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 28, 1998
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 incorporation or organization) (I.R.S. Employer 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 August 6, 1998: 14,705,725
1
PART I - FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
ASSETS
JUNE 28, DEC. 31,
1998 1997
---- ----
Current assets:
Cash and cash equivalents $ 29,773 $ 25,583
Short-term investments 10,545 8,598
Accounts receivable, net 11,572 14,784
Inventories 13,163 19,068
Deferred taxes 4,222 4,222
Prepaid expenses and other current assets 1,621 1,000
-------------- --------------
Total current assets 70,896 73,255
Property and equipment, net 10,388 11,188
-------------- --------------
$ 81,284 $ 84,443
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,076 $ 3,349
Accrued liabilities 14,246 12,910
-------------- --------------
Total current liabilities 16,322 16,259
-------------- --------------
Stockholders' equity:
Common stock 14 14
Additional paid in capital 58,470 57,418
Retained earnings 9,652 12,117
Treasury stock (2,912) (1,075)
Other (262) (290)
-------------- --------------
Total stockholders' equity 64,962 68,184
-------------- --------------
$ 81,284 $ 84,443
-------------- --------------
-------------- --------------
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 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 15,649 $ 16,571 $ 35,897 $ 29,594
Cost of sales 8,448 8,265 19,621 14,723
-------------- -------------- -------------- ------------
Gross profit 7,201 8,306 16,276 14,871
-------------- -------------- -------------- ------------
Operating expenses:
Research, development and engineering 3,770 3,233 8,272 6,177
Selling, general and administrative 5,643 5,401 12,367 10,309
-------------- -------------- -------------- ------------
Total operating expenses 9,413 8,634 20,639 16,486
-------------- -------------- -------------- ------------
Income (loss) from operations (2,212) (328) (4,363) (1,615)
Interest and other income (expense), net 508 410 989 847
-------------- -------------- -------------- ------------
Income (loss) before income taxes (1,704) 82 (3,374) (768)
Provision for (benefit from) income taxes (459) 27 (909) (255)
-------------- -------------- -------------- ------------
Net income (loss) $ (1,245) $ 55 $ (2,465) $ (513)
-------------- -------------- --------------- ------------
-------------- -------------- --------------- ------------
Net income (loss) per share:
Basic $ (0.09) $ 0.00 $ (0.17) $ (0.04)
-------------- -------------- -------------- ------------
-------------- -------------- -------------- ------------
Diluted $ (0.09) $ 0.00 $ (0.17) $ (0.04)
-------------- -------------- -------------- ------------
-------------- -------------- -------------- ------------
Weighted average shares outstanding:
Basic 14,474 14,019 14,364 14,100
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
Diluted 14,474 15,004 14,364 14,100
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
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 28, JUNE 29,
1998 1997
---- ----
Cash flows from operating activities:
Net income $ (2,465) $ (513)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 1,635 1,383
Changes in assets and liabilities:
Accounts receivable 3,211 (2,435)
Inventories 5,905 (4,461)
Prepaid expenses and other current assets (620) (243)
Accounts payable (1,273) 838
Accrued liabilities 1,335 (809)
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Net cash provided by (used in) operating activities 7,728 (6,240)
------------- --------------
Cash flows from investing activities:
Acquisition of property and equipment (835) (1,354)
Purchases of short-term investments (37,663) (11,846)
Sales and maturities of short-term investments 35,732 16,392
------------- --------------
Net cash provided by (used in) investing activities (2,766) 3,192
Cash flows from financing activities: ------------- --------------
Proceeds from the issuance of Common Stock, net 1,053 898
Purchase of Common Stock (1,837) (3,131)
------------- --------------
Net cash provided by (used in) financing activities (784) (2,233)
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Effect of exchange rate changes on cash and cash equivalents 12 (42)
------------- --------------
Net increase in cash and cash equivalents 4,190 (5,323)
Cash and cash equivalents, beginning of period 25,583 21,547
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Cash and cash equivalents, end of period $ 29,773 $ 16,224
------------- --------------
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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, 1997.
The results of operations for the three month and six month periods ended
March 29, 1998 are not necessarily indicative of results that may be expected
for the entire year ending December 31, 1998.
NOTE 2 BALANCE SHEET DETAIL (IN THOUSANDS):
JUNE 28, DEC. 31,
1998 1997
---- ----
Inventories:
Purchased parts and raw materials $ 7,298 7,648
Work-in-process 4,333 7,606
Finished goods 928 2,266
Evaluation systems 604 1,548
--------------- ---------------
$ 13,163 $ 19,068
--------------- ---------------
--------------- ---------------
Accrued liabilities:
Warranty reserve $ 5,190 $ 4,756
Accrued compensation and benefits 1,214 2,199
Income taxes 828 1,971
Commissions 703 1,277
Deferred income 4,394 1,598
Other 1,917 1,109
--------------- ---------------
$ 14,246 $ 12,910
--------------- ---------------
--------------- ---------------
NOTE 3 CERTAIN STOCK TRANSACTIONS
In March 1998, the Company announced that its Board of Directors had
authorized the Company to repurchase during the next three years up to
1,000,000 shares of the Company's Common Stock in the open market from time
to time. As of August 5, 1998, 274,800 shares had been repurchased by the
Company for approximately $1.9 million.
NOTE 4 NEW ACCOUNTING PRONOUNCEMENT
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income". SFAS 130
establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this Statement had no impact on
the Company's net income or stockholders' equity. SFAS 130 requires
unrealized gains or losses on the Company's available for sale securities and
foreign currency translation adjustments, which prior to adoption were
reported
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separately in stockholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of SFAS 130.
The following are the components of comprehensive income (loss):
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
(in thousands) JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
---- ---- ---- ----
Net income (loss) $ (1,245) $ 55 $ (2,465) $ (513)
Unrealized gain (loss) on investments 21 17 21 (23)
Foreign currency translation adjustments (16) (11) 6 (22)
---------- ---------- ---------- ----------
Comprehensive income (loss) $ (1,240) $ 61 $ (2,438) $ (558)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The components of accumulated other comprehensive income, net of related tax
are as follows:
June 28, Dec. 31,
(in thousands) 1998 1997
---- ----
Unrealized gain (loss) on investments $ 16 $ -
Cumulative translation adjustments (278) (290)
---------------- -----------------
$ (262) $ (290)
---------------- -----------------
---------------- -----------------
NOTE 5 NET INCOME (LOSS) PER SHARE
The Company has adopted Financial Accounting Standards Board (FASB) Statement
128 effective with the quarter and year ended December 31, 1997. All earnings
per share data has been restated to reflect the FASB 128 method of
computation. FASB 128 requires dual presentation of basic and diluted
earnings per share (EPS) on the face of the income statement. Basic EPS is
computed by dividing income available to common stockholders (numerator) by
the weighted average number of common shares outstanding (denominator) for
the period. Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period. The computation of diluted EPS uses the
average market prices during the period.
During the six months ended June 28, 1998 and June 29, 1997 there were no
differences between the numerators used for the basic and diluted EPS
calculations. There were differences in the denominators in the period ending
June 29, 1997 because of the effect of including stock options. Total stock
options outstanding at June 28, 1998 and June 29, 1997 were 2,558,147 and
2,872,691, respectively.
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.
The Company has experienced a loss in the current quarter and does not expect
to return to profitability before the quarter ending December 31, 1998. 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 continued reduction in capital spending in the
semiconductor industry and the ultimate impact on the Company and its results
of operations and financial condition cannot be precisely predicted.
The Company continues to have "pushouts" of orders from Asian customers. In
response to the expected lower revenues in the third quarter of 1998, the
Company has continued its cost control measures outlined in the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 1998.
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.
6
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.
On July 24, 1998 the Company completed its acquisition of Concept Systems
Design, Inc. ("Concept"), a supplier of epitaxial (EPI) systems. The
transaction was achieved through the merger of a wholly-owned subsidiary of
Mattson with and into Concept. In connection with the merger, Mattson issued
795,138 shares of Mattson Common Stock to the former shareholders of Concept.
The Concept Shareholders also may acquire up to 547,569 additional shares of
Mattson Common Stock in connection with the merger if certain conditions are
met prior to the end of the first twenty-four full calendar months following
the closing of the transaction. The transaction will be accounted for as a
purchase. The acquisition will result in a significant write-off on
in-process research and development expenses in the third quarter of 1998 and
amortization of goodwill over future periods.
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 made by the Company with the Securities and Exchange Commission.
7
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 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
---- ---- ---- ----
Net sales 100% 100% 100% 100%
Cost of sales 54% 50% 55% 50%
---- ---- ---- ----
Gross margin 46% 50% 45% 50%
---- ---- ---- ----
Operating expenses:
Research, development and engineering 24% 20% 23% 21%
Selling, general and administrative 36% 33% 35% 35%
Total operating expenses 60% 52% 58% 56%
Income (loss) from operations (14%) (2%) (12%) (6%)
Income (loss) before income taxes (11%) 1% (9%) (3%)
Net income (loss) (8%) 0% (7%) (2%)
NET SALES
Net sales for the second quarter of 1998 decreased 6% to $15.7 million from
$16.6 million for the second quarter of 1997. The quarterly decrease in sales
reflects an 8% decrease in unit sales for the second quarter of 1998 compared
to the second quarter of 1997. Sales in the second quarter consist
principally of single and dual chamber Aspen Strip systems. Net sales for
the first six months of 1998 increased 21% to $35.9 million from $29.6
million for first six months of 1997. The increase in sales reflects a 13%
increase in unit sales for the first six months of 1998 compared to the first
six months of 1997.
Second quarter 1998 bookings were $5.1 million, a decrease of 71% compared to
bookings of $17.5 million in the second quarter of 1997, resulting in a book
to bill ratio of 0.3 to 1.0 in the second quarter of 1998. This decrease was
due principally to the general industry slowdown caused by the reduced
capital spending in the semiconductor industry.
Average selling prices (ASP's) increased 1% for the second quarter of 1998
compared to the second quarter of 1997. ASP's increased 5% for the first six
months of 1998 compared to the first six months of 1997. The increases were
primarily a result of the proportionate increase in sales between Aspen Strip
dual chamber systems compared to Aspen Strip single chamber systems which
were partially offset by a decrease in Lite Etch unit sales.
International sales, which are to customers based in Europe, Japan and the
Pacific Rim (which includes Taiwan, Singapore and Korea), accounted for 79%
and 61% of net sales for the second quarter of 1998 and 1997, respectively.
International sales for the first six months of 1998 and 1997 were 74% and
56% of net sales, 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 1998 total net sales.
8
GROSS MARGIN
The Company's gross margin for the second quarter of 1998 decreased to 46%
from 50% for the second quarter of 1997, and for the first six months of 1998
decreased to 45% from 50% for the first six months of 1997. The decrease in
margins was principally due unfavorable manufacturing volume variances.
Excess finished goods inventory at the end of the fourth quarter of 1997
required a reduction in first and second quarter production causing
unfavorable overhead and material burdens. Margins were also affected by
pricing pressure in Taiwan and Japan.
The Company's gross margin may continue to be affected by a variety of
factors. 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 second quarter of 1998
were $3.8 million, or 24% of net sales, as compared to $3.2 million, or 20%,
for the second quarter of 1997. The increase in expenses for the second
quarter of 1998 was primarily due to engineering materials, which increased
to $0.9 million for the second quarter of 1998 from $0.4 million for the
second quarter of 1997. Research, development and engineering expenses for
the first six months of 1998 were $8.3 million, or 23% of net sales, as
compared to $6.2 million, or 21%, for the first six months of 1997. The
increase in expenses for the first six months of 1998 was primarily due to
salaries and related expenses which increased to $4.5 million for the first
six months of 1998 from $3.8 million in the first six months of 1997 and from
engineering materials which increased to $1.9 million in the first six months
of 1998 from $0.9 million in the first six months of 1997. 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.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the second quarter of 1998
were $5.6 million, or 36% of net sales, as compared to $5.4 million, or 33%,
for the second quarter of 1997. Selling, general and administrative expenses
for the first six months of 1998 were $12.4 million, or 35% of net sales, as
compared to $10.3 million, or 35%, for the first six months of 1997. The
increase in expenses for the first six months of 1998 compared to the first
six months of 1997 was due to salary and related expenses which increased to
$7.9 million for the first six months of 1998 from $6.5 million for the first
six months of 1997, building and utilities which increased to $1.3 million
for the first six months of 1998 from $0.9 million for the first six months
of 1997 and travel and entertainment expenses which increased to $1.5 million
in the first six months of 1998 from $1.2 million in the first six months of
1997. Salary and related expenses increased principally as a result of
higher quarterly average headcount and the costs associated with the
reduction in force while building and utilities costs increased primarily as
a result of the lease of an additional 100,000 square feet of office space to
expand its headquarters in Fremont, California.
9
PROVISION FOR INCOME TAXES
The Company's expected annual tax rate was 27% in the first two quarters of
1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations during the first six months of 1998 was $7.7
million, compared to $6.2 million of net cash used in operations during the
first six months of 1997. Net cash provided by operations during the first
six months of 1998 was primarily attributable to a decrease in accounts
receivable of $3.2 million and a decrease in inventories of $5.9 million.
The Board of Directors has authorized the Company to repurchase up to
1,000,000 shares of the Company's Common Stock, of which 274,800 shares have
been repurchased by the Company as of August 5, 1998 for approximately 1.9
million.
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.
SUBSEQUENT EVENT: MERGER WITH CONCEPT SYSTEMS DESIGN
On July 24, 1998 the Company completed its acquisition of Concept. The
transaction was achieved through the merger of a wholly-owned subsidiary of
the Company with and into Concept. In connection with the merger, the Company
issued 795,138 shares of common stock to the Concept Shareholders. The
Concept Shareholders also may acquire up to 547,569 additional shares of the
Company's common stock in connection with the merger if certain conditions
are met prior to the end of the first twenty-four full calendar months
following the closing of the transaction. The merger has been accounted for
as a purchase.
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 27 (Electronic filing only)
(b) Reports on Form 8-K
None.
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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 12, 1998 /s/ Richard S. Mora
--------------------------
Richard S. Mora
Vice President of Finance
and Chief Financial Officer
(as principal financial officer
and on behalf of Registrant)
12