<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, 1997
------------------------
[ ] 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
incorporation or organization) identification number)
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 required 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 9, 1997
- ------------------------------------ ----------------------------------------
Common Stock, $.001 par value 20,440,292
<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, 1997
and December 31, 1996......................................... 3
Condensed Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996.......................... 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996.................... 5
Notes to Condensed Consolidated Financial Statements.......... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 8
PART 2. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................ 19
ITEM 2. CHANGES IN SECURITIES........................................ 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.............................. 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 19
ITEM 5. OTHER INFORMATION............................................ 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 19
SIGNATURES........................................................... 20
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) 1997 1996*
- --------------------------------------------------------------------------------
ASSETS (Unaudited)
Current assets:
Cash, cash equivalents and
short-term investments $ 166,236 $167,409
Accounts receivable, net 41,594 39,845
Inventories 32,580 35,524
Current portion of lease receivable,
prepaid expenses and other
current assets 1,826 848
Deferred income taxes 9,703 8,439
- --------------------------------------------------------------------------------
Total current assets 251,939 252,065
Equipment and leasehold
improvements, net 18,059 19,242
Restricted investments 5,099 5,129
Lease receivable 4,285 425
Other assets 3,223 3,911
- --------------------------------------------------------------------------------
Total assets $282,605 $280,772
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable $99 $0
Accounts payable 7,964 9,400
Other current liabilities 28,506 29,981
- --------------------------------------------------------------------------------
Total current liabilities: 36,569 39,381
Other liabilities 1,227 1,444
Stockholders' equity 244,809 239,947
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $282,605 $280,772
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* The Balance Sheet as of December 31, 1996 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)
- -------------------------------------------------------------------------------
THREE MONTHS ENDED
-------------------------
MAR. 31, MAR. 31
(in thousands, except per share amounts) 1997 1996
- -------------------------------------------------------------------------------
Net sales $38,733 $51,713
Cost of sales 17,700 24,059
- -------------------------------------------------------------------------------
Gross profit 21,033 27,654
OPERATING EXPENSES:
Research, development, and
engineering 6,220 7,393
Acquired in-process research
and development 3,619 -
Selling, general, and
administrative 6,278 8,734
- -------------------------------------------------------------------------------
Operating income 4,916 11,527
Interest expense (42) (64)
Other income, net 1,696 1,630
- -------------------------------------------------------------------------------
Income before income taxes 6,570 13,093
Income taxes 2,037 4,452
- -------------------------------------------------------------------------------
Net income $4,533 $8,641
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net income per share $0.21 $0.41
Number of shares used in per
share computations 21,528 21,225
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
----------------------------
(in thousands) MAR. 31, 1997 MAR. 31, 1996
- ----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $4,533 $8,641
Charges to income not affecting cash 4,879 348
Net effect of changes in operating assets
and liabilities (6,547) (6,090)
- ----------------------------------------------------------------------------
Net cash provided by operating activities 2,865 2,899
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Capital expenditures (768) (2,800)
Net reduction (investment) in
available-for-sale securities (17,060) (8,348)
Purchase of certain assets of Lepton Inc. (3,101) -
Segregation of restricted investments (1) (24)
- ----------------------------------------------------------------------------
Net cash used in investing activities (20,930) (11,172)
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Repayment OF long-term debt - (400)
Proceeds from issuance of short-term debt 99 5,000
Repayment of short-term debt - (5,000)
Net proceeds from issuance of common stock 351 179
- ----------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 450 (221)
Net decrease in cash and cash equivalents (17,615) (8,494)
Cash and cash equivalents at beginning
of period 47,771 30,361
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of period $30,156 $21,867
- ----------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
ULTRATECH STEPPER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
(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.
USE OF ESTIMATES - The preparation of the accompanying unaudited consolidated
condensed financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
The Company's first fiscal quarter in 1997 and 1996 ended on April 5, 1997 and
March 30, 1996, respectively. For convenience of presentation, the Company's
financial statements have been shown as ending on March 31, 1997 and March 31,
1996.
Operating results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997, or any future period.
(2) INVENTORIES
Inventories consist of the following:
Mar. 31, 1997 Dec. 31, 1996
-------------- ----------------
(in thousands) (Unaudited)
Raw materials................. $16,182 $17,625
Work-in-process............... 10,631 11,971
Finished products............. 5,767 5,928
-------------- ---------------
$32,580 $35,524
-------------- ---------------
-------------- ---------------
(3) OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
Mar. 31, 1997 Dec.31, 1996
------------ -----------
(in thousands) (Unaudited)
Salaries and benefits.................... $5,844 $7,132
Warranty reserves........................ 8,763 9,424
Advance billings......................... 1,458 646
Income taxes payable..................... 5,305 5,406
Other.................................... 7,136 7,373
------------ -----------
$28,506 $29,981
------------ -----------
------------ -----------
(4) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in primary earnings per share for the first
quarter ended March
6
<PAGE>
31, 1997 and March 31, 1996 of $0.01 and $0.02 per share, respectively. The
impact of Statement 128 on the calculation of fully diluted earnings per
share for these quarters is not expected to be material.
(5) ACQUISITION OF LEPTON INC.
In February 1997, the Company completed the acquisition of the assets of Lepton
Inc., a developer of electron beam lithography systems. As a result of this
acquisition, the Company has recognized approximately $3.6 million, or $0.12 per
share, net of related income tax benefits, of in-process research and
development cost during the first quarter of 1997.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Ultratech develops, manufactures and markets photolithography equipment
(steppers) designed to reduce the cost of manufacturing integrated circuits
(ICs), thin film heads (TFHs) for disk drives and micromachined components. The
Company supplies step-and-repeat systems based on one-to-one reflective and
refractive optical technology to customers located throughout the United States,
Europe, Asia/Pacific and Japan. These products range from low-cost systems for
high-volume manufacturing to advanced systems for cost-effective production of
leading-edge devices.
The following discussion should be read in conjunction with the Company's 1996
Annual Report on Form 10-K, available upon request.
RESULTS OF OPERATIONS The Company's operating results have fluctuated
significantly in the past and will continue to fluctuate significantly in the
future depending upon a variety of factors, including cyclicality in the
Company's target markets; the mix of products sold; lengthy manufacturing
cycles for the Company's products; 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; the timing of
significant orders; manufacturing inefficiencies associated with the start up
of new product introductions; lengthy sales cycles for the Company's systems;
customer concentration; 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;
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 vendors employing 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; increased
competition in the Company's targeted markets; the mix of products sold;
nonlinearity of shipments during the quarter; 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; the rate of capacity utilization;
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 adversely 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 sales of a
relatively small number of new systems, which typically range in price from
$800,000 to $2.1 million. As a result, the timing of recognition of revenue from
a single transaction has had and could continue to have a significant impact on
the Company's net sales and operating results. The Company's backlog at the
beginning of a period typically does not include all of the 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 have been and continue to 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, 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 period to fall significantly below the
Company's expectations, which would materially adversely affect the Company's
operating results for such period. In particular, the significantly long
manufacturing cycles of the Company's linear motor-based steppers,
8
<PAGE>
which include the Model 2244i stepper, Model 4700 stepper, Model 6700
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 cyclical trends
within the semiconductor industry. 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. Additionally, the Company has recently
experienced manufacturing inefficiencies associated with shifts in product
demand and underutilization of manufacturing capacity and the Company
presently anticipates that these trends will continue for at least the next
several quarters.
Certain of the statements contained in this discussion are forward-looking
statements that involve a number of risks and uncertainties. In addition to the
factors discussed herein, among other factors that could cause actual results to
differ materially include the following: cyclicality of the IC and magnetic
recording head industries; importance of the Company's mix-and-match strategy;
expansion of the Company's operations; management of growth; customer
concentration; lengthy sales cycle; highly competitive industry; rapid
technological change; importance of timely product introduction; dependence on
key personnel; international sales; dependence on local distributor in the
Japanese market; sole or limited sources of supply; intellectual property
matters; environmental regulations; effects of certain antitakeover provisions;
volatility of stock price; and the other risk factors detailed below and listed
from time to time in the Company's other SEC reports, including but not limited
to the Company's 1996 Annual Report on Form 10-K.
Due to these and additional factors, historical results and percentage
relationships discussed below will not necessarily be indicative of the results
of operations for any future period.
NET SALES
Net sales consist of revenue from system sales, spare parts sales, and service.
Net sales for the quarter ended March 31, 1997 were $38.7 million, a decrease
of 25% as compared with net sales of $51.7 million for the comparable period in
1996. This decrease, relative to the comparable period in 1996, was primarily
attributed to significantly lower unit sales of the Company's Model 1500 Series
steppers, which address the markets for scanner replacement and high volume/low
cost semiconductor fabrication; lower unit sales of the Company's Model 2244i
stepper, which addresses the market for mix-and-match in advanced semiconductor
fabrication; and lower 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. These factors were partially offset by higher unit sales of the
Company's Model 1700 Series steppers with machine vision system, which address
the market for back-end processing of thin film heads. Overall, the Company's
system shipments for the quarter decreased 34%, relative to the comparable
period in 1996, while the weighted average selling price of all systems sold was
essentially unchanged. Net sales from spare parts and service in the first
quarter of 1997 decreased 7% over the comparable period in 1996.
The Company's net sales for the quarter ended March 31, 1997 were adversely
impacted by a shift in product mix away from the Company's more mature product
lines to the Company's more advanced systems. This shift created capacity
limitations due to the lengthy manufacturing cycle times of the Company's more
advanced systems. The change in product mix resulted in several systems the
Company planned to ship during the quarter being completed and shipped
subsequent to the end of the quarter. The Company presently anticipates that
9
<PAGE>
these capacity constraints may further impact the Company's performance during
its second fiscal quarter ending June 30, 1997.
The Company believes that its sales have been and continue to be adversely
impacted by reduced capital spending levels within the semiconductor
industry. The Company continues to experience shipment delays and purchase
order restructurings by several of its customers and has also experienced
some purchase order cancellations. The Company presently anticipates that
this trend will continue for some time. Accordingly, the Company can give no
assurance that it will be able to achieve or maintain its current or prior
level of sales. Based on current market conditions, the Company presently
expects that future quarterly comparisons, through at least the third quarter
of 1997, will indicate a period-over-comparable period decline in the
Company's net sales. Additionally, the Company believes that the current
strength of the U.S. dollar, particularly in relation to the Japanese yen,
may place the Company at a competitive disadvantage.
International net sales for the quarter ended March 31, 1997 were $16.8
million, as compared with $26.8 million for the comparable period in 1996.
International net sales represented 43% of total net sales for the quarter
ended March 31, 1997, as compared with 52% for the comparable period in 1996.
This year-over-year decline, both in absolute dollars and as a percentage of
total sales, was primarily attributed to decreased system sales to the
Japanese and Korean markets, partially offset by higher system sales to
Southeast Asia. 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."
Because the Company's net sales are subject to a number of risks, including
intense competition in the capital equipment industry and the timing and market
acceptance of the Company's products, there can be no assurance that the Company
will exceed or maintain its current level of net sales for any period in the
future. Additionally, the Company believes that the market acceptance and volume
production of the Titan Wafer Stepper and Saturn Wafer Stepper are of critical
importance to the successful implementation of its mix-and-match strategy and
its future financial results. To the extent that the Company's mix-and-match
products do not achieve significant sales due to difficulties involving
manufacturing or engineering, an inability to reduce the long manufacturing
cycles, direct competition from mix-and-match systems manufactured by the
Company's competitors, or any other reason, the Company's business, financial
condition and results of operations would be materially adversely affected.
GROSS PROFIT
Gross margin for the quarter ended March 31, 1997 was 54.3%, as compared with
53.5% for the comparable period in 1996. The improvement in gross margin can
be primarily attributed to lower inventory reserve requirements, increased
after-sales support efficiencies resulting from improved product performance
and a larger installed base of the Company's systems, and fewer system
shipments to the Japanese market. As a result of its distribution agreement
with Innotech Corporation, the Company's 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.
These positive factors were partially offset by the negative impact on
"standard" gross margin from the shift during the quarter away from the
Company's more mature product lines toward the Company's more advanced
systems; and by the impact of manufacturing inefficiencies caused by changes
in the Company's shipment schedule, underutilization of manufacturing
capacity for the Company's more mature product lines and a high degree of
nonlinearity of shipments during the quarter.
The Company believes that increased competition from Canon Inc. and Nikon Inc.,
among others, together with generally weak conditions in the markets the Company
serves, will make it difficult for the Company to maintain recent gross margin
percentages. Additionally, the Company may shortly commence production of
several new products that are outside of the Company's core technologies (See
"Additional Risk Factors: Expansion of Operations; Management of Growth").
Commencement of production of these new products may result in the purchase of
significant levels of inventory to support manufacturing requirements, hiring of
10
<PAGE>
additional production and manufacturing support personnel, purchase of
significant levels of plant and equipment and the incurrence of other related
manufacturing overhead costs. The purchase of additional inventories would
result in a significantly higher risk of obsolescence, which would require
additional inventory reserves. Additionally, new products generally have lower
gross margins until production and after-sales efficiencies can be achieved.
Should these new products fail to develop or generate significant market demand,
the Company's business, financial condition and results of operations would be
materially adversely impacted.
RESEARCH, DEVELOPMENT, AND ENGINEERING
The Company's research, development, and engineering expenses, net of third
party funding, were $6.2 million for the quarter ended March 31, 1997, a
decrease of 16% as compared with $7.4 million for the comparable period in
1996. The current quarter decrease, as compared to the comparable period in
1996, was primarily attributed to decreased spending for the 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; partially offset by increased spending for the Company's
development of its electron beam lithography and gas immersion laser doping
technologies and systems. During the quarter ended December 31, 1996, the
Company reduced its workforce by approximately 7%. This factor contributed to
the lower spending during the first quarter. 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. Due to these
and other factors, the Company expects the absolute dollar amount of research,
development and engineering expenses for the remaining quarters of 1997 to
increase substantially, relative to the current quarter.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
During the quarter, the Company completed the acquisition of the assets of
Lepton Inc., a developer of electron beam lithography systems. As a result of
this acquisition, the Company recognized a one-time pre-tax charge for acquired
in-process research and development expense of $3.6 million, or $0.12 per
share, net of related income tax benefits.
SELLING, GENERAL, AND ADMINISTRATIVE
The Company's selling, general, and administrative expenses were $6.3 million
for the quarter ended March 31, 1997, a decrease of 28% as compared with $8.7
million for the comparable period in 1996. As a percentage of net sales,
selling, general, and administrative expenses declined to 16.2% for the quarter
ended March 31, 1997, as compared with 16.9% for the comparable period in 1996.
The significant dollar decrease in the current quarter, relative to the
comparable period in 1996, reflects in large part the Company's decrease in
sales, service and support expenses typically associated with a decrease in
sales; cost containment measures implemented during 1996; lower required
provisions for the Company's profit sharing and executive incentive plans and
lower commission expense resulting from higher direct sales relative to total
net sales for the period. The Company expects the absolute dollar amount of
these expenses for the remainder of 1997 to increase relative to the current
quarter. This increase is anticipated, in part, to sales, service and support
expenses associated with the anticipated future introduction of the Company's
electron beam lithography and gas immersion laser doping systems.
OTHER INCOME, NET
Other income, net, which consists primarily of interest income, was $1.7 million
for the quarter ended March 31, 1997, as compared with $1.6 million for the
comparable period in 1996. The improvement in the current quarter, relative to
the comparable period in 1996, was attributed to income generated from increased
investments in cash equivalents and short-term investments.
INCOME TAXES
Income taxes represented 31% of income before income taxes for the quarter ended
March 31, 1997, as compared with 34% for the comparable period in 1996. This
decrease in the tax rate for 1997, relative to 1996, is primarily a result of
anticipated tax benefits associated with the Company's research and development
efforts together with higher tax exempt income, relative to total income before
income taxes. However, this rate may be impacted further by tax legislation and
other factors. The Company's effective tax rate differs from the U.S. statutory
rate as a result of state income taxes and benefits associated with the
Company's foreign sales
11
<PAGE>
corporation, tax-exempt income and credits for research and development, net
of other individually immaterial benefits.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $2.9 million for the three
month period ended March 31, 1997, as compared with $2.9 million for the
comparable period last year. Positive cash flows from operating activities
during the first three months of 1997 were attributed to net income of $4.5
million and non-cash charges to income of $4.9 million, which include a $3.6
million pre-tax charge for the write-off of in-process research and development
associated with the Company's purchase of the assets of Lepton Inc., partially
offset by a negative net effect from changes in operating assets and liabilities
of $6.5 million. The negative net effect from changes in operating assets and
liabilities was primarily due to an increase in accounts receivable, the current
and long-term portions of lease receivable and a decrease in accounts payable
and other current liabilities, partially offset by a $2.9 million decrease in
inventory. The significant dollar increase in accounts receivable was primarily
the result of significant customer shipments occurring during the final month of
the quarter and longer customer payment terms. The Company anticipates this
trend of nonlinearity of shipments and extended customer payment cycles to
continue for at least the next several quarters. Such trends, should they
continue, would expose the Company to numerous risks, which could materially
adversely affect the Company's business, financial condition and results of
operations.
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. Additionally, the Company
may incur significant additional levels of inventory as a result of the
anticipated introduction of its electron beam lithography and gas immersion
laser doping systems. 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, 1997, the Company had working capital of $215.4 million. The
Company's principal sources of liquidity at March 31, 1997 consisted of $166.2
million in cash, cash equivalents and short-term investments and $29 million in
various unsecured lines of credit. As of March 31, 1997, $0.1 million was
outstanding under such facilities.
For the period, cash provided by financing activities was $0.5 million,
principally as a result of the issuance of common stock pursuant to the exercise
of employee stock options.
During the quarter, the Company used $20.9 million of cash in its investing
activities, including $17.1 million for the net investment of cash in short-term
investments, $3.1 million for the purchase of the assets of Lepton Inc. and $.8
million for capital expenditures. The Company intends to continue to make
significant capital expenditures throughout the remainder of 1997 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 further 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 cash flow from operations, its cash, cash
equivalents and short-term investments and funds available under its lines 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
12
<PAGE>
or capital equipment needs. Additionally, the Company may in the future
pursue acquisitions of complementary product lines, technologies, or
businesses such as the acquisition of the assets of Lepton. 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, in 1996, the Company formed a wholly-owned
subsidiary for the purpose of financing customer purchases. If successful,
this strategy may result in the further formation of significant long-term
receivable and would require the use of 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, as evidenced by the current downturn in the semiconductor capital
equipment industry. This has, from time to time, resulted 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. However, the
semiconductor industry has more recently experienced a cyclical downturn, and
this has resulted in a significant reduction in capital spending. The Company
has recently experienced cancellation of purchase orders, shipment delays and
purchase order restructurings by several of its semiconductor customers and
anticipates that this trend will continue for some time. Accordingly, the
Company can give no assurance that it will be able to achieve or maintain its
current level of sales. Additionally, based on present market conditions, the
Company presently expects that future quarterly comparisons, through at least
the third quarter of 1997, will indicate a period-over-comparable period decline
in the Company's net sales.
During 1996 and 1995, approximately 40% and 30%, respectively, of the Company's
net sales were derived from sales to thin film head manufacturers and related
applications. During the three month period ended March 31, 1997, sales to thin
film head manufacturers and related applications represented approximately 45%
of the Company's net sales, as compared with 30% during the comparable period a
year ago. 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. Additionally, the Company is experiencing increased
competition in this market from Canon and Nikon. The Company's business and
operating results would be materially adversely affected by downturns or
slowdowns in the thin film head market or by loss of market share.
The Company attempts to mitigate the risk of cyclicality by participating in
both the semiconductor and magnetic recording head markets, as well as
diversifying into new markets such as photolithography for micromachining.
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
13
<PAGE>
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 which also manufacture widefield systems,
including Nikon and Canon, are shipping their own widefield 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.
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 1993, and commenced volume production in 1994. In
1995, the Company commenced shipment and volume production of the Titan Wafer
Stepper and commenced shipment of the 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. Recently, this market segment of the Company's business
has experienced a pronounced downturn due, in part, to the recent cyclical
downturn in the semiconductor industry. To the extent that the mix-and-match
family of products does not achieve or maintain significant sales due to a
cyclical downturn in the semiconductor industry; 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 other widefield
mix-and-match systems from Nikon and Canon, among others; 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 Currently, the Company is
devoting significant resources to the development of new products and
technologies that are outside of the Company's core businesses (see
"Research, Development and Engineering"). The Company anticipates that its
expenditures for research, development and engineering will increase
significantly in 1997, relative to the comparable periods in 1996,
principally as a result of the continued development of these new product
lines. During 1997, the Company will conduct evaluations of these products
and may decide to invest significant additional resources in plant and
equipment, inventory, personnel and other costs, to begin production of these
products and to provide the marketing, administration and after-sales support
required to support these new products. Accordingly, there can be no
assurance that gross profit margins and inventory levels will not be
adversely impacted in the future by start-up costs associated with the
initial production of these new product lines. These start-up costs include,
but are not limited to, additional manufacturing overhead, additional
inventory reserve requirements and the creation of after-sales support
organizations. Additionally, there can be no assurance that operating
expenses will not increase, relative to sales, as a result of adding
additional marketing and administrative personnel, among other costs, to
support the Company's additional products. If the Company is unable to
achieve significantly increased net sales or its sales fall below
expectations, the
14
<PAGE>
Company's operating results will be materially adversely affected until,
among other factors, inventory levels and expenses can be reduced.
There can be no assurance that net sales will increase or remain at 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 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 number of its systems to a
limited number of customers. In 1996, sales to two customers accounted for 17%
and 12% of the Company's net sales. In 1995, sales to one customer accounted for
approximately 12% of the Company's net sales. The Company expects that sales to
relatively few customers 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 these major customers,
and the Company's ability to meet their future capital equipment needs. 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 maintain or increase its sales in the future will depend in part upon its
ability to obtain orders from 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, ASM Lithography, Ltd. 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 both Canon and Nikon offer
reduction steppers for thin film head fabrication. In addition, Nikon and Canon
are shipping their own widefield mix-and-match lithography systems (See:
"Importance of Mix-and-Match Strategy"). 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, whose
assets were purchased by Integrated Solutions, Inc. ("ISI"), had experienced
significant declines or had withdrawn from
15
<PAGE>
this market. ISI now supplies the former GCA products and enhancements to the
semiconductor industry. 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 business, financial
condition and results of operations. 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 be 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.
Japanese IC manufacturers have a dominant share of the worldwide market for
certain types of integrated circuits for which the Company's systems are used.
In addition, the Japanese stepper manufacturers are well-established in the
Japanese stepper market, and it is extremely difficult for non-Japanese
lithography equipment companies to penetrate the Japanese stepper market. To
date, the Company has not established itself as a major competitor in the
Japanese IC equipment market and there can be no assurance that the Company will
be able to achieve significant sales to Japanese IC manufacturers in the future.
See "International sales; Japanese market; Dependence on Local Distributor."
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 be competitive in these and other
markets will depend in part upon its ability to develop new and enhanced
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
16
<PAGE>
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 Model 6700 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 members of the Board
of Directors, officers and other 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.
Recently, the Company has experienced an increased level of employee
turnover. The Company believes that this increase is due to several factors,
including: the recent semiconductor industry slowdown, which resulted in a
planned reduction in the Company's workforce during the fourth fiscal quarter
of 1996, and which has further resulted in an increased level of uncertainty
within the workforce; an expanding economy within the geographic area that
the Company maintains its principal business offices, making it more
difficult for the Company to retain its employees; and the declining value of
stock options granted to employees, relative to their total compensation, as
a result of the full vesting of options granted prior to the Company's
initial public offering and significant numbers of options granted at prices
well in excess of the current market value of the Company's stock. Due to
these and other factors, the Company may continue to experience high levels
of employee turnover, which could adversely impact the Company's business,
financial condition and results of operations. The Company is presently
addressing these issues and will pursue solutions designed to retain its
employees and to provide performance incentives.
INTERNATIONAL SALES; JAPANESE MARKET; DEPENDENCE ON LOCAL DISTRIBUTOR
International sales accounted for approximately 53% and 55% of total net sales
in 1996 and 1995, respectively. For the first three months of 1997,
international sales accounted for 43% of total net sales, as compared with 52%
during the comparable period a year ago. The Company anticipates that
international sales, which typically have lower gross margins than domestic
sales, principally due to higher field service and support 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, difficulty in satisfying existing
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
17
<PAGE>
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 continue 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. Accordingly, there can be no assurance that this agreement will continue
on present terms, or at all. 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,
recently, 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.
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the
Company's Certificate of Incorporation, equity incentive plans, Shareholder
Rights Plan, 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 from or 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. 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.
18
<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.
Effective May 5, 1997, Mr. James L. Schram
resigned from his position as President, Chief
Operating Officer and member of the Board of
Directors of the Company. Mr. Schram will remain
with the Company in a consulting role until
November 5, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 11.1 Statement of Computation of Net Income
Per Share.
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Current report on Form 8-K filed February 26, 1997.
On February 26, 1997, the Company filed a Current Report
on Form 8-K disclosing the Company's adoption of a
Shareholder Rights Plan. Except as set forth above, no
other Report on Form 8-K were filed by the Company during
the quarter ended March 31, 1997.
19
<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 12, 1997 By: /s/ William G. Leunis, III
- -------------------------------- --------------------------------
William G. Leunis, III
Senior Vice President Finance
and Chief Financial Officer
(Duly Authorized Officer
and Principal Financial and
Accounting Officer)
20
<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:
Three Months Ended
---------------------
(In thousands, except per share amounts) March 31, 1997 March 31, 1996
- ------------------------------------------------------------------------------
Weighted average common shares outstanding 20,413 19,866
Common equivalent shares from stock
options granted (using the treasury
stock method) 1,115 1,359
-------------- -------------
Number of shares used in per share
calculations 21,528 21,225
-------------- -------------
-------------- -------------
Net income $4,533 $8,641
-------------- -------------
-------------- -------------
Net income per share $0.21 $0.41
-------------- -------------
-------------- -------------
21
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 30,156
<SECURITIES> 136,080
<RECEIVABLES> 42,770
<ALLOWANCES> 1,176
<INVENTORY> 32,580
<CURRENT-ASSETS> 251,939
<PP&E> 28,828
<DEPRECIATION> 10,769
<TOTAL-ASSETS> 282,605
<CURRENT-LIABILITIES> 36,569
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 244,789
<TOTAL-LIABILITY-AND-EQUITY> 282,605
<SALES> 36,251
<TOTAL-REVENUES> 38,733
<CGS> 16,008
<TOTAL-COSTS> 17,700
<OTHER-EXPENSES> 9,839
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 6,570
<INCOME-TAX> 2,037
<INCOME-CONTINUING> 4,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,533
<EPS-PRIMARY> 0.211
<EPS-DILUTED> 0.211
</TABLE>
