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, 2001
or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File number 0-22430
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 July 31, 2001 was 35,279,046.
ASYST TECHNOLOGIES, INC.
INDEX
Part I. Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
June 30, 2001 and March 31, 2001 3
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 2001 and
June 30, 2000 4
Condensed Consolidated Statements of Cash Flows --
Three Months Ended June 30, 2001 and
June 30, 2000 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Part II. Other Information
-----------------
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
- ----------
Exhibit Index 24
- -------------
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, March 31,
2001 2001
-------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 41,613 $ 34,749
Restricted cash equivalents and short-term investments............ 43,032 52,500
Short-term investments............................................ -- 3,000
Accounts receivable, net.......................................... 57,650 77,660
Inventories....................................................... 69,750 76,972
Deferred tax asset................................................ 34,460 20,068
Prepaid expenses and other current assets......................... 14,433 16,017
-------- --------
Total current assets.................................... 260,938 280,966
-------- --------
Property and equipment, net............................................ 40,914 40,160
Intangible assets and other assets, net................................ 131,120 87,306
-------- --------
$432,972 $408,432
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and finance leases.............. $ 1,808 $ 1,791
Short-term loans.................................................. 63,622 28,776
Accounts payable.................................................. 19,075 29,560
Accrued liabilities and other current liabilities................. 49,179 36,495
Deferred revenue.................................................. 8,995 5,190
-------- --------
Total current liabilities............................... 142,679 101,812
-------- --------
Long-term liabilities:
Long-term debt and finance leases, net of current portion......... 4,883 3,683
Other long-term liabilities....................................... 378 474
-------- --------
Total long-term liabilities............................. 5,261 4,157
-------- --------
Shareholders' equity:
Common Stock, no par value........................................ 293,049 282,925
Retained earnings (deficit)....................................... (8,017) 19,538
-------- --------
Total shareholders' equity.............................. 285,032 302,463
-------- --------
$432,972 $408,432
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share data)
Three Months Ended
June 30,
------------------------
2001 2000
-------- ---------
Net sales................................................................................ $ 67,259 $122,483
Cost of sales............................................................................ 49,765 67,151
-------- --------
Gross profit............................................................................. 17,494 55,332
-------- --------
Operating expenses:
Research and development............................................................... 11,319 9,721
Selling, general and administrative.................................................... 23,075 21,451
Non-recurring charges.................................................................. 18,652 --
In-process research and development costs of acquired business......................... 2,000 --
Intangible asset amortization.......................................................... 3,542 1,702
-------- --------
Total operating expenses............................................................. 58,588 32,874
-------- --------
Operating income (loss).................................................................. (41,094) 22,458
Other income (expense), net.............................................................. (32) 1,311
-------- --------
Income (loss) before provision (benefit) for income taxes................................ (41,126) 23,769
Provision (benefit) for income taxes..................................................... (13,571) 8,380
-------- --------
Income (loss) before cumulative effect of change in accounting principle................. (27,555) 15,389
Cumulative effect of change in accounting principle...................................... -- (2,506)
-------- --------
Net income (loss)........................................................................ $(27,555) $ 12,883
======== ========
Basic earnings (loss) per share:
Income (loss) before cumulative effect of change in accounting principle............... $ (0.79) $ 0.48
Cumulative effect of change in accounting principle.................................... -- (0.08)
-------- --------
Basic net income (loss) per share........................................................ $ (0.79) $ 0.40
======== ========
Diluted earnings (loss) per share:
Income (loss) before cumulative effect of change in accounting principle............... $ (0.79) $ 0.43
Cumulative effect of change in accounting principle.................................... -- (0.07)
-------- --------
Diluted net income (loss) per share...................................................... $ (0.79) $ 0.36
======== ========
Shares used in the per share calculation:
Basic.................................................................................. 35,007 32,162
======== ========
Diluted................................................................................ 35,007 35,377
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
Three Months Ended
June 30,
----------------------
2001 2000
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................................................... $(27,555) $ 12,883
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting principle, net of tax benefit................ -- 2,506
Depreciation and amortization.......................................................... 6,477 3,566
Shares awarded to Board of Directors and employees..................................... 28 80
Change in provision for doubtful accounts.............................................. 63 175
Write-down of land held for sale....................................................... 15,000 --
Tax benefit realized from activity in employee stock option plans...................... 244 4,290
In-process research and development costs.............................................. 2,000 --
Changes in assets and liabilities, net of acquisitions:
Accounts receivable.................................................................... 21,098 (7,267)
Inventories............................................................................ 7,427 (11,942)
Deferred tax asset..................................................................... (13,723) 4,550
Prepaid expenses and other............................................................. 1,707 (228)
Other assets, net...................................................................... 3,420 (3,380)
Accounts payable....................................................................... (10,627) 7,930
Accrued liabilities and other.......................................................... (3,684) 7,126
Deferred revenue....................................................................... 2,871 1,188
-------- --------
Net cash provided by operating activities............................................. 4,746 21,477
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments........................................................ -- (33,650)
Sale or maturity of short-term investments................................................ 3,000 79,630
Purchase of restricted cash equivalents and short-term investments........................ (28,082) --
Sale or maturity of restricted cash equivalents and short-term investments................ 37,550 --
Purchase of property and equipment, net................................................... (3,383) (3,133)
Net cash used in acquisitions............................................................. (3,759) (1,350)
-------- --------
Net cash provided by investing activities............................................. 5,326 41,497
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term loans.............................................................. (6,277) 5,671
Proceeds from the issuance of long-term debt and finance leases........................... 1,791 --
Net principal payments on short-term and long-term debt and finance leases................ (574) (6,526)
Issuance of common stock.................................................................. 1,852 2,289
-------- --------
Net cash provided by (used in) financing activities................................... (3,208) 1,434
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS....................................................... 6,864 64,408
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................................................ 34,749 12,638
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................................................... $ 41,613 $ 77,046
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ORGANIZATION OF THE COMPANY:
The accompanying condensed consolidated financial statements include the
accounts of Asyst Technologies, Inc. (the "Company") which was incorporated in
California on May 31, 1984, and its subsidiaries. The Company designs, develops,
manufactures and markets isolation systems, work-in-process materials
management, substrate-handling robotics, automated transport and loading
systems, and connectivity automation software utilized primarily in clean rooms
for semiconductor manufacturing. In June, 1999, the Company acquired Progressive
Systems Technologies, Inc. ("PST") in a transaction accounted for as a pooling-
of-interests.
In August 1999, the Company acquired 100 percent of the common stock of
Palo Alto Technologies, Inc., a California corporation ("PAT"), in a transaction
accounted for using the purchase method of accounting.
In transactions occurring between October 1999 and October 2000 the Company
acquired a total of 95.3 percent of the common stock of MECS Corporation, a
Japanese company ("MECS"). The acquisition was accounted for using the purchase
method of accounting in March 2000 when a majority interest of MECS was
obtained.
In February 2001, the Company acquired Advanced Machine Programming Inc., a
California corporation ("AMP"), and SemiFab Inc., a California corporation
("SemiFab"). Both transactions, which were unrelated, were accounted for using
the purchase method of accounting.
In May 2001, the Company acquired GW Associates, Inc., a California
corporation ("GW"), in a transaction accounted for using the purchase method of
accounting.
SIGNIFICANT ACCOUNTING POLICIES:
Basis of Preparation
While the financial information furnished is unaudited, the condensed
consolidated financial statements included in this report reflect all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for the fair presentation of the results of operations for
the interim periods covered and of the financial condition of the Company at the
date of the interim balance sheet. Certain prior year amounts in the condensed
consolidated financial statements and the notes thereto have been reclassified
where necessary to conform to the quarter ended June 30, 2001. The Company
closes its books on the last Saturday of each quarter and thus the actual date
of the quarter-end is usually different from the month-end dates used throughout
this 10-Q report. The results for interim periods are not necessarily indicative
of the results for the entire year. The condensed consolidated financial
statements should be read in connection with the Asyst Technologies, Inc.
consolidated financial statements for the year ended March 31, 2001 included in
its Annual Report on Form 10-K, as amended.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less from the date of purchase to be cash
equivalents. The carrying value of the cash equivalents approximates their
current fair market value.
6
Short-term Investments
As of June 30, 2001 and 2000, the Company's short-term investments consist
of liquid debt investments with maturities, at the time of purchase, greater
than three months and less than one year. All such investments have been
classified as "available-for-sale" and are carried at fair value. Unrealized
holding gains and losses, net of taxes reported, have not been material to date
and are reported as a separate component of shareholders' equity. The cost of
the debt 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 consolidated
statements of operations. There have been no declines in value that are
considered to be other than temporary for either of the three month periods
ended March 31, 2001 or 2000. The cost of investments sold is based on specific
identification. The Company does not intend to hold the individual securities
for greater than one year.
Short-term investments by security type are as follows (dollars in
thousands):
June, 30 March 31
2001 2001
----------------- ---------------
(unaudited)
U.S. corporate debt securities............................................ $ --- $3,000
========== ======
Restricted Cash Equivalents and Restricted Short-term Investments
Restricted cash equivalents and restricted short-term investments represent
amounts that are restricted as to their use in accordance with a lease agreement
for land in Fremont, California. Restricted short-term investments by security
type are as follows (dollars in thousands):
June 30, March 31,
2001 2001
--------------- ------------
(Unaudited)
U.S. corporate debt securities............................................ $13,400 $21,100
Debt securities issued by States of the United States and
political subdivisions of the States.................................... 13,632 15,250
------- -------
Total......................................................... $27,032 $36,350
======= =======
Supplemental Statements of Cash Flows Disclosure
Cash paid for interest and domestic and foreign income taxes was as follows
(unaudited; dollars in thousands):
Three Months Ended
June 30,
-------------------------------
2001 2000
--------- -----------
Interest.................................................................. $ 356 $ 169
Income Taxes.............................................................. $ 47 $ 27
The Company's significant non-cash investing and financing activities were
as follows (unaudited; dollars in thousands):
Three Months Ended
June 30,
-----------------------------------
2001 2000
------------ ------------------
Commitment to purchase land............................................... $ 41,121 $ --
7
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, March 31,
2001 2001
---------------- ---------------
(Unaudited)
Raw materials............................................................. $ 41,065 $ 50,490
Work-in-process and finished goods........................................ 28,685 26,482
-------------- ------------
Total....................................................... $ 69,750 $ 76,972
============== ============
Intangible Assets and Other Assets
Intangible assets and other assets, net consisted of the following (dollars
in thousands):
June 30, March 31,
2001 2001
----------------- ------------
(Unaudited)
Intangible assets, net.................................................... $ 100,926 $ 79,264
Land held for sale........................................................ 26,121 -
Other assets.............................................................. 4,073 8,042
---------------- -----------
Total....................................................... $ 131,120 $ 87,306
================ ===========
The realizability of intangible assets, which are included in intangible
assets and other assets, net, in the accompanying condensed consolidated balance
sheets, is evaluated periodically as events or circumstances indicate a possible
inability to recover the net carrying amount. Such evaluation is based on
various analyses, including cash flow and profitability projections that
incorporate, as applicable, the impact on existing lines of business. The
analyses involve a significant level of management judgment in order to evaluate
the ability of the Company to perform within projections.
In May 2001, the Company entered into a commitment to purchase land in
Fremont, California for $41.1 million by December 31, 2001 when it amended a
lease agreement with a syndicate of financial institutions. The Company has
decided not to construct buildings on the land and is actively marketing the
land. The Company recorded this commitment as a short-term loan and the
associated asset as land held for sale, which is included in intangible assets
and other assets, net, in the accompanying condensed consolidated balance sheet,
as of June 30, 2001 (see SHORT-TERM LOANS). Based upon market data, the Company
estimates that the current market value of the land has been impaired and as
such recorded a $15.0 million write-down to estimated market value during the
quarter ended June 30, 2001 (see NON-RECURRING CHARGES).
Revenue Recognition
The Company changed its revenue recognition policy effective April 1, 2000,
based on guidance provided in Securities and Exchange Commission Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred or service has been rendered, the
seller's price is fixed or determinable and collectibality is reasonably
assured. Some of the Company's products are large volume consumables that are
tested to industry and/or customer acceptance criteria prior to shipment.
Revenue for these types of products is recognized at shipment. Certain of the
Company's product sales are accounted for as multiple-element arrangements. If
the Company has met defined customer acceptance experience levels with both the
customer and the specific type of equipment, the Company recognizes the product
revenue at the time of shipment and transfer of title, with the remainder when
the other elements, primarily installation, have been completed. Other products
of the Company are highly customized systems that cannot be completed or
adequately tested to customer specifications prior to shipment from the factory.
The Company does not recognize revenue for these products until formal
acceptance by the customer. Revenue for spare parts sales is recognized on
shipment. Revenue related to maintenance and service
8
contracts is recognized ratably over the duration of the contracts. Unearned
maintenance and service contract revenue is not significant and is included in
accrued liabilities and other.
During the quarter ended, June 30, 2000, the Company recorded a non-cash
charge of $2.5 million, net of an income tax benefit of $1.3 million or a loss
of $0.07 per diluted share, to reflect the cumulative effect of the change in
accounting principle, as of the beginning of the quarter, in accordance with the
guidance provided in SAB 101. As a result, certain amounts for the quarter ended
June 30, 2000 have been restated to reflect the adoption of SAB 101 for
comparative purposes.
Prior to the year ended March 31, 2001, the Company's revenue policy was to
recognize revenue at the time the customer takes title to the product, generally
at the time of shipment. Revenue related to maintenance and service contracts
was recognized ratably over the duration of the contracts.
The Company accounts for software revenue in accordance with the American
Instituted of Certified Public Accountants' Statement of Position 97-2,
"Software Revenue Recognition." Revenues for integration software work are
recognized on a percentage of completion. Software license revenue, which is not
material to the consolidated financial statements, is recognized when the
software is shipped; payment is due within one year; collectibality is probable
and there are no significant obligations remaining.
Provision for Income Taxes
The Company recorded a benefit for income taxes of $13.6 million,
representing an annual effective income tax rate of 33 percent for the three
month period ended June 30, 2001. The Company recorded a provision for income
taxes of $8.4 million, representing an annual effective income tax rate of 35.3
percent for the three month period ended June 30, 2000. The provision (benefit)
for income taxes is attributable to federal, state, and foreign taxes. The
annual effective income tax rate for the three month period ended June 30, 2001
reflects the benefits of tax free interest income and research and development
tax credits. Conversely, the annual effective income tax rate for the three
month period ended June 30, 2001 has been adversely affected by non-deductible
charges of $2.9 million and $2.0 million. These non-deductible charges are
related to amortization of certain intangible assets and in-process research and
development, respectively.
The Company has recorded a net deferred tax asset of approximately $34.5
million, of which $7.5 million relates to net operating losses generated in the
current year. The Company can recognize approximately $2.5 million of the
deferred tax asset by carrying back the net operating loss and receiving a
refund of prior taxes paid. Realization of the remaining deferred tax assets is
dependent on generating sufficient future taxable income. Although realization
is not assured, management believes that it is more likely than not that the
deferred tax assets will be realized.
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 dilutive common equivalent shares outstanding. Dilutive common equivalent
shares used in the computation of diluted earnings per share result from the
assumed exercise of stock options, warrants and redeemable convertible preferred
stock, using the treasury stock method. For the quarter ended June 30, 2001, the
number of shares used in the computation of diluted earnings (loss) per share
was the same as the number used for the computation of basic earnings (loss) per
share. The Company did not include potentially dilutive securities of 1,939,805
for the quarter ended June 30, 2001 in the computation of diluted earnings
(loss) per common share because to do so would be anti-dilutive.
9
The following table sets forth the calculation of basic and diluted
earnings per share (unaudited; in thousands, except per share amounts):
Three Months Ended
June 30,
----------------------
2001 2000
---------- -----------
Basic earnings per share:
Net income (loss)......................................................................... $(27,555) $12,883
-------- -------
Weighted average common shares............................................................ 35,007 32,162
-------- -------
Basic earnings per share.............................................................. $ (0.79) $ 0.40
======== =======
Diluted earnings per share:
Net income (loss)......................................................................... $(27,555) $12,883
-------- -------
Weighted average common shares............................................................ 35,007 32,162
Weighted average common share equivalents:
Options................................................................................ -- 3,215
-------- -------
Diluted weighted average common shares...................................................... 35,007 35,377
-------- -------
Diluted earnings per share............................................................ $ (0.79) $ 0.36
======== =======
Comprehensive Income
Comprehensive income is defined as the change in equity of a company during
a period from transactions and other events and circumstances excluding
transactions resulting from investments by owners and distributions to owners
and is to include unrealized gains and losses that have historically been
excluded from net income (loss) and reflected instead in equity. The Company has
not had any such transactions or events during the periods, which are material
to the condensed consolidated financial statements. Therefore comprehensive
income (loss) is the same as the net income (loss) reported in the condensed
consolidated financial statements.
New Accounting Pronouncements
On April 1, 2001, the Company adopted Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). SFAS 133 requires that all derivatives be recorded on the balance
sheet at fair value. Changes in the fair value of derivatives that do not
qualify, or are not effective as hedges must be recognized currently in
earnings. The Company sells products internationally in US dollars and Japanese
yen and holds various non-functional currency intercompany balances. These
monetary balances expose the Company to foreign currency risk and are hedged
with foreign currency forward contracts that expire within 12 months. The
Company employs these derivatives to reduce selected foreign currency risks that
can be confidently identified and quantified. Hedges of non-functional currency
assets and liabilities are not SFAS 133 designated hedges, and thus changes in
fair value are recognized immediately in earnings.
On June 29, 2001, the Financial Accounting Standard Board (FASB) approved
for issuance Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Intangible Assets. Major
provisions of these Statements are as follows: all business combinations
initiated after June 30, 2001 must use the purchase method of accounting; the
pooling of interest method of accounting is prohibited except for transactions
initiated before July 1, 2001; intangible assets acquired in a business
combination must be recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the acquired entity and
can be sold, transferred, licensed, rented or exchanged, either individually or
as part of a related contract, asset or liability; goodwill and intangible
assets with indefinite lives are not amortized but are tested for impairment
annually using a fair value approach, except in certain circumstances, and
whenever there is an impairment indicator; other intangible assets will continue
to be valued and amortized over their estimated lives; in-process research and
development will continue to be written off immediately; all acquired goodwill
must be assigned to reporting units for purposes of impairment testing and
segment reporting; effective April 1, 2002, existing goodwill will no longer be
subject to amortization. Goodwill arising between July 1, 2001 and March 31,
2002 will not be subject to amortization. Upon adoption of SFAS No. 142, on
April 1, 2002, the Company will no longer amortize goodwill, thereby eliminating
annual goodwill amortization of approximately $7.9 million, based on anticipated
amortization for 2002. Amortization of goodwill for the three months ended June
30, 2001 was $1.8 million.
10
REPORTABLE SEGMENTS:
The Company offers a family of products and related services to provide
integrated automation systems for wafer handling in semiconductor manufacturing
facilities. All of the Company's activities are aggregated into a single
operating segment.
Net sales by geography were as follows (unaudited; dollars in millions):
Three Months Ended
June 30,
--------------------------
2001 2000
--------- ------------
United States............................................................................. $ 32.3 $ 46.1
Taiwan.................................................................................... 9.6 32.9
Japan..................................................................................... 16.8 17.2
Other Asia/Pacific........................................................................ 3.0 18.9
Europe.................................................................................... 5.6 7.4
------ -------
$ 67.3 $ 122.5
Total................................................................................. ====== =======
We are in the process of realigning the organization around product
divisions. The net sales by our product divisions were as follows (unaudited;
dollars in millions):
Three Months Ended
June 30,
--------------------------
2001 2000
--------- ------------
Tool Based Solutions...................................................................... $ 44.1 $ 97.3
Factory Connectivity Solutions............................................................ 7.7 11.0
Wafer and Reticle Carriers................................................................ 12.1 8.3
Services & other.......................................................................... 3.4 5.9
------ -------
$ 67.3 $ 122.5
Total................................................................................. ====== =======
NON-RECURRING CHARGES:
The Company incurred non-recurring charges of $18.7 million during the
three months ended June 30, 2001 consisting of a $15.0 million impairment of the
market value of land held for sale, the impairment of approximately $2.9 million
of engineering costs related to that land and severance costs of approximately
$0.8 million. The land held for sale is land that the Company agreed to acquire
when it amended a lease agreement for land and buildings in Fremont, California
with a syndicate of financial institutions. Under that agreement the Company is
obligated to purchase the land for a purchase price of $41.1 million on or
before December 31, 2001. The Company also agreed to pay the syndicate of
financial institutions for engineering costs of approximately $2.9 million
incurred in preparation for making leasehold improvements to the land. The
Company decided not to construct buildings on the land and has begun to actively
market the land. Based upon market data, the Company estimates that the current
market value of the land has been impaired and as such recorded a $15.0 million
write-down to estimated market value. Due to a continuing decline in revenues,
in April 2001 the Company reduced its workforce to lower operating costs and
incurred approximately $0.8 million of severance costs in connection with the
workforce reduction.
SHORT-TERM LOANS:
The Company had Japanese Yen 2,712 million ($22.1 million) and Japanese Yen
3,608 million ($28.8 million) at June 30, 2001 and March 31, 2001, respectively
of short-term debt from banks in Japan. As of June 30, 2001, the interest rate
ranged from 1.4 percent to 1.9 percent, and as of March 31, 2001, the interest
rate ranged from 1.4 percent to 2.0 percent.
In May the Company entered into a commitment to purchase land in Fremont,
California for $41.1million by December 31, 2001 when it amended a lease
agreement with a syndicate of financial institutions. The Company recorded this
commitment as a short-term loan in the accompanying condensed consolidated
balance sheet, as of
11
June 30, 2001. At June 30, 2001 this commitment bore interest at rates ranging
from 5.51 percent to 6.51 percent (see Intangible Assets and Other Assets).
LONG-TERM DEBT:
On June 29, 2001, the Company entered into a new long-term debt agreement
with The Tokai Bank in Japan. Under this loan agreement, the Company then
borrowed Japanese Yen 200 million (approximately $1.6 million), at an interest
rate of 1.8% fixed, with payments of principal and interest due monthly from
July 2001 through May 2008. At June 30, 2001 maturities of the loan are as
follows (dollars in thousands):
Fiscal Year Ending
March 31,
---------
2002.................................................................................... $ 235
2003.................................................................................... 235
2004.................................................................................... 235
2005.................................................................................... 235
2006 and thereafter..................................................................... 690
------
Total $1,630
======
ACQUISITION OF GW ASSOCIATES, INC.
On May 22, 2001 the Company acquired GW, a developer of factory integration
software used by electronics manufacturers, for $3.6 million of cash, 451,263
shares of the Company's common stock valued at $8.0 million and a note payable
of $16.0 million payable in May 2002 in a combination of cash and the Company's
common stock. The acquisition was accounted for using the purchase method of
accounting. Accordingly the results of GW have been combined with those of the
Company's since the date of acquisition. Approximately $26.5 million of the
purchase price, in excess of the net assets of $4.5 million acquired, was
allocated to intangible assets. These intangible assets consist of in-process
research and development, developed technology, installed customer base,
assembled workforce, trade name, and the excess purchase price over the net
assets acquired. Because there can be no assurance that the Company will be
able to successfully complete the associated products or that the technology has
any alternative future use, $2.0 million of such in-process research and
development was charged as an expense during the quarter ended June 30, 2001.
The remaining intangible assets are being amortized over three to six years.
Management believes that the unamortized balance of these assets totaling $24.5
million at June 30, 2001, which is included in intangible and other assets, net,
in the accompanying condensed consolidated balance sheets, is recoverable.
Comparative pro forma information reflecting the acquisition of GW has not
been presented because the operations of GW are not material to the Company's
financial statements.
RELATED PARTY TRANSACTIONS:
At June 30, 2001, the Company held two notes receivable from an executive
officer totaling $0.8 million and five separate notes receivable from other
employees totaling $1.1 million. At June 30, 2000, the Company held three
separate notes receivable from one executive officer and a former executive
officer totaling $1.1 million and one note receivable from another employee of
the Company with a balance of $0.2 million. Loans were extended to these
individuals to assist them in their relocation to California. Each of the notes
receivable are secured by second deeds of trust on certain real property and
certain pledged securities of the Company owned by the employees.
12
SUBSEQUENT EVENTS:
On July 3, 2001 the Company completed the sale of $86.3 million 5 3/4
percent convertible subordinated notes ($82.9 million, net of issuance costs).
The notes are convertible, at the option of the holder, at any time on or prior
to maturity into shares of the Company's common stock. The notes are convertible
at a conversion price of $15.18 per share, which is equal to a conversion rate
of approximately 65.8718 shares per $1,000 principal amount of notes. The notes
mature July 3, 2008, pay interest on January 3 and July 3 of each year and are
redeemable at the Company's option after July 3, 2004.
In March 2001, we filed suit against Fortrend Engineering Corporation
("Fortrend") in the United States District Court for the Northern District of
California, seeking to have two patents declared invalid or not infringed. We
also alleged that the inventors named on the two patents should be corrected to
include an Asyst employee as a joint inventor. Our complaint also included
claims for unfair competition, interference with contractual relations, and
intentional interference with prospective economic advantage. In May 2001,
Fortrend filed counterclaims asserting that Asyst and fourteen of our customers
infringed the two patents by use of our Load Port Transfer system. We denied
Fortrend's allegations. In July 2001, Asyst and Fortrend signed a settlement
agreement. Under the terms of that agreement, we acquired the two patents and a
pending patent application, for $3.1 million and all claims and counterclaims
were dismissed with prejudice.
13
Item 2 - Management's Discussion and Analysis of Results of Financial
Condition and Results of Operations
Forward Looking Statements
Except for the historical information contained herein, the following
discussion includes forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934 that involve risks and uncertainties. We intend such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and we are including this statement for purposes of complying with these safe
harbor provisions. We have based these forward-looking statements on our current
expectations and projections about future events. The Company's actual results
could differ materially. These forward-looking statements are not guarantees of
future performance and are subject to risks, uncertainties and assumptions,
including those set forth in this section as well as those under the caption,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Words such as "expect," "anticipate," "intend," "plan," "believe,"
"estimate" and variations of such words and similar expressions are intended to
identify such forward-looking statements. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of certain factors, including but not limited to those discussed in "Risk
Factors" in our Annual Report on Form 10-K, as amended. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. In light of these
risks, uncertainties and assumptions, the forward-looking events discussed in
this document and in our Annual Report on Form 10-K, as amended might not occur.
The following discussion of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and the
related notes included elsewhere in this report
Overview
We are a leading provider of integrated automation systems for the
semiconductor and related electronics manufacturing industries. We sell our
systems directly to semiconductor manufacturers, as well as to Original
Equipment Manufacturers, or OEM's, that integrate our systems with their
equipment for sale to semiconductor manufacturers. Our sales are tied to the
capital expenditures at fabs and as such are cyclical in nature. Fiscal year
2001 and the first quarter of fiscal year 2002 have demonstrated the cyclical
nature of our business, as discussed below.
We use a dedicated direct sales force worldwide, which is supported by
distributors in Europe. Our functional currency is the U.S. dollar, except in
Japan where our functional currency is the Japanese yen. To date, the impact of
currency translation gains or losses has not been material to our sales or
results of operations.
During fiscal year 1999, we experienced a sharp downturn in our business in
response to a dramatic slowdown in the Asian economies and an over capacity of
memory chip manufacturing. In fiscal year 2000, we experienced significant
growth due to the dramatic growth in capital spending by semiconductor
manufacturers. The increase in capital spending was driven by the growth in
demand for both memory and logic chips in a broad variety of products,
particularly those of internet and telecommunications equipment manufacturers.
In the first half of fiscal year 2001, the demand for our products remained
strong, but in the second half of fiscal year 2001, the demand for our products
decreased significantly as semiconductor manufacturers sharply reduced capital
expenditures. This decrease in capital expenditures resulted in slower bookings
and significant order push outs and cancellations in the fourth quarter of
fiscal year 2001 and in the first quarter of fiscal year 2002.
In addition to the changes in the business cycle impacting demand for our
products, we are seeing a shift from 150mm and 200mm to 300mm products. In
fiscal year 2001, the contribution of 300mm products has increased from 3.5
percent of our net sales in the first quarter of fiscal year 2001 to 13.5
percent of our net sales for the fourth quarter of fiscal year 2001. These
products generate lower gross profit than our 150mm and 200mm products largely
because the 300mm products are early in their product life cycle.
The majority of our revenues in any single quarter are typically derived
from a relatively few large customers, and our revenues will therefore fluctuate
based on a number of factors, including:
14
. the timing of significant customer orders;
. the timing of product shipments and acceptance;
. variations in the mix of products sold;
. the introduction of new products;
. changes in customer buying patterns;
. fluctuations in the semiconductor equipment market;
. pressure from competitors;
. the availability of key components; and
. general trends in the semiconductor industry, electronics industry and
overall economy.
In addition, due to production cycles and customer requirements, we often
ship significant quantities of products in the last month of the quarter. This
factor increases the risk of unplanned fluctuations in net sales since we have
limited opportunity to take corrective actions should a customer reschedule a
shipment or otherwise delay an order during the last month of the quarter.
Acquisitions
During the fiscal year ended March 31, 2001 and the quarter ended June 30,
2001, we acquired the following companies:
In March 2000, we acquired a 78.6 percent ownership interest of MECS, a
Japanese engineering and robotics manufacturing company, and increased our
ownership interest to 95.3 percent during fiscal year 2001. We subsequently
merged MECS into AJI. The transactions were accounted for using the purchase
method of accounting.
In February 2001, we acquired AMP, a manufacturer of precision parts. The
transaction was accounted for using the purchase method of accounting.
In February 2001, we acquired SemiFab, a manufacturer of environmental
control equipment and a contract manufacturer. The transaction was accounted for
using the purchase method of accounting.
In May 2001, we acquired GW, a developer of factory integration software
used by electronics manufacturers. The transaction was accounted for using the
purchase method of accounting.
15
Three Months Ended June 30, 2001 and 2000
The following table sets forth the percentage of net sales represented by
condensed consolidated statements of operations data for the periods indicated:
Three Months Ended
June 30,
----------------------
2001 2000
------ ------
Net sales................................................................... 100.0 % 100.0 %
Cost of sales............................................................... 74.0 54.8
------ ------
Gross profit............................................................ 26.0 45.2
------ ------
Operating expenses:
Research and development.................................................... 16.8 8.0
Selling, general and administrative......................................... 34.3 17.5
Non-recurring charges....................................................... 27.7 --
In-process research and development costs of acquired business.............. 3.0 --
Intangible asset amortization............................................... 5.3 1.4
------ ------
Total operating expenses................................................ 87.1 26.9
------ ------
Operating income (loss)..................................................... (61.1) 18.3
Other income (expense), net................................................. (0.1) 1.1
------ ------
Income (loss) before provision (benefit) for income taxes and
cumulative effect of change in accounting principle......................... (61.2) 19.4
Provision (benefit) for income taxes........................................ (20.2) 6.8
------ ------
Income (loss) before effect of change in accounting principle............... (41.0) 12.6
Cumulative effect of change in accounting principle, net of tax benefit..... -- (2.1)
------ ------
Net income (loss)........................................................... (41.0)% 10.5 %
====== ======
Results of Operations
Net Sales. Net sales decreased 45.1 percent from $122.5 million for the
quarter ended June 30, 2000, to $67.3 million for the quarter ended June 30,
2001. Our acquisitions of AMP, SemiFab and GW contributed $5.1 million to net
sales in the quarter ended June 30, 2001. Absent the contribution to net sales
from these acquisitions, net sales decreased 49.3 percent from the quarter ended
June 30, 2000.
Capital spending by the semiconductor manufacturers was near its peak
levels during the quarter ended June 30, 2000. We experienced a significant
slowdown in new orders during the third and fourth quarters of our fiscal year
ended March 31, 2001. In the fourth quarter of fiscal year 2001, our net sales
declined 10.1 percent from the third quarter. Net sales in the first quarter of
fiscal year 2002 declined 41.6 percent from net sales in the fourth quarter of
fiscal year 2001. These declines resulted from a substantial reduction in
capital spending by semiconductor manufacturers worldwide. We experienced a
material decline in net sales of our 200mm products, which was partially offset
by increased sales of our 300mm products. We currently expect net sales to
decline to $50 to $55 million for the second quarter of fiscal year 2002.
Our international sales, including local revenues recorded at our foreign
locations, were as follows (unaudited; dollars in millions):
Three Months Ended Three Months Ended
June 30, 2001 June 30, 2000
------------------------------------ ---------------------------------
Geographic Percentage of Percentage
Region of of
Net Sales Net Sales Net Sales Net Sales
- ----------------------------------- ----------------- -------------- ------------- --------------
Taiwan $ 9.6 14.3% $32.9 26.9%
Japan 16.8 25.0 17.2 14.1
Other Asia/Pacific 3.0 4.4 18.9 15.4
Europe 5.6 8.3 7.4 6.0
----- ---- ----- -----
Total $35.0 52.0% $76.4 62.4%
===== ==== ===== =====
16
Our international sales decreased as a percent of our total sales from 62.4
percent in the quarter ended June 30, 2000 to 52.0 percent in the current
quarter for two primary reasons. First, our semiconductor manufacturing
customers in the Asia Pacific regions have not added any new 200mm manufacturing
capacity. Secondly, semiconductor manufacturers are directing their capital
spending largely to 300mm projects. Semiconductor manufacturers are currently
placing orders for our products through OEMs and the majority of OEMs are in the
U.S. and Japan and to a lesser extent in Europe.
We currently have a single reportable segment. However, we are in the
process of realigning the organization around product divisions. The net sales
by our product divisions were as follows (unaudited; dollars in millions):
Three Months Ended
June 30,
------------------------------------------
2001 2000
-------------------- -----------------
Tool Based Solutions.................................... $44.1 $ 97.3
Factory Connectivity Solutions.......................... 7.7 11.0
Wafer and Reticle Carriers.............................. 12.1 8.3
Services & other........................................ 3.4 5.9
----- ------
$67.3 $122.5
Total............................................... ===== ======
Gross Margin. Gross margin decreased from 45.2 percent of net sales for the
three months ended June 30, 2000, to 26.0 percent of net sales for the three
months ended June 30, 2001. The primary reasons for the decline in gross margin
were a significant shift in product mix to 300mm products and lower production
levels resulting in lower absorption of manufacturing overhead. In the three
months ended June 30, 2000, 300mm products contributed only 3.5 percent of our
net sales compared to 29.9 percent of net sales for the three months ended June
30, 2001. The 300mm products are very early in their product life cycle and
currently have low margins in comparison to our 200mm products. We have enacted
cost reduction initiatives related to our 300mm products and expect improved
gross margins for these products in future periods. Because of the anticipated
size of the emerging 300mm product market, we face strong competition on price
and features for these products from existing and new competitors. While we have
taken actions to reduce our manufacturing overhead, many of these costs are
fixed costs. Until our net sales return to levels consistent with those
experienced in our quarter ended June 30, 2000, our gross margin will continue
to be negatively impacted on a comparative basis by unabsorbed manufacturing
overhead costs. Our gross margin will continue to be impacted by future changes
in product mix, net sales volumes and market competition.
Research and Development. Research and development expenses increased 16.4
percent from $9.7 million for the three months ended June 30, 2000, to $11.3
million including $0.5 million contributed by the acquisitions of SemiFab and
GW, for the three months ended June 30, 2001. Research and development expenses
increased as a percentage of net sales from 8.0 percent for the three months
ended June 30, 2000 to 16.8 percent for the three months ended June 30, 2001.
During each of the first three quarters of fiscal year 2001 we increased
research and development spending for our 300mm products and material handling
systems. Then in response to the decline in our net sales, we began reducing our
research and development expenditures in the quarter ended March 31, 2001 and
continued that trend in the quarter ended June 30, 2001. However, the
combination of the impact of the acquisitions and our commitment to develop and
improve our product offerings have not afforded us the opportunity to reduce
research and development expenses to the level of the three months ended June
30, 2000. Our research and development expenses vary as a percentage of net
sales because we do not manage these expenditures strictly to variations in our
level of net sales. We expect that our research and development expenses may
increase in future periods and will fluctuate as a percentage of net sales.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.6 million or 7.6 percent from $21.5 million for the three
months ended June 30, 2000, to $23.1 million for the three months ended June 30,
2001. During the quarter ended June 30, 2001, selling, general and
administrative expenses would have declined by $0.1 million compared with the
quarter ended June 30, 2000 but the acquisitions of AMP, SemiFab and GW
increased selling, general and administrative expenses by $1.7 million.
Excluding the effect of the acquisitions of AMP, SemiFab and GW we reduced
selling, general and administrative expenses by approximately $2.9 million for
the quarter ended June 30, 2001 as compared to the quarter ended December 31,
2000 in response to
17
the decline in net sales during the last two quarters. We reduced headcount in
both the fourth quarter of fiscal year 2001 and at the end of the first month of
the current quarter. We have also implemented several targeted cost reduction
initiatives to lower our selling, general and administrative expenses. Selling,
general and administrative expenses increased as a percentage of net sales from
17.5 percent for the three months ended June 30, 2000 to 34.3 percent for the
three months ended June 30, 2001 because we have not been able to reduce
spending at the same rate net sales have declined. As a result of our
acquisitions over the last three years, we currently operate with a number of
independent systems. In order to position ourselves for future growth
opportunities, we will need to increase our investment in administrative systems
and processes which will increase the fixed costs associated with general and
administrative functions. While these investments should provide long-term
productivity improvements, our transition to new systems may result in increased
expense levels before reductions from any productivity improvements are
realized.
Non-recurring Charges. We incurred non-recurring charges of $18.7 million
during the three months ended June 30, 2001 consisting of a $15.0 million
impairment of the market value of land held for sale, the impairment of
approximately $2.9 million of engineering costs related to that land and
severance costs of approximately $0.8 million. The land held for sale is land
that we agreed to acquire when we amended a lease agreement for land and
buildings in Fremont, California with a syndicate of financial institutions.
Under that agreement we are obligated to purchase the land for a purchase price
of $41.1 million on or before December 31, 2001. We also agreed to pay the
syndicate of financial institutions for engineering costs of approximately $2.9
million incurred in preparation for making leasehold improvements to the land.
We decided not to construct buildings on the land and have begun to actively
market the land. Based upon market data we estimate that the current market
value of the land has been impaired and as such recorded a $15.0 million write-
down to estimated market value. Due to a continuing decline in revenues, in
April 2001 we reduced our workforce to lower operating costs and incurred
approximately $0.8 million of severance costs in connection with the workforce
reduction.
In-process Research and Development Costs of Acquired Business. On May 22,
2001, we acquired GW in a transaction accounted for using the purchase method of
accounting. In connection with the purchase price allocation we wrote-off $2.0
million of value assigned to in-process research and development costs for
efforts that had not reached technological feasibility at the time of our
acquisition. There were no charges for the three month period ended June 30,
2000.
Amortization of Acquired Intangible Assets. Amortization expenses relating
to acquired intangible assets were $1.7 million or 1.4 percent of net sales for
the three months ended June 30, 2000 and $3.5 million or 5.3 percent of net
sales for the three months ended June 30, 2001. Amortization of goodwill for the
three months ended June 30, 2001 was approximately $1.8 million. We amortize the
acquired intangible assets over periods ranging from four to fourteen years. On
June 29, 2001, the Financial Accounting Standards Board, or FASB, approved the
issuance of Statement of Financial Accounting Standards No. 142, Goodwill and
Intangible Assets. Upon adoption of this new statement, on April 1, 2002, we
will no longer amortize goodwill, thereby eliminating annual goodwill
amortization of approximately $7.9 million, based upon the anticipated
amortization for fiscal year 2002.
Other Income (Expense), Net. Other income (expense), net, includes interest
income, interest expense, royalty income and foreign exchange gain and loss.
Other income (expense), net, decreased from $1.3 million of income, net for the
three months ended June 30, 2000 to less than $0.1 million of expense for the
three months ended June 30, 2001. The reasons for the decrease were an increase
of $0.3 million of interest expense related to the loan on the land held for
sale discussed above combined with a decrease in interest income earned on our
cash equivalents and short-term investments and foreign exchange losses. While
we have employed a hedging facility for our largest potential foreign currency
exposure, future changes in foreign currency exchange rates may negatively
impact other income (expense), net.
Provision (Benefit) for Income Taxes. We recorded a benefit for income
taxes of $13.6 million, representing an annual effective income tax rate of 33
percent for the three month period ended June 30, 2001. We recorded a provision
for income taxes of $8.4 million, representing an annual effective income tax
rate of 35.3 percent for the three month period ended June 30, 2000. The
provision (benefit) for income taxes is attributable to federal, state, and
foreign taxes. The annual effective income tax rate for the three month period
ended June 30, 2001 reflects the benefits of tax free interest income and
research and development tax credits. Conversely, the annual effective income
tax rate for the three month period ended June 30, 2001 has been adversely
affected by
18
non-deductible charges of $2.9 million and $2.0 million. These non-deductible
charges are related to amortization of certain intangible assets and in-process
research and development, respectively.
Cumulative Effect of Change in Accounting Principle, Net of Tax. We
recorded a non-cash charge of $2.5 million, net of an income tax benefit of $1.3
million, or a loss of $0.07 per diluted share, to reflect the cumulative effect
of the accounting change to comply with United States Securities and Exchange
Commission Staff Accounting Bulletin 101 as of the beginning of fiscal year
2001.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through the
private sale of equity securities and public stock offerings, customer pre-
payments, bank borrowings and cash generated from operations. As of June 30,
2001, we had approximately $41.6 million in cash and cash equivalents, $43.0
million in restricted cash equivalents and short-term investments, $118.3
million in working capital and $6.7 million in long-term debt and finance
leases.
Cash flows from operating activities. Net cash provided by operating
activities in the three months ended June 30, 2001 was $4.7 million. The net
cash provided by operating activities during the quarter ended June 30, 2001 was
primarily attributable to reductions in accounts receivable of $21.1 million and
to reductions in inventories of $7.4 million, combined with our non-cash charges
to net income including: depreciation and amortization of $6.5 million, write-
down of land held for sale of $15.0 million and write-off of purchased in-
process research and development of $2.0 million. Net cash provided by operating
activities was largely offset by our net loss of $27.6 million, an increase in
our deferred tax asset of $13.7 million and a reduction in accounts payable of
$10.6 million.
Cash flows from investing activities. Net cash provided by investing
activities in the quarter ended June 30, 2001 was $5.3 million. Net sales of
short-term investments and restricted cash equivalents and short-term
investments provided $12.5 million during the quarter, offset by $3.8 million
used in connection with the acquisitions of AMP, SemiFab and GW and $3.4 million
used to modify our facilities and purchase new equipment and furniture used in
our operations.
Cash flows from financing activities. Net cash used by financing activities
during the quarter ended June 30, 2001, was $3.2 million consisting of payments
of $6.3 million and $0.6 million on short-term loans and short-term and long-
term debt and finance leases, respectively. These uses were partially offset by
proceeds of $1.6 million from the issuance of new long-term debt with a Japanese
bank and $1.9 million from the issuance of 207,821 shares of common stock in
connection with our employee stock programs.
We anticipate that operating expenses will constitute a material use of our
cash resources. In addition, we may utilize cash resources to fund acquisitions
or investments in other businesses, technologies or product lines. The cyclical
nature of the semiconductor industry makes it very difficult for us to predict
future liquidity requirements with certainty. However, we believe that our
available cash and cash equivalents, combined with net proceeds of $82.9 million
from the sale of convertible subordinated notes on July 3, 2001, will be
sufficient to meet our working capital and operating expense requirements for at
least the next twelve months. At some point in the future we may require
additional funds to support our working capital and operating expense
requirements or for other purposes and we may seek to raise these additional
funds through public or private debt or equity financings. These financings may
not be available to us on a timely basis if at all or, if available, on terms
acceptable to us and not dilutive to our shareholders. If we fail to obtain
acceptable additional financing, we may be required to reduce planned
expenditures or forego acquisition opportunities which could reduce our
revenues, increase our losses, and harm our business.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133, as amended,
establishes accounting and reporting standards for derivative instruments,
derivative instruments embedded in other contracts, and hedging activities.
SFAS 133, as amended, is effective for all fiscal years beginning after June 15,
2000. The adoption of SFAS 133 did not have a material impact on our
consolidated financial position or results of operations.
19
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
There has not been a material change in our exposure to Interest rate and
foreign currency risks since the date of our 2001 Form 10-K.
Interest Rate Risk. Our exposure to market risk for changes in interest
rates relate primarily to the investment portfolio. We do not use derivative
financial instruments in our investment portfolio. Our investment portfolio
consists of short-term fixed income securities and by policy is limited by the
amount of credit exposure to any one issuer. As stated in our investment policy,
we ensure the safety and preservation of our invested principal funds by
limiting default risk, market risk and reinvestment risk. We mitigate default
risk by investing in safe and high-credit quality securities and by constantly
positioning its portfolio to respond appropriately to a significant reduction in
a credit rating of any investment issuer, guarantor or depository. The portfolio
includes only marketable securities with active secondary or resale markets to
ensure portfolio liquidity. These securities, like all fixed income instruments,
carry a degree of interest rate risk. Fixed rate securities have their fair
market value adversely affected due to rise in interest rates.
Foreign Currency Exchange Risk. We engage in international operations and
transact business in various foreign countries. The primary foreign currency
cash flows are located in Japan, Europe, Singapore and Taiwan. Although we and
our subsidiaries operate and sell products in various global markets,
substantially all sales are denominated in the U.S. dollar, except in Japan,
therefore reducing the foreign currency risk factor. In March 2001, we began to
employ a foreign currency hedge program utilizing foreign currency forward
exchange contracts in Japan. To date, the foreign currency transactions and
exposure to exchange rate volatility have not been significant. There can be no
assurance that foreign currency risk will not be a material impact on our
financial position, results of operations or cash flow in the future.
20
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In October 1996, we Company filed a lawsuit in the United States
District Court for the Northern District of California against Jenoptik A.G., or
(Jenoptik), Jenoptik-Infab, Inc., or (Infab), Emtrak, Inc., or (Emtrak) and
Empak, Inc., or (Empak) alleging infringement of two patents related to our
SMART Traveler System. We amended our Complaint in April 1997 to allege causes
of action for breach of fiduciary duty against Jenoptik and Meissner & Wurst,
GmbH, and misappropriation of trade secrets and unfair business practices
against all defendants. The Complaint seeks damages and injunctive relief
against further infringement. All defendants filed counter claims, seeking a
judgment declaring the patents invalid, unenforceable and not infringed.
Jenoptik, Infab, and Emtrak also alleged that we have violated federal antitrust
laws and engaged in unfair competition. We denied these allegations. In May
1998, we along with Empak stipulated to a dismissal, without prejudice, of the
respective claims and counter claims against each other. In November 1998, the
court granted defendants' motion for partial summary judgment as to most of the
patent infringement claims and invited further briefing as to the remainder. In
January 1999, the court granted our motion for leave to seek reconsideration of
the November summary judgment order and also, pursuant to a stipulation of the
parties, dismissed without prejudice two of the three antitrust counter claims
brought by the defendants. Since then, the parties stipulated to, and the court
has ordered, the dismissal with prejudice of the defendants' unfair competition
and remaining antitrust counterclaim, and our breach of fiduciary duty,
misappropriation of trade secrets and unfair business practices claims. On June
4, 1999, the court issued an order by which it granted a motion for
reconsideration in the sense that it considered the merits of our arguments, but
decided that it would not change its prior ruling on summary judgment and would
also grant summary judgment for defendants on the remaining patent infringement
claim. We appealed and the trial date has since been vacated. The parties have
submitted appellate briefs and the court heard oral argument. Weare waiting for
the court's ruling.
In March 2001, we filed suit against Fortrend in the United States
District Court for the Northern District of California, seeking to have two
patents declared invalid or not infringed. We also alleged that the inventors
named on the two patents should be corrected to include an Asyst employee as a
joint inventor. Our complaint also included claims for unfair competition,
interference with contractual relations, and intentional interference with
prospective economic advantage. In May 2001, Fortrend filed counterclaims
asserting that Asyst and fourteen of our customers infringed the two patents by
use of our Load Port Transfer system. We denied Fortrend's allegations. In July
2001, Asyst and Fortrend signed a settlement agreement. Under the terms of that
agreement, we acquired the two patents and a pending patent application for $3.1
million and all claims and counterclaims were dismissed with prejudice.
Item 2 - Changes in Securities and Use of Proceeds
On July 3, 2001, we sold to Merrill Lynch, Pierce Fenner & Smith and
ABN AMRO Rothschild LLC $86.25 million of 5 3/4% convertible notes due 2008
pursuant to Rule 144A of the Securities Act of 1933, as amended, or the
Securities Act. The initial purchasers received a commission from the sale of
the notes of $2.59 million. The notes were sold to "qualified institutional
buyers," as that term is defined in the Securities Act and were not, when
issued, of the same class of securities as listed on a national securities
exchange or quoted on the Nasdaq National Market. The notes are convertible at
the option of the holders at any time prior to maturity at a rate of $15.18 per
share, which is equal to a conversion rate of approximately 65.8718 shares per
$1,000 principal amount of notes, subject to adjustment. We may not redeem the
notes for a period of three years. We intend to use the net proceeds of this
offering primarily for general corporate purposes, including working capital.
21
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
4.3 Indenture dated as of July 3, 2001 between
the Company and State Street Bank and Trust
Company of California, N.A., as trustee,
including therein the forms of the notes.
4.4 Registration Rights Agreement dated as of
July 3, 2001 between the Company and State
Street Bank and Trust Company of California,
N.A.
10.28* Agreement on Bank Transactions between Asyst
Japan, Inc., or AJI, and Tokyo Mitsubishi
Bank dated March 13, 2001.
10.29* Cash Consumer Debtor and Creditor Agreements
between AJI and The Tokai Bank, Ltd. dated
December 6, 1999 and March 23, 2001.
10.30* Banking Consent & Agreement between MECS,
K.K. and Tokai Bank, K.K. dated November 30,
1998, December 6, 1999.
10.31* Banking Consent & Agreement between MECS,
K.K. and Ogaki Kyoritsu Bank dated November
14, 1994.
10.32* Agreement on Bank Transactions between AJI
and The Sumitomo Bank dated November 13,
2001.
_____________
* English translation of original document.
(b) Reports on Form 8-K.
On July 5, 2001, we filed a Current Report on Form 8-K, dated
June 25, 2001 regarding the issuance of $86.25 million of 5 3/4%
convertible notes due July 2008 pursuant to Rule 144A of the
Securities Act.
22
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 14, 2001 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
23
Exhibit Index
Exhibit Number Description
- -------------- -----------
4.3 Indenture dated as of July 3, 2001 between the Company
and State Street Bank and Trust Company of California,
N.A., as trustee, including therein the forms of the
notes.
4.4 Registration Rights Agreement dated as of July 3, 2001
between the Company and State Street Bank and Trust
Company of California, N.A.
10.28* Agreement on Bank Transactions between Asyst Japan,
Inc., or AJI, and Tokyo Mitsubishi Bank dated March 13,
2001.
10.29* Cash Consumer Debtor and Creditor Agreements between
AJI and The Tokai Bank, Ltd. dated December 6, 1999 and
March 23, 2001.
10.30* Banking Consent & Agreement between MECS, K.K. and
Tokai Bank, K.K. dated November 30, 1998, December 6,
1999.
10.31* Banking Consent & Agreement between MECS, K.K. and
Ogaki Kyoritsu Bank dated November 14, 1994.
10.32* Agreement on Bank Transactions between AJI and The
Sumitomo Bank dated November 13, 2001.
_____________
* English translation of original document.
24