NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Business
Brooks Automation, Inc. (“Brooks”, or the “Company”) is leading global provider of automation and cryogenic solutions for multiple applications and markets. The Company primarily serves the semiconductor capital equipment market and sample management market for life sciences. The Company's technologies, engineering competencies and global service capabilities provide customers speed to market and ensure high uptime and rapid response, which equate to superior value in their mission-critical controlled environments. Since 1978, the Company has been a leading partner to the global semiconductor manufacturing markets. The Company has expanded its products and services through product development initiatives and strategic business acquisitions to meet the needs of customers in the life science and technology markets adjacent to semiconductor.
In the second quarter of fiscal year 2014, the Company determined that its Granville-Phillips Gas Analysis & Vacuum Measurement, or Granville-Phillips, business met the criteria of being reported as a discontinued operation. As a result, the Company’s historical financial statements have been revised to present the operating results of the Granville-Phillips business as a discontinued operation. The results of operations from the Granville-Phillips business are presented as “Income from discontinued operations, net of tax” in the Consolidated Statements of Operations. The Company has not separated cash flows of the Granville-Phillips business from those of its continuing operations and has not revised its historical statements of cash flows. Unless otherwise noted, the discussion in the notes to these Consolidated Financial Statements relates solely to the Company's continuing operations.
Revision of Prior Period Financial Statements
During fiscal year 2016, the Company identified a classification error related to a presentation of cost of product and service revenue in the Company's consolidated statements of operations for the quarterly and annual periods beginning in the fourth quarter of fiscal year 2014 through the quarterly period ended March 31, 2016. The classification error had no impact on the total cost of revenue, gross profit, operating income (loss), net (loss) income, as well as basic and diluted net (loss) income per share during any of the periods presented. Additionally, the classification error had no impact on the Company's consolidated balance sheets and consolidated statements of cash flows during any of the prior periods. The Company considered the guidance in Accounting Standard Codification (ASC) Topic 250, “
Accounting Changes and Error Corrections
,” ASC Topic 250-10-S99-1, “
Assessing Materiality
,” and ASC Topic 250-10-S99-2, “
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements"
in evaluating whether the Company’s previously issued Consolidated Financial Statements were materially misstated. The Company concluded this classification error was not material individually or in the aggregate to the financial statements presented during any of the prior reporting periods, and therefore, amendments of previously filed reports were not required. The revisions for these corrections to the applicable prior periods are reflected in the financial information herein and will be reflected in future filings containing such financial information.
The following table summarizes the effects of the classification error on the annual prior period financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2015
|
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
Cost of product revenue
|
|
$
|
307,865
|
|
|
$
|
(9,517
|
)
|
|
$
|
298,348
|
|
Cost of service revenue
|
|
55,738
|
|
|
9,517
|
|
|
65,255
|
|
Total cost of revenue
|
|
$
|
363,603
|
|
|
$
|
—
|
|
|
$
|
363,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2014
|
|
|
As Previously Reported
|
|
Adjustment
|
|
As Revised
|
Cost of product revenue
|
|
$
|
252,688
|
|
|
$
|
(2,420
|
)
|
|
$
|
250,268
|
|
Cost of service revenue
|
|
62,823
|
|
|
2,420
|
|
|
65,243
|
|
Total cost of revenue
|
|
$
|
315,511
|
|
|
$
|
—
|
|
|
$
|
315,511
|
|
|
|
|
|
|
|
|
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company applies equity method of accounting to investments that provide it with ability to exercise significant influence over the entities in which it lacks controlling financial interest and is not a primary beneficiary.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Significant estimates are associated with recording accounts receivable, inventories, goodwill, intangible assets other than goodwill, long-lived assets, derivative financial instruments, deferred income taxes, warranty and pension obligations, revenue recognized in accordance with the percentage of completion method, and stock-based compensation expense. The Company assesses the estimates on an ongoing basis and records changes in estimates in the period they occur and become known. Actual results could differ from these estimates.
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.
Significant judgments are used in determining fair values of assets acquired and liabilities assumed, as well as intangibles. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company's current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a
final determination of asset and liability fair values, whichever occurs first. Adjustments to
fair values of assets and liabilities made after the end of the measurement period are recorded within the Company's operating results.
Changes in the fair value of a contingent consideration resulting from a change in the underlying inputs are recognized in results of operations until the arrangement is settled.
Foreign Currency Translation
Certain transactions of the Company and its subsidiaries are denominated in currencies other than their functional currency. Foreign currency exchange gains (losses) generated from the settlement and remeasurement of these transactions are
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
recognized in earnings and presented within “Other (expense) income, net” in the Company's Consolidated Statements of Operations. Net foreign currency transaction and remeasurement (losses) gains totaled
$(1.9) million
,
$0.5 million
and
$(1.2) million
for the fiscal years ended September 30, 2016, 2015 and 2014, respectively.
The determination of the functional currency of the Company's subsidiaries is based on their financial and operational environment and is the local currency of all of the Company's foreign subsidiaries. The subsidiaries' assets and liabilities are translated into the reporting currency at period-end exchange rates, while revenue, expenses, gains and losses are translated at the average exchange rates during the period. Gains and losses from foreign currency translations are recorded in accumulated other comprehensive income in the Company's Consolidated Balance Sheets and presented as a component of comprehensive income (loss) in the Company's Consolidated Statements of Comprehensive Income (Loss).
Derivative Financial Instruments
All derivatives, whether designated as a hedging relationship or not, are recorded in the Consolidated Balance Sheets at fair value. The accounting for changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation based on the exposure being hedged. Certain derivatives held by the Company are not designated as hedges but are used in managing exposure to changes in foreign exchange rates.
A fair value hedge is a derivative instrument designated for the purpose of hedging the exposure of changes in fair value of an asset or a liability resulting from a particular risk. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are both recognized in the results of operations and presented in the same caption in the Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss).
A cash flow hedge is a derivative instrument designated for the purpose of hedging the exposure to variability in future cash flows resulting from a particular risk. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in accumulated other comprehensive income and recognized in the results of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in the results of operations.
A hedge of a net investment in a foreign operation is achieved through a derivative instrument designated for the purpose of hedging the exposure of changes in value of investments in foreign subsidiaries. If the derivative is designated as a hedge of a net investment in a foreign operation, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income as a part of the foreign currency translation adjustment. Ineffective portions of net investment hedges are recognized in the results of operations.
For derivative instruments not designated as hedging instruments, changes in fair value are recognized in the Consolidated Statements of Operations as gains or losses consistent with the classification of the underlying risk.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash deposits and cash equivalents, marketable securities, derivative instruments and accounts receivable. All of the Company’s cash, cash equivalents, marketable securities and derivative instruments are maintained by major financial institutions.
The Company invests cash not used in operations in investment grade, high credit quality securities in accordance with the Company's investment policy which provides guidelines and limits regarding investments type, concentration, credit quality and maturity terms aimed at maintaining liquidity and reducing risk of capital loss.
A majority of the Company’s customers is concentrated in the semiconductor industry. The Company regularly monitors the creditworthiness of its customers and believes that it has adequately provided for exposure to potential credit losses. The Company's top ten largest customers accounted for approximately
34%
,
38%
and
37%
of its consolidated revenue for the fiscal years ended September 30, 2016, 2015 and 2014, respectively. One customer accounted for approximately
12%
, and
11%
, respectively, in the fiscal years ended September 30, 2015 and 2014. No customers accounted for more than
10%
of our consolidated revenue for fiscal year 2016.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, marketable securities, derivative instruments, accounts receivable, loans receivable, convertible debt securities, stock warrants, contingent consideration and accounts payable.
Marketable securities and derivative instruments are measured at fair value based on quoted market prices or observable inputs other than quoted market prices for identical or similar assets or liabilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Convertible debt securities are measured at fair value based on the probability-weighted expected return method utilizing various scenarios for the expected payout of the instrument covering the full range of the potential outcomes. Fair value of the asset securities is based upon the present value of the probability of each future outcome becoming available to the asset and the economic rights and preferences of each asset.
Stock warrants are measured at fair value based on the Black-Scholes model which incorporates the constant price variation of the underlying asset, the time value of money, the warrant’s strike price and the time to the warrant’s expiration date.
Loans receivable are measured at fair value on a non-recurring basis. The Company considers the subordination features of the loans and the fair value of the collateral when measuring the loans' fair value. The fair value of the loans receivable is determined based on valuation techniques, principally the discounted cash flow method, and could be different under different conditions or different assumptions, including the varying assumptions regarding future cash flows of the Borrower or discount rates.
Contingent consideration is measured at fair value based on the probability-weighted average discounted cash flow model utilizing potential outcomes related to achievement of certain specified targets and events. The fair value measurement of the contingent consideration is based on probabilities assigned to each potential outcome and the discount rate.
The carrying amounts of cash, cash equivalent, accounts receivable and accounts payable approximate their fair value due to their short-term nature.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash. At September 30, 2016 and 2015, cash equivalents were
$0.1 million
and
$11.6 million
, respectively. Cash equivalents are reported at cost which approximates their fair value due to their short-term nature and varying interest rates.
Accounts Receivable, Allowance for Doubtful Accounts and Sales Returns
Trade accounts receivable do not bear interest and are recorded at the invoiced amount. The Company maintains an allowance for doubtful accounts representing its best estimate of probable credit losses related to its existing accounts receivable and their net realizable value. The Company determines the allowance based on a number of factors, including an evaluation of customer credit worthiness, the age of the outstanding receivables, economic trends and historical experience. The Company reviews its allowance for doubtful accounts on a quarterly basis and adjusts the balance based on the Company's estimates of the receivables' recoverability in the period the changes in estimates occur and become known. Accounts receivable balances are written-off against the allowance for doubtful accounts when the Company determines that the balances are not recoverable. Provisions for doubtful accounts are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations. The Company determines the allowance for sales returns based on its best estimate of probable customer returns. Provisions for sales returns are recorded in "Revenue" in the Consolidated Statements of Operations. The Company does not have any off-balance-sheet credit exposure related to its customers.
Inventories
Inventories are stated at the lower of cost or market determined on a first-in, first-out basis and include the cost of materials, labor and manufacturing overhead. The Company reports inventories at their net realizable value and provides reserves for excess, obsolete or damaged inventory based on changes in customer demand, technology and other economic factors.
Fixed Assets, Intangible Assets and Impairment of Long-lived Assets
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation expense is computed based on the straight-line method and charged to results of operations to allocate the cost of the assets over their estimated useful lives, as follows:
|
|
|
Buildings
|
20 - 40 years
|
Computer equipment and software
|
2 - 7 years
|
Machinery and equipment
|
2 - 10 years
|
Furniture and fixtures
|
3 - 10 years
|
Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining terms of the respective leases. Equipment used for demonstrations to customers is included in machinery and equipment and depreciated over its estimated useful life. Repair and maintenance costs are expensed as incurred.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
The Company develops software for its internal use and capitalizes direct costs incurred to develop internal-use software during the application development stage after determining software technological requirements and obtaining management approval for funding projects probable of completion. Capitalization of the internal-use software development costs ceases upon substantially completing the project and placing the software into service based on its intended use. Training and data conversion costs, as well as costs incurred prior to the application development stage and during the post-implementation stage are expensed as incurred. During the fiscal year ended September 30, 2016, the Company capitalized direct costs of
$3.7 million
associated with development of software for its internal use which are included within "Property, plant and equipment, net" in the accompanying Consolidated Balance Sheets. There were
no
internal-use software development costs as of September 30, 2015.
Cost of disposed assets upon their retirement and the associated accumulated depreciation are derecognized at the time of disposal, and the resulting gain or loss is included in the Company's results of operations.
The Company identified finite-lived intangible assets other than goodwill as a result of acquisitions. Finite-lived intangible assets are valued based on estimated future cash flows and amortized over their estimated useful lives based on methods that approximate the pattern in which the economic benefits are expected to be realized.
Finite-lived intangibles assets and fixed assets are tested for impairment when indicators of impairment are present. For purposes of this test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If the Company determines that indicators of potential impairment are present, it assesses the recoverability of long-lived asset group by comparing its undiscounted future cash flows to its carrying value. The future cash flow period is based on the future service life of the primary asset within the long-lived asset group. If the carrying value of the long-lived asset group exceeds its future cash flows, the Company determines fair values of the individual net assets within the long-lived asset group to assess potential impairment. If the aggregate fair values of the individual net assets of the group are less than their carrying values, an impairment loss is recognized for an amount in excess of the group's aggregate carrying value over its fair value. The loss is allocated to the assets within the group based on their relative carrying values, with no asset reduced below its fair value.
Finite-lived intangible assets are amortized over their useful lives, as follows:
|
|
|
Patents
|
7 - 15 years
|
Completed technology
|
5 - 10 years
|
Customer relationships
|
5 - 11 years
|
Goodwill
Goodwill represents the excess of a purchase price over the fair value of net tangible and identifiable intangible assets of the businesses acquired by the Company. Goodwill is tested for impairment annually or more often if impairment indicators are present at the reporting unit level. The Company elected April 1st as its annual goodwill impairment assessment date and performs additional impairment tests if triggering events occur. If events occur or circumstances change that would more likely than not reduce fair values of the reporting units below their carrying values, goodwill will be evaluated for impairment between annual tests.
Application of the goodwill impairment test requires significant judgment based on market and operational conditions at the time of the evaluation, including management's best estimate of future business activity and the related estimates of future cash flows from the assets and the reporting units that include the associated goodwill. These periodic evaluations could cause management to conclude that impairment factors exist, requiring an adjustment of these assets to their then-current fair market values. Future business conditions and/or activity could differ materially from the projections made by management which could result in additional adjustments and impairment charges.
The goodwill impairment test is performed at the reporting unit level. A reporting unit is either an operating segment or one level below it, which is referred to as a “component”. The level at which the impairment test is performed requires an assessment of whether the operations below an operating segment constitute a self-sustaining business, in which case testing is generally performed at this level.
Goodwill impairment testing involves a two-step process. The Company first compares the fair value of each reporting unit to its respective carrying amount, including goodwill, to assess whether potential goodwill impairment exists. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the reporting unit’s carrying amount exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure the potential impairment loss amount by comparing the implied fair value of goodwill with its carrying amount. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of its assets and liabilities and assigning the excess amount to goodwill. If the implied fair value of goodwill is less than its carrying amount, an impairment loss is recognized for difference between the carrying amount of goodwill and its implied fair value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
The Company determines fair values of its reporting units based on an Income Approach in accordance with the Discounted Cash Flow Method, or DCF Method. The DCF Method is based on projected future cash flows and terminal value estimates discounted to their present values. Terminal value represents a present value an investor would pay on the valuation date for the rights to the cash flows of the business for the years subsequent to the discrete cash flow projection period. The observable inputs used in the DCF Method include discount rates set above the Company's weighted-average cost of capital. The Company derives discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and its internally developed projections of future cash flows. The Company considers the DCF Method to be the most appropriate valuation technique since it is based on management’s long-term financial projections. Due to the cyclical nature of the semiconductor equipment market, management’s projections as of the valuation date are considered more objective since market metrics of peer companies fluctuate during the cycle. In addition, the Company also compares aggregate values of its net corporate assets and reporting unit fair values to its overall market capitalization and uses certain market-based valuation techniques to test the reasonableness of the reporting unit fair values determined in accordance with the DCF Method.
Deferred Financing Costs
The Company records commitment fees and other costs directly associated with obtaining line of credit financing as deferred financing costs which are presented within "Other assets" in the accompanying Consolidated Balance Sheets. Deferred financing costs are amortized over the term of the related financing arrangement and included in interest expense in the accompanying unaudited Consolidated Statements of Operations. During the fiscal year ended September 30, 2016, the Company incurred
$0.7 million
in deferred financing costs associated with obtaining line of credit financing. Amortization expense incurred during fiscal year ended September 30, 2016 was insignificant and was included in interest expense in the accompanying Consolidated Statements of Operations. Please refer to Note 11, “Line of Credit”for further information on this arrangement.
Warranty Obligations
The Company offers warranties on the sales of certain of its products and records warranty obligations for estimated future claims at the time revenue is recognized. Warranty obligations are estimated based on historical experience and management's estimate of the level of future claims.
Defined Benefit Pension Plans
The cost and obligations of the Company's defined benefit pension plans are calculated based on certain assumptions related to estimated benefits that employees earn while working, the amount of which cannot be completely determined until the benefit payments cease. Key assumptions used in accounting for these employee benefit plans include the discount rate, expected return on plan assets and rate of increase in employee compensation levels. Assumptions are determined based on Company data and appropriate market indicators in consultation with third-party actuaries, and are evaluated each year as of the plans’ measurement date.
Revenue Recognition
The Company generates revenue from the following sources:
|
|
•
|
Products, including sales of tool automation and automated cold sample management systems, atmospheric and vacuum robots, contamination control solutions, cryogenic pumps and compressors, as well as consumables and spare parts.
|
|
|
•
|
Services, including repairs, upgrades, diagnostic support, installation, as well as biological sample and other support services.
|
The Company recognizes revenue for such products and services when it is realized or realizable and earned. Revenue is considered realized and earned when all of the following revenue recognition criteria have been met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectibility is probable. The Company recognizes shipping and handling fees billed to customers as revenue and includes the related costs in "Cost of revenue" in the accompanying Consolidated Statements of Operations. Revenue is presented net of taxes assessed by governmental authorities on revenue-producing transactions.
Products
Revenue from the sale of products is recognized upon their delivery to customers, provided all other revenue recognition criteria have been met. Delivery is considered complete when both of the following conditions have been met: (i) legal title and risk of loss have transferred to the customer upon product shipment or delivery; and (ii) the Company has reliably demonstrated that products have met their required specifications prior to shipment and, as a result, the Company possesses an enforceable claim right to amounts recognized as revenue. Revenue is recognized upon obtaining a customer technical acceptance if the Company was not able to demonstrate that products have met their required specifications prior to shipment and / or legal title
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
and risk of loss did not transfer to the customer upon product shipment or delivery, which generally occurs upon obtaining a customer technical acceptance. Revenue from third-party sales for which the Company does not meet the criteria for gross revenue recognition is recognized on a net basis. All other revenue is recognized on a gross basis.
Customer allowances and rebates consist primarily of volume discounts and other incentive programs. Customer allowance and rebate amounts are estimated based on historical experience, contractual terms and expected level of sales during the qualifying incentive program period. The Company records customer allowances and rebates as a reduction of revenue at the time of product sale since they represent a reduction in purchase price.
Revenue from product sales that involve significant customization, which include primarily automated cold sample management systems, is recognized based on the percentage of completion method. 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 the incurred on the project. 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. These estimates are based on a number of factors, including the degree of required product customization and the customer’s existing environment based on installation work, 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 them based on changes in circumstances.
The Company uses the completed contract method for certain arrangements that involve significant product customization and include contractual terms and customer rights disallowing the use of the percentage of completion method. The Company recognizes revenue for these arrangements upon completion or substantial completion of the project, provided all other revenue recognition criteria have been met. The project is considered substantially complete when the Company receives acceptance 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 as deferred revenue.
Services
Service revenue is generally recognized ratably over the term of the contract, provided all other revenue recognition criteria have been met. Payments due or received from the customers prior to rendering the associated services are recorded as deferred revenue. Revenue from repair services or upgrades of customer-owned equipment is recognized upon completion of the repair effort and the shipment of the repaired product back to the customer. If the repair or the upgrade include installation, revenue is recognized when the installation is completed.
Multiple Element Arrangements
Certain customer arrangements related to the sale of automated cold sample management systems and contamination control solution products represent multiple element arrangements that include product, service and other elements. The Company allocates arrangement consideration to each deliverable that has a standalone value based upon the selling price hierarchy which requires the Company to use vendor-specific objective evidence (the "VSOE") of selling price if it exists, or a third-party evidence (the "TPE") of the selling price in the absence of VSOE. If neither VSOE nor TPE of selling price exists for a deliverable, the Company uses its best estimate of selling price (the "BESP") for that deliverable. The Company has not been able to establish VSOE or TPE for the deliverables included in the multiple element arrangements and, as a result, primarily uses BESP to allocate the arrangement consideration. The Company determines BESP based on the cost plus a reasonable margin approach and considers entity-specific, as well as external market factors, when developing such estimates.
The Company recognizes revenue for each deliverable that has a standalone value in accordance with its revenue recognition policies. Revenue allocated to the delivered elements is recognized at the time of delivery, provided all other revenue recognition criteria are met. Revenue allocated to the undelivered elements is deferred until the elements are delivered and all other revenue recognition criteria have been met.
Certain multiple element arrangements include the sale of automated cold sample management systems and contamination control solution products with installation services. Revenue allocated to the automated cold sample management systems and contamination control solution products is recognized in accordance with the Company's revenue recognition policies. Revenue allocated to the installation services is recognized based on the percentage-of-completion method or the completed contract method in which case it is deferred until the installation-related tasks have been completed.
Certain customer arrangements include contingent revenue provisions in which a portion of the selling price of a delivered element is contingent on meeting specified performance criteria or on delivery of other elements included in the arrangement. The amount of revenue recognized for these arrangements is limited to the lower of either: (i) the amount billed to the customer
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
that is not contingent on obtaining a customer technical acceptance; or (ii) the value of the arrangement consideration allocated to the delivered elements.
Research and Development Expense
Research and development costs are expensed as incurred and consist primarily of personnel expenses related to the creation of new products, as well as enhancements and engineering changes to existing products and development of hardware and software components.
Stock-Based Compensation Expense
The Company measures stock-based compensation cost at fair value on the grant date and recognizes the expense over the service period for the awards expected to vest. The fair value of restricted stock units is determined based on the number of shares granted and the closing price of the Company's common stock quoted on NASDAQ on the date of grant.
The Company recognizes stock-based compensation expense on a straight-line basis, net of estimated forfeitures, over the requisite service period. The Company recognizes benefits from stock-based compensation in equity using the with-and-without approach for the utilization of tax attributes. The Company makes estimates of stock award forfeitures and a number of awards expected to vest which requires significant judgment. The Company considers many factors in developing forfeiture estimates, including award types, employee classes and historical experience. The Company assesses the likelihood of achieving the performance goals for stock-based awards that vest upon the satisfaction of these goals. Current estimates may differ from actual results and future changes in estimates.
The following table reflects stock-based compensation expense, excluding amounts related to discontinued operations, recorded during the fiscal years ended September 30, 2016, 2015 and 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Restricted stock
|
$
|
11,220
|
|
|
$
|
11,696
|
|
|
$
|
10,467
|
|
Employee stock purchase plan
|
517
|
|
|
463
|
|
|
445
|
|
Total stock-based compensation expense
|
$
|
11,737
|
|
|
$
|
12,159
|
|
|
$
|
10,912
|
|
Valuation Assumptions for an Employee Stock Purchase Plan
The fair value of shares issued under the employee stock purchase plan is estimated on the commencement date of each offering period using the Black-Scholes option-pricing model with the following weighted average assumptions for the fiscal years ended September 30, 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
0.4
|
%
|
|
0.1
|
%
|
|
0.1
|
%
|
Volatility
|
32
|
%
|
|
31
|
%
|
|
25
|
%
|
Expected life
|
6 months
|
|
|
6 months
|
|
|
6 months
|
|
Dividend yield
|
3.40
|
%
|
|
3.40
|
%
|
|
3.40
|
%
|
The risk-free rate is based on the U.S. Treasury yield curve for notes with terms approximating the expected life of the shares granted. The expected stock price volatility is determined based on the Company's historic stock prices over a period commensurate with the expected life of the shares granted. The expected life represents the weighted average period over which the shares are expected to be purchased. Dividend yields are projected based on the Company's history of dividend declarations and management's intention for future dividend declarations.
Restructuring Expenses
The Company records restructuring expenses associated with management-approved restructuring actions to streamline its business operations, improve profitability and competitiveness, remove duplicative infrastructure, as well as reduce headcount resulting from business acquisitions. Restructuring expenses include severance costs related to eliminating a specified number of employees, contract termination costs to vacate facilities and consolidate operations, as well as other costs directly associated with restructuring actions. The Company records severance and other employee termination costs associated with restructuring actions when it is probable that benefits will be paid and the amounts can be reasonably estimated. The rates used in determining restructuring liabilities related to severance costs are based on existing plans, historical experience and negotiated settlements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Income Taxes
The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, as well as operating loss and tax credit carryforwards. The Company's Consolidated Financial Statements contain certain deferred tax assets that were recorded as a result of operating losses, as well as other temporary differences between financial and tax accounting. A valuation allowance is established against deferred tax assets if, based upon the evaluation of positive and negative evidence and the extent to which that evidence is objectively verifiable, it is more likely than not that some or all of the deferred tax assets will not be realized.
Significant management judgment is required in determining the Company's income tax provision, the Company's deferred tax assets and liabilities and any valuation allowance recorded against those net deferred tax assets. The Company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion or all of the net deferred income tax assets will not be realized.
The calculation of the Company's tax liabilities involves consideration of uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon an audit or an examination conducted by taxing authorities, including resolution of related appeals or litigation processes, if any. If the Company determines that a tax position will more likely than not be sustained, the second step requires the Company to estimate and measure the tax benefit as the largest amount that is more likely than not to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company has to determine the probability of various possible outcomes. The Company re-evaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors, such as changes in facts or circumstances, tax law, new audit activity and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. A change in recognition or measurement may result in the recognition of a tax benefit or an additional charge to the tax provision.
Earnings Per Share
Basic income (loss) per share is determined by dividing net income (loss) by the weighted average common shares outstanding during the period. Diluted income (loss) per share is determined by dividing net income (loss) by diluted weighted average shares outstanding during the period. Diluted weighted average shares reflect the dilutive effect, if any, of potential common shares. To the extent their effect is dilutive, employee equity awards and other commitments to be settled in common stock are included in the calculation of diluted income per share based on the treasury stock method. Potential common shares are excluded from the calculation of dilutive weighted average shares outstanding if their effect would be anti-dilutive at the balance sheet date based on a treasury stock method or due to a net loss.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (the "FASB"), issued new accounting guidance for reporting credit losses. The new guidance introduces a new "expected loss" impairment model which applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities and other financial assets. Entities are required to estimate expected credit losses over the life of financial assets and record an allowance against the assets' amortized cost basis to present them at the amount expected to be collected. Additionally, the guidance amends the impairment model for available for sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on such debt security is a credit loss. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption of the newly issued guidance is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. The standard should be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company expects to adopt the guidance during the first quarter of fiscal year 2021 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In May 2016, the FASB issued an amendment to the revenue recognition guidance released in May 2014. The amendment is intended to reduce the cost and complexity of applying the revenue recognition guidance and result in a more consistent application of the revenue recognition rules. The amendment clarifies the implementation guidance on collectibility, non-cash consideration and the presentation of sales and other similar taxes, as well as transitional guidance related to completed contracts. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and should be applied at the time of the adoption of the revenue recognition guidance issued in May 2014. Early adoption of the newly issued guidance is not permitted. The Company expects to adopt the guidance during the first quarter of fiscal year 2019 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In April 2016, the FASB issued an amendment to the revenue recognition guidance released in May 2014. The amendment clarifies the implementation guidance on identifying performance obligations and licensing. Specifically, the amendment
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
reduces the cost and complexity of identifying promised goods or services and improves the guidance for determining whether promises are separately identifiable. The amendment also provides implementation guidance on determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and should be applied at the time of the adoption of the revenue recognition guidance issued in May 2014. Early adoption of the newly issued guidance is not permitted. The Company expects to adopt the guidance during the first quarter of fiscal year 2019 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In March 2016, the FASB issued an amendment to the accounting guidance to simplify accounting for share-based payment awards issued to employees. The amendment requires recognition of excess tax benefits or deficiencies within income tax expense or benefit and changes their presentation requirements on the statement of cash flows. Additionally, the entity can make an accounting policy election to either estimate the number of awards that are expected to vest, consistent with the current accounting guidance, or account for forfeitures as they occur. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption of the newly issued guidance is permitted. The Company expects to adopt the guidance during the first quarter of fiscal year 2018 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In March 2016, the FASB issued an amendment to the revenue recognition guidance released in May 2014. The amendment clarifies the application of the principal versus agent guidance, identification of the units of accounting, as well as application of the control principle to certain types of arrangements within the scope of the guidance. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and should be applied at the time of the adoption of the revenue recognition guidance issued in May 2014. Early adoption of the newly issued guidance is not permitted. The Company expects to adopt the guidance during the first quarter of fiscal year 2019 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In February 2016, the FASB, issued new accounting guidance for reporting lease transactions. In accordance with provisions of the newly issued guidance, a lessee should recognize at the inception of the arrangement a right-of-use asset and a corresponding lease liability initially measured at the present value of lease payments over the lease term. For finance leases, interest on a lease liability should be recognized separately from the amortization of the right-of-use asset, while for operating leases, total lease costs are recorded on a straight-line basis over the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying assets to forgo a recognition of right-of-use assets and corresponding lease liabilities and record a lease expense on a straight-line basis. Entities should determine at the inception of the arrangement whether a contract represents a lease or contains a lease which is defined as a right to control the use of identified property for a period of time in exchange for consideration. Additionally, entities should separate the lease components from the non-lease components and allocate the contract consideration on a relative standalone price basis in accordance with provisions of ASC Topic 606,
Revenue from Contracts with Customers
. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and should be adopted via a modified retrospective approach with certain optional practical expedients that entities may elect to apply. The Company expects to adopt the guidance during the first quarter of fiscal year 2020 and is currently evaluating the impact of this guidance on its financial position and results of operations.
In November 2015, the FASB issued an amendment to the accounting guidance to simplify the presentation of deferred income tax assets and liabilities in a statement of financial position. Deferred income tax assets, net of a corresponding valuation allowance, and liabilities related to a particular tax-paying component of an entity within a particular tax jurisdiction shall be offset and presented as a single non-current amount in a statement of financial position. Deferred income tax assets and liabilities attributable to different tax-paying components of an entity or different tax jurisdictions shall not be offset and be presented separately. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The guidance can be adopted early via either a prospective or a retrospective approach for all deferred income tax assets and liabilities presented in a statement of financial position. The Company has adopted this guidance as of September 30, 2016 and applied it retrospectively. As a result, the Company has recast the Consolidated Balance Sheet as of September 30, 2015 to conform to the current period presentation. The adoption of this guidance resulted in a reduction of previously presented current deferred tax assets by
$17.6 million
, an increase of non-current deferred tax assets by
$16.7 million
, a reduction of current deferred tax liabilities by
$1.3 million
and an increase of non-current deferred tax liabilities by
$0.3 million
as of September 30, 2015.
In September 2015, the FASB issued new accounting guidance to simplify the presentation of measurement-period adjustments recognized in business combinations. Measurement-period adjustments will no longer be recognized by the acquirer retrospectively and will be recorded by the acquirer during the period in which they were determined. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and should be applied prospectively to the adjustments that occur after the effective date of the guidance. Early adoption is permitted for the financial
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
statements that have not been issued, and the Company adopted the guidance during the first quarter of fiscal year 2016 to simplify the presentation of the measurement period adjustments in its Consolidated Financial Statements. During the fiscal year ended September 30, 2016, the Company recorded a measurement period adjustment of
$1.1 million
related to the acquisition of Contact Co., Ltd and recognized its impact in the accompanying Consolidated Balance Sheets as of the period then ended in accordance with the provisions of the newly adopted guidance. There was no impact on the results of operations during the fiscal year ended September 30, 2016 as a result of this adjustment. This adjustment would have been applied retrospectively and recognized as a reclassification in the accompanying Consolidated Balance Sheets as of September 30, 2015 in accordance with provisions of the previous guidance.
In February 2015, the FASB issued an amendment to the accounting guidance for consolidations of financial statements by changing the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted. The guidance can be adopted either via a full retrospective approach or a modified retrospective approach by recording a cumulative-effect adjustment to beginning equity in the period of adoption. The Company expects to adopt the guidance during the first quarter of fiscal year 2017. The Company is currently evaluating the impact of the guidance on its financial position and results of operations.
In May 2014, the FASB issued new accounting guidance for reporting revenue recognition. The guidance provides for the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. A five-step process set forth in the guidance may require more judgment and estimation within the revenue recognition process than the current GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The guidance was initially effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. In August 2015, the FASB issued an amendment deferring the effective date of the guidance by one year. The guidance should be adopted retrospectively either for each reporting period presented or via recognizing the cumulative effect at the date of the initial application. Early adoption is permitted only as of annual reporting periods, including the interim periods, beginning after December 15, 2016. The Company expects to adopt the guidance during the first quarter of fiscal year 2019 and is currently evaluating the impact of this guidance on its financial position and results of operations.
3. Discontinued Operations
The Granville-Phillips business unit developed, manufactured, sold and serviced vacuum measurement and gas analysis instrumentation to semiconductor and non-semiconductor customers. In March 2014, the Company entered into an agreement to sell this business for
$87.0 million
in cash. The sale was completed on May 30, 2014. The Company’s historical financial statements have been revised to present the operating results of the Granville-Phillips business as a discontinued operation. Summarized results of the discontinued operation are as follows for the fiscal year ended September 30, 2014 (in thousands):
|
|
|
|
|
|
Amount
|
Revenue
|
$
|
18,921
|
|
Income from discontinued operations
|
4,888
|
|
Gain on the sale of the discontinued operations
|
56,804
|
|
Income tax provision
|
31,690
|
|
Income from discontinued operations, net of tax
|
$
|
30,002
|
|
The operating results of the Granville-Phillips business were historically included in the results of operations for the Brooks Semiconductor Solutions segment.
The presentation of the Granville-Phillips business as a discontinued operation had no impact on previously reported net (loss) income or stockholders' equity.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
4. Acquisitions
Acquisitions Completed in Fiscal Year 2016
Acquisition of BioStorage Technologies, Inc.
On November 30, 2015, the Company completed its acquisition of BioStorage Technologies, Inc., or BioStorage, an Indiana-based global provider of comprehensive sample management and integrated cold chain solutions for the biosciences industry. These solutions include collection, transportation, processing, storage, protection, retrieval and disposal of biological samples. These solutions combined with the Company's existing offerings, particularly automation for sample storage and formatting, provide customers with fully integrated sample management cold chain solutions which will help them increase productivity, efficiencies and speed to market. This acquisition will allow the Company to access a broader customer base that is storing samples at ultra cold temperatures and simultaneously provide opportunities for BioStorage to use the Company's capabilities to expand into new markets.
The Company acquired
100%
of the issued and outstanding shares of BioStorage. A cash payment of
$130.7 million
, net of the seller's cash of
$2.8 million
, resulted in a net cash outflow of
$128.0 million
, including
$125.2 million
ascribed to the purchase price and
$2.5 million
for retention arrangements with certain employees based on the completion of a service retention period. The cash payment included a debt repayment of
$3.2 million
and transaction costs of
$2.9 million
paid by the Company on behalf of BioStorage.
The Company recorded the assets acquired and liabilities assumed related to BioStorage at their preliminary fair values as of the acquisition date, from a market participant’s perspective. The purchase price allocation was prepared on a preliminary basis and is subject to further adjustments as additional information becomes available concerning the fair value of the assets acquired and liabilities assumed. The preliminary fair values of the tangible and intangible assets acquired were based upon preliminary valuations and the Company's estimates and assumptions that are subject to change within the measurement period. As of September 30, 2016, the primary areas that remained preliminary included fair values of intangible assets acquired, certain tangible assets, tax-related matters and residual goodwill. The Company expects to continue obtaining information to assist it with determining the fair values of the net assets acquired during the measurement period. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the acquisition date.
On September 9, 2016, the Company reached a settlement with the sellers of BioStorage's stock related to certain working capital adjustments. On September 13, 2016, the Company received
$0.2 million
of proceeds from the sellers as a result of such settlement, which was recorded as a decrease of
$0.2 million
in the purchase price and goodwill.
The impact of the working capital adjustment is reflected in the following preliminary purchase price allocation table (in thousands):
|
|
|
|
|
|
Fair Value of Assets and Liabilities
|
Accounts receivable
|
$
|
16,942
|
|
Prepaid expenses and other current assets
|
321
|
|
Property, plant and equipment
|
14,345
|
|
Intangible assets
|
41,460
|
|
Goodwill
|
79,639
|
|
Other assets
|
53
|
|
Debt assumed
|
(385
|
)
|
Accounts payable
|
(1,708
|
)
|
Accrued liabilities
|
(9,423
|
)
|
Deferred revenue
|
(1,766
|
)
|
Long-term deferred tax liabilities
|
(14,169
|
)
|
Other liabilities
|
(61
|
)
|
Total purchase price, net of cash acquired
|
$
|
125,248
|
|
At the closing of the acquisition of BioStorage, a cash payment of
$5.4 million
was placed into escrow which consisted of
$2.9 million
ascribed to the purchase price and
$2.5 million
related to retention arrangements with certain employees. The
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
payment of
$2.9 million
included
$1.9 million
related to satisfaction of the sellers' indemnification obligations with respect to BioStorage's representations and warranties and other indemnities, as well as
$1.0 million
related to potential purchase price adjustments which was reduced by the full amount subsequent to the acquisition date as a result of reaching a settlement with the sellers. The remaining escrow balance of
$2.5 million
is payable to certain employees upon completion of a service retention period. Such retention payments were not considered a part of the purchase price, but rather recorded as a separate asset acquired and included within "Prepaid expenses and other current assets" in the accompanying Consolidated Balance Sheets. The escrow balance related to such retention payments was reduced by
$1.7 million
subsequent to the acquisition date and had a balance of
$0.8 million
as of September 30, 2016. Total escrow balances were
$2.7 million
as of September 30, 2016.
The fair value of customer relationship intangible assets of
$36.6 million
was estimated based on the income approach in accordance with the excess-earnings method. In accordance with the excess-earnings method, the value of the intangible asset is equal to the present value of the after-tax cash flows attributable to the intangible asset only. The weighted average amortization period for the customer relationships intangible assets acquired in the BioStorage acquisition is
11.0
years.
The fair value of the trademark intangible assets acquired of
$4.9 million
was estimated based on the income approach in accordance with the relief-from-royalty method. In accordance with the relief-from-royalty method, the value of an intangible asset is equal to the present value of the after-tax royalty savings attributable to owning that intangible asset. The weighted average amortization period for the trademark intangible assets acquired in the BioStorage acquisition is
8.0
years.
The intangible assets acquired are amortized over the total weighted average period of
10.6
years using an accelerated depreciation method which approximates the pattern in which the economic benefits are expected to be realized.
Fair values of intangible assets and their estimated useful lives are determined based on estimates of future expected after-tax cash flows and royalty savings, customer attrition rates, discount rates, as well as assumptions about the period of time over which the Company will be deriving economic benefits from the acquired intangible assets.
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired and has been assigned to the Company's Brooks Life Science Systems segment. Goodwill is primarily the result of expected synergies from combining the operations of BioStorage with the Company's operations and is not deductible for tax purposes.
The operating results of BioStorage have been reflected in the results of operations for the Brooks Life Science Systems segment from the date of the acquisition, which included one month of activity during the first quarter of fiscal year 2016. During fiscal year 2016, revenue and net income from BioStorage recognized in the Company’s results of operations were
$44.6 million
and
$2.4 million
, respectively. During fiscal year 2016, the net income included amortization expense of
$2.9 million
related to acquired intangible assets.
During fiscal year 2016, the Company incurred
$3.2 million
in non-recurring transaction costs with respect to the BioStorage acquisition which were recorded in "Selling, general and administrative" expenses within the accompanying Consolidated Statements of Operations. The retention payment of
$2.5 million
was recorded within prepaid expenses and other current assets at the acquisition date and is recognized as a compensation expense over the service period or upon a triggering event in the underlying change in control agreements. During fiscal year 2016, the Company recorded
$2.4 million
of the compensation-related expense with respect to this arrangement. The retention payment balance was
$0.1 million
at September 30, 2016.
The following unaudited proforma financial information represents a summary of the consolidated results of operations for the Company and BioStorage as if the acquisition of BioStorage occurred on October 1, 2014 (in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
2016
|
|
2015
|
Revenue
|
$
|
571,369
|
|
|
$
|
593,687
|
|
Net (loss) income
|
(63,396
|
)
|
|
7,000
|
|
|
|
|
|
Basic (loss) income per share
|
$
|
(0.93
|
)
|
|
$
|
0.10
|
|
Diluted (loss) income per share
|
$
|
(0.93
|
)
|
|
$
|
0.10
|
|
|
|
|
|
Weighted average shares outstanding used in computing net (loss) income per share:
|
|
|
|
Basic
|
68,507
|
|
|
67,411
|
|
Diluted
|
68,507
|
|
|
68,549
|
|
The unaudited pro forma information presented above reflects historical operating results of the Company and BioStorage and includes the impact of certain adjustments directly attributable to the business combination. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition of BioStorage had taken place on October 1, 2014. During fiscal years ended September 30, 2016 and 2015, the adjustments reflected in the unaudited pro forma information included aggregate amortization and depreciation expense of
$0.6 million
and
$4.3 million
, respectively, and tax effects of
$0.5 million
and
$0.8 million
, respectively. Additionally, the impact of transaction costs of
$3.3 million
and restructuring charges of
$1.9 million
was included in the proforma net income during fiscal year 2015 and excluded from the proforma net loss during fiscal year 2016.
Acquisitions Completed in Fiscal Year 2015
Acquisition of Contact Co., Ltd.
On August 14, 2015, the Company acquired all of the outstanding stock of Contact Co., Ltd., or Contact, a Japanese-based provider of automated cleaner products for wafer carrier devices used in the global semiconductor markets. The acquisition of Contact expanded the Company's offerings of contamination control solutions within its Brooks Semiconductor Solutions Group segment, strengthened its current capabilities and technology used in its contamination control solutions business and enhanced its long-term strategy of gaining share in its core semiconductor markets.
The aggregate purchase price of
$6.8 million
, net of cash acquired, consisted of a cash payment of
$1.9 million
, the assumption of the seller's debt of
$8.8 million
, seller's cash of
$4.8 million
and a contingent consideration of
$0.8 million
payable upon achievement of certain specified targets and events. The entire debt amount was fully repaid as of September 30, 2015.
The Company recorded the assets acquired and liabilities assumed related to Contact at their preliminary fair values as of the acquisition date and prepared the purchase price allocation on a preliminary basis. The preliminary fair values of the tangible and intangible assets acquired were based upon preliminary valuations and the Company's estimates and assumptions that were subject to change within the measurement period. During the first quarter of fiscal year 2016, the Company finalized the valuation of property, plant and equipment reported at fair value at the acquisition date. As a result, the Company recorded a measurement period adjustment of
$1.1 million
as a decrease in the tangible assets' fair value and a corresponding increase in goodwill. There was no impact on the depreciation expense as a result of the tangible assets' fair value revision during the period then ended. The Company adopted Accounting Standards Update, or ASU, 2015-16,
Simplifying the Accounting for Measurement Period Adjustments
, during the first quarter of fiscal year 2016 and recognized the impact of the measurement period adjustment in the accompanying unaudited Consolidated Balance Sheets as of September 30, 2016 in accordance with the provisions of the newly adopted guidance. The purchase price allocation for Contact acquisition was finalized within the measurement period.
The Company recorded the following amounts for the assets acquired and liabilities assumed related to Contact at their fair values as of the acquisition date (in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
|
|
|
|
|
|
Fair Value of Assets and Liabilities
|
Accounts receivable
|
$
|
42
|
|
Inventories
|
2,020
|
|
Prepaid expenses and other current assets
|
484
|
|
Property, plant and equipment
|
79
|
|
Completed technology
|
2,290
|
|
Goodwill
|
4,195
|
|
Other assets
|
1,410
|
|
Accounts payable
|
(1,089
|
)
|
Accrued liabilities
|
(1,823
|
)
|
Long-term deferred tax liabilities
|
(774
|
)
|
Total purchase price, net of cash acquired
|
$
|
6,834
|
|
Fair value of the contingent consideration of
$0.8 million
was determined based on a probability-weighted average discounted cash flow model and recorded in "Accrued expenses and other current liabilities" in the Company's Consolidated Balance Sheets. The Company remeasures the fair value of the contingent consideration at each reporting date until the arrangement is settled. Fair value of the contingent consideration was
$0.5 million
at September 30, 2016, and the Company recognized a corresponding gain of
$0.3 million
on the fair value remeasurement during fiscal year 2016. Please refer to Note 21, “Fair Value Measurements” for further information on the fair value measurement of the contingent consideration.
At September 30, 2016, the Company had approximately
$0.7 million
in escrow related to potential working capital adjustments and the sellers' satisfaction of general representations and warranties. At the closing of the acquisition of Contact, the escrow balance was
$1.5 million
which was reduced by approximately
$0.8 million
during fiscal year 2016 as a result of a payment made to the sellers upon termination of a certain third-party arrangement. The escrow balance was
$0.7 million
as of September 30, 2016.
Fair value of the completed technology intangible assets was estimated based on the income approach in accordance with the excess-earnings method. The weighted average amortization period for the completed technology intangible assets acquired in the Contact acquisition is
5.0
years. The intangible assets acquired are amortized using an accelerated depreciation method which approximates the pattern in which the economic benefits are expected to be realized.
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired and has been assigned to the Company's Brooks Semiconductor Solutions Group segment. Goodwill is primarily the result of expected synergies from combining the operations of Contact with the Company's operations and is not deductible for tax purposes.
The operating results of Contact have been included in the results of operations for the Brooks Semiconductor Solutions Group segment from the date of the acquisition. During fiscal year 2016, revenue and net loss from Contact recognized in the Company's results of operations were
$4.5 million
and
$1.1 million
, respectively. The operating results of Contact for fiscal year 2015 were insignificant and have been included in the results of operations of Brooks Semiconductor Solutions Group segment from the date of the acquisition. During fiscal year 2016, the net loss included charges of
$0.6 million
and
$0.7 million
, respectively, related to the step-up in value of the acquired inventories and amortization expense of acquired intangible assets.
The Company incurred
$0.1 million
and
$0.2 million
, respectively, in non-recurring transaction costs with respect to the Contact acquisition during fiscal years ended September 30, 2016 and 2015 which were recorded in "Selling, general and administrative" expenses within the accompanying Consolidated Statements of Operations.
The Company did not present a pro forma information summary for its consolidated results of operations for the fiscal years ended September 30, 2015 and 2014 as if the acquisition of Contact occurred on October 1, 2013 because such results were insignificant.
Acquisition of FluidX Ltd.
On October 1, 2014, the Company acquired all of the outstanding stock of FluidX Ltd., or FluidX, a UK-based provider of biological sample storage tubes and complementary bench-top instruments. The Company paid, in cash, aggregate merger consideration of
$15.5 million
, net of cash acquired. The acquisition of FluidX provided the Company with the opportunity to enhance its existing capabilities with respect to biobanking solutions in the Brooks Life Science Systems segment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
The Company recorded the following amounts for the assets acquired and liabilities assumed related to FluidX at their fair values as of the acquisition date (in thousands):
|
|
|
|
|
|
Fair Values of Assets and Liabilities
|
Accounts receivable
|
$
|
1,980
|
|
Inventory
|
2,857
|
|
Prepaid and other current assets
|
213
|
|
Property, plant and equipment
|
101
|
|
Completed technology
|
1,230
|
|
Trademarks and trade names
|
750
|
|
Customer relationships
|
4,810
|
|
Goodwill
|
8,247
|
|
Accounts payable
|
(2,079
|
)
|
Deferred revenue
|
(72
|
)
|
Accrued liabilities
|
(992
|
)
|
Long-term deferred tax liabilities
|
(1,540
|
)
|
Total purchase price, net of cash acquired
|
$
|
15,505
|
|
The purchase price was allocated based on the fair value of the identified assets acquired and liabilities assumed as of the acquisition date from a market participant’s perspective.
On January 23, 2015, the Company reached a settlement with respect to certain working capital adjustments with the sellers of FluidX stock. On February 3, 2015, the Company made a payment to the sellers as a result of this settlement, which increased the purchase price by
$0.1 million
. Prior to September 30, 2016, the Company had
$1.5 million
in a general escrow account held by the unrelated third party. The balance was remitted to the sellers and fully released during fiscal year 2016. The Company finalized the purchase price allocation for FluidX acquisition within the measurement period. Adjustments to the initial purchase price allocation recorded during the measurement period were not material to the Company's financial position.
Fair values of the trademarks and the completed technology acquired were estimated based on the income approach in accordance with the relief-from-royalty method. Fair value of customer relationships acquired was estimated based on the income approach in accordance with the excess-earnings method. The weighted average amortization periods for intangible assets acquired in the FluidX acquisition are
5.0
years for each of completed technology, trademarks, and customer relationships. The intangible assets acquired are amortized using an accelerated amortization method which approximates the pattern in which the economic benefits are expected to be realized.
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired and has been assigned to the Company's Brooks Life Science Systems segment. Goodwill is primarily the result of expected synergies from combining the operations of FluidX with the Company and is not deductible for tax purposes.
The operating results of FluidX have been included in the results of operations for the Brooks Life Science Systems segment from the date of the acquisition. During fiscal year 2016, revenue and net loss attributable to FluidX were
$15.6 million
and
$0.2 million
, respectively. During fiscal year 2015, revenue and net loss attributable to FluidX were
$15.0 million
and
$0.6 million
, respectively. The Company incurred charges of
$1.0 million
related to the step-up in value of the acquired inventories during fiscal year 2015, as well as amortization expense of
$1.2 million
and
$1.4 million
, respectively, related to the acquired intangible assets which was included in the net loss during fiscal years 2016 and 2015.
The Company incurred
$0.5 million
and
$0.2 million
, respectively, during fiscal years 2015 and 2014 in non-recurring transaction costs with respect to the FluidX acquisition which were recorded in "Selling, general and administrative" expenses within the accompanying Consolidated Statements of Operations.
The Company did not present a pro forma information summary for its consolidated results of operations for the fiscal year ended September 30, 2015 and 2014 as if the acquisition of FluidX occurred on October 1, 2013 because such results were insignificant.
Acquisitions Completed in Fiscal Year 2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
On April 30, 2014, the Company acquired all the outstanding stock of Dynamic Micro Systems Semiconductor Equipment GmbH, or DMS, a German provider of automated contamination control solutions for front opening unified pod, or FOUP, carriers and reticle storage targeted at improving yield of semiconductor processes at semiconductor fabrication plants. The Company paid to the sellers an aggregate cash consideration of
$31.6 million
, net of cash acquired. The acquisition of DMS expanded the Company’s capabilities at semiconductor fabrication plants for yield improvement on new technology nodes.
The Company recorded the assets acquired and the liabilities assumed related to DMS at their fair values as of the acquisition date. The amounts recorded were as follows (in thousands):
|
|
|
|
|
|
Fair Values of Assets and Liabilities
|
Accounts receivable
|
$
|
15,262
|
|
Inventory
|
10,051
|
|
Prepaid and other current assets
|
2,727
|
|
Property, plant and equipment
|
2,049
|
|
Completed technology
|
3,610
|
|
Customer relationships
|
7,100
|
|
Goodwill
|
11,638
|
|
Accounts payable
|
(10,393
|
)
|
Accrued liabilities
|
(5,522
|
)
|
Deferred revenue
|
(1,309
|
)
|
Long-term deferred tax liabilities
|
(3,588
|
)
|
Total purchase price, net of cash acquired
|
$
|
31,625
|
|
The purchase price was allocated based on the fair value of the identified assets acquired and liabilities assumed as of the acquisition date from a market participant’s perspective. The Company finalized the purchase price allocation for this acquisition within the measurement period. Adjustments to the initial purchase price allocation recorded during the measurement period were not material to the Company's financial position.
The Company reached a settlement with respect to certain working capital adjustments and other issues with the sellers of DMS' stock in the fourth quarter of fiscal year 2014. As a result of this settlement, the Company received
$2.2 million
in the first quarter of fiscal year 2015 from certain escrow accounts established at the date of acquisition and held by the unrelated third party. At September 30, 2015,
$2.8 million
remained in escrow related to potential future claims against the sellers of DMS' stock. On October 30, 2015, the Company remitted
$2.8 million
to the sellers upon expiration of the escrow period.
The Company used the relief-from-royalty method to estimate the fair value of the completed technology and the excess-earnings method to estimate the fair value of the customer relationships. The weighted average amortization periods for intangible assets acquired in the DMS acquisition are
5.0 years
for completed technologies and
8.0 years
for customer relationships. The intangible assets acquired are amortized using variable declining balance and straight-line methods that approximate the pattern in which the economic benefits are expected to be realized.
Goodwill represents the excess of the consideration transferred over the net assets acquired and has been assigned to the Company's Brooks Semiconductor Solutions Group segment. Goodwill is primarily the result of expected synergies from combining the operations of DMS with the Company and is not deductible for tax purposes. In the first quarter of fiscal year 2015, the Company increased the opening goodwill balance by
$0.3 million
as a result of a fair value adjustment recorded to inventory.
The operating results of DMS have been included in the results of operations for the Brooks Semiconductor Solutions Group segment from the date of the acquisition. Revenue from DMS was
$45.1 million
,
$44.0 million
and
$5.5 million
for fiscal years 2016, 2015 and 2014, respectively. Net income attributable to DMS was
$1.8 million
for fiscal year 2016 and included
$1.6 million
of amortization expense during the period then ended. Net income attributable to DMS was
$3.1 million
for fiscal year 2015 and included charges of
$0.6 million
related to the step-up in values of the acquired inventories,
$2.2 million
of amortization expense and
$0.1 million
of restructuring charges during the period then ended. Net loss attributable to DMS was
$4.5 million
for fiscal year 2014 and included charges of
$1.9 million
related to the step-up in values of the acquired inventories,
$0.9 million
of amortization expense and
$0.3 million
of restructuring charges during the period then ended.
The Company incurred
$0.4 million
during fiscal year 2014 in non-recurring transaction costs with respect to the DMS acquisition which were recorded in "Selling, general and administrative" expenses within the accompanying Consolidated Statements of Operations. Transaction costs incurred during fiscal year 2015 with respect to the DMS acquisition were
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
insignificant.
5. Marketable Securities
The Company invests in marketable securities that are classified as available-for-sale and recorded at fair value in the Company's Consolidated Balance Sheets. Marketable securities reported as current assets represent investments that mature within one year from the balance sheet date. Long-term marketable securities represent investments with maturity dates greater than one year from the balance sheet date.
Unrealized gains and losses are excluded from earnings and reported as a separate component of accumulated other comprehensive income until the security is sold or matures. Gains or losses realized from sales of marketable securities are computed based on the specific identification method and recognized as a component of "Other (expense) income, net" in the accompanying Consolidated Statements of Operations. During fiscal year 2016, the Company sold marketable securities with a fair value of
$127.6 million
and amortized cost of
$127.7 million
and recognized net losses of approximately
$0.1 million
. Gross gains reported as a component of net losses recognized on the sale of marketable securities during fiscal year 2016 were insignificant. The Company collected cash proceeds of
$127.0 million
from the sale of marketable securities and reclassified unrealized net holding losses of approximately
$0.1 million
from accumulated other comprehensive income into "Other (expense) income, net" in the accompanying Consolidated Statements of Operations as a result of these transactions.
During fiscal year 2015, the Company sold marketable securities with fair values of
$9.5 million
and amortized costs of
$9.5 million
and collected cash proceeds of
$9.5 million
from such sales. Unrealized net holding gains reclassified from accumulated other comprehensive income into "Other (loss) income, net" and realized on sales of these securities during fiscal years 2015 and 2014 were insignificant. Please refer to Note 15, "Stockholders' Equity", for further information on these reclassifications and their impact on the Accumulated Other Comprehensive Income and Other Comprehensive Income for the fiscal years ended September 30, 2016, 2015 and 2014.
The following is a summary of the amortized cost and the fair value, including accrued interest receivable, as well as unrealized holding gains (losses) on the short-term and long-term marketable securities as of September 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
September 30, 2016:
|
|
|
|
|
|
|
|
Corporate securities
|
2,394
|
|
|
—
|
|
|
—
|
|
|
2,394
|
|
Other debt securities
|
39
|
|
|
—
|
|
|
—
|
|
|
39
|
|
Municipal securities
|
3,704
|
|
|
1
|
|
|
(3
|
)
|
|
3,702
|
|
|
$
|
6,137
|
|
|
$
|
1
|
|
|
$
|
(3
|
)
|
|
$
|
6,135
|
|
September 30, 2015:
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies
|
$
|
30,343
|
|
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
30,382
|
|
Corporate securities
|
54,725
|
|
|
13
|
|
|
(48
|
)
|
|
54,690
|
|
Mortgage-backed securities
|
857
|
|
|
27
|
|
|
—
|
|
|
884
|
|
Other debt securities
|
5,056
|
|
|
3
|
|
|
—
|
|
|
5,059
|
|
Municipal securities
|
30,258
|
|
|
18
|
|
|
(9
|
)
|
|
30,267
|
|
Bank certificate of deposits
|
12,024
|
|
|
2
|
|
|
—
|
|
|
12,026
|
|
|
$
|
133,263
|
|
|
$
|
102
|
|
|
$
|
(57
|
)
|
|
$
|
133,308
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
The fair values of the marketable securities by contractual maturities at September 30, 2016 are presented below (in thousands).
|
|
|
|
|
|
Fair Value
|
Due in one year or less
|
$
|
39
|
|
Due after one year through five years
|
3,704
|
|
Due after ten years
|
2,392
|
|
|
$
|
6,135
|
|
Expected maturities could differ from contractual maturities because the security issuers may have the right to prepay obligations without prepayment penalties.
The Company reviews the marketable securities for impairment at each reporting period to determine if any of the securities have experienced an other-than-temporary decline in fair value. The Company considers factors, such as the length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issuer, the Company's intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of its amortized cost basis. If the Company believes that an other-than-temporary decline in fair value has occurred, it writes down the investment to fair value and recognizes the credit loss in earnings and the non-credit loss in accumulated other comprehensive income. As of September 30, 2016, aggregate fair value of the marketable securities in unrealized loss position was
$2.5 million
and was comprised entirely of municipal securities. Aggregate unrealized losses for these securities were insignificant as of September 30, 2016 and are presented in the table above. As of September 30, 2015, aggregate fair value of the marketable securities in unrealized loss position was
$40.4 million
and was comprised of corporate securities of
$31.8 million
, municipal securities of
$6.6 million
, bank certificates of deposit of
$1.0 million
, as well as U.S. Treasury and Government Agency securities of
$1.0 million
. Aggregate unrealized losses for these securities were
$0.1 million
as of September 30, 2015 and are presented in the table above. The securities in unrealized loss position as of September 30, 2016 and 2015 were not considered other-than-temporarily impaired and, as such, the Company did not recognize impairment losses during the periods then ended. The unrealized losses are attributable to changes in interest rates which impact the value of the investments.
6. Property, Plant and Equipment
Property, plant and equipment were as follows as of September 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
Buildings and land
|
$
|
45,772
|
|
|
$
|
43,765
|
|
Computer equipment and software
|
65,989
|
|
|
58,715
|
|
Machinery and equipment
|
54,896
|
|
|
43,185
|
|
Furniture and fixtures
|
5,704
|
|
|
5,310
|
|
Leasehold improvements
|
17,128
|
|
|
13,617
|
|
Capital projects in progress
|
5,428
|
|
|
4,427
|
|
|
194,917
|
|
|
169,019
|
|
Less accumulated depreciation and amortization
|
(140,032
|
)
|
|
(127,164
|
)
|
Property, plant and equipment, net
|
$
|
54,885
|
|
|
$
|
41,855
|
|
Depreciation expense, excluding amounts related to the discontinued operations, was
$13.1 million
,
$12.3 million
and
$12.7 million
, respectively, for the fiscal years ended September 30, 2016, 2015 and 2014. The Company recorded $
1.3 million
of additions to property, plant and equipment for which cash payments had not yet been made as of September 30, 2016.
During fiscal year 2015, the Company was leasing one of the buildings in Chelmsford, Massachusetts which was purchased for a total price of $
8.4 million
on September 30, 2015. Please refer to Note 22, "Commitments and Contingencies" for further information on this transaction.
As of September 30, 2015, the building and the underlying land with a carrying value of $
4.8 million
located in Oberdiessbach, Switzerland were presented as "Assets Held for Sale" in the accompanying Consolidated Balance Sheets. The Company determined fair value of the assets held for sale based on indication of value resulting from marketing the building and the land to prospective buyers. The Company recognized a loss of
$1.9 million
in fiscal year 2015 for the difference between the assets' fair value of
$2.9 million
and the carrying value of $
4.8 million
. The loss of
$1.9 million
was recognized as a component of "Other (expense) income, net" in the accompanying Consolidated Statements of Operations. During fiscal year
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
2016, the Company sold the building and the underlying land to an unrelated third party for a total price of
$2.8 million
and remeasured the fair value of the assets. The corresponding impact of this remeasurement on the Company's results of operations for fiscal year 2016 was insignificant. Please refer to Note 21, "Fair Value Measurements" for further information on the assets' fair value measurements.
7. Goodwill and Intangible Assets
Goodwill represents the excess of net book value over the estimated fair value of net tangible and identifiable intangible assets of a reporting unit. Goodwill is tested for impairment annually or more often if impairment indicators are present at the reporting unit level. The Company elected April 1 as its annual goodwill impairment assessment date and performs additional impairment tests if triggering events occur. If events occur or circumstances change that would more likely than not reduce fair values of the reporting units below their carrying values, goodwill is evaluated for impairment between annual tests.
Prior to fiscal year 2016, the Company had
six
reporting units, including
five
reporting units that had goodwill.
Four
reporting units were a part of the Brooks Product Solutions operating segment, and each of the Brooks Global Services segment and Brooks Life Science Systems segment represented a reporting unit. During fiscal year 2016, the Company reorganized its operating and reportable segments into (i) Brooks Semiconductor Solutions Group, or BSSG,; and (ii) Brooks Life Science Systems and realigned its reporting units to reflect the revised reporting structure. The combination of the Brooks Product Solutions segment and Brooks Global services segment did not have a direct impact on the goodwill at the reporting unit level. As a result of this re-alignment, the Company had
five
reporting units as of September 30, 2016, including
four
reporting units within the BSSG operating segment and
one
reporting unit which was Brooks Life Science Systems operating segment. Please refer to Note 20, "Segment Information" for additional information on the operating and reporting segments realignment. The revised reporting unit structure reflects the combination of
two
previously identified reporting units, Polycold and CTI Cryogenics, into
one
reporting unit called BSSG Cryogenics as a result of the reorganization of the Company’s internal management structure and the economic similarities that exist between the
two
reporting units. The Company evaluated goodwill for potential indicators of impairment before and after this combination and determined that fair value of each component individually and in aggregate exceeded their carrying values. BSSG Cryogenics goodwill carrying amount was
$24.0 million
, and its fair value significantly exceeded its carrying value as of the date of each goodwill impairment testing.
The Company completed its annual goodwill impairment test as of April 1, 2016 and determined that no adjustment to goodwill was necessary. Fair values of all of the reporting units, except for Polycold, substantially exceeded their respective carrying values. Fair value of the Polycold reporting unit on a standalone basis exceeded its carrying value by
12%
. During the second quarter of 2016, the Company concluded that recent operating trends and declining forecasts for the Polycold reporting unit represented indicators of potential goodwill impairment. As a result, the Company performed the first step of the quantitative goodwill impairment test as of February 1, 2016 and determined that the fair value exceeded the carrying value by
18%
, and that
no
goodwill impairment existed. The Company determined the Polycold reporting unit's fair value based on an Income Approach in accordance with the DCF method. During the third quarter of fiscal year 2016, the Company incorporated lower projected future cash flows into the model due to lower forecasted revenue and gross margin in fiscal year 2016 that resulted in a decrease of the excess of the Polycold reporting unit's fair value over its carrying value from
18%
during the second quarter of fiscal year 2016 to
12%
during the third quarter of fiscal year 2016. The estimated fair value of the Polycold's reporting unit assumed a taxable transaction. The Polycold reporting unit's goodwill carrying amount was $
24.0 million
as of the date of each goodwill impairment assessment.
The components of the Company’s goodwill by an operating segment at September 30, 2016 and 2015 are as follows (in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooks
Semiconductor
Solutions
Group
|
|
Brooks
Life Science
Systems
|
|
Other
|
|
Total
|
Gross goodwill, at September 30, 2014
|
$
|
651,067
|
|
|
$
|
47,378
|
|
|
$
|
26,014
|
|
|
$
|
724,459
|
|
Accumulated goodwill impairments
|
(588,944
|
)
|
|
—
|
|
|
(26,014
|
)
|
|
(614,958
|
)
|
Goodwill, net of accumulated impairments, at September 30, 2014
|
62,123
|
|
|
47,378
|
|
|
—
|
|
|
109,501
|
|
Acquisitions and adjustments
|
3,660
|
|
|
8,247
|
|
|
—
|
|
|
11,907
|
|
Gross goodwill, at September 30, 2015
|
654,727
|
|
|
55,625
|
|
|
26,014
|
|
|
736,366
|
|
Accumulated goodwill impairments
|
(588,944
|
)
|
|
—
|
|
|
(26,014
|
)
|
|
(614,958
|
)
|
Goodwill, net of accumulated impairments, at September 30, 2015
|
65,783
|
|
|
55,625
|
|
|
—
|
|
|
121,408
|
|
Acquisitions and adjustments
|
1,054
|
|
|
79,676
|
|
|
—
|
|
|
80,730
|
|
Gross goodwill, at September 30, 2016
|
655,781
|
|
|
135,301
|
|
|
26,014
|
|
|
817,096
|
|
Accumulated goodwill impairments
|
(588,944
|
)
|
|
—
|
|
|
(26,014
|
)
|
|
(614,958
|
)
|
Goodwill, net of accumulated impairments, at September 30, 2016
|
$
|
66,837
|
|
|
$
|
135,301
|
|
|
$
|
—
|
|
|
$
|
202,138
|
|
During fiscal year 2016, the Company recorded a goodwill increase of
$79.7 million
related to the acquisition of BioStorage which represented the excess of the consideration transferred over the fair value of the net assets acquired. Additionally, the Company recorded a measurement period adjustment related to the acquisition of Contact that resulted in a decrease in the tangible assets' fair value of
$1.1 million
and a corresponding increase in goodwill. Please refer to the Note 4 "Acquisitions" for further information on the measurement period adjustment recorded during fiscal year 2016.
The Company tests certain long-lived assets when impairment indicators are present. During fiscal year 2013, the Company determined that impairment indicators were present for the finite-lived intangible assets related to the Celigo product line. The assets were tested for recoverability by comparing the sum of the undiscounted cash flows directly attributable to the assets to their carrying values, which resulted in the conclusion that the carrying amounts of the assets were not recoverable. The fair values of the assets were determined based primarily on market-based valuation techniques, and an impairment loss of
$2.0 million
was recognized during fiscal year 2013. The loss amount was allocated to the long-lived assets in the impaired asset group based on the carrying value of each asset, with no asset reduced below its respective fair value. The Company revised its estimate of the fair value of these assets in fiscal year 2014 and recorded an additional impairment loss of
$0.4 million
within "Cost of revenue" in its Consolidated Statements of Operations during the period then ended. The impairment loss was recorded in the Brooks Life Science Systems segment. The Company completed the sale of the Celigo product line during fiscal year 2014 that did not have a material impact on the Company's financial position or results of operations for the period then ended.
The components of the Company’s identifiable intangible assets as of September 30, 2016 and 2015 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Patents
|
$
|
7,808
|
|
|
$
|
7,486
|
|
|
$
|
322
|
|
|
$
|
7,808
|
|
|
$
|
7,394
|
|
|
$
|
414
|
|
Completed technology
|
60,485
|
|
|
51,018
|
|
|
9,467
|
|
|
60,748
|
|
|
46,718
|
|
|
14,030
|
|
Trademarks and trade names
|
9,142
|
|
|
4,204
|
|
|
4,938
|
|
|
4,241
|
|
|
3,604
|
|
|
637
|
|
Customer relationships
|
114,263
|
|
|
47,147
|
|
|
67,116
|
|
|
77,716
|
|
|
37,351
|
|
|
40,365
|
|
|
$
|
191,698
|
|
|
$
|
109,855
|
|
|
$
|
81,843
|
|
|
$
|
150,513
|
|
|
$
|
95,067
|
|
|
$
|
55,446
|
|
Amortization expense for intangible assets, excluding amounts related to the discontinued operations, was
$15.0 million
,
$12.9 million
and
$10.6 million
, respectively, for the fiscal years ended September 30, 2016, 2015 and 2014.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Estimated future amortization expense for the intangible assets as of September 30, 2016 is as follows (in thousands):
|
|
|
|
|
Year ended September 30,
|
|
2017
|
$
|
15,573
|
|
2018
|
14,052
|
|
2019
|
13,713
|
|
2020
|
12,909
|
|
2021
|
8,036
|
|
Thereafter
|
17,560
|
|
|
$
|
81,843
|
|
8. Equity Method and Other Investments
The Company accounts for certain of its investments using the equity method of accounting and records its proportionate share of the investee's earnings (losses) in its results of operations with a corresponding increase (decrease) in the carrying value of the investment.
BioCision, LLC
In March 2014, the Company acquired a
22%
equity interest in BioCision, LLC, or BioCision, a privately-held company based in Larkspur, California, for
$4.0 million
. During fiscal year 2015, the Company's equity investment was diluted from
22%
to
20%
as a result of stock options granted to new employees. BioCision develops, manufactures and markets cell cryopreservation products used for improving and standardizing the tools and methods for biomaterial sample handling. The Company determined that BioCision represented a variable interest entity since the level of equity investment at risk was not sufficient to finance its activities without additional financial support. However, the Company does not qualify as a primary beneficiary since it does not have the power to direct BioCision's product research, development, selling and marketing activities that have the most significant impact on its economic performance. The Company's loss exposure is limited to the amount of investment and loan funding provided to BioCision. As such, the Company concluded that BioCision should not be consolidated in its financial statements.
During the fiscal years ended September 30, 2016 and 2015, the Company recorded a loss of
$1.1 million
and
$1.0 million
, respectively, representing its proportional share in the BioCision's losses. The carrying value of the investment in BioCision was
$1.7 million
and
$2.7 million
, respectively, at September 30, 2016 and 2015.
The Company purchased BioCision's
five
-year convertible debt securities with a warrant agreement to purchase preferred units of BioCision for
$2.5 million
on each of the following dates of December 22, 2014 and February 2, 2015, resulting in a total purchase price of
$5.0 million
. Interest accrues on the convertible debt securities at a rate of
9%
per annum, and is due with the principal at maturity. The convertible debt securities were recorded at fair value and accounted for in accordance with the fair value method. The warrant was recorded at fair value and accounted for as a derivative instrument. At September 30, 2016, the fair values of the convertible debt securities and warrants were
$5.8 million
and less than
$0.1 million
, respectively. At September 30, 2015, the fair values of the convertible debt securities and warrants were
$5.3 million
and
$0.1 million
, respectively.
Please refer to Note 21, “Fair Value Measurements” for further information regarding the convertible debt securities and the warrants. The Company re-measures the fair values of the BioCision convertible debt securities and the warrant during each reporting period and recognizes the respective gains or losses as a component of "Other (expense) income, net" in the accompanying Consolidated Statements of Operations. The Company recognized remeasurement gains of
$0.4 million
during each fiscal year ended September 30, 2016 and 2015.
During fiscal year 2016, the Company provided a series of bridge loans to BioCision with an aggregate principal amount of
$0.6 million
bearing an annual interest rate of
10%
to support BioCision's working capital requirements. During the second quarter of fiscal year 2016, the Company made an additional loan of
$0.2 million
to BioCision, and the bridge loans were converted into a part of the permanent term loan, collectively, the" loan", which provides for financing of an aggregate principal amount up to
$1.5 million
, including the first tranche of
$0.8 million
and a second tranche of
$0.8 million
which was provided to BioCision during the third quarter of fiscal year 2016 to support its working capital requirements. All principal and accrued interest outstanding on the loan mature on December 31, 2019 or at an earlier date upon the occurrence of certain events. In the event that BioCision obtains a certain equity investment or has a liquidity event, in either case, on or before September 30, 2016, all accrued and unpaid interest will be due and payable, and interest will thereafter accrue and be due and payable monthly in arrears. All accrued and unpaid interest was converted into additional loan principal with accrued interest due and payable monthly in arrears since no such equity investment or liquidity event occurred on or before September 30, 2016. The financing supports growing working capital requirements in part due to BioCision entering into a supply agreement with a certain customer. The Company will be entitled to receive quarterly royalty payments from BioCision equal to
15%
of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
the revenue generated from this certain customer arrangement until the earlier of: (i) the termination of the customer arrangement, (ii) the receipt by the Company of an aggregate amount of
$1.5 million
of royalty proceeds, and (iii) the date the loan is repaid in full. All outstanding and unpaid royalties become immediately due and payable to the Company if the customer arrangement is terminated. The loan is secured by a first priority perfected lien on BioCision's cash flows from the aforementioned customer arrangement, as well as a second priority perfected subordinated security interest and a lien on its personal property and other intangible assets, including intellectual property. At September 30, 2016, the aggregate loan of
$1.5 million
was recorded at its carrying value and included in "Other assets" in the accompanying Consolidated Balance Sheets.
As a result of each of the funding rounds described above, the Company reconsidered whether BioCision represents a variable interest entity subject to consolidation. The Company concluded that BioCision remains a variable interest entity since the level of equity investment at risk is not sufficient to finance its activities without additional financial support. However, the Company does not qualify as a primary beneficiary since it does not have the power to direct BioCision's product research, development, selling and marketing activities that have the most significant impact on its economic performance. As such, the Company concluded that BioCision will not be consolidated in the Company's financial statements.
ULVAC Cryogenics, Inc.
The Company participates in a
50%
joint venture, ULVAC Cryogenics, Inc., or UCI, with ULVAC Corporation of Chigasaki, Japan. UCI manufactures and sells cryogenic vacuum pumps, principally to ULVAC Corporation.
The carrying value of the investment in UCI was
$25.6 million
and
$21.5 million
, respectively, at September 30, 2016 and 2015. During the fiscal years ended September 30, 2016, 2015 and 2014, the Company recorded income of
$3.4 million
,
$1.4 million
and
$1.6 million
, respectively, representing its proportionate share of the UCI's earnings. Management fee payments received by the Company from UCI were
$0.8 million
during fiscal year ended September 30, 2016 and
$0.6 million
during each fiscal year ended September 30, 2015 and 2014. During the fiscal years ended September 30, 2016, 2015 and 2014, the Company incurred charges from UCI for products or services of
$0.3 million
,
$0.4 million
and
$0.4 million
, respectively. The Company owed UCI
$0.1 million
at each of September 30, 2016 and 2015 in connection with accounts payable for unpaid products and services. During the fiscal years ended September 30, 2016 and 2015, the Company received
$1.5 million
and
$0.6 million
, respectively, of cash dividends from UCI which reduced the carrying value of the Company's investment.
The Company's investment in UCI is considered to be significant for the fiscal year ended September 30, 2016 since the Company's proportionate share of the UCI's earnings exceeded
20%
of the Company's consolidated income from continuing operations before the income tax provision for the fiscal year 2016. Consolidated Financial Statements of UCI as of June 30, 2016 and 2015 and July 1, 2014 (the date of transition) and the related notes are filed as Exhibit 99.2 hereto and incorporated herein by reference in this Form 10-K.
Yaskawa Brooks Automation, Inc.
During fiscal year 2015, the Company participated in a
50%
joint venture with Yaskawa Electric Corporation, or Yaskawa, called Yaskawa Brooks Automation, Inc., or YBA, which came to closure in March 2015 and was liquidated on September 3, 2015. YBA exclusively marketed and sold Yaskawa’s semiconductor robotics products and the Company's automation hardware products to semiconductor customers in Japan. During the first quarter of fiscal year 2015, the Company and Yaskawa agreed in principle to dissolve the joint venture. On January 22, 2015, the Company entered into an agreement with YBA to facilitate the acquisition of certain assets and liabilities by the Company’s subsidiary in Japan. In accordance with provisions of the joint venture's agreement, on March 20, 2015, the Company purchased the net assets of YBA for cash consideration of approximately $
1.8 million
. The Company recorded the assets received and liabilities assumed from YBA at fair value as of the acquisition date. As a result of the transaction, the Company recorded $
0.2 million
of goodwill, representing the excess of the consideration transferred over the fair value of the net assets acquired. The Company received a final dividend of
$1.8 million
upon liquidation of YBA and incurred liquidation costs of $
0.2 million
during fiscal year 2015. In connection with the planned dissolution, YBA assessed the recoverability of assets held by the joint venture and notified its equity partners of the asset impairment. As a result, the Company recorded an impairment charge of
$0.7 million
related to the write down of the carrying value of the equity investment in YBA to its fair value during fiscal year 2015.
During the fiscal years ended September 30, 2015 and 2014, the Company recorded a loss of $
0.6 million
and
$0.1 million
, respectively, representing its proportionate share of the YBA's losses. During the fiscal years ended September 30, 2015 and 2014, revenue earned by the Company from YBA was $
2.5 million
and
$7.4 million
, respectively. The Company incurred charges from YBA for products or services of $
0.7 million
during each fiscal year ended September 30, 2015 and 2014. There were
no
amounts receivable by the Company from YBA or owed by the Company to YBA at September 30, 2016 and 2015.
Summarized Financial Information
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Summarized financial information for the unconsolidated subsidiaries accounted for based on the equity method for the fiscal years ended September 30, 2016, 2015 and 2014 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2016
|
|
2015
|
|
|
Balance Sheets:
|
|
|
|
|
|
Current assets
|
$
|
59,507
|
|
|
$
|
43,201
|
|
|
|
Non-current assets
|
15,461
|
|
|
12,657
|
|
|
|
Current liabilities
|
25,320
|
|
|
15,551
|
|
|
|
Non-current liabilities
|
19,933
|
|
|
13,581
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Statements of Operations:
|
|
|
|
|
|
Total revenue
|
$
|
74,659
|
|
|
$
|
48,047
|
|
|
$
|
48,702
|
|
Gross profit (loss)
|
27,355
|
|
|
16,327
|
|
|
16,510
|
|
Income (loss) from continuing operations
|
6,731
|
|
|
(1,074
|
)
|
|
1,745
|
|
Net income (loss)
|
2,374
|
|
|
(2,452
|
)
|
|
1,636
|
|
Summarized financial information presented in the table above includes results for UCI and BioCision and does not include results for YBA since such amounts are not significant. The Company currently records its share of UCI's and BioCision's results of operations based on a three-months lag. Accordingly, the Company's Consolidated Financial Statements include its share of income and losses incurred by UCI and BioCision from the periods beginning and ending three months prior to the periods shown in the table.
9. Loan Receivable
In fiscal year 2012, the Company provided a strategic partner (the "Borrower") a loan of
$3.0 million
to support the Borrower's future product development and other working capital requirements. The loan initially bore a stated interest rate of
9%
, and the outstanding principal and interest were initially due in May 2015. The Company also received a warrant to purchase the Borrower's common stock in the event of an equity offering by the Borrower and certain other rights related to conversion of the loan, including the first refusal to acquire the Borrower and a redemption premium. The loan was initially secured by a security agreement granting the Company a first-priority security interest in all of the Borrower's assets.
The Company determined that the Borrower represented a variable interest entity since the level of equity investment at risk was not sufficient for the entity to finance its activities without additional financial support. However, the Company does not qualify as the primary beneficiary since it would not absorb the majority of the expected losses from the Borrower and does not have the power to direct the Borrower's product research, development and marketing activities that have the most significant impact on its economic performance. The Company has no future contractual funding commitments to the Borrower and, as a result, the Company's exposure to loss is limited to the outstanding principal and interest due on the loan.
During fiscal year 2014, the Borrower informed the Company of its intent to secure additional funding from an investment program funded by the Commonwealth of Massachusetts designed to support early-stage companies. In connection with the Borrower’s efforts to secure additional financing, the Company agreed to subordinate its security interest in the assets of the Borrower to the new lender. Additionally, the Company agreed to extend the due date of its loan by approximately
5 years
, to September 2019, in order to coincide with the due date of the new loan. The amended loan has a stated interest rate of
10%
.
In connection with its efforts to secure additional financial support, the Borrower developed revised assumptions about its future cash flows. Based on the information provided by the Borrower and the subordination of the loan to the new lender, the Company determined it was probable that it would not recover all amounts due from the loan and recorded an impairment charge of
$2.6 million
during fiscal year 2014. The impairment charge included the warrant write-off and was recorded in the "Selling, general and administrative" expenses in the Company's Consolidated Statements of Operations.
The fair value of the loan is determined by considering the fair value of the collateral using valuation techniques, principally the discounted cash flow method, reduced by the amounts subordinated to the debt provided by the new lender. The observable inputs used in the Company's analysis are limited primarily to the discount rate, which is based on a rate
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
commensurate with the risks and uncertainties of the Borrower. As a result, the fair value of the loan could vary under different conditions or assumptions, including the varying assumptions regarding future cash flows of the Borrower or discount rates.
Carrying value of the loan receivable was
$0.2 million
and
$1.0 million
, respectively, at September 30, 2016 and 2015. The Company determines fair value of the loan based on a relief from royalty and discounted cash flow approaches. During fiscal year 2016, the Company concluded that recent operating trends and declining future cash flow forecasts of the Borrower represented indicators of potential loan impairment. As a result, the Company updated the discounted cash flow valuation model based on revised lower forecasted future cash flow assumptions and determined, based on a relief from royalty and discounted cash flow approaches, that carrying value of the loan exceeded its estimated fair value by
$0.8 million
. Accordingly, the Company recorded an impairment based on charge of
$0.8 million
in "Selling, general and administrative" expenses in the Company's Consolidated Statements of Operations during fiscal year ended September 30, 2016 which resulted in the loan's carrying value of
$0.2 million
at September 30, 2016.
10. Supplementary Balance Sheet Information
The following is a summary of accounts receivable at September 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
Accounts receivable
|
$
|
108,713
|
|
|
$
|
87,582
|
|
Less allowance for doubtful accounts
|
(2,241
|
)
|
|
(1,019
|
)
|
Less allowance for sales returns
|
(100
|
)
|
|
(115
|
)
|
|
$
|
106,372
|
|
|
$
|
86,448
|
|
The allowance for doubtful accounts activity for the fiscal years ended September 30, 2016, 2015 and 2014 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
Beginning of
Period
|
|
Provisions
|
|
Reversals of
Bad Debt
Expense
|
|
Write-offs and
Adjustments
|
|
Balance at
End of
Period
|
2016 Allowance for doubtful accounts
|
|
$
|
1,019
|
|
|
$
|
202
|
|
|
$
|
—
|
|
|
$
|
1,020
|
|
|
$
|
2,241
|
|
2015 Allowance for doubtful accounts
|
|
1,031
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
1,019
|
|
2014 Allowance for doubtful accounts
|
|
863
|
|
|
438
|
|
|
(315
|
)
|
|
45
|
|
|
1,031
|
|
The allowance for sales returns activity for the fiscal years ended September 30, 2016, 2015 and 2014 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Balance at
Beginning of
Period
|
|
Provisions
|
|
Write-offs and
Adjustments
|
|
Balance at
End of
Period
|
2016 Allowance for sales returns
|
$
|
115
|
|
|
$
|
(14
|
)
|
|
$
|
—
|
|
|
$
|
101
|
|
2015 Allowance for sales returns
|
133
|
|
|
(18
|
)
|
|
—
|
|
|
115
|
|
2014 Allowance for sales returns
|
114
|
|
|
19
|
|
|
—
|
|
|
133
|
|
The following is a summary of inventories at September 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
Inventories
|
|
|
|
Raw materials and purchased parts
|
$
|
60,979
|
|
|
$
|
62,441
|
|
Work-in-process
|
16,090
|
|
|
21,563
|
|
Finished goods
|
15,503
|
|
|
16,615
|
|
|
$
|
92,572
|
|
|
$
|
100,619
|
|
The activity for excess and obsolete inventory reserves, excluding amounts related to discontinued operations, is as follows for the fiscal years ended September 30, 2016, 2015 and 2014 (in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Balance at
Beginning of
Period
|
|
Provisions
|
|
Inventory Disposals and Adjustments
|
|
Balance at
End of
Period
|
2016 Reserves for excess and obsolete inventory
|
$
|
23,768
|
|
|
$
|
7,293
|
|
|
$
|
(6,267
|
)
|
|
$
|
24,794
|
|
2015 Reserves for excess and obsolete inventory
|
26,027
|
|
|
7,879
|
|
|
(10,138
|
)
|
|
23,768
|
|
2014 Reserves for excess and obsolete inventory
|
24,200
|
|
|
6,900
|
|
|
(5,073
|
)
|
|
26,027
|
|
The Company establishes reserves for estimated cost of product warranties based on historical information. Product warranty reserves are recorded at the time product revenue is recognized, and retrofit accruals are recorded at the time retrofit programs are established. The Company’s warranty obligation is affected by product failure rates, utilization levels, material usage, service delivery costs incurred in correcting a product failure and supplier warranties on parts delivered to the Company.
The following is a summary of product warranty and retrofit activity on a gross basis, excluding amounts related to discontinued operations, for the fiscal years ended September 30, 2016, 2015 and 2014 (in thousands):
|
|
|
|
|
|
Amount
|
Balance at September 30, 2013
|
$
|
7,260
|
|
Adjustments for acquisitions and divestitures
|
364
|
|
Accruals for warranties during the year
|
9,969
|
|
Costs incurred during the year
|
(11,094
|
)
|
Balance at September 30, 2014
|
6,499
|
|
Adjustments for acquisitions and divestitures
|
81
|
|
Accruals for warranties during the year
|
9,917
|
|
Costs incurred during the year
|
(10,408
|
)
|
Balance at September 30, 2015
|
6,089
|
|
Adjustments for acquisitions and divestitures
|
—
|
|
Accruals for warranties during the year
|
9,975
|
|
Costs incurred during the year
|
(9,740
|
)
|
Balance at September 30, 2016
|
$
|
6,324
|
|
11. Line of Credit
On May 26, 2016, the Company and certain of its subsidiaries entered into a credit agreement with Wells Fargo Bank, N.A. (the "Wells Fargo"). The credit agreement provides for a
five
-year senior secured revolving line of credit (the ''line of credit") of
$75.0 million
. Availability under the line of credit is subject to a borrowing base which is redetermined from time to time based on certain percentage of certain eligible U.S. assets, including accounts receivable, inventory, real property, as well as machinery and equipment. The agreement includes sublimits of up to
$25.0 million
for letters of credit and
$7.5 million
of swing loans at the time there is more than one lender under the credit agreement. The line of credit expires on May 26, 2021 with all outstanding principal and interest due and payable on such date or an earlier date if declared due and payable on such earlier date pursuant to the terms of the credit agreement (by acceleration or otherwise). Subject to certain conditions of the credit agreement, the net cash proceeds from sales of certain collateral during the term of the arrangement are required to be used to prepay borrowings under the line of credit. The Company may also voluntarily prepay certain amounts under the line of credit without penalty or premium. There were
no
amounts outstanding under the line of credit as of September 30, 2016.
Borrowings under the line of credit bear an annual interest rate equal to, at the Company’s option, the base rate or the LIBOR rate plus, in each case, an applicable margin determined based on the Company's liquidity as of the first day of each fiscal quarter. LIBOR rate is reset at the beginning of each selected interest period based on the rate then in effect. The base rate is a fluctuating interest rate equal to the highest of (i) the federal funds rate plus
0.50%
, (ii) the one month LIBOR rate plus
1.00%
and (iii) the prime lending rate announced by Wells Fargo. During the fiscal year 2016, the Company incurred
$0.7 million
in deferred financing costs which included commitments fees and other costs directly associated with obtaining the line of credit. Please refer to Note 2, "Summary of Significant Accounting Policies" for further information on the deferred financing fees. In addition to interest on any outstanding borrowings under the credit agreement, the Company is required to pay monthly fees of
0.25%
per year related to unused portion of the revolver commitment amounts. The Company incurred approximately
$0.1 million
in such fees during fiscal year 2016. All outstanding borrowings under the credit agreement are guaranteed by the Company along with certain U.S. subsidiaries and secured by a first priority perfected security interest in
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
substantially all of the Company's and guarantor's assets in the U.S., subject to certain exceptions. Additionally, the Company granted Wells Fargo a mortgage lien on certain company-owned real properties.
The line of credit contains certain customary representations and warranties, a financial covenant, affirmative and negative covenants, as well as events of default. In the event in which the Company's liquidity is less than the greater of (i)
12.5%
of the commitments under the line of credit, and (ii)
$9.4 million
, and continuing until the time such liquidity during a 60-consecutive day period has been equal to or greater than the greater of (a)
12.5%
of the commitments under the line of credit, and (b)
$9.4 million
, the Company is required to maintain a fixed charge coverage ratio of at least
1.0
to 1.0 measured as of the last day of each fiscal month ending during such period. Liquidity is defined as a sum of (a) excess availability under the credit agreement; and (b) unrestricted cash and cash equivalents located in bank accounts in the United States that are subject to a control agreement in favor of Wells Fargo, limited to a maximum amount of
50%
of liquidity. Negative covenants limit the Company's ability to incur additional indebtedness, liens, sell assets, consolidate or merge with or into other entities, pay non-cash dividends (and cash dividends if the Company fails to meet certain payment conditions), make certain investments, prepay, redeem or retire subordinated debt, and enter into certain types of transactions with the Company’s affiliates. If any of the events of default occur and are not waived or cured within applicable grace periods, any unpaid amounts under the credit agreement, including principal and interest, may be declared immediately due and payable and the credit agreement may be terminated. The Company was in compliance with the line of credit covenants as of September 30, 2016.
12. Income Taxes
The components of the income tax provision (benefit), excluding amounts related to the discontinued operations, for the fiscal years ended September 30, 2016, 2015 and 2014 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Current income tax provision (benefit):
|
|
|
|
|
|
Federal
|
$
|
(145
|
)
|
|
$
|
10
|
|
|
$
|
15
|
|
State
|
(186
|
)
|
|
56
|
|
|
177
|
|
Foreign
|
5,868
|
|
|
5,537
|
|
|
1,417
|
|
Total current income tax provision
|
5,537
|
|
|
5,603
|
|
|
1,609
|
|
Deferred income tax benefit:
|
|
|
|
|
|
|
|
|
Federal
|
68,300
|
|
|
(1,773
|
)
|
|
(2,276
|
)
|
State
|
4,000
|
|
|
(104
|
)
|
|
(35
|
)
|
Foreign
|
(2,027
|
)
|
|
(296
|
)
|
|
(1,278
|
)
|
Total deferred income tax benefit
|
70,273
|
|
|
(2,173
|
)
|
|
(3,589
|
)
|
Income tax provision (benefit)
|
$
|
75,810
|
|
|
$
|
3,430
|
|
|
$
|
(1,980
|
)
|
The components of income (loss) before income taxes and equity in (losses) earnings of equity method investments for the fiscal years ended September 30, 2016, 2015 and 2014 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Domestic
|
$
|
(8,186
|
)
|
|
$
|
(1,321
|
)
|
|
$
|
(7,338
|
)
|
Foreign
|
12,140
|
|
|
19,136
|
|
|
5,643
|
|
|
$
|
3,954
|
|
|
$
|
17,815
|
|
|
$
|
(1,695
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
The differences between the income tax provision (benefit) and income taxes computed using the applicable U.S. statutory federal tax rate for the fiscal years ended September 30, 2016, 2015 and 2014 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Income tax provision (benefit) computed at federal statutory rate
|
$
|
2,217
|
|
|
$
|
6,177
|
|
|
$
|
(217
|
)
|
State income taxes, net of federal benefit
|
113
|
|
|
243
|
|
|
(12
|
)
|
Foreign income taxed at different rates
|
(755
|
)
|
|
(938
|
)
|
|
(596
|
)
|
Dividends
|
(1,666
|
)
|
|
(1,069
|
)
|
|
(1,373
|
)
|
Change in deferred tax asset valuation allowance
|
77,531
|
|
|
(36
|
)
|
|
453
|
|
Reduction in uncertain tax positions
|
(1,543
|
)
|
|
(1,207
|
)
|
|
(1,236
|
)
|
Nondeductible compensation
|
782
|
|
|
1,325
|
|
|
1,064
|
|
Tax credits
|
(1,786
|
)
|
|
(1,741
|
)
|
|
(704
|
)
|
Travel and entertainment
|
274
|
|
|
314
|
|
|
220
|
|
Merger costs
|
503
|
|
|
228
|
|
|
187
|
|
Other
|
140
|
|
|
134
|
|
|
234
|
|
Income tax provision (benefit)
|
$
|
75,810
|
|
|
$
|
3,430
|
|
|
$
|
(1,980
|
)
|
The Company has not provided deferred income taxes on the unremitted earnings of its foreign subsidiaries as these earnings are considered to be indefinitely reinvested outside of the U.S. These earnings amounted to approximately
$52.0 million
,
$40.3 million
and
$25.2 million
, respectively, at September 30, 2016, 2015 and 2014. It is not practicable to compute the estimated deferred tax liability on these earnings as they depend on numerous factors and vary based on the timing of future remittances and the future results of various foreign operations. Deferred taxes have not been provided on unremitted earnings of its fifty percent-owned foreign corporate joint venture, Ulvac Cryogenics, Inc. as these earnings are also considered to be indefinitely reinvested outside of the U.S. The Company does, however, receive annual dividends only from current year earnings of this joint venture and these dividends are included in taxable income for the year. Any earnings that are not distributed in the current year will then be considered indefinitely reinvested as the company does not expect to receive dividends from prior year earnings.
The significant components of the net deferred tax assets and liabilities as of September 30, 2016 and 2015 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
Accruals and reserves not currently deductible
|
$
|
16,448
|
|
|
$
|
9,602
|
|
Federal, state and foreign tax credits
|
24,539
|
|
|
22,115
|
|
Other assets
|
4,294
|
|
|
5,939
|
|
Net operating loss carryforwards
|
73,097
|
|
|
63,569
|
|
Inventory reserves and valuation
|
11,342
|
|
|
10,598
|
|
Deferred tax assets
|
129,720
|
|
|
111,823
|
|
Depreciation and intangible amortization
|
25,850
|
|
|
9,388
|
|
Deferred tax liabilities
|
25,850
|
|
|
9,388
|
|
Valuation allowance
|
(104,802
|
)
|
|
(18,797
|
)
|
Net deferred tax (liability) asset
|
$
|
(932
|
)
|
|
$
|
83,638
|
|
In November 2015, the FASB issued Accounting Standards Update ("the ASU") 2015-17,
Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes
. This guidance requires deferred tax liabilities, deferred tax assets and valuation allowances to be classified as non-current in a classified balance sheet. This ASU is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted and may be applied either prospectively or retrospectively to all periods presented. The Company has elected to early adopt the ASU as of September 30, 2016 on retrospective basis. The classification of deferred tax assets and liabilities as of September 30, 2015 has been recast to reflect the current period presentation. Current deferred tax assets, non-current deferred tax assets, current deferred tax liabilities and non-current deferred tax liabilities were
$17.6 million
,
$70.5 million
,
$1.3 million
and
$3.2 million
, respectively, in the previously issued financial statements for the fiscal year ended September 30, 2015.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
ASC Topic 740,
Income Taxes
, requires that all available evidence, both positive and negative, be considered in determining, based on the weight of that evidence, whether a valuation allowance is needed. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, (a) the more positive evidence is necessary and (b) the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion or all of the deferred tax asset. A cumulative loss in recent years is considered a significant piece of negative evidence that is difficult to overcome in assessing the need for a valuation allowance.
The Company evaluates the realizability of its deferred tax assets by tax-paying component and assesses the need for a valuation allowance on an annual and quarterly basis. The Company evaluates the profitability of each tax-paying component on a historic cumulative basis and a forward looking basis in the course of performing this analysis. The Company evaluated all positive and negative evidence in concluding it was appropriate to establish a full valuation allowance against U.S. net deferred tax assets during fiscal year 2016.
The Company evaluated negative evidence to assess if it is more likely than not that the Company could utilize the U.S. deferred tax assets. In reviewing performance over the recent years, the Company currently shows cumulative income. This history considers earnings in recent years from the discontinued operations of Granville-Phillips, which was divested during fiscal year 2014 and freed up capital for investments in strategic growth businesses. In evaluating the historical results of the continuing businesses, the Company has not yet demonstrated profitability with losses in recent periods. The Company reported U.S. pre-tax losses during fiscal year 2015 and fiscal year 2016. The loss in fiscal year 2016 included a significant charge for restructuring actions which are ultimately expected to improve future profitability. However, these losses presented significant negative evidence in the evaluation.
The Company also considered positive evidence such as expected improvements that are the results of investments in growth businesses. The Company prepares comprehensive forecasts based on the cyclical trends of the semiconductor industry, expected capital spending in the industry and demand for new product offerings. The Company's forecast of future improved profits includes a portion related to foreign operations, specifically in the Contamination Control Solutions business, which are excluded from the evaluation of U.S. deferred tax assets. The forecast of future improved profits also includes a portion related to U.S. operations. The Brooks Life Science Systems segment has driven cumulative losses in the U.S. in the past years, but is expected to provide growth in revenue and improved profitability resulting in increased profits in the U.S. After extensive review, despite significant projected improvements, the forecasted income is not considered to be objectively verifiable evidence because the revenue growth expected for the future periods is based on projections and not significantly supported by specific bookings and backlog of orders for product in place as of the end of the quarter. The evidence is therefore considered more subjective than objective under the accounting rules. Accordingly, this positive evidence is given less weight than the negative evidence discussed above.
A cumulative loss is difficult negative evidence to overcome on a more likely than not basis. Future income projections can only overcome this negative evidence if the projections are considered objectively verifiable. Since the income projections are not considered objectively verifiable, the Company determined that realization of the U.S. net deferred tax assets should not be viewed as more likely than not until the projected profits are supported with objectively verifiable evidence of the improvements. As a result of this change in assessment, the Company recorded a tax provision of
$79.3 million
to establish the valuation allowance against U.S. net deferred tax assets during the second quarter of fiscal year 2016. The Company will continue to maintain a full valuation allowance on its U.S. deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances.
As of September 30, 2016, the Company had federal, state and foreign net operating loss carry-forwards of approximately
$137.0 million
,
$114.0 million
and
$85.0 million
, respectively. The federal net operating losses expire beginning in
2024
through
2035
, with the majority of the loss expiring in
2029
. The state net operating losses are generated in various jurisdictions with different carryover periods and expire starting in
2017
through
2035
. Certain foreign net operating loss carryovers will begin to expire in
2017
, while a significant portion has an unlimited carryover period. The net operating loss carry-forward includes excess deductions related to stock compensation in the amount of
$15.0 million
which have not been recognized for financial statement purposes. The benefits of these tax deductions will be credited to additional paid-in capital upon being realized.
As of September 30, 2016, the Company had federal research and development tax credit carry-forwards of
$18.7 million
. These credit carry-forwards will expire at various dates beginning in
2020
through
2036
. The Company also has
$10.4 million
of state credits which begin to expire in
2020
, while some of these credits have an unlimited carryover period.
The Company has performed studies to determine if there are any annual limitations on the federal net operating losses under the Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. As a result of these studies, the Company has determined that ownership changes have occurred primarily in connection with acquisitions when the Company has issued stock to the sellers, as well as ownership changes in the subsidiaries acquired by the Company. Certain
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
limitations have been calculated, and the benefits of the net operating losses that will expire before utilization have not been recorded as deferred tax assets in the accompanying Consolidated Balance Sheets.
In fiscal year 2016, the Company identified an error in footnote disclosures related to historical components of its net deferred tax asset balance. Specifically, as of September 30, 2015, the gross deferred tax assets net operating loss carryforwards and related valuation allowance were understated by an equal and offsetting amount of
$12.9 million
. The error was corrected as of September 30, 2016 and had no impact on the net deferred tax assets or the provision for income taxes. The error and associated out of period correction were determined to be immaterial and had no effect on the Company’s Consolidated Balance Sheets, Statements of Operations, Changes in Equity or Cash Flows for any period presented.
The Company maintains liabilities for uncertain tax positions. These liabilities involve judgment and estimation and are monitored based on the best information available. A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits during the fiscal years ended September 30, 2016, 2015 and 2014 is as follows (in thousands):
|
|
|
|
|
|
Total
|
Balance at October 1, 2013
|
$
|
5,147
|
|
Reductions from lapses in statutes of limitations
|
(861
|
)
|
Foreign exchange rate adjustment
|
(24
|
)
|
Balance at September 30, 2014
|
4,262
|
|
Reductions from settlements with taxing authorities
|
(1,304
|
)
|
Reductions from lapses in statutes of limitations
|
(734
|
)
|
Foreign exchange rate adjustment
|
(33
|
)
|
Balance at September 30, 2015
|
2,191
|
|
Additions for tax positions in current year
|
4,165
|
|
Reductions from lapses in statutes of limitations
|
(897
|
)
|
Foreign exchange rate adjustment
|
(32
|
)
|
Balance at September 30, 2016
|
$
|
5,427
|
|
Included in the ending balance of unrecognized tax benefits for the fiscal year ended September 30, 2016 are
$3.8 million
of tax benefits that if recognized would result in adjustments to deferred taxes in jurisdictions where a full valuation allowance is recorded. The Company recognizes interest related to unrecognized benefits as a component of income tax provision (benefit), of which
$0.1 million
,
$0.2 million
and
$0.3 million
, respectively, was recognized for the fiscal years ended September 30, 2016, 2015 and 2014. The statute of limitations lapsed on several uncertain tax positions in the foreign jurisdictions during fiscal year 2016 that resulted in a
$0.9 million
reduction in gross unrecognized tax benefits that impacted the effective tax rate.
The Company is subject to U.S. federal income tax and various state, local and international income taxes in various jurisdictions. The amount of income taxes paid is subject to the Company's interpretation of applicable tax laws in the jurisdictions in which it files.
In the normal course of business, the Company is subject to income tax audits in various global jurisdictions in which it operates. The years subject to examination vary for the U.S. and international jurisdictions, with the earliest tax year being
2010
. 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 Consolidated Balance Sheets. The Company currently anticipates that it is reasonably possible that the unrecognized tax benefits will be reduced by approximately
$1.1 million
in the next 12 months.
13. Derivative Instruments
Prior to fiscal year 2014, the Company was a party to foreign exchange contracts to reduce its exposure to changes in foreign exchange rates associated with an order for multiple automated sample management systems. The Company concluded that these foreign currency contracts met the criteria to qualify as a cash flow hedge. Accordingly, the Company reflected changes in the fair value of the effective portion of these foreign currency contracts in accumulated other comprehensive income. During fiscal year 2014, the Company reclassified the realized gain of
$0.1 million
on these contracts from accumulated other comprehensive income into revenue to coincide with recognition of the hedged transaction. Please refer to Note 15, "Stockholders' Equity", for further information on this reclassification and its impact on the accumulated other
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
comprehensive income and other comprehensive income for the fiscal year 2014. The Company did not recognize any amounts related to hedging ineffectiveness of these contracts in the results of operations for the fiscal year ended September 30, 2014. As of September 30, 2014, the Company did not have any notional amounts outstanding under foreign currency contracts that qualified for cash flow hedge accounting.
The Company has transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros, British Pounds and a variety of Asian currencies. These transactions and balances, including short-term advances between the Company and its subsidiaries, subject the Company's operations to exposure from exchange rate fluctuations. The impact of currency exchange rate movement can be positive or negative in any period. The Company mitigates the impact of potential currency transaction gains and losses on short-term intercompany advances through timely settlement of each transaction, generally within 30 days.
The Company also enters into foreign exchange contracts to reduce its exposure to currency fluctuations. Under forward contract arrangements, the Company typically agrees to purchase a fixed amount of U.S. dollars in exchange for a fixed amount of a foreign currency on specified dates with maturities of three months or less. These transactions do not qualify for hedge accounting. Net gains and losses related to these contracts are recorded as a component of "Other (expense) income, net" in the accompanying Consolidated Statements of Operations and are as follows for the fiscal years ended September 30, 2016, 2015 and 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
2016
|
|
2015
|
|
2014
|
Realized gains on derivatives not designated as hedging instruments
|
|
$
|
1,434
|
|
|
$
|
628
|
|
|
$
|
185
|
|
The Company had the following notional amounts outstanding under foreign currency contracts that do not qualify for hedge accounting at September 30, 2016 and 2015 (in thousands):
September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy Currency
|
|
Notional Amount
of Buy Currency
|
|
Sell Currency
|
|
Maturity
|
|
Notional Amount
of Sell Currency
|
|
Fair Value of
Assets
|
|
Fair Value of
Liabilities
|
British Pound
|
|
246
|
|
|
Swedish Krona
|
|
October 2016
|
|
2,100
|
|
|
$
|
1
|
|
|
$
|
—
|
|
U.S. Dollar
|
|
6,107
|
|
|
British Pound
|
|
October 2016
|
|
4,710
|
|
|
2
|
|
|
—
|
|
U.S. Dollar
|
|
5,815
|
|
|
Chinese Yuan
|
|
October 2016
|
|
39,000
|
|
|
—
|
|
|
(33
|
)
|
Euro
|
|
14,976
|
|
|
U.S. Dollar
|
|
October 2016
|
|
13,300
|
|
|
—
|
|
|
(40
|
)
|
Korean Won
|
|
2,255
|
|
|
U.S. Dollar
|
|
October 2016
|
|
2,488,000
|
|
|
1
|
|
|
—
|
|
Euro
|
|
8,403
|
|
|
British Pound
|
|
October 2016
|
|
6,500
|
|
|
—
|
|
|
(23
|
)
|
U.S. Dollar
|
|
311
|
|
|
Israeli Shekel
|
|
October 2016
|
|
1,169
|
|
|
1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5
|
|
|
$
|
(96
|
)
|
September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy Currency
|
|
Notional Amount
of Buy Currency
|
|
Sell Currency
|
|
Maturity
|
|
Notional Amount
of Sell Currency
|
|
Fair Value of
Assets
|
|
Fair Value of
Liabilities
|
U.S. Dollar
|
|
1,543
|
|
|
Korean Won
|
|
October 2015
|
|
1,852,000
|
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
British Pound
|
|
2,157
|
|
|
Euro
|
|
October 2015
|
|
1,600
|
|
|
—
|
|
|
(29
|
)
|
U.S. Dollar
|
|
662
|
|
|
Taiwan Dollar
|
|
October 2015
|
|
22,000
|
|
|
—
|
|
|
(1
|
)
|
U.S. Dollar
|
|
4,308
|
|
|
British Pound
|
|
October 2015
|
|
6,520
|
|
|
32
|
|
|
—
|
|
Euro
|
|
9,300
|
|
|
U.S. Dollar
|
|
October 2015
|
|
8,253
|
|
|
40
|
|
|
—
|
|
U.S. Dollar
|
|
5,177
|
|
|
Chinese Yuan
|
|
October 2015
|
|
33,000
|
|
|
15
|
|
|
—
|
|
U.S. Dollar
|
|
425
|
|
|
Japanese Yen
|
|
October 2015
|
|
51,000
|
|
|
—
|
|
|
—
|
|
U.S. Dollar
|
|
1,336
|
|
|
Japanese Yen
|
|
December 2015
|
|
160,000
|
|
|
2
|
|
|
—
|
|
U.S. Dollar
|
|
457
|
|
|
Israeli Shekel
|
|
October 2015
|
|
1,800
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89
|
|
|
$
|
(36
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
The fair values of the forward contracts described above are recorded in the Company's Consolidated Balance Sheets as "Prepaid expenses and other current assets" and "Accrued expenses and other current liabilities".
Stock Warrants
The BioCision warrant agreement contains net share settlement provisions, which permit the Company to pay the warrant exercise price using shares issuable under the warrants (“cashless exercise”). The value of the stock warrants fluctuates primarily in relation to the value of BioCision's underlying securities, either providing an appreciation in value or potentially expiring with no value. Gains and losses on the revaluation of the stock warrant are recognized as a component of "Other (expense) income, net" in the accompanying Consolidated Statements of Operations. Please refer to Note 21 “Fair Value Measurements” for further information regarding the fair value of the stock warrant.
14. Postretirement Benefits
Defined Benefit Pension Plans
The Company has
two
active defined benefit pension plans (collectively, the “Plans”). The Plans cover substantially all of the Company’s employees in Switzerland and Taiwan. Retirement benefits are generally earned based on years of service and the level of compensation during active employment, but the level of benefits varies within the Plans. Eligibility is determined in accordance with local statutory requirements.
The Company uses September 30th as a measurement date to determine net periodic benefit costs, benefit obligations and the value of plan assets for all plans. The following tables set forth the funded status and amounts recognized in the Company’s Consolidated Balance Sheets as of September 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
Benefit obligation at beginning of fiscal year
|
$
|
7,661
|
|
|
$
|
8,213
|
|
Service cost
|
548
|
|
|
482
|
|
Interest cost
|
71
|
|
|
124
|
|
Actuarial loss
|
106
|
|
|
733
|
|
Benefits paid
|
(712
|
)
|
|
(209
|
)
|
Employee contributions
|
156
|
|
|
444
|
|
Settlements paid
|
—
|
|
|
(1,795
|
)
|
Curtailment gain
|
(1,064
|
)
|
|
—
|
|
Foreign currency translation
|
81
|
|
|
(331
|
)
|
Benefit obligation at end of fiscal year
|
$
|
6,847
|
|
|
$
|
7,661
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets at beginning of fiscal year
|
$
|
4,838
|
|
|
$
|
6,131
|
|
Actual return on plan assets
|
30
|
|
|
112
|
|
Disbursements
|
(837
|
)
|
|
(334
|
)
|
Employer contributions
|
296
|
|
|
306
|
|
Employee contributions
|
352
|
|
|
642
|
|
Settlements paid
|
—
|
|
|
(1,795
|
)
|
Foreign currency translation
|
55
|
|
|
(224
|
)
|
Fair value of assets at end of fiscal year
|
$
|
4,734
|
|
|
$
|
4,838
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit obligation
|
$
|
2,113
|
|
|
$
|
2,823
|
|
The accumulated benefit obligation of the Plans is
$6.3 million
and
$6.9 million
, respectively, at September 30, 2016 and 2015. Both Plans have an accumulated benefit obligation and projected benefit obligation in excess of plans' assets at September 30, 2016 and 2015.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
The following table provides pension-related amounts and their classification within the accompanying Consolidated Balance Sheets as of September 30, 2015 and 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
Accrued compensation and benefits
|
$
|
155
|
|
|
$
|
298
|
|
Long-term pension liability
|
1,958
|
|
|
2,525
|
|
|
$
|
2,113
|
|
|
$
|
2,823
|
|
Accumulated other comprehensive income at September 30, 2016 and 2015 includes unrecognized net actuarial losses of
$0.3 million
and
$0.2 million
, respectively, and cumulative unrecognized investment losses of
$0.9 million
and
$0.8 million
, respectively, during fiscal years 2016 and 2015. Unrecognized net actuarial losses and cumulative unrecognized investment losses within accumulated other comprehensive income were offset by a curtailment gain of
$0.9 million
at September 30, 2016.
The components of the Company’s net pension cost for the fiscal years ended September 30, 2016, 2015 and 2014 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Service cost
|
$
|
548
|
|
|
$
|
482
|
|
|
$
|
406
|
|
Interest cost
|
71
|
|
|
124
|
|
|
154
|
|
Expected return on plan assets
|
(159
|
)
|
|
(210
|
)
|
|
(214
|
)
|
Amortization of losses
|
2
|
|
|
2
|
|
|
2
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic pension cost
|
462
|
|
|
398
|
|
|
348
|
|
Curtailment gain
|
(227
|
)
|
|
—
|
|
|
—
|
|
Settlement loss
|
—
|
|
|
232
|
|
|
—
|
|
Total pension cost
|
$
|
235
|
|
|
$
|
630
|
|
|
$
|
348
|
|
The following changes in Plans' assets and benefit obligations were recognized in other comprehensive income (loss) as of September 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
Net loss
|
$
|
165
|
|
|
$
|
722
|
|
Amortization of net loss
|
(2
|
)
|
|
(2
|
)
|
Curtailment gain
|
(852
|
)
|
|
—
|
|
Settlement loss
|
—
|
|
|
(232
|
)
|
Total recognized in other comprehensive income (loss)
|
(689
|
)
|
|
488
|
|
Total recognized in net periodic pension cost and other comprehensive income (loss)
|
$
|
(227
|
)
|
|
$
|
886
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
The curtailment gain of
$0.2 million
incurred during fiscal year 2016 and the settlement loss of
$0.2 million
incurred during fiscal year 2015 were reclassified from accumulated other comprehensive income (loss) into the results of operations during each fiscal year. Additionally, a curtailment gain of
$1.1 million
was recognized as a reclassification from accumulated other comprehensive income and a corresponding reduction in pension liabilities. Please refer to Note 15, "Stockholders' Equity", for further information on these reclassifications and their impact on the accumulated other comprehensive income and other comprehensive income during each fiscal year.
Weighted-average assumptions used to determine the projected benefit obligation for the fiscal years ended September 30, 2016, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
Discount rate
|
0.40
|
%
|
|
0.92
|
%
|
|
1.55
|
%
|
Expected return on plan assets
|
1.75
|
%
|
|
1.78
|
%
|
|
2.18
|
%
|
Expected rate of compensation increases
|
1.31
|
%
|
|
1.65
|
%
|
|
1.87
|
%
|
In selecting the appropriate discount rates for the Plans, the Company uses country-specific information, adjusted to reflect the duration of the particular plan. The expected return on plan assets is based on an evaluation of fixed income yield curves and equity return assumption studies applied to the Plans' asset allocations.
The Company bases its determination of pension expense on a market-related valuation of assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a
five
-year period from the year in which they occur. Investment gains or losses represent the difference between the expected return calculated using the market-related value of assets and the actual return on assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recognized. At September 30, 2016, the Company had cumulative unrecognized investment losses of approximately
$0.9 million
under the Plans which remain to be recognized in the calculation of the market-related values of assets. At September 30, 2016, the Company had cumulative unrecognized net actuarial losses of
0.3 million
which are amortized into net periodic benefit cost over the average remaining service period of active Plans' participants.
Plan Assets
The fair value of plan assets for the Switzerland Plan and Taiwan Plan were
$4.2 million
and
$0.5 million
, respectively, at September 30, 2016. The assets of the Switzerland Plan are invested in a collective fund with multiple employers through a Swiss insurance company, which is a customary practice for Swiss pension plans. The Company does not have any rights or an investment authority over the Plan's assets which are invested primarily in highly rated debt securities.
The assets of the Taiwan Plan are invested with a trustee selected by the Taiwan government, and the Company has no investment authority over the Plan's assets.
The allocation of the Plans' assets at September 30, 2016 is as follows:
|
|
|
|
|
September 30, 2016
|
Cash and cash equivalents
|
3
|
%
|
Debt securities
|
72
|
|
Equity securities
|
7
|
|
Other
|
18
|
|
|
100
|
%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
The fair values of pension assets by asset category and by level at September 30, 2016 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Swiss Life collective foundation
|
$
|
—
|
|
|
$
|
4,208
|
|
|
$
|
—
|
|
|
$
|
4,208
|
|
Taiwan collective trust
|
—
|
|
|
526
|
|
|
—
|
|
|
526
|
|
Total
|
$
|
—
|
|
|
$
|
4,734
|
|
|
$
|
—
|
|
|
$
|
4,734
|
|
The fair values of pension assets by asset category and by level at September 30, 2015 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Swiss Life collective foundation
|
$
|
—
|
|
|
$
|
4,347
|
|
|
$
|
—
|
|
|
$
|
4,347
|
|
Taiwan collective trust
|
—
|
|
|
491
|
|
|
—
|
|
|
491
|
|
Total
|
$
|
—
|
|
|
$
|
4,838
|
|
|
$
|
—
|
|
|
$
|
4,838
|
|
Please refer to Note 21, "Fair Value Measurements" for a description of the levels of inputs used to determine fair value measurements.
Benefit payments expected to be paid over the next five fiscal years and thereafter are as follows (in thousands):
|
|
|
|
|
2017
|
$
|
203
|
|
2018
|
21
|
|
2019
|
21
|
|
2020
|
81
|
|
2021
|
104
|
|
Thereafter (through 2026)
|
735
|
|
The Company expects to contribute
$0.2 million
to the Plans in fiscal year 2017 to meet the minimum funding requirements of the Plans.
Defined Contribution Plans
The Company sponsors a defined contribution plan that meets the requirements of Section 401(k) of the Internal Revenue Code. All United States employees who meet minimum age and service requirements are eligible to participate in the plans. The plans allow employees to invest, on a pre-tax basis, a percentage of their annual salary and bonus subject to statutory limitations. The Company matches a portion of their contributions on a pre-tax basis up to a maximum amount of
4.5%
of deferred pay. The expense recognized for the defined contribution plans was
$3.6 million
,
$3.0 million
and
$3.5 million
, respectively, for the fiscal years ended September 30, 2016, 2015 and 2014.
15. Stockholders’ Equity
Preferred Stock
Total number of shares of preferred stock authorized for issuance was
1,000,000
shares at September 30, 2016 and 2015, respectively. Preferred stock has a par value of
$0.01
per share and may be issued at the discretion of the Board of Directors without stockholder approval with such designations, rights and preferences as the Board of Directors may determine. There were no shares of preferred stock issued or outstanding at September 30, 2016 or 2015, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Accumulated Other Comprehensive Income
The following is a summary of the components of accumulated other comprehensive income, net of tax, at September 30, 2016, 2015 and 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation Adjustments
|
|
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
Unrealized Gains (Losses) on Cash Flow Hedges
|
|
Pension Liability Adjustments
|
|
Total
|
Balance at September 30, 2013
|
|
$
|
22,398
|
|
|
$
|
66
|
|
|
$
|
14
|
|
|
$
|
126
|
|
|
$
|
22,604
|
|
Other comprehensive (loss) income before reclassifications
|
|
(6,296
|
)
|
|
(78
|
)
|
|
79
|
|
|
(503
|
)
|
|
(6,798
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
(26
|
)
|
|
(93
|
)
|
|
—
|
|
|
(119
|
)
|
Balance at September 30, 2014
|
|
16,102
|
|
|
(38
|
)
|
|
—
|
|
|
(377
|
)
|
|
15,687
|
|
Other comprehensive (loss) income before reclassifications
|
|
(9,426
|
)
|
|
144
|
|
|
—
|
|
|
(605
|
)
|
|
(9,887
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
(131
|
)
|
|
(3
|
)
|
|
—
|
|
|
232
|
|
|
98
|
|
Balance at September 30, 2015
|
|
6,545
|
|
|
103
|
|
|
—
|
|
|
(750
|
)
|
|
5,898
|
|
Other comprehensive income (loss) before reclassifications
|
|
8,844
|
|
|
(231
|
)
|
|
—
|
|
|
(322
|
)
|
|
8,291
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
125
|
|
|
—
|
|
|
852
|
|
|
977
|
|
Balance at September 30, 2016
|
|
$
|
15,389
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
(220
|
)
|
|
$
|
15,166
|
|
Unrealized net holding gains (losses) on available-for-sale marketable securities are reclassified from accumulated other comprehensive income into results of operations at the time of the securities' sale, as described in Note 5, "Marketable Securities.” Losses on settlements of cash flow hedges are reclassified from accumulated other comprehensive income into results of operations at the time of the settlement, as described in Note 13, "Derivative Instruments.” Losses related to defined benefit pension plan settlements are reclassified from accumulated other comprehensive income into results of operations at the time of the settlement, as described in Note 14, "Postretirement Benefits.” Defined benefit pension plan curtailments are recognized as reclassifications from accumulated other comprehensive income and corresponding reductions in pension liabilities and net pension cost, as described in Note 14, "Postretirement Benefits.”
Losses related to currency translation adjustments were reclassified from accumulated other comprehensive income into results of operations upon liquidation of YBA joint venture, as described in Note 8, "Equity Method Investments".
Non-controlling Interests
Noncontrolling interests represented the minority shareholders’ proportionate share of the equity in the Company’s majority owned subsidiary, Brooks Automation Asia, Ltd. (the "BAA"). The Company has historically consolidated the financial position and results of operations from BAA and presented the portion of the income attributable to the minority shareholders as “Net income attributable to noncontrolling interests” in the Consolidated Statements of Operations. In September 2014, the Company acquired the remaining interest in BAA from the minority shareholders for
$3.2 million
. Increases in ownership of a consolidated subsidiary are accounted for as equity transactions and as a result, no additional assets or liabilities are recognized upon acquiring additional interest. As of the date of the acquisition,
100%
of BAA’s pre-tax income was reflected in the Company’s results of operations. The increase in the Company's proportional share of BAA's results of operations was not material to the Company's results of operations for the fiscal year ended September 30, 2014. The payment to the minority shareholders was classified as a financing activity in the Consolidated Statements of Cash Flows. As a result of this transaction, the Company does not have noncontrolling interests as of September 30, 2016 and 2015, respectively.
16. Equity Incentive Plans
The Company's equity incentive plans are intended to attract and retain employees and provide an incentive for them to contribute to the Company's long-term growth and achievement of its long-range performance goals. The equity incentive plans consist of plans under which employees may be granted options to purchase shares of the Company's stock, restricted stock and other equity incentives. Restricted stock awards generally have a
3
year vesting period. At September 30, 2016, a total of
4,363,536
shares were reserved and available for future grant under the equity incentive plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Amended and Restated 2000 Equity Incentive Plan
The primary purpose of the Amended and Restated 2000 Equity Incentive Plan (the “2000 Plan") is to attract and retain employees and provide an incentive for them to contribute to the Company's long-term growth and achievement of its long-range performance goals. In accordance with the 2000 Plan provisions, the Company may grant (i) options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code, (ii) options that are not qualified as incentive stock option (the "nonqualified stock options"), and (iii) stock appreciation rights, performance awards and restricted stock. All employees of the Company or any affiliate of the Company, independent directors, consultants and advisors are eligible to participate in the 2000 Plan. Options granted out of the 2000 Plan generally vested over
four
years and expired within
ten
years from the date of grant. The 2000 Plan provided for the issuance of a maximum of
9,000,000
shares of common stock. The 2000 Plan expired on March 31, 2015. Stock option and restricted stock awards granted out of the 2000 Plan that were canceled or forfeited after February 5, 2015 were available for grant under the 2015 Equity Incentive Plan.
2015 Equity Incentive Plan
The primary purpose of the 2015 Equity Incentive Plan, (the “2015 Plan") is to attract and retain employees and provide an incentive for them to contribute to the Company's long-term growth and achievement of its long-range performance goals. In accordance with the 2015 Plan provisions, the Company may grant (i) restricted stock and other stock-based awards, (ii) nonqualified stock options, and (iii) options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code. All employees of the Company or any affiliate of the Company, independent directors, consultants and advisors are eligible to participate in the 2015 Plan. The 2015 Plan provides for the issuance of a maximum of
5,000,000
shares of common stock in addition to the stock option and restricted stock awards granted out of the 2000 Plan that were canceled or forfeited after February 5, 2015.
Restricted Stock Activity
The following table summarizes restricted stock unit activity for the fiscal year ended September 30, 2016:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
Outstanding at September 30, 2015
|
3,257,413
|
|
|
$
|
9.95
|
|
Granted
|
1,690,582
|
|
|
$
|
10.84
|
|
Vested
|
(1,269,862
|
)
|
|
$
|
9.53
|
|
Forfeited
|
(1,189,057
|
)
|
|
$
|
11.18
|
|
Outstanding at September 30, 2016
|
2,489,076
|
|
|
$
|
10.79
|
|
The weighted average grant date fair value of restricted stock units granted during fiscal years 2016, 2015 and 2014 was
$10.84
,
$11.89
and
$9.49
per share, respectively. The fair value of restricted stock units vested during fiscal years 2016, 2015 and 2014 was
$14.3 million
,
$8.4 million
and
$5.6 million
, respectively. The Company paid
$4.4 million
,
$2.3 million
and
$1.4 million
, respectively, for withholding taxes on vested restricted stock units during fiscal years 2016, 2015 and 2014. Additionally,
1,189,057
restricted stock units were forfeited during fiscal year 2016 primarily due to the failure to achieve certain performance thresholds for performance-based restricted stock units and as a result of the restructuring action initiated during the period then ended. Please refer to Note 17, "Restructuring and Other Charges" for further information on the restructuring action.
As of September 30, 2016, the future unrecognized stock-based compensation expense related to restricted stock units expected to vest is
$15.1 million
and is expected to be recognized over an estimated weighted average amortization period of
1.7
years.
The Company grants restricted stock units which vest upon the satisfaction of certain performance conditions and / or service conditions. In addition, the Company issues shares to participating employees pursuant to an employee stock purchase plan. The Company also issues unrestricted stock awards to its directors in accordance with its director compensation program.
The Company grants restricted stock units that vest over a required service period and /or achievement of certain operating performance goals. Restricted stock units granted with performance goals may also have a required service period following the achievement of all or a portion of the goals. The following table reflects restricted stock units granted, including
8,500
of time-based awards related to the discontinued operation and stock awards granted, during fiscal years ended September 30, 2016, 2015 and 2014:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Units
|
|
Time-Based Units
|
|
Stock Grants
|
|
Performance-Based Units
|
Year ended September 30, 2016
|
1,690,582
|
|
|
744,250
|
|
|
86,082
|
|
|
860,250
|
|
Year ended September 30, 2015
|
1,513,281
|
|
|
597,250
|
|
|
69,281
|
|
|
846,750
|
|
Year ended September 30, 2014
|
1,517,057
|
|
|
596,212
|
|
|
82,095
|
|
|
838,750
|
|
Time-Based Grants
Restricted stock units granted with a required service period typically have
three
year vesting schedules in which one-third of awards vest at the first anniversary of the grant date, one-third vest at the second anniversary of the grant date and one-third vest at the third anniversary of the grant date, subject to the award holders meeting service requirements.
Stock Grants
During fiscal years 2016, 2015 and 2014, the Company granted
86,082
,
69,281
and
82,095
units, respectively, to the members of the Company's Board of Directors, including compensation-related restricted stock units of
55,380
,
49,267
and
57,603
, respectively. Certain members of its Board of Directors previously elected to defer receiving their annual awards of unrestricted shares of the Company stock and quarterly dividends until a future date. During fiscal years 2016, 2015 and 2014, the Company issued
25,560
,
13,318
and
24,492
units, respectively, related to deferred annual restricted share awards.
During fiscal years 2016 and 2015, the Company issued
5,142
and
6,876
units, respectively, related to deferred quarterly dividends in an amount equal to the value of cash dividends that would be paid on the number of deferred shares based on the closing price of the Company’s stock on each dividend record date. There were no such units issued during fiscal year 2014. These units vested upon issuance, but receipt of the Company shares is deferred until the holders attain a certain age or cease to provide services to the Company in their capacity as Board members.
Performance-Based Grants
Performance-based restricted stock units are earned based on the achievement of performance criteria established by the Human Resources and Compensation Committee of the Board of Directors. The criteria for performance-based awards are weighted and have threshold, target and maximum performance goals.
Performance-based awards granted in fiscal year 2016 allow participants to earn
100%
of a targeted number of restricted stock units if the Company’s performance meets its target for each applicable financial metric, and up to a maximum of
200%
of the restricted stock units if the Company’s performance for such metrics meets the maximum threshold. Performance below the minimum threshold for each financial metric results in award forfeitures. Performance goals will be measured over a
three
year period at the end of fiscal year 2018 to determine the number of units earned by recipients that continue to meet a service requirement. Units held by recipients that fail to meet the continued service requirement are forfeited. Earned units for recipients that continue to meet the service requirements vest on the date the Company’s Board of Directors determines the number of units earned, which will be approximately the third anniversary of the grant date.
Performance-based awards granted in fiscal year 2015 include provisions similar to fiscal 2016 awards that allow participants to earn threshold, target and maximum awards ranging from
0%
of the award for performance below the minimum threshold,
100%
of the award for performance at target, and up to a maximum of
200%
of the award if the Company achieves the maximum performance goals.
Sixty
percent of the performance-based units granted in fiscal year 2015 had certain performance goals that were measured at the end of fiscal year 2015 to determine the number of earned units eligible for subsequent vesting. The Company performed below the threshold levels relative to the performance criteria for these awards and as a result these awards were not eligible for subsequent vesting, which resulted in a forfeiture of
495,684
units.
Forty
percent of the performance-based units granted in fiscal year 2015 have certain performance goals which will be measured over a
three
year period at the end of fiscal year 2017 to determine the number of earned units eligible for vesting. Earned units vest on the third anniversary of the grant date, subject to award holders satisfying the service requirements.
351,066
units, or
40.0%
, of performance-based awards granted in fiscal year 2015 are eligible for vesting. The total number of performance-based units to be earned by the participants will be based on the achievement against the Company's performance targets. The vesting of the units is subject to award holders satisfying the service requirements.
Performance-based awards granted in fiscal year 2014 include provisions similar to fiscal 2016 awards that allow participants to earn threshold, target and maximum awards ranging from
0%
of the award for performance below the minimum threshold,
100%
of the award for performance at target, and up to a maximum of
200%
of the award if the Company achieves the maximum performance goals. Performance below the minimum threshold results in award forfeitures. The measurement of achievement against the performance goals for performance-based units granted in fiscal year 2014 occurred
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
at the end of fiscal year 2014 to determine the number of earned units eligible for subsequent vesting. One-half of the earned units vests at the second anniversary of the grant date and one-half of the earned units vests at the third anniversary of the grant date, subject to the award holders meeting service requirements.
The Company significantly exceeded the fiscal year 2014 financial goals associated with the performance-based awards granted in fiscal year 2014. In accordance with the award terms, a total of
1,297,546
units, or
154.7%
, were eligible for subsequent vesting, subject to award holders satisfying the service requirements, which resulted in an increase of
458,796
units over the target grant amount of
838,750
units. Units granted to the employees of the Granville-Phillips business were forfeited upon completion of the sale.
1995 Employee Stock Purchase Plan
On February 22, 1996, the stockholders approved the 1995 Employee Stock Purchase Plan, (the "1995 Plan"), which enables eligible employees to purchase shares of the Company’s common stock. Under the 1995 Plan, eligible employees may purchase up to an aggregate of
3,000,000
shares during six-month offering periods commencing on February 1 and August 1 of each year at a share price of
85%
of the lower of the Company’s closing stock price on the first or last day of each six-month offering period. On February 8, 2012, the stockholders approved an amendment to the 1995 Plan to increase the number of shares of the Company’s common stock available for issuance by
1,000,000
shares, from
3,000,000
to
4,000,000
shares. Participating employees may elect to have up to
10%
of their base pay withheld and applied toward the purchase of such shares. The rights of participating employees under the 1995 Plan terminate upon voluntary withdrawal from the plan at any time or upon termination of employment. As of September 30, 2016,
3,787,072
shares of common stock have been purchased under the 1995 Plan and
212,928
shares remain available for purchase. During fiscal years 2016 and 2015, the Company issued
235,727
and
200,700
shares, respectively, under the employee stock purchase plan for $
1.9 million
and $
1.8 million
.
17. Restructuring and Other Charges
Fiscal Year 2016 Activities
The Company recorded restructuring charges of
$12.0 million
during fiscal year 2016 related to severance costs which consisted primarily of
$10.8 million
of charges related to restructuring actions initiated during fiscal year 2016 and
$1.3 million
of charges related to restructuring actions initiated in prior periods.
Restructuring Actions Initiated During Fiscal Year 2016
The Company’s restructuring actions initiated during fiscal year 2016 resulted in total charges of
$10.8 million
, which included
$3.1 million
of costs attributable to the Brooks Life Science Systems segment,
$1.8 million
of costs attributable to the Brooks Semiconductor Solutions Group segment and
$5.8 million
of costs related to the company-wide restructuring action that benefited all segments.
Restructuring initiatives within the Brooks Life Science Systems segment are primarily related to streamlining the segment's management structure, integrating acquisitions and improving profitability. During fiscal year 2016, the Company initiated several actions within the Brooks Life Science Systems segment related to integrating BioStorage, streamlining management structure and closing the segment’s Spokane, Washington facility in March 2016 and Oberdiessbach, Switzerland facility in July 2016 upon selling the building and temporarily leasing a smaller size office space until December 2016. This restructuring initiative within the Brooks Life Science Systems segment may include additional actions in future periods subject to discretion and approval by the Company management. Total severance costs incurred in connection with these actions are
$3.1 million
which were recognized entirely during fiscal year 2016. Accrued restructuring costs of
$0.5 million
at September 30, 2016 from these actions are expected to be paid within the next twelve months with cash flows generated from operating activities.
During fiscal year 2016, the Company initiated a restructuring action to streamline its business operations as part of a company-wide initiative to improve profitability and competitiveness which is expected to benefit all segments. Total severance costs incurred in connection with this action were
$5.8 million
which were recognized entirely during fiscal year 2016. Severance costs were attributable to the elimination of positions across the Company, including certain senior management positions. This restructuring action was substantially completed by September 30, 2016 and is not expected to result in any additional restructuring charges in future periods. Accrued restructuring costs of
$3.4 million
at September 30, 2016 from these actions are expected to be paid within the next twelve months with cash flows generated from operating activities.
During fiscal year 2016, the Company initiated a restructuring action within the Brooks Semiconductor Solutions Group segment to consolidate its Jena, Germany repair facility into its Chelmsford, Massachusetts repair operation as a part of its strategy to reduce our global footprint and streamline the cost structure. The restructuring plan includes the elimination of
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
positions for employees within the service and administrative functions that are covered by a collective bargaining agreement with a German labor union which imposed a legal restriction on the Company's ability to complete the restructuring plan. During fiscal year 2016, the Company entered into the negotiations with the Workers Council concerning the amount of involuntary termination benefits payable to employees impacted by this restructuring action, timing of these payments and the related terms of this arrangement. As of September 30, 2016, the Company reached an agreement with the Workers Council regarding the terms of this action and has communicated termination benefit amounts to the majority of employees that will be impacted by the restructuring action along with their expected termination dates. Total severance costs expected to be incurred in connection with this action are
$1.8 million
which were recognized during fiscal year 2016. The restructuring action is expected to be completed by March 31, 2017. Accrued restructuring costs of
$1.8 million
at September 30, 2016 from this action are expected to be paid within the next twelve months with cash flows generated from operating activities.
Restructuring Actions Initiated Prior to Fiscal Year 2016
The Company's restructuring actions initiated in prior periods resulted in
$1.2 million
of costs attributable to the Brooks Semiconductor Solutions segment and less than
$0.1 million
of costs attributable to the Brooks Life Science Systems segment. These restructuring actions were primarily related to the integration of Contact, as well as the closure and transfer of the Mistelgau, Germany manufacturing operations to a contract manufacturer. Accrued restructuring costs of
$0.2 million
at September 30, 2016 from these actions are expected to be paid within the next twelve months with cash flows generated from operating activities.
Fiscal Year 2015 Activities
The Company recorded restructuring charges of $
4.7 million
in fiscal year 2015, which included severance costs of $
3.4 million
and facility-related costs of $
1.3 million
.
Severance costs of $
3.4 million
consisted of $
2.2 million
of charges attributable to the Brooks Semiconductor Solutions segment and
$1.3 million
of costs attributable to the Brooks Life Science Systems segment. Restructuring actions within the Brooks Semiconductor Solutions Group segment were related to the integration of Dynamic Micro Systems Semiconductor Equipment GmbH (the "DMS") with the Company's operations and the transition of manufacturing of certain products from the Company's facility in Mistelgau, Germany to a third party contract manufacturer. Restructuring actions within the Brooks Life Science Systems segment were related to the closure of the Poway, California facility and transition of product sub-assembly manufacturing operations to the third party contract manufacturers. These restructuring plans were substantially completed on December 31, 2015.
Facility exit costs of $
1.3 million
were attributable to Brooks Semiconductor Solutions Group segment were related to the outsourcing of manufacturing certain of the Company’s line of Polycold cryochillers and compressors within the United States to a third party contract manufacturer. The facility exit costs represented future lease payments and expected operating costs to be paid until the termination of the facility lease. The Company terminated the lease on October 27, 2015 and fully paid the related restructuring liability during the first quarter of fiscal year 2016.
Fiscal Year 2014 Activities
The Company recorded restructuring charges of
$6.3 million
in fiscal year 2014. These charges were related primarily to the Company's decision to discontinue certain product lines in the Brooks Life Science Systems and Brooks Product Solutions segments, the on-going transition of manufacturing cryochillers and compressors within the Company's Polycold product line to a third party contract manufacturer and other global programs designed to improve the Company’s cost structure.
Restructuring charges of
$6.3 million
recorded in fiscal year 2014 consisted of
$5.7 million
of severance costs and
$0.6 million
of facility-related costs.
Severance costs of
$5.7 million
included charges related to the outsourcing of the Polycold manufacturing operation and workforce-related charges resulting from reductions of approximately
70
positions. Severance charges incurred during fiscal year 2014 by the Brooks Product Solutions segment, the Brooks Global Services segment and the Brooks Life Science Systems segment amounted to
$2.4 million
,
$0.4 million
and
$1.6 million
, respectively. In addition to these severance charges, the Brooks Life Science Systems segment recorded a charge of
$1.3 million
related to the reduction of positions within the corporate and sales functions. Total severance charges related to the outsourcing of the Polycold manufacturing operation were
$1.2 million
and consisted of severance and retention fees. The charge for this program was recorded ratably over the period from notification of the closing in October 2012 to the actual service end date in September 2014.
Facility-related costs of
$0.6 million
consisted of lease payments and fixed asset write-offs associated with the Company's efforts to reduce the space used in its operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
In addition to the workforce and facility-related charges described above, the Company recorded
$0.3 million
of inventory write-offs associated with discontinuing certain product lines. Inventory write-offs are included in cost of revenue in the accompanying Consolidated Statements of Operations.
The following is a summary of activity related to the Company’s restructuring and other charges, excluding amounts related to the discontinued operations, for the fiscal years ended September 30, 2016, 2015 and 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2016 Activity
|
|
|
Balance
September 30,
2015
|
|
Expenses
|
|
Payments
|
|
Balance
September 30,
2016
|
Facility and other contract termination costs
|
|
$
|
433
|
|
|
$
|
25
|
|
|
$
|
(458
|
)
|
|
$
|
—
|
|
Workforce-related termination benefits
|
|
1,640
|
|
|
12,014
|
|
|
(7,715
|
)
|
|
5,939
|
|
|
|
$
|
2,073
|
|
|
$
|
12,039
|
|
|
$
|
(8,173
|
)
|
|
$
|
5,939
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2015 Activity
|
|
|
Balance
September 30,
2014
|
|
Expenses
|
|
Payments
|
|
Balance
September 30,
2015
|
Facility and other contract termination costs
|
|
$
|
71
|
|
|
$
|
1,204
|
|
|
$
|
(842
|
)
|
|
$
|
433
|
|
Workforce-related termination benefits
|
|
3,404
|
|
|
3,213
|
|
|
(4,977
|
)
|
|
1,640
|
|
|
|
$
|
3,475
|
|
|
$
|
4,417
|
|
|
$
|
(5,819
|
)
|
|
$
|
2,073
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2014 Activity
|
|
|
Balance
September 30,
2013
|
|
Expenses
|
|
Payments
|
|
Balance
September 30,
2014
|
Facility and other contract termination costs
|
|
$
|
155
|
|
|
$
|
583
|
|
|
$
|
(667
|
)
|
|
$
|
71
|
|
Workforce-related termination benefits
|
|
$
|
1,257
|
|
|
$
|
5,706
|
|
|
$
|
(3,559
|
)
|
|
3,404
|
|
|
|
$
|
1,412
|
|
|
$
|
6,289
|
|
|
$
|
(4,226
|
)
|
|
$
|
3,475
|
|
Accrued restructuring costs of
$5.9 million
as of September 30, 2016 are expected to be paid during fiscal year 2017.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
18. Earnings per Share
The calculations of basic and diluted net (loss) income per share and basic and diluted weighted average shares outstanding are as follows for the fiscal years ended September 30, 2016, 2015 and 2014 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
(Loss) income from continuing operations
|
$
|
(69,476
|
)
|
|
$
|
14,221
|
|
|
$
|
1,520
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
30,002
|
|
Net (loss) income
|
(69,476
|
)
|
|
14,221
|
|
|
31,522
|
|
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(161
|
)
|
Net (loss) income attributable to Brooks Automation, Inc.
|
$
|
(69,476
|
)
|
|
$
|
14,221
|
|
|
$
|
31,361
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in computing basic earnings per share
|
68,507
|
|
|
67,411
|
|
|
66,648
|
|
Dilutive common stock options and restricted stock units
|
—
|
|
|
1,138
|
|
|
996
|
|
Weighted average common shares outstanding used in computing diluted earnings per share
|
68,507
|
|
|
68,549
|
|
|
67,644
|
|
|
|
|
|
|
|
Basic net (loss) income per share attributable to Brooks Automation, Inc. common stockholders:
|
|
|
|
|
|
(Loss) income from continuing operations
|
$
|
(1.01
|
)
|
|
$
|
0.21
|
|
|
$
|
0.02
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
0.45
|
|
Basic net (loss) income per share attributable to Brooks Automation, Inc.
|
$
|
(1.01
|
)
|
|
$
|
0.21
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
Diluted net (loss) income per share attributable to Brooks Automation, Inc. common stockholders:
|
|
|
|
|
|
(Loss) income from continuing operations
|
$
|
(1.01
|
)
|
|
$
|
0.21
|
|
|
$
|
0.02
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
0.44
|
|
Diluted net (loss) income per share attributable to Brooks Automation, Inc. common stockholders
|
$
|
(1.01
|
)
|
|
$
|
0.21
|
|
|
$
|
0.46
|
|
Restricted stock units of
859,000
during fiscal year 2016 were excluded from the computation of diluted earnings per share as a result of a net loss incurred during the period. Approximately
120,000
shares of unvested restricted stock units were excluded from the computation of diluted earnings per share for the fiscal year ended September 30, 2015 as their effect would be anti-dilutive based on the treasury stock method. Options to purchase approximately
11,000
shares of common stock were excluded from the computation of diluted earnings per share attributable to Brooks Automation, Inc. common stockholders for the fiscal years ended September 30, 2014 as their effect would be anti-dilutive based on the treasury stock method. There were
no
anti-dilutive restricted stock awards for the fiscal year ended September 2014. There were
no
options outstanding as of September 30, 2016 and 2015.
On
November 9, 2016
, the Company's compensation committee and Board of Directors authorized and approved the annual grant of approximately
952,200
restricted stock units with a grant date of
November 9, 2016
.
19. Significant Customers
The Company had
one
customer that accounted for more than
10%
of its consolidated revenue, at
12%
, and
11%
, respectively, in the fiscal years ended September 30, 2015 and 2014. No customers accounted for more than
10%
of the Company's consolidated revenue for the fiscal year ended September 30, 2016. At September 30, 2016,
one
customer's receivable balance represented approximately
11%
of the Company's total receivables. At September 30, 2015, the Company did not have any customers that accounted for more than
10%
of its accounts receivable balance
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 OEM's. If the Company included revenue from products sold to contract manufacturer
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
customers supporting the Company's OEM customers, the percentage of the Company's total revenue derived from certain OEM customers would be higher.
20. Segment and Geographic Information
Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and to assess performance. The Company's Chief Executive Officer is the Company's chief operating decision maker.
Prior to fiscal year 2016, the Company had
three
operating and reportable segments that consisted of Brooks Product Solutions, Brooks Global Services and Brooks Life Science Systems. During fiscal year 2016, the Company reorganized its previous reporting structure into
two
operating and reportable segments consisting of: (i) Brooks Semiconductor Solutions Group; and (ii) Brooks Life Science Systems. Subsequently, the Company reported its financial results during years ended September 30, 2016, 2015 and 2014 based on the revised reporting structure. The change in segments was a result of restructuring actions initiated during fiscal year 2016 to streamline business operations to improve profitability and competitiveness and reflects a change in the manner in which the chief operating decision maker reviews information to assess performance and make decisions about resource allocation. As part of these actions, the Company transitioned to a new internal management structure whereby the operating management responsible for Brooks Product Solutions and Brooks Global Services operating segments was brought under common leadership in the newly formed Brooks Semiconductor Solutions Group segment. The restructuring actions were completed in the third quarter of fiscal year 2016 which marked the transition to a new internal management structure during that period. The Company's prior period reportable segment information has been reclassified to reflect the current segment structure and to conform to the current period presentation. The accounting policies of the operating segments remained unchanged as a result of the realignment.
The Brooks Semiconductor Solutions Group segment provides a variety of products, services and solutions that enable improved throughput and yield in controlled operating environments, as well as an extensive range of support services. The solutions include atmospheric and vacuum robots, tool automation systems that provide precision handling and clean wafer environments, contamination control of wafer carrier front opening unified pods, or FOUPs, as well as cryogenic pumps and compressors that provide vacuum pumping and thermal management solutions used to create and control critical process vacuum applications. The support services include repair services, diagnostic support services, and installation services in support of the products, which enable our customers to maximize process tool uptime and productivity. This segment also provides end-user customers with spare parts and productivity enhancement upgrades to maximize tool productivity.
The Brooks Life Science Systems segment provides automated cold sample management systems for compound and biological sample storage, equipment for sample preparation and handling, consumables, and parts and support services to a wide range of life science customers including pharmaceutical companies, biotechnology companies, biobanks and research institutes. During fiscal year 2016, the Company completed the acquisition of BioStorage, a global provider of comprehensive outsource biological sample service solutions, including collection, transportation, processing, storage, protection, retrieval and disposal of biological samples. These solutions combined with the Company's existing offerings, particularly automation for sample storage and formatting, provide customers with fully integrated sample management cold chain solutions which will help them increase productivity, efficiencies and speed to market.
The Company evaluates the performance and future opportunities of its segments and allocates resources to them based on their revenue, operating income (loss) and returns on invested assets. Operating income (loss) for each segment includes selling, general and administrative expenses directly attributable to the segment. Amortization of acquired intangible assets (excluding completed technology), restructuring and other charges, pension settlement, in-process research and development, as well as other unallocated corporate expenses are excluded from the segments’ operating income (loss). The Company’s indirect overhead costs, which include various general and administrative expenses, are allocated among the segments based upon several cost drivers associated with the respective administrative function, including segment revenue, headcount, or benefits that each segment derives from a specific administrative function. Segment assets exclude cash, cash equivalents, marketable securities, deferred tax assets, assets held for sale and equity method investments.
The following is the summary of the financial information for the Company’s operating and reportable segments, excluding amounts related to the discontinued operations, for the fiscal years ended September 30, 2016, 2015 and 2014 (in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooks Semiconductor Solutions Group
|
|
Brooks
Life Science
Systems
|
|
Total
|
Fiscal year ended September 30, 2016:
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Products
|
$
|
375,237
|
|
|
$
|
46,546
|
|
|
$
|
421,783
|
|
Services
|
76,973
|
|
|
61,567
|
|
|
138,540
|
|
Segment revenue
|
$
|
452,210
|
|
|
$
|
108,113
|
|
|
$
|
560,323
|
|
Gross profit
|
$
|
159,018
|
|
|
$
|
39,063
|
|
|
$
|
198,081
|
|
Segment operating income (loss)
|
37,926
|
|
|
(6,451
|
)
|
|
31,476
|
|
Depreciation expense
|
4,788
|
|
|
3,496
|
|
|
8,284
|
|
Assets
|
317,717
|
|
|
247,735
|
|
|
565,452
|
|
Fiscal year ended September 30, 2015:
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Products
|
$
|
406,579
|
|
|
$
|
50,832
|
|
|
$
|
457,411
|
|
Services
|
78,058
|
|
|
17,239
|
|
|
95,297
|
|
Segment revenue
|
$
|
484,637
|
|
|
$
|
68,071
|
|
|
$
|
552,708
|
|
Gross profit
|
$
|
171,379
|
|
|
$
|
17,726
|
|
|
$
|
189,105
|
|
Segment operating income (loss)
|
49,695
|
|
|
(19,580
|
)
|
|
30,115
|
|
Depreciation expense
|
4,312
|
|
|
1,295
|
|
|
5,607
|
|
Assets
|
317,069
|
|
|
110,910
|
|
|
427,979
|
|
Fiscal year ended September 30, 2014:
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Products
|
$
|
340,617
|
|
|
$
|
46,415
|
|
|
$
|
387,032
|
|
Services
|
79,083
|
|
|
16,733
|
|
|
95,816
|
|
Segment revenue
|
$
|
419,700
|
|
|
$
|
63,148
|
|
|
$
|
482,848
|
|
Gross profit
|
$
|
143,914
|
|
|
$
|
23,423
|
|
|
$
|
167,337
|
|
Segment operating income (loss)
|
23,287
|
|
|
(8,431
|
)
|
|
14,856
|
|
Depreciation expense
|
10,677
|
|
|
2,022
|
|
|
12,699
|
|
Assets
|
311,622
|
|
|
103,498
|
|
|
415,120
|
|
The following is a reconciliation of the Company’s operating and reportable segments' operating income (loss) and segment assets to the corresponding amounts presented in the accompanying Consolidated Balance Sheets and Consolidated Statements of Operations for the fiscal years ended September 30, 2016, 2015 and 2014 (in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended
September 30,
|
|
2016
|
|
2015
|
|
2014
|
Segment operating income (loss)
|
$
|
31,476
|
|
|
$
|
30,115
|
|
|
$
|
14,856
|
|
Other unallocated corporate expenses
|
4,400
|
|
|
856
|
|
|
5,096
|
|
Amortization of acquired intangible assets
|
10,799
|
|
|
7,656
|
|
|
6,170
|
|
Restructuring and other charges
|
12,039
|
|
|
4,713
|
|
|
6,289
|
|
Total operating income (loss)
|
$
|
4,238
|
|
|
$
|
16,890
|
|
|
$
|
(2,699
|
)
|
|
|
|
|
|
|
|
|
|
Segment assets
|
$
|
565,452
|
|
|
$
|
427,979
|
|
Cash, cash equivalents and marketable securities
|
91,221
|
|
|
214,030
|
|
Deferred tax assets
|
1,982
|
|
|
89,007
|
|
Assets held for sale
|
—
|
|
|
2,900
|
|
Equity method investments
|
27,250
|
|
|
24,286
|
|
Other unallocated corporate net assets
|
—
|
|
|
500
|
|
Total assets
|
$
|
685,905
|
|
|
$
|
758,702
|
|
Revenue from external customers is attributed to geographic areas based on locations in which customer orders are placed. Net revenue by geographic area for the fiscal years ended September 30, 2016, 2015 and 2014 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
North America
|
$
|
209,727
|
|
|
$
|
199,103
|
|
|
$
|
174,343
|
|
Asia / Pacific/ Other
|
247,241
|
|
|
231,840
|
|
|
198,695
|
|
Europe:
|
|
|
|
|
|
United Kingdom
|
$
|
36,611
|
|
|
$
|
32,160
|
|
|
$
|
27,078
|
|
Rest of Europe
|
$
|
66,744
|
|
|
$
|
89,605
|
|
|
$
|
82,732
|
|
|
$
|
560,323
|
|
|
$
|
552,708
|
|
|
$
|
482,848
|
|
The majority of our net revenue in North America is generated in the United States which amounted to
$208.3 million
,
$197.4 million
and
$172.9 million
, respectively, during fiscal years ended September 30, 2016, 2015 and 2014
Property, plant and equipment by geographic area as of September 30, 2016 and 2015 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
North America
|
$
|
49,505
|
|
|
$
|
36,402
|
|
Asia / Pacific
|
952
|
|
|
2,104
|
|
Europe
|
4,428
|
|
|
3,349
|
|
|
$
|
54,885
|
|
|
$
|
41,855
|
|
Property, plant and equipment located in the United States amounted to
$49.3 million
and
$36.3 million
, respectively, at September 30, 2016 and 2015.
21. Fair Value Measurements
The fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following levels of inputs may be used to measure fair value:
Level 1 Inputs:
Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 Inputs:
Observable inputs other than prices included in Level 1, including quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Level 3 Inputs:
Unobservable inputs that are significant to the fair value of the assets or liabilities and reflect an entity's own assumptions in pricing assets or liabilities since they are supported by little or no market activity.
The following tables summarize assets and liabilities measured and recorded at fair value on a recurring basis in the accompanying Consolidated Balance Sheets as of September 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
Description
|
|
September 30,
2016
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
143
|
|
|
$
|
98
|
|
|
$
|
45
|
|
|
$
|
—
|
|
Available-for-sale securities
|
|
6,135
|
|
|
—
|
|
|
6,135
|
|
|
—
|
|
Foreign exchange contracts
|
|
5
|
|
|
—
|
|
|
5
|
|
|
—
|
|
Convertible debt securities
|
|
5,774
|
|
|
—
|
|
|
—
|
|
|
5,774
|
|
Stock warrant
|
|
45
|
|
|
—
|
|
|
—
|
|
|
45
|
|
Total Assets
|
|
$
|
12,102
|
|
|
$
|
98
|
|
|
$
|
6,185
|
|
|
$
|
5,819
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
500
|
|
Foreign exchange contracts
|
|
97
|
|
|
—
|
|
|
97
|
|
|
—
|
|
Total Liabilities
|
|
$
|
597
|
|
|
$
|
—
|
|
|
$
|
97
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
Description
|
|
September 30,
2015
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
11,628
|
|
|
$
|
10,133
|
|
|
$
|
1,495
|
|
|
$
|
—
|
|
Available-for-sale securities
|
|
133,308
|
|
|
—
|
|
|
133,308
|
|
|
—
|
|
Foreign exchange contracts
|
|
89
|
|
|
—
|
|
|
89
|
|
|
—
|
|
Convertible debt securities
|
|
5,337
|
|
|
—
|
|
|
—
|
|
|
5,337
|
|
Stock warrant
|
|
59
|
|
|
—
|
|
|
—
|
|
|
59
|
|
Total Assets
|
|
$
|
150,421
|
|
|
$
|
10,133
|
|
|
$
|
134,892
|
|
|
$
|
5,396
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
811
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
811
|
|
Foreign exchange contracts
|
|
36
|
|
|
—
|
|
|
36
|
|
|
—
|
|
|
|
$
|
847
|
|
|
$
|
—
|
|
|
$
|
36
|
|
|
$
|
811
|
|
The convertible debt securities and the stock warrant are included in "Other assets" in the accompanying Consolidated Balance Sheets as of September 30, 2016 and 2015. Please refer to Note 8, "Equity Method and Other Investments" for further information on the convertible debt securities and the stock warrant.
Cash Equivalents
Cash equivalents of
$0.1 million
and
$10.1 million
, respectively, at
September 30, 2016
and 2015 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 less than
$0.1 million
and
$1.5 million
, respectively, at September 30, 2016 and 2015, consist primarily of Bank Certificate of Deposits and are classified within Level 2 of the fair value hierarchy because they are not actively traded.
Available-For-Sale Securities
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
Available-for-sale securities of
$6.1 million
and
$133.3 million
, respectively, at September 30, 2016 and 2015 consist of Municipal Securities, Bank Certificate of Deposits, Commercial Paper, Mortgage-Backed Securities, as well as U.S. Treasury Securities and Obligations of U.S. Government Agencies. The securities are valued using matrix pricing and benchmarking and classified within Level 2 of the fair value hierarchy because they are not actively traded. Matrix pricing is a mathematical technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices.
Foreign Exchange Contracts
Foreign exchange contract assets and liabilities amounted to less than
$0.1 million
and
$0.1 million
, respectively, at September 30, 2016. Foreign exchange contract assets and liabilities amounted to
$0.1 million
and less than
$0.1 million
, respectively, at September 30, 2015. Foreign exchange contract assets and liabilities are measured and reported at fair value based on observable market inputs and classified within Level 2 of the fair value hierarchy due to a lack of an active market for these contracts.
Convertible Debt Securities
Convertible debt securities of
$5.8 million
and
$5.3 million
, respectively, at September 30, 2016 and 2015 are classified within Level 3 of the fair value hierarchy and measured at fair value based on the probability-weighted expected return method (the "PWERM") utilizing various scenarios for the expected payout of the instrument covering the full range of the potential outcomes. The PWERM determines the value of an asset based upon an analysis of future values for the subject asset and full range of its potential values. The asset value is based upon the present value of the probability of each future outcome becoming available to the asset and the economic rights and preferences of each asset. The Company remeasures the fair value of the convertible debt securities at each reporting date and recognizes the corresponding fair value change related to the underlying inputs in the "Other (expense) income, net" in the Company's Consolidated Statements of Operations.
Stock Warrants
Stock warrant of less than
$0.1 million
and
$0.1 million
, respectively, at September 30, 2016 and 2015 is classified within Level 3 of the fair value hierarchy and measured at fair value based on the Black-Scholes model. The Black-Scholes model applied to the warrant incorporates the constant price variation of the underlying asset, the time value of money, the warrant’s strike price and the time until the warrant’s expiration date. The fair value of the warrant was determined utilizing a
five
year equity volatility percentage based on an average equity volatility derived from comparable public companies. The Company remeasures the fair value of the stock warrant at each reporting date and recognizes the corresponding fair value change related to the underlying inputs in the "Other (expense) income, net" in the Company's Consolidated Statements of Operations.
Contingent Consideration
Contingent consideration liability of
$0.5 million
and
$0.8 million
, respectively, at September 30, 2016 and 2015 is classified within Level 3 of the fair value hierarchy and measured at fair value based on the probability-weighted average discounted cash flow model utilizing potential outcomes related to achievement of certain specified targets and events. The fair value measurement of the contingent consideration is based on probabilities assigned to each potential outcome and the discount rate. The Company remeasures the fair value of the contingent consideration at each reporting date and recognizes the corresponding fair value change related to the underlying inputs in the "Selling, general and administrative" expenses in the Company's Consolidated Statements of Operations. Please refer to Note 4 “Acquisitions” for further information on the contingent consideration liability.
The carrying amounts of accounts receivable and accounts payable approximate their fair value due to their short-term nature.
The following table presents the reconciliation of the assets and liabilities measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debt Securities
|
|
Stock
Warrants
|
|
Contingent Consideration
|
Total
|
Balance at September 30, 2015
|
|
$
|
5,337
|
|
|
$
|
59
|
|
|
$
|
811
|
|
$
|
6,207
|
|
Change in fair value
|
|
437
|
|
|
(14
|
)
|
|
(311
|
)
|
112
|
|
Balance at September 30, 2016
|
|
$
|
5,774
|
|
|
$
|
45
|
|
|
$
|
500
|
|
$
|
6,319
|
|
Nonrecurring Fair Value Measurements
The Company holds certain assets that are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
As of September 30, 2015, the building and the underlying land located in Oberdiessbach, Switzerland were presented at fair value of
$2.9 million
as "Assets Held for Sale" in the accompanying Consolidated Balance Sheets. The Company determined fair value of the assets held for sale based on indication of value resulting from marketing the building and the land to prospective buyers. Fair value measurement was classified within Level 3 of the fair value hierarchy since it was based on unobservable inputs. During fiscal year 2016, the Company sold the building and the underlying land to an unrelated third party for a total price of
$2.8 million
and remeasured the fair value of the assets. The corresponding impact of this remeasurement on the Company's results of operations for fiscal year 2016 was insignificant.
Loan receivable of
$0.2 million
and
$1.0 million
, respectively, at September 30, 2016 and 2015 is recorded at carrying value and included in "Other assets" in the accompanying Consolidated Balance Sheets. The fair value of the loan is determined by considering the fair value of the collateral using valuation techniques, principally the discounted cash flow method and a relief from royalty approach, reduced by the amounts subordinated to the debt provided by the new lender. Fair value measurement is classified within Level 3 of the fair value hierarchy since it is based primarily on unobservable inputs and requires significant management judgment. The observable inputs used in the Company's analysis are limited primarily to the discount rate, which is based on a rate commensurate with the risks and uncertainties of the Borrower. As a result, the fair value of the loan could vary under different conditions or assumptions, including the varying assumptions regarding future cash flows of the Borrower or discount rates.
During fiscal year 2016, the Company concluded that recent operating trends and declining future cash flow forecasts of the Borrower represented indicators of potential loan impairment. As a result, the Company updated the discounted cash flow valuation model based on revised lower forecasted future cash flow assumptions and determined, based on a relief from royalty and discounted cash flow approaches, that carrying value of the loan exceeded its estimated fair value by
$0.8 million
. Accordingly, the Company recorded an impairment charge of
$0.8 million
in "Selling, general and administrative" expenses in the Company's Consolidated Statements of Operations during fiscal year ended September 30, 2016 which resulted in the loan's carrying value of
$0.2 million
at September 30, 2016. Please refer to Note 9, "Loan Receivable" for further information on the loan.
Loan receivable of
$1.5 million
at September 30, 2016 and 2015 is recorded at carrying value and included in "Other assets" in the accompanying unaudited Consolidated Balance Sheets. Please refer to Note 8, "Equity Method and Other Investments" for further information on the loan.
Certain non-financial assets, including goodwill, finite-lived intangible assets and other long-lived assets, are measured at fair value on a non-recurring basis in accordance with the income approach when there is an indication of impairment. Please refer to Note 2, "Summary of Significant Accounting Policies" for further information on the valuation techniques used in developing these measurements.
22. Commitments and Contingencies
Capital Lease Obligation
During fiscal year 2015, the Company was leasing the building and the related land on its Chelmsford, Massachusetts campus. The assets and the associated capital lease obligation were recorded on the Company's Consolidated Balance Sheets.
On September 30, 2015, the Company purchased the building and the related land for a total price of $
8.4 million
and derecognized the associated capital lease obligation of
$7.8 million
. The difference of
$0.6 million
between the purchase price of
$8.4 million
and the capital lease obligation of
$7.8 million
was recorded as an adjustment to the acquisition cost of the building and land of
$6.6 million
and
$2.3 million
, respectively, which were classified as "Property, plant and equipment, net" in the Company's Consolidated Balance Sheets as of September 30, 2015. Depreciation expense related to the building was computed using the straight-line method over the estimated useful life of the asset. Accumulated amortization related to the building was
$0.2 million
at September 30, 2015.
Operating Leases Commitments
The Company leases manufacturing and office facilities and certain equipment under non-cancelable operating leases that expire throughout 2020. Rent expense under the operating leases, excluding costs recorded as a component of restructuring charges, was
$4.9 million
,
$6.5 million
and
$8.2 million
, respectively, for the fiscal years ended September 30, 2016, 2015 and 2014.
The Company leases approximately
85,000
square feet of space in Indianapolis, Indiana to accommodate its sample storage, sales and support functions. The initial lease term expires in July 2017 and may be extended at the Company's option for
two
successive terms of
five years
each subject to the terms and conditions of the lease. In addition to the Indianapolis facility, the Company leases approximately
45,000
square feet of space in Fremont, California and Manchester, UK to accommodate its manufacturing, research and development, and sales and support functions. The initial term for the Fremont, California facility expires in August 2018 and may be extended at the Company's option for
five years
subject to the terms and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
conditions of the lease. The initial term for the Manchester, UK facility expires in December 2019 and may be extended at the Company's option for
five years
subject to the terms and conditions of the lease.
Future minimum lease commitments on non-cancelable operating leases and scheduled sublease payments as of September 30, 2016 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
Gross Payments
|
|
Scheduled Sublease Payments
|
|
Net Payments
|
2017
|
|
$
|
3,390
|
|
|
$
|
54
|
|
|
$
|
3,336
|
|
2018
|
|
2,118
|
|
|
54
|
|
|
2,064
|
|
2019
|
|
926
|
|
|
9
|
|
|
917
|
|
2020
|
|
104
|
|
|
—
|
|
|
104
|
|
2021
|
|
—
|
|
|
—
|
|
|
—
|
|
Thereafter
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
6,538
|
|
|
$
|
117
|
|
|
$
|
6,421
|
|
The Company utilizes a third party to manage its manufacturing operations in Mexico. As a part of this arrangement, the Company makes and guarantees the monthly payments for a lease of its Mexico facility which expires in December 2018. The remaining payments under the lease were approximately
$0.9 million
at September 30, 2016.
Letters of Credit
At September 30, 2016 and 2015, the Company had
$2.0 million
and
$3.5 million
, respectively, of letters of credit outstanding related primarily to customer advances and other performance obligations. These arrangements guarantee the refund of advance payments received from our customers in the event that the product is not delivered or warranty obligations are not fulfilled in accordance with the contract terms. These obligations could be called by the beneficiaries at any time before the expiration date of the particular letter of credit if the Company fails to meet certain contractual requirements. None of these obligations were called during fiscal years ended September 30, 2016 and 2015, and the Company currently does not anticipate any of these obligations to be called in the near future.
Purchase Commitments
The Company has non-cancelable contracts and purchase orders for inventory of
$101.4 million
at September 30, 2016.
Contingencies
During the fourth quarter of fiscal year 2016, the Company discovered that it inadvertently failed to register on Form S-8 with the Securities and Exchange Commission certain shares of common stock previously authorized for issuance by the Company’s Board of Directors and stockholders under the Company’s 1995 Employee Stock Purchase Plan, as amended (the “ESPP”). As a result, certain purchasers of common stock under the ESPP may have the right to rescind their purchases for an amount equal to the purchase price paid for the shares, plus interest from the date of purchase, limited to the shares purchased in the last twelve months, which is the applicable federal statute of limitations, and still held by the original purchasers. These shares have been treated as issued and outstanding for financial reporting purposes.
As of September 30, 2016, there were approximately
115,793
shares of common stock issued under the ESPP during fiscal year 2016 and held by the original purchasers of such shares which may be subject to these rescission rights. Of these, approximately
53,800
shares were originally purchased for
$8.00
per share and the remaining
61,993
shares were originally purchased for
$8.02
per share. If holders of all of these shares seek to rescind their purchases, the Company could be required to make aggregate payments of up to approximately
$950,000
, which includes estimated statutory interest. The Company may also be subject to civil and other penalties by regulatory authorities as a result of the potential failure to register these shares. The Company does not believe that the failure to register the shares on a Form S-8 or a potential rescission offer, if any, will have a material impact on its consolidated financial statements.
The Company is subject to various legal proceedings, both asserted and unasserted, that arise in the ordinary course of business. The Company cannot predict the ultimate outcome of such legal proceedings or in certain instances provide reasonable ranges of potential losses. However, as of the date of this report, the Company believes that none of these claims will have a material adverse effect on its consolidated financial position or results of operations. In the event of unexpected subsequent developments and given the inherent unpredictability of these legal proceedings, there can be no assurance that the Company's assessment of any claim will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's consolidated financial position or results of operations in particular quarterly or annual periods.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
23. Subsequent Events
On
November 9, 2016
, the Company’s Board of Directors declared a cash dividend of
$0.10
per share payable on
December 23, 2016
to common stockholders of record as of
December 2, 2016
. Dividends are declared at the discretion of the Company’s Board of Directors and depend on the Company's actual cash flow from operations, its financial condition and capital requirements, as well as any other factors the Company’s Board of Directors may consider relevant. Future dividend declarations, as well as the record and payment dates for such dividends, will be determined by the Company’s Board of Directors on a quarterly basis.
On November 28, 2016, the Company acquired
100%
of the equity of Cool Lab, LLC (“Cool Lab”) from BioCision, LLC (“BioCision”). Cool Lab, a newly established subsidiary of BioCision, contains certain assets and liabilities related to cell cryopreservation products and solutions. These offerings address and assist in managing the temperature variability of therapeutics, biological samples, and related biomaterials. The Company has held equity ownership interest in BioCision since March of 2014, and convertible debt securities with warrants acquired in December of 2014 and February of 2015. Please refer to Note 8, Equity Method and Other Investments for further details.
The Company purchased Cool Lab in exchange for approximately
$5 million
in net cash subject to customary working capital adjustments along with non-cash consideration, which included the redemption and repurchase of the original equity ownership interest in BioCision, the cancellation of both the convertible debt securities with warrants and previously issued term notes with the related interest receivable. The aforementioned non-cash consideration had a total carrying value of
$9.1 million
as of September 30, 2016. As a result of the limited time since the acquisition date, the accounting along with the preliminary purchase price allocation, the fair value of the non cash consideration and the related effects on the Company’s financial statements is incomplete. The Company will include such information in its quarterly report on Form 10-Q for the period ended December 31, 2016.