Brooks Automation, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: June 30, 2005


o		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 incorporation or organization)		(I.R.S. Employer Identification No.)

15 Elizabeth Drive
Chelmsford, Massachusetts
(Address of principal executive offices)

01824
(Zip Code)

Registrant’s telephone number, including area code: (978) 262-2400

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No o

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date, August 1, 2005:


Common stock, $0.01 par value		45,432,213 shares

BROOKS AUTOMATION, INC.

CONSOLIDATED BALANCE SHEETS


	June 30,			September 30,
	2005			2004
	(unaudited)
	(In thousands, except share and per share data)
Assets
Current assets
Cash and cash equivalents	$	162,796		$	193,281
Marketable securities		138,841			62,086
Accounts receivable, net		90,982			122,889
Inventories		57,708			71,614
Current assets from discontinued operations		156			1,403
Prepaid expenses and other current assets		13,949			9,862

Total current assets		464,432			461,135

Property, plant and equipment, net		56,517			58,507
Long-term marketable securities		48,087			73,743
Goodwill		62,113			62,034
Intangible assets, net		4,565			6,929
Non-current assets from discontinued operations		—			303
Other assets		4,755			8,388


Total assets	$	640,469		$	671,039


Liabilities, minority interests and stockholders’ equity
Current liabilities
Current portion of long-term debt	$	12		$	11
Accounts payable		37,019			44,771
Deferred revenue		31,657			34,476
Accrued warranty and retrofit costs		11,195			11,946
Accrued compensation and benefits		15,024			25,626
Accrued retirement benefit		—			9,899
Accrued restructuring costs		9,802			6,654
Accrued income taxes payable		16,477			16,015
Current liabilities from discontinued operations		498			674
Accrued expenses and other current liabilities		14,497			16,926

Total current liabilities		136,181			166,998

Long-term debt		175,005			175,014
Accrued long-term restructuring		10,304			13,536
Other long-term liabilities		1,778			1,678

Total liabilities		323,268			357,226


Contingencies (Note 11)

Minority interests		991			918

Stockholders’ equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized, one share issued and outstanding		—			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 45,316,497 and 44,691,844 shares issued and outstanding at June 30, 2005 and September 30, 2004, respectively		453			447
Additional paid-in capital		1,242,704			1,233,526
Deferred compensation		(3,865	)		(24	)
Accumulated other comprehensive income		12,772			12,359
Accumulated deficit		(935,854	)		(933,413	)

Total stockholders’ equity		316,210			312,895


Total liabilities, minority interests and stockholders’ equity	$	640,469		$	671,039

The accompanying notes are an integral part of these unaudited consolidated financial statements.

BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(In thousands, except per share data)


	Three months ended						Nine months ended
	June 30,						June 30,
	2005			2004			2005			2004
Revenues
Product	$	82,255		$	123,052		$	262,677		$	272,610
Services		31,505			30,735			97,770			100,099

Total revenues		113,760			153,787			360,447			372,709


Cost of revenues
Product		57,586			80,392			184,438			173,989
Services		16,089			16,120			49,998			60,586

Total cost of revenues		73,675			96,512			234,436			234,575


Gross profit		40,085			57,275			126,011			138,134


Operating expenses
Research and development		16,069			16,520			48,075			48,542
Selling, general and administrative		20,503			22,385			60,695			62,143
Amortization of acquired intangible assets		737			912			2,364			2,772
Restructuring charges		928			884			9,487			3,052

Total operating expenses		38,237			40,701			120,621			116,509


Income from continuing operations		1,848			16,574			5,390			21,625

Interest income		2,267			1,229			6,463			3,455
Interest expense		2,357			2,367			7,109			7,109
Other (income) expense, net		(640	)		339			(706	)		536


Income from continuing operations before income taxes and minority interests		2,398			15,097			5,450			17,435
Income tax provision		1,251			2,711			4,265			5,553


Income from continuing operations before minority interests		1,147			12,386			1,185			11,882
Minority interests in (loss) income of consolidated subsidiary		(136	)		(65	)		72			184


Income from continuing operations		1,283			12,451			1,113			11,698

Discontinued operations:
Loss from operations		(208	)		(123	)		(3,405	)		(2,007	)
Loss on disposal		(149	)		—			(149	)		—


Loss from discontinued operations, net of income taxes		(357	)		(123	)		(3,554	)		(2,007	)


Net income (loss)	$	926		$	12,328		$	(2,441	)	$	9,691


Basic income (loss) per share from continuing operations	$	0.03		$	0.28		$	0.02		$	0.28
Basic income (loss) per share from discontinued operations		(0.01	)		(0.00	)		(0.08	)		(0.05	)

Basic income (loss) per share	$	0.02		$	0.28		$	(0.05	)	$	0.23


Diluted income (loss) per share from continuing operations	$	0.03		$	0.28		$	0.02		$	0.27
Diluted income (loss) per share from discontinued operations		(0.01	)		(0.00	)		(0.08	)		(0.05	)

Diluted income (loss) per share	$	0.02		$	0.27		$	(0.05	)	$	0.23


Shares used in computing earnings (loss) per share
Basic		44,999			44,562			44,857			42,458
Diluted		45,216			44,983			45,124			43,011

The accompanying notes are an integral part of these unaudited consolidated financial statements.

BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine months ended
	June 30,
	2005			2004
	(unaudited)
	(In thousands)
Cash flows from operating activities
Net income (loss)	$	(2,441	)	$	9,691
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		11,378			13,004
Stock based compensation		1,682			1,751
Amortization of debt discount and issuance costs		629			629
Minority interests		72			184
Loss on disposal of long-lived assets		1,228			379
Changes in operating assets and liabilities:
Accounts receivable		35,047			(31,771	)
Inventories		14,724			(23,494	)
Prepaid expenses and other assets		(1,990	)		4,667
Accounts payable		(8,139	)		15,957
Deferred revenue		(3,272	)		4,057
Accrued warranty and retrofit costs		(939	)		130
Accrued compensation and benefits		(10,748	)		9,130
Accrued restructuring costs		135			(8,570	)
Accrued expenses and other liabilities		(12,442	)		2,461

Net cash provided by (used in) operating activities		24,924			(1,795	)


Cash flows from investing activities
Purchases of property, plant and equipment		(8,503	)		(3,823	)
Purchases of marketable securities		(380,464	)		(182,400	)
Sale/maturity of marketable securities		329,057			128,717

Net cash used in investing activities		(59,910	)		(57,506	)


Cash flows from financing activities
Payments of long-term debt		(8	)		(96	)
Proceeds from issuance of common stock, net of issuance costs		3,671			128,621

Net cash provided by financing activities		3,663			128,525


Effects of exchange rate changes on cash and cash equivalents		838			402


Net increase (decrease) in cash and cash equivalents		(30,485	)		69,626
Cash and cash equivalents, beginning of period		193,281			124,999


Cash and cash equivalents, end of period	$	162,796		$	194,625

The accompanying notes are an integral part of these unaudited consolidated financial statements.

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Basis of Presentation

The unaudited consolidated financial statements of Brooks Automation, Inc. and its subsidiaries (“Brooks” or the “Company”) included herein have been prepared in accordance with generally accepted accounting principles. In the opinion of management, all material adjustments which are of a normal and recurring nature necessary for a fair presentation of the results for the periods presented have been reflected.

The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission for the year ended September 30, 2004.

Certain amounts in previously issued financial statements have been reclassified to conform to current presentation (see Note 5).

In November 2004, the FASB issued FASB Statement No. 151, “Inventory Costs — an Amendment of ARB No. 43, Chapter 4” (“FAS 151”). FAS 151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of the provisions of FAS 151 is not expected to have a material impact on the Company’s financial position or results of operations.

In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), “Share-Based Payment” (“FAS 123(R)”). FAS 123(R) replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. FAS 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The provisions of this Statement are effective for the first annual reporting period that begins after June 15, 2005. The Company will adopt the provisions of FAS 123(R) effective as of October 1, 2005. The Company is currently evaluating the method of adoption and the impact of FAS 123(R) on the Company’s financial position and results of operations. The Company is also evaluating the form of any stock based incentive compensation it may offer in the future.

In December 2004, the FASB issued FASB Statement No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” (“FAS 153”). FAS 153 requires that exchanges of nonmonetary assets be measured based on the fair value of the assets exchanged. Further, it expands the exception for nonmonetary exchanges of similar productive assets to nonmonetary assets that do not have commercial substance. The provisions of this Statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of the provisions of FAS 153 is not expected to have a material impact on the Company’s financial position or results of operations.

In May 2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements” (“FAS 154”). FAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. FAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The provisions of this Statement are effective for accounting changes and corrections of errors made in fiscal periods beginning after December 15, 2005. The adoption of the provisions of FAS 154 is not expected to have a material impact on the Company’s financial position or results of operations.

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued

2. Stock Based Compensation

The Company’s employee stock compensation plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. Under this method, no compensation expense is recognized as long as the exercise price equals or exceeds the market price of the underlying stock on the date of the grant. The Company elected the disclosure-only alternative permitted under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”), as amended by FAS 148, for fixed stock-based awards to employees. All non-employee stock-based awards are accounted for at fair value and recorded as compensation expense over the period of service in accordance with FAS 123 and related interpretations.

On December 23, 2004, the Company accelerated the vesting of certain unvested stock options awarded to employees, officers and other eligible participants under the Company’s various stock option plans, other than its 1993 Non-Employee Director Stock Option Plan. As such, the Company fully vested options to purchase 1,229,239 shares of the Company’s common stock with exercise prices greater than or equal to $24.00 per share. The acceleration of the vesting of these options did not result in a charge based on generally accepted accounting principles. For pro forma disclosure requirements under FAS 123, the Company recognized $21.6 million of stock-based compensation for all options whose vesting was accelerated. The Company took this action because it may produce a more favorable impact on the Company’s results from operations in light of the effective date of FAS 123(R), which will take place in the Company’s first fiscal quarter of 2006.

The following pro forma information regarding net income (loss) has been calculated as if the Company had accounted for its employee stock options and stock purchase plan under the fair value method under FAS 123.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows (in thousands, except per share information):


	Three months ended					Nine months ended
	June 30,					June 30,
	2005			2004		2005			2004

Net income (loss), as reported	$	926		$	12,328	$	(2,441	)	$	9,691

Add stock-based employee compensation expense included in reported net income (loss)		429			11		1,054			979
Deduct pro forma stock-based compensation expense		1,635			7,497		30,897			24,395


Pro forma net income (loss)	$	(280	)	$	4,842	$	(32,284	)	$	(13,725	)


Earnings (loss) per share
Basic, as reported	$	0.02		$	0.28	$	(0.05	)	$	0.23

Diluted, as reported	$	0.02		$	0.27	$	(0.05	)	$	0.23

Basic, pro forma	$	(0.01	)	$	0.11	$	(0.72	)	$	(0.32	)

Diluted, pro forma	$	(0.01	)	$	0.11	$	(0.72	)	$	(0.32	)

Because of the acceleration of vesting described above, the fact that most options vest over several years and additional option grants are expected to be made subsequent to June 30, 2005, the results of applying the fair value method may have a materially different effect on pro forma net income (loss) in future years.

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued

3. Property, Plant and Equipment

Property, plant and equipment as of June 30, 2005 and September 30, 2004 were as follows:


	June 30,			September 30,
	2005			2004
	(In thousands)
Buildings and land	$	40,691		$	39,874
Computer equipment and software		60,574			62,824
Machinery and equipment		27,255			27,145
Furniture and fixtures		12,935			14,633
Leasehold improvements		15,601			26,147
Construction in progress		4,063			3,005

		161,119			173,628
Less accumulated depreciation and amortization		(104,602	)		(115,121	)

Property, plant and equipment, net	$	56,517		$	58,507

Depreciation expense was $2.8 million and $3.2 million for the three months ended June 30, 2005 and 2004, respectively, and $9.0 million and $10.2 million for the nine months ended June 30, 2005 and 2004, respectively.

4. Earnings (Loss) per Share

Below is a reconciliation of weighted average common shares outstanding for purposes of calculating basic and diluted earnings (loss) per share (in thousands):


	Three months ended				Nine months ended
	June 30,				June 30,
	2005		2004		2005		2004
Weighted average common shares outstanding used in computing basic earnings (loss) per share		44,999		44,562		44,857		42,458

Dilutive common stock options and restricted stock awards		217		421		267		553


Weighted average common shares outstanding for purposes of computing diluted earnings (loss) per share		45,216		44,983		45,124		43,011

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued

Approximately 4,586,000 and 4,958,000 options to purchase common stock, 205,000 and 0 shares of restricted stock and assumed conversions of the Company’s convertible debt totaling approximately 2,492,000 and 2,492,000 shares of common stock were excluded from the computation of diluted earnings (loss) per share for the three months ended June 30, 2005 and 2004, respectively, as their effect would be anti-dilutive. Approximately 4,843,000 and 5,104,000 options to purchase common stock, 153,000 and 0 shares of restricted stock and assumed conversions of the Company’s convertible debt totaling approximately 2,492,000 and 2,492,000 shares of common stock were excluded from the computation of diluted loss per share for the nine months ended June 30, 2005 and 2004, respectively, as their effect would be anti-dilutive. These options, restricted stock and conversions could, however, become dilutive in future periods.

5. Discontinued Operations

In June 2005, the Company signed definitive purchase and sale agreements to sell substantially all the assets of the Company’s Specialty Equipment and Life Sciences division (“SELS”), which provides standard and custom automation technology and products for the semiconductor, photonics, life sciences and certain other industries. A previous effort to sell SELS to a third party in October 2004 did not result in a definitive purchase and sale agreement and, as a result, the Company began to wind down operations in SELS during the second fiscal quarter The Company’s consolidated financial statements and notes reflect this business as a discontinued operation in accordance with FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

The loss from discontinued operations of $0.4 million on a pre- and post-tax basis, recorded in the three months ended June 30, 2005 includes losses from operations of $0.2 million and a loss on disposal of $0.2 million. The loss from discontinued operations of $3.6 million on a pre- and post-tax basis, recorded in the nine months ended June 30, 2005 includes losses from operations of $3.4 million, including $0.9 million of restructuring charges, and a loss on disposal of $0.2 million.

The summary of operating results from discontinued operations for the three and nine months ended June 30, 2005 and 2004 is as follows (in thousands):


	Three months ended						Nine months ended
	June 30,						June 30,
	2005			2004			2005			2004
Revenues	$	9		$	1,447		$	613		$	3,055
Gross profit (loss)		(117	)		586			(793	)		882


Loss from operations	$	(208	)	$	(123	)	$	(3,405	)	$	(2,007	)
Loss on disposal		(149	)		—			(149	)		—

Loss from discontinued operations, net of income taxes	$	(357	)	$	(123	)	$	(3,554	)	$	(2,007	)

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued

Assets and liabilities from discontinued operations at June 30, 2005 and September 30, 2004 consisted of the following (in thousands):


	June 30,		September 30,
	2005		2004

Current assets	$	156	$	1,403
Non-current assets		—		303

Assets from discontinued operations	$	156	$	1,706


Liabilities from discontinued operations	$	498	$	674

Current assets include accounts receivable and inventory. Non-current assets include property, plant and equipment. Current liabilities include accounts payable and other current liabilities.

6. Comprehensive Income (Loss)

Comprehensive income (loss) for the Company is computed as the sum of the Company’s net income (loss), the change in the cumulative translation adjustment and the total unrealized gain (loss) on the Company’s marketable securities. The calculation of the Company’s comprehensive income (loss) for the three and nine months ended June 30, 2005 and 2004 is as follows (in thousands):


	Three months ended						Nine months ended
	June 30,						June 30,
	2005			2004			2005			2004
Net income (loss)	$	926		$	12,328		$	(2,441	)	$	9,691
Change in cumulative translation adjustment, net of income taxes		(1,627	)		(97	)		1,115			1,475
Unrealized gain (loss) on marketable securities, net of income taxes		95			(1,499	)		(702	)		(695	)

Comprehensive income (loss)	$	(606	)	$	10,732		$	(2,028	)	$	10,471

7. Restricted Stock

During the three and nine months ended June 30, 2005, respectively, the Company issued 25,000 and 298,000 shares of restricted stock or units under the 2000 Equity Incentive Stock Option Plan, net of cancellations. These restricted stock awards have graded vesting over periods ranging from two to three years. Compensation expense related to these awards is being recognized on a straight line basis over the vesting period, based on the difference between the fair market value of the Company’s common stock on the date of grant and the amount received from the employee. The Company has calculated the deferred compensation expense of all restricted stock awards granted through June 30, 2005 to be $4.9 million and recorded compensation expense of $0.4 million and $1.1 million related to the vesting of these awards stock in the three and nine months ended June 30, 2005, respectively.

8. Segment, Geographic Information and Significant Customers

The Company has three reportable segments: equipment automation, factory automation hardware and factory automation software.

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued

The equipment automation segment provides automated material handling modules and systems for use within semiconductor process equipment. These systems automate the movement of wafers into and out of semiconductor manufacturing process and inspection chambers and provide an integration point between factory automation systems and process tools. These include vacuum and atmospheric systems and robots and related components. Also included is the assembly and manufacturing of customer designed automation systems (“CDA”). The primary customers for these solutions are manufacturers of process tool equipment in semiconductor, data storage and flat panel display.

The factory automation hardware segment provides automated material management products and components for use within the factory. The Company’s factory automation hardware products consist of automated storage and retrieval systems and wafer/reticle transport systems based on its proprietary AeroTrak overhead monorail systems and AeroLoader overhead hoist vehicle. They store, transport and manage the movement of work-in-process wafers and lithography reticles throughout the fab. The factory automation hardware segment also provides hardware and software solutions, including mini-environments and other automated transfer mechanisms to isolate the semiconductor wafer from the production environment.

The factory automation software segment provides software products that are used primarily in semiconductor and flat panel display, but also assembly and test, automotive, medical device and aerospace and defense manufacturing markets. This segment also includes consulting and support services. The Company’s software products enable manufacturers to increase their return on investment by maximizing production efficiency by improving cycle times. Products may be sold as part of an integrated solution or on a stand-alone basis.

The Company evaluates performance and allocates resources based on revenues and operating income (loss). Operating income (loss) for each segment includes selling, general and administrative expenses directly attributable to the segment. Amortization of acquired intangible assets, including impairment of these assets and of goodwill and restructuring and acquisition-related charges are excluded from the segments’ operating income (loss). The Company’s non-allocable overhead costs, which include corporate general and administrative expenses, are allocated between the segments based upon segment revenues. Segment assets exclude deferred tax assets, acquired intangible assets, goodwill and marketable securities and cash equivalents.

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued

Financial information for the Company’s reportable segments is as follows (in thousands):


			Factory			Factory
	Equipment		Automation			Automation
	Automation		Hardware			Software		Total
Three months ended June 30, 2005
Revenues
Product	$	63,260	$	13,005		$	5,990	$	82,255
Services		6,125		8,933			16,447		31,505

	$	69,385	$	21,938		$	22,437	$	113,760


Gross profit	$	18,864	$	5,789		$	15,432	$	40,085
Operating income (loss)	$	3,107	$	383		$	23	$	3,513

Three months ended June 30, 2004
Revenues
Product	$	85,216	$	28,213		$	9,623	$	123,052
Services		10,814		5,173			14,748		30,735

	$	96,030	$	33,386		$	24,371	$	153,787


Gross profit	$	32,452	$	8,388		$	16,435	$	57,275
Operating income (loss)	$	16,556	$	472		$	1,342	$	18,370

Nine months ended June 30, 2005
Revenues
Product	$	181,453	$	56,905		$	24,319	$	262,677
Services		22,093		25,762			49,915		97,770

	$	203,546	$	82,667		$	74,234	$	360,447


Gross profit	$	58,597	$	16,986		$	50,428	$	126,011
Operating income (loss)	$	12,388	$	(885	)	$	5,738	$	17,241

Nine months ended June 30, 2004
Revenues
Product	$	192,453	$	52,289		$	27,868	$	272,610
Services		27,899		16,197			56,003		100,099

	$	220,352	$	68,486		$	83,871	$	372,709


Gross profit	$	74,735	$	17,670		$	45,729	$	138,134
Operating income (loss)	$	26,938	$	(1,974	)	$	2,485	$	27,449

Assets
June 30, 2005	$	130,821	$	90,714		$	88,542	$	310,077
September 30, 2004	$	179,247	$	116,868		$	79,647	$	375,762

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued

A reconciliation of the Company’s reportable segment operating income (loss) to the corresponding consolidated income from continuing operations for the three and nine month periods ended June 30, 2005 and 2004 is as follows (in thousands):


	Three months ended				Nine months ended
	June 30,				June 30,
	2005		2004		2005		2004
Segment operating income	$	3,513	$	18,370	$	17,241	$	27,449
Amortization of acquired intangible assets		737		912		2,364		2,772
Restructuring charges		928		884		9,487		3,052

Total operating income (loss)	$	1,848	$	16,574	$	5,390	$	21,625

A reconciliation of the Company’s reportable segment assets to the corresponding consolidated amounts as of June 30, 2005 and September 30, 2004 is as follows (in thousands):


	June 30,		September 30,
	2005		2004

Segment assets	$	310,077	$	375,762
Assets from discontinued operations		156		1,706
Goodwill		62,113		62,034
Intangible assets		4,565		6,929
Investments in marketable securities and cash equivalents		263,558		224,608

Total assets	$	640,469	$	671,039

Revenues based upon the source of the customer order by geographic area are as follows (in thousands):


	Three months ended				Nine months ended
	June 30,				June 30,
	2005		2004		2005		2004

North America	$	57,823	$	85,503	$	189,375	$	194,269
Asia/Pacific		37,293		38,135		104,442		92,632
Europe		18,644		30,149		66,630		85,808

	$	113,760	$	153,787	$	360,447	$	372,709

The Company had no customer that accounted for more than 10% of revenues in the three or nine months ended June 30, 2005 and 2004. The Company had one customer that accounted for more than 10% of accounts receivable at June 30, 2005. The Company had no customer that accounted for more than 10% of accounts receivable at September 30, 2004.

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued

9. Restructuring Charges and Accruals

Based on estimates of its future revenues and operating costs, the Company announced in fiscal 2005 plans to take additional cost reduction actions. Accordingly, charges of $10.4 million, of which $0.9 million related to and is classified within discontinued operations, were recorded in the nine months ended June 30, 2005. Included in the $10.4 million recorded is $9.4 million related to workforce reductions of approximately 140 employees world wide and $1.0 million related to excess facilities. Workforce reduction charges included $3.5 million for headcount reductions of approximately 65 individuals in our Jena, Germany facility. Excess facilities charges consisted of remaining lease obligations on facilities vacated in fiscal 2005. The accruals for workforce reductions are expected to be paid into the second quarter of fiscal 2006 and the facilities accruals over the respective lease terms extending to 2011. The Company estimates that salary and benefit savings as a result of these actions will be approximately $9.8 million annually. The impact of these cost reductions on the Company’s liquidity is not significant, as these cost savings yield actual cash savings within twelve months.

The Company has recorded charges to operations of $1.0 million, of which $0.1 million relate to discontinued operations, in the third quarter of fiscal 2005 related to workforce reductions in the United States and Europe. The accruals for workforce reductions are expected to be paid into the second quarter of fiscal 2006. The Company estimates that salary and benefit savings as a result of these actions will be approximately $1.5 million annually. The impact of these cost reductions on the Company’s liquidity is not significant, as these cost savings yield actual cash savings within twelve months.

The Company recorded charges to operations of $3.0 million in the nine months ended June 30, 2004, of which $2.0 million related to workforce reductions and $1.0 million related to previously abandoned facilities. In the three months ended June 30, 2004 the Company recorded charges to operations of $0.9 million, of which $0.5 million related to workforce reductions and $0.4 million related to excess facilities.

The Company continues to review and align its cost structure to attain profitable operations amid the changing semiconductor cycles.

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued

The activity for the three and nine months ended June 30, 2005 and 2004 related to the Company’s restructuring accruals and including discontinued operations is summarized below (in thousands):


	Activity – Three Months Ended June 30, 2005
	Balance		New					Balance
	March 31,		Initiatives					June 30,
	2005		Expense		Utilization			2005

Facilities	$	16,035	$	—	$	(1,465	)	$	14,570
Workforce-related		6,249		1,019		(1,490	)		5,778

	$	22,284	$	1,019	$	(2,955	)	$	20,348


	Activity – Three Months Ended June 30, 2004
	Balance		New					Balance
	March 31,		Initiatives					June 30,
	2004		Expense		Utilization			2004

Facilities	$	21,033	$	422	$	(2,275	)	$	19,180
Workforce-related		2,139		436		(1,043	)		1,532

	$	23,172	$	858	$	(3,318	)	$	20,712


	Activity – Nine Months Ended June 30, 2005
	Balance		New					Balance
	September 30,		Initiatives					June 30,
	2004		Expense		Utilization			2005

Facilities	$	17,730	$	1,026	$	(4,186	)	$	14,570
Workforce-related		2,460		9,344		(6,026	)		5,778

	$	20,190	$	10,370	$	(10,212	)	$	20,348


	Activity – Nine Months Ended June 30, 2004
	Balance		New					Balance
	September 30,		Initiatives					June 30,
	2003		Expense		Utilization			2004

Facilities	$	24,312	$	1,019	$	(6,151	)	$	19,180
Workforce-related		4,955		2,007		(5,430	)		1,532

	$	29,267	$	3,026	$	(11,581	)	$	20,712

New initiatives workforce-related charges include $91,000 and $883,000 for the three and nine months ended June 30, 2005, respectively, related to discontinued operations. The workforce-related accrual of $5.8 million at June 30, 2005 includes $242,000 related to discontinued operations (see Note 5). No charges related to discontinued operations were recorded for the three and nine months ended June 30, 2004.

The Company expects the majority of the remaining severance costs totaling $5.8 million will be paid within six months. The expected facilities costs, totaling $14.6 million, net of estimated sub-rental income, will be paid on leases that expire through September 2011.

The Company continues to endeavor to sublease a vacant facility in Billerica, Massachusetts. In the event that this facility remains vacant for a longer period of time than initially expected, the Company may need to increase its restructuring accrual by $1.5 million to $2 million, approximately one year’s sublease income.

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued

10. Other Balance Sheet Information

Components of other selected captions in the Consolidated Balance Sheets are as follows (in thousands):


	June 30,		September 30,
	2005		2004

Accounts receivable	$	93,870	$	126,119
Less allowances		2,888		3,230

	$	90,982	$	122,889


Inventories
Raw materials and purchased parts	$	31,093	$	27,030
Work-in-process		12,410		12,227
Finished goods		14,205		32,357

	$	57,708	$	71,614

The Company provides for the estimated cost of product warranties, primarily from historical information, at the time product revenue is recognized and for retrofit accruals at the time the retrofit programs are established. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, utilization levels, material usage, service delivery costs incurred in correcting a product failure, and supplier warranties on parts delivered to the Company. Product warranty and retrofit activity on a gross basis for three and nine months ended June 30, 2005 and 2004 is as follows (in thousands):


Activity – Three Months Ended June 30, 2005
Balance						Balance
March 31,						June 30,
2005	Accruals		Settlements			2005
$12,356	$	636	$	(1,787	)	$	11,205


Activity – Three Months Ended June 30, 2004
Balance						Balance
March 31,						June 30,
2004	Accruals		Settlements			2004

$11,275	$	1,323	$	(1,251	)	$	11,347


Activity – Nine Months Ended June 30, 2005
Balance						Balance
September 30,						June 30,
2004	Accruals		Settlements			2005

$12,054	$	3,297	$	(4,146	)	$	11,205

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued


Activity – Nine Months Ended June 30, 2004
Balance						Balance
September 30,						June 30,
2003	Accruals		Settlements			2004

$11,809	$	2,593	$	(3,055	)	$	11,347

11. Contingencies

There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor and related industries. Brooks 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. Brooks cannot guarantee that infringement claims by third parties or other claims for indemnification by customers or end users of its 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 Brooks’ business, financial condition and results of operations. If any such claims are asserted against Brooks’ intellectual property rights, the Company may seek to enter into a royalty or licensing arrangement. Brooks cannot guarantee, however, that a license will be available on reasonable terms or at all. Brooks could decide in the alternative to resort to litigation to challenge such claims or to attempt to design around the patented technology. Litigation or an attempted design around could be costly and would divert the Company management’s attention and resources. In addition, if Brooks does not prevail in such litigation or succeed in an attempted design around, Brooks could be forced to pay significant damages or amounts in settlement. Even if a design around is effective, the functional value of the product in question could be greatly diminished.

On or about April 21, 2005, Brooks was served with a third-party complaint seeking to join Brooks as a party to a patent lawsuit brought by an entity named Information Technology Innovation, LLC based in Northbrook, Illinois (“ITI”) against Motorola, Inc. (“Motorola”) and Freescale Semiconductor, Inc. (“Freescale”). ITI began the lawsuit against Motorola in the United States District Court for the Northern District of Illinois (Eastern Division) in November 2004, and ITI added Freescale to the lawsuit in March 2005. ITI claims that Motorola and Freescale have infringed a U.S. patent that ITI asserts covers processes used to model a semiconductor manufacturing plant.

Freescale alleges that Brooks has a duty to indemnify Freescale and Motorola from any infringement claims asserted against them based on their use of Brooks’ AutoSched software program by paying all costs and expenses and all or part of any damages that either of them might incur as a result of the suit brought by ITI. AutoSched is a software program sold by Brooks and by one or more companies that formerly owned the AutoSched product prior to the acquisition of AutoSched by Brooks in 1999 from Daifuku U.S.A, Inc.

Brooks believes that ITI is not a company that is engaged in the business of manufacturing hardware or software products. It is a limited liability company that apparently acquired an exclusive license to the patent at issue in the litigation and is now in the business of seeking to license the patent to others.

Brooks believes that it has meritorious defenses to any claim that Brooks’ AutoSched product infringes the patent identified by ITI in its suit against Motorola and Freescale, and Brooks will contest any such claim. Brooks also believes that meritorious defenses exist to the claims asserted by ITI against Motorola and Freescale, and Brooks intends to cooperate fully with Motorola and Freescale in the defense of those claims. In any such matter there can be no assurance as to the outcome, and for the reasons described in the first paragraph of this Note 11, the ITI litigation could have a material adverse effect on Brooks.

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — Continued

12. Subsequent Events

On July 11, 2005, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Helix Technology Corporation (“Helix”), a Delaware corporation and Mt. Hood Corporation (“Mt. Hood”), a newly-formed Delaware corporation and a direct wholly-owned subsidiary of the Company. Under the terms of the Merger Agreement, Mt. Hood will be merged (the “Merger”) with and into Helix, with Helix continuing as the surviving corporation. Each share of Helix common stock, par value $1.00 per share, other than shares held by Helix as treasury stock and shares held by the Company or Mt. Hood, will be cancelled and extinguished and automatically converted into the right to receive 1.11 (“Exchange Ratio”) shares of the Company’s common stock. In addition, upon completion of the Merger, the Company will assume all options then outstanding under Helix’s existing equity incentive plans, each of which will be exercisable for a number of shares of the Company’s common stock (and at an exercise price) adjusted to reflect the Exchange Ratio. Based upon the price of Brooks’ common stock at July 8, 2005, the transaction values Helix at approximately $454 million.

Completion of the Merger is subject to several conditions, including approval of the transaction by the stockholders of Helix and the Company, effectiveness of the Form S-4 registration statement to be filed with the Securities and Exchange Commission, expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and clearance under any applicable foreign antitrust laws, and other customary closing conditions. The merger is expected to occur in the fourth calendar quarter of 2005. The transaction is intended to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended, and the Company is in the process of evaluating the impact that the Merger may have on the Company’s net operating loss carryforwards and other tax attributes.

BROOKS AUTOMATION, INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” which involve known risks, uncertainties and other factors which may cause the actual results, our performance or achievements 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 whenever they appear in this report.

Overview

We are a leading supplier of automation products and solutions primarily serving the worldwide semiconductor and other related technology markets. We supply hardware, software and services to both chip manufacturers and original equipment manufacturers, or OEMs, who make process equipment for semiconductor manufacturing. Our offerings range from hardware and software modules to fully integrated systems and services. Although our core business addresses the increasingly complex automation requirements of the global semiconductor industry, we are also focused on providing automation solutions for a number of related industries, including flat panel display manufacturing, data storage and other complex manufacturing.

We operate in three major segments: equipment automation, factory automation hardware and factory automation software. Equipment or tool automation consists of hardware and software used on or within process tools to move individual wafers in and out of a tool. Factory automation hardware consists of equipment used inside the fab, but external to a process tool, to automate the handling of batches of wafers or other material throughout the production floor, as well as specialized tools for automatically sorting, storing and inspecting material. Factory automation software is used within a factory in computer integrated manufacturing for controlling and managing production and resources in a fab. We sell our products and services to nearly every major semiconductor chip manufacturer and OEM in the world, including all of the top ten chip companies and nine of the top ten semiconductor equipment companies.

We were recognized by independent market research firms, such as Gartner Dataquest, as the market leader in semiconductor automation for the calendar year 2004 and the three preceding years as well. Our goal is to maintain market leadership in our core businesses, particularly equipment automation, and seek to grow our business by pursuing more opportunities at major OEMs as they increasingly outsource their automation. At the same time, we are focused on staying competitive by seeking to lower manufacturing costs for existing and new products.

We have concluded that certain products and functions within our Jena, Germany manufacturing facility are able to be produced and provided at lower costs through third party suppliers. As such, we announced and commenced a reduction plan that is taking place during the course of fiscal 2005 designed to continue to increase efficiency and reduce costs. In addition, we have discontinued the operations of our Specialty Equipment and Life Sciences (“SELS”) division as of June 30, 2005. Our consolidated financial statements have been restated to reflect this business as a discontinued operation in accordance with FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.

The semiconductor industry is cyclical in nature, and we are in a period where the market conditions indicate relatively flat to declining demand in the current fiscal year as compared to last fiscal year. We are focusing our major efforts in the following areas:

•		Sustaining our ability to meet our customers’ requirements on a timely basis through the implementation of flexible manufacturing processes while at the same time improving product quality, controlling costs, and maintaining supply relationships that provide continuing, flexible access to essential components and materials even as demand for our product fluctuates;

•		Aligning costs and revenues to achieve profitable levels of operation and positive operating cash flow;

•		Developing and introducing new OEM products in both vacuum and atmospheric applications required for future success in the market and assuring that they will be competitively priced;

•		Continuing to invest in other industries such as flat panel display manufacturing for our equipment automation products;

•		Greater expansion into other industries such as aerospace and defense, automotive, and medical devices for our software products;

•		Expanding our sales of equipment automation products to process tool manufacturers that currently produce automation equipment internally;

•		Continuing to develop our customer designed automation (“CDA”) business with process tool manufacturers;

•		Greater expansion of software development capabilities in countries outside of the United States, specifically India;

•		Greater expansion of our hardware and software products into the China market;

•		Implementing new sales and service strategies to improve customer support and satisfaction;

•		Implementing a final integration and test strategy to provide manufacturing capabilities for customer specific end of line configuration of our products;

•		Evaluating our strategic direction and value of non-core products;

•		Improving the efficiency of our internal information and business systems, which could result in the upgrade or replacement of certain applications; and

•		Continuing to evaluate on an opportunistic basis whether new acquisitions of or alliances with other companies would be beneficial to our business and shareholders.

Helix Acquisition

On July 11, 2005, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Helix Technology Corporation (“Helix”), a Delaware corporation and Mt. Hood Corporation (“Mt. Hood”), a newly-formed Delaware corporation and a direct wholly-owned subsidiary of Brooks. Under the terms of the Merger Agreement, Mt. Hood will be merged (the “Merger”) with and into Helix, with Helix continuing as the surviving corporation. Each share of Helix common stock, par value $1.00 per share, other than shares held by Helix as treasury stock and shares held by Brooks or Mt. Hood, will be cancelled and extinguished and automatically converted into the right to receive 1.11 (“Exchange Ratio”) shares of Brooks common stock. In addition, upon completion of the Merger, we will assume all options then outstanding under Helix’s existing equity incentive plans, each of which will be exercisable for a number of shares of Brooks common stock (and at an exercise price) adjusted to reflect the Exchange Ratio.

Completion of the Merger is subject to several conditions, including approval of the transaction by our stockholders and by the stockholders of Helix, effectiveness of the Form S-4 registration statement to be filed with the Securities and Exchange Commission, expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and clearance under any applicable foreign antitrust laws, and other customary closing conditions. The transaction is intended to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended.

In connection with the proposed transaction, we plan to file a Registration Statement on Form S-4 containing a Joint Proxy Statement/Prospectus with the Securities and Exchange Commission (“SEC”). You are urged to read the Registration Statement and any other relevant documents filed with the SEC, including the Joint Proxy Statement/Prospectus that will be part of the Registration Statement, when they become available because they will contain important information about us, Helix, the proposed transaction and related matters. You will be able to obtain free copies of the Registration Statement and the Joint Proxy Statement/Prospectus, when they become available, without charge, at the SEC’s Internet site (http://www.sec.gov).

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Three and Nine Months Ended June 30, 2005, Compared to the Three and Nine Months Ended June 30, 2004

Revenues

We reported revenues of $113.8 million for the three months ended June 30, 2005, compared to $153.8 million in the same prior year period, a 26.0% decrease. Our revenues for the nine months ended June 30, 2005 were $360.4 million, compared to $372.7 million in the same prior year period, a 3.3% decrease.

Our equipment automation segment reported revenues of $69.4 million for the three months ended June 30, 2005, a decrease of 27.7% from revenues of $96.0 million in the same prior year period. Equipment automation segment revenues for the nine months ended June 30, 2005 were $203.5 million, a decrease of 7.7% from revenues of $220.4 million in the same prior year period. The decrease on a three month basis is primarily attributable to decreased shipments to our OEM customer base due to decreased demand on a comparative quarter basis. The decrease on a nine month basis is also primarily attributable to decreased shipments to our OEM customer base due to decreased demand on a comparative year-to-date basis, offset by an increase in CDA revenues of $13.8 million. We expect fourth quarter revenues for our equipment automation segment to decrease slightly as compared to present levels as forecasted demand softens.

Our factory automation hardware segment reported revenues of $21.9 million for the three months ended June 30, 2005, a decrease of 34.4% from revenues of $33.4 million in the same prior year period. Factory automation hardware segment revenues for the nine months ended June 30, 2005 were $82.7 million, an increase of 20.7% from revenues of $68.5 million in the same prior year period. The decrease on a three month basis is primarily attributable to decreased revenue associated with factory transport systems. The increase on a nine month basis is primarily attributable to the completion of installation procedures and the acceptance of factory transport systems and growth in our lithography automation business. We expect fourth quarter revenues for our factory automation hardware segment to decrease as compared to present levels.

Our factory automation software segment reported revenues of $22.4 million for the three months ended June 30, 2005, a decrease of 8.2% from revenues of $24.4 million in the same prior year period. Factory automation software segment revenues for the nine months ended June 30, 2005 were $74.2 million, a decrease of 11.6% from revenues of $83.9 million in the same prior year period. The decrease on a three month basis is primarily attributable to decreased product shipments of $3.6 million due to lower demand on a comparative quarter basis, offset by higher services revenues of $1.6 million. Included in the March 31, 2004 quarter we recognized $17.3 million of revenue on a European software services contract which had been accounted for on a completed contract basis. Excluding the impact of this contract for the nine month period, revenues grew by $7.6 million or 11.4%. The increase is primarily attributable to strong maintenance revenues as customers continued to use previously purchased software products and renewed related maintenance arrangements. We expect fourth quarter revenues for our factory automation software segment to increase slightly as compared to current levels.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Product revenues decreased $40.8 million, or 33.1%, to $82.3 million, in the three months ended June 30, 2005, from $123.1 million in the three months ended June 30, 2004. The decrease is primarily attributable to the decreased shipments to our OEM customers within the equipment automation segment as well as lower revenues from factory transport systems within our factory automation hardware segment. Product revenues decreased $9.9 million, or 3.6%, to $262.7 million, in the nine months ended June 30, 2005, from $272.6 million in the nine months ended June 30, 2004. This decrease is attributable to lower demand for our equipment automation products and factory automation software products on a comparative nine months basis. Service revenues increased $0.8 million, or 2.6%, to $31.5 million in the three months ended June 30, 2005, from $30.7 million in the three months ended June 30, 2004. This increase in the three month period is primarily attributable to higher maintenance revenues within the factory automation software segment. Service revenues decreased $2.3 million, or 2.3%, to $97.8 million in the nine months ended June 30, 2005, from $100.1 million in the nine months ended June 30, 2004. As discussed above, included in the March 31, 2004 quarter we recognized $17.3 million of revenue on a European software services contract which had been accounted for on the completed contract basis. Excluding the $14.9 million of services revenue associated with this contract for the nine month period, service revenues grew by $12.6 million or 14.8%. This increase for the nine month period is primarily attributable to continued strong maintenance revenues from our factory automation software segment as well strong service contract and service repair revenues from our factory automation hardware segment.

Revenues outside of the United States were $56.1 million, or 49.3% of revenues, and $171.4 million, or 47.6 % of revenues, in the three and nine months ended June 30, 2005, respectively. Revenues outside of the United States were $68.4 million, or 44.5%, and $178.7 million, or 47.9% of revenues, in the three and nine months ended June 30, 2004, respectively. We expect that foreign revenues will continue to account for a significant portion of total revenues. The current international component of revenues is not necessarily indicative of the future international component of revenues.

Deferred revenues of $31.7 million at June 30, 2005 consisted of $13.9 million related to deferred maintenance contracts and $17.8 million related to revenues deferred for completed contract method arrangements and contracts awaiting final customer acceptance.

Gross Profit

Gross margin dollars decreased to $40.1 million for the three months ended June 30, 2005, compared to $57.3 million for the three months ended June 30, 2004. The gross margin percentage decreased to 35.2% for the three months ended June 30, 2005, compared to 37.2% for the three months ended June 30, 2004. Our equipment automation segment gross margin decreased to $18.9 million or 27.2% in the three months ended June 30, 2005, from $32.5 million or 33.8% in the three months ended June 30, 2004. The decrease in gross margin percentage is primarily the result of changing product mix as well as reduced overhead absorption due to decreased product volumes. Gross margin for our factory automation hardware segment decreased to $5.8 million or 26.4% in the three months ended June 30, 2005, from $8.4 million or 25.1% in the three months ended June 30, 2004. The increase in gross margin percentage is primarily the result of improved product margins on existing contracts in the current period. Our factory automation software segment’s gross margin for the three months ended June 30, 2005 decreased to $15.4 million or 68.8%, compared to $16.4 million or 67.4% in the prior year. The increase in gross margin percentage is primarily the result of higher gross margin projects in the current period compared to the prior year quarter.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Gross margin dollars decreased to $126.0 million for the nine months ended June 30, 2005, compared to $138.1 million for the nine months ended June 30, 2004. The gross margin percentage decreased to 35.0 % for the nine months ended June 30, 2005, compared to 37.1% for the nine months ended June 30, 2004. Our equipment automation segment gross margin decreased to $58.6 million or 28.8% in the nine months ended June 30, 2005, from $74.7 million or 33.9 % in the nine months ended June 30, 2004. The decrease on gross margin percentage is primarily the result of changing product mix within our OEM products, and reduced absorption driven by lower volumes, as well as additional overhead spending in manufacturing engineering and quality assurance in the Chelmsford facility. We had $28.4 million of CDA revenues which generally have lower gross margins of 20% in the nine months ended June 30, 2005 compared to $14.6 million of such revenues in the nine months ended June 30, 2004. Gross margin for our factory automation hardware segment decreased to $17.0 million or 20.5% in the nine months ended June 30, 2005, from $17.7 million or 25.8% in the nine months ended June 30, 2004. The decrease in gross margin percentage is primarily the result of low margin projects in the nine month period as compared to the prior year. Our factory automation software segment’s gross margin for the nine months ended June 30, 2005, increased to $50.4 million or 67.9%, compared to $45.7 million or 54.5% in the prior year. The increase in gross margin percentage is primarily the result of lower gross margins realized on the $17.3 million of software project revenue recognized upon completion and acceptance by the customer in the prior year comparative period as well as increased software maintenance revenues.

Gross margin on product revenues was $24.7 million or 30.0% for the three months ended June 30, 2005, compared to $42.7 million or 34.7% for the three months ended June 30, 2004. The decrease in product margins is primarily attributable to the impact of product mix within our OEM products as well as reduced overhead absorption due to decreased product volumes. Gross margin on product revenues was $78.2 million or 29.8% for the nine months ended June 30, 2005, compared to $98.6 million or 36.2% for the nine months ended June 30, 2004. The decrease in product margins is primarily attributable to the impact of product mix within our OEM products and the incremental contract manufacturing revenue discussed previously, as well as the lower margin projects within our factory automation hardware segment in the nine month period as compared to the prior year period.

Gross margin on service revenues was $15.4 million or 48.9% for the three months ended June 30, 2005, compared to $14.6 million or 47.6% in the three months ended June 30, 2004. The increase in gross margin percentage for the three month period is primarily the result of higher gross margin projects within our factory automation software segment in the current period versus the prior period. Gross margin on service revenues was $47.8 million or 48.9% for the nine months ended June 30, 2005, compared to $39.5 million or 39.5% in the nine months ended June 30, 2004. The increase in gross margin percentage for the nine month period is primarily the result of lower gross margins realized on the $17.3 million of software project revenue recognized upon completion and acceptance by the customer in the prior year comparative period as well as increased software maintenance revenues in the current period.

Research and Development

Research and development expenses for the three months ended June 30, 2005, were $16.1 million, a slight decrease of $0.4 million, compared to $16.5 million in the three months ended June 30, 2004. Research and development expenses for the nine months ended June 30, 2005, were $48.1 million, a decrease of $0.4 million, compared to the $48.5 million in the nine months ended June 30, 2004. The decrease in both the three and nine month periods was primarily the result of continued focus on controlling costs and refocusing our development efforts to be more efficient.

Selling, General and Administrative

Selling, general and administrative expenses were $20.5 million for the three months ended June 30, 2005; a decrease of $1.9 million, compared to $22.4 million in the three months ended June 30, 2004. Selling, general and administrative expenses were $60.7 million for the nine months ended June 30, 2005, a decrease of $1.4 million, compared to $62.1 million in the nine months ended June 30, 2004. The decrease in both the three and nine month periods is primarily the result of reduction in incentive compensation between comparative periods partially offset by increased expenses to comply with Sarbanes-Oxley 404 requirements.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Amortization of Acquired Intangible Assets

Amortization expense for acquired intangible assets totaled $0.7 million and $2.4 million for the three and nine months ended June 30, 2005, respectively, compared to $0.9 million and $2.8 million for the three and nine months ended June 30, 2004, respectively. The reduction in amortization of acquired intangible assets is attributable to certain assets reaching the end of their useful lives.

Restructuring Charges

We recorded a charge to continuing operations of $0.9 million in the three months ended June 30, 2005, which primarily related to workforce reductions in the United States and Europe. We believe that, taken together, the cost reduction programs implemented will align costs with revenues. In the event we are unable to achieve this alignment, additional cost cutting programs may be required in the future. We also recorded a charge of $0.1 million in the three months ended June 30, 2005 for workforce reductions related to our discontinued SELS division. The accruals for workforce reductions are expected to be paid through the second quarter of fiscal 2006. We estimate that salary and benefit savings to continuing operations as a result of these actions will be approximately $1.5 million annually. We believe that the impact of these cost reductions on our liquidity is not significant, as these cost savings yield actual cash savings within twelve months.

We recorded a charge to continuing operations of $9.5 million in the nine months ended June 30, 2005, of which $8.5 million related to workforce reductions of approximately 140 employees world wide and $1.0 million related to excess facilities. Workforce reduction charges included $3.5 million for headcount reductions of approximately 65 individuals in our Jena, Germany facility. Excess facilities charges of $1.0 million consisted of excess facilities identified in fiscal 2005 that were recorded to recognize the amount of the remaining lease obligations. These costs have been estimated from the time when the space is vacant and there are no plans to utilize the facility. Costs incurred prior to vacating the facilities were charged to operations. We believe that, taken together, the cost reduction programs implemented will align costs with revenues. In the event we are unable to achieve this alignment, additional cost cutting programs may be required in the future. We also recorded a charge of $0.9 million in the nine months ended June 30, 2005 for workforce reductions of approximately 25 individuals related to our discontinued SELS division. The accruals for workforce reductions are expected to be paid through the second quarter of fiscal 2006. The facilities charges are expected to be paid over lease terms extending to 2011. These charges helped better align our cost structure. We estimate that salary and benefit savings as a result of these actions will be approximately $9.8 million annually. We believe that the impact of these cost reductions on our liquidity is not significant, as these cost savings yield actual cash savings within twelve months.

We recorded a charge to operations of $0.9 million in the three months ended June 30, 2004, of which $.5 million related to workforce reductions and $0.4 million related to excess facilities. We recorded a charge to operations of $3.0 million in the nine months ended June 30, 2004, of which $2.0 million related to workforce reductions and $1.0 million related to excess facilities. We believe that the impact of these cost reductions on our liquidity was not significant, as the cost savings yielded actual cash savings within twelve months.

We continue to review and align our cost structure with an aim to achieve profitable operations amid the changing semiconductor cycles. We may record additional restructuring charges if changing market conditions require it.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Interest Income and Expense

Interest income increased by $1.1 million, to $2.3 million, in the three months ended June 30, 2005, from $1.2 million in the three months ended June 30, 2004. This increase is primarily the result of higher interest realized on our investment balances. Interest income increased by $3.0 million to $6.5 million in the nine months ended June 30, 2005, from $3.5 million in the nine months ended June 30, 2004. This increase is primarily the result of higher investment balances for the entire nine month period and higher interest realized on our investment balances. Interest expense of $2.4 million and $7.1 million for the three and nine months ended June 30, 2005, respectively, and $2.4 million and $7.1 million for the three and nine months ended June 30, 2004, respectively, relates primarily to the 4.75% Convertible Subordinated Notes.

Other (Income) Expense

Other income, net of $0.6 million and $0.7 million for the three and nine months ended June 30, 2005, respectively, consisted primarily of principal repayments on a note that had previously been written off, as well as foreign exchange gains. Other expense, net of $0.3 million and $0.5 million in the three and nine months ended June 30, 2004 consisted primarily of foreign exchange losses.

Income Tax Provision

We recorded an income tax provision of $1.3 million and $4.3 million in the three and nine months ended June 30, 2005, respectively, compared to an income tax provision of $2.7 million and $5.6 million in the three and nine months ended June 30, 2004. The tax provision recorded for both periods was primarily due to foreign income and withholding taxes. We continue to provide a full valuation allowance for our net deferred tax assets at June 30, 2005, as we believe it is more likely than not that the future tax benefits from accumulated net operating losses and deferred taxes will not be realized. If we generate future taxable income against which these tax attributes may be applied, some portion or all of the valuation allowance would be reversed and a corresponding increase in net income would be reported in future periods.

Discontinued Operations

We recorded a loss from operations of our discontinued SELS business of $0.2 million in the three months ended June 30, 2005, compared to a loss of $0.1 million in the three months ended June 30, 2004. We recorded a loss of $3.4 million in the nine months ended June 30, 2005, compared to a loss $2.0 million in the nine months ended June 3, 2004. The increased losses in both the three and nine month periods are the result of reduced revenue and the additional costs of winding down this business. We recorded a loss of $0.2 million on the disposal of our SELS business in the three months ended June 30, 2005.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Liquidity and Capital Resources

Our business is significantly dependent on capital expenditures by semiconductor manufacturers and OEM’s that are, in turn, dependent on the current and anticipated market demand for semiconductors. Demand for semiconductors is cyclical and has historically experienced periodic downturns. The semiconductor industry experienced such a downturn that extended from 2001 well into 2003. The downturn affected revenues, gross margins and overall operating results. In response to this downturn, we have implemented cost reduction programs aimed at aligning our ongoing operating costs with our currently expected revenues over the near term. These cost management initiatives have included consolidating facilities, reductions to headcount, salary and wage reductions and reduced spending. We believe the semiconductor industry has again softened after a modest upturn in 2004. During the quarter just completed our revenues declined from the same period last year. As discussed above, we have implemented continuing cost reduction programs, and we believe that the cost reduction programs implemented have aligned costs with revenues. In the event we are unable to attain this alignment, additional cost cutting programs may be required in the future. The cyclical nature of the industry makes estimates of future revenues, results of revenues, results of operations and net cash flows inherently uncertain.

At June 30, 2005, we had cash, cash equivalents and marketable securities aggregating $349.7 million. This amount was comprised of $162.8 million of cash and cash equivalents, $138.8 million of investments in short-term marketable securities and $48.1 million of investments in long-term marketable securities. At September 30, 2004, we had cash, cash equivalents and marketable securities aggregating $329.1 million. This amount was comprised of $193.3 million of cash and cash equivalents, $62.1 million of investments in short-term marketable securities and $73.7 million of investments in long-term marketable securities.

Cash provided by operations was $24.9 million for the nine months ended June 30, 2005, and was primarily attributable to changes in our net working capital of $12.4 million, offset by our net loss of $2.4 million and adjusted for non-cash depreciation and amortization of $11.4 million and stock based compensation expense of $1.7 million. The change in working capital was primarily the result of decreased accounts receivable balances of $35.0 million and a $14.7 million decrease in our inventory balance. The decrease in accounts receivable is a result of our strong collections during the nine months ended June 30, 2005, and a reduced level of business. Decreased inventory levels are reflective of the continued focus on inventory management. Other changes in working capital included a decrease in accounts payable levels of $8.1 million, primarily as a result of lower inventory purchases, a decrease in accrued compensation and benefits of $10.7 million, resulting from payments for variable cash compensation plans, decreased accrued expenses and other current liabilities of $12.4 million primarily consists of the $10.1 million retirement benefit paid to our former Chief Executive Officer in January 2005 under the terms of his employment agreement.

Cash used by investing activities was $59.9 million for the nine months ended June 30, 2005, and is principally comprised of net purchases of marketable securities of $51.4 million to maximize investment returns and $8.5 million used for capital additions.

Cash provided by financing activities was $3.7 million for the nine months ended June 30, 2005, and relates to the issuance of stock under our employee stock purchase plan and the exercise of options to purchase our common stock.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

On May 23, 2001, we completed the private placement of $175.0 million aggregate principal amount of 4.75% Convertible Subordinated Notes due in 2008. Interest on the notes is paid on June 1 and December 1 of each year. The notes will become redeemable on June 1, 2008. We may redeem the notes at stated premiums. Holders may require us to repurchase the notes upon a change in control of us in certain circumstances. The notes are convertible at any time prior to maturity, at the option of the holders, into shares of our common stock, at a conversion price of $70.23 per share, subject to certain adjustments. The notes are subordinated to our senior indebtedness and structurally subordinated to all indebtedness and other liabilities of our subsidiaries.

While we have no significant capital commitments, as we expand our product offerings we anticipate that we will continue to make capital expenditures to support our business and improve our computer systems infrastructure. We may also use our resources to acquire companies, technologies or products that complement our business.

At June 30, 2005, we had approximately $0.7 million of letters of credit outstanding.

We believe that our existing resources will be adequate to fund our currently planned working capital and capital expenditure requirements for both the short and long-term. However, the cyclical nature of the semiconductor industry makes it difficult for us to predict future liquidity requirements with certainty. We may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund our expansion, successfully develop or enhance products, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Recently Enacted Accounting Pronouncements

In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), “Share-Based Payment” (“FAS 123(R)”). FAS 123(R) replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. FAS 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The provisions of this Statement are effective for the first annual reporting period that begins after June 15, 2005. We will adopt the provisions of FAS 123(R) effective as of October 1, 2005. We are currently evaluating the method of adoption and the impact of FAS 123(R) on our financial position and results of operations. We are also evaluating the form of any stock based incentive compensation we may offer in the future.

Factors That May Affect Future Results

You should carefully consider the risks described below and the other information in this report before deciding to invest in shares of our common stock. These are the risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer. In that event, the market price of our common stock could decline and you could lose all or part of your investment.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Risks Relating to Our Industry

Due in part to the cyclical nature of the semiconductor manufacturing industry and related industries, we have recently incurred substantial operating losses and may have future losses.

Our business is largely dependent on capital expenditures in the semiconductor manufacturing industry and other businesses employing similar manufacturing technology. The semiconductor manufacturing industry in turn depends on current and anticipated demand for integrated circuits and the products that use them. In recent years, these businesses have experienced unpredictable and volatile business cycles due in large part to rapid changes in demand and manufacturing capacity for semiconductors. The semiconductor industry experienced a prolonged downturn, which negatively impacted us from the third quarter of fiscal 2001 until well into 2003. As a result of that downturn, our OEM and end-user customers significantly reduced the rate at which they purchased our products and services. That reduced demand adversely affected our sales volume and gross margins and resulted in substantial operating losses during fiscal 2001, 2002 and 2003. These losses were due to, among other things, writedowns for obsolete inventory and expenses related to investments in research and development and global service and support necessary to maintain our competitive position. Although our business became profitable during 2004, there appears to be a downward trend again developing in the semiconductor industry, and our revenues in the quarter just ended declined from the same period in the prior year. We could continue to experience future operating losses during an industry downturn and any period of uncertain demand. If an industry downturn continues for an extended period of time, our business could be materially harmed. Conversely, if demand improves rapidly, we could have insufficient inventory and manufacturing capacity to meet our customer needs on a timely basis, which could result in the loss of customers and various other expenses that could reduce gross margins and profitability. We cannot assure you as to whether we will be able to attain the profitability we have recently achieved.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Risks Relating to Brooks

Our operating results could fluctuate significantly, which could negatively impact our business.

Our revenues, operating margins and other operating results could fluctuate significantly from quarter to quarter depending upon a variety of factors, including:

	•		demand for our products as a result of the cyclical nature of the semiconductor manufacturing industry and the markets upon which it depends or otherwise;

	•		changes in the timing and terms of product orders by our customers as a result of our customer concentration or otherwise;

	•		changes in the mix of products and services that we offer;

	•		timing and market acceptance of our new product introductions;

	•		delays or problems in the planned introduction of new products, or in the performance of any such products following delivery to customers;

	•		our competitors’ announcements of new products, services or technological innovations, which can, among other things, render our products less competitive due to the rapid technological change in our industry;

	•		the timing and related costs of any acquisitions, divestitures or other strategic transactions;

	•		our ability to reduce our costs due to decreased demand for our products and services;

	•		disruptions in our manufacturing process or in the supply of components to us;

	•		write-offs for excess or obsolete inventory; and

	•		competitive pricing pressures.

As a result of these risks, we believe that quarter to quarter comparisons of our revenue and operating results may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance. If our quarterly results fluctuate significantly, our business could be harmed.

Our restructuring activities and cost reduction measures may be insufficient to offset reduced demand for our products and may have materially harmed our business.

Primarily in response to reduced demand for our products, during the recent downturn in the semiconductor industry, we implemented cost reductions and other restructuring activities throughout our organization. These cost saving measures included several reductions in workforce, salary and wage reductions, reduced inventory levels, consolidation of our manufacturing facilities to our Chelmsford, Massachusetts facilities and the discontinuation of certain product lines and information technology projects. Although we had net income in fiscal 2004 when the semiconductor industry rebounded, we experienced a net loss in the first nine months of fiscal 2005 when our sales levels begin to decline. Our failure to adequately reduce our costs, without our products sales levels staying at least level with fiscal 2004, could materially harm our business and prospects and our ability to maintain our competitive position. Our restructuring activities could harm us because they may result in reduced productivity by our employees and increased difficulty in retaining and hiring a sufficient number of qualified employees familiar with our products and processes and the locales in which we operate.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Delays and technical difficulties in our products and operations may result in lost revenue, lost profit, delayed or limited market acceptance or product liability claims.

As the technology in our systems and manufacturing operations has become more complex and customized, it has become increasingly difficult to design and integrate these technologies into our newly-introduced systems, procure adequate supplies of specialized components, train technical and manufacturing personnel and make timely transitions to volume manufacturing. Due to the complexity of our manufacturing processes, we have on occasion failed to meet our customers’ delivery or performance criteria, and as a result we have deferred revenue recognition, incurred late delivery penalties and had higher warranty and service costs. We cannot guarantee that we will not experience these problems in the future. We may be unable to recover expenses we incur due to changes or cancellations of customized orders. There are also substantial unanticipated costs associated with ensuring that new products function properly and reliably in the early stages of their life cycle. These costs have been and could in the future be greater than expected as a result of these complexities. Our failure to control these costs could materially harm our business and profitability.

Because many of our customers use our products for business-critical applications, any errors, defects or other performance or technical problems could result in financial or other damage to our customers and could significantly impair their operations. Our customers could seek to recover damages from us for losses related to any of these issues. A product liability claim brought against us, even if not successful, would likely be time-consuming and costly to defend and could adversely affect our marketing efforts.

If we do not continue to introduce new products and services that reflect advances in technology in a timely manner, our products and services will become obsolete and our operating results will suffer.

Our success is dependent on our ability to respond to the rapid rate of technological change present in the semiconductor manufacturing industry. The success of our product development and introduction depends on our ability to:

	•		accurately identify and define new market opportunities and products;

	•		obtain market acceptance of our products;

	•		timely innovate, develop and commercialize new technologies and applications;

	•		adjust to changing market conditions;

	•		differentiate our offerings from our competitors’ offerings;

	•		ability to obtain intellectual property rights;

	•		continue to develop a comprehensive, integrated product and service strategy; and

	•		properly price our products and services.

If we cannot succeed in responding in a timely manner to technological and/or market changes, we could lose our competitive position which could materially harm our business and our prospects.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

The global nature of our business exposes us to multiple risks.

For the nine months ended June 30, 2005, approximately 48% of our revenues were derived from sales outside North America. We expect that international sales, including increased sales in Asia, will continue to account for a significant portion of our revenues. As a result of our international operations, we are exposed to many risks and uncertainties, including:

	•		difficulties in staffing, managing and supporting operations in multiple countries;

	•		longer sales-cycles and time to collection;

	•		tariff and international trade barriers;

	•		fewer legal protections for intellectual property and contract rights abroad;

	•		different and changing legal and regulatory requirements in the jurisdictions in which we operate;

	•		government currency control and restrictions on repatriation of earnings;

	•		fluctuations in foreign currency exchange and interest rates; and

	•		political and economic changes, hostilities and other disruptions in regions where we operate.

Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could materially harm our business and profitability.

Our business could be materially harmed if we fail to adequately integrate the operations of the businesses that we may acquire.

We have entered into an Agreement and Plan of Merger with Helix Technology Corporation pursuant to which we would acquire Helix. In addition we have made in the past, and may make in the future, acquisitions or significant investments in businesses with complementary products, services and/or technologies. Our acquisitions present numerous risks, including:

	•		difficulties in integrating the operations, technologies, products and personnel of the acquired companies and realizing the anticipated synergies of the combined businesses;

	•		defining and executing a comprehensive product strategy;

	•		managing the risks of entering markets or types of businesses in which we have limited or no direct experience;

	•		the potential loss of key employees, customers and strategic partners of acquired companies;

	•		unanticipated problems or latent liabilities, such as problems with the quality of the installed base of the target company’s products;

	•		problems associated with compliance with the target company’s existing contracts;

	•		difficulties in managing geographically dispersed operations; and

	•		the diversion of management’s attention from normal daily operations of the business.

If we acquire a new business, we may be required to expend significant funds, incur additional debt or issue additional securities, which may negatively affect our operations and be dilutive to our stockholders. In periods following an acquisition, we will be required to evaluate goodwill and acquisition-related intangible assets for impairment. When such assets are found to be impaired, they will be written down to estimated fair value, with a charge against earnings. For example, we were required to record impairment charges on acquired intangible assets and goodwill aggregating $479.3 million in fiscal 2002. The failure to adequately address these risks could materially harm our business and financial results.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Failure to retain key personnel could impair our ability to execute our business strategy.

The continuing service of our executive officers and essential engineering, technical and management personnel, together with our ability to attract and retain such personnel, is an important factor in our continuing ability to execute our strategy. There is substantial competition to attract such employees and the loss of any such key employees could have a material adverse effect on our business and operating results. The same could be true if we were to experience a high turnover rate among engineering and technical personnel and we were unable to replace them.

Risks Relating to Our Customers

We face substantial competition which may lead to price pressure and otherwise adversely affect our sales.

We face substantial competition throughout the world in each of our product areas. Our primary competitors are Asyst/Shinko, Daifuku, Camstar, Datasweep, Intercim, IBM, Murata, Rorze, TDK and Yaskawa and other smaller, regional companies. We also endeavor to sell products to OEM manufacturers, such as Applied Materials, Novellus, KLA-Tencor and TEL, that satisfy their semiconductor and flat panel display handling needs internally rather than by purchasing systems or modules from a supplier like us. Some of our competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing and customer support capabilities than we do. We expect our competitors to continue to improve the performance of their current products and to introduce new products and technologies that could adversely affect sales of our current and future products and services. New products and technologies developed by our competitors or more efficient production of their products could require us to make significant price reductions to avoid losing orders. If we fail to respond adequately to pricing pressures or fail to develop products with improved performance or developments with respect to the other factors on which we compete, we could lose customers or orders. If we are unable to compete effectively, our business and prospects could be materially harmed.

Because we rely on a limited number of customers for a large portion of our revenues, the loss of one or more of these customers could materially harm our business.

We receive a significant portion of our revenues in each fiscal period from a relatively limited number of customers, and that trend is likely to continue. Sales to our ten largest customers accounted for approximately 44% of our total revenues in the nine months ended June 30, 2005, 39% of our total revenues in fiscal 2004, 37% in fiscal 2003 and 33% in fiscal 2002. As the semiconductor manufacturing industry continues to consolidate and further shifts to foundries which manufacture semiconductors designed by others, the number of our potential customers could decrease, which would increase our dependence on our limited number of customers. The loss of one or more of these major customers or a decrease in orders from one of these customers could materially affect our revenue, business and reputation.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Because of the lengthy sales cycles of many of our products, we may incur significant expenses before we generate any revenues related to those products.

Our customers may need several months to test and evaluate our products. This increases the possibility that a customer may decide to cancel or change plans, which could reduce or eliminate our sales to that customer. As a result of this lengthy sales cycle, we may incur significant research and development expenses, and selling, general and administrative expenses before we generate the related revenues for these products, and we may never generate the anticipated revenues if our customer cancels or changes its plans.

In addition, many of our products will not be sold directly to the end-user but will be components of other products. As a result, we rely on OEMs of our products to select our products from among alternative offerings to be incorporated into their equipment at the design stage; so-called design-ins. The OEM’s decisions often precede the generation of volume sales, if any, by a year or more. Moreover, if we are unable to achieve these design ins from OEMs, we would have difficulty selling our products to that OEM because changing suppliers involves significant cost, time, effort and risk on the part of that OEM.

Customers generally do not make long term commitments to purchase our products and our customers may cease purchasing our products at any time.

Sales of our products are often made pursuant to individual purchase orders and not under long-term commitments and contracts. Our customers frequently do not provide any assurance of minimum or future sales and are not prohibited from purchasing products from our competitors at any time. Accordingly, we are exposed to competitive pricing pressures on each order. Our customers also engage in the practice of purchasing products from more than one manufacturer to avoid dependence on sole-source suppliers for certain of their needs. The existence of these practices makes it more difficult for us to gain new customers and to win repeat business from existing customers.

Other Risks

Claims of infringement involving one or more of our products in a case pending in a U.S. Federal court could result in significant expense.

On or about April 21, 2005, we were served with a third-party complaint seeking to join us as a party to a patent lawsuit brought by an entity named Information Technology Innovation, LLC based in Northbrook, Illinois (“ITI”) against Motorola, Inc. (“Motorola”) and Freescale Semiconductor, Inc. (“Freescale”). ITI began the lawsuit against Motorola in the United States District Court for the Northern District of Illinois (Eastern Division) in November 2004, and ITI added Freescale to the lawsuit in March 2005. ITI claims that Motorola and Freescale have infringed a U.S. patent that ITI asserts covers processes used to model a semiconductor manufacturing plant.

Freescale alleges that we have a duty to indemnify Freescale and Motorola from any infringement claims asserted against them based on their use of our AutoSched software program by paying all costs and expenses and all or part of any damages that either of them might incur as a result of the suit brought by ITI. AutoSched is a software program sold by us and by one or more companies that formerly owned the AutoSched product prior to the acquisition of AutoSched by us in 1999 from Daifuku U.S.A, Inc.

We believe that ITI is not a company that is engaged in the business of manufacturing hardware or software products. It is a limited liability company that apparently acquired an exclusive license to the patent at issue in the litigation and is now in the business of seeking to license the patent to others.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

We believe that we have meritorious defenses to any claim that our AutoSched product infringes the patent identified by ITI in its suit against Motorola and Freescale, and we will contest any such claim. We also believe that meritorious defenses exist to the claims asserted by ITI against Motorola and Freescale, and we intend to cooperate fully with Motorola and Freescale in the defense of those claims.

In any patent litigation matter there can be no assurances as to the final outcome and this litigation could have a material adverse effect on us. If a judgment of infringement were obtained against us, we could be required to pay substantial damages and a court could issue an order preventing us from continuing to sell our AutoSched product. We cannot predict the extent to which we might be required to seek licenses or alter our products as a result of the ITI litigation so that they no longer infringe upon the rights of others. We also cannot guarantee that the terms of any licenses we may be required to seek will be reasonable. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical and could detract from the value of our products. Further, the cost of defending this litigation and the diversion of management attention brought about by such litigation could be substantial, even if we ultimately prevail.

We may be subject to claims of infringement of third-party intellectual property rights, or demands that we license third-party technology, which could result in significant expense and prevent us from using our technology.

We rely upon patents, trade secret laws, confidentiality procedures, copyrights, trademarks and licensing agreements to protect our technology. Due to the rapid technological change that characterizes the semiconductor and flat panel display process equipment industries, we believe that the improvement of existing technology, reliance upon trade secrets and unpatented proprietary know-how and the development of new products may be as important as patent protection in establishing and maintaining competitive advantage. To protect trade secrets and know-how, it is our policy to require all technical and management personnel to enter into nondisclosure agreements. We cannot guarantee that these efforts will meaningfully protect our trade secrets.

There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor related industries. We have in the past been, and may in the future be, notified that we may be infringing intellectual property rights possessed by other third parties. We cannot guarantee that infringement claims by third parties or other claims for indemnification by customers or end users of our 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 our business, financial condition and results of operations.

Particular elements of our technology could be found to infringe on the intellectual property rights or patents of others. Other companies may hold or obtain patents on inventions or otherwise claim proprietary rights to technology necessary to our business. For example, twice in 1992 and once in 1994 we received notice from General Signal Corporation that it believed that certain of our tool automation products infringed General Signal’s patent rights. We believe the matters identified in the notice from General Signal were also the subject of a dispute between General Signal and Applied Materials, Inc., which was settled in November 1997. There are also claims that have been made by Asyst Technologies Inc. that certain products we acquired through acquisition embody intellectual property owned by Asyst. To date no action has been instituted against us directly by General Signal, Applied Materials or Asyst.

We cannot predict the extent to which we might be required to seek licenses or alter our products so that they no longer infringe the rights of others. We also cannot guarantee that the terms of any licenses we may be required to seek will be reasonable. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical and could detract from the value of our products. If a judgment of infringement were obtained against us, we could be required to pay substantial damages and a court could issue an order preventing us from selling one or more of our products. Further the cost and diversion of management attention brought about by such litigation could be substantial, even if we were to prevail. Any of these events could result in significant expense to us and may materially harm our business and our prospects.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

Our failure to protect our intellectual property could adversely affect our future operations.

Our ability to compete is significantly affected by our ability to protect our intellectual property. Existing trade secret, trademark and copyright laws offer only limited protection, and certain of our patents could be invalidated or circumvented. In addition, the laws of some countries in which our products are or may be developed, manufactured or sold may not fully protect our products. We cannot guarantee that the steps we have taken to protect our intellectual property will be adequate to prevent the misappropriation of our technology. Other companies could independently develop similar or superior technology without violating our intellectual property rights. In the future, it may be necessary to engage in litigation or like activities to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of proprietary rights of others, including our customers. This could require us to incur significant expenses and to divert the efforts and attention of our management and technical personnel from our business operations.

If the site of the majority of our manufacturing operations were to experience a significant disruption in operations, our business could be materially harmed.

Most of our manufacturing facilities are concentrated in one location. If the operations of these facilities were disrupted as a result of a natural disaster, fire, power or other utility outage, work stoppage or other similar event, our business could be seriously harmed because we may be unable to manufacture and ship products and parts to our customers in a timely fashion.

Our business could be materially harmed if one or more key suppliers fail to deliver key components.

We currently obtain many of our key components on an as-needed, purchase order basis from numerous suppliers. We do not generally have long-term supply contracts with these suppliers, and many of them have undertaken cost-containment measures in light of the recent downturn in the semiconductor industry. In the event of an industry upturn these suppliers could face significant challenges in delivering components on a timely basis. Our inability to obtain components in required quantities or of acceptable quality could result in delays or reductions in product shipments to our customers. This could cause us to lose customers, result in delayed or lost revenue and otherwise materially harm our business.

Our stock price is volatile.

The market price of our common stock has fluctuated widely. Since the beginning of fiscal year 2004 through the end of this current quarter, our stock price fluctuated between a high of $27.30 per share and a low of $11.62 per share. The market price of our common stock reached a low of approximately $7.59 on April 11, 2003. Consequently, the current market price of our common stock may not be indicative of future market prices, and we may be unable to sustain or increase the value of an investment in our common stock. Factors affecting our stock price may include:

	•		variations in operating results from quarter to quarter;

	•		changes in earnings estimates by analysts or our failure to meet analysts’ expectations;

	•		changes in the market price per share of our public company customers;

	•		market conditions in the semiconductor industry or the industries upon which it depends;

	•		general economic conditions;

	•		political changes, hostilities or health risks such as SARS;

	•		low trading volume of our common stock; and

	•		the number of firms making a market in our common stock.

BROOKS AUTOMATION, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — Continued

In addition, the stock market has recently experienced significant price and volume fluctuations. These fluctuations have particularly affected the market prices of the securities of high technology companies like ours. These market fluctuations could adversely affect the market price of our common stock.

Provisions in our organizational documents, contracts and 4.75% Convertible Subordinated Notes due 2008 may make it difficult for someone to acquire control of us.

Our certificate of incorporation, bylaws, contracts and 4.75% Convertible Subordinated Notes Due 2008 contain provisions that would make more difficult an acquisition of control of us and could limit the price that investors might be willing to pay for our securities, including:

	•		the ability of our board of directors to issue shares of preferred stock in one or more series without further authorization of stockholders;

	•		a prohibition on stockholder action by written consent;

	•		the elimination of the right of stockholders to call a special meeting of stockholders;

	•		a requirement that stockholders provide advance notice of any stockholder nominations of directors to be considered at any meeting of stockholders;

	•		a requirement that the affirmative vote of at least 80 percent of our shares be obtained for certain actions requiring the vote of our stockholders;

	•		a requirement under our shareholder rights plan that, in many potential takeover situations, rights issued under the plan become exercisable to purchase our common stock at a price substantially discounted from the then applicable market price of our common stock; and

	•		a requirement upon specified types of change of control that we repurchase the 4.75% Convertible Subordinated Notes at a price equal to 100% of the principal outstanding amount thereof, plus accrued and unpaid interest, if any.

BROOKS AUTOMATION, INC.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Concentration of Credit Risk

Financial instruments that potentially subject us to concentration of credit risk consist primarily of trade receivables and temporary and long-term cash investments in treasury bills, certificates of deposit and commercial paper. We restrict our investments to repurchase agreements with major banks, U.S. government and corporate securities, and mutual funds that invest in U.S. government securities, which are subject to minimal credit and market risk. Our customers are concentrated in the semiconductor industry, and relatively few customers account for a significant portion of our revenues. Our top ten largest customers accounted for 44% of revenues for the nine months ended June 30, 2005. Our top twenty largest customers account for 57% of revenues for the nine months ended June 30, 2005. We regularly monitor the creditworthiness of our customers and believe that we have adequately provided for exposure to potential credit losses.

Interest Rate Exposure

At June 30, 2005, we had no variable interest rate debt; accordingly, a 10% change in the effective interest rate percentage would impact interest income although it would not materially affect the consolidated results of operations or financial position.

Currency Rate Exposure

Our 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 our international subsidiaries are generally denominated in currencies other than the United States dollar. However, since the functional currency of our international subsidiaries is the local currency, foreign currency translation adjustments do not impact operating results, but instead is reflected as a component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss)”. To the extent that we expand our international operations or change our pricing practices to denominate prices in foreign currencies, we will be exposed to increased risk of currency fluctuation. Assets and liabilities of our international subsidiaries are translated at period end exchange rates. As such, foreign currency fluctuation results in increases and decreases in translated foreign currency assets and liabilities with the resulting offset being reflected in “Accumulated other comprehensive income (loss)”.

BROOKS AUTOMATION, INC.

Item 4. Controls and Procedures

a)		Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Report, and pursuant to Rules 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934, the Company’s chief executive officer (“CEO”) and chief financial officer (“CFO”) have concluded, subject to the limitations inherent in such controls noted below, that the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files under the Securities Exchange Act of 1934 is effectively recorded, processed, summarized and reported in accordance with the time specified by the SEC’s rules and forms. The Company is presently engaged in a broad review of its internal control procedures in anticipation of the need for the Company’s management to attest to the effectiveness of internal control over financial reporting in connection with its 2005 filing of the Company’s Annual Report on Form 10-K.

b)		Limitations Inherent in All Controls. The Company’s management, including the CEO and CFO, recognizes that our disclosure controls and our internal controls (discussed below) cannot prevent all error or all attempts at fraud. Any controls system, no matter how well crafted and operated, can only provide reasonable, and not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints that affect the operation of any such system and that the benefits of controls must be considered relative to their costs. Because of the inherent limitations in any control system, no evaluation or implementation of a control system can provide complete assurance that all control issues and all possible instances of fraud have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

c)		Change in Internal Controls. There were no significant changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company has made minor improvements to its internal controls as part of its efforts to ensure compliance with Sarbanes-Oxley 404 requirements.


		PAGE NUMBER
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements

	Consolidated Balance Sheets as of June 30, 2005 (unaudited) and September 30, 2004		3

	Consolidated Statements of Operations for the three and nine months ended June 30, 2005 and 2004 (unaudited)		4

	Consolidated Statements of Cash Flows for the nine months ended June 30, 2005 and 2004 (unaudited)		5

	Notes to Consolidated Financial Statements (unaudited)		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		38

Item 4.	Controls and Procedures		39

PART II.	OTHER INFORMATION

Item 6.	Exhibits		40

Signatures			41
EX-31.01 Section 302 Certification of C.E.O.
EX-31.02 Section 302 Certification of C.F.O.
EX-32 Section 906 Certifications


Exhibit No.		Description
31.01		Rule 13a-14(a),15d-14(a) Certification

31.02		Rule 13a-14(a),15d-14(a) Certification

32		Section 1350 Certifications


	BROOKS AUTOMATION, INC.
DATE: August 3, 2005	/s/ EDWARD C. GRADY
	Edward C. Grady
	Director, President and Chief Executive Officer (Principal Executive Officer)


DATE: August 3, 2005	/s/ ROBERT W. WOODBURY, JR.
	Robert W. Woodbury, Jr.
	Senior Vice President and Chief Financial Officer (Principal Accounting Officer)


Exhibit No.		Description
31.01		Rule 13a-14(a),15d-14(a) Certification

31.02		Rule 13a-14(a),15d-14(a) Certification

32		Section 1350 Certifications