UNITED STATESSECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
OR
Commission File Number 0-25434
BROOKS AUTOMATION, INC.
15 Elizabeth DriveChelmsford, Massachusetts(Address of principal executive offices)
01824(Zip Code)
Registrant’s telephone number, including area code: (978) 262-2400
Brooks-PRI Automation, Inc.(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report)
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.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date, April 30, 2003:
TABLE OF CONTENTS
BROOKS-PRI AUTOMATION, INC.
INDEX
BROOKS AUTOMATION, INC.CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BROOKS AUTOMATION, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)(In thousands, except per share data)
BROOKS AUTOMATION, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
BROOKS AUTOMATION, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
BROOKS AUTOMATION, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
The changes in the carrying amount of goodwill for the three months ended March 31, 2003 and December 31, 2002 are as follows (in thousands):
Purchase accounting adjustments of $1.3 million include $1.4 million for additional shares issued to the selling shareholders of Hermos Informatik GmbH (“Hermos”), $0.2 million for additional shares issued to the selling shareholders of Microtool and $0.3 million of cash received related to the Company’s acquisition of Zygo Corporation’s Automation Systems Group (“Zygo”) as part of the finalization of the purchase prices of these transactions.
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 Automation, Inc. (“Brooks” or the “Company”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include the “Factors That May Affect Future Results” set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is included in this report. Precautionary statements made herein should be read as being applicable to all related forward-looking statements whenever they appear in this report.
OVERVIEW
Brooks 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 and other precision electronics manufacturing industries. Beginning in 1998, the Company began a program to diversify its product portfolio through research and development, investment and acquisitions. During the period from 1998 through October 2002, the Company acquired companies in the United States and other countries. 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 movement and management of wafers and reticles in a wafer fabrication factory.
Traditionally, the Company’s foreign revenues have been 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 recorded in local currency, and foreign currency translation adjustments are reflected as a component of “Accumulated other comprehensive loss” in the Company’s Consolidated Balance Sheets. 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.
In view of the currently prevailing downturn in the semiconductor industry and the resulting market pressures, the Company is focusing its major efforts in the following areas:
The Company’s cost-containment activities are discussed below in the “Restructuring” section.
BROOKS AUTOMATION, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS - Continued
ACQUISITIONS
On October 9, 2002, the Company acquired Microtool, Inc. (“Microtool”), located in Colorado Springs, Colorado. Microtool provides automation metrology for the 200mm and 300mm markets. The acquisition was recorded using the purchase method of accounting in accordance with Financial Accounting Standards Board Statement No. 141, “Business Combinations” (“FAS 141”). Accordingly, the Company’s Consolidated Statement of Operations for the three and six months ended March 31, 2003 and the Company’s Consolidated Statement of Cash Flows for the six months then ended include the results of Microtool for the period subsequent to its acquisition.
RELATED PARTIES
One of the Company’s directors, Joseph R. Martin, is Senior Executive Vice President and Vice Chairman of the Board of Directors of Fairchild Semiconductor International, Inc. (“Fairchild”), one of the Company’s customers. Revenues from Fairchild for the three and six months ended March 31, 2003, were approximately $38,000 and $82,000, respectively. Revenues from Fairchild for the three and six months ended March 31, 2002, were approximately $469,000 and $517,000, respectively. The amounts due from Fairchild included in accounts receivable at March 31, 2003 and September 30, 2002 were approximately $4,000 and $68,000, respectively.
RESTRUCTURING
Fiscal 2003 Restructuring
Based on current estimates of its near term future revenues and operating costs, the Company announced in March 2003, plans to take additional workforce reduction actions to further reduce costs. Accordingly, $5.9 million of restructuring charges were recorded in the three months ended March 31, 2003, consisting of $5.2 million for these workforce reductions approximating 250 employees and $0.7 million related to three facilities to be abandoned. These amounts are reflected as a component of “Acquisition-related and restructuring charges” in the Company’s Consolidated Statements of Operations for the three and six months ended March 31, 2003.
On January 1, 2003, the Company adopted the provisions of FAS 146, effective for exit or disposal activities initiated after December 31, 2002. The adoption of FAS 146 changed the timing of recording restructure charges from the commitment date to when the liability is incurred. As a result, the Company recorded restructure charges only for those liabilities incurred as of March 31, 2003, and is accruing the balance of restructure charges for planned actions through the dates when the respective liabilities will be incurred. Accordingly, the Company estimates that additional restructure charges related to these actions aggregating $1.8 million relating to workforce reductions will be recorded in subsequent periods on an individual pro rata basis through February 2004. The restructure charges of $5.9 million for the three months ended March 31, 2003,
and the expected future costs for these initiatives are attributable to the Company’s reportable segments as follows (in thousands):
The Company expects the severance costs associated with these actions, totaling $7.0 million, will be paid within one year. The facilities costs, totaling $0.7 million, will be paid as follows (in thousands): $0.5 million in the year ended March 31, 2004 and $0.2 million in the year ended March 31, 2005.
In December 2002, the Company had announced plans to take additional and significant cost reduction actions. Accordingly, a charge of $19.1 million was recorded for these actions. Of this amount, $12.4 million related to workforce reductions of approximately 400 employees, expected to be paid in fiscal 2003 and $0.6 million related to the consolidation of several of the Company’s facilities, expected to be paid over the next six months. In addition, the write-off of $6.1 million of capitalized costs related to cancelled internal systems application infrastructure programs was recorded. A portion of these actions has been implemented in the first quarter of fiscal 2003. The Company anticipates additional cost reduction initiatives will be implemented through the remainder of fiscal year 2003 in its continuing efforts to align costs with revenues.
Fiscal 2002 Restructuring
On September 13, 2002, the Company’s chief executive officer approved a formal plan of restructure in response to the ongoing downturn in the semiconductor industry, which has continued to exert downward pressure on the Company’s revenues and cost structure. Pursuant to that plan, the Company recorded restructuring charges of $16.1 million in the fourth quarter of fiscal 2002. Of this amount, $9.1 million relates to workforce reductions of approximately 430 employees, and is expected to be paid in fiscal 2003, $6.7 million was for the consolidation of several of the Company’s facilities and $0.3 million was for other restructuring costs.
As part of the plan to integrate the PRI Automation, Inc. (“PRI”) acquisition, certain sales, technical support and administrative functions were combined and headcount and related costs reduced. Accordingly, during the third quarter of fiscal 2002, the Company recorded $2.8 million of restructuring charges, comprised of $1.3 million for workforce reduction-related costs for existing Brooks employees, $0.4 million related to excess existing Brooks facilities and $1.1 million of other restructuring costs.
Restructuring costs of $13.5 million for former PRI employees, $11.1 million for PRI facilities and $2.3 million for other costs were accrued as part of the purchase accounting for the PRI acquisition, relating to the consolidation and elimination of certain PRI duplicate facilities and redundant PRI personnel.
Fiscal 2001 Restructuring
On September 5, 2001, the Company’s Board of Directors approved a formal plan of restructure in response to the downturn in the semiconductor industry. Remaining costs of $0.5 million and $1.0 million are expected to be paid in fiscal 2003 and in the subsequent years, respectively.
Restructuring Activity
As of March 31, 2003, approximately 1,300 employees had been terminated and 17 facilities had been consolidated into other existing Brooks facilities in connection with the restructuring plans described above. At March 31, 2003, the long-term portion of the Company’s accrued restructuring costs was $14.8 million, and relates to payments on abandoned facilities with leases that expire through September 2011. The activity for the three months ended March 31, 2003 and December 31, 2002, related to the Company’s restructuring accruals described above is summarized below (in thousands):
Adjustments to Restructuring Accruals
Periodically, the accruals related to the acquisition-related and restructuring charges are reviewed and compared to their respective cash requirements. As a result of those reviews, the accruals are adjusted for changes in cost and timing assumptions of previously approved and recorded initiatives. During the three months ended March 31, 2003, the Company identified $1.1 million of excess accruals associated with headcount reduction plans previously announced and implemented. The final costs associated with these actions were lower than originally anticipated and accrued. As a result, the excess accruals for these actions were reversed, with a corresponding reduction to restructuring expense.
Acquisition-related Charges
Acquisition-related charges of $2.0 million for both the three and six months ended March 31, 2003, are primarily comprised of legal, relocation and consulting costs to integrate the PRI entities and employees into the Company, as well as legal fees for consolidating acquired entities into existing Brooks entities. Acquisition-related charges of $0.1 million for both the three and six months ended March 31, 2002, primarily relate to legal and accounting fees incurred for the acquisition of Progressive Technologies, Inc. (“PTI”) on July 12, 2001, which the Company had accounted for as a pooling of interests transaction.
THREE AND SIX MONTHS ENDED MARCH 31, 2003,COMPARED TO THREE AND SIX MONTHS ENDED MARCH 31, 2002
Revenues
The Company reported revenues of $92.9 million in the three months ended March 31, 2003, compared to $57.1 million in the same prior year period. The Company’s revenues for the six months ended March 31, 2003, were $177.8 million, compared to $115.3 million in the same prior year period. The increase in both the three and six month periods compared to the same prior year periods is primarily attributable to the Company’s acquisition of PRI, as well as Zygo Corporation Automation Systems Group (“Zygo”), Tec-Sem A.G. (“Tec-Sem”), Hermos Informatik GmbH (“Hermos”) and Intelligent Automation Systems, Inc. and IAS Products, Inc. (collectively, “IAS”).
The Company’s equipment automation segment reported revenues of $53.4 million in the three months ended March 31, 2003, more than twice its revenues of $25.9 million in the comparable prior year period. The segment’s revenues for the six months ended March 31, 2003, were $89.6 million, an increase of 73.3% from the comparable prior year period. The Company’s factory automation hardware segment’s revenues increased 42.8%, to $18.1 million and 80.2%, to $44.7 million, in the three and six months ended March 31, 2003, respectively, from the same prior year periods. The Company’s factory automation software segment reported revenue increases of 16.6% and 10.8%, to $20.6 million and $42.0 million, in the three and six months ended March 31, 2003, respectively, compared to the same prior year periods. The increases in revenues are primarily attributable to the Company’s acquisitions.
Product revenues increased 67.5%, to $65.8 million in the three months ended March 31, 2003, from $39.3 million in the same prior year period. Product revenues for the six months ended March 31, 2003, were $120.8 million, a 54.3% increase from the $78.3 million of product revenues reported in the comparable prior year period. Service revenues for the three months ended March 31, 2003 were $27.2 million, an increase of $9.3 million, or 52.2%, from the three months ended March 31, 2002. Service revenues for the six months ended March 31, 2003 increased $20.0 million, or 54.1%, to $57.1 million, from the same prior year period. The increase in revenues in both the three and six months ended March 31, 2003, from the comparable prior year periods is primarily attributable to acquisitions.
Foreign revenues were $47.9 million, or 51.5% of revenues, and $87.4 million, or 49.1% of revenues, in the three and six months ended March 31, 2003, respectively. Foreign revenues in the three and six months ended March 31, 2002 were $25.3 million, or 44.2% of revenues, and $59.3 million, or 51.4% of revenues, respectively. The Company’s acquisition of PRI, primarily located in the United States, has contributed to the increase in sales in the United States both as a percentage of sales and in absolute dollars, while the Company’s expanded global presence through acquisitions and expanded sales and marketing activities has enabled international sales to remain a significant portion of total revenues. The Company expects that foreign revenues will continue to account for a significant portion of total revenues. The current international component of revenues may not be indicative of future international revenues.
Gross Margin
Gross margin decreased to 26.5% for the three months ended March 31, 2003, compared to 33.0% in the same prior year period, and to 27.6% in the six months ended March 31, 2003, compared to 34.4% in the same prior year period. The decrease is primarily attributable to excess manufacturing capacity and competitive pricing pressure related to the downturn that continues to affect the semiconductor industry, coupled with charges aggregating $5.9 million, or 6.4% of revenues, and $8.0 million, or 4.5% of revenues, in the three and six months ended March 31, 2003, respectively, as well as the historically lower margin rates of several of the Company’s fiscal 2002 acquisitions. These charges were incurred as part of the Company’s continuing actions to realign its businesses during the ongoing industry downturn, and include $4.6 million and $5.5 million for inventory writedowns, $0.3 million and $0.9 million of deferred compensation costs related to stock options granted to employees of acquired companies and retention costs and $1.0 million and $1.6 million for accelerated depreciation on assets related to abandoned facilities. The Company’s underabsorption of costs due to excess manufacturing capacity continues to exert downward pressure on gross margins.
The Company’s equipment automation segment gross margin increased to 20.6% in the three months ended March 31, 2003, from 17.9% in the same prior year period. Gross margin for the equipment automation segment decreased in the six months ended March 31, 2003, to 19.9%, compared to 21.3% in the same prior year period. The decrease in the six months ended March 31, 2003 is attributable to the acquisition of lower-margin businesses in the second half of fiscal 2002 and additional inventory writedowns, while the increase in the three months ended March 31, 2003, reflects the impact of the Company’s plant consolidation and other cost reduction measures. Gross margin for the Company’s factory automation hardware segment decreased to 19.0% and 21.4% in the three and six months ended March 31, 2003, respectively, from 37.9% and 32.4% in the same prior year periods. The decrease is in part a result of lower margin hardware sales comprising a higher percentage of the segment’s business, coupled with the historically lower margin rates of the Company’s recently acquired businesses. The Company’s factory automation software segment’s gross margin for the three and six months ended March 31, 2003, decreased to 49.7% and 51.3%, respectively, compared to 52.9% and 54.3% in the same prior year periods. The change is primarily due to unfavorable product mix shifts between license and service revenues.
Gross margin on product revenues was 24.2% and 26.7% for the three and six months ended March 31, 2003, respectively, a decrease from 36.1% and 36.8% in the same prior year periods. The decrease in both current year periods is primarily attributable to the effects of the continuing downturn in the semiconductor industry, causing lower absorption of manufacturing fixed costs, coupled with the charges discussed above aggregating $5.9 million, or 9.0% of product revenues, and $8.0 million, or 6.6% of product revenues, in the three and six months ended March 31, 2003, respectively. These costs were partially offset by cost savings from the consolidation of the Company’s manufacturing facilities.
Gross margin on service revenues increased to 32.2% for the three months ended March 31, 2003, compared to 26.3% for the same prior year period. Gross margin on service revenues for both of the six month periods ended March 31, 2003 and 2002, was 29.5%. The improved performance in the current fiscal year is primarily attributable to changes in the Company’s service revenue mix, coupled with the impact of the Company’s cost reduction initiatives.
Research and Development
Research and development expenses for the three months ended March 31, 2003, were $19.7 million, an increase of $4.3 million, compared to $15.4 million in the three months ended March 31, 2002. Research and development expenses for the six months ended March 31, 2003 also increased, to $39.4 million, $9.8 million higher than the $29.6 million reported in the same prior year period. The increase in research and development expenses is primarily attributable to the Company’s recent acquisitions, coupled with $0.3 million and $0.5 million of accelerated depreciation on assets related to abandoned facilities and $0.4 million and $1.1 million of deferred compensation costs related to stock options granted to employees of acquired employees in the three and six months ended March 31, 2003, respectively. However, research and development expenses as a percentage of revenues decreased in both the three and six month periods ended March 31, 2003, to 21.2% and 22.2%, respectively, compared to 27.0% and 25.7% in the same prior year periods. The decrease in spending as a percentage of total revenues is primarily attributable to the Company’s ongoing cost reduction actions. The Company plans to continue 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. These investments will be focused on those research and development projects that are most consistent with its business realignment currently in progress.
Selling, General and Administrative
Selling, general and administrative expenses were $23.0 million for the three months ended March 31, 2003, an increase of $3.9 million, compared to $19.1 million for the same prior year period. Selling, general and administrative expenses for the six months ended March 31, 2003 were $57.1 million, an increase of $19.1 million, from $38.0 million in the same prior year period. The increase in selling, general and administrative expenses in both the three and six month periods ended March 31, 2003, is partially attributable to the Company’s recent acquisitions, coupled with $0.1 million and $7.3 million, respectively, of accelerated depreciation associated with the Company’s restructuring plans for facilities consolidation and $0.7 million and $1.6 million, respectively, of deferred compensation costs related to stock options granted to employees of acquired companies. Despite the increase in selling, general and administrative expenses in the current fiscal year periods, these expenses decreased as a percentage of revenues in both the three and six month periods ended March 31, 2003, compared to the same prior year periods. The decrease in spending as a percentage of revenues in both current year periods is primarily attributable to the Company’s ongoing cost reduction actions, coupled with higher level revenues against which these costs were measured. The Company expects that the planned implementation of its recently announced restructuring actions will reduce selling, general and administrative expense in subsequent periods.
Amortization of Acquired Intangible Assets
Amortization expense for acquired intangible assets totaled $0.9 million and $3.0 million in the three and six months ended March 31, 2003, respectively. Amortization expense for acquired intangible assets was $2.6 million and $6.2 million in the three and six months ended March 31, 2002, respectively. The reduction in amortization of acquired intangible assets is attributable to the writedown of the carrying value of these assets at September 30, 2002 as a result of the Company’s impairment of intangible assets.
Interest Income and Expense
Interest income decreased by $1.5 million, to $1.1 million, in the three months ended March 31, 2003, and by $2.6 million, to $2.8 million, in the six months then ended, compared to the same prior year periods. The decrease in both the three and six month periods is primarily a result of lower interest rates coupled with lower balances available for investment. Interest expense of $2.6 million and $5.2 million in the three and six months ended March 31, 2003, respectively, is primarily attributable to interest on the Company’s Convertible Subordinated Notes. Interest expense of $2.7 million and $5.3 million in the three and six months ended March 31, 2002, respectively, is primarily comprised of $2.3 million and $4.6 million related to the Company’s Convertible Subordinated Notes and imputed interest expense on the notes payable related to the Company’s recent acquisitions of the e-Diagnostics product line and SimCon, aggregating $0.2 million and $0.4 million.
Other (Income) Expense
In connection with the Company’s ongoing restructuring and consolidation efforts, the Company determined that its strategic manufacturing relationship with Shinsung no longer aligns with the future needs and direction of the Company. As a result, in December 2002, the Company received an offer from Shinsung, and on January 27, 2003, concluded the sale to Shinsung of the warrants for $0.5 million. As a result, the Company wrote down the carrying value of the warrants to $0.5 million as of December 31, 2002, recording an impairment charge of $11.5 million to “Other (income) expense” on the Company’s Consolidated Statement of Operations in that period.
In March 2003, the Company sold the Shinsung common shares for $7.7 million, net of transaction costs. The $3.0 million net loss on the sale of the common shares is included in “Other (income) expense” in the Company’s Consolidated Statements of Operations for both the three and six months ended March 31, 2003.
At September 30, 2002, the fair market values of the Shinsung common shares and warrants were $6.5 million and $7.0 million, respectively. The aggregate fair market value of $13.5 million at September 30, 2002, is reported in “Other assets” in the Company’s Consolidated Balance Sheet as of that date.
Income Tax Provision
The Company recorded a net income tax provision of $4.9 million in the six months ended March 31, 2003, compared to a net income tax benefit of $10.8 million in the same prior year period. The tax provision in the current year period is attributable to foreign and withholding taxes. Federal and state taxes have not been benefited in the six months ended March 31, 2003, as the Company believes it is more likely than not that future net tax benefits from accumulated net operating losses and deferred taxes will not be realized. The tax benefit in the prior year period is attributable to the loss in that period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has recorded significant losses from operations and has an accumulated deficit of $865.2 million at March 31, 2003. Revenues have increased from the prior year period primarily as a result of acquisitions completed since that period. Net cash outflows from operations have increased significantly as a result of these acquisitions, primarily for acquired fixed costs, and the current downturn within the semiconductor sector and related industries. Consequently, the Company has undertaken several restructuring programs during the period from October 1, 2001 through March 31, 2003, to align its cost structures and its revenues. The cyclical nature of the industry, the extended period of the current downturn and the current uncertainty as to the timing and speed of recovery mean that estimates of future revenues, results of revenues, results of operations and net cash flows are inherently difficult.
At March 31, 2003, the Company had cash, cash equivalents and marketable securities aggregating $212.9 million. This amount was comprised of $130.9 million of cash and cash equivalents, $13.1 million of investments in short-term marketable securities and $68.9 million of investments in long-term marketable securities.
At September 30, 2002, the Company had cash, cash equivalents and marketable securities aggregating $245.7 million. This amount was comprised of $125.3 million of cash and cash equivalents, $25.3 million of investments in short-term marketable securities and $95.1 million of investments in long-term marketable securities.
Cash and cash equivalents were $130.9 million at March 31, 2003, an increase of $5.6 million from September 30, 2002. This increase in cash and cash equivalents is primarily due to cash provided by investing and financing activities of $38.9 million and $2.0 million, respectively, partially offset by $36.0 million of cash used in operations.
Cash used in operations was $36.0 million for the six months ended March 31, 2003, and is primarily attributable to the Company’s net loss of $99.8 million, which includes acquisition-related and restructuring expense of $25.8 million, non-cash impairments of assets aggregating $17.6 million and depreciation and amortization of $21.6 million. The Company used $12.7 million and $21.0 million for accounts payable and restructuring payments, respectively. These amounts were partially offset by $16.3 million of cash provided by the reduction of the Company’s accounts receivable.
Cash provided by investing activities was $38.9 million for the six months ended March 31, 2003, and is principally comprised of proceeds from the net sales and maturities of marketable securities aggregating $58.0 million, cash received for the sale of the Shinsung common shares and warrants totaling $8.2 million and cash received in settlement of the final purchase prices of Hermos and Zygo aggregating $0.9 million. These proceeds were used to fund operating losses. These amounts were partially offset by cash consideration and transaction costs totaling $0.7 million related to the acquisition of Microtool and $8.1 million of capital additions.
Cash provided by financing activities for the six months ended March 31, 2003, was comprised of $1.9 million of cash from the sale of common stock through the Company’s employee stock purchase program, $0.2 million of long-term debt issued in relation to the Company’s acquisition of software products and $8,000 from the exercise of options to purchase the Company’s common stock, partially offset by $26,000 for the payment of long-term debt.
In connection with the acquisition of the e-Diagnostics product business in June 2001, the Company could be required to make additional cash payments under certain conditions. Additional cash payments aggregating a maximum of $8.0 million over the next two years could be required for payment of consideration contingent upon meeting certain performance objectives, if the Company elected to settle any or all potential contingent payments in cash.
On May 23, 2001, the Company completed the private placement of $175.0 million aggregate principal amount of 4.75% Convertible Subordinated Notes due in 2008. Interest on the notes is paid on June 1 and December 1, of each year. The Company made its first interest payment on December 1, 2001. The notes will mature on June 1, 2008. The Company may redeem the notes at stated premiums on or after June 6, 2004, or earlier if the price of the Company’s common stock reaches certain prices. Holders of the notes do not have the unconditional right to require the Company to repurchase the notes. However, they may require the Company to repurchase the notes upon a change in control of the Company in certain specific circumstances. The notes are convertible at any time prior to maturity, at the option of the holders, into shares of the Company’s common stock, at a conversion price of $70.23 per share, subject to certain adjustments. The notes are subordinated to the Company’s senior indebtedness and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.
The Company had a $10.0 million uncommitted demand promissory note facility with ABN AMRO Bank N.V. (“ABN AMRO”), which expired on May 31, 2002. Accordingly, ABN AMRO will not extend loans or issue additional letters of credit. At March 31, 2003, the Company had $1.1 million remaining in outstanding letters of credit under this facility.
While the Company has no significant capital commitments, 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’s contractual obligations consist of the following (in thousands):
The table does not include an accrual of $9.9 million related to the projected retirement benefit to be paid to the Company’s chief executive officer under his current employment agreement. The projected amount payable is due immediately upon his retirement; however, his retirement date is not determinable at this time. His current employment agreement will expire on October 1, 2005.
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. However, the Company used $36.0 million to fund its operations in the six months ended March 31, 2003, and $55.7 million to fund its operations in fiscal 2002, and the cyclical nature of the semiconductor industry makes it very difficult for the Company to predict future liquidity requirements with certainty. Accordingly, over the longer term it is important that the restructuring programs described above succeed in aligning costs with revenues. In addition, the Company may experience unforeseen capital needs in connection with its recently completed acquisitions. If the Company is unable to generate sufficient cash flows from operations, the Company may need to raise additional funds to develop new or enhanced products, respond to competitive pressures or make acquisitions. The Company may be unable to obtain any required additional financing on terms favorable to it, if at all. If adequate funds are not available on acceptable terms, the Company may be unable to fund its expansion, successfully develop or enhance products, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on the Company’s business.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB Emerging Issues Task Force released Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. EITF 00-21 establishes three principles: (a) revenue arrangements with multiple deliverables should be divided into separate units of accounting; (b) arrangement consideration should be allocated among the separate units of accounting based on their relative fair values; and (c) revenue recognition criteria should be considered separately for separate units of accounting. EITF 00-21 is effective for all arrangements entered into in fiscal periods beginning after June 15, 2003, with early adoption permitted. The Company is currently reviewing the impact of EITF 00-21.
On December 31, 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an Amendment of FAS 123” (“FAS 148”). FAS 148 provides additional transition guidance for those entities that elect to voluntarily adopt the accounting provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”). The standard is intended to encourage the adoption of the provisions of FAS 123 relating to the fair value-based method of accounting for employee stock options. The Company currently applies the disclosure-only provisions of FAS 123. Under the provisions of FAS 148, companies that choose to adopt the accounting provisions of FAS 123 will be permitted to select from three transition methods: the prospective method, the modified prospective method and the retroactive restatement method. The prospective method, however, may not be applied for adoptions of the accounting provisions of FAS 123 for periods beginning after December 15, 2003. FAS 148 requires certain new disclosures that are incremental to those required by FAS 123, which must also be made in interim financial statements. The transition and annual disclosure provisions of FAS 148 are effective for fiscal years ending after December 31, 2002. The new interim disclosure provisions are effective for the first interim period beginning after December 15, 2002. The Company has adopted these provisions of FAS 148 in this Form 10-Q.
On January 17, 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB 51” (“FIN 46”). The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (“variable interest entities” or “VIEs”) and how to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to an entity which either: (a) the equity investors (if any) do not have a controlling financial interest; or (b) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The adoption of FIN 46 has not had any significant impact on the Company’s results of operations or financial position.
FACTORS THAT MAY AFFECT FUTURE RESULTS
You should carefully consider the risks described below and set forth in greater detail in our Report on Form 10-K filed with the Securities and Exchange Commission on December 30, 2002, which is incorporated by reference in the following discussion. These are risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, or which we currently deem immaterial, or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer. In that event, the market price of our common stock could decline.
Risk Factors Relating to Our Industry
Risk Factors Relating to Our Operations
Risk Factor Relating to Our Common Stock
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE EXPOSURE
Based on Brooks’ overall interest exposure at March 31, 2003, 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
Traditionally, Brooks’ foreign revenues have been 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.
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. Within the 90 day period preceding the filing of this Report, and pursuant to Rules 13a-14(c) and 15(d)-14(c) under the Securities Exchange Act of 1934, the Company’s chief executive officer (“CEO”) and chief financial officer (“CFO”) have concluded, subject to the limitations inherent in such controls noted below, that the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time specified in the SEC’s rules and forms and are operating in an effective manner.
(b) Limitations Inherent In All Controls. The Company’s management, including the CEO and CFO, recognizes that our disclosure controls and our internal controls (discussed below) cannot prevent all error or all attempts at fraud. Any controls system, no matter how well crafted and operated, can only provide reasonable, and not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints that affect the operation of any such system and that the benefits of controls must be considered relative to their costs. Because of the inherent limitations in any control system, no evaluation or implementation of a control system can provide complete assurance that all control issues and all possible instances of fraud have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
(c) Change in Internal Controls. The Company is presently engaged in a broad review of its internal control procedures in anticipation of the need for the Company’s independent auditors to certify as to the adequacy of those controls in connection with the filing of the Company’s Report on Form 10-K to be filed for the current fiscal year.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
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.
CERTIFICATIONS
I, Robert J. Therrien, do certify that:
Date: May 12, 2003
I, Robert W. Woodbury, Jr., do certify that:
EXHIBIT INDEX