Quarterly Report (10-q)

Date : 08/02/2019 @ 8:51PM
Source : Edgar (US Regulatory)
Stock : Brooks Automation Inc (BRKS)
Quote : 41.14  0.21 (0.51%) @ 12:59AM
After Hours
Last Trade
Last $ 41.14 ▼ -0.00 (-0.00%)

Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: June 30, 2019

OR

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to _________

Commission File Number 000-25434

BROOKS AUTOMATION, INC.

(Exact name of registrant as specified in its charter)

Delaware

04-3040660

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

15 Elizabeth Drive

Chelmsford , Massachusetts

(Address of principal executive offices)

01824

(Zip Code)

Registrant’s telephone number, including area code: ( 978 262-2400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

BRKS

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, July 26, 2019: common stock, $0.01 par value and 72,224,406 shares outstanding.

BROOKS AUTOMATION, INC.

Table of Contents

PAGE NUMBER

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Consolidated Balance Sheets as of June 30, 2019 (unaudited) and September 30, 2018

3

Consolidated Statements of Operations for the three and nine months ended June 30, 2019 and 2018 (unaudited)

4

Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2019 and 2018 (unaudited)

5

Consolidated Statements of Cash Flows for the nine months ended June 30, 2019 and 2018 (unaudited)

6

Consolidated Statements of Changes in Equity for the nine months ended June 30, 2019 and 2018 (unaudited)

7

Notes to Consolidated Financial Statements (unaudited)

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

44

Item 3. Quantitative and Qualitative Disclosures about Market Risk

57

Item 4. Controls and Procedures

58

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

59

Item 1A. Risk Factors

59

Item 6. Exhibits

60

Signatures

61

2

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

BROOKS AUTOMATION, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(In thousands, except share and per share data)

    

June 30, 

    

September 30, 

2019

2018

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

156,852

$

197,708

Marketable securities

 

35

 

46,281

Accounts receivable, net

 

163,105

 

125,192

Inventories

 

104,786

 

96,986

Prepaid expenses and other current assets

 

40,441

 

31,741

Current assets held for sale

61,665

66,148

Total current assets

 

526,884

 

564,056

Property, plant and equipment, net

 

98,330

 

59,988

Long-term marketable securities

 

2,874

 

7,237

Long-term deferred tax assets

 

25,345

 

43,798

Goodwill

 

490,545

 

255,876

Intangible assets, net

 

262,195

 

99,956

Other assets

 

21,126

 

5,294

Non-current assets held for sale

65,561

59,052

Total assets

$

1,492,860

$

1,095,257

Liabilities and Stockholders' Equity

 

 

  

Current liabilities

 

 

  

Current portion of long term debt

$

6,326

$

2,000

Accounts payable

47,789

44,724

Deferred revenue

 

30,598

 

25,884

Accrued warranty and retrofit costs

 

7,190

 

6,340

Accrued compensation and benefits

 

28,629

 

29,322

Accrued restructuring costs

 

280

 

659

Accrued income taxes payable

 

7,784

 

6,746

Accrued expenses and other current liabilities

 

33,655

 

30,405

Current liabilities held for sale

12,741

18,537

Total current liabilities

 

174,992

 

164,617

Long-term debt

534,748

194,071

Long-term tax reserves

 

15,044

 

1,102

Long-term deferred tax liabilities

 

16,025

 

7,135

Long-term pension liabilities

 

4,865

 

4,255

Other long-term liabilities

 

8,953

 

5,547

Non-current liabilities held for sale

107

698

Total liabilities

 

754,734

 

377,425

Commitments and contingencies (Note 16)

 

  

 

  

Stockholders' Equity

 

  

 

  

Preferred stock, $0.01 par value - 1,000,000 shares authorized, no shares issued or outstanding

 

 

Common stock, $0.01 par value - 125,000,000 shares authorized, 85,681,274 shares issued and 72,219,405 shares outstanding at June 30, 2019, 84,164,130 shares issued and 70,702,261 shares outstanding at September 30, 2018

 

857

 

841

Additional paid-in capital

 

1,915,138

 

1,898,434

Accumulated other comprehensive income

 

14,586

 

13,587

Treasury stock, at cost- 13,461,869 shares

 

(200,956)

 

(200,956)

Accumulated deficit

 

(991,499)

 

(994,074)

Total stockholders' equity

738,126

717,832

Total liabilities and stockholders' equity

$

1,492,860

$

1,095,257

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(In thousands, except per share data)

Three Months Ended

Nine Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

    

Revenue

 

  

 

  

 

  

 

  

 

Products

$

128,397

$

135,278

$

381,827

$

362,082

Services

 

75,483

 

37,085

 

199,810

 

109,832

Total revenue

 

203,880

 

172,363

 

581,637

 

471,914

Cost of revenue

 

  

 

  

 

  

 

  

Products

 

77,203

 

82,340

 

229,580

 

216,504

Services

 

43,167

 

23,208

 

115,951

 

71,949

Total cost of revenue

 

120,370

 

105,548

 

345,531

 

288,453

Gross profit

 

83,510

 

66,815

 

236,106

 

183,461

Operating expenses

 

  

 

  

 

  

 

  

Research and development

 

14,235

 

12,045

 

41,485

 

34,797

Selling, general and administrative

 

52,596

 

42,142

 

158,509

 

120,741

Restructuring charges

 

256

 

81

 

685

 

129

Total operating expenses

 

67,087

 

54,268

 

200,679

 

155,667

Operating income

 

16,423

 

12,547

 

35,427

 

27,794

Interest income

 

108

 

689

 

847

 

1,193

Interest expense

 

(8,041)

 

(2,465)

 

(21,348)

 

(6,842)

Loss on extinguishment of debt

 

 

 

(9,051)

 

Other expenses, net

 

(309)

 

(608)

 

(1,116)

 

(3,047)

Income before income taxes

 

8,181

 

10,163

 

4,759

 

19,098

Income tax (benefit) provision

 

7,260

 

5,350

 

400

 

(49,831)

Income from continuing operations

 

921

 

4,813

 

4,359

 

68,929

Income from discontinued operations, net of tax

 

6,333

 

17,793

 

20,731

 

37,183

Net income

$

7,254

$

22,606

$

25,090

$

106,112

Net loss attributable to noncontrolling interest

111

111

Net income attributable to Brooks Automation, Inc.

$

7,254

$

22,717

$

25,090

$

106,223

Basic net income per share attributable to Brooks Automation, Inc. common stockholders:

 

  

 

  

 

  

 

  

Income from continuing operations

$

0.01

$

0.07

$

0.06

$

0.98

Income from discontinued operations, net of tax

 

0.09

 

0.25

 

0.29

 

0.53

Basic net income per share

$

0.10

$

0.32

$

0.35

$

1.51

Diluted net income per share attributable to Brooks Automation, Inc. common stockholders:

  

  

  

  

Income from continuing operations

$

0.01

$

0.07

$

0.06

$

0.97

Income from discontinued operations, net of tax

 

0.09

 

0.25

 

0.29

0.52

Diluted net income per share

$

0.10

$

0.32

$

0.35

$

1.50

Weighted average shares used in computing net income per share:

 

  

 

  

 

  

 

  

Basic

 

72,188

 

70,596

 

71,903

 

70,425

Diluted

 

72,470

 

70,978

 

72,313

 

70,933

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(In thousands)

Three Months Ended

Nine Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

    

Net income

$

7,254

$

22,606

$

25,090

$

106,112

Other comprehensive income (loss), net of tax:

 

  

 

 

  

 

  

Cumulative foreign currency translation adjustments

 

2,724

 

(5,998)

 

888

 

3,288

Unrealized gains (losses) on marketable securities, net of tax effects of $0 during each of the three and nine months ended June 30, 2019, and ($26) during each of the three and nine months ended June 30, 2018

 

 

(122)

 

111

 

(122)

Actuarial gains (losses), net of tax effects of ($3) and $0 during the three and nine months ended June 30, 2019, respectively, ($1) and ($3) during the three and nine months ended June 30, 2018, respectively

 

9

 

(3)

 

 

(6)

Total other comprehensive income (loss), net of tax

 

2,733

 

(6,123)

 

999

 

3,160

Comprehensive loss attributable to noncontrolling interest

 

 

111

 

 

111

Comprehensive income

$

9,987

$

16,594

$

26,089

$

109,383

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

Nine Months Ended

 

June 30, 

    

2019

    

2018

    

 

Cash flows from operating activities

 

  

  

 

Net income

$

25,090

$

106,112

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

  

Depreciation and amortization

40,429

27,621

Stock-based compensation

 

15,172

 

14,999

Amortization of premium on marketable securities and deferred financing costs

 

766

 

565

Earnings of equity method investments

 

(4,876)

 

(4,931)

Loss recovery on insurance claim

(1,103)

Deferred income tax benefit

 

(9,207)

 

(48,274)

Loss on extinguishment of debt

 

9,051

 

Other gains on disposals of assets

 

156

 

Changes in operating assets and liabilities, net of acquisitions:

 

  

 

  

Accounts receivable

 

(6,456)

 

(32,887)

Inventories

 

(6,431)

 

(21,647)

Prepaid expenses and other assets

 

2,109

 

(4,395)

Accounts payable

 

(6,761)

 

16,656

Deferred revenue

 

4,959

 

487

Accrued warranty and retrofit costs

 

1,022

 

(192)

Accrued compensation and tax withholdings

 

(9,404)

 

(1,252)

Accrued restructuring costs

 

(361)

 

(1,523)

Proceeds from recovery on insurance claim

1,082

Accrued expenses and other liabilities

 

1,901

 

(7,478)

Net cash provided by operating activities

 

58,241

 

42,758

Cash flows from investing activities

 

  

 

  

Purchases of property, plant and equipment

 

(15,548)

 

(9,320)

Purchases of marketable securities

 

(1,290)

 

(58,312)

Sales of marketable securities

 

48,904

 

Maturities of marketable securities

2,557

8,450

Acquisitions, net of cash acquired

 

(442,704)

 

(82,977)

Proceeds from sales of property, plant and equipment

 

 

200

Net cash used in investing activities

 

(408,081)

 

(141,959)

Cash flows from financing activities

 

  

 

  

Proceeds from term loans, net of discount

 

686,386

 

197,554

Proceeds from issuance of common stock

 

1,548

 

1,395

Payments of financing costs

 

(687)

 

(318)

Principal payments on debt

 

(354,940)

 

(1,000)

Payments of capital lease

(849)

Common stock dividends paid

 

(21,658)

 

(21,202)

Net cash provided by financing activities

 

309,800

 

176,429

Effects of exchange rate changes on cash and cash equivalents

 

(816)

 

526

Net increase (decrease) in cash and cash equivalents

 

(40,856)

 

77,754

Cash and cash equivalents, beginning of period

    

 

197,708

  

 

101,622

    

  

Cash and cash equivalents, end of period

$

156,852

  

$

179,376

  

Supplemental disclosure of non-cash investing and financing activities:

 

  

 

Purchases of property, plant and equipment included in accounts payable

$

1,847

$

1,418

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6

BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(unaudited)

(In thousands, except share data)

    

    

    

    

    

    

    

Total

    

    

Brooks 

Common

Accumulated

Automation, 

Common

Stock at 

Additional

Other 

Inc. 

Noncontrolling

Stock 

Par 

Paid-In 

Comprehensive 

Accumulated

Treasury

Stockholders’ 

Interests in 

Total

Shares

Value

Capital

Income

Deficit

Stock

Equity

Subsidiaries

Equity

 

(In thousands, except share data)

Balance September 30, 2017

 

83,294,848

$

833

$

1,874,918

$

15,213

$

(1,082,364)

$

(200,956)

$

607,644

$

$

607,644

Shares issued under restricted stock and purchase plans, net

 

801,376

 

8

 

1,388

 

  

 

  

 

  

 

1,396

 

  

 

1,396

Stock-based compensation

 

  

 

  

 

14,999

 

  

 

  

 

  

 

14,999

 

  

 

14,999

Common stock dividends declared, at $0.30 per share

 

  

 

  

 

  

 

  

 

(21,203)

 

  

 

(21,203)

 

  

 

(21,203)

Foreign currency translation adjustments

 

  

 

  

 

  

 

3,288

 

  

 

  

 

3,288

 

  

 

3,288

Changes in unrealized gains on marketable securities, net of tax effects of ($26)

 

  

 

  

 

  

 

(122)

 

  

 

  

 

(122)

 

  

 

(122)

Actuarial losses, net of tax effects of ($3)

 

  

 

  

 

  

 

(6)

 

  

 

  

 

(6)

 

  

 

(6)

Net income

 

  

 

  

 

  

 

  

 

106,223

 

  

 

106,223

 

(111)

 

106,112

Balance June 30, 2018

 

84,096,224

$

841

$

1,891,305

$

18,373

$

(997,344)

$

(200,956)

$

712,219

$

(111)

$

712,108

Balance September 30, 2018

84,164,130

$

841

$

1,898,434

$

13,587

$

(994,074)

$

(200,956)

$

717,832

$

$

717,832

Shares issued under restricted stock and purchase plans, net

 

1,517,144

 

16

 

1,532

1,548

1,548

Stock-based compensation

 

15,172

 

  

 

  

 

  

 

15,172

 

  

 

15,172

Common stock dividends declared, at $0.30 per share

 

  

 

  

 

 

  

 

(21,656)

 

  

 

(21,656)

 

  

 

(21,656)

Foreign currency translation adjustments

 

  

 

  

 

  

 

888

 

  

 

  

 

888

 

  

 

888

Changes in unrealized losses on marketable securities, net of tax effects of ($0)

 

  

 

  

 

  

 

111

 

  

 

  

 

111

 

  

 

111

Cumulative effect of adoption of ASC 606

 

  

 

  

 

  

 

 

(859)

 

  

 

(859)

 

  

 

(859)

Net income

 

  

 

  

 

 

  

 

25,090

 

  

 

25,090

 

  

 

25,090

Balance June 30, 2019

 

85,681,274

$

857

$

1,915,138

$

14,586

$

(991,499)

$

(200,956)

$

738,126

$

$

738,126

The accompanying notes are an integral part of these unaudited consolidated financial statements.

7

BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Basis of Presentation

The unaudited consolidated financial statements of Brooks Automation, Inc. and its subsidiaries (“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, 2018 (the "2018 Annual Report on Form 10-K"). The accompanying Consolidated Balance Sheet as of September 30, 2018 was derived from the audited annual consolidated financial statements as of the period then ended.

Discontinued Operations

In the fourth quarter of fiscal year 2018, the Company entered into a definitive agreement to sell its semiconductor cryogenics business to Edwards Vacuum LLC (a member of the Atlas Copco Group), (the “Disposition”). The Company determined that the semiconductor cryogenics business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with Financial Accounting Standard Boards (“FASB”) Accounting Standards Codification (“ASC”) 205,  Presentation of Financial Statements , (“FASB ASC 205”) as of September 30, 2018. The Consolidated Balance Sheets and Consolidated Statements of Operations, and the notes to the Consolidated Financial Statements were restated for all periods presented to reflect the discontinuation of the semiconductor cryogenics business, in accordance with FASB ASC 205. The discussion in the notes to these Consolidated Financial Statements, unless otherwise noted, relate solely to the Company's continuing operations. Please refer to Note 3, “Discontinued Operations” for further information.

On July 1, 2019, the Company completed the Disposition for $675.0 million, subject to adjustments for working capital and other items. The Company expects net cash proceeds from the sale to be approximately $550 million, after adjustments and deducting taxes and other items. In connection with the closing the Company entered into Amendment No. 2 to the Asset Purchase Agreement with the purchaser. As part of this amendment, liabilities assumed by the purchaser were revised to include accounts payable related to the semiconductor cryogenics business. As of September 30, 2018, the Company has revised its accounts payable balance on a continuing operations basis to exclude accounts payable related to the semiconductor cryogenics business and revised its current liabilities held for sale balance to include accounts payable related to the semiconductor cryogenics business on its Consolidated Balance Sheets. Accounts payable and total liabilities of the discontinued operation have also been revised in Note 3, “Discontinued Operations” below. As of September 30, 2018, the accounts payable balance related to the semiconductor cryogenics business was $11.1 million. The Company will also revise these balances in previously reported historical periods in the event those periods are presented in future filings.

Revision of Prior Period Financial Statements

During the three months ended March 31, 2019, the Company identified a misclassification related to the presentation of the product and service revenue and the cost of product and service revenue related to the GENEWIZ Group (“GENEWIZ”) in the Company's Consolidated Statements of Operations for the three months ended December 31, 2018. The total revenue and cost of revenue related to GENEWIZ for the three months ended December 31, 2018 were included in the product revenue and cost of product revenue line items instead of the service revenue and cost of

8

service revenue line items in the Consolidated Statements of Operations in the Quarterly Report on Form 10-Q for the three months ended December 31, 2018. GENEWIZ was acquired during the three months ended December 31, 2018 and therefore the misclassification did not impact any other historical periods. The misclassification had no impact on total revenue or 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 misclassification 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 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 misclassification was not material individually or in the aggregate to the financial statements presented for the three months ended December 31, 2018, and therefore, amendments of the previously filed Quarterly Report on Form 10-Q for the three months ended December 31, 2018 were not required. The revision for this correction to the three months ended December 31, 2018 is reflected in the reported revenue and cost of revenue classification for the nine months ended June 30, 2019 in this Quarterly Report on Form 10-Qand will be corrected in any future filings containing such financial information for the three months ended December 31, 2018.

The following table summarizes the effects of the misclassification to the three months ended December 31, 2018:

Three Months Ended December 31, 2018

Dollars in thousands

As Previously Reported

Adjustment

As Revised

Total Company

Revenue

    

    

    

Products

$

141,732

$

(16,357)

$

125,375

Service

37,636

16,357

53,993

Total Revenue

 

179,368

 

 

179,368

Cost of revenue

 

 

 

Products

 

83,481

 

(8,907)

 

74,574

Service

 

23,806

 

8,907

 

32,713

Total cost of revenue

$

107,287

$

$

107,287

Brooks Life Science Segment

Revenue

Products

$

39,931

$

(16,357)

$

23,574

Service

26,730

16,357

43,087

Total Revenue

$

66,661

$

$

66,661

2. Summary of Significant Accounting Policies

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 on an over time 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.

9

Foreign Currency Translation

Certain transactions of the Company and its subsidiaries are denominated in currencies other than their functional currency.

Foreign currency exchange losses generated from the settlement and remeasurement of these transactions are recognized in earnings and presented within “Other expenses, net” in the Company’s unaudited Consolidated Statements of Operations. Net foreign currency transaction and remeasurement losses totaled $0.5 million and $0.6 million, respectively, during the three months ended June 30, 2019 and 2018 and $1.1 million and $3.1 million, respectively, during the nine months ended June 30, 2019 and 2018.

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. The Company enters into foreign exchange contracts to reduce its exposure to currency fluctuations. The forward contract arrangements that the Company enters into, typically mature in 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 expenses, net" in the accompanying unaudited Consolidated Statements of Operations and are as follows for the three and nine months ended June 30, 2019 and 2018 (in thousands):

Three Months Ended

Nine Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

    

Realized gains (losses) on derivatives not designated as hedging instruments

$

3,770

$

4,889

$

2,916

$

(1,332)

The fair values of the forward contracts 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”. 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 described below due to a lack of an active market for these contracts.

Fair Value Measurements

The Company measures at fair value certain financial assets and liabilities, including cash equivalents and available for sale securities. FASB ASC 820, Fair Value Measurement and Disclosures , establishes a fair value hierarchy that 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.

As of June 30, 2019, the Company had no assets or liabilities measured and recorded at fair value on a recurring basis using Level 3 inputs.

10

Recently Issued Accounting Pronouncements

In May 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-05, Financial Instruments - Credit Losses (Topic 326) - Targeted Transition Relief , which provides transition relief for entities adopting ASU 2016-13. The amendments in ASU 2019-05 allow entities to elect the fair value option on certain financial instruments. ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that were previously recorded at amortized cost and are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05’s amendments should be applied “on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings in the statement of financial position as of the date that an entity adopted the amendments in ASU 2016-13.” Certain disclosures are required. For entities that have not adopted ASU 2016-13, the effective date of ASU 2019-05 will be the same as the effective date of ASU 2016-13 which is for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted if the entity has adopted ASU 2016-13. The Company is currently evaluating the impact of this ASU.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments , which makes targeted changes to standards on credit losses, hedging, and recognizing and measuring financial instruments to clarify them and address implementation issues. The amendments clarify the scope of the credit losses standard and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. On recognizing and measuring financial instruments, the amendments address the scope of the guidance, the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchange rates. The amendments in ASU 2019-04 related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted if the entity has adopted those standards. The Company is currently evaluating the impact of this ASU.

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) - Codification Improvements , which makes targeted changes to lessor accounting and clarifies interim transition disclosure requirements. The targeted changes to the lessor accounting are not applicable to the Company because it is not in the industry to be targeted by the guidance. The ASU clarifies that companies are exempt from making the interim period transition disclosures required by ASC 250, Accounting Changes and Error Corrections , for the period in which a change in accounting principle is made as a result of adopting ASC 842. This interim period disclosure exemption is consistent with ASC 842, which already allowed companies to exclude the annual effect of the accounting change on income from continuing operations, net income and per-share amounts for periods post-adoption. This ASU is effective for fiscal years ending after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this ASU.

In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors . The amendments create a lessor practical expedient applicable to sales and other similar taxes incurred in connection with a lease and simplify lessor accounting for lessor costs paid by the lessee. The ASU permits lessors to present sales and other similar taxes that arise from a specific leasing transaction on a net basis. It requires lessors to present lessor costs paid by the lessee directly to a third party on a net basis – regardless of whether the lessor knows, can determine or can reliably estimate those costs. It requires lessors to present lessor costs paid by the lessee to the lessor on a gross basis. It clarifies that lessors should recognize variable payments allocable to non-lease components as revenue in accordance with relevant other guidance. The effective date coincides with the effective date of the new leases standard for companies that have not early adopted. As such, this ASU is effective for fiscal years ending after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this ASU.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract . The amendments align the requirements for capitalizing implementation costs incurred in a

11

hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The provisions may be adopted prospectively or retrospectively. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this ASU.

In August 2018, the FASB issued ASU 2018-14, Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans , which amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The amendments require additional disclosure for the weighted-average interest crediting rates, a narrative description of the reasons for significant gains and losses, and an explanation of any other significant changes in the benefit obligation or plan assets. The amendment removes disclosure requirement for accumulated other comprehensive income expected to be recognized over the next year, information about plan assets to be returned to the entity, and the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost, and the benefit obligation for postretirement health care benefits. The ASU is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The ASU does not amend the interim disclosure requirements of ASC 715-20. The Company is currently evaluating the impact of this ASU.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , which amends ASC 820 to add and remove disclosure requirements related to fair value measurement. The amendments include new disclosure requirement for changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The amendments eliminated disclosure requirements for amount of and reasons for transfers between Level 1 and Level 2, valuation processes for Level 3 fair value measurements, and policy for timing of transfers between levels of the fair value hierarchy. In addition, the amendments modified certain disclosure requirement to provide clarification or to promote appropriate exercise of discretion by entities. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted. The Company is currently evaluating the impact of this ASU.

In March 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which amends ASC 220 to add, remove, and clarify disclosure requirements related to reporting comprehensive income. This ASU gives entities the option to reclassify tax effects recorded in accumulated other comprehensive income as a result of tax reform to retained earnings. The entities have the option to apply the guidance retrospectively or in the period of adoption. The guidance requires entities to make new disclosures, regardless of whether they elect to reclassify tax effects. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption in any period is permitted. The Company expects to adopt the guidance during the first quarter of fiscal year 2020 and is evaluating the effect that ASU 2018-02 will have on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) , which amends ASC 326 to add, remove, and clarify disclosure requirements related to credit losses of financial instruments. 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 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.

12

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , an amendment of the FASB ASC. In accordance with the 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.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued new accounting guidance for reporting revenue recognition, ASC 606 Revenue from Contracts with Customers (“ASC 606”). 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. In addition, the guidance requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance also specifies the accounting for certain costs to obtain and fulfill a contract, as codified in ASC 340-40 Accounting for Other Assets and Deferred Costs (“ASC 340-40”).

The Company adopted this standard effective October 1, 2018, using the modified retrospective method and has only applied this method to contracts that were not completed as of the effective date and all new contracts initiated on or after the effective date. Results for reporting periods beginning on or after October 1, 2018 are presented under ASC 606, while prior period amounts have not been restated and continue to be reported in accordance with the governing revenue recognition standards applicable to that period.

The impact of the cumulative effect of adopting ASC 606 effective October 1, 2018 on the Company’s Consolidated Balance Sheet is as follows:

As Reported

Impact of Adopting

As Adopted

September 30, 2018

ASC 606

October 1, 2018

Prepaid expenses and other current assets

$

31,741

$

350

$

32,091

Prepaid expenses and other current assets - discontinued operations

343

235

578

Other assets

5,294

1,483

6,777

Long-term deferred tax assets

43,798

403

44,201

Deferred revenue

25,884

2,850

28,734

Deferred revenue - discontinued operations

1,052

480

1,532

Accumulated deficit

(994,074)

(859)

(994,933)

Upon adoption of ASC 606, the Company recorded a cumulative effect adjustment of $0.9 million, net of a tax adjustment of $0.4 million, which resulted in an increase to the opening accumulated deficit balance on the Consolidated Balance Sheet, primarily driven by deferral of previously recognized revenue within the Brooks Life Sciences segment,

13

offset by deferral of previously recognized commission expense within the Brooks Life Sciences segment and acceleration of revenue within the Brooks Semiconductor Solutions Group segment.

A portion of the adjustment related to the acceleration of revenue within the Brooks Semiconductor Solutions Group segment resulted from the change in the revenue recognition rules. Upon the adoption of ASC 606, the Company is no longer required to defer revenue in accordance with billing constraints defined in the contract with the customer. The change impacted the Company’s semiconductor contamination control solutions revenue stream as under ASC 606, the Company recognizes revenue in an amount equivalent to the transfer of control that has occurred. (Please refer to Note 13, “Revenue from Contracts with Customers” for further information on when control is transferred). As a result, revenue previously deferred due to the contractual billing restraints that otherwise met the revenue recognition requirements was accelerated into the opening accumulated deficit balance resulting in an increase to accumulated deficit of $0.9 million as of October 1, 2018.

A portion of the adjustment related to the deferral of previously recognized revenue within the Brooks Life Science segment related to fees associated with registration of biological samples. This adjustment is derived from the new requirement to recognize revenue associated with certain sample life cycle management solutions transactions over time under ASC 606, while historically these transactions have been recorded at a point in time. Registration fees for these samples were previously recognized as revenue at a point in time upon completion of the registration and are now required to be recognized ratably over the period of benefit under ASC 606. As a result, upon adopting ASC 606, the Company deferred previously recognized registration fee revenue for contracts not completed as of the effective date. The period of benefit associated with registration fees has been determined to be approximately 24 months resulting in the deferral of revenue historically recognized at a point in time over this period. This change resulted in a decrease to accumulated deficit of $3.1 million as of October 1, 2018.

A portion of the adjustment is related to the deferral of previously recognized commission expense within the Brooks Life Science segment. This portion of the adjustment is derived from the new requirement to recognize the cost to obtain certain transactions over time under ASC 340-40, while historically this expense has been recognized at a point in time. The standard requires certain costs incurred to obtain a contract to be recorded as an asset when incurred and expensed as the transfer of control of the underlying performance obligations occur or over the estimated customer life, depending on the nature of the underlying contract. As a result, upon adopting ASC 606, the Company deferred previously recognized costs for contracts not completed as of the effective date. The estimated customer life has been determined to be approximately 60 months resulting in the deferral of costs historically expensed at a point in time over this period. This change resulted in an increase to accumulated deficit of $1.5 million as of October 1, 2018.

Additional changes to the Company’s accumulated deficit were made as the result of adopting ASC 606. These changes, which resulted in a cumulative decrease to accumulated deficit of $0.2 million as of October 1, 2018, were driven by the identification of additional performance obligations as well as changes in the transfer of control of certain performance obligations across both the Brooks Semiconductor Solutions Group and Brooks Life Science segments. The additional changes to the Company’s accumulated deficit included a cumulative decrease to accumulated deficit of $0.2 million from discontinued operations.

As the Company has adopted ASC 606 using the modified retrospective method, the standard requires disclosure of impact from adoption of the standard to each financial statement line item in the current reporting period. The impact of

14

adoption of ASC 606 on the Company’s Consolidated Statement of Operations and Consolidated Balance sheet was as follows:

Three Months Ended June 30, 2019

Without adoption of

Effect of Change

As Reported

ASC 606

Higher/(Lower)

Revenue

$

203,880

$

204,738

$

(858)

Cost of revenue

120,370

120,838

(468)

Gross profit

83,510

83,900

(390)

Operating expenses

67,087

66,914

173

Operating income

$

16,423

$

16,986

$

(563)

Nine Months Ended June 30, 2019

Without adoption of

Effect of Change

As Reported

ASC 606

Higher/(Lower)

Revenue

$

581,637

$

584,061

$

(2,424)

Cost of revenue

345,531

347,009

(1,478)

Gross profit

236,106

237,052

(946)

Operating expenses

200,679

200,109

570

Operating income

$

35,427

$

36,943

$

(1,516)

June 30, 2019

Without adoption of

Effect of Change

As Reported

ASC 606

Higher/(Lower)

Prepaid expenses and other current assets

$

40,441

$

36,388

$

4,053

Other assets

21,126

20,212

914

Deferred revenue

30,598

28,033

2,565

Accumulated deficit

(991,499)

(993,901)

2,402

The difference between the reported results and the results without the adoption of ASC 606 was primarily driven from the elimination of revenue constraints due to billing limitations that resulted in acceleration of revenue within the Brooks Semiconductor Solutions Group segment and the deferral of fees associated with the registration of biological samples within the Brooks Life Science segment. Amortization of costs to obtain a contract capitalized through the cumulative effect adjustment described above have resulted in additional expense in the current period under ASC 606. Except as disclosed above, the adoption of ASC 606 did not have a significant impact on the Company’s Consolidated Statement of Operations for the three and nine months ended June 30, 2019 and Consolidated Balance Sheet as of June 30, 2019.

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 2018 Annual Report on Form 10-K.

3. Discontinued Operations

On August 27, 2018, the Company entered into a definitive agreement to sell its semiconductor cryogenics business to Edwards Vacuum LLC (a member of the Atlas Copco Group) (“Edwards”) for $675.0 million in cash, subject to adjustments. On July 1, 2019, the Company completed the sale for $675.0 million, subject to adjustments for working

15

capital and other items. The Company expects net cash proceeds from the sale to be approximately $550 million, after adjustments and deducting taxes and other items.

The semiconductor cryogenics business consists of the CTI pump business, Polycold chiller business, the related services business and the Company's 50% share in Ulvac Cryogenics, Inc., a joint venture based in Japan. The semiconductor cryogenics business was originally acquired by the Company in its 2005 merger with Helix Technology Corporation. The operating results of the semiconductor cryogenics business had been included in the Brooks Semiconductor Solutions Group segment before the plan of disposition.

In connection with the closing of the Disposition on July 1, 2019, the Company and Edwards entered into a transition service agreement, a supply agreement, and lease agreements. The transition service agreement outlines the information technology, people, and facility support the Company will provide to Edwards for a period up to 9 months after transaction closing date. The supply agreement allows the Company to purchase CTI and Polycold goods at cost from Edwards up to an aggregate amount equal to $1.0 million during the one-year term after closing of the Disposition. The lease agreements provide facility space to Edwards free of charge for three years after the transaction closing date. Edwards will have the option to renew each lease at the then current market rates after the initial three-year lease term has ended. This Disposition is consistent with the Company’s long-standing strategy to increase shareholder value by accelerating the growth of its Life Sciences business with further acquisitions and strengthening its semiconductor automation business with opportunistic acquisitions.

The Disposition met the "held for sale" criteria and the “discontinued operation” criteria in accordance with FASB ASC 205 as of September 30, 2018. As such, its operating results have been reported as a discontinued operation for all periods presented. 

The following table presents the financial results of discontinued operations (in thousands):

Three Months Ended June 30,

Nine Months Ended June 30,

    

2019

    

2018

2019

    

2018

Revenue

  

  

Products

$

23,546

$

38,834

$

76,227

$

114,706

Services

10,994

12,283

33,291

33,448

Total revenue

34,540

51,117

109,518

148,154

Cost of revenue

Products

15,451

22,289

47,148

65,436

Services

6,288

6,231

19,016

16,866

Total cost of revenue

21,739

28,520

66,164

82,302

Gross profit

12,801

22,597

43,354

65,852

Operating expenses

Research and development

2,279

2,073

6,605

5,483

Selling, general and administrative

4,808

6,392

17,005

16,823

Restructuring charges

24

-

24

2

Total operating expenses

7,111

8,465

23,634

22,308

Operating income

5,690

14,132

19,720

43,544

Other income, net

418

292

985

819

Income before income taxes and earnings of equity method investment

6,108

14,424

20,705

44,363

Income tax provision (benefit)

1,610

(2,040)

4,850

12,111

Income before equity in earnings of equity method investment

4,498

16,464

15,855

32,252

Equity in earnings of equity method investment

1,835

1,329

4,876

4,931

Net income

$

6,333

$

17,793

$

20,731

$

37,183

16

The table above reflects revenue for the three and nine months ended June 30, 2019 in accordance with ASC 606, while results for the three and nine months ended June 30, 2018 have not been restated and are reported in accordance with the governing revenue recognition standards applicable to those periods prior to adoption of ASC 606. Results for the three and nine months ended June 30, 2019 were not significantly impacted by the adoption of ASC 606.

The Company performed its fiscal year 2018 annual goodwill impairment analysis in April 2018. This analysis was updated upon announcement of entering into a definitive agreement for the Disposition for the year ended September 30, 2018. The Company concluded that there was no impairment indicator related to the goodwill of the semiconductor cryogenics business at either date the impairment analysis was performed. The Company did not include goodwill related to the semiconductor cryogenics business in its annual impairment analysis in April 2019, as the Disposition was classified as assets held for sale.

The following table presents the summarized financial information for Ulvac Cryogenics, Inc., the unconsolidated subsidiaries accounted for based on the equity method (in thousands):

June 30,

September 30,

    

2019

    

2018

Balance Sheets:

  

  

Current assets

$

76,534

$

69,302

Non-current assets

22,175

21,338

Current liabilities

27,928

26,006

Non-current liabilities

9,338

8,397

Three Months Ended June 30,

Nine Months Ended June 30,

    

2019

    

2018

2019

    

2018

Statements of Operations:

  

  

  

  

Total revenue

$

23,209

$

22,272

$

68,252

$

68,236

Gross profit

9,905

7,998

27,134

26,209

Operating Income

5,267

3,845

14,476

14,103

Net income

3,674

2,436

9,777

9,715

The following table presents the significant non-cash items and capital expenditures for the discontinued operations that are included in the Consolidated Statements of Cash Flows (in thousands):

Three Months Ended June 30,

Nine Months Ended June 30,

2019

2018

2019

2018

Depreciation and amortization

$

4

$

196

$

4

$

588

Capital expenditures

87

55