UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| |
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| |
| For the quarterly period ended: |
| |
| OR |
| |
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from __________ to _________
Commission File Number 000-25434
BROOKS AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
| |
Delaware | 04-3040660 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
15 Elizabeth Drive
Chelmsford, Massachusetts
(Address of principal executive offices)
01824
(Zip Code)
Registrant’s telephone number, including area code: (978) 262-2400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | BRKS | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
| | | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | |
Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, July 26, 2019:January 27, 2020: common stock, $0.01 par value and 72,224,40673,619,648 shares outstanding.
BROOKS AUTOMATION, INC.
Table of Contents
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BROOKS AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share and per share data)
| | | | | | | ||||||
| | | | | | |
| December 31, |
| September 30, | ||
|
| June 30, |
| September 30, | | 2019 | | 2019 | ||||
| | 2019 | | 2018 | | (In thousands, except share and per share data) | ||||||
Assets |
| |
|
| |
|
| |
|
| |
|
Current assets |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 156,852 | | $ | 197,708 | | $ | 335,319 | | $ | 301,642 |
Marketable securities | |
| 35 | |
| 46,281 | |
| 11,233 | |
| 34,124 |
Accounts receivable, net | |
| 163,105 | |
| 125,192 | |
| 165,176 | |
| 165,602 |
Inventories | |
| 104,786 | |
| 96,986 | |
| 105,181 | |
| 99,445 |
Prepaid expenses and other current assets | |
| 40,441 | |
| 31,741 | |
| 46,560 | |
| 46,332 |
Current assets held for sale | | | 61,665 | | | 66,148 | ||||||
Total current assets | |
| 526,884 | |
| 564,056 | |
| 663,469 | |
| 647,145 |
Property, plant and equipment, net | |
| 98,330 | |
| 59,988 | |
| 105,296 | |
| 100,669 |
Long-term marketable securities | |
| 2,874 | |
| 7,237 | |
| 3,039 | |
| 2,845 |
Long-term deferred tax assets | |
| 25,345 | |
| 43,798 | |
| 6,004 | |
| 5,064 |
Goodwill | |
| 490,545 | |
| 255,876 | |
| 490,370 | |
| 488,602 |
Intangible assets, net | |
| 262,195 | |
| 99,956 | |
| 242,248 | |
| 251,168 |
Other assets | |
| 21,126 | |
| 5,294 | |
| 48,532 | |
| 20,506 |
Non-current assets held for sale | | | 65,561 | | | 59,052 | ||||||
Total assets | | $ | 1,492,860 | | $ | 1,095,257 | | $ | 1,558,958 | | $ | 1,515,999 |
Liabilities and Stockholders' Equity | |
| | |
|
| |
| | |
|
|
Current liabilities | |
| | |
|
| |
| | |
|
|
Current portion of long term debt | | $ | 6,326 | | $ | 2,000 | ||||||
Current portion of long-term debt | | $ | 827 | | $ | 829 | ||||||
Accounts payable | | | 47,789 | | | 44,724 | | | 65,306 | | | 58,919 |
Deferred revenue | |
| 30,598 | |
| 25,884 | |
| 29,042 | |
| 29,435 |
Accrued warranty and retrofit costs | |
| 7,190 | |
| 6,340 | |
| 7,493 | |
| 7,175 |
Accrued compensation and benefits | |
| 28,629 | |
| 29,322 | |
| 25,810 | |
| 31,375 |
Accrued restructuring costs | |
| 280 | |
| 659 | |
| 844 | |
| 1,040 |
Accrued income taxes payable | |
| 7,784 | |
| 6,746 | |
| 100,451 | |
| 99,263 |
Accrued expenses and other current liabilities | |
| 33,655 | |
| 30,405 | |
| 53,179 | |
| 44,234 |
Current liabilities held for sale | | | 12,741 | | | 18,537 | ||||||
Total current liabilities | |
| 174,992 | |
| 164,617 | |
| 282,952 | |
| 272,270 |
Long-term debt | | | 534,748 | | | 194,071 | | | 49,918 | | | 50,315 |
Long-term tax reserves | |
| 15,044 | |
| 1,102 | |
| 18,543 | |
| 18,274 |
Long-term deferred tax liabilities | |
| 16,025 | |
| 7,135 | |
| 13,636 | |
| 20,636 |
Long-term pension liabilities | |
| 4,865 | |
| 4,255 | |
| 5,397 | |
| 5,338 |
Long-term operating lease liabilities | | | 20,526 | | | — | ||||||
Other long-term liabilities | |
| 8,953 | |
| 5,547 | |
| 9,291 | |
| 10,212 |
Non-current liabilities held for sale | | | 107 | | | 698 | ||||||
Total liabilities | |
| 754,734 | |
| 377,425 | |
| 400,263 | |
| 377,045 |
Commitments and contingencies (Note 16) | |
|
| |
|
| ||||||
Commitments and contingencies (Note 17) | |
|
| |
|
| ||||||
Stockholders' Equity | |
|
| |
|
| |
|
| |
|
|
Preferred stock, $0.01 par value - 1,000,000 shares authorized, no shares issued or outstanding | |
| — | |
| — | ||||||
Common stock, $0.01 par value - 125,000,000 shares authorized, 85,681,274 shares issued and 72,219,405 shares outstanding at June 30, 2019, 84,164,130 shares issued and 70,702,261 shares outstanding at September 30, 2018 | |
| 857 | |
| 841 | ||||||
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, 87,080,017 shares issued and 73,618,148 shares outstanding at December 31, 2019, 85,759,700 shares issued and 72,297,831 shares outstanding at September 30, 2019 | |
| 871 | |
| 857 | ||||||
Additional paid-in capital | |
| 1,915,138 | |
| 1,898,434 | |
| 1,926,350 | |
| 1,921,954 |
Accumulated other comprehensive income | |
| 14,586 | |
| 13,587 | |
| 13,154 | |
| 3,511 |
Treasury stock, at cost- 13,461,869 shares | |
| (200,956) | |
| (200,956) | |
| (200,956) | |
| (200,956) |
Accumulated deficit | |
| (991,499) | |
| (994,074) | |
| (580,724) | |
| (586,412) |
Total stockholders' equity | | | 738,126 | | | 717,832 | | | 1,158,695 | | | 1,138,954 |
Total liabilities and stockholders' equity | | $ | 1,492,860 | | $ | 1,095,257 | | $ | 1,558,958 | | $ | 1,515,999 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | ||||||||||||
| | June 30, | | June 30, | | | December 31, | | ||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
| 2019 |
| 2018 |
| ||||||
| | | | | | | | | | | | | | | | | | | | |
Revenue |
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
|
Products | | $ | 128,397 | | $ | 135,278 | | $ | 381,827 | | $ | 362,082 | | | $ | 131,862 | | $ | 125,375 | |
Services | |
| 75,483 | |
| 37,085 | |
| 199,810 | |
| 109,832 | | |
| 78,638 | |
| 53,993 | |
Total revenue | |
| 203,880 | |
| 172,363 | |
| 581,637 | |
| 471,914 | | |
| 210,500 | |
| 179,368 | |
Cost of revenue | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
Products | |
| 77,203 | |
| 82,340 | |
| 229,580 | |
| 216,504 | | |
| 79,971 | |
| 74,574 | |
Services | |
| 43,167 | |
| 23,208 | |
| 115,951 | |
| 71,949 | | |
| 45,543 | |
| 32,713 | |
Total cost of revenue | |
| 120,370 | |
| 105,548 | |
| 345,531 | |
| 288,453 | | |
| 125,514 | |
| 107,287 | |
Gross profit | |
| 83,510 | |
| 66,815 | |
| 236,106 | |
| 183,461 | | |
| 84,986 | |
| 72,081 | |
Operating expenses | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
Research and development | |
| 14,235 | |
| 12,045 | |
| 41,485 | |
| 34,797 | | |
| 14,401 | |
| 13,148 | |
Selling, general and administrative | |
| 52,596 | |
| 42,142 | |
| 158,509 | |
| 120,741 | | |
| 59,343 | |
| 53,541 | |
Restructuring charges | |
| 256 | |
| 81 | |
| 685 | |
| 129 | | |
| 576 | |
| 59 | |
Total operating expenses | |
| 67,087 | |
| 54,268 | |
| 200,679 | |
| 155,667 | | |
| 74,320 | |
| 66,748 | |
Operating income | |
| 16,423 | |
| 12,547 | |
| 35,427 | |
| 27,794 | | |
| 10,666 | |
| 5,333 | |
Interest income | |
| 108 | |
| 689 | |
| 847 | |
| 1,193 | | |
| 699 | |
| 423 | |
Interest expense | |
| (8,041) | |
| (2,465) | |
| (21,348) | |
| (6,842) | | |
| (737) | |
| (5,290) | |
Loss on extinguishment of debt | |
| — | |
| — | |
| (9,051) | |
| — | | |||||||
Other expenses, net | |
| (309) | |
| (608) | |
| (1,116) | |
| (3,047) | | |
| (417) | |
| (30) | |
Income before income taxes | |
| 8,181 | |
| 10,163 | |
| 4,759 | |
| 19,098 | | |
| 10,211 | |
| 436 | |
Income tax (benefit) provision | |
| 7,260 | |
| 5,350 | |
| 400 | |
| (49,831) | | |||||||
Income tax benefit | |
| (2,963) | |
| (5,830) | | |||||||||||||
Income from continuing operations | |
| 921 | |
| 4,813 | |
| 4,359 | |
| 68,929 | | |
| 13,174 | |
| 6,266 | |
Income from discontinued operations, net of tax | |
| 6,333 | |
| 17,793 | |
| 20,731 | |
| 37,183 | | |||||||
(Loss) income from discontinued operations, net of tax | |
| (117) | |
| 8,149 | | |||||||||||||
Net income | | $ | 7,254 | | $ | 22,606 | | $ | 25,090 | | $ | 106,112 | | | $ | 13,057 | | $ | 14,415 | |
Net loss attributable to noncontrolling interest | | | — | | | 111 | | | — | | | 111 | | |||||||
Net income attributable to Brooks Automation, Inc. | | $ | 7,254 | | $ | 22,717 | | $ | 25,090 | | $ | 106,223 | | |||||||
Basic net income per share attributable to Brooks Automation, Inc. common stockholders: | |
|
| |
|
| |
|
| |
|
| | |||||||
Basic net income per share: | |
|
| |
|
| | |||||||||||||
Income from continuing operations | | $ | 0.01 | | $ | 0.07 | | $ | 0.06 | | $ | 0.98 | | | $ | 0.18 | | $ | 0.09 | |
Income from discontinued operations, net of tax | |
| 0.09 | |
| 0.25 | |
| 0.29 | |
| 0.53 | | |||||||
(Loss) income from discontinued operations, net of tax | |
| (0.00) | |
| 0.11 | | |||||||||||||
Basic net income per share | | $ | 0.10 | | $ | 0.32 | | $ | 0.35 | | $ | 1.51 | | | $ | 0.18 | | $ | 0.20 | |
Diluted net income per share attributable to Brooks Automation, Inc. common stockholders: | | |
| | |
| | |
| | |
| | |||||||
Diluted net income per share: | | |
| | |
| | |||||||||||||
Income from continuing operations | | $ | 0.01 | | $ | 0.07 | | $ | 0.06 | | $ | 0.97 | | | $ | 0.18 | | $ | 0.09 | |
Income from discontinued operations, net of tax | |
| 0.09 | |
| 0.25 | |
| 0.29 | | | 0.52 | | |||||||
(Loss) income from discontinued operations, net of tax | |
| (0.00) | | | 0.11 | | |||||||||||||
Diluted net income per share | | $ | 0.10 | | $ | 0.32 | | $ | 0.35 | | $ | 1.50 | | | $ | 0.18 | | $ | 0.20 | |
Weighted average shares used in computing net income per share: | |
|
| |
|
| |
|
| |
|
| | |
|
| |
|
| |
Basic | |
| 72,188 | |
| 70,596 | |
| 71,903 | |
| 70,425 | | |
| 72,972 | |
| 71,450 | |
Diluted | |
| 72,470 | |
| 70,978 | |
| 72,313 | |
| 70,933 | | |
| 73,645 | |
| 72,165 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | ||||||||||||
| | June 30, | | June 30, | | | December 31, | | ||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
| 2019 |
| 2018 |
| ||||||
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 7,254 | | $ | 22,606 | | $ | 25,090 | | $ | 106,112 | | | $ | 13,057 | | $ | 14,415 | |
Other comprehensive income (loss), net of tax: | |
|
| |
| | |
|
| |
|
| | |||||||
Cumulative foreign currency translation adjustments | |
| 2,724 | |
| (5,998) | |
| 888 | |
| 3,288 | | |||||||
Unrealized gains (losses) on marketable securities, net of tax effects of $0 during each of the three and nine months ended June 30, 2019, and ($26) during each of the three and nine months ended June 30, 2018 | |
| — | |
| (122) | |
| 111 | |
| (122) | | |||||||
Actuarial gains (losses), net of tax effects of ($3) and $0 during the three and nine months ended June 30, 2019, respectively, ($1) and ($3) during the three and nine months ended June 30, 2018, respectively | |
| 9 | |
| (3) | |
| — | |
| (6) | | |||||||
Total other comprehensive income (loss), net of tax | |
| 2,733 | |
| (6,123) | |
| 999 | |
| 3,160 | | |||||||
Comprehensive loss attributable to noncontrolling interest | |
| — | |
| 111 | |
| — | |
| 111 | | |||||||
Other comprehensive income, net of tax: | |
|
| |
|
| | |||||||||||||
Foreign currency translation adjustments | |
| 9,645 | |
| 1,677 | | |||||||||||||
Unrealized gains (losses) on marketable securities, net of tax effects of $0 and ($38) during the three months ended December 31, 2019 and 2018 | |
| 10 | |
| (121) | | |||||||||||||
Actuarial losses, net of tax effects of $1 and $2 during the three months ended December 31, 2019 and 2018 | |
| (12) | |
| (9) | | |||||||||||||
Total other comprehensive income, net of tax | |
| 9,643 | |
| 1,547 | | |||||||||||||
Comprehensive income | | $ | 9,987 | | $ | 16,594 | | $ | 26,089 | | $ | 109,383 | | | $ | 22,700 | | $ | 15,962 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
| | | | | | | | |
| | Nine Months Ended | |
| ||||
| | June 30, | | | ||||
|
| 2019 |
| 2018 |
|
| ||
Cash flows from operating activities |
| |
| | |
|
| |
Net income | | $ | 25,090 | | $ | 106,112 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
| | |
Depreciation and amortization | | | 40,429 | | | 27,621 | | |
Stock-based compensation | |
| 15,172 | |
| 14,999 | | |
Amortization of premium on marketable securities and deferred financing costs | |
| 766 | |
| 565 | | |
Earnings of equity method investments | |
| (4,876) | |
| (4,931) | | |
Loss recovery on insurance claim | | | — | | | (1,103) | | |
Deferred income tax benefit | |
| (9,207) | |
| (48,274) | | |
Loss on extinguishment of debt | |
| 9,051 | |
| — | | |
Other gains on disposals of assets | |
| 156 | |
| — | | |
Changes in operating assets and liabilities, net of acquisitions: | |
|
| |
|
| | |
Accounts receivable | |
| (6,456) | |
| (32,887) | | |
Inventories | |
| (6,431) | |
| (21,647) | | |
Prepaid expenses and other assets | |
| 2,109 | |
| (4,395) | | |
Accounts payable | |
| (6,761) | |
| 16,656 | | |
Deferred revenue | |
| 4,959 | |
| 487 | | |
Accrued warranty and retrofit costs | |
| 1,022 | |
| (192) | | |
Accrued compensation and tax withholdings | |
| (9,404) | |
| (1,252) | | |
Accrued restructuring costs | |
| (361) | |
| (1,523) | | |
Proceeds from recovery on insurance claim | | | 1,082 | | | — | | |
Accrued expenses and other liabilities | |
| 1,901 | |
| (7,478) | | |
Net cash provided by operating activities | |
| 58,241 | |
| 42,758 | | |
Cash flows from investing activities | |
|
| |
|
| | |
Purchases of property, plant and equipment | |
| (15,548) | |
| (9,320) | | |
Purchases of marketable securities | |
| (1,290) | |
| (58,312) | | |
Sales of marketable securities | |
| 48,904 | |
| — | | |
Maturities of marketable securities | | | 2,557 | | | 8,450 | | |
Acquisitions, net of cash acquired | |
| (442,704) | |
| (82,977) | | |
Proceeds from sales of property, plant and equipment | |
| — | |
| 200 | | |
Net cash used in investing activities | |
| (408,081) | |
| (141,959) | | |
Cash flows from financing activities | |
|
| |
|
| | |
Proceeds from term loans, net of discount | |
| 686,386 | |
| 197,554 | | |
Proceeds from issuance of common stock | |
| 1,548 | |
| 1,395 | | |
Payments of financing costs | |
| (687) | |
| (318) | | |
Principal payments on debt | |
| (354,940) | |
| (1,000) | | |
Payments of capital lease | | | (849) | | | — | | |
Common stock dividends paid | |
| (21,658) | |
| (21,202) | | |
Net cash provided by financing activities | |
| 309,800 | |
| 176,429 | | |
Effects of exchange rate changes on cash and cash equivalents | |
| (816) | |
| 526 | | |
Net increase (decrease) in cash and cash equivalents | |
| (40,856) | |
| 77,754 | | |
Cash and cash equivalents, beginning of period |
|
| 197,708 |
|
| 101,622 |
|
|
Cash and cash equivalents, end of period | | $ | 156,852 |
| $ | 179,376 | |
|
Supplemental disclosure of non-cash investing and financing activities: | |
|
| |
| | | |
Purchases of property, plant and equipment included in accounts payable | | $ | 1,847 | | $ | 1,418 | | |
| | | | | | | | |
| | Three Months Ended | |
| ||||
| | December 31, | | | ||||
|
| 2019 |
| 2018 |
|
| ||
Cash flows from operating activities |
| |
| | |
|
| |
Net income | | $ | 13,057 | | $ | 14,415 | | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
| | |
Depreciation and amortization | | | 16,477 | | | 11,838 | | |
Stock-based compensation | |
| 4,410 | |
| 4,467 | | |
Amortization of premium on marketable securities and deferred financing costs | |
| 67 | |
| 235 | | |
Earnings of equity method investments | |
| — | |
| (1,772) | | |
Deferred income taxes | |
| (8,183) | |
| (7,682) | | |
Other losses on disposals of assets | |
| 126 | |
| 6 | | |
Loss on sale of divestiture, net of tax | | | 319 | | | — | | |
Changes in operating assets and liabilities, net of acquisitions and divestiture: | |
|
| |
| | | |
Accounts receivable | |
| 1,503 | |
| (13,826) | | |
Inventories | |
| (4,335) | |
| (12,260) | | |
Prepaid expenses and other assets | |
| 6,120 | |
| 1,029 | | |
Accounts payable | |
| 5,255 | |
| 7,932 | | |
Deferred revenue | |
| (720) | |
| 6,385 | | |
Accrued warranty and retrofit costs | |
| 221 | |
| 572 | | |
Accrued compensation and tax withholdings | |
| (5,755) | |
| (13,842) | | |
Accrued restructuring costs | |
| (203) | |
| (181) | | |
Accrued expenses and other liabilities | |
| (2,616) | |
| 8,948 | | |
Net cash provided by operating activities | |
| 25,743 | |
| 6,264 | | |
Cash flows from investing activities | | |
| |
|
| | |
Purchases of property, plant and equipment | |
| (9,614) | |
| (3,560) | | |
Purchases of marketable securities | |
| (10,742) | |
| (1,290) | | |
Sales of marketable securities | |
| — | |
| 48,904 | | |
Maturities of marketable securities | | | 33,584 | | | 2,557 | | |
Acquisitions, net of cash acquired | |
| — | |
| (445,210) | | |
Net cash provided by (used in) investing activities | |
| 13,228 | |
| (398,599) | | |
Cash flows from financing activities | |
|
| |
|
| | |
Proceeds from term loans, net of discount | |
| — | |
| 340,540 | | |
Principal payments on debt | |
| (414) | |
| (1,789) | | |
Payments of capital leases | | | (319) | | | (121) | | |
Common stock dividends paid | |
| (7,369) | |
| (7,208) | | |
Net cash provided by (used in) financing activities | |
| (8,102) | |
| 331,422 | | |
Effects of exchange rate changes on cash and cash equivalents | |
| 2,808 | |
| (1,004) | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | |
| 33,677 | |
| (61,917) | | |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 305,171 |
|
| 197,708 |
|
|
Cash, cash equivalents and restricted cash, end of period | | $ | 338,848 |
| $ | 135,791 | |
|
Supplemental disclosure of non-cash investing and financing activities: | |
|
| |
| | | |
Purchases of property, plant and equipment included in accounts payable | | $ | 2,622 | | $ | 1,717 | | |
Deferred financing costs included in accounts payable | | | — | | | 1,750 | | |
| | | | | | | | |
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets | | | | | | | | |
Cash and cash equivalents | | $ | 335,319 | | $ | 135,741 | | |
Restricted cash included in prepaid expenses and other current assets | | | 3,529 | | | 50 | | |
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | | $ | 338,848 | | $ | 135,791 | | |
| | | | | | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
BROOKS AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited)
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| | |
| | |
| | |
| | |
| | |
| Total |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | | |
| | | | | | | | | | | | | | | | | | | Brooks | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Common | | | | | Accumulated | | | | | | | | Automation, | | | | | | | | | | Common | | | | | Accumulated | | | | | | | | | | |||||
| | Common | | Stock at | | Additional | | Other | | | | | | | | Inc. | | Noncontrolling | | | | | Common | | Stock at | | Additional | | Other | | | | | | | | | | ||||||||
| | Stock | | Par | | Paid-In | | Comprehensive | | Accumulated | | Treasury | | Stockholders’ | | Interests in | | Total | | Stock | | Par | | Paid-In | | Comprehensive | | Accumulated | | Treasury | | Total | ||||||||||||||
| | Shares | | Value | | Capital | | Income | | Deficit | | Stock | | Equity | | Subsidiaries | | Equity | | Shares | | Value | | Capital | | Income | | Deficit | | Stock | | Equity | ||||||||||||||
|
| (In thousands, except share data) |
| (In thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||||
Balance September 30, 2017 |
| 83,294,848 | | $ | 833 | | $ | 1,874,918 | | $ | 15,213 | | $ | (1,082,364) | | $ | (200,956) | | $ | 607,644 | | $ | — | | $ | 607,644 | ||||||||||||||||||||
Shares issued under restricted stock and purchase plans, net |
| 801,376 | |
| 8 | |
| 1,388 | |
|
| |
|
| |
|
| |
| 1,396 | |
|
| |
| 1,396 | ||||||||||||||||||||
Stock-based compensation |
|
| |
|
| |
| 14,999 | |
|
| |
|
| |
|
| |
| 14,999 | |
|
| |
| 14,999 | ||||||||||||||||||||
Common stock dividends declared, at $0.30 per share |
|
| |
|
| |
|
| |
|
| |
| (21,203) | |
|
| |
| (21,203) | |
|
| |
| (21,203) | ||||||||||||||||||||
Foreign currency translation adjustments |
|
| |
|
| |
|
| |
| 3,288 | |
|
| |
|
| |
| 3,288 | |
|
| |
| 3,288 | ||||||||||||||||||||
Changes in unrealized gains on marketable securities, net of tax effects of ($26) |
|
| |
|
| |
|
| |
| (122) | |
|
| |
|
| |
| (122) | |
|
| |
| (122) | ||||||||||||||||||||
Actuarial losses, net of tax effects of ($3) |
|
| |
|
| |
|
| |
| (6) | |
|
| |
|
| |
| (6) | |
|
| |
| (6) | ||||||||||||||||||||
Net income |
|
| |
|
| |
|
| |
|
| |
| 106,223 | |
|
| |
| 106,223 | |
| (111) | |
| 106,112 | ||||||||||||||||||||
Balance June 30, 2018 |
| 84,096,224 | | $ | 841 | | $ | 1,891,305 | | $ | 18,373 | | $ | (997,344) | | $ | (200,956) | | $ | 712,219 | | $ | (111) | | $ | 712,108 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||
Balance September 30, 2018 | | 84,164,130 | | $ | 841 | | $ | 1,898,434 | | $ | 13,587 | | $ | (994,074) | | $ | (200,956) | | $ | 717,832 | | $ | — | | $ | 717,832 |
| 84,164,130 | | $ | 841 | | $ | 1,898,434 | | $ | 13,587 | | $ | (994,074) | | $ | (200,956) | | $ | 717,832 |
Shares issued under restricted stock and purchase plans, net |
| 1,517,144 | |
| 16 | |
| 1,532 | | | | | | | | | | | | 1,548 | | | | | | 1,548 |
| 1,252,908 | |
| 13 | |
| (13) | |
|
| |
|
| |
|
| |
| — |
Stock-based compensation |
| | | | | | | 15,172 | |
|
| |
|
| |
|
| |
| 15,172 | |
|
| |
| 15,172 |
|
| |
|
| |
| 4,467 | |
|
| |
|
| |
|
| |
| 4,467 |
Common stock dividends declared, at $0.30 per share |
|
| |
|
| |
| | |
|
| |
| (21,656) | |
|
| |
| (21,656) | |
|
| |
| (21,656) | ||||||||||||||||||||
Common stock dividends declared, at $0.10 per share |
|
| |
|
| |
|
| |
|
| |
| (7,208) | |
|
| |
| (7,208) | ||||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| |
|
| |
|
| |
| 888 | |
|
| |
|
| |
| 888 | |
|
| |
| 888 |
|
| |
|
| |
|
| |
| 1,677 | |
|
| |
|
| |
| 1,677 |
Changes in unrealized losses on marketable securities, net of tax effects of ($0) |
|
| |
|
| |
|
| |
| 111 | |
|
| |
|
| |
| 111 | |
|
| |
| 111 | ||||||||||||||||||||
Changes in unrealized gains on marketable securities, net of tax effects of ($38) |
|
| |
|
| |
|
| |
| (121) | |
|
| |
|
| |
| (121) | ||||||||||||||||||||||||||
Actuarial losses, net of tax effects of $2 |
|
| |
|
| |
|
| |
| (9) | |
|
| |
|
| |
| (9) | ||||||||||||||||||||||||||
Net income |
|
| |
|
| |
|
| |
|
| |
| 14,415 | |
|
| |
| 14,415 | ||||||||||||||||||||||||||
Cumulative effect of adoption of ASC 606 |
|
| |
|
| |
|
| |
| — | |
| (859) | |
|
| |
| (859) | |
|
| |
| (859) | | | | | | | | | | | | | | (858) | | | | | | (858) |
Balance December 31, 2018 |
| 85,417,038 | | $ | 854 | | $ | 1,902,888 | | $ | 15,134 | | $ | (987,725) | | $ | (200,956) | | $ | 730,195 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
Balance September 30, 2019 | | 85,759,700 | | $ | 857 | | $ | 1,921,954 | | $ | 3,511 | | $ | (586,412) | | $ | (200,956) | | $ | 1,138,954 | ||||||||||||||||||||||||||
Shares issued under restricted stock and purchase plans, net |
| 1,320,317 | |
| 14 | |
| (14) | | | | | | | | | | | | — | ||||||||||||||||||||||||||
Stock-based compensation |
| | | | | | | 4,410 | |
|
| |
|
| |
|
| |
| 4,410 | ||||||||||||||||||||||||||
Common stock dividends declared, at $0.10 per share |
|
| |
|
| |
| | |
|
| |
| (7,369) | |
|
| |
| (7,369) | ||||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| |
|
| |
|
| |
| 9,645 | |
|
| |
|
| |
| 9,645 | ||||||||||||||||||||||||||
Changes in unrealized losses on marketable securities, net of tax effects of $0 |
|
| |
|
| |
|
| |
| 10 | |
|
| |
|
| |
| 10 | ||||||||||||||||||||||||||
Actuarial losses, net of tax effects of $1 |
|
| |
|
| |
|
| |
| (12) | |
|
| |
|
| |
| (12) | ||||||||||||||||||||||||||
Net income |
|
| |
|
| |
| | |
|
| |
| 25,090 | |
|
| |
| 25,090 | |
|
| |
| 25,090 |
|
| |
|
| |
| | |
|
| |
| 13,057 | |
|
| |
| 13,057 |
Balance June 30, 2019 |
| 85,681,274 | | $ | 857 | | $ | 1,915,138 | | $ | 14,586 | | $ | (991,499) | | $ | (200,956) | | $ | 738,126 | | $ | — | | $ | 738,126 | ||||||||||||||||||||
Balance December 31, 2019 |
| 87,080,017 | | $ | 871 | | $ | 1,926,350 | | $ | 13,154 | | $ | (580,724) | | $ | (200,956) | | $ | 1,158,695 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
BROOKS AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Basis of Presentation
The unaudited consolidated financial statements of Brooks Automation, Inc. and its subsidiaries (“Brooks”, or the “Company”) included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all material adjustments, which are of a normal and recurring nature and necessary for a fair statement of the financial position and results of operations and cash flows for the periods presented, have been reflected in the accompanying unaudited consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year.
Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted and, accordingly, the accompanying financial information should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”) for the fiscal year ended September 30, 20182019 (the "2018"2019 Annual Report on Form 10-K"). The accompanying Consolidated Balance Sheet as of September 30, 20182019 was derived from the audited annual consolidated financial statements as of the period then ended.
Discontinued Operations
In the fourth quarter of fiscal year 2018, the Company entered into a definitive agreement to sell its semiconductor cryogenics business (the “Disposition”) to Edwards Vacuum LLC (a member of the Atlas Copco Group), (the “Disposition” (“Edwards”). The Company determined that the semiconductor cryogenics business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with Financial Accounting Standard Boards (“FASB”) Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements,, (“FASB ASC 205”) as of September 30, 2018. The Consolidated Balance Sheets and Consolidated Statements of Operations, and the notes to the Consolidated Financial Statements were restated for all periods presented to reflect the discontinuation of the semiconductor cryogenics business, in accordance with FASB ASC 205. The discussion in the notes to these Consolidated Financial Statements, unless otherwise noted, relate solely to the Company's continuing operations. Please refer to Note 3, “Discontinued Operations” for further information.
On July 1, 2019, the Company completed the Dispositionsale of the semiconductor cryogenics business for $675.0$661.1 million, which excludes $6.3 million retained by Edwards at closing as a result of the initial net working capital adjustments. Net cash proceeds from the sale were $553.1 million, after deducting estimated taxes payable and closing costs, which remains subject to adjustmentsadjustment for the final determination of working capital and other items. The Company expects net cash proceeds from the sale to be approximately $550 million, after adjustments and deducting taxes and other items. In connection with the closing the Company entered into Amendment No. 2 to the Asset Purchase Agreement with the purchaser. As part of this amendment, liabilities assumed by the purchaser were revised to include accounts payable related to the semiconductor cryogenics business. As of September 30, 2018, the Company has revised its accounts payable balance on a continuing operations basis to exclude accounts payable related to the semiconductor cryogenics business and revised its current liabilities held for sale balance to include accounts payable related to the semiconductor cryogenics business on its Consolidated Balance Sheets. Accounts payable and total liabilities of the discontinued operation have also been revised in Note 3, “Discontinued Operations” below. As of September 30, 2018, the accounts payable balance related to the semiconductor cryogenics business was $11.1 million. The Company will also revise these balances in previously reported historical periods in the event those periods are presented in future filings.
Revision of Prior Period Financial Statements
During the three months ended March 31, 2019, the Company identified a misclassification related to the presentation of the product and service revenue and the cost of product and service revenue related to the GENEWIZ Group (“GENEWIZ”) in the Company's Consolidated Statements of Operations for the three months ended December 31, 2018. The total revenue and cost of revenue related to GENEWIZ for the three months ended December 31, 2018 were included in the product revenue and cost of product revenue line items instead of the service revenue and cost of
8
service revenue line items in the Consolidated Statements of Operations in the Quarterly Report on Form 10-Q for the three months ended December 31, 2018. GENEWIZ was acquired during the three months ended December 31, 2018 and therefore the misclassification did not impact any other historical periods. The misclassification had no impact on total revenue or the total cost of revenue, gross profit, operating income (loss), net income (loss), as well as basic and diluted net income (loss) per share during any of the periods presented. Additionally, the misclassification had no impact on the Company's consolidated balance sheets and consolidated statements of cash flows during any of the prior periods. The Company considered the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 250-10-S99-1, Assessing Materiality, and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements in evaluating whether the Company’s previously issued consolidated financial statements were materially misstated. The Company concluded this misclassification was not material individually or in the aggregate to the financial statements presented for the three months ended December 31, 2018, and therefore, amendments of the previously filed Quarterly Report on Form 10-Q for the three months ended December 31, 2018 were not required. The revision for this correction to the three months ended December 31, 2018 is reflected in the reported revenue and cost of revenue classification for the nine months ended June 30, 2019 in this Quarterly Report on Form 10-Qand will be corrected in any future filings containing such financial information for the three months ended December 31, 2018.
The following table summarizes the effects of the misclassification to the three months ended December 31, 2018:
| | | | | | | | | |
| | Three Months Ended December 31, 2018 | |||||||
Dollars in thousands | | As Previously Reported | | Adjustment | | As Revised | |||
Total Company | | | | | | | | | |
Revenue |
| | |
| | |
| | |
Products | | $ | 141,732 | | $ | (16,357) | | $ | 125,375 |
Service | | | 37,636 | | | 16,357 | | | 53,993 |
Total Revenue | |
| 179,368 | |
| — | |
| 179,368 |
| | | | | | | | | |
Cost of revenue | |
| | |
| | |
| |
Products | |
| 83,481 | |
| (8,907) | |
| 74,574 |
Service | |
| 23,806 | |
| 8,907 | |
| 32,713 |
Total cost of revenue | | $ | 107,287 | | $ | — | | $ | 107,287 |
| | | | | | | | | |
Brooks Life Science Segment | | | | | | | | | |
Revenue | | | | | | | | | |
Products | | $ | 39,931 | | $ | (16,357) | | $ | 23,574 |
Service | | �� | 26,730 | | | 16,357 | | | 43,087 |
Total Revenue | | $ | 66,661 | | $ | — | | $ | 66,661 |
| | | | | | | | | |
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of unaudited consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are associated with recording accounts receivable, inventories, goodwill, intangible assets other than goodwill, long-lived assets, derivative financial instruments, deferred income taxes, warranty obligations, revenue recognized on an over timein accordance with the percentage of completion method, pension obligations and stock-based compensation expense. The Company bases its estimates on historical experience and various other assumptions, including in certain circumstances future projections that management believes to be
8
reasonable under the circumstances. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they occur and become known.
9
Foreign Currency Translation
Certain transactions of the Company and its subsidiaries are denominated in currencies other than their functional currency.
Foreign currency exchange losses generated from the settlement and remeasurement of these transactions are recognized in earnings and presented within “Other expenses, net” in the Company’s unaudited Consolidated Statements of Operations. Net foreign currency transaction and remeasurement losses totaled $0.5$0.7 million and $0.6$0.1 million, respectively, during the three months ended June 30, 2019 and 2018 and $1.1 million and $3.1 million, respectively, during the nine months ended June 30, December 31, 2019 and 2018.
Derivative Instruments
The Company has transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros, British Pounds and a variety of Asian currencies. The Company enters into foreign exchange contracts to reduce its exposure to currency fluctuations. The forward contract arrangements that the Company enters into, typically mature in three months or less. These transactions do not qualify for hedge accounting. Net gains and losses related to these contracts are recorded as a component of "Other expenses, net" in the accompanying unaudited Consolidated Statements of Operations and are as follows for the three and nine months ended June 30,December 31, 2019 and 2018 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | ||||||||||||
| | June 30, | | June 30, | | | December 31, | | ||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
| 2019 |
| 2018 |
| ||||||
Realized gains (losses) on derivatives not designated as hedging instruments | | $ | 3,770 | | $ | 4,889 | | $ | 2,916 | | $ | (1,332) | | | $ | (3,668) | | $ | 2,977 | |
The fair values of the forward contracts are recorded in the Company’s accompanying unaudited Consolidated Balance Sheets as “Prepaid expenses and other current assets” and “Accrued expenses and other current liabilities”. Foreign exchange contract assets and liabilities are measured and reported at fair value based on observable market inputs and classified within Level 2 of the fair value hierarchy described below due to a lack of an active market for these contracts.
Fair Value Measurements
The Company measures at fair value certain financial assets and liabilities, including cash equivalents and available for sale securities. FASB ASC 820, Fair Value Measurement and Disclosures, establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following levels of inputs may be used to measure fair value:
Level 1 Inputs: Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 Inputs: Observable inputs other than prices included in Level 1, including quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Inputs: Unobservable inputs that are significant to the fair value of the assets or liabilities and reflect an entity’s own assumptions in pricing assets or liabilities since they are supported by little or no market activity.
As of June 30, 2019,December 31, the Company had no0 assets or liabilities measured and recorded at fair value on a recurring basis using Level 3 inputs.
109
Leases
The Company has operating leases for real estate and non-real estate and finance leases for non-real estate. The classification of a lease as operating or finance and the determination of the right-of-use asset (ROU asset) and lease liability are determined at lease inception. The ROU asset represents the Company’s right to use an underlying asset for the lease term and the lease liability represents the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, an incremental borrowing rate is used based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.
The Company’s lease agreements may contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. Fixed payments for non-lease components are combined with lease payments and accounted for as a single lease component which increases the amount of the ROU asset and liability.
The ROU asset for operating leases is included within Other assets and the ROU asset for finance leases is included within Property, plant, and equipment, net on the Consolidated Balance Sheets. The short-term lease liabilities for both operating leases and finance leases are included within Accrued expenses and other current liabilities. The long-term lease liabilities for operating leases and finance leases are included within Long-term operating lease liabilities, and Other long-term liabilities, respectively, on the Consolidated Balance Sheets.
Recently Issued Accounting Pronouncements
In MayDecember 2019, the FASB issued ASU 2019-12: Simplifying the Accounting Standards Update (“ASU”) 2019-05, Financial Instruments - Credit Lossesfor Income Taxes (Topic 326) - Targeted Transition Relief740), which provides transition relief for entities adopting ASU 2016-13. The amendments in ASU 2019-05 allow entities to elect the fair value option onremoves certain financial instruments. ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that were previously recorded at amortized cost and are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05’s amendments should be applied “on a modified-retrospective basis by means of a cumulative-effect adjustmentexceptions to the opening balancegeneral principles in Topic 740 and improves consistent application of retained earnings in the statementand simplifies GAAP for other areas of financial position as of the date that an entity adopted the amendments inTopic 740 clarifying and amending existing guidance. This ASU 2016-13.” Certain disclosures are required. For entities that have not adopted ASU 2016-13, theis effective date of ASU 2019-05 will be the same as the effective date of ASU 2016-13 which is for fiscal years, andannual periods, including interim periods within those years,annual periods, beginning after December 15, 2019.2020. Early adoption is permitted if the entity has adopted ASU 2016-13.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 March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) - Codification Improvements, which makes targeted changes to lessor accounting and clarifies interim transition disclosure requirements. The targeted changes to the lessor accounting are not applicable to the Company because it is not in the industry to be targeted by the guidance. The ASU clarifies that companies are exempt from making the interim period transition disclosures required by ASC 250, Accounting Changes and Error Corrections, for the period in which a change in accounting principle is made as a result of adopting ASC 842. This interim period disclosure exemption is consistent with ASC 842, which already allowed companies to exclude the annual effect of the accounting change on income from continuing operations, net income and per-share amounts for periods post-adoption. This ASU is effective for fiscal years ending after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this ASU.
In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors. The amendments create a lessor practical expedient applicable to sales and other similar taxes incurred in connection with a lease and simplify lessor accounting for lessor costs paid by the lessee. The ASU permits lessors to present sales and other similar taxes that arise from a specific leasing transaction on a net basis. It requires lessors to present lessor costs paid by the lessee directly to a third party on a net basis – regardless of whether the lessor knows, can determine or can reliably estimate those costs. It requires lessors to present lessor costs paid by the lessee to the lessor on a gross basis. It clarifies that lessors should recognize variable payments allocable to non-lease components as revenue in accordance with relevant other guidance. The effective date coincides with the effective date of the new leases standard for companies that have not early adopted. As such, this ASU is effective for fiscal years ending after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this ASU.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments align the requirements for capitalizing implementation costs incurred in a
11
hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The provisions may be adopted prospectively or retrospectively. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this ASU.
In August 2018, the FASB issued ASU 2018-14, Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The amendments require additional disclosure for the weighted-average interest crediting rates, a narrative description of the reasons for significant gains and losses, and an explanation of any other significant changes in the benefit obligation or plan assets. The amendment removes disclosure requirement for accumulated other comprehensive income expected to be recognized over the next year, information about plan assets to be returned to the entity, and the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost, and the benefit obligation for postretirement health care benefits. The ASU is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The ASU does not amend the interim disclosure requirements of ASC 715-20. The Company is currently evaluating the impact of this ASU.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820 to add and remove
10
disclosure requirements related to fair value measurement. The amendments include new disclosure requirement for changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The amendments eliminated disclosure requirements for amount of and reasons for transfers between Level 1 and Level 2, valuation processes for Level 3 fair value measurements, and policy for timing of transfers between levels of the fair value hierarchy. In addition, the amendments modified certain disclosure requirement to provide clarification or to promote appropriate exercise of discretion by entities. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted. The Company is currently evaluating the impact of this ASU.
In March 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends ASC 220 to add, remove, and clarify disclosure requirements related to reporting comprehensive income. This ASU gives entities the option to reclassify tax effects recorded in accumulated other comprehensive income as a result of tax reform to retained earnings. The entities have the option to apply the guidance retrospectively or in the period of adoption. The guidance requires entities to make new disclosures, regardless of whether they elect to reclassify tax effects. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption in any period is permitted. The Company expects to adopt the guidance during the first quarter of fiscal year 2020 and is evaluating the effect that ASU 2018-02 will have on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. The FASB subsequently issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses to clarify and address certain items related to the amendments in ASU 2016-13. ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, which amendswas issued to provide entities that have certain instruments within the scope of ASC 326 with an option to add, remove, and clarify disclosure requirements related to credit losses of financialirrevocably elect the fair value option under ASC 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible 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. Entitiesamendments 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.permitted. The standard should be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company expects to adopt the guidance during the first quarter of fiscal year 2021 and is currently evaluating the impact of this guidance on its financial position and results of operations.ASU.
12
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), an amendment of the FASB ASC. In accordance with the provisions of the newly issued guidance, a lessee should recognize at the inception of the arrangement a right-of-use asset and a corresponding lease liability initially measured at the present value of lease payments over the lease term. For finance leases, interest on a lease liability should be recognized separately from the amortization of the right-of-use asset, while for operating leases, total lease costs are recorded on a straight-line basis over the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying assets to forgo a recognition of right-of-use assets and corresponding lease liabilities and record a lease expense on a straight-line basis. Entities should determine at the inception of the arrangement whether a contract represents a lease or contains a lease which is defined as a right to control the use of identified property for a period of time in exchange for consideration. Additionally, entities should separate the lease components from the non-lease components and allocate the contract consideration on a relative standalone price basis in accordance with provisions of ASC Topic 606, Revenue from Contracts with Customers. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and should be adopted via a modified retrospective approach with certain optional practical expedients that entities may elect to apply. The Company expects to adopt the guidance during the first quarter of fiscal year 2020 and is currently evaluating the impact of this guidance on its financial position and results of operations.
Recently Adopted Accounting Pronouncements
In May 2014,July 2019, the FASB issued new accountingASU 2019-07, Codification Updates to SEC Sections - Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization and Miscellaneous Updates (SEC Update). ASU 2019-07 aligns the guidance forin various SEC sections of the Codification with the requirements of certain SEC final rules. ASU 2019 -07 was effective immediately during the Company’s third quarter of fiscal 2020 and the adoption did not have any impact on our consolidated financial statements and related disclosures.
In March 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends ASC 220 to add, remove, and clarify disclosure requirements related to reporting revenue recognition, ASC 606 Revenue from Contracts with Customers (“ASC 606”).comprehensive income. This ASU gives entities the option to reclassify tax effects recorded in accumulated other comprehensive income as a result of tax reform to retained earnings. The entities have the option to apply the guidance retrospectively or in the period of adoption. The guidance provides for the recognitionrequires entities to make new disclosures, regardless of revenue when promised goods or services are transferredwhether they elect to customers in an amount that reflects the consideration that is expected to be received for those goods or services. In addition, the guidance requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.reclassify tax effects. The guidance also specifies the accountingis effective for certain costs to obtainfiscal years beginning after December 15, 2018, and fulfill a contract, as codifiedinterim periods within those fiscal years. Early adoption in ASC 340-40 Accounting for Other Assets and Deferred Costs (“ASC 340-40”).
any period is permitted. The Company adopted thisthe guidance during the first quarter of fiscal year 2020. There is no accounting impact on the Company’s consolidated financial statements and related disclosures because the Company does not have stranded tax effects in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act.
In February 2016, the FASB issued ASU 2016-02, Leases(Topic 842), an amendment of the FASB ASC 840. Under Topic 842, lessees are required to recognize a ROU asset and lease liability on the balance sheet for all leases with terms beyond twelve months. The new standard also requires enhanced disclosures that provide more transparent information to financial statement users about lease portfolios. The Company adopted Topic 842 effective October 1, 2018,2019 using the modified retrospective method and has only approach. The Company applied this methodTopic 842 to contracts that were not completedall its leases 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, while2019 with comparative prior period amounts have not been restated and continueperiods continuing to be reported in accordance withunder Topic 840. With the governing revenue recognition standards applicableadoption of Topic 842, the Company assumed the assessment determined under Topic 840 of whether contracts contain leases, the classification of leases as operating or finance and the remaining lease term of each lease. Certain leases contain both lease and non-lease components, which the Company has elected to that period.
The impact of the cumulative effect of adopting ASC 606 effectivetreat as a single lease component. On 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 606,2019, the Company recorded a cumulative effect adjustmentROU asset related to its operating leases of $0.9$28.1 million netand a lease liability related to its operating leases of a tax adjustment of $0.4$27.1 million which resulted in an increaseon its Consolidated Balance Sheets. There was no impact 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,Company’s finance ROU asset and
1311
offset by deferral of previously recognized commission expense within the Brooks Life Sciences segment and acceleration of revenue within the Brooks Semiconductor Solutions Group segment.
A portion of the adjustment related to the acceleration of revenue within the Brooks Semiconductor Solutions Group segment resulted from the change in the revenue recognition rules. Upon the adoption of ASC 606, the Company is no longer required to defer revenue in accordance with billing constraints defined in the contract with the customer. The change impacted the Company’s semiconductor contamination control solutions revenue stream as under ASC 606, the Company recognizes revenue in an amount equivalent to the transfer of control that has occurred. (Please refer to Note 13, “Revenue from Contracts with Customers” for further informationliability 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.2019. The period of benefit associated with registration fees has been determined to be approximately 24 months resulting in the deferral of revenue historically recognized at a point in time over this period. This change resulted in a decrease to accumulated deficit of $3.1 million as of October 1, 2018.
A portion of the adjustment is related to the deferral of previously recognized commission expense within the Brooks Life Science segment. This portion of the adjustment is derived from the new requirement to recognize the cost to obtain certain transactions over time under ASC 340-40, while historically this expense has been recognized at a point in time. The standard requires certain costs incurred to obtain a contract to be recorded as an asset when incurred and expensed as the transfer of control of the underlying performance obligations occur or over the estimated customer life, depending on the nature of the underlying contract. As a result, upon adopting ASC 606, the Company deferred previously recognized costs for contracts not completed as of the effective date. The estimated customer life has been determined to be approximately 60 months resulting in the deferral of costs historically expensed at a point in time over this period. This change resulted in an increase to accumulated deficit of $1.5 million as of October 1, 2018.
Additional changes to the Company’s accumulated deficit were made as the result of adopting ASC 606. These changes, which resulted in a cumulative decrease to accumulated deficit of $0.2 million as of October 1, 2018, were driven by the identification of additional performance obligations as well as changes in the transfer of control of certain performance obligations across both the Brooks Semiconductor Solutions Group and Brooks Life Science segments. The additional changes to the Company’s accumulated deficit included a cumulative decrease to accumulated deficit of $0.2 million from discontinued operations.
As the Company has adopted ASC 606 using the modified retrospective method, the standard requires disclosure of impact from adoption of the standard to each financial statement line item indoes not impact the current reporting period. The impactConsolidated Results of
14
adoption of ASC 606 on the Company’s Operations or Consolidated Statement of Operations and Consolidated Balance sheet was as follows:
| | | | | | | | | |
| | | Three Months Ended June 30, 2019 | ||||||
| | | | | Without adoption of | | Effect of Change | ||
| | As Reported | | ASC 606 | | Higher/(Lower) | |||
| | | | | | | | | |
Revenue | | $ | 203,880 | | $ | 204,738 | | $ | (858) |
Cost of revenue | | | 120,370 | | | 120,838 | | | (468) |
Gross profit | | | 83,510 | | | 83,900 | | | (390) |
Operating expenses | | | 67,087 | | | 66,914 | | | 173 |
Operating income | | $ | 16,423 | | $ | 16,986 | | $ | (563) |
| | | | | | | | | |
| | | | | | | | | |
| | | Nine Months Ended June 30, 2019 | ||||||
| | | | | Without adoption of | | Effect of Change | ||
| | As Reported | | ASC 606 | | Higher/(Lower) | |||
| | | | | | | | | |
Revenue | | $ | 581,637 | | $ | 584,061 | | $ | (2,424) |
Cost of revenue | | | 345,531 | | | 347,009 | | | (1,478) |
Gross profit | | | 236,106 | | | 237,052 | | | (946) |
Operating expenses | | | 200,679 | | | 200,109 | | | 570 |
Operating income | | $ | 35,427 | | $ | 36,943 | | $ | (1,516) |
| | | | | | | | | |
| | | June 30, 2019 | ||||||
| | | | | Without adoption of | | Effect of Change | ||
| | As Reported | | ASC 606 | | Higher/(Lower) | |||
Prepaid expenses and other current assets | | $ | 40,441 | | $ | 36,388 | | $ | 4,053 |
Other assets | | | 21,126 | | | 20,212 | | | 914 |
Deferred revenue | | | 30,598 | | | 28,033 | | | 2,565 |
Accumulated deficit | | | (991,499) | | | (993,901) | | | 2,402 |
The difference between the reported results and the results without the adoption of ASC 606 was primarily driven from the elimination of revenue constraints due to billing limitations that resulted in acceleration of revenue within the Brooks Semiconductor Solutions Group segment and the deferral of fees associated with the registration of biological samples within the Brooks Life Science segment. Amortization of costs to obtain a contract capitalized through the cumulative effect adjustment described above have resulted in additional expense in the current period under ASC 606. Except as disclosed above, the adoption of ASC 606 did not have a significant impact on the Company’s Consolidated Statement of OperationsCash Flows. See Note 9, “Leases” for the three and nine months ended June 30, 2019 and Consolidated Balance Sheet as of June 30, 2019.
further information.
Other
For further information with regard to the Company’s significant accounting policies, please refer to Note 2 "Summary of Significant Accounting Policies" to the Company’s consolidated financial statements included in the 20182019 Annual Report on Form 10-K.
3. Discontinued Operations
On August 27, 2018, the Company entered into a definitive agreement to sell its semiconductor cryogenics business to Edwards Vacuum LLC (a member of the Atlas Copco Group) (“Edwards”) for $675.0 million in cash, subject to adjustments. On July 1, 2019, the Company completed the sale of the semiconductor cryogenics business for $675.0$661.1 million, subject to adjustmentswhich excludes $6.3 million retained by Edwards at closing based on the initial adjustment for working
15
capital and other items. The Company expects net cashworking capital. Net proceeds from the sale to bewere approximately $550$553.1 million, after adjustmentsdeducting estimated taxes payable and deducting taxesclosing costs, which remains subject to adjustment for the final determination of working capital and other items.
The semiconductor cryogenics business consists of the CTI pump business, Polycold chiller business, the related services business and the Company's 50% share in Ulvac Cryogenics, Inc., a joint venture based in Japan. The semiconductor cryogenics business was originally acquired by the Company in its 2005 merger with Helix Technology Corporation. The operating results of the semiconductor cryogenics business had been included in the Brooks Semiconductor Solutions Group segment before the plan of disposition.
In connection with the closing of the Disposition on July 1, 2019, the Company and Edwards entered into a transition service agreement, a supply agreement, and lease agreements. The transition service agreement outlines the information technology, people, and facility support the Company will provide to Edwards for a period up to 9 months after transaction closing date. The supply agreement allows the Company to purchase CTI and Polycold goods at cost from Edwards up to an aggregate amount equal to $1.0 million during the one-year term after closing of the Disposition. The lease agreements provide facility space to Edwards free of charge for three years after the transaction closing date. Edwards will have the option to renew each lease at the then current market rates after the initial three-year lease term has ended. This Disposition is consistent with the Company’s long-standing strategy to increase shareholder value by accelerating the growth of its Life Sciences business with further acquisitions and strengthening its semiconductor automation business with opportunistic acquisitions.
The Disposition met the "held for sale" criteria and the “discontinued operation” criteria in accordance with FASB ASC 205 as of September 30, 2018. As such, its operating results have been reported as a discontinued operation for all periods presented.
The following table presents the financial results of discontinued operations (in thousands):
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | | Nine Months Ended June 30, | | ||||||||
|
| | | 2019 |
| 2018 | | | 2019 |
| 2018 | | ||||
Revenue | | | | | | | |
| | | | | | |
| |
Products | | | | $ | 23,546 | | $ | 38,834 | | | $ | 76,227 | | $ | 114,706 | |
Services | | | | | 10,994 | | | 12,283 | | | | 33,291 | | | 33,448 | |
Total revenue | | | | | 34,540 | | | 51,117 | | | | 109,518 | | | 148,154 | |
Cost of revenue | | | | | | | | | | | | | | | | |
Products | | | | | 15,451 | | | 22,289 | | | | 47,148 | | | 65,436 | |
Services | | | | | 6,288 | | | 6,231 | | | | 19,016 | | | 16,866 | |
Total cost of revenue | | | | | 21,739 | | | 28,520 | | | | 66,164 | | | 82,302 | |
Gross profit | | | | | 12,801 | | | 22,597 | | | | 43,354 | | | 65,852 | |
Operating expenses | | | | | | | | | | | | | | | | |
Research and development | | | | | 2,279 | | | 2,073 | | | | 6,605 | | | 5,483 | |
Selling, general and administrative | | | | | 4,808 | | | 6,392 | | | | 17,005 | | | 16,823 | |
Restructuring charges | | | | | 24 | | | - | | | | 24 | | | 2 | |
Total operating expenses | | | | | 7,111 | | | 8,465 | | | | 23,634 | | | 22,308 | |
Operating income | | | | | 5,690 | | | 14,132 | | | | 19,720 | | | 43,544 | |
Other income, net | | | | | 418 | | | 292 | | | | 985 | | | 819 | |
Income before income taxes and earnings of equity method investment | | | | | 6,108 | | | 14,424 | | | | 20,705 | | | 44,363 | |
Income tax provision (benefit) | | | | | 1,610 | | | (2,040) | | | | 4,850 | | | 12,111 | |
Income before equity in earnings of equity method investment | | | | | 4,498 | | | 16,464 | | | | 15,855 | | | 32,252 | |
Equity in earnings of equity method investment | | | | | 1,835 | | | 1,329 | | | | 4,876 | | | 4,931 | |
Net income | | | | $ | 6,333 | | $ | 17,793 | | | $ | 20,731 | | $ | 37,183 | |
1612
The following table presents the financial results of discontinued operations (in thousands):
| | | | | | | | | |
| | | | | | | | | |
| | | | Three Months Ended December 31, | | ||||
|
| | | 2019 |
| 2018 | | ||
Revenue | | | | | | | |
| |
Products | | | | $ | - | | $ | 28,786 | |
Services | | | | | - | | | 10,538 | |
Total revenue | | | | | - | | | 39,324 | |
Cost of revenue | | | | | | | | | |
Products | | | | | - | | | 16,516 | |
Services | | | | | - | | | 6,049 | |
Total cost of revenue | | | | | - | | | 22,565 | |
Gross profit | | | | | - | | | 16,759 | |
Operating expenses | | | | | | | | | |
Research and development | | | | | - | | | 2,158 | |
Selling, general and administrative | | | | | (257) | | | 7,203 | |
Total operating expenses | | | | | (257) | | | 9,361 | |
Operating income | | | | | 257 | | | 7,398 | |
Other (loss) income, net | | | | | (410) | | | 289 | |
(Loss) income before income taxes and earnings of equity method investment | | | | | (153) | | | 7,687 | |
Income tax provision | | | | | (36) | | | 1,310 | |
(Loss) income before equity in earnings of equity method investment | | | | | (117) | | | 6,377 | |
Equity in earnings of equity method investment | | | | | - | | | 1,772 | |
Net (loss) income | | | | $ | (117) | | $ | 8,149 | |
The table above reflects revenue for the three and nine months ended June 30, 2019December 31, 2018 in accordance with ASC 606, while results for the three and nine months ended June 30, 2018 have not been restated and are reported in accordance with the governing revenue recognition standards applicable to those periods prior to adoption of ASC 606. Results for the three and nine months ended June 30, 2019December 31, 2018 were not significantly impacted by the adoption of ASC 606.
The Company performed its fiscal year 2018 annual goodwill impairment analysis in April 2018. This analysis was updated upon announcement of entering into a definitive agreement for the Disposition for the year ended September 30, 2018. The Company concluded that there was no impairment indicator related to the goodwill of the semiconductor cryogenics business at either date the impairment analysis was performed. The Company did not include goodwill related to the semiconductor cryogenics business in its annual impairment analysis in April 2019, as the Disposition was classified as assets held for sale.
The following table presents the summarized financial information for Ulvac Cryogenics, Inc., the unconsolidated subsidiaries accounted for based on the equity method (in thousands):
| | | | | | | | |
| | | | June 30, | | September 30, | ||
|
| | | 2019 |
| 2018 | ||
Balance Sheets: | | | | |
| | |
|
Current assets | | | | $ | 76,534 | | $ | 69,302 |
Non-current assets | | | | | 22,175 | | | 21,338 |
Current liabilities | | | | | 27,928 | | | 26,006 |
Non-current liabilities | | | | | 9,338 | | | 8,397 |
| | | | | | | | | | | | | | | | | | | | | | | |||
| | | Three Months Ended June 30, | | Nine Months Ended June 30, | | | | | | | Three Months Ended December 31, | | ||||||||||||
|
| | 2019 |
| 2018 | | 2019 |
| 2018 | |
| | |
| 2018 | | |||||||||
Statements of Operations: | | | |
| | |
| | | |
| | |
| | | | | | |
| | |||
Total revenue | | | $ | 23,209 | | $ | 22,272 | | $ | 68,252 | | $ | 68,236 | | | | | | | $ | 22,299 | | |||
Gross profit | | | | 9,905 | | | 7,998 | | | 27,134 | | | 26,209 | | | | | | | | 8,928 | | |||
Operating Income | | | | 5,267 | | | 3,845 | | | 14,476 | | | 14,103 | | | | | | | | 5,124 | | |||
Net income | | | | 3,674 | | | 2,436 | | | 9,777 | | | 9,715 | | | | | | | | 3,496 | |
The following table presents the significant non-cash items and capital expenditures for the discontinued operations that are included in the Consolidated Statements of Cash Flows (in thousands):
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, | | | Nine Months Ended June 30, | | ||||||||
| | | | 2019 | | 2018 | | | 2019 | | 2018 | | ||||
Depreciation and amortization | | | | $ | 4 | | $ | 196 | | | $ | 4 | | $ | 588 | |
Capital expenditures | | | | | 87 | | | 55 | | | | 494 | | | 127 | |
Stock-based compensation | | | | | 215 | | | 238 | | | | 635 | | | 730 | |
Earnings of equity method investment | | | | | (1,835) | | | (1,329) | | | | (4,876) | | | (4,931) | |
The carrying value of the assets and liabilities of the discontinued operations on the Consolidated Balance Sheet as of June 30, 2019 and September 30, 2018 were set forth in the table below (in thousands). Balances as of June 30, 2019 are presented under ASC 606, while balances as of September 30, 2018 have not been restated and are reported in accordance with the governing revenue recognition standards applicable to the period prior to adoption of ASC 606. The carrying value of the assets and liabilities associated with discontinued operations as of June 30, 2019 was not significantly impacted by the adoption of ASC 606:
| | | | | | | | |
| | | | June 30, | | September 30, | ||
| | | | 2019 | | 2018 | ||
Assets | | | | | | | | |
Accounts receivable, net | | | | $ | 22,812 | | $ | 27,852 |
Inventories | | | | | 38,513 | | 37,953 | |
Other current assets | | | | | 340 | | | 343 |
| | | | | | | | | |
| | | | | | | Three Months Ended December 31, | | |
| | | | | | 2018 | | ||
Depreciation and amortization | | | | | | | $ | 2 | |
Capital expenditures | | | | | | | | 308 | |
Stock-based compensation | | | | | | | | 291 | |
Earnings of equity method investment | | | | | | | | (1,772) | |
1713
Total current assets of discontinued operation | | | | $ | 61,665 | | $ | 66,148 |
| | | | | | | | |
Property, plant and equipment, net | | | | $ | 1,320 | | $ | 1,081 |
Goodwill | | | | | 26,484 | | 26,485 | |
Intangibles, net | | | | | 15 | | 14 | |
Equity method investment | | | | | 37,735 | | | 31,472 |
Other assets | | | | | 7 | | | - |
Total long-term assets of discontinued operation | | | | $ | 65,561 | | $ | 59,052 |
| | | | | ||||
Liabilities | | | | |||||
Accounts payable | | | | $ | 8,511 | | $ | 11,149 |
Deferred revenue | | | | | 1,126 | | | 1,052 |
Accrued warranty and retrofit costs | | | | | 2,555 | | | 2,464 |
Other current liabilities | | | | | 549 | | | 3,872 |
Total current liabilities of discontinued operation | | | | $ | 12,741 | | $ | 18,537 |
| | | | | | | | |
Long-term liabilities of discontinued operation | | | | $ | 107 | | $ | 698 |
4. Marketable Securities
The Company invests in marketable securities that are classified as available-for-sale and records them at fair value in the Company’s unaudited Consolidated Balance Sheets. Marketable securities reported as current assets represent investments that mature within one year from the balance sheet date. Long-term marketable securities represent investments with maturity dates greater than one year from the balance sheet date. 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.
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 expenses, net" in the accompanying unaudited Consolidated Statements of Operations. There were no sales of0 marketable securities during the three and nine months ended June 30, 2018. There were no sales of marketable securities during the three months ended June 30,December 31, 2019. During the ninethree months ended June 30, 2019,December 31, 2018, the Company sold marketable securities with a fair value and amortized cost of $49.4 million and $49.5 million, respectively, and recognized net losses of $0.1 million. As a result, during this period, the Company collected cash proceeds of $48.9 million from the sale of marketable securities and reclassified net unrealized holding losses of $0.1 million from accumulated other comprehensive income into "Other“Other expenses, net"net” in the accompanying unaudited Consolidated Statements of Operations as a result of these transactions.
18
The following is a summary of the amortized cost and the fair value, including accrued interest receivable and unrealized holding gains (losses) on the short-term and long-term marketable securities as of June 30,December 31, 2019 and September 30, 20182019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| Gross |
| Gross |
| |
| |
| Gross |
| Gross |
| | ||||||||
| | Amortized | | Unrealized | | Unrealized | | | | Amortized | | Unrealized | | Unrealized | | | ||||||||
| | Cost | | Losses | | Gains | | Fair Value | | Cost | | Losses | | Gains | | Fair Value | ||||||||
June 30, 2019: |
| |
|
| |
|
| |
|
| |
| ||||||||||||
Bank certificates of deposits | | $ | 2 | | $ | — | | $ | — | | $ | 2 | ||||||||||||
Corporate securities | | | 2,874 | | | — | | | — | | | 2,874 | ||||||||||||
Other debt securities |
| | 33 | | | | | | |
| | 33 | ||||||||||||
| | $ | 2,909 | | $ | — | | $ | — | | $ | 2,909 | ||||||||||||
September 30, 2018: | |
|
| |
|
| |
|
| |
|
| ||||||||||||
December 31, 2019: |
| |
|
| |
|
| |
|
| |
| ||||||||||||
U.S. Treasury securities and obligations of U.S. government agencies | | $ | 30,142 |
| $ | (65) |
| $ | — |
| $ | 30,077 |
| $ | 6,696 | | $ | — | | $ | 1 |
| $ | 6,697 |
Bank certificates of deposits | | | 5,148 | | | — | | | 1 | | | 5,149 | | | 500 | | | — | | | — | | | 500 |
Corporate securities | | | 14,763 | | | (30) | | | — | | | 14,733 | | | 4,519 | | | — | | | — | | | 4,519 |
Municipal securities | |
| 2,797 |
| | (17) |
| | — |
| | 2,780 |
| | 2,515 | | | — | | | — |
| | 2,515 |
Other debt securities | |
| 779 |
| | — |
| | — |
| | 779 |
| | 41 | | | — | | | — |
| | 41 |
| | $ | 53,629 | | $ | (112) | | $ | 1 | | $ | 53,518 | | $ | 14,271 | | $ | — | | $ | 1 | | $ | 14,272 |
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 |
14
The fair values of the marketable securities by contractual maturities at June 30,December 31, 2019 are presented below (in thousands):
|
|
|
|
|
| ||
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
|
|
|
|
| | | |
|
| Fair Value | |
Due in one year or less | | $ | 11,233 |
Due after one year through five years | |
| — |
Due after five years through ten years | | | — |
Due after ten years | |
| 3,039 |
Total marketable securities | | $ | 14,272 |
Expected maturities could differ from contractual maturities because the security issuers may have the right to prepay obligations without prepayment penalties.
The Company reviews the marketable securities for impairment at each reporting period to determine if any of the securities have experienced an other-than-temporary decline in fair value. The Company considers factors, such as the length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issuer, the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of its amortized cost basis. If the Company believes that an other-than-temporary decline in fair value has occurred, it writes down the investment to its fair value and recognizes the credit loss in earnings and the non-credit loss in accumulated other comprehensive income or loss. There were no0 securities in an unrealized loss position as of June 30,December 31, 2019. The aggregate fair value of the marketable securities in an unrealized loss position was $43.0$12.0 million as of September 30, 2018.2019. Aggregate unrealized losses for these securities were insignificant as of September 30, 20182019 and are presented in the table above. As of September 30, 2018, marketable securities in an unrealized loss position were comprised primarily of U.S. Treasury securities, corporate securities, and municipal securities. The securities in an unrealized loss position as of September 30, 20182019 were not considered other-than-temporarily impaired and, as such, the Company did not recognize impairment losses during the period then ended. The unrealized losses were attributable to changes in interest rates that impacted the value of the investments.
Cash equivalents of less than $0.1$6.2 million and $50.6 million, respectively, at June 30, 2019 and September 30, 20182019 consist of money market funds and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. Cash equivalents of $37.2 million and $10.0 million, respectively, as of December 31, and September 30, 2019 consist primarily of treasury bills and agency bonds and are classified within Level 2 of the fair value hierarchy because they are not actively traded. Cash equivalents from level 1 and level 2 are recorded in “Cash and cash equivalents” within the accompanying unaudited Consolidated Balance Sheet.
19
5. Acquisitions
Acquisition Completed in Fiscal Year 2019
Acquisition of the GENEWIZ Group
On November 15, 2018, the Company acquired all the outstanding capital stock of GENEWIZ Group (“GENEWIZ”), a leading global genomics service provider headquartered in South Plainfield, New Jersey. GENEWIZ provides genomics services that enable research scientists to advance their discoveries within the pharmaceutical, academic, biotechnology, agriculture and other 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 expects to leverage, along with itsCompany’s core capabilities, to addand added even more value to samples that are under the Company’s care.
The total cash purchase price for the acquisition was $442.7 million, net of cash acquired, which included a working capital settlement of $0.4 million. The Company used the proceeds of the incremental term loan described in Note 8, “Debt” to pay a portion of the purchase price.
15
On the acquisition date, the Company paid $32.3 million to escrow accounts related to the satisfaction of the seller's indemnification obligations with respect to their representations and warranties and other indemnities. The Company also retained an amount equal to $1.5 million as collateral for any adjustment shortfall based on the final merger consideration calculation. During the three months ended March 31,fiscal year 2019, the final merger consideration was calculated to be $4.0 million less than the merger consideration paid at 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, and collected $1.8 million from the escrow accounts.
The Company recorded the assets acquired and liabilities assumed related to GENEWIZ at their fair values as of the acquisition date, from a market participant’s perspective. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement. 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 estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The finalization of the assignment of fair values will be
20
completed within one year after the acquisition date. The following table presents the net purchase price and the fair values of the assets and liabilities of GENEWIZ on a preliminary basis (in thousands):
| | | | | | |
|
| Fair Value of |
| Fair Value of | ||
| | Assets and | | Assets and | ||
| | Liabilities | | Liabilities | ||
Accounts receivable, net | | $ | 26,952 | |||
Accounts receivable (approximates contractual value) | | $ | 28,566 | |||
Inventories | |
| 4,370 | |
| 4,370 |
Prepaid expenses and other current assets | | | 11,635 | | | 11,635 |
Property, plant and equipment, net | |
| 36,379 | |||
Property, plant and equipment | |
| 36,379 | |||
Goodwill | |
| 236,015 | |
| 235,160 |
Intangible assets, net | |
| 189,129 | |||
Intangible assets | |
| 189,129 | |||
Other assets | | | 15,998 | | | 15,998 |
Current portion of long-term debt | |
| (3,170) | |
| (3,170) |
Accounts payable | |
| (6,522) | |
| (6,522) |
Deferred revenue | |
| (67) | |
| (67) |
Accrued compensation and benefits | | | (5,144) | | | (5,145) |
Other current liabilities | |
| (7,411) | |
| (10,073) |
Long-term debt | | | (2,482) | | | (2,482) |
Long-term tax reserves | | | (13,400) | | | (13,400) |
Long-term deferred tax liabilities | | | (36,897) | | | (34,993) |
Other long-term liabilities | | | (2,681) | | | (2,681) |
Total purchase price, net of cash acquired | | $ | 442,704 | | $ | 442,704 |
The Company applied variations of the income approach to estimate the fair values of the intangiblesintangible 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 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 $236.0$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 adjustment was recorded related to the working capital settlement which increased goodwill. During the three months ended June 30, 2019, the Company recorded measurement period adjustments which resulted in a net decrease to goodwill of $0.8 million. These adjustments included a $0.6 million increase to intangible assets which decreased goodwill, a $0.5 million decrease to tax related liabilities which decreased goodwill, partially offset by a $0.3 million decrease to an indemnification asset which increased goodwill and a $0.1 million increase for an asset retirement obligation which increased goodwill.
During the three months ended March 31, 2019, the Company made a measurement period adjustment in the amount of $0.7 million to Prepaid expenses and other current assets and $0.7 million to Accrued expenses and other current liabilities. The adjustment had no impact on goodwill.
The revenues and net income from GENEWIZ recognized in the Company's consolidated results of operations were $37.1$40.0 million and $2.4$0.8 million, respectively for the three months ended June 30,December 31, 2019. The revenues and net income from GENEWIZ recognized in the Company’s consolidated results of operations were $86.3$16.4 million and $3.0$0.9 million, respectively forduring the reporting period since acquisition.from the acquisition date to December 31, 2018. During the three months ended June 30,December 31, 2019, and the comparable reporting period since acquisition in fiscal year 2019, net income included $3.3$5.1 million and $8.2$1.6 million, respectively, related to amortization expense of acquired intangible assets. TheDuring the three months ended December 31, 2019 and 2018, the Company incurred $3.8less than $0.1 million in transaction costs with respect to the GENEWIZand $6.3 million, respectively,
2116
acquisition during fiscal year 2018. During the three and nine months ended June 30, 2019, the Company incurred $0.1 million and $6.4 million, respectively, in transaction costs, which were recorded 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). The pro forma amounts in below table were adjusted to reflect a correction made during the 2019 fiscal year, see the 2019 Annual Report on Form 10-K Note 4, “Acquisitions” for further information.
| | | | | | | | | | | | | |||
| Three Months Ended June 30, | | Nine Months Ended June 30, | | | | | ||||||||
| 2019 | | 2018 | | 2019 | | 2018 | | | Three Months Ended December 31, 2018 | | ||||
| (actual) | | (pro forma) | | (pro forma) | | (pro forma) | | |||||||
| | | | | | | | | | | | | | | |
Revenue | $ | 203,880 | | $ | 204,450 | | $ | 598,291 | | $ | 561,397 | | $ | 196,021 | |
Net income (loss) | | 921 | | | 2,973 | | | (37,233) | | | 53,318 | | |||
Net income from continuing operations | | 6,795 | |
The unaudited pro forma financial information presented in the table above has been adjusted to give effect toincludes adjustments that are (1) directly related to the acquisition; (2) factually supportable; and (3) expect to have a continuing impact. These adjustments include, but are not limited to,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 transaction costs, 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 three months and the nine months ended June 30,December 31, 2018 havehas been adjusted to include the following additional expenses related to the acquisition: $3.1$1.6 million and $9.6 million, respectively, of depreciation and amortization related to the fair value step up of property, plant, and equipment, and leases, and recording of intangible assets,asset step-up depreciation and $4.9amortization expense, $2.0 million and $14.5 million, respectively, of interest expense related to financing activities. Revenueactivities and net income (loss) for the three months ended June 30, 2019, as shown in the above table represents actual results as the Company owned GENEWIZ for the full period. The unaudited pro forma information for the nine months ended June 30, 2019 consists of GENEWIZ actual results of operations for the second$42.1 million non-recurring compensation expenses and third quarter of fiscal year 2019 and GENEWIZ pro forma results of operations for the three months ended December 31, 2018. The unaudited pro forma earnings for the three months ended December 31, 2018 have been adjusted to include $1.6 million of depreciation and amortization related to the fair value step up of property, plant, and equipment and leases, and recording of intangible assets, and $2.0 million of interest expense related to financing activities. The net loss of $37.2 million for the nine months ended June 30, 2019 is mainly due to net loss of $38.2 million for the six months ended March 31, 2019.
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. During 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 $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.
22
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 to estimate the fair values of the intangibles assets acquired. The identifiable intangible assets include completed technology (excess earnings method) of $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 (distributor method) of $0.7 million with a useful life of 9 years. The intangible assets acquired are amortized over the total weighted average period of 8.6 years using methods that approximate the pattern in which the economic benefits are expected to be realized.
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 starting from the acquisition date. The revenues and net income from Tec-Sem included in the Company's consolidated results for the three months ended June 30, 2019 were $12.0 million and $4.4 million, respectively. The revenues and net income from Tec-Sem included in the Company's consolidated results for the nine months ended June 30, 2019 were $27.1 million and $7.0 million, respectively. During the three months ended June 30, 2019, the net income included $0.5 million related to amortization expense of acquired intangible assets. During the nine months ended June 30, 2019, the net income included $0.2 million related to the step-up in value of the acquired inventories and $2.2 million related to amortization expense of acquired intangible assets.
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. The Company collected $0.4 million from the escrow related to the delivery of the technology during the second quarter of fiscal year 2019.
The Company did not present a pro forma information summary for its consolidated results of operations for the three and nine months ended June 30, 2019 and 2018 as if the acquisition of Tec-Sem occurred on October 1, 2016 because such results were immaterial.
23
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 intangibles 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 closing of the acquisition of 4titude, a cash payment of $0.4 million was placed into escrow which was ascribed to the purchase price. The escrow was related to potential working capital adjustments and the sellers’ satisfaction of general representations and warranties.
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 from the date of the acquisition. During the three months ended June 30, 2019, revenue and net income from 4titude recognized in the Company’s results of operations were $3.8 million and $0.2 million, respectively. During the nine months ended June 30, 2019, revenue and net loss from 4titude recognized in the Company’s results of operations were $12.4 million and $0.6 million, respectively. During the three and nine months ended June 30, 2019, the net income or loss included recurring charges of $0.9 million and $2.8 million, respectively, related to amortization expense of acquired intangible assets.
The Company did not present a pro forma information summary for its consolidated results of operations for the three and nine months ended June 30, 2019 and 2018 as if the acquisition of 4titude occurred on October 1, 2016 because such results were immaterial.
24
Other
On April 20, 2018, the Company acquired BioSpeciMan Corporation (“BioSpeciMan”), a Canadian 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 lab 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 the fair value of the assets and liabilities acquired as of the acquisition date, 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 held back for potential working capital adjustments and the sellers' satisfaction of general representations and warranties. These holdback payments were ascribed to the purchase price.
The operating results of the acquisition have been reflected in the results of operations for the Brooks Life Sciences segment from the date of the acquisition. The Company did not present a pro forma information summary for its consolidated results of operations for the three and nine months ended June 30, 2019 and 2018 as if the acquisition of BioSpeciMan occurred on October 1, 2016 because such results were immaterial.
6. 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. If events occur or circumstances change that would more likely than not reduce fair values of the reporting units below their carrying values, goodwill will be evaluated for impairment between annual tests. No triggering events indicating goodwill impairment occurred during the ninethree months ended June 30,December 31, 2019.
The Company performs its annual goodwill impairment assessment on April 1st of each fiscal year. In accordance with ASC 350, Intangibles-Goodwill Please refer to Note 7, "Goodwill and Other, the Company initially assesses 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 carrying value. If the Company determines, based on this assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying value, 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 the amount by which the reporting unit’s carrying value exceeds its fair value, upIntangible Assets" to the total amount of goodwill allocated to the reporting unit. No impairment loss is recognized if the fair value of the reporting exceeds its carrying value.
As of June 30, 2019, the Company completed the annual goodwill impairment test for its five 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. The Company conducted a qualitative assessment for three reporting units within the Brooks Semiconductor Solutions Group segment and determined that it was more likely than not that their fair values were more than their carrying values. As a result of the analysis, the Company did not perform the quantitative assessment for these reporting units, and did not perform a quantitative analysis and, therefore, did not recognize any impairment losses. The Company performed the quantitative goodwill impairment test for the two reporting units within the Brooks Life Sciences segment. The Company determined that no adjustment to goodwill was necessary for these two reporting units. TheCompany's consolidated financial statements included in
2517
Sample Management reporting unit’s fair value significantly exceeded book value. The GENEWIZ reporting unit, which was recently acquired, had a fair value slightly above its book value.the 2019 Annual Report on Form 10-K for further information on the goodwill impairment testing performed during fiscal year 2019.
The changes in the Company’s goodwill by operatingreportable segment since September 30, 20182019 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Brooks |
| | |
| | |
| | |
| Brooks |
| | |
| | |
| | | ||
| | Semiconductor | | | | | | | | | | Semiconductor | | | | | | | | | ||||
| | Solutions | | Brooks | | | | | | | | Solutions | | Brooks | | | | | | | ||||
| | Group | | Life Sciences | | Other | | Total | | Group | | Life Sciences | | Other | | Total | ||||||||
Gross goodwill, at September 30, 2018 | | $ | 636,907 | | $ | 207,913 | | $ | 26,014 | | $ | 870,834 | ||||||||||||
Gross goodwill, at September 30, 2019 | | $ | 636,791 | | $ | 440,755 | | $ | 26,014 | | $ | 1,103,560 | ||||||||||||
Accumulated goodwill impairments | |
| (588,944) | |
| — | |
| (26,014) | |
| (614,958) | |
| (588,944) | |
| — | |
| (26,014) | |
| (614,958) |
Goodwill, net of accumulated impairments, at September 30, 2018 | |
| 47,963 | |
| 207,913 | |
| — | |
| 255,876 | ||||||||||||
Goodwill, net of accumulated impairments, at September 30, 2019 | |
| 47,847 | |
| 440,755 | |
| — | |
| 488,602 | ||||||||||||
Acquisitions and adjustments | |
| — | |
| 234,669 | |
| — | |
| 234,669 | |
| 35 | |
| 1,733 | |
| — | |
| 1,768 |
Gross goodwill, at June 30, 2019 | | | 636,907 | | | 442,582 | | | 26,014 | | | 1,105,503 | ||||||||||||
Gross goodwill, at December 31, 2019 | | | 636,826 | | | 442,488 | | | 26,014 | | | 1,105,328 | ||||||||||||
Accumulated goodwill impairments | |
| (588,944) | |
| — | |
| (26,014) | |
| (614,958) | |
| (588,944) | |
| — | |
| (26,014) | |
| (614,958) |
Goodwill, net of accumulated impairments, at June 30, 2019 | | $ | 47,963 | | $ | 442,582 | | $ | — | | $ | 490,545 | ||||||||||||
Goodwill, net of accumulated impairments, at December 31, 2019 | | $ | 47,882 | | $ | 442,488 | | $ | — | | $ | 490,370 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
During the ninethree months ended June 30,December 31, 2019, the Company recorded a goodwill increase of $234.7$1.8 million primarily related to the acquisition of GENEWIZ, partially offset by the impact of foreign currency translation adjustments. Please refer to Note 5 "Acquisitions" for further information on this transaction.
The components of the Company’s identifiable intangible assets as of June 30,December 31, 2019 and September 30, 20182019 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | | September 30, 2018 | | December 31, 2019 | | September 30, 2019 | ||||||||||||||||||||||||||||
| | | | Accumulated | | Net Book | | | | Accumulated | | Net Book | | | | Accumulated | | Net Book | | | | Accumulated | | Net Book | ||||||||||||
|
| Cost |
| Amortization |
| Value |
| Cost |
| Amortization |
| Value |
| Cost |
| Amortization |
| Value |
| Cost |
| Amortization |
| Value | ||||||||||||
Patents | | $ | 5,302 | | $ | 4,553 | | $ | 749 | | $ | 5,302 | | $ | 4,325 | | $ | 977 | | $ | 5,302 | | $ | 4,702 | | $ | 600 | | $ | 5,302 | | $ | 4,628 | | $ | 674 |
Completed technology | |
| 88,921 | |
| 36,222 | |
| 52,699 | |
| 44,829 | |
| 28,934 | |
| 15,895 | |
| 88,819 | |
| 41,548 | |
| 47,271 | |
| 88,288 | |
| 38,778 | |
| 49,510 |
Trademarks and trade names | |
| 25,490 | |
| 5,035 | |
| 20,455 | |
| 6,298 | |
| 2,953 | |
| 3,345 | |
| 25,424 | |
| 6,689 | |
| 18,735 | |
| 25,340 | |
| 5,807 | |
| 19,533 |
Customer relationships | |
| 267,225 | |
| 79,002 | |
| 188,223 | |
| 142,489 | |
| 62,750 | |
| 79,739 | |
| 267,087 | |
| 91,474 | |
| 175,613 | |
| 265,450 | |
| 84,047 | |
| 181,403 |
Other intangibles | | | 239 | | | 170 | | | 69 | | | — | | | — | | | — | | | 233 | | | 204 | | | 29 | | | 231 | | | 183 | | | 48 |
| | $ | 387,177 | | $ | 124,982 | | $ | 262,195 | | $ | 198,918 | | $ | 98,962 | | $ | 99,956 | | $ | 386,865 | | $ | 144,617 | | $ | 242,248 | | $ | 384,611 | | $ | 133,443 | | $ | 251,168 |
Amortization expense for intangible assets was $26.2$10.6 million and $17.7$7.8 million, respectively, during the ninethree months ended June 30,December 31, 2019 and 2018.
Estimated future amortization expense for the intangible assets for the remainder of fiscal year 2019,2020, the subsequent four fiscal years and thereafter is as follows (in thousands):
| | | | | | |
Fiscal year ended September 30, |
| |
|
| |
|
2019 | | $ | 9,025 | |||
2020 | |
| 41,365 | | $ | 30,729 |
2021 | |
| 37,494 | |
| 37,494 |
2022 | |
| 34,390 | |
| 34,390 |
2023 | |
| 31,267 | |
| 31,267 |
2024 | |
| 26,500 | |||
Thereafter | |
| 108,654 | |
| 81,868 |
| | $ | 262,195 | | $ | 242,248 |
2618
7. Line of Credit
The Company maintains a revolving line of credit under a credit agreement with Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A. that provides for revolving credit facility of up to $75.0 million, subject to borrowing base availability, as defined in the credit agreement. The line of credit matures on October 4, 2022 and expires no less than 90 days prior to the term loan expiration. The proceeds from the line of credit are available for permitted acquisitions and general corporate purposes.
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 credit agreement for the term loan discussed in Note 8, “Debt” below, the Company amended certain terms and conditions of the credit agreement. Based on the amended terms of the credit agreement, the line of credit continues to provide for a revolving credit facility of up to $75.0 million, subject to borrowing base availability. Borrowing base availability under the amended credit agreement excludes collateral related to fixed assets and is redetermined periodically based on certain percentage of certain eligible U.S. assets, including accounts receivable and inventory. The sub-limits for letters of credit were reduced to $7.5 million under the amended terms of the credit agreement. All outstanding borrowings under the credit agreement are guaranteed by the Company and Brooks Life Sciences, Inc. (fka BioStorage Technologies, Inc.), the Company’s wholly-owned subsidiary (“Biostorage”guarantor”), and subordinated to the obligations under the term loan which are secured by a first priority lien on substantially all of the assets of the Company and Biostorage,the guarantor, other than accounts receivable and inventory. Please refer to Note 8, “Debt”, for further information on the term loan transaction.
As of June 30,December 31, 2019, the Company had approximately $48.7$43.6 million available for borrowing under the line of credit. There were no0 amounts outstanding under the line of credit as of June 30,December 31, 2019 and September 30, 2018.2019. The Company records commitment fees and other costs directly associated with obtaining line of credit facility as deferred financing costs which are presented within "Other assets" in the accompanying unaudited Consolidated Balance Sheets. Deferred financing costs were $0.4$0.3 million and $0.5$0.4 million, respectively, at June 30,December 31, 2019 and September 30, 2018.2019. Such costs are amortized over the term of the related facility arrangement and are included in “Interest expense” in the accompanying unaudited Consolidated Statements of Operations. The line of credit contains certain customary representations and warranties, a financial covenant and affirmative and negative covenants as well as events of default. The Company was in compliance with the line of credit covenants as of June 30,December 31, 2019 and September 30, 2018.2019.
8. 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.
On November 15, 2018, the Company entered into an incremental amendment (the “Amendment”“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. The loan principal amount under the credit agreement may be increased by an aggregate amount equal to $75.0 million plus any voluntary repayments of the term loans plus any additional amount such that the secured leverage ratio of the Company is less than 3.00 to 1.00.
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 a loss on debt extinguishment for $9.1 million. The syndicated incremental term loan was issued at $345.2 million, or 98.9% of
19
its par value resulting in a discount of $4.0 million which represented financing costs which are presented as
27
a reduction of the incremental 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 forwith 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.
UnderOn July 1, 2019, the termsCompany completed the sale of its semiconductor cryogenics business and used $348.3 million of the Amendment,proceeds from the Company was entitledDisposition to elect thatextinguish the borrowings comprising the incremental term loan bear interest at a rate per annum equal to (a) the Alternate Base Rate (the “ABR”) plus 1.50%; or (b) the Adjusted LIBOR plus 2.50%. ABR is equal to the highest of (a) the federal funds effective rate plus 0.50%, (b) the prime rate, or (c) one-month LIBOR rate plus 1.00%. The LIBOR was equal to the rate for Eurodollar deposits in the London interbank market for a period of one, two, three or six months, in each case selected by the Company. “Adjusted LIBOR” was the LIBOR as adjusted for statutory reserve requirements for Eurodollar liabilities. On February 15, 2019, in connection with the syndicationoutstanding balance of the incremental term loan,loan. In addition, the Company entered intoused $147.0 million of the proceeds from the Disposition to extinguish a second amendment (the “Second Amendment”) toportion of the existing credit agreement. Underoutstanding balance of the Second Amendment, the interest rate increased by 0.5%.term loan. The Company was entitled to elect thatrecorded a loss on debt extinguishment of $5.2 million for the borrowings comprising the incremental2 term loan bear interest at a rate per annum equal to (a) the ABR plus 2.00%; or (b) the Adjusted LIBOR plus 3.00%.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 term loan matures and becomes fully payable on October 4, 2024. The principal is payable in installmentsamount under the credit agreement may be increased by an aggregate amount equal to 0.25% of the initial principal amount$75.0 million plus any voluntary repayments of the term loans on March 31st, June 30th, September 30th and December 31stplus any additional amount such that the secured leverage ratio of each year, commencing on March 31, 2018, with any remaining amount of principal becoming due and payable on the maturity date. All accrued and unpaid interest on the term loan shall be due on the last day of each interest period elected by the Company for such borrowings, except for interest periods of moreis less than three months in which case all accrued and unpaid interest shall be due and payable every three months.3.00 to 1.00.
Subject to certain conditions stated in the credit 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 redeem the term loan at the principal amount then outstanding upon occurrence of certain events, including (i) net proceeds received from the sale or other disposition of the Company’s or the guarantor’sguarantor’ 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 debt 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 in the credit 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 are included in “Interest expense” in the accompanying unaudited Consolidated Statements of Operations. At June 30,December 31, 2019, deferred financing costs were $5.8$0.5 million.
The credit agreement contains certain customary representations and warranties, covenants and events of 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 will bear an annual interest rate at 2.00% above the rate otherwise applicable under the terms and conditions of such agreement. The credit agreement does not contain financial maintenance covenants. As of June 30,December 31, 2019, the Company was in compliance with all covenants and conditions under the credit agreement.
On July 1,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 December 31, 2019, the Company had an aggregate outstanding principal balance of $1.2 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, 2019.
During the three months ended December 31, 2019, the weighted average stated interest rate paid on all outstanding debt was 4.5%. During the three months ended December 31, 2019, the Company incurred aggregate interest expense of $0.6 million in connection with the completionborrowings, including less than $0.1 million of deferred financing costs amortization.
20
The following are the future minimum principal payment obligations under all of the saleCompany’s outstanding debt as of its semiconductor cryogenics business to Edwards, the Company used $348.3 million of the cash proceeds from the sale to extinguish the total remaining outstanding balance of the incremental term loan and $147.0 million of the cash proceeds from the sale to extinguish a portion of the outstanding balance of the term loan. The total amount of debt extinguished on July 1,December 31, 2019 was $495.3 million. Please refer to Note 17, “Subsequent Events”.(in thousands):
| | | |
|
| Amount | |
Fiscal year ended September 30, | | | |
2020 | | $ | 827 |
2021 | | | 414 |
2022 | | | — |
2023 | | | — |
2024 | | | — |
Thereafter | | | 50,000 |
Total outstanding principal balance | | | 51,241 |
Unamortized deferred financing costs | | | (496) |
| | | 50,745 |
Current portion of long-term debt | | | 827 |
Non-current portion of long-term debt | | $ | 49,918 |
2821
In connection with the GENEWIZ acquisition, the9. Leases
The Company assumed three five-year term loanshas operating leases for a total of $3.3 millionreal estate and two one-year short term loansnon-real estate and finance leases for a total of $3.2 million. The three five-year term loans were initiated during 2016non-real estate in North America, Europe, and mature in 2021. The principal paymentsAsia. Non-real estate leases are payable in eight installments equal to 12.5% of the initial principal amount of the term loans on December 14th and June 14th of each year. The three five-year term loans were secured by GENEWIZ to fund equipment payments and the interest rates are equal to the LIBOR plus 3.1%. The two 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 two loans were 4.56% and 4.35%. There are no deferred financing costsprimarily related to either the five-year term loans or the one-year term loans. At June 30, 2019, the Company had an aggregate outstanding principal balance of $1.7 million for the three five-year term loans. Both of the two one-year short term loans maturedvehicles and were repaid in full as of June 30, 2019.
During the nine months ended June 30, 2019, the weighted average stated interest rate paid on all outstanding debt was 5.4%. During the nine months ended June 30, 2019, the Company incurred aggregate interest expense of $21.3 million in connection with the borrowings, including $1.3 million of deferred financing costs amortization.
As of June 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 was determined based on observable market inputsoffice equipment. Lease expiration dates range between 2020 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.2039.
The following are the future minimum principal payment obligations under allcomponents of the Company’s outstanding debtoperating lease expense were as of June 30, 2019 (in thousands):
| | | |
|
| Amount | |
Fiscal year ended September 30, | | | |
2019 | | $ | 1,375 |
2020 | | | 6,328 |
2021 | | | 6,327 |
2022 | | | 5,500 |
2023 | | | 5,500 |
Thereafter | | | 521,875 |
Total outstanding principal balance | | | 546,905 |
Unamortized deferred financing costs | | | (5,831) |
| | | 541,074 |
Current portion of long-term debt | | | 6,326 |
Non-current portion of long-term debt | | $ | 534,748 |
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 June 30, 2019follows (in thousands):
| | | |
|
| Amount | |
Fiscal year ended September 30, | | | |
2019 | | $ | 314 |
2020 | | | 1,176 |
2021 | | | 1,126 |
2022 | | | 358 |
Total outstanding principal balance | | $ | 2,974 |
| | |
| Three Months Ended December 31, 2019 | |
| | |
Operating lease costs | $ | 2,122 |
Finance lease costs: | | |
Amortization of assets | | 311 |
Interest on lease liabilities | | 29 |
Total finance lease costs | | 340 |
Variable lease costs | | 406 |
Short-term lease costs | | 164 |
Total lease costs | $ | 3,032 |
Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):
| | | |
| As of December 31, 2019 | | |
Operating Leases: | | | |
Operating lease right-of-use assets | $ | 27,439 | |
| | | |
Accrued expenses and other current liabilities | $ | 6,177 | |
Long-term operating lease liabilities | | 20,526 | |
Total operating lease liabilities | $ | 26,703 | |
| | | |
Finance Leases: | | | |
Property, plant and equipment, at cost | $ | 2,540 | |
Accumulated amortization | | (311) | |
Property, plant and equipment, net | $ | 2,229 | |
| | | |
Accrued expenses and other current liabilities | $ | 1,195 | |
Other long-term liabilities | | 1,175 | |
Total finance lease liabilities | $ | 2,370 | |
| | | |
Weighted average remaining lease term (in years): | | | |
Operating leases | | 2.02 | |
Finance leases | | 7.98 | |
| | | |
Weighted average discount rate: | | | |
Operating leases | | 4.7 | % |
Finance leases | | 4.1 | % |
Supplemental cash flow information related to operating leases was as follows (in thousands, unaudited):
| | |
| Three Months Ended December 31, 2019 | |
Cash paid for amounts included in measurement of liabilities: | | |
Operating cash flows from operating leases | $ | 1,807 |
Operating cash flows from finance leases | | 29 |
Financing cash flows from finance leases | | 290 |
2922
9.
Future lease payments for operating and capital leases as of September 30, 2019 were as follows (in thousands):
| | | | | |
| Operating Leases | | Capital Leases | ||
Fiscal year ended September 30, | | | | | |
2020 | $ | 6,794 | | $ | 1,276 |
2021 | | 5,520 | | | 1,171 |
2022 | | 3,904 | | | 363 |
2023 | | 3,110 | | | - |
2024 | | 2,934 | | | - |
Thereafter | | 10,499 | | | - |
Total future lease payments | | 32,761 | | | 2,810 |
Less imputed interest | | (5,685) | | | (150) |
Total lease liability balance | $ | 27,076 | | $ | 2,660 |
Future lease payments for operating and finance leases as of December 31, 2019 were as follows (in thousands):
| | | | | |
| Operating Leases | | Finance Leases | ||
Fiscal year ended September 30, | | | | | |
2020 | $ | 5,539 | | $ | 957 |
2021 | | 5,827 | | | 1,171 |
2022 | | 4,182 | | | 363 |
2023 | | 3,151 | | | - |
2024 | | 2,941 | | | - |
Thereafter | | 10,506 | | | - |
Total future lease payments | | 32,146 | | | 2,491 |
Less imputed interest | | (5,443) | | | (121) |
Total lease liability balance | $ | 26,703 | | $ | 2,370 |
As of December 31, 2019, the Company has entered into leases that have not commenced with future lease payments of $8.2 million, excluding purchase options. These leases are not recorded on the Consolidated Balance Sheets. Lease commencement dates for these leases range between 2020 and 2030.
10. Income Taxes
The Company recorded an income tax expensebenefit of $7.3$3.0 million and $0.4 million, respectively, during the three and nine months ended June 30, 2019. The tax expense for the three months ended June 30, 2019December 31, 2019. The tax benefit was primarily driven by a $4.3$5.8 million discrete expense resulting from guidance provided with final U.S. tax regulations issued during the quarter related to the transition tax, and tax provision on current earnings based on estimated annual mix of income by jurisdiction. These expenses were partially offset by a discrete benefit for stock compensation windfalls of $0.4 millionwindfall benefit for tax deductions that exceeded the associated compensation expense, and a $0.3$0.5 million reversalreduction in deferred tax liabilities related to the extension of a tax rate incentive in China. These discrete benefits were partially offset by the tax provision on earnings from operations during the period.
The Company recorded an unrecognizedincome tax benefit uponof $5.8 million, during the closing of an audit.three months ended December 31, 2018. The tax expense for the nine months ended June 30, 2019benefit was primarily driven by a $3.2$3.7 million expense related to the completion of the accountingdiscrete benefit for the U.S. transition tax and the tax provision on current earnings based on estimated annual mix of income by jurisdiction. These expenses were partially offset by discrete benefits related to stock compensation windfalls, of $4.5 million for tax deductions that exceeded the associated compensation expense, and $1.4 million of tax benefits related to the remeasurement of net U.S. deferred tax assets due to state tax rate changes.
The Company recorded an incomechanges, and a $1.1 million transition tax provision of $5.4 million and benefit of $49.8 million, respectively, during the three and nine months ended June 30, 2018. The tax provision for the three months ended June 30, 2018 was the result of the Company’s earnings for the period. The tax benefit recorded during the nine months ended June 30, 2018 was primarily driven by a discrete benefit due to the reversal of a valuation allowance against U.S. net deferred tax assets in the amount of $56.3 million. The tax benefit for the nine months ended June 30, 2018 also included $0.7 million of tax benefits related to the re-measurement of net U.S. deferred tax liabilities to account for the reduced 21 percent statutory federal income tax rate.reduction. These discrete tax benefits for the nine months ended June 30, 2018 were partiallyslightly offset by the tax provision related to foreign income.on earnings from operations during the period.
During 2018, the Internal Revenue Service issued proposed regulations on the federal toll charge and various other aspects of the Tax Cuts and Jobs Act. The Company finalized its analysis of the toll charge and related liabilities, including uncertain tax positions, during the three months ended December 31, 2018 pursuant to U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 118. As a result of the new guidance issued and additional work to complete the calculation of its federal toll charge, the Company reduced its provisional accrual for federal, state and foreign taxes by net $1.1 million during the three months ended December 31, 2018. During the three months ended June 30, 2019, final U.S. tax regulations were issued that resulted in a $4.3 million increase to the previously calculated transition tax. In addition, the Company also assessed its uncertain tax positions related to these taxes and accrued income and determined no tax reserves were required.
23
The Company evaluates the realizability of its deferred tax assets by tax-paying component and assesses the need for a valuation allowance on a quarterly basis. The Company evaluates the profitability of each tax-paying component on a historic cumulative basis and a forward-looking basis while performing this analysis. The Company evaluated all positive and negative evidence in concluding it was appropriate to release the majority of the valuation allowance against U.S. net deferred tax assets during fiscal year 2018. The Company maintains a U.S. valuation allowance related to the realizability of othercertain state tax credits and net operating loss carry-forwards. The Company continues to maintaincarry-forwards, as well as a valuation allowancesallowance against net deferred tax assets in certain foreign tax-paying components as of June 30,December 31, 2019. On July 1, 2019, the Company completed the sale of its semiconductor cryogenics business that resulted in a taxable gain in the U.S. During the fourth quarter of fiscal 2019, the Company may record adjustments to its valuation allowance as it considers new evidence including updated forecasts of U.S. income and utilization of deferred tax assets that were previously expected to expire.
The Company maintains liabilities for uncertain tax positions. These liabilities involve judgment and estimation and are monitored based on the best information available. The Company recognizes interest related to unrecognized tax benefits as a component of the income tax expense or benefit. The Company recognized interest expense related to its unrecognized tax benefits of $0.3 million and $0.8 million, respectively, during the three and nine months ended June 30, 2019. During the three months ended June 30, 2019 an income tax audit was closed which resulted in a $0.3 million reduction in the gross unrecognized tax benefits that impacted the effective tax rate. During the nine months ended June 30, 2018 the statute of limitations lapsed on an uncertain tax position in a foreign jurisdiction which resulted in a $0.3 million reduction in the gross unrecognized tax benefits that impacted the effective tax rate.December 31, 2019.
30
The Company is subject to U.S. federal income tax and state, local and international income taxes in various jurisdictions. The amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files tax returns. In the normal course of business, the Company is subject to 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 2011. 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’s unaudited Consolidated Balance Sheets. The Company currently anticipates that it is reasonably possible that the unrecognized tax benefits will be reduced by approximately $0.1$0.2 million within the next twelve months.
10.11. Other Balance Sheet Information
The following is a summary of accounts receivable at June 30,December 31, 2019 and September 30, 20182019 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, | | September 30, | | | December 31, | | September 30, | | ||||
|
| 2019 |
| 2018 |
|
| 2019 |
| 2019 |
| ||||
Accounts receivable | | $ | 166,038 | | $ | 126,350 | | | $ | 168,851 | | $ | 169,317 | |
Less allowance for doubtful accounts | |
| (2,888) | |
| (1,113) | | |
| (3,592) | |
| (3,644) | |
Less allowance for sales returns | |
| (45) | |
| (45) | | |
| (83) | |
| (71) | |
Accounts receivable, net | | $ | 163,105 | | $ | 125,192 | | | $ | 165,176 | | $ | 165,602 | |
The following is a summary of inventories at June 30,December 31, 2019 and September 30, 20182019 (in thousands):
| | | | | | | | | | | | | | |
| | June 30, | | September 30, | | | December 31, | | September 30, | | ||||
|
| 2019 |
| 2018 |
|
| 2019 |
| 2019 |
| ||||
Inventories |
| |
|
| |
|
|
| |
|
| |
|
|
Raw materials and purchased parts | | $ | 69,070 | | $ | 57,527 | | | $ | 70,694 | | $ | 67,176 | |
Work-in-process | |
| 12,886 | |
| 19,547 | | |
| 13,625 | |
| 13,684 | |
Finished goods | |
| 22,830 | |
| 19,912 | | |
| 20,862 | |
| 18,585 | |
Total inventories | | $ | 104,786 | | $ | 96,986 | | | $ | 105,181 | | $ | 99,445 | |
Reserves for excess and obsolete inventory were $16.2$16.0 million and $15.0$16.3 million, respectively, at June 30,December 31, 2019 and September 30, 2018.2019.
At June 30,December 31, 2019 and September 30, 2018,2019, the Company had cumulative capitalized direct costs of $9.1$12.5 million and $5.6$11.6 million, respectively, associated with the development of software for its internal use which are included within "Property, plant and equipment, net" in the accompanying unaudited Consolidated Balance Sheets. During the ninethree months ended June 30,December 31, 2019, the Company capitalized direct costs of $2.6$0.9 million associated with the development of software for its internal use.
The Company establishes reserves for estimated costs 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.
3124
levels, material usage, service delivery costs incurred in correcting a product failure and supplier warranties on parts delivered to the Company.
The following is a summary of product warranty and retrofit activity on a gross basis for the three and nine months ended June 30,December 31, 2019 and 2018 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
Activity -Three Months Ended June 30, 2019 | ||||||||||||||||||||
Activity -Three Months Ended December 31, 2019 | Activity -Three Months Ended December 31, 2019 | |||||||||||||||||||
Balance | Balance |
| | |
| | |
| Balance | Balance |
| | |
| | |
| Balance | ||
March 31, | | | | | | | | June 30, | ||||||||||||
September 30, | September 30, | | | | | | | | December 31, | |||||||||||
2019 | 2019 | | Accruals | | Costs Incurred | | 2019 | 2019 | | Accruals | | Costs Incurred | | 2019 | ||||||
$ | 7,202 | | $ | 2,257 | | $ | (2,269) | | $ | 7,190 | 7,175 | | $ | 2,479 | | $ | (2,161) | | $ | 7,493 |
| | | | | | | | | | | | | | | | | | | | |
Activity -Three Months Ended June 30, 2018 | ||||||||||||||||||||
Activity -Three Months Ended December 31, 2018 | Activity -Three Months Ended December 31, 2018 | |||||||||||||||||||
Balance | Balance |
| | |
| | |
| Balance | Balance |
| | |
| | |
| Balance | ||
March 31, | | | | | | | | June 30, | ||||||||||||
September 30, | September 30, | | | | | | | | December 31, | |||||||||||
2018 | 2018 | | Accruals | | Costs Incurred | | 2018 | 2018 | | Accruals | | Costs Incurred | | 2018 | ||||||
$ | 5,634 | | $ | 1,145 | | $ | (702) | | $ | 6,077 | 6,340 | | $ | 2,355 | | $ | (1,844) | | $ | 6,851 |
| | | | | | | | | | |
Activity -Nine Months Ended June 30, 2019 | ||||||||||
Balance |
| | |
| | |
| Balance | ||
September 30, | | | | | | | | June 30, | ||
2018 | | Accruals | | Costs Incurred | | 2019 | ||||
$ | 6,340 | | $ | 6,419 | | $ | (5,569) | | $ | 7,190 |
| | | | | | | | | | |
Activity -Nine Months Ended June 30, 2018 | ||||||||||
Balance |
| | |
| | |
| Balance | ||
September 30, | | | | | | | | June 30, | ||
2017 | | Accruals | | Costs Incurred | | 2018 | ||||
$ | 5,479 | | $ | 3,929 | | $ | (3,331) | | $ | 6,077 |
11.12. Stock-Based Compensation
The Company may issue to eligible employees options to purchase shares of the Company’s stock, restricted stock units and stock optionsother equity incentives which vest upon the satisfaction of a performance condition and/or a service condition. In addition, the Company issues shares to participating employees pursuant to an employee stock purchase plan and stock awards, restricted stock awards and deferred stock and restricted stock units to its directors in accordance with its director compensation program.
The following table reflects stock-based compensation expense recorded during the three and nine months ended June 30,December 31, 2019 and 2018 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Nine Months Ended June 30, | | | Three Months Ended December 31, | | ||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
| 2019 |
| 2018 |
| ||||||
Restricted stock units | | $ | 4,881 | | $ | 4,431 | | $ | 13,764 | | $ | 13,698 | | | $ | 4,092 | | $ | 3,960 | |
Employee stock purchase plan | |
| 359 | |
| 202 | |
| 773 | |
| 571 | | |
| 318 | |
| 216 | |
Total stock-based compensation expense | | $ | 5,240 | | $ | 4,633 | | $ | 14,537 | | $ | 14,269 | | | $ | 4,410 | | $ | 4,176 | |
The fair value of restricted stock units is determined based on the number of shares granted and the closing price of the Company’s common stock quoted on the Nasdaq Stock Market on the date of grant. TheFor 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. Additionally,For awards that vest subject to performance conditions, the Company recognizes stock-based compensation expense ratably over the performance period if it is probable that performance condition will be met and adjusted for the probability percentage of achieving the performance goals. The Company makes estimates of stock award forfeitures and the number of awards expected to vest. The Company considers many factors in developing forfeiture estimates, including award types, employee classes and historical experience. Each quarter, the Company assesses the likelihoodprobability of achieving the performance goals against previously established performance targetsgoals. Current estimates may differ from actual results and future changes in accordance with the Company’s long-term equity incentive plan for stock-based awards that vest upon or after the satisfaction of these goals.estimates.
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
3225
period following the achievement of all or a portion of the performance goals. The following table reflects restricted stock units, including stock grants,awards, granted during the ninethree months ended June 30,December 31, 2019 and 2018:
| | | | | | | | | | | | | | | | |
|
| |
| Time-Based |
| |
| Performance- |
| |
| Time-Based |
| Stock |
| Performance- |
| | Total Units | | Units | | Stock Grants | | Based Units | | Total Units | | Units | | Grants | | Based Units |
Nine months ended June 30, 2019 |
| 792,103 |
| 330,006 |
| 38,708 |
| 423,389 | ||||||||
Nine months ended June 30, 2018 |
| 528,075 |
| 208,097 |
| 35,356 |
| 284,622 | ||||||||
Three months ended December 31, 2019 |
| 377,212 |
| 155,461 |
| 181 |
| 221,570 | ||||||||
Three months ended December 31, 2018 |
| 745,776 |
| 321,835 |
| 552 |
| 423,389 |
Among the total restricted stock units granted, 28,493 shares were granted to the employees who belong to the semiconductor cryogenics business that was classified as a discontinued operation during the nine months ended June 30, 2018. No shares were granted to the employees who belong to the semiconductor cryogenics business during the nine months ended June 30, 2019.
Time-Based Grants
Restricted stock units granted with a required service period typically have three-year vesting schedules in which one-third of awards vest at the first anniversary of the grant date, one-third vest at the second anniversary of the grant date and one-third vest at the third anniversary of the grant date, subject to the award holders meeting service requirements.
Stock Grants
The stock awards granted to the members of the Company’s Board of Directors include stock awards, restricted stock awards and deferred stock and restricted stock units.
Certain members of the Board of Directors have elected to defer receiving their annual awards of restricted stock unitsawards and related quarterly dividends until they attain a certain age or cease to provide services as the Company’s Board members. Restricted stock awards granted in fiscal years 2017 and 2018 are subject to a one-year vesting period, while the restricted stock awards granted in fiscal year 2019 were vested as of the grant date.
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 and 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 2020, 2019 2018 and 20172018 allow participants to earn 100% 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% if the Company’s performance for such metrics meets or exceeds the maximum or stretch goal. Performance below the minimum threshold for each financial metric results in award forfeiture. Performance goals for each plan will be measured over a three-year period for each planyear’s awards and at the end of the period.period to determine the number of units earned by recipients who continue to meet the service requirement. Around the third anniversary of each plan’syear awards’ grant date, the Company’s Board of Directors determines the number of units earned for participants who continue to meet the service requirements on the vest date.
33
Restricted Stock Unit Activity
The following table summarizes restricted stock unit activity for the ninethree months ended June 30,December 31, 2019:
| | | | | | | | | | |
|
| |
| Weighted |
| |
| Weighted | ||
| | | | Average | | | | Average | ||
| | | | Grant-Date | | | | Grant-Date | ||
| | Shares | | Fair Value | | Shares | | Fair Value | ||
Outstanding at September 30, 2018 |
| 2,194,512 | | $ | 17.20 | |||||
Outstanding at September 30, 2019 |
| 1,782,726 | | $ | 24.63 | |||||
Granted |
| 792,103 | | | 30.47 |
| 377,212 | | | 47.01 |
Vested |
| (1,048,085) | | ��� | 17.76 |
| (820,058) | | | 26.35 |
Forfeited |
| (42,580) | | | 22.84 |
| (26,264) | | | 35.60 |
Outstanding at June 30, 2019 |
| 1,895,950 | | | 24.75 | |||||
Outstanding at December 31, 2019 |
| 1,313,616 | | | 35.07 |
26
The weighted average grant date fair value of restricted stock units granted during the three months ended June 30,December 31, 2019 and 2018 was $36.12$47.01 and $25.71, respectively. The weighted average grant date fair value of restricted stock units granted during the nine months ended June 30, 2019 and 2018 was $30.47 and $33.31,$30.49, respectively. The fair value of restricted stock units vested during the three months ended June 30,December 31, 2019 and 2018 was $3.4$38.5 million and $2.7 million, respectively. The fair value of restricted stock units vested during the nine months ended June 30, 2019 and 2018 was $34.5 million and $21.8$27.1 million, respectively. During the three months ended June 30,December 31, 2019 and 2018, the Company remitted $1.0$24.0 million and $0.9$14.2 million, respectively, collected from employees to satisfy their tax obligations as a result of share issuances. During the nine months ended June 30, 2019 and 2018, the Company remitted $15.2 million and $7.2 million, respectively, collected from employees to satisfy their tax obligations as a result of share issuances.
As of June 30,December 31, 2019, the unrecognized compensation cost related to restricted stock units that are expected to vest is $27.2$33.3 million and will be recognized over an estimated weighted average service period of approximately 1.72.0 years.
Employee Stock Purchase Plan
The Company maintains an employee stock purchase plan that allows its employees to purchase shares of common stock at a price equal to 85% of the fair market value of the Company’s stock at the beginning or the end of the semi-annual period, whichever is lower. There were 59,549 and 66,7850 shares respectively, purchased by employees under the employee stock purchase plan during the ninethree months ended June 30,December 31, 2019 and 2018.
13. Earnings per Share
The calculations of basic and diluted net income per share and basic and diluted weighted average shares outstanding are as follows for the three months ended December 31, 2019 and 2018 (in thousands, except per share data):
| | | | | | | |
| | Three Months Ended | | ||||
| | December 31, | | ||||
|
| 2019 |
| 2018 |
| ||
Income from continuing operations | | $ | 13,174 | | $ | 6,266 | |
(Loss) income from discontinued operations, net of tax | |
| (117) | |
| 8,149 | |
Net income | | $ | 13,057 | | $ | 14,415 | |
| | | | | | | |
Weighted average common shares outstanding used in computing basic earnings per share | |
| 72,972 | |
| 71,450 | |
Dilutive restricted stock units | |
| 673 | |
| 715 | |
Weighted average common shares outstanding used in computing diluted earnings per share | |
| 73,645 | |
| 72,165 | |
| | | | | | | |
Basic net income per share: | |
|
| |
|
| |
Income from continuing operations | | $ | 0.18 | | $ | 0.09 | |
(Loss) income from discontinued operations, net of tax | |
| (0.00) | |
| 0.11 | |
Basic net income per share | | $ | 0.18 | | $ | 0.20 | |
| | | | | | | |
Diluted net income per share: | |
|
| |
|
| |
Income from continuing operations | | $ | 0.18 | | $ | 0.09 | |
(Loss) income from discontinued operations, net of tax | |
| (0.00) | |
| 0.11 | |
Diluted net income per share | | $ | 0.18 | | $ | 0.20 | |
Dividend declared per share | | $ | 0.10 | | $ | 0.10 | |
During the three months ended December 31, 2019 and 2018, antidilutive restricted stock units of 158,058 and 261,384, respectively, were excluded from the computation of diluted earnings per share based on the treasury stock method.
3427
12. Earnings per Share
The calculations of basic and diluted net income per share and basic and diluted weighted average shares outstanding are as follows for the three and nine months ended June 30, 2019 and 2018 (in thousands, except per share data):
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Income from continuing operations | | $ | 921 | | $ | 4,813 | | $ | 4,359 | | $ | 68,929 | |
Income from discontinued operations, net of tax | |
| 6,333 | |
| 17,793 | |
| 20,731 | |
| 37,183 | |
Net income | | $ | 7,254 | | $ | 22,606 | | $ | 25,090 | | $ | 106,112 | |
Net loss attributable to noncontrolling interest | |
| — | |
| 111 | |
| — | |
| 111 | |
Net income attributable to Brooks Automation, Inc. | | $ | 7,254 | | $ | 22,717 | | $ | 25,090 | | $ | 106,223 | |
| | | | | | | | | | | | | |
Weighted average common shares outstanding used in computing basic earnings per share | |
| 72,188 | |
| 70,596 | |
| 71,903 | |
| 70,425 | |
Dilutive restricted stock units | |
| 282 | |
| 382 | |
| 410 | |
| 508 | |
Weighted average common shares outstanding used in computing diluted earnings per share | |
| 72,470 | |
| 70,978 | |
| 72,313 | |
| 70,933 | |
| | | | | | | | | | | | | |
Basic net income per share attributable to Brooks Automation, Inc. common stockholders: | |
|
| |
|
| |
|
| |
|
| |
Income from continuing operations | | $ | 0.01 | | $ | 0.07 | | $ | 0.06 | | $ | 0.98 | |
Income from discontinued operations, net of tax | |
| 0.09 | |
| 0.25 | |
| 0.29 | |
| 0.53 | |
Basic net income per share attributable to Brooks Automation, Inc. | | $ | 0.10 | | $ | 0.32 | | $ | 0.35 | | $ | 1.51 | |
| | | | | | | | | | | | | |
Diluted net income per share attributable to Brooks Automation, Inc. common stockholders: | |
|
| |
|
| |
|
| |
|
| |
Income from continuing operations | | $ | 0.01 | | $ | 0.07 | | $ | 0.06 | | $ | 0.97 | |
Income from discontinued operations, net of tax | |
| 0.09 | |
| 0.25 | |
| 0.29 | |
| 0.52 | |
Diluted net income per share attributable to Brooks Automation, Inc. common stockholders | | $ | 0.10 | | $ | 0.32 | | $ | 0.35 | | $ | 1.50 | |
Dividend declared per share | | $ | 0.10 | | $ | 0.10 | | $ | 0.30 | | $ | 0.30 | |
During the three and the nine months ended June 30, 2019, antidilutive restricted stock units of 1,628 and 14,063, respectively, were excluded from the computation of diluted earnings per share based on the treasury stock method. There was no antidilutive restricted stock unit excluded from the computation of diluted earnings per share during the three months ended June 30, 2018. During the nine months ended June 30, 2018, antidilutive restricted stock units of 190,266 were excluded from the computation of diluted earnings per share based on the treasury stock method.
13.14. Revenue from Contracts with Customers
Revenue Recognition (Performance Obligations)
The Company generates revenue from the following sources:
35
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 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:
36
As a result of applying this five-step model under ASC 606, the Company recognizes revenues from its sale of products and services as follows:
Revenue from the sales of certain products that involve significant customization, which include primarily automated cold sample management systems is recognized over time as the asset created by the Company’s performance does not have alternative use to the Company and an enforceable right to payment for performance completed to date is present. The Company recognizes revenue as work progresses based on a percentage of actual labor hours incurred on the project to-date and total estimated labor hours expected to be incurred on the project. The selection of the method to measure progress towards completion requires judgment. The Company has concluded that using the percentage of labor hours incurred to estimated labor hours needed to complete the project most appropriately depicts the Company’s efforts towards satisfaction of the performance obligation. The Company develops profit estimates for long-term contracts based on total revenue expected to be generated from the project and total costs anticipated to be incurred in the project. These estimates are based on a number 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, as well as the Company’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’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 the estimate based on changes in circumstances. Revenue for certain arrangements that involve significant product customization but do not provide the customer with an enforceable right to payment for performance completed to date are recognized at a point in time, upon completion or substantial completion of the project, provided transfer of control has occurred. The project is considered substantially complete when the Company receives acceptance from the customer and remaining tasks are perfunctory or inconsequential and in control of the Company. Generally, the terms of long-term contracts provide for progress billings based on completion of milestones or other defined phases of work. In certain instances, payments collected from customers in advance of recognizing the related revenue are recorded and presented as contract liabilities within “Deferred revenue” on the Company’s Consolidated Balance Sheet. Additionally, due to certain billing constraints within contracts, the customer may retain a portion of the contract price until completion of the contract. In these contracts, revenue recognized may exceed billings, which the Company presents as a contract asset on the balance sheet, which is included within the “Prepaid expenses and other current assets” on the Company’s Consolidated Balance Sheet.
37
Disaggregated Revenue
The Company disaggregates revenue from contracts with customers in a manner that depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Company disaggregates revenue based on the transfer 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. As discussed within Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2018 Annual Report on Form 10-K, theThe Company reports financial results for two operating and2 reportable segments which consist of Brooks Semiconductor Solutions Group segment and Brooks Life Sciences segment. The Company also consists of five5 reporting units, including three3 reporting units within the Brooks Semiconductor Solutions Group reportingreportable segment and two2 reporting units within the Brooks Life Sciences reportingreportable segment. The following is a reconciliation of revenue disaggregated in a manner discussed above to segment revenue for the three and nine months ended June 30,December 31, 2019 and 2018 (in thousands):
| | | | | | | | | | | | | | | ||||
| | Brooks Semiconductor | | Brooks Life | | | | Brooks Semiconductor | | Brooks Life | | | ||||||
| | Solutions Group | | Sciences | | Total | | Solutions Group | | Sciences | | Total | ||||||
Timing of Revenue Recognition | | | | | | | | |||||||||||
Three Months Ended June 30, 2019 | | | | | | | | |||||||||||
Three Months Ended December 31, 2019 | | | | | | | | |||||||||||
Point in time | | $ | 115,910 | | $ | 23,121 | | $ | 139,031 | | $ | 116,788 | | $ | 21,320 | | $ | 138,108 |
Over time | | | 130 | | | 64,719 | | | 64,849 | | | 2,023 | | | 70,369 | | | 72,392 |
| | $ | 116,040 | | $ | 87,840 | | $ | 203,880 | | $ | 118,811 | | $ | 91,689 | | $ | 210,500 |
| | | | | | | | |||||||||||
Nine Months Ended June 30, 2019 | | | | | | | | |||||||||||
Three Months Ended December 31, 2018 | | | | | | | | |||||||||||
Point in time | | $ | 339,537 | | $ | 71,270 | | $ | 410,807 | | $ | 111,916 | | $ | 23,167 | | $ | 135,083 |
Over time | | | 2,087 | | | 168,743 | | | 170,830 | | | 791 | | | 43,494 | | | 44,285 |
| | $ | 341,624 | | $ | 240,013 | | $ | 581,637 | | $ | 112,707 | | $ | 66,661 | | $ | 179,368 |
The following is revenue by geographic location and reporting unit for the three and nine months ended June 30,December 31, 2019 and 2018 (in thousands):
| | | | | | | | | ||||
| | Three Months Ended June 30, 2019 | | Nine Months Ended June 30, 2019 | | Three Months Ended December 31, 2019 | | Three Months Ended December 31, 2018 | ||||
Geographic Location | | | | | | | | | ||||
North America | | $ | 88,744 | | $ | 240,796 | | $ | 80,231 | | $ | 68,897 |
Asia/Pacific/Other | | 77,275 | | 234,388 | | 103,539 | | 79,460 | ||||
United Kingdom | | 13,879 | | 38,497 | | 9,920 | | 12,078 | ||||
Rest of Europe | | | 23,982 | | | 67,956 | | | 16,810 | | | 18,933 |
| | $ | 203,880 | | $ | 581,637 | | $ | 210,500 | | $ | 179,368 |
| | | | | | | | | ||||
Reporting Unit | | | | | | | | | ||||
Automation Solutions | | $ | 77,410 | | $ | 223,531 | | $ | 64,238 | | $ | 73,675 |
Contamination Control Solutions | | 28,606 | | 86,610 | | 44,340 | | 27,956 | ||||
Global Semiconductor Services | | | 10,024 | | | 31,483 | | | 10,233 | | | 11,076 |
Brooks Semiconductor Solutions Group | | 116,040 | | 341,624 | | 118,811 | | 112,707 | ||||
Sample Management | | 50,783 | | 153,675 | | 51,718 | | 50,303 | ||||
GENEWIZ | | | 37,057 | | | 86,338 | | | 39,971 | | | 16,358 |
Brooks Life Sciences | | | 87,840 | | | 240,013 | | | 91,689 | | | 66,661 |
Total | | $ | 203,880 | | $ | 581,637 | | $ | 210,500 | | $ | 179,368 |
3828
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 $163.1$165.2 million and $125.2$165.6 million at JuneDecember 31, 2019 and 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 $5.2$17.0 million and $8.2$14.0 million at JuneDecember 31, 2019 and 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 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 $0.9$0.7 million and $1.5$0.8 million at JuneDecember 31, 2019 and September 30, 2019, and October 1, 2018, respectively. The Company recorded $0.2 million and $0.6 million, respectively, of amortization expense related to deferred commissions of $0.1 million and $0.2 million, respectively for the three and nine months ended June 30, 2019.December 31, 2019 and 2018.
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 $30.6$29.0 million and $28.7$29.4 million at JuneDecember 31, 2019 and September 30, 2019, and October 1, 2018, respectively. Revenue recognized from the contract liability balance at March 31,September 30, 2019 was $12.2$19.1 million for the three months ended June 30,December 31, 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 June 30,December 31, 2019 was $30.8$35.4 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 June 30, 2019 | | | As of December 31, 2019 | ||||||||||||
| | Less than 1 Year | | Greater than 1 Year | | Total | | Less than 1 Year | | Greater than 1 Year | | Total | ||||||
Remaining Performance Obligations | | $ | 21,592 | | $ | 9,163 | | $ | 30,755 | | $ | 25,013 | | $ | 10,398 | | $ | 35,411 |
| | | | | | | |
Cost to Obtain and Fulfill a Contract
The Company capitalizes 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 year. As part of the Company’s cumulative effect adjustment, incremental costs associated with obtaining a contract were capitalized and
29
have been classified as deferred commissions within the Company’s Consolidated Balance Sheet. These amounts
39
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 three or nine months ended June 30,December 31, 2019 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 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.
14.15. Segment Information
The Company operates in two2 reportable segments: the Brooks Semiconductor Solutions Group segment and the Brooks Life Sciences.Sciences segment. Brooks Life Sciences consists of two2 operating segments aggregated into one reportable segment.
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, contamination control of wafer carrier front opening unified pods and reticle carriers and reticle management systems.storage. The support services include repair services, diagnostic support services, and installation services in support of the products, which enable the 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 Sciences segment provides comprehensive life cycle sample management solutions tofor life science and bioscience customers including complete end-to-end “cold chain of custody” solutions and a variety of sample-based lablaboratory 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 informatics that help customers manage samples throughout their research discovery and development work flows.workflows. The segment’s service offerings include sample storage, genomic sequencing, gengene synthesis, lablaboratory processing services, lablaboratory analysis, and other support services provided to a wide range of life science customers, including pharmaceutical companies, biotechnology companies, biorepositories and research institutes.
Revenue andThe Company considers adjusted operating income, (loss) are two key metrics used bywhich excludes charges related to amortization of completed technology, the chief operating decision makeracquisition accounting impact on inventory contracts acquired and restructuring related charges as the primary performance metric when assessing operating results and management performance as resources are allocated to each ofevaluating the operating segments. The adjusted operating income (loss) for each segment includes selling, general and administrative expenses directly attributable to the segment, and corporate allocations for general and administrative support. Amortization of acquired intangible assets (excluding completed technology), restructuring and other charges, pension settlement, in-process research and development, and other unallocated corporate expenses are excluded from the segments’ adjusted operating income (loss).business. Please refer to Note 20,21, "Segment and Geographic Information" to the Company’s consolidated financial statements included in the 20182019 Annual Report on Form 10-K for further information on the operating segments’ description and accounting policies.
In conjunction with the acquisition of GENEWIZ during the quarter ended December 31, 2018, the Company reassessed Brooksits segment reporting structure and determined that GENEWIZ represents a separate 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 their service delivery models, and their regulatory environments. The Company believes that the aggregated presentation is more useful to investors and other financial users. Management formally assesses the long-term financial outlook of its operating segments on an annual basis as part of its strategic planning process and more frequently on an informal basis. The customer bases of the operating segments overlap, serving life science and bioscience customers in the pharmaceutical and bio-technology companies as well as academic and government institutions. Both of these operating segments provide services relating to the biological samples needed to advance non-clinical and clinical research, serving scientific and business operations functions. In a typical customer workflow, a biological sample is collected, processed and analyzed with results interpreted and used to make scientific judgements. Critical or valuable samples are then
4030
serving scientific and business operations functions. In a typical customer workflow, a biological sample is collected, processed and analyzed with results interpreted and used to make scientific judgements. Critical or valuable samples are then annotated and stored for many years in environments where they can be easily retrieved for additional study. These operating segments provide services across this workflow. Both of these operating segments offer services meeting the standards of Good Manufacturing Practices set forth by the U.S. Food and Drug Administration.
The following is the summary of the financial information for the Company’s operating and reportable segments for the three and nine months ended June 30,December 31, 2019 and 2018 (in thousands):
| | | | | | | | | |
|
| Brooks |
| |
| | | ||
| | Semiconductor | | Brooks | | | | ||
| | Solutions Group | | Life Sciences | | Total | |||
| | | | | | | | | |
Three Months Ended June 30, 2019: |
| |
|
| |
|
| |
|
Revenue |
| |
|
| |
|
| |
|
Products | | $ | 105,443 | | $ | 22,954 | | $ | 128,397 |
Services | |
| 10,597 | |
| 64,886 | |
| 75,483 |
Segment revenue | | $ | 116,040 | | $ | 87,840 | | $ | 203,880 |
Gross profit | | $ | 47,493 | | $ | 36,017 | | $ | 83,510 |
Segment operating income | |
| 19,322 | |
| 4,202 | |
| 23,524 |
Depreciation expense | |
| 504 | |
| 4,196 | |
| 4,700 |
| | | | | | | | | |
Three Months Ended June 30, 2018: | |
|
| |
|
| |
|
|
Revenue | |
|
| |
|
| |
|
|
Products | | $ | 111,840 | | $ | 23,438 | | $ | 135,278 |
Services | |
| 10,820 | |
| 26,265 | |
| 37,085 |
Segment revenue | | $ | 122,660 | | $ | 49,703 | | $ | 172,363 |
Gross profit | | $ | 48,227 | | $ | 18,588 | | $ | 66,815 |
Segment operating income | |
| 17,915 | |
| 677 | |
| 18,592 |
Depreciation expense | |
| 911 | |
| 1,991 | |
| 2,902 |
| | | | | | | | | |
Nine Months Ended June 30, 2019: | |
|
| |
|
| |
|
|
Revenue | |
|
| |
|
| |
|
|
Products | | $ | 309,439 | | $ | 72,388 | | $ | 381,827 |
Services | |
| 32,185 | |
| 167,625 | |
| 199,810 |
Segment revenue | | $ | 341,624 | | $ | 240,013 | | $ | 581,637 |
Gross profit | | $ | 139,393 | | $ | 96,713 | | $ | 236,106 |
Segment operating income | |
| 53,450 | |
| 8,936 | |
| 62,386 |
Depreciation expense | |
| 2,438 | |
| 10,728 | |
| 13,166 |
| | | | | | | | | |
Nine Months Ended June 30, 2018: | |
|
| |
|
| |
|
|
Revenue | |
|
| |
|
| |
|
|
Products | | $ | 293,196 | | $ | 68,886 | | $ | 362,082 |
Services | |
| 33,033 | |
| 76,799 | |
| 109,832 |
Segment revenue | | $ | 326,229 | | $ | 145,685 | | $ | 471,914 |
Gross profit | | $ | 130,180 | | $ | 53,281 | | $ | 183,461 |
Segment operating income | |
| 45,058 | |
| 778 | |
| 45,836 |
Depreciation expense | |
| 2,878 | |
| 5,579 | |
| 8,457 |
| | | | | | | | | |
Assets: | |
|
| |
| | |
|
|
June 30, 2019 | | $ | 263,013 | | $ | 917,515 | | $ | 1,180,528 |
September 30, 2018 | |
| 264,452 | | | 410,581 | |
| 675,033 |
| | | | | | | | | | |
| | | | | Three Months Ended December 31, 2019 | | ||||
| | | | | | 2019 | | | 2018 | |
Revenue: |
| | | | | | | |
|
|
Brooks Semiconductor Solutions Group |
| | | | $ | 118,811 | | $ | 112,707 | |
Brooks Life Sciences | | | | |
| 91,689 | |
| 66,661 | |
Total revenue | | | | | $ | 210,500 | | $ | 179,368 | |
| | | | | | | | | | |
Operating income: | | | | |
| | |
| | |
Brooks Semiconductor Solutions Group | | | | | $ | 15,000 | | $ | 17,263 | |
Brooks Life Sciences | | | | |
| 5,974 | |
| 2,660 | |
Reportable segment adjusted operating income | | | | | | 20,974 | | | 19,923 | |
Amortization of completed technology | | | | | | 2,674 | | | 2,007 | |
Acquisition accounting impact on inventory contracts acquired | | | | | | — | | | 184 | |
Amortization of acquired intangible assets | | | | | | 7,910 | | | 5,769 | |
Restructuring charges | | | | | | 576 | | | 59 | |
Other unallocated corporate (income) expenses | | | | | | (852) | | | 6,571 | |
Total operating income | | | | | | 10,666 | | | 5,333 | |
Interest income | | | | | | 699 | | | 423 | |
Interest expense | | | | | | (737) | | | (5,290) | |
Other expenses, net | | | | | | (417) | | | (30) | |
Income before income taxes | | | | | $ | 10,211 | | $ | 436 | |
| | | | | | | | | | |
| |
| Brooks | |
| | | | | |
| | | Semiconductor | | | Brooks | | | | |
Assets: | | | Solutions Group | | | Life Sciences | | | Total | |
December 31, 2019 | | $ | 267,221 | | $ | 932,613 | | $ | 1,199,834 | |
September 30, 2019 | |
| 259,641 | | | 909,154 | |
| 1,168,795 | |
41
The following is a reconciliation of the Company’s operating and reportable segments’ operating income and segment assets to the corresponding amounts presented in the accompanying unaudited Consolidated Statements of Operations for the three and nine months ended June 30, 2019 and 2018 and Consolidated Balance Sheets as of June 30,December 31, 2019 and September 30, 20182019 (in thousands):
| | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended | | |||||||
| | | June 30, | | June 30, | | |||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Segment operating income | | $ | 23,524 | | $ | 18,592 | | $ | 62,386 | | $ | 45,836 | |
Amortization of acquired intangible assets | |
| 6,187 | |
| 5,080 | |
| 18,569 | |
| 14,296 | |
Restructuring charges | |
| 256 | |
| 81 | |
| 685 | |
| 129 | |
Other unallocated corporate expenses | |
| 658 | |
| 884 | |
| 7,705 | |
| 3,617 | |
Total operating income | | $ | 16,423 | | $ | 12,547 | | $ | 35,427 | | $ | 27,794 | |
| | | | | | | | | | | | |
|
| June 30, |
| September 30, |
| December 31, |
| September 30, | ||||
| | 2019 | | 2018 | | 2019 | | 2019 | ||||
Segment assets |
| $ | 1,180,528 |
| $ | 675,033 |
| $ | 1,199,834 |
| $ | 1,168,795 |
Cash, cash equivalents and marketable securities | |
| 159,761 | |
| 251,226 | ||||||
Cash, cash equivalents, restricted cash, and marketable securities | |
| 353,120 | |
| 342,140 | ||||||
Deferred tax assets | |
| 25,345 | |
| 43,798 | |
| 6,004 | |
| 5,064 |
Assets held for sale | |
| 127,226 | |
| 125,200 | ||||||
Total assets | | $ | 1,492,860 | | $ | 1,095,257 | | $ | 1,558,958 | | $ | 1,515,999 |
15.16. Significant Customers
The Company had one customer that accounted for 10% or more of its consolidated revenue, at 15%, during the three months ended December 31, 2019. The Company had no customer that accounted for 10% or more of its consolidated revenue during each of the three and nine months ended June 30, 2019 andDecember 31, 2018. As of June 30,December 31, 2019, and September 30, 2018, the Company had one customer that accounted for more than 10% of its accounts receivable balance of the Company’s total receivables, at
31
11%. There were no customers that accounted for more than 10% or more of its accounts receivable balance of the Company’s total receivables.receivables as of December 30, 2018.
For purposes of determining the percentage of revenue generated from any of the Company’s original equipment manufacturer (the "OEM") customers, the Company does not include revenue from products sold to contract manufacturer customers who in turn sell to the OEMs. If the Company included revenue from products sold to contract manufacturer customers supporting the Company’s OEM customers, the percentage of the Company’s total revenue derived from certain OEM customers would be higher.
16.17. Commitments and Contingencies
Letters of Credit
As of June 30,December 31, 2019, the Company had approximately $1.3$1.2 million of letters of credit outstanding related primarily to customer advances and other performance obligations. These arrangements guarantee the refund of advance payments received from itsthe 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 the ninethree months ended June 30,December 31, 2019, and the Company currently does not anticipate any of these obligations to be called in the near future.
Purchase Commitments
TheAt December 31, 2019, the Company had non-cancellable contracts andcommitments of $130.2 million, including purchase orders for inventory of $97.2$84.9 million, asinformation technology related commitments of June 30, 2019.$25.0 million, China facility commitments of $18.6 million and other commitments of $1.7 million.
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
42
reasonable ranges of potential losses. However, as of the date of this report, the Company believes that none of these claims will have a material adverse effect on its consolidated financial position or results of operations. In the event of unexpected subsequent developments and given the inherent unpredictability of these legal proceedings, there can be no assurance that the Company’s assessment of any claim will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s consolidated financial position or results of operations in particular quarterly or annual periods.
17.18. Subsequent Events
Divestiture
On July 1, 2019, the Company completed the sale of its semiconductor cryogenics business to Edwards for $675.0 million, subject to adjustments for working capital and other items. The Company expects net cash proceeds from the sale to be approximately $550 million, after adjustments and deducting taxes and other items.
Extinguishment of Debt
On July 1, 2019, in connection with the completion of the sale of its semiconductor cryogenics business, the Company used $348.3 million of the cash proceeds from the sale to extinguish the total remaining outstanding balance of the incremental term loan and $147.0 million of the cash proceeds from the sale to extinguish a portion of the outstanding balance of the term loan. The total amount of debt extinguished on July 1, 2019 was $495.3 million.
Dividend
On July 31, 2019,January 24, 2020, the Company’s Board of Directors declared a cash dividend of $0.10 per share payable on SeptemberMarch 27, 20192020 to common stockholders of record as of SeptemberMarch 6, 2019.2020. Dividends are declared at the discretion of the Company’s Board of Directors and depend on the Company’s actual cash flows from operations, its financial condition and capital requirements and any other factors the Company’s Board of Directors may consider relevant. Future dividend declarations, as well as the record and payment dates for such dividends, will be determined by the Company’s Board of Directors on a quarterly basis.
4332
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Management’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 unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Our MD&A is organized as follows:
● | Overview. This section provides a general description of our business and operating segments as well as a brief discussion and overall analysis of our business and financial performance, including key developments affecting the Company during the three |
● | 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 three |
● | 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 unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. 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” below for a discussion of important factors that could cause our actual results to differ materially from our expectations.
In the fourth quarter of fiscal year 2018, we entered into a definitive agreement to sell our semiconductor cryogenics business to Edwards Vacuum LLC (a member of the Atlas Copco Group) for approximately $675.0 million in cash subject to customary adjustments. We originally acquired the semiconductor cryogenics business in 2005 as part of the acquisition of Helix Technology Corporation. On July 1, 2019, we completed the sale of the semiconductor cryogenics business for $675.0 million in cash, subject to adjustments for working capital and other items. 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. The semiconductor cryogenics business has been classified as discontinued operations and, unless otherwise noted, the description of our business and the results of operations in this MD&A relates solely to our continuing operations and does not include the operations of the semiconductor cryogenics business.
Information Related to Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that are, or may be considered to be, forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, as amended, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “likely” or similar statements or variations of such terms. Forward-looking statements include, but are not limited to, statements that relate to our future revenue, margins, costs, earnings, profitability, product development, demand, acceptance and market share, competitiveness, market opportunities and performance, levels of research and development, the success of our marketing, sales and service efforts, outsourced activities, 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
4433
our divesturesdivestitures and acquisitions, the material weaknesses identified in our internal control over financial reporting, including the impact thereof and our remediation plan, our adoption of the newly issued accounting guidance, the levels of customer spending, general economic conditions, the sufficiency of financial resources to support future operations, and capital expenditures and future acquisitions, divestitures and other strategic transactions.expenditures. Such statements are based on current expectations and involve risks, uncertainties and other factors which may cause the actual results, our performance or our achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include the Risk Factors which are set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018,2019, or the 20182019 Annual Report on Form 10-K and which are incorporated herein by reference , as updated and/or supplemented in subsequent filings with the U.S. Securities and Exchange Commission, or SEC. 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 revisions to these forward-looking statements, which may be made to reflect events or circumstances that occur after the date of this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q. Any additional precautionary statements made in our 20182019 Annual Report on Form 10-K should be read as being applicable to all related forward-looking statements whenever they appear in this Quarterly Report on Form 10-Q.
Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q to "we", "us", "our" and "the Company" refer to Brooks Automation, Inc. and its 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 markets. We primarily serve two distinct and unrelated markets: the semiconductor capital equipment market and the life sciences sample management market.gene synthesis services. We believe our leadership positions and our global support capability 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 offeringsIn total, we employ approximately 3,000 full-time employees worldwide and have sales in more than 50 countries. We are also applied to other adjacent technologyheadquartered in Chelmsford, Massachusetts and industrial markets,have operations in North America, Asia, and we provide customer support services globally.Europe.
In the semiconductor capital equipment market, equipment productivity and availability are critical factors for our customers, who typically operate equipment under demanding temperature and/or pressure environments. We are a leader in wafer handling automation and contamination controls solutions and services that are designed 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 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. Although the demand for semiconductors and semiconductor manufacturing equipment is cyclical resulting in periodic expansions and contractions, 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. OurWe launched our newest Vacuum Automation platform, MagnaTran LEAP™, enables for the rapidly emerging advanced technologies related to manufacturing semiconductor chips with 10 nanometer and smaller design rules.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 expect to continue to support and expand our technology and product offerings for the semiconductor market through acquisitions. In fiscal year 2018, we acquired Tec-Sem Group AG, or
34
Tec-Sem, a Switzerland-based provider of semiconductor fabrication automation equipment with a focus on reticle management. The acquisition has enhancedis expected to enhance our contamination controls solutions offerings.
In the life sciences sample-based servicessample 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 sciences industry. Our offerings include automated ultra-cold storage freezers, consumable sample storage
45
containers, instruments which assist in the workflow of sample management, and both on-site and off-site full sample management services, gene sequencing services and gene synthesis services. We expect the life sciences sample management market to remain one of our principal markets for our product and service offerings and provide favorable opportunities for the growth of our overall business. Over the past several years, we have acquired and developed essential capabilities required to strategically address the sample management needs across multiple end markets within the life sciences industry. 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. The acquisition has expanded our existing offerings of consumables and instruments within the Brooks Life Sciences segment. In April 2018, we acquired BioSpeciMan Corporation, a Canadian provider of storage services for biological sample materials. The acquisition has expanded customer relationships and geographic reach within our growing sample management storage services business. On November 15, 2018, 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 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 we expect to leverage, along with our core capabilities, to add even more value to samples under our care. Please refer to Note 5,4, “Acquisitions” in the Notes to the unauditedCompany's consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterlythe 2019 Annual Report on Form 10-10-K forQ for further information on these transactions. Since entering the life sciences industry, we have also strengthened and broadened our product portfolio and market reach by investing in internal product development and sales and marketing infrastructure. We expect to continue investing in research and development and making strategic acquisitions and other investments with the objective of expanding our offerings in the life sciences sample management market.
Business and Financial Performance
Three Months Ended June 30,December 31, 2019 Compared to Three Months Ended June 30,December 31, 2018
Results of Operations - Revenue for the three months ended June 30,December 31, 2019 increased by 17% to $203.9$210.5 million or by 18%, as compared to the corresponding period of the prior fiscal year. Gross margin was 41.0%40.4% for the three months ended June 30,December 31, 2019 as compared to 38.8%40.2% for the corresponding period of the prior fiscal year, an increase of $16.7$12.9 million. Operating expenses were $67.1$74.3 million during the three months ended June 30,December 31, 2019 as compared to $54.3$66.7 million during the corresponding period of the prior fiscal year, an increase of $12.8$7.6 million. Operating income was $16.4$10.7 million during the thirdfirst quarter of fiscal year 20192020 as compared to $12.5$5.3 million for the corresponding period of the prior fiscal year. Income from continuing operations was $0.9$13.1 million for the thirdfirst quarter of fiscal year 2019,2020, as compared to $4.8$6.3 million for the corresponding period of the prior fiscal year.
Nine Months Ended June 30, 2019 Compared to Nine Months Ended June 30, 2018
Results of Operations - Revenue for the nine months ended June 30, 2019 increased to $581.6 million, or by 23%, as compared to the corresponding period of the prior fiscal year. Gross margin was 40.6% for the nine months ended June 30, 2019 as compared to 38.9% for the corresponding period of the prior fiscal year, an increase of $52.6 million. Operating expenses were $200.7 million during the nine months ended June 30, 2019 as compared to $155.7 million during the corresponding period of the prior fiscal year, an increase of $45.0 million. Operating income was $35.4 million during the nine months ended June 30, 2019 as compared to $27.8 million for the corresponding period of the prior fiscal year. Income from continuing operations was $4.4 million for the nine months ended June 30, 2019 as compared to $68.9 million for the corresponding period of the prior fiscal year. The decrease of $64.6 million was primarily attributable to the reversal of the valuation allowance reserve against U.S. deferred income tax benefits of $56.3 million in the prior fiscal year, and a $9.1 million loss on extinguishment of debt in the 2019 period, partially offset by increased operating income and a decrease in foreign currency exchange losses in the 2019 period compared to the prior year period.
46
June 30,December 31, 2019 Compared to September 30, 20182019
Cash Flows and Liquidity - Cash, cash equivalents, restricted cash and marketable securities were $159.8$353.1 million at June 30,December 31, 2019 as compared to $251.2$342.1 million at September 30, 2018.2019. The decreaseincrease in cash and cash equivalents and marketable securities of $91.5$11.0 million from September 30, 2019 was primarily attributable to netcash inflows generated from operating activities of $25.7 million, partially offset by cash outflows for capital expenditures of $442.7$9.6 million to acquire GENEWIZ,and cash dividends paid of $21.7 million and capital expenditures of $15.5 million, partially offset by net cash inflows primarily from proceeds received in connection with the amendment and syndication of our incremental term loan of $331.4 million, proceeds from the sales and maturities of marketable securities of $51.5 million and net cash inflows from operating activities of $58.2 million as of June 30, 2019. Cash inflows from operating activities of $58.2 million was comprised of $76.6 million of net earnings, including net income of $25.1 million and the impact of non-cash related charges of $51.5 million, partially offset by uses of cash of $18.4 million related to the changes in our operating assets and liabilities, net of acquisitions.$7.4 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our unaudited consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles, or GAAP. The preparation of the interim consolidated financial statements requires us to make estimates and
35
judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. WeOn an ongoing basis, we evaluate our estimates, on an ongoing basis, including those related to accounts receivable, inventories, goodwill,revenue, intangible assets, other than goodwill, long-lived assets, derivative financial instruments, deferredinventories, income taxes, warranty obligations, revenue recognized using the percentage of completion method, pension obligations and stock-based compensation expense.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.
For further information with regard to our significant accounting policies and estimates, please refer to Note 2, "Summary of Significant Accounting Policies" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q and in the Notes to our audited consolidated financial statements included in Part II, Item 8 “Financial Statements and Supplementary Data” in our 20182019 Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements
For a summary of recently issued accounting pronouncements applicable to our unaudited consolidated financial statements, please refer to Note 2, "Summary of Significant Accounting Policies" in the Notes to the unaudited consolidated financial statements included in Item 1 "Consolidated Financial Statements" of this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
Three and Nine Months Ended June 30,December 31, 2019 Compared to Three and Nine Months Ended June 30,December 31, 2018
Revenue
We reported revenue of $203.9$210.5 million for the three months ended June 30,December 31, 2019, compared to $172.4$179.4 million for the corresponding period of the prior fiscal year, an increase of $31.1 million, or 17%.
Our Brooks Semiconductor Solutions Group segment reported revenue of $118.8 million for the three months ended December 31, 2019 compared to $112.7 million for the corresponding period of the prior fiscal year, an increase of $31.5 million, or 18%. We reported revenue of $581.6 million for the nine months ended June 30, 2019, compared to $471.9 million for the corresponding period of the prior fiscal year, an increase of $109.7 million, or 23%. 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
47
adoption of the standard was a net decrease of $0.9 million and $2.4 million during the three and nine months ended June 30, 2019, respectively.
Our Brooks Semiconductor Solutions Group segment reported revenue of $116.0 million for the three months ended June 30, 2019 compared to $122.7 million for the corresponding period of the prior fiscal year, a decrease of $6.6 million, or 5%. We reported a decline in automation systems revenue of $13.0 million and services revenue of $1.0 million, which were partially offset by an increase in contamination control systems of $7.3 million. For the nine months ended June 30, 2019, our Brooks Semiconductor Solutions Group segment reported revenue of $341.6 million compared to $326.2 million for the corresponding period of the prior fiscal year, an increase of $15.4$6.1 million, or 5%. We reported an increase in contamination control solutions revenue of $35.7$16.4 million, of which $15.1 million is attributable to six additional months of revenue for the acquisition of Tec-Sem, acquired on April 1, 2019, this was partially offset by declinesdecreases in automation systems revenue of $19.1$9.4 million and servicesservice revenue of $1.2$0.8 million. The semiconductor markets are cyclical and may fluctuate significantly from quarter to quarter. Demand for our Brooks Semiconductor SolutionSolutions Group products is affected by these cycles. The difference in reported revenue due to the adoption of the new revenue recognition standard was a net increase of $0.2 million and $0.8 million for the three and nine months ended June 30, 2019, respectively.
Our Brooks Life Sciences segment reported revenue of $87.8$91.7 million for the three months ended June 30,December 31, 2019 compared to $49.7$66.7 million for the corresponding period of the prior fiscal year. The increase of $38.1$25.0 million, or 77%38%, was composed of $37.1$20.0 million from acquisitions and $1.1$5.0 million from internal growth, driven by increases in sales of BioStoreTM III Cryostores, sample storage services, infrastructure services,GENEWIZ across all primary service lines of gene synthesis, NGS sequencing, and Sanger sequencing, as well as increases in consumables and instruments, partially offset by declines in automated cold storage systems. For the nine months ended June 30, 2019, our Brooks Life Sciences segment reported revenue of $240.0 million, compared to $145.7 million for the corresponding period of the prior fiscal year. The increase of $94.3 million, or 65% was composed of $86.3 million from acquisitions, and $8.0 million from internal growth, principally in sample storage services, consumables and instruments, infrastructure services, and BioStoreTM III Cryostores, partially offset by declines in automated cold storage systems and informatics solutions. The difference in reported revenue due to the adoption of the new revenue recognition standard was a net decrease of $1.0 million and $3.3 million during the three and nine months ended June 30, 2019, respectively.Cryostores.
Revenue generated outside the United States was $115.7$130.8 million, or 57%62% of total revenue, for the three months ended June 30,December 31, 2019 compared to $110.7$110.5 million, or 64% of total revenue, for the corresponding period of the prior fiscal year. Revenue generated outside the United States was $342.4 million, or 59% of total revenue, for the nine months ended June 30, 2019 compared to $298.0 million, or 63%62% of total revenue, for the corresponding period of the prior fiscal year. We had one customer that accounted for more than 10% of our consolidated revenue for the three months ended December 31, 2019 and we had no customers that accounted for more than 10% or more of our consolidated revenue for each of the three and nine months ended June 30, 2019 andDecember 31, 2018.
Gross Margin36
Operating Income
We reported gross marginsoperating income of 41.0%$10.7 million for the three months ended June 30,December 31, 2019 compared to 38.8%$5.3 million for the three months ended December 31, 2018. The increase of 100% is driven by higher revenue and gross profit, partially offset by an increase in both research and development expenses and selling, general and administrative expenses compared to the three months ended December 31, 2018. Drivers of the increases to research and development and selling, general and administrative expenses are described below.
Operating income for our Brooks Semiconductor Solutions Group segment was $14.3 million for the three months ended December 31, 2019 compared to $16.1 million for the three months ended December 31, 2018. Operating income for the three months ended December 31, 2019 included $0.7 million of charges for amortization related to completed technology as compared to $0.9 million incurred during the corresponding period of the prior fiscal year. Gross margin increased in the Brooks Life Sciences Segment by 3.6 percentage points and in theThe three months ended December 31, 2018 also includes inventory step-up charges of $0.2 million. Adjusted operating income for our Brooks Semiconductor Solutions Group segment, by 1.6 percentage points inwhich excludes the charges mentioned above, was $15.0 million for the three months ended December 31, 2019 period overcompared to $17.3 million for the three months ended December 31, 2018. Please refer to Note 15, “Segment Information”.
Operating income for our Brooks Life Sciences segment was $4.0 million for the three months ended December 31, 2019 compared to $1.6 million for the three months ended December 31, 2018. Operating income for our Brooks Life Sciences segment includes charges for amortization related to completed technology of $1.9 million and $1.1 million for the three months ended December 31, 2019 and 2018, period. respectively. Adjusted operating income for our Brooks Life Sciences segment, which excludes the charges mentioned above, was $6.0 million for the three months ended December 31, 2019 compared to $2.7 million for the three months ended December 31, 2018. Please refer to Note 15, “Segment Information”.
Gross Margin
We reported gross margins of 40.6%40.4% for the ninethree months ended June 30,December 31, 2019 compared to 38.9%40.2% for the corresponding period of the prior fiscal year. Gross margin increased in the Brooks Life Sciences segment by 3.7 2.9 percentage points andpartially offset by declines in the Brooks Semiconductor Solutions Group segment by 0.11.8 percentage points in the 2019first quarter of fiscal year 2020 compared to the same period over the 2018 period.in fiscal year 2019. Cost of revenue for the three and nine months ended June 30,December 31, 2019 included $2.7 million of charges related to amortization of completed technology, as compared to $2.0 million during the corresponding period of the prior fiscal year. The results for the three months ended December 31, 2018 also included $0.0 million and $0.2 million respectively, of charges related to the inventory step-up in purchase accounting, as compared to $0.7 million and $1.9 million, respectively, during the corresponding periods of the prior fiscal year.accounting. Excluding the purchasing accounting impact related to inventory step-up and the amortization of completed technology grossand inventory step-up charges, margins expanded 2.30.2 percentage points and 1.9 percentage points, respectively, during the three and nine months ended June 30,December 31, 2019 as compared to the corresponding periodsperiod of the prior fiscal year. The difference in reported gross margin due to the adoption of the new revenue recognition standard was a net decrease in gross profit of $0.4 million and $0.9 million during three and nine months ended June 30, 2019, respectively.
Our Brooks Semiconductor Solutions Group segment reported gross margins of 40.9%39.0% for the three months ended June 30,December 31, 2019 as compared to 40.7% for the corresponding period of the prior fiscal year. The decrease is driven by a mix of product sales. Cost of revenue for the three months ended December 31, 2019 included $0.7 million of charges for amortization related to completed technology as compared to $0.9 million incurred during the corresponding period of the prior fiscal year. The results for the three months ended December 31, 2018 also included $0.2 million of charges related to the inventory step-up in purchase accounting. There were no such changes in the fiscal 2020 period. Excluding the impact of the amortization of completed technology and the charges related to the inventory step-up, gross margins expanded 2.1 percentage points during the three months ended December 31, 2019 as compared to the corresponding period of the prior fiscal year.
Our Brooks Life Sciences segment reported gross margins of 42.2% for the three months ended December 31, 2019 as compared to 39.3% for the corresponding period of the prior fiscal year. The increase is driven by
48
favorable customerduring this period was due to a higher margin revenue mix and product mix. Our Brooks Semiconductor Solutions Group segment reported gross margins of 40.8% for the nine months ended June 30, 2019from GENEWIZ as compared to 39.9% for the corresponding period of the prior fiscal year. The increase is driven primarily by customer and product mix and productivitywell as improvements in margin performance in our services reporting unit.automated stores and sample storage business lines. Cost of revenue for the three and nine months ended June 30,December 31, 2019 included $0.9$1.9 million and $2.7 million, respectively, of charges for amortization related to completed technology as compared to $1.1 million and $2.3 million, respectively, incurred during the corresponding periods of the prior fiscal year. The results for the three and nine months ended June 30, 2019 included $0.0 million and $0.2 million, respectively, of charges related to the inventory step-up in purchase accounting as compared to $0.8 million during both the corresponding periods of the prior fiscal year. Excluding the purchase accounting impact and the amortization of completed technology, margins expanded 0.8 percentage points, during the three and nine months ended June 30, 2019 as compared to the corresponding periods of the prior fiscal year. The difference in reported gross margin due to the adoption of the new revenue recognition standard was a net increase in gross profit of $0.2 million and $0.8 million during three and nine months ended June 30, 2019, respectively.
Our Brooks Life Sciences segment reported gross margins of 41.0% for the three months ended June 30, 2019 as compared to 37.4% for the corresponding period of the prior fiscal year. OurExcluding the impact of the amortization of completed technology, margins
37
expanded 3.5 percentage points during the three months ended December 31, 2019 as compared to the corresponding period of the prior fiscal year.
Research and Development
Research and development expenses were $14.4 million during the three months ended December 31, 2019 as compared to $13.1 million during the corresponding period of the prior fiscal year. The increase of $1.3 million during the first quarter of fiscal year 2020 as compared to the corresponding period of fiscal year 2019 reflects higher expense of $0.3 million within the Brooks Life Sciences segment reported gross margins of 40.3% forand $0.9 million within the nineBrooks Semiconductor Solutions Group segment.
Research and development expenses in our Brooks Semiconductor Solutions Group segment were $10.1 million during the three months ended June 30,December 31, 2019 as compared to 36.6% for$9.2 million during the corresponding period of the prior fiscal year. Higher research and development expenses were primarily attributable to increased employee related costs of $0.4 million, outside services of $0.3 million and project spending of $0.1 million.
Research and development expenses in our Brooks Life Sciences segment were $4.3 million during the three months ended December 31, 2019 as compared to $3.9 million during the corresponding period of the prior fiscal year. The three months ended December 31, 2019 included an incremental $1.1 million of costs related to GENEWIZ which was acquired on November of 2018. Partially offsetting this increase were lower employee related costs of $0.4 million and project spending of $0.4 million in our Sample Management business.
Selling, General and Administrative
Selling, general and administrative expenses were $59.3 million during the three months ended December 31, 2019 as compared to $53.5 million during the corresponding period of the prior fiscal year. The increase during both periodsof $5.8 million was due to a higher margin revenue mix from GENEWIZ. Costincreased expenses of revenue for the three and nine months ended June 30, 2019 included $2.0 million and $4.9 million, respectively, of charges for amortization related to completed technology as compared to $0.4 million and $1.1 million, respectively, incurred during the corresponding periods of the prior fiscal year. The results for the three and nine months ended June 30, 2018 included $0.0 million and $1.2 million, respectively, of charges related to the inventory step-up in purchase accounting as compared to no such charges during both the corresponding periods of the current fiscal year. Excluding the purchase accounting impact and the amortization of completed technology, margins expanded 5.1 percentage points and 4.2 percentage points, respectively, during the three and nine months ended June 30, 2019 as compared to the corresponding periods of the prior fiscal year. The difference in reported gross margin due to the adoption of the new revenue recognition standard was a net decrease in gross profit of $0.6 million and $1.8 million during three and nine months ended June 30, 2019, respectively.
Research and Development
Research and development expenses were $14.2 million and $41.5 million, respectively, during the three and nine months ended June 30, 2019 as compared to $12.0 million and $34.8 million, respectively, during the corresponding periods of the prior fiscal year. The increase of $2.2 million during the third quarter of fiscal year 2019 as compared to the corresponding period of fiscal year 2018 reflects higher expense of $1.2$9.8 million within the Brooks Life Sciences segment and $1.0increased expenses of $1.3 million within the Brooks Semiconductor Solutions Group segment.segment, partially offset by a reduction in corporate related expenses of $5.3 million. The increasereduction in corporate related expenses was primarily attributed to decreased merger and acquisition costs of $6.7$6.1 million during the first nine months of fiscal year 2019 aswhich are not allocated to our segments, partially offset by audit and legal costs which increased $2.4 million compared to the same period of fiscal year 2018 reflects higher expense of $3.8 million within the Brooks Life Sciences segment and $2.9 million within the Brooks Semiconductor Solutions Group segment. Higher expenses in both periods were primarily attributable to new acquisitions, project spending to support new product development and the growth of our business and higher employee related costs.
Selling, General and Administrativeprior year.
Selling, general, and administrative expenses in our Brooks Semiconductor Solutions Group segment were $52.6 million and $158.5 million, respectively, during the three and nine months ended June 30, 2019 as compared to $42.1 million and $120.7 million, respectively, during the corresponding periods of the prior fiscal year. The increase of $10.5$21.9 million for the three months ended June 30,December 31, 2019 compared to the corresponding period of the prior year was primarily attributable to the selling, general and administrative infrastructure at GENEWIZ, and amortization expense related to intangible assets acquired in connection with the acquisition of GENEWIZ. These impacts were partially offset by lower expense accruals in the 2019 period as compared to $20.6 million for the 2018 period related to variable compensation and lower professional services and merger and acquisition related expenses.three months ended December 31, 2018. The increase of $37.8$1.3 million during the nine months ended June 30, 2019 comparedis primarily related to the corresponding period of the prior fiscal year was driven by selling,higher corporate allocated costs.
Selling, general, and administrative expenses in our Brooks Life Sciences segment were $30.4 million for the three months ended December 31, 2019 compared to $20.6 million for the three months ended December 31, 2018. The increase was primarily related to GENEWIZ, which was acquired in November of 2018 and added an incremental $5.1 million of expense to the three months ended December 31, 2019, as well as, higher corporate allocated costs.
Restructuring Charges
We recorded restructuring charges of $0.6 million during the three months ended December 31, 2019 as compared to less than $0.1 million during the same period in the prior year. Restructuring charges for the three months ended December 31, 2019 consisted of $0.3 million related to corporate restructuring actions and $0.3 million in the Brooks Life Sciences segment related to the acquisitionsaction initiated in the fourth quarter of GENEWIZ and Tec Sem and amortization expensefiscal year 2019 to eliminate costs within the segment’s Sample Management business. Cost savings realized during the three months ended December 31, 2019 related to intangible assets acquiredthese actions were nominal in connection with both acquisitionsthe Brooks Semiconductor Solutions Group segment and higher merger and acquisition related expenses, partially offset by lower expenses related to$0.6 million in Brooks Life Sciences segment.
4938
professional services and variable compensation as compared to the 2018 period. The nine months ended June 30, 2019 included a $1.1 million credit related to an insurance claim.
Amortization expense related primarily to customer relationships was $6.2 million and $18.6 million, respectively, during the three and nine months ended June 30, 2019 as compared to $5.1 million and $14.3 million, respectively, during the corresponding periods of the prior fiscal year. Merger-related costs were $0.2 million and $6.6 million, respectively, during the three and nine months ended June 30, 2019 as compared to $0.4 million and $2.6 million, respectively, during the corresponding periods of the prior fiscal year. The increases in amortization expense and merger costs during 2019 are primarily due to the acquisition of GENEWIZ.
Non-Operating Income (Expenses)
Interest income - During the three and nine months ended June 30,December 31, 2019, we recorded interest income of $0.1$0.7 million, and $0.8 million, respectively, as compared to $0.7$0.4 million and $1.2 million, respectively, during the corresponding periodsperiod of the prior fiscal year.
Interest expense - During the three and nine months ended June 30,December 31, 2019, we recorded interest expense of $8.0$0.7 million, and $21.3 million, respectively, as compared to $2.5$5.3 million and $6.8 million, respectively, during corresponding periodsperiod of the prior fiscal year. The increasedecrease in interest expense in the 2019 periodscurrent period compared to the same periodsthree months ended December 31, 2018 is due the Company carrying less debt in the previous fiscal year are due to interest oncurrent period. The Company extinguished $495.3 million of debt during the incremental term loan secured in the firstfourth quarter of fiscal year 2019 to pay a portion of the purchase price for our acquisition of GENEWIZ.
Loss on extinguishment of debt - During the three and nine months ended June 30, 2019, we recorded a loss on extinguishment of debt of $9.1 million in connection with the syndication of the incremental 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.
Other expenses, net - During the three and nine months ended June 30,December 31, 2019, we recorded other expenses, net of $0.3$0.4 million, and $1.1 million, respectively, as compared to $0.6less than $0.1 million and $3.0 million, respectively, of the corresponding periodsperiod of the prior fiscal year. The $1.9 million decrease during the nine months ended June 30, 2019 as compared to the corresponding period of fiscal 2018 was primarily attributable to lower foreign currency exchange losses.
Income Tax Provision
We recorded an income tax expensebenefit of $7.3$3.0 million and $0.4 million, respectively, during the three and nine months ended June 30, 2019. The tax expense for the three months ended June 30, 2019December 31, 2019. The tax benefit was primarily driven by a $4.3$5.8 million discrete expense resulting from guidance provided with final U.S. tax regulations issued during the quarter related to the transition tax, and the tax provision on current earnings based on estimated annual mix of income by jurisdiction. These expenses were partially offset by a discrete benefit for stock compensation windfalls of $0.4 millionwindfall benefit for tax deductions that exceeded the associated compensation expense and a $0.3$0.5 million reversalreduction in deferred tax liabilities related to the extension of a tax rate incentive in China. These discrete benefits were partially offset by the tax provision on earnings from operations during the period.
We recorded an unrecognizedincome tax benefit uponof $5.8 million during the closing of an audit.three months ended December 31, 2018. The tax expense for the nine months ended June 30, 2019benefit was primarily driven by a $3.2$3.7 million expense related to the completion of the accountingdiscrete benefit for the U.S. transition tax and the tx provision on current earnings based on estimated annual mix of income by jurisdiction. These expenses were partially offset by discrete benefits related to stock compensation windfalls, of $4.5 million for tax deductions that exceeded the associated compensation expense, and $1.4 million of tax benefits related to the remeasurement of net U.S. deferred tax assets due to state tax rate changes.
We recorded an incomechanges, and a $1.1 million transition tax provision of $5.4 million and benefit of $49.8 million, respectively, during the three and nine months ended June 30, 2018. The tax provision for the three months ended June 30, 2018 was the result of our earnings for the period. The tax benefit recorded during the nine months ended June 30, 2018 was primarily driven by a discrete benefit due to the reversal of a valuation allowance against U.S. net deferred tax assets in the amount of $56.3
50
million. The tax benefit for the nine months ended June 30, 2018 also included $0.7 million of tax benefits related to the re-measurement of net U.S. deferred tax liabilities to account for the reduced 21 percent statutory federal income tax rate.reduction. These discrete tax benefits for the nine months ended June 30, 2018 were partiallyslightly offset by the tax provision related to foreign income.on earnings from operations during the period.
During 2018, the Internal Revenue Service issued proposed regulations on the federal toll charge and various other aspects of the Tax Cuts and Jobs Act. We finalized our analysis of the toll charge and related liabilities, including uncertain tax positions, during the three months ended December 31, 2018 pursuant to U.S. Securities and Exchange Commission, or SEC Staff Accounting Bulletin No. 118. As a result of the new guidance issued and additional work to complete the calculation of ourthe federal toll charge, we reduced ourthe provisional accrual for federal, state and foreign taxes by net $1.1 million during the three months ended December 31, 2018. During the quarter ended June 30, 2019, final U.S. tax regulations were issued that resulted in a $4.3 million increase to the previously calculated transition tax. In addition, we also assessed our uncertain tax positions related to these taxes and accrued income and determined no tax reserves were required.
We evaluate the realizability of ourits deferred tax assets by tax-paying component and assessassesses the need for a valuation allowance on a quarterly basis. We evaluate the profitability of each tax-paying component on a historic cumulative basis and a forward-looking basis while performing this analysis. We evaluated all positive and negative evidence in concluding it was appropriate to release the majority of the valuation allowance against U.S. net deferred tax assets during fiscal year 2018. We maintain a U.S. valuation allowance related to the realizability of othercertain state tax credits and net operating loss carry-forwards. We continue to maintaincarryforwards, as well as a valuation allowancesallowance against net deferred tax assets in certain foreign tax-paying components as of June 30,December 31, 2019. On July 1, 2019, we completed the sale of our semiconductor cryogenics business that resulted in a taxable gain in the U.S. During the fourth quarter of fiscal 2019, we may record adjustments to our valuation allowance as we consider new evidence including updated forecasts of U.S. income and utilization of deferred tax assets that were previously expected to expire.
We maintain liabilities for uncertain tax positions. These liabilities involve judgment and estimation and are monitored based on the best information available. We recognize interest related to unrecognized tax benefits as a component of the income tax expense or benefit. We recognized interest expense related to our unrecognized tax benefits of $0.3 million and $0.8 million, respectively, during the three and nine months ended June 30, 2019. During the three months ended June 30, 2019 an income tax audit was closed which resulted in a $0.3 million reduction in the gross unrecognized tax benefits that impacted the effective tax rate. During the nine months ended June 30, 2018 the statute of limitations lapsed on an uncertain tax position in a foreign jurisdiction which resulted in a $0.3 million reduction in the gross unrecognized tax benefits that impacted the effective tax rate.December 31, 2019.
We are subject to U.S. federal income tax and state, local and international income taxes in various jurisdictions. The amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file tax returns. In the normal course of business, we are subject to income tax audits in various global jurisdictions in which we operate. The years subject to examination vary for the U.S. and international jurisdictions, with the earliest tax year being 2011.jurisdictions. 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 ourthe unaudited Consolidated Balance Sheets. We currently anticipate that it is reasonably possible that the unrecognized tax benefits will be reduced by approximately $0.1$0.2 million within the next twelve months.
39
Discontinued Operations
On July 1, 2019, we completed the sale of the semiconductor cryogenics business which we include as a discontinued operation. We generated net loss from discontinued operations of $0.1 million for the three months ended December 31, 2019 related to our semiconductor cryogenics business. We generated revenue and net income from discontinued operations of $34.5$39.3 million and $6.3$8.1 million, respectively, for the three months ended June 30, 2019December 31, 2018 related to our semiconductor cryogenics business as compared to $51.1 million and $17.8 million, respectively, for the corresponding period of fiscal 2018. We generated revenue and net income from discontinued operations of $109.5 million and $20.7 million, respectively, for the nine months ended June 30, 2019 related to our semiconductor cryogenics business as compared to $148.2 million and $37.2 million, respectively, for the corresponding period of fiscal 2018.business. The net income includes income from the Ulvac Cryogenics, Inc. joint venture during these periods. The income from discontinued operations only includes direct operating expenses incurred that (1) are clearly identifiable as costs being disposed of upon completion of the sale and (2) will not be continued by the
51
Company on an ongoing basis. Indirect expenses which supported the semiconductor cryogenics business, and which will remain as part of the continuing operations, are not reflected in income from discontinued operations.
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 satisfy our 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 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 and is stated on a total company consolidated basis.
Overview of Cash Flows and Liquidity
Our cash, cash equivalents and marketable securities as of June 30,December 31, 2019 and September 30, 20182019 consist of the following (in thousands):
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
|
| June 30, 2019 |
| September 30, 2018 |
|
| December 31, 2019 |
| September 30, 2019 |
| ||||
Cash and cash equivalents | | $ | 156,852 | | $ | 197,708 | | | $ | 335,319 | | $ | 301,642 | |
Restricted cash | | | 3,529 | | | 3,529 | | |||||||
Short-term marketable securities | |
| 35 | |
| 46,281 | | |
| 11,233 | |
| 34,124 | |
Long-term marketable securities | |
| 2,874 | |
| 7,237 | | |
| 3,039 | |
| 2,845 | |
| | $ | 159,761 | | $ | 251,226 | | | $ | 353,120 | | $ | 342,140 | |
Our cash is held in numerous locations throughout the world. As of June 30,December 31, 2019, we had cash and cash equivalents of $156.9$335.3 million, of which $112.3$179.7 million was held outside of the United States. If these funds are needed for our U.S. operations, we would need to repatriate these funds. As a result of recent changes in U.S. tax legislation, any repatriation in the future would likely not result in further U.S. federal income tax. Our intent is to permanently reinvest these funds outside of the United States and our current operating plans do not demonstrate a need to repatriate these funds for our U.S. operations. As of June 30,December 31, 2019 and September 30, 2018,2019, we had marketable securities of $2.9$14.3 million and $53.5$37.0 million, respectively. Our marketable securities are generally readily convertible to cash without an adverse impact.
On July 1, 2019, subsequent to this third fiscal quarter reporting period, the sale of the semiconductor cryogenics business was completed. Cash received on July 1, 2019 was $669 million, of which, $3 million was placed in escrow. The Company estimates obligations related to the sale include estimated closing costs of $13 million and estimated taxes of $105 million, resulting in estimated net proceeds from the sale of $550 million, subject to final working capital and other adjustments. From the cash received on July 1, 2019 related to the sale, $348.3 million was applied to fully extinguish the balance of our incremental term loan and $147.0 million was applied to reduce the balance outstanding of our term loan. The impact on the cash balance on July 1, 2019 due to the cash received from the sale partially offset by the application of the proceeds received to reduce debt, was a net increase of $173.4 million. The Company expects to settle the other obligations from the sale including estimated closing costs of $13 million in the fourth quarter of fiscal 2019, and estimated taxes of $105 million in the second quarter of fiscal 2020. As described above, the Company routinely invests certain amounts of its cash balance in marketable securities.
When considering only the cash received related to the sale of the semiconductor cryogenics business and the debt reductions made on July 1, 2019, as mentioned above, the balance of cash, cash equivalents and marketable securities reported as of June 30, 2019 on our Consolidated Balance Sheet of $159.8 million increased $173.4 million to $333.2 million. Similarly, the long-term debt reported on our Consolidated Balance Sheet as of June 30, 2019 of $534.7 million
5240
decreased by $491.8 million on July 1, 2019 to $42.9 million and the current portion of long-term debt reported on our Consolidated Balance Sheet of $6.3 million as of June 30, 2019 decreased to $2.8 million on July 1, 2019. Total current liabilities reported on our Consolidated Balance Sheet at June 30, 2019 of $175.0 million increased on July 1, 2019 by approximately $118 million due to liabilities assumed related to the sale for the estimated tax payments of $105 million and estimated closing costs of $13 million, as mentioned above.
NineThree Months Ended June 30,December 31, 2019 Compared to NineThree Months Ended June 30,December 31, 2018
Overview
Cash, cash equivalents, restricted cash and marketable securities were $159.8$353.1 million at June 30,December 31, 2019 as compared to $251.2$342.1 million at September 30, 2018.2019. The decrease in cash and cash equivalents and marketable securitiesincrease of $91.5$11.0 million from September 30, 2019 was primarily attributable to netcash inflows generated from operating activities of $25.7 million, partially offset by cash outflows for capital expenditures of $442.7$9.6 million to acquire GENEWIZ,and cash dividends paid of $21.7 million and capital expenditures of $15.5 million, partially offset by net cash inflows primarily from proceeds received from the incremental amendment and syndication of our existing term loan of $331.4 million, proceeds from the sales and maturities of marketable securities of $51.5 million and net cash inflows from operating activities of $58.2 million during the nine months ended June 30, 2019.$7.4 million.
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 operating charges impact reported cash flows.
Cash provided by operating activities was $58.2$25.7 million during the ninethree months ended June 30,December 31, 2019, comprised primarily of earnings of $76.6$26.3 million, including net income of $25.1$13.1 million and the unfavorable impact of non-cash related charges of $51.5$13.2 million. Partially offsetting these items were the uses of cash of $18.4$0.5 million related to the changes in our operating assets and liabilities. The changes in operating assets and liabilities that resulted in a use of cash consisted primarily of an increase an increase in inventory levels and a decrease in accrued compensation and tax withholdings as a result of year-end cash incentive bonus payments, an increase in accounts receivable as a result of higher revenue, an increase in inventory levels primarily related to our automation systems product lines, and increase in accounts payable.payments. These uses of cash were partially offset by sources of cash related primarily to increasesan increase in deferred revenue and accrued expenses and other liabilities, increased accounts payable and decreased deferred income tax liabilities. Cash provided by operating activities was $42.8$6.3 million during the ninethree months ended June 30,December 31, 2018 comprised primarily of earnings of $95.0$21.5 million, including net income of $106.1$14.4 million and the unfavorable impact of non-cash related charges of $11.1$7.1 million, partially offset by the uses of cash of $52.2$15.2 million related to the changes in our operating assets and liabilities.
In January 2020, subsequent to the end of our first fiscal quarter of 2020, we paid $93 million in taxes related to the sale of our semiconductor cryogenics business. We expect to pay another $2 million related to this sale in future periods.
Investing Activities
Cash flows from investing activities consist primarily of cash used for acquisitions, capital expenditures and purchases of marketable securities as well as cash proceeds generated from sales and maturities of marketable securities. Cash used inprovided by investing activities was $408.1$13.2 million during the ninethree months ended June 30,December 31, 2019 as compared to $142.0cash used by investing activities of $398.6 million during the corresponding period of the prior fiscal year. Cash provided by investing activities during the three months ended December 31, 2019 included cash inflows from the maturities of marketable securities of $33.6 million, partially offset by cash outflows for capital expenditures of $9.6 million and $10.7 million for the purchases of marketable securities. Cash used in investing activities of $398.6 million during the ninethree months ended June 30, 2019December 31, 2018 included cash outflow of $442.7$445.2 million for the acquisition of GENEWIZ, $15.5$3.6 million of capital expenditures, and $1.3 million for the purchases of marketable securities, partially offset by cash inflows from the proceeds of sales and maturities of marketable securities of $51.5 million. Cash used in investing activities during the nine months ended June 30, 2018 included cash payments of $83.0 million for acquisitions, $58.3 million for the purchases of marketable securities and $9.3 million of capital expenditures, partially offset by cash inflows from sales and maturities of marketable securities of $8.5 million.
Financing Activities
Cash provided byoutflows for financing activities was $309.8$8.1 million during the ninethree months ended June 30,December 31, 2019 as compared to $176.4cash inflows from investing activities of $331.4 million during the corresponding period of the prior fiscal year. Cash outflows for financing activities during the three months ended December 31, 2019 primarily included cash outflows for cash dividend payments of $7.4 million. Cash provided by financing activities during the three months ended December 31, 2018 included cash inflows of $340.5 million related to proceeds from the incremental term loan secured in November 2018, partially offset by cash dividend payments of $7.2 million and $1.8 million related to principal payments of debt.
5341
the nine months ended June 30, 2019 included net cash inflows of $331.4 million primarily related to net proceeds from the incremental term loan secured in November 2018 and the syndication of the incremental term loan in February 2019, partially offset by cash dividend payments of $21.7 million. Cash provided by financing activities during the nine months ended June 30, 2018 included cash inflows of $197.6 million related to proceeds from the term loan originated in October 2017, partially offset by cash dividend payments of $21.2 million and principal payments of $1.0 million.
China Facility
In April 2019, we committed to construct a facility in Suzhou China, to consolidate the Suzhou operations of itsthe 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 which up to $10.0$15.0 to $20.0 million is expected to be incurred during 2019.2020. During the three and nine months ended June 30,December 31, 2019, we have incurred $0.1$1.3 million in capital expenditures related to the construction of this facility.
Divestiture and Extinguishment of Debt
On July 1, 2019, we completed the sale of our semiconductor cryogenics business to Edwards Vacuum LLC (a member of the Atlas Copco Group) for $675.0 million. We expect net cash proceeds from the sale to be approximately $550 million, after adjustments and deducting taxes and other items. On July 1, 2019, in connection with the completion of the sale, we used $348.3 million of the cash proceeds from the sale to extinguish the total remaining outstanding balance of the incremental term loan and $147.0 million of the cash proceeds from the sale to extinguish a portion of the outstanding balance of the term loan. The total amount of debt extinguished on July 1, 2019 was $495.3 million.
Capital Resources
Senior Secured Term Loan FacilityLoans
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.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. On November 15, 2018, we entered into an incremental amendment, or the Amendment to the existing credit agreement. Under the Amendment, we obtained an incremental term loan in an aggregate principal amount of $350.0 million. The proceeds of the incremental loan were used to pay a portion of the purchase price for our acquisition of GENEWIZ acquisition. The 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 loan. Except as provided in the Amendment, the incremental loan is subject to the same terms and conditions as set forth in the existing credit agreement. The loan principal amount may be increased by an aggregate amount equal to $75.0 million plus any voluntary repayments of the term loansloan plus any additional amount such that theour secured leverage ratio of the Company is less than 3.00 to 1.00.
On February 15, 2019, we syndicated the incrementalThe term loan to a group of new lenders which met the criteria of a debt extinguishment. We 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 a loss on debt extinguishment for $9.1 million. The syndicated incremental term loan was issued at $345.2 million, or 98.9% of its part value resulting in a discount of $4.0 million which represented financing costs which are presented as a reduction of the incremental term loan principal balance in the accompanying unaudited Consolidated Balance Sheets and was accreted over the life of the loan. Except as provided in the Amendment for increase of interest rates, the incremental term loan was subject to the same terms and conditions as set forth in the incremental term loan.
The term loans maturematures 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. During the nine months ended June 30, 2019, we made principal payments of $3.3 million related to the term loans. Subject to certain conditions stated in the credit agreement, we may redeem the term loansloan at any time at our option without a significant premium or penalty, except for
54
a repricing transaction, as defined in the original credit agreement and the Amendment.agreement. We would also beare required to redeem the term loan at the principal amountsamount then outstanding upon the occurrence of certain events, as set forth in the originalcredit 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 GENEWIZ. On February 15, 2019, we entered into the second amendment to the credit agreement and syndicated the Amendment.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 the amendments, the incremental term loan was subject to the same terms and conditions of the initial term loan.
On July 1, 2019, in connection with the completion of the sale of our semiconductor cryogenics business, we used $348.3 million of the cash proceeds from the salestransaction to extinguish the outstanding balance at July 1, 2019 of the incremental term loan and $147.0 million of the cash proceeds from the salestransaction to extinguish a portion of 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 July 1,
The credit agreement, as amended, contains certain customary representations and warranties, covenants and events of default. As of December 31, 2019, our total outstanding debt balance was approximately $46 millionwe were in compliance with all covenants and conditions under the credit agreement, as a result of the debt extinguishment.amended.
In connection with theour acquisition of GENEWIZ acquisition,in November 2018, we assumed three five-year term loans and two one-year term loans. At June 30,December 31, 2019, we had an aggregate outstanding principal balance of $1.7$1.2 million forunder the three five-year term loans. The two one-year short term loans matured and were repaid in full as of JuneSeptember 30, 2019.
At June 30,December 31, 2019, the aggregate outstanding principal balance of all of the outstanding term loans was $541.1$50.7 million, excluding unamortized deferred financing costs of $5.8$0.5 million. Borrowings under the term loanloans bear variable interest rates. As a result, we may experience exposure to interest rate risk due to the potential volatility associated with the variable interest rates on the term loan.loans. If rates increase, we may be subject to higher costs of servicing the loanloans which could reduce our profitability and cash flows. During the ninethree months ended June 30,December 31, 2019, the weighted average stated interest rate on the term loanloans was 5.4%4.5%. During the ninethree months ended June 30,December 31, 2019, we incurred
42
aggregate interest expense of $21.3$0.6 million on the term loans, including $1.3less than $0.1 million of deferred financing costs amortization. Our debt service requirements are expected to be funded through our existing sources of liquidity and operating cash flows.
The credit agreement and the Amendment contain certain customary representations and warranties, covenants and events of default. As of June 30, 2019, we were in compliance with all covenants and conditions under the credit agreement.
Line of Credit
Facility
We maintain a revolving line of credit under a credit agreement with Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A. that provides for revolving credit facility of up to $75.0 million, subject to borrowing base availability, as defined in the credit agreement. The line of credit matures on October 4, 2022. The proceeds from the line of credit are available for permitted acquisitions and general corporate purposes.
As of June 30,December 31, 2019, we had approximately $48.7$43.6 million available for borrowing under the line of credit. There were no amounts outstanding pursuant to the line of credit as of June 30,December 31, 2019. The amount of funds available for borrowing under the credit agreement may fluctuate each period based on our borrowing base availability. The credit agreement contains certain customary representations and warranties, a financial covenant, affirmative and negative covenants, as well as events of default. We were in compliance with the credit agreement as of June 30,December 31, 2019. Although we believe we will be able to generate sufficient cash in the United States and foreign jurisdictions to fund future operating costs, we secured the revolving line of credit as an additional assurance for maintaining liquidity in the United States during potentially severe downturns of the cyclical semiconductor market, and for strategic investments or acquisitions.
Dividends
On July 31, 2019,January 24, 2020, the Company’s Board of Directors declared a cash dividend of $0.10 per share payable on SeptemberMarch 27, 20192020 to common stockholders of record as of SeptemberMarch 6, 2019.2020. Dividends are declared at the discretion of our Board of Directors and depend on actual cash flow from operations, our financial condition, debt service and 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 dividends may be impacted by the cyclical nature
55
of certain markets we serve. We may reduce, delay or cancel a quarterly cash dividend based on the severity of a cyclical downturn.
Share Repurchase Program
On September 29, 2015, our Board of Directors approved a share repurchase program for up to $50.0 million worth of our common stock. The timing and amount of any shares repurchased will be based on market and business conditions, legal requirements and other factors and repurchases may be commenced or suspended at any time at our discretion. There were no shares repurchased under this program during the ninethree months ended June 30,December 31, 2019 and there have been no shares repurchased under this program since its inception.
Contractual Obligations and Requirements
OurAt December 31, 2019, the Company had non-cancellable commitments of $130.2 million, including purchase orders for inventory purchaseof $84.9 million, information technology related commitments were $97.2of $25.0 million, at June 30, 2019.China facility commitments of $18.6 million and other commitments of $1.7 million.
At June 30,December 31, 2019, we had approximately $1.3$1.2 million of letters of credit outstanding related primarily to customer advances and other performance obligations. These arrangements guarantee the refund of advance payments received from our customers in the event that the product is not delivered or warranty obligations are not fulfilled in accordance with the contract terms. These obligations could be called by the beneficiaries at any time before the expiration date of the particular letter of credit if we fail to meet certain contractual requirements. None of these obligations were called during the ninethree months ended June 30,December 31, 2019, and we currently do not anticipate any of these obligations to be called in the near future.
43
Off-Balance Sheet Arrangements
As of June 30,December 31, 2019, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
56
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including fluctuations in foreign currency exchange rates and changes in interest rates affecting interest payments on our term loan and investment return on our cash, cash equivalents and marketable securities.
Interest Rate Exposure
Our term loans bear variable interest rates which subject 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 June 30,December 31, 2019, the weighted average stated interest rate on the term loans was 5.4%4.5%. At June 30,December 31, 2019, the outstanding term loans principal balance was $541.1$50.7 million, net of unamortized deferred financing costs of $5.8$0.5 million. During the ninethree months ended JuneDecember 30, 2019, we incurred cash interest expense of $20.0$0.6 million on the term loans. A hypothetical 100 basis point change in interest rates would result in a $3.8$0.1 million change in interest expense incurred during the ninethree months ended June 30,December 31, 2019.
Our cash and cash equivalents consist principally of money market securities that are short-term in nature. At June 30,December 31, 2019, our total short-term and long-term investments were $2.9$14.3 million, consisting mostly of highly rated corporate debt securities and other debt securities. At June 30,December 31, 2019, we had no securities in an unrealized loss position. A hypothetical 100 basis point change in interest rates would result in an insignificant increase in interest income earned during the ninethree months ended June 30,December 31, 2019.
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 approximately 35%41% and 33%35% of our total sales, respectively, during the ninethree months ended June 30,December 31, 2019 and 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 $123.4$144.2 million and $84.7$117.7 million, respectively, at June 30,December 31, 2019 and September 30, 2018,2019, 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 foreign currency losses of $1.1$0.7 million and $3.1$0.1 million, respectively, during the ninethree months ended June 30,December 31, 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 at June 30,December 31, 2019 and 2018 would result in an approximate change of $1.6$1.4 million and $5.1$3.4 million, respectively, in our net income during the ninethree months ended June 30,December 31, 2019 and 2018.
5744
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As
Under the supervision and with the participation of the end of the period covered by this report, and pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, the Company’sour management, including our chief executive officer and chief financial officer, has concluded thatwe conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Disclosure controls and procedures are effective.
Changedesigned to ensure that information required to be disclosed by us in Internal Controls. There were no changesthe reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within 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 December 31, 2019, the end of the period covered by this Quarterly Report on Form 10-Q.
Previously Identified Material Weaknesses in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that occurredthere is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, the following control deficiencies, which continue to exist as of December 31, 2019, that constitute material weaknesses in our internal control over financial reporting:
● | 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 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 misstatements and subsequent 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. |
● | We 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 immaterial 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. |
Remediation Plan for Material Weaknesses
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 designed and operating effectively. The remediation actions in the Brooks Life Sciences segment include: (i) leveraging the implementation 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 include (i) enhanced documentation of inventory cut-off procedures related to contract manufacturing sites (ii) additional employee
45
training and (iii) designing and implementing additional cut-off review procedures for transactions occurring near the end of a reporting period.
Status of Remediation Efforts
We implemented a new billing system and enterprise resource planning system (ERP) during the quarter ended December 31, 2019, for the business unit within our most recentBrooks Life Sciences segment noted above. We are in the process of implementing new and enhanced controls to verify the accuracy of price and quantity data for customer transactions and enhancing our documentation related to the business unit’s billing procedures and controls, which will support the business unit’s ability to train employees and execute the controls effectively.
To address the material weakness related to the business unit within our Brooks Semiconductor Solutions segment noted above, during the quarter ended December 31, 2019, we designed, documented and implemented new controls to verify that product shipments from contract manufacturers are evaluated for proper revenue recognition at the point of transfer of control. Management will test controls to ensure they have operated effectively for a sufficient period of time before concluding on remediation. We have also initiated employee training with respect to these procedures.
We believe the measures described above will facilitate the remediation of the control deficiencies we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify, or, in appropriate circumstances, not complete, certain of the remediation measures described above. These material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control Over Financial Reporting
Except for the remediation efforts discussed above under “Status of Remediation Efforts”, there were no changes in internal control over financial reporting during the fiscal first quarter ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standards related to revenue recognition on our financial statements to facilitate their adoption on October 1, 2018. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard.
5846
PART II. OTHER INFORMATION
Item 1. 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 Quarterly Report on Form 10-Q, 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 1A. Risk Factors
You should carefully review and consider the information regarding certain factors that could materially affect our business, consolidated financial condition or results of operations set forth under Item 1A. Risk Factors in our 20182019 Annual Report on Form 10-K. There have been no material changes from the risk factors disclosed in our 20182019 Annual Report on Form 10-K. We10-K, other than the addition of the risk factor set forth below.
Our financial condition and results of operations could be adversely affected by the recent coronavirus outbreak.
In December 2019, a novel strain of coronavirus was first identified in Wuhan, Hubei Province, China. Any outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business operations. These could include disruptions or restrictions on our ability to travel, as well as temporary closures of our facilities or the facilities of our suppliers or customers. Any disruption of our suppliers or customers would likely impact our sales and operating results. The extent to which the coronavirus may disclose changes to risk factors or additional factors from time to time inimpact our results will depend on future filings withdevelopments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the SEC.severity of the coronavirus.
5947
Item 6. Exhibits
The following exhibits are included herein:
| | |
Exhibit No. |
| Description |
|
| |
| | |
31.01 | | |
| | |
31.02 | | |
| | |
32 | | |
| | |
101 | | The following material from the Company’s Quarterly Report on Form 10-Q, for the quarter ended |
| | |
104 | | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101). |
6048
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
| BROOKS AUTOMATION, INC. |
| |
Date: | /s/ Lindon G. Robertson |
| Lindon G. Robertson |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
| |
Date: | /s/ David Pietrantoni |
| David Pietrantoni |
| Vice President-Finance and Corporate Controller |
| (Principal Accounting Officer) |
6149