Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

(Mark One)

For the quarterly period ended December 31, 2003

OR

For the transition period from             to            

Commission File number 000-22430

ASYST TECHNOLOGIES, INC.

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

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

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

Yes      [X]      No      [  ]

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

Yes      [X]      No      [  ]

The number of shares of the Registrant’s Common Stock, no par value, outstanding as of January 31, 2004 was 46,962,494.

Table of Contents

ASYST TECHNOLOGIES, INC.
TABLE OF CONTENTS

2

Table of Contents

Part I — FINANCIAL INFORMATION

Item 1 — Financial Statements

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

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

3

Table of Contents

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

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

4

Table of Contents

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

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

5

Table of Contents

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

1. ORGANIZATION OF THE COMPANY:

     The accompanying condensed consolidated financial statements include the accounts of Asyst Technologies, Inc., or Asyst, which was incorporated in California on May 31, 1984, our subsidiaries and our majority-owned joint venture. 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 protect their investment in fragile materials and work-in-process.

     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 Automated Material Handling Systems, or AMHS, customers from Shinko Electric, Co., Ltd. ASI renamed this subsidiary Asyst Shinko America, or ASAM.

     In October 2002, we purchased a 51 percent interest in ASI, a Japanese corporation.

     The above transactions were accounted for using the purchase method of accounting. Accordingly, our condensed consolidated statements of operations and of cash flows for the periods ended December 31, 2003 and December 31, 2002 include the results of these acquired entities for the periods subsequent to their respective acquisitions, as applicable. We consolidate fully the financial position and results of operations of ASI and account for the minority interest in the condensed consolidated financial statements.

2. SIGNIFICANT ACCOUNTING POLICIES:

     Basis of Preparation

     While the financial information furnished is unaudited, the condensed consolidated financial statements included in this report reflect all adjustments (consisting of normal recurring accruals) which we consider necessary for the fair presentation of the results of operations for the interim periods covered and of our financial condition at the date of the interim balance sheet. Certain information and footnote disclosures included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements as allowed by such SEC rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. All significant inter-company accounts and transactions have been eliminated. Minority shareholder’s interest represents the minority shareholder’s proportionate share of the net assets and results of operations of our majority-owned joint venture, ASI, and our majority-owned subsidiary, Asyst Japan, Inc., or AJI. Certain prior year amounts in the condensed consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the presentation for the quarter ended December 31, 2003. Also during the current quarter, we recorded a $2.1 million charge to selling, general and administrative expenses relating to prior quarters of fiscal 2004 and 2003 and 2002. The effect of this adjustment on any prior quarter or year was not material. We close our books on the last Saturday of each quarter and thus the actual date of the quarter-end, December 27, 2003, is different from the month-end dates used throughout this Form 10-Q report. This presentation is for convenience purposes. The results for interim periods are not necessarily indicative of the results for the entire year. The year-end condensed consolidated data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. As such, these condensed consolidated financial statements should be read in connection with our consolidated financial statements for the year ended March 31, 2003 included in our Annual Report on Form 10-K as amended. The Advanced Machine Programming, Inc., or AMP, and SemiFab, Inc., or SemiFab, businesses were sold in March 2003 and were accounted for as discontinued operations and, therefore, the results of operations and cash flows have been removed from our results of continuing operations for all periods presented.

6

Table of Contents

     New Accounting Standards

     In November 2002, the Emerging Issues Task Force, or EITF, reached a consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (EITF Issue No. 00-21). EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 to date did not have a significant impact on our consolidated financial statements.

     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 to date did not have a significant impact on our consolidated financial statements.

     In January 2003, the Financial Accounting Standards Board, or FASB, issued FIN No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”, or FIN No. 46. FIN No. 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 No. 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must be applied for the first interim or annual period beginning after June 15, 2003. In October 2003, the Financial Accounting Standards Board deferred the latest date by which all public entities must apply FIN No. 46, to the first reporting period ending after March 15, 2004. We believe that the adoption of this standard will have no material impact on our consolidated financial statements.

     In May 2003, FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, or SFAS No. 150. SFAS No. 150 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. SFAS No. 150 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. SFAS No. 150 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 SFAS No. 150 and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of SFAS No. 150 to date has not had a significant impact on our consolidated financial statements.

     Restricted Cash

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

7

Table of Contents

     Inventories

     Inventories consist of the following (in thousands):

     During the fiscal year ended March 31, 2003, we began to transition substantially all of our U.S. manufacturing to Solectron Corporation, or Solectron. As part of the arrangement, Solectron purchased $20.0 million of inventory from us. No revenue was recorded for the sale of this inventory to Solectron. In the quarter ended December 31, 2003, we repurchased $4.3 million of this inventory that was not used by Solectron in manufacturing our products. This amount was fully reserved in prior periods. On an on-going basis, we may be obligated to acquire inventory purchased by Solectron if the inventory is not used over certain specified period of time per the terms of our agreement.

     Goodwill and Intangible Assets, net

     Intangible assets subject to amortization are being amortized over the following estimated useful lives, using the straight-line method: purchased technology, four to eight years; customer lists and other intangible assets, five to ten years; and licenses and patents, five to ten years. No changes were made to the useful lives of amortizable intangible assets in connection with the adoption of SFAS No. 142. For the ASI acquisition in October 2002, goodwill of $60.5 million was recorded. Purchase accounting for the acquisition of ASI was finalized in the quarter ended September 30, 2003, resulting in approximately a $2.0 million adjustment to goodwill. In connection with the ASAM acquisition in April 2003, ASI recorded goodwill of $0.4 million.

     We completed an annual goodwill impairment test in accordance with SFAS No. 142 during the quarter ended December 31, 2003 and concluded that there was no impairment of goodwill and intangible assets.

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

     Goodwill and intangible assets were as follows (in thousands):

8

Table of Contents

     Amortization expense was $14.8 million for the nine months ended December 31, 2003 and $9.3 million for the nine months ended December 31, 2002.

     Expected future intangible amortization expense, based on current balances, for the remainder of fiscal 2004 and for the following fiscal years is as follows (in thousands):

     The changes in the carrying amount of goodwill for the nine months ended December 31, 2003 are as follows (in thousands):

     Warranty Reserve

     We provide for the estimated cost of product warranties at the time revenue is recognized. The following table presents the activity in our warranty accrual (in thousands):

     Revenue Recognition

     We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or service has been rendered, the seller’s price is fixed or determinable and collectibility is reasonably assured. Some of our products are large volume consumables that are tested to industry and/or customer acceptance criteria prior to shipment. Our primary shipping terms are FOB shipping point. Therefore, revenue for these types of products is recognized when title transfers. 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 recognized when the other elements, primarily installation, have been completed. Some of our other products are highly customized systems and 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. Revenue for spare parts sales is recognized on shipment. Deferred revenue consists primarily of product shipments creating legally enforceable receivables that did not meet our revenue recognition policy in compliance with SAB 101. Revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts. Unearned maintenance and service contract revenue is not significant and is included in accrued liabilities and other.

9

Table of Contents

     We recognize revenue for long-term AMHS contracts in accordance with the American Institute of Certified Public Accountants’ Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” We use the percentage of completion method to calculate revenue and related costs of these contracts because they are long-term in nature and estimates of cost to complete and extent of progress toward completion of long-term contracts are available and reasonably dependable. We record revenue each period based on the percentage of completion to date on each contract, measured by costs incurred to that date relative to the total estimated costs of each contract. We treat contracts as substantially complete when we receive technical acceptance of our work by the customer. We intend to disclose material changes in our financial results that result from changes in estimates. Under this accounting policy, we are obligated to recognize revenues on work-in-process inventory prior to invoicing, and in some instances prior to shipment to the customer. Receivable balances that have not yet been invoiced to the customer, but where revenue has been recognized, were $49.3 million and $17.4 million at December 31, 2003 and March 31, 2003, respectively, and are included in accounts receivable on the condensed consolidated balance sheets.

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

     Contract Loss Reserve

     We routinely evaluate the contractual commitments we have entered into with our customers and suppliers to determine if it is probable that a loss exists that can be estimated in fulfillment of the contractual commitment. If so, a loss reserve is recorded and included in accrued liabilities and other. We had a loss reserve of approximately $5.6 million and $2.0 million at December 31, 2003 and March 31, 2003, respectively. The balance at December 31, 2003 mainly related to three AMHS contracts entered into by ASI during the quarter ended December 31, 2003.

     Loss Per Share

     Basic earnings (loss) per share is computed using the weighted average number of common shares outstanding, while diluted earnings (loss) per share is computed using the sum of the weighted average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted earnings per share result from the assumed exercise of stock options and warrants, using the treasury stock method. For periods for which there is a net loss, the numbers of shares used in the computation of diluted earnings (loss) per share are the same as those used for the computation of basic earnings (loss) per share as the inclusion of dilutive securities would be anti-dilutive.

     The following table summarizes securities outstanding which were not included in the calculation of diluted net loss per share as to do so would be anti-dilutive (in thousands):

10

Table of Contents

     Comprehensive Loss

     The components of our comprehensive loss were as follows (in thousands):

     Stock-Based Compensation

     We account for employee stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion, or APB, No. 25, Accounting for Stock Issued to Employees, and Financial Accounting Standards Board Interpretation, or FIN, No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25, and comply with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock Based Compensation - Transition and Disclosure – an amendment of FAS No. 123. Under APB No. 25, compensation expense is based on the difference, if any, on the date of grant between the estimated fair value of our common stock and the exercise price. SFAS No. 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument.

     We account for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and the Emerging Issues Task Force (EITF) 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services and value awards using the Black Scholes option pricing model as of the date at which the non-employees performance is complete. We recognize the fair value of the award as a compensation expense as the non-employees interest in the instrument vests.

     Had we determined compensation expense for our stock options, employee stock purchase plan and the restricted stock issuances to employees based on the fair value at the grant date for the awards, our net loss for the three months and nine months ended December 31, 2003 and 2002, respectively, would have increased as indicated below (in thousands, except per share amounts):

3. RESTRUCTURING AND OTHER CHARGES:

     Restructuring charges and related utilization for the nine months ended December 31, 2003 were as follows (in thousands):

11

Table of Contents

     In the quarter ended December 31, 2003, we recorded net severance and other charges of $1.0 million primarily related to the settlement and release of claims arising from the termination of a former officer. We also incurred a net $0.7 million of severance expenses mainly from headcount reductions in our Japanese operations resulting from its outsourcing activities. We anticipate potential restructuring charges of $3.0 million to $5.0 million over the next several quarters as we continue our previously announced cost reduction initiatives.

     We incurred restructuring charges of $0.5 million during the quarter ended September 30, 2003, consisting primarily of severance costs of $0.2 million from a reduction in our worldwide workforce and secondarily for exiting a facility in connection with our restructuring activities. As a result of these restructuring activities, we terminated the employment of approximately 49 employees, mainly in manufacturing, from our international operations.

     In the quarter ended June 30, 2003, we incurred restructuring charges of $4.4 million, consisting primarily of severance costs from a reduction in workforce in April 2003. Additionally, we incurred a charge for future lease obligations on a vacated facility in excess of estimated future sublease proceeds.

     In the quarter ended December 31, 2002, we recorded 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 $0.7 million resulting from headcount reductions of 52 employees, including manufacturing, sales, research and development and administrative staff. We also recorded a fixed asset impairment charge of $0.7 million for assets to be disposed of due to headcount reductions and vacating facilities.

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

4. ASSET IMPAIRMENT CHARGES:

     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.

     In the quarter ended December 31, 2002, we completed a periodic goodwill impairment test. As a result of the test, we determined that impairment charges of $8.4 million were required because the forecasted undiscounted cash flows were less than the book values of certain businesses. The charges were measured on the basis of comparing estimated fair values with corresponding book values related to the goodwill and intangible assets recorded in connection with our May 2002 acquisition of substantially all the assets of domainLogix Corporation, or DLC.

5. INCOME TAXES:

     Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes”, or SFAS No. 109, requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the company’s performance, the market environment in which the company operates, the utilization of past tax credits, length of carry-back and carry-forward periods, and existing contracts or sales backlog that will result in future profits.

12

Table of Contents

It further states that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the overall assessment. As a result of current losses, difficult industry conditions and revised downward future projections a review was undertaken at September 30, 2002, and we concluded that it was appropriate to establish a full valuation allowance for our domestic net deferred tax assets.

6. REPORTABLE SEGMENTS:

     We have two reportable segments: Fab Automation and AMHS. Fab Automation products include interface products, substrate-handling robotics, wafer and reticle carriers, auto-ID systems, sorters and connectivity software. AMHS products include automated transport and loading systems for semiconductor fabs and flat panel display manufacturers. We began tracking AMHS as a reportable segment with the acquisition of ASI in the third quarter of fiscal 2003.

     Segment information is summarized as follows (in millions):