SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
September 30, 1997 0-24934
PRI AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2495703
(State of other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
805 MIDDLESEX TURNPIKE 01821-3986
BILLERICA, MA (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number: (508) 670-4270
____________________
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.01
Securities registered pursuant to Section 12(g) of the Act:
NONE
____________________
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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant, based on the closing price of the Common Stock on December 2, 1997
as reported by the Nasdaq National Market, was approximately $406,781,528.
Shares of Common Stock held by officers and directors and by persons who own of
record 5% or more of the outstanding Common Stock have been excluded from this
computation in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of December 2, 1997 the Registrant had outstanding 15,146,026 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its 1998 Annual
Meeting of Stockholders, expected to be filed with the Securities and Exchange
Commission on or before January 28, 1998, are incorporated by reference into
Items 10, 11, and 12 of this Annual Report on Form 10-K.
ITEM 1. BUSINESS
THE COMPANY
PRI Automation, Inc. ("PRI" or the "Company") is a leading global supplier of
factory automation systems that serve the needs of large, mid-sized and
specialty semiconductor manufacturers. The Company combines advanced robotics
technology with material handling systems and scheduling software to automate
the complex processes of integrated circuit manufacturing. The Company's mission
is to provide integrated solutions of hardware, software and services that
optimize the flow of silicon wafers throughout the semiconductor fabrication
facility ("fab"), improving the productivity of semiconductor manufacturing.
PRI's systemswhich include overhead monorails, wafer stockers, reticle stockers,
tool automation systems, material control software, scheduling and planning
software, and factory simulation and other services, including project
management and on-site supportincrease wafer yield and equipment utilization in
a wide range of semiconductor manufacturing environments, while providing
efficient work-in-process material handling to help improve manufacturing
throughput by optimizing the flow of wafers from process tool to process tool
throughout the fab.
The Company sells its systems and services to semiconductor manufacturers, as
well as to OEM equipment suppliers which incorporate the Company's products into
systems sold to semiconductor manufacturers. The Company markets its integrated
factory automation systems in North America through a direct sales force
operating out of its headquarters in Billerica, Massachusetts and sales offices
in California, New Jersey, Oregon, and Texas. Outside North America, the
Company's products are sold by the Company's direct sales force with sales
offices in Europe, South Korea, and Taiwan.
PRODUCTS
In response to demands from users of integrated circuits, the semiconductor
industry is continuously required to package more functionality and higher
performance in smaller semiconductor devices at ever lower costs. In addition,
users of semiconductor devices today expect manufacturers to provide a broad
range of differentiated products, often including custom versions of standard
products, designed for specific customers. They also require semiconductor fabs
to respond to accelerating product design cycles and shorter product lives, and
to provide quicker time to market for new products.
Additionally the semiconductor industry is preparing for the transition to
300mm wafer production and manufacturing. The move to the next-generation wafer
size will require significant capital investment in full-factory automation
systems, process equipment and new facilities over the next two to three years.
The technical and operational challenges which face semiconductor
manufacturers, as they seek to meet these customer demands while maintaining and
improving their profitability and competitive positions in an environment of
increasing cost pressures and continuously evolving technology, fall into four
principal categories:
. Achieving and maintaining high production yields;
. Controlling production costs by improving utilization of expensive
facilities and equipment;
. Managing the logistics of an increasingly complex semiconductor fabrication
process; and
. Preparing for the transition to 300mm manufacturing
The Company is addressing these challenges with a fully-integrated line of
factory automation systems designed to automate the semiconductor fabrication
process. The Company's comprehensive product line and broad range of
implementation services provide a total factory automation solution which allows
its customers to optimize their semiconductor manufacturing operations by
increasing wafer yields, reducing operating costs and increasing their return on
investment in expensive production facilities and
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equipment, and to manage the increasingly complex process of semiconductor
fabrication. The Company's products are designed to provide seamless factory
automation and material handling from process chamber to process chamber through
a highly flexible and scaleable design, easy-to-install configurations, and high
levels of support both during installation and after the system is operational.
The Company's broad range of robotic devices and system software allows
customers to easily configure solutions that meet their specific requirements.
The Company's systems are also designed to be installed and subsequently
modified, if necessary, with minimum disruption of customers' operations. The
Company also provides its customers with systems integration, factory
simulation, project management, and on-site support services.
The Company's products are built by combining modular components, each
incorporating elements of the Company's core technology, to provide the storage,
transport, wafer transfer, loading and control functions required for a
particular customer application. The Company has developed numerous components
and subsystems, including several basic types of delivery vehicles, robot arms
and other robotic systems, wafer cassette storage units or "stockers", various
process tool automation components (such as vacuum pick-up tools and mechanical
pod, box, cassette and wafer grippers), tool front-end buffering solutions, pod-
door opening robotic components ), and numerous monorail and floor track
elements, elevators, conveyors, tilt and transfer stations, aligners,
controllers and other specialized components. These modular building blocks are
combined in a range of standard products. They also can be readily mixed and
matched in custom-engineered solutions which provide the precise functionality
and features required by a particular customer.
A core competency of the Company is its ability to build sophisticated
electromechanical assemblies featuring high levels of reliability and
cleanliness. The Company's expertise in cleanroom robot design, precise motion
control, contamination-free air handling techniques, accurate materials control
and tracking software, planning and scheduling software, and other core
technologies, combined with its intimate knowledge of the technical and
operational aspects of the semiconductor fabrication process, enable the Company
to provide its customers with a complete solution of factory automation hardware
and software which optimizes the flow of work-in-process wafers throughout the
entire fab.
The Company has organized its product development and marketing and sales
functions around three core strategic divisions that logically address the
various components of the complete solution. These divisions include the
Factory Automation Systems Division, which is responsible for the development
and delivery of interbay and intrabay solutions; the Tool Automation Systems
Division, which develops and markets a complete line of process tool wafer
handling buffering solutions; and the Software Division, which develops and
markets the software tools that help semiconductor manufacturers track,
schedule, and plan the most efficient work-in-process wafer flow to optimize
their total fab operations. In addition, the Company provides a range of
automation services to customers to help design and simulate the optimal
automation solution to meet their manufacturing needs prior to taking delivery
of the system and provides ongoing support during and after installation. The
following overview outlines each of these divisions highlighting their products
and services with respect to product differentiation and customer base.
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FACTORY AUTOMATION SYSTEMS DIVISION
INTERBAY AUTOMATION SYSTEMS
Interbay systems provide automated storage, retrieval and delivery of work-in
process throughout the factory. The Company's interbay automation products
consist of automated storage and retrieval systems linked by an overhead
monorail transport system, together with the associated controllers, software
and communications capabilities that provide a tightly integrated wafer flow
solution. The Company believes that almost all new fabs constructed since 1990
have adopted some form of interbay automation system. An interbay system may
include one or more of the following components:
. Overhead monorail (AeroTrak/TM/). The Company's patented system in which
transport vehicles running on an overhead monorail provide clean, fast and
accurate delivery of material from process bay to process bay.
. Automated storage and retrieval system ("stocker"). An enclosed cabinet,
capable of utilizing the full height of the clean room to store cassettes,
boxes, pods or other carriers on multiple rows of vertically stacked
shelving. Stored materials are inserted or removed by robotic systems
through one or more input/output ports.
. Interfloor and interbuilding transport systems. Combine AeroTrak monorail,
elevators, transfer stations and other components to permit transport of
in-process wafers between different floors of a fab, or between two
separate fabrication facilities or buildings.
Prices for the Company's interbay systems range from approximately $1,500,000
to $10,000,000, based on the length of monorail track, number and type of
vehicles and stockers, optional features selected and software and services
required.
INTRABAY AUTOMATION SYSTEMS
While interbay systems are utilized to link the bays of a factory into an
integrated material delivery system, the Company's intrabay products extend
wafer flow automation to the individual process tools within each bay. Intrabay
automation presents manufacturers with technical challenges due to the presence
of multiple types of process tools and high traffic within each process bay.
The Company expects intrabay automation to increase due to the industry's
expanded need for process tool integration, as well as the upcoming ergonomic
issues associated with the 300mm wafers. The Company also believes that intrabay
systems represent an area of potential growth because future fabs will require
full intrabay factory automation.
Intrabay automation systems typically work with a material stocker serving as
a temporary storage buffer positioned at one or both ends of a bay. The
Company's intrabay technology provides the ability to automate the control and
transport of a pod, box, cassette or other product carrier from the stocker to
each individual process tool within the bay. An intrabay system may include
one or more of the following components:
. Machine loading robotic vehicle ("MLRV"). A floor-guided vehicle utilizing
a wireless track system embedded in the floor of the process bay. The MLRV
transports work-in-process to and from the process tool in a
contamination-free Class I "mini-environment."
. Cell automation systems. Systems designed to automate the coordinated
transfer of materials among a group of functionally related process tools.
Prices for the Company's intrabay systems range from approximately $150,000
for automation of a simple cell to approximately $5,000,000 for a long intrabay
system incorporating a floor-level robotic vehicle, in-floor track and
automation of multiple tool types.
LITHOGRAPHY AUTOMATION SYSTEMS
The Company's lithography automation systems automate the storage, retrieval,
tracking, and delivery of reticles to and within the photolithography bay(s).
Reticles are glass plates containing the device images that are projected onto
wafers during the photolithography process. Since the
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photolithography bay paces overall fab output, productivity improvements gained
through automation in this part of the fab are important to fab throughput and
WIP management. The Company recognizes the strategic importance of this bay
and has increased its focus in this area. The products that support lithography
automation includes automated reticle management systems ("ARMS"), interfloor
transport systems ("IFTS"), the AeroTrak system, and the stepper loading robot.
TOOL AUTOMATION SYSTEMS DIVISION
The Tool Automation Systems Division ("TAS") provides robotics systems that
automate the transfer of wafers to, from, and within process tools in the fabs.
The primary customers for these solutions are process tool equipment suppliers
("OEMs"). The automation systems provided by TAS are typically integrated
directly into the OEM's product before shipment to the end user. With the advent
of 300mm wafer production rapidly approaching, TAS has focused its development
efforts on establishing the Company as the industry leader in highly reliable
and cost-effective 300mm process tool automation solutions. These systems
incorporate the robotic wafer handling capabilities needed to seamlessly
integrate the movement of silicon wafers from intrabay delivery systems directly
to process tools. The Company is developing products for 300mm process tool
automation include the following categories:
. Atmospheric automation modules including 300mm pod door openers
. Wafer transfer systems
. WIP buffering systems.
Providing these automation solutions directly to process tool manufacturers,
allows OEMs to focus resources on the development of differential process
technology rather than on standard automation solutions. The products provided
by the Tool Automation System Division range in price from $20,000 to $500,000
depending on functionality and complexity.
SOFTWARE DIVISION
As more of the wafer handling during semiconductor manufacturing becomes
automated, there is a corresponding increase in the need for more robust
software solutions to track, plan, and schedule the flow of wafers throughout
the fab. The Company's software division is responsible for developing and
delivering software solutions that meet the growing need of semiconductor
manufacturers. During fiscal year 1997 the Company made significant investments
to expand both the product development and operational infrastructure of its
software division. Key software developers were hired to speed up development
and delivery of new products to customers. Software support engineers were
added to better meet the needs of customers during setup of new installations
and to provide ongoing support of installed sites. Additionally, the Company
experienced rapid market acceptance of its TransNet product suite of material
control software. Highlights for fiscal year 1997 include the following:
. TransNet (TransNet)- In fiscal year 1996, the Company introduced TransNet, a
fully integrated software solution for automating material flow throughout the
fab. TransNet is integrated with PRI's existing family of material handling
products, including stockers, AeroTrak transport and intrabay automation
components, providing management and control of wafer flow material handling.
TransNet operates in a Microsoft Windows NT environment, providing a foundation
inherently designed for open connectivity and growth.
. Interval Logic Corporation- PRI laid the groundwork throughout fiscal year
1997 for the successful acquisition of Interval Logic Corporation of Sunnyvale,
CA. The acquisition, completed after the close of fiscal year 1997, represents a
key component of PRI's evolving software strategy. Interval Logic
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Corporation is designing and developing advanced planning and scheduling
software to manage the flow of wafers across the fab allowing customers to
optimize their semiconductor manufacturing operations. ILC's Leverage for
Planning and Leverage for Scheduling software products will give customers the
ability to plan and schedule work-in-process allowing them to quickly react to
their changing business requirements. PRI is working to integrate ILC's Leverage
product set with TransNet to provide a total software environment for managing
the flow of wafers throughout the fab.
AUTOMATION SERVICES
In addition to its hardware and software products, the Company provides
various services that are essential to the success of large-scale factory
automation projects. These include automation planning and design service to
assist customers in assessing their automation needs, developing and
implementing an automation plan, computerized simulation of automation
performance and project management services to assist customers in carrying out
large-scale factory automation projects.
CUSTOMER SUPPORT
The Company provides extensive customer support to provide its customers with
reliable continuous service. System prices typically include one year of basic
customer support though many customers request additional service which is
available on a fee basis. These services can range from telephone hot-line
support, providing for a 48-hour response time, to full-time on-site customer
service provided by Company personnel permanently based on the customer's
facility. Fees are based upon the type of service and number of Company
personnel required. The Company maintains support locations in Portland, Oregon;
Albuquerque, New Mexico; Austin and Dallas, Texas; Billerica, Massachusetts;
Burlington, Vermont; Mesa, Arizona; and San Jose, California. Overseas, the
Company maintains support locations in South Korea, Taiwan and Europe.
STANDARD FEATURES AND OPTIONS
The Company's systems share many standard features and options which increase
their flexibility and utility to customers and reflect the Company's extensive
experience in automation of the semiconductor fabrication process. The Company's
distributed control architecture permits portions of an AeroTrak monorail system
to be taken off-line for re-routing or repairs while the remainder of the system
remains in service and enables stockers to operate on a stand-alone basis,
thereby enhancing the flexibility and reliability of the Company's systems. The
Company's expertise in contaminant-free design and construction enables it to
build cleanroom robots utilizing specially sealed body parts and arm joints,
evacuated by a vacuum system which pulls particles generated inside the robot
through the arm and exhausts them outside the cleanroom. Extensive experience
with motion control systems enables the Company to deliver robotic systems which
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minimize the vibration and excessive acceleration or "g-forces" which can
contribute to particle contamination. The Company's stocker systems can be
equipped with optional air handling and filtration systems which maintain a
Class 1 environment within the storage cabinet, and system components are
designed to allow optimal laminar air flow. Safety features of the Company's
systems include proximity detectors and "light curtains" which monitor operator
and robot access to input/output ports and robot tracks and stop robot motion if
the operator's presence is detected.
RESEARCH AND DEVELOPMENT
Research and development is vital to the ongoing profitability of the Company
by leading critical development of promising technologies and product
development. The Company expended $10,407,000, $17,089,000 and $24,634,000 on
research and development in fiscal years 1995, 1996 and 1997 representing 16.3%,
15.4% and 14.5% of its net revenue for such periods, respectively. Product
development efforts currently underway which are intended to maintain the
Company's leading position in providing fully integrated factory automation
systems including the following:
300MM FACTORY AUTOMATION SYSTEMS
Interbay Automation- The Company is developing 300mm versions of its leading
automated material handling and storage (AMHS) systems- Stockers and AeroTrak
overhead monorail system, for use in future 300mm semiconductor fabs. These
products will build on the proven technology of the Company's current products
and provide a migration path for its customers as they move to 300mm
manufacturing.
. Intrabay Automation- The Company is responding to the increased need for
automated material handling solutions in 300mm fabs by developing innovative
solutions suited for both high throughput and low throughput intrabay
applications. An overhead hoist delivery system is in development which will
deliver payloads directly to the load port on a tool buffer. Based on the
Company's AeroTrak overhead monorail delivery system, the hoist delivery system
is suited for front-end automation applications as well as back-end assembly and
test environments.
. 300mm Tool Automation Systems- The Company has developed a series of
300mm front-end WIP buffering storage systems to provide the work-in-process
wafer storage needed in next generation 300mm fabs. These highly configurable
systems will allow fab operators to maximize the throughput and productivity of
expensive process tools by ensuring that the tool has the required supply of
wafers waiting to be processed. The Company has also developed a series of
highly reliable and low cost pod door openers for clean and fast access into and
out of the front end tool buffer.
The Company cannot predict whether its newly announced products will achieve
market acceptance if and when commercial shipments of such systems commence, nor
can it predict whether any marketable product will result from any of the other
product development efforts described above. The Company does not expect
revenues attributable to any of the foregoing products to contribute materially,
if at all, to its results of operations in the next twelve months.
MARKETING, SALES AND SUPPORT
The Company markets its products to semiconductor manufacturers worldwide
through its own sales and service organization and in conjunction with
independent manufacturer's representative organizations in certain areas of the
world. In North America, the Company sells through a direct sales force
operating out of the Company's Billerica, Massachusetts headquarters and
regional sales offices located in California, New Jersey and Texas. To augment
the selling process, PRI conducts marketing programs that include trade shows
participation, a Web site, product literature, direct marketing programs,
seminars and newsletters. Outside North America, the Company's products are
sold by the Company's direct sales
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force with sales offices in Europe, South Korea, and Taiwan. The Company
does not market directly in Japan at this time.
The Company strives to provide its customers with a turnkey automation system
and to this end provides comprehensive support and services before the order is
received, during the project and after acceptance of the system. After the order
is received and during the execution phase (which includes final design and
layout, manufacture, test, installation and final integration with the
customer's facilities and host software), the customer's primary interface is
with the Company's Project Management group. Regular project reviews keep the
customer informed and help the customer prepare the site and ensure a smooth
integration and on-time turnover to the customer's production operation. After
the system is accepted, PRI's Customer Support organization takes responsibility
for ensuring optimal system operation. Customer Support provides a range of
services to customers including emergency on-call response, comprehensive on-
site service contracts, technical support, 24-hour hotline, customer training,
data collection, upgrades, spare parts management, and preventive maintenance.
MANUFACTURING
The Company's manufacturing operations take place at its headquarters in
Billerica, Massachusetts. The Company's products consist of standard components
which are customized to meet unique customer requirements. Primary manufacturing
operations include assembly and test with virtually all fabrication outsourced
to key suppliers. Completed subassemblies are tested for functionality prior to
their assembly into completed systems. Class 100 laminar flow hoods are used in
the assembly of sensitive components which must be assembled in a clean
environment. Completed systems are "burned in" for 48 to 72 hours and subjected
to functional testing before being triple-wrapped in the Company's Class 1,000
packaging area and packed for shipment.
The Company's manufacturing department includes production personnel,
manufacturing engineering and systems groups which are responsible for managing
the transition of new products from engineering to production, and for improving
manufacturing efficiency by introducing standardization, measuring productivity
within discrete processes and analyzing the costs of manufacturing operations.
The Company operates a "concurrent engineering" process in which system
design and manufacturing are performed cooperatively, and engineering,
manufacturing, quality, support and field service organizations participate on
project teams intended to provide an effective integration of disciplines from
design through manufacturing, acceptance testing and installation. The Company's
objective is not only to better accommodate customers' tight delivery deadlines
but to ensure that products are designed with "manufacturability" in mind,
enhancing their utility and reliability and simplifying their serviceability and
support.
The Company has implemented quality control ("QC") and quality assurance
("QA") processes based on Total Quality Management principles. QC is maintained
through incoming inspections of components, in-process inspection and testing of
subassemblies and through burn-in and cycle testing of completed systems. After
all manufacturing operations, final assembly and testing are complete, the
Company's QA personnel, acting as "surrogate customers," perform independent
acceptance testing of each system to make sure that it meets product
specifications and quality standards before it is shipped to the customer.
A supplier management process assists management in assessing, qualifying and
selecting external suppliers. Outsourcing practices provide multiple sources for
most components, although in certain instances, the Company is dependent upon a
sole supplier, or has qualified only a single supplier, for certain components
or specialized processes (such as painting of system cabinets and enclosures)
utilized in its products.
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CUSTOMERS
The Company's customers include most of the leading semiconductor
manufacturers in the U.S. and Europe. The Company has recently begun to
penetrate the Asia Pacific market. Historically, a significant portion of the
Company's revenues in any particular period has been attributable to sales to a
limited number of customers. Net revenue from the Company's three largest
customers accounted for 80%, 53% and 59% of the Company's net revenue during
fiscal years 1995, 1996 and 1997, respectively. The Company's largest customers
also change from year to year, as large FAB projects are completed and new
projects are initiated. In fiscal year 1995, Intel, Mosel Vitelic and SGS
Thomson accounted for 80%, 10% and 10% of net revenue, respectively. In fiscal
year 1996, Intel accounted for 38% of net revenue. In fiscal year 1997, Intel
accounted for 45% of net revenue. At September 30, 1997, Intel accounted for
23% of the Company's backlog.
BACKLOG
The Company's backlog at September 30, 1997 was approximately $120,944,000,
compared to approximately $104,747,000 at September 30, 1996. The Company
includes in its backlog only those customer orders for products, spare parts and
services for which it has accepted signed purchase orders with assigned delivery
dates within twelve months. The equipment requirements of new fabrication
facilities cannot be determined with accuracy. The Company's backlog at any
certain date may not be indicative of future demand of the Company's products or
of actual revenues for any succeeding period. The Company's standard terms and
conditions include penalties for cancellation; however, not all negotiated
orders have penalties.
COMPETITION
The Company experiences intense competition worldwide from one principal
competitor, the Clean Automation Division of Daifuku Co., Ltd., a large Japanese
manufacturer of factory automation systems. Daifuku Co., Ltd. has substantially
greater resources than the Company. The Company also experiences competition
from a number of other foreign and domestic manufacturers of automated machinery
used in semiconductor fabrication facilities. There can be no assurance that the
Company's competitors will not develop enhancements to or future generations of
competitive products that will offer superior price or performance features or
that new competitors will not enter the Company's markets and develop such
enhanced products. The Company believes that once a semiconductor manufacturer
has selected a particular supplier's capital equipment, the manufacturer
generally relies upon that equipment for the specific production line
application and frequently will attempt to consolidate its other capital
equipment requirements with the same supplier.
The principal elements of competition in the Company's markets include
product performance, quality, supplier track record and stability, customer
service and support, delivery capability, and price. Product performance
criteria include cleanliness, reliability, footprint, cost of ownership,
throughput and flexibility.
The Company believes that as the semiconductor equipment market matures,
major semiconductor manufacturers are increasingly intolerant of delays in
production start-up and quality and reliability problems attributable to factory
automation systems. Manufacturers' dependence on factory automation systems,
once installed, and their focus on minimizing the risks associated with
increasingly expensive FAB construction projects, have resulted in a tendency to
choose and maintain long-term relationships with proven automation suppliers.
While new competitors could enter the semiconductor factory automation market
with technically superior products, the Company believes that its knowledge of
automation applications, breadth of product line, specialized manufacturing
skills, experience in managing
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large scale factory automation projects and customer support infrastructure
create a difficult barrier to entry by new competitors.
While the Company has a strong market position in the U.S. and Europe,
Japanese suppliers have a dominant position in Asia. The tendency for customers
to stay with a supplier and the strong support infrastructure in Asia makes
penetration of the Asian markets difficult for non-Japanese suppliers. The
Company successfully competed against Daifuku in winning its first orders from
Taiwan and Korea. However, there is no assurance that such success will continue
in fiscal year 1998.
Intellectual Property Rights
The Company protects its proprietary technologies primarily through employee
and third-party non-disclosure agreements and legal principles restricting the
unauthorized disclosure or use of trade secrets. The Company also holds a patent
relating to certain key elements of its AeroTrak monorail system, which forms an
important component of the Company's interbay automation systems. This patent
expires in 2007. In 1997, the Company was issued four additional patents for
certain new product developments which expire on or after 2015. As of September
30, 1997 there has been no sales as a result of these developments. The Company
believes, however, that its financial performance will depend more upon its
technological expertise and the capabilities of its employees than upon
protection through the legal system of its intellectual property rights. There
can be no assurance that foreign intellectual property laws will protect the
Company's intellectual property rights. There can be no assurance that any
patent issued to the Company will not be challenged, invalidated or circumvented
or that the rights granted thereunder will provide competitive advantages to the
Company. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate the Company's products or
design around any patents issued to the Company.
EMPLOYEES
At September 30, 1997, the Company had 928 full-time employees. In addition,
the Company utilizes the services of temporary or contract personnel within all
functional areas to assist on project related activities. The number of such
personnel will vary depending on specific project activity. At September 30,
1997, the Company employed 175 temporary or contract personnel. In addition to
confidentiality agreements, most key employees have stock or stock option
agreements with the Company that provide for vesting over several years. The
Company believes its future success will depend in large part on its ability to
attract and retain highly skilled employees. None of the employees of the
Company is covered by a collective bargaining agreement. The Company considers
its relationship with its employees to be good.
ITEM 2. PROPERTIES
Facilities
The Company's corporate headquarters and principal research and development
and manufacturing facilities are located in a 122,342 square foot leased
building in Billerica, Massachusetts. The lease on this facility expires in
2001, and provides for average annual lease payments of approximately $563,000.
The Company also leases three additional facilities in Billerica, Massachusetts
with a combined square footage of 117,100. These facilities are principally
used for research and development and manufacturing, providing for average
annual lease payments of approximately $336,000. The Company also leases
facilities in Austin and Dallas, Texas; Mesa, Arizona; San Jose, California;
Albuquerque, New Mexico, South Korea and Taiwan under leases with expiration
dates ranging from May 1998 to November 2002. Subsequent to year-end the
Company signed a lease for an additional 90,000 square feet in Lowell,
Massachusetts, to be used primarily for manufacturing. The lease term is three
years with an average
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annual lease payment of $620,000. The Company believes that its existing
facilities and planned expansion will be adequate to meet its currently
anticipated requirements and that suitable additional or substitute facilities
will be available as required.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the over-the-counter market under the
Nasdaq symbol PRIA. The following table sets forth the high and low sale prices
for the Company's Common Stock as reported on the Nasdaq National Market for
each quarter during the two year period ended September 30, 1997 (adjusted to
give retroactive effect for a two-for-one stock split effective May 2, 1997 for
shareholders of record as of April 22, 1997);
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------ ------------ ------------ ------------
Fiscal 1997 $14.75-26.00 $22.06-32.31 $21.56-41.25 $37.44-58.50
Fiscal 1996 $16.88-21.75 $ 9.50-18.25 $10.00-20.00 $10.25-18.75
The approximate number of holders of record of the Company's Common Stock as
of December 2, 1997 is 240. The Company has never paid cash dividends on its
Common Stock. The current policy of its Board of Directors is to retain all
earnings for the continued growth of the Company.
10
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected historical consolidated
financial data, which should be read in conjunction with the Company's financial
statements and related notes included elsewhere herein.
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATIONS:
Net revenue................................ $169,465 $110,684 $64,042 $36,293 $19,215
Gross profit............................... 73,830 52,364 30,685 16,271 8,563
Operating profit (loss)(1)................. 24,636 18,203 10,233 4,318 (2,191)
Net income (loss)(1)....................... 17,076 13,731 7,559 2,822 (2,109)
Net income (loss) per common share:(1)(2)
Primary................................. 1.09 0.91 0.59 0.36 (0.32)
Assuming full dilution.................. 1.08 0.90 0.58 0.35 (0.32)
BALANCE SHEET:
Total assets............................... $156,984 $123,786 $94,999 $22,242 $12,345
Long-term obligations, less current
portions................................ 4,075 213
Series A redeemable convertible
preferred stock(3)...................... 4,063 3,998
- ----------
(1) For the year ended September 30, 1993, reflects a one-time charge of
$3,739 for the purchase of incomplete technology with the acquisition of
ProgramMation, Inc. a supplier of overhead monorail products.
(2) Reflects a two-for-one stock split effective May 2, 1997 for
shareholders of record as of April 22, 1997.
(3) All outstanding Series A Convertible Preferred Stock was converted into
Common Stock in connection with the Company's initial public offering
in October 1994.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, certain
income and expense items as a percentage of net revenue:
1997 1996 1995
------ ------ ------
Net revenue............................. 100.0% 100.0% 100.0%
Cost of revenue......................... 56.4 52.7 52.1
----- ----- -----
Gross profit............................ 43.6 47.3 47.9
Operating expenses
Research and development.............. 14.5 15.4 16.3
Selling, general and administrative... 14.5 15.4 15.7
----- ----- -----
Operating profit........................ 14.6 16.5 15.9
Other income (expense), net............. 0.7 1.9 1.7
----- ----- -----
Net income before income tax provision.. 15.3 18.4 17.6
Income tax provision.................... 5.2 6.0 5.8
----- ----- -----
Net income.............................. 10.1% 12.4% 11.8%
===== ===== =====
FISCAL 1997 VS. FISCAL 1996
Net revenue: Net revenue for fiscal year 1997 increased to $169,465,000 as
compared to $110,684,000 for fiscal year 1996. This increase is primarily
attributable to an expanded foreign customer base and to a lesser extent
increased export sales to foreign operations of domestic customers offset
partially by reduced domestic sales. Net export sales to customers comprised
$90,810,000 or 53.6% of net revenue for fiscal year 1997 compared to $18,428,000
or 16.6% of net revenue for the prior fiscal year. The increase is primarily due
to the Company's continued expansion into Europe and the Asia Pacific region.
Gross profit: The Company's gross profit margin decreased to 43.6% for
fiscal year 1997 as compared to 47.3% for the prior fiscal year. The decrease is
primarily attributable to reduced prices to compete in foreign markets and to a
lesser extent increased costs associated with the support of global expansion.
Research and development: Research and development expenses increased to
$24,634,000 or 14.5% of net revenue for fiscal year 1997 as compared to
$17,089,000 or 15.4% of net revenue for the prior fiscal year. The increase in
dollar amount primarily reflects the continued increase in personnel and
materials expense in response to the increasing demand for new products and new
product enhancements. The decrease as a percentage of net revenue is
attributable to the fact that net revenue grew more rapidly than personnel
expenses in fiscal year 1997.
Selling, general and administrative: Selling, general and administrative
expenses increased to $24,560,000 or 14.5% of net revenue for fiscal year 1997
as compared to $17,072,000 or 15.4% of net revenue for the prior fiscal year.
The increase in dollar amount primarily reflects the increases in personnel,
commissions and related expenses associated with higher sales volume, expansion
of the Company's marketing, market research and communications programs, and
increased sales and marketing efforts in support of the Company's global
expansion. The decrease as a percentage of net revenue is largely attributable
to the fact that non-payroll related sales and marketing expenses grew less
rapidly than net revenue.
12
Operating profit: As a result of the foregoing factors, operating profit for
fiscal year 1997 increased to $24,636,000 or 14.6% of net revenue as compared to
$18,203,000 or 16.5% of net revenue for the prior fiscal year.
Other income (expense), net: Other income (expense), net decreased to
$1,237,000 or 0.7% of net revenue for fiscal year 1997 as compared to $2,128,000
or 1.9% of net revenue for the prior fiscal year. The decrease in fiscal year
1997, is attributable to lower average cash and security balances.
Income tax provision: The income tax provision increased to $8,797,000 for
fiscal year 1997 as compared to $6,600,000 for the prior fiscal year. The
effective tax rate increased to 34.0% for fiscal year 1997 as compared to 32.5%
for the prior fiscal year. The lower effective tax rate for fiscal year 1996 is
due to the elimination of certain valuation allowances placed against certain
deferred tax assets. The higher effective tax rate for fiscal year 1997 was
partially offset by an increased foreign sales corporation tax benefit.
FISCAL 1996 VS. FISCAL 1995
Net revenue: Net revenue for fiscal year 1996 increased to $110,684,000 as
compared to $64,042,000 for fiscal year 1995. This increase resulted from
greater market acceptance of, and demand for, the Company's flexible factory
automation systems as a result of semiconductor manufacturers' continuing
upgrades and expansion of existing fabrication facilities and construction of
new facilities, and from the Company's growth in Europe and in the Asia Pacific
region. Net export sales to unaffiliated customers comprised $18,428,000 or
16.6% of net revenue for fiscal year 1996 compared to $9,664,000 or 15.1% of net
revenue for the prior fiscal year. The increase is primarily due to the
Company's expansion into both Europe and the Asia Pacific region.
Gross profit: The Company's gross profit margin decreased to 47.3% for
fiscal year 1996 as compared to 47.9% for the prior fiscal year. The decrease is
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 increased to
$17,089,000 or 15.4% of net revenue for fiscal year 1996 as compared to
$10,407,000 or 16.3% of net revenue for the prior fiscal year. The increase in
dollar amount primarily reflects the continued increase in personnel and
materials expense in response to the increasing demand for new products and new
product enhancements. The decrease as a percentage of net revenue is
attributable to the fact that net revenue in fiscal year 1996 grew more rapidly
than did research and development expenses. In fiscal 1996 the Company
capitalized $726,000 of internal software development costs associated with
TransNet, its integrated software solution for FAB automation.
Selling, general and administrative: Selling, general and administrative
expenses increased to $17,072,000 or 15.4% of net revenue for fiscal year 1996
as compared to $10,045,000 or 15.7% of net revenue for the prior fiscal year.
The increase in dollar amount primarily reflects the increases in personnel,
commissions and related expenses associated with higher sales volume, expansion
of the Company's marketing, market research and communications programs, and
increased sales and marketing efforts in support of the Company's global
expansion. The decrease as a percentage of net revenue is largely attributable
to the fact that net revenue grew faster than general and administrative
expenses.
Operating profit: As a result of the foregoing factors, operating profit for
fiscal year 1996 increased to $18,203,000 or 16.5% of net revenue as compared to
$10,233,000 or 15.9% of net revenue for the prior fiscal year.
13
Other income (expense), net: Other income (expense), net increased to
$2,128,000 or 1.9% of net revenue as compared to $1,021,000 or 1.7% of net
revenue for the prior fiscal year. Interest income increased to $2,163,000 or
2.0% of net revenue for fiscal year 1996 as compared to $1,235,000 or 1.9% of
net revenue for the prior fiscal year. The increase in dollar amount is largely
attributable to the investment of proceeds resulting from the second offering of
the Company's Common Stock in July 1995. Interest expense decreased to $34,000
or 0.03% of net revenue as compared to $214,000 or 0.3% of net revenue. The
dollar amount and percentage decrease reflect the repayment of the Company's
debt out of the proceeds of its initial public offering in October 1994, the
effect of which was partially offset by prepayment penalties in fiscal 1995.
Income tax provision: The income tax provision increased to $6,600,000 for
fiscal year 1996 as compared to $3,695,000 for the prior fiscal year. The
effective tax rate decreased for fiscal year 1996 to 32% as compared to 33% for
the prior fiscal year. The decrease is primarily due to the elimination of
certain valuation allowances placed against certain deferred tax assets, offset
partially by an increase in state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal year 1997, cash and cash equivalents increased by $631,000. The
Company used cash of $5,556,000 in operating activities, generated cash of
$3,005,000 from investing activities and generated cash from financing
activities of $3,179,000. In fiscal year 1997, investments in marketable
securities decreased by $9,100,000 due to lower average cash and security
balances.
At September 30, 1997, the Company had no borrowings under its working
capital line of credit from Fleet Bank of Massachusetts, N.A. (the "Bank"),
which enables the Company to borrow or grant letters of credit on an unsecured
basis up to the lesser of 80% of eligible accounts receivable or $10,000,000 in
revolving loans, with outstanding borrowings under revolving loans bearing
interest at the Bank's prime lending rate. The ability of the Company to effect
borrowings under such 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.
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 fiscal year ending September 30, 1998.
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
14
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 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, which often have had a severe effect on the semiconductor industry's
demand for capital expenditures, 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, the
timing of investments in engineering and development, the Company's ability to
absorb and manage acquisitions, and risks associated with doing business in Asia
and Europe. The current financial uncertainty within certain Asian Country
economies could affect the worldwide semiconductor industry. The impact of this
uncertainty could result in delay or cancellation of orders from customers in
these countries. 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.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," which is effective for both interim and annual periods ending after
December 31, 1997. Earlier adoption is not permitted. The statement requires
restatement of all prior period earnings per share data presented after the
effective date. SFAS No. 128 specifies the computation, presentation and
disclosure requirements for earnings per share and is substantially similar to
the standards recently issued by the International Accounting Standards
Committee entitled "International Accounting Standards, Earnings Per Share". The
Company will adopt SFAS No. 128 in the interim period ending December 31, 1997.
Basic earnings per share for years ended September 30, 1997, 1996 and 1995 are
$1.15, $0.96 and $0.64, respectively. Diluted earnings per share will not be
materially different from fully diluted earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. The statement will be effective for annual periods
beginning after December 15, 1997 and the Company will adopt its provisions in
fiscal year 1999. Reclassification for earlier periods is required for
comparative purposes. The Company is currently evaluating the impact this
statement will have on its financial statements; however, because the statement
15
requires only additional disclosure, the Company does not expect the statement
to have a material impact on its financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
includes requirements to report selected segment information quarterly and
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports revenues. The
statement will be effective for annual periods beginning after December 15, 1997
and the Company will adopt its provisions in fiscal year 1999. Reclassification
for earlier periods is required, unless impracticable, for comparative purposes.
The Company is currently evaluating the impact this statement will have on its
financial statements; however, because the statement requires only additional
disclosure, the Company does not expect the statement to have a material impact
on its financial position or results of operations.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued the Statement of Position ("SOP") 97-2 "Software Revenue
Recognition," which will supersede SOP 91-1. SOP 97-2 has not changed the basic
rules of revenue recognition but does provide more guidance particularly with
respect to multiple deliverables and "when and if available" products. SOP 97-2
is effective for transactions entered into for annual periods beginning after
December 15, 1997. The Company will adopt SOP 97-2 in fiscal year 1999 and has
not yet determined its impact.
SUBSEQUENT EVENTS
On October 25, 1997, the Company agreed to acquire Equipe Technologies Inc.,
a California corporation ("Equipe"). Under the terms of the Merger Agreement,
the Company will issue 4,364,020 shares of Common Stock in exchange for all of
the outstanding shares of Equipe Common Stock, including the related Company's
E-Machine, Inc., a supplier of specialty components of Equipe, and Equipe Japan
Ltd., a distributor of Equipe's products in Japan. In addition, the Company
agreed to issue or assume options to purchase an additional 849,646 shares of
the Company's Common Stock. Equipe is a leading worldwide developer,
manufacturer and supplier of atmospheric wafer and substrate handling robots,
pre-aligners and controllers. The acquisition will be accounted for as a
pooling of interest and is expected to be completed in late January 1998.
On October 29, 1997, the Company acquired Interval Logic Corporation, a
California corporation ("ILC"), for aggregate consideration of 111,258 shares of
the Company's Common Stock pursuant to an Agreement and Plan of Merger dated as
of October 12, 1997. The transaction is being accounted for as a purchase. In
addition, the Company issued or assumed options to purchase an aggregate of
199,170 shares of the Company's Common Stock. ILC was formed in 1995 to develop
advanced, high-performance planning and scheduling software solutions for the
semiconductor industry. The Company expects to invest significantly in further
development of the ILC technology in order to integrate it with the Company's
proprietary software and to develop products that can meet the Company's
customers' requirements. The Company is currently assessing the value of the
technology acquired and expects to record a significant charge to earnings in
the quarter ending December 28, 1997 for the portion of the purchase price which
is allocated to in-process technology.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and Financial Statement Schedules as of
September 30, 1997 and 1996 and for each of the three years in the period ended
September 30, 1997 are filed as exhibits hereto and listed in Items 14(a)(1) and
(2), and are incorporated by reference herein.
16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors and executive
officers of the Company is incorporated herein by reference to the information
set forth under the caption "Directors and Executive Officers" contained in the
Company's Definitive Proxy Statement for its Annual Meeting of Stockholders
expected to be filed with the Securities and Exchange Commission on or before
January 28, 1997 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item with respect to executive compensation
is incorporated herein by reference to the information set forth under the
caption "Renumeration of Executive Officers and Directors" contained in the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item with respect to security ownership of
management and certain beneficial owners of the Company is incorporated herein
by reference to the information set forth under the caption "Security Ownership
of Certain Beneficial Owners and Management" contained in the Company's Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets as of September 30, 1997 and 1996
Consolidated Statements of Operations for the years ended September 30, 1997,
1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended September
1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended September 30, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because the required information is either
inapplicable or presented in the Consolidated Financial Statements or Notes
thereto.
17
(3) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 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).
3.2 Restated Articles of Organization (filed as Exhibit 3.5 to the Company's
Registration Statement on Form S-1, File No. 33-81836, and incorporated
herein by reference).
3.6 Articles of Amendment (filed as Exhibit 3.6 to the Company's Quarterly
report for the quarter ended March 30, 1997 and incorporated herein by
reference).
4.1 Specimen certificate for the Common Stock of the Company (filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-1,
File No. 33-81836, and incorporated herein by reference).
10.1* 1984 Incentive Stock Option Plan of the Company (filed as Exhibit 10.4
to the Company's Registration Statement on Form S-1, File No. 33-81836,
and incorporated herein by reference).
10.2* 1994 Incentive and Non-Qualified Stock Option Plan of the Company
(filed as Exhibit 10.5 to the Company's Registration Statement on
Form S-1, File No. 33-81836, and incorporated herein by reference).
10.3 Letter Agreement dated March 2, 1994, between the Company and Fleet Bank
of Massachusetts, N.A. (exhibits and schedules have been omitted) (filed
as Exhibit 10.6 to the Company's Registration Statement on Form S-1,
File No. 33-81836, and incorporated herein by reference).
10.5 Security Agreement dated as of March 2, 1994, by and between the Company
and Fleet Bank of Massachusetts, N.A. (filed as Exhibit 10.8 to the
Company's Registration Statement on Form S-1, File No. 33-81836, and
incorporated herein by reference).
10.10 Lease Agreement dated as of May 5, 1994, by and between the Company and
The Prudential Insurance Company of America (filed as Exhibit 10.14 to
the Company's Registration Statement on Form S-1, File No. 33-81836, and
incorporated herein by reference).
10.11 Master Lease Agreement dated as of June 18, 1992, by and between the
Company and Banc Boston Leasing, Inc. (filed as Exhibit 10.15 to the
Company's Registration Statement on Form S-1, File No. 33-81836, and
incorporated herein by reference).
10.12* 1994 Employee Stock Purchase Plan of the Company (filed as Exhibit 10.16
to the Company's Registration Statement on Form S-1, File No. 33-81836,
and incorporated herein by reference).
10.13 Modification Agreement and Supplement No. 1 to Security Agreement dated
September 1, 1994 between the Company and Fleet Bank of Massachusetts,
N.A. (filed as Exhibit 10.19 to the Company's Registration Statement on
Form S-1, File No. 33-81836, and incorporated herein by reference).
10.14 Term Note dated September 1, 1994 made by the Company to the order of
Fleet Bank of Massachusetts, N.A. (filed as Exhibit 10.20 to the
Company's Registration Statement on Form S-1, File No. 33-81836, and
incorporated herein by reference).
18
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.16 Second Loan Modification Agreement dated as of March 1, 1996 between the
Company and Fleet Bank of Massachusetts, N.A. (filed as Exhibit 10.16 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996, and incorporated herein by reference).
10.17 $10,000,000 Promissory Note dated as of March 1, 1996 made by the
Company to the order of Fleet Bank of Massachusetts, N.A. (filed as
Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, and incorporated herein by reference).
10.18 Agreement and Plan of Reorganization, dated as of October 25, 1997,
among PRI Automation, Inc., E-Acquisition Corp., Equipe Technologies,
Inc. and certain Stockholders of Equipe technologies, Inc. (filed as
Exhibit 10.19 to the Company's Current report on form 8-K on November
10, 1997, and incorporated herein by reference).
10.20 Stock Purchase Agreement, dated as of October 25, 1997 among PRI
Automation, Inc. and the Shareholders of E-Machine, Inc. (filed as
Exhibit 10.20 to the Company's Current Report on Form 8-K filed on
November 10, 1997, and incorporated herein by reference).
10.21 Stock Purchase Agreement, dated as of October 25, 1997, among PRI
Automation, Inc. and the Sharholders of Equipe Japan Corporation (filed
as Exhibit 10.21 to the Company's Current Report on Form 8-K filed on
November 10, 1997, and incorporated herein by reference).
11.1** Computation of Net Income Per Common Share.
21.1** List of Subsidiaries of the Company.
23.1** Consent of Coopers & Lybrand L.L.P.
- ----------
* management contracts and compensatory arrangements
** filed herewith
(B) REPORTS ON FORM 8-K
The Company did not file any Report on Form 8-K during the quarter ended
September 30, 1997.
19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
PRI Automation, Inc.:
We have audited the accompanying consolidated balance sheets of PRI
Automation, Inc. as of September 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PRI Automation,
Inc. as of September 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
November 12, 1997
F-1
PRI AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
SEPTEMBER 30,
------------------
ASSETS 1997 1996
-------- --------
Current assets:
Cash and cash equivalents............................... $ 29,118 $ 28,487
Marketable securities................................... 2,642 7,582
Trade accounts receivable, less allowance for doubtful
accounts of $800 at 1997 and $500 at 1996............ 62,085 27,561
Contracts in progress................................... 15,463 21,824
Inventories............................................. 29,888 20,988
Deferred income taxes................................... 1,012 --
Other current assets.................................... 2,562 1,268
-------- --------
Total current assets................................. 142,770 107,710
Property and equipment, net............................... 11,400 9,180
Marketable securities..................................... 506 4,666
Deferred income taxes..................................... 475 644
Other assets.............................................. 1,833 1,586
-------- --------
Total assets......................................... $156,984 $123,786
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 18,319 $ 16,171
Accrued expenses and other liabilities.................. 15,819 9,188
Billings in excess of revenues and customer advances.... 3,462 1,505
-------- --------
Total current liabilities............................ 37,600 26,864
Commitments and contingencies (Notes H, L and O).......... -- --
Stockholders' equity:
Preferred stock; 400,000 shares authorized;
none outstanding....................................... -- --
Common stock, $.01 par value; 24,000,000 shares
authorized; 14,984,765 and 14,570,920 issued and
outstanding at September 30, 1997 and 1996,
respectively........................................... 150 146
Additional paid-in capital.............................. 77,113 71,733
Retained earnings....................................... 42,119 25,043
Unrealized gain on securities........................... 2 --
-------- -------
Total stockholders' equity........................... 119,384 96,922
-------- --------
Total liabilities and stockholders' equity........... $156,984 $123,786
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
YEAR ENDED SEPTEMBER 30,
---------------------------
1997 1996 1995
-------- -------- -------
Net revenue.............................. $169,465 $110,684 $64,042
Cost of revenue.......................... 95,635 58,320 33,357
-------- -------- -------
Gross profit............................. 73,830 52,364 30,685
Operating expenses:
Research and development............... 24,634 17,089 10,407
Selling, general and administrative.... 24,560 17,072 10,045
-------- -------- -------
Operating profit......................... 24,636 18,203 10,233
Other income (expense), net.............. 1,237 2,128 1,021
-------- -------- -------
Income before income tax provision....... 25,873 20,331 11,254
Income tax provision..................... 8,797 6,600 3,695
-------- -------- -------
Net income............................... $ 17,076 $ 13,731 $ 7,559
======== ======== =======
Net income per common share:
Primary................................ $1.09 $0.91 $0.59
Assuming full dilution................. $1.08 $0.90 $0.58
Weighted average number of common and
common equivalent shares outstanding:
Primary................................ 15,655 15,156 12,912
Assuming full dilution................. 15,777 15,210 13,004
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
COMMON STOCK ADDITIONAL UNREALIZED TOTAL
--------------- PAID-IN RETAINED GAINS ON STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SECURITIES EQUITY
------- ------ ----------- -------- ---------- -------------
Balance, September 30, 1994.................. 6,352 $ 64 $ 1,640 $ 3,753 -- $ 5,457
Exercise of stock options.................... 356 4 474 478
Tax benefit from disqualified dispositions... 360 360
Conversion of Series A redeemable
convertible preferred stock................ 694 6 4,056 4,062
Issuance of common stock pursuant to
an initial public offering net of
issuance costs of $1,152................... 4,446 44 26,699 26,743
Issuance of common stock pursuant to
an additional public offering net of
issuance costs of $310..................... 2,100 22 36,382 36,404
Issuance of common stock in connection
with the Employee Stock Purchase Plan...... 48 363 363
Net income................................... 7,559 7,559
------- ------ ------- ------- ----- --------
Balance, September 30, 1995.................. 13,996 140 69,974 11,312 -- 81,426
Exercise of stock options.................... 380 4 584 588
Tax benefit from disqualified
dispositions............................... 591 591
Cashless exercise of stock warrants.......... 138 1 (1)
Issuance of common stock in connection with
the Employee Stock Purchase Plan........... 57 1 585 586
Net income................................... 13,731 13,731
------- ------ ------- ------- ----- --------
Balance, September 30, 1996.................. 14,571 146 71,733 25,043 -- 96,922
Exercise of stock options.................... 365 4 2,363 2,367
Tax benefit from disqualified dispositions... 2,065 2,065
Stock-based compensation..................... 140 140
Issuance of common stock in connection with
the Employee Stock Purchase Plan........... 49 812 812
Change in unrealized gain on securities..... 2 2
Net income................................... 17,076 17,076
------- ------ ------- ------- ----- --------
Balance, September 30, 1997.................. 14,985 $ 150 $77,113 $42,119 $ 2 $119,384
======= ====== ======= ======= ===== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED SEPTEMBER 30,
--------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income.............................................. $ 17,076 $ 13,731 $ 7,559
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization expense................ 3,811 2,095 749
Provision for bad debts.............................. 300 -- 453
Deferred income taxes................................ (2,674) 2,227 (942)
Tax benefit from disqualified dispositions........... 2,065 591 360
Non-cash compensation................................ 140 -- --
Amortization of premiums or discounts on marketable
securities........................................ 64 148 --
Changes in operating assets and liabilities:
Trade accounts receivable.......................... (34,824) (10,937) (13,250)
Contracts in progress.............................. 6,361 (14,442) (2,089)
Inventories........................................ (8,900) (9,572) (2,721)
Other assets....................................... (1,541) (671) (161)
Accounts payable................................... 2,148 9,134 2,720
Accrued expenses and other liabilities............. 8,461 1,999 2,248
Billings in excess of revenues and customer
advances........................................ 1,957 328 261
-------- -------- --------
Net cash used in operating activities..................... (5,556) (5,369) (4,813)
-------- -------- --------
Cash flows from investing activities:
Proceeds from the sale of marketable securities......... 9,078 1,908 448
Proceeds from maturities of marketable securities....... 5,390 12,571 --
Purchases of marketable securities...................... (5,432) (12,828) (14,495)
Capitalized software development costs.................. -- (726) --
Purchases of property and equipment..................... (6,031) (6,248) (3,539)
-------- -------- --------
Net cash provided by (used in) investing activities....... 3,005 (5,323) (17,586)
-------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings................................ -- -- 1,330
Repayments of borrowings................................ -- -- (5,139)
Repayment of capital lease obligations.................. -- -- (442)
Proceeds from issuance of common stock, net of
issuance costs....................................... -- -- 63,147
Proceeds from exercise of stock options and Employee
Stock Purchase Plan.................................. 3,179 1,174 841
-------- -------- --------
Net cash provided by financing activities................. 3,179 1,174 59,737
-------- -------- --------
Effect of changes in exchange rates on cash............... 3 -- --
-------- -------- --------
Net increase (decrease) in cash and cash equivalents...... 631 (9,518) 37,338
Cash and cash equivalents at beginning of period.......... 28,487 38,005 667
-------- -------- --------
Cash and cash equivalents at end of period................ $ 29,118 $ 28,487 $ 38,005
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.......................................... -- $ 34 $ 248
Taxes............................................. $ 5,097 3,765 2,948
Noncash transactions:
Conversion of Series A redeemable convertible
preferred stock into common stock upon closing
of initial public offering...................... -- -- 4,063
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
`
A. DESCRIPTION OF BUSINESS:
PRI Automation, Inc. (the "Company") operates in one business segment. The
Company designs, develops, manufactures and markets factory automation systems
and related software used by semiconductor manufacturers to automate the
fabrication of integrated circuits in cleanroom manufacturing operations. The
Company also provides a broad range of automation services, including system
integration, factory simulation, project management, and on-site support. The
Company is subject to risks and uncertainties common to companies in the
semiconductor industry including, but not limited to, the highly cyclical nature
of the semiconductor industry leading to recurring periods of over-supply, rapid
technological change and the development by the Company or its competitors of
new technological innovations, dependence on key personnel, the protection of
proprietary technology, management of growth including inventory management and
manufacturing capacity expansion, fluctuations in operating results, doing
business in Asian and European markets and related currency risks, competitive
pressure on selling prices, the timing and cancellation of customer orders and
the Company's ability to absorb and manage acquisitions.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of PRI
Automation, Inc., and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions and balances have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and would
impact future results of operations and cash flows. Significant estimates are
inherent in determining revenue recognition and associated profits under the
percentage-of-completion method.
Revenue Recognition
For certain contracts eligible under AICPA Statement of Position No. 81-1,
revenue is recognized using the percentage-of-completion accounting method based
upon an efforts-expended method. In all cases, changes to total estimated costs
and anticipated losses, if any, are recognized in the period in which
determined. Revenue recognized under the percentage-of-completion accounting
method was approximately $100,699,000, $77,695,000 and $40,460,000 during fiscal
years 1997, 1996 and 1995, respectively. Revenue from product sales not
recognized under the percentage-of-completion method are generally recorded upon
shipment to the customer provided that no significant vendor obligations remain
outstanding and collection of the related receivable is deemed probable by
management. If insignificant vendor obligations remain after shipment of the
product, the Company accrues for the estimated costs of such obligations.
Additionally, the Company accrues for warranty costs upon shipment. Service
revenue is recognized ratably over applicable contract periods or as the
services are performed.
F-6
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Retainages
Accounts receivable include certain amounts which are not due until final
customer acceptance. Such retainages were approximately $22,092,000 and
$11,545,000 at September 30, 1997 and 1996, respectively. The retainages at
September 30, 1997 are expected to be collected within the next twelve months.
Contracts in Progress
Contracts in progress include costs and estimated profits under uncompleted
contracts accounted for using the percentage-of-completion method, net of
amounts billed. These amounts are expected to be collected within the next
twelve months as units are delivered. Amounts billed at September 30, 1997 and
1996, which were netted against costs and estimated profits, were $27,006,000
and $13,116,000, respectively.
Billings in Excess of Revenues
Billings in excess of revenues include amounts billed on uncompleted
contracts accounted for using the percentage-of-completion method net of costs
and estimated profits recognized.
Commissions
The Company pays commissions to agents and distributors under certain
agreements in return for obtaining orders and providing installation and
warranty services. The payment of such commissions that are contingent upon the
Company receiving payment in full from the customers are generally charged
against the related revenues. These amounts totaled approximately $2,381,000,
$1,852,000 and $845,000 for fiscal years 1997, 1996 and 1995, respectively and
all other sales commissions are included in selling, general and administrative
expenses.
Inventories
Inventories, consisting of raw materials, work-in-process and finished
goods, are stated at the lower of cost (determined on a first-in, first-out
basis) or market.
Property and Equipment
Property and equipment are stated at cost. Betterments and major renewals
are capitalized and included in property and equipment, while repairs and
maintenance are charged to expense as incurred. Depreciation and amortization of
plant and equipment are provided using the straight-line method over the
estimated useful lives of the assets. Upon retirement or sale, the cost of the
assets disposed and the related accumulated depreciation are removed from the
accounts and any resulting gain or loss is credited or charged to operations.
Income Taxes
The Company recognizes deferred tax assets and liabilities based on
temporary differences between the financial statement and tax bases of assets
and liabilities using the expected tax rates in the year in which the
differences are expected to reverse. The Company records a valuation allowance
against
F-7
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
net deferred tax assets if, based upon the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized
Cash and Cash Equivalents
Cash equivalents consist of commercial papers, eurodollars, money market
mutual funds and other highly liquid investments with original maturities of
three months or less.
Marketable Securities
Current marketable securities include all investments with remaining
maturities of twelve months or less. Non-current marketable securities include
all investments with remaining maturities greater than twelve months. At
September 30, 1997 the Company classified all securities as available-for-sale.
These securities are reported at fair value as of the balance sheet date with
net unrealized holding gains and losses included in stockholders' equity. Gains
and losses on sales of securities are calculated using the specific
identification method.
Financial Instruments
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
current and non-current investments and trade accounts receivable. The Company
generally invests its cash investments in investment-grade securities.
The Company's customers are concentrated in one industry segment, the
semiconductor manufacturing industry, and, historically, a significant portion
of the Company's sales have been to a limited number of customers within this
industry. The Company performs ongoing credit evaluations of its customers'
financial condition and may require deposits on large orders but does not
require collateral or other security to support customer receivables.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries which are denominated in
foreign currencies are remeasured into U.S. dollars at rates of exchange in
effect at the end of the fiscal year except nonmonetary assets and liabilities
which are remeasured using historical exchange rates. Revenue and expense
amounts are remeasured using an average of exchange rates in effect during the
year, except those amounts related to nonmonetary assets and liabilities, which
are remeasured at historical exchange rates. Net realized and unrealized gains
and losses resulting from foreign currency remeasurement are included in
operations.
Accounting for Stock-Based Compensation
The Company continues to apply the accounting provisions of Accounting
Principles Board ("APB") Opinion 25 and has elected the disclosure-only
alternative permitted under Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation. The Company has
disclosed herein pro forma net income and pro forma net income per share in the
footnotes using the fair value based method beginning in fiscal year 1997 with
comparable disclosures for fiscal year 1996.
F-8
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Net Income Per Common Share
Net income per common share is based upon the weighted average number of
common and common equivalent shares (using the treasury stock method)
outstanding after certain adjustments described below. Common equivalent shares
are included in the per share calculations where the effect of their inclusion
would be dilutive. Common equivalent shares consist of outstanding stock
options (see new accounting pronouncements).
Reclassification of Prior Year Balances
Certain reclassifications have been made to prior years' financial
statements to conform to the current presentation.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 128, "Earnings Per Share," which is effective for both interim
and annual periods ending after December 31, 1997. Earlier adoption is not
permitted. The statement requires restatement of all prior period earnings per
share data presented after the effective date. SFAS No. 128 specifies the
computation, presentation and disclosure requirements for earnings per share and
is substantially similar to the standards recently issued by the International
Accounting Standards Committee entitled "International Accounting Standards,
Earnings Per Share". The Company will adopt SFAS No. 128 in the interim period
ending December 31, 1997. Basic earnings per share for years ended September
30, 1997, 1996 and 1995 are $1.15, $0.96 and $0.64, respectively. Diluted
earnings per share will not be materially different from fully diluted earnings
per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement requires that changes in comprehensive income be shown
in a financial statement that is displayed with the same prominence as other
financial statements. The statement will be effective for annual periods
beginning after December 15, 1997 and the Company will adopt its provisions in
fiscal year 1999. Reclassification for earlier periods is required for
comparative purposes. The Company is currently evaluating the impact this
statement will have on its financial statements; however, because the statement
requires only additional disclosure, the Company does not expect the statement
to have a material impact on its financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
includes requirements to report selected segment information quarterly and
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports revenues. The
statement will be effective for annual periods beginning after December 15, 1997
and the Company will adopt its provisions in fiscal year 1999. Reclassification
for earlier periods is required, unless impracticable, for comparative purposes.
The Company is currently evaluating the impact this statement will have on its
financial statements; however, because the statement requires only additional
disclosure, the Company does not expect the statement to have a material impact
on its financial position or results of operations.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued the Statement of Position ("SOP") 97-2 "Software Revenue
Recognition," which will supersede SOP 91-1. SOP 97-2 has not changed the basic
rules of revenue recognition but does provide more guidance particularly with
respect to multiple deliverables and "when and if available" products. SOP 97-2
is
F-9
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
effective for transactions entered into for annual periods beginning after
December 15, 1997. The Company will adopt SOP 97-2 in fiscal year 1999 and has
not yet determined its impact.
C. CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consisted of the following at September 30:
1997 1996
---------- ----------
(in thousands)
Cash on hand......................... $ 4 $ 4
Cash deposited with banks............ 1,934 7,669
Eurodollars.......................... 19,805 3,450
Money market funds................... 939 3,143
U.S. government notes................ 747 992
Municipal bonds...................... 1,955 2,400
Commercial paper..................... 3,734 10,829
------- ----------
$29,118 $28,487
======= ==========
D. INVESTMENTS:
Investments in marketable securities consisted of the following at
September 30:
1997 1996
--------------------- -----------------
COST FAIR VALUE COST FAIR VALUE
------ ---------- ------ ----------
(in thousands)
CURRENT:
Municipal notes........................ $2,142 $ 2,143 $7,584 $ 7,582
U.S. government notes.................. 497 499
------ ------- ------ ----------
$2,639 $ 2,642 $7,584 $ 7,582
====== ======= ====== ==========
NON-CURRENT:
U.S. Treasury obligations.............. $1,248 $ 1,250
Municipal notes........................ $ 507 $ 506 3,416 3,416
------ ------- ------ ----------
$ 507 $ 506 $4,664 $ 4,666
====== ======= ====== ==========
Gross realized gains and losses for the year ended September 30, 1997, were
$9,000 and $7,000, respectively. Gross unrealized gains and losses at September
30, 1997, were $3,000 and $1,000 respectively.
Interest income included in other income (expense), net was $1,237,000,
$2,163,000 and $1,235,000 for the years ended September 30, 1997, 1996 and
1995, respectively.
Information regarding the range of contractual maturities of investments in
debt securities at September 30, 1997 is as follows:
COST FAIR VALUE
------ ----------
(in thousands)
Within 1 year................. $2,639 $2,642
After 1 year through 2 years.. 507 506
------ ------
$3,146 $3,148
====== ======
F-10
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
E. INVENTORIES:
Inventories consisted of the following at September 30:
1997 1996
------ ------
(in thousands)
Raw materials............... $24,533 $19,892
Work-in-process............. 5,355 1,096
------- --------
$29,888 $20,988
======== ========
F. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at September 30:
DEPRECIABLE LIFE 1997 1996
---------------- ------- --------
(in thousands)
Machinery and equipment....... 2-7 years $13,597 $ 8,760
Furniture and fixtures........ 5-7 years 3,765 3,246
Leasehold improvements........ Shorter of life of
lease or useful life 2,030 1,355
------- --------
19,392 13,361
Accumulated depreciation and
amortization................. (7,992) (4,181)
------- --------
$11,400 $ 9,180
======= ========
Depreciation expense was $3,652,000, $2,051,000 and $740,000 for years
ending September 30, 1997, 1996 and 1995, respectively.
G. STOCKHOLDERS' EQUITY:
Common Stock Split
On April 22, 1997, the shareholders approved a two-for-one stock split
effected in the form of a 100% stock dividend on its common stock. This action
became effective on May 2, 1997 for shareholders of record as of April 22, 1997.
A total of 7,421,594 shares of common stock were issued in connection with the
split. The par value of common stock remains unchanged. All share and per
share amounts have been adjusted to reflect the stock split on a retroactive
basis.
Stock Options
During 1984, the Board of Directors voted to adopt the 1984 Incentive
Stock Option Plan (the "1984 Option Plan") and subsequently reserved 1,050,000
shares of its authorized Common Stock for issuance under this plan. On March
17, 1994, the Board of Directors approved the 1994 Incentive and Nonqualified
Stock Option Plan (the "1994 Option Plan") and reserved 810,000 shares of Common
Stock for issuance under this plan. At the Company's annual stockholder meeting
held on January 26, 1996, the shareholders voted to increase the number of
shares authorized for issuance under this plan to 1,810,000 shares. The Board
of Directors has also granted nonqualified options to directors and employees of
the Company. Incentive stock options generally vest over five years and expire
six years after issuance. Nonqualified stock options generally vest between zero
and five years and expire between five and ten years after issuance. The fair
value of options issued to non-employees is recorded as a charge to earnings
over the shorter of the service period or the vesting period.
On February 1, 1996, the board of Directors determined that certain stock
options issued to employees of the Company had an exercise price significantly
higher than the fair market value of the Company's common stock. In light of the
Board's conclusions that such options were not providing the desired incentive,
the Board provided employees with the opportunity to exchange options previously
granted to them under the 1994 Plan for new options to purchase a reduced number
of shares at an exercise price of $13.63, the then fair market value of the
Company's common stock. The Company canceled and replaced options to purchase
380,600 shares of common stock with an average exercise price of $18.88 per
share.
F-11
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Information with respect to option activity for the fiscal years 1995, 1996
and 1997 is as follows:
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
Outstanding at September 30, 1994.. 1,357,723 $ 1.74
------
Granted.......................... 322,700 8.31
Canceled......................... (24,676) 2.63
Exercised........................ (355,572) 1.34
--------- ------
Outstanding at September 30, 1995.. 1,300,175 3.46
--------- ------
Granted.......................... 843,542 16.16
Canceled......................... (442,152) 17.47
Exercised........................ (379,932) 1.59
--------- ------
Outstanding at September 30, 1996.. 1,321,633 7.41
--------- ------
Granted.......................... 762,974 20.49
Canceled......................... (237,182) 11.62
Exercised........................ (364,851) 6.55
--------- ------
Outstanding at September 30, 1997.. 1,482,574 $13.68
========= ======
Summarized information about stock options outstanding at September 30,
1997 is as follows:
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
----------------------------------------- --------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------- --------------- -------------------- ------------------- -------------- ------------------
$1.00 - 4.00 350,458 1.69 $ 2.34 231,431 $ 2.14
7.25 - 13.63 427,152 3.82 11.39 120,700 10.48
15.13 - 17.69 462,520 5.02 17.58 57,441 17.55
18.00 - 23.88 181,444 4.94 22.62 40,696 22.74
34.63 - 56.75 61,000 5.72 38.66 2,475 35.25
- ---------------- --------- ---- ------ ------- ------
$1.00-56.75 1,482,574 3.90 $13.68 452,743 $ 8.35
================ ========= ==== ====== ======= ======
At September 30, 1996 and 1995 options exercisable were 467,503 and 574,010
respectively. Estimated weighted average fair value of options granted in fiscal
year 1997 and 1996 are $11.92 and $9.52, respectively, on the date of the grant.
Employee Stock Purchase Plan
Since May 1994, the Company has offered an Employee Stock Purchase Plan
("ESPP") under which rights are granted to purchase shares of Common Stock at
85% of the lesser of the market value of such shares at either the beginning or
the end of each six month offering period. The plan permits employees to
purchase Common Stock through payroll deductions which may not exceed 6% of an
employees compensation as defined in the plan. Under the ESPP, the Company has
reserved 450,000 shares of Common Stock for issuance to eligible employees.
During fiscal years 1997 and 1996, 49,044
F-12
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
and 56,958 shares, respectively, were purchased at an average price ranging from
$10.20 to $19.34 per share. Shares available for future purchase under the ESPP
totaled 295,752 at September 30, 1997.
Stock-Based Compensation Plans
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock-based compensation plan and no compensation expense has
been recognized for options granted to employees and shares purchased under
these plans. Had compensation expense for the stock-based compensation plans
been determined based on the fair value at the grant dates for options granted
and shares purchased under the plans consistent with the method of SFAS 123,
Accounting for Stock-Based Compensation, the net income and net income per share
would have been as follows:
1996 1997
------------------------------ ---------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET INCOME NET INCOME
NET INCOME PER SHARE NET INCOME PER SHARE
------------ ------------ ------------ ------------
As Reported $13,731 $0.90 $17,076 $1.08
Pro Forma 12,662 0.83 14,967 0.95
The effects of applying as SFAS 123 in this proforma disclosure are not
likely to be representative of the effects on reported net income for future
years. SFAS 123 does not apply to awards granted prior to fiscal year 1996 and
additional awards are anticipated in future years.
The fair value of options and other equity instruments at the date of grant
was estimated using the Black-Scholes option pricing model with the following
assumptions:
1997 1996
------------- -------------
Expected life (years)-stock options 5 5
Expected life (years)-ESPP 0.5 0.5
Risk-free interest rate 5.51%-6.07% 4.88%-5.83%
Volatility 65% 65%
Dividend yield -0- -0-
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option pricing models require the use of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimates, in management's
option, the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock-based compensation.
F-13
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
Stock Warrants
A warrant to purchase 112,500 shares of the Company's Common Stock, which
was issued in fiscal year 1993, was exercised in full in January 1996 in a
cashless exercise resulting in the net issuance to the holder of 68,936 shares
of the Company's Common Stock.
H. LEASE COMMITMENTS:
The Company leases manufacturing and office facilities under noncancelable
leases expiring through the year 2002. Rent expense was $1,336,000, $835,000 and
$593,000 for fiscal years 1997, 1996 and 1995, respectively.
At September 30, 1997, future minimum payments required under all
noncancelable leases were as follows:
OPERATING
YEAR LEASES
---- ------------------
(in thousands)
Year ending September 30, 1998............ $ 1,302
Year ending September 30, 1999............ 1,139
Year ending September 30, 2000............ 1,146
Year ending September 30, 2001............ 889
Year ending September 30, 2002............ 158
-------
Total minimum lease payments.............. $ 4,634
=======
I. ACCRUED EXPENSES AND OTHER LIABILITIES:
The significant components of accrued expenses and other liabilities
consisted of the following at September 30:
1997 1996
------ ------
(in thousands)
Accrued expenses.................. $ 3,923 $2,030
Accrued compensation.............. 5,955 3,883
Income taxes payable.............. 5,941 1,445
Deferred income taxes............. -- 1,830
------- ------
$15,819 $9,188
======= ======
F-14
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
J. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
(in thousands except per share data)
QUARTER ENDED,
----------------------------------------------------------------------------
DECEMBER, MARCH, JUNE, SEPTEMBER,
----------------- ---------------- ---------------- ----------------
1996 1995 1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- ------- ------- -------
Net revenue $37,228 $22,037 $41,235 $26,200 $44,362 $28,440 $46,640 $34,007
Operating profit 5,541 3,570 5,916 4,676 6,342 4,806 6,837 5,151
Income before income taxes 5,888 4,205 6,146 5,158 6,605 5,337 7,234 5,631
Net income 3,886 3,191 4,056 3,301 4,359 3,522 4,775 3,717
Net income per common share:
Primary 0.25 0.21 0.26 0.22 0.28 0.23 0.30 0.24
Assuming full dilution 0.25 0.21 0.26 0.22 0.28 0.23 0.30 0.24
K. INCOME TAXES:
The following summarizes the Company's provision for income taxes:
1997 1996 1995
-------- -------- --------
(in thousands)
Federal income taxes:
Current............... $10,811 $ 4,000 $ 3,986
Deferred.............. (2,324) 1,958 (599)
State income taxes:
Current............... 660 373 650
Deferred.............. (350) 269 (342)
------- ------- -------
Total income tax provision. $ 8,797 $ 6,600 $ 3,695
======= ======= =======
The differences between the effective tax rates and the U.S. federal
statutory tax rates were as follows:
1997 1996 1995
------- ------- -------
U.S. federal income tax statutory rate............ 35.0% 35.0% 35.0%
State income taxes, net of federal benefit......... 3.4 3.4 1.8
Federal tax credits................................ (2.3) (0.9) (2.1)
Release of deferred tax valuation allowances....... 0.0 (4.9) (0.8)
Foreign sales corporation tax benefit.............. (3.4) (0.2) (0.8)
Other.............................................. 1.3 0.1 (0.3)
------- ------- -------
Effective tax rate................................. 34.0% 32.5% 32.8%
======= ======= =======
F-15
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
At September 30, 1997 and 1996 the components of net deferred tax assets
(liabilities) were as follows:
1997 1996
-------- --------
(in thousands)
Gross deferred tax assets:
Bad debts...................................... $ 325 $ 221
Inventory...................................... 3,078 927
Compensation................................... 321 260
Intangible assets.............................. 1,079 1,285
Tax credits.................................... 230 398
Other.......................................... 638 466
------- -------
Subtotal.................................. 5,671 3,557
------- -------
Gross deferred tax liabilities:
Long-term contracts............................ (2,645) (4,212)
Accounts receivable............................ (1,036)
Depreciation................................... (503) (531)
------- -------
Subtotal.................................. (4,184) (4,743)
------- -------
Net deferred tax assets (liabilities).. $ 1,487 $(1,186)
======= =======
At September 30, 1997, the Company had state tax credit carryforwards of
$230,000 that expire beginning in 2008.
L. CREDIT AGREEMENT:
The Company has entered into a credit agreement, as amended March 1, 1996,
with Fleet Bank of Massachusetts, N.A. (the "Bank"). The line of credit enables
the Company to borrow or grant letters of credit on an unsecured basis up to the
lesser of 80% of eligible accounts receivable or $10,000,000 in revolving loans,
with outstanding borrowings under revolving loans bearing interest at the Bank's
prime lending rate. The ability of the Company to effect borrowings under such
line of credit is conditioned upon, among other things, the Company meeting
certain financial covenants, including covenants requiring the maintenance of
specific levels of quarterly earnings, working capital, tangible net worth, debt
service coverage and liquidity. The Company can elect to convert revolving loans
into loans bearing interest at 1.5% above the Bank's cost of funds. A facility
fee of 0.25% on the unused working capital line of credit is payable quarterly
in arrears. Since December 31, 1995, the Company has had no borrowings under its
working capital line of credit. The working capital line of credit expires on
March 1, 1998.
M. DEFINED CONTRIBUTION PLAN:
All U.S. based employees, subject to certain eligibility requirements, can
participate in the Company's defined contribution plan. Currently, the Company
may elect to match a portion of the employee deferral. Company contributions
under this plan amounted to $696,000, $418,000 and $102,000 for fiscal years
1997, 1996 and 1995, respectively.
F-16
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONTINUED
N. SIGNIFICANT CUSTOMERS, RELATED PARTY AND INTERNATIONAL NET REVENUE:
The Company's customers are concentrated in one industry segment, the
semiconductor manufacturing industry. Customers comprising 10% or more of the
Company's total net revenue for the years ended September 30 are as follows:
1997 1996 1995
----- ----- -----
Customer A.......... 45% 38% 60%
Customer B.......... -- -- 10%
Customer C.......... -- -- 10%
Customer A purchased the Company's Series A Convertible Preferred
Stock in June 1993. Under the related stock purchase agreement, Customer A was
entitled to certain Board observation and Board representation rights. Upon the
completion of the Company's initial public offering in the first quarter of
fiscal 1995, the stock ownership of Customer A was converted to common stock and
diluted to approximately 6.7%. In November 1996, Customer A ceased to be a
stockholder of the Company, and the related covenants in the stock purchase
agreement terminated. At September 30, 1997, Customer A represented 23% of the
Company's backlog.
Net export sales to unaffiliated customers were approximately
$90,810,000, $18,428,000, and $9,664,000 for the years ending September 30,
1997, 1996 and 1995, respectively. Net export sales by geographic location for
the years ended September 30 are as follows:
1997 1996 1995
------ ------ ------
(in thousands)
Europe and Middle East.. $62,585 $10,699 $3,099
Asia.................... 28,225 7,729 6,565
O. SUBSEQUENT EVENTS:
On October 25, 1997, the Company agreed to acquire Equipe Technologies
Inc., a California corporation ("Equipe"). Under the terms of the Merger
Agreement, the Company will issue 4,364,020 shares of Common Stock in exchange
for all of the outstanding shares of Equipe Common Stock, including the related
subsidiaries E-Machine, a machine shop, and Equipe Japan. In addition, the
Company agreed to issue or assume options to purchase an additional 849,646
shares of the Company's Common Stock. Equipe is a leading worldwide developer,
manufacturer and supplier of atmospheric wafer and substrate handling robots,
pre-aligners and controllers. The acquisition will be accounted for as a pooling
of interest and is expected to be completed in late January 1998.
On October 29, 1997, the Company acquired Interval Logic Corporation, a
California corporation ("ILC"), for aggregate consideration of 111,258 shares of
the Company's Common Stock pursuant to an Agreement and Plan of Merger dated as
of October 12, 1997. In addition, the Company issued or assumed options to
purchase an aggregate of 199,170 shares of the Company's Common Stock. ILC was
formed in 1995 to develop advanced, high-performance planning and scheduling
software solutions for the semiconductor industry. The Company expects to
invest significantly in further development of the ILC technology in order to
F-17
PRI AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
integrate it with the Company's proprietary software and to develop products
that can meet the Company's customers' requirements. The Company is currently
assessing the value of the technology acquired and expects to record a
significant charge to earnings in the quarter ending December 28, 1997 for the
portion of the purchase price which is allocated to in-process technology.
F-18
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRI AUTOMATION, INC.
Date: December 29, 1997 /s/ Mordechai Wiesler
------------------------------
Mordechai Wiesler
Chief Executive Officer
Date: December 29, 1997 /s/ STEPHEN D. ALLISON
------------------------------
Stephen D. Allison
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Mordechai Wiesler Chief Executive Officer, December 29, 1997
- ----------------------------------- Treasurer and Director
Mordechai Wiesler (Principal Executive
Director
/s/ Mitchell G. Tyson President, Chief December 29, 1997
- ----------------------------------- Operating Officer
Mitchell G. Tyson and Director
/s/ Stephen D. Allison Chief Financial Officer December 29, 1997
- ----------------------------------- (Principal Financial and
Stephen D. Allison Accounting Officer)
/s/ Alexander V. d'Arbeloff Director December 29, 1997
- -----------------------------------
Alexander V. d'Arbeloff
/s/ Boruch Frusztajer Director December 29, 1997
- -----------------------------------
Boruch Frusztajer
/s/ Amram Raisel Director December 29, 1997
- -----------------------------------
Amram Rasiel