems, recently introduced system options, a favorable shift in
product mix, increased manufacturing efficiencies resulting from higher
production levels, improved gross margins from spare parts and service sales
and increased after-sales support efficiencies resulting primarily from the
Company's larger installed base of systems, partially offset by higher
inventory reserve requirements and by increased sales to Japan, which sales
typically have lower gross margins as a result of the arrangement with a
local distributor in that country.
RESEARCH, DEVELOPMENT, AND ENGINEERING
The Company's research, development, and engineering expenses, net of third
party funding, were $7.4 million for the quarter ended March 31, 1996, an
increase of 56% as compared with $4.7 million for the comparable period in
1995. The current quarter increase was primarily attributed to the continued
development, enhancement, manufacturing support and sales demonstration support
of the Company's Model 2244i stepper, Model 4700 stepper, Titan Wafer Stepper
and Saturn Wafer Stepper, and certain advanced research projects. The Company
intends to continue to invest significant resources in the development of new
products and enhancements of existing semiconductor and thin film head
lithography systems. Additionally, the Company intends to expand its development
and application capabilities to certain foreign locations. Due to these and
other factors, the Company expects the absolute dollar amount of research,
development and engineering expenses for the remainder of 1996 to increase
relative to 1995.
SELLING, GENERAL, AND ADMINISTRATIVE
The Company's selling, general, and administrative expenses were $8.7 million
for the quarter ended March 31, 1996, an increase of 49% as compared with $5.9
million for the comparable period in 1995. As a percentage of net sales,
selling, general, and administrative expenses declined to 16.9% for the quarter
ended March 31, 1996, as compared with 18.3% for the comparable period in 1995.
The significant dollar increase in the current quarter, relative to the
comparable period in 1995, reflects the Company's increases in sales, service
and support expenses typically associated with an increase in sales. The Company
expects the absolute dollar amount of these expenses for the remainder of 1996
to increase relative to 1995.
OTHER INCOME, NET
Other income, net, which consists primarily of interest income, was $1.6
million for the quarter ended March 31, 1996, as compared with $.5 million for
the comparable period in 1995. The improvement in the current quarter, relative
to the comparable period in 1995, was attributed to income generated from
increased investments in cash equivalents and short-term investments,
principally as a result of the Company's follow-on offering in June, 1995,
combined with higher rates of return.
INCOME TAXES
Income taxes represented 34% of income before income taxes for the quarter
ended March 31, 1996, as compared with 33% for the comparable period in 1995.
This increase for 1996, relative to 1995, is anticipated primarily as a result
of lower tax-exempt interest income as a percentage of total income before
income taxes, and the current status of the federal research and development tax
credit that has, as yet, not been renewed. However, this rate may be impacted
further by tax legislation and other factors.
LIQUIDITY AND CAPITAL RESOURCES
9
<PAGE>
Cash flows from operating activities were $2.9 million for the three month
period ended March 31, 1996, as compared with $5.0 million for the comparable
period last year. Positive cash flows from operating activities during the first
three months of 1996 were attributed to net income of $8.6 million and non-cash
charges to income of $.3 million, offset by a negative net effect from changes
in operating assets and liabilities of $6.1 million. The negative net effect
from changes in operating assets and liabilities was primarily the result of an
increase in accounts receivable and inventories, partially offset by an increase
in accounts payable and other current liabilities. The significant dollar
increase in accounts receivable was primarily the result of significant customer
shipments occurring during the final month of the quarter. The Company believes
that because of the relatively long manufacturing cycle of certain of its
systems, particularly newer products, and its plan to increase demonstration
units, the Company's investment in inventories will continue to represent a
significant portion of working capital. As a result of such investment in
inventories, the Company may be subject to an increased risk of inventory
obsolescence and other factors, which could materially adversely affect the
Company's operating results.
At March 31, 1996, the Company had working capital of $183.4 million. The
Company's principal sources of liquidity at March 31, 1996 consisted of $160.6
million in cash, cash equivalents and short-term investments and a $25 million
unsecured line of credit, which expires in June 1999. As of March 31, 1996, no
amounts were outstanding under such facility. The Company's $25 million
unsecured credit facility provides for borrowings at contractual rates
including, but not limited to, the Wells Fargo Bank's (formerly First Interstate
Bank of California) prime reference rate and requires compliance with many
covenants, including covenants relating to profitability on a calendar year
basis, minimum levels of tangible net worth, limitations on additional debt and
liens and various financial ratios. At March 31, 1996, the Company was in
compliance with each of its debt instruments.
Cash used in financing activities was $.2 million for the three months ended
March 31, 1996, principally as a result of the repayment of the Company's
outstanding note payable. The Company expended $11.2 million in investment
activities for the three months ended March 31, 1996, primarily as a result of
the investment of cash in short-term investments. Capital expenditures totaled
$2.8 million for the three months ended March 31, 1996. The Company intends to
continue to make significant capital expenditures throughout the remainder of
1996 related to the expansion of its manufacturing facilities, the manufacture
of its steppers for sales demonstration and engineering development purposes and
additional capital expenditures related to research, development and
engineering, sales and service and management information systems. As a result
of these capital expenditures, the Company's depreciation and amortization costs
are anticipated to increase significantly and may negatively impact the
Company's results of operations in the event of a downturn in the Company's
business cycles.
The development and manufacture of new lithography systems and enhancements
are highly capital intensive. In order to remain competitive, the Company must
continue to make significant expenditures for capital equipment, sales, service,
training and support capabilities, investments in systems, procedures and
controls, expansion of operations and research and development, among many
items. The Company expects that anticipated cash flow from operations, its
cash, cash equivalents and short-term investments and funds available under its
line of credit will be sufficient to meet the Company's cash requirements for
the next twelve months. Beyond the next twelve months, the Company may require
additional equity or debt financing to address its working capital or capital
equipment needs. Additionally, the Company may in the future pursue acquisitions
of complementary product lines, technologies, or businesses. Future acquisitions
by the Company may result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities, and amortization
expenses related to goodwill and other intangible assets, which could materially
adversely affect any Company profitability. In addition, acquisitions involve
numerous risks, including difficulties in the assimilation of the operations,
technologies and products of the acquired companies; the diversion of
management's attention from other business concerns; risks of entering markets
in which the Company has no or limited direct prior experience; and the
potential loss of key employees of the acquired company. In the event that such
an acquisition does occur, there can be no assurance as to the effect thereof on
the Company's business or operating results. Additionally, the Company recently
formed a wholly-owned financing subsidiary for the purpose of offering leasing
options to customers. If successful, this strategy may result in the formation
of significant long-term receivables and would require the use of
10
<PAGE>
substantial amounts of working capital. To the extent that the Company's
financial resources are insufficient to fund the Company's activities,
additional funds will be required. There can be no assurance that additional
financing will be available on reasonable terms or at all.
ADDITIONAL RISK FACTORS
CYCLICALITY OF SEMICONDUCTOR AND MAGNETIC RECORDING HEAD INDUSTRIES
The Company's business depends in significant part upon capital expenditures
by manufacturers of semiconductors and thin film head magnetic recording
devices, which in turn depend upon the current and anticipated market demand for
such devices and products utilizing such devices. The semiconductor industry is
highly cyclical and historically has experienced recurring periods of
oversupply, resulting in significantly reduced demand for capital equipment
including the systems manufactured and marketed by the Company. The Company
believes that markets for new generations of semiconductors will also be subject
to similar fluctuations. In recent years, the semiconductor industry has
experienced significant growth which, in turn, has caused significant growth in
the capital equipment industry. The Company expects that the semiconductor
industry may not sustain such a growth rate in the future. During 1994, 1995,
and the first three months of 1996, approximately 35%, 30% and 30%,
respectively, of the Company's net sales were derived from sales to thin film
head manufacturers and related applications. Although the thin film head segment
of the magnetic recording head industry has recently experienced significant
growth, the Company expects that the thin film head market segment may not
sustain such a growth rate in the future. Accordingly, sales of its steppers to
thin film head manufacturers may decrease in the future. The Company's business
and operating results would be materially adversely affected by downturns or
slowdowns in the semiconductor or thin film head market. In particular, the
Company intends to make significant capital expenditures throughout the
remainder of 1996, and the resulting increases in depreciation and amortization
costs could, in the event of a downturn in the semiconductor or thin film head
market, have a material adverse effect on the Company's results of operations.
The Company attempts to mitigate the risk of cyclicality by participating in
both the semiconductor and magnetic recording head markets. Nevertheless, there
can be no assurance that the Company's net sales and operating results will not
be materially adversely affected if downturns or slowdowns in either market
occur in the future. Such effects are likely to be particularly severe if both
markets experience a downturn or slowdown at the same time.
IMPORTANCE OF MIX-AND-MATCH STRATEGY
A principal element of the Company's strategy is to sell its systems to
advanced semiconductor fabrication facilities for mix-and-match applications.
This strategy depends, in significant part, upon the recognition by
semiconductor manufacturers that costs can be reduced by using the Company's
systems to perform exposure on semiconductor process layers requiring feature
sizes of 0.65 microns or greater and the willingness of such manufacturers to
implement processes to lower manufacturing costs. Many semiconductor fabrication
facilities have limited or no experience with integrating lithography tools in
the manner necessary for full implementation and acceptance of a mix-and-match
manufacturing strategy, and there can be no assurance that semiconductor
manufacturers will adopt such a strategy. The Company has designed certain of
its systems to operate in a compatible manner with its competitors' reduction
steppers, which are used to process layers with feature sizes below 0.65
microns. The successful implementation of the Company's strategy, however, will
result in a loss of sales by manufacturers of reduction steppers and will cause
these competitors to respond with lower prices, productivity improvements or new
technical designs for their systems that eliminate the need for the Company's
steppers or make it difficult for Ultratech's systems to attain compatibility
with such systems. Also, certain of the Company's competitors, including Nikon,
Inc. ("Nikon"), Canon, Inc. ("Canon") and ASM Lithography, Ltd. ("ASML"), are
shipping their own mix-and-match lithography systems. The introduction,
development and sales of such competitive systems could materially adversely
affect the Company's business, financial condition and results of operations.
11
<PAGE>
To facilitate its mix-and-match strategy, the Company has developed and is
continuing to develop a family of products. The Company shipped its first Model
2244i stepper during the second quarter of 1993, and commenced volume production
in 1994. The Company has introduced and recently commenced shipment of the Titan
Wafer Stepper and Saturn Wafer Stepper. As is typical with newly introduced
systems in the capital equipment industry, the Company has experienced and may
continue to experience technical or other difficulties with its mix-and-match
family of products. The Company believes that the market acceptance and process
verification combined with volume production of the mix-and-match family of
products is of critical importance to the successful implementation of its mix-
and-match strategy and its future financial results. To the extent that the mix-
and-match family of products does not achieve or maintain significant sales due
to technical, manufacturing or other difficulties associated with these
products, lack of customer acceptance, an inability to reduce the significantly
long manufacturing cycle of these products, an inability to increase capacity
for the production of the mix-and-match family of products, direct competition
from announced mix-and-match systems from Nikon, Canon and ASML, or any other
reason, the Company's business, financial condition and results of operations
would be materially adversely affected. In addition, the increase in mix-and-
match stepper production has resulted and will continue to result in higher
inventory levels and operating expenses. Failure to achieve or maintain
significant sales of these steppers could lead, among other things, to an
increase in inventory obsolescence and an increase in expenses without
corresponding sales, either of which could materially adversely affect the
Company's business, financial condition and results of operations.
EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH
In recent years, the Company has significantly increased the scale of its
operations to support increased levels of net sales. The increase has included
the hiring of additional personnel, increasing the number of steppers scheduled
for production, and commencing independent operations in Japan. This increase
has resulted in higher inventory levels and higher expenses and has required the
Company to implement a variety of systems, procedures and controls. The Company
expects that its inventory levels and fixed expenses will continue to increase
significantly. If the Company is unable to achieve significantly increased net
sales or its sales fall below expectations, the Company's operating results will
be materially adversely affected until, among other factors, inventory levels
and expenses can be reduced. The Company's expansion has caused and may continue
to cause a significant strain on the Company's management, financial and other
resources. There can be no assurance that net sales or the Company's rate of
growth will increase or remain at or above recent levels or that the Company's
systems, procedures and controls will be adequate to support the Company's
operations. The Company's financial results depend in significant part on its
ability to continue to implement, improve and expand its systems, procedures and
controls. Any failure to implement, improve and expand such systems, procedures
and controls in an efficient manner at a pace consistent with the Company's
business could have a material adverse effect on the Company's business,
financial condition and results of operations.
CUSTOMER CONCENTRATION; LENGTHY SALES CYCLE
Historically, Ultratech has sold a substantial portion of its systems to a
limited number of customers. In 1995, sales to Motorola, Inc. ("Motorola")
accounted for approximately 12% of the Company's net sales. In 1994, sales to
Motorola accounted for approximately 20% of the Company's net sales. In 1993,
sales to Motorola and Seagate Technology, Inc. accounted for approximately 17%
and 12%, respectively, of the Company's net sales. The Company expects that
sales to relatively few customers, particularly Motorola, will continue to
account for a high percentage of its net sales in the foreseeable future and
believes that the Company's financial results depend in significant part upon
the success of Motorola. Although the composition of the group comprising the
Company's largest customers may vary from period to period, the loss of a
significant customer or any reduction in orders by any significant customer,
including reductions due to market, economic or competitive conditions in the
semiconductor or magnetic recording head industries or in the industries that
manufacture products utilizing integrated circuits or thin film heads, may have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company's ability to increase its sales in the future
will depend in part upon its ability to obtain orders from
12
<PAGE>
new customers as well as the financial condition and success of its customers
and the general economy, of which there can be no assurance.
Sales of the Company's systems depend, in significant part, upon the decision
of a prospective customer to increase manufacturing capacity or to restructure
current manufacturing facilities, either of which typically involve a
significant commitment of capital. In view of the significant investment
involved in a system purchase, the Company has experienced and may continue to
experience delays following initial qualification of the Company's systems as a
result of delays in a customer's approval process. For this and other reasons,
the Company's systems typically have a lengthy sales cycle during which the
Company may expend substantial funds and management effort in securing a sale.
Lengthy sales cycles subject the Company to a number of significant risks,
including inventory obsolescence and fluctuations in operating results, over
which the Company has little or no control.
HIGHLY COMPETITIVE INDUSTRY
The capital equipment industry in which the Company competes is intensely
competitive. A substantial investment is required to install and integrate
capital equipment into a semiconductor or thin film head production line. The
Company believes that once a device manufacturer has selected a particular
vendor's capital equipment, the manufacturer generally relies upon that
equipment for the specific production line application and, to the extent
possible, subsequent generations of similar products. Accordingly, it is
difficult to achieve significant sales to a particular customer once another
vendor's capital equipment has been selected. The Company experiences intense
competition worldwide from a number of leading foreign and domestic
manufacturers, such as Nikon, Canon, ASML and Silicon Valley Group, Inc., all of
which have substantially greater financial, marketing, technical and other
resources than the Company. Nikon supplies a 1X stepper for use in the
manufacture of liquid crystal displays and offers a reduction stepper for thin
film head fabrication. In addition, Nikon, Canon and ASML are shipping their own
mix-and-match lithography systems. The Company believes that the high cost of
developing new lithography tools has caused its competitors to collaborate with
customers and other parties in various areas such as research and development,
manufacturing and marketing. Many companies in the semiconductor capital
equipment market, including photolithography equipment companies such as GCA,
formerly a reduction stepper division of General Signal Corporation, have
experienced significant declines or have withdrawn from this market. Although
the systems offered by the Company do not address the technical requirements of
semiconductor manufacturers in the most advanced applications, the Company
believes that it currently competes favorably with its competitors in the
markets it addresses based on the cost of ownership advantages offered by its 1X
steppers. However, Ultratech expects its competitors to continue to improve the
performance of their current products. In addition, these competitors have
stated that they will introduce new products with improved price and performance
characteristics that will compete directly with the Company's products. This
could cause a decline in sales or loss of market acceptance of the Company's
steppers, and thereby materially adversely affect the Company's future financial
performance. There can be no assurance that enhancements to, or future
generations of, competitive products will not be developed that offer superior
cost of ownership and technical performance features. The Company believes that
to remain competitive, it will require significant financial resources in order
to continue to invest in new product development, features and enhancements, to
introduce next generation stepper systems on a timely basis, and to maintain
customer service and support centers worldwide. In marketing its products, the
Company will also face competition from vendors employing other technologies,
such as excimer lasers and phase-shift mask technology, which may extend the
capabilities of competitive products beyond their current limits or increase
their productivity. In addition, increased competitive pressure could lead to
intensified price-based competition, resulting in lower prices and margins,
which would materially adversely affect the Company's business, financial
condition and operating results. There can be no assurance that the Company will
be able to compete successfully in the future.
RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION
The semiconductor and magnetic recording head manufacturing industries are
subject to rapid technological change and new product introductions and
enhancements. The Company's ability to remain competitive in these and other
markets will depend in part upon its ability to develop new and enhanced
13
<PAGE>
systems and related software tools and to introduce these systems and related
software tools at competitive prices and on a timely and cost-effective basis to
enable customers to integrate them into their operations either prior to or as
they begin volume product manufacturing. The Company will also be required to
enhance the performance of its existing systems and related software tools. Any
success of the Company in developing new and enhanced systems and related
software tools depends upon a variety of factors, including product selection,
timely and efficient completion of product design, timely and efficient
implementation of manufacturing and assembly processes, product performance in
the field and effective sales and marketing. In particular, the Company has not
yet fully defined the markets and applications for the Titan Wafer Stepper and
the Saturn Wafer Stepper. Because new product development commitments must be
made well in advance of sales, new product decisions must anticipate both future
demand and the technology that will be available to supply that demand. There
can be no assurance that the Company will be successful in selecting,
developing, manufacturing and marketing new products and related software tools
or enhancing its existing products and related software tools. Any such failure
would materially adversely affect the Company's business, financial condition
and results of operations.
Because of the large number of components in the Company's systems,
significant delays can occur between a system's introduction and the
commencement by the Company of volume production of such systems. Ultratech has
experienced delays from time to time in the introduction of, and technical and
manufacturing difficulties with, certain of its systems and enhancements and
related software tools and may experience delays and technical and manufacturing
difficulties in future introductions or volume production of new systems or
enhancements and related software tools. There can be no assurance that the
Company will not encounter technical, manufacturing or other difficulties that
could delay future introductions or volume production of systems or
enhancements. The Company's inability to complete the development or meet the
technical specifications of any of its systems or enhancements and related
software tools or to manufacture and ship these systems or enhancements and
related software tools, such as the Model 4700 stepper, the Titan Wafer Stepper
and the Saturn Wafer Stepper, in volume and in time to meet the requirements for
manufacturing the future generation of semiconductor or thin film head devices
would materially adversely affect the Company's business, financial condition
and results of operations. In addition, the Company may incur substantial
unanticipated costs to ensure the functionality and reliability of its steppers
early in the products' life cycles. If new products have reliability or quality
problems, reduced orders or higher manufacturing costs, delays in collecting
accounts receivable and additional service and warranty expenses may result. Any
of such events may materially adversely affect the Company's business, financial
condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon the
continued contributions of its Chairman and Chief Executive Officer, Arthur W.
Zafiropoulo, as well as other officers and key personnel, many of whom would be
difficult to replace. None of such persons has an employment or noncompetition
agreement with the Company. The Company does not maintain any life insurance on
any of its key persons. The loss of Mr. Zafiropoulo or other key personnel would
have a material adverse effect on the business, financial condition and results
of operations of the Company. In addition, the Company's future operating
results depend in significant part upon its ability to attract and retain other
qualified management, manufacturing, technical, sales and support personnel for
its operations. There may be only a limited number of persons with the requisite
skills to serve in these positions and it may become increasingly difficult for
the Company to hire such personnel over time. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The failure to attract or retain such
persons would materially adversely affect the Company's business, financial
condition and results of operations.
INTERNATIONAL SALES; JAPANESE MARKET; DEPENDENCE ON LOCAL DISTRIBUTOR
International sales accounted for approximately 56%, 55% and 52% of total net
sales in 1994, 1995 and during the first three months of 1996, respectively. The
Company anticipates that international sales, which typically have lower gross
margins than domestic sales, principally due to higher field service and support
14
<PAGE>
costs, will continue to account for a majority of total net sales. As a result,
a significant portion of the Company's sales will be subject to certain risks,
including unexpected changes in regulatory requirements, exchange rates, tariffs
and other barriers, political and economic instability, difficulties in accounts
receivable collections, natural disasters, difficulties in staffing and managing
foreign subsidiary and branch operations and potentially adverse tax
consequences. The Company is also subject to the risks associated with the
imposition of legislation and regulations relating to the import or export of
semiconductors and magnetic recording head products. The Company cannot predict
whether quotas, duties, taxes or other charges or restrictions will be
implemented by the United States, Japan or any other country upon the
importation or exportation of the Company's products in the future. There can
be no assurance that any of these factors or the adoption of restrictive
policies will not have a material adverse effect on the Company's business,
financial condition and results of operations.
Although the Company has sold a number of its systems to Japanese thin film
head manufacturers, to date, the Company has made limited sales of its systems
to Japanese semiconductor manufacturers. The Japanese semiconductor market
segment is large, represents a substantial percentage of the worldwide
semiconductor manufacturing capacity, and is difficult for foreign companies to
penetrate. The Company is at a competitive disadvantage with respect to Japanese
semiconductor capital equipment suppliers that have been engaged for some time
in collaborative efforts with Japanese semiconductor manufacturers. The Company
believes that the Japanese companies with which it competes have a competitive
advantage because of their dominance of the Japanese market segment. The Company
believes that increased penetration of the Japanese market is critical to its
financial results and intends to invest significant resources in Japan in order
to meet this objective. As part of its strategy to penetrate the Japanese
market, in 1993, the Company entered into a distribution agreement with Innotech
Corporation, a local distributor of products. The Company believes that
Innotech is an important element of its strategy to increase its presence in
Japan. Such agreement can be terminated upon notice of termination by either
party. If Innotech is not successful in selling such systems or such agreement
is terminated, the Company's strategy to increase product sales into the
Japanese market would be adversely affected. In addition, in recent years,
Japanese semiconductor manufacturers substantially reduced their levels of
capital spending on new fabrication facilities and equipment, thereby increasing
competitive pressures in the Japanese market segment. There can be no
assurance, however, that the Company will be able to achieve significant sales
to, or will be able to compete successfully in, the Japanese semiconductor
market segment.
SOLE OR LIMITED SOURCES OF SUPPLY
The Company is relying increasingly on outside vendors to manufacture certain
components. In addition, certain critical components, subassemblies and services
necessary for the manufacture of the Company's steppers are obtained from a
single supplier or a limited group of suppliers in order to ensure overall
quality and timeliness of delivery. The Company's reliance on sole or a limited
group of suppliers and the Company's increasing reliance on subcontractors
involve several risks, including a potential inability to obtain an adequate
supply of required components and reduced control over pricing and timely
delivery of components. Although the timeliness, yield and quality of deliveries
to date from the Company's subcontractors have been acceptable, manufacture of
certain of these components and subassemblies is an extremely complex process,
and long lead-times are required. Any inability to obtain adequate deliveries or
any other circumstance that would require the Company to seek alternative
sources of supply or to manufacture such components internally could delay the
Company's ability to ship its products, which could damage relationships with
current and prospective customers and therefore would have a material adverse
effect on the Company's business, financial condition and results of operations.
INTELLECTUAL PROPERTY MATTERS
Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, it believes that
any success will depend more upon the innovation, technological expertise and
marketing abilities of its employees. Nevertheless, the Company has a policy of
seeking patents when appropriate on inventions resulting from its ongoing
research and development and
15
<PAGE>
manufacturing activities. The Company also relies upon trade secret protection
for its confidentiality and proprietary information. There can be no assurance
that the Company will be able to protect its technology adequately or that
competitors will not be able to develop similar technology independently. There
can be no assurance that any of the Company's pending patent applications will
be issued or that foreign intellectual property laws will protect the Company's
intellectual property rights. In addition, litigation may be necessary to
enforce the Company's patents, copyrights or other intellectual property rights,
to protect the Company's trade secrets, to determine the validity and scope of
the proprietary rights of others or to defend against claims of infringement.
Such litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business and results of
operations, regardless of the outcome of the litigation. There can be no
assurance that any patent issued to the Company will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
competitive advantages to the Company. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate the
Company's products or, if patents are issued to the Company, design around the
patents issued to the Company.
Although there are no pending lawsuits against the Company regarding
infringement claims with respect to any existing patents or any other
intellectual property rights, the Company has at times been notified of claims
that it may be infringing intellectual property rights possessed by third
parties. Certain of the Company's customers have received notices of
infringement from Technivision Corporation and Jerome Lemelson alleging that the
manufacture of semiconductor products and/or the equipment used to manufacture
semiconductor products infringes certain patents issued to such person. The
Company has been notified by certain of such customers that the Company may be
obligated to defend or settle claims that the Company's products infringe any of
such person's patents, and, in the event it is subsequently determined that the
customer infringes any of such person's patents, they intend to seek
reimbursement from the Company for damages and other expenses resulting from
this matter. In particular, one of the Company's customers was involved in
litigation with Mr. Lemelson involving several of his patents. In this
litigation, the customer challenged the validity, enforceability and
infringement of those patents. In this litigation, Mr. Lemelson's attorneys
identified certain equipment of the Company as allegedly infringing upon certain
claims of one or more of the patents-in-suit. This litigation was settled by an
agreement between the parties before any trial. According to published reports,
the settlement agreement provides that such customer will fund educational
programs and will receive a license to certain intellectual property rights.
Although there are no pending lawsuits against the Company regarding
infringement claims with respect to any existing patents or any other
intellectual property rights, there can be no assurance that infringement claims
by third parties or claims for indemnification resulting from infringement
claims in the future will not be asserted, or that such assertions, if proven to
be true, will not materially adversely affect the Company's business, financial
condition and results of operations, regardless of the outcome of any
litigation. With respect to existing or new claims, the Company may seek to
obtain a license under the third party's intellectual property rights. There can
be no assurance, however, that a license will be available on reasonable terms
or at all. The Company could decide, in the alternative, to resort to litigation
to challenge such claims. Such challenges could be extremely expensive and time
consuming and could materially adversely affect the Company's business,
financial condition and results of operations, regardless of the outcome of any
litigation.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture or
disposal of toxic or other hazardous substances used to manufacture the
Company's systems. The Company believes that it is currently in compliance in
all material respects with such regulations and that it has obtained all
necessary environmental permits to conduct its business. Nevertheless, the
failure to comply with current or future regulations could result in substantial
fines being imposed on the Company, suspension of production, alteration of the
manufacturing process or cessation of operations. Such regulations could
require the Company to acquire expensive remediation equipment or to incur
substantial expenses to comply with environmental regulations. Any failure by
the
16
<PAGE>
Company to control the use, disposal or storage of, or adequately restrict the
discharge of, hazardous or toxic substances could subject the Company to
significant liabilities.
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation, equity
incentive plans, Bylaws and Delaware law may discourage certain transactions
involving a change in control of the Company. In addition to the foregoing, the
Company's classified board of directors, the shareholdings of the Company's
officers, directors and persons or entities that may be deemed affiliates and
the ability of the Board of Directors to issue "blank check" preferred stock
without further stockholder approval could have the effect of delaying,
deferring or preventing a change in control of the Company and may adversely
affect the voting and other rights of holders of Common Stock.
VOLATILITY OF STOCK PRICE
The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's operating
results, sales of securities of the Company into the marketplace, general
conditions in the semiconductor and magnetic recording head industries or the
worldwide economy, an outbreak of hostilities, a shortfall in revenue or
earnings or other financial results, changes in analysts' expectations,
announcements of technological innovations or new products or enhancements by
the Company or its competitors, developments in patents or other intellectual
property rights and developments in the Company's relationships with its
customers and suppliers could cause the price of the Company's Common Stock to
fluctuate, perhaps substantially. In addition, in recent years the stock market
in general, and the market for shares of small capitalization stocks in
particular, including the Company's, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. Many companies in the semiconductor equipment industry,
including the Company, have recently experienced historical highs in the market
price of their common stock, followed by a significant reduction in those market
prices. There can be no assurance that the market price of the Company's Common
Stock will not continue to experience significant fluctuations in the future,
including fluctuations that are unrelated to the Company's performance.
17
<PAGE>
PART 2: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION.
James L. Schram was appointed to the position of President and Chief
Operating Officer of the Company in March, 1996. Prior to joining the
Company, from 1973 to February 1996, he was employed in various
positions at Watkins Johnson, Co., a semiconductor equipment
manufacturer, including President of their Semiconductor Equipment
Group and most recently as Vice President of corporate strategic
planning.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 11.1 Statement of Computation of Net Income Per Share.
Exhibit 10.18.2 Second Amendment to Credit Agreement and
Promissory Note between Registrant and First
Interstate Bank of California, dated March 29,
1996.
Exhibit 27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three
months ended March 31, 1996.
18
<PAGE>
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.
ULTRATECH STEPPER, INC.
- - - --------------------------------------------------------------------------------
(Registrant)
Date: May 7, 1996 By: /s/William G. Leunis, III
------------------------- ----------------------------------------
William G. Leunis, III
Vice President Finance and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
19
<PAGE>
ULTRATECH STEPPER, INC.
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF NET INCOME PER COMMON SHARE
Shares used in the net income per common share computation are the weighted
average number of common shares outstanding plus dilutive common share
equivalents.
Shares used in the per share computation are as follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------
(In thousands, except per share amounts) March 31, 1996 March 31, 1995
- - - ------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average common shares outstanding 19,866 16,624
Common equivalent shares from stock options granted
(using the treasury stock method) 1,359 1,736
--------------- --------------
Number of shares used in per share calculations 21,225 18,360
--------------- --------------
--------------- --------------
Net income $8,641 $4,116
--------------- --------------
--------------- --------------
Net income per share * $0.41 $0.22
--------------- --------------
--------------- --------------
</TABLE>
* All share and per share data have been retroactively restated to reflect a
two-for-one stock split distributed on May 10, 1995.
20
<PAGE>
ULTRATECH STEPPER, INC.
EXHIBIT 10.18.2
SECOND AMENDMENT TO CREDIT AGREEMENT AND PROMISSORY NOTE
This Second Amendment to Credit Agreement is entered into this 29 day of
March, 1996, by and between ULTRATECH STEPPER, INC., a Delaware corporation,
(herein referred to as the "Borrower") and FIRST INTERSTATE BANK OF CALIFORNIA,
a California banking corporation, (herein referred to as the "Bank").
This Second Amendment amends that certain Credit Agreement dated as of
November 23, 1994 and that certain First Amendment thereto dated as of May 31,
1995, each of which were executed by and between the Borrower and the Bank and
that certain Promissory Note dated November 23, 1994 executed by the Borrower in
favor of the Bank which was amended by that certain First Amendment thereto
dated as of May 31, 1995, executed by and between the Borrower and the Bank as
follows:
CREDIT AGREEMENT:
1. Delete "June 30, 1997" and replace with "June 30, 1999", wherever it
appears;
2. Section 1.01, DEFINED TERMS, page 3: add the following new definition
"Effective Tangible Net Worth": At any date of determination, the sum of the
capital stock and additional paid-in capital plus retained earnings (or minus
accumulated deficit) and net of the effect of any unrealized gains or losses on
investments which effect equity accounts of the Borrower and its consolidated
Subsidiaries plus subordinated debt minus intangible assets (including, without
limitation, franchises, patents, patent applications, trademarks, brand names,
goodwill and research and development expenses), on a consolidated basis
determined in conformity with GAAP.";
3. Section 2.01(c), Commitment Fee, page 8: delete this paragraph in its
entirety and replace with
"The Borrower agrees to pay to the Bank a commitment fee on the average daily
unused portion of the Revolving Commitment from the date hereof until the
Maturity Date at the rate of one-fourth of one percent per annum, on the last
day of each calendar quarter commencing on the first such date occurring after
the date of this Agreement and on the Maturity Date.";
4. Section 2.03(c), EURO Rate Loans, paragraph 1, page 9: line 4, delete
"one and one-eighth" and replace with "one"; line 7, delete "one and one-eighth"
and replace with "one"; line 8, delete "one and one-fourth" and replace with
"one and one-eighth"; and line 9, delete "one and one-half" and replace with
"one and one-fourth";
5. Section 2.03(c), EURO Rate Loans, paragraph 2, page 9: delete "0.25%" and
replace with "0.125%";
6. Section 6.02(a), Quick Ratio, page 26: delete "1.50" and replace with
"1.25";
7. Section 6.02(b), Leverage Ratio, page 26: delete this paragraph in its
entirety and replace with
Permit the ratio of Consolidated Liabilities less subordinated debt to
Effective Tangible Net Worth at any quarter's end to be more than 1.0:1.0.
8. Section 6.02(c), Consolidated Tangible Net Worth, page 26: delete this
section and its header and replace with
21
<PAGE>
"Effective Tangible Net Worth. Permit Effective Tangible Net Worth at any
quarter's end to be less than $170,000,000 plus seventy-five percent of the
Borrower's net profits after tax (without deduction for losses) plus one hundred
percent of new equity, less payments on subordinated debt, adjusted on a
quarterly basis. Notwithstanding the foregoing, Effective Tangible Net Worth
may be reduced by the amount of any acquisition related non-cash write-offs or
the amount of any acquisition related intangible assets acquired or intangible
asset write-offs of up to a maximum of $50,000,000 during the term of this
Agreement provided the Borrower remains in compliance with all of the terms and
conditions contained in this Agreement after any such merger or acquisition.";
9. Section 6.02(f), Dividends, Etc., page 27: delete "$1,000,000" and
replace with "$15,000,000";
10. Section 6.02(g), Consolidation, Merger, page 27: delete "$10,000,000"
and replace with "$50,000,000";
11. Section 6.02(g), Consolidation, Merger, line 5, page 27: delete "in any
one fiscal year" and replace with "during the term of this Agreement";
12. Section 6.02(g), Consolidation, Merger, line 2, page 27: insert the
following after "entity" "(consolidations, mergers and/or acquisitions are
limited to corporations and/or entities in the Borrower's industry which after
the close of a consolidation, merger and/or acquisition will result in either a
vertical or horizontal integration with the Borrower's existing business. The
Borrower is specifically prohibited from any consolidation, merger and/or
acquisition with any corporation and/or entity that is unrelated to the
Borrower's existing business which is described as the supply of capital
equipment to the semiconductor, thin film head or micro-machining markets.)";
13. Section 6.02(k), Capital Expenditures, page 28: delete this section and
its header;
14. Reletter Section 6.02 (l), Profitability, page 28 as Section 6.02(k);
15. Section 6.02(k), Profitability, page 28: delete "five percent" and
replace with "seven percent"; and
16. Section 6.02(k), Profitability, page 28: add the following at the end of
the paragraph
"Notwithstanding the preceding, during one of the Borrower's allowed loss
quarters it may post one quarterly net loss per fiscal year as an exclusive
result of acquisition related non-cash write-offs and associated cash expenses
(such as legal, accounting and/or M&A advisory fees)and the Borrower may post
one annual net loss during the term of this Agreement resulting exclusively from
non-cash acquisition or merger related write-offs provided the Borrower remains
in compliance with all of the terms and conditions contained in this Agreement
after any such quarter or annual net loss.".
PROMISSORY NOTE:
1. Delete "June 30, 1997" and replace with "June 30, 1999", wherever it
appears.
- - - - - - - - - - - - -
Except as specifically amended in this Second Amendment or to the extent
necessary to be consistent with the provisions of this Second Amendment, the
Credit Agreement and First Amendment thereto and the Promissory Note and First
Amendment thereto shall continue in full force and effect and be binding upon
the Borrower and the Bank notwithstanding the execution and delivery of this
Second Amendment.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Second
Amendment as of the day and year first hereinabove written.
FIRST INTERSTATE BANK ULTRATECH STEPPER, INC.
OF CALIFORNIA
/s/ Mary W. Lernihan /s/William G. Leunis, III
- - - --------------------------- --------------------------
By: Mary W. Lernihan By: William G. Leunis, III
----------------- -----------------------
Its: Vice President Its: VP Finance, CFO
---------------- ----------------------
/s/Scott Ranelletti
- - - ---------------------------
By: Scott Ranelletti
----------------
Its: Assistant Vice President
------------------------
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Ultratech
Stepper Inc., Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 21,867
<SECURITIES> 138,757
<RECEIVABLES> 34,340
<ALLOWANCES> 859
<INVENTORY> 31,665
<CURRENT-ASSETS> 235,131
<PP&E> 23,948
<DEPRECIATION> 5,904
<TOTAL-ASSETS> 261,486
<CURRENT-LIABILITIES> 51,724
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 208,818
<TOTAL-LIABILITY-AND-EQUITY> 261,486
<SALES> 49,568
<TOTAL-REVENUES> 51,713
<CGS> 22,552
<TOTAL-COSTS> 24,059
<OTHER-EXPENSES> 7,393
<LOSS-PROVISION> 247
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 13,093
<INCOME-TAX> 4,452
<INCOME-CONTINUING> 8,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,641
<EPS-PRIMARY> 0.407
<EPS-DILUTED> 0.407
</TABLE>
