SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] Annual ReportANNUAL REPORT Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For fiscal year ended SeptemberFOR FISCAL YEAR ENDED SEPTEMBER 30, 19971998 or
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[ ][_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (no fee required)
For the transition period from __________ to ____________.
Commission File Number:COMMISSION FILE NUMBER: 0-25434
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Brooks Automation, Inc.BROOKS AUTOMATION, INC.
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(Exact Name of Registrant as Specified in Its Charter)
DelawareDELAWARE 04-3040660
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(State or Other Jurisdiction of (I.R.S. Employer
Identification No.)
Incorporation or Organization) Identification No.)
15 Elizabeth Drive, Chelmsford, MassachusettsELIZABETH DRIVE, CHELMSFORD, MASSACHUSETTS 01824
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(Address of Principal Executive Offices) (Zip Code)
978-262-2566
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
NoneNONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Rights to Purchase Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock, $.01 par value,
held by non-affiliatesnonaffiliates of the registrant as of December 12, 1997November 27, 1998, was
$129,494,399$163,982,711 based on the closing price of $12.88$16.38 on that date on the Nasdaq
Stock Market. As of December 12, 1997, 10,053,913November 27, 1998, 11,007,281 shares of the registrant's
Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for the fiscal year
ended September 30, 1997 are incorporated by reference in Part II and Part IV of
this Report.
Portions of the registrant's Proxy Statement involving the election of
directors, which is expected to be filed within 120 days after the end of the
registrant's fiscal year, are incorporated by reference in Part III of this
Report.
PART I
ITEM 1. BUSINESS
Brooks Automation, Inc. (the "Company") is a leading worldwidean independent
developer, manufacturer and supplier of substratematerial
handling robots, modules, real-time software and controls, and fully integrated
cluster tool handling systemsplatforms and manufacturing execution system ("MES") software
technology to semiconductor, flat panel display, and data storage manufacturers
worldwide. Founded in 1978, the Company has distinguished itself as a
technology and market leader, particularly in the demanding cluster-tool vacuum-
processing environment. In September 1998, the Company acquired FASTech
Integration, Inc., which designs, develops, markets, and supports an integrated
suite of MES workflow software products for the semiconductor, electronics, and
flat panel display process equipmentgeneral discrete manufacturing industries.
The Company's
products have evolved from individual robots used to transfer wafers in advanced
production equipment to fully integrated handling system solutions that increase
the throughput and utilization of semiconductor and flat panel display process
equipment. In 1996, the Company acquired Techware Systems Corporation (now
Brooks Canada), a designer and supplier of integrated equipment control software
for the semiconductor and related industries, expanding its software and control
capability. In 1997, the Company introduced a line of products for the
atmospheric handling market, including in-line and controlled environment
systems, robots, aligners and traversers.
ProductsPRODUCTS
The Company offers a full complement of semiconductor wafer and flat panel
display substrate handling systems. The Company has developed comprehensive
product lines that encompass automation modules, complete handling systems and
integrated software and controls for its targeted markets. The Company's
systems, robots and modules are designed, developed and produced with similar
technologies and can use the Company's ClusterLink software. The Company uses
the synergies of its complementary products to respond to changing industry
demands such as processing 300mm semiconductor wafers and the larger, fourth
generation flat panel display substrates.
The Company also develops and markets software products for the semiconductor
MES market. MES software is designed to control plant floor operations and fill
the gap between control applications and enterprise resource planning ("ERP")
systems. MES applications coordinate and track the activities of manufacturing
resources, including equipment, material, operators, engineers, and software
applications. The Company also provides integrated MES products for controlling
complex manufacturing processes.
The Company believes that its products offer significant advantages in a number
of areas, including those set forth below:
Throughput. The Company's patented LeapFrog robots have been able to achieve
significant improvements in throughput compared to other robots. The Company
also has been able to increase throughput by developing patented algorithms to
calculate efficient trajectories and acceleration and deceleration profiles
(time optimal trajectories) for its robot arms while reducing vibrations and
maintaining position control of the substrate being transported. The Company has
developed system software to improve cluster tool throughput. By combining
digital signal processing ("DSP") technology with time optimal trajectory
software, the Company believes that it has achieved additional reductions in
transfer time.
Reliability. The Company has developed and implemented a rigorous design and
test program to enhance and evaluate product reliability. The Company's
reliability initiative is guided by the computer-based reliability models
developed by SEMATECH and Sandia National Laboratories. The magnetic drive in
the Company's latest generation robots transmits force magnetically, without
piercing the vacuum barrier, and eliminates the need for moveable vacuum seals.
By designing robots with fewer moving parts and eliminating moveable seals, the
Company believes that it will be able to increase the reliability of its
transfer robots significantly. The Company's goal is to continue to increase
mean time between failures.
Accuracy. As wafer and substrate sizes increase and placement accuracy becomes
more demanding, it is becoming increasingly important to minimize tracking
errors, substrate sliding and arm deflection (the bending or wobbling of the
robot arm). The Company's transfer robots contain a closed loop servo control,
which monitors and maintains placement accuracy in the rotational axis by
obtaining constant positioning feedback. Many other transfer robots use an open
loop stepper control system whichthat commands a robot to move a specified number of
steps with limited or no feedback as to the final position of the robot. These
stepper systems can lead to misplacement of the robot arm if the number of steps
is miscounted. To further enhance tracking, the Company has incorporated a
closed loop feedback system with a proprietary DSP-based controller in its
latest generation robots.
Contamination Control. The Company has designed its wafer and flat panel
display substrate handling systems and modules to reduce contamination by using
several design criteria: limited moving parts within the tool environment and
above the wafer or substrate plane; picking and placing with a vertical motion
to prevent wafer or substrate sliding on process module surfaces and cassette
slots; gentle handling motions which reduce relative wafer or substrate
vibration and movement on the transfer robot end effectors; controlled load lock
pumping and venting; incorporation of materials that reduce contamination; and
assembly, test and packaging in the Company's clean rooms.
The Company currently manufactures products and develops for the semiconductor
and flat panel display markets. The following table lists the Company's product
offerings within each of the markets it serves:
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Market Product Lines-------------------------------------------------------------------------------------------------------
MARKET PRODUCT LINES
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Semiconductor Vacuum Products Central Wafer Handling Systems
Transfer Robots
Thermal Conditioning Modules (Cool and Degas)
Cassette Elevator Load Locks
Aligners
Factory Automation Interface Modules
System Software and Controls
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Semiconductor Atmospheric and Central Wafer Handling Systems
Inert Environment Products In-line Wafer Handling Systems
Transfer Robots
Robot Traversers
Thermal Conditioning Modules (Cool)
Cassette Elevator Load Locks
Aligners
Factory Automation Interface Modules
System Software and Controls
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Flat Panel Display Products Central Substrate Handling Systems
Transfer Robots
Cassette Elevator Load Locks
Thermal Conditioning Modules (Degas)
System- -------------------------------------------------------------------------------------------------------
Tool Control Software and ControlsClusterlink(TM)
Control Power(TM)
Control Vision (TM)
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Factory Automation Software Customizable cell control solutions
Integrated MES solutions
Computerized maintenance management software
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Semiconductor Vacuum Products
Vacuum Central Wafer Handling SystemsSEMICONDUCTOR VACUUM PRODUCTS
VACUUM CENTRAL WAFER HANDLING SYSTEMS
The Company's family of Marathon vacuum central wafer handling systems handle
wafer sizes of 100mm to 300mm in diameter, are offered with four to eight sides
(referred to as ports) and have vacuum ranges of 10/-3/ to 10/-8/ torr (a
measure of vacuum pressure). Each port can accommodate process modules meeting
SEMI/MESC standards. Using a two loadtwo-load lock configuration, the Company's
Marathon 800 eight-sided central wafer handling system can accommodate up to six
process modules.
The Company's Marathon systems currently incorporate either the Company's single
VacuTran or dual MultiTran frog-arm vacuum transfer robot, one or more of the
Company's vacuum cassette elevator (VCE) load locks, the Company's InLigner
wafer aligner, and, if required, the Company's InCooler wafer cooling module.
The Company has been able to increase the availability of ports for use with
process modules by developing a wafer aligner and a cooling module which mount
between a vacuum cassette elevator load lock or process module and the central
wafer handling chamber.
The Company is developing degas modules for its Marathon
systems.
The Company has also developed tool control ClusterLink 3 system software to
control its vacuum wafer handling systems, graphical user interface and process
modules. The software interfaces with process tool controllers and provides
environment control, profiled load lock pumping and venting, error recovery
diagnostics, safety control and scheduling of wafer transfers. When providing a
turn-key solution that includes the Company's system control and scheduling
software, the Company is able to provide guarantees relating to throughput and
particle contamination.
In 1997, the Company developed a next-generation 200mm wafer handling system,
the Marathon Express 800, which features the dual same-side LeapFrog robot and
offers improvement to throughput, vacuum performance and serviceability. In
anticipation of the emergence of next-generation 300mm wafers, the Company has
developed central wafer handling systems (the Marathon 4000 and 6000) and is
developing athe
Marathon Express 8000 eight-sided configuration. These systems have
incorporated handling technology developed by the Company for flat panel display
substrates, which are generally significantly more demanding to handle than
wafers.
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Vacuum Transfer RobotsVACUUM TRANSFER ROBOTS
The Company's next-generation vacuum transfer robot, the MagnaTran 7, is a
second generation magnetic drive robot whichthat incorporates the Company's patented
time optimal trajectory software algorithimsalgorithms to control and monitor its
operation. The MagnaTran 7 is smaller and lighter than its predecessor.
Building on its experience in developing robot wafer transfer technology, the
Company has developed the dual, same-side LeapFrog high-productivity arm
configuration. The LeapFrog
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arm is only available on the MagnaTran 7 robot and is a feature of the Company's
Marathon Express central handling systems. These robots are constructed to
SEMI/MESC standards and are sold separately for use with other vacuum wafer
handling applications. The Company believes that the technical advances
implemented to meet the requirements of the flat panel display industry enabled
the Company to adopt its MagnaTran robots, with minimal technical modifications,
to handle 300mm wafers.
Other Vacuum Wafer Handling and Conditioning ModulesOTHER VACUUM WAFER HANDLING AND CONDITIONING MODULES
Vacuum Cassette Elevator Load Locks. The Company has developed a family of
vacuum cassette elevator load locks to hold and index (raise and lower)
cassettes of wafers for cluster tools and other vacuum automated equipment. The
Company's VCE 46 200mm cassette load lock features flexible and changeable
interfaces, is field upgradable and is available with either a manual or
automatic door configuration. The automatic door uses an innovative low
particle, low profile drive mechanism, which opens vertically below the cluster
platform for SMIF, automated guided vehicle ("AGV") and rail guided vehicle
("RGV") compatibility. The Company has developed the VCE 5 for 300mm wafers
with a batch wafer transfer arm and a front opening unified pod ("FOUP")
interface. The Company is developinghas developed the VCE 7small volume lock for 300mm wafers to
interface with the Company's Caliber atmospheric, in-line handling system.
Vacuum Aligners. Wafer processing requires precise alignment and, often,
orientation of a wafer for processing. The Company's InLigner intermodule wafer
aligner provides fast one-step wafer alignment by optically sensing the location
of the wafer on the aligner and communicating that position to the vacuum
transfer robot. Using this information, the transfer robot adjusts the
placement of its arm to pick up the wafer in the proper position. The InLigner
is designed for intermodule mounting between a module, such as the cassette load
lock and the central wafer handling chamber, in order to conserve a port of the
cluster tool. The Company's InLigner 3 is designed for 300mm wafer alignment.
The Company is developinghas developed a new family of aligners for 200mm and 300mm wafers,
the TopLigners, that mount from the top in the central transport chamber and
offer improved serviceability.
Vacuum Cool Modules. The Company's InCooler intermodule cool station cools
wafers after hot processing to a temperature that allows placement into a
plastic wafer cassette. This module is also designed for intermodule mounting.
The Company's InCooler 3 is designed for 300mm wafer applications. The Company
is developinghas developed a family of new cooling modules for 200mm and 300mm wafers, the
TopCoolers, that mount from the top in the central transport chamber and offer
improved serviceability.
Vacuum Degas Modules. The Company is developing degas modules to remove water
from the surface of the wafer. The Company is developing a stand alone 200mm and
a top mount 300mm module that offer improved serviceability.
Semiconductor Atmospheric and Inert Environment ProductsSEMICONDUCTOR ATMOSPHERIC AND INERT ENVIRONMENT PRODUCTS
Building upon its vacuum wafer handling systems, the Company is pursuing the
development of a broad line of products for atmospheric applications.
Atmospheric wafer handling systems may be segregated into two subcategories: the
traditional ambient atmospheric wafer handling systems and "inert" (principally
nitrogen) environment wafer handling systems. The traditional atmospheric wafer
handling systems include fully integrated automated wafer handling platforms for
open, ambient air in-line wafer handling platforms. The inert environment
wafer handling systems include fully integrated, automated wafer handling
platforms for at or above atmospheric pressure cluster tools. Atmospheric Wafer Handling Systems
The Company's CaliberCompany is
currently upgrading its initial line of products that were launched in fiscal
1997.
ATMOSPHERIC WAFER HANDLING SYSTEMS
The Company is developing its second generation atmospheric in-line wafer handling
systems, atmospheric Front End (AFE), to handle wafer sizes from 150mm to 300mm
in diameter and are offered withdiameter. The AFE is expected to offer two to four cassette or FOUP staging
locations and may be operated in Class 1 clean room environments. These
configurations have beenare being developed to meet broad market requirements. The Caliber 200AFE
is being designed for 200mm and 400 are used for 200mm300mm wafer open cassettes and the Caliber 400
S is being developed for use with 200mm SMIF
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300mm wafer FOUP
applications.
The Company is developing the Caliber 2000 in-line wafer handling
systemplans to handle 300mm wafers in open cassette or FOUP applications.
The Company's Caliber systems incorporate the Company'sits single scara-arm AcuTran 7 atmospheric
transfer robot, the Company's AcuTrav robot traverser, two or more
of the Company's cassette staging locations,which is presently under development, and, if required, the
Company's AcuLigner wafer aligner. The Company's Caliber systems also incorporate a system
controller to control all wafer handling functions and to interface toaligner into the process tool's primary controller.
Atmospheric Transfer RobotsAFE systems.
ATMOSPHERIC TRANSFER ROBOTS
Building on its experience in developing transfer robots and employing its
magnetic direct drive technology, the Company has developedis developing the AcuTran 3,7, its
next-generation atmospheric transfer robot, to handle up to 300mm wafers. TheseThe
Company plans for these robots areto be a standard feature of the Company's CaliberAFE
in-line wafer handling systems, areto be constructed to SEMI standards and areto be
sold separately for use with other atmospheric wafer handling applications. The
Company is also developing a wet environment robot, the AquaTran 7, which has
the same features as the AcuTran 7 with the addition of wet environment
4
capability. The Company's robots incorporate DSP technology and patented time
optimal trajectory software to control and monitor their operation.
Other Atmospheric Wafer Handling Modules
Atmospheric Robot Traverser. The Company's AcuTrav provides high speed
horizontal motion permitting the AcuTran 3 robot to access multiple process tool
load ports and cassette staging locations. The AcuTrav uses direct drive
mechanism which allows high speed motions comparable to the Company's robot
family.OTHER ATMOSPHERIC WAFER HANDLING MODULES
Atmospheric Aligners. The Company's AcuLigner 3 wafer aligner is being designedhas been
developed for fast one-step 150mm to 300mm wafer alignment by optically sensing
the location of the wafer on the aligner and communicating that position to the
vacuum transfer robot. Using this information, the transfer robot adjusts the
placement of its arm to pick up the wafer in the proper position.
Inert Environment Wafer Handling SystemsINERT ENVIRONMENT WAFER HANDLING SYSTEMS
In 1997, the Company introduced a new central wafer handling system to address
market needs for reduced water vapor environment central handling systems for
high temperature wafer processing (e.g. rapid thermal processing and epitaxial
deposition). Building upon its expertise in vacuum central wafer handling
systems and modules, the Company developed the Atmospheric Express 500 and 600
"inert" environment wafer handling system for 150mm to 200mm wafers. This inert
environment central wafer handling system transfers wafers at or above
atmospheric pressure in a principally nitrogen environment. The Atmospheric
Express incorporate robots and modules from the Company's vacuum wafer handling
product line. The Company is
developinghas developed the Atmospheric Express 6000 and 7000
to handle up to 300mm wafers.
Flat Panel Display ProductsFLAT PANEL DISPLAY PRODUCTS
In 1994, the Company introduced a family of vacuum central substrate handling
systems and modules for the flat panel display deposition and etch process
equipment markets, shipping its first Hercules central substrate handling system
for a flat panel display vacuum cluster tool in July 1994. The Hercules systems
can handle flat panel display substrates from 350mm x 460mm to 600mm x 720mm in
size. The Company is developing a next generation flat panel display platform,
for substrates up to approximately 1 meter x 1 meter.
The Hercules system includes the Company's MagnaTran 60 magnetically driven
frog-arm vacuum transfer robot with two or three axes of motion and single or
dual arm options, a single substrate load lock, or a 20 to 30 substrate cassette
elevator load lock (VCE 40), and a seven substrate batch degas module.
The Company is developing a next generation magnetic drive robot, the MagnaTran
70, for the flat panel display market. The MagnaTran 70 robot series is
expected to be smaller and lighter and to feature an optional extended vertical
axis for deployment in the Company's next generation platforms.
CONTROLS SOFTWARE
The Company provides tool control ClusterLink 3 system software to control its
vacuum wafer handling systems, graphical user interface, and process modules.
The software interfaces with process tool controllers and provides environment
control, profiled load lock pumping and venting, error recovery diagnostics,
safety control, and scheduling of wafer transfers. When providing a turn-key
solution that includes the Company's system control and scheduling software, the
Company is able to provide guarantees relating to throughput and particle
contamination.
FACTORY AUTOMATION SOFTWARE
Manufacturing Execution Systems ("MES") software is designed to control plant
floor operations and fill the gap between control applications and enterprise
resource planning ("ERP") systems. MES applications coordinate and track the
activities of manufacturing resources, including equipment, material, operators,
engineers and software applications. The Company provides integrated MES
products for controlling complex manufacturing processes, a flexible,
distributed MES framework for improved scalability and integration, and object-
based software tools for customization and equipment integration. The Company's
products are generally categorized within four product families: CELLworks(R),
FACTORYworks(TM), STATIONworks and Xsite.
CELLworks is a set of software tools for developing manufacturing applications
that manage, monitor and coordinate equipment, material and operators. These
object-based tools are designed to provide an integrated environment for
building and deploying applications that are independent of specific
manufacturing devices, hardware platforms and databases.
FACTORYworks is a set of integrated, graphical MES application modules that
allow customers to configure their factory resources and process plans, track
inventory and orders, collect and analyze production data, monitor equipment,
dispatch work orders to manufacturing operators and trace consumption of
components into finished products.
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CustomersThese modules provide tools that are designed to allow customers to define
manufacturing workflow and extend and customize the standard applications to
meet site-specific needs.
STATIONworks is a packaged set of tools that integrates process and production
data from various equipment with MES systems, including the Company's
FACTORYworks product. STATIONworks includes a library of equipment interface
drivers (currently 150 unique drivers) that are provided as a part of the Tool-
Object-Model (TOM) portion of the product. The product also provides a common
service architecture that gives customers the capability to develop customer
services that are re-usable across various applications.
Xsite is an integrated software package providing a computerized means of
controlling many aspects of maintenance activity, from breakdown analysis and
work order control to condition monitoring and preventive maintenance
scheduling. The product provides the ability to display and utilize charts,
diagrams and drawings.
CUSTOMERS
The Company's customers are primarily semiconductorfor wafer and flat panel display substrate handling
systems are primarily OEMs and semiconductor manufacturers who are retrofitting
the vacuum automation of their process equipment or developing advanced process
equipment for internal use.use; for MES software products, the Company's customers
are primarily semiconductor manufacturers. The Company's current customers are
primarily located in the United States, Japan, South Korea, Taiwan, Singapore,
and Europe. The Company intends to market its developing family of atmospheric
central wafer handling equipment to its existing customers in the vacuum and
flat panel display markets and other potential customers.
Relatively few customers account for a substantial portion of the Company's
revenues. Sales to the Company's ten largest customers in fiscal 1998, fiscal
1997, and fiscal 1996 accounted for 61%, 60%, and 55% of the Company's revenues,
respectively. In fiscal 1998, fiscal 1997, 1996 and 1995,fiscal 1996, Lam Research
Corporation ("Lam") accounted for 21%16%, 17%, and 17% of the Company's revenues, and sales to the Company's top ten customers
accounted for approximately 71%, 69% and 75% of revenues,
respectively. A reduction or delay in orders from Lam or other significant
customers could have a material adverse effect on the Company's results of
operations. See, "Factors That May Affect Future Results--Customer
Concentration"Concentration," in Management's Discussion and Analysis onof Financial ConditionsCondition
and Results of Operations and Note 12, "Geographic, Significant Customers, and
Related Party Information," in Consolidated Financial Statements for further
discussion.
Marketing, Sales and Customer SupportMARKETING, SALES AND CUSTOMER SUPPORT
The Company markets and sells its wafer and substrate handling systems and
modules in the United States, Japan, South Korea, Taiwan and Europe through its
direct sales and marketing organization. As of September 30, 1997, 45 persons
were engaged in sales and marketing activities worldwide. The selling process for the Company's
products is often multilevel, involving a team comprised of individuals from
sales, marketing, engineering, operations and senior management. Each
significant customer is assigned a team that engages the customer at different
organization levels to provide planning and product customization and to assure
open communication and support. In addition, the Company markets its MES
software products through its direct sales force in North America, Europe, and
Singapore and through distributors in Japan and Korea. Since the Company's
foreign distributors are not employees of the Company and are not required to
offer the Company's products exclusively, there can be no assurance that they
will continue to market the Company's products.
The Company's marketing activities also include participation in trade shows,
publication of articles in trade journals, participation in industry forums and
distribution of sales literature. To enhance this communication and support,
particularly with its international customers, the Company maintains technology
centers in California, British Columbia, Germany, South Korea, Taiwan,
Singapore, and Japan. These facilities, together with the Company's
headquarters, maintain demonstration equipment for customers to evaluate.
Customers are also encouraged to discuss the features and applications of the
Company's demonstration equipment with the Company's engineers located at these
facilities. The Company also maintains regional sales and service personnel in
Taiwan, the United Kingdom, Phoenix,
Arizona and Austin, Texas.Texas and maintains a software technology center
in Canada.
The Company has recently experienced significant growth in foreign revenues. In
fiscal 1998, fiscal 1997, 1996 and 1995,fiscal 1996, foreign revenues accounted for 38%41%,
20%38% and 12%25%, respectively, of the Company's revenues. The Company expects
foreign revenues to continue to represent a significant percentage of total
revenues in the foreseeable future. However, there can be no assurance that
geographical growth rates, if any, in the foreseeable future, particularly in
Japan and South Korea which are suffering regional economic downturns, will be
comparable to those achieved in fiscal 1997.recent years. See "Factors That May Affect
Future Results--Risks of International Sales and Operations" in Management's
Discussion and Analysis onof Financial ConditionsCondition and Results of Operations and
Note 1012 to the Company's Consolidated Financial Statements for further
discussion.
In 1997,1998, the Company developed a new sales and marketing tool, a process tool
throughput simulator, to enable the evaluation of various wafer handling system
configurations to identify the preferred tool configuration for a specific
application. This tool simulates the movement of wafers with execution times,
scheduling algorithms, and flow sequences similar to those of actual
6
process tools and outputs this information visually. This tool is capable of
comparing multiple tool configurations simultaneously for preferred fit
comparison.
The Company provides support to its customers with (i) telephone technical
support access 24-hours a day, 365 days a year, (ii) direct training programs
and (iii) operating manuals and other technical support information for the
Company's products. The Company maintains spare parts inventories in all of its
locations to enable its personnel to serve the Company's customers and repair
their products more efficiently.
CompetitionCOMPETITION
The semiconductor and flat panel display process equipment manufacturing
industries are highly competitive and characterized by continual change and
improvement in technology. Although other independent companies sell vacuum and
atmospheric wafer and flat panel display substrate handling automation systems
and vacuum transfer robots to OEMs, the Company believes that its primary
competition is from the larger, integrated semiconductor and flat panel display
OEMs that satisfy their substrate handling needs in-house rather than by
purchasing handling systems or modules from an independent source such as the
Company. Such OEMs comprise the majority of the Company's
6
current and potential
customers. Applied Materials, Inc. ("Applied Materials"), the leading process
equipment OEM, develops and manufactures its own central wafer handling systems
and modules. The Company believes that most vacuum central wafer handling
systems and modules are manufactured in-house by OEMs. Many of the companies in
these industries have significantly greater research and development, clean room
manufacturing, marketing and financial resources than the Company.
Many OEMs have substantial resources and expertise in substrate handling and
automation in vacuum and atmospheric environments and will only purchase the
Company's products if the Company can demonstrate improved product performance
as measured by throughput, reliability, contamination control and accuracy, at
an acceptable price. The Company believes that it competes favorably with OEMs
and other independent suppliers with respect to all of these factors. However,
there can be no assurance that the Company will be successful in selling its
products to OEMs that currently satisfy their wafer and flat panel handling
needs in-house or from other independent suppliers, regardless of the
performance or the price of the Company's products.
The Company's sale of its products for the flat panel display process equipment
market is heavily dependent upon its penetration of the Japanese market. The
Company is also seeking to expand its presence in the Japanese semiconductor
process equipment market. In addressing the Japanese markets, the Company may be
at a competitive disadvantage to Japanese suppliers. See "Factors That May
Affect Future Results--Risks of International Sales and Operations" in
Management's Discussion and Analysis onof Financial ConditionsCondition and Results of
Operations for further discussion.
ResearchThe Company believes that the primary competitive factors in the market for MES
software are product functionality, price/performance, ease of use, hardware and
Developmentsoftware platform, vendor reputation and financial stability. The Company
believes its products currently compete favorably with other systems on the
primary factors listed above. The Company also believes that the relative
importance of these competitive factors may change over time. The Company
experiences direct competition in the semiconductor industry from various
competitors, including Applied Materials-Consilium and Promis.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on developing new
products for the semiconductor and flat panel display process equipment
industries and further enhancing the functionality, reliability and performance
of existing products. The Company's engineering, marketing, operations, and
management personnel have developed close collaborative relationships with many
of their customer counterparts and have used these relationships to identify
market demands and target its research and development to meet those demands.
The Company's current research and development efforts include the continued
development and enhancement of the Company's semiconductor and flat panel
display products, including 300mm Marathon Express vacuum central wafer handling
systems and modules, fourth generation flat panel display substrate handling
systems and modules, controlMES and schedulingstation control software, and atmospheric handling
systems and modules.
There can be no assurance that the Company will be able to develop new products
effectively, to enhance its existing products, or to respond effectively to
technological changes or new industry standards or developments on a timely
basis, if at all. In fiscal 1998, fiscal 1997, 1996 and 1995,fiscal 1996, the Company's
research and product development expenses were $14.2$22.7 million, $12.4$20.6 million and
$6.8$18.3 million, respectively, representing 16.5%22.7%, 13.7%18.9%, and 13.4%16.3% of the
Company's revenues, respectively. See, "Factors That May Affect Future Results--NewResults--
New Products and Rapid Technological Change"Change," in Management's Discussion and
Analysis onof Financial ConditionsCondition and Results of Operations for further
discussion.
Manufacturing7
MANUFACTURING
The Company's manufacturing operations consist primarily of product assembly,
integration, and testing. The Company has adopted stringent quality assurance
procedures that include standard design practices, component selection
procedures, vendor control procedures and comprehensive reliability testing and
analysis to assure the performance of its products. The Company receivedis ISO 9001
certification in February 1996.certified.
The Company employs a just-in-time manufacturing strategy. The Company believes
that this strategy, coupled with the outsourcing of noncritical subassemblies,
reduces fixed operating costs, improves working capital efficiency, reduces
manufacturing cycle times and improves flexibility to rapidly adjust its
production capacities. While the Company often uses single source suppliers for
certain key components and common assemblies to achieve quality control and the
benefits of economies of scale, the Company believes that these parts and
materials are readily available from other supply sources.
Patents and Proprietary RightsPATENTS AND PROPRIETARY RIGHTS
The Company relies upon trade secrets and patents to protect its technology. Due
to the rapid technological change that characterizes the semiconductor and flat
panel display process equipment industries, the Company believes that the
improvement of existing technology, reliance upon trade secrets and unpatented
proprietary know-how and the
7
development of new products may be more important
than patent protection in establishing and maintaining a competitive advantage.
It is the Company's policy to require all technical and management personnel to
enter into nondisclosure agreements. Nevertheless, the Company has obtained
patents and will continue to make efforts to obtain patents, when available, in
connection with its product development program. There can be no assurance that
any patent obtained will provide protection or be of commercial benefit to the
Company, or that its validity will not be challenged. TheDespite these efforts,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology or that
the Company can meaningfully protect its trade secrets. As of September 30,
1998, the Company had obtained 2027 United States patents and had 3029 United States
patent applications pending on its behalf. In addition, the Company had
obtained 1012 foreign patents and had 4375 foreign patent applications pending on
its behalf. The Company's United States patents expire at various times from
1999 to 2017. There can be no assurance that the Company's pending patent
applications or any future applications will be approved, that any patents will
provide it with competitive advantages or will not be challenged by third
parties, or that the patents of others will not have an adverse effect on the
Company's ability to do business. There can be no assurance that others will not
independently develop similar products, duplicate the Company's products or, if
patents are issued to the Company, design around the patents issued to the
Company. Others may have filed and in the future may file patent applications
that are similar or identical to those of the Company. No assurance can be given
that any such patent application will not have priority over patent applications
filed by the Company.
There has been substantial litigation regarding patent and other intellectual
property rights in the semiconductor related industries. The Company had
received notice from General Signal Corporation ("General Signal") alleging
infringement of patents then owned by General Signal, relating to cluster tool
architecture, by certain of the Company's products. The notification advised
the Company that General Signal was attempting to enforce its rights to those
patents in litigation against Applied Materials, Inc. ("Applied Materials").
According to a press release issued by Applied Materials, Applied Materials
settled its litigation with General Signal by acquiring ownership of five
General Signal patents. Although not verified, these five patents would appear
to be the patents referred to by General Signal in its prior notice to the
Company. Applied Materials has not contacted the Company regarding these newly-
acquired patents. The Company has in the past been, and may in the future be,
notified that it may be infringing intellectual property rights possessed by
other third parties. Any patent litigation would be costly and could divert the
efforts and attention of the Company's management and technical personnel, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that
infringement claims by third parties or other claims for indemnification by
customers or end users of the Company's products resulting from infringement
claims will not be asserted in the future or that such assertions, if proven to
be true, will not materially and adversely affect the Company's business,
financial condition and results of operations. If any such claims are asserted
against the Company's intellectual property rights it may seek to enter into a
royalty or licensing arrangement. There can be no assurance, however, that a
license will be available on reasonable terms or at all. The Company could
decide, in the alternative to resort to litigation to challenge such claims or
to design around the patented technology. Such actions could be costly and
would divert the efforts and attention of the Company's management and technical
personnel, which would materially and adversely affect the Company's business,
financial condition and results of operations. See "Factors That May Affect
Future Results--Intellectual Property Risks" in Management's Discussion and
Analysis of Financial Condition and Results of Operations for further
discussion.
8
BACKLOG
Backlog for the Company's products as of September 30, 1998, totaled $35.1
million. Backlog consists of purchase orders for which a customer has scheduled
delivery within the next 12 months. Orders included in the backlog may be
canceled or rescheduled by customers without significant penalty. Backlog as of
any particular date should not be relied upon as indicative of the Company's
revenues for any future period.
EMPLOYEES
As of September 30, 1998, the Company had approximately 495 employees. The
Company believes its future success will depend in large part on its ability to
attract and retain highly skilled employees. None of the employees of the
Company are covered by a collective bargaining agreement. The Company considers
its relationships with its employees to be good.
ITEM 2. PROPERTIES
The Company has a seven-year lease, ending May 2002, for its headquarters and
manufacturing facility. The facility has two stories with approximately 130,000
square feet of space located in Chelmsford, Massachusetts. The Company also
maintains sales and service offices in California, Japan, South Korea, Taiwan,
United Kingdom, and Canada. The Company also maintains sales offices in Georgia,
Oregon, Missouri, Massachusetts, Texas, Germany and Singapore. The Company
believes that these facilities are adequate for its current needs and that it
can obtain additional space at commercially reasonable rates when and as
required.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings. See,
"Patents and Proprietary Rights," in the "Part I, Item 1, "Business," for a
description of certain potential patent disputes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1998, no matters were submitted to a vote
of security holders through the solicitation of proxies or otherwise.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market under the
symbol "BRKS." The following table sets forth, for the periods indicated, the
high and low sales prices per share of the Company's common stock, as reported
by the Nasdaq National Market:
High Low
------ ------
Fiscal year ended September 30, 1998
First quarter $41.13 $12.38
Second quarter 19.25 13.00
Third quarter 17.50 11.38
Fourth quarter 12.75 8.13
Fiscal year ended September 30, 1997
First quarter 19.50 9.50
Second quarter 19.75 14.75
Third quarter 19.50 12.38
Fourth quarter 39.75 19.00
NUMBER OF HOLDERS
As of November 27, 1998, there were 146 holders of record of the Company's
Common Stock.
DIVIDEND POLICY
Other than dividends paid by Brooks Canada prior to its acquisition by the
Company, the Company has never paid or declared any cash dividends on its
capital stock and does not plan to pay any cash dividends in the foreseeable
future. The Company's current policy is to retain all of its earnings to
finance future growth.
10
ITEM 6: SELECTED FINANCIAL DATA (a)
(In thousands, except per share data)
Year ended September 30, 1998 1997 1996 1995 1994
---------- --------- -------- ------- --------
Consolidated statement of operations data:
Revenues (b) $ 99,862 $108,741 $112,730 $68,488 $38,096
Gross profit 27,505 (c) 44,980 54,769 34,404 20,003
Income (loss) from operations (25,355)(d) 436 13,257 8,248 3,627
Income (loss) before income taxes (22,661) (334) 13,193 8,310 3,206
Net income (loss) (18,361) (1,601) 8,594 6,605 2,153
Dividends on preferred stock 521 521 521 521 521
Net income (loss) available to common
stockholders ($18,882) $ (2,122) $ 8,073 $ 6,084 $ 1,632
Diluted earnings (loss) per share ($1.84) ($0.27) $0.94 $0.86 $0.37
Shares used in computing diluted
earnings (loss) per share 10,269 7,818 9,108 7,661 5,841
As of September 30,
Consolidated financial position data:
Total assets $ 140,952 $160,989 $ 78,174 $65,016 $21,080
Working capital 99,921 115,439 34,294 34,870 8,124
Current portion of long-term debt 230 633 2,690 1,697 579
Long-term debt (less current portion) 130 2,520 931 938 3,845
Redeemable convertible preferred stock - 10,366 9,831 9,298 8,764
Nonredeemable preferred stock, common stock,
and other stockholders' equity (deficit) $ 121,763 $126,870 $ 45,916 $37,768 $ (8)
(a) All financial information presented above has been retroactively restated
to reflect the FASTech and Techware acquisitions that have been accounted
for as poolings of interests. See Note 2 to the Consolidated Financial
Statements for further discussion.
(b) Includes revenues from related party of $15.9 million, $18.2 million,
$19.1 million, $10.5 million and $6.4 million in fiscal 1998, fiscal 1997,
fiscal 1996, fiscal 1995, and fiscal 1994, respectively. See Note 12 to the
Consolidated Financial Statements for further discussion.
(c) Gross profit for fiscal 1998 includes $6.6 million of charges that are
primarily inventory-related charges. Excluding these costs, gross profit
was $34.1 million.
(d) Loss from operations for fiscal 1998 includes items in (c) above, $3.7
million of acquisition-related and restructuring costs and $1.2 million of
increased accounts receivable reserves and additional depreciation expense.
Excluding these costs, loss from operations was $13.9 million. See Notes 2
and 14 to the Consolidated Financial Statements for further discussion.
11
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE EXPOSURE
Based on the Company's overall interest exposure at September 30, 1998,
including all interest rate sensitive instruments, a near-term change in
interest rates within a 95% confidence level based on historical interest rate
movements would not materially affect the consolidated results of operations or
financial position.
CURRENCY RATE EXPOSURE
The Company's foreign revenues are generally denominated in United States
dollars. Accordingly, foreign currency fluctuations have not had a significant
impact on the comparison of the results of operations for the periods presented.
The costs and expenses of the Company's international subsidiaries are generally
denominated in currencies other than the United States dollar. However, since
the functional currency of the Company's international subsidiaries is the local
currency, foreign currency translation adjustments are reflected as a component
of stockholders' equity. To the extent that the Company expands its
international operations or changes its pricing practices to denominate prices
in foreign currencies, the Company will be exposed to increased risk of currency
fluctuation.
STOCK PRICE
The stock prices of semiconductor equipment companies are subject to significant
fluctuations. The stock price may be affected by a variety of factors that could
cause the price of the Company's Common Stock to fluctuate, perhaps
substantially, including: announcements of developments related to the Company's
business; quarterly fluctuations in the Company's actual or anticipated
operating results and order levels; general conditions in the semiconductor and
flat panel display industries or the worldwide economy; announcements of
technological innovations; new products or product enhancements by the Company
or its competitors; developments in patents or other intellectual property
rights and litigation; and developments in the Company's relationships with its
customers and suppliers. In addition, in recent years the stock market in
general and the market for shares of small capitalization and semiconductor
industry-related companies in particular, have experienced extreme price
fluctuations which have often been unrelated to the operating performance of
affected companies. Any such fluctuations in the future could adversely affect
the market price of the Company's Common Stock. There can be no assurance that
the market price of the Common Stock of the Company will not decline.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements in this Form 10-K constitute "forward-looking statements"
which involve known risks, uncertainties, and other factors which may cause the
actual results, performance, or achievements of the Company to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include the factors
that may affect future results set forth in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which is included in this
report. Precautionary statements made herein should be read as being applicable
to all related forward-looking statements wherever they appear in this report.
OVERVIEW
The predecessor of Brooks Automation, Inc. (the "Company") was organized in
February 1989 and acquired the semiconductor wafer handling business of the
Brooks Automation Division of Aeronca Electronics, Inc., a subsidiary of Fleet
Aerospace Corporation, in March 1989. The Company and its predecessors have
been in the semiconductor wafer handling business since 1978.
In 1992 the Company introduced the family of vacuum central wafer handling
systems and modules that forms the foundation of the Company's current business.
In 1994 the Company introduced a similar family of systems and modules for flat
panel display substrates, including a next-generation magnetically driven vacuum
transfer robot. In 1996 the Company acquired Techware Systems Corporation
("Techware"), a designer and supplier of integrated equipment control software
for the semiconductor and related industries, expanding its software and control
capability. In 1997 the Company introduced a line of products for the
atmospheric handling market, including in-line and controlled environment
systems, robots, aligners and traversers. In 1998 the Company acquired FASTech
Integration, Inc. ("FASTech"), a designer and supplier of top-to-bottom
integrated MES software solutions.
Many of the Company's customers purchase the Company's vacuum transfer robots
and other modules before purchasing the Company's vacuum central wafer handling
systems. The Company believes that once a customer has selected the Company's
products for a process tool, the customer is likely to rely on those products
for the life of that process tool model, which can be in excess of five years.
The Company's product revenues include sales of hardware and software products;
the Company's service revenues include revenue from maintenance contracts and
fixed fee application consulting contracts.
The majority of the Company's revenues have been generated by sales to customers
in the United States, although the Company believes that a significant portion
of these customers incorporate the Company's products into equipment sold to
their foreign customers. The Company's foreign sales have occurred principally
in Japan, South Korea and Europe.
13
The Company's foreign revenues are generally denominated in United States
dollars. Accordingly, foreign currency fluctuations have not had a significant
impact on the comparison of the results of operations for the periods presented.
The costs and expenses of the Company's international subsidiaries are generally
denominated in currencies other than the United States dollar. However, since
the functional currency of the Company's international subsidiaries is the local
currency, foreign currency translation adjustments are reflected as a component
of stockholders' equity. To the extent that the Company expands its
international operations or changes its pricing practices to denominate prices
in foreign currencies, the Company will be exposed to increased risk of currency
fluctuation.
The Company's business is highly dependent upon the capital expenditures of
semiconductor and flat panel display manufacturers which historically have been
cyclical, and the Company's ability to develop, manufacture and sell new
products and product enhancements. The Company's results will also be affected,
especially when measured on a quarterly basis, by the volume, composition and
timing of orders, conditions in industries served by the Company, competition
and general economic conditions.
RESULTS OF OPERATIONS
IMPACT OF ACQUISITION-RELATED, RESTRUCTURING, AND OTHER CHARGES
In September 1998 the Company acquired FASTech in a business combination
accounted for as a pooling of interests. The Company's historical Consolidated
Financial Statements have been restated to include FASTech for all periods prior
to the acquisition. The Company's results of operations for the year ended
September 30, 1998, were significantly impacted by certain acquisition-related,
restructuring, and other charges. These charges included $6.2 million of
inventory-related costs, $2.4 million of acquisition-related costs, $1.5 million
of restructuring charges, $0.7 million of accounts receivable reserves, $0.7
million of additional depreciation expense and $0.3 million of interest incurred
on retirement of debt. The restructuring charges include costs to terminate
certain employees during fiscal 1998 under a plan approved and implemented
during fiscal 1998. The following table reflects the results of operations for
the three years ended September 30, 1998, and the effect of the acquisition-
related, restructuring, and other charges for the year ended September 30, 1998:
For the year ended September 30,
- --------------------------------------------------------------------------------------------------
Acquisition-
related,
Restructuring,
As Reported and Other Proforma As Reported
(In thousands, except share data) 1998 Charges 1998 1997 1996
- --------------------------------------------------------------------------------------------------
Revenues:
Product $ 80,466 $ - $ 80,466 $ 88,377 $ 94,085
Services 19,396 - 19,396 20,364 18,645
- --------------------------------------------------------------------------------------------------
Total revenues 99,862 - 99,862 108,741 112,730
- --------------------------------------------------------------------------------------------------
Cost of revenues:
Product 60,819 (6,579)(a) 54,240 51,404 49,551
Services 11,538 - 11,538 12,357 8,410
- --------------------------------------------------------------------------------------------------
Total cost of revenues 72,357 (6,579) 65,778 63,761 57,961
- --------------------------------------------------------------------------------------------------
Gross profit 27,505 6,579 34,084 44,980 54,769
- --------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 22,674 (167)(b) 22,507 20,592 18,336
Selling, general and
administrative 26,464 (1,010)(c) 25,454 23,952 22,946
Acquisition-related and
restructuring costs 3,722 (3,722)(d) - - 230
- --------------------------------------------------------------------------------------------------
Income (loss) from
operations (25,355) 11,478 (13,877) 436 13,257
Interest income 3,564 - 3,564 140 407
Interest expense 870 (345)(e) 525 910 471
- --------------------------------------------------------------------------------------------------
Income (loss)
before income taxes $(22,661) $11,823 $(10,838) $ (334) $ 13,193
- --------------------------------------------------------------------------------------------------
(a) Includes $6.2 million of inventory-related charges, $0.1 million of
severance costs, and $0.3 million of depreciation expense.
(b) Includes $0.2 million of additional depreciation expense.
(c) Includes $0.7 million of additional accounts receivable reserves, $0.2
million of depreciation expense, and $0.1 million of severance and other
transactions related charges.
(d) Includes $1.4 million of costs to exit duplicate facilities, $1.0 million
of legal, accounting, and other transaction-related costs, and $1.3 million
of severance costs.
(e) Charges reflect interest expense incurred on retirement of debt in
conjunction with the Company's acquisition of FASTech.
14
FISCAL YEAR ENDED SEPTEMBER 30, 1998, COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1997:
REVENUES
Total revenues decreased 8.2% to $99.9 million in fiscal 1998 compared with
revenues in fiscal 1997. Product revenues decreased $7.9 million (9.0%)
primarily as a result of decreases in flat panel display revenues and software
revenues, which were partially offset by an increase in 200mm revenues and 300mm
revenues. Services revenues decreased $1.0 million (4.8%). The decreases in
product and services revenues are primarily the result of the prolonged economic
downturn currently impacting the semiconductor industry and related fabrication
equipment sector.
Foreign revenues for fiscal 1998 were $41.2 million (41.3% of revenues),
including $31.7 million of direct sales to Asian customers, compared with
foreign revenues of $41.3 million (37.9% of revenues), including $33.3 million
of direct sales to Asian customers in the prior fiscal year. The Company
expects that foreign revenues will continue to account for a significant portion
of total revenues in fiscal 1999. However, there can be no assurance that
foreign revenues particularly from Asia which is suffering regional economic
downturns, will remain a strong component of the Company's total revenues.
GROSS PROFIT
Overall, gross profit as a percentage of revenues decreased to 27.5% for fiscal
1998 compared with 41.4% for fiscal 1997. Gross profit as a percentage of
product revenues decreased to 24.4% compared with 41.8% for fiscal 1997.
Included in the cost of product revenues for fiscal 1998
15
were $6.6 million of charges related primarily to inventory and severance costs.
During fiscal 1998, the Company recorded an inventory-related charge of $6.2
million to provide additional reserves for slow-moving and obsolete inventories.
These reserves reflect management's assessment of the currently required
inventory reserve level in view of the decline in customer demand for
semiconductor equipment due to a prolonged industry downturn. The gross profit
percentage for product revenues before these charges in fiscal 1998 was 32.6%, a
9.2% decrease compared to the prior fiscal year primarily as a result of
continued underutilization of manufacturing capacity (due in part to customer
requested shipment delays primarily in the first half of fiscal 1998) and
pricing pressure from volume production customers. In future periods, gross
profit may be adversely affected by changes in the mix of products sold,
continued pricing pressures, or increases in cost of goods.
Gross profit percentage on service revenues as a percentage of service revenues
was 40.5% for fiscal 1998, as compared with 39.3% for the prior year. Included
in the cost of services revenues are global support costs, which decreased 7.7%
to $6.0 million (30.9% of services revenues) for fiscal 1998 from $6.5 million
in the prior fiscal year. Global support costs consist primarily of personnel
costs and travel expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 10.1% to $22.7 million (22.7% of
revenues) from $20.6 million (18.9% of revenues) in the prior fiscal year. The
increase primarily resulted from incremental spending associated with the launch
of new atmospheric products and the transition to next generation vacuum wafer
handling products, as the Company continues to make investments in research and
development to enhance existing and develop new semiconductor and flat panel
display products and software products. The Company believes that research and
development expenditures are essential to maintaining its competitive position
in the semiconductor and flat panel display fabrication equipment and software
markets and expects these expenditure levels to continue at or above current
levels in the foreseeable future.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 10.5% to $26.5 million
(26.5% of revenues) for fiscal 1998 from $24.0 million (22.0% of revenues) in
the prior fiscal year. Fiscal 1998 expenses include $1.0 million for additional
accounts receivable reserves and increased depreciation expense. Before these
charges, selling, general, and administrative expenses increased 6.3% to $25.5
million (25.5% of revenues), primarily due to the worldwide expansion of the
Company's sales and administrative organizations during the first half of the
year. The Company expects that expenditure levels to support the growth of its
worldwide sales and administrative organizations will continue at or above
current levels in the foreseeable future, reflecting the Company's commitment to
further penetrate key international markets.
ACQUISITION-RELATED AND RESTRUCTURING COSTS
In fiscal 1998 the Company incurred acquisition-related costs of $2.4 million
that consisted principally of $1.4 million of costs to exit duplicate
facilities, and $1.0 million of legal, accounting, and other transaction-related
costs. In addition, the Company incurred $1.3 million of severance costs in
fiscal 1998.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased to $3.6 million for fiscal 1998 from $0.1 million in
the prior fiscal year. The increase in interest income is due to higher cash
and investment balances during fiscal 1998, resulting primarily from the
Company's $80.8 million public stock offering in September 1997. Interest
expense in fiscal 1998 remained relatively unchanged from $0.9 million in the
16
prior fiscal year. Interest expense in fiscal 1998 included $0.3 million of
acquisition-related deferred financing costs due to retirement of debt in
conjunction with the acquisition of FASTech.
INCOME TAX PROVISION (BENEFIT)
The Company recorded a net tax benefit of $4.3 million for fiscal 1998,
primarily due to the anticipated future tax benefit of domestic net operating
losses and research and development tax credit carryforwards generated during
1998, which were partially offset by the $2.3 million increase in the deferred
tax asset valuation allowance.
FISCAL YEAR ENDED SEPTEMBER 30, 1997, COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1996:
REVENUES
Total revenues decreased 3.5% to $108.7 million in fiscal 1997 compared with
revenues in fiscal 1996. Product revenues decreased $5.7 million (6.1%)
primarily as a result of a decrease in 200mm vacuum central wafer handling
systems and components and atmospheric products, which was partially offset by
an increase in 300mm, flat panel display, and software products. The Company
attributes lower fiscal 1997 revenues to a broad decline in capital spending by
the semiconductor manufacturing equipment industry, which adversely affected the
Company's revenue particularly in the first half of fiscal 1997. Services
revenues increased $1.7 million (9.2%).
Foreign revenues for fiscal 1997 increased 46.3% to $41.3 million (37.9% of
revenues), including $33.3 million of direct sales to Asian customers, compared
with foreign revenues of $28.2 million (25.0% of revenues), including
$19.3 million of direct sales to Asian customers in the prior fiscal year. The
increase in foreign revenues is primarily attributable to shipments of 200mm and
300mm central wafer handling systems and flat panel display systems to customers
primarily in Japan and South Korea.
GROSS PROFIT
The overall gross profit as a percentage of revenues decreased to 41.4% for
fiscal 1997 from 48.6% for fiscal 1996. Gross profit as a percentage of product
revenues decreased to 41.8% compared with 47.3% for fiscal 1996. The decrease
in the gross profit percentage is primarily attributable to underutilization of
manufacturing capacity, higher concentration of shipments of lower gross margin
platforms, and to a lesser extent, pricing pressures and higher new product
introduction costs.
The gross profit percentage for service revenues was 39.3% for fiscal 1997, a
decrease of 15.6% from the prior year primarily due to an increase in global
support costs. Global support costs increased 103.1% to $6.5 million (31.9% of
services revenues) in fiscal 1997 from $3.2 million (17.2% of service revenues)
in the prior fiscal year. The increase in global support costs resulted from the
expansion of the Company's global support organization in support of the
international growth of its customer base.
17
RESEARCH AND DEVELOPMENT
Research and development expenses increased 12.3% to $20.6 million (18.9% of
revenues) in fiscal 1997 from $18.3 million (16.3% of revenues) in the prior
fiscal year. During fiscal 1997, the Company continued to make investments in
research and development to enhance existing and develop new semiconductor and
flat panel display products and software products. As a percentage of revenues,
the increase in research and development expenses reflects the effect on the
Company's cost structure of the lower revenue level in fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 4.4% to $24.0 million
(22.0% of revenues) for fiscal 1997 from $22.9 million (20.4% of revenues) in
the prior fiscal year.
INTEREST INCOME AND INTEREST EXPENSE
Interest income decreased to $0.1 million for fiscal 1997 from $0.4 million in
the prior fiscal year. The decrease in interest income is due to lower cash and
investment balances during fiscal 1997 compared with fiscal 1996. Interest
expense in fiscal 1997 increased to $0.9 million from $0.5 million in the prior
fiscal year. The increase in interest expense is due primarily to higher
borrowings.
INCOME TAX PROVISION (BENEFIT)
During fiscal 1997, the Company recorded a net tax provision of $1.3 million due
primarily to an increase in the deferred tax asset valuation allowance and a net
foreign tax provision resulting largely from the net taxable income of the
Company's foreign subsidiaries. These amounts were slightly offset by the tax
benefit of domestic operating loss and tax credit carrybacks.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company's principal source of liquidity consisted
of $68.2 million in cash and cash equivalents, compared to $75.3 million at
September 30, 1997. The Company had working capital of $99.9 million as of
September 30, 1998, compared with $115.4 million at September 30, 1997.
In fiscal 1998 cash and cash equivalents decreased $7.1 million as a result of
$6.8 million in cash used for investing and financing activities, partially
offset by $1.8 million in cash generated by operating activities and a $1.8
million adjustment due to conforming the FASTech fiscal year end with the
Company's fiscal year end. (See Note 2 to the Consolidated Financial
Statements.)
In fiscal 1998 the Company generated operating cash flow of $1.8 million,
despite a net loss of $18.4 million for the year, as compared with $2.7 million
of cash used in operating activities in fiscal 1997. The improvement in
operating cash flow was due primarily to changes in the balances of operating
assets and liabilities (primarily decreases in accounts receivable and
inventory), as well as adjustments for noncash charges such as depreciation and
amortization and deferred income taxes, offset by a decrease in accounts payable
and the net loss for the year.
The Company's primary investing activities encompassed capital spending
aggregating $4.4 million for business information systems including computer
hardware and software, as well as
18
headquarters facility improvements. The Company expects to continue to make
capital expenditures to support its business activities.
In connection with the September 1998 acquisition of FASTech, the Company
retired $2.5 million of 9% subordinated notes with an original maturity date of
June 2004. Other financing activities consisted primarily of proceeds from
stock option exercises and employee stock purchase plan activity, as well as net
repayments of borrowings under a domestic credit facility. During fiscal 1998,
the Company elected to terminate its primary domestic and international credit
facility. Additionally, certain other domestic credit facilities expired
September 30, 1998, and were not extended by the Company.
The Company believes that current cash and cash equivalent balances will be
adequate to fund planned working capital and capital expenditure requirements
for at least the next twelve months.
YEAR 2000 READINESS
The year 2000 issue is the potential for system and processing failure of date-
related data and the result of computer-controlled systems using two digits
rather than four digits to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company may be affected by year 2000 issues related to noncompliant
information technology ("IT") systems or non-IT systems operated or sold by the
Company or by third parties. The Company has substantially completed assessment
of its internal IT systems and non-IT systems. At this point in its assessment,
the Company is not currently aware of any year 2000 problems relating to systems
operated or sold by the Company that would have a material adverse effect on the
Company's business, results of operations, or financial condition without taking
into account the Company's efforts to avoid such problems.
Although the Company believes that its systems are year 2000 compliant, the
Company utilizes third-party equipment and software that may not be year 2000
compliant. In addition, the Company's products and software are often sold to
be integrated into or interfaced with third-party equipment or software.
Failure of third-party equipment or software to operate properly with regard to
the year 2000 and thereafter could require the Company to incur anticipated
expenses to remedy any problems, which could have a material adverse effect on
the Company's business, results of operations and financial condition. The
Company may also be vulnerable to any failures by its major suppliers, service
providers and customers to remedy their own internal IT and non-IT system year
2000 issues which could, among other things, have a material adverse effect on
the Company suppliers and orders. At this time, the Company is unable to
estimate the nature or extent of any potential adverse impact resulting from the
failure of third parties, such as its suppliers, service providers and
customers, to achieve year 2000 compliance. Moreover, such third parties, even
if year 2000 compliant, could experience difficulties resulting from year 2000
issues that may affect their suppliers, service providers and customers. As a
result, although the
19
Company does not currently anticipate that it will experience any material
shipment delays from their major product suppliers or any material sales delays
from its major customers due to year 2000 issues, there can be no assurance that
these third parties will not experience year 2000 problems or that any problems
would not have an adverse material effect on the Company's business, results of
operations and financial condition. Because the cost and timing of year 2000
compliance by third parties such as suppliers, service providers and customers
is not within the Company's control, the Company cannot give any assurance with
respect to the cost or timing of such efforts or any potential adverse effects
on the Company of any failure by these third parties to achieve year 2000
compliance.
The Company has no contingency plan in the event year 2000 problems relating to
its operations arise. The Company's failure to develop a contingency plan could
have a material adverse effect on the Company's business, results of operations
and financial condition.
To the extent that the Company does not identify any material non-compliant IT
systems or non-IT systems operated by the Company or by third parties, such as
the Company's suppliers, service providers and customers, the most reasonably
likely worst case year 2000 scenario is a systematic failure beyond the control
of the Company, such as a prolonged telecommunications or electrical failure, or
a general disruption in United States or global business activities that could
result in a significant economic downturn. The Company believes that the
primary business risks, in the event of such failure or other disruption, would
include but not be limited to, loss of customers or orders, increased operating
costs, inability to obtain inventory on a timely basis, disruptions in product
shipments, or other business interruptions of a material nature, as well as
claims of mismanagement, misrepresentation, or breach of contract, any of which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in the consolidated financial
statements. SFAS No. 131 establishes standards for reporting information on
operating segments in interim and annual financial statements. Both statements
are effective for the Company for fiscal 1999. Adoption of these statements will
not have an impact on the Company's results of operations or financial position.
In October 1997 the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 97-2, "Software Revenue Recognition," which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and supersedes SOP 91-1, "Software
Revenue Recognition." The Company will adopt SOP 97-2 effective October 1, 1998.
Adoption of this statement will not have a material impact on the Company's
results of operations or financial position.
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (fiscal 2000 for the
Company) and requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings other comprehensive income, depending
20
on whether a derivative is designated as part of a hedge transaction and, if it
is, the type of hedge transaction. Management of the Company anticipates that
the adoption of SFAS No. 133 will not have a significant effect on the
Company's results of operations or financial position.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made by its
employees may contain forward-looking information that involve substantial risks
and uncertainties that could cause actual results to differ materially from
targets or projected results.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS AND MARKET PRICE OF SECURITIES
The Company's operating results have in the past fluctuated and may in the
future continue to fluctuate significantly depending upon a variety of factors.
Such factors may include: the demand for semiconductors in general; cyclicality
in the market for semiconductor manufacturing equipment and software products;
the timing and size of orders from the Company's customer base; the ability of
the Company to manufacture, test and deliver products in a timely and cost
effective manner; the ability of the Company's competitors to obtain orders from
the Company's customers; the timing of new product announcements and releases by
the Company and its competitors; the mix of products sold by the Company; and
competitive pricing pressures.
The Company has historically derived a substantial portion of its quarterly and
annual revenues from the sale of a relatively small number of semiconductor and
flat panel display substrate handling systems, which have relatively high
selling prices compared to its other products. As a result, the precise timing
of the recognition of revenue from an order for one or a small number of systems
can have a significant impact on the Company's total revenues and operating
results for a particular period. The Company's operating results for a
particular period could be adversely affected if orders for a small number of
systems are canceled or rescheduled by customers or cannot be filled in time to
recognize revenue during that period due to, for example, unanticipated
manufacturing, testing, shipping or product acceptance delays. The Company's
expense levels are based, in large part, on the Company's expectations as to
future revenues and are, therefore, relatively fixed in the short term. If
revenue levels fall below expectations, net income will be disproportionately
and adversely affected. The impact of these and other factors on the Company's
revenues and operating results in any future period cannot be forecast with any
degree of certainty. These factors could have a material adverse effect on the
Company's business, future financial condition, revenues and results of
operations.
DEPENDENCE ON SEMICONDUCTOR INDUSTRY
The Company's business is significantly dependent on capital expenditures by
manufacturers of semiconductors. The semiconductor industry is highly cyclical
and is presently experiencing a period of oversupply, resulting in significantly
reduced demand for capital equipment, including the products manufactured and
marketed by the Company. The Company's financial condition, revenues and
results of operations have been materially and adversely affected by the
semiconductor industry downturns and may be materially adversely affected by
future downturns. The Company believes that downturns in the semiconductor
manufacturing industry will occur in the future, and will result in decreased
demand for semiconductor manufacturing equipment. In addition the Company
believes (on the basis of its experience during the course of the present
downturn) that its ability to reduce expenses in a future downturn will be
constrained
21
by the need for continual investment in research and development, and the need
to maintain ongoing customer service and support capability. Accordingly, any
downturn in the semiconductor industry could have a material adverse effect on
the Company's business, future financial condition and results of operations.
CUSTOMER CONCENTRATION
Relatively few customers account for a substantial portion of the Company's
revenues. Sales to the Company's ten largest customers in fiscal 1998, fiscal
1997, and fiscal 1996 accounted for 61%, 60%, and 55% of the Company's revenues,
respectively. In fiscal 1998, fiscal 1997, and fiscal 1996, sales to Lam
Research Corporation ("Lam"), the Company's largest customer in these periods,
accounted for 16%, 17%, and 17% of the Company's revenues, respectively. The
Company expects that sales to Lam will continue to represent a significant
portion of the Company's revenues for the foreseeable future. The Company's
customers, including Lam, generally do not enter into long-term agreements
obligating them to purchase the Company's products. A reduction or delay in
orders from Lam or other significant customers, including reductions or delays
due to market, economic or competitive conditions in the semiconductor or flat
panel display industries, could have a material adverse effect on the Company's
business, financial condition and results of operations.
RELIANCE ON OEM CUSTOMERS; LENGTHY SALES CYCLE
The Company's products are principally sold to OEMs, which incorporate the
Company's products into their equipment. Due to the significant capital
commitments usually incurred by semiconductor and flat panel display
manufacturers in their purchases of these OEMs' equipment, these manufacturers
demand highly reliable products which may require several years for OEMs to
develop. The Company's revenues are therefore primarily dependent upon the
timing and effectiveness of the efforts of its OEM customers in developing and
marketing equipment incorporating the Company's products.
The Company's new products are generally incorporated into an OEM customer's
process tools at the design stage. However, customer decisions to use the
Company's products, which can often require significant expenditures by the
Company without any assurance of success, often precede the generation of volume
sales, if any, by a year or more. There can be no assurance that the Company
will continue to achieve design wins, that the process tools manufactured by the
Company's customers will be introduced in a timely manner or that such systems
will achieve market acceptance. The Company's or its customers' failure to
develop and introduce new products successfully and in a timely manner could
materially and adversely affect the Company's business, financial condition and
results of operations.
RISKS OF INTERNATIONAL SALES AND OPERATIONS
During fiscal 1998, fiscal 1997, and fiscal 1996, the Company derived 41%, 38%
and 25% of its revenues from customers located outside the United States. The
Company anticipates that international revenues will continue to account for a
significant portion of its revenues. To support its international customers,
the Company maintains subsidiaries in several countries including Japan, South
Korea, Taiwan and Singapore. There can be no assurance that the Company will be
able to manage these operations effectively or that the Company's investment
22
in these activities will enable it to compete successfully in international
markets or to meet the service and support needs of its customers.
The Company will continue to be affected, for the foreseeable future, by
unstable Asian economies, particularly in Japan and South Korea. As a result,
there are uncertainties that may affect future operations. It is not possible
to determine the future effect a continuation of the Asian economic crisis may
have on the Company's liquidity and earnings.
Additionally, a significant portion of the Company's revenues and operations
could be subject to certain risks, including tariffs, foreign government
standards and regulations and other barriers, difficulties in staffing and
managing foreign subsidiary operations, currency exchange risks and exchange
controls, adverse tax consequences and difficulty in accounts receivable
collection. International trade regulations, such as United States export
controls, could change in the future and make it more difficult for the Company
to export its products to various countries. There can be no assurance that any
of these factors will not have a material adverse effect on the Company's
business, financial condition and results of operations.
HIGHLY COMPETITIVE INDUSTRY
The markets for the Company's products are highly competitive and subject to
rapid technological change. The Company believes that its primary competition
is from integrated OEMs that satisfy their semiconductor and flat panel display
handling needs in-house rather than by purchasing systems or modules from an
independent supplier such as the Company. Many of these other potential
competitors have substantially greater resources than the Company. There can be
no assurance that the Company will be successful in selling its products to OEMs
that currently satisfy their substrate handling needs in-house, regardless of
the performance or the price of the Company's products. Moreover, there can be
no assurance that integrated OEMs will not begin to commercialize their handling
capabilities. Competitors may develop superior products or products of similar
quality at the same or lower prices. Other technical innovations may impair the
Company's ability to market its products. There can be no assurance that the
Company will be able to compete successfully.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The semiconductor and flat panel display manufacturing industries have been
characterized by rapid technological change and evolving industry requirements
and standards. The Company believes that these trends will continue. The
Company's success will depend upon its ability to enhance its existing products
and to develop and market new products to meet customer requirements.
Successful product development and introduction depends on a number of factors,
including accurate new product definition, timely completion and introduction of
new product designs and market acceptance of the Company's products and its
customers' products. Currently, the Company's major development programs
include expanding its product offerings of semiconductor substrate handling
systems to address emerging industry requirements for 300mm wafer and fourth
generation flat panel substrates, as well as wafer handling systems and modules
for atmospheric process tools. In addition, the Company continues to develop
and enhance its MES and process control software product offerings. There can
be no assurance that the Company will adjust to changing market conditions or be
successful in introducing products or product enhancements on a timely basis, if
at all, or that the Company will be able to market
23
successfully these products and product enhancements once developed. Further,
there can be no assurance that the Company's products will not be rendered
obsolete by new industry standards or changing technology.
ATTRACTION AND RETENTION OF KEY PERSONNEL
Due to the level of technical and marketing expertise necessary to support its
existing and new customers, the Company must attract and retain highly qualified
and well-trained domestic and international personnel. There are a limited
number of persons with the requisite skills to serve in these positions and it
may become increasingly difficult for the Company to hire such personnel.
Competition for such personnel is intense and there can be no assurance that the
Company will attract and retain personnel necessary for the development of its
business.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company completed the acquisition of FASTech on September 30, 1998, and
intends to pursue, from time to time, potential acquisitions of businesses,
products, and technologies that could complement or expand the Company's
business.
The combination of the Company and FASTech will require, among other things,
integration of the companies' respective products, technologies, management
information systems, distribution channels and key personnel, and the
coordination of their sales, marketing and research and development efforts.
There can be no assurance that such integration will be accomplished smoothly or
successfully, if at all. If significant difficulties are encountered in the
integration of the existing products or technologies or the development of new
products and technologies, resources could be diverted from new product
development; and delays in new product introductions could occur. The
integration of operations and technologies will require the dedication of
management and other personnel which may distract their attention from the day-
to-day business of the Company, the development or acquisition of new
technologies, and the pursuit of other business acquisition opportunities.
Failure to successfully accomplish the integration and development of the two
companies' operations and technologies would likely have a material adverse
effect on the Company's business, financial condition, and results of
operations.
The Company currently has no commitments or agreements with respect to any
material potential acquisitions. There can be no assurance that the Company
will be able to successfully negotiate the terms of any such acquisition,
finance such acquisition or integrate such acquired businesses, products or
technologies into the Company's existing business and products. The negotiation
of potential acquisitions as well as the integration of an acquired business
particularly in the months immediately following the acquisition of FASTech
could cause diversion of management's time and resources. Acquisitions by the
Company could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses. If any
such acquisition were to occur, there can be no assurance that, whether or not
consummated, any such acquisition would not have a material adverse effect on
the Company's business, future financial condition, and results of operations.
24
INTELLECTUAL PROPERTY PROTECTION AND RELATED CONTINGENCY
There can be no assurance that the Company's pending patent applications or any
future applications will be approved, that any patents will provide it with
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have an adverse effect on the Company's ability to do
business. Because foreign patents may afford less protection under foreign law
than is available under United States patent law, there can be no assurance that
any such patents issued to the Company will adequately protect the Company's
proprietary information. There can be no assurance that others will not
independently develop similar products, duplicate the Company's products or, if
patents are issued to the Company, design around the patents issued to the
Company.
Others may have filed and in the future may file patent applications that are
similar or identical to those of the Company. To determine the priority of
inventions, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office that could result in
substantial cost to the Company. No assurance can be given that any such patent
application will not have priority over patent applications filed by the
Company.
The Company also relies upon trade secret protection, employee and third-party
nondisclosure agreements and other intellectual property protection methods to
protect its confidential and proprietary information. Despite these efforts,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology or that
the Company can meaningfully protect its trade secrets.
There has been substantial litigation regarding patent and other intellectual
property rights in the semiconductor related industries. The Company had
received notice from General Signal Corporation ("General Signal") alleging
infringements of patents then owned by General Signal's patent rights,Signal relating to cluster tool
architecture, by certain of the Company's products. The notification advised
the Company that General Signal was attempting to enforce its rights to those
patents in litigation against Applied Materials, Inc. ("Applied Materials"), and
that, at the conclusion of that litigation, General Signal intended to enforce
its rights against the Company and others..
According to a recent press release issued by Applied Materials, Applied Materials
settled its litigation with General Signal by acquiring ownership of five
General Signal patents. Although not verified, these five patents would appear
to be the patents referred to by General Signal in its prior notice to the
Company. Applied Materials has not contacted the Company regarding these
newly-acquired patents.
In 1992, at the time that General Signal first raised patent claims in the
cluster tool area, the Company joined with six major semiconductor process tool
equipment manufacturers in forming an "Ad Hoc Committee for the Defense against
General Signal Cluster Tool Patents." At that time, the members of the Ad Hoc
Committee notified General Signal that the member companies were of the opinion
that the General Signal patents were invalid based on (i) prior art, (ii)
inequitable conduct before the Patent & Trademark Office and (iii) estoppel as a
result of General Signal's activities in establishing standards for cluster
tools and interfaces within the semiconductor industry. The Company believes
that the position taken by the Ad Hoc Committee remains valid. However, if the
holder of these patents were to seek to enforce these patents against the
Company, there can be no assurance that the Company would prevail in such
litigation.
The Company has in the past been, and may in the future be, notified that it may
be infringing intellectual property rights possessed by other third parties. Any
patent litigation would be costly and could divert the efforts and attention of
the Company's management and technical personnel, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that infringement claims by third parties
or other claims for indemnification by customers or end users of the Company's
products resulting from infringement claims will not be asserted in the future
or that such assertions, if proven to be true, will not materially and adversely
affect the Company's business, financial condition and results of operations. If
any such claims are asserted against the Company's intellectual property rights
it may seek to enter into a royalty or licensing arrangement. There can be no
assurance, however,
25
that a license will be available on reasonable terms or at all. The Company
could
8
decide, in the alternative to resort to litigation to challenge such
claims or to design around the patented technology. Such actions could be costly
and would divert the efforts and attention of the Company's management and
technical personnel, which wouldcould materially and adversely affect the Company's
business, financial condition and results of operations.
See "Factors That May Affect
Future Results--Intellectual Property Risks" in Management's Discussion and
Analysis on Financial Conditions and ResultsVolatility of Operations for further
discussion.
Backlog
Backlog for the Company's products as of September 30, 1997 and 1996 totaled
$43.8 million and $35.6 million, respectively. Backlog consists of purchase
orders for which a customer has scheduled delivery within the next 12 months.
Orders included in the backlog may be canceled or rescheduled by customers
without significant penalty. Backlog as of any particular date should not be
relied upon as indicative of the Company's revenues for any future period.
Employees
As of September 30, 1997, the Company had approximately 518 employees. Of these,
161 were involved in engineering, 45 in sales and marketing, 265 in global
customer support and manufacturing operations and 47 in general and
administrative. The Company believes its future success will depend in large
part on its ability to attract and retain highly skilled employees. None of the
employees of the Company are covered by a collective bargaining agreement. The
Company considers its relationships with its employees to be good.
ITEM 2. PROPERTIES
The Company has a seven year lease, beginning May 1995, for its headquarters and
manufacturing facility. The facility has two stories with approximately 130,000
square feet of space located in Chelmsford, Massachusetts. The lease provides
for the Company to move into all the space over a three year period ending May
1998 with the Company occupying a minimum of approximately 83,000 square feet in
the first year, 93,000 square feet in the second year, 108,000 square feet in
the third year and the entire space thereafter.
The Company also maintains sales and service offices in Santa Clara, California,
Tokyo, Japan, Seoul, South Korea and Kingston, England. In August 1996, the
Company entered into a six year lease for a new facility for Brooks Canada. The
new facility is a shared, three story building with approximately 41,000 square
feet of space and is located in Richmond, British Columbia.Stock Price
The Company believes that these facilities are adequate fora variety of factors could cause the price of the
Company's Common Stock to fluctuate, perhaps substantially, including:
announcements of developments related to the Company's business; quarterly
fluctuations in the Company's actual or anticipated operating results and order
levels; general conditions in the semiconductor and flat panel display
industries or the worldwide economy; announcements of technological innovations;
new products or product enhancements by the Company or its current needscompetitors;
developments in patents or other intellectual property rights and that it can obtain additional space at commercially reasonable rates whenlitigation;
and as required.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings. See
"Patentsdevelopments in the Company's relationships with its customers and
Proprietary Rightssuppliers. In addition, in Business" for a description of certain
potential patent disputes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Duringrecent years the quarter ended September 30, 1997, no matters were submitted to a vote
of security holders throughstock market in general and the solicitation of proxies or otherwise.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The
market for shares of small capitalization and semiconductor industry-related
companies in particular, have experienced extreme price fluctuations which have
often been unrelated to the operating performance of affected companies. Any
such fluctuations in the future could adversely affect the market price of the
Company's common stock and related stockholder matters, which
appear inCommon Stock. There can be no assurance that the Brooks Automation, Inc. Annual Report to Stockholders, are hereby
incorporated by reference in this Form 10-K Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data formarket price of the
five years ended September 30, 1997, which
appear inCommon Stock of the Brooks Automation, Inc. Annual Report to Stockholders, are hereby
incorporated by reference in this Form 10-K Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Conditions and Results of
Operations, which appears in the Brooks Automation, Inc. Annual Report to
Stockholders is hereby incorporated by reference in this Form 10-K Annual
Report.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.Company will not decline.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page
----
Financial Statements:
Consolidated Balance Sheet at September 30, 1998 and 1997................ 28
Consolidated Statement of Operations for the three years
ended September 30, 1998............................................... 29
Consolidated Statement of Changes in Nonredeemable Preferred
Stock, Common Stock, and Other Stockholders' Equity for
the three years ended September 30, 1998............................... 30
Consolidated Statement of Cash Flows for the three years
ended September 30, 1998............................................... 31
Notes to Consolidated Financial Statements............................... 32-43
Report of Independent Accountants........................................ 44
Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedule........ 45
Schedule II, Valuation and Qualifying Accounts........................... 46
27
BROOKS AUTOMATION, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share-related data) SEPTEMBER 30,
ASSETS 1998 1997
--------------------
Current assets:
Cash and cash equivalents $ 68,161 $ 75,253
Accounts receivable, net of allowance for
doubtful accounts of $1,898 and $776, respectively,
and including related party receivables of $2,365
and $5,204, respectively 20,701 33,360
Inventories 19,589 23,253
Prepaid expenses and other current assets 3,535 2,191
Deferred income taxes 6,106 1,710
-------- --------
Total current assets 118,092 135,767
Fixed assets, net 18,606 21,349
Other assets 4,254 3,873
-------- --------
Total assets $140,952 $160,989
-------- --------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK,
AND NONREDEEMABLE PREFERRED STOCK, COMMON STOCK, AND
OTHER STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations $ 230 $ 633
Accounts payable 5,505 9,912
Deferred revenue 2,935 2,326
Accrued compensation and benefits 3,430 3,477
Accrued acquisition-related and restructuring costs 2,254 -
Accrued expenses and other current liabilities 3,817 3,980
-------- --------
Total current liabilities 18,171 20,328
Long-term debt and capital lease obligations 130 2,520
Deferred income taxes 888 905
-------- --------
Total liabilities 19,189 23,753
-------- --------
Commitments and contingency (Note 13) - -
Redeemable convertible preferred stock, $0.01 par value;
2,946,988 shares authorized, issued and outstanding at
September 30, 1997 - 10,366
-------- --------
Nonredeemable preferred stock, common stock, and other
stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none issued and outstanding - -
Series E convertible preferred stock, $0.01 par value;
70,000 shares authorized, issued, and outstanding at
September 30, 1997 - 152
Common stock, $0.01 par value; 21,500,000 shares
authorized; 11,007,281 and 10,196,892 shares issued
and outstanding, respectively 110 102
Additional paid-in capital 128,839 117,700
Cumulative translation adjustment (536) (106)
Deferred compensation (119) (416)
Retained earnings (accumulated deficit) (6,531) 9,438
-------- --------
Total nonredeemable preferred stock, common
stock, and other stockholders' equity 121,763 126,870
-------- --------
Total liabilities, redeemable convertible
preferred stock, nonredeemable preferred stock,
common stock, and other stockholders' equity $140,952 $160,989
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements, together with the report thereonstatements.
28
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30,
(In thousands, except per share data) 1998 1997 1996
-------- -------- --------
Fiscal 1998 Fiscal 1997 Fiscal 1996
Revenues:
Product, including related party revenues of $15,878,
$18,176, and $19,109, respectively $ 80,466 $ 88,377 $ 94,085
Services 19,396 20,364 18,645
-------- -------- --------
Total revenues 99,862 108,741 112,730
-------- -------- --------
Cost of revenues:
Product 60,819 51,404 49,551
Services 11,538 12,357 8,410
-------- -------- --------
Total cost of revenues 72,357 63,761 57,961
-------- -------- --------
Gross profit 27,505 44,980 54,769
-------- -------- --------
Operating expenses:
Research and development 22,674 20,592 18,336
Selling, general and administrative 26,464 23,952 22,946
Acquisition-related and restructuring costs 3,722 - 230
-------- -------- --------
Total operating expenses 52,860 44,544 41,512
-------- -------- --------
Income (loss) from operations (25,355) 436 13,257
Interest income 3,564 140 407
Interest expense 870 910 471
-------- -------- --------
Income (loss) before income taxes (22,661) (334) 13,193
Income tax provision (benefit) (4,300) 1,267 4,599
-------- -------- --------
Net income (loss) (18,361) (1,601) 8,594
Dividends on preferred stock 521 521 521
-------- -------- --------
Net income (loss) attributable to common stockholders $(18,882) $ (2,122) $ 8,073
======== ======== ========
Earnings (loss) per share:
Basic $ (1.84) $ (0.27) $ 1.06
Diluted $ (1.84) $ (0.27) $ 0.94
Shares used in computing earnings (loss) per share:
Basic 10,269 7,818 7,628
Diluted 10,269 7,818 9,108
The accompanying notes are an integral part of Price Waterhouse
LLP dated November 12, 1997, appearing inthese consolidated financial
statements.
29
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENT OF CHANGES IN NONREDEEMABLE PREFERRED STOCK,
COMMON STOCK, AND OTHER STOCKHOLDERS' EQUITY
CONVERTIBLE RETAINED
PREFERRED COMMON ADDITIONAL CUMULATIVE DEFERRED EARNINGS
STOCK STOCK AT PAID-IN TRANSLATION COMPEN- (ACCUMULATED
(In thousands) SERIES E PAR VALUE CAPITAL ADJUSTMENT SATION DEFICIT) TOTAL
------------ --------- ------------- ------------ ---------- ------------ ----------
BALANCE AT SEPTEMBER 30, 1995 $ 152 $ 76 $ 34,181 $(136) $(139) $ 3,634 $ 37,768
Shares issued under stock option
and purchase plans 1 419 420
Purchase and retire treasury stock (184) (184)
Amortization of deferred compensation 29 29
Dividends on preferred stock (521) (521)
Currency translation adjustments (43) (43)
Elimination of Techware net income
for the three months ended
December 31, 1995 (147) (147)
Net income 8,594 8,594
-------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 152 77 34,416 (179) (110) 11,560 45,916
-------------------------------------------------------------------------------------------
Public offering 23 80,739 80,762
Shares issued under stock option
and purchase plans 2 831 833
Deferred compensation 368 (368) -
Amortization of deferred compensation 62 62
Dividends on preferred stock (521) (521)
Income tax benefit from stock
options 926 926
Currency translation adjustments 73 73
Issuance of warrants attached to
subordinated debt 420 420
Net loss (1,601) (1,601)
-------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 152 102 117,700 (106) (416) 9,438 126,870
-------------------------------------------------------------------------------------------
Shares issued under stock option
and purchase plans 1 749 750
Acquisitions (152) 7 10,899 160 10,914
Deferred compensation (208) 208 -
Amortization of deferred compensation 89 89
Dividends on preferred stock (521) (521)
Income tax adjustment from
stock options (301) (301)
Currency translation adjustments (430) (430)
Elimination of FASTech net loss
for the three months ended
December 31, 1997 2,753 2,753
Net loss (18,361) (18,361)
-------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 $ - $110 $128,839 $(536) $(119) $ (6,531) $121,763
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
30
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands) YEAR ENDED SEPTEMBER 30,
1998 1997 1996
-------- ---------- ---------
Fiscal 1998 Fiscal 1997 Fiscal 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(18,361) $ (1,601) $ 8,594
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 8,146 6,137 4,141
Compensation expense related to
stock options 89 62 29
Deferred income taxes (4,396) 1,085 (654)
Changes in operating assets and
liabilities:
Accounts receivable 15,324 (3,652) (9,938)
Inventories 3,822 (5,555) (5,005)
Prepaid expenses and other
current assets (1,373) 94 624
Accounts payable (4,161) 1,064 1,966
Deferred revenue 398 297 (355)
Accrued compensation and benefits 517 (15) 1,019
Accrued acquisition-related and
restructuring costs 2,254 - -
Accrued expenses and other
current liabilities (453) (603) 934
-------- ---------- ---------
Net cash provided by (used in)
operating activities 1,806 (2,687) 1,355
-------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (4,401) (7,725) (11,530)
Increase in other assets (190) (2,063) (1,200)
-------- ---------- ---------
Net cash used in investing activities (4,591) (9,788) (12,730)
-------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments of) borrowings under
lines of credit - (2,019) 1,032
Payments on long-term debt (2,986) (692) (723)
Issuance of long-term debt - 2,500 -
Proceeds from sale and leaseback
of equipment - 258 451
Proceeds from issuance of
common stock, net of issuance costs 750 81,595 420
Purchase and retire treasury stock - - (253)
-------- ---------- ---------
Net cash provided by (used in)
financing activities (2,236) 81,642 927
-------- ---------- ---------
Elimination of net cash activities
of FASTech for the three months
ended December 31, 1997 (1,761) - -
-------- ---------- ---------
Effects of exchange rate changes
on cash and cash equivalents (310) (98) (22)
-------- ---------- ---------
Net increase (decrease) in cash
and cash equivalents (7,092) 69,069 (10,470)
Cash and cash equivalents,
beginning of year 75,253 6,184 16,654
-------- ---------- ---------
Cash and cash equivalents,
end of year $ 68,161 $ 75,253 $ 6,184
======== ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for
interest $ 385 $ 866 $ 502
Cash paid during the year for
income taxes $ 240 $ 1,517 $ 4,300
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING AND INVESTING ACTIVITIES
Fixed assets acquired under
capital lease $ - $ 258 $ 1,081
Deferred compensation related to stock options $ (208) $ 368 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
31
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Brooks Automation, Inc. (the "Company") is an independent supplier of
material handling robots, modules, real-time software and controls, fully
integrated cluster tool platforms and manufacturing execution systems
("MES") software to semiconductor, flat panel display, and data storage
manufacturers worldwide. Founded in 1978, the Company has distinguished
itself as a technology and market leader, particularly in the demanding
cluster-tool vacuum-processing environment. In fiscal 1996 the Company
acquired Techware Systems Corporation ("Techware"), which designs and
supplies integrated equipment control software for the semiconductor and
related industries. In 1998 the Company acquired FASTech Integration, Inc.
("FASTech"), which designs, develops, markets, and supports an integrated
suite of MES workflow software products for the semiconductor, electronics,
and general discrete manufacturing industries.
SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated. The acquisitions of Techware and FASTech
have been accounted for as poolings of interests, and the accompanying
consolidated financial statements have been restated to include the
financial position and results of operations of Techware and FASTech for all
periods prior to the acquisitions. (See Note 2.)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
REVENUE RECOGNITION
Revenue from product sales and software license sales is recorded upon
shipment to the customer provided that no significant obligations remain and
collection of the related receivable is probable. When insignificant
obligations remain after shipment of the product, the Company accrues the
estimated costs of such obligations upon shipment. A provision for product
warranty costs is recorded at the time of sale. In the event significant
post-shipment obligations or uncertainties remain, revenue is deferred and
recognized when such obligations are fulfilled by the Company or the
uncertainties are resolved.
Revenue from services is recognized as the services are rendered. Revenue
from fixed fee application consulting contracts is recognized using the
percentage-of-completion method of contract accounting based on the ratio
that costs incurred to date bear to estimated total costs at completion.
Revisions in revenue and cost estimates are recorded in the periods in
which the facts that require such revisions become known. Losses, if any,
are provided for in the period in which such losses are first identified by
management. For maintenance contracts, service revenue is recognized ratably
over the term of the maintenance contract.
CASH AND CASH EQUIVALENTS
The Company invests its excess cash in repurchase agreements with major
banks, U. S. government securities, and mutual funds that invest in U.S.
government securities, which are subject to minimal credit and market risk.
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At
September 30, 1998, cash and cash equivalents include $44.3 million and
$23.9 million of securities which are classified as available-for-sale and
held to maturity, respectively, and for which cost approximates fair value.
At September 30, 1997, cash and cash equivalents include $44.1 million and
$31.2 million of securities which are classified as available-for-sale and
held to maturity, respectively, and for which cost approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out method. The Company provides inventory
reserves for excess, obsolete, or damaged inventory based on changes in
customer demand, technology, and other economic factors. While the Company
often uses sole source suppliers for certain key components
32
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and common assemblies to achieve quality control and the benefits of
economies of scale, the Company believes that these parts and materials are
readily available from several supply sources.
FIXED ASSETS
Fixed assets are recorded at cost and depreciated over their estimated
useful lives which range from 3 to 5 years for computer equipment and
software, 5 to 7 years for machinery and equipment, and 3 to 10 years for
furniture and fixtures using the straight-line method. Equipment held under
capital leases is recorded at the lower of the fair market value of the
equipment or the present value of the minimum lease payments at the
inception of the leases. Leasehold improvements and equipment held under
capital leases are amortized over the shorter of their estimated useful
lives or the term of the respective leases. Repair and maintenance costs are
expensed as incurred.
PATENTS
The Company capitalizes the direct costs associated with obtaining patents.
Capitalized patent costs are amortized using the straight-line method over
the shorter of seven years or the estimated economic life of the patents.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Costs incurred in the research and development of the Company's products are
expensed as incurred, except for certain software development costs.
Software development costs are expensed prior to establishing technological
feasibility and capitalized thereafter until the related product is
available for general release to customers. Capitalized software development
costs are amortized to cost of sales on a product-by-product basis over the
estimated lives of the related products.
STOCK-BASED COMPENSATION
The Company's stock compensation plans are accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Under this method, compensation expense on stock option grants
to employees for a fixed number of shares is recognized only to the extent
that the exercise price on the date of grant is less than the current fair
market value of the Company's common stock. The Company has adopted the
disclosure provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," for fixed
stock-based awards to employees. All non-employee stock-based awards are
accounted for in accordance with SFAS No. 123.
INCOME TAXES
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences, utilizing current tax rates, of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. Deferred tax assets are recognized, net of any valuation
allowance, for the estimated future tax effects of deductible temporary
differences and tax operating loss and credit carryforwards. Deferred income
tax expense or benefit represents the change in the net deferred tax asset
and liability balances.
FOREIGN CURRENCY
The functional currency of the Company's international subsidiaries is the
local currency. Accordingly, foreign currency financial statements of the
Company's international subsidiaries are translated into U.S. dollars using
exchange rates in effect at period-end for assets and liabilities and at
average rates during the period for results of operations. The resulting
foreign currency translation adjustments are reflected as a separate
component of consolidated other stockholders' equity.
EARNINGS PER SHARE
Earnings per share has been calculated in accordance with SFAS No. 128,
"Earnings per Share," which was adopted as required in fiscal 1998. All
previously reported earnings per share data presented herein have been
restated. Basic earnings per share is calculated based on the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is calculated based on the weighted average number of
common shares and dilutive common equivalent shares assumed outstanding
during the period. Shares used to compute diluted earnings per share in loss
years exclude common share equivalents, as their inclusion would have an
anti-dilutive effect.
33
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components in the consolidated financial statements. SFAS No. 131
establishes standards for reporting information on operating segments in
interim and annual financial statements. Both statements are effective for
the Company for fiscal 1999. Adoption of these statements will not have any
effects on the Company's results of operations or financial position.
In October 1997 the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition,"
which provides guidance on applying generally accepted accounting principles
in recognizing revenue on software transactions and supersedes SOP 91-1,
"Software Revenue Recognition." The Company will adopt SOP 97-2 effective
October 1, 1998. Adoption of this statement will not have a material impact
on the Company's results of operations or financial position.
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (fiscal
2000 for the Company) and requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
Management of the Company anticipates that the adoption of SFAS No. 133 will
not have a significant effect on the Company's results of operations or
financial position.
2. ACQUISITIONS
In September 1998 the Company acquired FASTech and issued 852,428 shares of
common stock in exchange for all of the outstanding common and preferred
shares of FASTech. In connection with this acquisition, the Company incurred
$2.4 million of costs, consisting primarily of transaction costs to effect
the acquisition and costs to exit duplicate facilities. See Note 14. As a
result of conforming dissimilar year-ends, FASTech's results of operations
for the year ended December 31, 1997, have been combined with the Company's
results of operations for the year ended September 30, 1997. The results of
operations for fiscal 1998 are for the twelve months ended September 30,
1998, for both the Company and FASTech. FASTech's unaudited results of
operations for the three months ended December 31, 1997, (including
revenues, operating loss, and net loss of $5.0 million, $1.0 million, and
$2.8 million, respectively) are included in the consolidated statement of
operations for both the fiscal years ended September 30, 1998 and 1997.
Therefore, an amount equal to FASTech's net loss for the three months ended
December 31, 1997, was eliminated from consolidated retained earnings for
the year ended September 30, 1998.
Revenue and net income for the previously separate companies are as follows:
(unaudited)
FOR THE FOR THE YEAR
NINE MONTHS ENDED ENDED SEPTEMBER 30,
JUNE 30, 1998 1997 1996
(In thousands)
Net revenue:
Brooks Automation, Inc. $ 67,166 $ 86,409 $ 90,432
FASTech 12,384 22,332 22,298
- --------------------------------------------------------------------------
$ 79,550 $108,741 $112,730
- --------------------------------------------------------------------------
Net income (loss):
Brooks Automation, Inc. $ (4,782) $ 806 $ 8,497
FASTech (7,447) (2,407) 97
- --------------------------------------------------------------------------
$(12,229) $ (1,601) $ 8,594
34
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 1996 the Company acquired Techware Systems Corporation
("Techware") and issued 462,189 shares of common stock in exchange for all the
outstanding shares of Techware. In connection with this acquisition, the
Company incurred expenses of $230,000, consisting primarily of transaction
costs to effect the acquisition. As a result of conforming dissimilar year-
ends, Techware's results of operations for the year ended December 31, 1995,
have been combined with the Company's results of operations for the year ended
September 30, 1995. The results of operations for fiscal 1996 are for the
twelve months ended September 30, 1996, for both the Company and Techware.
Techware's unaudited results of operations for the three months ended December
31, 1995, (including revenues and net income of $1.8 million and $0.1
million, respectively) are included in the consolidated statement of
operations for both the fiscal years ended September 30, 1996 and 1995.
Therefore, an amount equal to Techware's net income for the three months ended
December 31, 1995, was eliminated from consolidated retained earnings for the
year ended September 30, 1996.
Both of the above acquisitions were accounted for as poolings of interests,
and the Company's Consolidated Financial Statements have been restated to
include the financial position and results of operations of FASTech and
Techware for all periods prior to the acquisitions.
3. INVENTORIES
Inventories consist of the following (in thousands):
SEPTEMBER 30,
1998 1997
- ------------------------------------------------------------------------
Raw materials and purchased parts $ 8,815 $ 14,750
Work-in-process 7,878 7,745
Finished goods 2,896 758
- ------------------------------------------------------------------------
$19,589 $ 23,253
- ------------------------------------------------------------------------
4. FIXED ASSETS
Fixed assets consist of the following (in thousands):
SEPTEMBER 30,
- ------------------------------------------------------------------------
1998 1997
Computer equipment and software $ 17,215 $ 14,887
Machinery and equipment 11,811 11,517
Furniture and fixtures 5,173 4,195
Leasehold improvements 5,486 4,941
- ------------------------------------------------------------------------
39,685 35,540
Less accumulated depreciation and amortization 21,079 14,191
- ------------------------------------------------------------------------
$18,606 $21,349
- ------------------------------------------------------------------------
Included in the above amounts is computer equipment and software and machinery
and equipment acquired under capital leases of $2.6 million as of September
30, 1998 and 1997. Accumulated amortization on fixed assets under capital
lease was $2.3 million and $1.8 million at September 30, 1998 and 1997,
respectively. Amortization expense for fixed assets under capital leases was
$0.5 million, $0.6 million, and $0.4 million for the years ended September 30,
1998, 1997, and 1996, respectively.
5. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt consists of the following (in thousands):
35
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
1998 1997
------ ------
FASTech subordinated note payable due June 30, 2004 $ - $2,108
Subordinated note payable, principal payments in monthly
installments of $5, interest payable monthly at prime plus
2.75% per annum (11.25% at September 30, 1997) - 182
Capital lease obligations at rates of 5% to 21% per annum
secured by certain fixed assets, expiring at various dates
through November 2000 360 863
------ ------
360 3,153
Less current portion 230 633
------ ------
$ 130 $2,520
------ ------
During fiscal 1998, the Company elected to terminate its primary domestic and
international credit facilities. There were no borrowings outstanding under
these credit facilities at September 30, 1998.
In July 1997 the Company issued $2.5 million of subordinated notes with
attached warrants to certain stockholders that were due June 30, 2004. The
Company was required to make quarterly interest payments on the subordinated
notes at the rate of 9% per year. In connection with the issuance of the
subordinated notes and warrants, the Company recorded a discount on the
subordinated notes of $420,000 to reflect the value of the warrants, as
determined by use of the Black-Scholes option pricing model. The outstanding
balance of the note was repaid and the remaining discount of $0.3 million was
expensed at the end of the fourth quarter of fiscal 1998 in conjunction with the
acquisition of FASTech. (See Note 2.)
6. INCOME TAXES
The components of the income tax provision (benefit) are as follows (in
thousands):
YEAR ENDED SEPTEMBER 30,
1998 1997 1996
------- ------ ------
Current:
Federal $ (888) $ (987) $3,893
State 5 12 625
Foreign (212) 1,157 735
------- ------ ------
(1,095) 182 5,253
------- ------ ------
Deferred:
Federal (2,704) 644 (197)
State (499) 380 (448)
Foreign (2) 61 (9)
------- ------ ------
(3,205) 1,085 (654)
------- ------ ------
$(4,300) $1,267 $4,599
------- ------ ------
36
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of income (loss) before income taxes are as follows (in
thousands):
YEAR ENDED SEPTEMBER 30,
1998 1997 1996
-------- ------- -------
Domestic $(22,297) $(1,925) $11,720
Foreign (364) 1,591 1,473
-------- ------- -------
$(22,661) $ (334) $13,193
-------- ------- -------
The significant components of the net deferred tax asset are as follows (in
thousands):
YEAR ENDED SEPTEMBER 30,
1998 1997 1996
------- ------- -------
Deferred tax assets:
Reserves not currently deductible $ 4,670 $ 2,316 $ 1,424
Foreign and state tax credit carryforwards 4,022 3,150 2,344
Net operating loss carryforwards 3,393 232 130
Other 444 - 61
-------- ------- -------
Gross deferred tax assets 12,529 5,698 3,959
-------- ------- -------
Deferred tax liabilities:
Depreciation and amortization (881) (1,059) (676)
Other (34) (183) (60)
-------- ------- -------
Gross deferred tax liabilities (915) (1,242) (736)
Deferred tax asset valuation allowance (5,929) (3,651) (1,334)
-------- ------- -------
$ 5,685 $ 805 $ 1,889
-------- ------- -------
The differences between the income tax provision (benefit) and income taxes
computed using the applicable U.S. statutory federal tax rate are as follows (in
thousands):
YEAR ENDED SEPTEMBER 30,
1998 1997 1996
-------- ------- -------
Taxes computed at federal statutory rate $(7,931) $ (110) $4,615
State income taxes, net of federal benefit (494) (277) 249
Research and development tax credits (840) (870) (697)
Foreign sales corporation tax benefit - (381) (325)
Foreign income taxed at different rates 266 407 161
Nondeductible transaction expenses 195 - 110
Change in deferred tax asset valuation allowance 2,278 2,317 313
Permanent differences 90 50 31
Elimination of FASTech provision for the 3 months
ended December 31, 1997 1,334 - -
Other 802 131 142
------- ------ ------
$(4,300) $1,267 $4,599
------- ------ ------
The Company does not provide for U.S. income taxes applicable to undistributed
earnings of its foreign subsidiaries since these earnings are indefinitely
reinvested. A valuation allowance has been established for certain of the future
domestic income tax benefits primarily related to income tax loss carryforwards
and temporary differences based on management's
37
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assessment that it is more likely than not that such benefits will not be
realized. The Company's valuation allowance increased to $5.9 million at
September 30, 1998.
As of September 30, 1998, the Company had federal and state net operating losses
of approximately $17.2 million and federal and state research and development
tax credit carryforwards of approximately $4.4 million available to reduce
future tax liabilities, which expire at various dates through 2018. The ultimate
realization of the remaining loss carryforwards is dependent upon the generation
of sufficient taxable income in respective jurisdictions.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The redeemable convertible preferred stock was converted into the Company's
common stock on September 30, 1998, in conjunction with the acquisition of
FASTech by the Company (see Note 2). As of September 30, 1997 and 1996,
redeemable convertible preferred stock, $.01 par value, recorded at issuance
price plus accumulated accretion and net of issuance costs, consisted of the
following (in thousands):
1997 1996
-------- --------
Series D, 942,909 shares authorized, issued and outstanding $ 4,733 $ 4,462
Series C, 600,000 shares authorized, issued and outstanding 1,951 1,853
Series B, 480,572 shares authorized, issued and outstanding 1,431 1,362
Series A, 923,507 shares authorized and issued , 731,156 outstanding 2,251 2,404
------- -------
$10,366 $10,081
------- -------
Redeemable convertible preferred stockholders were entitled to the number of
votes equal to the number of shares of common stock that each share of
redeemable preferred stock was convertible. The redeemable preferred stock was
convertible into common stock at the option of the stockholder based upon a
conversion rate as defined by the related agreement. In the event of a public
offering of the Company's common stock resulting in gross proceeds of at least
$10 million, the redeemable preferred stock would have converted into common
stock upon the effective date of the registration statement. Dividends were
cumulative and accrued at the rate of $0.28, $0.16, $0.14, and $0.128 per share
on the Series D, Series C, Series B, and Series A redeemable convertible
preferred stock, respectively. On the earlier of June 30, 2004, or the repayment
of the subordinated note described in Note 5, the Company would have been
required to redeem the redeemable convertible preferred stock.
8. NONREDEEMABLE PREFERRED STOCK, COMMON STOCK, AND OTHER STOCKHOLDERS EQUITY
PREFERRED STOCK
As of September 30, 1998 and 1997, there were 1 million shares of preferred
stock, $0.01 par value per share authorized; but none were issued or
outstanding. Preferred stock may be issued at the discretion of the Board of
Directors without stockholder approval with such designations, rights, and
preferences as the Board of Directors may determine.
SERIES E CONVERTIBLE PREFERRED STOCK
The Series E convertible preferred stock was converted into the Company's common
stock on September 30, 1998, in conjunction with the FASTech acquisition by the
Company (see Note 2). Series E convertible preferred stockholders were entitled
to the number of votes equal to the number of shares of common stock into which
each share of Series E preferred stock was convertible. The Series E preferred
stock was convertible into common stock at the option of the stockholder based
upon a conversion rate as defined by the related agreement. In the event of a
public offering of the Company's common stock resulting in gross proceeds of at
least $10 million, the Series E preferred stock would have converted into common
stock upon the effective date of the registration statement. In the event of
liquidation of the Company, holders of Series E convertible preferred stock were
entitled to receive, in preference to any distribution to the common
stockholders, $3.50 per share, subject to anti-dilution adjustments, plus any
accrued but unpaid dividends.
38
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Earnings Per Share
The following table is a summary of net income (loss) used in calculation of
basic and diluted earnings per share (in thousands):
FOR THE YEAR ENDED SEPTEMBER 30,
1998 1997 1996
-------- ------- ------
Net income (loss) attributable to common
stockholders used in calculating basic
earnings per share $(18,882) $(2,122) $8,073
Dividends on preferred stock - - 521
-------- ------- ------
Net income (loss) used in calculation of
diluted earnings per share $(18,882) $(2,122) $8,594
-------- ------- ------
The following table is a summary of shares used in calculating basic and diluted
earnings per share (in thousands):
FOR THE YEAR ENDED SEPTEMBER 30,
1998 1997 1996
-------- ------- ------
Weighted average number of shares outstanding
used in computing basic earnings per share 10,269 7,818 7,628
Dilutive securities:
Common stock options - - 776
Redeemable convertible preferred stock - - 686
Convertible preferred stock - - 18
-------- ------- ------
Shares used in computing
diluted earnings per share 10,269 7,818 9,108
-------- ------- ------
10. Stock Plans
1995 EMPLOYEE STOCK PURCHASE PLAN
On February 22, 1996, the stockholders approved the 1995 Employee Stock Purchase
Plan (the "1995 Plan") which enables eligible employees to purchase shares of
the Company's common stock. Under the 1995 Plan, eligible employees may purchase
up to an aggregate of 150,000 shares during six-month offering periods
commencing on January 1 and July 1 of each year at a price per share of 85% of
the lower of the market price per share on the first or last day of each six-
month offering period. Participating employees may elect to have up to 10% of
base pay withheld and applied toward the purchase of such shares. The rights of
participating employees under the 1995 Plan terminate upon voluntary withdrawal
from the plan at any time or upon termination of employment. As of September 30,
1998, the Company has reserved 40,279 shares of common stock for issuance under
the 1995 Plan.
1992 COMBINATION STOCK OPTION PLAN
The 1992 Combination Stock Option Plan (the "1992 Plan") allows for the grant of
non-qualified and incentive stock options for the purchase of up to 1,550,000
shares of the Company's common stock, net of cancellations, by employees,
directors or consultants who provide services to the Company. The Board of
Directors of the Company is responsible for administration of the 1992 Plan.
Stock options granted under the plan have generally been granted at exercise
prices, as determined by the Board of Directors, of not less than the fair value
per common share on the date of the grant. Both non-qualified and incentive
stock options are exercisable at various dates as determined by the Board of
Directors. Incentive stock options are exercisable either within 10 years of the
date of grant or within 5 years of the date of grant for employees holding
greater than 10% of the Company's voting stock.
39
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1993 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The 1993 Non-Employee Director Stock Option Plan (the "Director Plan") allows
for the issuance of stock options to directors who provide services to the
Company. In fiscal 1997, the Company's stockholders approved an increase in the
number of shares issuable under the Director Plan from 90,000 to 190,000 shares.
The price of the stock options is determined by the Board of Directors and are
priced at not less than the fair market value on the date of grant. Options vest
over a five year period.
On July 25, 1996, the Board of Directors determined that certain stock options
issued to employees of the Company had an exercise price significantly higher
than the fair market value of the Company's common stock. In light of the
Board's conclusions that such options were not providing the desired incentive,
the Board provided employees with the opportunity to exchange options previously
granted to them under the 1992 Plan for new options (the "Replacement Options")
to purchase the same number of shares of common stock at an exercise price of
$11.00 per share, the then fair market value of the Company's common stock.
Employees were given the choice of retaining their existing options, with the
original vesting schedule, or accepting the Replacement Options, with a vesting
schedule commencing on July 25, 1996. The Company canceled and replaced options
to purchase 344,600 shares of common stock with an average exercise price of
$14.36 per share.
STOCK OPTIONS OF ACQUIRED COMPANY
In connection with the FASTech acquisition, the Company assumed 80,351 options
in September 1998. These assumed options were granted at prices equal to the
fair value at the date of grant, become exercisable in installments (generally
ratably over five years), and expire ten years from the date of grant. The
Company does not intend to issue any additional options under the FASTech stock
option plans.
Aggregate stock option activity for all plans for the two years ended
September 30, 1998 and 1997, is as follows:
SEPTEMBER 30, 1998 SEPTEMBER 30 ,1997 SEPTEMBER 30, 1996
Weighted Average Weighted Average Weighted Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------- ---------------- --------- ---------------- --------- ----------------
Outstanding at beginning of year 1,265,196 $ 8.09 1,318,834 $ 6.25 1,108,321 $ 3.37
Granted 159,121 17.04 151,113 19.73 766,510 15.42
Canceled (302,271) 13.29 (49,449) 12.69 (430,609) 17.19
Exercised (69,511) 2.83 (155,302) 2.00 (125,388) 1.69
--------- --------- ---------
Outstanding at end of year 1,052,535 $ 8.30 1,265,196 $ 8.09 1,318,834 $ 6.25
--------- ---------------- --------- ---------------- ---------- ---------------
Options exercisable at end
of year 551,162 $ 4.67 337,893 $ 3.24 248,827 $ 2.37
Weighted-average fair value of $ 9.74 $12.71 $ 9.26
options granted
Options available for future
grant 971,525
---------
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions for grants
made during fiscal 1998, fiscal 1997, and fiscal 1996: No dividend yield, risk
free interest rates of 5.5% to 6.3%, expected option term of four years,
expected forfeiture rate of 2.5%, and a volatility factor of 100%. The following
table summarizes information about stock options outstanding at September 30,
1998:
40
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted-
Average Average Weighted
Range of Outstanding Remaining Average Weighted-
Exercise as of Contractual Life Exercise Number Average
Prices September 30, 1998 (In Years) Price Exercisable Exercise Price
- ---------------- ------------------- ---------------- ---------- ----------- ------------------
$ 0.83 - $ 1.67 38,584 4.3 $ 1.02 32,834 $ 0.94
$ 2.21 - $ 2.43 475,500 3.5 2.31 392,250 2.31
$ 4.71 - $10.50 59,256 5.6 7.14 25,113 4.80
$11.00 268,400 7.8 11.00 72,350 11.00
$11.50 - $14.75 137,400 8.4 12.80 9,450 12.29
$15.62 - $23.54 37,101 7.3 20.42 10,859 19.73
$47.07 36,294 5.6 47.07 8,306 47.07
- ---------------- ------------------- ---------------- ---------- ------------ -------------
1,052,535 5.6 $ 8.30 551,162 $ 4.67
- ---------------- ------------------- ---------------- ---------- ------------ -------------
Had compensation expense for the Company's option grants to employees been
determined based on the fair value at the date of grant and for shares of
common stock purchased pursuant to the Employee Stock Purchase Plan,
consistent with the methods prescribed by SFAS No. 123, the pro forma effect
on the Company's net income would have been as follows:
For the year ended September 30,
(In thousands, except per share data) 1998 1997 1996
- ------------------------------------- --------- -------- ------
Pro forma net income (loss) attributable to
Common Stockholders $(20,721) $(3,061) $7,474
Pro forma basic earnings per share $ (2.02) $ (0.39) $ 0.98
Pro forma diluted earnings per share $ (2.02) $ (0.39) $ 0.82
Because most options vest over several years and additional option grants are
expected to be made subsequent to September 30, 1998, the results of applying
the fair value method may have a materially different effect on proforma net
income in future years.
RIGHTS DISTRIBUTION
In July 1997, the Board of Directors declared a dividend of one preferred share
purchase right (a "right") for each share of common stock outstanding on
August 12, 1997. Each right entitles the registered holder to purchase
41
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from the Company, upon certain triggering events, one one-thousandth of a share
of Series A Junior Participating Preferred Stock, par value $0.01 per share (the
"Series A Preferred Shares"), of the Company, at a purchase price of $135 per
one one-thousandth of a Series A Preferred Share, subject to adjustment.
Redemption of the rights could generally discourage a merger or tender offer
involving the securities of the Company that is not approved by the Company's
Board of Directors by increasing the cost of effecting any such transaction and,
accordingly, could have an adverse impact on stockholders who might want to vote
in favor of such merger or participate in such tender offer. The rights will
expire on the earlier of (i) July 31, 2007, or (ii) the date on which the rights
are redeemed. The terms of the rights may generally be amended by the Board of
Directors without the consent of the holders of the rights.
11. BENEFIT PLAN
The Company sponsors defined contribution plans that meets the requirements of
Section 401(k) of the Internal Revenue Code. All domestic employees of the
Company who meet minimum age and service requirements are eligible to
participate in the plan. The plan allows employees to invest on a pre-tax basis
a percentage of their annual salary subject to statutory limitations. The
Company's contribution expense was $0.2 million, $0.2 million, and $0.1 million
in fiscal 1998, fiscal 1997, and fiscal 1996, respectively.
12. GEOGRAPHIC, SIGNIFICANT CUSTOMERS, AND RELATED PARTY INFORMATION
Net revenues by geographic area are as follows (in thousands):
For the year ended September 30,
1998 1997 1996
---- ---- ----
North America $58,613 59% $ 67,484 62% $ 84,536 75%
Asia 31,679 32% 33,304 31% 19,315 17%
Europe 9,570 9% 7,953 7% 8,879 8%
------- ---- -------- ---- -------- ----
$99,862 100% $108,741 100% $112,730 100%
------- ---- -------- ---- -------- ----
One of the Company's Directors is an executive with one of the Company's
customers. Net revenue recognized from this customer was $15.9 million, $18.2
million, and $19.1 million in fiscal 1998, 1997, and 1996, respectively. Amounts
due from this customer included in accounts receivable at September 30, 1998 and
1997, were $2.4 million and $5.3 million, respectively. Related party amounts
included in accounts receivable are on standard terms and manner of settlement.
The Company did not have any other single customer that accounted for more than
10% of the Company's net revenues in fiscal 1998, fiscal 1997, and fiscal 1996.
A financial instrument which potentially exposes the Company to concentration of
credit risk is accounts receivable, as the Company's customers are concentrated
in the semiconductor industry and relatively few customers account for a
significant portion of the Company's revenues. At September 30, 1998 and 1997,
three customers accounted for approximately 34% and 39%, respectively, of
accounts receivable. The Company regularly monitors the creditworthiness of its
customers and believes that it has adequately provided for exposure to potential
credit losses.
13. COMMITMENTS AND CONTINGENCY
Lease Commitments
The Company leases manufacturing and office facilities and certain equipment
under operating and capital leases (Notes 4 and 5) that expire through 2003.
Rent expense under operating leases for fiscal 1998, fiscal 1997, and fiscal
1996 was $4.6 million, $3.2 million, and $2.5 million, respectively. Future
minimum lease payments under operating and capital leases with initial or
remaining noncancelable terms of one or more years are as follows as of
September 30, 1998 (in thousands):
42
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL OPERATING
YEAR LEASES LEASES
---- ------- ---------
1999 $263 $1,850
2000 113 1,822
2001 8 1,498
2002 0 1,636
2003 0 12
Thereafter 0 0
------- ---------
Total minimum lease payments $384 $6,818
Less amount representing interest 24 =========
-------
Net present value of minimum lease payments $360
=======
CONTINGENCY
There has been substantial litigation regarding patent and other intellectual
property rights in the semiconductor and related industries. The Company has
received notice from a third-party alleging infringements of such party's patent
rights by certain of the Company's products. The Company's patent counsel is
investigating the claim and the Company believes the patents claimed may be
invalid. In the event of litigation with respect to this claim, the Company is
prepared to vigorously defend its position. However, because patent litigation
can be extremely expensive and time consuming, the Company may seek to obtain a
license to one or more of the disputed patents. Based upon currently available
information, the Company would only do so if such license fees would not be
material to the Company's consolidated financial statements. Currently, the
Company does not believe that it is probable that future events related to this
threatened matter will have an adverse effect on the Company's business.
14. RESTRUCTURING COSTS
During fiscal year 1998, the Company approved and implemented a restructuring
program designed to align the Company's cost structure with lower revenue levels
indicative of the recent decline in demand for semiconductor equipment. These
actions involved approximately 120 employees, all of whom were terminated prior
to September 30, 1998. Accordingly, during fiscal 1998, the Company recorded a
charge of $1.3 million related to the restructuring program, primarily for
employee severance costs. No significant amount remained accrued at September
30, 1998.
In addition, the Company recorded charges of $1.4 million in connection with its
acquisition of FASTech (see Note 2), reflecting estimated costs to exit
duplicate facilities. This amount is primarily comprised of estimated lease
costs on FASTech's former headquarters facility and was included in accrued
expenses at September 30, 1998.
43
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Brooks Automation, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in nonredeemable preferred
stock, common stock and other stockholders' equity, and of cash flows present
fairly, in all material respects, the financial position of Brooks Automation,
Inc. and its subsidiaries at September 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 19, 1998
44
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
of Brooks Automation, Inc.
Our audits of the consolidated financial statements referred to in our report
dated November 19, 1998 appearing in this Annual Report to Stockholders are hereby incorporated by referenceon Form 10-K also
included an audit of the Financial Statement Schedule listed in Item 14(a) of
this Form 10-K
Annual Report.
1010-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 19, 1998
45
BROOKS AUTOMATION, INC.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Additions
---------
(In thousands) Balance at Charged to Charged to Deductions Balance
beginning costs and other and at end
Description Year ended of year expenses accounts write-offs of year
- ---------------------------------- ------------------ ---------- -------- ----------- ---------- -------
Allowance for doubtful accounts:
September 30, 1998 $ 776 $ 1,295 $ - $ (173) $ 1,898
September 30, 1997 840 322 - (386) 776
September 30, 1996 563 516 - (239) 840
Deferred tax asset valuation
allowance: September 30, 1998 3,651 2,278 - - 5,929
September 30, 1997 1,334 2,317 - - 3,651
September 30, 1996 1,021 313 - - 1,334
46
PART IIIII (CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby incorporated by reference to
the Company's definitive proxy statement to be filed by the Company within 120
days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by reference to
the Company's definitive proxy statement to be filed by the Company within 120
days after the close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by reference to
the Company's definitive proxy statement to be filed by the Company within 120
days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by reference to
the Company's definitive proxy statement to be filed by the Company within 120
days after the close of its fiscal year.
1147
PART IV
ITEM 14. EXHIBITS
Page in
Annual Report*
--------------
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Consolidated Balance Sheet at September 30, 1997 and 1996........................................26*
Consolidated Statement of Income for the
three years ended September 30, 1997............................................................27*
Consolidated Statement of Changes in Stockholders'
Equity for the three years ended September 30, 1997.............................................28*
Consolidated Statement of Cash Flows for the
three years ended September 30, 1997............................................................29*
Notes to Consolidated Financial Statements.....................................................30-41*
Report of Independent Accountants.................................................................42*
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial
Statement Schedule..............................................................................13
For the three years ended September 30, 1997 --
II. Valuation and Qualifying Accounts...........................................................14
(a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The consolidated financial statements and financial statement schedule of the
Company are listed in the index under Part II, Item 8, in this Form 10-K.
Other financial statement schedules for the year ended September 30, 1997 are omitted because of the absence of
conditions under which they are required or because the required information is
given in the financial statementsConsolidated Financial Statements or notes thereto.
* Incorporated by reference from the indicated pages of the 1997 Annual Report
to Stockholders.
1248
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
of Brooks Automation, Inc.
Our audits of the consolidated financial statements referred to in our report
dated November 12, 1997 appearing on page 42 of the 1997 Annual Report to
Stockholders of Brooks Automation, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
Price Waterhouse LLP
Boston, Massachusetts
November 12, 1997
13
BROOKS AUTOMATION, INC.
Schedule II - Valuation and Qualifying Accounts and Reserves
(in thousands)
Additions
Balance at Charged to Charged to Deductions Balance
beginning costs and other and at end
Description Year ended of period expenses accounts write-offs of period
- ------------------------------- ------------------ --------- -------- -------- ---------- ---------
Allowance for doubtful accounts September 30, 1997 $ 100 $ 162 $ - $ (102) $ 160
September 30, 1996 80 20 - - 100
September 30, 1995 80 - - - 80
14
(a)3. EXHIBITS
- ---------------
Exhibit No. Reference
----------- ---------
2.01 Merger Agreement relating to the reincorporation of the A**
Registrant in Delaware
3.01 Certificate of Incorporation of the Registrant A**
3.02 Bylaws of the Registrant A**
3.03 Certificate of Designation of Series A Junior Participating H**
Preferred Stock
4.01 Specimen Certificate for shares of the Registrant's Common A**
Stock
4.02 Description of Capital Stock (contained in the Certificate A**
of Incorporation of the Registrant, filed as Exhibit 3.01)
4.03 Rights Agreement dated July 23, 1997 I**
10.01 Agreement between the Registrant and Robert J. Therrien A**
10.02 Employment Agreement between the Registrant and Robert J. A**
Therrien dated as of October 1, 1994*
10.03 Employment Agreement between the Registrant and Stanley D. A**
Piekos*
10.04 intentionally omitted
10.05 intentionally omitted
10.06 Form of Indemnification Agreement for directors and officers A**
of the Registrant
10.07 Form of Selling Stockholder's Agreement B**
10.08 Lam Promissory Note A**
10.09 Lam Security Agreement A**
10.10 Lam Production and Terms of Purchase Agreement A**
10.11 Lam Term Sheet A**
10.12 Revolving Credit and Security Agreement with US-----------------
Exhibit No. Reference
- ----------- ---------
2.01 Merger Agreement relating to the reincorporation of the A**
Registrant in Delaware
2.02 Agreement and Plan of Merger relating to the combination L**
of FASTech Integration, Inc. with the Registrant
3.01 Certificate of Incorporation of the Registrant A**
3.02 Bylaws of the Registrant A**
3.03 Certificate of Designation of Series A Junior H**
Participating Preferred Stock
4.01 Specimen Certificate for shares of the Registrant's A**
Common Stock
4.02 Description of Capital Stock (contained in the A**
Certificate of Incorporation of the Registrant,
filed as Exhibit 3.01)
4.03 Rights Agreement dated July 23, 1997 I**
10.01 Agreement between the Registrant and Robert J. Therrien A**
10.02 Employment Agreement between the Registrant and A**
Robert J. Therrien dated as of October 1, 1994*
10.03 Employment Agreement between the Registrant and A**
Stanley D. Piekos*
10.04 Intentionally Omitted
10.05 Intentionally Omitted
10.06 Form of Indemnification Agreement for directors and A**
officers of the Registrant
10.07 Form of Selling Stockholder's Agreement B**
10.12 Revolving Credit and Security Agreement with U.S. Trust A**
10.13 Loan and Security Agreement with the Massachusetts Business A**
Development Corporation
10.14 Guarantee of Robert J. Therrien of Revolving Credit A**
Agreement with US Trust and Release
1510.18 Lease Extension Agreement C**
10.19 Headquarters Lease B**
10.20 Loan Agreement between Brooks Automation, Inc. and D**
U.S. Trust dated June 25, 1996
10.21 Intentionally Omitted
49
10.15 Guarantee of Jeffrey Hohl of Revolving Credit Agreement with A**
US Trust and Release
10.16 Guarantee of Robert J. Therrien of Loan Agreement with A**
Massachusetts Business Development Corporation
10.17 Guarantee of Norman B. Brooks of Revolving Credit Agreement A**
with US Trust and Release
10.18 Lease Extension Agreement C**
10.19 Headquarters Lease B**
10.20 Loan Agreement between Brooks Automation, Inc. and U.S. D**
Trust dated June 25, 1996
10.21 intentionally omitted
10.22 Loan Agreement First Amendment Dated April 30, 1997 F**
10.23 Revolving Loan Note First Amendment dated April 30, 1997 F**
10.24 Participation Agreement dated April 30, 1997 F**
10.25 Loan Agreement Second Amendment dated June 30, 1997 G**
10.26 Loan Agreement First Amendment dated June 3, 1997 G**
10.27 Amendment to Master Short Term Foreign Currency Borrowing Filed herewith
Agreement with Core States Bank dated June 3, 1997
11.01 Statement re: Computation of Per Share Earnings Filed herewith
13.01 Portions of Brooks Automation, Inc. Annual Report to Filed herewith
Stockholders
21.01 Subsidiaries of the Registrant Filed herewith
23.01 Consent of Price Waterhouse LLP Filed herewith
27.01 Financial Data Schedule Filed herewith
99.01 1993 Nonemployee Director Stock Option Plan J** *
99.02 1992 Combination Stock Option Plan K** *
10.23 Revolving Loan Note First Amendment dated April 30, 1997 F**
10.24 Participation Agreement dated April 30, 1997 F**
10.25 Loan Agreement Second Amendment dated June 30, 1997 G**
10.26 Loan Agreement First Amendment dated June 3, 1997 G**
10.27 Amendment to Master Short Term Foreign Currency G**
Borrowing Agreement with Core States Bank dated
June 3, 1997
10.28 Employment Agreement between the Registrant and Filed
Ellen Richstone* herewith
21.01 Subsidiaries of the Registrant Filed
herewith
23.01 Consent of PricewaterhouseCoopers LLP Filed
herewith
27.01 Financial Data Schedule Filed
herewith
99.01 1993 Nonemployee Director Stock Option Plan J* **
99.02 1992 Combination Stock Option Plan K* **
99.30 1995 Employee Stock Purchase Plan E**
--------------------____________________
A Incorporated by reference to the Company's registration statement on
Form S-1 (Registration No. 33-87296). The number set forth herein is the
number of the Exhibit in said registration statement.
B Incorporated by reference to the Company's registration statement on Form
S-1 (Registration No. 33-93102). The number assigned to each Exhibit above
is the same as the number assigned to the Exhibit in said registration
statement.
16
C Incorporated by referencedreference to the Company's quarterly report on Form 10-Q
for the quarterly period ended March 31, 1995. The number assigned to the
Exhibit above is the same as the number assigned to the Exhibit in said
quarterly report.
D Incorporated by reference to the Company's quarterly report on Form 10-Q
for the quarterly period ended June 30, 1996. The number assigned to the
Exhibit above is the same as the number assigned to the Exhibit in said
quarterly report.
E Incorporated by reference to the Company's registration statement on Form
S-8 (No. 333-07315). The number set forth herein is the number of the
Exhibit in said registration statement.
F Incorporated by reference to the Company's quarterly report on Form 10-Q
for the quarterly period ended December 31, 1996. The number assigned to
the Exhibit above is the same as the number assigned to the Exhibit in said
quarterly report.
G Incorporated by reference to the Company's quarterly report on Form 10-Q
for the quarterly period ended June 30, 1997. The number assigned to the
Exhibit above is the same as the number assigned to the Exhibit in said
quarterly report.
H Incorporated by reference to the Company's registration statement on Form
S-3 (No. 333-34487). The number assigned to each Exhibit above is the same
as the number assigned to the Exhibit in said registration statement.
50
I Incorporated by reference to the Company's current report on Form 8-K filed
on August 7, 19971997.
J Incorporated by reference to the Company's registration statement on Form
S-8 (No. 333-22717). The number assigned to each Exhibit above is the same
as the number assigned to the Exhibit in said registration statement.
K Incorporated by reference to the Company's registration statement on Form
S-8 (No. 333-07313). The number assigned to each Exhibit above is the same
as the number assigned to the Exhibit in said registration statement.
L Incorporated by reference to the Company's current report on Form 8-K filed
on October 15, 1998.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,
as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, which documents are hereby incorporated
by reference.
(b) REPORTS ON FORM 8-K
- ---------------------------
The Company filed a Current Report-------------------------
There were no reports on Form 8-K on August 7, 1997 relating to a
Shareholders' Rights Agreement.
17filed during the fiscal year ended September
30, 1998.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BROOKS AUTOMATION, INC.
Date: December 18, 199729, 1998 By: /s/ Robert J. Therrien
---------------------------------
Robert J. Therrien, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- -----
/s/ Robert J. Therrien Director and President (Principal December 18, 1997
- -------------------------------------- Executive Officer)
Robert J. Therrien
/s/ Stanley D. Piekos Chief Financial Officer (Principal December 18, 1997
- -------------------------------------- Financial and Accounting Officer)
Stanley D. Piekos
/s/ Deborah D. Fox Controller (Principal Accounting December 18, 1997
- -------------------------------------- Officer)
Deborah D. Fox
/s/ Norman B. Brooks Director December 18, 1997
- --------------------------------------
Norman B. Brooks
/s/ Roger D. Emerick Director December 18, 1997
- --------------------------------------
Robert D. Emerick
/s/ Amin J. Khoury Director December 18, 1997
- --------------------------------------
Amin J. Khoury
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BROOKS AUTOMATION, INC.
Date: December 18, 1997 By:
--------------------------------------------------------------
Robert J. Therrien, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
- ---------------------------------------/s/ Robert J. Therrien Director and President (Principal December 18, 199729, 1998
- ---------------------------------- Executive Officer)
Robert J. Therrien
Executive Officer)/s/ Ellen B. Richstone Senior Vice President December 29, 1998
- ------------------------------------------------------------------------- and Chief Financial Officer
Ellen B. Richstone (Principal December 18, 1997
Stanley D. Piekos Financial and Accounting Officer)
- --------------------------------------- Controller (Principal Accounting December 18, 1997/s/ Deborah D. Fox Officer)Principal Accounting Officer December 29, 1998
- --------------------------------------- Director December 18, 1997----------------------------------
Deborah D. Fox
/s/ Roger D. Emerick - --------------------------------------- Director December 18, 199729, 1998
- ----------------------------------
Roger D. Emerick
/s/ Amin J. Khoury
- --------------------------------------- Director December 18, 1997
Norman B. Brooks29, 1998
- ----------------------------------
Amin J. Khoury
1952