BRKS 2014.3.31 10Q
Table of Contents


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: March 31, 2014
OR
 
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to _________
Commission File Number 0-25434
 
BROOKS AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
 
 

Delaware
04-3040660
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
15 Elizabeth Drive
Chelmsford, Massachusetts
(Address of principal executive offices) 
 
01824
(Zip Code)
 
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  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date, April 30, 2014: common stock, $0.01 par value and 66,806,263 shares outstanding.
 



Table of Contents


BROOKS AUTOMATION, INC.
Table of Contents
 
 
 
 
PAGE NUMBER
 
 

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,
2014
 
September 30,
2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
85,281

 
$
82,971

Restricted cash

 
177

Marketable securities
50,274

 
45,900

Accounts receivable, net
83,440

 
77,483

Inventories
93,750

 
94,411

Deferred tax assets
16,082

 
16,839

Assets held for sale
28,023

 
27,778

Prepaid expenses and other current assets
12,489

 
9,030

Total current assets
369,339

 
354,589

Property, plant and equipment, net
52,759

 
47,506

Long-term marketable securities
56,668

 
44,491

Long-term deferred tax assets
97,422

 
99,146

Goodwill
97,863

 
97,924

Intangible assets, net
55,124

 
60,088

Equity method investments
30,342

 
25,687

Other assets
7,704

 
7,332

Total assets
$
767,221

 
$
736,763

Liabilities and equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
35,672

 
$
35,392

Capital lease obligation
881

 

Deferred revenue
33,116

 
19,610

Accrued warranty and retrofit costs
6,319

 
7,260

Accrued compensation and benefits
16,992

 
14,225

Accrued restructuring costs
1,552

 
1,412

Accrued income taxes payable
1,246

 
1,077

Liabilities held for sale
107

 
132

Accrued expenses and other current liabilities
16,979

 
13,453

Total current liabilities
112,864

 
92,561

Long-term capital lease obligation
7,656

 

Long-term tax liabilities
7,673

 
7,036

Long-term pension liability
837

 
815

Other long-term liabilities
3,790

 
3,695

Total liabilities
132,820

 
104,107

Commitments and contingencies (Note 18)

 

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, 80,268,132 shares issued and 66,806,263 shares outstanding at March 31, 2014, 80,039,104 shares issued and 66,577,235 shares outstanding at September 30, 2013
803

 
800

Additional paid-in capital
1,831,802

 
1,825,499

Accumulated other comprehensive income
21,873

 
22,604

Treasury stock at cost, 13,461,869 shares
(200,956
)
 
(200,956
)
Accumulated deficit
(1,019,945
)
 
(1,015,991
)
Total Brooks Automation, Inc. stockholders’ equity
633,577

 
631,956

Noncontrolling interest in subsidiaries
824

 
700

Total equity
634,401

 
632,656

Total liabilities and equity
$
767,221

 
$
736,763


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
March 31,
 
Six months ended
March 31,
 
2014
 
2013
 
2014
 
2013
Revenue
 
 
 
 
 
 
 
Product
$
102,534

 
$
88,652

 
$
195,664

 
$
159,680

Services
23,366

 
20,830

 
47,308

 
41,308

Total revenue
125,900

 
109,482

 
242,972

 
200,988

Cost of revenue
 
 
 
 
 
 
 
Product
64,786

 
60,685

 
125,522

 
111,645

Services
16,816

 
15,714

 
32,261

 
29,979

Total cost of revenue
81,602

 
76,399

 
157,783

 
141,624

Gross profit
44,298

 
33,083

 
85,189

 
59,364

Operating expenses
 
 
 
 
 
 
 
Research and development
12,493

 
11,333

 
25,044

 
22,237

Selling, general and administrative
28,637

 
24,169

 
54,772

 
49,324

Restructuring and other charges
772

 
751

 
1,519

 
5,441

Total operating expenses
41,902

 
36,253

 
81,335

 
77,002

Operating income (loss)
2,396

 
(3,170
)
 
3,854

 
(17,638
)
Interest income
258

 
265

 
504

 
540

Interest expense

 

 

 
(1
)
Other income (expense), net
56

 
77

 
315

 
(16
)
Income (loss) before income taxes and equity in earnings (losses) of equity method investments
2,710

 
(2,828
)
 
4,673

 
(17,115
)
Income tax provision (benefit)
1,117

 
327

 
1,910

 
(3,559
)
Income (loss) before equity in earnings (losses) of equity method investments
1,593

 
(3,155
)
 
2,763

 
(13,556
)
Equity in earnings (losses) of equity method investments
510

 
(10
)
 
1,259

 
(16
)
Income (loss) from continuing operations
2,103

 
(3,165
)
 
4,022

 
(13,572
)
Income from discontinued operations, net of tax
1,162

 
2,654

 
2,739

 
3,842

Net income (loss)
3,265

 
(511
)
 
6,761

 
(9,730
)
Net income attributable to noncontrolling interests
(76
)
 
(27
)
 
(124
)
 
(44
)
Net income (loss) attributable to Brooks Automation, Inc.
$
3,189

 
$
(538
)
 
$
6,637

 
$
(9,774
)
Basic net income (loss) per share attributable to Brooks Automation, Inc. common stockholders:
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
0.03

 
$
(0.05
)
 
$
0.06

 
$
(0.21
)
Net income from discontinued operations, net of tax
0.02

 
0.04

 
0.04

 
0.06

Basic net income (loss) per share attributable to Brooks Automation, Inc.
$
0.05

 
$
(0.01
)
 
$
0.10

 
$
(0.15
)
Diluted net income (loss) per share attributable to Brooks Automation, Inc. common stockholders:
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
0.03

 
$
(0.05
)
 
$
0.06

 
$
(0.21
)
Net income from discontinued operations, net of tax
0.02

 
0.04

 
0.04

 
0.06

Diluted net income (loss) per share attributable to Brooks Automation, Inc.
$
0.05

 
$
(0.01
)
 
$
0.10

 
$
(0.15
)
Dividend declared per share
$
0.08

 
$
0.08

 
$
0.16

 
$
0.16

 
 
 
 
 
 
 
 
Shares used in computing earnings (loss) per share:
 
 
 
 
 
 
 
Basic
66,646

 
65,889

 
66,499

 
65,726

Diluted
67,505

 
65,889

 
67,383

 
65,726


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 (LOSS)
(unaudited)
(In thousands)
 
 
Three months ended
March 31,
 
Six months ended
March 31,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
3,265

 
$
(511
)
 
$
6,761

 
$
(9,730
)
Comprehensive income (loss):
 
 
 
 
 
 
 
Change in cumulative translation adjustment
(547
)
 
(6,908
)
 
(841
)
 
(6,378
)
Change in unrealized gain (loss) on marketable securities
22

 
(23
)
 
21

 
(152
)
Change in unrealized gain (loss) on cash flow hedges
(37
)
 

 
68

 

Actuarial gain
10

 
23

 
21

 
313

Pension settlement

 

 

 
87

Comprehensive income (loss)
2,713

 
(7,419
)
 
6,030

 
(15,860
)
Comprehensive income attributable to noncontrolling interests
(76
)
 
(27
)
 
(124
)
 
(44
)
Comprehensive income (loss) attributable to Brooks Automation, Inc.
$
2,637

 
$
(7,446
)
 
$
5,906

 
$
(15,904
)


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,
 
2014
 
2013
Cash flows from operating activities
 
 
 
Net income (loss)
$
6,761

 
$
(9,730
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
11,170

 
12,443

Impairment of assets
398

 

Stock-based compensation
6,516

 
5,010

Amortization of premium on marketable securities
610

 
661

Undistributed (earnings) losses of equity method investments
(1,259
)
 
16

Deferred income tax provision (benefit)
2,269

 
(3,387
)
Pension settlement

 
87

Loss (gain) on disposal of long-lived assets
39

 
(150
)
Changes in operating assets and liabilities, net of acquisitions and disposals:
 
 
 
Accounts receivable
(6,057
)
 
9,489

Inventories
276

 
13,734

Prepaid expenses and other current assets
1,546

 
(4,305
)
Accounts payable
248

 
(3,260
)
Deferred revenue
13,408

 
3,711

Accrued warranty and retrofit costs
(951
)
 
(1,154
)
Accrued compensation and benefits
2,730

 
(2,702
)
Accrued restructuring costs
141

 
195

Accrued expenses and other current liabilities
(2,194
)
 
(3,914
)
Net cash provided by operating activities
35,651

 
16,744

Cash flows from investing activities
 
 
 
Purchases of property, plant and equipment
(2,696
)
 
(1,578
)
Purchases of marketable securities
(63,561
)
 
(39,269
)
Sale/maturity of marketable securities
46,551

 
98,178

Other investment
(4,000
)
 

Acquisition, net of cash acquired

 
(59,005
)
Proceeds from the sale of property, plant and equipment

 
2,368

Payment of deferred leasing cost

 
(2,076
)
Decrease in restricted cash
177

 
763

Net cash used in investing activities
(23,529
)
 
(619
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of common stock, net of issuance costs
967

 
969

Common stock dividend paid
(10,800
)
 
(10,672
)
Net cash used in financing activities
(9,833
)
 
(9,703
)
Effects of exchange rate changes on cash and cash equivalents
21

 
(940
)
Net increase in cash and cash equivalents
2,310

 
5,482

Cash and cash equivalents, beginning of period
82,971

 
54,639

Cash and cash equivalents, end of period
$
85,281

 
$
60,121

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Acquisition of buildings and land through capital lease
$
8,537

 
$


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, or GAAP. All intercompany accounts and transactions have been eliminated. In the opinion of management, all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the financial position results of operations for the periods presented have been reflected. 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.
In the second quarter of 2014, the Company determined that its Granville-Phillips Gas Analysis & Vacuum Measurement ("Granville-Phillips") business met the criteria to be reported as a discontinued operation. As a result, the Company’s historical financial statements have been revised to present the operating results of Granville-Phillips 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. Assets and liabilities identifiable within the Granville-Phillips business are reported as "Assets held for sale" and "Liabilities held for sale," respectively, in the Consolidated Balance Sheets. The discussion in the notes to these consolidated statements, unless otherwise noted, relate solely to the Company's continuing operations (See Note 3).
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, 2013 (the "2013 Annual Report on Form 10-K").
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are associated with accounts receivable, inventories, intangible assets, goodwill, deferred income taxes, warranty obligations, revenue recognized using the percentage of completion method and stock-based compensation expense on performance-based awards. 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 become known.
Recently Enacted Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board ("FASB") issued an amendment to the accounting guidance for presentation of unrecognized tax benefits. The prior guidance related to unrecognized tax benefits did not explicitly address financial statement presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The amended guidance eliminates the existing diversity in practice in the presentation of unrecognized tax benefits in these instances. Under the amended guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, will be presented in the financial statements as a reduction of a deferred tax asset when an operating loss carryforward, a similar tax loss or a tax credit carryforward exists, with limited exceptions. This amended guidance is effective for fiscal years beginning on or after December 15, 2013. The Company does not expect that the adoption of this guidance will have a material impact on its financial position or results of operations.
In April 2014, the FASB issued an amendment to the accounting guidance for reporting discontinued operations. The amended guidance raises the threshold for disposals to qualify as a discontinued operation by requiring a component of an entity that is held for sale, or has been disposed of by sale, to represent a strategic shift that has or will have a major effect on operations and financial results. Under the amended guidance, a strategic shift could include the disposal of a major line of business, a major geographical area, a major equity method investment or other major parts of an entity. In addition, the new guidance allows companies to have significant continuing involvement and continuing cash flows with the discontinued operation. The amended guidance is effective for fiscal years beginning on or after December 15, 2014. Early adoption is permitted for disposals, or classifications as held for sale, that have not been previously reported in financial statements. The Company has not applied this amended guidance to the Granville-Phillips discontinued operation.

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2. Stock-Based Compensation
The Company may issue stock options and restricted stock which vest upon the satisfaction of a performance condition and/or a service condition. In addition, the Company issues shares to participating employees pursuant to an employee stock purchase plan.
The following table reflects stock-based compensation expense, excluding amounts related to discontinued operations, recorded during the three and six months ended March 31, 2014 and 2013 (in thousands):
 
Three months ended
March 31,
 
Six months ended
March 31,
 
2014
 
2013
 
2014
 
2013
Restricted stock
$
3,683

 
$
2,341

 
$
6,293

 
$
4,672

Employee stock purchase plan
112

 
117

 
225

 
244

 
$
3,795

 
$
2,458

 
$
6,518

 
$
4,916

The fair value per share of restricted stock is equal to the quoted price of the Company’s common stock on the date of grant, net of estimated forfeitures. The expense related to these awards is being recorded ratably over the vesting period. In addition, for stock-based awards where vesting is dependent upon achieving certain operating performance goals, the Company estimates the likelihood of achieving the performance goals.
During the six months ended March 31, 2014, the Company granted 1,409,557 shares of restricted stock to members of senior management of which 601,432 shares vest over the service period. The vesting of the remaining 808,125 shares will vary based on the achievement of certain financial performance goals which will be measured at the end of fiscal year 2014, and a continuing required service period. Total compensation expense on both of these awards is a maximum of $19.2 million, net of cancellations. Changes to the projected attainment against performance targets during fiscal 2014 may result in an adjustment to the amount of cumulative compensation recorded as of the date the estimate is revised. Of the 1,409,557 shares of restricted stock that the Company granted, 8,500 shares were granted to Granville-Phillips employees.
During the six months ended March 31, 2013, the Company granted 1,224,000 shares of restricted stock to members of senior management of which 546,625 shares vest over a required service period. The vesting of the remaining 677,375 shares depended upon the achievement of certain financial performance goals which were measured at the end of fiscal year 2013, and a continuing required service period. Based on the Company’s results for fiscal 2013 relative to the financial performance goals established in the grant, 460,615 of the 677,375 shares were earned. These awards will vest over the remaining service period. Total compensation expense on the awards granted during the six months ended March 31, 2013 is a maximum of $7.3 million, net of cancellations. However, the final compensation expense related to these awards is dependent on the award holders completing the remaining service period. Of the 1,224,000 shares of restricted stock that the Company granted, 29,380 shares were granted to Granville-Phillips employees.
Stock Option Activity
The following table summarizes stock option activity for the six months ended March 31, 2014:
 
Number of
Options
 
Weighted-
Average
Remaining
Contractual Term
 
Weighted
Average
Exercise Price
 
Aggregate
Intrinsic Value
(In Thousands)
Outstanding at September 30, 2013
15,540

 
 
 
$
15.86

 
 
Outstanding at March 31, 2014
15,540

 
0.3 years
 
$
15.86

 
$

Vested at March 31, 2014
15,540

 
0.3 years
 
$
15.86

 
$

Options exercisable at March 31, 2014
15,540

 
0.3 years
 
$
15.86

 
$

Based on the Company’s closing stock price of $10.93 as of March 31, 2014, there was no intrinsic value to the option holders.
No stock options were granted during the three or six months ended March 31, 2014 or 2013. There were no stock option exercises in the three or six months ended March 31, 2014. The total intrinsic value of options exercised during the three and six months ended March 31, 2013 was $19,000. The total cash received from participants as a result of stock option exercises during the three and six months ended March 31, 2013 was $67,000.
As of March 31, 2014, there was no future compensation cost related to stock options as all outstanding stock options have vested.

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Restricted Stock Activity
The following table summarizes restricted stock activity for the six months ended March 31, 2014:
 
Shares
 
Weighted
Average
Grant-Date
Fair Value
Outstanding at September 30, 2013
2,915,413

 
$
11.25

Awards granted
1,409,557

 
9.46

Awards vested
(522,023
)
 
9.37

Awards canceled
(767,962
)
 
10.63

Outstanding at March 31, 2014
3,034,985

 
$
10.90

The fair value of restricted stock awards vested during the three months ended March 31, 2014 and 2013 was $1.8 million and $3.1 million, respectively. The fair value of restricted stock awards vested during the six months ended March 31, 2014 and 2013 was $4.9 million and $6.0 million, respectively.
As of March 31, 2014, the unrecognized compensation cost related to restricted stock that is expected to vest is $15.7 million and will be recognized over an estimated weighted average service period of 1.8 years.
Employee Stock Purchase Plan
A total of 115,132 shares were purchased under the employee stock purchase plan during the three and six months ended March 31, 2014 for aggregate proceeds of $1.0 million. A total of 115,751 shares were purchased under the employee stock purchase plan during the three and six months ended March 31, 2013 for aggregate proceeds of $1.0 million.
3. Discontinued Operations
The Granville-Phillips business unit develops, manufactures, sells and services vacuum measurement and gas analysis instrumentation to semiconductor and non-semiconductor customers. On March 18, 2014, the Company announced an agreement to sell this business to MKS Instruments, Inc. for $87.0 million in cash. The sale is subject to regulatory approval and customary closing conditions. The Company expects to complete the sale in the quarter ending June 30, 2014. The Company determined that its Granville-Phillips business met the criteria to be 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. Summarized results of the discontinued operation are as follows (in thousands):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2014
 
2013
 
2014
 
2013
Revenue
$
7,453

 
$
7,137

 
$
14,968

 
$
13,656

 
 
 
 
 
 
 
 
Income from discontinued operations
$
1,825

 
$
2,198

 
$
4,309

 
$
3,602

Income tax provision (benefit)
663

 
(456
)
 
1,570

 
(240
)
Income from discontinued operations, net of tax
$
1,162

 
$
2,654

 
$
2,739

 
$
3,842


Assets and liabilities identifiable within the Granville-Phillips business are reported as "Assets held for sale" and "Liabilities held for sale," respectively, in the Consolidated Balance Sheets. The major classes of assets and liabilities of the discontinued operation as are follows (in thousands):
 
March 31,
2014
 
September 30,
2013
Inventory
$
3,602

 
$
3,308

Property, plant and equipment
315

 
364

Goodwill
24,106

 
24,106

Assets held for sale
$
28,023

 
$
27,778

 
 
 
 
Deferred revenue
$
21

 
$
43

Accrued warranty and retrofit costs
86

 
89

Liabilities held for sale
$
107

 
$
132


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Assets and liabilities held for sale are classified as current in the Consolidated Balance Sheets because the Company expects to complete the sale of the Granville-Phillips business in the third quarter of fiscal 2014.
4. Acquisitions
Acquisition of Matrical
On August 1, 2013, the Company acquired certain assets and assumed certain liabilities of Matrical, Inc.’s ("Matrical") life science businesses (collectively “the Acquired assets”) for cash consideration of approximately $9.3 million, net of cash acquired. The acquisition of the Acquired assets provides the Company with the opportunity to enhance its existing product offerings in biobanking and sample management.
The Company recorded the assets and liabilities associated with the purchase of the Acquired assets at their fair values as of the acquisition date. The amounts recorded were as follows (in thousands):
Accounts receivable
$
636

Inventory
2,095

Prepaid and other current assets
103

Property, plant and equipment
534

Completed technology
500

Customer relationships
1,500

Goodwill
7,076

Debt
(902
)
Accounts payable
(294
)
Deferred revenue
(351
)
Customer deposits
(1,249
)
Other current liabilities
(322
)
Total purchase price, net of cash acquired
$
9,326

In performing the purchase price allocation, the Company considered, among other factors, analyses of historical financial performance, its intention for future use of the Acquired assets, and estimates of future cash flows from the Acquired assets. The purchase price was allocated based upon the fair value of the identified assets acquired and liabilities assumed as of the acquisition date from a market participant’s perspective.
The Company used the relief-from-royalty method to value the completed technology and the excess earnings method to value the customer relationships. Cash flows were discounted at a rate of 18%. The weighted-average amortization periods are 4.6 years for completed technologies and 7.0 years for customer relationships. The intangible assets acquired will be amortized using the straight-line method because it approximates the pattern in which the economic benefits are expected to be realized.
Goodwill represents the excess of the purchase price over the fair values of the net tangible and intangible assets acquired and is primarily the result of expected synergies from combining the Matrical products with the Company's other life science products. Goodwill arising from the acquisition of the Acquired assets is deductible for tax purposes.
The operating results of the Acquired assets have been included in the results of operations for the Brooks Life Science Systems segment from the date of acquisition.
The Company completed the final allocation of the purchase price related to the Acquired assets in the first quarter of fiscal year 2014. Prior to finalizing the purchase price allocation in the first quarter of fiscal 2014, the Company made an adjustment to reduce the fair value of deferred revenue acquired in the acquisition and goodwill by $61,000.
Acquisition of Crossing
On October 29, 2012, the Company acquired all the outstanding stock of Crossing Automation Inc. (“Crossing”), a U.S. based provider of automation solutions and services primarily to global semiconductor front-end markets. The Company paid, in cash, an aggregate merger consideration of $59.0 million net of cash acquired. The acquisition of Crossing provides the Company with the opportunity to enhance its existing capabilities with respect to manufacturing of atmospheric and vacuum automation solutions within the semiconductor front-end market.

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The Company recorded the assets and liabilities associated with Crossing at their fair values as of the acquisition date. The amounts recorded were as follows (in thousands):
Accounts receivable
$
5,356

Inventory
8,668

Prepaid expenses
1,968

Property, plant and equipment
2,270

Completed technology
10,530

Customer relationships
20,010

Goodwill
26,453

Other long term assets
885

Accounts payable
(3,024
)
Accrued liabilities
(5,172
)
Deferred revenue
(319
)
Other current liabilities
(388
)
Other long-term liabilities
(8,232
)
Total purchase price, net of cash acquired
$
59,005

In performing the purchase price allocation, the Company considered, among other factors, its intention for future use of the acquired assets, analyses of historical financial performance, and estimates of future cash flows from Crossing’s products and services. The purchase price was allocated based upon the fair value of the identified assets acquired and liabilities assumed as of the acquisition date from a market participant’s perspective.
The Company used the relief-from-royalty method to value the completed technology and the excess earnings method to value the customer relationships. Cash flows were discounted at a rate of 15%. The weighted-average amortization periods are 7.7 years for completed technologies and 8.0 years for customer relationships. The intangible assets acquired will be amortized using methods that approximate the pattern in which the economic benefits are expected to be realized, including variable declining balance and straight-line methods.
Goodwill is primarily the result of expected synergies from combining the operations of Crossing with the Company. Goodwill arising from the acquisition of Crossing is not deductible for tax purposes.    
The operating results of Crossing have been included in the results of operations for the Brooks Product Solutions and Brooks Global Services segments from the date of acquisition.
The Company completed the final allocation of the purchase price related to Crossing in the fourth quarter of fiscal year 2013.        
5. 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. The Company performs an annual impairment test of its goodwill on September 30 of each fiscal year unless interim indicators of impairment exist. The Company did not identify any indicators of goodwill impairment during the six month period ended March 31, 2014 that would warrant an interim test.
The components of the Company’s goodwill, excluding amounts related to the discontinued operations, by business segment at March 31, 2014 are as follows (in thousands): 
 
Brooks
Product
Solutions
 
Brooks
Global
Services
 
Brooks
Life Science
Systems
 
Other
 
Total
Gross goodwill at September 30, 2013
$
482,637

 
$
156,792

 
$
47,439

 
$
26,014

 
$
712,882

Less: aggregate impairment charges recorded
(437,706
)
 
(151,238
)
 

 
(26,014
)
 
(614,958
)
Goodwill, less accumulated impairments at September 30, 2013
44,931

 
5,554

 
47,439

 

 
97,924

Adjustments during the six months ended March 31, 2014

 

 
(61
)
 

 
(61
)
Goodwill, less accumulated impairments at March 31, 2014
$
44,931

 
$
5,554

 
$
47,378

 
$

 
$
97,863



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Components of the Company’s identifiable intangible assets, excluding amounts related to the discontinued operations, are as follows (in thousands): 
 
March 31, 2014
 
September 30, 2013
 
Cost
 
Accumulated
Amortization
 
Net Book
Value
 
Cost
 
Accumulated
Amortization
 
Net Book
Value
Patents
$
7,808

 
$
7,248

 
$
560

 
$
7,808

 
$
7,196

 
$
612

Completed technology
53,557

 
39,211

 
14,346

 
57,050

 
40,354

 
16,696

Trademarks and trade names
3,496

 
3,496

 

 
3,564

 
3,554

 
10

Customer relationships
67,134

 
26,916

 
40,218

 
66,687

 
23,917

 
42,770

 
$
131,995

 
$
76,871

 
$
55,124

 
$
135,109

 
$
75,021

 
$
60,088

The Company is required to test certain long-lived assets when indicators of impairment are present. The Company determined that impairment indicators were present for the long-lived assets related to its Celigo product line as of September 30, 2013. The long-lived assets in question were tested for recoverability in the fourth quarter of fiscal year 2013 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 then evaluated to determine the amount of the impairment, if any. The fair value of the assets was based primarily on market-based valuation techniques. As a result of this analysis, management determined that an impairment loss of $2.0 million had occurred as of September 30, 2013, and allocated the loss 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 at December 31, 2013 and determined that an additional impairment loss of $0.4 million, representing the remaining carrying value of the long-lived assets, was required. The impairment charge was recorded as a component of cost of revenue in the Consolidated Statements of Operations during the first quarter of fiscal 2014. The Company completed the sale of the Celigo product line in the second quarter of fiscal 2014. The sale of the Celigo product line did not have a material impact on the Company's financial position or result of operations.
6. Income Taxes
The Company recorded an income tax provision of $1.1 million and $1.9 million for the three and six months ended March 31, 2014, respectively. This tax provision substantially consists of U.S. and foreign income taxes, as well as interest related to unrecognized tax benefits.
The Company recorded an income tax provision (benefit) of $0.3 million and $(3.6) million for the three and six months ended March 31, 2013, respectively. The tax provision for both periods includes $0.9 million of tax benefits recognized during the quarter ended March 31, 2013 resulting from the reinstatement of the U.S. federal research and development tax credit. The tax benefit for the six months ended March 31, 2013 is primarily driven by tax benefits generated on U.S. losses partially offset by a tax provision on income in foreign jurisdictions.
The tax provision for the three months ended March 31, 2013 was calculated based on a quarterly loss. This unusual relationship between tax expense and pre-tax income was driven by a change in the estimated annual effective tax rate during the quarter which reduced the estimate of year-to-date tax benefits on the losses incurred during the first six months of the year.
The Company evaluates the realizability of its deferred tax assets by jurisdiction and assesses the need for a valuation allowance on a quarterly basis. As of March 31, 2014, the Company has continued to maintain a valuation allowance in the U.S. against certain tax credits and state net operating losses due to the uncertainty of their realization based on long-term Company forecasts and the expiration dates on these attributes. The Company has also continued to maintain a valuation allowance in certain jurisdictions that have not generated historical cumulative profitability.
The Company is subject to U.S. federal income tax and various state, local and foreign 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 examination by taxing authorities throughout the world. The Company has income tax audits in progress in various jurisdictions in which it operates. In the Company's U.S. and foreign jurisdictions, the years that may be examined vary, with the earliest tax year being 2006. Based on the outcome of these examinations, or the expiration of statutes of limitations for specific jurisdictions, the related unrecognized tax benefits could change from those recorded in the Company's Consolidated Balance Sheets. It is reasonably possible that the unrecognized tax benefit will be reduced by an amount in the range between $1.7 million and $2.8 million during the next twelve months as the result of the expiration of statutes of limitations and the settlement of foreign income tax audits.

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7. Earnings per Share
Below is a reconciliation of weighted average common shares outstanding for purposes of calculating basic and diluted earnings per share (in thousands):
 
Three months ended
March 31,
 
Six months ended
March 31,
 
2014
 
2013
 
2014
 
2013
Weighted average common shares outstanding used in computing basic earnings per share
66,646

 
65,889

 
66,499

 
65,726

Dilutive common stock options and restricted stock awards
859

 

 
884

 

Weighted average common shares outstanding for purposes of computing diluted earnings per share
67,505

 
65,889

 
67,383

 
65,726

Options to purchase approximately 16,000 and 34,000 shares of common stock and 0 and 3,179,000 shares of restricted stock were excluded from the computation of diluted earnings per share attributable to common stockholders for the three months ended March 31, 2014 and 2013, respectively, as their effect would be anti-dilutive. In addition, options to purchase approximately 16,000 and 65,000 shares of common stock and 0 and 3,008,000 shares of restricted stock were excluded from the computation of diluted earnings per share attributable to common stockholders for the six months ended March 31, 2014 and 2013, respectively, as their effect would be anti-dilutive. All outstanding stock options and unvested shares of restricted stock were excluded from the computation of diluted earnings per share for the three and six months ended March 31, 2013 as a result of the net loss for those periods.
8. Segment Information
The Company reports financial results in three segments: Brooks Product Solutions, Brooks Global Services and Brooks Life Science Systems. A description of segments is included in the 2013 Annual Report on Form 10-K.
The Company evaluates performance and allocates resources based on revenues, 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. Other unallocated corporate expenses, amortization of acquired intangible assets (excluding completed technology) and restructuring and other charges 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 multiple cost drivers associated with the respective administrative function, including segment revenue, segment headcount, or an analysis of the segments that benefit from a specific administrative function. Segment assets exclude cash, cash equivalents, restricted cash, marketable securities, deferred tax assets, assets held for sale and investments in equity method investments.

13

Table of Contents


Financial information for the Company’s business segments, excluding amounts related to the discontinued operations, is as follows (in thousands):
 
Brooks
Product
Solutions
 
Brooks
Global
Services
 
Brooks
Life Science
Systems
 
Total
Three months ended March 31, 2014
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
Product
$
89,897

 
$
4,213

 
$
8,424

 
$
102,534

Services

 
19,178

 
4,188

 
23,366

 
$
89,897

 
$
23,391

 
$
12,612

 
$
125,900

Gross profit
$
31,960

 
$
7,676

 
$
4,662

 
$
44,298

Segment operating income (loss)
$
6,127

 
$
2,248

 
$
(3,565
)
 
$
4,810

 
 
 
 
 
 
 
 
Three months ended March 31, 2013
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
Product
$
78,563

 
$
3,731

 
$
6,358

 
$
88,652

Services

 
18,073

 
2,757

 
20,830

 
$
78,563

 
$
21,804

 
$
9,115

 
$
109,482

Gross profit
$
24,313

 
$
6,359

 
$
2,411

 
$
33,083

Segment operating income (loss)
$
1,464

 
$
1,799

 
$
(3,875
)
 
$
(612
)
 
 
 
 
 
 
 
 
Six months ended March 31, 2014
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
Product
$
171,453

 
$
7,652

 
$
16,559

 
$
195,664

Services

 
39,058

 
8,250

 
47,308

 
$
171,453

 
$
46,710

 
$
24,809

 
$
242,972

Gross profit
$
60,461

 
$
15,501

 
$
9,227

 
$
85,189

Segment operating income (loss)
$
10,455

 
$
5,091

 
$
(7,040
)
 
$
8,506

 
 
 
 
 
 
 
 
Six months ended March 31 2013
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
Product
$
134,990

 
$
7,236

 
$
17,454

 
$
159,680

Services

 
35,509

 
5,799

 
41,308

 
$
134,990

 
$
42,745

 
$
23,253

 
$
200,988

Gross profit
$
39,293

 
$
11,366

 
$
8,705

 
$
59,364

Segment operating income (loss)
$
(6,447
)
 
$
2,287

 
$
(3,897
)
 
$
(8,057
)
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
March 31, 2014
$
231,324

 
$
61,856

 
$
107,933

 
$
401,113

September 30, 2013
$
226,759

 
$
59,762

 
$
105,221

 
$
391,742



14

Table of Contents


A reconciliation of the Company’s reportable segment operating income (loss) to the corresponding consolidated amounts for the three and six month periods ended March 31, 2014 and 2013 is as follows (in thousands):
 
Three months ended
March 31,
 
Six months ended
March 31,
 
2014
 
2013
 
2014
 
2013
Segment operating income (loss)
$
4,810

 
$
(612
)
 
$
8,506

 
$
(8,057
)
Amortization of acquired intangible assets
1,460

 
1,413

 
2,916

 
2,856

Restructuring and other charges
772

 
751

 
1,519

 
5,441

Other unallocated corporate expenses
182

 
394

 
217

 
1,284

Total operating income (loss)
$
2,396

 
$
(3,170
)
 
$
3,854

 
$
(17,638
)

A reconciliation of the Company’s reportable segment assets to the corresponding consolidated amounts as of March 31, 2014 and September 30, 2013 is as follows (in thousands):
 
March 31,
2014
 
September 30,
2013
Segment assets
$
401,113

 
$
391,742

Cash, cash equivalents, restricted cash and marketable securities
192,223

 
173,539

Deferred tax assets
113,504

 
115,985

Assets held for sale
28,023

 
27,778

Equity method investments
30,342

 
25,687

Other unallocated corporate net assets
2,016

 
2,032

Total assets
$
767,221

 
$
736,763

9. Significant Customers
The Company had one customer that accounted for more than 10% of its revenue, at 10% and 13%, in each of the three months ended March 31, 2014 and 2013, respectively. The Company had one customer that accounted for more than 10% of revenue, at 12% and 11%, in each of the six months ended March 31, 2014 and 2013, respectively. The Company did not have any customers that accounted for more than 10% of its accounts receivable balance at March 31, 2014 or September 30, 2013.
10. Restructuring and Other Charges
Restructuring charges in the three and six months ended March 31, 2014 consisted primarily of severance and other workforce-related costs and result from the consolidation of certain administrative functions in the Brooks Life Science Systems segment, the on-going transition of manufacturing certain of the Company’s Polycold products to a third party contract manufacturer and other programs designed to improve the Company’s cost structure.
Total severance charges related to the outsourcing of the Polycold manufacturing operation are expected to be $1.1 million, including severance and retention fees. This charge is being recorded ratably over the period from notification of the closing to the actual service end date, or September 2014. The Company has expensed $0.8 million of the total charge as of March 31, 2014, and will expense the balance ratably through fiscal year 2014.
Restructuring charges in the three and six months ended March 31, 2013 consisted of severance costs for workforce reductions implemented to consolidate the operations of Crossing and the Company, to transition the Polycold product line to a third party contract manufacturer and other programs designed to improve the Company’s cost structure. Restructuring charges also included costs to consolidate two of the Company's facilities in California. In addition, the Company incurred other charges of $0.1 million related to a partial settlement of a defined benefit pension plan that covers substantially all of the Company’s Swiss employees.


15

Table of Contents


The activity for the three and six months ended March 31, 2014 and 2013 related to the Company's restructuring-related accruals, excluding amounts related to the discontinued operations, is summarized below (in thousands):
 
Activity — Three Months Ended March 31, 2014
 
Balance at
December 31,
2013
 
Expense
 
Utilization
 
Balance at
March 31,
2014
Facilities and other
$
57

 
$
7

 
$
(64
)
 
$

Workforce-related
1,405

 
765

 
(618
)
 
1,552

 
$
1,462

 
$
772

 
$
(682
)
 
$
1,552

 
 
 
 
 
 
 
 
 
Activity - Three Months Ended March 31, 2013
 
Balance at
December 31,
2012
 
Expense
 
Utilization
 
Balance at
March 31,
2013
Facilities and other
$
265

 
$
112

 
$
(144
)
 
$
233

Workforce-related
4,438

 
639

 
(2,746
)
 
2,331

 
$
4,703

 
$
751

 
$
(2,890
)
 
$
2,564

 
 
 
 
 
 
 
 
 
Activity — Six Months Ended March 31, 2014
 
Balance at
September 30,
2013
 
Expense
 
Utilization
 
Balance at
March 31,
2014
Facilities and other
$
155

 
$
13

 
$
(168
)
 
$

Workforce-related
1,257

 
1,506

 
(1,211
)
 
1,552

 
$
1,412

 
$
1,519

 
$
(1,379
)
 
$
1,552

 
 
 
 
 
 
 
 
 
Activity — Six Months Ended March 31, 2013
 
Balance at
September 30,
2012
 
Expense
 
Utilization
 
Balance at
March 31,
2013
Facilities and other
$

 
$
690

 
$
(457
)
 
$
233

Workforce-related
2,021

 
4,664

 
(4,354
)
 
2,331

 
$
2,021

 
$
5,354

 
$
(4,811
)
 
$
2,564

The Company anticipates that the accrued restructuring costs at March 31, 2014 will be paid in the next twelve months.
11. Employee Benefit 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 compensation during active employment; however, the level of benefits varies within the Plans. Eligibility is determined in accordance with local statutory requirements.
In connection with actions taken under the Company’s restructuring programs in the first quarter of fiscal 2013, the number of employees accumulating benefits under the Switzerland Plan declined significantly. As a result, a partial settlement event occurred and resulted in accelerated amortization of approximately $0.1 million of prior pension losses. The settlement loss, recorded in the quarter ended December 31, 2012, is included in restructuring and other charges in the Consolidated Statements of Operations.

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Table of Contents


The components of the Company’s net pension cost for the three and six months ended March 31, 2014 and 2013 is as follows (in thousands): 
 
Three months ended
March 31,
 
Six months ended
March 31,
 
2014
 
2013
 
2014
 
2013
Service cost
$
102

 
$
144

 
$
202

 
$
322

Interest cost
39

 
35

 
78

 
80

Amortization of losses

 
1

 
1

 
3

Expected return on assets
(55
)
 
(58
)
 
(108
)
 
(135
)
Net periodic pension cost
86

 
122

 
173

 
270

Settlement loss

 

 

 
87

Total pension cost
$
86

 
$
122

 
$
173

 
$
357

12. Capital Lease Obligation

In March 2014, the Company exercised an option to renew the lease of a building and the related land on the Chelmsford, Massachusetts campus. The Company has leased this building since 2002. By exercising this option, the Company has also contracted to purchase the building at the end of the lease period. The assets acquired under the lease were recorded at the net present value of the minimum lease payments which was then allocated to the building and the land based on their relative fair values. The cost of the building and the land under the capital lease are included in the Consolidated Balance Sheets as property, plant and equipment at $6.4 million and $2.1 million, respectively. Depreciation expense related to the building is computed using the straight-line method over the estimated useful life of the asset.
The obligation related to the capital lease is recorded as short-term or long-term obligation in the Consolidated Balance Sheets depending on when payments are due. The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments, as of March 31, 2014, are as follows (in thousands):
Year ended September 30,
 
2014
$
441

2015
881

2016
881

2017
881

2018
6,901

Total minimum lease payments
9,985

Less amounts representing interest
1,448

Total capital lease obligation
8,537

Less current portion of capital lease obligation
881

Long-term capital lease obligation
$
7,656

13. Other Balance Sheet Information
The following is a summary of accounts receivable at March 31, 2014 and September 30, 2013 (in thousands):
 
March 31,
2014
 
September 30,
2013
Accounts receivable
$
84,770

 
$
78,460

Less allowance for doubtful accounts
(1,184
)
 
(863
)
Less allowance for sales returns
(146
)
 
(114
)
 
$
83,440

 
$
77,483


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Table of Contents


The following is a summary of inventories at March 31, 2014 and September 30, 2013, excluding amounts related to the discontinued operations (in thousands):
 
March 31,
2014
 
September 30,
2013
Inventories
 
 
 
Raw materials and purchased parts
$
59,844

 
$
57,678

Work-in-process
17,083

 
19,991

Finished goods
16,823

 
16,742

 
$
93,750

 
$
94,411

Reserves for excess and obsolete inventory were $24.1 million, excluding amounts related to the discontinued operations, at March 31, 2014 and September 30, 2013.
The Company provides for the estimated cost of product warranties, primarily from historical information, at the time product revenue is recognized and retrofit accruals 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.
Product warranty and retrofit activity on a gross basis for the three and six months ended March 31, 2014 and 2013, excluding amounts related to the discontinued operations, is as follows (in thousands):
Activity - Three Months Ended March 31, 2014
Balance at
December 31,
2013
 
Adjustments for
Acquisitions and Divestitures
 
Accruals
 
Costs Incurred
 
Balance at
March 31,
2014
$
6,762

 
$

 
$
2,275

 
$
(2,718
)
 
$
6,319


Activity - Three Months Ended March 31, 2013
Balance at
December 31,
2012
 
Adjustments for
Acquisitions and Divestitures
 
Accruals
 
Costs Incurred
 
Balance at
March 31,
2013
$
7,637

 
$

 
$
2,985

 
$
(2,987
)
 
$
7,635


Activity - Six Months Ended March 31, 2014
Balance at
September 30,
2013
 
Adjustments for
Acquisitions and Divestitures
 
Accruals
 
Costs Incurred
 
Balance at
March 31,
2014
$
7,260

 
$

 
$
4,150

 
$
(5,091
)
 
$
6,319


Activity - Six Months Ended March 31, 2013
Balance at
September 30,
2012
 
Adjustments for
Acquisitions and Divestitures
 
Accruals
 
Costs Incurred
 
Balance at
March 31,
2013
$
7,246

 
$
962

 
$
5,317

 
$
(5,890
)
 
$
7,635


18

Table of Contents


14. Equity Method Investments
The Company accounts for its equity method investments using the equity method. Under this method of accounting, the Company records in income its proportionate share of the earnings (losses) of the investee 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 (“BioCision”), a privately-held company based in Larkspur, California, for $4.0 million. BioCision develops, manufactures and markets cell cryopreservation products used to improve biomaterial sample handling and standardization.
ULVAC Cryogenics, Inc.
The Company participates in a 50% joint venture, ULVAC Cryogenics, Inc. (“UCI”), with ULVAC Corporation of Chigasaki, Japan. UCI manufactures and sells cryogenic vacuum pumps, principally to ULVAC Corporation. For the three months ended March 31, 2014 and 2013, the Company recorded income (expense) associated with UCI of $0.5 million and $(16,000), respectively. For the six months ended March 31, 2014 and 2013, the Company recorded income associated with UCI of $1.2 million and $62,000, respectively. At March 31, 2014, the carrying value of UCI in the Company’s Consolidated Balance Sheet was $23.4 million. For each of the three months ended March 31, 2014 and 2013, management fee payments received by the Company from UCI were $0.1 million. For the six months ended March 31, 2014 and 2013, management fee payments received by the Company from UCI were $0.3 million and $0.2 million, respectively. For the three months ended March 31, 2014 and 2013, the Company incurred charges from UCI for products or services of $37,000 and $0.1 million, respectively. For the six months ended March 31, 2014 and 2013, the Company incurred charges from UCI for products or services of $0.1 million and $0.4 million, respectively. At March 31, 2014 and September 30, 2013, the Company owed UCI $27,000 and $26,000, respectively, in connection with accounts payable for unpaid products and services.
Yaskawa Brooks Automation, Inc.
The Company participates in a 50% joint venture with Yaskawa Electric Corporation (“Yaskawa”) called Yaskawa Brooks Automation, Inc. (“YBA”) to exclusively market and sell Yaskawa’s semiconductor robotics products and Brooks’ automation hardware products to semiconductor customers in Japan. For the three months ended March 31, 2014 and 2013, the Company recorded income associated with YBA of $35,000 and $6,000, respectively. For the six months ended March 31, 2014 and 2013, the Company recorded income (expense) associated with YBA of $17,000 and $(78,000), respectively. At March 31, 2014, the carrying value of YBA in the Company’s Consolidated Balance Sheet was $2.9 million. For the three months ended March 31, 2014 and 2013, revenue earned by the Company from YBA was $2.1 million and $1.3 million, respectively. For the six months ended March 31, 2014 and 2013, revenue earned by the Company from YBA was $2.8 million and $2.9 million, respectively. For each of the three months ended March 31, 2014 and 2013, the Company incurred charges from YBA for products or services of $0.2 million. For each of the six months ended March 31, 2014 and 2013, the Company incurred charges from YBA for products or services of $0.3 million.
The amount due from YBA included in accounts receivable at March 31, 2014 and September 30, 2013 was $2.1 million and $2.3 million, respectively. At March 31, 2014 and September 30, 2013 the Company owed YBA $0 and $47,000 in connection with accounts payable for unpaid products and services.      
15. Derivative Instruments
All derivatives, whether designated in a hedging relationship or not, are recorded on 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 further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based on the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.
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 are 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.
In June 2013, the Company entered into 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 meet the criteria to qualify as a cash flow hedge. Accordingly, the Company is reflecting changes in the fair value of the effective portion of these foreign currency contracts in accumulated other comprehensive income. Amounts recorded in accumulated other comprehensive income will be reclassified to revenue in the Consolidated

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Statements of Operations when the forecasted transaction occurs.
The Company had the following notional amounts outstanding under foreign currency contracts that qualify for cash flow hedge accounting at March 31, 2014 (in thousands):
Buy Currency
 
Notional Amount
of Buy Currency in U.S. Dollars
 
Sell Currency
 
Maturity
 
Notional Amount
of Sell Currency
in U.S. Dollars
 
Fair Value of
Assets
 
Fair Value of
Liabilities
U.S. Dollar
 
$
2,037

 
Japanese Yen
 
April 2014
 
$
1,946

 
$
91

 
$

The Company expects to classify the accumulated gain on these contracts into revenue in the third quarter of fiscal 2014. The Company did not recognize any amounts related to ineffectiveness in the results of operations for the six months ended March 31, 2014.    
In addition, the Company has various 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 translation 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 translation. 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. For derivative instruments not designated as hedging instruments, changes in fair value are recognized in the Consolidated Statements of Operations as gains and losses consistent with the classification of the underlying risk.
Net gains and losses recorded as a component of Other Income (Expense), net in the Consolidated Statements of Operations related to these contracts for the three and six month periods ended March 31, 2014 and 2013 is as follows (in thousands):
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2014
 
2013
 
2014
 
2013
Realized gains (losses) on derivative instruments not designated as hedging instruments
$
(0.2
)
 
$
0.1

 
$
(0.1
)
 
$
0.1

The Company had the following notional amounts outstanding under foreign currency contracts that do not qualify for hedge accounting at March 31, 2014 and September 30, 2013 (in thousands):
March 31, 2014:
Buy Currency
 
Notional Amount
of Buy Currency
 
Sell Currency
 
Maturity
 
Notional Amount
of Sell Currency
in U.S. Dollars
 
Fair Value of
Assets
 
Fair Value of
Liabilities
U.S. Dollar
 
$
2,976

 
Japanese Yen
 
April to June 2014
 
$
2,973

 
$
3

 
$

British Pound
 
2,470

 
Euro
 
April 2014
 
2,488

 

 
(18
)
U.S. Dollar
 
698

 
Taiwan Dollar
 
April 2014
 
697

 
1

 

Korean Won
 
605

 
U.S. Dollar
 
April 2014
 
602

 
3

 

U.S. Dollar
 
428

 
Israeli Shekel
 
April 2014
 
431

 

 
(3
)
 
 
$
7,177

 
 
 
 
 
$
7,191

 
$
7

 
$
(21
)

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September 30, 2013:
Buy Currency
 
Notional Amount
of Buy Currency in U.S. Dollars
 
Sell Currency
 
Maturity
 
Notional Amount
of Sell Currency
in U.S. Dollars
 
Fair Value of
Assets
 
Fair Value of
Liabilities
U.S. Dollar
 
$
2,770

 
Japanese Yen
 
October 2013 to December 2013
 
$
2,762

 
$
8

 
$

Korean Won
 
686

 
U.S. Dollar
 
October 2013
 
688

 

 
2

U.S. Dollar
 
301

 
Israeli Shekel
 
October 2013
 
304

 

 
3

U.S. Dollar
 
231

 
Singapore Dollar
 
October 2013
 
231

 

 

 
 
$
3,988

 
 
 
 
 
$
3,985

 
$
8

 
$
5

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.    
16. Marketable Securities
The Company invests its cash in marketable securities and classifies them as available-for-sale. The Company records these securities at fair value. 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. At the time that the maturity dates of these investments become one year or less, the securities are reclassified to current assets. Unrealized gains and losses are excluded from earnings and reported in a separate component of stockholders’ equity until they are sold or mature. At the time of sale, any gains or losses, calculated by the specific identification method, will be recognized as a component of operating results.

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The following is a summary of marketable securities (included in short and long-term marketable securities in the Consolidated Balance Sheets), including accrued interest receivable, as of March 31, 2014 and September 30, 2013 (in thousands): 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
March 31, 2014:
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
15,876

 
$
3

 
$
(35
)
 
$
15,844

Corporate securities
53,419

 
36

 
(30
)
 
53,425

Mortgage-backed securities
1,035

 
31

 

 
1,066

Other debt securities
899

 

 

 
899

Municipal securities
23,882

 
11

 
(9
)
 
23,884

Bank certificate of deposits
11,823

 
1

 

 
11,824

 
$
106,934

 
$
82

 
$
(74
)
 
$
106,942

September 30, 2013:
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
19,528

 
$
6

 
$
(13
)
 
$
19,521

Corporate securities
35,045

 
11

 
(47
)
 
35,009

Mortgage-backed securities
1,093

 
25

 
(1
)
 
1,117

Other debt securities
88

 

 

 
88

Municipal securities
25,199

 
15

 
(7
)
 
25,207

Bank certificate of deposits
9,451

 

 
(2
)
 
9,449

 
$
90,404

 
$
57

 
$
(70
)
 
$
90,391

The fair value of the marketable securities at March 31, 2014 by contractual maturity, are shown below (in thousands). Expected maturities could differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
 
Fair Value
Due in one year or less
$
50,274

Due after one year through five years
53,291

Due after ten years
3,377

 
$
106,942

17. 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 standard describes three levels of inputs that may be used to measure fair value:
Level 1: 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: Observable inputs other than Level 1 prices, such as 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: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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Assets and liabilities of the Company measured at fair value on a recurring basis as of March 31, 2014 and September 30, 2013 are summarized as follows (in thousands): 
 
 
 
 
Fair Value Measurements at Reporting Date Using
Description
 
March 31,
2014
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
 
Cash equivalents
 
$
6,532

 
$
16

 
$
6,516

 
$

Available-for-sale securities
 
106,942

 

 
106,942

 

Foreign exchange contracts
 
98

 

 
98

 

Total Assets
 
$
113,572

 
$
16

 
$
113,556

 
$

Liabilities
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
$
21

 
$

 
$
21

 
$

 
 
 
 
 
Fair Value Measurements at Reporting Date Using
Description
 
September 30,
2013
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
 
Cash equivalents
 
$
7,754

 
$
6,152

 
$
1,602

 
$

Available-for-sale securities
 
90,391

 
2,199

 
88,192

 

Foreign exchange contracts
 
31

 

 
31

 

Total Assets
 
$
98,176

 
$
8,351

 
$
89,825

 
$

Liabilities
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
$
5

 
$

 
$
5

 
$

Cash Equivalents
Cash equivalents of $16,000 and $6.2 million at March 31, 2014 and September 30, 2013, respectively, consisting of Money Market Funds, are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. Cash equivalents of $6.5 million and $1.6 million at March 31, 2014 and September 30, 2013, respectively, consisting of Bank Certificate of Deposits, U.S. Government Agency Securities and Municipal Securities, are classified within Level 2 of the hierarchy because they are not actively traded.
Available-For-Sale Securities
Available-for-sale securities of $2.2 million at September 30, 2013, consisting primarily of highly rated Corporate Bonds, are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets of identical assets or liabilities. Available-for-sale securities of $106.9 million and $88.2 million at March 31, 2014 and September 30, 2013, respectively, consisting of Municipal Securities, Bank Certificate of Deposits, Commercial Paper, U.S. Treasury Securities and Obligations of U.S. Government Agency Securities, and Mortgage-Backed Securities are classified within Level 2 of the fair value hierarchy because they are not actively traded and are valued using matrix pricing and benchmarking. 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 are classified within Level 2 of the fair value hierarchy because there may not be an active market for each contract. However, the inputs used to calculate the value of the contract were obtained from an active market.
18. Commitments and Contingencies
Letters of Credit
At March 31, 2014, the Company had approximately $20.5 million of letters of credit outstanding that it issued.

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Contingencies
The Company is subject to various legal proceedings, both asserted and unasserted, that arise in the ordinary course of business. The Company cannot predict the ultimate outcome of such legal proceedings or in certain instances provide reasonable ranges of potential losses. However, as of the date of this report, the Company believes that none of these claims will have a material adverse effect on its consolidated financial condition or results of operations. In the event of unexpected subsequent developments and given the inherent unpredictability of these legal proceedings, there can be no assurance that 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 condition or results of operations in particular quarterly or annual periods.
19. Subsequent Event
On April 30, 2014, the Company acquired all of the outstanding stock of DMS Dynamic Micro Systems Semiconductor Equipment GmbH (“DMS”), a German based provider of logistic solutions for semiconductor fabrication plants. The Company agreed to a purchase price of $31.0 million, subject to a working capital adjustment expected to be concluded within 90 days of closing. The aggregate merger consideration includes approximately $16.0 million related to the repayment of DMS’s debt obligations. The acquisition of DMS provides the Company with the opportunity to enhance its existing capabilities with respect to automation solutions in the semiconductor front-end market.
On May 7, 2014, the Company’s Board of Directors declared a cash dividend of $0.08 per share payable on June 27, 2014 to common stockholders of record on June 6, 2014. Dividends are declared at the discretion of the Company’s Board of Directors and depend on actual cash from operations, the Company’s financial condition and capital requirements and any other factors the Company’s Board of Directors may consider relevant. Future dividend declarations, as well as the record and payment dates for such dividends, will be determined by the Company’s Board of Directors on a quarterly basis.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q contains statements that are, or may be considered to be, forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, as amended, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project” or similar statements or variations of such terms and involve risks, uncertainties and other factors which may cause the actual results, our performance or our achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include the Risk Factors which are set forth in our 2013 Annual Report on Form 10-K and which are incorporated herein by reference. Precautionary statements made in our 2013 Annual Report on Form 10-K should be read as being applicable to all related forward-looking statements whenever they appear in this report.
Overview
We are a leading provider of automation and vacuum solutions for multiple markets and are a valued business partner to original equipment manufacturers (“OEMs”) and equipment users throughout the world. We serve markets where equipment productivity and availability is a critical factor for our customers’ success, typically in demanding temperature and/or pressure environments. Our largest served market is the semiconductor capital equipment industry. Our Brooks Product Solutions shipments to these customers represented approximately 56% of our consolidated revenue for the first half of fiscal year 2014. The demand for semiconductors and semiconductor manufacturing equipment is cyclical, resulting in periodic expansions and contractions of this market. The non-semiconductor markets we serve include life sciences, industrial capital equipment and other adjacent technology markets.    
We continue to make investments to maintain and grow both our semiconductor product and service offerings and our life science offerings. In October 2012, we acquired Crossing Automation, Inc. (“Crossing”), a U.S. based provider of automation solutions for semiconductor front-end markets for approximately $59.0 million and in April 2014 we acquired DMS Dynamic Micro Systems Semiconductor Equipment GmbH, a German based provider of logistic solutions for semiconductor fabrication plants for approximately $31.0 million, plus a working capital adjustment expected to be paid within 90 days of closing. In August 2013, we acquired certain assets and liabilities from Matrical, Inc. (“Matrical”) for $9.3 million. The assets acquired from Matrical expanded our biobanking and sample management product offerings.
On March 18, 2014, we announced an agreement to sell the Granville-Phillips Gas Analysis & Vacuum Measurement ("Granville-Phillips") business unit to MKS Instruments, Inc. for $87.0 million in cash. The sale is subject to regulatory

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approval and customary closing conditions but we expect to complete the sale in our third fiscal quarter. We currently expect to record a pre-tax gain ranging between $56.0 and $58.0 million and an after-tax gain ranging between $26.0 and $28.0 million, subject to finalization of the working capital adjustment. The tax charge of approximately $30.0 million on the gain is substantially non-cash as it will be offset by our net operating losses in the U.S. The Granville-Phillips business develops, manufactures, sells and services vacuum measurement and gas analysis instruments to semiconductor and non-semiconductor customers. We determined that the Granville-Phillips business met the criteria to be reported as a discontinued operation. As a result, our historical financial statements have been revised to present the operating results of the Granville-Phillips business as a discontinued operation.
We report financial results in the following three segments:

The Brooks Product Solutions segment provides a variety of products critical to technology equipment productivity and availability. Those products include atmospheric and vacuum tool automation systems, atmospheric and vacuum robots and robotic modules and cryogenic vacuum pumping, thermal management and vacuum measurement solutions which are used to create, measure and control critical process vacuum applications.
The Brooks Global Services segment provides an extensive range of support services including on-and off-site repair services, on-and off-site diagnostic support services, and installation services that enable our customers to maximize process tool uptime and productivity. This segment also provides end-user customers with spare parts support services to maximize customer tool productivity.
The Brooks Life Science Systems segment provides automated sample management systems for automated cold 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, national laboratories, research institutes and research universities.

Three and Six Months Ended March 31, 2014, Compared to Three and Six Months Ended March 31, 2013
Revenue
We reported revenue of $125.9 million for the three months ended March 31, 2014, compared to $109.5 million in the same prior year period, an increase of 15%. Our Brooks Product Solutions segment increased $11.3 million, mostly due to increased demand from the semiconductor capital equipment market and the industrial markets we serve. Our Brooks Life Science Systems segment increased $3.5 million, mostly due to sales of automated sample management stores and services. The acquisition of the Matrical products contributed $2.1 million to our revenue for the three months ended March 31, 2014. Our Brooks Global Services segment increased $1.6 million.
We reported revenue of $243.0 million for the six months ended March 31, 2014, compared to $201.0 million in the same prior year period, an increase of 21%. Our Brooks Product Solutions segment increased $36.5 million predominantly from higher sales to the semiconductor capital equipment market. Our Brooks Global Services segment increased $4.0 million. Our Brooks Life Science Systems segment had higher sales of $1.5 million. The acquisition of the Matrical products added $3.4 million to our revenue for the six months ended March 31, 2014.
Revenue from the Granville-Phillips business has been excluded from the revenue from continuing operations described above. These amounts, the majority of which would be reported in the Brooks Product Solutions segment and the remainder in the Brooks Global Services segment, have been excluded from the revenue amounts reported above because we determined that the Granville-Phillips business met the criteria to be reported as a discontinued operation. Revenue from the Granville-Phillips business was $7.5 million and $7.1 million for the three months ended March 31, 2014 and 2013, respectively, and $15.0 million and $13.7 million for the six months ended March 31, 2014 and 2013, respectively.
Our Brooks Product Solutions segment reported revenue of $89.9 million for the three months ended March 31, 2014, an increase of 14% from $78.6 million in the same prior year period. This segment reported revenue of $171.5 million for the six months ended March 31, 2014, an increase of 27% from $135.0 million in the same prior year period. This represents an increase in revenue of $11.3 million and $36.5 million for the three and six months ended March 31, 2014, respectively, as compared to the same prior year periods. The increase was mostly driven by demand from the semiconductor capital equipment market, and the segment also benefited from stronger demand from our industrial market customers.
Our Brooks Global Services segment reported revenue of $23.4 million for the three months ended March 31, 2014, a 7% increase from $21.8 million in the same prior year period primarily due to an increase in demand from semiconductor end-users. This segment reported revenue of $46.7 million for the six months ended March 31, 2014, an increase of 9% from $42.7 million in the same prior year period. The increase was mostly driven by demand from the semiconductor capital equipment market.

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Our Brooks Life Science Systems segment reported revenue of $12.6 million for the three months ended March 31, 2014, including $2.1 million from the Matrical products, resulting in a 38% increase from $9.1 million in the same prior year period. The increase was driven by sales of automated sample management stores and services, including $1.5 million from the acquisition of the Matrical products. This segment reported revenue of $24.8 million for the six months ended March 31, 2014, including $3.4 million from Matrical products, an increase of 6% from $23.3 million in the same prior year period. The increase was driven by sales of Matrical products, partially offset by lower sales of sample management systems and software.
Gross Margin
Our gross margin percentage increased to 35.2% for the three months ended March 31, 2014, compared to 30.2% for the same prior year period. Our gross margin percentage increased to 35.1% for the six months ended March 31, 2014 compared to 29.5% for the same prior year period. These increases are attributable lower costs for material and warranty. In addition, gross margin benefited from higher revenue which led to increased production and higher absorption of our fixed costs. Gross margin in the three and six months ended March 31, 2013 included $0.8 million and $2.9 million, respectively, of charges related to the sale of inventories obtained in acquisitions to which a step-up in value was applied in our purchase accounting.
Gross profit from the Granville-Phillips business has been excluded from the gross profit from continuing operations described above. These margins, the majority of which would be reported in the Brooks Product Solutions segment and the remainder in the Brooks Global Services segment, have been excluded from the gross margin reported above because we determined that the Granville-Phillips business met the criteria to be reported as a discontinued operation. Gross margin from the Granville-Phillips business was 47.0% and 49.4% for the three months ended March 31, 2014 and 2013, respectively, and 48.5% and 46.9% for the six months ended March 31, 2014 and 2013, respectively.
Our gross margin percentage for our Brooks Product Solutions segment increased to 35.6% for the three months ended March 31, 2014 as compared to 30.9% in the same prior year period. Gross margin percentage for our Brooks Product Solutions segment increased to 35.3% for the six months ended March 31, 2014 as compared to 29.1% in the same prior year period. These increases are attributable to our gross margin initiatives, which resulted in a reduction in material and warranty costs. The segment also benefited from higher revenue which led to increased production and higher absorption of our fixed costs. In addition, gross margin in the three and six months ended March 31, 2013 included $0.3 million and $1.4 million, respectively, of charges related to the acquisition of Crossing for the sale of inventories to which a step-up in value was applied in our purchase accounting.
Our gross margin percentage for our Brooks Global Services segment increased to 32.8% for the three months ended March 31, 2014 as compared to 29.2% in the same prior year period. Gross margin percentage for our Brooks Global Services segment increased to 33.2% for the six months ended March 31, 2014 as compared to 26.6% in the same prior year period. Gross margin in the three and six months ended March 31, 2013 included $0.3 million and $1.3 million, respectively, of charges related to the acquisition of Crossing, related primarily to the sale of inventories to which a step-up in value was applied in our purchase accounting. In addition, the increase in revenue and higher utilization of the field service organization also contributed to the increase in gross margin.
Our gross margin percentage for our Brooks Life Science Systems segment increased to 37.0% for the three months ended March 31, 2014 as compared to 26.5% in the same prior year period. This increase is attributable to higher revenue which led to increased production and higher absorption of our fixed costs. Gross margin percentage for our Brooks Life Science Systems segment decreased to 37.2% for the six months ended March 31, 2014 as compared to 37.4% in the same prior year period. This decrease was due to a more favorable product mix for the six months ended March 31, 2013, which included a firmware upgrade project. In addition, in the current year, we recognized $0.4 million of impairment charges related to the Celigo product line that we divested in our second fiscal quarter. Also, we recorded $0.4 million and $0.2 million of inventory step-up adjustments for the six months ended March 31, 2014 and 2013, respectively, related to our life science acquisitions.
Research and Development
Research and development, or R&D, expenses for the three months ended March 31, 2014 were $12.5 million, an increase of $1.2 million, compared to $11.3 million in the same prior year period. R&D expenses for the six months ended March 31, 2014 were $25.0 million, an increase of $2.8 million, compared to $22.2 million in the same prior year period. We are developing enhancements to our current product offerings and investing in our strategy to grow longer-term revenue. R&D expenses for the three and six months ended March 31, 2014 also include $0.4 million and $0.7 million, respectively, of Matrical costs which were not included in the same prior year period.    
Selling, General and Administrative
Selling, general and administrative, or SG&A expenses were $28.6 million for the three months ended March 31, 2014, an increase of $4.4 million compared to $24.2 million in the same prior year period. This increase is primarily due to

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$1.6 million of higher labor costs which consist primarily of an increase in incentive based compensation due to our improved execution against financial performance objectives and $0.9 million of increased stock-based compensation. Higher SG&A costs also include $1.0 million of SG&A expenses for Matrical, which were not included in the same prior year period. These increases in SG&A costs were partially offset by lower discretionary spending.
SG&A expenses were $54.8 million for the six months ended March 31, 2014, an increase of $5.5 million compared to $49.3 million in the same prior year period. This increase is primarily due to $2.3 million of higher labor costs which consist primarily of an increase in incentive based compensation due to our improved execution against financial performance objectives and $1.2 million of increased stock-based compensation. Higher SG&A costs also include $1.7 million of SG&A expenses for Matrical, which were not included in the same prior year period. These increases in SG&A costs were partially offset by lower discretionary spending.    
Restructuring and Other Charges
We recorded a restructuring charge of $0.8 million and $1.5 million for the three and six months ended March 31, 2014. Restructuring charges in the three and six months ended March 31, 2014 consisted primarily of severance and other workforce-related costs and result from the consolidation of certain administrative functions in the Brooks Life Science Systems segment, the on-going transition of manufacturing certain Polycold products to a third party contract manufacturer and other programs designed to improve our cost structure.
    Total severance charges related to the outsourcing of the Polycold manufacturing operation are expected to be $1.1 million, including severance and retention fees. This charge is being recorded ratably over the period from notification of the closing to the actual service end date, or September 2014. We expensed $0.8 million of the total charge as of March 31, 2014, and will expense the balance ratably through fiscal year 2014.
Unpaid severance charges of $1.6 million as of March 31, 2014 are expected to be paid in the next twelve months.
We recorded a restructuring charge of $0.8 million and $5.4 million for the three and six months ended March 31, 2013. Restructuring charges in the three and six months ended March 31, 2013 consisted of severance costs for workforce reductions implemented to consolidate the operations of Crossing and the Company, to transition the Polycold product line to a third