Table of Contents

  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549****FORM 10-Q****(Mark One)**   þ **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACTOF 1934******For the quarterly period ended September 27, 2008****   o **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGEACT 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 (I.R.S. Employer Identification No.)incorporation or organization)     **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 bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes þ No oIndicate 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 definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):       Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o    (Do not check if a smaller reporting company)  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o No þIndicate the number of shares outstanding of each of the issuer’s classes of common stock, as ofthe latest practicable date:   **Class** **Outstanding as of October 27, 2008**   common stock, $.001 par value 23,482,378  
 

 
**ULTRATECH, INC.****INDEX**     **PART I. FINANCIAL INFORMATION**    **Item 1. Financial Statements**  3 Condensed Consolidated Balance Sheets as of September 27, 2008 and December 31, 2007  3 Condensed Consolidated Statements of Operations for the three and nine months endedSeptember 27, 2008 and September 29, 2007  4 Condensed Consolidated Statements of Cash Flows for the nine months ended September 27,2008 and September 29, 2007  5 Notes to Condensed Consolidated Financial Statements  6 **Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations**  13 **Item 3. Quantitative and Qualitative Disclosures About Market Risk**  20 **Item 4. Controls and Procedures**  21 **PART II. OTHER INFORMATION**  21 **Item 1. Legal Proceedings**  21 **Item 1A. Risk Factors**  22 **Item 2. Unregistered Sales of Equity Securities and Use of Proceeds**  29 **Item 3. Defaults Upon Senior Securities**  29 **Item 4. Submission of Matters to a Vote of Security Holders**  29 **Item 5. Other Information**  30 **Item 6. Exhibits**  30 **SIGNATURES**  31  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**           **September 27,**  **December 31,** **(In thousands)** **2008**  **2007***   **(Unaudited)**     ***ASSETS***        Current assets:        Cash and cash equivalents $112,397  $54,586 Short-term investments  39,534   77,412 Accounts receivable, net  20,585   30,562 Inventories  31,918   29,128 Prepaid expenses and other current assets  5,092   3,874        Total current assets  209,526   195,562          Equipment and leasehold improvements, net  10,619   16,826 Demonstration inventories  839   3,652 Other assets  2,621   2,601                 Total assets $223,605  $218,641                 ***LIABILITIES AND STOCKHOLDERS’ EQUITY***        Current liabilities:        Notes payable $—  $5,794 Accounts payable  9,192   8,200 Deferred product and services income  8,164   10,161 Other current liabilities  11,403   9,552        Total current liabilities  28,759   33,707          Other liabilities  7,264   7,534          Stockholders’ equity  187,582   177,400                 Total liabilities and stockholders’ equity $223,605  $218,641         * The Balance Sheet as of December 31, 2007 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**   **September 27,**  **September 29,**  **September 27,**  **September 29,** **(In thousands, except per share amounts)** **2008**  **2007**  **2008**  **2007** Net sales:                Products $30,114  $20,909  $84,317  $70,712 Services  4,322   4,279   12,917   11,755 Licenses  —   —   400   100              Total net sales  34,436   25,188   97,634   82,567                  Cost of sales:                Cost of products sold  15,470   12,363   43,685   41,236 Cost of services  2,250   2,464   6,682   6,994              Total cost of sales  17,720   14,827   50,367   48,230              Gross profit  16,716   10,361   47,267   34,337                  Operating expenses:                Research, development and engineering  5,811   5,981   17,594   17,781 Selling, general and administrative  8,047   7,026   24,207   23,889              Total operating expenses  13,858   13,007   41,801   41,670                               Operating income (loss)  2,858   (2,646)  5,466   (7,333)                 Interest expense  (11)  (123)  (109)  (594)Interest and other income, net  456   1,696   2,828   4,811              Income (loss) before income tax  3,303   (1,073)  8,185   (3,116)Provision (benefit) for income taxes  1   (189)  347   (7)                                               Net income (loss) $3,302  $(884) $7,838  $(3,109)                              Net income(loss) per share - basic $0.14  $(0.04) $0.33  $(0.13)Number ofshares used in per share computations - basic  23,558   23,394   23,501   23,344 Net income(loss) per share - diluted $0.14  $(0.04) $0.33  $(0.13)Number ofshares used in per share computations - diluted  23,865   23,394   23,643   23,344 *See accompanying notes to unaudited condensed consolidated financial statements*
4

Table of Contents
**ULTRATECH, INC.****CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS****(Unaudited)**           **Nine Months Ended**   **September 27,**  **September 29,** **(In thousands)** **2008**  **2007** *Cash flows from operating activities:*        Net income (loss) $7,838  $(3,109)Adjustments to reconcile net loss to net cash provided by operating activities:        Depreciation  4,357   4,813 Amortization  750   812 Accretion of asset retirement obligations  117   112 Loss on disposal of equipment  2   4 Stock-based compensation  1,829   1,096 Deferred income taxes  5   — Charge for uncollectible receivable  —   222 Changes in operating assets and liabilities:        Accounts receivable  9,977   4,811 Inventories, net  (3,452)  3,958 Prepaid expenses and other current assets  (1,218)  211 Demonstration inventories  (668)  — Other assets  37   1,006 Accounts payable  992   (2,756)Deferred product and services income  (1,997)  (341)Other current liabilities  1,844   (3,316)Other liabilities  (364)  (1,236)       Net cash provided by operating activities  20,049   6,287                 *Cash flows from investing activities:*        Capital expenditures  (1,522)  (860)Proceeds from sales of fixed assets  6,801   — Purchase of investments  (69,425)  (26,951)Proceeds from sales and maturities of investments  106,950   44,558        Net cash provided by investing activities  42,804   16,747                 *Cash flows from financing activities:*        Proceeds from notes payable  43,061   21,647 Repayment of notes payable  (48,855)  (22,064)Proceeds from issuance of common stock  992   1,725        Net cash provided by (used in) financing activities  (4,802)  1,308                 Net effect of exchange rate changes on cash and cash equivalents  (240)  (174)                Net increase in cash and cash equivalents  57,811   24,168          Cash and cash equivalents at beginning of period  54,586   23,883                 Cash and cash equivalents at end of period $112,397  $48,051                 Supplemental disclosures of cash flow information:        Other non-cash activities:        Capital lease of phone system $42  $562 Systems transferred from inventory to equipment and other assets $663  $1,356 *See accompanying notes to unaudited condensed consolidated financial statements*
5

Table of Contents
**Ultratech, Inc.****Notes to Condensed Consolidated Financial Statements****(Unaudited)****September 27, 2008****(1) Description of Business**Ultratech, Inc. (referred to as “Ultratech,” the “Company” and “we”) develops, manufactures andmarkets photolithography and laser thermal processing equipment for manufacturers of integratedcircuits and nanotechnology components located throughout North America, Europe, Japan, Taiwan andthe rest of Asia.We supply step-and-repeat photolithography systems based on one-to-one imaging technology. Withinthe integrated circuits industry, we target the market for advanced packaging applications. Withinthe nanotechnology industry, our target markets include thin film head magnetic recording devices,ink jet print heads, laser diodes and light emitting diodes (“LEDs”). Our laser thermal processingequipment is targeted at advanced annealing applications within the semiconductor industry.In evaluating our business, we gave consideration to the Chief Executive Officer’s review offinancial information and the organizational structure of our management. Based on this review, weconcluded that, at the present time, resources are allocated and other financial decisions are madebased on our consolidated financial information. Accordingly, we have determined that we operate inone business segment, which is the manufacture and distribution of capital equipment tomanufacturers of integrated circuits and nanotechnology components.**(2) Basis of Presentation**We have prepared the unaudited condensed consolidated financial statements in accordance withgenerally accepted accounting principles for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all ofthe information and footnotes required by U.S. generally accepted accounting principles forcomplete financial statements. In our opinion, all adjustments, consisting of only normal recurringadjustments considered necessary for fair presentation, have been included.Our fiscal period ends on the Saturday closest to month-end, except that our fiscal year ends onDecember 31. All references to the quarter refer to our fiscal quarter. Our fiscal quarters coveredby this report ended on September 27, 2008 and September 29, 2007.Operating results for the three and nine months ended September 27, 2008 are not necessarilyindicative of the results that may be expected for the year ending December 31, 2008 or any futureperiod.**USE OF ESTIMATES**— The preparation of the financial statements and related disclosures inconformity with accounting principles generally accepted in the United States requires us to makeestimates and judgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and the related disclosure of contingent assets and liabilities at the date of theconsolidated financial statements. By their nature, these estimates and judgments are subject to aninherent degree of uncertainty. On an ongoing basis, we evaluate our estimates, including thoserelated to inventories, warranty obligations, purchase order commitments, asset retirementobligations, bad debts, estimated useful lives of fixed assets, asset impairment, income taxes,intangible assets, contingencies and litigation. We base our estimates on historical experience andon 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 andliabilities that are not readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.**IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS**— In December 2007, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141(revised 2007), *Business Combinations*(“SFAS No. 141R”). SFAS No. 141R establishes principles andrequirements for how an acquirer recognizes and measures in its financial statements theidentifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquireeand the goodwill acquired. SFAS No. 141R also establishes disclosure requirements to enable theevaluation of the nature and financial effects of the business combination. SFAS No. 141R iseffective for fiscal years beginning after December 15, 2008. We do not expect the adoption of thisstatement to have an impact on our results of operations or financial position.
6

Table of Contents
In December 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in Consolidated FinancialStatements—an amendment of Accounting Research Bulletin No. 51*(“SFAS No. 160”). SFAS No. 160establishes accounting and reporting standards for ownership interests in subsidiaries held byparties other than the parent, the amount of consolidated net incomeattributable to the parent and to the noncontrolling interest, changes in a parent’s ownershipinterest, and the valuation of retained noncontrolling equity investments when a subsidiary isdeconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify anddistinguish between the interests of the parent and the interests of the noncontrolling owners.SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. We do not expect theadoption of this statement to have an impact on our results of operations or financial position asall of our subsidiaries are wholly owned by us.In March 2008, the FASB issued SFAS No. 161, *Disclosures about Derivative Instruments and HedgingActivities—an amendment of FASB Statement No. 133*(“SFAS No. 161”)*,*which requires enhanceddisclosures about an entity’s derivative and hedging activities. The statement requires thatobjectives for using derivative instruments be disclosed in terms of underlying risk and accountingdesignation. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008 andinterim periods within those fiscal years, with earlier adoption encouraged. We do not expect theadoption of this statement to have an impact on our results of operations or financial position.In February 2008, the FASB issued FASB Staff Position No. 157-2, *Effective Date of FASB StatementNo. 157*, which delays the effective date of SFAS No. 157, *Fair Value Measurement*(“SFAS No. 157”),for all nonfinancial assets and nonfinancial liabilities, except those that are recognized ordisclosed at fair value in the financial statements on a recurring basis (at least annually), untilfiscal years beginning after November 15, 2008, and interim periods within those fiscal years. SFASNo. 157 establishes a framework for measuring fair value and expands disclosures about fair valuemeasurements. These nonfinancial items include assets and liabilities such as reporting unitsmeasured at fair value in a goodwill impairment test and nonfinancial assets acquired andliabilities assumed in a business combination. We are currently evaluating the impact, if any, ofadopting the deferred portion of SFAS 157 to the nonrecurring fair value measurements of ournonfinancial assets and nonfinancial liabilities.In October 2008, the FASB issued FASB Staff Position No. 157-3, *Determining the Fair Value of aFinancial Asset When the Market for That Asset Is Not Active*, which clarifies the application ofSFAS No. 157 in a market that is not active and provides an example to illustrate keyconsiderations in determining the fair value of a financial asset when the market for thatfinancial asset is not active. This FASB Staff Position is effective upon issuance, including priorperiods for which financial statements have not been issued. We adopted this Staff Position for thequarter ended September 27, 2008 and the adoption did not have any impact on our results ofoperations or financial position.**(3) Stock-Based Compensation**Stock-based compensation expense recognized under SFAS No. 123 (revised 2004), *Share-Based Payment*(“SFAS No. 123R”), for employees and directors and the effect on our Condensed ConsolidatedStatements of Operations were as follows:                   **Three Months Ended**  **Nine Months Ended**   **September 27,**  **September 29,**  **September 27,**  **September 29,** **(In thousands)** **2008**  **2007**  **2008**  **2007** Cost of Sales $52  $26  $132  $109 Research, development, and engineering  119   61   342   217 Selling, general and administrativeexpenses  491   248   1,355   770              Total stock-based compensation expense $662  $335  $1,829  $1,096              Compensation cost capitalized as part of inventory was immaterial during each of the three- andnine-month periods ended September 27, 2008 and September 29, 2007.As required by SFAS No. 123R, we estimate expected option forfeitures and recognize compensationcosts only for those equity awards expected to vest. As of September 27, 2008, there were $4.7million of total unrecognized compensation cost related to non-vested share-based compensationarrangements granted under our 1993 Stock Option Plan/Stock Issuance Plan, as amended, and our 1998Supplemental Stock Option/Stock Issuance Plan, as amended (collectively, the “Plans”). That cost isexpected to be recognized over a weighted average period of 1.6 years.These Plans provide for the grant of stock-based awards to our eligible employees, consultants andadvisors and non-employee directors. We believe that such awards better align the interests of ouremployees with those of our stockholders. As of September 27, 2008, there were 1.9 million sharesreserved for future awards under these Plans.
7

Table of Contents
We used the following weighted-average assumptions to estimate the fair value of our stock optionsgranted during the three- and nine-month periods ended September 27, 2008 and September 29, 2007:                   **Three Months Ended** **Nine Months Ended**  **September 27,** **September 29,** **September 27,** **September 29,**  **2008** **2007** **2008** **2007**Expected life (in years)  5.18   *   5.32   4.95 Risk-free interest rate  3.33%  *   2.84%  4.78%Volatility factor  0.47   *   0.48   0.48 Dividend yield  —   *   —   —  * Not presented as we did not grant any stock options during the three-month period endedSeptember 29, 2007.**(4) Net Income (Loss) Per Share**The following sets forth the computation of basic and diluted net income (loss) per share:                   **Three Months Ended**  **Nine Months Ended**   **September 27,**  **September 29,**  **September 27,**  **September 29,** **(In thousands, except per share amounts)** **2008**  **2007**  **2008**  **2007** Numerator:                Net income (loss) $3,302  $(884) $7,838  $(3,109)                 Denominator:                Basic weighted-average shares outstanding  23,558   23,394   23,501   23,344 Effect of dilutive employee stock optionsand restricted stock units  307   —   142   —              Diluted weighted-average shares outstanding  23,865   23,394   23,643   23,344                               Net income(loss) per share - basic:                Net income (loss) $0.14  $(0.04) $0.33   ($0.13)                              Net income(loss) per share - diluted:                Net income (loss) $0.14  $(0.04) $0.33   ($0.13)             For the three- and nine-month periods ended September 27, 2008, 2.9 million and 4.5 million sharesof common stock, respectively, subject to outstanding options were excluded from the computation ofdiluted net income (loss) per share, as the effect would have been anti-dilutive, compared to 5.2million and 5.5 million shares of common stock subject to outstanding options in the correspondingperiods of 2007. In addition, for each of the nine-month periods ended September 27, 2008 andSeptember 29, 2007, 0.1 million shares of common stock underlying outstanding restricted stockunits were excluded from the computation as well. For the three months ended September 27, 2008,there were no shares of common stock underlying outstanding restricted stock units excluded fromthe computation compared to 0.1 million shares in the corresponding period of 2007. Options andrestricted stock units are anti-dilutive when we have a net loss or when the exercise price and theaverage unrecognized compensation cost of the stock option or restricted stock unit is greater thanthe average market price of our common stock during the period.**(5) Fair Value Measurements**On January 1, 2008, we adopted SFAS No. 157 for financial assets and liabilities recognized at fairvalue on a recurring basis. In February 2008, the FASB issued FASB Staff Position No. 157-2,*Effective Date of FASB Statement No. 157*, which delays the effective date of SFAS No. 157 for allnonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed atfair value in the financial statements on a recurring basis (at least annually), until fiscal yearsbeginning after November 15, 2008, and interim periods within those fiscal years. Thesenonfinancial items include assetsand liabilities such as reporting units measured at fair value in a goodwill impairment test andnonfinancial assets acquired and liabilities assumed in a business combination. In October 2008,the FASB issued FASB Staff Position No. 157-3, *Determining the Fair Value of a Financial Asset Whenthe Market for That Asset Is Not Active*, which clarifies the application of SFAS No. 157 in amarket that is not active and provides an example to illustrate key considerations in determiningthe fair value of a financial asset when the market for that financial asset is not active. Weadopted this Staff Position for the quarter ended September 27, 2008 and the adoption did not haveany impact on our results of operations or financial position.
8

Table of Contents
Fair value is defined under SFAS No. 157 as the exchange price that would be received for an assetor paid to transfer a liability (an exit price) in the principal or most advantageous market forthe asset or liability in an orderly transaction between market participants on the measurementdate. Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use ofobservable inputs and minimize the use of unobservable inputs. SFAS No. 157 describes a fair valuehierarchy based on three levels of inputs, of which the first two are considered observable and thelast 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 foridentical or similar instruments in markets that are not active; and model-derived valuations inwhich 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 valuedrivers are unobservable.We measure certain financial assets and liabilities at fair value on a recurring basis, includingavailable-for-sale securities and foreign currency derivatives. The fair value of these certainfinancial assets and liabilities was determined using the following inputs at September 27, 2008:                   **Fair Value Measurements at Reporting Date Using**       **Quated Prices in**               **Active Markets for**  **Significant Other**  **Significant**       **Identical Assets**  **Observable****Inputs**  **Unobservable****Inputs** **(In thousands)** **Total**  **(Level 1)**  **(Level 2)**  **(Level 3)** Available-for-sale securities(1)  $130,513  $31,101  $99,412  $— Foreign currency derivatives(2)  186   —   186   —                $130,699  $31,101  $99,598  $—               (1) Included in cash and cash equivalents and short-term investments on our condensed consolidated balance sheet. (2) Included in current liabilities on our condensed consolidated balance sheet.Our available-for-sale securities at September 27, 2008 consisted of U.S. treasury securities (51%of total), money market funds (24% of total), commercial paper (24% of total) and corporate notes(1% of total). Included in available-for-sale securities at September 27, 2008 were cashequivalents of $91.0 million. Cash equivalents consist primarily of instruments with remainingmaturities of three months or less at the date of purchase.Foreign currency derivatives at September 27, 2008 consisted of forward foreign exchange contractsfor the Japanese yen.**(6) Inventories**Inventories consist of the following:           **September 27,**  **December 31,** **(In thousands)** **2008**  **2007** Raw materials $18,422  $18,016 Work-in-process  11,073   6,938 Finished products  2,423   4,174          $31,918  $29,128        **(7) Notes Payable**We have a line of credit agreement with a brokerage firm. Under the terms of this agreement, we mayborrow funds at a cost equal to the current Federal funds open rate plus 125 basis points(approximately 3.25% as of September 27, 2008). Funds are advanced to us under this facility basedon 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 investmentsbalance in this brokerage account with no restriction in the use of those assets. This agreementhas no set expiration date and there areno loan covenants, other than the aforementionedcollateral requirement. As of September 27, 2008, we did not have any outstanding borrowings underthis facility.
9

Table of Contents
**(8) Other Current Liabilities**Other current liabilities consist of the following:           **September 27,**  **December 31,** **(In thousands)** **2008**  **2007** Salaries and benefits $4,689  $3,545 Warranty accrual  2,117   2,112 Advance billings  768   115 Accrued taxes-other  2,021   863 Reserve for losses on purchase order commitments  144   508 Capital lease, current portion  111   99 Other  1,553   2,310          $11,403  $9,552        **Warranty Accrual**We generally warrant our products for a period of 12 months for new products, or three months forrefurbished products, from the date of customer acceptance for material and labor to repair theproduct; accordingly, an accrual for the estimated cost of the warranty is recorded at the time theproduct is shipped. Extended warranty terms, if granted, result in deferral of revenue equating toour standard pricing for similar service contracts. Recognition of the related warranty cost isdeferred until product revenue is recognized. Factors that affect our warranty liability includethe number of installed units, historical and anticipated rates of warranty claims, and cost perclaim. We periodically assess the adequacy of our recorded warranty liabilities and adjust theamounts as necessary. We believe our warranty accrual, as of September 27, 2008, will be sufficientto satisfy outstanding obligations as of that date. Changes in our warranty accrual are as follows:                   **Three Months Ended**  **Nine Months Ended**   **September 27,**  **September 29,**  **September 27,**  **September 29,** **(In thousands)** **2008**  **2007**  **2008**  **2007** Balance, beginning of the period $1,841  $2,218  $2,112  $2,264 Warranties accrued for shipmentsduring the period  986   920   2,196   2,833 Settlements made during the period  (761)  (923)  (1,967)  (2,615)Changes in accrued warranty liabilities  51   7   (224)  (260)             Balance, end of the period $2,117  $2,222  $2,117  $2,222              **Deferred Services Revenue**We sell service contracts for which revenue is deferred and recognized ratably over the contractperiod for time based service contracts, or as service hours are delivered for contracts based on apurchased quantity of hours. Changes in our deferred service revenue are as follows:                   **Three Months Ended**  **Nine Months Ended**   **September 27,**  **September 29,**  **September 27,**  **September 29,** **(In thousands)** **2008**  **2007**  **2008**  **2007** Balance, beginning of the period $2,087  $2,694  $2,087  $2,444 Service contracts sold during the period  698   496   2,019   2,891 Service contract revenue recognized during the period  (621)  (1,097)  (1,942)  (3,242)             Balance, end of the period $2,164  $2,093  $2,164  $2,093              
10

Table of Contents
**(9) Other Liabilities**Other liabilities consist of the following:           **September 27,**  **December 31,** **(In thousands)** **2008**  **2007** Deferred rent $1,660  $2,093 Deferred compensation  1,106   1,287 Long-term income taxes payable  797   363 Asset retirement obligation  2,186   2,222 Postretirement medical obligation  807   773 Long-term capital lease  414   463 Other  294   333          $7,264  $7,534        **(10) Accumulated Other Comprehensive Income (Loss)**The components of comprehensive income (loss), net of tax, are as follows:                   **Three Months Ended**  **Nine Months Ended**   **September 27,**  **September 29,**  **September 27,**  **September 29,** **(In thousands)** **2008**  **2007**  **2008**  **2007** Net income (loss) $3,302  $(884) $7,838  $(3,109)Other comprehensive income:                Unrealized gain (loss) on available-for-sale investments before adjustment  (99)  678   113   690 Reclassification adjustment for gains included in net income  —   —   (409)  —              Net unrealized gain (loss) on available-for-sale investments  (99)  678   (296)  690 Unrealized gain (loss) on foreign exchange forward contracts  (168)  (40)  (240)  (173)Change in minimum postretirement medical obligation  9   9   28   28              Comprehensive income (loss) $3,044  $(237) $7,330  $(2,564)             Accumulated other comprehensive income (loss), net of tax, is comprised of the following items:           **September 27,**  **December 31,** **(In thousands)** **2008**  **2007** Unrealized gain (loss) on:        Available-for-sale investments $(92) $204 Foreign exchange forward contracts  (162)  79 Change in minimum postretirement medical obligation  (163)  (192)       Accumulated other comprehensive income (loss) at end of period $(417) $91        **(11) Exit Activities**     Changes in our accrued severance and benefits charges in connection with exit activities areas follows:                   **Balance at**          **Balance at**   **December 31,**          **September 27,** **(In thousands)** **2007**  **Expenses**  **Payments**  **2008** Severance and benefits (2006) $46  $—  $(46) $— Severance and benefits (2007)  382   —   (382)  —              Total $428  $—  $(428) $—              
11

Table of Contents
We did not have any exit activity during the first three quarters of 2008 as compared to $0.7million, $0.5 million and $0.3 million recorded during the first, second and third quarter of 2007,respectively. As of September 27, 2008, there were no more exit activity liabilities.**(12) Employee Benefit Plans*****Employee bonus plans***We currently sponsor an executive incentive bonus plan that distributes employee awards based onthe achievement of predetermined targets. We recorded a charge of $0.5 million and $0.9 millionunder this bonus plan for the three- and nine-month periods ended September 27, 2008, respectively,compared to no charge for the corresponding periods of 2007.***Employee savings and retirement plans***We sponsor a 401(k) employee salary deferral plan that allows voluntary contributions by allfull-time employees of from 1% to 20% of their pretax earnings. Our contributions made to this planwere $0.1 million for each of the three-month periods ended September 27, 2008 and September 29,2007 and $0.2 million for each of the nine-month periods then ended. Our contributions, limited toa maximum of $2,000 per year per employee, generally become 20 percent vested at the end of anemployee’s first year of service from the date of hire, and vest 20 percent per year of servicethereafter until they become fully vested at the end of five years of service. We also sponsor anexecutive non-qualified deferred compensation plan (the “Plan”) that allows qualifying executivesto defer current cash compensation. As of September 27, 2008, Plan assets, representing the cashsurrender value of life insurance policies held by us and liabilities were approximately $1.1million each, respectively, and were included in our Consolidated Balance Sheets under the captions“other assets” and “other liabilities.” In conjunction with this Plan, the related expense for eachof the quarters ended September 27, 2008 and September 29, 2007 was immaterial.***Postretirement benefits***We have committed to providing and fully paying for lifetime postretirement medical and dentalbenefits to the Chief Executive Officer and Chief Financial Officer and their spouses, commencingafter retirement. We recorded net periodic benefit costs of $21,000 and $62,000 for the three- andnine-month periods ended September 27, 2008, respectively, compared to $13,000 and $39,000 for thecorresponding periods of 2007. These expenses included interest cost and amortization of priorservice cost.**(13) Income Taxes**In accordance with FASB Financial Interpretation Number 48, *Accounting for Uncertainty in IncomeTaxes*, we had unrecognized tax benefits of $3.3 million as of January 1, 2008. We continue torecognize interest and penalties as a component of income tax provision and accrued $56,000 forthese items as of January 1, 2008.If we are able to eventually recognize these uncertain tax positions, $2.9 million of ourunrecognized benefit would reduce the effective tax rate. We currently have a full valuationallowance against our U.S. net deferred tax asset which would impact the timing of the effectivetax rate benefit should any of these uncertain tax positions be favorably settled in the future.Over the next twelve months, we expect an immaterial decline in liabilities associated with ouruncertain tax positions as a result of expiring statutes of limitations.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 alsosubject to audits in the foreign jurisdictions in which we operate for years 2002 and forward.There are no tax examinations currently in progress.**(14) Commitments and Contingencies****Commitments**In September 2007, we sublet a portion of our facilities in San Jose, California and account for itas an operating lease. This sublease expires in January 2010. As of September 27, 2008, the minimumfuture sublease payments to be received were $0.9 million. In July 2007, we capitalized a five-yearlease agreement for a new phone system recorded as office equipment. The amortization of this phonesystem is included with depreciation expense.In August 2008, we entered into agreements with a leasing company for the sale and leaseback ofcertain assets for an initial term of four years. The sale price of the items was $6.8 million.There was no gain or loss from this transaction. Under this sale-leaseback arrangement, we have anoption to purchase the assets back at the future current fair market value upon theexpiration ofthe lease in 2012. The lease is classified as operating lease in accordance with SFAS No. 13,*Accounting for Leases*. As of September 27, 2008, the minimum future lease payments to be made were$6.8 million.
12

Table of Contents
**Legal Proceedings**On July 11, 2003, we filed a lawsuit against a Southern California company asserting infringementof certain claims related to U.S. patent No. 5,621,813 in the U.S. District Court in and for theNorthern District of California. On May 17, 2005, the court found the subject patent to be invalid.We appealed this decision. The defendant subsequently brought a motion for reimbursement of itsattorneys’ fees and costs in a total asserted amount of approximately $2 million. We opposed thismotion, and on October 12, 2005, the District Court denied the defendant’s request for attorneys’fees in its entirety. The defendant appealed that decision. On November 3, 2005, the defendantfiled a notice of appeal with respect to the court’s ruling on its motion for attorneys’ fees. InMarch 2006, the Federal Circuit court upheld the district court’s ruling that the subject patent isinvalid. On August 8, 2006, the Federal Circuit court upheld the District Court’s denial ofattorneys’ fees. Neither side appealed the rulings by the Federal Circuit, and they are final.In May 2006, the same company filed a state court lawsuit against us for malicious prosecution andabuse of process claiming that attorney’s fees, costs and other damages were due based on theoutcome of a federal patent litigation suit described above. We do not believe this action hasmerit, particularly given the denial by the federal court of that company’s request to be awardedattorneys’ fees payable by us in the patent litigation and the subsequent federal appellate court’saffirmation of the order denying any such award. We filed a motion to have the state courtcomplaint dismissed under California’s anti-strategic lawsuit against public participation(“anti-SLAPP”) and demurrer statutes. The anti-SLAPP statute is aimed at striking lawsuits that arebrought in order to quash an individual’s constitutional rights to free speech or seeking redressof grievances (i.e., filing suit). The state court granted the anti-SLAPP motion as to the abuse ofprocess claim, but denied it as to the malicious prosecution claim. We have filed a petition forreview of this appellate decision with the California Supreme Court and await a decision as towhether the Supreme Court will hear the matter. In the event it chooses not to, we intend tovigorously defend ourselves in the lower state court action.**Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations**Certain of the statements contained herein, which are not historical facts and which can generallybe identified by words such as “anticipates,” “expects,” “intends,” “will,” “could,” “believes,”“estimates,” “continues,” and similar expressions, are forward-looking statements under Section 27Aof the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, suchas risks related to our dependence on new product introductions and market acceptance of newproducts and enhanced versions of our existing products; lengthy sales cycles, including the timingof system installations and acceptances; lengthy and costly development cycles for laser-processingand lithography technologies and applications; integration, development and associated expenses ofthe laser processing operation; delays, deferrals and cancellations of orders by customers;cyclicality in the semiconductor and nanotechnology industries; general economic and financialmarket conditions including impact to capital spending; pricing pressures and product discounts;high degree of industry competition; intellectual property matters; changes to financial accountingstandards; changes in pricing by us, our competitors or suppliers; customer concentration;international sales; timing of new product announcements and releases by us or our competitors;ability to volume produce systems and meet customer requirements; sole or limited sources ofsupply; ability and resulting costs to attract or retain sufficient personnel to achieve ourtargets for a particular period; dilutive effect of employee stock option grants on net income pershare, which is largely dependent upon us achieving and maintaining profitability and the marketprice of ourstock; mix of products sold; rapid technological change and the importance of timely productintroductions; outcome of litigation; manufacturing variances and production levels; timing anddegree of success of technologies licensed to outside parties; product concentration and lack ofproduct revenue diversification; inventory obsolescence; asset impairment; effects of certainanti-takeover provisions; future acquisitions; volatility of stock price; foreign governmentregulations and restrictions; business interruptions due to natural disasters or utility failures;environmental regulations; and any adverse effects of terrorist attacks in the United States orelsewhere, or government responses thereto, or military actions in Iraq, Afghanistan and elsewhere,on the economy in general, or on our business in particular. Due to these and additional factors,the statements, historical results and percentage relationships set forth below are not necessarilyindicative of the results of operations for any future period. These forward-looking statements arebased on management’s current beliefs and expectations, some or all of which may prove to beinaccurate, and which may change. We undertake no obligation to revise or update anyforward-looking statements to reflect any event or circumstance that may arise after the date ofthis report.
13

Table of Contents
**OVERVIEW**We develop, manufacture and market photolithography and laser thermal processing equipment formanufacturers of integrated circuits and nanotechnology components located throughout NorthAmerica, Europe, Japan, Taiwan and the rest of Asia.We supply step-and-repeat photolithography systems based on one-to-one imaging technology. Withinthe integrated circuits industry, we target the market for advanced packaging applications. Withinthe nanotechnology industry, our target markets include thin film head magnetic recording devices,ink jet print heads, laser diodes and light emitting diodes (“LEDs”). Our laser thermal processingequipment is targeted at advanced annealing applications within the semiconductor industry.**RESULTS OF OPERATIONS**We derive a substantial portion of our total net sales from sales of a relatively small number ofnewly manufactured systems, which typically range in price from $1.2 million to $5.6 million. As aresult of these high sale prices, the timing and recognition of revenue from a single transactionhas had and most likely will continue to have a significant impact on our net sales and operatingresults for any particular period.Our backlog at the beginning of a period typically does not include all of the sales needed toachieve our sales objectives for that period. In addition, orders in backlog are subject tocancellation, shipment or customer acceptance delays, and deferral or rescheduling by a customerwith limited or no penalties. Consequently, our net sales and operating results for a period havedepended and will continue to depend on our obtaining orders for systems to be shipped and acceptedin the same period in which the order is received. Our business and financial results for aparticular period could be materially adversely affected if an anticipated order for even onesystem is not received in time to permit shipment and customer acceptance during that period.Furthermore, a substantial portion of our shipments have historically occurred near the end of thequarter. Delays in installation and customer acceptance due, for example, to our inability tosuccessfully demonstrate the agreed-upon specifications or criteria at the customer’s facility, orto the failure of the customer to permit installation of the system in the agreed upon timeframe,may cause net sales in a particular period to fall significantly below our expectations, which maymaterially and adversely affect our operating results for that period. This risk is especiallyapplicable to the introduction and initial sales of a new product line. Additionally, the failureto receive anticipated orders or delays in shipments due, for example, to rescheduling, delays,deferrals or cancellations by customers, additional customer configuration requirements, or tounexpected manufacturing difficulties or delays in deliveries by suppliers due to their longproduction lead times or otherwise, have caused and may continue to cause net sales in a particularperiod to fall significantly below our expectations, materially adversely affecting our operatingresults for that period. In particular, the long manufacturing and acceptance cycles of ouradvanced packaging family of wafer steppers and laser thermal processing systems and the long leadtime for lenses and other materials, could cause shipments and acceptances of such products to bedelayed from one quarter to the next, which could materially adversely affect our financialcondition 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 itdifficult for us to reduce our operating expenses in a particular period if we fail to achieve ournet sales goals for the period.**Net Sales***Third Quarter*                   **Three Months Ended**         **September 27,**  **September 29,**  **Amount of**  **Percentage** **(In thousands, except percentages)** **2008**  **2007**  **Change**  **Change** Sales of:                Products $30,114  $20,909  $9,205   44.0%Services  4,322   4,279   43   1.0%Licenses  —   —   —   —               Total net sales $34,436  $25,188  $9,248   36.7%              
14

Table of Contents
Net sales consist of revenues from products (system and spare parts sales), services and licensingof technologies. Product sales increased 44.0% to $30.1 million for the quarter ended September 27,2008, compared to $20.9 million in the corresponding quarter of 2007, primarily due to an increasein system unit volume, resulting from a continuing shift in product mix in favor of our new laserprocessing products and away from our legacy product platforms.On a product market application basis, system sales to the semiconductor industry, consisting ofsales to the advanced packaging market, the laser processing applications market and thesemiconductor market, increased $7.3 million from the corresponding quarter of 2007. This increasewas due to an increase in sales to the advanced packaging market of $10.2 million partially offsetby a decrease in the laser processing market of $2.8 million.System sales to the nanotechnology market for the quarter ended September 27, 2008 were $2.9million as compared with none in the corresponding quarter of 2007. System sales to thenanotechnology market are highly dependent on customer capacity demand in the industries we serve,including thin film heads, automotive MEMS, LED/laser diodes, and ink jet print heads, andtherefore we expect to experience significant variations in sales to this market from quarter toquarter.Revenues from services for the quarter ended September 27, 2008 remained fairly consistent at $4.3million as compared with the corresponding quarter of 2007. We did not have any revenues fromlicensing activities for the quarter ended September 27, 2008 or the corresponding period of 2007.We may not generate licensing revenues in the future and do not anticipate the recognition ofsignificant levels of licensing income during the remainder of 2008.At September 27, 2008, we had approximately $8.2 million of deferred product and services incomecompared to $10.2 million at December 31, 2007. The gross amounts of deferred revenues and deferredcosts at September 27, 2008 were $10.1 million and $1.9 million, respectively. The gross amounts ofdeferred revenues and deferred costs at December 31, 2007 were $14.8 million and $4.6 million,respectively. Deferred product income is recognized as revenue upon satisfying the contractualobligations for installation and/or customer acceptance. Deferred services income is recognized asrevenue ratably over the contract period (for time-based service contracts) or as purchasedservices are rendered (for contracts based on a purchased quantity of hours).For the quarter ended September 27, 2008, international net sales were $28.8 million, or 83.5% oftotal net sales, compared with $12.8 million, or 50.9% of total net sales for the correspondingquarter of 2007. In the quarter ended September 27, 2008 compared to the corresponding quarter of2007, sales to Europe increased by $7.7 million, sales to Japan increased by $0.3 million, sales toTaiwan remained fairly constant and sales to the rest of Asia increased by $8.0 million. We expectsales to international customers will continue to represent a significant portion of our revenuesduring the remainder of 2008 as companies continue to build their manufacturing plants overseas,especially in Asia.Our revenue derived from sales in foreign countries is not generally subject to significantexchange rate fluctuations, principally because sales contracts for our systems are generallydenominated in U.S. dollars. In Japan, however, orders are sometime denominated in Japanese yen.This subjects us to the risk of currency fluctuations. We attempt to mitigate this risk by enteringinto foreign currency forward exchange contracts for the period between when an order is receivedand when it is recorded as revenue. After recording revenue, we use various mechanisms, such asnatural hedges, to offset substantial portions of the gains or losses associated with our Japaneseyen denominated receivables due to exchange rate fluctuations. We had approximately $1.4 million ofJapanese yen denominated receivables at September 27, 2008. International sales expose us to anumber of additional risks, including fluctuations in the value of local currencies relative to theU.S. dollar, which impact the relative cost of ownership of our products and, thus, the customer’swillingness to purchase our product. (See “Item 1A Risk Factors: International Sales”).*Year-To-Date*                   **Nine Months Ended**         **September 27,**  **September 29,**  **Amount of**  **Percentage** **(In thousands, except percentages)** **2008**  **2007**  **Change**  **Change** Sales of:                Products $84,317  $70,712  $13,605   19.2%Services  12,917   11,755   1,162   9.9%Licenses  400   100   300   300.0%              Total net sales $97,634  $82,567  $15,067   18.2%              
15

Table of Contents
Product sales increased 19.2% to $84.3 million for the nine months ended September 27, 2008 ascompared to the same period in 2007. This increase was primarily attributable to an increase in theaverage selling prices of systems sold and an increase in system unit volume, resulting from acontinuing shift in product mix in favor of our new laser processing and advanced packagingproducts and away from our legacy product platforms.On a market segment basis, in the nine months ended September 27, 2008, system sales to thesemiconductor industry, increased $19.1 million from the corresponding period of 2007. Thisincrease was due to an increase in sales to the advanced packaging market of $17.9 million and thelaser processing market of $1.9 million, partially offset by a decrease in sales to thesemiconductor market of $0.7 million. In the nine months ended September 27, 2008, system sales tothe nanotechnology market decreased $2.0 million from the corresponding period of 2007.Revenues from services in the nine months ended September 27, 2008 increased 9.9% from thecomparable period of 2007, primarily as a result of increases in the number of service contracts ineffect during the quarter. Revenues from licensing activities increased in the nine months endedSeptember 27, 2008 as compared to the same period of 2007 primarily due to the licensing revenueassociated with the resale of our tools by our existing customers to third parties.For the nine months ended September 27, 2008, international net sales were $62.8 million, or 64.3%of total net sales, as compared with $51.8 million, or 62.7% of total net sales, for the comparableperiod of 2007. For the nine months ended September 27, 2008, as compared to the same period of2007, sales to Europe increased $6.6 million, sales to Japan decreased $7.9 million, sales toTaiwan increased $1.0 million and sales to the rest of Asia increased $11.3 million.**Gross Profit**On a comparative basis, gross margins increased to 48.5% for the three months ended September 27,2008, compared to 41.1% for the corresponding period of 2007. This 7.4 percentage point increase ingross margin was primarily due to a change in our product mix (6.0 percentage points), lowerwarranty and installation costs (0.6 percentage points) and no severance and benefit chargerecorded during the third quarter of 2008 (0.8 percentage points).Gross margins for the nine months ended September 27, 2008 increased to 48.4% compared to 41.6% inthe corresponding period in 2007. This 6.8 percentage point increase in gross margin was primarilydue to an increase in the average selling prices of systems sold and a change in our product mix(6.3 percentage points), no severance and benefit charge recorded during the nine months endedSeptember 27, 2008 (0.8 percentage points) and lower warranty and installation costs related to ourlaser spike annealing systems (0.2 percentage points). These lower costs were partially offset byhigher costs from the write-down of inventory (0.5 percentage points).Our gross profit as a percentage of sales has been and most likely will continue to besignificantly affected by a variety of factors, including the following: the introduction of newproducts, which typically have higher manufacturing costs until manufacturing efficiencies arerealized and which are typically discounted more than existing products until the products gainmarket acceptance; the mix of products sold; the rate of capacity utilization; write-down ofinventory and open purchase commitments; product discounts, pricing and competition in our targetedmarkets; non-linearity of shipments during the quarter which can result in manufacturinginefficiencies; and the percentage of international sales, which typically have lower gross marginsthan domestic sales principally due to higher field service and support costs.**Operating Expenses***Third Quarter*                   **Three Months Ended**         **September 27,**  **September 29,**  **Amount of**  **Percentage** **(In thousands, except percentages)** **2008**  **2007**  **Change**  **Change** Research, development andengineering $5,811  $5,981  $(170)  -2.8%Selling, general and administrative  8,047   7,026   1,021   14.5%              Total operating expenses $13,858  $13,007  $851   6.5%              Research, development and engineering expenses for the quarter ended September 27, 2008 were $5.8million as compared to $6.0 million for the corresponding period in 2007. This decrease wasprimarily attributable to our continuing effort to manage company-wide expenses. As a percentage ofnet sales, research, development and engineering expenses for the quarter ended September 27, 2008decreased to 16.9% from 23.7% for the corresponding quarter of 2007. This decrease was dueprimarily to the increase in net sales as compared to the corresponding quarter of 2007 discussedabove.
16

Table of Contents
Selling, general, and administrative expenses for the quarter ended September 27, 2008 were $8.0million as compared to $7.0 million for the corresponding quarter of 2007. This increase wasprimarily attributable to higher stock-based compensation expense of $0.3 million, higher salaryand related expenses of $0.2 million, higher sales commission expense of $0.1 million and anaccrual of $0.3 million for the management incentive plan during the third quarter of 2008 ascompared to no such accrual for the corresponding quarter of 2007. As a percentage of net sales,selling, general and administrative expenses for the quarter ended September 27, 2008 decreased to23.4% from 27.9% for the corresponding quarter of 2007. This decrease was due primarily to theincrease in net sales as compared to the corresponding quarter of 2007 discussed above.*Year-To-Date*                   **Nine Months Ended**         **September 27,**  **September 29,**  **Amount of**  **Percentage** **(In thousands, except percentages)** **2008**  **2007**  **Change**  **Change** Research, development andengineering $17,594  $17,781  $(187)  -1.1%Selling, general and administrative  24,207   23,889   318   1.3%              Total operating expenses $41,801  $41,670  $131   0.3%              Research, development and engineering expenses were $17.6 million for the nine months endedSeptember 27, 2008 as compared to $17.8 million for the corresponding period in 2007. This decreasewas primarily due to our continuing effort to manage company-wide expenses. As a percentage of netsales, research, development and engineering expenses for the nine-month period ended September 27,2008 decreased to 18.0% from 21.5% for the corresponding period of 2007.Selling, general and administrative expenses were $24.2 million for the nine months ended September27, 2008 as compared with $23.9 million for the corresponding period in 2007. This increase wasprimarily due to higher stock-based compensation expense of $0.5 million, higher sales commissionexpense of $0.2 million and an accrual of $0.6 million for the management incentive plan ascompared to no such accrual for the corresponding period of 2007. These increases were offsetpartially by the fact that no severance and benefit charges were recorded during the nine monthsended September 27, 2008 compared to $1.0 million recorded in the corresponding period of 2007 andour continuing effort to manage company-wide expenses. As a percentage of net sales, selling,general and administrative expenses for the nine-month period ended September 27, 2008 decreased to24.8% from 28.9% for the corresponding period of 2007.**Interest and Other Income, Net**Interest and other income, net, which consists primarily of interest income and gain (loss) fromforeign currency exchange, was $0.5 million and $2.8 million for the three and nine months endedSeptember 27, 2008, respectively, as compared with $1.7 million and $4.8 million for the comparableperiods of 2007. This decrease was primarily attributable to higher loss from foreign currencyexchange and a decline in interest income earned by our cash and investment positions, which waspartially offset by a gain of $0.4 million from sales of short-term investments during the ninemonths ended September 27, 2008 as compared to the corresponding period of 2007. The loss fromforeign currency exchange was a result of appreciation of Japanese yen. The lower interest incomeearned resulted from lower applicable interest rates. The cost of securities sold was determinedbased on the specific identification method. As of September 27, 2008, the weighted-averagematurity of our investment portfolio was less than a year. Changes in interest rates have had, andwill continue to have, an impact on our interest income.**Provision (Benefit) for Income Taxes**For the three- and nine-month periods ended September 27, 2008, we recorded income tax provisionsof $1,000 and $347,000, respectively, as compared to income tax benefits of $189,000 and $7,000 forthe comparable periods in 2007. The income tax provisions recognized for the nine months endedSeptember 27, 2008 resulted primarily from federal income taxes and foreign income taxes. Theincome tax benefits recognized for the nine months ended September 29, 2007 resulted primarily fromforeign income taxes.Income tax estimates can be affected by whether and within which jurisdictions future earnings willoccur and how and when cash is repatriated to the United States, as well as other aspects of anoverall income tax strategy. Additionally, taxing jurisdictions could retroactively disagree withour tax treatment of certain items, and some historical transactions have income tax effects goingforward. Accounting rules require these future effects to be evaluated using current laws, rulesand regulations, each of which can change at any time and in an unpredictable manner. We believe wehave adequately provided for any reasonably foreseeable outcome related to these matters, and we donot anticipate any material earnings impact from their ultimate resolution.
17

Table of Contents
Each quarter we assess the likelihood that we will be able to recover our deferred tax assets. Weconsider available evidence, both positive and negative, including historical levels of income,expectations and risks associated with estimates of future taxable income and ongoing prudent andfeasible tax planning strategies in assessing the need for the valuation allowance. As a result ofour analysis, we concluded that it is more likely than not that our net deferred tax assets willnot be realized, with the exception of those in Japan and Taiwan. Therefore, we continue to providea full valuation allowance against net deferred tax assets outside of Japan and Taiwan. We closelymonitor available evidence, and may release some or all of the valuation allowance in futureperiods.In accordance with FASB Financial Interpretation Number 48, *Accounting for Uncertainty in IncomeTaxes*, we had unrecognized tax benefits of $3.3 million as of January 1, 2008. We continue torecognize interest and penalties as a component of income tax provision and accrued $56,000 forthese items as of January 1, 2008.If we are able to eventually recognize these uncertain tax positions, $2.9 million of theunrecognized benefit would reduce our effective tax rate. We currently have a full valuationallowance against our U.S. net deferred tax asset which would impact the timing of the effectivetax rate benefit should any of these uncertain tax positions be favorably settled in the future.Over the next twelve months, we expect an immaterial decline in liabilities associated with ouruncertain tax positions as a result of expiring statutes of limitations.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 alsosubject to audits in the foreign jurisdictions in which we operate for years 2002 and forward.There are no tax examinations currently in progress.**Outlook**The anticipated timing of orders, shipments and customer acceptances usually requires that we filla number of production slots in any given quarter in order to meet our sales targets. If we areunsuccessful in our efforts to secure those production orders, or if existing production orders aredelayed or cancelled, our results of operations will be materially adversely impacted. Accordingly,we may not be able to achieve or maintain our current or prior level of sales. For the full fiscalyear of 2008, we believe total net sales will improve compared to the amount reported for 2007.Because our net sales are subject to a number of risks, including risks associated with the marketacceptance of our new laser processing product line, delays in customer acceptance, intensecompetition in the capital equipment industry, uncertaintyrelating to the timing and market acceptance of our products, and the condition of themacro-economy and the semiconductor industry and the other risks described in this report and inour Annual Report on Form 10-K for the year ended December 31, 2007, we may not exceed or evenmaintain our current or prior level of net sales for any period in the future. Additionally, webelieve that the market acceptance and volume production of our advanced packaging systems, laserprocessing systems and our 1000 Platform steppers are of critical importance to our futurefinancial results. At September 27, 2008, these critical systems represented approximately 78.2% ofour backlog. To the extent that these products do not achieve or maintain significant sales due todifficulties involving manufacturing or engineering, the inability to reduce the current longmanufacturing cycles for these products, competition, excess capacity in the semiconductor ornanotechnology device industries, or for any other reason, our business, financial condition andresults of operations would be materially adversely affected.We believe that gross margin for the fourth quarter of 2008 will improve compared to the thirdquarter of 2008. Gross margin for the full fiscal year of 2008 is expected to improve compared to2007 as well. The final gross margin achieved in any quarter will depend heavily upon sales volumesand the resulting product mix. Should our sales not reach the level expected, we may incur a higherrisk of inventory obsolescence and excess purchase commitments and lower utilization of ourmanufacturing infrastructure, which would materially adversely impact our results of operations.New products generally have lower gross margins until there is widespread market acceptance anduntil production and after-sales efficiencies can be achieved. Should significant market demandfail to develop for our laser processing systems and our advanced packaging offerings, ourbusiness, financial condition and results of operations would be materially adversely affected. Inaddition, higher costs associated with extended manufacturing and customer acceptance periods onshipments of our laser processing products have had, and will continue to have, an adverse impacton our gross margins. We anticipate our operating expenses for the full fiscal year of 2008 will beslightly higher than the amount in fiscal year of 2007. For the full fiscal year of 2008, webelieve our operating cash flow will continue to be positive.
18

Table of Contents
**LIQUIDITY AND CAPITAL RESOURCES**Net cash provided by operating activities was $20.0 million for the nine months ended September 27,2008, compared with $6.3 million for the comparable period in 2007. Net cash provided by operatingactivities during the nine months ended September 27, 2008 was primarily attributable to our netincome generated from increased product and service sales and lower overall spending from ourcost-cutting measures plus the net effect of non-cash expenses from depreciation, amortization andstock-based compensation charges. Other source of cash from operating activities included decreasesin trade receivables and increases in accounts payable and other current liabilities. The decreasein accounts receivable was due to strong collections in the nine months ended September 27, 2008.The increases in accounts payable and other current liabilities were due to timing of payments.These sources of cash were partially offset by uses of cash for purchase of inventories, prepaidexpenses and other current assets and lower deferred product and service income. The decrease indeferred product and services income was primarily due to revenue recognized during the nine monthsended September 27, 2008.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 ofworking capital. Currently, we are devoting significant resources to the commercialization of ourlaser processing 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 orderto 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 associatedwith the production of our laser processing systems and by future generations of our 1X wafersteppers. These costs include, but are not limited to, additional manufacturing overhead, costs ofdemonstration systems and facilities and the establishment of additional after-sales supportorganizations. 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, amongother costs, to support our new products. If we are unable to achieve significantly increased netsales or if our sales fall below expectations, our cash flow and operating results will bematerially adversely affected until, among other factors, costs and expenses can be reduced. Ourfailure to achieve our sales targets for these new products could result in inventory write-offsand asset impairment charges, either of which could materially adversely impact our results ofoperations.During the nine months ended September 27, 2008, net cash provided by investing activities was$42.8 million, attributable to net proceeds from the sale and maturity of short-term investments of$37.5 million and proceeds of $6.8 million from the sale-leaseback of certain equipment during thequarter ended September 27, 2008, offset by capital expenditures of $1.5 million.Net cash used in financing activities was $4.8 million during the nine months ended September 27,2008, attributable to net repayments of $5.8 million under our notes payable offset partially byproceeds of $1.0 million received from the issuance of common stock under our employee stock optionplans.At September 27, 2008, we had working capital of $180.8 million. Our principal sources of liquidityat September 27, 2008 consisted of $151.9 million in cash, cash equivalents and short-terminvestments, net of outstanding borrowings under our line of credit. We have a line of creditagreement with a brokerage firm. Under the terms of this agreement, we may borrow funds at a costequal to the current Federal funds open rate plus 125 basis points (approximately 3.25% as ofSeptember 27, 2008). Certain of our cash, cash equivalents and marketable securities secureborrowings 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 basedon the cash and securities held by us in this brokerage account. This agreement has no setexpiration date and there are no loan covenants other than a collateral requirement. As ofSeptember 27, 2008, we did not have any outstanding borrowings under this facility.The development and manufacture of new lithography and laser-based systems and system enhancementsis highly capital-intensive. In order to be competitive, we believe we must continue to makesignificant expenditures for capital equipment; sales, service, training and support capabilities;systems, procedures and controls; and expansion of operations and research and development, amongmany other items. We expect that cash generated from operations and our cash, cash equivalents andshort-term investments will be sufficient to meet our cash requirements for at least the nexttwelve months. However, in the near-term, we may continue to utilize existing and future lines ofcredit, and other sources of financing, in order to maintain our present levels of cash, cashequivalents and investments. Beyond the next twelve months, we may require additional equity ordebt financing to address our working capital or capital equipment needs. In addition, we may seekto 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.
19

Table of Contents
We may in the future pursue acquisitions of complementary product lines, technologies orbusinesses. Future acquisitions may result in potentially dilutive issuances of equity securities,the incurrence of debt and contingent liabilities and amortization expenses and impairment chargesrelated to goodwill and other intangible assets, which could materially adversely affect ourfinancial condition and results of operations. In addition, acquisitions involve numerous risks,including difficulties in the assimilation of the operations, technologies, personnel and productsof 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 lossof key employees of the acquired company. In the event we acquire product lines, technologies orbusinesses which do not complement our business, or which otherwise do not enhance our sales oroperating results, we may incur substantial write-offs and higher recurring operating costs, whichcould have a material adverse effect on our business, financial condition and results ofoperations. In the event that any such acquisition does occur, there can be no assurance as to theeffect 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 currencyexchange rate fluctuations, we attempt to hedge most of our Japanese yen denominated foreigncurrency exposures. We use foreign currency forward contracts to hedge the risk that outstandingJapanese yen denominated receipts from customers, for actual or forecasted sales of our productsafter receipt of customer orders, may be adversely affected by changes in foreign currency exchangerates. We use foreign currency forward exchange contracts and natural hedges to offset substantialportions of the potential gains or losses associated with our Japanese yen denominated assets andliabilities due to exchange rate fluctuations. We enter into foreign currency forward contractsthat generally have maturities of nine months or less.**Critical Accounting Policies**The discussion and analysis of our financial condition and results of operations are based upon ourunaudited condensed consolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States. The preparation of these financialstatements 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 accountingpolicies and estimates. We base our estimates on historical experience and on various otherassumptions that we believe to be reasonable under the circumstances, the results of which form thebasis for making judgments about the carrying values of assets and liabilities that are not readilyapparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions. Our critical accounting policies and estimates are discussed in ourannual report on Form 10-K for the fiscal year ended December 31, 2007.**Information Available on Company Website**Our website is located at *www.ultratech.com*. We make available, free of charge through our website,our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (andamendments to those reports), as soon as reasonably practicable after such reports are filedelectronically 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 performingsimilar functions. We have posted this Code of Ethics on our website. Any future amendments to orwaivers 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, 2007 and to the subheading“Derivative Instruments and Hedging” in Item 8, “Financial Statements and Supplementary Data,”under the heading “Notes to Consolidated Financial Statements” of our Annual Report on Form 10-Kfor the year ended December 31, 2007.**Interest Rate Risk**Our exposure to market risk due to potential changes in interest rates relates primarily to ourinvestment portfolio, which consisted primarily of fixed interest rate instruments as of September27, 2008. We maintain an investment policy designed to ensure the safety and preservation of ourinvested 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 aline of credit we maintain with a brokerage firm. The line of credit is used for liquiditypurposes, mitigating the need to liquidate investments in order to meet our current operating cashrequirements.
20

Table of Contents
**Credit Risk**We mitigate credit default risk by attempting to invest in high credit quality securities and bypositioning our portfolio to respond appropriately to a significant reduction in a credit rating ofany investment issuer or guarantor. Our portfolio includes only marketable securities with activesecondary or resale markets to ensure portfolio liquidity and is diversified in accordance with ourinvestment policy. To date, we have not experienced any liquidity problems with our portfolio.As of September 27, 2008, we did not have any investments in mortgage backed or auction ratesecurities that affect the current sub-prime mortgage market or any security investments in thefinancial service sector. However, we intend to closely monitor developments in the credit marketsand make appropriate changes to our investment policy as we deem necessary or advisable. Based onour ability to liquidate our investment portfolio and our expected operating cash flows, we do notanticipate any liquidity constraints as a result of the current credit environment.**Foreign Currency Risk Management**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 incurrency 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 yendenominated receipts from customers for actual or forecasted sales of equipment may be adverselyaffected by changes in foreign currency exchange rates. Our hedging programs reduce, but do notalways entirely eliminate, the impact of currency movements.**Item 4. Controls and Procedures**We conducted an evaluation of the effectiveness of the design and operation of our disclosurecontrols and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as ofthe 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 theEvaluation Date, our disclosure controls and procedures were effective to ensure that informationrequired to be disclosed by us in reports that we file or submit under the Exchange Act isaccumulated and communicated to our management, including our principal executive officer andprincipal financial officer, to allow timely decisions regarding required disclosure, and isrecorded, processed, summarized and reported within the time periods specified in SEC rules andforms.Disclosure controls and procedures are controls and other procedures that are designed to ensurethat information required to be disclosed in our reports filed or submitted under the Exchange Actis recorded, processed, summarized and reported within the time periods specified in the SEC’srules and forms. Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed in our reports filed orsubmitted under the Exchange Act is accumulated and communicated to management to allow timelydecisions regarding required disclosure. In designing and evaluating the disclosure controls andprocedures, our management recognizes that any controls and procedures, no matter how well designedand 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 ofpossible controls and procedures.**Changes in Internal Control Over Financial Reporting**There were no changes in our internal control over financial reporting during the quarter endedSeptember 27, 2008 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**On July 11, 2003, we filed a lawsuit against a Southern California company asserting infringementof certain claims related to U.S. patent No. 5,621,813 in the U.S. District Court in and for theNorthern District of California. On May 17, 2005, the court found the subject patent to be invalid.We appealed this decision. The defendant subsequently brought a motion for reimbursement of itsattorneys’ fees and costs in a total asserted amount of approximately $2 million. We opposed thismotion, and on October 12, 2005, the District Court denied the defendant’s request for attorneys’fees in its entirety. The defendant appealed that decision. On November 3, 2005, the defendantfiled a notice of appeal with respect to the court’sruling on its motion for attorneys’ fees. InMarch 2006, the Federal Circuit court upheld the district court’s ruling that the subject patent isinvalid. On August 8, 2006, the Federal Circuit court upheld the District Court’s denial ofattorneys’ fees. Neither side appealed the rulings by the Federal Circuit, and they are final.
21

Table of Contents
In May 2006, the same company filed a state court lawsuit against us for malicious prosecution andabuse of process claiming that attorney’s fees, costs and other damages were due based on theoutcome of a federal patent litigation suit described above. We do not believe this action hasmerit, particularly given the denial by the federal court of that company’s request to be awardedattorneys’ fees payable by us in the patent litigation and the subsequent federal appellate court’saffirmation of the order denying any such award. We filed a motion to have the state courtcomplaint dismissed under California’s anti-strategic lawsuit against public participation, oranti-SLAPP, and demurrer statutes. The anti-SLAPP statute is aimed at striking lawsuits that arebrought in order to quash an individual’s constitutional rights to free speech or seeking redressof grievances (i.e., filing suit). The state court granted the anti-SLAPP motion as to the abuse ofprocess claim, but denied it as to the malicious prosecution claim. We have filed a petition forreview of this appellate decision with the California Supreme Court and await a decision as towhether the Supreme Court will hear the matter. In the event it chooses not to, we intend tovigorously defend ourselves in the lower state court action.**Item 1A. Risk Factors***In addition to risks described in the foregoing discussions, the following risks apply to ourbusiness and us*:**The current global financial and economic crisis could result in the cancellation, deferral orrescheduling of orders by our customers as well as changes in projection of new business.**Orders in backlog are subject to cancellation, deferral or rescheduling by a customer with limitedor no penalties. Sales of our systems depend, in significant part, upon the decision of aprospective customer to increase manufacturing capacity or to restructure current manufacturingfacilities, either of which typically involves a significant commitment of capital. Further, thepurchase 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 ourcustomers’ ability to raise capital is limited, they may choose to cancel, delay or reschedulepurchases of our products. The current global financial and economic crisis and the uncertaintycreated thereby could result in such a decline in demand or limited ability to raise capital, orcould otherwise affect our customers’ markets, financial condition or willingness to incurexpenses. As a result, we could experience the cancellation, delay or rescheduling of orders inour current backlog or of orders we currently expect to receive. Any such decision by ourcustomers or potential customers would adversely affect our net sales and results of operations.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.**We currently spend, and expect to continue to spend, significant resources to develop, introduceand commercialize our laser processing systems and AP wafer stepper products, and we may not besuccessful in achieving or increasing sales of these products.**Currently, we are devoting significant resources to the development, introduction andcommercialization of our laser products as well as our lithography wafer steppers. We intend tocontinue to develop these products and technologies during 2008, and will continue to incursignificant operating expenses in the areas of research, development and engineering, manufacturingand general and administrative costs in order to develop, produce and support these new products.Additionally, gross profit margins and inventory levels may be further adversely impacted in thefuture by costs associated with the initial production of our laser processing systems and byfuture generations of our 1X lithography systems. Introduction of new products generally involveshigher installation costs and product performance uncertainties that could delay customeracceptance of our systems, resulting in a delay in recognizing revenue associated with thosesystems and a reduction in gross margins. These costs include, but are not limited to, additionalmanufacturing overhead, additional inventory write-downs, costs of demonstration systems andfacilities, costs associated with the establishment of additional after-sales supportorganizations. Additionally, operating expenses may increase, relative to sales, as a result ofadding additional marketing and administrative personnel, among other costs, to support our newproducts. If we are unable to achieve significantly increased net sales or if our sales fall belowexpectations, our operating results will be materially adversely affected.Our ability to commercialize our laser processing technologies depends on our ability todemonstrate a manufacturing-worthy tool. We do not presently have in-house capability to fabricatedevices. As a result, we must rely on partnering with semiconductor companies to develop the annealprocess. The development of new process technologies is largely dependent upon our ability tointerest potential customers in working on joint process development. Our ability to deliver timelysolutions is also limited by wafer turnaround at the potential customer’s fabrication facility.
22

Table of Contents
**Our sales cycle is typically lengthy and involves a significant commitment of capital by ourcustomers, which has subjected us, and is likely to continue to subject us, to delays in customeracceptances of our products and other risks, any of which could adversely impact our results ofoperations by, among other things, delaying recognition of revenue with respect to those orders andresulting in increased installation, qualification and similar costs.**Sales of our systems depend, in significant part, upon the decision of a prospective customer toincrease manufacturing capacity or to restructure current manufacturing facilities, either of whichtypically involves a significant commitment of capital. Many of our customers in the past havecancelled the development of new manufacturing facilities and have substantially reduced theircapital equipment budgets. In view of the significant investment involved in a system purchase, wehave experienced and may continue to experience delays following initial qualification of oursystems as a result of delays in a customer’s approval process. Additionally, we are presentlyreceiving orders for systems that have lengthy delivery schedules, which may be due to longerproduction lead times or a result of customers’ capacity scheduling requirements. For these andother reasons, our systems typically have a lengthy sales cycle during which we may expendsubstantial funds and management effort in securing a sale. Lengthy sales cycles subject us to anumber of significant risks, including inventory obsolescence and fluctuations in operatingresults, over which we have little or no control. In order to maintain or exceed our present levelof net sales, we are dependent upon obtaining orders for systems that will ship and be accepted inthe current period. We may not be able to obtain those orders.**The semiconductor industry historically has been highly cyclical and has experienced periods ofoversupply, which has in turn affected the market for semiconductor equipment such as ours andwhich can adversely affect our results of operations during such periods.**Our business depends in significant part upon capital expenditures by manufacturers ofsemiconductors, advanced packaging semiconductors and nanotechnology components which in turndepend upon the current and anticipated market demand for such devices and products utilizing suchdevices. The semiconductor industry historically has been highly cyclical and has experiencedrecurring periods of oversupply. This has, from time to time, resulted in significantly reduceddemand for capital equipment including the systems manufactured and marketed by us. We believe thatmarkets for new generations of semiconductors and semiconductor packaging will also be subject tosimilar fluctuations. Our business and operating results would be materially adversely affected bydownturns 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. Weattempt to mitigate the risk of cyclicality by participating in multiple markets includingsemiconductor, semiconductor packaging, and nanotechnology sectors, as well as diversifying intonew markets such as laser-based annealing for implant activation and other applications. Despitesuch efforts, when one or more of such markets experiences a downturn or a situation of excesscapacity, our net sales and operating results are materially adversely affected.**We may not be successful in protecting our intellectual property rights or we could be found tohave infringed the intellectual property rights of others, either of which could weaken ourcompetitive position and adversely affect our results of operations.**Although we attempt to protect our intellectual property rights through patents, copyrights, tradesecrets 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 ofseeking patents when appropriate on inventions resulting from our ongoing research and developmentand manufacturing activities. We own 153 United States and foreign patents, which expire on datesranging from October 2008 to September 2027 and have 63 United States and foreign patentapplications pending. In addition, we have various registered trademarks and copyrightregistrations covering mainly applications used in the operation of our systems. We also rely upontrade secret protection for our confidential and proprietary information. We may not be able toprotect our technology adequately and competitors may be able to develop similar technologyindependently. Our pending patent applications may not be issued or U.S. or foreign intellectualproperty laws may not protect our intellectual property rights. In addition, litigation may benecessary to enforce our patents, copyrights or other intellectual property rights, to protect ourtrade secrets, to determine the validity and scope of the proprietary rights of others or to defendagainst 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 ourbusiness, financial condition and results of operations, regardless of the outcome of thelitigation. Patents issued to us may be challenged, invalidated or circumvented and the rightsgranted thereunder may not provide competitive advantages to us. Furthermore, others mayindependently develop similar technology or products, or, if patents are issued to us, designaround the patents issued to us. Invalidation of our patents related to those technologies couldallow our competitors to more effectively compete against us, which could result in less revenuefor us.
23

Table of Contents
On July 11, 2003, we filed a lawsuit against a Southern California company asserting infringementof certain claims related to U.S. patent No. 5,621,813 in the U.S. District Court in and for theNorthern District of California. On May 17, 2005, the court found the subject patent to be invalid.We appealed this decision. The defendant subsequently brought a motion forreimbursement of itsattorneys’ fees and costs in a total asserted amount of approximately $2 million. We opposed thismotion, and on October 12, 2005, the District Court denied the defendant’s request for attorneys’fees in its entirety. The defendant appealed that decision. On November 3, 2005, the defendantfiled a notice of appeal with respect to the court’s ruling on its motion for attorneys’ fees. InMarch 2006, the Federal Circuit court upheld the district court’s ruling that the subject patent isinvalid. On August 8, 2006, the Federal Circuit court upheld the District Court’s denial ofattorneys’ fees. Neither side appealed the rulings by the Federal Circuit, and they are final.In May 2006, the same company filed a state court lawsuit against us for malicious prosecution andabuse of process claiming that attorney’s fees, costs and other damages were due based on theoutcome of the federal patent litigation suit described above. We do not believe this action hasmerit, particularly given the denial by the federal court of that company’s request to be awardedattorneys’ fees payable by us in the patent litigation and the subsequent federal appellate court’saffirmation of the order denying any such award. We filed a motion to have the state courtcomplaint dismissed under California’s anti-strategic lawsuit against public participation(“anti-SLAPP”) and demurrer statutes. The anti-SLAPP statute is aimed at striking lawsuits that arebrought in order to quash an individual’s constitutional rights to free speech or seeking redressof grievances (i.e., filing suit). The state court granted the anti-SLAPP motion as to the abuse ofprocess claim, but denied it as to the malicious prosecution claim. We have filed a petition forreview of this appellate decision with the California Supreme Court and await a decision as towhether the Supreme Court will hear the matter. In the event it chooses not to, we intend tovigorously defend ourselves in the lower state court action.We believe that the outcome of these matters will not be material to our business, financialcondition or results of operations.We have from time to time been notified of claims that we may be infringing intellectual propertyrights possessed by third parties. We believe that the outcome of these matters will not bematerial to our business, results of operations or financial condition.Infringement claims by third parties or claims for indemnification resulting from infringementclaims may be asserted in the future and such assertions could materially adversely affect ourbusiness, financial condition and results of operations, regardless of the outcome of anylitigation. With respect to any such future claims, we may seek to obtain a license under the thirdparty’s intellectual property rights. However, a license may not be available on reasonable termsor 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 ourbusiness, financial condition and results of operations, regardless of the outcome of anylitigation.**We operate in a highly competitive industry in which customers are required to invest substantialresources in each product, which makes it difficult to achieve significant sales to a particularcustomer once another vendor’s equipment has been purchased by that customer.**The capital equipment industry in which we operate is intensely competitive. A substantialinvestment is required to install and integrate capital equipment into a semiconductor,semiconductor packaging or nanotechnology device production line. We believe that once a devicemanufacturer or packaging subcontractor has selected a particular supplier’s capital equipment, themanufacturer 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 toachieve significant sales to a particular customer once another supplier’s capital equipment hasbeen selected.We experience competition in advanced packaging from various proximity aligner companies such asSuss Microtec AG (Suss Microtec) and projection companies such as Ushio, Inc. (Ushio). In addition,some device manufacturers may consider using reduction steppers for advanced packaging processes.In nanotechnology, we experience competition from proximity aligner companies, such as SussMicrotec, as well as other stepper manufacturers who have developed or are developing toolsspecifically designed for nanotechnology applications. We expect our competitors in the lithographyarena to continue to improve the performance of their current products and to introduce newproducts with improved price and performance characteristics. This could cause a decline in salesor loss of market acceptance of our steppers in our served markets, and thereby materiallyadversely affect our business, financial condition and results of operations. Enhancements to, orfuture generations of, competing products may be developed that offer superior cost of ownershipand technical performance features.With respect to our laser annealing technologies, marketed under the LSA100A product name, theprimary competition comes from companies such as Dainippon Screen Manufacturing Co., Ltd., AppliedMaterials, Inc. and Mattson Technology, Inc. Many of these companies offer products utilizing rapidthermal processing (“RTP”) which is the current prevailing manufacturing technology. RTP does notprevent semiconductor device manufacturers from scaling the lateral dimensions of their transistorsto obtain improved performance, but diffusion resulting from the time scales associated with RTPlimits the vertical dimension of the junctions. Faster annealing times result in shallower and moreabrupt junctions and faster transistors. We believe that RTP manufacturers recognize the need toreduce thermal cycle times and are working toward this goal. In July 2000, we licensed certainrights to our then existing laser processing technology, with reservations, to a competingmanufacturer of semiconductor equipment. We presently anticipate that this company will offerlaser-annealing tools to the semiconductor industry that will compete with our offerings.
24

Table of Contents
Another potential advanced annealing solution utilizes flash lamp annealing technology, or FLA.Several companies have published papers on annealing tools that incorporate flash lamp technologyin order to reduce annealing times and increase anneal temperatures. Developers of FLA technologyclaim to have overcome annealing difficulties at the 65nm node. This technique, which employs xenonflash lamps, has shown improvements over RTP in junction depth and sheet resistance, but we believeFLA suffers from pattern-related non-uniformities and could require additional, costly processes toequalize the reflectivity of different areas within the chip or wafer. Our proprietary laserprocessing solution has been specifically developed to provide junction annealing onnear-instantaneous time-scales, while achieving high activation levels. Laser spike annealing, ourfirst implementation of laser processing, activates dopants in the microsecond-to-millisecond timeframe without melting. Our research indicates that, at temperatures just below the melting point ofsilicon, time durations in the microsecond to millisecond range are required to achieve fullactivation and minimal dopant diffusion.Additionally, competition to our laser processing products may come from other laser annealingtools, including those presently being used by the flat panel display industry to re-crystallizesilicon. Manufacturers of these tools may try to extend the use of their technologies tosemiconductor device applications.We believe that in order to be competitive, we will need to continue to invest significantfinancial resources in new product development, new features and enhancements to existing products,the introduction of new stepper systems in our served markets on a timely basis, and maintainingcustomer service and support centers worldwide. In marketing our products, we may also facecompetition from vendors employing other technologies. In addition, increased competitive pressurehas led to intensified price-based competition in certain of our markets, resulting in lower pricesand margins. Should these competitive trends continue, our business, financial condition andoperating results may be materially adversely affected.**We sell our products primarily to a limited number of customers and to customers in a limitednumber of industries, which subjects us to increased risks related to the business performance ofour customers, and therefore their need for our products, and the business cycles of the marketsinto which we sell.**Historically, we have sold a substantial portion of our systems to a limited number of customers.In the three- and nine-month periods ended September 27, 2008, our top five customers accounted for88.7% and 58.5% of our system sales compared to 100% and 56.3%, in the comparable periods of 2007. We expect that sales to a relatively fewcustomers will continue to account for a high percentage of our net sales in the foreseeable futureand believe that our financial results depend in significant part upon the success of these majorcustomers and our ability to meet their future capital equipment needs. Although the composition ofthe group comprising our largest customers may vary from period to period, the loss of asignificant customer or any reduction in orders by a significant customer, including reductions dueto market, economic or competitive conditions in the semiconductor, semiconductor packaging ornanotechnology industries or in the industries that manufacture products utilizing integratedcircuits, thin film heads or other nanotechnology components, would likely have a material adverseeffect on our business, financial condition and results of operations. Our ability to maintain orincrease our sales in the future depends, in part, on our ability to obtain orders from newcustomers as well as the financial condition and success of our existing customers, thesemiconductor and nanotechnology industries and the economy in general.In addition to the business risks associated with dependence on a few major customers, thesesignificant customer concentrations have in the past resulted in significant concentrations ofaccounts 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 ourtotal receivables. If we were required to take additional accounts receivable reserves, ourbusiness, financial condition and results of operations would be materially adversely affected.On a market application basis, sales to the semiconductor industry, primarily for advancedpackaging applications and laser thermal processing applications, accounted for 89.4% and 100% ofsystem revenue for the third quarter of 2008 and 2007, respectively, while sales to nanotechnologymanufacturers, including micro systems, thin film head and optical device manufacturers, accountedfor the remainder of our systems revenue. For the nine months ended September 27, 2008, sales tothe semiconductor industry and nanotechnology manufacturers accounted for 96.0% and 4.0%,respectively, compared to 88.8% and 11.2% of the corresponding periods in 2007. Our futureoperating results and financial condition would be materially adversely impacted by a downturn inany of these industries, or by loss of market share in any of these industries. A growing portionof our backlog of system orders is comprised of laser spike annealing tools. To date, we havelimited customer experience with this technology. Should significant demand not materialize, due totechnical, production, market, or other factors, our business, financial position and results ofoperations would be materially adversely impacted.
25

Table of Contents
**We rely on a limited number of outside suppliers and subcontractors to manufacture certaincomponents and subassemblies, and on single or a limited group of outside suppliers for certainmaterials for our products, which could result in a potential inability to obtain an adequatesupply of required components due to the suppliers’ failure or inability to provide such componentsin a timely manner, or at all, and reduced control over pricing and timely delivery of componentsand materials, any of which could adversely affect our results of operations.**Our manufacturing activities consist of assembling and testing components and subassemblies, whichare then integrated into finished systems. We rely on a limited number of outside suppliers andsubcontractors to manufacture certain components and subassemblies. We order one of the mostcritical components of our technology, the glass for our 1X lenses, from external suppliers. Wedesign the 1X lenses and provide the lens specifications and the glass to other suppliers, who thengrind 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 singleoutside suppliers or a limited group of outside suppliers in order to ensure overall quality andtimeliness of delivery. Many of these components and subassemblies have significant production leadtimes. To date, we have been able to obtain adequate services and supplies of components andsubassemblies for our systems in a timely manner. However, disruption or termination of certain ofthese 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 andresults of operations. Our reliance on a sole supplier or a limited group of suppliers and ourreliance on subcontractors involve several risks, including a potential inability to obtain anadequate supply of required components due to the suppliers’ failure or inability to provide suchcomponents in a timely manner, or at all, and reduced control over pricing and timely delivery ofcomponents. Although the timeliness, yield and quality of deliveries to date from oursubcontractors have been acceptable, manufacture of certain of these components and subassembliesis an extremely complex process, and long lead-times are required. Any inability to obtain adequatedeliveries or any other circumstance that would require us to seek alternative sources of supply orto manufacture such components internally could delay our ability to ship our products, which coulddamage relationships with current and prospective customers and have a material adverse effect onour business, financial condition and results of operations.**Our industry is subject to rapid technological change and product innovation, which could result inour technologies and products being replaced by those of our competitors, which would adverselyaffect our business and results of operations.**The semiconductor and nanotechnology manufacturing industries are subject to rapid technologicalchange and new product introductions and enhancements. Our ability to be competitive in these andother markets will depend, in part, upon our ability to develop new and enhanced systems andrelated applications, and to introduce these systems and related applications at competitive pricesand on a timely and cost-effective basis to enable customers to integrate them into theiroperations either prior to or as they begin volume product manufacturing. We will also be requiredto enhance the performance of our existing systems and related applications. Our success indeveloping new and enhanced systems and related applications depends upon a variety of factors,including product selection, timely and efficient completion of product design, timely andefficient implementation of manufacturing and assembly processes, product performance in the fieldand effective sales and marketing. Because new product development commitments must be made well inadvance of sales, new product decisions must anticipate both future demand and the technology thatwill be available to meet that demand. We may not be successful in selecting, developing,manufacturing or marketing new products and related applications or enhancing our existing productsand related applications. Any such failure would materially adversely affect our business,financial condition and results of operations.Because of the large number of components in our systems, significant delays can occur between asystem’s introduction and our commencement of volume production of such systems. We haveexperienced delays from time to time in the introduction of, and technical and manufacturingdifficulties with, certain of our systems and enhancements and related application tools featuresand options, and may experience delays and technical and manufacturing difficulties in futureintroductions or volume production of new systems or enhancements and related application toolsfeatures and options.We may encounter additional technical, manufacturing or other difficulties that could further delayfuture introductions or volume production of systems or enhancements. Our inability to complete thedevelopment or meet the technical specifications of any of our systems or enhancements and relatedapplications, or our inability to manufacture and ship these systems or enhancements and relatedtools in volume and in time to meet the requirements for manufacturing the future generation ofsemiconductor or nanotechnology devices would materially adversely affect our business, financialcondition and results of operations. In addition, we may incur substantial unanticipated costs toensure the functionality and reliability of our products early in the products’ life cycles. If newproducts have reliability or quality problems, reduced orders or higher manufacturing costs, delaysin customer acceptance, revenue recognition and collecting accounts receivable andadditionalservice and warranty expenses may result. Any of such events may materially adversely affect ourbusiness, financial condition and results of operations.
26

Table of Contents
**A substantial portion of our sales are outside of the United States, which subjects us to risksrelated to customer service, installation, foreign economic and political stability, uncertainregulatory and tax rules, and foreign exchange rate fluctuations, all of which make it moredifficult to operate our business.**International sales accounted for approximately 83.5% and 64.3% of total net sales for the three-and nine-month periods ended September 27, 2008, respectively, compared to 50.9% and 62.7% in thecomparable period of 2007. We anticipate that international sales will continue to account for asignificant portion of total net sales. As a result, a significant portion of our net sales willcontinue to be subject to certain risks, including unexpected changes in regulatory requirements;difficulty in satisfying existing regulatory requirements; exchange rate fluctuations; tariffs andother barriers; political and economic instability; difficulties in accounts receivablecollections; natural disasters; difficulties in staffing and managing foreign subsidiary and branchoperations; and potentially adverse tax consequences.Although we generally transact our international sales in U.S. dollars, international sales exposeus to a number of additional risk factors, including fluctuations in the value of local currenciesrelative to the U.S. dollar, which, in turn, impact the relative cost of ownership of our productsand may further impact the purchasing ability of our international customers. We have direct salesoperations in Japan and orders are often denominated in Japanese yen. This may subject us to ahigher degree of risk from currency fluctuations. We attempt to mitigate this exposure throughforeign currency hedging. We are also subject to the risks associated with the imposition oflegislation and regulations relating to the import or export of semiconductors and nanotechnologyproducts. We cannot predict whether the United States or any other country will implement changesto quotas, duties, taxes or other charges or restrictions upon the importation or exportation ofour products. These factors, or the adoption of restrictive policies, may have a material adverseeffect on our business, financial condition and results of operations.**Our investment portfolio may become impaired by further deterioration of the capital markets.**Our cash equivalent and short-term investment portfolio as of September 27, 2008 consisted of U.S.treasury securities, corporate notes, commercial paper and money market funds. We follow anestablished investment policy and set of guidelines to monitor, manage and limit our exposure tointerest rate and credit risk. The policy sets forth credit quality standards and limits ourexposure 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, suchas structured investment vehicles, sub-prime mortgage-backed securities and collateralized debtobligations, may lose some or all of their value due to liquidity and credit concerns. As ofSeptember 27, 2008, we had no holdings in these categories of investments and no impairment chargeassociated with our short-term investment portfolio. Although we believe our current investmentportfolio has little risk of impairment, we cannot predict future market conditions or marketliquidity and our investment portfolio could become impaired.**We are dependent on our key personnel, especially Mr. Zafiropoulo, our Chief Executive Officer, andour business and results of operations would be adversely affected if we were to lose our keyemployees.**Our future operating results depend, in significant part, upon the continued contributions of keypersonnel, many of whom would be difficult to replace. We have entered into employment agreementsonly 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 containvesting acceleration and severance payment provisions that could result in significant costs orcharges to us should the employee be terminated without cause, die or have a disability. We do notmaintain any life insurance on any of our key employees. The loss of key personnel could have amaterial adverse effect on our business, financial condition and results of operations. Inaddition, our future operating results depend in significant part upon our ability to attract andretain other qualified management, manufacturing, technical, sales and support personnel for ouroperations. There are only a limited number of persons with the requisite skills to serve in thesepositions and it may become increasingly difficult for us to hire such personnel over time. Attimes, 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 inattracting or retaining such personnel. The failure to attract or retain such persons wouldmaterially adversely affect our business, financial condition and results of operations.
27

Table of Contents
**Changes in financial accounting standards or policies in the past have affected, and in the futuremay, affect, our reported results of operations.**We prepare our financial statements in conformity with accounting principles generally accepted inthe United States (“U.S. GAAP”). These principles are subject to interpretation by the FinancialAccounting Standards Board (“FASB”), theAmerican Institute of Certified Public Accountants(“AICPA”), the SEC and various bodies formed to interpret and create appropriate accountingpolicies. A change in those policies can have a significant effect on our reported results and mayaffect our reporting of transactions which are completed before a change is announced.Accounting policies affecting many other aspects of our business, including rules relating torevenue recognition, off-balance sheet transactions, employee stock options, restructurings, assetdisposals and asset retirement obligations, derivative and other financial instruments haverecently been revised or are under review. Changes to those rules or the questioning of how weinterpret or implement those rules may have a material adverse effect on our reported financialresults or on the way we conduct business. In addition, our preparation of financial statements inaccordance with U.S. GAAP requires that we make estimates and assumptions that affect the recordedamounts of assets and liabilities, disclosure of those assets and liabilities at the date of thefinancial statements and the recorded amounts of expenses during the reporting period. A change inthe facts and circumstances surrounding those estimates could result in a change to our estimatesand could impact our future operating results.**Changes in securities laws and listing standards, in particular those that have resulted from thepassage of the Sarbanes-Oxley Act of 2002 and related rules and regulations, have increased ourlegal and financial costs, and we expect to continue to spend significant resources to comply withthese requirements.**The Sarbanes-Oxley Act of 2002 required changes in our corporate governance, public disclosure andcompliance practices. The rules and regulations applicable to us have increased and will continueto increase our legal and financial compliance costs, and have made some activities more difficult,such as by requiring stockholder approval of new stock option plans. In addition, we have incurredand expect to continue to incur significant costs in connection with compliance with Section 404 ofthe Sarbanes-Oxley Act regarding internal control over financial reporting. We also expect thesedevelopments to make it more difficult and more expensive to obtain director and officer liabilityinsurance, and we may be required to accept reduced coverage or incur substantially higher costs toobtain coverage. These developments could make it more difficult for us toattract and retain qualified members of our board of directors, particularly to serve on our auditcommittee, and qualified executive officers. In addition, in connection with our Section 404certification process, we may identify from time to time deficiencies in our internal controls. Anymaterial weakness or deficiency in our internal control over financial reporting could materiallyand negatively impact our reported financial results and the market price of our stock couldsignificantly decline. Additionally, adverse publicity related to the disclosure of a materialweakness or deficiency in internal control over financial reporting could have a negative impact onour reputation, business and stock price.**Our equity incentive plans, certain provisions of our Certificate of Incorporation and Bylaws, andDelaware law may discourage third parties from pursuing a change of control transaction with us.**Certain provisions of our Certificate of Incorporation, equity incentive plans, licensingagreements, Bylaws and Delaware law may discourage certain transactions involving a change incontrol of our company. In addition to the foregoing, our classified board of directors, theshareholdings of our officers, directors and persons or entities that may be deemed affiliates andthe ability of the Board of Directors to issue “blank check” preferred stock without furtherstockholder approval could have the effect of delaying, deferring or preventing us fromexperiencing a change in control and may adversely affect the voting and other rights of holders ofour Common Stock.**Our stock price has experienced significant volatility in the past and we expect this to continuein the future as a result of many factors, some of which could be unrelated to our operatingperformance, and such volatility can have a major impact on the number of shares subject tooutstanding stock options and restricted stock units that are included in calculating our earningsper share.**We believe that factors such as announcements of developments related to our business, fluctuationsin 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 regionaleconomies, 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 ourcompetitors, developments in patents or other intellectual property rights and developments in ourrelationships with our customers and suppliers could cause the price of our Common Stock tofluctuate, perhaps substantially. The market price of our Common Stock has fluctuated significantlyin 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 27, 2008, we had options and restricted stock units to purchase approximately 5.2million shares of our Common Stock outstanding. Among other determinants, the market price of ourstock has a major bearing on the number of shares subject to outstanding stock options andrestricted stock units that are included in the weighted-average shares used in determining our netincome (loss) per share. During periods of extreme volatility, the impact of higher stock pricescan have a materially dilutive effect on our net income (loss) per share. Additionally, sharessubject to outstanding options andrestricted stock units are excluded from the calculation of netincome (loss) per share when we have a net loss or when the exercise price and the averageunrecognized compensation cost of the stock option or restricted stock unit is greater than theaverage market price of our Common Stock, as the impact of the stock options or restricted stockunit would be anti-dilutive.
28

Table of Contents
**Our results of operations and business could be adversely affected by wars and other militaryaction, as well as terrorist attacks and threats and government responses thereto, especially ifany such actions were directed at us or our facilities or customers.**Terrorist attacks in the United States and elsewhere, government responses thereto, and militaryactions in Iraq, Afghanistan and elsewhere, may disrupt our operations or those of our customersand suppliers and may affect the availability of materials needed to manufacture our products orthe means to transport those materials to manufacturing facilities and finished products tocustomers. In addition, any of these events could increase volatility in the United States andworld financial markets which may depress the price of our Common Stock and may limit the capitalresources available to us or our customers or suppliers, which could result in decreased ordersfrom customers, less favorable financing terms from suppliers, and scarcity or increased costs ofmaterials and components of our products. Additionally, terrorist attacks directly upon us maysignificantly disrupt our ability to conduct our business. Any of these occurrences could have asignificant impact on our operating results, revenues and costs and may result in increasedvolatility of the market price of our Common Stock.**If we acquire companies, products, or technologies, we may face risks associated with thoseacquisitions.**We may not realize the anticipated benefits of any acquisition or investment. We may in the futurepursue additional acquisitions of complementary product lines, technologies or businesses. Futureacquisitions may result in potentially dilutive issuances of equity securities, the incurrence ofdebt and contingent liabilities and amortization expenses and impairment charges related togoodwill and other intangible assets, which could materially adversely affect our financialcondition and results of operations. In addition, acquisitions involve numerous risks, includingdifficulties in the assimilation of theoperations, technologies, personnel and products of the acquired companies; the diversion ofmanagement’s attention from other business concerns; risks of entering markets in which we havelimited 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 ourbusiness, or which otherwise do not enhance our sales or operating results, we may incursubstantial write-offs and higher recurring operating costs, which could have a material adverseeffect on our business, financial condition and results of operations. In the event that any suchacquisition does occur, there can be no assurance as to the effect thereof on our business oroperating results.**Our long-term expenses reduction programs may result in an increase in short-term expenses.**As part of our continued effort to reduce company-wide expenses since the fourth quarter of 2006,during 2006 and 2007, we recorded certain expenses related to workforce reductions pursuant to theprovisions of FASB Statement No. 146, *Accounting for Costs Associated with Exit or DisposalActivities*. Although we expect our cost cutting efforts to result in a decrease in expenses overthe long-term, these accounting charges may result in an increase in our short-term expenses. Wemay from time to time undertake additional expense reduction programs or actions, any of whichcould result in current period charges and expenses that could have a material adverse effect onthat period’s operating results.**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.**None.**Item 3. Defaults Upon Senior Securities.**None.**Item 4. Submission of Matters to a Vote of Security Holders.**The following proposals were voted upon by our stockholders at our Annual Stockholders’Meeting held on July 22, 2008.1. The following persons were elected as members of our Board of Directors to serve for a termending upon the Annual Stockholders’ Meeting indicated beside their respective names and untiltheir successors are elected and qualified.
29

Table of Contents
               **Terms Ending Upon the**      **Annual Stockholders’**      **Meeting** **Votes for** **Votes withheld**Arthur W. Zafiropoulo  2010   21,304,119   1,158,467 Joel F. Gemunder  2010   21,204,707   1,257,879 Nicholas Konidaris  2010   21,055,036   1,407,550 Rick Timmins  2010   21,306,174   1,156,412   The other directors whose terms of office as a director continued after the AnnualStockholders’ Meeting were Dennis R. Raney, Henri Richard and Vincent F. Sollitto, Jr. 2. A proposal to ratify the appointment of Ernst & Young LLP as our independent registeredpublic accounting firm for the fiscal year ending December 31, 2008 was approved by the voteof 22,343,794 shares for; 103,901 shares against; 14,891 shares abstained; and no brokernon-votes. 3. A proposal to request the Company to take action to declassify the Board of Directors andestablish annual elections of directors, whereby directors would be elected annually and notby classes. This proposal was approved by the vote of 17,174,576 shares for; 2,624,109 sharesagainst; 17,169 shares abstained; and 2,646,732 broker non-votes. 4. A proposal to request that the Board of Directors initiate the appropriate process to amendthe Company’s governance documents (certificate of incorporation or by-laws) to establish anengagement process with the proponents of shareholder proposals that are supported by amajority of the votes cast, excluding abstentions and broker non-votes, at any annual meeting.This proposal was approved by the vote of 12,201,951 shares for; 7,354,283 shares against;259,620 shares abstained; and 2,646,732 broker non-votes.The proposals above are described in detail in our definitive proxy statement filed with the SEC onJune 19, 2008 for the Annual Stockholders’ Meeting held on July 22, 2008.**Item 5. Other Information.**None.**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, dated May17, 1995.   3.1.2(a) Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, datedJune 17, 1998.   3.1.3(a) Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, datedJune 20, 2003.   3.2(b) Bylaws of the Registrant, as amended.   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, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (a) Previously filed with our Quarterly Report on Form 10-Q for thequarter ended June 28, 2003 (Commission File No. 0-22248) andincorporated herein by reference. (b) Previously filed with our Current Report on Form 8-K filed on February2, 2007 (Commission File No. 0-22248) and incorporated herein byreference. * Exhibit 32.1 is being furnished and shall not be deemed to be filedfor purposes of Section 18 of the Exchange Act, or otherwise subjectto the liability of that section, nor shall such exhibit be deemed tobe incorporated by reference in any registration statement or otherdocument filed under the Securities Act, or the Exchange Act, exceptas otherwise stated in such filing.
30

Table of Contents
**SIGNATURES**Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly causedthis report to be signed on its behalf by the undersigned thereunto duly authorized.         **ULTRATECH, INC.**    (Registrant)         Date:November 5, 2008 By: /s/ BRUCE WRIGHT             Bruce Wright      Senior Vice President, Finance and Chief      Financial Officer (Duly      Authorized Officer and Principal Financial and      Accounting Officer)  
31

Table of Contents
**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, dated May17, 1995.   3.1.2(a) Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, datedJune 17, 1998.   3.1.3(a) Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, datedJune 20, 2003.   3.2(b) Bylaws of the Registrant, as amended.   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, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (a) Previously filed with our Quarterly Report on Form 10-Q for thequarter ended June 28, 2003 (Commission File No. 0-22248) andincorporated herein by reference. (b) Previously filed with out Current Report on Form 8-K on February 2,2007 (Commission File No. 0-22248) and incorporated herein byreference. * Exhibit 32.1 is being furnished and shall not be deemed to be filedfor purposes of Section 18 of the Exchange Act, or otherwise subjectto the liability of that section, nor shall such exhibit be deemed tobe incorporated by reference in any registration statement or otherdocument filed under the Securities Act, or the Exchange Act, exceptas otherwise stated in such filing.