##### 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 ACT OF 1934
 For the quarterly period ended March 31, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission File Number 0-22248
 ULTRATECH, INC.
  DELAWARE
(State or other jurisdiction of 
incorporation or organization)
    
    94-3169580
(I.R.S. Employer Identification No.)
 3050 Zanker Road, San Jose, California
(Address of principal executive offices)
    
    95134
(Zip Code)
 (408) 321-8835
  þ o
  o þ o
 o þ
  Classcommon stock, $.001 par value
    
    Outstanding as of April 24, 2007
23,231,782




---



##### 



ULTRATECH, INC.
 INDEX
 PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 and April 1, 2006
    
    
    4Condensed Consolidated Statements
of Cash Flows for the three months ended March 31, 2007 and April 1, 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    20PART II. OTHER INFORMATION
    
    
    20Item 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    29SIGNATURES
    
    
    30EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ULTRATECH, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,(In thousands )
    
    2007
    
    
    2006*(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    35,495
    
    
    $
    23,883Short-term investments
    
    
    54,733
    
    
    
    54,207Accounts receivable, net
    
    
    26,599
    
    
    
    18,054Inventories
    
    
    38,291
    
    
    
    40,988Prepaid expenses and other current assets
    
    
    3,038
    
    
    
    2,181Total current assets
    
    
    158,156
    
    
    
    139,313Long-term investments
    
    
    38,289
    
    
    
    48,328Equipment and leasehold improvements, net
    
    
    21,013
    
    
    
    20,326Demonstration inventories
    
    
    4,524
    
    
    
    4,717Other assets
    
    
    2,542
    
    
    
    3,366Total assets
    
    $
    224,524
    
    
    $
    216,050LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Notes payable
    
    $
    16,278
    
    
    $
    6,974Accounts payable
    
    
    9,647
    
    
    
    10,440Deferred product and services income
    
    
    4,518
    
    
    
    2,950Other current liabilities
    
    
    15,454
    
    
    
    13,998Total current liabilities
    
    
    45,897
    
    
    
    34,362Other liabilities
    
    
    6,855
    
    
    
    7,580Stockholders equity
    
    
    171,772
    
    
    
    174,108Total liabilities and stockholders equity
    
    $
    224,524
    
    
    $
    216,050
 
 *
    
    The Balance Sheet as of December 31, 2006 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 EndedMarch 31,
    
    
    April 1,(In thousands, except per share amounts)
    
    2007
    
    
    2006Net sales:Products
    
    $
    23,507
    
    
    $
    31,409Services
    
    
    3,861
    
    
    
    3,535Total net sales
    
    
    27,368
    
    
    
    34,944Cost of sales:Cost of products sold
    
    
    14,460
    
    
    
    19,116Cost of services
    
    
    2,108
    
    
    
    2,171Total cost of sales
    
    
    16,568
    
    
    
    21,287Gross profit
    
    
    10,800
    
    
    
    13,657Operating expenses:Research, development, and engineering
    
    
    5,964
    
    
    
    6,153Selling, general, and administrative
    
    
    9,302
    
    
    
    7,297Operating income (loss)
    
    
    (4,466
    )
    
    
    207Interest expense
    
    
    (333
    )
    
    
    (12
    )Interest and other income, net
    
    
    1,669
    
    
    
    1,517Income (loss) before income tax
    
    
    (3,130
    )
    
    
    1,712Provision for income taxes
    
    
    115
    
    
    
    130Net income (loss)
    
    $
    (3,245
    )
    
    $
    1,582Net income (loss) per share  basic
    
    $
    (0.14
    )
    
    $
    0.07Number of shares used in per share computations  basic
    
    
    23,285
    
    
    
    23,830Net income (loss) per share  diluted
    
    $
    (0.14
    )
    
    $
    0.06Number of shares used in per share computations  diluted
    
    
    23,285
    
    
    
    25,127
 See accompanying notes to unaudited condensed consolidated financial statements
 4




---



##### Table of Contents



ULTRATECH, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months EndedMarch 31,
    
    
    April 1,(In thousands)
    
    2007
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    (3,245
    )
    
    $
    1,582Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation
    
    
    1,513
    
    
    
    1,526Amortization
    
    
    150
    
    
    
    316Accretion of asset retirement obligations
    
    
    37
    
    
    
    6Loss on disposal of equipment
    
    
    4
    
    
    
    6Stock-based compensation
    
    
    359
    
    
    
    473Deferred income taxes
    
    
    
    
    
    
    56Changes in operating assets and liabilities:Accounts receivable
    
    
    (8,545
    )
    
    
    (40
    )Inventories
    
    
    1,234
    
    
    
    (1,642
    )Prepaid expenses and other current assets
    
    
    70
    
    
    
    290Demonstration inventory
    
    
    
    
    
    
    (116
    )Other assets
    
    
    824
    
    
    
    7Accounts payable
    
    
    (793
    )
    
    
    411Deferred product and services income
    
    
    1,568
    
    
    
    1,380Other current liabilities
    
    
    1,483
    
    
    
    1,303Other liabilities
    
    
    (762
    )
    
    
    (194
    )Net cash provided by (used in) operating activities
    
    
    (6,103
    )
    
    
    5,364Cash flows from investing activities:Capital expenditures
    
    
    (687
    )
    
    
    (589
    )Purchase of investments
    
    
    (6,453
    )
    
    
    (14,493
    )Proceeds from sales and maturities of investments
    
    
    15,302
    
    
    
    9,960Net cash provided by (used in) investing activities
    
    
    8,162
    
    
    
    (5,122
    )Cash flows from financing activities:Proceeds from notes payable
    
    
    9,628
    
    
    
    5,931Repayment of notes payable
    
    
    (324
    )
    
    
    (6,129
    )Proceeds from issuance of common stock
    
    
    381
    
    
    
    2,442Tax benefit from stock options
    
    
    
    
    
    
    21Net cash provided by financing activities
    
    
    9,685
    
    
    
    2,265Net effect of exchange rate changes on cash and cash equivalents
    
    
    (132
    )
    
    
    (124
    )Net increase in cash and cash equivalents
    
    
    11,612
    
    
    
    2,383Cash and cash equivalents at beginning of period
    
    
    23,883
    
    
    
    36,344Cash and cash equivalents at end of period
    
    $
    35,495
    
    
    $
    38,727Supplemental disclosures of cash flow information:Other non-cash activities:Systems transferred
to inventory from equipment and other assets
    
    $
    (1,463
    )
    
    $
    (1,035
    )
 See accompanying notes to unaudited condensed consolidated financial statements
 5




---



##### Table of Contents



Ultratech, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 March 31, 2007
 (1) Description of Business
    (2) Basis of Presentation
    USE OF ESTIMATES
 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS Fair
Value Measurements ,
 The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an amendment of FASB Statement No.
 6




---



##### Table of Contents



(3) Stock-Based Compensation
 Share-Based Payment
 Three months endedMarch 31,
    
    
    April 1,(In thousands)
    
    2007
    
    
    2006Cost of Sales
    
    $
    33
    
    
    $
    32Research, development, and engineering
    
    
    78
    
    
    
    46Selling, general and administrative expenses
    
    
    248
    
    
    
    395Total stock-based compensation expense
    
    
    359
    
    
    
    473Tax benefit related to stock-based compensation expense
    
    
    
    
    
    
    Net effect on net loss
    
    $
    359
    
    
    $
    473Effect on net loss per basic and diluted share
    
    $
    0.02
    
    
    $
    0.02
    Three Months EndedMarch 31,
    
    April 1,2007
    
    2006Expected life (in years)
    
    
    4.94
    
    
    
    3.5Risk-free interest rate
    
    
    4.80
    %
    
    
    3.42
    %Volatility factor
    
    
    0.48
    
    
    
    0.52Dividend yield
    
    
    
    
    
    
    
  7




---



##### Table of Contents



(4) Net Income (Loss) Per Share
  Numerator:Net income (loss)
    
    $
    (3,245
    )
    
    $
    1,582Denominator:Denominator for basic net income (loss) per share
    
    
    23,285
    
    
    
    23,830Effect of dilutive employee stock options
    
    
    
    
    
    
    1,297Denominator for diluted net income per share
    
    
    23,285
    
    
    
    25,127Net income (loss) per share  basic:Net income (loss)
    
    $
    (0.14
    )
    
    $
    0.07Net income (loss) per share  diluted:Net income (loss)
    
    $
    (0.14
    )
    
    $
    0.06
  (5) Inventories
  March 31,
    
    
    December 31,(In thousands)
    
    2007
    
    
    2006Raw materials
    
    $
    18,067
    
    
    $
    18,067Work-in-process
    
    
    16,865
    
    
    
    9,952Finished products
    
    
    3,359
    
    
    
    12,969$
    38,291
    
    
    $
    40,988
 (6) Notes Payable
  8




---



##### Table of Contents



(7) Other Current Liabilities
  March 31,
    
    
    December 31,(In thousands)
    
    2007
    
    
    2006Salaries and benefits
    
    $
    3,994
    
    
    $
    3,632Warranty accrual
    
    
    2,378
    
    
    
    2,264Advance billings
    
    
    2,671
    
    
    
    2,713Income taxes payable
    
    
    747
    
    
    
    876Accrued taxes-other
    
    
    2,820
    
    
    
    2,076Reserve for losses on purchase order commitments
    
    
    684
    
    
    
    623Other
    
    
    2,160
    
    
    
    1,814$
    15,454
    
    
    $
    13,998
 Warranty Accrual
  Three Months EndedMarch 31,
    
    
    April 1,(In thousands)
    
    2007
    
    
    2006Balance, beginning of the period
    
    $
    2,264
    
    
    $
    2,397Warranties issued during the period
    
    
    1,061
    
    
    
    917Settlements made during the period
    
    
    (1,019
    )
    
    
    (1,118
    )Changes in liability for pre-existing warranties
    
    
    72
    
    
    
    390Balance, end of the period
    
    $
    2,378
    
    
    $
    2,586
 Deferred Services Revenue
  9




---



##### Table of Contents



Three Months EndedMarch 31,
    
    
    April 1,(In thousands)
    
    2007
    
    
    2006Balance, beginning of the period
    
    $
    2,444
    
    
    $
    1,970Service contracts sold during the period
    
    
    1,120
    
    
    
    3,957Service contract revenue recognized during the period
    
    
    (1,269
    )
    
    
    (2,714
    )Balance, end of the period
    
    $
    2,295
    
    
    $
    3,213
 (8) Other Liabilities
  March 31,
    
    
    December 31,(In thousands)
    
    2007
    
    
    2006Deferred rent
    
    $
    2,625
    
    
    $
    2,737Deferred compensation
    
    
    1,507
    
    
    
    2,160Asset retirement obligation
    
    
    2,018
    
    
    
    1,982Postretirement medical obligation
    
    
    705
    
    
    
    701$
    6,855
    
    
    $
    7,580
 (9) Accumulated Other Comprehensive Loss
  March 31,
    
    
    December 31,(In thousands)
    
    2007
    
    
    2006Unrealized gains (losses) on:Available-for-sale investments
    
    $
    (585
    )
    
    $
    (847
    )Foreign exchange forward contracts
    
    
    
    
    
    
    132Change in minimum postretirement medical obligation
    
    
    (188
    )
    
    
    (200
    )Accumulated other comprehensive loss at end of period
    
    $
    (773
    )
    
    $
    (915
    )
 (10) Exit Activities
  Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    
    
    
    
    
    
    
    
    March 31,(In thousands)
    
    2006
    
    
    Expenses
    
    
    Payments
    
    
    2007Severance and benefits (fiscal 2006)
    
    $
    918
    
    
    $
    
    
    
    $
    (330
    )
    
    $
    588Severance and benefits (fiscal 2007)
    
    
    
    
    
    
    727
    
    
    
    (480
    )
    
    
    247Total
    
    $
    918
    
    
    $
    727
    
    
    $
    (810
    )
    
    $
    835
 10




---



##### Table of Contents



Accounting
for Costs Associated with Exit or Disposal Activities
 (11) Related-Party Transactions
  (12) Stock Repurchase Program
  (13) Employee Benefit Plans
 Employee bonus plans
  Employee savings and retirement plans
  Postretirement benefits
  11




---



##### Table of Contents



(14) Income Taxes
 Accounting
for Uncertainty in Income Taxes
   (15) Contingencies
 Legal Proceedings
   12




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  13




---



##### Table of Contents



OVERVIEW
   RESULTS OF OPERATIONS
    14




---



##### Table of Contents



Net sales
 Three Months EndedMarch 31,
    
    
    April 1,
    
    
    Amount of
    
    
    Percentage(In millions)
    
    2007
    
    
    2006
    
    
    Change
    
    
    ChangeSales of:Products
    
    $
    23.5
    
    
    $
    31.4
    
    
    $
    (7.9
    )
    
    
    -25
    %Services
    
    
    3.9
    
    
    
    3.5
    
    
    
    0.4
    
    
    
    11
    %Total net sales
    
    $
    27.4
    
    
    $
    34.9
    
    
    $
    (7.5
    )
    
    
    -21
    %
       Gross profit
   15




---



##### Table of Contents



Operating expenses
   Interest and other income, net
  Provision for income taxes
    Accounting for
Uncertainty in Income Taxes
 16




---



##### Table of Contents



Outlook
    LIQUIDITY AND CAPITAL RESOURCES
  17




---



##### Table of Contents



18




---



##### Table of Contents



Foreign Currency
  Information Available on Company Website
 www.ultratech.com
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Interest Rate Risk
   Foreign Currency Risk Management
   19




---



##### Table of Contents



Item 4. Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
    20




---



##### Table of Contents



Item 1A. Risk Factors
 In addition to risks described in the foregoing discussions, the following risks apply to our
business and us
 We currently spend, and expect to continue to spend, significant resources to develop, introduce
and commercialize our laser processing systems and AP wafer stepper products, and we may not be
successful in achieving or increasing sales of these products.
   Our sales cycle is typically lengthy and involves a significant commitment of capital by our
customers, which has subjected us, and is likely to continue to subject us, to delays in customer
acceptances of our products and other risks, any of which could adversely impact our results of
operations by, among other things, delaying recognition of revenue with respect to those orders and
resulting in increased installation, qualification and similar costs.
 21




---



##### Table of Contents



We may not be successful in protecting our intellectual property rights or we could be found to
have infringed the intellectual property rights of others, either of which could weaken our
competitive position and adversely affect our results of operations.
    22




---



##### Table of Contents



We operate in a highly competitive industry in which customers are required to invest substantial
resources in each product, which makes it difficult to achieve significant sales to a particular
customer once another vendors equipment has been purchased by that customer.
    23




---



##### Table of Contents



We sell our products primarily to a limited number of customers and to customers in a limited
number of industries, which subjects us to increased risks related to the business performance of
our customers, and therefore their need for our products, and the business cycles of the markets
into which we sell.
    24




---



##### Table of Contents







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






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




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


25




---



##### Table of Contents



A substantial portion of our sales are outside of the United States, which subjects us to risks
related to customer service, installation, foreign economic and political stability, uncertain
regulatory and tax rules, and foreign exchange rate fluctuations, all of which make it more
difficult to operate our business.
   We are dependent on our key personnel, especially Mr. Zafiropoulo, our Chief Executive Officer, and
our business and results of operations would be adversely affected if we were to lose our key
employees.
  26




---



##### Table of Contents



Changes in financial accounting standards or policies in the past have affected, and in the future
may, affect, our reported results of operations.
   Changes in securities laws and listing standards, in particular those that have resulted from the
passage of the Sarbanes-Oxley Act of 2002 and related rules and regulations, have increased our
legal and financial costs, and we expect to continue to spend significant resources to comply with
these requirements.
  Our equity incentive plans, certain provisions of our Certificate of Incorporation and Bylaws, and
Delaware law may discourage third parties from pursuing a change of control transaction with us.
  27




---



##### Table of Contents



Our stock price has experienced significant volatility in the past and we expect this to continue
in the future as a result of many factors, some of which could be unrelated to our operating
performance, and such volatility can have a major impact on the number of shares subject to
outstanding stock options that are included in calculating our earnings per share.
   Our results of operations and business could be adversely affected by wars and other military
action, as well as terrorist attacks and threats and government responses thereto, especially if
any such actions were directed at us or our facilities or customers.
  If we acquire companies, products, or technologies, we may face risks associated with those
acquisitions.
  Our long-term expenses reduction programs may result in an increase in short-term expenses.
  28




---



##### Table of Contents



Accounting
for Costs Associated with Exit or Disposal Activities
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits
 10.1
    
    Amendment to Employment Agreement between Registrant and Mr. Rick Friedman, Former Senior Vice President
World-wide Sales and Customer Service, incorporated herein by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K filed with the Commission on January 9, 2007.10.2
    
    Separation and General Release Agreement between Registrant and Mr. Rick Friedman, Former Senior Vice
President World-wide Sales and Customer Service, incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the Commission on January 9, 2007.10.3
    
    Amended and Restated Employment Agreement between Registrant and Mr. Bruce Wright, Chief Financial Officer,
incorporated herein by reference to Exhibit 10.3 to the Registrants Current Report on Form 8-K filed with
the Commission on January 9, 2007.10.4
    
    2007 Management Incentive Compensation Plan Description, incorporated herein by reference to Item 5.02 of
the Registrants Current Report on Form 8-K filed with the Commission on February 2, 2007.31.1
    
    Certification of Chief Executive Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 29




---



##### Table of Contents



SIGNATURES
  ULTRATECH, INC.(Registrant)Date: April 30, 2007
    
    By:
    
    /s/ BRUCE WRIGHTBruce WrightSenior Vice President, Finance and Chief FinancialOfficer (Duly Authorized Officer and PrincipalFinancial and Accounting Officer)
 30




---



##### Table of Contents



EXHIBIT INDEX
 10.1
    
    Amendment to Employment Agreement between Registrant and Mr. Rick Friedman, Former Senior Vice President
World-wide Sales and Customer Service, incorporated herein by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K filed with the Commission on January 9, 2007.10.2
    
    Separation and General Release Agreement between Registrant and Mr. Rick Friedman, Former Senior Vice
President World-wide Sales and Customer Service, incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed with the Commission on January 9, 2007.10.3
    
    Amended and Restated Employment Agreement between Registrant and Mr. Bruce Wright, Chief Financial Officer,
incorporated herein by reference to Exhibit 10.3 to the Registrants Current Report on Form 8-K filed with
the Commission on January 9, 2007.10.4
    
    2007 Management Incentive Compensation Plan Description, incorporated herein by reference to Item 5.02 of
the Registrants Current Report on Form 8-K filed with the Commission on February 2, 2007.31.1
    
    Certification of Chief Executive Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.