UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 0-21970
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MATTSON TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0208119
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3550 WEST WARREN AVENUE
FREMONT, CALIFORNIA 94538
(Address of principal executive offices) (Zip Code)
(510) 657-5900
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- ------
Number of shares of common stock outstanding as of July 31, 1997: 14,103,908
1
PART I -- FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
ASSETS
JUNE 29, DEC. 31,
1997 1996
-------- --------
Current assets:
Cash and cash equivalents $ 16,224 $ 21,547
Short-term investments 12,086 16,620
Accounts receivable, net 17,483 15,954
Inventories 17,415 12,954
Deferred taxes 4,197 4,197
Prepaid expenses and other current assets 1,125 882
--------- ---------
Total current assets 68,530 72,154
Property and equipment, net 9,344 9,373
Other assets - 2,962
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$ 77,874 $ 84,489
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,078 $ 1,240
Accrued liabilities 9,458 14,134
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Total current liabilities 11,536 15,374
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Shareholders' equity:
Common stock 56,286 57,580
Retained earnings 10,173 11,625
Other (121) (90)
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Total shareholders' equity 66,338 69,115
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$ 77,874 $ 84,489
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See accompanying notes to condensed consolidated financial statements.
2
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- ------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
Net sales $ 16,571 $ 23,244 $ 29,594 $ 45,246
Cost of sales 8,265 9,949 14,723 19,130
---------- --------- -------- ----------
Gross profit 8,306 13,295 14,871 26,116
---------- --------- -------- ----------
Operating expenses:
Research, development and engineering 3,233 2,943 6,177 5,591
Selling, general and administrative 5,401 5,444 10,309 10,710
---------- --------- -------- ----------
Total operating expenses 8,634 8,387 16,486 16,301
---------- --------- -------- ----------
Income (loss) from operations (328) 4,908 (1,615) 9,815
Interest and other income (expense), net 410 489 847 1,099
---------- --------- -------- ----------
Income (loss) before income taxes 82 5,397 (768) 10,914
Provision for (benefit from) income taxes 27 1,942 (255) 3,921
---------- --------- -------- ----------
Net income (loss) $ 55 $ 3,455 $ (513) $ 6,993
---------- --------- -------- ----------
---------- --------- -------- ----------
Net income (loss) per share $ 0.00 $ 0.23 $ (0.04) $ 0.46
---------- --------- -------- ----------
---------- --------- -------- ----------
Shares used in computing net income (loss)
per share 15,004 15,335 14,100 15,292
---------- --------- -------- ----------
---------- --------- -------- ----------
See accompanying notes to condensed consolidated financial statements.
3
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
SIX MONTHS ENDED
-----------------------
JUNE 29, JUNE 30,
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $ (513) $ 6,993
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 1,383 648
Changes in assets and liabilities:
Accounts receivable (2,435) (2,888)
Inventories (4,461) (6,529)
Prepaid expenses and other assets (243) (527)
Accounts payable 838 (1,285)
Accrued liabilities (809) 458
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Net cash used in operating activities (6,240) (3,130)
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Cash flows from investing activities:
Acquisition of property and equipment (1,354) (2,760)
Purchases of short-term investments (11,846) (25,692)
Sales and maturities of short-term investments 16,392 29,474
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Net cash provided by investing activities 3,192 1,022
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Cash flows from financing activities:
Proceeds from the issuance of Common Stock, net 898 984
Purchase of Common Stock (3,131) -
--------- ---------
Net cash provided by (used in) financing activities (2,233) 984
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Effect of exchange rate changes on cash
and cash equivalents (42) (22)
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Net decrease in cash and cash equivalents (5,323) (1,146)
Cash and cash equivalents, beginning of period 21,547 14,310
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Cash and cash equivalents, end of period $ 16,224 $ 13,164
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Supplemental disclosure of non-cash operating activities:
Inventory totaling $1,584 was capitalized and transferred to property and
equipment during the first six months of 1996.
See accompanying notes to condensed consolidated financial statements.
4
MATTSON TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included.
The financial statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report for the year
ended December 31, 1996.
The results of operations for the three month and six month periods ended
June 29, 1997 are not necessarily indicative of results that may be expected
for the entire year ending December 31, 1997.
NOTE 2 BALANCE SHEET DETAIL (IN THOUSANDS):
JUNE 29, DEC. 31,
1997 1996
---- ----
Inventories:
Purchased parts and raw materials $ 8,043 $ 6,763
Work-in-process 6,489 4,634
Finished goods 1,775 734
Evaluation systems 1,108 823
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$ 17,415 $ 12,954
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Accrued liabilities:
Warranty reserve $ 3,721 $ 3,378
Accrued compensation and benefits 1,141 1,252
Income taxes 1,642 2,082
Commissions 458 1,082
Deferred income 909 4,966
Other 1,587 1,374
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$ 9,458 $ 14,134
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NOTE 3 CERTAIN STOCK TRANSACTIONS
In 1996, the Board of Directors authorized the Company to purchase up to
500,000 shares of the Company's common stock of which 400,000 shares have
been purchased to date. The Company purchased 335,000 of the 400,000 shares
of Common Stock in the first six months of 1997, for approximately $3.1
million. The purchase price has been allocated between Common Stock and
Retained Earnings in the amount of approximately $2.2 million and $0.9
million, respectively.
NOTE 4 NEW ACCOUNTING PRONOUNCEMENT
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share",
which establishes new standards for computing and disclosing earnings per
share. SFAS 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Early adoption is not
permitted; however, after the effective date, all prior period earnings per
share data presented will be required to be restated to conform to the
provisions of the new standard.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Mattson Technology, Inc. ("Mattson" or the "Company") designs, manufactures
and markets advanced fabrication equipment to semiconductor manufacturers
worldwide. The Company's product line is based on the Company's 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 a substantial majority of its sales from Aspen Strip
systems. In addition, the Company derives sales from spare parts and
maintenance services.
Until the quarter ended September 29, 1996, the Company experienced rapid
growth. As a result of the general slowdown in the semiconductor market, the
Company has experienced losses from operations in each of the three prior
quarters and did not return to marginal profitability until the quarter ended
June 29, 1997. There can be no assurance that the Company will be able to
regain sales growth, sustain or increase profitability in the future. 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 sustain 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 had delayed or
cancelled previously planned new equipment purchases. The cyclicality and
uncertainties regarding overall market conditions continue to present
significant challenges to the Company and may continue to 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 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.
FORWARD LOOKING STATEMENTS
This report on Form 10-Q contains forward looking statements regarding, among
other matters, the Company's future strategy, product development plans, and
productivity gains and growth. The forward looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward looking statements address matters which are
subject to a number of risks and uncertainties. In addition to the general
risks associated with the development of complex technology, future results
of the Company will depend on a variety of factors as described herein and
other filings with the Securities and Exchange Commission.
6
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the
Company expressed as a percentage of net sales for the period indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
Net sales 100% 100% 100% 100%
Cost of sales 50% 43% 50% 42%
---- ---- ---- ----
Gross margin 50% 57% 50% 58%
---- ---- ---- ----
Operating expenses:
Research, development and engineering 20% 13% 21% 12%
Selling, general and administrative 33% 23% 35% 24%
Total operating expenses 52% 36% 56% 36%
Income (loss) from operations (2%) 21% (6%) 22%
Income (loss) before income taxes 1% 23% (3%) 24%
Net income (loss) 0% 15% (2%) 15%
NET SALES
Net sales for the second quarter of 1997 decreased 29% to $16.6 million from
$23.2 million for the second quarter of 1996. Net sales for the first six
months of 1997 decreased 35% to $29.6 million from $45.2 million for the
first six months of 1996. The decrease in sales reflected a 32% decrease in
unit sales for the second quarter and first six months of 1997 compared to
the second quarter and first six months of 1996. A decrease in Aspen Strip
system unit sales for the second quarter and first six months of 1997 was
partially offset by sales of the Company's newer products.
Average selling prices (ASP's) increased 3% for the second quarter of 1997
compared to the second quarter of 1996. The increase was primarily a result
of the proportionate increase in sales between Aspen Strip dual chamber
systems compared to Aspen Strip single chamber systems. ASP's decreased 4%
for the first six months of 1997 compared to the first six months of 1996.
The decrease was primarily a result of the proportionate decrease in sales
between Aspen Strip dual chamber systems compared to Aspen Strip single
chamber systems.
International sales, which are predominantly to customers based in Japan and
the Pacific Rim (which includes Taiwan, Singapore and Korea), accounted for
61% and 87% of net sales for the second quarter of 1997 and 1996,
respectively. International sales for the first six months of 1997 and 1996
were 56% and 87%, respectively. All sales are denominated in U.S. dollars.
The Company's operating results could be materially and adversely affected by
any loss of business from, the cancellation of orders by, or decreases in
prices of systems sold through Marubeni, the Company's distributor in Japan.
The Company anticipates that international sales will continue to account for
a significant portion of 1997 total net sales due primarily to orders from
customers in Japan and the Pacific Rim.
7
GROSS MARGIN
The Company's gross margin for the second quarter of 1997 decreased to 50%
from 57% for the second quarter of 1996 and for the first six months of 1997
decreased to 50% from 58% for the first six monts of 1996. The decrease was
principally due to the allocation of relatively fixed overhead costs over the
lower sales volume and, pricing pressures.
The Company's gross margin may continue to be affected by a variety of
factors. In particular, the Company's sales volume has been weak over the
three prior quarters and has only recently improved. Accordingly, lower
economies of scale have adversely affected gross margin and may affect gross
margin in the future. Although the Company has not offered substantial
discounts on its systems to date, there can be no assurance that the Company
will not continue to experience pricing pressures in the future. 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 primarily responsible for
sales and support costs in Japan. In addition, the Company has incurred
additional research, development and engineering and marketing expenses
primarily through the Company's Japanese subsidiary, Mattson Technology
Center K.K. ("MTC").
The Company's reliance on outside vendors generally, and a sole or a limited
group of suppliers in particular, involves several risks, including a
potential inability to obtain an adequate supply of required components and
reduced control over pricing and timely delivery of components. Any
inability to obtain adequate deliveries or any other circumstance that would
require the Company to seek alternative sources of supply or to manufacture
such components internally could delay the Company's ability to ship its
systems and could have a material adverse effect on the Company, including an
increase in the Company's cost of sales and therefore an adverse impact on
gross margin. In addition, new system introductions and enhancements may
also have an adverse effect on gross margin due to the inefficiencies
associated with manufacturing of new product lines.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses for the second quarter of 1997
were $3.2 million, or 20% of net sales, as compared to $2.9 million, or 13%,
for the second quarter of 1996. Research, development and engineering
expenses for the first six months of 1997 were $6.2 million, or 21% of net
sales, as compared to $5.6 million, or 12% of net sales, for the first six
months of 1996. The increase in expenses for the second quarter and first
six months of 1997 was primarily due to salaries and related expenses which
increased to $1.7 million for the second quarter of 1997 from $1.5 million
for the second quarter of 1996 and to $3.2 million for the first six months
of 1997 from $2.7 million for the first six months of 1996. The increase in
expense as a percentage of net sales for the second quarter and first six
months of 1997 was primarily due to lower sales volume. The Company believes
that continued investment in research and development is critical to
maintaining a strong technological position in the industry and therefore
expects research and development expenses to continue to increase in the
foreseeable future.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the second quarter of 1997
were $5.4 million, or 33% of net sales, as compared to $5.4 million, or 23%,
for the second quarter of 1996. Selling, general and administrative expenses
for the first six months of 1997 were $10.3 million, or 35% of net sales, as
compared to $10.7 million, or 24%, for the first six months of 1996. The
decrease in expenses for the first six months of 1997 as compared to the
first six months of 1996 was primarily due to commission expense which
decreased to $0.7 million for the first six months of 1997 from $1.8 million
in the first six months of 1996, which was partially offset by salaries and
related expenses which increased to $5.6 million in the first six months of
1997 from $4.8 million for the first six months of 1996, principally as a
result of additional personnel. The increase in expense as a percentage of
net sales was due to lower sales volume in the second quarter and first six
months of 1997.
8
PROVISION FOR INCOME TAXES
The Company's expected annual tax rate was 33% in the second quarter and
first six months of 1997 and 36% in the second quarter and first six months
of 1996. In the third quarter of 1996, the Company revised its expected
annual tax rate from 36% to 33% which was principally a result of Congress's
reinstatement of the Research and Development credit, effective July 1, 1996.
In addition, the expected annual tax rates also reflect benefits from the
Company's Foreign Sales Corporation.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations during the first six months of 1997 was $6.2
million, compared to $3.1 million of net cash used in operations during the
first six months of 1996. Net cash used by operations during the first six
months of 1997 was primarily attributable to an increase in accounts
receivable and inventories of $2.4 million and $4.5 million, respectively.
Net cash provided by investing activities during the first six months of 1997
was $3.2 million, compared to $1.0 million net cash provided by investing
activities during the first six months of 1996. Investing activities during
the first six months of 1997 consisted primarily of purchases and maturities
of short-term investments and acquisition of fixed assets.
Net cash used in financing activities during the first six months of 1997 was
$2.2 million, compared to $1.0 million net cash provided by financing
activities in the first six months of 1996. Cash used in financing
activities during the first six months of 1997 was primarily due to the
Company's purchase of 335,000 shares of Common Stock in the first six months
of 1997. The Board of Directors has authorized the Company to purchase up to
500,000 shares of the Company's common stock of which 400,000 shares have
been purchased to date.
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 products covered under the lease was approximately $3.9
million. The Company deferred income recognition on the lease. In the first
quarter of 1997, the customer exercised its right to prepay the lease and
purchase the equipment and the $3.9 million was recognized as a sale in the
first quarter of 1997.
The Company believes that existing cash and short-term investment balances
will be sufficient to meet the Company's cash requirements during the next
twelve months. However, depending upon its rate of growth and profitability,
the Company may require additional equity or debt financing to meet its
working capital requirements or capital equipment needs. There can be no
assurance that additional financing will be available when required or, if
available, will be on terms satisfactory to the Company.
9
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 27 (Electronic filing only)
(b) Reports on Form 8-K
None.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATTSON TECHNOLOGY, INC.
Date: August 13, 1997 /s/ Richard S. Mora
------------------------------------
Richard S. Mora
Vice President of Finance
and Chief Financial Officer
(as principal financial officer
and on behalf of Registrant)
11