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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 October 3, 2009



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 0-22248





ULTRATECH, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 94-3169580                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|3050 Zanker Road, San Jose, California                         |  | 95134                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code (408) 321-8835





(Former name, former address and
former fiscal year, if changed since last report.)





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No   ̈

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                 |  |                           |  |  
|----------------------- |  | ----------------------------------------------- |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                               |  | Accelerated filer         |  | þ
|                        |  |                                                 | 
|Non-accelerated filer   |  |  ̈ (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:



|                              |  |                                   
|----------------------------- |  | ----------------------------------
|Class                         |  | Outstanding as of October 30,
2009
|common stock, $0.01 par value |  | 23,684,749                        









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ULTRATECH, INC.

INDEX



|                                                                                                                            |  |   
|--------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION                                                                                               |  |   
|Item 1. Financial Statements                                                                                                |  | 3 
|Condensed Consolidated Balance Sheets as of October 3, 2009 and December 31,
2008                                           |  | 3 
|Condensed Consolidated Statements of Operations for the three and nine months ended October 
3, 2009 and September 27, 2008 |  | 4 
|Condensed Consolidated Statements of Cash Flows for the nine months ended October 
3, 2009 and September 27, 2008           |  | 5 
|Notes to Condensed Consolidated Financial Statements                                                                        |  | 6 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations                               |  | 19
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                          |  | 25
|Item 4. Controls and Procedures                                                                                             |  | 26
|PART II. OTHER INFORMATION                                                                                                  |  |   
|Item 1. Legal Proceedings                                                                                                   |  | 27
|Item 1A. Risk Factors                                                                                                       |  | 27
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                         |  | 35
|Item 3. Defaults Upon Senior Securities                                                                                     |  | 35
|Item 4. Submission of Matters to a Vote of Security Holders                                                                 |  | 35
|Item 5. Other Information                                                                                                   |  | 35
|Item 6. Exhibits                                                                                                            |  | 36
|SIGNATURES                                                                                                                  |  | 37
|EXHIBIT 3.1.4                                                                                                               |  |   
|EXHIBIT 31.1                                                                                                                |  |   
|EXHIBIT 31.2                                                                                                                |  |   
|EXHIBIT 32.1                                                                                                                |  |   



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PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

ULTRATECH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                           |  |                |         |                   |   |        
|------------------------------------------ |  | -------------- | ------- | ----------------- | - | -------
|(In thousands)                             |  | October 3,2009 |         | December 31,2008*
|                                           |  | (Unaudited)    |         |                  
|ASSETS                                     |  |                |         |                   |   |        
|Current assets:                            |  |                |         |                   |   |        
|Cash and cash equivalents                  |  | $              | 80,548  |                   | $ | 94,034 
|Short-term investments                     |  |                | 70,962  |                   |   | 64,464 
|Accounts receivable, net                   |  |                | 25,799  |                   |   | 18,318 
|Inventories                                |  |                | 29,303  |                   |   | 31,618 
|Prepaid expenses and other current assets  |  |                | 3,999   |                   |   | 4,836  
|                                           |  |                |         |                   |   |        
|Total current assets                       |  |                | 210,611 |                   |   | 213,270
|Equipment and leasehold improvements, net  |  |                | 12,479  |                   |   | 12,788 
|Other assets                               |  |                | 2,923   |                   |   | 3,133  
|                                           |  |                |         |                   |   |        
|Total assets                               |  | $              | 226,013 |                   | $ | 229,191
|                                           |  |                |         |                   |   |        
|                                           |  |               
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |                |         |                   |   |        
|Current liabilities:                       |  |                |         |                   |   |        
|Notes payable                              |  | $              | 9,950   |                   | $ | 6,000  
|Accounts payable                           |  |                | 6,208   |                   |   | 8,830  
|Deferred product and services income       |  |                | 2,487   |                   |   | 4,328  
|Other current liabilities                  |  |                | 5,318   |                   |   | 9,923  
|                                           |  |                |         |                   |   |        
|Total current liabilities                  |  |                | 23,963  |                   |   | 29,081 
|Other liabilities                          |  |                | 6,402   |                   |   | 6,687  
|Stockholders equity                       |  |                | 195,648 |                   |   | 193,423
|                                           |  |                |         |                   |   |        
|Total liabilities and stockholders equity |  | $              | 226,013 |                   | $ | 229,191
|                                           |  |                |         |                   |   |        



|* | The Balance Sheet as of December 31, 2008 has been derived from the audited financial statements at that date.
|- | --------------------------------------------------------------------------------------------------------------

See accompanying notes to unaudited condensed consolidated financial statements



3



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ULTRATECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                          |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |        |  
|--------------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | -------------- |  | - | ----------------- | - |  | - | ------ | -
|                                                          |  | Three Months Ended |        |   | Nine Months Ended |  
|(In thousands, except per share amounts)                  |  | October 3,2009     |        |   | September 27,2008 |   |        | October 3,2009 |  |   | September 27,2008 |  
|Net sales:                                                |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |        |  
|Products                                                  |  | $                  | 21,050 |   |                   | $ | 30,114 |                |  | $ | 58,177            |   |  | $ | 84,317 |  
|Services                                                  |  |                    | 3,889  |   |                   |   | 4,322  |                |  |   | 10,931            |   |  |   | 12,917 |  
|Licenses                                                  |  |                    |       |   |                   |   |       |                |  |   | 82                |   |  |   | 400    |  
|                                                          |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |        |  
|Total net sales                                           |  |                    | 24,939 |   |                   |   | 34,436 |                |  |   | 69,190            |   |  |   | 97,634 |  
|Cost of sales:                                            |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |        |  
|Cost of products sold                                     |  |                    | 9,780  |   |                   |   | 15,470 |                |  |   | 30,480            |   |  |   | 43,685 |  
|Cost of services                                          |  |                    | 2,595  |   |                   |   | 2,250  |                |  |   | 6,622             |   |  |   | 6,682  |  
|                                                          |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |        |  
|Total cost of sales                                       |  |                    | 12,375 |   |                   |   | 17,720 |                |  |   | 37,102            |   |  |   | 50,367 |  
|                                                          |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |        |  
|Gross profit                                              |  |                    | 12,564 |   |                   |   | 16,716 |                |  |   | 32,088            |   |  |   | 47,267 |  
|Operating expenses:                                       |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |        |  
|Research, development, and engineering                    |  |                    | 4,573  |   |                   |   | 5,811  |                |  |   | 14,208            |   |  |   | 17,594 |  
|Selling, general, and administrative                      |  |                    | 7,262  |   |                   |   | 8,047  |                |  |   | 20,186            |   |  |   | 24,207 |  
|                                                          |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |        |  
|Operating income (loss)                                   |  |                    | 729    |   |                   |   | 2,858  |                |  |   | (2,306            | ) |  |   | 5,466  |  
|Interest expense                                          |  |                    | (16    | ) |                   |   | (11    | )              |  |   | 293               |   |  |   | (109   | )
|Interest and other income, net                            |  |                    | 327    |   |                   |   | 456    |                |  |   | 2,721             |   |  |   | 2,828  |  
|                                                          |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |        |  
|Income before income tax                                  |  |                    | 1,040  |   |                   |   | 3,303  |                |  |   | 708               |   |  |   | 8,185  |  
|Provision (benefit) for income taxes                      |  |                    | (1     | ) |                   |   | 1      |                |  |   | (37               | ) |  |   | 347    |  
|                                                          |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |        |  
|Net income                                                |  | $                  | 1,041  |   |                   | $ | 3,302  |                |  | $ | 745               |   |  | $ | 7,838  |  
|                                                          |  |                    |        |   |                   |   |        |                |  |   |                   |   |  |   |        |  
|Net income per share - basic                              |  | $                  | 0.04   |   |                   | $ | 0.14   |                |  | $ | 0.03              |   |  | $ | 0.33   |  
|Number of shares used in per share computations - basic   |  |                    | 23,707 |   |                   |   | 23,558 |                |  |   | 23,664            |   |  |   | 23,501 |  
|Net income per share - diluted                            |  | $                  | 0.04   |   |                   | $ | 0.14   |                |  | $ | 0.03              |   |  | $ | 0.33   |  
|Number of shares used in per share computations - diluted |  |                    | 23,805 |   |                   |   | 23,865 |                |  |   | 23,745            |   |  |   | 23,643 |  

See accompanying notes to unaudited condensed consolidated financial statements



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ULTRATECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                |  |                   |         |   |                   |   |         |  
|------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                |  | Nine Months Ended |        
|(In thousands)                                                                  |  | October 3,2009    |         |   | September 27,2008 |  
|Cash flows from operating activities:                                           |  |                   |         |   |                   |   |         |  
|Net income                                                                      |  | $                 | 745     |   |                   | $ | 7,838   |  
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                   |         |   |                   |   |         |  
|Depreciation                                                                    |  |                   | 3,325   |   |                   |   | 4,357   |  
|Amortization                                                                    |  |                   | 359     |   |                   |   | 750     |  
|Accretion of asset retirement obligations                                       |  |                   | 115     |   |                   |   | 117     |  
|Loss on disposal of equipment                                                   |  |                   | 119     |   |                   |   | 2       |  
|Stock-based compensation                                                        |  |                   | 1,832   |   |                   |   | 1,829   |  
|Deferred income taxes                                                           |  |                   | (12     | ) |                   |   | 5       |  
|Changes in operating assets and liabilities:                                    |  |                   |         |   |                   |   |         |  
|Accounts receivable                                                             |  |                   | (7,481  | ) |                   |   | 9,977   |  
|Inventories                                                                     |  |                   | 2,042   |   |                   |   | (3,452  | )
|Prepaid expenses and other current assets                                       |  |                   | 837     |   |                   |   | (1,218  | )
|Other assets                                                                    |  |                   | 141     |   |                   |   | (631    | )
|Accounts payable                                                                |  |                   | (2,622  | ) |                   |   | 992     |  
|Deferred product and services income                                            |  |                   | (1,841  | ) |                   |   | (1,997  | )
|Other current liabilities                                                       |  |                   | (4,521  | ) |                   |   | 1,604   |  
|Other liabilities                                                               |  |                   | (388    | ) |                   |   | (364    | )
|                                                                                |  |                   |         |   |                   |   |         |  
|Net cash provided by (used in) operating activities                             |  |                   | (7,350  | ) |                   |   | 19,809  |  
|                                                                                |  |                   |         |   |                   |   |         |  
|Cash flows from investing activities:                                           |  |                   |         |   |                   |   |         |  
|Capital expenditures                                                            |  |                   | (3,012  | ) |                   |   | (1,522  | )
|Proceeds from sales of fixed assets                                             |  |                   | 10      |   |                   |   | 6,801   |  
|Purchase of investments in securities                                           |  |                   | (60,164 | ) |                   |   | (69,425 | )
|Proceeds from maturities of investments                                         |  |                   | 53,126  |   |                   |   | 106,950 |  
|                                                                                |  |                   |         |   |                   |   |         |  
|Net cash provided by (used in) investing activities                             |  |                   | (10,040 | ) |                   |   | 42,804  |  
|                                                                                |  |                   |         |   |                   |   |         |  
|Cash flows from financing activities:                                           |  |                   |         |   |                   |   |         |  
|Proceeds from notes payable                                                     |  |                   | 28,055  |   |                   |   | 43,061  |  
|Repayment of notes payable                                                      |  |                   | (24,105 | ) |                   |   | (48,855 | )
|Proceeds from issuance of common stock for stock option exercises               |  |                   | 408     |   |                   |   | 992     |  
|Tax payment for issuance of common stock from release of restricted stock units |  |                   | (454    | ) |                   |   |        |  
|                                                                                |  |                   |         |   |                   |   |         |  
|Net cash provided by (used in) financing activities                             |  |                   | 3,904   |   |                   |   | (4,802  | )
|                                                                                |  |                   |         |   |                   |   |         |  
|Net increase (decrease) in cash and cash equivalents                            |  |                   | (13,486 | ) |                   |   | 57,811  |  
|Cash and cash equivalents at beginning of period                                |  |                   | 94,034  |   |                   |   | 54,586  |  
|                                                                                |  |                   |         |   |                   |   |         |  
|Cash and cash equivalents at end of period                                      |  | $                 | 80,548  |   |                   | $ | 112,397 |  
|                                                                                |  |                   |         |   |                   |   |         |  
|Supplemental disclosures of cash flow information:                              |  |                   |         |   |                   |   |         |  
|Other non-cash activities:                                                      |  |                   |         |   |                   |   |         |  
|Capital lease of phone system                                                   |  | $                 |        |   |                   | $ | 42      |  
|Systems transferred from inventory to equipment and other assets                |  | $                 | 273     |   |                   | $ | 663     |  

See accompanying notes to unaudited condensed consolidated financial statements



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Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

October 3, 2009

(1) Description of Business

Ultratech, Inc. (referred to as Ultratech, the Company and we) develops, manufactures and markets photolithography and laser thermal processing equipment for manufacturers of integrated circuits and
nanotechnology components located throughout North America, Europe, Japan, Taiwan and the rest of Asia.

We supply step-and-repeat
photolithography systems based on one-to-one imaging technology. Within the integrated circuits industry, we target the market for advanced packaging applications. Within the 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 processing equipment is targeted at advanced annealing applications within the semiconductor industry.

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

(2) Basis of Presentation

We have prepared the unaudited condensed consolidated
financial statements in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In our opinion, all adjustments, consisting of only normal recurring adjustments considered necessary for fair presentation, have
been included.

Our fiscal periods end on the Saturday closest to month-end, except that our fiscal year ends on December 31. All
references to the quarter refer to our fiscal quarter. Our fiscal quarters covered by this report ended on October 3, 2009 and September 27, 2008.

Operating results for the three and nine months ended October 3, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 or any future
period.

We have evaluated subsequent events, as defined by Accounting Standard Codification (ASC) Topic 855, through
November 5, 2009, which is the issuance date of our financial statements.

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

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In December 2007, the Financial Accounting Standards Board (FASB) issued ASC Topic 805, Business Combinations (ASC
805). ASC 805 establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. ASC 805 also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. ASC 805 is effective for fiscal years beginning after December 15, 2008. We adopted
this topic on January 1, 2009 and the adoption did not have an impact on our results of operations or financial position.

In December
2007, the FASB issued ASC Topic 810, Consolidation(ASC 810). ASC 810 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated



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Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



net income attributable to the parent and to the noncontrolling interest, changes in a parents ownership interest, and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. ASC 810 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. ASC 810 is effective for fiscal years beginning
after December 15, 2008. We adopted this topic on January 1, 2009 and the adoption did not have an impact on our results of operations or financial position as all of our subsidiaries are wholly owned by us.

In March 2008, the FASB issued ASC Topic 815, Derivatives and Hedging(ASC 815), which requires enhanced disclosures about an
entitys derivative and hedging activities. The statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. ASC 815 is effective for fiscal years beginning after
November 15, 2008 and interim periods within those fiscal years, with earlier adoption encouraged. We adopted this topic on January 1, 2009 and the adoption did not have an impact on our results of operations or financial position. See
Derivative Instruments and Hedging in Note 7 for the disclosures.

In June 2008, FASB issued ASC Topic 260, Earnings Per Share(ASC 260). ASC 260 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. ASC 260 is
effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008 and requires retrospective adjustment to earnings per share data. We adopted this topic on January 1, 2009 and the adoption
did not have an impact on our results of operations or financial position.

In February 2008, the FASB issued ASC Topic 820, Fair
Value Measurements and Disclosures(ASC 820), which delays the effective date of the adoption of ASC 820 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. ASC 820 establishes a framework for measuring fair value and expands disclosures
about fair value measurements. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination.
We adopted ASC 820 on January 1, 2009 and the adoption did not have an impact on our results of operations or financial position.

In
April 2009, the FASB issued an additional guidance, ASC 820-10-65, for estimating fair value in accordance with ASC 820 when the volume and level of activity for the asset or liability have significantly decreased. ASC 820-10-65 also includes
guidance on identifying circumstances that indicate a transaction is not orderly. In addition, ASC 820-10-65 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of
changes in valuation techniques. We adopted ASC 820-10-65 during the three-month period ended July 4, 2009 and the adoption did not have an impact on our results of operations or financial position.

In April 2009, the FASB issued an additional guidance, ASC 825-10-65, which amends ASC Topic 825, Financial Instruments, to require disclosures about
fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. We adopted ASC 825-10-65 during the three-month period ended July 4, 2009 and the adoption did not have an
impact on our results of operations or financial position. See Investments in Note 6 for the disclosures.

In April 2009, the FASB
issued an additional guidance, ASC 320-10-65, which amends the requirements for the recognition and measurement of other-than-temporary impairments for debt securities by modifying the pre-existing intent and ability indicator covered by
ASC Topic 320, Investments-Debt and Equity Securities. Under ASC 320-10-65, an other-than-temporary impairment is triggered in circumstances where (1) an entity has the intent to sell the security, (2) it is more likely than not
that the entity will be required to sell the security before recovery of its amortized cost basis, or (3) the entity does not expect to recover the entire amortized cost basis of the security. Additionally, ASC 320-10-65 changes the
presentation of an other-than-temporary impairment in the income statement for those impairments involving credit losses. The credit loss component of the impairment charge will be recognized in earnings and the remainder of the impairment will be
recorded in other comprehensive income (loss). ASC 320-10-65 does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. We adopted ASC 320-10-65 during the three-month period ended
July 4, 2009 and the adoption did not have an impact on our results of operations or financial position.

In May 2009, the FASB issued
ASC Topic 855, Subsequent Events(ASC 855), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be



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Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



issued. ASC 855 distinguishes between subsequent events that should be recognized in the financial statements and those that should not. It requires disclosure of the date through which
subsequent events were evaluated. We adopted this topic during the three-month period ended July 4, 2009 and the adoption did not have an impact on our results of operations or financial position.

In June 2009, the FASB issued Accounting Standard Update (ASU) No. 2009-01, Topic 105 - Generally Accepted Accounting Principles,
amendments based on Statement of Financial Accounting Standards No. 168 - The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.The amendments established the FASB Accounting Standards
Codification (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with accounting principles
generally accepted in the United States (U.S. GAAP). Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative U.S. GAAP for
SEC registrants. On the effective date of this statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will
become non-authoritative. This update is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted this update during the three-month period ended October 3, 2009 and the adoption
of this update did not have an impact on our results of operations or financial position.

In August 2009, the FASB issued ASU
No. 2009-05, Fair Value Measurements and Disclosures (Topic 820)  Measuring Liabilities at Fair Value. It provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or more of the techniques. It also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment
to other inputs relating to the existence of a restriction that prevents the transfer of the liability. In addition, it clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price
for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. This update is effective for first reporting period (including interim
periods) beginning after issuance. We adopted this update during the three-month period ended October 3, 2009 and the adoption did not have an impact on our results of operations or financial position.

In September 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605)  Multi-Deliverables Revenue Arrangements, a Consensus of
the FASB Emerging Issues Task Force, to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. It establishes the accounting
and reporting guidance for arrangements under which the vendor will perform multiple revenue-generating activities, specifically, how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of
accounting. The update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We are currently evaluating the impact, if any, of adopting the update.

In October 2009, the FASB issued ASU No. 2009-14, Software (Topic 985)  Certain Revenue Arrangements That Include Software
Element, a Consensus of the FASB Emerging Issues Task Force,to address concerns relating to the accounting for revenue arrangements that contain tangible products and software. It requires a vendor to use vendor-specific objective evidence of
selling price to separate deliverables in a multiple-element arrangement. The update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We are
currently evaluating the impact, if any, of adopting the update.

(3) Stock-Based Compensation

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



|                                             |  |                    |     |                   |   |                |  |                   |       |  |   |      
|-------------------------------------------- |  | ------------------ | --- | ----------------- | - | -------------- |  | ----------------- | ----- |  | - | -----
|                                             |  | Three Months Ended |     | Nine Months Ended
|(In thousands)                               |  | October 3,2009     |     | September 27,2008 |   | October 3,2009 |  | September 27,2008
|Cost of Sales                                |  | $                  | 39  |                   | $ | 52             |  | $                 | 97    |  | $ | 132  
|Research, development, and engineering       |  |                    | 139 |                   |   | 119            |  |                   | 349   |  |   | 342  
|Selling, general and administrative expenses |  |                    | 560 |                   |   | 491            |  |                   | 1,387 |  |   | 1,355
|                                             |  |                    |     |                   |   |                |  |                   |       |  |   |      
|Total stock-based compensation expense       |  | $                  | 738 |                   | $ | 662            |  | $                 | 1,833 |  | $ | 1,829
|                                             |  |                    |     |                   |   |                |  |                   |       |  |   |      



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##### Table of Contents

Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



Compensation cost capitalized as part of inventory was immaterial during each of the three- and
nine-month periods ended October 3, 2009 and September 27, 2008.

As required by ASC 718, we estimate expected forfeitures and
recognize compensation costs only for those equity awards expected to vest. As of October 3, 2009, there were $4.7 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our
1993 Stock Option Plan/Stock Issuance Plan, as amended (1993 Plan), and our 1998 Supplemental Stock Option/Stock Issuance Plan, as amended ( 1998 Plan). That cost is expected to be recognized over a weighted average period of
2.1 years.

These plans provide for the grant of stock-based awards to our eligible employees, consultants and advisors and non-employee
directors. We believe that such awards better align the interests of our employees with those of our stockholders. There were no shares reserved for future awards under the 1998 Plan since the plan expired on October 19, 2008. However, as of
October 3, 2009, there were 2.0 million shares reserved for future awards under the 1993 Plan.

We used the following
weighted-average assumptions to estimate the fair value of our stock options granted during the three- and nine-month periods ended October 3, 2009 and September 27, 2008:



|                         |  |                    |  |                   |                   |  |                |   |  |                   |  
|------------------------ |  | ------------------ |  | ----------------- | ----------------- |  | -------------- | - |  | ----------------- | -
|                         |  | Three Months Ended |  |                   | Nine Months Ended | 
|                         |  | October 3,2009     |  | September 27,2008 |                   |  | October 3,2009 |   |  | September 27,2008 |  
|Expected life (in years) |  | *                  |  | 5.18              |                   |  | 5.15           |   |  | 5.32              |  
|Risk-free interest rate  |  | *                  |  | 3.33              | %                 |  | 1.75           | % |  | 2.84              | %
|Volatility factor        |  | *                  |  | 0.47              |                   |  | 0.51           |   |  | 0.48              |  
|Dividend yield           |  | *                  |  |                  |                   |  |               |   |  |                  |  



|* | Not presented as we did not grant any stock options during the three-month period ended October 3, 2009.
|- | --------------------------------------------------------------------------------------------------------

(4) Net Income Per Share

The
following sets forth the computation of basic and diluted net income per share:



|                                                                     |  |                    |        |                   |   |                |  |                   |        |  |   |       
|-------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- | - | -------------- |  | ----------------- | ------ |  | - | ------
|                                                                     |  | Three Months Ended |        | Nine Months Ended
|(In thousands, except per share amounts)                             |  | October 3,2009     |        | September 27,2008 |   | October 3,2009 |  | September 27,2008
|Numerator:                                                           |  |                    |        |                   |   |                |  |                   |        |  |   |       
|Net income                                                           |  | $                  | 1,041  |                   | $ | 3,302          |  | $                 | 745    |  | $ | 7,838 
|Denominator:                                                         |  |                    |        |                   |   |                |  |                   |        |  |   |       
|Basic weighted-average shares outstanding                            |  |                    | 23,707 |                   |   | 23,558         |  |                   | 23,664 |  |   | 23,501
|Effect of dilutive employee stock options and restricted stock units |  |                    | 98     |                   |   | 307            |  |                   | 81     |  |   | 142   
|                                                                     |  |                    |        |                   |   |                |  |                   |        |  |   |       
|Diluted weighted-average shares outstanding                          |  |                    | 23,805 |                   |   | 23,865         |  |                   | 23,745 |  |   | 23,643
|                                                                     |  |                    |        |                   |   |                |  |                   |        |  |   |       
|Net income per share - basic:                                        |  |                    |        |                   |   |                |  |                   |        |  |   |       
|Net income                                                           |  | $                  | 0.04   |                   | $ | 0.14           |  | $                 | 0.03   |  | $ | 0.33  
|                                                                     |  |                    |        |                   |   |                |  |                   |        |  |   |       
|Net income per share - diluted:                                      |  |                    |        |                   |   |                |  |                   |        |  |   |       
|Net income                                                           |  | $                  | 0.04   |                   | $ | 0.14           |  | $                 | 0.03   |  | $ | 0.33  
|                                                                     |  |                    |        |                   |   |                |  |                   |        |  |   |       

For the three- and nine-month periods ended October 3, 2009, 3.8 million and
4.0 million shares of common stock, respectively, subject to outstanding options were excluded from the computation of diluted net income per share, as the effect would have been anti-dilutive, compared to 2.9 million and 4.5 million
shares of common stock subject to outstanding options in the corresponding periods of 2008. In addition, for each of the three- and nine-month periods ended October 3, 2009 and September 27, 2008, the number of shares of common stock
underlying outstanding restricted stock units excluded from the computation was immaterial. Options and restricted stock units are anti-dilutive when we have a net loss or when the exercise price and the average unrecognized compensation cost of the
stock option or restricted stock unit is greater than the average market price of our common stock during the period.



9



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##### Table of Contents

Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



(5) Fair Value Measurements

On January 1, 2008, we adopted ASC 820 for financial assets and liabilities recognized at fair value on a recurring basis. On January 1, 2009, we adopted ASC 820 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a
goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. The adoption of this deferred portion of ASC 820 did not have any impact on our results of operations or financial position.

Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs
and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the
following:



| |  |  | Level 1 - Quoted prices for identical assets or liabilities in active markets.
| | - |  | ------------------------------------------------------------------------------



| |  |  | Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not
active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3 - Model derived valuations in which one or more significant inputs or significant value drivers are unobservable.
| | - |  | -------------------------------------------------------------------------------------------------------------------------

We measure certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale securities and foreign currency
derivatives. The fair value of these certain financial assets and liabilities was determined using the following inputs at October 3, 2009 and December 31, 2008, respectively:



|                                 |  |                                                    |         |                                                             |   |                                             |  |                                        |        |  |   |  
|-------------------------------- |  | -------------------------------------------------- | ------- | ----------------------------------------------------------- | - | ------------------------------------------- |  | -------------------------------------- | ------ |  | - | -
|                                 |  | Fair Value Measurements at October 3, 2009 Using  
|(In thousands)                   |  | Total                                              |         | Quated Prices inActive Markets forIdentical Assets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|Available-for-sale securities(1) |  | $                                                  | 133,510 |                                                             | $ | 62,550                                      |  | $                                      | 70,960 |  | $ | 
|Foreign currency derivatives(2)  |  |                                                    | 27      |                                                             |   |                                            |  |                                        | 27     |  |   | 
|                                 |  |                                                    |         |                                                             |   |                                             |  |                                        |        |  |   |  
|                                 |  | $                                                  | 133,537 |                                                             | $ | 62,550                                      |  | $                                      | 70,987 |  | $ | 
|                                 |  |                                                    |         |                                                             |   |                                             |  |                                        |        |  |   |  
|                                 | 
|                                 |  | Fair Value Measurements at December 31, 2008 Using
|(In thousands)                   |  | Total                                              |         | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   | Significant OtherObservable Inputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|Available-for-sale securities(1) |  | $                                                  | 137,110 |                                                             | $ | 56,658                                      |  | $                                      | 80,452 |  | $ | 
|Foreign currency derivatives(2)  |  |                                                    | 198     |                                                             |   |                                            |  | $                                      | 198    |  |   | 
|                                 |  |                                                    |         |                                                             |   |                                             |  |                                        |        |  |   |  
|                                 |  | $                                                  | 137,308 |                                                             | $ | 56,658                                      |  | $                                      | 80,650 |  | $ | 
|                                 |  |                                                    |         |                                                             |   |                                             |  |                                        |        |  |   |  



|(1) | Included in cash and cash equivalents and short-term investments on our condensed consolidated balance sheet.
|--- | -------------------------------------------------------------------------------------------------------------



|(2) | Included in other current liabilities on our condensed consolidated balance sheet. See Investments in Note 6 for further details.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

Our available-for-sale securities at October 3, 2009 consisted of securities and obligations of money market funds
(49% of total), U.S. government agencies (43% of total), commercial paper (7% of total) and corporate debt securities (1% of total), as compared to securities and obligations of U.S. government agencies (46% of total), money market funds (41% of
total) and commercial paper (13% of total) at December 31, 2008. Included in available-for-sale securities at October 3, 2009 and December 31, 2008 were cash equivalents of $62.6 million and $72.6 million, respectively. Cash
equivalents consist primarily of instruments with maturities of three months or less at the date of purchase.

Foreign currency derivatives at
October 3, 2009 and December 31, 2008 consisted of forward foreign exchange contracts for the Japanese yen. See Investments in Note 6 for further details.



10



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##### Table of Contents

Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



(6) Investments

We classified all of our investments as available for sale as of October 3, 2009 and December 31, 2008. Accordingly, we state our investments at estimated fair value. Fair values are
determined based on quoted market prices or pricing models using current market rates. We deem all investments to be available to meet current working capital requirements. The cost of securities sold was determined based on the specific
identification method.

The following is a summary of our investments:



|                                                                    |  |                 |         |                               |   |                     |  |               |   |                               |   |                     |  |   |         |  |   |     |  |   |   |  |   |        
|------------------------------------------------------------------- |  | --------------- | ------- | ----------------------------- | - | ------------------- |  | ------------- | - | ----------------------------- | - | ------------------- |  | - | ------- |  | - | --- |  | - | - |  | - | -------
|                                                                    |  | October 3, 2009 |         | December 31, 2008            
|Cash equivalents and Available- for-sale Investments (in thousands) |  | AmortizedCost   |         | AccumulatedOtherComprehensive |   | EstimatedFair Value |  | AmortizedCost |   | AccumulatedOtherComprehensive |   | EstimatedFair Value
|                                                                    |  | Gains           |         | Losses                        |   |                     |  | Gains         |   | Losses                        |  
|Securities and obligations of U.S. government agencies              |  | $               | 59,573  |                               | $ | 201                 |  | $             | 6 |                               | $ | 59,768              |  | $ | 61,819  |  | $ | 638 |  | $ |  |  | $ | 62,457 
|U.S. corporate debt securities                                      |  |                 | 1,197   |                               |   | 2                   |  |               |  |                               |   | 1,199               |  |   |        |  |   |    |  |   |  |  |   |       
|Money market funds and commercial paper                             |  |                 | 72,545  |                               |   |                    |  |               | 2 |                               |   | 72,543              |  |   | 74,642  |  |   | 11  |  |   |  |  |   | 74,653 
|                                                                    |  |                 |         |                               |   |                     |  |               |   |                               |   |                     |  |   |         |  |   |     |  |   |   |  |   |        
|Total                                                               |  | $               | 133,315 |                               | $ | 203                 |  | $             | 8 |                               | $ | 133,510             |  | $ | 136,461 |  | $ | 649 |  | $ |  |  | $ | 137,110
|                                                                    |  |                 |         |                               |   |                     |  |               |   |                               |   |                     |  |   |         |  |   |     |  |   |   |  |   |        

The following is a reconciliation of our investments to the balance sheet classifications at
October 3, 2009 and December 31, 2008:



|                                     |  |                 |         |                   |   |        
|------------------------------------ |  | --------------- | ------- | ----------------- | - | -------
|(In thousands)                       |  | October 3, 2009 |         | December 31, 2008
|Cash equivalents                     |  | $               | 62,548  |                   | $ | 72,646 
|Short-term investments               |  |                 | 70,962  |                   |   | 64,464 
|                                     |  |                 |         |                   |   |        
|Investments, at estimated fair value |  | $               | 133,510 |                   | $ | 137,110
|                                     |  |                 |         |                   |   |        

The gross amortized cost and estimated fair value of our investments at October 3, 2009 and
December 31, 2008, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.



|                                      |  |                    |         |                   |   |                    |  |           |         |  |   |        
|------------------------------------- |  | ------------------ | ------- | ----------------- | - | ------------------ |  | --------- | ------- |  | - | -------
|                                      |  | October 3, 2009    |         | December 31, 2008
|(In thousands)                        |  | GrossAmortizedCost |         | FairValue         |   | GrossAmortizedCost |  | FairValue
|Due in one year or less               |  | $                  | 133,314 |                   | $ | 133,510            |  | $         | 122,241 |  | $ | 122,658
|Due after one year through five years |  |                    |        |                   |   |                   |  |           | 14,220  |  |   | 14,452 
|                                      |  |                    |         |                   |   |                    |  |           |         |  |   |        
|Total                                 |  | $                  | 133,314 |                   | $ | 133,510            |  | $         | 136,461 |  | $ | 137,110
|                                      |  |                    |         |                   |   |                    |  |           |         |  |   |        

We do not have any cash equivalents and investments with unrealized losses at December 31, 2008.
The following table provides the breakdown of the cash equivalents and investments with unrealized losses at October 3, 2009:



|                                                                         |  |                                         |        |                                         |   |           |  |                       |   |           |   |                       |  |   |        |  |   |  
|------------------------------------------------------------------------ |  | --------------------------------------- | ------ | --------------------------------------- | - | --------- |  | --------------------- | - | --------- | - | --------------------- |  | - | ------ |  | - | -
|                                                                         |  | In Loss Position forLess Than 12 Months |        | In Loss Position forMore Than 12 Months |   | Total    
|(In thousands)                                                           |  | FairValue                               |        | GrossUnrealizedLosses                   |   | FairValue |  | GrossUnrealizedLosses |   | FairValue |   | GrossUnrealizedLosses
|U.S. Treasury securities and obligations of the U.S. government agencies |  | $                                       | 6,995  |                                         | $ | 6         |  | $                     |  |           | $ |                      |  | $ | 6,995  |  | $ | 6
|Money market funds and commercial paper                                  |  |                                         | 3,994  |                                         |   | 2         |  |                       |  |           |   |                      |  |   | 3,994  |  |   | 2
|                                                                         |  |                                         |        |                                         |   |           |  |                       |   |           |   |                       |  |   |        |  |   |  
|Total                                                                    |  | $                                       | 10,989 |                                         | $ | 8         |  | $                     |  |           | $ |                      |  | $ | 10,989 |  | $ | 8
|                                                                         |  |                                         |        |                                         |   |           |  |                       |   |           |   |                       |  |   |        |  |   |  



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##### Table of Contents

Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



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

If we do not intend to sell an impaired debt security and it is not more likely than not that we will be required to sell it prior to recovery of its
amortized cost basis, we must determine whether it will recover its amortized cost basis. If we conclude it will not, a credit loss exists and the resulting OTTI is separated into:



| |  |  | The amount representing the credit loss, which is recognized in earnings, and
| | - |  | -----------------------------------------------------------------------------



| |  |  | The amount related to all other factors, which is recognized in other comprehensive income.
| | - |  | -------------------------------------------------------------------------------------------

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

We have not recorded any OTTI of our investments during the three- and nine-month periods ended October 3, 2009 and September 27, 2008.

(7) Derivative Instruments and Hedging

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

We attempt to
mitigate this risk through derivative instruments, mainly foreign currency forward contracts. To protect against reductions in value and the volatility of future cash flows caused by changes in currency exchange rates, we have established cash flow
and balance sheet hedging programs. Our hedging programs reduce, but do not always entirely eliminate, the impact of currency movements. We enter into foreign currency forward contracts that generally have maturities of nine months or less.

Under ASC 815, all derivatives are recorded on the balance sheet at fair value. The gains and losses resulting from changes in fair value are
accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. All of our derivatives are designated as hedging instruments under ASC 815. The fair value of derivative instruments recorded in
our Condensed Consolidated Balance Sheets is as follows:



|                           |  |                                         |  |            |   
|-------------------------- |  | --------------------------------------- |  | ---------- | --
|                           |  | Asset Derivatives as of October 3, 2009
|(In thousands)             |  | Balance Sheet Location                  |  | Fair Value
|Foreign exchange contracts |  | Other current liabilities               |  | $          | 27
|                           |  |                                         |  |            |   
|Total derivatives          |  |                                         |  | $          | 27
|                           |  |                                         |  |            |   

Cash Flow Hedging

We use foreign exchange forward contracts to hedge the risk that forecasted revenue may be adversely affected by changes in foreign currency exchange rates. These hedges are designated as cash flow
hedges. We do not enter into these forward contracts for speculative purposes. The effective portion of the contracts gains or losses is included in accumulated other comprehensive income (loss) (OCI) until the period in which the
forecasted sale being hedged is recognized, at which time the amount in OCI is reclassified to earnings as a component of revenue.



12



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##### Table of Contents

Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



To the extent that any of these contracts are not considered to be effective in offsetting the change in
the value of the forecasted sales being hedged, the ineffective portion of these contracts is immediately reclassified from OCI and recognized in the consolidated statement of operations as a component of interest and other income (expense), net.
The contracts are considered ineffective when the underlying forecasted transaction does not occur within the designated hedge period or it becomes probable that the forecasted transaction will not occur.

We calculate hedge effectiveness at a minimum each fiscal quarter. We measure hedge effectiveness by comparing the cumulative change in the spot rate of the
derivative with the cumulative change in the spot rate of the anticipated sales transactions. We record any excluded components of the hedge in interest and other income (expense), net. There was no hedge ineffectiveness for the quarter ended
October 3, 2009 and we did not have any derivatives classified as cash flow hedges at October 3, 2009. The following sets forth the effect of the derivative instruments on our Condensed Consolidated Statements of Operations for the
nine-month period ended October 3, 2009:



|                                                          |  |                                                                               |    |                                                                                    |               |                                                                                            |   |                                                                                                  |  |                                                                                                         |  |   |  
|--------------------------------------------------------- |  | ----------------------------------------------------------------------------- | -- | ---------------------------------------------------------------------------------- | ------------- | ------------------------------------------------------------------------------------------ | - | ------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------- |  | - | -
|Derivatives in SFAS No. 133Cash Flow Hedging Relationship |  | Amount of LossRecognized in OCIon Derivative(Effective Portion)(in thousands) |    | Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion) |               | Amount of LossReclassified fromAccumulated OCIinto Income(Effective Portion)(in thousands) |   | Location of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) |  | Amount of GainRecognized inIncome onDerivative (AmountExcluded fromEffectiveness Testing)(in thousands)
|Foreign exchange contracts                                |  | $                                                                             | 40 |                                                                                    | Product Sales |                                                                                            | $ | 40                                                                                               |  | Interest and other income (expense), net                                                                |  | $ | 1

Fair Value Hedging

We manage the foreign currency risk associated with Japanese yen denominated assets and liabilities using foreign exchange forward contracts. The change in
fair value of these derivatives is recognized as a component of interest and other income (expense), net and is intended to offset the remeasurement gains and losses associated with the non-functional currency denominated assets and liabilities. At
October 3, 2009, we had currency forward contracts for the sale of 115.1 million Japanese yen, or approximately $1.3 million. The fair value of derivatives classified as balance sheet hedges at October 3, 2009 was a liability of
$27,000 recorded as other current liabilities. The following sets forth the effect of the derivative instruments on our Condensed Consolidated Statements of Operations for the three- and nine-month periods ended October 3, 2009:



|                                                            |  |                                                      |  |                                                          |     |   |                                                |   |    
|----------------------------------------------------------- |  | ---------------------------------------------------- |  | -------------------------------------------------------- | --- | - | ---------------------------------------------- | - | ---
|                                                            |  |                                                      |  | Amount of Gain (Loss) Recognized inIncome on Derivatives
|Derivatives in SFAS No. 133 Fair Value Hedging Relationship |  | Location of Gain Recognized in Income on Derivatives |  | Three Months EndedOctober 3, 2009(in thousands)          |     |   | Nine Months EndedOctober 3, 2009(in thousands)
|Foreign exchange contracts                                  |  | Interest and other income (expense), net             |  | $                                                        | (59 | ) |                                                | $ | 172

(8) Inventories

Inventories consist of the following:



|                  |  |                |        |                  |   |       
|----------------- |  | -------------- | ------ | ---------------- | - | ------
|(In thousands)    |  | October 3,2009 |        | December 31,2008
|Raw materials     |  | $              | 11,365 |                  | $ | 15,380
|Work-in-process   |  |                | 6,303  |                  |   | 7,175 
|Finished products |  |                | 11,635 |                  |   | 9,063 
|                  |  |                |        |                  |   |       
|                  |  | $              | 29,303 |                  | $ | 31,618
|                  |  |                |        |                  |   |       

(9) Notes Payable

We have a line of credit agreement with a brokerage firm. Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds open rate plus 125 basis points (approximately
1.37% as of October 3, 2009). Funds are advanced to us under this facility based on pre-determined advance rates on the cash and securities held by us in this brokerage account. Under this



13



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##### Table of Contents

Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



facility, we may borrow up to 75% of our total cash, cash equivalents and investments balance in this brokerage account with no restriction in the use of those assets. This agreement has no set
expiration date and there are no loan covenants, other than the aforementioned collateral requirement. As of October 3, 2009, $10.0 million was outstanding under this facility, with a related collateral requirement of approximately $13.3
million of our cash, cash equivalents and investments.

(10) Other Current Liabilities

Other current liabilities consist of the following:



|                               |  |                |       |                  |   |      
|------------------------------ |  | -------------- | ----- | ---------------- | - | -----
|(In thousands)                 |  | October 3,2009 |       | December 31,2008
|Salaries and benefits          |  | $              | 3,296 |                  | $ | 4,949
|Warranty accrual               |  |                | 894   |                  |   | 1,522
|Accrued taxes-other            |  |                | 151   |                  |   | 1,374
|Capital lease, current portion |  |                | 118   |                  |   | 113  
|Other                          |  |                | 859   |                  |   | 1,965
|                               |  |                |       |                  |   |      
|                               |  | $              | 5,318 |                  | $ | 9,923
|                               |  |                |       |                  |   |      

Warranty Accrual

We generally warrant our products for a period of twelve months for new products, or three months for refurbished products, from the date of customer
acceptance for material and labor to repair the product; accordingly, an accrual for the estimated cost of the warranty is recorded at the time the product is shipped. Extended warranty terms, if granted, result in deferral of revenue equating to
our standard pricing for similar service contracts. Recognition of the related warranty cost is deferred until product revenue is recognized. Factors that affect our warranty liability include the number of installed units, historical and
anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary. We believe our warranty accrual, as of October 3, 2009, will be sufficient
to satisfy outstanding obligations as of that date. Changes in our warranty accrual are as follows:



|                                                   |  |                    |      |   |                   |   |       |                |  |   |                   |   |  |   |        |  
|-------------------------------------------------- |  | ------------------ | ---- | - | ----------------- | - | ----- | -------------- |  | - | ----------------- | - |  | - | ------ | -
|                                                   |  | Three Months Ended |      |   | Nine Months Ended |  
|(In thousands)                                     |  | October 3,2009     |      |   | September 27,2008 |   |       | October 3,2009 |  |   | September 27,2008 |  
|Balance, beginning of the period                   |  | $                  | 995  |   |                   | $ | 1,841 |                |  | $ | 1,522             |   |  | $ | 2,112  |  
|Warranties accrued for shipments during the period |  |                    | 287  |   |                   |   | 986   |                |  |   | 911               |   |  |   | 2,196  |  
|Settlements made during the period                 |  |                    | (479 | ) |                   |   | (761  | )              |  |   | (1,798            | ) |  |   | (1,967 | )
|Changes in accrued warranty liabilities            |  |                    | 91   |   |                   |   | 51    |                |  |   | 259               |   |  |   | (224   | )
|                                                   |  |                    |      |   |                   |   |       |                |  |   |                   |   |  |   |        |  
|Balance, end of the period                         |  | $                  | 894  |   |                   | $ | 2,117 |                |  | $ | 894               |   |  | $ | 2,117  |  
|                                                   |  |                    |      |   |                   |   |       |                |  |   |                   |   |  |   |        |  

Accrued Taxes  Other

The decrease in accrued taxes-other from December 31, 2008 to October 3, 2009 includes the realization of a foreign consumption tax incentive which
is included in interest and other income, net ($2.1 million) and interest expense ($0.4 million) recorded in our Condensed Consolidated Statements of Operations for the nine-month period ended October 3, 2009.



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##### Table of Contents

Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



Deferred Services Revenue

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



|                                                      |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |        |  
|----------------------------------------------------- |  | ------------------ | ----- | - | ----------------- | - | ----- | -------------- |  | - | ----------------- | - |  | - | ------ | -
|                                                      |  | Three Months Ended |       |   | Nine Months Ended |  
|(In thousands)                                        |  | October 3,2009     |       |   | September 27,2008 |   |       | October 3,2009 |  |   | September 27,2008 |  
|Balance, beginning of the period                      |  | $                  | 1,942 |   |                   | $ | 2,087 |                |  | $ | 2,117             |   |  | $ | 2,087  |  
|Service contracts sold during the period              |  |                    | 854   |   |                   |   | 698   |                |  |   | 2,156             |   |  |   | 2,019  |  
|Service contract revenue recognized during the period |  |                    | (831  | ) |                   |   | (621  | )              |  |   | (2,308            | ) |  |   | (1,942 | )
|                                                      |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |        |  
|Balance, end of the period                            |  | $                  | 1,965 |   |                   | $ | 2,164 |                |  | $ | 1,965             |   |  | $ | 2,164  |  
|                                                      |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |        |  

(11) Other Liabilities

Other liabilities consist of the following:



|                                  |  |                |       |                  |   |      
|--------------------------------- |  | -------------- | ----- | ---------------- | - | -----
|(In thousands)                    |  | October 3,2009 |       | December 31,2008
|Deferred rent                     |  | $              | 1,022 |                  | $ | 1,505
|Deferred compensation             |  |                | 1,146 |                  |   | 941  
|Long-term income taxes payable    |  |                | 755   |                  |   | 767  
|Asset retirement obligation       |  |                | 2,396 |                  |   | 2,281
|Postretirement medical obligation |  |                | 554   |                  |   | 546  
|Long-term capital lease           |  |                | 296   |                  |   | 385  
|Other                             |  |                | 233   |                  |   | 262  
|                                  |  |                |       |                  |   |      
|                                  |  | $              | 6,402 |                  | $ | 6,687
|                                  |  |                |       |                  |   |      

(12) Accumulated Other Comprehensive Income

The components of comprehensive income, net of tax, are as follows:



|                                                                           |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |       |  
|-------------------------------------------------------------------------- |  | ------------------ | ----- | - | ----------------- | - | ----- | -------------- |  | - | ----------------- | - |  | - | ----- | -
|                                                                           |  | Three Months Ended |       |   | Nine Months Ended |  
|(In thousands)                                                             |  | October 3,2009     |       |   | September 27,2008 |   |       | October 3,2009 |  |   | September 27,2008 |  
|Net income                                                                 |  | $                  | 1,041 |   |                   | $ | 3,302 |                |  | $ | 745               |   |  | $ | 7,838 |  
|Other comprehensive income (loss):                                         |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |       |  
|Unrealized gain (loss) on available-for-sale investments before adjustment |  |                    | (161  | ) |                   |   | (99   | )              |  |   | (509              | ) |  |   | 113   |  
|Reclassification adjustment for gains included in net income               |  |                    |      |   |                   |   |      |                |  |   |                  |   |  |   | (409  | )
|                                                                           |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |       |  
|Net unrealized loss on available-for-sale investments                      |  |                    | (161  | ) |                   |   | (99   | )              |  |   | (509              | ) |  |   | (296  | )
|Unrealized gain (loss) on foreign exchange forward contracts               |  |                    |      |   |                   |   | (168  | )              |  |   | 84                |   |  |   | (240  | )
|Change in minimum postretirement medical obligation                        |  |                    | 15    |   |                   |   | 9     |                |  |   | 89                |   |  |   | 28    |  
|                                                                           |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |       |  
|Comprehensive income                                                       |  | $                  | 895   |   |                   | $ | 3,044 |                |  | $ | 409               |   |  | $ | 7,330 |  
|                                                                           |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |       |  



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##### Table of Contents

Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



Accumulated other comprehensive income, net of tax, is comprised of the following items:



|                                                        |  |                |     |   |                  |   |     |  
|------------------------------------------------------- |  | -------------- | --- | - | ---------------- | - | --- | -
|(In thousands)                                          |  | October 3,2009 |     |   | December 31,2008 |  
|Unrealized gain (loss) on:                              |  |                |     |   |                  |   |     |  
|Available-for-sale investments                          |  | $              | 139 |   |                  | $ | 648 |  
|Foreign exchange forward contracts                      |  |                |    |   |                  |   | (84 | )
|Change in minimum postretirement medical obligation     |  |                | (1  | ) |                  |   | (90 | )
|                                                        |  |                |     |   |                  |   |     |  
|Accumulated other comprehensive income at end of period |  | $              | 138 |   |                  | $ | 474 |  
|                                                        |  |                |     |   |                  |   |     |  

(13) Exit Activities

Changes in our accrued severance and benefits charges in connection with exit activities are as follows:



|                                          |  |                            |    |          |   |          |  |   |                          |   |  |   |  
|----------------------------------------- |  | -------------------------- | -- | -------- | - | -------- |  | - | ------------------------ | - |  | - | -
|(In thousands)                            |  | Balance atDecember 31,2008 |    | Expenses |   | Payments |  |   | Balance atOctober 3,2009
|Severance and benefits (fiscal year 2008) |  | $                          | 18 |          | $ |         |  | $ | (18                      | ) |  | $ | 
|Severance and benefits (fiscal year 2009) |  |                            |   |          |   | 576      |  |   | (576                     | ) |  |   | 
|                                          |  |                            |    |          |   |          |  |   |                          |   |  |   |  
|Total                                     |  | $                          | 18 |          | $ | 576      |  | $ | (594                     | ) |  | $ | 
|                                          |  |                            |    |          |   |          |  |   |                          |   |  |   |  

We did not have any exit activity during the three-month period ended October 3, 2009. During
the first quarter of 2009, in our continuing effort to reduce company-wide expenses, we eliminated 21 full-time positions, 90% in the United States and 10% internationally. We recorded severance and benefits charges totaling $0.6 million during the
nine-month period ended October 3, 2009. Of this $0.6 million, $0.3 million was recorded as research, development and engineering expenses, $0.2 million as cost of sales and the remaining $0.1 million as selling, general and administrative
expenses. We did not have any exit activity during the first three quarters of 2008. As of October 3, 2009, there were no exit activity liabilities.

(14) Employee Benefit Plans

Employee bonus plans

We sponsor an executive incentive bonus plan that distributes employee awards based on the achievement of predetermined targets. We
recorded a charge of $0.2 million and $0.4 million under this bonus plan for the three- and nine-month periods ended October 3, 2009, respectively, as compared to $0.5 million and $0.9 million for the corresponding periods of 2008.

Employee savings and retirement plans

We sponsor a 401(k) employee salary deferral plan that allows voluntary contributions by all full-time employees of from 1% to 20% of their pretax earnings. We may also make matching contributions to this
plan at our discretion. Our contributions, when made, are limited to a maximum of $2,000 per year per employee, generally become 20% vested at the end of an employees first year of service from the date of hire, and vest 20% per year of
service thereafter until they become fully vested at the end of five years of service. We did not make any contributions to this plan for the three- and nine-month periods ended October 3, 2009 as compared to the contribution of $0.1 million
and $0.2 million made for the corresponding periods of 2008.

We also sponsor an executive non-qualified deferred compensation plan (the
Plan) that allows qualifying executives to defer current cash compensation. As of October 3, 2009, Plan assets, representing the cash surrender value of life insurance policies held by us, and liabilities were approximately
$1.0 million each, respectively, and were included in our Consolidated Balance Sheets under the captions Other assets and Other liabilities. In conjunction with the Plan, the related expense for each of the quarters
ended October 3, 2009 and September 27, 2008 was immaterial.



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Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



Postretirement benefits

We have committed to providing and fully paying for lifetime postretirement medical and dental benefits to our Chief Executive Officer and Chief Financial
Officer and their spouses, commencing after retirement. We recorded net periodic benefit costs of $23,000 and $0.1 million for each of the three- and nine-month periods ended October 3, 2009, respectively, compared to $21,000 and $62,000 for
the three- and nine-month periods ended September 27, 2008. These expenses included interest cost and amortization of prior service cost.

(15) Income Taxes

In accordance with FASB ASC Topic 740, Income Taxes(ASC 740), we had unrecognized
tax benefits of $3.4 million as of January 1, 2009. We continue to recognize interest and penalties as a component of income tax provision and accrued $34,000 for these items as of January 1, 2009.

If we are able to eventually recognize these uncertain tax positions, $3.0 million of our unrecognized benefit would reduce the effective tax rate. We
currently have a full valuation allowance against our U.S. net deferred tax asset which would impact the timing of the effective tax 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 our uncertain 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 also subject to audits in the foreign jurisdictions in
which we operate for years 2001 and forward. There are no tax examinations currently in progress.

(16) Commitments and Contingencies

Commitments

In September 2007, we sublet a portion of our facilities in San Jose, California and account for it as an operating lease. This sublease expires in January 2010. As of October 3, 2009, the
minimum future sublease payments to be received were $0.1 million.

In July 2007, we capitalized a five-year lease agreement for a new
phone system recorded as office equipment. The amortization of this phone system is included with depreciation expense.

In August 2008, we
entered into agreements with a leasing company for the sale and leaseback of certain 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 an option to purchase the assets back at the future current fair market value upon the expiration of the lease in 2012. The lease is classified as operating lease in accordance with ASC Topic 840, Leases. In January 2009,
we bought back assets with value totaling to $1.3 million. As of October 3, 2009, the minimum future lease payments to be made were $4.2 million.

Legal Proceedings

On July 11, 2003, we filed a lawsuit against a Southern
California company asserting infringement of certain claims related to U.S. patent No. 5,621,813 in the U.S. District Court in and for the Northern 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 its attorneys fees and costs in a total asserted amount of approximately $2 million. We opposed this motion, 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 defendant filed a notice of appeal with respect to the courts ruling on its motion
for attorneys fees. In March 2006, the Federal Circuit court upheld the district courts ruling that the subject patent is invalid. On August 8, 2006, the Federal Circuit court upheld the District Courts denial of
attorneys 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 and abuse of process claiming that attorneys fees, costs and other damages were due based on the outcome of the federal patent litigation suit described above. We do



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Ultratech, Inc.

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)

October 3, 2009



not believe this action has merit, particularly given the denial by the federal court of that companys request to be awarded attorneys fees payable by us in the patent litigation and
the subsequent federal appellate courts affirmation of the order denying any such award. We filed a motion to have the state court complaint 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 are brought in order to quash an individuals constitutional rights to free speech or seeking redress of grievances (i.e., filing suit).
The state court granted the anti-SLAPP motion as to the abuse of process claim, but denied it as to the malicious prosecution claim. Our subsequent appeals to the appellate court and California Supreme Court were unsuccessful, and the matter has
returned to Riverside County Superior Court. We have moved to have the matter dismissed on summary judgment, but the hearing thereon has been continued to December 3, 2009.

(17) Subsequent Events

Stock Option Exchange Program

In September 2009, we filed a Tender Offer Statement on Schedule TO with the SEC relating to a one-time stock option exchange program pursuant
to which we offered certain employees the opportunity to exchange certain options to purchase up to an aggregate of 1,744,056 shares of our common stock, whether vested or unvested, that were granted under our equity incentive plans and have a per
share exercise price equal to or greater than $13.50, as described in the Offer to Exchange Certain Outstanding Stock Options (Offer Circular). These eligible options could be exchanged for Restricted Stock Units (RSUs) upon
the terms and subject to the conditions set forth in the Offer Circular. Our executive officers and members of the board of directors were not eligible to participate in this option exchange program.

This option exchange program permitted eligible option holders to exchange eligible options for a lesser number of RSUs based primarily on the average stock
trading price on September 15, 2009, the last trading day before the commencement of this stock option exchange program. The new RSUs have a vesting term of one year. The stock option exchange program expired in October 2009. We will recognize
the related expenses over the vesting term of the new RSUs issued commencing in the fourth quarter of fiscal 2009.

Lease Extension

In October 2009, we entered into two lease amendments for our facilities in San Jose, California. The
first lease amendment is to extend one of the building leases for five years. This lease extension will expire in January 2016. We account for this lease as an operating lease; any improvements to the leased property are capitalized and classified
as leasehold improvements. Pursuant to the terms of the second lease amendment, in consideration for the waiver of certain surrender obligations set forth in the original lease of a separate building, we shall pay the landlord $0.6 million and
surrender possession of the premises by the lease expiration date in March 2010.



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|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 generally be identified by words such as anticipates,
expects, intends, will, could, believes, estimates, continues, and similar expressions, are forward-looking statements under Section 27A of the Securities Act
of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), that involve risks and uncertainties, such as risks related to timing, delays, deferrals
and cancellations of orders by customers, including as a result of semiconductor manufacturing capacity as well as our customers financial condition and demand for semiconductors; cyclicality in the semiconductor and nanotechnology industries;
general economic and financial market conditions including impact on capital spending, as well as difficulty in predicting changes in such conditions; rapid technological change and the importance of timely product introductions; customer
concentration; our dependence on new product introductions and market acceptance of new products and enhanced versions of our existing products; lengthy sales cycles, including the timing of system installations and acceptances; lengthy and costly
development cycles for laser-processing and lithography technologies and applications; integration, development and associated expenses of the laser processing operation; pricing pressures and product discounts; high degree of industry competition;
intellectual property matters; changes in pricing by us, our competitors or suppliers; 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 of supply; effect of capital market fluctuations on our investment portfolio; ability and resulting costs to attract or retain sufficient personnel to achieve our targets for a particular period; dilutive effect of employee
stock option grants on net income per share, which is largely dependent upon our achieving and maintaining profitability and the market price of our stock; mix of products sold; outcome of litigation; manufacturing variances and production levels;
timing and degree of success of technologies licensed to outside parties; product concentration and lack of product revenue diversification; inventory obsolescence; asset impairment; changes to financial accounting standards; effects of certain
anti-takeover provisions; future acquisitions; volatility of stock price; foreign government regulations and restrictions; business interruptions due to natural disasters or utility failures; environmental regulations; and any adverse effects of the
H1N1 influenza pandemic or terrorist attacks in the United States or elsewhere, 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 necessarily indicative of the results of operations for any future period. These forward-looking statements are based on managements
current beliefs and expectations, some or all of which may prove to be inaccurate, and which may change. We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after the date
of this report.

OVERVIEW

We
develop, manufacture and market photolithography and laser thermal processing equipment for manufacturers of integrated circuits and nanotechnology components located throughout North America, Europe, Japan, Taiwan and the rest of Asia.

We supply step-and-repeat photolithography systems based on one-to-one imaging technology. Within the integrated circuits industry, we target the market
for advanced packaging applications. Within the 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
processing equipment 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 of newly manufactured systems, which
typically range in price from $1.2 million to $6.0 million. As a result of these high sale prices, the timing and recognition of revenue from a single transaction has had and most likely will continue to have a significant impact on our
net sales and operating results for any particular period.

Our backlog at the beginning of a period typically does not include all of the
sales needed to achieve our sales objectives for that period. In addition, orders in backlog are subject to cancellation, shipment or customer acceptance delays, and deferral or rescheduling by a customer with limited or no penalties. Consequently,
our net sales and operating results for a period have been and will continue to be dependent upon our obtaining orders for systems to be shipped and accepted in the same period in which the order is received. Our business and financial results for a
particular period could be materially adversely affected if an anticipated order for even one system is not received in time to permit shipment and customer acceptance during that period. Furthermore, a substantial portion of our shipments has
historically occurred near the end of each quarter. Delays in installation and customer acceptance due, for example, to our inability to successfully demonstrate the agreed-upon specifications or criteria at the customers facility, or to the
failure of the customer to permit installation of the system in the agreed upon time, may cause net sales in a particular period to fall significantly below our expectations, which may materially adversely affect our operating results for that
period. This risk is especially applicable in connection with the introduction and initial sales of a new product line. Additionally, the failure to receive anticipated orders or delays in shipments due, for example, to rescheduling, delays,
deferrals or cancellations by customers, additional customer configuration requirements, or to unexpected manufacturing difficulties or delays in deliveries by suppliers due to their long



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production lead times or otherwise, have caused and may continue to cause net sales in a particular period to fall significantly below our expectations, materially adversely affecting our
operating results for that period. In particular, the long manufacturing and acceptance cycles of our advanced packaging family of wafer steppers and laser thermal processing systems and the long lead time for lenses and other materials, could cause
shipments and acceptances of such products to be delayed from one quarter to the next, which could materially adversely affect our financial condition and results of operations for a particular quarter.

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

Net Sales

Third Quarter



|                                   |  |                    |        |                   |   |        |                  |   |        |   |  |       |   
|---------------------------------- |  | ------------------ | ------ | ----------------- | - | ------ | ---------------- | - | ------ | - |  | ----- | --
|                                   |  | Three Months Ended |        | Amount ofChange   |   |        | PercentageChange |  
|(In thousands, except percentages) |  | October 3,2009     |        | September 27,2008 |   |       
|Sales of:                          |  |                    |        |                   |   |        |                  |   |        |   |  |       |   
|Products                           |  | $                  | 21,050 |                   | $ | 30,114 |                  | $ | (9,064 | ) |  | (30.1 | )%
|Services                           |  |                    | 3,889  |                   |   | 4,322  |                  |   | (433   | ) |  | (10.0 | )%
|Licenses                           |  |                    |       |                   |   |       |                  |   |       |   |  |      |   
|                                   |  |                    |        |                   |   |        |                  |   |        |   |  |       |   
|Total net sales                    |  | $                  | 24,939 |                   | $ | 34,436 |                  | $ | (9,497 | ) |  | (27.6 | )%
|                                   |  |                    |        |                   |   |        |                  |   |        |   |  |       |   

Net sales consist of revenues from products (system and spare parts sales), services and licensing of
technologies. Product sales decreased 30.1% to $21.1 million for the quarter ended October 3, 2009, compared to $30.1 million in the corresponding quarter of 2008, primarily due to a decrease in system unit volume resulting from the
continuing weakening of global financial and economic conditions.

On a product market application basis, system sales to the semiconductor
industry, consisting of sales to the advanced packaging market, the laser processing applications market and the semiconductor market, decreased $6.5 million to $18.1 million for the quarter ended October 3, 2009, compared to $24.6 million in
the corresponding quarter of 2008. This decrease was primarily due to a decrease in sales to the laser processing market of $6.4 million.

There were no system sales to the nanotechnology market for the quarter ended October 3, 2009 as compared to $2.9 million in the corresponding quarter of 2008. System sales to the nanotechnology 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, and therefore we expect to experience significant variations in sales to this market from quarter to quarter.

Revenues from services for the quarter ended October 3, 2009 decreased by $0.4 million to $3.9 million, as compared with $4.3
million in the corresponding quarter of 2008. This decrease is primarily due to fewer new service contracts that were recognized as revenue in the quarter as compared to the corresponding quarter of 2008.

There was no revenue from licensing activities for each of the quarters ended October 3, 2009 and September 27, 2008. This is primarily due to the
timing and frequency of the resale of our tools by our existing customers to third parties. Pursuant to our license arrangements, such transactions are subject to a license fee based on units sold. Future revenues from licensing activities, if any,
will be contingent upon existing and future licensing arrangements. We may not be successful in generating licensing revenues in the future and do not anticipate the recognition of significant levels of licensing income during the remainder of 2009.

At October 3, 2009, we had approximately $2.5 million of deferred product and services income compared to $4.3 million at
December 31, 2008. The gross amount of deferred revenues at October 3, 2009 was $2.5 million as compared to $5.3 million at December 31, 2008. The gross amount of deferred costs at October 3, 2009 was immaterial as compared to
$1.0 million at December 31, 2008. Deferred product income is recognized as revenue upon satisfying the contractual obligations for installation and/or customer acceptance. Deferred services income is recognized as revenue ratably over the
contract period (for time-based service contracts), or as purchased services are rendered (for contracts based on a purchased quantity of hours).

For the quarter ended October 3, 2009, international net sales were $21.7 million, or 86.8% of total net sales, compared with $28.8 million, or 83.5% of total net sales for the corresponding quarter of 2008. For the quarter ended
October 3, 2009 compared to the corresponding quarter of 2008, sales to Europe decreased by $7.4 million, sales to Japan increased by $0.1 million, sales to Taiwan



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increased by $3.0 million and sales to the rest of Asia decreased by $2.6 million. We expect sales to international customers will continue to represent a significant portion of our revenues
during the remainder of 2009 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 significant exchange rate fluctuations, principally because sales contracts for our systems are generally denominated 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 entering into foreign currency forward exchange contracts for the period between when an order is received and when it is recorded as revenue.
After recording revenue, we use various mechanisms, such as natural hedges, to offset substantial portions of the gains or losses associated with our Japanese yen denominated receivables due to exchange rate fluctuations. We had approximately
¥49.1 million of Japanese yen denominated receivables at October 3, 2009. International sales expose us to a number of additional risks, including fluctuations in the value of local currencies relative to the U.S. dollar, which impact
the relative cost of ownership of our products and, thus, the customers willingness to purchase our product. (See Part II, Item 1A, Risk Factors herein).

Year-To-Date



|                                   |  |                   |        |                   |   |        |                  |   |         |   |  |       |   
|---------------------------------- |  | ----------------- | ------ | ----------------- | - | ------ | ---------------- | - | ------- | - |  | ----- | --
|                                   |  | Nine Months Ended |        | Amount ofChange   |   |        | PercentageChange |  
|(In thousands, except percentages) |  | October 3,2009    |        | September 27,2008 |   |       
|Sales of:                          |  |                   |        |                   |   |        |                  |   |         |   |  |       |   
|Products                           |  | $                 | 58,177 |                   | $ | 84,317 |                  | $ | (26,140 | ) |  | (31.0 | )%
|Services                           |  |                   | 10,931 |                   |   | 12,917 |                  |   | (1,986  | ) |  | (15.4 | )%
|Licenses                           |  |                   | 82     |                   |   | 400    |                  |   | (318    | ) |  | (79.5 | )%
|                                   |  |                   |        |                   |   |        |                  |   |         |   |  |       |   
|Total net sales                    |  | $                 | 69,190 |                   | $ | 97,634 |                  | $ | (28,444 | ) |  | (29.1 | )%
|                                   |  |                   |        |                   |   |        |                  |   |         |   |  |       |   

Product sales decreased 31.0% to $58.2 million for the nine months ended October 3, 2009 as
compared to the same period in 2008. This decrease was primarily attributable to a change in product mix, decrease in system unit volume and lower average selling prices of systems sold resulting from the continuing weakening of global financial and
economic conditions.

On a market segment basis, in the nine months ended October 3, 2009, system sales to the semiconductor industry
decreased $25.0 million from the corresponding period of 2008. This decrease was due to lower sales to the advanced packaging market of $8.5 million and the laser processing market of $17.6 million, partially offset by an increase in sales to
the semiconductor market of $1.1 million. In the nine months ended October 3, 2009, system sales to the nanotechnology market decreased $0.4 million from the corresponding period of 2008.

Revenues from services in the nine months ended October 3, 2009 decreased 15.4% from the comparable period of 2008, primarily as a result of decreases
in the number of service contracts in effect during the period. Revenues from licensing activities decreased in the nine months ended October 3, 2009 as compared to the same period of 2008, primarily due to lower licensing revenue associated
with the resale of our tools by our existing customers to third parties.

For the nine months ended October 3, 2009, international net
sales were $45.2 million, or 65.3% of total net sales, as compared with $62.8 million, or 64.3% of total net sales, for the comparable period of 2008. For the nine months ended October 3, 2009, as compared to the same period of 2008, sales to
Europe decreased $13.4 million, sales to Japan decreased $5.2 million, sales to Taiwan increased $0.6 million and sales to the rest of Asia increased $0.5 million.

Gross Profit

On a comparative basis, gross margins increased to 50.4% for the three-month
period ended October 3, 2009, compared to 48.5% for the corresponding period of 2008. This 1.9 percentage point increase in gross margin was primarily due to a change in our product mix (3.0 percentage points) and lower warranty and
installation costs (2.9 percentage points), partially offset by higher service cost due to lower utilization (4.0 percentage points).

Gross margin for the nine months ended October 3, 2009 decreased to 46.4% compared to 48.4% in the corresponding period of 2008. This 2.0 percentage point decrease in gross margin was primarily due to higher service cost due to
lower utilization (4.8 percentage points) and severance and benefit charges recorded during the first quarter of 2009 (0.2 percentage points), partially offset by lower warranty and installation costs (2.6 percentage points) and a change
in our product mix (0.4 percentage points).



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

Operating Expenses

Third Quarter



|                                       |  |                    |        |                   |   |        |                  |   |        |   |  |       |   
|-------------------------------------- |  | ------------------ | ------ | ----------------- | - | ------ | ---------------- | - | ------ | - |  | ----- | --
|                                       |  | Three Months Ended |        | Amount ofChange   |   |        | PercentageChange |  
|(In thousands, except percentages)     |  | October 3,2009     |        | September 27,2008 |   |       
|Research, development, and engineering |  | $                  | 4,573  |                   | $ | 5,811  |                  | $ | (1,238 | ) |  | (21.3 | )%
|Selling, general, and administrative   |  |                    | 7,262  |                   |   | 8,047  |                  |   | (785   | ) |  | (9.8  | )%
|                                       |  |                    |        |                   |   |        |                  |   |        |   |  |       |   
|Total operating expenses               |  | $                  | 11,835 |                   | $ | 13,858 |                  | $ | (2,023 | ) |  | (14.6 | )%
|                                       |  |                    |        |                   |   |        |                  |   |        |   |  |       |   

Research, development and engineering expenses for the quarter ended October 3, 2009 were
$4.6 million, as compared to $5.8 million for the corresponding period in 2008. This decrease was primarily attributable to lower salary and related expenses of $0.9 million resulting from workforce reduction and lower travel expenses and
outside services of $0.2 million. As a percentage of net sales, research, development and engineering expenses for the quarter ended October 3, 2009 increased to 18.3% from 16.9% for the corresponding quarter of 2008. This increase was due
primarily to the decrease in net sales as compared to the corresponding quarter of 2008 discussed above.

Selling, general, and administrative
expenses for the quarter ended October 3, 2009 were $7.3 million as compared to $8.0 million for the corresponding quarter of 2008. This decrease was primarily attributable to lower salary and related expenses of $0.9 million. As a
percentage of net sales, selling, general and administrative expenses for the quarter ended October 3, 2009 increased to 29.1% from 23.4% for the corresponding quarter of 2008. This increase was due primarily to the decrease in net sales as
compared to the corresponding quarter of 2008 discussed above.

Year-To-Date



|                                       |  |                   |        |                   |   |        |                  |   |        |   |  |       |   
|-------------------------------------- |  | ----------------- | ------ | ----------------- | - | ------ | ---------------- | - | ------ | - |  | ----- | --
|                                       |  | Nine Months Ended |        | Amount ofChange   |   |        | PercentageChange |  
|(In thousands, except percentages)     |  | October 3,2009    |        | September 27,2008 |   |       
|Research, development, and engineering |  | $                 | 14,208 |                   | $ | 17,594 |                  | $ | (3,386 | ) |  | (19.2 | )%
|Selling, general, and administrative   |  |                   | 20,186 |                   |   | 24,207 |                  |   | (4,021 | ) |  | (16.6 | )%
|                                       |  |                   |        |                   |   |        |                  |   |        |   |  |       |   
|Total operating expenses               |  | $                 | 34,394 |                   | $ | 41,801 |                  | $ | (7,407 | ) |  | (17.7 | )%
|                                       |  |                   |        |                   |   |        |                  |   |        |   |  |       |   

Research, development and engineering expenses were $14.2 million for the nine months ended
October 3, 2009 as compared to $17.6 million for the corresponding period in 2008. This decrease was primarily due to workforce reduction and our continuing effort to manage company-wide expenses discussed above. As a percentage of net sales,
research, development and engineering expenses for the nine-month period ended October 3, 2009 increased to 20.5% from 18.0% for the corresponding period of 2008. This increase was due primarily to the decrease in net sales as compared to the
corresponding quarter of 2008 discussed above.

Selling, general and administrative expenses were $20.2 million for the nine months ended
October 3, 2009 as compared with $24.2 million for the corresponding period in 2008. This decrease was primarily due to workforce reduction and our continuing effort to manage company-wide expenses discussed above. As a percentage of net sales,
selling, general and administrative expenses for the nine-month period ended October 3, 2009 increased to 29.2% from 24.8% for the corresponding period of 2008. This increase was due primarily to the decrease in net sales as compared to the
corresponding quarter of 2008 discussed above.

Interest and Other Income, Net

Interest and other income, net, which consists primarily of interest income, was $0.3 million for the three months ended October 3, 2009, as compared
with $0.5 million for the comparable period of 2008.



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For the nine months ended October 3, 2009, interest and other income, net, which consists primarily of
the recognition of a foreign consumption tax incentive and interest income, was $2.7 million as compared to $2.8 million in the comparable period of 2008. This slight decrease was primarily attributable to the recognition of a foreign consumption
tax incentive totaling $2.2 million during the nine months ended October 3, 2009, partially offset by a decline in interest income earned by our cash and investment positions of $1.8 million and an increase in loss from foreign currency
exchange of $0.3 million.

The foreign consumption tax incentive related to a benefit we received in fiscal years 2004 and 2005 and was
previously reserved due to uncertainties as to the ultimate realization of the incentive. We have determined that those uncertainties have been sufficiently reduced to allow recognition of the benefit. We do not expect to recognize any additional
benefit with respect to this tax incentive. The loss from foreign currency exchange was a result of depreciation of Japanese yen. The lower interest income earned resulted from lower applicable interest rates. The cost of securities sold was
determined based on the specific identification method. As of October 3, 2009, the weighted-average maturity of our investment portfolio was less than a year. Changes in interest rates have had, and will continue to have, an impact on our
interest income.

Provision (benefit) for Income Taxes

For the three- and nine-month periods ended October 3, 2009, we recorded an income tax benefit of $1,000 and $37,000, respectively, as compared to an income tax provision of $1,000 and $0.3 million
for the comparable periods in 2008. The income tax benefit recognized for the three- and nine-month periods ended October 3, 2009 resulted primarily from the federal refundable tax credit offset by foreign income taxes.

Income tax estimates can be affected by whether and within which jurisdictions future earnings will occur and how and when cash is repatriated to the United
States, as well as other aspects of an overall income tax strategy. Additionally, taxing jurisdictions could retroactively disagree with our tax treatment of certain items, and some historical transactions have income tax effects going forward.
Accounting rules require these future effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an unpredictable manner. We believe we have adequately provided for any reasonably foreseeable
outcome related to these matters, and we do not anticipate any material earnings impact from their ultimate resolution.

Each quarter we
assess the likelihood that we will be able to recover our deferred tax assets. We consider available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. As a result of our analysis, we concluded that it is more likely than not that our net deferred tax assets will not be realized, with
the exception of those in Japan and Taiwan. Therefore, we continue to provide a full valuation allowance against net deferred tax assets outside of Japan and Taiwan. We closely monitor available evidence, and may release some or all of the valuation
allowance in future periods.

In accordance with ASC 740 we had unrecognized tax benefits of $3.4 million as of January 1, 2009. We
continue to recognize interest and penalties as a component of income tax provision and accrued $34,000 for these items as of January 1, 2009.

If we are able to eventually recognize these uncertain tax positions, $3.0 million of the unrecognized benefit would reduce our effective tax rate. We currently have a full valuation allowance against our U.S. net deferred tax asset which
would impact the timing of the effective tax 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 our uncertain 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 also subject to audits in the foreign jurisdictions in which we operate for years 2001 and forward. There are no tax examinations currently in
progress.

Outlook

The
anticipated timing of orders, shipments and customer acceptances usually requires that we fill a number of production slots in any given quarter in order to meet our sales targets. If we are unsuccessful in our efforts to secure those production
orders, or if existing production orders are delayed or cancelled, our results of operations will be materially adversely impacted. Accordingly, we may not be able to achieve or maintain our current or prior level of sales. We presently expect net
sales for the fourth quarter of 2009 to be higher than the net sales reported in the third quarter of 2009. For the full fiscal year of 2009, we believe that total net sales will decrease from the amount reported for 2008.

Because our net sales are subject to a number of risks, including risks associated with the market acceptance of our new laser processing product line,
delays in customer acceptance, intense competition in the capital equipment industry, uncertainty relating to



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the timing and market acceptance of our products, and the condition of the macro-economy and the semiconductor industry and the other risks described in this report and in our Annual Report on
Form 10-K for the year ended December 31, 2008, we may not exceed or even maintain our current or prior level of net sales for any period in the future. Additionally, we believe that the market acceptance and volume production of our advanced
packaging systems, laser processing systems and our 1000 Platform steppers are of critical importance to our future financial results. At October 3, 2009, these critical systems represented approximately 86.6% of our backlog. To the extent that
these products do not achieve or maintain significant sales due to difficulties involving manufacturing or engineering, the inability to reduce the current long manufacturing cycles for these products, competition, excess capacity in the
semiconductor or nanotechnology device industries, or for any other reason, our business, financial condition and results of operations would be materially adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was
$7.4 million for the nine months ended October 3, 2009, compared with net cash provided by operating activities of $19.8 million for the comparable period in 2008. Net cash used in operating activities during the three months ended
October 3, 2009 was primarily attributable to the increase in trade receivables, the decreases in accounts payable, deferred product and service income, and other current liabilities. The decrease in deferred product and services income was
primarily due to reduced system shipments and acceptance resulting in fewer systems deferred at October 3, 2009. These uses of cash were partially offset by our net income generated during the nine months ended October 3, 2009 and the net
effect of non-cash expenses from depreciation, amortization and stock-based compensation charges. Other sources of cash from operating activities included decreases in inventories, prepaid expenses and other current assets.

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

During the
first nine months ended October 3, 2009, net cash used in investing activities was $10.0 million, attributable to net purchase of short-term investments of $7.0 million and capital expenditures of $3.0 million during the nine months
ended October 3, 2009.

Net cash provided by financing activities was $3.9 million during the nine months ended October 3,
2009, attributable to net proceeds of $4.0 million under our notes payable and proceeds of $0.4 million from the issuance of common stock offset partially by tax payments of $0.5 million for the issuance of common stock from the release of
restricted stock units under our employee stock option plans.

At October 3, 2009, we had working capital of $186.6 million. Our
principal sources of liquidity at October 3, 2009 consisted of $141.6 million in cash, cash equivalents and short-term investments, net of outstanding borrowings under our line of credit. We have a line of credit agreement with a brokerage
firm. Under the terms of this agreement, we may borrow funds at a cost equal to the current Federal funds open rate plus 125 basis points (approximately 1.37% as of October 3, 2009). Certain of our cash, cash equivalents and marketable
securities secure borrowings outstanding under this facility, but we are not restricted in the use of those assets. Funds are advanced to us under this facility in accordance with pre-determined advance rates based on the cash and securities held by
us in this brokerage account. This agreement has no set expiration date and there are no loan covenants other than a collateral requirement. As of October 3, 2009, $10.0 million was outstanding under this facility, with a related collateral
requirement of approximately $13.3 million of our cash, cash equivalents and short-term investments.

The development and manufacture of new
lithography and laser-based systems and system enhancements is highly capital-intensive. In order to be competitive, we believe we must continue to make significant expenditures for capital equipment; sales, service, training and support
capabilities; systems, procedures and controls; and expansion of operations and research and development, among many other items. We expect that cash generated from operations and our cash, cash equivalents and short-term investments



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will be sufficient to meet our cash requirements for at least the next twelve months. However, in the near-term, we may continue to utilize existing and future lines of credit, and other sources
of financing, in order to maintain our present levels of cash, cash equivalents and investments. Beyond the next twelve months, we may require additional equity or debt financing to address our working capital or capital equipment needs. In
addition, we may seek to raise equity or debt capital at any time that we deem market conditions to be favorable. Additional financing, if needed, may not be available on reasonable terms, or at all.

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

Foreign Currency

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

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going
basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and
estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Information Available on
Company Website

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



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2008 and to
the subheading Derivative Instruments and Hedging under the heading Notes to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data of our Annual Report on Form 10-K for the
year ended December 31, 2008.

Interest Rate Risk

Our exposure to market risk due to potential changes in interest rates relates primarily to our investment portfolio, which consisted primarily of fixed interest rate instruments as of October 3,
2009. We maintain an investment policy designed to ensure the safety and preservation of our invested funds by limiting market risk and the risk of default.



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

Credit Risk

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

As of October 3, 2009, we did not have any investments in mortgage backed or auction rate securities or any security investments in the financial
service sector. However, we intend to closely monitor developments in the credit markets and make appropriate changes to our investment policy as we deem necessary or advisable. Based on our ability to liquidate our investment portfolio and our
expected operating cash flows, we do not anticipate any liquidity constraints as a result of the current credit environment.

Foreign
Currency Risk Management

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

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



|Item 4. | Controls and Procedures
|------- | -----------------------

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

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

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended October 3, 2009 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.



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PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

On July 11, 2003,
we filed a lawsuit against a Southern California company asserting infringement of certain claims related to U.S. patent No. 5,621,813 in the U.S. District Court in and for the Northern 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 its attorneys fees and costs in a total asserted amount of approximately $2 million. We opposed this
motion, 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 defendant filed a notice of appeal with
respect to the courts ruling on its motion for attorneys fees. In March 2006, the Federal Circuit court upheld the district courts ruling that the subject patent is invalid. On August 8, 2006, the Federal Circuit court
upheld the District Courts denial of attorneys 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 and abuse of process claiming that attorneys fees, costs and other damages were due based on the outcome of the federal patent
litigation suit described above. We do not believe this action has merit, particularly given the denial by the federal court of that companys request to be awarded attorneys fees payable by us in the patent litigation and the subsequent
federal appellate courts affirmation of the order denying any such award. We filed a motion to have the state court complaint dismissed under Californias anti-strategic lawsuit against public participation, or anti-SLAPP, and demurrer
statutes. The anti-SLAPP statute is aimed at striking lawsuits that are brought in order to quash an individuals constitutional rights to free speech or seeking redress of grievances (i.e., filing suit). The state court granted the anti-SLAPP
motion as to the abuse of process claim, but denied it as to the malicious prosecution claim. Our subsequent appeals to the appellate court and California Supreme Court were unsuccessful, and the matter has returned to Riverside County Superior
Court. We have moved to have the matter dismissed on summary judgment, but the hearing thereon has been continued to December 3, 2009.



|Item 1A. | Risk Factors
|-------- | ------------

In addition to risks
described in the foregoing discussions, the following risks apply to our business and us:

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

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.

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



| |  |  | competitive pressures, including pricing pressures, from companies that have competing products;
| | - |  | ------------------------------------------------------------------------------------------------



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| |  |  | changes in customer product needs; and
| | - |  | --------------------------------------



| |  |  | strategic actions taken by our competitors.
| | - |  | -------------------------------------------

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

Our business depends in significant part upon capital expenditures by
manufacturers of semiconductors, advanced packaging semiconductors and nanotechnology components which in turn depend upon the current and anticipated market demand for such devices and products utilizing such devices. The semiconductor industry
historically has been highly cyclical and has experienced recurring periods of oversupply. This has, from time to time, resulted in significantly reduced demand for capital equipment including the systems manufactured and marketed by us. We believe
that markets for new generations of semiconductors and semiconductor packaging will also be subject to similar fluctuations. Our business and operating results would be materially adversely affected by downturns or slowdowns in the semiconductor
packaging market or by loss of market share. Accordingly, we may not be able to achieve or maintain our current or prior level of sales. We attempt to mitigate the risk of cyclicality by participating in multiple markets including semiconductor,
semiconductor packaging, and nanotechnology sectors, as well as diversifying into new markets such as laser-based annealing for implant activation and other applications. Despite such efforts, when one or more of such markets experiences a downturn
or a situation of excess capacity, our net sales and operating results are materially adversely affected.

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.

Currently, we are devoting significant resources to the development, introduction and commercialization of our laser products as well as our lithography
wafer steppers. We intend to continue to develop these products and technologies during 2009, and will continue to incur significant operating expenses in the areas of research, development and engineering, manufacturing and general and
administrative costs in order to develop, produce and support these new products. Additionally, gross profit margins and inventory levels may be further adversely impacted in the future by costs associated with the initial production of our laser
processing systems and by future generations of our 1X lithography systems. Introduction of new products generally involves higher installation costs and product performance uncertainties that could delay customer acceptance of our systems,
resulting in a delay in recognizing revenue associated with those systems and a reduction in gross margins. These costs include, but are not limited to, additional manufacturing overhead, additional inventory write-downs, costs of demonstration
systems and facilities and costs associated with the establishment of additional after-sales support organizations. Additionally, operating expenses may increase, relative to sales, as a result of adding additional marketing and administrative
personnel, among other costs, to support our new products. If we are unable to achieve significantly increased net sales or if our sales fall below expectations, our operating results could be materially adversely affected.

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

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

The capital equipment industry in which we operate is
intensely competitive. A substantial investment is required to install and integrate capital equipment into a semiconductor, semiconductor packaging or nanotechnology device production line. We believe that once a device manufacturer or packaging
subcontractor has selected a particular suppliers capital equipment, the manufacturer generally relies upon that equipment for the specific production line application and, to the extent possible, subsequent generations of similar products.
Accordingly, it is difficult to achieve significant sales to a particular customer once another suppliers capital equipment has been selected.

We experience competition in advanced packaging from various proximity aligner companies such as Suss Microtec AG (Suss Microtec) and used projection systems. 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 Suss Microtec, as well as other stepper manufacturers who have developed or are developing tools specifically designed
for nanotechnology applications. We expect our competitors in the lithography arena to continue to improve the performance of their current products and



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to introduce new products with improved price and performance characteristics. This could cause a decline in sales or loss of market acceptance of our steppers in our served markets, and thereby
materially adversely affect our business, financial condition and results of operations. Enhancements to, or future generations of, competing products may be developed that offer superior cost of ownership and technical performance features.

With respect to our laser annealing technologies, marketed under the LSA100A product name, the primary competition comes from companies such
as Dainippon Screen Manufacturing Co., Ltd., Applied Materials, Inc. and Mattson Technology, Inc. Many of these companies offer products utilizing rapid thermal processing (RTP) which is the current prevailing manufacturing technology.
RTP does not prevent semiconductor device manufacturers from scaling the lateral dimensions of their transistors to obtain improved performance, but diffusion resulting from the time scales associated with RTP limits the vertical dimension of the
junctions. Faster annealing times result in shallower and more abrupt junctions and faster transistors. We believe that RTP manufacturers recognize the need to reduce thermal cycle times and are working toward this goal. In July 2000, we
licensed certain rights to our then existing laser processing technology, with reservations, to a competing manufacturer of semiconductor equipment.

Another potential advanced annealing solution utilizes flash lamp annealing technology, or FLA. Several companies have published papers on annealing tools that incorporate flash lamp technology in order to reduce annealing times and
increase anneal temperatures. Developers of FLA technology claim to have overcome annealing difficulties at the 65nm node. This technique, which employs xenon flash lamps, has shown improvements over RTP in junction depth and sheet resistance, but
we believe FLA suffers from pattern-related non-uniformities and could require additional, costly processes to equalize the reflectivity of different areas within the chip or wafer. Our proprietary laser processing solution has been specifically
developed to provide junction annealing on near-instantaneous time-scales, while achieving high activation levels. Laser spike annealing, our first implementation of laser processing, activates dopants in the microsecond-to-millisecond time frame
without melting. Our research indicates that, at temperatures just below the melting point of silicon, time durations in the microsecond to millisecond range are required to achieve full activation and minimal dopant diffusion.

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

We believe that in order to be competitive, we will need to continue to invest significant financial resources in new product development, new features and enhancements to existing products, the
introduction of new stepper systems in our served markets on a timely basis, and maintaining customer service and support centers worldwide. In marketing our products, we may also face competition from vendors employing other technologies. In
addition, increased competitive pressure has led to intensified price-based competition in certain of our markets, resulting in lower prices and margins. Should these competitive trends continue, our business, financial condition and operating
results may be materially adversely affected.

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

Historically, we have sold a substantial portion of our systems to a limited number of customers. In the three- and nine-month periods ended October 3,
2009, our top five customers accounted for 100% and 76.4% of our system sales compared to 88.7% and 58.5%, in the comparable period of 2008. We expect that sales to a relatively few customers will continue to account for a high percentage of our net
sales in the foreseeable future and believe that our financial results depend in significant part upon the success of these major customers and our ability to meet their future capital equipment needs. Although the composition of the group
comprising our largest customers may vary from period to period, the loss of a significant customer or any reduction in orders by a significant customer, including reductions due to market, economic or competitive conditions in the semiconductor,
semiconductor packaging or nanotechnology industries or in the industries that manufacture products utilizing integrated circuits, thin film heads or other nanotechnology components, would likely have a material adverse effect on our business,
financial condition and results of operations. Our ability to maintain or increase our sales in the future depends, in part, on our ability to obtain orders from new customers as well as the financial condition and success of our existing customers,
the semiconductor and nanotechnology industries and the economy in general.

In addition to the business risks associated with dependence on a
few major customers, these significant customer concentrations have in the past resulted in significant concentrations of accounts receivable. These significant and concentrated receivables expose us to additional risks, including the risk of
default by one or more customers representing a significant portion of our total receivables. If we were required to take additional accounts receivable reserves, our business, financial condition and results of operations would be materially
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On a market application basis, sales to the semiconductor industry, primarily for advanced packaging
applications and laser thermal processing applications, accounted for all of our system revenue for the three months ended October 3, 2009, as compared to 89.4% for the comparable period in 2008. We did not have any sales to nanotechnology
manufacturers, including micro systems, thin film head and optical device manufacturers, for the three months ended October 3, 2009, as compared to 10.6% for the comparable period in 2008. For the nine months ended October 3, 2009, sales
to the semiconductor industry accounted for 91.7% of system revenue, as compared to 94.0% for the corresponding period in 2008, while sales to nanotechnology manufacturers accounted for the remainder of our systems revenue for the nine months ended
October 3, 2009. Our future operating results and financial condition would be materially adversely impacted by a downturn in any of these industries, or by loss of market share in any of these industries. A growing portion of our backlog of
system orders is comprised of laser spike annealing tools. To date, we have limited customer experience with this technology. Should significant demand not materialize, due to technical, production, market, or other factors, our business, financial
position and results of operations would be materially adversely impacted.

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

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

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

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

The semiconductor and nanotechnology manufacturing industries are subject to rapid technological change, evolving industry standards and new product
introductions and enhancements. Our ability to be competitive in these and other markets will depend, in part, upon our ability to develop new and enhanced systems and related applications, and to introduce these systems and related applications at
competitive prices and on a timely and cost-effective basis to enable customers to integrate them into their operations either prior to or as they begin volume product manufacturing. We will also be required to enhance the performance of our
existing systems and related applications. Our success in developing new and enhanced systems and related applications depends upon a variety of factors, including product selection, timely and efficient completion of product design, timely and
efficient implementation of manufacturing and assembly processes, product performance in the field and effective sales and marketing. Because new product development commitments must be made well in advance of sales, new product decisions must
anticipate both future customer requirements and the technology that will be available to meet those requirements. We may not be successful in selecting, developing, manufacturing or marketing new products and related applications or enhancing our
existing products and related applications. Any such failure would materially adversely affect our business, financial condition and results of operations. Further, we may make substantial investments in new products before we know whether they are
technically feasible or commercially viable, and as a result may incur significant product development expenses that do not result in new products or revenues



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

We may encounter additional technical, manufacturing or other difficulties that could further delay future introductions or volume production
of systems or enhancements. Our inability to complete the development or meet the technical specifications of any of our systems or enhancements and related applications, or our inability to manufacture and ship these systems or enhancements and
related tools in volume and in time to meet the requirements for manufacturing the future generation of semiconductor or nanotechnology devices would materially adversely affect our business, financial condition and results of operations. In
addition, we may incur substantial unanticipated costs to ensure the functionality and reliability of our products early in the products life cycles. If new products have reliability or quality problems, reduced orders or higher manufacturing
costs, delays in customer acceptance, revenue recognition and collecting accounts receivable and additional service and warranty expenses may result. Any of such events may materially adversely affect our business, financial condition and results of
operations.

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

Although we attempt to protect our intellectual property rights through patents, copyrights, trade secrets and other measures, we believe that our success will depend more upon the innovation, technological expertise and marketing abilities
of our employees. Nevertheless, we have a policy of seeking patents when appropriate on inventions resulting from our ongoing research and development and manufacturing activities. We own 157 United States and foreign patents, which expire on dates
ranging from December 2009 to March 2027 and have 48 United States and foreign patent applications pending. In addition, we have various registered trademarks and copyright registrations covering mainly applications used in the operation of our
systems. We also rely upon trade secret protection for our confidential and proprietary information. We may not be able to protect our technology adequately and competitors may be able to develop similar technology independently. Our pending patent
applications may not be issued or U.S. or foreign intellectual property laws may not protect our intellectual property rights. In addition, litigation may be necessary to enforce our patents, copyrights or other intellectual property rights, to
protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation has resulted in, and in the future could result in, substantial costs and diversion of
resources and could have a material adverse effect on our business, financial condition and results of operations, regardless of the outcome of the litigation. Patents issued to us may be challenged, invalidated or circumvented and the rights
granted thereunder may not provide competitive advantages to us. Furthermore, others may independently develop similar technology or products, or, if patents are issued to us, design around the patents issued to us. Invalidation of our patents
related to those technologies, or the expiration of patents covering our key technologies, could allow our competitors to more effectively compete against us, which could result in less revenue for us.

On July 11, 2003, we filed a lawsuit against a Southern California company asserting infringement of certain claims related to U.S. patent
No. 5,621,813 in the U.S. District Court in and for the Northern 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 its attorneys fees and costs in a total asserted amount of approximately $2 million. We opposed this motion, 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 defendant filed a notice of appeal with respect to the courts ruling on its motion for attorneys fees. In March 2006, the Federal Circuit court upheld the
district courts ruling that the subject patent is invalid. On August 8, 2006, the Federal Circuit court upheld the District Courts denial of attorneys 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 and abuse of process claiming that
attorneys fees, costs and other damages were due based on the outcome of the federal patent litigation suit described above. We do not believe this action has merit, particularly given the denial by the federal court of that companys
request to be awarded attorneys fees payable by us in the patent litigation and the subsequent federal appellate courts affirmation of the order denying any such award. We filed a motion to have the state court complaint 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 are brought in order to quash an individuals constitutional rights
to free speech or seeking redress of grievances (i.e. filing suit). The state court granted the anti-SLAPP motion as to the abuse of process claim, but denied it as to the malicious prosecution claim. Our subsequent appeals to the appellate court
and California Supreme Court were unsuccessful, and the matter has returned to Riverside County Superior Court. We have moved to have the matter dismissed on summary judgment, but the hearing thereon has been continued to December 3, 2009.



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We believe that the outcome of these matters will not be material to our business, financial condition or
results of operations.

We have from time to time been notified of claims that we may be infringing intellectual property rights possessed by
third parties. We believe that the outcome of these matters will not be material to our business, results of operations or financial condition.

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

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.

International sales accounted for approximately 86.8% and 65.3% of total net sales for the three- and nine-month periods ended
October 3, 2009, compared to 83.5% and 64.3% in the comparable periods of 2008. We anticipate that international sales will continue to account for a significant portion of total net sales. As a result, a significant portion of our net sales
will continue to be subject to certain risks, including unexpected changes in regulatory requirements; difficulty in satisfying existing regulatory requirements; exchange rate fluctuations; tariffs and other barriers; political and economic
instability; difficulties in accounts receivable collections; reduced protection of intellectual property; natural disasters; difficulties in staffing and managing foreign subsidiary and branch operations; and potentially adverse tax consequences.

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

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

Public health issues, terrorist attacks in the United States and elsewhere, government responses thereto, and military actions in Iraq, Afghanistan and elsewhere, may disrupt our operations or those of
our customers and suppliers and may affect the availability of materials needed to manufacture our products or the means to transport those materials to manufacturing facilities and finished products to customers. In June 2009, the World Health
Organization declared H1N1 influenza, or swine flu, a pandemic. This pandemic could cause damage or disruption to international commerce by creating economic and political uncertainties that may have a significant negative impact on the global
economy, us and our customers or suppliers. Should the severity of the H1N1 influenza pandemic increase or other public health issues arise, we could be negatively impacted by the need for more stringent employee travel restrictions, additional
limitations in the availability of freight services, governmental actions limiting the movement of products between various regions and disruptions in the operations of our customers or suppliers. Any of the H1N1 influenza pandemic, terrorist
attacks, or the ongoing war on terrorism could increase volatility in the United States and world financial markets which may depress the price of our Common Stock and may limit the capital resources available to us or our customers or suppliers,
which could result in decreased orders from customers, less favorable financing terms from suppliers, and scarcity or increased costs of materials and components of our products. Additionally, terrorist attacks directly upon us may significantly
disrupt our ability to conduct our business. The long-term effects of the H1N1 influenza pandemic, terrorist attacks and the ongoing war on terrorism on our business and on the global economy remain unknown. Any of these occurrences could have a
significant impact on our operating results, revenues and costs and may result in increased volatility of the market price of our Common Stock.

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

Our cash equivalent and
short-term investment portfolio as of October 3, 2009 consisted of securities and obligations of U.S. government agencies, money market funds, commercial paper and corporate debt securities. We follow an established investment



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policy and set of guidelines to monitor, manage and limit our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer,
as well as our maximum exposure to various asset classes.

As a result of current financial market conditions, investments in some financial
instruments, such as structured investment vehicles, sub-prime mortgage-backed securities and collateralized debt obligations, may lose some or all of their value due to liquidity and credit concerns. As of October 3, 2009, we had no holdings
in these categories of investments and no impairment charge associated with our short-term investment portfolio. Although we believe our current investment portfolio has little risk of impairment, we cannot predict future market conditions or market
liquidity and our investment portfolio could become impaired.

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

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

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

We prepare our financial statements in conformity with accounting
principles generally accepted in the United States (U.S. GAAP). These principles are subject to interpretation by the Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants, the
Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions which
are completed before a change is announced.

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

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

Certain provisions of our Certificate of Incorporation, equity incentive plans, licensing agreements, Bylaws and Delaware law may discourage
certain transactions involving a change in control of our company. In addition to the foregoing, the shareholdings of our officers, directors and persons or entities that may be deemed affiliates, and the ability of the Board of Directors to issue
blank check preferred stock without further stockholder approval could have the effect of delaying, deferring or preventing us from experiencing a change in control and may adversely affect the voting and other rights of holders of our
Common Stock.

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

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

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

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

As of October 3, 2009, we had options and restricted stock units to purchase approximately 4.7 million shares of our Common Stock outstanding.
Among other determinants, the market price of our stock has a major bearing on the number of shares subject to outstanding stock options and restricted stock units that are included in the weighted-average shares used in determining our net income
per share. During periods of extreme volatility, the impact of higher stock prices can have a materially dilutive effect on our net income per share. Additionally, shares subject to outstanding options and restricted stock units are excluded from
the calculation of net income per share when we have a net loss or when the exercise price and the average unrecognized compensation cost of the stock option or restricted stock unit is greater than the average market price of our Common Stock, as
the impact of the stock options or restricted stock units would be anti-dilutive.

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

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

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, we have recorded certain expenses
related to work force reductions pursuant to the provisions of ASC Topic 420, Exit or Disposal Cost Obligations. Although we expect our cost cutting efforts to result in a decrease in expenses over the long-term, these accounting charges may
result in an increase in our short-term expenses. We may from time to time undertake additional expense reduction programs or actions, any of which could result in current period charges and expenses that could have a material adverse effect on that
periods operating results.

If earthquakes or other catastrophic events occur, our business may be harmed.

We perform all of our manufacturing activities in cleanroom environments in San Jose, California, an area known for seismic activity. Performing
manufacturing operations in California exposes us to a higher risk of natural disasters, including earthquakes. In addition, in the past California has experienced power shortages, which have interrupted our operations. Such shortages could occur in
the future. An earthquake, other natural disaster, power shortage or other similar events could interrupt or otherwise limit our operations resulting in product shipment delays, increased costs and other problems, any of which could have a material
adverse effect on our business, customer relationships and results of operations.



34



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##### Table of Contents

|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 Meeting of Stockholders held on July 21, 2009.



|1. | The following persons were elected as members of our Board of Directors to serve for a term ending upon the Annual Meeting of Stockholders indicated beside their
respective names and until their successors are elected and qualified.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                         |  |                                                  |  |            |  |               
|------------------------ |  | ------------------------------------------------ |  | ---------- |  | --------------
|                         |  | Terms Ending Upon theAnnual
StockholdersMeeting |  | Votes for  |  | Votes withheld
|Dennis R. Raney          |  | 2011                                             |  | 22,036,207 |  | 408,517       
|Henri Richard            |  | 2011                                             |  | 19,241,196 |  | 3,203,528     
|Vincent F. Sollitto, Jr. |  | 2011                                             |  | 20,783,865 |  | 1,660,859     

The other directors whose terms of office as a director continued after the 2009
Annual Meeting of Stockholders were Arthur W. Zafiropoulo, Joel F. Gemunder, Nicholas Konidaris and Rick Timmins.



|2. | A proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31,
2009 was approved by the vote of 21,459,677 shares for; 980,947 shares against; 4,100 shares abstained; and no broker non-votes.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | A proposal to approve an amendment to our Certificate of Incorporation to declassify the Companys Board of Directors as of the 2011 Annual Meeting of
Stockholders. This proposal was approved by the vote of 21,252,939 shares for; 1,167,559 shares against; 24,226 shares abstained; and no broker non-votes.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | A proposal to approve amendments to our 1993 Stock Option/Stock Issuance Plan to extend the expiration date of the plan and require stockholder approval of certain
option repricing programs. This proposal was not approved by the vote of 13,380,208 shares against; 6,486,427 shares for; 11,050 shares abstained; and 2,567,039 broker non-votes.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The proposals above are described in detail in our definitive proxy statement filed with the SEC on June 4, 2009 for the Annual Meeting of Stockholders
held on July 21, 2009.



|Item 5. | Other Information
|------- | -----------------

None.



35



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##### Table of Contents

|Item 6. | Exhibits
|------- | --------



|         |  |                                                                                                                                                                               
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(a)   |  | Amended and Restated Certificate of Incorporation of the Registrant, filed October 6, 1993.                                                                                   
|         | 
|3.1.1(a) |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed May 17, 1995.                                                         
|         | 
|3.1.2(a) |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed June 17, 1998.                                                        
|         | 
|3.1.3(a) |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed June 20, 2003.                                                        
|         | 
|3.1.4    |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed August 31, 2009.                                                      
|         | 
|3.2(b)   |  | Amended and Restated 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, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.



|(a) | Previously filed with our Quarterly Report on Form 10-Q for the quarter ended June 28, 2003 (Commission File No. 0-22248) and incorporated herein by
reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Previously filed with our Current Report on Form 8-K filed on October 20, 2008 (Commission File No. 0-22248) and incorporated herein by reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|* | Exhibit 32.1 is being furnished and shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act, or the Exchange Act, except as otherwise stated in such filing.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



|                       |  |  |  |                             |  |                                                                        
|---------------------- |  |  |  | --------------------------- |  | -----------------------------------------------------------------------
|                       |  |  |  | ULTRATECH, INC.(Registrant)
|                       |  |  | 
|Date: November 5, 2009 |  |  |  | By:                         |  | /s/    BRUCE
WRIGHT                                                    
|                       |  |  |  |                             |  | Bruce Wright                                                           
|                       |  |  |  |                             |  | Senior Vice President, Finance andChief Financial Officer              
|                       |  |  |  |                             |  | (Duly Authorized Officer and PrincipalFinancial and Accounting Officer)



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##### 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, filed May 17, 1995.                                                         
|         | 
|3.1.2(a) |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed June 17, 1998.                                                        
|         | 
|3.1.3(a) |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed June 20, 2003.                                                        
|         | 
|3.1.4    |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company, filed August 31, 2009.                                                      
|         | 
|3.2(b)   |  | Amended and Restated 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, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.



|(a) | Previously filed with our Quarterly Report on Form 10-Q for the quarter ended June 28, 2003 (Commission File No. 0-22248) and incorporated herein by
reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Previously filed with our Current Report on Form 8-K on October 20, 2008 (Commission File No. 0-22248) and incorporated herein by reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|* | Exhibit 32.1 is being furnished and shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act, or the Exchange Act, except as otherwise stated in such filing.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



38