<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from Commission File Number
______ to ______ 0-24934
PRI AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2495703
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
805 MIDDLESEX TURNPIKE 01821-3986
BILLERICA, MA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number: (978) 670-4270
-----------------
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 .
The number of shares outstanding of each of the issuer's classes of common
stock as of July 14, 2000:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, $.01 par value 24,851,635
<PAGE>
PRI AUTOMATION, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
July 2, 2000 and September 30, 1999 3
Consolidated Statements of Operations for
the Three and Nine Months Ended July 2, 2000
and June 27, 1999 4
Consolidated Statements of Cash Flows for
the Nine Months Ended July 2, 2000 and
June 27, 1999 5
Notes to Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURE 19
Exhibit Index 20
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRI AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
JULY 2, SEPTEMBER 30,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 112,930 $ 51,865
Trade accounts receivable, less allowance for doubtful accounts
of $2,281 and $2,646, respectively ........................... 62,881 31,436
Contracts in progress .......................................... 27,210 6,018
Inventories .................................................... 61,022 28,351
Other current assets ........................................... 3,392 7,063
--------- ---------
Total current assets ......................................... 267,435 124,733
Property and equipment, net .................................... 23,575 19,128
Other assets ................................................... 1,882 2,691
--------- ---------
Total assets ................................................. $ 292,892 $ 146,552
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 32,462 $ 16,900
Accrued expenses and other liabilities ......................... 21,881 16,396
Current portion of obligations under capital lease ............. 392 570
Billings in excess of revenues and customer advances ........... 13,008 11,931
--------- ---------
Total current liabilities .................................. 67,743 45,797
Obligations under capital lease ................................... 124 411
Other non-current liabilities ..................................... 701 788
Commitments and contingencies (Notes J and K)
Minority interest ................................................. 144 56
Stockholders' equity:
Preferred stock, $0.01 par value; 400,000 shares authorized; one
outstanding .................................................. 0 0
Common stock, $.01 par value; 75,000,000 and 50,000,000
shares authorized, respectively; 24,845,553 and 22,265,676
issued and outstanding, respectively ......................... 248 223
Additional paid-in capital ..................................... 250,193 141,469
Accumulated deficit ............................................ (26,261) (42,192)
--------- ---------
Total stockholders' equity ................................. 224,180 99,500
--------- ---------
Total liabilities and stockholders' equity ................. $ 292,892 $ 146,552
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
JULY 2, JUNE 27, JULY 2, JUNE 27,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue:
Product and equipment ............. $ 78,360 $ 24,163 $194,064 $ 59,905
Services and maintenance .......... 10,513 10,331 30,171 34,515
-------- -------- -------- --------
Total net revenue ............... 88,873 34,494 224,235 94,420
Cost of revenue:
Product and equipment ............. 44,884 12,880 115,818 36,371
Services and maintenance .......... 7,545 6,995 20,545 22,422
-------- -------- -------- --------
Total cost of revenue ........... 52,429 19,875 136,363 58,793
-------- -------- -------- --------
Gross profit ......................... 36,444 14,619 87,872 35,627
Operating expenses:
Research and development .......... 14,061 11,507 38,956 32,796
Selling, general and administrative 13,152 9,809 33,767 28,532
Merger costs and special charges .. -- -- -- 6,450
-------- -------- -------- --------
Operating profit (loss) .............. 9,231 (6,697) 15,149 (32,151)
Other income, net .................... 1,017 877 1,509 2,158
-------- -------- -------- --------
Income (loss) before income taxes .... 10,248 (5,820) 16,658 (29,993)
Provision for income taxes ........... 417 7,301 727 985
-------- -------- -------- --------
Net income (loss) .................... $ 9,831 $(13,121) $ 15,931 $(30,978)
======== ======== ======== ========
Net income (loss) per common share:
Basic ............................. $ 0.41 ($ 0.60) $ 0.69 ($ 1.44)
Diluted ........................... $ 0.38 ($ 0.60) $ 0.63 ($ 1.44)
Weighted average shares outstanding:
Basic ............................. 24,158 21,736 23,235 21,491
Diluted ........................... 26,079 21,736 25,305 21,491
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
JULY 2, JUNE 27,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $ 15,931 $ (30,978)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization expense .................. 7,081 6,430
Provision for write-downs of inventories ............... 950 400
Provision for bad debts ................................ 83 407
Net loss on disposal of assets ......................... 27 54
Deferred income taxes .................................. -- 8,391
Translation losses (gains), net ........................ 453 (758)
Minority interest in income (losses) of subsidiary ..... 88 (29)
Changes in operating assets and liabilities:
Trade accounts receivable ............................ (31,431) 6,356
Contracts in progress ................................ (21,192) 4,273
Inventories .......................................... (33,622) 4,815
Other assets ......................................... 3,555 74
Accounts payable ..................................... 15,796 (735)
Accrued expenses and other liabilities ............... 5,870 2,074
Billings in excess of revenue and customer advances .. 1,081 (382)
--------- ---------
Net cash (used in) provided by operating activities ......... (35,330) 392
--------- ---------
Cash flows from investing activities:
Purchases of intangible assets ........................... -- (275)
Proceeds from sale of property and equipment ............. -- 9
Purchases of property and equipment ...................... (10,710) (4,036)
Cash paid for contingent consideration ................... (88) (216)
--------- ---------
Net cash used in investing activities ....................... (10,798) (4,518)
--------- ---------
Cash flows from financing activities:
Proceeds under line of credit ............................ -- 18
Repayment of capital lease obligations ................... (465) (334)
Investment from minority interest shareholders ........... -- 199
Proceeds from common stock offering, net ................. 90,002 --
Proceeds from exercise of stock options and Employee Stock
Purchase Plan .......................................... 18,419 7,197
--------- ---------
Net cash provided by financing activities ................... 107,956 7,080
--------- ---------
Effect of exchange rate changes on cash ..................... (763) 7
--------- ---------
Net increase in cash and cash equivalents ................... 61,065 2,961
Cash and cash equivalents at beginning of period ............ 51,865 57,047
--------- ---------
Cash and cash equivalents at end of period .................. $ 112,930 $ 60,008
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed 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.
In March 1999, the Company acquired Promis Systems Corporation Ltd.
("Promis"). The acquisition of Promis was accounted for using the pooling of
interests method of accounting. All prior period historical consolidated
financial statements presented herein have been restated to include the
financial position, results of operations, and cash flows of Promis.
PREPARATION OF FINANCIAL STATEMENTS
The interim financial data as of July 2, 2000 and for the three and nine
months ended July 2, 2000 and June 27, 1999 is unaudited; however, in the
opinion of the Company, the interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results for the interim periods. The results for interim periods are not
necessarily indicative of the results for the entire year. The condensed
consolidated financial statements should be read in connection with the audited
consolidated financial statements of PRI Automation, Inc. for the year ended
September 30, 1999 included in its Annual Report on Form 10-K, filed with the
Securities and Exchange Commission.
For interim reporting purposes, the Company closes its first three fiscal
quarters on the Sunday nearest the last day of December, March and June in each
year. The Company's fiscal year ends on the last day of September.
B. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 2, SEPTEMBER 30,
2000 1999
------- -------
<S> <C> <C>
Raw materials ................ $39,266 $16,492
Work-in-process .............. 16,686 5,804
Finished goods ............... 5,070 6,055
------- -------
$61,022 $28,351
======= =======
</TABLE>
6
<PAGE>
C. ACCRUED EXPENSES AND OTHER LIABILITIES
The significant components of accrued expenses and other liabilities
consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 2, SEPTEMBER 30,
2000 1999
------- -------
<S> <C> <C>
Accrued expenses ............... $ 8,046 $ 7,295
Accrued compensation ........... 6,559 4,718
Warranty reserves .............. 7,276 4,383
------- -------
$21,881 $16,396
======= =======
</TABLE>
D. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is computed based on the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per common share gives effect to all dilutive potential common
shares outstanding during the period. A reconciliation between basic and diluted
net income (loss) per common share is as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
JULY 2, JUNE 27, JULY 2, JUNE 27,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) ................................... $ 9,831 $(13,121) $ 15,931 $(30,978)
======== ======== ======== ========
Shares used in computation:
Weighted average common shares outstanding
used in computation of basic net income (loss)
per common share ............................. 24,158 21,736 23,235 21,491
Dilutive effect of stock options and warrants .. 1,921 -- 2,070 --
-------- -------- -------- --------
Shares used in computation of diluted net income
(loss) per common share ...................... 26,079 21,736 25,305 21,491
======== ======== ======== ========
Basic net income (loss) per common share ............ $ 0.41 $ (0.60) $ 0.69 $ (1.44)
Diluted net income (loss) per common share .......... $ 0.38 $ (0.60) $ 0.63 $ (1.44)
</TABLE>
Outstanding options to purchase 175,523 and 164,182 shares of common stock
during the three and nine month periods ended July 2, 2000, respectively, 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.
Options to purchase 1,385,373 and 1,346,986 shares of common stock were
outstanding for the three and nine month periods ended June 27, 1999,
respectively, but were not included in the computation of diluted net loss per
common share because the Company was in a loss position and, the inclusion of
such shares would be anti-dilutive. Outstanding options to purchase 792,996 and
360,317 shares of common stock during the three and nine month periods ended
June 27, 1999, respectively, were not included in the computation of diluted net
loss 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.
7
<PAGE>
E. OTHER COMPREHENSIVE INCOME
The Company previously adopted SFAS No. 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. Comprehensive income (loss) is
equal to net income (loss) for the three and nine month periods ended July 2,
2000 and June 27, 1999.
F. ACQUISITION OF PROMIS
On March 2, 1999, the Company acquired Promis, a Canadian corporation, in a
transaction accounted for as a pooling of interests. Promis was a developer of
manufacturing execution systems ("MES") software solutions for semiconductor and
precision electronics manufacturers. In connection with the acquisition, the
Company issued 0.1353 exchangeable shares for each outstanding Promis share, or
an aggregate of 1,389,974 exchangeable shares. Each exchangeable share may be
exchanged at any time for one share of common stock of the Company. The Company
assumed options to purchase 270,336 shares of the Company's common stock and a
warrant to purchase 13,530 shares of common stock, converted at the common stock
exchange ratio, under this acquisition agreement. The consolidated financial
statements of the Company for periods prior to the acquisition have been
restated to include the financial position, results of operations and cash flows
of Promis.
G. MERGER COSTS AND SPECIAL CHARGES
In the second quarter of fiscal year 1999, the Company recorded merger
costs of $3,950,000 related to the acquisition of Promis, primarily consisting
of legal, accounting and investment banking fees, all of which have been paid as
of July 2, 2000. Additionally, during the second quarter of fiscal 1999 the
Company recorded special charges of $1,850,000. The special charges consisted of
$1,406,000 for compensation-related costs for five management employees in the
selling, general, and administrative functions to satisfy existing contractual
obligations related to the acquired companies; $196,000 of costs associated with
the reduction of leased facilities; and $248,000 for other legal issues. In the
fourth fiscal quarter of 1999, the Company recognized a credit of $75,000 to
adjust the estimated costs to reflect actual costs. At July 2, 2000, $72,000 of
these charges remained in accrued expenses.
During the first quarter of fiscal year 1999, the Company recorded special
charges of $650,000. These charges represent provisions for employee severance
compensation relating to the reduction in force of 62 personnel. These headcount
reductions consisted of approximately 40 in manufacturing and customer support,
8 in engineering, and 14 in selling, general and administrative functions. The
reduction in force occurred in response to the downturn in the semiconductor
equipment industry. All of these special charges have been paid.
H. INCOME TAXES
The income tax provision for the three and nine months ended July 2, 2000
was $417,000 and $727,000, respectively, as compared to a provision of $7.3
million and $985,000 for the corresponding periods in fiscal 1999. The tax
provisions recorded in fiscal 2000 are primarily related to foreign and state
taxes. The Company's U.S. federal net operating loss carryforwards are
sufficient to offset federal taxable income for the three and nine months ended
July 2, 2000. During the third quarter of fiscal 1999, management concluded that
a full valuation allowance against the Company's net deferred tax assets was
required under applicable accounting standards, due to uncertainties surrounding
their realization.
8
<PAGE>
Accordingly, a valuation allowance in an amount equal to the net deferred tax
assets was established to reflect these uncertainties.
I. SEGMENT REPORTING
The Company operates in three primary segments, all within the
semiconductor manufacturing and OEM equipment supply industry, which serve both
domestic and international markets. These reportable operating segments consist
of Factory Automation Systems, OEM, and MES and Other Systems. The MES and Other
Systems segment includes factory management software and advanced planning and
scheduling software product lines. Each of the Company's operating segments
includes a product and service component and have no significant intersegment
revenues and expenses as all segments' revenues are generated from sales to
unaffiliated customers.
Operating segment information for the three and nine months ended July 2,
2000 and June 27, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
JULY 2, JUNE 27, JULY 2, JUNE 27,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
TOTAL NET REVENUE FROM UNAFFILIATED
CUSTOMERS:
Factory Automation Systems $ 40,681 $ 17,682 $ 113,687 $ 52,615
OEM 33,898 10,638 82,978 25,113
MES and Other Systems 14,294 6,174 27,570 16,692
--------- --------- --------- ---------
Total net revenue $ 88,873 $ 34,494 $ 224,235 $ 94,420
========= ========= ========= =========
SEGMENT OPERATING PROFIT (LOSS) BEFORE
CORPORATE ALLOCATIONS:
Factory Automation Systems $ (2,632) $ (4,191) $ (4,236) $ (14,061)
OEM 9,826 653 22,716 (1,312)
MES and Other Systems 6,757 (523) 7,762 (4,065)
OTHER RECONCILING ITEMS:
Corporate and other expenses (4,720) (2,636) (11,093) (12,713)
--------- --------- --------- ---------
CONSOLIDATED OPERATING PROFIT (LOSS)
9,231 (6,697) 15,149 (32,151)
Other income, net 1,017 877 1,509 2,158
--------- --------- --------- ---------
CONSOLIDATED INCOME (LOSS) BEFORE
INCOME TAXES $ 10,248 $ (5,820) $ 16,658 $ (29,993)
========= ========= ========= =========
</TABLE>
9
<PAGE>
J. CONTINGENT LIABILITY
At July 2, 2000, the Company had a contingent liability of approximately
$160,000 attributable to the Company's March 1999 acquisition of Promis. In
1993, Promis purchased the business assets and assumed selected liabilities of
Palette Systems, Inc., a Canadian company. The purchase price of approximately
$9.9 million consisted of $5.5 million in cash and 59,889 exchangeable common
shares, as converted at the common stock exchange ratio, of the Company, valued
at $73.91 per common share. At the time of the acquisition, Promis agreed that
on July 7, 1998 it would pay additional cash consideration to the sellers of an
amount equal to the amount by which the market value of the common shares owned
by the sellers on July 7, 1998 was less than approximately $4.0 million.
On March 29, 1996, Promis made a formal claim against the sellers pursuant
to the dispute resolution provisions of the original purchase and sale
agreements. The sellers filed certain counterclaims against Promis. In 1997,
Promis and the sellers reached a settlement of the dispute. The settlement
provided that commencing on July 7, 1998 Promis would pay additional cash to the
sellers in an amount equal to the amount by which the market value of 59,889
exchangeable common shares, on each of the agreed-upon payment dates, is less
than $73.91 per common share. As part of the settlement, half the additional
cash consideration was payable on July 7, 1998, with the remaining half due in
20 quarterly installments commencing on July 7, 1998 through July 7, 2003. Under
the terms of the settlement agreement, the sellers are restricted as to the
number of shares of the Company's common stock which can be sold in any quarter
prior to July 7, 2003.
Since the payment of additional consideration is determined based on the
Company's share price at various future dates, any consideration in addition to
that paid to date will be recorded as a reduction in additional paid-in capital
of the Company as the amounts become determinable. The Company's contingent
liability as of July 2, 2000, calculated based on the market value of the
Company's common stock at July 2, 2000, is approximately $160,000.
K. JOINT VENTURE
In June 1998, the Company entered into a joint venture with Shinsung
Engineering Co. Ltd. ("SEC") and Chung Song Systems Co., Ltd. ("CSSC") to
distribute the Company's products and services in Korea. As of July 2, 2000,
CSSC has withdrawn from the joint venture. The Company continues to participate
in the joint venture with SEC. SEC is in the business of developing and
marketing products and services for the semiconductor industry. The Company and
SEC intend to invest on a pro rata basis 2.6 billion Korean won, or
approximately $2.3 million, in the joint venture. As of July 2, 2000, the
Company had outstanding commitments under this agreement of 1.2 billion Korean
won, or approximately $1.0 million.
L. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses, depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 by fiscal
2001, in accordance with SFAS No. 137, which deferred the effective date of SFAS
No. 133. Due to the Company's limited use of derivative instruments, management
10
<PAGE>
anticipates that the adoption of SFAS No. 133 will not have a material impact on
the Company's consolidated results of operations or financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes the staff's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 is required to be adopted no later than the Company's
fourth quarter of fiscal year 2001. The effects of applying this guidance will
be reported as a cumulative effect adjustment resulting from a change in
accounting principle. The Company has not completed its evaluation of SAB 101
and is therefore unable to determine its impact.
In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation--an interpretation of APB Opinion No.
25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and,
among other issues, clarifies the following: the definition of an employee for
purposes of applying APB Opinion No. 25; the criteria for determining whether a
plan qualifies as a noncompensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44
cover specific events that occurred after either December 15, 1998 or January
12, 2000. The Company does not expect the application of FIN 44 to have a
material impact on its consolidated results of operations or financial position.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 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 these 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 in the
Company's Registration Statement on Form S-3, File No. 333-34584, filed with the
Securities and Exchange Commission, and the other 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 equipment, including systems
manufactured and marketed by the Company. Oversupply in the semiconductor market
may in the future reduce demand for capital equipment, including demand for the
Company's systems. The semiconductor industry recently experienced a downturn
that adversely affected the Company's operating results, and a similar reduction
in demand for semiconductors in the future could jeopardize the Company's plans.
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 generally by the
cyclicality of the semiconductor industry, the Company faces the following risks
and uncertainties: the Company's lengthy sales cycle makes it difficult to
anticipate sales; the Company's operating results fluctuate significantly and
the Company's stock price could fall if its operating results are below
expectations of analysts or investors; delay in shipment of a single system
could substantially decrease the Company's sales for the period in which the
delay occurs; new accounting guidance could result in delayed recognition of the
Company's revenues; the Company typically charges a fixed price for a system
which allows for vulnerability to cost overruns; the Company has significant
fixed costs which are not easily reduced during a downturn; the Company depends
on a limited number of customers and the loss, cancellation or delay of any
order by
12
<PAGE>
these customers could adversely affect the Company's results; the Company's
customers do not have long-term purchase agreements with the Company, and as
a result, customers could stop purchasing the Company's products and services
at any time; industry consolidation and outsourcing of the manufacture of
semiconductors to foundries could reduce the number of available customers;
the Company's ongoing efforts to compete in the Asia-Pacific market may not
be successful in generating adequate revenue or gross profit margins; the
Company has invested heavily in 300mm wafer technology, which is being
adopted more slowly than the Company expected; the Company needs managerial
and technical employees who because of their skills and experience may be
difficult to hire and retain; the Company may have difficulty managing growth
in light of fluctuating demand; the Company has experienced and may continue
to experience capacity constraints during high growth periods which may limit
the Company's ability to take advantage of business opportunities during such
periods; during periods of high growth, the Company is required to increase
its cost structure to support anticipated customer services and such cost
increases may occur before related revenue increases; the Company maintains
inventory to support production which, due to the evolution of products and
the cyclical nature of demand, may be rendered obsolete; the Company's
substantial international operations create special risks; the Company faces
significant competition from other automation companies which may limit the
prices it can charge for its products and may result in lost sales; in order
to continually improve its technology to remain competitive, the Company must
expend substantial resources on research and development, even in periods
during industry downturns; the Company may experience delays in product
development and technical difficulties that could delay new product
introductions; future acquisitions may disrupt the Company's operations; the
Company depends on subcontractors and one or a few suppliers for some
components and manufacturing processes; the Company depends on Mitchell G.
Tyson, its President and Chief Executive Officer, and other senior staff; the
Company's software products may contain errors or defects that could result
in lost revenue, delayed or limited market acceptance or product liability
claims with substantial litigation costs; the Company may be unable to
protect its proprietary technology; claims by others that the Company
infringes their proprietary technology could harm the Company's business; the
market price of the Company's common stock is volatile; and certain
provisions of the Company's charter and by-laws and Massachusetts law make a
takeover of the Company more difficult. 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.
RESULTS OF OPERATIONS
On March 2, 1999, the Company acquired Promis Systems Corporation Ltd., a
Canadian corporation ("Promis"). Promis was a leading developer of manufacturing
execution systems ("MES") software solutions for semiconductor and precision
electronics manufacturers. The business combination was accounted for as a
pooling of interests; accordingly, the financial results of the Company for
fiscal 1999 have been restated to include Promis. Promis' results from
operations is included in MES and Other Products.
TOTAL NET REVENUE: Net revenue for the three and nine months ended July 2,
2000 was $88.9 million and $224.2 million, respectively, an increase of 157.6%
and 137.5%, respectively, over the corresponding periods in fiscal 1999. This
increase was generated across all of the Company's operating segments and
represented the Company's highest quarterly net revenue and its sixth
consecutive quarter of revenue growth. Contributing to this revenue growth, OEM
net revenue increased by 230.4% and Factory Automation Systems net revenue
increased by 116.1% for the nine months ended July 2, 2000 as compared with the
corresponding period of fiscal 1999. In addition, net revenue for MES and Other
Systems increased 65.2% for the nine months ended July 2, 2000 as compared with
the corresponding period of fiscal 1999. The significant improvement in total
net revenue is primarily generated by increases in sales of product and
equipment and is attributable to strong growth in demand for capital equipment
and software by the semiconductor industry.
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The Company's international customers are located in Asia and Europe. Net
export revenue from customers located in Asia for the three and nine months
ended July 2, 2000 was $20.8 million and $55.8 million, representing 23.5 % and
24.9 % of total net revenue, respectively. This compares to $4.8 million and
$10.9 million, representing 14.1% and 11.6%, respectively, for the corresponding
periods in fiscal 1999. Net export revenue from customers located in Europe for
the three and nine months ended July 2, 2000 was $11.1 million and $32.4
million, representing 12.5% and 14.5% of total net revenue, respectively. This
compares to $6.5 million and $17.1 million, representing 18.8% and 18.1%,
respectively, for the corresponding periods in fiscal 1999. The increase in
international sales as a percent of total net revenue resulted from the
Company's increasing market share in Asia and Europe. Sales to foreign customers
are principally denominated in U.S. dollars with the exception of certain sales
of tool automation and spare parts products that are denominated in local
currencies.
GROSS PROFIT: The gross profit for the three and nine months ended July 2,
2000 was $36.4 million and $87.9 million, respectively. This compares to $14.6
million and $35.6 million for the corresponding periods in fiscal 1999. The
increase is primarily due to the increase in total revenues across all
divisions. The gross profit margin for the three and nine months ended July 2,
2000 was 41.0% and 39.2%, respectively, compared to 42.4% and 37.8% for the
corresponding periods in fiscal 1999. In the quarter ended June 27, 1999, the
gross profit margin was favorably affected by $2.0 million of revenue arising
from a single order cancellation for which there were few associated costs.
Excluding this single order, the gross profit margin for the three months ended
June 27, 1999 was 38%. The increase in the gross profit margin for both periods
is attributable to favorable manufacturing variances, a change in product mix
with stronger growth in higher-margin software products and equipment revenues,
more favorable product pricing, and product cost reductions, primarily within
the Factory Automation Systems and OEM operating segments. The year to date
gross profit margin improvement was offset slightly by a deterioration in
service and maintenance margins primarily related to increases in personnel and
related costs to support anticipated future growth of the Company's installed
base of products.
RESEARCH AND DEVELOPMENT: Research and development expenses for the three
and nine months ended July 2, 2000 were $14.1 million and $39.0 million,
representing 15.8% and 17.4% of total net revenue, respectively. This compares
to $11.5 million and $32.8 million, representing 33.3% and 34.7% of total net
revenue for the corresponding periods in fiscal 1999. The increase in fiscal
2000 spending compared with fiscal 1999 is the result of the Company's
investments in next-generation 200mm and 300mm automation system products,
including interfloor transport systems, turbo stocker automated storage and
retrieval systems, bare reticle stockers, and robotic wafer handling systems in
the Factory Automation Systems and OEM segments, as well as in its new software
products, including manufacturing execution systems and advanced planning and
scheduling. The decrease in spending as a percent of total net revenue is due to
the increase in total net revenue during these periods.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses for the three and nine months ended July 2, 2000 were $13.2 million and
$33.8 million, representing 14.8% and 15.1% of total net revenue, respectively.
This compares to $9.8 million and $28.5 million, representing 28.4% and 30.2% of
total net revenue, respectively, for the corresponding periods in fiscal 1999.
Selling, general and administrative expenses were higher in fiscal 2000 due to
increases in marketing efforts, sales activities and other volume sensitive
expenses incurred in support of the growth in orders and revenues. For the nine
months ended July 2, 2000, the increase in selling, general and administrative
expenses was slightly offset by savings from the consolidation of duplicate
functions and activities of previously acquired companies. The decrease in
spending as a percent of total net revenue is due to the increase in total net
revenue for these periods.
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MERGER COSTS AND SPECIAL CHARGES: In the second quarter of fiscal year
1999, the Company recorded merger costs of $4.0 million related to the
acquisition of Promis, primarily consisting of legal, accounting and investment
banking fees, all of which have been paid as of July 2, 2000. Additionally,
during the second quarter of fiscal 1999 the Company recorded special charges of
$1.9 million consisting of $1.4 million for compensation-related costs for five
management employees in the selling, general, and administrative functions to
satisfy existing contractual obligations related to the acquired companies;
$196,000 of costs associated with the reduction of leased facilities; and
$248,000 for other legal issues. In the fourth fiscal quarter of 1999, the
Company recognized a credit of $75,000 to adjust the estimated costs to reflect
actual costs. At July 2, 2000, $72,000 of these charges remained in accrued
expenses.
During the first quarter of fiscal year 1999, the Company recorded special
charges of $650,000. These charges represent provisions for employee severance
compensation relating to the reduction in force of 62 personnel. These headcount
reductions consisted of approximately 40 in manufacturing and customer support,
8 in engineering, and 14 in selling, general and administrative functions. The
reduction in force occurred in response to the downturn in the semiconductor
equipment industry. All of these special charges have been paid.
OPERATING PROFIT (LOSS): As a result of the increase in total net revenue
and the other foregoing factors, the operating profit for the three and nine
months ended July 2, 2000 was $9.2 million and $15.1 million , or 10.4% and 6.8%
of total net revenue, respectively. This compares to an operating loss of $6.7
million and $32.2 million, or 19.4% and 34.1% of total net revenue, for the
corresponding periods in fiscal 1999. Excluding the merger costs and special
charges of $6.5 million for the nine months ended June 27, 1999, the operating
losses would have been $25.7 million or 27.2% of total net revenue.
OTHER INCOME, NET: Other income, net for the three and nine months ended
July 2, 2000 was $1.0 million and $1.5 million, respectively, compared to
$877,000 and $2.2 million for the corresponding periods in fiscal 1999. Other
Income, net is primarily composed of interest income, interest expense and
foreign exchange effects. Interest income for the three and nine months ended
July 2, 2000 was $1.0 million and $2.0 million, respectively, compared to
$550,000 and $1.6 million for the corresponding periods in fiscal 1999. The
increase in interest income was due to the investment of the net proceeds
received from the Company's common stock offering completed in May, 2000.
Interest expense for the three and nine months ended July 2, 2000 was $15,000
and $59,000, respectively, compared to $48,000 and $101,000 for the
corresponding periods in fiscal 1999. Net translation and foreign exchange
losses for the three and nine months ended July 2, 2000 were $39,000 and
$453,000, compared to net translation and foreign exchange gains of $374,000 and
$758,000 in the corresponding periods in fiscal 1999.
PROVISION FOR INCOME TAXES: The income tax provision for the three and nine
months ended July 2, 2000 was $417,000 and $727,000, respectively, as compared
to a provision of $7.3 million and $985,000 for the corresponding periods in
fiscal 1999. The tax provisions recorded in fiscal 2000 are primarily related to
foreign and state taxes. The Company's U.S. federal net operating loss
carryforwards are sufficient to offset federal taxable income for the three and
nine months ended July 2, 2000. During the third quarter of fiscal 1999,
management concluded that a full valuation allowance against the Company's net
deferred tax assets was required under applicable accounting standards, due to
uncertainties surrounding their realization. Accordingly, a valuation allowance
in an amount equal to the net deferred tax assets was established to reflect
these uncertainties.
NET INCOME (LOSS): Net income for the three and nine months ended July 2,
2000 was $9.8 million and $15.9 million, compared to a net loss of $13.1 million
and $31.0 million for the corresponding periods in fiscal 1999.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through private equity
financing, bank lines of credit, public stock offerings in October 1994 and July
1995 and cash generated from operations. In addition, during the quarter ended
July 2, 2000, the Company completed a common stock offering which provided the
Company with $90.0 million of cash, net of offering expenses.
As of July 2, 2000 the Company had working capital of $199.7 million,
including cash and cash equivalents of $112.9 million, compared to working
capital of $78.9 million including cash and cash equivalents of $51.9 million as
of September 30, 1999.
Net cash used in operating activities for the nine months ended July 2,
2000 was $35.3 million, compared to $400,000 of net cash provided by operating
activities for the corresponding period in fiscal 1999. Net cash used in
operating activities was primarily attributable to increases in accounts
receivable of $31.4 million, increases in contracts in progress of $21.2
million, and an increase in inventories of $33.6 million. These uses of cash
were partially offset by increases in accounts payable and accrued expenses of
$21.7 million and the cash flow provided by net income, after adjusting for
non-cash items, of $24.6 million. The net cash used in operations and the
related increase in other working capital is in support of the growth in
customer orders, revenues and overall operations.
Net cash used in investing activities for the nine months ended July 2,
2000 was $10.8 million, compared to $4.5 million for the corresponding period in
fiscal 1999. The increase is principally attributable to investments in capital
assets, primarily leasehold improvements and computers and telecommunications
equipment. The Company anticipates that it will continue to invest in capital
equipment to support its infrastructure needs accompanying its business growth.
Net cash provided by financing activities for the nine months ended July 2,
2000 was $108.0 million, compared to $7.1 million for the corresponding period
of fiscal 1999. This increase is principally related to the Company's common
stock offering, completed during the quarter ended July 2, 2000, which provided
$90.0 million, net of offering expenses. The increase is also attributable to
greater proceeds from the exercise of stock options and the Company's Employee
Stock Purchase Plan.
At July 2, 2000, 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. At July 2, 2000,
the LIBOR borrowing rate would have been 6.64%. The ability of the Company to
effect borrowings under the revolving credit facility is conditioned upon
meeting certain financial criteria. The Company had outstanding letters of
credit with the Bank in the aggregate amount of $1,420,000 at July 2, 2000, and
therefore, the available balance under this credit agreement was $18,580,000 at
July 2, 2000. Effective March 31, 2000, the Company renegotiated its revolving
credit agreement, which modified certain financial covenants and extended the
expiration date of this agreement to December 31, 2000.
The Company believes its existing cash balances and access to financing
will be sufficient for at least the next twelve months. However, there can be no
assurance that adequate financing will be available or at terms acceptable to
the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments,
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including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. The
statement requires companies to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
changes in fair value, gains or losses, depends on the intended use of the
derivative and its resulting designation. The statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company will
adopt SFAS No. 133 by fiscal 2001, in accordance with SFAS No. 137, which
deferred the effective date of SFAS No. 133. Management of the Company
anticipates that, due to its limited use of derivative instruments, the adoption
of SFAS No. 133 will not have a material impact on the Company's consolidated
results of operation or financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes the staff's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 is required to be adopted no later than the Company's
fourth quarter of fiscal year 2001. The effects of applying this guidance will
be reported as a cumulative effect adjustment resulting from a change in
accounting principle. The Company has not completed its evaluation of SAB 101
and is therefore unable to determine its impact.
In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation--an interpretation of APB Opinion No.
25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and among
other issues clarifies the following: the definition of an employee for purposes
of applying APB Opinion No. 25; the criteria for determining whether a plan
qualifies as a noncompensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44
cover specific events that occurred after either December 15, 1998 or January
12, 2000. The Company does not expect the application of FIN 44 to have a
material impact on its consolidated results of operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in the Company's exposure to market
risks since the year ended September 30, 1999. For more information please read
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1999.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
EXHIBIT
NUMBER REFERENCE DESCRIPTION
------- --------- -----------
3.4 (A) Amended and Restated By-Laws of the Company
3.5 (A) Restated Articles of Organization of the
Company
3.6 (B) Articles of Amendment to the Restated
Articles of Organization of the Company, as
approved by stockholders of the Company on
July 22, 1997
3.7 (C) Articles of Amendment to the Restated
Articles of Organization of the Company as
approved by stockholders of the Company on
January 16, 1998
3.8 (D) Articles of Amendment to Restated Articles
of Organization of the Company as approved
by the stockholders of the Company on
March 10, 2000
27.1 (E) Financial Data Schedule
---------------
(A) Incorporated by reference to the similarly numbered Exhibit to the
Company's Registration Statement on Form S-1, File No. 33-81836.
(B) Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended March 30, 1997.
(C) Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q,for the period ended December 28,
1997.
(D) Incorporated by reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-3, File No. 333-34584.
(E) This exhibit is included herein.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended July 2,
2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRI AUTOMATION, INC.
Date: August 10, 2000 By: /s/ Cosmo S. Trapani
----------------------------
Cosmo S. Trapani
Duly Authorized Officer and
Principal Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER REFERENCE DESCRIPTION
------- --------- -----------
3.4 (A) Amended and Restated By-Laws of the Company
3.5 (A) Restated Articles of Organization of the
Company
3.6 (B) Articles of Amendment to the Restated
Articles of Organization of the Company, as
approved by stockholders of the Company on
July 22, 1997
3.7 (C) Articles of Amendment to the Restated
Articles of Organization of the Company as
approved by stockholders of the Company on
January 16, 1998
3.8 (D) Articles of Amendment to Restated Articles
of Organization of the Company as approved
by the stockholders of the Company on
March 10, 2000
27.1 (E) Financial Data Schedule
---------------
(A) Incorporated by reference to the similarly numbered Exhibit to the
Company's Registration Statement on Form S-1, File No. 33-81836.
(B) Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended March 30, 1997.
(C) Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q,for the period ended December 28,
1997.
(D) Incorporated by reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-3, File No. 333-34584.
(E) This exhibit is included herein.
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