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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the Fiscal Year Ended Commission File Number
September 30, 1998 0-24934
</TABLE>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
PRI AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2495703
(State of other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
805 MIDDLESEX TURNPIKE 01821
BILLERICA, MA (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number: (978) 670-4270
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01
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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 / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Registrant's common stock, $0.01 par value
per share ("Common Stock") held by non-affiliates of the Registrant, based on
the closing price of the Common Stock on December 11, 1998 as reported by the
Nasdaq National Market, was approximately $346,442,892. Shares of Common Stock
held by officers and directors and by persons who own of record 5% or more of
the outstanding Common Stock have been excluded from this computation in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of December 11, 1998, the Registrant had outstanding 19,946,299 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders, expected to be filed with the Securities and Exchange
Commission on or before January 28, 1999, are incorporated by reference into
Items 10, 11, 12 and 13 of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
THE COMPANY
PRI Automation, Inc. ("PRI" or the "Company") is a leading supplier of
factory automation systems for semiconductor manufacturers and OEM equipment
suppliers. The Company combines advanced robotics technology with material
handling systems and a broad array of integrated software to automate the
manufacture of integrated circuits. The Company's mission is to provide
integrated solutions of hardware, software and services that optimize the flow
of silicon wafers throughout the semiconductor fabrication facility, or fab,
improving the productivity of semiconductor manufacturing. PRI's products
consist of overhead monorail transportation systems; work-in-process wafer
storage systems and reticle storage systems; tool automation systems; material
control software and scheduling and planning software; and factory simulation
and other services, including project management and on-site support. PRI's
automated material handling solutions increase process tool utilization and
throughput by optimizing the flow of wafers to and from process tools throughout
the fab.
PRODUCTS
Consumer and business demand for electronic products with more features is
requiring manufacturers of integrated circuits to package more functionality and
higher performance in semiconductor devices. As device makers face greater
competition, they must provide a broad range of differentiated products at ever
lower costs. Additionally, the semiconductor industry appears to be preparing
for the expected transition from manufacturing processes based on 200mm wafers
to 300mm wafer production and manufacturing. The move to the next-generation
wafer size, if it occurs as expected, will require semiconductor manufacturers
to make significant capital investment in full-factory automation systems,
process equipment and new facilities over the next three to five years. A new
300mm fab is expected to cost approximately $1.5-2.0 billion. Today, a
full-factory 200mm automation system costs between $10-20 million, but in the
300mm fabs, semiconductor manufacturers may spend $50-75 million for a complete
installation.
Semiconductor manufacturers face significant technical and operational
challenges as they seek to meet customer demand while maintaining and improving
their profitability and competitive positions. The downturn in the semiconductor
industry throughout 1998 has added even more pressure, as device makers face
excess manufacturing capacity and increased competition. Manufacturers must look
for ways to reduce their operational costs while maintaining their investment in
continuously evolving technology. Semiconductor manufacturers face the following
challenges:
- achieving and maintaining high production yields;
- improving utilization of expensive facilities and equipment; and
- managing the logistics of an increasingly complex semiconductor
fabrication process.
The Company addresses these challenges with a fully integrated line of
factory automation systems designed to automate the semiconductor fabrication
process. The Company's products offer a highly flexible and scaleable design
that allows customers to easily configure solutions that meet their specific
requirements. The components and subsystems developed by the Company include
wafer cassette and reticle storage units, overhead monorail and floor-guided
delivery vehicles, robot arms and other robotic systems, tool automation
components including atmospheric and vacuum wafer-handling robots, tool
front-end buffering solutions, pod-door opening components and other specialized
components.
The Company has made significant investments to expand its software
solutions into a key component of its integrated wafer flow strategy. There are
two main components of the Company's software product set: (i) material control
software products that direct and track the movement of work-in-process wafers
as they move throughout the fab, and (ii) planning and scheduling software.
Planning and scheduling software
1
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enables device makers to optimize their manufacturing environment by developing
enterprise-wide capacity plans that support overall business objectives, and
then developing manufacturing schedules to meet these overall goals.
The Company has organized its product development and marketing and sales
functions to support the needs of both the semiconductor manufacturer and the
OEM equipment supplier. The Company's Factory Automation Systems Division and
Software Division serve the needs of the end user customer, while the Equipe
Division provides solutions for OEM equipment suppliers. Together, the three
divisions enable the Company to address a wide range of automation requirements
through a set of integrated products and services. In addition, the Company
helps customers design the fab, plan the automation installation and simulate
its functionality to verify the design prior to taking delivery of the system.
The Company also provides ongoing support during and after installation.
FACTORY AUTOMATION SYSTEMS DIVISION
INTERBAY AUTOMATION SYSTEMS
Interbay systems move wafers throughout the factory, storing them close to
where they will be processed. The Company's interbay automation products consist
of automated storage and retrieval systems linked by an overhead monorail
transport system, together with the associated controllers, software and
communications capabilities that provide a tightly integrated wafer flow
solution. The majority of new fabs constructed since 1990 have adopted some form
of interbay automation system. An interbay system includes one or more of the
following components:
- OVERHEAD MONORAIL SYSTEMS--The Company's patented AeroTrak-TM- overhead
monorail transportation system provides clean and fast delivery of
material from process bay to process bay.
- AUTOMATED STORAGE AND RETRIEVAL SYSTEMS--These storage systems, or
stockers, are enclosed structures that store cassettes, boxes, pods or
other carriers. Stored materials are inserted or removed by robotic
systems through one or more input/output ports.
- INTERFLOOR AND INTERBUILDING TRANSPORT SYSTEMS--Interfloor and
interbuilding transport systems permit the transport of wafers between
different floors of a fab, or between two separate fabrication facilities
or buildings.
Prices for the Company's interbay systems range from approximately
$3,000,000 to $15,000,000 or higher, based on the length of monorail track, the
number and type of vehicles and stockers, optional features selected and
software and services required.
INTRABAY AUTOMATION SYSTEMS
The Company's intrabay products move wafers from storage systems to
individual process tools. The Company believes that intrabay automation
represents an area of potential growth as more customers adopt this technology
to improve the throughput of process bays. In addition, the shift to 300mm
wafers will require the extensive adoption of intrabay automation. A fully
loaded 300mm wafer pod weighs approximately 18 pounds and is too heavy for
operators to carry by hand. Manufacturers have already acknowledged that they
will have to move to a fully automated production environment that includes
intrabay automation in 300mm fabs.
An intrabay system includes one or more of the following components:
- MACHINE LOADING ROBOT VEHICLES ("MLRVS")--MLRVs are floor-guided vehicles
utilizing a track system embedded in the floor of the process bay that
transport material to and from the process tool.
2
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- OVERHEAD HOIST TRANSPORT SYSTEMS ("OHTS")--OHTs are overhead monorail
transport systems that retrieve wafer pods from a stocker and deliver them
directly to a SEMI-compliant E15 loadport at the process tool. The Company
believes this will be the preferred method of intrabay automation in 300mm
fabs.
- AUTOMATED GUIDED VEHICLES ("AGVs") AND PEOPLE GUIDED VEHICLES
("PGVs")--The AGV is suited for applications where the process bay floor
space is not critical. The PGV provides a convenient manual backup system
to existing automated material handling systems installed in the process
bay.
- CELL AUTOMATION SYSTEMS--These systems are designed to automate the
transfer of materials among a group of functionally related process tools.
Prices for the Company's intrabay systems range from approximately $150,000
for automation of a simple cell to approximately $5,000,000 for an intrabay
system incorporating either a floor-guided robotic vehicle or an overhead hoist
transportation system.
LITHOGRAPHY AUTOMATION SYSTEMS
The Company's lithography material handling systems automate the storage,
retrieval, tracking, and delivery of reticles and wafers within the lithography
bay. Reticles are glass plates containing the device images that are projected
onto wafers during the lithography process. Since the lithography bay paces
overall fab output, productivity improvements in the lithography bay improve
overall fab throughput and work-in-process management. The Company is the
leading supplier of reticle management systems and is developing additional
systems and components to improve operations in new and existing lithography
bays. As semiconductor manufacturing technology advances, lithography and
reticle costs are increasing dramatically, expanding the need for automation to
improve utilization and productivity.
EQUIPE DIVISION
In January 1998, the Company acquired Equipe Technologies, Inc., E-Machine,
Inc., and Equipe Japan Ltd. (collectively, "Equipe" or the "Equipe Combined
Companies"). The Equipe Division provides robotic systems that automate the
transfer of wafers to, from, and within process tools in the fab. The primary
customers for these solutions are process tool equipment suppliers, or OEMs. The
automation systems are typically integrated directly into the OEM's product
before shipment to the end user. Major system components include:
- ATMOSPHERIC WAFER-HANDLING SYSTEMS--The Equipe Division is the industry's
leading supplier of atmospheric wafer-handling systems. Atmospheric
wafer-handling robots remove wafers from pods and cassettes and align them
prior to placement into the process tool chamber.
- VACUUM WAFER-HANDLING SYSTEMS--Vacuum wafer-handling systems automate
wafer-handling within the process tool. A significant portion of wafer
processing is done inside vacuum chambers requiring specially designed
wafer-handling robots and components that can function in a vacuum
environment.
- SYSTEM CONTROL SOFTWARE--The Equipe Division provides the required system
software to integrate and control the wafer-handling robots with the OEM's
system.
- SYSTEM CONTROL HARDWARE--The Equipe Division provides and integrates the
system electrical input/ output (I/O) control into the overall product,
allowing OEMs to quickly bring new process technology on-line.
- TOOL FRONT-END BUFFERING SYSTEMS--Tool front-end buffering systems provide
the storage of work-in-process wafer cassettes or SMIF-pods directly at
the process tool front-end.
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- POD DOOR OPENERS ("PDOs")--Pod door openers provide a method for opening
front opening unified pods ("FOUPs") and allowing the atmospheric robot to
remove wafers from the FOUP.
- SPECIALTY WAFER-HANDLING SYSTEMS--In addition to the above products, the
Equipe Division provides other wafer-handling systems to meet a wide
variety of customer requirements. These include specially designed robots
capable of handling wafers under wet processing conditions, new copper
interconnect processing technologies and other robotic wafer-handling
components.
These systems and components can be integrated to form a complete
wafer-handling solution. Providing these automation solutions directly to
process tool manufacturers allows OEMs to focus resources on the development of
differential process technology rather than on standard automation solutions.
The Equipe Division's products range in price from approximately $20,000 to
$500,000, depending on functionality.
SOFTWARE DIVISION
As more of the manufacturing becomes automated, the Company believes that
software will play an increasingly important role in a manufacturer's ability to
improve the productivity of its overall fab operations. The Company's software
products address the two most important aspects of wafer flow logistics and are
tightly coupled with the Company's automated material handling systems. Material
control software tracks and directs the movement of wafers throughout the fab.
Advanced planning and scheduling software allow manufacturers to develop
capacity plans and work-flow schedules to meet their business objectives. The
Software Division is responsible for developing and marketing the following
products:
- TRANSNET-TM- SOFTWARE--TransNet is a fully integrated software solution
for automating material flow throughout the fab. TransNet is integrated
with PRI's existing family of material handling products, including
stockers, AeroTrak transport and intrabay automation components, providing
management and control of wafer flow material handling.
- LEVERAGE-TM- ADVANCED PLANNING AND SCHEDULING SOFTWARE--The Company's
Leverage-TM- for Planning and Leverage-TM- for Scheduling software
products under development are expected to enable customers to develop
capacity plans and work-flow schedules, allowing them to optimize fab
operations and quickly react to their changing business requirements.
In addition, on November 24, 1998, the Company announced a definitive
agreement to acquire Promis Systems Corporation Ltd. (Promis) of Toronto,
Canada. Promis is a leading supplier of manufacturing execution systems, or MES,
software that controls the key process and routing data in the fab and
coordinates all the manufacturing elements. The acquisition is expected to be
completed during the first quarter of calendar year 1999. The Company expects
the addition of MES software to its other software products to greatly enhance
the Company's ability to deliver a complete software solution to manufacturers.
AUTOMATION SERVICES
In addition to its hardware and software products, the Company provides
various services that are essential to the success of large-scale factory
automation projects. These include automation planning and design services to
assist customers in assessing their automation needs, developing and
implementing an automation plan and executing computerized simulation of
automation performance, as well as project management services to assist
customers in carrying out large-scale factory automation projects.
4
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RESEARCH AND DEVELOPMENT
Research and development of promising technologies and products is vital to
the success of the Company. The Company expended $37,137,000, $29,214,000 and
$19,488,000 on research and development in fiscal years 1998, 1997 and 1996,
representing 20.9%, 13.7% and 13.4% of its net revenue for such periods,
respectively. The Company is developing products intended to maintain the
Company's leading position in providing fully integrated factory automation
systems.
MARKETING, SALES AND CUSTOMER SUPPORT
The Company markets, sells and services its products to semiconductor
manufacturers and OEM equipment suppliers worldwide through its own sales and
service organizations. In North America, the Company sells its products through
a direct sales force operating out of its headquarters in Billerica,
Massachusetts and regional offices located in Arizona, California, Texas, New
Mexico and Oregon. Outside North America, the Company's products are sold and
supported by the Company's direct sales and technical support organization with
offices in the United Kingdom, France, Germany, Ireland, Israel, Switzerland,
Taiwan, South Korea, Singapore and Japan. For additional information regarding
the Company's export sales, see Note M to the Notes to Consolidated Financial
Statements included in this Report, entitled "Significant Customers and
International Net Revenue."
The Company provides extensive support to its customers. These services can
range from telephone hot-line support, providing for a 48-hour response time, to
full-time on-site customer service provided by Company personnel based at the
customer's facility. Fees are based upon the type of service and number of
Company personnel required. The Company provides a continuous quality
improvement program that enhances customer support through data collection, root
cause analysis and other information used by customers to improve the
performance of their automation systems. The Company maintains a fully staffed
and equipped training center in its Billerica, Massachusetts headquarters to
support the training requirements of its customers.
MANUFACTURING
The Company's manufacturing operations take place in Billerica,
Massachusetts and in Mountain View, California. The Company's manufactured
products consist of standard components which are customized to meet unique
customer requirements. Primary manufacturing operations include assembly and
test with most fabrication outsourced to key suppliers. Completed subassemblies
are tested for functionality prior to their assembly into completed systems.
Completed systems are subjected to functional testing prior to shipment.
The Company's manufacturing department is responsible for managing the
transition of new products from engineering to production, and for improving
manufacturing efficiency. The Company operates a "concurrent engineering"
process to provide an effective integration of disciplines from design through
manufacturing, acceptance testing and installation. The Company's objective is
not only to meet customers' tight delivery deadlines, but to ensure that
products are designed with "manufacturability" in mind, enhancing their
reliability, serviceability and support.
The Company has implemented quality control ("QC") and quality assurance
("QA") processes based on Total Quality Management principles. QC is maintained
through incoming inspections of components, and in-process inspection and
testing of subassemblies. After all manufacturing operations are completed
through final assembly, the Company's QA personnel perform final test and
acceptance of each system to make sure that it meets product specifications and
quality standards before it is shipped to the customer.
The Company has implemented a Supplier Excellence Program to assist
management in qualifying and selecting external suppliers. By more effectively
managing its outsourcing practices, the Company can leverage the capitalization
and technical capabilities of its manufacturing partners and provide the
5
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Company with the necessary flexibility for optimum capacity utilization. Our
Commodity Management Group works closely with design and manufacturing
engineering to provide multiple sources for most components.
CUSTOMERS
The Company's customers include most of the leading semiconductor
manufacturers and OEM equipment suppliers in the U.S., Europe and Taiwan. The
Company's customer base has become more diversified and includes leading
manufacturers of ASICs, microprocessors and DRAMs as well as process technology
companies. Historically, a significant portion of the Company's revenue in any
particular period has been attributable to sales to a limited number of
customers. The Company intends to continue to expand its global operations to
better support its growing worldwide customer base.
The Company's largest customers change from year to year, as large projects
are completed and new projects are initiated. In fiscal year 1998, Intel and
Advanced Micro Devices accounted for 22% and 10% of the Company's net revenue,
respectively. In fiscal year 1997, Intel accounted for 36% of net revenue. In
fiscal year 1996, Intel accounted for 29% of net revenue. At September 30, 1998,
Intel and Motorola accounted for 26% and 14% of the Company's backlog,
respectively.
BACKLOG
The Company competes for different types of contracts including fab
expansions, retrofits to existing fabs, new fab construction projects,
atmospheric and vacuum wafer-handling systems, automated material flow software
and advanced planning and scheduling software. The Company's backlog at
September 30, 1998 was approximately $52,120,000, compared to approximately
$141,062,000 at September 30, 1997. The Company includes in its backlog only
those customer orders for products, spare parts and services for which it has
accepted signed purchase orders with assigned delivery dates within twelve
months. OEM and software products typically have shorter backlog cycle times
than do factory automation products. The Company anticipates that as the
Company's range of products continues to diversify, backlog will become less
meaningful as an indicator of future revenue.
COMPETITION
The Company faces intense competition worldwide from one principal
competitor, the Clean Factory Automation Division of Daifuku Co., Ltd., a
Japanese manufacturer of factory automation systems. The Company also from time
to time, competes with Shinko Electronics Company, Murata Machinery Ltd. and a
number of other smaller foreign and domestic manufacturers of automated
machinery used in semiconductor fabrication facilities. The Company's Equipe
Division competes with a number of wafer handling robotics companies, including
in-house organizations of process tool manufacturers that develop their own
automation, as well as other smaller robotics companies. The Company's Software
Division competes with a number of suppliers of automated scheduling and
planning software.
The principal elements of competition in the Company's markets include
product performance, quality, supplier track record and stability, customer
service and support, delivery capability, and price. Product performance
criteria include cleanliness, reliability, footprint, cost of ownership,
throughput and flexibility.
The Company believes that as the semiconductor equipment market matures,
major semiconductor manufacturers are becoming increasingly concerned with
delays in production start-up and quality and reliability problems attributable
to factory automation systems. Additionally, manufacturers are looking for ways
to limit their dependence upon multiple suppliers, thereby reducing the
associated integration risks from different suppliers' equipment that result in
longer times to fab start up. As a result, manufacturers are reducing their
supplier base by purchasing products from companies with a broader set of
products to meet more of their manufacturing requirements.
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While new competitors could enter the semiconductor factory automation
market with technically superior products, the Company believes it has a
competitive advantage associated with its broad product range, as well as its
experience in managing large scale factory automation projects, its knowledge of
automation applications, specialized manufacturing skills and customer support
infrastructure. However, existing or future competitors, particularly those with
greater resources than the Company, could overcome these competitive advantages.
INTELLECTUAL PROPERTY RIGHTS
The Company protects its technologies through technical innovation and
patents. The Company also relies on legal principles restricting the
unauthorized disclosure or use of trade secrets, as well as confidentiality and
non-disclosure agreements where appropriate. The Company holds a patent relating
to certain key elements of its AeroTrak-TM- monorail system, which forms an
important component of the Company's interbay automation systems. This patent
expires in 2007. As a result of its acquisition of Equipe, the Company also
holds a patent for a precision robot apparatus. This patent expires in 2010.
In 1998, the Company received a patent for a wafer transfer system that
expires in 2017. The Company has received additional patents and continues to
pursue patent protection for its proprietary technology; however, the Company
believes that its success will depend more upon its technological expertise and
the capabilities of its employees than upon protection through the legal system
of its intellectual property rights. Foreign intellectual property laws may not
protect the Company's intellectual property rights.
EMPLOYEES
The Company strives to create a stimulating and rewarding work environment
that will attract and retain a bright and motivated workforce. The Company
believes that its attrition rate has been below the industry norm for companies
in the semiconductor capital equipment industry. At September 30, 1998, the
Company had 1,010 full-time employees. In addition, the Company utilizes the
services of temporary or contract personnel within certain functional areas to
assist on project related activities. The number of such personnel varies
depending on specific project activity. At September 30, 1998, the Company
employed 75 temporary or contract personnel. The Company had two reductions in
force during fiscal year 1998, totaling 244 personnel or approximately 19% of
the Company's workforce. Substantially all employees have stock options that
provide for vesting over a period of time. The Company believes that its future
success will depend in large part on its ability to attract and retain highly
skilled employees. None of the employees of the Company is covered by a
collective bargaining agreement. The Company considers its relationship with its
employees to be good.
ITEM 2. PROPERTIES
FACILITIES
The Company's corporate headquarters are located in a 122,342-square foot
leased building in Billerica, Massachusetts. The lease on this facility expires
in 2001, and provides for average annual lease payments of approximately
$563,000. The Company also leases three additional facilities, with lease
expiration dates in 2000 and 2001, in Billerica, Massachusetts with a combined
117,100 square feet and average annual lease payments of approximately $439,000.
These facilities are principally used by the Company's Factory Automation
Systems Division for engineering and manufacturing. The Company also leases
facilities in Dallas, Texas; Mesa, Arizona; Menlo Park and Mountain View,
California; as well as South Korea, Taiwan, Singapore, France, Germany,
Switzerland and Japan, under leases with expiration dates ranging from March
1999 to March 2007. Approximately 20,000 square feet of leased facilities were
idle at September 30, 1998. The Company believes that its existing facilities
will be adequate to meet its currently anticipated requirements and that
suitable additional or substitute facilities will be available as required.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company may be involved in certain legal proceedings
incidental to its normal business activities. There are no pending legal
proceedings to which the Company is a party or to which any of its properties
are subject which, either individually or in the aggregate, are expected by the
Company to have a material adverse effect on its business, financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the National Market System of the
Nasdaq Stock Market under the trading symbol PRIA. There were 293 holders of
record of the Company's common stock as of December 4, 1998. The Company
estimates that there are a substantial number of additional beneficial owners
that hold stock in nominee or "street name" through brokerage firms. The
following table sets forth the high and low sales prices for the Company's
common stock as reported on the Nasdaq Stock Market for each quarter during the
two-year period ended September 30, 1998 (adjusted to give retroactive effect
for a two-for-one stock split effective May 2, 1997 for shareholders of record
as of April 22, 1997):
<TABLE>
<CAPTION>
1(ST) QUARTER 2(ND) QUARTER 3(RD) QUARTER 4(TH) QUARTER
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Fiscal 1998...................................... $ 27.25-55.81 $ 23.62-37.00 $ 14.06-28.38 $ 10.44-17.88
Fiscal 1997...................................... $ 14.75-26.00 $ 22.06-32.31 $ 21.56-41.25 $ 37.44-58.50
</TABLE>
The Company has never paid cash dividends on its common stock. The current
policy of the Board of Directors is to retain all earnings to reinvest for the
continued growth of the Company.
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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data,
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" and the Company's
consolidated financial statements and related notes included elsewhere herein.
In connection with the acquisition of Equipe in fiscal 1998, accounted for as a
pooling of interests, all prior period financial data has been restated to
include the impact of the Equipe Combined Companies. The selected financial data
as of September 30, 1998 and 1997 and for each of the three years in the period
ended September 30, 1998 are derived from consolidated financial statements
included elsewhere in this Report, which have been audited by
PricewaterhouseCoopers LLP. The selected financial data as of September 30,
1996, 1995 and 1994 and for each of the two years in the period ended September
30, 1995 are derived from consolidated financial statements of the Company
audited by PricewaterhouseCoopers LLP and not included herein. As of and for the
years ended September 30, 1996, 1995 and 1994, selected financial data include
the results of the Equipe Combined Companies, which were audited by independent
accountants other than PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATIONS:
Net revenue......................................... $ 178,193 $ 213,159 $ 145,750 $ 92,632 $ 47,479
Gross profit (1).................................... 56,466 94,896 70,948 45,793 20,530
Operating (loss) profit (1)(2)...................... (32,877) 34,350 30,737 21,663 4,766
Net (loss) income (1)(2)............................ (23,942) 26,572 26,015 18,789 3,059
Net (loss) income per common share:(1)(2)(3)
Basic............................................. (1.22) 1.39 1.40 1.20 0.30
Diluted........................................... (1.22) 1.32 1.33 1.09 0.28
BALANCE SHEET:
Total assets........................................ $ 144,577 $ 172,479 $ 131,543 $ 103,484 $ 24,921
Long-term obligations, less current portions........ 75 204 78 150 4,144
Series A redeemable convertible preferred stock
(4)............................................... -- -- -- -- 4,063
</TABLE>
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(1) For the year ended September 30, 1998, reflects charges of $13,987,000 for
inventory and warranty provisions.
(2) For the year ended September 30, 1998, reflects charges of $8,417,000 for
the purchase of incomplete technology from the acquisition of Interval Logic
Corporation, merger costs of $4,490,000 related to the acquisition of Equipe
and other special charges of $5,601,000 related to workforce reductions,
lease abandonments and other charges incurred in consolidating the Company's
business unit structure. See Note Q of Notes to Consolidated Financial
Statements.
(3) Reflects a two-for-one stock split effective May 2, 1997 for shareholders of
record as of April 22, 1997.
(4) All outstanding Series A Redeemable Convertible Preferred Stock was
converted into common stock in connection with the Company's initial public
offering in October 1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides an analysis of the Company's financial
condition and results of operations and includes the Equipe Combined Companies
("Equipe"), acquired in fiscal 1998 and accounted for as a pooling of interests.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, certain
income and expense items as a percentage of net revenue:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net revenue......................................................................................... 100.0% 100.0% 100.0%
Cost of revenue..................................................................................... 68.3 55.5 51.3
----- ----- -----
Gross profit........................................................................................ 31.7 44.5 48.7
Operating expenses:
Research and development.......................................................................... 20.9 13.7 13.4
Selling, general and administrative............................................................... 18.9 14.7 14.2
Acquired in-process research and development...................................................... 4.7 -- --
Merger costs and special charges.................................................................. 5.7 -- --
----- ----- -----
Operating (loss) profit............................................................................. (18.5) 16.1 21.1
Other income, net................................................................................... 0.6 0.6 1.4
----- ----- -----
(Loss) income before income taxes................................................................... (17.9) 16.7 22.5
(Benefit from) provision for income taxes........................................................... (4.5) 4.2 4.7
----- ----- -----
Net (loss) income................................................................................... (13.4)% 12.5% 17.8%
----- ----- -----
----- ----- -----
</TABLE>
FISCAL 1998 VS. FISCAL 1997
NET REVENUE: Net revenue for fiscal year 1998 decreased to $178,193,000,
compared to $213,159,000 for fiscal year 1997. This overall decrease is
attributable to the downturn in the worldwide semiconductor industry which
resulted in a significant slowdown in the construction or expansion of
semiconductor fabs. The decrease was partially offset by increased shipments,
resulting from increased design wins, of both 200mm and 300mm tool automation
products to OEM semiconductor equipment manufacturers. Net export sales to
customers comprised $59,515,000 or 33.4% of revenue for fiscal year 1998,
compared to $97,388,000 or 45.7% of net revenue for the prior fiscal year.
GROSS PROFIT: The Company's gross profit margin decreased to 31.7% for
fiscal year 1998, compared to 44.5% for the prior fiscal year. The reduction in
margin was caused by changes in product mix as well as excess capacity and
related manufacturing costs that could not be reduced proportionally with the
decline in production volume. Furthermore, the industry downturn increased
competitive pricing pressure. Additionally, there were $13,987,000 in charges
during the fiscal year related to inventory and warranty provisions. Excluding
these charges, the gross profit margins would have been 39.5%.
RESEARCH AND DEVELOPMENT: Research and development expenses increased to
$37,137,000 or approximately 20.9% of net revenue for fiscal year 1998, compared
to $29,214,000 or 13.7% of net revenue for the prior fiscal year. The increase
in the dollar amount of research and development spending reflects the Company's
continued investment in new product developments and enhancements of existing
products. The Company continued to invest in the development of 200mm and 300mm
products throughout the tool automation and factory automation product lines and
advanced planning and scheduling software products. The Company believes that
these investments are critical to maintaining and improving its market share.
10
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses increased to $33,698,000 or 18.9% of net revenue for fiscal year 1998
compared to $31,332,000 or 14.7% of net revenue for the prior fiscal year.
During the second half of fiscal 1998, the Company reduced its operating
expenses by 16%, compared with operating levels during the first half of fiscal
1998. The Company had two reductions in force totaling approximately 19% of the
work force. Additionally, the Company reduced a proportionate level of office
space.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT: On October 29, 1997 the
Company acquired Interval Logic Corporation ("ILC"), a California corporation,
for aggregate consideration of 111,258 shares of the Company's common stock. In
addition, the Company issued or assumed options to purchase an aggregate of
199,170 shares of the Company's common stock. ILC was formed in 1995 to develop
advanced, high-performance planning and scheduling software solutions for the
semiconductor industry. The value of the transaction was $8,523,000, including
approximately $600,000 of expenses related to the acquisition. The transaction
was accounted for as a purchase.
At the time of the acquisition, the purchase price was allocated to the
tangible and intangible assets of ILC based on the fair market value of those
assets using a risk-adjusted discounted cash flow approach. Specifically, the
purchased technology was evaluated through extensive interviews and analysis of
data concerning the state of the technology and needed developments. This
evaluation of underlying technology acquired considered the inherent
difficulties and uncertainties in completing the development, and thereby
achieving technological feasibility, and the risks related to the viability of
and potential changes in future target markets. At the time of the acquisition,
the fair value of $8,417,000 of the acquired technology that had not reached
technological feasibility was expensed as in-process research and development.
The significant further investments in development required and currently
underway to meet expected customer requirements is anticipated to be completed
in the third quarter of fiscal year 1999. This effort is estimated to take
approximately 225 engineering man-months at a cost of approximately $2,800,000.
This project includes completion of the software requirement definition, data
integration and validation, completion of the graphics user interface,
development of alpha and beta versions for customer testing, and integration and
adaptation with customer systems. The underlying technology had no alternative
future use to the Company in other research and development projects or
otherwise.
MERGER COSTS AND SPECIAL CHARGES: During fiscal year 1998 the Company
incurred certain special charges. In the second quarter of fiscal year 1998, the
Company acquired Equipe in a transaction accounted for as a pooling of
interests. Direct acquisition costs, primarily related to legal, investment
banking, and accounting fees, amounted to $4,490,000 and were charged against
the results of operations in the quarter. Additionally, during the second, third
and fourth quarters of fiscal 1998, the Company recorded restructuring and other
special charges of $5,601,000. The Company restructured its operations in
response to market conditions and in order to integrate the Equipe operations.
The special charges primarily included provisions for severance compensation of
$1,910,000 resulting from terminations of approximately 244 personnel completed
in 1998, costs of $2,943,000 relating to reductions of leased facilities space
and a non-cash write-down of specialized demonstration equipment for a
particular customer of $528,000 associated with the closure of the customer
training site that is not usable elsewhere. At September 30, 1998, $634,000 of
restructuring charges remained in accrued expenses associated with the severance
and lease reductions totaling $4,853,000. The employee severance and lease
reduction costs are considered restructuring charges. The Company expects the
remaining accrued restructuring costs of $634,000 at September 30, 1998 to be
paid by the end of fiscal 1999.
OPERATING (LOSS) PROFIT: As a result of the decline in revenue and the
other foregoing factors, for fiscal year 1998 the Company experienced an
operating loss of $32,877,000, or negative 18.5% of net revenue, compared to an
operating profit of $34,350,000, or 16.1% of net revenue for the prior fiscal
year.
OTHER INCOME, NET: Other income, net in fiscal 1998 was $1,049,000 or 0.6%
of net revenue, compared to $1,204,000 or 0.6% of net revenue for the prior
fiscal year. Interest income was $1,617,000 and
11
<PAGE>
$1,241,000 for fiscal 1998 and 1997, respectively, and interest expense for the
years ended September 30, 1998 and 1997 amounted to $58,000 and $37,000,
respectively. While net interest income increased in fiscal 1998 due to higher
average cash and investment balances, this income was offset by increases in
other expenses experienced in fiscal 1998.
(BENEFIT FROM) PROVISION FOR INCOME TAXES: The income tax benefit for
fiscal year 1998 was $7,886,000, compared to a provision of $8,982,000 for the
previous fiscal year. The effective tax rate reflects a 24.8% benefit for fiscal
year 1998 compared to a 25.3% provision for the prior fiscal year. The change is
primarily due to the charges for acquired in-process research and development
and merger costs, which are not fully deductible for tax purposes, and the fact
that two of the Equipe Combined Companies were not subject to federal income tax
prior to January 1, 1998 due to their S-corporation status. The Company has
recognized a net deferred tax asset of $8,391,000 at September 30, 1998. The
Company believes it is more likely than not that its total net deferred tax
asset of $8,391,000 will be realized.
FISCAL 1997 VS. FISCAL 1996
NET REVENUE: Net revenue for fiscal year 1997 increased to $213,159,000,
compared to $145,750,000 for fiscal year 1996. This increase resulted from
greater market acceptance of, and demand for, the Company's flexible factory
automation and tool automation systems, as a result of semiconductor
manufacturers' continuing upgrades and expansion of existing fabrication
facilities and construction of new facilities, and from the Company's growth in
Europe and in the Asia Pacific region. Net export sales to unaffiliated
customers comprised $97,388,000 or 45.7% of net revenue for fiscal year 1997,
compared to $22,457,000 or 15.4% of net revenue for the prior fiscal year. The
increase is primarily due to the Company's expansion into both Europe and the
Asia Pacific region.
GROSS PROFIT: The Company's gross profit margin decreased to 44.5% for
fiscal year 1997, compared to 48.7% for the prior fiscal year. The decrease is
primarily attributable to increased costs associated with
the support of global expansion and reduced prices to compete in the Asia
Pacific region.
RESEARCH AND DEVELOPMENT: Research and development expenses increased to
$29,214,000 or 13.7% of net revenue for fiscal year 1997, compared to
$19,488,000 or 13.4% of net revenue for the prior fiscal year. The increase in
dollar amount primarily reflected the increase in personnel and materials
expense in response to the increased demand for new products and new product
enhancements in both factory automation and tool automation.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses increased to $31,332,000 or 14.7% of net revenue for fiscal year 1997,
compared to $20,723,000 or 14.2% of net revenue for the prior fiscal year. The
increase in dollar amount primarily reflected the increase in personnel,
commissions and related expenses associated with higher sales volume, expansion
of the Company's marketing, market research and communications programs and
increased sales and marketing efforts in support of the Company's global
expansion.
OPERATING PROFIT: As a result of the foregoing factors, operating profit
for fiscal year 1997 increased to $34,350,000 or 16.1% of net revenue, compared
to $30,737,000 or 21.1% of net revenue for the prior fiscal year.
OTHER INCOME, NET: Other income, net decreased to $1,204,000 or 0.6% of net
revenue, compared to $2,078,000 or 1.4% of net revenue for the prior fiscal
year. The decrease is largely attributable to reduced interest income from lower
average cash balances during fiscal 1997.
PROVISION FOR INCOME TAXES: The income tax provision increased to
$8,982,000 for fiscal year 1997 as compared to $6,800,000 for the prior fiscal
year. The effective tax rate increased for fiscal year 1997 to 25.3% as compared
to 20.7% for the prior fiscal year. This effective tax rate is based on the fact
that Equipe Technologies and a related company acquired by the Company were not
subject to federal income
12
<PAGE>
taxes prior to the acquisition due to S-corporation status. The S-corporation
income was higher in fiscal year 1996 than in fiscal year 1997 resulting in a
lower effective tax rate in fiscal year 1996. Elimination of certain valuation
allowances placed against certain deferred tax assets also contributed to the
decrease in the effective tax rate in fiscal year 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through bank lines of
credit, public stock offerings in October 1994 and July 1995 and cash generated
from operations.
At September 30 1998 the Company had working capital of $89,835,000. In
fiscal year 1998, cash and cash equivalents increased by $18,824,000 to
$48,208,000. Net cash provided by operations was $31,890,000, compared to
$2,153,000 in fiscal 1997. The net cash provided by operating activities was
primarily attributable to decreases in accounts receivable of $46,219,000, to
decreases in contracts in progress of $6,446,000, to increases in billings in
excess of revenues and customer advances of $5,753,000 and to the net loss
which, after adjusting for non-cash items, provided $2,336,000. This was
partially offset by cash used to reduce accounts payable and accrued expenses of
$16,973,000, increases in inventories of $5,739,000 and increases in other
assets of $6,152,000.
Net cash used by investing activities was $8,708,000 in fiscal 1998,
compared to net cash provided of $2,410,000 in fiscal 1997. The net cash used by
investing activities was primarily attributable to the purchases of property and
equipment of $12,082,000, offset by proceeds from the net sales and maturities
of investments in marketable securities of $3,104,000.
Net cash used in financing activities was $4,115,000 in fiscal 1998,
compared to $4,069,000 used in fiscal 1997. The net cash used in financing
activities was primarily attributable to distributions of $4,507,000 to
shareholders of Equipe Technologies and a related company under S-corporation
status and repayments of capital lease obligations and borrowings under lines of
credit of $2,103,000, offset partially by proceeds from exercise of stock
options and the Company's Employee Stock Purchase Plan of $2,495,000.
At September 30, 1998, the Company had a revolving credit facility agreement
with Chase Manhattan Bank (the "Bank"). The revolving credit facility enables
the Company to borrow up to $20,000,000 on an unsecured basis. Outstanding
revolving credit loans bear interest, at the Company's option, at the 30, 60 or
90 day LIBOR rate plus a credit spread or at the effective prime rate. The
ability of the Company to effect borrowings under the revolving credit facility
is conditioned upon meeting certain financial criteria. The revolving credit
agreement expires on June 16, 2000. At September 30, 1998, the Company was not
in compliance with certain of the required covenants but subsequently obtained a
waiver from the Bank. The Company plans to pursue future waivers as necessary
from the Bank beginning on the next measurement date of December 27, 1998.
The Company believes that existing cash and investment balances and funds
available under its existing revolving credit facility will be sufficient to
meet the Company's cash requirements to fund operations and expected capital
expenditures during the next twelve months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission may contain statements which are not historical facts but
which are "forward-looking statements" involving risks and uncertainties. In
particular, statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" relating to the Company's shipment level
and profitability and the sufficiency of capital to meet working capital and
capital expenditure requirements may be forward-looking statements. The words
"expect," "anticipate," "internal," "plan," "believe," "seek," "estimate" and
similar expressions are
13
<PAGE>
intended to identify such forward-looking statements. This Report also contains
other forward-looking statements. Such statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions that could
cause the Company's future results to differ materially from those expressed in
any forward-looking statements made by or on behalf of the Company. Many of such
factors are beyond the Company's ability to control or predict. Readers are
accordingly cautioned not to place undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly any
forward-looking statements, whether in response to new information or future
events or otherwise. Important factors that may cause the Company's actual
results to differ from such forward-looking statements include, but are not
limited to, the factors discussed below.
The Company's future results are subject to substantial risks and
uncertainties. The Company's business and results of operations depend in
significant part upon capital expenditures of manufacturers of semiconductors,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. Historically, the
semiconductor industry has been highly cyclical with recurring periods of
over-supply. This recurring over-supply often has had a severe effect on the
semiconductor industry's demand for capital expenditures, including systems
manufactured and marketed by the Company. The Company believes that the markets
for newer generations of semiconductors will be subject to similar fluctuations.
Also, the recent high rate of technical innovation and resulting improvements in
the performance and price of semiconductor devices, which have driven much of
the demand for the Company's products, could slow, or encounter limits, in the
future. In addition, any other factor adversely affecting the semiconductor
industry or particular segments within the semiconductor industry may adversely
effect the Company's business, financial condition and operating results.
In addition to the risks and uncertainties posed by the cyclicality of the
semiconductor industry, the Company faces the following risks and uncertainties:
the lengthy sales cycle for the Company's products, and the consequent need to
invest substantial resources on sales efforts with no assurance that a sale will
result; the Company's dependence on a limited number of customers; delays in the
expected transition to 300mm manufacturing technology; the Company's ability to
manage growth in periods of fluctuating demand; the Company's ability to
successfully integrate recently acquired businesses into its operations; risks
associated with a substantial and increasing percentage of sales to customers in
other countries; intense competition from Daifuku Co., Ltd. and others; the
Company's ability to introduce new products and technologies on a timely basis;
delays in introducing new products and systems or in manufacturing products and
systems able to meet the complex technical requirements of customers; dependence
on sole-source suppliers or on a limited number of suppliers for components or
specialized processes; the ability to protect the Company's intellectual
property and the risk that others could assert intellectual property claims
against the Company; dependence on key executive officers and employees; and
risks associated with the Asian financial crisis. The current economic and
financial uncertainty in certain Asian countries has delayed some orders from
customers in these countries, and could cause future delays and cancellations.
As a result of the foregoing and other factors, the Company may experience
material fluctuations in its future operating results on a quarterly or annual
basis which could materially adversely affect its business, financial condition,
operating results and stock price.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 130, "Reporting Comprehensive Income." This statement requires
that changes in comprehensive income be shown in a financial statement that is
displayed with the same prominence as other financial statements. The statement
is effective for periods beginning after December 15, 1997 and the Company will
adopt its provisions in fiscal year 1999. Reclassification for earlier periods
is required for comparative purposes. The Company has not yet determined the
impact of adoption of FASB Statement No. 130.
In June 1997, the FASB issued FASB Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement supersedes
FASB Statement No. 14, "Financial
14
<PAGE>
Reporting for Segments of a Business Enterprise." This statement includes
requirements to report selected segment information quarterly and also requires
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports revenues. The
statement is effective for annual periods beginning after December 15, 1997 and
the Company will adopt its provisions in fiscal year 1999. Reclassification for
earlier periods is required, unless impracticable, for comparative purposes. The
Company has not yet determined the impact of adoption of FASB Statement No. 131.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued the Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," which will supersede SOP 91-1. SOP 97-2 has not changed the basic
rules of revenue recognition but does provide more guidance, particularly with
respect to multiple deliverables and "when and if available" products. SOP 97-2
is effective for transactions entered into for annual periods beginning after
December 15, 1997. The Company does not expect the statement to have a material
impact on its financial position or results of operations.
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5, "Accounting for the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires all costs of start-up activities (as
defined by SOP 98-5) to be expensed as incurred. The Company does not expect the
statement to have a material impact on its financial condition and results of
operations.
SUBSEQUENT EVENTS
On November 24, 1998, the Company agreed to acquire Promis Systems
Corporation Ltd., ("Promis"), a Toronto-based Canadian corporation traded on The
Toronto Stock Exchange. Promis is a leading developer of manufacturing execution
systems, or MES, software for semiconductor and precision electronics
manufacturers. Under the terms of the agreement, the Company will issue
approximately 1.7 million shares of common stock in exchange for all of the
outstanding shares of Promis. The acquisition is intended to be accounted for as
a pooling of interests and is expected to be completed during the first calendar
quarter of 1999, subject to, among other things, regulatory approvals and the
approval of the shareholders of Promis.
YEAR 2000
GENERAL
Many computer systems and software products are expected to experience
problems handling dates beyond the year 1999 because the systems are coded to
accept only two-digit entries in the date code fields. Inability of the
Company's products, or of products and systems on which the Company relies, to
process these dates could have a material adverse effect on the Company's
business. The Company has implemented a company-wide Year 2000 Project (the
"Project") with the objective of minimizing the impact of Year 2000 issues on
its products, services, infrastructure, and internal business support
applications. The Project's goals are to ensure Year 2000 readiness and
compliance for: (i) all of the Company's products; (ii) all business systems
that are used by the Company; and (iii) all critical business services or
products provided to the Company by its vendors.
PROJECT
The Company has created and is currently implementing a plan intended to
ensure that all of the Company's processes and systems have been assessed,
tested and made Year 2000 compliant. The Company engaged the services of an
information technology consulting firm to assist in the program management of
the Project, and has created a Project Team which includes representatives from
each of the Company's divisions. The Year 2000 Project has been in operation
since 1997 and is proceeding on schedule.
15
<PAGE>
The Project is addressing the impact of Year 2000 on Company products,
internal IT systems, internal non-IT systems, and systems and products of the
Company's suppliers and other third parties. The steps in completing the project
are: (1) identify software systems and products that pose potential Year 2000
issues; (2) assess the Year 2000 readiness of each item identified; (3) develop
and implement programs that will achieve Year 2000 compliance; (4) test to
verify compliance; and (5) develop contingency plans as required.
At September 30, 1998, the Project is in various stages of progress as
discussed below:
- PRI PRODUCTS: The Company is in the process of completing the testing and
verification portion of the project for all of its products. This segment
of the Project is on schedule and is expected to be completed by early
1999.
- INTERNAL IT SYSTEMS: The Company has assessed its internal information
technology, or IT, systems, including business information systems,
systems utilized in its manufacturing and service operations, and systems
providing electronic interfaces between the Company and its customers, to
determine whether the Company's operations will be interrupted by Year
2000 issues. The Company is currently in the process of testing and
verifying Year 2000 compliance of its internal IT systems. This segment of
the Project is on schedule and is expected to be completed by June 30,
1999.
- INTERNAL NON-IT SYSTEMS: Internal non-IT systems include
telecommunications systems, security systems, HVAC systems and utilities.
Testing of these systems is ongoing and is expected to be completed by
March 30, 1999.
- SUPPLY CHAIN: The Company has been working with suppliers and other third
parties upon which it is dependent to determine the extent of their Year
2000 compliance. The Company's inquiry and assessment of their Year 2000
readiness is ongoing and is expected to be completed in early 1999.
COSTS
Based on its investigation to date, the Company does not expect the total
cost of its Year 2000 Project to have a material adverse effect on the Company's
business or financial results. The estimated total cost of the Year 2000 Project
is approximately $250,000. The total amount charged to expense through September
30, 1998 was approximately $130,000. The remaining amounts are expected to be
spent during 1999.
RISK
The Project is intended to reduce the Company's risk of experiencing
significant Year 2000 problems. Based on the progress that the Company has made
to date in addressing its Year 2000 issues, and its plan and timetable to
complete the Project, the Company does not anticipate significant interruption
of normal operations. The risk posed by Year 2000 issues depends substantially
on the number and type of any instances of non-compliance that have not yet been
discovered by the Company. To the extent that the Company's internal systems, or
products and services obtained from third parties, are found not to be Year 2000
compliant, the Company could face disruptions in its business which could, in
turn, cause delays in meeting production and shipping goals and could divert
significant management resources.
To minimize potential disruptions, the Company intends to adopt a
contingency plan, if deemed necessary, to address any issues raised during the
completion of the assessment and testing phases of the Project. Because no
specific instance of material Year 2000 non-compliance has been discovered to
date, the Company has not adopted a contingency plan to deal with Year 2000
issues.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and Financial Statement Schedules as of
September 30, 1998 and 1997 and for each of the three years in the period ended
September 30, 1998 are included in Items 14(a)(1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors and
executive officers of the Company is incorporated herein by reference to the
information set forth under the caption "Directors and Executive Officers"
contained in the Company's Definitive Proxy Statement for its Annual Meeting of
Stockholders expected to be filed with the Securities and Exchange Commission on
or before January 28, 1999 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item with respect to executive compensation
is incorporated herein by reference to the information set forth under the
caption "Renumeration of Executive Officers and Directors" contained in the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item with respect to security ownership of
management and certain beneficial owners of the Company is incorporated herein
by reference to the information set forth under the caption "Security Ownership
of Certain Beneficial Owners and Management" contained in the Company's Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item with respect to certain relationships
and related transactions is incorporated herein by reference to the information
set forth under the caption "Security Ownership of Certain Beneficial Owners and
Management" contained in the Company's Proxy Statement.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
(1) Financial Statements
Reports of Independent Accountants
Consolidated Balance Sheets as of September 30, 1998 and 1997
Consolidated Statements of Operations for the years ended September 30, 1998,
1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended September
30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended September 30, 1998,
1997 and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
The following financial statement schedule is incorporated in this report on
page S-1:
Schedule II -- Valuation and Qualifying Accounts
Schedules not included herein are omitted because they are not applicable or
the required information appears in the consolidated financial statements or
notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated By-Laws of the Company (filed as Exhibit 3.4 to the Company's Registration
Statement on Form S-1, File No. 33-81836 and incorporated herein by reference).
3.2 Restated Articles of Organization (filed as Exhibit 3.5 to the Company's Registration Statement on Form
S-1, File No. 33-81836, and incorporated herein by reference).
3.6 Articles of Amendment to the Restated Articles of Organization (filed as Exhibit 3.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30, 1997 and incorporated herein by
reference).
3.7 Articles of Amendment to the Restated Articles of Organization of the Company (filed as Exhibit 3.7 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998 and incorporated herein
by reference).
4.1 Specimen certificate for the Common Stock of the Company (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-1, File No. 33-81836, and incorporated herein by reference).
10.1* 1984 Incentive Stock Option Plan of the Company (filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-1, File No. 33-81836, and incorporated herein by reference).
10.2* 1994 Incentive and Non-Qualified Stock Option Plan of the Company (filed as Exhibit 10.5 to the
Company's Registration Statement on Form S-1, File No. 33-81836, and incorporated herein by reference).
10.10 Lease Agreement dated as of May 5, 1994, by and between the Company and The Prudential Insurance Company
of America (filed as Exhibit 10.14 to the Company's Registration Statement on Form S-1, File No.
33-81836, and incorporated herein by reference).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.11 Master Lease Agreement dated as of June 18, 1992, by and between the Company and Banc Boston Leasing,
Inc. (filed as Exhibit 10.15 to the Company's Registration Statement on Form S-1, File No. 33-81836, and
incorporated herein by reference).
10.12* 1994 Employee Stock Purchase Plan of the Company (filed as Exhibit 10.16 to the Company's Registration
Statement on Form S-1, File No. 33-81836, and incorporated herein by reference).
10.18 Agreement and Plan of Reorganization, dated as of October 25, 1997, among PRI Automation, Inc.,
E-Acquisition Corp., Equipe Technologies, Inc. and certain Stockholders of Equipe Technologies, Inc.
(filed as Exhibit 10.19 to the Company's Current Report on Form 8-K on November 10, 1997, and
incorporated herein by reference).
10.20 Stock Purchase Agreement, dated as of October 25, 1997 among PRI Automation, Inc. and the Shareholders
of E-Machine, Inc. (filed as Exhibit 10.20 to the Company's Current Report on Form 8-K filed on November
10, 1997, and incorporated herein by reference).
10.21 Stock Purchase Agreement, dated as of October 25, 1997, among PRI Automation, Inc. and the Shareholders
of Equipe Japan, Ltd. (filed as Exhibit 10.21 to the Company's Current Report on Form 8-K filed on
November 10, 1997, and incorporated herein by reference).
10.22 PRI Automation, Inc. 1997 Non-Incentive Stock Option Plan of the Company, as amended (filed as Exhibit
10.22 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 28, 1997 and
incorporated herein by reference).
10.23 Lease agreement dated as of November 1, 1997 by and between the Company and M/A-COM, a Division of AMP
Incorporated (filed as Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 28, 1997 and incorporated herein by reference).
10.24 Lease agreement dated as of March 9, 1998 by and between the Company and Lincoln-Whitehall Realty,
L.L.C. (filed as Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 29, 1998 and incorporated herein by reference).
10.25 Sublease agreement dated as of March 18, 1998 by and between the Company and BAAN USA (filed as Exhibit
10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998 and
incorporated herein by reference).
10.26 Joint Venture Agreement by and between the Company and Chung Song Systems, Co., Ltd. and Shinsung
Engineering Co., Ltd. (filed as Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1998 and incorporated herein by reference).
10.27 Stock Purchase Agreement dated as of May 19, 1998 by and between the Company and the Shareholders of
Chiptronix Handling Systems GmbH and of Chiptronix GmbH (filed as Exhibit 10.27 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28, 1998 and incorporated herein by reference).
10.28 Revolving Credit Agreement dated as of June 16, 1998 by and between the Company and The Chase Manhattan
Bank (filed as Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
28, 1998 and incorporated herein by reference).
21.1 List of Subsidiaries of the Company**
23.1 Consent of PricewaterhouseCoopers LLP**
23.2 Consent of Ernst & Young LLP, Independent Auditors**
23.3 Report of Ernst & Young LLP, Independent Auditors, dated November 19, 1997**
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
27.1 Financial Data Schedule**
27.2 Financial Data Schedule**
27.3 Financial Data Schedule**
</TABLE>
- ------------------------
* management contracts and compensatory arrangements
** filed herewith
(B) REPORTS ON FORM 8-K
On July 16, 1998 the Company filed a Current Report on Form 8-K. The Company
attached as an exhibit to that report a press release announcing its
restructuring plan and its financial results for the fiscal quarter ended June
28, 1998.
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
PRI Automation, Inc.:
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of operations, of stockholders' equity and of cash flows and accompanying
financial statement schedule present fairly, in all material respects, the
financial position of PRI Automation, Inc. and its subsidiaries at September 30,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of the Equipe Combined Companies for the year ended
December 31, 1996, which statements reflect net revenues of $35,066,000. Those
statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for the Equipe Combined Companies for the year ended September
30, 1996 is based solely on the report of the other auditors. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and accompanying
financial statement schedule, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 13, 1998, except for the information
in the first paragraph of Note K and Note T which
is as of December 18, 1998 and
November 24, 1998, respectively
F-1
<PAGE>
PRI AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 48,208 $ 29,384
Marketable securities................................................. -- 2,642
Trade accounts receivable, less allowance for doubtful accounts of
$3,151 at 1998 and $1,600 at 1997................................... 24,887 71,549
Contracts in progress................................................. 9,017 15,463
Inventories........................................................... 27,494 34,117
Deferred income taxes................................................. 7,832 1,012
Other current assets.................................................. 6,892 2,658
--------- ---------
Total current assets................................................ 124,330 156,825
Property and equipment, net............................................. 17,122 12,794
Marketable securities................................................... -- 506
Deferred income taxes................................................... 559 475
Other assets, net....................................................... 2,566 1,879
--------- ---------
Total assets........................................................ $ 144,577 $ 172,479
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 11,955 $ 21,564
Accrued expenses and other liabilities................................ 13,205 11,811
Income taxes payable.................................................. -- 5,953
Line of credit........................................................ 11 1,769
Current portion of obligation under capital lease..................... 110 171
Billings in excess of revenues and customer advances.................. 9,214 3,462
--------- ---------
Total current liabilities........................................... 34,495 44,730
Obligation under capital lease.......................................... 75 204
--------- ---------
Total liabilities....................................................... 34,570 44,934
Commitments and contingencies (Notes G, K and S)
Stockholders' equity:
Preferred stock, 400,000 shares authorized; none outstanding.......... -- --
Common stock, $.01 par value; 50,000,000 shares authorized; 19,843,620
and 19,348,781 issued and outstanding at September 30, 1998 and
1997, respectively.................................................. 198 193
Additional paid-in capital............................................ 96,096 77,721
Retained earnings..................................................... 13,713 49,629
Unrealized gain on securities......................................... -- 2
--------- ---------
Total stockholders' equity.......................................... 110,007 127,545
--------- ---------
Total liabilities and stockholders' equity.......................... $ 144,577 $ 172,479
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net revenue................................................... $ 178,193 $ 213,159 $ 145,750
Cost of revenue............................................... 121,727 118,263 74,802
--------- --------- ---------
Gross profit.................................................. 56,466 94,896 70,948
Operating expenses:
Research and development.................................... 37,137 29,214 19,488
Selling, general and administrative......................... 33,698 31,332 20,723
Acquired in-process research and development................ 8,417 -- --
Merger costs and special charges............................ 10,091 -- --
--------- --------- ---------
Operating (loss) profit....................................... (32,877) 34,350 30,737
Other income, net............................................. 1,049 1,204 2,078
--------- --------- ---------
(Loss) income before income taxes............................. (31,828) 35,554 32,815
(Benefit from) provision for income taxes..................... (7,886) 8,982 6,800
--------- --------- ---------
Net (loss) income............................................. $ (23,942) $ 26,572 $ 26,015
--------- --------- ---------
--------- --------- ---------
Net (loss) income per common share:
Basic....................................................... $ (1.22) $ 1.39 $ 1.40
Diluted..................................................... $ (1.22) $ 1.32 $ 1.33
Weighted average number of shares outstanding:
Basic....................................................... 19,607 19,162 18,621
Diluted..................................................... 19,607 20,137 19,527
Unaudited pro forma net (loss) income per common share:
Historical net (loss) income:................................. $ (23,942) $ 26,572 $ 26,015
Adjustment to Equipe income tax expense to convert from
S-corporation to C-corporation status..................... (1,156) (3,639) (4,731)
--------- --------- ---------
Unaudited pro forma net (loss) income......................... $ (25,098) $ 22,933 $ 21,284
--------- --------- ---------
--------- --------- ---------
Unaudited pro forma net (loss) income per common share:
Basic....................................................... $ (1.28) $ 1.20 $ 1.14
Diluted..................................................... $ (1.28) $ 1.14 $ 1.09
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL GAINS TOTAL
---------------------- PAID-IN RETAINED ON STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SECURITIES EQUITY
--------- ----------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995......................... 17,830 $ 178 $ 70,086 $ 12,479 -- $ 82,743
Exercise of stock options........................... 380 4 584 588
Tax benefit on exercise of stock options............ 591 591
Cashless exercise of stock warrants................. 138 1 (1) --
Issuance of common stock in connection with the
Employee Stock Purchase Plan...................... 57 1 585 586
Conversion of Equipe convertible debt into common
stock............................................. 286 3 67 70
Issuance of common stock of E-Machine............... 4 11 11
Issuance of common stock in connection with the
incorporation of Equipe Japan..................... 240 2 453 455
Distributions to shareholders of Equipe............. (11,131) (11,131)
Net income.......................................... 26,015 26,015
--------- ----- ----------- ---------- --- ------------
Balance, September 30, 1996......................... 18,935 189 72,376 27,363 -- 99,928
Exercise of stock options........................... 365 4 2,328 2,332
Tax benefit on exercise of stock options............ 2,065 2,065
Stock-based compensation............................ 140 140
Issuance of common stock in connection with the
Employee Stock Purchase Plan...................... 49 812 812
Change in unrealized gain on securities............. 2 2
Distributions to shareholders of Equipe............. (8,011) (8,011)
Adjustment to conform fiscal year of Equipe......... 3,705 3,705
Net income.......................................... 26,572 26,572
--------- ----- ----------- ---------- --- ------------
Balance, September 30, 1997......................... 19,349 193 77,721 49,629 2 127,545
Exercise of stock options........................... 168 2 918 920
Tax benefit on exercise of stock options............ 439 439
Issuance of common stock in connection with the
Employee Stock Purchase Plan...................... 111 1 1,574 1,575
Change in unrealized gain on securities............. (2) (2)
Distributions to shareholders of Equipe............. (4,507) (4,507)
Adjustment of retained earnings for
S-corporation earnings of Equipe.................. 5,911 (5,911) --
Issuance of common stock in connection with the
acquisition of ILC................................ 111 1 5,915 5,916
Stock options assumed in connection with acquisition
of ILC............................................ 2,015 2,015
Issuance of common stock in connection with the
pooling of interests with Chiptronix.............. 105 1 12 13
Acquired accumulated deficit from Chiptronix........ (1,556) (1,556)
Tax benefit from Chiptronix acquisition............. 1,591 1,591
Net (loss).......................................... (23,942) (23,942)
--------- ----- ----------- ---------- --- ------------
Balance, September 30, 1998......................... 19,844 $ 198 $ 96,096 $ 13,713 -- $ 110,007
--------- ----- ----------- ---------- --- ------------
--------- ----- ----------- ---------- --- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.................................................................... $ (23,942) $ 26,572 $ 26,015
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization expense.............................................. 6,613 4,050 2,239
Provisions for write-downs of inventories.......................................... 12,389 5,024 592
Provision for bad debts............................................................ 1,551 900 110
Deferred income taxes.............................................................. (5,315) (2,674) 2,227
Tax benefit from disqualified dispositions......................................... 439 2,065 591
Net loss on disposal of assets..................................................... 1,917 -- --
Non-cash compensation.............................................................. -- 140 --
Amortization of premiums or discounts on marketable securities..................... 42 64 148
Translation losses, net............................................................ 225 -- --
Acquired in-process research and development....................................... 8,417 -- --
Changes in operating assets and liabilities:
Trade accounts receivable........................................................ 46,219 (38,882) (10,124)
Contracts in progress............................................................ 6,446 6,361 (14,442)
Inventories...................................................................... (5,739) (16,075) (9,659)
Other assets..................................................................... (6,152) (1,618) (719)
Accounts payable................................................................. (11,632) 4,267 8,675
Accrued expenses and other liabilities........................................... (5,341) 10,002 2,178
Billings in excess of revenues and customer advances............................. 5,753 1,957 328
--------- --------- ---------
Net cash provided by operating activities.............................................. 31,890 2,153 8,159
--------- --------- ---------
Cash flows from investing activities:
Proceeds from the sale of marketable securities...................................... 6,867 9,079 1,908
Proceeds from maturities of marketable securities.................................... 2,035 5,390 12,571
Purchases of marketable securities................................................... (5,798) (5,431) (12,828)
Capitalized software development costs............................................... -- -- (726)
Proceeds from sale of property and equipment......................................... 24 -- --
Purchases of property and equipment.................................................. (12,082) (6,628) (6,770)
Net effect on cash balances from Chiptronix acquisition.............................. 246 -- --
--------- --------- ---------
Net cash (used in) provided by investing activities.................................... (8,708) 2,410 (5,845)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings............................................................. -- 1,769 --
Repayments of borrowings............................................................. (1,913) (900) (365)
Repayment of capital lease obligations............................................... (190) (71) (73)
Proceeds from issuance of common stock, net of issuance costs........................ -- -- 466
Distributions to shareholders of Equipe.............................................. (4,507) (8,011) (12,869)
Proceeds from exercise of stock options and Employee Stock Purchase Plan............. 2,495 3,144 1,174
--------- --------- ---------
Net cash (used in) financing activities................................................ (4,115) (4,069) (11,667)
--------- --------- ---------
Adjustment to conform to fiscal year of Equipe......................................... -- 218 --
Effect of changes in exchange rates on cash............................................ (243) 3 --
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................................... 18,824 715 (9,353)
Cash and cash equivalents at beginning of period....................................... 29,384 28,669 38,022
--------- --------- ---------
Cash and cash equivalents at end of period............................................. $ 48,208 $ 29,384 $ 28,669
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-5
<PAGE>
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................................................... $ 78 $ 36 $ 79
Taxes.............................................................................. 8,508 5,272 4,026
Non-cash transactions:
Conversion of convertible debt to common stock..................................... -- -- 70
Property and equipment acquired under capital leases............................... -- 265 108
Acquisition of Interval Logic Corporation
Acquisition of Chiptronix Handling Systems GmbH
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. DESCRIPTION OF BUSINESS:
PRI Automation, Inc. (the "Company") designs, develops, manufactures and
markets factory automation systems, process tool wafer-handling systems and
related software used by semiconductor manufacturers to automate the fabrication
of integrated circuits in cleanroom manufacturing operations. The Company also
provides a broad range of automation services, including system integration,
factory simulation, project management, and on-site support. The Company is
subject to risks and uncertainties common to companies in the semiconductor
industry including, but not limited to, the highly cyclical nature of the
semiconductor industry leading to recurring periods of over-supply, rapid
technological change and the development by the Company or its competitors of
new technological innovations, dependence on key personnel, the protection of
proprietary technology, management of inventory and manufacturing capacity
fluctuations in operating results, doing business in Asian and European markets
and related currency risks, competitive pressure on selling prices, the timing
and cancellation of customer orders, the effects of the Year 2000 and the
Company's ability to absorb and manage acquisitions.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PRI
Automation, Inc., its wholly owned domestic subsidiaries and its wholly owned
and majority-owned foreign subsidiaries (collectively, the "Company"). All
significant intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to prior years' financial statements to conform
to the current presentation.
In January 1998, the Company acquired Equipe Technologies, Inc., E-Machine,
Inc., and Equipe Japan Ltd. (collectively, "Equipe" or the "Equipe Combined
Companies"). In May 1998, the Company acquired Chiptronix Handling Systems GmbH
("Chiptronix"). The acquisitions of Equipe and Chiptronix both were accounted
for using the pooling-of-interests method of accounting. All prior period
consolidated financial statements presented herein have been restated to include
the financial position, results of operations, and cash flows of Equipe. The
Company has not restated its financial statements for the acquisition of
Chiptronix because the effect of restatement is immaterial (see Note P).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and would
impact future results of operations and cash flows. Significant estimates are
inherent in determining revenue recognition and associated profits under the
percentage-of-completion method.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of commercial paper, Eurodollars, money market
mutual funds and other highly liquid investments with original maturities of
three months or less.
F-7
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
MARKETABLE SECURITIES
Current marketable securities include all investments with remaining
maturities of twelve months or less. Non-current marketable securities include
all investments with remaining maturities greater than twelve months. The
Company classifies all securities as available-for-sale. These securities are
reported at fair value as of the balance sheet date with net unrealized holding
gains and losses included in stockholders' equity. Gains and losses on sales of
securities are calculated using the specific identification method.
FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of financial or credit risk consist principally of cash and cash
equivalents, current and non-current marketable securities, trade accounts
receivable, accounts payable and debt. The Company generally invests its cash
and investments in investment-grade securities. The carrying value of financial
instruments approximates their related fair values.
The Company's customers are primarily concentrated in one industry, the
semiconductor manufacturing and related capital goods industry. Historically,
significant portions of the Company's sales have been to a limited number of
customers within this industry. The Company performs ongoing credit evaluations
of its customers' financial condition, and may require deposits on large orders
but does not require collateral or other security to support customer
receivables.
RETAINAGES
Accounts receivable include certain amounts which are not due until final
customer acceptance. Such retainages were approximately $10,042,000 and
$22,092,000 at September 30, 1998 and 1997, respectively. The retainages are
expected to be collected within the next twelve months.
CONTRACTS IN PROGRESS
Contracts in progress include costs and estimated profits under incomplete
contracts accounted for using the percentage-of-completion method, net of
amounts billed. These amounts are expected to be collected within the next
twelve months as units are delivered. Amounts billed at September 30, 1998 and
1997 were $24,757,000 and $27,006,000, respectively.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on
temporary differences between the financial statement and tax bases of assets
and liabilities using the expected tax rates in the year in which the
differences are expected to reverse. The Company records a valuation allowance
against net deferred tax assets if, based upon the available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized. Equipe Technologies, Inc. and one of the related companies, E-Machine,
Inc., elected to be treated as an S-corporation under the provisions of the
Internal Revenue Code, prior to their acquisition by the Company, and as such,
the shareholders of Equipe Technologies, Inc. and E-Machine, Inc. were liable
for individual federal and certain state income taxes on their allocated
portions of the respective company's taxable income. Accordingly, income tax
expense related to Equipe Technologies, Inc. and E-Machine, Inc. was not
recorded by the Company for all periods through January 22, 1998, the date of
consummation of the merger with the Company (see Note O) except that
F-8
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Equipe Technologies, Inc. and E-Machine, Inc. were subject to California
franchise tax based on 1.5% of taxable income.
INVENTORIES
Inventories, consisting of raw materials, work-in-process and finished
goods, are stated at the lower of cost (determined principally on a first-in,
first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Betterments and major renewals
are capitalized and included in property and equipment, while repairs and
maintenance are charged to expense as incurred. Depreciation and amortization of
plant and equipment are provided using the straight-line method over the
estimated useful lives of the assets. The amortization of assets recorded under
capital leases is included in depreciation and amortization expense. Upon
retirement or sale, the cost of the assets disposed and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
credited or charged to operations.
BILLINGS IN EXCESS OF REVENUES
Billings in excess of revenues include amounts billed on incomplete
contracts, accounted for using the percentage-of-completion method net of costs
and estimated profits recognized.
REVENUE RECOGNITION
For certain contracts eligible under American Institute of Certified Public
Accountants ("AICPA") Statement of Position No. 81-1, revenue is recognized
using the percentage-of-completion accounting method based upon an
efforts-expended method. In all cases, changes to total estimated costs and
anticipated losses, if any, are recognized in the period in which determined.
Revenue recognized under the percentage-of-completion accounting method was
approximately $54,999,000, $100,699,000 and $77,695,000 during fiscal years
1998, 1997 and 1996, respectively. Revenue from product sales not recognized
under the percentage-of-completion method is generally recorded upon shipment to
the customer, provided that no significant vendor obligations remain outstanding
and that collection of the related receivable is deemed probable by management.
Software license revenue is recognized upon delivery, unless collection is not
reasonably assured. If insignificant vendor obligations remain after shipment of
the product, the Company accrues for the estimated costs of such obligations.
Additionally, the Company accrues for warranty costs upon shipment. Service
revenue is recognized ratably over applicable contract periods or as the
services are performed.
COMMISSIONS
The Company pays commissions to agents and distributors under certain
agreements in return for obtaining orders; and, providing installation and
warranty services. Commissions that are due upon the Company receiving payment
in full from the customers are charged against the related revenues. These
amounts totaled approximately $98,000, $2,381,000 and $1,852,000 for fiscal
years 1998, 1997 and 1996, respectively.
F-9
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries which are denominated in
foreign currencies are remeasured into U.S. dollars at rates of exchange in
effect at the end of the fiscal year, except for nonmonetary assets and
liabilities, which are remeasured using historical exchange rates. Revenue and
expense amounts are remeasured using an average of exchange rates in effect
during the period, except those amounts related to nonmonetary assets and
liabilities, which are remeasured at historical exchange rates. Net realized and
unrealized gains and losses resulting from foreign currency remeasurement are
included in the consolidated statements of operations as other income or
expense.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company continues to apply the accounting provisions of Accounting
Principles Board ("APB") Opinion 25 and has elected the disclosure-only
alternative permitted under Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." The Company has disclosed
herein pro forma net (loss) income and pro forma net (loss) income per share in
the footnotes using the fair value based method.
NET INCOME PER COMMON SHARE
The Company has adopted SFAS No. 128, "Earnings Per Share," which specifies
the computation, presentation and disclosure requirements for net income (loss)
per common share. All net income (loss) per common share amounts for all periods
have been restated to conform with SFAS No. 128. Basic net income (loss) per
common share is based upon the weighted average number of common shares
outstanding during each period. Diluted net income (loss) per common share gives
effect to all dilutive potential common shares outstanding during the period.
Under SFAS No. 128, the computation of diluted net income (loss) per common
share does not assume the issuance of common shares that have an anti-dilutive
effect.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." This statement requires that changes
in comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. The statement is effective
for periods beginning after December 15, 1997 and the Company will adopt its
provisions in fiscal year 1999. Reclassification for earlier periods is required
for comparative purposes. The impact of adopting SFAS No. 130 has not yet been
determined.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
includes requirements to report selected segment information quarterly and also
requires entity-wide disclosures about products and services, major customers,
and the material countries in which the entity holds assets and reports
revenues. The statement is effective for annual periods beginning after December
15, 1997 and the Company will adopt its provisions in fiscal year 1999.
Reclassification for earlier periods is required, unless impracticable, for
comparative purposes. The impact of adopting SFAS No. 131 has not yet been
determined.
F-10
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued the Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," which will supersede SOP 91-1. SOP 97-2 has not changed the basic
rules of revenue recognition, but does provide more guidance, particularly with
respect to multiple deliverables and "when and if available" products. SOP 97-2
is effective for transactions entered into for annual periods beginning after
December 15, 1997. The Company does not expect the statement to have a material
impact on its financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Accounting for the Costs of
Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires all costs of start-up
activities (as defined by SOP 98-5) to be expensed as incurred. The Company does
not expect the statement to have a material impact on its financial condition
and results of operations.
C. CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consisted of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Cash on hand............................................................ $ 21 $ 4
Cash deposited with banks............................................... 5,085 2,200
Eurodollars............................................................. 32,088 19,805
Money market funds...................................................... 11,014 939
U.S. government notes................................................... -- 747
Municipal bonds......................................................... -- 1,955
Commercial paper........................................................ -- 3,734
--------- ---------
$ 48,208 $ 29,384
--------- ---------
--------- ---------
</TABLE>
D. MARKETABLE SECURITIES:
Investments in marketable securities consisted of the following at September
30, 1997:
<TABLE>
<CAPTION>
1997
----------------------
COST FAIR VALUE
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
CURRENT:
Municipal notes........................................................ $ 2,142 $ 2,143
U.S. government notes.................................................. 497 499
--------- -----------
$ 2,639 $ 2,642
--------- -----------
--------- -----------
NON-CURRENT:
Municipal notes........................................................ $ 507 $ 506
--------- -----------
--------- -----------
</TABLE>
Gross realized gains and losses for the year ended September 30, 1998 were
$6,000 and $1,000, respectively. Gross realized gains and losses for the year
ended September 30, 1997 were $9,000 and $7,000, respectively. Interest income
included in other income, net was $1,617,000, $1,240,000 and
F-11
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. MARKETABLE SECURITIES: (CONTINUED)
$2,163,000 for the years ended September 30, 1998, 1997 and 1996, respectively.
Gross unrealized gains and losses at September 30, 1997 were $3,000 and $1,000,
respectively.
E. INVENTORIES:
Inventories consisted of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Raw materials........................................................... $ 19,072 $ 27,178
Work-in-process......................................................... 5,242 6,312
Finished goods.......................................................... 3,180 627
--------- ---------
$ 27,494 $ 34,117
--------- ---------
--------- ---------
</TABLE>
F. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at September 30:
<TABLE>
<CAPTION>
DEPRECIABLE LIFE 1998 1997
--------------------------------------------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Machinery and equipment...................... 2-7 years $ 21,803 $ 15,031
Furniture and fixtures....................... 5-7 years 5,091 4,115
Leasehold improvements....................... Shorter of life of lease or useful life 4,190 2,030
--------- ---------
31,084 21,176
Accumulated depreciation and amortization.... (13,962) (8,382)
--------- ---------
$ 17,122 $ 12,794
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $5,859,000, $3,891,000 and $2,195,000 for the years
ended September 30, 1998, 1997 and 1996, respectively. Assets capitalized under
leases totaled $520,000 as of September 30, 1998 and 1997. Accumulated
depreciation of these assets was $208,000 and $105,000 as of September 30, 1998
and 1997, respectively.
G. LEASE COMMITMENTS:
The Company leases manufacturing and office facilities and equipment under
noncancelable operating and capital leases expiring through the year 2007 (see
Notes F and K). Rent expense under operating leases was $3,391,000, $1,652,000
and $1,068,000 for fiscal years 1998, 1997 and 1996, respectively.
F-12
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. LEASE COMMITMENTS: (CONTINUED)
At September 30, 1998, future minimum payments, net of sub-lease proceeds,
required under all noncancelable operating and capital leases were as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
(IN THOUSANDS)
1999..................................................................... $ 3,464 $ 122
2000..................................................................... 2,987 78
2001..................................................................... 2,093 --
2002..................................................................... 1,265 --
2003..................................................................... 660 --
2004 and thereafter...................................................... 81 --
----------- -----
Total minimum lease payments............................................. $ 10,550 200
-----------
-----------
Less: amount representing interest....................................... 15
-----
Present value of minimum lease payments.................................. $ 185
-----
-----
</TABLE>
H. ACCRUED EXPENSES:
The significant components of accrued expenses and other liabilities
consisted of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Accrued expenses........................................................ $ 5,334 $ 3,031
Accrued compensation.................................................... 2,833 6,555
Warranty reserves....................................................... 5,038 2,225
--------- ---------
$ 13,205 $ 11,811
--------- ---------
--------- ---------
</TABLE>
I. STOCKHOLDERS' EQUITY:
COMMON STOCK SPLIT
On April 22, 1997, the shareholders approved a two-for-one stock split
effected in the form of a 100% stock dividend on its common stock. This action
became effective on May 2, 1997 for shareholders of record as of April 22, 1997.
A total of 7,421,594 shares of common stock were issued in connection with the
split. The par value of common stock remained unchanged. All share and per share
amounts reflect the stock split on a retroactive basis.
STOCK OPTIONS
During 1984, the Board of Directors voted to adopt the 1984 Incentive Stock
Option Plan (the "1984 Option Plan") and subsequently reserved 1,050,000 shares
of its authorized common stock for issuance under this plan. On March 17, 1994,
the Board of Directors approved the 1994 Incentive and Nonqualified Stock Option
Plan (the "1994 Option Plan") and reserved 810,000 shares of common stock for
issuance under this plan. At the Company's annual stockholder meeting held on
January 26, 1996, the shareholders voted to increase the number of shares
authorized for issuance under the 1994 Option Plan to 1,810,000
F-13
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I. STOCKHOLDERS' EQUITY: (CONTINUED)
shares. In 1997 the Board of Directors voted to adopt the 1997 Non-Incentive
Stock Option Plan (the "1997 Option Plan") which authorizes the issuance of
non-qualified options to purchase up to an aggregate of 1,400,000 shares of
common stock. The Board of Directors has also granted non-qualified options to
directors of the Company. Incentive stock options generally vest over five years
and expire six years after issuance. Non-qualified stock options generally vest
between zero and five years and expire between five and ten years after
issuance.
On February 1, 1996, the Board of Directors determined that certain stock
options issued to employees of the Company had an exercise price significantly
higher than the fair market value of the Company's common stock. In light of the
Board of Directors' conclusions that such options were not providing the desired
incentive, the Board of Directors provided employees with the opportunity to
exchange options previously granted to them under the 1994 Option Plan for new
options to purchase a reduced number of shares at an exercise price of $13.63,
the then fair market value of the Company's common stock. The Company canceled
and replaced options to purchase 380,600 shares of common stock with an average
exercise price of $18.88 per share.
On July 1, 1998 the Compensation Committee of the Board of Directors, in an
effort to restore the long-term incentive feature of employee stock options that
were significantly out of the money, voted to provide employees with the
opportunity to exchange options dated April 1, 1997 and thereafter for new
options with an exercise price of $14.75, the then fair market value of the
Company's common stock. Options to purchase 1,637,300 shares of common stock
with an average exercise price of $27.98 were canceled and replaced with an
equal number of stock options effective July 17, 1998. The vesting period
started over again on repriced options.
Information with respect to option activity for the fiscal years 1996, 1997
and 1998 is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Outstanding at September 30, 1995............................. 1,378,111 $ 3.57
-----------
Granted..................................................... 857,227 16.17
Canceled.................................................... (442,152) 17.47
Exercised................................................... (379,932) 1.59
-----------
Outstanding at September 30, 1996............................. 1,413,254 7.40
-----------
Granted..................................................... 804,592 20.46
Canceled.................................................... (240,775) 11.62
Exercised................................................... (364,851) 6.59
-----------
Outstanding at September 30, 1997............................. 1,612,220 13.46
-----------
Granted..................................................... 3,687,445 20.18
Canceled.................................................... (1,886,945) 27.29
Exercised................................................... (167,747) 5.46
-----------
Outstanding at September 30, 1998............................. 3,244,973 $ 13.45
-----------
-----------
</TABLE>
F-14
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I. STOCKHOLDERS' EQUITY: (CONTINUED)
Summarized information about stock options outstanding at September 30, 1998
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ------------------------------- ----------- ----------------- ------------- ----------- -----------
<C> <C> <C> <S> <C> <C> <C> <C> <C>
$ 1.11 -- $ 11.38 ......... 814,897 3.54 $ 7.17 360,097 $ 3.58
13.00 -- 13.63 ......... 251,425 3.57 13.50 119,002 13.48
14.75 -- 14.75 ......... 1,599,100 5.84 14.75 22,400 14.75
15.13 -- 28.50 ......... 579,551 4.32 18.69 197,159 19.33
----------- -----------
$ 1.11 -- $ 28.50 ......... 3,244,973 4.81 $ 13.45 698,658 $ 10.07
</TABLE>
At September 30, 1997 and 1996 options exercisable were 452,923 and 467,503,
respectively.
On October 29, 1997, the Company granted Interval Logic Corporation common
stock options ("ILC options") in accordance with the Board of Directors'
adoption of the 1997 Interval Logic Corporation Incentive and Non-Qualified
Stock Option Plan. ILC is a subsidiary of the Company engaged in the development
of the Leverage advanced planning and scheduling software product for
semiconductor fabs. These options give ILC employees the option to purchase ILC
common shares at an exercise price of $0.10. The options vest over four years
and expire after ten years.
Information with respect to the ILC options activity for the fiscal year
1998 is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Granted...................................................... 2,195,250 $ 0.10
Canceled..................................................... (430,000) 0.10
Exercised.................................................... -- --
----------
Outstanding at September 30, 1998.............................. 1,765,250 $ 0.10
----------
----------
</TABLE>
The 1,765,250 ILC stock options outstanding at September 30, 1998 had an
exercise price of $0.10 and a weighted average remaining contractual life of
9.13 years. There were no options exercisable at September 30, 1998. The
estimated weighted average fair value of options granted in fiscal year 1998 was
$0.93.
EMPLOYEE STOCK PURCHASE PLAN
Since May 1994, the Company has offered an Employee Stock Purchase Plan
("ESPP") under which rights are granted to purchase shares of common stock at
85% of the lesser of the market value of such shares at either the beginning or
the end of each six month offering period. The plan permits employees to
purchase common stock through payroll deductions, which may not exceed 10% of an
employee's compensation as defined in the plan. The Company has reserved 450,000
shares of common stock for issuance to eligible employees. During fiscal years
1998, 1997 and 1996, 114,996, 49,044 and 56,958 shares, respectively, were
purchased at average prices ranging from $10.20 to $22.26 per share. Shares
available for future purchase under the ESPP totaled 180,756 at September 30,
1998.
F-15
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I. STOCKHOLDERS' EQUITY: (CONTINUED)
STOCK-BASED COMPENSATION PLANS
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock-based compensation plan and accordingly, no
compensation expense has been recognized for options granted to employees and
shares purchased under these plans. Had compensation expense for the stock-based
compensation plans been determined based on the fair value at the grant dates
for options granted and shares purchased under the plans consistent with the
method of SFAS No. 123, "Accounting for Stock-Based Compensation," the net
(loss) income and net (loss) income per diluted share would have been as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- -------------------------- --------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------------------
DILUTED NET
(LOSS) DILUTED NET DILUTED NET
PER COMMON NET INCOME PER NET INCOME PER
NET (LOSS) SHARE INCOME COMMON SHARE INCOME COMMON SHARE
----------- --------------- --------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
As Reported............ $ (23,942) $ (1.22) $ 26,572 $ 1.32 $ 26,015 $ 1.33
Pro Forma.............. (29,626) (1.51) 24,406 1.21 24,904 1.28
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
likely to be representative of the effects on reported net income for future
years, because SFAS 123 does not apply to awards granted prior to fiscal year
1996 and additional awards are anticipated in future years.
Estimated weighted average fair value of options granted in fiscal year
1998, 1997 and 1996, to purchase the Company's common stock, were $12.50, $11.92
and $9.29, respectively. The fair value of options at the date of grant was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Expected life (years)--stock options...................... 1-5 5 5
Expected life (years)--ESPP............................... 0.5 0.5 0.5
Risk-free interest rate................................... 5.42%--5.74% 5.51%--6.07% 4.88%--5.83%
Volatility................................................ 68% 65% 65%
Dividend yield............................................ 0 0 0
</TABLE>
The fair value of ILC options at the date of grant was estimated using the
Black-Scholes option pricing model with the following assumptions: expected life
(years) of one to four years, risk-free interest rate of 5.41% to 5.80%,
volatility of 85% and dividend yield of 0.
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option pricing models require the use of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimates, the existing models
do not, in management's opinion, necessarily provide a reliable single measure
of the fair value of its employee stock-based compensation.
F-16
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I. STOCKHOLDERS' EQUITY: (CONTINUED)
STOCK WARRANTS
A warrant to purchase 112,500 shares of common stock issued in fiscal year
1993 was exercised in full in January 1996 in a cashless exercise, resulting in
the net issuance to the holder of 68,936 shares of common stock.
J. INCOME TAXES:
The following summarizes the Company's (benefit from) provision for income
taxes:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current tax (benefit) provision:
Federal...................................................... $ (2,926) $ 10,811 $ 4,000
State........................................................ 17 845 573
Foreign...................................................... 267 -- --
--------- --------- ---------
Total current (benefit) provision.............................. (2,642) 11,656 4,573
Deferred (benefit) provision:
Federal...................................................... (3,349) (2,324) 1,958
State........................................................ (1,895) (350) 269
--------- --------- ---------
Total deferred (benefit) provision............................. (5,244) (2,674) 2,227
--------- --------- ---------
Total (benefit from) provision for income taxes................ $ (7,886) $ 8,982 $ 6,800
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax benefit recognized from the Chiptronix acquisition was recorded
directly to stockholders' equity and, therefore, the deferred tax benefit does
not reflect the change in the deferred tax assets in fiscal 1998.
The differences between the effective tax rates and the U.S. federal
statutory tax rates were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
U.S. federal income tax statutory rate......................... (34.0)% 35.0% 35.0%
State income taxes, net of federal benefit..................... (2.5) 3.0 2.7
Federal tax credits............................................ (0.4) (1.7) (0.6)
Release of deferred tax valuation allowance.................... 0.0 0.0 (3.0)
Foreign sales corporation tax benefit.......................... 0.0 (2.5) (0.1)
S-corporation income of Equipe................................. (1.4) (9.5) (13.3)
Acquisition costs not deductible for tax purposes.............. 13.7 0.0 0.0
Other.......................................................... (0.2) 1.0 0.0
--------- --- ---------
Effective tax rate............................................. (24.8)% 25.3% 20.7%
--------- --- ---------
--------- --- ---------
</TABLE>
F-17
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J. INCOME TAXES: (CONTINUED)
At September 30, the components of net deferred tax assets (liabilities)
were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Gross deferred tax assets:
Bad debts................................................................ $ 622 $ 325
Inventory................................................................ 5,599 3,078
Compensation............................................................. 270 321
Intangible assets........................................................ 2,477 1,079
Tax credits.............................................................. 578 230
Net operating losses..................................................... 430 --
Warranty................................................................. 1,559 537
Other.................................................................... 662 101
--------- ---------
Subtotal............................................................... 12,197 5,671
Gross deferred tax liabilities:
Long-term contracts...................................................... (1,753) (2,645)
Accounts receivable...................................................... (334) (1,036)
Depreciation............................................................. (1,719) (503)
--------- ---------
Subtotal............................................................... (3,806) (4,184)
--------- ---------
Net deferred tax assets (liabilities)................................ $ 8,391 $ 1,487
--------- ---------
--------- ---------
</TABLE>
At September 30, 1998, the Company had U.S. federal net operating losses of
approximately $8,300,000, which are expected to be utilized in full upon
carryback. The Company has recorded a tax receivable which is classified in
other current assets, for this carryback. The net operating losses are available
for carryforward and expire in the year 2013. The Company also has available
state net operating loss carryforwards of $10,600,000 that expire in the years
2003 to 2013 and state tax credit carryforwards of $875,000 that expire
beginning in 2012. The Company believes that it is more likely than not that its
total net deferred tax assets will be realized.
K. FINANCING ARRANGEMENTS:
REVOLVING CREDIT
On June 16, 1998, the Company entered into a revolving credit facility
agreement with Chase Manhattan Bank (the "Bank"). The revolving credit facility
enables the Company to borrow up to $20,000,000 on an unsecured basis.
Outstanding revolving credit loans bear interest, at the Company's option, at
the 30, 60 or 90 day LIBOR rate plus a credit spread or at the effective prime
rate. At September 30, 1998, the LIBOR borrowing rate would have been 6.3%. The
ability of the Company to effect borrowings under the revolving credit facility
is conditioned upon the meeting of certain financial criteria. The revolving
credit agreement expires on June 16, 2000. The Company had outstanding letters
of credit with the Bank of $428,000 at September 30, 1998, and therefore, the
available balance under this credit agreement was $19,572,000 at September 30,
1998. At September 30, 1998, the Company was not in compliance with certain of
the required covenants but has subsequently received a waiver from the Bank on
December 18, 1998 through September 30, 1998. The Company plans on pursuing
future waivers from the Bank as necessary beginning on the next measurement date
of December 27, 1998.
F-18
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. FINANCING ARRANGEMENTS: (CONTINUED)
The Company's working capital credit agreement, as amended March 1, 1996,
with Fleet Bank ("Fleet") expired on March 1, 1998 and was not renewed by the
Company. The Company had no outstanding borrowings under this credit agreement
as of March 1, 1998. The agreement enabled to the Company to obtain revolving
loans or grant letters of credit on an unsecured basis up to the lesser of 80%
of eligible accounts receivable or $10,000,000, with outstanding borrowings
under revolving loans bearing interest at Fleet's prime lending rate.
Equipe's line of credit agreement with Comerica Bank-California was canceled
by the Company effective September 9, 1998. The line of credit enabled the
Company to borrow up to the lesser of $3,000,000 or 75% of eligible accounts
receivable of Equipe, with outstanding balances under the line of credit bearing
interest at Comerica Bank-California's prime interest rate plus 1.0%.
CONVERTIBLE DEBT
During fiscal 1996, $70,000 of Equipe convertible debt outstanding, all of
which was held by shareholders and related parties of Equipe, was converted into
286,161 shares of common stock.
CAPITAL LEASE OBLIGATIONS
The Company holds certain property and equipment under capital leases. The
obligations under capital leases represent the present value of future minimum
lease payments and are secured by certain assets of E-Machine, Inc. The capital
lease obligations bear interest at rates of 8.7% to 9.9% per annum and expire at
various dates through August 2000 (see Note G).
L. DEFINED CONTRIBUTION PLAN:
Eligible employees can participate in the Company's 401(k) Savings and
Retirement Plan by making voluntary contributions to the plan in amounts up to
the statutory limit or 15% of their annual compensation. Currently, the Company
has elected to match a portion of the employee deferral up to certain prescribed
limits, and these contributions vest at a rate of 20% per year. The Company's
contribution expense under this plan amounted to $916,000, $696,000 and $418,000
for fiscal years 1998, 1997 and 1996, respectively. Employees of Equipe were not
eligible under this plan until after the acquisition (see Note O.)
M. SIGNIFICANT CUSTOMERS AND INTERNATIONAL NET REVENUE:
The Company's customers are concentrated in one industry segment, the
semiconductor manufacturing industry. Customers comprising 10% or more of the
Company's total net revenue for the years ended September 30 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Customer A............................................................... 22% 36% 29%
Customer B............................................................... 10%
</TABLE>
F-19
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. SIGNIFICANT CUSTOMERS AND INTERNATIONAL NET REVENUE: (CONTINUED)
Net export sales to unaffiliated customers were approximately $59,515,000,
$97,388,000 and $22,457,000 for the years ending September 30, 1998, 1997 and
1996, respectively. Net export sales by geographic location for the years ended
September 30 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Europe and Middle East....................................... $ 44,334 $ 67,985 $ 14,320
Asia......................................................... 15,181 29,403 8,137
</TABLE>
N. INTERVAL LOGIC CORPORATION ACQUISITION:
On October 29, 1997, the Company acquired Interval Logic Corporation
("ILC"), a California corporation, for aggregate consideration of 111,258 shares
of the Company's common stock. In addition, the Company issued or assumed
options to purchase an aggregate of 199,170 shares of the Company's common
stock. ILC was formed in 1995 to develop advanced, high-performance planning and
scheduling software solutions for the semiconductor industry. The value of the
transaction was $8,523,000, including approximately $600,000 of expenses related
to the acquisition. The transaction was accounted for as a purchase. Pro forma
information for the previous period has been omitted because the effect of
restatement would be immaterial.
At the time of the acquisition, the purchase price was allocated to the
tangible and intangible assets of ILC based on the fair market value of those
assets using a risk-adjusted discounted cash flow approach. Specifically, the
purchased technology was evaluated through extensive interviews and analysis of
data concerning the state of the technology and needed developments. This
evaluation of underlying technology acquired considered the inherent
difficulties and uncertainties in completing the development, and thereby
achieving technological feasibility, and the risks related to the viability of
and potential changes in future target markets. At the time of the acquisition,
the fair value of $8,417,000 of the acquired technology that had not reached
technological feasibility was expensed as in-process research and development.
The significant further investments in development required to meet expected
customer requirements include completion of the software requirement definition,
data integration and validation, completion of the graphics user interface,
development of alpha and beta versions for customer testing, and integration and
adaptation with customer systems. The underlying technology had no alternative
future use to the Company in other research and development projects or
otherwise.
O. EQUIPE ACQUISITION:
On January 22, 1998, the Company acquired Equipe Technologies, Inc.,
E-Machine, Inc. and Equipe Japan Ltd., (collectively, "Equipe" or the "Equipe
Combined Companies"). Equipe is a leading worldwide developer, manufacturer, and
supplier of wafer and substrate handling robots, pre-aligners and controllers to
semiconductor process tool manufacturers. The Company issued 4,088,016 shares of
common stock in exchange for all of the outstanding stock of Equipe
Technologies, Inc. using an exchange ratio of 0.760372 of one share of the
Company's common stock for each share of Equipe Technologies, Inc. The Company
issued 36,000 and 240,000 shares of the Company's common stock to E-Machine,
Inc. and Equipe Japan Ltd., respectively. In addition, all outstanding Equipe
stock options were converted, at the common stock exchange ratio, into options
to purchase the Company's common stock. The business combination was accounted
for as a pooling of interests. The consolidated financial statements of the
Company for periods prior to the acquisition have been restated to include the
financial position, results of operations
F-20
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
O. EQUIPE ACQUISITION: (CONTINUED)
and cash flows of Equipe. Significant intercompany transactions among the Equipe
Combined Companies prior to the period in which the business combination
occurred have been eliminated from the accompanying financial statements.
In connection with the acquisition of Equipe, direct acquisition costs of
$4,490,000, primarily relating to legal, investment banking, and accounting
fees, have been recorded in merger costs in the results of operations during
fiscal 1998. The balance of merger costs included in accrued expenses at
September 30, 1998 was $220,000.
Prior to the acquisition, Equipe prepared its financial statements based on
a December 31 fiscal year-end. Accordingly, Equipe's results of operations,
statements of stockholders' equity and cash flows for the year ended December
31, 1996 have been combined with the Company's results of operations, statements
of stockholders' equity and cash flows for the year ended September 30, 1996.
The results of operations, statements of stockholders' equity and cash flows for
fiscal 1997 are for the twelve months ended September 30, 1997 for both the
Company and Equipe. Equipe's unaudited results of operations for the three
months ended December 31, 1996 (including revenues, net income and distributions
to shareholders of $6,906,000, $1,582,000 and $5,287,000, respectively) are
included in the Company's consolidated statements of operations, statements of
stockholders' equity and cash flows for both the years ended September 30, 1997
and 1996. Therefore, an amount equal to Equipe's net income and distributions to
shareholders for the three months ended December 31, 1996 was eliminated from
the consolidated statement of stockholders' equity for the year ended September
30, 1997. Equipe's unaudited decrease in cash and cash equivalents for the three
months ended December 31, 1996 of $218,000 is included in the consolidated
statement of cash flows for both the years ended September 30, 1997 and 1996.
Therefore, this amount was eliminated from the consolidated statement of cash
flows for the year ended September 30, 1997.
The following information presents certain statement of operations data of
the Company and Equipe for the periods prior to the acquisition:
<TABLE>
<CAPTION>
COMBINED
PRI AUTOMATION EQUIPE COMPANIES
--------------- ---------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Net revenue for:
Three months ended December 28, 1997.............. $ 46,830 $ 18,303 $ 65,133
Fiscal 1997....................................... 169,465 43,694 213,159
Fiscal 1996....................................... 110,684 35,066 145,750
Net (loss) income for:
Three months ended December 28, 1997.............. $ (3,449) $ 3,042 $ (407)
Fiscal 1997....................................... 17,076 9,496 26,572
Fiscal 1996....................................... 13,731 12,284 26,015
</TABLE>
Equipe Technologies, Inc. and E-Machine, Inc., were S-corporations for
income tax purposes prior to the acquisition. Pro forma net (loss) income and
net (loss) income per common share, which gives effect to adjustments that
provide for income taxes as if Equipe Technologies, Inc. and E-Machine, Inc.
were treated as C-corporations for the periods presented, have been presented on
the consolidated statements of operations. The pro forma information is shown
for comparative purposes only.
F-21
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
P. CHIPTRONIX ACQUISITION:
On May 19, 1998, the Company acquired Chiptronix Handling Systems GmbH
("Chiptronix"), a Switzerland corporation, for aggregate consideration of
105,000 shares of the Company's common stock. Chiptronix is the European
distributor of Equipe products. The business combination was accounted for as a
pooling of interests. However, as the financial position and results of
operations of Chiptronix are immaterial to the financial position and results of
operations of the Company on a consolidated basis, no prior period financial
amounts have been restated. In accordance with this business combination, the
Company has acquired the net assets of Chiptronix, including its retained
deficit of $1,556,000 as of March 29, 1998 and this amount is included in the
changes to stockholders' equity for the year ended September 30, 1998. The
results of operations of Chiptronix for the six months ended September 30, 1998
have been included in the accompanying consolidated financial statements of the
Company.
Q. SPECIAL CHARGES:
During the quarter and year ended September 30, 1998, the Company recorded
special charges of $10,725,000 and $19,588,000, respectively. The major
component of the special charges is for the write-down of inventories to their
net realizable values and provisions for warranty costs, which are included in
cost of revenue for the quarter and year ended September 30, 1998, totaling in
aggregate $9,087,000 and $13,987,000, in such respective periods.
For the year ended September 30, 1998, the Company recorded other special
charges against results of operations of $5,601,000. The Company restructured
its operations by consolidating its business unit structure into a more
centralized functional organization as a result of market conditions and the
Equipe acquisition. The major components of the other special charges include:
provisions for severance compensation of $1,910,000 resulting from terminations
of 244 personnel in manufacturing, engineering, and selling, general and
administrative functions, completed in 1998; costs of $2,943,000 relating to
reductions in leased facilities; and a non-cash write-down of specialized
demonstration equipment for a particular customer of $528,000 associated with
the closure of the customer training site that is not usable elsewhere. For the
quarter ended September 30, 1998, charges of $210,000 for severance costs,
$900,000 for lease abandonment costs incurred and $528,000 for the write-down of
specialized demonstration equipment for a particular customer associated with
the closure of a customer training site that is not usable elsewhere were
charged against results of operations. The other special charges are classified
in Merger Costs and Special Charges for the year ended September 30, 1998.
At September 30, 1998, $634,000 of restructuring charges remained in accrued
expenses associated with the severance and lease reductions totaling $4,853,000.
The employee severance and lease reduction costs are considered restructuring
charges. The Company expects the remaining accrued restructuring costs of
$634,000 at September 30, 1998 to be paid by the end of fiscal 1999.
F-22
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
R. NET (LOSS) INCOME PER SHARE:
A reconciliation between basic and diluted net (loss) income per share is as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Net (loss) income:.............................................................. $ (23,942) $ 26,572 $ 26,015
Shares used in computation:
Weighted average common shares outstanding used in computation of basic net
(loss) income per common share.............................................. 19,607 19,162 18,621
Dilutive effect of stock options and warrants................................. -- 975 906
---------- --------- ---------
Shares used in computation of diluted net (loss) income per common share...... 19,607 20,137 19,527
---------- --------- ---------
---------- --------- ---------
Basic net (loss) income per common share...................................... $ (1.22) $ 1.39 $ 1.40
Diluted net (loss) income per common share.................................... $ (1.22) $ 1.32 $ 1.33
</TABLE>
Options to purchase 679,049 shares of common stock were outstanding for
fiscal year 1998, but were not included in the computation of diluted net loss
per common share because the Company is in a loss position and the inclusion of
such shares would be anti-dilutive. Options to purchase 1,018,604, 55,281, and
128,377 shares of common stock were outstanding for fiscal years 1998, 1997, and
1996, respectively, but were not included in the computation of diluted net
income per common share because the options' exercise prices were greater than
the average market price of the common shares and therefore would be
anti-dilutive under the treasury stock method.
S. JOINT VENTURE:
Effective June 1, 1998, the Company entered into a Korean joint venture with
Chung Song Systems Co., Ltd. ("CSSC") and Shinsung Engineering Co. Ltd. ("SEC")
to distribute the Company's products and services in Korea. CSSC and SEC are in
the business of development and marketing of products and services for the
semiconductor industry. Under the terms of the agreement, the Company owns 80%
of the joint venture and CSSC and SEC each own 10% of the joint venture. The
Company and its partners have committed to invest 2.6 billion Korean won, or
approximately $1.9 million, based on a September 30, 1998 exchange rate of
1387.50 Korean won per U.S. dollar, of capital in the joint venture over a
two-year period beginning June 1, 1998. As of September 30, 1998, the Company
has outstanding commitments under this agreement of 1.5 billion Korean won, or
approximately $1.1 million.
T. SUBSEQUENT EVENT:
On November 24, 1998, the Company agreed to acquire Promis Systems
Corporation Ltd., ("Promis"), a Toronto-based Canadian corporation traded on The
Toronto Stock Exchange. Promis is a leading developer of manufacturing execution
systems (MES) software for semiconductor and precision electronics
manufacturers. Under the terms of the agreement, the Company will issue
approximately 1.7 million shares of common stock in exchange for all of the
outstanding shares of Promis. The acquisition is intended to be accounted for as
a pooling of interests and is expected to be completed during the first calendar
quarter of 1999, subject to, among other things, regulatory approvals and the
approval of the shareholders of Promis.
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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.
PRI AUTOMATION, INC.
Date: December 22, 1998 /s/ MITCHELL G. TYSON
------------------------------------------
Mitchell G. Tyson
President and Chief Executive Officer
Date: December 22, 1998 /s/ STEPHEN D. ALLISON
------------------------------------------
Stephen D. Allison
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President, Chief Executive
/s/ MITCHELL G. TYSON Officer and Director
- ------------------------------ (principal executive December 22, 1998
Mitchell G. Tyson officer)
/s/ MORDECHAI WIESLER Treasurer and Director
- ------------------------------ December 22, 1998
Mordechai Wiesler
/s/ STEPHEN D. ALLISON Chief Financial Officer
- ------------------------------ (principal financial and December 22, 1998
Stephen D. Allison accounting officer)
/s/ ALEXANDER V. D'ARBELOFF Director
- ------------------------------ December 22, 1998
Alexander V. d'Arbeloff
/s/ BORUCH FRUSZTAJER Director
- ------------------------------ December 22, 1998
Boruch Frusztajer
/s/ AMRAM RASIEL Director
- ------------------------------ December 22, 1998
Amram Rasiel
/s/ PAUL F. ROGAN Director
- ------------------------------ December 22, 1998
Paul F. Rogan
<PAGE>
SCHEDULE II
PRI AUTOMATION, INC.
FOR YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING CHARGED TO AMOUNTS AT END
OF PERIOD EXPENSE WRITTEN OFF OF PERIOD
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
September 30, 1998................................................ $ 1,600 $ 1,551 -- $ 3,151
September 30, 1997................................................ 700 900 -- 1,600
September 30, 1996................................................ 590 110 -- 700
Inventory reserves:
September 30, 1998................................................ 5,125 12,389 2,367 15,147
September 30, 1997................................................ 1,126 5,024 1,025 5,125
September 30, 1996................................................ 790 592 256 1,126
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<C> <S>
DESCRIPTION
--------------------------------------------------------------------------------------------------------
3.1 Amended and Restated By-Laws of the Company (filed as Exhibit 3.4 to the Company's Registration
Statement on Form S-1, File No. 33-81836 and incorporated herein by reference).
3.2 Restated Articles of Organization (filed as Exhibit 3.5 to the Company's Registration Statement on Form
S-1, File No. 33-81836, and incorporated herein by reference).
3.6 Articles of Amendment to the Restated Articles of Organization (filed as Exhibit 3.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30, 1997 and incorporated herein by
reference).
3.7 Articles of Amendment to the Restated Articles of Organization of the Company (filed as Exhibit 3.7 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998 and incorporated herein
by reference).
4.1 Specimen certificate for the Common Stock of the Company (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-1, File No. 33-81836, and incorporated herein by reference).
10.1* 1984 Incentive Stock Option Plan of the Company (filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-1, File No. 33-81836, and incorporated herein by reference).
10.2* 1994 Incentive and Non-Qualified Stock Option Plan of the Company (filed as Exhibit 10.5 to the
Company's Registration Statement on Form S-1, File No. 33-81836, and incorporated herein by reference).
10.10 Lease Agreement dated as of May 5, 1994, by and between the Company and The Prudential Insurance Company
of America (filed as Exhibit 10.14 to the Company's Registration Statement on Form S-1, File No.
33-81836, and incorporated herein by reference).
10.11 Master Lease Agreement dated as of June 18, 1992, by and between the Company and Banc Boston Leasing,
Inc. (filed as Exhibit 10.15 to the Company's Registration Statement on Form S-1, File No. 33-81836, and
incorporated herein by reference).
10.12* 1994 Employee Stock Purchase Plan of the Company (filed as Exhibit 10.16 to the Company's Registration
Statement on Form S-1, File No. 33-81836, and incorporated herein by reference).
10.18 Agreement and Plan of Reorganization, dated as of October 25, 1997, among PRI Automation, Inc.,
E-Acquisition Corp., Equipe Technologies, Inc. and certain Stockholders of Equipe Technologies, Inc.
(filed as Exhibit 10.19 to the Company's Current Report on Form 8-K on November 10, 1997, and
incorporated herein by reference).
10.20 Stock Purchase Agreement, dated as of October 25, 1997 among PRI Automation, Inc. and the Shareholders
of E-Machine, Inc. (filed as Exhibit 10.20 to the Company's Current Report on Form 8-K filed on November
10, 1997, and incorporated herein by reference).
10.21 Stock Purchase Agreement, dated as of October 25, 1997, among PRI Automation, Inc. and the Shareholders
of Equipe Japan Ltd. (filed as Exhibit 10.21 to the Company's Current Report on Form 8-K filed on
November 10, 1997, and incorporated herein by reference).
10.22 PRI Automation, Inc. 1997 Non-Incentive Stock Option Plan of the Company, as amended (filed as Exhibit
10.22 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 28, 1997 and
incorporated herein by reference).
10.23 Lease agreement dated as of November 1, 1997 by and between the Company and M/A-COM, a Division of AMP
Incorporated (filed as Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 28, 1997 and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
DESCRIPTION
--------------------------------------------------------------------------------------------------------
<C> <S>
10.24 Lease agreement dated as of March 9, 1998 by and between the Company and Lincoln-Whitehall Realty,
L.L.C. (filed as Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 29, 1998 and incorporated herein by reference).
10.25 Sublease agreement dated as of March 18, 1998 by and between the Company and BAAN USA (filed as Exhibit
10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998 and
incorporated herein by reference).
10.26 Joint Venture Agreement by and between the Company and Chung Song Systems, Co., Ltd. and Shinsung
Engineering Co., Ltd. (filed as Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1998 and incorporated herein by reference).
10.27 Stock Purchase Agreement dated as of May 19, 1998 by and between the Company and the Shareholders of
Chiptronix Handling Systems GmbH and of Chiptronix GmbH (filed as Exhibit 10.27 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28, 1998 and incorporated herein by reference).
10.28 Revolving Credit Agreement dated as of June 16, 1998 by and between the Company and The Chase Manhattan
Bank (filed as Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
28, 1998 and incorporated herein by reference).
21.1 List of Subsidiaries of the Company**
23.1 Consent of PricewaterhouseCoopers LLP**
23.2 Consent of Ernst & Young LLP, Independent Auditors**
23.3 Report of Ernst & Young LLP, Independent Auditors, dated November 19, 1997**
27.1 Financial Data Schedule**
27.2 Financial Data Schedule**
27.3 Financial Data Schedule**
</TABLE>
- ------------------------
* management contracts and compensatory arrangements
** filed herewith
<PAGE>
Exhibit 21.1 - Subsidiaries of Registrant
<TABLE>
<CAPTION>
Jurisdiction
Company of Organization Ownership
------- --------------- ---------
<S> <C> <C>
PRI Automation Taiwan, Ltd. Taiwan 100%
PRI Automation, SARL France 100%
PRI Automation Ireland, Inc. Ireland 100%
PRI Automation Korea, Inc. Korea 100%
PRI Automation, Ltd. United Kingdom 100%
PRI Automation Israel, Inc. Israel 100%
PRI Automation GmbH Germany 100%
PRI Automation Pte, Ltd. Singapore 100%
Precision Robots FSC, Inc. U.S. Virgin Islands 100%
PRI Security Corporation Massachusetts 100%
Interval Logic Corporation Massachusetts 99.99%*
Equipe Technologies, Inc. California 100%
Equipe Japan, Ltd. Japan 100%
E-Machine, Inc. California 100%
Chiptronix Handling Systems, GmbH Switzerland 100%
PRI Switzerland, Inc. Massachusetts 100%
PRI Holdings, Inc. Massachusetts 100%
PRI International Holdings, Inc. Massachusetts 100%
PRI Korea, Ltd. Korea 80%
</TABLE>
* One share of Interval Logic Corporation is owned by an individual.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of PRI Automation, Inc. on Form S-8 (File Numbers 33-90702,
33-90726, 33-90732, 333-3408, 333-25217, 333-41067, and 333-45063) and Form
S-3 (File Number 333-64519, dated September 29, 1998), of our report dated
November 13, 1998 except for the information in the first paragraph of Note K
and Note T which is as of December 18, 1998 and November 24, 1998,
respectively, on our audits of the consolidated financial statements of PRI
Automation, Inc. as of September 30, 1998 and 1997, and for each of the three
years in the period ended September 30, 1998, which report is included in the
Company's 1998 Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 18, 1998
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated November 19, 1997, with
respect to the combined financial statements of the Equipe Combined Companies
incorporated by reference in the Annual Report (Form10-K) of PRI Automation,
Inc. filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Jose, California
December 16, 1998
<PAGE>
Exhibit 23.3
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Equipe Combined Companies
We have audited the combined balance sheets of the Equipe Combined Companies
as of December 31, 1996 and the related combined statements of income,
shareholders' equity and cash flows of the Equipe Combined Companies for the
year then ended not presently separately herein. These financial statements are
the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 1996 financial statements referred to above present
fairly, in all material respects, the combined financial position of the Equipe
Combined Companies at December 31, 1996 and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
San Jose, California
November 19, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 48,208
<SECURITIES> 0
<RECEIVABLES> 28,038
<ALLOWANCES> 3,151
<INVENTORY> 27,494
<CURRENT-ASSETS> 124,330
<PP&E> 31,084
<DEPRECIATION> 13,962
<TOTAL-ASSETS> 144,577
<CURRENT-LIABILITIES> 34,495
<BONDS> 0
0
0
<COMMON> 198
<OTHER-SE> 109,809
<TOTAL-LIABILITY-AND-EQUITY> 144,577
<SALES> 178,193
<TOTAL-REVENUES> 178,193
<CGS> 121,727
<TOTAL-COSTS> 121,727
<OTHER-EXPENSES> 89,343<F1>
<LOSS-PROVISION> 1,551
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> (31,828)
<INCOME-TAX> (7,886)
<INCOME-CONTINUING> (23,942)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,942)
<EPS-PRIMARY> (1.22)
<EPS-DILUTED> (1.22)
<FN>
<F1>INCLUDES $8,417 ACQUIRED IN-PROCESS R&D AND $10,091 OF MERGER COSTS AND
SPECIAL CHARGES.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 29,384
<SECURITIES> 3,148
<RECEIVABLES> 73,149
<ALLOWANCES> 1,600
<INVENTORY> 34,117
<CURRENT-ASSETS> 156,825
<PP&E> 21,176
<DEPRECIATION> 8,382
<TOTAL-ASSETS> 172,479
<CURRENT-LIABILITIES> 44,934
<BONDS> 0
0
0
<COMMON> 193
<OTHER-SE> 127,352
<TOTAL-LIABILITY-AND-EQUITY> 172,479
<SALES> 213,159
<TOTAL-REVENUES> 213,159
<CGS> 118,263
<TOTAL-COSTS> 118,263
<OTHER-EXPENSES> 60,546
<LOSS-PROVISION> 900
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> 35,554
<INCOME-TAX> 8,982
<INCOME-CONTINUING> 26,572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,572
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.32
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 28,669
<SECURITIES> 12,248
<RECEIVABLES> 32,881
<ALLOWANCES> 700
<INVENTORY> 23,055
<CURRENT-ASSETS> 114,610
<PP&E> 14,383
<DEPRECIATION> 4,390
<TOTAL-ASSETS> 131,543
<CURRENT-LIABILITIES> 31,537
<BONDS> 0
0
0
<COMMON> 189
<OTHER-SE> 99,739
<TOTAL-LIABILITY-AND-EQUITY> 131,543
<SALES> 145,750
<TOTAL-REVENUES> 145,750
<CGS> 74,802
<TOTAL-COSTS> 74,802
<OTHER-EXPENSES> 40,211
<LOSS-PROVISION> 110
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 32,815
<INCOME-TAX> 6,800
<INCOME-CONTINUING> 26,015
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,015
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.33
</TABLE>
