<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, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____ Commission File Number 0-25434
-------
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, 1999, there were outstanding 11,059,047 shares of the
Company's Common Stock, $0.01 par value.
This report, including all exhibits and attachments, contains 20 pages.
<PAGE>
BROOKS AUTOMATION, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION Number(s)
- ------- --------------------- ---------
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1999
and September 30, 1998 3
Condensed Consolidated Statements of Operations for the
six months and three months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-13
Item 3 Quantitative and Qualitative Disclosures about Market Risk 14
Risk Factors 15-18
PART II. OTHER INFORMATION
- -------- -----------------
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 20
Page 2 of 20
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BROOKS AUTOMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share data) March 31, September 30,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 69,277 $ 68,161
Accounts receivable, net of allowances for doubtful accounts of
$1,981 and $1,898, respectively, and including related party
receivables of $2,940 and $2,365, respectively 23,123 20,701
Inventories 16,839 19,589
Prepaid expenses and other current assets 9,075 9,641
--------- ---------
Total current assets 118,314 118,092
Fixed assets, net 17,488 18,606
Other assets 4,370 4,254
--------- ---------
Total assets $ 140,172 $ 140,952
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,473 $ 5,505
Accrued expenses and other current liabilities 12,099 12,666
--------- ---------
Total current liabilities 17,572 18,171
Other long-term liabilities 759 1,018
--------- ---------
Total liabilities 18,331 19,189
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized;
none issued and outstanding - -
Common stock, $0.01 par value; 21,500,000 shares authorized;
11,057,058 and 11,007,281 shares issued and outstanding, respectively 111 110
Additional paid-in capital 129,237 128,839
Cumulative translation adjustment (431) (536)
Deferred compensation (104) (119)
Accumulated deficit (6,972) (6,531)
--------- ---------
Total stockholders' equity 121,841 121,763
--------- ---------
Total liabilities and stockholders' equity $ 140,172 $ 140,952
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3 of 20
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BROOKS AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
(In thousands, except share related data) Six months ended March 31, Three months ended March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product $ 33,635 $ 43,779 $ 18,480 $ 18,746
Services 9,450 9,944 4,796 5,329
-------- -------- -------- --------
Total revenues 43,085 53,723 23,276 24,075
-------- -------- -------- --------
Cost of revenues:
Product 18,024 30,714 9,456 16,235
Services 5,953 7,635 3,453 4,105
-------- -------- -------- --------
Total cost of revenues 23,977 38,349 12,909 20,340
-------- -------- -------- --------
Gross profit 19,108 15,374 10,367 3,735
-------- -------- -------- --------
Operating expenses:
Research and development 8,797 12,944 4,705 6,200
Selling, general and administrative 11,920 14,501 6,193 7,426
-------- -------- -------- --------
Total operating expenses 20,717 27,445 10,898 13,626
-------- -------- -------- --------
Loss from operations (1,609) (12,071) (531) (9,891)
Interest income, net 1,473 1,508 749 818
-------- -------- -------- --------
Income (loss) before income taxes (136) (10,563) 218 (9,073)
Income tax provision (benefit) 305 (1,287) 83 (2,651)
-------- -------- -------- --------
Net income (loss) (441) (9,276) 135 (6,422)
Dividends on preferred stock - 261 - 130
-------- -------- -------- --------
Net income (loss) attributable to common stockholders $ (441) $ (9,537) $ 135 $ (6,552)
======== ======== ======== ========
Income (loss) per share:
Basic $ (0.04) $ (0.93) $ 0.01 $ (0.64)
Diluted $ (0.04) $ (0.93) $ 0.01 $ (0.64)
Shares used in computing income (loss) per share:
Basic 11,028 10,235 11,045 10,275
Diluted 11,028 10,235 11,793 10,275
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4 of 20
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BROOKS AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended March 31,
(In thousands) 1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $ (441) $ (9,276)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,369 3,802
Compensation expense related to common stock options 15 73
Deferred income taxes (277) (1,370)
Changes in operating assets and liabilities:
Accounts receivable (2,402) 9,281
Inventories 2,765 (3,602)
Prepaid expenses and other current assets 566 (619)
Accounts payable (38) 709
Accrued expenses and other current liabilities (477) (700)
-------- --------
Net cash provided by (used in) operating activities 3,080 (1,702)
-------- --------
Cash flows from investing activities
Purchases of fixed assets, net (2,085) (3,631)
Increase in other assets (194) (373)
-------- --------
Net cash used in investing activities (2,279) (4,004)
-------- --------
Cash flows from financing activities
Payments on capital leases (200) (417)
Proceeds from sale and leaseback of equipment - 151
Proceeds from issuance of common stock 399 388
-------- --------
Net cash provided by financing activities 199 122
-------- --------
Elimination of net cash activities of FASTech for the
three months ended December 31, 1997 - (1,761)
-------- --------
Effects of exchange rate changes on cash and cash equivalents 116 93
-------- --------
Net increase (decrease) in cash and cash equivalents 1,116 (7,252)
Cash and cash equivalents, beginning of period 68,161 75,253
-------- --------
Cash and cash equivalents, end of period $ 69,277 $ 68,001
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5 of 20
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BROOKS AUTOMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
----------------------
The accompanying unaudited condensed consolidated financial statements of
Brooks Automation, Inc. and its subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles and 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 financial statements for the six and three months
ended March 31, 1998, have been restated to reflect the fiscal 1998
acquisition of FASTech Integration, Inc., which was accounted for under the
pooling of interests method. Certain prior year balances have been
reclassified to conform to the current year presentation. For further
information, refer to the audited consolidated financial statements of the
Company that are included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1998.
The results of operations for the six months and three months ended March 31,
1999, are not necessarily indicative of the results that may be expected for
other quarters or the entire fiscal year.
2. Inventories
-----------
Inventories consist of the following (in thousands):
March 31, September 30,
1999 1998
------------- -------------
Raw materials and purchased parts $ 5,377 $ 8,815
Work-in-process 8,666 7,878
Finished goods 2,796 2,896
------------- -------------
$16,839 $19,589
============= =============
3. Income (Loss) Per Share
-----------------------
The following is a summary of the shares used in computing basic and diluted
income (loss) per share (in thousands):
<TABLE>
<CAPTION>
Six months ended Three months ended
March 31, March 31,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average shares outstanding used in computing
basic income (loss) per share 11,028 10,235 11,045 10,275
Dilutive securities - - 748 -
------ ------ ------ ------
Shares used in computing diluted income (loss) per share 11,028 10,235 11,793 10,275
====== ====== ====== ======
</TABLE>
4. Comprehensive Income (Loss)
---------------------------
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income" in the first quarter of fiscal 1999.
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of SFAS No. 130 had no
impact on the Company's net income (loss) or stockholders' equity. Total
comprehensive income (loss), which was comprised of net income (loss) and
foreign currency translation adjustments, was as follows (in thousands):
Page 6 of 20
<PAGE>
<TABLE>
<CAPTION>
Six months ended March 31, Three months ended March 31,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ (441) $ (9,276) $ 135 $ (6,422)
Foreign currency translation adjustments 105 (211) 30 504
-------- -------- -------- --------
Total comprehensive income (loss) $ (336) $ (9,487) $ 165 $ (5,918)
======== ======== ======== ========
</TABLE>
5. Recent Accounting Pronouncements
--------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for reporting information on
operating segments in interim and annual financial statements. The
statement is effective for the Company for fiscal 1999, however, there are no
interim disclosure requirements in the year of adoption. Adoption of this
statement will not have an impact on the Company's results of operations or
financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (fiscal
2000 for the Company) and requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part
of a hedge transaction and, if it is, the type of hedge transaction.
Management anticipates that the adoption of SFAS No. 133 will not have a
material impact on the Company's results of operations or financial position.
6. Significant Customers and Related Party Information
----------------------------------------------------
For the six months ended March 31, 1999 and 1998, the Company had revenues
from a related party representing 10% and 19% of revenues, respectively. For
the three months ended March 31, 1999 and 1998, the Company had revenues from
a related party representing 15% and 29% of revenues, respectively. At March
31, 1999 and September 30, 1998, accounts receivable from a related party
accounted for 13% and 11% of total accounts receivable, respectively.
For the six months ended March 31, 1999 and 1998, the Company had revenues
from a customer (not the same customer in each period and not a related
party) representing 13% and 10% of revenues, respectively. For the three
months ended March 31, 1999, the Company had revenues from a customer (not a
related party) representing 10% of revenues. For the three months ended March
31, 1998, the Company had revenues from two customers (not related parties)
which each represented 12% of revenues. At March 31, 1999, there were no non-
related parties representing more than 10% of accounts receivable. At
September 30, 1998, accounts receivable from one customer (not a related
party) represented 14% of total accounts receivable.
7. Contingency
-----------
There has been substantial litigation regarding patent and other intellectual
property rights in the semiconductor and related industries. 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.
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. 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. 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.
8. Subsequent Events
-----------------
In April 1999 the Company acquired Hanyon Technology, Inc. ("Hanyon") for
$6.6 million in cash subject to certain post closing adjustments. The Company
will use the purchase accounting method to account for the acquisition.
Hanyon, based in Korea, provides Manufacturing Executing Systems (MES) and
automation software and systems integration services to the semiconductor and
LCD industries in Korea and Taiwan.
Page 7 of 20
<PAGE>
In April 1999 the Company announced an agreement to form a joint venture in
Korea with Samsung Electronics. The Company's initial cash investment in this
joint venture will be $3.5 million. This joint venture will be 70% owned by
the Company and 30% owned by Samsung, and is being organized to design,
develop, and manufacture atmospheric flat panel display loaders along with
other products.
Page 8 of 20
<PAGE>
BROOKS AUTOMATION, INC.
ITEM 2. 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
Brooks Automation, Inc. (the "Company") is in the semiconductor wafer
handling business. 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, 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.
In 1998 the Company acquired FASTech Integration, Inc. ("FASTech"), a
designer and supplier of top-to-bottom integrated Manufacturing Execution
System (MES) software solutions.
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's product revenues include sales of
hardware and software products; the Company's service revenues include
revenue from maintenance contracts and application consulting contracts.
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 do not impact operating results, but instead are
reflected as a component of stockholders' equity. To the extent 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 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.
The Company's stock is currently quoted on the Nasdaq National Market under
the symbol "BRKS."
Page 9 of 20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated as a percentage of total revenues:
<TABLE>
<CAPTION>
Six months ended Three months ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product 78.1% 81.5% 79.4% 77.9%
Services 21.9% 18.5% 20.6% 22.1%
------ ------ ------ ------
Total revenues 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Gross profit:
Product 46.4% 29.8% 48.8% 13.4%
Services 37.0% 23.2% 28.0% 23.0%
------ ------ ------ ------
Total gross profit 44.3% 28.6% 44.5% 15.5%
------ ------ ------ ------
Operating expenses:
Research and development 20.4% 24.1% 20.2% 25.8%
Selling, general and administrative 27.6% 27.0% 26.6% 30.8%
------ ------ ------ ------
Loss from operations (3.7%) (22.5%) (2.3%) (41.1%)
Interest income, net 3.4% 2.8% 3.2% 3.4%
------ ------ ------ ------
Income (loss) before income taxes (0.3%) (19.7%) 0.9% (37.7%)
====== ====== ====== ======
</TABLE>
SIX AND THREE MONTHS ENDED MARCH 31, 1999, COMPARED WITH SIX AND THREE MONTHS
ENDED MARCH 31, 1998:
Revenues
For the six months ended March 31, 1999, total revenues decreased 19.8% to
$43.1 million compared to $53.7 million for the six months ended March 31,
1998. Product revenues decreased by 23.2% to $33.6 million and service
revenues decreased 5.0% to $9.5 million. For the three months ended March 31,
1999, total revenues decreased 3.3% to $23.3 million compared with revenues
of $24.1 million in the comparable quarter of the prior fiscal year. Product
revenues decreased 1.4% to $18.5 million and service revenues decreased 10%
to $4.8 million. The decrease in product revenues for the three and six
months was primarily the result of the prolonged economic downturn currently
impacting the semiconductor industry and related fabrication equipment
sector. For the six months ended March 31, 1999, international sales
represented 46% of total revenue compared to 33% for the comparable six
months of the prior fiscal year. For the three months ended March 31, 1999,
international sales represented 34% of total revenue compared to 30% for the
comparable quarter last year. The Company expects that foreign revenues will
continue to account for a significant portion of total revenues in fiscal
1999. However, there can be no assurance that foreign revenues, particularly
from Asia, which is suffering regional economic downturns, will remain a
strong component of the Company's total revenues.
Page 10 of 20
<PAGE>
Gross Profit
Overall, the gross profit percentage increased to 44.3% for the six months
ended March 31, 1999, compared to 28.6% (36.4% excluding an inventory charge
of $4.2 million to provide additional reserves for slow-moving and obsolete
inventories) in the comparable six months of the prior fiscal year. The gross
profit percentage for product revenue was 46.4%, an increase compared to
29.8% (39.4% excluding the inventory charge) in the comparable six months of
the prior fiscal year. For the three months ended March 31, 1999, the gross
profit percentage increased to 44.5%, compared to 15.5% (33.0% excluding the
inventory charge) in the comparable quarter of the prior fiscal year. The
gross profit percentage for product revenues was 48.8%, an increase from
13.4% (35.8% excluding the inventory charge) in the comparable quarter of the
prior fiscal year. The increase is primarily a result of lower material costs
for hardware products and an increased percentage of higher margin software
revenues.
For the six months ended March 31, 1999, the gross profit percentage of
service revenues increased to 37.0% from 23.2% in the comparable six months
of the prior fiscal year. For the three months ended March 31, 1999, the
gross profit percentage of service revenues increased to 28.0% as compared
with 23.0% in the comparable quarter of the prior fiscal year. These
improvements are primarily a result of personnel and personnel-related cost
reductions. Included in the cost of services revenues are global support
costs, which consist primarily of personnel costs and travel expenses.
Research and Development
Research and development expenses decreased 32.0% to $8.8 million (20.4% of
revenues) for the six months ended March 31, 1999, from $12.9 million (24.1%
of revenues) in the comparable six months of the prior fiscal year. For the
three months ended March 31, 1999, research and development expenses
decreased 24.1% to $4.7 million (20.2% of revenues) from $6.2 million (25.8%
of revenues) in the comparable quarter of the prior fiscal year. The
decrease in research and development expenses is due primarily to lower
personnel and personnel-related costs following a reduction in headcount in
the second and fourth quarters of fiscal 1998.
Selling, General and Administrative
Selling, general and administrative expenses decreased 17.8% to $11.9 million
(27.6% of revenues) for the six months ended March 31, 1999, from $14.5
million (27.0% of revenues) in the comparable six months of the prior fiscal
year. Selling, general and administrative expenses decreased 16.6% to $6.2
million (26.6% of revenues) for the three months ended March 31, 1999, from
$7.4 million (30.8% of revenues) in the comparable quarter of the prior
fiscal year. The decrease in selling, general and administrative expenses is
due primarily to lower personnel and personnel-related costs following a
reduction in headcount in the second and fourth quarters of fiscal 1998 and
expense control programs initiated during the third and fourth quarters of
fiscal 1998.
Interest Income, Net
Interest income, net was relatively consistent for the six months ended March
31, 1999 and 1998. Interest income, net for the three months ended March 31,
1999, decreased to $749,000 from $818,000 in the comparable quarter of the
prior fiscal year. The decrease in interest income, net is due primarily to
lower interest rates earned on invested funds in the current period. The
comparable 1998 period includes interest expense of $71,000 for deferred
financing costs resulting from the repayment of a note and interest on
subordinated notes, as well as capital leases repaid during fiscal 1998.
Income Tax Provision
The Company recorded tax provisions of $305,000 and $83,000, respectively,
for the six and three-month periods ended March 31, 1999, due primarily to
taxes on revenues and profit from foreign operations. The Company recorded
net tax benefits of $1,287,000 and $2,651,000, respectively, during the six
and three month periods of the prior fiscal year primarily reflecting the tax
benefit of domestic net operating losses.
Page 11 of 20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company's principal source of liquidity consisted
of $69.3 million in cash and cash equivalents, compared to $68.2 million at
September 30, 1998. The Company had working capital of $100.7 million as of
March 31, 1999, compared to $99.9 million at September 30, 1998.
For the six months ended March 31, 1999, cash and cash equivalents increased
$1.1 million primarily as a result of $3.1 million of cash generated by
operating activities, partially offset by $2.3 million of cash used for
investing activities. The positive operating cash flow resulted primarily
from decreases in inventory and prepaid expenses and other current assets and
the Company's net loss adjusted for non-cash items partially offset by a
decrease in accrued liabilities and an increase in accounts receivable.
The Company's investing activities consisted of capital spending aggregating
$2.1 million during the six months ended March 31, 1999, primarily for
business information systems including computer hardware and software, as
well as headquarters facility improvements. The Company expects to continue
to make capital expenditures to support its business activities.
Additionally, the Company is considering the acquisition of companies,
technologies or products in 1999 which are complementary to its business. In
April 1999, the Company acquired Hanyon Technology, Inc. for $6.6 million in
cash subject to certain post closing adjustments. Financing activities
consisted of repayments of long-term debt and capital lease obligations more
than offset by the proceeds from the issuance of common stock. The Company
believes that current cash and cash equivalent balances will be adequate to
fund planned working capital and capital expenditure requirements for at
least the next twelve months.
YEAR 2000 READINESS
The year 2000 issue is the potential for system and processing failure of
date-related data as the result of computer-controlled systems using two
digits rather than four digits to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company may be affected by year 2000 issues related to noncompliant
information technology ("IT") systems or non-IT systems operated or sold by
the Company or by third parties. The Company has substantially completed
assessment of its internal IT systems and non-IT systems. At this point in
its assessment, the Company is not currently aware of any year 2000 problems
relating to systems operated or sold by the Company that would have a
material adverse effect on the Company's business, results of operations, or
financial condition without taking into account the Company's efforts to
avoid such problems.
Although the Company believes that its systems are year 2000 compliant, the
Company utilizes third-party equipment and software that may not be year 2000
compliant. In addition, the Company's products and software are often sold
to be integrated into or interfaced with third-party equipment or software.
Failure of third-party equipment or software to operate properly with regard
to the year 2000 and thereafter could require the Company to incur
unanticipated expenses to remedy any problems, which could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company may also be vulnerable to any failures by its major
suppliers, service providers, and customers to remedy their own internal IT
and non-IT system year 2000 issues which could, among other things, have a
material adverse effect on the Company supplies and orders. At this time,
the Company is unable to estimate the nature or extent of any potential
adverse impact resulting from the failure of third parties, such as its
suppliers, service providers and customers, to achieve year 2000 compliance.
Moreover, such third parties, even if year 2000 compliant, could experience
difficulties resulting from year 2000 issues that may affect their suppliers,
service providers and customers. As a result, although the Company does not
currently anticipate that it will experience any material shipment delays
from its major product suppliers or any material sales delays from its major
customers due to year 2000 issues, there can be no assurance that these third
parties will not experience year 2000 problems or that any problems would not
have an adverse material effect on the Company's business, results of
operations and financial condition. Because the cost and timing of year 2000
compliance by third parties such as suppliers, service providers and
customers is not within the Company's control, the Company cannot give any
assurance with respect to the cost or timing of such efforts or any potential
adverse effects on the Company of any failure by these third parties to
achieve year 2000 compliance.
The Company is currently developing a contingency plan in the event year 2000
problems relating to its operations arise. The Company's failure to develop
a contingency plan could have a material adverse effect on the Company's
business, results of operations and financial condition.
Page 12 of 20
<PAGE>
To the extent that the Company does not identify any material non-compliant
IT systems or non-IT systems operated by the Company or by third parties,
such as the Company's suppliers, service providers and customers, the most
reasonably likely worst case year 2000 scenario is a systematic failure
beyond the control of the Company, such as a prolonged telecommunications or
electrical failure, or a general disruption in United States or global
business activities that could result in a significant economic downturn.
The Company believes that the primary business risks, in the event of such
failure or other disruption, would include but not be limited to, loss of
customers or orders, increased operating costs, inability to obtain inventory
on a timely basis, disruptions in product shipments, or other business
interruptions of a material nature, as well as claims of mismanagement,
misrepresentation, or breach of contract, any of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Page 13 of 20
<PAGE>
BROOKS AUTOMATION, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
INTEREST RATE EXPOSURE
Based on the Company's overall interest exposure at March 31, 1999, including
all interest rate sensitive instruments, a near-term change in interest rates
within a 95% confidence level based on historical interest rate movements
would not materially affect the consolidated results of operations or
financial position.
CURRENCY RATE EXPOSURE
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 do not impact operating results, but instead are
reflected as a component of stockholders' equity. To the extent 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.
STOCK PRICE
The stock prices of semiconductor equipment companies are subject to
significant fluctuations. The Company's stock price may be affected by a
variety of factors that 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 14 of 20
<PAGE>
BROOKS AUTOMATION, INC.
RISK FACTORS
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made by
its employees may contain forward-looking information that involve
substantial risks and uncertainties that could cause actual results to differ
materially from targets or projected 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 and
software products; 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,
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 is presently experiencing a period of oversupply, resulting in
significantly reduced demand for capital equipment, including the products
manufactured and marketed by the Company. The Company's financial condition,
revenues and results of operations have been materially and adversely
affected by the semiconductor industry downturns and may be materially
adversely affected by future downturns. 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 (on the basis of its experience during the
course of the present downturn) 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,
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, 1999 and 1998 accounted for 60% and 64% of total revenues,
respectively. In the six months ended March 31, 1999 and 1998, sales to one
customer (not the same customer and not a related party) accounted for 13%
and 10% of total revenues, respectively. In fiscal 1999 and 1998, sales to
Lam Research Corporation (a related party), accounted for 10% and 19% of the
Company's total revenues, respectively. The Company's customers generally do
not enter into long-term agreements obligating them to purchase the Company's
products. A reduction or delay in orders from any significant customer
Page 15 of 20
<PAGE>
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
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, 1999 and 1998, the Company derived 46%
and 33% of its revenues from customers located outside North America. 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, South Korea, Taiwan,
UK, Germany 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.
The Company will continue to be affected, for the foreseeable future, by
unstable Asian economies, 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 Asian economic
situation may have on the Company's liquidity and earnings.
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.
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.
Page 16 of 20
<PAGE>
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 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 MES and 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 successfully market 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.
Attraction and Retention of Key Personnel
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 are 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. Competition for such personnel is intense, and there can be
no assurance that the Company will attract and retain personnel necessary for
the development of its business.
Risks Associated with Acquisitions
The Company completed the acquisition of FASTech on September 30, 1998, and
Hanyon Technology in April 1999. Additionally, the Company is considering the
acquisition of companies, technologies, or products in 1999 which are
complementary to its business. Acquisitions by the Company of other companies
or businesses will require, among other things, integration of the companies'
respective products, technologies, management information systems,
distribution channels and key personnel, and the coordination of their sales,
marketing and research and development efforts. There can be no assurance
that such integration will be accomplished smoothly or successfully, if at
all. If significant difficulties are encountered in the integration of the
existing products or technologies or the development of new products and
technologies, resources could be diverted from new product development; and
delays in new product introductions could occur. The integration of
operations and technologies will require the dedication of management and
other personnel which may distract their attention from the day-to-day
business of the Company, the development or acquisition of new technologies,
and the pursuit of other business acquisition opportunities. Failure to
successfully accomplish the integration and development of the companies'
operations and technologies would likely have a material adverse effect on
the Company's business, financial condition, and results of operations.
Intellectual Property Protection and Related Contingency
The Company relies upon trade secrets and patents to protect its technology.
Due to the rapid technological change that characterizes the semiconductor
and flat panel display process equipment industries, the Company believes
that the improvement of existing technology, reliance upon trade
Page 17 of 20
<PAGE>
secrets and unpatented proprietary know-how and the development of new
products may be more important than patent protection in establishing and
maintaining a competitive advantage. It is the Company's policy to require
all technical and management personnel to enter into nondisclosure
agreements. Nevertheless, the Company has obtained patents and will continue
to make efforts to obtain patents, when available, in connection with its
product development programs. There can be no assurance that any patent
obtained will provide protection or be of commercial benefit to the Company,
or that its validity will not be challenged. 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 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. 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. No assurance can be given that any such patent
application will not have priority over patent applications filed by the
Company.
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
infringement of patents then owned by General Signal, 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"). According to a 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. 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 would 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 18 of 20
<PAGE>
BROOKS AUTOMATION, INC.
PART II. OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
The following matter was submitted to a vote of security holders
during the Company's Annual Meeting held February 25, 1999.
1. Election of directors:
Votes Cast For Authority Withheld
-------------- ------------------
Robert J. Therrien 8,909,158 137,598
Roger D. Emerick 8,909,158 137,598
Amin J. Khoury 8,908,725 138,031
Item 6 (a) EXHIBITS.
---------
Exhibit No.
-----------
2.03 Stock for Cash Purchase Agreement dated as of March
31, 1999 among the registrant, Hanyon, and certain
other parties, incorporated by reference to the
Company's Current Report on Form 8-K dated May 6,
1999.
27.01 Financial Data Schedule
Item 6 (b) REPORTS ON FORM 8-K
-------------------
The Company filed a Current Report on Form 8-K dated May 6, 1999, reporting
the acquisition of Hanyon Technology.
Page 19 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, 1999 /s/ Robert J. Therrien
- ------------------------ ---------------------------------------------
Robert J. Therrien
Director and President
(Principal Executive Officer)
May 14, 1999 /s/ Ellen B. Richstone
- ------------------------ ---------------------------------------------
Ellen B. Richstone
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Page 20 of 20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3/31/1999
FORM 10-Q 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-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 69,277
<SECURITIES> 0
<RECEIVABLES> 25,104
<ALLOWANCES> 1,981
<INVENTORY> 16,839
<CURRENT-ASSETS> 118,314
<PP&E> 41,751
<DEPRECIATION> 24,263
<TOTAL-ASSETS> 140,172
<CURRENT-LIABILITIES> 17,572
<BONDS> 11
0
0
<COMMON> 111
<OTHER-SE> 121,730
<TOTAL-LIABILITY-AND-EQUITY> 140,172
<SALES> 33,635
<TOTAL-REVENUES> 43,085
<CGS> 18,024
<TOTAL-COSTS> 23,977
<OTHER-EXPENSES> 20,544
<LOSS-PROVISION> 173
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (136)
<INCOME-TAX> 305
<INCOME-CONTINUING> (441)
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<EXTRAORDINARY> 0
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<NET-INCOME> (441)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
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