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Form 10-K

Commission file number 0-22114

Asyst Technologies, Inc.

48761 Kato Road, Fremont, California 94538

(510) 661-5000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      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 report), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes þ

      The aggregate market value of voting stock held by non-affiliates of the registrant based upon the closing sales quotation of the common stock on September 30, 2003 was approximately $558,304,097.

      There were 47,155,983 shares of common stock, no par value, outstanding as of May 31, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant’s proxy statement to be filed pursuant to Regulation 14A within 120 days after Registrant’s fiscal year ended March 27, 2004 are incorporated by reference into Part III of this report.

ASYST TECHNOLOGIES, INC.

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PART I

FORWARD LOOKING STATEMENTS

      Except for the historical information contained herein, the following discussion includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe harbor provisions. We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, including those set forth in this section as well as those under the caption, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

      Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” and variations of such words and similar expressions are intended to identify such forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in “Risk Factors” in this report and our other SEC filings. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this report.

      ASYST, the Asyst logo, FLUOROTRAC, KPOD, ADU and MANUFACTURING CONNECTIVITY are registered trademarks of Asyst Technologies, Inc. or its subsidiaries in the United States or in other countries. AXYS, Fastrack, Fastmove, Fastload, Fastore, Asyst-SMIF System, SMIF-Pod, SMIF-FOUP, SMIF-Arms, SMIF-Indexer, SMIF-LPI, SMIF-LPO, SMIF-LPT, SMIF-E, Versaport, Plus, Inx, Advan Tag, Link-Manager, Smart-Fab, Smart-Tag, Smart-Station, Smart-Storage, Smart-Traveler, Smart-Comm, Substrate Management System, Reticle Management System, Wafer Management System, Global Lot Server and Fluorotrac Auto Id System are trademarks of Asyst Technologies, Inc. or its subsidiaries in the United States or in other countries. All other brands, products, or service names are or may be trademarks or service marks of, and are used to identify, products or services of their respective owners.

Item 1 — Business

Overview

      We develop, manufacture, sell and support integrated hardware and software automation systems primarily for the semiconductor, and secondarily for the flat panel display, or FPD, manufacturing industries. Our systems are designed to enable semiconductor and FPD manufacturers to increase their manufacturing productivity and yields, and to protect their investment in fragile materials and work-in-process. We believe that our systems are becoming increasingly important because of several trends in the manufacturing of semiconductors and FPDs:

	•	The transition to larger diameter silicon wafers and larger FPD glass plates, which require automated handling because of ergonomic issues and increased yield risk.
	•	Continuing decreases in semiconductor device line widths, which require higher levels of cleanliness in the manufacturing process.
	•	Advances in new semiconductor manufacturing materials, such as copper, which may introduce additional contamination into the semiconductor manufacturing plant (fab).
	•	Continuing customer requirements for enhanced manufacturing productivity and return on capital.
	•	Growing inter-dependency of connectivity software.

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      We sell our systems directly to semiconductor and FPD manufacturers, as well as to original equipment manufacturers, or OEMs, that make production equipment for sale to semiconductor manufacturers.

Business Developments

      Common Stock Offering. In November 2003, we sold 6,900,000 shares of our common stock, including exercise of the underwriters’ over-allotment option, at an offering price to the public of $15.17 per share which reflects the closing market price on the date of the offering. We received total proceeds of $99.0 million, net of the related issuance fees and costs of $5.7 million.

      Fiscal 2004 Acquisitions. In April 2003, our majority-owned joint venture, Asyst Shinko, Inc., or ASI, acquired the portion of Shinko Technologies, Inc. that provides ongoing support to ASI’s North American AMHS customers from Shinko Electric Co., Ltd.

      Recent Appointments of Executive Officers. In October 2003, the Company appointed David L. White as Senior Vice President and Chief Financial Officer. In September 2003, the Company appointed Stephen Debenham as Vice President and General Counsel.

      Fiscal 2004 Employee Reduction and Completed Outsourcing Transition. We reduced approximately 35.0 percent of our headcount in April 2003, due to ongoing weakness in our business, our decision to outsource manufacturing, and the sale of two discontinued operations and our wafer carrier business. Over the past two years, we have reduced our workforce from a peak of approximately 1,800 employees to 530 employees, not including the employees of our Asyst Shinko joint venture, as of March 31, 2004. In October 2002, we began transitioning substantially all of our U.S. manufacturing to Solectron Corporation, and completed this transition in June 2003.

Fiscal 2004 Year-end Date

      We close our books on the last Saturday of each quarter and thus the actual date of the year-end, March 27, 2004, is different from the year-end date used throughout this Form 10-K report. For convenience of presentation and comparison to prior fiscal years ended March 31, we refer throughout this report to a fiscal year ended March 31, 2004. However, all references to our fiscal year ended March 31, 2004 means our actual fiscal year ended March 27, 2004.

Industry Background

      In recent years, advances in semiconductor production equipment and facilities have supported the continuation of historical trends toward production of chips with ever smaller line widths on ever larger wafers. Most semiconductor production continues to rely on process wafers with diameters of 200mm. However, we estimate that approximately 20 fabs are currently operating production lines utilizing 300mm wafers and more new fabs are expected to be built for 300mm wafers. Concurrently, line widths for the many advanced production chips have decreased to 0.13 micron and are expected to decrease further. In addition, the increasing cost of semiconductor manufacturing equipment and facilities continues to push chip manufacturers to maximize the productivity of these investments. Keeping pace with these trends presents semiconductor manufacturers with a number of technical and economic challenges.

      In response to these challenges, many chip manufacturers use automation systems to maximize tool utilization and to minimize wafer mishandling, misprocessing and contamination. We believe that semiconductor manufacturers will increase their commitments to these solutions in their 300mm fabs, given the significant cost of a 300mm fab, the value of work-in-process inventory, and the ergonomic issues introduced by the significantly increased weight and bulk of loaded 300mm wafer carriers.

      As device dimensions decrease, the harmful effects of microscopic contamination during the manufacturing process increase, heightening the need for isolation of wafers throughout manufacturing and controlled environments around tools. Isolation technology allows for control of the environment in the immediate vicinity of the in-process wafers and the tools. Wafers are enclosed in sealed carriers, or pods, which provide additional environmental control during storage, transport and loading and unloading of the tools. Pods holding

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      Semiconductor manufacturers are also increasingly automating the tracking, sorting, stocking and transport of wafers throughout the fab, as well as wafer carrier loading and unloading at the tool. In 200mm manufacturing, these technologies are employed to reduce the risk of misprocessing, to efficiently track and manage work-in-process inventory, and to speed the movement of wafers between manufacturing steps. In 300mm manufacturing, these technologies take on added importance because of the ergonomic issues associated with human transport and loading of heavy, bulky 300mm wafer carriers.

      The FPD manufacturing industry uses automated transport and robotic handling systems primarily because of the substantial size and weight of FPD glass plates and panels.

The Asyst Solution

      We offer a comprehensive line of integrated automation systems for the semiconductor manufacturing industry. These solutions provide two distinct benefits to semiconductor manufacturers:

      Increased Manufacturing Productivity. We believe that semiconductor manufacturers are able to attain a higher level of productivity and performance from their equipment by integrating our products into their manufacturing processes. With our automated transportation, loading and wafer handling solutions, tool idle time is reduced and timely wafer delivery is improved, thereby increasing equipment utilization and productivity. In addition, our connectivity software solutions help to improve chipmakers’ access to automation performance information, which aids troubleshooting of tool down time issues that can impair productivity.

      Higher Yields. Our isolation technology, robotics solutions and automated transport and loading systems provide semiconductor manufacturers with efficient contamination control throughout the wafer manufacturing process and greater protection from wafer mishandling, resulting in more rapid achievement of higher yields. Our work-in-process materials management and connectivity software permits wafer level identification, tracking and logistics management, and minimizes yield loss due to misprocessing.

      In FPD manufacturing, we provide automated material handling systems, or AMHS, that embody nearly identical technology to our vehicle-based AMHS for chip fabs, but on a much larger scale to accommodate the greater size and weight of FPD glass plates. These systems are critical to the movement of material in FPD manufacturing because the weight and bulk of the latest generations of FPD glass plates make human transport impossible.

Strategy

      We believe that our historical success has been driven by our ability to develop, manufacture, market, install and support products that provide unique value to customers. Our continuing strategy is to focus on the development or acquisition of products and capabilities that deliver productivity and yield benefits to customers. We are focused on maintaining and enhancing our relationships with chip and FPD manufacturers and with OEM equipment manufacturers to inform product development and maintain high customer satisfaction. We also continue to focus on operational excellence to support product quality, on-time delivery, and company-wide efficiency. Following are our six principal growth and operating strategies:

      Further Penetrate the Markets for 300mm and FPD AMHS. Our Asyst Shinko joint venture company, or ASI, is a leader in AMHS. We have captured a total of 20 interbay and intrabay AMHS installations to date as of May 15, 2004 in 300mm fabs, compared to 12 installations for our nearest competitor. We have begun to penetrate the market for FPD AMHS, having largely completed the AMHS installation for a large

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      Focus on Portal Automation. Essentially all 300mm wafer fabrication equipment requires an automated atmospheric front-end (portal) solution that enables the clean, automated transfer of wafers from the wafer carrier to the tool and back again. As a result, most manufacturers of process and metrology tools pre-integrate portals with their tools before shipping to the end customer. This integration can be accomplished in two ways: (1) The OEM can purchase or manufacture various automation components — loadports, atmospheric robotics, wafer ID systems — and perform the mechanical and software integration necessary to make the components work smoothly together as a system, or (2) The OEM can purchase a fully integrated portal from a third-party supplier such as Asyst. We participate in all aspects of the atmospheric tool front-end market and are a leading supplier of components such as loadports and robotics and of fully integrated portals. We increasingly have seen OEMs seeking to focus on their core competencies at the tool level, and choosing to outsource the production of components and portals. In its April 2004 report, Dataquest estimated this merchant market for atmospheric tool front-end products at $300 million for calendar year 2003. We believe that the total market, including captive production being done by OEMs and contract manufacturing by small assemblers not tracked by Dataquest, was closer to $450 million in 2003. We believe that our product offerings provide price/performance advantages and we are continuing to invest in both our component and portal products to take advantage of this significant market opportunity.

      Leverage 200mm Market Leadership. We have a very strong 200mm market position. As many chip manufacturers are slowly recovering from the industry’s severe cyclical downturn from 2000, we believe that the transition to 300mm manufacturing will take time. As a result, we believe that 200mm fabs will continue to operate for many years and that these operators will seek to extend the useful lives of these fabs by adding higher technology equipment and/or implementing Asyst’s isolation technology. In the case of technology upgrades, such as fabs moving to smaller line widths or adding copper-interconnects, we believe that fabs will make concurrent purchases of isolation products as they seek to maximize the yields and productivity of the new equipment. We plan to continue to promote the benefits of our technology and to leverage our leadership position throughout the 200mm market.

      Capitalize on the Emerging Market in China. Because of our 200mm market leadership and our strong customer relationships and long history of success with the foundries of Asia, we have enjoyed strong initial success in the emerging wafer fabrication market in China. During the past three fiscal years we have received large SMIF orders from a total of five fab operators representing seven separate 200mm fabs in China. We plan to continue to leverage our competitive advantages in this market, which is expected to see the development of a significant number of new 200mm and 300mm fabs over the next several years.

      Further Penetrate the Japanese Market. We have seen a significant increase in fab expansion activity in Japan during the past year. In addition, we have become an important supplier to Japanese equipment makers, which continue to have a strong presence in the world market. We have a strong engineering, sales and support capability in Japan and intend to continue our penetration of both Japanese chipmakers and Japanese OEMs.

      Focus on Supply Chain Excellence. In fiscal 2003, we made the strategic decision to begin to transition all of our U.S. manufacturing operations to Solectron Corporation, a leading contract manufacturer of

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Products

      Our tool automation components are designed to automate the rapid transfer of wafers and other substrates between manufacturing equipment and wafer and substrate carriers while maintaining an ultra-clean environment throughout the transfer. These components are sold to OEMs for integration with their tools or directly to fabs that are adding isolation technology to existing equipment as a manufacturing process enhancement. Our tool automation components include multiple types of 200mm and 300mm loadports and substrate-handling robotics.

      We are a leading supplier of automated systems that provide the interface between the fab and manufacturing equipment, or loadports. The IsoPort™, our latest generation loadport for the 300mm market, has received strong customer acceptance since its introduction in 2002. We offer a variety of other input/output systems designed to address a broad range of customer applications and equipment types. These include FL-300s, SMIF-LPTs, SMIF-Arms, SMIF-Indexers, SMIF-LPIs, SMIF-LPOs, Versaport 2200’s, and related products.

      We offer comprehensive robotic substrate handling solutions to the semiconductor and related industries. Our robotics products transfer semiconductor wafers and substrates of all diameters, liquid crystal display (LCD) and plasma display substrates, and other substrates like rigid disks used in disk drive handling between the substrate carrier, the tool interface system and the tool itself. These products include robots, prealigners and elevators specifically designed for atmospheric, harsh environment, and wet chemical process applications. We also use our robots and prealigners in our Plus™ Portal Front-End Solutions and our line of wafer sorter products.

      Our systems include wafer sorters and fully integrated atmospheric tool front-end solutions (portals). Our sorters are sold to semiconductor makers and our portals are typically sold to OEM tool manufacturers.

      Our line of portal solutions combines our expertise in isolation systems, work-in-process materials management, substrate handling robotics and connectivity solutions to provide a complete, integrated, automated front-end for process and metrology equipment. For the OEM, use of a portal solution substantially reduces the labor and engineering resources required to assemble and integrate a front-end solution in-house. Portals also can simplify the installation and set-up of the tool and associated front-end upon arrival at the end customer. Our Plus Portal line combines our components — atmospheric robots, environmental control systems, integrated input/output interfaces, automated ID and tracking systems, and connectivity software — into an integrated solution for OEMs. Our newest portal offering, the Spartan™ Integrated Portal, achieves portal functionality through a unified, minimalist approach that uses significantly fewer components, thereby reducing alignment and interoperability issues between components and simplifying maintenance and repair.

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      Our sorters are used to rearrange wafers between manufacturing processes, experiments, and single wafer processing, without operator handling, which helps to increase fab yields. Sorters also avoid the mishandling of wafers by enabling the tracking and verification of each wafer throughout the production process. During fiscal 2004, we introduced the Spartan™ sorter, which is based on the same basic hardware platform as the Spartan Portal.

      Automated Material Handling Systems, or AMHS, automate the stocking, transport and tool loading of silicon wafer containers and FPD glass plates in fabs. Our Asyst Shinko line of products includes wafer stockers, inter-bay transport systems, and intra-bay transport and tool loading systems. Our FasTrack line of products includes micro-stocking shelves, conveyor-based track systems, and multi-axis intra-bay carrier management and tool loading solutions.

      The Asyst SMART-Traveler System allows semiconductor manufacturers to reduce manufacturing errors and to achieve cycle time and equipment utilization improvements by improving their abilities to manage work-in-process inventory. The Asyst SMART-Traveler System includes both infra-red and radio-frequency based products for automated wafer and reticle identification. The SMART-Tag is an electronic memory device that combines display, logic and communication technologies to provide process information, such as wafer lot number and next processing steps, about the wafers inside the carrier. AdvanTag automated ID uses a radio-frequency based identification tag that can be attached to or embedded into wafer and reticle carriers. The Asyst SMART-Traveler System also includes the SMART-Comm, a multiplexing and communication protocol converting device that increases operator and tool efficiency in semiconductor facilities by optimizing communications and minimizing hardware and software layers.

      We are the largest merchant provider of the industry-standard software driver protocol for communications between tools and fab host systems, known as SECS/ GEM. In fiscal 2004 we began marketing more advanced software solutions that provide additional functionality to support trouble-shooting of automation communication errors, e-diagnostics, advanced process control, and other applications.

Customers

      Semiconductor manufacturers drive our sales by building new fabs or expanding capacity, adding isolation technology, or upgraded process technology. For many years leading up to the fourth calendar quarter of 2000, the majority of our sales were direct to semiconductor manufacturers. During fiscal 2002 and fiscal 2003, as the industry began migrating to 300mm wafer fabs, OEMs began purchasing a significant proportion of our equipment solutions for integration with their tools. Net sales to OEMs represented 40.0 percent and 59.0 percent of our total net sales for the fiscal years ended March 31, 2003 and 2002, respectively. Subsequent to the formation of our joint-venture, Asyst Shinko, in October 2002, which sells its AMHS products directly to semiconductor and FPD manufacturers, net sales to OEMs have declined on a percentage basis to 25.2 percent of our sales in fiscal 2004.

      Our net sales to any particular semiconductor or FPD manufacturer customer are dependent on the number of fabs the customer is constructing and the number of fab upgrades the customer undertakes. As

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      Our ten largest customers based on cumulative sales during fiscal year 2004, arranged alphabetically, were:

	Applied Materials, Elpida, Intel, KLA Tencor, L.G. Philips, NEC, Powerchip, Semiconductor Manufacturing International Corp., Taiwan Semiconductor Manufacturing Corp. and Trecenti.

Sales and Marketing

      We sell our products principally through a direct sales force in the United States, Japan, Europe and the Asia/ Pacific region. Our sales organization is based in California, and our U.S. field sales personnel are stationed in Massachusetts, New York and Texas. Japan is supported by sales and service offices in Tokyo, Nagoya and Yokohama and a software distributor. The European market is supported through offices in Crawley, United Kingdom, Paris, France and Dresden, Germany, and is augmented by a distributor based in Israel. The Asia/ Pacific region is supported through sales and service offices in Hsinchu, Taichung, and Tainan, Taiwan; Singapore; Kuching and Kulim, Malaysia; Shanghai and Tianjin, People’s Republic of China; and Seoul, South Korea. We supplement our direct sales efforts in Asia/ Pacific through a distributor in China.

      International sales, which consist mainly of export sales from the United States, accounted for approximately 78.9 percent, 65.0 percent, and 55.0 percent of total sales for fiscal years 2004, 2003 and 2002, respectively. In fiscal 2004, approximately 60.0 percent of total net sales originated from Asyst Japan, Inc., or AJI, and Asyst Shinko, or ASI. A portion of these sales was invoiced in Japanese yen and subject to fluctuating currency exchange rates.

      The sales cycle to new customers ranges from six to 12 months from initial inquiry to placement of an order, depending on the type and complexity of the project and the time required to communicate the nature and benefits of our systems. For sales to existing customers, the sales cycle is relatively short. The sales cycle for follow-on orders by OEM customers can be as short as two to three weeks. The sales cycle for AMHS products tends to be longer than for our other products because of substantial specification and other pre-sales activity related to an AMHS order.

Research and Development

      Research and development efforts are focused on enhancing our existing products and developing and introducing new products in order to maintain technological leadership and meet a wider range of customer needs. Our research and development expenses were approximately $36.4 million, $40.1 million and $39.0 million during fiscal years 2004, 2003, and 2002, respectively.

      Our research and development employees are involved in mechanical and electrical engineering, software development, micro-contamination control, product documentation and support. Our central research and development facilities include a prototyping lab and a cleanroom used for product research, development and equipment demonstration purposes. These research and development facilities are primarily located in Fremont, California. In addition, we maintain a research and development facility in Hsin-Chu, Taiwan, which is focused on research and development efforts related to AMHS and other projects on an as-needed basis. AJI conducts research and development activities related to atmospheric robotics at its facility in Nagoya, Japan, and ASI conducts AMHS-related research and development at its facility in Ise, Japan.

Manufacturing

      Our manufacturing activities consist of assembling and testing components and sub-assemblies, which are then integrated into finished systems. While we use standard components whenever possible, many mechani-

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      In October 2002, we began transitioning our U.S-based manufacturing operations to Solectron Corporation, a provider of outsourced manufacturing services. As of May 2004, most of our U.S.-based products were manufactured by Solectron and shipped out of Solectron’s facilities in Singapore. We currently manufacture certain robotics products in AJI’s facilities in Nagoya, Japan, representing approximately 10.0 percent of our fiscal 2004 net sales. Asyst-Shinko products are manufactured at its facilities in Ise, Japan. During fiscal 2003 we sold our AMP and SemiFab manufacturing subsidiaries.

Competition

      We currently face direct competition in all of our served markets. Many of our competitors have extensive engineering, manufacturing and marketing capabilities and some have greater financial resources than those available to us. The markets for our products are highly competitive and subject to rapid technological changes.

      Brooks Automation, Inc., or Brooks, and TDK Corporation of Japan are our primary competitors in the area of loadports. Our SMART-Traveler System products face competition from bar code technology, Brooks (through its acquisition of Hermos) and Omron. We also compete with several companies in the robotics area, including, but not limited to, Brooks, Newport Corp., Rorze Corporation and Yasukawa-Super Mecatronics Division. In the area of AMHS, we face competition primarily from Daifuku Co., Ltd., Murata Co., Ltd. and Brooks. Our wafer sorters compete primarily with products from Recif, Inc. and Brooks.

      Although most of our competitors currently do not compete with us across our entire line of integrated automation systems, we expect that many will attempt to do so in the future. In addition, many OEMs maintain their own captive automation manufacturing and integration capabilities, which is a substantial impediment to our penetration of these OEMS. We anticipate that many OEMs will continue to maintain their own captive automation manufacturing capabilities.

      We believe that the principal competitive factors in our market are the technical capabilities and characteristics of systems and products offered, interoperability with other components and systems, technological experience and know how, product breadth, proven product performance, quality and reliability, ease of use, flexibility, a global, trained, skilled field service support organization, the effectiveness of marketing and sales, and price. We believe that we compete favorably with respect to the foregoing factors.

      We expect that our competitors will continue to improve the design and performance of their products and to introduce new products with competitive performance characteristics. We believe we will be required to maintain a high level of investment in research and development and sales and marketing in order to remain competitive.

Intellectual Property

      We pursue patent, trademark and/or copyright protection for most of our products. We currently hold 98 issued United States patents (with foreign equivalents) and 64 foreign patents, have 20 pending patent applications in the United States, 149 pending foreign patent applications, and intend to file additional patent applications as appropriate. Our patents expire between 2004 and 2021. There can be no assurance that patents will be issued from any of these pending applications or that any claims in existing patents, or allowed from pending patent applications, will be sufficiently broad to protect our technology.

      There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. While we intend to protect our intellectual property rights vigorously, there can be no assurance that any of our patents will not be challenged, invalidated or avoided, or that the rights granted thereunder will provide us with competitive advantages. Litigation may be necessary to enforce our patents, to protect our trade secrets or know how, to defend us against claimed infringement of the rights of others, or to determine the scope and validity of the patents or other intellectual rights of others. Any such litigation could result in substantial cost and divert the attention of management, which by itself could have a material adverse

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      We also rely on trade secrets and proprietary technology that we seek to protect, in part, through confidentiality agreements with employees, consultants and other parties. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by others. Also, the laws of some foreign countries do not protect our intellectual property rights to the same extent as the laws of the United States.

Backlog

      Our backlog was approximately $167.7 million, $81.8 million and $61.5 million as of the fiscal years ended March 31, 2004, 2003, and 2002, respectively. We include in our backlog only orders for which a customer’s purchase order has been received and a delivery date within 12 months has been specified. As backlog may be cancelled or delayed by customers with limited or no penalty, our backlog is not necessarily indicative of future revenues or earnings.

Employees

      As of March 31, 2004, we employed 530 persons on a full-time basis, excluding employees at ASI. Additionally, we employed 26 persons on a temporary basis. We have never had a work stoppage or strike. Approximately 200 employees of ASI are represented by a labor union. We consider our employee relations to be good. During fiscal year 2003 and the first quarter of fiscal 2004, we restructured certain U.S. and international operations in response to continued difficult market conditions. As a result of these restructuring activities, we terminated the employment of approximately 472 full-time employees in fiscal 2003 and approximately 284 full-time employees in fiscal 2004, respectively, from our operations in the United States and our international operations.

Financial Information by Business Segment and Geographic Data

      As a result of our 51.0 percent ownership of the common stock of ASI which was formed in October 2002, we now operate and track our results in two segments: Fab Automation Solutions and Automated Material Handling Systems, or AMHS. Fab Automation Solutions include interface products, substrate-handling robotics, 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. Information concerning segments is included in Note 13 of Notes to the Consolidated Financial Statements and is incorporated herein by reference.

Environmental Compliance

      Our operations are subject to certain federal, state and local regulatory requirements relating to the use, storage, discharge and disposal of hazardous chemicals used during the manufacturing processes. We believe that our operations are currently in compliance in all material respects with applicable regulations and do not believe that costs of compliance with these laws and regulations will have a material effect on our capital expenditures, operating results or competitive position. Currently we have no commitments with environmental authorities regarding any compliance related matters. However, there can be no assurance that additional environmental matters will not arise in the future or that costs will not be incurred with respect to sites as to which no problem is currently known.

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Additional Information and Governance Matters

      The Company was incorporated in California on May 31, 1984.

      The Company’s website is www.asyst.com.

      The Company makes the following filings available on its website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished under applicable provisions of the Securities Exchange Act of 1934 and SEC rules. You may access these filings on our website at http://www.asyst.com by clicking on “Investor Relations,” and then “SEC Filings.” Within the “SEC Filings” section, we provide a link to view our SEC filings referred to above, and a separate groupings link to view the Section 16 filings (Forms 3, 4 and 5) that our directors and officers (and, if applicable, more than 10.0 percent stockholders) make to report initial beneficial ownership and changes in beneficial ownership of our common stock.

      The Company’s Code of Business Conduct is applicable to the Company’s directors, officers and employees, and meets the definition of a code of ethics as defined by the SEC. The code also includes a section entitled “Special Obligations of our CEO and CFO” applicable to our principal executive, principal financial and principal accounting officers that contains specific standards applicable to these senior officers with responsibilities for disclosure to investors and financial reporting. We have made the code available on our website, by clicking on “Investor Relations,” and then “Corporate Governance.” As permitted by SEC rules, we have posted the code on our website in lieu of filing the code as an exhibit to this Form 10-K. Other information concerning our board of directors is also available under the “Corporate Governance” link.

      Under Nasdaq listing standards, the Company may grant waivers of the Code of Business Conduct for directors and officers only if approved by the board of directors, and must make any such waivers along with the reasons for the waivers publicly available by filing a Form 8-K within 5 business days. Under SEC rules, the Company is required to file a Form 8-K to disclose any amendment of the code (other than non-substantive amendments) or any explicit or implicit waiver of the code (i.e., any material departure from the code) granted to the chief executive officer, chief financial officer, principal accounting officer or controller, or persons performing similar functions, if the waiver relates to matters contained in the SEC’s definition of a code of ethics. As permitted by SEC rules, the Company intends to satisfy the requirement under SEC rules to disclose amendments and waivers of the code by posting this information on the Company’s website under the Corporate Governance link indicated above. To the extent the Nasdaq rules do not permit this alternate means of disclosure allowed by SEC rules, the Company will file a Form 8-K to report waivers, if any.

      All of the filings and governance documents available under the Investor Relations link on our website are free of charge.

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Item 2 — Properties

      We are headquartered in Fremont, California and maintain the following facilities:

      In addition to the above facilities, there are a number of properties under lease that we do not currently use or occupy at this time. These properties include a total of approximately 117,000 square feet of leased office space. Some of these properties are presently subleased. We are actively exploring options to market these surplus properties for sublease or sale or to negotiate early termination agreements for the leases in question.

      We completed the sale of land in Fremont, California, in the quarter ended September 30, 2003. The net proceeds from the sale were $12.1 million. We had intended to construct corporate headquarters facilities on the land and subsequently decided not to build these facilities. In the first quarter of fiscal 2004 we recorded a $6.9 million write-down based on our latest estimate of market value as supported by the pending sale agreement at the time. We previously entered into a purchase agreement in September 2002 to sell the land for $19.0 million, net of selling expenses. This transaction did not close. As a result, a $7.1 million write-down was recorded in the second quarter in fiscal 2003. We initially leased the property and purchased the land from the lessor on October 22, 2001 for $41.1 million, and paid the lessor 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 our non-cancelable commitment to purchase the land, we 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.

Item 3 — Legal Proceedings

      On October 28, 1996, we filed suit in the United States District Court for the Northern District of California against Empak, Inc., Emtrak, Inc., Jenoptik AG, and Jenoptik Infab, Inc., alleging, among other things, that certain products of these defendants infringe our United States Patents Nos. 5,097,421 (“the ’421 patent”) and 4,974,166 (“the ’166 patent”). Defendants filed answers and counterclaims asserting various defenses, and the issues subsequently were narrowed by the parties’ respective dismissals of various claims,

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      On February 25, 2003, Mihir Parikh, our former Chief Executive Officer and Chairman of the Board, filed a demand for arbitration with the American Arbitration Association against us, alleging breach of his employment agreement, wrongful termination in violation of public policy, discrimination based on age, race and national origin, fraud and deceit, defamation and violation of the California Labor Code. On March 4, 2003, Dr. Parikh resigned as a member of our Board of Directors. On June 17, 2003, Dr. Parikh filed an amended demand for arbitration adding as respondents our Chief Executive Officer and Chairman of the Board, Stephen S. Schwartz, and three outside directors, Walter W. Wilson, Stanley J. Grubel and Anthony E. Santelli to all claims other than the breach of contract claim. Dr. Parikh sought compensatory damages in excess of $5.0 million plus punitive damages and attorney’s fees. The matter has since been resolved pursuant to a settlement and release agreement entered into by the parties, and the claims underlying the action have been dismissed with prejudice. We recorded severance and associated costs of $1.3 million related to the settlement in the quarter ended December 31, 2003.

      From time to time, we are also involved in other legal actions arising in the ordinary course of business. We have incurred certain costs while defending these matters. There can be no assurance third party assertions will be resolved without costly litigation, in a manner that is not adverse to our financial position, results of operations or cash flows or without requiring royalty payments in the future which may adversely impact gross margins. Litigation is inherently unpredictable, and we cannot predict the outcome of the legal proceedings described above with any certainty. Because of uncertainties related to both the amount and range of losses in the event of an unfavorable outcome in the lawsuits listed above or in certain other pending proceedings for which loss estimates have not been recorded, we are unable to make a reasonable estimate of the losses that could result from these matters. As a result, no losses have been accrued for the legal proceedings described above in our financial statements as of March 31, 2004.

Item 4 — Submission of Matters to a Vote for Security Holders

      No matters were submitted to a vote of security holders during the fourth quarter.

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PART II

Item 5 — Market for the Registrant’s Common Equity and Related Stockholder Matters

Price Range of Common Stock

      Since September 22, 1993, our common stock has been traded on the Nasdaq National Market under the symbol “ASYT.” The price per share reflected in the following table represents the range of high and low closing prices for our common stock as reported on the Nasdaq National Market for the periods indicated.

Approximate Number of Equity Security Holders

      There were approximately 354 record holders of our common stock as of May 17, 2004.

Dividends

      We have not paid any cash dividends since our inception and do not anticipate paying cash dividends in the foreseeable future.

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Item 6 — Selected Consolidated Financial Data

      We acquired companies in fiscal 2004, 2003, 2002, 2001 and 2000, and our implementation of SAB No. 101, SFAS No. 142 and SFAS No. 144 has impacted the year over year comparability of the selected financial data. We adopted SAB No. 101 on April 1, 2000, SFAS No. 142 and SFAS No. 144 on April 1, 2002. The following table reflects selected consolidated financial data (in thousands, except per share amounts):

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Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

      The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements, which involve risk and uncertainties. Our actual results could differ materially from those anticipated in the forward looking statements as a result of certain factors, including but not limited to those discussed in “Risk Factors” and elsewhere in this Annual Report.

Overview

      We develop, manufacture, sell and support integrated automation systems primarily for the semiconductor, and secondarily for the flat panel display, or FPD, manufacturing industries. Our systems are designed to enable semiconductor and FPD manufacturers to increase their manufacturing productivity and yield and to protect their investment in fragile materials and work-in-process.

      We sell our systems directly to semiconductor and FPD manufacturers, as well as to original equipment manufacturers, or OEMs, that integrate our systems with their equipment for sale to semiconductor manufacturers.

      In response to the industry downturn, we have reduced costs in several areas. We reduced approximately 35.0 percent of our headcount in April 2003, due to ongoing weakness in our business, our outsourcing of manufacturing, and the sale of two discontinued operations and our wafer carrier business. We also announced plans to outsource our Japanese manufacturing operations. In October 2002, we began transitioning substantially all of our U.S. manufacturing to Solectron Corporation, which we believe will reduce our fixed manufacturing costs and improve our ability to respond to sales fluctuations. The transition was substantially completed in June 2003. Over the past two years, we have reduced our workforce from a peak of approximately 1,800 employees to 530 employees, not including employees of Asyst Shinko, as of March 31, 2004.

      We sell our products principally through a direct sales force worldwide. Our functional currency is the U.S. dollar, except in Japan where our functional currency is the Japanese yen. The costs and expenses of our international subsidiaries are recorded in local currency, and foreign currency translation adjustments are reflected as a component of “Accumulated other comprehensive income” in our condensed consolidated balance sheets.

      On October 16, 2002, we established a joint venture with Shinko called Asyst Shinko, Inc, or ASI. The joint venture develops, manufactures and markets market-leading AMHS with principal operations in Tokyo and Ise, Japan. Under terms of the joint venture agreement, we acquired 51.0 percent of the joint venture for approximately $67.5 million of cash and transaction costs. Shinko contributed its entire AMHS business, including intellectual property and other assets, installed customer base and approximately 250 employees. We acquired ASI to enhance our presence in the 300mm AMHS and flat panel display markets. The acquisition has been accounted for as a purchase transaction in accordance with SFAS No. 141 and, accordingly, the

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      In April 2003, ASI acquired the portion of Shinko Technologies, Inc. that provides ongoing support to ASI’s North American AMHS customers from Shinko Electric, Co., Ltd., Shinko. ASI renamed this subsidiary Asyst Shinko America, or ASAM.

      In May 2002, Asyst Connectivity Technologies, Inc., or ACT, a wholly-owned subsidiary of Asyst, purchased substantially all of the assets of domainLogix Corporation, or DLC, a Delaware corporation.

      In May 2001, we acquired 100.0 percent of the common stock of GW Associates, Inc., or GW, a California corporation.

      In fiscal 2000, we acquired a majority ownership percentage of MECS, a Japanese engineering and robotics manufacturing company, and in fiscal 2003 our ownership percentage increased 2.1 percent to 98.9 percent. MECS is now merged into AJI, our wholly-owned subsidiary.

Critical Accounting Policies and Estimates

      Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to allowance for doubtful accounts, inventories, investments, deferred tax assets, income taxes, warranty obligations and restructuring and impairment charges. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

      We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

      We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104, or SAB 104, “Revenue Recognition.” We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price is fixed or determinable, and collectibility is reasonably assured. Some of our products are large volume consumables that are tested to industry and/or customer acceptance criteria prior to shipment. Revenue for these types of products is recognized at shipment.

      Certain of our product sales are accounted for as multiple-element arrangements. If we have met defined customer acceptance experience levels with both the customer and the specific type of equipment, we recognize 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 are highly customized systems that cannot be completed or adequately tested to customer specifications prior to shipment from the factory. We do not recognize revenue for these products until formal acceptance by the customer.

      Revenues from long-term contracts are recognized using the percentage-of-completion method of contract accounting, based on the ratio that costs incurred to date bear to estimated total costs at completion. Because of the size, complexity and duration of the projects, significant judgment is required to estimate the total cost of the project. When using the percentage of completion method, revisions in revenue and cost estimates are recorded in the periods in which the facts that require such revisions become known and losses, if any, are provided for in the period in which such losses are first identified by management. We utilize the

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      Revenue for spare parts is recognized on shipment. 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.

      We account for software revenue recognition 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 the software is shipped; payment is due within one year; collectibility is probable and there are no significant obligations remaining.

      We estimate our allowance for doubtful accounts based on a combination of specifically identified amounts and a general reserve calculated based on the aging of receivables. If circumstances change (such as an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us or its payment trends), we may adjust our estimates of the recoverability of amounts due to us.

      We evaluate the recoverability of all inventory, including raw materials, work-in-process, finished goods, and spare parts to determine whether adjustments for impairment are required. Inventory which is obsolete or in excess of our demand forecast is fully reserved. If actual demand is lower than our forecast, additional inventory write-downs may be required.

      We perform an annual goodwill impairment test in the third quarter of each fiscal year using a two-step process. The first step of the test identifies when impairment may have occurred, while the second step of the test measures the amount of the impairment, if any. To determine the amount of the impairment, we estimate the fair value of our reporting segments that contain goodwill, based primarily on expected future cash flows, reduce the amount by the fair value of identifiable intangible assets other than goodwill (also based primarily on expected future cash flows), and then compare the unallocated fair value of the business to the carrying value of goodwill. To the extent goodwill exceeds the unallocated fair value of the business, an impairment expense is recognized. In connection with the annual impairment analysis for goodwill, we assessed the recoverability of the intangible assets subject to amortization in accordance with SFAS No. 144.

      Our warranty policy generally states that we will provide warranty coverage for a pre-determined amount of time, generally 15 to 24 months, for material and labor to repair and service our equipment. In fiscal 2003, we outsourced all of our products manufactured in the United States to Solectron Corporation. Solectron assumes the warranty liability for the first 12 months on products it manufacturers, with Asyst liable for warranty obligations beyond 12 months. We record the estimated warranty cost upon shipment of our products. The estimated warranty cost is determined based on the warranty term and historical warranty costs for a specific product. If actual product failure rates or material usage differs from our estimates, we may need to revise our estimated warranty reserve.

      We have recorded a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have considered our future taxable income and tax planning strategies in assessing our valuation allowance. Future taxable income is based upon our estimates, and actual results may significantly differ from these estimates due to the volatility of our industry. If in the future we determine that

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      We evaluate the recoverability of our long-lived tangible assets in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment of Long-Lived Assets to be Disposed of, or SFAS No. 144.” Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows from the use of the assets and its eventual disposition. Measurement of an impairment loss for long-lived assets is based on the fair value of the assets. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Results of Operations

      Net sales for the fiscal year ended March 31, 2004 were $301.6 million, an increase of $42.1 million or 16.2 percent from the prior year. The increase in fiscal 2004 sales was in AMHS and 200mm SMIF products sold to semiconductor manufacturers. Excluding the impact of ASI, net sales for fiscal 2004 were $133.1 million, a decrease of $80.0 million or 37.5 percent from the prior year. This decrease was mainly due to the general decline in the semiconductor equipment sector and the sale of our wafer and reticle carrier product lines during fiscal 2003. These product lines generated $31.1 million of revenue in fiscal 2003. Net sales for the fiscal year ended March 31, 2003 were $259.5 million, an increase of $76.3 million or 41.6 percent from fiscal 2002. The increase in fiscal 2003 sales was primarily due to revenue associated with the acquisition of ASI and increased sales to customers in China and Taiwan.

      Because the semiconductor capital equipment industry is subject to rapid fluctuations in demand, we have made significant reductions and changes in our manufacturing operations to decrease the fixed component of our manufacturing costs and improve our margins during downturns. In fiscal 2004, we had reductions of workforce, in both U.S. and international operations. In fiscal 2003, we began transitioning all of our U.S. manufacturing operations to Solectron, a contract manufacturer, and completed this transition in fiscal 2004.

      Our gross profit was $53.2 million for the fiscal year ended March 31, 2004, $75.1 million for the fiscal year ended March 31, 2003 and $40.9 million for the fiscal year ended March 31, 2002. This represented 17.6 percent of net sales for the fiscal year ended March 31, 2004, 28.9 percent of net sales for the fiscal year ended March 31, 2003 and 22.3 percent of net sales for the fiscal year ended March 31, 2002. The decrease in gross profit as a percent of sales in fiscal 2004 was primarily due to product mix change resulting from higher AMHS revenue with lower gross margins. In addition, ASI recorded a $7.3 million charge in fiscal 2004 for estimated losses that are anticipated on certain customer contracts and recorded a $0.9 million provision relating to excess and obsolete inventory. Although our traditional business was helped by our continuing transition to outsourced manufacturing and a lower cost supply chain, the gross profit deteriorated from the prior year due to an increased mix of legacy portal and sorter products with lower gross margins.

      The improvement in gross profit in fiscal 2003 from the prior year was primarily attributable to increased sales volumes, which better absorbed manufacturing overhead, facility and headcount reduction actions taken in fiscal 2002, and higher mix of 200mm products.

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      R&D expenses were $36.4 million for the fiscal year ended March 31, 2004, $40.1 million for the fiscal year ended March 31, 2003 and $39.0 million for the fiscal year ended March 31, 2002. This represented 12.1 percent of net sales for the fiscal year ended March 31, 2004, 15.4 percent of net sales for the fiscal year ended March 31, 2003 and 21.3 percent of net sales for the fiscal year ended March 31, 2002. The decrease in R&D spending in fiscal 2004 was mainly due to headcount reductions and other spending cuts in early fiscal 2004 in response to our sales declines. Our higher R&D spending in fiscal 2003 resulted from our decision to continue strategic product development programs and the inclusion of R&D spending in ASI and ACT.

      Over the past three years we have reduced selling, general and administrative, or SG&A, expenses to better align our spending with lower sales levels. SG&A expenses declined to $70.5 million, or 23.4 percent of net sales, compared with $74.2 million, or 28.6 percent of net sales in fiscal 2003. SG&A expense was $76.3 million for the fiscal year ended March 31, 2002, representing 41.6 percent of net sales. The decreases in fiscal 2004 and fiscal 2003 resulted primarily from workforce reductions, facility closures, and reduced discretionary spending offset by increases due to acquisitions of ASI and DLC.

      Amortization expenses relating to acquired intangible assets were $20.2 million for the fiscal year ended March 31, 2004, $14.1 million for the fiscal year ended March 31, 2003 and $7.1 million for the fiscal year ended March 31, 2002. This represented 6.7 percent of net sales for the fiscal year ended March 31, 2004, 5.4 percent of net sales for the fiscal year ended March 31, 2003 and 3.9 percent of net sales for the fiscal year ended March 31, 2002. We amortize acquired intangible assets over periods ranging from three to ten years. The increases in amortization expenses in fiscal 2004 and 2003 are primarily due to the acquisition of the ASI joint venture interest.

      Restructuring and other charges for the fiscal years ended March 31, 2004, 2003 and 2002 were (in thousands):

      In fiscal 2004, we recorded net severance and other charges of $5.5 million, primarily related to $3.4 million in severance costs from a reduction in workforce in April 2003 and a $1.0 million charge related to the settlement and release of claims arising from the termination of a former officer. Included were also

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      In fiscal 2003, we recorded a charge of $1.6 million related to excess facilities that we had under lease but had abandoned as a result of our decision to outsource our manufacturing activities and an excess facility charge of $1.1 million reflecting revised estimates of future sublease income based on continued weakness in the Austin, Texas commercial real estate market. We also recorded severance charges of $1.5 million resulting from headcount reductions and contractual obligations of $0.6 million as a result of workforce reduction measures. The restructuring activities affected approximately 291 employees in manufacturing, sales, research and development and administrative staff, including approximately 191 employees who joined Solectron. We also recorded a fixed asset impairment charge of $2.2 million for assets abandoned due to facility consolidation and the integration of certain programs into ASI.

      In fiscal 2002, restructuring charges were recorded resulting from our plan to shut down some of our manufacturing and service locations, outsource some of our manufacturing activities and consolidate the remainder of our U.S. manufacturing in Fremont, California, as well as to reduce our workforce due to economic conditions. These charges include approximately $3.9 million in write-downs of assets and reserves for lease commitments, net of estimated sublease income that we expect to generate from the vacated facilities, and severance costs of approximately $4.3 million related to reductions in force of approximately 450 employees, or 29.0 percent of our workforce.

      We expect to utilize the remaining accrual balance, primarily unused leased facilities, over the next two fiscal years. All remaining accrual balances are expected to be settled in cash.

      Asset impairment charges for fiscal years 2004, 2003 and 2002 were as follows:

      We completed the sale of land in Fremont, California, in the fiscal year ended March 31, 2004. The net proceeds from the sale were $12.1 million. We had intended to construct corporate headquarters facilities on the land and subsequently decided not to build these facilities. In fiscal 2004, we recorded a $6.9 million write-down based on our latest estimate of market value as supported by the pending sale agreement at the time. We previously 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 ended December 31, 2002. This transaction did not close. As a result, a $7.1 million write-down was recorded in the second quarter in fiscal 2003. Initially, we 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. We purchased the land on October 22, 2001 for $41.1 million, and we 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 our non-cancelable commitment to purchase the land, we 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 in fiscal 2002.

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      In fiscal 2003, we completed an annual goodwill impairment test and determined that impairment charges of $8.4 million were required because the estimated fair value of certain businesses were less than their book values. The charges were measured by comparing the forecasted undiscounted cash flows, which we believe approximates fair value, with their corresponding book values. The charges relate to goodwill and intangible assets recorded in connection with our May 2002 acquisition of DLC.

      We also performed a goodwill impairment test in fiscal 2002 and determined that impairment charges of $22.6 million were required because the estimated fair value of certain businesses were less than their book values. The charges were measured by comparing the forecasted undiscounted cash flows, which we believed approximates fair value, with their corresponding book values. The charges related to goodwill and intangible assets recorded in connection with previously acquired businesses.

      In October 2002, we acquired 51.0 percent of the common stock of ASI, our Japanese AMHS joint venture company. In connection with the purchase price allocation, in the quarter ended December 31, 2002, we assigned $5.8 million to in-process research and development, or IPR&D. In June 2002, we acquired DLC. In connection with the purchase price allocation $2.0 million was assigned to IPR&D. We identified research projects in areas for which technological feasibility had not been established and no alternative future uses existed. The value was determined by estimating the expected cash flows from the products once commercially viable, discounting the net cash flows to their present value, and then applying a percentage of completion to the calculated value.

      In fiscal 2003, we sold our wafer and reticle carrier (WRC) products to Entegris for net proceeds of $34.2 million. As a result of this transaction, we recorded a gain on sale of $28.4 million. The wafer and reticle carrier products contributed revenues of $31.1 million and $28.9 million in fiscal years 2003 and 2002, respectively.

      Other expense, net was $6.6 million for the fiscal year ended March 31, 2004, $6.9 million excluding gain on sale of WRC for the fiscal year ended March 31, 2003 and $3.5 million for the fiscal year ended March 31, 2002. The other expenses for the fiscal year ended March 31, 2004 were relatively flat from the prior year. The increased expense in fiscal 2003 compared with fiscal 2002 is primarily attributable to financing costs and fees related to funding the ASI joint venture transaction, increased interest expense related to the $25 million credit facility which was established and drawn down to partially fund the transaction, lower interest-bearing cash balances, and lower interest rates on invested cash.

      We recorded a benefit from income taxes of $6.2 million for the fiscal year ended March 31, 2004, or 6.5 percent of our loss before income taxes. The benefit is primarily due to amortization of deferred tax liabilities recorded in connection with the ASI acquisition of $6.7 million, offset by tax provisions in our international subsidiaries. As a result of the review undertaken at September 30, 2002, we concluded that it was appropriate to establish a full valuation allowance for our net deferred tax assets. We therefore recorded a tax provision of $57.3 million in fiscal 2003. Benefit from income taxes was $38.0 million for the fiscal year ended March 31, 2002. This represented an effective tax rate of (6.5) percent for the fiscal year ended March 31, 2004 and 92.3 percent for the fiscal year ended March 31, 2003 and 28.1 percent for the fiscal year ended March 31, 2002.

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      Minority interest in the loss from continuing operations was $4.4 million and $4.7 million for the fiscal years ended March 31, 2004 and 2003, respectively. No minority interest was recorded in fiscal 2002. This amount represents the 49.0 percent of our joint venture partner, Shinko, in the operations of ASI.

      There were no discontinued operations in fiscal 2004. Loss from discontinued operations was $21.1 million for the fiscal year ended March 31, 2003 and $51.4 million for the fiscal year ended March 31, 2002. The loss in fiscal 2002 included goodwill and impairment charges of $37.8 million. In August 2002, we announced our intention to divest two subsidiaries, AMP and SemiFab, in order to allow us to better focus on our core business. Both subsidiaries were divested in March 2003.

      At March 31, 2004, we held notes from two current non-officer employees totaling $0.4 million. At March 31, 2003, we held notes from two former employees and two current employees totaling $0.7 million. One of the notes receivable is secured by a deed of trust on certain real property. The fair market value of the property exceeds the loan amount. These notes receivable are included in other assets at March 31, 2004 and March 31, 2003, respectively.

      Our majority owned subsidiary, ASI, has certain transactions with the minority shareholder, Shinko. At March 31, 2004, significant balances owed to Shinko were (in thousands):

      In addition, the consolidated condensed financial statements reflect that ASI purchased various administrative and IT services from Shinko. During the year ended March 31, 2004, sales to and purchases from Shinko were (in thousands):

Guarantees & Commitments

      We have guaranteed certain lease payments with respect to equipment and real estate of our Japanese subsidiary as disclosed in Note 10 to the Consolidated Financial Statements.

      As more fully described in Note 12 to the Consolidated Financial Statements, we are contingently liable as part of the ASI acquisition to provide funding for plan benefits under a pension plan of Asyst Shinko. As part of the acquisition of ASI in October 2002, we recorded $12.1 million of pension-related obligations. As of March 31, 2004, the remaining liability was $11.8 million. Under certain remote circumstances, including bankruptcy and inability to pay by Shinko, we may have to assume approximately up to $200 million of Shinko’s pension obligations. No recognition of this amount has been recorded to date as it is considered remote.

Recent Accounting Pronouncements

      In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, or FIN 46. 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 was effective for all new variable interest entities created or acquired after January 31, 2003. In December 2003, the FASB issued

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      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, or SFAS No. 150. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first fiscal period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of SFAS No. 150 did not have a material impact on our financial position or results of operations.

      In August 2003, the EITF reached a consensus on Issue No. 03-5, “Applicability of AICPA Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables”. This issue focuses solely on whether non-software deliverables included in arrangements that contain more-than-incidental software should be accounted for in accordance with SOP 97-2. The Task Force confirmed that in an arrangement that contains software that is more-than-incidental to the products or services as a whole, only the software and software-related elements are included within the scope of SOP 97-2. Software-related elements include software-related products and services such as those listed in paragraph 9 of SOP 97-2, as well as other deliverables for which the software is essential to their functionality. EITF Issue No. 03-5 is effective for revenue arrangements entered into in fiscal periods beginning after August 13, 2003. The adoption of EITF Issue No. 03-5 did not have a significant impact on our financial position or results of operations.

      On December 17, 2003, the Staff of the Securities and Exchange Commission, SEC or the Staff, issued Staff Accounting Bulletin No. 104, Revenue Recognition, or SAB 104, which supercedes Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, or SAB 101. SAB 104 rescinds accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superceded as a result of the issuance of Emerging Issues Task Force Issue No. 00-21, or EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. Additionally, SAB 104 rescinds the SEC’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers, or the FAQ, issued with SAB 101 that had been codified in SEC topic 13, Revenue Recognition. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did not have a material effect on our financial position or results of operations.

      In April 2004, the Emerging Issues Task Force reached a consensus on Issue No. 03-06, Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share, or EITF 03-16. EITF 03-06 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and how to apply the two-class method of computing earning per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. EITF 03-06 is effective for fiscal periods beginning after March 31, 2004. The adoption of EITF 03-06 is not expected to have a material effect on our financial position or results of operations.

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Liquidity and Capital Resources

      Since inception, we have funded our operations primarily through the private sale of equity securities and public stock offerings, customer pre-payments, bank borrowings and cash generated from operations. As of March 31, 2004, we had approximately $112.9 million in cash and cash equivalents, $1.9 million in restricted cash and cash equivalents, $127.6 million in working capital and $93.8 million in long- term debt and capital lease obligations.

      Cash flows from operating activities. Net cash used in operating activities in fiscal 2004 was $74.0 million. The net cash used in operating activities in fiscal 2004 was primarily attributable to our net loss of $83.5 million, and increases in receivables and inventory totaling $81.3 million primarily due to significantly higher revenue. These uses of cash were partially offset by non-cash charges to net income including depreciation and amortization of $29.3 million, asset impairment charges of $6.9 million, deferred taxes of $6.4 million, and inventory reserve adjustments of $13.0 million. Additionally accounts payable, accrued liabilities and deferred revenue increased by a combined $48.5 million, primarily due to increased purchasing activities from higher revenue.

      Net cash provided by operating activities in fiscal 2003 was $16.5 million. The net cash provided by operating activities in fiscal 2003 was primarily attributable to our net loss of $135.9 million, partially offset by non-cash charges of $59.2 million related to the deferred tax asset and $17.7 million of restructuring, goodwill and intangibles impairment and asset write-downs; $30.8 million of depreciation and amortization; $7.8 million of in-process R&D; and other items. Other significant sources of cash included increases in accounts payable accrued liabilities and deferred revenue by a combined $15.8 million; and an inventory decrease of $23.5 million primarily due to the sale of inventory to Solectron related to our outsourcing of manufacturing.

      Cash flows from investing activities. Net cash provided by investing activities in fiscal 2004 was $1.2 million. We received net proceeds of $12.1 million from the sale of land and purchased short-term investments of $3.6 million, net. This source of cash was offset by purchases of property and equipment of approximately $6.1 million and cash used in connection with our acquisition of ASAM of $1.2 million.

      Net cash used in investing activities in fiscal 2003 was $19.0 million. We used $51.1 million of net cash in the acquisitions of the ASI JV interest and DLC, and received $34.2 million from the sale of our wafer and reticle product lines (WRC). In addition, we sold short-term investments of $7.0 million, net, and used $9.1 million for purchases of property and equipment.

      Cash flows from financing activities. Net cash provided by financing activities in fiscal 2004 was $93.0 million, primarily from a total of $112.1 million from issuance of common stock through our secondary stock offering and under our employee stock programs. Proceeds from this issuance were used in the repayment of $25.0 million against our commercial banking line of credit. We also received proceeds from the sale of receivables in the amount of $5.8 million.

      In November 2003, we sold 6,900,000 shares of our common stock, including exercise of the underwriters’ over-allotment option, at an offering price to the public of $15.17 per share. We received total proceeds of $99.0 million, net of the related issuance fees and costs.

      Net cash provided by financing activities in fiscal 2003 was $29.8 million. During fiscal 2003, we received net proceeds of $25.0 million from our line of credit and $6.1 million from the issuance of common stock under our employee stock programs. These sources of cash were offset by net principal payments on short-term and long-term debt and capital leases of $1.2 million.

      In October 2002, we entered into a $25.0 million two-year revolving credit agreement with a commercial bank. The specific amount of the credit line available, however, may change based on the amount of receivables held. Borrowings under the credit agreement bear interest at a rate indexed to LIBOR. The credit line was fully paid down during the quarter ended December 31, 2003. During fiscal year 2004, we amended the financial covenants. As amended, we were required under the agreement to maintain compliance with financial covenants, including a quarterly net income/loss target, calculated on an after-tax basis excluding depreciation, amortization and other non-cash items and a requirement that we maintain with the bank during

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      As of March 31, 2004, we were in compliance with these financial covenants. We cannot assure that we will meet the quarterly net income/loss covenant or other covenants in subsequent quarters. Non-compliance with the financial covenants in the future may preclude our ability to borrow under the credit agreement or require us to repay any borrowings outstanding. These covenants may otherwise adversely affect our company if our company fails to comply with them.

      On July 3, 2001, we completed the sale of $86.3 million of 5 3/4 percent convertible subordinated notes which provided us with aggregate proceeds of $82.9 million net of issuance costs. The notes are convertible, at the option of the holder, at any time on or prior to maturity into shares of our common stock at a conversion price of $15.18 per share, which is equal to a conversion rate of 65.8718 shares per $1,000 principal amount of notes. The notes mature July 3, 2008, pay interest on January 3 and July 3 of each year and are redeemable at our option after July 3, 2004.

      We had $18.2 million and $18.0 million at March 31, 2004 and 2003, respectively, of short-term debt from banks in Japan. As of March 31, 2004, the interest rate ranged from 1.4 percent to 3.0 percent (interest rates ranged from 1.4 percent to 2.4 percent at March 31, 2003). We had secured straight bonds from a bank in Japan of $7.1 million at March 31, 2004. The bonds bore interest at rates ranging from 1.4 percent to 3.0 percent as of March 31, 2004 and mature in fiscal year 2008. Certain of our assets in Japan have been pledged as security for these secured straight bonds as well as for short-term debt. As of March 31, 2004, pledged assets consist of land and other property and equipment, net of accumulated depreciation, time deposits and accounts receivable totaling $15.9 million. Additionally Asyst U.S. has provided letters of guarantee to financial institutions in Japan covering substantially all of AJI’s debts. In September 2003, ASI entered into a short-term bank facility with a Japanese bank under which it may borrow up to approximately $28.3 million at the exchange rate as of March 31, 2004. The current interest rate is 1.4 percent. This facility primarily supports ASI’s working capital requirements during the construction of its AMHS projects, particularly located in Japan where customers generally pay four to six months after acceptance of a completed project. ASI had outstanding borrowings of $4.7 million under this facility that is recorded in short-term debt at March 31, 2004. Under terms of the bank facility, ASI must generate annual operating profits on a statutory basis. We were in compliance with the loan covenants at March 31, 2004.

      We have an agreement with a Japanese banking institution to sell certain of our trade receivables without recourse. During fiscal 2004, approximately $5.8 million of receivables were sold under this agreement. The total amount available under the facility is $14 million at March 31, 2004.

      We lease facilities under non-cancelable capital and operating leases, with expiration dates up to November 2011.

      We anticipate that operating expenses will constitute a material use of our cash resources. The cyclical nature of the semiconductor industry makes it very difficult for us to predict future liquidity requirements with certainty. Any upturn in the semiconductor industry may result in short-term uses of cash in operations as cash may be used to finance additional working capital requirements such as accounts receivable. However, we believe that our available cash and cash equivalents will be sufficient to meet our working capital and operating expense requirements for at least the next 12 months.

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      At some point in the future we may require additional funds to support our working capital and operating expense requirements or for other purposes and we may seek to raise these additional funds through public or private debt or equity financings or the sale of assets. These financings may not be available to us on a timely basis if at all or, if available, on terms acceptable to us and not dilutive to our shareholders. If we fail to obtain acceptable additional financing, we may be required to reduce planned expenditures or forego investments, which could reduce our revenues, increase our losses, and harm our business.

      We do not have any financial partnerships with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, such as entities referred to as structured finance or special purpose entities. Accordingly, we are not exposed to any financing or other risks that could arise if we had such relationships.

      The following table (in thousands) summarizes our significant contractual obligations at March 31, 2004, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.

      Purchase orders or contracts for the purchase of raw materials and other goods and services are not included in the table above. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements.

RISK FACTORS

      This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, including statements about our future plans, objectives, intentions and expectations. Many factors, including those described below, could cause actual results to differ materially from those discussed in any forward-looking statements.

Risk Related to Our Business

      Sales of Automated Material Handling Systems, or AMHS, accounted for approximately 56.0 percent of our sales for the fiscal year ended March 31, 2004, and are expected to be an important component of our future revenues. Substantially all of our AMHS sales are through our majority-owned joint venture subsidiary, Asyst Shinko, Inc., or ASI, of which we acquired 51.0 percent in the third quarter of fiscal year 2003. While we have effective operating control of ASI, certain major decisions require the approval of our joint venture partner, Shinko Electric Co., Ltd., or Shinko, and the future success of ASI depends in part on the strength of our relationship with Shinko. Other than a right of first refusal if Shinko is considering selling its stake in ASI, we have no mechanism to acquire the 49.0 percent of ASI that is currently owned by Shinko. Even if Shinko were to offer to sell its stake in ASI to us, we may not have sufficient funds available to facilitate such

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      Orders for AMHS are relatively large, often exceeding $20 million for a given project. Because of the size of these orders, our revenues are often concentrated among a small number of customers in any fiscal period. Additionally, the manufacture and installation of these systems at our customers’ manufacturing facilities can take up to six months. We recognize revenue and costs for AMHS based on percentage of completion because the contracts are long-term in nature. Payments under these contracts often occur well after we incur our manufacturing costs. For example, terms for our Japanese AMHS customers require payment to be made six months after customer acceptance of the installation. The consequence of the AMHS payment cycle is that significant demands can be placed on our working capital. Further, gross margins on our AMHS sales are lower than those for our other products. If we fail to effectively estimate costs and manage these long-term projects, we could have loss contract exposure and additional gross margin pressure. Our overall financial performance will therefore be impacted by the mix of sales between AMHS and other products in a given period.

      In recent quarters, ASI has begun to sell AMHS to flat panel display, or FPD, manufacturers. While we believe that sales to the FPD industry present a significant opportunity for growth, the size of this market opportunity depends in large part on capital expenditures by FPD manufacturers. The market for FPD products is highly cyclical and has experienced periods of oversupply, resulting in significantly reduced demand for manufacturing and automation equipment. If the FPD market enters into a cyclical downturn, demand for AMHS by the FPD market may be significantly reduced, impacting our growth prospects.

      As a relatively new entrant to the FPD equipment market, we do not have the customer relationships that our competitors have. Similarly, our relative inexperience in the FPD industry may cause us to misjudge important trends and dynamics in this market. If we are unable to anticipate future customer needs in the FPD market, our growth prospects may be severely reduced.

      The 300mm market is still relatively new. We have invested, and are continuing to invest, substantial resources to develop new systems and technologies to automate the processing of 300mm wafers. However, the timing of the industry’s transition from the current, widely-used 200mm manufacturing technology to 300mm manufacturing technology is uncertain, partly as a result of the recent period of reduced wafer fabrication capacity utilization. Delay in the adoption of 300mm manufacturing technology could adversely affect our potential revenue. Manufacturers who are implementing factory automation in 300mm fabs may seek to purchase systems from multiple vendors. Competition, including price competition, for these 300mm orders is intense. We face increased competition for our 300mm products from a number of new entrants because of the development of Semiconductor Equipment and Materials International, or SEMI, standards for 300mm products.

      The gross margins on our 300mm products currently are not as favorable as on our 200mm products. This is primarily because our 300mm products are early in their production life, we face increased competition in this production line, and we sell a greater percentage of our 300mm products to OEMs rather than directly to semiconductor manufacturers. Manufacturing costs are generally higher in the early stages of new product introduction and typically decrease as demand increases, due to better economies of scale and efficiencies developed in the manufacturing processes. However, we cannot assure you that we will see such economies of scale and efficiencies in our future manufacturing of 300mm products, which will be supplied primarily by

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      These factors may prevent us from achieving or maintaining similar relative pricing and gross margin performance on 300mm products as we have achieved on 200mm products, and could adversely affect our ability to become and remain profitable.

      We have outsourced the manufacturing of most of our products. Solectron currently manufactures, under a long-term contract, our products, other than AMHS and our Japanese robotics products. ASI also has outsourced a large portion of its AMHS manufacturing to third parties. In the future we may increase our dependence on contract manufacturers. Outsourcing may not yield the benefits we expect, and instead could result in increased product costs and product delivery delays.

      Outsourced manufacturing could create disruptions in the availability of our products if the timeliness or quality of products delivered does not meet our requirements or our customers’ expectations. From time to time, we have experienced delays in receiving products from Solectron. Problems with quality or timeliness could be caused by a number of factors including, but not limited to: manufacturing process flow issues, financial viability of an outsourced vendor, availability of raw materials or components to the outsourced vendor, improper product specifications, and the learning curve to commence manufacturing at a new outsourced site. Our contract with Solectron contains minimum purchase commitments which, if not met, could result in increased costs, which would adversely affect our gross margins. We must also provide Solectron with forecasts and targets based on actual and anticipated demand, which we may not be able to do effectively or efficiently. If Solectron purchases inventory based on our forecasts, and that inventory is not used, we must repurchase the unused inventory, which would adversely affect both our cash flows and gross margins. If product supply is adversely affected because of problems in outsourcing we may lose sales and profits.

      Our outsourcing agreement with Solectron includes commitments from Solectron to adjust, up and down, manufacturing volume based on updates to our forecast demand. However, Solectron may be unable to meet these commitments and, even if it can, may be unable to react efficiently to rapid fluctuations in demand. If our agreement with Solectron terminates or if Solectron does not perform its obligations under our agreement, it could take several months to establish alternative manufacturing for these products and we may not be able to fulfill our customers’ orders for most of our products in a timely manner. If our agreement with Solectron terminates, we may be unable to find another suitable outsource manufacturer.

      Any delays in meeting customer demand or quality problems resulting from product manufactured at an outsourced location could result in lost or reduced future sales to key customers and could have a material negative impact on our net sales, gross profits and results of operations.

      When demand for semiconductor manufacturing equipment is strong, suppliers, both U.S. and international, strain to provide components on a timely basis. We have outsourced the manufacturing of many of our products, and disruption or termination of supply sources to our contract manufacturers or us could have a serious adverse effect on our operations. Many of the components and subassemblies used in our products are obtained from a limited group of suppliers, or in some cases may come from a single supplier. A prolonged inability to obtain some components could have an adverse effect on our operating results and could result in damage to our customer relationships. Shortages of components may also result in price increases for components and, as a result, could decrease our margins and negatively impact our financial results.

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      We have a significant amount of outstanding indebtedness. At March 31, 2004, our long-term debt was $91.1 million, and our short-term debt was $20.9 million, for an aggregate of $112.0 million. We have $86.3 million of 5 3/4 percent convertible subordinated notes outstanding which are convertible, at the option of the holder, at any time on or prior to maturity into shares of our common stock at a conversion price of $15.18 per share. We are required to pay interest on these convertible notes on January 3 and July 3 of each year. These convertible notes mature July 3, 2008, and are redeemable at our option after July 3, 2004. Our joint venture with Shinko, ASI, entered into a short-term facility with a Japanese bank under which it may borrow up to approximately $28.3 million, of which $4.7 million is currently outstanding. We have also guaranteed the loans of our Japanese subsidiary, Asyst Japan, Inc., or AJI, which loans currently total approximately $20.6 million as of March 31, 2004.

      Our two-year revolving credit agreement with a commercial bank requires us to maintain compliance with certain financial covenants, including a quarterly net income/ loss target, calculated on an after-tax basis (excluding depreciation, amortization and other non-cash items) and a requirement that we maintain with the bank during the term of the credit agreement a minimum balance of $5.0 million of cash and cash equivalents. The specific amount of the credit line available at any time, however, may change based on the amount of current receivables we have outstanding. The covenants contained in our credit agreement with the bank also restrict our ability to take certain actions, including our ability to:

	•	incur additional indebtedness;
	•	pay dividends and make distributions in respect of our capital stock;
	•	redeem capital stock;
	•	make investments or other restricted payments;
	•	engage in transactions with shareholders and affiliates;
	•	create liens;
	•	sell or otherwise dispose of assets;
	•	make payments on our debt, other than in the ordinary course; and
	•	engage in mergers and acquisitions.

      The credit line has been fully paid down since the quarter ended December 31, 2003. As of the quarter ended December 31, 2003, we were not in compliance with certain of these financial covenants. However, we obtained a waiver of compliance from the bank for these certain covenants. As of the quarter ended March 31, 2004, we were in compliance with the financial covenants. We entered into an agreement with the bank, effective as of May 15, 2004, to amend and restate the terms of our existing credit agreement which extended its term through May 15, 2006, changed and expanded the base of assets under which we qualify for borrowings under the credit facility and reduced certain fees and interest charges applicable to borrowings under the credit line. While we have substantial improvements in our financial results in the quarter ended March 31, 2004, we cannot assure you that we will meet the financial covenants contained in our credit agreement with Comerica in subsequent quarters. Specifically, we may be unable to meet the maximum loss covenant or the minimum liquidity covenant in future quarters. If we are unable to meet any covenants, we cannot assure you that the bank will grant waivers and amend the covenants, and Comerica may terminate the agreement, preclude further borrowings and require us to repay the outstanding borrowings.

      Under terms of the ASI bank facility, ASI must generate operating profits on a statutory basis. Additionally, upon an event of default, the Japanese banks may call the loans outstanding at AJI, requiring repayment, which we have guaranteed.

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      As long as our indebtedness remains outstanding, the restrictive covenants could impair our ability to expand or pursue our business strategies. Forced prepayment of some or all of our indebtedness would reduce our available cash balances and have an adverse impact on our operating and financial performance.

      We recently raised capital by issuing 6.9 million shares of our common stock in a public offering in November 2003; however, our operations are currently consuming cash and are expected to continue to do so for the next few quarters. As a consequence, in the future we may be required to seek additional financing to meet our working capital needs and to finance capital expenditures, as well as to fund operations. We may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund our expansion, successfully develop or enhance products, respond to competitive pressures or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business. If we raise additional funds through the issuance of equity securities, our shareholders may experience dilution of their ownership interest, and the newly-issued securities may have rights superior to those of the common stock. If we raise additional funds by issuing debt, we may be subject to limitations on our operations. This strain on our capital resources could adversely affect our business.

      The decision by OEMs to adopt our tool front-end, or portal, solutions for a large product line involves significant organizational, technological and financial commitments by the OEMs. OEMs expect the portal solutions to meet stringent design, reliability and delivery specifications. If we fail to satisfy these expectations, whether based on limited or expanded sales levels, OEMs will not adopt our portal solutions. We cannot ensure that these tools will be widely accepted in the marketplace or that additional OEMs will adopt them. We have invested significant time and expense in the development of Spartan, our next generation portal offering specifically designed for the 300mm market. While we believe Spartan may improve our competitive position and gross margins in the 300mm industry, if the market acceptance of Spartan is less than we have forecast or if the timing of this acceptance is delayed, our financial performance could be impacted. Further, because Spartan is early in its production life, its manufacturing costs may be higher (and resulting margins may be lower) in the early stage of new product introduction. Notwithstanding our solutions, OEMs may purchase components to assemble or invest in the development of their own comparable portals. If our solutions are not adopted by OEMs, our prospects will be negatively impacted and we may not be able to achieve profitability.

      We do not have long-term contracts with our customers, and our sales are typically made pursuant to individual purchase orders. 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.

      Customer orders are often received with extremely short lead times. If we are unable to fulfill these orders in a timely manner, we could lose sales and customers.

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      The markets in which we sell our products comprise a relatively small number of OEMs and semiconductor manufacturers. Large orders from a relatively small number of customers account for a significant portion of our revenue and make our relationship with each customer critical to our business. The sales cycles to new customers range from six to 12 months from initial inquiry to placement of an order, depending on the complexity of the project. These extended sales cycles make the timing of customer orders uneven and difficult to predict. A significant portion of the net sales in any quarter is typically derived from a small number of long-term, multi-million dollar customer projects involving upgrades of existing facilities or the construction of new facilities. Generally, our customers may cancel or reschedule shipments with limited or no penalty.

      Our customers’ demand for our products is largely driven by the timing of new fab construction and the upgrading of existing fabs initiated by those customers. As such, when we complete projects for a customer, business from that customer will decline substantially unless it undertakes additional projects incorporating our products. The high cost of building a fab is causing increasing numbers of semiconductor manufacturers to outsource the manufacturing of their semiconductors to foundries. This trend toward foundry outsourcing, combined with increasing consolidation within the semiconductor industry, could continue to decrease the number of our potential customers and increase our dependency on our remaining customers. We may not be able to retain our largest customers or attract additional customers, and our OEM customers may not be successful in selling the OEM equipment in which our systems are embedded. Our success will depend on our continued ability to develop and manage relationships with significant customers. In addition, our customers have in the past sought price concessions from us and may continue to do so in the future, particularly during downturns in the semiconductor market. Further, our current and prospective customers have exerted pressure on us to shorten delivery times and to customize and improve the capabilities of our products, thus increasing our manufacturing costs. In addition, some of our customers may in the future shift their purchases of products from us to our competitors. Failure to respond adequately to such pressures could result in a loss of customers or orders and the inability to develop successful relationships with new customers, which would have a negative impact on our business.

      If we are unable to collect a receivable from a large customer, our financial results will be negatively impacted. In addition, since each customer represents a significant percentage of net sales, the timing of the completion of an order can lead to a fluctuation in our quarterly results.

      Semiconductor equipment and processes are subject to rapid technological changes. The development of more complex semiconductors has driven the need for new facilities, equipment and processes to produce these devices at an acceptable cost. We believe that our future success will depend in part upon our ability to continue to enhance our existing products to meet customer needs and to develop and introduce new products in a timely manner. We often require long lead times for development of our products, which requires us to expend significant management effort and to incur material development costs and other expenses. During development periods we may not realize corresponding revenue in the same period, or at all. We may not succeed with our product development efforts and we may not respond effectively to technological change, which could have a negative impact on our financial condition and results of operations.

      We rely on a combination of patent, trade secret and copyright protection to establish and protect our intellectual property. While we intend to take reasonable steps to protect our patent rights, we cannot assure you that our patents and other intellectual property rights will not be challenged, invalidated or avoided, or that the rights granted thereunder will provide us with competitive advantages. We also rely on trade secrets

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      Intellectual property rights are uncertain and involve complex legal and factual questions. We may unknowingly infringe on the intellectual property rights of others and may be liable for that infringement, which could result in significant liability for us. If we do infringe the intellectual property rights of others, we could be forced to either seek a license to intellectual property rights of others or alter our products so that they no longer infringe the intellectual property rights of others. A license could be very expensive to obtain or may not be available at all. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical, could detract from the value of our product, or could delay our ability to meet customer demands or opportunities.

      There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. Litigation may be necessary to enforce our patents, to protect our trade secrets or know how, to defend us against claimed infringement of the rights of others, or to 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 by itself could have an adverse material effect on our financial condition and operating results. Further, adverse determinations in any litigation could result in our loss of intellectual property rights, subject us to significant liabilities to third parties, require us to seek licenses from third parties, or prevent us from manufacturing or selling our products. Any of these effects could have a negative impact on our financial condition and results of operations.

      The intellectual property laws in Asia do not protect our intellectual property rights to the same extent as do the laws of the United States. It may be necessary for us to participate in proceedings to determine the validity of our, or our competitors’, intellectual property rights in Asia, which could result in substantial cost and divert our efforts and attention from other aspects of our business. If we are unable to defend our intellectual property rights in Asia, our future business, operating results and financial condition could be adversely affected.

      We have made and may continue to make additional acquisitions of, or significant investments in, businesses that offer complementary products, services, technologies or market access. If we are to realize the anticipated benefits of past and future acquisitions, the operations of these companies must be integrated and combined efficiently with our own. The process of integrating supply and distribution channels, computer and accounting systems and other aspects of operations, while managing a larger entity, has in the past presented and will continue to present a significant challenge to our management. In addition, it is not certain that we will be able to incorporate different technologies into our integrated solution. The difficulties of integration may increase because of the necessity of combining personnel with varied business backgrounds and combining different corporate cultures. We may incur substantial costs associated with these activities and we may suffer other material adverse effects from these integration efforts which could materially reduce our short-term earnings. We may not succeed with the integration process and we may not fully realize the anticipated benefits of the business combinations, or we could decide to divest or discontinue existing or recently acquired assets or operations. For example, in fiscal 2003, we decided to discontinue operations of our SemiFab and AMP subsidiaries, both of which we had acquired in February 2001, as these subsidiaries were generating significant operating losses and not considered critical to our long-term strategy. These subsidiaries were sold at the end of fiscal 2003 at a substantial loss. The dedication of management resources to such integration or divestitures may detract attention from the day-to-day business, and we may need to hire additional management personnel to mange our acquisitions or divestitures successfully.

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      Our revenues and operating results can fluctuate substantially from quarter to quarter and year to year, depending on factors such as:

	•	general trends in the overall economy, electronics industry and semiconductor manufacturing industry;
	•	fluctuations in the semiconductor equipment market;
	•	changes in customer buying patterns;
	•	the degree of competition we face;
	•	the size, timing and product mix of customer orders;
	•	lost sales due to any failure in the outsourcing of our manufacturing;
	•	the availability of key components;
	•	the timing of product shipment and acceptance, which are factors in determining when we recognize revenue; and
	•	the timely introduction and acceptance of new products.

      These and other factors increase the risk of unplanned fluctuations in our net sales. A shortfall in net sales in a quarter or a fiscal year as a result of these factors could negatively impact our operating results for that period. Given these factors, we expect quarter-to-quarter and year-to-year performance to fluctuate for the foreseeable future. As a result, period-to-period comparisons of our performance may not be meaningful, and you should not rely on them as an indication of our future performance. In one or more future periods, our operating results may be below the expectations of public market analysts and investors, which may cause our stock price to decline.

      A significant portion of our net sales is attributable to sales outside the United States, primarily in Taiwan, Japan, China, Korea, Singapore and Europe. International sales were 79.0 percent of our total net sales for fiscal 2004, 65.0 percent in fiscal 2003 and 55.0 percent in fiscal 2002. We expect that international sales will continue to represent a significant portion of our total revenue in the future. This concentration increases our exposure to any risks in this area. Sales to customers outside the United States are subject to various risks, including:

	•	exposure to currency fluctuations;
	•	the imposition of governmental controls;
	•	the laws of certain foreign countries may not protect our intellectual property to the same extent as do the laws of the United States;
	•	the need to comply with a wide variety of foreign and U.S. export laws;
	•	political and economic instability;
	•	terrorism and anti-American sentiment;
	•	trade restrictions;
	•	changes in tariffs and taxes;
	•	longer product acceptance and payment cycles; and
	•	the greater difficulty of administering business overseas.

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      Any kind of economic instability in parts of Asia where we do business can have a severe negative impact on our operating results due to the large concentration of our sales activities in this region. For example, during 1997 and 1998, several Asian regions, including Taiwan and Japan, experienced severe currency fluctuation and economic deflation, which negatively impacted our revenues and also negatively impacted our ability to collect payments from customers. The economic situation during this period exacerbated a decline in selling prices for our products as our competitors reduced product prices to generate needed cash.

      Although we invoice a majority of our international sales in United States dollars, for sales in Japan, we invoice our sales in Japanese yen. Future changes in the exchange rate of the U.S. dollar to the Japanese yen may adversely affect our future results of operations. We do not currently engage in active currency hedging transactions. Nonetheless, as we expand our international operations, we may allow payment in additional foreign currencies and our exposure to losses in foreign currency transactions may increase. Moreover, the costs of doing business abroad may increase as a result of adverse exchange rate fluctuations. For example, if the United States dollar declined in value relative to a local currency, we could be required to pay more for our expenditures in that market, including salaries, commissions, local operations and marketing expenses, each of which is paid in local currency. In addition, we may lose customers if exchange rate fluctuations, currency devaluations or economic crises increase the local currency price of our products or reduce our customers’ ability to purchase our products.

      Asian and European courts might not enforce judgments rendered in the United States. There is doubt as to the enforceability in Asia and Europe of judgments obtained in any federal or state court in the United States in civil and commercial matters. The United States does not currently have a treaty with many Asian and European countries providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of a fixed debt or sum of money rendered by any federal or state court in the United States would not automatically be enforceable in many European and Asian countries.

      We may expand our operations through both internal growth and acquisitions. We expect that this expansion will strain our systems and operational and financial controls. In addition, we may incur higher operating costs and be required to expend substantial working capital to fund operations during such an expansion. In addition, during an expansion, we may incur significantly increased up-front costs of sale and product manufacture well in advance of receiving revenue for such product sales. To manage our growth effectively, we must continue to improve and expand our systems and controls. If we fail to do so, our growth will be limited and our liquidity and ability to fund our operations could be significantly strained. Our officers have limited experience in managing large or rapidly growing businesses.

      Further, consideration for future acquisitions could be in the form of cash, common stock, rights to purchase stock, or a combination thereof. Dilution to existing shareholders, and to earnings per share, may result if shares of common stock or other rights to purchase common stock are issued in connection with any future acquisitions.

      Our success depends, in large part, on the continued contributions of our key management and other key personnel, many of whom are highly skilled and would be difficult to replace. In particular, the services of Dr. Stephen Schwartz, Chairman of our Board of Directors, Chief Executive Officer and President, who has led our company since August 2002 (and Chairman since January 2003), are very important to our business. None of our senior management, key technical personnel or key sales personnel is bound by written employment contracts to remain with us for a specified period. In addition, we do not currently maintain key person life insurance covering our key personnel. The loss of any of our senior management or key personnel could harm our business.

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      Our success also depends on our ability to attract, train and retain highly skilled managerial, engineering, sales, marketing, legal and finance personnel and on the abilities of new personnel to function effectively, both individually and as a group. Competition for qualified senior employees can be intense. If we fail to do this, business would be harmed.

      Moreover, some of the individuals on our management team have been in their current positions for a relatively short period of time. For example, our Chief Financial Officer joined us in October 2003 and our Senior Vice President of Worldwide Manufacturing Operations joined us in May 2004. Our future success will depend to a significant extent on the ability of our management team to work effectively together. There can be no assurance that our management team will be able to integrate and work together effectively.

      There has been ongoing public debate whether stock options granted to employees should be treated as a compensation expense and, if so, how to properly value such charges. On March 31, 2004, the Financial Accounting Standard Board, or FASB, issued an Exposure Draft, Share-Based Payment: an amendment of FASB statements No. 123 and 95, which would require a company to recognize, as an expense, the fair value of stock options and other stock-based compensation to employees beginning in 2005 and subsequent reporting periods. If we elect or are required to record an expense for our stock-based compensation plans using the fair value method as described in the Exposure Draft, we could have significant and ongoing accounting charges, which could adversely impact our results from operations.

Risks Related to our Industry

      Our business is largely dependent upon the capital expenditures of semiconductor manufacturers. Semiconductor manufacturers are dependent on the then-current and anticipated market demand for semiconductors. The semiconductor industry is cyclical and has historically experienced periodic downturns. These periodic downturns, whether the result of general economic changes or decreases in demand for semiconductors, are difficult to predict and often have a severe adverse effect on the semiconductor industry’s demand for semiconductor manufacturing equipment. Sales of equipment to semiconductor manufacturers may be significantly more cyclical than sales of semiconductors, as the large capital expenditures required for building new fabs or facilitizing existing fabs is often delayed until semiconductor manufacturers are confident about increases in future demand. If demand for semiconductor equipment remains depressed for an extended period, it will seriously harm our business.

      Our industry began experiencing a significant downturn in 2000 due to decreased worldwide demand for semiconductors. During this downturn, most of our customers reduced capital expenditures, which adversely impacted our business. Excluding sales of ASI, which was acquired during the third quarter of fiscal 2003, our net sales declined sequentially in the third and fourth quarter of fiscal 2003 and again in the first quarter of fiscal 2004. Although our net sales increased $55.3 million in the fourth quarter ended March 27, 2004, or 73.8 percent sequentially, and increased $23.5 million in our third quarter ended December 31, 2003, or 45.8 percent, from the prior quarter, we cannot assure you that our sales will recover sufficiently for us to return to profitability in the near future. As a result of substantial cost reductions in response to the decrease in net sales and uncertainty over the timing and extent of any industry recovery, we may be unable to make the investments in marketing, research and development and engineering that are necessary to maintain our competitive position, which could seriously harm our long-term business prospects.

      We believe that the cyclical nature of the semiconductor and semiconductor manufacturing equipment industries will continue, leading to periodic industry downturns, which may seriously harm our business and financial position.

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      The markets for our products are highly competitive and subject to rapid technological change. We currently face direct competition with respect to all of our products. A number of competitors may have greater name recognition, more extensive engineering, research & development, manufacturing, and marketing capabilities, and substantially greater financial, technical and personnel resources than those available to us.

      Brooks Automation, Inc., or Brooks, and TDK Corporation of Japan are our primary competitors in the area of isolation systems. Our SMART-Traveler System products face competition from bar code technology as well as from Brooks, and a number of smaller competitors. We also compete with several companies in the robotics area, including, but not limited to, Brooks, Newport Corp., Rorze Corporation and Yasukawa Super Mectronics Division. In the area of AMHS, our products face competition from Daifuku Co., Ltd., Murata Co., Ltd., and Brooks. In our FPD business, we compete with Daifuku and Murata. Our wafer sorters compete primarily with products from Recif, Inc. and Brooks. In addition, the industry transition to 300mm wafers is likely to draw new competitors to the facility automation market. In the 300mm wafer market, we expect to face intense competition from a number of established automation companies such as Brooks, as well as new competition from semiconductor equipment and cleanroom construction companies.

      We expect that our competitors will continue to develop new products in direct competition with our systems, improve the design and performance of their products and introduce new products with enhanced performance characteristics. In order to remain competitive, we need to continue to improve and expand our product line, which will require us to maintain a high level of investment in research and development. Ultimately, we may not be able to make the technological advances and investments necessary to remain competitive.

      Companies in the semiconductor capital equipment industry face continued pressure to reduce costs. Pricing actions by our competitors may require us to make significant price reductions to avoid losing orders.

Item 7A — Quantitative and Qualitative Disclosures Regarding Market Risk

      Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. Our investment portfolio consists of short-term fixed income securities and by policy we limit the amount of credit exposure to any one issuer. As stated in our investment policy, we ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in safe and high-credit quality securities and by periodically positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer, guarantor or depository. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. These securities, like all fixed income instruments, carry a degree of interest rate risk. Fixed-rate securities have their fair market value adversely affected by rising interest rates. If market interest rates were to increase immediately and uniformly by 10.0 percent from levels at March 31, 2004, the fair market value of these investments would decline by an immaterial amount. We also have the ability to keep our fixed income investments fairly liquid. Therefore, we would not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates on our investment portfolio.

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      The table below presents principal amounts and related weighted average interest rates for the investment portfolio at March 31, 2004. As a general matter, our intent is not to hold investments longer than 12 months. Restricted cash, cash equivalents and short-term investments represent amounts that are restricted as to their use primarily in accordance with a debt agreements more fully described in Note 10 to our financial statements (in thousands):

      We have short-term debt, long-term debt, capital leases and convertible notes totaling approximately $112.0 million. Most of these borrowings have fixed interest rates. Convertible notes of $86.3 million are the most significant debt subject to interest rate risk. A hypothetical 100 basis point increase in interest rate would have a $3.4 million impact on income before taxes on our consolidated statements of operations for fiscal 2004. The following table presents the hypothetical changes in fair value in our outstanding convertible notes at March 31, 2004 that are sensitive to the changes in interest rates. The modeling technique used measures the change in fair values arising from hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (0.5%), or BPS, 100 BPS (1.0%) and 150 BPS (1.5%) over a 12-month time horizon. The base value represents the fair market value of the notes (in thousands):

      Foreign Currency Exchange Risk. We engage in international operations and transact business in various foreign countries. The primary source of foreign currency cash flows is Japan and to a lesser extent China, Taiwan, Singapore and Europe. Although we operate and sell products in various global markets, substantially all sales are denominated in U.S. dollars, except in Japan, thereby reducing our foreign currency risk. To date, the foreign currency transactions and exposure to exchange rate volatility have not been significant. If the Japanese Yen were to fluctuate by 10.0 percent from the level at March 31, 2004, our results of operations may improve or deteriorate in the range of $5.0 to $6.0 million. Although we do not anticipate any significant fluctuations, there can be no assurance that foreign currency exchange risk will not have a material impact on our financial position, results of operations or cash flow in the future.

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Item 8 — Financial Statements and Supplementary Data

      Our Financial Statements and notes thereto and Financial Statement Schedules appear on pages 44-70 of this Form 10-K. The quarterly financial data (unaudited) were as follows:

QUARTERLY FINANCIAL DATA

      Comparability of quarterly data is affected by the following items which occurred during fiscal 2004 and 2003:

	Asset impairment charges of $6.9 million, $7.1 million and $8.4 million in the first quarter of fiscal 2004, and second and third quarter of fiscal 2003, respectively. These charges relate to write-downs in value of goodwill, intangibles and land held for sale.
	Reserve for net deferred tax assets of $62.7 million in the second quarter of fiscal 2003.
	Loss contract accruals of $5.4 million and $1.9 million at ASI in the third and fourth quarters of fiscal 2004, respectively. Loss reserves and loss on sale of the AMP and SemiFab subsidiaries of $6.6 million and $5.9 million in the third and fourth quarters of fiscal 2003, respectively.
	Net gain on sale of the WRC products in the fourth quarter of fiscal 2003 of $28.4 million.

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	Restructuring charges in the first, second and third quarters of fiscal 2004 and the second and third quarters of fiscal 2003 of $4.4 million, $0.5 million, $1.7 million, $4.5 million, $2.5 million, respectively. These charges were primarily for severance, excess facility and asset impairment charges related to workforce reductions and consolidation of our facilities.
	Inventory reserves of $4.5 million in the fourth quarter of fiscal 2003.

      Refer to the consolidated financial statements contained in this 10-K for further disclosure of the above items.

Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      Not applicable.

Item 9A — Controls and Procedures

Introduction

      SEC rules define “disclosure controls and procedures” as controls and procedures that are designed to ensure that information required to be disclosed by public companies in the reports filed or submitted under the Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms (“Disclosure Controls”).

      SEC rules define “internal control over financial reporting” as a process designed by, or under the supervision of, a public company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, or GAAP, including those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements (“Internal Controls”).

      We have designed our Disclosure Controls and Internal Controls to provide reasonable assurances that their objectives will be met. A control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that its objectives will be met. All control systems are subject to inherent limitations, such as resource constraints, the possibility of human error and the possibility of intentional circumvention of these controls. Furthermore, the design of any control system is based in part upon assumptions about the likelihood of future events, which assumptions may ultimately prove to be incorrect. As a result, we cannot assure you that our control system will detect every error or instance of fraudulent conduct.

Evaluation of Disclosure Controls

      Our Chief Executive Officer, or CEO, and our Chief Financial Officer, or CFO, are responsible for establishing and maintaining our Disclosure Controls as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e). Our CEO and CFO, after evaluating the effectiveness of our Disclosure Controls as of March 31, 2004, have concluded that our Disclosure Controls are effective to provide reasonable assurances that our Disclosure Controls will meet their defined objectives.

Changes in Internal Controls

      During the fourth quarter of fiscal 2004, we instituted procedural changes in our Internal Controls intended to improve the timing and accuracy of reconciliations of certain accounts. Other than as described

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PART III

Item 10 — Directors and Executive Officers of the Registrant

      Information with respect to Directors and Executive Officers may be found in the Definitive Proxy Statement to be delivered to shareholders in connection with the solicitation of proxies for our Annual Meeting of Shareholders in 2004 (the “Definitive Proxy Statement”). Such information is incorporated herein by reference.

      Information relating to the Code of Ethics defined in SEC rules is set forth above in Part I, Item 1 “Business — Additional Information and Governance Matters,” and is incorporated herein by reference.

Item 11 — Executive Compensation

      The information required under this item is hereby incorporated by reference from our Definitive Proxy Statement.

      The information required under this item is hereby incorporated by reference from our Definitive Proxy Statement.

Item 13 — Certain Relationships and Related Transactions

      The information required under this item is hereby incorporated by reference from our Definitive Proxy Statement.

Item 14 — Principal Accountant Fees and Services

      The information required under this item is hereby incorporated by reference from our Definitive Proxy Statement.

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PART IV

Item 15 — Exhibits, Financial Statement Schedule and Reports on Form 8-K

      (a) Index to Financial Statements

      The Financial Statements required by this item are submitted in a separate section beginning on page 48 of this report.

      (b) Schedule II Valuation and Qualifying Accounts

      Schedule II Valuation and Qualifying Accounts for the years ended March 31, 2004, 2003 and 2002 appears on page 71 of this Annual Report and should be read in conjunction with the consolidated financial statements and related notes thereto and the report of independent registered public accounting firm filed herewith.

      All other schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the notes thereto.

      (c) Reports on Form 8-K

      We furnished a Current Report on Form 8-K to the Securities and Exchange Commission on February 10, 2004, to report information under Item 12 concerning results of operations and financial condition for the fiscal quarter ended December 31, 2003.

      (d) Exhibits