<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE
NUMBER 0-25434
-------
BROOKS AUTOMATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3040660
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
15 ELIZABETH DRIVE
CHELMSFORD, MASSACHUSETTS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
01824
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (978) 262-2566
_____________________________________________
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 ____
--
AS OF MAY 6, 1998, THERE WERE OUTSTANDING 10,112,721
SHARES OF THE COMPANY'S COMMON STOCK, $.01 PAR VALUE.
THIS REPORT, INCLUDING ALL EXHIBITS AND ATTACHMENTS,
CONTAINS 20 PAGES.
<PAGE>
BROOKS AUTOMATION, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART 1 FINANCIAL INFORMATION NUMBER
- ------ --------------------- ------
<S> <C> <C>
Item 1 Financial Statements:
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-17
PART II OTHER INFORMATION
- ------- -----------------
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
Page 2 of 20
<PAGE>
BROOKS AUTOMATION, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1997
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 65,462 $ 71,753
Accounts receivable, net of allowance for doubtful accounts of $376 and
$160, respectively, and including related party receivables of $6,256
and $5,204, respectively 23,522 28,408
Inventories 26,659 23,253
Prepaid expenses and other current assets 2,946 1,980
Deferred income taxes 4,510 1,710
---------- ----------
Total current assets 123,099 127,104
Fixed assets, net 19,161 19,054
Other assets 3,528 3,572
---------- ----------
Total assets $ 145,788 $ 149,730
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 150 $ 399
Accounts payable 9,155 9,125
Accrued compensation and benefits 2,700 2,719
Accrued expenses and other current liabilities 2,285 2,193
---------- ----------
Total current liabilities 14,290 14,436
Long-term debt and capital lease obligations 72 190
Deferred income taxes 1,008 905
---------- ----------
Total liabilities 15,370 15,531
---------- ----------
Commitments and contingency
Stockholders' equity: - -
Preferred stock, $.01 par value; 1,000,000 shares authorized; none
issued and outstanding - -
Common stock, $.01 par value 21,500,000 shares authorized;
10,111,221 and 10,052,663 shares issued and outstanding, respectively 101 101
Additional paid-in-capital 117,500 117,139
Cumulative translation adjustment (180) 5
Deferred compensation (343) (416)
Retained earnings 13,340 17,370
---------- ----------
Total stockholders' equity 130,418 134,199
---------- ----------
Total liabilities and stockholders' equity $ 145,788 $ 149,730
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 20
<PAGE>
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $ 44,841 $ 32,544 $ 20,211 $ 16,433
Cost of revenues 35,560 22,666 18,951 12,035
-------- -------- -------- --------
Gross profit 9,281 9,878 1,260 4,398
-------- -------- -------- --------
Operating expenses:
Research and development 9,733 6,108 4,620 3,298
Selling, general and administrative 8,044 5,537 3,997 2,983
-------- -------- -------- --------
Total operating expenses 17,777 11,645 8,617 6,281
-------- -------- -------- --------
Loss from operations (8,496) (1,767) (7,357) (1,883)
Interest expense 173 257 33 186
Interest income 1,878 16 939 -
-------- -------- -------- --------
Loss before income taxes (6,791) (2,008) (6,451) (2,069)
Income tax benefit (2,761) (504) (2,651) (525)
-------- -------- -------- --------
Net loss $ (4,030) $ (1,504) $ (3,800) $ (1,544)
-------- -------- -------- --------
Basic losses per share $ (0.40) $ (0.20) $ (0.38) $ (0.20)
-------- -------- -------- --------
Diluted losses per share $ (0.40) $ (0.20) $ (0.38) $ (0.20)
-------- -------- -------- --------
Shares used in calculating basic and
diluted losses per share 10,080 7,600 10,107 7,625
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 20
<PAGE>
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,030) $ (1,504)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,846 1,966
Amortization of deferred financing fee 115 20
Compensation expense related to common stock
options 73 9
Deferred income taxes (2,704) -
Changes in operating assets and liabilities:
Accounts receivable 4,823 1,788
Inventories (3,602) (648)
Prepaid expenses and other current assets (497) (2,125)
Accounts payable 46 (876)
Accrued compensation and benefits 18 (498)
Accrued expenses and other current liabilities (434) 295
-------- --------
Net cash used in operating activities (3,346) (1,573)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (2,521) (3,489)
Increase in other assets (540) (1,260)
-------- --------
Net cash used in investing activities (3,061) (4,749)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit - 4,956
Principal payments on long-term debt and capital
lease obligations (367) (216)
Proceeds from issuance of common stock 361 318
-------- --------
Net cash provided by (used in) financing
activities (6) 5,058
-------- --------
Effects of exchange rate changes on cash and cash
equivalents 122 (43)
-------- --------
Net decrease in cash and cash equivalents (6,291) (1,307)
-------- --------
Cash and cash equivalents, beginning of period 71,753 2,102
-------- --------
Cash and cash equivalents, end of period $ 65,462 $ 795
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 20
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements of Brooks
Automation, Inc. and its subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles and with the
instructions to Article 10 of Securities and Exchange Commission Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, considered necessary for a fair presentation
have been included. The accompanying unaudited consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements of the Company which are included in the Company's
Annual Report on Form 10-K for the year ended September 30, 1997.
The results of operations for the six months and three months ended March
31, 1998 are not necessarily indicative of the results that may be expected
for the fiscal year ending September 30, 1998.
2. INVENTORIES
-----------
<TABLE>
<CAPTION>
Inventories consist of the following: March 31, September 30,
(in thousands) 1998 1997
---- ----
<S> <C> <C>
Raw materials and purchased parts $16,251 $14,750
Work-in-process 7,778 7,745
Finished goods 2,630 758
------- -------
$26,659 $23,253
======= =======
</TABLE>
3. EARNINGS (LOSSES) PER SHARE
---------------------------
On October 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS128), which establishes
standards for computing and presenting earnings per share. The new standard
replaces the presentation of earnings per share as prescribed in Accounting
Principles Board Opinion No. 15, "Earnings per Share" (APB15) with a
presentation of basic and diluted earnings per share on the face of the
statement of operations. Basic earnings per share excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. The
diluted earnings per share computation is similar to primary diluted
earnings per share pursuant to APB15. The Company has restated all prior
period earnings per share amounts in accordance with the requirements of
SFAS128. The dilutive potential shares have been excluded from the diluted
earnings per share calculation for all periods presented due to their anti-
dilutive effect.
4. SIGNIFICANT CUSTOMER AND RELATED PARTY INFORMATION
--------------------------------------------------
During the six months ended March 31, 1998 and 1997, the Company had
revenues from related parties representing 23% and 19% of revenues,
respectively. During the three months ended March 31, 1998 and 1997, the
Company had revenues from related parties representing 28% and 17% of
revenues, respectively. At March 31, 1998 and September 30, 1997, related
party accounts receivable accounted for 27% and 18% of total accounts
receivable, respectively.
Page 6 of 20
<PAGE>
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During the six months ended March 31, 1998, the Company had revenues from a
customer (not a related party) representing 11% of revenues. During the six
months ended March 31, 1997, the Company had revenues from two customers
(not related parties) representing 12% and 10% of total revenues. During
the three months ended March 31, 1998, the Company had revenues from two
customers (not related parties) which each represented 11% of revenues.
During the three months ended March 31, 1997, the Company had revenues from
two customers (not related parties) representing 10% and 13% of revenues,
respectively.
5. STOCK PLANS
-----------
On February 26, 1998, the stockholders of the Company approved an increase
in the number of shares of common stock available for issuance under the
1992 Combination Stock Option Plan from 1,550,000 to 1,950,000.
Additionally, on February 26, 1998 the Company's stockholders approved an
increase in the number of shares of common stock available for issuance
under the 1995 Employee Stock Purchase Plan from 150,000 to 250,000.
6. CONTINGENCY
-----------
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor related industries. The
Company has received notice from a third party alleging infringements of
such party's patent rights, relating to cluster tool architecture, by
certain of the Company's products. In the event of litigation with respect
to this claim, the Company is prepared to vigorously defend its position.
However, because patent litigation can be extremely expensive and time
consuming, the Company may seek to obtain a license to one or more of the
disputed patents. Based upon currently available information, the Company
would only do so if such license fees would not be material to the
Company's consolidated financial statements. Currently, the Company does
not believe that it is probable that future events related to this
threatened matter will have an adverse effect on the Company's business.
The Company is currently unable to reasonably estimate any possible loss
related to this matter.
Page 7 of 20
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements in this quarterly report constitute "forward-looking
statements" which involve known risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include the factors that may affect future results set forth in
Management's Discussion and Analysis of Financial Condition and Results of
Operations which is included in this report. Precautionary statements made
herein should be read as being applicable to all related forward-looking
statements wherever they appear in this report.
OVERVIEW
The predecessor of Brooks Automation, Inc. (the "Company") was organized in
February 1989 and acquired the semiconductor wafer handling business of the
Brooks Automation Division of Aeronca Electronics, Inc., a subsidiary of
Fleet Aerospace Corporation, in March 1989. The Company and its
predecessors have been in the semiconductor wafer handling business since
1978.
Since the acquisition in 1989, the Company has invested over $50.0 million
in research and development focused primarily on vacuum transfer robots and
other vacuum automation modules and systems. In 1992, the Company
introduced the family of vacuum central wafer handling systems and modules
that forms the foundation of the Company's current business. In 1994, the
Company introduced a similar family of systems and modules for flat panel
display substrates, including a next-generation magnetically driven vacuum
transfer robot. In 1996, the Company acquired Techware Systems Corporation
(now Brooks Automation Software), a designer and supplier of integrated
equipment control software for the semiconductor and related industries,
expanding its software and control capability. In 1997, the Company
introduced a line of products for the atmospheric handling market,
including in-line and controlled environment systems, robots, aligners and
traversers.
Many of the Company's customers purchase the Company's vacuum transfer
robots and other modules before purchasing the Company's vacuum central
wafer handling systems. The Company believes that once a customer has
selected the Company's products for a process tool, the customer is likely
to rely on those products for the life of that process tool model, which
can be in excess of five years.
The Company records revenue from product sales upon shipment to the
customer provided that no significant Company obligations remain and
collection of the related receivable is deemed probable by management. When
insignificant Company obligations remain after shipment of the product, the
Company accrues for the estimated cost of such obligation upon shipment.
Additionally, the Company accrues for any estimated warranty costs upon
shipment.
Most of the Company's revenues have been generated by sales to customers in
the United States, although the Company believes that a significant portion
of these customers incorporate the Company's products into equipment sold
to their foreign customers. The Company's foreign sales have occurred
principally in Japan, South Korea and Europe.
The Company's foreign revenues are generally denominated in United States
dollars. Accordingly, foreign currency fluctuations have not had a
significant impact on the comparison of the results of operations for the
periods presented. The costs and expenses of the Company's
Page 8 of 20
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
international subsidiaries are generally denominated in currencies other
than the United States dollar. However, since the functional currency of
the Company's international subsidiaries is the local currency, foreign
currency translation adjustments are reflected as a component of
stockholders' equity. To the extent that the Company expands its
international operations or changes its pricing practices to denominate
prices in foreign currencies, the Company will be exposed to increased risk
of currency fluctuation.
The Company's business is highly dependent upon the capital expenditures of
semiconductor and flat panel display manufacturers which historically have
been cyclical, and on the Company's ability to develop, manufacture and
sell new products and product enhancements. The Company's results will also
be affected, especially when measured on a quarterly basis, by the volume,
composition and timing of orders, conditions in industries served by the
Company, competition and general economic conditions.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated as a percentage of revenues:
<TABLE>
<CAPTION>
Six months ended Three months ended
March 31, March 31,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues 79.3 69.6 93.8 73.2
------ ------ ------ ------
Gross profit 20.7 30.4 6.2 26.8
Operating expenses:
Research and development 21.7 18.8 22.8 20.1
Selling, general and administrative 17.9 17.0 19.8 18.2
------ ------ ------ ------
Loss from operations (18.9) (5.4) (36.4) (11.5)
Interest expense 0.4 0.8 0.2 1.1
Interest income 4.2 0.0 4.7 -
------ ------ ------ ------
Loss before income taxes (15.1) (6.2) (31.9) (12.6)
Income tax benefit (6.1) (1.6) (13.1) (3.2)
------ ------ ------ ------
Net loss (9.0) % (4.6) % (18.8) % (9.4) %
------ ------ ------ ------
</TABLE>
The net loss for the three and six month periods ended March 31, 1998 are
attributed primarily to the continuing softness in demand for semiconductor
and flat panel display fabrication equipment, as well as ongoing
uncertainty about business conditions in Asia. The Company remains cautious
about when growth in the semiconductor fabrication equipment sector will
return.
THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS
AND SIX MONTHS ENDED MARCH 31, 1997
Revenues
Revenues for the three months ended March 31, 1998 increased 23.0% to $20.2
million compared with revenues of $16.4 million in the comparable prior
fiscal period. Revenues for the six months ended March 31, 1998 increased
37.8% to $44.8 million compared with revenues of $32.5 million in the
comparable prior fiscal period. Revenues from 200mm vacuum central wafer
handling systems and components increased 58.6% or $4.7 million and 69.3%
Page 9 of 20
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
or $11.8 million for the three months and six months ended March 31, 1998,
respectively, due primarily to increased shipments resulting from improved
market demand for semiconductor fabrication equipment. The increase in
200mm product revenues in the current quarter was offset primarily by
decreased flat panel display product revenues. Increased control software
and service revenues, offset by decreased revenues from shipments of 300 mm
and flat panel display products, also contributed to the overall increase
in revenues in the first half of fiscal 1998.
Foreign revenues for the three months ended March 31, 1998 increased 31.0%
to $5.4 million (26.5% of revenues), including $4.7 million of direct sales
to Asian customers, compared with foreign revenues of $4.1 million (24.9%
of revenues), including $3.1 million of direct sales to Asian customers in
the comparable prior fiscal period. Foreign revenues for the six months
ended March 31, 1998 increased 32.3% to $14.1 million (31.4% of revenues),
including $10.5 million of direct sales to Asian customers, compared with
foreign revenues of $10.6 million (32.6% of revenues), including $8.4
million of direct sales to Asian customers in the comparable prior fiscal
period. The Company expects that foreign revenues will continue to account
for a significant portion of total revenues in fiscal 1998. The Company has
been adversely affected by the unstable economy in Asia. There can be no
assurance that the geographical growth rates, if any, in the foreseeable
future, particularly in Asia which is suffering regional economic
downturns, will be comparable to those achieved in the six months ended
March 31, 1998. See "Risk of International Sales and Operations".
GROSS PROFIT
Gross profit as a percentage of revenues was 6.2% and 20.7%, respectively,
for the three months and six months ended March 31, 1998 compared with
26.8% and 30.4%, respectively, for the comparable prior fiscal periods.
During the three months ended March 31, 1998, the Company recorded a
nonrecurring charge of $4.2 million primarily to provide additional
reserves for slow-moving and obsolete inventories. These reserves reflect
management's assessment of the currently required inventory reserve level
in view of the accelerating decline, particularly in the current quarter,
in customer demand for semiconductor and flat panel display fabrication
equipment, coupled with management's expectation of a prolonged recovery
period. Gross profit as a percentage of revenues was relatively flat at
27.0%, before nonrecurring charges, for the three months ended March 31,
1998 compared with 26.8% for the comparable prior fiscal period. Gross
profit as a percentage of revenues decreased to 30.1%, before nonrecurring
charges, for the six months ended March 31, 1998 compared with 30.4% for
the comparable prior fiscal period. The decrease in the gross profit
percentage in the first half of fiscal 1998, before nonrecurring charges,
is attributable to underutilization of manufacturing capacity primarily due
to customer requested shipment delays and pricing pressure from volume
production customers, partially offset by the sales mix of higher gross
margin 200mm products.
Global support costs, primarily comprised of personnel costs and travel
expenses, were $1.6 million and $3.1 million, respectively, for the three
months and six months ended March 31, 1998, compared to $1.6 million and
$2.9 million in the comparable prior fiscal periods, respectively. Global
support costs decreased as a percentage of revenues to 7.9% and 6.9%,
respectively for the three months and six months ended March 31, 1998 as
compared with 9.8% and 8.9% of revenues for the comparable prior fiscal
periods. The decrease in global support costs as a percentage of revenues
reflects the leveraging of the Company's investment in its global support
infrastructure coupled with increased revenues as compared with the
comparable prior fiscal period. In future periods, gross profit may be
adversely affected by changes in the mix of products sold, continued
pricing pressure or increases in the cost of goods and global support.
Page 10 of 20
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESEARCH AND DEVELOPMENT
Research and development expenses increased 40.1% to $4.6 million (22.8% of
revenues) for the three months ended March 31, 1998 from $3.3 million
(20.1% of revenues) in the comparable prior fiscal period. Research and
development expenses increased 59.3% to $9.7 million (21.7% of revenues)
for the six months ended March 31, 1998 from $6.1 million (18.8% of
revenues) in the comparable prior fiscal period. The increase in research
and development expenses in the current quarter and first half of fiscal
1998 primarily resulted from incremental spending associated with the
launch of new atmospheric products and the transition to next generation
vacuum wafer handling products.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 34.0% to $4.0
million (19.8% of revenues) for the three months ended March 31, 1998 from
$3.0 million (18.2% of revenues) in the comparable prior fiscal period.
Selling, general and administrative expenses increased 45.3% to $8.0
million (17.9% of revenues) for the six months ended March 31, 1998 from
$5.5 million (17.0% of revenues) in the comparable prior fiscal period.
The increase in selling, general and administrative expenses is due
primarily to the worldwide expansion of the Company's sales and
administrative organizations to support revenue growth.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense for the three months ended March 31, 1998 decreased to
$33,000 (0.2% of revenues) from $186,000 (1.1% of revenues) in the
comparable prior fiscal period. Interest expense for the six months ended
March 31, 1998 decreased to $173,000 (0.4% of revenues) from $257,000 (0.8%
of revenues) in the comparable prior fiscal period. The decrease in
interest expense is due primarily to the repayment of short-term borrowings
under revolving credit facilities in September 1997, partially offset by
amortization of $115,000 of deferred financing costs in the first quarter
of fiscal year 1998. There were no borrowings outstanding under the
revolving credit facilities at March 31, 1998. The amortization of
deferred financing costs included in interest expense in the first quarter
of fiscal 1998 resulted from the repayment of the related note payable in
September 1997. Interest income increased to $939,000 (4.7% of revenues)
for the three months ended March 31, 1998. Interest income for the six
months ended March 31, 1998 increased to $1,878,000 (4.2% of revenues) from
$16,000 in the comparable prior fiscal period. The increases in interest
income are due to higher cash and investment balances during the first half
of fiscal 1998, resulting from the Company's $80.8 million public stock
offering in September 1997.
INCOME TAX PROVISION (BENEFIT)
The Company recorded net tax benefits of $2.7 million and $2.8 million,
respectively, during the three months and six months ended March 31, 1998
and net tax benefits of $525,000 and $504,000, respectively, during the
comparable prior fiscal periods, primarily due to the tax benefit of
domestic net operating losses and research and development tax credit
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had working capital of $108.8 million,
including $65.5 million of cash and cash equivalents, compared with working
capital of $112.7 million, including $71.8 million of cash and cash
equivalents, as of September 30, 1997. During the six months ended March
31, 1998, the Company used cash of $3.3 million in operating activities,
primarily to finance increased inventory levels. Inventories increased
during the six months ended March 31, 1998, net of a $4.0 million increase
in inventory reserves, primarily due to continuing softness in demand for
semiconductor fabrication equipment and previously unanticipated customer
Page 11 of 20
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
requested shipment delays. Investing activities during the six months
ended March 31, 1998 consisted primarily of capital spending for
information systems and facility improvements. The Company anticipates
that it will continue to make capital expenditures to support its business
activities. Financing activities during the six months ended March 31,
1998 consisted primarily of the issuance of common stock under the employee
stock purchase plan and the repayment of long-term debt and capital lease
obligations. There were no borrowings outstanding under the Company's
credit facilities at March 31, 1998.
The Company has received notice from a third-party alleging infringements
of such party's patent rights by certain of the Company's products. The
Company believes the patents claimed may be invalid. In the event of
litigation with respect to this claim, the Company is prepared to
vigorously defend its position. Currently, the Company does not believe
that it is probable that future events related to this threatened matter
will have a material adverse effect on the Company's business; however,
there can be no assurance that this will be the case. The Company is
currently unable to reasonably estimate any possible loss related to this
matter.
The Company believes that available funds will be adequate to fund the
Company's currently planned working capital and capital expenditure
requirements for the next twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS AND MARKET PRICE OF SECURITIES
The Company's operating results have in the past fluctuated and may in the
future continue to fluctuate significantly depending upon a variety of
factors. Such factors may include: the demand for semiconductors in
general; cyclicality in the market for semiconductor manufacturing
equipment; the timing and size of orders from the Company's customer base;
the ability of the Company to manufacture, test and deliver products in a
timely and cost effective manner; the ability of the Company's competitors
to obtain orders from the Company's customers; the timing of new product
announcements and releases by the Company and its competitors; the mix of
products sold by the Company; and competitive pricing pressures.
The Company has historically derived a substantial portion of its quarterly
and annual revenues from the sale of a relatively small number of
semiconductor and flat panel display substrate handling systems, which have
relatively high selling prices compared to its other products. As a result,
the precise timing of the recognition of revenue from an order for one or a
small number of systems can have a significant impact on the Company's
total revenues and operating results for a particular period. The Company's
operating results for a particular period could be adversely affected if
orders for a small number of systems are canceled or rescheduled by
customers or cannot be filled in time to recognize revenue during that
period due to, for example, unanticipated manufacturing, testing, shipping
or product acceptance delays. The Company's expense levels are based, in
large part, on the Company's expectations as to future revenues and are,
therefore, relatively fixed in the short term. If revenue levels fall below
expectations, net income will be disproportionately and adversely affected.
The impact of these and other factors on the Company's revenues and
operating results in any future period cannot be forecast with any degree
of certainty. These factors could have a material adverse effect on the
Company's business, future financial condition, revenues and results of
operations.
DEPENDENCE ON SEMICONDUCTOR INDUSTRY
The Company's business is significantly dependent on capital expenditures
by manufacturers of semiconductors. The semiconductor industry is highly
cyclical and has experienced periods of oversupply, resulting in
significantly reduced demand for capital equipment, including the products
manufactured and marketed by the Company. The
Page 12 of 20
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Company's future financial condition, revenues and results of operations
may be materially and adversely affected by semiconductor industry
downturns or slowdowns. The Company believes that downturns in the
semiconductor manufacturing industry will occur in the future, and will
result in decreased demand for semiconductor manufacturing equipment. In
addition, the Company believes that its ability to reduce expenses in a
future downturn will be constrained by the need for continual investment in
research and development, and the need to maintain ongoing customer service
and support capability. Accordingly, any downturn in the semiconductor
industry could have a material adverse effect on the Company's business,
future financial condition and results of operations.
CUSTOMER CONCENTRATION
Relatively few customers account for a substantial portion of the Company's
revenues. Sales to the Company's ten largest customers in the six months
ended March 31, 1998, fiscal 1997 and fiscal 1996 accounted for 76%, 71%
and 69% of revenues, respectively. In the six months ended March 31, 1998
and in fiscal 1997 and fiscal 1996, sales to Lam Research Corporation
("Lam"), the Company's largest customer in these periods, accounted for
23%, 21% and 21% of the Company's revenues respectively, in each of these
fiscal periods. The Company expects that sales to Lam will continue to
represent a significant portion of the Company's revenues for the
foreseeable future. The Company's customers, including Lam, generally do
not enter into long-term agreements obligating them to purchase the
Company's products. A reduction or delay in orders from Lam or other
significant customers, including reductions or delays due to market,
economic or competitive conditions in the semiconductor or flat panel
display industries, could have a material adverse effect on the Company's
business, financial condition and results of operations.
RELIANCE ON OEM CUSTOMERS; LENGTHY SALES CYCLE
The Company's products are principally sold to OEMs which incorporate the
Company's products into their equipment. Due to the significant capital
commitments usually incurred by semiconductor and flat panel display
manufacturers in their purchases of these OEMs' equipment, these
manufacturers demand highly reliable products which may require several
years for OEMs to develop. The Company's revenues are therefore primarily
dependent upon the timing and effectiveness of the efforts of its OEM
customers in developing and marketing equipment incorporating the Company's
products.
The Company's new products are generally incorporated into an OEM
customer's process tools at the design stage. However, customer decisions
to use the Company's products, which can often require significant
expenditures by the Company without any assurance of success, often precede
the generation of volume sales, if any, by a year or more. There can be no
assurance that the Company will continue to achieve design wins, that the
process tools manufactured by the Company's customers will be introduced in
a timely manner or that such systems will achieve market acceptance. The
Company's or its customers' failure to develop and introduce new products
successfully and in a timely manner could materially and adversely affect
the Company's business, financial condition and results of operations.
RISKS OF INTERNATIONAL SALES AND OPERATIONS
During the six months ended March 31, 1998, fiscal 1997 and fiscal 1996,
the Company derived approximately 31%, 38% and 20% of its revenues from
customers located outside the United States. The Company anticipates that
international revenues will continue to account for a significant portion
of its revenues. To support its international customers, the Company
maintains subsidiaries in Japan, Europe, South Korea, Taiwan and Singapore.
There can be no assurance that the Company will be able to manage these
operations effectively or that the Company's investment in these activities
will enable it to compete successfully in international markets or to meet
the service and support needs of its customers.
Page 13 of 20
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company will continue to be affected, for the foreseeable future, by
the unstable economy caused by currency volatility, particularly in Japan
and South Korea. As a result, there are uncertainties that may affect
future operations. It is not possible to determine the future effect a
continuation of the economic crisis may have on the Company's liquidity and
earnings. Related effects will be reported in the financial statements as
they become known and estimable.
Additionally, a significant portion of the Company's revenues and
operations could be subject to certain risks, including tariffs, foreign
government standards and regulations and other barriers, difficulties in
staffing and managing foreign subsidiary operations, currency exchange
risks and exchange controls, adverse tax consequences and difficulty in
accounts receivable collection. International trade regulations, such as
United States export controls, could change in the future and make it more
difficult for the Company to export its products to various countries.
There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The semiconductor and flat panel display manufacturing industries have been
characterized by rapid technological change and evolving industry
requirements and standards. The Company believes that these trends will
continue. The Company's success will depend upon its ability to enhance its
existing products and to develop and market new products to meet customer
requirements. Successful product development and introduction depends on a
number of factors, including accurate new product definition, timely
completion and introduction of new product designs and market acceptance of
the Company's products and its customers' products. Currently, the
Company's major development programs include expanding its product
offerings of semiconductor and flat panel display substrate handling
systems to address emerging industry requirements for 300mm wafer and
fourth generation flat panel substrates, as well as wafer handling systems
and modules for atmospheric process tools. In addition, the Company
continues to develop and enhance its process control software product
offerings. There can be no assurance that the Company will adjust to
changing market conditions or be successful in introducing products or
product enhancements on a timely basis, if at all, or that the Company will
be able to market successfully these products and product enhancements once
developed. Further, there can be no assurance that the Company's products
will not be rendered obsolete by new industry standards or changing
technology.
MANAGEMENT OF GROWTH
The Company's strategy is to grow by providing hardware and software
solutions to enhance semiconductor and flat panel display substrate
handling systems of advanced tools used to produce semiconductors and flat
panel displays. Due to the level of technical and marketing expertise
necessary to support its existing and new customers, the Company must
attract and retain highly qualified and well-trained domestic and
international personnel. There is a limited number of persons with the
requisite skills to serve in these positions and it may become increasingly
difficult for the Company to hire such personnel. The Company will also be
required to manage its expanding international operations, to effect timely
deliveries of its products and to maintain the product quality and
reliability required by its customers. The Company's expansion may also
significantly strain the Company's management, manufacturing, financial and
other resources. There can be no assurance that the Company's systems,
procedures, controls and existing space will be adequate to support the
Company's operations. Failure to properly manage the Company's growth, if
any, could have a material adverse effect on the Company's business, future
financial condition and results of operations.
Page 14 of 20
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
HIGHLY COMPETITIVE INDUSTRY
The markets for the Company's products are highly competitive and subject
to rapid technological change. The Company believes that its primary
competition is from integrated OEMs that satisfy their semiconductor and
flat panel display handling needs in-house rather than by purchasing
systems or modules from an independent supplier such as the Company. Many
of these other potential competitors have substantially greater resources
than the Company. There can be no assurance that the Company will be
successful in selling its products to OEMs that currently satisfy their
substrate handling needs in-house, regardless of the performance or the
price of the Company's products. Moreover, there can be no assurance that
integrated OEMs will not begin to commercialize their handling
capabilities. Competitors may develop superior products or products of
similar quality at the same or lower prices. Other technical innovations
may impair the Company's ability to market its products. There can be no
assurance that the Company will be able to compete successfully.
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company may pursue potential acquisitions of businesses, products and
technologies that could complement or expand the Company's business. The
Company currently has no plans, commitments or agreements with respect to
any material acquisitions and there can be no assurance that the Company
will be able to identify any appropriate acquisition candidates. If the
Company identifies an acquisition candidate, there can be no assurance that
the Company will be able to successfully negotiate the terms of any such
acquisition, finance such acquisition or integrate such acquired
businesses, products or technologies into the Company's existing business
and products. The negotiation of potential acquisitions as well as the
integration of an acquired business could cause diversion of management's
time and resources. Future acquisitions by the Company could result in
potentially dilutive issuances of equity securities, the incurrence of debt
and contingent liabilities and amortization expenses. If any such
acquisition were to occur, there can be no assurance that, whether or not
consummated, any such acquisition would not have a material adverse effect
on the Company's business, future financial condition and results of
operations.
INTELLECTUAL PROPERTY PROTECTION AND RELATED CONTINGENCY
There can be no assurance that the Company's pending patent applications or
any future applications will be approved, that any patents will provide it
with competitive advantages or will not be challenged by third parties, or
that the patents of others will not have an adverse effect on the Company's
ability to do business. Because foreign patents may afford less protection
under foreign law than is available under United States patent law, there
can be no assurance that any such patents issued to the Company will
adequately protect the Company's proprietary information. There can be no
assurance that others will not independently develop similar products,
duplicate the Company's products or, if patents are issued to the Company,
design around the patents issued to the Company.
Others may have filed and in the future may file patent applications that
are similar or identical to those of the Company. To determine the priority
of inventions, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office that
could result in substantial cost to the Company. No assurance can be given
that any such patent application will not have priority over patent
applications filed by the Company.
The Company also relies upon trade secret protection, employee and third-
party nondisclosure agreements and other intellectual property protection
methods to protect its confidential and proprietary information. Despite
these efforts, there can be no assurance that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's trade secrets or disclose such
technology or that the Company can meaningfully protect its trade secrets.
Page 15 of 20
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor related industries. The
Company had received notice from General Signal Corporation ("General
Signal") alleging infringements of General Signal's patent rights, relating
to cluster tool architecture, by certain of the Company's products. The
notification advised the Company that General Signal was attempting to
enforce its rights to those patents in litigation against Applied
Materials, Inc. ("Applied Materials"), and that, at the conclusion of that
litigation, General Signal intended to enforce its rights against the
Company and others. According to a recent press release issued by Applied
Materials, Applied Materials settled its litigation with General Signal by
acquiring ownership of five General Signal patents. Although not verified,
these five patents would appear to be the patents referred to by General
Signal in its prior notice to the Company. Applied Materials has not
contacted the Company regarding these newly-acquired patents.
In 1992, at the time that General Signal first raised patent claims in the
cluster tool area, the Company joined with six major semiconductor process
tool equipment manufacturers in forming an "Ad Hoc Committee for the
Defense against General Signal Cluster Tool Patents." At that time, the
members of the Ad Hoc Committee notified General Signal that the member
companies were of the opinion that the General Signal patents were invalid
based on (i) prior art, (ii) inequitable conduct before the Patent &
Trademark Office and (iii) estoppel as a result of General Signal's
activities in establishing standards for cluster tools and interfaces
within the semiconductor industry. The Company believes that the position
taken by the Ad Hoc Committee remains valid. However, if the holder of
these patents were to seek to enforce these patents against the Company,
there can be no assurance that the Company would prevail in such
litigation.
The Company has in the past been, and may in the future be, notified that
it may be infringing intellectual property rights possessed by other third
parties. Any patent litigation would be costly and could divert the efforts
and attention of the Company's management and technical personnel, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that
infringement claims by third parties or other claims for indemnification by
customers or end users of the Company's products resulting from
infringement claims will not be asserted in the future or that such
assertions, if proven to be true, will not materially and adversely affect
the Company's business, financial condition and results of operations. If
any such claims are asserted against the Company's intellectual property
rights it may seek to enter into a royalty or licensing arrangement. There
can be no assurance, however, that a license will be available on
reasonable terms or at all. The Company could decide, in the alternative,
to resort to litigation to challenge such claims or to design around the
patented technology. Such actions could be costly and would divert the
efforts and attention of the Company's management and technical personnel,
which could materially and adversely affect the Company's business,
financial condition and results of operations.
Page 16 of 20
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
VOLATILITY OF STOCK PRICE
The Company believes that a variety of factors could cause the price of the
Company's Common Stock to fluctuate, perhaps substantially, including:
announcements of developments related to the Company's business; quarterly
fluctuations in the Company's actual or anticipated operating results and
order levels; general conditions in the semiconductor and flat panel
display industries or the worldwide economy; announcements of technological
innovations; new products or product enhancements by the Company or its
competitors; developments in patents or other intellectual property rights
and litigation; and developments in the Company's relationships with its
customers and suppliers. In addition, in recent years the stock market in
general and the market for shares of small capitalization and semiconductor
industry-related companies in particular, have experienced extreme price
fluctuations which have often been unrelated to the operating performance
of affected companies. Any such fluctuations in the future could adversely
affect the market price of the Company's Common Stock. There can be no
assurance that the market price of the Common Stock of the Company will not
decline.
Page 17 of 20
<PAGE>
BROOKS AUTOMATION, INC.
PART II.OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
The following matters were submitted to a vote of security holders
during the Company's Annual Meeting held February 26, 1998.
<TABLE>
<CAPTION>
Votes Cast For Authority Withheld
-------------- ------------------
<S> <C> <C>
1. Election of directors:
Robert J. Therrien 8,544,005 23,797
Norman B. Brooks 8,536,666 31,136
Roger D. Emerick 8,536,595 31,207
Amin J. Khoury 8,500,966 66,836
Votes Cast
---------
Broker
For Against Abstentions Non-votes
--- ------- ----------- ---------
2. Approval of amendment to the Company's 1992 Combination Stock
Option Plan to increase the number of shares of Common Stock 6,503,847 1,906,224 35,112 122,619
available for issuance thereunder from 1,550,000 to 1,950,000
shares.
3. Approval of amendment to the Company's 1995 Employee Stock
Purchase Plan to increase the number of shares of Common Stock 8,307,550 97,566 40,067 122,619
available for issuance thereunder from 150,000 to 250,000 shares.
</TABLE>
Item 6 (a) EXHIBITS.
---------
Exhibit No.
-----------
11.01 Computation of Net Income (Loss) Per Share
27.01 Financial Data Schedule
Item 6 (b) REPORTS ON FORM 8-K.
--------------------
No reports on Form 8-K were filed during the quarter ended March 31,
1998.
Page 18 of 20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROOKS AUTOMATION, INC.
May 14, 1998 /s/ Robert J. Therrien
- ------------ -------------------------------
[Date] Robert J. Therrien
Chief Executive Officer,
President and Treasurer
May 14, 1998 /s/ Deborah D. Fox
- ------------ -------------------------------
[Date] Deborah D. Fox
Corporate Controller and
Chief Accounting Officer
Page 19 of 20
<PAGE>
Exhibit 11.01
BROOKS AUTOMATION, INC.
Computation of Net Income (Loss) Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six months ended Three months ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income (loss) applicable to common shares $ (4,030) $(1,504) $(3,800) $(1,544)
-------- ------- ------- -------
Weighted average shares outstanding:
Common stock (basic share base) 10, 080 7,600 10,107 7,625
Assumed conversion of stock
options/(1)/ - - - -
-------- ------- ------- -------
Diluted share base 10,080 7,600 10,107 7,625
======== ======= ======= =======
Net income (loss) per share - Basic $ (0.40) $ (0.20) $ (0.38) $ (0.20)
======== ======= ======= =======
Net income (loss) per share - Diluted $ (0.40) $ (0.20) $ (0.38) $ (0.20)
======== ======= ======= =======
</TABLE>
(1) Excluded from computation due to anti-dilutive effect.
Page 20 of 20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BROOKS
AUTOMATION, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 65,462
<SECURITIES> 0
<RECEIVABLES> 23,898
<ALLOWANCES> (376)
<INVENTORY> 26,659
<CURRENT-ASSETS> 123,099
<PP&E> 31,317
<DEPRECIATION> (12,156)
<TOTAL-ASSETS> 145,788
<CURRENT-LIABILITIES> 14,290
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 130,317
<TOTAL-LIABILITY-AND-EQUITY> 145,788
<SALES> 44,841
<TOTAL-REVENUES> 44,841
<CGS> 35,560
<TOTAL-COSTS> 35,560
<OTHER-EXPENSES> 17,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,705)
<INCOME-PRETAX> (6,791)
<INCOME-TAX> (2,761)
<INCOME-CONTINUING> (4,030)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,030)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
