<PAGE>



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)
[X]      Annual report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the Fiscal Year Ended DECEMBER 31, 1999 or

[ ]      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 0-21321

                                   CYMER, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              Nevada                                     33-0175463
-------------------------------                      -------------------
(State or other jurisdiction of                      (I.R.S. Employer
 incorporation or organization)                      Identification No.)


16750 Via Del Campo Court, San Diego, Ca                     92127
----------------------------------------                     -----
(Address of principal executive offices)                   (Zip Code)

Registrant's telephone number including area code: (858) 385-7300

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

<TABLE>
<CAPTION>

                                                    Name of each Exchange
    Title of each class                             on which registered
    -------------------                             -------------------
<S>                                                <C>
Common Stock, $.001 par value                      Nasdaq National Market
Preferred Share Purchase Rights                    Nasdaq National Market

</TABLE>


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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing price of $55 for shares of the
registrant's Common Stock on March 22, 2000 as reported on the Nasdaq
National Market, was approximately $1,529,853,875. In calculating such
aggregate market value, shares of Common Stock owned of record or
beneficially by officers, directors, and persons known to the registrant to
own more than five percent of the registrant's voting securities (other than
such persons of whom the Company became aware only through the filing of a
Schedule 13G filed with the Securities and Exchange Commission) were excluded
because such persons may be deemed to be affiliates. The registrant disclaims
the existence of control or any admission thereof for any other purpose.

Number of shares of Common Stock outstanding as of March 22, 2000:
28,968,828.

                       DOCUMENTS INCORPORATED BY REFERENCE
         The following documents are incorporated by reference in Parts I, II,
III and IV of this Annual Report on Form 10-K: portions of registrant's proxy
statement for its annual meeting of stockholders to be held on May 18, 2000
(Part III).


<PAGE>


                                                    CYMER, INC.

                                          1999 Annual Report on Form 10-K

                                                 TABLE OF CONTENTS
<TABLE>

<S>                                                                                                                 <C>
PART I...............................................................................................................1
         Item 1.  Business...........................................................................................1
         Item 2.  Properties.........................................................................................9
         Item 3.  Legal Proceedings..................................................................................9
         Item 4.  Submission of Matters to a Vote of Security-Holders...............................................10
PART II.............................................................................................................11
         Item 5.  Market for Registrant's Common Stock and Related Stockholder Matters..............................11
         Item 6.  Selected Financial Data...........................................................................11
         Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.............13
         Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................28
         Item 8.  Financial Statements and Supplementary Data.......................................................29
         Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............29

PART III............................................................................................................29
         Item 10. Directors and Executive Officers of the Registrant................................................29
         Item 11. Executive Compensation............................................................................29
         Item 12. Security Ownership of Certain Beneficial Owners and Management....................................29
         Item 13. Certain Relationships and Related Transactions....................................................29

PART IV.............................................................................................................30
         Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................30


</TABLE>








                 CYMER is a registered trademark of Cymer, Inc.





<PAGE>


         AN ASTERISK ("*") DENOTES A FORWARD-LOOKING STATEMENT REFLECTING
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND
STOCKHOLDERS OF CYMER, INC. (TOGETHER WITH ITS WHOLLY-OWNED AND MAJORITY-OWNED
SUBSIDIARIES COLLECTIVELY "CYMER") SHOULD CAREFULLY REVIEW THE CAUTIONARY
STATEMENTS SET FORTH IN THIS FORM 10-K, INCLUDING "RISK FACTORS" BEGINNING ON
PAGE 18 HEREOF. CYMER MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS CONTAINED IN CYMER'S FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO STOCKHOLDERS.
CYMER DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT THAT MAY BE
MADE FROM TIME TO TIME BY OR ON BEHALF OF CYMER.


                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Cymer is the world's leading supplier of excimer laser illumination
sources, the essential light source for deep ultraviolet (DUV) photolithography
systems used in the manufacture of semiconductors. DUV lithography is a key
enabling technology that has allowed the semiconductor industry to meet the
exacting specifications and manufacturing requirements for volume production of
today's most advanced semiconductor devices. Cymer's lasers are incorporated
into step-and-repeat and step-and-scan photolithography systems for use in the
manufacture of semiconductors with critical feature sizes below 0.35 microns.
Cymer believes that its excimer lasers constitute a substantial majority of all
excimer lasers incorporated in DUV photolithography tools. Cymer's customers
include all five manufacturers of DUV photolithography systems: ASM Lithography,
Canon, Nikon, SVG Lithography and Ultratech Stepper. Photolithography systems
incorporating Cymer's excimer lasers have been purchased by each of the world's
20 largest semiconductor manufacturers: AMD, Fujitsu, Hitachi, Hyundai, IBM,
Infineon, Intel, Lucent, Matsushita, Micron, Mitsubishi, Motorola, NEC, Philips,
Rohm, Samsung, Sanyo, ST Microelectronics, Texas Instruments, and Toshiba.

PRODUCTS

         Cymer's products consist of photolithography lasers, replacement parts
and service.

         PHOTOLITHOGRAPHY LASER PRODUCTS

         Cymer's photolithography lasers produce narrow bandwidth pulses of
short wavelength light. The lasers permit very fine feature resolution and high
throughput. Cymer has designed its lasers to be highly reliable, easy to install
and compatible with existing semiconductor manufacturing processes.

         5000 SERIES - The 5000 Series lasers are 1000Hz solid state pulse power
krypton flouride (KrF) 248nm excimer lasers engineered using modular
construction. Enabling higher device yields by delivering improved energy
stability, they are designed specifically for use in manufacturing
semiconductors with 0.25um and smaller design rule features. This series
includes three models:

                  ELS-5000 - Providing 10W of output power, this KrF laser is
                  used with optical designs requiring bandwidths less than
                  0.8pm, in stepper and scanner applications.

                  EX-5000 - With 15W of output power, this model is used for
                  scanner applications with catadioptric lens designs.

                  ELS-5010 - Designed for the next generation of steppers and
                  scanners with numerical apertures as high as 0.7. The
                  ELS-5010 provides 10W of output power, controls bandwidth
                  to less than 2.0pm, 95% energy integral, and integrated
                  energy stability to less than +-0.6% in a 40 pulse window.

                                       1
<PAGE>


         6000 SERIES - The ELS-6000 is a 2000Hz repetition rate, KrF 248nm
excimer laser enabling 0.18um and below integrated circuit (IC) production.
This laser addresses next-generation lithography applications with 0.7
numerical aperture lens design. The ELS-6000 provides 20 watts of output
power, controls bandwidth to less than equal to 2.0pm, 95% energy integral,
and integrated energy stability to less than plus or minus 0.5% in a 32 pulse
window. The higher repetition provides better dose control in stepper
applications, and enables improved exposure uniformity in scanner
applications and significant improvement in wafer throughput for both stepper
and scanner lithography tools.

          Cymer's lasers incorporate advanced software control and diagnostic
systems. The control system provides users with on-line monitoring of laser
operating conditions, with approximately 129 diagnostic readings (including flow
rate, temperatures, pressures and light quality), that are automatically
monitored by the photolithography tool's control system. Additionally,
approximately 262 configurable parameters can be adjusted to optimize the
laser's performance for each customer's system. A portable computer attached to
the laser logs this data, automatically providing critical information about
performance and reliability. The lasers are also designed for easy
serviceability, with most major modules and components articulated for easy
swing-out or roll-out motion to facilitate inspection and replacement.

         Cymer continues to develop, and offer for sale to its customers, its
next generation argon flouride (ArF) excimer laser. The ArF laser incorporates
the advanced technological features and modular design of the 5000 series lasers
providing power output of 5 watts of 193nm wavelength light. Cymer believes its
ArF laser will be capable of producing critical feature sizes below 0.10
microns.*

         REPLACEMENT PARTS

         Certain components and subassemblies included in Cymer's lasers require
replacement or refurbishment following continued operation. For example, the
discharge chamber of Cymer's lasers has an expected life of approximately one to
five billion pulses, depending on the model. Cymer estimates that a laser used
in a semiconductor production environment will require one to two replacement
chambers per year. Similarly, certain optical components of the laser
deteriorate with continued exposure to DUV light and require periodic
replacement. Cymer provides these and other spare and replacement parts for its
photolithography lasers as needed by its customers. On a limited basis, Cymer
also refurbishes and resells complete laser systems.

         SERVICE

         As Cymer's installed base of lasers in production at chipmakers exceeds
the original warranty periods, some chipmakers request service contracts from
Cymer. Additionally, Cymer provides service contracts directly to semiconductor
equipment manufacturers. These contracts require Cymer to maintain and/or
service these lasers either on an on-call or regular interval basis or both.

CUSTOMERS AND END USERS

         Cymer sells its photolithography laser products to each of the five
manufacturers of DUV photolithography tools:

            ASM Lithography        Nikon                 Ultratech Stepper
            Canon                  SVG Lithography

         Cymer believes that maintaining and strengthening customer
relationships will play an important role in maintaining its leading position in
the photolithography market. Cymer works closely with its customers to integrate
Cymer's products into their photolithography tools and is collaborating with
certain of its customers on advanced technology developments under jointly
funded programs. Sales to ASM Lithography, Canon and Nikon accounted for 33%,
17% and 24%, respectively, of total revenue in 1999.



                                       2
<PAGE>


         End users of Cymer's lasers include the world's 20 largest
semiconductor manufacturers. The following semiconductor manufacturers have
purchased one or more DUV photolithography tools incorporating Cymer's lasers:

<TABLE>
<CAPTION>

UNITED STATES                                     JAPAN                           TAIWAN/SOUTHEAST ASIA
-------------                                     -----                           ---------------------
<S>                                               <C>                             <C>
Advanced Micro Devices                            ASET                            Acer Semiconductor
Atmel                                             Epson                           Chartered Semiconductor
Agilent                                           Fujitsu                         ERSO
Conexant Systems                                  Hitachi                         HNS
Cypress                                           KTM                             Macronix
Dominion Semiconductor                            Matsushita                      Mosel
IBM                                               Mitsubishi Electric             Nan-Ya
Integrated Device Technology                      NEC                             ProMOS
Intel                                             Nippon Foundry                  Tech Semiconductor
LSI Logic Corp.                                   Oki Electric                    TSMC
Lucent/Cirent                                     Rohm                            UMC Group
Maxim Integrated Products                         Sanyo                           Vanguard International
Micron Technology                                 Sharp                           Winbond Group
Micrus                                            Sony
Motorola                                          ToHoku Semicon
National Semiconductor                            Toshiba
SEMATECH +
Texas Instruments
VLSI
White Oak

KOREA                                             EUROPE
-----                                             ------

Anam-TI                                           C-NET
ETRI                                              IMEC
Hyundai                                           Infineon Technologies
Samsung                                           LETI
                                                  Philips
                                                  ST Microelectronics

</TABLE>


BACKLOG

         Cymer schedules production of lasers based upon order backlog and
informal customer forecasts. Cymer includes in backlog only those orders to
which a purchase order number has been assigned by the customer and for which
delivery has been specified within 12 months. Because customers may cancel or
delay orders with little or no penalty, Cymer's backlog as of any particular
date may not be a reliable indicator of actual sales for any succeeding period.
At December 31, 1999, Cymer had a backlog of approximately $102.7 million
compared with a backlog of $37.3 million at December 31, 1998.

MANUFACTURING

         Cymer's manufacturing activities consist of material management,
assembly, integration and testing. These activities are performed in a 113,000
square foot facility in San Diego, California that includes approximately 31,000
square feet of class 1000 clean room manufacturing and test space. In order to
focus its own resources, capitalize on the expertise of its key suppliers and
respond more


--------
+  A semiconductor industry consortium.


                                       3
<PAGE>


efficiently to customer demand, Cymer has outsourced many of its subassemblies.
Cymer's outsourcing strategy is exemplified by the modular design of Cymer's
5000 and 6000 series lasers, for which substantially all of the nonproprietary
subassemblies have been outsourced. Cymer believes that the highly outsourced
content and manufacturable design of the 5000 and 6000 series lasers allows for
reduced manufacturing cycle times and increased output per employee.

         To meet current and anticipated demand for its products, Cymer must
continue to increase the rate by which it manufactures and tests modules, spares
and replacement parts for its photolithography laser systems. In order to
accomplish this objective, Cymer intends to continue to provide additional
training to manufacturing personnel, improve its assembly and test processes in
order to reduce cycle time, invest in additional manufacturing tooling and
further develop its supplier management and engineering capabilities.* Cymer is
also increasingly relying on outside suppliers for the manufacture of various
components and subassemblies used in its products and is dependent upon these
suppliers to meet Cymer's manufacturing schedules. The failure by one or more of
these suppliers to supply Cymer on a timely basis with sufficient quantities of
components or subassemblies that perform to Cymer's specifications could affect
Cymer's ability to deliver completed lasers to its customers on schedule.

          In addition to the manufacturing capacity at its facilities in San
Diego, California, Cymer has qualified Seiko Instruments, Inc. ("Seiko") of
Japan as a contract manufacturer of its photolithography excimer lasers. In
order to ensure uniformity of product for all customers, Cymer maintains control
of all work flow design, manufacturing processes, engineering changes and
component sourcing decisions. Cymer manufactures and seals all core technology
modules in San Diego. The contract manufacturing agreement expires in 2001, but
will automatically renew every two years thereafter, unless one year's notice to
terminate is given by either party. Seiko began production of lasers for Cymer
in the first quarter of 1997.

         Certain of the components and subassemblies included in Cymer's
products are obtained from a single supplier or a limited group of suppliers. In
particular, there are no alternative sources for certain of the components and
subassemblies, including certain optical components and pre-ionizer tubes used
in Cymer's lasers. In addition, Cymer is increasingly outsourcing the
manufacture of various subassemblies. To date Cymer has been able to obtain
adequate supplies of the components and subassemblies used in the production of
Cymer's laser systems in a timely manner from existing sources. If in the future
Cymer is unable to obtain sufficient quantities of required materials,
components or subassemblies, or if such items do not meet Cymer's quality
standards, delays or reductions in product shipments could occur which could
have a material adverse effect on Cymer's business, financial condition and
results of operations.

SALES AND MARKETING

         Cymer's sales and marketing efforts have been predominately focused on
DUV photolithography tool manufacturers. Cymer markets and sells its products
through its own worldwide direct sales force. Cymer is in the process of
developing product and applications engineering teams to support the account
managers and Cymer's customers. Cymer believes that to facilitate the sales
process it must work closely with and understand the requirements of
semiconductor manufacturers, the end users of Cymer's products. Cymer visits
major semiconductor manufacturers, and their representatives attend
Company-sponsored seminars on advanced excimer photolithography. In Japan, Cymer
sponsors an annual seminar with Seiko in conjunction with SEMICON Japan. This
seminar has attracted representatives of semiconductor manufacturers from Japan,
Korea, the United States and SEMATECH, as well as photolithography tool
manufacturers and other photolithography process suppliers.

SERVICE AND SUPPORT

         Cymer believes its success in the semiconductor photolithography market
is highly dependent upon after-sales support of both the customer and the end
user. Cymer supports its customers with field service, technical service
engineers and training programs, and in some cases provides ongoing on-site
technical support at the customer's manufacturing facility. Prior to shipment,
Cymer's support personnel


                                       4
<PAGE>


typically assist the customer in site preparation and inspection and provide
customers with training at Cymer's facilities or at the customer's location.
Customers and end users are also provided with a comprehensive set of manuals,
including operations, maintenance, service, diagnostic and safety manuals.

         Cymer's field engineers and technical support specialists are based at
its San Diego headquarters, and at its field service offices in Santa Clara,
California, in Austin, Texas, and near Boston, Massachusetts. Support in Europe,
Japan, Korea, Singapore and Southeast Asia are provided by Cymer's subsidiaries
located within those regions. As part of its customer service, Cymer maintains
an inventory of spare parts at each of its service facilities. As Cymer's
installed base grows so does the demand for replacement parts to satisfy
worldwide support requirements for direct customers' support organizations, as
well as Cymer's own logistics organization. In order to meet this demand, Cymer
must continue to expand its production of component modules which are required
for new systems as well as for support and warranty requirements.

         Cymer believes that the need to provide fast and responsive service to
the semiconductor manufacturers using its lasers is critical and that it will
not be able to depend solely on its customers to provide this specialized
service. Therefore, Cymer believes it is essential to establish, through its own
personnel or through trained third party sources, a rapid response capability to
service its customers throughout the world. Accordingly, Cymer intends to
continue its expansion of the direct support infrastructure in Japan, Korea,
Taiwan and Southeast Asia, Singapore and Europe.* The establishment of these
activities will entail recruiting and training qualified personnel or
identifying qualified independent firms and building effective and highly
trained organizations that can provide service to customers in various countries
in their assigned regions. There can be no assurance that Cymer will be able to
attract qualified personnel to establish these operations successfully or that
the costs of such operations will not be excessive. A failure to implement this
plan effectively could have a material adverse effect on Cymer's business,
financial condition and results of operations.

         Cymer generally warrants its new laser products against defects in
design, materials and workmanship for the earlier to occur of between 17 and 25
months from the date of shipment or 12 months after acceptance by the end user.

RESEARCH AND DEVELOPMENT

         The semiconductor industry is subject to rapid technological change and
new product introductions and enhancements. Cymer believes that continued and
timely development and introduction of new and enhanced laser products are
essential for Cymer to maintain its competitive position. Cymer intends to
continue to develop its technology and innovative products to meet customer
demands.* Current projects include enhancements to Cymer's KrF and ArF lasers
and the development of the next generation of photolithography lasers. Other
research and development efforts are currently focused on reducing manufacturing
costs, lowering the cost of laser operation, enhancing laser performance and
developing new features for existing lasers.

         Cymer has historically devoted a significant portion of its financial
resources to research and development programs and expects to continue to
allocate significant resources to these efforts.* Research and development
expenses for 1997, 1998 and 1999 were approximately $25.0 million, $30.2 million
and $34.5 million, respectively.

         In addition to funding its own research and development projects, Cymer
has pursued a strategy of securing research and development contracts from
customers, government agencies and SEMATECH in order to develop advanced
technology for current and future laser systems based on Cymer's core
technology. Revenues generated from research and development contracts amounted
to approximately $2.5 million, $313,000, and $399,000 during 1997, 1998, and
1999, respectively.


                                       5
<PAGE>


INTELLECTUAL PROPERTY RIGHTS

         Cymer believes that the success of its business depends more on such
factors as the technical expertise of its employees, as well as their innovative
skills and marketing and customer relations ability, than on patents,
copyrights, trade secrets and other intellectual property rights. Nevertheless,
the success of Cymer may depend in part on patents and as of December 31, 1999,
Cymer owned 61 United States patents covering certain aspects of technology
associated with excimer lasers which expire from January 2008 to October 2018
and had applied for 75 additional patents in the United States, 3 of which had
been allowed. As of December 31, 1999, Cymer also owned 37 foreign patents and
had filed 218 patent applications in various foreign countries. There can be no
assurance that Cymer's pending patent applications or any future applications
will be approved, that any issued patents will provide it with competitive
advantages or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on Cymer's ability to do business. In
this regard, due to cost constraints, Cymer did not begin filing for patents in
Japan or other countries with respect to inventions covered by its United States
patents and patent applications until 1993 and has therefore lost the right to
seek patent protection in those countries for certain of its inventions.
Additionally, because foreign patents may afford less protection under foreign
law than is available under United States patent law, there can be no assurance
that any such patents issued to Cymer will adequately protect Cymer's
proprietary information. Furthermore, there can be no assurance that others will
not independently develop similar products, duplicate Cymer's products or, if
patents are issued to Cymer, design around the patents issued to Cymer.

         Others may have filed and in the future may file patent applications
that are similar or identical to those of Cymer. To determine the priority of
inventions, Cymer may have to participate in interference proceedings declared
by the United States Patent and Trademark Office that could result in
substantial cost to Cymer. No assurance can be given that any such patent
application will not have priority over patent applications filed by Cymer.

         Cymer also relies upon trade secret protection, employee and
third-party nondisclosure agreements and other intellectual property protection
methods to protect its confidential and proprietary information. Despite these
efforts, there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to Cymer's trade secrets or disclose such technology or that Cymer
can meaningfully protect its trade secrets.

         Cymer has in the past funded a significant portion of its research and
development expenses from research and development revenues received from
photolithography tool manufacturers and from SEMATECH in connection with the
design and development of specific products. Although Cymer's arrangements with
photolithography tool manufacturers and SEMATECH seek to clarify the ownership
of the intellectual property arising from research and development services
performed by Cymer, there can be no assurance that disputes over the ownership
or rights to use or market such intellectual property will not arise between
Cymer and such parties. Any such dispute could result in restrictions on Cymer's
ability to market its products and could have a material adverse effect on
Cymer's business, financial condition and results of operations.

         Third parties have in the past notified, and may in the future notify,
Cymer that it may be infringing their intellectual property rights. Conversely,
Cymer has in the past notified, and may in the future notify, third parties that
they may be infringing on Cymer's intellectual property rights.

         Specifically, Cymer has engaged in discussions with one of its
competitors, Komatsu, Ltd ("Komatsu") with respect to certain of Komatsu's
Japanese patents, in the course of which Komatsu has also identified to Cymer a
number of additional Japanese patents that Komatsu asserts may be infringed by
Cymer and Cymer's Japanese manufacturing partner, Seiko. Cymer, in consultation
with Japanese patent counsel, has initiated oppositions to certain Komatsu
Japanese patents and patent applications in the Japanese Patent Office. To date,
one of these oppositions has been dismissed. Litigation might ensue with respect
to the Komatsu Japanese patents. Also, Komatsu might assert infringement claims
under additional patents. Komatsu has notified Seiko that Komatsu intends to
enforce its rights under


                                       6
<PAGE>


the Komatsu Japanese patents against Seiko if Seiko engages in manufacturing
activities for Cymer. In connection with its manufacturing agreement with Seiko,
Cymer has agreed to indemnify Seiko against such claims under certain
circumstances. Cymer and Seiko might not ultimately prevail in any such
litigation.

         Cymer has also asserted certain of its U.S. patents against Komatsu
when informed that Komatsu lasers might be integrated into steppers intended
for shipment into the U.S. Cymer and Komatsu are currently engaged in
discussions with regard to each party's claims. Those discussions might not
be successful and litigation could result. Attorneys representing Komatsu are
currently challenging one of Cymer's U.S. patents in the U.S. Patent Office.

         Any patent litigation, by or against Cymer, would, at a minimum, be
costly. Litigation could also divert the efforts and attention of Cymer's
management and technical personnel. Both could have a material adverse effect on
Cymer's business, financial condition and results of operations. Furthermore, in
the future other third parties might assert other infringement claims, and
customers and end users of Cymer's products might assert other claims for
indemnification resulting from infringement claims. Such assertions, if proven
to be true, might materially adversely affect Cymer's business, financial
condition and results of operations. If any such claims are asserted against
Cymer, Cymer may seek to obtain a license under the third party's intellectual
property rights. However, such a license might not be available on reasonable
terms or at all. Cymer could decide, in the alternative, to resort to litigation
to challenge such claims or to design around the patented technology. Such
actions could be costly and would divert the efforts and attention of Cymer's
management and technical personnel, which would materially adversely affect
Cymer's business, financial condition and results of operations.

          Effective August 1, 1989 and lasting until the expiration of the
licensed patents, Cymer entered into an agreement for a nonexclusive worldwide
license to use or sell certain patented laser technology with Patlex Corp., a
patent holding company ("Patlex"). Under the terms of the agreement, Cymer is
required to pay royalties ranging from 0.25% to 5.0% of gross sales and leases
of its lasers, subject to an annual cap of $100,000 per year. During 1997, 1998
and 1999, royalty fees totaled $49,000, $100,000, and $100,000, respectively.

         Cymer has granted Seiko the exclusive right in Japan and the
non-exclusive right outside of Japan to manufacture and sell Cymer's industrial
high power laser and subsequent enhancements thereto. Cymer has also granted
Seiko a right of first refusal to fund Cymer's development of, and receive a
license to, new industrial laser technologies not developed with funding from
other parties. In exchange for these rights, Cymer received up-front license
fees of $3.0 million during 1992 and 1993. Cymer was also entitled to royalties
of 5% on related product sales through September 1999, after which the royalty
rate is subject to renegotiation. Through 1999, Cymer earned no royalties under
the agreement. The license agreement also provides that product sales between
Cymer and Seiko will be at a 15% discount from the respective companies' list
prices. The agreement terminates in August 2012.

COMPETITION

         Cymer believes that the principal elements of competition in Cymer's
markets are the technical performance characteristics of the excimer laser
products and the operating efficiency of the system, which is based on
availability, performance efficiency and rate of quality. Cymer believes that it
competes favorably with respect to these factors.

         Cymer currently has three competitors in the market for excimer laser
systems for photolithography applications, Lambda-Physik ("Lambda-Physik"), a
German-based subsidiary of Coherent, Inc., and Komatsu, Ltd. and Ushio, both
located in Japan. All of these companies are larger than Cymer, have access to
greater financial, technical and other resources and are located in closer
proximity to Cymer's customers. Cymer believes that Lambda-Physik and Komatsu
are aggressively seeking to gain larger positions in the market. Cymer believes
that its customers have each purchased products offered by these competitors and
that its customers have qualified these competitors' lasers for use with at
least some of their products. As competitors successfully qualify their lasers
for use with


                                       7
<PAGE>


chipmakers, Cymer could lose market share and its growth could slow or even
decline. In the future, Cymer will likely experience competition from
post-optical technologies, such as EUV and scalpel processes. To remain
competitive, Cymer believes that it will be required to manufacture and deliver
products to customers on a timely basis and without significant defects and that
it will also be required to maintain a high level of investment in research and
development and sales and marketing. There can be no assurance that Cymer will
have sufficient resources to continue to make the investments necessary to
maintain its competitive position. There can be no assurance that larger
competitors with substantially greater financial resources, including other
manufacturers of industrial lasers, will not attempt to enter the market for
excimer lasers. There can be no assurance that Cymer will remain competitive.

A failure to remain competitive would have a material adverse effect on Cymer's
business, financial condition and results of operations. See "Risk
Factors--Competition."

EMPLOYEES

         On December 31, 1999, Cymer employed 767 persons, including 71 in
Japan. No employees are currently covered by collective bargaining agreements or
are members of any labor organization as far as Cymer is aware. Cymer has not
experienced any work stoppages and believes that its employee relations are
good.

EXECUTIVE OFFICERS

         Set forth below is certain information regarding the executive officers
of Cymer and their ages as of December 31, 1999.

<TABLE>
<CAPTION>

                 NAME                    AGE                                 POSITION
-----------------------------------------------------------------------------------------------------------
<S>                                      <C>   <C>
Robert P. Akins.......................    48   Chairman of the Board, Chief Executive Officer and President
William A. Angus, III.................    53   Senior Vice President, Chief Financial Officer and Secretary
Pascal Didier.........................    41   Senior Vice President, Worldwide Customer Operations
Edward "Ted" Holtaway.................    44   Senior Vice President, Process Quality
Wallace Breitman......................    60   Vice President, Human Resources

</TABLE>


         ROBERT P. AKINS, a co-founder of Cymer, has served as its President,
Chief Executive Officer and Chairman of the Board since its inception in January
1986. From 1980 to 1985, Mr. Akins was a Senior Program Manager for HLX, Inc., a
manufacturer of laser and defense systems, where he was responsible for managing
the development of compact excimer lasers for military communications
applications and an excimer laser trigger for the particle beam fusion
accelerator at Sandia National Laboratories. Mr. Akins received a B.S. in
Physics and a B.A. in Literature in 1974, and a Ph.D. in Applied Physics in
1983, from the University of California, San Diego.

         WILLIAM A. ANGUS, III has served as Senior Vice President and Chief
Financial Officer since February 1996 and as Secretary of Cymer since July 1990.
From July 1990 to February 1996, Mr. Angus served as Vice President of Finance
and Administration. From April 1988 to June 1990, Mr. Angus was Executive Vice
President and Chief Operating Officer, and from May 1985 to April 1988, Chief
Financial Officer, of Avant-Garde Computing Inc., a manufacturer of data
communications network management systems. Mr. Angus graduated from the Wharton
School of the University of Pennsylvania with a B.S. in Economics in 1968.

         PASCAL DIDIER has served as Senior Vice President, Worldwide Customer
Operations since October 1997. From July 1997 to October 1997, he served as Vice
President, Marketing and Sales. From June 1996 to July 1997, Mr. Didier was Vice
President of Worldwide Sales & Field Operations, and from June 1995 to June
1996, Vice President of Asia/Pacific of GaSonics International, a supplier of
capital equipment for photoresist removal and isotropic etching for the
semiconductor industry. From 1983 to 1995, Mr. Didier served in various
marketing and management positions at Megatest


                                       8
<PAGE>


Corporation, a supplier of test equipment for the semiconductor industry. From
June 1993 to June 1995, he was Megatest's Vice President of International
Operations, from June 1990 to June 1993, Director of International Operations,
from July 1989 to June 1990, a Software Marketing Manager and from 1983 to 1989,
European Technical Manager. Mr. Didier received a Bacalaureate in Business and
Administration in 1978 from College de Paris and a Bacalaureate Superieur in
1979 from Electronique Institut Universitaire de Lyon.

         EDWARD "TED" HOLTAWAY has served as Senior Vice President, Process
Quality since July 1998. He joined Cymer in April 1998 as Vice President of
Process Quality. Prior to that, Mr. Holtaway spent 13 years with San Diego-based
Brooktree Corp., a fabless semiconductor company acquired by Rockwell
Semiconductor Systems in September of 1996. During his tenure at Brooktree, Mr.
Holtaway's executive posts included: Vice President of Corporate Quality from
1989 to 1995; Vice President and Managing Director of Brooktree's Singapore
operations from 1995 to 1996; and most recently, Director of Rockwell's San
Diego operations from 1997 to 1998. Mr. Holtaway received a B.S. in Electrical
Engineering from the New Jersey Institute of Technology, an M.S. in Electrical
Engineering from the Polytechnic Institute of New York, and an M.B.A. from San
Diego State University.

         WALLACE BREITMAN has served as Vice President of Human Resources and
Administration since April 1999. Prior to joining Cymer, Mr. Breitman was Vice
President, Human Resources from June 1995 to March 1999 for Walker, Inc., a
manufacturer of financial application software. From February 1994 to May 1995
and from October 1990 to September 1992, he was Director of Human Resources for
Megatest, Inc., now a division of Teradyne, a semiconductor capital equipment
company. From September 1992 to February 1994, Mr. Breitman was Director of
Human Resources for Wind River Systems, Inc. Mr. Breitman received a B.A and
M.A. from New York University in 1961 and 1963, respectively.

         Executive officers serve at the discretion of the Board of Directors.
There are no family relationships between any of the directors and executive
officers of Cymer.

ITEM 2.  PROPERTIES

         Cymer's corporate headquarters, manufacturing, engineering and R&D
facilities are located in San Diego, California housed in multiple buildings
totaling approximately 250,815 square feet. All building facilities are leased
by Cymer under leases expiring between August 2002 and January 2010. In August
1999, Cymer began construction of a 135,000 square foot office and laboratory
facility on 5.98 acres of land that it purchased in February 1999 adjacent to
its current facilities. With the completion of this facility, which is expected
to occur in the fourth quarter of 2000, Cymer is planning to consolidate its San
Diego operations into three adjacent buildings totaling 293,145 square feet.*
For use as field service offices, Cymer also leases a 400 square foot facility
near Boston, Massachusetts under a lease expiring September 1, 2000, a 1,857
square foot facility in Santa Clara, California under a lease expiring September
2000, and a 1,627 square foot facility in Austin, Texas under a lease expiring
September 2000. For use as field service and sales offices, Cymer leases: 13,831
square feet of facilities in Ichikawa, Japan under a renewable two year lease
expiring in June 2000; 807 square feet in Osaka Japan under a lease expiring in
December 2000; 4,184 square feet in Pundang, Korea under a lease expiring August
2004; 4,821 square feet in Hsin Chu, Taiwan under a lease expiring June 2004;
1,866 square feet in United Square, Singapore under a lease expiring in May
2000; and 3,715 square feet in Maarssen, The Netherlands under a lease expiring
in May 2004. Cymer intends to add additional field service offices as necessary
to service and support its customers.

ITEM 3.  LEGAL PROCEEDINGS

         Cymer has been named as a defendant in several putative shareholder
class action lawsuits which were filed in September and October, 1998 in the
U.S. District Court for the Southern District of California. Certain executive
officers and directors of Cymer are also named as defendants. The plaintiffs
purport to represent a class of all persons who purchased Cymer's Common Stock
between


                                       9
<PAGE>


April 24, 1997 and September 26, 1997 (the "Class Period"). The complaints
allege claims under the federal securities laws. The plaintiffs allege that
Cymer and the other defendants made various material misrepresentations and
omissions during the Class Period. The complaints do not specify the amount of
damages sought. The complaints have been consolidated into a single action and a
class representative has been appointed by the court. A consolidated amended
complaint was filed in early August, 1999. On November 5, 1999 Cymer and the
other defendants filed a motion to dismiss the consolidated amended claim for
failure to state a cause of action. No ruling on the motion has yet been made by
the court. Discovery has not yet commenced. Cymer believes that it has good
defenses to the claims alleged in the lawsuits and will defend itself vigorously
against these actions. The defense of these actions may cause some disruption in
Cymer's operations and may from time to time distract management from day-to-day
operations. The ultimate outcome of these actions cannot be presently
determined. Accordingly, no provision for any liability or loss that may result
from adjudication or settlement thereof has been made in the accompanying
consolidated financial statements.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         No matters were submitted to a vote of the security holders of Cymer
during the fourth quarter of the fiscal year ended December 31, 1999.


                                       10
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         Cymer's Common Stock is publicly traded on the Nasdaq National Market
under the symbol "CYMI". The following table sets forth, for the periods
indicated, the high and low closing sales prices of Cymer's Common Stock as
reported by the Nasdaq National Market.

<TABLE>
<CAPTION>

Year ended December 31, 1998                                             HIGH                   LOW
                                                                  -------------------    ------------------
<S>                                                                     <C>                    <C>
   First quarter                                                        $22  9/16              $14  7/8
   Second quarter                                                       $27  1/2               $14  7/8
   Third quarter                                                        $18  5/8                $8  1/2
   Fourth quarter                                                       $19  1/4                $6  1/2
Year ended December 31, 1999
   First quarter                                                        $29  3/8               $16
   Second quarter                                                       $25                    $16  3/8
   Third quarter                                                        $38  1/8               $24  9/16
   Fourth quarter                                                       $47  11/16             $30  9/16

</TABLE>

The closing sales price of Cymer's Common Stock on the Nasdaq National Market
was $55 on March 22, 2000 and there were 332 registered holders of record as
of that date.

Cymer has never declared or paid cash dividends on its Common Stock and
currently does not anticipate paying cash dividends in the foreseeable future.*

ITEM 6.  SELECTED FINANCIAL DATA

     The following selected consolidated financial data should be read in
conjunction with Cymer's consolidated financial statements and notes thereto and
with Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>

                                                                        YEARS ENDED DECEMBER 31,
                                                     ---------------------------------------------------------------
                                                        1995          1996         1997         1998        1999
                                                     -----------   -----------  -----------  ----------- -----------
                                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>           <C>         <C>         <C>          <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues:
   Product sales                                        $15,576       $62,510     $201,191    $184,828     $220,051
   Other                                                  3,244         2,485        2,456         313          399
                                                     -----------   -----------  ----------- -----------  -----------
          Total revenues                                 18,820        64,995      203,647     185,141      220,450
                                                     -----------   -----------  ----------- -----------  -----------

Costs and expenses:
   Cost of product sales                                  8,786        35,583      123,654     125,713      143,105
   Research and development                               6,154        11,742       24,971      30,152       34,518
   Sales and marketing                                    2,353         5,516       11,992      14,528       16,742
   General and administrative                             1,181         4,270        8,586       9,487       13,101
                                                     -----------   -----------  ----------- -----------  -----------
          Total costs and expenses                       18,474        57,111      169,203     179,880      207,466
                                                     -----------   -----------  ----------- -----------  -----------
Operating income                                            346         7,884       34,444       5,261       12,984

</TABLE>



                                       11
<PAGE>


<TABLE>
<CAPTION>

                                                                             YEARS ENDED DECEMBER 31,
                                                           --------------------------------------------------------------
                                                              1995        1996         1997         1998        1999
                                                           ----------- ------------ -----------  ----------- ------------
                                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                        <C>         <C>          <C>          <C>         <C>
Other income (expense) - net                                     (241)        (183)        112       (3,568)      (3,748)
                                                           ----------- ------------ -----------  ----------- ------------
Income before income tax (provision) benefit
   and minority interest                                          105        7,701      34,556        1,693        9,236
Income tax (provision) benefit                                    (36)      (1,191)     (8,639)       1,250
Minority interest                                                                          141         (420)        (663)
                                                           ----------- ------------ -----------  ----------- ------------

Net income                                                        $69       $6,510     $26,058       $2,523       $8,573
                                                           =========== ============ ===========  =========== ============
Basic earnings per share (1) (3)                                             $0.33       $0.92        $0.09        $0.31
                                                                       ============ ===========  =========== ============
Weighted average common shares outstanding (1) (3)                          19,868      28,212       28,226       27,907
Diluted earnings per share (1) (3)                                           $0.29       $0.86        $0.09        $0.29
                                                                       ============ ===========  =========== ============
Weighted average common and potential
   shares outstanding (1) (3)                                               22,420      30,267       29,566       29,640
                                                                       ============ ===========  =========== ============

</TABLE>

<TABLE>
<CAPTION>

                                                                                 DECEMBER 31,
                                                         --------------------------------------------------------------
                                                            1995        1996         1997         1998        1999
                                                         ----------- ------------ -----------  ----------- ------------
                                                                                (IN THOUSANDS)
<S>                                                      <C>         <C>          <C>          <C>         <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents                                    $2,015      $55,405     $51,903      $53,130      $75,765
Working capital                                               3,845       84,743     202,539      198,645      213,121
Total assets                                                 15,619      129,467     386,119      364,318      426,821
Total debt (2)                                                4,164        2,217     176,066      175,924      175,771
Redeemable convertible preferred stock                       28,409
Treasury stock                                                                                    (24,871)     (24,871)
Stockholders' equity (deficit)                              (21,830)      98,820     125,779      106,531      126,893

</TABLE>


(1)  See Note 1 of Notes to Consolidated Financial Statements for an explanation
     of the determination of shares used in computing earnings per share.

(2)  Total debt includes indebtedness for convertible subordinated notes, and
     capital lease obligations.

(3)  Earnings per share data has not been presented for 1995 as significant
     business developments, including Cymer's initial public offering, occurred
     subsequent to this year.


                                       12
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

     The following table sets forth certain items in Cymer's statements of
income as a percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>

                                                               1997              1998              1999
                                                          --------------   --------------    --------------
<S>                                                       <C>              <C>               <C>
Revenues:
    Product sales                                              98.8 %            99.8 %           99.8 %
    Other                                                       1.2                .2               .2
                                                          --------------   --------------    --------------
        Total revenues                                        100.0             100.0            100.0

Cost and expenses:
    Cost of product sales                                      60.7              67.9             64.9
    Research and development                                   12.3              16.3             15.7
    Sales and marketing                                         5.9               7.9              7.6
    General and administrative                                  4.2               5.1              5.9
                                                          --------------   --------------    --------------
       Total costs and expenses                                83.1              97.2             94.1

Operating income                                               16.9               2.8              5.9
Other income (expense) - net                                     .1              (1.9)            (1.7)
                                                          --------------   --------------    --------------

Income before income tax (provision) benefit
   and minority interest                                       17.0               0.9              4.2

Income tax (provision) benefit                                 (4.3)              0.7
Minority interest                                                .1              (0.2)            (0.3)
                                                          --------------   --------------    --------------

Net income                                                     12.8 %             1.4 %            3.9 %
                                                          ==============   ==============    ==============

Gross margin on product sales                                  38.5 %            32.0 %           35.0 %
                                                          ==============   ==============    ==============

</TABLE>


     YEARS ENDED DECEMBER 31, 1998 AND 1999

         REVENUES. Cymer's total revenues consist of product sales, which
include sales of laser systems, spare parts, service and training. Other
revenues primarily include revenue from funded development activities performed
for customers and for SEMATECH. Revenue from product sales is generally
recognized at the time of shipment, unless customer agreements contain
inspection or other conditions, in which case revenue is recognized at the time
such conditions are satisfied. Funded development contracts are accounted for on
the percentage-of-completion method based on the relationship of costs incurred
to total estimated costs, after giving effect to estimates for costs to complete
the development project.

     Product sales increased 19% from $184.8 million in 1998 to $220.1 million
in 1999, due to a 61% increase in the sale of replacement parts and service for
lasers in Cymer's installed chipmaker base as the semiconductor industry made a
major recovery during 1999. Additionally, higher average selling prices for new
systems and the sale of upgrade packages to the installed base also contributed
to revenue growth. A total of 341 laser systems were sold in 1998 compared to
302 laser systems in 1999. The decrease was primarily attributable to inventory
management by Cymer's direct customers as well


                                       13
<PAGE>


as market share gains of competitors. Funded development revenues increased from
$313,000 for 1998 to $399,000 for 1999, primarily due to the timing of the
completion of certain programs.

     Cymer's sales are generated primarily by shipments to customers in Japan,
The Netherlands, and the United States. Approximately 88% and 85% of the
Company's sales in 1998 and 1999, respectively, were derived from customers
outside the United States. Cymer maintains a wholly-owned Japanese subsidiary
which sells to Cymer's Japanese customers. Revenues from Japanese customers,
generated primarily by this subsidiary, accounted for 48% and 37% of revenues in
1998 and 1999, respectively. The activities of Cymer's Japanese subsidiary are
limited to sales and service of products purchased by the subsidiary from the
parent corporation. All costs of development and production of Cymer's products,
including costs of shipment to Japan, are recorded on the books of the parent
company. Cymer anticipates that international sales will continue to account for
a significant portion of its net sales.*

     COST OF PRODUCT SALES. Cost of product sales includes direct material and
labor, warranty expenses, license fees, manufacturing and service overhead, and
foreign exchange gains and losses on foreign currency exchange contracts
associated with purchases of Cymer's products by the Japanese subsidiary for
resale under firm third-party sales commitments.

     Cost of product sales rose 14% from $125.7 million in 1998 to $143.1
million in 1999 primarily in response to the increase in product sales. The
gross margin on these sales increased from 32.0% in 1998 to 35% in 1999
primarily due to the increased volume of shipments absorbing fixed costs of
production. Charges related to obsolete inventory remained consistent between
1998 and 1999.

     Net gains or losses from foreign currency exchange contracts are included
in cost of product sales in the consolidated statements of income as the related
sales are recognized. Cymer recognized a net gain on such contracts of $4.5
million for the year ended December 31, 1998 and a $3.0 million net loss for the
year ended December 31, 1999.

      RESEARCH AND DEVELOPMENT. Research and development expenses include costs
of internally-funded and externally-funded projects as well as continuing
research support expenses which primarily include employee and material costs,
depreciation of equipment and other engineering related costs. Research and
development expenses increased 14% from $30.2 million in 1998 to $34.5 million
in 1999, due primarily to increased product improvement efforts associated with
the release of Cymer's 6000 series lasers, and the continued development of new
laser products. As a percentage of total revenues, such expenses fell from 16.3%
to 15.7% in the respective periods due to the increase in Cymer's revenues as
well as the increase in development expenditures throughout 1999. Cymer expects
that research and development expenses will increase in absolute dollars but not
as a percentage of revenue in 2000 as Cymer continues to invest in the
development of new products and product enhancements.*

     SALES AND MARKETING. Sales and marketing expenses include the expenses of
the sales, marketing and customer support staffs and other marketing expenses.
Sales and marketing expenses increased 15% from $14.5 million in 1998 to $16.7
million in 1999, due primarily to increased product management and sales support
efforts and marketing infrastructure activities developed over the period. As a
percentage of total revenues, such expenses decreased slightly from 7.9% to 7.6%
as revenues increased from the prior year.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of management and administrative personnel costs, professional
services and administrative operating costs. General and administrative expenses
increased 38% from $9.5 million in 1998 to $13.1 million in 1999. This was due
to ongoing process quality development efforts and costs, primarily outside
consultant compensation, to support an overall increase in Cymer's business
activities during the current year. As a percentage of total revenues, such
expenses increased from 5.1% to 5.9% in the respective periods.

     OTHER INCOME (EXPENSE)- NET. Net other income (expense) consists primarily
of interest income and expense and foreign currency exchange gains and losses
associated with the fluctuations in the value of


                                       14
<PAGE>


the Japanese yen against the United States dollar. Net other expense of $3.6
million in 1998 remained consistent with net other expense of $3.7 million in
1999 given comparable investment and debt balance between the years.

     Cymer's results of operations are subject to fluctuations in the value of
the Japanese yen against the United States dollar. Sales by Cymer to its
Japanese subsidiary are denominated in dollars, and sales by the subsidiary to
customers in Japan are denominated in yen. Cymer's Japanese subsidiary manages
its exposure to such fluctuations by entering into foreign currency exchange
contracts to hedge its purchase commitments to Cymer. The gains or losses from
these contracts are recorded as a component of cost of product sales, while the
remaining foreign currency exposure is recorded as other income (expense) in the
consolidated statements of income. Gains and losses resulting from foreign
currency translation are accumulated as a separate component of consolidated
stockholders' equity.

     PROVISION FOR INCOME TAXES. The tax benefit of $1.3 million reported in
1998 was primarily attributed to tax credits and permanent differences between
taxable income and book income which resulted in a negative effective tax rate
for the year. For 1999 the effective tax rate was zero, primarily due to the tax
benefits received from Cymer's foreign sales corporation and U.S. tax credits.

     YEARS ENDED DECEMBER 31, 1997 AND 1998

     REVENUES. Product sales decreased 8% from $201.2 million in 1997 to $184.8
million in 1998, primarily due to lower sales of DUV photolithography laser
systems. A total of 460 laser systems were sold in 1997 compared to 341 laser
systems in 1998. The decrease was primarily attributable to the overall market
decline in the semiconductor industry during 1998. Funded development revenues
declined from $2.5 million for 1997 to $313,000 for 1998, primarily due to
completion of larger laser research projects sponsored by SEMATECH.

     Cymer's sales are generated primarily by shipments to customers in Japan,
The Netherlands, and the United States. Approximately 89% and 88% of the
Company's sales in 1997 and 1998, respectively, were derived from customers
outside the United States. Cymer maintains a wholly-owned Japanese subsidiary
which sells to Cymer's Japanese customers. Revenues from Japanese customers,
generated primarily by this subsidiary, accounted for 65% and 48% of revenues in
1997 and 1998, respectively. The activities of Cymer's Japanese subsidiary are
limited to sales and service of products purchased by the subsidiary from the
parent corporation. All costs of development and production of Cymer's products,
including costs of shipment to Japan, are recorded on the books of the parent
company.

     COST OF PRODUCT SALES. Cost of product sales rose 2% from $123.7 million in
1997 to $125.7 million in 1998 primarily due to additional inventory
obsolescence reserves recognized during the fourth quarter of 1998 offset by
lower sales volume in 1998. The gross margin on these sales decreased from 38.5%
in 1997 to 32.0% in 1998 primarily due to a $5.8 million obsolete inventory
reserve associated with the accelerated customer acceptance of the 5010 series
lasers over the 5000 series lasers, and an increase in foreign field support
overhead costs as Cymer continued to build its worldwide field support
infrastructure in Japan, Singapore, Europe, Korea and Southeast Asia in order to
provide fast and responsive service to the semiconductor manufacturers.

     Net gains or losses from foreign currency exchange contracts are included
in cost of product sales in the consolidated statements of income as the related
sales are recognized. Cymer recognized net gains on such contracts of $5.8
million and $4.5 million for the years ended December 31, 1997 and 1998,
respectively.

      RESEARCH AND DEVELOPMENT. Research and development expenses increased 21%
from $25.0 million in 1997 to $30.2 million in 1998, due primarily to increased
product improvement efforts associated with the release of Cymer's 5010 series
lasers, the ongoing development of the 6000 series laser, and the continued
development of new laser products. As a percentage of total revenues, such


                                       15
<PAGE>


expenses rose from 12.3% to 16.3% in the respective periods due to the decline
in Cymer's revenues as well as the increase in development expenditures
throughout 1998.

     SALES AND MARKETING. Sales and marketing expenses increased 21% from $12.0
million in 1997 to $14.5 million in 1998, due primarily to increased product
management and sales support efforts and marketing infrastructure activities
developed over the period. As a percentage of total revenues, such expenses rose
from 5.9% to 7.9% in the respective periods due to a decrease in overall
revenues from period to period as well as an increased focus on building a
worldwide sales and marketing team in 1998 and beyond.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
10% from $8.6 million in 1997 to $9.5 million in 1998, due to ongoing process
quality development costs and an increase in general and administrative support
as Cymer's overall level of business activity increased. As a percentage of
total revenues, such expenses increased from 4.2% to 5.1% in the respective
periods.

     OTHER INCOME (EXPENSE)- NET. Net other income (expense) decreased from
$112,000 of net other income for 1997 to $3.6 million of net other expense for
1998, primarily due to the increase in interest income associated with the
investment of excess cash and a foreign exchange gain in 1998 versus a net loss
in 1997, offset by a full year of interest expense associated with the
convertible subordinated notes in 1998. Foreign currency exchange loss totaled
$359,000, interest income totaled $5.3 million, and interest expense totaled
$4.8 million for 1997, compared to a foreign exchange gain of $692,000, interest
income of $7.4 million and interest expense of $11.6 million for 1998.

     PROVISION FOR INCOME TAXES. The tax provision of $8.6 million in 1997 was
primarily attributable to the substantial growth in Cymer's pretax income
partially offset by the reduction of the deferred tax asset valuation allowance
carried over from 1996. The tax benefit of $1.3 million reported in 1998 was
primarily attributed to tax credits and permanent differences between taxable
income and book income which resulted in a negative effective tax rate for the
year.

LIQUIDITY AND CAPITAL RESOURCES

     Since its initial public offering and a second public offering, both in
1996, Cymer has funded its operations primarily through a convertible
subordinated note offering on August 6, 1997, which generated $167.3 million in
net proceeds, bank borrowings, cash flow from operations and the proceeds from
employee stock option exercises. As of December 31, 1999, Cymer had
approximately $75.8 million in cash and cash equivalents, $97.6 million in
short-term investments, $19.8 million in long-term investments, $213.1 million
in working capital and $18.4 million in bank debt.

     Net cash used for operating activities was approximately $17.3 million for
1997, whereas cash provided by operating activities was $23.2 million for 1998
and $46.8 for 1999, respectively. Cash used for operations in 1997 was primarily
attributable to increases in accounts receivable and inventory as the working
capital requirements of Cymer continued to increase due to the expansion of the
business during this period. Cash provided by operations in 1998 was primarily
due to increases in depreciation associated with the prior year's expansion
efforts, offset by decreases in accounts receivable. Cash provided by operations
in 1999 resulted from sustained depreciation and significant reductions in
current liabilities and an increase in net income offset by increases in
accounts receivable.

     Net cash used for investing activities was approximately $153.6 million,
$5.7 million and $30.9 million in 1997, 1998 and 1999. Cash used for investing
activities during the periods ended December 31, 1997, 1998, and 1999 primarily
reflects the investment activity of funds received through the convertible
subordinated note offering in 1997 as well as the purchase of computer
equipment, test equipment, research and development tools, manufacturing process
machinery and tenant improvements for the field support organizations and
manufacturing facility in order to accommodate business expansion throughout the
periods.


                                       16
<PAGE>


     Cymer's financing activities provided net cash of approximately $167.3
million for 1997. In 1997, Cymer issued $172.5 million in convertible
subordinated notes with net costs of $5.2 million and, in addition, received
$2.1 million in net proceeds for the issuance of common stock and reduced bank
debt by $1.8 million. In 1998, Cymer's financing activities used net cash of
approximately $13.5 million primarily due to the $24.9 million repurchase of
treasury stock offset by $10.1 million in bank loans for the period. In 1999,
financing activities generated $12.9 million of net cash primarily from the
exercise of employee stock options as well as an increase in net borrowings
under a revolving loan and security agreement.

     Cymer has available credit arrangements with a bank permitting borrowings
of up to $30 million. These borrowings are unsecured and provide for a $15
million optional currency revolving line of credit and a foreign currency
exchange facility. These arrangements were amended February 4, 2000 to increase
available borrowings to $40 million. Cymer had forward foreign exchange
contracts at December 31, 1999 to buy $56.0 million for 6.0 billion yen. The
total unrecorded deferred loss and premium on these contracts as of December 31,
1999 was approximately $1.3 million and $919,000, respectively.

     On January 29, 1998, Cymer announced a program to repurchase up to $50.0
million of Cymer's common stock. As of December 31, 1998 Cymer had purchased 2
million shares at a total cost of $24.9 million. No stock was repurchased during
1999.

     Cymer requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable and for capital
expenditures. Cymer's future capital requirements will depend on many factors,
including the rate of Cymer's manufacturing expansion, the timing and extent of
spending to support product development efforts and expansion of sales and
marketing and field service and support, the timing of introductions of new
products and enhancements to existing products, and the market acceptance of
Cymer's products. Cymer believes that it has sufficient working capital and
available bank credit to sustain operations and provide for the future expansion
of its business during 2000.*

     RECENT ACCOUNTING PRONOUNCEMENTS

     During June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement 133." The Statement defers the effective date of SFAS No. 133 to all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 will become effective for Cymer beginning
January 1, 2001. Management has not yet assessed the effect of this standard on
Cymer's current reporting and disclosures.

     YEAR 2000 READINESS ISSUE

     To date, the Company has not incurred material costs associated with Year
2000 compliance nor any disruption with vendors or operations. Furthermore, the
Company believes that any future costs associated with Year 2000 compliance
efforts will not be material.


                                       17
<PAGE>


RISK FACTORS

LIKELY FLUCTUATIONS IN OPERATING RESULTS

         CERTAIN FACTORS CAUSING FLUCTUATIONS

         Cymer's operating results have in the past fluctuated and are likely in
the future to fluctuate significantly. These fluctuations depend on a variety of
factors which may include:

         -        the demand for semiconductors in general and, in particular,
                  for leading edge devices with smaller circuit geometries;

         -        the rate at which semiconductor manufacturers take delivery of
                  photolithography tools from Cymer's customers;

         -        cyclicality in the market for semiconductor manufacturing
                  equipment;

         -        the timing and size of orders from Cymer's small base of
                  customers;

         -        the ability of Cymer to manufacture, test and deliver laser
                  systems in a timely and cost effective manner; - the mix of
                  laser models, replacement parts and service revenues;

         -        the ability of Cymer's competitors to obtain orders from
                  Cymer's customers;

         -        the entry of new competitors into the market for DUV
                  photolithography illumination sources;

         -        the ability of Cymer to manage its costs as it supplies its
                  products in higher volumes; and

         -        Cymer's ability to effectively manage its exposure to foreign
                  currency exchange rate fluctuations, principally with respect
                  to the Japanese yen (in which sales by Cymer's Japanese
                  subsidiary are denominated).

In addition, as customers become more efficient at integrating Cymer's lasers
into their photolithography tools, reductions in customer laser inventories may
affect Cymer's operating results.

         TIMING OF REVENUE RECOGNITION

         Cymer has historically derived a substantial portion of its quarterly
and annual revenues from the sale of a relatively small number of systems. As a
result, the precise timing of the recognition of revenue from an order for a
small number of systems can have a significant impact on Cymer's total revenues
and operating results for a particular period. If customers cancel or reschedule
orders for a small number of systems or if Cymer cannot fill orders in time to
recognize revenue during a particular period, this could adversely affect
Cymer's operating results for that period. For example, unanticipated
manufacturing, testing, shipping or product acceptance delays could cause such
cancellations, rescheduling or inability to fill orders promptly.

         FIXED EXPENSES

         Cymer's expense levels are based, in large part, on Cymer's
expectations as to future revenues. Therefore, Cymer's expenses are relatively
fixed in the short term. If revenue levels fall below expectations, this would
disproportionately and adversely affect net income. Cymer cannot forecast the
impact of these and other factors on its revenues and operating results in any
future period with any degree of certainty.

         SEMICONDUCTOR MANUFACTURER DEMAND

         Cymer believes that semiconductor manufacturers are currently
developing capability for production and pilot production of 0.25um, 0.18um and
below devices. Cymer also believes that the efforts to develop such capability
are driving present demand for its laser systems for DUV photolithography tools.
Once semiconductor manufacturers have acquired such capability, their demand for
Cymer's DUV photolithography tools will depend on whether they want to expand
their capacity to manufacture such devices. This will in turn depend on whether
their sales forecasts and manufacturing


                                       18
<PAGE>


process yields justify such an investment. Cymer currently expects that demand
for its DUV laser systems will depend on such demand and process development
constraints of the semiconductor manufacturers.

         INDUSTRY CONDITIONS

         Cymer has expanded some aspects of its operations in response to
improvements in industry conditions. Should continued improvements not
materialize, the planned increases in spending may negatively impact profitable
operations.

         Due to the foregoing, as well as other unanticipated factors, Cymer's
operating results will likely fall below the expectations of public market
analysts or investors in some future quarter or quarters. Such failure to meet
operating result expectations would materially adversely affect the price of
Cymer's Common Stock.

DEPENDENCE ON SEMICONDUCTOR INDUSTRY

          Cymer derives substantially all of its revenues from photolithography
tool manufacturers. Photolithography tool manufacturers depend in turn on the
demand for their products from semiconductor manufacturers. Semiconductor
manufacturers depend on the demand from manufacturers of end-products or systems
that use semiconductors. The semiconductor industry is highly cyclical and has
historically experienced periodic and significant downturns. These downturns
have often had a severe effect on the demand for semiconductor manufacturing
equipment, including photolithography tools. Cymer believes that downturns in
the semiconductor manufacturing industry will periodically occur, resulting in
periodic decreases in demand for semiconductor manufacturing equipment. In
addition, Cymer believes that in a future downturn Cymer's need to continue
investment in research and development, and to maintain extensive ongoing
customer service and support capability will constrain its ability to reduce
expenses. Accordingly, downturns in the semiconductor industry could have a
material adverse effect on Cymer's business, financial condition and results of
operations.

DEPENDENCE ON SMALL NUMBER OF CUSTOMERS

         A small number of manufacturers of DUV photolithography tools
constitute Cymer's primary customer base. Four large firms, ASM Lithography,
Canon, Nikon and SVG Lithography (a subsidiary of Silicon Valley Group, Inc.),
dominate the photolithography tool business. Collectively, they accounted for
approximately 94%, 94% and 79% of Cymer's total revenues in 1997, 1998, and
1999, respectively. Individually, sales to ASM Lithography, Canon, Nikon and SVG
Lithography accounted for approximately 37%, 20%, 31% and 6%, respectively, of
total revenues in 1998 and 33%, 17%, 24% and 5%, respectively, of total revenues
in 1999. Cymer expects that sales of its systems to these customers will
continue to account for a substantial majority of its revenues in the
foreseeable future. None of Cymer's customers are obligated to purchase a
minimum number of Cymer's products. The loss of any significant business from
any one of these customers or a significant reduction in orders from any one of
these customers, would have a material adverse effect on Cymer's business,
financial condition and results of operations. Reductions caused by changes in a
customer's competitive position, a decision to purchase illumination sources
from other suppliers, or economic conditions in the semiconductor and
photolithography tool industries, could all cause such a loss of business or
reduction in orders.

NEED TO MANAGE A CHANGING BUSINESS

         In recent years, Cymer has sharply expanded and contracted the scope of
its operations and the number of employees in most of its functional areas. For
example, Cymer increased the number of its employees from 336 at December 31,
1996 to 809 at December 31, 1997 and then decreased that number to 703 at
December 31, 1998. As of December 31, 1999, Cymer had 767 employees. Cymer has
substantially expanded its facilities and manufacturing capacity. For example,
since December 31,


                                       19
<PAGE>


1996 Cymer has occupied three additional buildings covering approximately
187,000 square feet. In a cyclical environment of dramatic growth or
contraction, Cymer will need:

         -        to continue close management of these areas, and
         -        to improve its management, operational and financial systems,
                  including
                  -        accounting and other internal management systems,
                  -        quality control,
                  -        delivery and
                  -        field service and customer support capabilities.

Cymer must also effectively manage its inventory levels, including assessing and
managing excess and obsolete inventories associated with the changing
environment and new product introductions. Cymer will need to attract, train,
retain and manage key technical personnel in order to support Cymer's growth
and/or contraction. Cymer will also need to manage effectively its international
operations, including:

         -        the operations of its subsidiaries in Japan, Korea, Taiwan,
                  Singapore and The Netherlands,
         -        its field service and support presence in Asia and Europe and
         -        its relationship with Seiko as a manufacturer of its
                  photolithography lasers.

Cymer must also effect timely deliveries of its products and maintain the
product quality and reliability required by its customers. Any failure to
effectively manage Cymer's growth or contraction would materially adversely
affect Cymer's financial condition and results of operations.

RISKS ASSOCIATED WITH IMPLEMENTING A NEW ENTERPRISE RESOURCE PLANNING SYSTEM

         Cymer is in the initial stages of implementing a new corporate wide
enterprise resource planning ("ERP") system to replace its current ERP system.
Cymer has scheduled implementation of the new ERP system and training of
personnel to use the system to be completed during the year 2000. The
implementation of a new ERP system requires full commitment of management and
the dedication and utilization of significant internal as well as external
resources in managing the project, process redesigns, system integration and
employee training. Historically, many companies have experienced difficulties in
implementing ERP systems. These difficulties range from cost overruns, push-outs
of implementation deadlines, process and operations gridlock, failure to execute
operating plans, including inability to ship products for revenue, and
abandonment of the effort altogether. Cymer must effectively manage its planning
and execution of the implementation of the system and the training of personnel
throughout the Company. Any failure to effectively manage Cymer's efforts or
process and operations designs would materially adversely affect Cymer's
financial condition and results of operations.

RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT INTRODUCTIONS

         Semiconductor manufacturing equipment and processes are subject to
rapid technological change. Cymer believes that its future success will depend
in part upon its ability to:

         -        continue to enhance its excimer laser products and their
                  process capabilities, and
         -        develop and manufacture new products with improved
                  capabilities.

In order to enhance and improve its products and develop new products, among
other things, Cymer must work closely with its customers, particularly in the
product development stage, to integrate its lasers with its customers'
photolithography tools. Future technologies, such as EUV and scalpel processes,
might render Cymer's excimer laser products obsolete. Further, Cymer might not
be able to develop and introduce new products or enhancements to its existing
products and processes in a timely manner that satisfy customer needs or achieve
market acceptance. The failure to do so could materially adversely affect
Cymer's business, financial condition and results of operations.


                                       20
<PAGE>


COMPETITION

         LAMBDA-PHYSIK, KOMATSU AND USHIO

         Cymer currently has three significant competitors in the market for
excimer laser systems for photolithography applications:

         -        Lambda-Physik,
         -        Komatsu, Ltd. and
         -        Ushio.

All of these companies:

         -        are larger than Cymer,
         -        have access to greater financial, technical and other
                  resources than does Cymer, and
         -        are located in closer proximity to Cymer's customers than is
                  Cymer.

Cymer believes that Lambda-Physik and Komatsu are aggressively seeking to gain
larger positions in this market. Cymer believes that its customers have each
purchased products offered by these competitors and that its customers have
qualified competitors' lasers for use with their products. Cymer believes that
Komatsu in particular has been qualified for production use by chipmakers in
Japan and elsewhere. Cymer also believes that Lambda-Physik has been qualified
for production use by chipmakers in the U.S. Cymer could lose market share and
its growth could slow or even decline as competitors gain market acceptance.

         OTHER TECHNOLOGIES

         In the future, Cymer will likely experience competition from other
technologies, such as EUV and scalpel processes. To remain competitive, Cymer
believes that it will need to:

         -        manufacture and deliver products to customers on a timely
                  basis and without significant defects, and
         -        maintain a high level of investment in research and
                  development and in sales and marketing.

Cymer might not have sufficient resources to continue to make the investments
necessary to maintain its competitive position.

         SMALL AND IMMATURE MARKET FOR EXCIMER LASERS

         In addition, the market for excimer lasers is still small and immature.
Larger competitors with substantially greater financial resources, including
other manufacturers of industrial lasers, might attempt to enter the market.

         Cymer might not remain competitive. A failure to remain competitive
would have a material adverse effect on Cymer's business, financial condition
and results of operations.

DEPENDENCE ON SINGLE PRODUCT LINE

         Cymer's only product line is excimer lasers ("KrF, ArF and F2 laser
systems"). The primary market for excimer lasers is for use in DUV
photolithography equipment for manufacturing deep-submicron semiconductor
devices. Demand for Cymer's products will depend in part on the rate at which
semiconductor manufacturers adopt excimer lasers as the illumination source for
their photolithography tools.


                                       21
<PAGE>


Impediments to such adoption include:

         -        instability of photoresists used in advanced DUV
                  photolithography and
         -        potential shortages of specialized materials used in DUV
                  optics.

There can be no assurance that such impediments can or will be overcome. In any
event, such impediments may materially reduce the demand for Cymer's products.
Further, if Cymer's customers experience reduced demand for DUV photolithography
tools, or if Cymer's competitors are successful in obtaining significant orders
from such customers, Cymer's financial condition and results of operations would
be materially adversely affected.

RISK OF EXCESSIVE INVENTORY BUILDUPS BY PHOTOLITHOGRAPHY TOOL MANUFACTURERS

         Photolithography tool manufacturers constitute substantially all of
Cymer's customers. Photolithography tool manufacturers sell their systems in
turn to semiconductor manufacturers. Market conditions in the industry can cause
Cymer's customers to expand or reduce their orders for new laser systems as they
try to manage their inventories to appropriate levels which better reflect their
expected sales forecasts. Cymer is working with its customers to better
understand end user demand for DUV photolithography tools. However, there can be
no assurance that Cymer will be successful in this regard, or that its customers
will not build excessive laser inventories. Excessive customer laser inventories
could result in a material decline in Cymer's revenues and operating results in
future periods as such inventories are brought into balance.

DEPENDENCE ON KEY SUPPLIERS

           Cymer obtains certain of the components and subassemblies included in
its products from a single supplier or a limited group of suppliers. In
particular, there are no alternative sources for certain of such components and
subassemblies, including certain optical components used in Cymer's lasers. In
addition, Cymer is increasingly outsourcing the manufacture of various
subassemblies. To date Cymer has been able to obtain adequate supplies of the
components and subassemblies in a timely manner from existing sources. However,
due to the nature of Cymer's product development requirements, key suppliers
often need to rapidly advance their own technologies in order to support Cymer's
new product introduction schedule. These suppliers may or may not be able to
satisfy Cymer's schedule requirements in providing new modules and subassemblies
to Cymer. If Cymer cannot obtain sufficient quantities of such materials,
components or subassemblies, or if such items do not meet Cymer's quality
standards, delays or reductions in product shipments could have a material
adverse effect on Cymer's business, financial condition and results of
operations.

PRODUCTION USE OF EXCIMER LASERS

         Cymer's products might not meet production specifications or cost of
operation requirements over time when subjected to prolonged and intense use in
volume production in semiconductor manufacturing processes. If any semiconductor
manufacturer cannot successfully achieve or sustain volume production using
Cymer's lasers, Cymer's reputation with semiconductor manufacturers or the
limited number of photolithography tool manufacturers could be damaged. This
would have a material adverse effect on Cymer's business, financial condition
and results of operations.

DEVELOPMENT OF FIELD SERVICE AND SUPPORT ORGANIZATION

         Cymer believes that the need to provide fast and responsive service to
the semiconductor manufacturers using its lasers is critical. Cymer cannot
depend solely on its direct customers to provide this specialized service.
Therefore, Cymer believes it is essential to establish through its own
personnel, a rapid response capability to service its lasers throughout the
world. Accordingly, Cymer has an ongoing effort to develop its direct support
infrastructure in the United States, Japan, Europe, Korea, Singapore, Taiwan and
Southeast Asia. This development entails recruiting and training qualified field


                                       22
<PAGE>


service personnel and building effective and highly trained organizations that
can provide service to customers in various countries in their assigned regions.
Cymer has historically experienced difficulties in effectively training field
service personnel. Cymer might not be able to attract and train qualified
personnel to establish these operations successfully. Further, the costs of such
operations might be excessive. A failure to implement this plan effectively
could have a material adverse effect on Cymer's business, financial condition
and results of operations.

DEPENDENCE ON KEY PERSONNEL

         Cymer is highly dependent on the services of a number of key employees
in various areas, including:

         -        engineering,
         -        research and development,
         -        sales and marketing, and
         -        manufacturing.

In particular, there are a limited number of experts in excimer laser
technology. There is intense competition for such personnel, as well as for the
highly-skilled hardware and software engineers Cymer requires. Cymer has in the
past experienced, and continues to experience, difficulty in hiring personnel,
including experts in excimer laser technology. Cymer believes that, to a large
extent, its future success will depend upon:

         -        the continued services of its engineering, research and
                  development, sales and marketing and manufacturing and service
                  personnel, and
         -        its ability to attract, train and retain highly skilled
                  personnel in each of these areas.

Cymer does not have employment agreements with most of its employees, and Cymer
might not be able to retain its key employees. The failure of Cymer to hire,
train and retain such personnel could have a material adverse effect on Cymer's
business, financial condition and results of operations.

UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY

         CYMER PATENTS

         Cymer believes that the success of its business depends more on such
factors as the technical expertise of its employees, as well as their innovative
skills and marketing and customer relations ability, than on patents,
copyrights, trade secrets and other intellectual property rights. Nevertheless,
the success of Cymer may depend in part on patents. As of December 31, 1999,
Cymer owned 61 United States patents covering certain aspects of technology
associated with excimer lasers. Such patents will expire at various times during
the period from January 2008 to October 2018. As of December 31, 1999, Cymer had
also applied for 75 additional patents in the United States, 3 of which have
been allowed. As of December 31, 1999, Cymer owned 37 foreign patents and had
filed 218 patent applications pending in various foreign countries.

         Cymer's pending patent applications and any future applications might
not be approved. Cymer's patents might not provide Cymer with competitive
advantages. Third parties might challenge Cymer's patents. In addition, third
parties' patents might have an adverse effect on Cymer's ability to do business.
In this regard, due to cost constraints, Cymer did not begin filing for patents
in Japan or other countries with respect to inventions covered by its United
States patents and patent applications until 1993. Therefore, Cymer has lost the
right to seek patent protection in those countries for certain of its
inventions. Additionally, because foreign patents may afford less protection
under foreign law than is available under United States patent law, any such
patents issued to Cymer might not adequately protect Cymer's technology in a
given foreign jurisdiction. Furthermore, third parties might independently


                                       23
<PAGE>


develop similar products, duplicate Cymer's products or, to the extent patents
are issued to Cymer, design around the patents issued to Cymer.

         COMPETITIVE PATENTS

         Others may have filed and in the future may file patent applications
that are similar or identical to those of Cymer. To determine the priority of
inventions, Cymer may have to participate in interference proceedings declared
by the United States Patent and Trademark Office. Such interference proceedings
could result in substantial cost to Cymer. Such third party patent applications
might have priority over patent applications filed by Cymer.

         OTHER FORMS OF PROTECTION

         Cymer also relies upon:

         -        trade secret protection,
         -        employee nondisclosure agreements,
         -        third-party nondisclosure agreements, and
         -        other intellectual property protection methods

to protect its confidential and proprietary information. Despite these efforts,
third parties might:

         -        independently develop substantially equivalent proprietary
                  information and techniques,
         -        otherwise gain access to Cymer's trade secrets, or
         -        disclose such technology.

Cymer might not be able to meaningfully protect its trade secrets.

         POSSIBLE CLAIMS TO OWNERSHIP OF CYMER'S INTELLECTUAL PROPERTY

         Cymer has in the past funded a significant portion of its research and
development expenses from outside research and development revenues. Cymer has
received such revenues from photolithography tool manufacturers and from
SEMATECH, a semiconductor industry consortium, in connection with the design and
development of specific products. Cymer currently funds a small portion of its
development expenses through SEMATECH. Although Cymer's arrangements with
photolithography tool manufacturers and SEMATECH seek to clarify the ownership
of the intellectual property arising from research and development services
performed by Cymer, disputes over the ownership or rights to use or market such
intellectual property might arise between Cymer and such parties. Any such
dispute could result in restrictions on Cymer's ability to market its products
and could have a material adverse effect on Cymer's business, financial
condition and results of operations.

         PATENT INFRINGEMENT

         Third parties have in the past notified, and may in the future notify,
Cymer that it may be infringing their intellectual property rights. Conversely,
Cymer has in the past notified, and may in the future notify, third parties that
they may be infringing on Cymer's intellectual property rights.

         Specifically, Cymer has engaged in discussions with one of its
competitors, Komatsu, with respect to certain of Komatsu's Japanese patents, in
the course of which Komatsu has also identified to Cymer a number of additional
Japanese patents that Komatsu asserts may be infringed by Cymer and Cymer's
Japanese manufacturing partner, Seiko. Cymer, in consultation with Japanese
patent counsel, has initiated oppositions to certain Komatsu Japanese patents
and patent applications in the Japanese Patent Office. To date, one of these
oppositions has been dismissed. Litigation might ensue with respect to the
Komatsu Japanese patents. Also, Komatsu might assert infringement claims under
additional patents. Komatsu has notified Seiko that Komatsu intends to enforce
its rights under the


                                       24
<PAGE>


Komatsu Japanese patents against Seiko if Seiko engages in manufacturing
activities for Cymer. In connection with its manufacturing agreement with Seiko,
Cymer has agreed to indemnify Seiko against such claims under certain
circumstances. Cymer and Seiko might not ultimately prevail in any such
litigation.

         Cymer has also asserted certain of its U.S. patents against Komatsu
when informed that Komatsu lasers might be integrated into steppers intended
for shipment into the U.S. Cymer and Komatsu are currently engaged in
discussions with regard to each party's claims. Those discussions might not
be successful and litigation could result. Attorneys representing Komatsu are
currently challenging one of Cymer's U.S. patents in the U.S. Patent Office.

         Any patent litigation, by or against Cymer, would, at a minimum, be
costly. Litigation could also divert the efforts and attention of Cymer's
management and technical personnel. Both could have a material adverse effect on
Cymer's business, financial condition and results of operations. Furthermore, in
the future other third parties might assert other infringement claims, and
customers and end users of Cymer's products might assert other claims for
indemnification resulting from infringement claims. Such assertions, if proven
to be true, might materially adversely affect Cymer's business, financial
condition and results of operations. If any such claims are asserted against
Cymer, Cymer may seek to obtain a license under the third party's intellectual
property rights. However, such a license might not be available on reasonable
terms or at all. Cymer could decide, in the alternative, to resort to litigation
to challenge such claims or to design around the patented technology. Such
actions could be costly and would divert the efforts and attention of Cymer's
management and technical personnel, which would materially adversely affect
Cymer's business, financial condition and results of operations.

         TRADEMARK

         Cymer has registered the incontestable trademark CYMER in the United
States and certain other countries and is seeking additional registrations of
other trademarks including "Insist on Cymer" in the United States and in certain
other countries. Cymer uses these and a variety of other marks in its
advertisements and other business activities around the world. Based on the use
of these marks, Cymer might be subjected to actions for trademark infringement,
which could be costly to defend. If a challenge to a mark were to be successful,
Cymer might be required to cease use of the mark and, potentially, to pay
damages.

RISKS ASSOCIATED WITH MANUFACTURING IN JAPAN

         Cymer has qualified Seiko of Japan as a contract manufacturer of its
photolithography lasers. Komatsu, a competitor of Cymer, has advised Seiko that
certain aspects of Cymer's lasers might infringe certain patents that have been
issued to Komatsu in Japan. Komatsu has advised Seiko it intends to enforce its
rights under such patents against Seiko if Seiko engages in manufacturing
activities for Cymer. In the event that, notwithstanding its manufacturing
agreement with Cymer, Seiko should determine not to continue manufacturing
Cymer's products until resolution of the matter with Komatsu, Cymer's ability to
meet any heavy demand for its products could be materially adversely affected.
See -- "Uncertainty Regarding Patents and Protection of Proprietary Technology."

RISKS OF INTERNATIONAL SALES AND OPERATIONS

         SIGNIFICANT INTERNATIONAL TRADE

         Cymer derived approximately 89%, 88% and 85% of its revenues in 1997,
1998 and 1999, respectively, from customers located outside the United States.
Because a significant majority of Cymer's principal customers are located in
other countries, particularly Asia, Cymer anticipates that international sales
will continue to account for a significant portion of its revenues.* In order to
support its overseas customers, Cymer:


                                       25
<PAGE>


         -        maintains subsidiaries in Japan, Korea, Taiwan, Singapore and
                  the Netherlands,
         -        is further developing its field service and support operations
                  worldwide, and
         -        will continue to work with Seiko as a manufacturer of its
                  products in Japan.*

Cymer might not be able to manage these operations effectively. Cymer's
investment in these activities might not enable it to compete successfully in
international markets or to meet the service and support needs of its customers.
Additionally, a significant portion of Cymer's sales and operations could be
subject to certain risks, including:

         -        tariffs and other barriers,
         -        difficulties in staffing and managing foreign subsidiary and
                  branch operations,
         -        currency exchange risks and exchange controls, o potentially
                  adverse tax consequences, and
         -        the possibility of difficulty in accounts receivable
                  collection.

Because many of Cymer's principal customers, as well as many of the end-users of
Cymer's laser systems, are located in Asia, the recent economic problems and
currency fluctuations affecting that region could intensify Cymer's
international risk. Further, while Cymer has experienced no difficulty to date
in complying with United States export controls, these rules could change in the
future and make it more difficult or impossible for Cymer to export its products
to various countries. These factors could have a material adverse effect on
Cymer's business, financial condition and results of operations.

         CURRENCY FLUCTUATIONS

         Sales by Cymer to its Japanese subsidiary are denominated in dollars,
while sales by the subsidiary to customers in Japan are denominated in yen. This
means that Cymer's results of operations show some fluctuation based on the
value of the Japanese yen against the U.S. dollar. Cymer's Japanese subsidiary
manages its exposure to such fluctuations by entering into foreign currency
exchange contracts to hedge its purchase commitments. Management will continue
to monitor Cymer's exposure to currency fluctuations, and, when appropriate, use
financial hedging techniques to minimize the effect of these fluctuations.
However, exchange rate fluctuations might have a material adverse effect on
Cymer's results of operations or financial condition. In the future, Cymer might
need to sell its products in other currencies, which would make the management
of currency fluctuations more difficult and expose Cymer to greater risks in
this regard.

         FOREIGN REGULATIONS

         Numerous foreign government standards and regulations apply to Cymer's
products. These standards and regulations are continually being amended.
Although Cymer endeavors to meet foreign technical and regulatory standards,
Cymer's products might not continue to comply with foreign government standards
and regulations, or changes thereto. It might not be cost effective for Cymer to
redesign its products to comply with such standards and regulations. The
inability of Cymer to design or redesign products to comply with foreign
standards could have a material adverse effect on Cymer's business, financial
condition and results of operations.

ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS

         Federal, state and local regulations impose various controls on the
storage, handling, discharge and disposal of substances used in Cymer's
manufacturing process and on the facility leased by Cymer. Cymer believes
that its activities conform to present governmental regulations applicable to
its operations and its current facilities. These regulations include those
related to environmental, land use, public utility utilization and fire code
matters. Such governmental regulations might in the future impose the need
for additional capital equipment or other process requirements upon Cymer.
They might also restrict Cymer's ability to expand its operations. The
adoption of such measures, or the failure by Cymer to comply with applicable
environmental and land use regulations or to restrict the discharge of
hazardous

                                       26
<PAGE>


substances, could subject Cymer to future liability or could cause its
manufacturing operations to be curtailed or suspended.

RISKS OF PRODUCT LIABILITY CLAIMS

         Cymer faces a significant risk of exposure to product liability claims
in the event that the use of its products results in personal injury or death.
Cymer might experience material product liability losses in the future. Cymer
maintains insurance against product liability claims. However, such coverage
might not continue to be available on terms acceptable to Cymer. Such coverage
also might not be adequate for liabilities actually incurred. Further, in the
event that any of Cymer's products prove to be defective, Cymer may need to
recall or redesign such products. A successful claim brought against Cymer in
excess of available insurance coverage, or any claim or product recall that
results in significant adverse publicity against Cymer, could have a material
adverse effect on Cymer's business, financial condition and results of
operations.

POSSIBLE PRICE VOLATILITY OF COMMON STOCK

         The following factors may significantly affect the market price of
Cymer's Common Stock:

         -        actual or anticipated fluctuations in Cymer's operating
                  results,
         -        announcements of technological innovations,
         -        new products or new contracts by Cymer or its competitors,
         -        developments with respect to patents or proprietary rights,
         -        conditions and trends in the laser device and other technology
                  industries,
         -        changes in financial estimates by securities analysts,
         -        general market conditions, and
         -        other factors.

In addition, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market price for many high
technology companies. Such fluctuations have in some cases been unrelated to the
operating performance of these companies. Severe price fluctuations in a
company's stock have frequently been followed by securities litigation. Cymer is
currently in the process of defending such an action (see - Legal Matters). Such
litigation can result in substantial costs and a diversion of management's
attention and resources.

LEGAL MATTERS

         Cymer has been named as a defendant in several putative shareholder
class action lawsuits which were filed in September and October, 1998 in the
U.S. District Court for the Southern District of California. Certain executive
officers and directors of Cymer are also named as defendants. The plaintiffs
purport to represent a class of all persons who purchased Cymer's Common Stock
between April 24, 1997 and September 26, 1997 (the "Class Period"). The
complaints allege claims under the federal securities laws. The plaintiffs
allege that Cymer and the other defendants made various material
misrepresentations and omissions during the Class Period. The complaints do not
specify the amount of damages sought. The complaints have been consolidated into
a single action and a class representative has been appointed by the court. A
consolidated amended complaint was filed in early August, 1999. On November 5,
1999 Cymer and the other defendants filed a motion to dismiss the consolidated
amended claim for failure to state a cause of action. No ruling on the motion
has yet been made by the court. Discovery has not yet commenced. Cymer believes
that it has good defenses to the claims alleged in the lawsuits and will defend
itself vigorously against these actions. The defense of these actions may cause
some disruption in Cymer's operations and may from time to time distract
management from day-to-day operations. The ultimate outcome of these actions
cannot be presently determined. Accordingly, no provision for any liability or
loss that may result from adjudication or settlement thereof has been made in
the accompanying consolidated financial statements.


                                       27
<PAGE>


ANTI-TAKEOVER EFFECT OF NEVADA LAW AND CHARTER AND BYLAW PROVISIONS;
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE

         Nevada law as well as Cymer's charter and other documents contain
provisions that could discourage a proxy contest or make more difficult the
acquisition of a substantial block of Cymer's Common Stock, including Cymer's
Articles of Incorporation and Bylaws and Cymer's Preferred Shares Rights
Agreement ("poison pill") dated February 13, 1998. In addition, the Board of
Directors is authorized to issue, without shareholder approval, up to 5,000,000
shares of Preferred Stock. Such shares of Preferred Stock may have voting,
conversion and other rights and preferences that may be superior to those of the
Common Stock and that could adversely affect the voting power or other rights of
the holders of Common Stock. The Board of Directors could use the issuance of
Preferred Stock or of rights to purchase Preferred Stock to discourage an
unsolicited acquisition proposal.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY RISK

         Cymer conducts business in several international currencies through its
worldwide operations. Due to the large volume of business Cymer manages in
Japan, the Japanese operation poses the greatest foreign currency risk. Cymer
uses financial instruments, principally forward exchange contracts, in Japan to
manage its foreign currency exposures. Cymer does not enter into forward
exchange contracts for trading purposes.

         Cymer enters into foreign currency exchange contracts in order to
reduce the impact of currency fluctuations related to purchases of Cymer's
inventories by Cymer Japan for resale under firm third-party sales commitments.
Net gains or losses are recorded on the date the inventories are received by
Cymer Japan (the transaction date) and are included in cost of product sales in
the consolidated statements of income as the related sale is consummated.
Amounts due from/to the bank on contracts not settled as of the transaction date
are recorded as foreign exchange contracts receivable/payable in the
consolidated balance sheets.

         At December 31, 1999, Cymer had outstanding forward foreign exchange
contracts to buy US$56.0 million for 6.0 billion yen under foreign currency
exchange facilities with contract rates ranging from 100.37 yen to 120.50 yen
per US$ and various expiration dates through October, 2000. (See Notes 1 and 4
to Consolidated Financial Statements). The total unrecorded deferred loss and
premium on these contracts at December 31, 1999 was US$1.3 million and $919,000,
respectively.

INVESTMENT AND DEBT RISK

         Cymer maintains an investment portfolio consisting primarily of
government and corporate fixed income securities and commercial paper. While it
is Cymer's general intent to hold such securities until maturity, management
will occasionally sell particular securities for cash flow purposes. Therefore,
Cymer's investments are classified as available-for-sale and are carried on the
balance sheet at fair value. Due to the conservative nature of the investment
portfolio, a sudden change in interest rates would not have a material effect on
the value of the portfolio.

         In August 1997, Cymer issued $172.5 million aggregate principal amount
of Step-Up Convertible Subordinated Notes due August 6, 2004, with interest
payable semi-annually February 6 and August 6, commencing February 6, 1998.
Interest on the notes is stated at 3 1/2% per annum from August 6, 1997 through
August 5, 2000 and at 7 1/4% per annum from August 6, 2000 to maturity or
earlier redemption, representing a yield to maturity accrued at approximately
5.47%. The Notes are convertible at the option of the holder into shares of
Common Stock of Cymer at any time on or after November 5, 1997 and prior to
redemption or maturity, at a conversion rate of 21.2766 shares per $1,000
principal amount of Notes, subject to adjustment under certain conditions. Cymer
cannot redeem the Notes prior to August 9, 2000. Thereafter, Cymer can redeem
the Notes from time to time, in whole or in part, at specified


                                       28
<PAGE>


redemption prices. The Notes are unsecured and subordinated to all existing and
future senior indebtedness of Cymer. The indenture governing the Notes does not
restrict the incurrence of senior indebtedness or other indebtedness by Cymer.
These Notes are recorded at face value on the balance sheets. The fair value of
such debt, based on quoted market prices at December 31, 1999 was $205.1
million. As of December 31, 1998 and 1999, $172.5 million in Convertible
Subordinated Notes was outstanding.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information required by this Item is included in Part IV Item
14(a)(1) and (2).

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information regarding the identification and business experience of
Cymer's directors under the caption "Nominees" under the main caption "Proposal
One - Election of Directors" in Cymer's definitive Proxy Statement for the
annual meeting of stockholders to be held, to be filed with the Securities and
Exchange Commission within 120 days after the end of Cymer's fiscal year ended
December 31, 1999, is incorporated herein by this reference. For information
regarding the identification and business experience of Cymer's executive
officers, see "Executive Officers" at the end of Item 1 in Part I of this Annual
Report on Form 10-K. Information concerning filing requirements applicable to
Cymer's executive officers and directors under the caption "Compliance With
Section 16(a) of the Exchange Act" in Cymer's Proxy Statement is incorporated
herein by this reference.

ITEM 11.  EXECUTIVE COMPENSATION

         The information under the captions "Executive Compensation" and
"Compensation of Directors" in Cymer's Proxy Statement is incorporated herein by
reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information under the caption "Security Ownership of Principal
Stockholders and Management" under the main caption "Additional Information" in
Cymer's Proxy Statement is incorporated herein by this reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information under the caption "Certain Transactions" in Cymer's
Proxy Statement is incorporated herein by this reference.

         With the exception of the information specifically incorporated by
reference from Cymer's Proxy Statement in Part III of this Annual Report on Form
10-K, Cymer's Proxy Statement shall not be deemed to be filed as part of this
Report. Without limiting the foregoing, the information under the captions
"Report of the Compensation Committee of the Board of Directors" and "Company's
Stock Performance" under the main caption "Additional Information" in Cymer's
Proxy Statement is not incorporated by reference in this Annual Report on Form
10-K.


                                       29
<PAGE>


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a) The following documents are filed as part of, or incorporated by
reference into, this Annual Report on Form 10-K:

                  (1) FINANCIAL STATEMENTS. The following Consolidated Financial
Statements of Cymer, Inc. and Independent Auditors' Report are included in a
separate section of this Report beginning on page F-1:

<TABLE>
<CAPTION>

                  Description                                                                            Page Number
                  <S>                                                                                    <C>
                  Independent Auditors' Report.......................................................        F-1
                  Consolidated Balance Sheets as of December 31, 1998 and 1999.......................        F-2
                  Consolidated Statements of  Income for the Years Ended
                           December 31, 1997, 1998 and 1999..........................................        F-3
                  Consolidated Statements of Stockholders' Equity for the Years
                           Ended December 31, 1997, 1998 and 1999....................................        F-4
                  Consolidated Statements of Cash Flows for the Years Ended
                           December 31, 1997, 1998 and 1999..........................................        F-6
                  Notes to Consolidated Financial Statements.........................................        F-8

</TABLE>

                  (2) FINANCIAL STATEMENT SCHEDULES. All financial statement
         schedules have been omitted because the required information is not
         applicable or not present in amounts sufficient to require submission
         of the schedule, or because the information required is included in the
         consolidated financial statements or the notes thereto.

                  (3) EXHIBITS. The exhibits listed under Item 14(c) hereof are
         filed with, or incorporated by reference into, this Annual Report on
         Form 10-K.

         (b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by
Registrant during the fourth quarter of the fiscal year ended December 31, 1999.

         (c) EXHIBITS. The following exhibits are filed as part of, or
incorporated by reference into, this Annual Report on Form 10-K:


             3.1      Amended and Restated Articles of Incorporation of
                      Cymer (incorporated herein by reference to Exhibit
                      3.1 to Cymer's Registration Statement on Form S-1 (as
                      amended), Reg. No. 333-08383).

             3.2      Certificate of Designations of Rights, Preferences
                      and Privileges of Series A Participating Preferred
                      Stock of Cymer (incorporated herein by reference to
                      Exhibit 1 to Cymer's Form 8-A, dated February 20,
                      1998).

             3.3      Bylaws of Cymer, as amended and restated.

             4.1      Preferred Shares Rights Agreement, dated as of
                      February 13, 1998 between Cymer and ChaseMellon
                      Shareholder Services, L.L.C. (incorporated herein by
                      reference to Exhibit 1 to Cymer's Form 8-A, dated
                      February 20, 1998).

             4.2      Indenture, dated as of August 6, 1997, by and among
                      Cymer and State Street Bank and Trust Company of
                      California, N.A., as trustee thereunder (incorporated
                      herein by reference to Exhibit 4.1 to Cymer's Form
                      8-K, dated August 6, 1997.)


                                       30
<PAGE>


            10.1     Form of Indemnification Agreement with Directors and
                     Officers (incorporated herein by reference to Exhibit
                     10.1 to Cymer's Registration Statement on Form S-1
                     (as amended), Reg. No. 333-08383).

            10.2     Standard Industrial Lease - Multi-Tenant, dated
                     August 19, 1991, by and between Lepercq Corporate
                     Income Fund L.P. and Cymer (originally between
                     Frankris Corporation and Cymer) (incorporated herein
                     by reference to Exhibit 10.15 to Cymer's Registration
                     Statement on Form S-1 (as amended), Reg. No.
                     333-08383).

            10.3     Single-Tenant Industrial Lease, dated December 19,
                     1996, by and between AEW/LBA Acquisition Co. II, LLC
                     and Cymer (incorporated herein by reference to
                     Exhibit 10.20 to Cymer's Annual Report on Form 10-K
                     filed for the year ended December 31, 1996).

            10.4     Patent License Agreement, dated October 13, 1989, by
                     and between Cymer and Patlex Corporation
                     (incorporated herein by reference to Exhibit 10.13 to
                     Cymer's Registration Statement on Form S-1 (as
                     amended), Reg. No. 333-08383).

            10.5     Contract Manufacturing Agreement -- Lithography
                     Laser, dated August 28, 1992, by and between Cymer
                     and Seiko Instruments Inc. (the "Seiko Agreement")
                     (incorporated herein by reference to Exhibit 10.16 to
                     Cymer's Registration Statement on Form S-1 (as
                     amended), Reg. No. 333-08383).

                     Addendum No. 2 to the Seiko Agreement, dated February
                     21, 2000.

            10.6     Loan Agreement, dated as of December 8, 1997, by and
                     among Silicon Valley Bank and Bank of Hawaii, as
                     co-lenders, and Cymer and Cymer Japan, Inc., as
                     borrowers (the "Loan Agreement") (incorporated herein
                     by reference to Exhibit 10.10 to Cymer's Annual
                     Report on Form 10-K/A filed for the year ended
                     December 31, 1997).

                     Amendment to the Loan Agreement, dated as of February
                     4, 1999.

                     Amendment to the Loan Agreement, dated as of
                     September 22, 1999.

                     Amendment to the Loan Agreement, dated as of February
                     4, 2000.

                     Corporate Guaranty, dated December 8, 1997, from
                     Cymer to Silicon Valley Bank and Bank of Hawaii, as
                     co-lenders (incorporated herein by reference to
                     Exhibit 10.12 to Cymer's Annual Report on Form 10-K/A
                     filed for the year ended December 31, 1997).

            10.7     1996 Stock Option Plan, as amended and restated.

            10.8     1996 Employee Stock Purchase Plan (incorporated
                     herein by reference to Exhibit 10.4 to Cymer's
                     Registration Statement on Form S-1 (as amended), Reg.
                     No. 333-08383).

            10.9     1996 Director Option Plan (incorporated herein by
                     reference to Exhibit 10.5 to Cymer's Registration
                     Statement on Form S-1 (as amended), Reg. No.
                     333-08383).


                                 31
<PAGE>


            10.10    Employment Agreement, dated November 26, 1997, by and
                     between Robert P. Akins and Cymer (incorporated
                     herein by reference to Exhibit 10.16 to Cymer's
                     Annual Report on form 10-K/A filed for the year ended
                     December 31, 1997).

            10.11    Employment Agreement, dated November 26, 1997, by and
                     between William A. Angus, III and Cymer (incorporated
                     herein by reference to Exhibit 10.17 to Cymer's
                     Annual Report on form 10-K/A filed for the year ended
                     December 31, 1997).

            10.12    Employment Agreement, dated November 26, 1997, by and
                     between Pascal Didier and Cymer (incorporated herein
                     by reference to Exhibit 10.18 to Cymer's Annual
                     Report on form 10-K/A filed for the year ended
                     December 31, 1997).

            10.13    Employment Agreement, dated October 21, 1998, by and
                     between Edward P. Holtaway and Cymer (incorporated
                     herein by reference to Exhibit 10.20 to Cymer's
                     Annual Report on form 10-K filed for the year ended
                     December 31, 1998).

            10.14    Employment Agreement, dated March 1, 2000, by and
                     between Wallace Breitman and Cymer.

            10.15    Description of Cymer Management Incentive Plan.

            10.16    Cymer Deferred Compensation Plan.

            21.1     Subsidiaries of Registrant

            23.1     Independent Auditors' Consent

            27.1     Financial Data Schedule for the year ended December
                     31, 1999

         (d) FINANCIAL STATEMENT SCHEDULES. See item 14, paragraph (a) (2),
above.


                                       32
<PAGE>


                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                   CYMER, INC.


Dated: March 24, 2000                     By:   /s/  ROBERT P. AKINS
                                               -------------------------------
                                                  Robert P. Akins, President


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

<TABLE>


<S>                                      <C>                                        <C>
    /s/ ROBERT P. AKINS                  President, Chief Executive Officer,
   -----------------------               and Chairman of the Board                  March 24, 2000
       Robert P. Akins                   (Principal Executive Officer)


 /s/ WILLIAM A. ANGUS, III               Senior Vice President, Chief
 -------------------------               Financial Officer and Secretary            March 24, 2000
   William A. Angus, III                 (Principal Financial Officer)


     /s/ NANCY J. BAKER                  Vice President, Finance,
   -----------------------               Treasurer and Chief Accounting
        Nancy J. Baker                   Officer                                    March 24, 2000
                                         (Principal Accounting Officer)


   /s/ RICHARD P. ABRAHAM                Director                                   March 24, 2000
   -----------------------
     Richard P. Abraham


   /s/ KENNETH M. DEEMER                 Director
   -----------------------
      Kenneth M. Deemer                                                             March 24, 2000


    /s/ PETER J. SIMONE                  Director
   -----------------------
       Peter J. Simone                                                              March 24, 2000


    /s/ JON D. TOMPKINS                  Director
   -----------------------
       Jon D. Tompkins                                                              March 24, 2000

</TABLE>



                                       33

<PAGE>





INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders of Cymer, Inc.:


We have audited the accompanying consolidated balance sheets of Cymer, Inc. and
subsidiaries (collectively, the "Company") as of December 31, 1998 and 1999, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.



/s/  DELOITTE & TOUCHE LLP
     San Diego, California
     January 28, 2000


                                      F-1
<PAGE>


CYMER, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                                   DECEMBER 31,
                                                                                         ----------------------------------
ASSETS                                                                                       1998                1999
<S>                                                                                      <C>                 <C>
CURRENT ASSETS:

  Cash and cash equivalents                                                                    $53,130             $75,765
  Short-term investments                                                                        85,558              97,564
  Accounts receivable - net                                                                     50,909              69,251
  Foreign exchange contracts receivable                                                         22,145              21,706
  Inventories                                                                                   50,786              51,409
  Deferred income taxes                                                                         12,824              16,360
  Prepaid expenses and other                                                                     3,706               3,110
                                                                                         --------------     ---------------
           Total current assets                                                                279,058             335,165

PROPERTY - net                                                                                  51,937              56,921
LONG-TERM INVESTMENTS                                                                           23,480              19,760
DEFERRED TAXES - NON-CURRENT                                                                     2,533               8,562
OTHER ASSETS                                                                                     7,310               6,413
                                                                                         --------------     ---------------

TOTAL ASSETS                                                                                  $364,318            $426,821
                                                                                         ==============     ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                                              $8,581             $20,599
  Accrued and other liabilities                                                                 33,204              52,292
  Foreign exchange contracts payable                                                            24,873              24,276
  Income taxes payable                                                                           2,146               6,482
  Revolving loan                                                                                11,609              18,395
                                                                                         --------------     ---------------
           Total current liabilities                                                            80,413             122,044
                                                                                         --------------     ---------------

LONG-TERM LIABILITIES:
  Convertible Subordinated Notes                                                               172,500             172,500
  Other Liabilities                                                                              3,424               3,271
MINORITY INTEREST                                                                                1,450               2,113
COMMITMENTS AND CONTINGENCIES (NOTES 4, 5, 6, 8, 9 and 10)

STOCKHOLDERS' EQUITY:
 Preferred stock - authorized 5,000,000 shares; $.001 par value,
    no shares issued or outstanding
 Common stock - authorized 50,000,000 shares; $.001 par value,
    issued and outstanding 27,174,000 and 28,435,000 shares                                         27                  28
 Paid-in capital                                                                               111,842             125,623
 Treasury stock at cost (2,000,000 common shares)                                              (24,871)           ( 24,871)
 Accumulated other comprehensive loss                                                           (1,627)             (3,620)
 Retained earnings                                                                              21,160              29,733
                                                                                         --------------     ---------------
           Total stockholders' equity                                                          106,531             126,893
                                                                                         --------------     ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                    $364,318            $426,821
                                                                                         ==============     ===============

</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-2
<PAGE>


CYMER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                   YEAR ENDED DECEMBER 31,
                                                                        ----------------------------------------------
                                                                            1997             1998            1999
<S>                                                                       <C>              <C>             <C>
REVENUES:
  Product sales                                                           $201,191         $184,828        $220,051
  Other                                                                      2,456              313             399
                                                                        --------------   -------------   -------------
           Total revenues                                                  203,647          185,141         220,450
                                                                        --------------   -------------   -------------
COSTS AND EXPENSES:
  Cost of product sales                                                    123,654          125,713         143,105
  Research and development                                                  24,971           30,152          34,518
  Sales and marketing                                                       11,992           14,528          16,742
  General and administrative                                                 8,586            9,487          13,101
                                                                        --------------   -------------   -------------
           Total costs and expenses                                        169,203          179,880         207,466
                                                                        --------------   -------------   -------------

OPERATING INCOME                                                            34,444            5,261          12,984
                                                                        --------------   -------------   -------------

OTHER INCOME (EXPENSE):
  Foreign currency exchange gain (loss) - net                                 (359)             692             643
  Interest and other income                                                  5,318            7,384           7,327
  Interest and other expense                                                (4,847)         (11,644)        (11,718)
                                                                        --------------   -------------   -------------
           Total other income (expense) - net                                  112           (3,568)         (3,748)
                                                                        --------------   -------------   -------------
INCOME BEFORE INCOME TAX (PROVISION) BENEFIT AND
MINORITY INTEREST                                                           34,556            1,693           9,236
                                                                        --------------   -------------   -------------

INCOME TAX (PROVISION) BENEFIT                                              (8,639)           1,250
MINORITY INTEREST                                                              141             (420)           (663)
                                                                        --------------   -------------   -------------

NET INCOME                                                                 $26,058           $2,523          $8,573
                                                                        ==============   =============   =============

EARNINGS PER SHARE:
  Basic:
    Earnings per share                                                       $0.92            $0.09           $0.31
                                                                        ==============   =============   =============
    Weighted average common shares outstanding                              28,212           28,226          27,907
                                                                        ==============   =============   =============
  Diluted:
    Earnings per share                                                       $0.86            $0.09           $0.29
                                                                        ==============   =============   =============
    Weighted average common and potential common shares
      outstanding                                                           30,267           29,566          29,640
                                                                        ==============   =============   =============

</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>


CYMER, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

(IN THOUSANDS)
                                                                                                              ACCUMULATED
                                                               COMMON STOCK                                      OTHER
                                                           ---------------------   PAID-IN     TREASURY      COMPREHENSIVE
                                                            SHARES     AMOUNT      CAPITAL       STOCK           LOSS
                                                           ---------  ----------  -----------  ----------   ----------------
<S>                                                        <C>        <C>         <C>          <C>          <C>
BALANCE, JANUARY 1, 1997                                     27,560         $28     $106,658                          ($445)

   Exercise of common stock options and warrants              1,045           1          473
   Issuance of employee stock purchase plan shares              119                      852
   Income tax benefit from stock options exercised                                     1,802
   Deferred issuance costs, secondary public offering                                   (418)
   Net income
   Other comprehensive income:
      Translation adjustment, net of tax                                                                             (1,858)
      Net unrealized gain on available-for-sale investments,
         net of tax                                                                                                      49

    Total comprehensive income
                                                           ---------  ----------  -----------  ----------   ----------------


BALANCE, DECEMBER 31, 1997                                   28,724          29      109,367                         (2,254)

   Exercise of common stock options and warrants                365                      638
   Issuance of employee stock purchase plan shares               85                    1,236
   Stock repurchase of treasury stock                        (2,000)         (2)                 (24,871)
   Income tax benefit from stock options exercised                                       601
   Net income
   Other comprehensive income:
      Translation adjustment, net of tax                                                                                441
      Net unrealized gain on available-for-sale investments,
         net of tax                                                                                                     186

    Total comprehensive income
                                                           ---------  ----------  -----------  ----------   ----------------

<CAPTION>


                                                                                                     TOTAL
                                                               RETAINED      STOCKHOLDERS'       COMPREHENSIVE
                                                               EARNINGS          EQUITY              INCOME
                                                            ---------------  ---------------   ------------------
<S>                                                         <C>              <C>               <C>
BALANCE, JANUARY 1, 1997                                          ($7,421)          $98,820

   Exercise of common stock options and warrants                                        474
   Issuance of employee stock purchase plan shares                                      852
   Income tax benefit from stock options exercised                                    1,802
   Deferred issuance costs, secondary public offering                                  (418)
   Net income                                                       26,058           26,058               26,058
   Other comprehensive income:
      Translation adjustment, net of tax                                             (1,858)              (1,858)
      Net unrealized gain on available-for-sale investments,
         net of tax                                                                      49                   49
                                                                                               ------------------
    Total comprehensive income                                                                           $24,249
                                                            ---------------  ---------------   ==================

BALANCE, DECEMBER 31, 1997                                          18,637          125,779

   Exercise of common stock options and warrants                                        638
   Issuance of employee stock purchase plan shares                                    1,236
   Stock repurchase of treasury stock                                               (24,873)
   Income tax benefit from stock options exercised                                      601
   Net income                                                        2,523            2,523                2,523
   Other comprehensive income:
      Translation adjustment, net of tax                                                441                  441
      Net unrealized gain on available-for-sale investments,
         net of tax                                                                     186                  186
                                                                                               ------------------
    Total comprehensive income                                                                            $3,150
                                                            ---------------  ---------------   ==================

</TABLE>


                                      F-4
<PAGE>


<TABLE>
<CAPTION>

(IN THOUSANDS)
                                                                                                              ACCUMULATED
                                                               COMMON STOCK                                      OTHER
                                                           ---------------------   PAID-IN     TREASURY      COMPREHENSIVE
                                                            SHARES     AMOUNT      CAPITAL       STOCK           LOSS
                                                           ---------  ----------  -----------  ----------   ----------------
<S>                                                        <C>        <C>         <C>          <C>          <C>
BALANCE, DECEMBER 31, 1998                                   27,174         $27     $111,842   ($24,871)           ($1,627)

   Exercise of common stock options and warrants              1,169           1        7,350
   Issuance of employee stock purchase plan shares               92                    1,183
   Income tax benefit from stock options exercised                                     5,248
   Net income
   Other comprehensive income:
      Translation adjustment, net of tax                                                                            (1,719)
      Net unrealized loss on available-for-sale investments,
         net of tax                                                                                                   (274)

    Total comprehensive income
                                                           ---------  ----------  -----------  ----------   ----------------

BALANCE, DECEMBER 31, 1999                                   28,435         $28     $125,623   ($24,871)           ($3,620)
                                                           =========  ==========  ===========  ==========   ================

</TABLE>


<TABLE>
<CAPTION>

                                                                                                     TOTAL
                                                               RETAINED      STOCKHOLDERS'       COMPREHENSIVE
                                                               EARNINGS          EQUITY              INCOME
                                                            ---------------  ---------------   ----------------
<S>                                                         <C>              <C>               <C>

BALANCE, DECEMBER 31, 1998                                          $21,160         $106,531

   Exercise of common stock options and warrants                                       7,351
   Issuance of employee stock purchase plan shares                                     1,183
   Income tax benefit from stock options exercised                                     5,248
   Net income                                                         8,573            8,573             $8,573
   Other comprehensive income:
      Translation adjustment, net of tax                                              (1,719)            (1,719)
      Net unrealized gain on available-for-sale investments,
         net of tax                                                                     (274)              (274)
                                                                                                ----------------
    Total comprehensive income                                                                           $6,580
                                                             --------------   ---------------   ================
                                                                    $29,733         $126,893
BALANCE, DECEMBER 31, 1999                                   ==============   ===============

</TABLE>


See Notes to Consolidated Financial Statements.                      (concluded)


                                       F-5
<PAGE>


CYMER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                    YEAR ENDED DECEMBER 31,
                                                                      ----------------------------------------------------
                                                                            1997              1998              1999
<S>                                                                          <C>                 <C>               <C>
OPERATING ACTIVITIES:
  Net income                                                                 $26,058             $2,523            $8,573
  Adjustments to reconcile net income to net cash provided by
     (used for) operating activities:
      Depreciation and amortization                                            7,606             16,001            18,463
      Minority interest                                                         (141)               420               663
      Deferred income taxes                                                  (11,295)            (1,683)           (2,899)
      Loss on disposal of property                                                                  436               411
      Change in assets and liabilities:
        Accounts receivable                                                  (43,467)            12,865           (14,446)
        Foreign exchange contracts receivable                                (24,819)            12,022             2,601
        Inventories                                                          (32,288)            (2,110)              636
        Prepaid expenses and other assets                                     (1,029)              (331)              616
        Accounts payable                                                       15,684           (12,815)           11,890
        Accrued and other liabilities                                          18,602             5,344            19,044
        Foreign exchange contracts payable                                     21,397            (5,664)           (3,014)
        Income taxes payable                                                    6,166            (3,789)            4,234
        Other                                                                     194
                                                                      ----------------  ----------------  ----------------
           Net cash provided by (used for) operating activities               (17,332)           23,219            46,772
                                                                      ----------------  ----------------  ----------------

INVESTING ACTIVITIES:
  Acquisition of property                                                     (42,209)          (19,621)          (22,195)
  Disposal of property                                                            147
  Purchases of investments                                                   (140,939)          (74,604)         (126,980)
  Proceeds from sold or matured investments                                    29,370            88,571           118,228
                                                                      ----------------  ----------------  ----------------
           Net cash used for investing activities                            (153,631)           (5,654)          (30,947)
                                                                      ----------------  ----------------  ----------------

FINANCING ACTIVITIES:
  Net borrowings (payments) under revolving loan and
    security agreements                                                        (1,750)            10,083            4,938
  Proceeds from issuance of convertible subordinated notes                    172,500
  Debt issue costs                                                             (5,228)
  Proceeds from issuance of common stock                                        2,125              1,874            8,534
  Purchase of treasury stock                                                                     (24,871)
  Payments on capital lease obligations                                          (395)              (579)            (586)
                                                                      ----------------  ----------------  ----------------
           Net cash provided by (used for) financing activities               167,252            (13,493)          12,886
                                                                      ----------------  ----------------  ----------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
  CASH EQUIVALENTS                                                                209             (2,845)          (6,076)
                                                                      ----------------  ----------------  ----------------

</TABLE>

                                                                     (continued)

                                      F-6

<PAGE>


<TABLE>
<CAPTION>

                                                                                    YEAR ENDED DECEMBER 31,
                                                                      ----------------------------------------------------
                                                                            1997              1998              1999
<S>                                                                          <C>                 <C>               <C>
NET INCREASE (DECREASE) IN CASH AND CASH
   EQUIVALENTS                                                                 (3,502)            1,227               22,635

CASH AND CASH EQUIVALENTS AT BEGINNING  OF
   YEAR                                                                        55,405            51,903               53,130
                                                                      ----------------  ----------------    -----------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                      $51,903           $53,130              $75,765
                                                                      ================  ================    =================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Interest paid                                                                  $671            $6,617               $6,744
                                                                      ================  ================    =================
  Income taxes paid                                                           $11,991            $4,205               $2,368
                                                                      ================  ================    =================

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
  AND FINANCING ACTIVITIES:

  Capital lease obligations incurred for furniture and equipment               $1,950              $102
                                                                      ================  ================

</TABLE>


See Notes to Consolidated Financial Statements.
                                                                     (concluded)


                                      F-7
<PAGE>


CYMER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF OPERATIONS - Cymer, Inc., its wholly-owned and majority-owned
      subsidiaries, (collectively, "Cymer") is engaged primarily in the
      development, manufacturing and marketing of excimer lasers for sale to
      manufacturers of photolithography tools in the semiconductor equipment
      industry. Cymer sells its product to customers primarily in Japan, The
      Netherlands and the United States.

      PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
      include the accounts of Cymer, Inc., its wholly-owned subsidiaries, Cymer
      Japan, Inc. (Cymer Japan), Cymer Singapore, Pte Ltd. (Cymer Singapore) and
      Cymer B.V. in The Netherlands (Cymer B.V.), and its majority-owned
      subsidiaries, Cymer Korea, Inc. (Cymer Korea) and Cymer Southeast Asia,
      Inc. (Cymer SEA). Cymer, Inc. owns 70% of Cymer Korea and 75% of Cymer
      SEA. Cymer sells its excimer lasers in Japan primarily through Cymer
      Japan. Cymer Korea, Cymer SEA, Cymer Singapore and Cymer B.V. are field
      service offices for customers in those regions. All significant
      intercompany balances have been eliminated in consolidation.

      ACCOUNTING ESTIMATES - The preparation of financial statements in
      conformity with generally accepted accounting principles requires
      management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and the reported
      amounts of revenues and expenses during the reporting period. Actual
      results may differ from those estimates.

      RECENT ACCOUNTING PRONOUNCEMENTS - During June 1999, the Financial
      Accounting Standards Board ("FASB") issued Statement of Financial
      Accounting Standards ("SFAS") No. 137, ACCOUNTING FOR DERIVATIVE
      INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL OF THE EFFECTIVE DATE OF FASB
      STATEMENT 133. The Statement defers the effective date of SFAS No. 133 to
      all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS
      No. 133 establishes accounting and reporting standards for derivative
      instruments and hedging activities. SFAS No. 133 will become effective for
      Cymer beginning January 1, 2001. Management has not yet assessed the
      effect of this standard on Cymer's current reporting and disclosures.

      CASH EQUIVALENTS - Cash equivalents consist of money market instruments,
      commercial paper and other highly liquid investments purchased with an
      original maturity of three months or less.

      INVESTMENTS - Cymer's investments are composed primarily of government and
      corporate fixed income securities and commercial paper. While it is
      Cymer's general intent to hold such securities until maturity, management
      will occasionally sell particular securities for cash flow purposes.
      Therefore, Cymer's investments are classified as available-for-sale and
      are carried at fair value. Net unrealized holding gains were $235,000 at
      December 31, 1998 and net unrealized holding losses were $230,000 at
      December 31, 1999. These net unrealized holding gains (losses), net of
      taxes, are included in stockholders' equity as accumulated other
      comprehensive income (loss). See Note 3.

      INVENTORIES - Inventories are carried at the lower of cost (first-in,
      first-out) or market. Cost includes material, labor and manufacturing
      overhead costs.


                                      F-8
<PAGE>


      PROPERTY - Property is stated at cost. Depreciation is provided using the
      straight-line method over the estimated useful lives of the assets
      (generally three to five years). Leasehold improvements are amortized,
      using the straight-line method, over the shorter of the life of the
      improvement or the remaining lease term. Lasers built for internal use are
      capitalized and depreciated using the straight-line method over three
      years.

      IMPAIRMENT OF LONG-LIVED ASSETS - In accordance with SFAS No. 121,
      ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
      ASSETS TO BE DISPOSED OF, long-lived assets are reviewed for impairment
      and written down to fair value whenever events or changes in circumstances
      indicate that the carrying value may not be recoverable. Under the
      provisions of SFAS No. 121, impairment losses are recognized when expected
      future nondiscounted cash flows are less than the assets' carrying values.
      No such losses occurred in 1997, 1998, or 1999.

      FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and
      assumptions were used to estimate the fair value of each class of
      financial instruments for which it is practicable to estimate that value:

         Cash and Cash Equivalents - The carrying amount reported in the
         consolidated balance sheets for cash and cash equivalents approximates
         fair value because of the short maturity of those instruments.

         Investments - Investments consist primarily of government and corporate
         fixed income securities and commercial paper (see "Investments" above
         in Note 1 and Note 3). Such assets are carried at fair value which is
         based on quoted market prices for such securities.

         Foreign Exchange Contracts - The fair value of foreign exchange
         contracts is determined using the quoted exchange rate (see "Foreign
         Exchange Contracts" below in Note 1).

         Convertible Subordinated Notes - Convertible Subordinated Notes are
         recorded at face value of $172.5 million (see Note 5). The fair value
         of such debt, based on quoted market prices at December 31, 1998 and
         1999 was $134.9 milion and $205.1 million, respectively.

      COMPREHENSIVE INCOME - Comprehensive income includes such items as foreign
      currency translation adjustments and unrealized holding gains and losses
      on available for sale securities that are currently being presented by
      Cymer as a component of stockholders' equity

      REVENUE RECOGNITION - Revenue from product sales is generally recognized
      at the time of shipment unless customer agreements contain inspection or
      other conditions, in which case revenue is recognized at the time such
      conditions are satisfied. Product sales include sales of lasers,
      replacement parts, and product service contracts. Other revenue primarily
      represents revenue earned from funded development activities and license
      fees. Such revenue is recognized on a basis consistent with the
      performance requirement of the agreements. Payments received in advance of
      performance are recorded as deferred revenue. Long-term contracts are
      accounted for on the percentage-of-completion method based upon the
      relationship of costs incurred to total estimated costs, after giving
      effect to estimates of costs to complete.

      Research and development revenues totaled $2,456,000, $313,000 and
      $399,000 for the years ended December 31, 1997, 1998 and 1999,
      respectively.

      WARRANTY EXPENSE - Cymer generally warrants its products against defects
      for the earlier of 17 to 25 months from the date of shipment or 12 months
      after acceptance by the end-user. Cymer accrues a provision for warranty
      expense for all products sold which is included in cost of product sales
      in the consolidated statements of income. The amount of the provision is
      based on actual


                                      F-9
<PAGE>


      historical expenses incurred and estimated probable future expenses
      related to current sales. Warranty costs incurred are charged against the
      provision.

      STOCK-BASED COMPENSATION - Cymer has elected to account for stock-based
      compensation using the intrinsic value method prescribed in Accounting
      Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
      EMPLOYEES, and related Interpretations. Accordingly, compensation cost for
      stock options is measured as the excess, if any, of the quoted market
      price of Cymer's stock at the date of the grant over the amount an
      employee must pay to acquire the stock. Pro forma disclosures required
      under SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which
      prescribes the recognition of compensation expense based on the fair value
      of options on the grant date, have been provided. See Note 6.

      FOREIGN CURRENCY TRANSLATION - Gains and losses resulting from foreign
      currency translation are accumulated as a separate component of
      consolidated stockholders' equity as accumulated other comprehensive
      income (loss). Gains and losses resulting from foreign currency
      transactions are included in the consolidated statements of income.

      FOREIGN EXCHANGE CONTRACTS - Cymer enters into foreign currency exchange
      contracts in order to reduce the impact of currency fluctuations related
      to purchases of Cymer's inventories by Cymer Japan for resale under firm
      third-party sales commitments. Net gains or losses are recorded on the
      date the inventories are received by Cymer Japan (the transaction date)
      and are included in cost of product sales in the consolidated statements
      of income as the related sale is consummated. Amounts due from/to the bank
      on contracts not settled as of the transaction date are recorded as
      foreign exchange contracts receivable/payable in the consolidated balance
      sheets.

      Cymer recognized net gains from the above foreign currency exchange
      contracts of $5,758,000 and $4,547,000 for the years ended December 31,
      1997 and 1998, respectively, and a net loss of $2,991,000 for the year
      ended December 31, 1999.

      The face amount of the underlying contracts was $88,339,000, $83,006,000
      and $54,123,000 at December 31, 1997, 1998 and 1999, respectively. Cymer
      had outstanding forward foreign exchange contracts at December 31, 1999 to
      buy $56.0 million for 6.0 billion yen under foreign currency exchange
      facilities with banks in Japan and the United States (see Note 4). The
      total unrecorded deferred loss and premium on these contracts as of
      December 31, 1999 was approximately $1.3 million and $919,000,
      respectively. Such contracts expire on various dates through October 2000.

      CONCENTRATION OF CREDIT RISK - Cymer invests its excess cash in an effort
      to preserve capital, provide liquidity, maintain diversification and
      generate returns relative to Cymer's corporate investment policy and
      prevailing market conditions. Cymer has not experienced any material
      losses on its cash and investment accounts. Cymer has a small number of
      significant customers and maintains a reserve for potential credit losses
      and such losses, to date, have been minimal (see "Major Customers and
      Related Parties").

      MAJOR CUSTOMERS AND RELATED PARTIES - Revenues from major customers are
      detailed as follows:

<TABLE>
<CAPTION>

                                          YEAR ENDED DECEMBER 31,
                              -------------------------------------------------
                                   1997              1998              1999
     CUSTOMER                                   (IN THOUSANDS)
     <S>                         <C>              <C>               <C>
     A                             $80,156           $57,900           $53,201
     B                              51,480            36,916            38,200
     C                              49,441            67,729            72,828
     D                              11,697            10,833            11,794

</TABLE>


                                      F-10
<PAGE>


      Receivables from these customers totaled $42,320,000 and $47,682,000 at
      December 31, 1998 and 1999, respectively.

      Revenues from Japanese customers, generated primarily by Cymer Japan,
      accounted for 65%, 48% and 37% of revenues for the years ended December
      31, 1997, 1998 and 1999, respectively. Revenues from a customer in The
      Netherlands accounted for 24%, 37% and 33% of revenues for the years ended
      December 31, 1997, 1998 and 1999, respectively.

      Revenues from stockholders totaled $131,636,000, $94,816,000 and
      $91,401,000 for the years ended December 31, 1997, 1998 and 1999,
      respectively.

      EARNINGS PER SHARE - Earnings per share ("EPS") have been computed in
      accordance with SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128 requires
      dual presentation of "Basic" and "Diluted" EPS by entities with complex
      capital structures, replacing "Primary" and "Fully Diluted" EPS under APB
      Opinion No. 15, EARNINGS PER SHARE. Basic EPS excludes dilution and is
      computed by dividing net income or loss attributable to common
      stockholders by the weighted-average of common shares outstanding for the
      period. Diluted EPS reflects the potential dilution that could occur if
      securities or other contracts to issue common stock (convertible preferred
      stock, warrants to purchase common stock and common stock options using
      the treasury stock method) were exercised or converted into common stock.
      Potential common shares in the diluted EPS computation are excluded in net
      loss periods as their effect would be antidilutive. Basic and diluted EPS
      were calculated as follows:

<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31,
                                                            -------------------------------------------------
                                                               1997               1998              1999
                                                                         (IN THOUSANDS, EXCEPT
                                                                           PER SHARE AMOUNTS)
      <S>                                                   <C>               <C>                <C>
      Net income                                                $26,058             $2,523            $8,573
                                                            ============      =============      ============

      Basic earnings per share                                    $0.92              $0.09             $0.31
                                                            ============      =============      ============
      Basic weighted average common shares outstanding
                                                                 28,212             28,226            27,907

      Effect of dilutive securities:
        Warrants                                                    121                111                36
        Options                                                   1,934              1,229             1,697
                                                            ------------      -------------      ------------
      Diluted weighted average common and potential
         common shares outstanding                               30,267             29,566            29,640
                                                            ============      =============      ============
      Diluted earnings per share                                  $0.86              $0.09             $0.29
                                                            ============      =============      ============

</TABLE>


      Weighted average options to purchase 412,000, 2,364,000 and 168,000 shares
      of common stock, which expire at various dates through 2009 were
      outstanding for the years ended December 31, 1997, 1998 and 1999,
      respectively, and were not included in the computation of diluted earnings
      per share as the options' exercise prices were greater than the average
      market prices of the common shares. In addition, for the years ended
      December 31, 1997, 1998 and 1999, potential common shares attributable to
      Convertible Subordinated Notes of 1,529,000, 3,670,213, and 3,670,213, and
      related interest expense of $4,249,000, $9,732,000 and $9,732,000,
      respectively, were not included in the diluted earnings per share
      computation as they were also anti-dilutive.


                                      F-11
<PAGE>


      STOCK SPLIT - On August 7, 1997, Cymer declared a 2-for-1 stock split of
      its common stock effective August 21, 1997. The par value of the common
      stock of $.001 per share remained unchanged. All common share amounts and
      earnings per share for all periods presented have been adjusted to give
      effect to this stock split.

      RECLASSIFICATIONS - Certain amounts in the prior years' financial
      statements have been reclassified to conform to current period
      presentation.

<TABLE>
<CAPTION>

                                                                                             DECEMBER 31,
                                                                                   ----------------------------------
        2.  BALANCE SHEET DETAILS                                                      1998                1999
                                                                                            (IN THOUSANDS)
        <S>                                                                        <C>                 <C>
        ACCOUNTS RECEIVABLE:
          Trade                                                                          $49,052             $67,399
          Other                                                                            2,629               2,579
                                                                                   --------------      --------------
                                                                                          51,681              69,978
          Less allowance for doubtful accounts                                              (772)               (727)
                                                                                   ==============      ==============
          Total                                                                          $50,909             $69,251
                                                                                   ==============      ==============

        INVENTORIES:
          Raw materials                                                                  $29,063             $16,199
          Work-in-progress                                                                14,091              18,661
          Finished goods                                                                  17,332              28,849
                                                                                   --------------      --------------
                                                                                          60,486              63,709
          Reserve for excess and obsolete                                                 (9,700)            (12,300)
                                                                                   ==============      ==============
          Total                                                                          $50,786             $51,409
                                                                                   ==============      ==============

        PROPERTY - at cost:
          Furniture and equipment                                                        $38,465             $46,069
          Capitalized lasers                                                              15,960              19,558
          Leasehold improvements                                                          21,695              24,121
          Land                                                                                                 4,123
          Construction in process                                                          3,309               7,657
                                                                                   --------------      --------------
                                                                                          79,429             101,528
          Less accumulated depreciation and amortization                                 (27,492)            (44,607)
                                                                                   ==============      ==============
          Total                                                                          $51,937             $56,921
                                                                                   ==============      ==============

        ACCRUED AND OTHER LIABILITIES:
          Warranty and installation reserves                                             $19,000             $24,600
          Payroll and payroll related                                                      3,622              11,952
          Interest                                                                         7,651              11,371
          Other                                                                            2,931               4,369
                                                                                   ==============      ==============
          Total                                                                          $33,204             $52,292
                                                                                   ==============      ==============

</TABLE>


                                      F-12
<PAGE>


3.    INVESTMENTS

         Investments consist of the following:

<TABLE>
<CAPTION>

                                                                                   DECEMBER 31,
                                                                      ------------------------------------
                                                                           1998                1999
                                                                                  (IN THOUSANDS)
          <S>                                                                <C>                  <C>
          Short-term:
             Municipal Bonds                                                 $50,053              $25,091
             Corporate Bonds                                                  21,143               23,204
             Commercial Paper                                                  7,863               28,005
             U.S. Government Agencies                                          4,999               19,464
             Other                                                             1,500                1,800
                                                                      ---------------     ----------------

             Total                                                           $85,558              $97,564
                                                                      ===============     ================

          Long-term:
             Municipal Bonds                                                 $16,426              $14,900
             Corporate Bonds                                                   7,054                4,860
                                                                      ---------------     ----------------

             Total                                                           $23,480              $19,760
                                                                      ===============     ================

</TABLE>

      Investments are recorded at fair value. Short-term investments mature
      within one year and long-term investments mature in one year to 18 months.
      See also "Investments" in Note 1.


4.    CREDIT FACILITIES

      REVOLVING LOAN AGREEMENTS - During 1998 and 1999, respectively, Cymer
      maintained a Loan Agreement (the "Agreement") which provided for an
      unsecured optional currency revolving loan facility with two banks to
      provide for combined borrowings of up to a maximum of $25 million in 1998
      and $30 million in 1999. Under the Agreement, interest accrues on
      outstanding borrowings at TIBOR plus 1.40% in 1998 and at TIBOR plus 2.00%
      in 1999. As of December 31, 1998 and 1999, there was $11.6 million and
      $18.4 million outstanding under this Agreement, at interest rates of 2.13%
      and 2.11%, respectively.

      The Agreement requires Cymer to maintain compliance with certain financial
      statement and other covenants, including tangible net worth, quick ratio
      and profitability requirements. As of December 31, 1999 Cymer was in
      compliance with all such covenants.

      FOREIGN EXCHANGE FACILITIES - Cymer has foreign exchange facilities with a
      bank in Japan and a bank in the United States. The first facility with a
      bank in Japan provided up to 14.3 billion yen in 1998 to be utilized for
      forward contracts for periods of up to one year. As of December 31, 1998,
      1.1 billion yen ($8.9 million) was being utilized under the foreign
      exchange facility (see "Foreign Exchange Contracts" in Note 1). This
      facility was discontinued in 1999.

      The foreign exchange facility with the United States bank provides up to
      $100 million in 1998 and up to $57.5 million in 1999 to be utilized for
      spot and future foreign exchange contracts for periods of up to one year.
      $24.3 million and $56.0 million was being utilized under the foreign
      exchange facility as of December 31, 1998 and 1999, respectively. This
      facility is part of the Revolving Loan Agreements discussed above and is
      subject to the same covenants.


                                      F-13
<PAGE>


5.    CONVERTIBLE SUBORDINATED NOTES


      In the third quarter of 1997, Cymer issued $172.5 million aggregate
      principal amount of Step-Up Convertible Subordinated Notes (the "Notes")
      due August 6, 2004 with interest payable semi-annually February 6 and
      August 6, commencing February 6, 1998. Interest on the Notes is stated at
      3 1/2% per annum from August 6, 1997 through August 5, 2000 and at 7 1/4%
      per annum from August 6, 2000 to maturity or earlier redemption,
      representing a yield to maturity accrued at approximately 5.47%. The Notes
      are convertible at the option of the holder into shares of Common Stock of
      Cymer at any time on or after November 5, 1997 and prior to redemption or
      maturity, at a conversion rate of 21.2766 shares per $1,000 principal
      amount of Notes, subject to adjustment under certain conditions. Cymer
      cannot redeem the Notes prior to August 9, 2000. Thereafter, Cymer can
      redeem the Notes from time to time, in whole or in part, at specified
      redemption prices. The Notes are unsecured and subordinated to all
      existing and future senior indebtedness of Cymer. The indenture governing
      the Notes does not restrict the incurrence of senior indebtedness or other
      indebtedness by Cymer. As of December 31, 1998 and 1999, $172.5 million in
      Convertible Subordinated Notes was outstanding.

6.    STOCKHOLDERS' EQUITY

      PREFERRED STOCK - Pursuant to Cymer's Articles of Incorporation, the Board
      of Directors has the authority, without further action by the
      stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or
      more series and to fix the designations, powers, preferences, privileges,
      and relative participation, optional or special rights and the
      qualifications, limitations or restrictions thereof, including dividend
      rights, conversion rights, voting rights, terms of redemption and
      liquidation preferences, any or all of which may be greater than the
      rights of the common stock.

      COMMON STOCK WARRANTS - At December 31, 1999, Cymer had warrants
      outstanding to purchase 44,000 shares of its common stock at a weighted
      average purchase price of $1.58 per share. The warrants expire in 2000 and
      2001.

      STOCK OPTION AND PURCHASE PLANS - Cymer has three plans as follows:

<TABLE>
<CAPTION>

                                                                COMMON SHARES
                                                                DESIGNATED FOR
                                                                   ISSUANCE
 <S>                                                        <C>
 (i)    1987 Stock Plan                                          3,000,000
 (ii)   1996 Stock Option Plan                                   5,500,000
 (iii)  1996 Employee Stock Purchase Plan                          500,000
                                                            ---------------------

           Total                                                 9,000,000
                                                            =====================

</TABLE>


      (i) 1987 STOCK OPTION PLAN (THE "1987 PLAN") - The 1987 Plan provides that
      incentive and nonstatutory options to purchase shares of common stock may
      be granted to employees and consultants at prices that are not less than
      100% (85% for nonstatutory options) of the fair market value of Cymer's
      common stock on the date the options are granted. The 1987 Plan also
      provides for various restrictions regarding option terms, prices,
      transferability and other matters. Options issued under the 1987 Plan
      expire five to ten years after the options are granted and generally
      become exercisable ratably over a four-year period following the date of
      grant.


                                      F-14
<PAGE>


                                                     F-15

      (ii) 1996 STOCK OPTION PLAN (THE "1996 STOCK PLAN") - The 1996 Stock Plan
      provides for the grant of incentive stock options within the meaning of
      Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
      and nonqualified stock options to employees, directors and consultants of
      Cymer. Incentive stock options may be granted only to employees. The 1996
      Stock Plan is administered by the Board of Directors or by a committee
      appointed by the Board of Directors, which determines the terms of options
      granted, including the exercise price and the number of shares subject to
      the option. The exercise price of incentive stock options granted under
      the 1996 Stock Plan must be at least equal to the fair market value of
      Cymer's common stock on the date of grant and the exercise price of
      nonqualified stock options must be at least equal to 85% of the fair
      market value of Cymer's common stock on the date of grant. Options issued
      under the 1996 Stock Plan expire five to ten years after the options are
      granted and generally become exercisable ratably over a four-year period
      following the date of grant. This plan was amended in 1998 by the
      shareholders to increase the plan shares issuable from 3,000,000 to
      4,250,000, and again in 1999 to increase the shares issuable to 5,500,000.

      (iii) 1996 EMPLOYEE STOCK PURCHASE PLAN (THE "ESPP") - The ESPP is
      intended to qualify under Section 423 of the Code. Under the ESPP, an
      eligible employee may purchase shares of common stock from Cymer through
      payroll deductions of up to 10% of his or her base compensation (excluding
      bonuses, overtime and sales commissions), at a price per share equal to
      85% of the lower of (i) the fair market value of Cymer's common stock as
      of the first day of each offering period under the ESPP or (ii) the fair
      market value of the common stock at the end of the offering period.

      In 1996 Cymer had adopted a 1996 DIRECTOR OPTION PLAN (THE "DIRECTOR
      OPTION PLAN") whereby 200,000 shares were reserved for Board of Director
      option grants. There were 80,000 options issued under the Director Option
      Plan in 1997. The plan was dissolved in October 1997 by the Board of
      Directors.

      Stock option transactions are summarized as follows (in thousands, except
      per share data):

<TABLE>
<CAPTION>

                                                                                    WEIGHTED AVERAGE
                                                                   NUMBER OF         EXERCISE PRICE
                                                                    SHARES              PER SHARE
        <S>                                                     <C>                 <C>
        Outstanding, January 1, 1997                                 3,034               $  3.48
          Granted                                                    1,838               $ 27.20
          Exercised                                                   (608)              $  0.78
          Terminated                                                  (217)              $  8.93
                                                                ------------

        Outstanding,  December 31, 1997                              4,047               $ 14.39
          Granted                                                    1,731               $ 20.31
          Exercised                                                   (359)              $  1.74
          Terminated                                                (1,351)              $ 25.90
                                                                ------------

        Outstanding, December 31, 1998                               4,068               $ 14.21
          Granted                                                    2,006               $ 27.95
          Exercised                                                 (1,089)              $  6.74
          Terminated                                                  (216)              $ 18.95
                                                                ------------

        Outstanding, December 31, 1999                               4,769               $ 21.47
                                                                ============

        Exercisable, December 31, 1997                                 846               $  3.73
                                                                ============
        Exercisable, December 31, 1998                               1,447               $  8.26
                                                                ============
        Exercisable, December 31, 1999                               1,665               $ 14.93
                                                                ============

</TABLE>

                                      F-15
<PAGE>


      Cymer applies APB Opinion No. 25 and related Interpretations in accounting
      for its employee stock option and stock purchase plans. Accordingly, no
      compensation expense has been recognized for its stock-based compensation
      plan, as the options are granted at the fair market value of Cymer's
      common stock on the date of grant.

      The following table summarizes the impact had compensation cost been
      determined based upon the fair value at the grant date for awards under
      the plan consistent with the methodology prescribed under SFAS No. 123:

<TABLE>
<CAPTION>

                                                                    FOR THE YEAR ENDED DECEMBER 31,
                                                      ------------------------------------------------------------
                                                           1997                  1998                 1999
                                                     ------------------   --------------------   ----------------
      <S>                                            <C>                  <C>                    <C>
      Impact on net income                              ($7,600,000)         ($15,228,000)        ($18,246,000)

      Impact on earnings per share:
         basic                                            ($0.27)               ($0.54)              ($0.65)
         diluted                                          ($0.25)               ($0.52)              ($0.62)

      Estimated weighted average fair market value
         of options granted or shares purchased
         using the Black-Scholes pricing model:
             Options                                       $17.36               $11.57                $21.71
             ESPP                                                                $9.00                 $5.71

      Weighted average assumptions:
           dividend yield                                  None                  None                  None
           volatility rate                                  88%                   85%                   80%
           risk free interest rates                   5.37% to 6.83%        4.07% to 5.66%        4.56% to 6.27%
           assumed forfeiture rate                          5%                    5 %                   5%
           expected life - Options                        5 years               5 years               7 years
                                  ESPP                      N/A                .5 years              .5 years


</TABLE>

      The following table summarizes information as of December 31, 1999
      concerning currently outstanding and exercisable options:

<TABLE>
<CAPTION>

                            OPTIONS OUTSTANDING                                             OPTIONS EXERCISABLE
--------------------------------------------------------------------------------        ---------------------------------
                                             WEIGHTED AVERAGE        WEIGHTED                                WEIGHTED
     RANGE OF               NUMBER              REMAINING            AVERAGE              NUMBER             AVERAGE
 EXERCISE PRICES         OUTSTANDING         CONTRACTUAL LIFE     EXERCISE PRICE        EXERCISABLE       EXERCISE PRICE
                                                 (YEARS)
<S>                     <C>                  <C>                  <C>                   <C>               <C>
   $0.25 - $2.50               448,405              .81                 $ 1.92                415,856         $ 1.87
  $3.00 - $19.34               893,121             6.85                 $14.32                406,852         $12.48
 $20.00 - $21.03             1,675,269             7.65                 $20.70                446,922         $20.65
 $21.84 - $27.38               838,461             7.43                 $23.23                342,834         $23.31
 $33.75 - $34.94               176,321             8.69                 $33.84                 52,882         $33.75
 $35.69 - $45.88               737,205             9.85                 $38.80
                        ---------------    --------------------- -----------------    ----------------    ---------------
                             4,768,782             6.94                 $21.47              1,665,346         $14.93

</TABLE>


                                      F-16
<PAGE>


COMMON SHARES RESERVED - As of December 31, 1999, Cymer had reserved the
following number of shares of common stock for issuance (in thousands):

<TABLE>

          <S>                                                              <C>
          Issuance under stock option and purchase plans                          1,030
          Exercise of common stock purchase warrants                                 44
                                                                           -------------
             Total                                                                1,074
                                                                           =============

</TABLE>


TREASURY STOCK - On January 28, 1998, Cymer's Board of Directors authorized
Cymer to repurchase up to $50.0 million of Cymer's common stock from time to
time on the open market or in privately negotiated transactions. During 1998,
Cymer repurchased 2,000,000 shares at a cost of $24.9 million.
No shares were repurchased during 1999.

OPTION REPRICING - On January 28, 1998, Cymer's Board of Directors authorized an
incentive stock option repricing effective March 2, 1998 at a new option price
of $22.56 per share. The repricing took effect on 839,020 options with original
prices ranging from $21.03 to $33.75 per share granted from December 1996
through October 1997. The four year vesting period of the repriced options also
began on March 2, 1998 and the term of such options was set at ten years. Cymer
did not incur any compensation expense as a result of this repricing for the
year ended December 31, 1998.

STOCKHOLDER RIGHTS PLAN - On February 13, 1998, Cymer's Board of Directors
adopted a Stockholder Rights Plan. Under the terms of the Plan, rights were
distributed as a dividend at a rate of one preferred share purchase right on
each outstanding share of Cymer's common stock held by stockholders of record as
of the close of business on March 2, 1998. All additional shares of common stock
issued prior to February 13, 2008, the expiration date for all rights, are to
receive the dividend at the same rate. The exercise price for each
one-thousandth of a preferred share issuable pursuant to the exercise of a right
shall initially be $100.00, subject to adjustment under the Plan. Such rights
are exercisable only upon certain change of ownership events as defined in the
Plan. The rights are designed to assure that all Cymer stockholders receive fair
and equal treatment in the event of any proposed takeover of Cymer and to guard
against partial tender offers and other abusive tactics to gain control of Cymer
without paying all stockholders the fair value of their shares, including a
control premium.


7.    INCOME TAXES

      The components of the provision for income taxes are summarized as
follows:

<TABLE>
<CAPTION>

                                                                    YEAR ENDED DECEMBER 31,
                                                       ---------------------------------------------------
                                                           1997               1998              1999
                                                                         (IN THOUSANDS)
            <S>                                        <C>                <C>               <C>
            Current income taxes:
              Federal                                        $16,174              ($751)           $4,961
              State                                            1,127                 10               829
              Foreign                                          2,700              1,213             2,404
                                                       --------------     --------------    --------------

            Total                                             20,001                472             8,194
                                                       --------------     --------------    --------------

            Deferred income taxes:
              Federal                                         (5,103)            (2,029)           (5,979)
              State                                             (360)              (552)           (2,199)
              Foreign                                           (611)               859               (16)
                                                       --------------     --------------    --------------

            Total                                             (6,074)            (1,722)           (8,194)

            Reduction in valuation allowance                  (5,288)
                                                       --------------     --------------    --------------
            Income tax provision (benefit)                    $8,639            ($1,250)       $        -
                                                       ==============     ==============    ==============

</TABLE>


                                      F-17
<PAGE>


      The income tax provision (benefit) is different from that which would be
      obtained by applying the statutory Federal income tax rate (35%) to income
      before income tax expense (benefit). The items causing this difference for
      the period are as follows:

<TABLE>
<CAPTION>

                                                                                   YEAR ENDED DECEMBER 31,
                                                                     -------------------------------------------
                                                                         1997            1998            1999
                                                                                    (IN THOUSANDS)
        <S>                                                          <C>                <C>           <C>
        Provision at statutory rate                                      $12,095            $592          $3,233
        Foreign provision in excess of Federal statutory rate              1,659           2,504             932
        State income taxes, net of Federal benefit                           484            (152)           (891)
        Foreign sales corporation benefit, net of Federal tax               (449)         (3,270)           (709)
        Federal tax credits                                                 (587)           (499)         (2,389)
        Japanese imported product credits                                   (622)
        Tax exempt interest, net of disallowed expenses                                     (563)            (66)
        Miscellaneous/other items                                            968             138            (110)
        Reduction in valuation allowance                                  (4,909)
                                                                      -----------     -----------     -----------

        Provision (benefit) at effective tax rate                         $8,639         ($1,250)           $  -
                                                                      ===========     ===========     ===========

</TABLE>

      Deferred income taxes reflect the net tax effects of temporary differences
      between the carrying amounts of assets and liabilities for financial
      reporting purposes and the amounts used for income tax purposes.
      Significant components of Cymer's net deferred tax assets are as follows:

<TABLE>
<CAPTION>

                                                                                    DECEMBER 31,
                                                                         ------------------------------------
                                                                               1998                 1999
                                                                                    (IN THOUSANDS)
        <S>                                                              <C>                   <C>
        Reserves and accruals not currently deductible                           $12,699            $17,496
        Accrued Japanese enterprise tax                                              296                386
        State taxes                                                                 (756)             (1,526)
        Tax credit carryforwards                                                   1,577               4,393
        Difference between book and tax basis of
           inventory and fixed assets                                                (91)              1,371
        Tax effect of foreign currency translation
         adjustments                                                                 945               2,205
        Other                                                                        687                 597
                                                                         -----------------     ---------------
        Net deferred tax assets                                                   15,357              24,922
        Less: current portion                                                    (12,824)            (16,360)
                                                                         -----------------     ---------------
        Net non-current deferred tax assets                                       $2,533              $8,562
                                                                         =================     ===============

</TABLE>

      Cymer eliminated its valuation allowance in 1997 due to management's
      belief that current year activity made realization of such benefit more
      likely than not.


8.    COMMITMENTS AND CONTINGENCIES

      LEASES - Cymer leases its primary facilities under non-cancelable
      operating leases. The lease terms are through January 1, 2010 and provide
      for certain rent abatements and minimum annual increases and options to
      extend the terms. Cymer also leases certain other facilities and equipment
      under capital and short-term operating lease agreements. The capital
      leases expire on various dates through 2003.


                                      F-18
<PAGE>


      Under the terms of an operating lease for an office building entered into
      in December 1996, Cymer had deposited approximately $2,224,000 in an
      escrow account in lieu of a security deposit for the premises. During 1999
      the requirement to hold the deposit in escrow terminated and the funds
      were released to the general cash account.

      Rent expense under operating leases is recognized on a straight-line basis
      over the life of the related leases and totaled approximately $2,863,000,
      $4,043,000 and $4,752,000 for the years ended December 31, 1997, 1998 and
      1999, respectively.

      The net book value of assets under capital leases at December 31, 1998 and
      1999 was approximately $1,651,000 and $1,108,000, net of accumulated
      depreciation of approximately $915,000 and $1,457,000, respectively.

      Total future minimum lease commitments under operating and capital leases
are as follows (in thousands):

<TABLE>
<CAPTION>

      YEAR ENDING DECEMBER 31,                                             OPERATING                  CAPITAL
      <S>                                                            <C>                      <C>
      2000                                                                    $2,959                     $731
      2001                                                                     3,004                      383
      2002                                                                     2,892                       27
      2003                                                                     2,724                        7
      2004                                                                     2,797
      Thereafter                                                              15,235
                                                                     ----------------         ----------------

      Total                                                                  $29,611                    1,148
                                                                     ================

      Less amount representing interest                                                                   204
                                                                                              ----------------

      Present value of minimum lease payments                                                             944
      Less current portion                                                                                495
                                                                                              ----------------

      Long term obligations under capital leases                                                         $449
                                                                                              ================

</TABLE>

      PATENT LICENSE AGREEMENT - Cymer has a patent license agreement for a
      non-exclusive worldwide license to certain patented laser technology.
      Under the terms of the agreement, Cymer is required to pay royalties
      ranging from 0.25% to 5.0% of gross sales and leases as defined depending
      on the total amounts attained. Royalty fees totaled $49,000, $100,000 and
      $100,000 for the years ended December 31, 1997, 1998 and 1999,
      respectively.

      EMPLOYEE SAVINGS PLAN - Cymer has a 401(k) plan that allows participating
      employees to contribute a percentage of their salary, subject to annual
      limits. The Plan is available to substantially all full-time United States
      employees. Effective January 1, 1997, Cymer matched 100% of each eligible
      employee's contributions, up to $500 per year. Cymer contributed $187,000,
      $221,000, and $199,000 for the years ended December 31, 1997, 1998, and
      1999, respectively.

      RETIREMENT PLAN - During 1996, Cymer Japan adopted a retirement benefit
      plan for all Cymer Japan employees and Japanese directors. The plan
      consists of a multi-employer retirement plan covering all employees and
      life insurance policies covering all employees and Japanese directors. The
      multi-employer retirement plan was established under the Small and
      Medium-Size Enterprise Retirement Benefits Cooperative Law. In December
      1998, Cymer Japan adopted a Retirement Allowance and Pension Plan
      accounted for using the book reserve method. Expense under these plans
      totaled $172,000, $379,000, and $298,000 for the years ended December 31,
      1997, 1998 and 1999, respectively.


                                      F-19
<PAGE>


      CONTINGENCY - Cymer's Japanese manufacturing partner has been notified
      that its manufacture of Cymer's laser systems in Japan may infringe a
      Japanese patent held by another Japanese company. Cymer has agreed to
      indemnify its Japanese manufacturing partner against patent infringement
      claims under certain circumstances. Cymer believes, based upon the advice
      of counsel, that Cymer's products do not infringe any valid claim of the
      asserted patent.


9.    CLASS ACTION LAWSUITS

      Cymer has been named as a defendant in several putative shareholder
      class action lawsuits which were filed in September and October, 1998 in
      the U.S. District Court for the Southern District of California. Certain
      executive officers and directors of Cymer are also named as defendants.
      The plaintiffs purport to represent a class of all persons who purchased
      Cymer's Common Stock between April 24, 1997 and September 26, 1997 (the
      "Class Period"). The complaints allege claims under the federal securities
      laws. The plaintiffs allege that Cymer and the other defendants made
      various material misrepresentations and omissions during the Class Period.
      The complaints do not specify the amount of damages sought. The complaints
      have been consolidated into a single action and a class representative has
      been appointed by the court. A consolidated amended complaint was filed in
      early August, 1999. On November 5, 1999 Cymer and the other defendants
      filed a motion to dismiss the consolidated amended claim for failure to
      state a cause of action. No ruling on the motion has yet been made by the
      court. Discovery has not yet commenced. Cymer believes that it has good
      defenses to the claims alleged in the lawsuits and will defend itself
      vigorously against these actions. The defense of these actions may cause
      some disruption in Cymer's operations and may from time to time distract
      management from day-to-day operations. The ultimate outcome of these
      actions cannot be presently determined. Accordingly, no provision for any
      liability or loss that may result from adjudication or settlement thereof
      has been made in the accompanying consolidated financial statements.


10.   RELATED PARTY TRANSACTIONS

      COLLABORATIVE ARRANGEMENT - Cymer has a collaborative arrangement with a
      Japanese company that was also a stockholder of Cymer. The arrangement,
      entered into in August 1992, includes a (i) stock purchase agreement, (ii)
      research and development agreement, (iii) product license agreement, and
      (iv) contract manufacturing agreement. The general provisions of these
      agreements are as follows:

            STOCK PURCHASE AGREEMENT - The stockholder purchased 470,590 shares
            of Cymer's Series D Redeemable Convertible Preferred Stock at $4.25
            per share with net proceeds to Cymer of $1,909,000. Such stock was
            converted to common stock in 1996 and was sold in 1999.

            PRODUCT LICENSE AGREEMENT - Cymer granted to the stockholder the
            exclusive right in Japan and the non-exclusive right outside Japan
            to manufacture and sell one of Cymer's products and subsequent
            enhancements thereto. Cymer also granted the stockholder the right
            of first refusal to license and fund the development of new
            technologies not developed with funding from other parties. In
            exchange for these rights, Cymer received up-front license fees and
            is also entitled to royalties of 5% on related product sales through
            September 1999, after which the royalty rate is subject to
            renegotiation. The license agreement also provides that product
            sales between Cymer and the stockholder will be at a 15% discount
            from the respective companies' list price. The agreement terminates
            in August 2012. There was no activity under this agreement in 1997,
            1998 and 1999.

            CONTRACT MANUFACTURING AGREEMENT - The stockholder has agreed to
            manufacture for Cymer another of its products. Cymer will be
            required to purchase a specified percentage of its total


                                      F-20
<PAGE>


            annual product, as defined, from the stockholder. The agreement
            expires in August 2001, and will automatically renew for two-year
            terms unless one year's notice is given by either party. Cymer made
            $14.1 million, $13.9 million and $10.9 million in purchases under
            this agreement in 1997, 1998 and 1999, respectively.

      SERVICE AGREEMENT - Cymer has a service agreement with another Japanese
      company who was also a stockholder of Cymer. The general provisions of the
      service agreement are as follows:

            SALES AND MARKETING - The Japanese company is to assist Cymer in
            establishing sales, marketing, manufacturing, and maintenance
            capabilities in exchange for consideration equal to a percentage of
            net sales of certain products in Japan. The agreement initially
            expired in March 1996 and automatically extended until the total
            consideration paid under the agreement aggregated $2,000,000. Under
            certain conditions, if the agreement is terminated, Cymer may be
            required to pay liquidated damages equal to $2,000,000 less the
            aggregate of previous consideration plus other eligible
            consideration paid to the Japanese company as defined in the
            agreement. Consideration expensed under the agreement for the year
            ended December 31, 1997 totaled $150,000. The aggregate $2,000,000
            consideration was met in January, 1997.

            ROYALTIES - Cymer has also agreed to pay the Japanese company
            additional royalties on net sales of certain products manufactured
            by the third party contractor as well as a fee for each laser
            chamber refurbished by the third party contractor. Such royalties
            are applicable only for the period subsequent to the expiration of
            the original agreement and shall continue as long as products are
            manufactured by the third party contractor. Consideration expensed
            under the agreement for the years ended December 31, 1997, 1998, and
            1999 was $252,000, $293,000, and $308,000 respectively.


11.   SEGMENT INFORMATION

      Cymer designs, manufactures and sells excimer laser systems, replacement
      parts, and support services for use in photolithography systems used in
      the manufacture of semiconductors with critical features sizes. In
      accordance with SFAS No. 131, Cymer currently considers its business to
      consist of one reportable operating segment.

      GEOGRAPHIC INFORMATION

      Presented below is information regarding sales, income from operations,
      and identifiable assets, classified by operations located in the United
      States, Japan, Korea, Taiwan, Singapore and The Netherlands. Cymer sells
      its excimer lasers in Japan through Cymer Japan. Intercompany sales to the
      subsidiaries are primarily priced between 85% to 90% of the price of
      products sold to outside customers. All significant intercompany balances
      are eliminated in consolidation. The majority of consolidated costs and
      expenses are incurred in the United States and are reflected in the
      operating loss from the United States operations.

<TABLE>
<CAPTION>

                                                                          YEAR ENDED DECEMBER 31,
                                                         ----------------------------------------------------------
                                                              1997                 1998                 1999
<S>                                                      <C>                 <C>                   <C>
  Sales from:
     United States                                               $75,432             $93,144             $125,297
     Japan                                                       128,075              88,571               81,445
     Korea, Taiwan, Singapore, and Netherlands                       140               3,426               13,708
                                                         ----------------    -----------------    -----------------

          Total                                                 $203,647            $185,141             $220,450
                                                         ================    =================    =================

</TABLE>


                                      F-21
<PAGE>


<TABLE>
<CAPTION>

                                                                          YEAR ENDED DECEMBER 31,
                                                         ----------------------------------------------------------
                                                              1997                 1998                 1999
  <S>                                                    <C>                 <C>                  <C>
  Operating income (loss) :
     United States                                             ($30,186)            ($44,117)            ($30,958)
     Japan                                                       65,786               47,359               36,068
     Korea, Taiwan, Singapore, and Netherlands                   (1,156)               2,019                7,874
                                                         ----------------    -----------------    -----------------

          Total                                                  $34,444               $5,261             $12,984
                                                         ================    =================    =================

  Identifiable assets:
     United States                                             $310,019            $287,871             $334,192
     Japan                                                       72,427              67,792               76,235
     Korea, Taiwan, Singapore, and Netherlands                    3,673               8,655               16,394
                                                         ----------------    -----------------    -----------------

          Total                                                $386,119            $364,318             $426,821
                                                         ================    =================    =================

</TABLE>


12.   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)


<TABLE>
<CAPTION>

                                                      QUARTERLY RESULTS OF OPERATIONS
                                                  (IN THOUSANDS EXCEPT FOR PER SHARE DATA)

                                                        YEAR ENDED DECEMBER 31, 1998
                                           -------------------------------------------------------
                                               1ST           2ND           3RD           4TH
<S>                                        <C>             <C>            <C>          <C>
Revenues                                        $49,679       $53,022       $44,448      $37,992

Gross profit                                    $18,998       $18,792       $15,557       $5,768

Operating income (loss)                          $4,854        $3,991        $3,090      ($6,674)

Net income (loss)                                $2,703        $1,689        $1,453      ($3,322)

Basic earnings (loss) per share                   $0.09         $0.06         $0.05       ($0.12)

Diluted earnings (loss) per share                 $0.09         $0.06         $0.05       ($0.12)

</TABLE>

<TABLE>
<CAPTION>

                                                        YEAR ENDED DECEMBER 31, 1999
                                           -------------------------------------------------------
                                               1ST           2ND           3RD           4TH
<S>                                        <C>             <C>           <C>           <C>
Revenues                                        $40,092       $43,409       $58,934       $78,015

Gross profit                                    $11,707       $14,983       $22,031       $28,224

Operating income (loss)                         ($1,802)         $514        $4,714        $9,557

Net income (loss)                               ($2,298)      ($1,489)       $3,450        $8,910

Basic earnings (loss) per share                  ($0.08)       ($0.05)        $0.12         $0.31

Diluted earnings (loss) per share                ($0.08)       ($0.05)        $0.12         $0.29

</TABLE>


                                      F-22