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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1999 OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (no fee required)
For the transition period from to .
COMMISSION FILE NUMBER: 0-25434
BROOKS AUTOMATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3040660
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
15 ELIZABETH DRIVE, CHELMSFORD, MASSACHUSETTS 01824
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
978-262-2400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
Rights to Purchase Preferred Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 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 the
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock, $0.01 par value,
held by nonaffiliates of the registrant as of November 30, 1999, was
$233,659,280 based on the closing price of $27.25 on that date on the Nasdaq
Stock Market. As of November 30, 1999, 12,766,076 shares of the registrant's
Common Stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement involving the election of
directors, which is expected to be filed within 120 days after the end of the
registrant's fiscal year, are incorporated by reference in Part III of this
Report.
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PART I
ITEM 1. BUSINESS
Brooks Automation, Inc. ("Brooks" or the "Company") is a leading supplier
of tool and factory hardware and software automation solutions for the global
semiconductor, data storage and flat panel display manufacturing industries.
Founded in 1978, Brooks has distinguished itself as a technology and market
leader, particularly in the demanding cluster-tool vacuum-processing environment
and in integrated factory automation software applications. The Company's
offerings have evolved from individual robots used to transfer semiconductor
wafers in advanced production equipment to fully integrated automation solutions
from process tools to factory scheduling used to optimize fab performance. In
1998 and 1999 the Company diversified and entered the factory automation market,
beginning with the acquisition of FASTech Integration, Inc. Through a recent
series of acquisitions Brooks has emerged as one of the leading suppliers of
factory automation software and hardware solutions to end users in these
industries.
INDUSTRY BACKGROUND
Fabrication of semiconductors and flat panel displays requires a large
number of complex process steps in which electrically insulating or conductive
materials are deposited and etched into patterns on the surface of a substrate
or wafer. A flat panel display substrate may contain as few as two laptop
computer displays, while a wafer may contain more than 100 semiconductors. Flat
panel display substrates are typically rectangular in shape. Wafers are
circular, typically 200 mm or 300 mm in diameter. A simplified production
sequence consists of deposition, photolithography and etch processes. In
deposition, one or more layers of a film of material are deposited on a
substrate or wafer. Then, with photolithography the desired circuit pattern is
imaged on the deposited material. Finally, in the etch process, the material not
covered with the pattern is selectively removed. Each deposition,
photolithography or etch process requires the use of one or more process tools.
Semiconductor and flat panel display substrates must be handled in
ultraclean environments during this manufacturing process, either in a clean
room at atmospheric pressure levels, in controlled environments such as nitrogen
purged atmospheric or a vacuum environment. Physical vapor deposition, chemical
vapor deposition, etch and ion implant are typically conducted in a vacuum
environment. The types of semiconductor equipment operating at atmospheric,
rather than vacuum pressure, are much more diverse and encompass a range of
tools relating to steps before, during and after photolithography and a wide
range of process tools as well as inspection and metrology tools. Semiconductor
and flat panel display process tools generally use vacuum environments for
deposition and etch processes, and atmospheric environments for photolithography
and other processes.
The automation requirements of the wafer and substrate handling equipment
markets have resulted in two common architectural solutions -- cluster tools and
in-line handling systems. Cluster tool handling systems typically link together
multiple processes such as deposition, etch and heating and cooling of the
substrate using a transfer robot located in a central vacuum chamber. In-line
handling systems typically link together multiple processes such as photoresist
processing using a transfer robot located on an atmospheric horizontal
traverser. In these systems, the process tools are lined up rather than
clustered around an automation tool. The traversers in these systems move
substrates back and forth across the line of process tools. The in-line
architecture is now emerging in the stripping, cleaning and chemical mechanical
polishing process markets.
In a cluster tool, a standard cassette of up to 25 wafers enters the vacuum
environment through a vacuum cassette elevator load lock. The load lock is
sealed and pumped to vacuum and then opened to the central wafer handling
system. A central transfer robot then carries the wafers between the cassette
and the different process and conditioning modules through the central vacuum
chamber. After all the wafers have been processed within
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the cluster tool and returned to the cassette in the load lock, the load lock is
sealed from the vacuum central chamber and vented to atmospheric pressure. The
cassette of wafers is then removed from the cluster tool through the load lock.
Vacuum cluster tools often employ two load locks, with the wafers from one load
lock being actively transferred, conditioned and processed while wafers in the
other load lock are being brought to or removed from vacuum conditions. Although
cluster tool load lock doors are located in the most stringent and most
expensive clean room environments to avoid contamination of wafers when being
transferred into and out of a cluster tool, the main cluster tool platform and
its modules are located behind the clean room wall in an equipment bay in a less
stringent and less expensive atmospheric pressure clean room environment.
Production is made more difficult when operating in a vacuum environment.
Unlike atmospheric transfer robots, which often use vacuum suction to hold a
substrate in place when being carried, vacuum transfer robots use gravity and
the friction between the substrate and the robot's hand, known as an end
effector. Carrying a substrate in a vacuum requires sophisticated motion control
to maximize the speed of substrate transfer, while maintaining the substrate
position and placement accuracy. Production can also be improved through the use
of sophisticated software algorithms that carefully control the speed and
scheduling of substrate transfers within the cluster tool.
Vacuum environments create further challenges in constructing and operating
a highly reliable central handling system. Materials must be carefully selected
and surface finished to reduce and control particle and molecular contamination.
Many plastics and lubricants do not work in a vacuum as they emit gases that
contaminate the vacuum environment. Gears, pulleys and other mechanical
interfaces and moving parts, which are potential sources of particle
contamination within the vacuum environment, must be minimized. Pumping and
venting of load locks must be carefully controlled to reduce wafer
contamination.
From the overall factory perspective, semiconductor and flat panel display
manufacturers use a wide variety of hardware and software systems to automate
and control their operations. The factory information systems are utilized to
improve factory performance. Almost all wafer fabrication factories, known as
fabs, apply statistical process control to their processes and equipment.
Manufacturing execution system ("MES") applications coordinate and track the
activities of manufacturing resources, including equipment, material, operators,
engineers and software applications. Many fabs use sensors and software
applications to monitor equipment performance and provide automated notification
of out-of-control conditions and on-line help in troubleshooting. In addition,
many fabs use automated tracking systems to collect large amounts of data about
process and product conditions, equipment maintenance and operation history, lot
production history, and yield results. Engineers use applied statistical tools
to analyze large volumes of data from multiple sources in order to identify and
correct problems that negatively impact yields, equipment utilization and
throughput.
Material handling automation includes interbay, intrabay and step-level
automation. Interbay automation is the movement of lots between equipment bays
using automated guided vehicles (AGVs), or overhead tracks to transport lots
between stockers serving the bays. Intrabay automation concerns the movement of
lots between stockers and processing machines in the bay using AGVs or traveling
robot arms. Step-level automation includes the use of robot arms or tracks to
handle wafers or cassettes of wafers between lot box and processing chamber, or
between consecutive processing chambers.
PRODUCTS
TOOL AUTOMATION
Brooks offers a full complement of tool automation systems for
semiconductor and flat panel display substrate handling and products for data
storage. Brooks has developed comprehensive product lines that
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encompass automation modules, complete handling systems and integrated software
and controls for its targeted markets. Brooks' take out systems, robots and
modules are designed, developed and produced with similar technologies and can
use Brooks' ClusterLink software. Brooks uses the synergies of its complementary
products to respond to changing industry demands such as processing larger
diameter 300mm semiconductor wafers and the larger, fourth generation flat panel
display substrates.
Brooks believes its products and services for tool automation offer
significant advantages in a number of areas, including those set forth below:
Throughput. Throughput refers to the production of substrates within
specifications. Brooks' patented LeapFrog robots have been able to achieve
significant improvements in throughput compared to other robots. Brooks also has
been able to increase throughput by developing patented algorithms to calculate
efficient trajectories and acceleration and deceleration profiles known as time
optimal trajectories for its robot arms while reducing vibrations and
maintaining position control of the substrate being transported. Brooks has
developed system software to improve cluster tool throughput. By combining
digital signal processing technology with time optimal trajectory software,
Brooks believes that it has achieved additional reductions in transfer time.
Reliability. Brooks has developed and implemented a rigorous design and
test program to enhance and evaluate product reliability. Brooks' reliability
initiative is guided by the computer-based reliability models developed by
SEMATECH and Sandia National Laboratories. The magnetic drive in Brooks' latest
generation robots transmits force magnetically, without piercing the vacuum
barrier, and eliminates the need for moveable vacuum seals. By designing robots
with fewer moving parts and eliminating moveable seals, Brooks believes that it
will be able to increase the reliability of its transfer robots significantly.
Brooks' goal is to continue to increase mean time between equipment failures.
Accuracy. As wafer and substrate sizes increase and placement accuracy
becomes more demanding, it is becoming increasingly important to minimize
tracking errors, substrate sliding and the bending or wobbling of the robot arm.
Brooks' transfer robots contain a closed loop servo control, which monitors and
maintains placement accuracy in the rotational axis by obtaining constant
positioning feedback. Many other transfer robots use an open loop stepper
control system that commands a robot to move a specified number of steps with
limited or no feedback as to the final position of the robot. These stepper
systems can lead to misplacement of the robot arm if the number of steps is
miscounted. To further enhance tracking, Brooks has incorporated a closed loop
feedback system with a proprietary digital signal processing-based controller in
its latest generation of robots.
Contamination Control. Brooks has designed its wafer and flat panel
display substrate handling systems and modules to reduce contamination by using
several design criteria:
- limited moving parts within the tool environment and above the wafer or
substrate plane;
- picking and placing with a vertical motion to prevent wafer or substrate
sliding on process module surfaces and cassette slots;
- gentle handling motions which reduce relative wafer or substrate
vibration and movement on the transfer robot end effectors;
- controlled load lock pumping and venting;
- incorporation of materials that reduce contamination;
- assembly, test and packaging in Brooks' clean rooms.
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FACTORY AUTOMATION
Brooks develops and markets a suite of factory automation software
solutions, including manufacturing execution systems, cell control, process
control, systems process optimization systems and factory automation solutions.
MES software is designed to control plant floor operations and fill the gap
between control applications and enterprise resource planning systems. MES
applications coordinate and track the activities of manufacturing resources,
including equipment, material, operators, engineers and software applications.
Brooks provides integrated MES products for controlling complex manufacturing
processes, a flexible, distributed manufacturing execution system framework for
improved integration and adaptability to increases in the size of the framework,
and object-based software tools for customization and equipment integration.
Cell control applications provide the run-time coordination between factory
operators, process equipment and material identification and delivery systems.
In addition, Brooks offers software solutions for engineering data analysis,
advanced process control, design of experiments and process development and
optimization tools.
Brooks provides complete solutions for 200mm Standard Mechanical Interface
Facilities (SMIF) and MiniEnvironment and 300mm Front Opening Uniform Pod (FOUP)
automation. Brooks believes its factory interface solutions enhance return on
investment in new fabs, and in retrofit projects, as well as investment in
process tools, by providing solutions for full integration, automation and
ramp-up qualification of the manufacturing equipment.
Brooks believes its products and services for factory automation offer
significant advantages in a number of areas, including those set forth below:
Process Management. For factory automation, Brooks offers software
solutions for material control, work-in-progress, tracking, maintenance
management, process and equipment control, recipe management and process
optimization.
Throughput. Data from equipment and processes is captured in the
manufacturing execution system, to manage and optimize the flow of
work-in-progress throughout the factory. The Company's software solutions
support overall equipment utilization, process optimization and throughput.
Equipment Utilization. Brooks software solutions for equipment give early
warning of problems to minimize unscheduled downtime and manage preventative
maintenance cycles to improve equipment utilization.
Process Optimization. Data from the equipment is readily available to
engineers so they can identify significant process variations and respond to
them rapidly to enhance manufacturing processes.
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The following table lists Brooks' primary product offerings within each of the
markets it serves:
TOOL AUTOMATION MARKETS PRODUCT LINES
Semiconductor Vacuum Products Central Wafer Handling Systems
Transfer Robots
Thermal Conditioning Modules (Cool and Degas)
Cassette Elevator Load Locks
Aligners
Semiconductor Atmospheric and Inert
Environment Products Central Wafer Handling Systems
In-line Wafer Handling Systems
Transfer Robots
Thermal Conditioning Modules (Cool)
Cassette Elevator Load Locks
Aligners
Flat Panel Display Products Central Substrate Handling Systems
Transfer Robots
Cassette Elevator Load Locks
Thermal Conditioning Modules (Degas)
Tool Buffers
Tool Control Software Clusterlink
ControlPower
ControlVision
FACTORY AUTOMATION MARKETS PRODUCT LINES
Factory Automation Software Customizable Cell Control Solutions
Integrated Manufacturing Execution System Solutions
Computerized Maintenance Management Software
Equipment Automation Solutions
Process Optimization Solutions
Engineering Data Analysis Tools
Advanced Process Control Solutions
Factory Interface Automation Standard Mechanical Interface Facilities (SMIF)
Front Opening Uniform Pods (FOUP) Interfaces
Equipment Front End Modules (EFEM)
Tool Stockers and Buffers
Substrate Sorters
Carrier Tracking Systems
Minienvironments
TOOL AUTOMATION SEMICONDUCTOR VACUUM PRODUCTS
VACUUM CENTRAL WAFER HANDLING SYSTEMS
Brooks' family of Marathon Express vacuum central wafer handling systems
handle wafer sizes of 100mm to 300mm in diameter, are offered with four to eight
sides, referred to as ports, and have vacuum ranges of 10(-3) to 10(-8) torr.
Torr is a measure of vacuum pressure. Each port can accommodate process modules
meeting SEMI/MESC industry standards. Using a two-load lock configuration,
Brooks' Marathon Express 800 eight-sided central wafer handling system can
accommodate up to six process modules. Marathon Express systems typically
incorporate either Brooks' single or its dual frog-arm MagnaTran 7 vacuum
transfer robot, one or more of Brooks' vacuum cassette elevator load locks,
Brooks' TopLigner wafer aligner, and, if required, Brooks' TopCooler wafer
cooling module. The Company has been able to increase the availability of ports
for use with process
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modules by developing a wafer aligner and a cooling module which mount between a
vacuum cassette elevator load lock or process module and the central wafer
handling chamber.
In 1999, Brooks developed a next-generation 200mm and 300mm wafer handling
system, the Gemini Express 6000, which features the dual same-side LeapFrog
MagnaTran 7 robot, the newly-developed AcuTran 7 transfer robot and standardized
open cassette SMIF and FOUP interfaces. The system offers improvement in
flexibility to meet factory wafer carrier and size requirements, and permits
multiple wafer sizes to be handled concurrently.
VACUUM TRANSFER ROBOTS
Brooks' vacuum transfer robot, the MagnaTran 7, is a second generation
magnetic drive robot that incorporates the Company's patented time optimal
trajectory software algorithms to control and monitor its operation. The
MagnaTran 7 is smaller and lighter than its predecessor. Building on its
experience in developing robot wafer transfer technology, Brooks has developed
the dual, same-side LeapFrog high-productivity arm configuration. The LeapFrog
arm is only available on the MagnaTran 7 robot and is a feature of Brooks'
Marathon Express and Gemini Express central handling systems. These robots are
constructed to SEMI/MESC industry standards and are also sold separately for use
with other vacuum wafer handling applications. Brooks believes that the
technical advances implemented to meet the requirements of the flat panel
display industry enabled Brooks to adopt its MagnaTran robots, with minimal
technical modifications, to handle 300mm wafers.
VACUUM WAFER HANDLING AND CONDITIONING MODULES
Vacuum Cassette Elevator Load Locks. Brooks has developed a family of
vacuum cassette elevator load locks to hold, raise and lower cassettes of wafers
for cluster tools and other vacuum automation equipment. Brooks' VCE 6 200mm
cassette load lock features flexible and changeable interfaces, is field
upgradable and is available with either a manual or automatic door
configuration. The automatic door uses an innovative low particle, low profile
drive mechanism, which opens vertically below the cluster platform for
compatability with a number of methodologies for transporting batches of wafers
from destination to destination within the semiconductor fabrication facility.
These methodologies include standard mechanical interfaces, automated guided
vehicles and rail guided vehicles. Brooks has developed the VCE 5 for 300mm
wafers with a batch wafer transfer arm and a front opening unified pod
interface. Like cassettes, front opening unified pods are devices used to carry
wafers from process tool to process tool while maintaining a clean environment.
Brooks has developed the small volume facilities lock for 300mm wafers to
interface with Brooks' atmospheric, in-line handling system.
Vacuum Aligners. Wafer processing requires precise alignment and, often,
orientation of a wafer for processing. The Company's TopLigner wafer aligner
provides fast one-step wafer alignment by optically sensing the location of the
wafer on the aligner and communicating that position to the vacuum transfer
robot. Using this information, the transfer robot adjusts the placement of its
arm to pick up the wafer in the proper position. The TopLigner is designed for
intermodule mounting between a module, such as the cassette load lock and the
central wafer handling chamber, in order to conserve a port of the cluster tool.
Brooks' TopLigner is designed for 200mm and 300mm wafer alignment.
Vacuum Cool Modules. Brooks' TopCooler cool station cools wafers after hot
processing to a temperature that allows placement into a plastic wafer cassette.
Brooks' TopCooler is designed for 200mm and 300mm wafer applications.
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SEMICONDUCTOR ATMOSPHERIC AND INERT ENVIRONMENT PRODUCTS.
Building upon its vacuum wafer handling systems, Brooks is pursuing the
development of a broad line of products for atmospheric applications.
Atmospheric wafer handling systems may be segregated into two subcategories: the
traditional ambient atmospheric wafer handling systems and "inert," principally
nitrogen, environment wafer handling systems. The traditional atmospheric wafer
handling systems include fully integrated automated wafer handling platforms for
open, ambient air in-line wafer handling platforms. The inert environment wafer
handling systems include fully integrated, automated wafer handling platforms
for at or above atmospheric pressure cluster tools. Brooks' line of inert
environment products include the AX500, AX600 and AX6000, which were launched in
fiscal 1997.
ATMOSPHERIC WAFER HANDLING SYSTEMS
Brooks is developing its second generation atmospheric wafer handling
systems, the atmospheric front end, or AFE, to handle wafer sizes from 150mm to
300mm in diameter. The systems are expected to offer two to four unified pod
staging locations and may be operated in demanding clean room environments.
These configurations are being developed to meet broad market requirements. The
AFE is being designed for 200mm and 300mm wafer open cassettes, 200mm SMIF and
300mm FOUP applications. Brooks plans to incorporate its single SCARA arm
AcuTran 7 atmospheric transfer robot and AcuLigner wafer aligner into the AFE
systems.
ATMOSPHERIC TRANSFER ROBOTS
Building on its experience in developing transfer robots and employing its
magnetic direct drive technology, Brooks has developed the AcuTran 7, its
next-generation atmospheric transfer robot, to handle up to 300mm wafers in
ambient atmospheric environments. The Company plans for these robots to be a
standard feature of its AFE in-line wafer handling systems, to be constructed to
SEMI industry standards and to be sold separately for use with other atmospheric
wafer handling applications. Brooks has also developed a wet environment robot,
the AquaTran 7, which has the same features as the AcuTran 7 with the addition
of wet environment capability. Some wafer fabrication processes such as
cleaning, electroplating and chemical mechanical planarization operate in
environments with caustic solutions. These environments are known as wet
environments. Brooks' robots incorporate digital signal processing technology
and patented time optimal trajectory software to control and monitor their
operation.
OTHER ATMOSPHERIC WAFER HANDLING MODULES
Brooks' AcuLigner wafer aligner has been developed for fast one-step 150mm
to 300mm wafer alignment by optically sensing the location of the wafer on the
aligner and communicating that position to the vacuum transfer robot. Using this
information, the transfer robot adjusts the placement of its arm to pick up the
wafer in the proper position.
FLAT PANEL DISPLAY PRODUCTS
In 1994, Brooks introduced a family of vacuum central substrate handling
systems and modules for the flat panel display deposition and etch process
equipment markets, shipping its first Hercules central substrate handling system
for a flat panel display vacuum cluster tool in July 1994.
The Hercules systems can handle flat panel display substrates from 350mm x
460mm to 600mm x 720mm in size. The Hercules system includes Brooks' MagnaTran
70 magnetically driven frog-arm vacuum transfer robot with two or three axes of
motion and single or dual arm options, a single substrate load lock, or a 20 to
30 substrate cassette elevator load lock and a seven substrate batch degas
module.
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Brooks has developed a next generation magnetic drive robot, the MagnaTran
70, for the flat panel display market. The MagnaTran 70 robot series is smaller
and lighter and features an optional extended vertical axis for deployment in
Brooks' next generation platforms. The Company has also developed the MagnaTran
77 Long Z Axis and MagnaTran 74 long reach flat panel display robots.
TOOL CONTROL SOFTWARE
Brooks provides ClusterLink 3 tool control system software to control its
vacuum wafer handling systems, graphical user interface and process modules. The
software interfaces with process tool controllers and provides environment
control, load lock pumping and venting, error recovery diagnostics, safety
control and scheduling of wafer transfers. When providing a turn-key solution
that includes Brooks' system control and scheduling software, the Company is
able to provide guarantees relating to throughput and particle contamination.
FACTORY AUTOMATION PRODUCTS
FACTORY AUTOMATION SOFTWARE
CELLworks is a set of software tools for developing manufacturing
applications that manage, monitor and coordinate equipment, material and
operators. These object-based tools are designed to provide an integrated
environment for building and deploying applications that are independent of
specific manufacturing devices, hardware platforms and databases.
FACTORYworks is a set of integrated, graphical MES application modules that
allow customers to configure their factory resources and process plans, track
inventory and orders, collect and analyze production data, monitor equipment,
dispatch work orders to manufacturing operators and trace consumption of
components into finished products. These modules provide tools that are designed
to allow customers to define manufacturing workflow and extend and customize the
standard applications to meet site-specific needs.
STATIONworks is a packaged set of tools that integrates process and
production data from various equipment with a MES, including Brooks'
FACTORYworks product. STATIONworks includes a library of equipment interface
drivers (currently 150 unique drivers) that are provided as a part of the
Tool-Object-Model portion of the product. The product also provides a common
service design that gives customers the capability to develop customer services
that are re-usable across various applications.
Xsite is an integrated software package providing a computerized means of
controlling many aspects of maintenance activity, from breakdown analysis and
work order control to condition monitoring and preventive maintenance
scheduling. The product provides the ability to display and utilize charts,
diagrams and drawings.
Starfire is a software solution for process characterization and process
optimization. Starfire systematically leverages expertise of manufacturing
development teams and engineers to successfully employ statistical and analysis
methods.
RS/Series and Cornerstone provide applied statistical software for
engineers who manage complex manufacturing processes.
Patterns combines event recognition technology with traditional control
techniques to provide real-time equipment monitoring, fault detection, and
end-point detection. Patterns can be used with different types of equipment in
different manufacturing processes.
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FACTORY INTERFACE AUTOMATION
Brooks Automation factory interface hardware and software solutions include
a system of minienvironments and automated transfer mechanisms to isolate the
semiconductor wafer from the production environment. This isolation protects the
product from contamination, which can adversely affect its performance.
STANDARD MECHANICAL INTERFACE FACILITIES
Brook's 200 mm SMIF products can be divided into 2 major product lines. The
first product line consists of cassette loaders including ERGOSPEED 3800, which
was one of the first systems incorporating ergonomics designs. Brooks also
offers a second generation loader in this product line, ERGOSPEED II, which
offers improved footprint, ergonomics, loading time and communications. The
second 200mm SMIF product line offers a range of products including the
integrated SMIF Elevator, the ISE 200 and variations on these products. Both
SMIF product lines feature operator safety, reliability in operation and wafer
handling protection.
FRONT OPENING UNIFIED PODS
Brooks offers a wide and customizable range of FOUPs. Brooks' FOUPs
typically provide easy installation, ultra clean operation, fast cycle times,
reliability and operator safety. Brooks' FOUPs can be equipped with advanced
functionality, including features such as communication, ccd-mapping and carrier
identification. These products can handle wafers ranging from 100 mm to 300 mm.
Brooks' FIXLOAD is compliant with SEMI standards for 300mm FOUPs.
MINIENVIRONMENTS, STOCKERS, SORTERS AND BUFFER SYSTEMS
A minienvironment is made up of sealed containers that encapsulate wafer
cassettes with engineered airflows that surround process equipment and robotic
systems that transfer wafer cassettes into and out of process equipment. Brooks
provides technologically and dimensionally tailored minienvironments to
end-users and OEM customers.
Brook's factory interface product line also includes stockers and sorters
for interbay, intrabay and step-level automation. The minienvironment maintains
and controls cleanliness independent of the external room environment.
Brooks offers a sophisticated modular buffer system. The capacity and the
configuration of the buffer system is highly flexible and allows storage
capacities from 4 to 12 FOUPs. Typical buffers are used for process equipment
with high wafer throughput such as metrology, wet bench and furnace systems.
TRACKING SYSTEMS
In addition, the Company also provides carrier tracking systems, for
automated tracking and control of the wafers at the batch, lot and wafer level
throughout the manufacturing process. Brooks' IridNet advanced tracking system
provides efficient material management, shortens cycle times by minimizing
search time for work-in-process and the elimination of mis-processed lots.
Brooks' latest carrier identification (CID) product is the ReadPoint 300RF,
designed specifically for the needs of semiconductor manufacturing based on 300
mm wafers.
CUSTOMERS
Brooks' customers for wafer and flat panel display substrate handling
systems are primarily original equipment manufacturers and semiconductor
manufacturers who are constructing new and/or retrofitting existing
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vacuum and atmospheric automation of their process equipment or developing
advanced process equipment for internal use. Brooks' customers for factory
automation software and factory interface solutions are primarily semiconductor
manufacturers. The Company's current customers are primarily located in the
United States, Japan, South Korea, Taiwan, Singapore and Europe. Brooks markets
its developing family of atmospheric central wafer handling equipment to its
existing customers in the vacuum and flat panel display markets and to potential
new customers.
Relatively few customers account for a substantial portion of Brooks'
revenues. The following chart presents sales to the Company's ten largest
customers and sales to Lam Research Corporation, Brooks' largest customer, as a
percentage of total revenue for the periods indicated:
YEAR ENDED SEPTEMBER 30,
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1999 1998 1997
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Ten largest customers 63% 61% 60%
Lam Research Corporation 15% 16% 17%
A reduction or delay in orders from Lam or other significant customers
could have a material adverse effect on Brooks' results of operations. See Note
15, "Segment, Geographic, Significant Customers and Related Party Information,"
in Brooks' consolidated financial statements for further discussion of Brooks'
sales by geographic region.
Brooks derives a significant amount of direct foreign revenues. The
following chart presents foreign revenue as a percentage of total revenue for
the periods indicated:
YEAR ENDED SEPTEMBER 30,
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1999 1998 1997
- ---- ------ ------
41% 41% 38%
The Company expects foreign revenues to continue to represent a significant
percentage of total revenues in the foreseeable future. Brooks cannot guarantee
that geographical growth rates, if any, in the foreseeable future will be
comparable to those achieved in recent years. See "Item 7. Risk Factors --
Brooks Conducts Its Business Internationally, Which Exposes It to a Number of
Difficulties in Coordinating Its Activities Outside the United States and in
Dealing with Multiple Regulatory Environments" for a discussion of additional
factors which could adversely affect foreign revenues.
MARKETING, SALES AND CUSTOMER SUPPORT
Brooks markets and sells its tool and factory automation hardware and
software solutions for factory performance optimization in the United States,
Japan, South Korea, Taiwan, Singapore and Europe through its direct sales and
marketing organization. The selling process for Brooks' products is often
multilevel, involving a team comprised of individuals from sales, marketing,
engineering, operations and senior management. Each significant customer is
assigned a team that engages the customer at different organization levels to
provide planning and product customization and to assure open communication and
support. Brooks also utilizes a network of value-added integration partners to
provide implementation and integration services for its products.
The Company's marketing activities also include participation in trade
shows, publication of articles in trade journals, participation in industry
forums and distribution of sales literature. To enhance this communication and
support, particularly with its international customers, Brooks maintains
technology centers in the United States, British Columbia, Japan, South Korea,
Taiwan, Singapore and Germany. These facilities, together with Brooks'
headquarters, maintain demonstration equipment for customers to evaluate.
Customers are also encouraged to
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discuss the features and applications of Brooks' demonstration equipment with
Brooks' engineers located at these facilities. The Company maintains a number of
regional sales and service centers throughout the world.
In 1998, Brooks developed a new sales and marketing tool, a process tool
throughput simulator, to enable the evaluation of various wafer handling system
configurations to identify the preferred tool configuration for a specific
application. This tool simulates the movement of wafers with execution times,
scheduling algorithms, and flow sequences similar to those of actual process
tools and outputs this information visually. This tool is capable of comparing
multiple tool configurations simultaneously for preferred fit comparison.
Brooks provides support to its customers with:
- telephone technical support access 24-hours a day, 365 days a year;
- direct training programs; and
- operating manuals and other technical support information for Brooks'
products.
The Company maintains spare parts inventories in all of its locations to
enable its personnel to serve Brooks' customers and repair their products more
efficiently.
COMPETITION
The semiconductor and flat panel display process equipment manufacturing
industries are highly competitive and characterized by continual change and
improvement in technology. Although other independent companies sell vacuum and
atmospheric wafer and flat panel display substrate handling automation systems
and vacuum transfer robots to original equipment manufacturers, Brooks believes
that its primary competition is from the larger, integrated semiconductor and
flat panel display original equipment manufacturers that satisfy their substrate
handling needs in-house rather than by purchasing handling systems or modules
from an independent source such as Brooks. Such original equipment manufacturers
comprise the majority of Brooks' current and potential customers. Applied
Materials, Inc., the leading process equipment original equipment manufacturer,
develops and manufactures its own central wafer handling systems and modules.
Brooks believes that most vacuum central wafer handling systems and modules are
manufactured in-house by original equipment manufacturers. Many of the companies
in these industries have significantly greater research and development, clean
room manufacturing, marketing and financial resources than Brooks.
Many original equipment manufacturers have substantial resources and
expertise in substrate handling and automation in vacuum and atmospheric
environments and will only purchase Brooks' products if Brooks can demonstrate
improved product performance, as measured by throughput, reliability,
contamination control and accuracy, at an acceptable price. Brooks believes that
it competes favorably with original equipment manufacturers and other
independent suppliers with respect to all of these factors. However, Brooks
cannot guarantee that it will be successful in selling its products to original
equipment manufacturers that currently satisfy their wafer and flat panel
handling needs in-house or from other independent suppliers, regardless of the
performance or the price of Brooks' products.
Brooks' sale of its products for the flat panel display process equipment
market is heavily dependent upon its penetration of the Japanese market. Brooks
is continuing to expand its presence in the Japanese semiconductor process
equipment market. In addressing the Japanese markets, Brooks may be at a
competitive disadvantage to Japanese suppliers.
Brooks believes that the primary competitive factors in the end-user market
for factory automation software and process control software are product
functionality, price/performance, ease of use, hardware and software
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platform compatibility, vendor reputation and financial stability. Brooks
believes its products currently compete favorably with other systems on the
primary factors listed above. Brooks also believes that the relative importance
of these competitive factors may change over time. Brooks experiences direct
competition in the semiconductor industry from various competitors, including
Applied Materials-Consilium, PRI-Promis, SAS Institute and numerous small,
independent software companies.
Brooks believes that the competitive factors in the factory interface
market are technical and technological capabilities reliability,
price/performance, and global sales and support capability. Furthermore, Brooks
believes that it distinguishes itself from its competitors through product
innovations, technological experience and solid skill base, wide product range
and perceived excellence in performance of products and services, quality and
reliability. Brooks' robots are easy to use and flexible and are being
maintained by a globally trained, skilled field service support organization.
The effectiveness of marketing, sales and price secure the Company's competitive
position in the market. In this market, Brooks encounters direct competition
from Asyst, Fortrend, Kensington and Irvine. Some of these competitors have
extensive engineering, manufacturing and marketing capabilities.
RESEARCH AND DEVELOPMENT
Brooks' research and development efforts are focused on developing new
products for the semiconductor, data storage, and flat panel display process
equipment industries and further enhancing the functionality, reliability and
performance of existing products. Brooks' engineering, marketing, operations and
management personnel have developed close collaborative relationships with many
of its customer counterparts and have used these relationships to identify
market demands and target Brooks' research and development to meet those
demands. Brooks' current research and development efforts include the continued
development and enhancement of Brooks' semiconductor and flat panel display
products, including Gemini Express vacuum central wafer handling systems and
modules, fourth generation flat panel display substrate handling systems and
modules, 300mm loadport modules, integrated equipment front end modules,
atmospheric handling systems and modules, manufacturing execution system and
station control software and factory automation software solutions. The Company
also maintains relationships with IC manufacturers and equipment suppliers to
define hardware and software solutions for equipment front-end automation,
contamination control, logistic management, material tracking and equipment
integration.
MANUFACTURING
Brooks' manufacturing operations consist primarily of product assembly,
integration, and testing. Brooks has adopted stringent quality assurance
procedures that include standard design practices, component selection
procedures, vendor control procedures and comprehensive reliability testing and
analysis to assure the performance of its products. Brooks is ISO 9001
certified.
Brooks employs a just-in-time manufacturing strategy. Brooks believes that
this strategy, coupled with the outsourcing of non-critical subassemblies,
reduces fixed operating costs, improves working capital efficiency, reduces
manufacturing cycle times and improves flexibility to rapidly adjust its
production capacities. While Brooks often uses single source suppliers for
certain key components and common assemblies to achieve quality control and the
benefits of economies of scale, Brooks believes that these parts and materials
are readily available from other supply sources. Brooks also believes that its
software development and manufacturing facilities are more than adequate to
service foreseeable needs.
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PATENTS AND PROPRIETARY RIGHTS
Brooks relies upon trade secret laws, confidentiality procedures, patents,
copyrights, trademarks and licensing agreements to protect its technology. Due
to the rapid technological change that characterizes the semiconductor and flat
panel display process equipment industries, Brooks believes that the improvement
of existing technology, reliance upon trade secrets and unpatented proprietary
know-how and the development of new products may be more important than patent
protection in establishing and maintaining a competitive advantage. To protect
trade secrets and know-how, it is Brooks' policy to require all technical and
management personnel to enter into nondisclosure agreements.
Brooks has obtained patents and will continue to make efforts to obtain
patents, when available, in connection with its product development program.
Brooks cannot guarantee that any patent obtained will provide protection or be
of commercial benefit to Brooks. Despite these efforts, others may independently
develop substantially equivalent proprietary information and techniques. Brooks
cannot guarantee that these efforts will meaningfully protect its trade secrets.
As of September 30, 1999, Brooks had obtained 52 United States patents and had
48 United States patent applications pending on its behalf. In addition, Brooks
had obtained 12 foreign patents and had 87 foreign patent applications pending
on its behalf. Brooks' United States patents expire at various times from 2005
to 2018. Brooks cannot guarantee that its pending patent applications or any
future applications will be approved or that any patents will not be challenged
by third parties. Others may have filed and in the future may file patent
applications that are similar or identical to those of Brooks. These patent
applications may have priority over patent applications filed by Brooks.
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor related industries. Brooks has
in the past been, and may in the future be, notified that it may be infringing
intellectual property rights possessed by other third parties. Any patent
litigation would be costly and could divert the efforts and attention of Brooks'
management and technical personnel, which could have a material adverse effect
on Brooks' business, financial condition and results of operations. Brooks
cannot guarantee that infringement claims by third parties or other claims for
indemnification by customers or end users of Brooks' products resulting from
infringement claims will not be asserted in the future or that such assertions,
if proven to be true, will not materially and adversely affect Brooks' business,
financial condition and results of operations. If any such claims are asserted
against Brooks' intellectual property rights, the Company may seek to enter into
a royalty or licensing arrangement. Brooks cannot guarantee, however, that a
license will be available on reasonable terms or at all. Brooks could decide in
the alternative to resort to litigation to challenge such claims or to design
around the patented technology. Such actions could be costly and could divert
the efforts and attention of Brooks' management and technical personnel, which
could materially and adversely affect Brooks' business, financial condition and
results of operations.
Brooks had received notice from General Signal Corporation alleging
infringement of patents then owned by General Signal, relating to cluster tool
architecture, by certain of Brooks' products. The notification advised Brooks
that General Signal was attempting to enforce its rights to those patents in
litigation against Applied Materials. According to a press release issued by
Applied Materials in November 1997, Applied Materials settled its litigation
with General Signal by acquiring ownership of five General Signal patents.
Although not verified, these five patents would appear to be the patents
referred to by General Signal in its prior notice to Brooks. Applied Materials
has not contacted Brooks regarding these patents.
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BACKLOG
Backlog for Brooks' products as of September 30, 1999, totaled $48.9
million. Backlog consists of purchase orders for which a customer has scheduled
delivery within the next 12 months. Orders included in the backlog may be
canceled or rescheduled by customers without significant penalty. Backlog as of
any particular date should not be relied upon as indicative of Brooks' revenues
for any future period. A substantial percentage of current business generates no
backlog because the Company delivers its products and services in the same
period in which the order is received.
EMPLOYEES
At September 30, 1999, Brooks had approximately 850 employees. Brooks
believes its future success will depend in large part on its ability to attract
and retain highly skilled employees. Approximately 75 employees in the Company's
Jena, Germany facility are covered by a collective bargaining agreement. Brooks
considers its relationships with its employees to be good.
ITEM 2. PROPERTIES
Brooks has a seven year lease, ending August 2002, for its headquarters and
primary manufacturing facility in Chelmsford, Massachusetts. This facility is a
two-story brick structure with approximately 130,000 square feet of space. The
Company maintains additional manufacturing facilities in California, Colorado
and Germany. Brooks maintains hardware and software development facilities in
Massachusetts, California, Germany, South Korea and Canada. The Company
maintains sales and service offices in California, Arizona, Japan, South Korea,
Taiwan and the United Kingdom. Brooks maintains sales offices in Massachusetts,
Florida, Oregon, Texas, Germany, France and Singapore.
ITEM 3. LEGAL PROCEEDINGS
Brooks is not a party to any material pending legal proceedings. See
"Patents and Proprietary Rights," in Part I, Item 1, "Business," for a
description of certain potential patent disputes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1999, no matters were submitted to a
vote of security holders through the solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market under
the symbol "BRKS." The following table sets forth, for the periods indicated,
the high and low sales prices per share of the Company's common stock, as
reported by the Nasdaq National Market:
HIGH LOW
------ ------
Fiscal year ended September 30, 1999
First quarter $17.44 $ 8.25
Second quarter $26.38 $14.50
Third quarter $28.38 $16.75
Fourth quarter $31.00 $17.38
Fiscal year ended September 30, 1998
First quarter $41.13 $12.38
Second quarter $19.25 $13.00
Third quarter $17.50 $11.38
Fourth quarter $12.75 $ 8.13
NUMBER OF HOLDERS
As of November 30, 1999, there were 336 holders of record of the Company's
Common Stock.
DIVIDEND POLICY
Other than dividends paid by Brooks Canada prior to its acquisition by the
Company, the Company has never paid or declared any cash dividends on its
capital stock and does not plan to pay any cash dividends in the foreseeable
future. The Company's current policy is to retain all of its earnings to finance
future growth.
ISSUANCE OF UNREGISTERED COMMON STOCK
On September 30, 1999, Brooks completed the acquisition of certain assets
of the Infab Division of Jenoptik AG in exchange for 914,286 shares of the
Company's common stock, subject to adjustment. The common stock issued in this
transaction was sold in reliance upon the exemption from registration set forth
in Section 4(2) of the Securities Act relating to sales by an issuer not
involving any public offering.
ITEM 6. SELECTED FINANCIAL DATA
1999 1998(A) 1997(A) 1996(A) 1995(A)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED SEPTEMBER 30,
Revenues(b) $103,906 $100,252 $109,427 $112,730 $68,488
Gross profit $ 46,029 $ 26,724 $ 44,117 $ 54,769 $34,404
Income (loss) from operations $(11,496) $(29,874) $ (2,996) $ 10,426 $ 6,312
Income (loss) before income taxes $ (8,899) $(27,244) $ (3,702) $ 10,390 $ 6,420
Net income (loss) $ (7,884) $(22,563) $ (4,169) $ 6,470 $ 4,715
Accretion and dividends on preferred
stock $ 654 $ 1,420 $ 1,005 $ 521 $ 521
Net income (loss) available to common
stockholders $ (8,538) $(23,983) $ (5,174) $ 5,949 $ 4,194
Diluted earnings (loss) per share $ (0.76) $ (2.32) $ (0.66) $ 0.65 $ 0.55
Shares used in computing diluted
earnings (loss) per share 11,192 10,337 7,880 9,161 7,685
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1999 1998(a) 1997(a) 1996(a) 1995(a)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
AS OF SEPTEMBER 30,
Total assets $177,145 $145,321 $166,292 $ 80,693 $66,379
Working capital $105,796 $103,238 $119,550 $ 35,826 $35,721
Current portion of long-term debt $ 537 $ 505 $ 803 $ 2,848 $ 1,759
Long-term debt (less current portion) $ 801 $ 3,344 $ 2,624 $ 1,052 $ 1,026
Redeemable convertible preferred
stock $ -- $ 3,562 $ 13,029 $ 9,831 $ 9,298
Stockholders' equity $142,146 $118,634 $128,797 $ 47,904 $38,883
- ---------------
(a) Amounts have been restated to reflect the acquisition of Smart Machines Inc.
in a pooling of interests transaction effective August 31, 1999.
(b) Includes revenues from a related party of $15.3 million, $15.9 million,
$18.2 million, $19.1 million and $10.5 million in fiscal 1999, 1998, 1997,
1996 and 1995, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE EXPOSURE
Based on Brooks' overall interest exposure at September 30, 1999, including
all interest rate sensitive instruments, a near-term change in interest rates
within a 95% confidence level based on historical interest rate movements would
not materially affect the consolidated results of operations or financial
position.
CURRENCY RATE EXPOSURE
Brooks' foreign revenues are generally denominated in United States
dollars. Accordingly, foreign currency fluctuations have not had a significant
impact on the comparison of the results of operations for the periods presented.
The costs and expenses of Brooks' international subsidiaries are generally
denominated in currencies other than the United States dollar. However, since
the functional currency of Brooks' international subsidiaries is the local
currency, foreign currency translation adjustments do not impact operating
results, but instead are reflected as a component of stockholders' equity. To
the extent Brooks expands its international operations or changes its pricing
practices to denominate prices in foreign currencies, Brooks will be exposed to
increased risk of currency fluctuation.
STOCK PRICE
The stock prices of semiconductor equipment companies are subject to
significant fluctuations. Brooks' stock price may be affected by a variety of
factors that could cause the price of Brooks' common stock to fluctuate, perhaps
substantially, including: announcements of developments related to Brooks'
business; quarterly fluctuations of Brooks' actual or anticipated operating
results and order levels; general conditions in the semiconductor and flat panel
display industries or the worldwide economy; announcements of technological
innovations; new products or product enhancements by Brooks or its competitors;
developments in patents or other intellectual property rights and litigation;
and developments in Brooks' relationships with its customers and suppliers. In
addition, in recent years, both the stock market in general and the market for
shares of small capitalization and semiconductor industry-related companies in
particular have experienced extreme price fluctuations which have often been
unrelated to the operating performance of affected companies. Any such
fluctuations in the future could adversely affect the market price of Brooks'
common stock. There can be no assurance that the market price of the common
stock of Brooks will not decline.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this Annual Report on Form 10-K constitute
"forward-looking statements" which involve known risks, uncertainties, and other
factors which may cause the actual results, performance, or achievements of
Brooks Automation, Inc. ("Brooks" or the "Company") to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include the factors that may
affect future results set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations, which is included in this report.
Precautionary statements made herein should be read as being applicable to all
related forward-looking statements wherever they appear in this report.
OVERVIEW
The predecessor of Brooks was organized in February 1989 and acquired the
semiconductor wafer handling business of the Brooks Automation Division of
Aeronca Electronics, Inc., a subsidiary of Fleet Aerospace Corporation, in March
1989.
Brooks is a leading supplier of tool and factory hardware and software
automation solutions for the global semiconductor, data storage, and flat panel
display manufacturing industries. Founded in 1978, Brooks has distinguished
itself as a technology and market leader, particularly in the demanding
cluster-tool vacuum-processing environment and in integrated factory automation
software applications. The Company's offerings have evolved from individual
robots used to transfer semiconductor wafers in advanced production equipment to
fully integrated automation solutions from process tools to factory scheduling
used to optimize fab performance. In 1998 and 1999 the Company diversified and
entered the factory automation market, beginning with the acquisition of FASTech
Integration, Inc. Through a recent series of acquisitions Brooks has emerged as
one of the leading suppliers of factory automation software and hardware
solutions to end users in these markets.
In 1992, the Company introduced the family of vacuum central wafer handling
systems and modules that forms the foundation of the Company's current business.
In 1994, the Company introduced a similar family of systems and modules for flat
panel display substrates, including a next-generation magnetically driven vacuum
transfer robot. In 1996, the Company acquired Techware Systems Corporation
("Techware"), a designer and supplier of integrated equipment control software
for the semiconductor and related industries, expanding its software and control
capability. In 1997, the Company introduced a line of products for the
atmospheric handling market, including in-line and controlled environment
systems, robots, aligners and traversers. In 1998, the Company acquired FASTech
Integration, Inc. ("FASTech"), a designer and supplier of top-to-bottom
integrated Manufacturing Execution Systems ("MES") software solutions. Both of
these acquisitions were accounted for under the pooling of interests method.
The Company made several acquisitions during fiscal year 1999. On April 21,
1999, the Company completed the acquisition of Hanyon Technology, Inc.
("Hanyon"). Hanyon, based in Korea, provides MES systems integration services
and cell control automation solutions to the semiconductor and liquid crystal
display industries in Korea and Taiwan. On June 30, 1999, the Company completed
the acquisition of substantially all the assets and certain liabilities of
Domain Manufacturing Corporation ("Domain"). Domain is a leading developer of
process development, data analysis and advanced process control software. These
acquisitions were accounted for using the purchase method of accounting.
Accordingly, the Company's Consolidated Statements of Operations and of Cash
Flows include the results of Hanyon and Domain for the periods subsequent to
their respective dates of acquisition.
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On August 31, 1999, the Company completed the acquisition of Smart Machines
Inc. ("Smart Machines"). Smart Machines produces process tool automation
components for semiconductor manufacturers. This acquisition was accounted for
as a pooling of interests. Accordingly, the Company's historical financial
results have been restated to include the results of Smart for all periods
presented.
On September 30, 1999, the Company completed the acquisition of certain
assets of the Infab Division ("Infab") of Jenoptik AG, a leading supplier of
advanced factory interface systems. This acquisition was accounted for using the
purchase method of accounting. Accordingly, the acquired assets are included in
the Company's Consolidated Balance Sheet as of September 30, 1999.
In June 1999, the Company formed a joint venture in Korea with Samsung
Electronics. This joint venture is 70% owned by the Company and 30% owned by
Samsung, and has been organized to design, develop, and manufacture atmospheric
flat panel display loaders along with other products. The Company consolidates
fully the financial position and results of operations of the joint venture and
accounts for the minority interest in the financial statements.
Many of the Company's customers purchase the Company's vacuum transfer
robots and other modules before purchasing the Company's vacuum central wafer
handling systems. The Company believes that once a customer has selected the
Company's products for a process tool, the customer is likely to rely on those
products for the life of that process tool model, which can be in excess of five
years. Conversely, losing a bid for a MES does not preclude the Company from
securing optimization products to fit with a competitor's manufacturing
execution systems.
The Company's product revenues include sales of hardware and software
products. The Company's service revenues include revenue from maintenance
contracts, fixed fee application consulting contracts, and time and material
based contracts.
The majority of the Company's revenues have been generated by sales to
customers in the United States, although the Company believes that a significant
portion of these customers incorporate the Company's products into equipment
sold to their foreign customers. The Company's foreign sales have occurred
principally in Japan, South Korea, Taiwan, Singapore and Europe.
The Company's foreign revenues are generally denominated in United States
dollars. Accordingly, foreign currency fluctuations have not had a significant
impact on the comparison of the results of operations for the periods presented.
The costs and expenses of the Company's international subsidiaries are generally
denominated in currencies other than the United States dollar. However, since
the functional currency of the Company's international subsidiaries is the local
currency, foreign currency translation adjustments are reflected as a component
of stockholders' equity. To the extent that the Company expands its
international operations or changes its pricing practices to denominate prices
in foreign currencies, the Company will be exposed to increased risk of currency
fluctuation.
The Company's business is highly dependent upon the capital expenditures of
semiconductor and flat panel display manufacturers which historically have been
cyclical, and the Company's ability to develop, manufacture and sell new
products and product enhancements. The Company's results will also be affected,
especially when measured on a quarterly basis, by the volume, composition and
timing of orders, conditions in industries served by the Company, competition
and general economic conditions.
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RESULTS OF OPERATIONS
IMPACT OF ACQUISITION-RELATED, RESTRUCTURING AND OTHER COSTS
During the fourth quarter of fiscal 1999, the Company recorded $5.3 million
of acquisition-related, restructuring and other costs. These charges were
comprised of $1.0 million in inventory-related costs, $1.2 million for
transaction costs related to the Smart Machines acquisition, $1.9 million for
restructuring charges and $1.2 million of additional depreciation expense due to
shortening the lives of certain assets. The restructuring charges include costs
to terminate certain employees and the write-off of certain fixed assets during
fiscal 1999 under a plan approved and implemented by management during fiscal
1999. During fiscal 1998, the Company recorded acquisition-related,
restructuring and other costs of $11.8 million. These charges included $6.2
million of inventory-related costs, $2.4 million of FASTech acquisition-related
costs, $1.5 million of restructuring charges, $0.7 million of accounts
receivable reserves, $0.7 million of additional depreciation charges and $0.3
million of interest expense. The following table reflects the results of
operations for the three years ended September 30, 1999, including the effect of
the acquisition-related, restructuring and other costs for the years ended
September 30, 1999 and 1998:
YEAR ENDED SEPTEMBER 30, 1999 YEAR ENDED SEPTEMBER 30, 1998
----------------------------------------- -----------------------------------------
ACQUISITION- ACQUISITION-
RELATED, RELATED, AS REPORTED
RESTRUCTURING RESTRUCTURING YEAR ENDED
AND OTHER AND OTHER SEPTEMBER 30,
AS REPORTED COSTS PRO FORMA AS REPORTED COSTS PRO FORMA 1997
----------- ------------- --------- ----------- ------------- --------- -------------
Revenues
Product $ 82,437 $ -- $ 82,437 $ 80,856 $ -- $ 80,856 $89,063
Service 21,469 -- 21,469 19,396 -- 19,396 20,364
-------- -------- -------- -------- ------- -------- -------
Total revenues 103,906 -- 103,906 100,252 -- 100,252 109,427
-------- -------- -------- -------- ------- -------- -------
Cost of revenues
Product 44,311 (1,638)(a) 42,673 61,990 (6,579)(d) 55,411 52,953
Service 13,566 -- 13,566 11,538 -- 11,538 12,357
-------- -------- -------- -------- ------- -------- -------
Total cost of
revenues 57,877 (1,638) 56,239 73,528 (6,579) 66,949 65,310
-------- -------- -------- -------- ------- -------- -------
Gross profit 46,029 1,638 47,667 26,724 6,579 33,303 44,117
-------- -------- -------- -------- ------- -------- -------
Operating expenses
Research and
development 22,425 (339)(b) 22,086 25,376 (167)(b) 25,209 22,208
Selling, general
and
administrative 31,631 (185)(b) 31,446 27,500 (1,010)(e) 26,490 24,905
Amortization of
acquired
intangible assets 349 -- 349 -- -- -- --
Acquisition-related
and restructuring
costs 3,120 (3,120)(c) -- 3,722 (3,722)(f) -- --
-------- -------- -------- -------- ------- -------- -------
Total operating
expenses 57,525 (3,644) 53,881 56,598 (4,899) 51,699 47,113
-------- -------- -------- -------- ------- -------- -------
Loss from operations (11,496) 5,282 (6,214) (29,874) 11,478 (18,396) (2,996)
Interest (income) (3,150) -- (3,150) (3,629) -- (3,629) (234)
Interest expense 368 -- 368 999 (345)(g) 654 940
Other (income)
expense 225 -- 225 -- -- -- --
-------- -------- -------- -------- ------- -------- -------
Loss before income
taxes $ (8,939) $ 5,282 $ (3,657) $(27,244) $11,823 $(15,421) $(3,702)
======== ======== ======== ======== ======= ======== =======
- ---------------
(a) Comprised of $1.0 million of inventory-related charges and $0.6 million of
additional depreciation expense.
(b) Additional depreciation expense.
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(c) Comprised of $1.2 million for transaction costs related to the Smart
Machines acquisition, $0.3 million for severance costs and $1.6 million for
the write-off of certain fixed assets.
(d) Comprised of $6.2 million of inventory-related charges, $0.1 million of
severance costs and $0.3 million of additional depreciation expense.
(e) Comprised of $0.7 million of additional accounts receivable reserves, $0.2
million of additional depreciation expense and $0.1 million for severance
and other transaction-related costs.
(f) Comprised of $1.4 million of costs to exit duplicate facilities, $1.0
million of legal, accounting and other transaction-related costs and $1.3
million for severance costs.
(g) Charges reflect interest expense incurred on retirement of debt in
conjunction with the Company's acquisition of FASTech.
FISCAL YEAR ENDED SEPTEMBER 30, 1999, COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1998
REVENUES
Total revenues increased 3.6%, to $103.9 million in fiscal 1999, compared
to revenues of $100.3 million in fiscal 1998. Product revenues increased $1.6
million, or 2.0%, primarily as a result of improving 200mm revenues. Service
revenues increased $2.1 million, or 10.7%, primarily as a result of the
Company's acquisitions and the impact of the acquisitions on consulting services
associated with factory automation.
Foreign revenues for fiscal 1999 were $42.6 million (41.0% of revenues),
including $31.4 million of direct sales to Asian customers, compared with
foreign revenues of $41.3 million (41.2% of revenues), including $31.7 million
of direct sales to Asian customers in the prior fiscal year. The Company expects
that foreign revenues will continue to account for a significant portion of
total revenues in fiscal 2000. However, there can be no assurance that foreign
revenues, particularly from Asia, will remain a strong component of the
Company's total revenues.
GROSS PROFIT
Gross profit increased to 44.3% for fiscal 1999, compared to 26.7% for
fiscal 1998. Gross profit on product revenues increased to 46.3%, compared to
23.3% for fiscal 1998. Included in the cost of product revenues for fiscal 1999
and fiscal 1998 are charges of $1.6 million and $6.6 million, respectively, for
acquisition-related, restructuring and other costs. The fiscal 1999 charges are
comprised of a $1.0 million charge to provide additional reserves for
slow-moving and obsolete inventories and $0.6 million of additional depreciation
expense, while the fiscal 1998 charge was comprised of $6.2 million to provide
additional reserves for slow-moving and obsolete inventories, $0.3 million for
additional depreciation costs and $0.1 million for severance costs. Excluding
these costs, gross profit on product revenues was 48.2% for fiscal 1999, an
increase from 31.5% for fiscal 1998 due to improving manufacturing capacity
utilization and the acquisition of higher margin software
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product businesses. In future periods, gross profit may be adversely affected by
changes in the mix of products sold, continued pricing pressures or increases in
cost of product revenues.
Gross profit on service revenues was 36.8% for fiscal 1999, compared to
40.5% for fiscal 1998. Included in the cost of service revenues are global
customer support costs, consisting primarily of personnel costs and travel
expenses. Global customer support costs were $7.8 million and $6.0 million for
fiscal 1999 and fiscal 1998, respectively.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased by 11.6%, to $22.4 million for
fiscal 1999, from $25.4 million in the prior year. Research and development
expenses also decreased as a percentage of revenues, to 21.6% in fiscal 1999,
compared to 25.3% in the prior year. The spending decrease was the effect of
reduced personnel costs and other related spending associated with the changing
mix of supported technologies. The Company believes that research and
development expenditures are essential to maintaining its competitive position
as a leading supplier of tool and factory hardware and software automation
solutions in the semiconductor, data storage and flat panel display
manufacturing industries; the Company expects gross expenditure levels to
continue at or above current levels in the future.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased by 15.0%, to $31.6
million (30.4% of revenues) in fiscal 1999, compared to $27.5 million (27.4% of
revenues) in fiscal 1998. Fiscal 1999 expenses included $0.2 million for
additional deprecation expense. Fiscal 1998 expenses included $1.0 million for
additional accounts receivable reserves and additional depreciation expense. The
spending increase over last year is due to expanded sales and marketing
activities as well as increased general and administration support costs
associated with the Company's recently completed acquisitions and infrastructure
improvements. The Company expects that future expenditure levels will continue
at or above current levels to support its worldwide sales and administrative
organizations.
ACQUISITION-RELATED AND RESTRUCTURING COSTS
In fiscal 1999, the Company incurred acquisition-related and restructuring
costs of $3.1 million, comprised of $1.2 million for transaction costs related
to the Smart Machines acquisition, $0.3 million for severance costs and $1.6
million for the write-off of certain fixed assets. The fiscal 1998
acquisition-related and restructuring costs of $3.7 million were comprised of
$1.4 million to exit duplicate facilities, $1.0 million for legal, accounting
and other transaction costs related to the FASTech acquisition and $1.3 million
for severance costs.
INTEREST INCOME AND INTEREST EXPENSE
Interest income decreased by 13.2%, to $3.2 million in fiscal 1999,
compared to $3.6 million in the prior fiscal year, due primarily to lower cash
and investment asset balances. Interest expense decreased by 63.2%, to $0.4
million in fiscal 1999, from $1.0 million in fiscal 1998, due primarily to 1998
costs for acquisition-related deferred financing costs to retire debt in
conjunction with the acquisition of FASTech and reduced borrowings.
INCOME TAX PROVISION (BENEFIT)
The Company recorded net tax benefits of $1.0 million and $4.7 million in
fiscal 1999 and fiscal 1998, respectively. These tax benefits are primarily due
to anticipated future tax benefit of domestic net operating losses and research
and development credits, which were partially offset by $1.6 million and $3.8
million increases in the deferred tax asset valuation allowance in fiscal 1999
and fiscal 1998, respectively.
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FISCAL YEAR ENDED SEPTEMBER 30, 1998, COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1997
REVENUES
Total revenues decreased 8.4% to $100.3 million in fiscal 1998, compared
with revenues of $109.4 million in fiscal 1997. Product revenues decreased $8.2
million (9.2%) primarily as a result of a decrease in flat panel display
revenues and software revenues, which was partially offset by an increase in
200mm and 300mm revenues. Service revenues decreased $1.0 million (4.8%). The
decreases in product and services revenues are primarily the result of the
prolonged economic downturn which adversely impacted the semiconductor industry
and related tool and factory hardware and software automation sector.
Foreign revenues for fiscal 1998 were $41.2 million (41.2% of revenues),
including $31.7 million of direct sales to Asian customers, compared with
foreign revenues of $41.3 million (37.8% of revenues), including $33.3 million
of direct sales to Asian customers in the prior fiscal year.
GROSS PROFIT
Overall, gross profit as a percentage of revenues decreased to 26.7% for
fiscal 1998, compared with 40.3% for fiscal 1997. Gross profit as a percentage
of product revenues decreased to 23.3%, compared with 40.5% for fiscal 1997.
Included in the cost of product revenues for fiscal 1998 were $6.6 million of
charges related primarily to increased inventory reserves and severance costs.
The gross profit percentage for product revenues before these costs in fiscal
1998 was 31.5%. The decrease from the prior fiscal year was primarily a result
of continued underutilization of manufacturing capacity (due in part to customer
requested shipment delays primarily in the first half of fiscal 1998) and
pricing pressure from volume production customers.
Gross profit percentage on service revenues as a percentage of service
revenues was 40.5% for fiscal 1998, compared with 39.3% for the prior year.
Included in service revenues are global support costs, which decreased 7.7% to
$6.0 million for fiscal 1998, from $6.5 million in the prior fiscal year. Global
support costs consist primarily of personnel costs and travel expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 14.3%, to $25.4 million (25.3%
of revenues) from $22.2 million (20.3% of revenues) in the prior fiscal year.
The increase primarily resulted from incremental spending associated with the
launch of new atmospheric products and the transition to next generation vacuum
wafer handling products, as the Company continued to make investments in
research and development to enhance existing and develop new tool and factory
hardware and software automation solutions for the semiconductor, data storage
and flat panel display manufacturing industries.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 10.4% to $27.5
million (27.4% of revenues) for fiscal 1998, from $24.9 million (22.8% of
revenues) in the prior fiscal year. Fiscal 1998 expenses include $1.0 million
for additional accounts receivable reserves and additional depreciation expense.
Before these charges, selling, general, and administrative expenses increased
6.4% to $26.5 million (26.4% of revenues), primarily due to the worldwide
expansion of the Company's sales and administrative organizations during the
first half of the year.
ACQUISITION-RELATED AND RESTRUCTURING COSTS
In fiscal 1998 the Company incurred acquisition-related costs of $3.7
million that consisted principally of $1.4 million of costs to exit duplicate
facilities, $1.0 million of legal, accounting, and other transaction costs
related to the FASTech acquisition and $1.3 million of severance costs.
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INTEREST INCOME AND INTEREST EXPENSE
Interest income increased to $3.6 million for fiscal 1998, from $0.2
million in the prior fiscal year. The increase in interest income was due to
higher cash and investment balances during fiscal 1998, resulting primarily from
the Company's $80.8 million public stock offering in September 1997. Interest
expense of $1.0 million in fiscal 1998 remained relatively unchanged from $0.9
million in the prior fiscal year.
INCOME TAX PROVISION (BENEFIT)
The Company recorded a net tax benefit of $4.7 million for fiscal 1998,
primarily due to the anticipated future tax benefit of domestic net operating
losses and research and development tax credit carryforwards generated during
1998, which were partially offset by the $3.8 million increase in the deferred
tax asset valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $66.4 million at September 30, 1999, a
decrease of $3.1 million from September 30, 1998.
Cash provided by operations during the year ended September 30, 1999 was
$5.5 million, despite a net loss of $7.9 million for the year, and is primarily
attributable to depreciation and amortization of $10.4 million, as well as
decreases in inventories of $2.0 million and increases in accounts payable,
deferred revenue and accrued acquisition-related and restructuring costs of $1.6
million, $1.8 million and $1.7 million, respectively, offset by increases in
deferred income taxes and accounts receivable of $3.0 million and $4.4 million,
respectively.
Cash used in investing activities during the year ended September 30, 1999
was $10.6 million, and includes $5.7 million used for capital additions and cash
payments of $14.0 million for business acquisitions, partially offset by $9.4
million of cash from acquired companies.
Cash provided by financing activities was $1.7 million, and is primarily
attributable to proceeds of $1.7 million from the issuance of the Company's
common stock and $1.2 million of long-term borrowings, partially offset by
payments of long-term debt of $1.2 million.
On December 15, 1999, the Company entered into a definitive agreement to
acquire Auto-Soft Corporation and AutoSimulations, Inc. from their sole
stockholder, Daifuku America Corporation, the US affiliate of Daifuku Co., Ltd.,
subject to satisfaction of customary closing conditions. Upon the completion of
the transaction, which is expected to occur in January 2000, the Company will be
required to pay $27.0 million in cash, issue shares of common stock with an
aggregate value of $16.0 million and issue a Note in the amount of $16.0 million
payable one year after the date of Closing. The Note will be unsecured and bear
interest at 4% per year.
In September 1999, the Company obtained a commitment letter for an
unsecured revolving credit facility for borrowings and letters of credit up to
$30.0 million. The proposed credit facility will terminate at the end of two
years. The interest rates for borrowings under the proposed facility are
expressed in relation to LIBOR and a margin of 1.75% to 2.25% or from 0.25% to
0.75% above a base rate. The borrowings and letters of credit are expected to be
used for working capital and general purposes, including financing potential
acquisitions. The Company believes that this borrowing facility, together with
current cash and cash equivalent balances, will be adequate to fund the
acquisition of Auto-Soft Corporation and AutoSimulations, Inc., planned working
capital and capital expenditures and acquisition requirements for at least the
next twelve months. The Company cannot guarantee that it will obtain the
borrowing facility on favorable terms, if at all.
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YEAR 2000 READINESS DISCLOSURE
The year 2000 issue is the potential for system and processing failure of
date-related data as the result of computer-controlled systems using two digits
rather than four digits to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Internal infrastructure compliance. Brooks may be affected by year 2000 issues
related to non-compliant information technology systems and other systems
operated or sold by Brooks or by third parties. Brooks has completed the
assessment of its internal information technology systems and applications and
believes that all critical applications are year 2000 compliant. Brooks also has
evaluated its information technology hardware and its non-information technology
systems, including facilities and other operations, such as financial, security
and utility systems. Brooks believes these systems are year 2000 compliant.
Product compliance. Brooks has completed a Year 2000 readiness evaluation of
its current generation of released products and believes that products
distributed after December 31, 1998 are Year 2000 compliant. Brooks cannot
guarantee that product testing has identified all Year 2000 related issues that
could have an adverse affect on Brooks' financial condition and results of
operations.
Acquisitions. Brooks has acquired five businesses since September 1998
including: Infab, Smart Machines, Domain, Hanyon and FASTech. Brooks has signed
a definitive agreement to acquire Auto-Soft Corporation and AutoSimulations,
Inc., scheduled to close in January 2000 and is in various stages of negotiation
with respect to the acquisition of several additional businesses. As part of
Brooks' due diligence examination of completing acquisitions, the Company
conducted an evaluation of their year 2000 readiness. Brooks believes there are
no significant year 2000 related issues arising from the companies that it has
acquired. Brooks can give no assurance that it will properly identify year 2000
issues relating to any companies acquired in the future.
Third Party Compliance. Although Brooks believes that its own systems are year
2000 compliant, the Company utilizes third party equipment and software that may
not be year 2000 compliant. In addition, Brooks' products and software are often
sold, integrated into or interfaced with third party equipment or software.
Failure of third party equipment or software to operate properly with regard to
the year 2000 and thereafter could require Brooks to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
Brooks' business, results of operations and financial condition. Brooks may also
be vulnerable to any failures by its major suppliers, service providers and
customers to remedy their own internal information technology and non-
information technology systems year 2000 issues which could have a material
adverse effect on Brooks' supplies and orders. At this time, Brooks is unable to
estimate the nature or extent of any potential adverse impact resulting from the
failure of third parties, such as its suppliers, service providers and
customers, to achieve year 2000 compliance. Moreover, such third parties, even
if year 2000 compliant, could experience difficulties resulting from year 2000
issues that may affect their suppliers, service providers and customers. As a
result, although Brooks does not currently anticipate, based upon surveys and
discussions, that it will experience any material shipment delays from its major
product suppliers or any material sales delays from its major customers due to
year 2000 issues, although there can be no assurance that these third parties
will not experience year 2000 problems or that any such problems will not have
an adverse material effect on Brooks' business, results of operations and
financial condition. Because the cost and timing of year 2000 compliance by
third parties such as suppliers, service providers and customers is not within
Brooks' control, Brooks cannot give any assurance with
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respect to the cost or timing of such efforts or any potential adverse effects
on Brooks of any failure by these third parties to achieve year 2000 compliance.
Brooks relies on commercial and government suppliers for services related to
Brooks' infrastructure, including utilities, transportation, financial,
governmental, communications and other services. These suppliers pose an
undetermined risk to Brooks' facilities and operations worldwide. In some cases,
alternate suppliers of these services, such as electrical utilities, are
unavailable, and failure by a supplier could adversely impact Brooks.
Costs. Based on its investigation to date, Brooks does not expect the total
cost of its year 2000 assessment and planning to have a material adverse effect
on Brooks' business or financial results. On a cumulative basis, Brooks has
incurred approximately $0.8 million in year 2000 compliance costs.
Contingency Plan. Brooks has developed contingency plans, as appropriate, and
believes its year 2000 compliance efforts to be materially complete in the event
year 2000 problems relating to its operations arise. Brooks' failure to develop
a contingency plan could have a material adverse effect on Brooks' business,
results of operations and financial condition.
Worst Case Scenario. To the extent that Brooks does not identify any material
non-compliant information technology systems or non-information technology
systems operated by Brooks or by third parties, such as Brooks' suppliers,
service providers and customers, the most reasonably likely worst case year 2000
scenario is a systemic failure beyond the control of Brooks, such as a prolonged
telecommunications or electrical failure, or a general disruption in United
States or global business activities that could result in a significant economic
downturn. Brooks believes that the primary business risks, in the event of such
failure or other disruption, would include but not be limited to, loss of
customers or orders, increased operating costs, inability to obtain inventory on
a timely basis, disruptions in product shipments, or other business
interruptions of a material nature, as well as claims of mismanagement,
misrepresentation, or breach of contract, any of which could have a material
adverse effect on Brooks' business, results of operations and financial
condition.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions", which addresses
software revenue recognition as it applies to certain multiple-element
arrangements. SOP 98-9 also amends SOP 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2", to extend the deferral of application of certain
passages of SOP 97-2 through fiscal years beginning on or before March 15, 1999.
All other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. The Company will comply with the
requirements of this SOP as they become effective and does not expect that its
revenues or earnings will be materially affected.
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement was amended by the issuance
of SFAS 137, "Deferral of the Effective Date of FASB Statement No. 133", which
changed the effective date of SFAS 133 to all fiscal years beginning after June
15, 2000 (Fiscal 2001 for the Company) and requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. Management of
the Company anticipates that the adoption of SFAS No. 133 will not have a
significant effect on the Company's results of operations or financial position.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made
by its employees may contain forward-looking information that involve
substantial risks and uncertainties that could cause actual results to differ
materially from targets or projected results.
Brooks' Dependence on the Cyclical Semiconductor Industry Materially
Affects the Demand for Brooks' Products. Brooks' business is significantly
dependent on capital expenditures by manufacturers of semiconductors. Brooks'
revenues in the past have been materially adversely affected by semiconductor
industry downturns or slowdowns and may be materially adversely affected by
future downturns. Brooks believes (on the basis of its experience during the
recent downturn) that downturns in the semiconductor manufacturing industry will
occur in the future, and will result in decreased demand for semiconductor
manufacturing equipment and factory automation products.
Brooks' Reliance on a Small Number of Customers For a Large Portion of Its
Revenues Could Have a Material Adverse Effect on Brooks' Results of
Operations. A significant portion of Brooks' revenues in each fiscal period
have been concentrated among a limited number of customers. If Brooks lost one
or more of these major customers, or if one or more major customers decreased
its orders, Brooks' business would be materially and adversely affected. Sales
to Brooks' ten largest customers accounted for 63% of total revenues in fiscal
1999 and 61% of total revenues in fiscal 1998. Approximately 15% of Brooks'
total revenues in 1999 and 16% in fiscal 1998 were derived from sales to Lam
Research Corporation, Brooks' largest customer and a related party. Brooks
expects that sales to Lam will continue to represent a significant portion of
the Company's revenues for the foreseeable future. Brooks' future operating
results depend on the success of these customers and Brooks' success in selling
products to them at somewhat lower percentages of total revenue.
Delays in Shipment of a Few Systems Could Substantially Decrease Revenues
For a Period. Brooks has historically derived a substantial portion of its
quarterly and annual revenues from the sale of a relatively small number of
semiconductor and flat panel display handling systems. These systems have
relatively high selling prices compared to its other products. As a result, the
precise timing of the recognition of revenue from an order for one or a small
number of systems can have a significant impact on Brooks' total revenues and
operating results for a particular period. Brooks' operating results for a
particular period could be adversely affected if orders for a small number of
systems are canceled or rescheduled by customers or cannot be filled in time to
recognize revenue during that period due to unanticipated delays in
manufacturing, testing, shipping or product acceptance. Similarly, timing of
signing software licenses could affect software revenue in any given period.
Brooks Has Significant Fixed Costs Which Are Not Easily Reduced If Revenues
Fall Below Expectations. Brooks' expense levels are based, in part, on its
expectations as to future revenues. Many of Brooks' expenses, particularly those
relating to capital equipment and manufacturing overhead, are relatively fixed.
Brooks' ability to reduce expenses is also constrained by the need for continual
investment in research and development and the need to maintain extensive
ongoing customer service and support capability for its existing customer base.
These investments create significant fixed costs that Brooks may be unable to
reduce rapidly, if at all, in the event of a semiconductor industry downturn or
other reduction in revenue. Accordingly, any downturn in revenue could have a
material adverse effect on Brooks' business, financial condition and results of
operations.
Brooks' Sales Volume is Affected by Its Original Equipment Manufacturing
Customers' Sales Volume. Brooks' products are principally sold to original
equipment manufacturers which incorporate Brooks' products into their equipment.
Due to the significant capital commitments usually incurred by semiconductor and
flat panel display manufacturers in their purchases of equipment from these
original equipment manufacturers, they demand highly
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reliable products which may require several years for the original equipment
manufacturers to develop. Brooks' revenues are therefore primarily dependent
upon the timing and effectiveness of the efforts of its customers in developing
and marketing equipment which incorporates Brooks' products. Similarly, the
growth of the Company's software business is predicated on the building of new
or significant upgrading of existing fabs. Should the volume of new fab
development and/or upgrades decrease, the Company's revenues could be adversely
affected.
Brooks' Lengthy Sales Cycle Requires Brooks to Incur Significant Expenses
With No Assurance That Brooks Will Generate Revenue. Brooks' new products are
generally incorporated into an original equipment manufacturers' customer's
process tools at the design stage. However, customer decisions to use Brooks'
products can often require significant expenditures by Brooks without any
assurance of success. These customer decisions often precede the generation of
volume sales, if any, by a year or more. Brooks cannot guarantee that it will
continue to achieve design wins or that the process tools manufactured by
Brooks' customers will be commercially successful. Brooks' or its customers'
failure to develop and introduce new products successfully and in a timely
manner could materially adversely affect Brooks' business and results of
operations.
Brooks' Operating Results Fluctuate Significantly. Brooks' operating
results have in the past fluctuated and may in the future continue to fluctuate
significantly depending upon a variety of factors. Some of these factors may
include:
- the level of demand for semiconductors in general;
- cyclicality in the market for semiconductor manufacturing equipment;
- the timing and size of orders from Brooks' customer base;
- the ability of Brooks to manufacture, test and deliver products in a
timely and cost effective manner;
- Brooks' success in winning competitions with competitors for orders;
- the timing of new product announcements and releases by Brooks and its
competitors;
- the mix of products sold by Brooks;
- competitive pricing pressures; and
- level of automation required in fab extensions, upgrades and new
facilities.
Brooks' Business Could be Materially Adversely Affected If Brooks Fails to
Adequately Integrate Acquired Businesses. The negotiation of potential
acquisitions and the integration of an acquired business diverts the time and
resources of Brooks' management from the day-to-day operation of Brooks'
business. Brooks has completed a number of acquisitions in a short period of
time, subjecting it to significant risks, including:
- difficulties in the assimilation of operations, products and corporate
cultures;
- difficulties in completing the development of acquired technologies;
- difficulties in managing geographically remote units;
- the risks of entering markets or types of businesses in which it has
limited or no direct experience; and
- the potential loss of key employees of the acquired companies.
Any delay or failure to integrate an acquired company, technology or
product line could result in the additional expenditure of money, charges to
income and increased demands on the time of Brooks' management.
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As a result of these and other risks, Brooks may not realize anticipated
benefits from recent acquisitions. Brooks' failure to achieve these benefits
could have a material adverse effect on Brooks' business, results of operations
or financial condition.
Future Acquisitions May Involve Expending Significant Funds, Incurring
Additional Debt or the Issuance of Additional Securities, Which May Materially
Affect Brooks' Results of Operations and be Dilutive to Shareholders. Future
acquisitions may involve expending significant funds, incurring additional debt
or the issuance of additional securities, which may materially adversely affect
Brooks' results of operations and be dilutive to Brooks shareholders. In
addition to the five acquisitions recently completed, in December 1999 the
Company signed a definitive agreement to acquire Auto-Soft Corporation and
AutoSimulations, Inc. for approximately $59 million, payable in cash, stock and
notes. If Brooks expends significant funds or incurs additional debt, its
ability to obtain financing for working capital or other purposes could decline
and Brooks may be more vulnerable to economic downturns and competitive
pressures.
Brooks Conducts Its Business Internationally, Which Exposes It to a Number
of Difficulties in Coordinating Its Activities Outside the United States and in
Dealing with Multiple Regulatory Environments. Approximately 41% of Brooks'
total revenues in both fiscal 1999 and fiscal 1998 were derived from customers
located outside the United States. Brooks anticipates that international sales
will continue to account for a significant portion of its revenues. Brooks'
international business may be materially adversely affected by:
- difficulties in staffing and managing operations in multiple locations in
many countries;
- greater difficulties in trade accounts receivable collection;
- possibly adverse tax consequences;
- governmental currency controls;
- changes in various regulatory requirements;
- political and economic changes and disruptions;
- currency exchange rate changes; and
- export/import controls; and tariff regulations.
To support its international customers, Brooks maintains subsidiaries in
several countries, including Japan, South Korea, Germany, United Kingdom,
France, Ireland, Malaysia, Netherlands, Taiwan and Singapore. Brooks cannot
guarantee that it will be able to manage these operations effectively or that
Brooks' investment in these activities will enable it to compete successfully in
international markets or to meet the service and support needs of its customers.
For the foreseeable future Brooks may continue to be affected by unstable Asian
economies, particularly those in Japan and South Korea. It is not possible to
determine the future effect a continuation of the Asian economic crisis may have
on Brooks' financial position and results of operations.
Although Brooks' international sales are primarily denominated in U.S.
dollars, changes in currency exchange rates can make it more difficult for
Brooks to compete with foreign manufacturers on price. If Brooks' international
sales increase relative to Brooks' total revenues, these factors could have a
more pronounced effect on Brooks' operating results.
Brooks Must Continually Improve Its Technology to Remain
Competitive. Technology changes rapidly in the semiconductor, data storage and
flat panel display manufacturing industries. Brooks believes that this will
continue to be true. Brooks' success will depend upon its ability to enhance its
existing products and to develop
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and market new products to meet customer requirements. Successful product
development and introduction depends on a number of factors, including accurate
new product definition, timely completion and introduction of new product
designs, and market acceptance of Brooks' products and its customers' products.
In order to address emerging industry requirements for larger diameter 300mm
wafer and fourth generation flat panel substrates, Brooks' current major
development programs include expanding its product offerings for data storage
manufacturers and for semiconductor and flat panel display substrate handling
systems, as well as wafer handling systems and modules for atmospheric process
tools. In addition, Brooks continues to develop and enhance its factory
automation software product offerings, including its manufacturing execution
systems, and equipment automation solutions and factory interface systems for
factory-wide integration. Brooks cannot guarantee that it will adjust to
changing market conditions or be commercially successful in introducing products
or product enhancements.
Brooks Faces Significant Competition Which Could Result in Decreased Demand
for Brooks' Products or Services. The markets for Brooks' products are intensely
competitive and Brooks may not be able to compete successfully. Brooks believes
that its primary competition is from integrated original equipment manufacturers
that satisfy their semiconductor and flat panel display handling needs in-house
rather than by purchasing systems or modules from an independent supplier such
as Brooks. Many of these original equipment manufacturers have substantially
greater resources than Brooks. Applied Materials, Inc., the leading process
equipment original equipment manufacturer, develops and manufactures its own
central wafer and flat panel display substrate handling systems and modules.
Brooks may not be successful in selling its products to original equipment
manufacturers that currently satisfy their substrate handling needs in-house,
regardless of the performance or the price of Brooks' products. Moreover,
integrated original equipment manufacturers may begin to commercialize their
handling capabilities and become competitors of Brooks.
Brooks May Have Difficulty Protecting Its Intellectual Property. Brooks'
ability to compete is heavily affected by its ability to protect its
intellectual property. Brooks relies primarily on trade secret laws,
confidentiality procedures, patents, copyrights, trademarks and licensing
arrangements to protect its intellectual property. The steps Brooks has taken to
protect its technology may be inadequate. Existing trade secret, trademark and
copyright laws offer only limited protection. Brooks patents could be
invalidated or circumvented. The laws of certain foreign countries in which
Brooks' products are or may be developed, manufactured or sold may not protect
Brooks' products or intellectual property rights to the same extent as do the
laws of the United States. This may make the possibility of piracy of Brooks'
technology and products more likely. There can be no assurance that the steps
taken by Brooks to protect its intellectual property will be adequate to prevent
misappropriation of Brooks' technology.
Brooks' Operations Could Infringe the Intellectual Property Rights of
Others. Particular aspects of Brooks' technology could be found to infringe on
the intellectual property rights or patents of others. Other companies may hold
or obtain patents on inventions or may otherwise claim proprietary rights to
technology necessary to Brooks' business. Brooks cannot predict the extent to
which it may be required to seek licenses. Brooks cannot guarantee that the
terms of any licenses Brooks may be required to seek will be reasonable.
Brooks' Business May Be Materially Adversely Affected By Infringement
Claims by General Signal. Brooks has received notice from General Signal
Corporation alleging infringements of its patent rights by certain of Brooks'
products. The notification advised Brooks that General Signal was attempting to
enforce its rights to those patents in litigation against Applied Materials, and
that, at the conclusion of that litigation, General Signal intended to enforce
its rights against Brooks and others. According to a press release issued by
Applied Materials in November 1997, Applied Materials settled its litigation
with General Signal by acquiring ownership of five
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General Signal patents. Although not verified by Brooks, these five patents
would appear to be the patents referred to by General Signal in its prior notice
to Brooks. Applied Materials has not contacted Brooks regarding these patents.
The Skilled Employees Brooks Needs Are Difficult To Hire And
Retain. Brooks needs to hire additional management level employees and
substantial numbers of employees with technical backgrounds for both Brooks'
hardware and software engineering and support staffs. The market for these
employees is becoming increasingly competitive, and Brooks has occasionally
experienced delays in hiring these personnel. Brooks' inability to recruit,
retain and train adequate numbers of qualified personnel on a timely basis could
adversely affect Brooks' ability to develop, manufacture, install and support
systems.
Brooks is Not Protected By Long-Term Contracts With Its Customers. Brooks
generally does not enter into long-term contracts with its customers and cannot
be certain as to future order levels from them. Brooks' customers, including Lam
Research Corporation, could reduce, delay or cease orders for products and
services at any time, which could materially adversely affect Brooks' business
and results of operations.
Provisions of Brooks' Certificate of Incorporation, Bylaws and Contracts
Make a Takeover of Brooks More Difficult, Which Could Discourage Attractive
Takeover Offers and Limit the Price Investors May be Willing to Pay for Brooks'
Common Stock. Brooks' Certificate of Incorporation and Bylaws contain
provisions that may make an acquisition of Brooks more difficult and discourage
changes in Brooks' management. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of Brooks'
common stock. In addition, Brooks has adopted a rights plan (popularly known as
a "poison pill"). In many potential takeover situations, rights issued under the
plan become exercisable to purchase Brooks' common stock at a price
substantially discounted from the then applicable market price of Brooks' common
stock. Because of its possible dilutive effect to a potential acquiror, the
rights plan could generally discourage third parties from proposing a merger
with or tender offer for Brooks that is not approved by Brooks' board of
directors. Accordingly, the rights plan could have an adverse impact on
stockholders who might want to vote in favor of the merger or participate in the
tender offer. In addition, shares of Brooks' preferred stock may be issued upon
terms the board of directors deems appropriate without stockholders approval.
Brooks' ability to issue preferred stock in such a manner could enable its board
of directors to prevent changes in Brooks' management or control.
The Volatility of Brooks' Stock Price Could Adversely Affect an Investment
in Brooks' Stock. The market price of Brooks' common stock has fluctuated
widely. For example, between April 26, 1999 and April 28, 1999, the price of
Brooks' common stock dropped from approximately $27.88 to $19.63 per share.
Between January 25, 1999 and January 29, 1999, the price of Brooks' common stock
rose from approximately $17.06 to $24.06 per share. Consequently, the current
market price of Brooks' common stock may not be indicative of future market
prices, and Brooks may not be able to sustain or increase the value of an
investment in Brooks' common stock. Factors affecting Brooks' stock price may
include:
- variations in operating results from quarter to quarter;
- changes in earnings estimates by analysts or Brooks' failure to meet
analysts' expectations;
- market conditions in the industry;
- general economic conditions;
- low volume of trading of Brooks' common stock; and
- number of firms making a market in Brooks' common stock.
30
32
In addition, the stock market has recently experienced extreme price and
volume fluctuations. These fluctuations have particularly affected the market
prices of the securities of many high technology companies like Brooks. These
market fluctuations could adversely affect the market price of Brooks' common
stock.
Year 2000 Readiness; Year 2000 Problems Could Disrupt Brooks'
Business. The year 2000 problem is the potential for system and processing
failure of date-related data as the result of computer-controlled systems using
two digits rather than four digits to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Brooks has evaluated its internal software and products for year 2000
problems. Brooks believes that its products and business will not be
substantially affected by the year 2000 problem and that Brooks has no
significant exposure to liabilities related to the year 2000 problem for the
products Brooks has sold. Brooks has also communicated with others, including
vendors, suppliers and customers whose computer systems' functionality could
directly impact Brooks' operations.
Although Brooks believes its planning efforts are adequate to address its
year 2000 concerns, undetected year 2000 problems may cause Brooks to experience
negative consequences or significant costs. Brooks cannot be sure that its
vendors, suppliers, customers or businesses that it may acquire, including
AutoSoft, Inc. and AutoSimulations, Inc., will not experience similar
consequences or costs. Such consequences or costs could have a material adverse
effect on Brooks.
Availability of Financing. The Company may need to raise additional funds
through public or private debt or equity offerings in order to make other
acquisitions and otherwise implement its strategy. The Company is in the process
of seeking a $30.0 million unsecured credit facility. While the Company believes
that this facility will provide sufficient capital availability for the
foreseeable future, there can be no assurance the facility will be obtained, or
that sufficient capital for additional acquisitions or strategic initiatives
will be available on terms acceptable to the Company.
31
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants 33
Consolidated Balance Sheets at September 30, 1999 and 1998 34
Consolidated Statements of Operations for the three years
ended September 30, 1999, 1998 and 1997 35
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended September 30, 1999, 1998 and 1997 36
Consolidated Statements of Cash Flows for the three years
ended September 30, 1999, 1998 and 1997 37
Notes to Consolidated Financial Statements 39
FINANCIAL STATEMENT SCHEDULES:
Report of Independent Accountants on Financial Statement
Schedule 59
Schedule II -- Valuation and Qualifying Accounts and
Reserves 60
32
34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Brooks Automation, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity, and
of cash flows present fairly, in all material respects, the financial position
of Brooks Automation, Inc. and its subsidiaries at September 30, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 17, 1999
33
35
BROOKS AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
--------------------------------
1999 1998
----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
ASSETS
Current assets
Cash and cash equivalents $ 66,366 $ 69,479
Accounts receivable, net, including related party
receivables of $3,384 and $2,365, respectively 32,904 20,856
Inventories 28,917 20,170
Prepaid expenses and other current assets 2,999 3,631
Deferred income taxes 6,542 7,968
-------- --------
Total current assets 137,728 122,104
Fixed assets, net 17,434 18,949
Intangible assets, net 13,719 874
Deferred income taxes 4,192 494
Other assets 4,072 2,900
-------- --------
Total assets $177,145 $145,321
======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt and capital lease
obligations $ 537 $ 505
Accounts payable 6,993 3,320
Deferred revenue 6,127 2,935
Accrued compensation and benefits 4,909 3,498
Accrued acquisition-related and restructuring costs 3,868 2,254
Accrued income taxes payable 2,093 2,359
Accrued expenses and other current liabilities 7,405 3,995
-------- --------
Total current liabilities 31,932 18,866
Long-term debt and capital lease obligations 801 844
Convertible notes -- 2,500
Deferred income taxes 174 915
Other long-term liabilities 632 --
-------- --------
Total liabilities 33,539 23,125
-------- --------
Commitments and contingencies
Minority interests 1,460 --
-------- --------
Redeemable convertible preferred stock, no par value,
3,249,511 shares authorized, 1,166,581 shares issued and
outstanding at September 30, 1998 -- 3,562
-------- --------
Stockholders' equity
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued and outstanding at September 30,
1999 and 1998 -- --
Nonredeemable convertible preferred stock, no par value,
3,376,478 shares authorized, 3,331,478 shares issued and
outstanding at September 30, 1998, liquidation value at
September 30, 1998 -- $6,481 -- 6,467
Common stock, $0.01 par value, 21,500,000 shares
authorized, 12,760,084 and 11,007,281 shares issued and
outstanding, respectively 128 110
Additional paid-in capital 168,827 131,424
Deferred compensation (65) (119)
Accumulated other comprehensive loss (1,093) (536)
Accumulated deficit (25,651) (18,712)
-------- --------
Total stockholders' equity 142,146 118,634
-------- --------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity $177,145 $145,321
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
34
36
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1999 1998 1997
---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Product, including related party revenues of $15,255,
$15,878 and $18,176, respectively $82,437 $ 80,856 $89,063
Services 21,469 19,396 20,364
------- -------- -------
Total revenues 103,906 100,252 109,427
------- -------- -------
Cost of revenues
Product 44,311 61,990 52,953
Services 13,566 11,538 12,357
------- -------- -------
Total cost of revenues 57,877 73,528 65,310
------- -------- -------
Gross profit 46,029 26,724 44,117
------- -------- -------
Operating expenses
Research and development 22,425 25,376 22,208
Selling, general and administrative 31,631 27,500 24,905
Amortization of acquired intangible assets 349 -- --
Acquisition-related and restructuring costs 3,120 3,722 --
------- -------- -------
Total operating expenses 57,525 56,598 47,113
------- -------- -------
Loss from operations (11,496) (29,874) (2,996)
Interest income 3,150 3,629 234
Interest expense 368 999 940
Other income (expense) (225) -- --
------- -------- -------
Loss before income taxes and minority interests (8,939) (27,244) (3,702)
Income tax provision (benefit) (1,015) (4,681) 467
------- -------- -------
Loss before minority interests (7,924) (22,563) (4,169)
Minority interests in earnings (loss) of consolidated
subsidiaries (40) -- --
------- -------- -------
Net loss (7,884) (22,563) (4,169)
Accretion and dividends on preferred stock (654) (1,420) (1,005)
------- -------- -------
Net loss attributable to common stockholders $(8,538) $(23,983) $(5,174)
======= ======== =======
Loss per share attributable to common stockholders
Basic $ (0.76) $ (2.32) $ (0.66)
Diluted $ (0.76) $ (2.32) $ (0.66)
Shares used in computing loss per share
Basic 11,192 10,337 7,880
Diluted 11,192 10,337 7,880
The accompanying notes are an integral part of these consolidated financial
statements.
35
37
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
NONREDEEMABLE ACCUMULATED
CONVERTIBLE COMMON ADDITIONAL OTHER
PREFERRED STOCK AT PAID-IN DEFERRED COMPREHENSIVE COMPREHENSIVE
STOCK PAR VALUE CAPITAL COMPENSATION INCOME (LOSS) INCOME (LOSS)
-------------- --------- ---------- ------------ ------------- -------------
BALANCE AT SEPTEMBER 30, 1996 $ 6,106 $ 77 $ 34,464 $(110) $ (179)
Public offering 23 80,739
Shares issued under stock option
and purchase plans 2 843
Deferred compensation 368 (368)
Amortization of deferred
compensation 62
Accretion and dividends on
preferred stock
Income tax benefit from stock
options 926
Comprehensive loss:
Net loss $ (4,169)
Currency translation adjustments 73 73
--------
Comprehensive loss $ (4,096)
========
Issuance of common stock and
warrants 2,887
Issuance of preferred stock 513
------- ---- -------- ----- -------
BALANCE AT SEPTEMBER 30, 1997 6,619 102 120,227 (416) (106)
Shares issued under stock option
and purchase plans 1 806
Common stock issued in acquisitions (152) 7 10,900
Deferred compensation (208) 208
Amortization of deferred
compensation 89
Accretion and dividends on
preferred stock
Income tax adjustment from stock
options (301)
Comprehensive loss:
Net loss $(22,563)
Currency translation adjustments (430) (430)
--------
Comprehensive loss $(22,993)
========
Elimination of FASTech net loss for
the three months ended
December 31, 1997
------- ---- -------- ----- -------
BALANCE AT SEPTEMBER 30, 1998 6,467 110 131,424 (119) (536)
Shares issued under stock option
and purchase plans 4 1,679
Common stock issued in acquisitions (6,467) 14 35,594
Amortization of deferred
compensation 54
Accretion and dividends on
preferred stock
Income tax benefit from stock
options 130
Comprehensive loss:
Net loss $ (7,884)
Currency translation adjustments (557) (557)
--------
Comprehensive loss $ (8,441)
========
Elimination of Smart Machines net
loss
------- ---- -------- ----- -------
BALANCE AT SEPTEMBER 30, 1999 FOR
THE THREE MONTHS ENDED DECEMBER
31, 1998 $ $128 $168,827 $ (65) $(1,093)
======= ==== ======== ===== =======
RETAINED
EARNINGS
(ACCUMULATED
DEFICIT) TOTAL
------------ --------
BALANCE AT SEPTEMBER 30, 1996 $ 7,545 $ 47,903
Public offering 80,762
Shares issued under stock option
and purchase plans 845
Deferred compensation --
Amortization of deferred
compensation 62
Accretion and dividends on
preferred stock (1,005) (1,005)
Income tax benefit from stock
options 926
Comprehensive loss:
Net loss (4,169) (4,169)
Currency translation adjustments 73
Comprehensive loss --
Issuance of common stock and
warrants 2,887
Issuance of preferred stock 513
-------- --------
BALANCE AT SEPTEMBER 30, 1997 2,371 128,797
Shares issued under stock option
and purchase plans 807
Common stock issued in acquisitions 147 10,902
Deferred compensation
Amortization of deferred
compensation 89
Accretion and dividends on
preferred stock (1,420) (1,420)
Income tax adjustment from stock
options (301)
Comprehensive loss:
Net loss (22,563) (22,563)
Currency translation adjustments (430)
Comprehensive loss --
Elimination of FASTech net loss for
the three months ended
December 31, 1997 2,753 2,753
-------- --------
BALANCE AT SEPTEMBER 30, 1998 (18,712) 118,634
Shares issued under stock option
and purchase plans 1,683
Common stock issued in acquisitions 29,141
Amortization of deferred
compensation 54
Accretion and dividends on
preferred stock (654) (654)
Income tax benefit from stock
options 130
Comprehensive loss:
Net loss (7,884) (7,884)
Currency translation adjustments (557)
Comprehensive loss --
Elimination of Smart Machines net
loss 1,599 1,599
-------- --------
BALANCE AT SEPTEMBER 30, 1999 FOR
THE THREE MONTHS ENDED DECEMBER
31, 1998 $(25,651) $142,146
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
36
38
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
YEAR ENDED SEPTEMBER 30,
-----------------------------
1999 1998 1997
------- -------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(7,884) $(22,563) $ (4,169)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 10,443 8,545 6,496
Compensation expense related to common stock options 51 89 62
Deferred income taxes (3,017) (4,779) 285
Minority interests (40) -- --
Changes in operating assets and liabilities, net of the
effect of acquisitions:
Accounts receivable (4,396) 15,263 (3,734)
Inventories 1,962 4,134 (5,879)
Prepaid expenses and other current assets 1,213 (1,296) 133
Accounts payable 1,556 (4,265) 1,149
Deferred revenue 1,763 398 297
Accrued compensation and benefits 858 517 (15)
Accrued acquisition-related and restructuring costs 1,724 2,254 --
Accrued expenses and other current liabilities 1,299 (351) (501)
------- -------- --------
Net cash provided by (used in) operating activities 5,535 (2,054) (5,876)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (5,716) (4,575) (7,994)
Cash paid in acquisitions (13,977) -- --
Cash received in acquisitions 9,361 -- --
Increase in other assets (252) (188) (2,007)
------- -------- --------
Net cash used in investing activities (10,584) (4,763) (10,001)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments of) borrowings under lines of credit -- -- (2,019)
Net increase (decrease) in short-term borrowings -- 825 --
Proceeds from issuance of convertible notes -- 2,500 --
Payments of long-term debt (1,165) (3,098) (850)
Issuance of long-term debt 1,154 -- 2,500
Proceeds from sale and leaseback of equipment - -- 258
Proceeds from issuance of preferred stock, net of issuance
costs -- -- 4,525
Proceeds from issuance of common stock, net of issuance
costs 1,683 807 82,241
------- -------- --------
Net cash provided by financing activities 1,672 1,034 86,655
------- -------- --------
Elimination of net cash activities of FASTech for the three
months ended December 31, 1997 -- (1,761) --
------- -------- --------
Elimination of net cash activities of Smart Machines for the
three months ended December 31, 1998 (63) -- --
------- -------- --------
Effects of exchange rate changes on cash and cash
equivalents 327 (310) (98)
------- -------- --------
37
39
YEAR ENDED SEPTEMBER 30,
-----------------------------
1999 1998 1997
------- -------- --------
(IN THOUSANDS)
Net increase (decrease) in cash and cash equivalents (3,113) (7,854) 70,680
Cash and cash equivalents, beginning of period 69,479 77,333 6,653
------- -------- --------
Cash and cash equivalents, end of period $66,366 $ 69,479 $ 77,333
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 338 $ 418 $ 896
Cash paid during the year for income taxes $ 1,049 $ 240 $ 1,517
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING
ACTIVITIES
Fixed assets acquired under capital lease $ -- $ -- $ 411
Deferred compensation related to stock options $ -- $ (208) $ 368
Accretion and dividends on preferred stock $ 654 $ 1,420 $ 1,005
The Company utilized available funds and issued common stock in connection
with certain business combinations during the year ended September 30, 1999. The
fair values of the assets and liabilities of the acquired companies are
presented as follows:
Assets acquired $30,218
Liabilities assumed (8,414)
-------
Net assets acquired $21,804
=======
The acquisitions were funded as follows:
Cash $10,447
Stock 22,473
Transaction costs 2,391
Cash received (400)
-------
Total $34,911
=======
The accompanying notes are an integral part of these consolidated financial
statements.
38
40
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
Brooks Automation, Inc. (the "Company") is an independent supplier of tool
and factory hardware and software automation solutions for the global
semiconductor, data storage and flat panel display manufacturing industries.
Founded in 1978, the Company has distinguished itself as a technology and market
leader, particularly in the cluster-tool vacuum-processing environment and in
integrated factory automation software applications. In 1998 and 1999 the
Company has diversified and entered the factory automation market, beginning
with the acquisition of FASTech Integration, Inc. ("FASTech"). Through a recent
series of acquisitions, Brooks has emerged as one of the largest suppliers of
automation software solutions to end users in the semiconductor, electronics and
general discrete manufacturing industries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated.
On April 2, and June 30, 1999, the Company completed the acquisitions of
Hanyon Technology, Inc. ("Hanyon") and certain assets and liabilities of Domain
Manufacturing Corporation ("Domain"), respectively. On September 30, 1999, the
Company acquired certain assets of the Infab Division ("Infab") of Jenoptik AG
(see note 3). These transactions were accounted for using the purchase method of
accounting. Accordingly, the Company's Consolidated Statements of Operations and
of Cash Flows include the results of these companies for the periods subsequent
to their respective dates of acquisition.
On August 31, 1999, the Company acquired Smart Machines Inc. ("Smart
Machines") in a transaction accounted for as a pooling of interests (see note
3). Accordingly, the accompanying consolidated financial statements and notes
thereto have been restated to include the financial position and results of
operations of Smart Machines for all periods prior to the acquisition.
Certain amounts in previously issued financial statements have been
reclassified to conform to current presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Although the Company regularly assesses these estimates, actual results
could differ from those estimates. Changes in estimates are recorded in the
period in which they become known.
REVENUE RECOGNITION
Revenue from product sales and software license sales is recorded upon
shipment to the customer provided that no significant obligations remain and
collection of the related receivable is probable. When insignificant obligations
remain after shipment of the product, the Company accrues the estimated costs of
such obligations upon shipment. A provision for product warranty costs is
recorded to estimate costs associated with such warranty
39
41
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities. In the event significant post-shipment obligations or uncertainties
remain, revenue is deferred and recognized when such obligations are fulfilled
by the Company or the uncertainties are resolved.
Revenue from services is recognized as the services are rendered. Revenue
from fixed fee application consulting contracts is 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. Revisions in
revenue and cost estimates are recorded in the periods in which the facts that
require such revisions become known. Losses, if any, are provided for in the
period in which such losses are first identified by management. For maintenance
contracts, service revenue is recognized ratably over the term of the
maintenance contract.
CASH AND CASH EQUIVALENTS
The Company invests its excess cash in repurchase agreements with major
banks, U.S. government and corporate securities, and mutual funds that invest in
U.S. government securities, which are subject to minimal credit and market risk.
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At September 30, 1999,
all cash and cash equivalents were classified as available-for-sale and as items
for which cost approximates fair value. At September 30, 1998, cash and cash
equivalents include $45.6 million and $23.9 million of securities which are
classified as available-for-sale and held to maturity, respectively, and for
which cost approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method. The Company provides inventory
reserves for excess, obsolete or damaged inventory based on changes in customer
demand, technology and other economic factors. While the Company often uses sole
source suppliers for certain key components and common assemblies to achieve
quality control and the benefits of economies of scale, the Company believes
that these parts and materials are readily available from several supply
sources.
FIXED ASSETS
Fixed assets are recorded at cost and depreciated over their estimated
useful lives, which range from 3 to 5 years for computer equipment and software,
5 to 7 years for machinery and equipment, and 3 to 10 years for furniture and
fixtures using the straight-line method. Equipment held under capital leases is
recorded at the lower of the fair market value of the equipment or the present
value of the minimum lease payments at the inception of the leases. Leasehold
improvements and equipment held under capital leases are amortized over the
shorter of their estimated useful lives or the term of the respective leases.
Repair and maintenance costs are expensed as incurred. Upon retirement or sale,
the cost of the assets disposed and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is credited or charged
to operations.
PATENTS
Patents includes capitalized direct costs associated with obtaining patents
as well as assets that were acquired as a part of purchase business
combinations. Capitalized patent costs are amortized using the straight-line
method over the shorter of seven years or the estimated economic life of the
patents. Acquired patent costs are amortized over three years using the
straight-line method. As of September 30, 1999 and 1998, the net book value of
the Company's capitalized costs, included in Intangible assets included in the
accompanying consolidated balance sheets, were $6.1 million and $0.9 million,
respectively. Amortization expense associated with recorded patents
40
42
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was $0.3 million and $0.2 million in the years ended September 30, 1999 and
1998, respectively. Accumulated amortization was $1.0 million and $0.7 million
at September 30, 1999 and 1998, respectively.
GOODWILL
The Company's net book value of excess of purchase cost over the fair value
of net assets of businesses acquired (goodwill) was $7.6 million at September
30, 1999. The Company had no goodwill recorded at September 30, 1998. Goodwill
is being amortized over the periods estimated to be benefitted, from three to
five years. Amortization expense was $0.3 million for the year ended September
30, 1999. The Company will periodically evaluate goodwill to determine if
impairment exists based upon estimated undiscounted future cash flows, net of
taxes, over the remaining useful life of the assets. The impairment, if any,
will be measured by the difference between carrying value and estimated
discounted future cash flows, net of taxes, and will be charged to expense in
the period identified.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Costs incurred in the research and development of the Company's products
are expensed as incurred, except for certain software development costs.
Software development costs are expensed prior to establishing technological
feasibility and capitalized thereafter until the related product is available
for general release to customers. Capitalized software development costs are
amortized to cost of sales on a product-by-product basis over the estimated
lives of the related products. Such costs have not been significant to date.
STOCK-BASED COMPENSATION
The Company's stock compensation plans are accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Under this method, compensation expense on stock option grants to
employees for a fixed number of shares is recognized only to the extent that the
exercise price on the date of grant is less than the current fair market value
of the Company's common stock. The Company has adopted the disclosure provisions
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("FAS 123") for fixed stock-based awards to
employees. All non-employee stock-based awards are accounted for in accordance
with FAS 123.
INCOME TAXES
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences, utilizing current tax rates, of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
Deferred tax assets are recognized, net of any valuation allowance for the
estimated future tax effects of deductible temporary differences and tax
operating loss and credit carryforwards. Deferred income tax expense or benefit
represents the change in the net deferred tax asset and liability balances.
FOREIGN CURRENCY
The functional currency of the Company's international subsidiaries is the
local currency. Accordingly, foreign currency financial statements of the
Company's international subsidiaries are translated into U.S. dollars using
exchange rates in effect at period-end for assets and liabilities and at average
rates during the period for results of operations. The resulting foreign
currency translation adjustments are reflected as accumulated other
41
43
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comprehensive income (loss). Foreign currency translation adjustments are the
only component added to the Company's net loss in the calculation of
comprehensive net loss.
LOSS PER SHARE
Basic earnings per share is calculated based on the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
calculated based on the weighted average number of common shares and dilutive
common equivalent shares assumed outstanding during the period. Shares used to
compute diluted earnings per share in loss years exclude common share
equivalents, as their inclusion would have an anti-dilutive effect. The
Company's net loss, for purposes of calculating basic and diluted loss per
share, has been adjusted by accretion and dividends related to the Company's
preferred stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions", which addresses
software revenue recognition as it applies to certain multiple-element
arrangements. SOP 98-9 also amends SOP 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2", to extend the deferral of application of certain
passages of SOP 97-2 through fiscal years beginning on or before March 15, 1999.
All other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. The Company will comply with the
requirements of this SOP as they become effective and does not expect that its
revenues or earnings will be materially affected.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). This statement was amended by the issuance of SFAS 137,
"Deferral of the Effective Date of FASB Statement No. 133", which changed the
effective date of SFAS 133 to all fiscal years beginning after June 15, 2000
(fiscal 2001 for the Company) and requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of the
Company anticipates that the adoption of FAS 133 will not have a significant
effect on the Company's results of operations or financial position.
3. ACQUISITIONS
INFAB
On September 30, 1999, the Company acquired certain assets of Infab in
exchange for 914,286 shares of the Company's common stock. Infab is a worldwide
supplier of advanced factory automation systems headquartered in Germany. The
assets purchased principally included fixed assets, inventory, receivables,
patents and intellectual property.
42
44
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the acquisition follows (in thousands):
Common stock $22,473
Transaction costs 1,476
-------
Total consideration 23,949
Estimated fair value of net tangible assets acquired 16,451
Estimated fair value of identifiable intangibles 5,154
-------
Excess of purchase price over fair value of net tangible
assets acquired $ 2,344
=======
The excess of the purchase price over the fair value of the net tangible
and identifiable intangible assets acquired includes an accrual of $2.7 million,
consisting of $0.5 million of costs to exit certain duplicate facilities and
$2.2 million for severance costs to former Infab employees. The Company will
amortize both the identifiable intangibles and goodwill over three years using
the straight-line method. The excess of the purchase price over the fair value
of the net tangible and identifiable intangibles assets acquired has been
recorded based on a preliminary price allocation. Finalization of the allocation
of the purchase price to assets acquired will be made after analyses of their
fair values.
DOMAIN
On June 30, 1999, the Company acquired certain assets and certain
liabilities of Domain for $3.8 million in cash. Domain is a leading developer of
process development, data analysis and advanced process control solutions. The
excess of purchase price (including transaction costs of $0.3 million and $0.2
million of severance-related liabilities), over net assets acquired was $3.6
million, and was recorded as goodwill. The Company will amortize this goodwill
over five years using the straight-line method.
HANYON
On April 21, 1999, the Company purchased 90.5% of the issued and
outstanding capital stock of Hanyon for $6.6 million in cash. Hanyon, based in
Korea, provides MES and automation software and systems integration services to
the semiconductor and flat panel industries in Korea and Taiwan.
A summary of the acquisition follows (in thousands):
Cash $6,647
Transaction costs 715
------
Total consideration 7,362
Estimated fair value of assets acquired 5,353
------
Excess of purchase price over fair value of net assets
acquired $2,009
======
The Company will amortize this goodwill over five years using the straight-line
method.
The acquisitions were accounted for using the purchase method of accounting
in accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations" ("APB 16"). Under APB 16, purchase price allocations are made to
the assets acquired and the liabilities assumed based on their respective fair
values.
The following pro forma results of operations have been prepared as though
the acquisitions had occurred as of the beginning of the fiscal year prior to
the acquisitions. This pro forma financial information does not purport to be
indicative of the results of operations that would have been attained had the
acquisitions been
43
45
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
made as of those dates or of results of operations that may occur in the future
(in thousands except per share data):
(UNAUDITED)
YEAR ENDED SEPTEMBER 30,
------------------------
1999 1998
---------- ----------
Revenues $129,611 $155,301
Loss from continuing operations $(15,144) $(49,717)
Loss attributable to common stockholders $(15,801) $(51,137)
Net loss per share applicable to common stockholders $ (1.31) $ (4.39)
SMART MACHINES
On August 31, 1999, the Company acquired Smart Machines Inc. ("Smart
Machines") and issued 496,742 shares of common stock in exchange for all of the
outstanding common and preferred shares of Smart Machines. The transaction was
accounted for as a pooling of interests. Smart Machines is located in San Jose,
California, and manufactures direct drive Selectively Compliant Assembly Robot
Arm ("SCARA"), atmospheric and vacuum robots. In connection with this
acquisition, the Company incurred $1.2 million of costs, consisting primarily of
transaction costs to effect the acquisition.
The accompanying consolidated financial statements and notes thereto have
been restated to include the financial position and results of operations for
Smart Machines for all periods prior to the acquisition. As a result of
conforming dissimilar year ends, Smart Machines' results of operations for the
three months ended December 31, 1998 are included in both of the Company's
fiscal years 1999 and 1998. Accordingly, an amount equal to Smart Machines' net
loss applicable to common stockholders for the three months ended December 31,
1998, was eliminated from consolidated retained earnings for the year ended
September 30, 1999. Revenues, net loss and net loss applicable to common
stockholders for that quarter were $243,000, $1,374,000 and $1,599,000,
respectively.
Revenues and net loss for the previously separate companies are as follows
(in thousands):
(UNAUDITED)
NINE MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
JUNE 30, ------------------------
1999 1998 1997
----------- ---------- ----------
Revenues
Brooks Automation, Inc. $69,449 $ 99,862 $108,741
Smart Machines Inc. 537 390 686
------- -------- --------
$69,986 $100,252 $109,427
======= ======== ========
Net loss
Brooks Automation, Inc. $ (185) $(18,361) $ (1,601)
Smart Machines Inc. (2,437) (4,202) (2,568)
------- -------- --------
$(2,622) $(22,563) $ (4,169)
======= ======== ========
44
46
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FASTech
On September 30, 1998, the Company acquired FASTech and issued 852,428
shares of common stock in exchange for all of the outstanding common and
preferred shares of FASTech. In connection with this acquisition, the Company
incurred $2.4 million of costs, consisting primarily of transaction costs to
effect the acquisition and costs to exit duplicate facilities. As a result of
conforming dissimilar year-ends, FASTech's results of operations for the three
months ended December 31, 1997 (including revenues, operating loss and net loss
of $5.0 million, $1.0 million and $2.8 million, respectively), are included in
both of the Company's fiscal years 1998 and 1997. Accordingly, an amount equal
to FASTech's net loss for the three months ended December 31, 1997, was
eliminated from consolidated retained earnings for the year ended September 30,
1998.
4. JOINT VENTURE
In June 1999 the Company formed a joint venture in Korea with Samsung
Electronics ("Samsung"). The Company's initial cash investment in this joint
venture was $3.5 million. This joint venture is 70% owned by the Company and 30%
owned by Samsung, and has been organized to design, develop and manufacture
atmospheric flat panel display loaders along with other products. The Company
consolidates fully the financial position and results of operations of the joint
venture and accounts for the minority interest in the financial statements.
5. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
SEPTEMBER 30,
------------------
1999 1998
------- -------
Accounts receivable $34,591 $22,754
Less allowances 1,687 1,898
------- -------
$32,904 $20,856
======= =======
6. INVENTORIES
Inventories consist of the following (in thousands):
SEPTEMBER 30,
------------------
1999 1998
------- -------
Raw materials and purchased parts $14,655 $ 9,316
Work-in-process 10,154 7,958
Finished goods 4,108 2,896
------- -------
$28,917 $20,170
======= =======
45
47
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. FIXED ASSETS
Fixed assets consist of the following (in thousands):
SEPTEMBER 30,
------------------
1999 1998
------- -------
Computer equipment and software $18,144 $17,302
Machinery and equipment 10,914 12,842
Furniture and fixtures 5,982 5,315
Leasehold improvements 6,513 5,526
------- -------
41,553 40,985
Less accumulated depreciation and amortization 24,119 22,036
------- -------
$17,434 $18,949
======= =======
Included in the above amounts is computer equipment and software and
machinery and equipment acquired under capital leases of $2.7 million as of both
September 30, 1999 and 1998. Accumulated amortization on fixed assets under
capital lease was $2.6 million and $2.4 million at September 30, 1999 and 1998,
respectively. Amortization expense for fixed assets under capital leases was
$0.2 million, $0.6 million, and $0.7 million for the years ended September 30,
1999, 1998, and 1997, respectively. Depreciation expense was $7.0 million, $7.9
million and $6.0 million for the years ended September 30, 1999, 1998 and 1997,
respectively.
8. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt consists of the following (in thousands):
SEPTEMBER 30,
----------------
1999 1998
------ ------
Convertible notes $ -- $2,500
Credit facility for working capital borrowings at 8.92% per
annum, secured by assets, expiring December 31, 1999 1,209 980
Capital lease obligations at rates of 5% to 21% per annum,
secured by certain fixed assets, expiring at various dates
through November 2000 129 369
------ ------
1,338 3,849
Less current portion 537 505
------ ------
Long-term debt $ 801 $3,344
====== ======
On June 15, 1998, Smart Machines issued convertible promissory notes in the
amount of $2.5 million. The notes were convertible into Smart Machines Series D
preferred stock and Smart Machines common stock. Interest at the rate of 7.00%
per year was payable in cash upon conversion of the notes. The outstanding
balance of the convertible promissory notes and related interest was converted
into the Company's common stock on August 31, 1999, in conjunction with the
acquisition of Smart Machines.
In November 1998, Smart Machines entered into a loan and security agreement
with a leasing company. The agreement, which expires December 31, 1999, allowed
for working capital borrowings of up to $2.0 million and equipment loans of up
to $0.5 million. All borrowings are collateralized by Smart Machines' assets,
have a stated interest rate of 8.92% per year for working capital borrowings,
and 8.63% per year for equipment loans. At September 30, 1999, the Company had
working capital loans outstanding, for $1,209,000 maturing through
46
48
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
April 2002, respectively. The loans are payable in monthly installments of
principal and interest, with 10.0% principal payback due at the time of the
final payment. Annual principal payments due under these notes are $433,000,
$494,000 and $282,000 in the years ended September 30, 2000, 2001, and 2002,
respectively.
9. INCOME TAXES
The components of the income tax provision (benefit) are as follows (in
thousands):
YEAR ENDED SEPTEMBER 30,
----------------------------
1999 1998 1997
------- ------- ------
Current:
Federal $ 272 $ (887) $ (987)
State 66 5 12
Foreign 1,664 (212) 1,157
------- ------- ------
2,002 (1,094) 182
------- ------- ------
Deferred:
Federal (2,403) (3,031) (41)
State (429) (554) 265
Foreign (185) (2) 61
------- ------- ------
(3,017) (3,587) 285
------- ------- ------
$(1,015) $(4,681) $ 467
======= ======= ======
The components of income (loss) before income taxes, including minority
interests, are as follows (in thousands):
YEAR ENDED SEPTEMBER 30,
-------------------------------
1999 1998 1997
-------- -------- -------
Domestic $(11,052) $(26,880) $(5,293)
Foreign 2,153 (364) 1,591
-------- -------- -------
$ (8,899) $(27,244) $(3,702)
======== ======== =======
47
49
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the net deferred tax asset are as follows (in
thousands):
SEPTEMBER 30,
------------------
1999 1998
------- -------
Reserves not currently deductible $ 7,227 $ 4,818
Federal and state tax credits 5,081 4,397
Capitalized research and development 2,894 1,953
Net operating loss carryforwards 6,525 6,255
Other -- 444
------- -------
Gross deferred tax assets 21,727 17,867
------- -------
Depreciation and amortization 174 881
Other -- 34
------- -------
Gross deferred tax liabilities 174 915
------- -------
Deferred tax asset valuation allowance 10,993 9,405
------- -------
Net deferred tax asset $10,560 $ 7,547
======= =======
The differences between the income tax provision (benefit) and income taxes
computed using the applicable U.S. statutory federal tax rate are as follows (in
thousands):
YEAR ENDED SEPTEMBER 30,
-----------------------------
1999 1998 1997
------- ------- -------
Taxes computed at federal statutory rate $(3,115) $(9,536) $(1,296)
State income taxes, net of federal tax benefit (235) (494) (277)
Research and development tax credits (544) (840) (870)
Foreign sales corporation tax benefit -- -- (381)
Foreign income taxed at different rates 726 266 407
Nondeductible transaction expenses 371 195 --
Change in deferred tax asset valuation allowance 1,588 3,795 3,020
Permanent differences 309 90 50
Elimination of FASTech provision for the three months
ended December 31, 1997 -- 1,334 --
Other (115) 509 (186)
------- ------- -------
$(1,015) $(4,681) $ 467
======= ======= =======
The Company does not provide for U.S. income taxes applicable to
undistributed earnings of its foreign subsidiaries since these earnings are
indefinitely reinvested. A valuation allowance has been established for certain
of the future domestic income tax benefits primarily related to income tax loss
carryforwards and temporary differences based on management's assessment that it
is more likely than not that such benefits will not be realized. The Company's
valuation allowance increased to $11.0 million at September 30, 1999.
As of September 30, 1999, the Company had federal and state net operating
losses of approximately $27.3 million and federal and state research and
development tax credit carryforwards of approximately $5.0 million
48
50
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
available to reduce future tax liabilities, which expire at various dates
through 2019. The ultimate realization of the remaining loss carryforwards is
dependent upon the generation of sufficient taxable income in respective
jurisdictions.
10. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The redeemable convertible preferred stock issued by Smart Machines was
converted into the Company's common stock on August 31, 1999, in conjunction
with the acquisition of Smart Machines by the Company. As of September 30, 1998,
Smart Machines redeemable convertible preferrred stock, no par value, recorded
at issuance price plus accumulated accretion and net of issuance costs,
consisted of the following (in thousands):
SEPTEMBER 30, 1998
------------------
Series D, 2,287,250 shares authorized and issued, 1,166,581
shares outstanding $3,562
Series E, 962,261 shares authorized and issued, none
outstanding --
------
$3,562
======
Each share of preferred stock was entitled to vote on an "as converted"
basis along with common shareholders. At any time after May 2, 2003, upon
written request from the holders of at least 66 2/3% of the Series D and Series
E preferred stock, Smart Machines would have been required to redeem the shares
specified in the request at a price of $3.50 and $4.25 per share, respectively,
plus $0.175 and $0.225 per share, compounded annually, per share of Series D and
Series E preferred stock, respectively. At September 30, 1998, the redemption
value of the outstanding redeemable convertible preferred stock was $4.1
million.
11. STOCKHOLDERS EQUITY
PREFERRED STOCK
As of September 30, 1999 and 1998, there were 1 million shares of preferred
stock, $0.01 par value per share authorized; but none were issued or
outstanding. Preferred stock may be issued at the discretion of the Board of
Directors without stockholder approval with such designations, rights, and
preferences as the Board of Directors may determine.
NONREDEEMABLE CONVERTIBLE PREFERRED STOCK
The Smart Machines Series A, Series B and Series C nonredeemable
convertible preferred stock was converted into the Company's common stock on
August 31, 1999, in conjunction with the acquisition of Smart Machines. As of
September 30, 1998, Smart Machines' nonredeemable convertible preferrred stock,
no par value, recorded at issuance price, net of issuance costs, consisted of
the following (in thousands):
SEPTEMBER 30, 1998
------------------
Series A, 1,965,000 shares authorized, issued and
outstanding $1,965
Series B, 532,382 shares authorized, issued and outstanding 1,597
Series C, 879,096 shares authorized and issued, 834,096
shares outstanding 2,905
------
$6,467
======
Each share of nonredeemable, convertible preferred stock was entitled to
vote on an "as converted" basis along with common shareholders. The preferred
stock was convertible, at the option of the holders, at any time, into common
stock on a one-to-one basis subject to certain adjustments. Conversion was
automatic upon the
49
51
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
closing of a public offering of common shares for aggregate proceeds of not less
than $10.0 million, with an offering price of not less than $10.00 per share, or
the vote of a majority of the holders of the outstanding shares of Series A,
Series B and Series C preferred stock, voting together as a single class and the
vote of 75% of the holders of Series D and Series E preferred stock, voting
together as a single class.
12. LOSS PER SHARE
The following table is a summary of net loss attributable to common
stockholders used in the calculation of basic and diluted loss per share (in
thousands):
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
------- -------- -------
Net loss $(7,884) $(22,563) $(4,169)
Accretion and dividends on preferred stock (654) (1,420) (1,005)
------- -------- -------
Net loss attributable to common stockholders for basic
and diluted loss per share $(8,538) $(23,983) $(5,174)
======= ======== =======
The following table is a summary of shares used in calculating basic and
diluted loss per share (in thousands):
YEAR ENDED SEPTEMBER 30,
-------------------------
1999 1998 1997
------ ------ -----
Weighted average number of shares and share equivalents
used in computing basic loss per share 11,192 10,337 7,880
Dilutive securities:
Common stock options and warrants -- -- --
------ ------ -----
Shares used in computing diluted loss per share 11,192 10,337 7,880
====== ====== =====
Options and warrants to purchase approximately 774,000, 635,000 and 965,000
shares of common stock were excluded from the computation of diluted loss per
share for the years ended September 30, 1999, 1998 and 1997, respectively, as
their effect would be antidilutive.
13. STOCK PLANS
1995 EMPLOYEE STOCK PURCHASE PLAN
On February 22, 1996, the stockholders approved the 1995 Employee Stock
Purchase Plan (the "1995 Plan") which enables eligible employees to purchase
shares of the Company's common stock. Under the 1995 Plan, eligible employees
may purchase up to an aggregate of 250,000 shares during six-month offering
periods commencing on January 1 and July 1 of each year at a price per share of
85% of the lower of the market price per share on the first or last day of each
six-month offering period. Participating employees may elect to have up to 10%
of base pay withheld and applied toward the purchase of such shares. The rights
of participating employees under the 1995 Plan terminate upon voluntary
withdrawal from the plan at any time or upon termination of employment. As of
September 30, 1999, 154,486 shares of common stock have been purchased under the
plan and 95,514 remain available for purchase under the plan.
50
52
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1992 COMBINATION STOCK OPTION PLAN
Under the Company's 1992 Stock Option Plan (the "1992 Plan"), the Company
may grant both incentive stock options intended to qualify under Section 422 of
the Internal Revenue Code of 1986, as amended ("incentive stock options"), and
other options which are not qualified as incentive stock options ("nonqualified
stock options"). Incentive stock options may only be granted to persons who are
employees of the Company at the time of grant, which may include officers and
directors who are also employees. Nonqualified stock options may be granted to
persons who are officers, directors or employees of or consultants or advisors
to the Company or persons who are in a position to contribute to the long-term
success and growth of the Company at the time of grant. Options granted under
the 1992 Plan generally vest over a period of four years and generally expire
ten years from the date of grant. A total of 1,950,000 shares of Common Stock
has been reserved for issuance under the 1992 Plan. Of these shares, options on
1,062,043 have been granted and are outstanding and 262,925 shares remain
available for grant as of September 30, 1999.
1993 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The purpose of the 1993 Nonemployee Director Stock Option Plan (the
"Directors Plan") is to attract and retain the services of experienced and
knowledgeable independent directors of the Company for the benefit of the
Company and its stockholders and to provide additional incentives for such
independent directors to continue to work for the best interests of the Company
and its stockholders through continuing ownership of its Common Stock. Each
director who is not an employee of the Company or any of its subsidiaries is
eligible to receive options under the Directors Plan. Under the Directors Plan,
each eligible director receives an automatic grant of an option to purchase
10,000 shares of Common Stock upon becoming a director of the Company and an
option to purchase 5,000 shares on July 1 each year thereafter. Options granted
under the Directors Plan generally vest over a period of four years and
generally expire ten years from the date of grant. A total of 190,000 shares of
Common Stock has been reserved for issuance under the Directors Plan. Of these
shares, options on 56,000 have been granted and are outstanding and 96,000
shares remain available for grant as of September 30, 1999.
1998 EMPLOYEE EQUITY INCENTIVE PLAN
The purpose of the 1998 Employee Equity Incentive Plan (the "1998 Plan"),
adopted by the Board of Directors of the Company in April 1998, is to attract
and retain employees and provide an incentive for them to assist the Company to
achieve long-range performance goals, and to enable them to participate in the
long-term growth of the Company. All employees of the Company, other than its
officers and directors, are eligible to participate in the 1998 Plan. Under the
1998 Plan, the Compensation Committee may award only nonqualified stock options.
Options granted under the 1998 Plan generally vest over a period of four years
and generally expire ten years from the date of grant. A total of 850,000 shares
of Common Stock have been reserved for issuance under the 1998 Plan. Of these
shares, options on 794,375 have been granted and are outstanding and 55,725
shares remain available for grant as of September 30, 1999.
STOCK OPTIONS OF ACQUIRED COMPANIES
In connection with the acquisition of Smart Machines, the Company assumed
8,889 options in August 1999. These assumed options were granted at prices equal
to the fair value at the date of grant, become exercisable in installments
(generally ratably over four years), and expire ten years from the date of
grant. The Company does not intend to issue any additional options under the
Smart Machines stock option plans.
51
53
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the acquisition of FASTech, the Company assumed 80,351
options in September 1998. These assumed options were granted at prices equal to
the fair value at the date of grant, become exercisable in installments
(generally ratably over five years), and expire ten years from the date of
grant. The Company does not intend to issue any additional options under the
FASTech stock option plans.
Aggregate stock option activity for all plans for the years ended September
30, 1999, 1998 and 1997, is as follows:
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
Options outstanding at
beginning of year 1,059,155 $ 8.47 1,274,245 $ 8.20 1,347,378 $ 6.26
Granted 1,331,746 $18.31 172,710 $17.75 158,604 $19.97
Exercised (298,948) $ 3.77 (70,229) $ 3.01 (155,302) $ 2.00
Canceled (116,471) $16.75 (317,571) $13.64 (76,435) $10.93
--------- --------- ---------
Options outstanding at end
of year 1,975,482 $15.33 1,059,155 $ 8.47 1,274,245 $ 8.20
========= ========= =========
Options exercisable at end
of year 465,152 $ 7.32 553,063 $ 4.71 378,635 $ 3.18
========= ========= =========
Weighted average fair value
of options granted during
the period $13.07 $ 9.72 $15.78
Options available for
future grant 414,650
=========
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions for
grants made during fiscal 1999, fiscal 1998, and fiscal 1997: no dividend yield,
risk free interest rates of 5.5% to 6.3%, expected option term of four years,
expected forfeiture rate of 2.5%, and a volatility factor of 100%. The following
table summarizes information about stock options outstanding at September 30,
1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
RANGE OF CONTRACTUAL LIFE AVERAGE EXERCISE AVERAGE
EXERCISE PRICES SHARES (YEARS) PRICE SHARES EXERCISE PRICE
--------------- --------- ---------------- ---------------- ------- --------------
$ 0.8330 - $ 1.6700 31,768 3.2 $ 0.9777 31,768 $ 0.9777
$ 2.2100 - $ 2.2130 233,750 4.9 $ 2.2110 230,150 $ 2.2110
$ 4.7070 - $10.5000 284,896 8.3 $ 9.3532 17,457 $ 5.0683
$11.0000 - $13.3750 372,525 7.1 $11.8061 151,125 $11.4298
$14.1200 - $20.0000 437,304 8.7 $15.1062 14,321 $17.9905
$20.2500 - $27.8750 582,323 8.9 $24.9831 5,839 $22.0725
$42.6700 - $47.0704 32,916 5.3 $46.1145 14,492 $45.8647
- ------------------------ --------- ---------------- ---------------- ------- --------------
$ 0.8330 - $47.0704 1,975,482 7.8 $15.3293 465,152 $ 7.3243
========= =======
52
54
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation expense for the Company's option grants to employees been
determined based on the fair value at the date of grant and for shares of common
stock purchased pursuant to the Employee Stock Purchase Plan, consistent with
the methods prescribed by FAS 123, the pro forma effect on the Company's net
income would have been as follows (in thousands, except per share data):
YEAR SEPTEMBER 30,
-------------------------------
1999 1998 1997
-------- -------- -------
Pro forma net loss $(10,939) $(25,079) $(5,801)
Pro forma loss per share
Basic $ (0.98) $ (2.43) $ (0.74)
Diluted $ (0.98) $ (2.43) $ (0.74)
Because most options vest over several years and additional option grants
are expected to be made subsequent to September 30, 1999, the results of
applying the fair value method may have a materially different effect on pro
forma net income in future years.
RIGHTS DISTRIBUTION
In July 1997, the Board of Directors declared a dividend of one preferred
share purchase right (a "right") for each share of common stock outstanding on
August 12, 1997. Each right entitles the registered holder to purchase from the
Company, upon certain triggering events, one one-thousandth of a share of Series
A Junior Participating Preferred Stock, par value $0.01 per share (the "Series A
Preferred Shares"), of the Company, at a purchase price of $135 per one
one-thousandth of a Series A Preferred Share, subject to adjustment. Redemption
of the rights could generally discourage a merger or tender offer involving the
securities of the Company that is not approved by the Company's Board of
Directors by increasing the cost of effecting any such transaction and,
accordingly, could have an adverse impact on stockholders who might want to vote
in favor of such merger or participate in such tender offer. The rights will
expire on the earlier of (i) July 31, 2007, or (ii) the date on which the rights
are redeemed. The terms of the rights may generally be amended by the Board of
Directors without the consent of the holders of the rights.
14. BENEFIT PLAN
The Company sponsors defined contribution plans that meet the requirements
of Section 401(k) of the Internal Revenue Code. All domestic employees of the
Company who meet minimum age and service requirements are eligible to
participate in the plan. The plan allows employees to invest on a pre-tax basis
a percentage of their annual salary subject to statutory limitations. The
Company's contribution expense was $0.2 million in each of the years ended
September 30, 1999, 1998 and 1997.
15. SEGMENT, GEOGRAPHIC, SIGNIFICANT CUSTOMERS AND RELATED PARTY INFORMATION
The Company has two reportable segments: tool automation and factory
automation. The tool automation segment provides a full complement of
semiconductor wafer and flat panel display substrate handling systems. Tool
automation product revenue is comprised of factory hardware and tool control
software products. Tool automation services revenue is comprised of spare parts
sales and tool control application consulting services. The factory automation
segment provides software products for the semiconductor manufacturing execution
system ("MES") market. Factory automation product revenues include factory
software and factory interface hardware product. Factory automation services
revenue primarily consists of revenues related to consulting and software
customization.
53
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BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company evaluates performance and allocates resources based on revenues
and operating income. Operating income for each segment includes selling,
general and administrative expenses directly attributable to the segment and
excludes certain expenses which are managed outside of the reportable segments.
The tool automation segment includes the results of Smart Machines for all
periods presented and all of the Company's corporate general and administrative
expenses. Costs excluded from segments' operating income primarily consist of
amortization of acquired intangible assets, interest and income taxes, and
acquisition-related and restructuring costs. Segment assets exclude deferred
taxes, acquired intangible assets and investments in subsidiaries.
Financial information for the Company's business segments is as follows (in
millions):
TOOL FACTORY
AUTOMATION AUTOMATION TOTAL
---------- ---------- --------
YEAR ENDED SEPTEMBER 30, 1999
Revenue:
Product $ 70,475 $11,962 $ 82,437
Services 9,246 12,223 21,469
-------- ------- --------
Total $ 79,721 $24,185 $103,906
======== ======= ========
Gross margin $ 27,694 $18,335 $ 46,029
Operating income (loss) $ (8,516) $ 489 $ (8,027)
Depreciation $ 5,628 $ 1,327 $ 6,955
Assets $134,116 $18,930 $153,046
YEAR ENDED SEPTEMBER 30, 1998
Revenue:
Product $ 70,806 $10,050 $ 80,856
Services 12,824 6,572 19,396
-------- ------- --------
Total $ 83,630 $16,622 $100,252
======== ======= ========
Gross margin $ 15,625 $11,099 $ 26,724
Operating loss $(20,396) $(5,756) $(26,152)
Depreciation $ 6,108 $ 1,812 $ 7,920
Assets $129,859 $ 7,000 $136,859
YEAR ENDED SEPTEMBER 30, 1997
Revenue:
Product $ 73,707 $15,356 $ 89,063
Services 13,388 6,976 20,364
-------- ------- --------
Total $ 87,095 $22,332 $109,427
======== ======= ========
Gross margin $ 27,151 $16,966 $ 44,117
Operating loss $ (2,486) $ (510) $ (2,996)
Depreciation $ 4,656 $ 1,329 $ 5,958
Assets $151,507 $11,259 $162,766
54
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BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the Company's reportable segment operating income and
segment assets to the corresponding consolidated amounts as of and for the years
ended September 30, 1999, 1998 and 1997 is as follows:
YEAR ENDED SEPTEMBER 30,
--------------------------------
1999 1998 1997
-------- -------- --------
Segment operating loss $ (8,027) $(26,152) $ (2,996)
Amortization of acquired intangibles 349 -- --
Acquisition-related and restructuring costs 3,120 3,722 --
-------- -------- --------
Total operating loss $(11,496) $(29,874) $ (2,996)
======== ======== ========
Segment assets $153,592 $136,859 $162,766
Deferred tax asset 10,734 8,462 3,526
Acquired intangible assets 12,819 -- --
-------- -------- --------
Total assets $177,145 $145,321 $166,292
======== ======== ========
Net revenues by geographic area are as follows (in thousands):
YEAR ENDED SEPTEMBER 30,
--------------------------------
1999 1998 1997
-------- -------- --------
North America $ 61,346 $ 59,003 $ 68,170
Asia 31,386 31,679 33,304
Europe 11,174 9,570 7,953
-------- -------- --------
$103,906 $100,252 $109,427
======== ======== ========
Long-lived assets, including property, plant and equipment and intangible
assets are as follows (in thousands):
AS OF SEPTEMBER 30,
-------------------------------
1999 1998 1997
------- ------- -------
North America $19,095 $19,037 $21,204
Asia 2,965 772 604
Europe 9,093 14 16
------- ------- -------
$31,153 $19,823 $21,824
======= ======= =======
One of the Company's directors is an executive with one of the Company's
customers. Net revenue recognized from this customer was $15.3 million, $15.9
million, and $18.2 million in fiscal 1999, 1998 and 1997, respectively. Amounts
due from this customer included in accounts receivable at September 30, 1999 and
1998, were $3.4 and $2.4 million, respectively. Related party amounts included
in accounts receivable are on standard terms and manner of settlement.
In fiscal 1999, two other customers each accounted for more than 10% of the
Company's revenues. The Company did not have any other single customer that
accounted for more than 10% of the Company's net revenues in fiscal 1998 or
fiscal 1997.
55
57
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A financial instrument which potentially exposes the Company to
concentration of credit risk is accounts receivable, as the Company's customers
are concentrated in the semiconductor industry and relatively few customers
account for a significant portion of the Company's revenues. The Company
regularly monitors the creditworthiness of its customers and believes that it
has adequately provided for exposure to potential credit losses.
16. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases manufacturing and office facilities and certain
equipment under operating and capital leases that expire through 2005. Rent
expense under operating leases for fiscal 1999, fiscal 1998 and fiscal 1997 was
$4.1 million, $4.8 million and $3.3 million, respectively. Future minimum lease
payments under operating and capital leases with initial or remaining
noncancelable terms of one or more years are as follows as of September 30, 1999
(in thousands):
CAPITAL OPERATING
YEAR ENDED SEPTEMBER 30, LEASES LEASES
- ------------------------ ------- ---------
2000 $117 $ 4,274
2001 40 2,897
2002 -- 2,549
2003 -- 1,722
2004 -- 1,231
Thereafter -- 1,078
---- -------
Total minimum lease payments 157 $13,751
=======
Less amount representing interest 28
----
Net present value of minimum lease payments $129
====
Total amounts to be received under subleases are $1.2 million in fiscal
2000.
CONTINGENCY
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor and related industries. The
Company has received notice from a third-party alleging infringements of such
party's patent rights by certain of the Company's products. The Company's patent
counsel is investigating the claim and the Company believes the patents claimed
may be invalid. In the event of litigation with respect to this claim, the
Company is prepared to vigorously defend its position. However, because patent
litigation can be extremely expensive and time consuming, the Company may seek
to obtain a license to one or more of the disputed patents. Based upon currently
available information, the Company would only do so if such license fees would
not be material to the Company's consolidated financial statements. Currently,
the Company does not believe that it is probable that future events related to
this threatened matter will have an adverse effect on the Company's business.
17. ACQUISITION-RELATED AND RESTRUCTURING COSTS
During fiscal 1999, the Company recorded acquisition-related and
restructuring costs of $3.1 million. These costs reflect $1.2 million of legal,
accounting and other costs associated with acquiring Smart Machines. In
56
58
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
addition, the Company approved and implemented a restructuring program designed
to integrate its current year acquisitions. These actions involved 7 employees,
all of whom were terminated prior to September 30, 1999 and the write-off of
certain fixed assets prior to September 30, 1999. Accordingly, during fiscal
1999, the Company recorded a charge of $1.9 million related to the restructuring
program.
During fiscal year 1999, the Company recorded $2.9 million of costs in
purchase accounting transactions consisting of $2.4 million for severance costs
related to former employees and $0.5 million to exit certain duplicate
facilities.
During fiscal year 1998, the Company approved and implemented a
restructuring program designed to align the Company's cost structure with lower
revenue levels indicative of the recent decline in demand for semiconductor
equipment. These actions involved approximately 120 employees, all of whom were
terminated prior to September 30, 1998. Accordingly, during fiscal 1998, the
Company recorded a charge of $1.3 million related to the restructuring program,
primarily for employee severance costs.
In addition, during 1998, the Company recorded charges of $1.4 million in
connection with its acquisition of FASTech, reflecting estimated costs to exit
duplicate facilities. This amount is primarily comprised of estimated lease
costs on FASTech's former headquarters facility. The Company also recorded
charges of $1.0 million related to legal, accounting and other costs in
connection with the FASTech acquisition.
The activity related to the Company's acquisition-related and restructuring
liabilities is below (in thousands):
FISCAL 1999 ACTIVITY
-----------------------------------------------------------------------
NEW INITIATIVES
BALANCE ---------------------- BALANCE
SEPTEMBER 30, PURCHASE SEPTEMBER 30,
1998 EXPENSE ACCOUNTING UTILIZATION 1999
------------- -------- ---------- ----------- -------------
Facilities $1,294 $ -- $ 450 $ (599) $1,145
Depreciable assets -- 1,628 20 (1,648) --
Workforce-related 238 332 2,380 (238) 2,712
Other 722 1,160 -- (1,871) 11
------ ------ ------ ------- ------
$2,254 $3,120 $2,850 $(4,356) $3,868
====== ====== ====== ======= ======
FISCAL 1998 ACTIVITY
-----------------------------------------------------------------------
NEW INITIATIVES
BALANCE ---------------------- BALANCE
SEPTEMBER 30, PURCHASE SEPTEMBER 30,
1997 EXPENSE ACCOUNTING UTILIZATION 1998
------------- -------- ---------- ----------- -------------
Facilities $-- $1,400 $-- $ (106) $1,294
Depreciable assets -- -- -- -- --
Workforce-related -- 1,300 -- (1,062) 238
Other -- 1,022 -- (300) 722
-- ------ -- ------- ------
$-- $3,722 $-- $(1,468) $2,254
== ====== == ======= ======
18. SUBSEQUENT EVENTS (UNAUDITED)
In September 1999, the Company obtained a commitment letter for an
unsecured revolving credit facility for borrowings and letters of credit up to
$30.0 million. The credit facility will terminate at the end of two years.
57
59
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The interest rates for borrowings are expressed in relation to LIBOR and a
margin of 1.75% to 2.25% or from 0.25% to 0.75% above a base rate. The letter of
credit margin rates are from 1.75% to 2.25%. The borrowings and letters of
credit are expected to be used for working capital and general corporate
purposes, including financing potential acquisitions.
On December 15, 1999, the Company entered into a definitive agreement to
acquire Auto-Soft Corporation and AutoSimulations, Inc. from their sole
stockholder, Daifuku America Corporation, subject to the satisfaction of
customary closing conditions. Upon completion of the transaction, the Company
will be required to pay $27.0 million in cash, issue shares of common stock with
an aggregate value of $16.0 million; such number of shares to be determined as
of the closing date in accordance with the agreement, and issue a note in the
amount of $16.0 million payable one year from the date of closing. The note will
be unsecured and bear interest at 4.0% per year. Auto-Soft Corporation develops
and markets custom designed software and standard software for automated
material handling applications. AutoSimulations, Inc. develops and markets
industrial simulation and semiconductor factory scheduling software. The
transaction is expected to be completed in January 2000 and will be accounted
for using the purchase method of accounting.
58
60
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
of Brooks Automation, Inc.
Our audits of the consolidated financial statements referred to in our report
dated November 17, 1999 appearing in this Annual Report on Form 10-K also
included an audit of the Financial Statement Schedule listed in Item 14(a) of
this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 29, 1999
59
61
BROOKS AUTOMATION, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER AND END
OF YEAR EXPENSES ACCOUNTS WRITE-OFFS OF YEAR
(IN THOUSANDS) ---------- ---------- ---------- ---------- ----------
Allowance for doubtful accounts
Year ended September 30,
1999 $1,898 $ 188 $(399) $ 1,687
1998 $ 776 $1,295 $(173) $ 1,898
1997 $ 840 $ 322 $(386) $ 776
Deferred tax asset valuation
allowance
Year ended September 30,
1999 $9,405 $1,588 $10,993
1998 $5,610 $3,795 $ 9,405
1997 $2,590 $3,020 $ 5,610
60
62
PART II (CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
PART IV
ITEM 14. EXHIBITS
(a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The consolidated financial statements of the Company and Schedule II
Valuation and Qualifying Accounts and Reserves of the Company are listed in the
index under Part II, Item 8, in this Form 10-K.
Other financial statement schedules are omitted because of the absence of
conditions under which they are required or because the required information is
given in the consolidated financial statements or notes thereto.
(a) 3. EXHIBITS
EXHIBIT NO. REFERENCE
- ----------- ------------------------------------------------------------
2.01 Intentionally Omitted
2.02 Agreement and Plan of Merger relating to the combination of L**
FASTech Integration, Inc. with the Registrant
2.03 Stock for Cash Purchase Agreement Relating to the N**
Acquisition of Hanyon Tech. Co., Ltd. by the Registrant
2.04 Assets for Cash Purchase Agreement Relating to the O**
Acquisition of Substantially all of the Assets of Domain
Manufacturing Corporation and it's Subsidiary Domain
Manufacturing SARL by the Registrant
2.05 Agreement and Plan of Merger Relating to the Combination of P**
Smart Machines Inc. with the Registrant
61
63
EXHIBIT NO. REFERENCE
- ----------- ------------------------------------------------------------
2.06 Master Purchase Agreement Relating to the Acquisition of Q**
Substantially All of the Assets of the Infab Division of
Jenoptik AG by the Registrant
3.01 Certificate of Incorporation of the Registrant A**
3.02 Bylaws of the Registrant A**
3.03 Certificate of Designation of Series A Junior Participating H**
Preferred Stock
4.01 Specimen Certificate for shares of the Registrant's Common A**
Stock
4.02 Description of Capital Stock (contained in the Certificate A**
of Incorporation of the Registrant, filed as Exhibit 3.01)
4.03 Rights Agreement dated July 23, 1997 I**
10.01 Intentionally Omitted
10.02 Employment Agreement between the Registrant and Robert J. A**
Therrien dated as of October 1, 1994*
10.03 Intentionally Omitted
10.04 Intentionally Omitted
10.05 Intentionally Omitted
10.06 Form of Indemnification Agreement for directors and officers A**
of the Registrant
10.07 Intentionally Omitted
10.12 Intentionally Omitted
10.13 Intentionally Omitted
10.14 Intentionally Omitted
10.18 Lease Extension Agreement C**
10.19 Headquarters Lease B**
10.20 Intentionally Omitted
10.21 Intentionally Omitted
10.22 Intentionally Omitted
10.23 Intentionally Omitted
10.24 Intentionally Omitted
10.25 Intentionally Omitted
10.26 Intentionally Omitted
10.27 Intentionally Omitted
10.28 Employment Agreement between the Registrant and Ellen M**
Richstone*
10.29 Stockholder Agreement between Jenoptik AG, M+W Zander Q**
Holding GmbH, Robert Therrien and the Registrant
10.30 Form of Agreement between Executive Officers and Registrant Filed
Relating to Change of Control* herewith
10.31 Agreement between Ellen Richstone and Registrant Relating to Filed
Change of Control* herewith
10.32 Lease Agreement between the Registrant and Clearfield Filed
Investments, LLC for the Registrant's Colorado manufacturing herewith
facility
10.33 Transitional Services Agreement between the Registrant and Filed
Jenoptik AG relating to the Registrant's German herewith
manufacturing facility
10.34 Lease Agreement between a subsidiary of the Registrant and Filed
Montague Oaks Phase I & II for the Registrant's California herewith
manufacturing facility
62
64
EXHIBIT NO. REFERENCE
- ----------- ------------------------------------------------------------
21.01 Subsidiaries of the Registrant Filed
herewith
23.01 Consent of PricewaterhouseCoopers LLP Filed
herewith
27.01 Financial Data Schedule as of and for the year ended Filed
September 30, 1999 herewith
27.02 Financial Data Schedule as of and for the year ended Filed
September 30, 1998 herewith
99.01 1993 Nonemployee Director Stock Option Plan J* **
99.02 1992 Combination Stock Option Plan K* **
99.03 1995 Employee Stock Purchase Plan E**
99.04 1998 Employee Equity Incentive Plan Filed
herewith
- ---------------
A Incorporated by reference to the Company's registration statement on Form
S-1 (Registration No. 33-87296). The number set forth herein is the number
of the Exhibit in said registration statement.
B Incorporated by reference to the Company's registration statement on Form
S-1 (Registration No. 33-93102). The number assigned to each Exhibit above
is the same as the number assigned to the Exhibit in said registration
statement.
C Incorporated by reference to the Company's quarterly report on Form 10-Q
for the quarterly period ended March 31, 1995. The number assigned to the
Exhibit above is the same as the number assigned to the Exhibit in said
quarterly report.
E Incorporated by reference to the Company's registration statement on Form
S-8 (No. 333-07315). The number set forth herein is the number of the
Exhibit in said registration statement.
H Incorporated by reference to the Company's registration statement on Form
S-3 (No. 333-34487). The number assigned to each Exhibit above is the same
as the number assigned to the Exhibit in said registration statement.
I Incorporated by reference to the Company's current report on Form 8-K
filed on August 7, 1997.
J Incorporated by reference to the Company's registration statement on Form
S-8 (No. 333-22717). The number assigned to each Exhibit above is the same
as the number assigned to the Exhibit in said registration statement.
K Incorporated by reference to the Company's registration statement on Form
S-8 (No. 333-07313). The number assigned to each Exhibit above is the same
as the number assigned to the Exhibit in said registration statement.
L Incorporated by reference to the Company's current report on Form 8-K filed
on October 15, 1998.
M Incorporated by reference to the Company's annual report on Form 10-K for
the year ended September 30, 1998. The number assigned to the Exhibit is the
same as the number assigned to the Exhibit in said annual report.
N Incorporated by reference to the Company's current report on Form 8-K filed
on May 6, 1999.
O Incorporated by reference to the Company's current report on Form 8-K filed
on July 14, 1999.
P Incorporated by reference to the Company's current report on Form 8-K filed
on September 15, 1999.
63
65
Q Incorporated by reference to the Company's current report on Form 8-K filed
on October 15, 1999.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,
as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, which documents are hereby
incorporated by reference.
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the last quarter of the
fiscal year ended September 30, 1999.
(1) Amended current report on Form 8-K/A filed on July 7, 1999 relating to
the acquisition of Hanyon Tech. Co., Ltd. by the Company.
- The following audited financial statements of Hanyon together with the
report thereon by Samil Accounting Corporation were filed with the
Form 8-K/A:
Balance Sheet as of December 31, 1998
Income Statement for the year ended December 31, 1998
Statement of Appropriation of Retained Earnings for the year ended
December 31, 1998
Statement of Cash Flows for the year ended December 31, 1998
Notes to the Financial Statements
- The following unaudited pro forma consolidated condensed financial
statements of the Company and Hanyon were filed with the Form 8-K/A:
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March
31, 1999
Unaudited Pro Forma Condensed Consolidated Income Statement for the
six months ended March 31, 1999
Unaudited Pro Forma Condensed Consolidated Income Statement for the
year ended September 30, 1998
Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements
(2) Current report on Form 8-K filed on July 14, 1999 relating to the
acquisition of substantially all of the assets of Domain Manufacturing
Corporation and its subsidiary Domain Manufacturing SARL by the
Company.
(3) Current report on Form 8-K filed on September 15, 1999 relating to the
Combination of Smart Machines Inc. with the Company.
(4) Amended current report on Form 8-K/A filed on September 29, 1999
relating to the Combination of Smart Machines Inc. with the Company.
- The following audited Financial Statements of Smart Machines Inc. were
filed with the Form 8-K/A:
Smart Machines Inc. Balance Sheets as of December 31, 1998 and 1997;
Smart Machines Inc. Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 and for the period from October 1,
1994 (date of inception) to December 31, 1998;
Smart Machines Inc. Statements of Changes in Nonredeemable Preferred
Stock and Shareholders' Equity (Deficit) for the period from October
1, 1994 (date of inception) to December 31, 1998;
64
66
Smart Machines Inc. Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 and for the period from October 1,
1994 (date of inception) to December 31, 1998;
Smart Machines Inc. Notes to Financial Statements;
Report of Independent Accountants;
Smart Machines Inc. Unaudited Condensed Balance Sheet as of March 31,
1999 and Condensed Balance Sheet as of December 31, 1998;
Smart Machines Inc. Unaudited Condensed Statements of Operations for
the three months ended March 31, 1999 and 1998, and for the period
from October 1, 1994 (date of inception) to March 31, 1999;
Smart Machines Inc. Unaudited Condensed Statements of Cash Flows for
the three months ended March 31, 1999 an 1998, and for the period
from October 1, 1994 (date of inception) to the March 31, 1999; and
Smart Machines Inc. Notes to Unaudited Condensed Financial
Statements.
- The following Unaudited Pro Forma Financial Information for the
Company and Smart Machines Inc. were filed with the Form 8-K/A
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1999;
Pro Forma Condensed Consolidated Statements of Operations for the six
months ended March 31, 1999 and 1998, and the years ended September
30, 1998, 1997 and 1996; and
Notes to Pro Forma Condensed Consolidated Financial Statements.
65
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BROOKS AUTOMATION, INC.
Date: December 29, 1999 /s/ ROBERT J. THERRIEN
--------------------------------------
Robert J. Therrien, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ ROBERT J. THERRIEN Director and President December 29, 1999
- --------------------------------------------------- (Principal Executive Officer)
Robert J. Therrien
/s/ ELLEN B. RICHSTONE Senior Vice President and Chief December 29, 1999
- --------------------------------------------------- Financial Officer (Principal
Ellen B. Richstone Financial Officer)
/s/ STEVEN E. HEBERT Principal Accounting Officer December 29, 1999
- ---------------------------------------------------
Steven E. Hebert
/s/ ROGER D. EMERICK Director December 29, 1999
- ---------------------------------------------------
Roger D. Emerick
Director
- ---------------------------------------------------
Amin J. Khoury
/s/ JUERGEN GIESSMANN Director December 29, 1999
- ---------------------------------------------------
Juergen Giessmann
66
68
EXHIBIT INDEX
EXHIBIT NO.
- -----------
10.30 Form of Agreement between Executive Officers and Registrant Filed
Relating to Change of Control* herewith
10.31 Agreement between Ellen Richstone and Registrant Relating to Filed
Change of Control* herewith
10.32 Lease Agreement between the Registrant and Clearfield Filed
Investments, LLC for the Registrant's Colorado manufacturing herewith
facility
10.33 Transitional Services Agreement between the Registrant and Filed
Jenoptik AG relating to the Registrant's German herewith
manufacturing facility
10.34 Lease Agreement between a subsidiary of the Registrant and Filed
Montague Oaks Phase I & II for the Registrant's California herewith
manufacturing facility
21.01 Subsidiaries of the Registrant Filed
herewith
23.01 Consent of PricewaterhouseCoopers LLP Filed
herewith
27.01 Financial Data Schedule as of and for the year ended Filed
September 30, 1999 herewith
27.02 Financial Data Schedule as of and for the year ended Filed
September 30, 1998 herewith
99.04 1998 Employee Equity Incentive Plan Filed
herewith