<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: December 31, 1997
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 February 10, 1998, there were outstanding 10,107,471 shares of
the Company's Common Stock, $.01 par value.
This report, including all exhibits and attachments, contains 18 pages.
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BROOKS AUTOMATION, INC.
INDEX
Page
PART 1 FINANCIAL INFORMATION Number
- ------ --------------------- ------
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...................... 8-15
PART II OTHER INFORMATION
- ------- -----------------
Item 5 Other Information........................................ 16
Item 6 Exhibits and Reports on Form 8-K......................... 16
Signatures ......................................................... 17
Page 2 of 18
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BRROKS AUTOMATION, INC.
CONSOLIDATION BALANCE SHEET
(in thousands, except share-related date)
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 69,155 $ 71,753
Accounts receivable, net of allowance for doubtful accounts of $266 and
$160, respectively, and including related party receivables of $4,980
and $5,204, respectively 26,874 28,408
Inventories 26,014 23,253
Prepaid expenses and other current assets 2,504 1,980
Deferred income taxes 1,710 1,710
-------------- --------------
Total current assets 126,257 127,104
Fixed assets, net 19,114 19,054
Other assets 3,189 3,572
-------------- --------------
Total assets $ 148,560 $ 149,730
-------------- --------------
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 255 $ 399
Accounts payable 9,186 9,125
Accrued compensation and benefits 1,886 2,719
Accrued expenses and other current liabilities 2,636 2,193
-------------- --------------
Total current liabilities 13,963 14,436
Long-term debt and capital lease obligations 66 190
Deferred income taxes 905 905
-------------- --------------
Total liabilities 14,934 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;
10,073,221 and 10,052,663 shares issued and outstanding, respectively 101 101
Additional paid-in capital 117,432 117,139
Cumulative translation adjustment (658) 5
Deferred compensation (389) (416)
Retained earnings 17,140 17,370
-------------- --------------
Total stockholders' equity 133,626 134,199
-------------- --------------
Total liabilities and stockholders' equity $ 148,560 $ 149,730
-------------- --------------
</TABLE>
Page 3 of 18
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BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
1997 1996
<S> <C> <C>
Revenues, including related party revenues of $4,745
and $3,382, respectively $ 24,630 $ 16,111
Cost of revenues 16,609 10,631
----------- -----------
Gross profit 8,021 5,480
----------- -----------
Operating expenses:
Research and development 5,113 2,810
Selling, general and administrative 4,047 2,554
----------- -----------
Total operating expenses 9,160 5,364
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Income (loss) from operations (1,139) 116
Interest expense 140 71
Interest income 939 16
----------- -----------
Income (loss) before income taxes (340) 61
Income tax provision (benefit) (110) 21
----------- -----------
Net income (loss) $ (230) $ 40
----------- -----------
Net income (loss) per share - Basic $ (0.02) $ -
----------- -----------
Net income (loss) per share - Diluted $ (0.02) $ -
----------- -----------
Weighted average number of common shares outstanding 10,053 7,578
----------- -----------
Weighted average number of common and dilutive potential
common shares outstanding 10,053 8,425
----------- -----------
</TABLE>
Page 4 of 18
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BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
1997 1996
------------- ------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net income (loss) $ (230) $ 40
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 1,619 892
Amortization of deferred financing fee 115 18
Compensation expense related to common stock options 26 8
Changes in operating assets and liabilities:
Accounts receivable 1,459 682
Inventories (2,940) 808
Prepaid expenses and other current assets (447) (190)
Accounts payable 70 (1,701)
Accrued compensation and benefits (777) (446)
Accrued expenses and other current liabilities 303 (187)
------------- ------------
Net cash used in operating activities (802) (76)
------------- ------------
Cash flows from investing activities
Purchases of fixed assets (1,178) (1,713)
Increase in other assets (418) (814)
------------- ------------
Net cash used in investing activities (1,596) (2,527)
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Cash flows from financing activities
Net borrowings under line of credit - 1,507
Principal payments on long-term debt and capital lease obligations (262) (109)
Proceeds from issuance of common stock 292 38
------------- ------------
Net cash provided by financing activities 30 1,436
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Effects of exchange rate changes on cash and cash equivalents (230) 2
------------- ------------
Net decrease in cash and cash equivalents (2,598) (1,165)
Cash and cash equivalents, beginning of period 71,753 2,102
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Cash and cash equivalents, end of period $ 69,155 $ 937
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</TABLE>
Page 5 of 18
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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 three months ended December 31, 1997 are
not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 1998.
2. Inventories
-----------
Inventories consist of the following: December 31, September 30,
(in thousands) 1997 1997
---- ----
Raw materials and purchased parts $17,245 $14,750
Work-in-process 6,836 7,745
Finished goods 1,933 758
------- -------
$26,014 $23,253
3. Net Income (Loss) 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.
4. Significant Customer and Related Party Information
--------------------------------------------------
During the three months ended December 31, 1997 and 1996, the Company had
revenues from related parties representing 19% and 21% of revenues,
respectively. At December 31, 1997 and September 30, 1997, related party
accounts receivable accounted for 19% and 18% of total accounts
receivable, respectively. During the three months ended December 31, 1997,
the Company had revenues from one customer (not a related party)
representing 11% of revenue. During the three months ended December 31,
1996, the Company had revenues from another customer (not a related party)
representing 15% of revenue.
Page 6 of 18
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BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. 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 18
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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 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.
Page 8 of 18
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BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's business is highly dependent upon the capital expenditures of
semiconductor and flat panel display manufacturers which historically have been
cyclical, and 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
Three months ended
December 31,
1997 1996
---------- ----------
Revenues 100.0 % 100.0 %
Cost of revenues 67.4 66.0
---------- ----------
Gross profit 32.6 34.0
Operating expenses:
Research and development 20.8 17.4
Selling, general and administrative 16.4 15.9
---------- ----------
Income (loss) from operations (4.6) 0.7
Interest expense 0.6 0.4
Interest income 3.8 0.1
---------- ----------
Income (loss) before income taxes (1.4) 0.4
Income tax provision (benefit) (0.5) 0.2
---------- ----------
Net income (loss) (0.9) % 0.2 %
---------- ----------
The net loss for the three months ended December 31, 1997 is attributed to lower
than anticipated revenues stemming from shipment delays to Asian customers
resulting from the current economic conditions in that region and Company delays
in new product shipments to other customers. In addition, earnings during the
period were adversely impacted by higher than anticipated research and
development expense for new atmospheric product development and to support the
transition to next generation vacuum wafer handling products.
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THREE MONTHS ENDED
DECEMBER 31, 1996
Revenues
Revenues for the three months ended December 31, 1997 increased 52.9% to $24.6
million compared with revenues of $16.1 million in the comparable prior fiscal
period. Revenues from 200 mm vacuum central wafer handling systems and
components increased 78.9% or $7.1 million as compared with the comparable prior
fiscal period due primarily to increased shipments resulting from improved
market demand for semiconductor fabrication equipment. The remainder of the
increase is attributed to growth in control software and service revenues,
offset by decreased revenues from shipments of 300 mm and flat panel display
products as compared with the prior fiscal period.
Foreign revenues for the three months ended December 31, 1997 increased 34.4% to
$8.7 million (35.5% of revenues), including $4.7 million and $2.8 million,
respectively, of direct sales to customers in Japan and Europe, compared with
foreign revenues of $6.5 million (40.3% of revenues), including $3.6 million and
$1.2 million, respectively, of direct sales to customers in Japan and Europe 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. However, 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 three
months ended December 31, 1997.
Page 9 of 18
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BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Gross Profit
Gross profit as a percentage of revenues decreased to 32.6% in the three months
ended December 31, 1997 compared with 34.0% for the comparable prior fiscal
period. The decrease in the gross profit percentage is primarily attributable to
underutilization of manufacturing capacity due to the delay of certain new
product shipments and pricing pressure from our volume production customers,
partially offset by the sales mix of higher gross margin 200mm products.
Global support costs, including primarily personnel costs and travel expenses,
were $1.5 million for the three months ended December 31, 1997 consistent with
the comparable prior fiscal period, while decreasing as a percentage of revenues
to 6.1% for the three months ended December 31, 1997 as compared with 9.4% of
revenues for the comparable prior fiscal period. The decrease in global support
costs as a percentage of revenues reflects the leveraging of our investment in
the Company's 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.
Research and Development
Research and development expenses increased 82.0% to $5.1 million (20.8% of
revenues) for the three months ended December 31, 1997 from $2.8 million (17.4%
of revenues) in the comparable prior fiscal period. The increase in research and
development expenses 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 58.5% to $4.0 million
(16.4% of revenues) for the three months ended December 31, 1997 from $2.6
million (15.9% 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 expected growth.
Interest Expense and Income
Interest expense for the three months ended December 31, 1997, before
amortization of $115,000 of deferred financing costs, decreased to $25,000 (0.1%
of revenues) from $71,000 (0.4% 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. There
were no borrowings outstanding under these credit facilities at December 31,
1997. The amortization of deferred financing costs included in interest expense
in the current quarter resulted from the repayment of the related note payable
in December 1997. Interest income increased to $939,000 (3.8% of revenues) for
the three months ended December 31, 1997 from $16,000 (0.1% of revenues) in the
comparable prior fiscal period. The increase in interest income is due to higher
cash and investment balances during the current quarter, resulting from the
Company's $80.8 million public stock offering in September 1997.
Income Tax Provision (Benefit)
During the three months ended December 31, 1997, the Company recorded a net tax
benefit of $110,000 primarily due to the tax benefit of domestic operating loss
and tax credit carrybacks, and research and development tax credit
carryforwards.
Page 10 of 18
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BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had working capital of $112.3 million,
including $69.2 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 three months ended December 31, 1997, the
Company used cash of $802,000 in operating activities, primarily to finance
increased inventory levels. Inventories increased during the three months ended
December 31, 1997 primarily due to the Company's delay of certain new product
shipments and shipments destined for Asia pending resolution of credit
arrangements. Decreased levels of accounts receivable generated cash of $1.5
million, which was offset by an overall increase in inventories of $2.9 million.
Investing activities during the three months ended December 31, 1997 consisted
primarily of capital spending for computer hardware and software. The Company
anticipates that it will continue to make capital expenditures to support its
business as the Company expands its product offerings. The Company is currently
expanding the manufacturing capacity in its Chelmsford, Massachusetts facility,
and anticipates capital spending in fiscal 1998 of at least $1.5 million in
connection with this project.
Financing activities during the three months ended December 31, 1997 consisted
primarily of the issuance of common stock under the employee stock purchase plan
and the repayment of a note payable.
The Company is currently negotiating the annual renewal of its $22.0 million
unsecured revolving line of credit and a $6.0 million unsecured foreign currency
line of credit, both of which expired December 31, 1997. There were no
borrowings outstanding under these credit facilities at December 31, 1997.
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 anticipated cash from operations and 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,
Page 11 of 18
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BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 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 three months ended
December 31, 1997, fiscal 1997 and fiscal 1996 accounted for 76%, 71% and 69% of
revenues, respectively. In the three months ended December 31, 1997 and in
fiscal 1997 and fiscal 1996, sales to Lam Research Corporation ("Lam"), the
Company's largest customer in these periods, accounted for 19%, 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.
Page 12 of 18
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Risks of International Sales and Operations
During the three months ended December 31, 1997 and in fiscal 1997 and fiscal
1996, the Company derived approximately 36%, 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 and Taiwan. 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.
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 production 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 13 of 18
<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.
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
Page 14 of 18
<PAGE>
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
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 15 of 18
<PAGE>
BROOKS AUTOMATION, INC.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION.
Effective February 2, 1998, Stanley D. Piekos has resigned from his position as
the Company's Chief Financial Officer. Deborah D. Fox, the Company's Corporate
Controller, will perform the functions of Chief Financial Officer on an interim
basis.
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 December 31, 1997.
Page 16 of 18
<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.
February 17, 1998 /s/ Robert J. Therrien
- ----------------- ----------------------
[Date] Robert J. Therrien
Chief Executive Officer,
President and Treasurer
February 17, 1998 /s/ Deborah D. Fox
- ----------------- ------------------
[Date] Deborah D. Fox
Corporate Controller and
Chief Accounting Officer
Page 17 of 18
<PAGE>
Exhibit 11.01
BROOKS AUTOMATION, INC.
Computation of Net Income (Loss) Per Share
(in thousands, except per share amounts)
Three months ended
December 31,
1997 1996
Net income (loss) applicable to common shares........ $ (230) $ 40
========= =======
Weighted average shares outstanding:
Common stock (basic share base)............... 10,053 7,569
Assumed conversion of stock
options .................................... - 856
--------- -------
Diluted share base..................... 10,053 8,425
========= =======
Net income (loss) per share - Basic........... $ (0.02) $ -
========= =======
Net income (loss) per share - Diluted......... $ (0.02) $ -
========= =======
Page 18 of 18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 69,155
<SECURITIES> 0
<RECEIVABLES> 26,874
<ALLOWANCES> (266)
<INVENTORY> 26,014
<CURRENT-ASSETS> 126,257
<PP&E> 30,251
<DEPRECIATION> 11,137
<TOTAL-ASSETS> 148,560
<CURRENT-LIABILITIES> 13,963
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 133,525
<TOTAL-LIABILITY-AND-EQUITY> 148,560
<SALES> 24,630
<TOTAL-REVENUES> 24,630
<CGS> 16,609
<TOTAL-COSTS> 9,160
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> (340)
<INCOME-TAX> (110)
<INCOME-CONTINUING> (230)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (230)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
