-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JLxnuwSXsu+G9xfFLmQ5TQo47rRtClld4WWvt/xH/VPthT7ta00nGL8XpAa5+5wN W/pHJWzve23J0hfNwBXDzg== 0000927016-98-003103.txt : 19980817 0000927016-98-003103.hdr.sgml : 19980817 ACCESSION NUMBER: 0000927016-98-003103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROOKS AUTOMATION INC CENTRAL INDEX KEY: 0000933974 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 043040660 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25434 FILM NUMBER: 98686931 BUSINESS ADDRESS: STREET 1: 15 ELIZABETH DRIVE CITY: CHELMSFORD STATE: MA ZIP: 01824 BUSINESS PHONE: 5084531112 MAIL ADDRESS: STREET 1: 15 ELIZABETH DRIVE CITY: CHELMSBORO STATE: MA ZIP: 01824 10-Q 1 FORM 10-Q 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: June 30, 1998 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 0-25434 ------- --------- ------- BROOKS AUTOMATION, INC. (Exact name of registrant as specified in its charter) Delaware 04-3040660 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15 Elizabeth Drive Chelmsford, Massachusetts (Address of principal executive offices) 01824 (Zip Code) Registrant's telephone number, including area code: (978) 262-2566 _____________________________________________ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X NO --- --- As of August 10, 1998, there were outstanding 10,141,503 shares of the Company's Common Stock, $.01 par value. This report, including all exhibits and attachments, contains 19 pages. -- BROOKS AUTOMATION, INC. INDEX PAGE PART I 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 6-8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-17 PART II OTHER INFORMATION - ------- ----------------- Item 6 Exhibits and Reports on Form 8-K 18 Signatures 19 Page 2 of 19 BROOKS AUTOMATION, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE RELATED DATA)
JUNE 30, SEPTEMBER 30, 1998 1997 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 65,308 $ 71,753 Accounts receivable, net of allowance for doubtful accounts of $486 and $160, respectively, and including related party receivables of $3,469 and $5,204, respectively 23,560 28,408 Inventories 23,689 23,253 Prepaid expenses and other current assets 2,306 1,980 Deferred income taxes 4,963 1,710 --------- --------- Total current assets 119,826 127,104 Fixed assets, net 18,315 19,054 Other assets 3,687 3,572 --------- --------- Total assets $ 141,828 $ 149,730 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capital lease obligations $ 73 $ 399 Accounts payable 5,843 9,125 Accrued compensation and benefits 2,632 2,719 Accrued expenses and other current liabilities 2,465 2,193 --------- --------- Total current liabilities 11,013 14,436 Long-term debt and capital lease obligations 73 190 Deferred income taxes 995 905 --------- --------- Total liabilities 12,081 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; 10,138,878 and 10,052,663 shares issued and outstanding, respectively 101 101 Additional paid-in capital 117,772 117,139 Cumulative translation adjustment (394) 5 Deferred compensation (320) (416) Retained earnings 12,588 17,370 --------- --------- Total stockholders' equity 129,747 134,199 --------- --------- Total liabilities and stockholders' equity $ 141,828 $ 149,730 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. Page 3 of 19 BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 Revenues $ 67,166 $ 55,603 $ 22,325 $ 23,059 Cost of revenues 52,665 38,094 17,105 15,428 -------- -------- -------- -------- Gross profit 14,501 17,509 5,220 7,631 -------- -------- -------- -------- Operating expenses: Research and development 13,140 9,722 3,407 3,614 Selling, general and administrative 11,725 8,979 3,681 3,442 -------- -------- -------- -------- Total operating expenses 24,865 18,701 7,088 7,056 -------- -------- -------- -------- Income (loss) from operations (10,364) (1,192) (1,868) 575 Interest expense 178 415 4 158 Interest income 2,683 16 804 - -------- -------- -------- -------- Income (loss) before income taxes (7,859) (1,591) (1,068) 417 Income tax provision (benefit) (3,077) (354) (316) 150 -------- -------- -------- -------- Net income (loss) $ (4,782) $ (1,237) $ (752) $ 267 ======== ======== ======== ======== Basic income (loss) per share $ (0.47) $ (0.16) $ (0.07) $ 0.04 ======== ======== ======== ======== Diluted income (loss) per share $ (0.47) $ (0.16) $ (0.07) $ 0.03 ======== ======== ======== ======== Shares used in calculating basic income (loss) per share 10,091 7,614 10,114 7,606 ======== ======== ======== ======== Shares used in calculating diluted income (loss) per share 10,091 7,614 10,114 8,439 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Page 4 of 19 BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1998 1997 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (4,782) $ (1,237) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 4,221 3,290 Compensation expense related to common stock options 96 17 Deferred income taxes (2,930) - Changes in operating assets and liabilities: Accounts receivable 4,714 (208) Inventories (285) (3,315) Prepaid expenses and other current assets (355) (1,949) Accounts payable (3,260) 803 Accrued compensation and benefits 116 (507) Accrued expenses and other current liabilities (114) 75 --------- --------- Net cash used in operating activities (2,579) (3,031) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (2,880) (5,742) Increase in other assets (510) (1,740) --------- --------- Net cash used in investing activities (3,390) (7,482) CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under line of credit - 9,430 Principal payments on long-term debt and capital lease obligations (444) (315) Proceeds from issuance of common stock 633 349 --------- --------- Net cash provided by financing activities 189 9,464 --------- --------- Effects of exchange rate changes on cash and cash equivalents (665) 76 --------- --------- Net decrease in cash and cash equivalents (6,445) (973) Cash and cash equivalents, beginning of period 71,753 2,102 --------- --------- Cash and cash equivalents, end of period $ 65,308 $ 1,129 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. Page 5 of 19 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 nine months and three months ended June 30, 1998 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: June 30, September 30, (in thousands) 1998 1997 ---- ---- Raw materials and purchased parts $16,819 $14,750 Work-in-process 5,053 7,745 Finished goods 1,817 758 ------- ------- $23,689 $23,253 ======= =======
3. EARNINGS (LOSSES) PER SHARE --------------------------- On October 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS128), which establishes standards for computing and presenting earnings per share. The new standard replaces the presentation of earnings per share as prescribed in Accounting Principles Board Opinion No. 15, "Earnings per Share" (APB15) with a presentation of basic and diluted earnings per share on the face of the statement of operations. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted- average number of common shares outstanding for the period. The diluted earnings per share computation is similar to primary diluted earnings per share pursuant to APB15. The Company has restated all prior period earnings per share amounts in accordance with the requirements of SFAS128. The dilutive potential shares have been excluded from the diluted earnings per share calculation for the three and nine month periods ended June 30, 1998 and the nine month period ended June 30, 1997 due to their anti-dilutive effect. Page 6 of 19 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Below is a summary of the shares used in calculating basic and diluted earnings per share for the periods presented (in thousands):
Nine months ended Three months ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Weighted average shares outstanding 10,091 7,614 10,114 7,606 Dilutive potential common equivalent shares 0 0 0 833 ------ ----- ------ ----- Weighted average common and dilutive potential common shares outstanding 10,091 7,614 10,114 8,439 ====== ===== ====== =====
4. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) and Statement of Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 130 establishes standards for reporting comprehensive income and its components in the consolidated financial statements. SFAS 131 establishes standards for reporting information on operating segments in interim and annual financial statements. The Company will adopt SFAS 130 and SFAS 131 on October 1, 1998. Adoption of SFAS 130 and 131 will not have any effects on the Company's results of operations or financial position. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (October 1, 1999 for the Company). SFAS 133 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 of the Company anticipates that the adoption of SFAS 133 will not have a significant effect on the Company's results of operations or financial position. 5. SIGNIFICANT CUSTOMER AND RELATED PARTY INFORMATION -------------------------------------------------- During the nine months ended June 30, 1998 and 1997, the Company had revenues from related parties representing 21% and 23% of revenues, respectively. During the three months ended June 30, 1998 and 1997, the Company had revenues from related parties representing 15% and 28% of revenues, respectively. At June 30, 1998 and September 30, 1997, related party accounts receivable accounted for 18% of total accounts receivable. During the three months ended June 30, 1998, revenues from one customer (not a related party) represented 11% of revenues. At June 30, 1998, accounts receivable from one customer accounted for 12% of accounts receivable. At September 30, 1997, accounts receivable from three customers accounted for 46% of accounts receivable. Page 7 of 19 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. CONTINGENCY ----------- There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor related industries. The Company has received notice from a third party alleging infringements of such party's patent rights, relating to cluster tool architecture, by certain of the Company's products. In the event of litigation with respect to this claim, the Company is prepared to vigorously defend its position. However, because patent litigation can be extremely expensive and time consuming, the Company may seek to obtain a license to one or more of the disputed patents. Based upon currently available information, the Company would only do so if such license fees would not be material to the Company's consolidated financial statements. Currently, the Company does not believe that it is probable that future events related to this threatened matter will have a material adverse effect on the Company's business. The Company is currently unable to reasonably estimate any possible loss related to this matter. Page 8 of 19 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 obligations upon shipment. Additionally, the Company accrues for any estimated warranty costs upon shipment. The majority 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 Page 9 of 19 the extent that the Company expands its international operations or changes its pricing practices to denominate prices in foreign currencies, the Company will be exposed to increased risk of currency fluctuation. The Company's business is highly dependent upon the capital expenditures of semiconductor and flat panel display manufacturers which historically have been cyclical, and 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:
Nine months ended Three months ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Revenues 100.0% 100.0% 100.0% 100.0% Cost of revenues 78.4 68.5 76.6 66.9 ----- ----- ----- ----- Gross profit 21.6 31.5 23.4 33.1 Operating expenses: Research and development 19.6 17.5 15.3 15.7 Selling, general and administrative 17.4 16.1 16.5 14.9 ----- ----- ----- ----- Income (loss) from operations (15.4) (2.1) (8.4) 2.5 Interest expense 0.3 0.8 0.0 0.7 Interest income 4.0 0.0 3.6 0.0 ----- ----- ----- ----- Income (loss) before income taxes (11.7) (2.9) (4.8) 1.8 Income tax provision (benefit) (4.6) (0.7) (1.4) 0.6 ----- ----- ----- ----- Net income (loss) (7.1)% (2.2)% (3.4)% 1.2% ===== ===== ===== =====
THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1997 REVENUES Revenues for the three months ended June 30, 1998 decreased 3.2% to $22.3 million compared with revenues of $23.1 million in the comparable prior fiscal period. Revenues for the nine months ended June 30, 1998 increased 20.8% to $67.2 million compared with revenues of $55.6 million in the comparable prior fiscal period. Revenues from 200mm vacuum central wafer handling systems and components decreased 5.8% or $900,000 for the three months ended June 30, 1998 compared to the comparable prior fiscal period, and increased 31.3% or $9.7 million for the nine months ended June 30, 1998 compared to the comparable prior fiscal period. The decrease in 200mm product revenues combined with decreases in service and control software revenues in the current quarter compared to the quarter ended June 30, 1997 were partially offset by an increase in 300mm product revenues. Increased revenues from shipments of 200mm and 300mm products as well as increased service revenues, partially offset by decreased flat panel display product revenues, contributed to the overall increase in revenues in the first nine months of fiscal 1998 compared to the nine months ended June 30, 1997. The Company expects revenues in the fiscal 1998 fourth quarter Page 10 of 19 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS will decrease at least 15% compared with the three months ended June 30, 1998 due primarily to the prolonged economic downturn currently impacting the semiconductor industry and related fabrication equipment sector. Foreign revenues for the three months ended June 30, 1998 increased 73.1% to $11.2 million (50.2% of revenues), including $10.7 million of direct sales to Asian customers, compared with foreign revenues of $6.5 million (28.0% of revenues), including $4.6 million of direct sales to Asian customers in the comparable prior fiscal period. Foreign revenues for the nine months ended June 30, 1998 increased 47.7% to $25.3 million (37.6% of revenues), including $21.3 million of direct sales to Asian customers, compared with foreign revenues of $17.1 million (30.8% of revenues), including $13.0 million of direct sales to Asian customers in the comparable prior fiscal period. The Company expects that foreign revenues will continue to account for a significant portion of total revenues in fiscal 1998. 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 first nine months of fiscal 1998. GROSS PROFIT Gross profit as a percentage of revenues decreased to 23.4% and 21.6%, respectively, for the three months and nine months ended June 30, 1998 compared with 33.1% and 31.5%, respectively, for the comparable prior fiscal periods. The decrease in the gross profit percentage for the three months ended June 30, 1998 is attributable primarily to decreased revenues from product categories with higher gross profit contribution margins, primarily service and control software, as well as volume related underabsorption of fixed manufacturing overhead. The decrease in the gross profit percentage for the nine months ended June 30, 1998 is attributable to $4.2 million of nonrecurring charges in the second quarter of fiscal 1998 related to inventory reserves and severance costs, underutilization of manufacturing capacity (due in part to customer requested shipment delays primarily in the first half of fiscal 1998) and pricing pressure from volume production customers. Global support costs, including primarily personnel costs and travel expenses, decreased 23.1% to $1.4 million (6.2% of revenues) for the three months ended June 30, 1998 from $1.8 million (7.8% of revenues) in the comparable prior fiscal period. Global support costs decreased 4.6% to $4.5 million (6.7% of revenues) for the nine months ended June 30, 1998 from $4.7 million (8.5% of revenues) in the comparable prior fiscal period. The overall decrease in global support costs reflects the impact of increased global cost efficiencies and overall cost controlling measures. RESEARCH AND DEVELOPMENT Research and development expenses decreased 5.7% to $3.4 million (15.3% of revenues) for the three months ended June 30, 1998 from $3.6 million (15.7% of revenues) in the comparable prior fiscal period. Research and development expenses increased 35.2% to $13.1 million (19.6% of revenues) for the nine months ended June 30, 1998 from $9.7 million (17.5% of revenues) in the comparable prior fiscal period. The decrease in research and development expenses in the current quarter is due primarily to lower personnel costs following a reduction in headcount in the second quarter of fiscal 1998. The increase in research and development expenses in the nine months ended June 30, 1998 primarily resulted from incremental spending associated with the launch of new atmospheric products and the transition to next generation vacuum wafer handling products. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses increased 6.9% to $3.7 million (16.5% of revenues) for the three months ended June 30, 1998 from $3.4 million (14.9% of revenues) in the comparable prior fiscal period. Selling, general and administrative expenses increased 30.6% to $11.7 million (17.4% of revenues) for the nine months ended June 30, 1998 from $9.0 million (16.1% of revenues) in the comparable prior fiscal period. The increase in selling, general Page 11 of 19 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and administrative expenses is due primarily to the worldwide expansion of the Company's sales and administrative organizations. INTEREST EXPENSE AND INTEREST INCOME Interest expense for the three months ended June 30, 1998 decreased to $4,000 (0.0% of revenues) from $158,000 (0.8% of revenues) in the comparable prior fiscal period. Interest expense for the nine months ended June 30, 1998 decreased to $178,000 (0.3% of revenues) from $415,000 (0.8% of revenues) in the comparable prior fiscal period. The decrease in interest expense is due primarily to the repayment of short-term borrowings under revolving credit facilities in September 1997, partially offset by amortization of $115,000 of deferred financing costs in the first quarter of fiscal year 1998. There were no borrowings outstanding under the revolving credit facilities at June 30, 1998. The amortization of deferred financing costs included in interest expense in the first quarter of fiscal 1998 resulted from the repayment of the related note payable. Interest income increased to $804,000 (3.6% of revenues) for the three months ended June 30, 1998. Interest income for the nine months ended June 30, 1998 increased to $2.7 million (4.0% of revenues) from $16,000 in the comparable prior fiscal period. The increases in interest income are due to higher cash and investment balances during the first nine months of fiscal 1998, resulting from the Company's $80.8 million public stock offering in September 1997. INCOME TAX PROVISION (BENEFIT) The Company recorded net tax benefits of $316,000 and $3.1 million, respectively, during the three months and nine months ended June 30, 1998, primarily due to the anticipated future tax benefit of domestic net operating losses and research and development tax credit carryforwards generated during 1998. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1998, the Company had working capital of $108.8 million, including $65.3 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 nine months ended June 30, 1998, the Company used net cash of $2.6 million in operating activities, which was primarily the result of the net loss for the period combined with an increase in the deferred tax asset attributable to net operating losses generated during the period and the repayment of current liabilities. The overall decrease in cash due to the aforementioned activities was partially offset by a decrease of $4.7 million in the accounts receivable balance. Investing activities during the nine months ended June 30, 1998 consisted primarily of capital spending for information systems and facility improvements. The Company anticipates that it will continue to make capital expenditures to support its business activities. Financing activities during the nine months ended June 30, 1998 consisted primarily of the issuance of common stock under the Company's employee stock purchase plan and the repayment of long-term debt and capital lease obligations. As of June 30, 1998, the Company elected to terminate its credit facilities. There were no borrowings outstanding at June 30, 1998. The Company believes that available funds will be adequate to fund the Company's currently planned working capital and capital expenditure requirements for the next twelve months. 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. Page 12 of 19 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FACTORS THAT MAY AFFECT FUTURE RESULTS QUARTERLY FLUCTUATIONS IN OPERATING RESULTS AND MARKET PRICE OF SECURITIES The Company's operating results have in the past fluctuated and may in the future continue to fluctuate significantly depending upon a variety of factors. Such factors may include: the demand for semiconductors in general; cyclicality in the market for semiconductor manufacturing equipment; the timing and size of orders from the Company's customer base; the ability of the Company to manufacture, test and deliver products in a timely and cost effective manner; the ability of the Company's competitors to obtain orders from the Company's customers; the timing of new product announcements and releases by the Company and its competitors; the mix of products sold by the Company; and competitive pricing pressures. The Company has historically derived a substantial portion of its quarterly and annual revenues from the sale of a relatively small number of semiconductor and flat panel display substrate handling systems, which have relatively high selling prices compared to its other products. As a result, the precise timing of the recognition of revenue from an order for one or a small number of systems can have a significant impact on the Company's total revenues and operating results for a particular period. The Company's operating results for a particular period could be adversely affected if orders for a small number of systems are canceled or rescheduled by customers or cannot be filled in time to recognize revenue during that period due to, for example, unanticipated manufacturing, testing, shipping or product acceptance delays. The Company's expense levels are based, in large part, on the Company's expectations as to future revenues and are, therefore, relatively fixed in the short term. If revenue levels fall below expectations, net income will be disproportionately and adversely affected. The impact of these and other factors on the Company's revenues and operating results in any future period cannot be forecast with any degree of certainty. These factors could have a material adverse effect on the Company's business, future financial condition, revenues and results of operations. DEPENDENCE ON SEMICONDUCTOR INDUSTRY The Company's business is significantly dependent on capital expenditures by manufacturers of semiconductors. The semiconductor industry is highly cyclical and 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 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, 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 nine months ended June 30, 1998, fiscal 1997 and fiscal 1996 accounted for 72%, 71% and 69% of revenues, respectively. In the nine months ended June 30, 1998 and in fiscal 1997 and fiscal 1996, sales to Lam Research Corporation ("Lam"), the Company's largest customer in these periods, accounted for 20%, 21% and 21% of the Company's revenues, respectively. 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 Page 13 of 19 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS competitive conditions in the semiconductor or flat panel display industries, could have a material adverse effect on the Company's business, financial condition and results of operations. RELIANCE ON OEM CUSTOMERS; LENGTHY SALES CYCLE The Company's products are principally sold to OEMs which incorporate the Company's products into their equipment. Due to the significant capital commitments usually incurred by semiconductor and flat panel display manufacturers in their purchases of these OEMs' equipment, these manufacturers demand highly reliable products which may require several years for OEMs to develop. The Company's revenues are therefore primarily dependent upon the timing and effectiveness of the efforts of its OEM customers in developing and marketing equipment incorporating the Company's products. The Company's new products are generally incorporated into an OEM customer's process tools at the design stage. However, customer decisions to use the Company's products, which can often require significant expenditures by the Company without any assurance of success, often precede the generation of volume sales, if any, by a year or more. There can be no assurance that the Company will continue to achieve design wins, that the process tools manufactured by the Company's customers will be introduced in a timely manner or that such systems will achieve market acceptance. The Company's or its customers' failure to develop and introduce new products successfully and in a timely manner could materially and adversely affect the Company's business, financial condition and results of operations. RISKS OF INTERNATIONAL SALES AND OPERATIONS During the nine months ended June 30, 1998 and in fiscal 1997 and fiscal 1996, the Company derived 38%, 38% and 20% of its revenues from customers located outside the United States. The Company anticipates that international revenues will continue to account for a significant portion of its revenues. To support its international customers, the Company maintains subsidiaries in Japan, Europe, South Korea, Taiwan and Singapore. There can be no assurance that the Company will be able to manage these operations effectively or that the Company's investment in these activities will enable it to compete successfully in international markets or to meet the service and support needs of its customers. 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 crisis 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 Page 14 of 19 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. 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 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. 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 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. 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 POSSIBLE ACQUISITIONS From time to time, the Company pursues potential acquisitions of businesses, products and technologies that could complement or expand the Company's business. The Company currently has no commitments or agreements with respect to any material acquisitions. 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. 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 Page 15 of 19 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Materials"), and that, at the conclusion of that litigation, General Signal intended to enforce its rights against the Company and others. 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 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 Page 16 of 19 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. YEAR 2000 CONSIDERATIONS The Company has established a project to perform an analysis of its products and services and undertake any work necessary to ensure that they continue to operate correctly into the year 2000. The costs associated with this project will be expensed as incurred. At this time, the Company is unable to determine whether such costs will be material to its financial position or results of operations. VOLATILITY OF STOCK PRICE The Company believes that a variety of factors could cause the price of the Company's Common Stock to fluctuate, perhaps substantially, including: announcements of developments related to the Company's business; quarterly fluctuations in the Company's actual or anticipated operating results and order levels; general conditions in the semiconductor and flat panel display industries or the worldwide economy; announcements of technological innovations; new products or product enhancements by the Company or its competitors; developments in patents or other intellectual property rights and litigation; and developments in the Company's relationships with its customers and suppliers. In addition, in recent years the stock market in general and the market for shares of small capitalization and semiconductor industry-related companies in particular, have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Any such fluctuations in the future could adversely affect the market price of the Company's Common Stock. There can be no assurance that the market price of the Common Stock of the Company will not decline. Page 17 of 19 BROOKS AUTOMATION, INC. PART II: OTHER INFORMATION Item 6 (a) EXHIBITS. --------- Exhibit No. ----------- 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 June 30, 1998. Page 18 of 19 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. August 14,1998 /s/ Robert J. Therrien - -------------- --------------------------------------------- [Date] Robert J. Therrien Chief Executive Officer, President and Treasurer August 14, 1998 /s/ Deborah D. Fox - --------------- ----------------------------------------- [Date] Deborah D. Fox Corporate Controller and Chief Accounting Officer Page 19 of 19 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1998 OCT-01-1997 JUN-30-1998 65,308 0 23,560 (486) 23,689 119,826 31,676 (13,361) 141,828 11,013 0 0 0 101 129,646 141,828 67,166 67,166 52,665 24,865 0 0 178 (7,859) (3,077) (4,782) 0 0 0 (4,782) (0.47) (0.47)
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