NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Basis of Presentation
The unaudited consolidated financial statements of Brooks Automation, Inc. and its subsidiaries (“Brooks” or the “Company”) included herein have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all material adjustments, which are of a normal and recurring nature and necessary for a fair statement of the financial position and results of operations and cash flows for the periods presented, have been reflected in the accompanying unaudited consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year.
Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted and, accordingly, the accompanying financial information should be read in conjunction with the audited 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 (the “SEC”) for the fiscal year ended September 30, 2015 (the "2015 Annual Report on Form 10-K"). The accompanying consolidated balance sheet as of September 30, 2015 was derived from the audited annual consolidated financial statements as of the period then ended.
Revision of Prior Period Financial Statements
During the three months ended June 30, 2016, the Company identified a classification error related to a presentation of cost of product and service revenue in the Company's consolidated statements of operations for the quarterly and annual periods beginning in the fourth quarter of fiscal year 2014 through the quarterly period ended March 31, 2016. The classification error had no impact on the total cost of revenue, gross profit, operating income (loss), net income (loss), as well as basic and diluted net income (loss) per share during any of the periods presented. Additionally, the classification error had no impact on the Company's consolidated balance sheets and consolidated statements of cash flows during any of the prior periods. The Company considered the guidance in Accounting Standard Codification (ASC) Topic 250, “
Accounting Changes and Error Corrections
,” ASC Topic 250-10-S99-1, “
Assessing Materiality
,” and ASC Topic 250-10-S99-2, “
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements"
in evaluating whether the Company’s previously issued consolidated financial statements were materially misstated. The Company concluded this classification error was not material individually or in the aggregate to the financial statements presented during any of the prior reporting periods, and therefore, amendments of previously filed reports were not required. The revisions for these corrections to the applicable prior periods are reflected in the financial information herein and will be reflected in future filings containing such financial information.
The following table summarizes the effects of the classification error on the interim prior period financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
|
March 31, 2016
|
|
March 31, 2015
|
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
Cost of product revenue
|
|
$
|
65,346
|
|
|
$
|
(120
|
)
|
|
$
|
65,226
|
|
|
$
|
79,048
|
|
|
$
|
(2,356
|
)
|
|
$
|
76,692
|
|
Cost of service revenue
|
|
23,135
|
|
|
120
|
|
|
23,255
|
|
|
14,240
|
|
|
2,356
|
|
|
16,596
|
|
Total cost of revenue
|
|
$
|
88,481
|
|
|
$
|
—
|
|
|
$
|
88,481
|
|
|
$
|
93,288
|
|
|
$
|
—
|
|
|
$
|
93,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended,
|
|
|
March 31, 2016
|
|
March 31, 2015
|
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
Cost of product revenue
|
|
$
|
123,496
|
|
|
$
|
(238
|
)
|
|
$
|
123,258
|
|
|
$
|
149,268
|
|
|
$
|
(4,519
|
)
|
|
$
|
144,749
|
|
Cost of service revenue
|
|
44,386
|
|
|
238
|
|
|
44,624
|
|
|
27,668
|
|
|
4,519
|
|
|
32,187
|
|
Total cost of revenue
|
|
$
|
167,882
|
|
|
$
|
—
|
|
|
$
|
167,882
|
|
|
$
|
176,936
|
|
|
$
|
—
|
|
|
$
|
176,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
Cost of product revenue
|
|
$
|
58,150
|
|
|
$
|
(118
|
)
|
|
$
|
58,032
|
|
|
$
|
70,220
|
|
|
$
|
(2,163
|
)
|
|
$
|
68,057
|
|
Cost of service revenue
|
|
21,251
|
|
|
118
|
|
|
21,369
|
|
|
13,428
|
|
|
2,163
|
|
|
15,591
|
|
Total cost of revenue
|
|
$
|
79,401
|
|
|
$
|
—
|
|
|
$
|
79,401
|
|
|
$
|
83,648
|
|
|
$
|
—
|
|
|
$
|
83,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
|
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
Cost of product revenue
|
|
$
|
79,721
|
|
|
$
|
(2,593
|
)
|
|
$
|
77,128
|
|
Cost of service revenue
|
|
13,986
|
|
|
2,593
|
|
|
16,579
|
|
|
|
$
|
93,707
|
|
|
$
|
—
|
|
|
$
|
93,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2015
|
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
Cost of product revenue
|
|
$
|
228,989
|
|
|
$
|
(7,112
|
)
|
|
$
|
221,877
|
|
Cost of service revenue
|
|
41,654
|
|
|
7,112
|
|
|
48,766
|
|
|
|
$
|
270,643
|
|
|
$
|
—
|
|
|
$
|
270,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2015
|
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
Cost of product revenue
|
|
$
|
307,865
|
|
|
$
|
(9,517
|
)
|
|
$
|
298,348
|
|
Cost of service revenue
|
|
55,738
|
|
|
9,517
|
|
|
65,255
|
|
Total cost of revenue
|
|
$
|
363,603
|
|
|
$
|
—
|
|
|
$
|
363,603
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2014
|
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
Cost of product revenue
|
|
$
|
252,688
|
|
|
$
|
(2,420
|
)
|
|
$
|
250,268
|
|
Cost of service revenue
|
|
62,823
|
|
|
2,420
|
|
|
65,243
|
|
Total cost of revenue
|
|
$
|
315,511
|
|
|
$
|
—
|
|
|
$
|
315,511
|
|
|
|
|
|
|
|
|
2. Summary of Significant Accounting Policies
Computer Software Developed for Internal Use
Computer software developed for internal use is capitalized in accordance with provisions of the Accounting Standards Codification, or ASC, Topic 350-40,
Intangibles Goodwill and Other—Internal Use Software
. The Company capitalizes direct costs incurred to develop internal-use software during the application development stage after determining software technological requirements and obtaining management approval for funding projects probable of completion. Capitalization of the internal-use software development costs ceases upon substantially completing the project and placing the software into service based on its intended use.
During the nine months ended June 30, 2016, the Company capitalized direct costs of $
2.9 million
associated with development of software for its internal use which are included within "Property, plant and equipment, net" in the accompanying unaudited Consolidated Balance Sheets. There were
no
internal-use software development costs as of September 30, 2015.
Deferred Financing Costs
The Company records commitment fees and other costs directly associated with obtaining line of credit financing as deferred financing costs which are presented within "Other assets" in the accompanying unaudited Consolidated Balance Sheets. Deferred financing costs are amortized over the term of the related financing arrangement and included in interest expense in the accompanying unaudited Consolidated Statements of Operations. During the three and nine months ended June 30, 2016, the Company incurred $
0.7 million
in deferred financing costs associated with obtaining line of credit financing. Amortization expense of approximately $
12,000
during the three and nine months ended June 30, 2016 was included in interest expense in the accompanying unaudited Consolidated Statements of Operations. Please refer to Note 8, “Line of Credit”for further information on this arrangement.
Use of Estimates
The preparation of unaudited consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are associated with accounts receivable, inventories, goodwill, intangible assets other than goodwill, long-lived assets, derivative financial instruments, deferred income taxes, warranty obligations, revenue recognized using the percentage of completion method, pension obligations and stock-based compensation expense. The Company bases its estimates on historical experience and various other assumptions, including in certain circumstances, future projections that management believes to be reasonable under the circumstances. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they occur and become known.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board, or FASB, issued a new accounting guidance for reporting credit losses. The new guidance introduces a new "expected loss" impairment model which applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities and other financial assets. Entities are required to estimate expected credit losses over the life of financial assets and record an allowance against the assets' amortized cost basis to present them at the amount expected to be collected. Additionally, the guidance amends the impairment model for available for sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on such debt security is a credit loss. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption of the newly issued guidance is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. The standard should be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company expects to adopt the guidance during the first quarter of fiscal year 2021 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In May 2016, the FASB issued an amendment to the revenue recognition guidance released in May 2014. The amendment is intended to reduce the cost and complexity of applying the revenue recognition guidance and result in a more consistent application of the revenue recognition rules. The amendment clarifies the implementation guidance on collectibility, non-cash consideration and the presentation of sales and other similar taxes, as well as transitional guidance related to completed contracts. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and should be applied at the time of the adoption of the revenue recognition guidance issued in May 2014. Early adoption of the newly issued guidance is not permitted. The Company expects to adopt the guidance during the first quarter of fiscal year 2019 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In April 2016, the FASB issued an amendment to the revenue recognition guidance released in May 2014. The amendment clarifies the implementation guidance on identifying performance obligations and licensing. Specifically, the amendment reduces the cost and complexity of identifying promised goods or services and improves the guidance for determining whether promises are separately identifiable. The amendment also provides implementation guidance on determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and should be applied at the time of the adoption of the revenue recognition guidance issued in May 2014. Early adoption of the newly issued guidance is not permitted. The Company expects to adopt the guidance during the first quarter of fiscal year 2019 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In March 2016, the FASB issued an amendment to the accounting guidance to simplify accounting for share-based payment awards issued to employees. The amendment requires recognition of excess tax benefits or deficiencies within income tax expense or benefit and changes their presentation requirements on the statement of cash flows. Additionally, the entity can make an accounting policy election to either estimate the number of awards that are expected to vest, consistent with the current accounting guidance, or account for forfeitures as they occur. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption of the newly issued guidance is permitted. The Company expects to adopt the guidance during the first quarter of fiscal year 2018 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In March 2016, the FASB issued an amendment to the revenue recognition guidance released in May 2014. The amendment clarifies the application of the principal versus agent guidance, identification of the units of accounting, as well as application of the control principle to certain types of arrangements within the scope of the guidance. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and should be applied at the time of the adoption of the revenue recognition guidance issued in May 2014. Early adoption of the newly issued guidance is not permitted. The Company expects to adopt the guidance during the first quarter of fiscal year 2019 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In February 2016, the FASB, issued a new accounting guidance for reporting lease transactions. In accordance with provisions of the newly issued guidance, a lessee should recognize at the inception of the arrangement a right-of-use asset and a corresponding lease liability initially measured at the present value of lease payments over the lease term. For finance leases, interest on a lease liability should be recognized separately from the amortization of the right-of-use asset, while for operating leases, total lease costs are recorded on a straight-line basis over the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying assets to forgo a recognition of right-of-use assets and corresponding lease liabilities and record a lease expense on a straight-line basis. Entities should determine at the inception of the arrangement whether a contract represents a lease or contains a lease which is defined as a right to control the use of identified property for a period of time in exchange for consideration. Additionally, entities should separate the lease components from the non-lease components and allocate the contract consideration on a relative standalone price basis in
accordance with provisions of ASC Topic 606,
Revenue from Contracts with Customers
. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and should be adopted via a modified retrospective approach with certain optional practical expedients that entities may elect to apply. The Company expects to adopt the guidance during the first quarter of fiscal year 2020 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In November 2015, the FASB issued an amendment to the accounting guidance to simplify the presentation of deferred income tax assets and liabilities in a statement of financial position. Deferred income tax assets, net of a corresponding valuation allowance, and liabilities related to a particular tax-paying component of an entity within a particular tax jurisdiction shall be offset and presented as a single noncurrent amount in a statement of financial position. Deferred income tax assets and liabilities attributable to different tax-paying components of an entity or different tax jurisdictions shall not be offset and be presented separately. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. The guidance can be adopted via either a prospective or a retrospective approach for all deferred income tax assets and liabilities presented in a statement of financial position. The Company expects to adopt this guidance during the first quarter of fiscal year 2018 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In September 2015, the FASB issued a new accounting guidance to simplify the presentation of measurement-period adjustments recognized in business combinations. Measurement-period adjustments will no longer be recognized by the acquirer retrospectively and will be recorded by the acquirer during the period in which they were determined. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and should be applied prospectively to the adjustments that occur after the effective date of the guidance. Early adoption is permitted for the financial statements that have not been issued, and the Company adopted the guidance during the first quarter of fiscal year 2016 to simplify the presentation of the measurement period adjustments in its consolidated financial statements. During the six months ended March 31, 2016, the Company recorded a measurement period adjustment of
$1.1 million
related to the acquisition of Contact Co., Ltd and recognized its impact in the accompanying Consolidated Balance Sheets as of the period then ended in accordance with the provisions of the newly adopted guidance. There was no impact on the results of operations during the six months ended March 31, 2016 as a result of this adjustment. This adjustment would have been applied retrospectively and recognized as a reclassification in the accompanying Consolidated Balance Sheets as of September 30, 2015 in accordance with provisions of the previous guidance.
In August 2015, the FASB issued an amendment to the accounting guidance which clarified the presentation and subsequent measurement of debt issuance costs related to line of credit arrangements based on the SEC's Staff announcement made in June 2015. In accordance with the guidance, debt issuance costs related to line of credit arrangements can be presented as an asset and subsequently amortized ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the arrangement. The guidance became effective upon its issuance and was adopted by the Company during the fourth quarter of fiscal year 2015. The adoption of the guidance did not have an impact on the Company's financial position and results of operations.
In February 2015, the FASB issued an amendment to the accounting guidance for consolidations of financial statements by changing the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted. The guidance can be adopted either via a full retrospective approach or a modified retrospective approach by recording a cumulative-effect adjustment to beginning equity in the period of adoption. The Company expects to adopt the guidance during the first quarter of fiscal year 2017. The Company is currently evaluating the impact of the guidance on its financial position and results of operations.
In January 2015, the FASB issued new accounting guidance to simplify income statement classification by removing the concept of extraordinary items from Generally Accepted Accounting Principles, or GAAP. As a result, items that are both unusual in nature and infrequent in occurrence will no longer be separately reported net of tax after the results of continuing operations. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and can be adopted retrospectively or prospectively based on an entity's election. Early adoption is permitted. The Company expects to adopt the guidance during the first quarter of fiscal year 2017. The adoption of the guidance is not expected to have a material impact on its financial position and results of operations.
In May 2014, the FASB issued new accounting guidance for reporting revenue recognition. The guidance provides for the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. A five-step process set forth in the guidance may require more judgment and estimation within the revenue recognition process than the current GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The guidance was initially effective for fiscal years,
and interim periods within those years, beginning after December 15, 2016. In August 2015, the FASB issued an amendment deferring the effective date of the guidance by one year. The guidance should be adopted retrospectively either for each reporting period presented or via recognizing the cumulative effect at the date of the initial application. Early adoption is permitted only as of annual reporting periods, including the interim periods, beginning after December 15, 2016. The Company expects to adopt the guidance during the first quarter of fiscal year 2019 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In April 2014, the FASB issued an amendment to the accounting guidance for reporting discontinued operations. The amended guidance raises the threshold for disposals to qualify as a discontinued operation by requiring a component of an entity that is held for sale, or has been disposed of by sale, to represent a strategic shift that has or will have a major effect on operations and financial results. A strategic shift could include the disposal of a major line of business, a major geographical area, a major equity method investment or other major parts of an entity. In addition, the guidance allows companies to have significant continuing involvement and continuing cash flows with the discontinued operation. The guidance became effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2014 and is applied prospectively. The Company adopted the guidance during the first quarter of fiscal year 2016. The adoption of the guidance did not have an impact on the Company's financial position and the results of operations.
Other
For further information with regard to the Company's Significant Accounting Policies, please refer to Note 2 "Summary of Significant Accounting Policies" to the Company's consolidated financial statements included in the 2015 Annual Report on Form 10-K.
3. Marketable Securities
The Company invests in marketable securities that are classified as available-for-sale and records them at fair value in the Company's unaudited Consolidated Balance Sheets. Marketable securities reported as current assets represent investments that mature within one year from the balance sheet date. Long-term marketable securities represent investments with maturity dates greater than one year from the balance sheet date.
Unrealized gains and losses are excluded from earnings and reported as a separate component of accumulated other comprehensive income until the security is sold or matures. Gains or losses realized from sales of marketable securities are computed based on the specific identification method and recognized as a component of "Other (loss) income, net" in the accompanying unaudited Consolidated Statements of Operations. There were
no
sales of marketable securities during the three months ended June 30, 2016. During the nine months ended June 30, 2016, the Company sold marketable securities with a fair value of $
127.6 million
and amortized cost of $
127.7 million
and recognized gross losses of approximately $
158,000
and gross gains of approximately
$3,000
from the sale of marketable securities. The Company collected cash proceeds of $
127.0 million
from the sale of marketable securities and reclassified unrealized net holding losses of approximately
$155,000
on the marketable securities based on a specific identification method from accumulated other comprehensive income into "Other (loss) income, net" in the accompanying unaudited Consolidated Statements of Operations as a result of these transactions. During the three and nine months ended June 30, 2015, the Company sold marketable securities with a fair value and amortized cost of
$9.5 million
and recognized gross gains of approximately
$1,400
on sale of marketable securities. The Company collected cash proceeds of
$9.5 million
from the sale of marketable securities and reclassified unrealized net holding gains of approximately
$1,400
on the marketable securities based on a specific identification method from accumulated other comprehensive income into "Other (loss) income, net" in the accompanying unaudited Consolidated Statements of Operations as a result of these transactions.
Unrealized gains on available for sale securities presented as a component of accumulated other comprehensive income were approximately
$12,000
and
$102,300
, respectively, at June 30, 2016 and September 30, 2015. Net unrealized holding (losses) gains on available for sale securities recorded as a component of other comprehensive income (loss) before the impact of reclassifications were approximately $
(0.2) million
and $
0.2 million
, respectively, during the nine months ended June 30, 2016 and 2015.
The following is a summary of the amortized cost and the fair value, including accrued interest receivable, as well as unrealized holding gains (losses) on the short-term and long-term marketable securities as of June 30, 2016 and September 30, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
June 30, 2016:
|
|
|
|
|
|
|
|
Corporate securities
|
$
|
2,315
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,315
|
|
Other debt securities
|
18
|
|
|
—
|
|
|
—
|
|
|
18
|
|
Municipal securities
|
3,741
|
|
|
12
|
|
|
—
|
|
|
3,753
|
|
Total marketable securities
|
$
|
6,074
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
6,086
|
|
September 30, 2015:
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies
|
$
|
30,343
|
|
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
30,382
|
|
Corporate securities
|
54,725
|
|
|
13
|
|
|
(48
|
)
|
|
54,690
|
|
Mortgage-backed securities
|
857
|
|
|
27
|
|
|
—
|
|
|
884
|
|
Other debt securities
|
5,056
|
|
|
3
|
|
|
—
|
|
|
5,059
|
|
Municipal securities
|
30,258
|
|
|
18
|
|
|
(9
|
)
|
|
30,267
|
|
Bank certificate of deposits
|
12,024
|
|
|
2
|
|
|
—
|
|
|
12,026
|
|
|
$
|
133,263
|
|
|
$
|
102
|
|
|
$
|
(57
|
)
|
|
$
|
133,308
|
|
The fair values of the marketable securities by contractual maturities at June 30, 2016 are presented below (in thousands):
|
|
|
|
|
|
Fair Value
|
Due in one year or less
|
$
|
18
|
|
Due after one year through five years
|
3,753
|
|
Due after ten years
|
2,315
|
|
Total marketable securities
|
$
|
6,086
|
|
Expected maturities could differ from contractual maturities because the security issuers may have the right to prepay obligations without prepayment penalties.
The Company reviews the marketable securities for impairment at each reporting period to determine if any of the securities have experienced an other-than-temporary decline in fair value. The Company considers factors, such as the length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issuer, the Company's intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of its amortized cost basis. If the Company believes that an other-than-temporary decline in fair value has occurred, it writes down the investment to fair value and recognizes the credit loss in earnings and the non-credit loss in accumulated other comprehensive income. As of June 30, 2016, there were
no
marketable securities in the unrealized loss position. As of September 30, 2015, aggregate fair value of the marketable securities in unrealized loss position was $
40.4 million
and was comprised of corporate securities of $
31.8 million
, municipal securities of $
6.6 million
, bank certificates of deposit of $
1.0 million
, as well as U.S. Treasury and Government Agency securities of
$1.0 million
. Aggregate unrealized losses for these securities were
$0.1 million
as of September 30, 2015 and are presented in the table above. These securities were not considered other-than-temporarily impaired and, as such, the Company did not recognize impairment losses during the periods then ended. The unrealized losses are attributable to changes in interest rates which impact the value of the investments.
4. Acquisitions
Acquisitions Completed in Fiscal Year 2016
Acquisition of BioStorage Technologies, Inc.
On November 30, 2015, the Company completed its acquisition of BioStorage Technologies, Inc., or BioStorage, an Indiana-based global provider of comprehensive sample management and integrated cold chain solutions for the biosciences industry. These solutions include collection, transportation, processing, storage, protection, retrieval and disposal of biological samples. These solutions combined with the Company's existing offerings, particularly automation for sample storage and formatting, provide customers with fully integrated sample management cold chain solutions which will help them increase productivity, efficiencies and speed to market. This acquisition will allow the Company to access a broader customer base that is storing samples at ultra cold temperatures and simultaneously provide opportunities for BioStorage to use the Company's capabilities to expand into new markets.
The Company acquired
100%
of the issued and outstanding shares of BioStorage. A cash payment of
$130.7 million
, net of the seller's cash of
$2.8 million
, resulted in a net cash outflow of $
128.0 million
, including
$125.5 million
ascribed to the purchase price and
$2.5 million
for retention arrangements with certain employees based on the completion of a service retention period. The cash payment included a debt repayment of $
3.2 million
and transaction costs of $
2.9 million
paid by the Company on behalf of BioStorage.
The Company recorded the assets acquired and liabilities assumed related to BioStorage at their preliminary fair values as of the acquisition date, from a market participant’s perspective. The purchase price allocation was prepared on a preliminary basis and is subject to further adjustments as additional information becomes available concerning the fair value of the assets acquired and liabilities assumed. The preliminary fair values of the tangible and intangible assets acquired were based upon preliminary valuations and the Company's estimates and assumptions that are subject to change within the measurement period. As of June 30, 2016, the primary areas that remained preliminary included fair values of intangible assets acquired, certain tangible assets, tax-related matters and residual goodwill. The Company expects to continue obtaining information to assist it with determining the fair values of the net assets acquired during the measurement period. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the acquisition date.
The preliminary amounts recorded were as follows (in thousands):
|
|
|
|
|
|
Fair Value of Assets and Liabilities
|
Accounts receivable
|
$
|
16,942
|
|
Prepaid expenses and other current assets
|
321
|
|
Property, plant and equipment
|
14,345
|
|
Intangible assets
|
41,460
|
|
Goodwill
|
79,889
|
|
Other assets
|
53
|
|
Debt assumed
|
(385
|
)
|
Accounts payable
|
(1,708
|
)
|
Accrued liabilities
|
(9,423
|
)
|
Deferred revenue
|
(1,766
|
)
|
Long-term deferred tax liabilities
|
(14,169
|
)
|
Other liabilities
|
(61
|
)
|
Total purchase price, net of cash acquired
|
$
|
125,498
|
|
At the closing of the acquisition of BioStorage, a cash payment of
$5.4 million
was placed into escrow which consisted of
$2.9 million
ascribed to the purchase price and
$2.5 million
related to retention arrangements with certain employees. The payment of
$2.9 million
included $
1.9 million
related to satisfaction of the sellers' indemnification obligations with respect to BioStorage's representations and warranties and other indemnities, as well as
$1.0 million
related to potential purchase price adjustments. The remaining escrow balance of $
2.5 million
is payable to certain employees upon completion of a service retention period. Such retention payments were not considered a part of the purchase price, but rather recorded as a separate asset acquired and included within "Prepaid expenses and other current assets" in the accompanying Consolidated Balance Sheets. The escrow balance related to such retention payments was reduced by
$1.1 million
subsequent to the acquisition date and had a balance of
$1.4 million
as of June 30, 2016. All remaining escrow balances were unchanged as of June 30, 2016.
The fair value of customer relationship intangible assets of
$36.6 million
was estimated based on the income approach in accordance with the excess-earnings method. In accordance with the excess-earnings method, the value of the intangible asset is equal to the present value of the after-tax cash flows attributable to the intangible asset only. The weighted average amortization period for the customer relationships intangible assets acquired in the BioStorage acquisition is
11.0
years.
The fair value of the trademark intangible assets acquired of
$4.9 million
was estimated based on the income approach in accordance with the relief-from-royalty method. In accordance with the relief-from-royalty method, the value of an intangible asset is equal to the present value of the after-tax royalty savings attributable to owning that intangible asset. The weighted average amortization period for the trademark intangible assets acquired in the BioStorage acquisition is
8.0
years.
The intangible assets acquired are amortized over the total weighted average period of
13.6
years using an accelerated depreciation method which approximates the pattern in which the economic benefits are expected to be realized.
Fair values of intangible assets and their estimated useful lives are determined based on estimates of future expected after-tax cash flows and royalty savings, customer attrition rates, discount rates, as well as assumptions about the period of time over which the Company will be deriving economic benefits from the acquired intangible assets.
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired and has been assigned to the Company's Brooks Life Science Systems segment. Goodwill is primarily the result of expected synergies from combining the operations of BioStorage with the Company and is not deductible for tax purposes.
The operating results of BioStorage have been reflected in the results of operations for the Brooks Life Science Systems segment from the date of the acquisition, which included one month of activity during the first quarter of fiscal year 2016. During the three months ended June 30, 2016, revenue and net income from BioStorage recognized in the Company’s results of operations were
$12.4 million
and
$1.1 million
, respectively. During the nine months ended June 30, 2016, revenue and net income from BioStorage recognized in the Company’s results of operations were
$30.3 million
and
$0.3 million
, respectively. During the three and nine months ended June 30, 2016, the net income included amortization expense of
$0.9 million
and
$2.0 million
, respectively, related to acquired intangible assets.
During the three and nine months ended June 30, 2016, the Company incurred
$0.1 million
and
$3.2 million
, respectively, in non-recurring transaction costs with respect to the BioStorage acquisition which were recorded in "Selling, general and administrative" expenses within the unaudited Consolidated Statements of Operations. The retention payment of $
2.5 million
was recorded within prepaid expenses and other current assets at the acquisition date and will be recognized as compensation expense over the service period or upon a triggering event in the underlying change in control agreements. During the three and nine months ended June 30, 2016, the Company recorded
$0.3 million
and
$0.7 million
, respectively, of compensation expense related to this arrangement.
The following unaudited proforma financial information represents a summary of the consolidated results of operations for the Company and BioStorage as if the acquisition of BioStorage occurred on October 1, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended, June 30,
|
|
Nine Months Ended, June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenue
|
$
|
147,534
|
|
|
$
|
155,237
|
|
|
$
|
413,816
|
|
|
$
|
436,509
|
|
Net income (loss)
|
9,163
|
|
|
6,966
|
|
|
(74,024
|
)
|
|
251
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share
|
$
|
0.13
|
|
|
$
|
0.10
|
|
|
$
|
(1.08
|
)
|
|
$
|
—
|
|
Diluted (loss) income per share
|
$
|
0.13
|
|
|
$
|
0.10
|
|
|
$
|
(1.08
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used in computing net loss per share:
|
|
|
|
|
|
|
|
Basic
|
68,628
|
|
|
67,454
|
|
|
68,437
|
|
|
67,321
|
|
Diluted
|
69,166
|
|
|
68,571
|
|
|
68,437
|
|
|
68,520
|
|
The unaudited pro forma information presented above reflects historical operating results of the Company and BioStorage and includes the impact of certain adjustments directly attributable to the business combination. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition of BioStorage had taken place on October 1, 2014. Amortization and depreciation expense of $
1.4 million
, transaction costs of
$0.3 million
, and restructuring charges of
$0.3 million
were included in proforma net income during the three months ended June 30, 2015. During the three months ended June 30, 2015, the adjustments reflected in the unaudited pro forma information included tax effects of
$0.8 million
, respectively. The impact of the restructuring charges and transaction costs was excluded from the proforma net income during the three months ended June 30, 2016. During the nine months ended June 30, 2016 and 2015, the adjustments reflected in the unaudited pro forma information included aggregate amortization and depreciation expense of
$0.6 million
and
$3.2 million
, respectively, and tax effects of
$0.5 million
and
$0.3 million
, respectively. Additionally, the impact of transaction costs of
$3.2 million
and restructuring charges of
$1.9 million
was included in the proforma net income during the nine months ended June 30, 2015. The impact of the transaction costs and the restructuring charges was excluded from the proforma net loss during the nine months ended June 30, 2016.
Acquisitions Completed in Fiscal Year 2015
Acquisition of Contact Co., Ltd.
On August 14, 2015, the Company acquired all of the outstanding stock of Contact Co., Ltd., or Contact, a Japanese-based provider of automated cleaner products for wafer carrier devices used in the global semiconductor markets. The acquisition of Contact expands the Company's offerings of contamination control solutions within its Brooks Semiconductor Solutions Group segment, strengthens its current capabilities and technology used in its contamination control solutions business and enhances its long-term strategy of gaining share in its core semiconductor markets.
The aggregate purchase price of
$6.8 million
, net of cash acquired, consisted of a cash payment of
$1.9 million
, the assumption of the seller's debt of
$8.8 million
, seller's cash of
$4.8 million
and contingent consideration of
$0.8 million
payable upon achievement of certain specified targets and events. The entire debt amount was fully repaid as of September 30, 2015.
The Company recorded the assets acquired and liabilities assumed related to Contact at their preliminary fair values as of the acquisition date. The purchase price allocation was prepared on a preliminary basis and is subject to further adjustments as additional information becomes available concerning the fair value of the assets acquired and liabilities assumed. The preliminary fair values of the tangible and intangible assets acquired were based upon preliminary valuations and the Company's estimates and assumptions that are subject to change within the measurement period. As of June 30, 2016, the primary areas that remained preliminary included fair values of intangible assets acquired, certain tangible assets, tax-related matters and residual goodwill. The Company expects to continue obtaining information to assist it with determining the fair values of the net assets acquired during the measurement period. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the acquisition date.
During the first quarter of fiscal year 2016, the Company finalized the valuation of property, plant and equipment reported at fair value at the acquisition date. As a result, the Company recorded a measurement period adjustment of
$1.1 million
as a decrease in the tangible assets' fair value and a corresponding increase in goodwill. There was no impact on the depreciation expense as a result of the tangible assets' fair value revision during the period then ended. The Company adopted Accounting Standards Update, or ASU, 2015-16,
Simplifying the Accounting for Measurement Period Adjustments
, during the first quarter of fiscal year 2016 and recognized the impact of the measurement period adjustment in the accompanying unaudited
Consolidated Balance Sheets as of June 30, 2016 in accordance with the provisions of the newly adopted guidance.
The impact of the measurement period adjustment is reflected in the following preliminary purchase price allocation table (in thousands):
|
|
|
|
|
|
Fair Value of Assets and Liabilities
|
Accounts receivable
|
$
|
42
|
|
Inventories
|
2,020
|
|
Prepaid expenses and other current assets
|
484
|
|
Property, plant and equipment
|
79
|
|
Completed technology
|
2,290
|
|
Goodwill
|
4,195
|
|
Other assets
|
1,410
|
|
Accounts payable
|
(1,089
|
)
|
Accrued liabilities
|
(1,823
|
)
|
Long-term deferred tax liabilities
|
(774
|
)
|
Total purchase price, net of cash acquired
|
$
|
6,834
|
|
Fair value of the contingent consideration of
$0.8 million
was determined based on a probability-weighted average discounted cash flow model and recorded in "Accrued expenses and other current liabilities" in the Company's unaudited Consolidated Balance Sheets. The Company remeasures the fair value of the contingent consideration at each reporting date until the arrangement is settled. Fair value of the contingent consideration was
$0.5 million
at June 30, 2016, and the Company recognized a corresponding gain of
$0.3 million
on the fair value remeasurement during the nine months ended June 30, 2016. There was
no
gain recognized on the contingent consideration fair value remeasurement during the three months ended June 30, 2016. Please refer to Note 18 “Fair Value Measurements” for further information on the fair value measurement of the contingent consideration.
At June 30, 2016, the Company had approximately
$749,000
in an escrow account which related to potential working capital adjustments and the sellers' satisfaction of general representations and warranties. At the closing of the acquisition of Contact, the escrow balance was
$1.5 million
which was reduced by approximately
$750,000
during fiscal year 2016 as a result of a payment made to the sellers upon termination of a certain third-party arrangement.
Fair value of the completed technology intangible assets was estimated based on the income approach in accordance with the excess-earnings method. The weighted average amortization period for the completed technology intangible assets acquired in the Contact acquisition is
5.0
years. The intangible assets acquired are amortized using an accelerated depreciation method which approximates the pattern in which the economic benefits are expected to be realized.
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired and has been assigned to the Company's Brooks Semiconductor Solutions Group segment. Goodwill is primarily the result of expected synergies from combining the operations of Contact with the Company and is not deductible for tax purposes.
The operating results of Contact have been included in the results of operations for the Brooks Semiconductor Solutions Group segment from the date of the acquisition. During the three months ended June 30, 2016, revenue and net loss from Contact recognized in the Company's results of operations were
$0.8 million
and
$0.4 million
, respectively. During the nine months ended June 30, 2016, revenue and net loss from Contact recognized in the Company's results of operations were
$3.0 million
and
$1.0 million
, respectively. During the three and nine months ended June 30, 2016, the net loss included charges of
$0.1 million
and
$0.5 million
, respectively, related to the step-up in value of the acquired inventories and amortization expense of
$0.2 million
and
$0.5 million
, respectively, related to amortization of acquired intangible assets.
The Company did not present a pro forma information summary for its consolidated results of operations for the three and nine months ended June 30, 2015 as if the acquisition of Contact occurred on October 1, 2014 because such results were insignificant.
Acquisition of FluidX Ltd.
On October 1, 2014, the Company acquired all of the outstanding stock of FluidX Ltd. (“FluidX”), a UK-based provider of biological sample storage tubes and complementary bench-top instruments. The Company paid, in cash, aggregate merger consideration of
$15.5 million
, net of cash acquired. The acquisition of FluidX provides the Company with the opportunity to enhance its existing capabilities with respect to biobanking solutions in the Brooks Life Science Systems segment.
The Company recorded the following amounts for the assets acquired and liabilities assumed related to FluidX at their fair values as of the acquisition date (in thousands):
|
|
|
|
|
|
Fair Values of Assets and Liabilities
|
Accounts receivable
|
$
|
1,980
|
|
Inventory
|
2,857
|
|
Prepaid and other current assets
|
213
|
|
Property, plant and equipment
|
101
|
|
Completed technology
|
1,230
|
|
Trademarks and trade names
|
750
|
|
Customer relationships
|
4,810
|
|
Goodwill
|
8,247
|
|
Accounts payable
|
(2,079
|
)
|
Deferred revenue
|
(72
|
)
|
Accrued liabilities
|
(992
|
)
|
Long-term deferred tax liabilities
|
(1,540
|
)
|
Total purchase price, net of cash acquired
|
$
|
15,505
|
|
The purchase price was allocated based on the fair value of the identified assets acquired and liabilities assumed as of the acquisition date from a market participant’s perspective.
On January 23, 2015, the Company reached a settlement with respect to certain working capital adjustments with the sellers of FluidX stock. On February 3, 2015, the Company made a payment to the sellers as a result of this settlement, which increased the purchase price by
$0.1 million
. Prior to June 30, 2016, the Company had
$1.5 million
in a general escrow account held by the unrelated third party. The balance was remitted to the sellers and fully released during the three months ended June 30, 2016. The Company finalized the purchase price allocation for FluidX acquisition within the measurement period. Adjustments to the initial purchase price allocation recorded during the measurement period were not material to the Company's financial position.
Fair values of the trademarks and the completed technology acquired were estimated based on the income approach in accordance with the relief-from-royalty method, which states that the value of an intangible asset is equal to the present value of the after-tax royalty savings attributable to owning that intangible asset. Fair value of customer relationships acquired was estimated based on the income approach in accordance with the excess-earnings method. The weighted average amortization periods for intangible assets acquired in the FluidX acquisition are
5.0
years for each of completed technology, trademarks, and customer relationships.
The intangible assets acquired are amortized using an accelerated depreciation method which approximates the pattern in which the economic benefits are expected to be realized.
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired and has been assigned to the Company's Brooks Life Science Systems segment. Goodwill is primarily the result of expected synergies from combining the operations of FluidX with the Company and is not deductible for tax purposes.
The operating results of FluidX have been included in the results of operations for the Brooks Life Science Systems segment from the date of the acquisition. During the three months ended June 30, 2016, revenue and net income from FluidX were
$4.0 million
and
$0.1 million
, respectively. During the nine months ended June 30, 2016, revenue and net loss from FluidX were
$11.7 million
and
$0.3 million
, respectively. The net income (loss) during the three and nine months ended June 30, 2016 included amortization expense of
$0.3 million
and
$0.9 million
, respectively, related to acquired intangible assets. During the three months ended June 30, 2015, revenue and net loss from FluidX were
$3.8 million
and
$0.3 million
, respectively. During the nine months ended June 30, 2015, revenue and net loss from FluidX were
$11.2 million
and
$0.5 million
, respectively. The net loss during the three and nine months ended June 30, 2015 included charges of
$0 million
and
$1.0 million
, respectively, related to the step-up in value of the acquired inventories and amortization expense of
$0.3 million
and
$1.0 million
, respectively, related to acquired intangible assets.
5. Goodwill and Intangible Assets
Goodwill represents the excess of net book value over the estimated fair value of net tangible and identifiable intangible assets of a reporting unit. Goodwill is tested for impairment annually or more often if impairment indicators are present at the reporting unit level. The Company elected April 1 as its annual goodwill impairment assessment date and performs additional impairment tests if triggering events occur. If events occur or circumstances change that would more likely than not reduce fair values of the reporting units below their carrying values, goodwill will be evaluated for impairment between annual tests.
Prior to the third quarter of fiscal year 2016, the Company had
six
reporting units, including
five
reporting units that had goodwill.
Four
reporting units were a part of the Brooks Product Solutions operating segment, and each of the Brooks Global Services segment and Brooks Life Science Systems segment represented a reporting unit. During the third quarter of fiscal year 2016, the Company reorganized its operating and reportable segments into (i) Brooks Semiconductor Solutions Group, or BSSG,; and (ii) Brooks Life Science Systems and realigned its reporting units to reflect the revised segment structure. The combination of the Brooks Product Solutions segment and Brooks Global services segment did not have a direct impact on the goodwill at the reporting unit level. As a result of this re-alignment, the Company had
five
reporting units as of June 30, 2016, including
four
reporting units within the Brooks Semiconductor Solutions Group operating segment and
one
reporting unit which was Brooks Life Science Systems operating segment. Please refer to Note 16, "Segment Information" for additional information on the operating and reporting segments realignment. The revised reporting unit structure reflects the aggregation of
two
reporting units, Polycold and CTI Cryogenics, into
one
reporting unit called BSSG Cryogenics as a result of the reorganization of the Company’s internal management structure and the economic similarities that exist between the
two
reporting units. The Company tested goodwill for impairment before and after the reporting unit aggregation and determined that fair value of each reporting unit individually and in aggregate exceeded their carrying values. The fair value of the BSSG Cryogenics reporting unit significantly exceeded its carrying value as of June 30, 2016. BSSG Cryogenics goodwill carrying amount was
$24.0 million
million as of June 30, 2016.
The Company completed its annual goodwill impairment test as of April 1 and determined that no adjustment to goodwill was necessary. Fair values of all of the reporting units, except for Polycold, substantially exceeded their respective carrying values. Fair value of Polycold reporting unit on a standalone basis exceeded its carrying value by
12%
. During the second quarter of 2016, the Company concluded that recent operating trends and declining forecasts for the Polycold reporting unit represented indicators of potential goodwill impairment. As a result, the Company performed the first step of the quantitative goodwill impairment test as of February 1, 2016 and determined that the fair value exceeded the carrying value by
18%
, and that
no
goodwill impairment existed. The Company determined Polycold's fair value based on an Income Approach in accordance with the Discounted Cash Flow method, or DCF method, which is based on future cash flow forecasts discounted at a weighted-average cost of capital. Forecasted sales volumes, product costs and the resulting future cash flows used in the valuation of Polycold are driven by various factors, such as customer demand, macroeconomic environment and competitive dynamics, and may impact fair value of Polycold's goodwill. During the three months ended June 30, 2016, the Company incorporated lower projected future cash flows into the model due to lower forecasted revenue and gross margin in fiscal year 2016 which resulted in a decrease of the excess of Polycold's fair value over its carrying value from
18%
during the second quarter of fiscal year 2016 to
12%
during the third quarter of fiscal year 2016. The estimated fair value of Polycold's reporting unit assumed a taxable transaction. Polycold's goodwill carrying amount was $
24.0 million
as of the date of each goodwill impairment assessment.
The components of the Company’s goodwill by an operating segment at June 30, 2016 and September 30, 2015 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooks
Semiconductor
Solutions
Group
|
|
Brooks
Life Science
Systems
|
|
Other
|
|
Total
|
Gross goodwill, at September 30, 2014
|
$
|
651,067
|
|
|
$
|
47,378
|
|
|
$
|
26,014
|
|
|
$
|
724,459
|
|
Accumulated goodwill impairments
|
(588,944
|
)
|
|
—
|
|
|
(26,014
|
)
|
|
(614,958
|
)
|
Goodwill, net of accumulated impairments, at September 30, 2014
|
62,123
|
|
|
47,378
|
|
|
—
|
|
|
109,501
|
|
Acquisitions and adjustments
|
3,660
|
|
|
8,247
|
|
|
—
|
|
|
11,907
|
|
Gross goodwill, at September 30, 2015
|
654,727
|
|
|
55,625
|
|
|
26,014
|
|
|
736,366
|
|
Accumulated goodwill impairments
|
(588,944
|
)
|
|
—
|
|
|
(26,014
|
)
|
|
(614,958
|
)
|
Goodwill, net of accumulated impairments, at September 30, 2015
|
65,783
|
|
|
55,625
|
|
|
—
|
|
|
121,408
|
|
Acquisitions and adjustments
|
1,050
|
|
|
79,928
|
|
|
—
|
|
|
80,978
|
|
Gross goodwill, at June 30, 2016
|
655,777
|
|
|
135,553
|
|
|
26,014
|
|
|
817,344
|
|
Accumulated goodwill impairments
|
(588,944
|
)
|
|
—
|
|
|
(26,014
|
)
|
|
(614,958
|
)
|
Goodwill, net of accumulated impairments, at June 30, 2016
|
$
|
66,833
|
|
|
$
|
135,553
|
|
|
$
|
—
|
|
|
$
|
202,386
|
|
During the nine months ended June 30, 2016, the Company recorded a goodwill increase of
$79.9 million
related primarily to the acquisition of BioStorage which represented the excess of the consideration transferred over the fair value of the net assets acquired. Additionally, the Company recorded a measurement period adjustment related to the acquisition of Contact which resulted in a decrease in the tangible assets' fair value of
$1.1 million
and a corresponding increase in goodwill. Please
refer to the Note 4 "Acquisitions" for further information on the measurement period adjustment recorded during the first quarter of fiscal year 2016.
The components of the Company’s identifiable intangible assets as of June 30, 2016 and September 30, 2015 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
September 30, 2015
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Patents
|
$
|
7,808
|
|
|
$
|
7,463
|
|
|
$
|
345
|
|
|
$
|
7,808
|
|
|
$
|
7,394
|
|
|
$
|
414
|
|
Completed technology
|
60,441
|
|
|
49,982
|
|
|
10,459
|
|
|
60,748
|
|
|
46,718
|
|
|
14,030
|
|
Trademarks and trade names
|
9,143
|
|
|
4,028
|
|
|
5,115
|
|
|
4,241
|
|
|
3,604
|
|
|
637
|
|
Customer relationships
|
114,201
|
|
|
44,474
|
|
|
69,727
|
|
|
77,716
|
|
|
37,351
|
|
|
40,365
|
|
Total intangible assets
|
$
|
191,593
|
|
|
$
|
105,947
|
|
|
$
|
85,646
|
|
|
$
|
150,513
|
|
|
$
|
95,067
|
|
|
$
|
55,446
|
|
Amortization expense for intangible assets was
$3.8 million
and
$3.2 million
, respectively, during the three months ended June 30, 2016 and 2015 and
$11.1 million
and
$9.6 million
, respectively, during the nine months ended June 30, 2016 and 2015.
Estimated future amortization expense for the intangible assets for the remainder of fiscal year 2016 and the subsequent four fiscal years is as follows (in thousands):
|
|
|
|
|
Fiscal year ended September 30,
|
|
2016
|
$
|
3,810
|
|
2017
|
15,566
|
|
2018
|
14,052
|
|
2019
|
13,713
|
|
2020
|
12,909
|
|
Thereafter
|
25,596
|
|
|
$
|
85,646
|
|
6. Equity Method Investments
The Company accounts for certain of its investments using the equity method of accounting and records its proportionate share of the investee's earnings (losses) in its results of operations with a corresponding increase (decrease) in the carrying value of the investment.
BioCision, LLC
In March 2014, the Company acquired a
22%
equity interest in BioCision, LLC, or BioCision, a privately-held company based in Larkspur, California, for
$4.0 million
. During fiscal year 2015, the Company's equity investment was diluted from
22%
to
20%
as a result of stock options granted to new employees. BioCision develops, manufactures and markets cell cryopreservation products used to improve and standardize the tools and methods for biomaterial sample handling. The Company determined that BioCision represented a variable interest entity since the level of equity investment at risk was not sufficient to finance its activities without additional financial support. However, the Company does not qualify as a primary beneficiary since it does not have the power to direct BioCision's product research, development, selling and marketing activities that have the most significant impact on its economic performance. The Company's loss exposure is limited to the amount of investment and loan funding provided to BioCision. As such, the Company concluded that BioCision should not be consolidated in its financial statements.
During the three months ended June 30, 2016 and 2015, the Company recorded a loss associated with BioCision of approximately
$0.3 million
and
$0.2 million
, respectively. During each of the nine month periods ended June 30, 2016 and 2015, the Company recorded a loss associated with BioCision of
$0.7 million
. At June 30, 2016 and September 30, 2015, the carrying value of the investment in BioCision in the Company’s unaudited Consolidated Balance Sheets was
$2.0 million
and $
2.7 million
, respectively. At June 30, 2016, amount payable to BioCision was approximately
$32,000
.
The Company purchased BioCision's
five
-year convertible debt securities with a warrant agreement to purchase preferred units of BioCision for
$2.5 million
on each of the following dates of December 22, 2014 and February 2, 2015, resulting in a total purchase price of
$5.0 million
. Interest accrues on the convertible debt securities at a rate of
9%
per annum, and is due with the principal at maturity. The convertible debt securities were recorded at fair value and accounted for in accordance with
the fair value method. The warrant was recorded at fair value and accounted for as a derivative instrument. As of June 30, 2016, the fair value of the convertible debt securities and the warrant was
$5.8 million
and
$46,850
, respectively. As of September 30, 2015, the fair value of the convertible debt securities and the warrant was
$5.3 million
and
$0.1 million
, respectively.
For further information regarding the convertible debt securities and the warrant, refer to Note 18, “Fair Value Measurements”. The Company re-measures the fair values of the BioCision convertible debt securities and the warrant during each reporting period and recognizes the respective gains or losses as a component of "Other (loss) income, net" in the accompanying unaudited Consolidated Statements of Operations. The Company recognized remeasurement gains of
$0.2 million
and
$0.5 million
, respectively, during the three and nine months ended June 30, 2016.
During the nine months ended June 30, 2016, the Company provided a series of bridge loans to BioCision with an aggregate principal amount of
$600,000
bearing an annual interest rate of
10%
to support BioCision's working capital requirements. On March 8, 2016, the Company made an additional loan of
$150,000
to BioCision, and the bridge loans were converted into a part of the permanent term loan, collectively, the" loan", which provides for financing of an aggregate principal amount up to
$1.5 million
, including the first tranche of
$750,000
and a second tranche of
$750,000
which was provided to BioCision on June 15, 2016 to support its working capital requirements. All principal and accrued interest outstanding on the loan mature on December 31, 2019 or at an earlier date upon the occurrence of certain events. In the event that BioCision obtains a certain equity investment or has a liquidity event, in either case, on or before September 30, 2016, all accrued and unpaid interest will be due and payable, and interest will thereafter accrue and be due and payable monthly in arrears. If no such equity investment or liquidity event occurs on or before September 30, 2016, all accrued and unpaid interest will be converted into additional loan principal, and interest will accrue thereafter and be due and payable monthly in arrears. The financing supports growing working capital requirements in part due to BioCision entering into a supply agreement with a certain customer. The Company will be entitled to receive quarterly royalty payments from BioCision equal to
15%
of the revenue generated from this certain customer arrangement until the earlier of: (i) the termination of the customer arrangement, (ii) the receipt by the Company of an aggregate amount of
$1.5 million
of royalty proceeds, and (iii) the date the loan is repaid in full. All outstanding and unpaid royalties become immediately due and payable to the Company if the customer arrangement is terminated. The loan is secured by a first priority perfected lien on BioCision's cash flows from the aforementioned customer arrangement, as well as a second priority perfected subordinated security interest and a lien on its personal property and other intangible assets, including intellectual property. At June 30, 2016, the aggregate loan of
$1,500,000
was recorded at its carrying value and included in "Other assets" in the accompanying unaudited Consolidated Balance Sheets.
As a result of each of the funding rounds described above, the Company reconsidered whether BioCision represents a variable interest entity subject to consolidation. The Company concluded that BioCision remains a variable interest entity since the level of equity investment at risk is not sufficient to finance its activities without additional financial support. However, the Company does not qualify as a primary beneficiary since it does not have the power to direct BioCision's product research, development, selling and marketing activities that have the most significant impact on its economic performance. As such, the Company concluded that BioCision will not be consolidated in the Company's financial statements.
ULVAC Cryogenics, Inc.
The Company participates in a
50%
joint venture, ULVAC Cryogenics, Inc., or UCI, with ULVAC Corporation of Chigasaki, Japan. UCI manufactures and sells cryogenic vacuum pumps, principally to ULVAC Corporation.
The carrying value of the investment in UCI was
$24.5 million
and
$21.5 million
, respectively, at June 30, 2016 and September 30, 2015. During the three months ended June 30, 2016 and 2015, the Company recorded income of
$0.7 million
and
$0.6 million
, respectively, representing its proportionate share of UCI's earnings. During the nine months ended June 30, 2016 and 2015, the Company recorded income of
$2.0 million
and
$0.9 million
, respectively, representing its proportionate share of UCI's earnings. Management fee payments received by the Company from UCI were
$0.2 million
each during the three months ended June 30, 2016 and 2015. Management fee payments received by the Company from UCI were
$0.6 million
and
$0.4 million
, respectively, during the nine months ended June 30, 2016 and 2015. During the three months ended June 30, 2015, the Company incurred charges from UCI's for products or services of
$0.1 million
. Such charges were insignificant during the three months ended June 30, 2016. During the nine months ended June 30, 2016 and 2015, the Company incurred charges from UCI's for products or services of
$0.2 million
each. At June 30, 2016 and September 30, 2015, the Company owed UCI approximately
$34,000
and
$0.1 million
, respectively, in connection with accounts payable for unpaid products and services.
Yaskawa Brooks Automation, Inc.
During fiscal year 2015, the Company participated in a
50%
joint venture with Yaskawa Electric Corporation, or Yaskawa, called Yaskawa Brooks Automation, Inc., or YBA, which came to closure in March 2015 and was liquidated on September 3, 2015. YBA exclusively marketed and sold Yaskawa’s semiconductor robotics products and the Company’s automation hardware products to semiconductor customers in Japan. During the first quarter of fiscal year 2015, the Company and
Yaskawa agreed in principle to dissolve the joint venture. In connection with the planned dissolution, YBA assessed the recoverability of assets held by the joint venture and notified its equity partners of an asset impairment. As a result, the Company recorded an impairment charge of
$0.7 million
related to the write down of the carrying value of the equity investment in YBA to fair value during the first quarter of fiscal year 2015.
During the three and nine months ended June 30, 2015, the Company earned revenue of
$0.0 million
and
$2.1 million
, respectively, from YBA and incurred charges of
$47,000
and
$1.0 million
, respectively, from YBA for products or services. Net loss associated with YBA recognized by the Company during the three and nine months ended June 30, 2015 was
$0.1 million
and
$0.5 million
, respectively. There were
no
amounts receivable by the Company from YBA or owed by the Company to YBA at September 30, 2015.
7. Note Receivable
In fiscal year 2012, the Company provided a strategic partner (the “Borrower”) a loan of
$3.0 million
to support the Borrower's future product development and other working capital requirements. The loan initially bore a stated interest rate of
9%
, and the outstanding principal and interest were initially due in May 2015. The Company also received a warrant to purchase the Borrower's common stock in the event of an equity offering by the Borrower and certain other rights related to conversion of the loan, including the first refusal to acquire the Borrower and a redemption premium. The loan was initially secured by a security agreement granting the Company a first-priority security interest in all of the Borrower's assets.
The Company determined that the Borrower represented a variable interest entity since the level of equity investment at risk was not sufficient for the entity to finance its activities without additional financial support. However, the Company does not qualify as the primary beneficiary since it would not absorb the majority of the expected losses from the Borrower and does not have the power to direct the Borrower's product research, development and marketing activities that have the most significant impact on its economic performance. The Company has no future contractual funding commitments to the Borrower and, as a result, the Company's exposure to loss is limited to the outstanding principal and interest due on the loan.
During fiscal year 2014, the Borrower informed the Company of its intent to secure additional funding from an investment program funded by the Commonwealth of Massachusetts designed to support early-stage companies. In connection with the Borrower’s efforts to secure additional financing, the Company agreed to subordinate its security interest in the assets of the Borrower to the new lender. Additionally, the Company agreed to extend the due date of its loan by approximately
5 years
, to September 2019, in order to coincide with the due date of the new loan. The amended loan has a stated interest rate of
10%
.
In connection with its efforts to secure additional financial support, the Borrower developed revised assumptions about its future cash flows. Based on the information provided by the Borrower and the subordination of the loan to the new lender, the Company determined it was probable that it would not recover all amounts due from the loan and recorded an impairment charge of
$2.6 million
during fiscal year 2014. The impairment charge included the warrant write-off and was recorded in the "Selling, general and administrative" expenses in the Company's Consolidated Statements of Operations.
The fair value of the loan was determined by considering the fair value of the collateral using valuation techniques, principally the discounted cash flow method, reduced by the amounts committed to the new lender. The observable inputs used in the Company's analysis were limited primarily to the discount rate, which was based on a rate commensurate with the risks and uncertainties of the Borrower. As a result, the fair value of the loan could vary under different conditions or assumptions, including the varying assumptions regarding future cash flows of the Borrower or discount rates.
At June 30, 2016 and September 30, 2015, the carrying value of the note receivable was $
1.0 million
. No triggering events indicating impairment of the note receivable occurred during the three and nine months ended June 30, 2016 and 2015, respectively.
8. Line of Credit
On May 26, 2016, the Company and certain of its subsidiaries entered into a credit agreement with Wells Fargo Bank, N.A., or Wells Fargo. The credit agreement provides for a
five
-year senior secured revolving line of credit, or line of credit, of
$75.0 million
. Availability under the line of credit is subject to a borrowing base which is redetermined from time to time based on certain percentage of certain eligible U.S. assets, including accounts receivable, inventory, real property, as well as machinery and equipment. The agreement includes sublimits of up to
$25.0 million
for letters of credit and
$7.5 million
of swing loans at the time there is more than one lender under the credit agreement. The line of credit expires on May 26, 2021 with all outstanding principal and interest due and payable on such date or an earlier date if declared due and payable on such earlier date pursuant to the terms of the credit agreement (by acceleration or otherwise). Subject to certain conditions of the credit agreement, the net cash proceeds from sales of certain collateral during the term of the arrangement are required to be used to prepay borrowings under the line of credit. The Company may also voluntarily prepay certain amounts under the line of credit without penalty or premium. There were
no
amounts outstanding under the line of credit as of June 30, 2016.
Borrowings under the line of credit bear an annual interest rate equal to, at the Company’s option, the base rate or the LIBOR rate plus, in each case, an applicable margin determined based on the Company's liquidity as of the first day of each fiscal quarter. LIBOR rate is reset at the beginning of each selected interest period based on the rate then in effect. The base rate is a fluctuating interest rate equal to the highest of (i) the federal funds rate plus
0.50%
, (ii) the one month LIBOR rate plus
1.00%
and (iii) the prime lending rate announced by Wells Fargo. During the three and nine months ended June 30, 2016, the Company incurred $
0.7 million
in deferred financing costs which included commitments fees and other costs directly associated with obtaining the line of credit. Please refer to Note 2, "Summary of Significant Accounting Policies" for further information on the deferred financing fees. In addition to interest on any outstanding borrowings under the credit agreement, the Company is required to pay monthly fees of
0.25%
per year related to unused portion of the revolver commitment amounts. The Company incurred approximately
$16,000
in such fees during the three and nine months ended June 30, 2016. All outstanding borrowings under the credit agreement are guaranteed by the Company along with certain U.S. subsidiaries and secured by a first priority perfected security interest in substantially all of the Company's and guarantor's assets in the U.S., subject to certain exceptions. Additionally, the Company granted Wells Fargo a mortgage lien on certain company-owned real properties.
The line of credit contains certain customary representations and warranties, a financial covenant, affirmative and negative covenants, as well as events of default. In the event in which the Company's liquidity is less than the greater of (i)
12.5%
of the commitments under the line of credit, and (ii)
$9.375 million
, and continuing until the time such liquidity during a 60-consecutive day period has been equal to or greater than the greater of (a)
12.5%
of the commitments under the line of credit, and (b)
$9.375 million
, the Company is required to maintain a fixed charge coverage ratio of at least
1.0
to 1.0 measured as of the last day of each fiscal month ending during such period. Liquidity is defined as a sum of (a) excess availability under the credit agreement; and (b) unrestricted cash and cash equivalents located in bank accounts in the United States that are subject to a control agreement in favor of Wells Fargo, limited to a maximum amount of
50%
of liquidity. Negative covenants limit the Company's ability to incur additional indebtedness, liens, sell assets, consolidate or merge with or into other entities, pay non-cash dividends (and cash dividends if the Company fails to meet certain payment conditions), make certain investments, prepay, redeem or retire subordinated debt, and enter into certain types of transactions with the Company’s affiliates. If any of the events of default occur and are not waived or cured within applicable grace periods, any unpaid amounts under the credit agreement, including principal and interest, may be declared immediately due and payable and the credit agreement may be terminated. The Company was in compliance with the line of credit covenants as of June 30, 2016.
9. Income Taxes
The Company recorded an income tax provision of
$0.2 million
and
$75.1 million
, respectively, for the three and nine months ended June 30, 2016. The income tax provision of
$0.2 million
during the third quarter of fiscal year 2016 was primarily driven by global income generated during the quarter, partially offset by
$0.3 million
of tax benefits related to the reduction of reserves for unrecognized tax benefits resulting from the expiration of statutes of limitations. The tax provision of
$75.1 million
during the nine months ended June 30, 2016 was primarily driven by the change in a valuation allowance against U.S. net deferred tax assets recognized during the second quarter of fiscal year 2016. Partially offsetting the valuation allowance provision were benefits related to pre-tax losses in the U.S., the reinstatement of the U.S. research and development tax credit retroactive to January 1, 2015, and reductions of reserves for unrecognized tax benefits resulting from the expiration of statutes of limitations.
The Company recorded an income tax provision of
$3.3 million
and
$1.8 million
, respectively, for the three and nine months ended June 30, 2015. The income tax provision of
$3.3 million
for the third quarter of fiscal year 2015 was primarily driven by global income generated during the quarter and interest related to unrecognized tax benefits. The tax provision of
$1.8 million
during the nine months ended June 30, 2015 was primarily driven by global income generated during the period and partially offset by
$0.9 million
of tax benefits related to the reduction of reserves for unrecognized tax benefits resulting from the expiration of statutes of limitations and by
$0.9 million
of tax benefits resulting from the reinstatement of the U.S. federal research and development tax credit, retroactive to January 1, 2014.
ASC Topic 740,
Income Taxes
, requires that all available evidence, both positive and negative, be considered in determining, based on the weight of that evidence, whether a valuation allowance is needed. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, (a) the more positive evidence is necessary and (b) the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion or all of the deferred tax asset. A cumulative loss in recent years is considered a significant piece of negative evidence that is difficult to overcome in assessing the need for a valuation allowance.
The Company evaluates the realizability of its deferred tax assets by tax-paying component and assesses the need for a valuation allowance on an annual and quarterly basis. The Company evaluates the profitability of each tax-paying component
on a historic cumulative basis and on a forward looking basis in the course of performing this analysis. The Company evaluated all positive and negative evidence in concluding it was appropriate to establish a full valuation allowance against U.S. net deferred tax assets during the second quarter of fiscal year 2016.
The Company evaluated negative evidence to assess if it is more likely than not that the Company could make use of the U.S. deferred tax assets before they expire. In reviewing performance over the recent years, the Company currently shows cumulative income. This history considers earnings in recent years from the discontinued operations of Granville-Phillips, which was divested during the fiscal year 2014 and freed up capital for investments in strategic growth businesses. In evaluating the historical results of the continuing businesses, the Company has not yet demonstrated profitability with losses in recent periods. The Company reported U.S. pre-tax losses during fiscal year 2015 and the first two quarters of fiscal year 2016. The loss in the second quarter of fiscal year 2016 included a significant charge for restructuring actions which are ultimately expected to improve future profitability. However, because of the restructuring charges and loss in the second quarter of fiscal year 2016, the Company now projects a net loss for the full fiscal year 2016. These factors presented significant negative evidence in the evaluation.
The Company also considered positive evidence such as expected improvements that are the results of investments in growth businesses. The Company prepares comprehensive forecasts based on the cyclical trends of the semiconductor industry, expected capital spending in the industry and demand for new product offerings. The Company's forecast of future improved profits includes a portion related to foreign operations, specifically in the Contamination Control Solutions business, which are excluded from the evaluation of U.S. deferred tax assets. The forecast of future improved profits also includes a portion related to U.S. operations. The Brooks Life Science Systems segment has driven cumulative losses in the U.S. in the past years, but is expected to provide growth in revenue and improved profitability resulting in increased profits in the U.S. After extensive review, despite significant projected improvements, the forecasted income is not considered to be objectively verifiable evidence because the revenue growth expected for the future periods is based on projections and not significantly supported by specific bookings and backlog of orders for product in place as of the end of the quarter. The evidence is therefore considered more subjective than objective under the accounting rules. Accordingly, this positive evidence is given less weight than the negative evidence discussed above.
A cumulative loss is difficult negative evidence to overcome on a more likely than not basis. Future income projections can only overcome this negative evidence if the projections are considered objectively verifiable. Since the income projections are not considered objectively verifiable, the Company determined that realization of the U.S. net deferred tax assets should not be viewed as more likely than not until the projected profits are supported with objectively verifiable evidence of the improvements. As a result of this change in assessment, the Company recorded a tax provision of
$79.3 million
to establish the valuation allowance against U.S. net deferred tax assets during the second quarter of fiscal year 2016. The Company will continue to maintain a full valuation allowance on our U.S. deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances.
The Company is subject to U.S. federal income tax and various state, local and international income taxes in various jurisdictions. The amount of income taxes paid is subject to the Company's interpretation of applicable tax laws in the jurisdictions in which it files tax returns. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company has income tax audits in progress in various jurisdictions in which it operates. The years subject to examination vary for the U.S. and international jurisdictions, with the earliest tax year being
2009
. It is reasonably possible that the related unrecognized tax benefits could change from those recorded in the Company's unaudited Consolidated Balance Sheets based on the outcome of these examinations or the expiration of statutes of limitations for specific jurisdictions. The Company currently anticipates that it is reasonably possible that the unrecognized tax benefits will be reduced by approximately
$1.2 million
within the next twelve months as a result of the lapse of statutes of limitations in multiple jurisdictions.
10. Other Balance Sheet Information
The following is a summary of accounts receivable at June 30, 2016 and September 30, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
September 30,
2015
|
Accounts receivable
|
$
|
103,396
|
|
|
$
|
87,582
|
|
Less: allowance for doubtful accounts
|
(2,200
|
)
|
|
(1,019
|
)
|
Less: allowance for sales returns
|
(105
|
)
|
|
(115
|
)
|
Accounts receivable, net
|
$
|
101,091
|
|
|
$
|
86,448
|
|
The following is a summary of inventories at June 30, 2016 and September 30, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
September 30,
2015
|
Inventories:
|
|
|
|
Raw materials and purchased parts
|
$
|
60,883
|
|
|
$
|
62,441
|
|
Work-in-process
|
16,488
|
|
|
21,563
|
|
Finished goods
|
20,786
|
|
|
16,615
|
|
Total inventories
|
$
|
98,157
|
|
|
$
|
100,619
|
|
Reserves for excess and obsolete inventory were
$24.9 million
and
$23.8 million
at June 30, 2016 and September 30, 2015, respectively.
As of June 30, 2016 and September 30, 2015, the building and the underlying land located in Oberdiessbach, Switzerland were presented at fair value of
$2.8 million
and
$2.9 million
, respectively, as "Assets Held for Sale" in the accompanying unaudited Consolidated Balance Sheets. The Company determined the fair value of the assets held for sale based on indication of value resulting from marketing the building and the land to prospective buyers. Please refer to Note 18, "Fair Value Measurements" for further information on such measurements. During the three months ended June 30, 2016, the Company entered into a binding agreement with an unrelated third party to sell both the building and the underlying land in Oberdiessbach, Switzerland for a total price of
$2.8 million
and remeasured the fair value of the assets held for sale. The corresponding impact of this remeasurement on the Company's results of operations during the three and nine months ended June 30, 2016 was insignificant. The sale was completed on July 1, 2016.
The Company establishes reserves for estimated cost of product warranties based on historical information. Product warranty reserves are recorded at the time product revenue is recognized, and retrofit accruals are recorded at the time retrofit programs are established. The Company’s warranty obligation is affected by product failure rates, utilization levels, material usage, service delivery costs incurred in correcting a product failure and supplier warranties on parts delivered to the Company.
The following is a summary of product warranty and retrofit activity on a gross basis for the three and nine months ended June 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity - Three Months Ended June 30, 2016
|
Balance at
March 31,
2016
|
|
Accruals
|
|
Costs Incurred
|
|
Balance at
June 30,
2016
|
$
|
5,735
|
|
|
$
|
2,279
|
|
|
$
|
(2,059
|
)
|
|
$
|
5,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity - Three Months Ended June 30, 2015
|
Balance at
March 31,
2015
|
|
Accruals
|
|
Costs Incurred
|
|
Balance at
June 30,
2015
|
$
|
6,203
|
|
|
$
|
2,725
|
|
|
$
|
(2,744
|
)
|
|
$
|
6,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity - Nine Months Ended June 30, 2016
|
Balance at
September 30,
2015
|
|
Accruals
|
|
Costs Incurred
|
|
Balance at
June 30,
2016
|
$
|
6,089
|
|
|
$
|
6,989
|
|
|
$
|
(7,123
|
)
|
|
$
|
5,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity - Nine Months Ended June 30, 2015
|
Balance at
September 30,
2014
|
|
Adjustments for
Acquisitions and Divestitures
|
|
Accruals
|
|
Costs Incurred
|
|
Balance at
June 30,
2015
|
$
|
6,499
|
|
|
$
|
81
|
|
|
$
|
7,870
|
|
|
$
|
(8,266
|
)
|
|
$
|
6,184
|
|
11. Derivative Instruments
The Company has transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros, British Pounds and a variety of Asian currencies. These transactions and balances, including short-term advances between the Company and its subsidiaries, subject the Company's operations to exposure from exchange rate fluctuations. The impact of currency exchange rate movement can be positive or negative in any period. The Company mitigates the impact of potential currency transaction gains and losses on short-term intercompany advances through timely settlement of each transaction, generally within 30 days.
The Company also enters into foreign exchange contracts to reduce its exposure to currency fluctuations. Under forward contract arrangements, the Company typically agrees to purchase a fixed amount of U.S. dollars in exchange for a fixed amount of a foreign currency on specified dates with maturities of three months or less. These transactions do not qualify for hedge accounting. Net gains and losses related to these contracts are recorded as a component of "Other (loss) income, net" in the accompanying unaudited Consolidated Statements of Operations and are as follows for the three and nine months ended June 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Nine Months Ended
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Realized gains on derivative instruments not designated as hedging instruments
|
|
$
|
233
|
|
|
$
|
90
|
|
|
$
|
1,230
|
|
|
$
|
516
|
|
The Company had the following notional amounts outstanding under foreign currency contracts that do not qualify for hedge accounting at June 30, 2016 and September 30, 2015 (in thousands):
June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy Currency
|
|
Notional Amount
of Buy Currency
|
|
Sell Currency
|
|
Maturity
|
|
Notional Amount
of Sell Currency
|
|
Fair Value of
Assets
|
|
Fair Value of
Liabilities
|
British Pound
|
|
210
|
|
|
Norwegian Krone
|
|
July 2016
|
|
1,800
|
|
|
—
|
|
|
(1
|
)
|
Japanese Yen
|
|
959
|
|
|
U.S. Dollar
|
|
July 2016
|
|
98,000
|
|
|
3
|
|
|
—
|
|
British Pound
|
|
212
|
|
|
Swedish Krona
|
|
July 2016
|
|
1,800
|
|
|
1
|
|
|
—
|
|
Korean Won
|
|
2,298
|
|
|
U.S. Dollar
|
|
July 2016
|
|
2,705,000
|
|
|
—
|
|
|
(19
|
)
|
British Pound
|
|
1,560
|
|
|
Euro
|
|
July 2016
|
|
1,400
|
|
|
17
|
|
|
—
|
|
U.S. Dollar
|
|
427
|
|
|
Taiwan Dollar
|
|
July 2016
|
|
13,900
|
|
|
—
|
|
|
(1
|
)
|
U.S. Dollar
|
|
5,801
|
|
|
Chinese Yuan
|
|
July 2016
|
|
39,000
|
|
|
—
|
|
|
(67
|
)
|
Euro
|
|
6,638
|
|
|
U.S. Dollar
|
|
July 2016
|
|
6,000
|
|
|
—
|
|
|
(26
|
)
|
U.S. Dollar
|
|
11,729
|
|
|
British Pound
|
|
July 2016
|
|
8,880
|
|
|
—
|
|
|
(89
|
)
|
Singapore Dollar
|
|
1,043
|
|
|
U.S. Dollar
|
|
July 2016
|
|
1,420
|
|
|
1
|
|
|
—
|
|
U.S. Dollar
|
|
460
|
|
|
Israeli Shekel
|
|
July 2016
|
|
1,797
|
|
|
—
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
(204
|
)
|
September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy Currency
|
|
Notional Amount
of Buy Currency
|
|
Sell Currency
|
|
Maturity
|
|
Notional Amount
of Sell Currency
|
|
Fair Value of
Assets
|
|
Fair Value of
Liabilities
|
U.S. Dollar
|
|
1,543
|
|
|
Korean Won
|
|
October 2015
|
|
1,852,000
|
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
British Pound
|
|
2,157
|
|
|
Euro
|
|
October 2015
|
|
1,600
|
|
|
—
|
|
|
(29
|
)
|
U.S. Dollar
|
|
662
|
|
|
Taiwan Dollar
|
|
October 2015
|
|
22,000
|
|
|
—
|
|
|
(1
|
)
|
U.S. Dollar
|
|
4,308
|
|
|
British Pound
|
|
October 2015
|
|
6,520
|
|
|
32
|
|
|
—
|
|
Euro
|
|
9,300
|
|
|
U.S. Dollar
|
|
October 2015
|
|
8,253
|
|
|
40
|
|
|
—
|
|
U.S. Dollar
|
|
5,177
|
|
|
Chinese Yuan
|
|
October 2015
|
|
33,000
|
|
|
15
|
|
|
—
|
|
U.S. Dollar
|
|
425
|
|
|
Japanese Yen
|
|
October 2015
|
|
51,000
|
|
|
—
|
|
|
—
|
|
U.S. Dollar
|
|
1,336
|
|
|
Japanese Yen
|
|
December 2015
|
|
160,000
|
|
|
2
|
|
|
—
|
|
U.S. Dollar
|
|
457
|
|
|
Israeli Shekel
|
|
October 2015
|
|
1,800
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89
|
|
|
$
|
(36
|
)
|
The fair values of the forward contracts described above are recorded in the Company's accompanying unaudited Consolidated Balance Sheets as "Prepaid expenses and other current assets" and "Accrued expenses and other current liabilities".
Stock Warrant
The BioCision warrant agreement contains net share settlement provisions, which permit the Company to pay the warrant exercise price using shares issuable under the warrant (“cashless exercise”). The value of the stock warrant fluctuates primarily in relation to the value of BioCision's underlying securities, either providing an appreciation in value or potentially expiring with no value. Gains and losses on the revaluation of the stock warrant are recognized as a component of "Other (loss) income, net" in the accompanying unaudited Consolidated Statements of Operations. Please refer to Note 18 “Fair Value Measurements” for further information regarding the fair value of the stock warrant.
12. Stock-Based Compensation
The Company may issue restricted stock units and restricted stock awards (collectively "restricted stock units") and stock options which vest upon the satisfaction of a performance condition and/or a service condition. In addition, the Company issues shares to participating employees pursuant to an employee stock purchase plan.
The following table reflects stock-based compensation expense recorded during the three and nine months ended June 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Nine Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Restricted stock units
|
$
|
1,501
|
|
|
$
|
2,289
|
|
|
$
|
7,801
|
|
|
$
|
9,173
|
|
Employee stock purchase plan
|
136
|
|
|
113
|
|
|
405
|
|
|
337
|
|
Total stock-based compensation
|
$
|
1,637
|
|
|
$
|
2,402
|
|
|
$
|
8,206
|
|
|
$
|
9,510
|
|
The fair value of restricted stock units is determined based on the number of shares granted and the closing price of the Company's common stock quoted on NASDAQ on the date of grant. The Company recognizes stock-based compensation expense on a straight-line basis, net of estimated forfeitures, over the requisite service period. Additionally, the Company assesses the likelihood of achieving the performance goals against previously established performance targets in accordance with the Company's long-term equity incentive plan for stock-based awards that vest after the satisfaction of these goals.
The Company grants restricted stock units that vest over a required service period and /or achievement of certain operating performance goals. Restricted stock units granted with performance goals may also have a required service period following the achievement of all or a portion of the goals. The following table reflects restricted stock units granted during the nine months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Units
|
|
Time-Based Units
|
|
Stock Grants
|
|
Performance-Based Units
|
Nine months ended June 30, 2016
|
1,679,591
|
|
|
734,250
|
|
|
85,091
|
|
|
860,250
|
|
Nine months ended June 30, 2015
|
1,484,781
|
|
|
568,750
|
|
|
69,281
|
|
|
846,750
|
|
Time-Based Grants
Restricted stock units granted with a required service period typically have
three
year vesting schedules in which one-third of awards vest at the first anniversary of the grant date, one-third vest at the second anniversary of the grant date and one-third vest at the third anniversary of the grant date, subject to the award holders meeting service requirements.
Stock Grants
During the nine months ended June 30, 2016 and 2015, the Company granted
85,091
and
69,281
units to the members of the Company's Board of Directors, including compensation-related restricted stock units of
55,380
and
49,267
, respectively. Certain members of its Board of Directors previously elected to defer receiving their annual awards of unrestricted shares of the Company stock and quarterly dividends until a future date. During the nine months ended June 30, 2016 and 2015, the Company issued
25,560
and
13,318
units, respectively, related to such annual restricted share awards. During the nine months ended June 30, 2016 and 2015, the Company issued
4,151
and
6,876
units, respectively, related to deferred quarterly dividends in an amount equal to the value of cash dividends that would be paid on the number of deferred shares based on the closing price of the Company’s stock on each dividend record date. These units vested upon issuance, but receipt of the Company shares is deferred until the holders attain a certain age or cease to provide services to the Company in their capacity as Board members.
Performance-Based Grants
Performance-based restricted stock units are earned based on the achievement of performance criteria established by the Human Resources and Compensation Committee of the Board of Directors. The criteria for performance-based awards are weighted and have threshold, target and maximum performance goals.
Performance-based awards granted in fiscal year 2016 allow participants to earn
100%
of a targeted number of restricted stock units if the Company’s performance meets its target for each applicable financial metric, and up to a maximum of
200%
of the restricted stock units if the Company’s performance for such metrics meets the maximum threshold. Performance below the minimum threshold for each financial metric results in award forfeitures. Performance goals will be measured over a
three
year period at the end of fiscal year 2018 to determine the number of units earned by recipients that continue to meet a service requirement. Units held by recipients that fail to meet the continued service requirement are forfeited. Earned units for recipients that continue to meet the service requirements vest on the date the Company’s Board of Directors determines the number of units earned, which will be approximately the third anniversary of the grant date.
Performance-based awards granted in fiscal year 2015 include provisions similar to fiscal 2016 awards that allow participants to earn threshold, target and maximum awards ranging from
0%
of the award for performance below the minimum threshold,
100%
of the award for performance at target, and up to a maximum of
200%
of the award if the Company achieves the maximum performance goals.
Sixty
percent of the performance-based units granted in fiscal year 2015 had certain performance goals that were measured
at the end of fiscal year 2015 to determine the number of earned units eligible for subsequent vesting. The Company performed below the target levels relative to the performance criteria for these awards and as a result these awards were not eligible for subsequent vesting, which resulted in a forfeiture of
495,684
units.
Forty
percent of the performance-based units granted in fiscal year 2015 have performance goals which will be measured over a
three
year period at the end of fiscal year 2017 to determine the number of earned units eligible for vesting. Earned units vest on the third anniversary of the grant date, subject to award holders satisfying the service requirements.
351,066
units, or
40%
, of performance-based awards granted in fiscal year 2015 are eligible for vesting. The total number of performance-based units to be earned by the participants will be based on the achievement against the Company's performance targets. The vesting of the units is subject to award holders satisfying the service requirements.
Restricted Stock Unit Activity
The following table summarizes restricted stock unit activity for the nine months ended June 30, 2016:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
Outstanding at September 30, 2015
|
3,257,413
|
|
|
$
|
9.95
|
|
Granted
|
1,679,591
|
|
|
10.84
|
|
Vested
|
(1,267,862
|
)
|
|
9.52
|
|
Forfeited
|
(1,153,892
|
)
|
|
11.26
|
|
Outstanding at June 30, 2016
|
2,515,250
|
|
|
$
|
10.75
|
|
The weighted average grant date fair value of restricted stock units granted during the three months ended June 30, 2016 and 2015 was
$9.58
and
$10.97
, respectively. The weighted average grant date fair value of restricted stock units granted during the nine months ended June 30, 2016 and 2015 was
$10.84
and
$11.93
, respectively. The fair value of restricted stock units vested during the three months ended June 30, 2016 and 2015 was
$0.3 million
and
$0.2 million
, respectively. The fair value of restricted stock units vested during the nine months ended June 30, 2016 and 2015 was
$14.3 million
and
$8.0 million
, respectively. The Company paid
$4.4 million
and
$2.3 million
for withholding taxes on vested restricted stock units during the nine months ended June 30, 2016 and 2015, respectively. Additionally,
1,153,892
shares of restricted stock units were forfeited during the nine months ended June 30, 2016 primarily due to the failure to achieve certain performance thresholds for performance-based restricted stock units and as a result of the restructuring action initiated during the second quarter of fiscal year 2016. Please refer to Note 14, "Restructuring and Other Charges" for further information on the restructuring action.
As of June 30, 2016, the unrecognized compensation cost related to restricted stock units that are expected to vest is
$15.4 million
and will be recognized over an estimated weighted average service period of approximately
1.8
years.
Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan that allows its employees to purchase shares of common stock at a price equal
85%
of the fair market value of the Company's stock at the beginning or the end of the semi-annual period, whichever is lower. During the nine months ended June 30, 2016, the Company issued
118,548
shares under the employee stock purchase plan for
$0.9 million
. The Company issued
96,415
shares under the employee stock purchase plan for
$0.9 million
during the corresponding periods of the prior fiscal year.
13. Earnings per Share
The calculations of basic and diluted net income (loss) per share and basic and diluted weighted average shares outstanding are as follows for the three and nine months ended June 30, 2016 and 2015 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Nine Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income (loss)
|
$
|
8,564
|
|
|
$
|
7,681
|
|
|
$
|
(80,022
|
)
|
|
$
|
7,658
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in computing basic earnings (losses) per share
|
68,628
|
|
|
67,454
|
|
|
68,437
|
|
|
67,321
|
|
Dilutive restricted stock units
|
538
|
|
|
1,117
|
|
|
—
|
|
|
1,199
|
|
Weighted average common shares outstanding used in computing diluted earnings (losses) per share
|
69,166
|
|
|
68,571
|
|
|
68,437
|
|
|
68,520
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
$
|
0.12
|
|
|
$
|
0.11
|
|
|
$
|
(1.17
|
)
|
|
$
|
0.11
|
|
Diluted net income (loss) per share
|
$
|
0.12
|
|
|
$
|
0.11
|
|
|
$
|
(1.17
|
)
|
|
$
|
0.11
|
|
Restricted stock units of
50,000
and
383,000
during the three months ended June 30, 2016 and 2015, respectively, as well as options to purchase approximately
2,000
shares of common stock and restricted stock units of
160,000
during the nine months ended June 30, 2015 were excluded from the computation of diluted earnings per share as their effect would be anti-dilutive based on the treasury stock method. Restricted stock units of
991,000
during the nine months ended June 30, 2016 were excluded from the computation of diluted earnings per share as a result of a net loss incurred during the period. There were no options outstanding as of June 30, 2016 and 2015.
14. Restructuring and Other Charges
Three Months Ended June 30, 2016
The Company recorded restructuring charges of $
1.0 million
during the three months ended June 30, 2016 related to severance costs which were attributable to actions initiated in prior periods and comprised primarily of
$0.3 million
of costs attributable to the Brooks Life Science Systems segment and
$0.6 million
of costs related to the company-wide restructuring action initiated during the second quarter of fiscal year 2016. The Brooks Life Science Systems actions were primarily related to streamlining the management structure, consolidating positions within the segment due to integration of BioStorage and the closure of the segment’s Spokane, Washington facility in March 2016. These restructuring actions were substantially completed as of June 30, 2016 and are not expected to result in any additional restructuring charges in future periods. Total severance costs incurred in connection with these actions are $
2.8 million
, of which $
2.4 million
was recognized prior to the third quarter of fiscal year 2016 and $
0.3 million
was recognized during the three months ended June 30, 2016. During the second quarter of fiscal year 2016, the Company initiated a restructuring action to streamline its business operations as part of a company-wide initiative to improve profitability and competitiveness which is expected to benefit all segments. Total severance costs incurred in connection with this action were
$5.9 million
, of which
$5.2 million
was recognized prior to the third quarter of fiscal year 2016 and
$0.6 million
was recognized during the three months ended June 30, 2016. Severance costs were attributable to the elimination of positions across the Company, including certain senior management positions. This restructuring action is expected to be substantially completed by September 30, 2016 and result in additional restructuring charges of
$0.1 million
in future periods.
Nine Months Ended June 30, 2016
The Company recorded restructuring charges of $
9.8 million
during the nine months ended June 30, 2016 related to severance costs which included of
$8.5 million
of charges related to restructuring actions initiated during the nine months ended June 30, 2016 and
$1.2 million
of charges related to restructuring actions initiated in prior periods.
The Company’s restructuring actions initiated during the nine months ended June 30, 2016 resulted in total charges of
$8.5 million
, which included
$5.8 million
of charges related to the restructuring action that benefited all segments and
$2.8 million
of costs attributable to the Brooks Life Science Systems segment, as described above. The Company's restructuring actions initiated in prior periods resulted in
$1.2 million
of costs attributable to the Brooks Semiconductor Solutions segment. These restructuring actions were primarily related to the integration of Contact, as well as the closure and transfer of the Mistelgau, Germany manufacturing operations to a contract manufacturer. These actions were substantially completed as of June 30, 2016.
Total severance costs incurred in connection with these actions were
$4.8 million
, of which
$3.6 million
was recognized prior to fiscal year 2016 and
$1.2 million
was recognized during the nine months ended June 30, 2016.
Three Months Ended June 30, 2015
The Company recorded restructuring charges of $
0.4 million
during the three months ended June 30, 2015 related to severance costs. Such costs were attributable to Brooks Semiconductor Solutions Group segment for the integration of Dynamic Micro Systems Semiconductor Equipment GmbH, or DMS, with the Company's operations and the transition of manufacturing of certain products from the Company's facility in Mistelgau, Germany to a third party contract manufacturer. Total cumulative severance costs incurred in connection with these restructuring plans were $
1.9 million
and were substantially completed on December 31, 2015.
Nine Months Ended June 30, 2015
The Company recorded restructuring charges of
$3.7 million
during the nine months ended June 30, 2015, which included severance costs of
$2.5 million
and facility-related costs of
$1.2 million
.
Severance costs of
$2.5 million
were attributable to Brooks Semiconductor Solutions Group segment in connection with the restructuring actions described above. Total cumulative severance costs incurred in connection with these restructuring actions were
$4.8 million
.
Facility exit costs of $
1.2 million
attributable to Brooks Semiconductor Solutions Group segment were related to the outsourcing of manufacturing certain of the Company’s line of Polycold cryochillers and compressors within the United States to a third party contract manufacturer. The facility exit costs represented future lease payments and expected operating costs to be paid until the termination of the facility lease. The Company terminated the lease on October 27, 2015 and fully paid the related restructuring liability during the first quarter of fiscal year 2016.
The following is a summary of activity related to the Company’s restructuring and other charges for the three and nine months ended June 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity — Three Months Ended June 30, 2016
|
|
Balance at
March 31,
2016
|
|
Expenses
|
|
Payments
|
|
Balance at
June 30,
2016
|
Facilities and other contract termination costs
|
$
|
96
|
|
|
$
|
—
|
|
|
$
|
(96
|
)
|
|
$
|
—
|
|
Workforce-related termination benefits
|
7,293
|
|
|
996
|
|
|
(2,500
|
)
|
|
5,789
|
|
Total restructuring liabilities
|
$
|
7,389
|
|
|
$
|
996
|
|
|
$
|
(2,596
|
)
|
|
$
|
5,789
|
|
|
|
|
|
|
|
|
|
|
Activity — Three Months Ended June 30, 2015
|
|
Balance at
March 31,
2015
|
|
Expenses
|
|
Payments
|
|
Balance at
June 30,
2015
|
Facilities and other contract termination costs
|
$
|
904
|
|
|
$
|
—
|
|
|
$
|
(241
|
)
|
|
$
|
663
|
|
Workforce-related termination benefits
|
2,393
|
|
|
358
|
|
|
(753
|
)
|
|
1,998
|
|
Total restructuring liabilities
|
$
|
3,297
|
|
|
$
|
358
|
|
|
$
|
(994
|
)
|
|
$
|
2,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity — Nine Months Ended June 30, 2016
|
|
Balance at
September 30,
2015
|
|
Expenses
|
|
Payments
|
|
Balance at
June 30,
2016
|
Facilities and other contract termination costs
|
$
|
433
|
|
|
$
|
25
|
|
|
$
|
(458
|
)
|
|
$
|
—
|
|
Workforce-related termination benefits
|
1,640
|
|
|
9,782
|
|
|
(5,633
|
)
|
|
5,789
|
|
Total restructuring liabilities
|
$
|
2,073
|
|
|
$
|
9,807
|
|
|
$
|
(6,091
|
)
|
|
$
|
5,789
|
|
|
|
|
|
|
|
|
|
|
Activity — Nine Months Ended June 30, 2015
|
|
Balance at
September 30,
2014
|
|
Expenses
|
|
Payments
|
|
Balance at
June 30,
2015
|
Facilities and other contract termination costs
|
$
|
71
|
|
|
$
|
1,205
|
|
|
$
|
(613
|
)
|
|
$
|
663
|
|
Workforce-related termination benefits
|
3,404
|
|
|
2,506
|
|
|
(3,912
|
)
|
|
1,998
|
|
Total restructuring liabilities
|
$
|
3,475
|
|
|
$
|
3,711
|
|
|
$
|
(4,525
|
)
|
|
$
|
2,661
|
|
Accrued restructuring costs of
$5.8 million
at June 30, 2016 are expected to be paid within the next twelve months.
15. Employee Benefit Plans
The Company has
two
active defined benefit pension plans (collectively, the “Plans”). The Plans cover substantially all of the Company’s employees in Switzerland and Taiwan. Retirement benefits are generally earned based on the years of service and the level of compensation during active employment, but the level of benefits varies within the Plans. Eligibility is determined in accordance with local statutory requirements.
The components of the Company’s net pension cost for the three and nine months ended June 30, 2016 and 2015 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Nine Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
$
|
138
|
|
|
$
|
122
|
|
|
$
|
410
|
|
|
$
|
370
|
|
Interest cost
|
18
|
|
|
32
|
|
|
54
|
|
|
96
|
|
Amortization of losses
|
4
|
|
|
—
|
|
|
12
|
|
|
—
|
|
Expected return on assets
|
(41
|
)
|
|
(54
|
)
|
|
(120
|
)
|
|
(165
|
)
|
Net periodic pension cost
|
$
|
119
|
|
|
$
|
100
|
|
|
$
|
356
|
|
|
$
|
301
|
|
16. Segment Information
Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and to assess performance. The Company's Chief Executive Officer is the Company's chief operating decision maker.
Prior to the third quarter of fiscal year 2016, the Company had
three
operating and reportable segments that consisted of Brooks Product Solutions, Brooks Global Services and Brooks Life Science Systems. During the third quarter of fiscal year 2016, the Company reorganized its previous reporting structure into
two
operating and reportable segments consisting of: (i) Brooks Semiconductor Solutions Group; and (ii) Brooks Life Science Systems and reported its financial results during the three and nine months ended June 30, 2016 and 2015 based on the revised segment structure which reflects a change in the manner in which the chief operating decision maker reviews information to assess performance of the Company and make decisions about resource allocation. The change in segments is a result of restructuring actions initiated in the second quarter of fiscal 2016 to streamline business operations and improve profitability and competitiveness of the Company. As part of these actions, the operating management responsible for Brooks Product Solutions and Brooks Global Services operating segments was brought under common leadership in the newly formed Brooks Semiconductor Solutions Group segment. The restructuring actions were substantially completed in the third quarter of fiscal year 2016 which marked the transition to a new internal management structure at the end of the third quarter of fiscal year 2016. The Company's prior period reportable segment information has been reclassified to reflect the current segment structure and to conform to the current period presentation. The accounting policies of
the operating segments remained unchanged as a result of the realignment. Please refer to Note 18, "Segment and Geographic Information", in the 2015 Annual Report on the Form 10-K for the fiscal year ended September 30, 2015 for a description of such policies.
The Brooks Semiconductor Solutions Group segment provides a variety of products, services and solutions that enable improved throughput and yield in controlled operating environments, as well as an extensive range of support services. The solutions include atmospheric and vacuum robots, tool automation systems that provide precision handling and clean wafer environments, contamination control of wafer carrier front opening unified pods, or FOUPs, as well as cryogenic pumps and compressors that provide vacuum pumping and thermal management solutions used to create and control critical process vacuum applications. The support services include repair services, diagnostic support services, and installation services in support of the products, which enable our customers to maximize process tool uptime and productivity. This segment also provides end-user customers with spare parts and productivity enhancement upgrades to maximize tool productivity.
The Brooks Life Science Systems segment provides automated cold sample management systems for compound and biological sample storage, equipment for sample preparation and handling, consumables, and parts and support services to a wide range of life science customers including pharmaceutical companies, biotechnology companies, biobanks and research institutes. During the first quarter of fiscal year 2016, the Company completed the acquisition of BioStorage, a global provider of comprehensive outsource biological sample service solutions, including collection, transportation, processing, storage, protection, retrieval and disposal of biological samples. These solutions combined with the Company's existing offerings, particularly automation for sample storage and formatting, provide customers with fully integrated sample management cold chain solutions which will help them increase productivity, efficiencies and speed to market.
The Company evaluates the performance and future opportunities of its segments and allocates resources to them based on their revenue, operating income (loss) and returns on invested assets. Operating income (loss) for each segment includes selling, general and administrative expenses directly attributable to the segment. Amortization of acquired intangible assets (excluding completed technology), restructuring and other charges, pension settlement, in-process research and development, as well as other unallocated corporate expenses are excluded from the segments’ operating income (loss). The Company’s indirect overhead costs, which include various general and administrative expenses, are allocated among the segments based upon several cost drivers associated with the respective administrative function, including segment revenue, headcount, or benefits that each segment derives from a specific administrative function. Segment assets exclude cash, cash equivalents, marketable securities, deferred tax assets, assets held for sale and equity method investments.
The following is the summary of the financial information for the Company’s operating and reportable segments for the three and nine months ended June 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooks Semiconductor Solutions Group
|
|
Brooks
Life Science
Systems
|
|
Total
|
Three Months Ended June 30, 2016:
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Product
|
$
|
99,254
|
|
|
$
|
12,342
|
|
|
$
|
111,596
|
|
Services
|
19,179
|
|
|
16,759
|
|
|
35,938
|
|
Total revenue
|
$
|
118,433
|
|
|
$
|
29,101
|
|
|
$
|
147,534
|
|
Gross profit
|
$
|
42,904
|
|
|
$
|
11,259
|
|
|
$
|
54,163
|
|
Segment operating income (loss)
|
$
|
13,119
|
|
|
$
|
(736
|
)
|
|
$
|
12,383
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015:
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Product
|
$
|
108,687
|
|
|
$
|
12,129
|
|
|
$
|
120,816
|
|
Services
|
19,399
|
|
|
4,679
|
|
|
24,078
|
|
Total revenue
|
$
|
128,086
|
|
|
$
|
16,808
|
|
|
$
|
144,894
|
|
Gross profit
|
$
|
46,515
|
|
|
$
|
4,672
|
|
|
$
|
51,187
|
|
Segment operating income (loss)
|
$
|
17,162
|
|
|
$
|
(4,656
|
)
|
|
$
|
12,506
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2016:
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Product
|
$
|
268,671
|
|
|
$
|
33,567
|
|
|
$
|
302,238
|
|
Services
|
57,657
|
|
|
42,875
|
|
|
100,532
|
|
Total revenue
|
$
|
326,328
|
|
|
$
|
76,442
|
|
|
$
|
402,770
|
|
Gross profit
|
$
|
114,506
|
|
|
$
|
27,011
|
|
|
$
|
141,517
|
|
Segment operating income (loss)
|
$
|
22,717
|
|
|
$
|
(7,555
|
)
|
|
$
|
15,162
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2015:
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Product
|
$
|
298,737
|
|
|
$
|
38,204
|
|
|
$
|
336,941
|
|
Services
|
57,197
|
|
|
12,805
|
|
|
70,002
|
|
Total revenue
|
$
|
355,934
|
|
|
$
|
51,009
|
|
|
$
|
406,943
|
|
Gross profit
|
$
|
122,938
|
|
|
$
|
13,362
|
|
|
$
|
136,300
|
|
Segment operating income (loss)
|
$
|
31,280
|
|
|
$
|
(14,563
|
)
|
|
$
|
16,717
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
June 30, 2016
|
$
|
326,083
|
|
|
$
|
249,638
|
|
|
$
|
575,721
|
|
September 30, 2015
|
$
|
317,069
|
|
|
$
|
110,910
|
|
|
$
|
427,979
|
|
The following is a reconciliation of the Company’s operating and reportable segments' operating income (loss) and segment assets to the corresponding amounts presented in the accompanying unaudited Consolidated Balance Sheets and Consolidated
Statements of Operations for the three and nine months ended June 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Nine Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Segment operating income
|
$
|
12,383
|
|
|
$
|
12,506
|
|
|
$
|
15,162
|
|
|
$
|
16,717
|
|
Amortization of acquired intangible assets
|
2,754
|
|
|
1,917
|
|
|
8,056
|
|
|
5,743
|
|
Restructuring and other charges
|
996
|
|
|
358
|
|
|
9,807
|
|
|
3,711
|
|
Other unallocated corporate expenses
|
139
|
|
|
61
|
|
|
3,464
|
|
|
520
|
|
Total operating (loss) income
|
$
|
8,494
|
|
|
$
|
10,170
|
|
|
$
|
(6,165
|
)
|
|
$
|
6,743
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
September 30,
2015
|
Segment assets
|
$
|
575,721
|
|
|
$
|
427,979
|
|
Cash, cash equivalents and marketable securities
|
72,201
|
|
|
214,030
|
|
Deferred tax assets
|
5,083
|
|
|
89,959
|
|
Assets held for sale
|
2,806
|
|
|
2,900
|
|
Equity method investments
|
26,510
|
|
|
24,286
|
|
Other unallocated corporate net assets
|
—
|
|
|
500
|
|
Total assets
|
$
|
682,321
|
|
|
$
|
759,654
|
|
17. Significant Customers
The Company had
one
customer that accounted for 10% or more of its consolidated revenue, at
10%
and
11%
during the three months ended June 30, 2016 and 2015, respectively. The Company had
one
customer that accounted for 10% or more of its consolidated revenue, at
10%
and
12%
during the nine months ended June 30, 2016 and 2015, respectively. The Company did not have any customers that accounted for more than 10% of its accounts receivable balance at June 30, 2016 or September 30, 2015.
For purposes of determining the percentage of revenue generated from any of the Company's original equipment manufacturer, or OEM, customers, the Company does not include revenue from products sold to contract manufacturer customers who in turn sell to the OEM's. If the Company included revenue from products sold to contract manufacturer customers supporting the Company's OEM customers, the percentage of the Company's total revenue derived from certain OEM customers would be higher.
18. Fair Value Measurements
The fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following levels of inputs may be used to measure fair value:
Level 1 Inputs:
Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 Inputs:
Observable inputs other than prices included in Level 1, including quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Inputs:
Unobservable inputs that are significant to the fair value of the assets or liabilities and reflect an entity's own assumptions in pricing assets or liabilities since they are supported by little or no market activity.
The following tables summarize assets and liabilities measured and recorded at fair value on a recurring basis in the accompanying unaudited Consolidated Balance Sheets as of June 30, 2016 and September 30, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
Description
|
|
June 30, 2016
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
101
|
|
|
$
|
56
|
|
|
$
|
45
|
|
|
$
|
—
|
|
Available-for-sale securities
|
|
6,086
|
|
|
—
|
|
|
6,086
|
|
|
—
|
|
Foreign exchange contracts
|
|
22
|
|
|
—
|
|
|
22
|
|
|
—
|
|
Convertible debt securities
|
|
5,850
|
|
|
—
|
|
|
—
|
|
|
5,850
|
|
Stock warrant
|
|
47
|
|
|
—
|
|
|
—
|
|
|
47
|
|
Total Assets
|
|
$
|
12,106
|
|
|
$
|
56
|
|
|
$
|
6,153
|
|
|
$
|
5,897
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
500
|
|
Foreign exchange contracts
|
|
204
|
|
|
—
|
|
|
204
|
|
|
—
|
|
Total Liabilities
|
|
$
|
704
|
|
|
$
|
—
|
|
|
$
|
204
|
|
|
$
|
500
|
|
The convertible debt securities and the stock warrant are included in "Other assets" in the accompanying unaudited Consolidated Balance Sheets as of June 30, 2016 and September 30, 2015. Please refer to Note 6, "Equity Method Investments" for further information on the convertible debt securities and the stock warrant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
Description
|
|
September 30,
2015
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
11,628
|
|
|
$
|
10,133
|
|
|
$
|
1,495
|
|
|
$
|
—
|
|
Available-for-sale securities
|
|
133,308
|
|
|
—
|
|
|
133,308
|
|
|
—
|
|
Foreign exchange contracts
|
|
89
|
|
|
—
|
|
|
89
|
|
|
—
|
|
Convertible debt securities
|
|
5,337
|
|
|
—
|
|
|
—
|
|
|
5,337
|
|
Stock warrant
|
|
59
|
|
|
—
|
|
|
—
|
|
|
59
|
|
Total Assets
|
|
$
|
150,421
|
|
|
$
|
10,133
|
|
|
$
|
134,892
|
|
|
$
|
5,396
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
811
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
811
|
|
Foreign exchange contracts
|
|
36
|
|
|
—
|
|
|
36
|
|
|
—
|
|
Total Liabilities
|
|
$
|
847
|
|
|
$
|
—
|
|
|
$
|
36
|
|
|
$
|
811
|
|
Cash Equivalents
Cash equivalents of
$56,000
and
$10.1 million
at June 30, 2016 and September 30, 2015, respectively, consist of Money Market Funds and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. Cash equivalents of
$45,000
and
$1.5 million
at June 30, 2016 and September 30, 2015 consisted primarily of Bank Certificate of Deposits and were classified within Level 2 of the fair value hierarchy because they were not actively traded.
Available-For-Sale Securities
Available-for-sale securities of
$6.1 million
and
$133.3 million
at June 30, 2016 and September 30, 2015, respectively, consist of Municipal Securities, Bank Certificate of Deposits, Commercial Paper, Mortgage-Backed Securities, as well as U.S. Treasury Securities and Obligations of U.S. Government Agencies. The securities are valued using matrix pricing and benchmarking and classified within Level 2 of the fair value hierarchy because they are not actively traded. Matrix pricing is a mathematical technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices.
Foreign Exchange Contracts
Foreign exchange contract assets and liabilities amount to
$22,000
and
$204,000
at June 30, 2016. Foreign exchange contract assets and liabilities amount to
$89,000
and
$36,000
, respectively, at September 30, 2015. Foreign exchange contract assets and liabilities are measured and reported at fair value based on observable market inputs and classified within Level 2 of the fair value hierarchy due to a lack of an active market for these contracts.
Convertible Debt Securities
Convertible debt securities of
$5.9 million
and
$5.3 million
, respectively, at June 30, 2016 and September 30, 2015 are classified within Level 3 of the fair value hierarchy and measured at fair value based on the probability-weighted expected return method, or PWERM, utilizing various scenarios for the expected payout of the instrument covering the full range of the potential outcomes. The PWERM determines the value of an asset based upon an analysis of future values for the subject asset and full range of its potential values. The asset value is based upon the present value of the probability of each future outcome becoming available to the asset and the economic rights and preferences of each asset. The Company remeasures the fair value of the convertible debt securities at each reporting date and recognizes the corresponding fair value change related to the underlying inputs in the "Other (loss) income, net" in the Company's unaudited Consolidated Statements of Operations.
Stock Warrant
Stock warrant of
$47,000
and
$59,000
at June 30, 2016 and September 30, 2015, respectively, was classified within Level 3 of the fair value hierarchy and measured at fair value based on the Black-Scholes model. The Black-Scholes model applied to the warrant incorporates the constant price variation of the underlying asset, the time value of money, the warrant’s strike price and the time until the warrant’s expiration date. The fair value of the warrant was determined utilizing a five year equity volatility percentage based on an average equity volatility derived from comparable public companies. The Company remeasures the fair value of the stock warrant at each reporting date and recognizes the corresponding fair value change related to the underlying inputs in the "Other (loss) income, net" in the Company's unaudited Consolidated Statements of Operations.
Contingent Consideration
Contingent consideration liability of
$0.5 million
and
$0.8 million
, respectively, at June 30, 2016 and September 30, 2015 is classified within Level 3 of the fair value hierarchy and measured at fair value based on the probability-weighted average discounted cash flow model utilizing potential outcomes related to achievement of certain specified targets and events. The fair value measurement of the contingent consideration is based on probabilities assigned to each potential outcome and the discount rate. The Company remeasures the fair value of the contingent consideration at each reporting date and recognizes the corresponding fair value change related to the underlying inputs in the "Selling, general and administrative" expenses in the Company's unaudited Consolidated Statements of Operations. Please refer to Note 4 “Acquisitions” for further information on the contingent consideration liability.
The carrying amounts of accounts receivable and accounts payable approximate their fair value due to their short-term nature.
The following table presents the reconciliation of the assets measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debt Securities
|
|
Stock Warrants
|
|
Contingent Consideration
|
|
Total
|
Balance at September 30, 2015
|
|
$
|
5,337
|
|
|
$
|
59
|
|
|
$
|
811
|
|
|
$
|
6,207
|
|
Change in fair value
|
|
513
|
|
|
(12
|
)
|
|
(311
|
)
|
|
190
|
|
Balance at June 30, 2016
|
|
$
|
5,850
|
|
|
$
|
47
|
|
|
$
|
500
|
|
|
$
|
6,397
|
|
Nonrecurring Fair Value Measurements
The Company holds certain assets that are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
As of June 30, 2016 and September 30, 2015, the building and the underlying land located in Oberdiessbach, Switzerland were presented at fair value of
$2.8 million
and
$2.9 million
, respectively, as "Assets Held for Sale" in the accompanying unaudited Consolidated Balance Sheets. The Company determined the fair value of the assets held for sale based on indication of value resulting from marketing the building and the land to prospective buyers. During the three months ended June 30, 2016, the Company entered into a binding agreement with an unrelated third party to sell both the building and the underlying land in Oberdiessbach, Switzerland for a total price of
$2.8 million
and remeasured the fair value of the assets held for sale. The corresponding impact of this remeasurement on the Company's results of operations during the three and nine months
ended June 30, 2016 was insignificant. The sale was completed on July 1, 2016. Fair value measurement is classified within Level 3 of the fair value hierarchy since it is based on unobservable inputs. Please refer to Note 10 “Other Balance Sheet Information” for further information on the assets held for sale.
Note receivable of
$1.0 million
at June 30, 2016 and September 30, 2015 is recorded at carrying value and included in "Other assets" in the accompanying unaudited Consolidated Balance Sheets. Please refer to Note 7, "Note Receivable" for further information on the loan
Loan receivable of
$1.5 million
at June 30, 2016 is recorded at carrying value and included in "Other assets" in the accompanying unaudited Consolidated Balance Sheets. Please refer to Note 6, "Equity Method Investments" for further information on the loan.
Certain non-financial assets, including goodwill, finite-lived intangible assets and other long-lived assets, are measured at fair value on a non-recurring basis in accordance with the income approach when there is an indication of impairment. Please refer to the 2015 Annual Report on the Form 10-K, Note 2, "Summary of Significant Accounting Policies" for further information on the valuation techniques used in developing these measurements.
19. Commitments and Contingencies
Letters of Credit
At June 30, 2016 and September 30, 2015, the Company had approximately
$1.5 million
and
$3.5 million
of letters of credit outstanding related primarily to customer advances and other performance obligations. These arrangements guarantee the refund of advance payments received from our customers in the event that the product is not delivered or warranty obligations are not fulfilled in accordance with the contract terms. These obligations could be called by the beneficiaries at any time before the expiration date of the particular letter of credit if the Company fails to meet certain contractual requirements. None of these obligations were called during the nine months ended June 30, 2016 and fiscal year ended September 30, 2015, and the Company currently does not anticipate any of these obligations to be called in the near future.
Contingencies
The Company is subject to various legal proceedings, both asserted and unasserted, that arise in the ordinary course of business. The Company cannot predict the ultimate outcome of such legal proceedings or in certain instances provide reasonable ranges of potential losses. However, as of the date of this report, the Company believes that none of these claims will have a material adverse effect on its consolidated financial position or results of operations. In the event of unexpected subsequent developments and given the inherent unpredictability of these legal proceedings, there can be no assurance that the Company's assessment of any claim will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's consolidated financial position or results of operations in particular quarterly or annual periods.
20. Subsequent Events
On
July 27, 2016
, the Company’s Board of Directors declared a cash dividend of
$0.10
per share payable on
September 23, 2016
to common stockholders of record as of
September 2, 2016
. Dividends are declared at the discretion of the Company’s Board of Directors and depend on the Company's actual cash flows from operations, its financial condition and capital requirements and any other factors the Company’s Board of Directors may consider relevant. Future dividend declarations, as well as the record and payment dates for such dividends, will be determined by the Company’s Board of Directors on a quarterly basis.