UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1 to Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: December 31, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number 0-25434
BROOKS AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3040660
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 Elizabeth Drive
Chelmsford, Massachusetts
(Address of principal executive offices)
01824
(Zip Code)
Registrant's telephone number, including area code: (978) 262-2400
---------------------------------------------
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 the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date (December 31, 2001):
Common stock, $0.01 par value 19,952,621 shares
BROOKS AUTOMATION, INC.
INDEX
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2001 (unaudited)
and September 30, 2001 3
Consolidated Statements of Operations for the three months
ended December 31, 2001 and 2000 (unaudited) 4
Consolidated Statements of Cash Flows for the three months ended
December 31, 2001 and 2000 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 39
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 40
Signatures 41
2
BROOKS AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
2001 2001
--------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current assets
Cash and cash equivalents $ 130,151 $ 160,239
Marketable securities 40,013 43,593
Accounts receivable, net, including related party receivables of $54 and
$32, respectively 85,937 93,565
Inventories 54,450 49,295
Prepaid expenses and other current assets 12,460 9,836
Deferred income taxes 25,679 26,608
--------- ---------
Total current assets 348,690 383,136
Property, plant and equipment
Buildings and land 31,910 31,910
Computer equipment and software 38,593 38,497
Machinery and equipment 17,552 17,349
Furniture and fixtures 11,391 11,240
Leasehold improvements 11,062 10,069
Construction in progress 14,508 11,026
--------- ---------
125,016 120,091
Less: Accumulated depreciation and amortization (55,528) (53,632)
--------- ---------
69,488 66,459
Long-term marketable securities 132,474 125,887
Goodwill 86,665 60,128
Intangible assets, net 55,760 40,788
Deferred income taxes 21,167 19,280
Other assets 16,156 14,026
--------- ---------
Total assets $ 730,400 $ 709,704
========= =========
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 19,249 $ 17,122
Current portion of long-term debt 79 392
Accounts payable 15,018 18,595
Deferred revenue 13,411 15,507
Accrued compensation and benefits 16,036 12,835
Accrued acquisition-related and restructuring costs 2,530 3,702
Accrued income taxes payable 8,006 7,691
Deferred income taxes 514 423
Accrued expenses and other current liabilities 28,540 24,706
--------- ---------
Total current liabilities 103,383 100,973
Long-term debt 175,564 175,031
Deferred income taxes 5,536 6,546
Accrued long-term restructuring 1,426 1,559
Other long-term liabilities 772 664
--------- ---------
Total liabilities 286,681 284,773
--------- ---------
Commitments and contingencies (Note 10)
Minority interests 705 762
--------- ---------
Stockholders' equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none
issued and outstanding -- --
Common stock, $0.01 par value, 43,000,000 shares authorized, 19,952,621
and 18,903,165 shares issued and outstanding, respectively 200 189
Additional paid-in capital 503,853 471,991
Deferred compensation (1,618) (5)
Accumulated other comprehensive loss (6,267) (2,586)
Accumulated deficit (53,154) (45,420)
--------- ---------
Total stockholders' equity 443,014 424,169
--------- ---------
Total liabilities, minority interests and stockholders' equity $ 730,400 $ 709,704
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
3
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
2001 2000 (1)
-------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES
Product, including related party revenues of $48 and
$10,859, respectively $ 42,718 $ 91,839
Services 18,737 19,552
-------- ---------
Total revenues 61,455 111,391
-------- ---------
Cost of revenues
Product 24,407 47,128
Services 12,934 13,644
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Total cost of revenues 37,341 60,772
-------- ---------
Gross profit 24,114 50,619
-------- ---------
Operating expenses
Research and development 14,134 13,579
Selling, general and administrative 18,905 23,770
Amortization of acquired intangible assets 3,633 5,693
Acquisition-related and restructuring charges 100 --
-------- ---------
Total operating expenses 36,772 43,042
-------- ---------
Income (loss) from operations (12,658) 7,577
Interest income 2,844 3,956
Interest expense 2,598 206
Other income (expense), net 553 (841)
-------- ---------
Income (loss) before income taxes and minority interests (11,859) 10,486
Income tax provision (benefit) (4,068) 5,028
-------- ---------
Income (loss) before minority interests (7,791) 5,458
Minority interests in income (loss) of consolidated subsidiaries (57) (57)
-------- ---------
Net income (loss) (7,734) 5,515
Accretion and dividends on preferred stock -- (30)
-------- ---------
Net income (loss) attributable to common stockholders $ (7,734) $ 5,485
======== =========
Earnings (loss) per share
Basic $ (0.39) $ 0.31
Diluted $ (0.39) $ 0.30
Shares used in computing earnings (loss) per share
Basic 19,886 17,592
Diluted 19,886 18,391
(1) Restated to reflect the acquisition of Progressive Technologies, Inc., in
a pooling of interests transaction effective July 12, 2001.
The accompanying notes are an integral part of these consolidated
financial statements.
4
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
2001 2000 (1)
--------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (7,734) $ 5,515
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 7,486 8,823
Compensation expense related to common stock options 368 8
Provision for losses on accounts receivable 145 362
Provision for excess and obsolete inventories 482 628
Deferred income taxes (1,581) (697)
Amortization of debt discount 211 --
Minority interests (57) (57)
Loss on disposal of long-lived assets 40 --
Changes in operating assets and liabilities:
Accounts receivable 15,409 (12,236)
Inventories 3,411 (8,115)
Prepaid expenses and other current assets 1,190 397
Accounts payable (6,914) 2,780
Deferred revenue (2,062) (1,025)
Accrued compensation and benefits 3,031 (1,970)
Accrued acquisition-related and restructuring costs (1,305) (28)
Accrued expenses and other current liabilities (10,504) 4,046
--------- ---------
Net cash provided by (used in) operating activities 1,616 (1,569)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (4,485) (5,120)
Acquisition of businesses, net of cash acquired (26,836) (1,244)
Purchases of marketable securities (13,189) (37,295)
Sale/maturity of marketable securities 10,182 --
(Increase) decrease in other assets 3,004 (2,630)
--------- ---------
Net cash used in investing activities (31,324) (46,289)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt and capital lease obligations (443) (148)
Proceeds from issuance of common stock, net of issuance costs 572 1,070
--------- ---------
Net cash provided by financing activities 129 922
--------- ---------
Elimination of net cash activities on pooling of interest transaction -- (1,119)
--------- ---------
Effects of exchange rate changes on cash and cash
equivalents (509) (176)
--------- ---------
Net decrease in cash and cash equivalents (30,088) (48,231)
Cash and cash equivalents, beginning of period 160,239 133,636
--------- ---------
Cash and cash equivalents, end of period $ 130,151 $ 85,405
========= =========
(1) Restated to reflect the acquisition of Progressive Technologies, Inc., in
a pooling of interests transaction effective July 12, 2001.
The accompanying notes are an integral part of these consolidated financial
statements.
5
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Brooks Automation, Inc.
and its subsidiaries ("Brooks" or the "Company") included herein have been
prepared in accordance with generally accepted accounting principles. In
the opinion of management, all material adjustments which are of a normal
and recurring nature necessary for a fair presentation of the results for
the periods presented have been reflected.
The accompanying financial information should be read in conjunction with
the consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K, filed with the United States
Securities and Exchange Commission for the year ended September 30, 2001.
On December 15, 2001, the Company acquired Fab Air Control ("Fab Air"), a
Massachusetts company that develops exhaust control and airflow management
systems for the semiconductor industry. On December 13, 2001, the Company
acquired the Automation Systems Group of Zygo Corporation ("Zygo Group").
The Zygo Group, located in Florida, is a manufacturer of reticle
automation systems, including reticle sorters, reticle macro inspection
systems and reticle handling solutions for the semiconductor industry. On
October 9, 2001, the Company acquired 90% of the capital stock of Tec-Sem
A.G., a Swiss company ("Tec-Sem"). Tec-Sem is a leading manufacturer of
bare reticle stockers, tool buffers and batch transfer systems for the
semiconductor industry. On October 5, 2001, the Company acquired
substantially all of the assets of General Precision, Inc. ("GPI"). GPI,
located in Valencia, California, is a leading supplier of high-end
environmental solutions for the semiconductor industry. These transactions
were recorded using the purchase method of accounting in accordance with
Financial Accounting Standards Board Statement No. 141, "Business
Combinations" ("FAS 141"). Accordingly, the Company's Consolidated
Statements of Operations and of Cash Flows for the three months ended
December 31, 2001, include the results of these acquired entities for the
periods subsequent to their respective acquisitions.
On July 12, 2001, the Company acquired Progressive Technologies, Inc.
("PTI") in a transaction accounted for as a pooling of interests initiated
prior to June 30, 2001. Accordingly, the Company's consolidated financial
statements and notes thereto have been restated to include the financial
position and results of operations of PTI for all periods prior to the
acquisition. Prior to its acquisition by the Company, PTI's fiscal
year-end was December 31.
The Company made several acquisitions during fiscal year 2001 which were
accounted for using the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB
16"): KLA-Tencor, Inc.'s e-Diagnostics product line infrastructure
("e-Diagnostics") on June 26, 2001; CCS Technology, Inc. ("CCST") on June
25, 2001, SimCon N.V. ("SimCon") on May 15, 2001; SEMY Engineering, Inc.
("SEMY") on February 16, 2001 and substantially all of the assets of a
software and service distributor in Japan ("ASI-Japan"). The Company's
Consolidated Statements of Operations and of Cash Flows include the
results of these entities for the periods subsequent to their respective
acquisitions.
Certain amounts in previously issued financial statements have been
reclassified to conform to current presentation.
6
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
On October 23, 2001, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") to acquire PRI Automation, Inc. ("PRI").
Pursuant to the Merger Agreement and subject to the terms and conditions
contained therein, holders of each share of PRI common stock will receive
0.52 shares of the Company's common stock.
The merger, which is expected to close in late March or April of 2002, is
contingent upon the fulfillment of certain conditions as provided in the
Merger Agreement including, but not limited to, all required regulatory
approvals, the approval of the merger by the stockholders of PRI and the
approval of the issuance of the Company's common stock in the merger by
the stockholders of the Company.
PRI supplies advanced factory automation systems, software, and services
that optimize the productivity of semiconductor and precision electronics
manufacturers, as well as OEM process tool manufacturers.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business
Combinations" ("FAS 141") and No. 142, "Goodwill and Other Intangible
Assets" ("FAS 142"). FAS 141 requires that all business combinations be
accounted for under the purchase method only and that certain acquired
intangible assets in a business combination be recognized as assets apart
from goodwill. FAS 142 requires that ratable amortization of goodwill be
replaced with periodic tests of the goodwill's impairment and that
intangible assets other than goodwill be amortized over their useful
lives. FAS 141 is effective for all business combinations initiated after
June 30, 2001 and for all business combinations accounted for by the
purchase method for which the date of acquisition is before June 30, 2001.
The provisions of FAS 142 will be effective for fiscal years beginning
after December 15, 2001; however, the Company elected to early adopt the
provisions effective October 1, 2001. The Company will perform an annual
impairment test of goodwill, required under FAS 142, as at the end of each
fiscal year.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("FAS 144"). The objectives of FAS 144 are to address
significant issues relating to the implementation of FASB Statement No.
121 ("Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("FAS 121") and to develop a single
accounting model, based on the framework established in FAS 121, for
long-lived assets to be disposed of by sale, whether previously held and
used or newly acquired. FAS 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2001, and generally,
its provisions are to be applied prospectively. The adoption of this
standard is not expected to have a material impact on the Company's
consolidated financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements requires the Company
to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company
evaluates its estimates, including those related to product returns, bad
debts, inventories, intangible assets, income taxes, warranty obligations,
excess component order cancellation costs, restructuring and contingencies
and litigation. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.
The Company has made a number of acquisitions and identified significant
intangible assets and goodwill. Intangible assets are amortized over their
estimated useful life and goodwill is subject to annual impairment
testing. The carrying value and realization of these assets is dependent
upon estimates of future earnings and benefits that the Company expects to
generate. If the Company's expectations of future results are
significantly diminished, intangible assets and goodwill may be impaired
and the resulting charge to operations may be material.
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required
payments. If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
The Company provides for the estimated cost of product warranties at the
time revenue is recognized. While the Company engages in extensive product
quality programs and processes, including actively monitoring and
evaluating the quality of its component suppliers, the Company's warranty
obligation is affected by product failure rates and material usage and
service delivery costs incurred in correcting a product failure. Should
actual product failure rates, material usage or service delivery costs
differ from the Company's estimates, revisions to the estimated warranty
liability would be required.
The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about
future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory
write-downs may be required.
The Company records a valuation allowance to reduce its deferred tax
assets to the amount that is more likely than not to be realized. While
the Company has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the valuation
allowance, in the event the Company were to determine that it would be
able to realize its deferred tax assets in the future in excess of its net
recorded amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made. Likewise, should the
Company determine that it would not be able to realize all or part of its
net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was
made.
2. BUSINESS ACQUISITIONS
POOLING OF INTERESTS TRANSACTION
On July 12, 2001, the Company acquired PTI in exchange for 715,004 shares
of the Company's common stock. The acquisition has been accounted for as a
pooling of interests. PTI is engaged in the development, production and
distribution of airflow regulation systems for clean room and process
equipment in the semiconductor industry.
The accompanying consolidated financial statements and notes thereto for
the three months ended December 31, 2000 have been restated to include the
financial position and results of operations for PTI.
7
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
The results of operations previously reported by the separate companies
prior to the acquisition of PTI and the combined amounts presented in the
accompanying Consolidated Statements of Operations are as follows (in
thousands):
Three months ended
December 31, 2000
-----------------
Revenues
Brooks Automation, Inc. $107,578
Progressive Technologies, Inc. 3,813
--------
$111,391
========
Net income
Brooks Automation, Inc. $ 4,979
Progressive Technologies, Inc. 536
--------
$ 5,515
========
PURCHASE TRANSACTIONS
Fab Air
On December 15, 2001, the Company acquired Fab Air, a Massachusetts
company that develops exhaust control and airflow management systems for
the semiconductor industry. In consideration, the Company paid $1.1
million of cash and incurred $0.3 million of transaction costs. The
transaction was accounted for as a purchase of assets in accordance with
FAS 141. The excess of purchase price over fair value of net tangible
assets acquired of $1.4 million has been recorded as completed technology,
with an estimated useful life of three years, and will be amortized using
the straight-line method. Pro forma results of operations are not
presented as the amounts are not material compared to the Company's
historical results.
Zygo Group
On December 13, 2001, the Company acquired the Zygo Group, located in
Florida. The Zygo Group is a manufacturer of reticle automation systems,
including reticle sorters, reticle macro inspection systems, and reticle
handling solutions for the semiconductor industry. In consideration, the
Company paid $11.4 million of cash. The transaction was accounted for as a
purchase of assets in accordance with FAS 141.
A portion of the excess of purchase price over fair value of net assets
acquired was allocated on a preliminary basis to identifiable intangible
assets, each of which the Company estimates to have a useful life of three
years. Accordingly, the Company is amortizing these intangible assets over
three years, using the straight-line method. The balance of the excess
purchase price was recorded as goodwill. In accordance with FAS 142, the
Company will not amortize the goodwill, but will instead test for
impairment at least annually. Finalization of the allocation of excess of
purchase price over the fair value of net assets acquired to identifiable
intangible assets and goodwill will be made after completion of the
analysis of their fair values, which the Company expects to occur in the
second quarter of fiscal 2002. The Company believes it has sufficient
information to finalize the purchase price allocation but requires
additional time to complete the analysis. A change in the allocation
between the acquired identifiable intangible assets and goodwill of
$1,000,000 would result in a change in annual amortization expense of
approximately $333,000. An increase in the weighted average useful life of
the acquired identifiable intangible assets from three years to four years
would result in a decrease in annual amortization expense of approximately
$335,000. A decrease in the weighted average useful life of the acquired
identifiable intangible assets from three years to two years would result
in an increase in annual amortization expense of approximately $669,000.
Pro forma results of operations are not presented as the amounts are not
8
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
material compared to the Company's historical results. A summary of the
transaction is as follows (in thousands):
Consideration:
Cash $11,413
Transaction costs 160
-------
Total consideration 11,573
Fair value of net tangible assets acquired 3,541
-------
Preliminary excess of fair value over net tangible
assets acquired 8,032
Preliminary allocation of excess purchase price to
identifiable intangible assets:
Completed technology 3,574
Trademarks and trade names 241
Non-competition agreements 201
-------
4,016
-------
Preliminary allocation of excess purchase price to
goodwill $ 4,016
=======
Tec-Sem
On October 9, 2001, the Company acquired Tec-Sem, a leading manufacturer
of bare reticle stockers, tool buffers and batch transfer systems for the
semiconductor industry. In consideration, the Company paid $12.9 million
of cash and issued 131,750 shares of Brooks common stock with a market
value of $4.3 million at the time of issuance, subject to post-closing
adjustments, which the Company expects to complete in accordance with the
procedures defined in the terms of the acquisition agreement. The
acquisition agreement establishes a procedure for post-closing adjustments
in which the net assets of Tec-Sem are determined at a point in time prior
to the closing and compared with the net assets at closing. To the extent
that there is a decrease in the net value of the assets, the purchase
price will be reduced on a dollar for dollar basis. The parties are in
the process of completing this analysis, which is scheduled for completion
under the acquisition agreement within 60 days of the closing of the
transaction. The Company also granted 25,000 shares of fully issued common
stock with a market value of $0.8 million at the time of issuance, to
certain key non-owner employees of Tec-Sem, which were accounted for as
additional purchase price, since the issuance of the shares is not related
to any continuing employee obligations to the Company. The fair value of
the shares issued was determined utilizing the average closing price of
the Company's common stock over a period of two days before and the day
of the acquisition.
A portion of the excess of purchase price over fair value of net tangible
assets acquired was allocated on a preliminary basis to identifiable
intangible assets, each of which the Company estimates will have a useful
life of three years. Accordingly, the Company is amortizing these
intangible assets over three years, using the straight-line method. The
balance of the excess was recorded as goodwill. In accordance with FAS
142, the Company will not amortize the goodwill, but will instead test for
impairment at lease annually. Finalization of the allocation of excess of
purchase price over the fair value of net liabilities assumed to
identifiable intangible assets and goodwill will be made after completion
of the analysis of their fair values. Pro forma results of operations are
not presented as the amounts are not material compared to the Company's
historical results. A summary of the transaction is as follows (in
thousands):
Consideration:
Cash, net of cash acquired of $223 $12,677
Common stock 5,077
Transaction costs 257
-------
Total consideration 18,011
Fair value of net tangible assets acquired 257
-------
Preliminary excess of fair value over net liabilities
assumed 17,754
Preliminary allocation of excess purchase price to
identifiable intangible assets:
Completed technology 7,901
Trademarks and trade names 533
Non-competition agreements 443
-------
8,877
=======
Preliminary allocation of excess purchase price to
goodwill $ 8,877
=======
9
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
GPI
On October 5, 2001, the Company acquired substantially all of the assets
of GPI in exchange for 850,000 shares of Brooks common stock, with a
market value of $26.2 million at the time of issuance, subject to
post-closing adjustments, and $0.2 million of cash. The Company expects to
complete any post-closing adjustments in accordance with the procedures
defined in the terms of the acquisition agreement. The acquisition
agreement establishes a procedure for post-closing adjustments in which
the net assets of GPI are determined at a point in time prior to the
closing and compared with the net assets at closing. To the extent that
there is a decrease in the net value of the assets, the purchase price
will be reduced on a dollar for dollar basis. The parties are in the
process of completing this analysis, which is scheduled for completion
under the acquisition agreement within 134 days of the closing of the
transaction. GPI, located in Valencia, California, is a leading supplier
of high-end environmental solutions for the semiconductor industry. The
fair value of the shares issued was determined utilizing the average
closing price of the Company's common stock over a period of two days
before and the day of the acquisition.
A portion of the excess of purchase price over fair value of net assets
acquired was allocated on a preliminary basis to identifiable intangible
assets, each of which the Company estimates will have a useful life of
three years. Accordingly, the Company is amortizing these intangible
assets over three years, using the straight-line method. The balance of
the excess was recorded as goodwill. In accordance with FAS 142, the
Company will not amortize the goodwill, but will instead test for
impairment at least annually. Finalization of the allocation of the excess
of purchase price over fair value of net assets acquired to identifiable
intangible assets and goodwill will be made upon completion of the
analysis of their fair values. A summary of the transaction is as follows
(in thousands):
Consideration:
Common stock $26,222
Cash 177
Transaction costs 674
-------
Total consideration 27,073
Fair value of net tangible assets acquired 5,887
-------
Preliminary excess of fair value over net tangible
assets acquired 21,186
Preliminary allocation of excess purchase price to
identifiable intangible assets:
Completed technology 9,662
Trademarks and trade names 651
Non-competition agreements 543
-------
10,856
-------
Preliminary allocation of excess purchase price to
goodwill $10,330
=======
On February 16, 2001, the Company acquired SEMY, a wholly owned subsidiary
of Semitool, Inc. The following pro forma results of operations for the
three months ended December 31, 2000 have been prepared as though the
acquisitions of GPI and SEMY had occurred as of October 1, 2000. No pro
forma adjustments were required to the results of operations for the three
months ended December 31, 2001, as the results of operations for GPI for
the five days from October 1, 2001 through October 5, 2001 are not
material to the Company's results of operations; they are provided below
for comparative purposes only. This pro forma financial information does
not purport to be indicative of the results of operations that would have
been attained had the acquisitions been made as of that date or of results
of operations that may occur in the future (in thousands except per share
data):
Three months ended
December 31,
2001 2000
-----------------------------
Revenues $ 61,455 $122,626
Net income (loss) $ (7,734) $ 4,842
Earnings (loss) per share (diluted) $ (0.39) $ 0.25
10
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
3. GOODWILL AND INTANGIBLE ASSETS
The Company has elected to early adopt the provisions of FAS 142 effective
October 1, 2001. Accordingly, the Company ceased the ratable amortization
of goodwill on that date. The Company recorded amortization expense of
$3.7 million and $6.0 million for its amortizable intangible assets for
the three months ended December 31, 2001 and 2000, respectively. Estimated
future amortization expense on the intangible assets recorded by the
Company as of December 31, 2001 is as follows (in thousands):
Year ended September 30,
2002 $ 16,200
2003 $ 16,100
2004 $ 15,000
2005 $ 6,100
2006 $ 2,360
The amortization of goodwill excluded from the Company's results of
operations for the three months ended December 31, 2001 as a result
of the adoption of FAS 142 totaled $7.7 million.
The changes in the carrying amount of goodwill for the quarter ended
December 31, 2001 are as follows (in thousands):
Tool Factory Factory
Automation Interface Automation
Systems Solutions Solutions Total
------- --------- --------- -----
Balance at September 30, 2001 $ 4,751 $ 24,138 $ 31,239 $ 60,128
Adjustments to goodwill:
Reclassify assembled workforces to
goodwill in accordance with FAS 141 450 1,059 5,066 6,575
Acquisitions in the three months ended
December 31, 2001 -- 23,223 -- 23,223
Purchase accounting adjustments on
prior period acquisitions (24) (3,136) 21 (3,139)
Foreign currency translation (67) (5) (50) (122)
------- -------- -------- --------
Balance at December 31, 2001 $ 5,110 $ 45,279 $ 36,276 $ 86,665
======= ======== ======== ========
Purchase accounting adjustments are comprised of $2.0 million reclassified
to deferred compensation with respect to stock awards granted to
e-Diagnostics employees at the time of acquisition and other
individually insignificant purchase accounting adjustments aggregating
$1.1 million.
The information below gives effect to the adoption of FAS 142 as if the
provisions had been adopted as of October 1, 2000. The results for the
three months ended December 31, 2001 are presented for comparative
purposes only, as the effect of the adoption of FAS 142 is reflected in
the Company's actual results of operations for that period (in thousands,
except per share data):
11
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
Three months ended
December 31,
2001 2000
--------------------------------
Net income (loss) attributable to common
stockholders $ (7,734) $ 5,485
Add back goodwill and assembled workforces
amortization -- 4,871
---------- ----------
Adjusted net income (loss) $ (7,734) $ 10,356
========== ==========
Basic earnings (loss) per share
Reported earnings (loss) per share $ (0.39) $ 0.31
Goodwill and assembled workforces amortization -- 0.28
---------- ----------
Adjusted basic earnings (loss) per share $ (0.39) $ 0.59
========== ==========
Diluted earnings (loss) per share
Reported earnings (loss) per share $ (0.39) $ 0.30
Goodwill and assembled workforces amortization -- 0.26
---------- ----------
Adjusted diluted earnings (loss) per share $ (0.39) $ 0.56
========== ==========
Components of the Company's identifiable intangible assets, including
preliminary allocation of the identifiable intangible assets recorded in
connection with the acquisitions of the Zygo Group, Tec-Sem and GPI are as
follows (in thousands):
December 31, 2001 September 30, 2001
----------------------------- ------------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
----------------------------- ------------------------------
Patents $ 4,747 $ 2,569 $ 4,579 $ 2,422
Completed technology 54,217 7,234 31,575 4,081
License agreements 678 203 678 170
Trademarks and trade names 3,898 877 2,426 648
Non-competition agreements 3,264 815 2,133 591
Customer relationships 1,305 653 1,305 571
Assembled workforces -- -- 10,590 4,015
------- ------- ------- -------
$68,109 $12,351 $53,286 $12,498
======= ======= ======= =======
The Company is required to complete the first step of the transitional
impairment testing of goodwill required under the provisions of FAS 142 by
the filing of the Form 10-Q for the quarter ended March 31, 2002. The
Company is currently evaluating this impairment test and until completed
it is possible that there may be an impairment of goodwill. Any impairment
of goodwill arising under this transition testing will be recorded as a
cumulative change in accounting principle within the statement of
operations.
12
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
4. EARNINGS (LOSS) PER SHARE
Below is a reconciliation of earnings (loss) per share and weighted
average common shares outstanding for purposes of calculating basic and
diluted earnings (loss) per share (in thousands, except per share data):
Three months ended
December 31,
2001 2000
-----------------------------
Basic earnings (loss) per share:
Net income (loss) $ (7,734) $ 5,515
Accretion and dividends on preferred stock -- (30)
-------- --------
Net income (loss) attributable to common stockholders
$ (7,734) $ 5,485
======== ========
Weighted average common shares outstanding 19,886 17,592
======== ========
Basic earnings (loss) per share $ (0.39) $ 0.31
======== ========
Diluted earnings (loss) per share:
Net income (loss) attributable to common stockholders
$ (7,734) $ 5,515
======== ========
Weighted average common shares outstanding 19,886 17,592
Dilutive stock options and warrants -- 799
-------- --------
Weighted average common shares outstanding for
purposes of computing diluted earnings (loss) per
share 19,886 18,391
======== ========
Diluted earnings (loss) per share $ (0.39) $ 0.30
======== ========
Options to purchase and assumed conversions totaling approximately 4.3
million shares of common stock were excluded from the computation of
diluted loss per share for the three months ended December 31, 2001, as
their effect would be anti-dilutive. Options to purchase approximately 2.3
million shares of common stock were excluded from the computation of
diluted earnings per share for the three months ended December 31, 2000,
as their effect would be anti-dilutive. However, these options and
conversions could become dilutive in future periods.
5. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the Company is computed as the sum of net
income (loss) and the change in the cumulative translation adjustment,
which is the only component of the Company's accumulated other
comprehensive loss. The Company's comprehensive loss for the three months
ended December 31, 2001 was $11,415,000. Comprehensive income was
$4,666,000 for the three months ended December 31, 2000.
13
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
6. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has three reportable segments: tool automation systems,
factory interface solutions and factory automation solutions. The tool
automation systems segment provides a full complement of semiconductor
wafer and flat panel display substrate handling systems, products and
components and products for data storage. The factory interface solutions
segment provides hardware and software solutions, including
minienvironments and automated transfer mechanisms, to isolate the
semiconductor wafer from the production environment. The factory
automation segment provides software products for the semiconductor
manufacturing execution system ("MES") market, including consulting and
software customization.
The Company evaluates performance and allocates resources based on
revenues and operating income (loss). Operating income (loss) for each
segment includes selling, general and administrative expenses directly
attributable to the segment. Amortization of acquired intangible assets
and acquisition-related charges are excluded from the segments' operating
income (loss). The Company's non-allocable overhead costs, which include
corporate general and administrative expenses, are allocated between the
segments based upon segment revenues. Segment assets exclude deferred
taxes, acquired intangible assets, goodwill, all assets of the Company's
Securities Corporation and investments in subsidiaries. The Company's
Securities Corporation holds the Company's investments in marketable
securities and is fully consolidated.
Financial information for the Company's business segments is as follows
(in thousands):
Tool Factory Factory
Automation Interface Automation
Systems Solutions Solutions Total
---------------------------------------------------------------------------
Three months ended December 31, 2001
Revenues
Product $ 16,281 $ 15,738 $ 10,699 $ 42,718
Services 4,106 2,092 12,539 18,737
--------- -------- -------- ---------
$ 20,387 $ 17,830 $ 23,238 $ 61,455
========= ======== ======== =========
Gross margin $ 6,486 $ 4,697 $ 12,931 $ 24,114
Operating income (loss) $ (2,532) $ (3,250) $ (3,143) $ (8,925)
Three months ended December 31, 2000
Revenues
Product $ 52,879 $ 27,740 $ 11,220 $ 91,839
Services 4,958 617 13,977 19,552
--------- -------- -------- ---------
$ 57,837 $ 28,357 $ 25,197 $ 111,391
========= ======== ======== =========
Gross margin $ 22,077 $ 11,774 $ 16,768 $ 50,619
Operating income $ 11,311 $ 1,775 $ 184 $ 13,270
Assets
December 31, 2001 $ 170,407 $ 84,491 $ 32,472 $ 287,370
September 30, 2001 $ 200,172 $ 41,608 $ 44,832 $ 286,612
14
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
A reconciliation of the Company's reportable segment operating income
(loss) to the corresponding consolidated amounts for the three month
periods ended December 31, 2001 and 2000 is as follows (in thousands):
Three months ended
December 31,
2001 2000
----------------------------
Segment operating income (loss) $ (8,925) $13,270
Amortization of acquired intangible assets 3,633 5,693
Acquisition-related charges 100 --
-------- -------
Total operating income (loss) $(12,658) $ 7,577
======== =======
A reconciliation of the Company's reportable segment assets to the
corresponding consolidated amounts as of December 31, 2001 and September
30, 2001 is as follows (in thousands):
December 31, September 30,
2001 2001
-------------------------------
Segment assets $287,370 $286,612
Deferred tax asset 46,846 45,888
Acquired intangible assets 53,835 32,353
Goodwill 86,665 66,703
Securities Corporation assets 255,684 278,148
-------- --------
$730,400 $709,704
======== ========
Net revenues by geographic area are as follows (in thousands):
Three months ended
December 31,
2001 2000
-----------------------------
North America $ 24,205 $ 63,061
Asia/Pacific 17,624 28,416
Europe 19,626 19,914
-------- --------
$ 61,455 $111,391
======== ========
It is impractical to disclose a breakdown of revenues between products and
services on a geographic basis due to the fact that the Company does not
maintain customer-level information at that level of detail in its
financial systems.
15
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
7. SIGNIFICANT CUSTOMERS AND RELATED PARTY INFORMATION
On June 11, 2001, the Company appointed a new member to its Board of
Directors. This individual is also a director of one of the Company's
customers. Accordingly, this customer is considered a related party for
the period subsequent to June 11, 2001. Revenues from this customer for
the three months ended December 31, 2001 were approximately $50,000. The
amounts due from this customer included in accounts receivable at December
31, 2001 and September 30, 2001 were $54,000 and $32,000, respectively.
One of the Company's directors had previously also been a director of one
of the Company's customers. On January 23, 2001, this individual resigned
his position with the Company's customer. Accordingly, this customer is
not considered a related party in subsequent reporting periods. Revenues
recognized from this customer in the three months ended December 31, 2000
were $10.9 million.
The Company had one customer that accounted for more than 10% of revenues
in the three months ended December 31, 2001. Revenues from that customer
comprised 10.3% of revenues for the period. The Company had no customers
that accounted for more than 10% of revenues in the three months ended
December 31, 2000.
Pricing and significant contract terms offered to related parties are on
the same terms as offered to third parties. Related party amounts included
in accounts receivable are on standard terms and manner of settlement.
8. ACQUISITION-RELATED AND RESTRUCTURING LIABILITIES
The Company reported $0.1 million of acquisition-related charges for the
three months ended December 31, 2001, primarily legal and accounting fees
incurred for the acquisition of PTI. The Company did not record any
acquisition-related and restructuring charges in the three months ended
December 31, 2000.
The activity related to the Company's acquisition-related and
restructuring liabilities during the three months ended December 31, 2001,
is below (in thousands):
Balance Charged Balance
September 30, To December 31,
2001 Expense Utilization 2001
---- ------- ----------- ----
Facilities $3,309 $ -- $ (25) $3,284
Workforce-related 1,952 -- (1,280) 672
Other -- 100 (100) --
------ ------- ------- ------
$5,261 $ 100 $(1,405) $3,956
====== ======= ======= ======
16
The Company anticipates cash outlays of $2.4 million and $1.6 million through
the remainder of fiscal 2002 and in subsequent years, respectively, to complete
its acquisition-related and restructuring initiatives.
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
9. OTHER BALANCE SHEET INFORMATION
Components of other selected captions in the Consolidated Balance Sheets
follow (in thousands):
December 31, September 30,
2001 2001
-------------------------------
Accounts receivable $92,142 $99,679
Less allowances 6,205 6,114
------- -------
$85,937 $93,565
======= =======
Inventories
Raw materials and purchased parts $38,063 $35,021
Work-in-process 13,473 12,099
Finished goods 2,914 2,175
------- -------
$54,450 $49,295
======= =======
10. CONTINGENCY
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor and related industries.
In 1992, the Company received notice from a third party alleging
infringements of such party's patent rights by certain of the Company's
products. The Company believes the patents claimed may be invalid. In the
event of litigation with respect to this claim, the Company is prepared to
vigorously defend its position. However, because patent litigation can be
extremely expensive and time consuming, the Company may seek to obtain a
license to one or more of the disputed patents. Based upon currently
available information, the Company would only do so if such license fees
would not be material to the Company's consolidated financial statements.
Currently, the Company does not believe it is probable that the future
events related to this threatened matter would have an adverse effect on
the Company's business.
17
BROOKS AUTOMATION, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report constitute "forward-looking
statements" which involve known risks, uncertainties, and other factors which
may cause the actual results, performance, or achievements of Brooks to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include
the factors that may affect future results set forth in Management's Discussion
and Analysis of Financial Condition and Results of Operations, which is included
in this report. Precautionary statements made herein should be read as being
applicable to all related forward-looking statements whenever they appear in
this report.
OVERVIEW
Brooks Automation, Inc. ("Brooks" or the "Company") is a leading supplier of
integrated tool and factory automation solutions for the global semiconductor
and related industries, such as the data storage and flat panel display
manufacturing industries. Brooks has distinguished itself as a technology and
market leader, particularly in the demanding cluster-tool vacuum-processing
environment and in integrated factory automation software applications. The
Company's offerings have grown from individual robots used to transfer
semiconductor wafers in advanced production equipment to fully integrated
automation solutions that control the flow of resources in the factory from
process tools to factory scheduling and dispatching. In 1998, the Company began
an aggressive program of investment and acquisition. By the close of fiscal year
2000, Brooks had emerged as one of the leading suppliers of factory and tool
automation solutions for semiconductor and original equipment manufacturers.
Many of the Company's customers purchase the Company's vacuum transfer robots
and other modules before purchasing the Company's vacuum central wafer handling
systems. The Company believes that once a customer has selected the Company's
products for a process tool, the customer is likely to rely on those products
for the life of that process tool model, which can be in excess of five years.
Conversely, losing a bid for a manufacturing execution system ("MES") does not
preclude the Company from securing optimization products to fit with a
competitor's MES.
The Company's foreign revenues are generally denominated in United States
dollars. Accordingly, foreign currency fluctuations have not had a significant
impact on the comparison of the results of operations for the periods presented.
The costs and expenses of the Company's international subsidiaries are generally
denominated in currencies other than the United States dollar. However, since
the functional currency of the Company's international subsidiaries is the local
currency, foreign currency translation adjustments are reflected as a component
of stockholders' equity under the caption "Accumulated other comprehensive
income (loss)". To the extent that the Company expands its international
operations or changes its pricing practices to denominate prices in foreign
currencies, the Company will be exposed to increased risk of currency
fluctuation.
18
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
BASIS OF PRESENTATION
On December 15, 2001, the Company acquired Fab Air Control ("Fab Air"), a
Massachusetts company that develops exhaust control and airflow management
systems for the semiconductor industry. On December 13, 2001, the Company
acquired the Automation Systems Group of Zygo Corporation ("Zygo Group"). The
Zygo Group, located in Florida, is a manufacturer of reticle automation systems,
including reticle sorters, reticle macro inspection systems and reticle handling
solutions for the semiconductor industry. On October 9, 2001, the Company
acquired 90% of the capital stock of Tec-Sem A.G., a Swiss company ("Tec-Sem").
Tec-Sem is a leading manufacturer of bare reticle stockers, tool buffers and
batch transfer systems for the semiconductor industry. On October 5, 2001, the
Company acquired substantially all of the assets of General Precision, Inc.
("GPI"). GPI, located in Valencia, California, is a leading supplier of high-end
environmental solutions for the semiconductor industry. These transactions were
recorded using the purchase method of accounting in accordance with Financial
Accounting Standards Board Statement No. 141, "Business Combinations" ("FAS
141"). Accordingly, the Company's Consolidated Statements of Operations and of
Cash Flows for the three months ended December 31, 2001, include the results of
these acquired entities for the periods subsequent to their respective
acquisitions.
On July 12, 2001, the Company acquired Progressive Technologies, Inc. ("PTI") in
a transaction accounted for as a pooling of interests initiated prior to June
30, 2001. Accordingly, the Company's consolidated financial statements and notes
thereto have been restated to include the financial position and results of
operations of PTI for all periods prior to the acquisition. Prior to its
acquisition by the Company, PTI's fiscal year-end was December 31.
The Company made several acquisitions during fiscal year 2001 which were
accounted for using the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16"):
KLA-Tencor, Inc.'s e-Diagnostics product line infrastructure ("e-Diagnostics")
on June 26, 2001; CCS Technology, Inc. ("CCST") on June 25, 2001, SimCon N.V.
("SimCon") on May 15, 2001; SEMY Engineering, Inc. ("SEMY") on February 16, 2001
and substantially all of the assets of a software and service distributor in
Japan ("ASI-Japan"). The Company's Consolidated Statements of Operations and of
Cash Flows include the results of these entities for the periods subsequent to
their respective acquisitions.
RECENT DEVELOPMENTS
On October 23, 2001, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") to acquire PRI Automation, Inc. ("PRI"). Pursuant to
the Merger Agreement and subject to the terms and conditions contained
therein, holders of each share of PRI common stock will receive 0.52 shares of
the Company's common stock.
The merger, which is expected to close in the third quarter of fiscal 2002, is
contingent upon the fulfillment of certain conditions as provided in the Merger
Agreement including, but not limited to, all required regulatory approvals, the
approval of the merger by the stockholders of PRI and the approval of the
issuance of the Company's common stock in the merger by the stockholders of the
Company.
PRI supplies advanced factory automation systems, software, and services that
optimize the productivity of semiconductor and precision electronics
manufacturers, as well as OEM process tool manufacturers.
19
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
RESULTS OF OPERATIONS
The Company's business is significantly dependent on capital expenditures by
semiconductor manufacturers and OEM's, which are, in turn, dependent on the
current and anticipated market demand for semiconductors. The Company's revenues
grew substantially in fiscal 2000 and the first half of fiscal 2001, due in
large part to high levels of capital expenditures of semiconductor
manufacturers. Demand for semiconductors is cyclical and has historically
experienced periodic downturns. The semiconductor industry is currently
experiencing such a downturn, which began to impact the Company in the third
quarter of fiscal 2001, affecting both revenues and gross margins. As a result
of this downturn, the Company anticipates continued lower shipments of its
products in fiscal 2002, compared to fiscal 2001. During fiscal 2001, the
Company had taken selective cost reduction actions in many areas of its business
in response to this ongoing downturn. These cost management initiatives included
reductions to headcount, salary and wage reductions and reduced spending.
Although the Company continues to take a proactive approach to cost management
in response to this downturn, it will continue to invest in those areas which it
believes are important to the long-term growth of the Company, such as its
infrastructure, customer support and new products.
Three Months Ended December 31, 2001, Compared to Three Months Ended December
31, 2000
The Company reported a net loss of $7.7 million for the three months ended
December 31, 2001, compared to net income of $5.5 million in the same period of
the prior year. The results for the three months ended December 31, 2001 include
$3.6 million of amortization of acquired intangible assets and $0.1 million of
acquisition-related and restructuring costs. The results for the prior year
period include $5.7 million of amortization of acquired intangible assets. There
were no acquisition-related and restructuring costs recorded in the three months
ended December 31, 2000.
Revenues
The Company reported revenues of $61.5 million in the three months ended
December 31, 2001, compared to $111.4 million in the same prior year period. The
overall decrease in revenues is principally attributable to the current downturn
in the semiconductor industry, partially offset by approximately $6 million in
incremental revenue from acquisitions.
The Company's tool automation systems segment reported revenues of $20.4 million
in the three months ended December 31, 2001, a decrease of 64.7% from the same
prior year period. The decrease is attributable to the current downturn in the
semiconductor industry, partially offset by approximately $1 million of
incremental revenues from acquisitions. The Company's factory interface
solutions segment reported a decrease in revenues of 37.1%, to $17.8 million, in
the three month period ended December 31, 2001, compared to the three months
ended December 30, 2000. The decrease is attributable to the current downturn in
the semiconductor industry, partially offset by approximately $3 million of
incremental revenues from acquisitions. The Company's factory automation
solutions segment reported revenues of $23.2 million in the three months ended
December 31, 2001, a decrease of 7.8% from the same prior year period. The
decrease resulting from the downturn in the semiconductor industry was partially
offset by approximately $2 million of incremental revenues from acquisitions.
20
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
Product revenues decreased $49.1 million, to $42.7 million, in the three months
ended December 31, 2001, compared to $91.8 million in the three months ended
December 31, 2000. The decrease is attributable to the downturn currently
affecting the semiconductor industry, partially offset by incremental revenues
of approximately $5 million from acquisitions.
Service revenues for the three months ended December 31, 2001 were $18.7
million, a decrease of $0.8 million, or 4.2%, from the three months ended
December 31, 2000. The decrease is primarily attributable to the current
industry downturn, partially offset by incremental revenues from acquisitions
approximating $1 million.
Foreign revenues were $37.3 million, or 60.6% of revenues, and $50.4 million, or
45.2% of revenues, in the three month periods ended December 31, 2001 and 2000,
respectively. The Company's expanded global presence through its recent
acquisitions and expanded sales and marketing activities, combined with reduced
sales in the United States due to the current industry downturn, has contributed
to the increase in international revenues as a percentage of total revenues. The
Company expects that foreign revenues will continue to account for a significant
portion of total revenues. However, the Company cannot guarantee that foreign
revenues will remain a major component of the Company's total revenues.
Gross Margin
Gross margin decreased to 39.2% for the three months ended December 31, 2001,
compared to 45.4% for the same prior year period. The overall decrease in gross
margin is primarily attributable to lower revenue levels which are a result of
the current downturn affecting the semiconductor industry. These lower revenue
levels impact cost absorption, exerting downward pressure on gross margins. In
the three months ended on December 31, 2001, the Company provided $482,000 for
excess and obsolete inventories. The charge is an estimate of reserve
requirements based on an analysis the Company performs on a periodic basis. As a
result of the continuing downturn in the semiconductor industry, on-hand
inventory levels continue to exceed expected demand. Excluding the impact of
this provision, the Company's gross margin was 40.0% for the period.
The Company's tool automation systems segment gross margin decreased to 31.8%
for the three months ended December 31, 2001, from 38.2% in the comparable prior
year period. The change is the net result of the impact of the industry
downturn, partially offset by changes in product mix. Gross margin for the
Company's factory interface solutions segment was 26.3% for the three months
ended December 31, 2001, compared to 41.5% in the same prior year period. The
decrease is primarily the result of changes in product and services mix,
combined with the current downturn in the semiconductor industry. The Company's
factory automation solutions segment gross margin decreased to 55.6% in the
three months ended December 31, 2001, from 66.6% in the comparable year period.
The decrease is primarily attributable to changes in product and services mix;
specifically, a decrease in higher margin license revenues partially offset by
an increase in lower margin service revenues.
Gross margin on product revenues was 42.9% for the three months ended December
31, 2001, a decrease from 48.7% in the same prior year period. The decrease is
primarily attributable to the current semiconductor industry downturn and the
resulting downward pressure on sales volume, pricing and margins. Gross margin
on service revenues was 31.0% for the three months ended December 31, 2001, a
slight increase from 30.2% for the three months ended December 31, 2000.
Research and Development
Research and development expenses for the three months ended December 31, 2001
were $14.1 million, an increase of $0.5 million, compared to $13.6 million in
the three months ended December 31, 2000. Research
21
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
and development expenses increased as a percentage of revenues in the three
months ended December 31, 2001, to 23.0%, compared to 12.2% in the same prior
year period. The increase in these expenditures as a percentage of revenues for
this three month period is primarily attributable to the lower sales volumes
resulting from the downturn currently affecting the semiconductor industry. The
increase in absolute spending is associated with the Company's recent
acquisitions, which accounted for approximately $2 million of research and
development expense in the three months ended December 31, 2001. The Company
plans to continue to invest in research and development to enhance existing and
develop new tool and factory hardware and software automation solutions for the
semiconductor, data storage and flat panel display manufacturing industries.
Selling, General and Administrative
Selling, general and administrative expenses were $18.9 million for the three
months ended December 31, 2001, a decrease of $4.9 million, compared to $23.8
million in the same prior year period. However, selling, general and
administrative expenses increased as a percentage of revenues in the three
months ended December 31, 2001, to 30.8%, from 21.3% in the comparable prior
year period. The increase in these expenditures as a percentage of revenues for
the three months ended December 31, 2001, is primarily attributable to the lower
sales volumes resulting from the downturn currently affecting the semiconductor
industry. The decrease in absolute spending reflects the impact of the Company's
ongoing cost reduction actions and synergies from recent acquisitions. These
acquisitions accounted for approximately $2 million of the Company's selling,
general and administrative expense in the three months ended December 31, 2001.
Amortization of Acquired Intangible Assets
Amortization expense for acquired intangible assets totaled $3.6 million in the
three months ended December 31, 2001, and relates to the identifiable intangible
assets recorded by the Company for the acquisitions of GPI, Tec-Sem and the Zygo
Group in the current fiscal year, the e-Diagnostics product line, CCST, SimCon,
SEMY and ASI-Japan in the prior fiscal year, ASC, ASI and MiTeX in fiscal 2000,
Infab, Domain and Hanyon in fiscal 1999 and Irvine Optical's acquisition of a
corporation in March 1997. Amortization expense for acquired intangible assets,
including goodwill, was $5.7 million in the three months ended December 31,
2000. The Company has elected to early adopt the provisions of FAS 142.
Accordingly, effective October 1, 2001, the Company ceased the amortization of
goodwill. The reduction in amortization of acquired intangible assets for the
three months ended December 31, 2001, compared to the same prior year period
reflects this change.
Acquisition-related Charges
The Company reported $0.1 million of acquisition-related charges for the three
months ended December 31, 2001, primarily legal and accounting fees incurred for
the acquisition of PTI. The Company did not record any acquisition-related and
restructuring charges in the three months ended December 31, 2000. The activity
related to the Company's acquisition-related and restructuring liabilities
during the three months ended December 31, 2001, is below (in thousands):
Balance Charged Balance
September 30, to December 31,
2001 expense Utilization 2001
---- ------- ----------- ----
Facilities $3,309 $ -- $ (25) $3,284
Workforce-related 1,952 -- (1,280) 672
Other -- 100 (100) --
------ ------- ------- ------
$5,261 $ 100 $(1,405) $3,956
====== ======= ======= ======
22
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
Interest Income and Expense
Interest income decreased by $1.1 million, to $2.8 million, in the three months
ended December 31, 2001, compared to the same prior year period, primarily as a
result of lower interest rates coupled with slightly lower balances available
for investment. Interest expense of $2.6 million for the three months ended
December 31, 2001, is primarily comprised of $2.3 million related to the
Company's Convertible Subordinated Notes and imputed interest expense on the
notes payable related to the Company's recent acquisitions of the e-Diagnostics
product line and SimCon, aggregating $0.2 million. Interest expense of $0.2
million in the prior year period is primarily related to the Company's note
payable to Daifuku America in connection with the acquisition of ASC and ASI.
This note was paid in full on January 5, 2001.
Income Tax Provision (Benefit)
The Company recorded a net income tax benefit of $4.1 million for the three
months ended December 31, 2001 and income tax expense of $5.0 million in the
comparable prior year period. The tax benefit is attributable to the loss in the
current quarter. The prior year period tax provision is attributable to federal,
state and foreign income taxes. Federal and state taxes have been reduced for
net operating losses, research and development and foreign tax credits and an
extraterritorial income benefit which replaced the foreign sales corporation
benefit.
The Company has recorded a deferred tax asset of $40.8 million. Realization is
dependent on generating sufficient taxable income prior to expiration of loss
carryforwards, which will expire at various dates through 2022. Although
realization is not assured, the Company believes that it is more likely than not
that all of the deferred tax assets will be realized. The Company has considered
both positive and negative available evidence in its determination that the
deferred tax asset will be realized. While current economic conditions,
including a current quarter book loss, provide some evidence that the deferred
tax assets may not be fully realized, the cyclical nature of the industry sector
and recent historical experience of income provide objective positive evidence
that the deferred tax assets are recoverable. The Company believes that its
efforts to right-size the business in the fourth quarter of fiscal 2001 and the
recent acquisitions in the first quarter of the current fiscal year will be
important factors in achieving future profitability. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term if
estimates of the future taxable income during the carryforward period are
reduced. The Company estimates that the significant net reversing temporary
difference will be available for use through 2022. Additionally, other
significant reversing temporary differences will be available for use through
2036. Therefore, the Company estimates that its annual future taxable income
must average $2.3 million per year during the carryforward period to fully
realize the benefit of the net deferred tax asset.
23
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $130.2 million at December 31, 2001, a decrease
of $30.1 million from September 30, 2001. This decrease in cash and cash
equivalents is primarily due to $26.8 million of payments for the Company's
recent acquisitions, including $12.9 million relating to Tec-Sem and $11.6
million relating to the Zygo Group.
Cash provided by operations was $1.6 million for the three months ended December
31, 2001, and is primarily attributable to an adjustment to the Company's net
loss for depreciation and amortization of $7.5 million, coupled with a decrease
in accounts receivable of $15.4 million. These amounts were partially offset by
decreases in accounts payable and accrued expenses and other current liabilities
of $6.9 million and $10.5 million, respectively.
The Company's days sales outstanding ("DSO") increased for the three months
ended December 31, 2001 compared to the same prior year period. The decrease in
revenues for the three months ended December 31, 2001 was disproportionate to
the decrease in accounts receivable, thereby adversely impacting DSO.
Additionally, the decrease in revenues was also disproportionate to the
decrease in inventories, adversely impacting days sales in inventory.
Cash used in investing activities was $31.3 million for the three months ended
December 31, 2001, and is principally comprised of $12.9 million for the
acquisition of Tec-Sem, net of cash acquired, $11.6 million for the acquisition
of the Zygo Group, net of cash acquired, $2.3 million for other acquisitions,
net of cash acquired, $4.5 million used for capital additions and $13.2 million
invested in marketable securities. These expenditures were partially offset by
sale of $10.2 million of the Company's investments in marketable securities.
Cash provided by financing activities was $0.1 million, and is comprised of $0.6
million of cash from the exercise of options to purchase the Company's common
stock, partially offset by $0.5 million for the payment of long-term debt.
While the Company has no significant capital commitments, as it expands its
product offerings, the Company anticipates that it will continue to make capital
expenditures to support its business and improve its computer systems
infrastructure. In addition, assuming none of the Convertible Subordinated Notes
are converted into common stock, the Company expects to expend approximately $8
million per year on interest related to these notes. The Company may also use
its resources to acquire companies, technologies or products that complement the
business of the Company.
The Company terminated its $30.0 million unsecured revolving credit facility and
replaced it with a $10.0 million uncommitted demand promissory note facility
with ABN AMRO Bank N.V. ("ABN AMRO") on May 2, 2000. The Company transferred all
of its outstanding letters of credit, totaling approximately $1.1 million, to
the new facility. ABN AMRO is not obligated to extend loans or issue letters of
credit under this new facility. At December 31, 2001, $1.1 million of the
facility was in use, all of it for letters of credit.
The Company believes that its existing resources will be adequate to fund the
Company's currently planned working capital and capital expenditure requirements
for at least the next twelve months. The sufficiency of the Company's resources
to fund its needs for capital is subject to known and unknown risks,
uncertainties and other factors which may have a material adverse effect on the
Company's business, including, without limitation, the factors discussed under
"Factors That May Affect Future Results."
24
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
("FAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS
141 requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. FAS 142 requires that
ratable amortization of goodwill be replaced with periodic tests of the
goodwill's impairment and that intangible assets other than goodwill be
amortized over their useful lives. FAS 141 is effective for all business
combinations initiated after June 30, 2001 and for all business combinations
accounted for by the purchase method for which the date of acquisition is before
June 30, 2001. The provisions of FAS 142 will be effective for fiscal years
beginning after December 15, 2001; however, the Company elected to early adopt
the provisions effective October 1, 2001. The Company will perform an annual
impairment test of goodwill, required under FAS 142, as at the end of each
fiscal year.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"). The objectives of FAS 144 are to address significant issues relating to
the implementation of FASB Statement No. 121 ("Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121") and
to develop a single accounting model, based on the framework established in FAS
121, for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired. FAS 144 is effective for financial statements issued
for fiscal years beginning after December 15, 2001, and generally, its
provisions are to be applied prospectively. The adoption of this standard is not
expected to have a material impact on the Company's consolidated financial
statements.
25
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by Brooks or statements made by its
employees may contain forward-looking information that involves substantial
known and unknown risks and uncertainties such as those described below that
could cause actual results to differ materially from targets or projected
results.
You should carefully consider the risks described below and the other
information in this report before deciding to invest in shares of our common
stock. These are the risks and uncertainties we believe are most important for
you to consider. Additional risks and uncertainties not presently known to us,
which we currently deem immaterial or which are similar to those faced by other
companies in our industry or business in general, may also impair our business
operations. If any of the following risks or uncertainties actually occur, our
business, financial condition and operating results would likely suffer. In that
event, the market price of our common stock could decline and you could lose all
or part of the money you paid to buy our common stock.
RISK FACTORS RELATING TO BROOKS' INDUSTRY
THE CYCLICAL DEMAND OF SEMICONDUCTOR MANUFACTURERS AFFECTS BROOKS' OPERATING
RESULTS AND THE ONGOING DOWNTURN IN THE INDUSTRY COULD SERIOUSLY HARM BROOKS'
OPERATING RESULTS.
Brooks' business is significantly dependent on capital expenditures by
semiconductor manufacturers. The level of semiconductor manufacturers' capital
expenditures is dependent on the current and anticipated market demand for
semiconductors. The semiconductor industry is highly cyclical and is currently
experiencing a downturn. Brooks anticipates the downturn will continue during
the next few quarters. Despite these industry conditions, Brooks plans to
continue to invest in those areas which Brooks believes are important to its
long-term growth, such as its infrastructure and information technology system,
customer support, supply chain management and new products. As a result,
consistent with its experience in downturns in the past, Brooks believes the
current industry downturn will lead to reduced revenues for it and may cause it
to incur losses.
INDUSTRY CONSOLIDATION AND OUTSOURCING OF THE MANUFACTURE OF SEMICONDUCTORS TO
FOUNDRIES COULD REDUCE THE NUMBER OF AVAILABLE CUSTOMERS.
The substantial expense of building or expanding a semiconductor fabrication
facility is leading increasing numbers of semiconductor companies to contract
with foundries, which manufacture semiconductors designed by others. As
manufacturing is shifted to foundries, the number of Brooks' potential customers
could decrease, which would increase its dependence on its remaining customers.
Recently, consolidation within the semiconductor manufacturing industry has
increased. If semiconductor manufacturing is consolidated into a small number of
foundries and other large companies, Brooks' failure to win any significant bid
to supply equipment to those customers could seriously harm its reputation and
materially and adversely affect its revenue and operating results.
26
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
RISK FACTORS RELATING TO BROOKS' OPERATIONS
BROOKS' SALES VOLUME SUBSTANTIALLY DEPENDS ON THE SALES VOLUME OF BROOKS'
ORIGINAL EQUIPMENT MANUFACTURER CUSTOMERS AND ON INVESTMENT IN MAJOR CAPITAL
EXPANSION PROGRAMS, RETROFITS AND UPGRADES BY END USER SEMICONDUCTOR
MANUFACTURING COMPANIES.
Brooks sells a majority of its tool automation products to original equipment
manufacturers that incorporate Brooks' products into their equipment. Therefore,
Brooks' revenues depend on the ability of these customers to develop, market and
sell their equipment in a timely, cost-effective manner. Approximately 40% of
Brooks' total revenue for the quarter ended December 31, 2001 and approximately
56% of Brooks' total revenue in fiscal 2001 comes from sales to original
equipment manufacturers.
Brooks also generates significant revenues from large orders from
semiconductor manufacturing companies that build new plants or invest in major
automation retrofits and upgrades. Brooks' revenues depend, in part, on
continued capital investment by semiconductor manufacturing companies.
Approximately 60% of Brooks' total revenue for the quarter ended December 31,
2001 and approximately 44% of Brooks' total revenue in fiscal 2001 comes from
sales to semiconductor manufacturing companies.
BROOKS RELIES ON A RELATIVELY LIMITED NUMBER OF CUSTOMERS FOR A LARGE PORTION OF
ITS REVENUES AND BUSINESS.
Brooks receives a significant portion of its revenues in each fiscal period
from a relatively limited number of customers. The loss of one or more of these
major customers, or a decrease in orders by one or more customers, could
adversely affect Brooks' revenue, business and reputation. Sales to Brooks' ten
largest customers accounted for approximately 39% of total revenues in the
quarter ended December 31, 2001, 37% of total revenues in fiscal 2001 and 40% of
total revenues in fiscal 2000.
DELAYS IN OR CANCELLATION OF SHIPMENTS OF A FEW OF BROOKS' LARGE ORDERS COULD
SUBSTANTIALLY DECREASE ITS REVENUES OR REDUCE ITS STOCK PRICE.
Historically, a substantial portion of Brooks' quarterly and annual revenues
has come from sales of a small number of large orders. Some of Brooks' products
have high selling prices compared to Brooks' other products. As a result, the
timing of when Brooks recognizes revenue from one of these large orders can have
a significant impact on its total revenues and operating results for a
particular period and reduce its stock price because its sales in that fiscal
period could fall significantly below the expectations of financial analysts and
investors. This could cause the value of its common stock to fall. Brooks'
operating results could be harmed if a small number of large orders are canceled
or rescheduled by customers or cannot be filled due to delays in manufacturing,
testing, shipping or product acceptance.
DEMAND FOR BROOKS' PRODUCTS FLUCTUATES RAPIDLY AND UNPREDICTABLY, WHICH MAKES IT
DIFFICULT TO MANAGE ITS BUSINESS EFFICIENTLY AND CAN REDUCE ITS GROSS MARGINS
AND PROFITABILITY.
Brooks' expense levels are based in part on its expectations for future
demand. Many expenses, particularly those relating to capital equipment and
manufacturing overhead, are relatively fixed. The rapid and unpredictable shifts
in demand for Brooks' products make it difficult to plan manufacturing capacity
and business operations efficiently. If demand is significantly below
expectations, Brooks may be unable to rapidly reduce these fixed costs, which
can diminish gross margins and cause losses. A sudden downturn may also leave
Brooks with excess inventory, which may be rendered obsolete as products evolve
during the downturn
27
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
and demand shifts to newer products. Brooks' ability to reduce expenses is
further constrained because it must continue to invest in research and
development to maintain its competitive position and to maintain service and
support for its existing global customer base. Conversely, in sudden upturns,
Brooks sometimes incurs significant expenses to rapidly expedite delivery of
components, procure scarce components and outsource additional manufacturing
processes. These expenses could reduce its gross margins and overall
profitability. Any of these results could seriously harm Brooks' business.
BROOKS' LENGTHY SALES CYCLE REQUIRES IT TO INCUR SIGNIFICANT EXPENSES WITH NO
ASSURANCE THAT BROOKS WILL GENERATE REVENUE.
Brooks' tool automation products are generally incorporated into original
equipment manufacturer equipment at the design stage. To obtain new business
from its original equipment manufacturer customers, Brooks must develop products
for selection by a potential customer at the design stage. This often requires
Brooks to make significant expenditures without any assurance of success. The
original equipment manufacturer's design decisions often precede the generation
of volume sales, if any, by a year or more. Brooks cannot guarantee that the
equipment manufactured by its original equipment manufacturing customers will be
commercially successful. If Brooks or its original equipment manufacturing
customers fails to develop and introduce new products successfully and in a
timely manner, Brooks' business and financial results will suffer.
Brooks also must complete successfully a costly evaluation and proposal
process before Brooks can achieve volume sales of Brooks factory automation
software to customers. These undertakings are major decisions for most
prospective customers and typically involve significant capital commitments and
lengthy evaluation and approval processes. Brooks cannot guarantee that it will
continue to satisfy evaluations by its end-user customers.
BROOKS' OPERATING RESULTS WOULD BE HARMED IF ONE OF ITS KEY SUPPLIERS FAILS TO
DELIVER COMPONENTS FOR BROOKS' PRODUCTS.
Brooks currently obtains many of its components on an as needed, purchase
order basis. Generally, Brooks does not have any long-term supply contracts with
its vendors and believes many of its vendors have been taking cost containment
measures in response to the industry downturn. When demand for semiconductor
manufacturing equipment increases, Brooks' suppliers face significant challenges
in delivering components on a timely basis. Brooks' inability to obtain
components in required quantities or of acceptable quality could result in
significant delays or reductions in product shipments. This could create
customer dissatisfaction, cause lost revenue and otherwise materially and
adversely affect Brooks' operating results. Delays on Brooks' part could also
cause it to incur contractual penalties for late delivery.
BROOKS MAY EXPERIENCE DELAYS AND TECHNICAL DIFFICULTIES IN NEW PRODUCT
INTRODUCTIONS AND MANUFACTURING, WHICH CAN ADVERSELY AFFECT ITS REVENUES, GROSS
MARGINS AND NET INCOME.
Because Brooks' systems are complex, there can be a significant lag between
the time Brooks introduces a system and the time it begins to produce that
system in volume. As technology in the semiconductor industry becomes more
sophisticated, Brooks is finding it increasingly difficult to design and
integrate complex technologies into its systems, to procure adequate supplies of
specialized components, to train its technical and manufacturing personnel and
to make timely transitions to high-volume manufacturing. Many customers also
require customized systems, which compound these difficulties. Brooks sometimes
incurs substantial
28
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
unanticipated costs to ensure that its new products function properly and
reliably early in their life cycle. These costs could include greater than
expected installation and support costs or increased materials costs as a result
of expedited changes. Brooks may not be able to pass these costs on to its
customers. In addition, Brooks has experienced, and may continue to experience,
difficulties in both low and high volume manufacturing. Any of these results
could seriously harm Brooks' business.
Moreover, on occasion Brooks has failed to meet its customers' delivery or
performance criteria, and as a result Brooks incurred late delivery penalties
and had higher warranty and service costs. These failures could continue and
could also cause Brooks to lose business from those customers and suffer
long-term damage to its reputation.
BROOKS MAY BE UNABLE TO RECRUIT AND RETAIN NECESSARY PERSONNEL BECAUSE OF
INTENSE COMPETITION FOR HIGHLY SKILLED PERSONNEL.
Brooks needs to retain a substantial number of employees with technical
backgrounds for both its hardware and software engineering, manufacturing, sales
and support staffs. The market for these employees is intensively competitive,
and Brooks has occasionally experienced delays in hiring qualified personnel.
Due to the cyclical nature of the demand for its products and the current
downturn in the semiconductor market, Brooks recently reduced its workforce as a
cost reduction measure. If the semiconductor market experiences an upturn,
Brooks may need to rebuild its workforce. Due to the competitive nature of the
labor markets in which Brooks operates, this type of employment cycle increases
Brooks' risk of being unable to retain and recruit key personnel. Brooks'
inability to recruit, retain and train adequate numbers of qualified personnel
on a timely basis could adversely affect its ability to develop, manufacture,
install and support its products and may result in lost revenue and market share
if customers seek alternative solutions.
BROOKS' INTERNATIONAL BUSINESS OPERATIONS EXPOSE IT TO A NUMBER OF DIFFICULTIES
IN COORDINATING ITS ACTIVITIES ABROAD AND IN DEALING WITH MULTIPLE REGULATORY
ENVIRONMENTS.
Sales to customers outside North America accounted for approximately 61% of
Brooks' total revenues in the quarter ended December 31, 2001, 50% in fiscal
2001, 48% in fiscal 2000 and 43% in fiscal 1999. Brooks anticipates that
international sales will continue to account for a significant portion of its
revenues. Many of Brooks' vendors are located in foreign countries. As a result
of its international business operations, Brooks is subject to various risks,
including:
- difficulties in staffing and managing operations in multiple locations in
many countries;
- difficulties in managing distributors, representatives and third party
systems integrators;
- challenges presented by collecting trade accounts receivable in foreign
jurisdictions;
- longer sales-cycles;
- possible adverse tax consequences;
- fewer legal protections for intellectual property;
- governmental currency controls and restrictions on repatriation of
earnings;
- changes in various regulatory requirements;
- political and economic changes and disruptions; and
- export/import controls and tariff regulations.
29
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
To support its international customers, Brooks maintains locations in several
countries, including Belgium, Canada, China, Germany, Japan, Malaysia,
Singapore, South Korea, Switzerland, Taiwan and the United Kingdom. Brooks
cannot guarantee that it will be able to manage these operations effectively.
Brooks cannot assure you that its investment in these international operations
will enable it to compete successfully in international markets or to meet the
service and support needs of its customers, some of whom are located in
countries where Brooks has no infrastructure.
Although Brooks' international sales are primarily denominated in U.S.
dollars, changes in currency exchange rates can make it more difficult for
Brooks to compete with foreign manufacturers on price. If Brooks' international
sales increase relative to its total revenues, these factors could have a more
pronounced effect on Brooks' operating results.
BROOKS MUST CONTINUALLY IMPROVE ITS TECHNOLOGY TO REMAIN COMPETITIVE.
Technology changes rapidly in the semiconductor, data storage and flat panel
display manufacturing industries. Brooks believes its success depends in part
upon its ability to enhance its existing products and to develop and market new
products to meet customer needs, even in industry downturns. For example, as the
semiconductor industry transitions from 200mm manufacturing technology to 300mm
technology, Brooks believes it is important to its future success to develop and
sell new products that are compatible with 300mm technology. If competitors
introduce new technologies or new products, Brooks' sales could decline and its
existing products could lose market acceptance. Brooks cannot guarantee that it
will identify and adjust to changing market conditions or succeed in introducing
commercially rewarding products or product enhancements. The success of Brooks'
product development and introduction depends on a number of factors, including:
- accurately identifying and defining new market opportunities and products;
- completing and introducing new product designs in a timely manner;
- market acceptance of Brooks' products and its customers' products;
- timely and efficient software development, testing and process;
- timely and efficient implementation of manufacturing and assembly
processes;
- product performance in the field;
- development of a comprehensive, integrated product strategy; and
- efficient implementation and installation and technical support services.
Because Brooks must commit resources to product development well in advance
of sales, its product development decisions must anticipate technological
advances by leading semiconductor manufacturers. Brooks may not succeed in that
effort. Its inability to select, develop, manufacture and market new products or
enhance its existing products could cause it to lose its competitive position
and could seriously harm its business.
30
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
BROOKS FACES SIGNIFICANT COMPETITION WHICH COULD RESULT IN DECREASED DEMAND FOR
BROOKS' PRODUCTS OR SERVICES.
The markets for Brooks' products are intensely competitive. Brooks may be
unable to compete successfully. Brooks believes the primary competitive factors
in the tool automation systems segment are throughput, reliability,
contamination control, accuracy and price/performance. Brooks believes that its
primary competition in the tool automation market is from integrated original
equipment manufacturers that satisfy their semiconductor and flat panel display
handling needs internally rather than by purchasing systems or modules from an
independent supplier like Brooks. Many of these original equipment manufacturers
have substantially greater resources than Brooks does. Applied Materials, Inc.,
the leading process equipment original equipment manufacturer, develops and
manufactures its own central wafer handling systems and modules. Brooks may not
be successful in selling its products to original equipment manufacturers that
internally satisfy their wafer or substrate handling needs, regardless of the
performance or the price of Brooks products. Moreover, integrated original
equipment manufacturers may begin to commercialize their handling capabilities
and become Brooks competitors.
Brooks believes that the primary competitive factors in the end user
semiconductor manufacturer market for factory automation and process control
solutions are product functionality, price/performance, ease of use, ease of
integration and installation, hardware and software platform compatibility,
costs to support and maintain, vendor reputation and financial stability. The
relative importance of these competitive factors may change over time. Brooks
directly competes in this market with various competitors, including Applied
Materials-Consilium, IBM, Si-view, Compaq, TRW, Camstar and numerous small,
independent software companies. Brooks also competes with the in-house software
staffs of semiconductor manufacturers like NEC, Texas Instruments and Intel.
Most of those manufacturers have substantially greater resources than Brooks
does.
Brooks believes that the primary competitive factors in the factory interface
market are technical and technological capabilities, reliability,
price/performance, ease of integration and global sales and support capability.
In this market, Brooks competes directly with Asyst, Rorze, Fortrend, Newport,
TOK, Yasakawa and Hirata. Some of these competitors have substantial financial
resources and extensive engineering, manufacturing and marketing capabilities.
MUCH OF BROOKS' SUCCESS AND VALUE LIES IN ITS OWNERSHIP AND USE OF INTELLECTUAL
PROPERTY, AND BROOKS' FAILURE TO PROTECT THAT PROPERTY COULD ADVERSELY AFFECT
ITS FUTURE OPERATIONS.
Brooks' ability to compete is heavily affected by its ability to protect its
intellectual property. Brooks relies primarily on trade secret laws,
confidentiality procedures, patents, copyrights, trademarks and licensing
arrangements to protect its intellectual property. The steps Brooks has taken to
protect its technology may be inadequate. Existing trade secret, trademark and
copyright laws offer only limited protection. Brooks' patents could be
invalidated or circumvented. The laws of certain foreign countries in which
Brooks products are or may be developed, manufactured or sold may not fully
protect Brooks' products. This may make the possibility of piracy of Brooks'
technology and products more likely. Brooks cannot guarantee that the steps
Brooks has taken to protect its intellectual property will be adequate to
prevent misappropriation of its technology. Other companies could independently
develop similar or superior technology without violating Brooks' proprietary
31
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
rights. There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor-related industries. Brooks may
engage in litigation to:
- enforce its patents;
- protect its trade secrets or know-how;
- defend itself against claims alleging it infringes the rights of others;
or
- determine the scope and validity of the patents or intellectual property
rights of others.
Any litigation could result in substantial cost to Brooks and divert the
attention of Brooks' management, which could harm its operating results and its
future operations. A party making such a claim could secure a judgment against
Brooks that requires it to pay substantial damages. A judgment could also
include an injunction or other court order that could prevent Brooks from
selling its products. Any of these events could seriously harm Brooks' business.
BROOKS' OPERATIONS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Particular aspects of Brooks' technology could be found to infringe on the
intellectual property rights or patents of others. Other companies may hold or
obtain patents on inventions or may otherwise claim proprietary rights to
technology necessary to Brooks' business. Brooks cannot predict the extent to
which it may be required to seek licenses or alter its products so that they no
longer infringe the rights of others. Brooks cannot guarantee that the terms of
any licenses it may be required to seek will be reasonable. Similarly, changing
Brooks' products or processes to avoid infringing the rights of others may be
costly or impractical or could detract from the value of its products.
BROOKS' BUSINESS MAY BE HARMED BY INFRINGEMENT CLAIMS OF GENERAL SIGNAL OR
APPLIED MATERIALS.
Brooks received notice from General Signal Corporation twice in 1992 and once
in 1994, alleging certain of Brooks' tool automation systems products that
Brooks sells to semiconductor process tool manufacturers infringed General
Signal's patent rights. The notification advised Brooks that General Signal was
attempting to enforce its rights to those patents in litigation against Applied
Materials, and that, at the conclusion of that litigation, General Signal
intended to enforce its rights against us and others. According to a press
release issued by Applied Materials in November 1997, Applied Materials settled
its litigation with General Signal by acquiring ownership of five General Signal
patents. Although not verified by Brooks, these five patents would appear to be
the patents referred to by General Signal in its prior notice to Brooks. Applied
Materials has not contacted Brooks regarding these patents. Brooks cannot
guarantee that it would prevail in any litigation by Applied Materials seeking
damages or expenses from Brooks or to enjoin Brooks from selling its products on
the basis of the alleged patent infringement, or that a license for any of the
alleged infringed patents will be available to Brooks on reasonable terms, if at
all. A material portion of Brooks' revenues for the quarter ended December 31,
2001 and fiscal 2001 derive from the products that General Signal originally
alleged infringed its patent rights.
32
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
BROOKS DOES NOT HAVE LONG-TERM CONTRACTS WITH ITS CUSTOMERS AND BROOKS'
CUSTOMERS MAY CEASE PURCHASING BROOKS' PRODUCTS AT ANY TIME.
Brooks generally does not have long-term contracts with its customers. As a
result, Brooks' agreements with its customers do not provide any assurance of
future sales. Accordingly:
- Brooks' customers can cease purchasing its products at any time without
penalty;
- Brooks' customers are free to purchase products from Brooks' competitors;
- Brooks is exposed to competitive price pressure on each order; and
- Brooks' customers are not required to make minimum purchases.
BROOKS' SOFTWARE PRODUCTS MAY CONTAIN ERRORS OR DEFECTS THAT COULD RESULT IN
LOST REVENUE, DELAYED OR LIMITED MARKET ACCEPTANCE OR PRODUCT LIABILITY CLAIMS
WITH SUBSTANTIAL LITIGATION COSTS.
Complex software products like Brooks' can contain errors or defects,
particularly when Brooks first introduces new products or when it releases new
versions or enhancements. Any defects or errors could result in lost revenue or
a delay in market acceptance, which would seriously harm Brooks' business and
operating results. Brooks has occasionally discovered software errors in its new
software products and new releases after their introduction, and Brooks expects
that this will continue. Despite internal testing and testing by current and
potential customers, Brooks' current and future products may contain serious
defects.
Because many of Brooks' customers use their products for business-critical
applications, any errors, defects or other performance problems could result in
financial or other damage to Brooks' customers and could significantly impair
their operations. Brooks' customers could seek to recover damages from Brooks
for losses related to any these issues. A product liability claim brought
against Brooks, even if not successful, would likely be time-consuming and
costly to defend and could adversely affect Brooks' marketing efforts.
BROOKS' FUTURE OPERATIONS COULD BE HARMED IF THE COMMERCIAL ADOPTION OF 300MM
WAFER TECHNOLOGY CONTINUES TO PROGRESS SLOWLY OR IS HALTED.
Brooks' future operations depend in part on the adoption of new systems and
technologies to automate the processing of 300mm wafers. However, the industry
transition from the current, widely used 200mm manufacturing technology to 300mm
manufacturing technology is occurring more slowly than expected. A significant
delay in the adoption of 300mm manufacturing technology, or the failure of the
industry to adopt 300mm manufacturing technology, could significantly impair
Brooks' operations. Moreover, continued delay in transition to 300mm technology
could permit Brooks' competitors to introduce competing or superior 300mm
products at more competitive prices. As a result of these factors, competition
for 300mm orders could become vigorous and could harm Brooks' results of
operations.
33
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
BROOKS' RECENT RAPID GROWTH IS STRAINING ITS OPERATIONS AND REQUIRING IT TO
INCUR COSTS TO UPGRADE ITS INFRASTRUCTURE.
During fiscal 2000 and 2001, Brooks experienced extremely rapid growth in its
operations, its product offerings and the geographic area of its operations. The
proposed merger with PRI will continue this trend. Brooks' growth has placed a
significant strain on its management, operations and financial systems. Brooks'
future operating results will depend in part on its ability to continue to
implement and improve its operating and financial controls and management
information systems. If Brooks fails to manage its growth effectively, its
financial condition, results of operations and business could be harmed.
BROOKS' SYSTEMS INTEGRATION SERVICES BUSINESS HAS GROWN SIGNIFICANTLY RECENTLY
AND POOR EXECUTION OF THOSE SERVICES COULD ADVERSELY IMPACT BROOKS' OPERATING
RESULTS.
The number of projects Brooks is pursuing for its systems integration
services business has grown significantly recently. This business consists of
integrating combinations of Brooks software and hardware products to provide
more comprehensive solutions for Brooks' end-user customers. The delivery of
these services typically is complex, requiring that Brooks coordinate personnel
with varying technical backgrounds in performing substantial amounts of services
in accordance with timetables. Brooks is in the early stages of developing this
business and it is subject to the risks attendant to entering a business in
which it has limited direct experience. In addition, Brooks' ability to supply
these services and increase its revenues is limited by its ability to retain,
hire and train systems integration personnel. Brooks believes that there is
significant competition for personnel with the advanced skills and technical
knowledge that it needs. Some of Brooks' competitors may have greater resources
to hire personnel with those skills and knowledge. Brooks' operating margins
could be adversely impacted if it does not effectively hire and train additional
personnel or deliver systems integration services to its customers on a
satisfactory and timely basis consistent with its budgets.
THE EFFECT OF TERRORIST THREATS ON THE GENERAL ECONOMY COULD DECREASE BROOKS'
REVENUES.
On September 11, 2001, the United States was subject to terrorist attacks at
the World Trade Center buildings in New York City and the Pentagon in
Washington, D.C. The potential near- and long-term impact these attacks may have
in regards to Brooks' suppliers and customers, markets for their products and
the U.S. economy are uncertain. There may be other potential adverse effects on
Brooks' operating results due to this significant event that Brooks cannot
foresee.
BROOKS' BUSINESS MAY BE HARMED BY INFRINGEMENT CLAIMS OF ASYST TECHNOLOGIES,
INC.
Brooks acquired certain assets, including a transport system known as
IridNet, from the Infab division of Jenoptik AG on September 30, 1999. Asyst
Technologies, Inc. had previously filed suit against Jenoptik AG and other
parties (collectively, the "defendants"), claiming that products of the
defendants, including IridNet, infringe Asyst's patents. This ongoing litigation
may ultimately affect certain products sold by Brooks. Brooks has received
notice that Asyst may amend its complaint to name Brooks as an additional
defendant. Based on
34
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
Brooks' investigation of Asyst's allegations, Brooks does not believe it is
infringing any claims of Asyst's patents. Brooks intends to continue to support
Jenoptik to argue vigorously, among other things, the position that the IridNet
system does not infringe the Asyst patents. If Asyst prevails in prosecuting its
case, Asyst may seek to prohibit Brooks from developing, marketing and using the
Iridnet product without a license. Because patent litigation can be extremely
expensive, time-consuming, and its outcome uncertain, Brooks may seek to obtain
licenses to the disputed patents. Brooks cannot guarantee that licenses will be
available to it on reasonable terms, if at all. If a license from Asyst is not
available, Brooks could be forced to incur substantial costs to reengineer the
IridNet product, which could diminish its value. In any case, Brooks may face
litigation with Asyst. Such litigation could be costly and would divert Brooks
management's attention and resources. In addition, even though sales of IridNet
comprised less than 1% of total revenues for fiscal 2001, if Brooks does not
prevail in such litigation, Brooks could be forced to pay damages or amounts in
settlement. Jenoptik has indemnified Brooks for losses Brooks may incur in this
action.
RISK FACTORS RELATING TO BROOKS' ACQUISITIONS
BROOKS HAS ANNOUNCED A MERGER WITH PRI, AND UNCERTAINTY REGARDING THE MERGER MAY
DISRUPT BROOKS' OPERATIONS AND ADVERSELY AFFECT ITS BUSINESS.
On October 24, 2001, Brooks announced its proposed merger with PRI
Automation, Inc. Brooks cannot guarantee that the merger will occur. The merger
will happen only if stated conditions are met, including approval of the
issuance of shares in the merger by Brooks' stockholders, approval of the merger
by PRI's stockholders, clearance of the merger under United States and foreign
antitrust laws, and the absence of any material adverse change in the business
of Brooks or PRI. Many of the conditions are outside the control of Brooks and
PRI, and both parties also have stated rights to terminate the merger agreement.
Accordingly, there may be uncertainty regarding the completion of the merger.
This uncertainty may cause customers, suppliers and channel partners to delay or
defer decisions concerning Brooks, which could negatively affect its business.
Customers, suppliers and channel partners may also seek to change existing
agreements with Brooks as a result of the merger. Any delay or deferral of those
decisions or changes in existing agreements could have a material adverse effect
on Brooks' business, regardless of whether the merger is ultimately completed.
Many costs related to the merger, such as legal, accounting, financial advisor
and financial printing fees, must be paid by Brooks regardless of whether the
merger is completed. If the merger is not completed for any reason, Brooks may
be subject to a number of risks, including a decline in the market price of
Brooks common stock, to the extent that the relevant current market price
reflects a market assumption that the merger will be completed, and substantial
disruption to Brooks' business and distraction of its workforce and management
team. In addition, employees who are uncertain about their future with the
combined company or who do not wish to work for the combined company may seek
employment elsewhere, which could impair Brooks' ability to operate its
business.
35
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
BROOKS' BUSINESS COULD BE HARMED IF BROOKS FAILS TO ADEQUATELY INTEGRATE THE
OPERATIONS OF THE BUSINESSES IT HAS ACQUIRED.
Brooks has completed a number of acquisitions in a short period of time.
Brooks' management must devote substantial time and resources to the integration
of the operations of its acquired businesses with its core businesses and with
each other. If Brooks fails to accomplish this integration efficiently, Brooks
may not realize the anticipated benefits of its acquisitions. The process of
integrating supply and distribution channels, research and development
initiatives, computer and accounting systems and other aspects of the operation
of its acquired businesses, presents a significant challenge to Brooks'
management. This is compounded by the challenge of simultaneously managing a
larger entity. These businesses have operations and personnel located in Asia,
Europe and the United States and present a number of additional difficulties of
integration, including:
- assimilating products and designs into integrated solutions;
- informing customers, suppliers and distributors of the effects of the
acquisitions and integrating them into Brooks' overall operations;
- integrating personnel with disparate business backgrounds and cultures;
- defining and executing a comprehensive product strategy;
- managing geographically remote units;
- managing the risks of entering markets or types of businesses in which
Brooks has limited or no direct experience; and
- minimizing the loss of key employees of the acquired businesses.
If Brooks delays the integration or fails to integrate an acquired business
or experiences other unforeseen difficulties, the integration process may
require a disproportionate amount of Brooks management's attention and financial
and other resources. Brooks' failure to adequately address these difficulties
could harm its business and financial results.
BROOKS' BUSINESS MAY BE HARMED BY ACQUISITIONS BROOKS COMPLETES IN THE FUTURE.
Brooks plans to continue to pursue additional acquisitions of related
businesses. Brooks' identification of suitable acquisition candidates involves
risks inherent in assessing the values, strengths, weaknesses, risks and
profitability of acquisition candidates, including the effects of the possible
acquisition on Brooks' business, diversion of Brooks management's attention and
risks associated with unanticipated problems or latent liabilities. If Brooks is
successful in pursuing future acquisitions, Brooks may be required to expend
significant funds, incur additional debt or issue additional securities, which
may negatively affect Brooks' results of operations and be dilutive to its
stockholders. If Brooks spends significant funds or incurs additional debt,
Brooks' ability to obtain financing for working capital or other purposes could
decline, and Brooks may be more vulnerable to economic downturns and competitive
pressures. Brooks cannot guarantee that it will be able to finance additional
acquisitions or that it will realize any anticipated benefits from acquisitions
that Brooks completes. Should Brooks successfully acquire another business, the
process of integrating acquired operations into Brooks' existing operations may
result in unforeseen operating difficulties and may require significant
financial resources that would otherwise be available for the ongoing
development or expansion of Brooks' existing businesses.
36
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
RISK FACTORS RELATING TO BROOKS' COMMON STOCK
BROOKS' OPERATING RESULTS FLUCTUATE SIGNIFICANTLY, WHICH COULD NEGATIVELY IMPACT
ITS BUSINESS AND ITS STOCK PRICE.
Brooks' revenues, margins and other operating results can fluctuate
significantly from quarter to quarter depending upon a variety of factors,
including:
- the level of demand for semiconductors in general;
- cycles in the market for semiconductor manufacturing equipment and
automation software;
- the timing, rescheduling, cancellation and size of orders from Brooks'
customer base;
- Brooks' ability to manufacture, test and deliver products in a timely and
cost-effective manner;
- Brooks' success in winning competitions for orders;
- the timing of Brooks' new product announcements and releases and those of
its competitors;
- the mix of products it sells;
- the timing of any acquisitions and related costs;
- competitive pricing pressures; and
- the level of automation required in fab extensions, upgrades and new
facilities.
Brooks entered the factory automation software business in fiscal 1999.
Brooks believes a substantial portion of its revenues from this business will
depend on achieving project milestones. As a result, Brooks' revenue from this
business will be subject to fluctuations depending upon a number of factors,
including whether Brooks can achieve project milestones on a timely basis, if at
all, as well as the timing and size of projects.
BROOKS' STOCK PRICE IS VOLATILE.
The market price of Brooks' common stock has fluctuated widely. For example,
between April 4, 2001 and April 30, 2001, the closing price of Brooks' common
stock rose from approximately $35.45 to $62.61 per share and between August 28,
2001 and September 28, 2001, the price of Brooks' common stock dropped from
approximately $48.15 to $26.59 per share. Consequently, the current market price
of Brooks' common stock may not be indicative of future market prices, and
Brooks may be unable to sustain or increase the value of an investment in its
common stock. Factors affecting Brooks' stock price may include:
- variations in operating results from quarter to quarter;
- changes in earnings estimates by analysts or Brooks' failure to meet
analysts' expectations;
- changes in the market price per share of Brooks' public company customers;
- market conditions in the industry;
- general economic conditions;
- low trading volume of Brooks common stock; and
- the number of firms making a market in Brooks common stock.
In addition, the stock market has recently experienced extreme price and
volume fluctuations. These fluctuations have particularly affected the market
prices of the securities of high technology companies like Brooks. These market
fluctuations could adversely affect the market price of Brooks' common stock.
37
BROOKS AUTOMATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
BECAUSE A LIMITED NUMBER OF STOCKHOLDERS, INCLUDING A MEMBER OF BROOKS'
MANAGEMENT TEAM, OWNS A SUBSTANTIAL NUMBER OF SHARES OF BROOKS COMMON STOCK AND
ARE PARTIES TO VOTING AGREEMENTS, THEIR DECISIONS MAY BE DETRIMENTAL TO YOUR
INTERESTS.
By virtue of their stock ownership and voting agreements, Robert J. Therrien,
Brooks' president and chief executive officer, and Jenoptik AG have the power to
significantly influence Brooks' affairs and are able to influence the outcome of
matters required to be submitted to stockholders for approval, including the
election of Brooks' directors, amendments to Brooks' certificate of
incorporation, mergers, sales of assets and other acquisitions or sales. These
stockholders may exercise their influence over Brooks in a manner detrimental to
your interests. As of December 7, 2001, Mr. Therrien and M+W Zander Holding
GmbH, a subsidiary of Jenoptik AG, beneficially owned approximately 9.7% of
Brooks' common stock.
Brooks has a stockholders agreement with Mr. Therrien, M+W Zander Holding
GmbH and Jenoptik AG under which M+W Zander Holding GmbH agreed to vote all of
its shares on all matters in accordance with the recommendation of a majority of
Brooks' board of directors.
PROVISIONS OF BROOKS' CERTIFICATE OF INCORPORATION, BYLAWS, CONTRACTS AND 4.75%
CONVERTIBLE SUBORDINATED NOTES DUE 2008 MAY DISCOURAGE TAKEOVER OFFERS AND MAY
LIMIT THE PRICE INVESTORS WOULD BE WILLING TO PAY FOR BROOKS' COMMON STOCK.
Brooks' certificate of incorporation and bylaws contain provisions that may
make an acquisition of Brooks more difficult and discourage changes in Brooks'
management. These provisions could limit the price that investors might be
willing to pay for shares of Brooks' common stock. In addition, Brooks has
adopted a shareholder rights plan. In many potential takeover situations, rights
issued under the plan become exercisable to purchase Brooks common stock at a
price substantially discounted from the then applicable market price of Brooks
common stock. Because of its possible dilutive effect to a potential acquirer,
the rights plan would generally discourage third parties from proposing a merger
with or initiating a tender offer for us that is not approved by Brooks' board
of directors. Accordingly, the rights plan could have an adverse impact on
Brooks' stockholders who might want to vote in favor of a merger or participate
in a tender offer. In addition, Brooks may issue shares of preferred stock upon
terms the board of directors deems appropriate without stockholder approval.
Brooks' ability to issue preferred stock in such a manner could enable its board
of directors to prevent changes in its management or control. Finally, upon a
change of control of Brooks, Brooks may be required to repurchase convertible
subordinated notes at a price equal to 100% of the principal outstanding amount
thereof, plus accrued and unpaid interest, if any, to the date of the
repurchase. Such a repurchase of the notes would represent a substantial
expense; accordingly, the repayment of the notes upon a change of control of
Brooks could discourage third parties from proposing a merger with, initiating a
tender offer for or otherwise attempting to gain control of Brooks.
38
BROOKS AUTOMATION, INC.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE EXPOSURE
Based on Brooks' overall interest exposure at December 31, 2001, including all
interest rate-sensitive instruments, a near-term change in interest rates within
a 95% confidence level based on historical interest rate movements would not
materially affect the consolidated results of operations or financial position.
CURRENCY RATE EXPOSURE
Brooks' foreign revenues are generally denominated in United States dollars.
Accordingly, foreign currency fluctuations have not had a significant impact on
the comparison of the results of operations for the periods presented. The costs
and expenses of Brooks' international subsidiaries are generally denominated in
currencies other than the United States dollar. However, since the functional
currency of Brooks' international subsidiaries is the local currency, foreign
currency translation adjustments do not impact operating results, but instead
are reflected as a component of stockholders' equity under the caption
"Accumulated other comprehensive income (loss)". To the extent Brooks expands
its international operations or changes its pricing practices to denominate
prices in foreign currencies, Brooks will be exposed to increased risk of
currency fluctuation.
39
BROOKS AUTOMATION, INC.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Exhibit No. Description
----------- -----------
None
(b) The following reports on Form 8-K were filed during the quarterly
period ended December 31, 2001:
(1) Current Report on Form 8-K filed on October 19, 2001, relating
to the Company's acquisition of General Precision, Inc.
(2) Current Report on Form 8-K filed on October 23, 2001, relating
to the Company's acquisition of Tec-Sem A.G.
(3) Current Report on Form 8-K filed on October 26, 2001, relating
to the announcement of the Company's entering into an
Agreement and Plan of Merger with PRI Automation, Inc.
("PRI") to acquire PRI.
(4) Current Report on Form 8-K/A, Amendment No. 1 to Form 8-K,
filed on December 7, 2001, relating to the Company's
acquisition of General Precision, Inc.
(i) The following audited financial statements of General
Precision, Inc. were filed with the Form 8-K/A:
- Report of Independent Accountants
- Balance Sheets as of June 30, 2001 and December
31, 2000
- Statements of Operations for the six months ended
June 30, 2001 and the year ended December 31, 2000
- Statements of Shareholder's Equity for the six
months ended June 30, 2001 and the year ended
December 31, 2000
- Statements of Cash Flows for the six months ended
June 30, 2001 and the year ended December 31, 2000
- Notes to the Audited Financial Statements
(ii) The following unaudited pro forma financial information
giving effect to the acquisition of General Precision as
if the transaction had occurred on June 30, 2001 for
purposes of the balance sheet and October 1, 1999 for
purposes of the statement of operations was filed with
the Form 8-K/A:
- Pro Forma Combined Condensed Balance Sheet as of
June 30, 2001
- Pro Forma Combined Condensed Statement of
Operations for the nine months ended June 30, 2001
- Pro Forma Combined Condensed Statement of
Operations for the year ended September 30, 2000
- Notes to Pro Forma Combined Condensed Financial
Statements
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BROOKS AUTOMATION, INC.
DATE: April 3, 2002 /s/ Ellen B. Richstone
------------------------------------------
Ellen B. Richstone
Senior Vice President of Finance and
Administration and Chief Financial Officer
(Principal Financial Officer)
41
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
None
42