-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UMPoJXVgjXpuLc73yvapeNpTvOL7oXFyvCueOFD3ZfptvRco7eK/+frUNgkQdOWV KVfnc6mLyLUPJg7FbMkafg== /in/edgar/work/20000810/0000950135-00-003898/0000950135-00-003898.txt : 20000921 0000950135-00-003898.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950135-00-003898 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROOKS AUTOMATION INC CENTRAL INDEX KEY: 0000933974 STANDARD INDUSTRIAL CLASSIFICATION: [3559 ] IRS NUMBER: 043040660 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25434 FILM NUMBER: 691709 BUSINESS ADDRESS: STREET 1: 15 ELIZABETH DRIVE CITY: CHELMSFORD STATE: MA ZIP: 01824 BUSINESS PHONE: 9782622566 MAIL ADDRESS: STREET 1: 15 ELIZABETH DRIVE CITY: CHELMSBORO STATE: MA ZIP: 01824 10-Q 1 e10-q.txt BROOKS AUTOMATION, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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, 2000 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 0-25434 ------- BROOKS AUTOMATION, INC. (Exact name of registrant as specified in its charter) Delaware 04-3040660 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15 Elizabeth Drive Chelmsford, Massachusetts (Address of principal executive offices) 01824 (Zip Code) Registrant's telephone number, including area code: (978) 262-2400 --------------------------------------------- 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 the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practical date (June 30, 2000): Common stock, $0.01 par value 17,157,687 shares 2 BROOKS AUTOMATION, INC. INDEX PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION - ------ --------------------- Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 2000 and September 30, 1999 (unaudited) 3 Consolidated Statements of Operations for the three and nine months ended June 30, 2000 and 1999 (unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended June 30, 2000 and 1999 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 25 PART II. OTHER INFORMATION - ------- ----------------- Item 6. Exhibits and Reports on Form 8-K 26 Signatures 27 3 BROOKS AUTOMATION, INC. CONSOLIDATED BALANCE SHEETS (unaudited)
(In thousands, except share data) June 30, September 30, 2000 1999(1) -------- ------------- Assets Current assets Cash and cash equivalents $233,263 $ 66,366 Accounts receivable, net, including related party receivables of $6,275 and $3,384, respectively 84,843 35,570 Inventories 53,454 38,274 Prepaid expenses and other current assets 8,904 3,580 Deferred income taxes 7,022 6,542 -------- -------- Total current assets 387,486 150,332 Fixed assets, net of accumulated depreciation of $38,226 and $25,551, respectively 28,178 18,185 Intangible assets, net of accumulated amortization of $14,916 and $1,890, respectively 57,660 16,228 Deferred income taxes 15,920 4,192 Other assets 4,707 4,863 -------- -------- Total assets $493,951 $193,800 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable $ 16,000 $ 213 Revolving line of credit - 5,600 Current portion of long-term debt and capital lease obligations 741 537 Accounts payable 20,154 12,472 Deferred revenue 15,100 6,879 Accrued compensation and benefits 8,230 4,909 Accrued acquisition-related and restructuring costs 3,356 3,868 Accrued income taxes payable 4,628 2,093 Accrued expenses and other current liabilities 19,176 8,367 -------- -------- Total current liabilities 87,385 44,938 Long-term debt and capital lease obligations 437 801 Senior subordinated note payable - 5,878 Deferred income taxes 377 174 Other long-term liabilities 406 878 -------- -------- Total liabilities 88,605 52,669 -------- -------- Commitments and contingencies Minority interests 1,211 1,460 -------- -------- Members' capital - 10,000 units issued and 1,000 units outstanding at September 30, 1999 - 930 -------- -------- Stockholders' equity Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding - - Common stock, $0.01 par value, 43,000,000 shares authorized, 17,157,687 and 12,760,084 shares issued and outstanding, respectively 172 128 Additional paid-in capital 427,749 168,827 Deferred compensation (42) (65) Accumulated other comprehensive loss (1,912) (1,093) Accumulated deficit (21,832) (29,056) -------- -------- Total stockholders' equity 404,135 138,741 -------- -------- Total liabilities and stockholders' equity $493,951 $193,800 ======== ========
(1) Amounts have been restated to reflect the acquisition of Irvine Optical Company LLC in a pooling of interests transaction effective May 5, 2000. The accompanying notes are an integral part of these consolidated financial statements. 3 4 BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data)
Three months ended Nine months ended June 30, June 30, 2000 1999(1)(2) 2000(1) 1999(1)(2) ------- ---------- ------- ---------- Revenues Product, including related party revenues of $9,926 and $5,426 for the three month periods and $25,453 and $9,565 for the nine month periods, respectively $71,487 $23,195 $184,423 $61,610 Services 16,340 5,859 37,357 15,309 ------- ------- ------- ------- Total revenues 87,827 29,054 221,780 76,919 ------- ------- ------- ------- Cost of revenues Product 37,361 13,161 96,397 34,964 Services 10,551 3,602 22,990 9,555 ------- ------- ------- ------- Total cost of revenues 47,912 16,763 119,387 44,519 ------- ------- ------- ------- Gross profit 39,915 12,291 102,393 32,400 ------- ------- ------- ------- Operating expenses Research and development 11,326 5,726 29,426 16,482 Selling, general and administrative 18,656 8,074 47,952 21,828 Amortization of acquired intangible assets 4,907 54 10,614 162 Acquisition-related charges 677 - 677 - ------- ------- ------- ------- Total operating expenses 35,566 13,854 88,669 38,472 ------- ------- ------- ------- Income (loss) from operations 4,349 (1,563) 13,724 (6,072) Interest income 3,797 787 5,479 2,325 Interest expense 319 351 1,112 1,151 Other income (expense) (125) (107) (135) (121) ------- ------- ------- ------- Income (loss) before income taxes and minority interests 7,702 (1,234) 17,956 (5,019) Income tax provision (benefit) 5,357 (62) 10,842 (337) ------- ------- ------- ------- Income (loss) before minority interests 2,345 (1,172) 7,114 (4,682) Minority interests in earnings (loss) of consolidated subsidiary (141) 37 (249) 37 ------- ------- ------- ------- Net income (loss) 2,486 (1,209) 7,363 (4,719) Accretion and dividends on preferred stock - (162) - (549) ------- ------- ------- ------- Net income (loss) attributable to common stockholders $ 2,486 $(1,371) $ 7,363 $(5,268) ======= ======= ======= ======= Earnings (loss) per share attributable to common stockholders Basic $ 0.15 $ (0.12) $ 0.51 $ (0.47) Diluted $ 0.14 $ (0.12) $ 0.47 $ (0.47) Shares used in computing earnings (loss) per share Basic 16,934 11,129 14,568 11,110 Diluted 18,269 11,129 15,681 11,110
(1) Amounts for previously reported periods have been restated to reflect the acquisition of Irvine Optical Company LLC in a pooling of interests transaction effective May 5, 2000. (2) Amounts have been restated to reflect the acquisition of Smart Machines Inc. in a pooling of interests transaction effective August 31, 1999. The accompanying notes are an integral part of these consolidated financial statements. 4 5 BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Nine months ended June 30, 2000(1) 1999(1)(2) -------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 7,363 $(4,719) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 18,338 6,777 Compensation expense related to common stock options 23 112 Deferred income taxes 851 (1,934) Minority interests (249) - (Gain)loss on depreciable asset disposal (61) - Changes in operating assets and liabilities: Accounts receivable (38,939) 878 Inventories (18,712) 324 Prepaid expenses and other current assets (4,509) 56 Accounts payable 10,976 367 Deferred revenue 6,442 357 Accrued acquisition-related and restructuring costs (512) (549) Accrued expenses and other current liabilities 1,304 3,545 -------- ------- Net cash provided by (used in) operating activities (17,685) 5,214 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (10,597) (3,100) Purchase of businesses, net of cash acquired (24,661) (6,451) Minority holder investment in joint venture - 1,500 Proceeds from sale of depreciable assets 430 - (Increase)decrease in other assets 116 (593) -------- ------- Net cash used in investing activities (34,712) (8,644) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings - (192) Net (repayments of) borrowings under lines of credit (5,263) 601 Proceeds from issuance of convertible notes - 1,500 Payments of long-term debt and capital lease obligations (371) (364) Issuance of long-term debt - - Proceeds from issuance of common stock, net of issuance costs 224,858 512 -------- ------- Net cash provided by financing activities 219,224 2,057 -------- ------- Elimination of net cash activities of Smart Machines for the three months ended December 31, 1998 - (63) -------- ------- Elimination of net cash activities of Irvine Optical for the three months ended December 31, 1999 14 - -------- ------- Effects of exchange rate changes on cash and cash equivalents 56 175 -------- ------- Net increase (decrease) in cash and cash equivalents 166,897 (1,261) Cash and cash equivalents, beginning of period 66,366 69,496 -------- ------- Cash and cash equivalents, end of period $233,263 $68,235 ======== =======
(1) Amounts for previously reported periods have been restated to reflect the acquisition of Irvine Optical Company LLC in a pooling of interests transaction effective May 5, 2000. (2) Amounts have been restated to reflect the acquisition of Smart Machines Inc. in a pooling of interests transaction effective August 31, 1999. The accompanying notes are an integral part of these consolidated financial statements. 5 6 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION The unaudited consolidated financial statements of Brooks Automation, Inc. and its subsidiaries (the "Company") included herein have been prepared in accordance with generally accepted accounting principles. In the opinion of management, all material adjustments necessary for a fair presentation of the results for the periods presented have been reflected. The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission for the year ended September 30, 1999. On June 23, 2000, the Company acquired the assets of MiTeX Solutions ("MiTeX"). The acquisition was accounted for using the purchase method of accounting. The Company's Consolidated Statements of Operations and of Cash Flows for the three and nine months ended June 30, 2000 do not include any results of MiTeX, except for the cash payments made for consideration and transaction costs. The results of operations for MiTeX for the period from acquisition to June 30, 2000, are not material to the consolidated results of the Company. On May 5, 2000, the Company acquired Irvine Optical Company LLC ("Irvine Optical") in a transaction accounted for as a pooling of interests. Accordingly, the accompanying consolidated financial statements and notes thereto have been restated to include the financial position and results of operations of Irvine Optical for all periods prior to the acquisition. Additionally, the Company's Consolidated Statements of Operations and of Cash Flows for the three and nine months ended June 30, 1999 have also been restated to reflect the acquisition of Smart Machines Inc. ("Smart Machines") in a pooling of interests transaction effective August 31, 1999. On January 6, 2000, the Company acquired Auto-Soft Corporation ("ASC") and AutoSimulations, Inc. ("ASI") from Daifuku America Corporation ("Daifuku America"), a U.S. subsidiary of Daifuku Co., Ltd. of Japan. The acquisition was accounted for using the purchase method of accounting. Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows for the three and nine months ended June 30, 2000 include the results of these acquired entities for the period subsequent to their acquisition. The Company made several acquisitions during fiscal year 1999 which were accounted for using the purchase method of accounting: the Infab Division ("Infab") of Jenoptik AG on September 30, 1999; Domain Manufacturing Corporation ("Domain") on June 30, 1999 and Hanyon Technology, Inc. ("Hanyon") on April 21, 1999. Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows for the three and nine months ended June 30, 2000 include the results of these acquired entities. The Company's Consolidated Statements of Operations and of Cash Flows for the three and nine months ended June 30, 1999 include the results of these acquired entities for the periods subsequent to their respective acquisitions. In June 1999, the Company formed a joint venture in Korea with Samsung Electronics ("Samsung"). This joint venture is 70% owned by the Company and 30% owned by Samsung. The Company consolidates fully the financial position and results of operations of the joint venture and accounts for the minority interest in the consolidated financial statements. Certain amounts in previously issued financial statements have been reclassified to conform to current presentation. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25". FIN 44 clarifies the application of APB Opinion No. 25 ("APB 25"), including the following: the definition of an employee for purposes of applying APB 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequences of various modifications to the terms of previously 6 7 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's financial position or results of operations. In December 1999, the U.S. Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101 summarizes the SEC's views in applying generally accepted accounting principles to selected revenue recognition issues in financial statements. In June 2000, the SEC issued Staff Accounting Bulletin No. 101B, an amendment to SAB 101, which delays the implementation of SAB 101. The application of the guidance in SAB 101 will now be required in the Company's fourth quarter of fiscal 2001. The Company is currently determining the impact that SAB 101 will have on its financial position and results of operations. 2. BUSINESS ACQUISITIONS On June 23, 2000, the Company acquired substantially all of the assets of MiTeX. MiTeX, located in Canton, Michigan, provides run-to-run controller technology which will be a component of the Company's integrated Advanced Process Control strategy for advanced 200mm facilities and 300mm facilities. In consideration, the Company paid $300,000 cash, 5,486 shares of its common stock and the potential for an additional amount ("royalties") up to a maximum of $5.0 million in the aggregate over the next five years. These royalties will be calculated at the end of each year and are based on net revenue and gross margin performance of the MiTeX business unit. The acquisition was accounted for using the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16"). On May 5, 2000, the Company acquired Irvine Optical in exchange for 309,013 shares of Brooks common stock. Subsequently, the Company repaid a revolving credit facility of Irvine Optical in the amount of $6.7 million. The acquisition was accounted for as a pooling of interests. Irvine Optical, a California limited liability company located in Burbank, California, is engaged principally in the design, engineering and manufacturing of wafer handling and inspection equipment for sale primarily to the semiconductor industry. The accompanying consolidated financial statements and notes thereto have been restated to include the financial position and results of operations for Irvine Optical for all periods prior to the acquisition. The results of operations previously reported by the separate companies and the combined amounts presented in the accompanying Consolidated Statements of Operations are as follows (in thousands): Three months ended Nine months ended June 30, June 30, 2000 1999 2000 1999 -------- --------- --------- -------- Revenues Brooks Automation, Inc. $ 82,000 $ 26,428 $ 205,290 $ 69,986 Irvine Optical LLC 5,827 2,626 16,490 6,933 -------- --------- --------- -------- $ 87,827 $ 29,054 $ 221,780 $ 76,919 ======== ========= ========= ======== Net income (loss) Brooks Automation, Inc. $ 2,164 $ (483) $ 6,481 $ (2,622) Irvine Optical LLC 322 (726) 882 (2,097) -------- --------- --------- -------- $ 2,486 $ (1,209) $ 7,363 $ (4,719) ======== ========= ========= ======== 7 8 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued On January 6, 2000, the Company completed the acquisition of the businesses of ASC and ASI from Daifuku America. The acquisition was accounted for using the purchase method of accounting. The following pro forma results of operations have been prepared as though the acquisition had occurred as of the beginning of the fiscal year prior to the acquisition. This pro forma financial information does not purport to be indicative of the results of operations that would have been attained had the acquisition been made as of that date or of results of operations that may occur in the future (in thousands except per share data):
Three months ended Nine months ended June 30, June 30, 2000 1999 2000 1999 ------- ------- -------- -------- Revenues $87,827 $39,610 $227,672 $106,857 Net income (loss) $ 2,255 $(5,094) $ 869 $(16,915) Net income (loss) attributable to common stockholders $ 2,255 $(5,256) $ 869 $(17,464) Net income (loss) per share applicable to common stockholders $ 0.12 $ (0.45) $ 0.05 $ (1.50)
3. REVOLVING CREDIT FACILITY On May 2, 2000, the Company terminated its $30.0 million unsecured revolving credit facility, replacing it with a $10.0 million uncommitted demand promissory note credit facility with ABN AMRO Bank N.V. ("ABN AMRO"). The new facility is payable on demand or on December 31, 2001, whichever occurs first. ABN AMRO is not obligated to extend loans or issue letters of credit under this facility. The interest rates for borrowings and letters of credit under the facility are expressed in relation to LIBOR and a margin of 1.75%, or at 0.75% above ABN AMRO's base rate. Approximately $1.1 million in face amount of letters of credit outstanding under the revolving credit facility were transferred to the replacement facility. At June 30, 2000, $1.3 million of the facility was in use, all of it for letters of credit. 4. EARNINGS (LOSS) PER SHARE The following table is a summary of net income (loss) attributable to common stockholders used in the calculation of basic and diluted earnings (loss) per share (in thousands):
Three months ended Nine months ended June 30, June 30, 2000 1999 2000 1999 ------ ------- ------ ------- Net income (loss) $2,486 $(1,209) $7,363 $(4,719) Accretion and dividends on preferred stock -- (162) -- (549) ------ ------- ------ ------- Net income (loss) applicable to common stockholders for basic and diluted earnings per share $2,486 $(1,371) $7,363 $(5,268) ====== ======= ====== =======
8 9 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued The following table is a summary of shares used in calculating basic and diluted earnings (loss) per share (in thousands):
Three months ended Nine months ended June 30, June 30, 2000 1999 2000 1999 ------ ------ ------ ------ Weighted average number of shares used in computing basic earnings (loss) per share 16,934 11,129 14,568 11,110 Dilutive securities: Common stock options and warrants 1,335 -- 1,113 -- ------ ------ ------ ------ Shares used in computing diluted earnings (loss) per share 18,269 11,129 15,681 11,110 ====== ====== ====== ======
Options and warrants to purchase approximately 816,000 and 697,000 shares of common stock were excluded from the computation of diluted loss per share for the three and nine months ended June 30, 1999, respectively, as their effect would be antidilutive. 5. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) for the Company is computed as the sum of net income (loss) and the change in the cumulative translation adjustment. Comprehensive income was $2,337,000 and $6,544,000 for the three and nine month periods ended June 30, 2000, respectively. Comprehensive loss was $1,351,000 and $4,756,000 for the three and nine month periods ended June 30, 1999, respectively. 6. SEGMENT AND GEOGRAPHIC INFORMATION The Company has two reportable segments: tool automation and factory automation. The tool automation segment provides a full complement of semiconductor wafer and flat panel display substrate handling systems. Tool automation revenue is comprised of factory hardware, including factory interface hardware products, tool control software products, spare parts sales and tool control application consulting services. The factory automation segment provides software products for the semiconductor manufacturing execution system ("MES") market, including consulting and software customization. The Company evaluates performance and allocates resources based on revenues and operating income. Operating income for each segment includes selling, general and administrative expenses directly attributable to the segment. Amortization of acquired intangible assets is excluded from the segments' operating income. The Company's non-allocable overhead costs, which include corporate general and administrative expenses, are allocated between the segments based upon segment revenues. 9 10 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued Financial information for the Company's business segments is as follows (in thousands): Tool Factory Automation Automation Total ---------- ---------- -------- Three months ended June 30, 2000 Revenues $ 64,680 $23,147 $ 87,827 Gross margin $ 24,416 $15,499 $ 39,915 Operating income $ 8,716 $ 1,217 $ 9,933 Three months ended June 30, 1999 Revenues $ 22,664 $ 6,390 $ 29,054 Gross margin $ 7,793 $ 4,498 $ 12,291 Operating loss $ (1,378) $ (131) $ (1,509) Nine months ended June 30, 2000 Revenues $165,898 $55,882 $221,780 Gross margin $ 63,300 $39,093 $102,393 Operating income $ 19,729 $ 5,286 $ 25,015 Nine months ended June 30, 1999 Revenues $ 61,329 $15,590 $ 76,919 Gross margin $ 20,940 $11,460 $ 32,400 Operating loss $ (5,301) $ (609) $ (5,910) A reconciliation of the Company's reportable segment operating income (loss) to the corresponding consolidated amounts for the three and nine month periods ended June 30, 2000 and 1999 is as follows (in thousands):
Three months ended Nine months ended June 30, June 30, 2000 1999 2000 1999 ------ ------- ------- ------- Segment operating income (loss) $9,933 $(1,509) $25,015 $(5,910) Amortization of acquired intangible assets 4,907 54 10,614 162 Acquisition-related charges 677 -- 677 -- ------ ------- ------- ------- Total operating income (loss) $4,349 $(1,563) $13,724 $(6,072) ====== ======= ======= =======
Net revenues by geographic area are as follows (in thousands): Three months ended Nine months ended June 30, June 30, 2000 1999 2000 1999 ------- -------- -------- ------- North America $46,903 $ 18,330 $111,741 $44,097 Asia 28,647 8,811 71,486 23,175 Europe 12,277 1,913 38,553 9,647 ------- -------- -------- ------- $87,827 $ 29,054 $221,780 $76,919 ======= ======== ======== ======= 10 11 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued 7. SIGNIFICANT CUSTOMERS AND RELATED PARTY INFORMATION One of the Company's directors is also a director of one of the Company's customers. Net revenue recognized from this customer was $9,926,000 and $5,426,000, or 11.3% and 18.7% of revenues, in the three months ended June 30, 2000 and 1999, respectively. Net revenue recognized from this customer in the nine months ended June 30, 2000 and 1999, was $25,453,000 and $9,565,000, or 11.5% and 12.4% of revenues, respectively. Amounts due from this customer included in accounts receivable at June 30, 2000 and September 30, 1999 were $6,275,000 and $3,384,000, respectively. Related party amounts included in accounts receivable are on standard terms and manner of settlement. In both the three and nine month periods ended June 30, 2000, the Company had no other customer that accounted for more than 10% of revenues. In the three months ended June 30, 1999, one other customer accounted for more than 10% of revenues; sales to this customer were 10.1% of revenues for the period. The Company had no other customer who accounted for more than 10% of revenues in the nine months ended June 30, 1999. 8. ACCOUNTS RECEIVABLE Accounts receivable consist of the following (in thousands): June 30, September 30, 2000 1999 ------- ------------- Accounts receivable $87,067 $37,306 Less allowances 2,224 1,736 ------- ------- $84,843 $35,570 ======= ======= 9. INVENTORIES Inventories consist of the following (in thousands): June 30, September 30, 2000 1999 ------- ------------- Raw materials and purchased parts $38,396 $23,062 Work-in-process 8,503 10,154 Finished goods 6,555 5,058 ------- ------- $53,454 $38,274 ======= ======= 11 12 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued 10. INTANGIBLE ASSETS Intangible assets consist of the following (in thousands): June 30, September 30, 2000 1999 ------- ------------- Patents $ 7,107 $ 7,127 Capitalized software 3,761 -- License agreements 635 -- Goodwill 61,073 10,991 ------- ------- 72,576 18,118 Less accumulated amortization 14,916 1,890 ------- ------- $57,660 $16,228 ======= ======= 11. ACQUISITION-RELATED AND RESTRUCTURING LIABILITIES The activity related to the Company's acquisition-related and restructuring liabilities during the nine months ended June 30, 2000 is below (in thousands): Balance Balance September 30, June 30, 1999 Utilization 2000 ------------ ----------- -------- Facilities $ 1,145 $ (139) $1,006 Depreciable assets -- -- -- Workforce-related 2,512 (323) 2,189 Other 211 (50) 161 ------- ------- ------ $ 3,868 $ (512) $3,356 ======= ======= ====== 12. CONTINGENCIES There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor and related industries. The Company has received notice from a third party alleging infringements of such party's patent rights by certain of the Company's products. The Company's patent counsel is investigating the claim and the Company believes the patents claimed may be invalid. In the event of litigation with respect to this claim, the Company is prepared to vigorously defend its position. However, because patent litigation can be extremely expensive and time consuming, the Company may seek to obtain a license to one or more of the disputed patents. Based upon currently available information, the Company would only do so if such license fees would not be material to the Company's consolidated financial statements. Currently, the Company does not believe it is probable that the future events related to this threatened matter would have an adverse effect on the Company's business. 12 13 BROOKS AUTOMATION, INC. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain statements in this quarterly report constitute "forward-looking statements" which involve known risks, uncertainties and other factors which may cause the actual results, performance or achievements of Brooks Automation, Inc. ("Brooks" or the "Company") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. For a further discussion of the various risks affecting the business, refer to "Factors That May Affect Future Results" appearing at the end of this Management's Discussion and Analysis of Financial Condition and Results of Operations. Precautionary statements made herein should be read as being applicable to all related forward-looking statements wherever they appear in this report. OVERVIEW The Company is a leading supplier of integrated tool and factory automation solutions for the global semiconductor and related industries such as the data storage and flat panel display manufacturing industries. The Company's product revenues include sales of hardware and software products. The Company's service revenues are primarily comprised of tool control application consulting services, consulting, software customization and spare parts sales. Many of the Company's customers purchase the Company's vacuum transfer robots and other modules before purchasing the Company's vacuum central wafer handling systems. The Company believes that once a customer has selected the Company's products for a process tool, the customer is likely to rely on those products for the life of that process tool model, which can be in excess of five years. Conversely, losing a bid for a manufacturing execution system ("MES") does not preclude the Company from securing optimization products to fit with a competitor's MES. A significant portion of the Company's revenues have been generated by sales to customers in the United States, although the Company believes that a significant portion of these customers incorporate the Company's products into equipment sold to their foreign customers. The Company's foreign sales have occurred principally in Asia and Europe. Sales in Asia have occurred primarily in Japan and South Korea, and, to a lesser extent, in Taiwan and Singapore. The Company's foreign revenues are generally denominated in United States dollars. Accordingly, foreign currency fluctuations have not had a significant impact on the comparison of the results of operations for the periods presented. The costs and expenses of the Company's international subsidiaries are generally denominated in currencies other than the United States dollar. However, since the functional currency of the Company's international subsidiaries is the local currency, foreign currency translation adjustments are reflected as a component of stockholders' equity under the caption "Accumulated other comprehensive income (loss)". To the extent that the Company expands its international operations or changes its pricing practices to denominate prices in foreign currencies, the Company will be exposed to increased risk of currency fluctuation. The Company's business is highly dependent upon the capital expenditures of semiconductor and flat panel display manufacturers which historically have been cyclical, and the Company's ability to develop, manufacture and sell new products and product enhancements. The Company's results will also be affected, especially when measured on a quarterly basis, by the volume, composition and timing of orders, conditions in industries served by the Company, competition and general economic conditions. 13 14 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BASIS OF PRESENTATION On June 23, 2000, the Company acquired the assets of MiTeX Solutions ("MiTeX"). The acquisition was accounted for using the purchase method of accounting. The Company's Consolidated Statements of Operations and of Cash Flows for the three and nine months ended June 30, 2000 do not include any results of MiTeX, except for the cash payments made for consideration and transaction costs. The results of operations for MiTeX for the period from acquisition to June 30, 2000, are not material to the consolidated results of the Company. On May 5, 2000, the Company acquired Irvine Optical Company LLC ("Irvine Optical") in a transaction accounted for as a pooling of interests. Accordingly, the Company's consolidated financial statements have been restated to include the financial position and results of operations of Irvine Optical for all periods prior to the acquisition. Additionally, the Company's Consolidated Statements of Operations and of Cash Flows for the three and nine months ended June 30, 1999 have also been restated to reflect the acquisition of Smart Machines Inc. ("Smart Machines") in a pooling of interests transaction effective August 31, 1999. On January 6, 2000, the Company completed the acquisition of the businesses of Auto-Soft Corporation ("ASC") and AutoSimulations, Inc. ("ASI") from Daifuku America Corporation ("Daifuku America"), a U.S. subsidiary of Daifuku Co., Ltd. of Japan. The acquisition was accounted for using the purchase method of accounting. Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows for the three and nine months ended June 30, 2000 include the results of ASC and ASI for the period subsequent to their acquisition. The Company made several acquisitions during fiscal year 1999 which were accounted for using the purchase method of accounting: the Infab Division ("Infab") of Jenoptik AG on September 30, 1999; Domain Manufacturing Corporation ("Domain") on June 30, 1999 and Hanyon Technology, Inc. ("Hanyon") on April 21, 1999. Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows for the three and nine months ended June 30, 2000 include the results of these acquired entities. In June 1999, the Company formed a joint venture in Korea with Samsung Electronics ("Samsung"). This joint venture is 70% owned by the Company and 30% owned by Samsung. The Company consolidates fully the financial position and results of operations of the joint venture and accounts for the minority interest in the financial statements. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED JUNE 30, 2000, COMPARED TO THREE AND NINE MONTHS ENDED JUNE 30, 1999 The Company reported net income of $2.5 million for the three months ended June 30, 2000, compared to a net loss of $1.2 million in the same prior year period. Net income for the nine months ended June 30, 2000 was $7.4 million, compared to a net loss of $4.7 million in the same prior year period. Net income before amortization of acquired intangible assets and acquisition-related charges, net of taxes, was $8.1 million and $18.1 million for the three and nine months ended June 30, 2000, respectively. For the three and nine months ended June 30, 1999, the Company had net losses of $1.0 million and $4.8 million, respectively, before amortization of acquired intangible assets, net of taxes. There were no acquisition-related charges recorded by the Company in either of these prior year periods. REVENUES The Company reported revenues of $87.8 million in the three months ended June 30, 2000, compared to $29.1 million in the same prior year period. For the nine months ended June 30, 2000, the Company reported revenues of $221.8 million. This compares to revenues of $76.9 million in the nine months ended June 30, 1999. The increase in total revenue is attributable to both of the Company's operating segments, with the factory automation segment showing slightly higher increases, on a percentage basis, than the tool automation segment, for both the three and nine month periods ended June 30, 2000, compared to the same prior year periods. The factory automation segment's higher growth rate is the result of acquisitions combined with higher sales volume. Product revenues more than tripled, to $71.5 million, in the three months ended June 30, 2000, compared to $23.2 million in 14 15 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued the three months ended June 30, 1999. Product revenues of $184.4 million for the nine months ended June 30, 2000, were virtually triple the $61.6 million reported in the same prior year. This growth is primarily attributable to acquisitions and the overall strength in the original equipment manufacturer ("OEM") and End User markets. Service revenues for the three months ended June 30, 2000 were $16.3 million, an increase of $10.5 million, or 178.9%, from the three months ended June 30, 1999. Service revenues for the nine months ended June 30, 2000 increased $22.0 million, or 144.0%, for the nine months ended June 30, 2000, from $15.3 million in the nine months ended June 30, 1999. These increases are primarily the result of the Company's acquisitions and the impact of those acquisitions on consulting services associated with factory automation. Foreign revenues were $40.9 million, or 46.6% of revenues, and $10.7 million, or 36.9% of revenues, in the three month periods ended June 30, 2000 and 1999, respectively. For the nine month periods ended June 30, 2000 and 1999, foreign revenues were $110.0 million, or 49.6% of revenues, and $32.8 million, or 42.7% of revenues, respectively. The increase is primarily the result of the Company's expanded global presence from its recent acquisitions. The Company expects that foreign revenues will continue to account for a significant portion of total revenues. GROSS PROFIT Gross profit increased to 45.4% for the three months ended June 30, 2000, compared to 42.3% for the same prior year period. Gross profit for the nine months ended June 30, 2000 was 46.2%, an increase from 42.1% for the comparable prior year period. The Company's tool automation segment gross profit increased overall, to 37.7% and 38.2% for the three and nine months ended June 30, 2000, from 34.4% and 34.1% for the comparable prior year periods. Gross profit for the Company's factory automation segment declined slightly, to 67.0% and 70.0% for the three and nine months ended June 30, 2000, from 70.4% and 73.5% for the three and nine months ended June 30, 1999. This decline is primarily attributable to the acquired service business of ASC, which has a historically lower margin structure than that of the Company. Gross profit on product revenues increased to 47.7% for the three months ended June 30, 2000, from 43.3% in the comparable prior year period. Gross profit on product revenues increased to 47.7% for the nine months ended June 30, 2000, from 43.2% in the same prior year period. The increase in both the three and nine month periods is primarily attributable to improvements in manufacturing capacity utilization and the acquisition of higher margin software product businesses, partially offset by the Infab operations' historically lower margin structure. In future periods, gross profit may be adversely affected by changes in product mix or price competition. Gross profit on service revenues was 35.4% for the three months ended June 30, 2000, a decrease from 38.5% for the three months ended June 30, 1999. The decrease is primarily attributable to business mix within the June 30, 2000 quarter. However, gross profit on service revenues increased for the nine months ended June 30, 2000, compared to the same prior year period. Gross profit on service revenues for the nine months ended June 30, 2000 and 1999 was 38.5% and 37.6%, respectively. This increase is primarily the result of improved market conditions and overall change in service mix. Included in the cost of services revenues are global support customer costs, consisting primarily of personnel costs and travel expenses. RESEARCH AND DEVELOPMENT Research and development expenses for the three months ended June 30, 2000 were $11.3 million, an increase of $5.6 million, compared to $5.7 million in the three months ended June 30, 1999. Research and development expenses for the nine months ended June 30, 2000 were $29.4 million, an increase of $12.9 million, or 78.5%, compared to the same prior year period. However, research and development expenses decreased as a percentage of revenues in both the three and nine month periods ended June 30, 2000, to 12.9% and 13.3%, respectively. This compares to 19.7% and 21.4% of revenues in the three and nine months ended June 30, 1999, respectively. The 15 16 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued increase in absolute spending is the result of the research and development efforts related to the Company's recent acquisitions as well as incremental spending associated with the launch of new atmospheric products and the transition to the next generation vacuum wafer handling products, partially offset by the elimination of redundant research and development programs. The Company will continue to invest in research and development to enhance existing and develop new tool and factory hardware and software automation solutions for the semiconductor, data storage and flat panel display manufacturing industries. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses were $18.7 million for the three months ended June 30, 2000, an increase of $10.6 million, compared to $8.1 million in the same prior year period. Selling, general and administrative expenses increased by $26.1 million, to $47.9 million for the nine months ended June 30, 2000, compared to $21.8 million in the nine months ended June 30, 1999. However, selling, general and administrative expenses decreased as a percentage of revenues in both the three and nine month periods ended June 30, 2000, to 21.2% and 21.6%, respectively. This compares to 27.8% and 28.4% of revenues in the three and nine months ended June 30, 1999, respectively. The increase in absolute spending is the result of expanded sales and marketing activities as well as general and administration support costs associated with the Company's recently completed acquisitions and infrastructure improvements, while the improvement of these costs as a percentage of revenues reflects the Company's efforts at expanding its product offerings and customer base. AMORTIZATION OF ACQUIRED INTANGIBLE ASSETS Amortization expense for acquired intangible assets totaled $4.9 million and $10.6 million in the three and nine months ended June 30, 2000, and relates to acquired intangible assets of the ASC and ASI acquisition, which was consummated January 6, 2000, the Infab, Domain and Hanyon acquisitions, all of which occurred during the second half of fiscal 1999 and Irvine Optical's acquisition of a corporation in March 1997. Amortization expense for acquired intangible assets was $0.1 million and $0.2 million in the three and nine months ended June 30, 1999, respectively, and relates to Irvine Optical. ACQUISITION-RELATED CHARGES Acquisition-related charges of $0.7 million in both the three and nine month periods ended June 30, 2000 relate primarily to transaction costs in connection with the May 5, 2000 acquisition of Irvine Optical. There were no acquisition-related charges recorded in the comparable prior year periods. INTEREST INCOME AND EXPENSE Interest income increased by $3.0 million, to $3.8 million, in the three months ended June 30, 2000, and by $3.2 million, to $5.5 million, in the nine months ended June 30, 2000, due primarily to higher cash and investment asset balances which resulted from the Company's public offering of shares of common stock in March 2000. Interest income was $0.8 million and $2.3 million in the three and nine months ended June 30, 1999. Interest expense of $0.3 million and $0.4 million for the three months ended June 30, 2000 and 1999, respectively, and $1.1 million and $1.2 million for the corresponding nine month periods then ended, relates primarily to Irvine Optical's debt, which was discharged in the current quarter. Also included in interest expense for the three and nine months ended June 30, 2000 is interest on the Company's note payable to Daifuku America related to the acquisition of ASC and ASI. INCOME TAX PROVISION (BENEFIT) The Company recorded net income tax expense of $10.8 million and net tax benefits of $0.3 million for the nine months ended June 30, 2000 and 1999, respectively. The tax provision is attributable to federal, state, foreign and withholding taxes. Federal and state taxes have been reduced for net operating losses, research and development tax credits and a foreign sales corporation benefit. 16 17 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $233.3 million at June 30, 2000, an increase of $166.9 million from September 30, 1999. The Company realized proceeds, net of issuance costs, of approximately $220 million from a public offering of shares of its common stock in March 2000. In connection with its acquisition of ASC and ASI on January 6, 2000, the Company paid Daifuku America $27.0 million in cash and issued Daifuku America a note in the amount of $16.0 million, which is due on January 6, 2001. In addition, the Company paid Irvine Optical's $6.7 million revolving credit facility balance subsequent to its acquisition in May 2000. Cash used in operations was $17.7 million, and is primarily attributable to increases in accounts receivable, inventories and prepaid expenses and other current assets of $38.9 million, $18.7 million and $4.5 million, respectively, partially offset by depreciation and amortization of $18.3 million, and increases of $11.0 million and $1.3 million in accounts payable and accrued expenses and other current liabilities, respectively. The increase in accounts receivable and inventories is primarily attributable to the Company's recent rapid growth. The Company's increased sales, particularly in Asia, combined with a greater number of long-term project contracts, have also contributed to the increase in accounts receivable. Cash used in investing activities was $34.7 million, and was principally comprised of $24.7 million used for the purchase of businesses, net of cash acquired (primarily the acquisition of ASC and ASI) and $10.6 million used for capital additions, primarily in telecommunications, systems infrastructure and for computer requirements, including expenditures needed to accommodate the Company's expanding capacity needs, including the completion of its additional facility in Chelmsford, Massachusetts. Cash provided by financing activities was $219.2 million, comprised of $224.9 million of proceeds from the issuance of common stock, net of issuance costs, partially offset by $5.3 million for net repayments on the revolving credit facility pooled in the acquisition of Irvine Optical and $0.4 million for the payment of prior long-term debt of the Company. While the Company has no significant capital commitments, as it expands its product offerings and prepares for expected growth, the Company anticipates that it will continue to make capital expenditures to support its business. The Company may also use its resources to acquire companies, technologies or products that complement the business of the Company. Because of its strong cash position, the Company terminated its $30.0 million unsecured revolving credit facility and replaced it with a $10.0 million uncommitted demand promissory note facility with ABN AMRO Bank N.V. ("ABN AMRO") on May 2, 2000. The Company transferred all of its outstanding letters of credit, totaling approximately $1.1 million, to the new facility. ABN AMRO is not obligated to extend loans or issue letters of credit under this new facility. At June 30, 2000, $1.3 million of the facility was in use, all of it for letters of credit. The Company believes that its existing resources will be adequate to fund the Company's currently planned working capital and capital expenditure requirements for at least the next twelve months. The sufficiency of the Company's resources to fund its needs for capital is subject to known and unknown risks, uncertainties and other factors which may have a material adverse effect on the Company's business, including, without limitation, the factors discussed under "Factors That May Affect Future Results." 17 18 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25". FIN 44 clarifies the application of APB Opinion No. 25 ("APB 25"), including the following: the definition of an employee for purposes of applying APB 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequences of various modifications to the terms of previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's financial position or results of operations. In December 1999, the U.S. Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101 summarizes the SEC's views in applying generally accepted accounting principles to selected revenue recognition issues in financial statements. In June 2000, the SEC issued Staff Accounting Bulletin No. 101B, an amendment to SAB 101, which delays the implementation of SAB 101. The application of the guidance in SAB 101 will now be required in the Company's fourth quarter of fiscal 2001. The Company is currently determining the impact that SAB 101 will have on its financial position and results of operations. FACTORS THAT MAY AFFECT FUTURE RESULTS You should carefully consider the risks described below and the other information in this report before deciding to invest in shares of our common stock. While these are the risks and uncertainties we believe are most important for you to consider, you should know that they are not the only risks or uncertainties facing us or which may adversely affect our business. If any of the following risks or uncertainties actually occur, our business, financial condition and operating results would likely suffer. In that event, the market price of our common stock could decline and you could lose all or part of the money you paid to buy our common stock. RISKS RELATING TO OUR OPERATIONS The Cyclical Demand of Semiconductor Manufacturers Affects our Operating Results. Our business is significantly dependent on capital expenditures by semiconductor manufacturers. The level of semiconductor manufacturers' capital expenditures is dependent on the current and anticipated market demand for semiconductors. Demand for semiconductors is cyclical and has historically experienced periodic downturns. During these downturns, our revenues have dropped, and we have incurred losses. We believe that downturns in the semiconductor manufacturing industry will occur in the future and will result in decreased demand for our products. Despite the addition of our factory automation business in fiscal 1999, our financial results will continue to be dependent on capital expenditures by semiconductor manufacturers. Downturns in the semiconductor business, when fewer new facilities are being built, could harm our financial results as have downturns in the past. Our Sales Volume Depends on the Sales Volume of our Original Equipment Manufacturer Customers. We sell a majority of our tool automation products to original equipment manufacturers who incorporate our products into their equipment. Therefore, our revenues are directly dependent on the ability of these customers to develop and market their equipment in a timely, cost-effective manner. We Rely on a Small Number of Customers for a Large Portion of our Revenues. We receive a significant portion of our revenues in each fiscal period from a limited number of customers. The loss of one or more of these major customers, or a decrease in orders by one or more customers, would adversely affect our business. Sales to our ten largest customers accounted for approximately 43% of total revenues in the nine months ended June 30, 2000 and 57% of total revenues in fiscal 1999. 18 19 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Delays in Shipment of a Few of our Large Orders Could Substantially Decrease our Revenues. Historically, a substantial portion of our quarterly and annual revenues came from sales of a small number of large orders. These orders consist of products with high selling prices compared to our other products. As a result, the timing of the recognition of revenue from one of these large orders can have a significant impact on our total revenues and operating results for a particular period. Our operating results could be harmed if orders for even a small number of large orders are canceled or rescheduled by customers or cannot be filled due to delays in manufacturing, testing, shipping or product acceptance. We Have Significant Fixed Costs Which Are Not Easily Reduced if Revenues Fall Below Expectations. Our expense levels are based in part on our future revenue expectations. Many of our expenses, particularly those relating to capital equipment and manufacturing overhead, are relatively fixed. If we do not meet our sales goals we may be unable to rapidly reduce these fixed costs. Our ability to reduce expenses is further constrained because we must continue to invest in research and development to maintain our competitive position to maintain service and support for our existing global customer base. Accordingly, if we suffer an unexpected downturn in revenue, our inability to reduce fixed costs rapidly could increase the adverse impact on our results of operations. Our Lengthy Sales Cycle Requires Us to Incur Significant Expenses With No Assurance That We Will Generate Revenue. Our tool automation products are generally incorporated into original equipment manufacturer equipment at the design stage. To obtain new business from our original equipment manufacturer customers, we must develop products for selection by a potential customer at the design stage. This often requires us to make significant expenditures, without any assurance of success. The original equipment manufacturer's design decisions often precede the generation of volume sales, if any, by a year or more. We also must complete successfully a lengthy evaluation period before we can achieve volume sales of our manufacturing execution system software and process optimization software to our factory automation customers. We cannot guarantee that we will continue to achieve design wins or satisfy evaluations by our factory automation customers of our software. We cannot guarantee that the equipment manufactured by our original equipment manufacturing customers will be commercially successful. If we or our original equipment manufacturing customers fail to develop and introduce new products successfully and in a timely manner, our business and financial results will suffer. Our International Business Operations Expose Us to a Number of Difficulties in Coordinating Our Activities Abroad and in Dealing with Multiple Regulatory Environments. Approximately 50% of our total revenues in the nine months ended June 30, 2000, and 42% of our total revenues in fiscal 1999, were derived from customers located outside North America. We anticipate that international sales will continue to account for a significant portion of our revenues. Our vendors are located in several different foreign countries. As a result of our international business operations, we are subject to various risks, including: - difficulties in staffing and managing operations in multiple locations in many countries; - challenges presented by collecting trade accounts receivable in foreign jurisdictions; - possible adverse tax consequences; - governmental currency controls; - changes in various regulatory requirements; - political and economic changes and disruptions; and - export/import controls and tariff regulations. 19 20 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Although our international sales are primarily denominated in U.S. dollars, changes in currency exchange rates can make it more difficult for us to compete with foreign manufacturers on price. If our international sales increase relative to our total revenues, these factors could have a more pronounced effect on our operating results. We Must Continually Improve Our Technology to Remain Competitive. Technology changes rapidly in the semiconductor, data storage and flat panel display manufacturing industries. We believe our success will depend upon our ability to enhance our existing products and to develop and market new products to meet customer needs. We cannot guarantee that we will identify and adjust to changing market conditions or succeed in introducing commercially rewarding products or product enhancements. The success of our product development and introduction depends on a number of factors, including: - accurately identifying and defining new products; - completing and introducing new product designs in a timely manner; - market acceptance of our products and our customers' products; and - determining a comprehensive, integrated product strategy. We Face Significant Competition Which Could Result in Decreased Demand For Our Products or Services. The markets for our products are intensely competitive and we may not be able to compete successfully. We believe that our primary competition in the tool automation market is from integrated original equipment manufacturers that satisfy their semiconductor and flat panel display handling needs themselves rather than by purchasing systems or modules from an independent supplier like us. Many of these original equipment manufacturers have substantially greater resources than we do. Applied Materials, Inc., the leading process equipment original equipment manufacturer, develops and manufactures its own central wafer handling systems and modules. We may not be successful in selling our products to original equipment manufacturers that currently satisfy their wafer or substrate handling needs themselves, regardless of the performance or the price of our products. Moreover, integrated original equipment manufacturers may begin to commercialize their handling capabilities and become our competitors. We believe that the primary competitive factors in the end-user semiconductor manufacturer market for factory automation software and process control software are product functionality, price/performance, ease of use, hardware and software platform compatibility, vendor reputation and financial stability. The relative importance of these competitive factors may change over time. We directly compete in this market with various competitors, including Applied Materials-Consilium, PRI-Promis, IBM-Poseidon and numerous small, independent software companies. We also compete with the in-house software staffs of semiconductor manufacturers like NEC. Most of those manufacturers have substantially greater resources than us. We believe that the primary competitive factors in the factory interface market are technical and technological capabilities, reliability, price/performance, ease of integration and global sales and support capability. In this market, we compete directly with Asyst, Fortrend, Kensington and Rorze. Some of these competitors have substantial financial resources and extensive engineering, manufacturing and marketing capabilities. 20 21 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Much of Our Success and Value Lies in Our Ownership and Use of Intellectual Property and Our Failure to Protect That Property Could Adversely Affect Our Future Growth. Our ability to compete is heavily affected by our ability to protect our intellectual property. We rely primarily on trade secret laws, confidentiality procedures, patents, copyrights, trademarks and licensing arrangements to protect our intellectual property. The steps we have taken to protect our technology may be inadequate. Existing trade secret, trademark and copyright laws offer only limited protection. Our patents could be invalidated or circumvented. The laws of certain foreign countries in which our products are or may be developed, manufactured or sold may not fully protect our products or intellectual property rights. This may make the possibility of piracy of our technology and products more likely. We cannot guarantee that the steps we have taken to protect our intellectual property will be adequate to prevent misappropriation of our technology. There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. We may engage in litigation to: - enforce our patents; - protect our trade secrets or know-how; - defend ourselves against claims we infringe on the rights of others; or - determine the scope and validity of the patents or intellectual property rights of others. Any litigation could result in substantial cost to us and divert the attention of our management, which could harm our operating results. Our Operations Could Infringe on the Intellectual Property Rights of Others. Particular aspects of our technology could be found to infringe on the intellectual property rights or patents of others. Other companies may hold or obtain patents on inventions or may otherwise claim proprietary rights to technology necessary to our business. We cannot predict the extent to which we may be required to seek licenses or alter our products so that they no longer infringe on the rights of others. We cannot guarantee that the terms of any licenses we may be required to seek will be reasonable. Similarly, changing our products or processes to avoid infringing on the rights of others may be costly or impractical or could detract from the value of our products. Our Business May Be Harmed by Infringement Claims of General Signal or Applied Materials. We received notice from General Signal Corporation alleging infringements of its patent rights by certain of our products. The notification advised us that General Signal was attempting to enforce its rights to those patents in litigation against Applied Materials, and that, at the conclusion of that litigation, General Signal intended to enforce its rights against us and others. According to a press release issued by Applied Materials in November 1997, Applied Materials settled its litigation with General Signal by acquiring ownership of five General Signal patents. Although not verified by us, these five patents would appear to be the patents referred to by General Signal in its prior notice to us. Applied Materials has not contacted us regarding these patents. We Do Not Have Long-term Contracts With Our Customers and Our Customers May Cease Purchasing Our Products at Any Time. We generally do not have long-term contracts with our customers. As a result, our agreements with our customers do not provide any assurance of future sales. Accordingly: - our customers can cease purchasing our products at any time without penalty; - our customers are free to purchase products from our competitors; - we are exposed to competitive price pressure on each order; and - our customers are not required to make minimum purchases. 21 22 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Our Future Growth Relies in Part on the Commercial Adoption of 300mm Wafer Technology, Which is Progressing More Slowly Than Expected, and Competition for 300mm Orders May Be Intense. Our future growth relies in part on the adoption of new systems and technologies to automate the processing of 300mm wafers. However, the industry transition from the current, widely used 200mm manufacturing technology to 300mm manufacturing technology is occurring more slowly than expected. Any significant delay in the adoption of 300mm manufacturing technology, or the failure of the industry to adopt 300mm manufacturing technology, could significantly reduce our opportunities for future growth. Moreover, continued delay in the transition to 300mm technology could permit our competitors to introduce competing or superior 300mm products. Competition, including price competition, for such 300mm orders could be vigorous and could harm our results of operations. Year 2000 Readiness; Year 2000 Problems Could Disrupt Our Business. Problems associated with the year 2000 may not become apparent until some time after January 2000. We believe that our products and business will not be substantially affected by the year 2000 problem and that we have no significant exposure to liabilities related to the year 2000 problem for the products that we have sold. Although we believe our planning efforts are adequate to address our year 2000 concerns, undetected year 2000 problems may cause us to experience negative consequences or significant costs. We cannot be sure that our suppliers, customers or businesses that we may acquire will not experience similar consequences or costs. Such consequences or costs could adversely affect our business. RISKS RELATING TO OUR GROWTH Rapid Growth is Straining Our Operations and Requiring Us to Incur Costs to Upgrade Our Infrastructure. During the last year, we have experienced extremely rapid growth in our operations, the number of our employees, our product offerings and the geographic area of our operations. Our growth places a significant strain on our management, operations and financial systems. Our future operating results will be dependent in part on our ability to continue to implement and improve our operating and financial controls and management information systems. If we fail to manage our growth effectively, our financial condition, results of operations and business could be materially adversely affected. Our Operating Results Would Be Harmed If One of Our Key Suppliers Fails to Deliver Components for Our Products. We currently procure many of our components on an as needed, purchase order basis. We do not carry significant inventories or have any long-term supply contracts with our vendors. With the recent increased demand for semiconductor manufacturing equipment, our suppliers are facing significant challenges in providing components on a timely basis. Our inability to obtain components in required quantities or of acceptable quality could result in significant delays or reductions in product shipments. This would materially and adversely affect our operating results. Our Business Could Be Harmed If We Fail to Adequately Integrate the Operations of Our Acquisitions. Our management must devote substantial time and resources to the integration of the operations of our acquired businesses with our business and with each other. If we fail to accomplish this integration efficiently, we may not realize the anticipated benefits of our acquisitions. The process of integrating supply and distribution channels, research and development initiatives, computer and accounting systems and other aspects of the operation of our acquired businesses, presents a significant challenge to our management. This is compounded by the challenge of simultaneously managing a larger entity. We have completed a number of acquisitions in a short period of time. These businesses have operations and personnel located in Asia, Europe and the United States and present a number of additional difficulties of integration, including: - difficulties in the assimilation of products and designs into integrated solutions; - difficulties in informing customers, suppliers and distributors of the effects of the acquisitions and integrating them into our overall operations; - difficulties integrating personnel with disparate business backgrounds and cultures; - difficulties in defining and executing a comprehensive product strategy; - difficulties in managing geographically remote units; - difficulties associated with managing the risks of entering markets or types of businesses in which we have limited or no direct experience; and - difficulties in minimizing the loss of key employees of the acquired businesses. 22 23 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued If we delay integrating or fail to integrate an acquired business or experience other unforeseen difficulties, the integration process may require a disproportionate amount of our management's attention and financial and other resources. Our failure to adequately address these difficulties could harm our business and financial results. Our Business May Be Harmed by Acquisitions We Complete in the Future. We plan to continue to pursue additional acquisitions of related businesses. Our identification of suitable acquisition candidates involves risks inherent in assessing the values, strengths, weaknesses, risks and profitability of acquisition candidates, including the effects of the possible acquisition on our business, diversion of our management's attention and risks associated with unanticipated problems or latent liabilities. If we are successful in pursuing future acquisitions, we will be required to expend significant funds, incur additional debt or issue additional securities, which may negatively affect our results of operations and be dilutive to our stockholders. If we spend significant funds or incur additional debt, our ability to obtain financing for working capital or other purposes could decline and we may be more vulnerable to economic downturns and competitive pressures. We cannot guarantee that we will be able to finance additional acquisitions or that we will realize any anticipated benefits from acquisitions that we complete. Should we successfully acquire another business, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of our existing business. We May Not Be Able to Recruit and Retain Necessary Personnel Because of Intense Competition for Highly Skilled Personnel. We need to hire and retain substantial numbers of employees with technical backgrounds for both our hardware and software engineering and support staffs. The market for these employees is intensely competitive, and we have occasionally experienced delays in hiring these personnel. Due to the cyclical nature of the demand for our products, we have had to reduce our workforce and then rebuild our workforce as our business has gone through downturns followed by upturns. We currently need to hire a number of highly skilled employees, especially in manufacturing, to meet customer demand. Due to the competitive nature of the labor markets in which we operate, this type of employment cycle increases our risk of not being able to retain and recruit key personnel. Our inability to recruit, retain and train adequate numbers of qualified personnel on a timely basis could adversely affect our ability to develop, manufacture, install and support our products. RISKS RELATING TO OUR COMMON STOCK Our Operating Results Fluctuate Significantly, Which Could Negatively Impact Our Business and Our Stock Price. Our margins, revenues and other operating results can fluctuate significantly from quarter to quarter depending upon a variety of factors, including: - the level of demand for semiconductors in general; - cycles in the market for semiconductor manufacturing equipment and automation software; - the timing and size of orders from our customer base; - our ability to manufacture, test and deliver products in a timely and cost-effective manner; - our success in winning competitions for orders; - the timing of our new product announcements and releases and those of our competitors; - the mix of products sold by us; - competitive pricing pressures; and - the level of automation required in fab extensions, upgrades and new facilities. We entered into the factory automation software business in fiscal 1999. We believe a substantial portion of our revenues from this business will be dependent on achieving project milestones. As a result, our revenue from this business will be subject to fluctuations depending upon a number of factors, including whether we can achieve project milestones on a timely basis, if at all, as well as the timing and size of projects. 23 24 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued The Volatility of Our Stock Price Could Adversely Affect an Investment in Our Stock. The market price of our common stock has fluctuated widely. For example, between April 14, 2000 and April 28, 2000, the price of our common stock rose from approximately $62.38 to $89.69 per share. Between April 28, 2000 and May 31, 2000, the price of our common stock dropped from approximately $89.69 to $39.75 per share. Consequently, the current market price of our common stock may not be indicative of future market prices, and we may not be able to sustain or increase the value of an investment in our common stock. Factors affecting our stock price may include: - variations in operating results from quarter to quarter; - changes in earnings estimates by analysts or our failure to meet analysts' expectations; - changes in the market price per share of our public company customers; - market conditions in the industry; - general economic conditions; - low trading volume of our common stock; and - the number of firms making a market in our common stock. In addition, the stock market has recently experienced extreme price and volume fluctuations. These fluctuations have particularly affected the market prices of the securities of high technology companies like us. These market fluctuations could adversely affect the market price of our common stock. Provisions of Our Certificate of Incorporation, Bylaws and Contracts May Discourage Takeover Offers and May Limit the Price Investors Would Be Willing to Pay for Our Common Stock. Our certificate of incorporation and bylaws contain provisions that may make an acquisition of us more difficult and discourage changes in our management. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. In addition, we have adopted a rights plan. In many potential takeover situations, rights issued under the plan become exercisable to purchase our common stock at a price substantially discounted from the then applicable market price of our common stock. Because of its possible dilutive effect to a potential acquirer, the rights plan would generally discourage third parties from proposing a merger with or initiating a tender offer for us that is not approved by our board of directors. Accordingly, the rights plan could have an adverse impact on our stockholders who might want to vote in favor of the merger or participate in the tender offer. In addition, shares of our preferred stock may be issued upon terms the board of directors deems appropriate without stockholder approval. Our ability to issue preferred stock in such a manner could enable our board of directors to prevent changes in our management or control. 24 25 BROOKS AUTOMATION, INC. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK INTEREST RATE EXPOSURE Based on Brooks' overall interest exposure at June 30, 2000, including all interest rate-sensitive instruments, a near-term change in interest rates within a 95% confidence level based on historical interest rate movements would not materially affect the consolidated results of operations or financial position. CURRENCY RATE EXPOSURE Brooks' foreign revenues are generally denominated in United States dollars. Accordingly, foreign currency fluctuations have not had a significant impact on the comparison of the results of operations for the periods presented. The costs and expenses of Brooks' international subsidiaries are generally denominated in currencies other than the United States dollar. However, since the functional currency of Brooks' international subsidiaries is the local currency, foreign currency translation adjustments do not impact operating results, but instead are reflected as a component of stockholders' equity under the caption "Accumulated other comprehensive income (loss)". To the extent Brooks expands its international operations or changes its pricing practices to denominate prices in foreign currencies, Brooks will be exposed to increased risk of currency fluctuation. STOCK PRICE The stock prices of semiconductor equipment companies are subject to significant fluctuations. Brooks' stock price may be affected by a variety of factors that could cause the price of Brooks' common stock to fluctuate, perhaps substantially, including: announcements of developments related to Brooks' business; quarterly fluctuations of Brooks' actual or anticipated operating results and order levels; general conditions in the semiconductor and flat panel display industries or the worldwide economy; announcements of technological innovations; new products or product enhancements by Brooks or its competitors; developments in patents or other intellectual property rights and litigation; and developments in Brooks' relationships with its customers and suppliers. In addition, in recent years, both the stock market in general and the market for shares of small capitalization and semiconductor industry-related companies in particular have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Any such fluctuations in the future could adversely affect the market price of Brooks' common stock. There can be no assurance that the market price of the common stock of Brooks will not decline. 25 26 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are included herein: EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1 Interests for Stock Purchase Agreement dated as of May 5, 2000 among the Registrant, Irvine Optical and Irvine's unit members, as amended (incorporated by reference to Exhibit 2.02 of the Registrant's Registration Statement on Form S-3 (No. 333-42620)). 27.1 Financial Data Schedule for the quarterly period ended June 30, 2000 27.2 Financial Data Schedule for the quarterly period ended June 30, 1999, restated to reflect the acquisitions of Irvine Optical Company LLC and Smart Machines Inc. in pooling of interests transactions effective May 5, 2000 and August 31, 1999, respectively. (b) The following reports on Form 8-K were filed during the quarterly period ended June 30, 2000: (1) Current report on Form 8-K filed on May 19, 2000, relating to the acquisition of Irvine Optical LLC from Ronald A. McIntyre, Christopher G. McIntyre and The Peninsula Fund Limited Partnership. 26 27 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. BROOKS AUTOMATION, INC. DATE: August 10, 2000 /s/ Robert J. Therrien ---------------------- Robert J. Therrien Director and President (Principal Executive Officer) DATE: August 10, 2000 /s/ Ellen B. Richstone ---------------------- Ellen B. Richstone Senior Vice President of Finance and Administration and Chief Financial Officer(Principal Financial Officer) 27 28 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1 Interests for Stock Purchase Agreement dated as of May 5, 2000 among the Registrant, Irvine Optical and Irvine's unit members, as amended (incorporated by reference to Exhibit 2.02 of the Registrant's Registration Statement on Form S-3 (No. 333-42620)). 27.1 Financial Data Schedule for the quarterly period ended June 30, 2000 27.2 Financial Data Schedule for the quarterly period ended June 30, 1999, restated to reflect the acquisitions of Irvine Optical Company LLC and Smart Machines Inc. in pooling of interests transactions effective May 5, 2000 and August 31, 1999, respectively. EX-27.1 2 ex27-1.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS AND NOTE 8 ACCOUNTS RECEIVABLE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000. 1,000 U.S. 9-MOS SEP-30-2000 OCT-01-2000 JUN-30-2000 1 233,263 0 87,067 2,224 53,454 387,486 66,404 38,226 493,951 87,385 17,178 0 0 172 403,963 493,951 184,423 221,780 96,397 119,387 40,717 0 1,112 17,956 10,842 7,363 0 0 0 7,363 0.51 0.47
EX-27.2 3 ex27-2.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000. 1,000 U.S. 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 61,610 76,919 34,964 44,519 16,644 0 1,151 (5,019) (337) (4,719) 0 0 0 (4,719) (0.47) (0.47)
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