UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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, 1999
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 0-22114
ASYST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
California 94-2942251
(State or other jurisdiction of (IRS Employer identification No.)
incorporation or organization)
48761 Kato Road, Fremont, California 94538
(Address of principal executive offices)
(510) 661-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- _____
The number of shares of the registrant's Common Stock, no par value, outstanding
as of February 8, 2000 was 30,929,942.
ASYST TECHNOLOGIES, INC.
INDEX
Page No.
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Part I. Financial Information
---------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
December 31, 1999 and March 31, 1999 2
Condensed Consolidated Statements of Operations --
Three Months Ended December 31, 1999 and
December 31, 1998 and Nine Months Ended
December 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Cash Flows --
Nine Months Ended December 31, 1999 and
December 31, 1998 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Part II. Other Information
-----------------
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
- ----------
Exhibit Index 20
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1
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, March 31,
1999 1999
-------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 95,291 $ 6,382
Short-term investments 11,960 29,380
Accounts receivable, net 44,911 14,511
Inventories 34,616 19,373
Deferred tax asset 16,238 19,142
Prepaid expenses and other current assets 7,063 3,474
------------- ------------
Total current assets 210,079 92,262
------------- ------------
Property and equipment, net 15,181 12,923
Other assets, net 20,117 19,103
------------- ------------
$ 245,377 $ 124,288
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ -- $ 2,190
Accounts payable 22,554 5,055
Accrued liabilities and other current liabilities 13,260 10,051
Income taxes payable 685 676
Customer deposits 3,521 1,806
------------- ------------
Total current liabilities 40,020 19,778
------------- ------------
Long-term liabilities:
Redeemable convertible preferred stock -- 5,000
Long-term debt, net of current portion -- 2,876
------------- ------------
Total long-term liabilities -- 7,876
------------- ------------
Total liabilities 40,020 27,654
------------- ------------
Shareholders' equity:
Common stock 222,657 111,851
Accumulated deficit (17,300) (15,217)
------------- ------------
Total shareholders' equity 205,357 96,634
------------- ------------
$ 245,377 $ 124,288
============= ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; In thousands, except share and per share amounts)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ ------------------------
1999 1998 1999 1998
----------- --------- --------- ----------
Net sales $ 63,816 $ 17,911 $ 131,598 $ 74,252
Cost of sales 34,505 11,577 72,672 46,751
---------- --------- --------- ----------
Gross profit 29,311 6,334 58,926 27,501
---------- --------- --------- ----------
Operating expenses:
Research and development 5,298 4,523 13,989 13,522
Selling, general and administrative 15,333 10,409 37,814 33,251
Goodwill amortization 676 -- 1,880 --
In-process research and development of acquired
businesses and product line -- -- 4,000 7,100
Restructuring charge -- -- -- 2,922
---------- --------- --------- ----------
Total operating expenses 21,307 14,932 57,683 56,795
Operating income (loss) 8,004 (8,598) 1,243 (29,294)
Other income, net 803 361 1,088 1,847
---------- --------- --------- ----------
Income (loss) before provision (benefit) for
income taxes 8,807 (8,237) 2,331 (27,447)
Provision (benefit) for income taxes 2,966 (2,042) 2,124 (8,013)
---------- --------- --------- ----------
Net income (loss) $ 5,841 $ (6,195) $ 207 $ (19,434)
========== ========= ========= ==========
Basic earnings (loss) per share $ 0.20 $ (0.27) $ 0.01 $ (0.82)
========== ========= ========= ==========
Diluted earnings (loss) per share: $ 0.18 $ (0.27) $ 0.01 $ (0.82)
========== ========= ========= ==========
Shares used in per share calculation of:
Basic earnings (loss) per share 28,964 22,910 26,358 23,566
========== ========= ========= ==========
Diluted earnings (loss) per share 32,722 22,910 29,312 23,566
========== ========= ========= ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; In thousands)
Nine Months Ended
December 31,
-----------------------------
1999 1998
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 207 $ (19,434)
Adjustments to reconcile net income (loss) to net cash used by
operating activities:
Adjustment to conform year end of pooled company (2,290) --
Change in net assets/liabilities of discontinued operations -- 1,417
Depreciation and amortization 5,527 5,393
Change in provision for doubtful accounts (75) (622)
Non-cash restructuring expense -- 784
Write-down of inventories -- 1,837
Tax benefit associated with employee option plans -- 597
Purchased in-process research and development of acquired
businesses and product line 4,000 7,100
Changes in current assets and liabilities, net of acquisition of
FluoroTrac(R) product line, Hine Design Incorporated and Palo Alto
Technologies, Inc.:
Accounts receivable (30,325) 18,477
Inventories (15,233) 3,272
Prepaid expenses and other current assets (3,569) 1,274
Deferred tax asset 3,171 (9,457)
Other asset, net 263 --
Accounts payable 17,523 (7,410)
Accrued liabilities and other current
liabilities 3,276 (3,559)
Customer deposits 1,715 (140)
Income taxes payable 9 96
---------- ------------
Net cash used by operating activities (15,801) (375)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments (120,388) (31,050)
Sale of short-term investments 138,586 65,684
Purchase of property, plant and equipment (6,615) (3,390)
Increase in other assets (2,974) (460)
Cash used in the acquisition of the FluoroTrac(R)product line -- (2,794)
Cash used in the acquisition of Hine Design Incorporated -- (12,433)
Cash used in the acquisition of Palo Alto Technologies, Inc. (4,639) --
---------- ------------
Net cash provided by investing activities 3,970 15,557
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash used in the reduction of debt assumed in the acquisition of
Hine Design Incorporated -- (12,479)
Principal payments on current and long-term debt (10,066) (1,746)
Issuance of common stock 110,806 1,149
Cash used in the repurchase of common stock -- (11,472)
---------- ------------
Net cash provided by (used by) financing activities 100,740 (24,548)
---------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 88,909 (9,366)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,382 15,006
---------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 95,291 $ 5,640
========== ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of Asyst
Technologies, Inc. the ("Company"), a California corporation, and its wholly
owned subsidiaries. Significant intercompany accounts and transactions have been
eliminated. On June 2, 1999 the Company acquired Progressive System
Technologies, Inc. ("PST") in a transaction accounted for using the pooling of
interests accounting method. Accordingly, the restated condensed consolidated
financial statements of the Company give retroactive effect to the merger with
PST and all material intercompany transactions have been eliminated.
While the financial information furnished is unaudited, the condensed
consolidated financial statements included in this report reflect all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for the fair presentation of the results of operations for
the interim periods covered and of the financial condition of the Company at the
date of the interim balance sheet. The Company closes its books on the last
Saturday of each quarter and thus the actual date of the quarter-end is usually
different from the month-end dates used throughout this 10-Q report. The results
for interim periods are not necessarily indicative of the results for the entire
year. The condensed consolidated financial statements should be read in
connection with the Asyst Technologies, Inc. consolidated financial statements
for the year ended March 31, 1999 included in its Annual Report on Form 10-K and
Current Report on Form 8-K/A, dated August 16, 1999.
Short-term Investments
As of December 31, 1999 and March 31, 1999, the Company's short-term
investments consisted of liquid debt investments with maturities, at the time of
purchase, of one year or less and will remain classified as such until such time
they are subsequently sold and converted to cash. All such investments have been
classified as "available-for-sale" and are carried at fair value, with
unrealized holding gains and losses (which have not been material to date), net
of taxes reported as a separate component of shareholders' equity. The cost of
the debt security is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, interest income, realized gains and
losses and declines in value that are considered to be other than temporary, are
included in other income (expense), net, on the accompanying condensed
consolidated statements of operations. There have been no declines in value that
are considered to be other than temporary for any of the nine months in the
period ended December 31, 1999. The cost of investments sold is based on
specific identification. The Company does not intend to hold any individual
securities for greater than one year.
Short-term investments by security type consist of the following (dollars in
thousands):
Cost / Fair Value
--------------------------------
December 31, March 31,
1999 1999
-------------- -------------
(unaudited)
Debt securities issued by states of the United States
and political subdivisions of the states................. $ -- $ 12,780
Corporate debt securities.................................. 11,960 16,600
--------- ---------
Total $ 11,960 $ 29,380
========= =========
5
Supplemental Statements of Cash Flows Disclosure
Cash paid for interest and domestic and foreign income taxes was as follows
(dollars in thousands):
Nine Months Ended
December 31,
----------------------------------
1999 1998
--------------- ---------------
(unaudited) (unaudited)
Interest........................................................... $ 167 $ 606
Income taxes....................................................... $ 35 $ 536
Inventories
Inventories are stated at the lower of cost (first in, first out) or market
and include materials, labor and manufacturing overhead costs. Inventories
consist of the following (dollars in thousands):
December 31, March 31,
1999 1999
--------------- ---------------
(unaudited)
Raw materials............................................. $ 25,933 $ 16,119
Work-in-process and finished goods........................ 8,683 3,254
-------- --------
Total $ 34,616 $ 19,373
======== ========
Intangible Assets
The realizability of intangible assets, which are included in other assets,
net, in the accompanying condensed consolidated balance sheets, is evaluated
periodically as events or circumstances indicate a possible inability to recover
the net carrying amount. Such evaluation is based on various analyses, including
cash flow and profitability projections that incorporate, as applicable, the
impact on existing lines of business. The analyses involve a significant level
of management judgment in order to evaluate the ability of the Company to
perform within projections.
Provision (Benefit) for Income Taxes
The annual effective tax rate and benefit recorded for the three and nine
months ended December 31, 1998 does not recognize the full deferred benefit of
the utilization of the net operating loss of PST due to uncertainty as to the
ability of PST to generate future taxable income. Absent this, the effective tax
rate for the period then ended would have been 34.0 percent. The provision for
income taxes for the nine months ended December 31, 1999 reflects the impact of
the in-process research and development charge of $4.0 million which for tax
purposes is not deductible. Absent this, our effective tax rate for the period
then ended would have been 33.5 percent.
Earnings (Loss) Per Share
Earnings (loss) per share has been reported based upon Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share", which requires presentation of
basic and diluted earnings per share. Basic earnings per share has been computed
using the weighted average number of actual common shares outstanding, while
diluted earnings per share has been computed using the weighted average number
of dilutive common equivalent shares outstanding. Dilutive common equivalent
shares used in the computation of diluted earnings per share result from the
assumed exercise of stock options, warrants and redeemable convertible preferred
stock, using the treasury stock method.
6
The following table sets forth the calculation of basic and diluted
earnings (loss) per share (in thousands, except share and per share amounts):
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Basic earnings (loss) per share:
Net income (loss)............................ $ 5,841 $ (6,195) $ 207 $ (19,434)
---------- ---------- ------------ ------------
Weighted average common shares............... 28,964 22,910 26,358 23,566
---------- ---------- ------------ ------------
Basic earnings (loss) per share......... $ 0.20 $ (0.27) $ 0.01 $ (0.82)
========== ========== ============ =============
Diluted earnings (loss) per share:
Net income (loss)............................ $ 5,841 $ (6,195) $ 207 $ (19,434)
---------- ---------- ------------ -------------
Weighted average common shares............... 28,964 22,910 26,358 23,566
Weighted average common share equivalents:
Options and warrants...................... 3,758 --- 2,954 ---
---------- ---------- ------------ -------------
Diluted weighted average common shares....... 32,722 22,910 29,312 23,566
---------- ---------- ------------ -------------
Diluted earnings (loss) per share....... $ 0.18 $ (0.27) $ 0.01 $ (0.82)
========== ========== ============ =============
Comprehensive Income
In 1999, the Company adopted SFAS No. 130 "Reporting Comprehensive Income,"
which establishes standards for reporting and presentation of comprehensive
income. SFAS No. 130, which was adopted by the Company in the first quarter of
1999, requires companies to report a new measure of income (loss). Comprehensive
income is defined as the change in equity of a company during a period from
transactions and other events and circumstances excluding transactions resulting
from investments by owners and distributions to owners and is to include
unrealized gains and losses that have historically been excluded from net income
(loss) and reflected instead in equity. The Company has not had any such
material transactions or events during the periods and therefore comprehensive
income (loss) is the same as the net income (loss) reported in the condensed
consolidated financial statements.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. It requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met and that a company must formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000 and cannot be applied
retroactively. The Company has not yet determined the effect SFAS No. 133 will
have on its financial position, results of operations or cash flows.
RESTRUCTURING ACTIVITY
During the year ended March 31, 1999 the Company underwent restructuring of its
operations to reduce its costs structure in response to the reduction in net
sales activities. The Company also restructured activities in Japan and Europe
to reposition its businesses to compete more effectively. In addition, the
Company repositioned its product offerings to eliminate low margin products, or
software services that have high risks of failure. During the fiscal year ended
March 31, 1999, the Company recorded a restructuring charge of approximately
$5.5 million.
7
The following table summarizes restructuring charges and amounts incurred by
geographic region as of December 31, 1999 (dollars in thousands):
Expensed Cash outlays Ending
as of as of Accrual
March 31, December 31, December 31,
1999 1999 1999
--------- ------------- ------------
(unaudited) (unaudited)
Europe:
Severance........................................... $ 1,732 $ 1,136 $ 596
Facilities.......................................... 336 235 101
Other............................................... 437 182 255
Japan:
Severance........................................... 150 75 75
Other............................................... 35 1 34
US:
Severance........................................... 700 700 --
Facilities.......................................... 550 320 230
Other............................................... 1,002 1,350 (348)
Non-cash................................................ 600 N/A N/A
--------- --------- ---------
Total $ 5,542 $ 3,999 $ 943
========= ========= =========
As of December 31, 1999, the Company has severed all employees targeted in
connection with the restructuring. The Company expects all cash payments to
severed employees to be disbursed by March 31, 2000. Certain facilities and
other restructuring costs may not be fully disbursed before the end of fiscal
year ended March 31, 2000.
REPORTABLE SEGMENTS
In 1999, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 supersedes SFAS 14, "Financial
Reporting for Segments of a Business Enterprise", replacing the "industry
segment" approach with the "management" approach. SFAS 131 designates the
internal organization that is used by management for making decisions,
evaluating performance and allocating resources of the enterprise as the source
of the Company's reportable segments. SFAS 131 also requires disclosures about
products and services, geographic areas and major customers. The adoption of
SFAS 131 did not impact the results of operations or financial position but did
affect the disclosures of segment information.
The Company offers a family of products and related services to provide a front-
end automation and isolation system for wafer handling in semiconductor
manufacturing facilities. All of the Company's activities are aggregated into a
single operating segment. As a result, no operating segment information is
required.
Net sales by geography were as follows (dollars in millions):
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
------------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
United States..................................... $ 25.2 $ 10.2 $ 54.8 $ 40.1
Taiwan............................................ 23.3 5.4 44.2 23.1
Singapore......................................... 5.3 0.2 9.6 1.5
Japan............................................. 7.4 1.7 18.2 6.6
Korea............................................. 0.4 -- 0.4 --
Europe............................................ 2.2 0.4 4.4 3.0
------- ------- -------- -------
Total......................................... $ 63.8 $ 17.9 $ 131.6 $ 74.3
======= ======= ======== =======
8
The net sales by product or service categories comprising the Company's net
sales were as follows (dollars in thousands):
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
SMIF Systems...................................... $ 50,519 $ 11,565 $ 97,245 $ 51,557
Non-SMIF Systems.................................. 2,926 1,475 8,623 6,943
SMART Traveler Systems............................ 4,333 786 8,749 4,823
Robotics.......................................... 3,481 2,489 10,084 3,858
Services & other.................................. 2,557 1,596 6,897 7,071
---------- ---------- --------- ---------
Total......................................... $ 63,816 $ 17,911 $ 131,598 $ 74,252
========== ========== ========= =========
ACQUISITION OF THE FLUOROTRAC(R)PRODUCT LINE
In April 1998, the Company entered into an agreement with Fluoroware, Inc.
("Fluoroware"), a supplier of materials management solutions, to acquire
Fluoroware's FluoroTrac(R) automated radio frequency identification ("RFID")
technology for automated work-in-progress tracking in semiconductor factories.
Under the terms of the agreement, the Company acquired all of the FluoroTrac
intellectual property including RFID tracking solutions, inventory and
installed-base opportunities from Fluoroware in consideration for approximately
$2.8 million in cash and liabilities assumed by the Company.
In connection with the acquisition, approximately $1.2 million of the intangible
assets acquired consisted of in-process research and development. Because there
can be no assurance that the Company will be able to successfully complete the
development of FluoroTrac products or that the technology has any alternative
future use, such in-process research and development was charged to expense in
the nine-month period ended December 31, 1998. As a result of the purchase price
allocation, approximately $0.3 million was assigned to intangible assets related
to existing product technology, the assembled workforce and the excess purchase
price over the net assets acquired. These intangibles are being amortized over a
three to five year period. The Company believes that the unamortized balance of
these assets, which is included in other assets, net, in the accompanying
condensed consolidated balance sheets, is recoverable.
ACQUISITION OF HINE DESIGN INCORPORATED
On July 31, 1998, the Company completed its acquisition of Hine Design
Incorporated ("Hine"). The acquisition, originally announced on July 6, 1998,
was structured as a purchase of all of the outstanding capital stock of Hine for
approximately $12.4 million in cash. In addition, the Company granted options to
purchase the Company's common stock in substitution for outstanding, vested
options to purchase capital stock of Hine worth approximately $1.0 million and
assumed certain liabilities of Hine of approximately $12.5 million. Hine, a
supplier of wafer-handling robots for semiconductor process tools, is now a
wholly owned subsidiary of the Company.
In connection with the acquisition, approximately $18.4 million of the purchase
price in excess of the value of net liabilities assumed were allocated to
various intangible assets, which are being amortized over periods of four to
fourteen years (dollar average life of ten years). The Company believes that the
unamortized balance of these assets, which is included in other assets, net, in
the accompanying condensed consolidated balance sheets, is recoverable. During
the current quarter, a charge for amortization relating to these intangibles of
approximately $0.6 million was reported in the accompanying condensed
consolidated financial statements.
9
ACQUISITION OF PROGRESSIVE SYSTEM TECHNOLOGIES, INC.
On June 2, 1999, the Company completed its acquisition of 100 percent of the
common stock of Progressive System Technology, Inc., a Texas corporation, in
exchange for 274,810 shares of common stock of the Company. In addition to the
exchange of common stock in the merger, 225,190 shares of common stock of the
Company ("PST") were issued in exchange for $4.9 million of PST debt. PST
manufactures wafer-sorting equipment used by semiconductor manufacturers. The
acquisition has been accounted for using the pooling of interests method of
accounting. Accordingly, the accompanying condensed consolidated financial
statements have been restated for all periods prior to the business
combination. All material inter-company transactions between the Company and
PST have been eliminated. Costs associated with the PST merger, which consist
primarily of transaction costs amounted to approximately $0.1 million and were
expensed during the current fiscal period ended. PST's fiscal year end was
December 31. In accordance with Securities and Exchange Commission Rules, the
condensed consolidated statements of operations and cash flows for the three
months ended June 30, 1998 have been restated to reflect the statement of
operations and cash flows of PST. The condensed consolidated balance sheet, as
of March 31, 1999, has also been restated to reflect the financial position of
PST. PST's results of operations for the three-month period ended March 31,
1999 have been excluded from the reported results of operations and,
therefore, have been added to the Company's accumulated deficit as of April 1,
1999. PST's net sales and net loss for the three month period ended March 31,
1999 were $1.5 million and $2.3 million, respectively.
Conforming the Company's and PST's accounting practices resulted in adjustments
to net income (loss) or shareholders' equity of $0.1 million. Net sales and net
income (loss) for the individual companies reported prior to the merger were as
follows (dollars in thousands):
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1998
(unaudited) (unaudited)
------------------ ----------------
Net sales:
Asyst Technologies, Inc.............. $ 16,711 $ 66,072
PST.................................. 1,200 8,180
---------- -----------
Total..................................... $ 17,911 $ 74,252
========== ===========
Net income (loss):
Asyst Technologies, Inc.............. $ (3,924) $ (15,613)
PST.................................. (2,271) (3,821)
---------- -----------
Total..................................... $ (6,195) $ (19,434)
========== ===========
In conjunction with the PST acquisition, the Company also completed a sale of
625,000 shares of its common stock to eight institutional investors. The shares
issued in this transaction, which closed in May 1999, were priced at $18.00 per
share, for aggregate proceeds of approximately $11.3 million. The purpose of
this transaction was to remove the taint on shares of common stock to obtain
pooling of interests accounting treatment for the acquisition of PST. The
proceeds were used for general corporate purposes.
ACQUISITION OF PALO ALTO TECHNOLOGIES, INC.
On August 27, 1999, the Company acquired all of the equity of Palo Alto
Technologies, Inc., a California corporation formed in 1997 to develop and
market a new concept wafer transport system for use in semiconductor
manufacturing facilities ("PAT"), for $4.6 million consisting primarily of cash
and the Company's common stock. Approximately $4.6 million of the purchase price
in excess of the value of the net liabilities assumed was allocated to various
intangible assets including $4.0 million allocated to in-process research and
development which was expensed in the three month period ended September 30,
1999. The remaining $0.6 million was assigned to goodwill which will be
amortized over 5 years. During the current quarter, a charge for amortization
relating to these intangibles of approximately $10,000 was reported. Dr. Mihir
Parikh, the Company's Chairman and Chief Executive Officer, and Mr. Anthony
Bonora, the Company's Senior Vice President and Chief Technology Officer, were
shareholders of PAT and Dr. Mihir Parikh was Chairman of the Board of Directors
of PAT. See "Related Party Transactions".
10
INVESTMENT IN MECS CORPORATION
On October 21, 1999, the Company purchased approximately 9.9 percent
of the common stock of MECS Corporation, a Japanese engineering and robotics
company, for approximately $1.5 million dollars. The investment in MECS is
currently being accounted for at costs. The Company also has an option to
purchase at least an additional 56.8 percent of the common stock of MECS, once
MECS meets various operating performance levels and disposes of its non-core
subsidiaries. If the Company were to acquire the remaining 56.8 percent of the
common stock of MECS, then the Company would spend approximately $9.9 million.
If the Company were to acquire 100 percent of the common stock of MECS, then the
Company would spend approximately $14.9 million. As of March 31, 1999, MECS had
long-term debt and bonds totaling approximately $34.0 million with interest
rates ranging between 1.4 percent to 1.8 percent per annum.
SHAREHOLDERS' RIGHTS PLAN
The Company has adopted a Shareholders' Rights Plan under which all shareholders
of record, as of July 10, 1998 (the "Record Date"), received a dividend of one
preferred share purchase right (a "Right") for each outstanding share of common
stock, without par value per share, (the "Common Shares") of the Company. The
Rights will also attach to new Common Shares issued after the Record Date. Each
Right entitles the registered holder to purchase from the Company one one-
hundredth of a share of Series A Junior Participating Preferred Stock, without
par value per share, (the "Preferred Shares") of the Company at a price of $140
per one one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. Each Preferred Share is designed to be the economic equivalent of
100 Common Shares.
STOCK REPURCHASE PROGRAM
On June 22, 1998, the Board of Directors of the Company authorized a stock
repurchase program whereby authorizing the Company to repurchase of up to
2,000,000 shares of its Common Stock. Repurchases would be made utilizing
existing cash from time to time, at market prices and as market and business
conditions warrant, in the open market, or in negotiated transactions. The
Company used the remaining portion of the reacquired shares for re-issuance in
connection with certain employee stock programs. On June 3, 1999, in connection
with the acquisition of PST, the Company rescinded the stock purchase program
and reissued the remaining portion of the reacquired shares in May 1999.
SECONDARY OFFERING
In November 1999, the Company completed a secondary public offering of 2,229,000
shares of Common Stock at an offering price of $40.50 per share, net of $2.43
per share underwriting discount, or $38.07 per share. Of the 2,229,000 shares
offered, 229,000 shares were issued and sold by the Company pursuant to
underwriters' over-allotment provision. Proceeds from the offering, net of
issuance costs of $0.5 million amounted to $84.9 million. Net proceeds will be
used for capital expenditures, working capital and other general corporate
purposes.
SUBSEQUENT EVENT
On January 3, 2000, the Board of Directors of the Company declared a two-for-one
stock split of the Company's common stock effected in the form of a 100 percent
stock dividend. The stock dividend was paid on February 4, 2000 to the
shareholders of record as of January 7, 2000. Share and per share data have been
adjusted to give effect to the split.
11
RELATED PARTY TRANSACTIONS
In September 1997, the Company entered into an asset purchase agreement with PAT
pursuant to which the Company sold to PAT intellectual property rights and
office equipment which were owned or licensed by Asyst Automation, Inc., a
discontinued operation, in consideration for quarterly earn-out payments, up to
an aggregate of $2.0 million. In addition, PAT granted the Company the non-
exclusive, worldwide right to distribute and sell any of PAT's products on PAT's
most favorable distributor terms and conditions; except PAT could grant
exclusive distribution rights to particular markets so long as such rights were
first offered to Asyst and we did not accept the offer. The Company agreed that
Mihir Parikh, our Chairman of the Board and Chief Executive Officer, and Anthony
Bonora, our Senior Vice President, Research and Development and Chief Technology
Officer, could serve as the Chairman of PAT and an advisor to PAT, respectively,
provided that they continued to meet their obligations as full time employees of
Asyst. In August 1999, the Company acquired all of the equity of PAT in a stock
purchase transaction for approximately $3.7 million, the repayment of $0.8
million of debt and earn-out payments to certain PAT security holders based on
future transport automation product revenue in excess of certain defined
threshold amounts. Dr. Mihir Parikh received approximately $1.4 million in
proceeds from the sale of his shares of PAT for which he had paid approximately
$0.7 million. In addition Dr. Mihir Parikh received approximately $0.8 million
for the repayment of a loan he had made to PAT. Mr. Anthony Bonora received
approximately $0.2 million in proceeds from the sale of his shares of PAT for
which he had paid approximately $0.1 million. Neither Dr. Mihir Parikh nor Mr.
Anthony Bonora participated in the negotiation of this transaction by the
Company, nor are they eligible to participate in the earn-out payments to PAT
shareholders.
As of December 31, 1999 and March 31, 1999, the Company held four notes
receivable from two executive officers of the Company with balances totaling
$1.2 million. The notes resulted from advances made to the officers to assist in
their relocation to California. The notes bear interest that ranges from 4.0
percent to 6.4 percent per annum and are fully secured by second deeds of trust
on certain real property, as well as, other pledged securities of the Company
owned by the officers, respectively. The notes, which are included in prepaid
expenses and other current assets and other assets, net in the accompanying
condensed consolidated balance sheets, mature at various dates between September
1, 2002 and January 31, 2004.
12
Item 2 - Management's Discussion and Analysis of Results of Financial Condition
and Results of Operations
The following discussion of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and the
related notes included elsewhere in this prospectus. This discussion contains
forward-looking statements which involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements as a result of certain factors, including but not limited to those
discussed in "Risk Factors" in our Annual Report on Form 10-K and in our
registration statement on Form S-3.
Overview
Our sales are tied to capital expenditures at wafer fabrication
facilities. The majority of our revenues in any single quarter are typically
derived from relatively few large customers, and our revenues will therefore
fluctuate based on a number of factors, including:
. the timing of significant customer orders;
. the timing of product shipments;
. variations in the mix of products sold;
. the introduction of new products;
. changes in customer buying patterns;
. fluctuations in the semiconductor equipment market;
. the availability of key components; and
. general trends in the economy.
In addition, due to production cycles and customer requirements, we
often ship significant quantities of products in the last month of the quarter.
This factor increases the risk of unplanned fluctuations in net sales since we
have limited opportunity to take corrective actions should a customer reschedule
a shipment or otherwise delay an order during the last month of the quarter.
Fiscal year 1999 was significantly and adversely impacted by the
worldwide drop in demand for semiconductor devices. The drop in demand resulted
from a slowdown in the Asian economies and over-capacity of memory chip
manufacturing. In response, many of our customers slashed capital expenditure
budgets by 40 percent or more. Net sales decreased 49.0 percent from $182.3
million for the year ended March 31, 1998 to $92.9 million for the year ended
March 31, 1999. In addition, in fiscal year 1999, we acquired the FluoroTrac
Auto-ID product line from Flouroware, Inc. and Hine, enhancing our wafer
tracking and robotics capabilities. The significant decline in net sales and the
new acquisitions required us to undertake substantial restructuring activities
to reduce costs and eliminate low margin products. Nevertheless, we experienced
a net loss in fiscal year 1999 of $26.9 million compared to a net income of
$15.4 million in fiscal year 1998.
In contrast, net sales for each of the quarters ended June 30, 1999,
September 30, 1999 and December 31,1999 have increased sequentially by over 45
percent over the prior quarter. Whereas for most of the year ended March 31,
1999 we were dependent upon orders received and shipped during the same quarter,
our backlog of orders for the quarter ending March 31, 2000, exceeds our planned
shipments.
In June 1999, we acquired all of the shares of PST, which manufactures
wafer-sorting equipment used by semiconductor manufacturers. The acquisition was
accounted for as a pooling of interests. Accordingly, our consolidated financial
statements for all periods presented have been restated to include the financial
statements of PST.
13
In August 1999, we acquired all of the shares of PAT, which is in the
process of developing a continuous flow transport system for use in
semiconductor manufacturing facilities. The transaction was accounted for as a
purchase.
On October 21, 1999, the Company purchased approximately 9.9 percent of
the common stock of MECS Corporation, a Japanese engineering and robotics
company, for approximately $1.5 million dollars. The investment in MECS is
currently being accounted for at cost. The Company also has an option to
purchase at least an additional 56.8 percent of the common stock of MECS, once
MECS meets various operating performance levels and disposes of its non-core
subsidiaries. If the Company were to acquire the remaining 56.8 percent of the
common stock of MECS, then the Company would spend approximately $9.9 million.
If the Company were to acquire 100 percent of the common stock of MECS, then the
Company would spend approximately $14.9 million. As of March 31, 1999, MECS had
long-term debt and bonds totaling approximately $34.0 million with interest
rates ranging between 1.4 percent to 1.8 percent per annum.
Three and Nine Months Ended December 31, 1998 and 1999
The following table sets forth the percentage of net sales represented
by consolidated statements of operations data for the periods indicated:
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- --------------------
(Unaudited) (Unaudited)
1999 1998 1999 1998
-------- -------- -------- --------
Net sales................................................. 100.0% 100.0 % 100.0% 100.0%
Cost of sales............................................. 54.1 64.6 55.2 63.0
----- ----- ----- -----
Gross profit.......................................... 45.9 35.4 44.8 37.0
----- ----- ----- -----
Operating expenses:
Research and development................................ 8.3 25.3 10.6 18.2
Selling, general and administrative..................... 24.0 58.1 28.8 44.8
Goodwill amortization................................... 1.1 -- 1.4 --
In-process research and development of acquired
businesses and product line.......................... -- -- 3.0 9.6
Restructuring charge.................................... -- -- -- 3.9
----- ----- ----- -----
Total operating expenses.............................. 33.4 83.4 43.8 76.5
----- ----- ----- -----
Operating income (loss)............................... 12.5 (48.0) 1.0 (39.5)
Other income, net......................................... 1.3 2.0 0.8 2.5
----- ----- ----- -----
Income (loss) before provision (benefit) for
income taxes............................................ 13.8 (46.0) 1.8 (37.0)
Provision (benefit) for income taxes...................... 4.6 (11.4) 1.6 (10.8)
----- ----- ----- -----
Net Income (loss)......................................... 9.2% (34.6)% 0.2% (26.2)%
===== ===== ===== =====
Results of Operations
Net Sales. Net sales increased 256.3 percent from $17.9 million for the
three months ended December 31, 1998, to $63.8 million for the three months
ended December 31, 1999. Net sales increased 77.2 percent from $74.3 million for
the nine months ended December 31, 1998 to $131.6 million for the nine months
ended December 31, 1999. The increase in net sales for the three and nine months
ended December 31, 1999 is due to increased demand for our products as capital
expenditures of semiconductor manufacturers have increased to add capacity.
14
International sales have increased in terms of dollars of net sales and as
a percent of net sales for the nine months ended December 31, 1999 compared to
the nine months ended December 31, 1998. International sales by region for the
nine months ended December 31, 1998 and 1999, are summarized as follows (dollars
in millions):
Nine Months Ended Nine Months Ended
December 31, 1999 December 31, 1998
(unaudited) (unaudited)
--------------------------------- --------------------------------
Percentage Percentage
Geographic of of
Region Net Sales Net Sales Net Sales Net Sales
------------------ ---------------- ------------- -------------- --------------
Taiwan $ 44.2 33.6% $ 23.1 31.1%
Japan 18.2 13.9 6.6 8.9
Singapore 9.6 7.3 1.5 2.0
Europe 4.4 3.3 3.0 4.0
Korea 0.4 0.3 -- --
---------------- ------------- -------------- --------------
$ 76.8 58.4% $ 34.2 46.0%
================ ============= ============== ==============
Our results of operations have not been adversely affected by currency exchange
rates because we have invoiced substantially all of our international sales in
United States dollars. However, there can be no assurance that our results of
operations will not be adversely affected by such fluctuations in the future.
We have experienced cancellations and delays of orders in the past,
particularly during fiscal year 1999, while the industry was undergoing a
significant downturn. During the nine months ended December 31, 1999,
cancellation and delays were not significant. Given the cyclical nature of the
semiconductor industry, we can give no assurance that there will not be future
cancellations or delays in orders.
Gross Margin. Gross margin increased from 35.4 percent of net sales for the
three months ended December 31, 1998, to 45.9 percent of net sales for the three
months ended December 31, 1999. Gross margin increased from 37.0 percent of net
sales for the nine months ended December 31, 1998 to 44.8 percent of net sales
for the nine months ended December 31, 1999. The primary contributor to the
increase in the gross margin for the three and nine months ended December 31,
1999 was that net sales increased at a rate faster than indirect manufacturing
costs. As a result of the increase in net sales, we have increased our direct
labor resources. Gross margin also improved as a result of the impact of cost
reduction efforts we undertook during the past year, offset somewhat by lower
gross margins in our robotics products which were acquired as part of our
acquisition of Hine in August 1998. It remains our goal to improve gross margins
as a percentage of net sales in the future through reduction of direct
manufacturing costs and increased leverage of the indirect manufacturing costs
through higher net sales.
Research and Development. Research and development expenses were $4.5
million and $5.3 million for the three months ended December 31, 1998 and 1999
respectively. Research and development expenses increased 3.5 percent from $13.5
million for the nine months ended December 31, 1998, to $14.0 million for the
nine months ended December 31, 1999. Research and development expenses decreased
as a percentage of net sales from 25.3 percent for the three months ended
December 31, 1998 to 8.3 percent for the three months ended December 31, 1999
and decreased as a percentage of net sales from 18.2 percent for the nine months
ended December 31, 1998 to 10.6 percent for the nine months ended December 31,
1999. The decrease in research and development expenses as a percentage of net
sales for the comparative three and nine month periods is due primarily to our
net sales increasing at a higher rate than the increase in spending for research
and development activities. We expect that our research and development expenses
may increase in future periods, but will fluctuate as a percentage of net sales.
Selling, General and Administrative. Selling, general and administrative
expenses were $10.4 million and $15.3 million for the three months ended
December 31, 1998 and 1999 respectively. Selling, general, and
15
administrative expenses increased 13.7 percent from $33.3 million for the nine
months ended December 31, 1998, to $37.8 million for the nine months ended
December 31, 1999. Selling, general and administrative expenses have increased
because of acquisitions of Hine in August 1998 and PAT in August 1999,
additional general, administrative and sales staff additions in response to the
increase in our sales and higher commission expenses related to the increase in
our net sales. During the nine months ending December 31, 1999, headcount
related to selling, general and administrative increased by 221 employees
including 91 employees hired during the three month period ended December 31,
1999. We expect further increases in our selling, general and administrative
headcount to support additional increases in our net sales. However, the
increase in headcount as a percentage of the increase in net sales is expected
to be lower than that which we experienced in the three month and nine month
period ended December 31, 1999. The decrease in selling, general and
administrative expenses as a percentage of net sales is due primarily to net
sales increasing at a higher rater than the increase in spending in selling,
general and administrative activities in both the three and nine month
comparative periods. We expect that selling, general and administrative expenses
may increase in future periods due to expected growth in net sales and new
acquisitions, although the spending may vary as a percentage of net sales.
In-process Research and Development of Acquired Businesses and Product
Line. In April 1998, we completed the acquisition of the FluoroTrac product line
from Fluoroware. The transaction was completed in the three months ended June
30, 1998. In connection with the acquisition of FluoroTrac, we recorded a write-
off of $1.2 million of in-process research and development for the three months
ended June 30, 1998. The remaining excess cost of purchase price over net assets
acquired, approximately $0.3 million, is being amortized over periods of three
to five years.
In July 1998, we acquired HDI using the purchase method of accounting. In
connection with the acquisition of HDI, we recorded a write-off of $5.9 million
of purchased in-process research and development costs for the three months
ended December 31, 1998. In addition, approximately $18.4 million of the
purchase price in excess of the value of net liabilities we assumed were
allocated to various intangible assets, which are being amortized over periods
of four to fourteen years, with a dollar average life of ten years. For the
three months ended December 31, 1999, a charge for amortization relating to
these intangibles, approximately $0.6 million, was included in our selling,
general and administrative expenses.
In August 1999, we acquired PAT using the purchase method of accounting. In
connection with the acquisition of PAT, we recorded a write off of $4.0 million
of purchased in-process research and development costs for the three months
ended December 31, 1999. In addition, approximately $0.6 million of the purchase
price in excess of the value of the net liabilities we assumed were allocated to
goodwill, which is being amortized over five years. During the nine months ended
December 31, 1999, the amount of goodwill amortized was $0.1 million. The
purchased in-process research and development and goodwill do not result in a
tax benefit.
Restructuring Charge. For the three months ended December 31, 1998, in
response to the reductions in capital spending by semiconductor manufacturers,
we undertook a formal plan to lower our cost structure and reorganize to more
effectively manufacture, market and sell our portfolio of products and value
added services. The restructuring effort consisted of the closure of two of our
facilities in the United States during the three months ended December 31, 1998
and the closure and downsizing of certain facilities in Europe for the three
months ended March 31, 1999. In addition, management of the software product
line was streamlined eliminating one level of management and administrative
activities, which were deemed redundant.
Other Income, Net. Other income, net, includes interest income, interest
expense, foreign exchange gain and loss, which has not been material, and
royalty income. Other income, net, increased from $0.4 million for the three
months ended December 31, 1998 to $0.8 million for the three months ended
December 31, 1999. Other income, net, decreased from $1.8 million for the nine
months ended December 31, 1998 to $1.1 million for the nine months ended
December 31, 1999. Other income was lower during the nine months ended December
31, 1999 due to a lower weighted average investment balance. Our average cash,
cash equivalents and short-term investments balance for the nine months ended
December 31, 1998 was approximately $41.2 million compared to $71.5 million for
the nine months ended December 31, 1999. Our average current and long-term debt
balance was $5.8 million for the nine months ended December 31, 1998, while we
had no debt outstanding for the nine months ended December 31, 1999.
16
Provision (Benefit) for Income Taxes. We reported a benefit for income
taxes of $2.0 million and a provision for income taxes of $3.0 million for the
three months ended December 31, 1998 and 1999, respectively. For the nine months
ended December 31, 1998 and 1999, we reported a benefit for income taxes of $8.0
million and provision for income taxes of $2.1 million, respectively. The
effective income tax rates for the three and nine month periods in 1998 were
impacted by the acquisition of PST. The annual effective tax rates and benefits
recorded for the three and nine months ended December 31, 1998 do not recognize
the full deferred benefits of the utilization of net operating losses of PST
because there was uncertainty as to PST's ability to generate future taxable
income. Absent the restatement of earnings to reflect the pooling of interests
related to PST for the three and nine months ended December 31, 1998, our
effective tax rate would have been 34 percent. The annual estimated effective
tax rate and benefit recorded for the nine months ended December 31, 1999,
reflect the non-deductible charge of $4.0 million related to the acquisition of
PAT in August 1999. Additionally, the benefit for income taxes was impacted by
foreign income and withholding taxes in excess of the statutory rates, the lack
of Foreign Sales Corporation benefit due to net operating losses for the nine
months ended December 31, 1999 and limitations on state net operating loss
carryforwards. Absent of these considerations the effective tax rate for the
three and nine months ended December 31, 1999, would have been 33.5 percent.
Year 2000 Compliance. We have not experienced any interruption to our
business activities or incurred any impairment to our financial condition or
results of operations as a result of passing into calendar year 2000. There have
been no material changes to prior estimates of costs related to our remediation
efforts. We will continue to monitor internal systems and products to determine
the impact, if any, of problems associated with the year 2000.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Although we operate and sell products in various global markets,
substantially all sales are denominated in the U.S. dollar therefore reducing
the foreign currency risk. To date, the foreign currency transactions and
exposure to exchange rate volatility have not been significant. We cannot
anticipate with certainty the effect of inflation on our operations. To date,
inflation has not had a material impact on our net sales or results of
operations, however, with the industry's upturn currently underway; labor
markets are tightening thus putting upward pressure on current labor costs. Our
exposure to market risk for changes in interest rates relate primarily to the
investment portfolio. Our investment portfolio consists of short-term, fixed
income securities and by policy is limited by the amount of credit exposure to
any one issuer. Fixed rate securities have their fair market value adversely
affected due to rise in interest rates. To date, the change in interest rate
markets has not had a material impact on our results of operations or the market
value of our investments. There can be no assurance that foreign currency risk,
inflation or interest rate risk will not have a material impact on our financial
position, results of operations or cash flow in the future.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In October 1996, we filed a lawsuit against a number of defendants
including Jenoptik-Infab, Inc. alleging infringement of two patents
related to our SMART Traveler System. The suit later included claims
against defendants alleging breach of fiduciary duty, misappropriation
of trade secrets and unfair business practices. The defendants filed
counter claims alleging the patents invalid, unenforceable and not
infringed and alleging that we had violated federal antitrust laws and
engaged in unfair competition. In November 1998, the court granted
defendants motion for partial summary judgment as to most of the
patent infringement claims. In January 1999, the court granted our
motion for leave to seek reconsideration of the November 1998 summary
judgment order and also, pursuant to a stipulation of the parties,
dismissed without prejudice two of the three antitrust counter claims
brought by the defendants. Since then, the parties stipulated to the
dismissal with prejudice of the defendants' unfair competition and
remaining antitrust counter claim, and our breach of fiduciary duty,
misappropriation of trade secrets and unfair business practices
claims. In June 1999, the court granted our motion for reconsideration
in the sense that it considered the merits of our arguments, but did
not change its prior summary judgment ruling and also granted summary
judgment for defendants on the remaining patent infringement claim. We
intend to take an appeal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.22 Lease Agreement between Exar Corporation and
Asyst Technologies, Inc., dated October 18,
1999.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
18
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.
ASYST TECHNOLOGIES, INC.
Date: February 11, 2000 By: /s/ Douglas J. McCutcheon
-------------------- --------------------------
Douglas J. McCutcheon
Senior Vice President
Chief Financial Officer
Signing on behalf of the registrant
and as the principal accounting and
financial officer
19
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
10.22 Lease Agreement between Exar Corporation and Asyst
Technologies, Inc., dated October 18, 1999.
27.1 Financial Data Schedule