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 September 28, 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)
DELAWARE 77-0208119
(State or other jurisdiction of (I.R.S. Employer
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)
---------------
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 October 24, 1997: 14,141,776
1
PART I -- FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
ASSETS
SEPT. 28, DEC. 31,
1997 1996
---- ----
Current assets:
Cash and cash equivalents $ 24,692 $ 21,547
Short-term investments 8,637 16,620
Accounts receivable, net 15,501 15,954
Inventories 18,169 12,954
Deferred taxes 4,197 4,197
Prepaid expenses and other current assets 1,423 882
---------- ----------
Total current assets 72,619 72,154
Property and equipment, net 9,339 9,373
Other assets - 2,962
---------- ----------
$ 81,958 $ 84,489
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,179 $ 1,240
Accrued liabilities 11,435 14,134
---------- ----------
Total current liabilities 14,614 15,374
---------- ----------
Shareholders' equity:
Common stock 56,366 57,580
Retained earnings 11,122 11,625
Other (144) (90)
---------- ----------
Total shareholders' equity 67,344 69,115
---------- ----------
$ 81,958 $ 84,489
---------- ----------
---------- ----------
See accompanying notes to condensed consolidated financial statements.
2
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29,
1997 1996 1997 1996
---- ---- ---- ----
Net sales $ 22,633 $ 14,005 $ 52,227 $ 59,251
Cost of sales 10,784 7,186 25,507 26,317
-------- -------- -------- --------
Gross profit 11,849 6,819 26,720 32,934
-------- -------- -------- --------
Operating expenses:
Research, development and 3,899 2,774 10,076 8,365
engineering
Selling, general and
administrative 6,884 5,126 17,193 15,835
-------- -------- -------- --------
Total operating expenses 10,783 7,900 27,269 24,200
-------- -------- -------- --------
Income (loss) from operations 1,066 1,081 (549) 8,734
Interest and other income
(expense), net 351 448 1,198 1,547
-------- -------- -------- --------
Income (loss) before income 1,417 (633) 649 10,281
taxes
Provision for (benefit from)
income taxes 468 (528) 213 3,393
-------- -------- -------- --------
Net income (loss) $ 949 $ (105) $ 436 $ 6,888
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share $ 0.06 $ (0.01) $ 0.03 $ 0.45
-------- -------- -------- --------
-------- -------- -------- --------
Shares used in computing net 15,629 14,092 15,286 15,253
income (loss) per share
-------- -------- -------- --------
-------- -------- -------- --------
See accompanying notes to condensed consolidated financial statements.
3
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED
-----------------
SEPT. 28, SEPT. 29,
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 436 $ 6,888
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 2,104 1,312
Deferred compensation related to stock - 57
options
Changes in assets and liabilities:
Accounts receivable (452) (1,564)
Inventories (5,215) (4,692)
Prepaid expenses and other assets (540) (3,243)
Accounts payable 1,939 (926)
Accrued liabilities 1,167 2,726
---------- ----------
Net cash provided by (used in) operating
activities (561) 558
---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (2,070) (5,362)
Purchases of short-term investments (14,036) (28,692)
Sales and maturities of short-term
investments 22,024 48,430
---------- ----------
Net cash provided by investing
activities 5,918 14,376
---------- ----------
Cash flows from financing activities:
Proceeds from the issuance of Common
Stock, net 978 911
Purchase of Common Stock (3,131) -
---------- ----------
Net cash provided by (used in)
financing activities (2,153) 911
---------- ----------
Effect of exchange rate changes on cash and
cash equivalents (59) (27)
---------- ----------
Net increase in cash and cash equivalents 3,145 15,818
Cash and cash equivalents, beginning of
period 21,547 14,310
---------- ----------
Cash and cash equivalents, end of period $ 24,692 $ 30,128
---------- ----------
---------- ----------
Supplemental disclosure of non-cash operating activities:
Inventory totaling $1,584 was capitalized and transferred to property and
equipment during the first nine 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 nine month periods ended
September 28, 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):
SEPT. 28, DEC. 31,
1997 1996
Inventories: ---- ----
Purchased parts and raw materials $ 8,898 $ 6,763
Work-in-process 6,061 4,634
Finished goods 1,750 734
Evaluation systems 1,460 823
---------- ----------
$ 18,169 $ 12,954
---------- ----------
---------- ----------
Accrued liabilities:
Warranty reserve $ 4,109 $ 3,378
Accrued compensation and benefits 2,116 1,252
Income taxes 1,877 2,082
Commissions 1,600 1,082
Deferred income 890 4,966
Other 843 1,374
---------- ----------
$ 11,435 $ 14,134
---------- ----------
---------- ----------
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 425,500 shares have been purchased
to date. The Company purchased 335,000 of the 425,500 shares of Common Stock in
the first nine 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.
In September 1997, the Company was reincorporated in the State of Delaware. As
part of the reincorporation, each outstanding share of the old California
Corporation no par common stock was converted automatically to one share of
the new Delaware Corporation $.001 par value common stock.
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. To date,
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 in three of the four prior quarters and did
not return to marginal profitability until the quarter ended June 29, 1997.
The Company's new orders and net sales are improving, and the semiconductor
industry appears to be recovering from the slowdown experienced in 1996.
However, there can be no assurance that the Company will be able to sustain
or increase sales growth or 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. The Company is increasing its expense levels to support
long term growth in its business. 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 previous well-publicized slowdown in the semiconductor
market, particularly for DRAMs, many semiconductor manufacturers delayed or
canceled 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 any 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 that are subject to a number
of risks and uncertainties. In addition to the general risks associated with
the development of complex technology, future results of the Company will depend
on a variety of factors as described herein and in other filings with the
Securities and Exchange Commission.
6
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the Company
expressed as a percentage of net sales for the period indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29,
1997 1996 1997 1996
---- ---- ---- ----
Net sales 100% 100% 100% 100%
Cost of sales 48% 51% 49% 44%
--- --- --- ---
Gross margin 52% 49% 51% 56%
--- --- --- ---
Operating expenses:
Research, development 17% 20% 19% 14%
Selling, general and engineering 30% 37% 33% 27%
Total operating 48% 57% 52% 41%
Income (loss) from 5% (8%) (1%) 15%
Income (loss) before income 6% (5%) 1% 17%
Net income (loss) 4% (1%) 1% 12%
NET SALES
Net sales for the third quarter of 1997 increased 62% to $22.6 million from
$14.0 million for the third quarter of 1996. Net sales for the first nine months
of 1997 decreased 12% to $52.2 million from $59.3 million for the first nine
months of 1996. The quarterly increase in sales reflected a 64% increase in unit
sales for the third quarter of 1997 compared to the third quarter of 1996. Net
sales for the first nine months of 1997 compared to first nine months of 1996
reflected a 10% decrease in unit sales. This decrease was due to the Company's
lower sales in the first and second quarters which was principally a result of
the general industry slowdown.
Average selling prices (ASP's) increased 3% for the third quarter of 1997
compared to the third 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 1% for the
first nine months of 1997 compared to the first nine months of 1996. The
decrease was primarily a result of the decrease in sales in Aspen CVD dual
chamber systems.
International sales, which are predominantly to customers based in Japan and the
Pacific Rim (which includes Taiwan, Singapore and Korea), accounted for 78% and
61% of net sales for the third quarter of 1997 and 1996, respectively.
International sales for the first nine months of 1997 and 1996 were 66% and 81%,
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 third quarter of 1997 increased to 52% from
49% for the third quarter of 1996 and for the first nine months of 1997
decreased to 51% from 56% for the first nine months of 1996. The increase in
margins for the third quarter of 1997 compared to the third quarter of 1996 was
principally due to allocation of relatively fixed overhead costs over the
higher sales volume. For the first nine months of 1997 compared to the first
nine months 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, lower economies of scale have adversely affected gross margin
over the prior nine months 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 and rapid growth may also have an adverse effect
on gross margin due to the inefficiencies associated with manufacturing of new
product lines and rapid expansion, respectively.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses for the third quarter of 1997
were $3.9 million, or 17% of net sales, as compared to $2.8 million, or 20%,
for the third quarter of 1996. Research, development and engineering
expenses for the first nine months of 1997 were $10.1 million, or 19% of net
sales, as compared to $8.4 million, or 14% of net sales, for the first nine
months of 1996. The increase in expenses for the third quarter of 1997 was
primarily due to salaries and related expenses and engineering materials
which increased to $1.6 million and $0.9 million for the third quarter of
1997 from $1.2 million and $0.5 million for the third quarter of 1996,
respectively. The increase in expenses for the first nine months of 1997 as
compared to the first nine months of 1996 was primarily due to salaries
expense which increased to $4.7 million for the first nine months of 1997
from $4.0 million for the first nine months of 1996. The decrease in expense
as a percentage of net sales for the third quarter of 1997 was primarily due
to higher sales volume. The Company believes that continued investment in
research and development including its multi-product Strategy and its
300mm-development program, is critical to maintaining a strong technological
position in the industry and therefore expects research and development
expenses to continue to increase in the foreseeable future.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the third quarter of 1997 were
$6.9 million, or 30% of net sales, as compared to $5.1 million, or 37%, for the
third quarter of 1996. Selling, general and administrative expenses for the
first nine months of 1997 were $17.2 million, or 33% of net sales, as compared
to $15.8 million, or 27%, for the first nine months of 1996. The increase in
expenses for the third quarter of 1997 was primarily due to commission expense
which increased to $1.2 million for the third quarter of 1997 from $0.3 million
for the third quarter of 1996 and salaries expense which increased to $3.0
million for the third quarter of 1997 from $2.5 million for the third quarter of
1996. The increase in expenses for the first nine months of 1997 as compared to
the first nine months of 1996 was primarily due to salaries expense which
increased to $8.6 million for the first nine months of 1997 from $7.1 million in
the first nine months of 1996, principally as a result of additional personnel.
8
PROVISION FOR INCOME TAXES
The Company's expected annual tax rate was 33% in the third quarter and first
nine months of 1997. In the third quarter of 1996, the Company revised its
expected annual tax rate from 36% to 33% principally as 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 nine months of 1997 was $0.6
million, compared to $0.6 million of net cash provided by operations during the
first nine months of 1996. Net cash used by operations during the first nine
months of 1997 was primarily attributable to an increase in inventories of $5.2
million that was partially offset by an increase in accounts payable and accrued
liabilities of $3.1 million.
Net cash provided by investing activities during the first nine months of 1997
was $5.9 million, compared to $14.4 million net cash provided by investing
activities during the first nine months of 1996. Investing activities during the
first nine 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 nine months of 1997 was
$2.2 million, compared to $0.9 million net cash provided by financing activities
in the first nine months of 1996. Cash used in financing activities during the
first nine months of 1997 was primarily due to the Company's purchase of 335,000
shares of Common Stock of the Company in the first nine 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 425,500 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 5. OTHER INFORMATION.
On September 23, 1997 the Company completed a reincorporation under
the laws of the State of Delaware.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 27 (Electronic filing only)
(b) Reports on Form 8-K
None.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATTSON TECHNOLOGY, INC.
Date: November 12, 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