Ultratech, Inc.
ULTRATECH INC (Form: 10-Q, Received: 10/28/2013 13:38:55)
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
——————————————————
FORM 10-Q
——————————————————
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2013
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  ______to ______            

Commission File Number 0-22248
——————————————————
ULTRATECH, INC.
(Exact name of registrant as specified in its charter)
——————————————————
DELAWARE
 
94-3169580
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
3050 Zanker Road, San Jose, California
 
95134
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code (408) 321-8835
—————————————————————————————————————————
(Former name, former address and former fiscal year, if changed since last report)  
——————————————————
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
ý
Non-accelerated filer
o   (Do not check if a smaller reporting company)
Smaller reporting company
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
Class
  
Outstanding as of September 28, 2013
common stock, $0.01 par value
  
27,829,335


Table of Contents

ULTRATECH, INC.
INDEX
 
 
 
Condensed Consolidated Balance Sheets as of September 28, 2013 and December 31, 2012
Condensed Consolidated Statements of Operations for the three and nine months ended September 28, 2013 and September 29, 2012
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 28, 2013 and September 29, 2012
Condensed Consolidated Statements of Cash Flows for the nine months ended September 28, 2013 and September 29, 2012
 
EXHIBIT 31.1
 
EXHIBIT 31.2
 
EXHIBIT 32.1
 

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ULTRATECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands)
September 28,
2013
 
December 31,
2012*
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
62,730

 
$
96,968

Short-term investments
237,689

 
205,540

Accounts receivable, net
35,890

 
42,464

Inventories, net
57,331

 
46,794

Prepaid expenses and other current assets
7,918

 
8,305

Total current assets
401,558

 
400,071

Property, plant, and equipment, net
24,641

 
19,801

Intangible assets, net
16,174

 
12,282

Other assets
5,816

 
4,832

Total assets
$
448,189

 
$
436,986

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable
$
1,000

 
$
1,000

Accounts payable
13,233

 
17,741

Deferred product and services income
6,545

 
16,964

Other current liabilities
13,808

 
14,860

Total current liabilities
34,586

 
50,565

Other liabilities
11,817

 
11,235

Stockholders’ equity
401,786

 
375,186

Total liabilities and stockholders’ equity
$
448,189

 
$
436,986

__________________
*     The balance sheet as of December 31, 2012 has been derived from the audited financial statements at that date.
See accompanying notes to unaudited condensed consolidated financial statements

3

Table of Contents

ULTRATECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share amounts)
September 28,
2013
 
September 29,
2012
 
September 28,
2013
 
September 29,
2012
Net sales:
 
 
 
 
 
 
 
Products
$
26,235

 
$
56,242

 
$
121,471

 
$
154,870

Services
3,397

 
3,652

 
11,373

 
13,061

Licenses
100

 
653

 
400

 
1,303

Total net sales
29,732

 
60,547

 
133,244

 
169,234

Cost of sales:
 
 
 
 
 
 
 
Cost of products sold
14,953

 
22,844

 
59,071

 
64,825

Cost of services
2,989

 
3,534

 
8,813

 
9,801

Total cost of sales
17,942

 
26,378

 
67,884

 
74,626

Gross profit
11,790

 
34,169

 
65,360

 
94,608

Operating expenses:
 
 
 
 
 
 
 
Research, development, and engineering
8,415

 
7,745

 
24,613

 
22,280

Selling, general, and administrative
12,082

 
11,469

 
35,265

 
32,938

Operating income (loss)
(8,707
)
 
14,955

 
5,482

 
39,390

Interest expense

 
(1
)
 
(48
)
 
(6
)
Interest and other income (expense), net
327

 
126

 
298

 
208

Income (loss) before income tax
(8,380
)
 
15,080

 
5,732

 
39,592

Provision for (benefit from) income taxes
(630
)
 
2,638

 
(1,066
)
 
5,779

Net income (loss)
$
(7,750
)
 
$
12,442

 
$
6,798

 
$
33,813

Net income (loss) per share - basic
$
(0.28
)
 
$
0.46

 
$
0.24

 
$
1.27

Number of shares used in per share computations - basic
28,079

 
27,047

 
27,945

 
26,635

Net income (loss) per share - diluted
$
(0.28
)
 
$
0.45

 
$
0.24

 
$
1.23

Number of shares used in per share computations - diluted
28,079

 
27,777

 
28,733

 
27,481

See accompanying notes to unaudited condensed consolidated financial statements

4

Table of Contents

ULTRATECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
(In thousands)
September 28,
2013
 
September 29,
2012
 
September 28,
2013
 
September 29,
2012
Net income (loss)
$
(7,750
)
 
$
12,442

 
$
6,798

 
$
33,813

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
    Change in unrealized gain on investments
100

 
75

 
14

 
35

    Change in minimum post retirement benefits obligation
1

 
2

 
6

 
8

    Change in cash flow hedges

 

 
(89
)
 


Other comprehensive income (loss)
101

 
77

 
(69
)
 
43

Total comprehensive income (loss)
$
(7,649
)
 
$
12,519

 
$
6,729

 
$
33,856

See accompanying notes to unaudited condensed consolidated financial statements


5

Table of Contents


ULTRATECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine Months Ended
(In thousands)
September 28,
2013
 
September 29,
2012
Cash flows from operating activities:
 
 
 
Net income
$
6,798

 
$
33,813

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation
4,122

 
3,373

Amortization of intangibles and other
1,471

 
620

Amortization of security premium
(128
)
 
(67
)
Gain on disposal of equipment
13

 
5

Stock-based compensation
10,782

 
8,379

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
6,574

 
6,180

Inventories
(10,493
)
 
(6,511
)
Prepaid expenses and other current assets
297

 
292

Other assets
(1,174
)
 
(929
)
Accounts payable
(4,508
)
 
4,549

Deferred product and services income
(10,419
)
 
6,714

Other current liabilities
(1,052
)
 
(6,578
)
Other liabilities
488

 
6,123

Net cash provided by operating activities
2,771

 
55,963

Cash flows from investing activities:
 
 
 
Capital expenditures
(9,092
)
 
(6,198
)
Purchase of intangible assets
(5,000
)
 
(8,000
)
Purchase of investments in securities
(189,737
)
 
(266,225
)
Proceeds from maturities of investments
157,730

 
228,925

Net cash used in investing activities
(46,099
)
 
(51,498
)
Cash flows from financing activities:
 
 
 
Proceeds from notes payable
3,000

 
3,000

Repayment of notes payable
(3,000
)
 
(3,000
)
Proceeds from issuance of common stock for stock option exercises
12,573

 
15,372

Tax payment for issuance of common stock from release of restricted stock units
(3,483
)
 
(4,312
)
Net cash provided by financing activities
9,090

 
11,060

Net increase (decrease) in cash and cash equivalents
(34,238
)
 
15,525

Cash and cash equivalents at beginning of period
96,968

 
58,780

Cash and cash equivalents at end of period
$
62,730

 
$
74,305

See accompanying notes to unaudited condensed consolidated financial statements

6

Table of Contents

Ultratech, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 28, 2013

(1) Description of Business

Ultratech, Inc. (referred to herein as “Ultratech,” the “Company”, “we”, “our” or “us”) develops, manufactures and markets photolithography, laser thermal processing and inspection equipment designed to reduce the cost of ownership for manufacturers of semiconductor devices, including advanced packaging processes and various nanotechnology components including thin film head magnetic recording devices ("thin film heads" or "TFHs"), optical networking devices, laser diodes and high-brightness light emitting diodes ("HBLEDs") and atomic layer deposition ("ALD") for customers located throughout North America, Europe, Singapore, Japan, Taiwan, Korea and the rest of Asia. Ultratech was incorporated in the state of Delaware in 1992.

We supply step-and-repeat photolithography systems based on one-to-one imaging technology. Within the semiconductor industry, we target the market for advanced packaging applications. Our laser thermal processing equipment is targeted at advanced annealing applications within the semiconductor industry. Within the nanotechnology industry, our target markets include thin film head magnetic recording devices, ink jet print heads, laser diodes and HBLEDs and atomic layer deposition. In 2012, we introduced our new in-line wafer inspection system, the Superfast 3G, which provides the flexibility to address a wide range of applications including improved overlay control and enhanced yield.

In evaluating our business, we gave consideration to the Chief Executive Officer’s review of financial information and the organizational structure of our management. Based on this review, we concluded that, at the present time, resources are allocated and other financial decisions are made based on our consolidated financial information. Accordingly, we have determined that we operate in one business segment, which is the manufacture and distribution of capital equipment to manufacturers of semiconductor devices and nanotechnology components.

(2) Basis of Presentation

The accompanying condensed consolidated financial statements include our accounts and the accounts of our subsidiaries. All intercompany accounts and transactions have been eliminated.

Our interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") for interim financial information and the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial statements and accounting policies, consistent, in all material respects with those applied in preparing our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 , filed with the SEC on March 1, 2013, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In our opinion, all adjustments, consisting of only normal recurring adjustments considered necessary for fair presentation, have been included.

Our fiscal periods end on the Saturday closest to month-end, except that our fiscal year ends on December 31. All references to the quarter or three month period refer to our fiscal quarter. Our fiscal quarters covered by this report ended on September 28, 2013 and September 29, 2012 .

Operating results for the three and nine month periods ended September 28, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 , or any future periods.

USE OF ESTIMATES — The preparation of the financial statements and related disclosures in conformity with U.S. GAAP require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of the consolidated financial statements. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. On an ongoing basis, management evaluates its estimates, including those related to inventories, purchase order commitments, warranty obligations, asset retirement obligations, bad debts, estimated useful lives of fixed assets and intangible assets, asset impairment, intangible asset impairment, income taxes, deferred income tax valuation allowance, stock-based compensation, and contingencies and litigation. We base our estimates on historical experience and on various other analyses and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

7



IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2013, the Financial Accounting Standards Board ("FASB") issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, with the purpose of reducing diversity in practice. This new standard requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. The new guidance is effective for us beginning January 1, 2014. Early adoption is permitted. We are currently in the process of determining the impact on our financial position.

In February 2013, the FASB issued guidance on disclosure requirements for items reclassified out of Accumulated Other Comprehensive Income ("AOCI"). This new guidance requires entities to present (either on the face of the income statement or in the notes) the effects on the line items of the income statement for amounts reclassified out of AOCI. The new guidance is effective for us beginning January 1, 2013. We adopted the guidance during the first quarter of 2013 and there was no material impact on our condensed consolidated financial statements.

In July 2012, the FASB issued amendments to the indefinite-lived intangible asset impairment guidance which provides an option for companies to use a qualitative approach to test indefinite-lived intangible assets for impairment if certain conditions are met. The amendments are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. We adopted the amended accounting guidance during the first quarter of 2013 and there was no material impact on our condensed consolidated financial statements.

Revenue Recognition
 
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the arrangement consideration is fixed or determinable, and collectability is reasonably assured. We derive revenue from four sources: system sales, spare parts sales, service contracts and license fees.
 
Provided all other criteria are met, we recognize revenues on system sales when system acceptance provisions have been met in accordance with the terms and conditions of the arrangement. In the event that terms of the sale provide for a lapsing system acceptance period, we recognize revenue upon the expiration of the lapsing acceptance period or system acceptance, whichever occurs first. In these instances, which are infrequent, revenue is recorded only if the product has met product specifications prior to shipment and management deems that no significant uncertainties as to product performance exist. Our transactions frequently include the sale of systems and services under multiple element arrangements. In transactions with multiple deliverables, revenue is recognized upon the delivery of the separate elements and when system acceptance has occurred or we are otherwise released from our system acceptance obligations.
 
We adopted Accounting Standard Update (“ASU”) No. 2009-13, Revenue Recognition ("Topic 605") - Multi-Deliverables Revenue Arrangements, a Consensus of the FASB Emerging Issues Task Force on a prospective basis for applicable transactions originating or materially modified on or subsequent to January 1, 2011. For multiple element arrangements, the total consideration for an arrangement is allocated among the separate elements in the arrangement based on a selling price hierarchy. The selling price hierarchy for a deliverable is based on (i) vendor specific objective evidence ("VSOE"); if available; (ii) third party evidence of selling price if VSOE is not available; or (iii) an estimated selling price, if neither VSOE nor third party evidence is available. If we have not established VSOE and cannot obtain third party evidence of selling price, we determine our estimate of the relative selling price by considering our production costs and historical margins of similar products or services. We believe this best represents the price at which we would transact a sale if the product or service were sold on a stand-alone basis. We regularly review the method used to determine our relative selling price and update any estimates accordingly. We limit the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services or other future performance obligations.

We generally recognize revenue from sales of our spare parts upon shipment, as our products are generally sold on terms that transfer title and risk of ownership when it leaves our site. We sell service contracts for which revenue is deferred and recognized ratably over the contract period (for time-based service contracts) or as service hours are delivered (for contracts based on a purchased quantity of hours). We recognize license revenue from transactions in which our systems are re-sold by our customers to third parties, as well as from royalty arrangements.
 
Costs related to deferred product revenues are capitalized (deferred) and recognized at the time of revenue recognition. Deferred product revenue and costs are netted on our balance sheet, under the caption “deferred product and services income.”

8


The gross amount of deferred revenues and deferred costs at September 28, 2013 were $8.5 million and $2.0 million , respectively, as compared to $24.6 million and $7.6 million , respectively, at December 31, 2012 .
 
Costs incurred for shipping and handling are included in cost of sales.




(3) Stock-Based Compensation

Stock-based compensation expense recognized under ASC Topic 718, Compensation – Stock Compensation (“ASC 718”), for employees and directors and the effect on our Condensed Consolidated Statements of Operations were as follows:

 
Three Months Ended
 
Nine Months Ended
(In thousands)
September 28,
2013
 
September 29,
2012
 
September 28,
2013
 
September 29,
2012
Cost of sales
$
205

 
$
179

 
$
557

 
$
430

Research, development, and engineering
653

 
492

 
1,779

 
1,231

Selling, general and administrative expenses
3,245

 
2,683

 
8,446

 
6,718

Total stock-based compensation expense
$
4,103

 
$
3,354

 
$
10,782

 
$
8,379


Stock-based compensation cost capitalized as part of inventory was insignificant and $0.2 million during the three and nine month periods ended September 28, 2013, respectively. The amount capitalized for the three and nine month periods ended September 29, 2012 was $0.1 million and $0.3 million , respectively.
    
As required by ASC 718, we estimate expected forfeitures and recognize compensation costs only for those equity awards expected to vest. As of September 28, 2013 , there was $52.3 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under our 1993 Stock Option Plan/Stock Issuance Plan, as amended (“1993 Plan”), and our 1998 Supplemental Stock Option/Stock Issuance Plan, as amended (“1998 Plan”). The costs related to stock options and restricted stock units are expected to be recognized over a weighted average period of 5.0 years and 4.3 years , respectively.

On July 19, 2011 , our stockholders approved amendments to the 1993 Plan which increased the number of shares available for issuance pursuant to the 1993 Plan by 3.3 million shares. The amendments, which were adopted by our Board of Directors on May 31, 2011, effective as of their approval by our stockholders, increased the share reserve, altered share-counting procedures, made changes to the non-employee director automatic grant program and enabled the grant of performance-based awards under the plan. These plans provide for the grant of stock-based awards to our eligible employees, consultants and advisers and non-employee directors. As of September 28, 2013 , there were 1.4 million shares reserved for future awards under the 1993 Plan and no shares reserved for future awards under the 1998 Plan as the plan expired on October 19, 2008.

We used the following weighted-average assumptions to estimate the fair value of our stock options granted during the three and nine month periods ended September 28, 2013 and September 29, 2012 :
 
 
Three Months Ended
 
Nine Months Ended
 
September 28,
2013
 
September 29,
2012
 
September 28,
2013
 
September 29,
2012
Expected life (in years)
5.9
 
8.4
 
5.9
 
7.8
Risk-free interest rate
1.3%
 
1.3%
 
0.9%
 
1.4%
Volatility
48%
 
49%
 
47%
 
48%
Dividend yield
—%
 
—%
 
—%
 
—%

Our stock options granted during the three and nine month periods ended September 28, 2013 were granted with vesting terms of 50 months.



9


(4) Basic and Diluted Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net income (loss) per share for the three and nine month periods ended September 28, 2013 and September 29, 2012:
 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share amounts)
September 28,
2013
 
September 29,
2012
 
September 28,
2013
 
September 29,
2012
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
(7,750
)
 
$
12,442

 
$
6,798

 
$
33,813

Denominator:
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
28,079

 
27,047

 
27,945

 
26,635

Effect of dilutive employee stock options and restricted stock units

 
730

 
788

 
846

Diluted weighted-average shares outstanding
28,079

 
27,777

 
28,733

 
27,481

 
 
 
 
 
 
 
 
Net income (loss) per share - basic
$
(0.28
)
 
$
0.46

 
$
0.24

 
$
1.27

 
 
 
 
 
 
 
 
Net income (loss) per share - diluted
$
(0.28
)
 
$
0.45

 
$
0.24

 
$
1.23


The dilutive effect of outstanding options and restricted stock units is reflected in diluted net income per share, but not diluted net loss per share, by application of the treasury stock method, which includes consideration of stock-based compensation required by U.S. GAAP. As the Company had a net loss for the three month period ending September 28, 2013, both basic and diluted net loss per share are the same.

For the three and nine month periods ended September 28, 2013 , 2.0 million and 1.4 million shares of common stock, respectively, subject to outstanding options were excluded from the computation of diluted net income (loss) per share, as the effect would have been anti-dilutive, as compared to 1.4 million and 1.3 million shares of common stock related to outstanding options for the corresponding periods of 2012 .

There were 0.3 million and 0.1 million shares of common stock underlying outstanding restricted stock units excluded from the computation of diluted net income (loss) per share for the three and nine month periods ended September 28, 2013 , respectively. There were no shares of common stock underlying outstanding restricted stock units excluded from the computation for the corresponding periods of 2012 . Options and restricted stock units are anti-dilutive when we have a net loss or when the exercise price and the average unrecognized compensation cost of the stock option or restricted stock unit is greater than the average market price of our common stock during the period.

(5) Fair Value Measurements

Fair value is defined under ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 - Quoted prices for identical assets or liabilities in active markets.
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3 - Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable.

    

10


We measure certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale securities and foreign currency derivatives. The fair value of these certain financial assets and liabilities was determined using the following inputs at September 28, 2013 and December 31, 2012 :
 
 
Fair Value Measurements at September 28, 2013
(In thousands)
Total
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Available-for-sale securities (1)
 
 
 
 
 
 
 
Commercial paper
$
5,198

 
$

 
$
5,198

 
$

Money market funds
12,569

 
12,569

 

 

U.S. treasury bills and notes
6,115

 

 
6,115

 

Securities and obligations of U.S. government agencies
228,376

 

 
228,376

 

 
252,258

 
12,569

 
239,689

 

Foreign currency derivatives (2)
11

 

 
11

 

Foreign currency derivatives (3)
(7
)
 

 
(7
)
 

 
$
252,262

 
$
12,569

 
$
239,693

 
$

 
 
 
 
 
 
 
 
 
Fair Value Measurements at December 31, 2012
(In thousands)
Total
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Available-for-sale securities (1)
 
 
 
 
 
 
 
Commercial paper
$
19,996

 
$

 
$
19,996

 
$

Money market funds
15,107

 
15,107

 

 

U.S. treasury bills and notes
6,045

 

 
6,045

 

Securities and obligations of U.S. government agencies
210,730

 

 
210,730

 

 
251,878

 
15,107

 
236,771

 

Foreign currency derivatives (2)
28

 

 
28

 

Foreign currency derivatives (3)
(31
)
 

 
(31
)
 

 
$
251,875

 
$
15,107

 
$
236,768

 
$

________________ 
(1)
Included in cash and cash equivalents and short-term investments on our condensed consolidated balance sheets. See “Investments” in Note 6 for further details.
(2)
Included in other current assets on our condensed consolidated balance sheets. Consisted of forward foreign exchange contracts for the Japanese yen. See “Derivative Instruments and Hedging” in Note 7 for further details.
(3)
Included in other current liabilities on our condensed consolidated balance sheets. Consisted of forward foreign exchange contracts for the Japanese yen. See “Derivative Instruments and Hedging” in Note 7 for further details.


(6) Investments

We classified all of our investments as “available for sale” as of September 28, 2013 and December 31, 2012 . Accordingly, we state our investments at estimated fair value. Fair values are determined based on quoted market prices or pricing models using current market rates. We deem all investments to be available to meet current working capital requirements. The cost of securities sold was determined based on the specific identification method.

11



The following table summarizes our investments at September 28, 2013 and December 31, 2012:
 
 
September 28, 2013
 
December 31, 2012
 
Amortized
Cost
 
Accumulated
Other
Comprehensive Income
 
Estimated
Fair  Value
 
Amortized
Cost
 
Accumulated
Other
Comprehensive Income
 
Estimated
Fair  Value
Available-for-sale securities
(in thousands)
Gains
 
Losses
 
Gains
 
Losses
 
Commercial paper
$
5,198

 
$

 
$

 
$
5,198

 
$
19,996

 
$

 
$

 
$
19,996

Money market funds
12,569

 

 

 
12,569

 
15,107

 

 

 
15,107

U.S. treasury bills and notes
6,109

 
6

 

 
6,115

 
6,040

 
5

 

 
6,045

Securities and obligations of U.S. government agencies
228,343

 
92

 
59

 
228,376

 
210,710

 
77

 
57

 
210,730

Total
$
252,219

 
$
98

 
$
59

 
$
252,258

 
$
251,853

 
$
82

 
$
57

 
$
251,878


The following table identifies the balance sheet classifications of our investments at September 28, 2013 and December 31, 2012 :
(In thousands)
September 28,
2013
 
December 31,
2012
Cash equivalents
$
14,569

 
$
46,338

Short-term investments
237,689

 
205,540

Investments, at estimated fair value
$
252,258

 
$
251,878


The gross amortized cost and estimated fair value of our investments at September 28, 2013 and December 31, 2012 , by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
 
September 28, 2013
 
December 31, 2012
(In thousands)
Gross
Amortized
Cost
 
Fair
Value
 
Gross
Amortized
Cost
 
Fair
Value
Due in one year or less
$
223,528

 
$
223,538

 
$
245,827

 
$
245,847

Due after one year through five years
28,691

 
28,720

 
6,026

 
6,031

Total
$
252,219

 
$
252,258

 
$
251,853

 
$
251,878


The following table provides the breakdown of the cash equivalents and investments with unrealized losses at September 28, 2013 :
 
In Loss Position for
Less Than 12 Months
 
Total
(In thousands)
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Securities and obligations of U.S. government agencies
$
7,000

 
$
59

 
$
7,000

 
$
59

Total
$
7,000

 
$
59

 
$
7,000

 
$
59



12


The following table provides the breakdown of the cash equivalents and investments with unrealized losses at December 31, 2012 :
 
In Loss Position for
Less Than 12 Months
 
Total
(In thousands)
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Securities and obligations of U.S. government agencies
$
15,896

 
$
57

 
$
15,896

 
$
57

Total
$
15,896

 
$
57

 
$
15,896

 
$
57


We review our investment portfolio regularly for impairment. A security is considered impaired when its fair value is less than its cost basis. If we intend to sell an impaired debt security or it is more likely than not that we will be required to sell it prior to recovery of its amortized cost basis, an other-than-temporary-impairment (“OTTI”) is deemed to have occurred. In these instances, the OTTI loss is recognized in earnings equal to the entire difference between the debt security’s amortized cost basis and its fair value at the balance sheet date.

If we do not intend to sell an impaired debt security and it is not more likely than not that we will be required to sell it prior to recovery of its amortized cost basis, we must determine whether it will recover its amortized cost basis. If we conclude it will not, a credit loss exists and the resulting OTTI is separated into:
The amount representing the credit loss, which is recognized in earnings, and
The amount related to all other factors, which is recognized in other comprehensive income.

As part of this assessment we will consider the various characteristics of each security, including, but not limited to the following: the length of time and the extent to which the fair value has been less than the amortized cost basis; adverse conditions specifically related to the security, an industry, or a geographic area; the payment structure of the debt security; failure of the issuer of the security to make scheduled interest or principal payments; any changes to the rating of the security by a rating agency and related outlook or status; and recoveries or additional declines in fair value subsequent to the balance sheet date. The relative importance of this information varies based on the facts and circumstances surrounding each security, as well as the economic environment at the time of assessment.

We have not recorded any OTTI of our investments for any of the three and nine month periods ended September 28, 2013 and September 29, 2012 .

(7) Derivative Instruments and Hedging

The majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, we also enter into these transactions in other currencies, primarily Japanese yen as we have direct sales operations in Japan and related orders are often denominated in Japanese yen. This subjects us to a higher degree of risk from currency exchange rate fluctuations.

Our policy is to minimize foreign currency denominated transaction and remeasurement exposure with derivative instruments, mainly forward contracts. We enter into foreign currency forward contracts that generally have maturities of nine months or less. The gains and losses on these derivatives are intended to mitigate the translation gains and losses recognized in earnings. We do not enter into foreign exchange forward contracts for speculative purposes.

Under ASC Topic 815, Derivatives and Hedging (“ASC 815”), all derivatives are recorded on the balance sheet at fair value. The gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. All of our derivatives are designated as hedging instruments under ASC 815.


13


The fair value of derivative instruments recorded in our Condensed Consolidated Balance Sheets is as follows:
 
 
Derivatives
 
 
 
 
Fair Value as of
(In thousands)
 
Balance Sheets Location
 
September 28,
2013
 
December 31,
2012
Foreign exchange contracts
 
Other current assets
 
$
11

 
$
28

 
 
Other current liabilities
 
(7
)
 
(31
)
Total derivatives
 
 
 
$
4

 
$
(3
)

Our derivative financial instruments are subject to both credit and market risk. Credit risk is the risk of loss due to failure of a counterparty to perform its obligations in accordance with contractual terms. Market risk is the potential change in an investment’s value caused by fluctuations in interest and currency exchange rates, credit spreads or other variables. We monitor the credit-worthiness of the financial institutions that are counterparties to our derivative financial instruments and do not consider the risks of counterparty nonperformance to be material. Credit and market risks, as a result of an offset by the underlying assets being hedged, related to derivative instruments were not considered material at September 28, 2013 and December 31, 2012 .

Cash Flow Hedging

We designate and document as cash flow hedges foreign exchange forward contracts that are used by us to hedge the risk that the forecasted sale may be adversely affected by changes in foreign currency exchange rates. The effective portion of the contracts’ gains or losses is included in accumulated other comprehensive income (loss) (“AOCI”) until the period in which the forecasted sale being hedged is recognized, at which time the amount in AOCI is reclassified to earnings as a component of revenue. To the extent that any of these contracts are not considered to be effective in offsetting the change in the value of the forecasted sales being hedged, the ineffective portion of these contracts is immediately recognized in income as a component of interest and other income, net. For the year ended December 31, 2012, there was one cash flow hedge with $0.1 million excluded from effectiveness testing. This hedge was for 179.0 million yen with a U.S. dollar value of $2.2 million . We calculate hedge effectiveness at a minimum each fiscal quarter. We measure hedge effectiveness by comparing the cumulative change in the spot rate of the derivative with the cumulative change in the spot rate of the anticipated sales transactions. The maturity of these instruments is generally nine months or less. We record any excluded components of the hedge in interest and other income, net. We reclassified an accumulated gain from other comprehensive income (loss) during the nine month period ended September 28, 2013 in the amount of $0.1 million . There was no cash flow hedging activity in the three month period ended September 28, 2013.

Fair Value Hedging

We manage the foreign currency risk associated with Japanese yen denominated assets and liabilities using foreign exchange forward contracts. The change in fair value of these derivatives is recognized as a component of interest and other income (expense), net and is intended to offset the remeasurement gains and losses associated with the non-functional currency denominated assets and liabilities. At September 28, 2013 , we had one currency buy-forward contract for the purchase of 67.3 million Japanese yen, or approximately $0.7 million and one currency sell-forward contract for the sale of 42.5 million Japanese yen, or approximately $0.4 million . The fair value of derivatives classified as balance sheet hedges at September 28, 2013 and December 31, 2012 , respectively, was insignificant.

The following sets forth the effect of the derivative instruments on our Condensed Consolidated Statements of Operations for the three and nine month periods ended September 28, 2013 and September 29, 2012 :

14


 
 
 
 
Amount of Loss Recognized in Income on Derivatives During
Derivatives in ASC 815
Fair Value Hedging Relationship
Location of Loss Recognized in
Statements of Operations on Derivatives
 
Three months ended
September 28, 2013
(in thousands)
Nine months ended,
September 28, 2013
(in thousands)
Foreign exchange contracts
Interest and other income (expense), net
 
$
(1
)
$
(39
)
 
 
 
Amount of Gain Recognized in Income on Derivatives During
Derivatives in ASC 815
Fair Value Hedging Relationship
Location of Loss Recognized in
Statements of Operations on Derivatives
 
Three months ended
September 29, 2012
(in thousands)
Nine months ended,
September 29, 2012
(in thousands)
Foreign exchange contracts
Interest and other income (expense), net
 
$
15

$
22


(8) Inventories, net

Inventories consisted of the following at September 28, 2013 and December 31, 2012:
(In thousands)
September 28,
2013
 
December 31,
2012
Raw materials
$
23,767

 
$
19,597

Work-in-process
15,177

 
9,708

Finished products
18,387

 
17,489

Balance, end of the period
$
57,331

 
$
46,794


(9) Notes Payable

We have a line of credit agreement with a brokerage firm. Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds open rate plus 125 basis points (approximately 1.3% as of September 28, 2013 ). Funds are advanced to us under this facility based on pre-determined advance rates on the cash and securities held by us in this brokerage account. Under this facility, we may borrow up to 75% of our total cash, cash equivalents and investments balance in this brokerage account with no restriction in the use of those assets. This agreement has no set expiration date and there are no loan covenants, other than the aforementioned collateral requirement. As of September 28, 2013 and December 31, 2012 , $1.0 million and $1.0 million , respectively, were outstanding under this facility, with a related collateral requirement of approximately $1.3 million and $1.3 million , respectively, of our cash, cash equivalents and investments.

(10) Current Liabilities

Deferred Services Income

A portion of our revenue is generated from service contracts. Payments from certain of these service contracts are collected in advance. As such, revenues from these service contracts are deferred and recognized ratably over the contract period for time-based service contracts, or as service hours are delivered for contracts based on a purchased quantity of hours.

Changes in our deferred service revenue for the three and nine month periods ended September 28, 2013 and September 29, 2012 were as follows:
 
 
Three Months Ended
 
Nine Months Ended
(In thousands)
September 28,
2013
 
September 29,
2012
 
September 28,
2013
 
September 29,
2012
Balance, beginning of the period
$
7,398

 
$
5,602

 
$
6,062

 
$
4,991

Additions
508

 
1,478

 
4,784

 
5,332

Revenue recognized
(1,089
)
 
(1,153
)
 
(4,029
)
 
(4,396
)
Balance, end of the period
$
6,817

 
$
5,927

 
$
6,817

 
$
5,927

Balance sheets classification
 
 
 
 
 
 
 
Deferred service income-short term
$
5,362

 
$
4,636

 
 
 
 
Deferred service income-long term
1,455

 
1,291

 
 
 
 
Balance, end of period
$
6,817

 
$
5,927

 
 
 
 

15



Other current liabilities

Other current liabilities consisted of the following at September 28, 2013 and December 31, 2012:  
(In thousands)
September 28,
2013
 
December 31,
2012
Salaries and benefits
$
7,903

 
$
10,359

Warranty accrual
1,449

 
2,273

Advanced billings
2,349

 
29

Accrued taxes-other
359

 

Capital lease, current portion

 
15

Other
1,748

 
2,184

Balance, end of the period
$
13,808

 
$
14,860


Warranty Accrual

We generally warrant our new and refurbished products for material and labor to repair the product for periods of twelve months and three  months, respectively, from the date of system acceptance. Accordingly, an accrual for the estimated cost of the warranty is recorded at the time the product is shipped. Extended warranty terms, if granted, result in deferral of revenue equating to our standard pricing for similar service contracts. Recognition of the related warranty cost is deferred until product revenue is recognized. Factors that affect our warranty liability include the number of installed units, historical and anticipated rates of warranty claims and cost per claim. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary. We believe our warranty accrual as of September 28, 2013 is sufficient to satisfy our outstanding obligations as of that date.

Changes in our warranty accrual for the three and nine month periods ended September 28, 2013 and September 29, 2012 were as follows:
 
 
Three Months Ended
 
Nine Months Ended
(In thousands)
September 28,
2013
 
September 29,
2012
 
September 28,
2013
 
September 29,
2012
Balance, beginning of the period
$
1,873

 
$
2,795

 
$
2,273

 
$
2,398

Liabilities accrued for warranties issued
160

 
730

 
1,140

 
2,797

Warranty claims paid and utilized
(608
)
 
(793
)
 
(1,935
)
 
(2,075
)
Changes in accrued warranty liabilities
24

 
53

 
(29
)
 
(335
)
Balance, end of the period
$
1,449

 
$
2,785

 
$
1,449

 
$
2,785


Advanced Billings

On occasion, we require, or our customers pay, a deposit in advance of order shipment. These amounts are classified as advanced billings until the related order ships. The balance of $2.3 million of advanced billings was from multiple customers as of September 28, 2013 . There was an insignificant amount of advance payments received as of December 31, 2012 .



16


(11) Other Liabilities

Other liabilities at September 28, 2013 and December 31, 2012 consisted of the following:
(In thousands)
September 28,
2013
 
December 31,
2012
Long-term income taxes payable
$
2,978

 
$
3,710

Deferred compensation
3,550

 
2,477

Asset retirement obligation
2,214

 
2,123

Deferred service income-long term
1,455

 
1,631

Postretirement medical obligation
994

 
967

Deferred rent
526

 

Other
100

 
327

Balance, end of the period
$
11,817

 
$
11,235

    
(12) Accumulated Other Comprehensive Income (Loss)
    
Accumulated other comprehensive income (loss), net of tax, is comprised of the following items:
     
(In thousands)
Investments
 
Post Retirement Obligations
 
Cash Flow Hedges
 
Total
Balance as of December 31, 2012
$
25

 
$
(71
)
 
$
89

 
$
43

Other comprehensive income before reclassifications
14

 

 

 
14

Amounts reclassified from accumulated OCI

 
6

 
(89
)
 
(83
)
Net other comprehensive income (loss)
$
14

 
$
6

 
$
(89
)
 
$
(69
)
Balance as of September 28, 2013
$
39

 
$
(65
)
 
$

 
$
(26
)

The reclassifications out of accumulated OCI for the nine month period ending September 28, 2013 are as follows:
Details about Accumulated OCI Components
 
Amount Reclassified from Accumulated OCI for the Nine Months Ended September 28, 2013
 
Statement of Operations Presentation
(In thousands)
 
 
 

Post Retirement Obligations
 
 
 

Service cost
 
$
(6
)
 
Selling, general, and administrative
  subtotal

$
(6
)
 
Net of tax
Cash Flow Hedges

 
 

Cash flow hedges
 
$
89

 
Interest and other income (expense), net
  subtotal
 
$
89

 
Net of tax
Total reclassifications for the period
 
$
83

 
Net of tax




17


(13) Employee Benefit Plans

Employee bonus plans

We currently sponsor an executive incentive bonus plan that distributes employee awards based on the achievement of predetermined targets. We recorded a charge of $0.3 million and $1.5 million under this bonus plan for the three and nine month periods ended September 28, 2013 , respectively, as compared to $1.4 million and $4.0 million for the corresponding periods of 2012 .

Employee savings and retirement plans

We sponsor a 401(k) employee salary deferral plan that allows voluntary contributions by all full-time employees up to the Internal Revenue Service limits of their pretax earnings. We may also make matching contributions to this plan at our discretion. Employees are eligible for the matching plan if they contribute at least 2% of their compensation. Our contributions, when made, are limited to a maximum of 3% of the employee's compensation if the company exceeds certain income levels.
We did not contribute to this plan in the three month period ended September 28, 2013. We contributed $0.2 million to this plan in the nine month period ended September 28, 2013 . We contributed $0.1 million and $0.5 million to this plan for each of the three and nine month periods ended September 29, 2012 , respectively.

We also sponsor an executive non-qualified deferred compensation plan (the “Plan”) that allows qualifying executives to defer current cash compensation. As of September 28, 2013 , Plan assets of $3.0 million , representing the cash surrender value of life insurance policies held by us and liabilities of $3.6 million were included in our Consolidated Balance Sheets under the captions “Other assets” and “Other liabilities”, respectively. The related Plan expenses for each of the three and nine month periods ended September 28, 2013 and September 29, 2012 were insignificant .

Postretirement benefits

We have committed to providing and fully paying for lifetime postretirement medical and dental benefits to our Chief Executive Officer and Chief Financial Officer and their spouses, commencing after retirement. We recorded net periodic benefit costs of an insignificant amount for each of the three and nine month periods ended September 28, 2013 and September 29, 2012 .

(14) Income Taxes

For the three and nine month periods ended September 28, 2013 , we computed our U.S. provision for income taxes based upon the actual tax rate for that period by applying the discrete method, as we determined that small changes in the estimated income or loss for the U.S. jurisdiction would result in significant changes in the estimated annual effective tax rate for that jurisdiction. We computed our provision for income taxes in other jurisdictions based on an effective annual tax rate method. We recorded income tax benefits of $0.6 million and $1.1 million for the three and nine month periods ended September 28, 2013 , respectively, as compared to income tax provisions of $2.6 million and $5.8 million for the comparable periods in 2012. The income tax benefit recognized for the nine month period ended September 28, 2013 resulted primarily from tax benefits due to return to provision adjustments associated with the filing of our 2012 tax return and the extension of the federal research and development tax credits under the American Taxpayer Relief Act of 2012, partially offset by foreign income taxes. The income tax benefit recognized for the three month period ended September 28, 2013 resulted primarily from adjustments associated with the filing of our 2012 tax return.
In accordance with ASC Topic 740, Income Taxes (“ASC 740”), we had unrecognized tax benefits of $6.8 million as of December 31, 2012. We continue to recognize interest and penalties as a component of the income tax provision. If we are able to eventually recognize these uncertain tax positions, $6.8 million of our unrecognized benefit would reduce the effective tax rate. Over the next twelve months, we expect an insignificant decline in liabilities associated with our uncertain tax positions as a result of expiring statutes of limitations.
We currently have a full valuation allowance against our U.S. net deferred tax asset. We continue to monitor the relative weight of positive and negative evidence of future profitability in relevant jurisdictions. We have experienced historical profitability; however, as of September 28, 2013 , we have determined that the following negative evidence outweighs the positive evidence such that it is not more likely than not that we will generate sufficient taxable income in the relevant jurisdictions to utilize our deferred tax assets and release the associated valuation allowance:
Movement of certain product manufacturing to Singapore, resulting in reduced U.S. taxable income,
Inherent earnings volatility of our industry resulting in our inability to forecast long term earnings,

18


Usage limitations resulting in a longer period being required to realize our deferred tax assets, and
Net loss for the three month period ending September 28, 2013.

It is possible that sometime in the next 12 months the positive evidence will be sufficient to release a material amount of our valuation allowance; however there is no assurance that this will occur.
As a result of our analysis, we concluded that it is more likely than not that, as of September 28, 2013 , our net deferred tax assets will not be realized, with the exception of those in Japan and Taiwan. Therefore, we continue to provide a full valuation allowance against net deferred tax assets outside of Japan and Taiwan. We closely monitor available evidence, and as noted above, may release some or all of the valuation allowance in future periods.
We are subject to federal and state tax examinations for years 1999 forward and 1997 forward, respectively, by virtue of the tax attributes carrying forward from those years. We are also subject to audits in the foreign jurisdictions in which we operate for years 2003 and forward. There are no material income tax audits currently in progress as of September 28, 2013.

(15) Intangible Assets, net

On June 24, 2013, we acquired the rights to a collection of patents and patent applications including patents in advanced packaging, copper bumping and laser annealing.

As of September 28, 2013 , the gross carrying amount of our intangible assets was $18.1 million and accumulated amortization was $1.9 million . The weighted average life of all our intangible assets was 11.2 years as of September 28, 2013 . During the three and nine month periods ending September 28, 2013 , our amortization expense for our intangible assets was $0.4 million and $1.1 million , respectively, as compared to $0.2 million and $0.3 million for the corresponding periods of 2012.

(16) Commitments and Contingencies

Commitments

In March 2010, we entered into a building lease agreement in preparation for the expansion of our manufacturing operations in Singapore. The initial term of the lease is three years, and the lease is accounted for as an operating lease. On August 15, 2012, Ultratech SE Asia PTE, Ltd, an indirect wholly-owned subsidiary of Ultratech, Inc., renegotiated the lease and entered into a new lease, effective June 15, 2013. The new Singapore lease extended the term of the original lease such that it expires on June 14, 2018 and sets forth the revised base rent for each of the years covered. The minimum future lease payments to be made under this arrangement is $2.7 million .

In August 2008 and December 2009, we entered into agreements with a leasing company for the sale and leaseback of certain assets for an initial term of 4 years . The sale prices of these items were $6.8 million and $5.4 million in 2008 and 2009, respectively. There was no gain or loss from these transactions. These leases are classified as operating leases in accordance with ASC Topic 840, Leases. On May 10, 2012, we entered into a lease extension for the August 2008 transaction. The twenty-seven month extension is valued at $2.0 million and will expire on August 14, 2014. As of September 28, 2013, the minimum future lease payments to be made under these agreements were $0.9 million .

The table below summarizes our operating lease commitments as of September 28, 2013:
(In thousands)
 
 
For the years:
 
 
Remainder of 2013
 
$
1,051

2014
 
3,277

2015
 
2,665

2016
 
1,062

2017
 
940

Thereafter
 
337

Total minimum lease payments
 
$
9,332



19




Item 2.        Management's Discussion and Analysis of Financial Condition and Results of Operations

In addition to current and historical information, this Quarterly Report on Form 10-Q (“Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future operations, prospects, potential products, services, developments, and business strategies. These statements can, in some cases, be identified by the use of terms such as “may,” “will,” “should,” “could,” “would,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” or “continue” or the negative of such terms or other comparable terminology. This Report includes, among others, forward-looking statements regarding our expectations about:

the timing and recognition of revenue;
our manufacturing cycles, delivery and non-linearity of shipments, customer acceptance, and installation cycles of our products;
the need for continued large overhead expenses for the commercialization of our laser processing and inspection systems, the next generation 1X lithography technologies, and the next generation of 1X wafer steppers, which have relatively long manufacturing cycles and will require a significant expenditure on research and development, engineering, sales, support, and general administration, for which an increases in any of these costs, or a failure to meet our sales targets, could materially impact our cash flow and operating results;
revenue from licensing activities and arrangements;
variations in sales from period to period in volatile markets such as nanotechnology;
the market acceptance and volume production of our advanced packaging systems, laser processing systems, inspections systems and our 1000 platform steppers;
demand for our products and technological change;
industry developments that impact our customers and demand for their products;
sales to international customers which represent a significant portion of our revenue;
our future cash flow, short term investments, and access to additional credit and equity being sufficient to meet our operating requirements for the next 12 months;
foreign and domestic tax rates and treatment; and
the financial and operational impact of acquisitions or development of future product lines, technologies, businesses, or the issuance of debt and equity securities.
These statements involve certain known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those listed in Part II, Item 1A. “Risk Factors” of this Report. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Report to reflect actual results or future events or circumstances.

OVERVIEW

We develop, manufacture and market photolithography, laser thermal processing and inspection equipment for manufacturers of semiconductor devices, including advanced packaging processes and various nanotechnology components such as thin film head magnetic recording devices, laser diodes, high-brightness light emitting diodes ("HBLEDS") and atomic layer deposition ("ALD") for customers located throughout North America, Europe, Singapore, Japan, Taiwan, Korea and the rest of Asia. We supply step-and-repeat photolithography systems based on one-to-one imaging technology. Within the semiconductor industry, we target the market for advanced packaging applications. Our laser thermal processing equipment is targeted at advanced annealing applications within the semiconductor industry. Within the nanotechnology industry, our target markets include thin film head magnetic recording devices, ink jet print heads, HBLEDs and atomic layer deposition for the nanotechnology portion of our defined served market.

RESULTS OF OPERATIONS

We derive a substantial portion of our total net sales from sales of a relatively small number of newly manufactured systems, which typically range in price from $0.2 million to $6.0 million. As a result of the larger sale prices, the timing and recognition of revenue from a single transaction has had and most likely will continue to have a significant impact on our net sales and operating results for any particular period.

Our backlog at the beginning of a period typically does not include all of the sales needed to achieve our sales objectives for that period. In addition, orders in backlog are subject to cancellation, shipment or system acceptance delays, and deferral or rescheduling by a customer with limited or no penalties. Consequently, our net sales and operating results for a

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Table of Contents

period have been and will continue to be dependent upon our obtaining orders for systems to be shipped and accepted in the same period in which the order is received. Our 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 and system acceptance during that period. Furthermore, a substantial portion of our shipments has historically occurred near the end of each quarter. Delays in installation and system acceptance due, for example, to our inability to successfully demonstrate the agreed-upon specifications or criteria at the customer’s facility, or to the failure of the customer to permit installation of the system in the agreed upon time, may cause net sales in a particular period to fall significantly below our expectations, which may materially adversely affect our operating results for that period. This risk is especially applicable in connection with the introduction and initial sales of a new product line or as a result of industry trends impacting our foundry customers, including a shift toward semiconductors utilizing new technology transistor architecture. Additionally, the failure to receive anticipated orders or delays in shipments due, for example, to rescheduling, delays, deferrals or cancellations by customers, additional customer configuration requirements, or to unexpected manufacturing difficulties or delays in deliveries by suppliers due to their long production lead times or otherwise, have caused and may continue to cause net sales in a particular period to fall significantly below our expectations and for our operating results to vary from period to period, materially adversely affecting our operating results for that period. In particular, the long manufacturing and acceptance cycles of our advanced packaging family of wafer steppers, laser thermal processing and inspection systems and the long lead time for lenses and other materials, could cause shipments and acceptances of such products to be delayed from one quarter to the next, which could materially adversely affect our financial condition and results of operations for a particular quarter.

Additionally, the need for continued expenditures for research and development, capital equipment, ongoing training and worldwide customer service and support, among other factors, will make it difficult for us to reduce our operating expenses in a particular period if we fail to achieve our net sales goals for the period.

Sales Summary
    
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 28, 2013
 
September 29, 2012
 
September 28, 2013
 
September 29, 2012
International sales
 
55
%
 
52
%
 
71
%
 
63
%
Domestic sales
 
45
%
 
48
%
 
29
%
 
37
%
Total sales
 
100
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
Semiconductor systems sales
 
67
%
 
85
%
 
83
%
 
80
%
Nanotechnology systems sales
 
33
%
 
15
%
 
17
%
 
20
%
Total systems sales
 
100
%
 
100
%
 
100
%
 
100
%

Net Sales

Third Quarter
     
 
Three Months Ended
 
 
 
 
(In thousands, except percentages)
September 28,
2013
 
September 29,
2012
 
Amount of
Change
 
Percentage
Change
Sales of:
 
 
 
 
 
 
 
Products
$
26,235

 
$
56,242

 
$
(30,007
)
 
(53.4
)%
Services
3,397

 
3,652

 
(255
)
 
(7.0
)%
Licenses
100

 
653

 
(553
)
 
(84.7
)%
Total net sales
$
29,732

 
$
60,547

 
$
(30,815
)
 
(50.9
)%

Net sales consist of revenues from products (system, system upgrades, and spare parts sales), services, and licensing of technologies. Product sales decreased by 53.4% to $26.2 million for the three month period ended September 28, 2013 , as compared to $56.2 million in the corresponding period of 2012 . The $30.0 million decrease was due to (i) decreased system sales of $26.7 million, (ii) decreased system upgrade sales of $1.9 million, and (iii) decreased parts sales of $1.4 million.

On a product market application basis, systems sales and system upgrades to the semiconductor market decreased $28.0 million to $14.1 million for the three month period ended September 28, 2013 , as compared to $42.1 million in the corresponding period of 2012 . The decrease was primarily due to a lesser number of system units sold. Semiconductor industry

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sales consist of sales to the advanced packaging market, the laser processing applications market, semiconductor and semiconductor inspection market.

Nanotechnology market system sales were $7.0 million for the three month period ended September 28, 2013 as compared to $7.6 million in system sales in the corresponding period of 2012 . The decrease in sales in the nanotechnology market of $0.6 million was primarily due to product mix. System sales to the nanotechnology market are highly dependent on customer capacity demand in the industries we serve, including HBLEDs, ALD, thin film heads, automotive MEMS, LED/laser diodes, and ink jet print heads, and therefore, we expect to experience significant variations in sales to this market from period to period.

Services sales for the three month period ended September 28, 2013 decreased by $0.3 million compared to the corresponding period in 2012 from $3.7 million to $3.4 million . This decrease is the result of a decrease in service contract sales.

License sales were $0.1 million for the three month period ended September 28, 2013 as compared to $0.7 million in the corresponding period of 2012. License revenue results from tool resales by our existing customers to third parties and from royalty arrangements. Pursuant to our license arrangements, such transactions are subject to a license fee based on units sold. Future revenues from licensing activities, if any, will be contingent upon existing and future licensing arrangements. We may not be successful in generating licensing revenues in the future and do not anticipate the recognition of significant levels of licensing income during the remainder of 2013.

For the three month period ended September 28, 2013 , international sales decreased $15.1 million to $16.3 million or 55% of total net sales, as compared to $31.4 million, or 52% of total net sales for the corresponding period of 2012 . For the three month period ended September 28, 2013 as compared to the corresponding 2012 period, (i) sales to Europe decreased by $7.2 million, (ii) sales to Korea decreased by $5.3 million, (iii) sales to the rest of Asia (other than Taiwan and Japan) decreased by $4.0 million, and (iv) sales to Taiwan decreased by $1.6 million, partially offset by increased sales to Japan of $3.0 million.

Our international revenue generally is not subject to significant exchange rate fluctuations, principally because sales contracts for our systems are generally denominated in U.S. dollars. In Japan, however, orders are sometimes denominated in Japanese yen. Yen denominated contracts subject us to the risk of currency fluctuations. We attempt to mitigate this risk by entering into foreign currency forward exchange contracts for the period between when an order is received and when it is recorded as revenue. After recording revenue, we use various mechanisms, such as natural hedges, to offset substantial portions of the gains or losses associated with our Japanese yen denominated receivables due to exchange rate fluctuations. We had approximately 40.6 million Japanese yen denominated receivables at September 28, 2013 . International sales expose us to a number of additional risks, including fluctuations in the value of local currencies relative to the U.S. dollar, which impact the relative cost of ownership of our products and, thus, the customer’s willingness to purchase our product. (See Part II, Item 1A, “Risk Factors” herein).

Year-To-Date
 
Nine Months Ended
 
 
 
 
(In thousands, except percentages)
September 28, 2013
 
September 29, 2012
 
Amount of
Change
 
Percentage
Change
Sales of:
 
 
 
 
 
 
 
Products
$
121,471


$
154,870

 
$
(33,399
)
 
(21.6
)%
Services
11,373


13,061

 
(1,688
)
 
(12.9
)%
Licenses
400


1,303

 
(903
)
 
(69.3
)%
Total net sales
$
133,244

 
$
169,234

 
$
(35,990
)
 
(21.3
)%

Product sales decreased by 21.6% to $121.5 million for the nine month period ended September 28, 2013 as compared to the same period in 2012. The decrease was mainly due to decreased systems sales of $21.5 million and decreased systems upgrade sales of $14.6 million, which was partially offset by increased parts sales of $2.7 million.
 
On a product market applications basis during the nine month period ended September 28, 2013, system sales (which includes systems upgrade sales) to the semiconductor industry decreased by $25.7 million to $85.5 million from the corresponding period of 2012. The decrease was primarily due to fewer units sold.


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Nanotechnology market sales were $16.9 million for the nine month period ended September 28, 2013 as compared to $27.3 million in the corresponding period in 2012, a decrease of $10.4 million. The decrease in sales in the nanotechnology market was primarily due to fewer HBLED units sold, partially offset by increased revenue from ALD products.

Services sales during the nine month period ended September 28, 2013 decreased by $1.7 million to $11.4 million from the comparable period of 2012. This decrease is the result of a decrease in service contract sales.

Revenues from licensing activities decreased by $0.9 million to $0.4 million for the nine month period ended September 28, 2013, as compared to the same period of 2012.

For the nine month period ended September 28, 2013, international net sales decreased by $11.9 million to $94.1 million, or 71% of total net sales, as compared with $106.0 million, or 63% of total net sales, for the comparable period of 2012. The decrease in international sales was due to (i) decreased sales to the rest of the Asia (other than Korea, Taiwan and Japan) of $27.6 million, (ii) decreased sales to Europe of $17.5 million, and (iii) decreased sales to Korea of $4.3 million, partially offset by (a) increased sales to Taiwan of $31.8 million, and (b) increased sales to Japan of $5.7 million.

Gross Profit

Third Quarter

On a comparative basis, gross margins decreased to 39.7% for the three month period ended September 28, 2013, compared to 56.4% for the corresponding period of 2012. The 16.7% decrease in gross margin was due to (i) a 9.2 percentage point decrease related to manufacturing inefficiencies resulting from lower production volume, (ii) a 4.2 percentage point decrease related to lower service cost utilization, and (iii) a 3.3 percentage point decrease related to increases in other manufacturing costs.

Year-to-Date
    
On a comparative basis, gross margin decreased to 49.1% for the nine month period ended September 28, 2013, compared to 55.9% for the corresponding period of 2012. The 6.8% decrease in gross margin was due to (i) a 3.1 percentage point increase in material costs due to product mix, (ii) a 2.9 percentage point decrease related to manufacturing inefficiencies resulting from lower production volume, and (iii) an 0.8 percentage point decrease related to lower service cost utilization.

Our gross profit as a percentage of sales has been and most likely will continue to be significantly affected by a variety of factors, including the following: the introduction of new products, which typically have higher manufacturing costs until manufacturing efficiencies are realized and which are typically discounted more than existing products until the products gain market acceptance; the mix of products sold; the rate of capacity utilization; write-down of inventory and open purchase commitments; product discounts, pricing and competition in our targeted markets; and non-linearity of shipments during the period that can result in manufacturing inefficiencies.

Operating Expenses

Third Quarter
     
 
Three Months Ended
 
 
 
 
(In thousands, except percentages)
September 28,
2013
 
September 29,
2012
 
Amount of
Change
 
Percentage
Change
Research, development, and engineering
$
8,415

 
$
7,745

 
$
670

 
8.7
%
Selling, general, and administrative
12,082

 
11,469

 
613

 
5.3
%
Total operating expenses
$
20,497

 
$
19,214

 
$
1,283

 
6.7
%

Research, development and engineering expenses for the three month period ended September 28, 2013 were $8.4 million , as compared to $7.7 million for the corresponding period in 2012 . The $0.7 million increase was due to (i) a $0.7 million increase in expenses related to the ALD product group, (ii) a $0.2 million increase in stock-based compensation expenses, and (iii) a $0.1 million increase in costs related to additional engineering projects, partially offset by a $0.3 million decrease in bonus plan expense. As a percentage of net sales, research, development and engineering expenses for the three months ended September 28, 2013 increased to 28.3% from 12.8% for the corresponding period of 2012 . This percentage increase was primarily due to the decrease in net sales experienced in the three month period ended September 28, 2013.

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Selling, general, and administrative expenses for the three month period ended September 28, 2013 were $12.1 million  as compared to $11.5 million for the corresponding period of 2012 . Selling, general and administrative expenses increased by $0.6 million due to (i) a $0.6 million increase in expenses related to the ALD product group, (ii) a $0.6 million increase in stock-based compensation expense, and (iii) a $0.1 million increase in sales and marketing related expenses, partially offset by a decrease of $0.7 million in bonus plan expense. As a percentage of net sales, selling, general and administrative expenses for the three month period ended September 28, 2013 increased to 40.6% as compared to 18.9% for the corresponding period of 2012 primarily due to the decrease in net sales experienced in the three month period ended September 28, 2013.

Year-To-Date
 
Nine Months Ended
 
 
 
 
(In thousands, except percentages)
September 28, 2013
 
September 29, 2012
 
Amount of
Change
 
Percentage
Change
Research, development, and engineering
$
24,613

 
$
22,280

 
$
2,333

 
10.5
%
Selling, general, and administrative
35,265

 
32,938

 
2,327

 
7.1
%
Total operating expenses
$
59,878

 
$
55,218

 
$
4,660

 
8.4
%

Research, development and engineering expenses for the nine month period ended September 28, 2013 were $24.6 million as compared to $22.3 million for the corresponding period in 2012. The $2.3 million increase was due to (i) a $1.7 million increase in expenses related to the ALD product group, (ii) a $0.5 million increase in stock-based compensation expenses, and (iii) a $0.9 million increase in costs related to additional engineering projects, partially offset by a $0.8 million decrease in bonus plan expense. As a percentage of net sales, research, development and engineering expenses for the nine month period ended September 28, 2013 increased to 18.5% from 13.2% for the corresponding period of 2012 . This percentage increase was due to the increase in research, development and engineering costs and to the decrease in net sales experienced in the nine month period ended September 28, 2013.

Selling, general and administrative expenses for the nine month period ended September 28, 2013 increased $2.3 million to $35.3 million from the corresponding period in 2012. This was primarily due to (i) a $1.7 million increase in expenses related to the ALD product group, (ii) a $1.7 million increase in stock-based compensation expense, (iii) a $1.5 million increase in sales and marketing related expenses, and (iv) a $0.3 million increase in field service administration costs partially offset by (a) a $1.6 million decrease in bonus plan expense, (b) a $1.0 million decrease in legal expenses, and (c) a $0.3 million decrease in travel and related expenses. As a percentage of net sales, selling, general and administrative expenses for the nine months ended September 28, 2013 increased to 26.5% from 19.5% for the corresponding period of 2012 due to both the increase in overall spending and the decrease in net sales over the same period.

Provision for Income Taxes
   
For the three and nine month periods ended September 28, 2013, we computed our U.S. provision for income taxes based upon the actual tax rate for that period by applying the discrete method, as we determined that small changes in the estimated income or loss for the U.S. jurisdiction would result in significant changes in the estimated annual effective tax rate for that jurisdiction. We computed our provision for income taxes in other jurisdictions based on an effective annual tax rate method. We recorded income tax benefits of $0.6 million and $1.1 million for the three and nine month periods ended September 28, 2013, respectively, as compared to income tax provisions of $2.6 million and $5.8 million for the comparable periods in 2012. The income tax benefit recognized for the three and nine month periods ended September 28, 2013 resulted primarily from tax benefits due to return to provision adjustments associated with the filing of our 2012 tax return and the extension of the federal research and development tax credits under the American Taxpayer Relief Act of 2012, partially offset by foreign income taxes. The income tax provision recognized in the three and nine month periods ended September 29, 2012 resulted primarily from U.S. federal, state and foreign income taxes. Income tax estimates can be affected by estimates of whether, and within which jurisdictions, future earnings will occur and how, when and if cash is repatriated to the United States, combined with other aspects of an overall income tax strategy. Additionally, taxing jurisdictions could retroactively disagree with our tax treatment of certain items, and some historical transactions have income tax effects going forward. Accounting rules require these future effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an unpredictable manner. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters and we do not anticipate any material earnings impact from their ultimate resolution.

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We are eligible for tax incentives that provide that certain income earned in Singapore is subject to a tax holiday and/or reduced tax rates for a limited period of time under the laws of Singapore. To realize these benefits, we must meet certain requirements relating to employment and investment activities. This exemption is expected to expire within 8 years. Our ability to realize benefits from these initiatives could be materially adversely affected if, among other things, applicable requirements are not met, the incentives are substantially modified, or if we incur losses for which we cannot take a deduction.
Each quarter we assess the likelihood that we will be able to recover our deferred tax assets. We consider available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. As a result of our analysis, we concluded that it is more likely than not that, as of September 28, 2013, our net deferred tax assets will not be realized, with the exception of those in Japan and Taiwan. Therefore, we continue to provide a full valuation allowance against net deferred tax assets outside of Japan and Taiwan. It is possible that sometime in the next 12 months the positive evidence will be sufficient to release a material amount of our valuation allowance; however there is no assurance that this will occur.
We are subject to federal and state tax examination for years 1999 forward and 1997 forward, respectively, by virtue of the tax attributes carrying forward from those years. We are also subject to audits in the foreign jurisdictions in which we operate for years 2003 and forward. There are no material income tax audits currently in progress as of September 28, 2013.

Outlook

The anticipated timing of orders, shipments and system acceptances usually requires that we fill a number of production slots in any given period in order to meet our sales targets. If we are unsuccessful in our efforts to secure those production orders, or if existing production orders are delayed or cancelled, our results of operations will be materially adversely impacted. Additionally, we may not exceed or even maintain our current or prior levels of net sales for any period in the future for the reasons enumerated in this report and our Annual Report on Form 10-K for the year ended December 31, 2012. We believe that the market acceptance and volume production of our advanced packaging systems, laser processing systems, inspection systems and our 1000 Platform steppers are of critical importance to our future financial results. At September 28, 2013, these systems represented approximately 76% of our backlog. Many of our largest customers currently face uncertainty in the markets they serve, resulting in the push out of orders to us and uncertainty in our business. Based upon the information available to us as of the date of this report, we presently expect net sales for the quarter ended December 31, 2013 to be flat to down 10% compared to sales recorded in the quarter ended September 28, 2013. We expect our cash flow to be negative in the quarter ended December 31, 2013. However, we cannot attach a high level of confidence to these expectations for net sales and cash flow as the situation continues to be very fluid. We expect sales to international customers to continue to represent a significant portion of our revenues for the remainder of fiscal 2013.


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LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $2.8 million for the nine month period ended September 28, 2013 , compared to $56.0 million of cash provided by operations for the comparable period in 2012 . Net cash provided by operating activities during the nine month period ended September 28, 2013 was attributable to (i)  $23.1 million of cash provided from operating activities after adding back non-cash items such as depreciation and stock-based compensation, and (ii)  $20.3 million of net cash used by changes in our working capital as described below.

Working capital uses of cash were due to (i) an increase of inventories of $10.5 million, (ii) a decrease in deferred product and services revenues of $10.4 million, (iii) a decrease in accounts payable of $4.5 million, (iv) an increase in other assets of $1.2 million, and (v) a decrease in other current liabilities of $1.1 million. Working capital sources of cash came from (a) a decrease in accounts receivable of $6.6 million, (b) an increase in other liabilities of $0.5 million, and (c) a decrease in prepaid expenses and other current assets of $0.3 million.

We believe that because of the relatively long manufacturing cycle of certain of our systems, particularly newer products, our inventories will continue to represent a significant portion of working capital. Currently, we are devoting significant resources to the commercialization of our laser processing and inspection systems and to the development of our next generation 1X lithography technologies. We currently intend to continue to incur significant operating expenses in the areas of research, development and engineering, manufacturing, and selling, general and administrative costs in order to further develop, produce and support these new products. Additionally, gross profit margins, inventory and capital equipment levels may be adversely impacted in the future by costs associated with the production of our laser processing and inspection systems and by future generations of our 1X steppers. These costs include, but are not limited to, additional manufacturing overhead, costs of demonstration systems and facilities and the establishment of additional after-sales support organizations. Moreover, there can be no assurance that operating expenses will not increase, relative to sales, as a result of adding technical, marketing and administrative personnel, among other costs, to support our new products. If we are unable to achieve significantly increased net sales or if our sales fall below expectations, our cash flow and operating results will be materially adversely affected until, among other factors, costs and expenses can be reduced. Our failure to achieve our sales targets for these new products could result in inventory write-offs and asset impairment charges, either of which could materially adversely impact our results of operations.

During the nine month period ended September 28, 2013 , net cash used in investing activities was $46.1 million , attributable to net purchases of short-term investments of $32.0 million , capital expenditures of $9.1 million and $5.0 million for the purchase of intangible assets.

Net cash provided by financing activities was $9.1 million during the nine months ended September 28, 2013 . The increase in cash was attributable to the proceeds from the issuance of common stock of $12.6 million, net of taxes paid related to the issuance of shares of common stock pursuant to vested restricted stock units of $3.4 million.
    
At September 28, 2013 , we had working capital of $367.0 million . Our principal source of liquidity is cash provided by our operations at September 28, 2013 and consisted primarily of $299.4 million in cash, cash equivalents and short-term investments, net of outstanding borrowings under our line of credit. Our ability to generate cash provides us with substantial financial flexibility in meeting our operating, investing and financing needs.

As of September 28, 2013, $37.4 million of our cash, cash equivalents, and investments were held by foreign subsidiaries. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the United States. We currently have no plans to repatriate any foreign earnings back to the United States as we believe our cash flows provided by our U.S. operations will meet our future U.S. liquidity needs.

We have a line of credit agreement with a brokerage firm. Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds open rate plus 125 basis points (approximately 1.3% as of September 28, 2013 ). Certain of our cash, cash equivalents and marketable securities secure borrowings outstanding under this facility, but we are not restricted in the use of those assets. Funds are advanced to us under this facility in accordance with pre-determined advance rates based on the cash and securities held by us in this brokerage account. This agreement has no set expiration date and there are no loan covenants other than a collateral requirement. As of September 28, 2013 , $1.0 million was outstanding under this facility, with a related collateral requirement of approximately $1.3 million of our cash, cash equivalents and short-term investments.

The development and manufacture of lithography, laser-based systems, inspection systems and system enhancements is highly capital-intensive. In order to be competitive, we believe we must continue to make significant expenditures for capital

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equipment; sales, service, training and support capabilities; systems, procedures and controls; and expansion of operations and research and development, among many other items. We expect that cash generated from operations and our cash, cash equivalents and short-term investments will be sufficient to meet our cash requirements for at least the next twelve months. However, in the near-term, we may continue to utilize existing and future lines of credit, and other sources of financing, in order to maintain our present levels of cash, cash equivalents and investments. Beyond the next twelve months, we may require additional equity or debt financing to address our working capital or capital equipment needs. In addition, we may seek to raise equity or debt capital at any time that we deem market conditions to be favorable. Additional financing, if needed, may not be available on reasonable terms, or at all.

We may in the future pursue acquisitions of complementary product lines, technologies or businesses. Future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses and impairment charges related to goodwill and other intangible assets, which could materially adversely affect our financial condition and results of operations. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, personnel and products of the acquired companies; the diversion of management’s attention from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of key employees of the acquired company. In the event we acquire product lines, technologies or businesses which do not complement our business, or which otherwise do not enhance our sales or operating results, we may incur substantial write-offs and higher recurring operating costs, which could have a material adverse effect on our 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 our business or operating results.

Foreign Currency

As part of our overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, we attempt to hedge most of our Japanese yen denominated foreign currency exposures. We use foreign currency forward contracts to hedge the risk that outstanding Japanese yen denominated receipts from customers, for actual or forecasted sales of our products after receipt of customer orders, may be adversely affected by changes in foreign currency exchange rates. We use foreign currency forward exchange contracts and natural hedges to offset substantial portions of the potential gains or losses associated with our Japanese yen denominated assets and liabilities due to exchange rate fluctuations. We enter into foreign currency forward contracts that generally have maturities of three months or less.


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Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 .

Information Available at the SEC

Copies of any materials that we have filed with the SEC can be viewed at the SEC's Public Reference Room at 100 F Street NE, Washington, DC 20549. Information regarding the operations of the Public Reference Room can be obtained from the SEC by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains a website that contains reports, proxy and other information that we have filed with the SEC. The SEC website can be found at http://www.sec.gov.

Information Available on Company Website

Our website is located at www.ultratech.com . We make available, free of charge through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (and amendments to those reports), as soon as reasonably practicable after such reports are filed electronically with the SEC. We have adopted a Code of Ethics for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have posted this Code of Ethics on our website. Any future amendments to or waivers of this Code of Ethics will also be posted on our website.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Reference is made to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2012 and to the subheading “Derivative Instruments and Hedging” under the heading “Notes to Consolidated Financial Statements” in Item 8, “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 2012 , as amended.

Interest Rate Risk

Our exposure to market risk due to potential changes in interest rates relates primarily to our investment portfolio, which consisted primarily of fixed interest rate instruments as of September 28, 2013 . We maintain an investment policy designed to ensure the safety and preservation of our invested funds by limiting market risk and the risk of default.

Certain of our cash, cash equivalents and short and long-term investments serve as collateral for a line of credit we maintain with a brokerage firm. The line of credit is maintained for liquidity purposes, mitigating the need to liquidate investments in order to meet our current operating cash requirements.

Credit Risk

We mitigate credit default risk by attempting to invest in high credit quality securities and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. Our portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity and is diversified in accordance with our investment policy. To date, we have not experienced any liquidity problems with our portfolio.

As of September 28, 2013 , we did not have any investments in mortgage backed or auction rate securities or any security investments in the financial service sector. However, we intend to closely monitor developments in the credit markets and make appropriate changes to our investment policy as we deem necessary or advisable. Based on our ability to liquidate our investment portfolio and our expected operating cash flows, we do not anticipate any liquidity constraints as a result of the current credit environment.


Foreign Currency Risk Management

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The majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, we do enter into these transactions in other currencies, primarily Japanese yen. To protect against reductions in value and the volatility of future cash flows caused by changes in currency exchange rates, we have established cash flow and balance sheet hedging programs.

We use foreign currency forward contracts to hedge the risk that outstanding Japanese yen denominated receipts from customers for actual or forecasted sales of equipment may be adversely affected by changes in foreign currency exchange rates. Our hedging programs reduce, but do not always entirely eliminate, the impact of currency movements. See “Derivative Instruments and Hedging” in Note 7 under the heading “Notes to Condensed Consolidated Financial Statements” of Part I, Item 1, “Financial Statements” herein for further disclosures.


Item 4. Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based upon the evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is further required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three month period ended September 28, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

In addition to risks described in the foregoing discussions, and in our annual report on Form 10-K for the year ended December 31, 2012, the following risks, among others, apply to our business and us:

The semiconductor industry historically has been highly cyclical and has experienced periods of oversupply and technology changes, which have in turn affected the market for semiconductor equipment such as ours and which can adversely affect our results of operations during such periods.

Our business depends in significant part upon capital expenditures by manufacturers of semiconductors, advanced packaging semiconductors and nanotechnology components which in turn depend upon the current and anticipated market demand for such devices and products utilizing such devices. The semiconductor industry historically has been highly cyclical and has experienced recurring periods of oversupply and technology changes. This has, from time to time, resulted in significantly reduced demand for capital equipment including the systems manufactured and marketed by us. We believe that

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markets for new generations of semiconductors, semiconductor packaging and inspection will also be subject to similar fluctuations. Our business and operating results would be materially adversely affected by downturns or slowdowns in the semiconductor packaging market or by loss of market share. Accordingly, we may not be able to achieve or maintain our current or prior level of sales. We attempt to mitigate the risk of cyclicality by participating in multiple markets including semiconductor, semiconductor packaging, semiconductor inspection and nanotechnology sectors as well as diversifying into new markets. We believe that diversifying into new markets such as laser-based annealing for implant activation, lithography steppers for 3-D packaging, HBLED, ALD and inspection can help mitigate the effects of this cyclicality in our industry. Despite such efforts, when one or more of such markets experiences a downturn or a situation of excess capacity, our net sales and operating results are materially adversely affected. For example, during 2013, we have experienced less revenue from laser processing and advanced packaging as a result of a slowdown in the logic sector. Customers who manufacture both logic and memory devices are focusing their capital spending on the memory sector at this time. We believe that as a result of cyclicality and of other factors affecting our foundry customers, such as shifting customer demand, lower capacity utilization rates and changing product designs, we have and will continue to experience the push out of orders to us and uncertainty in our business.

Our quarterly revenues and operating results are difficult to predict.

Our revenues and operating results may fluctuate significantly from quarter to quarter due to a number of factors, not all of which are in our control. We manage our expense levels based in part on our expectations of future revenues, and a certain amount of those expenses are relatively fixed. As a result, a change in the timing of recognition of revenue or a change in margins can have a significant impact on our operating results in any particular quarter. Factors that may cause our results of operations to fluctuate include, but are not limited to:

market conditions in the electronics and semiconductor industries;
failure of suppliers to perform in a manner consistent with our expectations;
manufacturing difficulties or delays;
customer cancellations or delays in shipments, installations and/or system acceptances;
competitive factors, including the introduction of new products by our competitors or any failure of our products to gain or maintain market acceptance; and
changes in selling prices and product mix.

Our sales cycle is typically lengthy and involves a significant commitment of capital by our customers, which has subjected us, and is likely to continue to subject us, to delays in system acceptances of our products and other risks, any of which could adversely impact our results of operations by, among other things, delaying recognition of revenue with respect to those orders and resulting in increased installation, qualification and similar costs.

Sales of our systems depend, in significant part, upon the decision of a prospective customer to increase manufacturing capacity, replace older equipment or to restructure current manufacturing facilities, any of which typically involves a significant commitment of capital. Many of our customers in the past have canceled or postponed the development of new manufacturing facilities and have substantially reduced their capital equipment budgets. Many of our largest customers currently face uncertainty in the markets they serve, resulting in the push out of orders to us and uncertainty in our business. In view of the significant investment involved in a system purchase, we have experienced and may continue to experience delays following initial qualification of our systems as a result of delays in a customer’s approval process. Additionally, we are presently receiving orders for systems that have lengthy delivery schedules, which may be due to longer production lead times or a result of customers’ capacity scheduling requirements. For these and other reasons, our systems typically have a lengthy sales cycle during which we may expend substantial funds and management effort in securing a sale. Lengthy sales cycles subject us to a number of significant risks, including inventory obsolescence and fluctuations in operating results, over which we have little or no control. In order to maintain or exceed our present level of net sales, we are dependent upon obtaining orders for systems that will ship and be accepted in the current period. We may not be able to obtain those orders. Other important factors that could cause demand for our products to fluctuate include:

competitive pressures, including pricing pressures, from companies that have competing products;
changes in customer product needs; and
strategic actions taken by our competitors.


The continuing global or regional financial crises and any uncertainty created thereby, such as that currently being experienced in Europe and other areas of the world, could result in the cancellation, deferral or rescheduling of orders by our customers as well as changes in projection of new business.


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Orders in backlog are subject to cancellation, deferral or rescheduling by a customer with limited or no penalties. Sales of our 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. Further, the purchase of our products involves a significant commitment of capital on the part of our customers. If the markets for our customers’ products experience a period of declining demand or if our customers’ ability to raise capital is limited, they may choose to cancel, delay or reschedule purchases of our products. The current global financial economic crisis and the uncertainty created thereby could result in such a decline in demand or limited ability to raise capital, or could otherwise affect our customers’ markets, financial condition or willingness to incur expenses. As a result, we could experience the cancellation, delay or rescheduling of orders in our current backlog or of orders we currently expect to receive. Any such decision by our customers or potential customers would adversely affect our net sales and results of operations.

We currently spend, and expect to continue to spend, significant resources to develop, introduce and commercialize our offered products and future generations of, and enhancements to these products. We may not be successful in the timely introduction of these products which may cause sales of these products to decrease or not increase as expected.

Currently, we are devoting significant resources to the development, introduction and commercialization of our laser thermal processing systems, and other products, and future generations of, and enhancements to those products. We intend to continue to develop these products and technologies, and will continue to incur significant operating expenses in the areas of research, development and engineering, manufacturing and general and administrative costs in order to develop, produce and support these new products and enhancements. Additionally, gross profit margins and inventory levels may be further adversely impacted in the future by costs associated with the initial production of new products. Introduction of new products generally involves higher installation costs and product performance uncertainties that could delay system acceptance of our systems, resulting in a delay in recognizing revenue associated with those systems and a reduction in gross margins. These costs include, but are not limited to, additional manufacturing overhead, additional inventory write-downs, costs of demonstration systems and facilities and costs associated with the establishment of additional after-sales support organizations. Additionally, operating expenses may increase, relative to sales, as a result of adding additional marketing and administrative personnel, among other costs, to support our new products. If we are unable to achieve significantly increased net sales or if our sales fall below expectations, our operating results could be materially adversely affected.

Our ability to commercialize our laser thermal processing technologies depends on our ability to demonstrate a manufacturing-worthy tool. We do not presently have in-house capability to fabricate devices. As a result, we must rely on partnering with semiconductor companies to develop the anneal process. The development of new process technologies is largely dependent upon our ability to interest potential customers in working on joint process development. Our ability to deliver timely solutions is also limited by wafer turnaround at the potential customer’s fabrication facility.

We rely on a limited number of outside suppliers and subcontractors to manufacture certain components and subassemblies, and on single or a limited group of outside suppliers for certain materials for our products, which could result in a potential inability to obtain an adequate supply of required components due to the suppliers’ failure or inability to provide such components in a timely manner, or at all, and reduced control over pricing and timely delivery of components and materials, any of which could adversely affect our results of operations.

Our manufacturing activities consist of assembling and testing components and subassemblies, which are then integrated into finished systems. We rely on a limited number of outside suppliers and subcontractors to manufacture certain components and subassemblies. We order one of the most critical components of our technology, the glass for our 1X lenses, from external suppliers. We design the 1X lenses and provide the lens specifications and the glass to other suppliers, who then grind and polish the lens elements. We then assemble and test the optical 1X lenses.

We procure some of our other critical systems’ components, subassemblies and services from single outside suppliers or a limited group of outside suppliers in order to ensure overall quality and timeliness of delivery. Many of these components and subassemblies have significant production lead times. To date, we have been able to obtain adequate services and supplies of components and subassemblies for our systems in a timely manner. However, disruption or termination of certain of these sources could have a significant adverse impact on our ability to manufacture our systems. This, in turn, would have a material adverse effect on our business, financial condition and results of operations. Our reliance on a sole supplier or a limited group of suppliers and our reliance on subcontractors involve several risks, including a potential inability to obtain an adequate supply of required components due to the suppliers’ failure or inability to provide such components in a timely manner, or at all, and reduced control over pricing and timely delivery of components. Although the timeliness, yield and quality of deliveries to date from our 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 us to seek alternative sources of supply or to manufacture such components internally could delay our ability to

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ship our products, which could damage relationships with current and prospective customers and have a material adverse effect on our business, financial condition and results of operations.

We operate in a highly competitive industry in which customers are required to invest substantial resources in each product, which makes it difficult to achieve significant sales to a particular customer once another vendor’s equipment has been purchased by that customer.

The capital equipment industry in which we operate is intensely competitive. A substantial investment is required to install and integrate capital equipment into a semiconductor, semiconductor inspection, semiconductor packaging or nanotechnology device production line. We believe that once a device manufacturer or packaging subcontractor has selected a particular supplier’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 supplier’s capital equipment has been selected.
    
We experience competition in advanced packaging from various proximity aligner and stepper companies such as Canon Incorporated, Nikon Corporation, Suss Microtec AG (“Suss Microtec”), Rudolph Technologies, Inc. and Ushio and used projection and reduction stepper systems. In nanotechnology, we experience competition from proximity aligner companies, such as Suss Microtec as well as other third party stepper suppliers. We expect our competitors in the lithography arena to continue to improve the performance of their current products and to introduce new products with improved price and performance characteristics. This could cause a decline in sales or loss of market acceptance of our steppers in our served markets, and thereby materially adversely affect our business, financial condition and results of operations. Enhancements to, or future generations of, competing products may be developed that offer superior cost of ownership and technical performance features.

With respect to our laser annealing technologies, marketed under the LSA100A and LSA101 product names, our primary millisecond anneal competition comes from companies such as Dainippon Screen Manufacturing Co., Ltd., Applied Materials, Inc. and Mattson Technology, Inc. Applied Materials, Inc. and Tokyo Electron Limited recently announced that they had entered into a definitive agreement to merge, and if such merger is consummated, the combined company may have significant resources which could impact laser annealing as well as potentially other markets. Many of these companies offer products utilizing Rapid Thermal Processing ("RTP"), which is the current prevailing manufacturing technology. RTP does not prevent semiconductor device manufacturers from scaling the lateral dimensions of their transistors to obtain improved performance, but diffusion resulting from the time scales associated with RTP limits the vertical dimension of the junctions. Faster annealing times result in shallower and more abrupt junctions and faster transistors. We believe that RTP manufacturers recognize the need to reduce thermal cycle times and are working toward this goal. In July 2000, we licensed certain rights to our then existing laser thermal processing technology, with reservations, to a competing manufacturer of semiconductor equipment. We presently anticipate that this company and others intend to offer laser annealing tools to the semiconductor industry that will compete with our offerings.

Another potential advanced annealing solution utilizes flash lamp annealing technology, or "FLA". Several companies have published papers on annealing tools that incorporate flash lamp technology in order to reduce annealing times and increase annealing temperatures. Developers of FLA technology claim to have overcome annealing difficulties at the advanced nodes. This technique, which employs flash lamps, has shown improvements over RTP in junction depth and sheet resistance, but we believe FLA suffers from pattern-related non-uniformities and could require additional, costly processes to equalize the reflectivity of different areas within the chip or wafer. Our proprietary laser thermal processing solution has been specifically developed to provide junction annealing on near-instantaneous time-scales, while achieving high activation levels. Laser thermal annealing, our first implementation of laser thermal processing, activates dopants in the microsecond-to-millisecond time frame without melting. Our research indicates that, at temperatures just below the melting point of silicon, time durations in the microsecond to millisecond range, are required to achieve full activation, and minimal dopant diffusion.

Additionally, competition to our laser thermal processing products may come from other laser annealing tools, including those presently being used by the flat panel display industry to re-crystallize silicon. Manufacturers of these tools may try to extend the use of their technologies to semiconductor device applications.

In the market for inspection systems, competition for inspection systems comes from a wide range of companies, including large companies such as KLA-Tencor, Nanometrics, Rudolph, and numerous smaller companies developing and manufacturing inspection equipment.

We believe that in order to be competitive, we will need to continue to invest significant financial resources in new product development, new features and enhancements to existing products, the introduction of new stepper systems in our

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served markets on a timely basis, and maintaining customer service and support centers worldwide. In marketing our products, we may also face competition from vendors employing other technologies. In addition, increased competitive pressure has led to intensified price-based competition in certain of our markets, resulting in lower prices and margins. Should these competitive trends continue, our business, financial condition and operating results may be materially adversely affected.

Our stock price has experienced significant volatility in the past and we expect this to continue in the future as a result of many factors, some of which could be unrelated to our operating performance, and such volatility can have a major impact on the number of shares subject to outstanding stock options and restricted stock units that are included in calculating our earnings per share.

We believe that factors such as announcements of developments related to our business, fluctuations in our operating results, a shortfall in revenue or earnings, changes in analysts’ expectations, general conditions in the semiconductor and nanotechnology industries or the worldwide or regional economies, sales of our securities into the marketplace, an outbreak or escalation of hostilities, announcements of technological innovations or new products or enhancements by us or our competitors, developments in patents or other intellectual property rights and developments in our relationships with our customers and suppliers could cause the price of our Common Stock to fluctuate, perhaps substantially. The market price of our Common Stock has fluctuated significantly in the past and we expect it to continue to experience significant fluctuations in the future, including fluctuations that may be unrelated to our performance.

As of September 28, 2013 , we had outstanding options to purchase shares of our Common Stock and outstanding restricted stock units for a total of 3.9 million shares of our Common Stock. Among other determinants, the market price of our stock has a major impact on the number of shares subject to outstanding stock options and restricted stock units that are included in the weighted-average shares used in determining our net income per share. During periods of extreme volatility, the impact of higher stock prices can have a materially dilutive effect on our net income per share. Additionally, shares subject to outstanding options and restricted stock units are excluded from the calculation of net income per share when we have a net loss or when the exercise price and the average unrecognized compensation cost of the stock option or restricted stock unit is greater than the average market price of our Common Stock, as the impact of the stock options or restricted stock units would be anti-dilutive.

If we acquire companies, products, or technologies, we may face risks associated with those acquisitions.

We may not realize the anticipated benefits of any acquisition or investment. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, personnel and products of the acquired companies; the diversion of management’s attention from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of key employees of the acquired company. In the event we acquire product lines, technologies or businesses which do not complement our business, or which otherwise do not enhance our sales or operating results, we may incur substantial write-offs and higher recurring operating costs, which could have a material adverse effect on our business, financial condition and results of operations. For example, in December 2012 we acquired certain assets of Cambridge Nanotech, Inc. (“Cambridge”), including patents and patent applications, and we hired certain former employees of Cambridge. There can be no assurance that we will successfully integrate the Cambridge products and personnel into our business and receive the benefits of the acquisition of the purchased assets. We intend to sell the products we acquired from Cambridge through indirect sales channels. In addition, we may not successfully sell the Cambridge products through these indirect sales channels, as we have historically sold our products directly to our customers. We may, in the future, pursue additional acquisitions of complementary product lines, technologies or businesses. Future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses and impairment charges related to goodwill and other intangible assets, which could materially adversely affect our 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 our business or operating results.

We sell our products primarily to a limited number of customers and to customers in a limited number of industries, which subjects us to increased risks related to the business performance of our customers, and therefore their need for our products, and the business cycles of the markets into which we sell.

Historically, we have sold a substantial portion of our systems to a limited number of customers. In the three month period ended September 28, 2013 , our top five customers account for 74% of our system sales compared to 86% in the corresponding period of 2012. We expect that sales to a relatively few customers will continue to account for a high percentage of our net sales in the foreseeable future and believe that our financial results depend in significant part upon the success of these major customers and our ability to meet their future capital equipment needs. Although the composition of the group comprising our largest customers may vary from period to period, the loss of a significant customer or any reduction in orders

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by a significant customer, including reductions due to market, economic or competitive conditions in the semiconductor, semiconductor packaging, semiconductor inspection or nanotechnology industries or in the industries that manufacture products utilizing integrated circuits, thin film heads or other nanotechnology components, would likely have a material adverse effect on our business, financial condition and results of operations. Our ability to maintain or increase our sales in the future depends, in part, on our ability to obtain orders from new customers as well as the financial condition and success of our existing customers, the semiconductor and nanotechnology industries and the economy in general.

In addition to the business risks associated with dependence on a few major customers, these significant customer concentrations have in the past resulted in significant concentrations of accounts receivable. These significant and concentrated receivables expose us to additional risks, including the risk of default by one or more customers representing a significant portion of our total receivables. If we were required to take additional accounts receivable reserves, our business, financial condition and results of operations would be materially adversely affected.

On a market application basis, sales to the semiconductor industry, primarily for advanced packaging applications and laser thermal processing applications, accounted for 65% and 85% of our systems revenue for the three month period ended September 28, 2013 and the corresponding period in 2012, respectively. We had $7.0 million of sales to nanotechnology manufacturers, including micro systems, thin film head, ALD and optical device manufacturers for the three month period ended, September 28, 2013 as compared to $7.6 million in sales for the corresponding period of 2012. Systems revenue from the nanotechnology sector accounted for 35% of systems revenue for the three month period ended September 28, 2013, as compared to 15% of systems revenue for the corresponding period in 2012. Our future operating results and financial condition would be materially adversely impacted by a downturn in any of these industries, or by loss of market share in any of these industries. A growing percentage of our backlog of system orders is comprised of laser thermal processing tools. As our laser thermal processing tools are used for the continuation of reduced device geometries and customers seldom provide us with their future technical requirements, these tools may not meet all customers’ requirements upon initial delivery and installation at the customer’s facility. As a result, system acceptance of the tool could be delayed while we perform testing and attempt to meet their requirements, or the order could be cancelled if we are unable to meet those requirements. Should significant demand not materialize, due to technical, production, market or other factors, our business, financial position and results of operations would be materially adversely impacted.

Our industry is subject to rapid technological change and product innovation, which could result in our technologies and products being replaced by those of our competitors, which would adversely affect our business and results of operations.

The semiconductor and nanotechnology manufacturing industries are subject to rapid technological change, evolving industry standards and new product introductions and enhancements. Our ability to be competitive in these and other markets will depend, in part, upon our ability to develop new and enhanced systems and related applications, and to introduce these systems and related applications 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. We will also be required to enhance the performance of our existing systems and related applications. Our success in developing new and enhanced systems and related applications 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. Because new product development commitments must be made well in advance of sales, new product decisions must anticipate both future customer requirements and the technology that will be available to meet those requirements. We may not be successful in selecting, developing, manufacturing or marketing new products and related applications or enhancing our existing products and related applications. Any such failure would materially adversely affect our business, financial condition and results of operations. Further, we may make substantial investments in new products before we know whether they are technically feasible or commercially viable, and as a result may incur significant product development expenses that do not result in new products or revenues.

Because of the large number of components in our systems, significant delays can occur between a system’s introduction and our commencement of volume production of such systems. We have experienced delays from time to time in the introduction of, and technical and manufacturing difficulties with, certain of our systems and enhancements and related application tools features and options, and may experience delays and technical and manufacturing difficulties in future introductions or volume production of new systems or enhancements and related application tools features and options.

We may encounter additional technical, manufacturing or other difficulties that could further delay future introductions or volume production of systems or enhancements. Our inability to complete the development or meet the technical specifications of any of our systems or enhancements and related applications, or our inability to manufacture and ship these systems or enhancements and related tools in volume and in time to meet the requirements for manufacturing the future generation of semiconductor or nanotechnology devices would materially adversely affect our business, financial

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condition and results of operations. In addition, we may incur substantial unanticipated costs to ensure the functionality and reliability of our products early in the products’ life cycles. If new products have reliability or quality problems, reduced orders or higher manufacturing costs, delays in system acceptance, revenue recognition and collecting accounts receivable and additional service and warranty expenses may result. Any of such events may materially adversely affect our business, financial condition and results of operations.

We are dependent on our key personnel, especially Mr. Zafiropoulo, our Chief Executive Officer, and our business and results of operations would be adversely affected if we were to lose our key employees.

Our future operating results depend, in significant part, upon the continued contributions of key personnel, many of whom would be difficult to replace. We have entered into employment agreements only with our Chief Executive Officer and Chief Financial Officer, and our employees are employed “at will.” The agreements with our Chief Executive Officer and Chief Financial Officer contain vesting acceleration and severance payment provisions that could result in significant costs or charges to us should the employee be terminated without cause, die or become disabled. We do not maintain any life insurance on any of our key employees. The loss of key personnel could have a material adverse effect on our business, financial condition and results of operations. In addition, our future operating results depend in significant part upon our ability to attract and retain other qualified management, manufacturing, technical, sales and support personnel for our 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 us to hire such personnel over time. At times, competition for such personnel has been intense, particularly in the San Francisco Bay Area where we maintain our headquarters and principal operations, and we may not be successful in attracting or retaining such personnel. The failure to attract or retain such persons would materially adversely affect our business, financial condition and results of operations.

We may not be successful in protecting our intellectual property rights or we could be found to have infringed the intellectual property rights of others, either of which could weaken our competitive position and adversely affect our results of operations.

Although we attempt to protect our intellectual property rights through patents, copyrights, trade secrets and other measures, we believe that our success will depend more upon the innovation, technological expertise and marketing abilities of our employees. Nevertheless, we have a policy of seeking patents when appropriate on inventions resulting from our ongoing research and development and manufacturing activities. Our intellectual property portfolio has 951 patents and patent applications with expiration dates ranging from January 2014 to May 2030. In addition, we have various registered trademarks and copyright registrations covering mainly applications used in the operation of our systems. We also rely upon trade secret protection for our confidential and proprietary information. We may not be able to protect our technology adequately and competitors may be able to develop similar technology independently. Our pending patent applications may not be issued or U.S. or foreign intellectual property laws may not protect our intellectual property rights. In addition, litigation may be necessary to enforce our patents, copyrights or other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation has resulted in, and in the future could result in, substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition and results of operations, regardless of the outcome of the litigation. Patents issued to us may be challenged, invalidated or circumvented and the rights granted thereunder may not provide competitive advantages to us. Furthermore, others may independently develop similar technology or products, or, if patents are issued to us, design around the patents issued to us. Invalidation of our patents related to those technologies, or the expiration of patents covering our key technologies, could allow our competitors to more effectively compete against us, which could result in less revenue for us.

We have from time to time been notified of claims that we may be infringing intellectual property rights possessed by third parties. We believe that the outcome of these matters will not be material to our business, results of operations or financial condition. Infringement claims by third parties or claims for indemnification resulting from infringement claims may be asserted in the future and such assertions could materially adversely affect our business, financial condition and results of operations, regardless of the outcome of any litigation. With respect to any such future claims, we may seek to obtain a license under the third party’s intellectual property rights. However, a license may not be available on reasonable terms or at all. We could decide, in the alternative, to resort to litigation to challenge such claims. Such challenges could be expensive and time consuming and could materially adversely affect our business, financial condition and results of operations, regardless of the outcome of any litigation.

We continue to expand our manufacturing and service operations in Singapore and customer support operations in other parts of the world, which will continue to result in exposure to risks inherent in doing business outside the United States, any of which risks could harm our business, financial condition and operating results.


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Foreign operations subject us to risks related to the political, economic, legal and other conditions of foreign jurisdictions. These risks include risks related to:

foreign exchange rate fluctuations;
the need to comply with foreign government laws and regulations, including the imposition of regulatory requirements, tariffs, and import and export restrictions;
general geopolitical risks such as political and economic instability and changes in diplomatic and trade relationships;
the need for effective management of dispersed operations far from our headquarters in California;
the potential for strain on management resources;
difficulty in hiring and retaining local personnel for the successful operation of our business in each location;
the need to effectively manage personnel in different languages and under different cultural and legal expectations and requirements in certain locations;
meeting growth objectives and employment projections;
potentially less protection of intellectual property under the laws of foreign jurisdictions in certain locations; and
public safety or health concerns or natural disasters in foreign countries.

These risks could, among other things, result in product shipment delays, increased costs, unexpected shutdowns or other business disruptions, or loss of benefits expected to be achieved by conducting operations in affected jurisdictions. Any of the above risks, should they occur, could have a material adverse effect on our business, financial condition and results of operations.

Our results of operations and business could be adversely affected by natural disasters, public health issues, political instability, wars, and other military action, as well as terrorist attacks and threats and government responses thereto, especially if any such actions were directed at us or our facilities or customers.

Public health issues, political instability (for example, recent unrest in the Middle East), natural disasters, terrorist attacks in the United States and elsewhere, government responses thereto, military actions in Afghanistan and elsewhere, and recent tensions on the Korean Peninsula and in other parts of Asia may disrupt our operations or those of our customers and suppliers and may affect the availability of materials needed to manufacture our products or the means to transport those materials to manufacturing facilities and finished products to customers. In addition, such events could disrupt the semiconductor market, resulting in the cancellation or delay of product orders. Significant public health issues could cause damage or disruption to international commerce by creating economic and political uncertainties that may have a significant negative impact on the global economy, us and our customers or suppliers. Should such incidents increase or other public health issues arise, we could be negatively impacted by the need for more stringent employee travel restrictions, additional limitations in the availability of freight services, governmental actions limiting the movement of products between various regions and disruptions in the operations of our customers or suppliers. Similarly, political instability could affect the ability of our suppliers to provide the materials needed in our operations or the cost of acquiring such materials. Any public health issues, political instability, natural disasters, any terrorist attacks, or the ongoing war on terrorism or other wars could increase volatility in the United States and world financial markets which may depress the price of our Common Stock and may limit the capital resources available to us or our customers or suppliers, which could result in decreased orders from customers, less favorable financing terms from suppliers, and scarcity or increased costs of materials and components of our products. Additionally, if any of these events were to directly affect or be specifically directed at us, or occur in a country where we or our suppliers or our customers operate, our ability to conduct our business could be significantly disrupted. Any of these occurrences could have a significant impact on our operating results, revenues and costs and may result in increased volatility of the market price of our Common Stock.

We currently perform a significant amount of our manufacturing activities in cleanroom environments in San Jose, California, an area known for seismic activity. Performing manufacturing operations in California exposes us to a higher risk of natural disasters, including earthquakes. In addition, in the past California has experienced power shortages, which have interrupted our operations. Such shortages could occur in the future. Further, our suppliers and/or customers may operate in areas subject to natural disasters, the occurrence of which could affect their ability to continue to do business with us as expected or at all. An earthquake, other natural disaster, power shortage or other similar events could interrupt or otherwise limit our operations or those of our suppliers or customers resulting in product shipment delays, supply problems, cancellations or deferrals of product orders, increased costs and other problems, any of which could have a material adverse effect on our business, customer relationships and results of operations.

A substantial portion of our sales are outside of the United States, which subjects us to risks related to customer service, installation, foreign economic and political stability, uncertain regulatory and tax rules, and foreign exchange rate fluctuations, all of which make it more difficult to operate our business.

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International sales accounted for approximately 55% of total net sales for the three month period ended September 28, 2013 , as compared to 52% in the corresponding period of 2012. The decrease in international sales as a percentage of total sales was primarily due to a decrease in sales to our customers in Asia, outside of Taiwan and Japan. We anticipate that international sales will continue to account for a significant portion of total net sales. As a result, a significant portion of our net sales will continue to be subject to certain risks, including unexpected changes in regulatory requirements; difficulty in satisfying existing regulatory requirements; exchange rate fluctuations; tariffs and other barriers; political and economic instability; difficulties in accounts receivable collections; reduced protection of intellectual property; natural disasters; difficulties in staffing and managing foreign subsidiary and branch operations; and potentially adverse tax consequences.

Although we generally transact our international sales in U.S. dollars, international sales expose us 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 our products and may further impact the purchasing ability of our international customers. We have direct sales operations in Japan and orders are often denominated in Japanese yen. This may subject us to a higher degree of risk from currency fluctuations. We attempt to mitigate this exposure through foreign currency hedging. We are also subject to the risks associated with the imposition of legislation and regulations relating to the import or export of semiconductors and nanotechnology products. We cannot predict whether the United States or any other country will implement changes to quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products. These factors, or the adoption of restrictive policies, may have a material adverse effect on our business, financial condition and results of operations.

To better align with the increasingly international nature of our business, we transitioned certain manufacturing processes to Singapore, thereby bringing these activities closer to our Asian customers. This movement is recent and our experience in international manufacturing operations is limited. If we are unable to successfully operate the site to efficiently manufacture systems, our business, financial condition and results of operations could be materially adversely impacted.

Our investment portfolio may suffer losses from changes in market interest rates and changes in market conditions, which could materially and adversely affect our financial condition, results of operations or liquidity.

As of September 28, 2013 , we had $300.4 million in cash, cash equivalents and short-term investments. We maintain an investment portfolio of cash equivalents and short-term investments in commercial paper and U.S. government-backed securities. These investments are subject to general credit, liquidity, and market and interest rate risks. Substantially all of these securities are subject to interest rate and credit risk and will decline in value if interest rates increase or one or more of the issuers’ credit ratings is reduced. As a result of any of the foregoing, we may experience a reduction in value or loss of liquidity of our investments, which may have a negative adverse effect on our results of operations, liquidity and financial condition.

Our investment portfolio may become impaired by further deterioration of the capital markets.

Our cash equivalent and short-term investment portfolio as of September 28, 2013 consisted of securities and obligations of U.S. government agencies, money market funds and commercial paper. We follow an established investment policy and set of guidelines to monitor, manage and limit our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer, as well as our maximum exposure to various asset classes.

As a result of current financial market conditions, investments in some financial instruments, such as structured investment vehicles, sub-prime mortgage-backed securities and collateralized debt obligations, may lose some or all of their value due to liquidity and credit concerns. As of September 28, 2013 , we had no holdings in these categories of investments and no impairment charge associated with our short-term investment portfolio. Although we believe our current investment portfolio has little risk of impairment, we cannot predict future market conditions or market liquidity and our investment portfolio could become impaired.

Changes in our effective tax rate may harm our results of operations.

A number of factors may negatively impact our future effective tax rates including, but not limited to:
 
the jurisdictions in which profits are determined to be earned and taxed;
changes in valuation of our deferred tax assets and liabilities;
increases in expenses not deductible for tax purposes;
changes in available tax credits;
changes in stock-based compensation; and

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changes in tax laws or the interpretation of such tax laws and changes in generally accepted accounting principles in the United States or other countries in which we operate.
 
We are eligible for tax incentives that provide that certain income earned in Singapore would be subject to a tax holiday and/or reduced tax rates for a limited period of time under the laws of Singapore. Our ability to realize benefits from these initiatives could be materially affected if, among other things, applicable requirements are not met, the incentives are substantially modified, or if we incur losses for which we cannot take a deduction.

We use hazardous substances in the operation of our business, and any failure on our part to comply with applicable regulations or to appropriately control the use, disposal or storage of such substances could subject us to significant liabilities.

We are subject to a variety of governmental regulations relating to environment protection and workplace safety, including the use, storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances. The failure to comply with current or future regulations could result in substantial fines being imposed on us, suspension of production, alteration of the manufacturing process or cessation of operations. Such regulations could require us to acquire expensive remediation equipment or to incur substantial expenses to comply with environmental regulations. Any failure by us to comply with these regulations, including any failure to control the use, disposal or storage of, or adequately restrict the discharge of, hazardous or toxic substances, could subject us to significant liabilities.

Changes in financial accounting standards or policies in the past have affected, and in the future may affect, our reported results of operations.

We prepare our financial statements in conformity with U.S. GAAP. These principles are subject to interpretation by the FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions which are completed before a change is announced.

Accounting policies affecting many other aspects of our business, including rules relating to revenue recognition, off-balance sheet transactions, employee stock options and other equity awards, restructuring, asset disposals and asset retirement obligations, derivative and other financial instruments are regularly under review and subject to revision. Changes to those rules or the questioning of how we interpret or implement those rules may have a material adverse effect on our reported financial results or on the way we conduct business. In addition, our preparation of financial statements in accordance with U.S. GAAP requires that we make estimates and assumptions that affect the recorded amounts of assets and liabilities, disclosure of those assets and liabilities at the date of the financial statements and the recorded amounts of expenses during the reporting period. A change in the facts and circumstances surrounding those estimates could result in a change to our estimates and could impact our future operating results.

Our equity incentive plans, certain provisions of our Certificate of Incorporation and Bylaws, and certain aspects of Delaware law may discourage third parties from pursuing a change of control transaction with us.

Certain provisions of our Certificate of Incorporation, equity incentive plans, licensing agreements, Bylaws and Delaware law may discourage certain transactions involving a change in control of our company. In addition to the foregoing, the shareholdings of our 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 inhibiting us from experiencing a change in control and may adversely affect the voting and other rights of holders of our Common Stock.



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

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None.

Item 5. Other Information

None.

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Item 6. Exhibits
 
3.1(a)
Amended and Restated Certificate of Incorporation of the Registrant, filed October 6, 1993.
3.1.1(a)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed May 17, 1995.
3.1.2(a)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed June 17, 1998.
3.1.3(a)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed June 20, 2003.
3.1.4(b)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed August 31, 2009.
3.1.5(c)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed August 6, 2012.
3.2(d)
Amended and Restated Bylaws of the Registrant, as amended.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
31.1
Certification of Chief Executive Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 ____________________
(a)
Previously filed with our Quarterly Report on Form 10-Q for the quarter ended June 28, 2003 (Commission File No. 0-22248) and incorporated herein by reference.
(b)
Previously filed with our Quarterly Report on Form 10-Q for quarter ended October 3, 2009 (Commission File No. 0-22248) and incorporated herein by reference.
(c)
Previously filed with our Quarterly Report on Form 10-Q for the quarter ended June 29, 2013 (Commission File No. 0-22248) and incorporated herein by reference.
(d)
Previously filed with our Current Report on Form 8-K filed on April 17, 2012 (Commission File No. 0-22248) and incorporated herein by reference.
*
Exhibit 32.1 is being furnished and shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act, or the Exchange Act, except as otherwise stated in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
 
ULTRATECH, INC.
(Registrant)
 
 
 
 
Date:
October 28, 2013
By:
/s/ BRUCE WRIGHT
 
 
 
Bruce Wright
 
 
 
Senior Vice President, Finance and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)


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EXHIBIT INDEX
 
3.1(a)
Amended and Restated Certificate of Incorporation of the Registrant, filed October 6, 1993.
3.1.1(a)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed May 17, 1995.
3.1.2(a)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed June 17, 1998.
3.1.3(a)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed June 20, 2003.
3.1.4(b)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed August 31, 2009.
3.1.5(c)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed August 6, 2012
3.2(d)
Amended and Restated Bylaws of the Registrant, as amended.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
31.1
Certification of Chief Executive Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 ______________________
(a)
Previously filed with our Quarterly Report on Form 10-Q for the quarter ended June 28, 2003 (Commission File No. 0-22248) and incorporated herein by reference.
(b)
Previously filed with our Quarterly Report on Form 10-Q for the quarter ended October 3, 2009 (Commission File No. 0-22248) and incorporated herein by reference.
(c)
Previously filed with our Quarterly Report on Form 10-Q for the quarter ended June 29, 2013 (Commission File No. 0-22248) and incorporated herein by reference.
(d)
Previously filed with our Current Report on Form 8-K on April 17, 2012 (Commission File No. 0-22248) and incorporated herein by reference.
*
Exhibit 32.1 is being furnished and shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act, or the Exchange Act, except as otherwise stated in such filing.

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Exhibit 3.1.5

 
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ULTRATECH, INC.

Ultratech, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that:
1.      The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of Delaware on September 21, 1992 (at such time the name of the Corporation was UTS Acquisition Corporation). The Amended and Restated Certificate of Incorporation was filed with the Secretary of State of Delaware on October 6, 1993 and was amended by a Certificate of Amendment filed with the Secretary of State of Delaware on May 17, 1995, a Certificate of Designation filed with the Secretary of State of Delaware on February 13, 1997, a Certificate of Amendment filed with the Secretary of State of Delaware on June 17, 1998, a Certificate of Amendment filed with the Secretary of State of Delaware on June 10, 2003, and a Certificate of Amendment filed with the Secretary of State of Delaware on August 31, 2009.

2.      The Board of Directors of the Corporation, acting in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, adopted resolutions to amend the Amended and Restated Certificate of Incorporation of the Corporation, as amended, by deleting the first paragraph of Article IV and substituting therefor the following:

“The corporation is authorized to issue two classes of stock to be designated common stock (“Common Stock”) and preferred stock (“Preferred Stock”). The number of shares of Common Stock authorized to be issued is Eighty Million (80,000,000), par value $0.001 per share, and the number of shares of Preferred Stock authorized to be issued is Two Million (2,000,000), par value $0.001 per share.”
3.      Thereafter, pursuant to a resolution of the Board of Directors, the foregoing amendment was submitted to the stockholders of the Corporation for their approval and was duly adopted by the stockholders in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

4.      Except as modified hereby, the Amended and Restated Certificate of Incorporation, as amended, shall remain in full force and effect.

*      *      *

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment on this 3 rd day of August, 2012.






/s/ Arthur W. Zafiropoulo     
Arthur W. Zafiropoulo
Chief Executive Officer and President





Exhibit 31.1
I, Arthur Zafiropoulo, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ultratech, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (a