Azenta 10Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended: June 30, 2006


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

For the transition period from to

Commission File Number0-25434

BROOKS AUTOMATION, INC.

(Exact name of registrant as specified in its charter)


Delaware		04-3040660

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

15 Elizabeth Drive
Chelmsford, Massachusetts

(Address of principal executive offices)
01824

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

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.

Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filerþ Accelerated Filero Non-Accelerated Filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yesþ No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEDINGS DURING THE
PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

o Yeso No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date, August 2, 2006:


Common stock, $0.01 par value		75,353,699 shares

BROOKS AUTOMATION, INC.

INDEX


	PAGE NUMBER
PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2006 (unaudited) and September 30, 2005, as restated		3
Consolidated Statements of Operations for the three and nine months ended June 30, 2006 and 2005, as restated (unaudited)		4
Consolidated Statements of Cash Flows for the nine months ended June 30, 2006 and 2005, as restated (unaudited)		5
Notes to Consolidated Financial Statements, as restated (unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3. Quantitative and Qualitative Disclosures about Market Risk		31
Item 4. Controls and Procedures		32

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		32
Item 1A. Risk Factors		34
Item 6. Exhibits		42
Signatures		44
EX-10.1 DEFERRED COMPENSATION PLAN, AS AMENDED
EX-10.2 SHAREHOLDERS' AGREEMENT
EX-10.3 AGREEMENT AND PLAN OF MERGER
EX-10.4 U.S. ROBOT SUPPLY AGREEMENT
EX-10.5 BROOKS JAPAN ROBOT SUPPLY AGREEMENT
EX-31.01 SECTION 302 CERTIFICATION OF THE C.E.O.
EX-31.02 SECTION 302 CERTIFICATION OF THE C.F.O.
EX-32 SECTION 906 CERTIFICATION OF C.E.O & C.F.O.

BROOKS AUTOMATION, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(In thousands, except share and per share data)


	June 30,			September 30,
	2006			2005
				(as restated)
Assets
Current assets
Cash and cash equivalents	$	117,837		$	202,462
Marketable securities		217,377			121,561
Accounts receivable, net		120,839			77,555
Inventories		93,402			48,434
Current assets from discontinued operations		—			55
Prepaid expenses and other current assets		25,642			18,259

Total current assets		575,097			468,326

Property, plant and equipment, net		74,996			54,165
Long-term marketable securities		7,137			32,935
Goodwill		354,425			62,094
Intangible assets, net		93,875			3,828
Other assets		26,079			2,732


Total assets	$	1,131,609		$	624,080

Liabilities, minority interests and stockholders’ equity
Current liabilities
Current portion of long-term debt	$	16		$	12
Short-term debt		175,000			175,000
Accounts payable		50,206			30,820
Deferred revenue		29,821			22,143
Accrued warranty and retrofit costs		10,902			9,782
Accrued compensation and benefits		23,607			15,886
Accrued restructuring costs		8,954			12,171
Accrued taxes payable		17,384			17,331
Current liabilities from discontinued operations		35			399
Accrued expenses and other current liabilities		23,406			16,551

Total current liabilities		339,331			300,095

Long-term debt		8			2
Accrued long-term restructuring		9,768			10,959
Other long-term liabilities		3,555			2,129

Total liabilities		352,662			313,185


Contingencies (Note 14)
Minority interests		—			1,060


Stockholders’ equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.01 par value, 125,000,000 shares authorized, 75,398,699 and 45,434,709 shares issued and outstanding at June 30, 2006 and September 30, 2005, respectively		754			454
Additional paid-in capital		1,759,677			1,307,145
Deferred compensation		—			(3,493	)
Accumulated other comprehensive income		14,931			11,958
Accumulated deficit		(996,415	)		(1,006,229	)

Total stockholders’ equity		778,947			309,835

Total liabilities, minority interests and stockholders’ equity	$	1,131,609		$	624,080

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

BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(In thousands, except per share data)


	Three months ended						Nine months ended
	June 30,						June 30,
	2006			2005			2006			2005
				(as restated)						(as restated)
Revenues
Product	$	138,283		$	82,647		$	353,462		$	264,251
Services		47,912			31,113			129,085			96,196

Total revenues		186,195			113,760			482,547			360,447

Cost of revenues
Product		86,295			58,339			243,011			187,092
Services		28,417			15,898			71,379			49,449

Total cost of revenues		114,712			74,237			314,390			236,541

Gross profit		71,483			39,523			168,157			123,906

Operating expenses
Research and development		18,186			16,071			51,619			48,417
Selling, general and administrative		36,277			20,699			100,942			62,143
Restructuring and acquisition-related charges		776			928			4,741			9,487

Total operating expenses		55,239			37,698			157,302			120,047

Income from continuing operations		16,244			1,825			10,855			3,859
Interest income		4,204			2,267			11,302			6,463
Interest expense		2,420			2,357			7,166			7,109
Other (income) expense, net		(74	)		(640	)		2,711			(706	)

Income from continuing operations before income taxes and minority interests		18,102			2,375			12,280			3,919
Income tax provision		1,260			1,251			3,602			4,265

Income (loss) from continuing operations before minority interests		16,842			1,124			8,678			(346	)
Minority interests in income (loss) of consolidated subsidiaries		(316	)		(136	)		(1,082	)		72

Income (loss) from continuing operations		17,158			1,260			9,760			(418	)
Income (loss) from discontinued operations, net of income taxes		4			(357	)		54			(3,554	)

Net income (loss)	$	17,162		$	903		$	9,814		$	(3,972	)


Basic income (loss) per share from continuing operations	$	0.23		$	0.03		$	0.14		$	(0.01	)
Basic income (loss) per share from discontinued operations		0.00			(0.01	)		0.00			(0.08	)

Basic net income (loss) per share	$	0.23		$	0.02		$	0.14		$	(0.09	)


Diluted income (loss) per share from continuing operations	$	0.23		$	0.03		$	0.14		$	(0.01	)
Diluted income (loss) per share from discontinued operations		0.00			(0.01	)		0.00			(0.08	)

Diluted net income (loss) per share	$	0.23		$	0.02		$	0.14		$	(0.09	)


Shares used in computing income (loss) per share
Basic		74,427			44,999			71,597			45,102
Diluted		74,566			45,269			71,792			45,102

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

BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)


	Nine months ended
	June 30,
	2006			2005
				(as restated)
Cash flows from operating activities
Net income (loss)	$	9,814		$	(3,972	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		22,795			11,378
Stock-based compensation		6,190			3,213
Discount on marketable securities		(2,856	)		—
Amortization of debt issuance costs		629			629
Undistributed earnings of joint venture		(742	)		—
Minority interests		(1,082	)		72
Loss on disposal of long-lived assets		287			1,228
Changes in operating assets and liabilities, net of acquired assets and liabilities:
Accounts receivable		(14,257	)		35,047
Inventories		4,373			14,724
Prepaid expenses and other current assets		(6,109	)		(1,990	)
Accounts payable		6,822			(8,139	)
Deferred revenue		7,441			(3,272	)
Accrued warranty and retrofit costs		(344	)		(939	)
Accrued compensation and benefits		5,479			(10,748	)
Accrued restructuring costs		(8,168	)		135
Accrued expenses and other current liabilities		(4,206	)		(12,442	)

Net cash provided by operating activities		26,066			24,924

Cash flows from investing activities
Purchases of property, plant and equipment		(10,976	)		(8,503	)
Acquisition of Helix Technology, cash acquired		8,805			—
Acquisition of Synetics Solutions, net of cash acquired		(46,014	)		—
Purchases of marketable securities		(837,012	)		(380,464	)
Sale/maturity of marketable securities		771,438			329,057

Net cash used in investing activities		(113,759	)		(59,910	)

Cash flows from financing activities
Payments of long-term debt and capital lease obligations		(4	)		(8	)
Proceeds from issuance of common stock, net of issuance costs		2,354			3,671

Net cash provided by financing activities		2,350			3,663

Effects of exchange rate changes on cash and cash equivalents		718			838

Net decrease in cash and cash equivalents		(84,625	)		(30,485	)
Cash and cash equivalents, beginning of period		202,462			193,281

Cash and cash equivalents, end of period	$	117,837		$	162,796


Supplemental cash flow information
Non-cash transactions:
Acquisition of Helix Technology, net of transaction costs	$	447,949		$	—

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

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Basis of Presentation

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

Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted and, accordingly, the accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K/A, filed with the United States Securities and Exchange Commission for the year ended September 30, 2005. Certain reclassifications have been made in the prior period consolidated financial statements to conform to the current presentation.

Recently Enacted Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements” (“SFAS 154”). SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The provisions of this Statement are effective for accounting changes and corrections of errors made in fiscal periods beginning after December 15, 2005.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The guidance will become effective as of the beginning of the Company’s fiscal year beginning after December 15, 2006. We are currently evaluating the potential impact of FIN No. 48 on our financial position and results of operations.

2.Restatement of Previously Issued Financial Statements

On May 10, 2006, the Company’s Board of Directors concluded that the Company’s consolidated financial statements for the years ended September 30, 2005, 2004 and 2003 as well as the selected financial data for the years ended September 30, 2002 and 2001 should be restated to record additional non-cash stock-based compensation expense resulting from stock options granted during fiscal years 1996 to 2005 that were incorrectly accounted for under generally accepted accounting principles (“GAAP”). The Company’s decision to restate its financial statements was based on the facts obtained by management and an independent investigation into its stock option accounting that was conducted under the direction of a special committee (“Special Committee”) of the Board of Directors. The Board created the Special Committee, which was composed solely of independent directors, to conduct a review of matters related to past stock option grants (including the timing of such grants and associated documentation) after receiving inquiries regarding the timing of certain stock option grants. Separately, the Company’s management also reviewed stock option grants from 1995 through the second quarter of fiscal 2006 to determine whether any material accounting errors had occurred with respect to stock option grants.

The Company has concluded that there were material accounting errors with respect to a number of stock option grants. In general, these stock options were granted with an exercise price equal to the Nasdaq closing market price for the Company’s common stock on the date set forth on written consents signed by one or more directors. The Company used the stated date of these consents as the “measurement date” for the purpose of accounting for them under GAAP, and as a result recorded no compensation expense in connection with the grants.

The Company has concluded that a number of written consents were not fully executed or effective on the date set forth on the consents and thus that using the stated date as the measurement date was incorrect. The Company has determined a revised measurement date for each stock option grant based on the information now available to the Company. Generally, the changes in measurement dates are due to two kinds of errors: (1) the Company treated unanimous written consents of directors approving stock option grants as effective on the date stated on the consent, instead of the date upon which the Company received the consent form containing the last signature required for unanimity; and (2) the Company treated option grants to multiple employees as effective prior to the date upon which the Company had determined the exact number of options that would be granted to each individual employee. In cases where the closing market price on the revised measurement date exceeded the Nasdaq closing market price on the

original measurement date, the Company has recognized compensation expense equal to this excess over the vesting term of each option.

The Company has determined that the cumulative, pre-tax, non-cash, stock-based compensation expense resulting from revised measurement dates was approximately $58.7 million during the period from the Company’s initial public offering in 1996 through September 30, 2005. The corrections made in the restatement relate to options covering approximately 6.0 million shares. In the restatement, the Company recorded stock-based compensation expense of $1.6 million, $3.1 million and $17.3 million for the years ended September 30, 2005, 2004 and 2003, respectively, and $36.7 million prior to fiscal 2003. In addition, the Company recorded an income tax benefit of $1.8 million prior to fiscal 2003. The cumulative effect of the restatement adjustments on the Company’s consolidated balance sheet at September 30, 2005 was an increase in additional paid-in capital offset by a corresponding increase in the accumulated deficit and deferred compensation which results in no net effect on stockholders’ equity. Approximately 99% of the charges relating to revised measurement dates arose from incorrect measurement dates for stock options granted during fiscal years 1996 through 2002. Subsequent to fiscal 2002 and prior to the inception of the investigation, the Company had revised its stock option and restricted stock grant practices. Neither the Company nor the Special Committee concluded that anyone now affiliated with the Company was complicit in any intentional wrongdoing. The Company and the Special Committee were unable to conclude that the accounting errors relating to revised measurement dates for stock option grants were the result of intentional misconduct of any company personnel. There was no impact on revenue or net cash provided by operating activities as a result of this compensation expense.

In addition to the compensation expenses described above, the Company also recorded approximately $5.8 million of non-cash, stock-based compensation expense in connection with a stock option held by former CEO Robert J. Therrien that the Company has concluded he was permitted to exercise in November 1999 despite its expiration in August of 1999. This transaction was previously accounted for and disclosed as a loan by the Company to Mr. Therrien for the purpose of permitting him to exercise the option. Specifically, in November 1999, three directors of the Company (including Mr. Therrien) signed a ratification document pursuant to which Mr. Therrien was deemed to have been granted a loan as of August 1999. According to the document, in June 1999 the Company’s directors (Messrs. Khoury, Emerick and Therrien) discussed extending a loan to Mr. Therrien for the purpose of permitting him to exercise an option to purchase 225,000 shares of the Company’s stock prior to its expiration in August 1999. Based on the document, the Company in November 1999 deemed Mr. Therrien to have timely exercised the options, and accounted for the exercise without recognizing compensation expense. As a result of facts obtained by the Special Committee, the Company determined that Mr. Therrien misrepresented the facts of the loan and the ratification document described above was false as there were no discussions concerning a loan in June 1999. As a result, the Company has determined that the option expired in August 1999 and that compensation expense should have been recorded in connection with Mr. Therrien’s purchase of stock in November 1999. At that time, Mr. Therrien paid approximately $560,000 (the exercise price of $2.43 per share, plus interest deemed due on the loan) for 225,000 shares then worth approximately $6,314,000 (or $28.06 per share). In the restatement, the Company has recognized compensation expense in November 1999 equal to the difference between the price paid by Mr. Therrien and the market value of the stock on the date of sale. The three directors including Mr. Therrien are no longer affiliated with the Company.

As a result, the Company recorded in the restatement cumulative, non-cash pre-tax stock-based compensation expense of approximately $64.5 million and a tax benefit of $1.8 million as of September 30, 2005, including approximately $23,000 and $1.5 million for the three and nine months ended June 30, 2005, respectively. Principally as a result of losses incurred, the Company recorded a full valuation allowance against all deferred tax assets beginning in 2002 and consequently, there is no tax effect of the additional stock-based compensation expense recorded in the years ended September 30, 2005, 2004 and 2003.

The following tables set forth the effects of the restatement on certain line items within the Company’s consolidated statements of operations for the three and nine months ended June 30, 2005 and the consolidated balance sheet as of September 30, 2005 (in thousands):


	Three months		Nine months
	ended		ended
	June 30,		June 30,
	2005		2005
Cost of revenues product
As previously reported	$	58,334	$	186,903
As restated	$	58,339	$	187,092
Cost of revenues services
As previously reported	$	15,891	$	49,280
As restated	$	15,898	$	49,449
Gross profit
As previously reported	$	39,535	$	124,264
As restated	$	39,523	$	123,906
Research and development
As previously reported	$	16,069	$	48,075
As restated	$	16,071	$	48,417
Selling, general and administrative
As previously reported	$	20,690	$	61,312
As restated	$	20,699	$	62,143
Income (loss) from continuing operations
As previously reported	$	1,283	$	1,113
As restated	$	1,260	$	(418	)
Net income (loss)
As previously reported	$	926	$	(2,441	)
As restated	$	903	$	(3,972	)
Basic and diluted net income (loss) per share
As previously reported	$	0.02	$	(0.05	)
As restated	$	0.02	$	(0.09	)


(1)		The amounts previously reported reflect certain reclassifications made in the Company’s financial statements.


	As of
	September 30, 2005
Additional paid-in capital
As previously reported	$	1,244,184
As restated	$	1,307,145
Accumulated deficit
As previously reported	$	(943,470	)
As restated	$	(1,006,229	)
Deferred compensation
As previously reported	$	(3,291	)
As restated	$	(3,493	)

Fair Value Disclosures — Prior to SFAS 123R Adoption

The following table provides supplemental information for the three and nine months ended June 30, 2005 as if stock-based compensation had been computed under SFAS 123 and gives effect to the restatement on the Company’s pro forma calculation of its net loss per share for the three and nine months ended June 30, 2005 (in thousands, except per share data):


	Three months ended						Nine months ended
	June 30,						June 30,
	2005			2005			2005			2005
	(as previously						(as previously
	reported)			(as restated)			reported)			(as restated)
Net income (loss):

As reported	$	926		$	903		$	(2,441	)	$	(3,972	)
Add stock-based employee compensation expense included in reported net income (loss)		429			452			1,054			2,585
Deduct pro forma stock-based compensation expense		1,635			1,659			30,897			22,611

Pro forma net loss	$	(280	)	$	(304	)	$	(32,284	)	$	(23,998	)

Basic and diluted net income (loss) per share:
As reported	$	0.02		$	0.02		$	(0.05	)	$	(0.09	)
Pro forma	$	(0.01	)	$	(0.01	)	$	(0.72	)	$	(0.54	)

3. Stock Based Compensation

Effect of Adoption of SFAS 123R, Share-Based Payment

Prior to October 1, 2005, the Company’s employee stock compensation plans were accounted for in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. Under this method, no compensation expense was recognized as long as the exercise price equaled or exceeded the market price of the underlying stock on the date of the grant. The Company elected the disclosure-only alternative permitted under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS 148”), for fixed stock-based awards to employees.

On December 23, 2004, the Company accelerated the vesting of certain unvested stock options awarded to employees, officers and other eligible participants under the Company’s various stock option plans, other than its 1993 Non-Employee Director Stock Option Plan. As such, the Company fully vested options to purchase 1,229,239 shares of the Company’s common stock with exercise prices greater than or equal to $24.00 per share. The acceleration of the vesting of these options resulted in a charge based on generally accepted accounting principles of approximately $1.0 million. For pro forma disclosure requirements under SFAS 123, the Company recognized $25.0 million of stock-based compensation for all options whose vesting was accelerated.

As of October 1, 2005, the Company adopted SFAS 123R using the modified prospective method, which requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of restricted stock is determined based on the number of shares granted and the excess of the quoted price of the Company’s common stock over the exercise price of the restricted stock, and the fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with our valuation techniques previously utilized for options in footnote disclosures required under SFAS 123, as amended by SFAS 148. Such value is recognized as expense over the service period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires significant judgment. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates, may differ substantially from our current estimates. Prior periods have not been restated to incorporate the stock-based compensation charge.

The following table reflects compensation expense recorded during the three and nine months ended June 30, 2006 in accordance with SFAS 123R (in thousands):


	Three months ended		Nine months ended
	June 30, 2006		June 30, 2006
Stock options	$	880	$	3,422
Restricted stock		950		2,145
Employee stock purchase plan		248		623

	$	2,078	$	6,190

Valuation Assumptions for Stock Options and Employee Stock Purchase Plans

For the three months ended June 30, 2005, 62,500 stock options were granted. No stock options were granted during the three months ended June 30, 2006. For the nine months ended June 30, 2006 and 2005, 217,000 and 533,250 stock options were granted, respectively. The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:


	Three months ended					Nine months ended
	June 30,					June 30,
	2006		2005			2006			2005
Risk-free interest rate		n/a		3.8	%		4.4	%		3.4	%
Volatility		n/a		46	%		55	%		51	%
Expected life (years)		n/a		4.0			4.9			4.0
Dividend yield		n/a		0	%		0	%		0	%

The fair value of shares issued under the employee stock purchase plan was estimated on the commencement date of each offering period using the Black-Scholes option-pricing model with the following assumptions:


	Three months ended						Nine months ended
	June 30,						June 30,
	2006			2005			2006			2005
Risk-free interest rate		4.6	%		2.8	%		4.3	%		2.5	%
Volatility		42	%		37	%		37	%		42	%
Expected life		6 months			6 months			6 months			6 months
Dividend yield		0	%		0	%		0	%		0	%

Expected volatilities are based on historical volatilities of our common stock; the expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and our historical exercise patterns; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

Equity Incentive Plans

The Company’s equity incentive plans are intended to attract and retain employees and to provide an incentive for them to assist the Company to achieve long-range performance goals and to enable them to participate in the long-term growth of the Company. The equity incentive plans consist of plans under which employees may be granted options to purchase shares of the Company’s stock, restricted stock and other equity incentives. Under the equity incentive plans, stock options generally have a vesting period of 4 years and are exercisable for a period not to exceed 7 years from the date of issuance. Restricted stock awards generally vest over two to four years. At June 30, 2006, a total of 5,656,256 shares were reserved and available for the issuance of stock and restricted stock, which reflects an increase of 3,000,000 shares approved by the shareholders in March 2006.

Stock Option Activity

The following table summarizes stock option activity for the nine months ended June 30, 2006:


	Number of			Weighted Average
	Options			Exercise Price
Outstanding at September 30, 2005		5,205,354		$	23.92
Granted		217,000			12.82
Assumed from Helix Technology acquisition		765,480			16.42
Exercised		(106,886	)		10.69
Forfeited/expired		(1,139,514	)		28.51

Outstanding at June 30, 2006		4,941,434		$	21.48
Options exercisable at June 30, 2006		3,990,897		$	23.02

The options outstanding and exercisable at June 30, 2006 were in the following exercise price ranges:


	Options Outstanding								Options Exercisable
			Weighted-
			Average
			Remaining				Aggregate						Aggregate
			Contractual		Weighted-		Intrinsic				Weighted-		Intrinsic
Range of			Life		Average		Value (in				Average		Value (in
Exercise Prices	Shares		(Years)		Exercise Price		Thousands)		Shares		Exercise Price		Thousands)
$ 3.62 - $ 11.80		582,195		4.40	$	9.77	$	1,182		461,623	$	9.77	$	936
$ 11.83 - $ 12.97		456,078		4.96	$	12.72	$	—		208,794	$	12.75	$
$ 13.04 - $ 17.22		743,543		5.55	$	15.96	$	—		294,575	$	16.12	$	—
$ 17.34 - $ 23.75		556,236		4.12	$	20.43	$	—		433,887	$	20.34	$	—
$ 24.02 - $ 24.02		1,000		5.28	$	24.02	$	—		1,000	$	24.02	$	—
$ 24.30 - $ 24.30		1,372,004		3.39	$	24.30	$	—		1,360,640	$	24.30	$	—
$ 24.78 - $ 26.10		498,845		2.62	$	25.21	$	—		498,845	$	25.21	$	—
$ 27.06 - $ 39.75		663,425		1.68	$	33.37	$	—		663,425	$	33.37	$	—
$ 39.96 - $108.41		67,848		2.64	$	48.63	$	—		67,848	$	48.63	$	—
$115.63 - $115.63		260		0.01	$	115.63	$	—		260	$	115.63	$	—

$ 3.62 - $115.63		4,941,434		3.74	$	21.48	$	1,182		3,990,897	$	23.02	$	936

The weighted average remaining contractual life of options exercisable at June 30, 2006 was 3.3 years.

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $11.80 as of June 30, 2006, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of June 30, 2006 was 461,623.

The weighted average grant date fair value of options, as determined under SFAS No. 123R, granted during the three months ended June 30, 2005 was $6.00 per share. No stock options were granted during the three months ended June 30, 2006. The weighted average grant date fair value of options granted during the nine months ended June 30, 2006 and 2005 was $6.82 and $7.21 per share, respectively. The total intrinsic value of options exercised during the three month period ended June 30, 2006 and 2005 was $28,000 and $121,000, respectively. The total intrinsic value of options exercised during the nine month period ended June 30, 2006 and 2005 was $200,000 and $644,000, respectively. The total cash received from employees as a result of employee stock option exercises during the three months ended June 30, 2006 and 2005 was $74,000 and $341,000, respectively. The total cash received from employees as a result of employee stock option exercises during the nine months ended June 30, 2006 and 2005, was $1,143,000 and $2,092,000, respectively.

As of June 30, 2006 future compensation cost related to nonvested stock options is approximately $7.3 million and will be recognized over an estimated weighted average period of 2.4 years.

The Company settles employee stock option exercises with newly issued common shares.

Restricted Stock Activity

Restricted stock for the nine months ended ended June 30, 2006 was determined using the fair value method. A summary of the status of the Company’s restricted stock as of June 30, 2006 and changes during the nine months ended June 30, 2006 is as follows:


	Nine months ended
	June 30, 2006
				Weighted
				Average
				Grant-Date
	Shares			Fair Value
Outstanding at beginning of period		288,000		$	16.40
Awards granted		816,500			13.16
Awards vested		(91,750	)		16.09
Awards canceled		(24,500	)		13.50

Outstanding at end of period		988,250		$	13.84

The fair value of restricted stock awards vested during the three and nine months ended June 30, 2006 was $0.2 million and $1.5 million, respectively.

As of June 30, 2006, the unrecognized compensation cost related to nonvested restricted stock is $9.5 million and will be recognized over an estimated weighted average amortization period of 3.2 years.

Employee Stock Purchase Plan

The Company’s employee stock purchase plan enables eligible employees to purchase shares of the Company’s common stock. Under this plan, eligible employees may purchase shares during six-month offering periods commencing on February 1 and August 1 of each year at a price per share of 85% of the lower of the fair market value 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 their base pay withheld and applied toward the purchase of such shares. The rights of participating employees under this plan terminate upon voluntary withdrawal from the plan at any time or upon termination of employment. The compensation expense in connection with the plan for the three and nine months ended June 30, 2006 was $248,000 and $623,000, respectively. There were no shares purchased under the employee stock purchase plan during the three months ended June 30, 2006. There were 86,046 shares purchased under the employee stock purchase plan during the nine months ended June 30, 2006. At June 30, 2006, a total of 1,572,413 shares were reserved and available for issuance under this plan, which reflects an increase of 750,000 shares approved by the shareholders in March 2006.

4. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill by segment for the nine months ended June 30, 2006 is as follows (in thousands):


	Hardware		Software		Total
Balance at September 30, 2005	$	25,020	$	37,074	$	62,094
Adjustments to goodwill:
Acquisition of Helix Technology		278,019		—		278,019
Acquisition of Synetics Solutions		14,194		—		14,194
Foreign currency translation		—		118		118

Balance at June 30, 2006	$	317,233	$	37,192	$	354,425

Components of the Company’s identifiable intangible assets are as follows (in thousands):


	June 30, 2006						September 30, 2005
			Accumulated		Net book				Accumulated		Net book
	Cost		Amortization		value		Cost		Amortization		Value
Patents	$	7,179	$	7,009	$	170	$	7,179	$	6,934	$	245
Completed technology		90,485		36,374		54,111		30,385		29,120		1,265
License agreements		305		305		—		305		305		—
Trademark and trade names		7,232		2,913		4,319		2,532		2,336		196
Non-competition agreements		1,726		1,720		6		1,726		1,716		10
Customer relationships		42,217		6,948		35,269		6,517		4,405		2,112

	$	149,144	$	55,269	$	93,875	$	48,644	$	44,816	$	3,828

Amortization expense for intangible assets was $3.5 million and $0.7 million for the three months ended June 30, 2006 and 2005, respectively, and $10.5 million and $2.4 million for the nine months ended June 30, 2006 and 2005, respectively.

5. Business Acquisitions

Helix Technology Corporation

On October 26, 2005, the Company acquired all the issued and outstanding stock of Helix Technology Corporation (“Helix”). Helix develops and manufactures vacuum technology solutions for the semiconductor, data storage, and flat panel display markets. The Company believes that the acquisition of Helix enables it to better serve its current market, increase its addressable market, reduce the volatility that both businesses have historically faced and positions the Company to enhance its financial performance. The aggregate purchase price, net of cash acquired, was approximately $458.2 million, consisting of 29.0 million shares of common stock valued at $444.6 million, the fair value of assumed Helix options of $3.3 million and transaction costs of $10.3 million. The market price used to value the Brooks’ shares issued as consideration for Helix was $15.32, which represents the average of the closing market price of Brooks common stock for the period beginning two trading days before and ending two trading days after the merger agreement was announced. The actual number of shares of Brooks common stock issued was determined based on the actual number of shares of Helix common stock outstanding immediately prior to the completion of the merger, based on an exchange ratio of 1.11 shares of Brooks common stock for each outstanding share of Helix common stock. Helix will operate in the Company’s hardware segment. This transaction qualifies as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended.

The consolidated financial statements include the results of Helix from the date of acquisition.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition based upon a third-party valuation (in millions):


Current assets	$	79.9
Property, plant and equipment		15.4
Intangible assets		83.1
Goodwill		278.0
Other assets		20.9

Total assets acquired		477.3

Current liabilities		18.0
Other liabilities		1.1

Total liabilities assumed		19.1

Total purchase price including acquisition costs	$	458.2

Of the $83.1 million of acquired intangible assets, the following table reflects the allocation of the acquired intangible assets and related estimates of useful lives (in millions):


Completed and core technology	$	55.9	6.9 years weighted average estimated useful life
Customer and contract relationships		22.5	6.9 years weighted average estimated economic consumption life
Trade names and trademarks		4.7	6 year weighted average estimated useful life

	$	83.1

Synetics Solutions, Inc.

On May 8, 2006, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Synetics Solutions Inc. (“Synetics”). Brooks completed its acquisition of Synetics from Yaskawa Electric Corporation (“Yaskawa”), a corporation duly organized and existing under the laws of Japan, through a merger that became effective as of June 30, 2006. Synetics provides customized manufactured solutions for the North American semiconductor equipment industry. Pursuant to the merger agreement, Synetics became a wholly owned subsidiary of Brooks. The aggregate purchase price of Synetics, net of cash acquired, was approximately $46.0 million, including transaction costs of $1.5 million. An additional $3.4 million related to the purchase will be paid before the end of the fiscal year. The acquisition of Synetics will provide the Company with the opportunity to enhance its existing capabilities with respect to manufacturing customer designed automation systems. Synetics will operate in the Company’s hardware segment.

Also on May 8, 2006, the Company agreed to enter into a Joint Venture Agreement (the “Agreement”) with Yaskawa to form a 50/50 joint venture called Yaskawa Brooks Automation, Inc. (“YBA”) to exclusively market and sell Yaskawa’s semiconductor robotics products and Brooks’ automation hardware products to semiconductor customers in Japan. This Agreement was executed on June 30, 2006. YBA is expected to begin operations in September 2006.

The consolidated financial statements include the balance sheet of Synetics at June 30, 2006.

The following table summarizes the preliminary unaudited estimated fair value of the assets acquired and liabilities assumed at the date of acquisition based upon a third-party valuation. As a result of the short amount of time elapsed since the acquisition, the Company is in the process of finalizing the purchase price allocation principally as it relates to the valuation of acquired tangible and intangible assets and, accordingly, the allocation of the purchase price is subject to adjustment (in millions):


Current assets	$	20.0
Property, plant and equipment		6.7
Intangible assets		17.4
Goodwill		14.2
Other assets		0.1

Total assets acquired		58.4

Current liabilities		8.3

Total purchase price including acquisition costs	$	50.1

The above purchase price has been preliminarily allocated based on estimates of the fair values of assets acquired and liabilities assumed. The purchase price allocation is expected to be completed by fiscal year end.

Of the $17.4 million of acquired intangible assets, the following table reflects the allocation of the acquired intangible assets and related estimates of useful lives (in millions):


Core technology	$	4.2	7 years weighted average estimated useful life
Customer and contract relationships		4.8	7 years weighted average estimated economic consumption life
Customer supply agreement		8.4	10 year weighted average estimated useful life

	$	17.4

Proforma Information of Acquisitions

The following unaudited proforma information gives effect to the acquisition of Helix and Synetics as if the acquisitions occurred at the beginning of the periods presented (in thousands, except per share data):


	Three months ended					Nine months ended
	June 30,					June 30,
	2006		2005			2006		2005
Revenues	$	206,713	$	168,237		$	546,001	$	516,487

Net income (loss)	$	16,931	$	(102	)	$	7,136	$	(25,152	)

Basic income (loss) per share	$	0.23	$	(0.00	)	$	0.10	$	(0.34	)

Diluted income (loss) per share	$	0.23	$	(0.00	)	$	0.10	$	(0.34	)

Proforma information above includes adjustments to reflect increased amortization expense, the write-off of the entire fair value step-up in inventory, and a full valuation allowance for deferred tax assets.

6. Property, Plant and Equipment

Property, plant and equipment as of June 30, 2006 and September 30, 2005 were as follows (in thousands):


	June 30,			September 30,
	2006			2005
Buildings and land	$	40,346		$	40,019
Computer equipment and software		67,611			62,190
Machinery and equipment		38,519			27,572
Furniture and fixtures		13,862			12,471
Leasehold improvements		22,888			16,093
Construction in progress		7,673			2,682

		190,899			161,027
Less accumulated depreciation and amortization		(115,903	)		(106,862	)

Property, plant and equipment, net	$	74,996		$	54,165

Depreciation expense was $3.8 million and $2.8 million for the three months ended June 30, 2006 and 2005, respectively, and $12.3 million and $9.0 million for the nine months ended June 30, 2006 and 2005, respectively.

7. Earnings (Loss) per Share

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


	Three months ended		Nine months ended
	June 30,		June 30,
	2006	2005	2006	2005
Weighted average common shares outstanding used in computing basic earnings (loss) per share	74,427	44,999	71,597	45,102
Dilutive common stock options and restricted stock awards	139	270	195	—

Weighted average common shares outstanding for purposes of computing diluted earnings (loss) per share	74,566	45,269	71,792	45,102

Approximately 4,527,000 options to purchase common stock and 215,000 shares of restricted stock were excluded from the computation of diluted earnings (loss) per share attributable to common stockholders for the three months ended June 30, 2006 as their effect would be anti-dilutive. The 4,527,000 options for the three months ended June 30, 2006 had an exercise price greater than the average market price of the common stock. Approximately 5,131,000 options to purchase common stock and 205,000 shares of restricted stock were excluded from the computation of diluted earnings (loss) per share attributable to common stockholders for the three months ended June 30, 2005 as their effect would be anti-dilutive. In addition, approximately 4,961,000 and 5,463,000 options to purchase common stock and 4,000 and 157,000 shares of restricted stock were excluded from the computation of diluted earnings (loss) per share attributable to common stockholders for the nine months ended June 30, 2006 and 2005, respectively, as their effect would be anti-dilutive. The 4,961,000 options for the nine months ended June 30, 2006 had an exercise price greater than the average market price of the common stock. In addition, 2,492,000 shares of common stock for the assumed conversion of the Company’s convertible debt were excluded from this calculation for all periods presented as the effect of conversion would be anti-dilutive based on a conversion price of $70.23. These options, restricted stock and conversions could, however, become dilutive in future periods.

8. Discontinued Operations

In June 2005, the Company signed definitive purchase and sale agreements to sell substantially all the assets of the Company’s Specialty Equipment and Life Sciences division (“SELS”), formerly known as IAS, which provided standard and custom automation technology and products for the semiconductor, photonics, life sciences and certain other industries. This sale was completed and all activities of SELS ceased during the fourth quarter of fiscal 2005. Effective June 2005, the Company’s consolidated financial statements and notes have been reclassified to reflect this business as a discontinued operation in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

The summary of operating results from discontinued operations is as follows (in thousands):


	Three months ended					Nine months ended
	June 30,					June 30,
	2006		2005			2006		2005
Revenues	$	4	$	9		$	59	$	613
Gross profit (loss)		4		(117	)		54		(793	)
Income (loss) from discontinued operations, net of tax		4		(357	)		54		(3,554	)

Due to the losses incurred since acquisition of the SELS division, no tax benefit is reflected for the losses incurred.

Assets and liabilities from discontinued operations are as follows (in thousands):


	June 30,		September 30,
	2006		2005
Current assets from discontinued operations	$	—	$	55
Current liabilities from discontinued operations	$	35	$	399

Current assets include accounts receivable and current liabilities include accrued restructuring costs and other current liabilities.

9. Comprehensive Income (Loss)

Comprehensive income (loss) for the Company is computed as the sum of the Company’s net income (loss), the change in the cumulative translation adjustment and the total unrealized gain (loss) on the Company’s marketable securities. The calculation of the Company’s comprehensive income (loss) for the three and nine months ended June 30, 2006 and 2005 is as follows (in thousands):


	Three months ended					Nine months ended
	June 30,					June 30,
	2006		2005			2006		2005
			(as restated)					(as restated)
Net income (loss)	$	17,162	$	903		$	9,814	$	(3,972	)
Change in cumulative translation adjustment		1,558		(1,627	)		2,493		1,115
Unrealized gain (loss) on marketable securities		52		95			480		(702	)

	$	18,772	$	(629	)	$	12,787	$	(3,559	)

10. Segment, Geographic Information and Significant Customers

The Company has two reportable segments: hardware and software. In the fourth quarter of fiscal year 2005, the Company’s equipment automation and factory automation segments were combined into the hardware segment, which reflects how management now evaluates its business. The hardware segment also includes the acquired operations of Helix from the date of acquisition. Prior year amounts have been reclassified to conform to the current year.

The hardware segment provides a wide range of wafer handling products, vacuum subsystems and wafer transport platforms for use within the semiconductor process and metrology equipment. Within the hardware segment, there are four major businesses consisting of automation hardware products, vacuum products and subsystems, the global customer service organization, and customer-designed automation systems. The automation products, historically the core products of Brooks, include wafer transfer robots and platforms, or systems that operate in either vacuum or atmospheric environments. The Company also leverages its domain knowledge and manufacturing expertise to build customer-designed automation systems, or contract automation systems, in a program designed to help customers outsource their automation. The primary customers for these solutions are manufacturers of process equipment. Additionally, the Company provides hardware directly to fabs including automated material handling systems, or AMHS, that store, transport and manage the movement of material throughout the fab. Other automation hardware products include equipment for lithography that automate the storage, inspection and transport of photomasks, or reticles. Further, the products from Helix include vacuum technology solutions such as cryogenic pumps for creating vacuum, products for measuring vacuum and thermal management products that are used in manufacturing equipment for the semiconductor, data storage and flat panel display industries. Finally, the global services offerings leverage the Helix model to provide customers with support for all our hardware offerings.

The software segment addresses the need for production management systems driven by the extensive tracking and tracing requirements of the semiconductor industry. At the core of these production systems is the manufacturing execution system (“MES”) that is primarily responsible for tracking the movement of production wafers in a fab, and managing the data and actions for every wafer, equipment, operator and other resources in the fab. These mission-critical systems provide real time information primarily to production operators, supervisors and fab managers. The Company also provides other important software applications to meet the critical requirements of the fab, such as real time dispatching and scheduling, equipment communications, advanced process control, material control using the AMHS, activity execution and control, automated maintenance management of equipment, and other applications. Customers often purchase more than one of these software products from Brooks for a single fab, often driving the need for consulting and integration services. The Company’s software products enable semiconductor manufacturers to increase their return on investment by maximizing production efficiency, and may be sold as part of an integrated solution or on a stand-alone basis. These software products and services are also used in many similar manufacturing industries as semiconductor, including flat panel display, data storage, and electronic assembly.

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

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


	Hardware		Software			Total
Three months ended June 30, 2006
Revenues
Product	$	130,876	$	7,407		$	138,283
Services		32,551		15,361			47,912

	$	163,427	$	22,768		$	186,195

Gross profit	$	55,243	$	16,240		$	71,483
Segment operating income	$	15,810	$	2,369		$	18,179

Three months ended June 30, 2005 (as restated)
Revenues
Product	$	76,657	$	5,990		$	82,647
Services		14,666		16,447			31,113

	$	91,323	$	22,437		$	113,760

Gross profit	$	24,648	$	14,875		$	39,523
Segment operating income (loss)	$	3,447	$	(537	)	$	2,940

Nine months ended June 30, 2006
Revenues
Product	$	336,046	$	17,416		$	353,462
Services		84,648		44,437			129,085

	$	420,694	$	61,853		$	482,547

Gross profit	$	126,589	$	41,568		$	168,157
Segment operating income (loss)	$	18,506	$	289		$	18,795

Nine months ended June 30, 2005 (as restated)
Revenues
Product	$	239,932	$	24,319		$	264,251
Services		46,281		49,915			96,196

	$	286,213	$	74,234		$	360,447

Gross profit	$	75,347	$	48,559		$	123,906
Segment operating income	$	10,682	$	3,280		$	13,962

Assets
June 30, 2006	$	315,095	$	25,863		$	340,958
September 30, 2005	$	237,676	$	54,675		$	292,351

Gross profit for the hardware business segment includes an $11.2 million charge to write-off the step-up in inventory from the acquisition of Helix for the nine months ended June 30, 2006 and a $2.2 and $5.8 million charge for the amortization of completed technology acquired in the Helix acquisition for the three and nine months ended June 30, 2006, respectively.

A reconciliation of the Company’s reportable segment operating income to the corresponding consolidated amounts for the three and nine month periods ended June 30, 2006 and 2005 is as follows (in thousands):


	Three months ended				Nine months ended
	June 30,				June 30,
	2006		2005		2006		2005
			(as restated)				(as restated)
Segment operating income	$	18,179	$	2,940	$	18,795	$	13,962
Amortization of acquired intangible assets		1,159		187		3,199		616
Restructuring and acquisition-related charges		776		928		4,741		9,487

Total operating income	$	16,244	$	1,825	$	10,855	$	3,859

A reconciliation of the Company’s reportable segment assets to the corresponding consolidated amounts as of June 30, 2006 and September 30, 2005 is as follows (in thousands):


	June 30,		September 30,
	2006		2005
Segment assets	$	340,958	$	292,351
Assets from discontinued operations		—		55
Goodwill		354,425		62,094
Intangible assets		93,875		3,828
Investments in marketable securities and cash equivalents		342,351		265,752

Total assets	$	1,131,609	$	624,080

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


	Three months ended				Nine months ended
	June 30,				June 30,
	2006		2005		2006		2005
North America	$	112,989	$	57,823	$	283,564	$	189,375
Asia/Pacific		40,445		37,293		113,255		104,442
Europe		32,761		18,644		85,728		66,630

	$	186,195	$	113,760	$	482,547	$	360,447

The Company had one customer that accounted for more than 10% of revenues in the three months ended June 30, 2006 and no customers that accounted for more than 10% of revenues in the nine months ended June 30, 2006. The Company had no customers that accounted for more than 10% of revenues in the three and nine months ended June 30, 2005. The Company had one customer that accounted for more than 10% of accounts receivable at June 30, 2006 and September 30, 2005.

11. Restructuring and Acquisition-Related Charges and Accruals

Based on estimates of its near term future revenues and operating costs, and the integration of Helix, the Company announced in fiscal 2006 plans to take additional cost reduction actions. Charges of $0.8 million were recorded for these actions in the third quarter of fiscal 2006. This charge consists of $0.5 million associated with termination of approximately 12 legacy Brooks employees worldwide in sales, service and administrative functions, whose positions were made redundant as a result of the Helix acquisition and further downsizing in the Company’s software segment along with $0.4 million for retention bonuses earned in the period by employees who have been notified of their termination offset by the reversal of $0.1 million for previously accrued termination costs to employees who will no longer be terminated or whose termination was settled at a reduced cost.

The Company has recorded a total charge to operations of $4.7 million in the nine months ended June 30, 2006. This charge consists of $1.6 million related to a vacant facility in Billerica, Massachusetts, $1.9 million associated with termination of approximately 41 legacy Brooks employees worldwide in sales, service and administrative functions, whose positions were made redundant as a result of the Helix acquisition, and further downsizing in our software segment along with a $1.8 million for retention bonuses earned in the period by employees who have been notified of their termination, offset by the $0.6 million reversal of previously accrued termination costs to employees who will no longer be terminated. The accruals for workforce reductions are expected to be paid over the next twelve months.

We recorded charges to operations of $1.0 million for the three month period ended June 30, 2005, of which $0.1 million related to discontinued operations related to workforce reductions in the United States and Europe. We recorded charges to operations of $10.4 million for the nine month period ended June 30, 2005, of which $0.9 million related to discontinued operations. The total charge of $10.4 million consisted of $9.4 million related to workforce reductions and $1.0 million related to previously abandoned facilities.

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

The activity for the three and nine months ended June 30, 2006 and 2005 related to the Company’s restructuring and acquisition-related accruals is summarized below (in thousands):


	Activity – Three Months Ended June 30, 2006
	Balance												Balance
	March 31,												June 30,
	2006		Expense		Helix Acquisition		Reversals			Utilization			2006
Facilities	$	15,225	$	—	$	—	$	—		$	(831	)	$	14,394
Workforce-related		5,759		845		719		(69	)		(2,926	)		4,328

	$	20,984	$	845	$	719	$	(69	)	$	(3,757	)	$	18,722


	Activity – Three Months Ended June 30, 2005
	Balance											Balance
	March 31,											June 30,
	2005		Expense		Adjustments		Reversals		Utilization			2005
Facilities	$	16,035	$	—	$	—	$	—	$	(1,465	)	$	14,570
Workforce-related		6,249		1,019		—		—		(1,490	)		5,778

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


	Activity – Nine Months Ended June 30, 2006
	Balance												Balance
	September 30,												June 30,
	2005		Expense		Helix Acquisition		Reversals			Utilization			2006
Facilities	$	15,045	$	1,600	$	580	$	—		$	(2,831	)	$	14,394
Workforce-related		8,429		3,696		2,785		(555	)		(10,027	)		4,328

	$	23,474	$	5,296	$	3,365	$	(555	)	$	(12,858	)	$	18,722


	Activity – Nine Months Ended June 30, 2005
	Balance											Balance
	September 30,											June 30,
	2004		Expense		Adjustments		Reversals		Utilization			2005
Facilities	$	17,730	$	1,026	$	—	$	—	$	(4,186	)	$	14,570
Workforce-related		2,460		9,344		—		—		(6,026	)		5,778

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

Workforce related charges include $91,000 and $883,000 for the three and nine months ended June 30, 2005, respectively, related to discontinued operations.

The Company expects the majority of the remaining severance costs totaling $4.3 million will be paid over the next twelve months. The expected facilities costs, totaling $14.4 million, net of estimated sub-rental income, will be paid on leases that expire through September 2011.

12. Employee Benefit Plans

The components of the Company’s net pension cost relating to a noncontributory defined benefit pension plan acquired with the Helix acquisition for the three and nine months ended June 30, 2006 is as follows (in thousands):


	Three months ended			Nine months ended
	June 30, 2006			June 30, 2006
Service cost	$	468		$	1,273
Interest cost		220			600
Expected return on assets		(253	)		(688	)

Net periodic pension cost	$	435		$	1,185

In conjunction with the acquisition of Helix, the Company closed the defined benefit pension plan to new hires and approved the decision to freeze the plan such that no further benefits would accrue after October 31, 2006. The impact of this decision has been reflected in the purchase price allocation described in Note 5.

The Company contributed $3.0 million to the pension plan in April 2006 to meet certain funding targets.

13. Other Balance Sheet Information

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


	June 30,		September 30,
	2006		2005
Accounts receivable	$	122,952	$	80,352
Less allowances		2,113		2,797

	$	120,839	$	77,555

Inventories
Raw materials and purchased parts	$	47,549	$	24,612
Work-in-process		25,983		12,043
Finished goods		19,870		11,779

	$	93,402	$	48,434

The Company provides for the estimated cost of product warranties, primarily from historical information, at the time product revenue is recognized. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, utilization levels, material usage, service delivery costs incurred in correcting a product failure, and supplier warranties on parts delivered to the Company. Product warranty and retrofit activity on a gross basis for three and nine months ended June 30, 2006 and 2005 is as follows (in thousands):


Activity – Three Months Ended June 30, 2006
Balance						Balance
March 31,						June 30,
2006	Accruals		Settlements			2006
$ 10,741	$	3,401	$	(3,240	)	$	10,902


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


Activity – Nine Months Ended June 30, 2006
Balance						Balance
September 30,						June 30,
2005	Accruals		Settlements			2006
$ 9,782	$	9,199	$	(8,079	)	$	10,902


Activity – Nine Months Ended June 30, 2005
Balance						Balance
September 30,						June 30,
2004	Accruals		Settlements			2005
$ 11,946	$	3,325	$	(4,066	)	$	11,205

The accrual of $9,199,000 for the nine months ended June 30, 2006 includes the acquired warranty liability of $1,262,000 and $309,000 from Helix and Synetics, respectively. The accrual of $3,401,000 for the three months ended June 30, 2006 includes the acquired warranty liability of $309,000 from Synetics at date of acquisition.

14. Contingencies

There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor and related industries. 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. The Company cannot guarantee that infringement claims by third parties or other claims for indemnification by customers or end users of its products resulting from infringement claims will not be asserted in the future or that such assertions, if proven to be true, will not materially and adversely affect the Company’s’ business, financial condition and results of operations. If any such claims are asserted against the Company’s’ intellectual property rights, the Company may seek to enter into a royalty or licensing arrangement. The Company cannot guarantee, 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 attempt to design around the patented technology. Litigation or an attempted design around could be costly and would divert the Company’s management’s attention and resources. In addition, if the Company does not prevail in such litigation or succeed in an attempted design around, the

Company could be forced to pay significant damages or amounts in settlement. Even if a design around is effective, the functional value of the product in question could be greatly diminished.

ITI Lawsuit

On or about April 21, 2005, the Company was served with a third-party complaint seeking to join the Company as a party to a patent lawsuit brought by an entity named Information Technology Innovation, LLC based in Northbrook, Illinois (“ITI”) against Motorola, Inc. (“Motorola”) and Freescale Semiconductor, Inc. (“Freescale”). The lawsuit (the “ITI Lawsuit”) also involved two individuals: Robert W. Atherton (“Atherton”), the named inventor on the patent, and Willis E. Higgins (“Higgins”), an attorney who worked with Atherton to obtain the patent. ITI began the ITI Lawsuit against Motorola in the United States District Court for the Northern District of Illinois (Eastern Division) in November 2004, and ITI added Freescale to the ITI Lawsuit in March 2005. ITI claimed that Motorola and Freescale had infringed a U.S. patent that ITI asserts covers processes used to model a semiconductor manufacturing plant. ITI asserted that the Company has induced and contributed to the infringement of the patent.

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

On July 7, 2005, Intel Corporation (“Intel”) filed a lawsuit against ITI seeking a declaratory judgment that Intel has not infringed and is not infringing the patent (the “Intel Lawsuit”). In letters dated May 26, 2005 and September 23, 2005, Intel notified the Company that Intel believes that the Company has an indemnification obligation to Intel, but that, at present, Intel is not seeking to have those obligations determined and enforced in the Intel Lawsuit. Thus, the Company has not been made a party to the Intel Lawsuit. The Intel Lawsuit is pending before the same judge as the ITI Lawsuit, but has a separate schedule.

On April 28, 2006 the Company entered into a settlement agreement with ITI and other parties settling disputes that were the subject of this litigation. That settlement has now been concluded. In exchange for a cash payment accrued in the quarter ended March 31, 2006, the settlement affords a license, releases and covenants not to sue the Company, the other parties named above, and all users of certain Brooks Automation factory modeling software products such as the “Autosched” product. The Intel Lawsuit has also been dismissed as a result of this settlement.

In addition, the Company has settled the claim for indemnification brought against Brooks by Freescale by the payment to Freescale of $400,000 to defray a portion of the legal expenses borne by Freescale in the defense of the ITI litigation.

Other Commercial Litigation Matters

In January 2006 a ruling was issued against the Company by a Massachusetts state court in a commercial litigation matter involving the Company and BlueShift Technologies, Inc. Awards of damages and costs were assessed against Brooks in January and April 2006 in the amount of approximately $1.6 million, which had been accrued for at December 31, 2005. Brooks has filed a notice of appeal in the case with the Massachusetts Appeals Court and that appeal is now pending.

Proceedings Relating to Equity Incentive Practices and the Restatement

On May 12, 2006, the Company announced that it had received notice that the Boston Office of the United States Securities and Exchange Commission (the “SEC”) was conducting an informal inquiry concerning stock option grant practices to determine whether violations of the securities laws had occurred. On June 2, 2006, the SEC issued a voluntary request for information to the Company in connection with an informal inquiry by that office regarding a loan the Company previously reported had been made to Mr. Therrien in connection with his exercise of stock options in 1999. On June 23, 2006, the Company was informed that the SEC had opened a formal investigation into this matter and on the general topic of the timing of stock option grants. On June 28, 2006, the SEC issued a subpoena to the Company seeking documents related to the Company’s stock option grant practices and a purported loan to Robert Therrien in August 1999 in connection with his exercise of a stock option.

On May 19, 2006, the Company received a grand jury subpoena from the United States Attorney (the “DOJ”) for the Eastern District of New York requesting documents relating to stock option grants. Responsibility for the DOJ’s investigation was subsequently assumed by the United States Attorney for the District of Massachusetts. On June 22, 2006, the United States Attorney’s Office for the District of Massachusetts issued a grand jury subpoena to the Company in connection with an investigation by that office into the timing of stock option grants by the Company and the loan to Mr. Therrien mentioned above.

The Company is cooperating fully with the investigations being conducted by the SEC and the DOJ.

Private Litigation

On May 22, 2006, a derivative action was filed nominally on the Company’s behalf in the Superior Court for Middlesex County, Massachusetts, captioned as Mollie Gedell, Derivatively on Behalf of Nominal Defendant Brooks Automation, Inc. v. A. Clinton Allen,et al. The Defendants in the case are: A. Clinton Allen, Director of the Company; Roger D. Emerick, former Director of the Company; Edward C. Grady, Director, President and CEO of the Company; Amin J. Khoury, former Director of the Company; Joseph R. Martin, Director of the Company; John K. McGillicuddy, Director of the Company; and Robert J. Therrien, former Director, President and CEO of the Company. The complaint alleges defendants breached their fiduciary duties by backdating stock option grants; violating Generally Accepted Accounting Principles; causing us to issue false and misleading financial statements; and causing us to file false proxy statements and Form 4’s. The complaint further alleges that Messrs. Therrien, Grady, Emerick and Khoury were unjustly enriched as a result of their receipt and retention of backdated stock option grants. The Complaint seeks, on our behalf,inter alia, damages against the individual defendants for breaches of fiduciary duties; disgorgement of any backdated stock options or the proceeds of any related exercised stock options; other equitable relief to remedy breached fiduciary duties; and plaintiff’s costs.

On May 26, 2006, a derivative action was filed in the Superior Court for Middlesex County, Massachusetts nominally on the Company’s behalf, captioned as Ralph Gorgone, Derivatively on Behalf of Nominal Defendant Brooks Automation, Inc. v. Edward C. Grady,et al. The Defendants in the action are: Mr. Grady; Mr. Allen; Mr. Emerick; Mr. Khoury; Robert J. Lepofsky, Director of the Company; Mr. Martin; Mr. McGillicuddy; Krishna G. Palepu, Director of the Company; Alfred Woollacott, III, Director of the Company; Mark S. Wrighton, Director of the Company; and Marvin Schorr, Director of the Company. The complaint alleges defendants breached fiduciary duties owed the Company by causing or allowing the backdating of stock option grants; the issuance of inaccurate financial results; abuse of control; gross mismanagement; waste of corporate assets; and unjust enrichment. The complaint seeks, on our behalf,inter alia, damages against the director defendants for breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment; the Court to direct the Company to take actions to improve corporate governance and internal procedures; extraordinary equitable and/or injunctive relief; restitution and disgorgement of profits; and plaintiff’s costs.

The parties have filed a motion to consolidate the two state derivative actions in Massachusetts Superior Court. If the motion is granted, a consolidated complaint is required to be filed within 30 days of the consolidation order.

On May 30, 2006, a derivative action was filed in the United States District Court for the District of Massachusetts, captioned as Mark Collins, Derivatively on Behalf of Nominal Defendant Brooks Automation, Inc. v. Robert J. Therrien,et al. The defendants in the action are: Mr. Therrien; Mr. Allen; Mr. Emerick; Mr. Grady; Mr. Khoury; Mr. Martin; and Mr. McGillicuddy. The complaint alleges breach of fiduciary duties in connection with the management of the Company; disseminating false information to the market; failing to design and implement adequate internal controls; and as against Messrs. Therrien, Grady, Emerick and Khoury, unjust enrichment. The complaint seeks, on our behalf,inter alia, damages against the individual defendants for breaches of fiduciary duties; disgorgement of backdated stock options or proceeds from exercised stock options; other equitable relief to remedy the breaches of fiduciary duties; and plaintiff’s costs.

On June 7, 2006, a derivative action was filed in the United States District Court for the District of Massachusetts, captioned as City of Pontiac General Employees’ Retirement System, Derivatively on Behalf of Brooks Automation, Inc. v. Robert J. Therrien,et al. The Defendants in this action are: Mr. Therrien; Mr. Emerick; Mr. Khoury; Mr. Allen; Mr. Grady; Mr. Lepofsky; Mr. Martin; Mr. McGillicuddy; Mr. Palepu; Mr. Woollacott, III; Mr. Wrighton; and Mr. Schorr. The complaint alleges violations of Section 10(b) and Rule 10b-5 of the Exchange act; Section 14(a) of the Exchange Act; Section 20(a) of the Exchange Act; breach of fiduciary duty; breach of fiduciary duty and/or aiding and abetting; abuse of control; gross mismanagement; constructive fraud; corporate waste; unjust enrichment; rescission against Messrs. Therrien, Emerick and Khoury; and breach of contract against Mr. Therrien. The complaint seeks, on our behalf,inter alia, damages against the individual defendants for breaches of fiduciary duties; extraordinary equitable and/or injunctive relief; and plaintiff’s costs.

The parties have filed a motion to consolidate the two federal derivative actions in the United States District Court for the District of Massachusetts. If the order is granted, the plaintiffs will have 45 days to file a consolidated complaint, or to designate one of the existing complaints as the operative complaint.

Financial Officer; and Mr. Grady. The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against us and the individual defendants; Section 20(a) of the Exchange Act against the individual defendants; Section 11 of the Securities Act against us and Messrs. Grady, Woodbury, Emerick, Khoury and Therrien; Section 12 of the Securities Act against us and Messrs. Grady, Woodbury, Emerick, Khoury and Therrien; and Section 15 of the Securities Act against Messrs. Grady, Woodbury, Emerick, Khoury and Therrien. The complaint seeks,inter alia, damages, including interest, and plaintiff’s costs.

On July 19, 2006, a putative class action was filed in the United States District Court for the District of Massachusetts, captioned as James R. Shaw v. Brooks Automation, Inc.,et al. The Defendants in the case are: the Company; Mr. Therrien; Ms. Richstone; Mr. Emerick; Mr. Khoury; Mr. Woodbury; and Mr. Grady. As of this date, the Company has not been served with the complaint. The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all defendants and violations of Section 20(a) of the Exchange Act against all individual defendants. The complaint seeks,inter alia, damages, including interest, and plaintiff’s costs.

The Company is aware of additional proposed class actions, posted on the websites of various law firms. The Company is not yet aware of the filing of any such actions and has not been served with a complaint or any other process in any of these matters.

There are no known additional claims pending or threatened against the Company that are believed to be material.

15. Subsequent Events

Bond Acceleration

The Company did not file its quarterly report on Form 10-Q for the period ended March 31, 2006 by the prescribed due date. As a result of this delay, the Company was not in compliance with its obligation under Section 6.2 of the indenture with respect to its 4.75% Convertible Subordinated Notes due 2008 to file with the SEC all reports and other information and documents which the Company is required to file with the SEC pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934. Under the indenture, an event of default occurs if the Company fails to cure the default within 60 days after written notice of the default to the Company and the trustee by holders of at least 25% in aggregate principal amount of notes outstanding. On May 15, 2006, the Company received a notice from holders of more than 25% in aggregate principal amount of notes outstanding that the Company was in default of Section 6.2 of the indenture based on its failure to file its Form 10-Q. On Friday July 14, 2006, the Company received a further notice from holders of more than 25% of the aggregate outstanding principal amount of the notes accelerating the Company’s obligation to repay the unpaid principal on the notes because its Report on Form 10-Q for the quarter ended March 31, 2006 had not yet been filed. On Monday, July 17, 2006, the Company paid the outstanding $175 million principal balance to the trustee.

Nasdaq Delisting Notice

On May 12, 2006, the Company received a staff determination letter from the Nasdaq Stock Market stating that its failure to timely file its quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2006 was a violation of Nasdaq rules and that its securities would be delisted unless the Company requested a hearing. The Company requested a hearing, and this request stayed the delisting pending the outcome of the hearing. A hearing has been held at which the Company requested additional time to complete any necessary filings prior the delisting of its securities. On July 25, 2006, the Company received notice from the Nasdaq Stock Market that its common stock will not be delisted provided that it files its quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2006 and all required restatements on or prior to August 15, 2006. If the Company is unable to file these reports on or before August 15, 2006, the Company’s common stock may be delisted.

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

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” which involve known risks, uncertainties and other factors which may cause the actual results, our performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include the Risk Factors set forth in Part II, Item 1A of this report. Precautionary statements made in Part II, Item 1A should be read as being applicable to all related forward-looking statements whenever they appear in this report.

Restatement of Consolidated Financial Statements

On May 10, 2006, our Board of Directors concluded that our consolidated financial statements for the years ended September 30, 2005, 2004 and 2003 as well as the selected financial data for the years ended September 30, 2002 and 2001 should be restated to record additional non-cash stock-based compensation expense resulting from stock options granted during fiscal years 1996 to 2005

that were incorrectly accounted for under generally accepted accounting principles (“GAAP”). Our decision to restate our financial statements was based on the facts obtained by management and an independent investigation into our stock option accounting that was conducted under the direction of a special committee (“Special Committee”) of the Board of Directors. The Board created the Special Committee, which was composed solely of independent directors, to conduct a review of matters related to past stock option grants (including the timing of such grants and associated documentation) after receiving inquiries regarding the timing of certain stock option grants. Separately, the Company’s management also reviewed stock option grants from 1995 through the second quarter of fiscal 2006 to determine whether any material accounting errors had occurred with respect to stock option grants.

We have concluded that there were material accounting errors with respect to a number of stock option grants. In general, these stock options were granted with an exercise price equal to the Nasdaq closing market price for our common stock on the date set forth on written consents signed by one or more directors. We used the stated date of these consents as the “measurement date” for the purpose of accounting for them under GAAP, and as a result recorded no compensation expense in connection with the grants.

We have concluded that a number of written consents were not fully executed or effective on the date set forth on the consents and thus that using the stated date as the measurement date was incorrect. We have determined a revised measurement date for each stock option grant based on the information now available to us. Generally, the changes in measurement dates are due to two kinds of errors: (1) we treated unanimous written consents of directors approving stock option grants as effective on the date stated on the consent, instead of the date upon which we received the consent form containing the last signature required for unanimity; and (2) we treated option grants to multiple employees as effective prior to the date upon which we had determined the exact number of options that would be granted to each individual employee. In cases where the closing market price on the revised measurement date exceeded the Nasdaq closing market price on the original measurement date, we have recognized compensation expense equal to this excess over the vesting term of each option.

We have determined that the cumulative, pre-tax, non-cash, stock-based compensation expense resulting from revised measurement dates was approximately $58.7 million during the period from our initial public offering in 1996 through September 30, 2005. The corrections made in the restatement relate to options covering approximately 6.0 million shares. In the restatement, we recorded stock-based compensation expense of $1.6 million, $3.1 million and $17.3 million for the years ended September 30, 2005, 2004 and 2003, respectively, and $36.7 million prior to fiscal 2003. In addition, we recorded an income tax benefit of $1.8 million prior to fiscal 2003. The cumulative effect of the restatement adjustments on our consolidated balance sheet at September 30, 2005 was an increase in additional paid-in capital offset by a corresponding increase in the accumulated deficit and deferred compensation which results in no net effect on stockholders’ equity. Approximately 99% of the charges relating to revised measurement dates arose from incorrect measurement dates for stock options granted during fiscal years 1996 through 2002. Subsequent to fiscal 2002 and prior to the inception of the investigation, we had revised our stock option and restricted stock grant practices. Neither the Company nor the Special Committee concluded that anyone now affiliated with the Company was complicit in any intentional wrongdoing. The Company and the Special Committee were unable to conclude that the accounting errors relating to revised measurement dates for stock option grants were the result of intentional misconduct of any company personnel. There was no impact on revenue or net cash provided by operating activities as a result of this compensation expense.

In addition to the compensation expenses described above, we also recorded approximately $5.8 million of non-cash, stock-based compensation expense in connection with a stock option held by former CEO Robert J. Therrien that we have concluded he was permitted to exercise in November 1999 despite its expiration in August of 1999. This transaction was previously accounted for and disclosed as a loan by the Company to Mr. Therrien for the purpose of permitting him to exercise the option. Specifically, in November 1999, three directors of the Company (including Mr. Therrien) signed a ratification document pursuant to which Mr. Therrien was deemed to have been granted a loan as of August 1999. According to the document, in June 1999 our directors (Messrs. Khoury, Emerick and Therrien) discussed extending a loan to Mr. Therrien for the purpose of permitting him to exercise an option to purchase 225,000 shares of the Company’s stock prior to its expiration in August 1999. Based on the document, the Company in November 1999 deemed Mr. Therrien to have timely exercised the options, and accounted for the exercise without recognizing compensation expense. As a result of facts obtained by the Special Committee, we determined that Mr. Therrien misrepresented the facts of the loan and the ratification document described above was false as there were no discussions concerning a loan in June 1999. As a result, we have determined that the option expired in August 1999 and that compensation expense should have been recorded in connection with Mr. Therrien’s purchase of stock in November 1999. At that time, Mr. Therrien paid approximately $560,000 (the exercise price of $2.43 per share, plus interest deemed due on the loan) for 225,000 shares then worth approximately $6,314,000 (or $28.06 per share). In the restatement, we have recognized compensation expense in November 1999 equal to the difference between the price paid by Mr. Therrien and the market value of the stock on the date of sale. The three directors including Mr. Therrien are no longer affiliated with the Company.

As part of our review, we assessed generally whether there were other matters which should have been corrected in our previously issued financial statements. Apart from the errors underlying the restatement described above, no other matters have come to our attention that should be adjusted in our previously issued financial statements.

As a result, we recorded in the restatement cumulative, non-cash pre-tax stock-based compensation expense of approximately $64.5 million and a tax benefit of $1.8 million as of September 30, 2005, including approximately $23,000 and $1.5 million for the three and nine months ended June 30, 2005, respectively. Principally as a result of losses incurred, we recorded a full valuation allowance against all deferred tax assets beginning in 2002 and consequently, there is no tax effect of the additional stock-based compensation expense recorded in the years ended September 30, 2005, 2004 and 2003.

Overview

Brooks Automation, Inc. (“Brooks”, “we”, “us” or “our”) is a leading supplier of automation and vacuum products and solutions primarily serving the worldwide semiconductor market. We supply hardware, software and services to both chip manufacturers and original equipment manufacturers, or OEMs, who make semiconductor device manufacturing equipment. We are a technology and market leader with offerings ranging from individual hardware and software modules to fully integrated systems as well as services to install and support our products world-wide. Although our core business addresses the increasingly complex automation and integrated subsystems requirements of the global semiconductor industry, we are also focused on providing automation solutions for a number of related industries, including the flat panel display manufacturing, data storage and certain other industries which have complex manufacturing environments.

Our business is significantly dependent on capital expenditures by semiconductor manufacturers, which in turn are dependent on the current and anticipated market demand for semiconductor chips (“semiconductor” or “chips”) and electronics equipment. To maintain manufacturing leadership and growth in the semiconductor industry, companies make significant capital expenditures in manufacturing equipment and investments in research and development. For example, investments in the production of chips that use advanced 130-nanometer (“nm”) and 90nm process technology are the enablers (increased chip performance, decreased power consumption and reduced cost) for a broad range of new products that are expected to help drive growth in the chip industry. Further advances in chip designs utilizing 65nm and smaller sizes continue to enable innovation and are driving the need for new manufacturing facilities and new generation processing equipment. Demand for semiconductors is cyclical and has historically experienced periodic expansions and downturns. The semiconductor industry experienced a prolonged downturn from fiscal 2001 to the end of fiscal 2003. As the industry economics improved significantly at the start of our fiscal 2004, we were able to benefit from some of the cost reduction initiatives implemented during the downturn, resulting in our return to profitability in fiscal 2004. The industry conditions weakened again in our fiscal 2005 leading to a decline in revenues and profitability for Brooks for the period ended September 2005.

We sell our products and services to nearly every major semiconductor chip manufacturer and OEM in the world, including all of the top ten chip companies and nine of the top ten equipment companies. Our customers also include companies who are in the LCD, data storage and other similar industries. As a result of the Helix acquisition, certain products are sold to non-semiconductor customers in imaging and coating and analytic instruments. We have major customers in the United States, Europe and Asia.

On October 26, 2005, we acquired Helix Technology Corporation (“Helix”), a Delaware corporation, pursuant to a merger agreement (the “Merger Agreement”). Under the terms of the Merger Agreement each share of Helix common stock, par value $1.00 per share, other than shares held by Helix as treasury stock and shares held by us or a subsidiary, was cancelled and extinguished and automatically converted into 1.11 (“Exchange Ratio”) shares of our common stock. In addition, we assumed all options then outstanding under Helix’s existing equity incentive plans, each of which is now exercisable into a number of shares of our common stock (and at an exercise price) adjusted to reflect the Exchange Ratio. The Helix acquisition is valued at approximately $458.2 million, consisting of 29.0 million shares of common stock valued at $444.6 million, the fair value of assumed Helix options of $3.3 million and cash expenses of $10.3 million. This transaction qualifies as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended. Helix is a leader in the development, manufacture, and application of innovative vacuum technology solutions for the semiconductor, data storage, and flat panel display markets. We expect the acquisition of Helix will enable us to better serve our current market, increase our addressable market, reduce the volatility that both businesses have historically faced and position us to enhance our financial performance.

On May 8, 2006, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Synetics Solutions Inc. (“Synetics”). We completed our acquisition of Synetics from Yaskawa Electric Corporation (“Yaskawa”), a corporation duly organized and existing under the laws of Japan, through a merger that became effective as of June 30, 2006. Synetics provides customized manufacturing solutions for the North American semiconductor equipment industry. The Synetics acquisition is

preliminarily valued at $50.1 million consisting of $28.7 million cash payment to Yaskawa, repayment of outstanding debt of $19.9 million and transaction costs of $1.5 million.

Also on May 8, 2006, we agreed to enter into a Joint Venture Agreement (the “Agreement”) with Yaskawa to form a 50/50 joint venture called Yaskawa Brooks Automation, Inc. (“YBA”) to exclusively market and sell Yaskawa’s semiconductor robotics products and our automation hardware products to semiconductor customers in Japan. This Agreement was executed on June 30, 2006. YBA is expected to begin operations in September 2006.

We operate in two segments: hardware and software.

The hardware segment provides a wide range of wafer handling products, vacuum subsystems and wafer transport platforms for use within the semiconductor process and metrology equipment. Within the hardware segment, there are four major businesses consisting of automation hardware products, vacuum products and subsystems, the global customer service organization, and customer-designed automation systems. The automation products, historically the core products of Brooks, include wafer transfer robots and platforms, or systems that operate in either vacuum or atmospheric environments. We also leverage our domain knowledge and manufacturing expertise to build customer-designed automation systems, or contract automation systems, in a program designed to help customers outsource their automation. The primary customers for these solutions are manufacturers of process equipment. Additionally, we provide hardware directly to fabs including automated material handling systems, or AMHS, that store, transport and manage the movement of material throughout the fab. Other automation hardware products include equipment for lithography that automate the storage, inspection and transport of photomasks, or reticles. Further, the products from Helix include vacuum technology solutions such as cryogenic pumps for creating vacuum, products for measuring vacuum and thermal management products that are used in manufacturing equipment for the semiconductor, data storage and flat panel display industries. Finally, the global services offerings leverage the Helix model to provide customers with support for all our hardware offerings.

The software segment addresses the need for production management systems driven by the extensive tracking and tracing requirements of the semiconductor industry. At the core of these production systems is the manufacturing execution system (“MES”) that is primarily responsible for tracking the movement of production wafers in a fab, and managing the data and actions for every wafer, equipment, operator and other resources in the fab. These mission-critical systems provide real time information primarily to production operators, supervisors and fab managers. We also provide other important software applications to meet the critical requirements of the fab, such as real time dispatching and scheduling, equipment communications, advanced process control, material control using the AMHS, activity execution and control, automated maintenance management of equipment, and other applications. Customers often purchase more than one of these software products from us for a single fab, often driving the need for consulting and integration services. Our software products enable semiconductor manufacturers to increase their return on investment by maximizing production efficiency, and may be sold as part of an integrated solution or on a stand-alone basis. These software products and services are also used in many similar manufacturing industries as semiconductor, including flat panel display, data storage, and electronic assembly.

We are currently focusing our major efforts in the following aspects of our business:

	•		Integrating Helix and Synetics into our operations, systems, processes and controls;

	•		Implementing global low-cost sourcing and manufacturing strategies, specifically in Mexico and Asia;

	•		Expanding our global customer service business;

	•		Initiating the operation of our newly formed joint venture in Japan with Yaskawa;

	•		Sustaining our ability to meet our customers’ requirements on a timely basis;

	•		Continuing to invest in other industries such as flat panel display manufacturing;

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

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

	•		Greater expansion of software development capabilities in countries outside of the United States, specifically India, Korea and other low-cost regions;

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

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

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

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

Three and Nine Months Ended June 30, 2006, Compared to Three and Nine Months Ended June 30, 2005

Revenues

We reported revenues of $186.2 million for the three months ended June 30, 2006, compared to $113.8 million in the three months ended June 30, 2005, a 63.7% increase. The increase reflects the additional revenues of $52.3 million related to the Helix acquisition, along with higher revenues related to our legacy Brooks hardware segment of $19.7 million due to increased demand for semiconductor capital equipment, and higher revenues related to our software segment of $0.3 million. Our revenues for the nine months ended June 30, 2006 were $482.5 million, compared to $360.4 million in the same prior year period, a 33.9% increase. This increase reflects the additional revenues of $131.5 million related to the Helix acquisition, along with higher revenues related to our legacy Brooks hardware segment of $3.0 million, offset by lower revenues related to our software segment of $12.4 million. The decrease in our software revenues in the nine month period is reflective of reduced demand from the prior year.

Our hardware segment reported revenues of $163.4 million for the three months ended June 30, 2006, an increase of 79.0% from the $91.3 million reported for the three months ended June 30, 2005. Hardware segment revenues for the nine months ended June 30, 2006 were $420.7 million compared to $286.2 million for the same prior year period, an increase of 47.0%. This increase in the three month period is attributable to the additional revenues related to the Helix acquisition of $52.3 million along with higher revenues for automation products and custom design automation systems, offset by lower revenues for flat panel display products in Asia and factory hardware. The increase in the nine month period is attributable to additional revenues related to the Helix acquisition of $131.5 million offset primarily by lower revenues for our legacy factory hardware and flat panel display products.

Our software segment reported revenues of $22.8 million in the three months ended June 30, 2006, a 1.5% increase from the $22.4 million reported in the three months ended June 30, 2005. Software segment revenues for the nine months ended June 30, 2006 were $61.8 million compared to $74.2 million for the same prior year period, a decrease of 16.7%. The decrease in revenues for the nine month period is primarily attributable to lower license revenues and reduced activity on tailored software projects.

Product revenues increased $55.6 million, or 67.3%, to $138.3 million, in the three months ended June 30, 2006, from $82.6 million in the three months ended June 30, 2005. This increase is attributable to the additional revenues of $38.2 million related to the Helix acquisition, along with higher revenues of legacy Brooks hardware of $16.0 million due to increased demand for semiconductor capital equipment, and higher software products sales of $1.4 million. Service revenues increased $16.8 million, or 54.0%, to $47.9 million in the three months ended June 30, 2006. This increase is primarily attributable to additional revenues of $14.1 million related to the Helix acquisition along with increased legacy hardware service revenues of $3.8 million, offset by lower software related services of $1.1 million.

Product revenues increased $89.2 million, or 33.8%, to $353.5 million in the nine months ended June 30, 2006, from $264.3 million in the nine months ended June 30, 2005. This increase is attributable to the additional revenues of $94.8 million related to the Helix acquisition, along with higher revenues of legacy Brooks hardware of $1.3 million, offset by lower software products sales of $6.9 million. Service revenues increased $32.9 million, or 34.2%, to $129.1 million in the nine months ended June 30, 2006. This increase is primarily attributable to additional revenues of $36.7 million related to the Helix acquisition along with increased legacy hardware service revenues of $1.7 million, offset by lower software related services of $5.5 million.

Revenues outside the United States were $74.4 million, or 39.9% of revenues, and $201.5 million, or 41.8% of revenues, in the three and nine months ended June 30, 2006 respectively, compared to $56.4 million, or 49.6% of revenues, and $171.7 million, or 47.6% of revenues, in the three and nine months ended June 30, 2005 respectively. We expect that foreign revenues will continue to account for a significant portion of total revenues. The current international component of revenues is not indicative of the future international component of revenues.

Deferred revenues of $29.8 million at June 30, 2006 consisted of $15.9 million related to deferred maintenance contracts and $13.9 million related to revenues deferred for completed contract method arrangements and contracts awaiting final customer acceptance.

Gross Margin

Gross margin dollars increased to $71.5 million for the three months ended June 30, 2006, compared to $39.5 million for the three months ended June 30, 2005, while gross margin percentage increased to 38.4% for the three months ended June 30, 2006, compared to 34.7% for the three months ended June 30, 2005. This increase in gross margin reflects the additional margin of $19.1 million related to the Helix acquisition, net of a charge of $2.2 million for the amortization of completed technology acquired in the Helix transaction and $0.8 million of additional costs incurred to bring our new Mexico manufacturing operations on-line, along with higher margin of $11.6 million on a more favorable mix of revenues from legacy Brooks hardware, and higher margin of $1.3 million from the software segment. Our hardware segment gross margin increased to $55.2 million or 33.8% in the three months ended June 30, 2006, from $24.6 million or 27.0% in the three months ended June 30, 2005 principally due to the higher margin product revenue contributed by the Helix acquisition. Our software segment gross margin for the three months ended June 30, 2006, increased to $16.2 million or 71.3%, compared to $14.9 million or 66.3% in the prior year, as a result of our cost reduction program.

Gross margin dollars increased to $168.2 million for the nine months ended June 30, 2006, compared to $123.9 million for the nine months ended June 30, 2005, while gross margin percentage increased to 34.8% for the nine months ended June 30, 2006, compared to 34.4% for the nine months ended June 30, 2005. This increase in gross margin reflects the additional gross margin of $37.2 million related to the Helix acquisition, net of a $11.2 million charge to write-off the step-up in inventory related to the Helix acquisition, a charge of $5.8 million for the amortization of completed technology acquired in the Helix transaction, and $1.3 million of additional costs incurred to bring our new Mexico manufacturing operations on-line, along with higher margin on higher revenues from legacy Brooks hardware. Our hardware segment gross margin increased to $126.6 million or 30.1% in the nine months ended June 30, 2006, from $75.3 million or 26.3% in the nine months ended June 30, 2005 principally due to the higher margin product revenue contributed by the Helix acquisition. Our software segment gross margin for the nine months ended June 30, 2006, decreased to $41.6 million or 67.2%, compared to $48.6 million or 65.4% in the prior year. The decrease in software gross margin dollars is primarily the result of lower software license sales, offset by reduced costs realized by our cost reduction program.

Gross margin on product revenues was $52.0 million or 37.6% for the three months ended June 30, 2006, compared to $24.3 million or 29.4% for the prior year. The increase in product margins is primarily attributable to the additional margin of $13.4 million related to the Helix acquisition, along with higher margin from legacy Brooks hardware of $12.7 million, and higher margin from software products of $1.6 million. Gross margin on product revenues was $110.4 million or 31.2% for the nine months ended June 30, 2006, compared to $77.2 million or 29.2% for the nine months ended June 30, 2005. The increase in gross margins is primarily attributable to the additional margin of $33.6 million related to the Helix acquisition, along with higher margin from legacy Brooks hardware of $6.0 million, offset by lower margins from software products of $6.3 million.

Gross margin on service revenues was $19.5 million or 40.7% for the three months ended June 30, 2006, compared to $15.2 million or 48.9% in the three months ended June 30, 2005. The increase in gross margin dollars is primarily attributable to incremental $5.7 million of gross profit from Helix customer support services, albeit at lower gross margins than existing Brooks business, offset by lower margin of $1.2 million on legacy Brooks hardware-related services and lower profit on software-related services of $0.2 million. Gross margin on service revenues was $57.7 million or 44.7% for the nine months ended June 30, 2006, compared to $46.7 million or 48.6% in the nine months ended June 30, 2005. This increase in gross margin dollars is primarily attributable to the incremental $14.8 million of gross profit from Helix customer support services offset by lower margin of $3.1 million on legacy Brooks hardware-related services and lower profit on software-related services of $0.7 million.

Research and Development

Research and development expenses for the three months ended June 30, 2006, were $18.2 million, an increase of $2.1 million, compared to $16.1 million in the three months ended June 30, 2005. Research and development expenses for the nine months ended June 30, 2006, were $51.6 million, an increase of $3.2 million, compared to $48.4 million in the nine months ended June 30, 2005. Research and development expenses decreased as a percentage of revenues to 9.8% in the three months ended June 30, 2006 from 14.1% in the three months ended June 30, 2005, and also decreased to 10.7% in the nine months ended June 30, 2006 compared to 13.4% in the nine months ended June 30, 2005. The increase in absolute spending is attributable to the additional spending of $2.6 million and $6.9 million for three and nine months ended June 30, 2006 respectively related to the Helix business, offset by lower spending in the Company’s legacy Brooks hardware and software businesses. The decrease in absolute legacy Brooks spending and the overall decrease a percentage of revenues was primarily the result of continued focus on controlling costs and refocusing our development efforts to be more efficient as well as higher revenue levels against which these costs are measured.

Selling, General and Administrative

Selling, general and administrative expenses were $36.3 million for the three months ended June 30, 2006, an increase of $15.6 million, compared to $20.7 million in the three months ended June 30, 2005. Selling, general and administrative expenses were $100.9 million for the nine months ended June 30, 2006, an increase of $38.8 million, compared to $62.1 million in the nine months ended June 30, 2005. Selling, general and administrative expenses increased as a percentage of revenues, to 19.5% in the three months ended June 30, 2006 from 18.2% in the three months ended June 30, 2005, and also increased to 20.9% in the nine months ended June 30, 2006 compared to 17.2% in the nine months ended June 30, 2005. The increase in absolute spending in the three months ended June 30, 2006 is primarily attributable to the additional expenses related to the Helix business of $7.7 million along with $2.3 million of additional costs incurred to conduct our internal review of prior years’ stock option compensation, and a higher management incentive plan provision of $3.6 million. The increase in absolute spending in the nine months ended June 30, 2006 is primarily attributable to the additional expenses related to the Helix business of $22.0 million, higher management incentive plan expenses of $5.6 million, higher legal expenses of $2.4 million mostly associated with the ITI and Blueshift litigation matters, $2.5 million of additional costs incurred to conduct our review of prior years’ stock option compensation, $1.1 million of additional accounting, auditing and internal control related expenses, and the $1.3 million write-off of the remaining depreciation on a sales management application recorded in the quarter ended December 31, 2005 which was phased out of use.

Restructuring and Acquisition-related Charges

We recorded a charge to operations of $0.8 million in the three months ended June 30, 2006. This charge consists of $0.5 million associated with termination of 12 legacy Brooks employees worldwide in service and operations functions, whose positions were made redundant as a result of the Helix acquisition and further downsizing in our software segment, along with $0.4 million for retention bonuses earned in the period by employees who have been notified of their termination in the current and prior periods, offset by a reversal of $0.1 million reversal of previously accrued termination costs to employees who will no longer be terminated. The accruals for workforce reductions are expected to be paid over the next twelve months. We estimate that salary and benefit savings as a result of these actions will be approximately $1.3 million annually. The impact of these cost reductions on our liquidity is not significant, as these cost savings yield actual cash savings within twelve months.

We recorded a charge to operations of $4.7 million in the nine months ended June 30, 2006. This charge which consists of $1.6 million related to a vacant facility in Billerica Massachusetts, $1.9 million of severance costs associated with the termination of 41 legacy Brooks employees worldwide in sales, service, operations and administrative functions, whose positions were made redundant as a result of the Helix acquisition and further downsizing in our software segment, and $1.8 million for retention bonuses earned in the period by employees who have been notified of their termination in the current and prior periods, offset by the $0.6 million reversal of previously accrued termination costs to employees who will no longer be terminated or whose termination was settled at a reduced cost.

We expect to record additional restructuring charges in our fourth fiscal quarter as we take further actions to eliminate redundant activities resulting from the Helix acquisition, and as retention bonuses to employees who have been notified of their termination are earned in these periods.

Interest Income and Expense

Interest income increased by $1.9 million, to $4.2 million, in the three months ended June 30, 2006, from $2.3 million in the three months ended June 30, 2005. Interest income increased by $4.8 million, to $11.3 million, in the nine months ended June 30, 2006, from $6.5 million in the nine months ended June 30, 2005. This increase is primarily the result of higher investment balances for both the three and nine month periods and higher interest rates that were realized on our investment balances. Interest expense of $2.4 million for the three months ended June 30, 2006 and 2005, respectively, and $7.2 million and $7.1 million for the nine months ended June 30, 2006 and 2005, respectively, relates primarily to the 4.75% Convertible Subordinated Notes.

Other (Income) Expense

We recorded other income, net of $0.1 million in the three months ended June 30, 2006, compared to other income, net of $0.6 million in the three months ended June 30, 2005. This decrease is primarily attributable to unfavorable foreign exchange fluctuations. For the nine months ended June 30, 2006, we recorded other expense, net of $2.7 million compared to other income, net of $0.7 million in the nine months ended June 30, 2005. This increase is primarily attributable to the accrual of $4.8 million related to various legal contingencies offset, in part, by the receipt of $1.1 million of principal repayment on a note that had been previously written off.

Income Tax Provision

We recorded an income tax provision of $1.3 million and $3.6 million in the three and nine months ended June 30, 2006 respectively, compared to a provision of $1.3 million and $4.3 million in the three and nine months ended June 30, 2005 respectively. The tax provision recorded for both periods was primarily due to foreign income and withholding taxes. We continued to provide a full valuation allowance for our net deferred tax assets at June 30, 2006, as we believe it is more likely than not that the future tax benefits from accumulated net operating losses and deferred taxes will not be realized. If we generate future taxable income against which these tax attributes may be applied, some portion or all of the valuation allowance would be reversed and a corresponding increase in net income would be reported in future periods.

We are subject to income taxes in various jurisdictions. Significant judgment is required in determining the world-wide provision for income taxes. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that the tax reserves reflect the probable outcome of known contingencies. Tax reserves established include, but are not limited to, business combinations, transfer pricing, withholding taxes, and various state and foreign audit matters, some of which may be resolved in the near future resulting in an adjustment to the reserve.

Discontinued Operations

We recorded a gain from operations of our discontinued SELS business of $4,000 in the three months ended June 30, 2006, compared to a loss of $0.4 million in the three months ended June 30, 2005. We recorded a gain of $0.1 million in the nine months ended June 30, 2006, compared to a loss $3.6 million in the nine months ended June 30, 2005.

Liquidity and Capital Resources

Our business is significantly dependent on capital expenditures by semiconductor manufacturers and OEMs that are, in turn, dependent on the current and anticipated market demand for semiconductors. Demand for semiconductors is cyclical and has historically experienced periodic downturns. In response, we have implemented cost reduction programs aimed at aligning our ongoing operating costs with our currently expected revenues over the near term. These cost management initiatives have included consolidating facilities, reductions to headcount, salary and wage reductions and reduced spending. The cyclical nature of the industry make estimates of future revenues, results of revenues, results of operations and net cash flows inherently uncertain.

At June 30, 2006, we had cash, cash equivalents and marketable securities aggregating $342.3 million. This amount was comprised of $117.8 million of cash and cash equivalents, $217.4 million of investments in short-term marketable securities and $7.1 million of investments in long-term marketable securities. At September 30, 2005, we had cash, cash equivalents and marketable securities aggregating $357.0 million. This amount was comprised of $202.5 million of cash and cash equivalents, $121.6 million of investments in short-term marketable securities and $32.9 million of investments in long-term marketable securities

Cash provided by operations was $26.1 million for the nine months ended June 30, 2006, and was primarily attributable to our net income of $9.8 million, adjusted for non-cash depreciation and amortization of $22.8 million and compensation expense related to common stock and options of $6.2 million. These adjustments were offset by net working capital changes resulting in a decrease in cash of $9.0 million. This change in working capital was primarily the result of increased accounts receivable balances of $14.3 million and a decreased inventory balance of $4.4 million. Our days sales outstanding decreased to 56 days at June 30, 2006 from 68 days at September 30, 2005. Other changes in working capital included increased accounts payable levels of $6.8 million, increases in prepaid expenses and other current assets of $6.1 million primarily as a result of prepayments for corporate insurance policies and payroll taxes, increased deferred revenue of $7.4 million and increased accrued compensation and benefits of $5.5 million, offset in part by a decrease in accrued restructuring costs of $8.2 million primarily reflecting payments and a decrease in accrued expenses and other current liabilities of $4.2 million.

Cash used in investing activities was $113.8 million for the nine months ended June 30, 2006, and is principally comprised of net purchases of marketable securities of $65.6 million as we took excess cash and purchased additional marketable securities to maximize investment returns, $46.0 million for the acquisition of Synetics, net of cash acquired and $11.0 million used for capital additions, partially offset by cash inherited with the acquisition of Helix of $8.8 million. An additional $3.4 million related to the acquisition of Synetics will be paid before the end of the fiscal year.

Cash provided by financing activities was $2.4 million for the nine months ended June 30, 2006, and is primarily comprised of $2.4 million from the issuance of stock under our employee stock purchase plan and the exercise of options to purchase our common stock.

On May 23, 2001, we completed the private placement of $175.0 million aggregate principal amount of 4.75% Convertible Subordinated Notes due in 2008. Interest on the notes is paid on June 1 and December 1 of each year. The notes mature on June 1, 2008. We may redeem the notes at stated premiums. Holders may require us to repurchase the notes upon a change in control of us in

certain circumstances. The notes are convertible at any time prior to maturity, at the option of the holders, into shares of our common stock, at a conversion price of $70.23 per share, subject to certain adjustments. The notes are subordinated to our senior indebtedness and structurally subordinated to all indebtedness and other liabilities of our subsidiaries.

We did not file our quarterly report on Form 10-Q for the period ended March 31, 2006 by the prescribed due date. As a result of this delay, we were not in compliance with our obligation under Section 6.2 of the indenture with respect to our 4.75% Convertible Subordinated Notes due 2008 to file with the SEC all reports and other information and documents which we are required to file with the SEC pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934.

Under the indenture, an event of default occurs if we fail to cure the default within 60 days after written notice of the default to the Company and the trustee by holders of at least 25% in aggregate principal amount of notes outstanding. On May 15, 2006, we received a notice from holders of more than 25% in aggregate principal amount of notes outstanding that we were in default of Section 6.2 of the indenture based on our failure to file our Form 10-Q. On Friday July 14, 2006, we received a further notice from holders of more than 25% of the aggregate outstanding principal amount of our notes accelerating our obligation to repay the unpaid principal on the notes because our Report on Form 10-Q for the quarter ended March 31, 2006 had not yet been filed. On Monday, July 17, 2006, we paid the outstanding $175 million principal balance to the trustee.

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

At June 30, 2006, we had approximately $0.7 million of an uncommitted demand promissory note facility still in use, all of it for letters of credit.

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

Recently Enacted Accounting Pronouncements

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Our primary market risk exposures are to changes in foreign currency exchange rates. A portion of our business is conducted outside the United States through foreign subsidiaries which maintain accounting records in their local currencies. Consequently, some of our assets and liabilities are denominated in currencies other than the United Stated dollar. Fluctuations in foreign currency exchange rates affect the carrying amount of these assets and liabilities and our operating results. We do not enter into market risk sensitive instruments to hedge these exposures.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Report, and pursuant to Rules 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934, the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported in accordance with the time specified by the SEC’s rules and forms.

Change in Internal Controls. There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

ITI Lawsuit

On or about April 21, 2005, we were served with a third-party complaint seeking to join us as a party to a patent lawsuit brought by an entity named Information Technology Innovation, LLC based in Northbrook, Illinois (“ITI”) against Motorola, Inc. (“Motorola”) and Freescale Semiconductor, Inc. (“Freescale”). The lawsuit (the “ITI Lawsuit”) also involved two individuals: Robert W. Atherton (“Atherton”), the named inventor on the patent, and Willis E. Higgins (“Higgins”), an attorney who worked with Atherton to obtain the patent. ITI began the ITI Lawsuit against Motorola in the United States District Court for the Northern District of Illinois (Eastern Division) in November 2004, and ITI added Freescale to the ITI Lawsuit in March 2005. ITI claimed that Motorola and Freescale had infringed a U.S. patent that ITI asserts covers processes used to model a semiconductor manufacturing plant. ITI asserted that the Company has induced and contributed to the infringement of the patent.

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

On July 7, 2005, Intel Corporation (“Intel”) filed a lawsuit against ITI seeking a declaratory judgment that Intel has not infringed and is not infringing the patent (the “Intel Lawsuit”). In letters dated May 26, 2005 and September 23, 2005, Intel notified us that Intel believes that we have an indemnification obligation to Intel, but that, at present, Intel is not seeking to have those obligations determined and enforced in the Intel Lawsuit. Thus, we have not been made a party to the Intel Lawsuit. The Intel Lawsuit is pending before the same judge as the ITI Lawsuit, but has a separate schedule.

On April 28, 2006 we entered into a settlement agreement with ITI and other parties settling disputes that were the subject of this litigation. That settlement has now been concluded. In exchange for a cash payment, the settlement affords a license, releases and covenants not to sue us, the other parties named above, and all users of certain of our factory modeling software products such as the “Autosched” product. The Intel Lawsuit has also been dismissed as a result of this settlement.

In addition, we have settled the claim for indemnification brought against us by Freescale by the payment to Freescale of $400,000 to defray a portion of the legal expenses borne by Freescale in the defense of the ITI litigation.

Other Commercial Litigation Matters

In January 2006 a ruling was issued against us by a Massachusetts state court in a commercial litigation matter involving us and BlueShift Technologies, Inc. Awards of damages and costs were assessed against us in January and April 2006 in the amount of approximately $1.6 million, which had been accrued for at December 31, 2005. We have filed a notice of appeal in the case with the Massachusetts Appeals Court and that appeal is now pending.

Regulatory Proceedings

On May 12, 2006, we announced that we had received notice that the Boston Office of the United States Securities and Exchange Commission (the “SEC”) was conducting an informal inquiry concerning stock option grant practices to determine whether violations

of the securities laws had occurred. On June 2, 2006, the SEC issued a voluntary request for information to us in connection with an informal inquiry by that office regarding a loan we previously reported had been made to Mr. Therrien in connection with his exercise of stock options in 1999. On June 23, 2006, we were informed that the SEC had opened a formal investigation into this matter and on the general topic of the timing of stock option grants. On June 28, 2006, the SEC issued a subpoena to us seeking documents related to our stock option grant practices and a purported loan to Robert Therrien in August 1999 in connection with his exercise of a stock option.

On May 19, 2006, we received a grand jury subpoena from the United States Attorney (the “DOJ”) for the Eastern District of New York requesting documents relating to stock option grants. Responsibility for the DOJ’s investigation was subsequently assumed by the United States Attorney for the District of Massachusetts. On June 22, 2006, the United States Attorney’s Office for the District of Massachusetts issued a grand jury subpoena to us in connection with an investigation by that office into the timing of stock option grants by us and the loan to Mr. Therrien mentioned above.

We are cooperating fully with the investigations being conducted by the SEC and the DOJ.

Private Litigation

On May 22, 2006, a derivative action was filed nominally on our behalf in the Superior Court for Middlesex County, Massachusetts, captioned as Mollie Gedell, Derivatively on Behalf of Nominal Defendant Brooks Automation, Inc. v. A. Clinton Allen,et al. The Defendants in the case are: A. Clinton Allen, Director of the Company; Roger D. Emerick, former Director of the Company; Edward C. Grady, Director, President and CEO of the Company; Amin J. Khoury, former Director of the Company; Joseph R. Martin, Director of the Company; John K. McGillicuddy, Director of the Company; and Robert J. Therrien, former Director, President and CEO of the Company. The complaint alleges defendants breached their fiduciary duties by backdating stock option grants; violating Generally Accepted Accounting Principles; causing us to issue false and misleading financial statements; and causing us to file false proxy statements and Form 4’s. The complaint further alleges that Messrs. Therrien, Grady, Emerick and Khoury were unjustly enriched as a result of their receipt and retention of backdated stock option grants. The Complaint seeks, on our behalf,inter alia, damages against the individual defendants for breaches of fiduciary duties; disgorgement of any backdated stock options or the proceeds of any related exercised stock options; other equitable relief to remedy breached fiduciary duties; and plaintiff’s costs.

On May 26, 2006, a derivative action was filed in the Superior Court for Middlesex County, Massachusetts nominally on our behalf, captioned as Ralph Gorgone, Derivatively on Behalf of Nominal Defendant Brooks Automation, Inc. v. Edward C. Grady,et al. The Defendants in the action are: Mr. Grady; Mr. Allen; Mr. Emerick; Mr. Khoury; Robert J. Lepofsky, Director of the Company; Mr. Martin; Mr. McGillicuddy; Krishna G. Palepu, Director of the Company; Alfred Woollacott, III, Director of the Company; Mark S. Wrighton, Director of the Company; and Marvin Schorr, Director of the Company. The complaint alleges defendants breached fiduciary duties owed us by causing or allowing the backdating of stock option grants; the issuance of inaccurate financial results; abuse of control; gross mismanagement; waste of corporate assets; and unjust enrichment. The complaint seeks, on our behalf,inter alia, damages against the director defendants for breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment; the Court to direct us to take actions to improve corporate governance and internal procedures; extraordinary equitable and/or injunctive relief; restitution and disgorgement of profits; and plaintiff’s costs.

unjust enrichment; rescission against Messrs. Therrien, Emerick and Khoury; and breach of contract against Mr. Therrien. The complaint seeks, on our behalf,inter alia, damages against the individual defendants for breaches of fiduciary duties; extraordinary equitable and/or injunctive relief; and plaintiff’s costs.

On June 19, 2006, a putative class action was filed in the United States District Court, District of Massachusetts, captioned as Charles E. G. Leech Sr. v. Brooks Automation, Inc.,et al. The defendants in this action are: the Company; Mr. Therrien; Ellen Richstone, the Company’s former Chief Financial Officer; Mr. Emerick; Mr. Khoury; Robert W. Woodbury, Jr., the Company’s Chief Financial Officer; and Mr. Grady. The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against us and the individual defendants; Section 20(a) of the Exchange Act against the individual defendants; Section 11 of the Securities Act against us and Messrs. Grady, Woodbury, Emerick, Khoury and Therrien; Section 12 of the Securities Act against us and Messrs. Grady, Woodbury, Emerick, Khoury and Therrien; and Section 15 of the Securities Act against Messrs. Grady, Woodbury, Emerick, Khoury and Therrien. The complaint seeks,inter alia, damages, including interest, and plaintiff’s costs.

On July 19, 2006, a putative class action was filed in the United States District Court for the District of Massachusetts, captioned as James R. Shaw v. Brooks Automation, Inc.,et al. The Defendants in the case are: the Company; Mr. Therrien; Ms. Richstone; Mr. Emerick; Mr. Khoury; Mr. Woodbury; and Mr. Grady. As of this date, we have not been served with the complaint. The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all defendants and violations of Section 20(a) of the Exchange Act against all individual defendants. The complaint seeks,inter alia, damages, including interest, and plaintiff’s costs.

We are aware of additional proposed class actions, posted on the websites of various law firms. We are not yet aware of the filing of any such actions and have not been served with a complaint or any other process in any of these matters.

Item 1A.Risk Factors

The following risk factors incorporate all material changes from the risk factors disclosed in our Annual report on Form 10-K/A for the fiscal year ended September 30, 2005.

Factors That May Affect Future Results

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

Risks Relating to Our Industry

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

Our business is largely dependent on capital expenditures in the semiconductor manufacturing industry and other businesses employing similar manufacturing technology. The semiconductor manufacturing industry in turn depends on current and anticipated demand for integrated circuits and the products that use them. In recent years, these businesses have experienced unpredictable and volatile business cycles due in large part to rapid changes in demand and manufacturing capacity for semiconductors. The semiconductor industry experienced a prolonged downturn, which negatively impacted us from the third quarter of fiscal 2001 until well into 2003. As a result of that downturn, our OEM and end-user customers significantly reduced the rate at which they purchased our products and services. That reduced demand adversely affected our sales volume and gross margins and resulted in substantial operating losses during fiscal 2001, 2002 and 2003. These losses were due to, among other things, writedowns for obsolete inventory and expenses related to investments in research and development and global service and support necessary to maintain our competitive position. Although our business became profitable during 2004, a downward trend again developed during fiscal 2005 in the semiconductor industry, and our revenues in fiscal 2005 declined from the prior year. We could continue to experience future operating losses during an industry downturn and any period of uncertain demand. If an industry downturn continues for an extended period of time, our business could be materially harmed. Conversely, if demand improves rapidly, we could have insufficient

inventory and manufacturing capacity to meet our customer needs on a timely basis, which could result in the loss of customers and various other expenses that could reduce gross margins and profitability.

Risks Relating to Brooks

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

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

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

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

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

	•		timing and market acceptance of our new product introductions;

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

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

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

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

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

	•		write-offs for excess or obsolete inventory; and

	•		competitive pricing pressures.

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

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

We continuously review our cost structure and, where deemed necessary, we implement cost reductions and other restructuring activities throughout our organization. These cost saving measures include reductions in workforce, salary and wage reductions, reduced inventory levels, consolidation of manufacturing facilities to our Chelmsford, Massachusetts facilities and the discontinuation of certain product lines and information technology projects. Although we had net income in fiscal 2004 when the semiconductor industry rebounded, we experienced a net loss in fiscal 2005 when our sales levels begin to decline. Our failure to adequately manage our costs, in response to reduced demand for our products and services, could materially harm our business and prospects and our ability to maintain our competitive position. Our restructuring activities could harm us because they may result in reduced productivity by our employees and increased difficulty in retaining and hiring a sufficient number of qualified employees familiar with our products and processes and the locales in which we operate.

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

As the technology in our systems and manufacturing operations has become more complex and customized, it has become increasingly difficult to design and integrate these technologies into our newly-introduced systems, procure adequate supplies of specialized components, train technical and manufacturing personnel and make timely transitions to volume manufacturing. Due to the complexity of our manufacturing processes, we have on occasion failed to meet our customers’ delivery or performance criteria, and as a result we have deferred revenue recognition, incurred late delivery penalties and had higher warranty and service costs. We may

experience these problems again in the future. We may be unable to recover expenses we incur due to changes or cancellations of customized orders. There are also substantial unanticipated costs associated with ensuring that new products function properly and reliably in the early stages of their life cycle. These costs have been and could in the future be greater than expected as a result of these complexities. Our failure to control these costs could materially harm our business and profitability.

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

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

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

	•		accurately identify and define new market opportunities and products;

	•		obtain market acceptance of our products;

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

	•		adjust to changing market conditions;

	•		differentiate our offerings from our competitors’ offerings;

	•		ability to obtain intellectual property rights;

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

	•		properly price our products and services; and

	•		design our products to high standards of manufacturability such that they meet customer requirements.

If we cannot succeed in responding in a timely manner to technological and/or market changes or if the new products that we introduce do not achieve market acceptance, we could lose our competitive position which could materially harm our business and our prospects.

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

For the three months ended June, 2006, approximately 40% of our revenues were derived from sales outside North America, while approximately 49% of our revenues in fiscal 2005 were derived from sales outside North America. We expect that international sales, including increased sales in Asia, will continue to account for a significant portion of our revenues. As a result of our international operations, we are exposed to many risks and uncertainties, including:

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

	•		longer sales-cycles and time to collection;

	•		tariff and international trade barriers;

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

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

	•		government currency control and restrictions on repatriation of earnings;

	•		fluctuations in foreign currency exchange and interest rates; and

•

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

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

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

We acquired Helix effective October 26, 2005. In addition we have made in the past, and may make in the future, acquisitions or significant investments in businesses with complementary products, services and/or technologies. Our acquisitions present numerous risks, including:

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

	•		defining and executing a comprehensive product strategy;

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

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

	•		unanticipated problems or latent liabilities, such as problems with the quality of the installed base of the target company’s products or infringement of another Company’s intellectual property by a target Company’s activities or products;

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

	•		difficulties in managing geographically dispersed operations; and

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

If we acquire a new business, we may be required to expend significant funds, incur additional debt or issue additional securities, which may negatively affect our operations and be dilutive to our stockholders. In periods following an acquisition, we will be required to evaluate goodwill and acquisition-related intangible assets for impairment. When such assets are found to be impaired, they will be written down to estimated fair value, with a charge against earnings. For example, we were required to record impairment charges on acquired intangible assets and goodwill aggregating $474.4 million in fiscal 2002. The failure to adequately address these risks could materially harm our business and financial results.

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

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

We face risks related to the restatement of our financial statements and the pending SEC and US Attorney investigations regarding our past practices with respect to equity incentives.

On May 16, 2006, the Securities and Exchange Commission notified us that it had commenced an informal inquiry into certain stock option grants and accounting practices. Subsequently, we have been informed that the informal inquiry has been converted into a formal inquiry, and we have received a subpoena from the SEC requesting, among other things, all documents relating to stock options available for exercise after January 1, 1999. We are cooperating fully with the SEC and will continue to do so as the inquiry moves forward. At this point we are unable to predict what, if any, consequences the SEC investigation may have on us. However, the investigation could result in considerable legal expenses, divert management’s attention from other business concerns and harm our business. If the SEC were to commence legal action, we could be required to pay significant penalties and/or fines and could become subject to an administrative order and/or a cease and desist order. The filing of our restated financial statements to correct the

discovered accounting errors will not resolve the pending SEC investigation into our past practices with respect to equity incentives. The resolution of the SEC investigation could require the filing of additional restatements of our prior financial statements, and/or our restated financial statements, or require that we take other actions not presently contemplated.

On May 19, 2006, we received a grand jury subpoena from the United States Attorney for the Eastern District of New York (the “US Attorney”) requesting all documents relating to stock option grants between 1995 and the present and documents concerning any proposed restatement of our financial statements. Responsibility for this investigation was subsequently assumed by the United States Attorney for the District of Massachusetts, and we have received a subpoena from that office requesting, among other things, similar documents relating to option grants. The investigation remains ongoing and we are fully cooperating with the US Attorney. We cannot predict when this inquiry will conclude or its eventual outcome. The uncertainty associated with this investigation into our accounting practices and the restatement of our financial statements could seriously harm our business, financial condition and reputation.

Our common stock may be delisted from the Nasdaq unless we file all required restatements with the SEC on or before August 15, 2006

On May 12, 2006, we received a staff determination letter from the Nasdaq Stock Market stating that our failure to timely file our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2006 was a violation of Nasdaq rules and that our securities would be delisted unless we requested a hearing. We requested a hearing, and this request stayed the delisting pending the outcome of the hearing. A hearing has been held at which we requested additional time to complete any necessary filings prior the delisting of our securities. On July 25, 2006, we received notice from the Nasdaq Stock Market that our common stock will not be delisted provided that we file our quarterly report on Form 10-Q for our fiscal quarter ended March 31, 2006 and all required restatements on or prior to August 15, 2006. If we are unable to file these reports on or before August 15, 2006, our common stock may be delisted. The delisting of our common stock would likely make the market for trading of our common stock less liquid. In addition, it would be more difficult for us to raise capital through an issuance of equity or convertible debt securities, which could have a material adverse effect on our ability to raise needed financing.

We face litigation risks relating to our past practices with respect to equity incentives that could have a material adverse effect on the Company.

Several lawsuits, including both putative securities class actions and shareholder derivative actions, have been filed against us, our directors and officers and certain of our former directors and officers relating to our past practiceswith respect to equity incentives.SeePart II, Item 1, “Legal Proceedings” for a more detailed description of these proceedings. We are and may in the future be subject to other litigation arising in the normal course of our business. These actions are in the preliminary stages, and their ultimate outcome may have a material adverse effect on our business, financial condition and results of operations. Litigation may be time-consuming, expensive and disruptive to normal business operations, and the outcome of litigation is difficult to predict. The defense of these lawsuits will result in significant expense and the continued diversion of our management’s time and attention from the operation of our business, which could impede our ability to achieve our business objectives. Some or all of the amount we may be required to pay to satisfy a judgment or settlement of any or all of these claims may not be covered by insurance.

We have amended our annual report on Form 10-K for the year ended September 30, 2005 and included in that filing restated financial statements for the years ended September 30, 2005, 2004 and 2003 and restated selected financial data for the years ended September 30, 2002 and 2001. This restatement of our financial statements may lead to new litigation, may strengthen and expand the claims in the pending litigation, and may increase the cost of defending or resolving the current litigation.

Under indemnification agreements we have entered into with our officers and directors, we are required to indemnify them, and advance expenses to them, in connection with their participation in proceedings arising out of their service to us. These payments may be material, in particular if any of these individuals become targets of regulatory investigations into our past practices with respect to equity incentives.

Risks Relating to Our Customers

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

We face substantial competition throughout the world in each of our product areas. Our primary competitors are Asyst/Shinko, Daifuku, Camstar, Datasweep, Inficon, Intercim, IBM, MKS Instruments, Murata, Rorze, TDK and Yaskawa and other smaller, regional companies. We also endeavor to sell products to OEM manufacturers, such as Applied Materials, Novellus, KLA-Tencor and TEL, that also satisfy their semiconductor and flat panel display handling needs internally rather than by purchasing systems or

modules from a supplier like us. Some of our competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing and customer support capabilities than we do. We expect our competitors to continue to improve the performance of their current products and to introduce new products and technologies that could adversely affect sales of our current and future products and services. New products and technologies developed by our competitors or more efficient production of their products could require us to make significant price reductions to avoid losing orders. If we fail to respond adequately to pricing pressures or fail to develop products with improved performance or developments with respect to the other factors on which we compete, we could lose customers or orders. If we are unable to compete effectively, our business and prospects could be materially harmed.

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

We receive a significant portion of our revenues in each fiscal period from a relatively limited number of customers, and that trend is likely to continue. Sales to our ten largest customers accounted for approximately 47% of our total revenues in the nine months ended June 30, 2006, 44% of our total revenues in the fiscal year ended September 30, 2005, 39% of our total revenues in fiscal 2004, and 37% in fiscal 2003. As the semiconductor manufacturing industry continues to consolidate and further shifts to foundries which manufacture semiconductors designed by others, the number of our potential customers could decrease, which would increase our dependence on our limited number of customers. The loss of one or more of these major customers or a decrease in orders from one of these customers could materially affect our revenue, business and reputation.

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

Our customers may need several months to test and evaluate our products. This increases the possibility that a customer may decide to cancel or change plans, which could reduce or eliminate our sales to that customer. The impact of this risk can be magnified during the periods in which we introduce a number of new products, as was the case during fiscal 2005, and will continue in fiscal 2006. As a result of this lengthy sales cycle, we may incur significant research and development expenses, and selling, general and administrative expenses before we generate the related revenues for these products, and we may never generate the anticipated revenues if our customer cancels or changes its plans.

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

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

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

Other Risks

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

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

There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor related industries. We have in the past been, and may in the future be, notified that we may be infringing intellectual property rights possessed by other third parties. We cannot guarantee that infringement claims by third parties or other claims for indemnification by customers or end users of our products resulting from infringement claims will not be asserted in the future or that such assertions, if proven to be true, will not materially and adversely affect our business, financial condition and results of operations.

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

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

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

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

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

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

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

We currently obtain many of our key components on an as-needed, purchase order basis from numerous suppliers. We do not generally have long-term supply contracts with these suppliers, and many of them have undertaken cost-containment measures in light of the recent downturn in the semiconductor industry. In the event of an industry upturn, these suppliers could face significant challenges in delivering components on a timely basis. Our inability to obtain components in required quantities or of acceptable quality could result in delays or reductions in product shipments to our customers. In addition, if a supplier or sub-supplier alters their manufacturing processes suffers a production stoppage for any reason or modifies or discontinues their products, this could result in a delay or reduction in product shipments to our customers. Any of the contingencies could cause us to lose customers, result in delayed or lost revenue and otherwise materially harm our business.

We are exposed to potential risks and we will continue to incur increased costs as a result of the internal control testing and evaluation process mandated by Section 404 of the Sarbanes-Oxley Act of 2002.

We assessed the effectiveness of our internal control over financial reporting as of September 30, 2005 and assessed all deficiencies on both an individual basis and in combination to determine if, when aggregated, they constitute more than a significant deficiency. As a result of this evaluation, no material weaknesses were identified. Although we have completed the documentation and

testing of the effectiveness of our internal control over financial reporting for fiscal 2005, as required by Section 404 of the Sarbanes-Oxley Act of 2002, we expect to continue to incur costs, including increased accounting fees and increased staffing levels, in order to maintain compliance with that section of the Sarbanes-Oxley Act. We continue to monitor controls on an ongoing basis in fiscal 2006 for any deficiencies. No evaluation can provide complete assurance that our internal controls will detect or uncover all failures of persons within our company to disclose material information otherwise required to be reported. The effectiveness of our controls and procedures could also be limited by simple errors or faulty judgments. In addition, if we continue to expand globally, the challenges involved in implementing appropriate internal controls will increase and will require that we continue to improve our internal controls.

In the future, if we fail to complete the Sarbanes-Oxley 404 evaluation in a timely manner, we could be subject to regulatory scrutiny and a loss of public confidence in our internal controls. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.

Recently completed and future acquisitions of companies, some of which may have operations outside the United States, may provide us with challenges in implementing the required processes, procedures and controls in our acquired operations. Acquired companies may not have disclosure controls and procedures or internal control over financial reporting that are as thorough or effective as those required by securities laws in the United States. Although we intend to devote substantial time and incur substantial costs, as necessary, to ensure ongoing compliance, we cannot be certain that we will be successful in complying with Section 404.

Our stock price is volatile.

The market price of our common stock has fluctuated widely. From the beginning of fiscal year 2004 through the end of this quarter, our stock price fluctuated between a high of $27.30 per share and a low of $11.00 per share. Consequently, the current market price of our common stock may not be indicative of future market prices, and we may be unable to sustain or increase the value of an investment in our common stock. Factors affecting our stock price may include:

	•		variations in operating results from quarter to quarter;

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

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

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

	•		general economic conditions;

	•		political changes, hostilities or natural disasters such as hurricanes and floods;

	•		low trading volume of our common stock; and

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

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

Provisions in our organizational documents and contracts may make it difficult for someone to acquire control of us.

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

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

	•		a prohibition on stockholder action by written consent;

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

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

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

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

We will incur significant stock-based compensation charges related to certain stock options and restricted stock in future periods.

The Financial Accounting Standards Board (FASB) issued in December 2004 Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, an amendment of FASB Statements Nos. 123 and 95, that addresses the accounting treatment for employee stock options and other share-based payment transactions. The statement eliminates the ability to account for share-based compensation transactions using Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and requires that such transactions be accounted for using a fair-value-based method and recognized as expenses. These expenses have been incorporated into our financial statements beginning in the quarter ending December 31, 2005. In fiscal 2006, we expect that the stock-based compensation cost will have a material effect on our net income as a result of the adoption of Statement 123R, and could adversely affect the market price of our common stock.

Item 6.Exhibits

The following exhibits are included herein:


Exhibit No.		Description
3.1		Certificate of Incorporation of Brooks (incorporated herein by reference to Exhibit 3.1 of Brooks’ registration statement on Form S-4, filed on August 30, 2005, as amended September 22, 2005).

3.2		Certificate of Designations of Series A Junior Participating Preferred Stock of Brooks (incorporated herein by reference to Exhibit 3.03 of Brooks’ registration statement on Form S-3, filed on August 27, 1997).

3.3		Certificate of Amendment of Certificate of Incorporation of Brooks (incorporated herein by reference to Exhibit 3.3 of Brooks’ registration statement on Form S-4, filed on August 30, 2005, as amended September 22, 2005).

3.4		Certificate of Amendment of Certificate of Incorporation of Brooks (incorporated herein by reference to Exhibit 3.4 of Brooks’ registration statement on Form S-4, filed on August 30, 2005).

3.5		Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock of Brooks (incorporated herein by reference to Exhibit 3.5 of Brooks’ registration statement on Form S-4, filed on August 30, 2005).

3.6		Certificate of Ownership and Merger of PRI Automation, Inc. into Brooks (incorporated herein by reference to Exhibit 3.6 of Brooks’ registration statement on Form S-4, filed on August 30, 2005).

3.7		Certificate of Designations, Preferences, Rights and Limitations of Special Voting Preferred Stock of Brooks (incorporated by reference to Exhibit 4.13 of Brooks’ registration statement on Form S-3 (Registration No. 333-87194), filed on April 29, 2002, as amended May 13, 2002).

3.8		Certificate of Change of Registered Agent and Registered Office of Brooks (incorporated herein by reference to Exhibit 3.8 of Brooks’ registration statement on Form S-4, filed on August 30, 2005).

3.9		Certificate of Amendment of Certificate of Incorporation of Brooks (incorporated by reference to Exhibit 3.01 of Brooks’ quarterly report for the quarterly period ended March 31, 2003, filed on May 13, 2003).

3.10		Certificate of Amendment of Certificate of Incorporation of Brooks (incorporated herein by reference to Exhibit 3.1 of Brooks’ current report on Form 8-K, filed on October 26, 2005).

3.11		Certificate of Elimination of Special Voting Preferred Stock (incorporated herein by reference to Exhibit 3.2 of Brooks’ current report on Form 8-K, filed on October 26, 2005).


Exhibit No.		Description
3.12		Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 3.3 of Brooks’ current report on Form 8-K, filed on October 26, 2005).

3.13		Brooks Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.4 of Brooks’ current report on Form 8-K, filed on October 26, 2005).

10.1		Deferred Compensation Plan, as amended.

10.2		Shareholders’ Agreement, dated as of June 30, 2006, among Yaskawa Electric Corporation, Brooks Automation, Inc. and Yaskawa Brooks Automation, Inc.*

10.3		Agreement and Plan of Merger, dated May 8, 2006, by and among Brooks Automation, Inc., Bravo Acquisition Subsidiary, Inc. and Synetics Solutions, Inc.*

10.4		U.S. Robot Supply Agreement, made as of June 30, 2006, by and between Brooks Automation, Inc. and Yaskawa Electric Corporation.*

10.5		Brooks Japan Robot Supply Agreement, made as of June 30, 2006, by and between Yaskawa Brooks Automation, Inc. and Brooks Automation, Inc.*

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

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

32		Section 1350 Certifications


*		Brooks agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


				BROOKS AUTOMATION, INC.

		DATE: August 9, 2006		/s/ EDWARD C. GRADY Edward C. Grady
				Director, President and Chief Executive Officer
				(Principal Executive Officer)

		DATE: August 9, 2006		/s/ ROBERT W. WOODBURY, JR. Robert W. Woodbury, Jr.
				Senior Vice President and Chief Financial Officer
				(Principal Accounting Officer)

EXHIBIT INDEX


Exhibit No.		Description

3.1		Certificate of Incorporation of Brooks (incorporated herein by reference to Exhibit 3.1 of Brooks’ registration statement on Form S-4, filed on August 30, 2005, as amended September 22, 2005).

3.2		Certificate of Designations of Series A Junior Participating Preferred Stock of Brooks (incorporated herein by reference to Exhibit 3.03 of Brooks’ registration statement on Form S-3, filed on August 27, 1997).

3.3		Certificate of Amendment of Certificate of Incorporation of Brooks (incorporated herein by reference to Exhibit 3.3 of Brooks’ registration statement on Form S-4, filed on August 30, 2005, as amended September 22, 2005).

3.4		Certificate of Amendment of Certificate of Incorporation of Brooks (incorporated herein by reference to Exhibit 3.4 of Brooks’ registration statement on Form S-4, filed on August 30, 2005).

3.5		Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock of Brooks (incorporated herein by reference to Exhibit 3.5 of Brooks’ registration statement on Form S-4, filed on August 30, 2005).

3.6		Certificate of Ownership and Merger of PRI Automation, Inc. into Brooks (incorporated herein by reference to Exhibit 3.6 of Brooks’ registration statement on Form S-4, filed on August 30, 2005).

3.7		Certificate of Designations, Preferences, Rights and Limitations of Special Voting Preferred Stock of Brooks (incorporated by reference to Exhibit 4.13 of Brooks’ registration statement on Form S-3 (Registration No. 333-87194), filed on April 29, 2002, as amended May 13, 2002).

3.8		Certificate of Change of Registered Agent and Registered Office of Brooks (incorporated herein by reference to Exhibit 3.8 of Brooks’ registration statement on Form S-4, filed on August 30, 2005).

3.9		Certificate of Amendment of Certificate of Incorporation of Brooks (incorporated by reference to Exhibit 3.01 of Brooks’ quarterly report for the quarterly period ended March 31, 2003, filed on May 13, 2003).

3.10		Certificate of Amendment of Certificate of Incorporation of Brooks (incorporated herein by reference to Exhibit 3.1 of Brooks’ current report on Form 8-K, filed on October 26, 2005).

3.11		Certificate of Elimination of Special Voting Preferred Stock (incorporated herein by reference to Exhibit 3.2 of Brooks’ current report on Form 8-K, filed on October 26, 2005).

3.12		Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 3.3 of Brooks’ current report on Form 8-K, filed on October 26, 2005).

3.13		Brooks Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.4 of Brooks’ current report on Form 8-K, filed on October 26, 2005).

10.1		Deferred Compensation Plan, as amended.

10.2		Shareholders’ Agreement, dated as of June 30, 2006, among Yaskawa Electric Corporation, Brooks Automation, Inc. and Yaskawa Brooks Automation, Inc.*

10.3		Agreement and Plan of Merger, dated May 8, 2006, by and among Brooks Automation, Inc., Bravo Acquisition Subsidiary, Inc. and Synetics Solutions, Inc.*

10.4		U.S. Robot Supply Agreement, made as of June 30, 2006, by and between Brooks Automation, Inc. and Yaskawa Electric Corporation.*

10.5		Brooks Japan Robot Supply Agreement, made as of June 30, 2006, by and between Yaskawa Brooks Automation, Inc. and Brooks Automation, Inc.*

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

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

32		Section 1350 Certifications


*		Brooks agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Good

Azenta (AZTA) 10-Q2006 Q3 Quarterly report

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