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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1997 0-22248
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ULTRATECH STEPPER, INC.
(REGISTRANT)
DELAWARE 94-3169580
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation)
3050 ZANKER ROAD 95134
SAN JOSE, CALIFORNIA (Zip Code)
(Address of principal
executive offices)
REGISTRANT'S TELEPHONE NUMBER: (408) 321-8835
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK; SERIES A PREFERRED STOCK
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing price of the Common Stock on March 18, 1998, as
reported on the Nasdaq National Market was approximately $344,000,000. Shares of
Common Stock held by each officer and director and by each person who owns 5% or
more of the outstanding Common Stock have been excluded from this computation in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of March 18, 1998, the Registrant had 20,857,848 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1997 are incorporated into Part II of this Annual
Report on Form 10-K.
2. Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on June 3, 1998 are incorporated by reference into
Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K may contain, in addition to historical
information, certain forward-looking statements that involve significant risks
and uncertainties. The Company's actual results could differ materially from the
information set forth in any such forward-looking statements. Factors that could
cause or contribute to such differences include those discussed below under
"Additional Risk Factors", as well as those discussed elsewhere in this Annual
Report on Form 10-K.
THE COMPANY
Ultratech Stepper, Inc. ("Ultratech" or the "Company") develops,
manufactures and markets photolithography equipment designed to reduce the cost
of ownership for manufacturers of integrated circuits, thin film magnetic
recording devices and micromachined components. The Company supplies step-and-
repeat systems based on one-to-one ("1X") optical technology to customers
located throughout the United States, Europe, Asia/Pacific and Japan. Ultratech
believes that its steppers offer cost and certain performance advantages, as
compared with competitors' reduction steppers, to semiconductor device
manufacturers for applications involving line geometries of 0.65 microns or
greater ("noncritical feature sizes") and to thin film head manufacturers. The
Company's steppers do not currently address applications involving line
geometries of less than 0.65 microns ("critical feature sizes"). The Company's
steppers are used in "mix-and-match" applications to complement reduction
steppers and step-and-scan systems in advanced semiconductor device fabrication.
The Company's steppers also are used as replacements for scanners in existing
fabrication facilities to enable semiconductor manufacturers to extend the
useful life and increase the capabilities of their facilities. In addition, the
Company's steppers are used to manufacture high volume, low cost semiconductors
used in a variety of applications such as telecommunications, automotive control
systems and consumer electronics. Ultratech also supplies photolithography
systems to thin film head manufacturers and believes that its steppers offer
advantages over certain competitive reduction lithography tools with respect to
field size, throughput, specialized substrate handling and cost. Additionally,
the Company supplies photolithography equipment to the micromachining market,
where certain technical features such as high resolution at g-line wavelengths
and superior depth of focus are seen as offering advantages over competitive
tools.
During the quarter ended December 31, 1997, the Company shipped its first
UltraBeam model V2000 electron beam pattern generation system based on
vector-scan technology for use in the development and production of photomasks
for the integrated circuit industry. The Company acquired this technology in
February 1997 when it acquired the assets of Lepton, Inc.
BACKGROUND
The fabrication of devices such as integrated circuits ("semiconductors" or
"ICs") and thin film magnetic recording heads ("thin film heads" or "TFHs")
requires a large number of complex processing steps, including deposition,
photolithography and etching. Deposition is a process in which a layer of either
electrically insulating or electrically conductive material is deposited on the
surface of a wafer. The photolithographic imaging process imprints device
features on a light sensitive polymer photoresist. After development of the
photoresist, etching selectively removes material from areas not covered by the
imprinted pattern.
Photolithography is one of the most critical and expensive steps in IC and
TFH device manufacturing. According to the Semiconductor Industry Association,
up to 35% of the cost of processing silicon wafers in the fabrication of ICs is
related to photolithography. Photolithography exposure equipment is used to
image device features on the surface of thin deposition films by selectively
exposing a light sensitive polymer photoresist coated on the wafer surface,
through a photomask containing the master image of a particular device layer.
Exposure of each process layer imprints a different set of features on the
device.
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These device layers must be properly aligned to previously defined layers before
imaging takes place, so that structures formed on the wafers are correctly
placed, one on top of the other, in order to ensure a functioning device.
Since the introduction of the earliest photolithography tools for IC
manufacturing in the early 1960s, a number of tools have been introduced to
enable manufacturers to produce increasingly complex devices that incorporate
progressively finer line widths. In the late 1970s, photolithography tools known
as step-and-repeat projection aligners, or steppers, were introduced. Unlike
prior tools, such as contact printers which required the photomask to physically
contact the wafer in order to transfer the entire pattern during a single
exposure, and scanners, which transferred the device image by scanning a narrow
slit of light across the entire photomask and wafer in a single, continuous
motion, steppers expose only a small square or rectangular portion of the wafer
in a single exposure, then move or "step" to an adjacent site to repeat the
exposure. This stepping process is repeated as often as necessary until the
entire wafer has been exposed. By imaging a small area, steppers are able to
achieve finer resolution and better alignment between the multiple device layers
and higher yield and productivity in certain devices than possible with earlier
tools. Since the late 1980s, 1X steppers have become a critical tool for the
fabrication of thin film heads because of their performance characteristics.
Thin film heads are devices that form the small read/write component in the most
advanced disk drives and have enabled disk drives to increase in speed and
memory capacity and perform more efficiently. Steppers are currently the
predominant lithography tools used in the manufacture of devices such as ICs and
TFHs.
According to VLSI Research, Inc. ("VLSI"), a semiconductor industry market
research firm, the two principal types of steppers currently in use are
reduction steppers, which are the most widely used steppers, and one-to-one
steppers. Reduction steppers, which typically have reduction ratios of
five-to-one, are tools in which the photomask pattern containing the design is
typically five times larger than the device pattern that is to be exposed on the
wafer surface. Additionally, step-and-scan systems have been introduced recently
in order to address device sizes of .18 micron and below. In contrast to
steppers, which expose the entire field in a single exposure, step-and-scan
systems scan across the field until the entire field is exposed.
The Company believes that one of the fastest growing segments of the
photolithography equipment market is reduction steppers and step-and-scan
systems that use a deep ultra-violet light source ("DUV"). The lower DUV
wavelength allows IC manufacturers to produce critical geometries of .25 microns
and below. The Company does not presently offer products for or compete in this
market. However, the Company markets certain of its products in mix-and-match
applications with these lithography systems.
The principal advantage of reduction steppers and step-and-scan systems is
that they may be used in manufacturing steps requiring critical feature sizes
and are therefore necessary for manufacturing advanced ICs. One-to-one steppers,
on the other hand, are tools in which the photomask containing the design is the
same size as the device pattern that is exposed on the wafer surface. Current
one-to-one steppers, unlike current reduction steppers, are based on different
technology which incorporates both reflective and refractive elements in its
optical lens imaging system that, although highly sophisticated in design, is
much simpler than a current reduction stepper's lens imaging system which
incorporates only refractive elements. As a result, current 1X steppers are
generally less expensive than current reduction steppers required for critical
feature sizes. Because of their optical design, 1X steppers typically are also
able to expose larger areas and deliver greater energy to the wafer surface,
which generally results in higher throughput than is achievable with most
reduction steppers required for critical feature sizes. One-to-one steppers,
however, are currently limited to use in manufacturing steps involving
noncritical feature sizes. Accordingly, the Company believes that sales of its
systems are highly dependent upon capacity expansions by its customers.
Competitors to Ultratech have also introduced their own mix-and-match steppers
to complement their critical layer tools. Additionally, the Company believes
that competition for the mix-and-match business has increased due to the ability
of manufacturers of reduction steppers to mix-and-match their systems with
step-and-scan systems. See "Risk Factors: Importance of Mix-and-Match Strategy."
3
In recent years, the complexity of ICs has increased significantly while, at
the same time, product cycles have shortened and the price per function of such
devices has continued to decline. As device complexity has increased, the device
geometries have continued to shrink, which in turn has increased the need for
tools such as reduction steppers that are capable of imaging critical feature
sizes. For example, fabrication of a 64-megabit dynamic random access memory
("DRAM") device with a minimum feature size of 0.35 microns involves an average
of 22-25 mask levels and approximately 600 process steps. Certain mask levels in
the fabrication of advanced devices require photolithography equipment such as
reduction steppers and step-and-scan systems that are capable of imaging lines
with critical feature sizes. A majority of the masking layers in such devices,
however, only require photolithography tools capable of imaging lines with
noncritical feature sizes. In addition, many IC devices, such as application
specific integrated circuits ("ASICs") used in various applications including
telecommunications, consumer electronics and automotive control systems, can be
manufactured using 1X steppers for the masking layers. Most advanced thin film
head devices, which currently require noncritical feature size imaging, are
manufactured using 1X steppers for the masking layers. However, the Company
believes that future thin film head device manufacturing may involve certain
steps that require critical feature size imaging.
In the past, manufacturers of ICs and similar devices purchased capital
equipment based principally on technological capabilities. In view of the
significant capital expenditures required to construct, equip and maintain
fabrication facilities, relatively short product cycles and manufacturers'
increasing concern for overall fabrication costs, the Company believes that
manufacturers of ICs and thin film heads increasingly are focusing on reducing
their total cost to manufacture a device. A major component of this cost is the
cost of ownership of the equipment used for a particular application in a
fabrication facility. Cost of ownership is measured in terms of the costs
associated with the acquisition of equipment as well as factors such as
throughput, yield, up-time, service, labor overhead, maintenance, and various
other costs of owning and using the equipment. With increasing importance being
placed upon a system's overall cost of ownership, in many cases the system with
the most technologically advanced capabilities will not necessarily be the
manufacturing system of choice. As part of the focus on cost reduction, the
Company believes that device manufacturers are attempting to extend the useful
life and enhance the production capabilities of fabrication facilities by
selecting equipment that can replace existing tools while offering better
performance in a cost-effective manner.
PRODUCTS
The Company currently offers three different series of systems for use in
the semiconductor fabrication process: the model 1500 and 1500 MVS Series, which
address the markets for scanner replacement and high volume/low cost
semiconductor fabrication; the Saturn Wafer Stepper-TM- Family, which addresses
the market for mix-and-match in advanced semiconductor fabrication; and the
Titan Wafer Stepper-TM- Family, which addresses the market for photosensitive
polyimide applications, bump processing for flip chip devices, as well as the
markets for scanner replacement and high volume/low cost semiconductor
fabrication. These steppers currently offer feature size capabilities ranging
from 1.4 microns to 0.65 microns and typically range in price from $800,000 to
$2.1 million. The model 1500 Series and the Titan Wafer Stepper Family offer g-
and h-line illumination specifications. The Saturn Wafer Stepper Family features
an i-line illumination specification that is designed to make them compatible
with advanced i-line reduction steppers. The Company shipped its first Saturn
Wafer Stepper in the fourth quarter of 1995. The Saturn Wafer Stepper Family,
with its 0.65 micron capability, extends mix-and-match applications to the
64/256-megabit dynamic random access memories and equivalent logic technology.
The Titan Wafer Stepper Family addresses, among other markets, an application
called photosensitive polyimide processing. This process is used in the
protective layer, between the inside of the device package and the active
device. Because it reduces the thickness of integrated circuits, this process is
useful for devices mounted on credit cards and can also be used in a number of
"micro" applications, such as laptop or palmtop computers. The polyimide process
is also commonly used in the manufacture of advanced DRAMs and microprocessors.
The primary advantage of a photosensitive polyimide process is that it
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reduces process steps required in the fabrication of these devices. The Saturn
and Titan wafer stepper families are also used for bump processing. The Saturn
or Titan stepper is used in conjunction with electroplating to produce a pattern
of bumps, or metal connections, on the bond pads of the die for flip chip
devices. This pattern can be placed in a tight array across the entire die, as
opposed to the conventional method of wire bonding which is limited to the
periphery of the die. This allows manufacturers to shrink the die size. The flip
chip device can then be placed in a small outline package or directly on a
printed circuit board.
The Company offers four different series of systems for use in the
fabrication of thin film heads: the model 1700 Series, which is the most widely
used stepper for the TFH market; the model 2700 Series, which is designed to
meet the need for improved performance; the model 4700, which provides
manufacturers the ability to print rowbars with a single exposure, further
enhancing both yields and magnetic recording head performance; and the model
6700, which extends the model 4700 capabilities into the submicron range by
utilizing i-line exposure. In addition, the Company provides three steppers
capable of patterning features on rowbars utilizing an alternate alignment
system (Machine Vision System, or "MVS"). The model 1700 MVS and 1700 ABS are
used to expose the Air Bearing Surface (ABS) pattern, while the model 1800
extends capabilities to much smaller submicron patterns used for pole trimming.
The Company's TFH steppers offer feature size capabilities ranging from 2.0 to
.65 microns and typically range in price from $800,000 to $2.1 million.
The Company also offers photolithography equipment for use in the
micromachining market. Micromachining combines electronics with mechanics in
small devices for detection and control of a wide variety of parameters.
Examples include accelerometers used to activate air bags in automobiles, and
membrane pressure sensors used in industrial control systems. These
micromachined devices are manufactured on silicon substrates using
photolithographic techniques similar to those used for manufacturing
semiconductors and thin film head devices. The Company's model 1500 and 1500 MVS
Series and the Saturn Wafer Stepper Family offer resolution and depth of focus
advantages to the manufacturers of micromachined devices.
Additionally, in December 1997, the Company shipped its first UltraBeam
model V2000 electron beam pattern generation system based on vector-scan
technology for use in the development and production of photomasks for the IC
industry. This product has an approximate price range of $6 million to $9
million. The model V2000 system addresses the production requirements of
photomasks for .25 micron design rule and below. Using the vector/raster-scan
technology employed by the Company, the electron beam moves directly to those
areas of the photomask that are to be exposed, bypassing unexposed areas, and
then rasters in the area to be exposed. In contrast, alternative technologies
use an electron beam that is scanned continuously back and forth over the entire
photomask. Key specifications for the model V2000 system include overlay of 25
nanometers, CD uniformity of 35 nanometers, CD linearity of 20 nanometers and a
maximum writing rate of 500 MHz. These specifications will vary depending on the
customer application. The Company believes that its V2000 system will offer
certain cost and productivity advantages, as compared with certain competitive
systems.
The Company also sells upgrades and refurbishments to certain older product
lines in its installed base. These refurbished older systems typically have a
purchase price significantly less than the purchase price for the Company's
newer systems.
5
The year of introduction and major features of the Company's current stepper
systems are set forth below:
THROUGHPUT
FIELD SIZE SPECIFICATIONS
------------------------------ SPECIFICATIONS* (WAFERS
MAXIMUM AREA PER HOUR)
YEAR OF FEATURE MAXIMUM AREA SQUARE ------------------------
PRODUCT LINE INTRODUCTION SIZE RECTANGLE (MM) (MM) 6 INCH 8 INCH
- --------------------------------------- ------------- --------- -------------- -------------- ----------- -----------
SEMICONDUCTOR/MICRO-MACHINING:
1500 Series............................ 1988 1.0mm 34.2 x 13.6 18.0 x 18.0 55 30
1989 0.8mm 31.8 x 11.5 15.5 x 15.5 45 25
1500 Series MVS........................ 1997 1.0mm 34.2 x 13.6 18.0 x 18.0 50 25
1997 0.8mm 31.8 x 11.5 15.5 x 15.5 40 20
Saturn Wafer Stepper Family:
Saturn I............................. 1997 1.0mm 44.0 x 22.0 26.7 x 26.7 90 80
Saturn II............................ 1997 0.75mm 44.0 x 22.0 26.7 x 26.7 90 80
Saturn III........................... 1997 0.65mm 44.0 x 22.0 25.2 x 25.2 90 80
Titan Wafer Stepper Family:
Titan I.............................. 1997 1.4mm 50.0 x 25.0 27.4 x 27.4 103 88
Titan II............................. 1997 0.75mm 44.0 x 22.0 26.7 x 26.7 90 85
Titan III............................ 1997 0.65mm 44.0 x 22.0 25.2 x 25.2 90 85
PHOTOMASK:
UltraBeam V2000........................ 1997 0.65mm n/a n/a n/a n/a
THIN-FILM HEAD:
1700 Series............................ 1991 1.2mm 34.2 x 13.6 18.0 x 18.0 70 50
1991 1.0mm 34.2 x 13.6 18.0 x 18.0 70 50
1700 MVS............................... 1995 1.0mm 34.2 x 13.6 18.0 x 18.0 n/a n/a
1700 ABS............................... 1997 2.0mm 30.0 x 10.0 n/a n/a n/a
1800................................... 1997 0.8mm 28.0 x 2.0 n/a n/a n/a
2700 Series............................ 1992 1.2mm 34.2 x 13.6 18.0 x 18.0 78 68
1992 1.0mm 34.2 x 13.6 18.0 x 18.0 78 68
4700................................... 1994 1.0mm 55.0 x 18.0 26.7 x 26.7 98 92
6700................................... 1996 0.65mm 55.0 x 18.0 26.7 x 26.7 96 90
6800................................... 1997 0.75mm 55.0 x 18.0 26.7 x 26.7 98 92
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* Actual throughput varies depending upon customer application.
RESEARCH, DEVELOPMENT AND ENGINEERING
The semiconductor and magnetic recording head manufacturing industries are
subject to rapid technological change and new product introductions and
enhancements. The Company believes that continued and timely development and
introduction of new and enhanced systems are essential for the Company to
maintain its competitive position. The Company has made a substantial investment
in the research and development of its core optical technology, which the
Company believes is critical to its financial results. The Company intends to
continue to develop its technology and to develop innovative products and
product features to meet customer demands. Current engineering projects include
the continued development, documentation and transition to commercial
manufacturing of the UltraBeam model V2000 electron beam pattern generation
system, continued research and development of the Verdant Technologies' (a
wholly-owned subsidiary of Ultratech Stepper) system for advanced thermal
processing and creation of ultrashallow junctions (formerly referred to as the
Company's PGILD project), continued development and documentation of the Saturn
Wafer Stepper Family and model 6700 wafer stepper, and development of larger and
more flexible optical systems. Other research and development
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efforts are currently focused on reliability improvement; manufacturing cost
reduction; year 2000 compliance; and performance enhancement and development of
new features for existing systems, both for inclusion in the Company's systems
and to meet specific customer order requirements. These research and development
efforts are undertaken, principally, by the Company's research, development and
engineering organizations and costs are generally expensed as incurred. Other
operating groups within the Company support the above referenced research,
development and engineering efforts, and the associated costs are charged to
these organizations as incurred. The Company also has programs devoted to the
development of new photolithography systems, including new generations of
photolithography systems for existing and new markets, enhancements and
extensions of existing photolithography systems for existing and new markets and
custom engineering for specific customers.
The Company works with many customers to develop technology required to
manufacture advanced devices or to lower the customer's cost of ownership. The
Company maintains an engineering department that supports customer design of 1X
stepper photomasks for both test and production purposes and an applications
engineering group, consisting of highly qualified engineers located throughout
the world that assist customers in optimizing the use of the Company's systems.
The Company has historically devoted a significant portion of its financial
resources to research and development programs and expects to continue to
allocate significant resources to these efforts in the future. As of December
31, 1997, the Company had approximately 129 full-time employees engaged in
research, development, and engineering. For 1997, 1996 and 1995, total research,
development, and engineering expenses were approximately $26.4 million, $27.2
million and $22.7 million, respectively, and represented 17.9%, 14.1% and 14.4%
of the Company's net sales, respectively.
SALES AND SERVICE
The Company markets and sells its products in the United States and Europe
principally through its direct sales organization. The Company sells its
products in the Asia/Pacific region primarily through outside sales
organizations. In December 1997, the Company terminated its relationship with
its Japanese distributor, Innotech Corporation. The Company is presently in the
process of establishing a direct sales force in Japan. This strategy is
anticipated to contribute to higher selling, general and administrative expenses
in 1998, relative to 1997, related to transitional costs as well as higher
ongoing expenses. See "Risk Factors: International Sales; Japanese Market."
Ultratech's service personnel are based throughout the United States,
Europe, Asia/Pacific and Japan. The Company currently leases four sales and
service offices in the United States outside of California, maintains
subsidiaries in the United Kingdom, Japan and Thailand and leases offices for
its branches in Korea and Taiwan to service equipment and support customers in
such locations. As part of its customer service, Ultratech maintains an on-line
computerized network of the Company's parts inventory in the United States,
Europe and Japan.
The Company believes that as semiconductor and thin film head manufacturers
produce increasingly complex devices, they will require a higher degree of
support. Reliability, performance, yield, cost, uptime and mean time between
failure are increasingly important factors by which customers evaluate potential
suppliers of photolithography equipment. The Company believes that the strength
of its worldwide service and support organization is an important factor in its
ability to sell its systems, maintain customer loyalty and reduce the
maintenance costs of its systems. In addition, the Company believes that working
with its suppliers and customers is necessary to ensure that the Company's
systems are cost effective, technically advanced and designed to satisfy
customer requirements.
The Company supports its customers with field service, technical service
engineers and training programs. The Company provides its customers with
comprehensive support and service before, during and after delivery of its
systems. To support the sales process and to enhance customer relationships, the
Company works closely with prospective customers to develop hardware and
software test specifications
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and benchmarks, and often designs customized applications to enable prospective
customers to evaluate the Company's equipment for their specific needs. Prior to
shipment, Ultratech's support personnel typically assist the customer in site
preparation and inspection, and typically provide customers with training at the
Company's facilities or at the customer's location. The Company currently offers
to its customers various courses of instruction on the Company's systems,
including instructions in system hardware and software tools for optimizing the
Company's systems. The Company's customer training program also includes
instructions in the maintenance of the Company's systems. The Company's field
support personnel work with the customer's employees to install the system and
demonstrate system readiness. Technical support is also available through
on-site Company personnel.
In general, the Company warrants its new systems against defects in design,
materials and workmanship for one year. The Company offers its customers
additional support after the warranty period in the form of maintenance
contracts for specified time periods. Such contracts include various options
such as priority response, planned preventive maintenance, scheduled one-on-one
training, daily on-site support, and monthly system and performance analysis.
MANUFACTURING
The Company performs all of its manufacturing activities (final assembly,
system testing and certain subassembly) in clean room environments totaling
approximately 40,000 square feet. These facilities are located in California and
New Jersey. Performing manufacturing operations in California exposes the
Company to a higher risk of natural disasters, particularly floods and
earthquakes.
The Company's manufacturing activities consist of assembling and testing
components and subassemblies, which are then integrated into finished systems.
The Company is relying increasingly on outside vendors and subcontractors to
manufacture certain components and subassemblies. This strategy has enabled the
Company to increase its manufacturing capacity. The Company orders one of the
most critical components of its technology, the glass for its lenses, from
suppliers on purchase orders. The Company then designs the lenses and provides
the lens specifications to other suppliers that grind the lenses. The Company
then assembles and tests the optical lenses in its metrology laboratory. The
Company has recorded the critical parameters of each of its optical lenses sold
since 1982 and believes that such information enables it to supply lenses to its
customers that match the characteristics of its customers' existing lenses.
Prior to shipment, the customer's engineers may perform acceptance tests at
Ultratech's facility. After passing the acceptance test, the system is packaged
in the clean room environment and prepared for shipment.
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's
reliance on sole or a limited group of suppliers and the Company's increasing
reliance on subcontractors involve several risks, including a potential
inability to obtain an adequate supply of required components and reduced
control over pricing, quality 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 significantly increase
manufacturing costs and 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.
8
The Company maintains a company-wide quality program that it believes has a
direct effect on its results of operations. The intent of the program is to
provide continuous improvement in the Company's steppers and services to meet
customer requirements. The Company trains all of its employees in basic quality
skills and regularly participates in quality sharing meetings with other
equipment manufacturers and customer quality audits of procedures and personnel.
The Company achieved ISO 9001 certification in 1996, and has maintained this
certification uninterrupted through this report date.
COMPETITION
The capital equipment industry in which the Company competes is intensely
competitive. A substantial investment is required to install and integrate
capital equipment into a semiconductor or thin film head production line. The
Company believes that once a device manufacturer has selected a particular
vendor's capital equipment, the manufacturer generally relies upon that
equipment for the specific production line application and, to the extent
possible, subsequent generations of similar products. Accordingly, it is
difficult to achieve significant sales to a particular customer once another
vendor's capital equipment has been selected. The Company experiences intense
competition worldwide from a number of leading foreign and domestic
manufacturers, such as Nikon, Canon, ASM Lithography, Ltd. ("ASML") and Silicon
Valley Group, Inc., all of which have substantially greater financial,
marketing, technical and other resources than the Company. Nikon supplies a 1X
stepper for use in the manufacture of liquid crystal displays and both Canon and
Nikon offer reduction steppers for thin film head fabrication. The Company
believes that future thin film head production may involve manufacturing steps
that require critical feature sizes. The Company's current steppers do not
address device layers below .65 microns. In addition, Nikon and Canon are
shipping their own widefield mix-and-match lithography systems and ASML has
recently introduced an i-line step-and-scan system for mix-and-match with their
DUV step-and-scan systems. (See: "Additional Risk Factors: Importance of
Mix-and-Match Strategy"). Additionally, ASML has recently announced their intent
to compete in the low-cost lithography market. The Company's UltraBeam model
V2000 electron beam pattern generation system competes against systems produced
by ETEC Systems, Inc.; Hitachi, Ltd.; Leica Camera AG; and JEOL, Ltd. 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 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 will also face
competition from vendors employing other technologies, such as excimer lasers
and phase-shift mask technology, which may extend the capabilities of
competitive products beyond their current limits or increase their productivity.
In addition, increased competitive pressure could lead to intensified
price-based competition, resulting in lower prices and margins, which would
materially adversely affect the Company's business, financial condition and
operating results. There can be no assurance that the Company will be able to
compete successfully in the future.
Japanese IC manufacturers have a 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
9
itself as a major competitor in the Japanese IC equipment market and there can
be no assurance that the Company will be able to achieve significant sales to
Japanese IC manufacturers in the future. See "International Sales; Japanese
Market."
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 May 2016, 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.
Although there are no pending lawsuits against the Company regarding
infringement claims with respect to any existing patents or any other
intellectual property rights, the Company has in the past been notified of
claims that it may be infringing intellectual property rights possessed by third
parties. The Company has in the past been notified in prior years by certain
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.
There can be no assurance that infringement claims by third parties or
claims for indemnification resulting from infringement claims will not be
asserted in the future, or that such assertions 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.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture and
disposal of toxic or other hazardous substances used to manufacture the
Company's systems. The Company believes that it is currently in compliance in
all material respects with such regulations and that it has obtained all
necessary environmental permits to
10
conduct its business. Nevertheless, the failure to comply with current or future
regulations could result in substantial fines being imposed on the Company,
suspension of production, alteration of the manufacturing process or cessation
of operations. Such regulations could require the Company to acquire expensive
remediation equipment or to incur substantial expenses to comply with
environmental regulations. Any failure by the Company to control the use,
disposal or storage of, or adequately restrict the discharge of, hazardous or
toxic substances could subject the Company to significant liabilities.
CUSTOMERS, APPLICATIONS AND MARKETS
The Company sells its systems to semiconductor, photomask, thin film head
and micromachining manufacturers located throughout the United States, Europe,
Asia/Pacific and Japan. Semiconductor manufacturers have purchased the model
1500 Series steppers, the Saturn Wafer Stepper Family, and the Titan Wafer
Stepper Family for the fabrication of microprocessors, microcontrollers, DRAMs
and ASICs. Such systems are used in mix-and-match environments with other
lithography tools, as replacements for scanners and contact printers, in
start-up fabrication facilities, in packaging for ultrathin and flip chip
applications and for high volume, low cost noncritical feature size
semiconductor production. Thin film head manufacturers have purchased the model
1700 Series steppers, the model 2700 Series steppers, the model 4700 stepper and
the model 6700 stepper because of their advantages in yield, throughput and
overall cost of ownership. Manufacturers of micromachined components have
purchased the model 1500 Series steppers and Saturn/Titan wafer stepper families
because of high throughput and flexible field size advantages along with
cost-effective, submicron imaging capabilities. Additionally, during December of
1997 the Company shipped its first UltraBeam model V2000 electron beam
lithography system to a developer and manufacturer of photomasks for the IC
industry.
Historically, Ultratech has sold a substantial portion of its systems to a
limited number of customers. In 1997, sales to two customers accounted for 14%
and 10% of the Company's net sales. In 1996, sales to two customers accounted
for approximately 17% and 12% of the Company's net sales. In 1995, sales to one
customer accounted for approximately 12% of the Company's net sales. The Company
expects that sales to relatively few customers will continue to account for a
high percentage of its net sales in the foreseeable future and believes that the
Company's financial results depend in significant part upon the success of these
major customers, and the Company's ability to meet their future capital
equipment needs. Although the composition of the group comprising the Company's
largest customers may vary from period to period, the loss of a significant
customer or any reduction in orders by any significant customer, including
reductions due to market, economic or competitive conditions in the
semiconductor or magnetic recording head industries or in the industries that
manufacture products utilizing integrated circuits or thin-film heads, may have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company's ability to 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
Magnetic Recording Head Industries."
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. See "Fluctuations in Operating
Results; Limited System Sales; Customer Concentration."
11
During 1997, 1996 and 1995, international sales accounted for 33%, 53% and
55% of net sales, respectively. The Company believes that the severe currency
and equity market fluctuations that have been experienced recently by many of
the Asian markets will cause a further reduction in 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.
The Company's international system sales are typically denominated in United
States dollars or dollar equivalents. For financial information concerning
foreign and domestic operations and export sales, please refer to Note 13 of the
Ultratech Stepper, Inc. Consolidated Financial Statements, incorporated by
reference from page 44 of the Company's Annual Report to Stockholders. See "Risk
Factors: International Sales; Japanese Market."
BACKLOG
The Company schedules production of its systems based upon order backlog,
informal customer commitments and general economic forecasts for its targeted
markets. The Company includes in its backlog all customer orders for its
one-to-one reflective and refractive optical technology systems for which it has
accepted purchase order numbers and assigned shipment dates within six months,
all customer orders for its electron beam lithography systems for which it has
accepted purchase order numbers and assigned shipment dates within one year, as
well as all orders for service, spare parts and upgrades. All orders are subject
to cancellation or rescheduling by the customer with limited or no penalties.
Because of orders received for systems to be shipped in the same quarter in
which the order is received, possible changes in system delivery schedules,
cancellations of orders and potential delays in system shipments, the Company's
backlog at any particular date may not necessarily be representative of actual
sales for any succeeding period. As of December 31, 1997, the Company's backlog
was approximately $65.6 million, compared with approximately $81.3 million as of
December 31, 1996.
EMPLOYEES
At December 31, 1997, the Company had approximately 576 full-time employees,
including 129 engaged in research, development, and engineering, 45 in sales and
marketing, 173 in customer service and support, 164 in manufacturing and 65 in
general administration and finance. The Company believes any future success,
should it occur, would depend, in large part, on its ability to attract and
retain highly skilled employees. None of the employees of the Company is covered
by a collective bargaining agreement. The Company considers its relationships
with its employees to be good.
ADDITIONAL RISK FACTORS
FLUCTUATIONS IN OPERATING RESULTS; LIMITED SYSTEM SALES; CUSTOMER
CONCENTRATION The Company's operating results have fluctuated significantly in
the past and will continue to fluctuate significantly in the future depending
upon a variety of factors, including cyclicality in the Company's target
markets; the timing of significant orders; lengthy sales cycles for the
Company's products; the mix of products sold; lengthy manufacturing cycles for
the Company's products; lengthy product development cycles for new products; the
timing of new product announcements and releases by the Company or its
competitors; market acceptance of new products and enhanced versions of the
Company's products; manufacturing inefficiencies associated with the 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 (particularly flooding and
earthquakes); regulatory changes; business interruptions related to the
Company's occupation of its facilities; and various competitive factors
including price-based competition and competition from vendors employing other
technologies. The Company's gross profit as a percentage of sales has been and
will continue to be significantly affected by a variety of factors, including
the mix of products sold; nonlinearity of shipments during the quarter; the
percentage of international sales, which typically have lower gross margins than
domestic sales principally due to higher field service and support costs;
increased competition in the Company's targeted markets; the introduction of new
products, which typically have
12
higher manufacturing costs until manufacturing efficiencies are realized and are
typically discounted more than existing products until the products gain market
acceptance; the rate of capacity utilization; 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 systems, which typically range in price from
$800,000 to $2.1 million. Additionally, the Company's Model V2000 electron beam
lithography system, first shipped in the quarter ended December 31, 1997, has an
approximate price range of $6 million to $9 million. As a result of these 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 continue to depend upon the Company obtaining orders for systems to be
shipped in the same period in which the order is received. The Company's
business and financial results for a particular period could be materially
adversely affected if an anticipated order for even one system is not received
in time to permit shipment during the particular period or if orders previously
recorded by the Company are deferred or cancelled. Furthermore, a substantial
portion of the Company's net sales has historically been realized near the end
of each quarter. Accordingly, the failure to receive anticipated orders or
delays in shipments near the end of a particular quarter, due, for example, to
unanticipated shipment reschedulings, cancellations, delays or deferrals by
customers or to unexpected manufacturing difficulties or delays in deliveries by
suppliers due to their long production lead times or otherwise, may cause net
sales in a particular period to fall significantly below the Company's
expectations, which would materially adversely affect the Company's operating
results for such period. In particular, the significantly long manufacturing
cycles of the Company's linear motor-based steppers, which include the Model
4700 stepper, Model 6700 stepper, Titan Wafer Stepper and Saturn Wafer Stepper,
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 Model V2000 electron beam pattern generation system, and
the Company is in the process of documenting the manufacturing processes for
this product. The Model V2000 production process is extremely complex and the
product has a significantly long manufacturing cycle, which greatly increases
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. The
impact of these and other factors on the Company's sales and operating results
in any future period cannot be forecast with certainty.
Historically, the Company has sold a substantial portion of its systems to a
limited number of customers. See "Customers, Applications and Markets." In
addition to the business risks associated with the dependence on these major
customers, these significant customer concentrations have in the past, and have
currently resulted in significant concentrations of accounts receivable and
leases receivable. In particular, sales to a relatively few customers in the
thin film head industry currently make up a significant portion of the Company's
receivables. Recently, the Company has increased its level of customer leasing
activity and has granted extended payment terms to many of its customers. The
formation of significant and concentrated long-term receivables and the granting
of extended payment terms 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. If such default were to occur, the Company's
business, financial condition and results of operations would be materially
adversely affected.
13
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 industries. In
addition, the need for continued expenditures for research and development,
capital equipment purchases and ongoing training and customer service and
support worldwide, among other factors, will make it difficult for the Company
to reduce its significant operating expenses in a particular period if the
Company fails to achieve its net sales goals for the period. Additionally, the
Company has recently experienced manufacturing inefficiencies associated with
shifts in product demand and underutilization of manufacturing capacity and the
Company presently anticipates that these trends will continue for at least the
next several quarters. Such continuation would materially adversely affect the
Company's business, financial condition and results of operations.
CYCLICALITY OF SEMICONDUCTOR AND MAGNETIC RECORDING 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, as evidenced by the current downturn in the semiconductor capital
equipment industry. This has, from time to time, resulted in significantly
reduced demand for capital equipment including the systems manufactured and
marketed by the Company. The Company believes that markets for new generations
of semiconductors will also be subject to similar fluctuations. In the past, the
semiconductor industry has experienced significant growth, which, in turn, has
caused significant growth in the capital equipment industry. However, the
semiconductor industry has more recently experienced a cyclical downturn, and
this has resulted in a significant reduction in capital spending. The Company
has recently experienced cancellation of purchase orders, shipment delays and
purchase order restructurings by several of its customers and there can be no
assurance that this trend will not continue in the future.
The Company attempts to mitigate the risk of cyclicality by participating in
both the semiconductor and magnetic recording head markets, as well as
diversifying into new markets such as photolithography for micromachining and
the development of photomasks. Despite such efforts, when one or more of such
markets experiences a downturn or slowdown, such as is currently occurring in
the semiconductor and thin film head markets, the Company's net sales and
operating results can be materially adversely affected, and may even result in
net losses for one or more quarters. Accordingly, the Company can give no
assurance that it will be able to achieve or maintain its current level of
sales. Based on present market conditions in both the semiconductor and thin
film head industries, and nonlinearity of system shipments, the Company
presently expects that future quarterly comparisons, through at least the second
quarter of 1998, will indicate a period-over-comparable period decline in the
Company's net sales and net income and may also result in a sequential decline
in sales and net income, relative to levels achieved during the fourth quarter
of 1997. Additionally, declines in net sales, relative to the quarter ended
December 31, 1997, may result in net losses due to the Company's current level
of operating expenses.
During 1997, 1996 and 1995, approximately 50%, 40% and 30%, respectively, of
the Company's net sales were derived from sales to thin film head manufacturers
and micromachining customers. The Company has recently experienced a significant
decline in orders from customers in the thin film head market. Additionally,
several companies within the thin film head and disk drive industries have
recently announced lower than expected earnings and have announced restructuring
or other non-recurring charges. The Company believes these events indicate that
the thin film head and disk drive industries have excess capacity in the
near-term. This will result in lower sales and delays or deferrals of customer
orders from these industries, which will materially adversely affect the
Company's business, financial condition and results of operations in the near
term. Additionally, the Company is experiencing increased competition in this
market from Canon and Nikon, and may experience competition from ASML. The
Company's business and operating results would be materially adversely affected
by downturns or slowdowns in the thin film head market or by loss of market
share.
14
IMPORTANCE OF MIX-AND-MATCH STRATEGY A principal element of the Company's
strategy is to sell its systems to advanced semiconductor fabrication facilities
for mix-and-match applications. This strategy depends, in significant part, upon
the recognition by semiconductor manufacturers that costs can be reduced by
using the Company's systems to perform exposure on semiconductor process layers
requiring feature sizes of 0.65 microns or greater and the willingness of such
manufacturers to implement processes to lower manufacturing costs. Many
semiconductor fabrication facilities have limited or no experience with
integrating lithography tools in the manner necessary for full implementation
and acceptance of a mix-and-match manufacturing strategy, and there can be no
assurance that semiconductor manufacturers will adopt such a strategy. The
Company has designed certain of its systems to operate in a compatible manner
with its competitors' reduction steppers 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 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. The Company shipped its first Model
2244i stepper during 1993, and commenced volume production in 1994. In 1995, the
Company commenced shipment and volume production of the Titan Wafer Stepper and
commenced shipment of the Saturn Wafer Stepper. As is typical with newly
introduced systems in the capital equipment industry, the Company has
experienced and may continue to experience technical or other difficulties with
its mix-and-match family of products. The Company believes that the market
acceptance and process verification combined with volume production of the
mix-and-match family of products is of critical importance to the successful
implementation of its mix-and-match strategy and its future financial results.
Recently, this market segment of the Company's business has experienced a
pronounced downturn due, in part, to the recent cyclical downturn in the
semiconductor industry. Additionally, the Company believes that existing capital
budgets of semiconductor manufacturers are currently focusing on technology
buys, and not capacity additions. This places the Company at a disadvantage,
since its steppers 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 systems from Nikon and Canon, among others; or any other reason,
the Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the increase in mix-and-match
stepper production has resulted and will continue to result in higher inventory
levels and operating expenses. Failure to achieve or maintain significant sales
of these steppers could lead, among other things, to an increase in inventory
obsolescence and an increase in expenses without corresponding sales, either of
which could materially adversely affect the Company's business, financial
condition and results of operations. See "Fluctuations in Operating Results;
Limited System Sales; Customer Concentration."
DEVELOPMENT OF NEW PRODUCT LINES; EXPANSION OF OPERATIONS; MANAGEMENT OF
GROWTH Currently, the Company is devoting significant resources to the
development, introduction and commercialization of new products and technologies
that are outside of the Company's core businesses (see "Research, Development
and Engineering"). During 1998, the Company will continue to develop these
products and will invest significant additional resources in plant and
equipment, inventory, personnel and other costs, to begin production of these
products and to provide the marketing, administration and after-sales support
required to support these new products. Accordingly, there can be no assurance
that gross profit margins
15
and inventory levels will not be adversely impacted in the future by start-up
costs associated with the initial production of these new product lines. These
start-up costs include, but are not limited to, additional manufacturing
overhead, additional inventory reserve requirements and the creation of
after-sales support organizations. Additionally, there can be no assurance that
operating expenses will not increase, relative to sales, as a result of adding
additional marketing and administrative personnel, among other costs, to support
the Company's additional products. If the Company is unable to achieve
significantly increased net sales or its sales fall below expectations, the
Company's operating results will be materially adversely affected until, among
other factors, inventory levels and expenses can be reduced.
In December 1997, the Company terminated its distributor relationship with
Innotech, its Japanese distributor. The Company is presently in the process of
expanding its operations in Japan by establishing a direct sales force. The
Company has leased additional facilities and is making significant capital
expenditures for sales and applications support. For this and other reasons, the
Company expects that its selling, general and administrative expenses will
increase in absolute dollars in 1998, relative to 1997. 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 impacted.
RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION The
semiconductor and magnetic recording head manufacturing industries are subject
to rapid technological change and new product introductions and enhancements.
The Company's ability to be competitive in these and other markets will depend
in part upon its ability to develop new and enhanced systems and related
software tools, and to introduce these systems and related software tools at
competitive prices and on a timely and cost-effective basis to enable customers
to integrate them into their operations either prior to or as they begin volume
product manufacturing. The Company will also be required to enhance the
performance of its existing systems and related software tools. Any success of
the Company in developing new and enhanced systems and related software tools
depends upon a variety of factors, including product selection, timely and
efficient completion of product design, timely and efficient implementation of
manufacturing and assembly processes, product performance in the field and
effective sales and marketing. In particular, the Company has not yet fully
defined the markets and applications for the Titan Wafer Stepper Family and the
Saturn Wafer Stepper Family. 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 V2000 electron beam lithography
system. Due 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 will result from time to time. This system presently has an approximate
price range of $6 million to $9 million. 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. There can be no
assurance that the Company will not encounter technical, manufacturing or other
difficulties that could delay future introductions or volume production of
systems or enhancements. The Company's inability to complete the development or
meet the technical specifications of any of its systems or enhancements and
16
related software tools or to manufacture and ship these systems or enhancements
and related software tools, such as the model 4700 stepper, the model 6700
stepper, the Titan Wafer Stepper Family, the Saturn Wafer Stepper Family, the
UltraBeam model V2000 electron beam lithography system and the Company's rapid
thermal annealing/laser doping system, 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.
DEPENDENCE ON KEY PERSONNEL The Company's future operating results depend
in significant part upon the continued contributions of its executive officers
and other key personnel, many of whom would be difficult to replace. None of
such persons has an employment or noncompetition agreement with the Company. The
Company does not maintain any life insurance on any of its key persons. The loss
of key personnel would have a material adverse effect on the business, financial
condition and results of operations of the Company. In addition, the Company's
future operating results depend in significant part upon its ability to attract
and retain other qualified management, manufacturing, 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 successful in attracting or retaining such personnel. The
failure to attract or retain such persons would materially adversely affect the
Company's business, financial condition and results of operations.
Recently, the Company has experienced an increased level of employee
turnover. The Company believes that this increase is due to several factors,
including: the recent semiconductor industry slowdown, which resulted in a
planned reduction in the Company's workforce during the fourth fiscal quarter of
1996, and which has further resulted in an increased level of uncertainty within
the workforce; an expanding economy within the geographic area that the Company
maintains its principal business offices, making it more difficult for the
Company to retain its employees; and the declining value of stock options
granted to employees, relative to their total compensation, as a result of the
full vesting of options granted prior to the Company's initial public offering
and significant numbers of options granted at prices well in excess of the
current market value of the Company's stock. Due to these and other factors, the
Company may continue to experience high levels of employee turnover, which could
adversely impact the Company's business, financial condition and results of
operations.
INTERNATIONAL SALES; JAPANESE MARKET International sales accounted for
approximately 33%, 53% and 55% of total net sales in 1997, 1996 and 1995,
respectively. 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
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 further
impact the purchasing ability of its international customers. 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
17
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 will cause a further reduction in 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 is presently in the process of expanding its
operations in Japan 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; Management of Growth."
YEAR 2000 COMPLIANCE Many currently installed computer systems and software
products are coded to accept only two digit entries in the 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 two years, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
The Company has commenced, for all of its information systems and software
contained in the products it sells, a year 2000 conversion project to address
necessary code changes, testing and implementation. The Company expects such
modifications will be made on a timely basis and does not believe that the cost
of such modifications will have a material effect on the Company's operating
results. However, there can be no assurance that the Company will be able to
timely and cost-effectively cure its products' errors and defects associated
with year 2000 date functions, and this may result in material costs to the
Company, including costs associated with detecting and fixing such defects and
costs incurred in litigation due to any such defects. Many commentators have
predicted that a significant amount of litigation will arise out of year 2000
compliance issues. The Company is aware of several such suits currently pending.
Because of the unprecedented nature of such litigation and the Company's current
lack of knowledge as to the extent its products contain defects relating to the
year 2000, there can be no assurance that the Company will not be materially
adversely affected by claims related to year 2000 compliance. Additionally, the
Company's customers may be required to devote substantial financial resources to
their own internal year 2000 issues. This may result in fewer financial
resources available to purchase the Company's products, which would result in
fewer system sales by the Company. This, in turn, could have a material adverse
impact on the Company's business, financial condition and results of operations.
Although the Company is not aware of any material operational issues or
costs associated with preparing its internal systems for the year 2000, 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.
FUTURE ACQUISITIONS The Company may in the future pursue acquisitions of
complementary product lines, technologies or businesses. The pursuit of
acquisitions involves additional costs, which could
18
materially adversely impact the company's results of operations. Future
acquisitions by the Company may result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities, and
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect any Company profitability. In addition,
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, technologies and products of the acquired companies, the
diversion of management's attention from other business concerns, risks of
entering markets in which the Company has no or limited direct prior experience,
and the potential loss of key employees of the acquired company. In the event
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.
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 are unrelated to the Company's
performance.
ITEM 2. PROPERTIES
The Company maintains its headquarters and manufacturing operations in San
Jose, California in three leased facilities, totaling approximately 188,000
square feet, which contain general administration and finance, marketing and
sales, customer service and support, manufacturing and research, development,
and engineering. Additionally, the Company leases 19,000 square feet in New
Providence, New Jersey for its UltraBeam Lithography subsidiary, which contains
manufacturing, research, and development, engineering and general
administration. The leases for these facilities expire at various dates from
February 1999 to March 2005. The Company also leases 6.4 acres of undeveloped
land near its headquarters in San Jose. This lease expires in November 1998. As
part of this transaction, the Company presently has segregated $5.3 million of
its securities as collateral for certain obligations of the lessor pertaining to
this land. The Company also leases four sales and support offices in the United
States in Tempe, Arizona; Woburn, Massachusetts; Austin, Texas; and Richardson,
Texas under leases with terms expiring between one month to two years. The
Company also maintains branch offices in Korea and Taiwan, with terms expiring
between one month and one year; and sales, service and support subsidiaries in
Japan, the United
19
Kingdom and Thailand, with terms expiring between one month and five years. The
Company believes that its existing facilities will be adequate to meet its
currently anticipated requirements and that suitable additional or substitute
space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of December 31, 1997, the executive officers of the Company, who are
appointed by and serve at the discretion of the Board of Directors, are as
follows:
NAME AGE POSITION WITH THE COMPANY
- ------------------------------ --- ----------------------------------------------------------------------------
Arthur W. Zafiropoulo......... 58 Chairman of the Board of Directors, Chief Executive Officer and President
Daniel H. Berry............... 52 Senior Vice President, Sales and Service
William G. Leunis, III........ 42 Senior Vice President, Finance, Chief Financial Officer, Secretary and
Treasurer
Mr. Zafiropoulo founded the Company in September 1992 to acquire certain
assets and liabilities of the Ultratech Stepper Division (the "Predecessor") of
General Signal Corporation and, since March 1993, has served as Chief Executive
Officer and Chairman of the Board. Additionally, Mr. Zafiropoulo served as
President of the Company from March 1993 to March 1996, resumed the position of
President of the Company in May 1997 and presently serves in this capacity.
Between September 1990 and March 1993, he was President of the Predecessor. From
February 1989 to September 1990, Mr. Zafiropoulo was President of General
Signal's Semiconductor Equipment Group International, a semiconductor equipment
company. From August 1980 to February 1989, Mr. Zafiropoulo was President and
Chief Executive Officer of Drytek, Inc., a plasma dry-etch company that he
founded in August 1980, and which was later sold to General Signal in 1986. From
July 1987 to September 1989, Mr. Zafiropoulo was also President of Kayex, a
semiconductor equipment manufacturer, which is a unit of General Signal. Mr.
Zafiropoulo is a director of RF Power Products Inc., a manufacturer of advanced
power supplies. In addition, Mr. Zafiropoulo is a director of Semi/Sematech, an
association of U.S.-owned suppliers of equipment, materials and services to the
semiconductor industry and SEMI (Semiconductor and Equipment Materials
International), an international trade association.
Mr. Berry has served as Senior Vice President, Sales and Service of the
Company since March 1993. Between December 1990 and March 1993, he served as
Vice President, Sales and Service of the Predecessor. From November 1989 to
December 1990, Mr. Berry was director of international operations for General
Signal's Semiconductor Equipment Group International, a semiconductor equipment
company. From July 1976 to November 1989, he held various management positions
including director of marketing and optical lithography, at Perkin-Elmer
Corporation, a semiconductor equipment manufacturer.
Mr. Leunis has served as Senior Vice President, Finance, Chief Financial
Officer, Secretary and Treasurer of the Company since January 1997. Between
March 1993 and December 1996, he served as Vice President, Finance, Chief
Financial Officer, Secretary and Treasurer of the Company. Between September
1990 and March 1993, he served as Vice President, Finance of the Predecessor.
From August 1986 to August 1990, Mr. Leunis was Chief Financial Officer of the
Predecessor. From 1978 to August 1986, Mr. Leunis held various financial
positions at General Signal.
20
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference from page
48 of the Company's 1997 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference from page
24 of the Company's 1997 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference from
pages 25-31 of the Company's 1997 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Ernst & Young LLP, Independent Auditors, and consolidated
financial statements required by this Item are incorporated by reference from
pages 32-48 of the Company's 1997 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
21
PART III
Certain information required by Part III is omitted from this Report in that
the Registrant will file a definitive proxy statement within 120 days after the
end of its fiscal year pursuant to Regulation 14A for its 1998 Annual Meeting of
Stockholders to be held June 3, 1998 and the information included therein is
incorporated herein by reference as set forth below.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference from the Item captioned "Election of Directors" in the
Company's Proxy Statement for the 1998 Annual Meeting of Stockholders (the
"Proxy Statement"). The information required by this Item relating to the
Company's executive officers is included under the caption "Executive Officers
of the Registrant" in Part I, Item 4 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Item captioned "Executive Compensation and Related Information" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
Items captioned "Election of Directors" and "Ownership of Securities" in the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
item captioned "Certain Transactions" in the Proxy Statement.
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report on Form
10-K
(1) Financial Statements
The following consolidated financial statements of Ultratech Stepper,
Inc. are set forth in the Company's 1997 Annual Report to Stockholders
and incorporated by reference in Item 8.
ANNUAL REPORT
PAGE NUMBER
---------------
Consolidated Balance Sheets--December 31, 1997 and 1996............................................ 32
Consolidated Statements of Income--Years ended December 31, 1997, 1996, and 1995................... 33
Consolidated Statements of Cash Flows--Years Ended December 31, 1997, 1996 and 1995................ 34
Notes to Consolidated Financial Statements......................................................... 35-46
Report of Ernst & Young LLP, Independent Auditors.................................................. 47
(2) Financial Statement Schedules
The following consolidated financial statement schedule is included
herein:
PAGE NUMBER
---------------
Schedule II Valuation and Qualifying Accounts...................................................... S-1
Schedules other than those listed above have been omitted since they are
either not required, are not applicable, or the required information is
shown in the financial statements or related notes.
(3) Exhibits
The following exhibits are referenced or included in this report:
EXHIBIT DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
2.1(1) Asset Purchase Agreement, dated March 8, 1993, among Registrant, General Signal Corporation and
General Signal Technology Corporation.
3.1(1) Amended and Restated Certificate of Incorporation of the Registrant, filed October 6, 1993.
3.2(6) Bylaws of Registrant, as amended.
3.3(6) Certified Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the
Company dated May 17, 1995.
4.5(1) Specimen Common Stock Certificate of Registrant.
4.6(7) Shareholder Rights Agreement between Registrant and the First National Bank of Boston dated February
11, 1997.
4.6.1 Shareholder Rights Agreement between Registrant and the First National Bank of Boston, filed on
February 26, 1997, as amended on March 18, 1998.
10.1(1)(2) Distributor Agreement dated June 22, 1993 between the Company and Innotech Corporation.
10.2(1)(5) 1993 Stock Option/Stock Issuance Plan and form of Nonstatutory Stock Option Agreement with respect
to the automatic option grant program, as amended.
10.3(8) 1993 Stock Option/Stock Issuance Plan (Amended and Restated on August 8, 1997).
10.4(1) Form of Indemnification Agreement entered into between the Registrant and each of its officers and
directors.
23
EXHIBIT DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
10.5(1) Standard Industrial Lease--Single Tenant, Full Net between The Equitable Life Assurance Society of
the United States, as Landlord, and Registrant, as Tenant, dated August 27, 1993.
10.6(3) Executive Incentive Plan.
10.7(3) Profit Sharing Plan.
10.8(4) Standard Industrial Lease Mutual Tenant, Full Net between Orchard Investment Company Number 701, As
Landlord, and Registrant, As Tenant dated May 17, 1994 and as amended, October 18, 1994.
10.8.1 Second Amendment to Lease and Agreement to Release between the Receiver of the Estate of Orchard
Investment Company Number 701, As Original Landlord, Orchard Properties, and Registrant, As Tenant
dated May 25, 1995
10.8.2 Third Amendment to Lease between Orchard Investment Company Number 701, As Landlord, and Registrant,
As Tenant dated November 16, 1995
10.8.3 Fourth Amendment to Lease between San Jose Acquisition Co., L.L.C. (successor of Orchard Investment
Company Number 701), As Landlord, and Registrant, As Tenant dated February 6, 1996
10.8.4 Fifth Amendment to Lease between Silicon Valley Properties, L.L.C. (successor of San Jose
Acquisition Co., L.L.C., and Orchard Investment Company Number 701), As Landlord and Registrant,
As Tenant dated December 1, 1997
10.11(5) 1995 Employee Stock Purchase Plan
13 Annual Report to Stockholders for the Year Ended December 31, 1997.
21 Subsidiaries of Registrant.
23 Consent of Ernst & Young LLP, Independent Auditors.
24 Power of Attorney (included on signature page).
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
- ------------------------
(1) Previously filed with the Company's Registration Statement on Form S-1
declared effective with the Securities and Exchange Commission on September
28, 1993. File No. 33-66522.
(2) Confidential Treatment has been granted for the deleted portions of this
document.
(3) Previously filed with the Company's 1993 Annual Report on Form 10-K
(Commission File No. 0-22248).
(4) Previously filed with the Company's 1994 Annual Report on Form 10-K
(Commission File No. 0-22248).
(5) Previously filed with the Company's 1995 Annual Report on Form 10-K
(Commission File No. 0-22248).
(6) Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (Commission File No. 0-22248)
(7) Previously filed with the Company's Current Report on Form 8-K, dated
February 26, 1997.
(8) Previously filed with the Company's Current Report on Form S-8, dated August
8, 1997.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
fourth quarter of 1997.
(c) Exhibits. See list of exhibits under (a)(3) above.
(d) Financial Statement Schedules. See list of schedules under (a)(2)
above.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunder duly authorized.
ULTRATECH STEPPER, INC.
By: /s/ ARTHUR W. ZAFIROPOULO
-----------------------------------------
Arthur W. Zafiropoulo
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Arthur W. Zafiropoulo and William G. Leunis, III,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board of
/s/ ARTHUR W. ZAFIROPOULO Directors, Chief
- ------------------------------ Executive Officer March 18, 1998
Arthur W. Zafiropoulo (Principal Executive
Officer) and President
Senior Vice President,
Finance, Chief Financial
/s/ WILLIAM G. LEUNIS, III Officer, Secretary and
- ------------------------------ Treasurer (Principal March 18, 1998
William G. Leunis, III Financial and Accounting
Officer)
/s/ KENNETH A. LEVY
- ------------------------------ Director March 18, 1998
Kenneth A. Levy
/s/ GREGORY HARRISON
- ------------------------------ Director March 18, 1998
Gregory Harrison
/s/ LARRY R. CARTER
- ------------------------------ Director March 18, 1998
Larry R. Carter
/s/ THOMAS D. GEORGE
- ------------------------------ Director March 18, 1998
Thomas D. George
/s/ JOEL GEMUNDER
- ------------------------------ Director March 18, 1998
Joel Gemunder
25
SCHEDULE II
ULTRATECH STEPPER, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO
BEGINNING COSTS AND CHARGED TO DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS (1) END OF PERIOD
- ---------------------------------------------- ----------- ----------- --------------- ------------- -------------
Year ended December 31, 1995:
Allowance for doubtful accounts............. $ 242 $ 371 $ -- $ -- $ 613
Year ended December 31, 1996:
Allowance for doubtful accounts............. $ 613 $ 1,225 $ -- $ (687) $ 1,151
Year ended December 31, 1997:
Allowance for doubtful accounts............. $ 1,151 $ 2,205 $ -- $ (1,098) $ 2,258
- ------------------------
(1) Deductions represent write-offs against reserve account balances.
S-1