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 DECEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------ ------------
COMMISSION FILE NUMBER 0-24934
-----------
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
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (978) 670-4270
-----------
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 December 30, 2001:
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Common Stock, $.01 par value 25,673,870
PRI AUTOMATION, INC.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................................ 3
Condensed Consolidated Balance Sheets as of December 30, 2001 and
September 30, 2001........................................................... 3
Condensed Consolidated Statements of Operations for the Three Months Ended
December 30, 2001 and December 31, 2000...................................... 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
December 30, 2001 and December 31, 2000...................................... 5
Notes to Condensed Consolidated Financial Statements............................ 6-9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 10-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................... 15
Item 2. Recent Sales of Unregistered Securities......................................... 16
Item 3. Defaults upon Senior Securities................................................. 16
Item 4. Submission of Matters to Vote of Security Holders............................... 16
Item 5. Other Information............................................................... 16
Item 6. Exhibits and Reports on Form 8-K................................................ 16
SIGNATURE................................................................................... 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRI AUTOMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
ASSETS DECEMBER 30, 2001 SEPTEMBER 30, 2001
----------------- ------------------
Current assets:
Cash and cash equivalents............................................................. $ 62,502 $ 58,968
Trade accounts receivable, less allowance for doubtful accounts of $1,294 at
December 30, 2001 and $1,777 at September 30, 2001................................. 18,080 31,561
Contracts in progress................................................................. 1,388 2,270
Inventories........................................................................... 80,777 90,038
Other current assets.................................................................. 9,509 8,310
---------- ----------
Total current assets............................................................. 172,256 191,147
Property and equipment, net.............................................................. 16,924 18,489
Investment in affiliate.................................................................. 13,996 4,890
Other assets, net........................................................................ 4,914 4,429
---------- ----------
Total assets..................................................................... $ 208,090 $ 218,955
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................................... $ 11,119 $ 15,662
Accrued expenses and other liabilities................................................ 34,095 37,487
Accrued legal and restructuring costs................................................. 6,665 8,707
Billings in excess of revenues and customer advances.................................. 48,278 52,589
---------- ----------
Total current liabilities........................................................ 100,157 114,445
Other long-term liabilities.............................................................. 729 753
Stockholders' equity:
Preferred stock, $.01 per value; 400,000 shares authorized; none outstanding.......... -- --
Common stock, $.01 par value; 75,000,000 shares authorized; 25,673,870 and 25,593,329
issued and outstanding at December 30, 2001 and September 30, 2001, respectively... 257 256
Additional paid-in capital............................................................ 261,229 260,135
Accumulated other comprehensive income (loss)........................................ 1,661 (7,445)
Accumulated deficit................................................................... (155,943) (149,189)
---------- ----------
Total stockholders' equity....................................................... 107,204 103,757
---------- ----------
Total liabilities and stockholders' equity....................................... $ 208,090 $ 218,955
========== ==========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
PRI AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED
DECEMBER 30, DECEMBER 31,
2001 2000
---- ----
Net revenue:
Product and equipment........................................................... $40,404 $72,451
Services and maintenance........................................................ 14,489 12,253
------- -------
Total net revenue.......................................................... 54,893 84,704
------- -------
Cost of revenue:
Product and equipment........................................................... 32,534 50,703
Services and maintenance........................................................ 9,654 7,950
------- -------
Total cost of revenue...................................................... 42,188 58,653
------- -------
Gross profit....................................................................... 12,705 26,051
------- -------
Operating expenses:
Research and development........................................................ 9,496 15,122
Selling, general and administrative............................................. 10,124 14,091
------- -------
Total operating expenses.................................................. 19,620 29,213
------- -------
Operating loss..................................................................... (6,915) (3,162)
Other income (expense), net........................................................ 680 (421)
------- -------
Loss before provision for income taxes and cumulative effect of change in
accounting principle............................................................ (6,235) (3,583)
Provision for income taxes......................................................... 519 425
------- -------
Loss before cumulative effect of change in accounting principle.................... (6,754) (4,008)
Cumulative effect of change in accounting principle................................ -- (5,748)
------- -------
Net loss........................................................................... $(6,754) $(9,756)
======= =======
Net loss per common share, basic and diluted:
Loss before cumulative effect of change in accounting principle.................... $ (0.26) $ (0.16)
Cumulative effect of change in accounting principle, net of tax.................... -- (0.23)
------- -------
Net loss........................................................................... $ (0.26) $ (0.39)
======= =======
Weighted average number of shares
outstanding, basic and diluted................................................... 25,628 25,119
======= =======
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
PRI AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED
DECEMBER 30, DECEMBER 31,
2001 2000
---- ----
Cash flows provided by (used in) operating activities:
Net loss......................................................................... $(6,754) $ (9,756)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization expense....................................... 2,551 2,804
Loss on investment in affiliate............................................. -- 1,617
Provision for write-down of inventories..................................... 1,306 --
Other, net.................................................................. (457) (78)
Changes in operating assets and liabilities:
Trade accounts receivable................................................ 13,776 2,286
Contracts in progress.................................................... 882 (1,283)
Inventories.............................................................. 7,955 (29,106)
Other assets............................................................. (1,860) (4,317)
Accounts payable......................................................... (4,605) (1,256)
Accrued expenses and other liabilities................................... (5,356) (970)
Billings in excess of revenue and customer advances...................... (4,331) 18,375
------- --------
Net cash provided by (used in) operating activities................................. 3,107 (21,684)
------- --------
Cash flows used in investing activities:
Investment in affiliate.......................................................... -- (11,467)
Purchases of property and equipment.............................................. (875) (3,245)
Other............................................................................ (135) (68)
------- --------
Net cash used in investing activities............................................... (1,010) (14,780)
------- --------
Cash flows provided by financing activities:
Repayment of capital lease obligations........................................... (31) (129)
Proceeds from exercise of stock options and Employee Stock Purchase Plan......... 1,185 194
------- --------
Net cash provided by financing activities........................................... 1,154 65
Effect of changes in exchange rates on cash......................................... 283 215
------- --------
Net increase (decrease) in cash and cash equivalents................................ 3,534 (36,184)
------- --------
Cash and cash equivalents at beginning of period.................................... 58,968 92,484
------- --------
Cash and cash equivalents at end of period.......................................... $62,502 $ 56,300
======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest expense............................................................. $ 8 $ 17
Income taxes, net............................................................ $ 83 $ 183
Non-cash transactions:
Acquisition of Commotion Technology, Inc.................................... -- $ 1,925
The accompanying notes are an integral part of the
condensed 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.
The results of operations for the three months ended December 31,
2000, have been adjusted to reflect the adoption of Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements." The Company's
reported revenue included $1,998,000 and $3,130,000 for the three months
ended December 30, 2001 and December 31, 2000, respectively, of revenue that
was part of the cumulative effect adjustment for products that shipped during
fiscal year 2000 but received final customer acceptance subsequent to
September 30, 2000.
PREPARATION OF FINANCIAL STATEMENTS
The interim financial data as of December 30, 2001 and for the three
months ended December 30, 2001 and December 31, 2000 are unaudited. 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 conjunction with the audited
consolidated financial statements of PRI Automation, Inc. for the year ended
September 30, 2001 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
DECEMBER 30, 2001 SEPTEMBER 30, 2001
----------------- ------------------
(IN THOUSANDS)
Raw materials........................................... $20,450 $29,823
Work-in-process......................................... 8,459 9,898
Finished goods.......................................... 51,868 50,317
------- -------
$80,777 $90,038
======= =======
C. ACCRUED EXPENSES AND OTHER LIABILITIES
DECEMBER 30, 2001 SEPTEMBER 30, 2001
----------------- ------------------
(IN THOUSANDS)
Accrued expenses........................................ $ 4,275 $ 4,500
Income taxes payable.................................... 3,828 3,313
Accrued compensation and benefits....................... 7,034 7,903
Contract loss reserves.................................. 5,663 5,830
Warranty accrual........................................ 13,295 15,941
------- -------
$34,095 $37,487
======= =======
6
PRI AUTOMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
D. OTHER INCOME (EXPENSE), NET
THREE MONTHS ENDED
DECEMBER 30, 2001 DECEMBER 31, 2000
(IN THOUSANDS)
Interest income, net..................................... $ 368 $ 1,105
Net translation and foreign exchange gains (losses)...... (19) 90
Loss on investment in affiliate.......................... -- (1,617)
Other, net .............................................. 331 1
----- -------
$ 680 $ (421)
===== =======
E. NET LOSS PER SHARE
Basic and diluted net loss per common share is computed using the
weighted average number of common shares outstanding. Options to purchase
6,545,519 and 5,175,695 shares of common stock were outstanding as of December
30, 2001 and December 31, 2000, respectively, 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 have had an anti-dilutive
effect.
F. ACCRUED LEGAL AND RESTRUCTURING COSTS:
A rollforward of accrued legal and restructuring costs from September
30, 2001 to December 30, 2001 is as follows:
Accrued Legal and Restructuring Costs
--------------------------------------------------------------------------------------
Employee Legal Facility Other
Costs Costs Exit Costs Costs Total
--------------------------------------------------------------------------------------
September 30, 2001 balance $ 3,586 $ 2,741 $ 2,335 $ 45 $ 8,707
Q1 FY2002 payments (1,870) (70) (102) -- (2,042)
--------------------------------------------------------------------------------------
December 30, 2001 balance $ 1,716 $ 2,671 $ 2,233 $ 45 $ 6,665
--------------------------------------------------------------------------------------
G. OTHER COMPREHENSIVE INCOME
Total comprehensive income (loss) amounted to $2,352,000 and
($9,756,000) for the three months ended December 30, 2001 and December 31,
2000, respectively. Total comprehensive income (loss) differs from net income
(loss) due to the unrealized gains and losses on the Shinsung investment. The
unrealized gain on the Shinsung investment for the three months ended
December 30, 2001, was $9,106,000.
H. SEGMENT REPORTING
The Company operates in three primary segments, all within the
semiconductor manufacturing capital equipment industry, which serve both
domestic and international markets. These reportable operating segments consist
of Factory Systems, OEM Systems, and Software Systems. Each of the Company's
operating segments includes a product and service component and has no
significant intersegment revenues and expenses as all segments' revenues are
generated from sales to unaffiliated customers.
7
PRI AUTOMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Operating segment information for the three months ended December 30,
2001 and December 31, 2000 is as follows:
THREE MONTHS ENDED
DECEMBER 30, DECEMBER 31,
2001 2000
(IN THOUSANDS)
TOTAL NET REVENUE TO UNAFFILIATED CUSTOMERS:
Factory Systems........................................................ $40,263 $38,204
OEM Systems............................................................ 9,080 38,611
Software Systems....................................................... 5,550 7,889
------- -------
Total net revenue......................................................... $54,893 $84,704
======= =======
SEGMENT OPERATING PROFIT (LOSS):
Factory Systems........................................................ $ (164) $(9,413)
OEM Systems............................................................ (4,318) 10,955
Software Systems....................................................... (1,213) 301
Corporate and other expenses........................................... (1,220) (5,005)
------- -------
Consolidated operating loss............................................... $(6,915) $(3,162)
======= =======
I. CONTINGENT LIABILITIES
Between October 1, 1998 and January 1, 2002 the Company issued an
aggregate of 896,521 shares of common stock to employees who exercised
options granted under the 1997 Non-Incentive Stock Option Plan and an
aggregate of 129,547 shares of common stock to employees who participated in
the 2000 Employee Stock Purchase Plan. These issuances were not registered
under the Act, due to an inadvertent failure to timely file Registration
Statements on Form S-8 covering these transactions. The Company could be
exposed to claims by some of its employees for rescission of these purchases.
A rescission right involves the right of the employee to require the Company
to repurchase the shares at the original exercise price plus interest.
However, based on an investigation by the Company of these transactions,
including subsequent dispositions by employees of the shares at prices higher
than they paid, such that they have no rescission damages, the Company does
not believe that the amount of any such potential rescission liability would
be material to its financial condition.
From November 2000 through January 2001, the Company and three of
its directors (one an officer) were named as defendants in five virtually
identical lawsuits filed in the United States District Court for the District
of Massachusetts claiming, among other things, that the defendants violated
certain securities laws and regulations. Each complaint sought certification
as a class action on behalf of virtually all purchasers of the Company's
stock from January 27, 2000 through September 11, 2000. The five cases have
been consolidated, and the case is now entitled IN RE PRI AUTOMATION, INC.
SECURITIES LITIGATION, Civil Action No. 00-123958-REK. A group of five
persons has been appointed as lead plaintiff, and the court has approved the
group's selection of lead counsel. A consolidated amended complaint was filed
on October 16, 2001. The amended complaint claims that the defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
SEC Rule 10b-5, and also Sections 11 and 15 of the Securities Act of 1933, by
virtue of statements and omissions that the plaintiffs claim were materially
false or misleading. In substance, the amended complaint alleges that,
throughout the class period, senior management of the Company knew that the
Company's Factory Automation Systems division was encountering manufacturing
problems in preparing its new TurboStocker product for higher-volume
production, that those manufacturing problems were financially material to
the Company, and that the Company did not adequately disclose those problems
until the end of the class period. The amended complaint also alleges that
the registration statement for a securities offering by the Company in May
2000 failed adequately to disclose these manufacturing problems. The amended
complaint seeks damages, pre-judgment and post-judgment interest, costs and
attorneys' fees. The Company (together with the defendant directors) filed a
motion to dismiss and supporting papers on December 4, 2001. Argument on the
motion has been rescheduled, and a new date has not been set. The Company
strongly believes that the lawsuit lacks merit, and the Company intends to
defend against the claims vigorously. However, the Company could incur
substantial costs defending the lawsuit, has no insurance coverage relating
to these claims, and has undertaken to indemnify the individual defendants
for any losses they may suffer. Moreover, although the Company has
established a reserve of $3,000,000 for legal costs, the amount of that
reserve may be
8
inadequate. The lawsuits could also divert the time and attention of the
Company's management. The Company cannot predict the outcome of the lawsuits at
this time, and there can be no assurance that the litigation will not have a
material adverse impact on its financial condition or results of operations.
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business.
Such claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources.
J. PENDING SALE OF THE COMPANY
On October 23, 2001, the Company entered into an Agreement and Plan of
Merger with Brooks Automation, Inc. ("Brooks"). Under the merger agreement,
holders of the Company's common stock will receive 0.52 shares of Brooks'
common stock for each share of the Company's common stock outstanding at the
time of the merger. The merger is intended to qualify as a tax-free
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended, and will be accounted as a purchase transaction.
On December 13, 2001, Brooks and PRI received a request from the
Antitrust Division of the Department of Justice ("DOJ") for additional
information pertaining to the pending acquisition. The waiting period
applicable to the pending acquisition under the US Hart-Scott-Rodino ("HSR")
Antitrust Improvements Act will expire 30 days after substantial compliance
with this request, unless terminated earlier by the DOJ. The companies intend
to respond diligently and as quickly as possible. However, the companies
cannot estimate how long it will take to achieve substantial compliance with
the request. Subject to completion of the HSR process and satisfaction of
other customary closing conditions contained in the definitive merger
agreement, including Brooks and PRI stockholder approvals, the companies
anticipate the acquisition will close in late March or April 2002.
K. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"),
"Business Combinations" and Statement of Financial Accounting Standards No.
142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets." SFAS No. 141
requires that all business combinations be accounted for under the purchase
method only, eliminating the pooling-of-interests method and that certain
acquired intangible assets in a business combination be recognized as assets
apart from goodwill. SFAS No.142 requires, among other things, the
discontinuance of goodwill amortization, which is replaced with periodic
tests of impairment of goodwill and that intangible assets other than
goodwill be amortized over their useful lives. In addition, the standard
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS No. 142
also requires the Company to complete a transitional goodwill impairment test
six months from the date of adoption. SFAS No. 141 is effective for all
business combinations initiated after June 30, 2001 and for all business
combinations accounted for by the purchase method for which the date of
acquisition is after June 30, 2001. The provisions of SFAS No. 142 were
effective for fiscal years beginning after December 15, 2001, however early
adoption is permitted for companies with a fiscal year beginning after March
15, 2001 and was adopted by the Company on October 1, 2001. The impact of
SFAS No. 142 did not have a material effect on the Company's financial
position and results of operations.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS No. 144"), "Accounting for the Impairment or
Disposal of Long-Lived Assets." The objectives of SFAS No. 144 are to address
significant issues relating to the implementation of FASB Statement No. 121
("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for
the Long-Lived Assets to Be Disposed Of," and to develop a single accounting
model, based on the framework established in SFAS No. 121, for long-lived
assets to be disposed of by sale, whether previously held and used or newly
acquired. SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001 and generally, its provisions
are to be applied prospectively.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 2000:
The results of operations for the three months ended December 31,
2000, have been adjusted to reflect the adoption of Staff Accounting Bulletin
No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." The
Company's reported revenue included $1,998,000 and $3,130,000 for the three
months ended December 30, 2001 and December 31, 2000, respectively, of
revenue that was part of the cumulative effect adjustment for products that
shipped during fiscal year 2000 but received final customer acceptance
subsequent to September 30, 2000.
The following table sets forth certain financial data for the periods
indicated:
THREE MONTHS ENDED INCREASE (DECREASE)
DECEMBER 30, 2001 DECEMBER 31, 2000 $ CHANGE % CHANGE
----------------- ----------------- -------- --------
Net revenue:
Factory Systems $40,263 73.4% $38,204 45.1% $ 2,059 5.4%
OEM Systems 9,080 16.5% 38,611 45.6% (29,531) (76.5)%
Software Systems 5,550 10.1% 7,889 9.3% (2,339) (29.6)%
------- ----- ------- ----- -------- ------
Total 54,893 100.0% 84,704 100.0% (29,811) (35.2)%
Gross profit:
Factory Systems 8,755 21.7% 3,048 8.0% 5,707 187.2%
OEM Systems 858 9.4% 17,079 44.2% (16,221) (95.0)%
Software Systems 3,092 55.7% 5,924 75.1% (2,832) (47.8)%
------- ----- ------- ----- -------- ------
Total 12,705 23.1% 26,051 30.8% (13,346) (51.2)%
------- ----- ------- ----- -------- ------
Operating expenses:
Research and development 9,496 17.3% 15,122 17.9% (5,626) (37.2)%
Selling, general and administrative 10,124 18.4% 14,091 16.6% (3,967) (28.2)%
------- ----- ------- ----- -------- ------
Total operating expenses 19,620 35.7% 29,213 34.5% (9,593) (32.8)%
------- ----- ------- ----- -------- ------
Operating loss (6,915) (12.6)% (3,162) (3.7)% 3,753 118.7%
Other income (expense), net 680 1.2% (421) (0.5)% 1,101 261.5%
------- ----- ------- ----- -------- ------
Loss before income taxes and cumulative
effective of change in accounting principle (6,235) (11.4)% (3,583) (4.2)% 2,652 74.0%
Provision for income taxes 519 0.9% 425 0.5% 94 22.1%
------- ----- ------- ----- -------- ------
Loss before cumulative effect of change in
accounting principle (6,754) (12.3)% (4,008) (4.7)% 2,746 68.5%
Cumulative effect of change in accounting
principle -- -- (5,748) (6.8)% (5,748) (100.0)%
------- ----- ------- ----- -------- ------
Net loss $(6,754) (12.3)% $(9,756) (11.5)% $ (3,002) (30.8)%
======= ===== ======= ===== ======== ======
NET REVENUE: Total net revenue for the three months ended December 30,
2001, decreased by 35.2% to $54.9 million, compared to $84.7 million for the
three months ended December 31, 2000. The decrease in total net revenue was a
result of lower net revenue from the OEM and Software Systems operating
segments, slightly offset by higher revenue from the Factory Systems
operating segment.
Net revenue for Factory Systems increased by 5.4% to $40.3 million,
compared to $38.2 million for the comparable period in the prior year due to
the timing of customer acceptances on products shipped to customers. Net
revenue for OEM Systems decreased by 76.5% to $9.1 million, compared to $38.6
million for the comparable period in the prior year, primarily as a result of
lower turns business due to the effects of the continuing semiconductor
capital equipment industry downturn ("the industry downturn"). Turns business
is comprised of orders that are received and shipped in the same quarter and
has historically accounted for a major portion of OEM Systems revenues. Net
revenue for Software Systems decreased by 29.6% to $5.6 million, compared to
$7.9 million for the comparable period in the prior year, due to the effects
of the industry downturn. International revenues for the three months ended
December 30, 2001 were $17.6 million, or 32% of total net revenues, compared
to $38.1 million, or 45% of total net revenues, for the comparable period in
the prior year.
Total backlog declined 25% to $105.7 million at December 30, 2001
compared to the balance of $141.2 million at September 30, 2001, due to the
effects of the continuing industry downturn. Included in the backlog at the
December 30, 2001, was $51.8 million of factory automation products shipped
to customers for systems awaiting acceptance, compared with $70.2 million at
September 30, 2001.
GROSS PROFIT: The Company's gross profit was $12.7 million or 23.1% of
net revenues for the three months ended December 30, 2001, compared to $26.1
million or 30.8% for the three months ended December 31, 2000. The overall
decrease in gross profit of $13.3 million from the comparable period in the
prior year included decreases for the OEM Systems and Software Systems
operating segments of $16.2 million and $2.8 million, respectively, due to
lower volumes of revenues. This decrease was slightly offset by an increase
of $5.7 million in the Factory Systems operating segment, primarily due to a
favorable change in product mix.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses
for the three months ended December 30, 2001, decreased by 37.2% to $9.5
million, compared to $15.1 million for the three months ended December 31,
2000, due to cost cutting actions taken during fiscal year 2001 in order to
align the Company's cost structure with current business conditions. As a
percentage of revenues, research and development expenses decreased to 17.3%
from 17.9% in the comparable period in the prior year.
10
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses for the three months ended December 30, 2001,
decreased by 28.2% to $10.1 million, compared to $14.1 million for the three
months ended December 31, 2000, due to cost cutting actions taken during
fiscal year 2001 in order to align the Company's cost structure with current
business conditions. As a percentage of revenues, selling, general, and
administrative expenses increased to 18.4% from 16.6% in the comparable
period in fiscal 2001 primarily as a result of the 35.2% reduction in
revenues combined with the 28.2% decrease in expenses.
OPERATING LOSS: Operating loss for the three months ended December 30,
2001 was $6.9 million, compared to $3.2 million for the three months ended
December 31, 2000. The increase in the operating loss was primarily due to
the decrease in the gross profit for the OEM Systems and Software Systems
operating segments, partially offset by an increase in gross profit for the
Factory Systems operating segment and the overall reductions in operating
expenses.
OTHER INCOME (EXPENSE), NET: Other income, net, for the three months
ended December 30, 2001, was $0.7 million. Other expense, net, of $0.4
million for the three months ended December 31, 2000, included an unrealized
loss on investment in affiliate of $1.6 million due to a change in fair
value. Interest income was $0.4 million for the three months ended December
30, 2001, compared to $1.1 million in the comparable period in the prior year
due to lower average cash balances and lower interest rates.
PROVISION FOR INCOME TAXES: The income tax provision for the three
months ended December 30, 2001 was $0.5 million, compared to $0.4 million for
the three months ended December 31, 2000. In both fiscal periods, the
Company's tax provision was for foreign and local taxes.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE: For the three
months ended December 31, 2000, the Company recorded a non-cash charge of
$5.7 million (net of income taxes), or a charge of $0.23 per diluted share,
to reflect the cumulative effect of a change in accounting principle due to
the adoption of SAB 101. This charge represented the net profit on products
that shipped during fiscal year 2000 but did not receive final customer
acceptance during fiscal year 2000.
NET LOSS: Net loss for the three months ended December 30, 2001, was
$6.8 million, or $0.26 per diluted share, compared to net loss before the
cumulative effect of SAB 101 of $4.0 million, or $0.16 per diluted share.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities during the three months
ended December 30, 2001, was $3.1 million, compared to $21.7 million of net
cash used in operating activities during the three months ended December 31,
2000. The net cash provided by
11
operating activities during the three months ended December 30, 2001, was
primarily attributable to decreases in trade accounts receivable of $13.8
million and inventories of $8.0 million and non-cash expenses of $3.4 million
partially offset by the net loss of $6.8 million and decreases in accounts
payable of $4.6 million, accrued expenses and other liabilities of $5.4
million, and billings in excess of revenues and customer advances of $4.3
million.
Net cash used in investing activities for the three months ended
December 30, 2001, was $1.0 million, compared to $14.8 million for the three
months ended December 31, 2000. Activity for the comparable period in the
prior year included $11.5 million for the purchase of the minority investment
in Shinsung Engineering Co., Ltd. Capital expenditures for the three months
ended December 30, 2001, were $0.9 million compared to $3.2 million in the
comparable period in the prior year.
Net cash provided by financing activities during the three months
ended December 30, 2001, was $1.2 million principally from the proceeds on
the exercise of stock options, compared to $0.1 million for the comparable
period in the prior year.
The Company believes its existing cash balance will be sufficient to
meet its cash requirements to fund operations for fiscal year 2002 and
expected fiscal year 2002 capital expenditures of approximately $9.0 million.
If the industry downturn is more severe or prolonged than the Company
currently expects, the Company may need to raise additional funds. However,
there can be no assurance that additional financing, if and when needed, will
be available at all or at terms acceptable to the Company.
CHANGES IN FINANCIAL CONDITION
At December 30, 2001, the Company had working capital of $72.1
million, including cash and cash equivalents of $62.5 million, compared to
working capital of $76.7 million, including cash and cash equivalents of
$59.0 million at September 30, 2001. The ratio of current assets to current
liabilities was 1.72:1 at December 30, 2001, compared with 1.67:1 at
September 30, 2001.
Accounts receivable and contracts in progress of $19.5 million at
December 30, 2001, decreased by $14.4 million from September 30, 2001,
primarily as a result of the timing of customer acceptances on products
shipped to customers and the improvements in the Company's cash collection
efforts. Receivable days sales outstanding were 30 days compared with 58 days
in the fourth quarter of fiscal 2001. Inventories of $80.8 million decreased
by $9.3 million from September 30, 2001 due to the lower backlog of orders
and the efforts taken by the Company to reduce cycle times and shorten lead
times on inventory purchases.
For the three months ended December 30, 2001, the Company recorded an
unrealized gain of $9.1 million due to the change in fair market value, which
was included in Other Comprehensive Income, on its investment in affiliate,
Shinsung Engineering Co., Ltd.
12
PENDING SALE OF THE COMPANY
On October 23, 2001, the Company entered into an Agreement and Plan of
Merger with Brooks Automation, Inc. Under the merger agreement, holders of
the Company's common stock will receive 0.52 shares of Brooks' common stock
for each share of the Company's common stock outstanding at the time of the
merger. The merger is intended to qualify as a tax-free reorganization within
the meaning of Section 368 of the Internal Revenue Code of 1986, as amended,
and will be accounted as a purchase transaction.
On December 13, 2001, Brooks and PRI received a request from the
Antitrust Division of the Department of Justice ("DOJ") for additional
information pertaining to the pending acquisition. The waiting period
applicable to the pending acquisition under the US Hart-Scott-Rodino ("HSR")
Antitrust Improvements Act will expire 30 days after substantial compliance
with this request, unless terminated earlier by the DOJ. The companies intend
to respond diligently and as quickly as possible. However, the companies
cannot estimate how long it will take to achieve substantial compliance with
the request. Subject to completion of the HSR process and satisfaction of
other customary closing conditions contained in the definitive merger
agreement, including Brooks and PRI stockholder approval, the companies
anticipate the acquisition will close in late March or April 2002.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"),
"Business Combinations" and Statement of Financial Accounting Standards No.
142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets." SFAS No. 141
requires that all business combinations be accounted for under the purchase
method only, eliminating the pooling-of-interests method and that certain
acquired intangible assets in a business combination be recognized as assets
apart from goodwill. SFAS No.142 requires, among other things, the
discontinuance of goodwill amortization, which is replaced with periodic
tests of impairment of goodwill and that intangible assets other than
goodwill be amortized over their useful lives. In addition, the standard
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS No. 142
also requires the Company to complete a transitional goodwill impairment test
six months from the date of adoption. SFAS No. 141 is effective for all
business combinations initiated after June 30, 2001 and for all business
combinations accounted for by the purchase method for which the date of
acquisition is after June 30, 2001. The provisions of SFAS No. 142 were
effective for fiscal years beginning after December 15, 2001, however early
adoption is permitted for companies with a fiscal year beginning after March
15, 2001 and was adopted by the Company on October 1, 2001. The impact of
SFAS No. 142 did not have a material effect on the Company's financial
position and results of operations.
13
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS No. 144"), "Accounting for the Impairment or Disposal
of Long-Lived Assets." The objectives of SFAS No. 144 are to address significant
issues relating to the implementation of FASB Statement No. 121 ("SFAS No.
121"), "Accounting for the Impairment of Long-Lived Assets and for the
Long-Lived Assets to Be Disposed Of," and to develop a single accounting model,
based on the framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired. SFAS
No. 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and generally, its provisions are to be applied
prospectively.
14
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 expectations
concerning its future results of operations and the sufficiency of capital to
meet working capital and capital expenditure requirements are forward-looking
statements. The words "expect," "anticipate," "internal," "plan," "believe,"
"seek," "estimate" and similar expressions are intended to identify other
forward-looking statements. Such statements are not guarantees of future
performance and involve 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 factors disclosed from time to time in the Company's filings with the
Securities and Exchange Commission, including in the Company's Annual Report on
Form 10-K for the year ended September 30, 2001, as amended, and in the
Company's Registration Statement on Form S-3, File No. 333-60180, each as filed
with the Securities Exchange Commission.
Other important factors that may cause the Company's actual results to
differ from such forward-looking statements include the following: oversupply in
the semiconductor market has caused an ongoing downturn in the semiconductor
capital equipment industry, which is seriously harming the Company's operating
results and could jeopardize its plans; demand for the Company's products
fluctuates rapidly and unpredictably, which makes it difficult to manage its
business efficiently and can reduce its gross margins, profitability and market
share; the Company has announced a merger with Brooks, and uncertainty regarding
the merger may disrupt the Company's operations and adversely affect its
business; failure to complete the merger could cause the Company's stock price
to decline and could harm the Company's business and operating results; the
termination fee and restrictions on solicitation contained in the merger
agreement may discourage other parties from trying to acquire the Company; the
Company's diminished workforce may be inadequate to respond to any sudden
increase in demand for its products; the Company may continue to experience
delays and technical difficulties in new product introductions and
manufacturing, which can adversely affect its revenues, gross margins and net
income; the Company has invested heavily in 300mm wafer technology, which is
being adopted more slowly than expected; the Company expects the intense
competition for early 300mm orders to continue; the Company's lengthy sales
cycle makes it difficult to anticipate sales, particularly for its factory
automation systems; the Company's operating results fluctuate significantly, and
the value of its common stock could fall if the Company's operating results are
below the expectations of analysts or investors; delay in the shipment or
customer acceptance of a single system could substantially decrease the
Company's revenues for a period; new accounting guidance under SAB 101 will
result in delayed recognition of the Company's revenues; the Company typically
charges a fixed price for a system, which leaves it vulnerable to cost overruns;
the Company has a limited number of customers, and the loss, cancellation or
delay of any order from these customers could harm its business; the Company
does not have long-term purchase agreements with its customers, and as a result
its
15
customers could stop purchasing its products and services at any time; to remain
competitive, the Company must continually improve its technology and develop new
products, even in industry downturns; demand for less expensive semiconductors
is increasing pressure to reduce prices in the Company's industry; industry
consolidation and outsourcing of the manufacture of semiconductors to foundries
could reduce the number of available customers; the Company's international
operations create special risks; the Company faces significant competition from
other automation companies, especially in the Asia-Pacific market, which may
limit the prices it can charge for its products and may cause it to lose
revenues; the Company is becoming increasingly dependent on subcontractors and
one or a few suppliers for some components and manufacturing processes; the
failure of any of the Company's key suppliers to deliver components in a timely
manner could seriously harm its business, reputation and results of operations;
the Company depends on its executive officers and other key personnel; 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 its business; the market price of the
Company's common stock is highly volatile; pending securities class action
lawsuits could have a material adverse effect on the Company's financial
condition and results of operations; and the Company may need additional
financing, which could be difficult to obtain.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RATE RISK
Market risks relating to the Company's operations result primarily
from changes in interest rates, foreign currency exchange rates and equity
security price risk. The Company currently does not use derivative financial
instruments for trading or hedging purposes, and does not consider the
exposure in these areas to be material.
INTEREST RATE RISK
The Company's exposure to market rate risk for changes in interest rates
relates to its cash equivalents investment portfolio. Cash equivalents consist
of money market mutual funds and other high-credit quality short-term
investments with an original maturity of three months or less. A hypothetical 10
percent increase in interest rates would not have a material impact on the fair
market value of these instruments due to their short maturity.
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company conducts a portion of its business outside the United States
through its foreign subsidiaries. The Company has foreign currency exposure
related to its operations in international markets, where it transacts some
business in foreign currencies, and accordingly the Company is exposed to
adverse movements in foreign currency exchange rates. The Company's foreign
subsidiaries maintain their accounting records in local currencies.
Consequently, changes in currency exchange rates may affect the translation of
foreign statements of operations into U.S. dollars, which may in turn affect the
Company's consolidated statement of operations. The functional currency is the
U.S. dollar for all of the Company's subsidiaries, and therefore translation
gains and losses are included as a component of net income or loss.
Substantially all of the Company's revenue is invoiced and collected in U.S.
dollars. The Company had no outstanding forward currency contracts at December
30, 2001 and December 31, 2000. A hypothetical 10 percent change in foreign
currency exchange rates would not have a material impact on the Company's
results of operations.
16
EQUITY SECURITY PRICE RISK
The fair market value common shares and warrants of the Company's
investment in affiliate, Shinsung Engineering Co., Ltd., was $6.7 million and
$7.3 million, respectively, at December 30, 2001. A hypothetical 10% change in
the share price of Shinsung would not have a material impact on the Company's
results of operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From November 2000 through January 2001, the Company and three of
its directors (one an officer) were named as defendants in five virtually
identical lawsuits filed in the United States District Court for the District
of Massachusetts claiming, among other things, that the defendants violated
certain securities laws and regulations. Each complaint sought certification
as a class action on behalf of virtually all purchasers of the Company's
stock from January 27, 2000 through September 11, 2000. The five cases have
been consolidated, and the case is now entitled IN RE PRI AUTOMATION, INC.
SECURITIES LITIGATION, Civil Action No. 00-123958-REK. A group of five
persons has been appointed as lead plaintiff, and the court has approved the
group's selection of lead counsel. A consolidated amended complaint was filed
on October 16, 2001. The amended complaint claims that the defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
SEC Rule 10b-5, and also Sections 11 and 15 of the Securities Act of 1933, by
virtue of statements and omissions that the plaintiffs claim were materially
false or misleading. The amended complaint seeks damages, pre-judgment and
post-judgment interest, costs and attorneys' fees. In substance, the amended
complaint alleges that, throughout the class period, senior management of the
Company knew that the Company's Factory Automation Systems division was
encountering manufacturing problems in preparing a new product for
higher-volume production, that those manufacturing problems were financially
material to the Company, and that the Company did not report those problems
until the end of the class period. The Company and the defendant directors
filed a motion to dismiss and supporting papers on December 4, 2001. Argument
on the motion has been rescheduled, and a new date has not yet been set. The
Company strongly believes that the lawsuits lack merit, and the Company
intends to defend against the claims vigorously. However, the Company could
incur substantial costs defending the lawsuit, has no insurance coverage
relating to these claims, and has undertaken to indemnify the individual
defendants for any losses they may suffer. Moreover, although the Company has
established a reserve of $3.0 million for legal costs, the amount of that
reserve may be inadequate. The lawsuits could also divert the time and
attention of the Company's management. The Company cannot predict the outcome
of the lawsuits at this time, and there can be no assurance that the
litigation will not have a material adverse impact on its financial condition
or results of operations.
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES
As consideration for the acquisition by the Company of Commotion
Technology, Inc. in October 2000, the Company issued 103,852 shares of its
common stock to the sole stockholder of Commotion, in a transaction exempt
from registration under the Securities Act of 1933, as amended, by reason of
Section 4(2) of the Act.
Between October 1, 1998 and January 1, 2002 the Company issued an
aggregate of 896,521 shares of its common stock to employees who exercised
options granted under its 1997 Non-Incentive Stock Option Plan and an
aggregate of 129,547 shares of its common stock to employees who participated
in its 2000 Employee Stock Purchase Plan. The Company received aggregate cash
proceeds of approximately $17.4 million, which it used for working capital
and general corporate purposes. Of these shares, an aggregate of 37,087,
resulting in cash proceeds to the Company of $574,667, were issued during the
three months ended December 30, 2001.
These issuances were not registered under the Act, due to the
Company's inadvertent failure to timely file Registration Statements on Form
S-8 covering these transactions. The Company could be exposed to claims by
some of its employees for rescission of these purchases. Based on its
investigation of these transactions, including subsequent dispositions by
employees of the shares in question, the Company does not believe that the
amount of any such rescission liability would be material to its financial
condition and has not provided for any such liability in its financial
statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
17
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
3.1 Restated Articles of Organization and amendments thereto
(filed as Exhibit 3.1 to the Company's Current Report on Form
8-K filed on November 1, 2001 and incorporated herein by
reference).
3.2 Amended and Restated By-Laws of the Company (filed as Exhibit
3.4 to the Company's Registration Statement on Form S-1, File
No. 33-81836 and incorporated herein by reference).
- ---------
b) Reports on Form 8-K:
On October 26, 2001, the Company filed a current report on Form 8-K
disclosing that the Company had entered into an Agreement and Plan of Merger
with Brooks Automation, Inc.
On November 1, 2001, the Company filed a current report on Form 8-K to
update the description of its capital stock.
18
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.
Date: February 13, 2002 By:
Cosmo S. Trapani
Duly Authorized Officer and
Principal Financial Officer
19