UNITED STATESUNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE NUMBER 0-25434 ------- BROOKS AUTOMATION, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-3040660 -------- ---------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 15 ELIZABETH DRIVE CHELMSFORD, MASSACHUSETTS (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 01824 (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 262-2566 _____________________________________________ 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 [_] AS OF JULY 31, 1997, THERE WERE OUTSTANDING 7,675,872 SHARES OF THE COMPANY'S COMMON STOCK, $.01 PAR VALUE. THIS REPORT, INCLUDING ALL EXHIBITS AND ATTACHMENTS, CONTAINS 14 PAGES. Page 1 of 14
BROOKS AUTOMATION, INC. INDEX <TABLE> <CAPTION> PAGE PART 1 FINANCIAL INFORMATION NUMBER - -------- --------------------- ------ Item 1 Consolidated Financial Statements: - ------ ---------------------------------- <S> <C> <C> Consolidated Balance Sheet............................................ 3 Consolidated Statement of Operations................................... 4 Consolidated Statement of Cash Flows................................... 5 Notes to Unaudited Consolidated Financial Statements................... 6-7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 8-12 PART II OTHER INFORMATION - ------- ----------------- Item 6 Exhibits and Reports on Form 8-K....................................... 13 SIGNATURES ....................................................................... 14 </TABLE> Page 2 of 14
BROOKS AUTOMATION, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE-RELATED DATA) <TABLE> <CAPTION> JUNE 30, SEPTEMBER 30, 1997 1996 (UNAUDITED) ASSETS Current assets: <S> <C> <C> Cash and cash equivalents $ 1,129 $ 2,102 Accounts receivable, net of allowance for doubtful accounts of $160 and $100, respectively 24,679 24,381 Inventories 21,028 17,803 Prepaid expenses and other current assets 3,756 1,679 ------- ------- Total current assets 50,592 45,965 Fixed assets, net 19,523 16,698 Other assets 3,465 2,098 ------- ------- Total assets $73,580 $64,761 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term liabilities $10,850 $ 1,431 Accounts payable 8,906 8,103 Accrued compensation and benefits 2,154 2,719 Accrued expenses and other current liabilities 1,195 1,130 ------- ------- Total current liabilities 23,105 13,383 Long-term liabilities 579 687 ------- ------- Total liabilities 23,684 14,070 ------- ------- Commitments and contingency - - Stockholders' equity: Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued and outstanding - - Common stock, $.01 par value; 21,500,000 shares authorized; 7,653,315 shares and 7,569,109 shares issued and outstanding, respectively 76 76 Additional paid-in capital 34,682 34,335 Cumulative translation adjustment (97) (174) Deferred compensation (92) (110) Retained earnings 15,327 16,564 ------- ------- Total stockholders' equity 49,896 50,691 ------- ------- Total liabilities and stockholders' equity $73,580 $64,761 ======= ======= </TABLE> The accompanying notes are an integral part of these consolidated financial statements. Page 3 of 14
BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) <TABLE> <CAPTION> NINE MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, 1997 1996 1997 1996 <S> <C> <C> <C> <C> Revenues $55,603 $66,446 $23,059 $25,280 Cost of revenues 38,094 38,478 15,428 14,813 ------- ------- ------- ------- Gross profit 17,509 27,968 7,631 10,467 ------- ------- ------- ------- Operating expenses: Research and development 9,722 9,023 3,614 3,288 Selling, general and administrative 8,979 9,183 3,442 3,410 ------- ------- ------- ------- Total operating expenses 18,701 18,206 7,056 6,698 ------- ------- ------- ------- Income (loss) from operations (1,192) 9,762 575 3,769 Interest expense 415 283 158 89 Interest income 16 312 - 41 ------- ------- ------- ------- Income (loss) before income taxes (1,591) 9,791 417 3,721 Income tax provision (benefit) (354) 3,459 150 1,346 ------- ------- ------- ------- Net income (loss) $(1,237) $ 6,332 $ 267 $ 2,375 ======= ======= ======= ======= Net income (loss) per common share $(.16) $.77 $.03 $.29 ======= ======= ======= ======= Weighted average number of common and common equivalent shares 7,614 8,221 8,439 8,184 ======= ======= ======= ======= </TABLE> The accompanying notes are an integral part of these consolidated financial statements. Page 4 of 14
BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) <TABLE> <CAPTION> NINE MONTHS ENDED JUNE 30, 1997 1996 ---- ---- <S> <C> <C> INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(1,237) $ 6,332 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 3,307 2,156 Changes in operating assets and liabilities: Accounts receivable (208) (9,016) Inventories (3,315) (6,335) Prepaid expenses and other current assets (1,949) (936) Accounts payable 803 2,852 Accrued compensation and benefits (507) 697 Accrued expenses and other current liabilities 75 47 ------- -------- Net cash used in operating activities (3,031) (4,203) ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (5,742) (5,995) Increase in other assets (1,740) (207) ------- -------- Net cash used in investing activities (7,482) (6,202) ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under credit lines 9,430 187 Principal payments on long-term liabilities (315) (357) Proceeds from issuance of common stock 349 158 Dividends paid - (91) Purchase and retire treasury stock - (239) ------- -------- Net cash provided (used) by financing activities 9,464 (342) ------- -------- Effects of exchange rate changes on cash and cash equivalents 76 (4) ------- -------- Net decrease in cash and cash equivalents (973) (10,751) Cash and cash equivalents, beginning of period 2,102 15,594 ------- -------- Cash and cash equivalents, end of period $ 1,129 $ 4,843 ======= ======== </TABLE> SUPPLEMENTAL CASH FLOW INFORMATION During the nine months ended June 30, 1996, the Company acquired $583 of fixed assets under capital leases. The accompanying notes are an integral part of these consolidated financial statements. Page 5 of 14
BROOKS AUTOMATION, INC. ======================= NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Brooks Automation, Inc. and its subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles and with the instructions to Article 10 of Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company which are included in the Company's Annual Report on Form 10-K/A for the year ended September 30, 1996. The results of operations for the nine months and three months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 1997. 2. INVENTORIES Inventories consist of the following: June 30, September 30, (in thousands) 1997 1996 ---- ---- Raw materials and purchased parts $14,229 $12,547 Work-in-process 5,721 2,899 Finished goods 1,078 2,357 ------- ------- $21,028 $17,803 ======= ======= 3. NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is determined based on the weighted average number of common shares and common equivalent shares, if dilutive, assumed outstanding during the applicable period. Primary and fully- diluted net income (loss) per share are essentially the same for the periods presented. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS128), which establishes standards for computing and presenting earnings per share. The new standard replaces the presentation of primary earnings per share prescribed by Accounting Principles Board Opinion No. 15, "Earnings per Share" (APB15) with a presentation of basic earnings per share and also requires dual presentation of basic and diluted earnings per share on the face of the statement of operations for all entities with complex capital structures. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed similarly to fully diluted earnings per share pursuant to APB15. The Company will be required to implement SFAS128 in the first quarter of fiscal 1998 and to restate all prior periods. If the Company had been required to implement the guidance in SFAS128 during the three months ended June 30, 1997, the following earnings per share amounts would have been reported. <TABLE> <CAPTION> Nine months ended Three months ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net income (loss) per common share: Basic $ (.16) $ .85 $ .04 $ .32 ====== ====== ====== ====== Diluted $ (.16) $ .77 $ .03 $ .29 ====== ====== ====== ====== Weighted average number of common shares 7,614 7,489 7,606 7,516 ====== ====== ====== ====== Weighted average number of common and dilutive potential common shares 7,614 8,221 8,439 8,184 ====== ====== ====== ====== </TABLE> Page 6 of 14
BROOKS AUTOMATION, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 4. RELATED PARTY AND SIGNIFICANT CUSTOMER INFORMATION During the nine months ended June 30, 1997 and 1996, the Company had revenues from a related party representing 23% and 21% of revenues, respectively. During the three months ended June 30, 1997 and 1996, the Company had revenues from a related party representing 28% of revenues in each period. At June 30, 1997 and September 30, 1996, related party accounts receivable accounted for 21% and 23%, respectively, of accounts receivable. An executive of this customer is a member of the Company's Board of Directors. At June 30, 1997, accounts receivable from one customer (not a related party) accounted for 13% of accounts receivable. At September 30, 1996, accounts receivable from one customer (not a related party) accounted for 15% of accounts receivable. 5. STOCK PLAN On February 20, 1997, the stockholders of the Company approved an increase in the number of shares of common stock available for issuance under the Company's 1993 Non-Employee Director Stock Option Plan from 90,000 shares to 190,000 shares. 6. COMMITMENTS AND 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 believes the patents claimed may be invalid. In the event of litigation with respect to this notice, 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 information currently available to it, the Company would only do so if 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; however, there can be no assurance that this will be the case. The Company is currently unable to reasonably estimate any possible loss related to this matter. Page 7 of 14
BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Brooks Automation, Inc. is a leading, worldwide independent supplier of substrate material handling robots, modules, software controls and fully integrated cluster tool platforms to semiconductor, flat panel display and data storage manufacturers. From time to time, information provided by the Company or statements made by its employees may contain "forward-looking" information which involves risks and uncertainties. In particular, statements contained in this report which are not historical facts (including, but not limited to, statements concerning anticipated revenues, geographical growth rates, anticipated operating expense levels and the availability of funds to meet cash requirements) are based on the assumptions and expectations of the Company's management at the time such statements are made and may be "forward-looking" statements. The Company's actual future results may differ significantly from those stated in any "forward-looking" statements. Factors that may cause such differences include, but are not limited to, the factors discussed below under the caption "Factors That May Affect Future Results" and the accuracy of the Company's internal estimates of revenues and operating expense levels. RESULTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1996 REVENUES Revenues for the three months ended June 30, 1997 decreased 8.8% or $2.2 million to $23.1 million compared with revenues of $25.3 million in the comparable prior fiscal period. Revenues for the nine months ended June 30, 1997 decreased 16.3% or $10.8 million to $55.6 million compared with revenues of $66.4 million in the comparable prior fiscal period. Revenues from 200 mm vacuum central wafer handling systems and components decreased 14.8% or $2.6 million and 31.8% or $14.9 million, respectively, for the three months and nine months ended June 30, 1997. The decrease in 200 mm product revenues for the three months ended June 30, 1997 was partially offset by increased control software revenue and shipments of 300 mm vacuum central wafer handling systems. The decrease in 200 mm product revenues for the nine months ended June 30, 1997 was partially offset by shipments of 300 mm and flat panel display ("FPD") products. The Company attributes the lower revenue levels in the current quarter and the nine months ended June 30, 1997 to a broad decline in capital spending by the semiconductor manufacturing equipment industry. As a result, the Company expects that revenues for fiscal 1997 will be lower than fiscal 1996 revenues. Foreign revenues for the three months ended June 30, 1997 increased 63.2% to $6.2 million (26.8% of revenues), including $4.6 million of direct sales to Asian customers, compared with foreign revenues of $3.8 million (15.0% of revenues), including $2.8 million of direct sales to Asian customers in the comparable prior fiscal period. Foreign revenues for the nine months ended June 30, 1997 increased 42.0% to $16.9 million (30.4% of revenues), including $13.1 million of direct sales to Asian customers, compared with foreign revenues of $11.9 million (17.9% of revenues), including $8.3 million of direct sales to Asian customers in the comparable prior fiscal period. The increase in foreign revenues was primarily attributable to shipments of 200 mm and 300 mm vacuum central wafer handling systems and FPD systems to customers primarily in Japan and Korea. The Company expects that foreign revenues will continue to grow throughout fiscal 1997 and to account for a significant portion of total revenues. However, there can be no assurance that geographical growth rates, if any, in the foreseeable future will be comparable to those achieved in the nine months ended June 30, 1997. GROSS PROFIT Gross profit as a percentage of revenues decreased to 33.1% and 31.5%, respectively, for the three months and nine months ended June 30, 1997 compared with 41.4% and 42.1%, respectively, for the comparable prior fiscal periods. The decrease in the gross profit percentage is mainly attributable to underutilization of manufacturing capacity, higher concentration of shipments of lower gross margin platforms, increased global support costs and to a lesser extent, pricing pressure and higher new product introduction costs. Global support costs, consisting primarily of personnel costs and travel expenses, increased 107% to $1.8 million (7.8% of revenues) for the three months ended June 30, 1997 from $868,000 (3.4% of revenues) in the comparable prior fiscal period. Global support costs increased 104% to $4.7 million (8.5% of revenues) for the nine months ended June 30, 1997 from $2.3 million (3.5% of revenues) in the comparable prior fiscal period. The increase in global support costs are indicative of the expansion of the Company's global support organization in support of the international growth of its customer base. In future periods, gross profit may be adversely affected by changes in the mix of products sold, continued pricing pressure or increases in the cost of goods. Page 8 of 14
BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESEARCH AND DEVELOPMENT Research and development expenses increased 9.9% to $3.6 million (15.7% of revenues) for the three months ended June 30, 1997 from $3.3 million (13.0% of revenues) in the comparable prior fiscal period. Research and development expenses increased 7.7% to $9.7 million (17.5% of revenues) for the nine months ended June 30, 1997 from $9.0 million (13.6% of revenues) in the comparable prior fiscal period. During fiscal 1997, the Company has continued to make investments in research and development to enhance existing and develop new semiconductor and flat panel display products. As a percentage of revenues, the increase in research and development expenses reflects the effect on the Company's cost structure of the lower revenue level in the current quarter and the nine months ended June 30, 1997. The Company believes that research and development expenditures are essential to maintaining its competitive position in the semiconductor and flat panel display fabrication equipment market and expects these expenditure levels to continue at or above current levels in the foreseeable future. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses of $3.4 million for the three months ended June 30, 1997 approximated the level of expenses in the comparable prior fiscal period, while increasing as a percentage of revenues (13.5% and 14.9% of revenues in the third quarter of fiscal 1996 and fiscal 1997, respectively). Selling, general and administrative expenses decreased 2.2% to $9.0 million (16.1% of revenues) for the nine months ended June 30, 1997 from $9.2 million (13.8% of revenues) in the comparable prior fiscal period. Selling, general and administrative expenses for the nine months ended June 30, 1996 included merger-related expenses of $230,000 in connection with the acquisition of Techware Systems Corporation during the fiscal 1996 second quarter. There were no such merger-related expenses incurred by the Company during the nine months ended June 30, 1997. As a percentage of revenues, the increase in selling, general and administrative expenses reflects the effect on the Company's cost structure of the lower revenue level in the current quarter and the nine months ended June 30, 1997. The Company expects expenditure levels to support the growth of its worldwide sales and administrative organizations will continue at or above current levels in the foreseeable future reflecting the Company's commitment to further penetrate key international markets. INTEREST EXPENSE Interest expense increased 77.5% or $69,000 to $158,000 (0.7% of revenues) for the three months ended June 30, 1997 from $89,000 (0.4% of revenues) in the comparable prior fiscal period. Interest expense increased 46.6% or $132,000 to $415,000 (0.7% of revenues) for the nine months ended June 30, 1997 from $283,000 (0.4% of revenues) in the comparable prior fiscal period. The increase in interest expense is primarily due to higher borrowings during the second and third quarters of fiscal 1997 compared with the same periods of fiscal 1996. INTEREST INCOME Interest income decreased 94.9% or $296,000 to $16,000 for the nine months ended June 30, 1997 from $312,000 (0.5% of revenues) in the comparable prior fiscal period. The Company had no interest income for the three months ended June 30, 1997. The decrease in interest income is due to lower cash and investment balances during the current quarter and the nine months ended June 30, 1997 compared with the same periods of fiscal 1996. FOREIGN CURRENCY FLUCTUATIONS The Company's foreign revenues are generally denominated in U.S. 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 U.S. 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 and therefore, foreign currency fluctuations have not had any impact on the comparison of the results of operations for the periods presented. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1997, the Company had working capital of $27.5 million compared with working capital of $32.6 million as of September 30, 1996. The decrease in working capital during the nine months ended June 30, 1997 was due primarily to increased bank borrowings. During the nine months ended June 30, 1997, the Company used cash in operating activities of $3.0 million primarily due to decreased earnings and increased inventory levels. Inventories increased, particularly in the current quarter, to support increased demand for products. Capital expenditures during the period consisted primarily of CAD/CAM/CAE (computer-aided design, manufacturing and engineering), test and demonstration equipment, as well as improvements in and expansion of the Company's facilities worldwide. Page 9 of 14
BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the remainder of fiscal 1997, the Company expects to continue to make capital expenditures to support its business; however, the level of spending will be dependent on various factors, including the growth of the business and general economic conditions. Financing activities during the period consisted primarily of $9.4 million of net borrowings under credit lines to fund operating activities and capital expenditures. The Company has a $22.0 million unsecured revolving credit facility and a $6.0 million unsecured foreign currency line of credit, both of which expire December 31, 1998. Under the revolving credit facility, advances bear interest, at the option of the Company, at the prime rate (8.5% at June 30, 1997) or the LIBOR rate plus 2%. At June 30, 1997, the Company had outstanding $9.7 million bearing interest at an average rate of 8.2% under the revolving credit facility and $706,000 denominated in Japanese yen under the foreign currency line of credit. Foreign currency advances bear interest at the LIBOR rate plus 2% (2.6% for Japanese yen at June 30, 1997). The terms of the Loan Agreement (the "agreement"), as amended as of June 30, 1997 require the Company to comply with various covenants, including the maintenance of specified financial ratios and a minimum tangible capital base, as defined, and limit the Company's annual level of capital expenditures. At June 30, 1997, the Company was in compliance with the terms of the agreement. The Company believes that anticipated cash flows from operations, available funds and borrowings available under the Company's bank lines of credit, will be adequate to meet the Company's currently planned working capital and capital expenditure requirements for the next twelve months. 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 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 information currently available to it, the Company would only do so if license fees would not be material to the Company's consolidated financial statements. There can be no assurance that the Company would prevail in any litigation seeking damages or expenses from the Company or to enjoin the Company from selling its products on the basis of the alleged patent infringement, or that a license for any of the alleged infringed patents will be available to the Company on reasonable terms, if at all. 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; however, there can be no assurance that this will be the case. The Company is currently unable to reasonably estimate any possible loss related to this matter. FACTORS THAT MAY AFFECT FUTURE RESULTS CUSTOMER CONCENTRATION Relatively few customers account for a substantial portion of the Company's revenues. Sales to the Company's ten largest customers in the nine months ended June 30, 1997, fiscal 1996 and fiscal 1995 accounted for 68%, 70% and 75% of revenues, respectively. In the nine months ended June 30, 1997 and in fiscal 1996 and fiscal 1995, sales to Lam Research Corporation (a related party), the Company's largest customer in these periods accounted for 23%, 21% and 21% of the revenues, respectively. The Company expects that sales to Lam will continue to represent a significant portion of the Company's revenues for the foreseeable future. The Company's customers generally do not enter into long-term agreements obligating them to purchase the Company's products. A reduction or delay in orders from Lam or other significant customers, including reductions or delays due to market, economic or competitive conditions in the semiconductor or flat panel display industries, could have a material adverse effect on the Company's future financial condition, revenues and operating results. Page 10 of 14
BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DEPENDENCE ON CYCLICAL INDUSTRIES The Company's business is significantly dependent on capital expenditures by manufacturers of semiconductors. The semiconductor industry is highly cyclical and historically has experienced periods of oversupply, resulting in significantly reduced demands for capital equipment, including the products manufactured and marketed by the Company. The Company believes a broad decline in capital spending by the semiconductor manufacturing equipment industry resulted in lower revenues for the nine months ended June 30, 1997 than in the comparable period of fiscal 1996. The Company's future financial condition, revenues and operating results have been and may in the future be materially adversely affected by semiconductor industry downturns or slowdowns. There can be no assurance as to when, if ever, capital spending in the semiconductor manufacturing equipment industry will recover. RELIANCE ON OEM CUSTOMERS; LENGTHY SALES CYCLE The Company's products are principally sold to OEMs which incorporate the Company's products into their equipment. Due to the significant capital commitments usually incurred by semiconductor and flat panel display manufacturers in their purchase of the OEM's equipment, these manufacturers demand highly reliable products which require as long as several years for OEMs to develop. The Company's revenues are therefore primarily dependent upon the timing and effectiveness of the efforts of its OEM customers in developing and marketing equipment incorporating the Company's products. There can be no assurance that any equipment incorporating the Company's products will be marketed successfully by the Company's customers. JAPANESE MARKET The Japanese semiconductor and flat panel display process equipment markets are large and difficult for foreign companies to penetrate. The Company believes that increasing its penetration of the Japanese market is important to its business, and that it is currently at a competitive disadvantage to Japanese suppliers, many of which have long-standing collaborative relationships with Japanese semiconductor and flat panel display process equipment manufacturers. Moreover, the Company's ability to compete effectively in the Japanese market may be limited by the Company's size and its geographic location. Although the Company intends to expand its direct presence in Japan, there can be no assurance that the Company will be able to achieve significant sales to, or compete successfully in, Japan. FOREIGN REVENUES The Company does business worldwide, both directly and via sales to United States-based OEMs who sell such products internationally. In the nine months ended June 30, 1997 and in fiscal 1996 and fiscal 1995, foreign revenues accounted for 30%, 20% and 12%, respectively, of the Company's revenues. The Company anticipates that foreign revenues will continue to account for a significant percentage of revenues, which will result in a significant portion of the Company's revenues and operating results being subject to risks associated with foreign revenues, including United States and foreign regulatory and policy changes, political and economic instability, difficulties in accounts receivable collection, difficulties in managing representatives, and foreign currency fluctuations. HIGHLY COMPETITIVE INDUSTRY The markets for the Company's products are highly competitive and subject to rapid technological change. Many of the Company's current and potential competitors have substantially greater resources than the Company. The Company believes that its primary competition is from integrated OEMs 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 the Company. There can be no assurance that the Company will be successful in selling its products to OEMs that currently satisfy their substrate handling needs in-house, regardless of the performance or the price of the Company's products. Moreover, there can be no assurance that these OEMs will not begin to commercialize their vacuum handling capabilities. Competitors may develop superior products or products of similar quality at the same or lower prices. Other technical innovations may impair the Company's ability to market its products. There can be no assurance that the Company will be able to compete successfully. Page 11 of 14
BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEW PRODUCTS AND TECHNOLOGICAL CHANGE The semiconductor, flat panel display and data storage manufacturing industries have been characterized by rapid technological change and evolving industry requirements and standards. The Company believes that these trends will continue into the foreseeable future. The Company's success will depend upon its ability to enhance its existing products and to develop new products to meet customer requirements and to achieve market acceptance. There can be no assurance that the Company will be successful in introducing products or product enhancements once developed. Further, there can be no assurance that the Company's products will not be rendered obsolete by new industry standards or changing technology. QUARTERLY FLUCTUATIONS IN OPERATING RESULTS AND MARKET PRICE OF SECURITIES The Company's quarterly operating results may vary significantly from quarter- to-quarter depending on factors such as economic conditions in the semiconductor, flat panel display and data storage industries, the timing of significant orders and shipments of its products, changes and delays in product development, new product introductions by the Company and its competitors, the mix of products sold by the Company and competitive pricing pressures. Additionally, the Company's vacuum central handling systems have high selling prices. As a result, quarterly variations in systems sales will significantly affect the Company's operating results. Moreover, customers may cancel or reschedule shipments and production difficulties could delay shipments. These factors could have a material adverse effect on the Company's future financial condition, revenues and operating results. The market price of the Company's securities could also be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, and market conditions in the semiconductor industry, as well as general economic conditions and other factors external to the Company. Page 12 of 14
BROOKS AUTOMATION, INC. PART II: OTHER INFORMATION Item 6 (a) Exhibits (10.25) Loan Agreement Second Amendment dated June 30, 1997 (10.26) Loan Agreement First Amendment dated June 3, 1997 (11.01) Computation of per share earnings (incorporated herein by reference to Note 3 of Notes to Unaudited Consolidated Financial Statements). (27.1) Financial Data Schedule Item 6 (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1997. Page 13 of 14
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BROOKS AUTOMATION, INC. August 14, 1997 /s/ Robert J. Therrien - --------------- -------------------------------- [Date] Robert J. Therrien Chief Executive Officer, President and Treasurer August 14, 1997 /s/ Stanley D. Piekos - --------------- -------------------------------- [Date] Stanley D. Piekos Vice President - Finance and Chief Financial Officer Page 14 of 14