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 JUNE 30, 1999
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-22114
ASYST TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2942251
(STATE OR OTHER JURISDICTION OF 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 AUGUST 5, 1999 WAS 12,789,981.
- --------------------------------------------------------------------------------
ASYST TECHNOLOGIES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS --
JUNE 30, 1999 AND MARCH 31, 1999 2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS --
THREE MONTHS ENDED JUNE 30, 1999 AND
JUNE 30, 1998 3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS --
THREE MONTHS ENDED JUNE 30, 1999 AND
JUNE 30, 1998 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. SALE OF UNREGISTERED SECURITIES 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
- ----------
EXHIBIT INDEX 18
- -------------
1
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
JUNE 30, MARCH 31,
1999 1999
-------------- -------------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash $ 2,913 $ 6,382
Short-term investments 33,883 29,380
Accounts receivable, net 20,688 14,511
Inventories 18,556 19,373
Deferred tax asset 19,845 19,142
Prepaid expenses and other current assets 3,618 3,474
-------- --------
Total current assets 99,503 92,262
-------- --------
Property and equipment, net 12,755 12,923
Other assets, net 18,164 19,103
-------- --------
$130,422 $124,288
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ -- $ 2,190
Accounts payable 6,127 5,055
Accrued liabilities and other current liabilities 8,511 10,051
Income taxes payable 709 676
Customer deposits 1,284 1,806
-------- --------
Total current liabilities 16,631 19,778
-------- --------
Long-term liabilities:
Redeemable convertible preferred stock -- 5,000
Long-term debt, net of current portion -- 2,876
-------- --------
Total long-term liabilities -- 7,876
-------- --------
Shareholders' equity:
Common stock 134,066 111,751
Accumulated deficit (20,275) 15,117)
-------- --------
Total shareholders' equity 113,791 96,634
-------- --------
$130,422 $124,288
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
Three Months Ended
June 30,
--------------------------------------
1999 1998
--------------- ---------------
(unaudited) (unaudited)
Net sales $27,086 $37,441
Cost of sales 15,840 19,724
------- -------
Gross profit 11,246 17,717
------- -------
Operating expenses:
Research and development 4,235 4,540
Selling, general & administrative 11,342 10,545
In-process research and development of acquired business -- 1,200
------- -------
Total operating expenses 15,577 16,285
------- -------
Operating income (loss) (4,331) 1,432
Other income (expense), net (14) 355
------- -------
Income (loss) before provision (benefit) for income taxes (4,345) 1,787
Provision (benefit) for income taxes (1,477) 887
------- -------
Net income (loss) $(2,868) $ 900
======= =======
Basic earnings (loss) per share $ (0.23) $ 0.07
======= =======
Diluted earnings (loss) per share $ (0.23) $ 0.07
======= =======
Shares used in the per share calculation:
Basic earnings (loss) per share 12,228 12,148
======= =======
Diluted earnings (loss) per share 12,228 12,761
======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended
June 30,
-----------------------------
1999 1998
-------- --------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,868) $ 900
Adjustments to reconcile net income (loss) to net cash
provided by (used by) operating activities:
Adjustment to conform year end of pooled company (2,290) --
Purchased in-process research and development of acquired business -- 1,200
Depreciation and amortization expense 2,101 1,425
Change in provision for doubtful accounts (140) 34
Change in net assets/liabilities of discontinued operations -- 1,603
Changes in current assets and liabilities, net of acquisition of
FluoroTrac(R) product line:
Accounts receivable (6,037) 4,424
Inventories 817 (2,585)
Deferred tax asset (650) --
Prepaid expenses and other current assets (144) (70)
Other asset, net 251 --
Accounts payable 1,072 (555)
Accrued liabilities and other current liabilities (1,540) 381
Customer deposits (522) (151)
Income taxes payable 33 1,678
-------- --------
Net cash provided by (used by) investing activities (9,917) 8,284
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (37,783) (20,050)
Sale of short-term investments 33,280 8,802
Purchase of property, plant and equipment, net (1,298) (941)
Increase in other assets, net -- (444)
Cash used for acquisition of the FluoroTrac(R) product line -- (2,794)
-------- --------
Net cash used by investing activities (5,801) (15,427)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on current and long-term debt (1,429) (1,045)
Issuance of common stock 13,678 114
-------- --------
Net cash provided by (used by) financing activities 12,249 (931)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (3,469) (8,074)
CASH, BEGINNING OF PERIOD 6,382 15,006
-------- --------
CASH, END OF PERIOD $ 2,913 $ 6,932
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of Asyst
Technologies, Inc. the ("Company"), a California corporation, and its wholly
owned subsidiaries. Significant inter-company accounts and transactions have
been eliminated. On June 2, 1999 the Company acquired Progressive System
Technologies, Inc. ("PST") in a transaction accounted for using the pooling-of-
interest accounting method. Accordingly, the restated condensed consolidated
financial statements of the Company give retroactive effect to the merger with
PST and all material inter-company 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, 1999 included in its Annual Report on Form 10-K.
Short-term Investments
As of June 30, 1999 and March 31, 1999, the Company's short-term investments
consisted of liquid debt investments with maturities, at the time of purchase,
of one year or less and will remain classified as such until such time they are
subsequently sold and converted to cash. All such investments have been
classified as "available-for-sale" and are carried at fair value, with
unrealized holding gains and losses (which have not been material to date), net
of taxes reported as a separate component of shareholders' equity. The cost of
the debt security is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, interest income, realized gains and
losses and declines in value that are considered to be other than temporary, are
included in other income (expense), net, on the accompanying condensed
consolidated statements of operations. There have been no declines in value that
are considered to be other than temporary for any of the three months in the
period ended June 30, 1999. 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 (dollars in
thousands):
Cost / Fair Value
----------------------------------
June 30, 1999 March 31, 1999
--------------- ----------------
(unaudited) (unaudited)
Debt securities issued by states of the United States and political subdivisions of
the states........................................................................... $ -- $12,780
Corporate debt securities.............................................................. 33,883 16,600
------- -------
Total $33,883 $29,380
======= =======
5
Supplemental Statements of Cash Flows Disclosure
Cash paid for interest and domestic and foreign income taxes was as follows
(dollars in thousands):
Three Months Ended
June 30,
---------------------------------------------
1999 1998
--------------------- --------------------
(unaudited) (unaudited)
Interest............................................................. $ 158 $100
Income taxes......................................................... $ 32 $ 64
Inventories
Inventories are stated at the lower of cost (first in, first out) or market
and include materials, labor and manufacturing overhead costs. Inventories
consist of the following (dollars in thousands):
June 30, 1999 March 31, 1999
--------------------- --------------------
(unaudited) (unaudited)
Raw materials........................................................ $13,949 16,119
Work-in-process and finished goods................................... 4,607 3,254
------- -------
Total $18,556 $19,373
======= =======
Intangible Assets
The realizability of intangible assets, which are included in other assets,
net, in the accompanying condensed consolidated balance sheet, is evaluated
periodically as events or circumstances indicate a possible inability to recover
the net carrying amount. Such evaluation is based on various analyses,
including cash flow and profitability projections that incorporate, as
applicable, the impact on existing lines of business. The analyses involve a
significant level of management judgment in order to evaluate the ability of the
Company to perform within projections.
Provision (Benefit) for Income Taxes
The Company has recorded a deferred tax asset of approximately $19.8 million,
of which $1.5 million relates to net operating losses and tax credits generated
during the current year. The Company will be able to recognize approximately
$5.0 million of the deferred tax asset immediately following the filing of
carryback claims with Federal and various state taxing authorities, which will
be completed in the near future. Realization of the remaining deferred tax asset
is dependent on generating sufficient future taxable income. Although
realization is not assured, the Company believes that it is more likely than not
that the deferred tax assets will be realized. Although the deferred tax asset
is considered realizable, actual amounts could be reduced if sufficient future
taxable income is not achieved.
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
warrants and redeemable convertible preferred stock, using the treasury stock
method.
6
The following table sets forth the calculation of basic and diluted earnings
per share (dollars in thousands, except share and per share amounts):
Three Months Ended
June 30,
-------------------------------------
1999 1998
----------------- ----------------
(unaudited) (unaudited)
Basic earnings (loss) per share:
Net income (loss)................................................................... $(2,868) $ 900
------- -------
Weighted average common shares...................................................... 12,228 12,148
------- -------
Basic earnings (loss) per share..................................................... $ (0.23) $ 0.07
======= =======
Diluted earnings (loss) per share:
Net income (loss)................................................................... $(2,868) $ 900
------- -------
Weighted average common shares...................................................... 12,228 12,148
Weighted average common share equivalents:
Options and warrants................................................................ - 579
Redeemable preferred stock.......................................................... - 34
------- -------
Diluted weighted average common shares.............................................. 12,228 12,761
------- -------
Diluted earnings (loss) per share................................................... $ (0.23) $ 0.07
======= =======
Comprehensive Income
In 1999, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130 "Reporting Comprehensive Income," which establishes standards
for reporting and presentation of comprehensive income. SFAS No. 130, which was
adopted by the Company in the first quarter of 1999, requires companies to
report a new measure of income (loss). Comprehensive income is defined as the
change in equity of a company during a period from transactions and other events
and circumstances excluding transactions resulting from investments by owners
and distributions to owners and is to include unrealized gains and losses that
have historically been excluded from net income (loss) and reflected instead in
equity. The Company has not had any such transactions or events during the
periods and therefore comprehensive income (loss) is the same as the net income
(loss) reported in the condensed consolidated financial statements.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. It requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met and that a company must formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. SFAS No. 133
is effective for fiscal years beginning after June 15, 2001 and cannot be
applied retroactively. The Company has not yet determined the effect SFAS No.
133 will have on its financial position, results of operations or cash flows.
RESTRUCTURING ACTIVITY
During the year ended March 31, 1999 the Company underwent significant
restructuring of its operations to reduce its costs structure in response to the
reduction in net sales activities. The Company also is in the process of
completing the planned restructuring activities in Japan and Europe to
reposition its activities to compete more effectively. In addition, the Company
is repositioning its product offerings to eliminate low margin products, or
software services that have high risks of failure. During the fiscal year ended
March 31, 1999, the Company recorded a restructuring expense of approximately
$5.5 million.
7
The following table summarizes restructuring charges and amounts incurred by
geographic region as of June 30, 1999 (dollars in thousands):
Expensed Cash outlays Ending
as of as of Accrual
March 31, 1999 June 30, 1999 June 30, 1999
--------------- ------------------ -------------
Europe:
Severance................................................................ $1,732 $1,050 $ 682
Facilities............................................................... 336 235 101
Other.................................................................... 437 138 299
Japan:
Severance................................................................ 150 75 75
Other.................................................................... 35 -- 35
US:
Severance................................................................ 700 594 106
Facilities............................................................... 550 297 253
Other.................................................................... 1,002 64 938
Non-cash................................................................... 600 N/A N/A
------ ------ ------
Total $5,542 $2,453 $2,489
====== ====== ======
As of June 30, 1999, the Company has severed all employees targeted in
connection with the restructuring. The Company expects all cash payments to
severed employees will be disbursed by December 31, 1999. Certain facilities
and other restructuring costs may not be fully disbursed before the end of
fiscal year ended March 31, 2000.
REPORTABLE SEGMENTS
In 1999, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 supersedes SFAS 14, "Financial
Reporting for Segments of a Business Enterprise", replacing the "industry
segment" approach with the "management" approach. SFAS 131 designates the
internal organization that is used by management for making decisions,
evaluating performance and allocating resources of the enterprise as the source
of the Company's reportable segments. SFAS 131 also requires disclosures about
products and services, geographic areas and major customers. The adoption of
SFAS 131 did not impact the results of operations or financial position but did
affect the disclosures of segment information.
The Company offers a family of products and related services to provide a front-
end automation and isolation system for wafer handling in semiconductor
manufacturing facilities. All of the Company's activities are aggregated into a
single operating segment. As a result, no operating segment information is
required.
Net sales by geography were as follows (dollars in thousands):
Three Months Ended
June 30,
------------------------------------
1999 1998
----------------- -----------------
(unaudited) (unaudited)
United States............................................................. $12,292 $15,528
Taiwan.................................................................... 9,948 16,200
Singapore................................................................. 1,346 1,200
Japan..................................................................... 2,646 2,867
Europe.................................................................... 854 1,646
Other Asia (excluding Japan, Singapore and Taiwan)........................ -- --
-------- -------
Total.................................................................. $27,086 $37,441
======== =======
8
The net sales by product or service categories comprising the Company's net
sales were as follows (dollars in thousands):
Three Months Ended
June 30,
------------------------------------
1999 1998
----------------- ----------------
(unaudited) (unaudited)
SMIF Systems........................................................... $22,852 $30,028
SMART Traveler Systems................................................. 1,579 3,499
Robotics............................................................... 1,333 --
Services & other....................................................... 1,322 3,914
------- -------
Total............................................................... $27,086 $37,441
======= =======
ACQUISITION OF THE FLUOROTRAC(R) PRODUCT LINE
In April 1998, the Company entered into an agreement with Fluoroware, Inc.
("Fluoroware"), a supplier of materials management solutions; to acquire
Fluoroware's FluoroTrac(R) automated radio frequency identification ("RFID")
technology for automated work-in-progress tracking in semiconductor factories.
Under the terms of the agreement, the Company acquired all of the FluoroTrac
intellectual property including RFID tracking solutions, inventory and
installed-base opportunities from Fluoroware in consideration for approximately
$2.8 million in cash and liabilities assumed by the Company.
In connection with the acquisition, approximately $1.2 million of the intangible
assets acquired consisted of in-process research and development. Because there
can be no assurance that the Company will be able to successfully complete the
development of FluoroTrac products or that the technology has any alternative
future use, such in-process research and development was charged to expense in
the three-month period ended June 30, 1998. As a result of the purchase price
allocation, approximately $0.3 million was assigned to intangible assets related
to existing product technology, the assembled workforce and the excess purchase
price over the net assets acquired. These intangibles are being amortized over a
three to five year period. 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.
ACQUISITION OF HINE DESIGN INCORPORATED
On July 31, 1998, the Company completed its acquisition of Hine Design
Incorporated ("Hine"). The acquisition, originally announced on July 6, 1998,
was structured as a purchase of all of the outstanding capital stock of Hine for
approximately $12.4 million in cash. In addition, the Company granted options to
purchase the Company's common stock in substitution for outstanding, vested
options to purchase capital stock of Hine worth approximately $1.0 million and
assumed certain liabilities of Hine of approximately $12.5 million. Hine, a
supplier of wafer-handling robots for semiconductor process tools, is now a
wholly owned subsidiary of the Company.
In connection with the acquisition, approximately $18.4 million of the purchase
price in excess of the value of net liabilities assumed were allocated to
various intangible assets, which are being amortized over periods of four to
fourteen years (dollar average life of ten years). During the current quarter, a
charge for amortization relating to these intangibles of approximately $0.6 was
included in selling, general and administrative expenses.
ACQUISITION OF PROGRESSIVE SYSTEM TECHNOLOGIES, INC.
On June 2, 1999, the Company completed its acquisition of 100 percent of the
common stock of PST, a Texas corporation, in exchange for 274,810 shares of
common stock of the Company. In addition to the exchange of common stock in the
merger, 225,190 shares of common stock of the Company were issued in exchange
for $4.9 million of PST debt. PST manufactures wafer-sorting equipment used by
semiconductor manufacturers. The acquisition has been accounted for using the
pooling-of-interest method of accounting. Accordingly, the
9
accompanying condensed consolidated financial statements have been restated for
all periods prior to the business combination. All material inter-company
transactions between the Company and PST have been eliminated.
Costs associated with the PST merger, which consist primarily of transaction
costs amounted to approximately $0.1 million and were expensed during the
current fiscal period ended. PST's fiscal year end was December 31. In
accordance with Securities and Exchange Commission Rules, the condensed
consolidated statements of operations and cash flows for the three months ended
June 30, 1998 have been restated to reflect the statement of operations and cash
flows of PST. The condensed consolidated balance sheet, as of March 31, 1999,
has also been restated to reflect the financial position of PST. PST's results
of operations for the three-month period ended March 31, 1999 have been excluded
from the reported results of operations and, therefore, have been added to the
Company's accumulated deficit as of April 1, 1999. PST's net sales and net loss
for the three-month period ended March 31, 1999 were $1.5 million and $2.3
million, respectively.
The conforming of Asyst's and PST's accounting practices resulted in no
adjustments to net income (loss) or shareholders' equity. Net sales and net
income (loss) for the individual companies reported prior to the merger were as
follows (dollars in thousands):
Three Months Ended
June 30,
---------------------------
1999 1998
------------ ------------
(unaudited) (unaudited)
Net sales:
Asyst Technologies, Inc. .................................................... $24,865 $34,073
PST.......................................................................... 2,221 3,368
------- -------
Total........................................................................... $27,086 $37,441
======= =======
Net income (loss):
Asyst Technologies, Inc. .................................................... $(1,926) $ 1,576
PST.......................................................................... (942) (676)
------- -------
Total........................................................................... $(2,868) $ 900
======= =======
In conjunction with the PST acquisition, the Company also completed a private
placement of 625,000 shares of its Common Stock to eight institutional
investors. The private placement, which closed in May 1999, was priced at
$18.00 per share, for aggregate proceeds of approximately $11.3 million. The
purpose of the private placement was to untaint shares of Common Stock to obtain
pooling-of-interests accounting treatment for the acquisition of PST. The
proceeds will be used for general corporate purposes.
SHAREHOLDERS' RIGHTS PLAN
The Company has adopted a Shareholders' Rights Plan under which all shareholders
of record, as of July 10, 1998 (the "Record Date"), received a dividend of one
preferred share purchase right (a "Right") for each outstanding share of common
stock, without par value per share, (the "Common Shares") of the Company. The
Rights will also attach to new Common Shares issued after the Record Date. Each
Right entitles the registered holder to purchase from the Company one one-
hundredth of a share of Series A Junior Participating Preferred Stock, without
par value per share, (the "Preferred Shares") of the Company at a price of $140
per one one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. Each Preferred Share is designed to be the economic equivalent of
100 Common Shares.
STOCK REPURCHASE PROGRAM
On June 22, 1998, the Board of Directors of the Company, authorized a stock
repurchase program whereby up to 2,000,000 shares of its Common Stock may be
repurchased by the Company using existing cash, from time-to-time at market
prices, and as market and business conditions warrant, in the open market, or in
negotiated transactions. The Company utilized a portion of the reacquired shares
for reissuance in connection with certain employee stock programs. On June 3,
1999, in connection with the acquisition of PST, the Company rescinded the stock
purchase program and reissued the remaining portion of the reacquired shares in
May 1999.
10
RELATED PARTY TRANSACTIONS
On September 30, 1997, the Company entered into an asset purchase agreement with
Palo Alto Technologies, Inc. ("PAT") pursuant to which the Company sold to PAT
certain intellectual property rights and office equipment which were owned or
licensed by a wholly-owned subsidiary of the Company in consideration for
quarterly "Earn-Out Payments" up to an aggregate of $2.0 million. The earn-out
payments are equal to 4.0 percent of PAT gross revenue. The Company may convert
the right to receive such earn-out payments into shares of PAT securities at the
closing of certain issuance of securities by PAT. In addition, PAT granted the
Company the non-exclusive, worldwide right to distribute and sell any of PAT's
products on PAT's most favorable distributor terms and conditions; except PAT
may grant exclusive distribution rights to particular markets so long as such
rights are first offered to the Company and the Company does not accept the
offer. Such distribution rights shall terminate on the earlier of (i) the fifth
anniversary of such agreement or (ii) if the Company begins selling its own
products which are directly competitive with PAT's products. The Chairman and
Chief Executive Officer of the Company is the Chairman and principal shareholder
of PAT. The parties have agreed that the Chairman and Chief Executive Officer of
the Company and one other officer (also a shareholder of PAT) of the Company may
be advisors or directors of PAT while employed full time by the Company.
As of June 30, 1999 and March 31, 1999, the Company held four notes receivable,
with balances totaling $1,172,750, from two executive officers of the Company,
which have resulted from advances made to the officers to assist in their
relocation to California. The notes bear interest that ranges from 4.0 percent
to 6.4 percent per annum and are fully secured by second deeds of trust on
certain real property, as well as, other pledged securities of the Company owned
by the officers, respectively. The notes, which are included in "Prepaid
expenses and other current assets" in the accompanying condensed consolidated
balance sheets, mature at various dates between September 1, 2002 and January
31, 2004.
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"), Emtrak, Inc. ("Emtrak") and Empak, Inc.
("Empak") alleging infringement of two patents related to the Company's SMART
Traveler System(TM). 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 filed counter claims,
seeking a judgment declaring the patents invalid, unenforceable and not
infringed. Jenoptik, Infab, and Emtrak also alleged that the Company has
violated federal antitrust laws and engaged in unfair competition. 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 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 unfair business practices claims. On June
4, 1999, the court issued an order by which it granted the Company's 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 intends to take an appeal. The trial
date has since been vacated and the court has under submission whether it is
obligated to proceed with any remaining matters. 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.
11
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, 1999.
During the past year, Asyst Technologies, Inc., completed its acquisition of
Hine Design Incorporated ("Hine") and Progressive System Technologies, Inc.
("PST"). The acquisition of Hine was completed on July 31, 1998 and was
accounted for using the purchase method of accounting. The acquisition of PST
was completed on June 2, 1999 and was accounted for using the pooling-of-
interest method of accounting. While the results of operations for the quarter
ended June 30, 1998 have been restated to reflect the pooling-of-interest
related to the acquisition of PST, these results do not contain the results of
operations for Hine, as the acquisition date occurred during the second quarter
of fiscal 1999. The following discussion of the results of operations is made on
a comparative basis for the three-month periods ended June 30, 1999 and 1998,
respectively. It should be noted that on a comparative basis, there has been
increases in all categories of the results of operations, due to the inclusion
of results related to Hine for the three-month period ended June 30, 1999.
Results of Operations
Net sales. Net sales decreased from $37.4 million for the three months ended
June 30, 1998, to $27.1 million for the three months ended June 30, 1999, a 27.7
percent decrease. The aforementioned sales figure of $37.4 million does not
include Hine, as the acquisition did not close during the three-month period
ended June 30, 1998. Net sales by Hine for the three months ended June 30, 1999
were $3.0 million. Therefore, the decrease in net sales on a comparative basis,
excluding Hine, actually decreased 35.6 percent. The decrease in net sales for
the three month period ended June 30, 1999 from the same period in the prior
fiscal year resulted primarily because of the reduction in capital expenditures
by major world-wide semiconductor manufactures. The decrease in demand for logic
and memory chips and the excess production capacity being available to many of
the semiconductor manufactures during the past four fiscal quarters, resulting
from the recession that is being experienced in the Asian economies, has
negatively effected the Company's sales orders. However, the recent public
announcements by many of the world-wide semiconductor manufactures, such as
Taiwan Semiconductor Manufacturing Company, as to increases in capital spending
budgets, has sparked new orders for the Company. The Company's ending backlog
for the quarter ended June 30, 1999 continues to be greater than net sales for
the quarter then ended. Also, the Company's book to bill ratio is above the
published book to bill ratio of the semiconductor equipment manufacturing
industry of 1.2. The stability of the backlog has improved as evidenced by a
decrease in cancellations and delays of orders requested by customers during the
quarter ended June 30, 1999 over those cancellations and delays of orders
experienced during the three recent quarters ended. Although management is
optimistic about these results, there is no assurance that this trend in orders
and sales activity will continue. Furthermore, there is no assurance that sales
activity may not decrease or that sales orders may not be cancelled or delayed
in the future.
International sales for the Company decreased from $21.0 million, or 61.6
percent of net sales during the three months ended June 30, 1998, to $14.8
million, or 54.6 percent of net sales during the three months ended June 30,
1999. The decrease in international sales as a percentage of total net sales is
primarily due to the increase in OEM sales, which are primarily U.S. based, that
typically are expected to lead end user sales when semiconductor capital
spending is recovering from low levels. International sales by region for the
three-month period ended June 30, 1999 are summarized as follows:
Geographic Net Sales Percentage of
Region (in millions) Net Sales
---------- ----------------- --------------------
Taiwan $ 9.9 36.5%
Japan 2.7 10.0%
Singapore 1.3 4.8%
Europe 0.9 3.3%
------ ------
$14.8 54.6%
====== ======
12
Gross Profit Margin. Gross profit margin decreased from 47.3 percent for the
three months ended June 30, 1998, to 41.5 percent for the three months ended
June 30, 1999. The primary contributor to the decrease in gross profit margin
dollars for the current three-month period ended compared to that of the same
period in 1998, was the 35.6 percent decrease in net revenues from that reported
in fiscal 1998, as discussed above, as well as the Company's inability to reduce
fixed manufacturing overhead costs to compensate for the current lower revenue
levels. The decrease in gross profit margin for the current period was
compounded by the lower profit margin of 24.2 percent related to the sales
generated by Hine. Even though the Company has taken actions and continues to
take steps to reduce its manufacturing overhead, the Company's net sales must
continue to increase to higher levels in order to achieve historical gross
profit margins. There can be no assurance that in the future such improved
margins can be realized through an increase of net sales and certain 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, 1999.
Research and development. Research and development expenses decreased from $4.5
million during the three months ended June 30, 1998, to $4.2 million during the
three months ended June 30, 1999. Research and development expenses increased
from 12.1 percent of net sales during the three months ended June 30, 1998, to
15.6 percent of net sales, during the three months ended June 30, 1999. The
dollar decrease is due primarily to cost cutting measures, but offset by $0.6
million in research and development expense for Hine during the current fiscal
period. The increase as a percentage of net sales in research and development
expense is due to the lower level of net sales activity during the current
three-month period ended June 30, 1999 versus the net sales for the same period
last year. As the Company continues to develop new products and product
enhancements, the Company expects that its research and development costs may
increase in future periods, but will continue to fluctuate as a percentage of
net sales.
Selling, general and administrative. Selling, general and administrative
expenses increased from $10.5 million, or 28.2 percent of net sales, during the
three months ended June 30, 1998, to $11.3 million, or 41.9 percent of net
sales, during the three months ended June 30, 1999. Absent the inclusion of
Hine, selling, general and administrative expenses for the three-month period
ended June 30, 1999 would have been approximately $10.2 million or 42.3 percent
of net sales. Reductions in commission and variable compensation expenses and
other cost reductions contributed to the relative flat spending rate, excluding
Hine. With the acquisition of Hine in July 1998, 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.
The increase in selling, general and administrative expenses as a percentage of
net sales for the current three-month period ended compared to that of the same
period in 1998, was due to the decrease in net revenues from net revenues for
the same period in fiscal 1998, as discussed above. The Company expects that
selling, general and administrative spending will increase in future periods as
the higher net sales suggested by the Company's backlog are fulfilled, although
spending may continue to vary as a percentage of net sales.
Purchased in-process research and development. 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 during the
quarter ended June 30, 1998. (See the Notes to Condensed Consolidated Financial
Statements)
Other income (expense), net. Other income (expense), net, decreased from $0.4
million of income, net during the three months ended June 30, 1998 to $0.01
million of expense, net during the three months ended June 30, 1999. The
decreases in other income (expense), net, resulted from lower average cash and
cash investments available during the current year period and a decrease in
royalty income from a manufacturing license agreement that has now expired. The
Company has extinguished all debt that it assumed in the acquisition of PST. The
Company expects other income (expense), net to be positively impacted by the
$0.3 to $0.4 million with the elimination of interest expense related to the PST
debt.
13
Provision (benefit) for income taxes. The Company's reported effective income
tax rate decreased from 49.6 percent for the three-month period ended June 30,
1998 to 34.0 percent during the three-month period ended June 30, 1999. The
reported tax rate for the three-month period ended June 30, 1998 has been
impacted by the acquisition of PST, accounted for as a pooling-of-interest. The
annual estimated tax benefit for the three-month period ended June 30, 1998
related to net operating losses generated that period by PST was fully reserved
as there was uncertainty as to its ability to generate future taxable income.
The combined annual estimated effective tax rate, as reported, for the period
ended June 30, 1998, does not recognize the full benefit of anticipated
utilization of net operating losses of PST in the future. Absent the
restatement of earnings to reflect the pooling-of-interest related to PST for
the three-month period ended June 30, 1998, the Company's effective tax rate
would have been 36.0 percent. The annual estimated effective tax rate and
benefit recorded for the three-month period ended June 30, 1999, reflects the
estimated benefit associated with the utilization of net operating losses
generated during previous fiscal years. Additionally, the benefit for income
taxes was impacted by foreign income and withholding taxes in excess of the
statutory rates, the lack of Foreign Sales Corporation benefit due to net
operating losses during the current year and limitations on state net operating
loss carryforwards.
Liquidity and Capital Resources
Since its inception, the Company has funded its operations primarily through the
sale of equity securities and public stock offerings, customer pre-payments,
bank borrowings and cash generated by its operations. As of June 30, 1999, the
Company had approximately $36.8 million in cash and short-term investments and
approximately $82.9 million of working capital. In June 1998, the Board of
Directors of the Company authorized a stock repurchase program to repurchase up
to 2,000,000 shares of the Company's common stock. In May 1999, the Company
announced it had cancelled the repurchase program and subsequently completed a
private placement of 625,000 shares of its Common Stock to eight institutional
investors. At the time of the cancellation, the Company had repurchased a total
of 865,800 shares of common stock at an aggregate cost of approximately $11.5
million. The private placement was priced at $18.00 per share and generated
proceeds to the Company of approximately $11.3 million. The purpose of the
private placement was to remove the tainted shares of Common Stock to obtain
pooling-of-interests accounting treatment for the acquisition of PST.
Additionally, during the third and forth quarters of fiscal 1999 and the first
quarter of fiscal 2000, the Company re-issued the remaining 240,800 shares of
acquired common stock in connection with its employee stock programs, which
generated net proceeds of approximately $3.2 million. Also during the current
quarter ended June 30, 1999, the Company issued additional 96,296 shares of the
Company's common stock in connection with its employee stock programs, which
generated net proceeds of approximately $1.2 million. The proceeds from the
recent capital stock transactions will be used for general corporate purposes.
Under two separate working line of credit agreements with a bank, PST was able
to borrow up to $7.0 million conditioned upon meeting certain financial
covenants. In June 1999, in conjunction with the Company's acquisition of PST,
all borrowings against the line of credit agreements were repaid. Subsequently,
the line of credit agreements have expired and in light of the combined
Company's working capital position and in efforts to reduce overhead costs, the
Company decided not to renew the line of credit agreements.
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 through the next
12 months of operations.
Year 2000 Compliance Initiative
What is commonly referred to as the Year 2000 issue arises because many computer
systems use only two digits to represent the year portion of a date. As a
result, these systems may fail to properly calculate dates and date-related
computations at, around or after January 1, 2000, resulting in erroneous results
or system failures.
In conjunction with third-party expert consultants, the Company launched a
comprehensive program to assess and address its potential exposures. The
program is substantially complete with the exception of PST as noted below.
14
With respect to its internal business systems, the Company is working with the
third-party vendors of such systems to ensure Year 2000 compliance either exists
today or will be achieved via vendor supplied upgrade in a timely manner. The
Company's principal enterprise resource planning system has been certified Year
2000 compliant by its manufacturer and has passed in-house compliance testing.
The Company believes that except for a systematic failure outside its control,
such as a prolonged loss of electrical power or telephone service, Year 2000
problems of these third parties will not have a material impact on operations.
The Company's products have been, and continue to be, evaluated for Year 2000
compliance. Many have been found to be compliant today and others have been
found to require modest modification to be compliant. Programs are in place and
are being further developed to complete such modifications, for both future
shipments and in the customer installed base.
Also being assessed is the potential impact to the Company of non-compliance by
suppliers, subcontractors, business partners and customers. As part of that
assessment, the Company has requested, in writing, assurances from these third
parties that they are Year 2000 compliant. Some of these third parties have
indicated that they are Year 2000 compliant. Others are still in the process of
their own compliance reviews. If the Company identifies that a third party has
a material Year 2000 compliance issue, it will work with the third party to
resolve the issue or identify another supplier or service provider that is Year
2000 compliant.
With the acquisition of PST on June 2, 1999, additional products and systems
must be integrated to the Company's Year 2000 Compliance Program. These efforts
are expected to be completed by September 30, 1999.
The Company's total incremental cost of assessing and re-mediating its systems
and product Year 2000 issues is estimated to be between $0.5 million and $1.0
million. Approximately $0.2 million has been expended as of March 31, 1999,
with between $0.2 and $0.4 million in capital expenditures planned for the
first nine months of fiscal year 2000.
While the Company is engaged in an ongoing Year 2000 assessment, it has not
developed any contingency plans at this time. The completion of the ongoing
assessment will include a determination of the need for, and nature and extent
of any contingency plans.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
There has not been a material change in the Company's exposure to interest rate
and foreign currency risk since the date of the fiscal 1999 Form 10-K.
Although the Company and its subsidiaries operate and sell products in various
global markets, substantially all sales are denominated in the U.S. dollar
(except in Japan, where over 20 percent of sales generated in Japan are
denominated in the yen), therefore reducing the foreign currency risk. To date,
the foreign currency transactions and exposure to exchange rate volatility have
not been significant. 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, however, with the industry's
upturn currently underway; labor markets are tightening thus putting upward
pressure on current labor costs. The Company's exposure to market risk for
changes in interest rates relate primarily to the investment portfolio. The
Company's investment portfolio consists of short-term, fixed income securities
and by policy is limited by the amount of credit exposure to any one issuer.
Fixed rate securities have their fair market value adversely affected due to
rise in interest rates. To date, the change in interest rate markets has not had
a material impact on the Company's results of operations or the market value of
the Company's investments. There can be no assurance that foreign currency risk,
inflation or interest rate risk will not be a material impact on the financial
position, results of operations or cash flow of the Company in the future.
15
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"), Emtrak, Inc.
("Emtrak") and Empak, Inc. ("Empak") alleging infringement of two
patents related to the Company's SMART Traveler System(TM). 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 filed
counter claims, seeking a judgment declaring the patents invalid,
unenforceable and not infringed. Jenoptik, Infab, and Emtrak also
alleged that the Company has violated federal antitrust laws and
engaged in unfair competition. 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 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 unfair
business practices claims. On June 4, 1999, the court issued an order
by which it granted the Company's 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 intends to take an appeal. The
trial date has since been vacated and the court has under submission
whether it is obligated to proceed with any remaining matters. 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 2. Sale of Unregistered Securities
In conjunction with the acquisition of Progressive System Technologies,
Inc., the Company also completed a private placement of 625,000 shares
of its Common Stock to eight institutional investors. The purpose of
the private placement was to untaint shares of Common Stock to obtain
pooling-of-interests accounting treatment for the acquisition of PST.
The sale of such shares of common stock was deemed to be exempt from
registration under the Securities Act of 1933, as amended, pursuant to
Regulation D/Rule 506. The Company intends to file a registration
statement, to be effective within 90 days. Thus permitting the resale
of the securities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.12 Employment and Compensation Agreement between Asyst
Technologies, Inc. and Mihir Parikh, dated April 1, 1999
27.1 Financial Data Schedule
(b) Form 8-K
The Company filed a current report of Form 8-K relating to the
acquisition by Asyst Technologies, Inc. ("Asyst") of Progressive
System Technologies, Inc. and the private placement of 625,000
shares of Asyst common stock on June 18, 1999.
16
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: August 16, 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
17
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
10.12 Employment and Compensation Agreement Between Asyst
Technologies, Inc. and Mihir Parihk, dated April 1, 1999
27.1 Financial Data Schedule
18