UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1999
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 Identification No.)
incorporation or organization)
3550 WEST WARREN AVENUE
FREMONT, CALIFORNIA 94538
(Address of principal executive offices) (Zip Code)
(510) 657-5900
(Registrant's telephone number, including area code)
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock outstanding as of August 4, 1999: 15,834,359
1
PART I -- FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
MATTSON TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
ASSETS
JUNE 27, DEC. 31,
1999 1998
---- ----
Current assets:
Cash and cash equivalents $11,155 $11,863
Short-term investments - 8,128
Accounts receivable, net 20,343 9,614
Inventories 15,150 10,924
Prepaid expenses and other current assets 4,947 8,745
------- -----
Total current assets 51,595 49,274
Property and equipment, net 10,295 12,090
Other assets 4,241 6,756
------- -----
$66,131 $68,120
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,926 $ 3,399
Accrued liabilities 13,261 14,841
------- -------
Total current liabilities 18,187 18,240
------- -------
Stockholders' equity:
Common stock 16 16
Additional paid in capital 63,980 63,239
Retained deficit (12,877) (10,250)
Treasury stock (2,987) (2,987)
Other (188) (138)
------- -------
Total stockholders' equity 47,944 49,880
------ ------
$66,131 $ 68,120
======= ========
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 27, JUNE 28, JUNE 27, JUNE 28,
1999 1998 1999 1998
---- ---- ---- ----
Net sales $24,128 $15,649 $38,448 $35,897
Cost of sales 12,748 8,448 19,824 19,621
--------- --------- --------- ---------
Gross profit 11,380 7,201 18,624 16,276
--------- --------- --------- ---------
Operating expenses:
Research, development and engineering 4,525 3,770 8,423 8,272
Selling, general and administrative 7,106 5,643 13,137 12,367
--------- --------- --------- ---------
Total operating expenses 11,631 9,413 21,560 20,639
--------- --------- --------- ---------
Loss from operations (251) (2,212) (2,936) (4,363)
Interest and other income (expense), net 133 508 426 989
--------- --------- --------- ---------
Loss before income taxes (118) (1,704) (2,510) (3,374)
Provision for (benefit from) income taxes 68 (459) 117 (909)
--------- --------- --------- ---------
Net loss $(186) $(1,245) $(2,627) $(2,465)
========= ========= ========= =========
Net loss per share:
Basic $ (0.01) $ (0.09) $ (0.17) $ (0.17)
========= ========= ========= =========
Diluted $ (0.01) $ (0.09) $ (0.17) $ (0.17)
========= ========= ========= =========
Weighted average shares outstanding:
Basic 15,601 14,474 15,512 14,364
======== ======== ======= ========
Diluted 15,601 14,474 15,512 14,364
======== ======== ======= ========
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 27, JUNE 28,
1999 1998
---- ----
Cash flows from operating activities:
Net loss $(2,627) $(2,465)
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 2,360 1,635
Amortization of intangibles 207 -
Changes in assets and liabilities:
Accounts receivable (10,729) 3,211
Inventories (4,598) 5,905
Prepaid expenses and other assets 4,153 (620)
Accounts payable 1,527 (1,273)
Accrued liabilities 1,041 1,335
------- -------
Net cash provided by (used in) operating activities (8,666) 7,728
------- -------
Cash flows from investing activities:
Acquisition of property and equipment (861) (835)
Purchases of short-term investments - (37,663)
Sales and maturities of short-term investments 8,128 35,732
------- -------
Net cash provided by (used in) investing activities 7,267 (2,766)
------- -------
Cash flows from financing activities:
Proceeds from the issuance of Common Stock, net 741 1,053
Purchase of Common Stock - (1,837)
------- -------
Net cash provided by (used in) financing activities 741 (784)
------- -------
Effect of exchange rate changes on cash and cash equivalents (50) 12
------- -------
Net increase (decrease) in cash and cash equivalents (708) 4,190
Cash and cash equivalents, beginning of period 11,863 25,583
------- -------
Cash and cash equivalents, end of period $11,155 $29,773
======= =======
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, 1998.
The results of operations for the three month and six month periods ended
June 27, 1999 are not necessarily indicative of results that may be expected
for the entire year ending December 31, 1999.
NOTE 2 BALANCE SHEET DETAIL (IN THOUSANDS):
JUNE 27, DEC. 31,
1999 1998
---- ----
Inventories:
Purchased parts and raw materials $10,275 $7,128
Work-in-process 4,730 2,586
Finished goods - 1,147
Evaluation systems 145 63
------- -------
$15,150 $10,924
======= =======
Accrued liabilities:
Warranty reserve $ 5,938 $5,820
Accrued compensation and benefits 1,863 1,214
Income taxes 1,208 1,131
Commissions 788 539
Deferred income 1,622 1,437
Customer deposits 78 2,690
Other 1,764 2,010
------- -------
$13,261 $14,841
======= =======
NOTE 3 ACQUISITION OF CONCEPT SYSTEMS DESIGN, INC.
On July 24, 1998, the Company acquired Concept Systems Design, Inc.
("Concept"), a supplier of expitaxial (EPI) systems. In connection with the
merger, the Company has issued 795,138 shares of Mattson Common Stock to the
former shareholders of Concept. The former shareholders of Concept 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. In
July 1999, 447,569 shares of Mattson Common Stock were released from the
original contingency as certain conditions were satisfied. The transaction
has been accounted for as a purchase.
In the first quarter of 1999, a preacquisition contingency was resolved which
reduced the liabilities assumed from Concept by approximately $2.2 million.
Under the provisions of Statement of Financial Accounting Standards No. 38,
this has been recorded by the Company in the first quarter of 1999 on a
prospective basis as an elimination
5
of previously recorded goodwill and a pro-rata reduction of the balance to
the acquired developed technology, workforce and property and equipment.
NOTE 4 NET INCOME (LOSS) PER SHARE
Basic earnings per share (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 quarters ended June 27, 1999 and June 28, 1998 there were no
differences between the denominators used for the basic and diluted EPS
calculations as the effect of stock options would be antidilutive.
Total stock options outstanding at June 27, 1999 and June 28, 1998 were
2,920,933 and 2,558,147, respectively.
NOTE 5 COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income" establishes rules for the reporting and display of
comprehensive income and its components.
The following are the components of comprehensive loss:
THREE MONTHS ENDED SIX MONTHS ENDED
(in thousands) JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1999 1998 1999 1998
-------- -------- -------- --------
Net loss $ (186) $ (1,245) $ (2,627) $ (2,465)
Foreign currency translation adjustments 38 5 (50) 27
-------- -------- -------- --------
Comprehensive loss $ (148) $ (1,240) $ (2,677) $ (2,438)
======== ======== ======== ========
The components of accumulated other comprehensive income, net of related tax
are as follows:
JUNE 27, DEC. 31,
(in thousands) 1999 1998
-------- --------
Cumulative translation adjustments $ (188) $ (138)
-------- --------
$ (188) $ (138)
======== ========
NOTE 6 REPORTABLE SEGMENTS
The Company is organized on the basis of products and services. All of the
Company's business units have been aggregated into one operating segment. The
Company's service business is a separate operating segment; however, this
segment does not meet the quantitative threshold as prescribed in FAS 131. As
a result, no operating segment information is required to be disclosed.
6
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,
LiteEtch, and EPI 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 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. Current market conditions and the assessment of
short term prospects for the Company and the industry as a whole have
improved in recent months. The ability of the Company to respond to these
improvements is potentially limited by its ability to increase production with
its key suppliers and its labor force in the short term.
The Company experienced a loss in the quarter ended June 27, 1999. Future
results will depend on a variety of factors, particularly overall market
conditions and 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 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.
IMPACT OF YEAR 2000
The following statement is a Year 2000 Readiness Disclosure under the Year
2000 Information and Readiness Disclosure Act of 1998. Some of the Company's
older computer programs were written using two digits rather than four to
define the applicable year. As a result, those computer programs have
time-sensitive software that may recognize a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has commenced a Year 2000 date conversion project to address
necessary changes and an implementation strategy. The "Year 2000 Computer
Problem" creates risks for the Company from unforeseen problems in its own
computer systems and from third parties with whom the Company deals on
financial transactions. The Company does not anticipate that it will incur
material expenditures for the resolution of any Year 2000 issues related
either to its own information systems, databases and programs, or its
products. However, there can be no assurance that the Company will not
experience serious unanticipated negative consequences or material costs
caused by undetected errors. In addition, the Company could be adversely
impacted by Year 2000 issues faced by major distributors, suppliers,
customers, vendors and financial service organizations with which the Company
interacts.
Management is in the process of determining the impact, if any, that third
parties who are not Year 2000 compliant may have on the operations of the
Company. The Company is engaged in a comprehensive program to assess the
Company's Year 2000 risk exposure and to plan and implement remedial and
corrective action where necessary. The Company reviewed all of its major
internal systems, including financial and manufacturing systems, to assess
Year 2000 readiness and to identify critical systems that require correction
or remediation. The Company believes
7
that its existing financial and manufacturing systems are Year 2000 ready.
There cannot be any assurance, however, that integration and testing of new,
corrected or updated programs or systems with which they interface will not
result in necessary corrective action to one or more critical systems. A
significant disruption of the Company's financial or manufacturing systems
would adversely impact its ability to process orders, manage production and
issue and pay invoices. The Company's inability to perform these functions
for a long period of time could result in a material impact on its results of
operations and financial condition.
The assessment of the Year 2000 readiness of the Company's manufacturing
system is complete. Based on information currently available, the Company
believes that its systems will not be materially impacted by Year 2000
issues. However, there cannot be assurance that a significant disruption in
systems resulting from a Year 2000 problem will not occur. If the computer
system fails for this or any other reason, there could be a material adverse
impact on the Company's operating results and financial condition.
The Company is working with critical suppliers of products and services to
assess their Year 2000 readiness with respect to their operations and the
products and services they supply. A majority of this analysis is complete
with the Company's critical suppliers and analysis will continue with the
less critical suppliers in the next several months. The assessment program
also has encompassed the Company's own product offerings. The Company has
completed the assessment of the Year 2000 readiness of these products, and
the Company does not believe that Year 2000 issues will have a material
impact on sales or functionality of our standard product offerings. Customers
are seeking assurances of our Year 2000 readiness with increasing frequency,
and the Company is endeavoring promptly to address their concerns. However,
the Company has no control over a customer's Year 2000 readiness. The
potential ramifications of a Year 2000 type failure are potentially
far-reaching and largely unknown. The Company cannot make assurances that a
contingency plan in effect at the time of a system failure will adequately
address the immediate or long term effects of a failure, or that such a
failure would not have a material adverse impact on the Company's operations
or financial results in spite of prudent planning. The costs to date related
to the Year 2000 issue consist primarily of reallocation of internal
resources to evaluate and assess systems and products as described above and
to plan our remediation and testing efforts. The Company has not maintained
detailed accounting records, but based on the review of department budgets
and staff allocations, the Company believes these costs to be immaterial.
The Company cannot make any assurances that remediation and testing will
identify issues which will require additional expenditure of material amounts
and which could result in an adverse impact on financial results in future
reporting periods. Based on currently available information, management does
not believe that the Year 2000 issues discussed above related to internal
systems or products sold to customers will have a material adverse impact on
our financial condition or overall trends in results of operations. However,
the Company is uncertain to what extent they may be affected by such matters.
In addition, the Company cannot make assurances that the failure to ensure
Year 2000 capability by a supplier not considered critical or another third
party would not have a material adverse effect on the Company.
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.
8
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 27, JUNE 28, JUNE 27, JUNE 28,
1999 1998 1999 1998
-------- -------- -------- --------
Net sales 100% 100% 100% 100%
Cost of sales 53% 54% 52% 55%
-------- -------- -------- --------
Gross margin 47% 46% 48% 45%
-------- -------- -------- --------
Operating expenses:
Research, development and engineering 19% 24% 22% 23%
Selling, general and administrative 29% 36% 34% 35%
Total operating expenses 48% 60% 56% 58%
Loss from operations (1%) (14%) (8%) (12%)
Loss before income taxes (1%) (11%) (7%) (9%)
Net loss (1%) (8%) (7%) (7%)
NET SALES
Net sales for the second quarter of 1999 increased 54% to $24.1 million from
$15.7 million for the second quarter of 1998. Average selling prices (ASP's)
increased 46% for the second quarter of 1999 compared to the second quarter
of 1998. The increase in ASP's was due to a higher demand for the Company's
CVD and EPI products which carry higher ASP's than the single and dual
chamber system. Net sales for the first six months of 1999 increased 7% to
$38.4 million from $35.9 million for the first six months of 1998. This
increase reflects a 47% increase in ASP's during the first six months of 1999
compared to the first six months of 1998.
Second quarter 1999 bookings were $29.6 million, an increase of 480% compared
to bookings of $5.1 million in the second quarter of 1998, resulting in a
book to bill ratio of 1.2 to 1.0 in the second quarter of 1999. This increase
in bookings is primarily due to a higher demand for the Company's CVD product
and an increase in orders in the Japan region. Backlog increased $14.7
million to $35.0 million in the second quarter of 1999 from $20.3 million in
the second quarter of 1998.
International sales to customers based in Europe, Japan and the Pacific Rim
(which includes Taiwan, Singapore and Korea) accounted for 70% and 79% of net
sales for the second quarter of 1999 and 1998, respectively. International
sales for the first six months of 1999 and 1998 were 69% and 74% of net
sales, respectively. All sales are denominated in U.S. dollars. The Company's
operating results could be 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
1999 total net sales.
GROSS MARGIN
The Company's gross margin for the second quarter of 1999 increased to 47%
from 46% for the second quarter of 1998, and for the first six months of 1999
increased to 48% from 45% for the first six months of 1998. The increase in
margins was principally due to a different product mix sold during 1999 and
increased manufacturing efficiencies.
9
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
experience more significant 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.
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.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses for the second quarter of 1999
were $4.5 million, or 19% of net sales, as compared to $3.8 million, or 24%
of net sales, for the second quarter of 1998. The increase in expenses for
the second quarter of 1999 was primarily due to a $0.3 million increase in
salaries and related expenses and a $0.2 million increase in depreciation
expense. Salaries and related expenses increased as a result of salary
adjustments made during the second quarter of 1999. The Company acquired
Concept System Designs in July 1998 resulting in depreciation expense being
included in the second quarter of 1999 and not the second quarter of 1998.
Research, development and engineering expenses for the first six months of
1999 were $8.4 million, or 22% of net sales, as compared to $8.3 million, or
23% of net sales, for the first six months of 1998. The Company believes that
continued investment in research and development, including its multi-product
strategy 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 1999
were $7.1 million, or 29% of net sales, as compared to $5.6 million, or 36%
of net sales, for the second quarter of 1998. The increase is primarily due
to a $1.4 million increase in salary and related expenses. Salary and related
expenses increased as the employee headcount increased during the second
quarter of 1999. Selling, general and administrative expenses for the first
six months of 1999 were $13.1 million, or 34% of net sales, compared to $12.4
million, or 35% of net sales, for the first six months of 1998. The increase
in selling, general and administrative expenses was primarily due to salary
and related expenses which increased to $7.4 million for the first six months
of 1999 from $6.6 million for the first six months of 1998. The increase in
salary and related expenses was related to an increase in employee headcount
during 1999. Offset to this increase in selling, general and administrative
expenses was a decrease in advertising and promotion expenses during the
first six months of 1999 as compared to the first six months of 1998.
Advertising and promotion expenses were $0.2 million and $0.4 million for the
first six months of 1999 and 1998, respectively. The decrease of $0.2 million
is primarily attributable to reduced tradeshow expenses during the first six
months of 1999 as compared to the first six months of 1998.
PROVISION FOR INCOME TAXES
The 1999 provision for income taxes reflects fully reserved deferred tax
assets due to the uncertainty of their realization and recording a tax
liability related to the anticipated income of the Company's foreign
operations.
10
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations during the first six months of 1999 was $0.7
million, compared to $4.2 million of net cash provided by operations during
the first six months of 1998. Net cash used by operations during the first
six months of 1999 was primarily attributable to the net operating loss of
$2.6 million and an increase in accounts receivable and inventory of $10.7
million and $4.6 million, respectively. The decrease in cash was offset by
tax refunds of $3.7 million received during the second quarter 1999 and the
sale of short-term investments of $8.1 million.
The Board of Directors has authorized the Company to repurchase, through the
year 2000, up to 1,000,000 shares of the Company's Common Stock in the open
market from time to time. As of June 27, 1999, 274,800 shares had been
repurchased by the Company. The purpose of the repurchase program is to
acquire shares to fund the Company's stock based employee benefit programs,
including the employee stock purchase plan and the stock option plan.
The Company has a one-year revolving line of credit which expires in July
2000 in the amount of $15 million with Silicon Valley Bank. Under the
revolving line of credit, all borrowings bear interest at either a per annum
rate of 200 percentage points above the LIBOR Rate, or a per annum rate equal
to Prime Rate. The line of credit contains both affirmative and negative
covenants. At June 27, 1999, no amounts were outstanding under this line of
credit.
The Company believes anticipated cash flows from operations, funds available
under the revolving line of credit and existing cash and cash equivalents
will be sufficient to meet the Company's cash requirements for the next
twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
THE COMPANY'S QUARTERLY RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST AND
MAY FLUCTUATE SIGNIFICANTLY IN THE FUTURE. The Company derives most of its
net sales from the sale of a relatively small number of systems. The list
prices on these range from $375,000 to over $1,000,000. 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 its sales objectives
for that quarter. Consequently, the Company's net sales and operating results
for a quarter depend on its 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 quarter may cause net sales in that
quarter to fall significantly below its expectations. Such a delay may
materially and adversely affect the Company's operating results for that
quarter.
Unpredictable order patterns often cause the Company's manufacturing
efficiency to vary significantly from quarter to quarter. Any variation in
the Company's manufacturing efficiency can adversely affect gross margins and
net operating results. The time lag between the Company's first contact with
a customer and the customer placing its first order typically lasts from nine
to twelve months. This lag is often even longer. The Company's customers
often face competing capital budget considerations. Time lags between first
customer contact and the customer placing its first order, coupled with the
customer's competing capital budget considerations, make the timing of
customer orders uneven and difficult to predict.
THE COMPANY'S FUTURE SUCCESS DEPENDS UPON ITS ABILITY TO DEVELOP ITS SYSTEMS
AND PRODUCTS AND THE MARKET'S ACCEPTANCE OF THEM. The Company's systems
represent alternatives to the conventional equipment currently marketed by
its competitors. As a result, the Company believes that its growth prospects
depend in large part upon its ability to gain acceptance by a broader group
of customers.
Once a semiconductor manufacturer selects a particular vendor's capital
equipment, the Company believes that the manufacturer generally relies upon
that equipment for the specific production line application. In addition, the
semiconductor manufacturer 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. The transition of the
market to 300mm wafers will present both
11
an opportunity and a risk. The Company must introduce 300mm systems on a
timely basis and which meet customer requirements. To the extent that the
Company is unable to do this, its business, results of operations and
financial condition could be materially and adversely affected.
THE COMPANY'S REVENUES ARE SIGNIFICANTLY DEPENDENT ON INDIVIDUAL CUSTOMERS
MAKING PURCHASES. The Company sells its products to leading integrated
circuit manufacturers located in the United States, Europe, Japan and the
rest of the Pacific Rim. While the Company actively pursues new customers,
there can be no assurance that it will be successful in its efforts. Any
significant weakening in customer demand would have a material adverse effect
on the Company.
THE COMPANY'S REVENUES ARE HIGHLY DEPENDENT ON ITS JAPANESE DISTRIBUTOR,
MARUBENI, AND THE ASIAN MARKET IN GENERAL. 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. The Company is
substantially dependent upon Marubeni to address the Japanese market.
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 its distribution agreement with Marubeni, the
Company's strategy to increase its sales in Japan would be adversely
affected. In addition, upon termination of this relationship with Marubeni,
the Company would have the obligation to repurchase up to $1 million of
inventory related to its 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 is also substantially dependent upon sales to Pacific Rim
countries generally. As such, the Company is particularly at risk with
respect to effects from developments such as the Asian economic problems. In
addition, because some of its foreign sales are denominated in U.S. dollars,
the Company's products become less price competitive in countries with
currencies that are declining in value in comparison with the dollar.
THE COMPANY'S SALES CYCLE IS LENGTHY BECAUSE SALES OF ITS SYSTEMS DEPEND UPON
THE DECISIONS OF PROSPECTIVE CUSTOMERS TO MAKE SIGNIFICANT CAPITAL
COMMITMENTS. 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 decisions typically involve a
significant capital commitment. 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.
The Company also believes it must significantly increase its inventory
investment in evaluation systems because many customers use these systems in
their evaluation processes. Due to these factors, its systems typically have
a lengthy sales cycle during which it may expend substantial funds and
management effort. There can be no assurance that any of its efforts will
succeed.
THE COMPANY'S SALES REFLECT THE CYCLICALITY OF THE 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. The level of
capital expenditures by these manufacturers of semiconductor devices depend
upon the current and anticipated market demand for such devices and the
products utilizing such devices. The semiconductor industry is highly
cyclical. The industry historically experiences periods of oversupply that
result in significantly reduced demand for capital equipment, including the
systems manufactured and marketed by the Company. The Company anticipates
that a significant portion of new orders will depend upon demand from
semiconductor manufacturers who build or expand large fabrication facilities.
There can be no assurance that such demand will exist. Any future downturns
or slowdowns in the semiconductor market will materially and adversely affect
the Company's net sales and operating results.
ACQUISITIONS, WHICH ARE INHERENTLY RISKY, ARE PART OF THE COMPANY'S BUSINESS
STRATEGY. As part of the Company's business strategy, subject to certain
regulatory approvals and other conditions, the Company may make additional
acquisitions of, or significant investments in, businesses that offer
complementary products, services and technologies. The risks commonly
encountered in acquisitions of businesses will accompany any acquisitions or
12
investments. Consideration paid for future acquisitions, if any, could be in
the form of cash, stock, rights to purchase stock or a combination of cash,
stock and rights to acquire stock. To the extent that shares of stock or
other rights to purchase stock are issued in connection with any such future
acquisitions, dilution to existing stockholders and to earnings per share may
result.
THE COMPANY'S FUTURE SUCCESS DEPENDS UPON ITS CONTINUING TO DEVELOP AND
INTRODUCE NEW SYSTEMS WHICH COMPETE EFFECTIVELY ON THE BASIS OF PRICE AND
PERFORMANCE. The Company and its customers compete in markets 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. Due to the continual change in
these markets, the Company's success will also depend upon its ability to
develop new technologies and systems which compete effectively on the basis
of price and performance and 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. These
factors include 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 or develop new technologies or systems in a
timely manner. In particular, the transition of the market to 300mm wafers
will present the Company with both an opportunity and a risk. To the extent
that the Company is unable to introduce 300mm systems on a timely basis and
which meet customer requirements, its business, results of operations and
financial condition could be materially and adversely affected.
THE COMPANY'S SUBSTANTIAL DEPENDENCE UPON A LIMITED NUMBER OF SUPPLIERS FOR
SOME COMPONENTS AND SUBASSEMBLIES REDUCES ITS CONTROL OVER THE TERMS OF THEIR
DELIVERIES. The Company relies to a substantial extent on outside vendors to
manufacture many of the Aspen systems' components and subassemblies. The
Company obtains certain of these components and subassemblies from a 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. These risks include a potential inability to obtain an
adequate supply of required components, reduced control over pricing of
components, and reduced control over timely delivery of components.
The manufacture of certain of these components and subassemblies is an
extremely complex process and requires long lead times. As a result, 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 its ability to ship its
systems. Any such delay could have a material adverse effect on the Company.
THE COMPANY IS HIGHLY DEPENDENT ON ITS 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 does not enter into
written employment agreements with any of its executive officers. The success
of its business will also depend upon its ability to continue to attract and
retain qualified employees. In particular, the Company must attract and
retain highly skilled design and process engineers to manufacture existing
systems and develop new systems and processes. The competition for such
personnel is intense.
THE COMPANY IS HIGHLY DEPENDENT ON ITS SALES OVERSEAS, PARTICULARLY TO JAPAN
AND OTHER PACIFIC RIM COUNTRIES. The Company anticipates that international
sales will continue to account for a significant portion of net sales.
Because of its dependence upon international sales in general, and on sales
to Japan and Pacific Rim countries in particular, the Company is particularly
at risk to effects from developments such as the Asian economic problems. The
Company's international sales are also subject to certain governmental
restrictions, including the Export Administration Act and the regulations
promulgated under that act. The Company's sales to date have been denominated
in U.S. dollars. As a result, there have been no losses related to currency
fluctuations on sales. There can be no assurance that any of these factors
will not have a material adverse effect on the Company.
13
THE COMPANY RELIES ON ITS INTELLECTUAL PROPERTY RIGHTS TO PROTECT ITS
PROPRIETARY TECHNOLOGY. The Company relies on a combination of patents,
copyrights, 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 its systems. If this occurs, 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 its patents will be sufficiently broad to protect its
technology.
THE COMPANY'S FAILURE TO COMPLY WITH CURRENT OR FUTURE ENVIRONMENTAL
REGULATIONS COULD RESULT IN SUBSTANTIAL LIABILITY TO THE COMPANY. The Company
is subject to a variety of federal, state and local laws, rules and
regulations. These laws, rules and regulations pertain to the use, storage,
discharge and disposal of hazardous chemicals during sales demonstrations and
research and development. In recent years the Company has seen an increase in
the amount of public attention focused on the environmental impact of
operations which use hazardous materials. To the best of its knowledge, the
Company 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 its operations, restrictions on its ability to expand at its present
locations, requirements for the acquisition of significant equipment, or
other significant expense.
THE PRICE OF THE COMPANY'S COMMON STOCK HAS IN THE PAST AND MAY IN THE FUTURE
FLUCTUATE SIGNIFICANTLY. Significant volatility characterized the market
price of the Company's common stock in the past. The Company's stock price
declined substantially from its highs. There can be no assurance that the
market price of its common stock will not decline in the future. In addition,
in recent years the stock market in general, and the market for shares of
small capitalization stocks in particular, experienced extreme price
fluctuations. These fluctuations were often unrelated to the operating
performance of the affected companies. Such fluctuations could adversely
affect the market price of the Company's common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK
The Company has exposure to the impact of foreign currency fluctuations. The
Company has foreign subsidiaries which operate and sell its products in
various global markets; however, all of its sales are denominated in U.S.
dollars, and therefore the Company's foreign currency risk is reduced. The
Company also has some monetary assets, particularly in Japan, where the
Company attempts to limit its foreign currency risk through the use of
financial market instruments. The Company uses currency swap contracts with
maturities generally less than three months to manage its exposure on these
assets. To date, the Company's exposure related to exchange rate volatility
has not been significant. There can be no assurance that there will not be a
material impact in the future.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 20, 1999.
The stockholders approved a proposal to elect John C. Savage
and Kenneth G. Smith as Class II Directors to serve for a
three-year term and until their successors are elected and
qualified. The proposal received the following votes:
For Withheld
---------- ----------
John C. Savage 11,678,763 1,078,011
Kenneth G. Smith 11,579,075 1,177,699
The stockholders approved a proposal to increase the number of
shares of the Company's Common Stock reserved for issuance
under its 1989 Amended and Restated Stock Option Plan by
1,125,000 shares. The proposal received the following votes:
For Against Abstentions Broker Non-Votes
--------- --------- ----------- ---------
4,706,034 2,024,114 36,180 5,990,446
The stockholders approved a proposal to increase by 475,000
shares the maximum aggregate number of shares of Common Stock
issuable under the Company's 1994 Employee Stock Purchase Plan.
The proposal received the following votes:
For Against Abstentions Broker Non-Votes
--------- --------- ----------- ---------
6,248,228 478,220 39,880 5,990,446
In addition, stockholders ratified the appointment of
PricewaterhouseCoopers LLP as independent public accountants of
the Company for the fiscal year ending December 31, 1999. The
proposal received the following votes:
For Against Abstentions
---------- ------- -----------
12,667,091 68,555 21,128
15
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 10, 1999 /s/ Brian R. McDonald
---------------------------
Brian R. McDonald
Vice President of Finance
and Chief Financial Officer
(as principal financial officer
and on behalf of Registrant)
17