UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
----
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
or
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File number 0-22114
ASYST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
California 94-2942251
(State or other jurisdiction of (IRS Employer identification No.)
incorporation or organization)
48761 Kato Road, Fremont, California 94538
(Address of principal executive offices)
(510) 661-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
-------
The number of shares of the registrant's Common Stock, no par value, outstanding
as of February 1, 1999 was 11,495,558.
ASYST TECHNOLOGIES, INC.
INDEX
Page No.
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Part I. Financial Information
---------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
December 31, 1998 and March 31, 1998 2
Condensed Consolidated Statements of Operations --
Three Months Ended December 31, 1998 and
December 31, 1997 and Nine Months Ended
December 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Cash Flows --
Nine Months Ended December 31, 1998 and
December 31, 1997 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
-----------------
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
- ----------
Exhibit Index 15
- -------------
1
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, March 31,
1998 1998
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,367 $ 12,288
Short-term investments 35,853 70,487
Accounts receivable, net 12,024 26,534
Inventories 18,783 18,851
Prepaid expenses and other current assets 2,994 4,241
Deferred tax asset 17,154 7,697
Net current assets of discontinued operations 21 1,438
-------- --------
Total current assets 92,196 141,536
Property and equipment, net 11,417 11,133
Intangibles and other assets, net 18,868 1,802
-------- --------
$122,481 $154,471
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,733 $ 8,671
Accrued liabilities and other current liabilities 10,625 13,124
Customer deposits 999 1,267
Income taxes payable 702 606
-------- --------
Total current liabilities 15,059 23,668
-------- --------
Shareholders' equity:
Common stock 108,521 116,347
Retained earnings (deficit) (1,099) 14,456
-------- --------
Total shareholders' equity 107,422 130,803
-------- --------
$122,481 $154,471
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited: In thousands, except per share amounts)
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
-------------- -------------- -------------- -------------
Net sales $16,871 $42,310 $66,907 120,308
Cost of sales 10,387 23,374 41,076 67,276
-------------- -------------- -------------- -------------
Gross profit 6,484 18,936 25,831 53,032
-------------- -------------- -------------- -------------
Operating expenses:
Research and development 3,575 3,350 10,967 9,388
Selling, general and administrative 9,457 8,541 30,438 25,595
Purchased in-process research and
development -- -- 7,100 --
Restructuring expense -- -- 2,922 --
-------------- -------------- -------------- -------------
Total operating expenses 13,032 11,891 51,427 34,983
-------------- -------------- -------------- -------------
Operating income (loss) (6,548) 7,045 (25,596) 18,049
Other income, net 542 1,095 2,028 2,090
-------------- -------------- -------------- -------------
Income (loss) from continuing operations
before provision (benefit) for income taxes (6,006) 8,140 (23,568) 20,139
Provision (benefit) for income taxes (2,042) 2,930 (8,013) 7,250
-------------- -------------- -------------- -------------
Income (loss) from continuing operations (3,964) 5,210 (15,555) 12,889
Discontinued operations:
Loss on closure of Asyst Automation,
Inc., net of applicable income taxes -- (1,840) -- (1,840)
-------------- -------------- -------------- -------------
Net income (loss) $(3,964) $ 3,370 $(15,555) $ 11,049
============== ============== ============== =============
Basic earnings (loss) per share:
Income (loss) per share from continuing
operations $ (0.35) $ 0.44 $ (1.33) $ 1.16
Net income (loss) per share $ (0.35) $ 0.28 $ (1.33) $ 0.99
============== ============== ============== =============
Diluted earnings (loss) per share:
Income (loss) per share from continuing
operations $ (0.35) $ 0.41 $ (1.33) $ 1.08
Net income (loss) per share $ (0.35) $ 0.26 $ (1.33) $ 0.93
============== ============== ============== =============
Shares used in per share calculation of:
Basic earnings (loss) per share 11,365 11,925 11,700 11,129
Diluted earnings (loss) per share 11,365 12,853 11,700 11,882
============== ============== ============== =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited: In thousands)
Nine Months Ended
December 31,
---------------------------
1998 1997
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (15,555) $ 11,049
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Change in net assets/liabilities of
discontinued operations 1,417 1,652
Loss on disposal of discontinued operation -- 1,840
Depreciation and amortization expense 4,937 3,282
Change in provision for doubtful accounts (622) (1,611)
Non-cash restructuring expense 784 --
Write-down of inventories 1,837 --
Tax benefit associated with employee
option plans 597 860
Purchased in-process research and development 7,100 --
Changes in current assets and liabilities, net of
acquisition of FluoroTrac(R) product line and
Hine Design, Inc.:
Accounts receivable 16,497 8,311
Inventories 1,973 (3,290)
Prepaid expenses and other current assets 1,274 641
Deferred tax asset (9,457) (2,085)
Accounts payable (6,818) (4,396)
Accrued liabilities (3,583) 4,633
Customer deposits (268) (885)
Income taxes payable 96 1,337
---------- ---------
Net cash provided by operating activities 209 21,338
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments (31,050) (31,869)
Sale of short-term investments 65,684 --
Purchase of property, plant and equipment (3,305) (3,290)
Increase in other assets (430) (28)
Cash used in the acquisition
of the FluoroTrac(R) product line (2,794) --
Cash used in the acquisition
of Hine Design, Inc. (12,433) --
---------- ---------
Net cash provided by (used
by) investing activities 15,672 (35,187)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash used in the reduction of debt
assumed in the acquisition of Hine
Design, Inc. (12,479) --
Issuance of common stock 1,149 45,977
Cash used in the repurchase of common stock (11,472) --
---------- ---------
Net cash provided by (used
by) financing activities (22,802) 45,977
---------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,921) 32,128
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,288 11,021
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,367 $ 43,149
========== =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of Asyst
Technologies, Inc. ("Company"), a California corporation and its wholly owned
subsidiaries. Significant inter-company accounts and transactions have been
eliminated.
While the financial information furnished is unaudited, the condensed
consolidated financial statements included in this report reflect all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for the fair presentation of the results of operation for
the interim periods covered and of the financial condition of the Company at the
date of the interim balance sheet. The Company closes its books on the last
Saturday of each quarter and thus the actual date of the quarter end is usually
different from the month-end dates used throughout this 10-Q report. The results
for interim periods are not necessarily indicative of the results for the entire
year. The condensed consolidated financial statements should be read in
connection with the Asyst Technologies, Inc. consolidated financial statements
for the year ended March 31, 1998 included in its Annual Report on Form 10-K.
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 cash equivalents approximates their current fair market value.
SHORT-TERM INVESTMENTS
As of December 31, 1998 and March 31, 1998, 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, with
unrealized holding gains and losses, net of taxes reported as a separate
component of shareholders' equity. The cost of the debt security is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization, interest income, realized gains and losses and declines in value
that are considered to be other than temporary, are included in other income,
net, on the accompanying condensed consolidated statements of operations. There
have been no declines in value that are considered to be other than temporary
for any of the nine months in the period ended December 31, 1998. 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 consist of the following (in thousands):
Cost / Fair Value
-----------------------------------------
December 31, March 31,
1998 1998
----------------- -----------------
(unaudited)
Debt securities issued by states of the United States and
political subdivisions of the states................................ $15,853 $50,487
Corporate debt securities............................................ 20,000 20,000
------- -------
Total $35,853 $70,487
======= =======
5
INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or market and
include materials, labor and manufacturing overhead costs. Inventories consist
of the following (in thousands):
December 31, March 31,
1998 1998
------------ ---------
(unaudited)
Raw materials................................................ $14,807 $15,019
Work-in-process and finished goods........................... 3,976 3,832
------- -------
Total $18,783 $18,851
======= =======
STOCK REPURCHASE PROGRAM
In June 1998, the Board of Directors of the Company, authorized a stock
repurchase program whereby up to 2,000,000 shares of its Common Stock may be
repurchased by the Company, from time-to-time at market prices, and as market
and business conditions warrant, in the open market, or in negotiated
transactions, using existing cash. The Company will utilize a portion of the
reacquired shares for reissuance in connection with certain employee stock
programs. When the common shares are reissued, the Company will use the first-
in, first-out method and the excess of repurchase cost over reissuance price, if
any, is treated as a reduction of retained earnings. As of December 31, 1998,
the Company had repurchased 865,800 shares of common stock at an aggregate cost
of approximately $11.5 million.
RESTRUCTURING OF OPERATIONS
During September 1998, in response to continued reductions in capital spending
by semiconductor manufacturers, the Company adopted a formal plan to reduce
operating costs. In connection with these actions, a pre-tax restructuring
charge of approximately $2.9 million was recorded. The principal actions of the
plan involved the closure or reorganization of two of its United States
facilities and two of its small international facilities. The plan also includes
the elimination of one level of management and consolidation of activities
related to the operations of its software business. The major components of the
restructuring expense are as follows (in thousands, unaudited):
Severance and related costs.................................. $ 1,690
Lease termination costs, net of estimated sublet income...... 248
Non-cash write-down of property, plant and equipment
and other related assets.................................... 784
Facilities relocation, set-up costs and other................ 200
-------
Total $ 2,922
=======
Restructuring activity for the nine months ended December 31, 1998 was as
follows (in thousands, unaudited):
Provision for restructuring of operations.................... $ 2,922
Cash outlays for severance and related costs.............. (628)
Cash outlay for lease termination costs and other......... (294)
Non-cash write-down of property, plant and equipment
and other related assets................................. (649)
-------
Total $ 1,351
=======
The majority of the remaining cash outlay of approximately $1.2 million is
expected to occur by March 31, 1999.
6
PROVISION (BENEFIT) FOR INCOME TAXES
Provision (benefit) for income taxes for the three and nine month periods ended
December 31, 1998 and December 31, 1997, includes a provision (benefit) for
Federal, state and foreign taxes based upon the annual estimated effective tax
rates applicable to the Company and its subsidiaries for the year. The annual
estimated effective tax rate and benefit for the three and nine month period
ended December 31, 1998 reflects the estimated benefit associated with the
utilization of net operating losses generated during the current fiscal year.
EARNINGS PER SHARE
Earnings per share has been reported based upon Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share", which requires presentation of basic and
diluted earnings per share. Basic earnings per share has been computed using the
weighted average number of actual common shares outstanding, while diluted
earnings per share has been computed using the weighted average number of common
equivalent shares outstanding. Common equivalent shares used in the computation
of diluted earnings per share result from the assumed exercise of stock options,
using the treasury stock method.
The following table sets forth the calculation of basic and diluted earnings per
share (in thousands, except per share amounts, unaudited):
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Basic earnings (loss) per share:
Net income (loss).......................... $(3,964) $ 3,370 $(15,555) $11,049
------- ------- -------- -------
Weighted average common shares............. 11,365 11,925 11,700 11,129
------- ------- -------- -------
Basic earnings (loss) per share........ $ (0.35) $ 0.28 $ (1.33) $ 0.99
======= ======= ======== =======
Diluted earnings per share:
Net income (loss).......................... $(3,964) $ 3,370 $(15,555) $11,049
------- ------- -------- -------
Weighted average common shares............. 11,365 11,925 11,700 11,129
Weighted average common share equivalents:
Options................................ -- 928 -- 753
------- ------- -------- -------
Diluted weighted average common shares..... 11,365 12,853 11,700 11,882
------- ------- -------- -------
Diluted earnings (loss) per share...... $ (0.35) $ 0.26 $ (1.33) $ 0.93
======= ======= ======== =======
ACQUISITION OF THE FLUOROTRAC(R) PRODUCT LINE
In April 1998, the Company entered into an agreement with Fluoroware, Inc.
("Fluoroware"), a supplier of materials management solutions, to acquire
Fluoroware's FluoroTrac(R) automated radio frequency identification ("RFID")
technology for automated work-in-progress tracking in semiconductor factories.
Under the terms of the agreement, the Company acquired all of the FluoroTrac
intellectual property including RFID tracking solutions, inventory and
installed-base opportunities from Fluoroware in consideration for approximately
$2.8 million in cash and liabilities assumed by the Company.
In connection with the acquisition, approximately $1.2 million of the intangible
assets acquired consisted of in-process research and development. Because there
can be no assurance that the Company will be able to successfully complete the
development of FluoroTrac products or that the technology has any alternative
future use, such in-process research and development was charged as an expense.
As a result of the purchase price allocation, approximately $0.3 million was
assigned to intangible assets related to existing product technology, the
assembled workforce and the excess purchase price over the net assets acquired.
These intangibles are being amortized over a three to five year period.
Management believes that the unamortized balance of these assets, which is
included in other assets, net, in the accompanying condensed consolidated
balance sheets, is recoverable.
7
ACQUISITION OF HINE DESIGN INCORPORATED
On July 31, 1998, the Company completed its acquisition of Hine Design
Incorporated ("Hine Design"), a supplier of wafer-handling robots for
semiconductor processing tools. Accordingly, results of Hine Design's operations
have been combined with those of the Company's, since the date of acquisition.
Under the terms of the agreement, the Company acquired all of the outstanding
capital stock of Hine Design for approximately $12.4 million in cash and assumed
debt of approximately $12.5 million. In addition, the Company exchanged
outstanding options of Hine Design Common Stock for identical options of the
Company. The value of the options exchanged was approximately $1.9 million. The
acquisition was accounted for using the purchase method of accounting.
In connection with the acquisition, a portion of the purchase price was
allocated to the net liabilities acquired based on their estimated fair values.
The fair values of the tangible assets acquired and liabilities assumed were
approximately $4.4 million and $14.4 million, respectively. As a result of the
purchase price allocation, approximately $18.4 million was assigned to
intangible assets related to existing product technology, the assembled
workforce and the excess purchase price over the net assets acquired. These
intangibles are being amortized over a four to fourteen year period. As of
December 31, 1998, charges for amortization of the intangible asset, made by the
Company, amounted to approximately $1.0 million. Management believes that the
unamortized balance of these assets, which is included in other assets, net, in
the accompanying condensed consolidated balance sheets, is recoverable. In
addition, approximately $5.9 million of the intangible assets acquired consisted
of in-process research and development. Because there can be no assurance that
the Company will be able to successfully complete the development of Hine Design
products or that the technology has any alternative future use, such in-process
research and development was charged as an expense.
SHAREHOLDER RIGHTS PLAN
On June 22, 1998, the Board of Directors of the Company, approved the adoption
of a Shareholders Rights Plan under which all shareholders of record, as of July
10, 1998 ("Record Date"), received a dividend of one preferred share purchase
right ("Right") for each outstanding share of common stock, without par value
per share, ("Common Shares") of the Company. The Rights also attach to new
Common Shares issued after the Record Date. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock, without par value per share, ("Preferred
Shares") of the Company at a price of $140 per one one-hundredth of a Preferred
Share ("Purchase Price"), subject to adjustment. Each Preferred Share is
designed to be the economic equivalent of 100 Common Shares.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
presentation of comprehensive income and requires companies to report a new
measure of income. The Company adopted SFAS No. 130 during the first quarter of
fiscal 1999. "Comprehensive Income" is to include foreign currency translation
gains and losses and other unrealized gains and losses that have historically
been excluded from net income and reflected in instead in equity. The Adoption
of SFAS No. 130 did not have a material impact on the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
establishes standards for disclosure of segment information. SFAS No. 131 will
become effective for the Company's year ending March 31, 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Investments and Hedging Activities," which
establishes standards for the accounting for derivative transactions and
derivative portion of certain other contracts. SFAS No. 133 will become
effective for the Company's year ending March 31, 2001. The Company believes
that SFAS No. 133 will not have a material impact on the Company's financial
statements.
8
Item 2 - Management's Discussion and Analysis of Results of Financial
Condition and Results of Operations
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section and those contained in the Company's
Annual Report on Form 10-K for the year ended March 31, 1998.
Results of Operations
- ---------------------
Net sales. Net sales decreased from $42.3 million for the three months ended
December 31, 1997, to $16.9 million for the three months ended December 31,
1998. Net sales for the nine months ended December 31, 1998 were $66.9 million,
which represents a 44.4 percent decrease over the same period in the prior year.
The decrease in net sales for the three and nine-month periods ended December
31, 1998 from the same periods in the prior fiscal year were due to the
continued world-wide reduction in capital expenditures of semiconductor
producers. Demand for logic and memory chips is still below the available
production capacity of the producers because of the recession being experienced
by the Asian economies and the aggressive expansion of semiconductor production
capacity during the mid 1990's. International sales for the Company decreased
from $26.5 million, or 62.5 percent of net sales during the three months ended
December 31, 1997, to $7.1 million, or 42.0 percent of net sales during the
three months ended December 31, 1998. For the nine-month periods ended December
31, 1997 and 1998, respectively, international sales decreased from $77.8
million, or 64.7 percent of net sales, to $38.9 million, or 58.1 percent of net
sales. International sales by region for the nine-month period ended December
31, 1998 are summarized as follows:
Geographic Net Sales Percentage of
Region (in millions) Net Sales
---------------- ------------- ---------------
Taiwan $ 26.1 39.0%
Japan 8.1 12.1%
Singapore 1.7 2.5%
Europe 3.0 4.5%
Korea -- --%
------------- ---------------
$ 38.9 58.1%
============= ===============
The Company's results of operations have not been adversely affected by currency
exchange rates because the Company has invoiced substantially all of its
international sales in United States dollars (except in Japan where over 20
percent of its sales are denominated in the yen.) However, there can be no
assurance that the Company's results of operations will not be adversely
affected by such fluctuations in the future. The Company has experienced
cancellations or delays in orders from the Asia Pacific region as well as in the
United States. During the quarter ended December 31, 1998, cancellations totaled
$0.4 million and delays of items in the backlog totaling $0.2 million, were
requested by customers. There can be no assurance that there will not be future
cancellations or delays in orders.
9
Results of Operations (continued)
- ---------------------------------
Gross Profit Margin. Gross profit margin decreased from 44.8 percent for the
three months ended December 31, 1997, to 38.4 percent for the three months ended
December 31, 1998. The gross profit margin during the nine months ended December
31, 1998 decreased to 38.6 percent from 44.1 percent during the nine months
ended December 31, 1997. The primary contributor to the decrease in gross profit
margin dollars for the current three and nine-month periods ended compared to
those of the same periods in 1997, was the decrease in net sales, as discussed
above, without a corresponding drop in expenses. During the quarter ended
September 30, 1998, the Company reviewed all its products by product line. The
Company made a decision to discontinue support of certain products and versions
of products that the Company believed did not contribute reasonable profit
margins, competed with more profitable products or did not have sufficient
market opportunities. The Company increased its inventory reserves by $1.8
million or 2.7 percent of net sales for the nine months ended December 31, 1998.
In both the three and nine-month periods ended December 31, 1998, gross profit
margin as a percentage of net sales decreased because of the low levels of
manufacturing in response to lower net sales. During those periods,
respectively, unapplied indirect manufacturing expenses of $2.1 million or 12.5
percent of net sales and $5.3 million or 8.0 percent of net sales were charged
to cost of goods sold. It remains the goal of the Company to improve gross
profit margins as a percentage of net sales in the future through reduction of
manufacturing costs and other inefficiencies in the Company's distribution
system. However, in order to achieve historical gross profit margins, the
Company's net sales levels need to increase. In addition, there can be no
assurance that such improved margins can be realized through a return of net
sales or such cost cutting efforts or that margins may not be negatively
affected by other factors such as those contained in the Company's Annual Report
on Form 10-K for the fiscal year end March 31, 1998.
Research and development. Research and development expenses increased from $3.4
million, or 7.9 percent of net sales, during the three months ended December 31,
1997, to $3.6 million, or 21.2 percent of net sales, during the three months
ended December 31, 1998. Research and development expenses increased from $9.4
million, or 7.8 percent of net sales, during the nine months ended December 31,
1997, to $11.0 million or 16.4 percent of net sales for the same period ended
December 31, 1998. The dollar increase is due primarily to increases in staffing
and personnel related expenses and other costs related to the addition of
robotics to the Company's product offerings and by the Company's continuing
development of new products and product enhancements. The percentage increase in
research and development expense is due to the decrease in net sales activity
during the current three and nine-month periods ended December 31, 1998. The
Company expects that its research and development costs may increase in future
periods, but will fluctuate as a percentage of net sales.
Selling, general and administrative. Selling, general and administrative
expenses increased from $8.5 million, or 20.2 percent of net sales, during the
three months ended December 31, 1997, to $9.5 million, or 56.1 percent of net
sales, during the three months ended December 31, 1998. Selling, general, and
administrative expenses increased from $25.6 million, or 21.3 percent of net
sales, during the nine months ended December 31, 1997, to $30.4 million, or 45.5
percent of net sales, during the nine months ended December 31, 1998. The
increase, over the comparable three-month period, is composed of $1.5 million in
additional litigation expenses related to the Jenoptik lawsuit and $2.0 million
(including $0.6 million amortization of acquisition related intangibles) related
to the addition of Hine Design, Incorporated ("Hine Design"), which was acquired
on July 31, 1998. The increased litigation and Hine Design expenses were offset
by $2.5 million of reductions in commission and variable compensation expenses
and other cost reductions resulting from actions to size the Company to its
lower net sales. The increases over the corresponding nine-month period are
largely explained by the items noted for the increases in the comparative three
months period plus $1.5 million of litigation costs and $0.5 million related to
Hine Design during the first nine months of the fiscal year. The Company expects
that selling, general and administrative spending may increase in future
periods, although the spending may vary as a percentage of net sales.
Purchased in-process research and development and amortization. In April 1998,
the Company completed the acquisition of the FluoroTrac product line from
Fluoroware, Inc. The transaction was recorded using purchase accounting in the
quarter ended June 30, 1998. In connection with the acquisition of FluoroTrac,
the Company recorded a write-off of $1.2 million of in-process research and
development (See the Notes to Condensed Consolidated Financial Statements) in
the quarter ended June 30, 1998. The remaining excess cost of purchase price
over net assets acquired of approximately $0.3 million is being amortized over
periods of three to five years.
10
Results of Operations (continued)
- ---------------------------------
In July 1998, the Company acquired Hine Design. The transaction was recorded
using purchase accounting as of July 31, 1998. In connection with the
acquisition of Hine Design, the Company recorded a write-off of $5.9 million
dollars of purchased in-process research and development costs (See the Notes to
the Condensed Consolidated Financial Statements) in the quarter ended September
30, 1998. In addition, approximately $18.4 million of the purchase price in
excess of the value of net liabilities assumed were allocated to various
intangible assets, which are being amortized over periods of four to fourteen
years (dollar average life of ten years). During the current quarter, a charge
for amortization relating to these intangibles of approximately $0.6 was
included in selling, general and administrative expenses.
Restructuring expense. During the three-month period ended September 30, 1998,
in response to the continued reductions in capital spending by semiconductor
manufacturers, the Company under took a formal plan to lower its cost structure
and reorganize itself to more effectively manufacture, market and sell its
portfolio of products and value added services. The restructuring effort
consisted of the closure of two of its facilities in the United States during
the quarter ended December 31, 1998 and closure or downsizing certain
facilities in Europe by March 31, 1999. In addition, management of the
software business was streamlined eliminating one level of management and
administrative activities, which were deemed redundant.
Other income, net. Other income, net, decreased from $1.1 million during the
three months ended December 31, 1997 to $0.5 million during the three months
ended December 31, 1998. Other income, net, decreased from $2.1 million during
the nine months ended December 31, 1997 to $2.0 million during the nine months
ended December 31, 1998. The decreases in other income, net, resulted from
higher average cash and cash investments available during the prior year periods
and a decrease in royalty income from a manufacturing license agreement that has
now expired. During the quarter ended September 30, 1998, the Company used
approximately $11.5 million in cash to repurchase 0.9 million shares of its own
common stock, as part of a stock repurchase plan it announced during the quarter
to repurchase up to 2.0 million shares of its own common stock. There have not
been any repurchases of or sales of the Company's common stock since September
30, 1998. Other income, net was impacted by cash used for the repurchase plan
($11.5 million) as well as other financing activities ($11.3 million), offset by
cash generated by operating activities ($0.3 million) and investing activities
($15.6 million) during the nine months ended December 31, 1998.
Provision (benefit) for income taxes. The Company's effective income tax rate
decreased from 36.0 percent for the three and nine-month periods ended December
31, 1997 to 34.0 percent during the three and nine-month periods ended December
31, 1998. The decrease in the Company's effective tax rate is the result of
increased benefits related to non-taxable investment income and various other
tax credits. The annual estimated effective tax rate and benefit recorded for
the three and nine-month period ended December 31, 1998, reflects the estimated
benefit associated with the utilization of net operating losses generated during
the current fiscal year.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1998, the Company had approximately $5.4 million in cash and
cash equivalents and approximately $77.1 million of working capital, including
approximately $35.9 million in short-term investments. As of September 30, 1998
under a working capital line of credit agreement with a bank, the Company could
borrow up to $20.0 million conditioned upon meeting certain financial covenants,
including maintaining specific levels of quarterly and annual earnings, working
capital, tangible net worth and liquidity. In light of the Company's working
capital position and in efforts to reduce overhead costs, management decided to
cancel the line of credit agreement, effective November 2, 1998.
11
Liquidity and Capital Resources (continued)
- -------------------------------------------
Although the Company cannot anticipate with certainty the effect of inflation on
its operations, to date inflation has not had a material impact on the Company's
net sales or results of operations. The functional currency of the Company is
the US dollar. To date, the impact of currency translation gains or losses has
not been material to the Company's sales or results of operations.
The nature of the semiconductor industry, combined with the current economic
environment, makes it very difficult for the Company to predict future liquidity
requirements with certainty. However, the Company believes that its existing
cash and cash equivalents, cash generated from operations and existing sources
of working capital will be adequate to finance its operations for the
foreseeable future.
Year 2000 Software Exposure
- ---------------------------
As a result of many computer programs using two digits rather than four to
express dates, the performance of the Company's computer systems and those of
its suppliers and customers in the Year 2000 is uncertain. In conjunction with
expert third-party Year 2000 consultants, the Company is assessing and
implementing programs to address its potential exposures to the Year 2000 issue.
With respect to its internal business systems, the Company is working with the
third-party vendors of such systems to ensure that Year 2000 compliance either
exists today or will be achieved via vendor supplied upgrades in a timely
manner. The Company has adopted programs, which it continues to evaluate and
modify to ensure Year 2000 compliance is met, for both future shipments of its
products, and for its products already in the current customer installed base.
Many products have already been found to be compliant, while others still may
require further modification in order to be compliant. Furthermore, the Company
is addressing the potential impact to the Company of non-compliance by any of
its key suppliers or customers. The Company's programs include communications
with the Company's significant suppliers and customers to determine the extent
to which the Company is vulnerable to any failures by suppliers and customers to
address the Year 2000 issue. On a case by case basis, where the Company
determines that it may be at a material adverse risk due to non-compliance by
any of its key suppliers, the Company may develop contingency plans for an
alternate source of supply. The Company expects to incur internal staff and
engineering costs as well as consulting and other expenses related to the Year
2000 project. At this time, these costs of effecting any such product
modifications, or the impact on the operations of the Company should it or one
of its suppliers or customers be unable to successfully address the Year 2000
issue, are not yet estimable but are believed to not be material. Despite these
efforts, there can be no assurance that the Year 2000 issue will not have a
material adverse effect on the Company in the future.
12
PART II - OTHER INFORMATION
Item 1. 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. ("Jenoptik"),
Jenoptik-Infab, Inc. ("Infab"), a joint venture comprised of Jenoptic, Emtrak,
Inc. (Emtrak") and Empak, Inc. ("Empak"), Emtrak and Empak alleging
infringements 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 Company's Complaint seeks damages and injunctive relief against
further infringement. All defendants have filed counter claims, seeking a
judgment declaring the patents invalid, unenforceable and not infringed.
Jenoptik, Infab, and Emtrak have also alleged that the Company has violated
federal antitrust laws. The Company has denied these allegations. In May 1998,
the Company and Empak stipulated to a dismissal, without prejudice, of their
respective claims and counter claims against each other. In November 1998, the
Court granted defendants' motion for partial summary judgment as to patent
infringement. In January 1999, the court granted the Company's motion for leave
to seek reconsideration of the November summary judgment order. These and other
matters remain pending. In addition, the parties in the meantime have
stipulated to, and the Court has ordered, the dismissal without prejudice two of
the three defendants' antitrust counterclaims. A trial date has been set for
July 1999. While it is not possible to predict accurately or to determine the
eventual outcome of these matters, the Company believes that the outcome of
these legal proceedings will not have a material adverse effect on the financial
position of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Form 8-K
None
13
SIGNATURES
Pursuant to the requirements of the securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASYST TECHNOLOGIES, INC.
Date: February 9, 1999 By: /s/ Douglas J. McCutcheon
---------------- -----------------------------
Douglas J. McCutcheon
Senior Vice President
Chief Financial Officer
Signing on behalf of the registrant
and as the principal accounting and
financial officer
14
EXHIBIT INDEX
Sequential
Page
Exhibit Number Description of Exhibit Number
- -------------- ---------------------- ------
27.1 Financial Data Schedule 17