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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K/A
AMENDMENT NO.1
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
September 30, 1998 0-24934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
PRI AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2495703
(State of other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
805 MIDDLESEX TURNPIKE 01821
BILLERICA, MA (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number: (978) 670-4270
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01
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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 / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Registrant's common stock, $0.01 par value
per share ("Common Stock") held by non-affiliates of the Registrant, based on
the closing price of the Common Stock on December 11, 1998 as reported by the
Nasdaq National Market, was approximately $346,442,892. Shares of Common Stock
held by officers and directors and by persons who own of record 5% or more of
the outstanding Common Stock have been excluded from this computation in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of December 11, 1998, the Registrant had outstanding 19,946,299 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders, filed with the Securities and Exchange Commission on
January 28, 1999, are incorporated by reference into Items 10, 11, 12 and 13 of
this Annual Report on Form 10-K.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, the
Registrant hereby amends its Annual Report on Form 10-K for the year ended
September 30, 1998 by amending and restating Item 7 in its entirety as follows:
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides an analysis of the Company's financial
condition and results of operations and includes the Equipe Combined Companies
("Equipe"), acquired in fiscal 1998 and accounted for as a pooling of interests.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, certain
income and expense items as a percentage of net revenue:
1998 1997 1996
----- ----- -----
Net revenue......................................................................................... 100.0% 100.0% 100.0%
Cost of revenue..................................................................................... 68.3 55.5 51.3
----- ----- -----
Gross profit........................................................................................ 31.7 44.5 48.7
Operating expenses:
Research and development.......................................................................... 20.9 13.7 13.4
Selling, general and administrative............................................................... 18.9 14.7 14.2
Acquired in-process research and development...................................................... 4.7 -- --
Merger costs and special charges.................................................................. 5.7 -- --
----- ----- -----
Operating (loss) profit............................................................................. (18.5) 16.1 21.1
Other income, net................................................................................... 0.6 0.6 1.4
----- ----- -----
(Loss) income before income taxes................................................................... (17.9) 16.7 22.5
(Benefit from) provision for income taxes........................................................... (4.5) 4.2 4.7
----- ----- -----
Net (loss) income................................................................................... (13.4)% 12.5% 17.8%
----- ----- -----
----- ----- -----
FISCAL 1998 VS. FISCAL 1997
NET REVENUE: Net revenue for fiscal year 1998 decreased to $178,193,000,
compared to $213,159,000 for fiscal year 1997. This overall decrease is
attributable to the downturn in the worldwide semiconductor industry which
resulted in a significant slowdown in the construction or expansion of
semiconductor fabs. The decrease was partially offset by increased shipments,
resulting from increased design wins, of both 200mm and 300mm tool automation
products to OEM semiconductor equipment manufacturers. Net export sales to
customers comprised $59,515,000 or 33.4% of revenue for fiscal year 1998,
compared to $97,388,000 or 45.7% of net revenue for the prior fiscal year.
GROSS PROFIT: The Company's gross profit margin decreased to 31.7% for
fiscal year 1998, compared to 44.5% for the prior fiscal year. The reduction in
margin was caused by changes in product mix as well as excess capacity and
related manufacturing costs that could not be reduced proportionally with the
decline in production volume. Furthermore, the industry downturn increased
competitive pricing pressure. Additionally, there were $13,987,000 in charges
during the fiscal year related to inventory and warranty provisions. Excluding
these charges, the gross profit margins would have been 39.5%.
The inventory written down to net realizable value consisted principally of
raw material parts used in the Factory Automation Systems division. The
Company's forecasted customer demand and backlog for its products were
substantially reduced in fiscal year 1998 due to the prolonged semiconductor
industry downturn. Specifically, the Company's backlog in this division declined
from $120,900,000 at September 30, 1997 to $45,600,000 at September 30, 1998.
Over this same period, gross inventory levels increased based upon forecasted
customer demand that did not materialize. The Company's excess and obsolescence
process identifies excess and obsolete parts by comparing on-hand quantities and
committed purchases against the Company's twelve-month customer forecasted
demand. The Company fully reserves for obsolete parts less salvage value and
reserves a percentage of parts in excess of the twelve months forecasted demand.
The Company experienced increased customer warranty demand in fiscal 1998.
This was due to certain customers canceling service contracts due to customer
funding constraints, which provided for full time, on-site Company service
technicians, for a fixed fee, therefore shifting the warranty provision back to
the Company. Additionally, certain customers delayed installation, therefore
extending the warranty period, and demanded extended coverage for minor
customer-specific problems. As a result of these conditions, the Company
experienced a disproportionate increase in warranty requirements compared to
fiscal 1998 sales levels. The Company prepares a detailed analysis of the
warranty requirements for each contract under warranty. This analysis includes a
planned deployment by service technician over the applicable contractual
periods. The Company accrues the cost of these personnel for contracts under
warranty and estimates the costs of materials to be consumed.
RESEARCH AND DEVELOPMENT: Research and development expenses increased to
$37,137,000 or approximately 20.9% of net revenue for fiscal year 1998, compared
to $29,214,000 or 13.7% of net revenue for the prior fiscal year. The increase
in the dollar amount of research and development spending reflects the Company's
continued investment in new product developments and enhancements of existing
products. The Company continued to invest in the development of 200mm and 300mm
products throughout the tool automation and factory automation product lines and
advanced planning and scheduling software products. The Company believes that
these investments are critical to maintaining and improving its market share.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses increased to $33,698,000 or 18.9% of net revenue for fiscal year 1998
compared to $31,332,000 or 14.7% of net revenue for the prior fiscal year.
During the second half of fiscal 1998, the Company reduced its operating
expenses by 16%, compared with operating levels during the first half of fiscal
1998. The Company had two reductions in force totaling approximately 19% of the
work force. Additionally, the Company reduced a proportionate level of office
space.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT: On October 29, 1997 the
Company acquired Interval Logic Corporation ("ILC"), a California corporation,
for aggregate consideration of 111,258 shares of the Company's common stock. In
addition, the Company issued or assumed options to purchase an aggregate of
199,170 shares of the Company's common stock. ILC was formed in 1995 to develop
advanced, high-performance planning and scheduling software solutions for the
semiconductor industry. The value of the transaction was $8,523,000, including
approximately $600,000 of expenses related to the acquisition. The transaction
was accounted for as a purchase.
At the time of the acquisition, the purchase price was allocated to the
tangible and intangible assets of ILC based on the fair market value of those
assets using a risk-adjusted discounted cash flow approach. Specifically, the
purchased technology was evaluated through extensive interviews and analysis of
data concerning the state of the technology and needed developments. This
evaluation of underlying technology acquired considered the inherent
difficulties and uncertainties in completing the development, and thereby
achieving technological feasibility, and the risks related to the viability of
and potential changes in future target markets. At the time of the acquisition,
the fair value of $8,417,000 of the acquired technology that had not reached
technological feasibility was expensed as in-process research and development.
The significant further investments in development required and currently
underway to meet expected customer requirements is anticipated to be completed
in the third quarter of fiscal year 1999. This effort is estimated to take
approximately 225 engineering man-months at a cost of approximately $2,800,000.
This project includes completion of the software requirement definition, data
integration and validation, completion of the graphics user interface,
development of alpha and beta versions for customer testing, and integration and
adaptation with customer systems. The underlying technology had no alternative
future use to the Company in other research and development projects or
otherwise.
MERGER COSTS AND SPECIAL CHARGES: During fiscal year 1998 the Company
incurred certain special charges. In the second quarter of fiscal year 1998, the
Company acquired Equipe in a transaction accounted for as a pooling of
interests. Direct acquisition costs, primarily related to legal, investment
banking, and accounting fees, amounted to $4,490,000 and were charged against
the results of operations in the quarter. Additionally, during the second, third
and fourth quarters of fiscal 1998, the Company
recorded restructuring and other special charges of $5,601,000. The Company
restructured its operations in response to market conditions and in order to
integrate the Equipe operations. The special charges primarily included
provisions for severance compensation of $1,910,000 resulting from terminations
of approximately 244 personnel completed in 1998, costs of $2,943,000 relating
to reductions of leased facilities space and a non-cash write-down of
specialized demonstration equipment for a particular customer of $528,000
associated with the closure of the customer training site that is not usable
elsewhere. At September 30, 1998, $634,000 of restructuring charges remained in
accrued expenses associated with the severance and lease reductions totaling
$4,853,000. The employee severance and lease reduction costs are considered
restructuring charges. The Company expects the remaining accrued restructuring
costs of $634,000 at September 30, 1998 to be paid by the end of fiscal 1999.
OPERATING (LOSS) PROFIT: As a result of the decline in revenue and the
other foregoing factors, for fiscal year 1998 the Company experienced an
operating loss of $32,877,000, or negative 18.5% of net revenue, compared to an
operating profit of $34,350,000, or 16.1% of net revenue for the prior fiscal
year.
OTHER INCOME, NET: Other income, net in fiscal 1998 was $1,049,000 or 0.6%
of net revenue, compared to $1,204,000 or 0.6% of net revenue for the prior
fiscal year. Interest income was $1,617,000 and $1,241,000 for fiscal 1998 and
1997, respectively, and interest expense for the years ended September 30, 1998
and 1997 amounted to $58,000 and $37,000, respectively. While net interest
income increased in fiscal 1998 due to higher average cash and investment
balances, this income was offset by increases in other expenses experienced in
fiscal 1998.
(BENEFIT FROM) PROVISION FOR INCOME TAXES: The income tax benefit for
fiscal year 1998 was $7,886,000, compared to a provision of $8,982,000 for the
previous fiscal year. The effective tax rate reflects a 24.8% benefit for fiscal
year 1998 compared to a 25.3% provision for the prior fiscal year. The change is
primarily due to the charges for acquired in-process research and development
and merger costs, which are not fully deductible for tax purposes, and the fact
that two of the Equipe Combined Companies were not subject to federal income tax
prior to January 1, 1998 due to their S-corporation status. The Company has
recognized a net deferred tax asset of $8,391,000 at September 30, 1998. The
Company believes it is more likely than not that its total net deferred tax
asset of $8,391,000 will be realized.
FISCAL 1997 VS. FISCAL 1996
NET REVENUE: Net revenue for fiscal year 1997 increased to $213,159,000,
compared to $145,750,000 for fiscal year 1996. This increase resulted from
greater market acceptance of, and demand for, the Company's flexible factory
automation and tool automation systems, as a result of semiconductor
manufacturers' continuing upgrades and expansion of existing fabrication
facilities and construction of new facilities, and from the Company's growth in
Europe and in the Asia Pacific region. Net export sales to unaffiliated
customers comprised $97,388,000 or 45.7% of net revenue for fiscal year 1997,
compared to $22,457,000 or 15.4% of net revenue for the prior fiscal year. The
increase is primarily due to the Company's expansion into both Europe and the
Asia Pacific region.
GROSS PROFIT: The Company's gross profit margin decreased to 44.5% for
fiscal year 1997, compared to 48.7% for the prior fiscal year. The decrease is
primarily attributable to increased costs associated with the support of global
expansion and reduced prices to compete in the Asia Pacific region.
RESEARCH AND DEVELOPMENT: Research and development expenses increased to
$29,214,000 or 13.7% of net revenue for fiscal year 1997, compared to
$19,488,000 or 13.4% of net revenue for the prior fiscal year. The increase in
dollar amount primarily reflected the increase in personnel and materials
expense in response to the increased demand for new products and new product
enhancements in both factory automation and tool automation.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses increased to $31,332,000 or 14.7% of net revenue for fiscal year 1997,
compared to $20,723,000 or 14.2% of net revenue for the prior fiscal year. The
increase in dollar amount primarily reflected the increase in personnel,
commissions and related expenses associated with higher sales volume, expansion
of the Company's
marketing, market research and communications programs and increased sales and
marketing efforts in support of the Company's global expansion.
OPERATING PROFIT: As a result of the foregoing factors, operating profit
for fiscal year 1997 increased to $34,350,000 or 16.1% of net revenue, compared
to $30,737,000 or 21.1% of net revenue for the prior fiscal year.
OTHER INCOME, NET: Other income, net decreased to $1,204,000 or 0.6% of net
revenue, compared to $2,078,000 or 1.4% of net revenue for the prior fiscal
year. The decrease is largely attributable to reduced interest income from lower
average cash balances during fiscal 1997.
PROVISION FOR INCOME TAXES: The income tax provision increased to
$8,982,000 for fiscal year 1997 as compared to $6,800,000 for the prior fiscal
year. The effective tax rate increased for fiscal year 1997 to 25.3% as compared
to 20.7% for the prior fiscal year. This effective tax rate is based on the fact
that Equipe Technologies and a related company acquired by the Company were not
subject to federal income taxes prior to the acquisition due to S-corporation
status. The S-corporation income was higher in fiscal year 1996 than in fiscal
year 1997 resulting in a lower effective tax rate in fiscal year 1996.
Elimination of certain valuation allowances placed against certain deferred tax
assets also contributed to the decrease in the effective tax rate in fiscal year
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through bank lines of
credit, public stock offerings in October 1994 and July 1995 and cash generated
from operations.
At September 30 1998 the Company had working capital of $89,835,000. In
fiscal year 1998, cash and cash equivalents increased by $18,824,000 to
$48,208,000. Net cash provided by operations was $31,890,000, compared to
$2,153,000 in fiscal 1997. The net cash provided by operating activities was
primarily attributable to decreases in accounts receivable of $46,219,000, to
decreases in contracts in progress of $6,446,000, to increases in billings in
excess of revenues and customer advances of $5,753,000 and to the net loss
which, after adjusting for non-cash items, provided $2,336,000. This was
partially offset by cash used to reduce accounts payable and accrued expenses of
$16,973,000, increases in inventories of $5,739,000 and increases in other
assets of $6,152,000.
Net cash used by investing activities was $8,708,000 in fiscal 1998,
compared to net cash provided of $2,410,000 in fiscal 1997. The net cash used by
investing activities was primarily attributable to the purchases of property and
equipment of $12,082,000, offset by proceeds from the net sales and maturities
of investments in marketable securities of $3,104,000.
Net cash used in financing activities was $4,115,000 in fiscal 1998,
compared to $4,069,000 used in fiscal 1997. The net cash used in financing
activities was primarily attributable to distributions of $4,507,000 to
shareholders of Equipe Technologies and a related company under S-corporation
status and repayments of capital lease obligations and borrowings under lines of
credit of $2,103,000, offset partially by proceeds from exercise of stock
options and the Company's Employee Stock Purchase Plan of $2,495,000.
At September 30, 1998, the Company had a revolving credit facility agreement
with Chase Manhattan Bank (the "Bank"). The revolving credit facility enables
the Company to borrow up to $20,000,000 on an unsecured basis. Outstanding
revolving credit loans bear interest, at the Company's option, at the 30, 60 or
90 day LIBOR rate plus a credit spread or at the effective prime rate. The
ability of the Company to effect borrowings under the revolving credit facility
is conditioned upon meeting certain financial criteria. The revolving credit
agreement expires on June 16, 2000. At September 30, 1998, the Company was not
in compliance with certain of the required covenants but subsequently obtained a
waiver from the Bank. The Company plans to pursue future waivers as necessary
from the Bank beginning on the next measurement date of December 27, 1998.
The Company believes that existing cash and investment balances and funds
available under its existing revolving credit facility will be sufficient to
meet the Company's cash requirements to fund operations and expected capital
expenditures during the next twelve months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission may contain statements which are not historical facts but
which are "forward-looking statements" involving risks and uncertainties. In
particular, statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" relating to the Company's shipment level
and profitability and the sufficiency of capital to meet working capital and
capital expenditure requirements may be forward-looking statements. The words
"expect," "anticipate," "internal," "plan," "believe," "seek," "estimate" and
similar expressions are intended to identify such forward-looking statements.
This Report also contains other forward-looking statements. Such statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions that could cause the Company's future results to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. Many of such factors are beyond the Company's ability to
control or predict. Readers are accordingly cautioned not to place undue
reliance on forward-looking statements. The Company disclaims any intent or
obligation to update publicly any forward-looking statements, whether in
response to new information or future events or otherwise. Important factors
that may cause the Company's actual results to differ from such forward-looking
statements include, but are not limited to, the factors discussed below.
The Company's future results are subject to substantial risks and
uncertainties. The Company's business and results of operations depend in
significant part upon capital expenditures of manufacturers of semiconductors,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. Historically, the
semiconductor industry has been highly cyclical with recurring periods of
over-supply. This recurring over-supply often has had a severe effect on the
semiconductor industry's demand for capital expenditures, including systems
manufactured and marketed by the Company. The Company believes that the markets
for newer generations of semiconductors will be subject to similar fluctuations.
Also, the recent high rate of technical innovation and resulting improvements in
the performance and price of semiconductor devices, which have driven much of
the demand for the Company's products, could slow, or encounter limits, in the
future. In addition, any other factor adversely affecting the semiconductor
industry or particular segments within the semiconductor industry may adversely
effect the Company's business, financial condition and operating results.
In addition to the risks and uncertainties posed by the cyclicality of the
semiconductor industry, the Company faces the following risks and uncertainties:
the lengthy sales cycle for the Company's products, and the consequent need to
invest substantial resources on sales efforts with no assurance that a sale will
result; the Company's dependence on a limited number of customers; delays in the
expected transition to 300mm manufacturing technology; the Company's ability to
manage growth in periods of fluctuating demand; the Company's ability to
successfully integrate recently acquired businesses into its operations; risks
associated with a substantial and increasing percentage of sales to customers in
other countries; intense competition from Daifuku Co., Ltd. and others; the
Company's ability to introduce new products and technologies on a timely basis;
delays in introducing new products and systems or in manufacturing products and
systems able to meet the complex technical requirements of customers; dependence
on sole-source suppliers or on a limited number of suppliers for components or
specialized processes; the ability to protect the Company's intellectual
property and the risk that others could assert intellectual property claims
against the Company; dependence on key executive officers and employees; and
risks associated with the Asian financial crisis. The current economic and
financial uncertainty in certain Asian countries has delayed some orders from
customers in these countries, and could cause future delays and cancellations.
As a result of the foregoing and other factors, the Company may experience
material fluctuations in its future operating results on a quarterly or annual
basis which could materially adversely affect its business, financial condition,
operating results and stock price.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 130, "Reporting Comprehensive Income." This statement requires
that changes in comprehensive income be shown in a financial statement that is
displayed with the same prominence as other financial statements. The statement
is effective for periods beginning after December 15, 1997 and the Company will
adopt its provisions in fiscal year 1999. Reclassification for earlier periods
is required for comparative purposes. The Company has not yet determined the
impact of adoption of FASB Statement No. 130.
In June 1997, the FASB issued FASB Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement supersedes
FASB Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise." This statement includes requirements to report selected segment
information quarterly and also requires entity-wide disclosures about products
and services, major customers, and the material countries in which the entity
holds assets and reports revenues. The statement is effective for annual periods
beginning after December 15, 1997 and the Company will adopt its provisions in
fiscal year 1999. Reclassification for earlier periods is required, unless
impracticable, for comparative purposes. The Company has not yet determined the
impact of adoption of FASB Statement No. 131.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued the Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," which will supersede SOP 91-1. SOP 97-2 has not changed the basic
rules of revenue recognition but does provide more guidance, particularly with
respect to multiple deliverables and "when and if available" products. SOP 97-2
is effective for transactions entered into for annual periods beginning after
December 15, 1997. The Company does not expect the statement to have a material
impact on its financial position or results of operations.
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5, "Accounting for the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires all costs of start-up activities (as
defined by SOP 98-5) to be expensed as incurred. The Company does not expect the
statement to have a material impact on its financial condition and results of
operations.
SUBSEQUENT EVENTS
On November 24, 1998, the Company agreed to acquire Promis Systems
Corporation Ltd., ("Promis"), a Toronto-based Canadian corporation traded on The
Toronto Stock Exchange. Promis is a leading developer of manufacturing execution
systems, or MES, software for semiconductor and precision electronics
manufacturers. Under the terms of the agreement, the Company will issue
approximately 1.7 million shares of common stock in exchange for all of the
outstanding shares of Promis. The acquisition is intended to be accounted for as
a pooling of interests and is expected to be completed during the first calendar
quarter of 1999, subject to, among other things, regulatory approvals and the
approval of the shareholders of Promis.
YEAR 2000
GENERAL
Many computer systems and software products are expected to experience
problems handling dates beyond the year 1999 because the systems are coded to
accept only two-digit entries in the date code fields. Inability of the
Company's products, or of products and systems on which the Company relies, to
process these dates could have a material adverse effect on the Company's
business. The Company has implemented a company-wide Year 2000 Project (the
"Project") with the objective of minimizing the impact of Year 2000 issues on
its products, services, infrastructure, and internal business support
applications. The Project's goals are to ensure Year 2000 readiness and
compliance for: (i) all of the Company's products; (ii) all business systems
that are used by the Company; and (iii) all critical business services or
products provided to the Company by its vendors.
PROJECT
The Company has created and is currently implementing a plan intended to
ensure that all of the Company's processes and systems have been assessed,
tested and made Year 2000 compliant. The Company engaged the services of an
information technology consulting firm to assist in the program management of
the Project, and has created a Project Team which includes representatives from
each of the Company's divisions. The Year 2000 Project has been in operation
since 1997 and is proceeding on schedule.
The Project is addressing the impact of Year 2000 on Company products,
internal IT systems, internal non-IT systems, and systems and products of the
Company's suppliers and other third parties. The steps in completing the project
are: (1) identify software systems and products that pose potential Year 2000
issues; (2) assess the Year 2000 readiness of each item identified; (3) develop
and implement programs that will achieve Year 2000 compliance; (4) test to
verify compliance; and (5) develop contingency plans as required.
At September 30, 1998, the Project is in various stages of progress as
discussed below:
- PRI PRODUCTS: The Company is in the process of completing the testing and
verification portion of the project for all of its products. This segment
of the Project is on schedule and is expected to be completed by early
1999.
- INTERNAL IT SYSTEMS: The Company has assessed its internal information
technology, or IT, systems, including business information systems,
systems utilized in its manufacturing and service operations, and systems
providing electronic interfaces between the Company and its customers, to
determine whether the Company's operations will be interrupted by Year
2000 issues. The Company is currently in the process of testing and
verifying Year 2000 compliance of its internal IT systems. This segment of
the Project is on schedule and is expected to be completed by June 30,
1999.
- INTERNAL NON-IT SYSTEMS: Internal non-IT systems include
telecommunications systems, security systems, HVAC systems and utilities.
Testing of these systems is ongoing and is expected to be completed by
March 30, 1999.
- SUPPLY CHAIN: The Company has been working with suppliers and other third
parties upon which it is dependent to determine the extent of their Year
2000 compliance. The Company's inquiry and assessment of their Year 2000
readiness is ongoing and is expected to be completed in early 1999.
COSTS
Based on its investigation to date, the Company does not expect the total
cost of its Year 2000 Project to have a material adverse effect on the Company's
business or financial results. The estimated total cost of the Year 2000 Project
is approximately $250,000. The total amount charged to expense through September
30, 1998 was approximately $130,000. The remaining amounts are expected to be
spent during 1999.
RISK
The Project is intended to reduce the Company's risk of experiencing
significant Year 2000 problems. Based on the progress that the Company has made
to date in addressing its Year 2000 issues, and its plan and timetable to
complete the Project, the Company does not anticipate significant interruption
of normal operations. The risk posed by Year 2000 issues depends substantially
on the number and type of any instances of non-compliance that have not yet been
discovered by the Company. To the extent that the Company's internal systems, or
products and services obtained from third parties, are found not to be Year 2000
compliant, the Company could face disruptions in its business which could, in
turn, cause delays in meeting production and shipping goals and could divert
significant management resources.
To minimize potential disruptions, the Company intends to adopt a
contingency plan, if deemed necessary, to address any issues raised during the
completion of the assessment and testing phases of the Project. Because no
specific instance of material Year 2000 non-compliance has been discovered to
date, the Company has not adopted a contingency plan to deal with Year 2000
issues.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
PRI AUTOMATION, INC.
Date: February 26, 1999 /s/ STEPHEN D. ALLISON
------------------------------------------
Stephen D. Allison
Chief Financial Officer