Washington, D.C. 20549
Form 10-K
(Mark One)
| | |
☑ | ||
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For fiscal year ended September 30, | |
| or | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to . |
Commission File Number: 0-25434
Brooks Automation, Inc.
(Exact name of Registrant as Specified in Its Charter)
Delaware | | 04-3040660 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| | |
15 Elizabeth Drive Chelmsford, Massachusetts (Address of Principal Executive Offices) | | 01824 (Zip Code) |
978-262-2400
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbols | Name of Each Exchange on Which Registered |
Common Stock, $0.01 par value | BRKS | The |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes
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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| | ||
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 Exchange Act Rule 12b-2). Yes
The aggregate market value of the registrant'sregistrant’s Common Stock, $0.01 par value, held by non-affiliates of the registrant as of March 31, 2016,2019, was approximately $669,058,000$1,545,043,570 based on the closing price per share of $10.40$29.33 on that dateMarch 29, 2019 on the Nasdaq Stock Market. As of March 31, 2016, 68,616,3062019, 72,131,313 shares of the registrant'sregistrant’s Common Stock, $0.01 par value, were outstanding. As of November 15, 2016, 69,020,316December 6, 2019, 73,617,759 shares of the registrant'sregistrant’s Common Stock, $0.01, par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant'sregistrant’s Proxy Statement involving the election of directors, which is expected to be filed within 120 days after the end of the registrant'sregistrant’s fiscal year, are incorporated by reference in Part III of this Report.
BROOKS AUTOMATION, INC.
| | PAGE NUMBER | ||
3 | ||||
12 | ||||
Item 1B. | 24 | |||
24 | ||||
25 | ||||
25 | ||||
25 | ||||
27 | ||||
29 | ||||
110 | ||||
110 | ||||
111 | ||||
112 | ||||
112 | ||||
112 | ||||
112 | ||||
112 | ||||
113 | ||||
116 | ||||
117 |
2
Information Relating to Forward-Looking Statements
Certain statements in this Form 10-K constitute forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Certain, but not all, of the forward-looking statements in this report are specifically identified as forward-looking, by use of phrases and words such as “we believe,” “we estimate,” “we expect,” “may,” “should,” “could,” “intend,” “likely,” and other future-oriented terms. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. Forward-looking statements include, but are not limited to, statements that relate to our future revenue, margin, costs, earnings, product development, demand, acceptance and market share, competitiveness, market opportunities and performance, levels of research and development, or R&D, the success of our marketing, sales and service efforts, outsourced activities and operating expenses, anticipated manufacturing, customer and technical requirements, the ongoing viability of the solutions that we offer and our customers’ success, tax expenses, our management’s plans and objectives for our current and future operations and business focus, the expected benefits and other statements relating to our divesture and acquisitions, the material weaknesses identified in our internal control over financial reporting, including the impact thereof and our remediation plan, the levels of customer spending, general economic conditions, the sufficiency of financial resources to support future operations, and capital expenditures. Such statements are based on current expectations and are subject to risks, uncertainties, and changes in condition, significance, value and effect, including without limitation those discussed within Item 1 A,1A, “Risk Factors” and elsewhere in this report and other documents we file from time to time with the Securities and Exchange Commission, or SEC, such as our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results, performance or achievements to differ materially from those expressed in this report and in ways we cannot readily foresee. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on information currently and reasonably known to us. We do not undertake any obligation to release the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances that occur after the date of this report or to reflect the occurrence or effect of anticipated or unanticipated events. Precautionary statements made herein should be read as being applicable to all related forward-looking statements wherever they appear in this report.
Unless the context indicates otherwise, references in this report to "we"“we”, "us"“us”, "our"“our” and other similar references mean Brooks Automation, Inc. and its consolidated subsidiaries.
Overview
We are a leading provider of semiconductor manufacturing automation solutions and life science sample-based services and solutions worldwide. In the semiconductor manufacturing market, we have been a provider of precision robotics, integrated automation systems and services for more than 40 years. In the life sciences market, we apply our automation and cryogenics expertise to offer a full suite of sample-based services and products, including a full line of cold chain management solutions for handling and storing biological and chemical compound samples used in areas such as drug development, clinical research and advanced cell therapies. We are also a global provider of automationgene sequencing and cryogenic solutions for multiple applications and markets. We primarily serve the semiconductor capital equipment market and sample management market for life sciences.gene synthesis services. We believe our leadership positionpositions and our global support structurecapability in each of these markets makesmake us a valued business partner to the largest semiconductor capital equipment and device makers, and pharmaceutical and life science research institutions in the world. Our offerings are also applied to industrial capital equipmentIn total, we employ approximately 3,000 full-time employees worldwide and other adjacent technology markets.have sales in more than 50 countries. We are headquartered in Chelmsford, Massachusetts employ approximately 1,300 full-time employees worldwide,and have salesoperations in more than 50 countries,North America, Asia, and provide customer support services globally.
Since our early daysfounding in 1978, we have been a leading partner to the 1980s, our Companyglobal semiconductor manufacturing industry. We initially developed and marketed automated silicon wafer handling equipment for semiconductor equipment manufacturers. Since then, we have expanded our products and services through product development initiatives and acquisitions, and we are now recognized as a leading provider of vacuum robots, vacuum automation systems, wafer
3
carrier contamination control systems, and reticle storage solutions to the global semiconductor capital equipment industry. We have since enhancedsell our portfoliosemiconductor products and services to both original equipment manufacturers, or OEMs, and directly to global chip manufacturers.
In April 2018, we acquired Tec-Sem Group AG, or Tec-Sem, a Switzerland-based manufacturer of semiconductor fabrication automation equipment with a focus on reticle storage management systems that support the needs for advanced lithography. Prior to fiscal year 2016, we made several acquisitions that support our business in the semiconductor capital equipment market to include cryogenic vacuum equipment, integrated automated handling systems, and automated contamination control solutions specific tomarket. On July 1, 2019, we completed the cleaningsale of wafer carrier devices. We have made several key acquisitions in recent years to strengthen our semiconductor market portfolio, including certain integrated handling system assetscryogenics business to Edwards Vacuum LLC (a member of Crossing Automation, Inc. acquiredthe Atlas Copco Group) for approximately $675.0 million in fiscal year 2013,cash subject to adjustments for working capital and the automated contamination cleaning equipment of Dynamic Micro Systems Semiconductor Equipment GmbH in fiscal year 2014 and Contact Co., Ltd. in fiscal year 2015. other items.
We have also invested in research and development initiatives to advance the offerings from each ofacquired in these acquisitions. Our key divestituresacquisitions, as well as in recent years were made within the semiconductor offerings portfolioour vacuum automation and included the sale of our contract manufacturing business in fiscal year 2011 and Granville-Phillips Instruments business in fiscal year 2014.services offerings. Our business supporting the semiconductor capital equipment and adjacent markets provided approximately 81%57% of our revenue in fiscal year 2016.
We entered the life sciences market, specifically in the area of sample management storage systems, in 2011. We entered this market based on our ability to leverage our core technology competencies in automation and cryogenics into our sample management offerings. We applied these competencies to provide a range of automated ultra-cold freezer systems and then to expand into a portfolio of products and services to assist customers in efficiently managing the end-to-end “cold chain of custody” of their chemical compound and biological samples. Today, we identifiedare a leading provider of the life sciences sample management as an underserved market insolutions for automated cold sample storage systems, off-site storage services, and consumables and instruments. We are also a provider of software offerings which we could leverageenable or enhance our core competenciescustomers’ visibility into their sample inventories, and laboratory services at our storage service locations, both of automation and cryogenics in orderwhich are expected to diversifyhelp our business and provide us the potential for higher growth and profit margins. Our strategic objective was to provide offerings to assist customers in managing the ‘cold chain of custody’ ofaccelerate their compound and biological samples, including storage, work flow solutions, transportation, handling, and informatics and services. By fiscal year 2011, we were making strategic investments via acquisitions and research and development initiativesefforts. Taken together, we believe our sample management product and services offerings allow our customers to fulfillmaintain a complete “cold chain of custody” and enhance efficiency of related workflow for their samples.
On November 15, 2018, we significantly expanded our goallife sciences offerings with the acquisition of becomingGENEWIZ Group, or GENEWIZ, a leaderleading provider of gene sequencing and gene synthesis services to pharmaceutical, biotechnology and academic institutions around the world. GENEWIZ is headquartered in New Jersey and has a network of genomics laboratories spanning the United States, China, Japan, Germany, and the United Kingdom. We believe the GENEWIZ acquisition, combined with our core capabilities in sample management services, positions us to add more value to samples under our care.
In addition to the GENEWIZ acquisition, over the last four fiscal years we have completed six acquisitions to expand and enhance our life science sample management market. We acquired three providers of large automated ultra cold storage freezers which operate at -80°Cofferings and -20°C and bench-top instruments for sample management: RTS Life Sciences and Nexus BioSystems, Inc. both completed in fiscal year 2011; and Matrical, Inc in
● | In November 2015, we acquired BioStorage Technologies, Inc., a full-service outsourcing sample management business, supporting customers in the United States, Europe, and Asia with an integrated solution for off-site storage services, transportation services, laboratory services and software-based inventory management. |
● | In July 2017, we acquired substantially all of the assets and certain liabilities of Pacific Bio-Material Management, Inc. and Novare, LLC, two companies with operations in California and New York, respectively, providing off-site storage, transportation, and management services for biological samples. |
● | In April 2018, we acquired BioSpeciMan Corporation, a Canada-based provider of off-site storage services for biological sample materials. |
4
Other recent acquisitions also added cryogenic temperature management products, software products and consumable products to our life science systems operations. We have also made certain non-acquisitive investments, including investments in BioCision, LLC, as well as another small private technology company from which we obtained an exclusive license of certain silicon chip-based technology to track samples. In fiscal year 2015, we jointly developed a liquid nitrogen-charged carrier device for transporting biological specimens at cryogenic temperatures with BioCision. We also added to our portfolio consumable sample tubes and additional instrument offerings, as well as a full outsource service offering that provides customers with full care of their samples. Our business supportingsciences portfolio.
● | In November 2016, we completed the acquisition of Cool Lab, LLC, a subsidiary of BioCision, LLC, a provider of cryogenic product solutions that assist in managing temperature stability of biological samples in a laboratory environment. |
● | In August 2017, we acquired certain assets and liabilities from RURO, Inc. related to FreezerPro®, a web-based software platform which aids customers in their sample management needs, and became the exclusive distributor of BiobankPro®, a software system that manages sample processing and storage while providing a single location for research and clinical data and related analysis. |
● | In October 2017, we acquired 4titude Limited, or 4titude, a U.K.-based manufacturer of scientific consumables used in a variety of genomic analytical applications. |
Through the life science sample management market provided approximately 19% of our revenue in fiscal year 2016.
We believe the life science market is generally more stable than the semiconductor capital equipment market and we expect that, over the long term, it will grow at a higher rate than our semiconductor business which historically has displayed cyclical trends related to demand for capital investments. Within the life sciences business, revenue comes from storage services and genomic services that are provided to thousands of customers and are generally more predictable than the sale of automated sample storage equipment, which has historically displayed uneven sales due to large purchases and fewer customers.
Segments
We have three operating segments aggregated into two reportable segments consisting of Brooks Semiconductor Solutions Group segment and Brooks Life Sciences segment. For further information on our operating segments, please refer to Note 21, “Segment and Geographic Information” to our Consolidated Financial Statements included under Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.
Brooks Semiconductor Solutions Group Segment
Brooks Semiconductor Solutions Group is a leader in wafer automation and contamination controls solutions and services that are designed to improve throughput, yield, and cost of ownership of complex processing equipment, or tools, in semiconductor fabrication plants, or fabs. Our product offerings include vacuum and atmospheric robots, turnkey vacuum and atmospheric wafer handling systems, as well as wafer carrier clean and reticle storage systems. We also capture the complete life cycle of value through a global service network of expert application and field engineers who are located close to our customers. Our services include rapid refurbishment of robots to stringent specifications, upgrades to improve equipment productivity, and proactive monitoring and diagnostics for predictive risk management and improved up-time of the installed base.
Markets and Customers
The demand for semiconductors and semiconductor manufacturing equipment is cyclical, resulting in periodic expansions and contractions of this market. While the services element of our semiconductor business is generally more stable, the cyclical nature of the capital equipment business causes sales from products to vary quarterly based on short termshort-term market demands. It is not unusual for these variations in sales to be up or down 10% to 20% in sequential quarters. We believe the life science sample management market is generally more stable than the semiconductor capital equipment market and is expected to grow as
5
As a result, of the expanding need for storageour quarterly and retention of compound and biological samples. However, evenyearly sales have fluctuated in this market there is more stable revenue streamsand we expect future sales in the area of storage service, in contrastthis market will continue to the sale of freezersfluctuate between quarters and other equipment, which has exhibited periods of robust growth but also decline. As we have expanded our offerings of consumables, infrastructure services, and storage services, we have seen these revenue streams in life sciences increase to account for approximately 66% of Brooks Life Science Systems revenue in fiscal year 2016.
The principal markets served by the Brooks Semiconductor Solutions Group segment include the following:
● | Semiconductor capital equipment market |
Each year, the global semiconductor industry makes significant capital investments in equipment to keep up with advancements in semiconductor technology, to add manufacturing capacity and to improve productivity within existing semiconductor fabrication plants, or fabs. We are recognized as a market leading provider ofleader in three critical sub-segments: vacuum automation for wafer carrierhandling; contamination controlcontrol; and cryogenic solutions to the global semiconductor capital equipment industry.wafer automation for advanced packaging. As discussed above, the global semiconductor capital equipment industry is cyclical, but we believe that it possesses a long-term growth profile driven by the demand for increasingly sophisticated consumer electronics, automotive and smart appliance products, growth in data centers, the expansion of the Internet-of-Things which increasingly connects various appliances and devices to servers, and mobile platforms.communications infrastructure such as 5G. The demand for higher performance, lower power consumption and reduced size for all suchof these products is enabled by advancements in the technology and processes used for the manufacturing of the devices. We believe this trend continues to provide market opportunities for the Brooks Semiconductor Solutions Group to be a valued partner in providing vacuum automation, carrier contamination control and cryogenic solutions to support of the industry’s needs.
We have been a long-term partner to device manufacturers and the original equipment manufacturers, or OEMs who are the providers of complex processing equipment, or tools to fabs. We maintain collaborative relationships with our customers infor the innovative design of new automation, vacuum and contamination control solutions that are criticalenable our customers to have a valued wafer process advantage and improved cost of ownership in the success of their products.fab. Our comprehensive global network of technical specialists provides extensive support to our customers in new equipment installation and existing equipment support in all regions, including the key semiconductor markets in Korea, Taiwan, China, Japan, Europe and China.
The production of advanced semiconductor chips requires many complex and logistically challenging manufacturing activities. Silicon wafers must go through hundreds of process steps performed by tools in order to create billions of microscopic transistors and connect them in both horizontal and vertical layers to produce a functioning integrated circuit, or IC. These steps, which comprise the initial fabrication of the IC andsteps, which are referred to in the industry as front-end processes, are repeated many times on a single wafer to create the desired pattern on the silicon wafer. Up to 50% of these processes are performed in tools that operate under vacuum conditions, such as removing, depositing, or measuring materials on wafer surfaces. As the complexity of semiconductors has increased, the number of process steps that occur in a vacuum environment have also increased, resulting in a greater need for bothvacuum automation and vacuum technology solutions.
The increase in packing density of components in mobile devices has led the industry to devise newadvanced packaging techniques for chip interconnectivity using what is called wafer level packaging, or WLP. This newadvanced packaging technology is a process of combining multiple wafers together prior to cutting them into pieces and then forming them onto a packaging substrate where they are ultimately divided into the multitude of chips. The recent increased adoption of WLP has increased the need for a contaminant free and high purity manufacturing environment, which is providing newresulting in higher demand acrossfor our semiconductor offerings which are tailored to handle full wafer forms expanding our opportunity with existing and new customers. For example, throughout the fabrication and packaging processes noted above, theforms.
We believe there is a growing demand for clean processing extendsequipment to increased demand forperform cleaning and conditioning of the wafer carrier devicescarriers which are used for the safe and clean transport of wafers betweenin all advanced semiconductor fabs. These cleaning tools during the manufacturing process. Large scale semiconductor fabs may use thousands of these carriers. There is also growing demand for wafer carrier cleaning and conditioning tools used to remove microscopic particles, organic compounds and water that are attracted to the inside surface of the carrier. Automated cleaning and conditioning of the carrier deviceswafer carriers are also in demand byas customers lookinglook to improve overall manufacturing yields. Similarly, as lithography also requires cleaner controlled environments, our reticles solutions provide contamination control for highly valued reticles or masks that are used in printing the technological features onto the wafer.
● | Adjacent capital equipment markets |
There are a few adjacent capital equipment markets
6
example, LEDs are manufactured using vacuum systems and handling processes similar to those used in semiconductor manufacturing. Organic Light Emitting Diode, or OLED, applications are also gaining traction in the mobile computing and telecommunications device markets because of their high quality display and low power consumption. Touch screen technology found in mobile devices requires either a vacuum or significant cooling for effective deposition of films or coatings during the production process.
We believe the desire for efficient, higher throughput and extremely clean manufacturing for semiconductor wafer fabs, the chip packaging process and other industrial or high performance electronic-based products and processes have created a substantial market for us in the following offerings: (i) substrate handling automation, which is related to moving the wafers in a semiconductor fab, (ii) tool automation, which is related to using robots and modules in conjunction with and inside process tools that movemoves wafers from station-to-station, (iii) vacuum systems technology to create and sustain the clean environment
Product and Service Offerings
The principal offerings of the Brooks Semiconductor Solutions Group segment consist of: (i) wafer handling robotics and systems and (ii) semiconductor contamination control solutions, and (iii) cryogenic pumps and compressors.solutions. The segment also provides support services, including repair, diagnostic and installation, as well as spare parts and productivity enhancement upgrades to maximizeenhance tool productivity.
Wafer handling robotics and systems offerings
- includeContamination control solutions-
Within the semiconductor industry, we sell our products and services to the world'sworld’s major semiconductor chip makers and original equipment manufacturers.OEMs, who provide process tools to the IC makers for the manufacture of chips. Our customers outside the semiconductor industry are broadly diversified. We have major customers in North America, Europe and Asia. Although we ship much of our equipment sales ship to OEMs in the United States, a large percentage of these OEM tools are ultimately installed in semiconductor fabs that are outside of North America. We also provide support services to leading OEMs, fabs and foundries across the globe.
Brooks Life Science SystemsSciences Segment
Our Brooks Life Science SystemsSciences segment is a global leader of comprehensive sample life cycle management solutions that provides life science and biosciencegenomic services, providing pharmaceutical, biotechnology, and academic customers with complete sample managementend-to-end “cold-chain of custody” and gene sequencing and synthesis solutions to advance scientific research and support drug development. Our sample management solutions are focused on providing customers with the highest level of sample quality, security, availability, management, intelligence and integrity throughout the life cycle of samples. Our solutions include automation,automated ultra-cold storage systems, off-site storage services, transport services, laboratory services, consumables and instruments, sample storage and support services, as well asinstruments. We also provide informatics solutions that manage samples throughout our customers’ research discovery and development work flows. Our key genomic services include gene sequencing on Sanger and Next-Generation platforms, and gene synthesis. Our workforce has deep scientific knowledge and utilizes our proprietary technologies and services, and is supported by a network of 13 global laboratories spanning the United States, China, Japan, Germany, and the United Kingdom. We believe this has positioned us to provide our customers with a valued combination of speed, convenience and scientific expertise in our service offerings.
7
As referenced above, we completed the acquisition of GENEWIZ in November 2018. GENEWIZ is a leading global provider of genomic analysis and Customers
Life Science Market
Brooks Life Science Systems segmentSciences serves a broad range of end markets within the life sciences industry to address a confluence of life science industry trends, such as technology, information management and new sophisticated tools and applications. With the advent of biologics and personalized medicine, biological samples have become critical assets to the success of drug and therapy pipelines, and the proper management and protection of these samples has gained increased importance to our customers. We believe this trend has created a sizable market opportunity for the Brooks Life Science Systems segmentSciences to provide comprehensive sample management and genomic solutions.
Since the total addressablemapping of the of the full human genome at the turn of this century, the market for sample management solutions is currently expandinggenomic services has grown in support of the demands in biologic drug development, personalized medicine and cell/gene therapy. Top pharmaceutical and biotechnology companies are able to use their own in-house laboratory resources to sequence the billions of genes needed as part of their research work-flow but many of the companies look to outsource their gene sequencing to independent laboratories that provide expedited results with expertise. Other companies and institutions have fewer or no in-house options and make use of outsourced capabilities as their primary solution. GENEWIZ participates in this market as a result of an increasing number of samples being stored globally. value-added laboratory offering precise genetic testing services with fast turnaround time.
The market is fragmented, so we are initially focused on marketing our products and services within biopharma, which encompasses discovery research and development along with related clinical research, to government and commercially-sponsored biobanks, as well as to healthcare and academic research institutions. Together, this presents a significant addressable market for our comprehensive sample management solutions.
Product and Service Offerings
The principal offerings of the Brooks Life Science SystemsSciences segment include the following:
Automated cold storage systems
Sample management services
-Genomic Services - provides gene sequencing and gene synthesis services, a service which enables the fast-expanding research of gene-based healthcare discoveries and therapies through our acquisition of GENEWIZ. These service offerings include Sanger sequencing, gene synthesis, molecular biology, high throughput and Next Generation sequencing, or NGS, bioinformatics, and good laboratory practices, or GLP, regulatory services.
Consumables instruments and devices
8
Informatics - provides sample intelligence software solutions and integration of customer technology. Our informatics suite also providessupports laboratory work flow scheduling for life science tools and instrument work cells, sample inventory and logistics, environmental and temperature monitoring, clinical trial and consent management, as well as planning, data management, virtualization, and visualization.
Sales, Marketing and Customer Support
We market and sell the majority of our semiconductor products and services in Asia, (including Japan), Europe, the Middle East and North America through our direct sales organization. The sales process for our products is often multilevel, involving a team comprised of individuals from sales, marketing, engineering, operations and senior management. In many cases we assign a team to a customer and that team engages the customer at different levels of its organization to facilitate planning, provide product customization when required, and ensure open communication and support. A portion of our vacuum products and services are sold through local distributors.
The majority of our life sciences sales are completed through our direct Brooks Life Science SystemsSciences sales force, particularly our store systems, storage services, and genomic services. In addition, we facilitateWe supplement the sale of genomic services, consumables and instruments throughwith distributors that reach a broad range of customers. In regions with emerging life science industries such as China, India and the Middle East, we leverage local distributors to assist with the sales process for store systems. The sales process for our larger sample management systems may take 6 to 18 months to complete and it involves a team typically comprised of individuals from sales, marketing, engineering and senior management.
We typically provide product warranties for a period of one to two years depending on the product type.
Our marketing activities include participation in trade shows, delivery of seminars, participation in industry forums, distribution of sales literature and white papers, publication of press releases and articles in business and industry publications. We maintain sales and service centers in Asia, Europe, the Middle East and North America to enhance support and communication with our customers. These facilities, together with our headquarters, maintain local support capabilities and demonstration equipment for our customers to evaluate. We encourage customers to discuss features and applications of our demonstration equipment with our engineers located at these facilities.
Competition
Brooks Semiconductor Solutions Group segment operates in a variety of market segments of varying breadth with differing competitors and competitive dynamics. The semiconductor and adjacent technology markets, as well as process equipment manufacturing industries, are highly competitive and characterized by continual changes and technology improvements. A significant portion of equipment automation is still done internally by OEMs.the OEMs themselves. Our competitors among externalmerchant vacuum robot automation suppliers include primarily Japanese companies, such as Daihen Corporation, Daikin Industries, Ltd., and Rorze Corporation. Our competitors among vacuum component suppliers include Sumitomo Heavy Industries and
We believe our customers will purchase our equipment, automation products and vacuum subsystems as long as our products continue to provide the necessary throughput, reliability, contamination control and accuracy at an acceptable price. We believe our semiconductor offerings are competitive with respect to all of these factors. We cannot guarantee, however, that we will be successful in selling our products to OEMs who currently satisfy a portion of their automation needs in-house or from other independent suppliers, regardless of the performance or price of our products.
9
Given the breadth of the sample management solutions and genomic services offered by the Brooks Life Sciences sample management solutions,segment, there are no direct competitors for the comprehensive set of automation, consumables, instruments, servicesproduct and informaticsservice solutions we are providingprovide to our customers into our targeted end markets. However, eachcustomers. Each of the business lines within the Brooks Life Sciences businesssegment, however, has unique competitors.competitors in their area of offerings. This would includeincludes Hamilton Company and Liconic AG for automation systems, Thermo-Fisher for consumables as well asand services, LabCorp and Covance for storage services, as well as BGI, Integrated DNA Technologies, Eurofins and GenScript for genomic services.
Research and Development
Our research and development efforts are focused on developing new products and enhancing the functionality, degree of integration, reliability and performance of our existing products. Our engineering, marketing, operations and management personnel leverage their close collaborative relationships with their counterparts in customer organizations in an effort to proactively identify market demands that helps us refocus our research and development investment to match our customers'customers’ demands. With the rapid pace of change that characterizes the markets we serve, it is essential for us to provide high-performance, and reliable products in order to maintain our leadership position in both our Brooks Semiconductor Solutions Group and Brooks Life Science SystemsSciences businesses.
Our research and development spendingexpense was $51.5$56.4 million, $52.2$46.9 million and $52.6$39.9 million respectively, during fiscal years 2016, 20152019, 2018 and 2014. The research and development spending reflects our investment in developing new products and enhancing the performance of our existing products within our Brooks Semiconductor Solutions Group and Brooks Life Science Systems segments.
We invest in research and development initiatives within our Brooks Semiconductor Solutions Group segment to maintain continued leadership positionpositions in the markets we serve. We have recently launched our newest Vacuum Automation platform, MagnaTran LEAP™, for the rapidly emerging advanced technologies related to manufacturing 10 nanometer design rule semiconductor chips. MagnaTran LEAP is well positioned to deliver clean, accurate and fast wafer transport available for the fast growingfast-growing Deposition and Etch market.
We have developed and continue to develop automated biological sample storage solutions for operating in ultra-low temperature environments within the Brooks Life Science SystemsSciences segment. We have developed the Twin-bank platform, including an expansion of the product range for a smaller, more space-efficient automated storage system marketed under the brands of SampleStore™ SE and BioStore™ SE and introduced the BioStore™ III Cryo automated cryogenic sample management system which offeroffers sample automation, cold chain management and improved security and accessibility while maintaining sample protection within the storage environment.
Manufacturing and Service
Our manufacturing operations include product assembly, integration and testing. We implement quality assurance procedures that include standard design practices, including reliability testing and analysis, supplier and component selection procedures, vendor controls, manufacturing process controls, and service processes that ensure high-quality performance of our products. Our major manufacturing facilities are located in Chelmsford, Massachusetts; Monterrey, Mexico; Yongin-City, South Korea; and Manchester, United Kingdom. Our manufacturing operations are designed to provide high quality, lowoptimal cost, differentiated products to our customers in short lead times through responsive and flexible processes and sourcing strategies. We utilize lean manufacturing techniques for a large portion of our manufacturing, including manufacture of assemblies that we have outsourced to competitive regions, including Asia. We expect to continue to broaden our sourcing of certain portions of our manufacturing process to ensure we continue to provide high quality products at competitive costs. We also believe the continued sourcing of portions of our manufacturing processes in these regions allows us to better serve our customers who have operations in these regions.
We have service and support locations closefor our products near to our customers to provide rapid response to their service needs. Our principal product service and support locations include Chelmsford, Massachusetts; Fremont, California; Chu Bei City, Taiwan; Yongin-City, South Korea; Yokohama, Japan; Shanghai, China; Singapore; Jena, Germany; Manchester, UK;United Kingdom; and Kiryat-Gat,
Our Brooks Life Science SystemsSciences segment acquired Biostorage Technologies, Inc. which provides sample management storage and transportation services in Indianapolis, Indiana,Indiana; Fresno, California; El Segundo, California; Torrance, California; Bronx, New York; Germany, China, and Singapore.
10
Singapore. We have a restructuring plan to consolidate our Jena,network of 13 laboratories that provide genomic services, including seven in the United States, three in China, as well as laboratories in Japan, Germany, repair facility into our Chelmsford, Massachusetts repair operation as a part of our strategy to reduce our global footprint and streamline our cost structure. We began the initiative during the fourth quarter of fiscal year 2016 and expect to fully complete the transition by the end of the first quarter of fiscal year 2017. For further information on this restructuring action, please refer to Note 17, "Restructuring and Other Charges" to our Consolidated Financial Statements included under "Item 8, Financial Statements and Supplementary Data" of this Form 10-K.
Patents and Proprietary Rights
We rely on patents, trade secret laws, confidentiality procedures, copyrights, trademarks and licensing agreements to protect our technology. Due to the rapid technological change that characterizes the life sciences, semiconductor, adjacent technology markets and related process equipment industries, we believe that the improvement of existing technology, reliance upon trade secrets, unpatented proprietary know-how and the development of new products may be as important as patent protection in establishing and maintaining a competitive advantage. Our policy is to require all employees to enter into proprietary information and nondisclosure agreements to protect trade secrets and know-how. We cannot guarantee that these efforts will meaningfully protect our trade secrets.
As of September 30, 2016,2019, we owned approximately 430385 issued U.S. patents, with various corresponding patents issued in foreign jurisdictions. We also had approximately 13095 pending U.S. patent applications, with foreign counterparts of certain of these applications having been filed or which may be filed at the appropriate time. Our patents will expire at various dates through 2034.
Backlog
Backlog for the Brooks Semiconductor Solutions Group segment offerings totaled approximately $92$127 million as of September 30, 20162019 as compared to approximately $68$124 million at September 30, 2015. This backlog2018. Backlog for the Brooks Semiconductor Solutions Group segment includes all purchase orders for which our customers have scheduled delivery, regardless of the expected delivery date, and consists principally of orders for products and service agreements. Substantially all of this backlog consists of orders scheduled to be delivered within the next 12 months.
Backlog for the Brooks Life Science SystemsSciences segment offerings totaled $233$303 million as of September 30, 20162019 as compared to approximately $40$273 million at September 30, 2015. The increase of approximately $193 million is equivalent to the ending backlog for BioStorage which was acquired on November 30, 2015.2018. Backlog for the Brooks Life Science SystemsSciences segment includes all purchase orders for which customers have scheduled delivery, regardless of the expected delivery date, and consists of orders for products and service agreements. In addition, it includes estimated revenue for future services related to our BioStorage business for which contracts have been secured. Final revenue realized will vary based on volumes, prices, duration, and other factors. Storage contracts vary in length of time, with some being short term and some indefinite. We include the estimated value for time periods in the contract up to a maximum of 5 years.
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
North America | $ | 209,727 | $ | 199,103 | $ | 174,343 | |||||
Asia/Pacific/Other | 247,241 | 231,840 | 198,695 | ||||||||
Europe: | |||||||||||
United Kingdom | 36,611 | $ | 32,160 | $ | 27,078 | ||||||
Rest of Europe | 66,744 | $ | 89,605 | $ | 82,732 | ||||||
$ | 560,323 | $ | 552,708 | $ | 482,848 |
September 30, | |||||||
2016 | 2015 | ||||||
North America | $ | 49,505 | $ | 36,402 | |||
Asia/Pacific | 952 | 2,104 | |||||
Europe/Middle East | 4,428 | 3,349 | |||||
$ | 54,885 | $ | 41,855 |
| | | | | | | | | |
Environmental Matters
We are subject to federal, state, and local environmental laws and regulations, as well asand the environmental laws and regulations of the foreign national and local jurisdictions in which we have manufacturing facilities. We believe we are materially in compliance with all such laws and regulations.
Compliance with foreign, federal, state, and local laws and regulations has not had, and is not expected to have, an adverse effect on our capital expenditures, competitive position, financial condition or results of operations.
Employees
At September 30, 2016,2019, we had 1,3102,984 full time employees. In addition, we employ part time workers and contractors. We consider our relationships with these and allour employees to be good.
Available Information
We file annual, quarterly and current reports, proxy statements and other documents with the SEC, under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The public may read and copy any materials that we file with the
The information found on our website is not part of this or any other report we file with or furnish to the SEC.
11
You should carefully consider the risks described below and the other information in this report before deciding to invest in shares of our common stock. These are the risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer. In that event, the market price of our common stock could decline and you could lose all or part of your investment.
Risks Relating to Our Industry
Due in part to the cyclical nature of the semiconductor manufacturing industry and related industries, as well as due to volatility in worldwide capital and equity markets, we have previously incurred operating losses and may have future losses.
A significant portion of our business is largely dependent on capital expenditures in the semiconductor manufacturing industry and other businesses employing similar manufacturing technologies. The semiconductor manufacturing industry in turn depends on current and anticipated demand for integrated circuitsICs and the products that use them. In recent years, theseThese businesses have experienced unpredictable and volatile business cycles due in large part to rapid changes in demand and manufacturing capacity for semiconductors, and these cycles have had an impact on our business, sometimes causing declines in revenue and operating losses. We could experience future operating losses during an industry downturn. If an industry downturn continues for an extended period of time, our business could be materially harmed. Conversely, in periods of rapidly increasing demand, we could have insufficient inventory and manufacturing capacity to meet our customers'customers’ needs on a timely basis, which could result in the loss of customers and various other expenses that could reduce gross margins and profitability.
We face competition which may lead to price pressure and otherwise adversely affect our sales.
We face competition throughout the world in each of our product and service areas, including from the competitors discussed in Part I, Item 1, “Business - Competition” as well as from internal automation capabilities at larger OEMs.OEMs and other internal capabilities at our other customers and potential customers. Many of our competitors have substantial engineering, manufacturing, marketing and customer support capabilities. In addition, in our semiconductor business, strategic initiatives in China to encourage local semiconductor manufacturing and supply chain could increase competition from domestic equipment manufacturers in China. We expect our competitors to continue to improve the performance of their current products and services and to introduce new products, services and technologies that could adversely affect sales of our current and future products and services. New products, services and technologies developed by our competitors or more efficient production of their products or provisions of their services as well as increased and more efficient internal capabilities at our customers and potential customers could require us to make significant price reductions or decide not to compete for certain orders.business. If we fail to respond adequately to pricing pressures or fail to develop products with improved performance or better quality services with respect to the other factors on which we compete, we could lose customers or orders. If we are unable to compete effectively, our business and prospects could be materially harmed.
Risks Relating to Our Operations
Our operating results could fluctuate significantly, which could negatively impact our business.
Our revenue, operating margins and other operating results could fluctuate significantly from quarter to quarterquarter-to-quarter and year-to-year depending upon a variety of factors, including:
● | demand for our products as a result of the cyclical nature of the semiconductor manufacturing industry and the markets upon which the industry depends or otherwise; |
12
● | changes in the timing and terms of product orders by our customers as a result of our customer concentration or otherwise; |
● | changes in the demand for the mix of products and services that we offer; |
● | timing and market acceptance of our new product and services introductions; |
● | delays or problems in the planned introduction of new products or services, or in the performance of any such products following delivery to customers or the quality of such services; |
● | new products, services or technological innovations by our competitors increased and more efficient internal capabilities at our customers and potential customers, which can, among other things, render our products and services less competitive due to the rapid technological changes in the markets in which we provide products and services; |
● | the timing and related costs of any acquisitions, divestitures or other strategic transactions; |
● | our ability to reduce our costs in response to decreased demand for our products and services; |
● | our ability to accurately estimate customer demand, including the accuracy of demand forecasts used by us; |
● | disruptions in our manufacturing process or in the supply of components to us; |
● | write-offs for excess or obsolete inventory; |
● | competitive pricing pressures; and |
● | increased amount of investment into the infrastructure to support our growth, including capital equipment, research and development, as well as selling and marketing initiatives to support continuous product innovation, technological capability enhancements and sales efforts. The timing of revenue generation coupled with the increased amount of investment may result in operating losses. |
As a result of these risks, we believe that reference to past performance for comparisons of our revenue and operating results may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance.
If we do not continue to introduce new products and services that reflect advances in technology in a timely and effective manner, our products and services may become obsolete and our operating results will suffer.
Our success is dependent on our ability to respond to the technological changes present in the markets we serve. The success of our product development and introduction of products and services to market depends on our ability to:
● | identify and define new market opportunities, products and services in accurate manner; |
● | obtain market acceptance of our products and services; |
● | innovate, develop, acquire and commercialize new technologies and applications in a timely manner; |
● | adjust to changing market conditions; |
● | differentiate our offerings from our competitors’ offerings; |
● | obtain and maintain intellectual property rights where necessary; |
● | continue to develop a comprehensive, integrated product and service strategy; |
13
● | price our products and services appropriately; and |
● | design our products to high standards of manufacturability so that they meet customer requirements. |
If we cannot succeed in responding in a timely manner to technological and/or market changes or if the new products and services that we introduce do not achieve market acceptance, our competitive position would diminish which could materially harm our business and our prospects.
The global nature of our business exposes us to multiple risks.
During each of the fiscal years ended September 30, 20162019, 2018 and 2015,2017, approximately 58%, 63% and 67% of our revenue was derived from sales outside of North America. We expect that international sales, including increased sales in Asia, will continue to account for a significant portion of our revenue. We maintainrevenue for the foreseeable future, and that in particular, the proportion of our sales to customers in China will continue to increase, due in large part to our acquisition of GENEWIZ, which maintains a significant presence in China. Additionally, we intend to invest additional resources in facilities in China, which will increase our global footprint of sales, service and repair operations. As a result of our international operations, we are exposed to many risks and uncertainties, including:
● | longer sales-cycles and time to collection; |
● | tariff and international trade barriers; |
● | fewer or less certain legal protections for intellectual property and contract rights abroad; |
● | different and changing legal and regulatory requirements in the jurisdictions in which we operate; |
● | government currency control and restrictions on repatriation of earnings; |
● | a diverse workforce with different experience levels, languages, cultures, customs, business practices and worker expectations, and differing employment practices and labor issues; |
● | fluctuations in foreign currency exchange and interest rates, particularly in Asia and Europe; and |
● | political and economic instability, changes, hostilities and other disruptions in regions where we operate. |
Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could materially harm our business and profitability.
The acquisition of GENEWIZ involves numerous risks, including the inability to effectively integrate GENEWIZ’s business and operations or realize the expected benefits from the acquisition, which could materially harm our operating results.
Our November 2018 acquisition of GENEWIZ has increased our service offerings within the Brooks Life Sciences segment, the number of end markets in which we operate, and the number of employees and facilities we need to efficiently manage. GENEWIZ’s genomic services are significantly different from our historical offerings and experience. Combining our businesses may make it more difficult to maintain relationships with customers, employees or suppliers. The continued integration of GENEWIZ’s business and operations will require significant management attention, efforts and expenditures, and we may not be able to achieve the integration in an effective, complete timely or cost-efficient manner.
Potential risks related to our acquisition of GENEWIZ include our continued ability to:
● | expand our financial and management controls and reporting systems and procedures to integrate and manage GENEWIZ; |
14
● | integrate our information technology systems to enable the management and operation of the combined business; |
● | identify and retain key GENEWIZ personnel; and |
● | successfully integrate our respective corporate cultures such that we achieve the benefits of acting as a unified company. |
Our inability to continue these tasks and successfully integrate the GENEWIZ business will have a material adverse effect on our business and financial results.
Our business could be materially harmed if we fail to adequately integrate the operations of the businesses that we have acquired or may acquire.
We have made in the past, and may make in the future, acquisitions or significant investments in businesses with complementary products, services and/or technologies. OurIn addition to the risks discussed above regarding our acquisition of GENEWIZ, our acquisitions, including the acquisition of GENEWIZ, present numerous risks, including:
● | difficulties in integrating the operations, technologies, products and personnel of the acquired companies and realizing the anticipated synergies of the combined businesses; |
● | defining and executing a comprehensive product strategy; |
● | managing the risks of entering markets or types of businesses in which we have limited or no direct experience; |
● | the potential loss of key employees, customers and strategic partners of ours or of acquired companies; |
● | unanticipated problems or latent liabilities, such as problems with the quality of the installed base of the target company’s products or infringement of another company’s intellectual property by a target company’s activities or products; |
● | problems associated with compliance with the acquired company’s existing contracts; |
● | difficulties in managing geographically dispersed operations; and |
● | the diversion of management’s attention from normal daily operations of the business. |
If we acquire a new business, we may expend significant funds, incur additional debt or issue additional securities, which may negatively affect our operations and be dilutive to our stockholders. In periods following an acquisition, we will be required to evaluate goodwill and acquisition-related intangible assets for impairment. If such assets are found to be impaired, they will be written down to estimated fair value, with a charge against earnings. The failure to adequately address these risks or the impairment of any assets could materially harm our business and financial results.
15
Expanding within current markets introduces new competitors and commercial risks.
A key part of our growth strategy is to continue expanding beyondwithin the semiconductor manufacturing market into semiconductor adjacent and life sciences sample management and genomic services markets. As part of this strategy, we expect to diversify our product sales and service revenue by leveraging our core technologies, which requires investments and resources which may not be available ason favorable terms or at all when needed. We cannot guarantee that we will be successful in leveraging our capabilities into the life sciences sample management marketand genomic services markets to meet all the needs of these new customers and to compete favorably. Because a significant portion of our growth potential may be dependent on our ability to increase sales to markets beyond semiconductor manufacturing,within the Brooks Life Sciences segment, our inability to successfully enter newexpand within the markets serviced by this segment may adversely impact future financial results.
Changes in key personnel could impair our ability to execute our business strategy.
The continuing service of our executive officers and essential engineering, technical and management personnel, together with our ability to attract and retain such personnel, is an important factor in our continuing ability to execute our strategy. There is substantial competition to attract such employees and the loss of any such key employees could have a material adverse effect on our business and operating results. The same could be true if we were to experience a high turnover rate among engineering and technical personnel and we were unable to replace them.
Our failure to protect our intellectual property could adversely affect our future operations.
Our ability to compete is significantly affected by our ability to protect our intellectual property. We rely upon patents, trade secret laws, confidentiality procedures, copyrights, trademarks and licensing agreements to protect our technology. Existing trade secret, trademark and copyright laws offer only limited protection. Our success depends in part on our ability to obtain and enforce patent protection for our products both in the United States and in other countries. We own numerous U.S. and foreign patents, and we intend to file additional applications, as appropriate, for patents covering our products and technology. Any issued patents owned by or licensed to us may be challenged, invalidated or circumvented, and the rights under these patents may not provide us with competitive advantages. In addition, the laws of some countries in which our products are or may be developed, manufactured or sold may not fully protect our products. Due to the rapid technological change that characterizes the semiconductor and adjacent technology markets, we believe that the improvement of existing technology, reliance upon trade secrets and unpatented proprietary know-how and the development of new products may be as
We cannot guarantee that the steps we have taken to protect our intellectual property will be adequate to prevent the misappropriation of our technology. Other companies could independently develop similar or superior technology without violating our intellectual property rights. In the future, it may be necessary to engage in litigation or like activities to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of proprietary rights of others, including our customers. This could require us to incur significant expenses and to divert the efforts and attention of our management and technical personnel from our business operations.
The expiration of our patents over time could lead to an increase of competition and a decline in our revenue.
One of our main competitive strengths is our technology, and we are dependent on our patent rights and other intellectual property rights to maintain our competitive position. Our current patents will expire from time to time through 20342037 which could result in increased competition and declines in product and service revenue.
We may be subject to claims of infringement of third-party intellectual property rights, or demands that we license third-party technology, which could result in significant expense and prevent us from using our technology.
There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor-related industries.industries in which we do business. We have in the past been, and may in the future be, notified that we may be infringing intellectual property rights possessed by third parties. We cannot guarantee that infringement claims by third parties or other claims for indemnification by customers or end-users of our products and services resulting from infringement claims will not
16
be asserted in the future or that such assertions, whether or not proven to be true, will not materially and adversely affect our business, financial condition and results of operations.
We cannot predict the extent to which we might be required to seek licenses or alter our products or services so that they no longer infringe the rights of others. We also cannot guarantee that licenses will be available or the terms of any licenses we may be required to obtain will be reasonable. Similarly, changing our products, services or processes to avoid infringing the rights of others may be costly or impractical and could detract from the value of our products.products and services. If a judgment of infringement were obtained against us, we could be required to pay substantial damages and a court could issue an order preventing us from selling one or more of our products.products or offering certain of our services. Further, the cost and diversion of management attention brought about by such litigation could be substantial, even if we were to prevail. Any of these events could result in significant expense to us and may materially harm our business and our prospects.
Unexpected events could disrupt our sample storage operations and adversely affect our reputation and results of operations.
Unexpected events, including fires or explosions at our facilities, natural disasters, such as tornadoes, hurricanes and earthquakes, war or terrorist activities, unplanned power outages, supply disruptions and failure of equipment or systems, could adversely affect our reputation and results of operations. Our BioStorageBrooks Life Sciences’ service customers rely on us to securely store and timely retrieve and transport their critical samples, and these events could result in service disruptions, physical damage to one or more key storage facilities and the customer samples stored in those facilities, the temporary closure of one or more key operating facilities or the temporary disruption of service, each of which could negatively impact our reputation and results of operations. Our primary storage facility is located in Indianapolis, Indiana, an area of the United States that can be prone to tornado and other severe weather events.
If our manufacturing sites were to experience a significant disruption in operations, our business could be materially harmed, while the failure to estimate customer demand accurately could result in excess or obsolete inventory.
We have a limited number of manufacturing facilities for our products and we have moved portions of our manufacturing to third parties, including some in lesser developed countries. If the operations at any one of these facilities were disrupted as a result of a natural disaster, fire, power or other utility outage, work stoppage or other similar event, our business could be seriously harmed because we may be unable to manufacture and ship products and parts to our customers in a timely fashion. The impact of any disruption at one of our facilities may be exacerbated if the disruption occurs at a time when we need to rapidly increase our manufacturing capabilities to meet increased demand or expedited shipment schedules.
Moreover, if actual demand for our products is different than expected, we may purchase more/fewer component parts than necessary or incur costs for canceling, postponing or expediting delivery of such parts. If we purchase inventory in anticipation of customer demand that does not materialize, or if our customers reduce or delay orders, we may incur excess inventory charges. Any or all of these factors could materially and adversely affect our business, financial condition and results of operations.
Our business could be materially harmed if one or more key suppliers fail to continuously deliver key components of acceptable cost and quality.
We currently obtain many of our key components on an as-needed, purchase order basis from numerous suppliers. In some cases we have only a single source of supply for key components and materials used in the manufacturing of our products. Further, we are increasing our sourcing of products in Asia, and particularly in China, and we do not have a previous history of dealing with many of these suppliers. Our inability to obtain components or materials in required quantities or of acceptable cost and quality and with the necessary continuity of supply could result in delays or reductions in product shipments to our customers. In addition, if a supplier or sub-supplier suffers a production stoppage or delay for any reason, including natural disasters such as the tsunamis that affected Japan in 2011 and Thailand in 2004, this could result in a delay or reduction in our product shipments to our customers. Any of these contingencies could cause us to lose customers, result in delayed or lost revenue and otherwise materially harm our business.
17
Our business could be adversely affected by a decline in the availability of raw materials.
We are dependent on the availability of certain key raw materials and natural resources used in our products and various manufacturing processes, and we rely on third parties to supply us with these materials in a cost-effective and timely manner. Our access to raw materials may be adversely affected if our suppliers’ operations were disrupted as a result of limited or delayed access to key raw materials and natural resources which may result in increased cost of these items. While most of the raw materials used in our products and various manufacturing processes are commercially available, we rely in some cases on materials that have a limited supply and are considered rare Earth elements, such as helium. If the supply of these elements is drastically reduced, it may lead to price increases which could result in higher costs of our products and corresponding revenue declines and have a material adverse impact on our business, financial condition and results of operations.
Our outsource providers may fail to perform as we expect.
Outsource providers have played and will continue to play a key role in our manufacturing operations and in many of our transactional and administrative functions, such as information technology and facilities management. Although we attempt to select reputable providers and secure their performance on terms documented in written contracts, it is possible that one or more of these providers could fail to perform as we expect and such failure could have an adverse impact on our business.
Our business relies on certain critical information systems and a failure or breach of such a system could harm our business and results of operations and, in the event of unauthorized access to a customer’s data or our data, incur significant legal and financial exposure and liabilities.
We maintain and rely upon certain critical information systems for the effective operation of our business. These information systems include telecommunications, the internet, our corporate intranet, various computer hardware and software applications, network communications and e-mail. These information systems may be owned and maintained by us, our outsource providers or third parties such as vendors and contractors. These information systems are subject to attacks, failures, and access denials from a number of potential sources including viruses, destructive or inadequate code, power failures, and physical damage to computers, hard drives, communication lines and networking equipment. To the extent that these information systems are under our control, we have implemented security procedures, such as virus protection software and emergency recovery processes, to mitigate the outlined risks. However, security procedures for information systems cannot be guaranteed to be failsafe and our inability to use or access these information systems at critical points in time, or unauthorized releases of confidential information, could unfavorably impact the timely and efficient operation of our business.
Confidential information stored on these information systems could also be compromised. If a third party gains unauthorized access to our data, including any information regarding our customers, such security breach could expose us to a risk of loss of this information, loss of business, litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise. Additionally, third parties may fraudulently attempt to induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers'customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach could result in a loss of confidence by our customers, damage our reputation, disrupt our business, lead to legal liability and negatively impact our future sales.
18
We have identified material weaknesses in our internal control over financial reporting at an individual business unit within our Brooks Life Sciences segment and an individual business unit within our Brooks Semiconductor Solutions Group segment and such weaknesses have led to a conclusion that our internal control over financial reporting and disclosure controls and procedures were not effective as of September 30, 2019. Our ability to remediate the material weaknesses, our discovery of additional weaknesses, and our inability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting, could adversely affect our results of operations, our stock price and investor confidence in our company.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on the effectiveness of their internal control over financial reporting. In addition, we engaged our independent registered public accounting firm to report on its evaluation of those controls. As disclosed in more detail under Item 9A, “Controls and Procedures” below, we have identified two material weaknesses as of September 30, 2019 in our internal control over financial reporting resulting from (i) deficiencies in our controls at a business unit within our Brooks Life Sciences segment as we did not maintain effective controls to verify the accuracy of the price and quantity data for customer transactions entered into the business unit’s billing system, and to verify that the invoices generated from the billing system were based on the appropriate amounts, and (ii) a deficiency in our controls at a business unit within our Brooks Semiconductor Solutions Group segment as we did not design and maintain effective controls to verify that revenue from product shipments from contract manufacturers in this business unit were evaluated for proper revenue recognition at the point of transfer of control. Due to the material weaknesses in our internal control over financial reporting, we have also concluded our disclosure controls and procedures were not effective as of September 30, 2019.
Failure to have effective internal control over financial reporting and disclosure controls and procedures could impair our ability to produce accurate financial statements on a timely basis and could lead to a restatement of our financial statements. For example, the identified material weaknesses resulted in immaterial adjustments to the consolidated financial statements for the year ended September 30, 2019 and caused a difference between the financial results we reported in the press release we issued on November 6, 2019 and furnished to the SEC with our Current Report on Form 8-K on the same date and reported in this annual report. Management, however, has concluded that the material weaknesses did not result in any misstatements that are material to our consolidated financial statements for any of the periods presented. If, as a result of the ineffectiveness of our internal control over financial reporting and disclosure controls and procedures, we cannot provide reliable financial statements, our business decision processes may be adversely affected, our business and results of operations could be harmed, investors could lose confidence in our reported financial information and our ability to obtain additional financing, or additional financing on favorable terms, could be adversely affected. In addition, failure to maintain effective internal control over financial reporting could result in investigations or sanctions by regulatory authorities.
Our management has taken immediate action to begin remediating the material weaknesses, however, certain remedial actions have not started or have only recently been undertaken, and while we expect to continue to implement our remediation plans throughout the fiscal year ended September 30, 2020, we cannot be certain as to when remediation will be fully completed. Additional details regarding the initial remediation efforts are disclosed in more detail under Item 9A, “Controls and Procedures” below. In addition, we may in the future identify additional internal control deficiencies that could rise to the level of a material weakness or uncover other errors in financial reporting. During the course of our evaluation, we may identify areas requiring improvement and may be required to design additional enhanced processes and controls to address issues identified through this review. In addition, there can be no assurance that such remediation efforts will be successful, that our internal control over financial reporting will be effective as a result of these efforts or that any such future deficiencies identified may not be material weaknesses that would be required to be reported in future periods. In addition, we cannot assure you that our independent registered public accounting firm will be able to attest that such internal controls are effective when they are required to do so.
If we fail to remediate these material weaknesses and maintain effective disclosure controls and procedures or internal control over financial reporting, we may not be able to rely on the integrity of our financial results, which could result in inaccurate or late reporting of our financial results, as well as delays or the inability to meet our reporting obligations or to comply with SEC rules and regulations. Any of these could result in delisting actions by the Nasdaq Stock Market, investigation and sanctions by regulatory authorities, stockholder investigations and lawsuits, and could adversely affect our business and the trading price of our common stock.
19
Our goodwill and intangible assets may become impaired.
As of September 30, 2016,2019, we had $202.1$488.6 million of goodwill and $81.8$251.2 million in net intangible assets as a result of our acquisitions. We periodically review our goodwill and the estimated useful lives of our identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value, or for intangible assets, a revised useful life. These events and circumstances include significant changes in the business climate, legal factors, operating
Changes in tax rates or tax regulation could affect results of operations.
As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future annual and quarterly effective tax rates could be affected by numerous factors, including changes in the:the following: applicable tax laws; composition of pre-tax income in countries with differing tax rates; and/or establishment of a valuation allowance against deferred tax assets based on the assessment of their realizability prior to expiration. In addition, we are subject to regular examination by the U.S. Internal Revenue Service and state, local and foreign tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our financial condition and results of operations.
The implementation of tariffs and export controls on our products may have a material impact on our business.
Our global business operations and supply chain may be disrupted by the additional tariffs imposed on our products.
As of July 6, 2018, the United States imposed a 25% tariff on a list of products that included certain parts and components made in China and imported into the United States for incorporation with our products. We are implementing operational changes that should mitigate the impact of the 25% tariff on our imports into the United States from China. As a result of these operational changes, we do not expect that the increase in these tariffs will have a significant impact on our business, supply chain, operations or financial results. However, if the United States increases the amount of these tariffs or adds additional items to the list of products subject to tariff, tariffs could materially adversely affect our business, financial results and operations.
In addition to the increased tariffs imposed by the United States, China has implemented additional retaliatory tariffs on products made in the United States. While these tariffs currently do not materially impact us, if China increases its tariffs or places additional tariffs or other nations impose tariffs on our products, it could materially adversely affect our business, financial results and operations.
We are subject to numerous governmental regulations.
We are subject to federal, state, local and foreign regulations, including environmental regulations, and regulations relating to the design and operation of our products and control systems.systems and regulations relating to certain of our service offerings in the Brooks Life Sciences segment. We might incur significant costs as we seek to ensure that our products meet safety and emissions standards, many of which vary across the states and countries in which our products are used. In the past, we have invested significant resources to redesign our products to comply with these directives. Compliance with future regulations, directives, and standards could require us to modify or redesign some products, change our service offerings, make capital expenditures, or incur substantial costs. If we do not comply with current or future regulations, directives, and standards:
● | we could be subject to fines; |
● | our production or shipments could be suspended; and |
● | we could be prohibited from offering particular products or services in specified markets. |
20
Any of these events could materially and adversely affect our business, financial condition and results of operations.
Regulations and customer demands related to conflict minerals may adversely affect us.
The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes disclosure requirements regarding the use in components of our products of “conflict minerals” mined from the Democratic Republic of Congo and adjoining countries, whether the components of our products are manufactured by us or third parties. This requirement could affect the pricing, sourcing and availability of minerals used in the manufacture of components we use in our products. In addition, there are additional costs associated with complying with the disclosure requirements and customer requests, such as costs related to our due diligence to determine the source of any conflict minerals used in our products. We may face difficulties in satisfying customers who may require that all of the components of our products are certified as conflict mineral free and/or free of numerous other hazardous materials.
Unfavorable currency exchange rate fluctuations may lead to lower operating margins, or may cause us to raise prices, which could result in reduced sales.
Currency exchange rate fluctuations could have an adverse effect on our sales and results of operations, and we could experience losses with respect to forward exchange contracts into which we may enter. Unfavorable currency fluctuations could require us to increase prices to foreign customers, which could result in lower net sales by us to such customers. Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations, our results of operations could be materially and adversely affected. In addition, most sales made by our foreign subsidiaries are denominated in the currency of the country in which these products are sold and the currency they receive in payment for such sales could be less valuable as compared to the U.S. dollar at the time of receipt as a result of exchange rate fluctuations. From time to time, we enter into forward exchange contracts to reduce currency exposure. However, we cannot be certain that our efforts will be adequate to protect us against significant currency fluctuations or that such efforts will not expose us to additional exchange rate risks, which could materially and adversely affect our results of operations.
Risk related to the Referendumreferendum of the United Kingdom’s Membershipmembership in the European Union
In June 2016, a majority of voters in the United Kingdom recently voted “for” the Referendum of the United Kingdom’s Membership in the European Union, (referredreferred to as “Brexit”),Brexit, approving the exit of the United Kingdom from the European Union, which triggered volatility in global stock markets and currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies in which we conduct our business. We may experience volatility in exchange rates as the United Kingdom continues to negotiate its exit from the European Union or as a result of the United Kingdom’s exit from the European Union with or without an agreement governing the exit. As described in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", of this Form 10-K, most of our foreign currency denominated transactions are conducted in Euros, British Pounds and a variety of Asian currencies. Sales in currencies other than the U.S. dollar were approximately 35% and 34%, respectively, of our
Actions to implement Brexit, the potential terms of Brexit and the uncertainty of when Brexit will occur (the deadline for which has been extended a number of times), if at all, have also createcreated global economic uncertainty, which may cause our customers to closely monitor their costs and reduce their spending on our products and services. Negotiations are expected to commence shortly to determine the future terms of the United Kingdom’s relationship with the European Union, including the terms of trade between the United Kingdom and the European Union. The effects of Brexit, mayif it occurs, depend on any agreements, if any, the United Kingdom makes to retain access to E.U.European Union and other markets either during a transitional period or more permanently. The measures could potentially disrupt the markets we serve and may cause us to lose customers and employees. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations aswith respect to business and trade with and in the United Kingdom determines which E.U. laws to replace or replicate.Kingdom. Any of these effects of Brexit, among others, could adversely affect our business, results of operations and financial condition.
21
Our indebtedness may adversely affect our ability to operate our business, generate cash flows and make payments on such indebtedness
On October 4, 2017, we entered into a $200.0 million Senior Secured Term Loan Facility, or term loan, with Morgan Stanley Senior Funding, Inc., JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC pursuant to the terms of a credit agreement with the lenders. The term loan matures and becomes fully payable on October 4, 2024. We are required to redeem the term loan at the principal amount then outstanding upon occurrence of certain events, as described in the credit agreement. For further information on this transaction, please refer to Note 11, "Debt" to our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Our ability to pay interest and repay the principal for our indebtedness, including the term loan, is dependent upon our ability to manage our business operations and maintain sufficient liquidity to service such debt. The loan borrowings are subject to variable interest rates which create exposure to interest rate risk. Interest rate increases may result in higher cost of servicing our loans and reduce our profitability and cash flows. The terms of our debt covenants in the credit agreement for the term loan could limit our ability to raise additional funds and the manner in which we conduct our business. We have the ability to refinance the term loan and obtain additional indebtedness as long as we maintain a certain level of liquidity and earnings, as specified in the credit agreement for the term loan. If our liquidity and earnings are reduced below a certain level, we will have limited ability to service the term loan and obtain additional debt financing. Our failure to comply with the restrictive covenants under the term loan and our other indebtedness could also result in an event of default under the term loan which, if not cured or waived, could result in the acceleration of all or a portion of our indebtedness, including under the term loan. Accordingly, a default under the term loan would have a material adverse effect on our business and our lender would have the right to exercise its rights and remedies to collect, which would include the right to foreclose on our assets.
Risks Relating to Our Customers
Because we rely on a limited number of customers for a large portion of our revenue, the loss of one or more of these customers could materially harm our business.
We receive a significant portion of our revenue in each fiscal period from a relatively limited number of customers, and that trend is likely to continue. Sales to our ten largest customers accounted for approximately 34%28%, 38%34% and 37%35%, respectively, of our total revenue in the fiscal years ended September 30, 2016, 20152019, 2018 and 2014, respectively.2017. The loss of one or more of these major customers, a significant decrease in orders from one of these customers, or the inability of one or more customers to make payments to us when they are due could materially affect our revenue, business and reputation. In addition, there has been and may continue to be significant consolidation among some of our largest OEM customers, which could lead to increased pressure to reduce the price of our semiconductor products and/or decreased market share of our semiconductor products with the combined companies.
Because of the lengthy sales cycles of many of our products, we may incur significant expenses before we generate any revenue related to those products.
Our customers may need several months to test and evaluate our products. This increases the possibility that a customer may decide to cancel an order or change its plans, which could reduce or eliminate our sales to that customer. The impact of this risk can be magnified during the periods in which we introduce a number of new products, as has been the case in recent years. As a result of this lengthy sales cycle, we may incur significant research and development expenses, and selling, general and administrative expenses before we generate the related revenue for these products, and we may never generate the anticipated revenue if our customer cancels an order or changes its plans.
In addition, many of our semiconductor products will not be sold directly to the end-user but will be components of other products manufactured by OEMs. As a result, we rely on OEMs to select our semiconductor products from among alternative offerings to be incorporated into their equipment at the design stage; so-called design-ins. The OEMs'OEMs’ decisions often precede the generation of volume sales, if any, by a year or more. Moreover, if we are unable to achieve these design-ins from an OEM, we would have difficulty selling our semiconductor products to that OEM because changing suppliers after design-ins involves significant cost, time, effort and risk on the part of that OEM.
22
Customers generally do not make long term commitments to purchase our products and our customers may cease purchasing our products at any time.
Sales of our products are often made pursuant to individual purchase orders and not under long-term commitments and contracts. Our customers frequently do not provide any assurance of minimum or future sales and are not prohibited from purchasing products from our competitors at any time. Accordingly, we are exposed to competitive pricing pressures on each order. Our customers also engage in the practice of purchasing products from more than one manufacturer to avoid dependence on sole-source suppliers for certain of their needs. The existence of these practices makes it more difficult for us to increase price, gain new customers and win repeat business from existing customers.
We may face claims for liability related to damages of customer materials attributed to the failure of our products or services, exposing us to significant financial or reputational harm.
Our automation products for the semiconductor manufacturing market are used in the handling and movement of silicon wafers at various points in the production process, and our automated cold storage systems for the life sciences sample management market are used in the handling, movement and storage of biological and chemical samples. We also provide sample storage services to customers where we store their biological and chemical samples at our facilities and other genomic services at our facilities. In eitherany case, inaccurate or faulty testing services or damage to our customers'customers’ materials may be attributed to a failure of our products whichor services could lead to claims for damages made by our customers and could also harm our relationship with our customers and damage our reputation in each of these industries, resulting in material harm to our business.
Risks Relating to Owning Our Securities
Our stock price is volatile.
The market price of our common stock has fluctuated widely. From the beginning of fiscal year 20152018 through the end of fiscal year 2016,2019, our stock price fluctuated between a high of $13.96$41.75 per share and a low of $8.48$22.54 per share. Consequently, the current market price of our common stock may not be indicative of future market prices, and we may be unable to sustain or increase the value of an investment in our common stock. Factors affecting our stock price may include:
● | variations in operating results from quarter-to-quarter and year-to-year; |
● | changes in earnings estimates by analysts or our failure to meet analysts’ expectations; |
● | changes in the market price per share of our public company customers; |
● | market conditions in the semiconductor, life sciences sample management and genomic services and other industries into which we sell products and services; |
● | global economic conditions; |
● | political changes, hostilities or natural disasters such as hurricanes and floods; |
● | low trading volume of our common stock; and |
● | the number of firms making a market in our common stock. |
In addition, the stock market has in the past experienced significant price and volume fluctuations. These fluctuations have particularly affected the market prices of the securities of high technology companies like ours. These market fluctuations could adversely affect the market price of our common stock.
23
We may not pay dividends on our common stock.
Holders of our common stock are only entitled to receive dividends when and if they are declared by our Board of Directors. Although we have declared cash dividends on our common stock for the past several years, we are not required to do so and may reduce or eliminate our cash dividends in the future. This could adversely affect the market price of our common stock.
Provisions in our charter documents and Delaware law may delay or prevent an acquisition of us, which could decrease the value of your shares.
Our restated certificate of incorporation and by-laws and Delaware law contain provisions that could make it harder for a third party to acquire us without the consent of our Board of Directors. These provisions include limitations on actions by our stockholders by written consent, the inability of stockholders to call special meetings and the potential for super majority votes of our stockholders in certain circumstances. In addition, as discussed below, our Board of Directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer.
Our restated certificate of incorporation makes us subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits publicly held Delaware corporations to which it applies from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. This provision could discourage others from bidding for our shares of common stock and could, as a result, reduce the likelihood of an increase in the price of our common stock that would otherwise occur if a bidder sought to buy our common stock.
Although we believe these provisions provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our Board of Directors, these provisions apply even if the offer may be considered beneficial by stockholders. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.
Our restated certificate of incorporation authorizes the issuance of shares of blank check preferred stock.
Our restated certificate of incorporation provides that our Board of Directors is authorized to issue from time to time, without further stockholder approval, up to 1,000,000 shares of preferred stock in one or more series and to fix and designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, redemption rights and terms of redemption and liquidation preferences. Such shares of preferred stock could have preferences over our common stock with respect to dividends and liquidation rights. Our issuance of preferred stock may have the effect of delaying or preventing a change in control. Our issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance of preferred stock could have the effect of decreasing the market price of our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters and primary manufacturing/research and development facilities are currently located in three buildings in Chelmsford, Massachusetts.
24
We maintainmaintained the following principal facilities:
| | | | | | | |||
| | Square Footage | Ownership Status/Lease | ||||||
Location | | Functions | | (Approx.) | | Expiration | |||
Chelmsford, Massachusetts | Corporate headquarters, training, manufacturing, R&D and sales & support | 298,000 | Owned | ||||||
Indianapolis, Indiana | Sample storage, sales & support | 116,800 | September 2023 | ||||||
Suzhou, China | | Laboratory & | | 105,000 | | June 2021 | |||
South Plainfield, New Jersey | | Laboratory & | | 77,800 | | ||||
January 2025 |
Our Brooks Semiconductor Solutions Group segment utilizes the facilities in Chelmsford, Massachusetts; Fremont, California; South Korea, Germany and Taiwan. Our Brooks Life Science SystemsSciences segment utilizes the facilities in Manchester, United Kingdom; Indianapolis, IndianaIndiana; South Plainfield, New Jersey; Suzhou, China; Chelmsford, Massachusetts; Bronx, New York; and Chelmsford, Massachusetts.
We maintain additional sales, and support and training offices in Texas, Europe (France and Germany), Asia (Japan, China(China, Japan and Singapore) and the Middle East (Israel). We also maintain sample storage facilities in China, Germany Singapore and China.
Item 3. Legal Proceedings
We are subject to various legal proceedings, both asserted and unasserted, that arise in the ordinary course of business. We 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, we believe that none of these claims will have a material adverse effect on our consolidated financial condition 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 our 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 our consolidated financial condition or results of operations in particular quarterly or annual periods.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the NASDAQNasdaq Stock Market LLC under the symbol “BRKS.” The following table sets forth the high and low intraday sales prices per share of our common stock as reported by the NASDAQ Stock Market LLC and the cash dividends declared per common share for the periods indicated:
Market Price | Dividends Declared | ||||||||||
High | Low | ||||||||||
Fiscal year ended September 30, 2016 | |||||||||||
First quarter | $ | 11.91 | $ | 10.68 | $ | 0.10 | |||||
Second quarter | 10.54 | 8.48 | 0.10 | ||||||||
Third quarter | 11.90 | 9.16 | 0.10 | ||||||||
Fourth quarter | 13.96 | 11.05 | 0.10 | ||||||||
Fiscal year ended September 30, 2015 | |||||||||||
First quarter | $ | 13.02 | $ | 9.87 | $ | 0.10 | |||||
Second quarter | 13.37 | 11.43 | 0.10 | ||||||||
Third quarter | 12.36 | 10.76 | 0.10 | ||||||||
Fourth quarter | 11.74 | 9.71 | 0.10 |
| | | | | | | | | |
Number of Holders
As of November 15, 2016,December 6, 2019, there were 593518 holders of record of our common stock.
Dividend Policy
Dividends are declared at the discretion of our Board of Directors and depend on actual cash flow from operations, our financial condition, capital requirements and any other factors our Board of Directors may consider relevant. Future dividend declarations, as well as the record and payment dates for such dividends, will be determined by our Board of Directors on a quarterly basis. We intend to pay quarterly cash dividends in the future; however, the amount and timing of these dividends may be impacted by the cyclical nature of certain markets we serve. We may reduce, delay or cancel a quarterly cash dividend based on the severity of a cyclical downturn.
25
On November 9, 2016,1, 2019, our Board of Directors approved a cash dividend of $0.10 per share payable on December 23, 201620, 2019 to common stockholders of record on December 2, 2016.
Comparative Stock Performance
The following graph compares the cumulative total shareholder return (assuming reinvestment of dividends) from investing $100 on September 30, 2011,2014, and plotted at the last trading day of each of the fiscal years ended September 30, 2012, 2013, 2014, 2015, 2016, 2017, 2018 and 2016,2019, in each of (i) our Common Stock; (ii) the NASDAQ/Nasdaq/NYSE MKT/American/NYSE Index of companies; and (iii) a peer group for the fiscal year ended September 30, 2019 (“Peer Group”).
The Peer Group for the year ended September 30, 2019 is comprised of:of Advanced Energy Industries, Inc., Axcelis Technologies Inc., Bio Rad Laboratories Inc., Bruker Corp., Cabot Microelectronics Corp., Coherent Inc., Entegris, Inc., Formfactor Inc., Haemonetics Corp., MKS Instruments, Inc., Photronics,MTS Instruments, Inc., TeradyneNovanta Inc., Rudolph Technologies Inc. (now known as Onto Innovation Inc.), Ultra Clean Technology,Holdings, Inc., Varex Imaging Corp. and Veeco Instruments Inc. and Xcerra Corp.
The stock price performance on the graph below is not necessarily indicative of future price performance.
| | | | | | | | | | | | | | | | | | |
|
| 9/30/2014 |
| 9/30/2015 |
| 9/30/2016 |
| 9/30/2017 |
| 9/30/2018 |
| 9/30/2019 | ||||||
Brooks Automation, Inc. | | $ | 100.00 | | $ | 115.39 | | $ | 138.94 | | $ | 315.60 | | $ | 369.13 | | $ | 394.94 |
Nasdaq/NYSE American/NYSE | |
| 100.00 | |
| 94.66 | |
| 107.61 | |
| 128.30 | |
| 145.62 | |
| 146.46 |
Peer Group | |
| 100.00 | |
| 98.83 | |
| 134.56 | |
| 217.32 | |
| 233.70 | |
| 275.46 |
26
9/30/11 | 9/30/12 | 9/30/13 | 9/30/14 | 9/30/15 | 9/30/16 | ||||||||||||||||||
Brooks Automation, Inc. | $ | 100.00 | $ | 101.90 | $ | 122.26 | $ | 142.60 | $ | 164.54 | $ | 198.13 | |||||||||||
NASDAQ/NYSE MKT/NYSE | 100.00 | 150.26 | 196.64 | 267.84 | 332.87 | 334.61 | |||||||||||||||||
Peer Group | 100.00 | 122.90 | 164.68 | 168.45 | 161.74 | 218.96 |
The information included under the heading “Comparative Stock Performance” in Item 5 of "this report" shall not be deemed to be “soliciting material” or subject to Regulation 14A, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.
Issuer’s Purchases of Equity Securities
On September 29, 2015, our Board of Directors approved a share repurchase program for up to $50$50.0 million worth of our common stock. The timing and amount of any shares to be repurchased under this program will be based on market and business conditions, legal requirements and other factors and may be commenced or suspended at any time at our discretion. There were no shares repurchased under this program during fiscal year 2016.
Item 6. Selected Financial Data
The selected consolidated financial data(1)(5) set forth below should be read in conjunction with our consolidated financial statementsConsolidated Financial Statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere in this report.
| | | | | | | | | | | | | | | |
| | Year Ended September 30, | |||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
| | | | (2) | | | | (2) | | | |||||
| | (In thousands, except per share data) | |||||||||||||
Revenue | | $ | 780,848 | | $ | 631,560 | | $ | 527,499 | | $ | 434,012 | | $ | 406,874 |
Gross profit | |
| 316,260 | |
| 246,081 | |
| 198,887 | |
| 156,689 | |
| 132,766 |
Operating income (loss) | |
| 46,038 | |
| 31,409 | |
| 14,319 | |
| (17,054) | |
| (22,564) |
Income (loss) from continuing operations | |
| 9,554 | |
| 67,717 | |
| 10,687 | |
| (85,457) | |
| (12,523) |
Income from discontinued operations, net of tax | |
| 427,862 | |
| 48,747 | |
| 51,925 | |
| 15,981 | |
| 26,744 |
Net income (loss) attributable to Brooks Automation, Inc. | |
| 437,416 | |
| 116,575 | |
| 62,612 | |
| (69,476) | |
| 14,221 |
Basic net income (loss) per share attributable to Brooks Automation, Inc. common stockholders: | |
|
| |
|
| |
|
| |
|
| |
|
|
Income (loss) from continuing operations | |
| 0.13 | |
| 0.96 | |
| 0.15 | |
| (1.25) | |
| (0.19) |
Income from discontinued operations, net of tax | |
| 5.95 | |
| 0.69 | |
| 0.75 | |
| 0.23 | |
| 0.40 |
Basic net income (loss) per share attributable to Brooks Automation, Inc. | | $ | 6.08 | | $ | 1.65 | | $ | 0.90 | | $ | (1.01) | | $ | 0.21 |
Diluted net income (loss) per share attributable to Brooks Automation, Inc. common stockholders: | |
|
| |
|
| |
|
| |
|
| |
|
|
Income (loss) from continuing operations | | $ | 0.13 | | $ | 0.95 | | $ | 0.15 | | $ | (1.25) | | $ | (0.18) |
Income from discontinued operations, net of tax | |
| 5.91 | |
| 0.69 | |
| 0.74 | |
| 0.23 | |
| 0.39 |
Diluted net income (loss) per share attributable to Brooks Automation, Inc. | | $ | 6.04 | | $ | 1.64 | | $ | 0.89 | | $ | (1.01) | | $ | 0.21 |
Dividend declared per share | | $ | 0.40 | | $ | 0.40 | | $ | 0.40 | | $ | 0.40 | | $ | 0.40 |
| | | | | | | | | | | | | | | |
| | As of September 30, | |||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
| | | | | | | | | | (4) | |||||
| | (In thousands) | |||||||||||||
Cash and cash equivalents and marketable securities | | $ | 338,611 | | $ | 251,227 | | $ | 104,292 | | $ | 91,221 | | $ | 214,030 |
Working capital (3) | |
| 36,409 | |
| 109,799 | |
| 61,385 | |
| 59,996 | |
| 53,809 |
Total assets | |
| 1,515,999 | |
| 1,095,257 | |
| 766,628 | |
| 685,905 | |
| 758,702 |
Total equity | |
| 1,138,954 | |
| 717,832 | |
| 607,644 | |
| 553,690 | |
| 632,045 |
27
| | | | | | | | | | | | |
| | Year Ended September 30, 2019 | ||||||||||
|
| First |
| Second |
| Third |
| Fourth | ||||
| | Quarter | | Quarter (2) | | Quarter | | Quarter | ||||
| | (In thousands, except per share data) | ||||||||||
Revenue | | $ | 179,368 | | $ | 198,390 | | $ | 203,880 | | $ | 199,210 |
Gross profit | |
| 72,081 | |
| 80,516 | |
| 83,510 | |
| 80,153 |
Operating income | |
| 5,333 | |
| 13,672 | |
| 16,423 | |
| 10,610 |
Net income attributable to Brooks Automation, Inc. | |
| 14,415 | |
| 3,421 | |
| 7,254 | |
| 412,326 |
Basic net income per share | |
| 0.20 | |
| 0.05 | |
| 0.10 | |
| 5.71 |
Diluted net income per share | |
| 0.20 | |
| 0.05 | |
| 0.10 | |
| 5.68 |
| | | | | | | | | | | | |
| | Year Ended September 30, 2018 | ||||||||||
|
| First |
| Second |
| Third |
| Fourth | ||||
| | Quarter | | Quarter | | Quarter | | Quarter | ||||
| | (In thousands, except per share data) | ||||||||||
Revenue | | $ | 142,599 | | $ | 156,952 | | $ | 172,363 | | $ | 159,646 |
Gross profit | |
| 54,259 | |
| 62,386 | |
| 66,816 | |
| 62,620 |
Operating income | |
| 4,925 | |
| 10,321 | |
| 12,547 | |
| 3,616 |
Net income attributable to Brooks Automation, Inc. | |
| 16,486 | |
| 67,020 | |
| 22,717 | |
| 10,352 |
Basic net income per share | |
| 0.23 | |
| 0.95 | |
| 0.32 | |
| 0.15 |
Diluted net income per share | |
| 0.23 | |
| 0.95 | |
| 0.32 | |
| 0.15 |
Year Ended September 30, | |||||||||||||||||||
2016 (1)(2) | 2015 (3)(4) | 2014 (5)(6)(7) | 2013 (6)(8)(9) | 2012 (6)(10)(11)(12) | |||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||
Revenue | $ | 560,323 | $ | 552,708 | $ | 482,848 | $ | 422,440 | $ | 488,983 | |||||||||
Gross profit | 198,081 | 189,105 | 167,337 | 132,307 | 159,453 | ||||||||||||||
Operating income (loss) | 4,238 | 16,890 | (2,699 | ) | (16,798 | ) | 1,642 | ||||||||||||
(Loss) income from continuing operations | (69,476 | ) | 14,221 | 1,520 | (7,114 | ) | 131,835 | ||||||||||||
Income from discontinued operations, net of tax | — | — | 30,002 | 4,964 | 5,000 | ||||||||||||||
Net (loss) income attributable to Brooks Automation, Inc. | (69,476 | ) | 14,221 | 31,361 | (2,215 | ) | 136,789 | ||||||||||||
Basic net (loss) income per share attributable to Brooks Automation, Inc. common stockholders: | |||||||||||||||||||
(Loss) income from continuing operations | (1.01 | ) | 0.21 | 0.02 | (0.11 | ) | 2.02 | ||||||||||||
Income from discontinued operations, net of tax | — | — | 0.45 | 0.08 | 0.08 | ||||||||||||||
Basic net (loss) income per share attributable to Brooks Automation, Inc. | $ | (1.01 | ) | $ | 0.21 | $ | 0.47 | $ | (0.03 | ) | $ | 2.10 | |||||||
Diluted net (loss) income per share attributable to Brooks Automation, Inc. common stockholders: | |||||||||||||||||||
(Loss) income from continuing operations | $ | (1.01 | ) | $ | 0.21 | $ | 0.02 | $ | (0.11 | ) | $ | 2.01 | |||||||
Income from discontinued operations, net of tax | — | — | 0.44 | 0.08 | 0.08 | ||||||||||||||
Diluted net (loss) income per share attributable to Brooks Automation, Inc. | $ | (1.01 | ) | $ | 0.21 | $ | 0.46 | $ | (0.03 | ) | $ | 2.08 | |||||||
Dividend declared per share | $ | 0.40 | $ | 0.40 | $ | 0.34 | $ | 0.32 | $ | 0.32 |
As of September 30, | |||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||
(In thousands) | |||||||||||||||||||
Cash and cash equivalents and marketable securities | $ | 91,221 | $ | 214,030 | $ | 245,456 | $ | 173,362 | $ | 200,231 | |||||||||
Working capital (13), (14) | 94,416 | 89,225 | 80,027 | 88,691 | 106,178 | ||||||||||||||
Total assets | 685,905 | 758,702 | 777,227 | 736,765 | 741,960 | ||||||||||||||
Total capital lease obligation | — | — | 8,298 | — | — | ||||||||||||||
Total equity | 553,690 | 632,045 | 642,889 | 632,656 | 649,301 |
Year Ended September 30, 2016 | |||||||||||||||
First Quarter (1) | Second Quarter (2) | Third Quarter | Fourth Quarter | ||||||||||||
(In thousands, except per share data) | |||||||||||||||
Revenue | $ | 119,955 | $ | 135,281 | $ | 147,534 | $ | 157,553 | |||||||
Gross profit | 40,554 | 46,800 | 54,163 | 56,565 | |||||||||||
Operating (loss) income | (8,320 | ) | (6,339 | ) | 8,494 | 10,404 | |||||||||
Net (loss) income | (4,648 | ) | (83,939 | ) | 8,564 | 10,547 | |||||||||
Basic net (loss) income per share | (0.07 | ) | (1.22 | ) | 0.12 | 0.15 | |||||||||
Diluted net (loss) income per share | (0.07 | ) | (1.22 | ) | 0.12 | 0.15 |
Year Ended September 30, 2015 | |||||||||||||||
First Quarter (4) | Second Quarter | Third Quarter | Fourth Quarter (3) | ||||||||||||
(In thousands, except per share data) | |||||||||||||||
Revenue | $ | 122,736 | $ | 139,313 | $ | 144,894 | $ | 145,765 | |||||||
Gross profit | 39,088 | 46,025 | 51,187 | 52,805 | |||||||||||
Operating (loss) income | (6,480 | ) | 3,053 | 10,170 | 10,147 | ||||||||||
Net (loss) income | (2,734 | ) | 2,711 | 7,681 | 6,563 | ||||||||||
Basic net (loss) income per share | (0.04 | ) | 0.04 | 0.11 | 0.10 | ||||||||||
Diluted net (loss) income per share | (0.04 | ) | 0.04 | 0.11 | 0.10 |
(1) | We |
(2) | Operating income (loss) |
(3) |
The calculation of working capital excludes "Cash and cash equivalents" |
(4) | |
Working capital amounts were adjusted to reflect the reclassification of current deferred tax assets and liabilities to non-current in accordance with |
(5) | On August 27, 2018, we entered into an agreement to sell our semiconductor cryogenics business. We determined that the semiconductor cryogenics business met the criteria of being reported as a discontinued operation as of September 30, |
(6) | In connection with the closing of the sale of the semiconductor cryogenics business in the fourth quarter of fiscal 2019, we recorded accrued taxes payable of approximately $95 million as of September 30, 2019, which reduce our working capital for fiscal year 2019. Also, in connection with the closing of the sale of the semiconductor cryogenics business, we entered into Amendment No. 2 to the Asset Purchase Agreement with the purchaser. As part of this |
28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes principal factors affecting the results of our operations, financial condition and liquidity, as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our Consolidated Financial Statements. Our MD&A is organized as follows:
● | Overview. This section provides a general description of our business and operating segments, recent developments, as well as a brief discussion and overall analysis of our business and financial performance, including key developments affecting us during fiscal years ended September 30, 2019, 2018 and 2017. |
● | Critical Accounting Policies and Estimates. This section discusses accounting policies and estimates that require us to exercise subjective or complex judgments in their application. We believe these accounting policies and estimates are important to understanding the assumptions and judgments incorporated in our reported financial results. |
● | Results of Operations. This section provides an analysis of our financial results for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018. For the discussion covering the fiscal year ended September 30, 2018, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended September 30, 2018. |
● | Liquidity and Capital Resources. This section provides an analysis of our liquidity and changes in cash flows, as well as a discussion of available borrowings and contractual commitments. |
You should read the MD&A in conjunction with our Consolidated Financial Statements and related notes beginning on page 47.in this Form 10-K. In addition to historical information, the MD&A contains forward-looking statements that involve risks and uncertainties. You should read “Information Related to Forward-Looking Statements” included above in this Form 10-K and "Item 1A. RiskItem 1A, “Risk Factors" for a discussion of important factors that could cause our actual results to differ materially from our expectations.
OVERVIEW
General
We are a leading provider of semiconductor manufacturing automation solutions and life science sample-based services and solutions worldwide. In the semiconductor manufacturing market, we have been a provider of precision robotics, integrated automation systems and services for more than 40 years. In the life sciences market, we apply our automation and cryogenics expertise to offer a full suite of sample-based services and products, including a full line of cold chain management solutions for handling and storing biological and chemical compound samples used in areas such as drug development, clinical research and advanced cell therapies. We are also a global provider of automationgene sequencing and cryogenic solutions for multiple applicationsgene synthesis services. We believe our leadership positions and markets. We primarily serve the semiconductor capital equipment market and sample management market for life sciences. Our leadership position andour global support structurecapability in each of these markets makesmake us a valued business partner to the largest semiconductor capital equipment and device makers, as well asand pharmaceutical and life science research institutions in the world. Our offerings are also applied to industrial capital equipment and other adjacent technology markets.
In the semiconductor capital equipment market, equipment productivity and availability are critical factors for our customers’ success,customers, who typically operate equipment under demanding temperature and/or pressure environments. OurWe are a leader in wafer automation and cryogenics capabilitiescontamination controls solutions and services that are demonstrateddesigned to improve throughput, yield, and cost of ownership of tools in semiconductor fabs. Our product offerings include vacuum and atmospheric robots, turnkey vacuum and atmospheric wafer handling systems, as well as wafer carrier cleaning and reticle storage systems. We also capture the complete life cycle of value through our various robotic automationglobal service network of expert application and cryogenic vacuum pump offerings, bothfield engineers who are located close to our customers. Our services include rapid refurbishment of which are used by semiconductor manufacturers inrobots to stringent specifications, upgrades to improve equipment productivity, and proactive monitoring and diagnostics for predictive risk
29
management and improved up-time of the processing of silicon wafers into integrated circuits.installed base. Although the demand for semiconductors and semiconductor manufacturing equipment is cyclical resulting in periodic expansions and contractions, of this market, we expect the semiconductor equipment market to remain one of our principal markets as we continue making investments to maintain and grow our semiconductor product and service offerings. A majority of our research and development spending advances our current product lines and drives innovations for new product offerings. We invest in research and development initiatives within the Brooks Semiconductor Solutions Group segment to maintain continued leadership position in the markets we serve. We launched our newest Vacuum Automation platform, MagnaTran LEAP™, for the rapidly emerging advanced technologies related to manufacturing 10 nanometer design rule semiconductor chips. MagnaTran LEAP is well positioned to deliver clean, accurate and fast wafer transport available for the fast-growing Deposition and Etch markets. In addition, we have made numerous acquisitions in past yearsexpect to continue to support and expand our technology and product offerings for the semiconductor market.market through acquisitions. In April 2014,2018, we acquired Dynamic Micro Systems Semiconductor Equipment GmbH, or DMS, for $31.6 million. DMS isTec-Sem, a German-basedSwitzerland-based provider of automated contamination control solutions, or CCS, for wafer carrier devices and reticle storage targeted at improving yield of semiconductor processes at semiconductor fabrication plants. In August 2015, we acquired Contact Co., Ltd., or Contact, for $6.8 million, net of cash acquired. Contactautomation equipment with a focus on reticle management. The acquisition is a Japanese-based provider of automated cleaner products for wafer carrier devices used in the global semiconductor markets. This acquisition broadenedexpected to enhance our CCS product portfolio and added complementary technology capabilities to our CCS business unit.
In the life sciences sample management market, we utilize our core technology competencies and capabilities in automation and cryogenics to provide comprehensive bio-sample management solutions to a broad range of end markets within the life
In October 2014, we acquired FluidX Ltd., or FluidX, based in Manchester, United Kingdom, for $15.5 million, netNovember of cash acquired. This acquisition added unique and differentiated bio-sample workflow consumables and instruments and a strong revenue stream. On November 30, 2015, we acquired BioStorage Technologies, Inc., or BioStorage, based in Indianapolis, Indianaa full-service outsourcing sample management business, for a total purchase price of $125.2 million, net of cash acquired. BioStorage is a global provider of a comprehensive range of sample management services, including outsourced storage, cold chain logistics and relocation, bio-processing solutions, project management, consulting and related technology solutions that provide sample intelligence, virtualization, and visualization capabilities through an informatics platform. These acquisitionsThe acquisition provided us with the capabilitiescapability to support customers with an integrated, comprehensive set of sample management products, services and solutions. In July 2017, we acquired substantially all of the assets and liabilities of Pacific Bio-Material Management, Inc., or PBMMI, and Novare, LLC, or Novare, for a total purchase price of $34.1 million, net of cash acquired. PBMMI and Novare provide storage, transportation, management, and cold chain logistics of biological materials. The acquisition expanded our capabilities with respect to sample management and integrated cold chain storage and transportation solutions. We acquired Cool Lab, LLC, a subsidiary of BioCision, LLC, which provides a range of cryogenic product solutions that assist in managing the temperature stability of therapeutics, biological samples and related biomaterials in ultra-cold environments, in November 2016. We held an equity interest in BioCision prior to the acquisition of Cool Lab and collaborated in the development of advanced solutions in temperature-controlled environments. The aggregate purchase price of $15.2 million consisted of a cash payment of $4.8 million, a liability to the seller of $0.1 million and a non-cash consideration of $10.3 million measured at fair value on the acquisition date. We have made several investments in developing new consumable and instrument offerings since the acquisitions of FluidX and Cool Lab.
In August 2017, we acquired certain assets and liabilities related to FreezerPro® web-based software platform from RURO, Inc. for a total purchase price of $5.5 million. RURO, Inc. provides sample management software across multiple end markets, including academic research, government, pharmaceutical, biotech, and healthcare. Our informatics solutions address needs within laboratories, biobanks, and enterprises that manage biological samples. In October 2017, we acquired all of the outstanding capital stock of 4titude Limited, or 4titude, a U.K.-based manufacturer of scientific consumables for biological sample materials used in a variety of genomic and DNA analytical applications, for a total purchase price of $65.1 million, net of cash acquired. The acquisition has expanded our existing offerings of consumables and instruments within the Brooks Life Sciences segment. In April 2018, we acquired BioSpeciMan Corporation, or BioSpeciMan, a Canadian provider of storage services for biological sample materials. We made a total cash payment of $5.2 million, net of cash acquired and subject to working capital adjustments. The acquisition expanded customer relationships and geographic reach within our sample management storage services business.
In fiscal year 2019, we acquired GENEWIZ Group, or GENEWIZ, a leading global genomics service provider headquartered in South Plainfield, New Jersey. GENEWIZ is a global leader in genomics services that enable research scientists to advance their discoveries within the pharmaceutical, academic, biotechnology, agriculture and other markets. GENEWIZ provides gene sequencing and synthesis services for more than 4,000 institutional customers
30
worldwide supported by their global network of laboratories spanning the United States, China, Japan, Germany and the United Kingdom. This transaction has added a new and innovative services platform which we expect to leverage, along with our core capabilities, to add even more value to samples under our care.
Since entering the life sciences industry, we have also strengthened and broadened our product portfolio and market reach by investing in internal product development. DuringFor the fiscal years 2016, 2015ended 2019, 2018 and 2014,2017, more than 25%23% of our cumulative research and development spending was focused on innovating and advancing solutions in the life sciences sample management market. In fiscal year 2014, we installed our first system from the TwinBank platform, an automated sample management system developed internally, with a modular architecture designed for high reliability and maximum flexibility. In fiscal year 2016, we commercialized the internally developed Biostore III Cryo, an automated system which incorporates sample retrieval, archiving, monitoring, tracking, inventory control, and related enterprise systems connectivity with the industry’s leading cryogenic sample storage freezers. We expect to continue investing in research and development and making strategic acquisitions with the objective of expanding our offerings in the life sciences sample management market.
Recent Developments
In the fourth quarter of fiscal year 2014,2018, we determined thatentered into a definitive agreement to sell our semiconductor cryogenics business to Edwards Vacuum LLC (a member of the Granville-PhillipsAtlas Copco Group) for approximately $675.0 million in cash, subject to customary adjustments. We originally acquired the cryogenics business wasin 2005 as part of the acquisition of Helix Technology Corporation. The semiconductor cryogenics business has been classified as discontinued operations and, unless otherwise noted, the description of our business in this report relates solely to our continuing operations and does not consistentinclude the operations of our semiconductor cryogenics business.
On July 1, 2019, we completed the sale of the semiconductor cryogenics business for $661.5 million which excludes $6.3 million retained by the buyer at closing based on an estimate of net working capital adjustments, which are currently pending finalization. Net proceeds from the sale were $553.1 million, net of estimated taxes payable and closing costs. As part of this sale, we transferred our intellectual property, or IP, for our cryogenics pump products, but not our IP related to our semiconductor automation or life sciences businesses.
On July 1, 2019, in connection with the completion of the sale of our strategysemiconductor cryogenics business, we used $495.3 million of the cash proceeds to expand our leadership positions in our core semiconductor and life science sample management businesses.extinguish debt. As a result in May 2015,of the debt extinguishment we sold our Granville-Phillips business unit to MKS Instruments, Inc. for $87.0recorded a loss on extinguishment of debt of $5.2 million in cash. The Granville-Phillips business is a providerthe fourth quarter of gas analysisfiscal year 2019. Refer to “Liquidity and vacuum measurement devices used primarily in the semiconductor and adjacent industrial manufacturing markets. We recorded a pre-tax gain of $56.8 million and an after-tax gain of $26.9 million as a result of this transaction. The tax charge of $29.9 million on the gain was substantially non-cash as it was offset by our prior net operating losses in the United States. Our historical financial statements have been revised to present the operating resultsCapital Resources” for further discussion of the Granville-Phillips business as a discontinued operation.
Segments Realignment
We have three operating and reportable segments that consisted of Brooks Product Solutions, Brooks Global Services and Brooks Life Science Systems. During fiscal year 2016, we reorganized our reporting structureaggregated into two operating and reportable segments consisting of: (i) Brooks Semiconductor Solutions Group; and (ii) Brooks Life Science Systems. Subsequently, we have reported financial results for fiscal years 2016, 2015 and 2014 based on the revised segment structure. The change in segments was a result of restructuring actions initiated during fiscal year 2016 to streamline business operations to improve profitability and competitiveness and reflects a change in the manner in which our chief operating decision maker reviews information to assess our performance and make decisions about resource allocation. As part of these actions, we transitioned to a new internal management structure whereby 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. Theand Brooks Life Sciences.For additional information on our operating segments and the related restructuring actions, were completed during fiscal year 2016. Our prior period reportableas well as segment information has been reclassifiedrevenues and their operating results, please refer to reflect the current segment structureNote 17, "Restructuring and conformOther Charges" and Note 21, "Segment and Geographic Information" to the current period presentation.
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 productssolutions include atmospheric and vacuum robots, robotic modules, and tool automation systems, that provide precision handling and cleancontamination control of wafer environments, as well as cryogenic pumps and compressors that provide vacuum pumping and thermal management solutions used to create and control critical process vacuum applications.carrier front opening unified pods. 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 SystemsSciences segment provides comprehensive life cycle sample management solutions to life science and bioscience customers including complete end-to-end “cold chain of custody” solutions and sample-based lab services such as genomic sequencing and gene synthesis to advance scientific research and support drug development. The segment’s product offerings include automated cold sample management systems for compound and biological sample storage, equipment for sample preparation and handling, consumables, and partsinformatics that help customers
31
manage samples throughout their research discovery and development work flows. The segment’s service offerings include sample storage, genomic sequencing, gene synthesis, lab processing services, lab analysis, and other support services provided to a wide range of life science customers, including pharmaceutical companies, biotechnology companies, biobanksbiorepositories and research institutes. During fiscal year 2016, we completed the acquisition of BioStorage, a global provider of comprehensive
Fiscal Year Ended September 30, 20162019 Compared to Fiscal Year Ended September 30, 2015
Review of $560.3 million during fiscal year 2016 compared to $552.7 million during fiscal year 2015. The increaseRevenue Recognition Timing - We have completed our review of $7.6 million, or 1.4%, was primarily attributable to higher revenue of $40.0 million generated by our Brooks Life Science Systems segment driven primarily by the acquisition of BioStorage which contributed $44.6 milliontiming of revenue during fiscal year 2016. This increase was partially offset byrecognition with respect to a revenue declineproduct shipment from one of $32.4 millionour contract manufacturers within ourthe Brooks Semiconductor Solutions Group segment primarilyand similar transactions announced in our Notification of Late Filing on Form 12b-25 filed with the SEC on December 2, 2019 and determined that approximately $1.0 million of revenue from this product should be recognized in the fiscal quarter ended December 31, 2019 as opposed to the fiscal quarter ended September 30, 2019. As a result, the revenue and related profits from this product previously recorded in the fiscal fourth quarter and of the downturnfiscal year ended September 30, 2019 as reported in the semiconductor equipment industry which exhibits cyclical characteristicspress release we issued on November 6, 2019 and is subjectfurnished to periodic expansionsthe SEC with our Current Report on Form 8-K on the same date was adjusted downward and contractionsthe revenue and related profits from this product will subsequently be recorded in the fiscal quarter ended December 31, 2019. Our financial results included in this Form 10-K and the consolidated financial statements included elsewhere in this Form 10-K reflect these adjustments. Following our review of this issue, we conducted an assessment of our controls relating to the semiconductor market, partially offset by growthtiming of revenue recognition for products shipped from our contract manufacturers and determined we had a material weakness in demandour internal control over financial reporting, as described further in this annual report in Item 9A, Controls and Procedures.
Results of Operations - We reported revenue of $780.8 million for contamination control systems. These changes include the adverse impact of changes in foreign currency exchange rates which reduced revenue by $4.4 million during fiscal year 2016 as2019 compared to $631.6 million for fiscal year 2015. Additional revenue decline2018, an increase of approximately $3$149.3 million, duringor 24%. Gross margin was 40.5% for fiscal year 2016 was attributable to the expiration of certain patents that we license to third parties in exchange for agreed upon royalties. We expect the expiration of these patents to adversely affect revenue in future periods by approximately $12 million per year. In addition, we exited a distribution arrangement for atmospheric robots during the fourth quarter of fiscal 2016 that we determined did not support our strategic objectives. The impact of exiting these product lines resulted in an adverse revenue impact of approximately $5 million during fiscal year 2016. We expect an annual revenue reduction of approximately $29 million as a result of such strategic exit.
Cash Flows and Liquidity
- Cash and cash equivalents, restricted cash and marketable securities were $342.1 million at September 30, 2019 as compared to $251.2 million at September 30, 2018. The increase in cash and cash equivalents and marketable securitiesCRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue, intangible assets,
32
goodwill, bad debts, derivative instruments, warranty obligations, inventories, income taxes, pensions and stock-based compensation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. We evaluate current and anticipated worldwide economic conditions, both in general and specifically in relation to the semiconductor and life science industries, that serve as a basis for making judgments about the carrying values of assets and liabilities that are not readily determinable based on information from other sources. Actual results may differ from these estimates under different assumptions or conditions that could have a material impact on our financial condition and results of operations.
We believe that the assumptions and estimates associated with the following critical accounting policies involve significant judgment and thus have the most significant potential impact on our Consolidated Financial Statements.
We generate revenue from the sale of products and services. A description of our revenue recognition policies is included in the Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Although most of our sales agreements contain standard terms and conditions, certain agreements contain multiple elementsperformance obligations or non-standard terms and conditions. We exercise judgment in interpretingFor customer contracts that contain more than one performance obligation, we allocate the commercial terms and determining
Revenue from the sales price betweenof certain products that involve significant customization, which include primarily automated cold sample management systems is recognized over time as the units of accounting willasset created by our performance does not affect the amount of total revenue recognizedhave alternative use to us and an enforceable right to payment for a particular sales arrangement, any material changes in these allocations could impact the timing of revenue recognition that could have a material effect on our financial condition and results of operations.
If our judgment regarding revenue recognition proves incorrect, our revenue in particular periods may be adversely affected thatand could have a material impact on our financial condition and results of operations.
Business Combinations
We account for business acquisitions using the purchase method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.
33
Significant judgment is used in determining fair values of assets acquired and liabilities assumed, as well as intangibles and their estimated useful lives. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in computing present values. Particularly for GENEWIZ, management applied significant judgement in estimating the fair value of the acquired intangible assets, which involved significant estimates and assumptions with respect to forecast revenue growth rates, gross margin percentage, selling, general, and administrative expenses and the discount rate. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as our current and future operating results. Actual results may vary from these estimates that may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within our operating results.
Changes in the fair value of a contingent consideration resulting from a change in the underlying inputs are recognized in results of operations until the arrangement is settled.
Intangible Assets, Goodwill and Other Long-Lived Assets
We have identified intangible assets and generated significant goodwill as a result of our acquisitions. Intangible assets other than goodwill are valued based on estimated future cash flows and amortized over their estimated useful lives. Goodwill is tested for impairment annually or more often if impairment indicators are present, at the reporting unit level. Intangible assets other than goodwill and long-lived assets are subject to impairment testing if events and circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable.
The goodwill impairment test is performed at the reporting unit level. A reporting unit is either an operating segment or one level below it, which is referred to as a “component.” The level at which the impairment test is performed requires an assessment of whether the operations below an operating segment constitute a self-sustaining business, in which case testing is generally performed at this level.
We have three operating and two reportable segments consisting of Brooks Semiconductor Solutions Group and Brooks Life Sciences. We have five reporting units, including three reporting units within the Brooks Semiconductor Solutions Group operating segment and two reporting units which is the Brooks Life Sciences operating segment.
We perform our annual goodwill impairment testing involvesassessment on April 1st of each fiscal year. We evaluate a two-step process. We first comparereporting unit’s goodwill for impairment between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of eachsuch reporting unit below its carrying value In accordance with ASC 350, Intangibles- Goodwill and Other, we initially assess qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is less than its respective carrying amount, including goodwill, to assess whether potential goodwill impairment exists.value. If we determine, based on this assessment, that it is more likely than not that the fair value of the reporting unit exceedsis less than its carrying amount,value, we perform a quantitative goodwill ofimpairment test by comparing the reporting unitunit’s fair value with its carrying value. An impairment loss is not considered impaired. Ifrecognized for the amount by which the reporting
We determine fair values of our reporting units based on an Income Approachincome approach in accordance with the Discounted Cash Flow Method,discounted cash flow method, or DCF Method. The DCF Method is based on projected future cash flows and terminal value estimates discounted to their present values. Terminal value represents a present value an investor would pay on the valuation date for the rights to the cash flows of the business for the years subsequent to the discrete cash flow projection period. We consider the DCF Method to be the most appropriate valuation technique since it is based on management’s long-term financial projections. Due to the cyclical nature of the semiconductor equipment market, management’s projections as of the valuation date are considered more objectivesubjective since market metrics of peer companies fluctuate during the cycle. In addition, we also compare aggregate values of our net corporate assets and reporting unit fair values to our overall market capitalization and use certain market-based valuation techniques to test the reasonableness of the reporting unit fair values determined in accordance with the DCF Method.
34
commensurate with the risks and uncertainties inherent in the respective businesses and our internally developed projections of future cash flows.
We completed our annual goodwill impairment test as of April 1, 20162019 for our five reporting units: Automation Solutions, Contamination Control Solutions and Global Semiconductor Services within the Brooks Semiconductor Solutions Group segment, as well as Sample Management and GENEWIZ within the Brooks Life Sciences segment. Based on the test results, we determined that no adjustment to goodwill was necessary. Fair values of all ofWe conducted a qualitative assessment for the three reporting units except forwithin the Polycold reporting unit, significantly exceededBrooks Semiconductor Solutions Group segment and determined that it was more likely than not that their respectivefair values were more than their carrying values. Fair value of the Polycold reporting unit on a standalone basis exceeded its carrying value by 12%. During the second quarter of 2016, we concluded that recent operating trends and declining forecasts for the Polycold reporting unit represented indicators of potential goodwill impairment. As a result of the analysis, we performeddid not perform the first step ofquantitative assessment for these reporting units and did not recognize any impairment losses. We performed the quantitative goodwill impairment test as of February 1, 2016 andfor the two reporting units within the Brooks Life Sciences segment. We determined that theno adjustment to goodwill was necessary for these two reporting units. The Sample Management reporting unit’s fair value significantly exceeded the carrying value by 18%, and that no goodwill impairment existed. We determined the Polycoldbook value. The GENEWIZ reporting unit'sunit, which was recently acquired, had a fair value based on an Income Approach in accordance with the DCF method. Forecasted sales volumes, product costs and the resulting future cash flows used in the valuation of the Polycold reporting unit are driven by various factors, such as customer demand, macroeconomic environment and competitive dynamics, and may impact fair value of the Polycold reporting unit's goodwill. During the third quarter of fiscal year 2016, we 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 reporting unit's fair value overslightly above 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. .
Application of the goodwill impairment test requires judgment based on market and operational conditions at the time of the evaluation, including management'smanagement’s best estimates of the reporting unit'sunit’s future business activity and the related estimates and assumptions of future cash flows from the assets that include the associated goodwill. Different assumptions of forecasted sales volumes, product costs, future cash flows, risk-adjusted weighted average cost of capital discount rate, as well as long-term growth rate projections used in the DCF model could results in different estimates of the Polycold'sreporting unit’s fair value as of each testing date. A hypothetical increase of 100 basis points in Polycold's risk-adjusted weighted average cost of capital discount rate would result in a decrease of $3.2 million in the reporting unit's fair value. A hypothetical increase of 126 basis points in Polycold's risk-adjusted weighted average cost of capital discount rate would cause Polycold to fail the first step of the goodwill impairment test. Polycold's goodwill carrying amount was $24.0 million as of the date of each goodwill impairment assessment.
We are required to test long-lived assets, other than goodwill, for impairment when impairment indicators are present. For purposes of this test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If we determine that indicators of potential impairment are present, we assess the recoverability of the long-lived asset group by comparing its undiscounted future cash flows to its carrying value. If the carrying value of the long-lived asset group exceeds its future cash flows, we determine fair values of the individual net assets within the long-lived asset group to assess potential impairment. If the aggregate fair values of the individual net assets of the group are less than their carrying values, an impairment loss is recognized for an amount in excess of the group'sgroup’s aggregate carrying value over its fair value. The loss is allocated to the assets within the group based on their relative carrying values, with no asset reduced below its fair value. We did not test our long-lived assets for impairment during fiscal years 2016, 20152019 and 20142018 since no events indicating impairment occurred during the periods then ended.
Inventory
We state our inventory at the lower of cost or market amount and make adjustments to reduce the inventory cost to its net realizable value by providing estimated reserves for obsolete or unmarketable inventory. The reserves are established for the difference between the cost of inventory and its estimated market value based on assumptions related to future demand and market conditions. We fully reserve for inventories and non-cancelable purchase orders for inventory deemed obsolete. We perform periodic reviews of our inventory to identify excess inventories on hand. We compare on-hand inventory balances to anticipated inventory usage based on our recent historical activity and anticipated or forecasted demand for our products developed through our planning systems and sales and marketing inputs.
We adjust the reserves for obsolete or unmarketable inventory and record additional inventory write downs based on unfavorable changes in estimated customer demand or actual market conditions that may differ from management projections.
Deferred Income Taxes
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not willto be realized. We consider recent historical income, estimated future taxable income, carry-forward periods of tax attributes, the volatility of the semiconductor industry and ongoing tax planning strategies in assessing the need for the valuation allowance. We maintainThroughout fiscal year 2017 we maintained a full valuation allowance against our U.S. net deferred tax assets and in
35
along with those of certain foreign jurisdictions. During fiscal year 2016, we recorded an additional valuation allowance of $79.3 million against our U.S. net deferred tax
Stock-Based Compensation
We measure stock-based compensation cost for all employee stock awards at fair value on the date of grant date and recognize thecompensation expense over the service period for the awards expected to vest. The fair value of restricted stock units is determined based on the number of shares granted and the closing price of our common stock quoted on NASDAQNasdaq on the date of grant.
Recently Issued Accounting Pronouncements
For a summary of recently issued accounting pronouncements applicable to our Consolidated Financial Statements which is incorporated here by reference, please refer to Note 2, "Summary“Summary of Significant Accounting Policies"Policies” in the Notes to the Consolidated Financial Statements included in Item 8, "Financial“Financial Statements and Supplementary Data"Data” of this Form 10-K.
Fiscal Year Ended September 30, 20162019 Compared to Fiscal Year Ended September 30, 2015
Revenue
We reported revenue of $560.3$780.8 million for fiscal year 20162019 compared to $552.7$631.6 million for fiscal year 2018, an increase of $149.3 million, or 24%. In the first quarter of fiscal 2019, we adopted new accounting guidance for recognizing revenue on a modified retrospective basis. The difference in reported revenue due to the adoption of the new revenue recognition standard was a net decrease in revenue of $0.9 million for fiscal year 2015, an increase of $7.6 million, or 1.4%. We reported revenue growth in the Brooks Life Science Systems segment and lower revenue in the Brooks Semiconductor Solutions Group segment. The impact of changes in foreign currency exchange rates adversely affected revenue by $4.4 million during fiscal year 2016 compared to fiscal year 2015 as a result of strengthening of the U.S. dollar relative to other currencies in which we conduct our business.
Our Brooks Semiconductor Solutions Group segment reported revenue of $452.2$446.7 million for fiscal year 20162019 compared to $484.6$435.0 million for fiscal year 2015.2018. The decreaseincrease of $32.4$11.7 million, duringor 3%, reflects increases in revenue from contamination control solutions and automation systems, partially offset by a decline in revenue from our robotics products. The increase in contamination control solutions revenue is primarily due to organic growth, and includes $15.1 million of revenue from Tec-Sem which was driven by the additional months of ownership in fiscal year 20162019 compared to fiscal year 2015 reflects lower sales2018. The difference in reported revenue due to the adoption of robotic automationthe new revenue recognition standard was a net increase of $18.2$1.9 million cryogenic pumps of $16.9 million, as well as services and repairs of $4.9 million, partially offset by an increase in revenue of $7.6 million in contamination controls systems. These declines include the unfavorable impact of changes in foreign currency exchange rates of $1.5 million duringfor fiscal year 2016. These declines in revenue are a result of a downturn in the semiconductor industry, which is cyclical.
Our Brooks Life Science SystemsSciences segment reported revenue of $108.1$334.2 million for fiscal year 20162019 compared to $68.1$196.5 million for fiscal year 2018. The increase of $137.6 million, or 70%, included organic growth of $16.0 million, or 8%, which was primarily driven by consumables and instruments, BioStore III Cryo systems, sample storage services, and infrastructure services. Acquisitions accounted for $126.8 million of the increase compared to fiscal year 2018, which consisted of $126.3 million from the acquisition of GENEWIZ, and $0.5 million from the acquisition of BioSpeciMan.
36
The difference in reported revenue due to the adoption of the new revenue recognition standard was a net decrease of $2.8 million for fiscal year 2015. The increase of $40.0 million was driven primarily by the acquisition of BioStorage, which contributed $44.6 million of2019.
We anticipate continued growth in revenue in fiscal year 2016. Changes in foreign currency exchange rates had a negative impact of $2.9 million on revenue of thefrom our Brooks Life Sciences segment for fiscal year 2016.
Revenue generated outside the United States amounted to $352.0$455.6 million, or 58% of total revenue, for fiscal year 2019 compared to $398.9 million, or 63% of total revenue, for fiscal year 2016 compared to $353.62018.
Operating Income
We reported operating income of $46.0 million or 63% of total revenue, for fiscal year 2015.
Operating income for our Brooks Semiconductor Solutions Segment was $66.2 million for fiscal year 2019 compared to $58.4 million for fiscal year 2018. Operating income includes charges for amortization related to completed technology of $3.6 million and $3.4 million for fiscal years 2019 and 2018, respectively and includes inventory step-up charges of $0.2 million and $0.7 million for fiscal years 2019 and 2018, respectively. Adjusted operating income for our Brooks Semiconductor Solutions Group segment, which excludes the charges mentioned above, was $70.0 million for fiscal year 2019 compared to $62.5 million in fiscal year 2018. Please refer to Note 21, “Segment Information”.
Operating income for our Brooks Life Sciences segment was $13.5 million for fiscal year 2019 compared to $1.2 million for fiscal year 2018. Operating income for our Brooks Life Sciences segment includes charges for amortization related to completed technology of $6.8 million and $1.5 million for fiscal years 2019 and 2018, respectively. Fiscal year 2018 includes $1.2 million inventory step-up charges. There were no inventory step-up charges for fiscal year 2019. Fiscal year 2019 includes restructuring related charges of $0.3 million. There were no restructuring related charges for fiscal year 2018. Adjusted operating income for our Brooks Life Sciences segment, which excludes the charges mentioned above, was $20.6 million for fiscal year 2019 compared to $3.8 million in fiscal year 2018. Please refer to Note 21, “Segment Information”.
Gross Margin
We reported gross margins of 35.4%40.5% for fiscal year 20162019 compared to 34.2%39.0% for fiscal year 2015. The increase was attributable to a 10.1 percentage point improvement2018. Gross margin increased 3.6 points in the gross margin of the Brooks Life Science SystemsSciences segment partially offset by a 0.2 percentage point declineand increased 0.7 points in the gross margin of the Brooks Semiconductor Solutions Group segment. Cost of revenue for fiscal year 20162019 included $4.2$10.4 million of charges for amortization related to completed technology as compared to $5.2$4.9 million incurred during fiscal year 2015.2018. The increase compared to the prior year period was due to the amortization of intangible assets acquired with GENEWIZ. Additionally, cost of revenue for fiscal year 20162019 also included $0.6$0.3 million of restructuring related charges relatedand $0.2 million of inventory step-up charges from acquisitions, compared to the saleprior year period which included $1.9 million of inventory obtainedstep-up charges. The difference in acquisitionsreported gross margin due to whichthe adoption of the new revenue recognition standard was a step-upnet increase in value was applied in purchase accounting, compared to $1.5gross profit of $1.0 million for fiscal year 2015.
Our Brooks Semiconductor Solutions Group segment reported a gross marginmargins of 35.2%40.7% for fiscal year 20162019 compared to 35.4%40.0% for fiscal year 2015. Product margins increased 0.6 percentage points during fiscal year 2016 as compared to fiscal year 2015, while service margins declined 3.7 percentage points during the same periods. Product margins benefited from favorable revenue mix, reduced material and manufacturing costs, and lower warranty expense. The product margin benefit was partially offset by lower absorption of fixed costs due to a decline in revenue volume and higher inventory charges related to excess and obsolescence. Service margins declined due to lower absorption of fixed costs due to a decline in revenue volume, higher material costs, and2018. Margins improved on the impact of changes in foreign currency exchange rates. The change in the revenueproduct mix, between products and services was not significant to segment margins.lower production material variances. Cost of revenue during fiscal year 20162019 included $2.7$3.6 million of amortization related to completed technology compared to $3.6 million during fiscal year 2015. During each fiscal year 2016 and 2015, cost of revenue included $0.6 million of charges related to the sale of inventories obtained in acquisitions to which a step-up in value was applied in purchase accounting.
37
acquisition of Tec-Sem. The difference in reported gross margin due to result in any additional restructuring charges in future periods. We began realizing a portionthe adoption of the cost savings during fiscal year 2016 which amounted to approximately $5.1 million. Accrued restructuring costsnew revenue recognition standard was a net increase in gross profit of $3.4 million at September 30, 2016 from this action are expected to be paid within the next twelve months with cash flows generated from operating activities.
Our growth was generated by both Brooks Semiconductor Solutions Group and Brooks Life Sciences Systems segments. The impact of changes in foreign currency exchange rates adversely affected revenue by $9.4 million during fiscal year 2015 compared to fiscal year 2014 as a result of strengthening U.S. dollar relative to other currencies in which we conduct our business.
Research and Development
Research and development expenses were $52.2$56.4 million in fiscal year 20152019 compared to $52.6$46.9 million in fiscal year 2014.2018. The decreaseincrease of $0.4$9.4 million reflects anwas due to increased expense reduction of $1.2$5.3 million within the Brooks Life Sciences System segment partially offset by higher expenses of $0.8and $4.1 million incurred within the Brooks Semiconductor Solutions Group segment. Acquisitions made since the beginning of
Research and development expenses in our Brooks Semiconductor Solutions Group segment were $39.1 million in fiscal year 2014 drove an increase of $2.42019 compared to $34.9 million in fiscal year 2018. Higher research and development expenses duringwere primarily attributable to employee related costs of $2.2 million and outside services of $1.1 million. The additional months of Tec-Sem under ownership acquired in April of 2018, drove $1.3 million of the increase.
Research and development expenses in our Brooks Life Sciences Segment were $17.3 million in fiscal 2019 compared to $12.0 million in fiscal year 2015 as compared to2018. The acquisition of GENEWIZ in November of 2018 added $5.0 million of expense in fiscal year 2014.
Selling, General and Administrative
Selling, general and administrative expenses were $115.3$212.0 million in fiscal year 20152019 compared to $111.1$167.0 million in fiscal year 2018. The increase of $44.9 million was due to increased expense of $44.8 million within the Brooks Life Sciences Segment. Corporate expenses, not allocated to segments, were $31.8 million in in fiscal year 2019, compared to $27.4 million in fiscal year 2014. Business acquisitions made since fiscal year 2014 drove an increase in2018. Corporate unallocated expenses included amortization of $1.5 million and $6.3 million of additional selling, general and administrative spending. Amortization expense was related primarily to customer relationships of $24.7 million and amounted to $7.7$19.3 million, induring fiscal year 2015 compared to $6.2years 2019 and 2018 respectively, and merger and acquisition related expenses of $6.7 million inand $6.9 million, during fiscal year 2014. Partially offsetting theseyears 2019 and 2018 respectively. These increases waswere partially offset by a $4.2 million decrease of $1.1 million in compensation and employee-related costs and a reduction of $2.6 million related to a loan receivable impairment charge recognized in fiscal year 2014. within the Brooks Semiconductor Solutions Segment.
Selling, general, and administrative expenses included merger costs of $0.7in our Brooks Semiconductor Solutions Group segment were $76.4 million in each fiscal year.
Selling, general, and administrative expenses in our Brooks Life Sciences segment were $103.8 million in fiscal year 2019 compared to $59.0 million in fiscal year 2018. The partner also provided revised assumptions about their
Restructuring and Other Charges
We recorded restructuring charges of $4.7$1.9 million during fiscal year 20152019 as compared to $6.3 million during fiscal year 2014. The decrease of $1.6 million was primarily attributable to lower severance costs of $2.3 million, partially offset by higher facility costs of $0.7 million during fiscal year 2015 as compared to fiscal year 2014.2018.
38
Restructuring charges of $1.9 million incurred during fiscal year 2015, we incurred restructuring charges of $4.7 million, which included2019 were related to severance costs and consisted primarily of $3.4actions initiated during the second half of fiscal year 2019. Of these charges, $1.3 million and facility-related costs of $1.3 million. Severance costs of $3.4 million consisted of $2.2 million of charges attributablerelated to the continued action to eliminate redundancies in both our Brooks Life Sciences segment and our Brooks Semiconductor Solutions Group segment and $1.3primarily due to acquisitions. Cost savings realized during fiscal year 2019 related to these actions were $0.4 million of costs attributable toin the Brooks Life Science Systems segment. Restructuring actions withinSciences segment and $0.6 million in the Brooks Semiconductor Solutions Group segment were relatedsegment. During the fourth quarter of fiscal year 2019, the Company initiated the first phase of an action to eliminate costs within our Brooks Life Sciences segment’s sample management business. During the integrationfourth quarter of Dynamic Micro Systems Semiconductor Equipment GmbH (the "DMS") with our operations and the transition of manufacturing of certain products from our facility in Mistelgau, Germany to a third party contract manufacturer. Restructuring actions withinfiscal year 2019, the Brooks Life Science SystemsSciences segment wereincurred severance costs related to the closurethis action of the Poway, California facility and transition of product sub-assembly manufacturing operations to the third party contract manufacturers. Facility exit costs of $1.3 million attributable to Brooks Semiconductor Solutions Group segment were related to outsourcing manufacturing of certain lines 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. We terminated the lease on October 27, 2015 and fully paid the related restructuring liability$0.6 million. Cost savings realized during fiscal year 2016.
Restructuring Charges Incurred During Fiscal Year Ended September 30, 2014
Restructuring charges of $6.3$0.7 million recorded in fiscal year 2014 included $5.7 million of severance costs resulting from workforce reductions of approximately 70 positions across all of our reportable segments and our corporate function. Total severance charges related to the outsourcing of the Polycold manufacturing operation, which relate to the Brooks Product Solutions and Brooks Global Services segments, were $1.2 million, of which $0.6 million was recorded in fiscal year 2014. The charge for this program was recorded ratably over the period from notification of the closing in October 2012 to the actual service end date in September 2014.
Non-Operating Income (Expenses)
Interest income – During fiscal years 2019 and 2018, we recorded interest income of $1.5 million and $1.9 million respectively, which represented interest earned on our marketable securities.
Interest expense – During fiscal years 2019 and 2018, we recorded interest expense of $22.2 million and $9.5 million, respectively. The increase in interest expense during fiscal year 2019 primarily related to the incremental term loan originated in November 2018. Please refer to the “Liquidity and Capital Resources” section below for further information on the term loan.
Loss on extinguishment of debt - During fiscal year 2019, we recorded losses on extinguishment of debt of $14.3 million of which $9.1 million was in connection with the dissolution, YBA assessed the recoverability of assets held by the joint venture and notified its equity partnerssyndication of the asset impairment. Asincremental term loan secured during the first quarter of fiscal 2019. The syndication to a new group of lenders during the second quarter of fiscal 2019 met the criteria of a debt extinguishment and therefore the amortization of the deferred financing costs associated with the origination of the incremental term loan was accelerated and recorded as a loss on extinguishment of debt in our statement of operations. In addition, as a result of the $495.3 million extinguishment of debt during the fourth quarter of fiscal year 2019, we recorded an impairment chargeadditional $5.2 million loss on extinguishment of $0.7debt.
Other expenses, net – During fiscal years 2019 and 2018 we recorded other expenses, net of $1.5 million and $3.3 million, respectively. The $1.8 million decrease in expense was primarily attributable to higher foreign currency exchange losses of $1.5 million recognized during fiscal year 2018 as compared to the current fiscal year period. Please refer to Item 7A, “Quantitative and Qualitative Disclosures About Market Risk – Currency Rate Exposure” in this Annual Report on Form 10-K for additional information about these currency exchange losses.
Income Tax Provision
We recorded an income tax benefit on continuing operations of $0.1 million in fiscal year 20152019 compared to write downan income tax benefit of $47.3 million in fiscal year 2018. The income tax benefit during fiscal year 2019 was driven primarily by benefits in the carrying valueU.S. jurisdiction related to continuing operations losses, research tax credits, and stock compensation deductions in excess of our equity investmentbook expenses. We also recorded a $1.4 million benefit due to a state tax change that resulted from the acquisition of GENEWIZ. We also recorded a tax provision of $3.0 million during the year related to changes in YBA to its fair value.the toll charge recorded during 2018. The impairmentprovision was the result of a change in tax legislation
39
and the completion of all accounting of the charge under Staff Accounting Bulletin No.118. The overall benefit for fiscal year 2019 was includedpartially offset by the tax provisions on earnings in our proportionate shareforeign jurisdictions during the year. The income tax benefit during fiscal year 2018 was driven primarily by the reversal of losses generated from the joint venturevaluation allowance against a substantial portion of the U.S. net deferred tax assets, offset by the estimated toll charge of $8.0 million on our taxable foreign earnings, net of foreign tax credits, associated with YBA. We incurred $0.2the enactment of the Tax Cuts and Jobs Act during fiscal year 2018. The tax benefit for fiscal year 2018 also included a $0.7 million of liquidation coststax benefit related to the dissolutionre-measurement of net U.S. deferred tax liabilities to account for the reduced 21 percent statutory federal income tax rate. The overall benefit for fiscal year 2018 was partially offset by the tax provisions on earnings in our foreign jurisdictions during the year.
Discontinued Operations
On July 1, 2019, we completed the sale of the joint venture.
LIQUIDITY AND CAPITAL RESOURCES
A considerable portion of our revenue is dependent on the demand for semiconductor capital equipment which historically has experienced periodic downturns. We believe that we have adequate resources to fundsatisfy our currently planned working capital, financing activities, debt service and capital expenditure requirements for the next twelve months. The cyclical nature of our served markets and uncertainty in the current global economic environment uncertainty make it difficult for us to predict longer-term liquidity requirements with sufficient certainty. We may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available to us on acceptable terms or otherwise, we may be unable to successfully develop or enhance products and services, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business, financial condition and operating results.
The discussion of our cash flows and liquidity that follows does not include the impact of the disposition of the semiconductor cryogenics business, unless otherwise noted, and is stated on a total company consolidated basis.
Overview of Cash Flows and Liquidity
Our cash, cash equivalents and marketable securities as of September 30, 2019 and 2018 consist of the following (in thousands):
| | | | | | |
| | Year Ended September 30, | ||||
|
| 2019 |
| 2018 | ||
Cash and cash equivalents | | $ | 301,642 | | $ | 197,708 |
Restricted cash | | | 3,529 | | | — |
Short-term marketable securities | |
| 34,124 | |
| 46,281 |
Long-term marketable securities | |
| 2,845 | |
| 7,237 |
| | $ | 342,140 | | $ | 251,226 |
Our cash, cash equivalents, restricted cash and marketable securities were $342.1 million as of September 30, 2019. Our cash balances are held in numerous locations throughout the world, with the substantial majority of those amounts located outside of the U.S.United States. As of September 30, 2016,2019, we had cash and cash equivalents of $85.1$305.2 million, of which $60.4$152.9 million was held outside of the U.S.United States. If these funds are needed for the U.S.United States. operations, we would be required to accrue for
40
future would not result in U.S. cash tax payments within the next twelve months.federal income tax. Our intent is to permanently reinvest these funds outside of the U.S. and our current operating plans do not demonstrate a need to repatriate these funds for our U.S. operations. We believe that our current cash balance,had marketable securities access to the revolving line of credit, as well as to debt$37.0 million and capital markets along with cash flows from operations will satisfy working capital, financing activities, and capital expenditure requirements for the next twelve months.
Year Ended September 30, | |||||||
2016 | 2015 | ||||||
Cash and cash equivalents | $ | 85,086 | $ | 80,722 | |||
Short-term marketable securities | 39 | 70,021 | |||||
Long-term marketable securities | 6,096 | 63,287 | |||||
$ | 91,221 | $ | 214,030 |
Fiscal Year Ended September 30, 20162019 Compared to Fiscal Year Ended September 30, 2015
Overview
Cash and cash equivalents, restricted cash and marketable securities were $85.1$342.1 million and $6.1 million, respectively, at September 30, 20162019 as compared to $80.7$251.2 million and $133.3 million, respectively, at September 30, 2015.2018. The aggregate decrease of $122.8 millionincrease in cash and cash equivalents, restricted cash and marketable securities of $90.9 million was primarily attributable to cash inflows of $661.6 million related to proceeds from the acquisitionsale of BioStorage for $125.2 million. Additional usesour semiconductor cryogenics business and cash inflows of $90.9 million generated from our operating activities, partially offset by net cash included $27.5outflows of $442.7 million to acquire GENEWIZ, net cash outflows of $163.8 million related to proceeds received and principal payments made on our term loans, cash dividends paid to our shareholdersof $28.9 million, and $12.8 million paid for the capital expenditures partially offset by inflows of $39.5 million$23.9 million.
Divestiture and Extinguishment of net cash provided by operating activities and $2.8 million of proceeds fromDebt
In 2019, we completed the sale of the buildingsemiconductor cryogenics business for $661.5 million which excludes $6.3 million retained by the buyer at closing to preliminarily settle net working capital adjustments. Net proceeds from the sale were $553.1 million, net of estimated taxes payable and closing costs. In connection with the underlying land located in Oberdiessbach, Switzerland.
Operating Activities
Cash flows from operating activities can fluctuate significantly from period to period as earnings, working capital needs and the timing of payments for income taxes, restructuring activities and other itemscharges impact reported cash flows.
Cash flows fromprovided by operating activities were $39.5$90.9 million forduring fiscal year 2016 as compared to $43.7 million for fiscal year 2015. The decrease2019 and comprised primarily of $4.2 million in cash flows from operating activities was primarily attributable to the following factors:
Net income from discontinued operations contributed $427.9 million and $48.7 million for fiscal years ended 2019 and 2018, respectively, in the net income referenced for the respective periods above. Net income for fiscal year 2016 as compared to $6.8 million2019 includes the net gain on sale of the semiconductor cryogenics business of $408.6 million. The sale of the semiconductor
41
cryogenics business was completed on July 1, 2019 and may negatively impacted in fiscal year 2015. The favorable impactfuture periods by the completion of $3.5 million onsale of our cash flows from operating activities was primarily attributable to the timing of milestone billings and the amount of revenue recognized on percentage of completion type contracts.
Investing Activities
Cash flows from investing activities consist primarily of cash used for acquisitions, proceeds from divestitures, capital expenditures and purchases of marketable securities as well as cash proceeds generated from sales and maturities of marketable securities.
Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development and improving information technology infrastructure. Capital expenditures were $12.8$23.9 million during fiscal year 20162019 as compared to $16.1$12.8 million during the fiscal year 2018.
Financing Activities
Cash used for financing activities was $191.2 million during fiscal year 2015. The decrease2019 and included net cash outflows of $3.3$163.8 million was primarily attributablerelated to the purchaseextinguishment of debt and principal payments on our term loans totaling $850.2 million offset by proceeds of $686.4 million. Proceeds from the incremental term loan in the first quarter of fiscal year 2019 were $340.5 million. In the second quarter of fiscal year 2019, we syndicated the incremental term loan which resulted in an extinguishment of the buildingincremental term loan of $349.1 million and the related land for $8.4proceeds from syndication of $345.2 million. Cash outflows also included cash dividends paid of $28.9 million. Cash provided by financing activities was $170.3 million during fiscal year 2015,2018 as compared to $25.9 million used in financing activities during fiscal year 2017. Cash provided by financing activities during fiscal year 2018 included cash inflows of $197.6 million related to proceeds from the term loan originated in October 2017, partially offset by increasedcash dividend payments to our shareholders of $28.3 million and principal payments on the term loan of $1.5 million.
China Facility
In April 2019, we committed to construct a facility in Suzhou China, to consolidate the Suzhou operations of the GENEWIZ business and provide an infrastructure to support future growth. The facility will be constructed in two phases. We expect to incur $50.0 to $55.0 million of capital expenditures related to this facility over the next five years, of $4.2which $0.7 million duewas incurred during fiscal year 2019.
Capital Resources
Term Loans
On October 4, 2017, we entered into a $200.0 million term loan with Morgan Stanley Senior Funding, Inc., JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC pursuant to the terms of a credit agreement with the lenders. The term loan was issued at $197.6 million, or 98.8% of its par value, resulting in a discount of $2.4 million, or 1.2%, which represented loan origination fees paid at the closing. The loan principal amount may be increased by an aggregate amount equal to $75.0 million plus any voluntary repayments of the term loan plus any additional amount such that our secured leverage ratio is less than 3.00 to 1.00.
The term loan matures and becomes fully payable on October 4, 2024. Installment principal payments equal to 0.25% of the initial principal amount of the term loan are payable on the last day of each quarter, with any remaining principal amount becoming due and payable on the maturity date. Subject to certain conditions stated in the credit agreement, we may redeem the term loan at any time at our option without a significant premium or penalty, except for a
42
repricing transaction, as defined in the credit agreement. We are required to redeem the term loan at the principal amount then outstanding upon the occurrence of certain events, as set forth in the credit agreement.
On November 15, 2018, we entered into an incremental amendment to the credit agreement under which we obtained an incremental term loan in an aggregate principal amount of $350.0 million, issued at $340.5 million. The proceeds of the incremental term loan were used to pay a portion of the purchase price for our acquisition of BioStorageGENEWIZ. On February 15, 2019, we entered into the second amendment to the credit agreement and investmentsyndicated the incremental term loan to a group of new lenders. The syndicated incremental term loan was issued at $345.2 million. Except as provided for in its capital infrastructure.
On July 1, 2019, in connection with the completion of Cool Lab, LLC, or Cool Lab,the sale of our semiconductor cryogenics business, we used $348.3 million of the cash proceeds from BioCision, LLC, or BioCision. Cool Lab,the transaction to extinguish the outstanding balance at July 1, 2019 of the incremental term loan and $147.0 million of the cash proceeds from the transaction to extinguish a newly established subsidiaryportion of BioCision,the outstanding balance at July 1, 2019 of the term loan. The total amount of debt extinguished on July 1, 2019 was $495.3 million. At September 30, 2019, the outstanding term loan principal balance was $51.1 million, excluding unamortized deferred financing costs of $0.5 million.
The credit agreement, as amended, for contains certain assetscustomary representations and liabilities related to cell cryopreservation productswarranties, covenants and solutions. These offerings addressevents of default. As of September 30, 2019, we were in compliance with all covenants and assistconditions under the credit agreement, as amended.
In connection with our acquisition of GENEWIZ in managingNovember 2018, we assumed three five-year term loans and two one-year term loans. At September 30, 2019, we had an aggregate outstanding principal balance of $1.7 million under the temperature variability of therapeutics, biological samples,three five-year term loans. The two one-year short term loans matured and related biomaterials. We have held equity ownership interestwere repaid in BioCision since March of 2014, and convertible debt securities with warrants acquired in December of 2014 and February of 2015. We purchased Cool Lab in exchange for approximately $5 million in net cash subject to customary working capital adjustments along with non-cash consideration, which included the redemption and repurchase of the original equity ownership interest in BioCision, the cancellation of both the convertible debt securities with warrants and previously issued term notes with the related interest receivable. The aforementioned non-cash consideration had a total carrying value of $9.1 millionfull as of September 30, 2016.
At September 30, 2015 Compared to Fiscal Year Ended September 30, 2014
Line of Credit Facility
We maintain a revolving line of our subsidiaries entered into a credit agreement with Wells Fargo Bank, N.A., or Wells Fargo. The credit agreement and JPMorgan Chase Bank, N.A that provides for a five-year senior secured revolving credit financing of up to $75.0 million, subject to borrowing base availability, as defined in the credit agreement. The 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 basedmatures on specific advance rates on eligible assets. Such availability is limited to the lesser of (a) the amount committed by the lenders under the credit agreement, or (b) the amount determined based on the borrowing base limited to a certain percentage of certain eligible U.S. assets, including accounts receivable, inventory, real property, as well as machinery and equipment. If at any time the aggregate amounts outstanding under the credit agreement exceed the borrowing base then in effect, we are required to make a prepayment of an amount sufficient to eliminate such excess. 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. Availability under the borrowing base may be affected by events beyond our control, such as collection cycles, advance rates and general economic conditions. These and other events could require us to seek waivers or amendments of covenants or alternative sources of financing or to reduce expenditures. We can provide no assurance that such waivers, amendments or alternative financing sources could be obtained or, if obtained, would be on terms acceptable to us.October 4, 2022. The proceeds from the line of credit agreement are available for permitted acquisitions and general corporate purposes. 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, 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. We may also voluntarily prepay certain amounts under the line of credit without penalty or premium.
As of September 30, 2016,2019, we had approximately $57.8$40.4 million available for borrowing under the line of credit. There were no amounts outstanding pursuant to the line of credit as of September 30, 2016.2019. The amount of funds available for borrowing under the line of credit arrangement may fluctuate each period based on our borrowing base availability, as described above.
43
Shelf Registration Statement
On July 27, 2016,August 8, 2019, we filed a registration statement on Form S-3 with the SEC to sell securities, including common stock, preferred stock, warrants, debt securities, depository shares, purchase contracts and purchase units in amounts to be determined at the time of an offering. Any such offering, if it does occur, may happen in one or more transactions. The specific terms of any securities to be sold will be described in supplemental filings with the SEC. This registration statement will expire on July 27, 2019.
Dividends
Our Board of Directors declared the following dividends during the fiscal years 20162019 and 20152018 (in thousands, except per share data):
Declaration Date | Dividend per Share | Record Date | Payment Date | Total | ||||||||
Fiscal year Ended September 30, 2016 | ||||||||||||
November 4, 2015 | $ | 0.10 | December 4, 2015 | December 22, 2015 | $ | 6,844 | ||||||
February 3, 2016 | 0.10 | March 4, 2016 | March 24, 2016 | 6,862 | ||||||||
April 27, 2016 | 0.10 | June 3, 2016 | June 24, 2016 | 6,863 | ||||||||
July 27, 2016 | 0.10 | September 2, 2016 | September 23, 2016 | 6,876 | ||||||||
Fiscal year Ended September 30, 2015 | ||||||||||||
November 5, 2014 | $ | 0.10 | December 5, 2014 | December 26, 2014 | $ | 6,731 | ||||||
February 4, 2015 | 0.10 | March 6, 2015 | March 27, 2015 | 6,748 | ||||||||
April 28, 2015 | 0.10 | June 5, 2015 | June 26, 2015 | 6,749 | ||||||||
August 5, 2015 | 0.10 | September 4, 2015 | September 25, 2015 | 6,763 |
| | | | | | | | | | |
|
| Dividend |
| |
| |
| | | |
| | per | | Record | | Payment | | | | |
Declaration Date | | Share | | Date | | Date | | Total | ||
Fiscal Year Ended September 30, 2019: |
| |
|
|
|
|
|
| |
|
November 6, 2018 | | $ | 0.10 |
| December 2, 2018 |
| December 20, 2018 | | $ | 7,191 |
January 30, 2019 | |
| 0.10 | | March 1, 2019 | | March 22, 2019 | |
| 7,212 |
April 26, 2019 | |
| 0.10 | | June 7, 2019 | | June 28, 2019 | |
| 7,222 |
July 31, 2019 | |
| 0.10 | | September 6, 2019 | | September 27, 2019 | |
| 7,230 |
Fiscal Year Ended September 30, 2018 | |
|
| |
| |
| |
|
|
November 8, 2018 | | $ | 0.10 |
| December 1, 2017 |
| December 22, 2017 | | $ | 7,040 |
January 31, 2018 | |
| 0.10 | | March 2, 2018 | | March 23, 2018 | |
| 7,050 |
April 30, 2018 | |
| 0.10 | | June 1, 2018 | | June 22, 2018 | |
| 7,058 |
July 31, 2018 | |
| 0.10 | | September 7, 2018 | | September 28, 2018 | |
| 7,066 |
On November 9, 2016,1, 2019, our Board of Directors approved a cash dividend of $0.10 per share of our common stock. The total dividend of approximately $6.9$7.4 million will be paid on December 23, 201620, 2019 to shareholders of record at the close of business on December 2, 2016.6, 2019. Dividends are declared at the discretion of our Board of Directors and depend on actual cash flow from operations, our financial condition, capital requirements and any other factors our Board of Directors may consider relevant. We intend to pay quarterly cash dividends in the future; however, the amount and timing of these
Share Repurchase Program
On September 29, 2015, our Board of Directors approved a share repurchase program for up to $50$50.0 million worth of our common stock. The timing and amount of any shares repurchased are based on market and business conditions, legal requirements and other factors and may be commenced or suspended at any time at our discretion. There were no shares repurchased under this program during fiscal year 2016.2019.
44
Contractual Obligations and Requirements
Our contractual obligations were as follows at September 30, 20162019 (in thousands):
Total | Less than One Year | One to Three Years | Four to Five Years | Thereafter | |||||||||||||||
Contractual Cash Obligations: | |||||||||||||||||||
Operating leases | $ | 6,538 | $ | 3,390 | $ | 3,044 | $ | 104 | $ | — | |||||||||
Pension and other post retirement benefit plans | 2,798 | 155 | 41 | 186 | 2,416 | ||||||||||||||
Other purchase commitments | 104,605 | 95,271 | 9,173 | 161 | — | ||||||||||||||
Total contractual cash obligations | $ | 113,941 | $ | 98,816 | $ | 12,258 | $ | 451 | $ | 2,416 | |||||||||
Other Commercial Commitments: | |||||||||||||||||||
Letters of credit | $ | 1,960 | $ | 1,753 | $ | 207 | $ | — | $ | — | |||||||||
Other commercial commitments | 750 | 750 | — | — | — | ||||||||||||||
Total commercial commitments | $ | 2,710 | $ | 2,503 | $ | 207 | $ | — | $ | — | |||||||||
Total commitments | $ | 116,651 | $ | 101,319 | $ | 12,465 | $ | 451 | $ | 2,416 |
| | | | | | | | | | | | | | | |
|
| | |
| Less than |
| One to |
| Four to |
| | | |||
| | Total | | One Year | | Three Years | | Five Years | | Thereafter | |||||
Contractual Cash Obligations: |
| |
|
| |
|
| |
|
| |
|
| |
|
Operating leases | | $ | 28,523 | | $ | 8,898 | | $ | 9,690 | | $ | 5,686 | | $ | 4,249 |
Capital leases | | | 2,660 | |
| 1,176 | |
| 1,484 | |
| — | |
| — |
Pension and other post-retirement benefit plans | |
| 6,010 | | | 672 | | | 743 | | | 758 | | | 3,837 |
Term loan | | | 51,137 | | | 828 | | | 827 | | | — | | | 49,482 |
Inventory purchase commitment | | | 76,920 | | | 70,898 | | | 6,022 | | | — | | | — |
IT-related commitments | | | 26,581 | | | 7,585 | | | 10,372 | | | 5,553 | | | 3,071 |
China facility commitments | | | 19,712 | | | 10,111 | | | 9,601 | | ��� | — | | | — |
Other commitments | |
| 3,336 | |
| 3,336 | |
| — | |
| — | |
| — |
Total contractual cash obligations | | $ | 214,879 | | $ | 103,504 | | $ | 38,739 | | $ | 11,997 | | $ | 60,639 |
Other Commercial Commitments: | |
|
| |
|
| |
|
| |
|
| |
|
|
Letters of credit | | $ | 1,259 | | $ | 767 | | $ | 492 | | $ | — | | $ | — |
Total commitments | | $ | 216,138 | | $ | 104,271 | | $ | 39,231 | | $ | 11,997 | | $ | 60,639 |
The letters of credit of approximately $2.0$1.3 million are related primarily to customer advances and other performance obligations at September 30, 2016.2019. 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 we fail to meet certain contractual requirements. None of these obligations were called during fiscal year 2016,2019, and we currently do not anticipate any of these obligations to be called in the near future.
As of September 30, 2016,2019, the total amount of net unrecognized tax benefits for uncertain tax positions and the accrual for the related interest was $5.4 $18.3 million, all of which represents a potential future cash outlay. In comparison to September 30, 2018 where the balance was $3.5 million. The increase results from a $13.4 million of unrecognized tax benefits recorded with the acquisition of GENEWIZ. We are unable to make a reasonably reliable estimate of the timing of the cash settlement for this liability since the timing of future tax examinations by various tax jurisdictions and the related resolution is uncertain.
Off-Balance Sheet Arrangements
As of September 30, 2016,2019, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Item 7A. Quantitative andQualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including changes in interest rates affecting the return on our cash and cash equivalents, short-term and long-term investments and fluctuations in foreign currency exchange rates.
Interest Rate Exposure
Our $200.0 million term loan bears variable interest rates which subjects us to interest rate risk. Our primary interest rate risk exposure results from changes in the short-term LIBOR rate, the federal funds effective rate and the prime rate. As of September 30, 2019, the weighted average stated interest rate on the term loans was 5.3%. At September 30, 2019, the outstanding term loan principal balance was $51.1 million, excluding unamortized deferred financing costs of $0.5 million. During fiscal year 2019, we incurred aggregate interest expense of $21.9 million on the term loans. A hypothetical 100 basis point change in interest rates would result in a $5.1 million change in interest expense incurred during fiscal year 2019.
45
Our cash and cash equivalents consist principally of money market securities which are short-term in nature. OurAt September 30, 2019 and 2018, our aggregate short-term and long-term investments consistwere $37.0 million and $53.5 million, respectively, and consisted mostly of highly rated corporate debt securities U.S. Treasury securities, and obligations of U.S. Government Agencies and other municipalities.municipal securities. At September 30, 2016,2019 and 2018, the unrealized loss position on marketable securities was less than $0.1 million,insignificant, which is included in “Accumulated other comprehensive income” in the Consolidated Balance Sheets. We sold a substantial portion of our marketable securities portfolio during fiscal year 2016 and utilized sales proceeds for the acquisition of BioStorage Technologies, Inc. which was completed on November 30, 2015. A hypothetical 100 basis point change in interest rates would result in an annual change of approximately $0.1$0.3 million and less than $1.0 million, respectively, in interest income earned in fiscal year 2016 as compared to approximately $1.4 million in fiscal year 2015. The difference is due to the sale of a substantial portion of our marketable securities portfolio during the current fiscal year.
Currency Rate Exposure
We have 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. Sales in currencies other than the U.S. dollar were 35% and 34%, respectively, of our total sales for each of the fiscal years ended September 30, 20162019 and 2015.2018. These sales were made primarily by our foreign subsidiaries, which have cost structures that substantially align with the currency of sale.
In the normal course of our business, we have liquid assets denominated in non-functional currencies which include cash, short-term advances between our legal entities and accounts receivable which are subject to foreign currency exposure. Such balances were approximately $34.9$117.7 million and $14.2$84.7 million, respectively, at September 30, 20162019 and 2015,2018, and related to the Euro, British Pound and a variety of Asian currencies. We mitigate the impact of potential currency translation losses on these short-term intercompany advances by the timely settlement of each transaction, generally within 30 days. We also utilize forward contracts to mitigate our exposures to currency movement. We incurred a foreign currency losslosses of $1.9$1.8 million and $3.3 million, respectively, in fiscal year 2016 as compared to a gain of $0.5 million in fiscal year 2015,years 2019 and 2018, which related to the currency fluctuation on these balances between the time the transaction occurred and the ultimate settlement of the transaction. A hypothetical 10% change in foreign exchange rates would result in a change of $0.5$0.2 million and $0.1$4.9 million, respectively, in our net (loss) income at September 30, 2016during fiscal year 2019 and 2015.
46
Item 8. Financial Statements and Supplementary Data
51 | |
52 | |
53 | |
54 | |
The supplementary quarterly financial information required by this Item 8 is included in Part II, Item 6, “Selected Financial Data”, and is incorporated herein by reference.
47
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Brooks Automation, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheetsheets of Brooks Automation, Inc. and its subsidiaries (the “Company”) as of September 30, 2016,2019 and 2018, and the related consolidated statements of operations, of comprehensive (loss) income, of changes in equity, and of cash flows for each of the year thenthree years in the period ended September 30, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Brooks Automation, Inc. and its subsidiariesthe Company as of September 30, 2016,2019 and 2018, and the results of theirits operations and theirits cash flows for each of the year thenthree years in the period ended
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Treadway Commission (COSO). annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknessesreferred to above are described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the September 30, 2019 consolidatedfinancial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidatedfinancial statements.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.management’s report referred to above. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our integrated audit. audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our auditaudits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used
48
and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinions.
As discusseddescribed in Note 12 toManagement’s Report on Internal Control Over Financial Reporting, management has excluded GENEWIZ Group from its assessment of internal control over financial reporting as of September 30, 2019 because it was acquired by the Company in a purchase business combination during fiscal year 2019. We have also excluded GENEWIZ Group from our audit of internal control over financial reporting. GENEWIZ Group is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 9% and 16%, respectively, of the related consolidated financial statements,statement amounts as of and for the Company changed the manner in which it classifies deferred taxes in year 2016.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit of internal control over financial reporting. BioStorage Technologies, Inc.matter communicated below is a wholly-owned subsidiary whose total assets and total revenues represent 7.4% and 8.0%, respectively,matter arising from the current period audit of the related consolidated financial statement amounts as of and for the year ended September 30, 2016.
Acquisition of GENEWIZ Group – Valuation of Acquired Intangible Assets
As described in Note 4 to the consolidated financial statements, on November 15, 2018, the Company acquired all material respects,of the financial positionoutstanding capital stock of Brooks Automation, Inc. atGENEWIZ Group for a total cash purchase price of $442.7 million, net of cash acquired and a working capital settlement of $0.4 million. As of September 30, 20152019, the Company recorded $189.1 million of intangible assets and $235.2 million of goodwill. Management applied variations of the income approach to estimate the fair values of the intangible assets acquired. The identifiable intangible assets include customer relationships (excess earnings method) of $125.5 million, completed technology (relief from royalty method) of $44.5 million, and trademarks (relief from royalty method) of $19.1 million. Management applied significant judgment in estimating the fair value of the acquired intangible assets, which involved significant estimates and assumptions with respect to forecast revenue growth rates, gross margin percentage, selling, general, and administrative expenses, and the resultsdiscount rate.
49
The principal considerations for eachour determination that performing procedures relating to the valuation of the two yearsacquired intangible assets is a critical audit matter are there was significant judgment by management when developing the fair value measurement of the acquired intangible assets. This in the period ended September 30, 2015,turn led to a high degree of auditor judgment, subjectivity, and effort in conformity with accounting principles generally accepted in the United Statesperforming procedures and evaluating audit evidence relating to management’s estimates of America.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the acquired intangible assets and assumptions related to forecast revenue growth rates, gross margin percentage, selling, general, and administrative expenses and the discount rate. These procedures also included, among others, testing management’s process for determining the fair value measurements. This included evaluating the appropriateness of the valuation methods and reasonableness of significant assumptions used by management, including forecast revenue growth rates, gross margin percentage, selling, general, and administrative expenses, and the discount rate. Evaluating the assumptions related to the forecast revenue growth rates, gross margin percentage, and selling, general, and administrative expenses involved whether the assumptions used were reasonable considering the past performance of the acquired entity and industry data. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the discount rate.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
December 17, 2019
We have served as to which the date is November 29,Company’s auditor since 2016.
50
BROOKS AUTOMATION, INC.
September 30, 2016 | September 30, 2015 | ||||||
(In thousands, except share and per share data) | |||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 85,086 | $ | 80,722 | |||
Marketable securities | 39 | 70,021 | |||||
Accounts receivable, net | 106,372 | 86,448 | |||||
Inventories | 92,572 | 100,619 | |||||
Assets held for sale | — | 2,900 | |||||
Prepaid expenses and other current assets | 15,265 | 15,158 | |||||
Total current assets | 299,334 | 355,868 | |||||
Property, plant and equipment, net | 54,885 | 41,855 | |||||
Long-term marketable securities | 6,096 | 63,287 | |||||
Long-term deferred tax assets | 1,982 | 87,133 | |||||
Goodwill | 202,138 | 121,408 | |||||
Intangible assets, net | 81,843 | 55,446 | |||||
Equity method investments | 27,273 | 24,308 | |||||
Other assets | 12,354 | 9,397 | |||||
Total assets | $ | 685,905 | $ | 758,702 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities | |||||||
Accounts payable | $ | 41,128 | $ | 44,890 | |||
Deferred revenue | 14,966 | 17,886 | |||||
Accrued warranty and retrofit costs | 6,324 | 6,089 | |||||
Accrued compensation and benefits | 21,254 | 20,401 | |||||
Accrued restructuring costs | 5,939 | 2,073 | |||||
Accrued income taxes payable | 7,554 | 6,111 | |||||
Accrued expenses and other current liabilities | 22,628 | 15,550 | |||||
Total current liabilities | 119,793 | 113,000 | |||||
Long-term tax reserves | 2,681 | 3,644 | |||||
Long-term deferred tax liabilities | 2,913 | 3,495 | |||||
Long-term pension liabilities | 2,557 | 3,118 | |||||
Other long-term liabilities | 4,271 | 3,400 | |||||
Total liabilities | 132,215 | 126,657 | |||||
Commitments and contingencies (Note 22) | |||||||
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, 82,220,270 shares issued and 68,758,401 shares outstanding at September 30, 2016, 81,093,052 shares issued and 67,631,183 shares outstanding at September 30, 2015 | 821 | 811 | |||||
Additional paid-in capital | 1,855,703 | 1,846,357 | |||||
Accumulated other comprehensive income | 15,166 | 5,898 | |||||
Treasury stock, at cost- 13,461,869 shares | (200,956 | ) | (200,956 | ) | |||
Accumulated deficit | (1,117,044 | ) | (1,020,065 | ) | |||
Total stockholders' equity | 553,690 | 632,045 | |||||
Total liabilities and stockholders' equity | $ | 685,905 | $ | 758,702 |
| | | | | | |
|
| September 30, |
| September 30, | ||
| | 2019 | | 2018 | ||
| | (In thousands, except share and per share data) | ||||
Assets |
| |
|
| |
|
Current assets |
| |
|
| |
|
Cash and cash equivalents | | $ | 301,642 | | $ | 197,708 |
Marketable securities | |
| 34,124 | |
| 46,281 |
Accounts receivable, net | |
| 165,602 | |
| 125,192 |
Inventories | |
| 99,445 | |
| 96,986 |
Prepaid expenses and other current assets | |
| 46,332 | |
| 31,741 |
Current assets held for sale | | | — | | | 66,148 |
Total current assets | |
| 647,145 | |
| 564,056 |
Property, plant and equipment, net | |
| 100,669 | |
| 59,988 |
Long-term marketable securities | |
| 2,845 | |
| 7,237 |
Long-term deferred tax assets | |
| 5,064 | |
| 43,798 |
Goodwill | |
| 488,602 | |
| 255,876 |
Intangible assets, net | |
| 251,168 | |
| 99,956 |
Other assets | |
| 20,506 | |
| 5,294 |
Non-current assets held for sale | | | — | | | 59,052 |
Total assets | | $ | 1,515,999 | | $ | 1,095,257 |
Liabilities and Stockholders' Equity | |
| | |
|
|
Current liabilities | |
| | |
|
|
Current portion of long-term debt | | $ | 829 | | $ | 2,000 |
Accounts payable | | | 58,919 | | | 44,724 |
Deferred revenue | |
| 29,435 | |
| 25,884 |
Accrued warranty and retrofit costs | |
| 7,175 | |
| 6,340 |
Accrued compensation and benefits | |
| 31,375 | |
| 29,322 |
Accrued restructuring costs | |
| 1,040 | |
| 659 |
Accrued income taxes payable | |
| 99,263 | |
| 6,746 |
Accrued expenses and other current liabilities | |
| 44,234 | |
| 30,405 |
Current liabilities held for sale | | | — | | | 18,537 |
Total current liabilities | |
| 272,270 | |
| 164,617 |
Long-term debt | | | 50,315 | | | 194,071 |
Long-term tax reserves | |
| 18,274 | |
| 1,102 |
Long-term deferred tax liabilities | |
| 20,636 | |
| 7,135 |
Long-term pension liabilities | |
| 5,338 | |
| 4,255 |
Other long-term liabilities | |
| 10,212 | |
| 5,547 |
Non-current liabilities held for sale | | | — | | | 698 |
Total liabilities | |
| 377,045 | |
| 377,425 |
Commitments and contingencies (Note 23) | |
|
| |
|
|
Stockholders' Equity | |
|
| |
|
|
Preferred stock, $0.01 par value - 1,000,000 shares authorized, 0 shares issued or outstanding | |
| — | |
| — |
Common stock, $0.01 par value - 125,000,000 shares authorized, 85,759,700 shares issued and 72,297,831 shares outstanding at September 30, 2019, 84,164,130 shares issued and 70,702,261 shares outstanding at September 30, 2018 | |
| 857 | |
| 841 |
Additional paid-in capital | |
| 1,921,954 | |
| 1,898,434 |
Accumulated other comprehensive income | |
| 3,511 | |
| 13,587 |
Treasury stock, at cost- 13,461,869 shares | |
| (200,956) | |
| (200,956) |
Accumulated deficit | |
| (586,412) | |
| (994,074) |
Total stockholders' equity | | | 1,138,954 | | | 717,832 |
Total liabilities and stockholders' equity | | $ | 1,515,999 | | $ | 1,095,257 |
The accompanying notes are an integral part of these consolidated financial statements.
51
BROOKS AUTOMATION, INC.
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In thousands, except per share data) | |||||||||||
Revenue | |||||||||||
Products | $ | 421,783 | $ | 457,411 | $ | 387,032 | |||||
Services | 138,540 | 95,297 | 95,816 | ||||||||
Total revenue | 560,323 | 552,708 | 482,848 | ||||||||
Cost of revenue | |||||||||||
Product | 267,974 | 298,348 | 250,268 | ||||||||
Services | 94,268 | 65,255 | 65,243 | ||||||||
Total cost of revenue | 362,242 | 363,603 | 315,511 | ||||||||
Gross profit | 198,081 | 189,105 | 167,337 | ||||||||
Operating expenses | |||||||||||
Research and development | 51,543 | 52,232 | 52,649 | ||||||||
Selling, general and administrative | 130,261 | 115,270 | 111,098 | ||||||||
Restructuring and other charges | 12,039 | 4,713 | 6,289 | ||||||||
Total operating expenses | 193,843 | 172,215 | 170,036 | ||||||||
Operating income (loss) | 4,238 | 16,890 | (2,699 | ) | |||||||
Interest income | 452 | 899 | 950 | ||||||||
Interest expense | (157 | ) | (395 | ) | (202 | ) | |||||
Other (expense) income, net | (579 | ) | 421 | 256 | |||||||
Income (loss) before income taxes and earnings (losses) of equity method investments | 3,954 | 17,815 | (1,695 | ) | |||||||
Income tax provision (benefit) | 75,810 | 3,430 | (1,980 | ) | |||||||
(Loss) income before earnings (losses) of equity method investments | (71,856 | ) | 14,385 | 285 | |||||||
Equity in earnings (losses) of equity method investments | 2,380 | (164 | ) | 1,235 | |||||||
(Loss) income from continuing operations | (69,476 | ) | 14,221 | 1,520 | |||||||
Income from discontinued operations, net of tax | — | — | 30,002 | ||||||||
Net (loss) income | (69,476 | ) | 14,221 | 31,522 | |||||||
Net income attributable to noncontrolling interests | — | — | (161 | ) | |||||||
Net (loss) income attributable to Brooks Automation, Inc. | $ | (69,476 | ) | $ | 14,221 | $ | 31,361 | ||||
Basic net (loss) income per share attributable to Brooks Automation, Inc. common stockholders: | |||||||||||
(Loss) income from continuing operations | $ | (1.01 | ) | $ | 0.21 | $ | 0.02 | ||||
Income from discontinued operations, net of tax | — | — | 0.45 | ||||||||
Basic net (loss) income per share attributable to Brooks Automation, Inc. | $ | (1.01 | ) | $ | 0.21 | $ | 0.47 | ||||
Diluted net (loss) income per share attributable to Brooks Automation, Inc. common stockholders: | |||||||||||
(Loss) income from continuing operations | $ | (1.01 | ) | $ | 0.21 | $ | 0.02 | ||||
Income from discontinued operations, net of tax | — | — | 0.44 | ||||||||
Diluted net (loss) income per share attributable to Brooks Automation, Inc. common stockholders | $ | (1.01 | ) | $ | 0.21 | $ | 0.46 | ||||
Dividend declared per share | $ | 0.40 | $ | 0.40 | $ | 0.34 | |||||
Weighted-average shares used in computing earnings (loss) per share: | |||||||||||
Basic | 68,507 | 67,411 | 66,648 | ||||||||
Diluted | 68,507 | 68,549 | 67,644 |
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended September 30, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
| | (In thousands, except per share data) | |||||||
Revenue |
| |
|
| |
|
| |
|
Products | | $ | 504,029 | | $ | 482,389 | | $ | 406,986 |
Services | |
| 276,819 | |
| 149,171 | |
| 120,513 |
Total revenue | |
| 780,848 | |
| 631,560 | |
| 527,499 |
Cost of revenue | |
|
| |
|
| |
|
|
Products | |
| 302,237 | |
| 288,323 | |
| 249,396 |
Services | |
| 162,351 | |
| 97,156 | |
| 79,216 |
Total cost of revenue | |
| 464,588 | |
| 385,479 | |
| 328,612 |
Gross profit | |
| 316,260 | |
| 246,081 | |
| 198,887 |
Operating expenses | |
|
| |
|
| |
|
|
Research and development | |
| 56,368 | |
| 46,936 | |
| 39,875 |
Selling, general and administrative | |
| 211,960 | |
| 167,022 | |
| 141,549 |
Restructuring charges | |
| 1,894 | |
| 714 | |
| 3,144 |
Total operating expenses | |
| 270,222 | |
| 214,672 | |
| 184,568 |
Operating income | |
| 46,038 | |
| 31,409 | |
| 14,319 |
Interest income | |
| 1,449 | |
| 1,881 | |
| 464 |
Interest expense | |
| (22,250) | |
| (9,520) | |
| (408) |
Gain on settlement of equity method investment | | | — | | | — | | | 1,847 |
Loss on extinguishment of debt | |
| (14,339) | | | — | | | — |
Other expenses, net | |
| (1,455) | |
| (3,304) | |
| (1,702) |
Income before income taxes | |
| 9,443 | |
| 20,466 | |
| 14,520 |
Income tax (benefit) provision | |
| (111) | |
| (47,251) | |
| 3,380 |
Income before equity in earnings of equity method investments | |
| 9,554 | |
| 67,717 | |
| 11,140 |
Equity in earnings of equity method investments | |
| — | |
| — | |
| (453) |
Income from continuing operations | |
| 9,554 | |
| 67,717 | |
| 10,687 |
Income from discontinued operations, net of tax | |
| 427,862 | |
| 48,747 | |
| 51,925 |
Net income | | $ | 437,416 | | $ | 116,464 | | $ | 62,612 |
Net loss attributable to noncontrolling interest | |
| — | |
| 111 | |
| — |
Net income attributable to Brooks Automation, Inc. | | $ | 437,416 | | $ | 116,575 | | $ | 62,612 |
Basic net income per share attributable to Brooks Automation, Inc. common stockholders: | |
|
| |
|
| |
|
|
Income from continuing operations | | $ | 0.13 | | $ | 0.96 | | $ | 0.15 |
Income from discontinued operations, net of tax | |
| 5.95 | |
| 0.69 | |
| 0.75 |
Basic net income per share | | $ | 6.08 | | $ | 1.65 | | $ | 0.90 |
Diluted net income per share attributable to Brooks Automation, Inc. common stockholders: | |
|
| |
|
| |
|
|
Income from continuing operations | | $ | 0.13 | | $ | 0.95 | | $ | 0.15 |
Income from discontinued operations, net of tax | |
| 5.91 | |
| 0.69 | |
| 0.74 |
Diluted net income per share | | $ | 6.04 | | $ | 1.64 | | $ | 0.89 |
Weighted average shares used in computing net income per share: | |
|
| | |
| |
|
|
Basic | |
| 71,992 | |
| 70,489 | |
| 69,575 |
Diluted | |
| 72,386 | |
| 70,937 | |
| 70,485 |
The accompanying notes are an integral part of these consolidated financial statements.
52
BROOKS AUTOMATION, INC.
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In thousands) | |||||||||||
Net (loss) income | $ | (69,476 | ) | $ | 14,221 | $ | 31,522 | ||||
Other comprehensive income (loss), net of tax: | |||||||||||
Cumulative foreign currency translation adjustments | 8,844 | (9,557 | ) | (6,296 | ) | ||||||
Unrealized gains (losses) on marketable securities, net of tax effects of $58, $(83) and $62 for fiscal years 2016, 2015 and 2014 | (106 | ) | 141 | (104 | ) | ||||||
Change in fair value of cash flow hedges, net of tax impact of $9 for fiscal year 2014 | — | — | (14 | ) | |||||||
Actuarial losses, net of tax effects of $161, $115 and $471 for fiscal years 2016, 2015 and 2014 | (322 | ) | (605 | ) | (503 | ) | |||||
Pension settlement | — | 232 | — | ||||||||
Pension curtailment | 852 | — | — | ||||||||
Total other comprehensive income (loss), net of tax | 9,268 | (9,789 | ) | (6,917 | ) | ||||||
Comprehensive income attributable to noncontrolling interests | — | — | (161 | ) | |||||||
Comprehensive (loss) income attributable to Brooks Automation, Inc., net of tax | $ | (60,208 | ) | $ | 4,432 | $ | 24,444 |
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended September 30, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
| | (In thousands) | |||||||
Net income | | $ | 437,416 | | $ | 116,464 | | $ | 62,612 |
Other comprehensive income (loss), net of tax: | |
|
| |
|
| |
|
|
Foreign currency translation adjustments | |
| (9,333) | |
| (1,651) | |
| (221) |
Unrealized gains (losses) on marketable securities, net of tax effects of ($1), $0 and $0 for fiscal years 2019, 2018 and 2017 | |
| 104 | |
| (111) | |
| 2 |
Actuarial (losses) gains, net of tax effects of $13, ($49) and ($74) for fiscal years 2019, 2018 and 2017 | |
| (847) | |
| 136 | |
| 525 |
Pension settlement | |
| — | |
| — | |
| (259) |
Total other comprehensive (loss) income, net of tax | |
| (10,076) | |
| (1,626) | |
| 47 |
Comprehensive income | | | 427,340 | | | 114,838 | | | 62,659 |
Comprehensive loss attributable to noncontrolling interest | |
| — | |
| 111 | |
| — |
Comprehensive income attributable to common stockholders | | $ | 427,340 | | $ | 114,949 | | $ | 62,659 |
The accompanying notes are an integral part of these consolidated financial statements.
53
BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In thousands) | |||||||||||
Cash flows from operating activities | |||||||||||
Net (loss) income | $ | (69,476 | ) | $ | 14,221 | $ | 31,522 | ||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 28,046 | 25,160 | 23,459 | ||||||||
Impairment of intangible assets | — | — | 398 | ||||||||
Impairment of other assets | 807 | — | 2,621 | ||||||||
Stock-based compensation | 11,737 | 12,159 | 10,912 | ||||||||
Amortization of premium on marketable securities and deferred financing costs | 339 | 1,193 | 1,255 | ||||||||
Undistributed (earnings) losses of equity method investments | (2,380 | ) | 164 | (1,235 | ) | ||||||
Deferred income tax provision (benefit) | 70,273 | (2,173 | ) | (1,779 | ) | ||||||
Loss on write-downs of assets held for sale | — | 1,944 | — | ||||||||
Pension settlement | — | 232 | — | ||||||||
Gain on disposal of businesses | — | (85 | ) | (27,444 | ) | ||||||
(Gain) loss on disposal of long-lived assets | (41 | ) | — | 13 | |||||||
Changes in operating assets and liabilities, net of acquisitions and disposals: | |||||||||||
Accounts receivable | (1,796 | ) | (5,134 | ) | 12,098 | ||||||
Inventories | 8,565 | (5,919 | ) | 9,598 | |||||||
Prepaid expenses and other current assets | (428 | ) | (2,875 | ) | (12,325 | ) | |||||
Accounts payable | (5,143 | ) | 8,358 | (11,924 | ) | ||||||
Deferred revenue | (3,290 | ) | (6,779 | ) | 5,900 | ||||||
Accrued warranty and retrofit costs | 290 | (407 | ) | (1,102 | ) | ||||||
Accrued compensation and tax withholdings | (3,234 | ) | (1,148 | ) | 6,783 | ||||||
Accrued restructuring costs | 3,860 | (1,247 | ) | 2,161 | |||||||
Accrued pension costs | (811 | ) | 812 | 997 | |||||||
Accrued expenses and other current liabilities | 2,229 | 5,251 | 1,873 | ||||||||
Net cash provided by operating activities | 39,547 | 43,727 | 53,781 | ||||||||
Cash flows from investing activities | |||||||||||
Purchases of property, plant and equipment | (12,848 | ) | (16,146 | ) | (5,518 | ) | |||||
Purchases of marketable securities | (12,901 | ) | (87,333 | ) | (174,287 | ) | |||||
Sales and maturities of marketable securities | 139,388 | 104,008 | 112,085 | ||||||||
Proceeds from divestitures | — | — | 85,369 | ||||||||
Disbursement for a loan receivable | (1,821 | ) | — | — | |||||||
Acquisitions, net of cash acquired | (125,248 | ) | (14,450 | ) | (35,625 | ) | |||||
Decrease in restricted cash | — | — | 177 | ||||||||
Proceeds from liquidation of a joint venture | — | 1,778 | — | ||||||||
Purchases of other investments | (250 | ) | (5,500 | ) | — | ||||||
Proceeds from sales of property, plant and equipment | 2,806 | 6 | — | ||||||||
Net cash used in investing activities | (10,874 | ) | (17,637 | ) | (17,799 | ) | |||||
Cash flows from financing activities | |||||||||||
Proceeds from line of credit | 366 | — | — | ||||||||
Proceeds from issuance of common stock | 1,888 | 1,807 | 1,838 | ||||||||
Principal repayments of capital lease obligations | — | — | (239 | ) | |||||||
Payment of deferred financing costs | (708 | ) | — | — | |||||||
Acquisitions of noncontrolling interest | — | — | (3,189 | ) | |||||||
Repayment of debt assumed in business acquisition | — | (8,829 | ) | — | |||||||
Common stock dividends paid | (27,503 | ) | (26,992 | ) | (22,875 | ) | |||||
Net cash used in financing activities | (25,957 | ) | (34,014 | ) | (24,465 | ) | |||||
Effects of exchange rate changes on cash and cash equivalents | 1,648 | (5,468 | ) | (374 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 4,364 | (13,392 | ) | 11,143 | |||||||
Cash and cash equivalents, beginning of year | 80,722 | 94,114 | 82,971 | ||||||||
Cash and cash equivalents, end of year | $ | 85,086 | $ | 80,722 | $ | 94,114 |
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | |
| | | | | | | | | |
|
| | Year Ended September 30, | | |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
| | (In thousands) |
| |||||||
Cash flows from operating activities |
| |
| | |
| | |
| |
Net income | | $ | 437,416 | | $ | 116,464 | | $ | 62,612 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
| |
|
| |
Depreciation and amortization | | | 54,454 | |
| 37,429 | |
| 28,149 | |
Gain on settlement of equity method investment | |
| — | | | — | | | (1,847) | |
Impairment of property, plant and equipment | |
| 285 | |
| — | |
| — | |
Stock-based compensation | |
| 20,113 | |
| 19,822 | |
| 17,278 | |
Amortization of premium on marketable securities and deferred financing costs | |
| 1,121 | |
| 710 | |
| 252 | |
Earnings of equity method investments | |
| (6,188) | |
| (6,788) | |
| (9,381) | |
Loss recovery on insurance claim | | | — | | | (1,103) | | | — | |
Deferred income taxes | |
| (15,161) | |
| (45,217) | |
| 517 | |
Loss on extinguishment of debt | |
| 14,339 | |
| — | |
| — | |
Pension settlement | |
| — | |
| — | |
| (259) | |
Other losses (gains) on disposals of assets | |
| 209 | |
| (758) | |
| (406) | |
Gain on sale of divestiture, net of tax | | | (408,575) | | | — | | | — | |
Contingent transaction fees paid stemming from divestiture | | | (13,388) | | | — | | | — | |
Changes in operating assets and liabilities, net of acquisitions and divestiture: | |
| | |
|
| |
|
| |
Accounts receivable | |
| (11,445) | |
| (28,463) | |
| (11,178) | |
Inventories | |
| (2,933) | |
| (24,365) | |
| (12,792) | |
Prepaid expenses and other assets | |
| (16,009) | |
| (3,676) | |
| (5,829) | |
Accounts payable | |
| 4,695 | |
| 5,457 | |
| 7,846 | |
Deferred revenue | |
| 4,213 | |
| 2,791 | |
| 8,049 | |
Accrued warranty and retrofit costs | |
| 1,109 | |
| (157) | |
| 1,602 | |
Accrued compensation and tax withholdings | |
| (6,453) | |
| 5,978 | |
| 5,565 | |
Accrued restructuring costs | |
| 399 | |
| (1,080) | |
| (4,241) | |
Accrued pension costs | |
| — | |
| — | |
| (32) | |
Proceeds from recovery on insurance claim | | | 1,082 | | | — | | | — | |
Accrued expenses and other liabilities | |
| 31,615 | |
| (3,080) | |
| 10,319 | |
Net cash provided by operating activities | |
| 90,898 | |
| 73,964 | |
| 96,224 | |
Cash flows from investing activities | |
| | |
|
| |
|
| |
Purchases of property, plant and equipment | |
| (23,861) | |
| (12,787) | |
| (12,677) | |
Purchases of technology intangibles | | | — | | | — | | | (240) | |
Purchases of marketable securities | |
| (35,225) | |
| (69,692) | |
| — | |
Sales of marketable securities | |
| 48,903 | |
| 1,584 | |
| 3,590 | |
Maturities of marketable securities | | | 2,557 | | | 17,482 | | | — | |
Proceeds from divestiture | |
| 661,642 | |
| — | |
| — | |
Acquisitions, net of cash acquired | |
| (442,704) | |
| (85,755) | |
| (44,791) | |
Purchase of other investments | |
| — | |
| 500 | |
| (170) | |
Proceeds from sales of property, plant and equipment | |
| — | |
| 200 | |
| 100 | |
Net cash provided by (used in) investing activities | |
| 211,312 | |
| (148,468) | |
| (54,188) | |
Cash flows from financing activities | |
|
| |
|
| |
|
| |
Proceeds from term loans, net of discount | |
| 686,386 | |
| 197,554 | |
| — | |
Proceeds from issuance of common stock | |
| 3,422 | |
| 2,826 | |
| 2,040 | |
Payments of financing costs | |
| (687) | |
| (318) | |
| (28) | |
Principal payments on debt | |
| (850,190) | |
| (1,500) | |
| — | |
Payments of capital leases | | | (1,197) | | | — | | | — | |
Common stock dividends paid | |
| (28,895) | |
| (28,285) | |
| (27,932) | |
Net cash provided by (used in) financing activities | |
| (191,161) | |
| 170,277 | |
| (25,920) | |
Effects of exchange rate changes on cash and cash equivalents | |
| (3,586) | |
| 313 | |
| 420 | |
Net increase in cash, cash equivalents and restricted cash | |
| 107,463 | |
| 96,086 | |
| 16,536 | |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 197,708 |
|
| 101,622 |
|
| 85,086 |
|
Cash, cash equivalents and restricted cash, end of period | | $ | 305,171 |
| $ | 197,708 |
| $ | 101,622 |
|
Supplemental disclosures: | |
|
| |
|
| |
|
| |
Cash paid for interest | | $ | 20,799 | | $ | 6,537 | | $ | 200 | |
Cash paid for income taxes, net | |
| 16,990 | |
| 21,051 | |
| 8,142 | |
Supplemental disclosure of non-cash investing and financing activities: | |
| | |
| | |
|
| |
Deferred financing costs included in accounts payable | | | — | | | — | | | 423 | |
Fair value of non-cash consideration for the acquisition of Cool Lab, LLC | |
| — | |
| — | |
| 10,348 | |
| | | | | | | | | | |
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets | | | | | | | | | | |
Cash and cash equivalents | | $ | 301,642 | | $ | 197,708 | | $ | 101,622 | |
Restricted cash included in prepaid expenses and other current assets | | | 3,529 | | | — | | | — | |
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | | $ | 305,171 | | $ | 197,708 | | $ | 101,622 | |
The accompanying notes are an integral part of these consolidated financial statements.
54
BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) | |||||||||||
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In thousands) | |||||||||||
Supplemental disclosures: | |||||||||||
Cash paid for interest | $ | 114 | $ | 395 | $ | 202 | |||||
Cash paid for income taxes, net | 4,930 | 3,883 | 1,084 | ||||||||
Supplemental disclosure of non-cash investing and financing activities: | |||||||||||
Acquisition of buildings and land through capital lease | $ | — | $ | — | $ | 8,537 | |||||
Derecognition of a capital lease obligation and the related assets | — | 7,804 | — |
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| | |
| | |
| | |
| | |
| 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, 2016 |
| 82,220,270 | | $ | 821 | | $ | 1,855,703 | | $ | 15,166 | | $ | (1,117,044) | | $ | (200,956) | | $ | 553,690 | | $ | — | | $ | 553,690 |
Shares issued under restricted stock and purchase plans, net |
| 1,074,578 | |
| 12 | |
| 1,937 | |
|
| |
|
| |
|
| |
| 1,949 | |
|
| |
| 1,949 |
Stock-based compensation |
|
| |
|
| |
| 17,278 | |
|
| |
|
| |
|
| |
| 17,278 | |
|
| |
| 17,278 |
Common stock dividends declared, at $0.40 per share |
|
| |
|
| |
|
| |
|
| |
| (27,932) | |
|
| |
| (27,932) | |
|
| |
| (27,932) |
Net income |
|
| |
|
| |
|
| |
|
| |
| 62,612 | |
|
| |
| 62,612 | |
|
| |
| 62,612 |
Foreign currency translation adjustments |
|
| |
|
| |
|
| |
| (221) | |
|
| |
|
| |
| (221) | |
|
| |
| (221) |
Changes in unrealized losses on marketable securities, net of tax effects of $0 |
|
| |
|
| |
|
| |
| 2 | |
|
| |
|
| |
| 2 | |
|
| |
| 2 |
Actuarial gains arising in the year, net of tax effects of ($74) |
|
| |
|
| |
|
| |
| 525 | |
|
| |
|
| |
| 525 | |
|
| |
| 525 |
Pension settlement |
|
| |
|
| |
|
| |
| (259) | |
|
| |
|
| |
| (259) | |
|
| |
| (259) |
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 |
| 869,282 | |
| 8 | |
| 2,818 | |
|
| |
|
| |
|
| |
| 2,826 | |
|
| |
| 2,826 |
Stock-based compensation |
|
| |
|
| |
| 19,822 | |
|
| |
|
| |
|
| |
| 19,822 | |
|
| |
| 19,822 |
Common stock dividends declared, at $0.40 per share |
|
| |
|
| |
|
| |
|
| |
| (28,285) | |
|
| |
| (28,285) | |
|
| |
| (28,285) |
Acquisition of noncontrolling interest |
| | | | | | | 876 | | | | | | | | | | | | 876 | | | 111 | |
| 987 |
Net income |
|
| |
|
| |
| | |
|
| |
| 116,575 | |
|
| |
| 116,575 | |
| (111) | |
| 116,464 |
Foreign currency translation adjustments |
|
| |
|
| |
|
| |
| (1,651) | |
|
| |
|
| |
| (1,651) | |
|
| |
| (1,651) |
Changes in unrealized losses on marketable securities, net of tax effects of $0 |
|
| |
|
| |
|
| |
| (111) | |
|
| |
|
| |
| (111) | |
|
| |
| (111) |
Actuarial gains arising in the year, net of tax effects of ($49) |
|
| |
|
| |
|
| |
| 136 | |
|
| |
|
| |
| 136 | |
|
| |
| 136 |
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 |
| 1,595,570 | |
| 16 | |
| 3,407 | |
|
| |
|
| |
|
| |
| 3,423 | |
|
| |
| 3,423 |
Stock-based compensation |
|
| |
|
| |
| 20,113 | |
|
| |
|
| |
|
| |
| 20,113 | |
|
| |
| 20,113 |
Common stock dividends declared, at $0.40 per share |
|
| |
|
| |
|
| |
|
| |
| (28,895) | |
|
| |
| (28,895) | |
|
| |
| (28,895) |
Net income |
|
| |
|
| |
| | |
|
| |
| 437,416 | |
|
| |
| 437,416 | |
| | |
| 437,416 |
Foreign currency translation adjustments |
| | |
|
| |
|
| |
| (9,333) | |
|
| |
|
| |
| (9,333) | |
|
| |
| (9,333) |
Changes in unrealized losses on marketable securities, net of tax effects of ($1) |
|
| |
|
| |
|
| |
| 104 | |
|
| |
|
| |
| 104 | |
|
| |
| 104 |
Actuarial loss arising in the year, net of tax effects of $13 |
|
| |
|
| |
|
| |
| (847) | |
|
| |
|
| |
| (847) | |
|
| |
| (847) |
Cumulative effect of adoption of ASC 606 |
|
| |
|
| |
|
| |
| — | |
| (859) | |
|
| |
| (859) | |
|
| |
| (859) |
Balance September 30, 2019 |
| 85,759,700 | | $ | 857 | | $ | 1,921,954 | | $ | 3,511 | | $ | (586,412) | | $ | (200,956) | | $ | 1,138,954 | | $ | — | | $ | 1,138,954 |
The accompanying notes are an integral part of these consolidated financial statements.
55
BROOKS AUTOMATION, INC.
Common Stock Shares | Common Stock at Par Value | Additional Paid-In Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Treasury Stock | Total Brooks Automation, Inc. Stockholders’ Equity | Noncontrolling Interests in Subsidiaries | Total Equity | ||||||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||||||||
Balance September 30, 2013 | 80,039,104 | $ | 800 | $ | 1,825,499 | $ | 22,604 | $ | (1,015,991 | ) | $ | (200,956 | ) | $ | 631,956 | $ | 700 | $ | 632,656 | |||||||||||||||
Shares issued under stock option, restricted stock and purchase plans, net | 336,673 | 4 | 386 | 390 | 390 | |||||||||||||||||||||||||||||
Stock-based compensation | 11,062 | 11,062 | 11,062 | |||||||||||||||||||||||||||||||
Common stock dividends declared, at $0.34 per share | (22,635 | ) | (22,635 | ) | (22,635 | ) | ||||||||||||||||||||||||||||
Acquisition of noncontrolling interest | (2,328 | ) | (2,328 | ) | (861 | ) | (3,189 | ) | ||||||||||||||||||||||||||
Net income | 31,361 | 31,361 | 161 | 31,522 | ||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (6,296 | ) | (6,296 | ) | (6,296 | ) | ||||||||||||||||||||||||||||
Changes in unrealized losses on marketable securities, net of tax effects of $62 | (104 | ) | (104 | ) | (104 | ) | ||||||||||||||||||||||||||||
Changes in unrealized losses on cash flow hedges, net of tax effects of $9 | (14 | ) | (14 | ) | ||||||||||||||||||||||||||||||
Actuarial losses arising in the year, net of tax effects of $471 | (503 | ) | (503 | ) | (503 | ) | ||||||||||||||||||||||||||||
Balance September 30, 2014 | 80,375,777 | 804 | 1,834,619 | 15,687 | (1,007,265 | ) | (200,956 | ) | 642,889 | — | 642,889 | |||||||||||||||||||||||
Shares issued under restricted stock and purchase plans, net | 717,275 | 7 | (421 | ) | (414 | ) | (414 | ) | ||||||||||||||||||||||||||
Stock-based compensation | 12,159 | 12,159 | 12,159 | |||||||||||||||||||||||||||||||
Common stock dividends declared, at $0.40 per share | (27,021 | ) | (27,021 | ) | (27,021 | ) | ||||||||||||||||||||||||||||
Net income | 14,221 | 14,221 | 14,221 | |||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (9,557 | ) | (9,557 | ) | (9,557 | ) | ||||||||||||||||||||||||||||
Changes in unrealized gains on marketable securities, net of tax effects of ($83) | 141 | 141 | 141 | |||||||||||||||||||||||||||||||
Actuarial losses arising in the year, net of tax effects of $115 | (605 | ) | (605 | ) | (605 | ) | ||||||||||||||||||||||||||||
Recognition of pension settlement in earnings | 232 | 232 | 232 | |||||||||||||||||||||||||||||||
Balance September 30, 2015 | 81,093,052 | 811 | 1,846,357 | 5,898 | (1,020,065 | ) | (200,956 | ) | 632,045 | — | 632,045 | |||||||||||||||||||||||
Shares issued under restricted stock and purchase plans, net | 1,127,218 | 10 | (2,391 | ) | (2,381 | ) | (2,381 | ) | ||||||||||||||||||||||||||
Stock-based compensation | 11,737 | 11,737 | 11,737 | |||||||||||||||||||||||||||||||
Common stock dividends declared, at $0.40 per share | (27,503 | ) | (27,503 | ) | (27,503 | ) | ||||||||||||||||||||||||||||
Net loss | (69,476 | ) | (69,476 | ) | (69,476 | ) | ||||||||||||||||||||||||||||
Foreign currency translation adjustments | 8,844 | 8,844 | 8,844 | |||||||||||||||||||||||||||||||
Changes in unrealized losses on marketable securities, net of tax effects of $58 | (106 | ) | (106 | ) | (106 | ) | ||||||||||||||||||||||||||||
Actuarial losses arising in the year, net of tax effects of $161 | (322 | ) | (322 | ) | (322 | ) | ||||||||||||||||||||||||||||
Pension curtailment | 852 | 852 | 852 | |||||||||||||||||||||||||||||||
Balance September 30, 2016 | 82,220,270 | $ | 821 | $ | 1,855,703 | $ | 15,166 | $ | (1,117,044 | ) | $ | (200,956 | ) | $ | 553,690 | $ | — | $ | 553,690 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Business
Brooks Automation, Inc. (“Brooks”, or the “Company”) is a leading global provider of semiconductor manufacturing automation solutions and cryogeniclife science sample-based services and solutions for multiple applications and markets. The Company primarily servesworldwide. In the semiconductor capital equipmentmanufacturing market, and sample management market for life sciences. The Company's technologies, engineering competencies and global service capabilities provide customers speed to market and ensure high uptime and rapid response, which equate to superior value in their mission-critical controlled environments. Since 1978, the Company has been a leadingprovider of precision robotics, integrated automation systems and services for more than 40 years. In the life sciences market, the Company applies its automation and cryogenics expertise to offer a full suite of sample-based services and products, including a full line of cold chain management solutions for handling and storing biological and chemical compound samples used in areas such as drug development, clinical research and advanced cell therapies. The Company is also a global provider of gene sequencing and gene synthesis services. The Company believes its leadership positions and its global support capability in each of these markets make it a valued business partner to the globallargest semiconductor manufacturing markets. The Company has expanded its productscapital equipment device makers, and services through product development initiativespharmaceutical and strategic business acquisitions to meet the needs of customerslife science research institutions in the life scienceworld. The Company’s offerings are also applied to other adjacent technology and technologyindustrial markets, adjacent to semiconductor.
Discontinued Operations
In the secondfourth quarter of fiscal year 2014,2018, 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”), (the “Disposition”). The Company determined that its Granville-Phillips Gas Analysis & Vacuum Measurement, or Granville-Phillips,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 being reportedFinancial Statements, (“FASB ASC 205”) as aof September 30, 2018 (please refer to Note 3, “Discontinued Operations” for further information about the discontinued operation. As a result, the Company’s historical financial statements have been revised to present the operating results of the Granville-Phillips business as a discontinued operation.business). The results of operations from the Granville-Phillips business are presented as “Income from discontinued operations, net of tax” in theConsolidated Balance Sheets and Consolidated Statements of Operations. The Company has not separated cash flowsOperations, and the notes to the Consolidated Financial Statements were restated for all periods presented to reflect the discontinuation of the Granville-Phillipssemiconductor cryogenics business, from those of its continuing operations and has not revised its historical statements of cash flows. Unless otherwise noted, thein accordance with FASB ASC 205. The discussion in the notes to these Consolidated Financial Statements, relatesunless otherwise noted, relate solely to the Company's continuing operations.
On July 1, 2019, we completed the sale of Prior Period Financial Statements
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
Principles of Consolidation and Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company applies the equity method of accounting to investments that provide it with the ability to exercise significant influence over the entities in which it lacks controlling financial interest and is not a primary beneficiary.
56
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Significant estimates are associated with recording accounts receivable, inventories, goodwill, intangible assets other than goodwill, long-lived assets, derivative financial instruments, deferred income taxes, warranty and pension obligations, revenue recognized in accordance with the percentage of completion method, and stock-based compensation expense. The Company assesses the estimates on an ongoing basis and records changes in estimates in the period they occur and become known. Actual results could differ from these estimates.
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.
Significant judgments are used in determining fair values of assets acquired and liabilities assumed, as well as intangibles. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows royalty cost savings and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company'sCompany’s current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a
Foreign Currency Translation
Certain transactions of the Company and its subsidiaries are denominated in currencies other than their functional currency. Foreign currency exchange gains (losses) generated from the settlement and remeasurement of these transactions are
The determination of the functional currency of the Company'sCompany’s subsidiaries is based on their financial and operational environment and is the local currency of all of the Company'sCompany’s foreign subsidiaries. The subsidiaries'subsidiaries’ assets and liabilities are translated into the reporting currency at period-end exchange rates, while revenue, expenses, gains and losses are translated at the average exchange rates during the period. Gains and losses from foreign currency translations are recorded in accumulated“Accumulated other comprehensive incomeincome” in the Company'sCompany’s Consolidated Balance Sheets and presented as a component of comprehensive income (loss) in the Company'sCompany’s Consolidated Statements of Comprehensive Income (Loss).
Derivative Financial Instruments
All derivatives, whether designated as a hedging relationship or not, are recorded in the Consolidated Balance Sheets at fair value. The accounting for changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation based on the exposure being hedged. Certain derivatives held by the Company are not designated as hedges but are used in managing exposure to changes in foreign exchange rates.
57
A fair value hedge is a derivative instrument designated for the purpose of hedging the exposure ofto changes in fair value of an asset or a liability resulting from a particular risk. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are both recognized in the results of operations and presented in the same caption in the Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss).
A cash flow hedge is a derivative instrument designated for the purpose of hedging the exposure to variability in future cash flows resulting from a particular risk. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in accumulated other comprehensive income and recognized in the results of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in the results of operations.
A hedge of a net investment in a foreign operation is achieved through a derivative instrument designated for the purpose of hedging the exposure of changes in value of investments in foreign subsidiaries. If the derivative is designated as a hedge of a net investment in a foreign operation, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income as a part of the foreign currency translation adjustment. Ineffective portions of net investment hedges are recognized in the results of operations.
For derivative instruments not designated as hedging instruments, changes in fair value are recognized in the Consolidated Statements of Operations as gains or losses consistent with the classification of the underlying risk.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash deposits and cash equivalents, marketable securities, derivative instruments and accounts receivable. All of the Company’s cash, cash equivalents, marketable securities and derivative instruments are maintained by major financial institutions.
The Company invests cash not used in operations in investment grade, high credit quality securities in accordance with the Company'sCompany’s investment policy which provides guidelines and limits regarding investments type, concentration, credit quality and maturity terms aimed at maintaining liquidity and reducing risk of capital loss.
The Company regularly monitors the creditworthiness of its customers and believes that it has adequately provided for exposure to potential credit losses. The Company's topCompany’s ten largest customers accounted for approximately 34%28%, 38%34% and 37%35% of its consolidated revenue for the fiscal years ended September 30, 2016, 20152019, 2018 and 2014,2017, respectively. One customer accounted for approximately 12%, and 11%, respectively, in the fiscal years ended September 30, 2015 and 2014. No customers accounted for more than 10% of ourthe Company’s consolidated revenue for fiscal year 2016.
Fair Value of Financial Instruments
The Company'sCompany’s financial instruments consist of cash and cash equivalents, marketable securities, derivative instruments, the term loan, accounts receivable, loans receivable, convertible debt securities, stock warrants, contingent consideration and accounts payable.
Cash and Cash Equivalents,
Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash. At September 30, 20162019 and 2015,2018, cash equivalents were $0.1$16.2 million and $11.6$50.6 million, respectively. Cash equivalents are reported at cost which approximates their fair value due to their short-term naturevalue.
We classify certain restricted cash balances within prepaid expenses and varying interest rates.other current assets on the accompanying consolidated balance sheets based upon the term of the remaining restrictions.
58
Accounts Receivable, Allowance for Doubtful Accounts and Sales Returns
Trade accounts receivable do not bear interest and are recorded at the invoiced amount. The Company maintains an allowance for doubtful accounts representing its best estimate of probable credit losses related to its existing accounts receivable and their net realizable value. The Company determines the allowance based on a number of factors, including an evaluation of customer credit worthiness, the age of the outstanding receivables, economic trends and historical experience. The Company reviews its allowance for doubtful accounts on a quarterly basis and adjusts the balance based on the Company'sCompany’s estimates of the receivables'receivables’ recoverability in the period the changes in estimates occur and become known. Accounts receivable balances are written-offwritten off against the allowance for doubtful accounts when the Company determines that the balances are not recoverable. Provisions for doubtful accounts are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations. The Company determines the allowance for sales returns based on its best estimate of probable customer returns. Provisions for sales returns are recorded in "Revenue" in the Consolidated Statements of Operations. The Company does not have any off-balance-sheet credit exposure related to its customers.
Inventories
Inventories are stated at the lower of cost or marketnet realizable value determined on a first-in, first-out basis and include the cost of materials, labor and manufacturing overhead. The Company reports inventories at their net realizable value and provides reserves for excess, obsolete or damaged inventory based on changes in customer demand, technology and other economic factors.
Fixed Assets, Intangible Assets and Impairment of Long-lived Assets
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation expense is computed based on the straight-line method and charged to results of operations to allocate the cost of the assets over their estimated useful lives, as follows:
| | |
Buildings | ||
10 - 40 years | ||
Computer equipment and software | 3 - 7 years | |
Machinery and equipment | 2 - 10 years | |
Furniture and fixtures | 3 - 10 years |
Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining terms of the respective leases. Equipment used for demonstrations to customers is included in machinery and equipment and depreciated over its estimated useful life. Repair and maintenance costs are expensed as incurred.
The Company developshas developed software for its internal useuse. Internal and capitalizes directexternal labor costs incurred to develop internal-use software during the application development stage after determining software technological requirementsof a project are capitalized. Costs incurred prior to application development 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.post implementation are expensed as incurred. Training and data conversion costs as well as costs incurred prior to the application development stage and during the post-implementation stage are expensed as incurred. During the fiscal year endedAs of September 30, 2016,2019, and 2018, the Company had cumulative capitalized direct costs of $3.7$11.6 million and $5.6 million, respectively, associated with the development of software for its internal use whichuse. These capitalized costs are included within "Property, plant and equipment, net" in the accompanying Consolidated Balance Sheets. There were no internal-useDuring fiscal year 2019, the Company capitalized direct costs of $5.1 million associated with the development of software development costs as of September 30, 2015.
Cost of disposed assets upon their retirement and the associated accumulated depreciation are derecognized upon their retirement or at the time of disposal, and the resulting gain or loss is included in the Company'sCompany’s results of operations.
The Company identified finite-lived intangible assets other than goodwill as a result of acquisitions. Finite-lived intangible assets are valued based on estimated future cash flows and amortized over their estimated useful lives based on methods that approximate the pattern in which the economic benefits are expected to be realized.
Finite-lived intangibles assets and fixed assets are tested for impairment when indicators of impairment are present. For purposes of this test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If the Company
59
determines that indicators of potential impairment are present, it assesses the recoverability of long-lived asset group by comparing its undiscounted future cash flows to its carrying value. The future cash flow period is based on the future service life of the primary asset within the long-lived asset group. If the carrying value of the long-lived asset group exceeds its future cash flows, the Company determines fair values of the individual net assets within the long-lived asset group to assess potential impairment. If the aggregate fair values of the individual net assets of the group are less than their carrying values, an impairment loss is recognized for an amount in excess of the group'sgroup’s aggregate carrying value over its fair value. The loss is allocated to the assets within the group based on their relative carrying values, with no asset reduced below its fair value.
Finite-lived intangible assets are amortized over their useful lives, as follows:
| | |
Patents | ||
7 - 15 years | ||
Completed technology | 3 - | |
Customer relationships | 3 - |
Goodwill
Goodwill represents the excess of a purchase price over the fair value of net tangible and identifiable intangible assets of the businesses acquired by the Company. Goodwill is tested for impairment annually or more often if impairment indicators are present at the reporting unit level. The Company has elected April 1st1st as its annual goodwill impairment assessment date and performs additional impairment tests if triggeringdate. If the existence of events occur. If events occur or circumstances changeindicates that wouldit is more likely than not reducethat fair values of the reporting units are below their carrying values, the Company performs additional impairment tests during interim periods to evaluate goodwill will be evaluated for impairment between annual tests.
Application of the goodwill impairment test requires significant judgment based on market and operational conditions at the time of the evaluation, including management'smanagement’s best estimate of future business activity and the related estimates of future cash flows from the assets and the reporting units that include the associated goodwill. These periodic evaluations could cause management to conclude that impairment factors exist, requiring an adjustment of these assets to their then-current fair market values. Future business conditions and/or activity could differ materially from the projections made by management which could result in additional adjustments and impairment charges.
The goodwill impairment test is performed at the reporting unit level. A reporting unit is either an operating segment or one level below it, which is referred to as a “component”. The level at which the impairment test is performed requires an assessment of whether the operations below an operating segment constitute a self-sustaining business, in which case testing is generally performed at this level.
In accordance with ASC 350, Intangibles- Goodwill impairment testing involves a two-step process. Theand Other (“ASC 350”), the Company first comparesassesses qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the fair value of eacha reporting unit tois less than its respective carrying amount, including goodwill, to assess whether potential goodwill impairment exists.value. If the Company determines, based on this assessment, that it is more likely than not that the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the reporting unit’s carrying amount exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure the potential impairment loss amount by comparing the implied fair value of goodwill with its carrying amount. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of its assets and liabilities and assigning the excess amount to goodwill. If the implied fair value of goodwill is less than its carrying amount, anvalue, it performs a quantitative goodwill impairment test by comparing the reporting unit’s fair value with its carrying value. An impairment loss is recognized for difference between the amount by which the reporting unit’s carrying value exceeds its fair value, up to the total amount of goodwill and its implied fair value.
The Company determines fair values of its reporting units based on an Income Approachincome approach in accordance with the Discounted Cash Flow Method, or DCF Method.discounted cash flow method (DCF Method). The DCF Method is based on projected future cash flows and terminal value estimates discounted to their present values. Terminal value represents a present value an investor would pay on the valuation date for the rights to the cash flows of the business for the years subsequent to the discrete cash flow projection period. The observable inputs used in the DCF Method include discount rates set above the Company'sCompany’s weighted-average cost of capital. The Company derives discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and its internally developed projections of future cash flows. The Company considers the DCF Method to be the most appropriate valuation technique since it is based on management’s long-term financial projections. Due to the cyclical nature of the semiconductor equipment market, management’s projections as of the valuation date are considered more objective since market metrics of peer companies fluctuate during the cycle. In addition, the Company also compares aggregate values of its net corporate assets and reporting unit
60
fair values to its overall market capitalization and uses certain market-based valuation techniques to test the reasonableness of the reporting unit fair values determined in accordance with the DCF Method.
Deferred Financing Costs
The Company records commitment fees and other costs directly associated with obtaining the term loan and line of credit financing as deferred financing costs which are presented within "Other assets" inas a reduction of Long-term debt on the accompanying Consolidated Balance Sheets. Deferred financing costs were $0.9 million and $2.9 million at September 30, 2019 and 2018, respectively. Such costs are amortized over the term of the related financing arrangement and included in interest expense“Interest expense” in the accompanying unaudited Consolidated Statements of Operations. During theAmortization expense related to deferred financing costs was $1.1 million and $0.5 million for fiscal yearyears ended September 30, 2016, the Company incurred $0.7 million in deferred financing costs associated with obtaining line of credit financing. Amortization expense incurred during fiscal year ended September 30, 2016 was insignificant2019 and 2018, respectively, and was included in interest expense in the accompanying Consolidated Statements of Operations. Please refer to Note 11,10, “Line of Credit” and Note 11, “Debt” for further information on this arrangement.
Warranty Obligations
The Company offers warranties on the sales of certain of its products and records warranty obligations for estimated future claims at the time revenue is recognized. Warranty obligations are estimated based on historical experience and management'smanagement’s estimate of the level of future claims.
Revenue Recognition
The Company generates revenue from the following sources:
● | Products, including sales of tool automation and automated cold sample management systems, atmospheric and vacuum robots, contamination control solutions, consumables, instruments, spare parts and software. |
● | Services, including repairs, upgrades, diagnostic support, installation, as well as biological sample services such as DNA sequencing, gene synthesis, molecular biology, bioinformatics, biological sample storage and other support services. |
The Company recognizes revenue for the transfer of such promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those products or services. Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when or as the transfer of control of the underlying performance obligation occurs. To determine the amount of consideration the Company expects to be entitled to and whether transfer of control has occurred, the Company applies the following five-step model:
● | Identify the contract with a customer. Contracts are accounted for when approval and commitment has been received from both parties, the rights of each party are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration to which the Company is entitled is probable. Contracts are generally evidenced through receipt of an approved purchase order or execution of a binding arrangement. Within the Brooks Semiconductor Solutions Group segment, contracts are typically short-term with the exception of service-type warranty contracts, which generally have a stated contract term that is greater than one year. Within the Brooks Life Sciences segment, contracts are both short and long-term. Long-term contracts within this segment relate to the sale of products with attached service-type warranty contracts that generally have a stated contract term that is greater than one year. Contracts within both operating segments may contain acceptance provisions where the Company is required to obtain technical acceptance from the customer upon completion of installation services and evidence of the systems functional performance within the customer’s operating environment. The Company has concluded that acceptance criteria within its contracts can be objectively evaluated and will not impact the Company’s transfer of control assessment under ASC 606. |
● | Identify the performance obligations in the contract. Performance obligations include the sale of products and services. Certain customer arrangements related to the sale of automated cold sample management systems and contamination control solution products generally include more than one performance obligation and may |
61
include a combination of goods and or services, such as products with installation services or service-type warranty obligations. These contracts include multiple promises and as a result, the Company is required to evaluate each promise and determine whether the promise qualifies as a performance obligation within the contract. Contracts may contain the option to acquire additional products or services at defined prices. The Company reviews the pricing of these options to determine whether the option would exist independently of the current contract. If the pricing of contract options provides a material right to the customer that it would not receive without entering into the current contract, the Company accounts for the option as a separate performance obligation. |
● | Determine the transaction price. The transaction price of the Company’s contracts with its customer is generally fixed, based on the amounts to be contractually billed to the customer. Certain contracts may contain variable consideration in the form of customer allowances and rebates that consist primarily of retrospective volume based discounts and other incentive programs. Variable consideration is estimated at contract inception and included in the transaction price if it is probable that a subsequent change in the estimate would not result in a significant revenue reversal. The period between transfer of control of the performance obligations within a customer contract and timing of payment is generally within one year. As a result, the Company’s contracts typically do not include significant financing components. |
● | Allocate the transaction price to the performance obligations in the contract. For customer contracts that contain more than one performance obligation, the Company allocates the total transaction consideration to each performance obligation based on the relative stand-alone selling price of each performance obligation within the contract. The Company relies on either observable standalone sales or an expected cost plus margin approach to determine the standalone selling price of offerings, depending on the nature of the performance obligation. Performance obligations whose standalone selling price is estimated using an expected cost plus margin approach relate to the sale of customized automated cold sample management systems and service-type warranties within the Brooks Life Sciences segment. |
● | Recognize revenue when or as the Company satisfies a performance obligation. The Company satisfies its performance obligations by transferring a product or service either at a point in time or over time, when the transfer of control of the underlying performance obligation has occurred. Control is evidenced by the customer’s ability to direct the use of, and obtain substantially all the remaining benefits from the performance obligation. Revenue from third-party sales for which the Company does not meet the criteria for gross revenue recognition is recognized on a net basis. All other revenue is recognized on a gross basis. The Company excludes from the transaction price all sales taxes assessed by governmental authorities and as a result, revenue is presented net of tax. |
As a result of applying this five-step model under ASC 606, the Company recognizes revenues from its sale of products and services when it is realized or realizable and earned. Revenue is considered realized and earned when all of the following revenue recognition criteria have been met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectibility is probable. The Company recognizes shipping and handling fees billed to customers as revenue and includes the related costs in "Cost of revenue" in the accompanying Consolidated Statements of Operations. Revenue is presented net of taxes assessed by governmental authorities on revenue-producing transactions.follows:
● | Products: Revenue from the sale of standard products is recognized upon their transfer of control to the customer, which is generally upon delivery. Delivery is considered complete at either the time of shipment or arrival at destination, based on the agreed upon terms within the contract. The Company’s payment terms for the sale of standard products are typically 30 to 60 days. |
Revenue from the salesales of certain products is recognized upon their delivery to customers, provided all other revenue recognition criteria have been met. Delivery is considered complete when both of the following conditions have been met: (i) legal title and risk of loss have transferred to the customer upon product shipment or delivery; and (ii) the Company has reliably demonstrated that products have met their required specifications prior to shipment and, as a result, the Company possesses an enforceable claim right to amounts recognized as revenue. Revenue is recognized upon obtaining a customer technical acceptance if the Company was not able to demonstrate that products have met their required specifications prior to shipment and / or legal title
62
of factors, including the degree of required product customization and the work required to be able to install the product in the customer’s existing environment, based on installation work, as well as the Company'sCompany’s historical experience, project plans and an assessment of the risks and uncertainties inherent in the contract related to implementation delays or performance issues that may or may not be within the Company'sCompany’s control. The Company estimates a loss on a contract by comparing total estimated contract revenue to the total estimated contract costs and recognizes a loss during the period in which it becomes probable and can be reasonably estimated. The Company reviews profit estimates for long-term contracts during each reporting period and revises themthe estimate based on changes in circumstances.
● | Services: Service revenue is generally recognized ratably over time or on an output method, as the customer simultaneously receives and consumes the benefit of these services as they are performed. Revenue from short-term services, generally related to repair services or upgrades of customer-owned equipment is recognized upon completion of the repair effort and the shipment of the repaired product back to the customer. Payments related to service-type warranties may be made up front or proportionally over the contract term. Payment due or received from the customers prior to rendering the associated services are recorded as a contract liability. |
Research and Development Expense
Research and development costs are expensed as incurredincurred. Research and development costs consist primarily of personnel expenses related to the creationdevelopment of new products, as well as enhancements and engineering changes to existing products and development of hardware and software components.
Stock-Based Compensation Expense
The Company measures stock-based compensation cost at fair value on the grant date and recognizes the expense over the service period for the awards expected to vest. The fair value of restricted stock units is determined based on the number of shares granted and the closing price of the Company'sCompany’s common stock quoted on NASDAQNasdaq on the date of grant.
For awards that vest based on service conditions, the Company recognizes stock-based compensation expense on a straight-line basis net of estimated forfeitures, over the requisite service period. TheFor awards that vest subject to performance conditions, the Company recognizes benefits from stock-based compensation in equity usingexpense ratably over the with-and-without approachperformance period if it is probable that performance condition will be met and adjusted for the utilizationprobability percentage of tax attributes.achieving the performance goals. The Company makes estimates of stock award forfeitures and athe number of awards expected to vest which requires significant judgment.vest. The Company considers many factors in developing forfeiture estimates, including award types, employee classes and historical experience. TheEach quarter, the Company assesses the likelihoodprobability of achieving the performance goals for stock-based awards that vest upon the satisfaction of these goals. Current estimates may differ from actual results and future changes in estimates.
63
The following table reflects stock-based compensation expense, excluding amounts related to discontinued operations, recorded during the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 (in thousands):
| | | | | | | | | |
| | Year Ended September 30, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Restricted stock units | | $ | 18,276 | | $ | 18,081 | | $ | 16,056 |
Employee stock purchase plan | |
| 1,203 | |
| 775 | |
| 517 |
Total stock-based compensation expense | | $ | 19,479 | | $ | 18,856 | | $ | 16,573 |
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
Restricted stock | $ | 11,220 | $ | 11,696 | $ | 10,467 | |||||
Employee stock purchase plan | 517 | 463 | 445 | ||||||||
Total stock-based compensation expense | $ | 11,737 | $ | 12,159 | $ | 10,912 |
Valuation Assumptions for an Employee Stock Purchase Plan
The fair value of shares issued under the employee stock purchase plan is estimated on the commencement date of each offering period using the Black-Scholes option-pricing model with the following weighted average assumptions for the fiscal years ended September 30, 2016, 20152019, 2018 and 2014:2017:
| | | | | | | |
| | Year Ended September 30, |
| ||||
|
| 2019 |
| 2018 |
| 2017 |
|
Risk-free interest rate |
| 2.3 | % | 1.9 | % | 0.9 | % |
Volatility |
| 52 | % | 46 | % | 34 | % |
Expected life |
| 6 months |
| 6 months |
| 6 months | |
Dividend yield |
| 1.2 | % | 1.5 | % | 3.4 | % |
Year Ended September 30, | ||||||||
2016 | 2015 | 2014 | ||||||
Risk-free interest rate | 0.4 | % | 0.1 | % | 0.1 | % | ||
Volatility | 32 | % | 31 | % | 25 | % | ||
Expected life | 6 months | 6 months | 6 months | |||||
Dividend yield | 3.40 | % | 3.40 | % | 3.40 | % |
The risk-free rate is based on the U.S. Treasury yield curve for notes with terms approximating the expected life of the shares granted. The expected stock price volatility is determined based on the Company'sCompany’s historic stock prices over a period commensurate with the expected life of the shares granted. The expected life represents the weighted average period over which the shares are expected to be purchased. Dividend yields are projected based on the Company'sCompany’s history of dividend declarations and management'smanagement’s intention for future dividend declarations.
Restructuring Expenses
The Company records restructuring expenses associated with management-approved restructuring actions, such as consolidation of duplicate infrastructure and reduction in force, to streamline its business operations and improve profitability and competitiveness, remove duplicative infrastructure, as well as reduce headcount resulting from business acquisitions.competitiveness. Restructuring expenses include severance costs, related to eliminating a specified number of employees, contract termination costs to vacate facilities and consolidate operations, as well asand other costs directly associated with restructuring actions. The Company records severance and other employee termination costs associated with restructuring actions when it is probable that benefits will be paid and the amounts can be reasonably estimated. The rates used in determining restructuring liabilities related to severance costs are based on existing plans, historical experience and negotiated settlements.
Income Taxes
The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, as well as operating loss and tax credit carryforwards. The Company'sCompany’s Consolidated Financial Statements contain certain deferred tax assets that were recorded as a result of operating losses, as well as other temporary differences between financial and tax accounting. A valuation allowance is established against deferred tax assets if, based upon the evaluation of positive and negative evidence and the extent to which that evidence is objectively verifiable, it is more likely than not that some or all of the deferred tax assets will not be realized.
Significant management judgment is required in determining the Company'sCompany’s income tax provision, the Company'sCompany’s deferred tax assets and liabilities and any valuation allowance recorded against those net deferred tax assets. The Company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized.
64
The calculation of the Company'sCompany’s tax liabilities involves consideration of uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon an audit or an examination conducted by taxing authorities, including resolution of related appeals or litigation processes, if any. If the Company determines that a tax position will more likely than not be sustained, the second step requires the Company to estimate and measure the tax benefit as the largest amount that is more likely than not to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company has to determine the probability of various possible outcomes. The Company re-evaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors, such as changes in facts or circumstances, tax law, new audit activity and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. A change in recognition or measurement may result in the recognition of a tax benefit or an additional charge to the tax provision.
Earnings Per Share
Basic income (loss) per share is determined by dividing net income (loss) by the weighted average common shares outstanding during the period. Diluted income (loss) per share is determined by dividing net income (loss) by diluted weighted average shares outstanding during the period. Diluted weighted average shares reflect the dilutive effect, if any, of potential common shares. To the extent their effect is dilutive, employee equity awards and other commitments to be settled in common stock are included in the calculation of diluted income per share based on the treasury stock method. Potential common shares are excluded from the calculation of dilutive weighted average shares outstanding if their effect would be anti-dilutive at the balance sheet date based on a treasury stock method or due to a net loss.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued new accounting guidance for reporting lease transactions.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,
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
65
in which the guidance is effective. The Company expects to adopt the guidance during the first quarter of fiscal year 20202021 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In November 2015,March 2018, the FASB issued an amendmentASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends ASC 220 to the accounting guidance to simplify the presentation of deferred income tax assetsadd, remove, and liabilities in a statement of financial position. Deferred income tax assets, net of a corresponding valuation allowance, and liabilitiesclarify disclosure requirements related to a particular tax-paying component of an entity within a particularreporting comprehensive income. This ASU gives entities the option to reclassify tax jurisdiction shall be offset and presentedeffects recorded in accumulated other comprehensive income as a single non-current amountresult of tax reform to retained earnings. The entities have the option to apply the guidance retrospectively or in a statementthe period of financial position. Deferred incomeadoption. The guidance requires entities to make new disclosures, regardless of whether they elect to reclassify 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.effects. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, beginning after December 15, 2016. The guidance can be adopted early 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 has adopted this guidance as of September 30, 2016 and applied it retrospectively. As a result, the Company has recast the Consolidated Balance Sheet as of September 30, 2015 to conform to the current period presentation. The adoption of this guidance resulted in a reduction of previously presented current deferred tax assets by $17.6 million, an increase of non-current deferred tax assets by $16.7 million, a reduction of current deferred tax liabilities by $1.3 million and an increase of non-current deferred tax liabilities by $0.3 million as of September 30, 2015.
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 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 2018-15, 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 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 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
66
for companies that have not early adopted. As such, this ASU is effective for fiscal years beginning 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 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 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 beginning 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 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 May 2019, the FASB issued 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 itscertain 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 resultsinterim 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 operations.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued ASC 606 which contained 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 inIn addition, the guidance may require more judgmentrequires disclosure of the nature, amount, timing, and estimationuncertainty 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.
67
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, 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 process thanrules. Upon the current GAAP, including identifying performance obligationsadoption of ASC 606, the Company is no longer required to defer revenue in accordance with billing constraints defined in the contract estimatingwith 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 variable considerationcontrol that has occurred. (Please refer to Note 19, “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
68
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 adoption of ASC 606 on the Company’s Consolidated Statement of Operations and Consolidated Balance Sheet was as follows:
| | | | | | | | | |
| | | | | | | | | |
| | | Year Ended September 30, 2019 | ||||||
| | | | | Without adoption of | | Effect of Change | ||
| | As Reported | | ASC 606 | | Higher/(Lower) | |||
| | | | | | | | | |
Revenue | | $ | 780,848 | | $ | 781,714 | | $ | (866) |
Cost of revenue | | | 464,588 | | | 466,425 | | | (1,837) |
Gross profit | | | 316,260 | | | 315,289 | | | 971 |
Operating expenses | | | 270,222 | | | 269,559 | | | 663 |
Operating income | | $ | 46,038 | | $ | 45,730 | | $ | 308 |
| | | | | | | | | |
| | | September 30, 2019 | ||||||
| | | | | Without adoption of | | Effect of Change | ||
| | As Reported | | ASC 606 | | Higher/(Lower) | |||
Prepaid expenses and other current assets | | $ | 46,332 | | $ | 42,294 | | $ | 4,038 |
Other assets | | | 20,506 | | | 19,686 | | | 820 |
Deferred revenue | | | 29,435 | | | 27,390 | | | 2,045 |
Accumulated deficit | | | (586,412) | | | (589,225) | | | 2,813 |
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 year ended September 30, 2019 and Consolidated Balance Sheet as of September 30, 2019.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. ASU 2017- 01 clarifies the definition of a business with the objective of addressing whether transactions involving in-substance nonfinancial assets, held directly or in a subsidiary, should be accounted for as acquisitions or disposals of nonfinancial assets or of businesses. The Company adopted this standard effective October 1, 2018. The adoption of ASU 2017-01 did not have a material impact on the Company’s Consolidated Financial Statements.
In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections. The ASU clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with the U.S. Securities and Exchange Commission’s regulations, thereby eliminating redundancies and making the codification easier to apply.
69
This ASU is effective upon issuance and did not have a material impact on the Company’s Consolidated Financial Statements and related disclosures.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows(Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the transaction price and allocating the transaction price to each separate performance obligation.statements of cash flows. The guidance was initiallyamendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years, beginning after December 15, 2016. In August 2015,fiscal years. The Company adopted the FASB issued an amendment deferringnew standard effective July 1, 2019 since the effective dateCompany booked the restricted cash in connection with closing of the guidance by one year.Disposition on the same date. The guidance should be adopted retrospectively either for each reporting period presented or via recognizingadoption of ASU 2016-18 did not have a material impact on 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.
3. Discontinued Operations
On August 27, 2018, the Company entered into ana definitive agreement to sell thisits semiconductor cryogenics business to Edwards for $675.0 million in cash, subject to adjustments. On July 1, 2019, the Company completed the sale of the semiconductor cryogenics business for $87.0$661.5 million, in cash. Thewhich excludes $6.3 million retained by Edwards at closing based on the initial adjustment for net working capital. Net proceeds from the sale was completed on May 30, 2014. The Company’s historical financial statements have been revisedwere approximately $553.1 million, after deducting estimated taxes payable and closing costs, which remains subject to presentadjustment for the operating resultsfinal determination of working capital and other items. Net income from discontinued operations for fiscal year 2019 is inclusive of the Granville-Phillipsnet gain on sale of $408.6 million.
The semiconductor cryogenics business as a discontinued operation. Summarized resultsconsists of the discontinued operation are as follows forCTI pump business, Polycold chiller business, the fiscal year ended September 30, 2014 (in thousands):
Amount | |||
Revenue | $ | 18,921 | |
Income from discontinued operations | 4,888 | ||
Gain on the sale of the discontinued operations | 56,804 | ||
Income tax provision | 31,690 | ||
Income from discontinued operations, net of tax | $ | 30,002 |
In connection with the closing of the Granville-PhillipsDisposition 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 parties will provide to each other 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 in Chelmsford, Massachusetts to Edwards free of charge for three years after the transaction closing date. Edwards has 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 businesses 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 had no impact on previously reported net (loss) income or stockholders' equity.for all periods presented.
70
The following table presents the financial results of discontinued operations (in thousands):
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | Year Ended September 30, | |||||||
|
| | | 2019 |
| 2018 | | 2017 | |||
Revenue | | | | | | | |
| | | |
Products | | | | $ | 76,227 | | $ | 150,365 | | $ | 126,638 |
Services | | | | | 33,291 | | | 45,731 | | | 38,748 |
Total revenue | | | | | 109,518 | | | 196,096 | | | 165,386 |
Cost of revenue | | | | | | | | | | | |
Products | | | | | 47,148 | | | 85,350 | | | 73,714 |
Services | | | | | 19,016 | | | 22,834 | | | 22,400 |
Total cost of revenue | | | | | 66,164 | | | 108,184 | | | 96,114 |
Gross profit | | | | | 43,354 | | | 87,912 | | | 69,272 |
Operating expenses | | | | | | | | | | | |
Research and development | | | | | 6,605 | | | 7,605 | | | 6,860 |
Selling, general and administrative | | | | | 20,889 | | | 25,017 | | | 12,536 |
Restructuring charges | | | | | 24 | | | 2 | | | 82 |
Total operating expenses | | | | | 27,518 | | | 32,624 | | | 19,478 |
Operating income | | | | | 15,836 | | | 55,288 | | | 49,794 |
Other income, net | | | | | 539,948 | | | 1,091 | | | 1,057 |
Income before income taxes and earnings of equity method investment | | | | | 555,784 | | | 56,379 | | | 50,851 |
Income tax provision | | | | | 134,110 | | | 14,420 | | | 8,760 |
Income before equity in earnings of equity method investment | | | | | 421,674 | | | 41,959 | | | 42,091 |
Equity in earnings of equity method investment | | | | | 6,188 | | | 6,788 | | | 9,834 |
Net income | | | | $ | 427,862 | | $ | 48,747 | | $ | 51,925 |
The table above reflects revenue for the year ended September 30, 2019 in accordance with ASC 606, while results for the years ended September 30, 2018 and 2017 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 year ended September 30, 2019 were not significantly impacted by the adoption of ASC 606.
The Company performed its annual goodwill impairment analysis in April 2018. This analysis was updated upon announcement of the Disposition for the year ended September 30, 2018. The Company has concluded that there is no impairment indicator related to the goodwill of the Disposition group 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):
| | | | | | | | |
| | | | | | September 30, | ||
|
| | | |
| 2018 | ||
Balance Sheets: | | | | | | | |
|
Current assets | | | | | | | $ | 69,302 |
Non-current assets | | | | | | | | 21,338 |
Current liabilities | | | | | | | | 26,006 |
Non-current liabilities | | | | | | | | 8,397 |
71
| | | | | | | | | | | |
| | | | Year Ended September 30, | |||||||
|
| | | 2019 |
| 2018 | | 2017 | |||
Statements of Operations: | | | | |
| | |
| | | |
Total revenue | | | | $ | 88,357 | | $ | 94,652 | | $ | 104,667 |
Gross profit | | | | | 35,127 | | | 34,982 | | | 41,241 |
Operating Income | | | | | 17,791 | | | 18,405 | | | 26,340 |
Net income | | | | | 12,483 | | | 13,345 | | | 19,451 |
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):
| | | | | | | | | | | |
| | | | Year Ended September 30, | |||||||
| | | | 2019 | | 2018 | | 2017 | |||
Depreciation and amortization | | | | $ | 4 | | $ | 743 | | $ | 919 |
Capital expenditures | | | | | 666 | | | 302 | | | 1,049 |
Stock-based compensation | | | | | 635 | | | 966 | | | 705 |
Earnings of equity method investment | | | | | (6,188) | | | (6,788) | | | (9,834) |
The carrying value of the assets and liabilities of the discontinued operations on the Consolidated Balance Sheet as of September 30, 2018 was as follows (in thousands):
| | | | | | | | |
| | | | | | September 30, | ||
| | | | | | 2018 | ||
Assets | | | | | | | | |
Accounts receivable, net | | | | | | | $ | 27,852 |
Inventories | | | | | | | 37,953 | |
Other current assets | | | | | | | | 343 |
Total current assets of discontinued operation | | | | | | | $ | 66,148 |
| | | | | | | | |
Property, plant and equipment, net | | | | | | | $ | 1,081 |
Goodwill | | | | | | | 26,485 | |
Intangibles, net | | | | | | | 14 | |
Equity method investment | | | | | | | | 31,472 |
Total long-term assets of discontinued operation | | | | | | | $ | 59,052 |
| | | | | ||||
Liabilities | | | | |||||
Accounts payable | | | | | | | $ | 11,149 |
Deferred revenue | | | | | | | | 1,052 |
Accrued warranty and retrofit costs | | | | | | | | 2,464 |
Other current liabilities | | | | | | | | 3,872 |
Total current liabilities of discontinued operation | | | | | | | $ | 18,537 |
| | | | | | | | |
Long-term liabilities of discontinued operation | | | | | | | $ | 698 |
4. Acquisitions
Acquisitions Completed in Fiscal Year 2016
Acquisition of BioStorage Technologies, Inc.
On November 30, 2015,15, 2018, the Company completed its acquisitionacquired all the outstanding capital stock of BioStorage Technologies, Inc.GENEWIZ Group (“GENEWIZ”), or BioStorage, an Indiana-baseda leading global genomics service provider headquartered in South Plainfield, New Jersey. GENEWIZ
72
provides genomics services that enable research scientists to advance their discoveries within the pharmaceutical, academic, biotechnology, agriculture and integrated cold chain solutionsother markets. It provides gene sequencing and synthesis services for more than 4,000 institutional customers worldwide supported by their global network of laboratories spanning the United States, China, Japan, Germany and the United Kingdom. This transaction has added a new and innovative platform which further enhances the Company’s core capabilities and added even more value to samples under the Company’s care.
The total cash purchase price 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.
On the acquisition date, the Company paid $32.3 million to escrow accounts related to the satisfaction of the seller's cash of $2.8indemnification obligations with respect to their representations and warranties and other indemnities. The Company also retained an amount equal to $1.5 million resulted in a net cash outflow of $128.0 million, including $125.2 million ascribed to the purchase price and $2.5 millionas collateral for retention arrangements with certain employeesany adjustment shortfall based on the completion of a service retention period. The cash payment included a debt repayment of $3.2final merger consideration calculation. During the three months ended March 31, 2019, the final merger consideration was calculated to be $4.0 million and transaction costs of $2.9 millionless than the merger consideration paid byat closing. To satisfy the shortfall, the Company reversed the $1.5 million liability associated with the holdback, received approval from the former shareholders to retain $0.7 million of funds the Company received on their behalf, of BioStorage.
The Company recorded the assets acquired and liabilities assumed related to BioStorageGENEWIZ at their preliminary fair values as of the acquisition date, from a market participant’s perspective. TheWhile the Company uses its best estimates and assumptions as part of the purchase price allocation was prepared on a preliminary basis and is subjectprocess to further adjustments as additional information becomes available concerning the fair value of the assets acquired and liabilities assumed. The preliminary fair values ofassumed on the tangible and intangible assets acquired were based upon preliminary valuations and the Company'sacquisition date, its estimates and assumptions that are subject to change withinrefinement. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the measurement period. Asestimated fair value assigned to each class of September 30, 2016,assets acquired and liabilities assumed, as well as asset lives, can materially impact the primary areas that remained preliminary includedCompany’s results of operations. The finalization of the assignment of fair values of intangible assets acquired, certain tangible assets, tax-related matterswill be completed within one year after the acquisition date. The following table presents the net purchase price and residual goodwill. The Company expects to continue obtaining information to assist it with determining the fair values of the net assets and liabilities of GENEWIZ (in thousands):
| | | |
|
| Fair Value of | |
| | Assets and | |
| | Liabilities | |
Accounts receivable (approximates contractual value) | | $ | 28,566 |
Inventories | |
| 4,370 |
Prepaid expenses and other current assets | | | 11,635 |
Property, plant and equipment | |
| 36,379 |
Goodwill | |
| 235,160 |
Intangible assets | |
| 189,129 |
Other assets | | | 15,998 |
Current portion of long-term debt | |
| (3,170) |
Accounts payable | |
| (6,522) |
Deferred revenue | |
| (67) |
Accrued compensation and benefits | | | (5,145) |
Other current liabilities | |
| (10,073) |
Long-term debt | | | (2,482) |
Long-term tax reserves | | | (13,400) |
Long-term deferred tax liabilities | | | (34,993) |
Other long-term liabilities | | | (2,681) |
Total purchase price, net of cash acquired | | $ | 442,704 |
| | | |
The Company applied variations of the income approach to estimate the fair values of the intangible assets acquired. The identifiable intangible assets include customer relationships (excess earnings method) of $125.5 million with a useful life of 14 years, completed technology (relief from royalty method) of $44.5 million with useful lives from 10 to 15 years and trademarks (relief from royalty method) of $19.1 million with a useful life of 13 years. The intangible
73
assets acquired are amortized over the total weighted average period of 13.3 years using methods that approximate the pattern in which the economic benefits are expected to be realized. During the three months ended June 30, 2019, the Company recorded a measurement adjustment related to the revised valuation of the intangible assets which increased intangible assets by $0.6 million. The additional amortization related to this adjustment was recorded during the three months ended June 30, 2019.
Goodwill of $235.2 million largely reflects the potential synergies and expansion of the Company’s core technologies and offerings in the Life Sciences business. The goodwill from this acquisition is reported within the Brooks Life Sciences segment and is not tax deductible. During the three months ended March 31, 2019, a $0.3 million 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 three months ended March 31, 2019, the Company made a measurement period adjustment is reflected in the following preliminary purchase price allocation table (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 | 79,639 | ||
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 | $ | 125,248 |
The escrow balancerevenues and net income from GENEWIZ recognized in the Company’s consolidated results of operations were $126.3 million and $3.2 million, respectively, during the year ended September 30, 2019. During the year ended September 30, 2019, net income included $11.4 million related to such retention payments was reduced by $1.7amortization expense of acquired intangible assets. The Company incurred $6.5 million subsequentand $3.8 million, respectively, in transaction costs with respect to the GENEWIZ acquisition date and had a balance of $0.8 million as ofduring the years ended September 30, 2016. Total escrow balances2019 and 2018. Transaction costs were $2.7 millionrecorded in "Selling, general and administrative" expenses within the accompanying unaudited Consolidated Statements of Operations.
The following unaudited pro forma information reflects the Company’s consolidated results of operations as if the acquisition had taken place on October 1, 2017. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the transaction actually occurred at the beginning of these periods nor is it necessarily indicative of future results. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated costs savings from synergies or other operational improvements (in thousands).
| | | | | | | |
| | Year Ended September 30, | | ||||
| | 2019 | | 2018 | | ||
| | (pro forma) | | ||||
| | | | | | | |
Revenue | | $ | 797,501 | | $ | 752,061 | |
Net income from continuing operations | | | 10,350 | | | 2,273 | |
The unaudited pro forma financial information presented in the table above includes adjustments for the application of the Company’s accounting policies, elimination of related party transactions, depreciation and amortization related to fair value adjustments to property, plant and equipment and intangible assets, and interest expense on acquisition related debt.
To present the Company’s consolidated results of operations as if the acquisition had taken place on October 1, 2017, the unaudited pro forma earnings for the years ended September 30, 2016.
74
assets, $0 million and $53.6 million, respectively, of $36.6one-time nonrecurring compensation expenses and transaction costs related to the GENEWIZ acquisition, $2.0 million and $19.8 million, respectively, of interest expense related to financing activities.
The Company identified that the pro forma calculation for the acquisition of GENEWIZ, in Note 5 of the previously issued interim consolidated financial statements included in the Company’s Quarterly reports on Form 10-Q’s for the periods ended December 31, 2018, March 31, 2019, and June 30, 2019, incorrectly included the nonrecurring compensation expenses and transaction costs in the 2019 fiscal year, rather than the 2018 fiscal year. This resulted in overstatements of 2018 pro-forma earnings and understatements of 2019 pro-forma earnings in each of the 10-Q filings for the periods ended December 31, 2018, March 31, 2019, and June 30, 2019. The misstatements had no impact on the Company’s reported results of operations. The corrections for the presentation are as follows (pro forma, unaudited, in thousands):
| | | | | | | | | |
| | Three Months Ended December 31, 2018 | |||||||
| | As Previously Reported | | Adjustment | | As Revised | |||
Revenue | | $ | 196,021 | | $ | — | | $ | 196,021 |
Net (loss) income from Continuing operations | | | (35,325) | | | 42,120 | | | 6,795 |
| | | | | | | | | |
| | Six Months Ended March 31, 2019 | |||||||
| | As Previously Reported | | Adjustment | | As Revised | |||
Revenue | | $ | 394,411 | | $ | — | | $ | 394,411 |
Net (loss) income from Continuing operations | | | (38,154) | | | 42,240 | | | 4,086 |
| | | | | | | | | |
| | Nine Months Ended June 30, 2019 | |||||||
| | As Previously Reported | | Adjustment | | As Revised | |||
Revenue | | $ | 598,291 | | $ | — | | $ | 598,291 |
Net (loss) income from Continuing operations | | | (37,233) | | | 42,295 | | | 5,062 |
| | | | | | | | | |
| | Three Months Ended December 31, 2017 | |||||||
| | As Previously Reported | | Adjustment | | As Revised | |||
Revenue | | $ | 170,033 | | $ | — | | $ | 170,033 |
Net (loss) income from Continuing operations | | | (8,714) | | | (46,549) | | | (55,263) |
| | | | | | | | | |
| | Six Months Ended March 31, 2018 | |||||||
| | As Previously Reported | | Adjustment | | As Revised | |||
Revenue | | $ | 356,947 | | $ | — | | $ | 356,947 |
Net (loss) income from Continuing operations | | | 50,345 | | | (46,429) | | | 3,916 |
| | | | | | | | | |
| | Nine Months Ended June 30, 2018 | |||||||
| | As Previously Reported | | Adjustment | | As Revised | |||
Revenue | | $ | 561,397 | | $ | — | | $ | 561,397 |
Net (loss) income from Continuing operations | | | 53,318 | | | (46,374) | | | 6,944 |
Acquisitions Completed in Fiscal Year 2018
Acquisition of Tec-Sem
On April 6, 2018, the Company acquired approximately 93% of the outstanding capital stock of Tec-Sem Group AG (“Tec-Sem”), a Switzerland-based manufacturer of semiconductor fabrication automation equipment with a focus on reticle management. In the fourth quarter of fiscal year 2018, the Company acquired the remaining 7% noncontrolling interest upon the completion of certain procedural steps. The total cash payment to acquire the business was estimated based on$15.6 million, net of cash acquired and subject to working capital adjustments. The acquisition of Tec-Sem has expanded the Company’s contamination control solutions business within the Brooks Semiconductor Solutions Group segment.
75
The Company used a market participant approach to record the assets acquired and liabilities assumed with the Tec-Sem acquisition as follows (in thousands):
| | | |
|
| Fair Value of Assets | |
Accounts receivable (approximates contractual value) |
| $ | 988 |
Inventories | | | 4,297 |
Prepaid expenses and other current assets | | | 4,038 |
Property, plant and equipment | | | 85 |
Intangible assets | | | 10,694 |
Goodwill | | | 7,665 |
Accounts payable | | | (1,049) |
Accrued liabilities | | | (6,962) |
Deferred tax liabilities | |
| (1,391) |
Accrued pension liability | |
| (2,800) |
Total purchase price, net of cash acquired |
| $ | 15,565 |
The Company applied variations of the income approach in accordance withto estimate the excess-earnings method. In accordance with the excess-earnings method, the valuefair values of the intangible asset is equal to the present valueassets acquired. The identifiable intangible assets include completed technology (excess earnings method) of the after-tax cash flows attributable to the intangible asset only. The weighted average amortization period for the$8.4 million with a useful life of 10 years, backlog (excess earnings method) of $1.6 million with a useful life of 1 year, and customer relationships intangible assets acquired in the BioStorage acquisition is 11.0(distributor method) of $0.7 million with a useful life of 9 years.
Goodwill of $7.7 million largely reflects the potential synergies and expansion of technical capabilities to the Company's existing contamination control solutions business. The goodwill from this acquisition is reported within the Brooks Semiconductor Solutions Group segment and is not tax deductible.
As part of the acquisition, the Company assumed all the assets and liabilities of Tec-Sem’s Swiss defined benefit plan, which covered substantially all its full-time employees. At acquisition date, the plan was fully funded for each employee’s pension contribution plus an expected rate of return equal to the statutory discount rate. Total plan assets and plan liability were $5.1 million and $7.9 million, respectively, at acquisition date. The Company recorded a liability of $2.8 million for the unfunded projected benefit obligation related to each plan participant’s future services.
The Company reports the results of operations for Tec-Sem in the Brooks Semiconductor Solutions Group segment. The revenues and net income from Tec-Sem included in the Company's consolidated results for fiscal year 2019 were $30.9 million and $8.1 million, respectively. The revenues and net loss from Tec-Sem included in the Company's consolidated results for fiscal year 2018 were $11.6 million and $1.2 million, respectively. During fiscal year 2019, the net income included $0.2 million related to the step-up in value of the acquired inventories and $2.7 million related to amortization expense of acquired intangible assets. During fiscal year 2018, the net loss included $0.7 million related to the step-up in value of the acquired inventories and $2.1 million related to amortization expense of acquired intangible assets. During fiscal year 2018, the Company incurred $0.9 million in transaction costs related to the Tec-Sem acquisition.
The escrow at closing had a balance of $2.6 million which consisted of $1.8 million related to satisfaction of the sellers' indemnification obligations with respect to their representations and warranties and other indemnities. The remaining $0.8 million of the escrow balance is related to a performance obligation that the Company assumed at the acquisition date for the transfer of non-core wafer stocker technology to an unrelated third party. As of September 30, 2019, the escrow balance was $1.1 million related to the satisfaction of the sellers' indemnification obligations, and $0.3 million related to the delivery of the technology.
The Company did not present a pro forma information summary for its consolidated results of operations for the fiscal years ended September 30, 2018 and 2017 as if the acquisition of Tec-Sem occurred on October 1, 2016 because such results were immaterial.
76
Acquisition of 4titude Limited
On October 5, 2017, the Company acquired all the outstanding capital stock of 4titude Limited (“4titude”), a U.K.-based manufacturer of scientific consumables for biological sample materials used in a variety of genomic and DNA analytical applications. The acquisition of 4titude has expanded the Company’s existing offerings of consumables and instruments within the Brooks Life Sciences segment. The aggregate purchase price of $65.1 million, net of cash acquired, consisted primarily of a cash payment of $64.8 million subject to working capital adjustments and the assumption of the seller’s liabilities of $0.4 million.
The Company used a market participant approach to record the assets acquired and liabilities assumed in the 4titude acquisition as follows (in thousands):
| | | |
|
| Fair Value of | |
| | Assets and | |
| | Liabilities | |
Accounts receivable (approximates contractual value) | | $ | 1,581 |
Inventories | | | 2,667 |
Prepaid expenses and other current assets | |
| 140 |
Property, plant and equipment | |
| 1,555 |
Intangible assets | |
| 27,212 |
Goodwill | |
| 38,185 |
Accounts payable | |
| (286) |
Accrued liabilities | |
| (845) |
Deferred tax liabilities | | | (5,090) |
Total purchase price, net of cash acquired | | $ | 65,119 |
The Company applied variations of the income approach to estimate the fair values of the intangible assets acquired. The identified intangible assets include customer relationships (excess earnings method) of $21.4 million with a useful life of 10 years, completed technology (relief from royalty method) of $5.2 million with a useful life of 13 years, backlog (excess earnings method) of $0.4 million with a useful life of 1 year and trademarks (excess earnings method) of $0.2 million with a useful life of 1 year. The intangible assets acquired are amortized over the total weighted average period of 10.4 years using methods that approximate the pattern in which the economic benefits are expected to be realized.
At the acquisition date, a cash payment of $0.4 million was placed into escrow which was ascribed to the purchase price. The escrow was related to satisfaction of the sellers' indemnification obligations with respect to their estimated useful lives are determinedrepresentations and warranties and other indemnities. The escrow balance was $0.2 million as of September 30, 2019 and was fully released subsequently.
Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired and has been assigned to the Brooks Life Sciences segment. Goodwill is primarily the result of expected synergies from combining the operations of 4titude with the Company’s operations and is not deductible for tax purposes.
The operating results of 4titude have been reflected in the results of operations for the Brooks Life Sciences segment. During fiscal year 2019, revenue and net income from 4titude recognized in the Company’s results of operations were $16.1 million and $0.7 million, respectively. During fiscal year 2018, revenue and net loss from 4titude recognized in the Company’s results of operations were $15.9 million and $0.8 million, respectively. The net income in fiscal year 2019 included recurring charges of $3.7 million, related to amortization expense of acquired intangible assets. The net loss in fiscal year 2018 included recurring charges of $4.1 million, related to amortization expense of acquired intangible assets. The net loss in fiscal year 2018 also included non-recurring charges of $1.2 million related to the step-up in value of the acquired inventories. During fiscal year 2018, the Company incurred $1.1 million in non-recurring transaction costs with respect to the 4titude acquisition.
The Company did not present a pro forma information summary for its consolidated results of operations for the fiscal years ended September 30, 2018 and 2017 as if the acquisition of 4titude occurred on October 1, 2016 because such results were immaterial.
77
Other
On April 20, 2018, the Company acquired BioSpeciMan Corporation (“BioSpeciMan”), a Canada-based provider of storage services for biological sample materials. BioSpeciMan, founded in 2002, provides temperature controlled biological sample storage services to an attractive mix of pharma, biotech and contract laboratory customers. This acquisition has expanded customer relationships and geographic reach within its growing sample management storage services business in the Brooks Life Sciences segment. The total cash payment made by the Company was $5.2 million, net of cash acquired and subject to working capital adjustments.
The Company allocated the purchase price of $5.2 million based on estimatesthe fair value of futurethe assets and liabilities acquired, which included $0.3 million of accounts receivable, $2.6 million of customer relationships, $2.7 million of goodwill and $0.7 million of assumed liabilities. The Company applied the excess earnings method, a variation of the income approach to determine the fair value of the customer relationship intangible asset. The goodwill from this acquisition is reported within the Brooks Life Sciences segment and is not tax deductible.
At the acquisition date, a cash payment of $0.5 million was placed into escrow which was ascribed to the purchase price. The escrow was related to satisfaction of the sellers' indemnification obligations with respect to their representations and warranties and other indemnities.
The operating results of the acquisition have been reflected in the results of operations for the Brooks Life Sciences segment. The Company did not present a pro forma information summary for its consolidated results of operations for the fiscal years ended September 30, 2018 and 2017 as if the acquisition of BioSpeciMan occurred on October 1, 2016 because such results were immaterial.
Acquisitions Completed in Fiscal Year 2017
Acquisition of Pacific Bio-Material Management, Inc. and Novare, LLC
On July 5, 2017, the Company entered into an asset purchase agreement with Pacific Bio-Material Management, Inc. (“PBMMI”) and Novare, LLC, a wholly owned subsidiary of PBMMI (collectively, the “sellers”), to acquire substantially all the assets and certain liabilities of the sellers’ business related to providing storage, transportation, management, and cold chain logistics of biological materials. The acquisition has expanded the Company’s existing capabilities with respect to sample management and integrated cold chain storage and transportation solutions within the Brooks Life Sciences segment. The Company paid to the sellers cash consideration of $34.3 million, net of cash acquired and subject to working capital adjustments.
The Company used a market participant approach to record the assets acquired and liabilities assumed in the PBMMI acquisition. The amounts recorded were as follows (in thousands):
| | | |
| Fair Value of | ||
| | Assets and | |
| | Liabilities | |
Accounts receivable (approximates contractual value) | | $ | 2,800 |
Prepaid expenses and other current assets | | 267 | |
Property, plant and equipment | | 2,887 | |
Intangible assets | | 8,600 | |
Goodwill | | 21,434 | |
Accounts payable | | (699) | |
Accrued liabilities | | (673) | |
Deferred revenue | | (385) | |
Other liabilities | | (103) | |
Total purchase price, net of cash acquired | | $ | 34,128 |
The Company applied variations of the income approach to estimate the fair values of the intangible assets acquired. The identified intangible assets include customer relationship intangible (excess-earnings method) of $8.5 million and
78
trademarks of $0.1 million. The intangible assets acquired are amortized over the total weighted average period of 11.0 years using methods that approximate the pattern in which the economic benefits are expected after-taxto be realized.
At the acquisition date, a cash flowspayment of $3.3 million was placed into escrow which was ascribed to the purchase price. The escrow balance of $3.3 million included $2.9 million related to satisfaction of the sellers' indemnification obligations with respect to their representations and royalty savings, customer attrition rates, discount rates,warranties and other indemnities, as well as assumptions about$0.4 million payable to the periodformer owner of time over whichNovare as a compensation for a sale of his ownership interest. This escrow arrangement is administered by the Company will be deriving economic benefits fromon behalf of 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 SystemsSciences segment. Goodwill is primarily the result of expected synergies from combining the operations of BioStoragePBMMI with the Company'sCompany’s operations and is not deductible for tax purposes.
The operating results of BioStoragePBMMI 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.Sciences segment. During fiscal year 2016,2019, revenue and net income from BioStoragePBMMI recognized in the Company’s results of operations were $44.6$11.9 million and $2.4$0.7 million, respectively. During fiscal year 2016,2018, revenue and net income from PBMMI recognized in the Company’s results of operations were $11.5 million and $0.7 million, respectively. During fiscal year 2017, revenue and net income from PBMMI recognized in the Company’s results of operations were $3.4 million and $0.8 million, respectively. During fiscal year ended September 30, 2019, 2018 and 2017, the net income included amortization expense of $2.9$1.1 million, $1.6 million and $0.3 million, respectively, related to acquired intangible assets.
The retention payment of $2.5 million was recorded within prepaid expenses and other current assets at the acquisition date and is recognized asCompany did not present a compensation expense over the service period or upon a triggering event in the underlying change in control agreements. During fiscal year 2016, the Company recorded $2.4 million of the compensation-related expense with respect to this arrangement. The retention payment balance was $0.1 million at September 30, 2016.
Fiscal Year Ended September 30, | |||||||
2016 | 2015 | ||||||
Revenue | $ | 571,369 | $ | 593,687 | |||
Net (loss) income | (63,396 | ) | 7,000 | ||||
Basic (loss) income per share | $ | (0.93 | ) | $ | 0.10 | ||
Diluted (loss) income per share | $ | (0.93 | ) | $ | 0.10 | ||
Weighted average shares outstanding used in computing net (loss) income per share: | |||||||
Basic | 68,507 | 67,411 | |||||
Diluted | 68,507 | 68,549 |
Acquisition of Contact Co., Ltd.
On August 14, 2015,November 28, 2016, the Company acquired all100% of the outstanding stockequity of Contact Co., Ltd., or Contact,Cool Lab, LLC ("Cool Lab") from BioCision, LLC ("BioCision"). The Company held a Japanese-based provider20% equity ownership interest in BioCision prior to the acquisition. Cool Lab was established as a subsidiary of automated cleaner products for wafer carrier devices usedBioCision on November 28, 2016 upon the transfer of certain assets related to cell cryopreservation solutions. Cool Lab’s offerings assist in managing the global semiconductor markets.temperature stability of therapeutics, biological samples, and related biomaterials in ultra-cold and cryogenic environments. The acquisition of Contact expandedCool Lab has allowed the Company'sCompany to extend its comprehensive sample management solutions across the cold chain of custody, which is consistent with the other offerings of contamination control solutions withinit brings to its Brooks Semiconductor Solutions Group segment, strengthened its current capabilities and technology used in its contamination control solutions business and enhanced its long-term strategy of gaining share in its core semiconductor markets.
The aggregate purchase price of $6.8$15.2 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, a liability to the seller of $0.1 million and a contingentthe settlement of certain preexisting relationships with Cool Lab and BioCision, disclosed as non-cash consideration of $0.8$10.3 million, payable upon achievement of certain specified targets and events. The entire debt amount was fully repaid as of September 30, 2015.
The Company recordedused a market participant approach to record the assets acquired and liabilities assumed related to Contact at their preliminary fair valuesin the Cool Lab acquisition. The amounts recorded were as follows (in thousands):
| | | |
|
| Fair Value of Assets | |
Inventory |
| $ | 1,283 |
Intangible assets | |
| 6,100 |
Goodwill | |
| 8,527 |
Accrued liabilities | |
| (30) |
Other liabilities | |
| (686) |
Total purchase price |
| $ | 15,194 |
79
The Company applied variations of the acquisition date and preparedincome approach to estimate the purchase price allocation on a preliminary basis. The preliminary fair values of the tangible and intangible assets acquired were based upon preliminary valuations and the Company's estimates and assumptions that were subject to change within the measurement period. During the first quarteracquired. The identified intangible assets include customer relationship with a certain customer (excess-earnings method) of fiscal year 2016, the Company finalized the valuation$3.6 million with a useful life of property, plant and equipment reported at fair value at the acquisition date. As3 years, completed technology (relief-from-royalty) of $1.2 million with a result, the Company recorded a measurement period adjustmentuseful life 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 September 30, 2016 in accordance with the provisions of the newly adopted guidance. The purchase price allocation for Contact acquisition was finalized within the measurement period.
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 |
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 GroupLife Sciences segment. Goodwill is primarily the result of expected synergies from combining the operations of ContactCool Lab with the Company'sCompany’s operations and is not deductible for tax purposes.
The Company recorded a liability of $0.7 million in the purchase price allocation that represented a pre-acquisition contingency incurred on the acquisition date. The obligation is related to a rebate that is due to a particular customer if the annual product sales volume metrics exceed threshold amounts under the provisions of the contract with this customer assumed by the Company. Fair value of such liability was determined based on a probability weighted discounted cash flow model. The carrying amount of the liability was $0.0 million and $0.8 million, respectively, at September 30, 2019 and 2018.
The operating results of ContactCool Lab have been includedreflected in the results of operations for the Brooks Semiconductor Solutions Group segment from the date of the acquisition.Life Sciences segment. During fiscal year 2016,2019, revenue and net income from Cool Lab recognized in the Company’s results of operations were $4.1 million and $0.1 million, respectively. During fiscal year 2018, revenue and net loss from ContactCool Lab recognized in the Company'sCompany’s results of operations were $4.5$3.7 million and $1.1$0.2 million, respectively. The operating results of Contact forDuring fiscal year 2015 were insignificant2017, revenue and have been includednet loss from Cool Lab recognized in the Company’s results of operations of Brooks Semiconductor Solutions Group segment from the date of the acquisition.were $3.7 million and $0.3 million, respectively. During fiscal year 2016,ended September 30, 2019, 2018 and 2017, the net income included charges of amortization expense $1.6 million, $1.6 million and $1.2 million respectively, related to acquired intangible assets. During fiscal year ended September 30, 2017, the net loss also included charges of $0.6$0.4 million and $0.7 million, respectively, related to the step-up in value of the acquired inventories and amortization expense of acquired intangible assets.
The Company did not present a pro forma information summary for its consolidated results of operations for the fiscal years ended September 30, 20152017 and 20142016 as if the acquisition of ContactCool Lab occurred on October 1, 20132015 because such results were insignificant.
Other
On October 1, 2014,August 22, 2017, the Company acquired allcertain assets and liabilities of the outstanding stock of FluidX Ltd.RURO, Inc., or FluidX,(“RURO”), a UK-basedU.S.-based provider of biological sample storage tubesmanagement software solutions across multiple end markets, including academic research, government, pharmaceutical, biotech, and complementary bench-top instruments.healthcare. The Company paid, in cash, aggregate merger consideration of $15.5 million, net of cash acquired. The acquisition of FluidX providedacquired FreezerPro® web-based software platform together with an exclusive license to sell and distribute RURO’s BioBankPro® software has allowed the Company with the opportunity to enhancecomplement its existing capabilities with respect to biobanking solutions ininformatics offerings within the Brooks Life Science Systems segment.
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 |
At the closing of the acquisition, date from a market participant’s perspective.
80
The operating results of FluidXthe acquisition have been includedreflected in the results of operations for the Brooks Life Science Systems segment from the date of the acquisition. During fiscal year 2016, revenue and net loss attributable to FluidX were $15.6 million and $0.2 million, respectively. During fiscal year 2015, revenue and net loss attributable to FluidX were $15.0 million and $0.6 million, respectively. The Company incurred charges of $1.0 million related to the step-up in value of the acquired inventories during fiscal year 2015, as well as amortization expense of $1.2 million and $1.4 million, respectively, related to the acquired intangible assets which was included in the net loss during fiscal years 2016 and 2015.
Fair Values of Assets and Liabilities | |||
Accounts receivable | $ | 15,262 | |
Inventory | 10,051 | ||
Prepaid and other current assets | 2,727 | ||
Property, plant and equipment | 2,049 | ||
Completed technology | 3,610 | ||
Customer relationships | 7,100 | ||
Goodwill | 11,638 | ||
Accounts payable | (10,393 | ) | |
Accrued liabilities | (5,522 | ) | |
Deferred revenue | (1,309 | ) | |
Long-term deferred tax liabilities | (3,588 | ) | |
Total purchase price, net of cash acquired | $ | 31,625 |
The Company invests in marketable securities that are classified as available-for-sale and recorded at fair value in the Company'sCompany’s 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 (expense) income,expenses, net" in the accompanying Consolidated Statements of Operations. During fiscal year 2016,2019, the Company sold marketable securities with a fair value of $127.6 millionvalues and amortized cost of $127.7$49.4 million and $49.5 million, respectively, and recognized net losses of approximately $0.1 million. Gross gains reported as a component of net losses recognized on the sale of marketable securities during fiscal year 2016 were insignificant. The Company collected cash proceeds of $127.0$48.9 million from the sale of marketable securities and reclassified unrealized net holding losses of approximately $0.1 million from accumulated other comprehensive income into "Other (expense) income,expenses, net" in the accompanying Consolidated Statements of Operations as a result of these transactions.
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 September 30, 20162019 and 20152018 (in thousands):
| | | | | | | | | | | | |
|
| |
| Gross |
| Gross |
| | ||||
| | Amortized | | Unrealized | | Unrealized | | | ||||
| | Cost | | Losses | | Gains | | Fair Value | ||||
September 30, 2019: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury securities and obligations of U.S. government agencies |
| $ | 31,863 | | $ | (2) | | $ | 5 |
| $ | 31,866 |
Bank certificates of deposits | | | 750 | | | — | | | — | | | 750 |
Corporate securities | | | 4,317 | | | — | | | 1 | | | 4,318 |
Other debt securities |
| | 35 | | | — | | | — |
| | 35 |
| | $ | 36,965 | | $ | (2) | | $ | 6 | | $ | 36,969 |
September 30, 2018: | |
|
| |
|
| |
|
| |
|
|
U.S. Treasury securities and obligations of U.S. government agencies | | $ | 30,142 |
| $ | (65) |
| $ | — |
| $ | 30,077 |
Bank certificates of deposits | | | 5,148 | | | — | | | 1 | | | 5,149 |
Corporate securities | | | 14,763 | | | (30) | | | — | | | 14,733 |
Municipal securities | |
| 2,797 |
| | (17) |
| | — |
| | 2,780 |
Other debt securities | |
| 779 |
| | — |
| | — |
| | 779 |
| | $ | 53,629 | | $ | (112) | | $ | 1 | | $ | 53,518 |
81
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
September 30, 2016: | |||||||||||||||
Corporate securities | 2,394 | — | — | 2,394 | |||||||||||
Other debt securities | 39 | — | — | 39 | |||||||||||
Municipal securities | 3,704 | 1 | (3 | ) | 3,702 | ||||||||||
$ | 6,137 | $ | 1 | $ | (3 | ) | $ | 6,135 | |||||||
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 September 30, 20162019 are presented below (in thousands).
Fair Value | |||
Due in one year or less | $ | 39 | |
Due after one year through five years | 3,704 | ||
Due after ten years | 2,392 | ||
$ | 6,135 |
| | | |
|
| Fair Value | |
Due in one year or less | | $ | 34,124 |
Due after one year through five years | |
| — |
Due after five years through ten years | | | — |
Due after ten years | |
| 2,845 |
Total marketable securities | | $ | 36,969 |
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'sCompany’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. There were $12.0 million of marketable securities in an unrealized loss position as of September 30, 2019. As of September 30, 2016,2018, aggregate fair value of the marketable securities in unrealized loss position was $2.5$43.0 million and was comprised entirelyprimarily of U.S. Treasury securities, corporate securities, and municipal securities. Aggregate unrealized losses for these securities were insignificant as of September 30, 2016 and are presented in the table above. 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, 20152018 and are presented in the table above. The securities in unrealized loss position as of September 30, 20162019 and 20152018 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 arewere attributable to changes in interest rates which impactthat impacted the value of the investments.
Property, plant and equipment were as follows as of September 30, 20162019 and 20152018 (in thousands):
September 30, | |||||||
2016 | 2015 | ||||||
Buildings and land | $ | 45,772 | $ | 43,765 | |||
Computer equipment and software | 65,989 | 58,715 | |||||
Machinery and equipment | 54,896 | 43,185 | |||||
Furniture and fixtures | 5,704 | 5,310 | |||||
Leasehold improvements | 17,128 | 13,617 | |||||
Capital projects in progress | 5,428 | 4,427 | |||||
194,917 | 169,019 | ||||||
Less accumulated depreciation and amortization | (140,032 | ) | (127,164 | ) | |||
Property, plant and equipment, net | $ | 54,885 | $ | 41,855 |
| | | | | | |
| | September 30, | ||||
|
| 2019 |
| 2018 | ||
Buildings, land, and land use right | | $ | 50,583 | | $ | 47,745 |
Computer equipment and software | |
| 61,603 | |
| 56,982 |
Machinery and equipment | |
| 89,481 | |
| 55,794 |
Furniture and fixtures | |
| 7,423 | |
| 4,842 |
Leasehold improvements | |
| 30,612 | |
| 19,433 |
Capital projects in progress | |
| 11,701 | |
| 5,796 |
| |
| 251,403 | |
| 190,592 |
Less: accumulated depreciation and amortization | |
| (150,734) | |
| (130,604) |
Property, plant and equipment, net | | $ | 100,669 | | $ | 59,988 |
Depreciation expense excluding amounts related to the discontinued operations, was $13.1$19.3 million, $12.3$12.5 million and $12.7$10.1 million, respectively, for the fiscal years ended September 30, 2016, 20152019, 2018 and 2014.2017. The Company recorded $1.3$1.9 million of additions to property, plant and equipment for which cash payments had not yet been made as of September 30, 2016.
7. 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 1st as its annual goodwill impairment assessment date and performs additional impairment tests if triggeringdate. If the existence of events occur. If events occur or circumstances changeindicates that wouldit is more likely than not reducethat fair values of the reporting units
82
are below their carrying values, goodwill is evaluated for impairment between annual tests.
In accordance with ASC 350, the Company initially assesses qualitative factors to determine whether the existence of events or circumstances indicates that had goodwill. Four reporting units were a partit is more likely than not that the fair value 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 fiscal year 2016,unit is less than its carrying value. If 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 reflectdetermines, based on this assessment, that it is more likely than not that the revised reporting structure. The combinationfair value 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. Asis less than its carrying value, it performs a resultquantitative goodwill impairment test by comparing the reporting unit’s fair value with its carrying value. An impairment loss is recognized for the amount by which the reporting unit’s carrying value exceeds its fair value, up to the total amount of this re-alignment,goodwill allocated to the Company had five reporting units as of September 30, 2016, including four reporting units withinunit. No impairment loss is recognized if the BSSG operating segment and one reporting unit which was Brooks Life Science Systems operating segment. Please refer to Note 20, "Segment Information" for additional information on the operating and reporting segments realignment. The revised reporting unit structure reflects the combination of two previously identified 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 evaluated goodwill for potential indicators of impairment before and after this combination and determined that fair value of each component individually and in aggregate exceeded their carrying values. BSSG Cryogenics goodwill carrying amount was $24.0 million, and its fair value significantly exceededthe reporting exceeds its carrying value as of the date of each goodwill impairment testing.
The Company completed its annual goodwill impairment test as of April 1, 20162019 for its 5 reporting units, including Automation Solutions, Contamination Control Solutions and Global Semiconductor Services within the Brooks Semiconductor Solutions Group segment, as well as Sample Management and GENEWIZ within the Brooks Life Sciences segment. Based on the test results, the Company determined that no adjustment to goodwill was necessary. Fair values of all of theThe Company conducted a qualitative assessment for 3 reporting units except for Polycold, substantially exceededwithin the Brooks Semiconductor Solutions Group segment and determined that it was more likely than not that their respectivefair values were more than their carrying values. Fair value of the 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 of the analysis, the Company performeddid not perform the first step ofquantitative assessment for these reporting units and did not recognize any impairment losses. The Company performed the quantitative goodwill impairment test as of February 1, 2016 and determined thatfor the fair value exceeded2 reporting units within the carrying value by 18%, and that no goodwill impairment existed.Brooks Life Sciences segment. The Company determined the Polycoldthat 0 adjustment to goodwill was necessary for these 2 reporting unit'sunits. The Sample Management reporting unit’s fair value based on an Income Approach in accordance with the DCF method. During the third quarter of fiscal year 2016, the Company incorporated lower projected future cash flows into the model due to lower forecasted revenue and gross margin in fiscal year 2016 that resulted insignificantly exceeded book value. The GENEWIZ reporting unit, which was recently acquired, had a decrease of the excess of the Polycold reporting unit's fair value overslightly above its carrying value from 18% duringbook value.
83
The following table sets forth the second quarter of fiscal year 2016 to 12% duringchanges in the third quarter of fiscal year 2016. The estimated fair value of the Polycold's reporting unit assumed a taxable transaction. The Polycold reporting unit's goodwill carrying amount was $24.0 million as of the date of each goodwill impairment assessment.
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 | 1,054 | 79,676 | — | 80,730 | |||||||||||
Gross goodwill, at September 30, 2016 | 655,781 | 135,301 | 26,014 | 817,096 | |||||||||||
Accumulated goodwill impairments | (588,944 | ) | — | (26,014 | ) | (614,958 | ) | ||||||||
Goodwill, net of accumulated impairments, at September 30, 2016 | $ | 66,837 | $ | 135,301 | $ | — | $ | 202,138 |
| | | | | | | | | | | | |
|
| Brooks |
| | |
| | |
| | | |
| | Semiconductor | | | | | | | | | ||
| | Solutions | | Brooks | | | | | | | ||
| | Group | | Life Sciences | | Other | | Total | ||||
Gross goodwill, at September 30, 2017 | | $ | 629,278 | | $ | 166,820 | | $ | 26,014 | | $ | 822,112 |
Accumulated goodwill impairments | |
| (588,944) | |
| — | |
| (26,014) | |
| (614,958) |
Goodwill, net of accumulated impairments, at September 30, 2017 | |
| 40,334 | |
| 166,820 | |
| — | |
| 207,154 |
Acquisitions and adjustments | |
| 7,629 | |
| 41,093 | |
| — | |
| 48,722 |
Gross goodwill, at September 30, 2018 | | | 636,907 | | | 207,913 | | | 26,014 | | | 870,834 |
Accumulated goodwill impairments | |
| (588,944) | |
| — | |
| (26,014) | |
| (614,958) |
Goodwill, net of accumulated impairments, at September 30, 2018 | |
| 47,963 | |
| 207,913 | |
| — | |
| 255,876 |
Acquisitions and adjustments | |
| (116) | |
| 232,842 | |
| — | |
| 232,726 |
Gross goodwill, at September 30, 2019 | | | 636,791 | | | 440,755 | | | 26,014 | | | 1,103,560 |
Accumulated goodwill impairments | |
| (588,944) | |
| — | |
| (26,014) | |
| (614,958) |
Goodwill, net of accumulated impairments, at September 30, 2019 | | $ | 47,847 | | $ | 440,755 | | $ | — | | $ | 488,602 |
| | | | | | | | | | | | |
During fiscal year 2016,2019, the Company recorded a goodwill increase of $79.7$232.7 million primarily related 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 that 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 fiscal year 2016.
The components of the Company’s identifiable intangible assets as of September 30, 20162019 and 20152018 are as follows (in thousands):
September 30, 2016 | September 30, 2015 | ||||||||||||||||||||||
Cost | Accumulated Amortization | Net Book Value | Cost | Accumulated Amortization | Net Book Value | ||||||||||||||||||
Patents | $ | 7,808 | $ | 7,486 | $ | 322 | $ | 7,808 | $ | 7,394 | $ | 414 | |||||||||||
Completed technology | 60,485 | 51,018 | 9,467 | 60,748 | 46,718 | 14,030 | |||||||||||||||||
Trademarks and trade names | 9,142 | 4,204 | 4,938 | 4,241 | 3,604 | 637 | |||||||||||||||||
Customer relationships | 114,263 | 47,147 | 67,116 | 77,716 | 37,351 | 40,365 | |||||||||||||||||
$ | 191,698 | $ | 109,855 | $ | 81,843 | $ | 150,513 | $ | 95,067 | $ | 55,446 |
| | | | | | | | | | | | | | | | | | |
| | September 30, 2019 | | September 30, 2018 | ||||||||||||||
| | | | Accumulated | | Net Book | | | | Accumulated | | Net Book | ||||||
|
| Cost |
| Amortization |
| Value |
| Cost |
| Amortization |
| Value | ||||||
Patents | | $ | 5,302 | | $ | 4,628 | | $ | 674 | | $ | 5,302 | | $ | 4,325 | | $ | 977 |
Completed technology | |
| 88,288 | |
| 38,778 | |
| 49,510 | |
| 44,829 | |
| 28,934 | |
| 15,895 |
Trademarks and trade names | |
| 25,340 | |
| 5,807 | |
| 19,533 | |
| 6,298 | |
| 2,953 | |
| 3,345 |
Customer relationships | |
| 265,451 | |
| 84,048 | |
| 181,403 | |
| 142,489 | |
| 62,750 | |
| 79,739 |
Other intangibles | | | 231 | | | 183 | | | 48 | | | — | | | — | | | — |
| | $ | 384,612 | | $ | 133,444 | | $ | 251,168 | | $ | 198,918 | | $ | 98,962 | | $ | 99,956 |
Amortization expense for intangible assets excluding amounts related to the discontinued operations, was $15.0$35.2 million, $12.9$24.2 million and $10.6$17.1 million, respectively, for the fiscal years ended September 30, 2016, 20152019, 2018 and 2014.
Estimated future amortization expense for the intangible assets as of September 30, 20162019 is as follows (in thousands):
| | | |
Fiscal year ended September 30, |
| |
|
2020 | | $ | 41,381 |
2021 | |
| 37,494 |
2022 | |
| 34,390 |
2023 | |
| 31,267 |
2024 | |
| 26,456 |
Thereafter | |
| 80,180 |
| | $ | 251,168 |
84
Year ended September 30, | |||
2017 | $ | 15,573 | |
2018 | 14,052 | ||
2019 | 13,713 | ||
2020 | 12,909 | ||
2021 | 8,036 | ||
Thereafter | 17,560 | ||
$ | 81,843 |
8. Equity Method and Other Investments
The Company accounts for certain of its investments using the equity method of accounting and records its proportionate share of the investee'sinvestee’s earnings (losses) in its results of operations with a corresponding increase (decrease) in the carrying value of the investment.
BioCision, LLC
As of September 30, 2016, the Company acquiredheld a 22%20% equity interest in BioCision, LLC, or BioCision, a privately-held company based in Larkspur, California, which was accounted for $4.0 million. During fiscal year 2015, the Company'sas an 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 for improving and standardizing the tools and methods for biomaterial sample handling. method investment.
The Company determined thatheld a term loan receivable from BioCision represented a variable interest entity since the levelas of equity investment at riskSeptember 30, 2016. The term loan was not sufficientprovided to financeBioCision to support 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.working capital requirements. The Company's loss exposure is limited to theterm loan had an aggregate principal amount of investment and loan funding provided to BioCision. As such, the Company concluded that BioCision should not be consolidated in its financial statements.
The Company purchased BioCision'salso held five-year convertible debt securities with a warrant agreement to purchase BioCision’s preferred units as of BioCisionSeptember 30, 2016. The convertible debt securities and the warrant were purchased by the Company in fiscal year 2015 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 theThe convertible debt securities were accruing interest at athe annual rate of 9% per annum,, and isall principal and accrued interest were due with the principal at maturity. The convertible debt securities and the warrant 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. At September 30, 2016, the fair values of the convertible debt securities and warrants were $5.8 million and less than $0.1 million, respectively. At September 30, 2015, the fair values of the convertible debt securities and warrants were $5.3 million and $0.1 million, respectively.
On November 28, 2016, BioCision established Cool Lab as its subsidiary upon transferring certain assets related to cell cryopreservation solutions. The Company recognized remeasurement gainsacquired a 100% equity interest of $0.4 million during each fiscal year ended September 30, 2016 and 2015.
The carrying value of the equity method investment in UCIBioCision was $25.6$1.2 million and $21.5 million, respectively, at September 30, 2016 and 2015. During the fiscal years ended September 30, 2016, 2015 and 2014, the Company recorded income of $3.4 million, $1.4 million and $1.6 million, respectively, representing its proportionate share of the UCI's earnings. Management fee payments received by the Company from UCI were $0.8 million during fiscal year ended September 30, 2016 and $0.6 million during each fiscal year ended September 30, 2015 and 2014. During the fiscal years ended September 30, 2016, 2015 and 2014, the Company incurred charges from UCI for products or services of $0.3 million, $0.4 million and $0.4 million, respectively.on November 28, 2016. The Company owed UCI $0.1 million at each of September 30, 2016 and 2015 in connection with accounts payable for unpaid products and services. During the fiscal years ended September 30, 2016 and 2015, the Company received $1.5 million and $0.6 million, respectively, of cash dividends from UCI which reduced the carrying value of the Company's investment.
September 30, | |||||||||||
2016 | 2015 | ||||||||||
Balance Sheets: | |||||||||||
Current assets | $ | 59,507 | $ | 43,201 | |||||||
Non-current assets | 15,461 | 12,657 | |||||||||
Current liabilities | 25,320 | 15,551 | |||||||||
Non-current liabilities | 19,933 | 13,581 | |||||||||
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
Statements of Operations: | |||||||||||
Total revenue | $ | 74,659 | $ | 48,047 | $ | 48,702 | |||||
Gross profit (loss) | 27,355 | 16,327 | 16,510 | ||||||||
Income (loss) from continuing operations | 6,731 | (1,074 | ) | 1,745 | |||||||
Net income (loss) | 2,374 | (2,452 | ) | 1,636 |
The following is a summary of accounts receivable at September 30, 20162019 and 20152018 (in thousands):
| | | | | | | |
| | September 30, | | September 30, | | ||
|
| 2019 |
| 2018 |
| ||
Accounts receivable | | $ | 169,317 | | $ | 126,350 | |
Less allowance for doubtful accounts | |
| (3,644) | |
| (1,113) | |
Less allowance for sales returns | |
| (71) | |
| (45) | |
Accounts receivable, net | | $ | 165,602 | | $ | 125,192 | |
85
September 30, | |||||||
2016 | 2015 | ||||||
Accounts receivable | $ | 108,713 | $ | 87,582 | |||
Less allowance for doubtful accounts | (2,241 | ) | (1,019 | ) | |||
Less allowance for sales returns | (100 | ) | (115 | ) | |||
$ | 106,372 | $ | 86,448 |
The allowance for doubtful accounts activity for the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 is as follows (in thousands):
Description | Balance at Beginning of Period | Provisions | Reversals of Bad Debt Expense | Write-offs and Adjustments | Balance at End of Period | |||||||||||||||
2016 Allowance for doubtful accounts | $ | 1,019 | $ | 202 | $ | — | $ | 1,020 | $ | 2,241 | ||||||||||
2015 Allowance for doubtful accounts | 1,031 | — | — | (12 | ) | 1,019 | ||||||||||||||
2014 Allowance for doubtful accounts | 863 | 438 | (315 | ) | 45 | 1,031 |
| | | | | | | | | | | | | | | |
| | Balance at | | | | | Reversals of | | Write- | | Balance at | ||||
| | Beginning of | | | | | Bad Debt | | offs and | | End of | ||||
Description |
| Period |
| Provisions |
| Expense |
| Adjustments |
| Period | |||||
2019 Allowance for doubtful accounts | | $ | 1,113 | | $ | 3,405 | | $ | (693) | | $ | (181) | | $ | 3,644 |
2018 Allowance for doubtful accounts | |
| 1,381 | |
| 708 | | | (724) | | | (252) | |
| 1,113 |
2017 Allowance for doubtful accounts | |
| 1,543 | |
| — | |
| (131) | |
| (31) | |
| 1,381 |
The allowance for sales returns activity for the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 is as follows (in thousands):
Description | Balance at Beginning of Period | Provisions | Write-offs and Adjustments | Balance at End of Period | |||||||||||
2016 Allowance for sales returns | $ | 115 | $ | (14 | ) | $ | — | $ | 101 | ||||||
2015 Allowance for sales returns | 133 | (18 | ) | — | 115 | ||||||||||
2014 Allowance for sales returns | 114 | 19 | — | 133 |
| | | | | | | | | | | | |
| | Balance at | | | | | Write- | | Balance at | |||
| | Beginning of | | | | | offs and | | End of | |||
Description |
| Period |
| Provisions |
| Adjustments |
| Period | ||||
2019 Allowance for sales returns | | $ | 45 | | $ | 26 | | $ | — | | $ | 71 |
2018 Allowance for sales returns | |
| 81 | | | (36) | | | — | | | 45 |
2017 Allowance for sales returns | |
| 101 | | | (20) | | | — | |
| 81 |
The following is a summary of inventories at September 30, 20162019 and 20152018 (in thousands):
September 30, | |||||||
2016 | 2015 | ||||||
Inventories | |||||||
Raw materials and purchased parts | $ | 60,979 | $ | 62,441 | |||
Work-in-process | 16,090 | 21,563 | |||||
Finished goods | 15,503 | 16,615 | |||||
$ | 92,572 | $ | 100,619 |
| | | | | | | |
| | September 30, | | September 30, | | ||
|
| 2019 |
| 2018 |
| ||
Inventories |
| |
|
| |
|
|
Raw materials and purchased parts | | $ | 67,176 | | $ | 57,527 | |
Work-in-process | |
| 13,684 | |
| 19,547 | |
Finished goods | |
| 18,585 | |
| 19,912 | |
Total inventories | | $ | 99,445 | | $ | 96,986 | |
The activity for excess and obsolete inventory reserves excluding amounts related to discontinued operations, is as follows for the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 (in thousands):
Description | Balance at Beginning of Period | Provisions | Inventory Disposals and Adjustments | Balance at End of Period | |||||||||||
2016 Reserves for excess and obsolete inventory | $ | 23,768 | $ | 7,293 | $ | (6,267 | ) | $ | 24,794 | ||||||
2015 Reserves for excess and obsolete inventory | 26,027 | 7,879 | (10,138 | ) | 23,768 | ||||||||||
2014 Reserves for excess and obsolete inventory | 24,200 | 6,900 | (5,073 | ) | 26,027 |
| | | | | | | | | | | | |
| | Balance at | | | | | Inventory | | Balance at | |||
| | Beginning of | | | | | Disposals and | | End of | |||
Description |
| Period |
| | Provisions |
| Adjustments |
| Period | |||
2019 Reserves for excess and obsolete inventory | | $ | 14,953 |
| $ | 5,865 | | $ | (4,520) | | $ | 16,298 |
2018 Reserves for excess and obsolete inventory | | | 17,734 |
| | 4,455 | | | (7,236) | | | 14,953 |
2017 Reserves for excess and obsolete inventory | |
| 19,663 |
| | 4,858 | | | (6,787) | | | 17,734 |
The activity for valuation allowance for deferred tax assets is as follows for the fiscal years ended September 30, 2019, 2018 and 2017 (in thousands):
| | | | | | | | | | | | |
| | Balance at | | | | | | | Balance at | |||
| | Beginning of | | Charged to | | Charged to | | End of | ||||
Description |
| Period |
| Provisions |
| Other Accounts |
| Period | ||||
2019 Valuation allowance for deferred tax assets | | $ | 18,581 | | $ | (3,475) | | $ | 987 | | $ | 16,093 |
2018 Valuation allowance for deferred tax assets | |
| 92,297 | | | (72,842) | | | (874) | | | 18,581 |
2017 Valuation allowance for deferred tax assets | |
| 104,802 | | | (10,881) | | | (1,624) | |
| 92,297 |
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.
86
excluding amounts related to discontinued operations, for the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 (in thousands):
Amount | |||
Balance at September 30, 2013 | $ | 7,260 | |
Adjustments for acquisitions and divestitures | 364 | ||
Accruals for warranties during the year | 9,969 | ||
Costs incurred during the year | (11,094 | ) | |
Balance at September 30, 2014 | 6,499 | ||
Adjustments for acquisitions and divestitures | 81 | ||
Accruals for warranties during the year | 9,917 | ||
Costs incurred during the year | (10,408 | ) | |
Balance at September 30, 2015 | 6,089 | ||
Adjustments for acquisitions and divestitures | — | ||
Accruals for warranties during the year | 9,975 | ||
Costs incurred during the year | (9,740 | ) | |
Balance at September 30, 2016 | $ | 6,324 |
| | | |
|
| Amount | |
Balance at September 30, 2016 | | $ | 4,159 |
Accruals for warranties during the year | |
| 6,683 |
Costs incurred during the year | |
| (5,363) |
Balance at September 30, 2017 | |
| 5,479 |
Accruals for warranties during the year | |
| 5,209 |
Costs incurred during the year | |
| (4,348) |
Balance at September 30, 2018 | |
| 6,340 |
Accruals for warranties during the year | |
| 8,688 |
Costs incurred during the year | |
| (7,853) |
Balance at September 30, 2019 | | $ | 7,175 |
10. 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. (the "Wells("Wells Fargo"). The credit agreement providesprovided for a five-year senior secured revolving line of credit (the ''line‘‘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 sublimitsincluded sub-limits 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
On October 4, 2017, the Company entered into a $200.0 million Senior Secured Term Loan Facility (the “term loan”) with Morgan Stanley Senior Funding, Inc., JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC (collectively, the “lenders”). Coincident with the entry into the term loan agreement, the Company amended certain terms and conditions of the credit expiresagreement and entered into an arrangement with Wells Fargo and JPMorgan Chase Bank, N.A. Based 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 amended 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 outstandingcontinues to provide for revolving credit financing of up to $75.0 million, subject to borrowing base availability. Borrowing base availability under the amended line of credit asexcludes collateral related to fixed assets and is redetermined periodically based on certain percentage of September 30, 2016.
The sub-limits for letters of credit were reduced to $7.5 million under the base rate or the LIBOR rate plus, in each case, an applicable margin determined based on the Company's liquidity asamended terms 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 fiscal year 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 $0.1 million in such fees during fiscal year 2016.agreement. All outstanding borrowings under the credit agreement are guaranteed by the Company along with certain U.S. subsidiaries and Brooks Life Sciences, Inc. (fka BioStorage Technologies, Inc.), its wholly-owned subsidiary (“guarantor”), and subordinated to the obligations under the term loan which are secured by a first priority perfected security interest in
There were 0 amounts outstanding under the line of credit as of September 30, 2019 and September 30, 2018. The Company records commitment fees and other costs directly associated with obtaining line of credit financing as deferred financing costs, which are amortized over the term of the related financing arrangement. Deferred financing costs were $0.4 million and $0.5 million at September 30, 2019 and September 30, 2018, respectively. The line of credit contains certain customary representations and warranties, a financial covenant and affirmative and negative covenants as well as events of default. In the eventThe Company was in which the Company's liquidity is less than the greater of (i) 12.5% of the commitments undercompliance with the line of credit covenants as of September 30, 2019 and (ii) $9.4September 30, 2018.
11. Debt
Term Loans
On October 4, 2017, the Company entered into a $200.0 million term loan with the lenders pursuant to the terms of a credit agreement. The term loan was issued at $197.6 million, or 98.8% of its par value, resulting in a discount of $2.4 million, or 1.2%, which represented loan origination fees paid at the closing.
87
On November 15, 2018, the Company entered into an incremental amendment (the “First Amendment”) to the existing credit agreement. Under the First Amendment, the Company obtained an incremental term loan in an aggregate principal amount of $350.0 million. The proceeds of the incremental term loan were used to finance a portion of the purchase price for the Company’s acquisition of GENEWIZ. The incremental term loan was issued at $340.5 million, or 97.3% of its par value, resulting in a discount of $9.5 million, or 2.7%, which represented financing cost of the incremental term loan. Except as provided in the First Amendment, the incremental term loan was subject to the same terms and conditions as set forth in the existing credit agreement.
On February 15, 2019, the Company entered into the second amendment to the credit agreement (the “Second Amendment”) and syndicated the incremental term loan to a group of new lenders which met the criteria of a debt extinguishment. The Company wrote off the carrying value of the incremental term loan of $340.1 million as of February 15, 2019 and recorded the syndicated incremental term loan at its present value for $349.1 million and continuing untila loss on debt extinguishment for $9.1 million. The syndicated incremental term loan was issued at $345.2 million, or 98.9% of its par value resulting in a discount of $4.0 million which represented financing costs which are presented as a reduction of the time such liquidity duringincremental term loan principal balance in the accompanying unaudited Consolidated Balance Sheets and was accreted over the life of the incremental term loan. Except as provided in the Second Amendment with respect to an increase of the applicable interest rates, the syndicated incremental term loan was subject to the same terms and conditions as the initial incremental term loan.
On July 1, 2019, the Company completed the sale of its semiconductor cryogenics business and used $348.3 million of the proceeds from the Disposition to extinguish the outstanding balance of the incremental term loan. In addition, the Company used $147.0 million of the proceeds from the Disposition to extinguish a 60-consecutive day period has beenportion of the outstanding balance of the term loan. The Company recorded a loss on debt extinguishment of $5.2 million for the 2 term loans.
The Company’s obligations under the term loan are also guaranteed by Brooks Life Sciences, Inc. (fka BioStorage Technologies, Inc.) as the guarantor, subject to the terms and conditions of the credit agreement. The Company and the guarantor granted the lenders a perfected first priority security interest in substantially all of the assets of the Company and the guarantor to secure the repayment of the term loan.
The loan principal amount under the credit agreement may be increased by an aggregate amount equal to or greater than the greater of (a) 12.5%$75.0 million plus any voluntary repayments of the commitments underterm loans plus any additional amount such that the linesecured leverage ratio of the Company is less than 3.00 to 1.00.
Subject to certain conditions stated in the credit and (b) $9.4 million,agreement, the Company may redeem the term loan at any time at its option without a significant premium or penalty, except for a repricing transaction, as defined in the credit agreement. The Company is required to maintain a fixed charge coverage ratioredeem the term loan at the principal amount then outstanding upon occurrence of at least 1.0 to 1.0 measured ascertain events, including (i) net proceeds received from the sale or other disposition of the last dayCompany’s or the guarantor’ assets, subject to certain limitations, (ii) casualty and condemnation proceeds received by the Company or the guarantor, subject to certain exceptions, (iii) net proceeds received by the Company or the guarantor from the issuance of each fiscal month ending during such period. Liquidity isdebt or disqualified capital stock after October 4, 2017. Commencing on December 31, 2018, the Company was required to make principal payments equal to the excess cash flow amount, as defined as a sum of (a) excess availability underin the credit agreement;agreement. Such prepayments are equal to 50% of the preceding year excess cash flow amount reduced by voluntary prepayments of the term loan, subject to certain limitations.
The deferred financing costs are accreted over the term of the loan using the effective interest rate method and (b) unrestricted cash and cash equivalents locatedare included in bank accounts“Interest expense” in the United States that are subject to a controlaccompanying unaudited Consolidated Statements of Operations. At September 30, 2019, deferred financing costs were $0.5 million.
The credit agreement in favorcontains certain customary representations and warranties, covenants and events 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.default. 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 principalwill bear an annual interest rate at 2.00% above the rate otherwise applicable under the terms and interest, may be declared immediately due and payable and theconditions of such agreement. The credit agreement may be terminated. Thedoes not contain financial maintenance covenants. As of September 30, 2019, the Company was in compliance with all covenants and conditions under the linecredit agreement.
88
In connection with the GENEWIZ acquisition, the Company assumed 3 five-year term loans for a total of $3.3 million and 2 one-year short term loans for a total of $3.2 million. The 3 five-year term loans were initiated during 2016 and mature in 2021. The principal payments are payable in 8 installments equal to 12.5% of the initial principal amount of the term loans on December 14th and June 14th of each year. The 3 five-year term loans were secured by GENEWIZ to fund equipment procurement and new building related payments and the interest rates are equal to the LIBOR plus 3.1%. The 2 one-year term loans were secured by GENEWIZ to fund operations. Both of the one-year term loans were initiated in 2018 and matured in 2019. The interest rates of these 2 loans were 4.56% and 4.35%. There are 0 deferred financing costs related to either the five-year term loans or the one-year term loans. At September 30, 2019, the Company had an aggregate outstanding principal balance of $1.7 million for the 3 five-year term loans. Both of the 2 one-year short term loans matured and were repaid in full as of September 30, 2016.2019.
During the year ended September 30, 2019, the weighted average stated interest rate paid on all outstanding debt was 5.3%. During the year ended September 30, 2019, the Company incurred aggregate interest expense of $21.9 million in connection with the borrowings, including $1.1 million of deferred financing costs amortization.
As of September 30, 2019, the estimated fair value of the outstanding principal balance of the debt on the Company’s balance sheet approximates its carrying value. The fair value of the term loan was determined based on observable market inputs and classified within Level 2 of the fair value hierarchy due to a lack of an active market for this term loan or a similar loan instrument.
The following are the future minimum principal payment obligations under all of the Company’s outstanding debt as of September 30, 2019 (in thousands):
| | | |
|
| Amount | |
Fiscal year ended September 30, | | | |
2020 | | $ | 829 |
2021 | | | 826 |
2022 | | | — |
2023 | | | — |
2024 | | | — |
Thereafter | | | 50,000 |
Total outstanding principal balance | | | 51,655 |
Unamortized deferred financing costs | | | (511) |
| | | 51,144 |
Current portion of long-term debt | | | 829 |
Non-current portion of long-term debt | | $ | 50,315 |
Capital Lease Obligations
In connection with the GENEWIZ acquisition, the Company assumed five capital lease obligations related to leases of equipment. Three of the capital leases were initiated in 2016 and mature in 2021 and two of them were initiated in 2017 and mature in 2022. The outstanding principal balance of these obligations is included within “Other long-term liabilities” on the Company’s Consolidated Balance Sheets. See below for the future minimum principal payment obligations under these capital lease obligations as of September 30, 2019 (in thousands):
| | | |
|
| Amount | |
Fiscal year ended September 30, | | | |
2020 | | $ | 1,176 |
2021 | | | 1,126 |
2022 | | | 358 |
Total outstanding principal balance | | $ | 2,660 |
89
The components of the income tax provision (benefit), excluding amounts related to the discontinued from continuing operations for the fiscal years ended September 30, 2016, 2015 and 2014 are as follows (in thousands):
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
Current income tax provision (benefit): | |||||||||||
Federal | $ | (145 | ) | $ | 10 | $ | 15 | ||||
State | (186 | ) | 56 | 177 | |||||||
Foreign | 5,868 | 5,537 | 1,417 | ||||||||
Total current income tax provision | 5,537 | 5,603 | 1,609 | ||||||||
Deferred income tax benefit: | |||||||||||
Federal | 68,300 | (1,773 | ) | (2,276 | ) | ||||||
State | 4,000 | (104 | ) | (35 | ) | ||||||
Foreign | (2,027 | ) | (296 | ) | (1,278 | ) | |||||
Total deferred income tax benefit | 70,273 | (2,173 | ) | (3,589 | ) | ||||||
Income tax provision (benefit) | $ | 75,810 | $ | 3,430 | $ | (1,980 | ) |
| | | | | | | | | |
| | Year Ended September 30, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Current income tax provision (benefit): |
| |
|
| |
|
| |
|
Federal | | $ | 963 | | $ | — | | $ | — |
State | |
| 510 | |
| 917 | |
| 402 |
Foreign | |
| 15,860 | |
| 7,608 | |
| 7,499 |
Total current income tax provision | |
| 17,333 | |
| 8,525 | |
| 7,901 |
Deferred income tax provision (benefit): | |
|
| |
|
| |
|
|
Federal | |
| (8,633) | |
| (48,815) | |
| (4,247) |
State | |
| (2,138) | |
| (5,518) | |
| (249) |
Foreign | |
| (6,673) | |
| (1,443) | |
| (25) |
Total deferred income tax provision (benefit) | |
| (17,444) | |
| (55,776) | |
| (4,521) |
Income tax provision (benefit) | | $ | (111) | | $ | (47,251) | | $ | 3,380 |
The components of income (loss) from continuing operations before income taxes and equity in (losses) earnings of equity method investments for the fiscal years ended September 30, 2016, 2015 and 2014 are as follows (in thousands):
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
Domestic | $ | (8,186 | ) | $ | (1,321 | ) | $ | (7,338 | ) | ||
Foreign | 12,140 | 19,136 | 5,643 | ||||||||
$ | 3,954 | $ | 17,815 | $ | (1,695 | ) |
| | | | | | | | | |
| | Year Ended September 30, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Domestic | | $ | (37,160) | | $ | 3,122 | | $ | (13,211) |
Foreign | |
| 46,603 | |
| 17,344 | |
| 27,731 |
| | $ | 9,443 | | $ | 20,466 | | $ | 14,520 |
The differences between the income tax provision (benefit) on income (loss) from continuing operations including income from equity in earnings (losses) of equity method investments and income taxes computed using the applicable U.S. statutory federal tax raterates for the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 are as follows (in thousands):
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
Income tax provision (benefit) computed at federal statutory rate | $ | 2,217 | $ | 6,177 | $ | (217 | ) | ||||
State income taxes, net of federal benefit | 113 | 243 | (12 | ) | |||||||
Foreign income taxed at different rates | (755 | ) | (938 | ) | (596 | ) | |||||
Dividends | (1,666 | ) | (1,069 | ) | (1,373 | ) | |||||
Change in deferred tax asset valuation allowance | 77,531 | (36 | ) | 453 | |||||||
Reduction in uncertain tax positions | (1,543 | ) | (1,207 | ) | (1,236 | ) | |||||
Nondeductible compensation | 782 | 1,325 | 1,064 | ||||||||
Tax credits | (1,786 | ) | (1,741 | ) | (704 | ) | |||||
Travel and entertainment | 274 | 314 | 220 | ||||||||
Merger costs | 503 | 228 | 187 | ||||||||
Other | 140 | 134 | 234 | ||||||||
Income tax provision (benefit) | $ | 75,810 | $ | 3,430 | $ | (1,980 | ) |
| | | | | | | | | |
| | Year Ended September 30, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Income tax provision computed at federal statutory rate | | $ | 1,983 | | $ | 5,014 | | $ | 4,923 |
State income taxes, net of federal benefit | |
| (630) | |
| 692 | |
| 137 |
Foreign income taxed at different rates | |
| 550 | |
| 920 | |
| (1,644) |
Impact of investments in subsidiaries | |
| (536) | |
| (729) | |
| (965) |
Change in deferred tax asset valuation allowance | |
| (2,264) | |
| (75,918) | |
| 319 |
Net increase (reduction) in uncertain tax positions | |
| 720 | |
| 220 | |
| 731 |
Global intangible low taxed income, net of foreign tax credits | | | 942 | | | — | | | — |
Impact of U.S. federal tax rate change | | | — | | | 15,287 | | | — |
Compensation | |
| (1,103) | |
| (701) | |
| 579 |
Tax credits | |
| (2,741) | |
| (1,633) | |
| (1,151) |
Merger costs | |
| 572 | |
| 1,405 | |
| — |
Other taxes | | | 764 | | | 70 | | | 98 |
Non-deductible expenses | | | 174 | | | 176 | | | 220 |
Transition tax | | | 2,836 | | | 8,027 | | | — |
Deferred state rate change due to acquisition | | | (1,360) | | | — | | | — |
Other | |
| (18) | |
| (81) | |
| 133 |
Income tax provision (benefit) | | $ | (111) | | $ | (47,251) | | $ | 3,380 |
The Company has not provided deferred income taxes on the unremitted earningsoutside basis differences of its foreign subsidiariessubsidiaries. The Company maintains its assertion of indefinite reinvestment as of September 30, 2019. The foreign earnings are
90
expected to be reinvested in foreign operations and acquisitions. Unremitted foreign earnings total approximately $190 million. We did not calculate estimated deferred tax liabilities related to these earnings are considered tobecause such calculations would not be indefinitely reinvested outsidepracticable. The taxes on these earnings would primarily consist of theforeign withholding taxes and minimal U.S. These earnings amounted to approximately $52.0 million, $40.3 million and $25.2 million, respectively, at September 30, 2016, 2015 and 2014.state income taxes. It is not practicable to computeestimate the estimated deferred tax liability on these earnings as they depend on numerous factors and vary based onimpact of the timingreversal of future remittances and the future resultsoutside basis difference, or the repatriation of various foreign operations. Deferred taxes have not been provided on unremitted earningscash due to the complexity of its fifty percent-owned foreign corporate joint venture, Ulvac Cryogenics, Inc. as these earnings are also considered to be indefinitely reinvested outside of the U.S. The Company does, however, receive annual dividends only from current year earnings of this joint venture and these dividends are included in taxable income for the year. Any earnings that are not distributed in the current year will then be considered indefinitely reinvested as the company does not expect to receive dividends from prior year earnings.
The significant components of the net deferred tax assets and liabilities as of September 30, 20162019 and 20152018 are as follows (in thousands):
September 30, | |||||||
2016 | 2015 | ||||||
Accruals and reserves not currently deductible | $ | 16,448 | $ | 9,602 | |||
Federal, state and foreign tax credits | 24,539 | 22,115 | |||||
Other assets | 4,294 | 5,939 | |||||
Net operating loss carryforwards | 73,097 | 63,569 | |||||
Inventory reserves and valuation | 11,342 | 10,598 | |||||
Deferred tax assets | 129,720 | 111,823 | |||||
Depreciation and intangible amortization | 25,850 | 9,388 | |||||
Deferred tax liabilities | 25,850 | 9,388 | |||||
Valuation allowance | (104,802 | ) | (18,797 | ) | |||
Net deferred tax (liability) asset | $ | (932 | ) | $ | 83,638 |
| | | | | | |
| | September 30, | ||||
|
| 2019 |
| 2018 | ||
Accruals and reserves not currently deductible | | $ | 14,286 | | $ | 11,699 |
Federal, state and foreign tax credits | |
| 5,952 | |
| 27,923 |
Other assets | |
| 2,487 | |
| 175 |
Equity compensation | | | 5,360 | | | 5,926 |
Net operating loss carryforwards | |
| 18,987 | |
| 16,790 |
Deferred revenue | | | 4,038 | | | 2,882 |
Inventory reserves and valuation | |
| 5,626 | |
| 6,520 |
Deferred tax assets | |
| 56,736 | |
| 71,915 |
Depreciation and intangible amortization | |
| (57,634) | |
| (19,476) |
Deferred tax liabilities | |
| (57,634) | |
| (19,476) |
Valuation allowance | |
| (16,093) | |
| (18,581) |
Net deferred tax asset (liability) | | $ | (16,991) | | $ | 33,858 |
The deferred tax assets and valuation allowances to be classified as non-current in a classifiedon the balance sheet. This ASU is effectivesheet for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted and may be applied either prospectively or retrospectively to all periods presented. The Company has elected to early adopt the ASU as of September 30, 2016 on retrospective basis. The classification of2019 also includes a $1.5 million deferred tax assets and liabilities as of September 30, 2015 has been recastcharge related to reflect the current period presentation. Current deferred tax assets, non-current deferred tax assets, current deferred tax liabilities and non-current deferred tax liabilities were $17.6 million, $70.5 million, $1.3 million and $3.2 million, respectively, in the previously issued financial statements for the fiscal year ended September 30, 2015.
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 orThe 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 a forward lookingforward-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 fiscal year 2016.
After evaluating all the relevant positive and negative evidence to assess ifas of March 31, 2018, the Company concluded that it iswas more likely than not that the Company could utilizea substantial portion of the U.S. deferred tax assets.assets would be realized. 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 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 fiscal year 2016. The loss in fiscal year 2016 included a significant charge for restructuring actions which are ultimately expected to improve future profitability. However, these losses presented significant negative evidence in the evaluation.
As of September 30, 2016,2019, the Company hadhas federal, state and foreign net operating loss carry-forwards of approximately $137.0$26.4 million, $114.0$21.8 million and $85.0$52.3 million, respectively. TheIncluded in the federal net operating losses expire beginning in 2024 through 2035, with the majority of the loss expiring in 2029. The state net operating losses are generated in various jurisdictions with different carryover periods and expire starting in 2017 through 2035. Certain foreigngross net operating loss carryovers will begin tocarry-forwards are $21.7 million of losses that can be carried forward indefinitely, while the remaining losses expire in 2017, while a significant portion has an unlimited carryover period. The net operating loss carry-forward includes excess deductions related to stock compensation in the amountat various dates through 2038.
91
As of September 30, 2016,2019, the Company had federal research and development tax credit carry-forwards of $18.7$1.6 million. These credit carry-forwards will expire at various dates beginning in 20202037 through 2036.2038. The Company also has $10.4$6.8 million of state credits which begin to expire in 2020, while some of these credits have an unlimited carryover period.
During the fiscal year 2018, the Tax Cuts and Jobs Act (“Tax Reform”) was enacted in the U.S., making significant tax law changes affecting the Company.
In accordance with international tax reform regulations, the Company recorded a toll charge in the U.S. on its previously untaxed accumulated foreign earnings. The Company recorded a tax impact of $8.0 million, net of foreign tax credits, related to the toll charge during the fiscal year ended September 30, 2018. The Company completed final calculations in accordance with Staff Accounting Bulletin No.118 during the first quarter of fiscal year 2019 and recorded a reduction in the toll charge of $1.1 million. During the third quarter of fiscal year 2019, the U.S. government issued final regulations that clarified certain rules related to the toll charge that impacted fiscal year taxpayers. As a result of this clarification, the Company recorded an increase to the toll charge of $4.1 million. After all adjustments had been recorded, the Company realized a toll charge of $11.0 million, net of foreign tax credits.
The Company has performed studies to determine if there are any annual limitations on the federal net operating losses under the Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. As a result of these studies, the Company has determined that ownership changes have occurred primarily in connection with acquisitions when the Company has issued stock to the sellers, as well as ownership changes in the subsidiaries acquired by the Company. Certain
The Company maintains liabilities for uncertainunrecognized tax positions.benefits. These liabilities involve judgment and estimation, and they are monitored based on the best information available. A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits during the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 is as follows (in thousands):
Total | |||
Balance at October 1, 2013 | $ | 5,147 | |
Reductions from lapses in statutes of limitations | (861 | ) | |
Foreign exchange rate adjustment | (24 | ) | |
Balance at September 30, 2014 | 4,262 | ||
Reductions from settlements with taxing authorities | (1,304 | ) | |
Reductions from lapses in statutes of limitations | (734 | ) | |
Foreign exchange rate adjustment | (33 | ) | |
Balance at September 30, 2015 | 2,191 | ||
Additions for tax positions in current year | 4,165 | ||
Reductions from lapses in statutes of limitations | (897 | ) | |
Foreign exchange rate adjustment | (32 | ) | |
Balance at September 30, 2016 | $ | 5,427 |
| | | |
|
| Total | |
Balance at September 30, 2016 | | $ | 5,427 |
Additions for tax positions in current year | | | 1,869 |
Reduction for tax positions in prior year | |
| (3,485) |
Net reductions from lapses in statutes of limitations | | | (431) |
Foreign exchange rate adjustment | |
| (2) |
Balance at September 30, 2017 | |
| 3,378 |
Additions for tax positions in current year | |
| 874 |
Reduction for tax positions in prior year | | | (656) |
Reductions from lapses in statutes of limitations | |
| (353) |
Balance at September 30, 2018 | |
| 3,243 |
Additions for tax positions in current year | | | 901 |
Additions for tax positions in prior year | |
| 13,400 |
Reductions from lapses in statutes of limitations | |
| (68) |
Reductions from settlements with taxing authorities | |
| (166) |
Balance at September 30, 2019 | | $ | 17,310 |
All of the ending balance of unrecognized tax benefits for the fiscal year ended September 30, 2016 are $3.8 million of2019 would impact the effective tax benefits thatrate if recognized would result in adjustments to deferred taxes in jurisdictions where a full valuation allowance is recorded.recognized. The Company recognizes interest related to unrecognized benefits as a component of the income tax provision (benefit), of which $1.1 million, $0.1 million $0.2 million and $0.3$0.1 million, respectively, was recognized for the fiscal years ended September 30, 2016, 20152019, 2018 and 2014.2017. The statuteCompany recorded $13.4 million of limitations lapsed on several uncertainunrecognized tax positions inbenefit with the foreign jurisdictions during fiscal year 2016 that resulted in a $0.9 million reduction in grossacquisition of GENEWIZ. All liabilities associated with the unrecognized tax benefits that impactedrecorded with the effective tax rate.acquisition of GENEWIZ are part of an indemnification agreement with the sellers.
92
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'sCompany’s interpretation of applicable tax laws in the jurisdictions in which it files.
In the normal course of business, the Company is subject to income tax audits in various global jurisdictions in which it operates. The years subject to examination vary for the U.S. and international jurisdictions, with the earliest tax year being 2010.2012. Based on the outcome of these examinations or the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the Company'sCompany’s Consolidated Balance Sheets. The Company currently anticipates that it is reasonably possible that the unrecognized tax benefits will be reduced by approximately $1.1$0.1 million in the next 12 months.
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'sCompany’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. dollarsone currency in exchange for a fixed amount of a foreignanother 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 (expense) income,expenses, net" in the accompanying Consolidated Statements of Operations and are as follows for the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 (in thousands):
Years Ended September 30, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Realized gains on derivatives not designated as hedging instruments | $ | 1,434 | $ | 628 | $ | 185 |
| | | | | | | | | |
| | | | | | | | | |
| | Fiscal Year Ended September 30, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Realized gains (losses) on derivatives not designated as hedging instruments | | $ | 3,656 | | $ | (330) | | $ | (545) |
The Company had the following notional amounts outstanding under foreign currency contracts that do not qualify for hedge accountingfair value of derivative instruments are as follows at September 30, 20162019 and 20152018 (in thousands):
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 | 246 | Swedish Krona | October 2016 | 2,100 | $ | 1 | $ | — | ||||||||||
U.S. Dollar | 6,107 | British Pound | October 2016 | 4,710 | 2 | — | ||||||||||||
U.S. Dollar | 5,815 | Chinese Yuan | October 2016 | 39,000 | — | (33 | ) | |||||||||||
Euro | 14,976 | U.S. Dollar | October 2016 | 13,300 | — | (40 | ) | |||||||||||
Korean Won | 2,255 | U.S. Dollar | October 2016 | 2,488,000 | 1 | — | ||||||||||||
Euro | 8,403 | British Pound | October 2016 | 6,500 | — | (23 | ) | |||||||||||
U.S. Dollar | 311 | Israeli Shekel | October 2016 | 1,169 | 1 | — | ||||||||||||
$ | 5 | $ | (96 | ) |
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 | ) |
| | | | | | | | | | | |
| | Fair Value of Assets | | | Fair Value of Liabilities | ||||||
As of September 30, | | 2019 | | | 2018 | | | 2019 | | | 2018 |
Derivatives not designated as hedging instruments | | | | | | | | | | | |
Foreign exchange contracts | $ | 17 | | $ | 170 | | $ | (340) | | $ | (177) |
Total | $ | 17 | | $ | 170 | | $ | (340) | | $ | (177) |
The fair values of the forward contracts described above are recorded in the Company'sCompany’s accompanying Consolidated Balance Sheets as "Prepaid expenses and other current assets" and "Accrued expenses and other current liabilities".
14. Postretirement Benefits
Defined Benefit Pension Plans
The Company has two3 active defined benefit pension plans (collectively, the “Plans”)., including legacy Taiwan Plan, the legacy Switzerland Plan, and the newly acquired Tec-Sem Plan. The Plans cover substantially all of the Company’s employees in Switzerland and Taiwan. Retirement benefits are generally earned based on 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.
93
The Company uses September 30th as a measurement date to determine net periodic benefit costs, benefit obligations and the value of plan assets for all plans. The following tables set forth the funded status and amounts recognized in the Company’s Consolidated Balance Sheets as of September 30, 20162019 and 20152018 (in thousands):
September 30, | |||||||
2016 | 2015 | ||||||
Benefit obligation at beginning of fiscal year | $ | 7,661 | $ | 8,213 | |||
Service cost | 548 | 482 | |||||
Interest cost | 71 | 124 | |||||
Actuarial loss | 106 | 733 | |||||
Benefits paid | (712 | ) | (209 | ) | |||
Employee contributions | 156 | 444 | |||||
Settlements paid | — | (1,795 | ) | ||||
Curtailment gain | (1,064 | ) | — | ||||
Foreign currency translation | 81 | (331 | ) | ||||
Benefit obligation at end of fiscal year | $ | 6,847 | $ | 7,661 |
Fair value of assets at beginning of fiscal year | $ | 4,838 | $ | 6,131 | |||
Actual return on plan assets | 30 | 112 | |||||
Disbursements | (837 | ) | (334 | ) | |||
Employer contributions | 296 | 306 | |||||
Employee contributions | 352 | 642 | |||||
Settlements paid | — | (1,795 | ) | ||||
Foreign currency translation | 55 | (224 | ) | ||||
Fair value of assets at end of fiscal year | $ | 4,734 | $ | 4,838 |
Accrued benefit obligation | $ | 2,113 | $ | 2,823 |
| | | | | | |
| | September 30, | ||||
|
| 2019 |
| 2018 | ||
Benefit obligation at beginning of fiscal year | | $ | 11,144 |
| $ | 3,565 |
Benefit obligation through acquisition | | | — | | | 7,852 |
Service cost | |
| 599 |
|
| 382 |
Interest cost | |
| 118 |
|
| 75 |
Actuarial loss | |
| 831 |
|
| (165) |
Benefits paid | |
| (811) |
|
| (685) |
Employee contributions | |
| 273 |
|
| 191 |
Settlements paid | |
| — |
|
| — |
Curtailment gain | |
| — |
|
| — |
Foreign currency translation | |
| (239) |
|
| (71) |
Benefit obligation at end of fiscal year | | $ | 11,915 |
| $ | 11,144 |
Fair value of assets at beginning of fiscal year | | $ | 7,078 |
| $ | 2,225 |
Fair value of assets through acquisition | | | — | | | 5,052 |
Actual return on plan assets | |
| (179) |
|
| 69 |
Disbursements | |
| (811) |
|
| (685) |
Employer contributions | |
| 370 |
|
| 266 |
Employee contributions | |
| 273 |
|
| 191 |
Settlements paid | |
| — |
|
| — |
Foreign currency translation | |
| (157) |
|
| (40) |
Fair value of assets at end of fiscal year | | $ | 6,574 |
| $ | 7,078 |
Accrued benefit obligation | | $ | 5,341 |
| $ | 4,066 |
The accumulated benefit obligation of the Plans is $6.3$11.4 million and $6.9$10.6 million, respectively, at September 30, 20162019 and 2015. Both2018. All Plans have an accumulated benefit obligation and projected benefit obligation in excess of plans'plans’ assets at September 30, 2016 and 2015.
The following table provides pension-related amounts and their classification within the accompanying Consolidated Balance Sheets as of September 30, 20152019 and 20142018 (in thousands):
September 30, | |||||||
2016 | 2015 | ||||||
Accrued compensation and benefits | $ | 155 | $ | 298 | |||
Long-term pension liability | 1,958 | 2,525 | |||||
$ | 2,113 | $ | 2,823 |
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
Service cost | $ | 548 | $ | 482 | $ | 406 | |||||
Interest cost | 71 | 124 | 154 | ||||||||
Expected return on plan assets | (159 | ) | (210 | ) | (214 | ) | |||||
Amortization of losses | 2 | 2 | 2 | ||||||||
Other | — | — | — | ||||||||
Net periodic pension cost | 462 | 398 | 348 | ||||||||
Curtailment gain | (227 | ) | — | — | |||||||
Settlement loss | — | 232 | — | ||||||||
Total pension cost | $ | 235 | $ | 630 | $ | 348 |
September 30, | |||||||
2016 | 2015 | ||||||
Net loss | $ | 165 | $ | 722 | |||
Amortization of net loss | (2 | ) | (2 | ) | |||
Curtailment gain | (852 | ) | — | ||||
Settlement loss | — | (232 | ) | ||||
Total recognized in other comprehensive income (loss) | (689 | ) | 488 | ||||
Total recognized in net periodic pension cost and other comprehensive income (loss) | $ | (227 | ) | $ | 886 |
Year Ended September 30, | ||||||||
2016 | 2015 | 2014 | ||||||
Discount rate | 0.40 | % | 0.92 | % | 1.55 | % | ||
Expected return on plan assets | 1.75 | % | 1.78 | % | 2.18 | % | ||
Expected rate of compensation increases | 1.31 | % | 1.65 | % | 1.87 | % |
| | | | | | |
| | September 30, | ||||
|
| 2019 |
| 2018 | ||
Accrued compensation and benefits | | $ | 366 | | $ | 431 |
Long-term pension liability | |
| 4,975 | |
| 3,635 |
| | $ | 5,341 | | $ | 4,066 |
The Company bases its determination of pension expense on a market-related valuation of assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses represent the difference between the expected return calculated using the market-related value of assets and the actual return on assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recognized. At September 30, 2016,2019 and 2018, the Company had cumulative unrecognized investment lossesnet actuarial gains of approximately $0.9 million and loss of less than $0.1 million, respectively, which are amortized into net periodic benefit cost over the average remaining service period of active Plans’ participants. The Company had cumulative unrecognized investment gains of $0.5 million at both September 30, 2019 and 2018, under the Plans which remain to be recognized in the calculation of the market-related values of assets. At
94
The components of the Company’s net pension cost for the fiscal years ended September 30, 2016,2019, 2018 and 2017 are as follows (in thousands):
| | | | | | | | | |
| | Year Ended September 30, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Service cost | | $ | 599 | | $ | 382 | | $ | 268 |
Interest cost | |
| 118 | |
| 75 | |
| 22 |
Amortization of losses | |
| (18) | |
| 5 | |
| 7 |
Expected return on plan assets | |
| (74) | |
| (66) | |
| (130) |
Net periodic pension cost | | $ | 625 | | $ | 396 | | $ | 167 |
Settlement gain | |
| — | |
| — | |
| (259) |
Total pension cost (gain) | | $ | 625 | | $ | 396 | | $ | (92) |
The following changes in Plans’ assets and benefit obligations were recognized in other comprehensive income (loss) as of September 30, 2019 and 2018 (in thousands):
| | | | | | |
| | September 30, | ||||
|
| 2019 |
| 2018 | ||
Net gain | | $ | (854) | | $ | (191) |
Amortization of net loss | |
| 30 | |
| (7) |
Total recognized in other comprehensive income (loss) | |
| (824) | |
| (198) |
Total recognized in net periodic pension cost and other comprehensive income (loss) | | $ | (198) | | $ | 593 |
The settlement gain of $0.3 million realized during fiscal year ended September 30, 2017 was recorded as a reduction of accumulated other comprehensive income (loss) and the pension cost during the period then ended. Please refer to Note 15, "Stockholders’ Equity", for further information on these reclassifications and their impact on the accumulated other comprehensive income and other comprehensive income during each fiscal year.
Weighted-average assumptions used to determine the projected benefit obligation for the fiscal years ended September 30, 2019, 2018 and 2017 are as follows:
| | | | | | | |
| | Year Ended September 30, |
| ||||
|
| 2019 |
| 2018 |
| 2017 |
|
Discount rate |
| 0.55 | % | 1.04 | % | 0.88 | % |
Expected return on plan assets |
| 1.01 | % | 1.06 | % | 1.75 | % |
Expected rate of compensation increases |
| 1.12 | % | 1.19 | % | 1.54 | % |
|
|
|
|
|
|
| |
In selecting the appropriate discount rates for the Plans, the Company had cumulative unrecognized net actuarial lossesuses country-specific information, adjusted to reflect the duration of 0.3 million which are amortized into net periodic benefit cost over the average remaining service periodparticular plan. The expected return on plan assets is based on an evaluation of active Plans' participants.
Plan Assets
The fair value of plan assets for the Switzerland Plan2 Swiss Plans and the Taiwan Plan were $4.2$6.5 million and $0.5$0.1 million, respectively, at September 30, 2016.2019. The assets of the Switzerland PlanSwiss Plans are invested in a collective fund with multiple employers through a Swiss insurance company, which is a customary practice for Swiss pension plans. The Company does not have any rights or an investment authority over the Plan'sPlan’s assets which are invested primarily in highly rated debt securities.
The assets of the Taiwan Plan are invested with a trustee selected by the Taiwan government, and the Company has no investment authority over the Plan'sPlan’s assets.
95
| | | |
| September 30, | ||
| | 2019 | |
Cash and cash equivalents | 1 | % | |
Debt securities | 48 | | |
Equity securities | 20 | | |
Other | 31 | | |
| 100 | % |
The fair values of pension assets by asset category and by level at September 30, 20162019 are as follows (in thousands):
As of September 30, 2016 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Swiss Life collective foundation | $ | — | $ | 4,208 | $ | — | $ | 4,208 | |||||||
Taiwan collective trust | — | 526 | — | 526 | |||||||||||
Total | $ | — | $ | 4,734 | $ | — | $ | 4,734 |
| | | | | | | | | | | | |
| | As of September 30, 2019 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Swiss Life collective foundation | | $ | — | | $ | 6,486 | | $ | — | | $ | 6,486 |
Taiwan collective trust | |
| — | |
| 88 | |
| — | |
| 88 |
Total | | $ | — | | $ | 6,574 | | $ | — | | $ | 6,574 |
The fair values of pension assets by asset category and by level at September 30, 20152018 are as follows (in thousands):
As of September 30, 2015 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Swiss Life collective foundation | $ | — | $ | 4,347 | $ | — | $ | 4,347 | |||||||
Taiwan collective trust | — | 491 | — | 491 | |||||||||||
Total | $ | — | $ | 4,838 | $ | — | $ | 4,838 |
| | | | | | | | | | | | |
| | As of September 30, 2018 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Swiss Life collective foundation | | $ | — | | $ | 6,754 | | $ | — | | $ | 6,754 |
Taiwan collective trust | |
| — | |
| 324 | |
| — | |
| 324 |
Total | | $ | — | | $ | 7,078 | | $ | — | | $ | 7,078 |
Please refer to Note 21,22, "Fair Value Measurements" for a description of the levels of inputs used to determine fair value measurements.
Benefit payments expected to be paid over the next five fiscal years and thereafter are as follows (in thousands):
2017 | $ | 203 | |
2018 | 21 | ||
2019 | 21 | ||
2020 | 81 | ||
2021 | 104 | ||
Thereafter (through 2026) | 735 |
| | | |
Fiscal year ended September 30, | | | |
2020 |
| $ | 366 |
2021 | |
| 370 |
2022 | |
| 373 |
2023 | |
| 377 |
2024 | |
| 381 |
Thereafter | |
| 3,474 |
The Company expects to contribute $0.2$0.4 million to the Plans in fiscal year 20172020 to meet the minimum funding requirements of the Plans.
Defined Contribution Plans
The Company sponsors a defined contribution plan that meets the requirements of Section 401(k) of the Internal Revenue Code. All United States employees who meet minimum age and service requirements are eligible to participate in the plans. The plans allow employees to invest, on a pre-tax basis, a percentage of their annual salary and bonus subject to statutory limitations. The Company matches a portion of their contributions on a pre-tax basis up to a maximum amount of 4.5% of deferred pay. The expense recognized for the defined contribution plans was $3.6$4.6 million, $3.0$3.4 million and
96
Preferred Stock
Total number of shares of preferred stock authorized for issuance was 1,000,000 shares at September 30, 20162019 and 2015,2018, respectively. Preferred stock has a par value of $0.01 per share and may be issued at the discretion of the Board of Directors without stockholder approval with such designations, rights and preferences as the Board of Directors may determine. There were no0 shares of preferred stock issued or outstanding at September 30, 20162019 or 2015,2018, respectively.
Accumulated Other Comprehensive Income
The following is a summary of the components of accumulated other comprehensive income, net of tax, at September 30, 2016, 20152019, 2018 and 20142017 (in thousands):
Currency Translation Adjustments | Unrealized Gains (Losses) on Available-for-Sale Securities | Unrealized Gains (Losses) on Cash Flow Hedges | Pension Liability Adjustments | Total | ||||||||||||||||
Balance at September 30, 2013 | $ | 22,398 | $ | 66 | $ | 14 | $ | 126 | $ | 22,604 | ||||||||||
Other comprehensive (loss) income before reclassifications | (6,296 | ) | (78 | ) | 79 | (503 | ) | (6,798 | ) | |||||||||||
Amounts reclassified from accumulated other comprehensive income | — | (26 | ) | (93 | ) | — | (119 | ) | ||||||||||||
Balance at September 30, 2014 | 16,102 | (38 | ) | — | (377 | ) | 15,687 | |||||||||||||
Other comprehensive (loss) income before reclassifications | (9,426 | ) | 144 | — | (605 | ) | (9,887 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive income | (131 | ) | (3 | ) | — | 232 | 98 | |||||||||||||
Balance at September 30, 2015 | 6,545 | 103 | — | (750 | ) | 5,898 | ||||||||||||||
Other comprehensive income (loss) before reclassifications | 8,844 | (231 | ) | — | (322 | ) | 8,291 | |||||||||||||
Amounts reclassified from accumulated other comprehensive income | — | 125 | — | 852 | 977 | |||||||||||||||
Balance at September 30, 2016 | $ | 15,389 | $ | (3 | ) | $ | — | $ | (220 | ) | $ | 15,166 |
| | | | | | | | | | | | |
|
| | |
| Unrealized |
| | |
| | | |
| | | | | Gains (Losses) | | | | | | | |
| | Currency | | on Available- | | Pension | |
| | |||
| | Translation | | for-Sale | | Liability | |
| | |||
| | Adjustments | | Securities | | Adjustments | | Total | ||||
Balance at September 30, 2016 | | $ | 15,389 | | $ | (3) | | $ | (220) | | $ | 15,166 |
Other comprehensive income (loss) before reclassifications | |
| (221) | |
| (10) | |
| 514 | |
| 283 |
Amounts reclassified from accumulated other comprehensive income | |
| — | |
| 12 | |
| (248) | |
| (236) |
Balance at September 30, 2017 | |
| 15,168 | �� |
| (1) | |
| 46 | |
| 15,213 |
Other comprehensive income (loss) before reclassifications | |
| (1,651) | |
| (110) | |
| 124 | |
| (1,637) |
Amounts reclassified from accumulated other comprehensive income | |
| — | |
| (1) | |
| 12 | |
| 11 |
Balance at September 30, 2018 | |
| 13,517 | |
| (112) | |
| 182 | |
| 13,587 |
Other comprehensive (loss) income before reclassifications | |
| (9,333) | |
| 244 | |
| (882) | |
| (9,971) |
Amounts reclassified from accumulated other comprehensive income | |
| — | |
| (140) | |
| 35 | |
| (105) |
Balance at September 30, 2019 | | $ | 4,184 | | $ | (8) | | $ | (665) | | $ | 3,511 |
Unrealized net holding gains (losses) on available-for-sale marketable securities are reclassified from accumulated other comprehensive income into results of operations at the time of the securities'securities’ sale, as described in Note 5, "Marketable“Marketable Securities.” Losses on settlements of cash flow hedges are reclassified from accumulated other comprehensive income into results of operations at the time of the settlement, as described in Note 13, "Derivative Instruments.” LossesGains (losses) related to defined benefit pension plan settlements are reclassified from accumulated other comprehensive income into results of operations at the time of the settlement, as described in Note 14, "Postretirement“Postretirement Benefits.” Defined benefit pension plan curtailments are recognized as reclassifications from accumulated other comprehensive income and corresponding reductions in pension liabilities and net pension cost, as described in Note 14, "Postretirement“Postretirement Benefits.”
16. Equity Incentive Plans
The Company'sCompany’s equity incentive plans are intended to attract and retain employees and provide an incentive for them to contribute to the Company'sCompany’s long-term growth and achievement of its long-range performance goals. The equity incentive plans consist of plans under which employees may be granted options to purchase shares of the Company'sCompany’s stock, restricted stock and other equity incentives. Restricted stock awards generally have a 3 yearthree-year vesting period. At September 30, 2016,2019, a total of 4,363,5361,954,021 shares were reserved and available for future grant under the equity incentive plans.
2015 Equity Incentive Plan
In accordance with the 2015 Equity Incentive Plan (the “2015 Plan"Plan”) is to attract and retain employees and provide an incentive for them to contribute to the Company's long-term growth and achievement of its long-range performance goals. In accordance with the 2015 Plan provisions,, the Company may grant (i) restricted stock and other stock-based awards, (ii) nonqualified stock options, and (iii) options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code. All employees of the Company or any affiliate of the Company, independent directors, consultants and advisors are eligible to participate in the 2015 Plan. The 2015 Plan
97
provides for the issuance of a maximum of 5,000,000 shares of common stock in addition to the stock option and restricted stock awards granted out of the 2000 Plan that were canceled or forfeited after February 5, 2015 upon expiration of the 2000 Plan on March 31, 2015.
Restricted Stock Activity
The following table summarizes restricted stock unit activity for the fiscal year ended September 30, 2016:
Shares | Weighted Average Grant-Date Fair Value | |||||
Outstanding at September 30, 2015 | 3,257,413 | $ | 9.95 | |||
Granted | 1,690,582 | $ | 10.84 | |||
Vested | (1,269,862 | ) | $ | 9.53 | ||
Forfeited | (1,189,057 | ) | $ | 11.18 | ||
Outstanding at September 30, 2016 | 2,489,076 | $ | 10.79 |
| | | | | |
|
| |
| Weighted | |
| | | | Average | |
| | | | Grant-Date | |
| | Shares | | Fair Value | |
Outstanding at September 30, 2018 |
| 2,194,512 | | $ | 17.20 |
Granted |
| 792,315 | | | 30.47 |
Vested |
| (1,055,018) | | | 13.04 |
Forfeited |
| (149,083) | | | 26.11 |
Outstanding at September 30, 2019 |
| 1,782,726 | | | 24.63 |
The weighted average grant date fair value of restricted stock units granted during fiscal years 2016, 20152019, 2018 and 20142017 was $10.84, $11.89$30.47, $33.28 and $9.49$14.43 per share, respectively. The fair value of restricted stock units vested during fiscal years 2016, 20152019, 2018 and 20142017 was $14.3$34.8 million, $8.4$22.0 million and $5.6$15.0 million, respectively. TheDuring fiscal years 2019, 2018 and 2017, the Company paid $4.4remitted $15.3 million, $2.3$7.3 million and $1.4$4.7 million, respectively, for withholding taxes on vested restricted stock units, duringof which $0.0 million, $0.0 million and $0.1 million, respectively, was paid by the Company. During fiscal years 2016, 20152019, 2018 and 2014. Additionally, 1,189,057 restricted stock units were forfeited during fiscal year 2016 primarily due2017, the Company received $15.3 million, $7.3 million and $4.6 million, respectively, in cash proceeds from employees to the failure to achieve certain performance thresholds for performance-based restricted stock units andsatisfy their tax obligations as a result of the restructuring action initiated during the period then ended. Please refer to Note 17, "Restructuring and Other Charges" for further information on the restructuring action.
As of September 30, 2016,2019, the future unrecognized stock-based compensation expense related to restricted stock units expected to vest is $15.1$20.8 million and is expected to be recognized over an estimated weighted average amortization period of 1.71.6 years.
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, including 8,500 of time-based awards related to the discontinued operation and stock awards granted during fiscal years ended September 30, 2016, 20152019, 2018 and 2014:
Total Units | Time-Based Units | Stock Grants | Performance-Based Units | ||||||||
Year ended September 30, 2016 | 1,690,582 | 744,250 | 86,082 | 860,250 | |||||||
Year ended September 30, 2015 | 1,513,281 | 597,250 | 69,281 | 846,750 | |||||||
Year ended September 30, 2014 | 1,517,057 | 596,212 | 82,095 | 838,750 |
| | | | | | | | |
|
| |
| Time-Based |
| |
| Performance- |
| | Total Units | | Units | | Stock Grants | | Based Units |
Year ended September 30, 2019 |
| 792,315 |
| 330,006 |
| 38,920 |
| 423,389 |
Year ended September 30, 2018 |
| 535,289 |
| 213,893 |
| 36,774 |
| 284,622 |
Year ended September 30, 2017 |
| 1,018,570 |
| 386,713 |
| 43,519 |
| 588,338 |
Among the total restricted stock units granted, 134,993 and 124,124 shares, respectively, were granted to the employees who belong to the discontinued operations in the year ended September 30, 2018, and 2017.
Time-Based Grants
Restricted stock units granted with a required service period typically have three yearthree-year vesting schedules in which one-thirdone-third of awards vest at the first anniversary of the grant date, one-thirdone-third vest at the second anniversary of the grant date and one-thirdone-third vest at the third anniversary of the grant date, subject to the award holders meeting service requirements.
Stock Grants
The stock awards granted 86,082, 69,281 and 82,095 units, respectively, to the members of the Company'sCompany’s Board of Directors including compensation-relatedinclude stock awards, restricted stock unitsawards and deferred stock and restricted stock units.
98
Stock awards granted during fiscal year 2019 were vested upon issuance. Restricted stock awards granted during fiscal year 2018 and 57,603, respectively. 2017 were subject to a one-year vesting period.
Certain members of itsthe Board of Directors previouslyhave elected to defer receiving their annual stock awards of unrestricted shares of the Company stock and related quarterly dividends until a future date. During fiscal years 2016, 2015 and 2014, the Company issued 25,560, 13,318 and 24,492 units, respectively, related to deferred annual restricted share awards.
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 ofand approved by 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 20162019, 2018 and 2017 allow participants to earn 100% of a targeted number of restricted stock units if the Company’s performance meets its target goal 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.or stretch goal. Performance below the minimum threshold for each financial metric results in award forfeitures. Performance goals will be measured over a three yearthree-year period for each year’s awards and at the end of fiscal year 2018the period 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 thatwho continue to meet the service requirements vest onrequirement. Around the third anniversary of each year’s awards’ grant date, the Company’s Board of Directors determines the number of units earned which will be approximatelyfor participants who continue to meet the third anniversaryservice requirements on the vest date.
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 to 85% of the grant date.
17. Restructuring and Other Charges
Fiscal Year 20162019 Activities
During fiscal year 2019, the Company incurred restructuring charges of $1.9 million primarily related to the elimination of redundancies and cost elimination within our Brooks Life Sciences segment.
During fiscal year 2019, the Brooks Life Sciences segment incurred restructuring charges of $0.7 million related to the continued action to eliminated redundancies.
During fiscal year 2019, the Brooks Semiconductor Solutions Group segment incurred restructuring charges of $0.6 million related to the continued action to eliminated redundancies.
During the fourth quarter of fiscal year 2019, the Company initiated the first phase of an action to eliminate costs within our Brooks Life Science segment’s sample management business. During the fourth quarter of fiscal year 2019, the Brooks Life Science segment incurred costs of $0.6 million related to severance.
99
Fiscal Year 2018 Activities
During fiscal year 2018, the Company incurred restructuring charges of $0.7 million, primarily related to the planned closure of its Denmark facility and reduction in force at Tec-Sem discussed below.
During the fourth quarter of fiscal year 2018, the Company initiated an action to consolidate the operations at its Denmark facility into its operations at its Manchester, UK facility to eliminate cost redundancies. The $0.3 million charge resulted from the Denmark action was related to Brooks Life Sciences segment.
During the fourth quarter of fiscal year 2018, the Company also initiated a post-acquisition reduction in force plan at Tec-Sem to maximize synergies with the Company’s existing infrastructure. The $0.3 million charge resulted from the Tec-Sem action was related to the Brooks Semiconductor Solutions Group segment.
Fiscal Year 2017 Activities
During fiscal year 2017, the Company recorded restructuring charges of $12.0$3.1 million during fiscal year 2016 related to severance, costs which consisted primarily of $10.8including $2.5 million of charges related to restructuring actions initiated during fiscal year 2016 and $1.3 million of charges related to restructuring actions initiated in prior periods.
The restructuring charges in the Brooks Semiconductor Solutions Group segment consisted of $1.5 million of costscharges related to the actions initiated during fiscal year 2017 to streamline field service operations and optimize the cost structure and improve productivity, and $1.0 million of charges related to the actions initiated prior to fiscal year 2017 primarily related to consolidate the Jena, Germany repair facility into the Chelmsford, Massachusetts repair operation.
Restructuring charges of $0.3 million were related to the company-wide restructuring action that benefited all segments.
The following is a summary of activity related to the Company’s restructuring and other charges, excluding amounts related to the discontinued operations, for the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 (in thousands):
Fiscal Year 2016 Activity | ||||||||||||||||
Balance September 30, 2015 | Expenses | Payments | Balance September 30, 2016 | |||||||||||||
Facility and other contract termination costs | $ | 433 | $ | 25 | $ | (458 | ) | $ | — | |||||||
Workforce-related termination benefits | 1,640 | 12,014 | (7,715 | ) | 5,939 | |||||||||||
$ | 2,073 | $ | 12,039 | $ | (8,173 | ) | $ | 5,939 | ||||||||
Fiscal Year 2015 Activity | ||||||||||||||||
Balance September 30, 2014 | Expenses | Payments | Balance September 30, 2015 | |||||||||||||
Facility and other contract termination costs | $ | 71 | $ | 1,204 | $ | (842 | ) | $ | 433 | |||||||
Workforce-related termination benefits | 3,404 | 3,213 | (4,977 | ) | 1,640 | |||||||||||
$ | 3,475 | $ | 4,417 | $ | (5,819 | ) | $ | 2,073 | ||||||||
Fiscal Year 2014 Activity | ||||||||||||||||
Balance September 30, 2013 | Expenses | Payments | Balance September 30, 2014 | |||||||||||||
Facility and other contract termination costs | $ | 155 | $ | 583 | $ | (667 | ) | $ | 71 | |||||||
Workforce-related termination benefits | $ | 1,257 | $ | 5,706 | $ | (3,559 | ) | 3,404 | ||||||||
$ | 1,412 | $ | 6,289 | $ | (4,226 | ) | $ | 3,475 |
| | | | | | | | | | | | | |
| | Activity - Year Ended September 30, 2019 | | ||||||||||
|
| Balance |
| | |
| | |
| Balance |
| ||
| | September 30, | | | | | | | | September 30, | | ||
| | 2018 | | Expenses | | Payments | | 2019 | | ||||
Total restructuring liabilities related to workforce termination benefits | | $ | 659 | | $ | 1,894 | | $ | (1,513) | | $ | 1,040 | |
| | | | | | | | | | | | | |
| | Activity - Year Ended September 30, 2018 | | ||||||||||
|
| Balance |
| | |
| | |
| Balance |
| ||
| | September 30, | | | | | | | | September 30, | | ||
| | 2017 | | Expenses | | Payments | | 2018 | | ||||
Total restructuring liabilities related to workforce termination benefits | | $ | 1,708 | | $ | 714 | | $ | (1,763) | | $ | 659 | |
| | | | | | | | | | | | | |
| | Activity - Year Ended September 30, 2017 | | ||||||||||
|
| Balance |
| | |
| | |
| Balance |
| ||
| | September 30, | | | | | | | | September 30, | | ||
| | 2016 | | Expenses | | Payments | | 2017 | | ||||
Total restructuring liabilities related to workforce termination benefits | | $ | 5,939 | | $ | 3,144 | | $ | (7,375) | | $ | 1,708 | |
Accrued restructuring costs of $5.9$1.0 million as of September 30, 20162019 are expected to be paid during fiscal year 2017.2020.
100
The calculations of basic and diluted net income (loss) income per share and basic and diluted weighted average shares outstanding are as follows for the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 (in thousands, except per share data):
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
(Loss) income from continuing operations | $ | (69,476 | ) | $ | 14,221 | $ | 1,520 | ||||
Income from discontinued operations, net of tax | — | — | 30,002 | ||||||||
Net (loss) income | (69,476 | ) | 14,221 | 31,522 | |||||||
Net income attributable to noncontrolling interests | — | — | (161 | ) | |||||||
Net (loss) income attributable to Brooks Automation, Inc. | $ | (69,476 | ) | $ | 14,221 | $ | 31,361 | ||||
Weighted average common shares outstanding used in computing basic earnings per share | 68,507 | 67,411 | 66,648 | ||||||||
Dilutive common stock options and restricted stock units | — | 1,138 | 996 | ||||||||
Weighted average common shares outstanding used in computing diluted earnings per share | 68,507 | 68,549 | 67,644 | ||||||||
Basic net (loss) income per share attributable to Brooks Automation, Inc. common stockholders: | |||||||||||
(Loss) income from continuing operations | $ | (1.01 | ) | $ | 0.21 | $ | 0.02 | ||||
Income from discontinued operations, net of tax | — | — | 0.45 | ||||||||
Basic net (loss) income per share attributable to Brooks Automation, Inc. | $ | (1.01 | ) | $ | 0.21 | $ | 0.47 | ||||
Diluted net (loss) income per share attributable to Brooks Automation, Inc. common stockholders: | |||||||||||
(Loss) income from continuing operations | $ | (1.01 | ) | $ | 0.21 | $ | 0.02 | ||||
Income from discontinued operations, net of tax | — | — | 0.44 | ||||||||
Diluted net (loss) income per share attributable to Brooks Automation, Inc. common stockholders | $ | (1.01 | ) | $ | 0.21 | $ | 0.46 |
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended September 30, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Income from continuing operations | | $ | 9,554 | | $ | 67,717 | | $ | 10,687 |
Income from discontinued operations, net of tax | |
| 427,862 | |
| 48,747 | |
| 51,925 |
Net income | | | 437,416 | | | 116,464 | | | 62,612 |
Net loss attributable to noncontrolling interest | |
| — | |
| 111 | |
| — |
Net income attributable to Brooks Automation, Inc. | | $ | 437,416 | | $ | 116,575 | | $ | 62,612 |
| | | | | | | | | |
Weighted average common shares outstanding used in computing basic earnings per share | |
| 71,992 | |
| 70,489 | |
| 69,575 |
Dilutive restricted stock units | |
| 394 | |
| 448 | |
| 910 |
Weighted average common shares outstanding used in computing diluted earnings per share | |
| 72,386 | |
| 70,937 | |
| 70,485 |
| | | | | | | | | |
Basic net income per share attributable to Brooks Automation, Inc. common stockholders: | |
|
| |
|
| |
|
|
Income from continuing operations | | $ | 0.13 | | $ | 0.96 | | $ | 0.15 |
Income from discontinued operations, net of tax | |
| 5.95 | |
| 0.69 | |
| 0.75 |
Basic net income per share attributable to Brooks Automation, Inc. | | $ | 6.08 | | $ | 1.65 | | $ | 0.90 |
| | | | | | | | | |
Diluted net income per share attributable to Brooks Automation, Inc. common stockholders: | |
|
| |
|
| |
|
|
Income from continuing operations | | $ | 0.13 | | $ | 0.95 | | $ | 0.15 |
Income from discontinued operations, net of tax | |
| 5.91 | |
| 0.69 | |
| 0.74 |
Diluted net income per share attributable to Brooks Automation, Inc. common stockholders | | $ | 6.04 | | $ | 1.64 | | $ | 0.89 |
Dividend declared per share | | $ | 0.40 | | $ | 0.40 | | $ | 0.40 |
Restricted stock units of 859,0009,439, 9,927 and 9,500, respectively, during fiscal year 20162019, 2018 and 2017 were excluded from the computation of diluted earnings per share as a result of a net loss incurred during the period. Approximately 120,000 shares of unvested restricted stock units were excluded from the computation of diluted earnings per share for the fiscal year ended September 30, 2015 as their effect would be anti-dilutive based on the treasury stock method. Options to purchase approximately 11,000 shares
19. Revenue from Contracts with Customers
Disaggregated Revenue
The Company disaggregates revenue from contracts with customers in a manner that depicts how the nature, amount, timing, and uncertainty of common stock were excluded from the computation of diluted earnings per share attributable to Brooks Automation, Inc. common stockholders for the fiscal years ended September 30, 2014 as their effect would be anti-dilutiverevenue and cash flows are affected by economic factors. The Company disaggregates revenue based on the treasury stock method. There were no anti-dilutive restricted stock awardstransfer of control of the underlying performance obligations, the geographic location in which customer orders are placed and by reporting unit.
The Company transfers control of its performance obligations at a point in time or over time, depending on the nature of the product or service being provided. Revenue from contracts with customers is attributed to geographic areas based on locations in which the customer orders are placed. The Company reports financial results for 2 reportable segments which consist of Brooks Semiconductor Solutions Group segment and Brooks Life Sciences segment. The Company also consists of 5 reporting units, including 3 reporting units within the Brooks Semiconductor Solutions Group reportable segment and 2 reporting units within the Brooks Life Sciences reportable segment. The
101
following is a reconciliation of revenue disaggregated in a manner discussed above to segment revenue for the fiscal year ended September 2014. There30, 2019 (in thousands):
| | | | | | | | | |
| | Brooks Semiconductor | | Brooks Life | | | | ||
| | Solutions Group | | Sciences | | Total | |||
Fiscal Year Ended September 30, 2019 | | | | | | | | | |
Point in time | | $ | 442,876 | | $ | 97,240 | | $ | 540,116 |
Over time | | | 3,793 | | | 236,939 | | | 240,732 |
| | $ | 446,669 | | $ | 334,179 | | $ | 780,848 |
The following is revenue by geographic location and reporting unit for the fiscal year ended September 30, 2019 (in thousands):
| | | |
| | Year Ended September 30, 2019 | |
Geographic Location | | | |
North America | | $ | 327,250 |
Asia/Pacific/Other | | | 312,237 |
United Kingdom | | | 48,764 |
Rest of Europe | | | 92,597 |
| | $ | 780,848 |
| | | |
Reporting Unit | | | |
Automation Solutions | | $ | 286,188 |
Contamination Control Solutions | | | 118,318 |
Global Semiconductor Services | | | 42,163 |
Brooks Semiconductor Solutions Group | | | 446,669 |
Sample Management | | | 207,916 |
GENEWIZ | | | 126,263 |
Brooks Life Sciences | | | 334,179 |
Total | | $ | 780,848 |
Contract Balances
Accounts Receivable, Net. Accounts receivable represent rights to consideration in exchange for products or services that have been transferred by the Company, when payment is unconditional and only the passage of time is required before payment is due. Accounts receivable do not bear interest and are recorded at the invoiced amount. The Company maintains an allowance for doubtful accounts representing its best estimate of probable credit losses related to its existing accounts receivable and their net realizable value. The Company determines the allowance for doubtful accounts based on a number of factors, including an evaluation of customer credit worthiness, the age of the outstanding receivables, economic trends and historical experience. Accounts receivable, net were no options outstanding$165.6 million and $125.2 million at September 30, 2019 and October 1, 2018, respectively.
Contract Assets. Contract assets represent rights to consideration in exchange for products or services that have been transferred by the Company, when payment is conditional on something other than the passage of time. These amounts typically relate to contracts within the Brooks Life Sciences segment where the right to payment is not present until completion of the contract or the achievement of specified milestones and the value of the products or services transferred exceed this constraint. Contract assets are classified as current. Contract asset balances which are included within “Prepaid expenses and other current assets” on the Company’s Consolidated Balance Sheet, were $14.0 million and $12.8 million at September 30, 2019 and October 1, 2018, respectively.
Deferred Commissions. Deferred commissions represent a direct and incremental cost of obtaining a contract. These amounts primarily relate to sales commissions within the Brooks Life Sciences segment and are deferred and amortized
102
over a 60 month period, which represents the average period of contract performance. The Company classifies deferred commissions as noncurrent as the original amortization period of this asset is greater than one year. Deferred commissions balances are included within “Other assets” on the Company’s Consolidated Balance Sheet. Deferred commissions were $0.8 million and $1.5 million at September 30, 2019 and October 1, 2018, respectively. The Company recorded $0.7 million of amortization expense related to deferred commissions for the year ended September 30, 2019.
Contract Liabilities. Contract liabilities represent the Company’s obligation to transfer products or services to a customer for which consideration has been received, or for which an amount of consideration is due from the customer. Contract assets and liabilities are reported on a net basis at the contract level, depending on the contracts position at the end of each reporting period. Contract liabilities are included within “Deferred revenue” on the Company’s Consolidated Balance Sheet. Contract liabilities were $29.4 million and $28.7 million at September 30, 2019 and October 1, 2018, respectively. Revenue recognized from the contract liability balance at October 1, 2018 was $23.6 million for the year ended September 30, 2019.
Remaining Performance Obligations. Remaining performance obligations represent the transaction price of unsatisfied or partially satisfied performance obligations within contracts with an original expected contract term that is greater than one year and for which fulfillment of the contract has started as of the end of the reporting period. The aggregate amount of transaction consideration allocated to remaining performance obligations as of September 30, 20162019 was $28.4 million. The following table summarizes when the Company expects to recognize the remaining performance obligations as revenue, the Company will recognize revenue associated with these performance obligations as transfer of control occurs (in thousands):
| | | | | | | | | |
| | | As of September 30, 2019 | ||||||
| | Less than 1 Year | | Greater than 1 Year | | Total | |||
Remaining Performance Obligations | �� | $ | 22,461 | | $ | 5,954 | | $ | 28,415 |
| | | | | | | | | |
Cost to Obtain and 2015.
The Company hadcapitalizes sales commissions when incurred if they are (i) incremental costs of obtaining a contract, (ii) expected to be recovered and (iii) have an expected amortization period that is greater than one customer that accounted for more than 10%year. As part of its consolidated revenue, at 12%,the Company’s cumulative effect adjustment, incremental costs associated with obtaining a contract were capitalized and 11%, respectively, inhave been classified as deferred commissions within the Company’s Consolidated Balance Sheet. These amounts primarily relate to sales commissions within the Brooks Life Sciences segment and are being amortized over a 60-month period, which represents the average period of contract performance. The Company did not capitalize any sales commissions during the fiscal yearsyear ended September 30, 20152019 as the amount of sales commissions that qualified for capitalization during the reporting period was insignificant. Sales commissions incurred during the reporting period have been expensed as incurred. These costs are recorded within “Selling, general, and 2014. administration expenses”. The Company has concluded that none of its costs incurred in fulfillment of customer contracts meet the capitalization criteria. The Company will account for shipping and handling activities as fulfillment activities and recognize the associated expense when transfer of control of the product has transferred to the customer.
20. Significant Customers
No customers accounted for more than 10% of the Company'sCompany’s consolidated revenue during the fiscal years ended September 30, 2019, 2018 and 2017. No customers accounted for more than 10% of the Company’s total receivables during the fiscal year ended September 30, 2016. At September 30, 2016, one customer's receivable balance represented approximately 11% of the Company's total receivables. At September 30, 2015, the Company did not have any customers that accounted for more than 10% of its accounts receivable balance
21. Segment and Geographic 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
103
allocate resources and to assess performance. The Company'sCompany’s Chief Executive Officer is the Company'sCompany’s chief operating decision maker.
The Company had three operating andoperates in 2 reportable segments that consisted of Brooks Product Solutions, Brooks Global Services and Brooks Life Science Systems. During 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. Subsequently, the Company reported its financial results during years ended September 30, 2016, 2015 and 2014 based on the revised reporting structure. The change in segments was a result of restructuring actions initiated during fiscal year 2016 to streamline business operations to improve profitability and competitiveness and reflects a change in the manner in which the chief operating decision maker reviews information to assess performance and make decisions about resource allocation. As part of these actions, the Company transitioned to a new internal management structure whereby the operating management responsible for Brooks Product Solutions and Brooks Global Services operating segments was brought under common leadership in the newly formedsegments: Brooks Semiconductor Solutions Group segment and Brooks Life Sciences segment. The restructuring actions were completed in the third quarterBrooks Life Sciences consists of fiscal year 2016 which marked the transition to a new internal management structure during that period. 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 the2 operating segments remained unchanged as a result of the realignment.
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, robotic modules, 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.pods. 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 SystemsSciences segment provides comprehensive life cycle sample management solutions for life science and bioscience customers including complete end-to-end “cold chain of custody” solutions and sample-based laboratory services such as genomic sequencing and gene synthesis to advance scientific research and support drug development. The segment’s product offerings include automated cold sample management systems for compound and biological sample storage, equipment for sample preparation and handling, consumables, and partsinformatics that help customers manage samples throughout their research discovery and development work flows. The segment’s service offerings include sample storage, genomic sequencing, gene synthesis, laboratory processing services, laboratory analysis, and other support services provided to a wide range of life science customers, including pharmaceutical companies, biotechnology companies, biobanksbiorepositories and research institutes. During fiscal year 2016,
The Company considers adjusted operating income, which excludes charges related to amortization of completed technology, the Company completedacquisition accounting impact on inventory contracts acquired and restructuring related charges as the primary performance metric when evaluating the business.
In conjunction with the acquisition of BioStorage,GENEWIZ during the quarter ended December 31, 2018, the Company reassessed its segment reporting structure and determined that GENEWIZ represents a global providerseparate operating segment based on ASC 280, Segment Reporting (“ASC 280”). As permitted by ASC 280, the Company elected to aggregate the Sample Management operating segment and the GENEWIZ operating segment as a single reportable segment titled Brooks Life Sciences. The aggregation was based on similarities in long-term forecasted economic characteristics, particularly adjusted operating income, similarity in services they offer, the customers they serve, the nature of comprehensive outsource biological sampletheir service solutions, including collection, transportation, processing, storage, protection, retrievaldelivery models, 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.
104
The following is the summary of the financial information for the Company’s operating and reportable segments excluding amounts related to the discontinued operations, for the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 (in thousands):
Brooks Semiconductor Solutions Group | Brooks Life Science Systems | Total | |||||||||
Fiscal year ended September 30, 2016: | |||||||||||
Revenue | |||||||||||
Products | $ | 375,237 | $ | 46,546 | $ | 421,783 | |||||
Services | 76,973 | 61,567 | 138,540 | ||||||||
Segment revenue | $ | 452,210 | $ | 108,113 | $ | 560,323 | |||||
Gross profit | $ | 159,018 | $ | 39,063 | $ | 198,081 | |||||
Segment operating income (loss) | 37,926 | (6,451 | ) | 31,476 | |||||||
Depreciation expense | 4,788 | 3,496 | 8,284 | ||||||||
Assets | 317,717 | 247,735 | 565,452 | ||||||||
Fiscal year ended September 30, 2015: | |||||||||||
Revenue | |||||||||||
Products | $ | 406,579 | $ | 50,832 | $ | 457,411 | |||||
Services | 78,058 | 17,239 | 95,297 | ||||||||
Segment revenue | $ | 484,637 | $ | 68,071 | $ | 552,708 | |||||
Gross profit | $ | 171,379 | $ | 17,726 | $ | 189,105 | |||||
Segment operating income (loss) | 49,695 | (19,580 | ) | 30,115 | |||||||
Depreciation expense | 4,312 | 1,295 | 5,607 | ||||||||
Assets | 317,069 | 110,910 | 427,979 | ||||||||
Fiscal year ended September 30, 2014: | |||||||||||
Revenue | |||||||||||
Products | $ | 340,617 | $ | 46,415 | $ | 387,032 | |||||
Services | 79,083 | 16,733 | 95,816 | ||||||||
Segment revenue | $ | 419,700 | $ | 63,148 | $ | 482,848 | |||||
Gross profit | $ | 143,914 | $ | 23,423 | $ | 167,337 | |||||
Segment operating income (loss) | 23,287 | (8,431 | ) | 14,856 | |||||||
Depreciation expense | 10,677 | 2,022 | 12,699 | ||||||||
Assets | 311,622 | 103,498 | 415,120 |
| | | | | | | | | |
| | | Year Ended September 30, 2019 | ||||||
| | | 2019 | | 2018 | | 2017 | ||
Revenue: |
| |
|
| |
|
| |
|
Brooks Semiconductor Solutions Group |
| $ | 446,669 | | $ | 435,018 | | $ | 378,790 |
Brooks Life Sciences | |
| 334,179 | |
| 196,542 | |
| 148,709 |
Total revenue | | $ | 780,848 | | $ | 631,560 | | $ | 527,499 |
| | | | | | | | | |
Operating income: | |
| | | | | | | |
Brooks Semiconductor Solutions Group | | $ | 69,961 | | $ | 62,511 | | $ | 42,741 |
Brooks Life Sciences | |
| 20,631 | |
| 3,795 | |
| 3,217 |
Reportable segment adjusted operating income | | | 90,592 | | | 66,306 | | | 45,958 |
Amortization of completed technology | | | 10,424 | | | 4,877 | | | 3,915 |
Acquisition accounting impact on inventory contracts acquired | | | 184 | | | 1,896 | | | 523 |
Restructuring related charges | | | 285 | | | — | | | — |
Amortization of acquired intangible assets | | | 24,737 | | | 19,339 | | | 13,228 |
Restructuring charges | | | 1,894 | | | 714 | | | 3,144 |
Other unallocated corporate expenses | | | 7,030 | | | 8,071 | | | 10,829 |
Total operating income | | | 46,038 | | | 31,409 | | | 14,319 |
Interest income | | | 1,449 | | | 1,881 | | | 464 |
Interest expense | | | (22,250) | | | (9,520) | | | (408) |
Gain on settlement of equity method investment | | | — | | | — | | | 1,847 |
Loss on extinguishment of debt | | | (14,339) | | | — | | | — |
Other expenses, net | | | (1,455) | | | (3,304) | | | (1,702) |
Income before income taxes | | $ | 9,443 | | $ | 20,466 | | $ | 14,520 |
| | | | | | | | | |
| |
| Brooks |
| |
| | ||
| | | Semiconductor | | Brooks | | | ||
Assets: | | | Solutions Group | | Life Sciences | | Total | ||
September 30, 2019 | | $ | 259,641 | | $ | 909,154 | | $ | 1,168,795 |
September 30, 2018 | |
| 264,452 | | | 410,581 | |
| 675,033 |
The following is a reconciliation of the Company’s operating and reportable segments' operating income (loss) andsegments’ segment assets to the corresponding amounts presented in the accompanying Consolidated Balance Sheets and Consolidated Statementsas of Operations for the fiscal years ended September 30, 2016, 20152019 and 20142018 (in thousands):
| | | | | | |
|
| September 30, |
| September 30, | ||
| | 2019 | | 2018 | ||
Segment assets |
| $ | 1,168,795 |
| $ | 675,033 |
Cash, cash equivalents, restricted cash, and marketable securities | |
| 342,140 | |
| 251,226 |
Deferred tax assets | |
| 5,064 | |
| 43,798 |
Assets held for sale | |
| — | |
| 125,200 |
Total assets | | $ | 1,515,999 | | $ | 1,095,257 |
105
As of and for the Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
Segment operating income (loss) | $ | 31,476 | $ | 30,115 | $ | 14,856 | |||||
Other unallocated corporate expenses | 4,400 | 856 | 5,096 | ||||||||
Amortization of acquired intangible assets | 10,799 | 7,656 | 6,170 | ||||||||
Restructuring and other charges | 12,039 | 4,713 | 6,289 | ||||||||
Total operating income (loss) | $ | 4,238 | $ | 16,890 | $ | (2,699 | ) |
Segment assets | $ | 565,452 | $ | 427,979 | |||
Cash, cash equivalents and marketable securities | 91,221 | 214,030 | |||||
Deferred tax assets | 1,982 | 89,007 | |||||
Assets held for sale | — | 2,900 | |||||
Equity method investments | 27,250 | 24,286 | |||||
Other unallocated corporate net assets | — | 500 | |||||
Total assets | $ | 685,905 | $ | 758,702 |
Revenue from external customers is attributed to geographic areas based on locations in which customer orders are placed. Net revenue by geographic area for the fiscal years ended September 30, 2016, 20152019, 2018 and 20142017 are as follows (in thousands):
Year Ended September 30, | |||||||||||
2016 | 2015 | 2014 | |||||||||
North America | $ | 209,727 | $ | 199,103 | $ | 174,343 | |||||
Asia / Pacific/ Other | 247,241 | 231,840 | 198,695 | ||||||||
Europe: | |||||||||||
United Kingdom | $ | 36,611 | $ | 32,160 | $ | 27,078 | |||||
Rest of Europe | $ | 66,744 | $ | 89,605 | $ | 82,732 | |||||
$ | 560,323 | $ | 552,708 | $ | 482,848 |
| | | | | | | | | |
| | Year Ended September 30, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
North America | | $ | 327,250 | | $ | 233,243 | | $ | 174,432 |
Asia / Pacific/ Other | |
| 312,237 | |
| 262,706 | |
| 255,825 |
Europe: | |
| | |
|
| |
|
|
United Kingdom | | | 48,764 | | | 51,690 | | | 37,283 |
Rest of Europe | | | 92,597 | | | 83,921 | | | 59,959 |
| | $ | 780,848 | | $ | 631,560 | | $ | 527,499 |
The majority of ourthe Company’s net revenue in North America is generated in the United States which amounted to $208.3$325.3 million, $197.4$232.7 million and $172.9 million, respectively, during fiscal years ended September 30, 2016, 20152019, 2018 and 2014
The geographic location of an OEM is not indicative of where the products will eventually be used. The geographic area for the orders is determined by the onward sale of an OEM system which incorporates the sub-systems and/or components.
Property, plant and equipment by geographic area as of September 30, 20162019 and 20152018 are as follows (in thousands):
September 30, | |||||||
2016 | 2015 | ||||||
North America | $ | 49,505 | $ | 36,402 | |||
Asia / Pacific | 952 | 2,104 | |||||
Europe | 4,428 | 3,349 | |||||
$ | 54,885 | $ | 41,855 |
| | | | | | |
| | September 30, | ||||
|
| 2019 |
| 2018 | ||
North America | | $ | 72,401 | | $ | 50,614 |
Asia / Pacific/ Other | |
| 15,628 | |
| 492 |
Europe: | | | | | | |
United Kingdom | | | 5,019 | | | 5,494 |
Rest of Europe | |
| 7,621 | |
| 3,388 |
| | $ | 100,669 | | $ | 59,988 |
Property, plant and equipment located in the United States amounted to $49.3$72.3 million and $36.3$50.5 million, respectively, at September 30, 20162019 and 2015.
22. 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 anThe Company measures certain assets, including the cost and equity method investments, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices,
106
market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables summarize assets and liabilities measured and recorded at fair value on a recurring basis in the accompanying Consolidated Balance Sheets as of September 30, 20162019 and 20152018 (in thousands):
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Description | September 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 | $ | 143 | $ | 98 | $ | 45 | $ | — | ||||||||
Available-for-sale securities | 6,135 | — | 6,135 | — | ||||||||||||
Foreign exchange contracts | 5 | — | 5 | — | ||||||||||||
Convertible debt securities | 5,774 | — | — | 5,774 | ||||||||||||
Stock warrant | 45 | — | — | 45 | ||||||||||||
Total Assets | $ | 12,102 | $ | 98 | $ | 6,185 | $ | 5,819 | ||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | 500 | $ | — | $ | — | $ | 500 | ||||||||
Foreign exchange contracts | 97 | — | 97 | — | ||||||||||||
Total Liabilities | $ | 597 | $ | — | $ | 97 | $ | 500 |
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 | — | ||||||||||||
$ | 847 | $ | — | $ | 36 | $ | 811 |
| | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using | |||||||
|
| | |
| Quoted Prices in |
| | |
| Significant | ||
| | | | | Active Markets for | | Significant Other | | Unobservable | |||
| | September 30, | | Identical Assets | | Observable Inputs | | Inputs | ||||
Description | | 2019 | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Assets: |
| |
|
| |
|
| |
|
| |
|
Cash equivalents | | $ | 16,164 | | $ | 6,188 | | $ | 9,976 | | $ | — |
Available-for-sale securities | |
| 36,969 | |
| — | |
| 36,969 | |
| — |
Foreign exchange contracts | |
| 17 | |
| — | |
| 17 | |
| — |
Total Assets | | $ | 53,150 | | $ | 6,188 | | $ | 46,962 | | $ | — |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Foreign exchange contracts | | $ | 340 | | $ | — | | $ | 340 | | $ | — |
Total Liabilities | | $ | 340 | | $ | — | | $ | 340 | | $ | — |
| | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using | |||||||
|
| | |
| Quoted Prices in |
| | |
| Significant | ||
| | | | | Active Markets for | | Significant Other | | Unobservable | |||
| | September 30, | | Identical Assets | | Observable Inputs | | Inputs | ||||
Description | | 2018 | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Assets: |
| |
|
| |
|
| |
|
| |
|
Cash equivalents | | $ | 50,572 | | $ | 50,572 | | $ | — | | $ | — |
Available-for-sale securities | |
| 53,518 | |
| — | |
| 53,518 | |
| — |
Foreign exchange contracts | |
| 170 | |
| — | |
| 170 | |
| — |
Total Assets | | $ | 104,260 | | $ | 50,572 | | $ | 53,688 | | $ | — |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Foreign exchange contracts | | $ | 177 | | $ | — | | $ | 177 | | $ | — |
Total Liabilities | | $ | 177 | | $ | — | | $ | 177 | | $ | — |
Cash Equivalents
Cash equivalents of $0.1$6.2 million and $10.1$50.6 million, respectively, at September 30, 20162019 and 20152018 consist of Money Market Fundsmoney 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 less than $0.1$10.0 million and $1.5 million, respectively, atas of September 30, 2016 and 2015,2019 consist primarily of Bank Certificate of Depositstreasury bills and agency bonds and are classified within Level 2 of the fair value hierarchy because they are not actively traded.
Available-For-Sale Securities
Available-for-sale securities of $6.1$37.0 million and $133.3$53.5 million, respectively, at September 30, 20162019 and 20152018 consist of U.S. Treasury Securities, Municipal Securities, Bank Certificate of Deposits, Commercial Paper, Mortgage-Backed Securities, as well as U.S. TreasuryU.S Corporate Securities and Obligations of U.S. Government Agencies.Other Debt Securities. 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 amounted to less than $0.1 million and $0.1$0.3 million, respectively, at September 30, 2016.2019. Foreign exchange contract assets and liabilities amounted to $0.1$0.2 million and less than $0.1 million, respectively,each at September 30, 2015.2018. Foreign exchange contract assets and liabilities are measured and reported at fair value based on observable
107
market inputs and classified within Level 2 of the fair value hierarchy due to a lack of an active market for these contracts.
Term Loan
As of September 30, 2019, estimated fair value of the term loan outstanding principal balance approximates its carrying value. The fair value was determined 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.
Financial Assets and $5.3 million, respectively,Liabilities Measured at September 30, 2016 and 2015 are classified within Level 3 of the fair value hierarchy and measured at fair value based on the probability-weighted expected return method (the "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 (expense) income, net" in the Company's Consolidated Statements of Operations.
Convertible Debt Securities | Stock Warrants | Contingent Consideration | Total | ||||||||||||
Balance at September 30, 2015 | $ | 5,337 | $ | 59 | $ | 811 | $ | 6,207 | |||||||
Change in fair value | 437 | (14 | ) | (311 | ) | 112 | |||||||||
Balance at September 30, 2016 | $ | 5,774 | $ | 45 | $ | 500 | $ | 6,319 |
During fiscal year 2019 and 2018, the Company holds certaindid not record any material other-than-temporary impairments on financial assets that arerequired to be measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
Operating Leases Commitments
The Company leases manufacturing and office facilities and certain equipment under non-cancelable operating leases that expire throughout 2020.with lease expiration dates through 2029. Rent expense under the operating leases, excluding costs recorded as a component of restructuring charges, was $4.9$9.6 million, $6.5$5.3 million and $8.2$4.0 million, respectively, for the fiscal years ended September 30, 2016, 2015 and 2014.
Future minimum lease commitments on non-cancelable operating leases and scheduled sublease payments as of September 30, 20162019 are as follows (in thousands):
Year Ended September 30, | Gross Payments | Scheduled Sublease Payments | Net Payments | |||||||||
2017 | $ | 3,390 | $ | 54 | $ | 3,336 | ||||||
2018 | 2,118 | 54 | 2,064 | |||||||||
2019 | 926 | 9 | 917 | |||||||||
2020 | 104 | — | 104 | |||||||||
2021 | — | — | — | |||||||||
Thereafter | — | — | — | |||||||||
$ | 6,538 | $ | 117 | $ | 6,421 |
| | | | |
|
|
| | |
| | | Net | |
Year Ended September 30, | | | Payments | |
2020 | | | $ | 8,898 |
2021 | | |
| 5,845 |
2022 | | |
| 3,845 |
2023 | | |
| 3,166 |
2024 | | |
| 2,520 |
Thereafter | | |
| 4,249 |
| | | $ | 28,523 |
Letters of Credit
At September 30, 2016 and 2015,2019, the Company had $2.0$1.3 million and $3.5 million, respectively, of letters of credit outstanding related primarily to customer advances and other performance obligations. These arrangements guarantee the refund of advance payments received from ourthe Company’s 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 fiscal years ended September 30, 2016 and 2015,2019, and the Company currently does not anticipate any of these obligations to be called in the near future.
Purchase Commitments
At September 30, 2019, the Company has non-cancelable contracts andcommitments of $126.5 million, including purchase orders for inventory of $101.4$76.9 million, at September 30, 2016.
108
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'sCompany’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'sCompany’s consolidated financial position or results of operations in particular quarterly or annual periods.
24. Subsequent Events
Dividend
On November 9, 2016,1, 2019, the Company’s Board of Directors declared a cash dividend of $0.10 per share payable on December 23, 201620, 2019 to common stockholders of record as of December 2, 2016.6, 2019. Dividends are declared at the discretion of the Company’s Board of Directors and depend on the Company'sCompany’s actual cash flow from operations, its financial condition and capital requirements, as well as 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.
109
Item 9. Changes in and Disagreements with Accountants on Financial Accounting and Financial Disclosure
Not applicable.
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e)13a 15(e) promulgated under the Exchange Act. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported on a timely basiswithin the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon this evaluation, our chief executive officer and our chief financial officer concluded that because of the material weaknesses identified in our internal control over financial reporting discussed below, our disclosure controls and procedures were not effective as of September 30, 2016,2019, the end of the period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f)13a 15(f) and 15d-15(f)15d 15(f) under the Exchange Act, as a process designed by, or under the supervision of our chief executive and chief financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principlesGAAP and includes those policies and procedures that:
● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets; |
● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and |
● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of September 30, 2016.2019. In making this assessment, we used the criteria set forth in
We did not maintain effective controls related to the accuracy of revenue recorded at a business unit within our Brooks Life Sciences segment. Specifically, we did not maintain effective controls to verify the accuracy of the price
110
and quantity data for customer transactions entered into the business unit’s billing system, and to verify that the invoices generated from the billing system were based on the appropriate amounts. These control deficiencies resulted in immaterial adjustments to revenue and related accounts and disclosures in the interim and annual consolidated financial statements for the years ended September 30, 2019, 2018, and 2017, which were corrected as an immaterial out of period adjustment in the fourth quarter of 2019. Additionally, these control deficiencies could have resulted in misstatements of the revenue and accounts receivable account balances at this individual business unit that would have resulted in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that these control deficiencies constitute a material weakness.
We also did not design and maintain effective controls related to the occurrence and cutoff of revenue on products shipped to customers from contract manufacturers for a business unit within our Brooks Semiconductor Solutions Group segment. Specifically, we did not design and maintain effective controls to verify that revenue from product shipments from contract manufacturers in this business unit were evaluated for proper revenue recognition at the point of transfer of control. Management determined that this control deficiency resulted in an audit adjustment related to the revenue, cost of sales and the corresponding balance sheet accounts of our consolidated financial statements for the fiscal year ended September 30, 2019. Additionally, this control deficiency could have resulted in misstatements of the aforementioned accounts and disclosures at this individual business unit that would have resulted in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that this control deficiency constitutes a material weakness.
We excluded BioStorage Technologies, Inc.GENEWIZ Group from our assessment of internal control over financial reporting as of September 30, 20162019 because it was acquired by the Company in a purchase business combination during 2016.fiscal year 2019. The total assets and total revenues of BioStorage Technologies, Inc., a wholly-owned subsidiary,GENEWIZ Group, represent 7.4%9% and 8.0%16%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2016.
Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has expressed an adverse opinion on the effectiveness of our internal control over financial reporting as of September 30, 2016 has been audited byreporting. PricewaterhouseCoopers LLP, an independent registered public accounting firm, as statedLLP’s report appears in their report which appears herein.
Changes in Internal Control Over Financial Reporting
There were no changes in internal control over financial reporting during the fiscal fourth quarter ended September 30, 2016,2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation Plan
We are committed and are taking steps necessary to remediate the control deficiencies that constituted the material weaknesses described above by implementing changes to our internal control over financial reporting. Management has been implementing and continues to implement measures to ensure that the control deficiencies contributing to the material weaknesses are remediated, such that these controls are implemented and operating effectively. The remediation actions in the Brooks Life Sciences segment are expected to include: (i) implementing a new billing system and enterprise resource planning system (ERP) which will reduce the complexity of this billing process, (ii) improving the oversight of the accuracy of invoice processing and (iii) improving process documentation and training related to the billing and oversight process. The remediation actions in the Brooks Semiconductor Solutions Group are expected to include (i) enhanced documentation of inventory cut-off procedures related to contract manufacturing sites (ii) additional employee training and (iii) additional cut-off review procedures for transactions occurring near the end of a reporting period.
111
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 is contained in our definitive proxy statement for our 20172020 annual meeting of shareholders to be filed by us within 120 days after the close of our fiscal year, or the 20172020 Proxy Statement, under the caption "Proposalcaptions “Proposal No. 1-Election of Directors," "Other Matters-Section 16(a) Beneficial Ownership Compliance," "Other” “Other Matters-Standards of Conduct," "Other” “Other Matters-Stockholder Proposals and Recommendations for Directors"Director” and "Corporate Governance"“Corporate Governance” and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item 11 is contained under the caption "Corporatecaptions “Corporate Governance,” “Director Compensation” and Director Compensation" and "Executive Officers"“Executive Officers” in the 20172020 Proxy Statement to be filed by us within 120 days after the close of our fiscal year and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is contained under the caption "General Information-Securitycaptions “Security Ownership of Certain Beneficial Owners"Owners” and "Equity“Equity Compensation Plan Information"Information” in the 20172020 Proxy Statement to be filed by us within 120 days after the close of our fiscal year and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is contained under the caption "Relatedcaptions “Related Party Transactions"Transactions,” “Corporate Governance” and "Corporate Governance and Director Compensation"“Compensation of Directors” in the 20172020 Proxy Statement to be filed by us within 120 days after the close of our fiscal year and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item 14 is contained under the caption "Independent“Independent Auditor Fees and Other Matters"Matters” in the 20172020 Proxy Statement to be filed by us within 120 days after the close of our fiscal year and is incorporated herein by reference.
112
PART IV
Item 15. Exhibits and Financial Statement Schedules
● | Consolidated Financial Statements of the Company and the related notes are included under Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K. |
● | Consolidated Financial Statements of ULVAC Cryogenics, Inc. as of June 30, 2019 and 2018 and for each of the periods ended June 30, 2019, 2018 and 2017 and the related notes are filed as Exhibit 99.2 hereto and incorporated herein by reference in this Form 10-K pursuant to Rule 3-09 of Regulation S-X. |
● | Other financial statement schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the supplementary Consolidated Financial Statements or notes thereto. |
| | |
Exhibit No. | Description | |
| | |
2.01* | | |
| | |
2.02* | | |
2.03* | | |
| | |
2.04 | | |
| | |
2.05* | | |
| | |
3.01 | | |
| | |
3.02 | | |
| | |
3.03 | | |
| | |
113
4.01 | | |
| | |
4.02 | | |
| |
| ||
10.01** | | |
| | |
10.02** | | |
| | |
10.03** | | |
| | |
10.04** | | |
| | |
10.05** | | |
| | |
10.06** | | |
| | |
10.07** | | |
| | |
10.08** | | |
| | |
10.09** | | |
| | |
10.10** | | Offer Letter dated September 12, 2018, between the Company and Amy Liao |
| | |
10.11** | | |
| | |
10.12** | | |
| | |
10.13** | | |
| | |
10.14** | | |
| | |
114
10.15** | | |
| | |
10.16** | | |
| | |
10.17** | | |
| | |
10.18** | | |
| | |
10.19** | | |
| | |
10.20** | | |
| | |
10.21** | | |
| | |
10.22 | | |
| | |
10.23 | | |
| | |
10.24 | | |
| | |
10.25 | | |
| | |
10.26 | | |
10.27 | |
115
| | | ||
10.28 | | |||
| | | ||
21.01 | | |||
| | | ||
23.01 | | |||
| | | ||
23.02 | | |||
| | | ||
31.01 | | |||
| | | ||
31.02 | | |||
| | | ||
32 | | |||
| | | ||
99.1 | | |||
| | | ||
99.2 | | |||
| | | ||
101 | | The following material from the | ||
104 | | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101). | ||
* Certain schedules and exhibits have been omitted from this Exhibit pursuant to Item 601(a)(5) of | ||||
| ||||
** Management contract, compensatory plan or agreement. | ||||
| | |
116
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |||
BROOKS AUTOMATION, INC. | | ||
| | | |
| | | |
| By: | /S/ STEPHEN S. SCHWARTZ | |
| | Stephen S. Schwartz President and Chief Executive Officer | |
Date: November 29, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||||
| | | | | ||
/S/ STEPHEN S. SCHWARTZ | | |||||
Director, President and Chief Executive Officer | ||||||
(Principal Executive Officer) | | December 17, 2019 | ||||
Stephen S. Schwartz | | | | | ||
| | | | | ||
/S/ | | Executive Vice President and | ||||
Chief Financial Officer | ||||||
(Principal Financial Officer) | | December 17, 2019 | ||||
Lindon G. Robertson | | | | | ||
| | | | | ||
| | | | | ||
/S/ | | Vice President - Finance and | ||||
Corporate Controller | ||||||
(Principal Accounting Officer) | | December 17, 2019 | ||||
David Pietrantoni | | | | | ||
| | | | | ||
| | | | | ||
/S/ A. CLINTON ALLEN | | Director | | December 17, 2019 | ||
A. Clinton Allen | | | | | ||
| | | | | ||
/S/ | | Director | | December 17, 2019 | ||
Robyn C. Davis | | | | | ||
| | | | | ||
/ | | Director | | December 17, 2019 | ||
Joseph R. Martin | | | | | ||
| ||||||
/ | | Director | | December 17, 2019 | ||
Krishna G. Palepu | | | | | ||
| | | | | ||
/ | | Director | | December 17, 2019 | ||
Kirk P. Pond | | | | | ||
| | | | | ||
/ | | Director | | December 17, 2019 | ||
Michael Rosenblatt | | | | | ||
| | | | | ||
/S/ ALFRED WOOLLACOTT III | | Director | | December 17, 2019 | ||
Alfred Woollacott III | | | | | ||
| | | | | ||
/ | | Director | | December 17, 2019 | ||
Mark S. Wrighton | | | | | ||
| | | | | ||
/ | | Director | | December 17, 2019 | ||
Ellen M. Zane | | | | |
117