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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

(Mark One)

For the quarterly period ended December 31, 2002

OR

For the transition period from ________ to ________

Commission File number 000-22430

ASYST TECHNOLOGIES, INC.

48761 Kato Road, Fremont, California 94538
(Address of principal executive offices)

(510) 661-5000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

The number of shares of the registrant’s Common Stock, no par value, outstanding as of January 31, 2003 was 38,561,611.

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ASYST TECHNOLOGIES, INC.

INDEX

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Part I — FINANCIAL INFORMATION

Item 1 — Financial Statements

ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.

ORGANIZATION OF THE COMPANY:

     The accompanying condensed consolidated financial statements include the accounts of Asyst Technologies, Inc. (“Asyst” or the “Company”), which was incorporated in California on May 31, 1984, its subsidiaries and its majority owned joint venture. The Company designs, develops, manufactures and markets isolation systems, work-in-process materials management, substrate-handling robotics, automated transport and loading systems, and connectivity automation software utilized primarily in clean rooms for semiconductor manufacturing.

     In October 2002, the Company purchased a 51% interest in Asyst Shinko, Inc. (“ASI”), a Japanese corporation.

     In May 2002, Asyst Connectivity Technologies, Inc., a subsidiary of the Company (“ACT”), purchased substantially all of the assets of domainLogix Corporation, (“DLC”), a Delaware corporation.

     In May 2001, the Company acquired 100 percent of the common stock of GW Associates, Inc. (“GW”), a California corporation.

     The above transactions, which were unrelated, were accounted for using the purchase method of accounting. Accordingly, the Company’s Consolidated Statements of Operations and of Cash Flows for the period ended December 31, 2002 include the results of these acquired entities for the periods subsequent to their respective acquisitions. The Company consolidates fully the financial position and results of operations of ASI and accounts for the minority interest in the consolidated financial statements.

2.

SIGNIFICANT ACCOUNTING POLICIES:

     Basis of Preparation

     While the financial information furnished is unaudited, the condensed consolidated financial statements included in this report reflect all adjustments (consisting of normal recurring accruals) which the Company considers necessary for the fair presentation of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. All significant intercompany accounts and transactions have been eliminated. Minority shareholder’s interest represents the minority shareholders proportionate share of the net assets and results of operations of the Company’s majority-owned subsidiary, Asyst Shinko, Inc. Certain prior year amounts in the condensed consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the quarter ended December 31, 2002. The Company closes its books on the last Saturday of each quarter and thus the actual date of the quarter-end is usually different from the month-end dates used

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throughout this Form 10-Q report. The results for interim periods are not necessarily indicative of the results for the entire year. The condensed consolidated financial statements should be read in connection with the Asyst Technologies, Inc. consolidated financial statements for the year ended March 31, 2002 included in its Annual Report on Form 10-K. The Advanced Machine Programming, Inc. (AMP) and SemiFab, Inc. (SemiFab) businesses are accounted for as discontinued operations and therefore, the results of operations and cash flows have been removed from the Company’s results of continuing operations for all periods presented.

     New Accounting Standards

     In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Exit or Disposal Activities,” or SFAS 146. SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The scope of SFAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 and early application is encouraged. The Company will adopt SFAS 146 during the quarter ending March 31, 2003. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS 146. The effect on adoption of SFAS 146 will change on a prospective basis the timing of when restructuring charges are recorded from a commitment date approach to when the liability is incurred.

     In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company is currently assessing the impact of this standard on its consolidated financial statements.

     In November 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is currently assessing the impact of this standard on the on its consolidated financial statements.

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     In December 2002, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS 123.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002. The Company believes that the adoption of this standard will have no material impact on its consolidated financial statements.

     In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company believes that the adoption of this standard will have no material impact on its consolidated financial statements.

     Restricted Cash and Cash Equivalents

     Restricted cash and cash equivalents represent amounts that are restricted as to their use in accordance with Japanese debt agreements.

     Restricted cash and cash equivalents by security type are as follows (dollars in thousands):

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     Inventories

     Inventories consist of the following (dollars in thousands):

     During the quarter ended December 31, 2002, the Company outsourced the bulk of its remaining manufacturing to Solectron Corporation. As part of the arrangement, Solectron purchased $20 million of inventory from the Company. No revenue was recorded for the sale of this inventory to Solectron. The transition of manufacturing to Solectron is expected to be completed by March 31, 2003 at which time the Company will know what equipment and other assets will be purchased by Solectron and which will have to be sold or otherwise disposed of.

     Goodwill and Intangible Assets, net

     The Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” or SFAS 142, in the first quarter of fiscal 2003. SFAS 142 supersedes Accounting Principles Board Opinion No. 17, “Intangible Assets,” and discontinues the amortization of goodwill. In addition, SFAS 142 includes provisions regarding: 1) the reclassification between goodwill and identifiable intangible assets in accordance with the new definition of intangible assets set forth in Statement of Financial Accounting Standards No. 141, “Business Combinations;” 2) the reassessment of the useful lives of existing recognized intangibles; and 3) the testing for impairment of goodwill and other intangibles.

     Based on criteria set out in SFAS 142, the Company reclassified $2.1 million of assets previously classified as intangible assets to goodwill. Intangible assets subject to amortization are being amortized over the following estimated useful lives using the straight-line method: purchased technology, four to eight years; customer lists and other intangible assets, three to ten years; and licenses and patents, ten years. No changes were made to the useful lives of amortizable intangible assets in connection with the adoption of SFAS 142. In connection with the DLC acquisition in May 2002, the Company recorded goodwill of $2.1 million. In connection with the ASI acquisition in October 2002, the Company recorded goodwill of $34.9 million.

     In connection with the annual impairment test in accordance with SFAS No. 142 during the quarter ended December 31, 2002, a goodwill impairment expense of $2.1 million was recognized during the third quarter of fiscal 2003. To determine the amount of the impairment, the Company estimated the fair value of its reporting segments that contained goodwill (based primarily on expected future cash flows), reduced the amount by the fair value of identifiable intangible assets other than goodwill (also based primarily on expected future cash flows), and then compared the unallocated fair value of the business to the carrying value of goodwill. To the extent goodwill exceeded the unallocated fair value of the business, an impairment expense was recognized. In connection with the annual impairment analysis for goodwill, the Company assessed the recoverability of the intangible assets subject to amortization in accordance with SFAS No. 144. During the quarter ended December 31, 2002, an impairment expense of $6.2 million was recognized for acquired technology and $0.1 million was recognized for customer base, based upon the Company’s projection of significantly reduced future cash flows of ACT.

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     Intangible assets were as follows (unaudited, in thousands):

     Amortization expense was $9.3 million for the nine months ended December 31, 2002 and $6.0 million for the nine months ended December 31, 2001.

     Expected future intangible amortization expense, based on current balances, for the remainder of fiscal 2003 and for the following fiscal years is as follows (unaudited, in thousands):

     The changes in the carrying amount of goodwill for the nine months ended December 31, 2002 are as follows (unaudited; dollars in thousands):

     To facilitate comparison with prior periods, the following table shows the Company’s results from continuing operations for the three and nine months ended December 31, 2001 and the three prior fiscal years, if goodwill was not amortized for those periods (unaudited; dollars in thousands):

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     Warranty

     The Company provides for the estimated cost of product warranties at the time revenue is recognized. The following table presents the activity in the Company’s warranty accrual (in millions):

     Revenue Recognition

     The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or service has been rendered, the seller’s price is fixed or determinable and collectibility is reasonably assured. Some of the Company’s products are large volume consumables that are tested to industry and/or customer acceptance criteria prior to shipment. The Company’s primary shipping terms are FOB shipping point. Therefore, revenue for these types of products is recognized when title transfers. Certain of the Company’s product sales are accounted for as multiple-element arrangements. If the Company has met defined customer acceptance experience levels with both the customer and the specific type of equipment, the Company recognizes the product revenue at the time of shipment and transfer of title, with the remainder when the other elements, primarily installation, have been completed. Other products of the Company are highly customized systems and cannot be completed or adequately tested to customer specifications prior to shipment from the factory. The Company does not recognize revenue for these products until formal acceptance by the customer. Revenue for spare parts sales is recognized on shipment. Deferred revenue related to product sales is included in deferred revenue on the balance sheet. Revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts. Unearned maintenance and service contract revenue is not significant and is included in accrued liabilities and other.

     The Company recognizes revenue for long-term contracts at ASI in accordance with the American Institute of Certified Public Accountants’ Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” The Company uses the percentage of completion method to calculate revenue and related costs of these contracts because they are long-term in nature and estimates of cost to complete and extent of progress toward completion of long-term contracts are available and reasonably dependable. The Company records revenue each period based on the percentage of completion to date on each contract, measured by costs incurred to date relative to the total estimated costs of each contract. The Company treats contracts as substantially complete when the Company receives technical acceptance of its work by the customer. No changes in estimates occurred in the quarter ended December 31, 2002 that caused a material change in the financial results of the Company for that period. The Company intends to disclose material changes in its financial results that result from

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changes in estimates. Unbilled receivables relating to long-term contracts were $16.7M at December 31, 2002 and are included in accounts receivable.

     The Company accounts for software revenue in accordance with the American Institute of Certified Public Accountants’ Statement of Position 97-2, “Software Revenue Recognition.” Revenues for integration software work are recognized on a percentage of completion basis. Software license revenue, which is not material to the consolidated financial statements, is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

     Contract Loss Reserve

     The Company routinely evaluates the contractual commitments with its customers and suppliers to determine if it is probable that a loss exists that can be estimated in fulfillment of the contractual commitment. If so, a loss reserve is recorded and included in accrued liabilities and other. The Company recorded loss reserves from ASI totaling approximately $2.0 million for contracts entered into prior to the acquisition date. These loss reserves are included in the purchase accounting for ASI.

     Loss Per Share

     Basic loss per common share is calculated by dividing net loss applicable to common Shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing net loss applicable to common Shareholders by the weighted average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted loss per share result from the assumed exercise of stock options and warrants, using the treasury stock method, and the conversion of the redeemable convertible preferred stock. For periods for which there is a net loss, the number of shares used in the computation of diluted earnings (loss) per share is the same as those used for the computation of basic earnings (loss) per share as the inclusion of dilutive securities would be anti-dilutive.

     Securities outstanding that were not included in the calculation of diluted net loss per share, as to do so would be anti-dilutive, consisted of the following (in thousands):

     Comprehensive Income

     Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from

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investments by owners and distributions to owners and is to include unrealized gains and losses that have historically been excluded from net income (loss) and reflected instead in equity. The following table presents the Company’s comprehensive income items (in thousands):

3.

RESTRUCTURING CHARGES:

     Restructuring charges and related utilization for the nine months ended December 31, 2002 were (unaudited, in thousands):

     In the quarter ended December 31, 2002, the Company recorded an excess facility charge of $1.1 million reflecting revised estimates of future sublease income based on continued weakness in the Austin commercial real estate market. The Company also recorded severance charges of $0.7 million resulting from headcount reductions of 52 employees, including manufacturing, sales, research and development and administrative staff. The Company also recorded a fixed asset impairment charge of $0.7 million for assets to be disposed of due to headcount reductions and vacating facilities.

     In the quarter ended September 30, 2002, the Company recorded severance charges of $0.8 million and contractual obligations of $0.6 million as a result of workforce reduction measures affecting approximately 24 employees and a manufacturing outsourcing agreement whereby approximately 191 employees joined Solectron. The workforce reduction affected employees in manufacturing, sales, research and development and administration. An additional charge of $1.6 million relates to excess facilities that the Company has under lease but has abandoned as a result of the manufacturing outsourcing agreement. The Company also recorded a fixed asset impairment charge of $1.5 million for assets that will not be used as the Company consolidates facilities and integrates certain programs into a joint venture.

     The Company expects to utilize approximately $3.5 million of the remaining balance of $5.4 million during the remainder of the fiscal 2003, and the remaining balance, primarily unused leased facilities, over the following three fiscal years. All remaining accrual balances are expected to be settled in cash.

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4.

ASSET IMPAIRMENT CHARGES:

     Asset impairment charges for the three and nine months ended December 31, 2002 and 2001 were (unaudited, in thousands):

     In the quarter ended December 31, 2002, the Company completed a periodic goodwill impairment test. As a result of its analysis, the Company determined that impairment charges of $8.4 million were required because the forecasted undiscounted cash flows were less than the book values of certain businesses. The charges were measured on the basis of comparison of estimated fair values with corresponding book values and relate to goodwill and intangible assets recorded in connection with the Company’s May 2002 acquisition of DLC.

     The Company owns land in Fremont, California. Initially, the Company leased the land from a syndicate of financial institutions pursuant to an original lease agreement dated June 30, 2000, which was subsequently amended on February 21, 2001 and May 30, 2001. The Company purchased the land on October 22, 2001 for $41.1 million, and paid the syndicate of financial institutions approximately $2.9 million for engineering costs incurred in preparation for making leasehold improvements to the land. Based upon market data at June 30, 2001 and the Company’s noncancelable commitment to purchase the land, the Company estimated that the then market value of the land had been impaired and recorded a $15.0 million write-down to its estimated market value during the quarter ended June 30, 2001. The Company entered into a purchase agreement in September 2002 to sell the land for $19.0 million, net of selling expenses, which was expected to close in the quarter ending December 31, 2002. As a result, an additional $7.1 million write-down was recorded in the quarter ended September 30, 2002. The prospective buyer terminated the acquisition prior to close and the land continues to be held for sale.

5.

INCOME TAXES:

     Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (“SFAS 109”) requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates, the utilization of past tax credits, length of carryback and carryforward periods and existing contracts or sales backlog that will result in future profits. It further states that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. Therefore,

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cumulative losses weigh heavily in the overall assessment. As a result of current losses, difficult industry conditions and revised downward future projections a review was undertaken at September 30, 2002, and the Company concluded that it was appropriate to establish a full valuation allowance for its net deferred tax assets. In addition, the Company expects to continue to provide a full valuation allowance on future tax benefits until it can sustain a level of profitability that demonstrates its ability to utilize the assets.

6.

REPORTABLE SEGMENTS:

     As a result of the acquisition of ASI in October 2002, the Company now operates and tracks its results in two segments: Fab Automation and Automated Material Handling Systems (“AMHS”). Fab Automation products include interface products, substrate-handling robotics, wafer and reticle carriers, auto-ID systems, sorters and connectivity software. AMHS products include automated transport and loading systems for semiconductor fabs and flat panel display manufacturers. The Chief Operating Decision Maker is our Chief Executive Officer.

Segment information is summarized as follows (in millions):

     The Company acquired ASI on October 16, 2002. Operating segment data includes results from ASI for the period from the effective date of the acquisition. Total operating loss is equal to consolidated loss from operations for the periods presented. The Company does not allocate other income (expense), net to individual segments.

     Net sales by geography were as follows (unaudited; dollars in millions):