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 September 30, 2001
OR
___ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File number 0-22114
ASYST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
California 94-2942251
(State or other jurisdiction of incorporation or organization) (IRS Employer identification No.)
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 October 31, 2001 was 35,292,860.
________________________________________________________________________________
ASYST TECHNOLOGIES, INC.
INDEX
Part I. Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2001 and March 31, 2001 3
Condensed Consolidated Statements of Operations
for the three months ended September 30, 2001 and
September 30, 2000 4
Condensed Consolidated Statements of Cash Flows
for the six months ended September 30, 2001 and
September 30, 2000 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
Part II. Other Information
-----------------
Item 1. Legal Proceedings 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 32
- ----------
2
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, March 31,
2001 2001
------------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 94,700 $ 34,749
Restricted cash equivalents and short-term investments 43,981 52,500
Short-term investments 18,077 3,000
Accounts receivable, net 49,955 77,660
Inventories 64,356 76,972
Deferred tax asset 41,909 20,068
Prepaid expenses and other current assets 12,688 16,017
------------- ---------
Total current assets 325,666 280,966
------------- ---------
Property and equipment, net 42,056 40,160
Intangible assets and other assets, net 131,678 87,306
------------- ---------
$ 499,400 $ 408,432
============= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term loans $ 61,882 $ 28,776
Current portion of long-term debt and finance leases 1,867 1,791
Accounts payable 18,076 29,560
Accrued liabilities and other 53,718 36,495
Deferred revenue 9,473 5,190
------------- ---------
Total current liabilities 145,016 101,812
------------- ---------
Long-term liabilities:
Long-term debt and finance leases, net of current portion 90,619 3,683
Other long-term liabilities 364 474
------------- ---------
Total long-term liabilities 90,983 4,157
------------- ---------
Shareholders' equity:
Common stock 289,758 282,925
Retained earnings (deficit) (26,357) 19,538
------------- ---------
Total shareholders' equity 263,401 302,463
------------- ---------
$ 499,400 $ 408,432
============= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share data)
Three Months Ended Six Months Ended
September 30, September 30,
--------------------- -----------------------
2001 2000 2001 2000
--------- --------- --------- ----------
Net sales $ 51,015 $ 126,000 $ 118,274 $ 248,483
Cost of sales 38,521 67,157 88,286 134,308
--------- --------- --------- ----------
Gross profit 12,494 58,843 29,988 114,175
--------- --------- --------- ----------
Operating expenses:
Research and development 10,316 10,851 21,634 20,572
Selling, general and administrative 21,382 22,984 44,456 44,435
Amortization of acquired intangible assets 4,782 1,366 8,324 3,068
Non-recurring charges 1,549 - 20,201 -
In-process research and development costs of acquired business - - 2,000 -
--------- --------- --------- ----------
Total operating expenses 38,029 35,201 96,615 68,075
Operating income (loss) (25,535) 23,642 (66,627) 46,100
Other income (expense), net (719) 1,648 (752) 2,959
--------- --------- --------- ----------
Income (loss) before provision (benefit) for income taxes (26,254) 25,290 (67,379) 49,059
Provision (benefit) for income taxes (7,913) 8,709 (21,484) 17,089
--------- --------- --------- ----------
Income (loss) before cumulative effect of change in accounting principle (18,341) 16,581 (45,895) 31,970
Cumulative effect of change in accounting principle - - - (2,506)
--------- --------- --------- ----------
Net income (loss) $ (18,341) $ 16,581 $ (45,895) $ 29,464
========= ========= ========= ==========
Basic earnings (loss) per share:
Income (loss) before cumulative effect of change in accounting principle $ (0.52) $ 0.51 $ (1.31) $ 0.99
Cumulative effect of change in accounting principle - - - (0.08)
--------- --------- --------- ----------
Basic net income (loss) per share $ (0.52) $ 0.51 $ (1.31) $ 0.91
========= ========= ========= ==========
Diluted earnings (loss) per share:
Income (loss) before cumulative effect of change in accounting principle $ (0.52) $ 0.48 $ (1.31) $ 0.91
Cumulative effect of change in accounting principle - - - (0.07)
--------- --------- --------- ----------
Diluted net income (loss) per share $ (0.52) $ 0.48 $ (1.31) $ 0.84
========= ========= ========= ==========
Shares used in the per share calculation:
Basic 35,286 32,308 35,147 32,235
========= ========= ========= ==========
Diluted 35,286 34,840 35,147 35,109
========= ========= ========= ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
Six Months Ended
September 30,
------------------------------
2001 2000
------------ -----------
Cash flows from operating activities:
Net income (loss) $ (45,895) $ 29,464
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting principle, net of tax benefit - 2,506
Depreciation and amortization 14,166 6,909
Shares awarded to Board of Directors and employees 58 157
Change in provision for doubtful accounts 323 606
Write-down of land held for sale 15,000 -
Tax benefit realized from activity in employee stock option plans - 4,616
In-process research and development costs of acquired business 2,000 -
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 28,533 (24,835)
Inventories 12,821 (24,535)
Deferred tax asset (24,471) 6,099
Prepaid expenses and other current assets 3,452 79
Other assets (1,849) (3,160)
Accounts payable (11,626) 9,255
Accrued liabilities and other 843 11,318
Deferred revenue 3,349 2,110
------------ -----------
Net cash provided by (used in) operating activities (3,296) 20,589
------------ -----------
Cash flows from investing activities:
Purchase of short-term investments (18,077) (57,500)
Sale or maturity of short-term investments 3,000 86,056
Purchase of restricted cash equivalents and short-term investments (53,431) -
Sale or maturity of restricted cash equivalents and short-term investments 61,950 -
Purchase of property and equipment, net (7,491) (7,565)
Net cash used in acquisitions (3,772) (3,095)
------------ -----------
Net cash provided by (used in) investing activities (17,821) 17,896
------------ -----------
Cash flows from financing activities:
Payments on short-term loans (8,016) 2,541
Proceeds from the issuance of long-term debt and finance leases 88,068 -
Net principal payments on short-term and long-term debt and finance leases (1,057) (5,131)
Issuance of common stock 2,073 3,099
------------ -----------
Net cash provided by financing activities 81,068 509
------------ -----------
Increase in cash and cash equivalents 59,951 38,994
Cash and cash equivalents, beginning of period 34,749 12,638
------------ -----------
Cash and cash equivalents, end of period $ 94,700 $ 51,632
============ ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ORGANIZATION OF THE COMPANY:
The accompanying condensed consolidated financial statements include
the accounts of Asyst Technologies, Inc., or the "Company" which was
incorporated in California on May 31, 1984, and its subsidiaries. The Company
designs, develops, manufactures and markets isolation systems, work-in-process
materials management, substrate-handling robotics, automated transport and
loading systems, and connectivity automation software utilized primarily in
clean rooms for semiconductor manufacturing.
In June, 1999, the Company acquired Progressive Systems Technologies,
Inc., a Texas corporation, or "PST", in a transaction accounted for as a
pooling-of-interests.
In August 1999, the Company acquired 100 percent of the common stock of
Palo Alto Technologies, Inc., a California corporation, or "PAT", in a
transaction accounted for using the purchase method of accounting.
In transactions occurring between October 1999 and May 2001 the Company
acquired a total of 95.8 percent of the common stock of MECS Corporation, a
Japanese company, or "MECS". The acquisition was accounted for using the
purchase method of accounting in March 2000 when a majority interest of MECS was
obtained.
In February 2001, the Company acquired Advanced Machine Programming,
Inc., a California corporation, or "AMP", and SemiFab Inc., a California
corporation, or "SemiFab". Both transactions, which were unrelated, were
accounted for using the purchase method of accounting.
In May 2001, the Company acquired GW Associates, Inc., a California
corporation, or "GW", in a transaction accounted for using the purchase method
of accounting.
SIGNIFICANT ACCOUNTING POLICIES:
Basis of Preparation
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. All significant intercompany accounts and
transactions have been eliminated. Certain prior year amounts in the condensed
consolidated financial statements and the notes thereto have been reclassified
where necessary to conform to the quarter ended September 30, 2001. 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 Form 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, 2001
included in its Annual Report on Form 10-K, as amended.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
6
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less from the date of purchase to be cash
equivalents. The carrying value of the cash equivalents approximates their
current fair market value.
Short-term Investments
As of September 30, 2001 and 2000, the Company's short-term investments
consist of liquid debt investments with maturities, at the time of purchase,
greater than three months and less than one year. All such investments have been
classified as "available-for-sale" and are carried at fair value. Unrealized
holding gains and losses, net of taxes reported, have not been material to date
and are reported as a separate component of shareholders' equity. The cost of
the debt securities are 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 consolidated
statements of operations. There have been no declines in value that are
considered to be other than temporary for either of the three or six month
periods ended September 31, 2001 or 2000. The cost of investments sold is based
on specific identification. The Company does not intend to hold the individual
securities for greater than one year.
Short-term investments by security type are as follows (dollars in
thousands):
September 30, March 31,
2001 2001
----------------- ---------------
(Unaudited)
U.S. corporate debt securities ............................. $ 11,113 $ 3,000
Debt securities issued by States of the United States and
political subdivisions of the states ...................... 6,964 -
----------------- ---------------
Total ............................................... $ 18,077 $ 3,000
================= ===============
Restricted Cash Equivalents and Restricted Short-term Investments
Restricted cash equivalents and restricted short-term investments
represent amounts that are restricted as to their use in accordance with a lease
agreement for land in Fremont, California (see SUBSEQUENT EVENTS). Restricted
short-term investments by security type are as follows (dollars in thousands):
September 30, March 31,
2001 2001
----------------- ---------------
(Unaudited)
U.S. corporate debt securities ............................. $ 2,636 $ 21,100
Debt securities issued by States of the United States and
political subdivisions of the states ...................... 1,000 15,250
----------------- ---------------
Total ............................................... $ 3,636 $ 36,350
================= ===============
Supplemental Statements of Cash Flows Disclosure
Cash paid (received) for interest and domestic and foreign income taxes
are as follows (unaudited; dollars in thousands):
Six Months Ended
September 30,
--------------------------------
2001 2000
-------------- ------------
Interest ...................................................... $ 1,139 $ 279
Income taxes .................................................. $ (2,610) $ 2,710
7
The Company's significant non-cash investing and financing activities
are as follows (see SUBSEQUENT EVENTS), (unaudited; dollars in thousands):
Six Months Ended
September 30,
--------------------------------------
2001 2000
----------------- ---------------
Commitment to purchase land .............................. $ 41,121 $ -
================= ===============
Inventories
Inventories are stated at the lower of cost (first in, first out) or
market and include materials, labor and manufacturing overhead costs.
Provisions, when required, are made to reduce excess and obsolete inventories to
their estimated net realizable values. Inventories consist of the following
(dollars in thousands):
September 30, March 31,
2001 2001
----------------- ---------------
(Unaudited)
Raw materials ............................................ $ 36,989 $ 50,490
Work-in-process and finished goods ....................... 27,367 26,482
----------------- ---------------
Total ............................................. $ 64,356 $ 76,972
================= ===============
Intangible Assets and Other Assets, net
Intangible assets and other assets, net, consist of the following
(dollars in thousands):
September 30, March 31,
2001 2001
----------------- ---------------
(Unaudited)
Intangible assets, net ................................... $ 101,619 $ 79,264
Land held for sale ....................................... 26,121 -
Other assets ............................................. 3,938 8,042
----------------- ---------------
Total ............................................. $ 131,678 $ 87,306
================= ===============
The realizability of intangible assets, which are included in
intangible assets and 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. These analyses require significant judgements and
estimates related to the future demand for our products. To the extent actual
market conditions differ significantly from management's estimates, the
estimated carrying value of our long-lived assets could change which may result
in a future impairment charge and such charge, if any, may be material.
In May 2001, the Company entered into a commitment to purchase land in
Fremont, California for $41.1 million by December 31, 2001 when it amended a
lease agreement with a syndicate of financial institutions. Subsequently the
Company has decided not to construct buildings on the land and is actively
marketing the land. The Company recorded this commitment as a short-term loan
and the associated asset as land held for sale, which is included in intangible
assets and other assets, net, in the accompanying condensed consolidated balance
sheet, as of September 30, 2001 (see SHORT-TERM LOANS and SUBSEQUENT EVENTS).
Based upon market data, the Company estimates that the current market value of
the land has been impaired and as such recorded a $15.0 million write-down to
the estimated market value during the quarter ended June 30, 2001.
8
Revenue Recognition
The Company changed its revenue recognition policy effective April 1,
2000, based on guidance provided in Securities and Exchange Commission Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred or service has been rendered, the
seller's price is fixed or determinable and collectability is reasonably
assured. Some of the Company's products are large volume consumables that are
tested to industry and/or customer acceptance criteria prior to shipment.
Revenue for these types of products is recognized at shipment. Certain of the
Company's product sales are accounted for as multiple-element arrangements. If
the Company has met defined customer acceptance experience levels with both the
customer and the specific type of equipment, the Company recognizes the product
revenue at the time of shipment and transfer of title, with the remainder when
the other elements, primarily installation, have been completed. Other products
of the Company are highly customized systems that cannot be completed or
adequately tested to customer specifications prior to shipment from the factory.
The Company does not recognize revenue for these products until formal
acceptance by the customer. Revenue for spare parts sales is recognized on
shipment. Revenue related to maintenance and service contracts is recognized
ratably over the duration of the contracts. Unearned maintenance and service
contract revenue is not significant and is included in accrued liabilities and
other.
During the six months ended, September 30, 2000, the Company recorded a
non-cash charge of $2.5 million, net of an income tax benefit of $1.3 million or
a loss of $0.07 per diluted share, to reflect the cumulative effect of the
change in accounting principle, as of the beginning of the fiscal year, in
accordance with the guidance provided in SAB 101. As a result, certain amounts
for the three months and six months ended September 30, 2000 have been restated
to reflect the adoption of SAB 101 for comparative purposes.
Prior to the year ended March 31, 2001, the Company's revenue
recognition policy was to recognize revenue at the time the customer takes title
to the product, generally at the time of shipment. Revenue related to
maintenance and service contracts was recognized ratably over the duration of
the contracts.
The Company accounts for software revenue in accordance with the
American Institute of Certified Public Accountants' Statement of Position 97-2,
"Software Revenue Recognition." Revenues for integration software work are
recognized on a percentage of completion. Software license revenue, which is not
material to the consolidated financial statements, is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the sellers fee is
fixed or determinable, collectibility is probable and the Company has fulfilled
all of its material contractual obligations to the customer.
Provision for Income Taxes
The Company recorded a benefit for income taxes of $21.5 million,
representing an annual effective income tax rate of 32 percent for the six month
period ended September 30, 2001. The Company recorded a provision for income
taxes of $17.1 million, representing an annual effective income tax rate of 34.8
percent for the six month period ended September 30, 2000. The provision
(benefit) for income taxes is attributable to federal, state and foreign taxes.
The annual effective income tax rate for the six month period ended September
30, 2001 reflects the benefits of tax free interest income and research and
development tax credits. Conversely, the annual effective income tax rate for
the six month period ended September 30, 2001 has been adversely affected by
non-deductible charges of $7.1 million and $2.0 million related to amortization
of certain intangible assets and in-process research and development,
respectively.
The Company has recorded a net deferred tax asset of approximately
$41.9 million, of which $15.2 million relates to net operating losses generated
in the current year. The Company can recognize approximately $3.2 million of the
deferred tax asset by carrying back the net operating loss and receiving a
refund of prior taxes paid. Realization of the remaining deferred tax asset is
dependent on generating sufficient future taxable income. Although realization
is not assured, management believes that it is more likely than not that the
deferred tax asset will be realized.
9
Earnings Per Share
Earnings per share has been reported based upon Statement of Financial
Accounting Standard ("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. For the
quarter ended September 30, 2001, the number of shares used in the computation
of diluted earnings (loss) per share was the same as the number used for the
computation of basic earnings (loss) per share. The Company did not include
potentially dilutive securities of 1,678,759 for the quarter ended September 30,
2001 in the computation of diluted earnings (loss) per common share because to
do so would be anti-dilutive.
The following table sets forth the calculation of basic and diluted
earnings per share (unaudited; in thousands, except per share amounts):
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------- ----------- ------------
Basic earnings (loss) per share:
Net income (loss) $ (18,341) $ 16,581 $ (45,895) $ 29,464
------------ ------------- ----------- ------------
Weighted average common shares 35,286 32,308 35,147 32,235
------------ ------------- ----------- ------------
Basic earnings (loss) per share $ (0.52) $ 0.51 $ (1.31) $ 0.91
============ ============= =========== ============
Diluted earnings (loss) per share:
Net income (loss) $ (18,341) $ 16,581 $ (45,895) $ 29,464
------------ ------------- ----------- ------------
Weighted average common shares 35,286 32,308 35,147 32,235
Weighted average common share equivalents:
Options - 2,532 - 2,874
------------ ------------- ----------- ------------
Diluted weighted average common shares 35,286 34,840 35,147 35,109
------------ ------------- ----------- ------------
Diluted earnings (loss) per share $ (0.52) $ 0.48 $ (1.31) $ 0.84
============ ============= =========== ============
Comprehensive Income
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 transactions or events during the periods, which are material
to the condensed consolidated financial statements. Therefore comprehensive
income (loss) is the same as the net income (loss) reported in the condensed
consolidated financial statements.
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets". SFAS No. 144 addresses financial accounting and reporting for the
long-lived assets to be held and used, and disposed of. The statement will be
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The Company has not yet determined the effect SFAS No. 144
will have on its financial position or results of operations.
On June 29, 2001, the FASB, approved for issuance SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Intangible Assets".
Major provisions of these statements are as follows: all business combinations
initiated after June 30, 2001 must use the purchase method of accounting; the
pooling of interest method of accounting is prohibited except for transactions
initiated before July 1, 2001; intangible assets acquired in a business
combination must be recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the acquired entity and
can be sold, transferred, licensed, rented or exchanged, either individually or
as part of a related contract, asset or liability; goodwill and intangible
assets with indefinite lives
10
are not amortized but are tested for impairment annually using a fair value
approach, except in certain circumstances, and whenever there is an impairment
indicator; other intangible assets will continue to be valued and amortized over
their estimated lives; in-process research and development will continue to be
written off immediately; all acquired goodwill must be assigned to reporting
units for purposes of impairment testing and segment reporting; effective April
1, 2002, existing goodwill will no longer be subject to amortization. Goodwill
arising between July 1, 2001 and March 31, 2002 will not be subject to
amortization. Upon adoption of SFAS No. 142, on April 1, 2002, the Company will
no longer amortize goodwill, thereby eliminating annual goodwill amortization of
approximately $7.8 million, based on anticipated amortization for fiscal year
2002. Amortization of goodwill for the three months ended September 30, 2001 was
$2.2 million.
On April 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 requires that all
derivatives be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives that do not qualify, or are not effective as hedges must be
recognized currently in earnings. The Company sells products internationally in
U.S. dollars and Japanese yen and holds various non-functional currency
intercompany balances. These monetary balances expose the Company to foreign
currency risk and are hedged with foreign currency forward contracts that expire
within 12 months. The Company employs these derivatives to reduce selected
foreign currency risks that can be confidently identified and quantified. Hedges
of non-functional currency assets and liabilities are not SFAS 133 designated
hedges, and thus changes in fair value are recognized immediately in earnings.
The adoption of SFAS 133 did not have a material impact on the Company's
financial position or results of operations.
In March 2000, the FASB issued Financial Interpretation No. 44,
("FIN 44"), Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25. FIN 44 addresses the application of APB
No. 25 to clarify, among other issues: (a) the definition of employee for
purposes of applying APB No. 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The Company's adoption of FIN 44 did not have a material impact on
the Company's financial position or results of operations.
REPORTABLE SEGMENTS:
The Company offers a family of products and related services to provide
integrated automation systems for wafer handling in semiconductor manufacturing
facilities. All of the Company's activities are aggregated into a single
operating segment.
Net sales by geography were as follows (unaudited; dollars in millions):
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ----------- ------------ ------------
United States......... $ 20.6 $ 45.2 $ 52.9 $ 91.3
Taiwan................ 3.4 26.4 13.0 59.3
Japan................. 12.6 24.8 29.4 42.0
Other Asia/Pacific.... 6.7 17.9 9.7 36.8
Europe................ 7.7 11.7 13.3 19.1
------------ ----------- ------------ ------------
Total...... $ 51.0 $ 126.0 $ 118.3 $ 248.5
============ =========== ============ ============
11
Net sales by our product divisions were as follows (unaudited; dollars in
millions):
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------- ----------------------------
2001 2000 2001 2000
------------ ---------- ----------- ------------
Tool Based Solutions ................... $ 32.2 $ 99.6 $ 76.3 $ 196.9
Factory Connectivity Solutions ......... 4.8 12.1 12.5 23.1
Wafer and Reticle Carriers ............. 7.4 10.3 19.5 18.6
Services & other ....................... 6.6 4.0 10.0 9.9
------------ ---------- ----------- ------------
Total ................... $ 51.0 $ 126.0 $ 118.3 $ 248.5
============ ========== =========== ============
NON-RECURRING CHARGES:
The Company incurred non-recurring charges of $1.5 million during the
three months ended September 30, 2001 consisting of $0.5 million in write-down
of assets related to the closure of facilities and severance costs of
approximately $1.0 million. The Company incurred non-recurring charges of $18.7
million for the three months ended June 30, 2001 consisting of $15.0 million
impairment of the market value of land held for sale, the impairment of
approximately $2.9 million of engineering costs related to that land and
additional severance costs of approximately $0.8 million. The land held for sale
is land that the Company agreed to acquire when it amended a lease agreement for
land and buildings in Fremont, California with a syndicate of financial
institutions. Under that agreement the Company is obligated to purchase the land
for a purchase price of $41.1 million on or before December 31, 2001. However,
the Company decided not to construct buildings on the land and has begun to
actively market the land. Based upon market data, the Company estimated that the
current market value of the land had been impaired and as such in the quarter
ended June 30, 2001 recorded a $15.0 million write-down to its estimated market
value. The Company also agreed to pay the syndicate of financial institutions
for engineering costs of approximately $2.9 million incurred in preparation for
making leasehold improvements to the land. In addition, due to a continuing
decline in revenues, in September 2001 and in April 2001 the Company reduced its
workforce by approximately 10 percent and 11 percent, respectively, to lower
operating costs. The Company incurred approximately $1.0 million and $0.8
million in September 2001, and April 2001, respectively, of severance costs
in connection with these workforce reductions.
SHORT-TERM LOANS:
The Company had short-term debt from banks in Japan of Japanese Yen
2,547 million ($20.8 million) and Japanese Yen 3,608 million ($28.8 million) at
September 30, 2001 and March 31, 2001, respectively. As of September 30, 2001,
the interest rate ranged from 1.4 percent to 1.9 percent, and as of March 31,
2001, the interest rates ranged from 1.4 percent to 2.0 percent.
In May 2001, the Company entered into a commitment to purchase land in
Fremont, California for $41.1 million by December 31, 2001 when it amended a
lease agreement with a syndicate of financial institutions. The Company recorded
this commitment as a short-term loan at June 30, 2001. At September 30, 2001,
this commitment bore interest at 4.5 percent. (see SIGNIFICANT ACCOUNTING
POLICIES (Intangible Assets and Other Assets) and SUBSEQUENT EVENTS.)
LONG-TERM DEBT:
On July 3, 2001 the Company completed the sale of $86.3 million 5 3/4
percent convertible subordinated notes which resulted in aggregate proceeds of
$82.9 million to the Company net of issuance costs. The notes are convertible,
at the option of the holder, at any time on or prior to maturity into shares of
the Company's common stock at a conversion price of $15.18 per share, which is
equal to a conversion rate of 65.8718 shares per $1,000 principal amount of
notes. The notes mature July 3, 2008, pay interest on January 3 and July 3 of
each year and are redeemable at the Company's option after July 3, 2004. The
Company has additional long-term debt and finance leases totaling $6.2 million.
12
ACQUISITION OF GW ASSOCIATES, INC.
On May 22, 2001 the Company acquired GW, a developer of factory integration
software used by electronics manufacturers, for $3.6 million of cash, 451,263
shares of the Company's common stock valued at $8.0 million and a note payable
of $16.0 million payable in May 2002 in a combination of cash and the Company's
common stock. The note payable is included in accrued liabilities and other in
the accompanying condensed consolidated balance sheet. The acquisition was
accounted for using the purchase method of accounting. Accordingly the results
of GW have been combined with those of the Company's since the date of
acquisition. Approximately $26.5 million of the purchase price, in excess of the
net assets of $4.5 million acquired, was allocated to intangible assets. These
intangible assets consist of in-process research and development, developed
technology, installed customer base, assembled workforce, trade name, and the
excess purchase price over the net assets acquired. Because there can be no
assurance that the Company will be able to successfully complete the associated
products or that the technology has any alternative future use, $2.0 million of
such in-process research and development was charged as an expense during the
quarter ended June 30, 2001. The remaining intangible assets are being amortized
over three to six years. Management believes that the unamortized balance of
these assets totaling $23.6 million at September 30, 2001, which is included in
intangible and other assets, net, in the accompanying condensed consolidated
balance sheets, is recoverable.
Comparative pro forma information reflecting the acquisition of GW has not
been presented because the operations of GW were not material to the Company's
financial statements.
RELATED PARTY TRANSACTIONS:
At September 30, 2001, the Company held two notes receivable from an
executive officer totaling $0.8 million and four separate notes receivable from
other employees totaling $0.9 million. In addition, the Company held one note
receivable from a former employee totaling $0.1 million. At September 30, 2000,
the Company held two notes receivable from an executive officer totaling $0.8
million and two separate notes receivable from two other employees totaling $0.4
million. Loans were extended to these individuals in connection with their
transfer to a new location. Each of the notes receivable are secured by second
deeds of trust on real property and pledged securities of the Company owned by
the employees. At September 30, 2001, the Company also had a liability of $0.2
million, net, payable to an employee.
SUBSEQUENT EVENTS:
On October 22, 2001, the Company completed the purchase of land in Fremont
California for $41.1 million from a syndicate of financial institutions. The
Company had previously leased the land but in May, 2001 entered into a
commitment to purchase the land by December 31, 2001. The Company is actively
marketing the land for sale. (see SIGNIFICANT ACCOUNTING POLICIES).
LEGAL PROCEEDINGS:
In October 1996, the Company filed a lawsuit in the United States District
Court for the Northern District of California against Jenoptik A.G., or
(Jenoptik), Jenoptik-Infab, Inc., or (Infab), Emtrak, Inc., or (Emtrak) and
Empak, Inc., or (Empak) alleging infringement of two patents related to the
Company's SMART Traveler System. The Company amended its Complaint in April 1997
to allege causes of action for breach of fiduciary duty against Jenoptik and
Meissner & Wurst, GmbH, and misappropriation of trade secrets and unfair
business practices against all defendants. The Complaint seeks damages and
injunctive relief against further infringement. All defendants filed counter
claims, seeking a judgment declaring the patents invalid, unenforceable and not
infringed. Jenoptik, Infab, and Emtrak also alleged that the Company violated
federal antitrust laws and engaged in unfair competition. The Company denied
these allegations. In May 1998, the Company along with Empak stipulated to a
dismissal, without prejudice, of the respective claims and counter claims
against each other. In November 1998, the court granted defendants' motion for
partial summary judgment as to most of the patent infringement claims and
invited further briefing as to the remainder. In January 1999, the court granted
the Company's motion for leave to seek reconsideration of the November 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, and the court has ordered,
the dismissal with prejudice of the defendants' unfair competition and remaining
antitrust counterclaim, and the Company's breach of fiduciary duty,
misappropriation of trade secrets and
13
unfair business practices claims. On June 4, 1999, the court issued an order by
which it granted a motion for reconsideration in the sense that it considered
the merits of the Company's arguments, but decided that it would not change its
prior ruling on summary judgment and would also grant summary judgment for
defendants on the remaining patent infringement claim. The Company appealed and
the trial date has since been vacated. On October 10, 2001, the appellate court
reversed the district court's decision to grant defendants' motion for summary
judgement and remanded the case back to the district court. A scheduling hearing
has been set for December 17, 2001.
14
Item 2 - Management's Discussion and Analysis of Results of Financial Condition
and Results of Operations
Forward Looking Statements
Except for the historical information contained herein, the following
discussion includes forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934 that involve risks and uncertainties. We intend such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and we are including this statement for purposes of complying with these safe
harbor provisions. We have based these forward-looking statements on our current
expectations and projections about future events. The Company's actual results
could differ materially. These forward-looking statements are not guarantees of
future performance and are subject to risks, uncertainties and assumptions,
including those set forth in this section as well as those under the caption,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Words such as "expect," "anticipate," "intend," "plan," "believe,"
"estimate" and variations of such words and similar expressions are intended to
identify such forward-looking statements. 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, as amended. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. In light of these
risks, uncertainties and assumptions, the forward-looking events discussed in
this document and in our Annual Report on Form 10-K, as amended, might not
occur. The following discussion of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and the related notes included elsewhere in this report
Overview
We are a leading provider of integrated automation systems for the
semiconductor manufacturing industry. We sell our systems directly to
semiconductor manufacturers, as well as to Original Equipment Manufacturers, or
OEMs, that integrate our systems with their equipment for sale to semiconductor
manufacturers. Our sales are tied to the capital expenditures of semiconductor
manufacturers and as such are cyclical in nature. Fiscal year 2001 and the first
six months of fiscal year 2002 have demonstrated the cyclical nature of our
business, as discussed below.
We use a dedicated direct sales force worldwide, which is supported by
distributors in Europe. Our functional currency is the U.S. dollar, except in
Japan where our functional currency is the Japanese yen. To date, the impact of
currency translation gains or losses has not been material to our sales or
results of operations.
During fiscal year 1999, we experienced a downturn in our business in
response to a dramatic slowdown in the Asian economies and an over capacity of
memory chip manufacturing. In fiscal year 2000, we experienced significant
growth due to the dramatic growth in capital spending by semiconductor
manufacturers. The increase in capital spending was driven by the growth in
demand for both memory and logic chips in a broad variety of products,
particularly those of internet and telecommunications equipment manufacturers.
In the first half of fiscal year 2001, the demand for our products remained
strong, but in the second half of fiscal year 2001, the demand for our products
decreased significantly as semiconductor manufacturers sharply reduced capital
expenditures. This decrease in capital expenditures resulted in a sharp
reduction in bookings and significant order push outs and cancellations in the
fourth quarter of fiscal year 2001 and in the first six months of fiscal year
2002. We have limited visibility into net sales in future quarters and with the
80 percent drop in revenues from the peak of the cycle last year in the
semiconductor equipment supplier market, we do not know if the bottom of the
downturn is near or when an upturn might occur. The causal factors of the
downturn have been further exacerbated by the September 11, 2001 attacks, making
it very difficult to predict the timing of an economic recovery that will drive
demand for semiconductor devices.
In addition to the impact of the downturn on the demand for our products,
we are seeing a shift from 200mm to 300mm products. In fiscal year 2001, the
contribution of 300mm products increased from approximately 4 percent of our net
sales in the first quarter of fiscal year 2001 to approximately 14 percent of
our net sales for the fourth quarter of fiscal year 2001. For the first six
months of fiscal year 2002, 300mm products contributed
15
approximately 33 percent of our net sales. These products generate lower gross
margin than our 200mm products largely because the 300mm products are early in
their product life cycle and we are facing more competitors for this market
segment.
The majority of our revenues in any single quarter are typically derived
from a 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 and acceptance;
. 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;
. pressure from competitors; and
. general trends in the semiconductor industry, electronics industry and
overall 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.
Acquisitions
During the fiscal year ended March 31, 2001 and the quarter ended June 30,
2001, we acquired the following companies:
In March 2000, we acquired a 78.6 percent ownership interest of MECS, a
Japanese engineering and robotics manufacturing company, and in transactions
occurring between March 2000 and May 2001 increased our ownership interest to
95.8 percent. In October 2000, we merged the company into Asyst Japan, Inc., or
AJI. The transactions were accounted for using the purchase method of
accounting.
In February 2001, we acquired Advanced Machine Programming, Inc., or AMP, a
California corporation, a manufacturer of precision parts. The transaction was
accounted for using the purchase method of accounting.
In February 2001, we acquired SemiFab, Inc., or SemiFab, a California
corporation, a manufacturer of environmental control equipment and a contract
manufacturer. The transaction was accounted for using the purchase method of
accounting.
In May 2001, we acquired GW Associates, Inc., or GW, a California
corporation, a developer of factory integration software used by electronics
manufacturers. The transaction was accounted for using the purchase method of
accounting.
The results of operations for the three and six month periods ended
September 30, 2001, include the revenues and expenses of AMP and SemiFab for the
entire period and GW from its date of acquisition. However, the results of
operations for the three and six month periods ended September 30, 2000 do not
include the revenues or expenses of AMP, SemiFab or GW.
16
Three and Six Months Ended September 30, 2001 and 2000
The following table sets forth the percentage of net sales represented by
condensed consolidated statements of operations data for the periods indicated:
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------- -------------------------
2001 2000 2001 2000
------------- ------------ ------------ -----------
Net sales 100 % 100 % 100 % 100 %
Cost of sales 76 53 75 54
------------- ------------ ------------ -----------
Gross profit 24 47 25 46
Operating expenses:
Research and development 20 9 18 8
Selling, general and administration 42 18 37 18
Amortization of acquired intangible assets 9 1 7 1
Non-recurring charges 3 - 17 -
In-process research and development costs of
acquired business - - 2 -
------------- ------------ ------------ -----------
Total operating expenses 74 28 81 27
------------- ------------ ------------ -----------
Operating income (loss) (50) 19 (56) 19
Other income (expense), net (1) 1 (1) 1
------------- ------------ ------------ -----------
Income (loss) before provision (benefit) for income
taxes and cumulative effect of change in accounting
principle (51) 20 (57) 20
Provision (benefit) for income taxes (15) 7 (18) 7
------------- ------------ ------------ -----------
Income (loss) before effect of change in accounting
principle (36) 13 (39) 13
Cumulative effect of change in accounting principle,
net of tax benefit - - - (1)
------------- ------------ ------------ -----------
Net income (loss) (36)% 13% (39)% 12%
============= ============ ============ ===========
Results of Operations
Net Sales. Net sales decreased 60 percent from $126.0 million for the
quarter ended September 30, 2000, to $51.0 million for the quarter ended
September 30, 2001. Net sales for the six months ended September 30, 2001 were
$118.3 million compared to net sales of $248.5 million for the six months ended
September 30, 2000, or a decrease of 52 percent.
Capital spending by the semiconductor manufacturers, as measured by our net
sales, was near its peak levels during the quarter ended September 30, 2000. We
experienced a significant slowdown in new orders during the third and fourth
quarters of our fiscal year ended March 31, 2001. In the fourth quarter of
fiscal year 2001, our net sales declined 10 percent from the third quarter. Net
sales in the first quarter of fiscal year 2002 declined 42 percent from net
sales in the fourth quarter of fiscal year 2001 and declined 24 percent in the
second quarter of fiscal year 2002 from net sales of the first quarter of fiscal
year 2002. These declines resulted from reductions in capital spending by
semiconductor manufacturers worldwide, as discussed in the overview. We
currently expect a further decline in our net sales to $35 to $40 million for
the third quarter of fiscal year 2002.
17
Our international sales, including local revenues recorded at our
foreign locations, were as follows (unaudited; dollars in millions):
Six Months Ended Six Months Ended
September 30, 2001 September 30, 2000
----------------------------------- ----------------------------------
Percentage Percentage
of of
Geographic Region Net Sales Net Sales Net Sales Net Sales
----------------------- ---------------- ---------------- --------------- ---------------
Taiwan ........................................... $ 13.0 11% $ 59.3 24%
Japan ............................................ 29.4 25 42.0 17
Other Asia/Pacific ............................... 9.7 8 36.8 15
Europe ........................................... 13.3 11 19.1 7
---------------- ---------------- --------------- ---------------
Total .............................. $ 65.4 55% $ 157.2 63%
================ ================ =============== ===============
Our international sales decreased as a percent of our total sales from
63 percent for the six months ended September 30, 2000 to 55 percent for the six
months ended September 30, 2001 for two primary reasons. First, our
semiconductor manufacturing customers in the Asia Pacific regions have not added
any new 200mm manufacturing capacity except for one new facility in the People's
Republic of China. Secondly, semiconductor manufacturers are directing their
capital spending largely to 300mm projects. The semiconductor manufacturers are
demonstrating a propensity to purchase our 300mm products through OEMs as an
integrated solution. The majority of OEMs are in the United States and Japan and
to a lesser extent in Europe.
We currently have a single reportable segment. The net sales by our
product divisions were as follows (unaudited; dollars in millions):
Three Months Ended Six Months Ended
September 30, September 30,
----------------------------- -----------------------------
Product Divisions 2001 2000 2001 2000
---------------------------- ------------- ------------- ------------ -------------
Tool Based Solutions ........................... $ 32.2 $ 99.6 $ 76.3 $ 196.9
Factory Connectivity Solutions ................. 4.8 12.1 12.5 23.1
Wafer and Reticle Carriers ..................... 7.4 10.3 19.5 18.6
Services & other ............................... 6.6 4.0 10.0 9.9
------------- ------------- ------------ -------------
Total ........................... $ 51.0 $ 126.0 $ 118.3 $ 248.5
============= ============= ============ =============
Net sales of Tool Based Solutions and Factory Connectivity Solutions
have declined in both dollars and a percent, of net sales during the three and
six month periods ended September 30, 2001, compared to the same periods in our
prior fiscal year. The products in these divisions are generally capital
equipment purchases by our customers and are used by them to expand
semiconductor manufacturing capacity. Wafer and Reticle Carriers, which are
generally consumable type products, and service net sales have grown in both
dollar level and as a percent of our net sales during the six months ended
September 30, 2001 compared to the same period in the prior year. The same trend
exists for the three month period ended September 30, 2001, except Wafer and
Reticle Carriers net sales which declined in dollars compared to net sales for
the three months ended September 30, 2000, indicating a slowdown in
semiconductor manufacturers' production activities.
Gross Margin. Gross margin decreased from 47 percent of net sales for
the three months ended September 30, 2000, to 24 percent of net sales for the
three months ended September 30, 2001. Gross margin decreased from 46 percent
for the six months ended September 30, 2000 to 25 percent for the six months
ended September 30, 2001. The decline in gross margins for the three and six
month periods was due to the significant drop in net sales, as discussed above,
resulting in lower production levels and the increase in product mix of lower
margin 300mm products. Reduced production levels result in less manufacturing
overhead being absorbed. While we have taken actions to reduce manufacturing
overhead we have not been able to reduce it to the extent that our sales have
declined. Many of the costs included in manufacturing overhead are fixed costs.
Until our net sales increase to higher levels our gross margin will be
negatively impacted by unabsorbed manufacturing overhead costs.
18
In the three months ended September 30, 2000, 300mm products
contributed only 5 percent of our net sales compared to 37 percent of net sales
for the three months ended September 30, 2001. In the six months ended September
30, 2000, 300mm products contributed only 4 percent of our net sales compared to
33 percent of net sales for the six months ended September 30, 2001. The
increase in the mix of 300mm products, which are very early in their product
life cycle and currently have low margins in comparison to our 200mm products,
negatively impacted our gross margin. We have enacted cost reduction initiatives
related to our 300mm products and expect gross margin for these products will
improve. However, because of the anticipated size of the emerging 300mm product
market, we face strong competition on price and features for these products from
existing and new competitors.
Given the projected decline in net sales for the three months ended
December 31, 2001, we expect further deterioration in gross margin but we
believe that our gross margin will remain above 20 percent. We also continue to
monitor on-hand raw material inventory levels against demand. Given the extreme
drop in demand over the last several quarters and the lack of visibility for an
increase in our booking activity, we may need to increase our inventory reserves
for excess and obsolete inventory in future quarters. Our gross margin will
continue to be impacted by future changes in product mix, net sales volumes and
market competition.
Research and Development. Research and development expenses decreased 5
percent from $10.9 million for the three months ended September 30, 2000, to
$10.3 million for the three months ended September 30, 2001. Research and
development expenses increased 5 percent from $20.6 million for the six months
ended September 30, 2000 to $21.6 million for the six months ended September 30,
2001. Research and development expenses increased as a percentage of net sales
from 8 percent for the three months ended September 30, 2000 to 20 percent for
the three months ended September 30, 2001. Research and development expenses
increased as a percentage of net sales from 8 percent for the six months ended
September 30, 2000 to 18 percent for the six months ended September 30, 2001.
The decrease in spending on research and development on a comparative basis for
the three and six month periods resulted because of actions we took to lower
such spending, primarily headcount reductions, in response to the drop in our
net sales. Our research and development expenses vary as a percentage of net
sales because we do not manage these expenditures strictly to variations in our
level of net sales. We expect that our research and development expenses may
decrease in future periods as we adjust our spending to the lower net sales that
we are anticipating. However, we may not decrease spending at the rate of
decline in our net sales.
Selling, General and Administrative. Selling, general and
administrative expenses decreased $1.6 million or 7 percent from $23.0 million
for the three months ended September 30, 2000, to $21.4 million for the three
months ended September 30, 2001. Selling, general and administrative expenses
increased less than $0.1 million from $44.4 million to $44.5 million for the six
months ended September 30, 2001. We reduced selling, general and administrative
headcount in each of the last three quarters in response to lower net sales. We
expect that we may need to make further headcount reductions in response to
anticipated lower net sales. We have also implemented several targeted cost
reduction initiatives to lower our selling, general and administrative expenses
through process improvement and supplier cost reductions. However, we may not
achieve these cost reductions or process improvements. Selling, general and
administrative expenses increased as a percentage of net sales from 18 percent
for the three months ended September 30, 2000 to 42 percent for the three months
ended September 30, 2001. Selling, general and administrative expenses increased
as a percentage of net sales from 18 percent for the six months ended September
30, 2000 to 37 percent for the six months ended September 30, 2001. These
increases of selling, general and administrative expenses as a percent of net
sales in the three and six month periods have resulted because we have not been
able to reduce these expenses at the rate of decline in our net sales. We expect
that our selling, general and administrative expenses will decrease in future
periods as we adjust spending to the lower net sales that we are anticipating.
However, the decreased spending may not be at the same rate of decline in our
net sales.
Non-recurring Charges. We incurred non-recurring charges of $20.2
million during the six months ended September 30, 2001. These charges consisted
of a $15.0 million impairment of the market value of land held for sale, the
impairment of approximately $2.9 million of engineering costs related to that
land and severance costs of approximately $0.8 million incurred during the three
months ended June 30, 2001. During the three months ended September 30, 2001, we
incurred $1.0 million of additional severance costs and $0.5 million of
write-down of assets related to closure of facilities. The land held for sale is
land that we agreed to acquire when we amended a lease agreement for land and
buildings in Fremont, California with a syndicate of financial institutions.
Under that agreement we were obligated to purchase the land for a purchase price
of $41.1 million on or before December 31,
19
2001. To reduce our borrowing costs, we completed the acquisition of the land on
October 22, 2001. We also agreed to pay the syndicate of financial institutions
for engineering costs of approximately $2.9 million incurred in preparation for
making leasehold improvements to the land. We have decided not to construct
buildings on the land and are actively marketing the land. Based upon market
data we estimate that the current market value of the land has been impaired and
as such recorded a $15.0 million write-down to estimated market value in the
quarter ended June 30, 2001. We have reduced our workforce in April 2001, by
approximately 11 percent and again in September 2001, by approximately 10
percent, to lower operating costs and incurred approximately $1.8 million of
severance costs in connection with these reductions. We also have written-down
assets abandoned or impaired as a result of consolidating or outsourcing our
operations in an effort to further reduce our operating costs. With the
continued reduction of net sales that we are anticipating, we may need to make
further operating cost reduction actions impacting our workforce and facilities.
In-process Research and Development Costs of Acquired Business. On May
22, 2001, we acquired GW in a transaction accounted for using the purchase
method of accounting. In connection with the purchase price allocation we
wrote-off $2.0 million of value assigned to in-process research and development
costs for efforts that had not reached technological feasibility at the time of
our acquisition.
Amortization of Acquired Intangible Assets. Amortization expenses
relating to acquired intangible assets were $1.4 million or 1 percent of net
sales for the three months ended September 30, 2000 and $4.8 million or 9
percent of net sales for the three months ended September 30, 2001. Amortization
expenses relating to acquired intangible assets were $3.1 million or 1 percent
of net sales for the six months ended September 30, 2000 and $8.3 million or 7
percent of net sales for the six months ended September 30, 2001. We amortize
the acquired intangible assets over periods ranging from four to fourteen years.
The increase in the amortization expense in the three and six month periods
ended September 30, 2001, compared to the three and six month periods ended
September 30, 2000, are due to the acquisitions of AMP, SemiFab and GW, as
discussed in the overview. The realizability of intangible assets, which are
included in intangible assets and other assets, 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. On June 29, 2001, the Financial Accounting
Standards Board, or FASB, approved the issuance of Statement of Financial
Accounting Standards No. 142, Goodwill and Intangible Assets. Upon adoption of
this new statement, on April 1, 2002, we will no longer amortize goodwill,
thereby eliminating annual goodwill amortization of approximately $7.8 million,
based upon the anticipated amortization for fiscal year 2002.
Other Income (Expense), Net. Other income (expense), net, includes
interest income, interest expense, royalty income and foreign exchange gain and
loss. Other income (expense), net, decreased from $1.6 million of income, net
for the three months ended September 30, 2000 to $0.7 million of expense for the
three months ended September 30, 2001. Other income (expense), net, decreased
from $3.0 million of income, net for the six months ended September 30, 2000 to
$0.8 million of expense for the six months ended September 30, 2001. The reasons
for the decrease were interest expense on the loan on the land held for sale, of
$0.6 million and $0.8 million, respectively, for the three and six months ended
September 30, 2001, and interest expense on the $86.3 million convertible
subordinated notes we sold on July 3, 2001, of $1.2 million for the three and
six months ended September 30, 2001. While we have employed a hedging facility
for our largest potential foreign currency exposure, future changes in foreign
currency exchange rates may negatively impact other income (expense), net.
Provision (Benefit) for Income Taxes. We recorded a benefit for income
taxes of $7.9 million for the three months ended September 30, 2001 and $21.5
million for the six months ended September 30, 2001, representing an annual
effective income tax rate of 32 percent. We recorded a provision for income
taxes of $8.7 million for the three months ended September 30, 2000 and $17.1
million for the six months ended September 30, 2000, representing an annual
effective income tax rate of 34.8 percent. The provision (benefit) for income
taxes is attributable to federal, state, and foreign taxes. The annual effective
income tax rate for the three and six month periods ended September 30, 2001
reflects the benefits of tax free interest income and research and development
tax credits. Conversely, the annual effective income tax rate for the three and
six month periods ended September 30, 2001 has been adversely affected by
non-deductible charges related to amortization of certain intangible assets and
in-process research and development.
Cumulative Effect of Change in Accounting Principle, Net of Tax. We
recorded a non-cash charge of $2.5 million, net of an income tax benefit of $1.3
million, or a loss of $0.07 per diluted share, to reflect the cumulative
20
effect of the accounting change to comply with United States Securities and
Exchange Commission Staff Accounting Bulletin 101 as of the beginning of fiscal
year 2001.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through the
private sale of equity securities and public stock offerings, customer
pre-payments, bank borrowings and cash generated from operations. As of
September 30, 2001, we had approximately $94.7 million in cash and cash
equivalents, $44.0 million in restricted cash equivalents and short-term
investments, $18.1 million in short-term investments, $180.7 million in working
capital and $92.5 million in long-term debt and finance leases.
Cash Inflows and Outflows
Operating activities. Net cash used in operating activities in the six
months ended September 30, 2001 was $3.7 million, primarily consisting of a
$45.9 million loss, a $24.5 million increase in deferred tax asset and a $11.6
million decrease in accounts payable. These uses of cash were largely offset by
reductions in accounts receivable, inventories and prepaid expenses of $28.5
million, $12.8 million and $3.1 million respectively, combined with a $3.3
million increase in deferred revenue and our non-cash charges to net income
including: $14.2 million in depreciation and amortization, $15.0 million
write-down of land held for sale and $2.0 million write-off of purchased
in-process research and development.
Investing activities. Net cash used in investing activities during the
six months ended September 30, 2001 was $17.8 million consisting of $6.6 million
net purchases of short-term investments and restricted cash equivalents and
short-term investments, $3.8 million used to acquire AMP, SemiFab and GW and
$7.5 million used to modify our facilities and purchase new equipment and
furniture used in our operations.
To reduce our borrowing costs, on October 22, 2001 we completed the
purchase of land in Fremont, California for $41.1 million. This land, as
discussed above in Non-recurring Charges, is land we agreed to acquire when we
amended a lease agreement for land and buildings after deciding not to build on
the land. We are actively marketing the land for sale.
Financing activities. Net cash provided by financing activities of
$81.5 million for the six months ended September 30, 2001, consisted of $86.3
million from the sale of 5 3/4 percent convertible subordinated notes, which
resulted in net proceeds of $82.9 million, $1.6 million from the issuance of new
long-term debt with a Japanese bank and proceeds from the issuance of 228,964
shares of common stock through our employee stock programs. These provisions
were partially offset by net payments of $7.6 million on short-term loans and
$1.1 million on short-term and long-term debt and finance leases.
We anticipate that operating expenses will constitute a material use of
our cash resources. In addition, we may utilize cash resources to fund
acquisitions or investments in other businesses, technologies or product lines.
The cyclical nature of the semiconductor industry makes it very difficult for us
to predict future liquidity requirements with certainty. However, we believe
that our available cash and cash equivalents will be sufficient to meet our
working capital and operating expense requirements for at least the next twelve
months. At some point in the future we may require additional funds to support
our working capital and operating expense requirements or for other purposes and
we may seek to raise these additional funds through public or private debt or
equity financings. These financings may not be available to us on a timely basis
if at all or, if available, on terms acceptable to us and not dilutive to our
shareholders. If we fail to obtain acceptable additional financing, we may be
required to reduce planned expenditures or forego acquisition opportunities,
which could reduce our revenues, increase our losses, and harm our business.
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board or "FASB",
issued Statement of Financial Accounting Standards, or "SFAS" No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144
addresses financial accounting and reporting for the long-lived assets to be
held and used, and disposed of.
21
The statement will be effective for financial statements issued for fiscal years
beginning after December 15, 2001. We have not yet determined the effect
SFAS No. 144 will have on our financial position or results of operations.
On June 29, 2001, the FASB approved for issuance Statement of Financial
Accounting Standards SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Intangible Assets. Major provisions of these Statements are as
follows: all business combinations initiated after June 30, 2001 must use the
purchase method of accounting; the pooling of interest method of accounting is
prohibited except for transactions initiated before July 1, 2001; intangible
assets acquired in a business combination must be recorded separately from
goodwill if they arise from contractual or other legal rights or are separable
from the acquired entity and can be sold, transferred, licensed, rented or
exchanged, either individually or as part of a related contract, asset or
liability; goodwill and intangible assets with indefinite lives are not
amortized but are tested for impairment annually using a fair value approach,
except in certain circumstances, and whenever there is an impairment indicator;
other intangible assets will continue to be valued and amortized over their
estimated lives; in-process research and development will continue to be written
off immediately; all acquired goodwill must be assigned to reporting units for
purposes of impairment testing and segment reporting; effective April 1, 2002,
existing goodwill will no longer be subject to amortization. Goodwill arising
between July 1, 2001 and March 31, 2002 will not be subject to amortization.
Upon adoption of SFAS No. 142, on April 1, 2002, we will no longer amortize
goodwill, thereby eliminating annual goodwill amortization of approximately $7.8
million, based on anticipated amortization for 2002. Amortization of goodwill
for the three months ended September 30, 2001 was $2.2 million.
On April 1, 2001, we adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities . SFAS 133 requires that all derivatives be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives that do not qualify, or are not effective as hedges must be
recognized currently in earnings. We sell products internationally in U.S.
dollars and Japanese yen and holds various non-functional currency intercompany
balances. These monetary balances expose us to foreign currency risk and are
hedged with foreign currency forward contracts that expire within 12 months. We
employ these derivatives to reduce selected foreign currency risks that can be
confidently identified and quantified. Hedges of non-functional currency assets
and liabilities are not SFAS 133 designated hedges, and thus changes in fair
value are recognized immediately in earnings. The adoption of SFAS 133 did not
have a material impact on our financial position or results of operations. In
March 2000, the Financial Accounting Standards Board issued Financial
Interpretation No. 44, or FIN 44, Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25. FIN 44 addresses
the application of APB No. 25 to clarify, among other issues: (a) the definition
of employee for purposes of applying APB No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The adoption of FIN 44 did not
have a material impact on our financial position or results of operations.
Business Risks
This Quarterly Report on Form 10-Q contains forward looking statements
that involve risks and uncertainties, including statements about our future
plans, objectives, intentions and expectations. Many factors, including those
described below, could cause actual results to differ materially from those
discussed in any forward looking statements.
The semiconductor manufacturing industry is highly cyclical, and the current
substantial downturn is harming our operating results
Our business is entirely dependent upon the capital expenditures of
semiconductor manufacturers, which at any point in time are dependent on the
then-current and anticipated market demand for integrated circuits, or ICs, as
well as products utilizing ICs. The semiconductor industry is cyclical and has
historically experienced periodic downturns. These periodic downturns, whether
the result of general economic changes or capacity growth temporarily exceeding
growth in demand for ICs, are difficult to predict and often have a severe
adverse effect on the semiconductor industry's demand for tools. If demand for
ICs and our systems remains depressed for an extended period, it will seriously
harm our business.
22
We believe that our future performance will continue to be affected by
the cyclical nature of the semiconductor industry and, as a result, be adversely
affected by such industry downturns.
Because the semiconductor manufacturing industry is subject to rapid demand
shifts which are difficult to predict, our inability to efficiently manage our
manufacturing capacity and inventory levels in response to these rapid shifts
may cause a reduction in our gross margins, profitability and market share
The semiconductor manufacturing industry experiences rapid demand
shifts. Our ability to respond to these demand shifts is limited because we
incur manufacturing overhead, inventory expense and other costs, many of which
are fixed in the short-term, based on projections of anticipated customer
demand.
During a downturn, our ability to quickly reduce our production costs
is impaired by our projections of manufacturing costs and inventory incurred. If
market demand does not match our projections, we will have to carry or write off
excess and obsolete inventory and our gross margins will decline which, in turn,
prevents us from operating profitably. Furthermore, if we do not accurately
predict the appropriate demand for our 200mm and 300mm automation products, this
will increase the burden of excess and obsolete inventory.
During periods of increased demand, our ability to satisfy increased
customer demand may be constrained by our projections. If our projections
underestimate demand, we may have inadequate inventory and may not be able to
expand our manufacturing capacity, which could result in delays in shipments and
loss of customers and reduced profitability. Even if we are able to sufficiently
expand our capacity, we may not be able to efficiently manage this expansion
which would adversely affect our gross margins and profitability.
We depend on large purchases from a few significant customers, and any loss,
cancellation, reduction or delay in purchases by, or failure to collect
receivables from, these customers could harm our business
The markets in which we sell our products are comprised of a relatively
small number of OEMs and semiconductor manufacturers. Large orders from a
relatively small number of customers account for a significant portion of our
revenues and makes our relationship with each customer critical to our business.
We may not be able to retain our largest customers or attract additional
customers, and our OEM customers may not be successful in selling our systems.
Our success will depend on our continued ability to develop and manage
relationships with significant customers. In addition, our customers have in the
past sought price concessions from us and may continue to do so in the future.
Further, some of our customers may in the future shift their purchases of
products from us to our competitors. Additionally, the inability to successfully
develop relationships with additional customers or the need to provide future
price concessions would have a negative impact on our business.
If we are unable to collect a receivable from a large customer, our
financial results will be negatively impacted. In addition, since each customer
represents a significant percentage of net sales, the timing of the completion
of an order can lead to a fluctuation in our quarterly results. As we complete
projects for a customer, business from that customer will decline substantially
unless it undertakes additional projects incorporating our products.
Because we do not have long-term contracts with our customers, our customers may
cease purchasing our products at any time if we fail to meet their needs
We do not have long-term contracts with our customers. As a result, our
agreements with our customers do not provide any assurance of future sales.
Accordingly:
. our customers can cease purchasing our products at any time without penalty;
. our customers are free to purchase products from our competitors;
. we are exposed to competitive price pressure on each order; and
. our customers are not required to make minimum purchases.
23
Sales are typically made pursuant to individual purchase orders and
product delivery often occurs with extremely short lead times. If we are unable
to fulfill these orders in a timely manner, we could lose sales and customers.
The timing of the transition to 300mm technology is uncertain and competition
may be intense
We have invested, and are continuing to invest, substantial resources
to develop new systems and technologies to automate the processing of 300mm
wafers. However, the timing of the industry's transition from the current,
widely used 200mm manufacturing technology to 300mm manufacturing technology is
uncertain, partly as a result of the recent period of reduced demand for
semiconductors. Delay in the adoption of 300mm manufacturing technology could
adversely affect our potential revenues.
Manufacturers implementing factory automation in 300mm pilot projects
may initially seek to purchase systems from multiple vendors. Competition,
including price competition, for these early 300mm orders could be vigorous. A
vendor whose system is selected for an early 300mm pilot project may have, or be
perceived to have, an advantage in competing for future orders, and thus the
award to a competitor of one or more early 300mm orders could cause our stock
price to fall.
If we are unable to meet our customers' stringent specifications for the
Plus-Portal System our growth prospects could be negatively impacted
Our Plus-Portal System offers our OEM customers a complete, automated
interface between the OEM's tool and the fab. The Plus-Portal System offers OEMs
a standard, outsourced alternative to designing and manufacturing automated
equipment front-ends for their tools utilizing purchased components and in-house
engineering and manufacturing resources. The Plus-Portal System has not
been widely adopted by OEMs. OEMs have made limited purchases in order to
evaluate our ability to meet stringent design, reliability and delivery
specifications. If we fail to satisfy these expectations, whether based on
limited or expanded sales levels, OEMs will not adopt the Plus-Portal system. We
believe that our growth prospects in this area depend in large part upon our
ability to gain acceptance of the Plus-Portal System by a broader group of OEM
customers. Notwithstanding our solution, OEMs may purchase components to
assemble interfaces or invest in the development of their own complete
interfaces. The decision by an OEM to adopt the system for a large product line
involves significant organizational, technological and financial commitments by
this OEM. The market may not adopt the Plus-Portal System.
If we are unable to develop and introduce new products and technologies in a
timely manner, our business could be negatively impacted
Semiconductor equipment and processes are subject to rapid
technological changes. The development of more complex ICs has driven the need
for new facilities, equipment and processes to produce these devices at an
acceptable cost. We believe that our future success will depend in part upon our
ability to continue to enhance our existing products to meet customer needs and
to develop and introduce new products in a timely manner. We often require long
lead times for development of our products, which requires us to expend
significant management effort and incur material development costs and other
expenses. During development periods we may not realize corresponding revenue in
the same period, or at all. We may not succeed with our product development
efforts and we may not respond effectively to technological change.
We may not be able to effectively compete in a highly competitive semiconductor
equipment industry
The markets for our products are highly competitive and subject to
rapid technological change. We currently face direct competition with respect to
all of our products. In addition, the facility automation market has periods of
rapid consolidation. Some of our competitors, especially following
consolidation, may have greater name recognition, more extensive engineering,
manufacturing and marketing capabilities and substantially greater financial,
technical and personnel resources than those available to us.
Several companies, including Brooks Automation, offer one or more
products that compete with our Asyst-SMIF System and SMART-Traveler System
products. We compete primarily with Entegris in the area of SMIF-Pods and
SMIF-FOUPS. We also compete with several competitors in the robotics area,
including, but not limited
24
to, PRI Automation, Kensington Labs, Rorze and Yaskawa--Super Mectronics
Division. In the area of transport automation systems, our products face
competition from the main product line of PRI Automation, as well as from
Daifuku, Murata and Shinko. Our products in the area of storage and management
of wafers and reticles compete primarily with products from Brooks Automation
and Recif.
In addition, the transition to 300mm wafers is likely to draw new
competitors to the facility automation market and may result in additional
consolidation. In the 300mm wafer market, we expect to face intense competition
from a number of companies such as the newly consolidated PRI Automation and
Brooks Automation, as well as potential competition from semiconductor equipment
and cleanroom construction companies.
We expect that our competitors will continue to develop new products in
direct competition with our systems, improve the design and performance of their
products and introduce new products with enhanced performance characteristics.
In order to remain competitive, we need to continue to improve and expand our
product line, which will require us to maintain a high level of investment in
research and development. Ultimately, we may not be able to make the
technological advances and investments necessary to remain competitive.
New products developed by our competitors or more efficient production
of their products could increase pricing pressure on our products. In addition,
companies in the semiconductor capital equipment industry have been facing
pressure to reduce costs. Either of these factors may require us to make
significant price reductions to avoid losing orders. Further, our current and
prospective customers continuously exert pressure on us to lower prices, shorten
delivery times and improve the capabilities of our products. Failure to respond
adequately to such pressures could result in a loss of customers or orders.
We may not be able to efficiently integrate the operations of our acquisitions
We have made and, most likely, will continue to make additional
acquisitions of, or significant investments in, businesses that offer
complementary products, services, technologies or market access. Our recent
acquisitions include Hine Design Incorporated, or HDI, Progressive Systems
Technologies, Inc., or PST, Palo Alto Technologies, Inc., or PAT, AMP, SemiFab,
GW and MECS. We subsequently merged MECS into Asyst Japan, Inc., or AJI.
We are likely to make additional acquisitions of, or significant
investments in, businesses that offer complementary products, services,
technologies or market access. If we are to realize the anticipated benefits of
these acquisitions, the operations of these companies must be integrated and
combined efficiently. The process of integrating supply and distribution
channels, computer and accounting systems and other aspects of operations, while
managing a larger entity, will present a significant challenge to our
management. In addition, it is not certain that we will be able to incorporate
different technologies into our integrated solution. We may not succeed with the
integration process nor may we fully realize the anticipated benefits of the
business combinations. The dedication of management resources to such
integration may detract attention from the day-to-day business, and we may need
to hire additional management personnel to successfully rationalize our
acquisitions. The difficulties of integration may be increased by the necessity
of combining personnel with disparate business backgrounds and combining
different corporate cultures. There may be substantial costs associated with
these activities and we may suffer other material adverse effects from these
integration efforts which could materially reduce our short-term earnings.
Consideration for future acquisitions could be in the form of cash, common
stock, rights to purchase stock or a combination thereof. Dilution to existing
shareholders and to earnings per share may result to the extent that shares of
common stock or other rights to purchase common stock are issued in connection
with any future acquisitions.
We may be unable to protect our intellectual property rights and we may become
involved in litigation concerning the intellectual property rights of others
We rely on a combination of patent, trade secret and copyright
protection to establish and protect our intellectual property. While we intend
to protect our patent rights vigorously, we cannot assure that our patents will
not be challenged, invalidated or avoided, or that the rights granted thereunder
will provide us with competitive advantages. We also rely on trade secrets that
we seek to protect, in part, through confidentiality agreements with employees,
consultants and other parties. These agreements may be breached, we may not have
adequate remedies for any breach, or our trade secrets may otherwise become
known to, or independently developed by, others.
25
Intellectual property rights are uncertain and involve complex legal
and factual questions. We may unknowingly infringe on the intellectual property
rights of others and may be liable for that infringement, which could result in
significant liability for us. If we do infringe the intellectual property rights
of others, we could be forced to either seek a license to intellectual property
rights of others or alter our products so that they no longer infringe the
intellectual property rights of others. A license could be very expensive to
obtain or may not be available at all. Similarly, changing our products or
processes to avoid infringing the rights of others may be costly or impractical
or could detract from the value of our product.
There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor-related industries. Litigation may
be necessary to enforce our patents, to protect our trade secrets or know how,
to defend Asyst against claimed infringement of the rights of others or to
determine the scope and validity of the patents or intellectual property rights
of others. Any litigation could result in substantial cost to us and divert the
attention of our management, which by itself could have an adverse material
effect on our financial condition and operating results. Further, adverse
determinations in any litigation could result in our loss of intellectual
property rights, subject us to significant liabilities to third parties, require
us to seek licenses from third parties or prevent us from manufacturing or
selling our products. Any of these effects could have a negative impact on our
financial condition and results of operations.
Because of intense competition for highly skilled personnel, we may not be able
to recruit and retain necessary personnel
Our future success will depend in large part upon our ability to
recruit and retain highly skilled technical, manufacturing, managerial,
financial and marketing personnel. Our future performance depends substantially
on the continued service of our senior management team, in particular Dr. Mihir
Parikh, our Chairman of the Board and Chief Executive Officer, and Anthony
Bonora, our Executive Vice President, Chief Technical Officer and Asyst Fellow.
We do not have long term employment agreements with any of our senior management
team, except Dr. Parikh, and we do not maintain any key-man life insurance
policies.
Due to the cyclical nature of the demand for our products, we have had
to reduce our workforce and then rebuild our workforce as our business has gone
through cyclical peaks and troughs. The labor markets in which we operate are
highly competitive and as a result, this type of employment cycle increases our
risk of not being able to retain and recruit key personnel.
If we are unable to recruit or retain key personnel, we may not have
enough personnel to promptly return to peak production levels. If we are unable
to expand our existing manufacturing capacity to meet demand, a customer's
placement of a large order for the development and delivery of factory
automation systems during a particular period might deter other customers from
placing similar orders with us for the same period. It could be difficult for us
to rapidly recruit and train the substantial number of qualified engineering and
technical personnel who would be necessary to fulfill one or more large,
unanticipated orders. A failure to retain, acquire or adequately train key
personnel could have a material adverse impact on our performance.
Because our quarterly operating results are subject to variability, quarter to
quarter comparisons may not be meaningful
Our revenues and operating results can fluctuate substantially from
quarter to quarter depending on factors such as:
. the timing of significant customer orders;
. the timing of product shipment and acceptance;
. variations in the mix of products sold;
. the introduction of new products;
. changes in customer buying patterns;
26
. fluctuations in the semiconductor equipment market;
. the availability of key components;
. pressure from competitors; and
. general trends in the semiconductor manufacturing industry, electronics
industry and overall economy.
The sales cycle to new customers ranges from six months to 12 months
from initial inquiry to placement of an order, depending on the complexity of
the project. This extended sales cycle makes the timing of customer orders
uneven and difficult to predict. A significant portion of the net sales in any
quarter is typically derived from a small number of long-term, multi-million
dollar customer projects involving upgrades of existing facilities or the
construction of new facilities. Generally, our customers may cancel or
reschedule shipments with limited or no penalty. These factors increase the risk
of unplanned fluctuations in net sales. Moreover, a shortfall in net sales in a
quarter as a result of these factors could negatively impact our operating
results for the quarter. Given these factors, we expect quarter to quarter
performance to fluctuate for the foreseeable future. In one or more future
quarters, our operating results are likely to be below the expectations of
public market analysts and investors, which may cause our stock price to
decline.
Shortages of components necessary for our product assembly can delay our
shipments and can lead to increased costs which may negatively impact our
financial results
When demand for semiconductor manufacturing equipment is strong, our
suppliers, both domestic and international, strain to provide components on a
timely basis and, in some cases, on an expedited basis at our request.
Disruption or termination of these sources could have a serious adverse effect
on our operations. Many of the components and subassemblies used in our products
are obtained from a single supplier or a limited group of suppliers. A prolonged
inability to obtain some components could have an adverse effect on our
operating results and could result in damage to our customer relationships.
Shortages of components may also result in price increases for components and as
a result, could decrease our margins and negatively impact our financial
results.
We face significant economic and regulatory risks because a majority of our net
sales are from outside the United States
A significant portion of our net sales are attributable to sales
outside the United States, primarily in Taiwan, Japan, Europe and Singapore. We
expect that international sales will continue to represent a significant portion
of our total revenues in the future. This concentration increases our exposure
to any risks in this area. Sales to customers outside the United States are
subject to various risks, including:
. exposure to currency fluctuations;
. the imposition of governmental controls;
. the need to comply with a wide variety of foreign and U.S. export laws;
. political and economic instability;
. trade restrictions;
. changes in tariffs and taxes;
. longer payment cycles typically associated with foreign sales;
. the greater difficulty of administering business overseas; and
. general economic conditions.
27
Recently, a majority of our accounts receivable, net, were due from
international customers located primarily in Taiwan, Japan, Singapore and
Europe. Receivables collection and credit evaluation in new geographic regions
challenge our ability to avert international risks. In addition, the laws of
certain foreign countries may not protect our intellectual property to the same
extent as do the laws of the United States. We invoice a majority of our
international sales in United States dollars. However, for sales in Japan, we
invoice our sales in Japanese yen. Currency fluctuations may adversely affect
our future results of operations.
Anti-takeover provisions in our articles of incorporation, bylaws and our
shareholder rights plan may prevent or delay an acquisition of Asyst that might
be beneficial to our shareholders
Our articles of incorporation and bylaws include provisions that may
have the effect of deterring hostile takeovers or delaying changes in control or
management of Asyst. These provisions include certain advance notice procedures
for nominating candidates for election to our Board of Directors, a provision
eliminating shareholder actions by written consent and a provision under which
only our Board of Directors, our Chairman of the Board, our President or
shareholders holding at least 10 percent of the outstanding common stock may
call special meetings of the shareholders. We have entered into agreements with
our officers and directors indemnifying them against losses they may incur in
legal proceedings arising from their service to Asyst, including losses
associated with actions related to third-party attempts to acquire Asyst.
We have adopted a share purchase rights plan, pursuant to which we have
granted to our shareholders rights to purchase shares of junior participating
preferred stock. Upon the earlier of (1) the date of a public announcement that
a person, entity, or group of associated persons has acquired 15 percent of our
common stock or (2) 10 business days following the commencement of, or
announcement of, a tender after or exchange offer, the rights granted to our
shareholders will become exercisable to purchase our common stock at a price
substantially discounted from the then applicable market price of our common
stock. These rights could generally discourage a merger or tender offer
involving the securities of Asyst that is not approved by our Board of Directors
by increasing the cost of effecting any such transaction and, accordingly, could
have an adverse impact on shareholders who might want to vote in favor of such
merger or participate in such tender offer.
In addition, our Board of Directors has authority to issue up to
4,000,000 shares of preferred stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any future vote or action by the shareholders. The issuance of preferred stock
while providing desirable flexibility in connection with possible acquisition
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire a majority of our outstanding voting stock, thereby
delaying, deferring or preventing a change in control of Asyst. Furthermore,
such preferred stock may have other rights, including economic rights senior to
the common stock, and as a result, the issuance thereof could have a material
adverse effect on the market value of the common stock. We have no present plans
to issue shares of preferred stock.
Our stock price may fluctuate significantly which could be detrimental to our
shareholders
Our stock price has in the past fluctuated and will fluctuate in the
future in response to a variety of factors, including the following:
. quarterly fluctuations in results of operations;
. announcements of new products by Asyst or our competitors;
. changes in either our earnings estimates or investment recommendations by
stock market analysts;
. announcements of technological innovations;
. conditions or trends in the semiconductor manufacturing industry;
. announcements by Asyst or our competitors of acquisitions, strategic
partnerships or joint ventures;
. additions or departures of senior management; and
28
. other events or factors many of which are beyond our control.
In addition, in recent years, the stock market in general and shares of
technology companies in particular have experienced extreme price fluctuations,
and such extreme price fluctuations may continue. These broad market and
industry fluctuations may adversely affect the market price of our common stock.
We may not be able to secure additional financing to meet our future capital
needs
We currently anticipate that our available cash resources, which
include existing cash and cash equivalents, short-term investments, cash
generated from operations and other existing sources of working capital will be
sufficient to meet our anticipated needs for working capital and capital
expenditures through the second quarter of fiscal 2003. If we are unable to
generate sufficient cash flows from operations to meet our anticipated needs for
working capital and capital expenditures we may need to raise additional funds
to develop new or enhanced products, respond to competitive pressures or make
acquisitions. We may be unable to obtain any required additional financing on
terms favorable to us, if at all. If adequate funds are not available on
acceptable terms, we may be unable to fund our expansion, successfully develop
or enhance products, respond to competitive pressures or take advantage of
acquisition opportunities, any of which could have a material adverse effect on
our business. If we raise additional funds through the issuance of equity
securities, our shareholders may experience dilution of their ownership
interest, and the newly-issued securities may have rights superior to those of
the common stock. If we raise additional funds by issuing debt, we may be
subject to limitations on our operations. We have guaranteed AJI's unsecured
loans from banks and secured bonds with interest rates ranging between 1.4
percent to 1.9 percent per annum. This strain on our capital resources could
adversely affect our business.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
There has not been a material change in our exposure to interest rate
and foreign currency risks since the date of our 2001 Form 10-K, as amended.
Interest Rate Risk. Our exposure to market risk for changes in interest
rates relate primarily to the investment portfolio. We do not use derivative
financial instruments in our 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. As stated in our investment policy,
we ensure the safety and preservation of our invested principal funds by
limiting default risk, market risk and reinvestment risk. We mitigate default
risk by investing in safe and high-credit quality securities and by constantly
positioning our portfolio to respond appropriately to a significant reduction in
a credit rating of any investment issuer, guarantor or depository. The portfolio
includes only marketable securities with active secondary or resale markets to
ensure portfolio liquidity. These securities, like all fixed income instruments,
carry a degree of interest rate risk. Fixed rate securities have their fair
market value adversely affected due to rise in interest rates.
Foreign Currency Exchange Risk. We engage in international operations
and transact business in various foreign countries. The primary foreign currency
cash flows are located in Japan, Europe, Singapore and Taiwan. Although we and
our subsidiaries operate and sell products in various global markets,
substantially all sales are denominated in the U.S. dollar, except in Japan,
therefore reducing the foreign currency risk factor. In March 2001, we began to
employ a foreign currency hedge program utilizing foreign currency forward
exchange contracts in Japan. To date, the foreign currency transactions and
exposure to exchange rate volatility have not been significant. There can be no
assurance that foreign currency risk will not be a material impact on our
financial position, results of operations or cash flow in the future.
29
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In October 1996, we filed a lawsuit in the United States District Court for the
Northern District of California against Jenoptik A.G., or (Jenoptik),
Jenoptik-Infab, Inc., or (Infab), Emtrak, Inc., or (Emtrak) and Empak, Inc., or
(Empak) alleging infringement of two patents related to our SMART Traveler
System. We amended our Complaint in April 1997 to allege causes of action for
breach of fiduciary duty against Jenoptik and Meissner & Wurst, GmbH, and
misappropriation of trade secrets and unfair business practices against all
defendants. The Complaint seeks damages and injunctive relief against further
infringement. All defendants filed counter claims, seeking a judgment declaring
the patents invalid, unenforceable and not infringed. Jenoptik, Infab, and
Emtrak also alleged that we have violated federal antitrust laws and engaged in
unfair competition. We denied these allegations. In May 1998, we along with
Empak stipulated to a dismissal, without prejudice, of the respective claims and
counter claims against each other. In November 1998, the court granted
defendants' motion for partial summary judgment as to most of the patent
infringement claims and invited further briefing as to the remainder. In January
1999, the court granted our motion for leave to seek reconsideration of the
November 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, and the court
has ordered, the dismissal with prejudice of the defendants' unfair competition
and remaining antitrust counterclaim, and our breach of fiduciary duty,
misappropriation of trade secrets and unfair business practices claims. On June
4, 1999, the court issued an order by which it granted a motion for
reconsideration in the sense that it considered the merits of our arguments, but
decided that it would not change its prior ruling on summary judgment and would
also grant summary judgment for defendants on the remaining patent infringement
claim. We appealed and the trial date has since been vacated. On October 10,
2001, the appellate court reversed the district court's decision to grant
defendants' motion for summary judgement and remanded the case back to the
district court. A scheduling hearing has been set for December 17, 2001.
Item 4. Submission of Matters to a Vote of Security Holders
Our annual meeting of shareholders was held on September 14, 2001 for the
purpose of: (1) electing directors to our Board of Directors to serve a one-year
term expiring on the date of our 2002 annual meeting of the shareholders and
until their successors are elected and qualified; (2) to approve ammendments to
our 1993 Employee Stock Purchase Plan, as amended, to increase the aggregate
number of shares of Common Stock authorized for issuance under such plan by
500,000 shares and to indefinitely extend the term of such plan beyond its
current expiration date in June 2003; (3) to ratify the selection of Arthur
Andersen LLP as the independent auditors of the Company for the fiscal year
ending March 31, 2002 and (4) to transact such other business as may have
properly come before the meeting or any adjournment or postponement thereof.
Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended, and there was no solicitation in
opposition of management's solicitations. The final vote on the proposals were
recorded as follows:
Proposal 1:
----------
Mihir Parikh, Ph.D. was elected to the board of directors for a one-year
term with 28,563,668 votes for and 1,784,539 votes withheld.
P. Jackson Bell was elected to the board of directors for a one-year term
with 30,194,206 votes for and 154,001 votes withheld.
Stanley Grubel was elected to the board of directors for a one-year term
with 30,198,526 votes for and 149,681 votes withheld.
30
Robert A. McNamara was elected to the board of directors for a one-year
term with 30,188,463 votes for and 159,744 votes withheld.
Anthony E. Santelli was elected to the board of directors for a one-year
term with 30,196,806 votes for and 151,401 votes withheld.
Walter K. Wilson was elected to the board of directors for a one-year term
with 30,191,457 votes for and 156,750 votes withheld.
Proposal 2:
----------
To approve ammendments to our 1993 Employee Stock Purchase Plan, as
amended, to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 500,000 shares and to
indefinitely extend the term of such plan beyond its current expiration
date in June 2003.
BROKERED
"FOR" "AGAINST" "ABSTAIN" "NON-VOTES"
----- --------- --------- -----------
29,714,627 570,043 63,537 -
Proposal 3:
----------
The selection of Arthur Andersen LLP as the Company's independent auditors
for the fiscal year ending March 31, 2002 was ratified by the following
vote:
BROKERED
"FOR" "AGAINST" "ABSTAIN" "NON-VOTES"
----- --------- -------- -----------
30,257,266 48,263 42,678 --
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K.
On July 5, 2001, we filed a Current Report on Form 8-K, dated
June 25, 2001 regarding the issuance of $86.25 million of 5 3/4%
convertible notes due July 2008 pursuant to Rule 144A of the
Securities Act.
31
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: November 13, 2001 By: /s/ Geoffrey G. Ribar
----------------------- ----------------------------------
Geoffrey G. Ribar
Senior Vice President
Chief Financial Officer
Signing on behalf of the
registrant and as the principal
accounting and financial officer
32