<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-22248
--------------------------
ULTRATECH STEPPER, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-3169580
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(State or other jurisdiction of incorporation (I.R.S. employer
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
--------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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 November 8, 1999
- -------------------------------------- --------------------------------------
common stock, $.001 par value 21,382,823
1
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ULTRATECH STEPPER, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998.................................................. 3
Condensed Consolidated Statements of Operations for the three
months ended September 30, 1999 and 1998 and the nine months ended
September 30, 1999 and 1998........................................ 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998.................................. 5
Notes to Condensed Consolidated Financial Statements .............. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......... 26
PART 2. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................. 27
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.......................... 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................... 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 27
ITEM 5. OTHER INFORMATION.................................................. 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................... 27
SIGNATURES..................................................................... 28
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
(in thousands) 1999 1998*
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash, cash equivalents and
short-term investments $ 143,919 $ 146,107
Accounts receivable, net 22,090 11,899
Inventories 27,766 36,750
Current portion of leases receivable 1,418 2,012
Prepaid expenses and other
current assets 1,981 5,088
- ------------------------------------------------------------------------------------------
Total current assets 197,174 201,856
Equipment and leasehold
improvements, net 21,275 23,319
Restricted long-term investments 5,436 5,510
Leases receivable, net 1,402 1,536
Intangible assets, net 7,167 8,438
Other assets 4,518 5,276
- ------------------------------------------------------------------------------------------
Total assets $ 236,972 $ 245,935
==========================================================================================
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,879 $ 1,881
Accounts payable 7,626 8,541
Other current liabilites 21,481 25,017
- ------------------------------------------------------------------------------------------
Total current liabilites 30,986 35,439
Other liabilities 303 345
Stockholders' equity:
Common stock 21 21
Additional paid-in capital 175,522 174,155
Accumulated other comprehensive income (loss), net (1,885) 779
Retained earnings 32,025 35,196
- ------------------------------------------------------------------------------------------
Total stockholders' equity 205,683 210,151
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 236,972 $ 245,935
==========================================================================================
</TABLE>
* The Balance Sheet as of December 31, 1998 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 OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------- --------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands, except per share amounts) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
Products $26,005 7,111 $72,076 $50,905
Services 4,408 5,248 13,400 11,631
- -----------------------------------------------------------------------------------------------
Total net sales 30,413 12,359 85,476 62,536
Cost of sales:
Cost of products sold 14,091 7,962 43,151 36,001
Cost of services 3,234 2,969 9,221 6,996
Cost of sales - write-down of inventory -- 15,231 -- 15,231
- -----------------------------------------------------------------------------------------------
Total cost of sales 17,325 26,162 52,372 58,228
- -----------------------------------------------------------------------------------------------
Gross profit (loss) 13,088 (13,803) 33,104 4,308
OPERATING EXPENSES:
Research, development, and
engineering 6,994 6,884 20,296 20,898
Amortization of goodwill 430 121 1,167 193
Selling, general, and
administrative 6,859 6,352 19,938 19,048
Acquired in-process research
and development -- -- -- 12,566
Special charges -- 5,775 -- 5,775
- -----------------------------------------------------------------------------------------------
Operating loss (1,195) (32,935) (8,297) (54,172)
Interest expense (59) (183) (300) (292)
Interest and other income, net 1,688 1,818 5,428 5,113
- -----------------------------------------------------------------------------------------------
Income (loss) before tax benefit 434 (31,300) (3,169) (49,351)
Tax benefit -- (3,134) -- (6,182)
- -----------------------------------------------------------------------------------------------
Net income (loss) 434 (28,166) (3,169) (43,169)
===============================================================================================
- -----------------------------------------------------------------------------------------------
Net income (loss) per share--basic $0.02 ($1.34) ($0.15) ($2.06)
Number of shares used in
per share computations--basic 21,344 21,014 21,244 20,914
Net income (loss) per share--diluted $0.02 ($1.34) ($0.15) ($2.06)
Number of shares used in
per share computations--diluted 21,740 21,014 21,244 20,914
===============================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ULTRATECH STEPPER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
Sept. 30, Sept. 30,
(in thousands) 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($3,169) ($43,169)
Charges to income not affecting cash 9,979 20,866
Net effect of changes in operating assets
and liabilities (2,457) 20,236
- ------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 4,353 (2,067)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,588) (9,480)
Net reduction in available-for-sale securities 1,256 36,941
Purchase of certain assets and liabilities of Integrated
Solutions, Inc., net of cash acquired - (19,429)
Segregation of restricted long-term investments (12) (91)
- ------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (4,344) 7,941
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayment) from issuance of notes payable (2) 1,485
Net proceeds from issuance of common stock
pursuant to employee stock plans 1,367 3,377
- ------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,365 4,862
Net increase in cash and cash equivalents 1,374 10,736
Cash and cash equivalents at beginning
of period 54,142 43,898
- ------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $55,516 $54,634
==========================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
ULTRATECH STEPPER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
(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 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.
RECLASSIFICATIONS - Certain condensed consolidated financial statement
amounts have been reclassified for consistent presentation.
The Company's third fiscal quarter in 1999 and 1998 ended on October 2, 1999
and October 3, 1998, respectively. For convenience of presentation, the
Company's financial statements have been shown as having ended on September
30, 1999 and September 30, 1998.
Operating results for the three-month and nine-month periods ended September
30, 1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999, or any future period.
(2) INVENTORIES
Inventories consist of the following:
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
(In thousands) (Unaudited)
Raw materials........................ $11,718 $19,677
Work-in-process...................... 13,967 8,799
Finished products.................... 2,081 8,274
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$27,766 $36,750
-------------- -------------
(3) OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
(In thousands) (Unaudited)
Salaries and benefits................ $ 3,071 $ 3,865
Warranty reserves.................... 4,011 4,207
Advance billings..................... 829 1,694
Income taxes payable................. 5,666 1,630
Sales returns and allowances......... 1,471 2,000
Reserve for losses on purchase
order commitments................... 2,468 5,849
other............................... 3,965 5,772
-------------- -------------
$21,481 $25,017
-------------- -------------
6
<PAGE>
(4) COMPUTATION OF NET INCOME (LOSS) PER SHARE
The following sets forth the computation of basic and diluted net income (loss)
per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- --------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(Unaudited, in thousands, except per share amounts) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 434 ($28,166) ($ 3,169) ($43,169)
Denominator:
Denominator for basic net income (loss) per share 21,344 21,014 21,244 20,914
Effect of dilutive employee stock options 396 - - -
-------- -------- -------- --------
Denominator for diluted net income (loss) per share 21,740 21,014 21,244 20,914
-------- -------- -------- --------
Net income (loss) per share - basic $ 0.02 ($ 1.34) ($ 0.15) ($ 2.06)
-------- -------- -------- --------
Net income (loss) per share - diluted $ 0.02 ($ 1.34) ($ 0.15) ($ 2.06)
-------- -------- -------- --------
</TABLE>
For the three-month and nine-month periods ended September 30, 1999, options
to purchase 2,329,000 shares and 3,544,000 shares of Common Stock at an
average exercise price of $20.01 and $16.23, respectively were excluded from
the computation of diluted net income (loss) per share as the effect would
have been antidilutive. This compares to the exclusion of 2,660,000 options
at an average exercise price of $15.89 for the three-month and nine-month
periods ended September 30, 1998. Options are anti-dilutive when the Company
has a net loss or when the exercise price of the stock option is greater than
the average market price of the Company's Common Stock.
(5) ACQUISITIONS
On June 11, 1998, the Company completed the acquisition of substantially all
of the assets and the assumption of certain liabilities of Integrated
Solutions, Inc. (ISI), a privately held manufacturer of i-line and deep
ultra-violet reduction lithography systems. The Company accounted for this
acquisition based on the purchase method of accounting and allocated the
purchase price based on fair values of assets acquired as of the acquisition
date. As a result of this acquisition, the Company recognized an initial
charge for acquired in-process research and development (IPR&D) in the second
quarter of 1998 of $12.6 million. Based on the final purchase price, which
consisted of net cash consideration of approximately $19.2 million, $2.6
million for transaction costs and $8.9 million for assumed liabilities, the
Company adjusted the charge for acquired in-process research and development
in the fourth quarter of 1998, to a net $5.1 million. Based on the final
purchase price allocation, the excess cost over fair value of net assets was
$9.1 million, currently being amortized on a straight-line basis over a
period of three to seven years. The results of the acquired operations were
included from the date of acquisition.
The Company's management made certain assessments with respect to the
determination of all identifiable assets resulting from, or to be used in,
research and development activities as of the acquisition date. Each of these
activities was evaluated, by both interviews and data analysis, to determine
its state of development and related fair value. The Company's review
indicated that the IPR&D had not reached a state of technological feasibility
and the underlying technology had no alternative future use to the Company in
other research and development projects or otherwise. In the case of IPR&D,
fair values of the corresponding technologies were determined using an income
approach which included a discounted future earnings methodology. Under this
methodology, the value of the in-process technology is comprised of the total
present value of the anticipated net cash flows attributable to the
in-process project, discounted to net present value, taking into account the
uncertainty surrounding the successful development of the purchased IPR&D.
7
<PAGE>
(6) COMPREHENSIVE LOSS
The Company adopted the Statement of Financial Accounting Standards No. 130
(FAS 130) "Reporting Comprehensive Income" in the first fiscal quarter of
1998. FAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. However it does not affect net
income or total stockholders' equity. The components of comprehensive loss
are as follows:
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
(Unaudited, in thousands) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss)...................................................... 434 (28,166) (3,169) (43,169)
Accumulated other comprehensive income (loss)..........................
Unrealized holding gain (loss) on a available-for-sale securities... (564) 695 (2,664) 763
Tax effect.......................................................... - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss ($130) ($27,471) ($5,833) ($42,406)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Accumulated other comprehensive income (loss) presented in the accompanying
condensed consolidated balance sheets consists entirely of accumulated
unrealized holding gain (loss) on available-for-sale securities. The
unrealized holding gain (loss) on available-for-sale securities is not
currently adjusted for income taxes as a result of the Company's operating
losses.
(7) COMPANY AND INDUSTRY INFORMATION
The Company adopted the Statement of Financial Accounting Standards No. 131
(FAS 131), "Disclosures about Segments of an Enterprise and Related
Information," on December 31, 1998. The new rule established standards for
public companies relating to the reporting of financial information about
operating segments. The Company operates in one business segment, which is
the manufacture and distribution of photolithography equipment to
manufacturers of integrated circuits, photomasks for the production of
integrated circuits, thin film heads and micromachined components.
8
<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,
thin film heads for disk drives and micromachined components. The Company
supplies step-and-repeat systems based on one-to-one and reduction optical
technologies 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 and for research and development applications.
Additionally, the Company manufactures and markets the UltraBeam "V" Model
electron beam pattern generation system based on vector-scan technology for
use in the development and production of photomasks for the integrated
circuits ("IC") industry.
On June 11, 1998, the Company completed the acquisition of substantially all
of the assets and the assumption of certain liabilities of Integrated
Solutions, Inc. ("ISI"), a privately held manufacturer of i-line and deep
ultra-violet reduction lithography systems (the "Acquisition") for
approximately $19.2 million in cash, $2.6 million in transaction costs and
the assumption of certain liabilities.
The following discussion should be read in conjunction with the Company's
1998 Annual Report on Form 10-K, which is 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. Such variability
depends upon a variety of factors, including substantial cyclicality in the
Company's target markets; various competitive factors including price-based
competition and competition from vendors employing other technologies; the
timing and terms of significant orders; lengthy sales cycles for the
Company's products; inventory and open purchase commitment reserve positions;
concentration of credit risk; the mix of products sold; lengthy development
cycles for new products; market acceptance of new products and enhanced
versions of the Company's products; delayed shipments to customers due to
customer configuration changes and other factors; acquisition activities
requiring the devotion of substantial management resources; lengthy
manufacturing cycles for the Company's products; the timing of new product
announcements and releases by the Company or its competitors; manufacturing
inefficiencies associated with the startup of new product introductions;
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 throughout the world, in particular the Asia/Pacific
region; natural disasters; regulatory changes; and business interruptions
related to the Company's occupation of its facilities. 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 inventory and open
purchase commitment reserve provisions; the rate of capacity utilization; the
mix of products sold; nonlinearity of shipments during the quarter; increased
competition in the Company's targeted markets; the introduction of new
products, which typically have higher manufacturing costs until manufacturing
efficiencies are realized and are typically discounted more than existing
products until the products gain market acceptance; the percentage of
international sales, which typically have lower gross margins than domestic
sales principally due to higher field service and support costs; and the
implementation of subcontracting arrangements.
The Company derives a substantial portion of its total net sales from sales
of a relatively small number of newly manufactured systems, which typically
range in price from $800,000 to $2.1 million for the Company's 1X steppers,
and $1.5 million to more than $4 million for the Company's reduction
steppers. Additionally, the Company's UltraBeam electron beam lithography
system is anticipated to sell in a
9
<PAGE>
range of $6.0 million to $9.0 million. As a result of these high sale prices,
the timing of recognition of revenue from a single transaction has had and will
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 will continue to be dependent 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 reschedulings, delays, deferrals or cancellations by customers,
additional customer configuration requirements, or to unexpected manufacturing
difficulties or delays in deliveries by suppliers due to their long production
lead times or otherwise, has caused and may continue to cause net sales in a
particular period to fall significantly below the Company's expectations, which
has and could continue to materially adversely affect the Company's operating
results for such period. In particular, the long manufacturing cycles of the
Company's Titan Wafer Stepper(R) and Saturn Wafer Stepper(R), and the Company's
newly acquired XLS advanced reduction stepper and 193nm small-field research and
development reduction stepper (both product lines were acquired through the
acquisition of certain assets and liabilities of ISI), 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. Additionally, the Company has very limited experience in the
manufacture of its UltraBeam electron beam pattern generation systems. The
UltraBeam systems are extremely complex and the product has significantly long
manufacturing and sales cycles, which greatly increase the likelihood of delays
in shipments from one quarter to the next. Due to the high list price for these
systems, shipment delays would materially adversely affect the Company's
financial condition and results of operations for a particular quarter if the
shipment were delayed to the following quarter. Additionally, the Company may
experience difficulties in assimilating the operations acquired in the
Acquisition. (See " Additional Risk Factors: Development of New Product Lines;
Expansion of Operations; Assimilation of Acquired Product Lines"). 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 and thin film head industries. In
addition, the need for continued expenditures for research and development,
capital equipment, ongoing training and worldwide customer service and support,
among other factors, will make it difficult for the Company to reduce its
significant operating expenses in a particular period if the Company fails to
achieve its net sales goals for the period. Additionally, the Company continues
to operate at less than optimal capacity utilization, resulting in manufacturing
inefficiencies that adversely affect the Company's gross margins and results of
operations. The Company presently anticipates that this trend will continue for
at least the next few quarters.
The Company presently expects that net sales for the three-month period ending
December 31, 1999 may be higher than net sales in the comparable period in 1998.
However, due to lack of order visibility, the Company can give no assurance that
it will be able to achieve or maintain its current sales levels. The Company
presently expects to recognize an operating loss for the quarter ending December
31, 1999, and may recognize a net loss. These losses may extend to future
quarters due, in part, to the significant level of planned research, development
and engineering spending, relative to anticipated sales; the current low rate of
capacity utilization; and the current backlog and order levels for the Company's
products.
10
<PAGE>
Certain of the statements contained in this report may be considered
forward-looking statements that may involve a number of risks and uncertainties.
In addition to the factors discussed herein, other factors that could
cause actual results to differ materially include the following: highly
competitive industry; difficulties in assimilating acquired operations;
international sales; development of new product lines; rapid technological
change; importance of timely product introductions; importance of the Company's
mix-and-match strategy; year 2000 compliance; future acquisitions; expansion of
the Company's product lines; dependence on key personnel; sole or limited
sources of supply; intellectual property matters; environmental regulations;
effects of certain anti-takeover provisions; volatility of stock price; and the
other risk factors listed from time to time in the Company's SEC reports.
Due to these and additional factors, certain statements, 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.
For the quarter ended September 30, 1999, net sales were $30.4 million, an
increase of 146% as compared with net sales of $12.4 million for the comparable
period in 1998. For the nine-month period ended September 30, 1999, net sales
were $85.5 million, an increase of 37% as compared with net sales of $62.5
million for the comparable period in 1998. Both the current quarter and
year-to-date increases, relative to the comparable periods in 1998, were
primarily attributed to improved conditions within the semiconductor industry,
which has resulted in higher capital spending levels, partially offset by lower
front-end equipment sales to the thin film head industry. Overall, unit
shipments for the three and nine-month periods ended September 30, 1999
increased 400% and 74%, respectively, from the comparable periods in 1998, and
the weighted-average selling price of all units sold also increased in the
respective 1999 periods, relative to the comparable periods in 1998. Service
revenue for the three-month period ended September 30, 1999 decreased 16%,
primarily as a result of lower contract revenues for reduction steppers. For the
nine-month period ended September 30, 1999, service revenues increased 15%,
primarily as a result of the Acquisition.
For the quarter ended September 30, 1999, international net sales were $15.0
million, as compared with $4.7 million for the comparable period in 1998. For
the nine months ended September 30, 1999, international net sales were $46.2
million, as compared with $26.9 million for the comparable period in 1998.
International net sales represented 49% and 54% of total net sales for the three
and nine-month periods ended September 30, 1999, respectively. This compares to
38% and 43% for the comparable periods in 1998. On a year-to-date basis, the
increase in international sales, both in terms of absolute dollars and as a
percentage of total net sales, was primarily attributed to sales to back-end
thin film head manufacturers in Asia, excluding Japan. However, the Company
continues to be cautious in its outlook for the Asian markets. The Company
believes that the severe currency and equity market fluctuations that have been
experienced recently by many of the Asian markets have resulted in the past, and
may continue to result, in delays, deferrals and cancellations of orders of the
Company's products, particularly in the short-term, which may have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's operations in foreign countries are not generally
subject to significant exchange rate fluctuations, principally because sales
contracts for the Company's systems are generally denominated in U.S. dollars.
In Japan, however, orders are typically denominated in Japanese yen. This may
subject the Company to a higher degree of risk from currency fluctuations. The
Company attempts to mitigate this exposure through the use of foreign exchange
contracts; however, there can be no assurance of the success of any such
efforts. International sales expose the Company to a number of additional risks,
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").
During 1997 and 1998, the Company experienced a significant level of shipment
delays and purchase order restructuring by several of its customers, and also
experienced purchase order cancellations. There
11
<PAGE>
can be no assurance that this trend will not continue in the future.
Accordingly, the Company can give no assurance that it will be able to achieve
or maintain its current or prior level of sales. Additionally, the thin film
head industry is presently in the process of transitioning from the production
of magneto-resistive heads to giant magneto-resistive heads. This transition
could disrupt the flow of orders for new equipment from the thin film head
industry until, among other factors, customer requirements are more fully
defined. The Company presently expects that net sales for the three-month period
ending December 31, 1999 may be higher than net sales in the comparable period
in 1998. However, due to lack of order visibility, the Company can give no
assurance that it will be able to achieve or maintain its current sales levels.
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 its UltraBeam electron beam lithography system, XLS advanced
reduction stepper (acquired from ISI), and its Titan, Saturn and 1000 series
families of wafer steppers, are of critical importance to its future financial
results. To the extent that these products do not achieve significant sales due
to difficulties involving manufacturing or engineering, the inability to reduce
the current long manufacturing cycles for such products, competition, excess
capacity in the semiconductor industry, or any other reason, the Company's
business, financial condition and results of operations would be materially
adversely affected.
GROSS PROFIT
The Company's gross profit as a percentage of net sales ("gross margin") was
43.0% for the quarter ended September 30, 1999, as compared with gross margin of
minus 112% for the comparable period in 1998. For the nine-month period ended
September 30, 1999, gross margin was 38.7% of net sales, as compared with 6.9%
for the comparable period in 1998. During the three-month period ended September
30, 1998, the Company recognized a $15.2 million special charge related
primarily to the write-down of inventories and provisions for estimated losses
associated with open purchase commitments. This charge was a direct result of
the Company's lower sales and bookings levels in the three-month period ended
September 30, 1998, combined with revised production demand forecasts for 1999.
Additionally, on a comparative basis, gross margins for the quarter and
nine-month periods ended September 30, 1999 were favorably impacted by higher
weighted-average selling prices, the mix of products sold and higher rates of
capacity utilization, partially offset by lower margins on service revenues.
The Company believes that gross margins for the fourth quarter of 1999
may be lower than gross margins achieved during the three-month period ended
September 30, 1999, primarily as a result of anticipated product sales mix.
Intense competition in the markets the Company serves, and continued low
levels of capacity utilization may make it difficult for the Company to
increase or maintain its current gross margin percentages in the near term.
In 1998, the Company added capacity for the anticipated volume production of
several new products that are outside the Company's core reflective and
refractive optical technologies. In addition to the purchase of significant
levels of plant and equipment for these new products, the commencement of
production of the UltraBeam electron beam lithography system has resulted and
will continue to result in the purchase and retention of significant levels
of inventory to support manufacturing requirements, hiring of additional
production and manufacturing support personnel and the incurrence of other
related manufacturing overhead costs. (See "Additional Risk Factors:
Development of New Product Lines; Expansion of Operations; Assimilation of
Acquired Product Lines"). The purchase of additional inventories will
continue to result in a significantly higher risk of obsolescence, which has
required and may continue to require additional inventory write-offs, which
negatively impact gross margins. Additionally, new products generally have
lower gross margins until production and after-sales efficiencies can be
achieved. Should these new products, including products acquired in the
Acquisition, fail to develop or generate significant market demand, the
Company's business, financial condition and results of operations would be
materially adversely affected.
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RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
The Company's research, development and engineering expenses were $7.0 million
for the quarter ended September 30, 1999, as compared with $6.9 million for the
comparable period in 1998. For the nine months ended September 30, 1999,
research, development, and engineering expenses were $20.3 million, as compared
with $20.9 million for the comparable period in 1998. The year-to-date decline,
as compared to the comparable period in 1998, was primarily related to cost
containment measures implemented during the second half of 1998, partially
offset by higher spending on the Company's newly acquired reduction stepper
family of products.
The Company continues to invest significant resources in the development and
enhancement of its UltraBeam lithography system and in the development of its
Verdant rapid thermal annealing/laser doping systems and technologies,
together with continuing expenditures for its 1X and reduction optical
products and technologies. The Company presently expects the absolute dollar
amount of research, development and engineering expenses for the quarter
ending December 31, 1999 will increase significantly, relative to the
comparable period a year ago. (See "Additional Risk Factors: Development of
New Product Lines; Expansion of Operations; Assimilation of Acquired Product
Lines").
AMORTIZATION OF GOODWILL
Amortization of goodwill was $430,000 for the quarter ended September 30, 1999,
as compared with $121,000 for the comparable period in 1998. On a year-to-date
basis, amortization of goodwill was $1,167,000 for the nine-month period ended
September 30, 1999, as compared with $193,000 for the comparable period in 1998.
The additional amortization expense was directly related to intangible assets
resulting from the Acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $6.9 million for the quarter
ended September 30, 1999, as compared with $6.4 million for the comparable
period in 1998. As a percentage of net sales, selling, general and
administrative expenses declined to 22.6% for the quarter ended September 30,
1999, as compared to 51.4% of net sales for the comparable period in 1998. For
the nine months ended September 30, 1999, selling, general, and administrative
expenses were $19.9 million, as compared with $19.0 million for the comparable
period in 1998. As a percentage of net sales, selling, general, and
administrative expenses declined to 23.3% for the nine months ended September
30, 1999, as compared with 30.5% for the comparable period in 1998. Both the
current quarter and year-to-date increases in absolute dollars, as compared with
the comparable periods in 1998, were primarily due to higher sales, service and
support expenses typically associated with an increase in sales; and expenses
associated with the reduction stepper operations acquired in June of 1998. The
Company presently anticipates that selling, general and administrative expenses
for the three-month period ending December 31, 1999 will increase significantly,
relative to pre-charge levels for the comparable period in 1998, due primarily
to higher anticipated selling and support costs typically associated with an
increase in sales.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
During the quarter ended June 30, 1998, the Company completed the acquisition of
substantially all of the assets and the assumption of certain liabilities of
ISI, a privately held manufacturer of i-line and deep ultra-violet (DUV)
reduction lithography systems. As a result of this Acquisition, the Company
recognized a charge in the quarter ended June 30, 1998 for acquired in-process
research and development expense of $12.6 million, or $0.60 per share, net of
tax benefits.
SPECIAL CHARGES
Due primarily to the downturn in the thin film head and semiconductor
industries, the Company realized significantly lower sales and bookings levels
during the quarter ended September 30, 1998. As a result, the Company
significantly reduced its production demand forecast for 1999. This action, in
turn, resulted in the Company implementing various cost containment measures
during the quarter ended September 30, 1998 and recognizing certain reserves
related to impairment of the value of its assets. In
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addition to write-downs for excess inventories and provisions for estimated
losses on open purchase commitments, the Company recognized special charges in
the amount of $5.8 million related to collection uncertainty of a lease
receivable, the Company's previously announced reduction in workforce, the
consolidation of certain facilities and certain other reserves.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, which consists primarily of interest income, was
$1.7 million for the quarter ended September 30, 1999, as compared with $1.8
million for the comparable period in 1998. For the nine months ended September
30, 1999, interest and other income, net, was $5.4 million, as compared with
$5.1 million for the comparable period in 1998.
TAX BENEFIT
The Company did not recognize an income tax benefit on its pre-tax loss for the
nine-month period ended September 30, 1999, due to uncertainty related to the
utilization of its net operating loss carry-forward. During the three and
nine-month periods ended September 30, 1998, the Company recognized tax benefits
of $3.1 million, and $6.2 million, respectively, primarily as a result of the
carry-back of certain tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $4.4 million for the nine
months ended September 30, 1999, as compared with cash used in operating
activities of $2.1 million during the comparable period in 1998. Positive cash
flows from operating activities during the nine-month period ended September 30,
1999, were primarily attributed to non-cash charges to income of $10.0 million;
a reduction in inventories of $9.0 million; and a tax refund of $7.1 million;
partially offset by an increase in accounts receivable of $10.2 million; a
reduction in current liabilities, excluding income taxes, of $8.5 million; and
the net loss for the period of $3.2 million.
The increase in accounts receivable, as compared with December 31, 1998, was
primarily attributed to a combination of higher sales levels and lower levels
of accounts receivable sales to third parties, partially offset by improved
collections. The Company sells certain of its accounts and leases receivable
in order to mitigate its credit risk and to enhance cash flow. Sales of
accounts receivable typically precede final customer acceptance of the
system. Among other terms and conditions, the agreements include provisions
that require the Company to repurchase receivables if certain conditions are
present including, but not limited to, disputes with the customer regarding
suitability of the product, and from time-to-time the Company has repurchased
certain accounts and leases receivable in accordance with these terms. At
September 30, 1999, $4.8 million of sold accounts receivable and
approximately $9 million of sold leases receivable were outstanding to
third-party financial institutions. The Company may continue to attempt to
mitigate the impact of extended payment terms and non-linear shipments by
selling a substantial portion of its accounts receivable in the future. There
can be no assurance that this financing will be available on reasonable
terms, or at all.
The Company believes that because of the relatively long manufacturing cycle of
certain of its systems, particularly newer products, the Company's inventories
will continue to represent a significant portion of working capital.
Additionally, as of September 30, 1999, the Company had approximately $4.7
million of net inventories and $6.7 million of net long-lived assets related to
several new product lines. As such, these assets may be subject to a greater
risk of impairment, which could materially adversely affect the Company's
operating results and financial condition.
During the nine months ended September 30, 1999, the Company used $4.3 million
of cash in its investing activities, as capital expenditures of $5.6 million
were partially offset by net cash generated by investment activities of $1.3
million.
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Cash provided by financing activities was $1.4 million during the nine-month
period ended September 30, 1999, primarily a result of the issuance of common
stock pursuant to employee stock and option plans.
At September 30, 1999, the Company had working capital of $166.2 million. The
Company's principal source of liquidity at September 30, 1999 consisted of
$143.9 million in cash, cash equivalents and short-term investments.
The development and manufacture of new lithography systems and enhancements are
highly capital-intensive. In order to be competitive, the Company must continue
to make significant expenditures for capital equipment, sales, service, training
and support capabilities; investments in systems, procedures and controls and
expansion of operations and research and development, among many other items.
The Company expects that anticipated cash flows from operations and its cash,
cash equivalents and short-term investments 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 additional acquisitions of complementary product lines,
technologies or businesses. Future acquisitions by the Company may result in
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities and amortization expenses related to goodwill and other
intangible assets, which could materially adversely affect any Company
profitability. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, technologies and products of
the acquired companies; the diversion of management's attention from other
business concerns; risks of entering markets in which the Company has no or
limited direct experience; and the potential loss of key employees of the
acquired company. In the event the Company acquires product lines, technologies
or businesses which do not complement the Company's business, or which otherwise
do not enhance the Company's sales or operating results, the Company may incur
substantial write-offs and higher recurring operating costs, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In the event that any such acquisition does occur, there
can be no assurance as to the effect thereof on the Company's business or
operating results. Additionally, the Company may experience renewed interest in
its equipment leasing program and this may result in the further formation of
significant long-term receivables, which, in turn, would require the use of
substantial amounts of working capital. The formation of significant long-term
receivables and the granting of extended customer payment terms exposes the
Company to additional risks, including potentially higher customer concentration
and higher potential operating expenses relating to customer defaults. During
the three-month periods ended September 30, 1998 and December 31, 1998, the
Company took significant reserves against certain leases receivable, which are
currently non-performing. If additional reserves on lease receivables were
required in the future, the Company's business, financial condition and results
of operations could be materially adversely affected. 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.
YEAR 2000 READINESS DISCLOSURE:
Many currently installed computer systems and software products are coded to
accept only two digit entries in the attached date code field. Beginning in the
year 2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than six months, computer systems and/or software used by many companies may
need to be upgraded to comply with such "Year 2000" (Y2K) requirements. The
Company has provided an assessment, below, of the state of readiness of its
information and non-information technology systems, together with a summary of
the status of related testing, remediation and implementation. The Company
presently estimates that the total cost for the entire Y2K project will
approximate $1.0 million and that the remaining project cost is less than
$200,000. The Company plans to fund these remaining costs from cash generated by
operations or from cash and short-term investments on hand. However additional
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requirements may be identified and unscheduled costs may be incurred as the
project proceeds. Accordingly, there can be no assurance that the Company, or
its vendors, will be able to timely and cost-effectively update its products to
avoid Y2K date errors, and this may result in material costs to the Company,
including costs associated with detecting and fixing such errors and costs
incurred in litigation due to any such errors.
Many commentators have predicted that a significant amount of litigation will
arise out of year 2000 compliance issues and the Company is aware of several
such suits that are currently pending. Because of the unprecedented nature of
such litigation and the highly technical nature of the Company's products, there
can be no assurance that the Company will not be materially adversely affected
by claims related to Y2K compliance. Although the Company presently believes
that it has made required changes to the software in its products, it believes
that the most likely worst case scenario is from unknown impacts to its
customers' manufacturing processes, which could potentially adversely impact
product yields and throughput. In addition to possible litigation, the Company
could incur substantially higher product returns and warranty related expenses,
either of which could materially adversely affect the Company's business,
financial condition and results of operations. Additionally, the Company's
customers may be required to devote substantial financial resources to their own
internal Y2K audit and compliance. This may result in fewer financial resources
available to purchase the Company's products, fewer system sales by the Company,
and could have a material adverse affect on the Company's business, financial
condition and results of operations. The Company believes that its own Y2K
efforts have resulted, and will continue to result in, a diversion of management
and financial resources, which has further resulted in the delay or deferral of
various information technology and engineering projects.
INFORMATION TECHNOLOGY SYSTEMS:
The Company has commenced, for all of its information systems, a Y2K conversion
project to address necessary code changes, testing, and implementation and
contingency plans. The Company has completed testing and verification of its
primary business/information system and has identified the significant potential
risks associated with Y2K. The Company believes it has remedied these potential
errors and has completed the related compliance testing. The Company has also
provided for contingency plans to further minimize risks to its business system
associated with Y2K.
Although the Company is not aware of any remaining material operational
issues or costs associated with preparing its internal systems for Y2K, there
can be no assurance that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by
undetected errors or defects in technology used in its internal operating
systems, which are composed primarily of third party software and hardware
technology. Additionally, although the Company has made inquiries of its key
information technology vendors, and is in the process of collecting and
reviewing survey responses, the Company believes it will not be able to
obtain adequate assurances from all its key vendors. Even where assurances
are received from third parties, there remains a risk that failure of systems
and products of other companies on which the Company relies could have a
material adverse affect on the Company. Accordingly the Company continues to
assess the degree of risk to the Company and is preparing contingency plans.
The Company is presently working to minimize risk from vendors through
understanding and implementing necessary remediation and/or contingency
plans. There can be no assurance that such contingency plans will be adequate
and that the Company will not incur significant additional costs or business
interruptions in connection with such transition, either of which could have
a material adverse affect on the Company's business, financial condition and
results of operations.
NON-INFORMATION TECHNOLOGY SYSTEMS:
The Company has commenced, for all of its key vendors, physical plant and
software contained in the products it sells, a Y2K conversion project to address
necessary remediation, testing, implementation and contingency plans. The
Company believes it has identified and implemented the required changes for its
products' hardware and software components to attain Y2K readiness and is
currently working with customers to assist in understanding these requirements.
The Company has obligations to provide
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these modifications to customers with systems under warranty or currently
under service contract. The Company has commenced the process of installing
and testing these upgrades at customer sites and presently expects this
process to be completed on a timely basis. In addressing customer inquiries
regarding the Company's Y2K readiness and in making inquiries of the
Company's vendors, the Company has adopted the Sematech process for
investigating and responding to the Y2K subject. This process includes a
survey form, a readiness matrix and a testing scenario.
Although the Company has made inquiries of its key physical plant and
materials vendors in order to assess their state of readiness, and is in the
process of collecting and reviewing survey responses, the Company believes it
will not be able to obtain adequate assurances from all its key vendors. Even
where assurances are received from third parties, there remains a risk that
failure of systems and products of other companies on which the Company
relies could have a material adverse affect on the Company. Accordingly the
Company continues to assess the degree of risk to the Company and is
preparing contingency plans. These contingency plans may result, among other
things, in the development of alternative suppliers and the purchase of
additional inventories. The Company is presently working to minimize risk
from vendors through understanding and implementing necessary remediation
and/or contingency plans. There can be no assurance that such contingency
plans will be adequate and that the Company will not incur significant
additional costs or business interruptions in connection with such
transition, either of which could have a material adverse affect on the
Company's business, financial condition and results of operations.
The foregoing statements are based upon management's best estimates at the
present time, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors. There can be no guarantee that
these estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all
relevant computer codes, the nature and amount of programming required to
upgrade or replace each of the affected programs, the rate and magnitude of
related labor and consulting costs and the success of the Company's external
customers and vendors in addressing the Y2K issue. The Company's evaluation
is ongoing and it expects that new and different information will become
available to it as that evaluation continues. Consequently, there is no
guarantee that all material elements will be Y2K ready in time.
ADOPTION OF THE EURO
The Company does not presently expect that introduction and use of the Euro
will materially affect the Company's foreign exchange and hedging activities
or the Company's use of derivative instruments. Management does not expect
that the introduction of the Euro will result in any material increase in
costs to the Company and all costs, if any, associated with the introduction
of the Euro will be expensed to operations as incurred. While the Company
will continue to evaluate the impact of the Euro introduction over time,
based on currently available information, management does not believe that
the introduction of the Euro currency will have a material adverse impact on
the Company's financial condition or overall trends in results of operations.
ADDITIONAL RISK FACTORS
CYCLICALITY OF SEMICONDUCTOR AND THIN FILM HEAD INDUSTRIES The Company's
business depends in significant part upon capital expenditures by
manufacturers of semiconductors, photomasks 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. 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. Additionally, in 1997 and 1998 the Company experienced
cancellation of purchase orders, shipment delays and purchase order
restructuring by several of its
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customers and there can be no assurance that this trend will not continue in the
future. Accordingly, the Company can give no assurance that it will be able to
achieve or maintain its current level of sales.
The Company attempts to mitigate the risk of cyclicality by participating in
both the semiconductor and thin film head markets, as well as diversifying into
new markets such as photolithography for micromachining and the development of
photomasks. Despite such efforts, when one or more of such markets experiences a
downturn or slowdown, the Company's net sales and operating results would be
materially adversely affected. The Company presently expects that net sales for
the three-month period ending December 31, 1999 may be higher than net sales in
the comparable period in 1998. However, due to lack of order visibility, the
Company can give no assurance that it will be able to achieve or maintain its
current sales levels. The Company presently expects to recognize an operating
loss for the quarter ending December 31, 1999, and may recognize a net loss.
These losses may extend to future quarters due, in part, to the significant
level of planned research, development and engineering spending relative to
anticipated sales; the current low rate of capacity utilization; and the current
backlog and order levels for the Company's products.
During 1998 and 1997, approximately 50% of the Company's net sales were
derived from sales to thin film head manufacturers and micromachining
customers. For the first nine months of 1999, sales to thin film head
manufacturers and micromachining customers accounted for approximately 35% of
total net sales. The thin film head industry is highly cyclical, which has
historically resulted in recurring periods of oversupply. The Company's
business and operating results would be materially adversely affected by a
further downturn or slowdown in the thin film head market or by loss of
market share.
HIGHLY COMPETITIVE INDUSTRY The capital equipment industry in which the
Company operates 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 stepper manufacturers, such as Nikon Inc.
("Nikon"), Canon Inc. ("Canon"), ASM Lithography, Ltd. ("ASML") and Silicon
Valley Group ("SVG"), Inc.'s Micralign products, 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 Canon, Nikon and ASML offer reduction steppers
for thin film head fabrication. Additionally, the XLS reduction stepper
product line acquired by the Company from ISI competes directly with advanced
reduction steppers offered by Canon, Nikon and ASML. The Company believes
that future thin film head production will involve manufacturing steps that
require critical feature sizes. Although the reduction stepper product lines
acquired from ISI address critical feature sizes, additional development of
these product lines may be necessary to fully address the unique requirements
of thin film head manufacturing. ASML has recently announced its intent to
compete in the low-cost lithography market. In addition, ASML and Nikon have
each introduced an i-line step-and-scan system as a lower cost alternative to
the deep ultra-violet ("DUV") step-and-scan system for use on the less
critical layers. These systems are expected to compete with widefield
steppers, such as the Saturn and Titan families, for advanced mix-and-match
applications. The Company's UltraBeam "V" model electron beam pattern
generation system competes against systems produced by ETEC Systems, Inc.;
Toshiba Corporation; Hitachi, Ltd.; Leica Camera AG; and JEOL, Ltd. ("Japan
Electron Optical Laboratory"). In addition, 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, thereby resulting in a
combined competitive threat with significantly enhanced financial, technical
and other resources. The Company expects its competitors to continue to
improve the performance of their current products. These competitors have
stated that they will introduce new products with improved price and
performance
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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, competing 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 may also face
competition from vendors employing other technologies. In addition, increased
competitive pressure has led to intensified price-based competition,
resulting in lower prices and margins. Should these competitive trends
continue, the Company's business, financial condition and operating results
would continue to be materially adversely affected. There can be no assurance
that the Company will be able to compete successfully in the future.
Foreign IC manufacturers have a significant share of the worldwide market for
certain types of ICs for which the Company's systems are used. However, 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 equipment market
and there can be no assurance that the Company will be able to achieve
significant sales to Japanese manufacturers in the future. (See
"International Sales; Japanese Market").
DEVELOPMENT OF NEW PRODUCT LINES; EXPANSION OF OPERATIONS; ASSIMILATION OF
ACQUIRED PRODUCT LINES Currently, the Company is devoting significant
resources to the development, introduction and commercialization of new
products and technologies that are outside the Company's historical core
businesses. During the remainder of 1999, the Company will continue to
develop these products and will continue to incur significant operating
expenses in the areas of research, development and engineering and general
and administrative costs in order to further develop and support these new
products. Additionally, gross profit margins and inventory levels may be
further adversely impacted in the future by costs associated with the initial
production of these new product lines. These costs include, but are not
limited to, additional manufacturing overhead, additional inventory
write-offs, costs associated with managing multiple sites and the
establishment of additional 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 new 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, costs and expenses can be
reduced.
On June 11, 1998, the Company completed the acquisition of substantially all
of the assets and the assumption of certain liabilities of ISI, a privately
held manufacturer of i-line and DUV reduction lithography systems (the
"Acquisition"). Acquisitions involve numerous risks, including difficulties
in the assimilation of the operations, technologies and products of the
acquired companies; diversion of management's attention from other business
concerns; risks of entering markets in which the Company has no or limited
direct experience; and the potential loss of key employees of the acquired
company. In the event the Company acquires product lines, technologies or
businesses which do not complement the Company's business, or which otherwise
do not enhance the Company's sales or operating results, the Company may
incur substantial write-offs and higher recurring operating costs, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Accordingly, there can be no assurance
as to the effect of the Acquisition on the Company's business, financial
condition or operating results. In conjunction with the Acquisition,
significant intangible assets were acquired. The creation of additional
intangible assets has the impact of increasing amortization expense, which
may continue to have a material adverse affect on the Company's results of
operations should significant sales for these newly acquired product lines
not materialize.
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The Company has purchased significant levels of inventory and plant and
equipment for the anticipated volume production of the UltraBeam "V" Model
electron beam lithography system. To date, the Company has shipped one UltraBeam
system to a customer. The Company believes that any future success of this
product line is dependent, in large part, on the Company's ability to further
develop this system and the customers' ability to integrate this highly
technical product into their existing processes.
In December 1997, the Company terminated its distributor relationship with
Innotech, its Japan distributor. The Company expanded its operations in Japan
during 1998, by establishing a direct sales force, leasing additional
facilities and by making significant capital expenditures for sales and
applications support. Should additional gross profit on sales to the Japan
marketplace not be sufficient to fund these expanded operations, the
Company's business, financial condition and results of operations would be
materially adversely affected.
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 involves 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.
CUSTOMER CONCENTRATION Historically, the Company has sold a substantial
portion of its systems to a limited number of customers. Sales to one
customer accounted for approximately 25% and 14% of the Company's net sales
in 1998 and 1997, respectively. Additionally, in 1997, a second customer
accounted for approximately 10% of the Company's net sales. For the nine
months ended September 30, 1999, sales to two customers accounted for
approximately 12% (each) of the Company's total 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. (See
"Cyclicality of Semiconductor and Thin Film Head Industries").
In addition to the business risks associated with the dependence on these
major customers, these significant customer concentrations have in the past
resulted, and currently result in significant concentrations of accounts
receivable and leases receivable. The formation of significant and
concentrated receivables exposes the Company to additional risks, including
the risk of default by one or more customers representing a significant
portion of the Company's total receivables. During the three month periods
ended September 30 and December 31, 1998, the Company recorded significant
reserves against its trade accounts receivable and leases receivable. If
additional lease and accounts receivable reserves were to be required, the
Company's business, financial condition and results of operations could be
materially adversely affected.
IMPORTANCE OF MIX-AND-MATCH STRATEGY A principal element of the Company's
strategy has been to sell its 1X lithography systems to advanced
semiconductor fabrication facilities for mix-and-match applications. This
strategy depends, in significant part, upon the recognition by semiconductor
20
<PAGE>
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 i-line and DUV reduction steppers and its competitors' reduction
steppers and step-and-scan systems, 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 may eliminate the need for the Company's steppers or make it difficult
for the Company'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. In 1995, the Company commenced
shipment and volume production of the Titan Wafer Stepper and commenced
shipment of the Saturn Wafer Stepper. Additionally, during 1997 the Company
added multiple versions of its Titan and Saturn wafer steppers in order to
more fully address the needs of the mix-and-match market. 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. The Company believes that existing
capital budgets of semiconductor manufacturers are currently focusing
primarily on technology buys, and not capacity additions. This places the
Company at a disadvantage, since its one-to-one optical stepper product line
address non-critical geometries. 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 and i-line systems from Nikon, Canon, and ASML, 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 will result in higher inventory
levels and operating expenses. Failure to achieve or maintain significant
sales of these steppers has led and could continue to lead, among other
things, to an increase in inventory obsolescence and an increase in expenses
without corresponding sales, both of which have and could continue to have a
material adverse affect on the Company's business, financial condition and
results of operations.
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
21
<PAGE>
implementation of manufacturing and assembly processes, product performance
in the field and effective sales and marketing. 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. The Company
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. In
particular, the Company has very little experience in manufacturing its
UltraBeam electron beam lithography system. Due to the significant
manufacturing cycle time required for the production of this system, its
lengthy sales cycle, lack of adequate documentation for the product and the
complex nature of this system, delays in production and/or shipment have
resulted and will continue to result from time to time. Due to the high
selling price of this system, delays in shipments from one quarter to the
next would have a material adverse effect on the results of operations for
that quarter. Additionally, the Company is in the process of assimilating the
operations acquired in the Acquisition and developing related marketing and
product development plans. This has resulted and could continue to result in
a delay of any eventual volume production of the products acquired. (See
"Development of New Product Lines; Expansion of Operations; Assimilation of
Acquired Product Lines").
There can be no assurance that the Company will not encounter additional
technical, manufacturing or other difficulties that could further 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 its inability to manufacture and ship these systems or enhancements
and related software tools 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 products 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.
INTERNATIONAL SALES; JAPANESE MARKET International sales accounted for
approximately 47% and 33% of total net sales for the years 1998 and 1997,
respectively. During the nine-month period ended September 30, 1999,
international sales accounted for approximately 54% of total net sales, as
compared to 43% for the comparable period in 1998. 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 significant portion of total net sales. As a
result, a significant portion of the Company's sales will continue to be
subject to certain risks, including unexpected changes in regulatory
requirements, difficulty in satisfying existing regulatory requirements,
exchange rate fluctuations, 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. Although the
Company generally transacts its international sales in U.S. dollars,
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 and may
22
<PAGE>
further impact the purchasing ability of its international customers. In
Japan, however, the Company's orders are typically denominated in Japanese
yen. This may subject the Company to a higher degree of risk from currency
fluctuations. The Company attempts to mitigate this exposure through the use
of foreign exchange contracts. The Company is also subject to the risks
associated with the imposition of legislation and regulations relating to the
import or export of semiconductors and magnetic recording head products. The
Company cannot predict whether quotas, duties, taxes or other charges or
restrictions will be implemented by the United States, Japan or any other
country upon the importation or exportation of the Company's products in the
future. There can be no assurance that any of these factors or the adoption
of restrictive policies will not have a material adverse effect on the
Company's business, financial condition and results of operations.
Additionally, the Company believes that the severe currency and equity market
fluctuations that have been experienced recently by many of the Asian markets
have resulted in the past, and may continue to result, in delays, deferrals
and cancellations of orders of the Company's products, particularly in the
short-term, which will 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,
and currently dominate the Japanese stepper market. 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. This agreement
was terminated in December 1997, and the Company expanded its operations in
Japan during 1998 by establishing a direct sales force and creating sales and
applications support organizations. (See "Additional Risk Factors:
Development of New Product Lines; Expansion of Operations; Assimilation of
Acquired Product Lines").
INTELLECTUAL PROPERTY RIGHTS Although the Company attempts to protect its
intellectual property rights through patents, copyrights, trade secrets and
other measures, it believes that any success will depend more upon the
innovation, technological expertise and marketing abilities of its employees.
Nevertheless, the Company has a policy of seeking patents when appropriate on
inventions resulting from its ongoing research and development and
manufacturing activities. The Company owns various United States and foreign
patents, which expire on dates ranging from July 2000 to December 2017, and
has various United States and foreign patent applications pending. The
Company also has various registered trademarks and copyright registrations
covering mainly software programs used in the operation of its stepper
systems. The Company also relies upon trade secret protection for its
confidential and proprietary information. There can be no assurance that the
Company will be able to protect its technology adequately or that competitors
will not be able to develop similar technology independently. There can be no
assurance that any of the Company's pending patent applications will be
issued or that foreign intellectual property laws will protect the Company's
intellectual property rights. In addition, litigation may be necessary to
enforce the Company's patents, copyrights or other intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of
infringement. Such litigation could result in substantial costs and diversion
of resources and could have a material adverse effect on the Company's
business, financial condition and results of operations, regardless of the
outcome of the litigation. There can be no assurance that any patent issued
to the Company will not be challenged, invalidated or circumvented or that
the rights granted thereunder will provide competitive advantages to the
Company. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate the Company's products or,
if patents are issued to the Company, design around the patents issued to the
Company.
23
<PAGE>
Although there are no pending lawsuits against the Company regarding
infringement claims with respect to any existing patent or any other
intellectual property right, the Company has from time to time been notified
of claims that it may be infringing intellectual property rights possessed by
third parties. Certain of the Company's customers have received notices of
infringement from Technivision Corporation and the Lemelson Medical,
Education and Research Foundation, Limited Partnership alleging that the
manufacture of certain semiconductor products and/or the equipment used to
manufacture those semiconductor products infringes certain issued patents.
The Company has been notified by certain of such customers that the Company
may be obligated to defend or settle claims that the Company's products
infringe any of such patents and, in the event it is subsequently determined
that the customer infringes any of such patents, they intend to seek
reimbursement from the Company for damages and other expenses resulting from
this matter.
Although there are no pending lawsuits against the Company regarding
infringement claims with respect to any existing patents or any other
intellectual property rights, there can be no assurance that infringement
claims by third parties or claims for indemnification resulting from
infringement claims in the future will not be asserted, or that such
assertions, if proven to be true, will not materially adversely affect the
Company's business, financial condition and results of operations, regardless
of the outcome of any litigation. With respect to any such future claims, the
Company may seek to obtain a license under the third party's intellectual
property rights. There can be no assurance, however, that a license will be
available on reasonable terms or at all. The Company could decide, in the
alternative, to resort to litigation to challenge such claims. Such
challenges could be extremely expensive and time consuming and could
materially adversely affect the Company's business, financial condition and
results of operations, regardless of the outcome of any litigation.
SOLE OR LIMITED SOURCES OF SUPPLY The Company procures certain of its
critical systems' components, subassemblies and services from a single
supplier or a limited group of suppliers in order to ensure overall quality
and timeliness of delivery. To date, the Company has been able to obtain
adequate services and supplies of components and subassemblies for its
systems in a timely manner. However, disruption or termination of certain of
these sources, due to year 2000 compliance issues or other factors, could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company is relying increasingly on outside
vendors to manufacture certain components of its products. The Company's
reliance on sole or a limited group of suppliers and the Company's increasing
reliance on subcontractors involve several risks, including a potential
inability to obtain an adequate supply of required components due to the
suppliers' failure or inability to provide such components in a timely
manner, or at all, and reduced control over pricing and timely delivery of
components. Although the timeliness, yield and quality of deliveries to date
from the Company's subcontractors have been acceptable, manufacture of
certain of these components and subassemblies is an extremely complex
process, and long lead-times are required. Any inability to obtain adequate
deliveries or any other circumstance that would require the Company to seek
alternative sources of supply or to manufacture such components internally
could delay the Company's ability to ship its products, which could damage
relationships with current and prospective customers and therefore would have
a material adverse effect on the Company's business, financial condition and
results of operations. (See "Year 2000 Readiness Disclosure").
DEPENDENCE ON KEY PERSONNEL The Company's future operating results depend, in
significant part, upon the continued contributions of 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 key personnel could
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, and technical, sales and
support personnel for its operations. There are 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
24
<PAGE>
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.
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 or regional economies, 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 may be unrelated to the Company's performance.
25
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A, "Quantitative and Qualitative Disclosures
About Market Risk" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and to the subheading "Derivative Instruments and
Hedging" in Item 8, "Financial Statements and Supplementary Data", under the
heading "Notes to Consolidated Financial Statement" of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
26
<PAGE>
PART 2: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION. None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the
three months ended September 30, 1999.
27
<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: November 12, 1999 By: /s/Bruce R. Wright
---------------------------- --------------------------------------
Bruce R. Wright
Senior Vice President, Finance and
Chief Financial Officer (Duly
Authorized Officer and Principal
Financial and Accounting Officer)
28
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 55,516
<SECURITIES> 88,403
<RECEIVABLES> 24,326
<ALLOWANCES> 2,236
<INVENTORY> 27,766
<CURRENT-ASSETS> 197,174
<PP&E> 49,906
<DEPRECIATION> 28,631
<TOTAL-ASSETS> 236,972
<CURRENT-LIABILITIES> 30,986
<BONDS> 0
0
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<COMMON> 21
<OTHER-SE> 205,662
<TOTAL-LIABILITY-AND-EQUITY> 236,972
<SALES> 72,076
<TOTAL-REVENUES> 85,476
<CGS> 43,151
<TOTAL-COSTS> 52,372
<OTHER-EXPENSES> 20,296
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<INTEREST-EXPENSE> 300
<INCOME-PRETAX> (3,169)
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