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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 JUNE 30, 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
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ULTRATECH STEPPER, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 94-3169580
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
3050 Zanker Road, San Jose, California 95134
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 321-8835
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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
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Indicate the number of shares of the issuer's class of common stock, as of
the latest practical date:
Class Outstanding as of August 4, 1997
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Common Stock, $.001 par value 20,613,412
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ULTRATECH STEPPER, INC.
INDEX
Page No.
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996................................................3
Condensed Consolidated Statements of Income for the three months
ended June 30, 1997 and 1996 and six months ended June 30, 1997
and 1996.............................................................4
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 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
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PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
(In thousands) 1997 1996*
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ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash, cash equivalents and
short-term investments $170,132 $167,409
Accounts receivable, net 40,847 39,845
Inventories 30,757 35,524
Current portion of lease receivable, prepaid
expenses and other current assets 3,692 848
Deferred income taxes 9,746 8,439
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Total current assets 255,174 252,065
Equipment and leasehold
improvements, net 18,582 19,242
Restricted investments 5,279 5,129
Lease receivable 7,568 425
Other assets 3,565 3,911
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Total assets $290,168 $280,772
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $8,205 $9,400
Other current liabilities 29,337 29,981
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Total current liabilities 37,542 39,381
Other liabilities 1,119 1,444
Stockholders' equity 251,507 239,947
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Total liabilities and stockholders' equity $290,168 $280,772
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</TABLE>
* 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
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ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
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Three Months Ended Six Months Ended
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JUNE 30 June 30 JUNE 30 June 30
(In thousands, except per share amounts) 1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net sales $38,054 $51,793 $76,787 $103,506
Cost of sales 18,075 23,691 35,775 47,750
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Gross profit 19,979 28,102 41,012 55,756
Operating expenses:
- ------------------
Research, development, and
engineering 6,793 7,307 13,013 14,700
Acquired in-process research
and development - - 3,619 -
Selling, general, and
administrative 6,643 8,264 12,921 16,998
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Operating income 6,543 12,531 11,459 24,058
Interest expense (43) (67) (85) (131)
Other income, net 1,799 1,590 3,495 3,220
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Income before income taxes 8,299 14,054 14,869 27,147
Income taxes 2,572 4,778 4,609 9,230
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Net income $5,727 $9,276 $10,260 $17,917
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Net income per share $0.27 $0.44 $0.48 $0.84
Number of shares used in
per share computations 21,442 21,279 21,512 21,253
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
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(In thousands) JUNE 30, 1997 June 30, 1996
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<S> <C> <C>
Cash flows from operating activities:
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Net income $10,260 $17,917
Charges to income not affecting cash 6,625 1,430
Net effect of changes in operating assets
and liabilities (8,191) (21,723)
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Net cash provided by (used in) operating
activities 8,694 (2,376)
Cash flows from investing activities:
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Capital expenditures (3,108) (5,841)
Net investment in available-for-sale securities (2,327) 5,832
Purchases of certain assets of Lepton Inc. (3,101) -
Segregation of restricted investments (151) (75)
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Net cash used in investing activities (8,687) (84)
Cash flows from financing activities:
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Repayment of long-term debt - (400)
Proceeds from issuance of short-term debt 99 7,500
Repayment of short-term debt (99) (7,500)
Net proceeds from issuance of common stock 516 684
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Net cash provided by financing activities 516 284
Net increase (decrease) in cash and cash
equivalents 523 (2,176)
Cash and cash equivalents at beginning
of period 47,771 30,361
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Cash and cash equivalents at end of period $48,294 $28,185
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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ULTRATECH STEPPER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 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 condensed
consolidated 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 second fiscal quarter in 1997 and 1996 ended on July 5, 1997
and June 29, 1996, respectively. For convenience of presentation, the
Company's financial statements have been shown as ending on June 30, 1997 and
June 30, 1996.
Operating results for the three month and six month periods ended June 30,
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:
June 30, 1997 Dec. 31, 1996
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(In thousands) (Unaudited)
Raw materials.............................. $16,811 $17,625
Work-in-process............................ 7,755 11,971
Finished products.......................... 6,191 5,928
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$30,757 $35,524
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(3) OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
June 30, 1997 Dec. 31, 1996
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(In thousands) (Unaudited)
Salaries and benefits...................... $6,126 $7,132
Warranty reserves.......................... 8,568 9,424
Advance billings........................... 671 646
Income taxes payable....................... 6,870 5,406
Other...................................... 7,102 7,373
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$29,337 $29,981
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(4) NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which the Company will be required to adopt on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute net income per share and to restate all
prior periods. The new requirements will include a calculation of "basic"
net income per share, which will exclude the
6
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dilutive effect of stock options. The calculation of basic net income per
share for the three months ended June 30, 1997 and 1996, results in basic net
income per share of $0.28 and $0.46, respectively. The calculation of basic
net income per share for the six months ended June 30, 1997 and 1996, results
in basic net income per share of $0.50 and $0.90, respectively. A
calculation of "diluted" net income per share will also be required. However,
this calculation is not expected to differ materially from the actual net
income per share amounts reported for the years presented.
(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 recognized approximately $3.6 million, or
$0.12 per share, net of related income tax benefits, of in-process research
and development expense during the first quarter of 1997.
7
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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.
With the exception of historical facts, the statements contained in this
discussion may include forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, including,
but not limited to, future sales, gross margins, the anticipated increase in
inventories and operating expenses and the sufficiency of financial resources
to support operations, and are subject to the Safe Harbor provisions created
by that statute. Such Statements are based on current expectations that
involve risks and uncertainties, including those discussed below and under
the heading "Additional Risk Factors", that could cause actual results to
differ materially from those expressed. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly release
the results of any revisions to forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. This discussion should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements
and Notes to the Condensed Consolidated Financial Statements presented on
pages 3 to 7 of this Quarterly Report and the Company's 1996 Annual Report on
Form 10-K, available upon request, for a complete understanding of the
Company's financial position and results of operations.
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 timing of significant orders; 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;
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 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 mix of products sold; 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; 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
8
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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, 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.
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.
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 June 30, 1997 were $38.1 million, a
decrease of 27% as compared with net sales of $51.8 million for the
comparable period in 1996. For the six months ended June 30, 1997, net sales
were $76.8 million, a decrease of 26% as compared with net sales of $103.5
million for the comparable period in 1996. Both the current quarter and
year-to-date declines, relative to the comparable periods in 1996, were
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 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 38%, relative to the comparable period in 1996, while the weighted
average selling price of all systems sold was essentially unchanged. For the
six months ended June 30, 1997, the Company's system shipments decreased 36%,
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 second quarter of 1997 decreased 3% over the
comparable period in 1996. For the six months ended June 30, 1997, net sales
from spare parts and service decreased 4% over the comparable period in 1996.
The Company believes that its sales have been and continue to be adversely
impacted by reduced capital capacity spending levels within the semiconductor
industry. The Company continues to experience shipment
9
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delays and purchase order restructurings by several of its customers, and has
also experienced 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 third quarter of 1997
may result in a sequential decline in net sales from the levels achieved for
the quarter ended June 30, 1997. 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 June 30, 1997 were $11.1
million, as compared with $21.7 million for the comparable period in 1996.
International net sales represented 29% of total net sales for the quarter
ended June 30, 1997, as compared with 42% 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
European and Southeast Asia markets. For the six months ended June 30, 1997,
international net sales were $27.8 million, as compared with $48.5 million
for the comparable period in 1996. International net sales represented 36% of
total net sales for the six month period ended June 30, 1997, as compared
with 47% 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 European, Japanese and Korean
markets, partially offset by increased system sales to the Southeast Asia
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."
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 June 30, 1997 was 52.5%, as compared with
54.3% for the comparable period in 1996. For the six months ended June 30,
1997, gross margin was 53.4%, as compared with 53.9% for the comparable
period in 1996. Both the current quarter and year-to-date declines in gross
margin as a percentage of net sales, as compared with the comparable periods
in 1996, can be primarily attributed to the shift away from the Company's
more mature product lines toward the Company's more advanced systems;
manufacturing inefficiencies caused by underutilization of manufacturing
capacity, changes in the Company's shipment schedule and an unusually high
degree of nonlinearity of shipments during the 1997 periods; partially offset
by lower required inventory reserves due to lower inventory levels and
improved inventory management, improved margins from spare parts and service,
increased after-sales support efficiencies 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.
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:
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Development of New Product Lines; 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
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 affected.
RESEARCH, DEVELOPMENT, AND ENGINEERING
The Company's research, development, and engineering expenses, net of third
party funding, were $6.8 million for the quarter ended June 30, 1997, a
decrease of 7% as compared with $7.3 million for the comparable period in
1996. For the six months ended June 30, 1997, research, development, and
engineering expenses, net of third party funding, were $13.0 million, a
decrease of 11% as compared with $14.7 million for the comparable period in
1996. Both the current quarter and year to date decreases, as compared to the
comparable period in 1996, were 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 its gas immersion laser doping technologies and systems. 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 first quarter of 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 recognized a one-time pre-tax
charge in the quarter ended March 31, 1997 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 $6.6 million
for the quarter ended June 30, 1997, a decrease of 20% as compared with $8.3
million for the comparable period in 1996. As a percentage of net sales,
selling, general, and administrative expenses increased to 17.5% for the
quarter ended June 30, 1997, as compared with 16.0% for the comparable period
in 1996. For the six months ended June 30, 1997, selling, general, and
administrative expenses were $12.9 million, a decrease of 24% as compared
with $17.0 million for the comparable period in 1996. As a percentage of net
sales, selling, general, and administrative expenses increased to 16.8% for
the six months ended June 30, 1997, as compared with 16.4% for the comparable
period in 1996. The significant dollar decrease in both the current quarter
and year-to-date periods, relative to the comparable periods 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 selling, general,
and administrative 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 $1.8
million for the quarter ended June 30, 1997, as compared with $1.6 million
for the comparable period in 1996. For the six months ended June 30, 1997,
other income, net, was $3.5 million, as compared with $3.2 million for the
comparable period in 1996. The improvement in the current quarter and
year-to-date periods, relative to the comparable periods in 1996,
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was primarily 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 both the
quarter and year-to-date periods ended June 30, 1997, as compared with 34%
for the comparable periods 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 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 $8.7 million for the six
month period ended June 30, 1997, as compared with $2.4 million used in
operating activities during the comparable period in 1996. Positive cash
flows from operating activities during the first six months of 1997 were
attributed to net income of $10.3 million and non-cash charges to income of
$6.6 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 changes in operating assets
and liabilities of $8.2 million. The negative net effect from changes in
operating assets and liabilities was primarily due to an increase in the
current and long-term portions of lease receivable and a decrease in accounts
payable and other current liabilities, partially offset by a $4.8 million
decrease in inventory. The Company anticipates that the current trend of
nonlinearity of shipments and extended customer payment cycles will continue
to keep accounts receivable levels at unusually high levels 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 June 30, 1997, the Company had working capital of $217.6 million. The
Company's principal sources of liquidity at June 30, 1997 consisted of $170.1
million in cash, cash equivalents and short-term investments and $29 million
in various unsecured lines of credit. As of June 30, 1997, there were no
outstanding amounts under these facilities.
For the six month period ended June 30, 1997, 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 $8.7 million of cash in its investing
activities, including $2.3 million for the net investment of cash in
short-term investments, $3.1 million for the purchase of the assets of
Lepton Inc. and $3.1 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
12
<PAGE>
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 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, the Company is experiencing increased
interest in its equipment leasing program. Continued success of this strategy
may result in the further formation of significant long-term receivables 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. 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. Additionally, the third quarter of 1997 may
result in a sequential decline in net sales from the levels achieved for the
quarter ended June 30, 1997.
During 1996 and 1995, approximately 35% and 30%, respectively, of the
Company's net sales were derived from sales to thin film head manufacturers
and micromachining customers. During the six month period ended June 30,
1997, sales to thin film head manufacturers and micromachining customers
represented approximately 65% of the Company's net sales, as compared with
35% 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
13
<PAGE>
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.
LENGTHY SALES CYCLE 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. 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
14
<PAGE>
Company will be able to achieve significant sales to Japanese IC
manufacturers in the future. See "International sales; Japanese market;
Dependence on Local Distributor."
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 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.
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 six months of 1997,
international sales accounted for 36% of total net sales, as compared with
47% 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 on an annual basis. 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
15
<PAGE>
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 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. 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 may be adversely affected
in the near term. The Company is presently reviewing its relationship with
Innotech and evaluating marketing and sales alternatives. 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.
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
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
16
<PAGE>
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.
DEVELOPMENT OF NEW PRODUCT LINES; 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 during the remainder of 1997, relative to the first half of
1997, 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 Company's operating results will be materially adversely
affected until, among other factors, inventory levels and expenses can be
reduced.
CUSTOMER CONCENTRATION 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.
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 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
17
<PAGE>
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.
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.
The following proposals were voted upon by the Company's stockholders at
the Annual Stockholders' Meeting held on May 15, 1997.
1. The following persons were elected as directors of the Company to serve
for a term ending upon the Annual Stockholders' Meeting indicated beside
their respective names and until their successors are elected and
qualified:
Term Ending Upon the Annual
Stockholders' Meeting Votes for Votes Withheld
------------------------------------------------------------
Gregory Harrison 1999 15,159,362 3,390,586
Kenneth Levy 1999 15,159,462 3,390,486
2. A proposal for a series of amendments to the Company's 1993 Stock
Option/Stock Issuance Plan was approved by the vote of 12,126,112
shares for, 6,349,590 shares withheld or voted against the proposal and
74,246 shares abstained.
3. A proposal to amend to the Company's Employee Stock Purchase Plan to
increase the number of shares of Common Stock available for issuance
thereunder by an additional 250,000 shares was approved by the vote of
17,800,371 shares for, 697,160 shares withheld or voted against the
proposal and 52,417 shares abstained.
4. A proposal to ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31,
1997 was approved by the vote of 18,485,448 shares for, 38,983
shares withheld or voted against the proposal and 25,517 shares
abstained.
ITEM 5. OTHER INFORMATION. None
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
Exhibit 21.1 Subsidiaries of Registrant
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three
months ended June 30, 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: August 7, 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
Jun. 30 Jun. 30 Jun. 30 Jun.30
(in thousands, except per share amounts) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 20,451 20,026 20,410 19,947
Common share equivalents from stock options
granted (using the treasury stock method) 991 1,253 1,102 1,306
------- ------- ------- -------
Number of shares used in per share calculation 21,442 21,279 21,512 21,253
------- ------- ------- -------
------- ------- ------- -------
Net income $5,727 $9,276 $10,260 $17,917
------- ------- ------- -------
------- ------- ------- -------
Net income per share $0.27 $0.44 $0.48 $0.84
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
21
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF ULTRATECH STEPPER, INC.
The following is a list of Ultratech Stepper Inc.'s subsidiaries including
their state of incorporation as of June 30, 1997:
SUBSIDIARIES STATE AND COUNTRY OF INCORPORATION
------------ ----------------------------------
Ultratech Stepper International, Inc. State of Delaware, USA
Ultratech Stepper UK Limited United Kingdom
Ultratech Stepper Foreign Sales
Corporation Barbados
Ultratech Kabushiki Kaisha Japan
Ultratech Capital, Inc. State of Delaware, USA
UltraBeam Lithography, Inc. State of Delaware, USA
Ultratech Stepper (Thailand) Co., LTD Thailand
22
<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> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 48,294
<SECURITIES> 121,838
<RECEIVABLES> 42,553
<ALLOWANCES> 1,706
<INVENTORY> 30,757
<CURRENT-ASSETS> 255,174
<PP&E> 30,460
<DEPRECIATION> 11,878
<TOTAL-ASSETS> 290,168
<CURRENT-LIABILITIES> 37,542
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 251,487
<TOTAL-LIABILITY-AND-EQUITY> 290,168
<SALES> 35,617
<TOTAL-REVENUES> 38,054
<CGS> 16,507
<TOTAL-COSTS> 18,075
<OTHER-EXPENSES> 6,793
<LOSS-PROVISION> 980
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 8,299
<INCOME-TAX> 2,572
<INCOME-CONTINUING> 5,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,727
<EPS-PRIMARY> 0.267
<EPS-DILUTED> 0.265
</TABLE>
