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 June 29, 1997
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 (I.R.S. Employer Identification No.)
incorporation)
805 MIDDLESEX TURNPIKE 01821-3986
BILLERICA, MA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number: (508) 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 August 8, 1997:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, $.01 par value 14,951,762
PRI AUTOMATION, INC.
INDEX
PAGE NO.
--------
Part I. Financial Information
---------------------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for
the Three and Six Months Ended June 29, 1997 and
June 30, 1996 3
Condensed Consolidated Balance Sheets as of
June 29, 1997 and September 30, 1996 4
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 29, 1997 and
June 30,1996 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II. Other Information
-----------------
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
Exhibit Index 14
Exhibit 11.1 Computation of Net Income Per Common Share
Exhibit 27.1 Financial Data Schedule
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRI AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
-------- -------- -------- --------
Net revenue................................ $44,362 $28,440 $122,826 $76,677
Cost of revenue............................ 24,975 14,648 69,549 39,422
------- ------- -------- -------
Gross profit............................... 19,387 13,792 53,277 37,255
Operating expenses:
Research and development.................. 5,950 4,515 17,492 12,236
Selling, general and administrative....... 7,095 4,471 17,985 11,967
------- ------- -------- -------
Operating profit........................... 6,342 4,806 17,800 13,052
Other income, net.......................... 263 531 840 1,648
------- ------- -------- -------
Income before income tax provision......... 6,605 5,337 18,640 14,700
Income tax provision....................... 2,246 1,815 6,338 4,686
------- ------- -------- -------
Net income................................. $ 4,359 $ 3,522 $ 12,302 $10,014
======= ======= ======== =======
Net income per common share:
Primary................................... $0.28 $0.23 $0.79 $0.66
Assuming full dilution.................... $0.28 $0.23 $0.78 $0.66
Weighted average number of common and
common equivalent shares outstanding(1):
Primary................................... 15,752 15,194 15,620 15,147
Assuming full dilution.................... 15,847 15,236 15,689 15,196
(1) Reflects a two-for-one stock split effective May 2, 1997.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
PRI AUTOMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
JUNE 29, SEPTEMBER 30,
1997 1996
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 32,862 $ 28,487
Marketable securities................................. 1,420 7,582
Trade accounts receivable, net........................ 40,461 27,561
Contracts in progress................................. 23,934 21,824
Inventories........................................... 28,205 20,988
Other current assets.................................. 2,674 1,268
-------- --------
Total current assets................................. 129,556 107,710
Property and equipment, net........................... 10,516 9,180
Marketable securities................................. 1,853 4,666
Other assets.......................................... 2,757 2,230
-------- --------
Total assets......................................... $144,682 $123,786
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................... $ 17,157 $ 16,171
Accrued expenses and other liabilities............... 13,488 9,188
Billings in excess of revenues and customer advances.. 459 1,505
-------- --------
Total current liabilities........................... 31,104 26,864
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 24,000,000 shares
authorized; 14,938,476 and 14,570,920 issued and
outstanding at June 29, 1997 and
September 30, 1996, respectively..................... 150 73
Additional paid-in capital............................ 76,159 71,806
Retained earnings..................................... 37,269 25,043
-------- --------
Total stockholders' equity.......................... 113,578 96,922
-------- --------
Total liabilities and stockholders' equity.......... $144,682 $123,786
======== ========
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)
NINE MONTHS ENDED
--------------------
JUNE 29, JUNE 30,
1997 1996
--------- --------
Net cash (used in) provided by operating activities:... $(3,027) $ 363
------- -------
Cash flows from investing activities:
Purchases of marketable securities.................... (4,531) (7,822)
Proceeds from the sale of marketable securities....... 9,017 1,900
Proceeds from maturities of marketable securities..... 4,490 6,453
Purchases of property and equipment................... (4,045) (4,715)
------- -------
Net cash provided by (used in) investing activities.. 4,931 (4,184)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options............... 2,122 496
Proceeds from issuance of common stock, net of
issuance costs....................................... 349 274
------- -------
Net cash provided by financing activities............ 2,471 770
------- -------
Net increase (decrease) in cash and cash equivalents... 4,375 (3,051)
Cash and cash equivalents at beginning of period....... 28,487 38,005
------- -------
Cash and cash equivalents at end of period............. $32,862 $34,954
======= =======
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. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of PRI
Automation, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant inter-company transactions and balances have been
eliminated.
The condensed consolidated financial statements are unaudited. However, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information have been
made. 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, 1996 included in the
Company's Annual Report 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):
JUNE 29, SEPTEMBER 30,
1997 1996
-------- -------------
Raw materials........................................................ $26,972 $19,892
Work in process...................................................... 1,233 1,096
------- -------
$28,205 $20,988
======= =======
C. ACCRUED EXPENSES AND OTHER LIABILITIES
The significant components of accrued expenses and other liabilities
consist of the following (in thousands):
JUNE 29, SEPTEMBER 30,
1997 1996
-------- -------------
Accrued expenses..................................................... $ 2,798 $ 2,030
Accrued compensation................................................. 6,356 3,883
Income taxes payable................................................. 2,504 1,445
Deferred income taxes................................................ 1,830 1,830
------- -------
$13,488 $ 9,188
======= =======
D. STOCK SPLIT
On February 18, 1997, the Board of Directors declared a two-for-one stock
split (the "Stock Split") to be effected in the form of a 100% stock dividend on
its common stock, subject to shareholder approval of an Amendment to the
Company's Restated Articles of Organization to
6
increase the Company's authorized common stock from 12 million shares to 24
million shares (the "Amendment"). The Amendment was approved by the Company's
stockholders on April 22, 1997 and the Stock Split was effected by the
distribution of a 100% stock dividend on May 2, 1997 to shareholders of record
on April 22, 1997. Share and per share amounts contained in this report have
been restated to reflect the Stock Split.
E. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128), which is
effective for fiscal years ending after December 15, 1997 including interim
periods. Earlier adoption is not permitted. However, an entity is permitted to
disclose pro forma earnings per share amounts computed under SFAS 128 in the
notes to the financial statements in periods prior to adoption. The statement
requires restatement of all prior-period earnings per share data presented after
the effective date. SFAS 128 specifies the computation, presentation, and
disclosure requirements for earnings per share and is substantially similar to
the standard recently issued by the International Accounting Standards Committee
entitled International Accounting Standards, Earnings Per Share. The Company
plans to adopt SFAS 128 the first quarter of fiscal 1998 and has not yet
determined the impact.
7
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" which involve 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 expenditures requirements may be forward-looking statements. The words
"expect," "anticipate," "internal," "plan," "believe," "seek," "estimate" and
similar expressions also 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 such 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, 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 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, which often have
had a severe effect on the semiconductor industry's demand for capital
equipment, including systems manufactured and marketed by the Company. The
Company believes that the markets for newer generations of semiconductors will
also 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.
Additional risks and uncertainties include: competitive pressures on selling
prices; inventory management, including suppliers' ability to meet the Company's
needs in a timely manner; the timing and cancellation of customer orders;
changes in product mix; the Company's ability to introduce new products and
technologies on a timely basis; the Company's ability to increase its
manufacturing capacity to meet increased demand while maintaining satisfactory
levels of product quality, service levels, and timeliness of deliveries; rapid
technological change and introduction of products and technologies by the
Company's competitors; market acceptance of the Company's and its competitors'
products; the level of orders received which can be shipped in a quarter; and
the timing of investments in engineering and development. As a result of the
foregoing and other factors, the Company may experience material fluctuations in
future operating results on a quarterly or annual basis which could materially
and adversely affect its business, financial condition, operating results and
stock price.
8
RESULTS OF OPERATIONS
Revenue: Net revenue for the three and nine months ended June 29, 1997 was
$44.4 million and $122.8 million, respectively, an increase of 56.0% and 60.2%,
respectively, over the corresponding periods in fiscal 1996. The increases
resulted primarily from the Company's continued expansion in Europe and in the
Asia Pacific region and to a lesser extent from the increased market acceptance
of, and demand for, the Company's flexible factory automation systems in the
United States market as a result of semiconductor manufacturers' continuing
upgrades and expansion of existing fabrication facilities and construction of
new facilities. Net export sales to customers for the three and nine months
ended June 29, 1997 were $24.0 million and $58.9 million, respectively, compared
to $3.0 million and $11.4 million, respectively, for the corresponding periods
in fiscal 1996, and accounted for 54.2% and 48.0% of net revenue, respectively,
as compared to 10.6% and 14.9% of net revenue for the corresponding periods in
fiscal 1996.
Gross profit: The gross profit margin for the three and nine months ended
June 29, 1997 was 43.7% and 43.4%, as compared to 48.5% and 48.6% for the
corresponding periods in fiscal 1996. The decreases are primarily attributable
to increased costs associated with the support of global expansion and reduced
prices to compete in the Asia Pacific region.
Research and development: Research and development expenses for the three and
nine months ended June 29, 1997 were $6.0 million and $17.5 million,
respectively, representing 13.4% and 14.2% of net revenue, respectively,
compared to $4.5 million and $12.2 million, representing 15.9% and 16.0% of net
revenue for the corresponding periods in fiscal 1996. The increase in dollar
amounts primarily reflects the continued increase in personnel and materials
expense in response to an increasing demand for new products and product
enhancements. The decreases in percentage are primarily attributable to a slower
growth rate in personnel than in the Company's rate of revenue growth.
Selling, general and administrative: Selling, general and administrative
expenses for the three and nine months ended June 29, 1997 were $7.1 million and
$18.0 million, respectively, representing 16.0% and 14.6% of net revenue,
compared to $4.5 million and $12.0 million, representing 15.7% and 15.6% of net
revenue for the corresponding periods in fiscal 1996. The increase in dollar
amounts primarily reflect the increases in personnel, commissions and related
expenses associated with higher sales volume, and to a lesser extent expenses
associated with continued global expansion.
Other income, net: Other income, net for the three and nine months ended June
29, 1997 was $263,000 and $840,000, respectively, as compared to $531,000 and
$1.6 million for the corresponding periods in fiscal 1996. Interest income for
the three and nine months ended June 29, 1997 was $261,000 and $856,000,
respectively, as compared to $534,000 and $1.6 million for the corresponding
periods in fiscal 1996. The decreases are attributable to lower investment
balances in the three and six month periods ended June 29, 1997 as compared to
the corresponding periods in fiscal 1996.
Income tax provision: The effective tax rate for the three and nine months
ended June 29, 1997 was 34.0% as compared to 34.0% and 31.9%, respectively, for
the corresponding periods in fiscal 1996. The increase in the effective tax rate
for the nine month period ended June 29, 1997 as compared to the corresponding
period in fiscal 1996 is largely attributable to a one-time benefit from the
elimination of certain valuation allowances placed against certain deferred tax
9
assets in fiscal 1996, offset partially by a decrease in the fiscal 1997
effective tax rate associated with the increased tax benefit from the foreign
sales corporation.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its operations primarily through
private equity financings, bank lines of credit, public stock offerings in
October 1994 and July 1995 and cash generated from operations.
As of June 29, 1997 the Company had working capital of $98.5 million,
including cash and cash equivalents of $32.9 million and short-term marketable
securities of $1.4 million.
Net cash used in operating activities for the nine months ended June 29, 1997
was $3.0 million, compared to net cash provided by operating activities of
$363,000 for the corresponding period in fiscal 1996. Net cash used in
operating activities for the nine months ended June 29, 1997 was primarily
attributable to increases in trade accounts receivable of $12.9 million,
inventory of $7.2 million, contracts in progress of $2.1 million, and an
increase in other current assets of $1.4 million, offset partially by net income
of $12.3 million, and increases in accrued expenses and other liabilities of
$4.3 million, accounts payable of $986,000, and an increase in depreciation
expense of $2.7 million. Net cash provided by operating activities for the nine
months ended June 30, 1996 was primarily attributable to net income of $10
million, an increase in accounts payable of $6.1 million and an increase in
income taxes payable of $2.5 million, offset partially by an increase in
contracts in progress of $10 million, an increase in inventory of $6.3 million
and an increase in trade accounts receivable of $2.4 million.
Net cash provided by investing activities for the nine months ended June 29,
1997 was $4.9 million as compared to $4.2 million of net cash used for the
corresponding period in fiscal 1996. Net cash provided by investing activities
for the nine months ended June 29, 1997 was attributable to the net proceeds
from the purchase, sale and maturities of marketable securities of $8.9 million
offset partially by the purchase of fixed assets of $4.0 million. Net cash used
in investing activities for the nine months ended June 30, 1996 was primarily
attributable to the purchase of fixed assets of $4.7 million.
Net cash provided by financing activities for the nine months ended June 29,
1997 was $2.4 million as compared to $770,000 for the corresponding period in
fiscal 1996. Net cash provided by financing activities for the nine months
ended June 29, 1997 and June 30, 1996 was attributable to the exercise of stock
options and issuance of common stock pursuant to the Company's Employee Stock
Purchase Plan.
At June 29, 1997, the Company had no borrowings under its working capital
line of credit from Fleet Bank of Massachusetts, N.A. (the "Bank"). The working
capital line of credit enables the Company to obtain revolving loans or grant
letters of credit on an unsecured basis up to the lesser of 80% of eligible
accounts receivable or $10,000,000, with outstanding borrowings under revolving
loans bearing interest at the Bank's prime lending rate. The ability of the
Company to effect borrowings under the line of credit is conditioned upon, among
other things, the Company's meeting certain financial covenants, including
covenants requiring the maintenance of specific levels of quarterly and annual
earnings, working capital, tangible net worth, debt service coverage and
liquidity. The Company may elect to convert revolving loans into loans bearing
interest at 1.5% above the Bank's cost of funds. The working capital line of
credit expires on March 1, 1998.
10
The Company believes that existing cash and investment balances and funds
available under its existing line of credit will be sufficient to meet the
Company's cash requirements to fund operations and expected capital expenditures
during the next twelve months.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128), which is
effective for fiscal years ending after December 15, 1997 including interim
periods. Earlier adoption is not permitted. However, an entity is permitted to
disclose pro forma earnings per share amounts computed under SFAS 128 in the
notes to the financial statements in periods prior to adoption. The statement
requires restatement of all prior-period earnings per share data presented after
the effective date. SFAS 128 specifies the computation, presentation, and
disclosure requirements for earnings per share and is substantially similar to
the standard recently issued by the International Accounting Standards Committee
entitled International Accounting Standards, Earnings Per Share. The Company
plans to adopt SFAS 128 in the first quarter of fiscal 1998 and has not yet
determined the impact.
11
PART II. OTHER INFORMATION
Item 5. Other Information
On February 18, 1997, the Company's Board of Directors voted to effect a
stock split by means of a stock dividend of one share of fully paid and non-
assessable Common Stock on each share of Common Stock issued and outstanding at
the close of business on April 22, 1997, contingent on stockholder approval of
an Amendment to the Company's Restated Articles of Organization to increase the
number of authorized shares of Common Stock from 12,000,000 to 24,000,000 shares
(the "Amendment"). On April 22, 1997, the Company's stockholders approved the
Amendment. The payment date for the stock dividend was May 2, 1997.
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 of the Company
11.1 Computation of Net Income Per Common Share
27.1 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, as declared effective
by the Securities and Exchange Commission on October 13, 1994.
** Incorporated by reference to the similarly numbered Exhibit to the Company's
Quarterly Report Form 10-Q, for the period ended March 30, 1997 as filed with
the securities and Exchange Commission.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
June 29, 1997.
12
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/ Stephen D. Allison
Date: August 12, 1997 By:
----------------------------------
Stephen D. Allison
Duly Authorized Officer and
Principal Financial Officer
13
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
------ ----------- ----
11.1 Computation of Net Income Per Common Share
27.1 Financial Data Schedule
14