brks_Current_Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)

 

 

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

 

 

 

For the quarterly period ended: March 31, 2019

 

 

 

OR

 

 

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

For the transition period from __________ to _________

Commission File Number 000-25434


BROOKS AUTOMATION, INC.

(Exact name of registrant as specified in its charter)


 

 

Delaware

04-3040660

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

15 Elizabeth Drive

Chelmsford, Massachusetts

(Address of principal executive offices)


01824

(Zip Code)


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


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

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

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

 

 

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

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

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

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

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

BRKS

The Nasdaq Stock Market LLC

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, April 29, 2019: common stock, $0.01 par value and 72,137,250 shares outstanding.

 

 

 


 

Table of Contents

BROOKS AUTOMATION, INC.

Table of Contents

 

PAGE NUMBER

 

 

PART I. FINANCIAL INFORMATION 

 

Item 1. Consolidated Financial Statements 

 

Consolidated Balance Sheets as of March 31, 2019 (unaudited) and September 30, 2018  

3

Consolidated Statements of Operations for the three and six months ended March 31, 2019 and 2018 (unaudited) 

4

Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2019 and 2018 (unaudited) 

5

Consolidated Statements of Cash Flows for the six months ended March 31, 2019 and 2018 (unaudited) 

6

Consolidated Statements of Changes in Equity for the six months ended March 31, 2019 and 2018 (unaudited)

7

Notes to Consolidated Financial Statements (unaudited) 

8

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

42

Item 3. Quantitative and Qualitative Disclosures about Market Risk 

54

Item 4. Controls and Procedures 

55

PART II. OTHER INFORMATION 

 

Item 1. Legal Proceedings 

56

Item 1A. Risk Factors 

56

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

56

Item 6. Exhibits 

57

Signatures 

58

 

2


 

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

BROOKS AUTOMATION, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

    

March 31, 

    

September 30, 

 

 

2019

 

2018

Assets

 

 

  

 

 

  

Current assets

 

 

  

 

 

  

Cash and cash equivalents

 

$

137,217

 

$

197,708

Marketable securities

 

 

47

 

 

46,281

Accounts receivable, net

 

 

163,653

 

 

125,192

Inventories

 

 

108,512

 

 

96,986

Prepaid expenses and other current assets

 

 

35,056

 

 

31,741

Current assets held for sale

 

 

65,005

 

 

66,148

Total current assets

 

 

509,490

 

 

564,056

Property, plant and equipment, net

 

 

97,939

 

 

59,988

Long-term marketable securities

 

 

2,795

 

 

7,237

Long-term deferred tax assets

 

 

28,012

 

 

43,798

Goodwill

 

 

492,526

 

 

255,876

Intangible assets, net

 

 

270,793

 

 

99,956

Other assets

 

 

23,250

 

 

5,294

Non-current assets held for sale

 

 

63,072

 

 

59,052

Total assets

 

$

1,487,877

 

$

1,095,257

Liabilities and Stockholders' Equity

 

 

 

 

 

  

Current liabilities

 

 

 

 

 

  

Current portion of long term debt

 

$

8,114

 

$

2,000

Accounts payable

 

 

56,934

 

 

55,873

Deferred revenue

 

 

31,200

 

 

25,884

Accrued warranty and retrofit costs

 

 

7,202

 

 

6,340

Accrued compensation and benefits

 

 

24,129

 

 

29,322

Accrued restructuring costs

 

 

586

 

 

659

Accrued income taxes payable

 

 

7,276

 

 

6,746

Accrued expenses and other current liabilities

 

 

36,294

 

 

30,405

Current liabilities held for sale

 

 

6,595

 

 

7,388

Total current liabilities

 

 

178,330

 

 

164,617

Long-term debt

 

 

535,384

 

 

194,071

Long-term tax reserves

 

 

15,037

 

 

1,102

Long-term deferred tax liabilities

 

 

15,978

 

 

7,135

Long-term pension liabilities

 

 

4,717

 

 

4,255

Other long-term liabilities

 

 

7,997

 

 

5,547

Non-current liabilities held for sale

 

 

523

 

 

698

Total liabilities

 

 

757,966

 

 

377,425

Commitments and contingencies (Note 16)

 

 

  

 

 

  

Stockholders' Equity

 

 

  

 

 

  

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

 

 

 —

 

 

 —

Common stock, $0.01 par value - 125,000,000 shares authorized, 85,593,182 shares issued and 72,131,313 shares outstanding at March 31, 2019, 84,164,130 shares issued and 70,702,261 shares outstanding at September 30, 2018

 

 

856

 

 

841

Additional paid-in capital

 

 

1,909,684

 

 

1,898,434

Accumulated other comprehensive income

 

 

11,852

 

 

13,587

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

 

 

(200,956)

 

 

(200,956)

Accumulated deficit

 

 

(991,525)

 

 

(994,074)

Total stockholders' equity

 

 

729,911

 

 

717,832

Total liabilities and stockholders' equity

 

$

1,487,877

 

$

1,095,257

 

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

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BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31, 

 

March 31, 

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

  

 

 

  

 

 

  

 

 

  

 

Products

 

$

128,056

 

$

121,031

 

$

253,430

 

$

226,803

 

Services

 

 

70,334

 

 

35,921

 

 

124,327

 

 

72,748

 

Total revenue

 

 

198,390

 

 

156,952

 

 

377,757

 

 

299,551

 

Cost of revenue

 

 

  

 

 

  

 

 

  

 

 

  

 

Products

 

 

77,803

 

 

70,635

 

 

152,376

 

 

134,164

 

Services

 

 

40,071

 

 

23,931

 

 

72,785

 

 

48,742

 

Total cost of revenue

 

 

117,874

 

 

94,566

 

 

225,161

 

 

182,906

 

Gross profit

 

 

80,516

 

 

62,386

 

 

152,596

 

 

116,645

 

Operating expenses

 

 

  

 

 

  

 

 

  

 

 

  

 

Research and development

 

 

14,101

 

 

11,347

 

 

27,249

 

 

22,752

 

Selling, general and administrative

 

 

52,373

 

 

40,671

 

 

105,914

 

 

78,599

 

Restructuring charges

 

 

370

 

 

47

 

 

429

 

 

48

 

Total operating expenses

 

 

66,844

 

 

52,065

 

 

133,592

 

 

101,399

 

Operating income

 

 

13,672

 

 

10,321

 

 

19,004

 

 

15,246

 

Interest income

 

 

316

 

 

356

 

 

739

 

 

504

 

Interest expense

 

 

(8,018)

 

 

(2,196)

 

 

(13,308)

 

 

(4,377)

 

Loss on extinguishment of debt

 

 

(9,051)

 

 

 —

 

 

(9,051)

 

 

 —

 

Other expenses, net

 

 

(778)

 

 

(515)

 

 

(807)

 

 

(2,438)

 

Income (loss) before income taxes

 

 

(3,859)

 

 

7,966

 

 

(3,423)

 

 

8,935

 

Income tax benefit

 

 

(1,030)

 

 

(54,531)

 

 

(6,860)

 

 

(55,181)

 

Income (loss) from continuing operations

 

 

(2,829)

 

 

62,497

 

 

3,437

 

 

64,116

 

Income from discontinued operations, net of tax

 

 

6,250

 

 

4,523

 

 

14,399

 

 

19,390

 

Net income

 

$

3,421

 

$

67,020

 

$

17,836

 

$

83,506

 

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

 

 

  

 

 

  

 

 

  

 

 

  

 

Income (loss) from continuing operations

 

$

(0.04)

 

$

0.89

 

$

0.05

 

$

0.91

 

Income from discontinued operations, net of tax

 

 

0.09

 

 

0.06

 

 

0.20

 

 

0.28

 

Basic net income per share

 

$

0.05

 

$

0.95

 

$

0.25

 

$

1.19

 

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

 

 

  

 

 

  

 

 

  

 

 

  

 

Income (loss) from continuing operations

 

$

(0.04)

 

$

0.89

 

$

0.05

 

$

0.90

 

Income from discontinued operations, net of tax

 

 

0.09

 

 

0.06

 

 

0.20

 

 

0.27

 

Diluted net income per share

 

$

0.05

 

$

0.95

 

$

0.25

 

$

1.18

 

Weighted average shares used in computing net income per share:

 

 

  

 

 

  

 

 

  

 

 

  

 

Basic

 

 

72,077

 

 

70,220

 

 

71,760

 

 

70,340

 

Diluted

 

 

72,292

 

 

70,613

 

 

72,215

 

 

70,908

 

 

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

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BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31, 

 

March 31, 

 

 

    

2019

    

2018

    

2019

    

2018

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,421

 

$

67,020

 

$

17,836

 

$

83,506

 

Other comprehensive income (loss), net of tax:

 

 

  

 

 

 

 

 

  

 

 

  

 

Cumulative foreign currency translation adjustments

 

 

(3,513)

 

 

5,154

 

 

(1,836)

 

 

9,287

 

Unrealized gains (losses) on marketable securities, net of tax effects of $0 during each of the three and six months ended March 31, 2019, and $0 during each of the three and six months ended  March 31, 2018

 

 

232

 

 

 —

 

 

111

 

 

 —

 

Actuarial gains (losses), net of tax effects of $0 and $3 during the three and six months ended March 31, 2019, $0 and ($2) during the three and six months ended  March 31, 2018

 

 

(1)

 

 

 6

 

 

(10)

 

 

(3)

 

Total other comprehensive income (loss), net of tax

 

 

(3,282)

 

 

5,160

 

 

(1,735)

 

 

9,284

 

Comprehensive income (loss)

 

$

139

 

$

72,180

 

$

16,101

 

$

92,790

 

 

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

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BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

March 31, 

 

 

 

    

2019

    

2018

    

 

Cash flows from operating activities

 

 

  

 

 

  

 

 

Net income

 

$

17,836

 

$

83,506

 

 

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

 

 

 

 

 

  

 

 

Depreciation and amortization

 

 

26,339

 

 

17,634

 

 

Stock-based compensation

 

 

9,717

 

 

10,129

 

 

Amortization of premium on marketable securities and deferred financing costs

 

 

556

 

 

217

 

 

Earnings of equity method investments

 

 

(3,041)

 

 

(3,602)

 

 

Loss recovery on insurance claim

 

 

 —

 

 

(1,103)

 

 

Deferred income tax benefit

 

 

(12,472)

 

 

(49,156)

 

 

Loss on extinguishment of debt

 

 

9,051

 

 

 —

 

 

Other gains on disposals of assets

 

 

34

 

 

 —

 

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

  

 

 

  

 

 

Accounts receivable

 

 

(9,654)

 

 

(16,949)

 

 

Inventories

 

 

(9,992)

 

 

(16,233)

 

 

Prepaid expenses and other assets

 

 

1,938

 

 

(17,248)

 

 

Accounts payable

 

 

(6,088)

 

 

14,899

 

 

Deferred revenue

 

 

5,410

 

 

(2,783)

 

 

Accrued warranty and retrofit costs

 

 

740

 

 

(16)

 

 

Accrued compensation and tax withholdings

 

 

(11,123)

 

 

(4,151)

 

 

Accrued restructuring costs

 

 

(57)

 

 

(1,336)

 

 

Proceeds from recovery on insurance claim

 

 

886

 

 

 —

 

 

Accrued expenses and other liabilities

 

 

2,149

 

 

9,619

 

 

Net cash provided by operating activities

 

 

22,229

 

 

23,427

 

 

Cash flows from investing activities

 

 

  

 

 

  

 

 

Purchases of property, plant and equipment

 

 

(9,676)

 

 

(5,675)

 

 

Purchases of marketable securities

 

 

(1,290)

 

 

(49,560)

 

 

Sales of marketable securities

 

 

48,904

 

 

 —

 

 

Maturities of marketable securities

 

 

2,557

 

 

100

 

 

Acquisitions, net of cash acquired

 

 

(442,704)

 

 

(64,988)

 

 

Proceeds from sales of property, plant and equipment

 

 

 —

 

 

200

 

 

Net cash used in investing activities

 

 

(402,209)

 

 

(119,923)

 

 

Cash flows from financing activities

 

 

  

 

 

  

 

 

Proceeds from term loans, net of discount

 

 

686,386

 

 

197,554

 

 

Proceeds from issuance of common stock

 

 

1,548

 

 

1,395

 

 

Payment of financing costs

 

 

(687)

 

 

(318)

 

 

Principal payments on debt

 

 

(352,289)

 

 

(500)

 

 

Payment of capital lease

 

 

(487)

 

 

 —

 

 

Common stock dividends paid

 

 

(14,429)

 

 

(14,125)

 

 

Net cash provided by financing activities

 

 

320,042

 

 

184,006

 

 

Effects of exchange rate changes on cash and cash equivalents

 

 

(553)

 

 

4,884

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(60,491)

 

 

92,394

 

 

Cash and cash equivalents, beginning of period

    

 

197,708

  

 

101,622

    

  

Cash and cash equivalents, end of period

 

$

137,217

  

$

194,016

 

  

Supplemental disclosure of non-cash investing and financing activities:

 

 

  

 

 

 

 

 

Purchases of property, plant and equipment included in accounts payable

 

$

1,670

 

$

716

 

 

 

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

 

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BROOKS AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(unaudited)

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common

 

Stock at 

 

Additional

 

Other 

 

 

 

 

 

 

 

 

 

 

 

Stock 

 

Par 

 

Paid-In 

 

Comprehensive 

 

Accumulated

 

Treasury

 

Total

 

 

Shares

 

Value

 

Capital

 

Income

 

Deficit

 

Stock

 

Equity

 

 

(In thousands, except share data)

Balance September 30, 2017

 

83,294,848

 

$

833

 

$

1,874,918

 

$

15,213

 

$

(1,082,364)

 

$

(200,956)

 

$

607,644

Shares issued under restricted stock and purchase plans, net

 

706,877

 

 

 7

 

 

1,388

 

 

  

 

 

  

 

 

  

 

 

1,395

Stock-based compensation

 

  

 

 

  

 

 

10,129

 

 

  

 

 

  

 

 

  

 

 

10,129

Common stock dividends declared, at $0.20 per share

 

  

 

 

  

 

 

  

 

 

  

 

 

(14,125)

 

 

  

 

 

(14,125)

Foreign currency translation adjustments

 

  

 

 

  

 

 

  

 

 

9,287

 

 

  

 

 

  

 

 

9,287

Actuarial losses, net of tax effects of ($2)

 

  

 

 

  

 

 

  

 

 

(3)

 

 

  

 

 

  

 

 

(3)

Net income

 

  

 

 

  

 

 

  

 

 

  

 

 

83,506

 

 

  

 

 

83,506

Balance March 31, 2018

 

84,001,725

 

$

840

 

$

1,886,435

 

$

24,497

 

$

(1,012,983)

 

$

(200,956)

 

$

697,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance September 30, 2018

 

84,164,130

 

$

841

 

$

1,898,434

 

$

13,587

 

$

(994,074)

 

$

(200,956)

 

$

717,832

Shares issued under restricted stock and purchase plans, net

 

1,429,052

 

 

15

 

 

1,533

 

 

 

 

 

 

 

 

 

 

 

1,548

Stock-based compensation

 

 

 

 

 

 

 

9,717

 

 

  

 

 

  

 

 

  

 

 

9,717

Common stock dividends declared, at $0.20 per share

 

  

 

 

  

 

 

 

 

 

  

 

 

(14,428)

 

 

  

 

 

(14,428)

Foreign currency translation adjustments

 

  

 

 

  

 

 

  

 

 

(1,836)

 

 

  

 

 

  

 

 

(1,836)

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

 

  

 

 

  

 

 

  

 

 

111

 

 

  

 

 

  

 

 

111

Actuarial losses, net of tax effects of $3

 

  

 

 

  

 

 

  

 

 

(10)

 

 

  

 

 

  

 

 

(10)

ASC 606 adjustment

 

  

 

 

  

 

 

  

 

 

 —

 

 

(859)

 

 

  

 

 

(859)

Net income

 

  

 

 

  

 

 

 

 

 

  

 

 

17,836

 

 

  

 

 

17,836

Balance March 31, 2019

 

85,593,182

 

$

856

 

$

1,909,684

 

$

11,852

 

$

(991,525)

 

$

(200,956)

 

$

729,911

 

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

 

 

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BROOKS AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Basis of Presentation

The unaudited consolidated financial statements of Brooks Automation, Inc. and its subsidiaries (“Brooks”, or the “Company”) included herein have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all material adjustments, which are of a normal and recurring nature and necessary for a fair statement of the financial position and results of operations and cash flows for the periods presented, have been reflected in the accompanying unaudited consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year.

Discontinued Operations

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

Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted and, accordingly, the accompanying financial information should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10‑K filed with the United States Securities and Exchange Commission (the “SEC”) for the fiscal year ended September 30, 2018 (the "2018 Annual Report on Form 10‑K"). The accompanying Consolidated Balance Sheet as of September 30, 2018 was derived from the audited annual consolidated financial statements as of the period then ended.

Revision of Prior Period Financial Statements

During the three months ended March 31, 2019, the Company identified a misclassification related to the presentation of the product and service revenue and the cost of product and service revenue related to GENEWIZ in the Company's Consolidated Statements of Operations for the three months ended December 31, 2018. The total revenue and cost of revenue related to GENEWIZ for the three months ended December 31, 2018 were included in the product revenue and cost of revenue line items instead of the service revenue and cost of revenue line items in the Consolidated Statements of Operations in the Form 10-Q for the quarter ended December 31, 2018.  GENEWIZ was acquired during the three months ended December 31, 2018 and therefore the misclassifiation did not impact any other historical periods.  The misclassification had no impact on total revenue or the total cost of revenue, gross profit, operating income (loss), net income (loss), as well as basic and diluted net income (loss) per share during any of the periods presented. Additionally, the misclassification had no impact on the Company's consolidated balance sheets and consolidated statements of cash flows during any of the prior periods. The Company considered the guidance in 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 misclassification was not material individually or in the aggregate to the financial statements presented for the three months ended December 31, 2018, and therefore, amendments of the previously filed Form 10-Q for the three months ended December 31, 2018 was not required. The revision for this correction to the three months ended December 31, 2018 is reflected in the reported

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revenue and cost of revenue classification for the six months ended March 31, 2019 in this report and will be corrected in any future filings containing such financial information for the three months ended December 31, 2018.

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

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2018

Dollars in thousands

 

As Previously Reported

 

Adjustment

 

As Revised

Total Company

 

 

 

 

 

 

 

 

 

Revenue

    

 

 

    

 

 

    

 

 

Products

 

$

141,732

 

$

(16,357)

 

$

125,375

Service

 

 

37,636

 

 

16,357

 

 

53,993

Total Revenue

 

 

179,368

 

 

 —

 

 

179,368

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

 

 

 

 

 

 

Products

 

 

83,481

 

 

(8,907)

 

 

74,574

Service

 

 

23,806

 

 

8,907

 

 

32,713

Total cost of revenue

 

$

107,287

 

$

 —

 

$

107,287

 

 

 

 

 

 

 

 

 

 

Brooks Life Science Segment

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

Products

 

$

39,931

 

$

(16,357)

 

$

23,574

Service

 

 

26,730

 

 

16,357

 

 

43,087

Total Revenue

 

$

66,661

 

$

 —

 

$

66,661

 

 

 

 

 

 

 

 

 

 

 

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of unaudited consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are associated with accounts receivable, inventories, goodwill, intangible assets other than goodwill, long-lived assets, derivative financial instruments, deferred income taxes, warranty obligations, revenue recognized on an over time method, pension obligations and stock-based compensation expense. The Company bases its estimates on historical experience and various other assumptions, including in certain circumstances future projections that management believes to be reasonable under the circumstances. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they occur and become known.

Foreign Currency Translation

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

Foreign currency exchange losses generated from the settlement and remeasurement of these transactions are recognized in earnings and presented within “Other expenses, net” in the Company’s unaudited Consolidated Statements of Operations. Net foreign currency transaction and remeasurement losses totaled $0.6 million and $0.5 million, respectively, during the three months ended March 31, 2019 and 2018 and $0.6 million and $2.5 million, respectively, during the six months ended March 31, 2019 and 2018.

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Derivative Instruments

The Company has transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros, British Pounds and a variety of Asian currencies. The Company enters into foreign exchange contracts to reduce its exposure to currency fluctuations. The forward contract arrangements that the Company enters into, typically mature in three months or less. These transactions do not qualify for hedge accounting. Net gains and losses related to these contracts are recorded as a component of "Other expenses, net" in the accompanying unaudited Consolidated Statements of Operations and are as follows for the three and six months ended March 31, 2019 and 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31, 

 

March 31, 

 

 

    

2019

    

2018

    

2019

    

2018

    

Realized losses on derivatives not designated as hedging instruments

 

$

(3,831)

 

$

(4,548)

 

$

(854)

 

$

(6,221)

 

 

The fair values of the forward contracts are recorded in the Company’s accompanying unaudited Consolidated Balance Sheets as "Prepaid expenses and other current assets" and "Accrued expenses and other current liabilities". Foreign exchange contract assets and liabilities are measured and reported at fair value based on observable market inputs and classified within Level 2 of the fair value hierarchy described below due to a lack of an active market for these contracts.

Fair Value Measurements

The Company measures at fair value certain financial assets and liabilities, including cash equivalents and available for sale securities. FASB ASC 820, Fair Value Measurement and Disclosures, establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following levels of inputs may be used to measure fair value:

Level 1 Inputs: Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 Inputs: Observable inputs other than prices included in Level 1, including quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 Inputs: Unobservable inputs that are significant to the fair value of the assets or liabilities and reflect an entity’s own assumptions in pricing assets or liabilities since they are supported by little or no market activity.

As of March 31, 2019, the Company had no assets or liabilities measured and recorded at fair value on a recurring basis using Level 3 inputs.

Recently Issued Accounting Pronouncements

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

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

In August 2018, the Financial Accounting Standard Board (“FASB”) issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The provisions may be adopted prospectively or retrospectively. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this ASU.

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

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

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

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the guidance during the first quarter of fiscal year 2020 and is evaluating the effect that ASU 2018-02 will have on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), which amends ASC 326 to add, remove, and clarify disclosure requirements related to credit losses of financial instruments. The new guidance introduces a new "expected loss" impairment model which applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities and other financial assets. Entities are required to estimate expected credit losses over the life of financial assets and record an allowance against the assets’ amortized cost basis to present them at the amount expected to be collected. Additionally, the guidance amends the impairment model for available for sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on such debt security is a credit loss. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption 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 February 2016, the FASB issued ASU 2016-02, Leases (Topic 842),  an amendment of the FASB ASC. In accordance with the provisions of the newly issued guidance, a lessee should recognize at the inception of the arrangement a right-of-use asset and a corresponding lease liability initially measured at the present value of lease payments over the lease term. For finance leases, interest on a lease liability should be recognized separately from the amortization of the right-of-use asset, while for operating leases, total lease costs are recorded on a straight-line basis over the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying assets to forgo a recognition of right-of-use assets and corresponding lease liabilities and record a lease expense on a straight-line basis. Entities should determine at the inception of the arrangement whether a contract represents a lease or contains a lease which is defined as a right to control the use of identified property for a period of time in exchange for consideration. Additionally, entities should separate the lease components from the non-lease components and allocate the contract consideration on a relative standalone price basis in accordance with provisions of ASC Topic 606, Revenue from Contracts with Customers. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and should be adopted via a modified retrospective approach with certain optional practical expedients that entities may elect to apply. The Company expects to adopt the guidance during the first quarter of fiscal year 2020 and is currently evaluating the impact of this guidance on its financial position and results of operations.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued new accounting guidance for reporting revenue recognition, ASC 606 Revenue from Contracts with Customers  (“ASC 606”). The guidance provides for the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. In addition, the guidance requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance also specifies the accounting for certain costs to obtain and fulfill a contract, as codified in ASC 340-40  Accounting for Other Assets and Deferred Costs (“ASC 340-40”).

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

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

 

 

 

 

 

 

 

 

 

 

 

 

As Reported

 

Impact of Adopting

 

As Adopted

 

 

September 30, 2018

 

ASC 606

 

October 1, 2018

Prepaid expenses and other current assets

 

$

31,741

 

$

350

 

$

32,091

Prepaid expenses and other current assets - discontinued operations

 

 

343

 

 

235

 

 

578

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

5,294

 

 

1,483

 

 

6,777