UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1996
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 0-21970
MATTSON TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0208119
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3550 WEST WARREN AVENUE
FREMONT, CALIFORNIA 94538
(Address of principal executive offices) (Zip Code)
(510) 657-5900
(Registrant's telephone number, including area code)
--------------------------------
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 ___
Number of shares of common stock outstanding as of November 7, 1996: 14,239,109
1
PART I -- FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
ASSETS
SEPT. 29, DEC. 31,
1996 1995
-------- ---------
Current assets:
Cash and cash equivalents $ 30,128 $ 14,310
Short-term investments 8,110 27,861
Accounts receivable, net 15,552 13,988
Inventories 15,531 10,839
Prepaid expenses and other current assets 1,133 426
-------- ---------
Total current assets 70,454 67,424
Property and equipment, net 8,701 4,651
Other assets 4,550 2,014
-------- ---------
$ 83,705 $ 74,089
-------- ---------
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,961 $ 3,887
Accrued liabilities 11,852 9,126
-------- ---------
Total current liabilities 14,813 13,013
-------- ---------
Shareholders' equity:
Common stock 56,809 55,898
Deferred compensation (16) (73)
Net unrealized loss on investments (13) --
Cumulative translation adjustments (43) (16)
Retained earnings 12,155 5,267
-------- ---------
Total shareholders' equity 68,892 61,076
-------- ---------
$ 83,705 $ 74,089
-------- ---------
-------- ---------
See accompanying notes to condensed consolidated financial statements.
2
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -------------------
SEPT. 29, OCT. 1, SEPT. 29, OCT. 1,
1996 1995 1996 1995
-------- ------- --------- -------
Net sales $ 14,005 $15,138 $59,251 $36,441
Cost of sales 7,186 6,774 26,317 16,724
-------- ------- --------- -------
Gross profit 6,819 8,364 32,934 19,717
-------- ------- --------- -------
Operating expenses:
Research, development and engineering 2,774 1,664 8,365 3,992
Selling, general and administrative 5,126 2,945 15,835 7,272
-------- ------- --------- -------
Total operating expenses 7,900 4,609 24,200 11,264
-------- ------- --------- -------
Income (loss) from operations (1,081) 3,755 8,734 8,453
Interest and other income (expense), net 448 582 1,547 1,303
-------- ------- -------- -------
Income (loss) before income taxes (633) 4,337 10,281 9,756
Provision for (benefit from) income taxes (528) 1,217 3,393 2,736
-------- ------- --------- -------
Net income (loss) $ (105) $ 3,120 $ 6,888 $ 7,020
-------- ------- --------- -------
-------- ------- --------- -------
Net income (loss) per share $ (.01) $ 0.20 $ 0.45 $ 0.49
-------- ------- --------- -------
-------- ------- --------- -------
Shares used in computing net income
(loss) per share 14,092 15,372 15,253 14,454
-------- ------- --------- -------
-------- ------- --------- -------
See accompanying notes to condensed consolidated financial statements.
3
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED
---------------------
SEPT. 29, OCT. 1,
1996 1995
--------- --------
Cash flows from operating activities:
Net income $ 6,888 $ 7,020
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,312 329
Deferred compensation related to stock options 57 49
Changes in assets and liabilities:
Accounts receivable (1,564) (4,283)
Inventories (4,692) (4,843)
Prepaid expenses and other assets (3,243) (1,702)
Accounts payable (926) 1,430
Accrued liabilities 2,726 5,770
--------- --------
Net cash provided by operating activities 558 3,770
--------- --------
Cash flows from investing activities:
Acquisition of property and equipment (5,362) (704)
Purchases of short-term investments (28,692) (25,165)
Sales and maturities of short-term investments 48,430 14,191
--------- --------
Net cash provided by (used in) investing activities 14,376 (11,678)
--------- --------
Cash flows from financing activities:
Proceeds from the issuance of Common Stock, net 911 21,133
Repayment of notes receivable from shareholders -- 65
--------- --------
Net cash provided by financing activities 911 21,198
--------- --------
Effect of exchange rate changes on cash and cash equivalents (27) --
--------- --------
Net increase in cash and cash equivalents 15,818 13,290
Cash and cash equivalents, beginning of period 14,310 12,617
--------- --------
Cash and cash equivalents, end of period $ 30,128 $ 25,907
--------- --------
--------- --------
Supplemental disclosure of non-cash operating activities:
Inventory totaling $1,139 was capitalized and transferred to property and
equipment during the first nine months of 1995.
See accompanying notes to condensed consolidated financial statements.
4
MATTSON TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The financial statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report for the year ended
December 31, 1995.
The results of operations for the three and nine month periods ended September
29, 1996 are not necessarily indicative of results that may be expected for the
entire year ending December 31, 1996.
NOTE 2 BALANCE SHEET DETAIL (IN THOUSANDS):
SEPT. 29, DEC. 31,
1996 1995
--------- --------
Inventories:
Purchased parts and raw materials $ 6,294 $ 5,227
Work-in-process 4,379 4,070
Finished goods 3,536 1,072
Evaluation systems 1,322 470
--------- --------
$15,531 $10,839
--------- --------
--------- --------
Accrued liabilities:
Warranty reserve $ 3,420 $ 2,384
Accrued compensation and benefits 1,739 2,270
Income taxes 668 1,543
Commissions 944 675
Deferred income 3,609 591
Other 1,472 1,663
--------- --------
$11,852 $ 9,126
--------- --------
--------- --------
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Mattson Technology, Inc. ("Mattson" or the "Company") designs, manufactures and
markets advanced fabrication equipment to semiconductor manufacturers worldwide.
The Company began operations in 1989 and shipped its first photoresist removal
product, the Aspen Strip, in 1991. The Company's current product line is based
on a modular Aspen platform which accommodates two process chambers supporting
increased throughput. The Company currently offers Aspen Strip, CVD, RTP and
LiteEtch products.
The Company has derived substantially all of its sales from Aspen Strip and CVD
systems. In addition, the Company derives sales from spare parts and
maintenance services.
Until the quarter ended September 29, 1996, the Company experienced rapid
growth. There can be no assurance that the Company will be able regain sales
growth or profitability. Future results will depend on a variety of factors,
particularly overall market conditions and also the timing of significant
orders, the ability of the Company to bring new systems to market, the timing of
new product releases by the Company's competitors, patterns of capital spending
by the Company's customers, market acceptance of new and/or enhanced versions of
the Company's systems, changes in pricing by the Company, its competitors,
customers, or suppliers and the mix of products sold. In order to support long
term growth in its business the Company has not decreased its expense levels
compared with the decrease in sales. As a result, the Company is dependent upon
continuous increases in sales in order to maintain profitability. If the
Company's sales do not increase, the levels of operating expenses could
materially and adversely affect the financial results of the Company.
The Company expects sales and earnings in the fourth quarter of 1996 to be
significantly below prior expectations. As a result of the well publicized
slowdown in the semiconductor market, particularly for DRAMs, many
semiconductor manufacturers are delaying or canceling previously planned new
equipment purchases. The extent and duration of the slowdown and the
ultimate impact on the Company and its results of operations and financial
condition cannot be precisely predicted.
FORWARD LOOKING STATEMENTS
This report on Form 10-Q contains forward looking statements regarding, among
other matters, the Company's future strategy, product development plans, and
productivity gains and growth. The forward looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward looking statements address matters which are subject to a number
of risks and uncertainties. In addition to the general risks associated with
the development of complex technology, future results of the Company will depend
on a variety of factors as described herein and in the Company's Annual Report
on Form 10-K and other filings with the Securities and Exchange Commission.
6
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the Company
expressed as a percentage of net sales for the period indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 29, OCT. 1, SEPT. 29, OCT. 1,
1996 1995 1996 1995
-------- -------- -------- -------
Net sales 100% 100% 100% 100%
Cost of sales 51% 45% 44% 46%
---- ---- ---- ----
Gross margin 49% 55% 56% 54%
---- ---- ---- ----
Operating expenses:
Research, development and engineering 20% 11% 14% 11%
Selling, general and administrative 37% 19% 27% 20%
---- ---- ---- ----
Total operating expenses 57% 30% 41% 31%
---- ---- ---- ----
Income (loss) from operations (8%) 25% 15% 23%
Income (loss) before income taxes (5%) 29% 17% 27%
Net income (loss) (1%) 21% 12% 19%
NET SALES
Net sales for the third quarter of 1996 decreased 7% to $14.0 million from $15.1
million for the third quarter of 1995. Net sales decreased as a result of
overall industry conditions and reflected a 19% decrease in unit shipments which
was partially offset by a 9% increase in average selling prices (ASP's). Net
sales for the first nine months of 1996 increased 63% to $59.3 million from
$36.4 million for the first nine months of 1995. Net sales increased as a
result of a 32% increase in unit shipments and a 20% increase in average selling
prices (ASP's). Sales to date consist principally of single and dual chamber
Aspen Strip and CVD systems. Higher ASP's have resulted primarily from
increasing sales of the Company's dual chamber Aspen Strip systems and, to a
lesser extent, sales of the newer Aspen ICP Strip and CVD systems, compared to
sales of single chamber Aspen Strip systems.
International sales, which are predominantly to customers based in Japan and the
Pacific Rim (which includes Taiwan, Singapore and Korea), accounted for 61% and
57% of net sales for the third quarter of 1996 and 1995, respectively.
International sales for the first nine months of 1996 and 1995 were 81% and 68%,
respectively. All sales are denominated in U.S. dollars. The Company's
operating results could be materially and adversely affected by any loss of
business from, the cancellation of orders by, or decreases in prices of systems
sold through Marubeni, the Company's distributor in Japan. The Company
anticipates that international sales will continue to account for a significant
portion of 1996 total net sales due primarily to orders from customers in Japan
and the Pacific Rim.
GROSS MARGIN
The Company's gross margin for the third quarter of 1996 decreased to 49% from
55% for the third quarter of 1995 and for the first nine months of 1996
increased to 56% from 54% for the first nine months of 1995. The quarter to
quarter decrease was due to the allocation of relatively fixed overhead costs
over lower sales volume and higher warranty reserves associated with the
Company's newer products. The increase in gross margin for the first nine
months of 1996 was principally due to an increase in gross margin on shipments
through Marubeni as a result of a 1995 agreement with Marubeni, in which the
Company is now providing research, development and engineering and marketing
support in Japan and certain other Asian markets. In addition, the gross margin
increased for the nine month period as a result of increases in volume which
resulted in improved economies of scale.
7
The Company's gross margin will continue to be affected by a variety of factors.
In particular, until and unless sales volume increases, lower economies of
scale will adversely affect gross margin. The Company's gross margin on
international sales, other than sales through Marubeni, is substantially the
same as domestic sales. Sales to Marubeni typically carry a lower gross margin
as Marubeni is still primarily responsible for sales and support costs in Japan.
As a result of the 1995 agreement with Marubeni, as described above, gross
margins increased in the first nine months of 1996 on sales through Marubeni.
In addition, the Company has incurred additional research, development and
engineering and marketing expenses primarily through the newly established
Japanese subsidiary, Mattson Technology Center K.K. ("MTC").
Although the Company has not offered substantial discounts on its systems to
date, particularly in light of the overall industry slowdown, the Company may
face discounting pressures in the future which could adversely affect gross
margins. The Company's reliance on outside vendors generally, and a sole or a
limited group of suppliers in particular, involves several risks, including a
potential inability to obtain an adequate supply of required components and
reduced control over pricing and timely delivery of components. Any inability
to obtain adequate deliveries or any other circumstance that would require the
Company to seek alternative sources of supply or to manufacture such components
internally could delay the Company's ability to ship its systems and could have
a material adverse effect on the Company, including an increase in the Company's
cost of sales and therefore an adverse impact on gross margin. In addition, new
system introductions and enhancements may also have an adverse effect on gross
margin due to the inefficiencies associated with manufacturing of new product
lines.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses for the third quarter of 1996
were $2.8 million, or 20% of net sales, as compared to $1.7 million, or 11%,
for the third quarter of 1995. Research, development and engineering
expenses for the first nine months of 1996 were $8.4 million, or 14% of net
sales, as compared to $4.0 million, or 11% of net sales, for the first nine
months of 1995. The increase in expenses was primarily due to salaries and
related expenses which increased to $1.2 million and $4.0 million for the
third quarter and first nine months of 1996, respectively, from $0.9 million
and $2.1 million for the third quarter and first nine months of 1995,
respectively, and engineering project materials which increased to $0.5
million and $1.4 million for the third quarter and first nine months of 1996,
respectively, from $0.3 million and $0.9 million for the third quarter and
first nine months of 1995, respectively. The increase in expense as a
percentage of net sales was due to lower sales volume in the third quarter.
The increase in engineering project materials expense was due to ongoing
product development. Expenses also increased due to the Company's agreement
with Marubeni. The Company believes that continued investment in research
and development is critical to maintaining a strong technological position in
the industry and therefore expects research and development expenses to
continue to increase in the foreseeable future.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the third quarter of 1996 were
$5.1 million, or 37% of net sales, as compared to $2.9 million, or 19%, for the
third quarter of 1995. Selling, general and administrative expenses for the
first nine months of 1996 were $15.8 million, or 27% of net sales, as compared
to $7.3 million, or 20%, for the first nine months of 1995. The increase in
expenses was primarily due to salaries, commissions and related expenses which
increased to $2.8 million and $9.4 million in the third quarter and first nine
months of 1996, respectively, from $1.8 million and $4.6 million in the third
quarter and first nine months of 1995, respectively. Expenses also increased
due to the Company's agreement with Marubeni. The increase in expense as a
percentage of net sales was due to lower sales volume in the third quarter.
8
PROVISION FOR INCOME TAXES
The Company provided income taxes at the expected annual rate of 33% and 28% in
1996 and 1995, respectively. In the third quarter of 1996, the Company revised
its expected annual tax rate from 36% to 33% which was principally a result of
Congress's reinstatement of the Research and Development credit, effective July
1, 1996. In addition, the expected annual tax rate of 33% in 1996 also reflects
benefit derived from the Company's Foreign Sales Corporation. The Company's
provision for income taxes in 1995 reflected utilization of tax loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations during the first nine months of 1996 was $0.6
million, compared to $3.8 million of net cash provided by operations during the
first nine months of 1995. Net cash provided by operations during the first
nine months of 1996 was primarily attributable to net income of $6.9 million
offset by increases in accounts receivable and inventories of $1.6 and $4.7
million. The increase in accounts receivable was principally due to a long-term
sales type lease with a major customer under which the Company agreed to ship
certain equipment. The Company deferred the recognition of revenue under the
four year lease until the first cash payment in April 1997. At September 29,
1996, the balance sheet reflected $0.7 million in accounts receivable, $2.5
million in other assets and $2.0 million in deferred income, related to
the lease.
Net cash provided by investing activities during the first nine months of 1996
was $14.4 million, compared to $11.7 million net cash used in investing
activities during the first nine months of 1995. Investing activities during the
first nine months of 1996 consisted primarily of purchases and maturities of
short-term investments and acquisition of fixed assets.
Net cash provided by financing activities during the first nine months of 1996
was $0.9 million, compared to $21.2 million net cash provided by financing
activities in the first six months of 1995. Cash provided during the first nine
months of 1995 was primarily due to net proceeds of $20.7 million from the
Company's secondary public offering.
The Board of Directors has authorized the Company to repurchase up to 500,000
shares of the Company's common stock. The Company has repurchased 15,000 shares
to date.
The Company believes that existing cash and short-term investment balances along
with anticipated cash flows from operations will be sufficient to meet the
Company's cash requirements during the next twelve months. However, depending
upon its rate of growth and profitability, the Company may require additional
equity or debt financing to meet its working capital requirements or capital
equipment needs. There can be no assurance that additional financing will be
available when required or, if available, will be on terms satisfactory to the
Company.
9
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 27 (Electronic filing only)
(b) Reports on Form 8-K
None.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATTSON TECHNOLOGY, INC.
Date: November 13, 1996 /s/ Richard S. Mora
------------------------
Richard S. Mora
Vice President of Finance
and Chief Financial Officer
(as principal financial officer
and on behalf of Registrant)
11