UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(Mark One)
[ X ] Amendment No. 1 to Annual Report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 1996.
Commission file number 0-21970
MATTSON TECHNOLOGY INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0208119
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
3550 West Warren Avenue
Fremont, California 94538
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(Address and zip code of principal executive offices)
Registrant's telephone number, including are code: 510-657-5900
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common
Stock, no par value.
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
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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 or any amendment to this Form 10-K. [ ]
Number of shares outstanding of registrant's Common Stock as of February
28, 1997: 14,226,536.
As of February 28, 1997, the aggregate market value of voting Common
Stock held by non-affiliates of the registrant, based upon the closing
for registrant's Common Stock as reported in the Wall Street Journal, was
$110,216,264.
PART I
ITEM 1. BUSINESS
Mattson Technology, Inc. ("Mattson" or the "Company") designs,
manufactures and markets advanced fabrication equipment for sale to the
worldwide semiconductor industry. The Company's goal is to provide advanced
process capability combined with a high productivity platform to achieve a
substantial improvement in productivity over competitive equipment and to
support this equipment with world class support.
Each step of the manufacturing process for integrated circuits (ICs)
requires specialized manufacturing equipment. Three of the principal steps in
manufacturing ICs are the deposition of insulating or conducting materials
onto a wafer, the projection of a pattern through a mask onto light sensitive
materials known as photoresist (photolithography), and the etching or removal
of the deposited material not covered by the pattern. Before these steps can
be repeated on the wafer, the photoresist must be removed ("stripped" or
"ashed"). This cycle may be repeated as many as thirty times for the most
advanced ICs.
The Company's first system, the Aspen Strip, is a photoresist removal
system which was introduced in 1991 with diode source technology. The
product was enhanced in 1993 to allow for a second process chamber and the
use of a "downstream" triode process. The Company commenced shipment in 1995
of a new version of its Aspen Strip which utilizes inductively coupled plasma
(ICP) technology. In 1994, the Company introduced its second system, the
Aspen CVD, a plasma enhanced chemical vapor deposition system. In 1995, the
Company introduced its third system, the Aspen RTP, a rapid thermal processing
system which is currently in the early marketing phase including initiation
of beta site testing. In 1996, the Company introduced a fourth product, the
Aspen LiteEtch for isotropic etch processing. Although the Company has sold
one LiteEtch unit, the Company's LiteEtch currently is in the early marketing
phase. The Aspen Strip, CVD, RTP and LiteEtch are based on the Aspen
platform, which includes wafer handling robotics, dual loadlocks, control
electronics and system software.
SEMICONDUCTOR MANUFACTURING PRODUCTIVITY
Increasing demand for ICs has resulted from the growth of existing
markets and the emergence of new markets such as multimedia, wireless
communication and portable computing. The increase in demand has been fueled
by the industry's ability to supply more complex, higher performance ICs,
while continuing to reduce cost per function. The more complex ICs and the
attendant reductions in feature size have necessitated advanced and expensive
wafer fabrication equipment, resulting in the escalation of the average cost
of advanced wafer fabrication facilities. For example, the average cost in
1984 for a 64 kilobit dynamic random access memory IC (DRAM) fabrication
facility was approximately $60 million, as compared to the average cost today
for a 64 megabit DRAM fabrication facility of approximately $650 million.
Advancements in semiconductor manufacturing equipment have enabled IC
manufacturers to increase productivity dramatically by reducing feature size,
increasing manufacturing yields, improving the uptime of wafer fabrication
equipment and increasing the wafer size. Although feature size will continue
to be reduced, the other historical sources of productivity growth are now
reaching diminishing returns:
HIGHER YIELDS. In the last ten years, manufacturing yields have
increased substantially and the time to reach maximum yield levels has
decreased significantly. For example, the percentage of good DRAMs per wafer
during initial production has increased from 20% ten years ago to over 80% at
present. The potential for further yield improvement is limited.
IMPROVED UPTIME. Wafer fabrication line reliability has improved
markedly in the last ten years. Since equipment uptime now normally exceeds
90%, there is little room for improvement in equipment reliability.
LARGER WAFER SIZES. Leading edge wafer fabrication lines are currently
using 8" diameter wafers, up from 4" diameters ten years ago. However, the
migration to 8" wafers was slower than the prior migrations from smaller
wafer sizes. While migration to even larger sizes is probable, the pace of
the transitions to larger sizes will be slower.
2
As the industry achieved productivity gains from these sources during
the last ten years, wafer throughput actually declined. Demands from IC
manufacturers for higher yield and larger wafer sizes have resulted in a
shift from batch processing (multiple wafers simultaneously processed) to
single wafer processing (one wafer processed at a time). This shift has
resulted in reduced throughput and increased cost.
Semiconductor equipment manufacturers have responded to the declining
throughput problem with cluster tools, which employ single wafer processing
through the use of a common wafer handling platform with several single wafer
processing chambers. However, cluster tools are highly complex systems, often
resulting in low reliability. The Company believes that this low reliability,
combined with only modestly improved throughput, has limited the ability of
cluster tools to meet the productivity needs of semiconductor manufacturers.
Faced with diminishing productivity gains, IC manufacturers have
increased their emphasis on factors that contribute to overall manufacturing
costs. This focus has led to the use of cost of ownership ("COO") to measure
productivity. COO measures costs associated with operation of equipment in a
fabrication line. There is no accepted industry standard for calculating COO.
The Company calculates COO by estimating the total costs to operate a system
including depreciation, overhead, labor and materials, and dividing those
costs by the system's total wafer output. Because the Company, the Company's
customers and the Company's competitors may use different formulas for
calculating COO, there can be no assurance that the Company and the Company's
customers and competitors, each using the same data, would arrive at the same
determination of COO for a particular system. As used in this document, COO
refers to the Company's method of calculating COO as described in this
paragraph.
THE MATTSON SOLUTION - MODULAR CONTINUOUS PROCESSING
The Company believes its Aspen system provides higher productivity than
conventional single wafer systems and cluster tools. The Aspen system's
modular continuous processing architecture achieves this with high
throughput, savings of cleanroom floorspace and improvements in process
control as compared to conventional single wafer processing.
The Aspen system achieves higher throughput, savings in clean room
floorspace and enhanced process control by:
SIMULTANEOUS PROCESSING. The Company's Aspen systems process up to two
wafers concurrently in its RTP systems, up to four wafers concurrently (two
in each chamber) in its Strip and LiteEtch systems, and up to eight wafers
concurrently (four in each chamber) in its CVD systems.
CONTINUOUS PROCESSING. The Company's Aspen system substantially reduces
overhead time (the time during which the system is not actually processing
wafers). The Aspen system robotics can handle four wafers simultaneously,
reducing the overhead time during removal and insertion of the wafers into
the process chambers. Through the use of an inner loadlock, the Aspen system
eliminates the overhead time required to pump down the process chambers to a
vacuum and backfill the chambers to atmospheric pressure after processing. An
outer loadlock permits an operator to replace a cassette of processed wafers
with a new cassette while the system continues to process wafers in the inner
loadlock. As a result of these factors, the Aspen Strip generally requires
less than 12 seconds of overhead time per wafer which the Company believes is
a substantial improvement over present competitive systems.
MODULARITY. The Company's Aspen platform allows the use of one or two
process chambers, supporting various applications or increased capacity in
any one application. This modularity enables the Company to develop new
systems by adding a different process chamber to the platform. When a second
chamber is added, the COO is reduced. The commonality of parts, manufacturing
techniques, training, and documentation for the Aspen platform offers
operating advantages to the Company and its customers.
FLOORSPACE SAVINGS. As a result of higher throughput and modularity,
customers require fewer systems and can achieve a substantial savings in
cleanroom floorspace.
ENHANCED PROCESS CONTROL. The Aspen system's dedicated single wafer
processing stations achieve the within-wafer process control benefits of
conventional single wafer systems. In addition, dual loadlocks allow the
process chambers to maintain constant pressure and temperature which improves
upon the wafer-to-wafer repeatability of conventional single wafer systems.
The higher throughput of the Aspen system permits the use of slower, more
consistent and less damaging process technologies than are economically
feasible in conventional single wafer systems.
3
STRATEGY
The Company's objective is to become a leading supplier of advanced
processing equipment to the worldwide semiconductor industry. The Company
intends to achieve this objective by providing advanced process capability
combined with a substantial improvement in productivity over competitive
equipment, and by supplying world class support. Specific elements of the
Company's strategy include:
IMPROVED PROCESS TECHNOLOGY. The Company seeks to enter segments of the
semiconductor equipment industry when traditional technologies are unable to
satisfy emerging process requirements. For example, submicron etching results
in residues that have required multiple acid processing steps for removal by
traditional stripping systems. The Aspen Strip's plasma processes are capable
of removing many of these residues without the need for the acid steps.
HIGHER PRODUCTIVITY. The Company's goal is to offer systems which have
substantial improvements in productivity over the leading competitive
equipment in each market it enters. The Company believes that its Aspen
Strip, LiteEtch, CVD and RTP systems achieve this goal. In particular, the
Company believes that its systems achieve improvements in throughput, which
it considers an important factor in COO and productivity.
REDUCED TIME TO MARKET. The Company's Aspen platform includes wafer
handling robotics, dual loadlocks, control electronics and system software.
By basing new systems on this platform, the Company is able to focus its
development activities almost exclusively on the process chamber. By basing
new products on the standard Aspen platform, the Company believes it is able
to develop new products quickly and at relatively low cost.
COMMITMENT TO GLOBAL MARKET. From inception, the Company's strategy has
been to sell its systems to leading semiconductor manufacturers throughout
the world. The Company introduced its systems into Japan through Marubeni,
which has substantial experience in plasma equipment and CVD. The Company
has opened service and support offices in Taiwan, Korea and Germany and a
research, development and engineering, and marketing office in Japan.
International sales as a percentage of its total net sales for 1996, 1995 and
1994 were 76%, 67% and 62%, respectively.
PRODUCTS
To date, the Company has introduced four systems which are based upon
the Aspen platform: the Aspen Strip for photoresist stripping, the Aspen CVD
for chemical vapor deposition, the Aspen RTP for rapid thermal processing and
the Aspen LiteEtch for isotropic etching.
THE ASPEN STRIP
PHOTORESIST STRIPPING MARKET. A stripping system removes photoresist
before further film deposition, photolithography or etch on the wafer.
Traditional strip systems use wet and dry chemistry technology. In
traditional wet chemistry strip systems, the photoresist is removed by
immersing the wafer into acid or solvent baths. Dry chemistry strip systems,
such as the Company's Aspen Strip, create atomic oxygen in a gaseous form
(plasma) that is exposed to the wafer to remove the photoresist.
4
The demand for photoresist strip equipment has increased as the
complexity and number of strip steps required for each wafer have increased.
Complex ICs require a greater number of layers and a corresponding greater
number of stripping steps, with 16 megabit DRAMs often using 20 masking
steps, up from about 15 for 4 megabit DRAMs. The increase in the number of
strip steps in the semiconductor manufacturing process has led to a need for
semiconductor manufacturers to increase their photoresist strip capacity. The
increased complexity of the strip process has also led to higher average
selling prices of such equipment. According to Dataquest figures published in
February 1997, the market was estimated at $327 million for 1996, and
projected to reach $700 million by the year 2000.
EMERGING TECHNICAL REQUIREMENTS. Fabrication of complex ICs with
feature sizes under 0.35 microns requires new strip technologies that have
greater sensitivity to residues, contamination drive-in and underlying film
selectivities. With each shift in feature size, the Company estimates that
manufacturers typically require a 2X reduction in the level of allowable
contamination drive-in. In addition to providing "gentler" non-damaging
plasma, the strip system must also meet the increasing demands of removing
photoresist and sidewall polymers from higher energy etch processes that
require increased sidewall polymerization and resist cross-linking to meet
stringent profile control.
MATTSON'S STRIP TECHNOLOGY. To meet this demand, the Company markets
worldwide three separate and distinct plasma strip source products, each
designed for different design regimes. The most recent product offering uses
a patented, inductively coupled plasma (ICP) technology to gently and
thoroughly remove photoresist from the wafer. This remote (downstream) plasma
source generates a gentle, low energy plasma that achieves advanced "all dry"
stripping with zero damage and low contamination drive-in results without
additional post-strip chemical processing. The ICP technology is specifically
designed for advanced semiconductor device manufacturing--submicron processes
0.25 microns and below. When combined with the standard Aspen platform, the
Company believes that the Aspen ICP Strip system provides significant cost of
ownership advantages.
THE ASPEN STRIP. The Aspen Strip consists of the standard Aspen
platform together with one or two processing chambers. Each chamber processes
two wafers at a time. System throughput varies with the resist thickness and
is approximately 60-120 wafers per hour with one chamber and 110-160 wafers
per hour with two chambers for most applications. The Company believes the
two chamber Aspen Strip offers a substantial reduction in COO relative to
conventional single wafer systems. In particular, the Company believes that
its systems achieve substantial improvements in throughput which result in a
substantial reduction in COO and that its systems allow customers to reduce
wet chemical steps, providing an even greater reduction in COO.
THE ASPEN CVD
CVD MARKET. CVD processes are used to deposit insulating (dielectric)
and conducting films on wafers. These films are the basic material used to
form the resistors, capacitors, and transistors of an integrated circuit.
These materials are also used to form the wiring and insulation between these
electrical components. The deposition of dielectric films has become a higher
priority due to the increasing number of metalization layers required and the
difficulty of insulating and interconnecting them. The Company's Aspen CVD
system deposits silane-based films, such as silicon dioxide (oxide) films,
for interlayer and intermetal dielectric applications, and silicon nitride
(nitride) films, for final passivation applications. The Aspen CVD also
deposits TEOS and fluorinated TEOS.
EMERGING TECHNICAL REQUIREMENTS. As feature sizes continue to decrease,
CVD process equipment must meet more stringent requirements. Particles or
defect densities must be minimized and controlled to achieve the desired
yields. Film properties such as stress, stoichiometry and conformality must
also be improved and more tightly controlled. Semiconductor manufacturers
also place importance on compatibility with metalization steps, such as
aluminum deposition. Finally, as process complexity increases, the number of
CVD steps increases and throughput and system productivity become
significantly more important.
5
MATTSON'S CVD TECHNOLOGY. Plasma enhanced CVD allows the system to
process wafers at a relatively low temperature, reducing the risk of damage
to aluminum metalization layers during processing. Suppression of hillock
formation in aluminum interconnects is accomplished by limiting the time at
higher temperatures prior to deposition to 8-10 seconds. Film stress and
density can be controlled independent of process chemistry by the use of a
low frequency RF bias. Dual loadlocks isolate the process chamber from
pressure and temperature fluctuations, thereby reducing particulates and
improving film quality and repeatability. Continuous processing improves
thickness uniformity and film quality by randomizing small variations in
deposition from one station to the next. High throughput resulting from
continuous processing permits the use of slower, more consistent and less
damaging process technologies than are economically feasible in conventional
single wafer systems. Defect density is also improved through the use of an
in situ plasma cleaning process that automatically cleans the process chamber
after every batch of wafers.
THE ASPEN CVD. The Aspen CVD system, like the Aspen Strip, is based on
the standard Aspen platform. The system can be configured with one or two
process chambers and each chamber can process four wafers at a time. The second
chamber can be used to increase throughput with a minimal increase in footprint.
The automatic cleaning cycle and simple system design reduces production
downtime and increases overall system availability. The Company believes that
the Aspen CVD system offers a significant improvement in COO over the leading
competitive system. Among the principal factors which the Company believes
contribute to such improved COO is the throughput of the Company's system and
its lower price as compared to the leading competitive system.
THE ASPEN RTP
An RTP (Rapid Thermal Processing) system heats semiconductor wafers for
implant annealing and formation of films on semiconductor wafers surfaces.
Traditional RTP systems that use lamp heating technology operate at high
temperature up to 1200 DEG. celsius. Diffusion furnace systems provide furnace
annealing in both high and low temperature regimes. Low temperature RTP
systems, such as the Company's Aspen RTP system, apply heat to semiconductor
wafers to cause a variety of processing and chemical reactions, including:
Titanium Silicide and Cobalt Silicide formation; Titanium Nitride barrier
formation and anneals; thermal donor annihilation (TDA) and lower temperature
reflows and implant anneals, typically 600-900 DEG. celsius.
As device geometries and thermal budgets shrink, Rapid Thermal
Processing (RTP) is emerging as a key semiconductor processing technology.
As the number of layers on semiconductor wafers have increased, the demand
for RTP machines dedicated to specific applications in the fab has increased.
RTP technology must be able to meet ever more stringent requirements for
processing on semiconductor wafers. Issues concerning uniformity and
repeatability affect the integrity of the IC. IC makers also place
importance on the amount of time a semiconductor wafer is exposed to heat to
achieve a certain process and the level of wafer throughput achieved by the
system.
The Aspen RTP system is based on the Aspen platform and the principle of
modular continuous processing, handling up to 110 wafers per hour for selected
processes. The simple design of the process chamber has no moving parts and
no consumables, which contributes to its low preventative maintenance
requirements. The Company believes that its single chamber Aspen RTP offers
a substantial reduction in COO relative to conventional RTP systems.
THE ASPEN LITEETCH
ISOTROPIC ETCH MARKET. An isotropic etch system performs a variety of
isotropic etch processes on semiconductor wafers, processes which can be used
in as many as 10 steps in a typical 0.25 micron logic fab on 200 millimeter
wafers. At this time, these processes include, but are not restricted to:
silicon soft etch (post-RIE contact cleanup); highly selective nitride
etching for LOCOS stripping; backside nitride stripping; self-aligned-contact
(SAC) nitride stripping; isotropic contact and via etch; and passivation etch.
6
Historically, both dry and wet chemistries have been used for isotropic
etch manufacturing processes. In some cases, more expensive anisotropic
etchers with low throughput have been used for isotropic etch applications,
which has greatly increased the cost of these non-critical manufacturing
applications. Wet benches require a large amount of cleanroom floorspace plus
special handling and disposal of chemicals, which increases associated costs
and environmental concerns. For isotropic etch applications, the Company
believes that Aspen LiteEtch offers the benefits of dry etch tools, including
lower cost of ownership than wet benches, floorspace savings and ease of use.
The Company's Aspen LiteEtch system is an isotropic etching system that
uses dry chemistry to create atomic etchant species in a gaseous form
(plasma), which is exposed to the wafer to remove various films for a variety
of applications that do not require a high-end anisotropic etcher.
EMERGING TECHNICAL REQUIREMENTS. With ever-shrinking subgeometries,
processes used to remove films from wafers must be ever more selective to
prevent damage to the films in the underlying layers. This process capability
and control is necessary to achieve the high etch rates required and to
provide the uniformity and selectivity necessary for thin film etching. The
ability to use additional chemistries is often required to control etch
rates, provide added selectivity to underlying films, and to eliminate
certain residues created during advanced etch processing.
MATTSON'S ISOTROPIC ETCH TECHNOLOGY. The Company's first isotropic etch
product, the Aspen LiteEtch, uses a patented, inductively coupled plasma
(ICP) source--the same source used in its Aspen Strip product. This downstream
ICP source uses a high pressure plasma process to produce a low energy plasma
that achieves high etch rates while minimizing electrically charged particles
that can damage sensitive semiconductor devices. By combining ICP technology
designed for advanced device manufacturing with the high throughput of the
Aspen platform, the Company believes that it provides significant cost of
ownership advantages over comparable equipment.
THE ASPEN LITEETCH. The Aspen LiteEtch system is comprised of the
standard Aspen platform together with one or two process chambers. A
specially designed ceramic tube allows for the use of additional chemistries
without added contamination. Each chamber processes two wafers at a time,
while retaining single wafer process control. For most applications, system
throughput typically varies with the process from 40 to 80 wafers per hour
for a single chamber system and from 70 to 110 wafers per hour for a dual
chamber system. The Company believes the dual chamber Aspen LiteEtch offers a
substantial reduction in cost of ownership relative to anisotropic etch and
wet bench systems. In particular, the Company believes that Aspen LiteEtch
systems achieve improvements in throughput which result in a substantial
reduction in COO; and that its systems allow customers to further reduce COO
by eliminating environmental concerns and costs associated with the use of
acids; and by freeing anisotropic etchers for high end processing applications.
CUSTOMERS
The Company sells its products to leading IC manufacturers located in
the United States, Japan, the rest of the Pacific Rim and Europe. No single
end user customer accounted for 10% or more of sales in 1996. While the
Company actively pursues new customers, there can be no assurance that the
Company will be successful in its efforts, and any significant weakening in
customer demand would have a material adverse effect on the Company.
MARKETING AND SALES
The Company sells its systems through a combination of a direct sales
force, its Japanese distributor and a manufacturers' sales representative. In
addition to the direct sales force at the Company's headquarters in Fremont,
California, the Company has domestic regional sales offices located in New
Jersey, Arizona, Oregon and Texas. The Company is continuing to invest
resources to increase the size of its direct sales force.
7
The Company believes that strong sales in the Japanese market will be
essential to its future financial performance. As part of its strategy for
penetrating the Japanese market, the Company established a distributor
relationship with Marubeni in December 1990 and is substantially dependent
upon its relationship with Marubeni to address the Japanese market. The
Company recently formed a subsidiary in Japan in October, 1995, in which
Marubeni has a minority interest, in order to provide research, development
and engineering, and marketing support for customers in Japan and certain
other Asian markets. Although management believes that it maintains a good
relationship with Marubeni, there can be no assurance that the relationship
will continue. In the event of a termination of the Company's distribution
agreement with Marubeni, the Company's strategy to increase its sales in
Japan would be adversely affected and the Company would be obligated to
repurchase up to $1.0 million of inventory related to the Company's sales to
Marubeni. Although the Company intends to continue to invest significant
resources in Japan, including the hiring of additional personnel to support
Marubeni's efforts, there can be no assurance that the Company will be able
to maintain or increase its sales to the Japanese semiconductor industry.
The Company also has personnel located in service and customer support
offices in Korea, Taiwan and Germany. In Singapore, the Company utilizes a
third party manufacturers' sales representative. The Company's arrangements
with its customers are generally on a purchase order basis and not pursuant
to long term contracts.
International sales accounted for 76%, 67%, and 62% of total net sales
in 1996, 1995 and 1994, respectively. The Company anticipates that
international sales will continue to account for a significant portion of net
sales. International sales are subject to certain risks, including unexpected
changes in regulatory requirements, exchange rates, tariffs and other
barriers, political and economic instability, difficulties in accounts
receivable collections, extended payment terms, difficulties in managing
distributors or representatives, difficulties in staffing and managing
foreign subsidiary operations and potentially adverse tax consequences. The
Company's foreign sales are also subject to certain governmental
restrictions, including the Export Administration Act and the regulations
promulgated thereunder. There can be no assurance that any of these factors
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
CUSTOMER SUPPORT
The Company believes its customer support organization is critical to
establish the long-term customer relationships which often are the basis upon
which semiconductor manufacturers select their equipment vendor. The
Company's customer support organization is headquartered in Fremont,
California, with additional employees located in Idaho, Massachusetts, Texas,
Arizona, Oregon, Korea, Taiwan, Germany, and the United Kingdom. The
Company's strategy is to use local support personnel in regions where
multiple systems are in place. Marubeni provides service to the Company's
customers located in Japan. The Company's support personnel have technical
backgrounds, with process, mechanical, and electronics training, and are
supported by the Company's engineering and applications personnel. Support
personnel install systems, perform warranty and out-of-warranty service, and
provide sales support.
Warranty periods for Mattson systems range from 12 to 36 months after
shipment or acceptance, depending upon the purchase agreement. The Company is
transitioning to a standard warranty of 36 months after shipment.
BACKLOG
The Company schedules production of its systems based on both backlog
and regular sales forecasts. The Company includes in its backlog only those
systems for which the Company has accepted purchase orders and assigned
shipment dates within the next 12 months. All orders are subject to
cancellation or delay by the customer with limited or no penalty. As of
December 31, 1996, the backlog was approximately $34.9 million. Because of
possible changes in delivery schedules and cancellations of orders, the
Company's backlog at any particular date is not necessarily representative of
actual sales for any succeeding period.
8
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company maintains an applications laboratory in Fremont to test new
systems and customer-specific equipment designs. By basing new products on the
Aspen platform, the Company believes that it is able to focus its development
activities on the process chamber and to develop new products quickly and at
relatively low cost. For example, the Company believes it was able to reduce
new product development time on its CVD, RTP and LiteEtch products.
The markets in which the Company and its customers compete are
characterized by rapidly changing technology, evolving industry standards and
continuous improvements in products and services. Because of continual
changes in these markets, the Company believes that its future success will
depend, in part, upon its ability to continue to improve its existing
systems, process technologies, and to develop systems and new technologies
which compete effectively on the basis of COO and performance. In addition,
the Company must adapt its systems and processes to technological changes and
to support emerging industry standards for target markets. The success of new
system introductions is dependent on a number of factors, including timely
completion of new system designs and market acceptance. There can be no
assurance that the Company will be able to improve its existing systems and
process technologies or to develop new technologies or systems.
The Company's research, development and engineering expenses for the
years 1996, 1995, and 1994, were $11.5 million, $6.3 million, and $2.3
million, respectively, representing 16%, 11% and 12% of net sales,
respectively. The Company expects that research, development and engineering
expenses will continue to increase through 1997.
COMPETITION
The market for the Company's systems is highly competitive and is
subject to rapid technological change. Significant competitive factors
include system performance, COO, size of installed base, breadth of product
line and customer support. The Company believes that it competes in its
chosen markets primarily on the basis of system performance, COO, and
customer support. The Company believes it can also compete on the basis of
price due to the design of its systems.
The Company faces substantial competition in its chosen market segments
from both established competitors and potential new entrants. Most of the
Company's competitors (particularly for CVD systems) have broader product
lines, have been in business longer, have more experience with high volume
manufacturing, have broader name recognition, have substantially larger
customer bases and have substantially greater financial, technical and
marketing resources than the Company. There can be no assurance that these
competitors will not also develop enhancements to or future generations of
competitive products that will offer price or performance features that are
superior to the Company's systems. In the United States and European plasma
photoresist strip markets, the Company competes primarily with GaSonics,
Matrix and Fusion. In Japan, the Company competes primarily with Canon,
Plasma Systems Corporation, Ramco, Tokyo Ohka and various Japanese vendors
who have already established relationships with Japanese IC manufacturers. In
the CVD market, the Company competes primarily with Applied Materials,
Novellus, ASM and Watkins-Johnson. In the RTP market the Company competes
with AG Associates and Applied Materials. In the isotropic etch market the
Company competes with Lam Research, Gasonics, Matrix, Tegal, and Shibaura.
MANUFACTURING
The Company's manufacturing operations are based in its Fremont facility
and consist of procurement, subassembly, final assembly, test and reliability
engineering. The Company's current systems are based on the Aspen platform,
enabling the Company to use a large number of common subassemblies and
components. Many of the major assemblies are procured complete from outside
sources. The Company focuses its internal manufacturing efforts on those
precision mechanical and electro-mechanical assemblies which differentiate
its systems from its competitors. The Company is implementing a quality
control program based on ISO-9001 and Sematech-generated measurement and
improvement methodologies.
9
Certain of the Company's components are obtained from a sole supplier or
a limited group of suppliers. The Company generally acquires such components
on a purchase order basis and not under any long term supply contracts. The
Company's reliance on outside vendors generally, and 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. Because the
manufacture of certain of these components and subassemblies is an extremely
complex process and can require long lead times, there can be no assurance
that delays or shortages caused by suppliers will not occur. Historically the
Company has not experienced any significant delays in manufacturing due to an
inability to obtain components and is not currently aware of any specific
problems regarding the availability of components which might significantly
delay the manufacturing of its systems in the future. However, 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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company is subject to a variety of federal, state and local laws,
rules and regulations relating to the use, storage, discharge and disposal of
hazardous chemicals used during its sales demonstrations and research and
development. Public attention has increasingly been focused on the
environmental impact of operations which use hazardous materials. Failure to
comply with present or future regulations could result in substantial
liability to the Company, suspension or cessation of the Company's
operations, restrictions on the Company's ability to expand at its present
locations or requirements for the acquisition of significant equipment or
other significant expense. To date, compliance with environmental rules and
regulations has not had a material effect on the Company's operations.
INTELLECTUAL PROPERTY
The Company relies on a combination of patent, copyright, trademark and
trade secret laws, non-disclosure agreements and other intellectual property
protection methods to protect its proprietary technology. There can be no
assurance that the Company's competitors will not be able to legitimately
ascertain the non-patented proprietary information embedded in the Company's
systems, in which case the Company may be precluded from preventing the use
of such information. To the extent the Company wishes to assert its patent
rights, there can be no assurance that any claims of the Company's patents
will be sufficiently broad to protect the Company's technology or that the
Company's pending patent application will be approved. In addition, there can
be no assurance that any patents issued to the Company will not be
challenged, invalidated or circumvented, that any rights granted thereunder
will provide adequate protection to the Company, or that the Company will
have sufficient resources to prosecute its rights.
Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any unresolved notices that the Company is infringing intellectual property
rights of others, there can be no assurance that such infringement claims
will not be asserted by third parties in the future. There also can be no
assurance in the event of such claims of infringement that the Company will
be able to obtain licenses on reasonable terms. The Company's involvement in
any patent dispute or other intellectual property dispute or action to
protect trade secrets and know-how could have a material adverse effect on
the Company's business. Adverse determinations in any litigation could
subject the Company to significant liabilities to third parties, require the
Company to seek licenses from third parties and prevent the Company from
manufacturing and selling its products. Any of these situations could have a
material adverse effect on the Company.
FORWARD LOOKING STATEMENTS
In this Annual Report on Form 10-K/A and from time to time, the Company
may make forward looking statements regarding, among other matters, the
Company's future strategy, product development plans, productivity gains of
its products, financial performance 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, including
the following:
10
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS. The Company derives most
of its net sales from the sale of its photoresist stripping systems which
typically have list prices ranging from approximately $350,000 to $750,000.
At its current revenue level, each sale, or failure to make a sale, can have
a material effect on the Company. The Company's backlog at the beginning of a
quarter typically does not include all sales required to achieve the
Company's sales objectives for that quarter. Consequently, the Company's net
sales and operating results for a quarter depend on the Company shipping
orders scheduled to be sold during that quarter and obtaining orders for
systems to be shipped in that same quarter. A delay in a shipment near the
end of a particular quarter may cause net sales in that quarter to fall
significantly below the Company's expectations and may thus materially and
adversely affect the Company's operating results for such quarter. Other
factors which may lead to fluctuations in the Company's quarterly and annual
operating results include: market acceptance of the Company's systems and its
customers' products; substantial changes in revenues from significant
customers; changes in overhead absorption levels due to changes in the number
of systems manufactured; geographic mix of sales; timing of announcement and
introduction of new systems by the Company and its competitors; seasonality;
changes in product mix; delays in orders due to customer financial
difficulties; and cyclicality in the semiconductor industry and the markets
served by the Company's customers. In particular, the uncertainties regarding
market conditions and customer order changes and cancellations arising from
the recent market slow down raise significant risks regarding fluctuating
quarterly results. As the Company continues to invest in accordance with its
long term strategy, fluctuating revenue levels will result in fluctuating
results. Similarly, due to unpredictable order patterns, the Company's
manufacturing efficiency can vary significantly from quarter to quarter which
can adversely affect gross margins and net operating results. The amount of
time from the initial contact with the customer to the first order is
typically nine to twelve months or longer and may involve competing capital
budget considerations for the customer, thus making the timing of customer
orders uneven and difficult to predict. Any delay or failure to receive
anticipated orders, or any deferrals or cancellations of existing orders,
could adversely affect the Company's financial performance. In addition,
continued investments in research, development and engineering, and the
development of a worldwide sales and marketing organization will result in
significantly higher fixed costs which the Company will not be able to reduce
rapidly if its net sales goals for a particular period are not met. The
impact of these and other factors on the Company's operating results in any
future period cannot be forecasted accurately.
MARKET ACCEPTANCE OF SYSTEMS. Given that the Company's systems
represent alternatives to conventional strip, isotropic etch, CVD and RTP
equipment currently marketed by competitors, the Company believes that its
growth prospects depend in large part upon its ability to gain acceptance by
a broader group of customers of the efficacy of the Company's systems and
technology. Because a substantial investment is required by semiconductor
manufacturers to install and integrate capital equipment into a semiconductor
production line, these manufacturers will tend to choose semiconductor
equipment manufacturers based on past relationships, product compatibility
and proven financial performance. Once a semiconductor manufacturer has
selected a particular vendor's capital equipment, the Company believes that
the manufacturer generally relies upon that equipment for the specific
production line application and frequently will attempt to consolidate its
other capital equipment requirements with the same vendor. Given these
factors, there can be no assurance that the Company will be successful in
obtaining broader acceptance of its systems and technology.
DEPENDENCE ON SIGNIFICANT CUSTOMER. The Company sells its products to
leading IC manufacturers located in the United States, Japan, the rest of the
Pacific Rim and Europe. No single end user customer accounted for 10% or more
of sales in 1996. While the Company actively pursues new customers, there
can be no assurance that the Company will be successful in its efforts, and
any significant weakening in customer demand would have a material adverse
effect on the Company.
DEPENDENCE ON JAPANESE DISTRIBUTOR. The Company believes that strong
sales in the Japanese market will be essential to its future financial
performance. As part of its strategy for penetrating the Japanese market, the
Company established a distributor relationship with Marubeni and is
substantially dependent upon Marubeni to address the Japanese market.
Approximately 31% of the Company's net sales for the year ended December 31,
1996 were sold through Marubeni to customers in Japan. Although management
believes that it maintains a good relationship with Marubeni, there can be no
assurance that the relationship will continue. In the event of a termination
of the Company's distribution agreement with Marubeni, the Company's strategy
to increase its sales in Japan would be adversely affected and the Company
would have the obligation to repurchase up to $1 million of inventory related
to the Company's sales to Marubeni. Although the Company intends to continue
to invest significant resources in Japan, including the hiring of additional
personnel to support Marubeni's efforts, there can be no assurance that the
Company will be able to maintain or increase its sales to the Japanese
semiconductor industry.
11
LENGTHY SALES CYCLE. Sales of the Company's systems depend, in
significant part, upon the decision of a prospective customer to increase
manufacturing capacity or to expand current manufacturing capacity, both of
which typically involve a significant capital commitment. Once a
semiconductor manufacturer has selected a particular vendor's capital
equipment, the Company believes that the manufacturer generally relies upon
that equipment for the specific production line application and frequently
will attempt to consolidate its other capital equipment requirements with the
same vendor. Accordingly, the Company's ability to receive orders from
potential customers may depend upon such customers undertaking an evaluation
for new equipment. For many potential customers, such an evaluation may occur
infrequently. Following initial system qualification, the Company often
experiences further delays in finalizing system sales while the customer
evaluates and receives approvals for the purchase of the Company's systems
and completes a new or expanded facility. The Company believes it must
significantly increase its inventory investment in evaluation systems because
they are used by many customers in their evaluation processes. Due to these
factors, the Company's systems typically have a lengthy sales cycle during
which the Company may expend substantial funds and management effort. There
can be no assurance that any of the Company's efforts will be successful.
CYCLICALITY OF SEMICONDUCTOR INDUSTRY. The Company's business depends
in significant part upon capital expenditures by manufacturers of
semiconductor devices, including manufacturers that are opening new or
expanding existing fabrication facilities, which in turn depend upon the
current and anticipated market demand for such devices and the products
utilizing such devices. The semiconductor industry is highly cyclical and
historically has experienced periods of oversupply, resulting in significantly
reduced demand for capital equipment, including the systems manufactured and
marketed by the Company. The semiconductor industry has seen a significant
decline in shipments starting from the second half of 1996 and there can be
no assurance of when or if, the industry will return to growth. The Company
anticipates that a significant portion of new orders will depend upon demand
from semiconductor manufacturers building or expanding large fabrication
facilities, and there can be no assurance that such demand will exist. The
Company's net sales and operating results will be materially and adversely
affected if the current downturn continues, or in the event of unanticipated
downturns or slowdowns in the semiconductor market in the future.
HIGHLY COMPETITIVE INDUSTRY. The market for the Company's systems is
highly competitive and is subject to rapid technological change. Significant
competitive factors include system performance, cost of ownership, size of
installed base, breadth of product line and customer support. Principal
competitors for the Company's Aspen Strip systems include GaSonics, Fusion
and Matrix in the United States and Canon, Plasma Systems, Ramco and Tokyo
Ohka in Japan. Competitors for its Aspen LiteEtch systems include Lam
Research, Gasonics, Matrix, Tegal and Shibaura. Competitors for its Aspen CVD
systems include Applied Materials, Novellus, ASM and Watkins-Johnson and
competitors for its Aspen RTP system include AG Associates and Applied
Materials. Most of the Company's competitors (particularly for CVD systems)
have broader product lines, have been in business longer, have more
experience with high volume manufacturing, have broader name recognition,
have substantially larger customer bases, and have substantially greater
financial, technical and marketing resources than the Company. In addition,
to expand its sales, the Company must often replace competitors' systems.
There can be no assurance that the Company's competitors will not develop
enhancements to or future generations of competitive products that will offer
price/performance features that are superior to the Company's systems.
DEPENDENCE ON SINGLE SYSTEM. To date, most of the Company's sales of
systems have been Aspen Strip systems. The Company's continued sales growth
will depend upon achieving market acceptance of its Aspen CVD, Aspen RTP and
Aspen LiteEtch systems and future products.
12
RAPID TECHNOLOGICAL CHANGE; NEW SYSTEMS. The markets in which the
Company and its customers compete are characterized by rapidly changing
technology, evolving industry standards and continuous improvements in
products and services. Because of continual changes in these markets, the
Company believes that its future success will depend, in part, upon its
ability to continue to improve its systems and its process technologies and
to develop new technologies and systems which compete effectively on the
basis of price and performance and which adequately address customer
requirements. In addition, the Company must adapt its systems and processes
to technological changes and to support emerging target market industry
standards. The success of new system introductions is dependent on a number
of factors, including timely completion of new system designs and market
acceptance. There can be no assurance that the Company will be able to
improve its existing systems and its process technologies or timely develop
new technologies or systems.
SOLE OR LIMITED SOURCES OF SUPPLY. The Company relies to a substantial
extent on outside vendors to manufacture many of the Aspen systems'
components and subassemblies. Certain of these are obtained from a sole
supplier or a limited group of suppliers. 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. Because the manufacture of certain of these
components and subassemblies is an extremely complex process and requires
long lead times, there can be no assurance that delays or shortages caused by
suppliers will not occur. 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.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a large
extent upon the efforts and abilities of Brad Mattson, Chairman and Chief
Executive Officer, and other key managerial and technical employees. The loss
of Mr. Mattson or other key employees could have a material adverse effect on
the Company. The Company has not entered into written employment agreements
with its executive officers. The success of the Company's business will also
depend upon its ability to continue to attract and retain qualified
employees, particularly those highly skilled design and process engineers
involved in the manufacture of existing systems and the development of new
systems and processes. The competition for such personnel is intense.
INTERNATIONAL SALES. International sales accounted for 76%, 67%, and
62% of total net sales in 1996, 1995 and 1994, respectively. The Company
anticipates that international sales will continue to account for a
significant portion of net sales. International sales are subject to certain
risks, including unexpected changes in regulatory requirements, exchange
rates, tariffs and other barriers, political and economic instability,
difficulties in accounts receivable collections, extended payment terms,
difficulties in managing distributors or representatives, difficulties in
staffing and managing foreign subsidiary operations and potentially adverse
tax consequences. The Company's international sales are also subject to
certain governmental restrictions, including the Export Administration Act
and the regulations promulgated thereunder. The Company's sales to date have
been denominated in U.S. dollars and as a result, there have been no losses
related to currency fluctuations. There can be no assurance that any of
these factors will not have a material adverse effect on the Company.
13
INTELLECTUAL PROPERTY RIGHTS. The Company relies on a combination of
patent, copyright, trademark and trade secret laws, non-disclosure agreements
and other intellectual property protection methods to protect its proprietary
technology. The Company believes that patents are of less significance in
this industry than such factors as innovative skills, technical expertise and
know-how of its personnel. There can be no assurance that the Company's
competitors will not be able to legitimately ascertain the non-patented
proprietary information embedded in the Company's systems, in which case the
Company may be precluded from preventing the use of such information. To the
extent the Company wishes to assert its patent rights, there can be no
assurance that any claims of the Company's patents will be sufficiently broad
to protect the Company's technology. In addition, there can be no assurance
that any patents issued to the Company will not be challenged, invalidated or
circumvented, that any rights granted thereunder will provide adequate
protection to the Company, or that the Company will have sufficient resources
to prosecute its rights.
Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any unresolved notices that the Company is infringing intellectual property
rights of others, there can be no assurance that such infringement claims
will not be asserted by third parties in the future. There also can be no
assurance in the event of such claims of infringement that the Company will
be able to obtain licenses on reasonable terms. The Company's involvement in
any patent dispute or other intellectual property dispute or action to
protect trade secrets and know-how could have a material adverse effect on
the Company. Adverse determinations in any litigation could subject the
Company to significant liabilities to third parties, require the Company to
seek licenses from third parties and prevent the Company from manufacturing
and selling its systems. Any of these situations could have a material
adverse effect on the Company.
ENVIRONMENTAL REGULATIONS. The Company is subject to a variety of
federal, state and local laws, rules and regulations relating to the use,
storage, discharge and disposal of hazardous chemicals used during sales
demonstrations and research and development. Public attention has
increasingly been focused on the environmental impact of operations which use
hazardous materials. To the best of the Company's knowledge, it is in
compliance with all federal, state and local environmental regulations.
However, failure to comply with present or future regulations could result in
substantial liability to the Company, suspension or cessation of the
Company's operations, restrictions on the Company's ability to expand at its
present locations or requirements for the acquisition of significant
equipment or other significant expense.
VOLATILITY OF STOCK PRICE. In the past, the market price of the Common
Stock of the Company has been subject to significant volatility and has
declined substantially from its highs. There can be no assurance that the
market price of the Common Stock of the Company will not decline in the future.
The Company believes that a variety of factors could cause the price of the
Company's Common Stock to fluctuate, perhaps substantially, including:
announcements of developments related to the Company's business; fluctuations
in the Company's operating results and order levels; general conditions in the
semiconductor industry or the worldwide economy; announcements of technological
innovations; new products or product enhancements by the Company or its
competitors; developments in patents or other intellectual property rights;
and developments in the Company's relationships with its customers,
distributors and suppliers. In addition, in recent years the stock market in
general, and the market for shares of small capitalization stocks in particular,
has experienced extreme price fluctuations which have often been unrelated to
the operating performance of affected companies. Such fluctuations could
adversely affect the market price of the Company's Common Stock.
EMPLOYEES
As of February 28, 1997 the Company had 298 employees. There were 60
employees in manufacturing operations, 86 in research, development and
engineering, 122 in sales, marketing and field service and customer support,
and 30 in general, administrative and finance. In order to support its growth
plans, the Company intends to hire additional key personnel during the next
12 months in these areas.
14
The success of the Company's future operations depends in large part on
the Company's ability to recruit and retain qualified employees, particularly
those highly skilled design, process and test engineers involved in the
manufacture of existing systems and the development of new systems and
processes. The competition for such personnel is intense. There can be no
assurances that the Company will be successful in retaining or recruiting key
personnel. None of the Company's employees is represented by a labor union
and the Company has never experienced a work stoppage, slowdown, or strike.
The Company considers its relationships with its employees to be good.
ITEM 2. PROPERTIES
The Company maintains its headquarters in Fremont, California in one
leased 61,000 square foot facility. The lease for this facility expires in
February 1999. The Company's future growth may require that it secure
additional facilities or expand its current facility further before the term
of its headquarters' lease expires. Any move to new facilities or expansion
could be disruptive and could have a material adverse effect on the
operations and financial performance of the Company. The Company also leases
offices in Yokohama, Japan, Seoul, Korea, Hsinchu, Taiwan, and Oberwossen,
Germany with expiration dates from April, 1997 to August, 2000.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is
a party or to which any of its properties is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
15
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
STOCK LISTING
Mattson Technology's common stock has been traded on the over-the-counter
market since the Company's Initial Public Offering on September 28, 1994, and
is quoted on the NASDAQ Stock Market under the symbol "MTSN". The following
table sets forth the high and low closing prices as reported by the Nasdaq
National Market for the periods indicated.
1996 High Low
FIRST 16 1/2 9
SECOND 16 1/4 10 5/8
THIRD 12 1/4 7 3/4
FOURTH 11 1/4 8 3/8
1995
- -------------------------------------------------------------------------------
FIRST 12 5/8 8 3/8
SECOND 24 1/4 10 3/4
THIRD 31 1/8 20 7/8
FOURTH 26 1/4 13 1/4
1994
- -------------------------------------------------------------------------------
THIRD 8 7/8 6
FOURTH 10 7/8 7 7/8
The Company has never paid cash dividends on its common stock and has no
present plans to do so. As of February 28, 1997, there were approximately
190 shareholders of record.
16
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FIVE-YEAR SUMMARY
December 31, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Net sales(1) $73,260 $55,342 $19,551 $ 3,479 $ 1,100
Net income (loss) 6,465 10,492 3,018 (831) (1,767)
Net income (loss) per share (3) $ 0.42 $ 0.71 $ 0.29 $ (0.12) $ -
BALANCE SHEET DATA:
Total assets $84,489 $74,089 $32,479 $ 2,906 $ 910
Manditorily Redeemable
Convertible Preferred Stock - - - 7,340 5,052
Total shareholders' equity
(deficit) (4) $69,115 $61,076 $28,292 $(7,106) $(6,280)
QUARTERLY DATA
(unaudited)
FIRST SECOND THIRD FOURTH
December 31, 1996 QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------
Net sales $22,002 $23,244 $14,005 $14,009
Gross profit 12,820 13,295 6,819 7,095
Net income (loss) 3,538 3,455 (105) (423)
Net income (loss) per share $ 0.23 $ 0.23 $ (0.01) $ (0.03)
FIRST SECOND THIRD FOURTH
December 31, 1995 QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------
Net sales (2) $ 9,437 $11,866 $15,138 $18,901
Gross profit 4,905 6,448 8,364 10,667
Net income 1,680 2,220 3,120 3,472
Net income per share $ 0.12 $ 0.15 $ 0.20 $ 0.23
(1) Includes sales through a related party distributor for each yearly
period as follows: 1995 - $16,994, 1994 - $8,435, 1993 - $2,179, and
1992 - $334. See Note 6 of Notes to Consolidated Financial Statements.
(2) Includes sales through a related party distributor for each quarterly
period as follows: $4,393, $4,219, $4,204, $4,178.
(3) The net loss per share for the year ended December 31, 1993 is pro forma
and is computed using the same method as described in Note 1, except that
preferred stock outstanding during the period is included (using the if
converted method) in that computation as equivalent shares even though its
effect is anti-dilutive. Net loss per share for 1992 has not been
presented as such information is not meaningful.
(4) The Company has not paid and does not intend to pay dividends in the
foreseeable future.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT 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
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. The Company has sold one LiteEtch unit. The Company's LiteEtch
and RTP products are each in an early marketing phase. 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 to regain
sales growth or profitability. Future results will depend on a variety of
factors, particularly overall market conditions and also 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 Company 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 the rate of
sales growth. As a result, the Company is dependent upon increases in sales
in order to regain profitability. If the Company's sales do not increase,
the current levels of operating expenses could materially and adversely
affect the financial results of the Company.
As a result of the well publicized slowdown in the semiconductor market,
particularly for DRAMs, many semiconductor manufacturers have been delaying
or canceling previously planned new equipment purchases. The cyclicality and
uncertainties regarding overall market conditions continue to present
significant challenges to the Company and have a significant adverse impact
on the Company's ability to forecast near term revenue expectations. The
ability of the Company to modify its operations in response to short term
changes in market conditions is limited. The extent and duration of the
slowdown and the short term and ultimate impact on the Company and its
results of operations and financial condition cannot be precisely predicted.
The Company formed a subsidiary in Japan in October 1995, Mattson Technology
Center K.K. ("MTC"), in which Marubeni, the Company's distributor in Japan,
has a 19% interest. The subsidiary was formed in order to provide research,
development and engineering, and marketing support for Japan and certain
other Asian markets. These activities, to some extent, had previously been
provided by Marubeni. The Company also modified its distributor arrangement
with Marubeni which increased the selling price of systems sold through them.
Marubeni is still primarily responsible for sales and support in Japan.
The Company generally recognizes a sale upon shipment of a system. However,
from time to time, the Company allows customers to evaluate systems. The
Company does not recognize the associated sale until and unless an evaluation
system is accepted by the customer.
The Company was incorporated in California in November 1988 and completed its
initial public offering on October 5, 1994.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENTS
This annual report 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
other filings with the Securities and Exchange Commission.
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 years indicated:
1996 1995 1994
- ---------------------------------------------------------------------------
Net sales 100% 100% 100%
Cost of sales 45% 45% 50%
Gross margin 55% 55% 50%
Research, development and engineering 16% 11% 12%
Selling, general and administrative 29% 21% 23%
Income from operations 10% 23% 15%
Income before provision for income taxes 13% 26% 16%
Net income 9% 19% 15%
NET SALES
Net sales for 1996 increased to $73.3 million compared to $55.3 million in
1995 and $19.6 million in 1994. Net sales in 1996 increased 33% as a result
of a 14% increase in unit shipments and a 15% increase in average selling
prices (ASP's). Sales to date consist principally of single and dual chamber
Aspen Strip, CVD and LiteEtch systems and to a lesser extent, spare parts and
service revenue. Higher ASP's have resulted primarily from increasing sales
of the newer Aspen ICP Strip, CVD and LiteEtch systems.
International sales, which are predominantly to customers based in Japan and
the Pacific Rim (which includes Taiwan, Singapore and Korea), accounted for
76%, 67%, and 62% of total net sales for the years ended December 31, 1996,
1995 and 1994, respectively. All sales are denominated in U.S. dollars. The
Company anticipates that international sales will continue to account for a
significant portion of sales, primarily due to orders from customers in Japan
and the Pacific Rim. The Company's operating results could be materially
and adversely affected by any significant market downturn in Japan or the
Pacific Rim, including any loss of business from, cancellation of orders by,
or decreases in prices of systems sold through Marubeni.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GROSS MARGIN
Overall, the Company's gross margin for 1996 remained even at 55% compared to
1995 and increased from 50% in 1994. Gross margins on shipments through
Marubeni increased in 1996 as a result of the 1995 agreement, as described
above. This increase was offset by manufacturing inefficiencies associated
with the slowdown in the second half of 1996. The increase from 1994 was
primarily due to a shift in sales mix to higher ASP products.
The Company's gross margin will continue to be affected by a variety of
factors. In particular, until and unless sales volumes increase, 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.
Although the Company generally does not grant substantial discounts on its
systems, 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. The continuing uncertainties regarding market conditions and
customer order changes also contribute to lower manufacturing efficiency and
could result in lower gross margins. In addition, new system introductions
and enhancements may also have an adverse effect on gross margin due to the
inefficiencies associated with manufacturing new products.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses for 1996 were $11.5 million,
or 16% of net sales, compared to $6.3 million, or 11% of sales in 1995 and
$2.3 million, or 12% of sales in 1994. The increase in expenses for 1996 was
primarily due to salaries and related expenses which increased to $5.4
million from $3.5 million in 1995 and $1.2 million in 1994 and engineering
project materials which increased to $2.0 million in 1996 from $1.1 million
in 1995 and $0.4 million in 1994. The increase in salaries and related
expenses was due to increases in personnel required to support the Company's
growth. The increase in engineering project materials was due to ongoing and
new product development. Research, development and engineering expenses also
increased in 1996 compared to 1995 due to the Company's establishment of a
subsidiary in Japan, as described above. Increases in research, development
and engineering expenses as a percentage of revenue in 1996 largely resulted
from continued investment in new product development and the reduced level of
revenue growth. 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.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for 1996 were $20.9 million, or
29% of net sales, compared to $11.4 million, or 21%, in 1995 and $4.5
million, or 23% in 1994. The increase in expenses was primarily due to
salaries, commissions and related expenses which increased to $13.1 million
from $7.3 million in 1995 and $3.2 million in 1994 and travel and
entertainment expenses which increased to $2.7 million from $1.2 million in
1995 and $0.6 million in 1994. The increase in salaries and related expenses
was due to increases in personnel required to support the Company's growth.
The increase in travel and entertainment expenses was primarily due to
increases in sales activity and support activity. Selling, general and
administrative expenses also increased in 1996 compared to 1995 due to the
Company's establishment of a subsidiary in Japan, as described above, the
continued investment in sales and support offices in Taiwan, Korea and
Germany and the expansion of the Company's headquarters facilities. Increases
in selling, general and administrative expenses as a percentage of revenue in
1996 largely resulted from continued investment in the Company's sales and
marketing infrastructure and the reduced level of revenue growth.
TAX PROVISION
During 1996, 1995 and 1994 the Company provided taxes at an effective tax
rate of 33.0%, 27.9% and 6.9%, respectively. The 1996 tax rate is less
than the federal statutory rate as a result of benefits derived from the
Company's foreign sales corporation and the research and development tax
credit, which Congress reinstated effective July 1, 1996. The 1995 tax rate
is less than the federal statutory rate as a result of realization of
deferred tax assets of $1.4 million previously reserved and tax credits,
partially offset by state taxes. The 1994 rate reflects the realization of
deferred tax assets previously reserved and federal alternative minimum taxes
and state taxes.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's operating results are subject to a variety of risks
characteristic of the semiconductor manufacturing equipment industry,
including intense competition, fluctuating demand, significant volatility,
rapid technological change, and booking and shipment uncertainties. The
Company is actively developing new products that it believes will meet future
customer needs, but no assurance can be given that its efforts will be
successful. Fluctuations in the Company's operating results could occur in
the future due to any of these factors or many others, including those
discussed in the Overview, general economic conditions or other conditions
specific to the semiconductor equipment manufacturing industry.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments decreased by $4.0 million
in 1996, primarily as a result of the net cash used in the acquisition of
property and equipment, and increased by $19.3 million in 1995, primarily as
a result of the proceeds from the sale of common stock in conjunction with a
secondary public offering of $20.7 million in June, 1995.
Net cash provided by operating activities in 1996 was $1.4 million. The net
cash provided in 1996 was primarily attributable to net income of $6.5
million and an increase in accrued liabilities of $5.3 million, offset by
increases of $2.1 million, $2.0 million and $3.0 million in inventories,
accounts receivable and other assets, respectively, and decreases in
accounts payable of $2.6 million.
The Company believes that existing cash balances and short-term investments
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. The Company does
not expect 1997 capital expenditures to exceed 1996 capital expenditures.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Consolidated Financial Statements: Page
Consolidated Balance Sheet as of 23
December 31, 1996 and 1995
Consolidated Statement of Income 24
for the years ended December 31,
1996, 1995 and 1994
Consolidated Statement of 25
Shareholders' Equity for the
three years ended December 31, 1996
Consolidated Statement of Cash Flows 26
for the years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements 27
Report of Independent 38
Accountants
Financial Statement Schedules:
All schedules are omitted because they are either
not applicable or the required information is shown
in the consolidated financial statements or notes
thereto.
22
MATTSON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
(IN THOUSANDS)
December 31, 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 21,547 $ 14,310
Short-term investments 16,620 27,861
Accounts receivable, net 15,954 13,988
Inventories 12,954 10,839
Deferred taxes 4,197 2,013
Prepaid expenses and other current assets 882 427
-------- --------
Total current assets 72,154 69,438
Property and equipment, net 9,373 4,651
Other assets 2,962 -
-------- --------
$ 84,489 $ 74,089
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,240 $ 3,887
Accrued liabilities 14,134 9,126
-------- --------
Total current liabilities 15,374 13,013
-------- --------
Commitments and contingencies (Note 9)
Shareholders' equity:
Common Stock, no par value, 60,000 shares authorized;
14,197 and 13,779 shares issued and outstanding 57,580 55,898
Less: Deferred compensation (13) (73)
Net unrealized loss on investments (23) -
Cumulative translation adjustments (54) (16)
Retained earnings 11,625 5,267
-------- --------
Total shareholders' equity 69,115 61,076
-------- --------
$ 84,489 $ 74,089
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23
MATTSON TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Net sales $ 73,260 $ 55,342 $ 19,551
Cost of sales 33,231 24,958 9,772
-------- -------- --------
Gross profit 40,029 30,384 9,779
-------- -------- --------
Operating expenses:
Research, development and engineering 11,507 6,330 2,305
Selling, general and administrative 20,900 11,416 4,519
-------- -------- --------
Total operating expenses 32,407 17,746 6,824
-------- -------- --------
Income from operations 7,622 12,638 2,955
Interest and other income 2,027 1,906 286
-------- -------- --------
Income before provision for income taxes 9,649 14,544 3,241
Provision for income taxes 3,184 4,052 223
-------- -------- --------
Net income $ 6,465 $ 10,492 $ 3,018
======== ======== ========
Net income per share $ 0.42 $ 0.71 $ 0.29
======== ======== ========
Shares used in computing net income per share 15,275 14,854 10,322
======== ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
24
MATTSON TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
(IN THOUSANDS)
Series A
Convertible Deferred Unrealized
Preferred Common Compensation (Gain) Cumulative Retained
Stock Stock Notes Related to Loss on Translation Earnings
Shares Amount Shares Amount Receivable Stock Options Investments Adjustments (Deficit) Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 1,030 $1,031 856 $ 171 $ (65) $ - $ - $ - $(8,243) $(7,106)
Conversion of Preferred Stock (1,030) (1,031) 1,030 1,031 - - - - - -
Conversion of Mandatorily
Redeemable Preferred Stock - - 5,820 7,340 - - - - - 7,340
Sale of Common Stock, net - - 4,600 24,961 - - - - - 24,961
Exercise of stock options - - 82 44 - - - - - 44
Deferred compensation on stock
options - - - 193 - (193) - - - -
Amortization of deferred
compensation - - - - - 64 - - - 64
Net unrealized loss on
investments - - - - - - (29) - - (29)
Net income - - - - - - - - 3,018 3,018
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance at December 31, 1994 - - 12,388 33,740 (65) (129) (29) - (5,225) 28,292
Sale of Common Stock, net - - 983 20,675 - - - - - 20,675
Exercise of stock options - - 276 255 - - - - - 255
Shares issued under employee
stock purchase plan - - 132 774 - - - - - 774
Income tax benefits realized
from activity in employee
stock plans - - - 454 - - - - - 454
Repayment of notes receivable - - - - 65 - - - - 65
Amortization of deferred
compensation - - - - - 56 - - - 56
Net unrealized gain on
investments - - - - - - 29 - - 29
Cumulative translation
adjustments - - - - - - - (16) - (16)
Net income - - - - - - - - 10,492 10,492
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance at December 31, 1995 - - 13,779 55,898 - (73) - (16) 5,267 61,076
Purchase of Common Stock, net - - (65) (442) - - - - (107) (549)
Exercise of stock options - - 255 286 - - - - - 286
Shares issued under employee
stock purchase plan - - 228 1,596 - - - - - 1,596
Income tax benefits realized
from activity in employee
stock plans - - - 285 - - - - - 285
Amortization of deferred
compensation - - - (43) - 60 - - - 17
Net unrealized loss on
investments - - - - - - (23) - - (23)
Cumulative translation
adjustments - - - - - - - (38) - (38)
Net income - - - - - - - - 6,465 6,465
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance at December 31, 1996 - $ - 14,197 $57,580 $ - $ (13) $ (23) $ (54) $11,625 $69,115
------ ------ ------ ------ ------ ------ ------ ------ ------- -------
------ ------ ------ ------ ------ ------ ------ ------ ------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25
MATTSON TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------
(IN THOUSANDS)
December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 6,465 $ 10,492 $ 3,018
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 1,963 505 140
Deferred taxes (2,184) (2,013) -
Deferred compensation related to stock options 17 56 64
Changes in assets and liabilities:
Accounts receivable (1,966) (9,565) (3,813)
Inventories (2,115) (8,501) (2,478)
Prepaid expenses and other current assets (455) (311) (37)
Other assets (2,962) - -
Accounts payable (2,647) 2,724 588
Customer deposits - - (390)
Accrued liabilities 5,293 6,556 1,317
--------- --------- ---------
Net cash provided by (used in) operating activities 1,409 (57) (1,591)
--------- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (6,685) (2,376) (1,018)
Purchases of short-term investments (36,293) (39,521) (10,234)
Sales and maturities of short-term investments 47,511 21,894 -
--------- --------- ---------
Net cash provided by (used in) investing activities 4,533 (20,003) (11,252)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from the issuance of Common Stock, net 1,882 21,704 25,005
Repurchase of Common Stock (549) - -
Repayment of notes receivable from shareholders - 65 -
--------- --------- ---------
Net cash provided by financing activities 1,333 21,769 25,005
--------- --------- ---------
Effect of exchange rate changes (38) (16) -
--------- --------- ---------
Net increase in cash and cash equivalents 7,237 1,693 12,162
Cash and cash equivalents, beginning of period 14,310 12,617 455
--------- --------- ---------
Cash and cash equivalents, end of period $ 21,547 $ 14,310 $ 12,617
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures:
Cash paid for income taxes $ 4,701 $ 4,163 $ -
Other non-cash disclosures:
Income tax benefits from employee stock plans 285 454 -
Systems transferred from inventory to property and
equipment - 1,662 -
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26
MATTSON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mattson Technology, Inc. (the "Company") was incorporated in California on
November 18, 1988. The Company designs, manufactures and markets advanced
fabrication equipment to the semiconductor manufacturing industry worldwide.
The Company operates in one industry segment.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
The Company's fiscal year ends on December 31. The Company's fiscal quarters
end on the Sunday closest to March 31, June 30 and September 30.
MANAGEMENT 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 revenue and expenses during the reported periods.
Actual results could differ from those estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Short-term investments
consist of commercial paper and U.S. Treasury securities with maturities of
more than three months. Investments are classified as "available for sale,"
and are measured at market value. Net unrealized gains or losses are
recorded as a separate component of shareholders' equity until realized. Any
gains or losses on sales of investments are computed by specific
identification. At December 31, 1995 and 1996 the difference between market
value and cost was not significant.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates
actual cost, using the first-in, first-out method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based upon the useful lives of the assets ranging from
three to five years. Leasehold improvements are amortized using the
straight-line method over the term of the related lease or the estimated
useful lives of the improvements, whichever is less.
COMMON STOCK
In October, 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123). In accordance
with the provisions of FAS 123, the Corporation applies APB Opinion 25 and
related Interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost because the exercise price
equals the market price of the underlying stock at date of grant. Note 3 to
the Consolidated Financial Statements contains a summary of the pro forma
effects to reported net income and earnings per share for 1996 and 1995 for
compensation cost based on the fair value of the options granted at grant
date as prescribed by FAS 123.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
SALES RECOGNITION
Sales related to system sales is generally recognized upon shipment. However,
the Company allows customers to evaluate systems, and since customers can
return such systems to the Company any time with limited or no penalty, the
Company does not recognize the associated sale until an evaluation system is
accepted by the customer. Income related to sales of up to $1,000,000 to the
Company's distributor in Japan is deferred under the rights of return
provisions of the distribution agreement (see Note 6). Service and
maintenance contract revenue, which to date has been insignificant, is
recognized on a straight-line basis over the service period of the related
contract. A provision for the estimated future cost of system installation
and warranty is recorded at the time revenue is recognized.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts.
FOREIGN CURRENCY ACCOUNTING
The local currency is the functional currency for all foreign operations
except those in Japan, where the U.S. dollar is the functional currency.
Gains or losses from translation of foreign operations where the local
currencies are the functional currency are included as a component of
shareholders' equity. Foreign currency transaction gains and losses have not
been material.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Common
equivalent shares consist of stock options (using the treasury stock method).
Common equivalent shares are excluded from the computation if their effect is
anti-dilutive except that, pursuant to the requirements of the Securities and
Exchange Commission, common equivalent shares relating to stock options
(using the treasury stock method and the initial public offering price)
issued subsequent to August 8, 1993 through October 5, 1994 have been
included in the computation for periods through closing of the Company's
initial public offering even if anti-dilutive.
RECLASSIFICATION
Certain 1995 balances have been reclassified to conform to the 1996
presentation.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
2. BALANCE SHEET DETAIL
(IN THOUSANDS)
December 31, 1996 1995
- -------------------------------------------------------------------------------
INVENTORIES:
Purchased parts and raw materials $ 6,763 $ 5,227
Work-in-process 4,634 4,070
Finished goods 734 1,072
Evaluation systems 823 470
--------- ---------
$ 12,954 $ 10,839
--------- ---------
--------- ---------
PROPERTY AND EQUIPMENT:
Machinery and equipment $ 6,971 $ 3,787
Furniture and fixtures 2,329 823
Leasehold improvements 1,360 531
Construction-in-progress 1,023 278
--------- ---------
11,683 5,419
Less: accumulated depreciation and amortization (2,310) (768)
--------- ---------
$ 9,373 $ 4,651
--------- ---------
--------- ---------
ACCRUED LIABILITIES:
Warranty reserve $ 3,378 $ 2,384
Accrued compensation and benefits 1,252 2,270
Income taxes 2,082 1,543
Commissions 1,082 675
Deferred income 4,966 591
Other 1,374 1,663
--------- ---------
$ 14,134 $ 9,126
--------- ---------
--------- ---------
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
3. CAPITAL STOCK
COMMON STOCK
In October, 1994, the Company completed its Initial Public Offering (IPO) of
Common Stock, which resulted in the sale of 4,600,000 shares. The Company
received net proceeds of $25.0 million. In June, 1995, the Company completed
a secondary public offering of Common Stock, which resulted in the sale of
2,553,696 shares. Of these shares, 983,090 were offered by the Company for
which the Company received net proceeds of $20.7 million and 1,570,606 were
offered by selling shareholders.
In 1996 the Board of Directors authorized the Company to repurchase up to
500,000 shares of the Company's Common Stock. As of December 31, 1996,
65,000 shares had been repurchased by the Company for funding the Company's
Employee Stock Purchase Plan.
STOCK OPTION PLAN
In September 1989, the Company adopted an incentive and nonstatutory stock
option plan (the "Plan") under which 4,000,000 shares of Common Stock have
been reserved for future issuance including increases of 600,000 shares in
1995 and 1,000,000 shares in 1996. Options granted under the Plan are for
periods not to exceed ten years. Incentive stock option and nonstatutory
stock option grants under the Plan must be at prices at least 100% and 85%,
respectively, of the fair market value of the stock on the date of grant. The
options generally vest 25% one year from the date of grant, with the
remainder vesting 1/36th per month, thereafter.
In February 1994, the Company granted 260,000 options to employees to
purchase Common Stock at $0.20 to $0.50 per share. The Company recorded
deferred compensation related to these grants of $193,000 which is amortized
as compensation expense over the related vesting period of the options. At
December 31, 1996, the balance of deferred compensation was $13,000.
The following table summarizes activity under the Plan (in thousands, except
prices):
SHARES WEIGHTED
AVAILABLE OPTIONS OPTION AVERAGE
FOR GRANT OUTSTANDING PRICE EXERCISE PRICE
----------- ------------- ------- --------------
Balance at December 31, 1993 336 809 $ 0.20 - 0.22 $ 0.21
Shares authorized 1,200 -
Options granted (1,308) 1,308 $ 0.20 - 10.41 $ 2.64
Options exercised - (84) $ 0.20 - 2.00 $ 0.52
Options canceled 23 (23) $ 0.20 - 2.00 $ 1.65
----------- -------------
Balance at December 31, 1994 251 2,010 $ 0.20 - 10.41 $ 1.76
Shares authorized 600 -
Options granted (626) 626 $ 8.50 - 28.38 $ 19.59
Options exercised - (276) $ 0.20 - 3.00 $ 0.92
Options canceled 39 (39) $ 0.20 - 28.38 $ 6.93
----------- -------------
Balance at December 31, 1995 264 2,321 $ 0.20 - 28.38 $ 6.62
Shares authorized 1,000 -
Options granted (1,240) 1,240 $ 8.50 - 16.50 $ 10.08
Options exercised - (255) $ 0.20 - 9.00 $ 1.12
Options canceled 762 (762) $ 0.20 - 28.38 $ 17.35
----------- -------------
Balance at December 31, 1996 786 2,544 $ 0.20 - 23.25 $ 5.62
----------- -------------
----------- -------------
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
In 1996, the Board of Directors approved a proposal under which all
employees, other than executive officers, could elect to cancel certain
options in exchange for grants of new options with exercise prices which were
equal to the fair value of the Company's Common Stock on the date of the
Board's approval and for which a new four year vesting period commenced as of
the new date of grant. Options for the purchase of a total of 598,200 shares
were canceled in exchange for newly issued options.
EMPLOYEE STOCK PURCHASE PLAN
In August 1994, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan") under which 665,000 shares of Common Stock have been
reserved for future issuance, including an increase of 200,000 shares in 1995
and 65,000 in 1996. The Purchase Plan is administered generally over
offering periods of 24 months, with each offering period divided into four
consecutive six-month purchase periods beginning May 1 and November 1 of each
year. Eligible employees may designate not more than 15% of their cash
compensation to be deducted each pay period for the purchase of common stock
under the Purchase Plan and participants may not purchase more than $25,000
worth of Common Stock in any calendar year or 10,000 shares in any offering
period. On the last business day of each purchase period, shares of Common
Stock are purchased with the employees' payroll deductions accumulated during
the six months, at a price per share of 85% of the market price of the Common
Stock on the date immediately preceding the offering date or the date
immediately preceding the purchase date, whichever is lower. Approximately
$227,000 and $228,000 was accrued for use to purchase shares under the
Purchase Plan at December 31, 1996 and 1995, respectively.
ACCOUNTING FOR STOCK BASED COMPENSATION PLANS
In accordance with the provisions of FAS 123, the Company applies APB
Opinion 25 and related Interpretations in accounting for its Incentive Stock
Option and Employee Stock Purchase plans and accordingly, does not recognize
compensation cost in the statement of operations because the exercise price
of the employees stock options equals the market price of the underlying
stock on the date of grant. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant
date as prescribed by FAS 123, net income and earnings per share would have
been reduced to the pro forma amounts indicated in the table below:
Year ended December 31, 1996 1995
- -----------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income - as reported $ 6,465 $ 10,492
Net income - pro forma $ 2,838 $ 9,120
Earnings per share - as reported $ 0.42 $ 0.71
Earnings per share - pro forma $ 0.19 $ 0.62
Compensation cost for the fair value of each incentive stock option grant is
estimated on the date of grant using the Black-Scholes option pricing model
for the multiple option approach with the following weighted average
assumptions:
1996 1995
Expected dividend yield - -
Expected stock price volatility 0.63 0.61
Risk-free interest rate 5.7% 6.7%
Expected life of options (from
vesting date) 1 year 1 year
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Compensation cost is recognized for the estimated fair value of the
employees' stock purchase rights using the Black-Scholes option pricing model
with the following average assumptions:
1996 1995
Expected dividend yield - -
Expected stock price volatility 0.63 0.61
Risk-free interest rate 5.7% 6.7%
Expected life of options (from
vesting date) 2 year 2 year
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options and employee stock
purchase plan have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of the Company's employee's stock option and the employee stock
purchase plan.
The following table summarizes information about stock options outstanding at
December 31, 1996: (amounts in thousands except exercise price and
contractual life)
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- --------------- ----------- ----------------- --------------- ------------ --------------
$ 0.20 - $ 0.22 515 4.3 years $ 0.21 471 $ 0.21
$ 0.50 - $ 3.00 644 7.0 $ 2.18 387 $ 2.10
$ 6.00 - $ 9.25 449 7.9 $ 7.56 103 $ 7.33
$ 9.38 - $ 9.38 597 9.8 $ 9.38 1 $ 9.38
$ 9.50 - $23.25 339 9.0 $ 11.20 31 $ 13.11
----------- ----------------- --------------- ------------ --------------
$ 0.20 - $23.25 2,544 7.6 $ 5.62 993 $ 2.09
----------- ----------------- --------------- ------------ --------------
----------- ----------------- --------------- ------------ --------------
The weighted average grant date fair value of stock options and employee
purchase plan rights granted in 1996 and 1995 was approximately $3.95 and
$9.25, respectively.
4. INCOME TAX PROVISION
(in thousands)
The components of income before provision for income taxes are as follows:
December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
Domestic income $ 9,055 $ 14,471 $ 3,241
Foreign income 594 73 -
-------- --------- ---------
Income before provision for income taxes $ 9,649 $ 14,544 $ 3,241
-------- --------- ---------
-------- --------- ---------
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
The provision for income taxes consists of the following:
December 31, 1996 1995 1994
- -------------------------------------------------------------------------
Current:
Federal $ 4,640 $ 4,981 $ 150
State 415 1,043 73
Foreign 313 41 -
--------- --------- ------
Total Current 5,368 6,065 223
--------- --------- ------
Deferred:
Federal (1,933) (1,839) -
State (251) (174) -
--------- --------- ------
Total Deferred (2,184) (2,013) -
--------- --------- ------
Provision for income taxes $ 3,184 $ 4,052 $ 223
--------- --------- ------
--------- --------- ------
The provision for income taxes reconciles to the amount computed by
multiplying income before tax by the U.S. statutory rate (35%, 35% and 34%
for 1996, 1995 and 1994, respectively), as follows:
December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------
Provision at statutory rate $ 3,377 $ 5,090 $ 1,102
Research and development tax credits (190) - -
Realized deferred tax assets previously reserved - (1,436) (1,339)
Federal alternative minimum tax - - 150
State taxes, net of federal benefit 106 801 310
Foreign earnings taxed at higher rates 111 - -
Benefit of foreign sales corporation (354) (431) -
Other 134 28 -
--------- --------- -------
Total provision for income taxes $ 3,184 $ 4,052 $ 223
--------- --------- -------
--------- --------- -------
Deferred tax assets are comprised of the following:
December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------
Reserves not currently deductible $ 3,042 $ 1,621 $ 662
Deferred income 1,155 257 279
Research and development credit carryovers - - 425
Other - 135 70
--------- --------- ------
4,197 2,013 1,436
Deferred tax assets valuation allowance - - (1,436)
-------- --------- ------
Total net deferred taxes $ 4,197 $ 2,013 $ -
--------- --------- ------
--------- --------- ------
The deferred tax assets valuation allowance at December 31, 1994 is
attributed to federal and state deferred tax assets. During 1995 and 1994,
the Company realized $1.4 and $1.3 million, respectively, of deferred tax
assets previously reserved, reducing the valuation allowance by corresponding
amounts.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
5. EMPLOYEE BENEFIT PLANS
RETIREMENT/SAVINGS PLAN
Effective April 1, 1994, the Company implemented a retirement/savings plan
which qualifies as a thrift plan under section 401(k) of the Internal Revenue
Code. All employees who are twenty-one years of age or older are eligible to
participate in the Plan. The Plan allows participants to contribute up to 20%
of the total compensation that would otherwise be paid to the participant,
not to exceed the amount allowed by applicable Internal Revenue Service
guidelines. The Company may make a discretionary matching contribution equal
to the percentage of the participant's contributions. To date the Company has
not made a matching contribution.
PROFIT SHARING PLAN
In February 1994, the Company implemented a profit sharing plan, wherein, as
determined by the board of directors, a percentage of income from operations
is accrued and distributed to all employees excluding management. The total
charge to operations for the years ended December 31, 1996 and 1995 under the
profit sharing plan was approximately $411,000 and $552,000, respectively.
6. CERTAIN TRANSACTIONS
The Company has a distribution agreement with Marubeni, a Japanese
distributor. Marubeni owns approximately 4% of the Company's Common Stock at
December 31, 1996. In addition, the Company formed a subsidiary in Japan in
October 1995 in which Marubeni has a minority interest. Prior to January
1996, one member of the Company's board of directors was also a Vice
President of Marubeni. In January 1996, this board member left Marubeni and
the Company's board of directors and accepted a position with the Company's
Japanese subsidiary. Transactions between the Company and Marubeni prior to
January 1996 were considered related party transactions.
The following is a summary of the Company's transactions with the distributor
(in thousands):
December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------
Net sales through the distributor for the period $ 22,804 $ 16,994 $ 8,435
Accounts receivable at period end 2,255 1,402 954
Advances for purchases at period end - - 528
Deferred income at period end 591 591 661
Minority interest in joint venture 204 189 -
In the event of termination of the distribution agreement, the Company would
be obligated to repurchase up to a maximum of $1,000,000 of inventory related
to the Company's sales to Marubeni. The Company records deferred income at
the time of sale to cover this right of return. At December 31, 1996 and
1995, deferred income of $591,000 related to this agreement resulted from
deferred revenue of $1,000,000 less the inventory value to the Company of
$409,000.
The Company purchases certain inventory parts from a supplier company which
is majority owned by the CEO of the Company. The Company believes the terms
of these purchases are no less favorable than could be obtained from third
party suppliers. The following is a summary of such transactions (in
thousands):
December 31, 1996 1995 1994
- ---------------------------------------------------------------
Net purchases for the period $ 991 $ 997 $ 521
Accounts payable at period end $ - $ - $ 49
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
7. INDUSTRY AND GEOGRAPHIC INFORMATION
The Company currently operates in a single industry segment. The Company
markets its products in the United States and in foreign countries through
its sales personnel, independent sales representatives, and distributors.
All transactions are denominated in U.S. dollars. The Company has one
manufacturing facility located in the United States. The Company's
geographic sales as a percent of net revenues are as follows:
December 31, 1996 1995 1994
- -------------------------------------------------
United States 24% 33% 38%
Japan 31% 31% 40%
Pacific Rim 39% 30% 14%
Europe 6% 6% 8%
---- ---- ----
100% 100% 100%
---- ---- ----
---- ---- ----
8. FINANCIAL INSTRUMENTS, CONCENTRATION OF CREDIT RISK AND SALES TO
SIGNIFICANT CUSTOMERS
CURRENCY SWAP CONTRACTS
Currency swap contracts are entered into primarily to hedge against the
short-term impact of fluctuations in the Yen denominated monetary assets of
the subsidiary in Japan. At December 31, 1996, the Company had a contract to
sell 32.2 million Yen ($0.3 million) which matures in 1997. Because the
impact of movements in currency exchange rates on currency swap contracts
offsets the related impact on the underlying items being hedged, these
financial instruments do not subject the Company to speculative risk that
would otherwise result from changes in currency exchange rates. Net foreign
currency gains and losses to date have not been material.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents,
short-term investments, trade accounts receivable and financial instruments
used in hedging activities.
The Company invests in a variety of financial instruments such as
certificates of deposit, corporate bonds and treasury bills. The Company, by
policy, limits the amount of credit exposure to any one financial institution
or commercial issuer.
The cost and fair values of the Company's financial instruments at
December 31, 1996 and 1995 are as follows (in thousands):
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
- -----------------------------------------------------------------------------
1996
Cash and cash equivalents $ 21,557 $ - $ (10) $ 21,547
Short-term investments $ 16,633 $ 2 $ (15) $ 16,620
1995
Cash and cash equivalents $ 14,335 $ - $ (25) $ 14,310
Short-term investments $ 27,836 $ 26 $ (1) $ 27,861
The fair values of the Company's cash and cash equivalents and short-term
investments are based on quoted market prices at December 31, 1996. All
short-term investments mature within one year.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
The Company's trade accounts receivable are derived from sales in the United
States, Japan, other Pacific Rim countries and Europe. The Company performs
ongoing credit evaluations of its customers (semiconductor manufacturers and
its Japanese distributor) and to date has not experienced any material
losses. As of December 31, 1996 and 1995, the Company had an allowance for
doubtful accounts of $100,000. At December 31, 1996, receivables from three
customers represented 17%, 14% and 12% of receivables, respectively. At
December 31, 1995 receivables from six customers represented 21%, 13%, 12%,
11%, 10% and 10% of receivables, respectively.
The Company is exposed to credit loss in the event of non-performance by
counterparties on the currency swap contracts used in hedging activities.
The Company does not anticipate nonperformance by these counterparties.
For purposes of determining sales to significant customers, the Company
includes sales to customers through its distributor (at the sales price to
the distributor) and excludes the distributor as a significant customer. The
following table summarizes the percentage of net sales to significant
customers:
December 31, 1996 1995 1994
- --------------------------------------------------
A 7% 16% 32%
B - 15% 12%
C - 1% 15%
9. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under operating leases which expire at
various dates through 2000 with minimum annual rental commitments as follows
(in thousands):
1997 $ 1,421
1998 902
1999 204
2000 34
-------
$ 2,561
-------
-------
Rent expense was $1,421,000, $390,000 and $247,000 for 1996, 1995 and 1994,
respectively.
In September 1996, the Company entered into a four year lease agreement with
a major customer for the customer's lease of certain products. The total
sales value of the products to be covered under the lease is approximately
$3,900,000. The customer has the right to exercise an option to prepay the
lease and purchase the equipment through May 1997. The Company has deferred
income recognition on the lease. At December 31, 1996, the current portion
of the receivable under the lease was included in accounts receivable. The
long term portion of the receivable was included in other assets.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
The future minimum payments due under terms of the agreement as of
December 31, 1996 are as follows:
1997 $ 1,150
1998 1,150
1999 1,150
2000 1,150
--------
Net minimum lease payments 4,600
Less amounts representing interest (732)
-------
Present value of net minimum lease payments under
capital lease $ 3,868
-------
-------
The Company is party to certain claims arising in the ordinary course of
business. While the outcome of these matters is not presently determinable,
management believes they will not have a material adverse effect on the
financial position or results of the operations of the Company.
37
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Mattson Technology, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Mattson
Technology, Inc. and its subsidiaries at December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. 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 of
these statements in accordance with generally accepted auditing standards
which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
January 20, 1997
38
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following is a list of individuals who as of December 31, 1996
served as directors of the Company and who the Company anticipates will
serve as nominees of the Company at the 1997 Annual Meeting of
Shareholders.
Brad Mattson, age 42, founded the Company in November 1988 and has
served as the Chief Executive Officer and a Director since the Company's
inception and until January 1997 had served as President. Mr. Mattson was
the founder of Novellus Systems, Inc. ("Novellus"), a semiconductor
equipment company, and formerly served as its President, Chief Executive
Officer and Chairman. He has held previous executive positions at Applied
Materials, Inc. ("Applied Materials") a semiconductor equipment company,
and LFE Corporation, a semiconductor equipment company.
John C. Savage, age 49, joined the Company's Board of Directors in
October 1992. Since 1990, Mr. Savage has been Managing Partner at
Glenwood Capital Partners, a venture buyout partnership, and since 1995
has been a general partner in Redwood Partners, a successor venture
buyout firm. From 1981 to 1990, he was a general partner of Weiss, Peck &
Greer Venture Partners, L.P., a venture capital partnership, and of
several other partnerships affiliated with Weiss, Peck & Greer. He is a
director of FileNet Corporation, a document imaging processing company,
of ELXSI Corporation, a diversified conglomerate, and OrCAD Inc., an
electronic design automation software company. Mr. Savage is a member of
the Audit and Compensation Committees of the Board of Directors.
Kenneth G. Smith, age 48, joined the Company's Board of Directors in
August 1994. Since 1996, Mr. Smith has been President and Chief Operating
Officer of Wafer Tech, a semiconductor manufacturer. From 1987 to 1996,
Mr. Smith has held various positions at Micron Semiconductor, Inc.
("Micron"), a semiconductor manufacturer. From 1992 to 1996, he was Vice
President of Operations and from 1989 to 1992 he was a Fab Manager.
Mr. Smith is a member of the Audit Committee of the Board of Directors.
Stephen J. Ciesinski, age 48, joined the Company's Board of
Directors in March 1989. Mr. Ciesinski has been a Director and the
President and Chief Executive Officer of Resumix, Inc., a software
company, since 1993. From 1983 to 1993 he held various positions at Octel
Communications Corporation, a software and communications company, the
most recent of which was Executive Vice President, Operations.
Mr. Ciesinski is a member of the Audit and Compensation Committees of the
Board of Directors.
Shigeru Nakayama, age 61, joined the Company's Board of Directors in
March 1996. Mr. Nakayama is currently a business consultant to
Semiconductor Equipments and Materials International ("SEMI"), an
international association of semiconductor equipment manufacturers and
materials suppliers. Mr. Nakayama was the President of SEMI Japan, a
corporation under SEMI, from 1984 to 1994. From 1970 to 1984, he held
various positions at Tokyo Electron Limited, a semiconductor equipment
company in Japan.
EXECUTIVE OFFICERS
The following is a list of individuals who as of December 31, 1996
served as executive officers of the Company.
Ralph S. Martin, age 41, joined the Company in January 1989 as Vice
President, Engineering and Secretary. In October 1992, Mr. Martin became
Executive Vice President, Corporate Development, in February 1995,
Mr. Martin became Executive Vice President and Chief Operating Officer
and in January 1997, Mr. Martin became President. Previously, he held
various technical positions at Novellus, GCA Corporation, a semiconductor
equipment company, the Massachusetts Institute of Technology and LFE
Corporation.
39
Richard S. Mora, age 50, joined the Company as Vice President of
Finance, Chief Financial Officer and Secretary in August 1994. From September
1988 until joining the Company, Mr. Mora served as Vice President of Finance
of Actel Corporation, a semiconductor manufacturer. Previously, he served as
Vice President of Finance of HHB Systems, a manufacturer of computer-aided
engineering software and as Controller and Vice President of Finance of
Cygnet Technologies, a telecommunications company.
Yasuhiko Morita, age 55, was appointed President of the Company's
majority-owned subsidiary in Japan, Mattson Technology Center, K.K., in
February 1996. Mr. Morita served on the Company's Board of Directors from July
1994 through February 1996. Mr. Morita had been with Marubeni Hytech
Corporation ("Marubeni") since 1967 serving as its Executive Vice President
and a Director of Marubeni from 1988 through 1995.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
of the Company's Chief Executive Officer and the next three highest
compensated executive officers of the Company whose total salary and bonus
for the fiscal year ended December 31, 1996, 1995 and 1994 exceeded $100,000
during such fiscal year.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
NAME AND PRINCIPAL FUNCTION YEAR SALARY($) BONUS($) OPTIONS GRANTED (#)
- --------------------------- ---- --------- -------- -------------------
Brad Mattson 1996 317,308 0 100,000
President and Chief 1995 203,221 0 0
Executive Officer 1994 146,464 0 124,000
Ralph S. Martin 1996 187,922 0 125,000
President and Chief 1995 153,512 0 0
Operating Officer 1994 117,428 0 142,000
Richard S. Mora 1996 142,595 0 0
Vice President Finance, 1995 126,544 0 0
Chief Financial Officer 1994 50,077 36,000 120,000
& Secretary
Yasuhiko Morita(1) 1996 179,931 14,000 25,000
President, Mattson 1995 0 0 0
Technology Center, K.K. 1994 0 0 25,000
_________________
(1) Mr. Morita was appointed President of Mattson Technology Center, K.K.
in February 1996. The amounts shown as being paid to Mr. Morita in
Fiscal 1995 and 1994 represent payment to him while he acted as a
director of the Company for services in that capacity.
40
STOCK OPTIONS GRANTED DURING FISCAL 1996
The following table provides the specified information concerning
grants of options to purchase the Company's Common Stock made during the
fiscal year ended December 31, 1996, to the persons named in the Summary
Compensation Table.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS IN FISCAL 1996 OPTION TERM (3)
------------------------------------------------------ ------------------------
NUMBER OF % OF TOTAL EXERCISE OR EXPIRATION 5% ($) 10% ($)
SECURITIES OPTIONS BASE PRICE DATE
UNDERLYING GRANTED TO (2)
OPTIONS EMPLOYEES IN ($/SH)
NAME GRANTED (1) FISCAL YEAR
- --------------- ----------- ------------ ----------- ---------- -------- ----------
Brad Mattson 100,000 8.1% $10.50 02/28/06 $660,000 $1,673,000
Ralph S. Martin 25,000 2.0% $10.50 02/28/06 $165,000 $ 418,250
100,000 8.1% $ 8.75 11/21/06 $375,000 $1,220,000
Richard S. Mora - - - - - -
Yasuhiko Morita 25,000 2.0% $10.50 02/28/06 $165,000 $ 418,250
________________
(1) Options granted in fiscal 1996 under the Company's 1989 Stock Option Plan
(the "Option Plan") generally vest one-quarter of the number of shares
granted one year after commencement of employment or grant and continue
to vest thereafter monthly over a period of three years, conditioned
upon continued employment with the Company. Under the Option Plan, the
Board retains discretion to modify the terms, including the price of
outstanding options.
(2) All options were granted at fair market value on the date of grant.
(3) Potential gains are net of exercise price, but before taxes associated
with exercise. These amounts represent certain assumed rates of
appreciation only, in accordance with the Securities and Exchange
Commission's rules. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Company's Common Stock,
overall market conditions and the optionholders' continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved. One share of stock purchased at $10.50 in
fiscal 1996 would yield profits of approximately $6.60 per share at 5%
appreciation over ten years, or approximately $16.73 per share at 10%
appreciation over the same period. One share purchased at $8.75 per
share in fiscal 1996 would yield profits of approximately $3.75 per
share at 5% appreciation over ten years, or approximately $12.20 per
share at 10% appreciation over the same period.
41
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises
during the fiscal year ended December 31, 1996 by the persons named in the
Summary Compensation Table and 1996 year-end option values.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END ($)(1)
------------------------------------- ----------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE (1)(2) UNEXERCISABLE (3) EXERCISABLE (2) UNEXERCISABLE (4)
---- ------------ ------------ ------------------ ----------------- --------------- -----------------
Brad Mattson 100,000 753,000 257,333 146,667 2,194,451 208,669
Ralph S. Martin 9,750 86,238 126,061 181,189 1,101,743 445,732
Richard S. Mora 0 0 40,083 54,917 240,290 317,211
Yasuhiko Morita 6,250 81,250 4,166 33,334 31,245 62,505
_______________
(1) Options granted in fiscal 1996 under the Company's Option Plan generally
vest one-quarter of the number of shares granted one year after
commencement of employment or grant and continue to vest thereafter
monthly over a period of three years, conditioned upon continued
employment with the Company. Under the Option Plan, the Board retains
discretion to modify the terms including the price of outstanding
options.
(2) Represents shares which are immediately exercisable and/or vested. Based
on the closing price of $9.50, as reported on the Nasdaq National
Market, on December 31, 1996, less the exercise price.
(3) Represents shares which are unvested and not immediately exercisable.
(4) Based on the closing price of $9.50, as reported on the Nasdaq National
Market, on December 31, 1996, less the exercise price.
COMPENSATION OF DIRECTORS
The Company reimburses each of its outside directors for out-of-pocket
expenses associated with attending meetings of the Board of Directors of the
Company, but otherwise does not provide any cash compensation to outside
directors for their services as such.
42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of February 28, 1997 by
(i) each director, director-nominee, and executive officer of the Company
named in the Summary Compensation Table; (ii) all current executive officers
and directors of the Company as a group; and (iii) all persons known by the
Company to own beneficially 5% or more of the outstanding shares or voting
power of the Company's voting securities. The table is based upon information
supplied by directors, officers and principal shareholders. Unless otherwise
indicated, each of the listed persons has sole voting and sole investment
power with respect to the Shares beneficially owned, subject to community
property laws where applicable.
SHARES
BENEFICIAL OWNER (1) BENEFICIALLY OWNED PERCENTAGE
-------------------- ------------------ ----------
Brad Mattson 3,355,271 (2) 22.7%
Stephen J. Ciesinski 64,078 (3) *
John C. Savage 18,750 (4) *
Shigeru Nakayama 0 *
Kenneth G. Smith 15,625 (5) *
Ralph S. Martin 259,996 (6) 1.8
Richard S. Mora 54,501 (7) *
Yasuhiko Morita 14,374 (8) *
All directors and executive 3,782,595 (9) 25.6%
officers as a group (8 persons)
___________
* Less than 1%
(1) Except as set forth herein the address of the directors and
executive officers set forth in the table is 3550 West Warren Ave.,
Fremont, California 94538.
(2) Includes 288,583 shares subject to options exercisable within 60
days of February 28, 1997.
(3) Includes 32,437 shares subject to options exercisable within 60 days
of February 28, 1997.
(4) Includes 18,750 shares subject to options exercisable within 60 days
of February 28, 1997.
(5) Includes 15,625 shares subject to options exercisable within 60 days
of February 28, 1997.
(6) Includes 143,248 shares subject to options exercisable within 60
days of February 28, 1997.
43
(7) Includes 48,416 shares subject to options exercisable within 60 days
of February 28, 1997.
(8) Includes 13,020 shares subject to options exercisable within 60 days
of February 28, 1997.
(9) Includes 560,079 shares subject to options exercisable within 60
days of February 28, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During Fiscal 1996, the Company purchased RF generators from R.F.
Services, Inc. in the amount of $991,000. Brad Mattson owns a majority of the
outstanding shares of R.F. Services, Inc. and serves as a director of that
corporation. Each purchase was determined based on arm's length negotiations
and the Company believes the terms of these purchases were no less favorable
than could have been obtained from third party suppliers.
In November 1990, the Company appointed Marubeni as its exclusive
distributor of the Aspen Strip system to customers located in Japan for
installation and use in Japan. Marubeni has a right of first refusal with
respect to the distribution of other systems offered by the Company in Japan.
The initial term of the Japanese distribution agreement was three years,
which automatically renews for successive periods of one year unless
terminated by either party. Upon termination of the Japanese distribution
agreement, the Company is obligated to repurchase the inventory from
Marubeni, up to a maximum purchase price of $1,000,000. Mr. Morita, a former
director of the Company, was a Vice President of Marubeni prior to January
1996. In January 1996, Mr. Morita left Marubeni and in February 1996 the
Company's board of directors to accept a position with the Company's
recently-formed Japanese subsidiary, Mattson Technology Center, K.K.
("Mattson K.K."). As of December 31, 1996, Marubeni owned approximately 4% of
the Company's outstanding Common Stock and a minority interest in Mattson
K.K. Sales of the Company's systems through Marubeni during Fiscal 1996 were
approximately $22.8 million or approximately 31% of the Company's total net
sales.
44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)(2) FINANCIAL STATEMENTS
The financial statements and schedules filed as part of this
report are listed on the Index to Consolidated Financial
Statements in Item 8 on page 22.
(a)(3) EXHIBITS
The documents listed on the Exhibit Index appearing at page 43
of this Report are filed herewith. The 1997 Proxy Statement
shall be deemed to have been "filed" only to the extent portions
thereof are expressly incorporated herein by reference. Copies of
the exhibits listed in the Exhibit Index will be furnished, upon
request, to holders or beneficial owners of the Company's Common
Stock.
Each management contract or compensatory plan or arrangement
listed in the Exhibit Index has been marked with the letter "C" to
identify it as such.
(b) REPORTS ON FORM 8-K
None
45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to its Annual Report on Form
10-K for the fiscal year ended December 31, 1996 to be signed on its behalf
by the undersigned, thereunto duly authorized.
MATTSON TECHNOLOGY, INC. (Registrant)
By: / s/ Brad Mattson April 28, 1997
-----------------------------
Brad Mattson
Chief Executive Officer
46
EXHIBIT INDEX
The following Exhibits to this report are filed herewith, or if marked
with an asterisk (*), are incorporated herein by reference. Each management
contract or compensatory plan or arrangement has been marked with the letter
"C" to identify it as such.
Management Contract Prior Filing or
Exhibit or Compensatory Plan Sequential Page
Number Description or Arrangement Number Herein
- ------- ----------- -------------------- ---------------
3.1 Restated Articles of Incorporation of the Company (1)
3.2 Bylaws of the Registrant (1)
4.1 Form of Stock Certificate (1)
10.1 Marubeni Japanese Distribution Agreement, as amended (3)
10.2 1989 Stock Option plan, as amended C (1)
10.3 1994 Employee Stock Purchase Plan C (1)
10.4 Form of Indemnification Agreement C (1)
22.1 Subsidiaries of Registrant
23.1 Consent of Independent Accountants
27 Financial Data Schedule
(1) Incorporated by reference to the corresponding Exhibit previously
filed as an Exhibit to the Registrant's Registration Statement on
Form S-1 filed August 12, 1994 (33-92738), as amended.
(2) Incorporated by reference to Exhibit 1.1 to the Registrant's
Registration Statement on Form S-1 filed June 15, 1995
(33-92800), as amended.
(3) Incorporated by reference to the corresponding Exhibit previously
filed as an Exhibit to Registrant's Form 10-K for fiscal year 1995.
47