1 UNITED 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: December 31, 2000 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: (978) 262-2400 --------------------------------------------- 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 the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practical date (January 31, 2001): Common stock, $0.01 par value 17,279,221 shares
2 BROOKS AUTOMATION, INC. INDEX PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2000 (unaudited) and September 30, 2000 3 Consolidated Statements of Operations for the three months ended December 31, 2000 and 1999 (unaudited) 4 Consolidated Statements of Cash Flows for the three months ended December 31, 2000 and 1999 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 23 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 24 Signatures 25
3 BROOKS AUTOMATION, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) <TABLE> <CAPTION> (UNAUDITED) December 31, September 30, 2000 2000 ------------ ------------- <S> <C> <C> Assets Current assets Cash and cash equivalents $ 82,972 $ 131,203 Marketable securities 140,329 88,034 Accounts receivable, net, including related party receivables of $7,000 and $6,820, respectively 106,303 92,779 Inventories 64,772 56,975 Prepaid expenses and other current assets 8,221 8,441 Deferred income taxes 18,912 17,952 --------- --------- Total current assets 421,509 395,384 Fixed assets, net of accumulated depreciation of $40,094 and $36,482, respectively 26,849 24,899 Intangible assets, net of accumulated amortization of $29,093 and $21,926, respectively 55,094 60,263 Long-term marketable securities - 15,000 Deferred income taxes 15,476 13,361 Other assets 6,276 4,221 --------- --------- Total assets $ 525,204 $ 513,128 ========= ========= LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY Current liabilities Notes payable $ 16,000 $ 16,000 Current portion of long-term debt and capital lease obligations 579 519 Accounts payable 23,981 20,874 Deferred revenue 16,030 17,018 Accrued compensation and benefits 12,511 14,407 Accrued acquisition-related and restructuring costs 510 538 Accrued income taxes payable 16,074 9,188 Accrued expenses and other current liabilities 14,529 13,760 --------- --------- Total current liabilities 100,214 92,304 Long-term debt and capital lease obligations 79 282 Deferred income taxes 4,666 5,064 Other long-term liabilities 456 438 --------- --------- Total liabilities 105,415 98,088 --------- --------- Contingencies (Note 9) Minority interests 1,129 1,186 --------- --------- Stockholders' equity Preferred stock, $0.01, 1,000,000 shares authorized, none issued and outstanding - - Common stock, $0.01 par value, 43,000,000 shares authorized, 17,227,059 and 17,218,484 shares issued and outstanding, respectively 172 172 Additional paid-in capital 433,233 433,101 Deferred compensation (27) (35) Accumulated other comprehensive loss (3,255) (2,942) Accumulated deficit (11,463) (16,442) --------- --------- Total stockholders' equity 418,660 413,854 --------- --------- Total liabilities, minority interests and stockholders' equity $ 525,204 $ 513,128 ========= ========= </TABLE> The accompanying notes are an integral part of these consolidated financial statements. 3
4 BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data) THREE MONTHS ENDED DECEMBER 31, 2000 1999(1) --------- -------- Revenues Product, including related party revenues of $10,859 and $6,973, respectively $ 88,026 $ 47,185 Services 19,552 7,211 --------- -------- Total revenues 107,578 54,396 --------- -------- Cost of revenues Product 45,915 24,396 Services 13,644 3,653 --------- -------- Total cost of revenues 59,559 28,049 --------- -------- Gross profit 48,019 26,347 --------- -------- Operating expenses Research and development 13,273 7,738 Selling, general and administrative 21,878 13,330 Amortization of acquired intangible assets 5,693 849 --------- -------- Total operating expenses 40,844 21,917 --------- -------- Income from operations 7,175 4,430 Interest income 3,956 643 Interest expense (204) (313) Other expense, net (841) (41) --------- -------- Income before income taxes and minority interests 10,086 4,719 Income tax provision 5,164 1,808 --------- -------- Income before minority interests 4,922 2,911 Minority interests in loss of consolidated subsidiary (57) (93) --------- -------- Net income $ 4,979 $ 3,004 ========= ======== Earnings per share Basic $ 0.29 $ 0.23 Diluted $ 0.28 $ 0.22 Shares used in computing earnings per share Basic 17,222 13,076 Diluted 17,598 13,718 (1) Amounts have been restated to reflect the acquisition of Irvine Optical Company LLC in a pooling of interests transaction effective May 5, 2000. The accompanying notes are an integral part of these consolidated financial statements. 4
5 BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, 2000 1999(1) --------- -------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,979 $ 3,004 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 8,770 2,890 Compensation expense related to common stock options 8 7 Deferred income taxes (428) 524 Minority interests (57) (93) Changes in operating assets and liabilities: Accounts receivable (13,446) (10,854) Inventories (7,257) (4,178) Prepaid expenses and other current assets 249 (172) Accounts payable 2,990 6,025 Deferred revenue (1,025) 398 Accrued acquisition-related and restructuring costs (28) (203) Accrued expenses and other current liabilities 2,433 924 --------- -------- Net cash used in operating activities (2,812) (1,728) --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (4,997) (3,534) Purchase of businesses, net of cash acquired (1,244) (147) Purchase of short-term marketable securities (37,295) - Increase in other assets (2,611) (144) --------- -------- Net cash used in investing activities (46,147) (3,825) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under lines of credit - 651 Net decrease in short-term borrowings - (260) Payments of long-term debt (143) (124) Proceeds from issuance of common stock 1,047 155 --------- -------- Net cash provided by financing activities 904 422 --------- -------- Elimination of net cash activities of Irvine Optical for the three months ended December 31, 1999 - 14 --------- -------- Effects of exchange rate changes on cash and cash equivalents (176) (152) --------- -------- Net decrease in cash and cash equivalents (48,231) (5,269) Cash and cash equivalents, beginning of period 131,203 66,366 --------- -------- Cash and cash equivalents, end of period $ 82,972 $ 61,097 ========= ======== </TABLE> (1) Amounts have been restated to reflect the acquisition of Irvine Optical Company LLC in a pooling of interests transaction effective May 5, 2000. The accompanying notes are an integral part of these consolidated financial statements. 5
6 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION The unaudited consolidated financial statements of Brooks Automation, Inc. and its subsidiaries (the "Company") included herein have been prepared in accordance with generally accepted accounting principles. In the opinion of management, all material adjustments necessary for a fair presentation of the results for the periods presented have been reflected. The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission for the year ended September 30, 2000. On December 13, 2000, the Company acquired substantially all of the assets of a scheduling and simulation software and services distributor in Japan. The transaction was recorded using the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16"). Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows for the three months ended December 31, 2000, include the results of this acquired entity for the period subsequent to its acquisition. The Company made several acquisitions during fiscal year 2000 which were accounted for using the purchase method of accounting in accordance with APB 16: MiTeX Solutions ("MiTeX") on June 23, 2000 and Auto-Soft Corporation ("ASC") and AutoSimulations, Inc. ("ASI") on January 6, 2000. Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows for the three months ended December 31, 2000, include the results of these acquired entities. The consolidated financial statements and notes thereto for the three months ended December 31, 1999 have been restated to reflect the acquisition of Irvine Optical Company LLC ("Irvine Optical") in a pooling of interests transaction effective May 5, 2000. Certain amounts in previously issued financial statements have been reclassified to conform to current presentation. In December 1999, the U.S. Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101 summarizes the SEC's views in applying generally accepted accounting principles to selected revenue recognition issues in financial statements. In June 2000, the SEC issued Staff Accounting Bulletin No. 101B, an amendment to SAB 101, which delays the implementation of SAB 101. The application of the guidance in SAB 101 will now be required in the Company's fourth quarter of fiscal 2001. The Company is currently determining the impact that SAB 101 may have on its financial position and results of operations. 6
7 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued 2. BUSINESS ACQUISITIONS On December 13, 2000, the Company acquired substantially all of the assets of the business unit which acts as a distributor for ASI's software products ("ASI-Japan"), from Daifuku Co., Ltd. of Japan ("Daifuku"). The Company had acquired ASI from Daifuku America Corporation ("Daifuku America"), a U.S. subsidiary of Daifuku, on January 6, 2000. Upon its acquisition ASI-Japan was integrated into the Company's subsidiary in Japan. The ASI-Japan business unit provides direct sales and support for ASI's integrated factory automation solutions to simulation and scheduling customers in Japan. In consideration, the Company paid $1.1 million cash. The transaction was recorded using the purchase method of accounting in accordance with APB 16. The excess of purchase price over net assets acquired of $1.1 million will be amortized over three years using the straight-line method. 3. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share data): Three months ended December 31, 2000 1999 ------- ------- Numerator: Net income $ 4,979 $ 3,004 ======= ======= Denominator: Denominator for basic earnings per share - weighted average shares 17,222 13,076 Effect of dilutive securities: Common stock options and warrants 376 642 ------- ------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 17,598 13,718 ======= ======= Basic earnings per share $ 0.29 $ 0.23 Diluted earnings per share $ 0.28 $ 0.22 Options to purchase approximately 2,290,000 and 359,000 shares of common stock were excluded from the computation of diluted earnings per share for the three months ended December 31, 2000 and 1999, respectively, as their effect would be anti-dilutive. However, these options could become dilutive in future periods. 7
8 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued 4. COMPREHENSIVE INCOME Comprehensive income for the Company is computed as the sum of net income and the change in the cumulative translation adjustment. Comprehensive income was $4,666,000 and $2,887,000 for the three month periods ended December 31, 2000 and 1999, respectively. 5. SEGMENT AND GEOGRAPHIC INFORMATION The Company has three reportable segments: tool automation systems, factory interface solutions and factory automation solutions. The tool automation systems segment provides a full complement of semiconductor wafer and flat panel display substrate handling systems and products for data storage. The factory interface solutions segment provides hardware and software solutions, including minienvironments and automated transfer mechanisms, to isolate the semiconductor wafer from the production environment. The factory automation segment provides software products for the semiconductor manufacturing execution system ("MES") market, including consulting and software customization. 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. Amortization of acquired intangible assets is excluded from the segments' operating income. The Company's non-allocable overhead costs, which include corporate general and administrative expenses, are allocated between the segments based upon segment revenues. The Company had two reportable segments in the prior year. Accordingly, all prior year information has been restated to conform to the present year presentation. Financial information for the Company's business segments is as follows (in thousands): <TABLE> <CAPTION> Tool Factory Factory Automation Interface Automation Systems Solutions Solutions Total ---------- --------- ----------- -------- <S> <C> <C> <C> <C> THREE MONTHS ENDED DECEMBER 31, 2000 Revenues $53,752 $ 26,754 $27,072 $107,578 Gross margin $19,923 $ 10,013 $18,083 $ 48,019 Operating income $ 7,333 $ 3,410 $ 2,125 $ 12,868 THREE MONTHS ENDED DECEMBER 31, 1999 Revenues $30,701 $ 10,937 $12,758 $ 54,396 Gross margin $12,419 $ 3,748 $10,180 $ 26,347 Operating income (loss) $ 3,167 $ (416) $ 2,528 $ 5,279 </TABLE> A reconciliation of the Company's reportable segment operating income to the corresponding consolidated amounts for the three month periods ended December 31, 2000 and 1999 is as follows (in thousands): Three months ended December 31, 2000 1999 ------- ------ Segment operating income $12,868 $5,279 Amortization of acquired intangible assets 5,693 849 ------- ------ Total operating income $ 7,175 $4,430 ======= ====== 8
9 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued Net revenues by geographic area are as follows (in thousands): Three months ended December 31, 2000 1999 -------- ------- North America $ 59,248 $26,291 Asia/Pacific 28,416 16,158 Europe 19,914 11,947 -------- ------- $107,578 $54,396 ======== ======= 6. SIGNIFICANT CUSTOMERS AND RELATED PARTY INFORMATION One of the Company's directors is also a director of one of the Company's customers. Net revenue recognized from this customer was $10.9 million and $7.0 million, or 10.1% and 12.9% of revenues, in the three months ended December 31, 2000 and 1999, respectively. Amounts due from this customer included in accounts receivable at December 31, 2000 and September 30, 2000 were $7.0 million and $6.8 million, respectively. Related party amounts included in accounts receivable are on standard terms and manner of settlement. The Company had no other customer that accounted for more than 10% of revenues in the three month periods ended December 31, 2000 or 1999. On January 23, 2001, one of the Company's directors resigned his position as a director of one of the Company's customers. Accordingly, this customer will not be considered a related party in subsequent reporting periods. 7. ACQUISITION-RELATED AND RESTRUCTURING LIABILITIES The activity related to the Company's acquisition-related and restructuring liabilities during the three months ended December 31, 2000 is below (in thousands): Balance Balance September 30, December 31, 2000 Utilization 2000 ------------- ----------- ------------ Facilities $ 507 $ (8) $499 Workforce-related 20 (20) - Other 11 - 11 ----- ----- ---- $ 538 $ (28) $510 ===== ===== ==== 9
10 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued 8. OTHER BALANCE SHEET INFORMATION Components of other selected captions in the Consolidated Balance Sheets follow (in thousands): December 31, September 30, 2000 2000 ------------ ------------- Accounts receivable $109,546 $94,709 Less allowances 3,243 1,930 -------- ------- $106,303 $92,779 ======== ======= Inventories Raw materials and purchased parts $ 45,667 $33,827 Work-in-process 11,686 13,668 Finished goods 7,419 9,480 -------- ------- $ 64,772 $56,975 ======== ======= 9. CONTINGENCY There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor and related industries. In 1992, the Company 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 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 it is probable that the future events related to this threatened matter would have an adverse effect on the Company's business. 10. SUBSEQUENT EVENTS The Company completed the purchase of its headquarters complex on January 29, 2001 for approximately $27 million in cash. 10
11 BROOKS AUTOMATION, INC. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain statements in this quarterly report constitute "forward-looking statements" which involve known risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Brooks 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 whenever they appear in this report. OVERVIEW Brooks Automation, Inc. ("Brooks" or the "Company") is a leading supplier of integrated tool and factory automation solutions for the global semiconductor and related industries such as the data storage and flat panel display manufacturing industries. 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 grown from individual robots used to transfer semiconductor wafers in advanced production equipment to fully integrated automation solutions that control the flow of resources in the factory from process tools to factory scheduling and dispatching. In 1998, the Company began an aggressive program of investment and acquisition. By the close of fiscal year 2000, Brooks had emerged as one of the leading suppliers of factory and tool automation solutions for semiconductor and original equipment manufacturers. 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 manufacturing execution system ("MES") does not preclude the Company from securing optimization products to fit with a competitor's MES. A significant portion 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 Asia and Europe. Sales in Asia have occurred primarily in Japan and South Korea, and, to a lesser extent, in Taiwan and Singapore. 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 under the caption "Accumulated other comprehensive income (loss)". 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 revenues grew substantially in fiscal 2000 compared to fiscal 1999 due in large part to high levels of capital expenditures of semiconductor manufacturers. The Company cannot guarantee that these levels of expenditures will be sustained through fiscal 2001. The Company's results are also effected, 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. 11
12 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BASIS OF PRESENTATION On December 13, 2000, the Company acquired substantially all of the assets of a scheduling and simulation software and services distributor in Japan. The transaction was recorded using the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16"). Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows for the three months ended December 31, 2000, include the results of this acquired entity for the period subsequent to its acquisition. The Company made several acquisitions during fiscal year 2000 which were accounted for using the purchase method of accounting in accordance with APB16: MiTeX Solutions ("MiTeX") on June 23, 2000 and Auto-Soft Corporation ("ASC") and AutoSimulations, Inc. ("ASI") on January 6, 2000. Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows for the three months ended December 31, 2000, include the results of these acquired entities. The consolidated financial statements and notes thereto for the three months ended December 31, 1999 have been restated to reflect the acquisition of Irvine Optical Company LLC ("Irvine Optical") in a pooling of interests transaction effective May 5, 2000. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1999 The Company reported net income of $5.0 million for the three months ended December 31, 2000, compared to $3.0 million in the same prior year period. The results for the three months ended December 31, 2000, include $5.7 million of amortization of acquired intangible assets. The results for the three months ended December 31, 1999, include $0.8 million of amortization of acquired intangible assets. The Company did not record any acquisition-related charges in either period. REVENUES The Company reported revenues of $107.6 million in the three months ended December 31, 2000, compared to $54.4 million in the same prior year period, a 97.8% increase. The overall increase is principally attributable to incremental revenue from acquisitions and the strength in both the original equipment manufacturer ("OEM") and end user markets. The Company experienced growth in all of the geographic regions in which it operates. All of the Company's segments reported increases in revenues from the prior year. The Company's tool automation systems segment reported revenues of $53.7 million in the three months ended December 31, 2000, an increase of 75.2% from $30.7 million in the comparable prior year period. This increase is primarily attributable to growth in the vacuum business area. Revenues for the Company's factory interface solutions segment were $26.8 million in the three months ended December 31, 2000, compared to $10.9 million in the same prior year period, an increase of 145.9%. This increase is the result of strong growth in the Company's sorter and SMIF product lines. The Company's factory automation solutions segment reported revenues of $27.1 million in the three months ended December 31, 2000, an increase of 111.7% from revenues of $12.8 million in the same period of the prior year. This increase is principally due to the acquisition of ASC and ASI on January 6, 2000. 12
13 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Product revenues increased $40.8 million, or 86.4%, to $88.0 million in the three months ended December 31, 2000, from $47.2 million in the three months ended December 31, 1999. This growth is primarily attributable to acquisitions and the overall strength in the OEM and end user markets. Service revenues increased $12.4 million, or 172.2%, to $19.6 million in the three months ended December 31, 2000, compared to $7.2 million in the same prior year period. This increase is primarily attributable to the Company's acquisition and internal growth. Foreign revenues were $48.7 million, or 45.2% of revenues, and $28.2 million, or 51.8% of revenues, in the three month periods ended December 31, 2000 and 1999, respectively. The increase is primarily the result of the Company's expanded global presence from its recent acquisitions and expanded sales and marketing activities. The Company expects that foreign revenues will continue to account for a significant portion of total revenues. However, the Company cannot guarantee that foreign revenues achieved will remain a strong component of the Company's total revenues. GROSS MARGIN Gross margin decreased to 44.6% for the three months ended December 31, 2000, compared to 48.4% for the same prior year period. The Company's tool automation systems segment gross margin decreased to 37.1% for the three months ended December 31, 2000, from 40.5% for the comparable prior year period. This decrease is primarily attributable to newer products in the atmospheric business which have not yet achieved their optimal manufacturing volume. Gross margin for the Company's factory interface solutions segment was 37.4% for the three months ended December 31, 2000, an increase compared to 34.3% for the same prior year period. This increase is primarily the result of product mix. The Company's factory automation solutions gross margin decreased to 66.8% for the three months ended December 31, 2000, from 79.8% for the same prior year period. The decrease is primarily attributable to the acquired service business of ASC, which has a historically lower margin structure than that of the segment. Gross margin on product revenues was 47.8% for the three months ended December 31, 2000, a decrease from 48.3% for the same prior year period. The decrease is primarily attributable to the higher level of end user hardware contribution in the business mix combined with the increase of newer products which have not yet achieved their optimal manufacturing volume. Gross margin on service revenues decreased to 30.2% for the three months ended December 31, 2000, from 49.3% for the comparable period of the prior year. The decrease is primarily a result of business mix, combined with ASC's historically lower margin structure. RESEARCH AND DEVELOPMENT Research and development expenses for the three months ended December 31, 2000, were $13.3 million, an increase of $5.6 million, compared to $7.7 million in the three months ended December 31, 1999. However, research and development expenses decreased as a percentage of revenues, to 12.3% in the three months ended December 31, 2000, from 14.2% in the same prior year period. The increase in absolute spending is the result of the research and development related to the Company's recent acquisitions as well as incremental spending associated with the launch of new atmospheric products and the transition to the next generation vacuum wafer handling products, partially offset by the elimination of redundant research and development programs. The Company plans to invest 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. 13
14 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses were $21.9 million for the three months ended December 31, 2000, an increase of $8.6 million, compared to $13.3 million in the same prior year period. However, selling, general and administrative expenses decreased as a percentage of revenues, to 20.3% in the three months ended December 31, 2000, from 24.5% in the three months ended December 31, 1999. The increase in absolute spending is the result of expanded sales and marketing activities as well as completed acquisitions and infrastructure improvements, while the improvement of these costs as a percentage of revenues reflects the Company's efforts at expanding its product offerings and customer base. The Company expects that future expenditure levels will continue at or above current levels to support its worldwide sales and administrative organizations. AMORTIZATION OF ACQUIRED INTANGIBLE ASSETS Amortization expense for acquired intangible assets totaled $5.7 million in the three months ended December 31, 2000, and relates to the acquired intangible assets of the ASC and ASI acquisition, which was consummated January 6, 2000, the Infab, Domain and Hanyon acquisitions, all of which occurred during the second half of fiscal 1999 and Irvine Optical's acquisition of a corporation in March 1997. Amortization expense for acquired intangible assets was $0.8 million in the three months ended December 31, 1999 and relates to the Infab, Domain and Hanyon acquisitions and Irvine Optical's acquisition of a corporation in March 1997. INTEREST INCOME AND EXPENSE Interest income increased by $3.3 million, to $3.9 million, in the three months ended December 31, 2000, due primarily to higher cash and investment asset balances which resulted from the Company's public offering of shares of common stock in March 2000. Interest income was $0.6 million in the three months ended December 31, 1999. Interest expense of $0.2 million for the three months ended December 31, 2000 is primarily related to the Company's note payable to Daifuku America related to the acquisition of ASC and ASI. Interest expense of $0.3 million for the three months ended December 31, 1999 relates primarily to Irvine Optical's debt, which was discharged in the third fiscal quarter of 2000. INCOME TAX PROVISION The Company recorded net income tax expense of $5.2 million and $1.8 million for the three months ended December 31, 2000 and 1999, respectively. The tax provision is attributable to federal, state, foreign and withholding taxes. Federal and state taxes have been reduced for net operating losses, research and development tax credits and a foreign sales corporation benefit. 14
15 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $83.0 million at December 31, 2000, a decrease of $48.2 million from September 30, 2000. This decrease in cash and cash equivalents is primarily the result of the Company's purchase of marketable securities. In connection with its acquisition of ASC and ASI on January 6, 2000, the Company has a note payable to Daifuku America in the amount of $16.0 million. This note was subsequently paid in full on January 5, 2001. In addition, the Company completed the purchase of its headquarters complex on January 29, 2001 for approximately $27 million in cash. Cash used in operations was $2.8 million, and is primarily attributable to increases in accounts receivable and inventories of $13.4 million and $7.3 million, respectively, partially offset by depreciation and amortization of $8.8 million, and increases of $3.0 million and $2.4 million in accounts payable and accrued expenses and other current liabilities, respectively. The increase in accounts receivable and inventories is primarily attributable to the Company's recent rapid growth. The Company's increased sales, particularly in Asia, combined with a greater number of long-term project contracts, have also contributed to the increase in accounts receivable. Cash used in investing activities was $46.1 million, and was principally comprised of $37.3 million for the purchase of marketable securities, $5.0 million used for capital additions, primarily in telecommunications, systems infrastructure and for computer requirements, $2.6 million used for the purchase of other assets, and $1.2 million used for the purchase of businesses. Cash provided by financing activities was $0.9 million, comprised of $1.0 million of proceeds from the issuance of common stock, resulting from issuance of stock under the Company's employee stock purchase plan and the exercise of stock options, partially offset by $0.1 million for the payment of prior long-term debt of the Company. While the Company has no significant capital commitments, as it expands its product offerings, the Company anticipates that it will continue to make capital expenditures to support its business. The Company may also use its resources to acquire companies, technologies or products that complement the business of the Company. The Company terminated its $30.0 million unsecured revolving credit facility and replaced it with a $10.0 million uncommitted demand promissory note facility with ABN AMRO Bank N.V. ("ABN AMRO") on May 2, 2000. The Company transferred all of its outstanding letters of credit, totaling approximately $1.1 million, to the new facility. ABN AMRO is not obligated to extend loans or issue letters of credit under this new facility. At December 31, 2000, $1.0 million of the facility was in use, all of it for letters of credit. The Company believes that its existing resources will be adequate to fund the Company's currently planned working capital and capital expenditure requirements for at least the next twelve months. The sufficiency of the Company's resources to fund its needs for capital is subject to known and unknown risks, uncertainties and other factors which may have a material adverse effect on the Company's business, including, without limitation, the factors discussed under "Factors That May Affect Future Results." 15
16 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS In December 1999, the U.S. Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101 summarizes the SEC's views in applying generally accepted accounting principles to selected revenue recognition issues in financial statements. In June 2000, the SEC issued Staff Accounting Bulletin No. 101B, an amendment to SAB 101, which delays the implementation of SAB 101. The application of the guidance in SAB 101 will now be required in the Company's fourth quarter of fiscal 2001. The Company is currently determining the impact that SAB 101 will have on its financial position and results of operations. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). This statement was amended by the issuance of Statement No. 137, "Deferral of the Effective Date of FASB Statement No. 133", which changed the effective date of FAS 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. This statement was further amended by Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133". 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. The adoption of FAS 133 did not have a significant effect on the Company's results of operations or financial position, as the Company currently does not utilize derivative instruments. FACTORS THAT MAY AFFECT FUTURE RESULTS You should carefully consider the risks described below and the other information in this report before deciding to invest in shares of our common stock. While these are the risks and uncertainties we believe are most important for you to consider, you should know that they are not the only risks or uncertainties facing us or which may adversely affect our business. If any of the following risks or uncertainties actually occur, our business, financial condition and operating results would likely suffer. In that event, the market price of our common stock could decline and you could lose all or part of the money you paid to buy our common stock. RISKS RELATING TO OUR OPERATIONS The Cyclical Demand of Semiconductor Manufacturers Affects our Operating Results. Our business is significantly dependent on capital expenditures by semiconductor manufacturers. The level of semiconductor manufacturers' capital expenditures is dependent on the current and anticipated market demand for semiconductors. Demand for semiconductors is cyclical and has historically experienced periodic downturns. During these downturns, our revenues have dropped, and we have incurred losses. We believe that downturns in the semiconductor manufacturing industry will occur in the future and will result in decreased demand for our products. Despite the addition of our factory automation business in fiscal 1999, our financial results will continue to be dependent on capital expenditures by semiconductor manufacturers. Downturns in the semiconductor business, when fewer new facilities are being built, could harm our financial results as have downturns in the past. Our Sales Volume Depends on the Sales Volume of our Original Equipment Manufacturer Customers. We sell a majority of our tool automation products to original equipment manufacturers who incorporate our products into their equipment. Therefore, our revenues are directly dependent on the ability of these customers to develop and market their equipment in a timely, cost-effective manner. We Rely on a Small Number of Customers for a Large Portion of our Revenues. We receive a significant portion of our revenues in each fiscal period from a limited number of customers. The loss of one or more of these major customers, or a decrease in orders by one or more customers, would adversely affect our business. Sales to our ten largest customers accounted for approximately 49% of total revenues in the three months ended December 31, 2000 and 43% of total revenues in fiscal 2000. 16
17 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Delays in Shipment of a Few of our Large Orders Could Substantially Decrease our Revenues. Historically, a substantial portion of our quarterly and annual revenues came from sales of a small number of large orders. These orders consist of products with high selling prices compared to our other products. As a result, the timing of the recognition of revenue from one of these large orders can have a significant impact on our total revenues and operating results for a particular period. Our operating results could be harmed if orders for even a small number of large orders are canceled or rescheduled by customers or cannot be filled due to delays in manufacturing, testing, shipping or product acceptance. We Have Significant Fixed Costs Which Are Not Easily Reduced if Revenues Fall Below Expectations. Our expense levels are based in part on our future revenue expectations. Many of our expenses, particularly those relating to capital equipment and manufacturing overhead, are relatively fixed. If we do not meet our sales goals we may be unable to rapidly reduce these fixed costs. Our ability to reduce expenses is further constrained because we must continue to invest in research and development to maintain our competitive position to maintain service and support for our existing global customer base. Accordingly, if we suffer an unexpected downturn in revenue, our inability to reduce fixed costs rapidly could increase the adverse impact on our results of operations. Rising Energy Costs In California May Result in Increased Operating Expenses and Reduced Net Income. California is currently experiencing an energy crisis. As a result, energy costs in California, including natural gas and electricity, may rise significantly over the next several months relative to the rest of the United States. Because we maintain one of our manufacturing facilities in Southern California, our operating expenses with respect to that location may increase if this trend continues. If we cannot pass along these costs to our customers, our margins will suffer and our net income could decrease. Our Lengthy Sales Cycle Requires Us to Incur Significant Expenses With No Assurance That We Will Generate Revenue. Our tool automation products are generally incorporated into original equipment manufacturer equipment at the design stage. To obtain new business from our original equipment manufacturer customers, we must develop products for selection by a potential customer at the design stage. This often requires us to make significant expenditures, without any assurance of success. The original equipment manufacturer's design decisions often precede the generation of volume sales, if any, by a year or more. We also must complete successfully a lengthy evaluation period before we can achieve volume sales of our manufacturing execution system software and process optimization software to our factory automation customers. We cannot guarantee that we will continue to achieve design wins or satisfy evaluations by our factory automation customers of our software. We cannot guarantee that the equipment manufactured by our original equipment manufacturing customers will be commercially successful. If we or our original equipment manufacturing customers fail to develop and introduce new products successfully and in a timely manner, our business and financial results will suffer. Our International Business Operations Expose Us to a Number of Difficulties in Coordinating Our Activities Abroad and in Dealing with Multiple Regulatory Environments. Approximately 45% of our total revenues in the three months ended December 31, 2000, and 49% of our total revenues in fiscal 2000, were derived from customers located outside North America. We anticipate that international sales will continue to account for a significant portion of our revenues. Our vendors are located in several different foreign countries. As a result of our international business operations, we are subject to various risks, including: - difficulties in staffing and managing operations in multiple locations in many countries; - challenges presented by collecting trade accounts receivable in foreign jurisdictions; - possible adverse tax consequences; - governmental currency controls; - changes in various regulatory requirements; - political and economic changes and disruptions; and - export/import controls and tariff regulations. 17
18 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Although our international sales are primarily denominated in U.S. dollars, changes in currency exchange rates can make it more difficult for us to compete with foreign manufacturers on price. If our international sales increase relative to our total revenues, these factors could have a more pronounced effect on our operating results. We Must Continually Improve Our Technology to Remain Competitive. Technology changes rapidly in the semiconductor, data storage and flat panel display manufacturing industries. We believe our success will depend upon our ability to enhance our existing products and to develop and market new products to meet customer needs. We cannot guarantee that we will identify and adjust to changing market conditions or succeed in introducing commercially rewarding products or product enhancements. The success of our product development and introduction depends on a number of factors, including: - accurately identifying and defining new products; - completing and introducing new product designs in a timely manner; - market acceptance of our products and our customers' products; and - determining a comprehensive, integrated product strategy. We Face Significant Competition Which Could Result in Decreased Demand For Our Products or Services. The markets for our products are intensely competitive and we may not be able to compete successfully. We believe that our primary competition in the tool automation market is from integrated original equipment manufacturers that satisfy their semiconductor and flat panel display handling needs themselves rather than by purchasing systems or modules from an independent supplier like us. Many of these original equipment manufacturers have substantially greater resources than we do. Applied Materials, Inc., the leading process equipment original equipment manufacturer, develops and manufactures its own central wafer handling systems and modules. We may not be successful in selling our products to original equipment manufacturers that currently satisfy their wafer or substrate handling needs themselves, regardless of the performance or the price of our products. Moreover, integrated original equipment manufacturers may begin to commercialize their handling capabilities and become our competitors. We believe that the primary competitive factors in the end-user semiconductor manufacturer market for factory automation software and process control software are product functionality, price/performance, ease of use, hardware and software platform compatibility, vendor reputation and financial stability. The relative importance of these competitive factors may change over time. We directly compete in this market with various competitors, including Applied Materials-Consilium, PRI-Promis, IBM-Poseidon and numerous small, independent software companies. We also compete with the in-house software staffs of semiconductor manufacturers like NEC. Most of those manufacturers have substantially greater resources than us. We believe that the primary competitive factors in the factory interface market are technical and technological capabilities, reliability, price/performance, ease of integration and global sales and support capability. In this market, we compete directly with Asyst, Fortrend, Kensington and Rorze. Some of these competitors have substantial financial resources and extensive engineering, manufacturing and marketing capabilities. 18
19 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Much of Our Success and Value Lies in Our Ownership and Use of Intellectual Property and Our Failure to Protect That Property Could Adversely Affect Our Future Growth. Our ability to compete is heavily affected by our ability to protect our intellectual property. We rely primarily on trade secret laws, confidentiality procedures, patents, copyrights, trademarks and licensing arrangements to protect our intellectual property. The steps we have taken to protect our technology may be inadequate. Existing trade secret, trademark and copyright laws offer only limited protection. Our patents could be invalidated or circumvented. The laws of certain foreign countries in which our products are or may be developed, manufactured or sold may not fully protect our products or intellectual property rights. This may make the possibility of piracy of our technology and products more likely. We cannot guarantee that the steps we have taken to protect our intellectual property will be adequate to prevent misappropriation of our technology. There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. We may engage in litigation to: - enforce our patents; - protect our trade secrets or know-how; - defend ourselves against claims we infringe on the rights of others; or - determine the scope and validity of the patents or intellectual property rights of others. Any litigation could result in substantial cost to us and divert the attention of our management, which could harm our operating results. Our Operations Could Infringe on the Intellectual Property Rights of Others. Particular aspects of our 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 our business. We cannot predict the extent to which we may be required to seek licenses or alter our products so that they no longer infringe on the rights of others. We cannot guarantee that the terms of any licenses we may be required to seek will be reasonable. Similarly, changing our products or processes to avoid infringing on the rights of others may be costly or impractical or could detract from the value of our products. Our Business May Be Harmed by Infringement Claims of General Signal or Applied Materials. We received notice from General Signal Corporation alleging infringements of its patent rights by certain of our products. The notification advised us 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 us 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 General Signal patents. Although not verified by us, these five patents would appear to be the patents referred to by General Signal in its prior notice to us. Applied Materials has not contacted us regarding these patents. We Do Not Have Long-term Contracts With Our Customers and Our Customers May Cease Purchasing Our Products at Any Time. We generally do not have long-term contracts with our customers. As a result, our agreements with our customers do not provide any assurance of future sales. Accordingly: - our customers can cease purchasing our products at any time without penalty; - our customers are free to purchase products from our competitors; - we are exposed to competitive price pressure on each order; and - our customers are not required to make minimum purchases. 19
20 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Our Future Growth Relies in Part on the Commercial Adoption of 300mm Wafer Technology, Which is Progressing More Slowly Than Expected, and Competition for 300mm Orders May Be Intense. Our future growth relies in part on the adoption of new systems and technologies to automate the processing of 300mm wafers. However, the industry transition from the current, widely used 200mm manufacturing technology to 300mm manufacturing technology is occurring more slowly than expected. Any significant delay in the adoption of 300mm manufacturing technology, or the failure of the industry to adopt 300mm manufacturing technology, could significantly reduce our opportunities for future growth. Moreover, continued delay in transition to 300mm technology could permit our competitors to introduce competing or superior 300mm products. Competition, including price competition, for such 300mm orders could be vigorous and could harm our results of operations. RISKS RELATING TO OUR GROWTH Rapid Growth is Straining Our Operations and Requiring Us to Incur Costs to Upgrade Our Infrastructure. During the last year, we have experienced extremely rapid growth in our operations, the number of our employees, our product offerings and the geographic area of our operations. Our growth places a significant strain on our management, operations and financial systems. Our future operating results will be dependent in part on our ability to continue to implement and improve our operating and financial controls and management information systems. If we fail to manage our growth effectively, our financial condition, results of operations and business could be materially adversely affected. Our Operating Results Would Be Harmed If One of Our Key Suppliers Fails to Deliver Components for Our Products. We currently procure many of our components on an as needed, purchase order basis. We do not carry significant inventories or have any long-term supply contracts with our vendors. With the recent increased demand for semiconductor manufacturing equipment, our suppliers are facing significant challenges in providing components on a timely basis. Our inability to obtain components in required quantities or of acceptable quality could result in significant delays or reductions in product shipments. This would materially and adversely affect our operating results. Our Business Could Be Harmed If We Fail to Adequately Integrate the Operations of Our Acquisitions. Our management must devote substantial time and resources to the integration of the operations of our acquired businesses with our business and with each other. If we fail to accomplish this integration efficiently, we may not realize the anticipated benefits of our acquisitions. The process of integrating supply and distribution channels, research and development initiatives, computer and accounting systems and other aspects of the operation of our acquired businesses, presents a significant challenge to our management. This is compounded by the challenge of simultaneously managing a larger entity. We have completed a number of acquisitions in a short period of time. These businesses have operations and personnel located in Asia, Europe and the United States and present a number of additional difficulties of integration, including: - difficulties in the assimilation of products and designs into integrated solutions; - difficulties in informing customers, suppliers and distributors of the effects of the acquisitions and integrating them into our overall operations; - difficulties integrating personnel with disparate business backgrounds and cultures; - difficulties in defining and executing a comprehensive product strategy; - difficulties in managing geographically remote units; - difficulties associated with managing the risks of entering markets or types of businesses in which we have limited or no direct experience; and - difficulties in minimizing the loss of key employees of the acquired businesses. If we delay integrating or fail to integrate an acquired business or experience other unforeseen difficulties, the integration process may require a disproportionate amount of our management's attention and financial and 20
21 other resources. Our failure to adequately address these difficulties could harm our business and financial results. Our Business May Be Harmed by Acquisitions We Complete in the Future. We plan to continue to pursue additional acquisitions of related businesses. Our identification of suitable acquisition candidates involves risks inherent in assessing the values, strengths, weaknesses, risks and profitability of acquisition candidates, including the effects of the possible acquisition on our business, diversion of our management's attention and risks associated with unanticipated problems or latent liabilities. If we are successful in pursuing future acquisitions, we will be required to expend significant funds, incur additional debt or issue additional securities, which may negatively affect our results of operations and be dilutive to our stockholders. If we spend significant funds or incur additional debt, our ability to obtain financing for working capital or other purposes could decline and we may be more vulnerable to economic downturns and competitive pressures. We cannot guarantee that we will be able to finance additional acquisitions or that we will realize any anticipated benefits from acquisitions that we complete. Should we successfully acquire another business, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of our existing business. We May Not Be Able to Recruit and Retain Necessary Personnel Because of Intense Competition for Highly Skilled Personnel. We need to hire and retain substantial numbers of employees with technical backgrounds for both our hardware and software engineering and support staffs. The market for these employees is intensely competitive, and we have occasionally experienced delays in hiring these personnel. Due to the cyclical nature of the demand for our products, we have had to reduce our workforce and then rebuild our workforce as our business has gone through downturns followed by upturns. We currently need to hire a number of highly skilled employees, especially in manufacturing, to meet customer demand. Due to the competitive nature of the labor markets in which we operate, this type of employment cycle increases our risk of not being able to retain and recruit key personnel. Our inability to recruit, retain and train adequate numbers of qualified personnel on a timely basis could adversely affect our ability to develop, manufacture, install and support our products. RISKS RELATING TO OUR COMMON STOCK Our Operating Results Fluctuate Significantly, Which Could Negatively Impact Our Business and Our Stock Price. Our margins, revenues and other operating results can fluctuate significantly from quarter to quarter depending upon a variety of factors, including: - the level of demand for semiconductors in general; - cycles in the market for semiconductor manufacturing equipment and automation software; - the timing and size of orders from our customer base; - our ability to manufacture, test and deliver products in a timely and cost-effective manner; - our success in winning competitions for orders; - the timing of our new product announcements and releases and those of our competitors; - the mix of products sold by us; - competitive pricing pressures; and - the level of automation required in fab extensions, upgrades and new facilities. We entered into the factory automation software business in fiscal 1999. We believe a substantial portion of our revenues from this business will be dependent on achieving project milestones. As a result, our revenue from this business will be subject to fluctuations depending upon a number of factors, including whether we can achieve project milestones on a timely basis, if at all, as well as the timing and size of projects. 21
22 BROOKS AUTOMATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued The Volatility of Our Stock Price Could Adversely Affect an Investment in Our Stock. The market price of our common stock has fluctuated widely. For example, between April 14, 2000 and April 28, 2000, the price of our common stock rose from approximately $62.38 to $89.69 per share. Between April 28, 2000 and May 31, 2000, the price of our common stock dropped from approximately $89.69 to $39.75 per share. Consequently, the current market price of our common stock may not be indicative of future market prices, and we may not be able to sustain or increase the value of an investment in our common stock. Factors affecting our stock price may include: - variations in operating results from quarter to quarter; - changes in earnings estimates by analysts or our failure to meet analysts' expectations; - changes in the market price per share of our public company customers; - market conditions in the industry; - general economic conditions; - low trading volume of our common stock; and - the number of firms making a market in our common stock. 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 high technology companies like us. These market fluctuations could adversely affect the market price of our common stock. Provisions of Our Certificate of Incorporation, Bylaws and Contracts May Discourage Takeover Offers and May Limit the Price Investors Would Be Willing to Pay for Our Common Stock. Our certificate of incorporation and bylaws contain provisions that may make an acquisition of us more difficult and discourage changes in our management. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. In addition, we have adopted a rights plan. In many potential takeover situations, rights issued under the plan become exercisable to purchase our common stock at a price substantially discounted from the then applicable market price of our common stock. Because of its possible dilutive effect to a potential acquirer, the rights plan would generally discourage third parties from proposing a merger with or initiating a tender offer for us that is not approved by our board of directors. Accordingly, the rights plan could have an adverse impact on our stockholders who might want to vote in favor of the merger or participate in the tender offer. In addition, shares of our preferred stock may be issued upon terms the board of directors deems appropriate without stockholder approval. Our ability to issue preferred stock in such a manner could enable our board of directors to prevent changes in our management or control. 22
23 BROOKS AUTOMATION, INC. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK INTEREST RATE EXPOSURE Based on Brooks' overall interest exposure at December 31, 2000, 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 under the caption "Accumulated other comprehensive income (loss)". 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. 23
24 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are included herein: Exhibit No. Description ----------- ----------- 10.43 Retention Agreement for J. Pelusi dated June 16, 2000. (b) No reports on Form 8-K were filed during the quarterly period ended December 31, 2000. 24
25 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. DATE: February 14, 2001 /s/ Robert J. Therrien -------------------------------- Robert J. Therrien Director and President (Principal Executive Officer) DATE: February 14, 2001 /s/ Ellen B. Richstone -------------------------------- Ellen B. Richstone Senior Vice President of Finance and Administration and Chief Financial Officer (Principal Financial Officer) 25
26 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10.43 Retention Agreement for J. Pelusi dated June 16, 2000.