SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from Commission File Number
______ to ______ 0-24934
PRI AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2495703
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
805 MIDDLESEX TURNPIKE 01821-3986
BILLERICA, MA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number: (978) 670-4270
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock as of February 2, 2000:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, $.01 par value 22,870,761
PRI AUTOMATION, INC.
INDEX
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of January 2, 2000
and September 30, 1999 3
Consolidated Statements of Operations for
the Three Months Ended January 2, 2000 and
December 27, 1998 4
Consolidated Statements of Cash Flows for
the Three Months Ended January 2, 2000 and
December 27, 1998 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE 18
Exhibit Index 19
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRI AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
JANUARY 2, SEPTEMBER 30,
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 45,164 $ 51,865
Trade accounts receivable, less allowances for doubtful accounts of
$2,227 and $2,646, respectively................................ 37,476 31,436
Contracts in progress.............................................. 17,805 6,018
Inventories........................................................ 28,924 28,351
Other current assets............................................... 2,416 7,063
--------- ---------
Total current assets........................................... 131,785 124,733
Property and equipment, net........................................... 19,503 19,128
Other assets, net..................................................... 2,280 2,691
--------- ---------
Total assets................................................... $ 153,568 $ 146,552
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 17,456 $ 16,900
Accrued expenses and other liabilities............................. 15,134 16,396
Current portion of obligations under capital lease................. 501 570
Billings in excess of revenues and customer advances............... 11,393 11,931
--------- ---------
Total current liabilities...................................... 44,484 45,797
Obligations under capital lease....................................... 301 411
Other non-current liabilities......................................... 762 788
Commitments and contingencies (Notes J and K)
Minority interest..................................................... 162 56
Stockholders' equity:
Series A participating cumulative preferred stock, $0.01 par
value; 250,000 shares authorized; none outstanding............... -- --
Special voting preferred stock, $0.01 par value; one share
authorized and outstanding....................................... -- --
Preferred stock (undesignated), $0.01 par value; 149,999
shares authorized; none outstanding.............................. -- --
Common stock, $.01 par value: 50,000,000 shares authorized;
22,788,909 and 22,265,276 shares issued and outstanding at
January 2, 2000 and September 30, 1999, respectively............. 228 223
Additional paid-in capital......................................... 149,529 141,469
Accumulated deficit................................................ (41,898) (42,192)
--------- ---------
Total stockholders' equity..................................... 107,859 99,500
--------- ---------
Total liabilities and stockholders' equity..................... $ 153,568 $ 146,552
========= =========
The accompanying notes are an integral part
of the consolidated financial statements.
3
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED
------------------
JANUARY 2, DECEMBER 27,
2000 1998
---- ----
Net revenue:
Product and equipment............................................. $49,163 $ 20,717
Services and maintenance.......................................... 9,530 8,918
------- --------
Total net revenue.............................................. 58,693 29,635
Cost of revenue:
Product and equipment............................................. 31,259 15,766
Services and maintenance.......................................... 6,056 4,379
------- --------
Total cost of revenue.......................................... 37,315 20,145
------ --------
Gross profit......................................................... 21,378 9,490
Operating expenses:
Research and development.......................................... 12,159 10,414
Selling, general and administrative............................... 9,015 9,686
Special charges................................................... -- 650
------- --------
Operating profit (loss).............................................. 204 (11,260)
Other income, net.................................................... 200 656
------- --------
Income (loss) before income taxes.................................... 404 (10,604)
Provision for (benefit from) income taxes............................ 110 (2,949)
------- ---------
Net income (loss).................................................... $ 294 $ (7,655)
======= =========
Net income (loss) per common share:
Basic............................................................. $ 0.01 $ (0.36)
Diluted........................................................... $ 0.01 $ (0.36)
Weighted average shares outstanding:
Basic............................................................. 22,514 21,269
Diluted........................................................... 24,483 21,269
The accompanying notes are an integral part
of the consolidated financial statements.
4
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED
------------------
JANUARY 2, DECEMBER 27,
2000 1998
---- ----
Cash flows from operating activities:
Net income (loss)............................................... $ 294 $ (7,655)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization expense....................... 2,249 2,248
Provision for write-downs of inventories.................... -- 200
Provision for bad debts..................................... -- 54
Net loss on disposal of assets.............................. -- 54
Translation losses (gains), net............................. 241 (198)
Minority interests in income of subsidiaries................ 106 --
Changes in operating assets and liabilities:
Trade accounts receivable.............................. (5,999) (104)
Contracts in progress.................................. (11,787) (856)
Inventories............................................ (573) 4,673
Other assets........................................... 4,692 (416)
Accounts payable....................................... 773 (5,105)
Accrued expenses and other liabilities................. (1,285) 1,854
Billings in excess of revenues and customer
advances........................................... (539) (1,441)
--------- --------
Net cash used in operating activities................................ (11,828) (6,692)
--------- --------
Cash flows from investing activities:
Purchases of intangible assets.................................. -- (260)
Proceeds from sale of property and equipment.................... -- 6
Purchases of property and equipment............................. (2,296) (1,114)
Cash paid for contingent consideration.......................... (59) (76)
--------- --------
Net cash used in investing activities................................ (2,355) (1,444)
-------- --------
Cash flows from financing activities:
Repayment of capital lease obligations.......................... (179) (102)
Proceeds from minority shareholders............................. -- 93
Proceeds under line of credit................................... -- 48
Proceeds from exercise of stock options and Employee
Stock Purchase Plan......................................... 8,124 786
-------- -------
Net cash provided by financing activities............................ 7,945 825
-------- -------
Effect of exchange rate changes on cash.............................. (463) --
-------- -------
Net decrease in cash and cash equivalents............................ (6,701) (7,311)
Cash and cash equivalents at beginning of period..................... 51,865 57,047
-------- --------
Cash and cash equivalents at end of period........................... $ 45,164 $ 49,736
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
5
PRI AUTOMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of PRI
Automation, Inc., its wholly-owned domestic subsidiaries and its wholly-owned
and majority-owned foreign subsidiaries (collectively, the "Company"). All
significant intercompany transactions and balances have been eliminated.
In March 1999, the Company acquired Promis Systems Corporation Ltd.
("Promis"). The acquisition of Promis was accounted for using the
pooling-of-interests method of accounting. All prior period historical condensed
consolidated financial statements presented herein have been restated to include
the financial position, results of operations, and cash flows of Promis.
PREPARATION OF FINANCIAL STATEMENTS
The interim financial data as of January 2, 2000 and for the three months
ended January 2, 2000 and December 27, 1998 is unaudited; however, in the
opinion of the Company, the interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results for the interim periods. The results for interim periods are not
necessarily indicative of the results for the entire year. The condensed
consolidated financial statements should be read in connection with the audited
consolidated financial statements of PRI Automation, Inc. for the year ended
September 30, 1999 included in its Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
For interim reporting purposes, the Company closes its first three fiscal
quarters on the Sunday nearest the last day of December, March and June in each
year. The Company's fiscal year ends on the last day of September.
B. INVENTORIES
Inventories consist of the following (in thousands):
JANUARY 2, SEPTEMBER 30,
2000 1999
---- ----
Raw materials.................... $19,694 $16,492
Work-in-process.................. 6,100 5,804
Finished goods................... 3,130 6,055
-------- --------
$28,924 $28,351
======= =======
6
C. ACCRUED EXPENSES AND OTHER LIABILITIES
The significant components of accrued expenses and other liabilities
consist of the following (in thousands):
JANUARY 2, SEPTEMBER 30,
2000 1999
---- ----
Accrued expenses................. $ 6,842 $ 7,295
Accrued compensation............. 3,853 4,718
Warranty reserves................ 4,439 4,383
------- -------
$15,134 $16,396
======= =======
D. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is computed based on the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per common share gives effect to all dilutive potential common
shares outstanding during the period. A reconciliation between basic and diluted
net income (loss) per share is as follows (in thousands, except per share data):
THREE MONTHS ENDED
------------------
JANUARY 2, DECEMBER 27,
2000 1998
---- ----
Net income (loss) ........................................... $ 294 $ (7,655)
Shares used in computation:
Weighted average common shares outstanding
used in computation of basic net income (loss)
per common share....................................... 22,514 21,269
Dilutive effect of stock options and warrants............ 1,969 --
------- ---------
Shares used in computation of diluted net income
(loss) per common share................................ 24,483 21,269
======= ========
Basic net income (loss) per share........................ $ 0.01 $ (0.36)
Diluted net income (loss) per share...................... $ 0.01 $ (0.36)
Options to purchase 768,150 shares of common stock were outstanding as of
January 2, 2000 but were not included in the computation of diluted net income
per common share because the options' exercise prices were greater than the
average market price of the common shares, and therefore, would be anti-dilutive
under the treasury stock method. Options to purchase 3,391,906 shares of common
stock were outstanding as of December 27, 1998, but were not included in the
computation of diluted net loss per common share because the Company was in a
loss position, and the inclusion of such shares would be anti-dilutive.
E. OTHER COMPREHENSIVE INCOME
The Company previously adopted SFAS No. 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. Comprehensive income (loss) is
equal to net income (loss) for the three months ended January 2, 2000 and
December 27, 1998.
7
F. ACQUISITION OF PROMIS
On March 2, 1999, the Company acquired Promis, a Canadian corporation, in a
transaction accounted for as a pooling of interests. Promis was a developer of
manufacturing execution systems ("MES") software solutions for semiconductor and
precision electronics manufacturers. In connection with the acquisition, the
Company issued 0.1353 exchangeable shares for each outstanding Promis share, or
an aggregate of 1,389,974 exchangeable shares. Each exchangeable share may be
exchanged at any time for one share of common stock of the Company. The Company
assumed options to purchase 270,336 shares of the Company's common stock and a
warrant to purchase 13,530 shares of common stock, converted at the common stock
exchange ratio, under this acquisition agreement. The consolidated financial
statements of the Company for periods prior to the acquisition have been
restated to include the financial position, results of operations and cash flows
of Promis.
G. SPECIAL CHARGES
During the quarter ended March 28, 1999, the Company recorded special
charges of $1,850,000. The special charges consisted of $1,406,000 for
compensation-related costs for five management employees in the selling, general
and administrative functions to satisfy existing contractual obligations related
to the acquired companies; $196,000 of costs associated with the reductions of
leased facilities; and $248,000 for other legal issues. At January 2, 2000,
$272,000 of these charges remained in accrued expenses and are expected to be
paid by the end of calendar year 2000.
During the quarter ended December 27, 1998, the Company recorded special
charges of $650,000. These charges represent provisions for employee severance
compensation relating to the termination of 62 employees and consultants. These
headcount reductions were approximately 40 in manufacturing and customer
support, 8 in engineering, and 14 in selling, general and administrative
functions. The reduction in force occurred in response to the continued downturn
in the semiconductor equipment industry. All of these special charges have been
paid.
H. INCOME TAXES
The income tax provision for the three months ended January 2, 2000 was
$110,000, or 27.2% of income before income taxes, compared to a benefit of
$2,949,000, or 27.8% of loss before income taxes, for the three months ended
December 27, 1998. The tax provision of $110,000 is primarily related to foreign
and state taxes. During the third quarter of fiscal year 1999, management
concluded that a full valuation allowance against the Company's net deferred tax
assets was required, under applicable accounting standards, due to uncertainties
surrounding their realization. Accordingly a valuation allowance in an amount
equal to the net deferred tax assets was established to reflect these
uncertainties. The effective tax rate for the three months ended December 27,
1998 differed from the statutory rate primarily because income of certain
foreign subsidiaries was not subject to income tax due to available tax credits
and net operating losses.
I. SEGMENT REPORTING
The Company operates in three primary segments, all within the
semiconductor manufacturing and OEM equipment supply industry, which serve both
domestic and international markets. These reportable operating segments consist
of Factory Automation Systems, Tool Automation Systems and MES and Other
Systems. The MES and Other Systems segment
8
includes factory management software and advanced planning and scheduling
software product lines. The Company's operating segments have no significant
intersegment revenues and expenses, as all segments' revenues are generated
from sales to unaffiliated customers.
Operating segment information for the three months ended January 2, 2000
and December 27, 1998 is as follows:
THREE MONTHS ENDED
------------------
JANUARY 2, DECEMBER 27,
2000 1998
---- ----
(IN THOUSANDS)
TOTAL NET REVENUE FROM UNAFFILIATED CUSTOMERS:
Factory Automation Systems........................................ $ 32,524 $ 18,704
Tool Automation Systems........................................... 20,260 6,608
MES and Other Systems............................................. 5,909 4,323
-------- ---------
TOTAL NET REVENUE............................................... $ 58,693 $ 29,635
======== =========
SEGMENT OPERATING PROFIT (LOSS) BEFORE CORPORATE ALLOCATIONS:
Factory Automation Systems........................................ $(1,632) $ (4,543)
Tool Automation Systems........................................... 4,549 (1,502)
MES and Other Systems............................................. (188) (2,882)
OTHER RECONCILING ITEMS:
Corporate and other expenses...................................... (2,525) (2,333)
-------- ---------
CONSOLIDATED OPERATING PROFIT (LOSS)............................ 204 (11,260)
Other income, net................................................. 200 656
-------- ---------
CONSOLIDATED INCOME (LOSS) BEFORE INCOME TAXES.................. $ 404 $(10,604)
========== =========
J. CONTINGENT LIABILITY
At January 2, 2000, the Company had a contingent liability of approximately
$142,000. In 1993, Promis purchased the business assets and assumed selected
liabilities of Palette Systems, Inc., a Canadian company (the "sellers"). The
purchase price of approximately $9.9 million consisted of $5.5 million in cash
and 59,889 exchangeable common shares, as converted at the common stock exchange
ratio, of the Company, valued at $73.91 per common share. At the time of the
acquisition, Promis agreed that on April 7, 1998 it would pay additional cash
consideration to the sellers of an amount equal to the amount by which
approximately $4.0 million exceeded the market value of the common shares owned
by the sellers on April 7, 1998.
On March 29, 1996, Promis made a formal claim against the sellers pursuant
to the dispute resolution provisions of the original purchase and sale
agreements. The sellers filed certain counterclaims against Promis. In 1997,
Promis and the sellers reached a settlement of the dispute. The settlement
provided that commencing on April 7, 1998 Promis would pay additional cash to
the sellers in an amount equal to the amount by which the market value of 59,889
exchangeable common shares, on each of the agreed-upon payment dates, is less
than $73.91 per common share. As part of the settlement, half the additional
cash consideration was payable on April 7, 1998, with the remaining half due in
20 quarterly installments commencing on July 7, 1998
9
through April 7, 2003. Under the terms of the settlement agreement, the sellers
are restricted as to the number of shares of the Company's common stock which
can be sold in any quarter prior to April 7, 2003.
Since the payment of additional consideration is determined based on the
Company's share price at various future dates, any consideration in addition to
that paid to date will be recorded as a reduction in additional paid-in capital
of the Company as the amounts become determinable. The Company's contingent
liability as of January 2, 2000, calculated based on the market value of the
Company's common stock at January 2, 2000, is approximately $142,000.
K. JOINT VENTURE
The Company has entered into a joint venture with Shinsung Engineering Co.
Ltd. ("SEC") to distribute the Company's products and services in Korea. SEC is
in the business of developing and marketing products and services for the
semiconductor industry. The Company and SEC intend to invest on a pro rata basis
2.6 billion Korean won, or approximately $2.3 million, in the joint venture over
a two-year period through June 2000. As of January 2, 2000, the Company had
outstanding commitments under this agreement of 1.2 billion Korean won, or
approximately $1.0 million.
L. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses, depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 by fiscal
2001, in accordance with SFAS No. 137, which deferred the effective date of SFAS
No. 133. The Company is evaluating SFAS No. 133 to determine the impact on its
consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes the staff's view in applying
generally accepted accounting principles to selected revenue recognition
issues. The application of the guidance in SAB 101 will be required in the
Company's first quarter of fiscal 2001. The effects of applying this guidance
will be reported as a cumulative effect adjustment resulting from a change in
accounting principle. The Company does not expect the application to have a
material effect on its financial statements; however, the final evaluation of
SAB 101 is not yet complete.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission may contain statements which are not historical facts but
which are "forward-looking statements" involving risks and uncertainties. In
particular, statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" relating to the Company's shipment level
and profitability and the sufficiency of capital to meet working capital and
capital expenditure requirements may be forward-looking statements. The words
"expect," "anticipate," "internal," "plan," "believe," "seek," "estimate" and
similar expressions are intended to identify such forward-looking statements.
This Report also contains other forward-looking statements. Such statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions that could cause the Company's future results to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. Many of these factors are beyond the Company's ability to
control or predict. Readers are accordingly cautioned not to place undue
reliance on forward-looking statements. The Company disclaims any intent or
obligation to update publicly any forward-looking statements, whether in
response to new information or future events or otherwise. Important factors
that may cause the Company's actual results to differ from such forward-looking
statements include, but are not limited to, the factors discussed below.
The Company's future results are subject to substantial risks and
uncertainties. The Company's business and results of operations depend in
significant part upon capital expenditures of manufacturers of semiconductors,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. Historically, the
semiconductor industry has been highly cyclical with recurring periods of
over-supply. This recurring over-supply often has had a severe effect on the
semiconductor industry's demand for capital equipment, including systems
manufactured and marketed by the Company. Oversupply in the semiconductor market
may in the future reduce demand for capital equipment, including demand for the
Company's systems. The semiconductor industry recently experienced a downturn
that adversely affected the Company's operating results, and reduced demand for
semiconductors in the future could jeopardize the Company's plans. The Company
believes that the markets for newer generations of semiconductors will be
subject to similar fluctuations. Also, the recent high rate of technical
innovation and resulting improvements in the performance and price of
semiconductor devices, which have driven much of the demand for the Company's
products, could slow, or encounter limits, in the future. In addition, any other
factor adversely affecting the semiconductor industry or particular segments
within the semiconductor industry may adversely effect the Company's business,
financial condition and operating results.
In addition to the risks and uncertainties posed generally by the
cyclicality of the semiconductor industry, the Company faces the following
risks and uncertainties: the Company's lengthy sales cycle makes it difficult
to anticipate sales; the Company's operating results fluctuate significantly
and the Company's stock price could fall if its operating results are below
expectations of analysts or investors; delay in shipment of a single system
could substantially decrease the Company's sales for the period in which the
delay occurs; the Company typically charges a fixed price for a system which
allows for vulnerability to cost overruns; the Company has significant fixed
costs which are not easily reduced during a downturn; the Company depends on
a limited number of customers and the loss, cancellation or delay of any
order by these customers could adversely affect the Company's results; the
Company's customers do not have long-term purchase agreements with the
Company, and as a result, customers could stop purchasing the Company's
11
products and services at any time; industry consolidation and outsourcing of
the manufacture of semiconductors to foundries could reduce the number of
available customers; the Company's ongoing efforts to compete in the
Asia-Pacific market may not be successful; the Company has invested heavily
in 300mm wafer technology, which is being adopted more slowly than the
Company expected; the Company needs managerial and technical employees who
because of their skills and experience may be difficult to hire and retain;
the Company may have difficulty managing growth in light of fluctuating
demand; the Company's substantial international operations create special
risks; the Company faces significant competition from other automation
companies which may limit the prices it can charge for its products and may
result in lost sales; in order to continually improve its technology to
remain competitive, the Company must expend substantial resources on research
and development, even in periods during industry downturns; the Company may
experience delays in product development and technical difficulties that
could delay new product introductions; future acquisitions may disrupt the
Company's operations; the Company depends on subcontractors and one or a few
suppliers for some components and manufacturing processes; the Company
depends on Mitchell G. Tyson, its President and Chief Executive Officer, and
other senior staff; the Company's Chief Financial Officer has resigned and it
may not be able to replace him in a timely manner; the Company's software
products may contain errors or defects that could result in lost revenue,
delayed or limited market acceptance or product liability claims with
substantial litigation costs; the Company may be unable to protect its
proprietary technology; claims by others that the Company infringes their
proprietary technology could harm the Company's business; Year 2000 problems
may disrupt the Company's operations; the market price of the Company's
common stock is volatile; the Company may need additional financing which
could be difficult to obtain; and certain provisions of the Company's charter
and by-laws and Massachusetts law make a takeover of the Company more
difficult. As a result of the foregoing and other factors, the Company may
experience material fluctuations in its future operating results on a
quarterly or annual basis which could materially adversely affect its
business, financial condition, operating results and stock price.
RESULTS OF OPERATIONS
On March 2, 1999, the Company acquired Promis Systems Corporation Ltd., a
Canadian corporation ("Promis"). Promis was a leading developer of manufacturing
execution systems ("MES") software solutions for semiconductor and precision
electronics manufacturers. The business combination was accounted for as a
pooling of interests; accordingly, the financial results of the Company for
fiscal 1999 have been restated to include Promis.
TOTAL NET REVENUE: Total net revenue for the fiscal quarter ended
January 2, 2000 increased 98.1% to $58.7 million, compared to $29.6 million
for the corresponding period in fiscal 1999. This represents the fourth
consecutive quarter of revenue growth. The growth was experienced across all
of the Company's operating segments. Most of the increase was related to
product and equipment revenue, which increased 137.3%, while services and
maintenance revenue increased 6.9% from the corresponding period in fiscal
1999. The increase in net revenue is due to the growth in requirements for
capital equipment within the semiconductor industry arising from the increase
in demand for semiconductor-related products. Net export sales to European
and Asian customers for the fiscal quarter ended January 2, 2000 were $24.8
million, or 42.3% of total net revenue, compared to $5.9 million, or 20.0% of
total net revenue for the corresponding period in fiscal 1999. Sales to
foreign customers are denominated in U.S. dollars with the exception of
certain sales of tool automation and spare parts products which are
denominated in local currencies.
12
GROSS PROFIT: The gross profit margin was 36.4% for the fiscal quarter
ended January 2, 2000, compared to 32.0% for the corresponding period in
fiscal 1999. The increase in gross profit margin was primarily experienced by
the Factory Systems and Tool Automation Systems segments. The increase in the
gross profit margin is due to a number of factors including a change in
product mix with a more significant increase in product and equipment revenue
as compared to service and maintenance revenue. Additionally, the upturn in
industry demand has improved product pricing and the growth in
production volume has increased manufacturing efficiencies and improved
related costs. At the same time, the gross profit margin was adversely
impacted by costs related to the introduction of new products.
RESEARCH AND DEVELOPMENT: Research and development expenses increased to
$12.2 million, or 20.7% of total net revenue, for the fiscal quarter ended
January 2, 2000, compared to $10.4 million, or 35.1% of total net revenue, for
the corresponding quarter in fiscal 1999. The increase in spending reflects the
Company's continued investment in new product development and enhancements of
existing product lines. The Company continued to invest in the development of
200mm and 300mm products throughout its factory automation and tool automation
product lines, as well as the manufacturing execution and advanced planning and
scheduling software product lines. Research and development expenses decreased
as a percentage of total net revenue for the fiscal quarter ended January 2,
2000, compared with the corresponding period in fiscal 1999, due to the increase
in revenues.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses decreased to $9.0 million, or 15.4% of total net revenue, for the
fiscal quarter ended January 2, 2000, compared to $9.7 million, or 32.7% of
total net revenue, for the corresponding period in fiscal 1999. The decrease in
the dollar amount of selling, general and administrative expenses for the first
quarter of fiscal 2000 is primarily attributable to the consolidation of
duplicate functions and activities of acquired companies.
SPECIAL CHARGES: The Company did not incur special charges for the
fiscal quarter ended January 2, 2000. However, at January 2, 2000, $272,000 of
previously incurred special charges remained in accrued expenses. During the
quarter ended March 28, 1999, the Company recorded special charges of $1.9
million. The special charges consisted of $1.4 million for
compensation-related costs for five management employees in the selling,
general and administrative functions to satisfy existing contractual
obligations related to the acquired companies; $196,000 of costs associated
with the reductions of leased facilities; and $248,000 for other legal
issues. The remaining $272,000 of these special charges are expected to be
paid by the end of calendar year 2000.
During the first fiscal quarter of 1999, the Company recorded special
charges of $650,000 representing provisions for employee severance compensation
relating to the termination of 62 employees and consultants. The headcount
reductions included 40 in manufacturing and customer support, 8 in engineering,
and 14 in selling, general and administrative functions. The reduction in force
occurred in response to the downturn in the semiconductor equipment industry.
All of these special charges have been paid.
OPERATING PROFIT (LOSS): As a result of the increase in total net revenue
and the other foregoing factors, the operating profit for the fiscal quarter
ended January 2, 2000 was $204,000, or 0.3% of total net revenue, compared to an
operating loss of $11.3 million, or 38.0% of total net revenue, for the
corresponding quarter in fiscal 1999. Excluding the special charges of $650,000,
the operating loss in the first fiscal quarter of 1999 would have been $10.6
million, or 35.8% of net revenue.
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OTHER INCOME, NET: Other income, net for the fiscal quarter ended January
2, 2000 was $200,000, compared to $656,000 for the corresponding quarter in
fiscal year 1999. Interest income for the fiscal quarter ended January 2, 2000
was $537,000, compared to $548,000 for the corresponding quarter in fiscal 1999.
Interest expense for the current quarter was $20,000, compared to $32,000 for
the prior quarter in fiscal 1999. Net translation and foreign exchange losses
for the current fiscal quarter was $241,000, compared to net translation and
foreign exchange gains of $198,000 in the corresponding quarter in fiscal 1999.
PROVISION FOR (BENEFIT FROM) INCOME TAXES: The income tax provision for the
three months ended January 2, 2000 was $110,000, or 27.2% of income before
income taxes, compared to a benefit of $2.9 million, or 27.8% of loss before
income taxes, for the three months ended December 27, 1998. The tax provision of
$110,000 is primarily related to foreign and state taxes. During the third
quarter of fiscal year 1999, management concluded that a full valuation
allowance against the Company's net deferred tax assets was required, under
applicable accounting standards, due to uncertainties surrounding their
realization. Accordingly a valuation allowance in an amount equal to the net
deferred tax assets was established to reflect these uncertainties. The
effective tax rate for the three months ended December 27, 1998 differed from
the statutory rate primarily because income of certain foreign subsidiaries was
not subject to income tax due to available tax credits and net operating losses.
NET INCOME (LOSS): Net income for the fiscal quarter ended January 2, 2000
was $294,000, compared to the net loss of $7.7 million for the corresponding
quarter in fiscal 1999. Excluding the special charges net of their tax effect,
the net loss for the first quarter of fiscal 1999 would have been $7.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through public stock
offerings in October 1994 and July 1995, cash generated from operations and bank
lines of credit. As of January 2, 2000, the Company had working capital of $87.3
million, including cash and cash equivalents of $45.2 million, compared to
working capital of $78.9 million and cash and cash equivalents of $51.9 million
as of September 30, 1999.
Net cash used in operating activities was $11.8 million for the three
months ended January 2, 2000, compared to $6.7 million for the corresponding
period in fiscal 1999. The net cash used in operations in the first quarter of
fiscal 2000 was primarily attributable to increases in contracts in progress of
$11.8 million and increases in accounts receivable of $6.0 million. These
increases are related to the significant growth in total net revenue in the
first quarter of fiscal 2000. These cash outflows were slightly offset by
proceeds associated with the decrease in other assets, which is primarily the
result of a $5.0 million income tax refund received in the first quarter of
fiscal 2000. Net cash used in operations for the three months ended December 27,
1998 was primarily attributable to the $7.7 million net loss. Additionally, a
decrease in accounts payable used $5.1 million of net cash. This outflow was
partially offset by proceeds related to decreases in inventories of $4.7 million
and increases in accrued expenses of $1.9 million.
Net cash used in investing activities was $2.4 million for the three months
ended January 2, 2000, compared to $1.4 million for the corresponding period in
fiscal 1999. The increase in investing activities is primarily due to an
additional $1.2 million of property and equipment purchases made in the first
quarter of fiscal 2000 as compared with the corresponding period in fiscal 1999.
Net cash provided by financing activities was $7.9 million for the three
months ended January 2, 2000, compared to $825,000 for the corresponding period
in fiscal 1999. The net cash
14
provided by financing activities for each of these fiscal periods was primarily
attributable to proceeds from the exercise of stock options and the Company's
Employee Stock Purchase Plan.
At January 2, 2000, the Company had a revolving credit facility
agreement with Chase Manhattan Bank (the "Bank"). The revolving credit
facility enables the Company to borrow up to $20,000,000 on an unsecured
basis. Outstanding revolving credit loans bear interest, at the Company's
option, at the 30-, 60-or 90-day LIBOR rate plus a credit spread or at the
effective prime rate. At January 2, 2000, the Company's borrowing rate would
have been 7.0%. The ability of the Company to borrow under the revolving
credit facility is conditioned upon meeting certain financial criteria. The
revolving credit agreement expires on June 16, 2000. The Company had
outstanding letters of credit with the Bank in the aggregate amount of
$1,420,000 at January 2, 2000, and therefore, the available balance under
this credit agreement was $18,580,000 at January 2, 2000. At January 2, 2000,
the Company was not in compliance with certain of the required covenants but
has subsequently obtained a waiver from the Bank, through January 2, 2000, on
January 25, 2000. The Company was in default of the minimum consolidated net
worth requirement, the minimum fixed charge coverage ratio and the minimum
consolidated net income requirements of the revolving credit agreement for
the fiscal quarter ended January 2, 2000. The Company expects to seek future
waivers as necessary from the Bank. However, there can be no assurance that
such waivers will be obtained.
The Company believes its existing cash balances and funds available
under its existing revolving credit facility will be sufficient to meet the
Company's cash requirements to fund operations and expected capital
expenditures during the next twelve months. However, there can be no
assurance that additional financing, if needed, will be available or at terms
acceptable to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses, depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 by fiscal
2001, in accordance with SFAS No. 137, which deferred the effective date of SFAS
No. 133. The Company is evaluating SFAS No. 133 to determine the impact on its
consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes the staff's view in applying
generally accepted accounting principles to selected revenue recognition
issues. The application of the guidance in SAB 101 will be required in the
Company's first quarter of fiscal 2001. The effects of applying this guidance
will be reported as a cumulative effect adjustment resulting from a change in
accounting principle. The Company does not expect the application to have a
material effect on its financial statements; however, the final evaluation of
SAB 101 is not yet complete.
YEAR 2000
Before January 1, 2000, it was generally expected that many computer
systems and software products would experience problems handling dates beyond
the year 1999 because the systems were coded to accept only two-digit entries in
the date code fields. Before December 31, 1999, the Company completed a
company-wide Year 2000 Project (the "Project") to minimize the impact of Year
2000 issues on the Company's business, including its products, services,
infrastructure, and internal business support applications. As of February 11,
2000, the Company
15
is not aware that any of its products or any of the products or systems on which
it relies have been unable to process dates accurately. It may be too early to
conclude that Year 2000 issues will not affect the Company's business, and the
inability of its products, or of products and systems on which it relies, to
process these dates accurately could have a material adverse effect on its
business.
The risk posed by Year 2000 issues depends substantially on the number and
type of any instances of non-compliance that the Company has not yet discovered.
To the extent that the Company's internal systems, or products and services
obtained from third parties, are not Year 2000 compliant, the Company could face
disruptions in its business which could, in turn, cause delays in meeting
production and shipping goals and could divert significant management resources.
To minimize potential disruptions, the Company has implemented a
contingency plan to address any unresolved issues affecting Year 2000
compliance, if needed. The Company's contingency plan identifies actions such as
disaster recovery, emergency notification systems, employee staffing,
suitability of alternate suppliers, and critical data backups in the key areas
of manufacturing and services, supply chain management, marketing, sales and
customer support, facilities, finance, legal and human resources.
Based on its investigation to date, the Company does not expect the total
cost of its Year 2000 Project to have a material adverse effect on the Company's
business or financial results. The estimated total cost of the Year 2000 Project
is approximately $400,000. Substantially all of these costs have been expended
as of January 2, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in the Company's market risks since
the year ended September 30, 1999. For more information please read the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
*3.4 Amended and Restated By-Laws of the Company
*3.5 Restated Articles of Organization of the Company
**3.6 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on April
22, 1997
***3.7 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on January
16, 1998
10.25 Lease Agreement dated as of October 22, 1999 by and between the
Company and Spieker Properties, L.P.
27.1 Financial Data Schedule
27.2 Financial Data Schedule
- ---------------
* Incorporated by reference to the similarly numbered Exhibit to the
Company's Registration Statement on Form S-1, File No. 33-81836.
** Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended March 30, 1997.
*** Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended June 28, 1998.
b) Reports on Form 8-K
On November 19, 1999, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission. The Company attached as an exhibit to
that report a press release announcing its financial results for the fiscal
quarter and the fiscal year ended September 30, 1999.
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SIGNATURE
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.
PRI AUTOMATION, INC.
/s/ MITCHELL G. TYSON
Date: February 11, 2000 By: --------------------------------------
Mitchell G. Tyson
President and Chief Executive Officer
/s/ WILLIAM W. BOECKE
Date: February 11, 2000 By: --------------------------------------
William W. Boecke
Vice President Finance,
Corporate Controller
(Principal Financial and
Accounting Officer)
18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
*3.4 Amended and Restated By-Laws of the Company
*3.5 Restated Articles of Organization of the Company
**3.6 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on April
22, 1997
***3.7 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on January
16, 1998
10.25 Lease Agreement dated as of October 22, 1999 by and between the
Company and Spieker Properties, L.P.
27.1 Financial Data Schedule
27.2 Financial Data Schedule
- ---------------
* Incorporated by reference to the similarly numbered Exhibit to the
Company's Registration Statement on Form S-1, File No. 33-81836.
** Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended March 30, 1997.
*** Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended June 28, 1998.
19